SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Commission file number 026559
XIN NET CORP.
(Exact name of registrant as specified in its charter)
7379
(Primary Standard Industrial Classification Code Number)
Florida
(State of Incorporation)
330751560
(I.R.S. Employer Identification No.)
#830, 789 W. Pender Street, Vancouver B.C., Canada V6CIH2
(Address of principal executive offices) (Zip Code)
Marc Hung, President
#830, 789 W. Pender Street, Vancouver B.C., Canada V6CIH2
Agent for Service of Process
(604) 632-9638
(Telephone number)
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434;
please check the following box / /
Page 1 of 75 pages
Exhibit Index Begins on Page 76
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Calculation of Registration Fee
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Title of each Proposed Proposed Proposed Amount of
class of Amount of maximum maximum registration fee
securities to be shares to be offering aggregate
registered registered price per offering
share price(3)
===================------------------------------------------==================
Common Stock 5,885,000 $1.56 $9,180,600 $4,590.30
- -------------------------------------------------------------==================
- -------------------------------------------------------------==================
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TOTAL 5,885,000 $1.56 $9,180,600 $4,590.30
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(1) The shares of Common Stock registered hereby represent the number of shares
held by selling shareholders.
(2) The shares of Common Stock registered hereby represent the shares held by
selling shareholders.
(3) Based on the average of the bid and ask price on the OTC Bulletin Board for
the Company's Common Stock for the five trading days preceding filing computed
pursuant to Rule 274 on November 1, 1999.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
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CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K and Rule 404(a) the following
cross-reference sheet shows the location in the Prospectus of the information
required to be included in response to Items of Form SB-2.
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PART I Item Location
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Item 1 Forepart of Registration Forepart of Registration
Statement and Outside Front Cover Statement and Outside Front
Page of Prospectus Cover Page of Prospectus
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Item 2 Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
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Item 3 Summary Information, Risk Factors Summary, Risk Factors
and Ratio of Earnings to Fixed
Charges
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Item 4 Use of Proceeds Use of Proceeds
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Item 5 Determination of Offering Price Determination of Offering Price
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Item 6 Dilution Not Applicable
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Item 7 Selling Security Holders Selling Security Holders
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Item 8 Plan of Distribution Plan of Distribution
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Item 9 Legal Proceedings Legal Matters
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Item 10 Directors, Executive Officers, Directors, Executive Officers,
Promoters and Control Persons Promoters and Control Persons
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Item 11 Security Ownership of Certain Security Ownership of Certain
Beneficial Ownership and Beneficial Ownership and
Management Management
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Item 12 Description of Securities Description of Securities
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Item 13 Interest of Named Experts and Not Applicable
Counsel
- ----------------------------------------------=================================
Item 14 Disclosure of Commission Position Management - Indemnification of
on Indemnification For Securities Officers and Directors
Act Liabilities
- ----------------------------------------------=================================
Item 15 Organization within Last Five Business History
Years
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Item 16 Description of Business Business History
- ----------------------------------------------=================================
Item 17 Management Discussion and Management Discussion and
Analysis of Operations Analysis of Operations
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- ----------------------------------------------=================================
Item 18 Description of Property Business History
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- ----------------------------------------------=================================
Item 19 Certain Relationships and Related Certain Relationships and
Party Transactions Related Party Transactions
- ----------------------------------------------=================================
- ----------------------------------------------=================================
Item 20 Market for Common Equity and Price Range of Our Common Stock
Related Stockholder Matters & Stockholder Matters
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- ----------------------------------------------=================================
Item 21 Executive Compensation Executive Compensation
- ----------------------------------------------=================================
- ----------------------------------------------=================================
Item 22 Financial Statements Financial Statements
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Item 23 Changes In and Disagreements With Changes In and Disagreements
Accountants With Accountants
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PART II
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Item 24 Indemnification of Officers and Indemnification
Directors
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Item 25 Other Expenses of Issuance and Other Expenses of Offering
Distribution Registration and Distribution
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Item 26 Recent Sales of Unregistered Recent Sales of Unregistered
Securities Securities
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Item 27 Exhibits, Financial Statements Exhibits, Financial Statements
and Schedules and Schedules
===========-----------------------------------=================================
Item 28 Undertakings Undertakings
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Item 29 Financial Statements and Schedules Financial Statements and
Schedules
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PROSPECTUS DATED __________________, 1999
XIN NET CORP.
5,885,000 Shares of Common Stock
($.001 par value)
The offering price per Share will be a price based upon current market
price. XIN NET CORP. is engaged in an Internet related Joint Venture business in
China.
This Prospectus relates to 5,885,000 shares of common stock, par value
$0.001 per share (the "Common Stock"), of XIN NET CORP., a Florida corporation
(the "Company");
We will not receive any proceeds from the shares of common stock sold by
the selling stockholders.
This offering (the "Offering") is not being underwritten. The shares of
Common Stock being offered hereunder have been registered for sale by certain of
our Selling Stockholders (as defined herein) pursuant to this Prospectus from
time to time to purchasers directly, or through agents, brokers or dealers at
market or negotiated prices. Thus, the distribution of such shares of Common
Stock may occur over an extended period of time. See "Plan of Distribution."
Since the Common Stock registered hereunder is being offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, the Company
cannot include herein information about the price to the public of the Common
Stock or the proceeds from any sales of the Common Stock by the Selling
Stockholders. The Company will not receive any proceeds of any sale of the
shares of Common Stock made by the Selling Stockholders.
The Selling Stockholders and any broker-dealer who acts in connection with
the sale of shares hereunder may be deemed to be "underwriters", as that term is
defined in the Securities Act, and any commission received by them and profit on
any resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Stockholders will pay or assume brokerage commissions or underwriting discounts
incurred in connection with the sale of their shares of Common Stock, which
commissions or discounts will not be paid or assumed by the Company. See "Plan
of Distribution."
The Common Stock of the Company is currently trading on the OTC Bulletin
Board under the symbol of "XNET." The last reported sale price of company common
stock on November 1, 1999 on the OTCBB was $1.43 closing.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK
This offering involves special risks concerning the Company, immediate
substantial dilution, substantial competition, dependence upon management,
continued control by present shareholders, possible market volatility of the
share price, lack of any commitment to purchase shares. (See "Risk Factors,"
"Dilution," and "Plan of Distribution.")
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus if truthful or complete. Any representation to the contrary is a
criminal offense.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
=====================---------------------------------------===================
Price to Public(1) Selling Proceeds to
Commissions (2) Selling
Shareholders (2)
=====================---------------------------------------===================
Per Share $1.56 $.08 $1.48
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Total (Maximum) $9,180,600 $459,030 $8,721,570
===============================================================================
(1) Subject to adjustment in final pricing amendment and based upon computation
pursuant to Rule 274.
(2) Before deduction of expenses payable by the shareholders and Company in
connection with this offering, estimated at $50,000 for filing, printing, legal
fees, accounting fees, Selected Dealers' accountable expense allowances and Blue
Sky expenses. The Company will pay all of $7,500 toward these expenses.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
being offered by certain Selling Stockholders. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document are not necessarily
complete. With respect to each such contract, agreement or other document filed
or incorporated by reference as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matter
involved, and each such statement is qualified in its entirety by such
reference.
The Company is subject to the periodic reporting requirements of Section
13(a) of the Securities Exchange Act and in accordance therewith is required to
file reports and other information with the Securities and Exchange Commission.
This information may be inspected and copied at the office of Securities and
Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549. Copies of such materials can be obtained from the Public Reference
Section of the Securities and Exchange Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, at prescribed rates. The Company undertakes
to provide, without charge, to any person to whom a Prospectus is delivered,
upon oral or written request of such person, a copy of an any and all
information if any, that has been incorporated by reference in the Prospectus.
Such information can be obtained from Company at XIN NET CORP., #830, 789 W.
Pender Street, Vancouver B.C. , Canada V6CIH2. The Commission also maintains a
website that contains reports, proxy and information statements and other
information. The website address is http://www.sec.gov.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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SEE "RISK FACTORS" BEGINNING ON PAGE 7, FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF THEY GIVE YOU SUCH REPRESENTATION, YOU MUST NOT RELY UPON THEM AS
HAVING BEEN AUTHORIZED BY US OR THE UNDERWRITERS. THIS PROSPECTUS IS NOT AN
OFFER TO SELL, OR THE SOLICITATION OF AN OFFER, TO BUY, ANY SECURITIES OTHER
THAN THESE REGISTERED SECURITIES. IT IS ALSO NOT AN OFFER TO, OR SOLICITATION
OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT WE HAVE HAD NO CHANGE IN
OUR BUSINESS SINCE THE DATE OF THIS PROSPECTUS OR THAT THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CORRECT AS OF ANYTIME AFTER THE DATE OF THIS PROSPECTUS.
We use market data and industry forecasts throughout this prospectus,
which we have obtained from internal surveys, market research, publicly
available information and industry publications. Industry publications generally
state that the information they provide has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. Similarly, we believe that the surveys and market research we or
others have performed is reliable, but we have not independently verified this
information. We do not represent that any such information is accurate.
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(OUTSIDE BACK COVER OF PROSPECTIVES)
TABLE OF CONTENTS
Summary 5
Risk Factors 7
Summary of Financial Information 23
Business 24
Price Range of Our Common Stock & Stockholder Matters 40
Management's Discussion and Analysis of Financial
Condition and Results of Operations 41
Capitalization 45
Management 46
Security Ownership of Principal Owners and Management 50
Selling Stockholders 52
Certain Relationships and Related Transactions 52
Description of Securities 53
Changes and Disagreements with Accountants 53
Legal Matters 53
Plan of Distribution 55
Selling Stockholders 56
Experts 61
Where You Can Find More Information 61
Index to Financial Statements F-1
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN SIGNIFICANT ASPECTS OF OUR BUSINESS AND
THIS OFFERING, BUT YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE
FINANCIAL DATA AND RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION. WHEN WE
REFER TO OUR COMPANY IN THIS PROSPECTUS, WE REFER TO US AND OUR SUBSIDIARIES, AS
A COMBINED ENTITY, EXCEPT WHERE WE INDICATE OTHERWISE. WE HAVE PROVIDED A
GLOSSARY OF TERMS FOR YOUR CONVENIENCE BEGINNING ON PAGE A-1. YOUR SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK FACTORS."
The information set forth in this Prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Words "estimated", "intends", believes", "plans",
"planning", "expects", and "if" are intended to identify forward-looking
statements. Although management believes that the assumptions made and
expectations reflected in the forward-looking statements are reasonable, it must
be recognized that there is no assurance that the underlying assumptions will,
in fact, prove to be correct or that actual future results will not be different
from the Company's expectations.
The Company
On September 6, 1996, the we incorporated under the laws of the State of
Florida under the name of Placer Technologies, Inc.
On April 2, 1997, we acquired 100% interest of Infornet Investment Limited,
a Hong Kong corporation (Infornet). Through this subsidiary in 1997, we entered
into a Joint Venture (the "Joint Venture") with Xin Hai Technology Development
Ltd. (Xin Hai), an experienced Internet Service Provider (ISP) which owns and
operates Internet licenses in the cities of Beijing, Shenyang and Shanghai,
China ("PRC"). The Infornet/Xin Hai agreement provides the Registrant with an
80% interest in the Joint Venture, Placer Technologies Corp. until Infornet has
recouped all of its invested capital, at which time the profit sharing reverts
49% to XIN HAI and 51% to Infornet. Infornet and we are required to provide 100%
of the capital necessary for operations and equipment in the Placer Technologies
Corp. Joint Venture.
On June 11, 1997, we purchased 100% interest of Infornet Investment
Corp., a British Columbia corporation. Our subsidiary, Infornet Investment
Corp., manages the daily operations for the company.
On July 24, 1998, we changed the company name from Placer Technologies,
Inc. to Xin Net Corp. in order to reflect our core business.
We believe the Greater China and Asian markets, and Chinese language users
globally, represent one of the largest and fastest growing user groups on the
Web today. As the Internet gains broader acceptance as a new business medium in
Greater China and Asia, we believe Internet service provider usage, online
advertising and e-commerce will also experience significant growth. To
capitalize on this opportunity, our business strategy is to continue to improve
and expand our existing business under the Joint Venture, either independently
or through strategic alliances, partnerships or acquisitions, and to continue to
expand our business locations to other cities in Greater China.
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However. business opportunities in the Greater China Internet markets
and our ability to implement our business strategy are, and will in the
future, be limited by;
o The laws and regulations China in which we conduct our business that impose
liability for content retrieved from any websites we may maintain or require
that we obtain specific licenses, approvals or consents;
o The failure to realize expected growth in Internet usage and low Internet
penetration rates in China that may compromise our future operating results;
o The lack of a sophisticated Internet infrastructure and limited Internet
access in some markets necessary to delive our Internet and services, which
may compromise our capacity for growth;
o The intense competition from existing and potential competitors with longer
operating histories, greater name recognition, larger customer bases and
greater resources that reduce our user traffic; and
o The economic developments in Greater China that result in reduced spending
for advertising and web solutions services or that affect our ability to
collect payments on our accounts receivable.
Although we intend to explore all potential markets for our Internet services
throughout Greater Asia, we generated revenue exclusively from the PRC during
the 1998 and 1999.
We are still in the early stages of operations, and we may not fulfill our
stated goals until much later in the future, if at all. We have had a limited
operating history since our organization in 1996 and have experienced
significant losses since inception. We are dependent on private placements with
investors for our resources and funding. See "Risk Factors."
Selling Shareholders
Our Selling Shareholders are offering 5,885,000 common shares, which they
previously purchased, or were granted, for sale as market conditions allow.(See
"Selling Shareholders" and "Plan of Distribution".)
The Offering
The Selling shareholders propose to offer 5,885,000 shares of our common
stock at the market prices, continuously, upon effectiveness of the Registration
Statement. (See "Plan of Distribution" for information concerning the offering.)
Net Proceeds to the Selling Shareholders
Offering @ market price $ (To be inserted in final amendment)
Common stock Offered
By selling shareholders 5,885,000 shares
Common stock outstanding
prior to offering 15,475,000 shares
Common stock outstanding after
offering 21,360,000 shares
The Selling Stockholders 5,885,000 shares
Use of Proceeds .....We will not receive any proceeds from
the sale of shares of Common Stock by the Selling
Stockholders.
OTC Bulletin Board Symbol......XINET
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE
OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO PURCHASE SHARE OF OUR
COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING OUR COMPANY.
WE CANNOT PREDICT OUR SUCCESS BECAUSE WE HAVE A SHORT OPERATING HISTORY
We formed our company in September 1996, and we have a short operating
history for you to review in evaluating our business. we have limited historical
financial and operating data upon which you can evaluate our business and
prospects. We entered into our first agreement with Xin Hai in August 1997 and
Xin Hai began to offer commercial services in April 1997. We have limited
commercial operations and have recognized limited revenues since our inception.
In addition, our senior management team and our other employees have worked
together at our company for only a short period of time.
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE FUTURE LOSSES
Our recent revenue growth is primarily a result of our entry into the
Placer Technologies Corp. Joint Venture, and such growth may not be indicative
of our future operating results. We have incurred net losses since our corporate
organization in 1996 and as a result of our Joint Venture we have incurred net
losses of approximately $242,994 for 1998 and $9,660 for the six month period
through June 30, 1999. We anticipate that we will continue to incur operating
losses for the foreseeable future due to a high level of planned operating and
capital expenditures, increased sales and marketing costs, additional personnel
hires, greater levels of product development and our general growth objectives.
