10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended    June 30, 2011

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

Commission File Number:  000-52672

ChinaNet Online Holdings, Inc.

(Exact name of registrant as specified in its charter)

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

No.3 Min Zhuang Road, Building 6

Yu Quan Hui Gu Tuspark, Haidian District, Beijing, PRC 100195

(Address of principal executive offices) (Zip Code)

+86-10-51600828

(Registrant’s telephone number, including area code)

______________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o  Non-accelerated filer (Do not check if a smaller reporting company) o  Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 12, 2011, the registrant had 17,600,128 shares of common stock outstanding.

EXPLANATORY NOTE: This Amendment No. 1 to the Quarterly Report on Form 10-Q/A is being filed solely to furnish the Interactive Data files as Exhibit 101, in accordance with Rule 405 of Regulation S-T. No other changes have been made to the Form 10-Q, as originally filed on August 15, 2011.

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 22, 2011	By:	/s/ Handong Cheng
		Handong Cheng, Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Zhige Zhang
		Zhige Zhang, Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT INDEX

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. (1)
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. (1)
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). (1)
101	Interactive Data Files

(1)Filed as an exhibit to the Form 10-Q for the quarterly period ended June 30, 2011, filed on August 15, 2011.

XML



Consolidated Balance Sheets (In thousands, except for number of shares and per share data) (Parentheticals) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
Series A convertible preferred stock par value (in Dollars per share)	$ 0.001	$ 0.001
Series A convertible preferred stock authorized	8,000,000	8,000,000
Series A convertible preferred stock shares issued	2,403,289	2,877,600
Series A convertible preferred stock shares outstanding	2,403,289	2,877,600
Series A convertible preferred stock liquidation preference (in Dollars)	$ 6,302	$ 7,449
Series A convertible preferred stock including accrued but unpaid dividends (in Dollars)	$ 294	$ 255
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	17,576,631	17,102,320
Common stock, shares outstanding	17,576,631	17,102,320

XML



Consolidated Statements of Income and Comprehensive Income (In thousands, except for number of shares and per share data) (USD $) In Thousands, except Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Sales
To unrelated parties	$ 8,814	$ 11,627	$ 15,636	$ 21,660
To related parties	267	413	457	607
[SalesRevenueServicesNet]	9,081	12,040	16,093	22,267
Cost of sales
From unrelated parties	2,831	5,936	4,690	12,663
From related party	606		768
[CostOfRevenue]	3,437	5,936	5,458	12,663
Gross margin	5,644	6,104	10,635	9,604
Operating expenses
Selling expenses	908	911	1,620	1,337
General and administrative expenses	975	801	1,865	1,595
Research and development expenses	372	196	724	330
[OperatingExpenses]	2,255	1,908	4,209	3,262
Income from operations	3,389	4,196	6,426	6,342
Other income (expenses):
Changes in fair value of warrants				1,861
Interest income	3	2	4	4
Share of losses in equity investment affiliates	(59)		(105)
Gain on deconsolidation of subsidiary			230
Other income (expenses)	(1)	3	5	3
[OtherNonoperatingIncomeExpense]	(57)	5	134	1,868
Income before income tax expense and noncontrolling interest	3,332	4,201	6,560	8,210
Income tax expense	319	65	751	279
Net income	3,013	4,136	5,809	7,931
Net (income) / loss attributable to noncontrolling interest	(19)	77	(3)	77
Net income attributable to ChinaNet Online Holdings, Inc.	2,994	4,213	5,806	8,008
Dividend of Series A convertible preferred stock	(153)	(193)	(322)	(422)
Net income attributable to ChinaNet Online Holdings, Inc.	2,994	4,213	5,806	8,008
Dividend of Series A convertible preferred stock	(153)	(193)	(322)	(422)
Net income attributable to common stockholders of ChinaNet Online Holdings, Inc.	2,841	4,020	5,484	7,586
Earnings per common share
Basic (in Dollars per share)	$ 0.16	$ 0.24	$ 0.32	$ 0.46
Diluted (in Dollars per share)	$ 0.15	$ 0.20	$ 0.28	$ 0.38
Weighted average number of common shares outstanding:
Basic (in Shares)	17,528,785	16,848,023	17,387,336	16,542,966
Diluted (in Shares)	20,005,962	20,742,817	20,410,724	20,900,374
Comprehensive Income
Foreign currency translation gain	548	74	744	77
[ComprehensiveIncomeNetOfTaxIncludingPortionAttributableToNoncontrollingInterest]	3,561	4,210	6,553	8,008
Comprehensive Income
Comprehensive income / (loss) attributable to noncontrolling interest	39	(77)	26	(77)
Comprehensive income attributable to ChinaNet’s Online Holdings, Inc.	3,522	4,287	6,527	8,085
[ComprehensiveIncomeNetOfTaxIncludingPortionAttributableToNoncontrollingInterest]	$ 3,561	$ 4,210	$ 6,553	$ 8,008

XML



Note 18 - Accrued payroll and other accruals

6 Months Ended

Jun. 30, 2011

Schedule of Accrued Liabilities [Table Text Block]

18.   Accrued payroll and other accruals

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Accrued payroll and staff welfare		330		258
Accrued operating expenses		76		212
		406		470

XML



Document And Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 12, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	ChinaNet Online Holdings, Inc.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		17,600,128
Amendment Flag	false
Entity Central Index Key	0001376321
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2

XML



Note 21 - Due to Control Group

6 Months Ended

Jun. 30, 2011

Due ToControl Group Disclosure [Text Block]

21.   Due to Control Group

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Due to Control Group		-		81

Due to Control Group represents the outstanding balance due to the Control Group for the costs and operating expenses paid by them on behalf of the Company during the years ended December 31, 2007 and 2008.  During the three months ended June 30, 2011, the Company settled the remaining balance to the Control Group.

XML



Note 7 - Other receivables

6 Months Ended

Jun. 30, 2011

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

7.   Other receivables

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Short-term loan for marketing campaign		3,868		3,781
Short-term loans to third parties		2,106		3,781
Staff advances for normal business purpose		671		249
		6,645		7,811

Short-term loan for marketing campaign: for one of its major marketing campaigns, the Company made a marketing-related loan of RMB25,000,000 (approximately US$3,868,000) to a TV series of 36 episodes, called “Xiao Zhan Feng Yun”. This TV series is produced for the commemoration of “The Republican Revolution of 1911” (the Chinese bourgeois democratic revolution led by Dr. Sun Yat-sen which overthrew the Qing Dynasty) and will be broadcasted on one or more of the CCTV channels and some of the provincial TV channels in 2011. 2011 is the 100th Anniversary of the “Revolution of 1911” and hence, by participating in this TV series, the Company will be shown during the credit at the closing of each episode with its logo presented and also shown as a separate card during the closing before the credit screen. This loan had a length of one year and matures on December 24, 2011. The interest rate of this loan is 20%.

The Company loaned third parties on a subjective term of searching and/or obtaining lower cost value-added communication channels. Any of the third parties are required to pay back the capital within three months or on demand if no satisfied search result is provided. The acquired resources are mainly used for self-advertising and marketing or advertising for clients in internet bundle packages in second and third tier cities or regions.

Management believes no allowance for doubtful accounts is required for these other receivables for the six and three months ended June 30, 2011.

XML



Note 22 - Due to director

6 Months Ended

Jun. 30, 2011

Due ToDirector Disclosure [Text Block]

22.   Due to director

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Due to director		413		559

Due to director represents the operating expenses paid by director on behalf of the Company.

XML



Note 33 - Share-based compensation expenses

6 Months Ended

Jun. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

33.   Share-based compensation expenses

On July 12, 2010, the Company renewed the investor relations service contract with Hayden Communications International, Inc. (“HC”) for an18-month service contract commencing July 12, 2010.  As additional compensation, the Company granted HC 60,000 restricted shares of the Company’s common stock, which will be issued in 2011 in accordance with the service agreement. The shares will be issued in accordance with the exemption from the registration provisions of the Securities Act of 1933, as amended, provided by Section 4(2) of such Act for issuances not involving any public offering. The 60,000 shares were valued at $3.80 per share, the closing bid of the Company’s common stock on the date of grant and the related compensation expense was amortized over the requisite service period.  Total compensation expenses recorded for the six months ended June 30, 2011 and 2010 were US$76,000 and US$ nil, respectively. Total compensation expenses recorded for the three months ended June 30, 2011 and 2010 were US$38,000 and US$ nil, respectively.

On November 30, 2009, the Company granted 5-year options to each of its three independent directors, Mr. Douglas MacLellan, Mr. Mototaka Watanabe and Mr. Zhiqing Chen, to purchase in the aggregate 54,000 shares of the Company’s common stock at an exercise price of US$5.00 per share, in consideration of their services to the Company. These options vest quarterly at the end of each 3-month period, in equal installments over the 24-month period from the date of grant.  However, upon a change of control, the option shall automatically become fully vested and exercisable as of the date of such changes of control. The company adopted Black-Scholes option pricing model to gauge the grant date fair value of these options.  The related compensation expenses were amortized over its vesting period.  Total compensation expenses recognized for the six months ended June 30, 2011 and 2010 were US$95,920 and US$41,580, respectively.  Total compensation expenses recognized for the three months ended June 30, 2011 and 2010 were US$27,340 and US$17,820, respectively.

The Company estimates the fair value of these options using the Black-Scholes option pricing model based on the following assumptions:

Underlying stock price	$	5
Expected term		3
Risk-free interest rate		1.10	%
Dividend yield		-
Expected Volatility		150	%
Exercise price of the option	$	5
Value per option	$	4.05

Underlying stock price is the closing bid price of the Company’s common stock on the date of grant.  As the three individuals receiving options are non-employee executive directors, the Company believes that forfeitures are highly unlikely, and termination is not applicable. As such, the Company developed a weighted-average expected term at 3 years based on analysis of the vesting schedule and exercise assumptions.  The risk-free interest rate is based on the 3 year U.S. Treasury rate. The dividend yield is calculated based on management’s estimate of dividends to be paid on the underlying stock. The expected volatility is calculated using historical data obtained from an appropriate index due to lack of liquidity of the Company’s underlying stock.  Exercise price of the option is the contractual exercise price of the option.

Options issued and outstanding at June 30, 2011 and their movements during the period 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, 2011		54,000		3.92	$	5.00		27,000		3.92	$	5.00
Granted/Vested		-						13,500			$	5.00
Forfeited		-						-
Exercised		-						-
Balance, June 30, 2011		54,000		3.42	$	5.00		40,500		3.42	$	5.00

XML



Note 20 - Due to related parties

6 Months Ended

Jun. 30, 2011

Due ToRelated Parties Disclosure [Text Block]

20.   Due to related parties

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Shiji Huigu Technology Investment Co., Ltd		-		91
Beijing Saimeiwei Food Equipments Technology Co., Ltd		3		3
Beijing Telijie Century Environmental Technology Co., Ltd.		-		45
Due to legal (nominal) shareholders of Shanghai Jing Yang		155		152
		158		291

The related parties listed above are directly or indirectly owned by the Control Group, the Company provided advertising services to them. The advance payments listed above are received from these parties for advertising services will be provided in the future periods.

Shanghai Jing Yang was incorporated in December 2009 by the Company’s senior management. Prior to establishing the Contractual Agreements with the Company (see Note 1), the legal shareholders contributed RMB1,000,000 (approximately US$155,000) as the original paid-in capital of Shanghai Jing Yang upon incorporation. This balance will be return to the legal (nominal) shareholders of Shanghai Jing Yang by the end of December 31, 2011.

