Note 1 - Organization and Nature of Operations

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Nature of Operations [Text Block]

1. Organization and nature of operations

ChinaNet Online Holdings, Inc. (the “Company”) was incorporated in the State of Texas in

April 2006

and re-domiciled to become a Nevada corporation in

October 2006.

On

June 26, 2009,

the Company consummated a share exchange transaction with China Net Online Media Group Limited (the “Share Exchange”), a company organized under the laws of British Virgin Islands (“China Net BVI”). As a result of the Share Exchange, China Net BVI became a wholly owned subsidiary of the Company and the Company is now a holding company, which, through certain contractual arrangements with operating companies in the People’s Republic of China (the “PRC”), is engaged in providing advertising, precision marketing, online to offline sales channel expansion and the related data services to small and medium enterprises in the PRC, through distribution of the right to use

search engine marketing service the Company purchased from key search engines, online advertising placements on the Company’s advertising portals, sales of effective sales lead information and provision of TV advertising service. In early

2018,

the Company announced its expansion into the blockchain industry and the related technology. As of

December 31, 2018,

the Company was still in the process of developing its blockchain-powered marketing and advertising application platform (See Note

11

)

.

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 used to restrict foreign ownership of business entities engaging in the advertising business, which was subsequently lifted in

June 2015.

To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through its Variable Interest Entities (“VIEs”). Through a series of contractual agreements (the “Contractual Agreements” or “VIE Agreements”) 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 Entities” or the “VIEs”) and its common individual owners (the “PRC Shareholders” or the “Control Group”), the Company, through Rise King WFOE, secures significant rights to influence the PRC Operating Entities’ business operations, policies and management, approve all matters requiring shareholder approval, and the right to receive the income earned by the PRC Operating Entities. In return, Rise King WFOE provides consulting services to the PRC Operating Entities. In addition, to ensure that the PRC Operating Entities and the PRC Shareholders perform their obligations under the Contractual Arrangements, the PRC Shareholders have pledged all of their equity interests in the PRC Operating Entities to Rise King WFOE. They also entered into an option agreement with Rise King WFOE which provides that at such time as when the 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 Entities, directly.

Pursuant to the Contractual Agreements, all of the equity owners' rights and obligations of the VIEs 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 VIEs, Rise King WFOE's ability to extract the profits from the operation of the VIEs and assume the residual benefits of the VIEs. Due to the fact that Rise King WFOE and its indirect parent are the sole interest holders of the VIEs, the Company included the assets, liabilities, revenues and expenses of the VIEs in its consolidated financial statements, which is consistent with the provisions of FASB Accounting Standards Codification ("ASC") Topic

810

“Consolidation”, subtopic

10.

As of

December 31, 2018,

the Company’s consolidated subsidiaries and VIEs are summarized as follows:

Name of the subsidiary or VIE	Place and date of incorporation	Percentage of ownership	Principal activities
China Net Online Media Group Limited (“China Net BVI”) (1)	British Virgin Islands, August 13, 2007	100%	Investment holding company
CNET Online Technology Limited (“China Net HK”) (1)	Hong Kong, September 4, 2007	100%	Investment holding company
ChinaNet Investment Holding Ltd. (“ChinaNet Investment BVI”) (1)	British Virgin Islands, January 12, 2015	100%	Investment holding company
Rise King Century Technology Development (Beijing) Co., Ltd. (“Rise King WFOE”) (1)	PRC, January 17, 2008	100%	Investment holding company
Business Opportunity Online (Beijing) Network Technology Co., Ltd. (“Business Opportunity Online”) (2)	PRC, December 8, 2004	100%	Providing online advertising, precision marketing and the related data services
Beijing CNET Online Advertising Co., Ltd. (“Beijing CNET” Online) (2)	PRC, January 27, 2003	100%	Providing TV advertising services
ChinaNet Online Holdings Co., Ltd. (“ChinaNet Online PRC”) (1)	PRC, August 31, 2015	100%	Investment holding company
Beijing Chuang Fu Tian Xia Network Technology Co., Ltd. (“Beijing Chuang Fu Tian Xia”) (2)	PRC, March 1, 2011	100%	Providing online advertising, precision marketing and the related data services
Business Opportunity Online (Hubei) Network Technology Co., Ltd. (“Business Opportunity Online Hubei”) (2)	PRC, January 28, 2011	100%	Providing online advertising, precision marketing and the related data services
Hubei CNET Advertising Media Co., Ltd. (“Hubei CNET”) (2)	PRC, April 18, 2011	100%	Providing TV advertising services
Sheng Tian Network Technology (Hubei) Co., Ltd. (“Sheng Tian Hubei”) (2)	PRC, July 1, 2011	100%	Providing online advertising, precision marketing and the related data services
Beijing Chuang Shi Xin Qi Advertising Media Co., Ltd. (“Beijing Chuang Shi Xin Qi”) (2)	PRC, April 16, 2014	100%	Providing online advertising, precision marketing and the related data services
Beijing Shi Ji Cheng Yuan Advertising Media Co., Ltd. (“Beijing Shi Ji Cheng Yuan”) (2)	PRC, May 22, 2014	100%	Providing online advertising, precision marketing and the related data services
Beijing Hong Da Shi Xing Network Technology Co., Ltd. (“Beijing Hong Da Shi Xing”) (2)	PRC, April 16, 2014	100%	Providing online advertising, precision marketing and the related data services
Business Opportunity Chain (Beijing) Technology Development Co., Ltd.   (“Business Opportunity Chain”) (1)	PRC, May 11, 2018	51%	Providing research and develop and other technical support services for the blockchain business unit

( 1 ) A direct or indirect subsidiary of the Company.

( 2 ) The Company’s consolidated VIE, or a direct or indirect subsidiary of the Company’s consolidated VIE.

On

January 17, 2018,

the Company consummated a registered direct offering of

2,150,001

shares of the Company’s common stock to certain institutional investors at a purchase price of

$5.15

per share (“the Financing”). As part of the transaction, the Company also issued to the investors warrants for the purchase of up to

645,000

shares of the Company’s common stock at an exercise price of

$6.60

per share. The warrants have a term of

30

months from the date of issuance. The Company received gross proceeds of approximately

$11.1

million. The Company also issued warrants for the purchase of up to

129,000

shares of the Company’s common stock at an exercise price of

$6.60

per share to the placement agent as part of the placement fee. The warrants issued to the placement agent have a term of

36

months and is

not

exercisable for a period of

six

months and

one

day after the closing date of the Financing (See Note

19

).