It is possible that our operating losses may increase in the future and we may
never achieve or sustain profitability.
BECAUSE OUR MARKET IS NEW AND EVOLVING, WE CANNOT PREDICT ITS FUTURE GROWTH OR
ULTIMATE SIZE, AND WE MAY BE UNABLE TO COMPETE EFFECTIVELY
Our success will depend on the development of this new and rapidly evolving
market of Internet service in China and our ability to compete effectively in
this market through the Joint Venture. To address these risks, we must, among
other things,
- - expand the geographic coverage of our Internet services;
- - enter into agreements and working arrangements with additional Internet
companies, some of which we expect to be our competitors;
- - deploy an effective system in each Internet location;
- - attract and retain customers;
- - successfully develop relationships and activities with our partners and
distributors, including;
- - continue to attract, retain and motivate qualified personnel;
- - accurately assess potential markets and effectively respond to competitive
developments;
- - continue to develop and integrate our operational support system and other
back office systems
- - comply with evolving governmental regulatory requirements;
- - increase awareness of our services;
- - continue to up grade our technologies; and
- - effectively manage our expanding operations.
We may not be successful in addressing these and other risks, and our
failure to address risks would materially and adversely affect our business,
prospects, operating results and financial condition.
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WE CANNOT PREDICT OUR SUCCESS BECAUSE OUR BUSINESS MODEL IS UNPROVEN
We have not validated our business model and strategy in the market. We
believethat the combination of our unproven business model and the highly
competitive and fast changing market in which we compete makes it impossible to
predict the extent to which our services will achieve market acceptance and our
overall success. To be successful, we must develop and market network services
that are widely accepted by businesses at profitable prices. We may never be
able to expand as planned, achieve significant market acceptance, favorable
operating results or profitability or generate sufficient cash flow to fully
expand.
OUR STRATEGY OF EXPANSION MAY NOT BE EFFECTIVE
Our expansion into new markets in China could be substantially impaired by:
o unexpected changes in regulatory requirements;
o potentially adverse tax and regulatory consequences;
o tariffs and other trade barriers;
o and political instability and fluctuations in currency exchange rates.
Any of the above could have a material adverse effect on the success of our
future operations.
Although we expect to generate revenue from subscribing e-commerce and
advertising in the future, such revenue may not be substantial
Our business plan is dependent on the anticipated expansion of ISP subscribers
and e-commerce, webhosting and services in Greater China and the growth of our
revenues is dependent on increased revenues generated by subscribers and
services. We anticipate that a substantial portion of our future revenues will
be derived from e-commerce , hosting, and other services as online advertising
becomes more broadly accepted in China. We expect to derive an increasingly
significant amount of revenue from:
o subscription for service/connections
o domain name registration
o hosting web site on our servers that are focused on the Greater China
market; and
o advertising through our system of ad servers
The loss of our subscribers to competition or a reduction in traffic on such
Web sites or on our ISP network may cause advertisers or Web hosts to withdraw
from our business, which, in turn, could reduce our future revenues.
Finally, the development of Web software that blocks Internet advertisements
before they appear on a user's screen may hinder the growth of online
advertising. The expansion of ad blocking an the Internet may decrease our
revenues because when an ad is blocked, it is not downloaded from our ad server.
which means that such advertisements are not tracked as a delivered
advertisement In addition, advertisers may choose not to advertise on the
Internet and on our advertising network because of the use of Internet
advertisement blocking software. The use of Web software that blocks Internet
advertisements may materially and adversely affect our business.
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FAILURE BY THIRD-PARTY SUPPLIERS TO PROVIDE SOFTWARE AND HARDWARE COMPONENTS
WILL AFFECT OUR ABILITY TO OPERATE OUR INTERNET BUSINESS
We depend on third-party suppliers of software and hardwarecomponents. We
rely on components that are sourced from only a few suppliers including computer
servers manufactured by IBM or Sun Microsystems Corporation and routers
manufactured by Cisco Systems, Inc. The failure of our suppliers to adjust to
meet increasing demand may prevent them from supplying us with components and
products as and when we require them. Our inability to develop alternative
sources for such software and hardware could delay and increase the cost of
expanding our network infrastructure and could adversely affect our operating
efficiency and results of operations.
WE RELY ON SOFTWARE AND HARDWARE SYSTEMS THAT ARE SUSCEPTIBLE TO FAILURE
Any system failure or inadequacy that causes interruptions in the
availability of our services, or increases the response time of our services, as
a result of increased traffic or otherwise, could reduce user satisfaction,
future traffic and our attractiveness to advertisers and consumers. In addition,
as the amount of Web pages and traffic increases. there can be no assurance that
we will be able to scale our systems proportionately. We are also dependent upon
Web browsers, other ISPs, and other Web site operators in Greater China and
elsewhere, which have experienced significant system failures and electrical
outages in the past and our users have experienced difficulties due to system
failures unrelated to our systems and services.
We have limited backup systems and redundancy and we have experienced
system failures and electrical outages from time to time in the past, which have
disrupted our operations. We do not presently have a disaster recovery plan in
the event of damage from fire, floods. typhoons, earthquakes, power loss,
telecommunications failures, break-ins and similar events. If any of the
foregoing occurs, we may experience a complete system shut-down. To improve
performance and to prevent disruption of our services. we may have to make
substantial investments to deploy additional servers or one or more copies of
our Web sites to mirror our online resources. Although we carry property
insurance with low coverage limits, our coverage may not be adequate to
compensate us for all loss. that may occur. To the extent we do not address the
capacity restraints and redundancy described above, such constraints could have
a material adverse effect on our business, results of operations and financial
condition.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES
ANALYSIS OR INVESTORS
Our annual and quarterly operating results are likely to fluctuate
significantly in the future due to numerous factors, many of which are outside
of our control. These factors include:
- - the rate of customer acquisition and turnover;
- - the prices our customers are willing to pay;
- - the amount and timing of expenditures relating to the expansion of our
services and infrastructure;
- - the timing and availability of facilities and transport facilities;
- - the success of our relationships with our partners and distributors;
- - our ability to deploy our network on a timely basis;
- - introduction of new services or technologies by our competitors;
- - price competition;
- - the ability of our equipment and service suppliers to meet our needs;
- - regulatory developments, in China;
- - technical difficulties or network downtime;
- - the success of our strategic alliances; and
- - the condition of the telecommunication and network service industries
and general economic conditions.
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Because of these factors, our operating results in one or more future periods
could fail to meet or exceed the expectations of securities analysts or
investors. In that event, any trading price of our common stock would likely
decline.
IF SALES FORECASTED FOR A PARTICULAR PERIOD ARE NOT REALIZED IN THAT PERIOD DUE
TO THE LENGTHY SALES CYCLE OF OUR SERVICES, OUR OPERATING RESULTS FOR THAT
PERIOD WILL BE HARMED
The sales cycle of our Internet services can be very lengthy, particularly
for new markets where a system must be installed and subscribers attracted. The
sales cycle for new markets typically involves:
- - a significant technical evaluation;
- - an initial trial rollout to a relatively small number of end users;
- - a commitment of capital and other resources;
- - time required to engineer the deployment of our services;
- - coordination of the activation of multiple access lines with incumbent
carriers; and
- - testing and acceptance of our services.
- - marketing and advertising services
For these and other reasons, our sales cycle for new markets lasts many months.
During this lengthy sales cycle, we will incur significant expenses in advance
of the receipt of revenues. If sales that we forecast for a particular period do
not occur because of our lengthy sales cycle, this event could materially and
adversely affect our business, prospects, operating results and financial
condition during that period.
WE DEPEND ON INCUMBENT CARRIERS FOR COLLOCATION AND TRANSMISSION FACILITIES
We must use copper telephone lines controlled by the incumbent carriers in
China to provide internet connections to customers. We also depend on the
incumbent carriers for collocation and for a substantial portion of the
transmission facilities we use to connect our equipment to our servers and
users.
WE WILL NEED SIGNIFICANT ADDITIONAL FUNDS, WHICH WE MAY NOT BE ABLE TO OBTAIN
The expansion and development of our business will require significant
additional capital. We intend to seek substantial additional financing in the
future to fund the growth of our operations, including funding the significant
capital expenditures and working capital requirements necessary for us to
provide service in our targeted markets. We believe that our current capital
resources will be sufficient to fund our
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aggregate capital expenditures and working capital requirements, including
operating losses, through approximately December 2001. In addition, our actual
funding requirements may differ materially if our assumptions underlying this
estimate turn out to be incorrect. Therefore, you should consider our estimate
in light of the following facts:
- - we have limited meaningful history of operations or revenues;
- - our estimated funding requirements do not reflect any contingency amounts
and may increase, perhaps substantially, if we are unable to generate
revenues in the amount and within the time frame we expect or if we have
unexpected cost increases; and
- - we face many challenges and risks, including those discussed elsewhere in
"Risk Factors."
We may be unable to obtain any future equity or debt financing on
acceptable terms or at all. Recently the financial markets have experienced
extreme price fluctuations. A market downturn or general market uncertainty may
adversely affect our ability to secure additional financing. If we are unable to
obtain additional capital or are required to obtain it on terms less
satisfactory than what we desire, we will need to delay deployment of our
network services or take other actions that could adversely affect our business,
prospects, operating results and financial condition. To date, our cash flow
from operations has been insufficient to cover our expenses and capital needs.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
WE MAY BE UNABLE TO EFFECTIVELY EXPAND OUR SERVICES AND PROVIDE A SUBSTANTIAL
NUMBER OF USERS
Due to the limited access to of our Internet services, we cannot guarantee
that our business will be able to attract a substantial number of end users at
high volume.
PRIVACEY CONCERNS MAY PREVENT US FROM SELLING DEMOGRAPHICALLY TARGETED SERVICES
IN THE FUTURE
To the extent we collect data derived from user activity on our network
and from other sources, we cannot be certain that any trade secret, copyright or
other protection will be available for such data or that others will not claim
rights to such data.
Ad serving technology enables the use of "cookies," in addition to other
mechanisms. to deliver targeted advertising, to help compile demographic
information, and to limit the frequency with which an advertisement is shown to
the user. Cookies are bits of information keyed to a specific server, file
pathway or directory location that are stored on a user's hard drive and passed
to a Web site's server through the user's browser software. Cookies are placed
on the user's hard drive without the user's knowledge or consent, but can be
removed by the user at any time. Due to privacy concerns. some Internet
commentators, advocates and governmental bodies have suggested that the use of
cookies be limited or eliminated. Any limitation on our ability to use cookies
could impair our future targeting capabilities and adversely affect our
business.
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OUR FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE FOR OUR COMPUTER SYSTEMS MAY
ADVERSELY AFFECT OUR BUSINESS
Currently, many computer systems and hardware and software products are
coded to accept only two digit entries in the date code field and. consequently,
cannot distinguish 21st century dates from 20th century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to function properly after December 31, 1999. We have conducted
assessments of our Year 2000 readiness have upgraded or replaced the system
hardware and software that we have identified as non-compliant for Year 2000
purposes. We have contacted our third-party vendors, licensors and providers of
software, hardware, content and services regarding their Year 2000 readiness.
Following our testing and after contacting our vendors and licensors, we have
made a complete evaluation of our Year 2000 readiness, and determined and
completed all known changes necessary to be Year 2000 compliant, and have
developed contingency plans in the event of problems, Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Year
2000 Compliance" for detailed information concerning our state of readiness,
potential risks, and contingency plans regarding the Year 2000 issue. If,
however a Year 2000 software problem exists undetected, it could adversely
effect our systems for up to two weeks.
WE MAY BE INVOLVED IN FURURE LITIGATION WITH RESPECT TO OUR USE OF TECHNOLOGY
RIGHTS
We currently license technology from third parties. As we continue to
introduce new services that require new technology, we anticipate that we may
need to license additional third-party technology. We cannot provide assurance
that these technology licenses will be available to us on commercially
reasonable terms, if at all. In addition, it is possible that in the course of
using new technology. we may inadvertently breach the technology rights of
others and face liabilities for such breach. Our inability to obtain any of
these technology licenses or inadvertent breach of others' technology rights
could delay or compromise the introduction of new services and could materially
and adversely affect our business and financial condition. See "Business."
We enter into confidentiality agreements with our employees and
consultants, and control access to and distribution of our documentation and
other licensed information. Despite these precautions, it may be possible for a
third-party to copy or otherwise obtain and use our licensed services or
technology without authorization, or to develop similar technology
independently. In addition, there are countries where effective copyright.
trademark and made secret protection may be unavailable or limited, and the
global nature of the Internet makes it virtually impossible to control the
ultimate destination of our products. Policing unauthorized use of our licensed
technology is difficult and time can be no assurance the steps taken by us will
prevent misappropriation or infringement of our licensed technology. In
addition, Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others, which could result in substantial
costs and diversion of our resources and could have a material adverse effect on
our business. results of operations and financial condition.
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WE MAY BE HELD LIABLE FOR INFORMATION RETRIEVED FROM OUR NETWORK
Because our services can be used to download and distribute information to
others, there is a risk that claims may be made against us for defamation.
negligence, copyright or trademark infringement or other claims based on the
nature and content of such material, such as violation of censorship laws in the
PRC. Although we carry general liability insurance, our insurance may not cover
potential claims of this type, or may not be adequate to indemnify us for all
liability that may be imposed. Any imposition of liability that is not covered
by our insurance or is in excess of our insurance coverage could have a material
adverse effect on our business, results of operations and financial condition.
See --Political, Economic and Regulatory Risks--Regulation of the information
industry in PRC may adversely affect our business" below.
RISKS RELATING TO THE GREATER CHINA AND INTERNET INDUSTRY
OUR INDUSTRY IS INTENSELY COMPETITIVE
The Greater China and Asian Internet market is characterized by an
increasing number of entrants because the start-up costs are low. In addition,
the Internet industry is relatively new and subject to continuing definition and
as a result. our competitors may better position themselves to compete in this
market as it matures. Many of our existing competitors. as well as a number of
potential new competitors, have longer operating histories in the Internet
market, greater name recognition, larger customer bases and databases and
significantly greater financial. technical and marketing resources than we do.
Any of our present or future competitors may provide services that provide
significant performance, price, creative or other advantages over those offered
by us. We can provide no assurance that we will be able to compete successfully
against our current or future competitors.
COMPETITION. OUR COMPETITION WITH RESPECT TO USER TRAFFIC, EASE OF USE AND
FUNCTIONALITY INCLUDE:
o Chinese language based Web search and retrieval companies such as Yahoo!
China. Sina.com. Netease, Soho, Shanghai Online. ChinaByte and Netvigator
(which is owned by Hongkong Telecom);
o English language based Web search and retrieval companies such as Infoseek,
Lycos, Yahoo! and Microsoft Network, (MSN); and
o Retrieval services and products offered by Altavista HotWired Venture's and
Inktomi's HotBot. and OpenText.
In the future, we will encounter competition from other ISPs and Internet
companies. Our competitors may develop services that are equal or superior to
those we offer our users and may achieve greater market acceptance than our
offerings in the area of performance, ease of use and functionality.