XML



Note 12 - Investment in and loan to equity investment affiliates

6 Months Ended

Jun. 30, 2011

Equity Method Investments Disclosure [Text Block]

12.   Investment in and loan to equity investment affiliates

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Investment in equity investment affiliates		1,652		1,112
Loan to equity investment affiliates		6,188		6,050
		7,840		7,162

The following table summarizes the movement of the investment in and advance to equity investment affiliates for the six months ended June 30, 2011:

	Beijing Yang Guang			Shenzhen Mingshan			Total
	US$(’000)			US$(’000)			US$(’000)
Balance as of December 31, 2010 (audited)		7,162			-			7,162
Deconsolidation of Shenzhen Mingshan		-			381			381
Gain on deconsolidation of Shenzhen Mingshan		-			229			229
Loan to Beijing Yang Guang		1,522			-			1,522
Repayment from Beijing Yang Guang		(1,547	)		-			(1,547	)
Share of Gain (losses) in equity investment affiliates		30			(135	)		(105	)
Exchange  translation adjustment		189			9			198
Balances as of June 30, 2011 (unaudited)		7,356			484			7,840

As of June 30, 2011, the Company’s equity investment affiliates included Beijing Yang Guang and Shenzhen Mingshan.

Beijing Yang Guang:

Beijing Yang Guang was incorporated on October 25, 2010. On December 8, 2010, one of the Company’s PRC operating subsidiaries, Shanghai Jing Yang acquired a 49% interest in Beijing Yang Guang for cash consideration of RMB7,350,000 (approximately US$1,112,000) and became the noncontrolling interest holder of Beijing Yang Guang.  The investment in Beijing Yang Guang was accounted for under the equity method.  For the six and three months ended June 30, 2011, the Company recognized its pro-rata share of earnings in Beijing Yang Guang of approximately US$30,000 and US$13,000, respectively, which was reflected in the caption of “Share of earnings (losses) in equity investment affiliates” in the Company’s consolidated statements of income and comprehensive income with a corresponding increase to the carrying value of the investment in Beijing Yang Guang in the Company’s consolidated balance sheet.

In order to facilitate the daily operation of Beijing Yang Guang and supplement the working capital deficit to conduct the TV advertisement business, the Company agreed to provide RMB60,000,000 (approximately US$9,282,000) of working capital loan in the aggregate to Beijing Yang Guang. As of December 31, 2010, the Company has provided RMB40,000,000 (approximately US$6,050,000) working capital loan to Beijing Yang Guang. During the three months ended March 31, 2011, the Company provided Beijing Yang Guang an additional RMB10,000,000 (approximately US$1,522,000) of working capital loan. During the three months ended June 30, 2011, Beijing Yang Guang repaid the Company RMB10,000,000 (approximately US$1,547,000) of working capital loan.  This working capital loan is interest-free and payment is due on demand. The term of this capital loan is subject to annual review and renewal at the end of each fiscal year.  The loan will be repaid on demand for the amount requested or on an annual basis if not demanded in one single payment at the end of each fiscal year.

Shenzhen Mingshan:

Shenzhen Mingshan was incorporated on June 24, 2010 by one of the Company’s operating subsidiaries, Business Opportunities Online and three other individuals who were not affiliated with the Company.  Shenzhen Mingshan was 51% owned by the Company and was a consolidated subsidiary of the Company from the date of incorporation through January 6, 2011.  On January 6, 2011, an independent third party investor invested RMB15,000,000 (approximately US$2,283,070) cash into Shenzhen Mingshan and hence obtained 60% equity interest of Shenzhen Mingshan. The Company’s share of equity interest then decreased from 51% to 20.4%. The carrying value of the investment to Shenzhen Mingshan immediately after the deconsolidation which was approximately US$381,000 was included in the balance sheet as investment in equity investment affiliates.

The deconsolidation of Shenzhen Mingshan was accounted for in accordance to ASC Topic 810 “Consolidation”.  The Company recognized a gain of approximately US$229,000 upon deconsolidation of Shenzhen Mingshan, which has been recorded as a gain on deconsolidation of subsidiary in the Company’s consolidated statements of income and comprehensive income with a corresponding increase in the carrying value of the investment in Shenzhen Mingshan in the Company’s consolidated balance sheet.  This gain represents the excess of the fair value of the Company’s retained equity interest over its carrying value as of the date of deconsolidation.

The Company determined the estimated fair value of its retained equity interest in Shenzhen Mingshan based on the valuation of Shenzhen Mingshan used when an independent third party purchased equity in Shenzhen Mingshan, which purchase price was negotiated on an arm’s length basis.  Under these circumstances, the Company estimated the fair value of their non-controlling interest based on the fair value of controlling interest purchased by the independent third party.

The Company applied the equity method of accounting prospectively from the date immediately after the deconsolidation. For the six and three months ended June 30, 2011, the Company recognized its pro-rata share of losses in Shenzhen Mingshan of approximately US$135,000 and US$72,000, respectively, which was reflected in the caption of “Share of earnings (losses) in equity investment affiliates” in the Company’s consolidated statements of income and comprehensive income with a corresponding decrease to the carrying value of the investment in Shenzhen Mingshan in the Company’s consolidated balance sheet.

XML



Note 3 - Acquisitions

6 Months Ended

Jun. 30, 2011

Business Combination Disclosure [Text Block]

3.    Acquisitions

In order to further diversify the channels of the Company’s advertisement and marketing campaign services, achieve an entry into Fujian Province, a base of fast growing small to medium enterprises and expand its market opportunities from franchises, dealerships and merchants looking to expand their businesses domestically in China, the Company acquired a 100% equity interest and a 51% equity interest in Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He, respectively. As described in Note 1, the acquisition of a 100% equity interest of Quanzhou Zhi Yuan and the acquisition of a 51% equity interest of Quanzhou Tian Xi Shun He were consummated on January 4, 2011 and February 23, 2011, respectively.

Each acquisition was accounted for using the acquisition method of accounting in accordance with ASC Topic 805 “Business Combinations”, and accordingly the acquired assets and liabilities were recorded at their fair values on the dates of acquisitions and the results of their operations have been included in the Company’s results of operations since the dates of their acquisitions.

The income approach is applied for identifiable intangible assets and noncontrolling interests’ valuation, based on a five-year financial projection and using the discounted cash flow method to calculate the present value of the future economic benefits. Key inputs used for such valuation include: weighted average cost of capital (“WPCC”), discount rate, and terminal growth rate. The income approach explicitly recognizes that the current value of an asset is premised upon the expected receipt of future economic benefits focusing on the income producing capability of a business or an asset.   It measures the current value of a business or asset by calculating the present value of its future economic benefits such as earnings, cost savings, tax deduction, and proceeds from disposition.  Indications of value are developed by discounting these benefits to their present value at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation, and risk associated with the particular investment which reflects both current return requirements of the market and specific investment. The discount rate selected is generally based on rates of return available from alternative investments of similar type and quality as of each assessment date. The Monte Carlo simulation is applied for the valuation of contingent consideration.  Contingent consideration arose from a term stipulated in the acquisition agreements with the sellers, which was that if pretax profit for 2012 and 2011 increases by less than 30% while compared to audited pretax profit of the prior year, the sellers need to compensate the acquirer for the difference between target pretax profit and actual result achieved then.

Goodwill recognized from these transactions mainly represented the expected operational synergies upon acquisition of these subsidiaries and intangibles not qualifying for separate recognition.  Goodwill is nondeductible for income tax purpose in the tax jurisdiction of these acquisition transactions incurred.

Acquisition of Quanzhou Zhi Yuan

On December 18, 2010, the Company, through one of its PRC operating subsidiaries, Beijing CNET Online entered into an equity interest acquisition agreement with the shareholders of Quanzhou Zhi Yuan.  According to the acquisition agreement, the Company agreed to pay an aggregate cash consideration of RMB9,500,000 (approximately US$1,446,000) in exchange for a 100% equity interest of Quanzhou Zhi Yuan.  The Company prepaid a deposit of RMB6,500,000 (approximately US$983,000) of the cash consideration to an independent agent who was entrusted by both of the counter-parties upon signing the agreement, the shareholders of Quanzhou Zhi Yuan would then fulfill the related obligations and process the relevant legal procedures and formalities as required in the acquisition agreements to complete the transaction.  On January 4, 2011, the acquisition of a 100% equity interest of Quanzhou Zhi Yuan were approved and registered with the relevant PRC government authorities of Quanzhou City, Fujian Province, and the prepaid cash consideration deposit was released to the shareholders of the Quanzhou Zhi Yuan accordingly. The Company determined the acquisition date of Quanzhou Zhi Yuan as of January 4, 2011, because this was the date both counter-parties had completed their obligations and received the corresponding benefits as outlined in the acquisition agreements and also the date the control of the acquiree were officially and legally transferred to the Company in fact.  As of June 30, 2011, the Company has settled the remaining purchase price of RMB3,000,000 (approximately US$464,110) to the seller of the 100% equity interest of Quanzhou Zhi Yuan.

The following table summarizes the assignment of fair value to identifiable assets and liabilities assumed as of January 4, 2011:

	Fair Value			Amortization Period
	US$(’000)			(Years)
Cash and cash equivalents	$	11
Accounts receivables		17
Property and equipment, net		57
Other current liabilities		(13	)
Deferred tax liabilities		(196	)
Acquired intangible assets:
Trade Name		113		Indefinite
Contract Backlog		18			0.7
Customer Relationship		547			8
Non-Compete Agreement		106			5
Goodwill:
Assembled Workforce		20
Other unidentifiable intangibles		708
		728
Total Value	$	1,388
Purchase price	$	1,440
Contingent consideration receivable		(52	)
Total amount to be allocated	$	1,388

Acquisition of Quanzhou Tian Xi Shun He

On December 22, 2010, the Company, through one of its PRC operating subsidiaries, Beijing CNET Online entered into an equity interest acquisition agreement with the shareholders of Quanzhou Tian Xi Shun He.  According to the acquisition agreement, the Company agreed to pay an aggregate cash consideration of RMB7,500,000 (approximately US$1,142,000) in exchange for a 51% equity interest of Quanzhou Tian Xi Shun He.  The Company prepaid a deposit of RMB3,500,000 (approximately US$529,000) of the cash consideration to an independent agent who was entrusted by both of the counter-parties upon signing the agreement, the shareholders of Quanzhou Tian Xi Shun He would then fulfill the related obligations and process the relevant legal procedures and formalities as required in the acquisition agreements to complete the transaction.  On February 23, 2011, the acquisition of a 51% equity interest of Quanzhou Tian Xi Shun He were approved and registered with the relevant PRC government authorities of Quanzhou City, Fujian Province, and the prepaid cash consideration deposit was released to the shareholders of the Quanzhou Tian Xi Shun He accordingly. The Company determined the acquisition date of Quanzhou Zhi Yuan as of February 23, 2011, because this was the date both counter-parties had completed their obligations and received the corresponding benefits as outlined in the acquisition agreements and also the date the control of the acquiree was officially and legally transferred to the Company in fact.  As of June 30, 2011, the Company has settled the remaining purchase price of RMB4,000,000 (approximately US$618,810) to the seller of the 51% equity interest of Quanzhou Tian Xi Shun He.

The following table summarized the assignment of fair value to identifiable assets and liabilities assumed as of February 23, 2011:

	Fair Value			Amortization Period
	US$(’000)			(Years)
Cash and cash equivalents	$	12
Accounts receivables and other receivables		55
Property and equipment, net		41
Other current liabilities		(34	)
Deferred tax liabilities		(289	)
Acquired intangible assets:
Trade Name		182		Indefinite
Contract Backlog		170			0.6
Customer Relationship		722			9
Non-Compete Agreement		83			5
Goodwill:
Assembled Workforce		23
Other unidentifiable intangibles		1,143
		1,166
Total Value		2,108
Purchase price		1,138
Fair value of non-controlling interest		1,034
Contingent consideration receivable		(64	)
Total amount to be allocated		2,108

Based on the Company’s assessment of the acquired companies' financial performance on its own or in total, it is not considered material to the Company. Thus the Company believes that the presentation of pro forma financial information with regard to a summary of the results of operations of the Company for the business combination is not necessary.

