Chinanet Online Holdings Inc (CNET): Shoring up the Balance Sheet by Selling Stock Comes with a Price

Shares of Chinanet Online Holdings Inc (NASDAQ:CNET), an integrated online advertising, precision marketing and data-analysis and management services platform, tumbled as much as 25% during Friday’s trading session. The culprit? Look no further than the announcement of a registered direct share offering before the opening bell.

The early-morning press release from Chinanet notes that the company entered into an agreement with three institutional investors to receive $11 million in gross proceeds from the sale of 2,150,001 shares at $5.15 per share. Unfortunately, Chinanet closed on Thursday, Jan 11, at $6.38 a share. That’s a 19% discount to the previous closing price, and the main reason CNET is getting clobbered today.

As part of the transaction, the Company will also issue to the investors warrants to purchase up to 645,000 shares of common stock at an exercise price of $6.60 per share, which warrants will have a term of 30 months from the date of issuance.

Added to its current 12.34 million shares outstanding, this offering promises to dilute existing shareholders as much as 23% — coincidentally, about the same amount the stock is down today.

That said, the cash raise will give the company more than $10 million in cash on its balance sheet, which should be enough capital to fund its general working capital purposes. If the warrants are exercised in full, the Company will receive additional proceeds of approximately $4.3 million.

The completion of the placement is expected to occur on or about January 17, 2018, subject to the satisfaction of customary closing conditions.

ChinaNet Online Holdings is engaged in the provision of media development and advertising platforms. It operates through the following segments: Internet Advertisement, Technical Service, (Television) TV Advertisement, Bank Kiosk, and Brand Management and Sales Channel Building. The Internet Advertisement segment provide advertisers with tools to build sales channels directly in the form of franchisees, sales agents, distributors, and/or resellers. The Technical Service segment includes technical management systems and platforms. The TV Advertisement segment engages in the production and distribution of television shows that are comprised of advertisements similar to infomercials, but include promotions for several clients during the allotted time. The Bank Kiosk segment operates through Shanghai Borongdingsi, which provides bank customers with free Internet access to on-line banking services. The Brand Management and Sales Channel Building segment includes management and sales channel development services.