THE GREATER CHINA AND ASIAN INTERNET INDUSTRY IS A DEVELOPING MARKET AND HAS NOT
BEEN PROVEN AS AN EFFECTIVE COMMERCIAL MEDIUM
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The market for Internet services in Greater China and Asia has
onlyrecently begun to develop. Since the Internet is an unproven medium
foradvertising and other commercial services. our future operating results from
online advertising and web solutions services will depend substantially upon the
increased use of the Internet for information, publication, distribution and
commerce and the emergence of the Internet as an effective advertising medium in
Greater China and Asia. Many potential customers will have limited experience
with the Internet as an advertising medium or sales and distribution channel,
will not have devoted a significant portion of their advertising expenditures or
other available funds to Web-related business or Web site development and may
not find the Internet to be effective for promoting their products and services
relative to traditional print and broadcast media
Critical issues concerning the commercial use of the Internet in Greater
China and Asia such as security, reliability, cost, ease of deployment,
administration and quality of service may affect the adoption of the Internet to
solve business needs. For example. the cost of access may prevent many potential
users in Asia from using the Internet. Moreover, the use of credit cards in
sales transactions is not a common practice in parts of Asia. Until the use of
credit cards, or another alternative viable means of electronic payment becomes
more prevalent, the development of e-commerce on our Internet will be seriously
impeded. In addition, even when credit cards or another means of electronic
payment becomes prevalent throughout Asia, consumers will have to be confident
that adequate security measures protect electronic sale transactions conducted
over the Internet and prevent fraud.
ADVERTISING TARGETING THE ASIAN MARKET MAY NOT INCREASE UNLESS A SIGNIFICANT
AMOUNT OF LOCAL LANGUAGE CONTENT IS DEVELOPED ON THE INTERNET
Currently, there are a limited number of Web sites on the Internet that
provide content for Asian browsers in their own languages. We can provide no
assurances that content provided through the Internet will increase and become
an attractive source of information for the Asian market that will generate use
of our network.
OUR EXPANSION INTO THE PRC INTERNET MARKET DEPENDS ON THE ESTABLISHMENT AND
MAINTENANCE OF AN ADEQUATE TELECOMMUNICATIONS INFRASTUCTURE IN THE PRC BY THE
PRC GOVERMENT
Unlike Taiwan and Hong Kong, where the telecommunications infrastructure is
comparable to U.S. standards and where private companies compete as ISPs, the
telecommunications infrastructure in the PRC is not well developed. In addition,
access to the Internet is accomplished primarily by means of the government's
backbone of separate national interconnecting networks that connect with the
international gateway to the Internet, which is owned and operated by the PRC
government and is the only channel through which the domestic PRC Internet
network can connect to the international Internet network. Although private
sector ISPs exist in the PRC, almost all access to the Internet is accomplished
through ChinaNet, the PRC's primary commercial network, which is owned and
operated by the PRC government. We rely on this backbone and China Telecom to
provide data communications capacity primarily through local telecommunications
lines. As a result, we will continue to depend on the PRC government to
establish and maintain a reliable Internet infrastructure to reach a broader
base of Internet users in the PRC . We will have no means of getting access to
alternative networks and services, on a timely basis or at a, in the event of
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any disruption or failure. There can be no assurance that the
Internetinfrastructure in Greater China will support the demands associated with
continued growth- If the necessary infrastructure standards or protocols or
complementary products, services or facilities are not developed by the PRC
government our business could be materially and adversely affected
OUR COMPUTER SYSTEM IS VULNERABLE TO HACKING, VIRUSES AND OTHER DISRUPTIONS
Inappropriate use of our Internet services could jeopardize the security
of confidential information stored in our computer system, which may cause
losses to us. Inappropriate use of the Internet includes attempting to gain
unauthorized access to information or systems-commonly known as "Cracking" or
"hacking." Although we intend to implement security measures to protect our
facilities, such measures could be circumvented. Alleviating problems caused by
computer viruses or other inappropriate uses or security breaches may require
interruptions, delays or cessation in our services. We do not carry "errors and
omissions" or other insurance covering losses or liabilities caused by computer
viruses or security breaches.
POLITICAL, ECONOMIC AND REGULATORY RISKS
THE ECONOMIC CLIMATE IN ASIA IS VOLATILE
Beginning in mid-1997, when the Thai Baht first depreciated substantially,
many countries in Asia have experienced significant economic downturns and
related difficulties. As a result of the decline in the value of the region's
currencies, many Asian governments and companies had difficulties servicing
foreign currency denominated debt and many corporate borrowers defaulted on
their payments. As the economic crisis spread across the region, governments
raised interest rates to defend their weakening currencies, which adversely
impacted domestic growth rates. In addition, liquidity was substantially reduced
as foreign investors curtailed investments in the region and domestic banks
restricted additional lending activity. The currency fluctuations, as well as
higher interest rates and other factors, have materially and adversely affected
the economics of many countries in Asia. Estimated real GDP growth for many of
them have decreased. Economic developments in countries throughout Asia could
materially and adversely affect our business, results of operation and financial
condition.
THERE ARE ECONOMIC RISKS ASSOCIATED WITH DOING BUSINESS IN GREATER CHINA
The PRC economy has experienced significant growth in the past decade, but
such growth has been uneven across geographic and economic sectors and has
recently been slowing. There can be no assurance that such growth will not
continue to decrease or that any slow down will not have a negative effect on
our business. The PRC economy is also experiencing deflation which may continue
in the future. The current economic situation may adversely affect our
profitability over time as expenditures for Internet-related services may
decrease due to the results of slowing domestic demand and deflation
On October 7, 1999, the Guangdong International Trust and Investment
Corporation, an investment holding company of Guangzhou Province, was declared
insolvent and shut down by the PRC government. Subsequently many other similarly
situated PRC provincial investment holding companies have defaulted on their
loans and experienced financial difficulties. As a result, our clients and
suppliers may have limited access to credit which may adversely affect our
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business, In addition, the international financial markets in which
thesecurities of the PRC government, agencies and private entities are waded
alsohave experienced significant price fluctuations upon speculation that the
PRCgovernment may devalue the Renminbi which could increase our costs relative
to our PRC revenues.
REGULATION OF THE INFORMATION INDUSTRY IN THE PRC MAY ADVERSELY AFFECT OUR
BUSINESS
The PRC has enacted regulations governing Internet access and the
distribution of news and other information. The Propaganda Department of the
Communist Party has been given the responsibility to censor news published in
China to ensure, supervise and control political correctness The Ministry of
Information Industry has published implementing regulations That subject online
information providers to potential liability for content included on their
portals and the actions of subscribers and others using their systems, including
liability for violation of Chinese laws prohibiting the distribution of content
deemed to be socially destabilizing. Because many Chinese laws, regulations and
legal requirements with regard to the Internet are relatively new and untested.
their interpretation and enforcement of what is deemed to be socially
destabilizing by Chinese authorities may involve significant uncertainty. In
addition, the Chinese legal system is a civil law system in which decided legal
cases have little precedential value. As a result in many cases it is difficult
to determine the type of content that may result in liability. We cannot predict
the effect of further developments in the Chinese legal system, particularly
with regard to the Internet, including the promulgation of new laws, changes to
existing laws or the interpretation or enforcement thereof, or the preemption of
local regulations by national laws.
Periodically. the Ministry of Public Security has stopped the distribution
of information over the Internet which it believes to be socially destabilizing.
The Ministry of Public Security, has the authority to cause any local ISP to
block any Web site maintained outside of China at its sole discretion. Web sites
that are blocked in China include many major news-related Web sites such as
www.cnn.com. www.latimes.com, WWW.NYTIMES.COM and WWW.APPLEDAILY.COM. The
Chinese government has also expressed its intention to closely control possible
new areas of business presented by the Internet, such as Internet telephony. If
the Chinese government were to take any action to limit or eliminate the
distribution of information through our website or to limit or regulate any
current or future applications available to users on our website, such action
could have a material adverse effect on our business, financial condition and
results of operations.
The Chinese government also regulates access to the Internet by imposing
strict licensing requirements and requiring ISPs in China to use the
international inbound and outbound Internet backbones. Our business is MOFTEC
(Ministry of Foreign Trade and Economic Cooperation) approved and holds a
license to operate. in China We cannot provide assurance that we will be able to
obtain any necessary additional license required in the future or that future
changes in Chinese government policies affecting the provision of information
services. including the provision of online services and Internet access. will
not impose additional regulatory requirements on us or our Service Providers,
intensify competition in the Chinese information industry or otherwise have a
material adverse effect on our business, financial condition and results of
operations.
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A CHANGE IN CURRENCY EXCHANGE RATES COULD INCREASE OUR COSTS RELATIVE TO OUR
REVENUES
Historically, substantially all of our revenues and a large part of
expenses and liabilities were denominated in Chinese Renminbi. We also incur
expenses in U.S. and Canadian dollars. In the future, we may also conduct
business in Hong Kong and other foreign countries and generate revenues,
expenses and liabilities in other foreign currencies. As a result, we are
subject to the effects of exchange rate fluctuations with respect to any of
these currencies. We have not entered into agreements or purchase instruments to
hedge our exchange rate risks although we may do so in the future.
RESTRICTIONS ON CURRENCY EXCHANGE RATES COULD INCREASE OUR COSTS RELATIVE TO OUR
REVENUES
Although Chinese governmental policies were introduced in 1996 to allow
greater convertibility of the Renminbi. significant restrictions still remain.
We can provide no assurance that the Chinese regulatory authorities will not
impose greater restrictions on the convertibility of the Renminbi. Because the
majority of our future revenues may be in the form of Renminbi, any future
restrictions on currency exchange may limit our ability to utilize revenue
generated in Renminbi to fund our business activities outside the PRC.
OTHER RISKS
OUR SERVICES MAY SUFFER BECAUSE THE TELEPHONE LINES WE REQUIRE MAY BE
UNAVAILABLE OR IN POOR CONDITION
Our ability to provide Internet connections services to potential
customers depends on the quality, physical condition, availability and
maintenance of telephone lines within the control of the incumbent carriers. We
believe that the current condition of telephone lines in many cases will be
inadequate to permit us to fully implement our network services. In addition,
the incumbent carriers may not maintain the telephone lines in a condition that
will allow us to implement our network effectively. The telephone lines may not
be of sufficient quality or the incumbent carriers may claim they are not of
sufficient quality to allow us to fully implement or operate our network
services. Further, some customers use technologies other than copper lines to
provide telephone services, and connections might not be available to these
customers.
OUR SUCCESS DEPENDS ON OUR RETENTION OF CERTAIN KEY PERSONNEL AND ON THE
PERFORMANCE OF THOSE PERSONNEL
Our success depends on the performance of our officers and key employees.
Members of our management team have worked together for only a short period of
time. We do not have "key person" life insurance policies on any of our
employees nor do we have employment agreements for fixed terms with any of our
employees. Any of our employees, including any member of our management team,
may terminate his or her employment with us at any time. Given our early stage
of development, we depend on our ability to retain and motivate high quality
personnel, especially our management. Our future success also depends on our
continuing ability to identify, hire, train and retain highly qualified
technical, sales, marketing and customer service personnel. Moreover, the
industry in which we compete has a high level of employee mobility and
aggressive recruiting of skilled personnel. We may be unable to continue to
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employ our key personnel or to attract and retain qualified personnel in the
future. We face intense competition for qualified personnel, particularly in
software development, network engineering and product management. Please see
"Business-Employees" and "Management."
WE DEPEND ON THIRD PARTIES FOR EQUIPMENT, INSTALLATION AND PROVISION OF FIELD
SERVICE
We currently plan to purchase all of our equipment from may vendors and
outsource part of the installation and field service of our networks to third
parties. Our reliance on third party vendors involves number of risks, including
the absence of guaranteed capacity and reduced control over delivery schedules,
quality assurance, production yields and costs. If any of our suppliers reduces
or interrupts its supply, or if any significant installer or suppliers reduces
or interrupts its service to us, this reduction or interruption could disrupt
our business. Although multiple manufacturers currently produce or are
developing equipment that will meet our current and anticipated requirements,
our suppliers may be unable to manufacture and deliver the amount of equipment
we order, or the available supply may be insufficient to meet our demand. If our
suppliers or licensors enter into competition with us, or if our competitors
enter into exclusive or restrictive arrangements with the suppliers or
licensors, then these events may materially and adversely affect the
availability and pricing of the equipment we purchase and technology we license.
A SYSTEM FAILURE OR BREACH OF NETWORK SECURITY COULD CAUSE DELAYS OR
INTERRUPTIONS OF SERVICE TO OUR CUSTOMERS
Our operations depend on our ability to avoid damages from fires,
earthquakes, floods, power losses, excessive sustained or peak user demand,
telecommunications failures, network software flaws, transmission cable cuts and
similar events. A natural disaster or other unanticipated problem at our owned
or leased facilities could interrupt our services. Additionally, if an incumbent
carrier, competitive carrier or other service provider fails to provide the
communications capacity we require, as a result of a natural disaster,
operational disruption or any other reason, then this failure could interrupt
our services.
RISKS ASSOCIATED WITH POTENTIAL GENERAL ECONOMIC DOWNTURN
In the last few years the general health of the economy, in China where we
have conducted all of our operations to date, has been relatively strong and
growing, a consequence of which has been increasing capital spending by
individuals and growing companies to keep pace with rapid technological
advances. To the extent the general economic health of China declines from
recent levels, or to the extent individuals or companies fear a decline is
imminent, these individuals and companies may reduce expenditures such as those
for our services. Any decline or concern about an imminent decline could delay
decisions among certain of our customers to roll out our services or could delay
decisions by prospective customers to make initial evaluations of our services.
Any delays would have a material and adverse effect on our business, prospects,
operating results and financial condition.
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IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY, WE WOULD BECOME SUBJECT
TO SUBSTANTIAL REGULATION WHICH WOULD INTERFERE WITH OUR ABILITY TO CONDUCT OUR
BUSINESS PLAN
As a result of our previous financings, we have substantial cash, cash
equivalents and short-term investments. We plan to continue investing the excess
proceeds of these financings in short-term instruments consistent with prudent
cash management and not primarily for the purpose of achieving investment
returns. Investment in securities primarily for the purpose of achieving
investment returns could result in our being treated as an "investment company"
under the Investment Company Act of 1940. The Investment Company Act requires
the registration of companies that are primarily in the business of investing,
reinvesting or trading securities or that fail to meet certain statistical tests
regarding their composition of assets and sources of income even though they
consider themselves not to be primarily engaged in investing, reinvesting or
trading securities.
We believe that we are primarily engaged in a business other than
investing in or trading securities and, therefore, are not an investment company
within the meaning of the Investment Company Act. If the Investment Company Act
required us to register as an investment company, we would become subject to
substantial regulation with respect to our capital structure, management,
operation, transactions with affiliated persons and other matters. Application
of the provisions of the Investment Company Act to us would materially and
adversely affect our business, prospects, operating results and financial
condition.
WE EXPECT OUR STOCK PRICE TO BE VOLATILE
The trading price of our common stock has been and is likely to continue
to be highly volatile. Our stock price could fluctuate widely in response to
many factors, including the following:
- - our historical and anticipated quarterly and annual operating results;
- - announcements of new products or services by us or our competitors or
new competing technologies;
- - the addition or loss of business customers;
- - variations between our actual results and analyst and investor
expectations;
- - conditions or trends in the telecommunications industry, including
regulatory developments;
- - announcements by us of significant acquisitions, strategic
partnerships, Joint Venture or capital commitments;
- - additions or departures of key personnel;
- - general market and economic conditions.