XML



Note 30 - Commitments

6 Months Ended

Jun. 30, 2011

Commitments Disclosure [Text Block]

30.   Commitments

The following table sets forth the Company’s contractual obligations as of June 30, 2011:

	Office Rental		Server hosting and board -band lease		Purchase of TV advertisement time		Purchase of internet advertisement resources		Total
	US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)
Six months ending December 31, 2011		158		128		1,486		99		1,871
For the year ending December 31, 2012		-		112		-		-		112
Thereafter		-		-		-		-		-
Total		158		240		1,486		99		1,983

XML



Note 9 - Due from equity investment affiliates

6 Months Ended

Jun. 30, 2011

Due From Equity Investment Affiliates Disclosure [Text Block]

9.   Due from equity investment affiliates

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Shenzhen Mingshan		42

Shenzhen Mingshan is one the equity investment affiliates of the Company.  Amounts due from Shenzhen Mingshan as of June 30, 2011 were mainly related to the hosted computer servers sold to Shenzhen Mingshan by the Company during the six months ended June 30, 2011.

XML



Note 14 - Intangible assets, net

6 Months Ended

Jun. 30, 2011

Intangible Assets Disclosure [Text Block]

14.   Intangible assets, net

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Intangible assets not subject to amortization:
Trade Name		302		-
Intangible assets subject to amortization:
Contract Backlog		192		-
Customer Relationship		1,295		-
Non-Compete Agreement		193		-
Computer software		74		61
Total intangible assets		2,056		61
Less: accumulated amortization		211		10
		1,845		51

Contract backlog, Customer relationship and Non-compete agreement were acquired through the acquisition transactions of Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He as described in Note 3.

Amortization expenses in aggregate for the six months ended June 30, 2011 and 2010 were approximately US$198,000 and US$ nil, respectively.

Amortization expenses in aggregate for the three months ended June 30, 2011 and 2010 were approximately US$132,000 and US$ nil, respectively.

Based on the carrying value of the finite-lived intangible assets acquired from Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He recorded as of June 30, 2011, and assuming no subsequent impairment of the underlying intangible assets, the estimated future amortization expenses for the six months ending December 31, 2011 is approximately US$177,000, and approximately US$190,000 per annual from fiscal year 2012.

XML



Note 10 - Due from related parties

6 Months Ended

Jun. 30, 2011

Due From Related Parites Disclosure [Text Block]

10.   Due from related parties

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Beijing Fengshangyinli Technology Co., Ltd.		161		-
Beijing Telijie Century Environmental Technology Co., Ltd.		275		39
Soyilianmei Advertising Co., Ltd.		15		146
		451		185

These related parties are directly or indirectly owned by the Control Group or the management of the Company.  Control Group refers to Mr. Handong Cheng, Mr. Xuanfu Liu and Ms. Li Sun, the owners of the Company’s PRC Operating Subsidiaries, Business Opportunities Online and Beijing CNET Online before the Offshore Restructuring.

Amount due from Soyilianmei Advertising Co., Ltd. was related to the internet advertising resources purchased by the Company on behalf of this related party.  The rest of the related party balances were outstanding receivables for the advertising services the Company provided to these related parties.

XML



Note 27 - Related party transactions

6 Months Ended

Jun. 30, 2011

Related Party Transactions Disclosure [Text Block]

27.   Related party transactions

Advertising revenue from related parties:

	Six months ended June 30,
	2011		2010
	US$(’000)		US$(’000)
	(Unaudited)		(Unaudited)
-Beijing Saimeiwei Food Equipment Technology Co., Ltd,		59		265
-Beijing Xiyue Technology Co., Ltd		-		10
-Beijing Fengshangyinli Technology Co., Ltd.		231		177
-Beijing Telijie Century Environmental Technology Co., Ltd.		167		155
		457		607

	Three months ended June 30,
	2011		2010
	US$(’000)		US$(’000)
	(Unaudited)		(Unaudited)
-Beijing Saimeiwei Food Equipment Technology Co., Ltd,		59		123
-Beijing Xiyue Technology Co., Ltd		-		9
-Beijing Fengshangyinli Technology Co., Ltd.		113		165
-Beijing Telijie Century Environmental Technology Co., Ltd.		95		116
		267		413

Purchase from related party:

During the six and three months ended June 30, 2011, one of the Company’s operating subsidiaries, Beijing CNET Online purchased approximately US$768,000 and US$606,000 TV advertising time from Beijing Yang Guang, the Company’s equity investment affiliates for resale purposes.

Sales of fixed assets to an equity investment affiliates

During the six months ended June 30, 2011, one of the Company’s operating subsidiaries, Rise King WFOE sold some computer servers to Shenzhen Mingshan, the Company’s equity investment affiliates for approximately US$35,000, the profit from this transaction which was included in the Company’s consolidated earnings was approximately US$3,000.

XML



Note 8 - Prepayments and deposit to suppliers

6 Months Ended

Jun. 30, 2011

Prepayments And Deposits ToSuppliers Disclosure [Text Block]

8.   Prepayments and deposit to suppliers

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Contract execution guarantees to TV advertisement  and internet resources providers		2,954		2,778
Prepayments to TV advertisement and internet resources providers		622		413
Prepayment to online game operating service provider		-		91
Other deposits and prepayments		20		43
		3,596		3,325

Contract execution guarantee to TV advertisement and internet resources providers are paid as a contractual deposit to the Company’s service providers.  These amounts will be used to offset the service fee that needs to be paid to the service providers in the last month of each contract period.

According to the contracts signed between the Company and its suppliers, the Company is normally required to pay the contract amount in advance.  These prepayments will be transferred to cost of sales when the related services are provided.

XML



Note 1 - Organization and nature of operations

6 Months Ended

Jun. 30, 2011

Nature of Operations [Text Block]

1.   Organization and nature of operations

ChinaNet Online Holdings, Inc. (formerly known as Emazing Interactive, Inc.), (the “Company”), was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. From the date of the Company’s incorporation until June 26, 2009, when the Company consummated the Share Exchange, the Company’s activities were primarily concentrated in web server access and company branding in hosting web based e-games.

On June 26, 2009, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”), with (i) China Net Online Media Group Limited, a company organized under the laws of British Virgin Islands (“China Net BVI”), (ii) China Net BVI’s shareholders, Allglad Limited, a British Virgin Islands company (“Allglad”), Growgain Limited, a British Virgin Islands company ("Growgain"), Rise King Investments Limited, a British Virgin Islands company (“Rise King BVI”), Star (China) Holdings Limited, a British Virgin Islands company (“Star”), Surplus Elegant Investment Limited, a British Virgin Islands company (“Surplus”), Clear Jolly Holdings Limited, a British Virgin Islands company (“Clear” and together with Allglad, Growgain, Rise King BVI, Star and Surplus, the “China Net BVI Shareholders”), who together owned shares constituting 100% of the issued and outstanding ordinary shares of China Net BVI (the “China Net BVI Shares”) and (iii) G. Edward Hancock, the principal stockholder of the Company at that time. Pursuant to the terms of the Exchange Agreement, the China Net BVI Shareholders transferred to the Company all of the China Net BVI Shares in exchange for the issuance of 13,790,800  shares (the “Exchange Shares”) in the aggregate of the Company’s common stock (the “Share Exchange”). 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 engages in providing advertising, marketing and communication services to small and medium companies in China through www.28.com, (the portal website of the Company’s PRC operating subsidiary), TV media and bank kiosks,  through certain contractual arrangements with operating companies in the People’s Republic of China (the “PRC”).

The Company’s wholly owned subsidiary, China Net BVI was incorporated in the British Virgin Islands on August 13, 2007. On April 11, 2008, China Net BVI became the parent holding company of a group of companies comprised of CNET Online Technology Limited, a Hong Kong company (“China Net HK”), which established and is the parent company of Rise King Century Technology Development (Beijing) Co., Ltd., a wholly foreign-owned enterprise (“WFOE”) established in the PRC (“Rise King WFOE”). The Company refers to the transactions that resulted in China Net BVI becoming an indirect parent company of Rise King WFOE as the “Offshore Restructuring.”

PRC regulations prohibit direct foreign ownership of business entities providing internet content, or ICP services in the PRC, and restrict foreign ownership of business entities engaging in advertisement business. In October 2008, a series of contractual arrangements (the “Contractual Agreements”)were entered between Rise King WFOE and Business Opportunity Online (Beijing) Network Technology Co., Ltd. (“Business Opportunity Online”), Beijing CNET Online Advertising Co., Ltd. (“Beijing CNET Online”) (collectively the “PRC Operating Subsidiaries”) and its common individual owners (the “PRC Shareholders” or the “Control Group”). The Contractual Agreements allowed China Net BVI through Rise King WFOE to, among other things, secure significant rights to influence the PRC Operating Subsidiaries’ business operations, policies and management, approve all matters requiring shareholder approval, and the right to receive 100% of the income earned by the PRC Operating Subsidiaries.  In return, Rise King WFOE provides consulting services to the PRC Operating Subsidiaries.  In addition, to ensure that the PRC Operating Subsidiaries and the PRC Shareholders perform their obligations under the Contractual Arrangements, the PRC Shareholders have pledged to Rise King WFOE all of their equity interests in the PRC Operating Subsidiaries.  They also entered into an option agreement with Rise King WFOE which provides that at such time that current restrictions under PRC law on foreign ownership of Chinese companies engaging in the Internet content, information services or advertising business in China are lifted, Rise King WFOE may exercise its option to purchase the equity interests in the PRC Operating Subsidiaries directly.

At the time the above Contractual Agreements were signed, the controlling shareholder of China Net BVI was Rise King BVI, who holds 55% of the Company’s common stock. The sole registered shareholder of Rise King BVI, Mr. Yang Li, who owned 10,000 common stock of Rising King BVI, entered into slow-walk agreements with the Control Group individuals respectively, pursuant to which, upon the satisfaction of certain conditions, the Control Group individuals had the option to purchase the 10,000 shares of Rise King BVI, (4,600 by Mr. Handong Cheng, 3,600 by Mr. Xuanfu Liu and 1,800 by Ms. Li Sun, acting as nominee for Mr. Zhang Zhige) owned by Mr. Yang Li, at a purchase price of US$ 1 per share (the par value of Rise King BVI’s common stock).  Under the terms of the slow-walk agreement, the Control Group had the right to purchase the shares as follows: (1) one-third of the shares when China Net BVI and its PRC subsidiaries and affiliates (“the Group”) generates at least RMB 100,000,000 of the gross revenue for twelve months commencing from January 1, 2009 to December 31, 2009 (the “Performance Period I”);  (2) one-third of the shares when the Group generates at least RMB 60,000,000 of the gross revenue for six months commencing from January 1, 2010 to June 30, 2010 (the “Performance Period II); (3) one-third of the shares when the Group generates at least RMB 60,000,000 of the gross revenue for six months commencing from July 1, 2010 to December 31, 2010 (the “Performance Period III”).  In the event that the Group did not achieve the performance targets specified above, then the Control Group individuals could have exercised the Option at the Alternative Exercise Price (which was US$ 2 per share), on the date that the Acquisition was completed or abandoned.  Each Control Group individual could have purchased one-third of the total number of shares that he or she was eligible to purchase under the slow-walk agreement upon the satisfaction of each condition described above.

The Control Group individuals also entered an Entrustment Agreement with Rise King BVI collectively, pursuant to which, based on the 55% equity interest held in the Group directly or indirectly, Rise King BVI entrusted the Control Group to manage the Group companies by irrevocably authorizing the Control Group to act on behalf of Rise King BVI, as the exclusive agents and attorneys with respect to all matters concerning Rise King BVI’s Shareholding, during the validity period of this Agreement, including the rights of attending the shareholders’ meeting; exercising all the shareholder’s rights and shareholder’s voting rights enjoyed by Rise King BVI under the laws and the articles of associations of the Company and each Group Companies, (collectively “the Group”) including without limitation voting for and making decisions on the increase or reduction of the authorized capital/registered capital, issuing company bonds, merger, division, dissolution, liquidation of the Group or change of Group’s type, amendment to the articles of association of the Group, designating and appointing the legal representatives (the chairman of the Board), directors, supervisors, general managers and other senior officers of the Group. The Control Group also agrees and confirms that each of them shall act in concert with one another when exercising all of their rights (including but not limited to the voting rights) authorized to them in this Agreement. The Entrustment Period commenced on the execution date of the agreement and was effective within a period of ten years, unless earlier terminated.

