ChinaNet (NASDAQ: CNET) reported Q1 EPS of ($0.05), versus $0.00 reported last year. Revenue for the quarter came in at $5.8 million, versus $5.2 million reported last year.

First Quarter 2015 Financial Results

Revenues for the three months ended March 31, 2015 were $5.8 million compared to $5.2 million for the three months ended March 31, 2014, representing a 12.8% increase, primarily due to the increase in revenues from the search engine marketing service. Internet advertising and related services, TV advertising, and brand management and sales channel building revenues were $5.6 million, $0.1 million, and $0.1 million in the first quarter of 2015, respectively.

First Quarter 2015 Revenue Breakdown by Business Unit (USD in thousands)

Q1 2015 % Q1 2014 % % Change
Internet Advertisement and related services $5,598 95.7% $3,580 69.0% 56.4%
TV Advertisement $58 1.0% $1,182 22.8% -95.1%
Bank Kiosks $69 1.2% $71 1.4% -2.8%
Brand Mgmt. & Sales Channel Building $123 2.1% $350 6.8% -64.9%

Gross profit for the three months ended March 31, 2015 was $0.9 million compared to $1.4 million for the same period in 2014. Gross margin was 15.4%, down from 26.3% in the first quarter of 2014. This decrease is primarily due to the increase in lower margin revenue from search engine marketing service, which accounted for approximately 52% of total revenue for the three months ended March 31, 2015.

The Company incurred an operating loss of $2.1 million for the three months ended March 31, 2015 compared to an operating loss of $0.7 million in the same period a year ago.

Net loss attributable to ChinaNet for the three months ended March 31, 2015 was $1.8 million and loss per share was $0.07, compared to a net loss of $0.7 million in the first quarter of 2014. Excluding the share-based compensation expense as discussed above, the Non-GAAP adjusted net loss attributable to ChinaNet common stockholders and net loss per share were 1.4 million and 0.05, respectively.

Balance Sheet and Cash Flow

The Company had $2.2 million in cash and cash equivalents as of March 31, 2015, compared to $5.0 million as of December 31, 2014, working capital of $16.0 million, compared to $17.3 million as of December 31, 2014, and a current ratio of 2.4 to 1, compared to 2.7 to 1 as of December 31, 2014. Total shareholders' equity of ChinaNet was $34.7 million at March 31, 2015 compared to $36.2 million at December 31, 2014.

The Company had a $2.3 million of cash outflows from operations in the first quarter of 2015 compared to a $1.4 million of cash outflows for the first three months of 2014.

Business Updates

In April, ChinaNet announced that in addition to offering its total solution of products and services, it successfully proved a new added revenue model with its pilot SME customer, Beijing Saturday Educational Technology Co., Ltd. ("Beijing Saturday"). Founded in 2000, "Saturday Children's" theme park (Saturday Children's) is one of the country's first indoor children's theme parks and is owned and operated by Beijing Saturday. In the third quarter of 2014 ChinaNet committed a cash investment for an approximately 10% ownership stake in Beijing Saturday. ChinaNet cooperated with the company to expand Saturday Children's theme parks in China. ChinaNet provided Beijing Saturday full support to enhance Saturday Children's with brand management, brand channel expansion, marketing and advanced marketing chain management systems. The Company helped to properly manage each franchise store through its management system and used Baidu Wallet to facilitate online payment. ChinaNet is also currently implementing its new "Business Direct 3.0" service with Beijing Saturday. Saturday Children's focus on third and fourth-tier cities has helped to create strong demand and it expects to open 600 new parks in 2015 with the help of ChinaNet.

Also in April, the Company's subsidiary Liansuo.com signed an agreement with Haoxiangni Jujube Co., Ltd. to create a one-stop purchasing service platform and expand Haoxiangni Jujube's online stores. Haoxiangni is the largest jujube enterprise in China and has the most types of Jujube products of its competitors. The company has nearly 2,000 stores across more than 280 cities. Liansuo.com is helping Haoxiangni create a one-stop purchasing service platform and expand the online stores through its active marketing program that includes traditional and online advertising, trade shows and referrals.

The number of larger customers served by Liansuo.com has seen steady growth because of the Company's premium advertising efforts and effective marketing web portal.

In May, ChinaNet entered into a definitive securities purchase agreement (the "Agreement") with Beijing Jinrun Fangzhou Science & Technology Co., Ltd. (Shenzhen Stock Exchange, Stock Code: 430120) (the "Purchaser" or "Jinrun Technology") to raise US$3,500,000 (the "Purchase Price"), pursuant to which the Purchaser has agreed to purchase 2,800,000 shares of common stock of the Company (the "Shares"). In accordance with the Agreement, the Purchaser made a ten percent (10%) non-refundable guarantee payment to the Company in an amount equal to US$350,000 on May 7, 2015. The Purchaser shall pay an additional fifteen percent (15%) of the Purchase Price by June 4, 2015. The Purchaser shall pay the remaining seventy-five percent (75%) of the Purchase Price at the closing which shall take place on the date mutually agreed to by the parties, subject to the closing conditions contained in the Agreement. On the date the Agreement was signed, the Purchaser also entered into a Lock-Up Agreement with the Company, whereby the Purchaser agreed not to transfer the Shares until May 5, 2017. Upon the Company's prior written approval, the lock-up restriction may be waived after May 5, 2016. The proceeds from the offering, net of certain fees and expenses, will be used for working capital to fund technology research and development, marketing for new services and product launches, and potential mergers and acquisitions.

Also in May, the Company entered into a strategic alliance with Shanghai Pudong Development Bank and signed a cooperation framework to launch a credit card and loan microcredit product for small enterprises and individual entrepreneurs including franchisees and chain store investors. The product will be intended to offer, under the authorization of ChinaNet, an "unsecured and free mortgage" micro-loan through credit card to the recipients to be used in merchant shops for business related operating costs. The product is now in the design and finalization process, and will be officially launched by the third fiscal quarter of 2015.

For earnings history and earnings-related data on ChinaNet (CNET) click here.