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In addition, in recent years the stock market in general, and the Nasdaq
National Market and the market for Internet and technology companies in
particular, have experienced extreme price and volume fluctuations. These
fluctuations have often been unrelated or disproportionate to the operating
performance of these companies. These market and industry factors may materially
and adversely affect our stock price, regardless of our operating performance.
WE HAVE A LIMITED HISTORY OF OUR STOCK TRADING
Prior to the offering, there has been limited a public market for any
common shares of capital stock, on the OTC Bulletin Board. This price may not be
indicative of the price at which our shares will trade following the completion
of the registration of these shares..
In addition, we cannot guarantee that an active trading market for our
common shares will continue, or, will be sustained following the registration of
the shares, or that the market price of the shares will not decline below the
current.
The trading price of our shares could also be subject to significant
volatility in response to, among other factors:
o investor perceptions of us and investments relating to Greater China
and Asia;
o developments in the Internet industry;
o variations in our operating results;
o announcements of new product or service offerings;
o technological innovations;
o changes in pricing made by us, our competitors or providers of
alternative services;
o the depth and liquidity of the market for our common shares; and
o general economic and other factors.
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS MAY NOT BE ACCURATE
Included in this prospectus are various forward-looking statements which
can be identified by the use of forward looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "continue," "believe" or other
similar words. We have made forward-looking statements with respect to the
following, among others:
o our goals and strategies;
o the importance and expected growth of Internet technology;
o the pace of change in Internet marketplace; the demand for Internet
services; and
o revenues.
These statements are forward-looking and reflect our current expectations.
They are subject to a number of risks and uncertainties, including but not
limited to, changes in the economic and political environments in Greater China
and Asia, changes in technology and changes in the Internet marketplace. In
light of the many risks and uncertainties surrounding, Greater China, Asia and
the Internet marketplace, prospective purchasers of the shares offered hereby
should keep in mind that we cannot guarantee that the forward-looking statements
described this prospectus will transpire.
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THERE ARE SPECIAL RISKS INVOLVED WITH INVESTING IN STOCKS OF NON-U.S. REVENUE
COMPANIES
You should carefully consider the special risk that revenues are solely from
China, together with all of the other information included in this prospectus
before you decide to purchase our common shares. As all of our revenues are from
Greater China , there are major risks associated with investing in our common
shares not typical with investments in common stock of U.S. revenue companies,
because all of our operations and revenues are from China, and are subject to
all of the economic, political, business and regulatory risks previously
discussed for China operations.
NO INTENT TO PAY DIVIDENDS
We have not paid any dividends, and we do not intend to pay cash dividends
in the foreseeable future.
THE PRICE OF OUR COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR FUTURE
SALE
Sales of substantial amounts of common stock in the public market
following this offering, or the appearance that a large number of shares is
available for sale, could adversely affect the market price for the common
stock. The number of shares of common stock available for sale in the public
market is limited by those registered hereby, or already in the public hands. In
addition to the adverse effect a price decline could have on holders of common
stock, that decline would likely impede our ability to raise capital through the
issuance of additional shares of common stock or other equity securities. See
"Shares Eligible for Future Sale".
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The public offering price is substantially higher than the net tangible
book value per share of the outstanding common stock after this offering.
Accordingly, if you purchase common stock in this offering at an assumed
offering price of $_______ per share, you will incur immediate and substantial
dilution of $_______ in the from the price you pay for the common stock in this
offering when compared to net tangible book value per share of the common stock.
DILUTION FROM ISSUANCES OF SHARES IN THE FUTURE
The Company may issue additional shares to finance its future capital and
operations requirements and for acquisitions of other companies to consolidate
into its operations. Any such issuance will reduce the present percent of
ownership of previous investors (see "Risk Factor - Control") and may result in
additional dilution to investors purchasing shares from this offering.
CONTINUED CONTROL BY OUR MANAGEMENT
More than fifty percent (50%) of the total number of our authorized shares
will remain unissued if all the shares offered hereby are sold. Our Management
will continue to control the Company after the offering. The board of directors
has the power to issue such shares without shareholder approval. The issuance of
any such shares to persons other than the existing shareholders would reduce the
amount of control held by the shareholders following this offering. There are
presently no commitments, contracts, or intentions to issue any additional
shares to any other persons, except when future warrants are exercised. We may
issue stock to acquire other companies complimentary to our business, and, if
opportunities become available which can best be obtained by issuing shares of
our stock, we will consider the issuance of its shares for such opportunities.
In the event that any such shares are issued, the proportionate ownership and
voting power of every other shareholder will be reduced.
THERE IS NO COMMITMENT TO PURCHASE ANY SHARES BEING REGISTERED
No entity has any obligation or commitment to purchase any of the Shares
offered. Consequently, no assurance can be given that any Shares will be sold.
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POSSIBLE DEPRESSIVE EFFECT OF FUTURE SALES OF COMMON STOCK;REGISTRATION RIGHTS
There are currently outstanding 21,360,000 shares of Common Stock,
including those being offered for resale in this registration. The 5,885,000
shares of Common Stock offered by the Selling Stockholders hereby will be freely
tradable without restriction under the Securities Act. Subject to restrictions
on transfer referred to below, all other shares of Common Stock were issued by
us in private transactions, are treated as "restricted securities" as defined
under the Securities Act and in the future may be sold in compliance with Rule
144 under the Securities Act or pursuant to a registration statement filed under
the Securities Act. Rule 144 generally provides that a person holding restricted
securities for a period of one year may sell every three months in brokerage
transactions or market-maker transactions an amount equal to the greater of (i)
one percent (1%) of our issued and outstanding Common Stock or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks prior
to such sale. Rule 144 also permits, under certain circumstances, the sale of
shares without any quantity limitation by a person who is not an affiliate of
the company and who has satisfied a two year holding period. The sale of
substantial numbers of such shares, whether pursuant to Rule 144 or pursuant to
a registration statement, may have a depressive effect on the market price of
our Common Stock. See "Shares Eligible for Future Sales."
ENFORECABILITY OF CIVIL LIABILITIES AGAINST OUR COMPANY
All of our assets are located outside the United States. In addition, a majority
of our directors and officers are nationals and/or residents of countries other
than the United States, and all or a substantial portion of our or such persons'
assets are located outside the United States. As a result, it may be difficult
for you to within the United States to enforce against them or against us,
judgments obtained in United States courts, including judgments predicated upon
the civil liability provisions of the securities laws of the United States or
any state thereof.
"SMALL CAP" STOCK MARKET TRENDS
The investment community has historically favored blue chip stocks over
the small cap issues, even though, in many instances, these smaller companies
may offer investors greater potential for significant growth and capital
appreciation. One reason is the limited amount of media coverage which is
afforded these emerging growth companies. A lack of media exposure makes it
extremely difficult for small companies to communicate their messages to
individual investors. There are thousands of these smaller issuers competing for
the same investor dollar. Even more interesting is Wall Street's definition of
small cap. While it varies substantially, the general consensus seems to be that
"small cap" refers to companies with less than a $500 million market cap. Those
with less than a $100 million market cap are considered "micro-cap".
There are a number of publicly traded companies that are successfully
competing for the small cap dollar. On the Nasdaq National Market System (NMS)
the 100 most actively traded stocks, representing approximately 4% of the total
number of NMS companies, accounted for nearly 37% of the total trading volume in
1997. The situation is even more dramatic on the Nasdaq small cap exchange where
the top 100 issues, approximately 5% of the total, accounted for well over 44%
of the trading volume. The top issuers on NASDAQ-NMS had average daily trading
volumes of 1.7 million, and the top issuers on the small cap had average daily
trading volume of 200,000 shares. The balance of Nasdaq companies had comparable
average figures of 70,000 on NMS and 15,000 on Small Cap. Poor liquidity can
limit the future prospects of companies for fundings, acquisitions, internal
growth and expansion.
22
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information should be read in conjunction
with the financial statements of the Company and related notes included
elsewhere in this Prospectus.
Financial information for the year ended December 31, 1998 is compared to
the year ended December 31, 1997.
1998 1997
---- ----
Total Currents Assets 376,179 365,428
Other 228,396 189,340
-------------------------------
Total Assets 604,575 554,768
Total Current Liabilities 40,504 12,975
Total Shareholder's Equity 564,071 541,793
Total Revenues and Fees 527,988 96,177
Total Cost of Revenues and Fees
General and Administrative Expenses 510,555 333,084
Income From Operations 17,433 (236,907)
Total Other Income (Expenses) 4,845 7,221
Net Income 22,278 (229,686)
Basic and Diluted Earnings Per
Common Shares $0.001 $0.02
============================
Weighted Average Number of Common
Shares Outstanding 14,075,000 12,127,082
============================
The following unaudited supplementary data presents comparative summary
financial information for the three months ended, and (unaudited):
First Six Months First Six Months
1998 1999
------------------------------------------
Total Revenues & Fees 258,915 (309,403)
General and Administrative Expenses (202,126) (327,060)
------------------------------------------
Income (loss) From Operations 56,789 (17,657)
Total Other Income (Expenses) 1,927 45,647
"S" Corp. Net Income 58,716 27,990
==========================================
Basic and Diluted Earnings Per - -
Common Share - -
==========================================
Basic Weighted Average Number of
Common Shares Outstanding 14,075,000 16,055,773
Weight Average Number of Common
Shares outstanding, assuming 14,075,000 17,385,106
dilution
==========================================
The following unaudited supplementary data presents net income per share
for the fiscal year ended December 31, 1998 and the three months ended June 30,
1999 (unaudited). There will be no effect or change to the number of shares
outstanding.
Period
------
1998 1999
---- ----
Net income before (loss) income
taxes as reported 22,278 (9,660)
Net income 22,278 (9,660)
Basic and diluted Weighted average common
shares outstanding 14,075,000 18,014,780
Basic and diluted Income per common share 0.001 -
========= ==========
23
<PAGE>
The information set forth in this Prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act, and Section
21E of the Exchange Act. Words "estimated", "intends", "believes", "plans",
"planning", "expects", and "if" are intended to identify forward-looking
statements. Although we believe that the assumptions made and expectations
reflected in the forward-looking statements are reasonable, it must be
recognized that there is no assurance that the underlying assumptions will, in
fact, prove to be correct, or that actual future results will not be different
from our expectations.
COMPANY
Previous History
- ----------------
On September 6, 1996, we were incorporated under the laws of the
State of Florida under the name of Placer Technologies, Inc.
On April 2, 1997, we acquired 100% interest of Infornet Investment Limited
(a Hong Kong corporation). Through this subsidiary in 1997, Xin Hai Technology
Development Ltd. (Xin Hai), an experienced Internet Service Provider (ISP) which
owns and operates Internet licenses in the cities of Beijing and Shenyang,
China. The Infornet/Xin Hai agreement provides us with an 80% interest in Placer
Technologies Corp. Joint Venture, until Infornet has recouped all of its
invested capital, at which time the profit sharing reverts 49% to XIN HAI and
51% to us (Infornet).
On June 11, 1997, we purchased 100% interest of Infornet Investment
Corp., a British Columbia corporation. Infornet Investment Corp. manages
daily operations for the Registrant.
On July 24, 1998, we changed our name from Placer Technologies, Inc. to
Xin Net Corp. in order to reflect our core business of more accurately.
BUSINESS
Corporate Overview
Our holding company structure comprised of our major subsidiaries is as follows,
with the jurisdiction of incorporation of each major subsidiary included in
parentheses:
Xin Net Corp.
(Florida, USA)
Infornet Management Corp Infornet Investment LTD
(100% Owned) (100% Owned)
(BC. Canada) (Hong Kong)
Placer Technology Corp
Joint Venture
(Beijing, China)
(with XIN HAI TECHNOLOGY
LTD)
Business of Issuer. General Operations
--------------------------------------
The primary focus of the Company is to be a major Internet Company in
China, through the Joint Venture with XIN HAI Technology Development LTD.
Presently Xin Hai, its Chinese partner in the Joint Venture Placer Technologies
Corp. is the fifth largest ISP company in Beijing and the third largest ISP
company in Shenyang. It is one of only a handful of privately owned Internet
Service Companies in China.
We currently maintain our home office at: #830 - 789 West Pender Street,
Vancouver, B.C. Canada V6C 1H2 (telephone number is 1-604-6-9638). We also
have offices as part of our Joint Venture in Beijing at Suite 210, Building B,
No - 11Wu Gen Lin Road, West District, Beijing, PRC, and in Shenyang, P.R.C. at
# 44 North HuangHe St., HuangGu, Shenyang, Liaoning, P.R.C., Post Code 110034
and Shanghai, P.R.C. at 17A Hua ye Building No. 69 Yixueyuan Rd, Xujiahui
District, Shanghai, Postal Code 200032.
Our core business is to act as a co-venturer to supply of Internet services
in China by covering the major cities through A Joint Venture with our operating
partner-Xin Hai Technology Development LTD. in the Placer Technologies Corp.
Joint Venture (the "Joint Venture".) Businesses include ISP, Home-page portal,
Internet Advertising, E-commerce and other value-added services.
24
<PAGE>
Current Business
----------------
Through our wholly owned subsidiary Infornet Investment LTD (Hong Kong) we
are in a Joint Venture with Xin Hai Technology Development Ltd. (Xin Hai) for
upgrading telecommunication technology and services in China. This has evolved
into an internet focused service provider and e-commerce business. Xin Hai
Technology Development LTD started its Internet service in Beijing in April
1997. For purposes of this discussion, the Joint Venture operations will be
termed Joint Venture . We entered into the Joint Venture with Xin Hai in August
1997.
ISP licenses in China are tightly controlled by the Ministry of Information
Industry and provide a substantial barrier to entry. Foreign ownership is not
allowed in Chinese ISP operators. Our Joint Venture with Xin Hai Technology
Development Ltd. provides for us designs and develops the computer software and
computer network systems and provide capital for the ISP business owned and
operated by Xin Hai. The Infornet/Xin Hai agreement provides Infornet with 80%
revenue participation in Xin Hai until Infornet recoups its investment, at which
time the profit share reverts to 49% to Xin HAI and 51% to Infornet. Xin Hai is
currently a supplier of Internet services in China in the major cities Beijing,
Shanghai and Shenyang. Xin Hai management is currently planning to open offices
Guangzhou (pop. 14 million) and Taiyuan (pop. 7 million), for which licenses are
already in hand. Licenses in 6 other major cities are in hand. Official
statistics put the number of internet users in China at 2.1 million at the end
of 1998. This number is predicted to grow to more than 4 million at the end of
the current year, and to 10 million at the end of year 2000.
Placer Technologies Corp., the Company's Joint Venture with Xin Hai
Technology Development Ltd., has obtained the approval of MOFTEC, China's
Ministry of Foreign Trade and Economic Cooperation, and has a business license.
Joint Venture Agreement for ISP business
----------------------------------------
Operations of Placer Technologies Corp., the "Joint Venture Company," are
defined in the "Operating Agreement of the Cooperative Joint Venture Contract."