As described above, each of Mssrs. Handong Cheng, and Xuanfu Liu and Ms. Li Sun entered into Share Transfer Agreements (slow-walk agreement) with Mr. Yang Li, the sole shareholder of Rise King BVI, which beneficially owns an aggregate of 7,434,940 shares of the Company’s Common Stock, (the “Subject Shares”). On March 30, 2011, pursuant to the terms of the Share Transfer Agreement, Ms. Li Sun transferred her right to acquire 18% of the shares of Rise King BVI under the Share Transfer Agreement to Mr. Zhige Zhang, the chief financial officer of the Company.  On March 30, 2011, each of Mssrs. Handong Cheng, Xuanfu Liu and Zhige Zhang (the “PRC Persons”) exercised their right to purchase the outstanding stock of Rise King BVI.  On the same date, the Entrustment Agreement originally entered into among Rise King BVI and the Control Group was terminated. As a result of these transactions, the ownership of Rise King BVI was transferred from Mr. Yang Li to the PRC Persons.  Rise King BVI has sole voting and dispositive power over the Subject Shares.  The PRC Persons may be deemed to share voting power over the shares as a result of their collective ownership of all of the outstanding stock of Rise King BVI.

Pursuant to the above Contractual Agreements, all of the equity owners' rights and obligations of the PRC Operating Subsidiaries were assigned to Rise King WFOE, which resulted in the equity owners lacking the ability to make decisions that have a significant effect on the PRC Operating Subsidiaries, and Rise King WFOE's ability to extract the profits from the operation of the PRC Operating Subsidiaries, and assume the residual benefits of the PRC Operating Subsidiaries. Because Rise King WFOE and its indirect parent are the sole interest holders of the PRC Operating Subsidiaries, the PRC Operating Subsidiaries are under common control with the Group, thus, China Net BVI consolidates the PRC Operating Subsidiaries from its inception, which is consistent with the provisions of FASB Accounting Standards Codification ("ASC") Topic 810 “Consolidation”, subtopic 10.

As a result of the Share Exchange on June 26, 2009, the former China Net BVI shareholders owned a majority of the common stock of the Company.  The transaction was regarded as a reverse acquisition whereby China Net BVI was considered to be the accounting acquirer as its shareholders retained control of the Company after the Share Exchange, although the Company is the legal parent company.  The share exchange was treated as a recapitalization of the Company.  As such, China Net BVI (and its historical financial statements) is the continuing entity for financial reporting purposes. Following the Share Exchange, the company changed its name from Emazing Interactive, Inc. to ChinaNet Online Holdings, Inc. The financial statements have been prepared as if China Net BVI had always been the reporting company and then on the share exchange date, had changed its name and reorganized its capital stock.

As of the date of the Share Exchange, through the above Contractual Agreements, the Company operates its business in China primarily through Business Opportunity Online and Beijing CNET Online. Beijing CNET Online owns 51% of Shanghai Borongdingsi Computer Technology Co., Ltd. (“Shanghai Borongdingsi”). Business Opportunity Online, Beijing CNET Online and Shanghai Borongdingsi, were incorporated on December 8, 2004, January 27, 2003 and August 3, 2005, respectively.

Shanghai Borongdingsi is owned 51% by Beijing CNET Online. Beijing CNET Online and Shanghai Borongdingsi entered into a cooperation agreement in June 2008, followed up with a supplementary agreement in December 2008, to conduct bank kiosk advertisement business. The business is based on a bank kiosk cooperation agreement between Shanghai Borongdingsi and Henan provincial branch of China Construction Bank which allows Shanghai Borongdingsi or its designated party to conduct in-door advertisement business within the business outlets throughout Henan Province. The bank kiosk cooperation agreement has a term of eight years starting August 2008. However, Shanghai Borongdingsi was not able to conduct the advertisement as a stand-alone business due to the lack of an advertisement business license and supporting financial resources. Pursuant to the aforementioned cooperation agreements, Beijing CNET Online committed to purchase equipment, and to provide working capital, technical and other related support to Shanghai Borongdingsi. Beijing CNET Online owns the equipment used in the kiosk business, is entitled to sign contracts in its name on behalf of the business, and holds the right to collect the advertisement revenue generated from the bank kiosk business exclusively until the recovery of the cost of purchase of the equipment. Thereafter, Beijing CNET Online has agreed to distribute 49% of the succeeding net profit generated from the bank kiosk advertising business, if any, to the minority shareholders of Shanghai Borongdingsi.

On June 24, 2010, one of the Company’s PRC operating subsidiaries, Business Opportunity Online, together with three other individuals, who were not affiliated with the Company, formed a new company, Shenzhen City Mingshan Network Technology Co., Ltd. (“Shenzhen Mingshan”). The registered capital and paid-in capital of Shenzhen Mingshan was RMB10,000,000 and RMB5,000,000, respectively. Shenzhen Mingshan is 51% owned by Business Opportunity Online and 49% owned collectively by the other three individuals.  Shenzhen Mingshan is located in Shenzhen City, Guangdong Province of the PRC and is primarily engaged in developing and designing of internet based software, online games and the related operating websites and providing related internet and information technology services necessary to operate such games and websites. As of June 30,, 2011, Business Opportunity Online has invested RMB4,020,000 (approximately US$611,863) in Shenzhen Mingshan. On January 6, 2011, as approved by the shareholders of Shenzhen Mingshan, an independent third party investor, who was not affiliated with the Company, invested RMB15,000,000 (approximately US$2,283,070) cash into Shenzhen Mingshan and Shenzhen Mingshan’s registered capital and paid-in capital increased from RMB10,000,000 (approximately US$1,466,000) and RMB5,000,000 (approximately US$733,000) to RMB25,000,000 (approximately US$3,786,000) and RMB20,000,000 (approximately US$3,029,000), respectively.  Therefore, from January 6, 2011, the new investor became the majority shareholder of Shenzhen Mingshan.  The Company’s share of the equity interest in ShenZhen Minshan decreased from 51% to 20.4% and the Company ceased to have a controlling financial interest in ShenZhen Mingshan, but still retains an investment in and significant influence over Shenzhen Mingshan.

On December 6, 2010, Rise King WFOE entered into a series of exclusive contractual arrangements, which were similar to the Contractual Agreements discussed above, with Rise King (Shanghai) Advertisement Media Co., Ltd. (“Shanghai Jing Yang”), a company incorporated under the PRC laws in December 2009 and primarily engaged in advertisement business, pursuant to which the Company, through its wholly owned subsidiary, Rise King WFOE obtained all of the equity owners' rights and obligations of Shanghai Jing Yang, and the ability to extract the profits from the operation and assume the residual benefits of Shanghai Jing Yang, and hence became the sole interest holder of Shanghai Jing Yang.  As of the date these contractual agreements were signed, Shanghai Jing Yang had not establish any resources to conducted any business activities by itself and the carrying amount of the net assets of Shanghai Jing Yang which was all cash and cash equivalents approximate fair values due to their short maturities. Therefore, Shanghai Jing Yang’s accounts were included in the Company’s consolidated financial statements with no goodwill recognized in accordance to ASC Topic 810 “Consolidation”.

On December 8, 2010, the Company, through one of its  PRC operating subsidiaries, Shanghai Jing Yang acquired a 49% interest of a newly established company, Beijing Yang Guang Media Investment Co., Ltd. (“Beijing Yang Guang”) for cash consideration of RMB 7,350,000 (approximately US$1,112,000), which represents 49% of Beijing Yang Guang’s paid-in capital and net assets of RMB15,000,000 (approximately US$2,269,000). The investment in Beijing Yang Guang provided the Company with the synergy to leverage lower TV time resources and hence improve the performance of the TV advertisement business segment and increase revenue from the Company’s customers as a result of an additional value–added advertising and marketing channels to subscribe on the top of Internet. 

The Company, through one of its PRC operating subsidiaries, Beijing CNET Online entered into an equity interest acquisition agreement with the shareholders of Quanzhou Zhi Yuan Marketing Planning Co., Ltd. (“Quanzhou Zhi Yuan”) and Quanzhou Tian Xi Sun He Advertisement Co., Ltd. (“Quanzhou Tian Xi Shun He”), (collectively “the acquirees”) on December 18, 2010 and December 22, 2010, to acquire 100% equity interest of Quanzhou Zhi Yuan and 51% equity interest of Quanzhou Tian Xi Shun He, respectively. These acquisitions were subsequently consummated on January 4, 2011 and February 23, 2011, respectively (see Note 3).  Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He are both independent advertising companies based in Fujian province of the PRC, which provide comprehensive branding and marketing services to over fifty small to medium sized companies focused mainly in the sportswear and clothing industry. In June 2011, Beijing CNET Online entered into an additional agreement with the noncontrolling interest of Quanzhou Tian Xi Shun He to purchase the remaining 49% equity interest of Quanzhou Tian Xi Shun He for a cash consideration of RMB7,200,000 (approximately US$1,114,000). On June 27, 2011, this transaction has been approved and registered with the relevant PRC government authorities of Quanzhou City, Fujian Province of PRC and on the same date, Quanzhou Tian Xi Shun He became the wholly owned subsidiary of the Company.

On January 28, 2011, one of the Company’s PRC operating subsidiaries, Business Opportunity Online, formed a new wholly owned subsidiary, Business Opportunity Online (Hubei) Network Technology Co., Ltd. (“Business Opportunity Online Hubei”).  Business Opportunity Online Hubei is mainly engaged in internet advertisement design, production and promulgation.

On March 1, 2011, one of the Company’s PRC operating subsidiaries, Business Opportunity Online, together with an individual, who was not affiliated with the Company, formed a new company, Beijing Chuang Fu Tian Xia Network Technology Co., Ltd. (“Beijing Chuang Fu Tian Xia”). The registered capital of Beijing Chuang Fu Tian Xia is RMB1,000,000 (approximately US$152,000).  Business Opportunity Online and the co-founding individual invested RMB510,000 (approximately US$77,500) and RMB490,000 (approximately US$74,500) cash in Beijing Chuang Fu Tian Xia, respectively, representing 51% and 49% of the equity interests of  Beijing Chuang Fu Tian Xi, respectively. In addition to capital investment, the co-founding individual is required to provide the controlled domain names, www.liansuo.com and www.chuangye.com to be registered under the established subsidiary.  This subsidiary is mainly engaged in providing and operating internet advertising, marketing and communication services to small and medium companies through the websites associated the above mentioned domain names.  As of June 30, 2011, major developments and adjustments to the websites are mostly completed and are now proceeding into the second test run stage for improvement.

On April 18, 2011, the Company, through one of its PRC operating subsidiaries, Business Opportunity Online Hubei formed a new wholly owned company, Hubei CNET Advertising Media Co., Ltd. (“Hubei CNET”). The registered capital and paid in capital of Hubei CNET is RMB1,000,000 (approximately US$152,205).  Hubei CNET is mainly engaged in advertisement design, production, promulgation and providing the related adverting and marketing consultancy services.

On April 18, 2011, one of the Company’s PRC operating subsidiaries, Business Opportunity Online Hubei, together with an individual, who was not affiliated with the Company, formed a new company, Zhao Shang Ke Network Technology (Hubei) Co., Ltd. (“Zhao Shang Ke Hubei”). The registered capital of Zhao Shang Ke Hubei is RMB2,000,000 (approximately US$306,000).  Business Opportunity Online Hubei and the co-founding individual invested RMB1,020,000 (approximately US$156,000) and RMB980,000 (approximately US$150,000) cash in Zhao Shang Ke Hubei, respectively, and hence owned 51% and 49% of the equity interests of  Zhao Shang Ke Hubei, respectively.  Zhao Shang Ke Hubei is mainly engaged in providing advertisement design, production, promulgation and most importantly sales channels expansion services.

As of June 30, 2011, the Company operated its business primarily in China through the above mentioned subsidiaries and investees. From time to time, the Company refers to them collectively as “PRC operating entities”.