Xin Hai Technology Development Ltd., the Chinese partner in the Joint Venture,
is contracted by the Joint Venture to conduct the day-to-day operations
Joint Ventures
--------------
Xin Hai is responsible for:
- - coordinating with all existing customers and actively promoting sales
and applications of the Joint Venture Company's products, as well as
supporting sales of goods and services of the Joint Venture Company to
customers;
- - obtaining all required pen-nits and authorizations (whether local,
municipal, provincial, state or other) and registrations which may be
required or applicable to the constitution of the Joint Venture Company
including the preparation and submission of the necessary documents for
the examination and approval authorities;
- - securing and obtaining all necessary licenses, permits and
authorizations from the administration which may be applicable or
necessary to the business of the company;
- - assisting the Joint Venture Company in handling the applications for
processing import customs declarations for the machinery and mechanical
and electronic equipment to be used and arranging transportation and
delivery within the Chinese territory;
- - assisting the Joint Venture Company in contracting for and obtaining
all necessary infrastructure and utility facilities, such as water,
electricity, transportation, etc;
- - according to applicable laws and regulations in China, assisting the
Joint Venture Company in applying for and obtaining a reduction or
exemption of taxes, including local taxes, business tax, import or
custom duties, sales taxes or other duties on material, equipment or
other goods imported into China for the purposes of the Joint Venture
Company, and in obtaining other preferential tax treatments for the
Joint Venture Company and the Parities for the maximum available
period;
25
<PAGE>
- - obtaining all necessary permits or authorization from the appropriate
foreign exchange control bureaus confirming the Infornet can have
access to all required U.S. dollars or other foreign currency
acceptable to it and that Infornet can send its investments to the
overseas;
- - Xin Hai warrants that it will not cooperate with any party other than
Infornet with regard to business of the Company;
- - Performing any other responsibilities as may be agreed upon by and
between Parties.
We are responsible for:
- - making the capital contribution to the Joint Venture Company as
contemplated in the Joint Venture agreements for capital and operations
funds in accordance with the laws and regulations in China;
- - assisting Xin Hai in purchasing and/or leasing equipment, material,
office supplies, transportation, communication lines from local or
overseas suppliers;
- - within the China's territory, Infornet warrants that it will not
cooperate with any other party than Xin Hai for the business specified
in this agreement;
Placer Technologies Corp., the Joint Venture, collects internet revenues
from Xin Hai Technology Development Ltd. All Revenues are deposited by Xin Hai
into a bank account in the name of Xin Hai which shall require joint signatures
and joint seals of both a Xin Hai authorized officer and a Joint Venture Company
authorized officer for any withdrawal of money from it. Forty percent (40%) of
the Revenue shall be transferred to another bank account (second account) of the
Xin Hai while the other sixty percent (60%) of the Revenue shall be transferred
to a bank account of the Joint Venture Company. The forty percent (40%) Revenue
transferred to a second account of Xin Hai shall be used to cover the Operating
Expenditures. If the amount is less than actual Operating Expenditures, then the
Xin Hai must remit the surplus to the Joint Venture Company. The use of the
sixty percent (60%) Internet Revenue transferred to the Joint Venture Company
shall be reported to the two Parties of the Joint Venture Company under the
terms of the network investment/construction return, technical service fees and
profit repatriated to network owners.
The Joint Venture is liable for the operating expenditures of the Internet
network. These operating expenditures include: space and office rental,
salaries, and overhead of network operators, leased lines, miscellaneous office
furniture and equipment, Internet system hardware and software, advertising,
travel and promotion, reasonable entertainment, marketing costs, insurance and
management cost.
Our wholly owned subsidiary, Infornet Investment Ltd. is obligated to
contribute all of the capital of the Joint Venture which we provide to Infornet.
Under the Joint Venture the required capital is $525,000 USD with a total
investment of $2,000,000 (U.S.) and Infornet Investment Ltd. has already
contributed all required capital. No further capital contribution is required
from Infornet Investment Ltd, however we have advanced and will continue to
advance loans to the Joint Venture as necessary to continue the business, but
subject to the limits of our capital.
Certain Obligations of the Joint Venture company
------------------------------------------------
Under the Joint Venture contract, the Joint Venture provides the Internet
Network with all the communication equipment as well as the necessary
accessories for selling or leasing to end users.
The Joint Venture also shall perform or cause to be performed all the
engineering services in respect of the Internet Network which include but shall
not be limited to: the engineering design; the integration, the installation and
the testing of the Internet Network; the customization of the Internet Network
protocol and of the network management software; the development of end user
interface software and user application software; the technical support to the
Internet Network and advisory service on maintenance; the supply of parts and
instruments to the Internet Network.
26
<PAGE>
Xin Hai Technology Development Ltd. holds the "business," including ISP
operating licenses, industrial property rights, and network. The ownership and
title to all of the assets compromising the Internet Network shall remain with
the Joint Venture during the term of the Joint Venture, Xin Hai shall, subject
to the Agreements, be entitled to the custody and control of such assets on
behalf of the Joint Venture . Subject to the prior written approval of the Joint
Venture , title to any such assets may be vested in Xin Hai and, in all such
cases, such assets shall be held by Xin Hai in trust for the Joint Venture . Xin
Hai is not liable for further capital contribution, except as necessary to
operate the Internet business of the Joint Venture.
The day-to-day network operations of the Joint Venture are conducted by
the Chinese partner, Xin Hai. General management is assumed by Mr. Xin Wei, an
employee of Infornet Investment Corp. (the Company's wholly owned Canadian
subsidiary), who is also the president of Xin Hai Technology Development LTD.
Strategic issues and decisions are tackled by a team compromised of the
Company's board of directors and Mr. Xin Wei. Xin Hai Technology LTD. has agreed
as an addendum to the Joint Venture agreement that until all investment in the
Joint Venture has been recouped by our company, that we will designate the
managers/directors of the Joint Venture and control the decisions of the Joint
Venture.
The Joint Venture may be terminated prior to the expiration of its 20 year
term in one of the following ways:
-breach of agreement which goes uncured
-by mutual agreement between the partners;
-in case the Joint Venture is bought by a third party;
-or, in case of bankruptcy, or receivership or liquidation of a party;
-excessive losses due to force majeure.
Upon termination, the assets of the Joint Venture will be allocated:
-a) if Infornet Investment Ltd. has not yet recouped its invested
capital, 80% of the assets go to Infornet and 20% go to Xin Hai.
-b) if Infornet Investment Ltd. has already recouped its invested
capital, 51% of the assets go to Infornet and 49% go to Xin Hai.
Events of Default
-----------------
If any party fails to perform its duties specified in the present Joint
Venture Contract or in the Articles of Association, or if the Party seriously
breaches the provisions of the Joint Venture Contract or of the Articles of
Association, and thereby causes damage to the operations of the Joint Venture
Company or causes directly or indirectly, the failure to reach the goals
regarding the operations specified in the Joint Venture Contract, such act shall
be deemed an event of default by the Party who breaches the Joint Venture
Contract. The other Party is entitled to claim for remedy, and shall have the
right to terminate the Joint Venture Contract by filing an application to the
competent examination and approval authorities. Should the Joint Venture Company
continue to operate, the Party who breaches the Joint Venture Contract must
compensate for the economic losses and damages incurred by the Joint Venture
Company and the shareholders thereof.
The Joint Venture provides that within eighty (80) days after the end of
each Fiscal Year, an annual report will be prepared for such Fiscal Year
containing: audited financial statements as at the end of, and for, such Fiscal
Year (prepared in accordance with international generally accepted accounting
27
<PAGE>
principles (International GAAP) adopted in China consistently applied, with
comparative financial statements as at the end of, and for, the immediately
preceding Fiscal Year) containing a balance sheet; a statement of profit and
loss; a statement of changes in financial position; and a statement of change
capital; a report of the Auditors on such financial statements stating that such
financial statements have been prepared in accordance with international
generally accepted accounting principles (International GAAP) adopted in China
consistently applied; a report an allocations and distributions (whether
directly or indirectly) to the Parties;
INDUSTRY AND CHINA MARKET
China Economy
- -------------
China is one of the largest countries in the world and is the most
populated. Since 1949, China underwent about 30 years of severe central planning
and was mostly closed to the outside world. Within that period the country was
subjected to the "Great Leap Forward" of the late 50's and the "Cultural
revolution" of the late 60's. When the country was returned to a market economy
by Deng Xiaoping, 1 billion Chinese were set free to pursue economic growth and
its rewards. Today, after over 20 years of economic reforms, China has risen
from an under-developed economy with little technical or industrial expertise to
the third largest economy in the world after the United States and Japan.
China - Computer Industry With 1.2 billion people, China accounts for about one
fifth of the world's population. Computer usage is rapidly growing, especially
amongst the younger age groups, leading industry analysts to be optimistic about
the prospects for this market. Computer consultant International Data Corp.
(IDC) predicted that PC sales in China would amount to 3.9 million units in
1998, a 30% increase over the previous year. During the second quarter of the
year, 994,000 DC units were sold, making the Chinese market the second-fastest
growing market for PCs in Asia, after India.
Growth is expected to keep climbing in 1999, with IDC forecasting sales of
4.9 million units for this year. Analysts expect tremendous long-term growth in
the consumer market because of China's large population and the actually low
penetration rate of home computers.
Although large companies like IBM and Microsoft dominate the world market,
in 1998 Chinese PC companies held about 60% of the domestic market share. The
reason is simply one of price and affordability.
China - Computer Affordability
- ------------------------------
The average annual per capita disposable income in urban households has
increased significantly since 1992. Then, monthly income of 400 Yuan (about
US$50) was desirable, yet currently, urban foreign JV employees' salary falls in
a range of 5,000 to 10,000 Yuan (about US$625 to US$1,250) per month. Urban
local enterprise employees' salary averages 4,500 Yuan (about US$562.50) per
month. The mainstream computer sells for 8,000 to 15,000 Yuan (about US$1,000 to
1,875), the low end sells for only 6,000 Yuan to 8,000 Yuan (about US$750 to
US$1,000).
28
<PAGE>
China - Internet
- ----------------
Chinese Internet users have increased from 10,000 in 1994 to 620,000 by
the end of 1997. At present, Internet users are increasing by more than 150,000
per month on average. There were about 2.1 million at the end of 1998, and by
the end of year 2000, there may be 10 million users. China's PC market's
exponential growth and technological advancements are the major forces driving
the Internet boom.
Large corporations are entering the China market. In March 1999, Microsoft
unveiled a new product called Venus, developed by a joint venture in China.
"Venus" would let Chinese consumers view the Internet through their TV sets and
is similar to Microsoft Web TV product in the U.S.
Future Plans for ISP in China
- -----------------------------
China has recently allowed other domestic companies to do businesses
formerly monopolized by China TeleCom. Presently, foreign investors are still
restricted from direct operation. China is also investing heavily to improve the
bandwidth and the quality of their backbone - ChinaNet, while at the same time
reducing the rates for telecommunications services. Based on those facts, we
plan to open more offices in major cities and enhance E-commerce and other
value-added services.
Governmental regulation for Internet services in China
- ------------------------------------------------------
To date, Chinese Internet operating licenses have been restricted to
Chinese companies only.
The Registrant, through its subsidiary Infornet, participates with Xin Hai
Technology Development LTD. a Chinese privately owned company in the Internet
business in China. If the Chinese government liberalizes policy toward foreign
participation in Internet Operating Licenses, it could substantially increase
competition in the markets where the Joint Venture operates. Thereby adversely
affecting the company markets.
The Chinese government, while currently open to Joint Venture, could at
any time, restrict operations, or expropriate from foreign participants' assets
in China. Any such action could have disastrous financial consequences to the
company and its business.
Statistics
----------
Statistics on Internet usage, industry sales and market estimates are
taken from various articles appearing in newspapers and magazines such as "The
South China Morning Post", "The Wall Street Journal", "Asia Times" and "Beijing
Review" citing sources such as the Chinese Ministry of Information Industry
(formerly the Ministry of Posts and Telecommunication) which oversees that
Internet in China. Another source is the June 1999 Report by the BDA and the
Strategis Group, titled "The Internet in China".
An article in the August 1999 issue of "China Today", titled "Government
Encourages Market Competition in Telecommunications Industry" mentions "Since
1990, fixed telephone line use has been steadily increasing at an annual rate of
40 percent, and mobile phone use has been increasing 157 percent annually.
According to the World Telecommunications Yearbook, China's telecommunications
industry growth is the fastest in the world."
29
<PAGE>
Competitive Conditions
- ----------------------
Privately owned ISPs often compete with government owned or affiliated ISPs. The
playing field is not always level, as the latter can benefit from subsidized
access to dial-up lines, leased lines and Internet bandwidth (BDA Report p. 94).
The Company does not have a Joint Venture with a Chinese government owned
company, but rather leases lines from China Telecom. In China, access to the
Internet is predominantly achieved using telephone lines. Growth in Internet
usage is largely an urban phenomenon; to the 20% of the Chinese population who
reside in the cities, the telephone is a common commodity.
In spite of severe competitive conditions, the Company plans to grow its
business in China based on excellent service, user friendliness and interesting
content on its web site.
The growth in number of Internet users does not translate into the same growth
in number of Internet subscribers. This is due to the fact that many users
access the Internet at work, through their employers' Internet access; moreover,
several individuals may access the Internet using a single subscriber account.
Dial-up Internet access is still expensive in China as compared to North America
for example, even more so when the average salary is taken into consideration.
However long distance telephone rates are coming down, as shown by the
significant tariff reduction by Chinanet on March 1, 1999. In addition, the
Shanghai Telecom offers to its telephone subscribers the free installation of
a second telephone line.
We have introduced an expanded online E-Commerce service to the Chinese
market in 1999. Xin Hai now operates a live online auction site. For our
expansion program, we have completed a $5.5 million private placement of
restricted shares in early 1999.
To facilitate growth Xin Hai will solicit PC manufacturers and retailers
to bundle services, put more effort on system integration services, and will
offer more value-added. Revenues from e-commerce operations will consist of fees
collected from businesses, such as restaurants, flower shops, etc. that
advertise on the Joint Venture's web site. Moreover, we anticipate revenues from
the new on-line auction business in the form of listing fees from sellers and
commissions from sellers on goods and services sold through successful bids. Xin
Hai will also enhance its portal type home page and E-commerce offerings. The
Joint Venture will also look for strategic alliances with suitable partners.
The network in which we participate as a Joint Venturer has attracted more
than 30,000 subscribers in 2 1/2 years of operations. Our Joint Venture through
Xin Hai Technology Development Ltd. (Joint Venture partner) has about 80
employees at its present locations in Beijing, Shenyang and Shanghai
30
<PAGE>
Industry Background
- -------------------
Development of the Internet. The Internet is a global network of
interconnected, separately administered public and private computer networks
that enables commercial organizations, educational institutions, government
agencies and individuals to communicate, access and share information, provide
entertainment and conduct business remotely. Use of the Internet has grown
rapidly since the start of its commercialization in the early 1990's.
International Data Corporation, also referred to as IDC, estimates that there
were approximately 23.4 million Internet users in Asia (including Japan) at the
end of 1998 and projected that the number of users will grow to 98.7 million by
the end of 2003. This reflects a compound annual growth rate of 33.4%. This
rapid growth in the popularity of the Internet is due in large part to
increasing computer and modem penetration, development of the Web, the
introduction of easy-to-use navigational tools and utilities, and the growth in
the number of informational, entertainment and commercial applications available
on the Internet Technological advances relating to the Internet have occurred
and continue to occur rapidly. resulting in more robust and lower cost
infrastructures, improved security and increased value-added services and
content. Growth in client/server computing, multimedia personal computers and
online computing services and the proliferation of networking technologies have
resulted in a large and growing group of people who are accustomed to using
networked computers for a variety of purposes, including e-mail, electronic file
transfers, online computing and electronic financial transactions- These trends
have led businesses increasingly to explore opportunities to provide Internet
based applications and services within their organization and to customers and
business partners.
World Wide Web. An important factor in the widespread adoption of the
Internet has been the emergence of a network of servers and information
available called the World Wide Web. The Web is a network medium rich in
content, activities and services. A few examples of what is available on the Web
include magazines, news feeds, radio broadcasts. and corporate, product,
educational, research, and political information. as well as activities,
including chat and Web communities and customer services, including
reservations, banking, games and discussion groups.
The rapid deployment of the Web has introduced fundamental changes in the
way information can be produced. distributed and consumed, lowering the cost of
publishing information and extending its potential reach. Companies from many
industries are publishing products and company information or advertising
materials and collecting customer feedback and demographic information
interactively. The structure of Web documents allows an organization to publish
significant quantities of information while simultaneously allowing each user to
view selected information that is of particular interest in a cost effective and
timely fashion.
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<PAGE>
Asia-Pacific Internet Growth Opportunities We believe the Asia-Pacific
region presents a promising market for Internet growth. IDC forecasts in its
March 1999 publications that in the Asia-Pacific region (including Japan), the
number of Internet users will increase from 23.4 million at the end of 1998 to
98.7 million by the end of 2003, reflecting a compound annual growth rate of
33.4%, while in the more developed U.S. Internet market, the number of Internet
users will increase from 70.1 million in 1998 to 181.1 million in 2003,
reflecting a compound annual growth rate of 20.9%. Industry research projects
that Internet users outside the United States will surpass U.S.
users by the year 2000.
We believe the recent economic downturn in the Asia-Pacific region has not
significantly slowed the rate of Internet penetration in many individual
Asia-Pacific markets, as consumers and corporate customers have discovered that
Internet applications, such as e-mail and Web site advertising, represent
lower-cost substitutes for comparable non-Internet products and services. In
addition, we believe the recent volatility in Asia-Pacific financial markets has
increased the demand for reliable, around-the-clock news and information on
local, regional and global events. which is often readily available only through
the Internet.
IDC has projected high growth in both Internet usage and personal computer
installations, important indicators for Internet accessibility in each of the
primary markets in which we currently operate. The following table summarizes
key historical and projected data in the Greater China and Asia markets:
Compound Annual Growth Rate
1998 - 2003
--------------------------------
(in millions except penetration rates)
China
Number of internet users (a) 2.4 16.1 46.3%
Number of PCs installed 9.9 35.1 29.9%
Internet penetration rate (b) 0.2% 1.3% 45.4%
PC penetration rate (c) 0.8% 2.7% 27.5%
Population (d) 1,236.9 1,291.1 0.7%
Hong Kong
Number of Internet users (a) .................0.7 2.2 25.7%
Number of PCs installed (a) ..................1.6 2.5 9.3%
Internet penetration raw (b) ................10.6% 30.3% 23.4%
PC penetration rate (c) .....................24.2% 35.3% 7.8%
Population (d) ............................. 6.7 7.2 1.4%
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Asia (including Japan) (e)
Number of Internet users (a) ................23.4 98.7 33.4%
Number of PCs installed (a) .................65.0 130.0 14.9%
Internet penetration rate (b) ................0.8% 3.2% 32.0%
PC penetration rate (c) ......................2.2% 4.2% 13.8%
Population (d) ...........................2,895.5 3,063.4 1.1%
China. China has a population of approximately 1.2 billion and an Internet
penetration rate of approximately 0.2% at 1998, With its large population and
government commitment to the development of the Internet, we believe China
represents enormous potential for Internet use in the long-term.
Hong Kong. Hong Kong has a well-educated. technologically sophisticated
population- With a population of 6.7 million and an Internet penetration rate of
approximately 10.6% at 1998, we believe Hong Kong should be quick to utilize
Internet technologies.
Asia. With a projected Internet user compounded annual growth rate of over 30%
per year during the five-year period between 1998 and 2003. we expect online
opportunities to develop significantly in Asia.
The Internet as a New Business Medium
- -------------------------------------
The growth in the number of Internet users, the amount of time users spend on
the Internet, the increase in the number of Web sites and the rate of Internet
and PC penetration is being driven by the increasing importance of the Internet
as a content resource, advertising medium and platform for consumer services.
E-commerce, The Internet is dramatically affecting the methods by which
consumers and businesses are evaluating and buying goods and services, and by
which businesses are providing customer service. Businesses have sought to
capitalize on the Internet as a platform for consumer services through the
establishment of Web sites devoted exclusively to the dissemination of
information relating to their products and services. Our services cater directly
to such businesses seeking to expand online, and we are able to provide
comprehensive solutions to our clients ranging from the design and development
of their Web site to access.
As part of providing services, we also assist businesses seeking to conduct
sales transactions directly to consumers through e-commerce on their Web sites.
The Internet provides online merchants with the ability to reach a global
audience and to operate with minimal infrastructure, reduced overhead and
greater economics of scale, while providing consumers with a broad selection,
increased pricing power and unparalleled convenience. As a result, the volume of
business transacted on the Internet is anticipated to grow in significance.
33
<PAGE>
We have also sought to engage in e-commerce ourselves to capitalize on the
revenue generating opportunities through our ISP system. In September 1999, we
launched on online auction site in China. IDC projects that e-commerce in China,
will grow by a compound annual growth rate of 242.8% and will reach
approximately $3.8 billion, in 2003.
The Xin Net Opportunity
- -----------------------
Xin Net offers a comprehensive suite of Internet related services and solutions
to the Greater China and Asia markets. We believe that by offering an integrated
platform of content, community and commerce and related services, we are well
positioned to capitalize on the growth of the Internet throughout Asia.
Our Strategy
- ------------
Our strategy is to capitalize on the Internet growth in Greater China and
Asia and among Chinese users. We believe the Greater China and Asian markets
represent one of the fastest growing and potentially one of the largest user
groups on the Internet today, In order to capitalize on this growth opportunity
in the Greater China and Asian Internet markets, we seek through Strategic
partnership to: o Provide access to subscribers/users o Create a platform for
e-commerce and value-added services specifically tailored to the Greater China
market.
We believe the Greater China market will adopt Web-based e-commerce as an
increasing number of businesses and consumers embrace the Internet as a viable
method of purchasing goods and services. Over the long-term, our strategy is to
facilitate e-commerce developments in these markets and generate revenues on a
transaction basis for businesses over our network.
o Utilize strategic alliances, business partnerships and acquisitions to
enhance our products and services and to expand our presence geographically
throughout Asia.
In order to increase our traffic, build our market we continue to pursue
strategic relationships with prominent. internationally recognized business
partners who offer quality content, technology and distribution capabilities as
well as marketing and cross-promotional opportunities.
Our Products, Services and Solutions
- ------------------------------------
Our operating partner in China, Xin Hai, has been granted Internet licenses in
six new Chinese cities. They are Guangzhou (formerly Canton), Dalian, Nanjing,
Wuhan, Chengdu and Xian. Together with Beijing, Shanghai, Shenyang and Taiyuan,
Xin Hai now has licenses for ten major cities with a combined population of
about 80 million. Geographically, Xin Hai has enough cities to form a major
national ISP company. After a month of pre-opening sales and marketing , our
Shanghai office is fully operational as of July 1, 1999. Following Shanghai and
Taiyuan, management plans to open Guangzhou, the key city in Southern China.
34
<PAGE>
We are now offering domain name registration services. Xin Hai has recently
incorporated the website WWW.CHINADNS.COM , the first in China to offer online
site registration. Our Xin Hai venture also provides web hosting and web page
design services.
Xin Hai has been awarded "Strategic Partner" status from IBM China. This status
officially identifies Xin Hai as an OEM for IBM hardware and software including
Netfinity servers, PC's, Intellistation Work Stations, ThinkPad, Aptiva
Multimedia PC's and all related products. Xin Hai now has the right to use IBM
in its advertising and promotional material, and receive special support and
training from IBM. This is recognition from IBM of Xin Hai position in the China
Internet market.
Xin Hai is an Internet Service Provider (ISP) and Internet Content Provider
(ICP) that has more than 30,000 subscribers. Xin Hai currently operates a live
online auction site in china www.xinbid.com Xin Hai Network
Our ISP system and business is organized on the fundamental concept of
Internet access and commerce. This basic structure is a platform for creating a
rich variety of online products and allows us to be an attractive host to online
advertisers. We not only host and serve advertising, but strategically direct
Internet traffic to Web sites designed hosted, or maintained or on our network.
Content Services. Xin Hai provides a one-stop gateway to the Internet
that aggregates, organizes and delivers information to meet the needs of
users interested in localized information pertaining to Greater China. This
localized content is delivered through our network ISP;
o Chnmail.com is our premier site for content, community and commerce products
and services in simplified Chinese, entertainment as well as providing
value-added community services through our chat and message board services,
Marketing
- ---------
We believe we have already achieved some name recognition and market share
through our URLs, Going forward, we will seek to achieve even broader market
penetration and increase the use of our sites by well designed advertising
campaigns and advantageous promotional offers to new subscribers
Increasing Usage By Existing Consumers. We regularly enhance our services and
update content hosted on our network in order to encourage frequent visits by
users. We offer community building services designed to increase user usage and
loyalty. We are developing personalized services that enable consumers to
establish a personal profile and receive information targeted to their
interests. Because customizing these personalized services typically requires
some effort and time on the part of the consumer, we believe that consumers who
use our personalized services will continue to use our Portals and not switch to
a competitive service
Joint Venture Employees
- -----------------------
35
<PAGE>
As of the end of September 1999, the Joint Venture had eighty (80)
full-time employees, consisting of 32 in marketing, and in sales, and 32 in
technical operations and support Our future success will depend in part on our
ability to continue to attract, retain and motivate highly qualified technical
and marketing personnel. From time to time, we also employ independent
contractors to support our development. marketing, sales and support and
administrative organizations. Our employees are not represented by any
collective bargaining unit and we have never experienced a work stoppage.
Facilities
- ----------
Servers. The systems infrastructure consists of multi-vendor server systems
geographically located in China, in Bejing, Shanghai and Shenyang interconnected
to the Internet through co-location at major ISP data center facilities and at
our own sites. The auction site infrastructure is located in British Columbia,
Canada.
Regulation of Internet Operations
- ---------------------------------
Under the Administrative Measures on Security Protection for International
Connections to Computer Information Networks, any use of the PRC Internet
infrastructure which results in a breach of the public security or the provision
of socially destabilizing content is a violation of Chinese laws and
regulations. A breach of the public security includes:
o breach of national security or disclosure of State secrets;
o infringement on State, social or collective interests or the legal rights
and interests of citizens; or
o illegal or criminal activities.
Socially destabilizing content includes content that:
o incites defiance or violation of the PRC Constitution, laws, or
administrative statutes;
o incites subversion of State power and the overturning of the socialist
system;
o incites national division and harms national unification;
o incites hatred and discrimination among nationalities and destroys
national unity;
o fabricates or distorts the truth, spreads rumours or disrupts social
order;
o spreads feudal superstition, involves obscenities, pornography.
gambling, violence, murder, horrific acts or instigates criminal acts;
o openly humiliates another party or slanders another party through a
fabrication of the truth;
o damages the reputation of a State organ; or
o violates the Constitution, laws or administrative statutes.
If through the provision of our services to our users in the PRC, we commit
any of the above, whether with or without intent, we would be subject to
significant liability. Potential liability would include being disconnected from
the ChinaNet or blocked in the PRC. Where breaches are severe, criminal
proceedings may be initiated against us.
Our Joint Venture partner Xin Hai, provides regulatory advice to us and
reviews content provided through our network to determine whether such content
is in compliance with PRC regulatory requirements. Because of the stringent
requirements relating to the type of content allowed utilizing the PRC Internet
infrastructure and our conservative interpretation of such regulations, the
content we provide: over our network is stringently edited and may not be as
interesting as other Web sites which do not try to comply with PRC regulatory
requirements. Such Web sites, however, may run the risk of being blocked from
the PRC Internet infrastructure by local public security bureaus.
36
<PAGE>
The PRC has also enacted other regulations governing Internet connections and
the distribution of information via the Internet According to the Administrative
Measures on China Public Multimedia Telecommunication. Internet content
providers are required to report to the Ministry of Post and Telecommunication
(the predecessor of Ministry of Information Industry) or provincial Post and
Telecommunication Bureau for verification and to enter into an interconnection
agreement and undertaking letter for information security with China Telecom or
other node Service Providers. We have complied with these requirements.
Under the Administrative Measures on Security Protection for International
Connection to Computer Information Networks, entities with their computer
information networks interconnected with the Internet are required to register a
notice filing with the relevant authorities designated by local public security
bureaus. We have fulfilled these registration procedures.
We can make no prediction as to the effect, if any, that market sales of
common shares registered hereby or the availability of shares for sale will have
on the market price prevailing from time to time. Nevertheless. sales of
significant numbers of common shares in the public market could adversely affect
the market price of the common shares and could impair our future ability to
raise capital through an offering of its equity securities.
We will encounter substantial competition from other Internet service
companies, most of which are major multinational corporations. Any potential
purchaser of the shares should carefully review all "Risk Factors" section and
the "Financial Statements" section herein.
Products, Services, Markets, Methods of Distribution and Revenues.
-------------------------------------------------------------------
Internet Services are presently our principal services. The market is
focused on China's major cities; Xin Hai offices in Beijing and Shenyang have
been operating since 1997. Shanghai opened in June/July 1999. Offices in
Guangzhou and Taiyuan are planned to open soon. Revenues come from subscription
fees, domain name registration online usage fees, home page design fees and
other miscellaneous sources.
Working Capital Needs
- ---------------------
The working capital needs of the Registrant arise primarily from: expand
existing capacity of the services, open more offices in other major cities,
launch new value-added services, enhance capability for E-commerce design and
development in the People's Republic of China. These requirements have been met
by a private placement for an amount of US$5.5 millions. This provides the
needed working capital for the near and medium term of the Company.
Dependence on client base.
- --------------------------
Presently the our primary revenue comes through the Joint Venture from
subscription fees, net cards and domain name registration from the client base
in Beijing, Shanghai and Shenyang. At the end of September 1999, the number of
our subscribers totaled over 31,000. Our dependence on this client base will
continue in the foreseeable future.
Backlog of Orders. None.
Government Contracts. None.
37
<PAGE>
Competitive Conditions.
- -----------------------
A number of factors, beyond our control and the effect of which cannot be
accurately predicted may affect the marketing of the ISP and services. These
factors include political policy on ISP's operation, political policy to open
the doors to foreign investors, the availability of adequate capital. The
Internet Services industry in China is highly competitive. Xin Hai faces
competition from government owned ISPs and other privately owned ISPs. Many of
them possess greater financial and personnel resources than Xin Hai and
therefore have greater leverage to use in developing new services, expanding
capacities, hiring personnel and marketing. Accordingly, a high degree of
competition in these areas is expected to continue. The markets for Internet
services and content have increased substantially in recent years. But cost of
lines rental is still the major expense of Xin Hai, Currently, all ISPs can only
rent lines from China TeleCom. There is uncertainty as to future line cost,
although it has been reduced by half recently and is expected to continue to
come down. There is no assurance the Registrant's revenues will not be adversely
affected by these factors.