XML



Note 4 - Cash and cash equivalents

6 Months Ended

Jun. 30, 2011

Cash and Cash Equivalents Disclosure [Text Block]

4.   Cash and cash equivalents

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Cash on hand		107		39
Bank deposit		16,340		15,551
		16,447		15,590

XML



Note 26 - Changes in fair value of Warrant

6 Months Ended

Jun. 30, 2011

Derivatives and Fair Value [Text Block]

26.   Changes in fair value of Warrant

The Company analyzed the Warrants issued in the August 2009 Financing in accordance to ASC Topic 815 “Derivatives and Hedging” to determine whether the Warrants meet the definition of a derivative under ASC Topic 815 and if so, whether the Warrants meet the scope exception of ASC Topic 815, which is that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of ASC Topic 815.  The Company adopted the provisions of ASC Topic 815 subtopic 40, which applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by ASC Topic 815 and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.  As a result of adopting ASC Topic 815 subtopic 40, the Company originally concluded that the Warrants issued in the August 2009 financing should be treated as a derivative liability, because the Warrants were entitled to a price adjustment provision to allow the exercise price to be reduced, in the event the Company would issue or sell any additional shares of common stock at a price per share less than the then-applicable exercise price or without consideration, which is typically referred to as a “Down-round protection” or “anti-dilution” provision.  According to ASC Topic 815 subtopic 40, the “Down-round protection” provision is not considered to be an input to the fair value of a fixed-for-fixed option on equity shares which leads the Warrants fail to be qualified as indexed to the Company’s own stock and then to fail to meet the scope exceptions of ASC Topic 815. Therefore, the Company originally accounted for the Warrants as derivative liabilities under ASC Topic 815.  Pursuant to ASC Topic 815, derivatives should be measured at fair value and re-measured at fair value with changes in fair value recorded in earnings at each reporting period.

On March 29, 2010, the Company and the holders of the Warrants entered into agreements to amend certain provisions of the Warrants. The amendment to the investor and placement agent warrants removes the “Down-round protection” rights that were applicable if the Company were to issue new shares of common stock or common stock equivalents at a price per share less than the exercise price of the Warrants.  In addition, the amendment to the warrants added a provision to grant the holders of a majority of the warrants an approval right until December 31, 2010, over any new issuance of shares of common stock or common stock equivalents at a price per share less than the exercise price of the warrants.

As a result of this amendment, the Warrants issued in the August 2009 financing were qualified as indexed to the Company’s own stock and then met the scope exceptions of ASC Topic 815, and were eligible to be reclassified as equity.  In accordance to ASC Topic 815, the classification of a contract should be reassessed at each balance sheet date. If the classification required under this ASC changes as a result of events during the period, the contract should be reclassified as of the date of the event that caused the reclassification.  If a contract is reclassified from an asset or a liability to equity, gains or losses recorded to account for the contract at fair value during the period that the contract was classified as an asset or a liability should not be reversed.  Therefore, the Company re-measured the fair value of the Warrants as of March 29, 2010, the date of the event that caused the classification, which was approximately US$7,703,000 and reclassified the amount to equity as additional paid-in capital.  The gain of the changes in fair value during the period that the Warrants were classified as a derivative liability, which was approximately US$1,861,000 was recorded in earnings for the six and three months ended June 30, 2010. As the Warrants have been reclassified to equity on March 29, 2010, no gain or loss of changes in fair value of the Warrants would be recorded thereafter.

The following table summarized the above transactions:

	As of March 29, 2010		As of December 31, 2009		Changes in Fair Value (Gain)/Loss
	US$’000		US$’000		US$’000
Fair value of the Warrants:
Series A-1 warrant		3,606		4,513		(907	)
Series A-2 warrant		3,256		4,019		(763	)
Placement agent warrants		841		1,032		(191	)
		7,703		9,564		(1,861	)

Warrants issued and outstanding at June 30, 2011 and changes during the six months then ended are as follows:

	Warrants Outstanding					Warrants Exercisable
		Number of underlying shares		Weighted Average Exercise Price	Average Remaining Contractual Life (years)	Number of underlying shares			Weighted Average Exercise Price	Average Remaining Contractual
Balance, January 1, 2011		4,781,056	$	3.31	2.77	4,781,056		$	3.31		2.77
Granted / Vested		-					-
Forfeited		-					-
Exercised		-					-
Balance, June 30, 2011		4,781,056	$	3.31	2.28		4,781,056	$	3.31		2.28

XML



Note 5 - Restricted cash

6 Months Ended

Jun. 30, 2011

Restricted Cash Disclosure [Text Block]

5.   Restricted cash

June 30, 2011		December 31, 2010
US$(’000)		US$(’000)
(Unaudited)
	189		-

Restricted cash represents the cash deposited in the temporary bank accounts for capital verification purpose of incorporation of three new subsidiaries as required by the State of Administration for Industry and Commerce of PRC (“SAIC”).  As of June 30, 2011, the Company’s registrations of incorporation of these subsidiaries have not been approved by the related local SAIC.  The applications of incorporation of these three new subsidiaries have been subsequently approved and registered by the local SAIC in July 2011 (see Note 34) and the restricted cash balance was then released to the formal bank accounts of these subsidiaries as paid in capital.

XML



Note 23 - Taxation

6 Months Ended

Jun. 30, 2011

Taxation Disclosure [Text Block]

23.   Taxation

1)Income tax

The entities within the Company file separate tax returns in the respective tax jurisdictions that 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.  The Company become a holding company and does not conduct any substantial operations of its own after the Share Exchange. No provision for federal corporate income tax has been made in the financial statements as the Company has no assessable profits for the six and three months ended June 30, 2011 or prior periods.    The Company does not provide for U.S. taxes or foreign withholding taxes on undistributed earnings from its non-U.S. subsidiaries because such earnings are intended to be reinvested indefinitely. If undistributed earnings were distributed, foreign tax credits could become available under current law to reduce the resulting U.S. income tax liability.

ii). China Net BVI was incorporated in the British Virgin Islands (“BVI”).  Under the current law of the BVI, China Net BVI is not subject to tax on income or capital gains.  Additionally, upon payments of dividends by China Net BVI to its 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. No provision for Hong Kong profits 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, 2011 or 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, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”).  Effective from January 1, 2008, the EIT rate of PRC was changed from 33% to 25%, and applies to both domestic and foreign invested enterprises.

l   Rise King WFOE is a software company qualified by the related PRC governmental authorities and was entitled to a two-year EIT exemption from its first profitable year and a 50% reduction of its applicable EIT rate, which is 25% of its taxable income for the exceeding three years.  Rise King WFOE had a net loss for the year ended December 31, 2008 and its first profitable year is fiscal year 2009 which has been verified by the local tax bureau by accepting the application filed by the Company.  Therefore, it was entitled to a two-year EIT exemption for fiscal year 2009 through fiscal year 2010 and a 50% reduction of its applicable EIT rate which is 25% for fiscal year 2011 through fiscal year 2013. Therefore, for the six month ended June 30, 2011 and 2010, the applicable income tax rate for Rise King WFOE was 12.5% and nil%, respectively.  For the three months ended June 30, 2011 and 2010, the applicable income tax rate for Rise King WFOE was also 12.5% and nil%, respectively.

l   Business Opportunity Online was qualified as a High and New Technology Enterprise in Beijing High-Tech Zone in 2005 and was entitled to a three-year EIT exemption for fiscal year 2005 through fiscal year 2007 and a 50% reduction of its applicable EIT rate for the following three years for fiscal year 2008 through fiscal year 2010.  However, in March 2007, a new enterprise income tax law (the “New EIT”) in the PRC was enacted which was effective on January 1, 2008. Subsequently, on April 14, 2008, relevant governmental regulatory authorities released new qualification criteria, application procedures and assessment processes for “High and New Technology Enterprise” status under the New EIT which would entitle the re-qualified and approved entities to a favorable statutory tax rate of 15%.  With an effective date of September 4, 2009, Business Opportunity Online obtained the approval of its reassessment of the qualification as a “High and New Technology Enterprise” under the New EIT law and was entitled to a favorable statutory tax rate of 15%.  Under the previous EIT laws and regulations, High and New Technology Enterprises enjoyed a favorable tax rate of 15% and were exempted from income tax for three years beginning with their first year of operations, and were entitled to a 50% tax reduction to 7.5% for the subsequent three years and 15% thereafter. The current EIT Law provides grandfathering treatment for enterprises that were (1) qualified as High and New Technology Enterprises under the previous EIT laws, and (2) established before March 16, 2007, if they continue to meet the criteria for High and New Technology Enterprises under the current EIT Law. The grandfathering provision allows Business Opportunity Online to continue enjoying their unexpired tax holidays provided by the previous EIT laws and regulations. Therefore, for the six months ended June 30, 2011 and 2010, the applicable income tax rate for Business Opportunity Online was 15% and 7.5%, respectively.  For the three months ended June 30, 2011 and 2010, the applicable income tax rate for Business Opportunity Online was also 15% and 7.5%, respectively.

l   Business Opportunity Online Hubei, Hubei CNET and Zhaoshangke Hubei were incorporated in Xiaotian Industrial Park of Xiaogan Economic Development Zone in Xiaogan City, Hubei province of the PRC. These three operating subsidiaries have been approved by the related local government authorities to apply the deemed income tax method for its computation of income tax expense. Under the deemed income tax method, the deemed profit is calculated based on 10% of the total revenue and the applicable income tax rate is 25%.  Therefore, the income tax expenses under the deemed income tax method is calculated as 2.5% of the total revenue recognized in each of the reporting period.

l   The applicable income tax rate for the other PRC operating subsidiaries of the Company is 25%.

l   The New EIT also imposed 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 enterprise income tax law and rules.  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.  Rise King WFOE is invested by immediate holding company in Hong Kong and will be entitled to the 5% preferential withholding tax rate upon distribution of the dividends to its immediate holding company.

2) Business tax and relevant surcharges

Revenue of advertisement services is subject to 5.5% business tax and 3% cultural industry development surcharge of the net service income after deducting amount paid to ending media promulgators. Revenue of internet technical support services is subjected to 5.5% business tax.  Business tax charged was included in cost of sales.

3) Value added tax

As a general value-added tax payer, revenue from sales of software of Rise King WFOE is subjected to 17% value added tax.

As of June 30, 2011 and December 31, 2010, taxes payable consist of:

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Business tax payable		1,521		1,147
Culture industry development surcharge payable		7		5
Value added tax payable		-		216
Enterprise income tax payable		1,468		759
Individual income tax payable		58		66
		3,054		2,193

For the six and three months ended June 30, 2011 and 2010, the Company’s income tax expense consisted of:

	Six months ended June 30,
	2011			2010
	US$(’000)			US$(’000)
	(Unaudited)			(Unaudited)
Current		798			279
Deferred		(47	)		-
		751			279

	Three months ended June 30,
	2011			2010
	US$(’000)			US$(’000)
	(Unaudited)			(Unaudited)
Current		351			65
Deferred		(32	)		-
		319			65

The Company’s deferred income tax liabilities at June 30, 2011 and December 31, 2010 were as follows:

	June 30, 2011			December 31, 2010
	US$(’000)			US$(’000)
	(Unaudited)
Tax effect of recognition of identifiable intangible assets acquired		485			-
Reversal during the period		(47	)		-
Exchange translation adjustment		10			-
		448			-

Deferred tax liabilities arose on the recognition of the identifiable intangible assets acquired from Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He.  Reversal during the six and three months ended June 30, 2011 of approximately US$47,000 and US$32,000, respectively, was due to the amortization of these acquired intangible assets.

As of June 30, 2011 and December 31, 2010, the Company did not have any other significant temporary differences and carryforwards that may result in deferred tax assets or liabilities.

XML



Note 28 - Employee defined contribution plan

6 Months Ended

Jun. 30, 2011

Pension and Other Postretirement Benefits Disclosure [Text Block]

28.   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 Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were approximately US$158,000 and US$96,000 for the six months ended June 30, 2011 and 2010, respectively.  For the three months ended June 30, 2011 and 2010, the Company incurred approximately US$81,000 and US$52,000 employee benefits expenses, respectively.

XML



Note 25 - Long-term borrowing from director

6 Months Ended

Jun. 30, 2011

Long Term Borrowing From Director Disclosure [Text Block]

25.   Long-term borrowing from director

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Long-term borrowing from director		135		132

Long-term borrowing from director was 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.