The market in China is monitored by the Government, which could impose
taxes or restrictions at any time which would make operations unprofitable and
infeasible and cause a write-off of capital investment in Chinese ISP
opportunities.
A number of factors, beyond the Registrant's control and the effect of
which cannot be accurately predicted may affect the marketing of the ISP and
services. These factors include political policy on ISP's operation, political
policy to open the doors to foreign investors, the availability of adequate and
width of the ChinaNet backbone and gateway.
Registrant Sponsored Research and Development. None.
- -----------------------------------------------------
Compliance with related Laws and Regulations.
- ---------------------------------------------
The operations of our Xin Hai joint venture are subject to local,
provincial and national laws and regulations in the People's Republic of China.
Xin Hai Technology Development LTD. holds licenses to do businesses in the
currently operated locations: Beijing, Shanghai and Shenyang, as well as in
seven other cities. We are unable to assess or predict at this time what effect
such regulations or legislation could have on our activities in the future.
(a) Local regulation -
The Registrant cannot determine to what extent future operations and
earnings of the Placer Technologies Corp. joint venture may be affected by new
legislation, new regulations or changes in existing regulations.
(b) National regulation -
The Registrant cannot determine to what extent future operations and
earnings of the Placer Technologies Corp. joint venture may be affected by new
legislation, new regulations or changes in existing regulations. (See Discussion
of such lows previously under "Regulations of Internet Ooperations" and
Government Regulation for Internet Service in China")
38
<PAGE>
The value of the Registrant's investments in the Placer Technologies Corp.
Joint Venture may be adversely affected by significant political, economic and
social uncertainties in the People's Republic of China ("PRC"). Any changes in
the policies by the Government of the PRC could adversely affect the Xin Hai
Joint Venture by, among other factors, changes in laws, regulations or the
interpretation thereof, confiscatory taxation, restrictions on currency
conversion, the expropriation or nationalization of private enterprises, or
political relationships with other countries.
Material Agreements
- -------------------
Joint Venture Agreement
In a Joint Venture agreement dated August 25, 1998 through a 100% owned
subsidiary Infornet Investment Ltd., ( Registered in Hong Kong) - we entered
into a Joint Venture with Xin Hai Technology LTD to provide technology and
capital to expand ISP services I China. We agreed to contribute 100% of the
capital expenditure of the Joint Venture; in return, Infornet Investment Ltd.
will receive 80% of the profit generated by the Joint Venture until recoupment
of its investment and thereafter the profit share will revert to 49% to Xin Hai
Technology Development, LTD. and 51% to the company. Other substantive
provisions have been summarized in the Business section under "Joint Venture
Agreement for ISP Business".
Number of Persons Employed.
- ---------------------------
As of October 20, 1999, our holding company had two employees, Xiao-qing Du
and Xin Wei , through Infornet Investment Corp., each at a salary of C$2,500 per
month. X.Q. Du is president of Infornet Investment Corp. (Canada) and Xin Wei is
responsible for the operations in China. Marc Hung serves as President full
time.
Our joint venture partner Xin Hai, had 80 full-time employees in the PRC
at the end of September 1999.
YEAR 2000 CONSIDERATION
We have assessed and continue to assess the risk of "Y2K" problems in the
operation of our business. This includes an examination of all
computer-controlled processing and analytical equipment, the power supply to the
facility, telephone, banking services and water supply to the facility. We have
completed the Y2K assessment and taken all corrective action required through
software upgrades and equipment modification. Should further problem areas be
noted, corrective action will be taken to minimize disruption of the Company's
operation.
Year 2000 issues "Year 2000 problems" result primarily from the inability of
some computer software to properly store, recall or use data after December 31,
1999. We are is engaged in business activities, which rely on information
technology ("IT") systems including for billing and accounting, as well as
system connections for ISP customers and servers. All of our hardware and
software have been upgraded for 2000 compliance accordingly, we do not believe
that we will be materially affected by Year 2000 problems, except potentially
from third party Internet and telephone systems which could be impaired by
partial system disruptions. We rely on non-IT systems that may suffer from Year
2000 problems including telephone systems, facsimile and other
39
<PAGE>
office machines. Moreover, while we rely on third-parties that may suffer from
Year 2000 problems that could affect the Company's operations, we do not believe
that such third-party Year 2000 problems will affect the company in a manner
that is different or more substantial than such problems affect other similarly
situated companies. We have designed a limited contingency plan with respect to
Year 2000 problems that may affect the Company or third-parties suppliers.
The foregoing is a "Year 2000 Readiness Disclosure" within the meaning of
the Year 2000 Information and Readiness Disclosure Policy. The nature of the
Company's business does not subject it to compliance with federal, state and
local provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, which would have a material effect upon our capital expenditures,
earnings or competitive position.
PRICE RANGE OF OUR COMMON STOCK & STOCKHOLDER MATTERS
(a) Market Information
The following information sets forth the high and low bid price for the
Company's common stock for each quarter within the two years preceding the date
of this registration statement. The Company's common stock is traded over the
counter and quoted on the OTC Bulletin Board. The following information has been
obtained by the Company with reference to such source.
Bid (U.S. $)
1999 High Low
- ---- ---- ---
First Quarter $2.00 $ .34
Second Quarter $5.91 $1.68
Third Quarter $3.44 $1.50
1998
- ----
First Quarter $ .53 $.187
Second Quarter .375 .15
Third Quarter 1.06 .25
Fourth Quarter .78 .24
1997
----
First Quarter $ .75 $.03
Second Quarter .84 .68
Third Quarter .45 .25
Fourth .50 .156
Because of recent changes in the rules and regulations governing the trading of
small issuers securities, our securities are presently classified as "Penny
Stocks," which classification places significant restrictions upon
broker-dealers desiring to make a market in such securities. It has been
difficult for management to interest any broker - dealers in our securities and
it is anticipated that these difficulties will continue until our Company is
able to obtain a listing on NASDAQ at which time market makers may trade our
securities
40
<PAGE>
without complying with such stringent requirements. The existence of market
quotations should not be considered evidence of the "established public trading
market." The public trading market is presently extremely limited as to number
of market markers in our stock and the number of states within which our stock
is permitted to be traded.
The over-the-counter market quotations above reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
(b) Holders. As of October 30, 1999 we had approximately 108
shareholders of record.
(c) Dividends. No dividends have been paid in any year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
-----------------------------------
We had cash capital of $536,189 at 1998 year end which was virtually
unchanged from year end 1997.
The Company had no other capital resources other than the ability to use
its common stock to achieve additional capital raising in a private placement.
The Company has equipment of $227,427 on the books which is not necessarily
liquid at such value. Other than cash capital, the other assets would be
illiquid.
At the end of the second quarter 1999 (June 30th), we had $6,399,009 in
cash and current liabilities of $144, 664. The increase in cash was due to a
private placement of units in May, 1999.
We have revenues from our operations at this time. However capital from
private placements and/or borrowing against assets are required to fund future
operations. We completed a private offering of Common Stock at $0.40 per share
for $750,000 in June 1998. In 1999 we closed a private placement of 5.5 million
units of common stock at US$1.00 per Unit consisting of one (1) common share and
one (1) Non-Transferable Share Purchase Warrant. One (1) Warrant entitles the
holder to purchase on or before March 31, 2001 one (1) additional unit of the
Issuer at a price of US$2.00 per Unit, each Unit consisting of one (1) common
share and one (1) additional warrant. The additional warrant entitles the holder
to purchase one (1) additional common share of the Issuer at a price of US$5.00
per share on or before March 31, 2002.
Outstanding warrants are not included in the "Liquidity and Capital
Resources" and they are not valued in our financial statements.
RESULTS OF OPERATIONS
We will carry out the plan of business as discussed above. We cannot
predict to what extent its liquidity and capital resources will be depleted by
the operating losses (if any) of the Placer Technologies Corp. Joint Venture.
For fiscal year 1999, we anticipate increased revenues derived from an increase
in subscriber base and expanded e-commerce business.
41
<PAGE>
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO
THE YEAR ENDED DECEMBER 31, 1997
The Company achieved revenues of $527,988 in 1998 in the form of the net
sales from its Joint Venture in China with XIN HAI Technology Ltd. Its net sales
in 1997 were $96,177. The Company incurred operating expenses of $510,555 in
1998 compared to operating expenses of $333,084 in 1997. Operating income for
1998 was $17,433 in contrast to the 1997 operating loss of ($236,907). The
Company had miscellaneous income of $4,845 in 1998 and $7,221 in 1997. The net
income in 1998 was $22,278 compared to the net loss in 1997 of ($229,686). The
per share income for 1998 was $.001, and the per share loss for 1997 was ($.02)
Revenues increased from $96,177 in 1997 to $527,988 in 1998 mainly due to
increased fees from dial-up Internet access and e-mail subscribers. Operations
did not occur throughout the whole year of 1997: Beijing, China operations
started in April 1997 and Shenyang, China operations began in October 1997. In
1998, both operations were fully operational during the whole year. Subscribers
increased from only a few thousand at the end of 1997 to 17,000 at the end of
the following year, 1998.
The same growth situation basically explains the increase in expenses from
$333,084 in 1997 to $510,555 in 1998. Full year space and office rentals,
additional leased lines, additional equipment, more employees, increased
advertising and promotion, increased traveling and increased professional
consulting and accounting fees comprise the principle items of increased
expenditure.
Future trends: The Company cannot assure that any profit on revenues can
occur in the future, because the Company intends, under its joint venture
agreement, to invest in further Internet "backbone" and technology for its China
Internet operations. The Company expects to spend in excess of $500,000 in 1999
on development of its business in China, and it could be expected that it may
have a loss on operations.
CHANGES IN FINANCIAL CONDITION
At year end 1998 the Company's assets had increased to $604,575 compared to
$554,768 at year 1997. The current assets totaled $376,179 at 1998 year end
compared to $365,428 at 1997 year end. Total and current liabilities at year end
1998 were $40,504 compared to $12,975 at 1997 year end. In May, 1999, the
company completed a private offering of units which achieved $5,500,000 in cash.
At June 30, 1999 we had $6,399,009 in cash.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999 AS COMPARED TO
THE QUARTER ENDED JUNE 30, 1998
The Company had revenues of $170,088 in the second quarter of 1999 as
compared to $144,112 in the same quarter in 1998. The Company incurred general
and administrative expenses of $244,362 in the quarter in 1999 and similar
general administrative expenses of $98,557 in the same quarter in 1998. The
Company reflected on operating loss of $(54,274) in the second quarter of 1999
as compared to $45,555 in profits in the same quarter in 1998. The Company had
miscellaneous income of $44,614 in 1999 and $514 in 1998 in the quarter. Net
loss for the quarter in 1999 were $(9,660) and $46,069 in net earnings in the
second quarter in 1998. The earnings per share in the quarter in 1999 and 1998
were nominal.
42
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO
SAME PERIOD IN 1998
Revenues increased to $309,403 from $258,915, in 1998 an increase of
nearly 20%. Fees for dial-up Internet access and e-mail principally contributed
to the increase. During this period, less usage per customer and a reduction of
rates charged to the customer produced lesser revenues than otherwise would have
been achieved.
Expenses increased to $327,060 from $202,126 in 1998, an increase of more
than 60%, because of the Company's significant increases incurred in operating,
and equipment expenses, administrative & office expenses, consulting &
management fees and professional costs. The revenues and all the expenses relate
to the Joint Venture, which is our sole business so far.
NEED FOR ADDITIONAL FINANCING
We have capital sufficient to meet the Company's current cash needs,
including the costs of compliance with the continuing reporting requirements of
the Securities Exchange Act of 1934. We may have to seek loans or equity
placements to cover future cash needs to continue expansion. There is no
assurance, however, that the available funds will ultimately prove to be
adequate to continue its business and our needs for additional financing are
likely to increase substantially.
No commitments to provide additional funds have been made by management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to us to allow it to cover operations expenses. The
company achieved a private placement of $5,500,000 in May 1999 and retains over
$5,000,000 as capital.
If future revenue declines, or operations are unprofitable, we will be
forced to develop another line of business, or to finance its operations through
the sale of assets it has, or enter into the sale of stock for additional
capital, none of which may be feasible when needed. The registrant has no
specific management ability, nor financial resources or plans to enter any other
business as of this date.
From the aspect of whether we can continue toward its business goal of
maintaining and expanding the Joint Venture for Internet Services in China, we
may use all of its available capital without generating a profit.
The effects of inflation have not had a material impact on our operation,
nor is it expected to in the immediate future.
Although we are unaware of any major seasonal aspect that would have a
material effect on the financial condition or results of operation, the first
quarter of each fiscal year is always a financial concern. It is not uncommon
for companies to shut down their operation or operate on a skeletal crew during
the Chinese New Year holiday. Therefore in effect, the first quarter really has
only two months for generating revenue.
43
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
In December 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", which is effective for both interim and annual periods ending after
December 15, 1997. SFAS No. 128 requires all prior period earnings per share
data to be restated to conform to the provisions of the statement. The Company
adopted SFAS No.128 for the six-months ended December 31, 1997. The adoption of
this standard did not effect the Company's earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by, or
distributions to, owners. Among other disclosures, SFAS No.130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise". SFAS No. 131 establishes
standards for the reporting of certain information about operating segments by
public companies in both annual and interim financial statements. SFAS No. 131
defines an operating segment as a component of an enterprise for which separate
financial information is available and whose operating results are reviewed
regularly by the chief operating decision maker to make decisions about
resources to be allocated to the segment and to assess its performance.
SFAS Nos. 130 and 131 are both effective for financial statements for
periods beginning after December 15, 1997 and both require comparative
information for earlier years to be restated. The adoption of SFAS No. 130 is
not expected to have a material effect on the Company's financial position or
results of operations. The adoption of SFAS No. 131 will have no effect on the
Company's financial position or results of operations and the Company is
currently reviewing SFAS No. 131 in order to fully evaluate the impact, if any,
the adoption of the provisions of this Statement, will have on future financial
disclosures.
Market Risk
- -----------
The Company does not hold any derivatives or investments that are subject
to market risk. The carrying values of any financial instruments, approximate
fair value as of those dates because of the relatively short-term maturity of
these instruments which eliminates any potential market risk associated with
such instruments.
Legal Proceedings
- -----------------
The Company, in the normal course of business, maybe engaged in lawsuits,
as a plaintiff or defendant, involving matters such as compensation disputes,
employment matters, contract disputes and other matters related to its business.
No lawsuits are presently pending against the Company.
44
<PAGE>
Submission of matters to a vote of security holders. No matters have been
submitted to security holders in the past year.
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as
of June 30, 1999.