XML



Note 13 - Property and equipment, net

6 Months Ended

Jun. 30, 2011

Property, Plant and Equipment Disclosure [Text Block]

13.   Property and equipment, net

        Property and equipment consist of the following:

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Vehicles		598		584
Office equipment		1,279		1,183
Electronic devices		1,103		969
Total property and equipment		2,980		2,736
Less: accumulated depreciation		1,035		726
		1,945		2,010

Depreciation expenses in aggregate for the six months ended June 30, 2011 and 2010 were approximately US$273,000 and US$163,000, respectively.

Depreciation expenses in aggregate for the three months ended June 30, 2011 and 2010 were approximately US$140,000 and US$83,000, respectively.

XML



Note 6 - Accounts receivable

6 Months Ended

Jun. 30, 2011

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

6.   Accounts receivable

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Accounts receivable		6,685		4,319
Allowance for doubtful debts		-		-
Accounts receivable, net		6,685		4,319

As of August 12, 2011, approximately US$1,834,000 of the Company’s accounts receivable had been subsequently collected. Management believes that there will not be any collectability issue about these accounts receivable, therefore no allowance for doubtful accounts is required for the six and three months ended June 30, 2011.

XML



Note 16 - Contingent consideration receivable

6 Months Ended

Jun. 30, 2011

Contingent Consideration Receivable Disclosure [Text Block]

16.   Contingent consideration receivable

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Quanzhou Zhi Yuan		52		-
Quanzhou Tian Xi Shun He		65		-
		117		-

According to the acquisition agreements the Company entered into with Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He, if pretax profit for 2011 and 2012 increases by less than 30% while compared to audited pretax profit of the prior year, the sellers shall compensate the Company for the difference between the target pretax profit and actual results achieved. As of June 30, 2011, fair value of the contingently consideration receivable was approximately US$52,000 and US$65,000, respectively (See Note 3).

XML



Note 34 - Subsequent events

6 Months Ended

Jun. 30, 2011

Subsequent Events [Text Block]

34.   Subsequent events

On July 1, 2011, one of the Company’s PRC operating subsidiaries, Quanzhou Zhi Yuan, formed a new wholly owned company, Xin Qi Yuan Advertisement Planning (Hubei) Co., Ltd. (“Xin Qi Yuan Hubei”). The registered capital and paid in capital of Xin Qi Yuan HuBei is RMB100,000 (approximately US$15,470).  Xin Qi Yuan Hubei is mainly engaged in advertisement design, production, promulgation and providing the related adverting and marketing consultancy services.

On July 1, 2011, one of the Company’s PRC operating subsidiaries, Quanzhou Tian Xi Shun He, formed a new wholly owned company, Mu Sen Lin Advertisement (Hubei) Co., Ltd. (“Mu Sen Lin Hubei”). The registered capital and paid in capital of Mu Sen Lin HuBei is RMB100,000 (approximately US$15,470).  Mu Sen Lin Hubei is mainly engaged in advertisement design, production, promulgation and providing the related adverting and marketing consultancy services.

On July 1, 2011, one of the Company’s PRC operating subsidiaries, Business Opportunity Online Hubei, together with an individual who is not affiliated with the Company, formed a new company, Sheng Tian Network Technology (Hubei) Co., Ltd. (“Sheng Tian Hubei”).  The registered capital and paid in capital of Sheng Tian Hubei is RMB2,000,000 (approximately US$309,410). Business Opportunity Online Hubei and the co-founding individual invested RMB1,020,000 (approximately US$157,800) and RMB980,000 (approximately US$151,610) cash in Sheng Tian Hubei, respectively, and hence owned 51% and 49% of the equity interests of  Sheng Tian Hubei, respectively.  Sheng Tian Hubei is mainly engaged in computer system design, development and promotion; software development and promotion, and providing the related technical consultancy services.

The Company has performed an evaluation of subsequent events through the date the financial statements were issued, with no other material event or transaction needing recognition or disclosure found.

XML



Note 24 - Dividend payable

6 Months Ended

Jun. 30, 2011

Schedule of Dividends Payable [Table Text Block]

24.    Dividend payable

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Dividend payable to Series A convertible preferred stock holders		294		255

Dividend to Series A convertible preferred stock holders was accrued at the per annum rate of 10% and calculated based on US$2.5 per share liquidation preference and the actual number of days of each share of the Series A convertible preferred stock was outstanding for each of the reporting period.  For the six months ended June 30, 2011, the Company paid approximately US$283,000 dividends to its Series A convertible preferred stockholders.

XML



Consolidated Statements of Cash Flows (In thousands) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities
Net income	$ 5,809	$ 7,931
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	470	163
Share-based compensation expenses	172	121
Changes in fair value of warrants		(1,861)
Share of (earnings) losses in equity investment affiliates	105
Gain on deconsolidation of subsidiary	(230)
Gain on disposal of property and equipment	(3)
Deferred taxes	(46)
Changes in operating assets and liabilities
Accounts receivable	(2,171)	(1,559)
Other receivables	1,320	2,110
Prepayment and deposit to suppliers	(309)	(1,343)
Due from related parties	(258)	228
Other current assets	(2)	(238)
Accounts payable	258	38
Advances from customers	(1,477)	31
Accrued payroll and other accruals	(50)	95
Due to Control Group	(81)	(4)
Due to director	(147)	162
Due to related parties	(137)	(24)
Other payables	77	(6)
Taxes payable	797	339
Net cash provided by operating activities	4,097	6,183
Cash flows from investing activities
Purchases of property and equipment	(152)	(110)
Purchase of intangible assets	(11)	(4)
Prepayment for purchase of intangibles	(1,418)
Restricted cash for incorporation of subsidiaries	(186)
Cash from acquisition of subsidiaries	24
Cash effect on deconsolidation of a subsidiary	(182)
Payment for acquisition of subsidiaries	(1,451)
Net cash used in investing activities	(3,376)	(114)
Cash flows from financing activities
Cash investment contributed by noncontrolling interest	224	143
Dividend paid to Series A convertible preferred stockholders	(283)	(284)
Increase of short-term loan to third parties		(2,034)
Net cash used in financing activities	(59)	(2,175)
Effect of exchange rate fluctuation on cash and cash equivalents	195	37
Net increase (decrease) in cash and cash equivalents	857	3,931
Cash and cash equivalents at beginning of the period	15,590	13,917
Cash and cash equivalents at end of the period	16,447	17,848
Supplemental disclosure of cash flow information
Income taxes paid	117	1,082
Income taxes refunded		921
Warrant liability reclassify to additional paid in capital		7,703
Restricted stock and options granted for future service	$ 87	$ 177

XML



Note 17 - Goodwill

6 Months Ended

Jun. 30, 2011

Goodwill Disclosure [Text Block]

17.   Goodwill

Changes in goodwill for the six months ended June 30, 2011 were as follows:

	Amount
	US$(’000)
	(Unaudited)
Balance as of January 1, 2011		-
Acquisitions:  (Note 3)
--Quanzhou Zhi Yuan		728
--Quanzhou Tian Xi Shun He		1,166
Exchange translation adjustment		37
Balance as of June 30, 2011		1,931

XML



Note 19 - Payable for acquisitions

6 Months Ended

Jun. 30, 2011

Payable For Acquisitions Disclosure [Text Block]

19.   Payable for acquisitions

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Quanzhou Tian Xi Shun He		727		-

As described in Note 3, Beijing CNET Online entered into an equity interest acquisition agreement with the shareholders of Quanzhou Zhi Yuan and Quanzhou Tian Xi Sun He on December 18, 2010 and December 22, 2010, respectively. According to the acquisition agreements, the Company agreed to pay an aggregate cash consideration of RMB9,500,000 and an aggregate cash consideration of RMB7,500,000 in exchange for a 100% equity interest of QuanZhou Zhi Yuan and a 51% of the equity interest of Quanzhou Tian Xi Shun He, respectively.  In December 2010, the Company prepaid a deposit of RMB6,500,000 and RMB3,500,000 of the cash consideration for the acquisition of the 100% of equity interest of Quanzhou Zhi Yuan and 51% equity interest of Quanzhou Tian Xi Shun He, respectively, to an independent agent who was entrusted by both of the counter-parties upon signing the agreement.  These two acquisition transactions were subsequently consummated on January 4, 2011 and February 23, 2011, respectively.  During the three months ended June 30, 2011, the Company settled the remaining balance of the purchase price, which is RMB7,000,000 in the aggregate to the acquirees of these transactions.

In June 2011, Beijing CNET Online entered into an additional agreement with the noncontrolling interest of Quanzhou TianXi ShunHe to purchase the remaining 49% equity interest of Quanzhou TianXi ShunHe for a cash consideration of RMB7,200,000 (approximately US$1,114,000).  On June 27, 2011, this transaction was approved and registered by the related authorities of Quanzhou City, Fujian Province of PRC, and on the same date, Quanzhou Tian Xi Shun He became the wholly-owned subsidiary of the Company. As of June 30, 2011, the Company has paid RMB2,500,000 (approximately US$387,000) to the seller. Therefore, the outstanding payment of RMB4,700,000 (approximately US$727,000) was recorded as a payable for acquisitions as of June 30, 2011.

In accordance to ASC Topic 805 Business Combination, subtopic 10, Changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions (investments by owners and distributions to owners acting in their capacity as owners). Therefore, no gain or loss shall be recognized in consolidated net income or comprehensive income. The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest is adjusted shall be recognized in equity attributable to the parent and reallocated the subsidiary’s accumulated comprehensive income, if any, among the parent and the noncontrolling interest through an adjustment to the parent’s equity.

Therefore, the Company adjusted the difference between the cash consideration of RMB7,200,000 (approximately US$1,114,000) and the carrying amount of the noncontrolling interest of Quanzhou Tian Xi Shun He RMB6,672,819 (approximately US$1,032,000) as of the date of the transaction consummated, which was approximately US$82,000 as a deduction of the Company’s equity through additional paid-in capital account. As of the date of the acquisition of the 49% remaining equity interest of Quanzhou Tian Xi Shun He, approximately US$20,000 other comprehensive income, which was foreign currency exchange gain, allocated to the noncontrolling interest of Quanzhou Tian Xi Shun He was reallocated to the Company’s equity, through additional paid-in capital account.

XML



Note 2 - Summary of significant accounting policies

6 Months Ended

Jun. 30, 2011

Significant Accounting Policies [Text Block]

2.   Summary of significant accounting policies

a)    Basis of presentation

The consolidated interim financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.

The consolidated interim financial information as of June 30, 2011 and for the six and three months ended June 30, 2011 and 2010 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures, which are normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have not been included. The interim consolidated 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, 2010, previously filed with the SEC.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of June 30, 2011, its consolidated results of operations for the six and three months ended June 30, 2011 and 2010, and its consolidated cash flows for the six months ended June 30, 2011 and 2010, 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.

b)   Principles of Consolidation

The consolidated financial statements include the financial statements of all the subsidiaries of the Company. All transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation. According to the agreements between Beijing CNET Online and Shanghai Borongdingsi, although Beijing CNET Online legally owns 51% of Shanghai Borongdingsi’s interests, Beijing CNET Online only controls the assets and liabilities related to the bank kiosks business, which has been included in the financial statements of Beijing CNET Online, but does not control other assets of Shanghai Borongdingsi, thus, Shanghai Borongdingsi’s financial statements were not consolidated by the Company.

c)   Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 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.

d)   Reclassification

Certain prior period amounts have been regrouped to conform to the current period presentation, which did not have any impact to the Company’s prior period’s consolidated financial position, consolidated results of operations and consolidated cash flows

e)   Foreign currency translation and transactions

The functional currency of the Company’s US holding company is United States dollars (“US$”), and the functional currency of China Net HK is Hong Kong dollars (“HK$”).  The functional currency of the Company’s PRC operating subsidiaries is Renminbi (“RMB”), and PRC is the primary economic environment in which the Company operates.

For financial reporting purposes, the financial statements of the Company’s PRC operating subsidiaries, which are prepared using the RMB, are translated into the Company’s reporting currency, the United States Dollar (“U.S. dollar”). Assets and liabilities are translated using the exchange rate at each balance sheet date.  Revenue and expenses are translated using average rates prevailing during each reporting period, and stockholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in stockholders’ equity.

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions.  The resulting exchange differences are included in the determination of net income of the consolidated financial statements for the respective periods.

The exchange rates used to translate amounts in RMB into US$ for the purposes of preparing the consolidated financial statements are as follows:

	June 30, 2011		December 31, 2010
Balance sheet items, except for equity accounts		6.4640		6.6118
	Six months ended June 30,
		2011		2010
Items in the statements of income and comprehensive income, and statements cash flows		6.5482		6.8347
	Three months ended June 30,
		2011		2010
Items in the statements of income and comprehensive income, and statements cash flows		6.5074		6.8335

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

f)   Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use.  The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

g)   Restricted cash

Restricted cash consists of cash and cash equivalents which the Company has pledged to fulfill certain obligations and are not available for general corporate purposes.

h)   Accounts receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts as needed. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.  The Company did not have any off-balance-sheet credit exposure relating to its customers, suppliers or others.

i)   Investment in equity investment affiliates

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting in accordance to ASC Topic 323 “Equity Method and Joint Ventures”. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee companies’ board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee companies. Under the equity method of accounting, an investee company’s accounts are not reflected within the Company’s consolidated balance sheets and statements of income and comprehensive income; however, the Company’s share of the earnings or losses of the investee company is reflected in the caption “Share of earnings (losses) in equity investment affiliates” in the consolidated statements of income and comprehensive income. The Company’s carrying value (including loan to the investee) in equity method investee companies is reflected in the caption “Investment in and loan to equity investment affiliates” in the Company’s consolidated balance sheets.

When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

j)   Property and equipment, net

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated on the straight-line method after taking into account their respective estimated residual values over the following estimated useful lives:

Vehicles	5 years
Office	3-5 years
Electronic	5 years

Depreciation expenses are included in selling expenses, general and administrative expenses and research and development expenses.

When property and equipment are retired or otherwise disposed of, resulting gain or loss is included in net income or loss in the year of disposition for the difference between the net book value and proceeds received thereon.  Maintenance and repairs which do not improve or extend the expected useful lives of the assets are charged to expenses as incurred.

k)   Intangible assets, net

Purchased software is initially recorded at cost and amortized on a straight-line basis over the estimated useful economic life of three years.

Intangible assets other than goodwill acquired through various acquisitions (see Note 3) are amortized on a straight-line basis over their expected useful economic lives.

If an acquired intangible asset is determined to have an indefinite useful life, it should not be amortized until its useful life is determined to be no longer indefinite.  The Company reviews intangible assets' remaining useful lives in each reporting period.  If such an asset is later determined to have a finite useful life, the asset will be tested for impairment.  That asset will then be amortized prospectively over its estimated remaining useful life and accounted for in the same way as intangible assets subject to amortization.

The Company accounted for website development costs in accordance with ASC Topic 350-50, which requires that certain costs related to the development or purchase of internal-use software and systems as well as the costs incurred in the application development stage related to its website be capitalized and amortized over the estimated useful life of the software or system. ASC Topic 350-50 also require that costs related to the preliminary project stage, data conversion and post implementation/operation stage of an internal-use software development project be expensed as incurred.

Based on the Company analysis of its website development cost which is subject to capitalization in accordance with ASC Topic 350-50 incurred for the development of www.liansuo.com and www.chuangye.com, the Company didn’t capitalize such cost, as the amount was considered immaterial, which was mainly the labor cost of its R&D staff of approximately US$35,000 in the aggregate.

l)   Impairment of long-lived assets

Long-lived assets, which include tangible long-lived assets and intangible long-lived assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount of the asset and its fair value.

For the six and three months ended June 30, 2011 and 2010, the Company did not record any impairment losses associated with long-lived assets.

m)   Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Company's acquisitions of interests in its subsidiaries.

Goodwill is not depreciated or amortized but is tested for impairment at the reporting unit level at least on an annual basis, and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired.  The test consists of two steps. First, identify potential impairment by comparing the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired. Second, if there is impairment identified in the first step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with Topic 805, “Business Combinations.”

Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.

n)   Deconsolidation

The Company accounts for deconsolidation of a subsidiary in accordance with ASC Topic 810 “Consolidation”.

 In accordance with ASC Topic 810-10-40-5, the parent shall account for the deconsolidation of a subsidiary by recognizing a gain or loss in net income attributable to the parent, measured as the difference between:

a. The aggregate of all of the following:

1. The fair value of any consideration received;

2.  The fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated;

3. The carrying amount of any noncontrolling interest in the former subsidiary (including any accumulated other comprehensive income attributable to the noncontrolling interest) at the date the subsidiary is deconsolidated.

b. The carrying amount of the former subsidiary’s assets and liabilities.

o)   Changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary

The Company accounted for changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary in accordance with ASC Topic 805 Business Combination, subtopic 10, which requires the transaction be accounted for as equity transactions (investments by owners and distributions to owners acting in their capacity as owners). Therefore, no gain or loss shall be recognized in consolidated net income or comprehensive income. The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest is adjusted shall be recognized in equity attributable to the parent and reallocated the subsidiary’s accumulated comprehensive income, if any, among the parent and the noncontrolling interest through an adjustment to the parent’s equity.

p)   Revenue recognition

The Company's revenue recognition policies are in compliance with ASC Topic 605 “Revenue Recognition”. In accordance with ASC Topic 605, revenues are recognized when the four of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured.

Sales include revenues from internet advertising generated from the Company’s portal websites, reselling of internet advertising spaces and other internet advertisement related resources purchased from other portal websites, reselling of advertising time purchased from TV stations and brand management and sales channel expansion services. No revenue from advertising-for-advertising barter transactions was recognized because the transactions did not meet the criteria for recognition in ASC Topic 605, subtopic 20.  Advertising contracts establish the fixed price and advertising services to be provided.  Pursuant to advertising contracts, the Company provides advertisement placements in different formats, including but not limited to banners, links, logos, buttons, rich media and content integration. Revenue is recognized ratably over the period the advertising is provided and, as such, the Company considers the services to have been delivered. The Company treats all elements of advertising contracts as a single unit of accounting for revenue recognition purposes.  Based upon the Company’s credit assessments of its customers prior to entering into contracts, the Company determines if collectability is reasonably assured.  In situations where collectability is not deemed to be reasonably assured, the Company recognizes revenue upon receipt of cash from customers, only after services have been provided and all other criteria for revenue recognition have been met.

q)   Cost of sales

Cost of sales primarily includes the cost of media advertising time, internet advertisement related resources and other technical services purchased, director labor cost and PRC business tax.

r)   Advertising costs

Advertising costs for the Company’s own brand building are not includable in cost of sales, they are expensed when incurred or amortized over the estimated beneficial period and are included in “selling expenses” in the statement of income and comprehensive income. For the six months ended June 30, 2011 and 2010, advertising expenses for the Company’s own brand building were approximately US$1,019,000 and US$949,000, respectively. For the three months ended June 30, 2011 and 2010, advertising expenses for the Company’s own brand building were approximately US$555,000 and US$697,000, respectively.

s)   Research and development expenses

Research and development costs are charged to expense when incurred. Expenses for research and development for the six months ended June 30, 2011 and 2010 were approximately US$724,000 and US$330,000, respectively. Expenses for research and development for the three months ended June 30, 2011 and 2010 were approximately US$372,000 and US$196,000, respectively.

t)   Income taxes

The Company adopted ASC Topic 740 “Income taxes” and uses the liability method to account for income taxes.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income statement in the period that includes the enactment date.

u)   Uncertain tax positions

The Company adopted ASC Topic 740-10-25-5 through 740-10-25-7 and 740-10-25-13, which prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.  For the six and three months ended June 30, 2011 and 2010, the Company did not have any interest and penalties associated with tax positions and did not have any significant unrecognized uncertain tax positions.

v)   Share-based Compensation

The Company accounts for share-based compensation in accordance with ASC Topic 718 “Compensation-Stock Compensation” which requires that share-based payment transactions be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period, or vesting period.

w)   Noncontrolling interest

The Company accounts for noncontrolling interests in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests (previously referred to as minority interests) as a separate component of total shareholders’ equity on the consolidated balance sheet and the consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated income and comprehensive income statement. ASC Topic 810-10-45 also requires that losses attributable to the parent and the noncontrolling interest in a subsidiary be attributed to those interests even if it results in a deficit noncontrolling interest balance.

x)   Comprehensive income

The Company accounts for comprehensive income in accordance with ASC Topic 220 “Comprehensive Income”, which establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income, as presented on the accompanying consolidated balance sheets are the cumulative foreign currency translation adjustments.

y)   Earnings / (loss) per share

Earnings / (loss) per share are calculated in accordance with ASC Topic 260, “Earnings Per Share”. Basic earnings per share is computed by dividing income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Common shares issuable upon the conversion of the convertible preferred shares are included in the computation of diluted earnings per share on an “if-converted” basis when the impact is dilutive. The dilutive effect of outstanding common stock warrants is reflected in the diluted earnings per share by application of the treasury stock method when the impact is dilutive.

z)   Commitments and contingencies

The Company has adopted ASC 450 “Contingencies” subtopic 20, in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability have been incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.

aa)   Fair value measurements

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables, prepayment and deposits, accounts payable, advances from customers, accruals and other payables. The carrying values of these financial instruments approximate fair values due to their short maturities.

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

bb)   Recent accounting pronouncements affecting the Company

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is not expected to have a material impact on the Company’s consolidated financial position and results of operations upon adoption.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. Under the amendments in this ASU, an entity has two options for presenting its total comprehensive income: to present total comprehensive income and its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company intends to conform to the new presentation required in this ASU beginning with its Form 10-Q for the three months ended March 31, 2012.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial position and results of operations upon adoption.

XML



Note 11 - Deposit for acquisitions

6 Months Ended

Jun. 30, 2011

Deposit Assets Disclosure [Text Block]

11.   Deposit for acquisitions

	June 30, 2011		December 31, 2010
	US$(’000)		US$(’000)
	(Unaudited)
Quanzhou Zhi Yuan		-		983
Quanzhou Tian Xi Shun He		-		529
		-		1,512

As described in Note 3, the Company prepaid RMB6,500,000 (approximately US$983,000) and RMB3,500,000 (approximately US$529,000) of the cash consideration for the acquisition of a 100% equity interest of Quanzhou Zhi Yuan and a 51% equity interest of Quanzhou Tian Xi Shun He, respectively, as deposits to an independent agent who was entrusted by both of the counter-parties upon signing the agreement.  The shareholders of Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He would then fulfill the related obligations and process the relevant legal procedures and formalities as required in the acquisition agreements to complete the transaction. As agreed by all parties, the completion dates of these acquisition transactions and the transfer of the control of the acquirees were the dates that the equity interest transfers were approved and registered with the relevant PRC government authorities and the prepaid cash consideration would be released to the shareholders of the acquirees on its respective transaction completion date.  Therefore, as of December 31, 2010, the cash considerations prepaid were recorded as deposit for acquisitions.

On January 4, 2011 and February 23, 2011, the acquisition of a 100% equity interest of Quanzhou Zhi Yuan and the acquisition of a 51% equity interest of Quanzhou Tian Xi Shun He were approved and registered with the relevant PRC government authorities of Quanzhou City, Fujian Province, respectively, and the prepaid cash considerations deposits were released to the shareholders of the acquirees in accordance. The Company determined the acquisition dates of Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He as of January 4, 2011 and February 23, 2011, respectively, and the prepaid cash deposits were accounted for as part of the purchase price allocation (see Note 3).

XML



Note 29 - Concentration of risk

6 Months Ended

Jun. 30, 2011

Concentration Risk Disclosure [Text Block]

29.   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, accounts receivable, and prepayments and other current assets. As of June 30, 2011 and December 31, 2010, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC and Hong Kong, which management believes are of high credit quality.

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 subsidiary to transfer its net assets, which to the Company through loans, advances or cash dividends.

Concentration of Supplier

For the six months ended June 30, 2011, three suppliers accounted for 25%, 21% and 14% of the Company’s cost of sales, respectively. For the six months ended June 30, 2010, three suppliers accounted for 29%, 22% and 17% of the Company’s cost of sales, respectively.  Except for the aforementioned suppliers, there was no other single supplier who accounted for more than 10% of the Company’s cost of sales for the six months ended June 30, 2011 and 2010, respectively.

For the three months ended June 30, 2011, three suppliers accounted for 28%, 23% and 18% of the Company’s cost of sales, respectively. For the three months ended June 30, 2010, three suppliers accounted for 28%, 24% and 21% of the Company’s cost of sales, respectively. Except for the aforementioned suppliers, there was no other single supplier who accounted for more than 10% of the Company’s cost of sales for the three months ended June 30, 2011 and 2010, respectively.

XML



Note 15 - Prepayment for purchase of intangibles

6 Months Ended

Jun. 30, 2011

Prepayment For Purchase OfIntangibles Disclosure [Text Block]

15.   Prepayment for purchase of intangibles

June 30, 2011		December 31, 2010
US$(’000)		US$(’000)
(Unaudited)
	1,436		-

On June 14, 2011, one of the Company’s PRC operating subsidiaries, Business Opportunity Online Hubei, and an individual who was not affiliated with the Company, filed an application for incorporation of a new company, Sheng Tian Network Technology (Hubei) Co., Ltd (“Sheng Tian Hubei”), which was 51% owned by Business Opportunity Online Hubei and 49% owned by this co-founder individual, the incorporation of this new company was subsequently approved and registered by the related local government authorities on July 1, 2011(see Note 34).

In addition, on June 15, 2011, Business Opportunity Online Hubei entered into a software and technology purchase agreement with this individual. The agreement provides that the purchase price shall be based on the valuation of RMB18,200,000 (approximately US$2,816,000), and Business Opportunity Online shall pay RMB9,282,000 (approximately US$1,436,000) and hence own 51% of these technology and related software. The agreement stipulates that the seller shall transfer all technology and related documentations to Sheng Tian Hubei and provide assistance for the registration of the technology and software in the name of Sheng Tian Hubei. The agreement also provides that the seller shall dismiss all human resources for the business activities related to the software from the date of this agreement and provide assistance for Sheng Tian Hubei to re-employ the necessary technology staff from the seller upon establishment of Sheng Tian Hubei to ensure a smooth transitioning of the activities related to the software.

These technology and software will be further consolidated and integrated into the Company’s advertising and marketing platform and mainly, management tools platform and packed into different value-added services to be provided to its clients.

As the application for incorporation of Sheng Tian Hubei had not been approved and registered by the related local government authorities as of June 30, 2011, the payment for purchase of the 51% ownership of the software and technology was recorded as prepayment for purchase of intangibles.

XML



Consolidated Balance Sheets (In thousands, except for number of shares and per share data) (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 16,447	$ 15,590
Restricted cash	189
Accounts receivable	6,685	4,319
Other receivables	6,645	7,811
Prepayment and deposit to suppliers	3,596	3,325
Due from equity investment affiliates	42
Due from related parties	451	185
Deposit for acquisitions		1,512
Other current assets	34	31
Total current assets	34,089	32,773
Investment in and loan to equity investment affiliates	7,840	7,162
Property and equipment, net	1,945	2,010
Intangible assets, net	1,845	51
Prepayment for purchase of intangibles	1,436
Contingent consideration receivable	117
Goodwill	1,931
Total Assets	49,203	41,996
Current liabilities:
Accounts payable	438	174
Advances from customers	673	2,120
Other payables	109	10
Accrued payroll and other accruals	406	470
Payable for acquisitions	727
Due to related parties	158	291
Due to Control Group		81
Due to director	413	559
Taxes payable	3,054	2,193
Dividend payable	294	255
Total current liabilities	6,272	6,153
Long-term liabilities:
Deferred tax liability-non current	448
Long-term borrowing from director	135	132
Total Liabilities	6,855	6,285
Equity:
Series A convertible preferred stock (US$0.001 par value; authorized 8,000,000 shares; issued and outstanding 2,403,289 and 2,877,600 shares at June 30, 2011 and December 31, 2010, respectively; aggregate liquidation preference amount: $6,302 and $7,449, including accrued but unpaid dividends of $294 and $255, at June 30, 2011 and December 31, 2010, respectively)	2	3
Common stock (US$0.001 par value; authorized 50,000,000 shares; issued and outstanding 17,576,631 shares and 17,102,320 shares at June 30, 2011 and December 31, 2010, respectively)	18	17
Additional paid-in capital	18,724	18,614
Statutory reserves	1,587	1,587
Retained earnings	20,114	14,630
Accumulated other comprehensive income	1,651	930
Total ChinaNet Online Holdings, Inc.’s stockholders’ equity	42,096	35,781
Noncontrolling interest	252	(70)
Total equity	42,348	35,711
Total Liabilities and Equity	$ 49,203	$ 41,996

XML



Note 31 - Segment reporting

6 Months Ended

Jun. 30, 2011

Segment Reporting Disclosure [Text Block]

31.   Segment reporting

The Company follows FASB 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”) to make decisions about resources to be allocated to the segment and assess each operating segment’s performance.

From January 1, 2011, the Company combined the Internet Advertisement Resources Reselling segment and the Internet Information Management (“IIM”) segment with the Internet Advertisement segment, due to the fact that the relative percentages of these two combined segments’ financial performances were immaterial and will be immaterial to the Company’s consolidated financial results for each of the reporting period.   Certain prior period amounts have been re-grouped to conform to the current period presentation.  Upon the acquisition of Quanzhou Zhi Yuan, Quanzhou Tianxi Shun He and incorporation of Zhaoshangke Hubei, the Company operated in one more reportable business segment, which was Brand Management and Sales Channel Expansion.

Six Months Ended June 30, 2011 (Unaudited)

	Internet Ad.		TV Ad.		Bank kiosk		Brand management and sales channel expansion		Others			Inter- segment and reconciling item			Total
	US$ (‘000)		US$ (‘000)		US$ (‘000)		US$ (‘000)		US$ (‘000)			US$ (‘000)			US$ (‘000)
Revenue		12,541		2,791		275		500		-			(14	)		16,093
Cost of sales		3,105		2,186		24		157		-			(14	)		5,458
Total operating expenses		2,542		317		131		290		929	*		-			4,209
Including: Depreciation and amortization expense		92		38		96		195		49			-			470
Operating income(loss)		6,894		288		120		53		(929	)		-			6,426
Gain on deconsolidation of subsidiary		-		-		-		-		230			-			230
Share of earnings (losses) in equity investment affiliates		-		30		-		-		(135	)		-			105
Expenditure for long-term assets		37		-		111		3		1,430			-			1,581
Net income (loss)		6,144		311		120		64		(830	)		-			5,809
Total assets		46,253		4,493		807		4,815		22,737			(29,902	)		49,203

*Including approximately US$172,000 share-based compensation expenses.

Three Months Ended June 30, 2011 (Unaudited)

	Internet Ad.		TV Ad.		Bank kiosk		Brand management and sales channel expansion		Others			Inter- segment and reconciling item			Total
	US$ (‘000)		US$ (‘000)		US$ (‘000)		US$ (‘000)		US$ (‘000)			US$ (‘000)			US$ (‘000)
Revenue		6,457		2,073		138		427		-			(14	)		9,081
Cost of sales		1,683		1,634		13		121		-			(14	)		3,437
Total operating expenses		1,421		163		57		194		420	*		-			2,255
Including: Depreciation and amortization expense		46		19		50		132		25			-			272
Operating income(loss)		3,353		276		68		112		(420	)		-			3,389
Gain on deconsolidation of subsidiary		-		-		-		-		-			-			-
Share of earnings (losses) in equity investment affiliates		-		13		-		-		(72	)		-			(59	)
Expenditure for long-term assets		16		-		77		3		1,426			-			1,522
Net income (loss)		3,045		281		70		109		(492	)		-			3,013
Total assets		46,253		4,493		807		4,815		22,737			(29,902	)		49,203

*Including approximately US$65,000 share-based compensation expenses.

Six Months Ended June 30, 2010 (Unaudited)

	Internet Ad.		TV Ad.			Bank kiosk		Brand management and sales channel expansion		Others			Inter- segment and reconciling item			Total
	US$ (‘000)		US$ (‘000)			US$ (‘000)		US$ (‘000)		US$ (‘000)			US$ (‘000)			US$ (‘000)
Revenue		12,580		9,424			263		-		236			(236	)		22,267
Cost of sales		3,355		9,238			22		-		48			-			12,663
Total operating expenses		2,107		285			32		-		1,074	*		(236	)		3,262
Including: Depreciation and amortization expense		50		49			32		-		32			-			163
Operating income(loss)		7,118		(99	)		209		-		(886	)		-			6,342
Changes in fair value of warrants		-		-			-		-		1,861			-			1,861
Expenditure for long-term assets		71		-			-		-		43						114
Net income (loss)		6,841		(98	)		210		-		978			-			7,931
Total assets		20,284		6,656			303		-		10,741			(5,223	)		32,761

*Including approximately US$121,000 share-based compensation expenses.

Three Months Ended June 30, 2010 (Unaudited)

	Internet Ad.		TV Ad.		Bank kiosk		Brand management and sales channel expansion		Others			Inter- segment and reconciling item			Total
	US$ (‘000)		US$ (‘000)		US$ (‘000)		US$ (‘000)		US$ (‘000)			US$ (‘000)			US$ (‘000)
Revenue		7,887		4,021		132		-		236			(236	)		12,040
Cost of sales		2,143		3,733		12				48			-			5,936
Total operating expenses		1,474		145		16				509	*		(236	)		1,908
Including: Depreciation and amortization expense		25		20		16				11			-			72
Operating income(loss)		4,270		143		104				(321	)		-			4,196
Changes in fair value of warrants		-		-		-		-		-			-			-
Expenditure for long-term assets		71		-		-		-		13			-			84
Net income (loss)		4,205		143		104		-		(316	)		-			4,136
Total assets		20,284		6,656		303		-		10,741			(5,223	)		32,761

*Including approximately US$57,000 share-based compensation expenses.

XML



Note 32 - Earnings (Loss) per share

6 Months Ended

Jun. 30, 2011

Earnings Per Share [Text Block]

32.   Earnings per share

Basic and diluted earnings per share for each of the periods presented are calculated as follows:

	Six months ended				Three months ended
	June 30,				June 30,
	2011		2010		2011		2010
	US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)				(Unaudited)
	(Amount in thousands except for the number of shares and per share data)				(Amount in thousands except for the number of shares and per share data)
Net income attributable to ChinaNet Online Holdings, Inc. (numerator for diluted earnings per share)	$	5,806	$	8,008	$	2,994	$	4,213
Less: Dividend for Series A convertible preferred stock		322		422		153		193
Net income attributable to common shareholders of ChinaNet Online Holdings, Inc. (numerator for basic earnings per share)		5,484		7,586		2,841		4,020
Weighted average number of common shares outstanding - Basic		17,387,336		16,542,966		17,528,785		16,848,023
Effect of diluted securities:
Series A Convertible preferred stock		2,592,584		3,406,954		2,451,135		3,101,897
Warrants		430,804		950,454		26,042		792,897
Weighted average number of common shares outstanding -Diluted		20,410,724		20,900,374		20,005,962		20,742,817
Earnings per share-Basic	$	0.32	$	0.46	$	0.16	$	0.24
Earnings per share-Diluted	$	0.28	$	0.38	$	0.15	$	0.20

All share and per share data have been retroactively adjusted to reflect the reverse acquisition on June 26, 2009 whereby the 13,790,800 shares of common stock issued by the Company (nominal acquirer) to the shareholders of China Net BVI (nominal acquiree) are deemed to be the number of shares outstanding for the period prior to the reverse acquisition.  For the period after the reverse acquisition, the number of shares considered to be outstanding is the actual number of shares outstanding during that period.