June 30, 1999 December 31, 1998
------------------------------------------
ASSETS $6,981,199 $604,575
---------- --------
Accounts Payable 114,180 20,504
------- ------
TOTAL CURRENT LIABILITIES $144,664 $40,504
-------- -------
LONG TERM DEBT 184,474 -
TOTAL LIABILITIES 329,138 40,504
======= ======
STOCKHOLDER'S EQUITY Capital Stock -
($0.001 par value, 50,000,000 shares
authorized, shares issued and outstanding at
December 31, 1998 was 14,075,000
and 20,975,000 were issued and 20,975 14,075
outstanding as at June 30, 1999)
Paid In Capital 6,846,090 792,990
--------- -------
Retained earnings (deficit) (215,004) (242,994)
------------------------------------------
TOTAL STOCKHOLDER'S EQUITY $6,652,061 $564,071
------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $6,981,199 $604,575
45
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS AND SIGNIFICANT MEMBERS OF MANAGEMENT
(a) The following table furnishes the information concerning our directors and
officers as of October 15, 1999. The directors of the Registrant are elected
every year and serve until their successors are elected and qualify.
Name Age Title Term
- ---- --- ----- ----
Xiao-qing Du 28 President of Subsidiary Annual
Infornet Investment Corp.
and Director Annual
S.Y. Marc Hung 54 President and Director Annual
Ernest Cheung 49 Director and Secretary Annual
Maurice Tsakok 47 Director Annual
Xin Wei 29 President of Xin Hai Annual
Development Corp. (Joint
Venture partner of the
Company in China)
On March 10, 1999 Jing Liang resigned as a director of the Company.
On April 6, 1999, Xiao-qing (Angela) Du resigned as president of Xin
Net Corp. Messrs. Maurice Tsakok and Marc Hung were elected to the board
of directors. Marc Hung was appointed to the position of President.
The following table sets forth the portion of their time the Directors devote to
the company:
Ernest Cheung 25% Angela Du 100%
Marc Hung 100% Maurice Tsakok 25%
The term of office for each director is one (1) year, or until his/her
successor is elected at the Registrant's annual meeting and is qualified. The
term of office for each officer of the Registrant is at the pleasure of the
board of directors.
The board of directors has neither nominating nor auditing committee.
Therefore, the selection of persons or election to the board of directors was
neither independently made nor negotiated at arm's length.
(b) Identification of Certain Significant Employees.
Strategic matters and critical decisions are handled by the directors and
executive officers of the Company, Marc Hung, Ernest Cheung and Maurice Tsakok.
Day-to-day management is delegated to Xiao-qing (Angela) Du, Marc Hung in Canada
and Xin Wei in China. Du and Wei are employees of our wholly-owned subsidiary,
Infornet Investment Corp.
(c) Family Relationships. Xiao - qing Du and Xin Wei are husband and wife.
(d) Business Experience.
The following is a brief account of the business experience during the
past five years of each director and executive officer of our Company, including
principal occupations and employment during that period and the name and
principal business of any corporation or other organization in which such
occupation and employment were carried on.
Xiao-qing (Angela) Du, President of subsidiary Infornet Investment Corp. and
Director, age 28, was President and Director of our company from 1996 to April
1999. She received a Bachelor of Science in International Finance in 1992 from
East China Normal University. She received a Master of Science in Finance and
Management Science in 1996 from the University of Saskatchewan Canada. She has
been Business Manager of China Machinery & Equipment I/E Corp. (CMEC) from 1992
to 1994. She is now President of Infornet Investment Corp., our wholly owned
subsidiary in Hong Kong and remains a director of our company.
46
<PAGE>
Ernest Cheung, Secretary and Director, age 49, has been Secretary of
the Registrant since May, 1998. He received a B. Math in 1973 from
University of Waterloo Ontario. He received an MBA in Finance and
Marketing from Queen's University, Ontario in 1975. From 1991 to 1993 he
was Vice President of Midland Walwyn Capital, Inc. of Toronto, Canada.
From 1992 - 1995 he served as Vice President and Director of Tele Pacific
International Communications Corp. He has also served as President for Richco
Investors, Inc. since 1995. He has been a Director of Registrant since 1996.
He is currently a Director of Agro International Holdings, Inc. since 1997,
Spur Ventures, Inc. since 1997, Richco Investors, Inc. since 1995 and Drucker
Industries, Inc. since 1997.
Marc Hung, B.A.Sc.(E.E.), M.A. Sc. (E.E.) University of Montreal (1969 & 1971),
President and Director, age 54, has been President of the Registrant since April
6, 1999. From May 1992 to April 1997, Marc Hung was director, Power System
Technology, a division of Institut de Recherche en Electricite du Quebec (IREQ),
Hydro-Quebec's Research Institute. His main tasks consisted of general
management, networking, promotion of the division's technological products and
services and negotiations with potential partners for spinning off promising
innovations. The field of responsibility included, amongst others, software
products and services, software engineering and telecommunications technology.
From May 1997 to June 1998, he was loaned by Hydro-Quebec to the Canadian Centre
for Magnetic Fusion (CCFM), a fundamental research entity formed by
Hydro-Quebec, the Institut National de Recherche Scientifique (INRS) and (up to
March 1997) Atomic Energy of Canada Ltd. Besides general management, his main
mandate was to develop and propose a plan for the commercialization of the
Centre's innovative products and services.
Maurice Tsakok, Director, age 47, was employed, from 1994 to 1996, by a mutual
fund company who as a Vice-President responsible for computer operations and
research on global technology companies. From 1997 to present, he acted as a
consultant on the high-tech industry and provides technical analysis on
high-tech companies. He holds a Mechanical Engineering degree (1974 University
of Minnesota) as well as an MBA specializing in Management Information Systems
(MIS) (1976 Hofstra University).
Xin Wei is President of Xin Hai Technology Development Corp., the Joint Venture
partner in Placer Technology Corp., our Joint Venture in China. Xin Wei
graduated from Beijing Industry University in 1991 with a diploma in Computer
Science. From 1991 to 1992 Xin Wei was a sales engineer of Beijing Sino-Soft
Computer Institution. From 1992 to 1995 he was a Director of Beijing Xin Hai
Technology Development Corp. From 1995 to 1996 he was a student in Canada, and
also served as a director of Xin Hai Technology Development Corp.
(e) Directors Compensation
Directors who are also officers of the Registrant receive no compensation
for services as a director.
47
<PAGE>
EXECUTIVE COMPENSATION
(a) Cash Compensation.
Compensation paid by our company for all services provided up to September
30, 1999 (1) to each of our five most highly compensated executive officers
whose cash compensation exceeded $60,000 and (2) to all officers as a group.
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Cash Compensation Security Grants
- ------------------------------------------------------------------------------
Name and Year Salary Bonus Consulting Number Securities Long Term
Principal Fees/Other of Underling Compensation/
Position Fees ($) Shares Options/ Option
SARs(#)
- ------------------------------------------------------------------------------
Xiao-qing Du 1997 20,000 0 0 0 0 0
President of 1998 20,000 0 0 0 0 0
Infornet 1999 15,000 0 14,500 0 0 0
Subsidiary
- ------------------------------------------------------------------------------
Marc Hung 1998 0 0 0 0 0
( 150,000
President 1999 0 0 10,000 0 0 options@ $.40/
share(prior
to becoming a
director or
officer)
- ------------------------------------------------------------------------------
Ernest Cheung, 1998 0 0 0 0 0
Secretary 1999 0 0 2,000 0 0
- ------------------------------------------------------------------------------
Officers as a 1998 20,000 0 26,500 0 0
Group 1999 15,000 (CDN)
(CDN)
Effective on April 6, 1999, Marc Hung was appointed as President of the company
and Angela X. Du resigned as the President of our company. She the President of
Infornet Investment Corp., the wholly owned operating subsidiary in Canada.
(1)Richco Investors, Inc. of which Mr. Cheung is an officer and director,
received 385,000 shares of stocks for its services in structuring the private
placement.
(e) termination of Employment and Change of Control Arrangements. None.
(f) Stock purchase options:
48
<PAGE>
SUMMARY COMPENSATION TABLE OF DIRECTORS
Cash Compensation Security Grants
- ------------------------------------------------------------------------------
Name and Year Annual Meeting Consulting Number Securities
Principal retainer Fees ($) Fees/Other of Underling
Position Fees ($) Fees($) Shares Options/SARs(#)
(#)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Xiao-qing Du, 1998 0 0 0 0 0
Director 1999 0 0 0 0 0
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Jing Liang, 1998 0 0 0 0 0
Director 1999 0 0 0 0 0
(resigned in
1999)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Ernest Cheung, 1998 0 0 0 0 0
Director 1999 0 0 0 0 0
- ------------------------------------------------------------------------------
Maurice Tsakok 1999 0 0 8,000 CDN 0 0
- ------------------------------------------------------------------------------
Directors as a 0 0 8,000 CDN 0 0
group
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) See note (1) under Compensation Table of Executives
No director, except for those who are also officers of the Company as
listed above, received any compensation in 1998.
Effective on May 1, 1998, Jing Liang resigned from his position as
Secretary of the Company. Ernest Cheung was appointed Secretary of the Company
as of the same date.
Effective March 10, 1999 Jing Liang resigned as director of the Company.
Effective on April 6, 1999, Mr. Marc Hung and Mr. Maurice Tsakok were
elected as directors of the board.
(e) Termination of Employment and Change of Control Arrangements. None.
(f) Stock purchase options:
On February 26, 1999, stock options for a total of 480,000 shares at $.40
per share were granted to officers and employers (or persons who became
officers) that had contributed to our success of the company in the past: Marc
Hung (150,000 shares)and Xin Wei (330,000shares) (Note: Mr. Wei is not an
officer of the Company, but an employee of Infornet Investment Corp.) All share
options were exercised as of April 6, 1999.
49
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934, as amended (The
"Exchange Act"), requires the Registrant's officers and directors, and persons
who own more than 10% of a registered class of the Registrant's equity
securities, to file reports of ownership and changes in ownership of equity
securities of the Registrant with the Securities and Exchange Commission and
NASDAQ. Officers, directors and greater-than 10% shareholders are required by
the Securities and exchange Commission regulation to furnish to Registrant with
copies of all Section 16(a) that they file.
Some of the officers and directors of the Company will not devote more than a
portion of their time to the affairs of the Company, although Marc Hung and
Angela Du devote full time to the company. There will be occasions when the time
requirements of the Company's business conflict with the demands of their other
business and investment activities. Such conflict may require that the company
attempt to employ additional personnel. There is no assurance that the services
of such persons will be available or that they can be obtained upon terms
favorable to the Company.
There is no procedure in place which would allow officers or directors to
resolve potential conflicts in an arms - length fashion. Accordingly, they will
be required to use their discretion to resolve them in a manner which they
consider appropriate.
SECURITY OWNERSHIP OF PRINCIPAL OWNERS AND MANAGEMENT
(a) Beneficial owners of five percent (5%) or greater, of our Common Stock:
The following sets forth information with respect to ownership by holders of
more than five percent (5%) of our Common Stock known by us based upon
21,360,000 shares outstanding at September 30, 1999.
Title of Name and Address Amount of Percent of
Class of Beneficial Owner Beneficial Interest Class
- ----- ------------------- ------------------- -----
Xiao-qing Du
Common Stock #2754 Adanac St. 2,076,000 9.7%
Vancouver, BC V5K 2M9
Common Stock Richco Investors Inc. 3,272,500 15.3%
Ste 830 789 West Pender St.
Vancouver, BC V6C 1H2
Common Stock Ernest Cheung (1) 3,272,500 15.3%
Ste 830 789 West Pender St.
Vancouver, BC V6C 1H2
Common Stock Maurcie Tsakok (1) 3,272,500 15.3%
Ste 830 789 West Pender St.
Vancouver, BC V6C 1H2
50
<PAGE>
(b) The following sets forth information with respect to the Registrant's
Common Stock beneficially owned by each Officer and Director, and by all
Directors and Officers as a group, at September 30, 1999.
Title of Name of Amount of Percent of
Class Beneficial Owner Beneficial Ownership Class
- ----- ---------------- -------------------- -----
Common Stock Xiao-qing Du (Director) 2,076,000 9.7%
2754 Adonac St.
Vancouver, B.C. V5K 2M9
Common Stock Ernest Cheung (1) 3,272,500 15.3%
Richco Investors
(See Richco Investors below)
Common Stock Maurice Tsakok (1) 3,272,500 15.3%
Richco Investors
(See Richco Investors below)
Common Stock Richco Investors, Inc. 3,272,000 15.3%
Ste. 830,789 W. Pender St.
Vancouver B.C. V6C 1H2
(beneficially owned by
Ernest Cheung, Director
and Secretary)
Maurice Tsakok (a Director)
is also Director of Richco
Investors, Inc.
Common Stock S. Y. Marc Hung 118,000 .5%
830,789 W. Pender St.
Vancouver B.C. V6C 1H2
Total as a group 5,466,500 25.6%
(1) Through Richo Investors, Inc. which owns 3,272,500 shares. Mssrs. Cheung and
Tsakok are officers, directors and shareholders of Richco Investors Inc.
Compensation Committee Interlocks and Insider Participation
We have established a Compensation Committee on October 5, 1999 which
consists of two directors, Marc Hung and Ernest Cheung.
Committees of the Board of Directors
Audit Committee. On August 31, 1999, the Board of Directors established an
Audit Committee, which consists of two directors, Marc Hung and Ernest Cheung.
The Audit Committee will be charged with recommending the engagement of
independent accountants to audit the Company's financial statements, discussing
the scope and results of the audit with the independent accountants, reviewing
the functions of the Company's management and independent accountants pertaining
to the Company's financial statements and performing such other related duties
and functions as are deemed appropriate by the Audit Committee and the Board of
Directors.
Compensation Committee. The Compensation Committee will be responsible for
reviewing general policy matters relating to compensation and benefits of
directors and officers, determining the total compensation of the officers and
directors of the Company.
51
<PAGE>
Director Renumeration
All directors will be reimbursed for out-of-pocket expenses incurred in
connection with attendance at board and committee meetings. We may grant options
to directors under the Company's Stock Incentive Plan.
Performance Graph
Due to the illiquidity of the Company's Common Stock and the amount of
shares of its Common Stock which are restricted from trading (approximately 75%
of outstanding shares at October 30, 1999), a performance graph has not been
disclosed in this Registration Statement. Such information, in the opinion of
management, would be misleading to the investor. From inception to date, the
Company's Common Stock has been very thinly traded on the OTC Bulletin Board.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions On February 20, 1997, the Company issued 4,000,000
shares of common stock for services rendered at $.001 per share to 15
shareholders, none of whom were affiliated or shareholders. The following
shareholders received shares equal to or greater than 5% of the then outstanding
shares: Xin Wei - 750,000 shares. Xin Wei was awarded 750,000 shares as founder
of Xin Hai Technology Development Ltd. and for obtaining the necessary ISP
permit, business license and MOFTEC approval on February 20, 1997. No cash was
received by the company from the issuance of the shares.
During 1997, the Company issued 5,000,000 shares of common stock to
acquire the wholly owned subsidiary, Infornet Investment Corp. (Canada) to X.
Qing (Angela) Du - 4,000,000 shares and Jing Liang - 1,000,000 shares.
On August 25, 1997, through the wholly-owned subsidiary, Infornet
Investment Limited (Hong Kong), the Company formed cooperative Joint Venture
called Placer Technologies Corp. (a limited liability company) with Xin Hai
Technology Development Ltd. (a People's Republic of China Corporation) as a
partner, for a term of twenty (20) years. Xin Hai Technology Development Ltd.
(Xin Hai) is engaged in the business of developing computer hardware, software,
and telecommunication network technology, and providing consultation and
training services.
On February 26, 1999, stock options for a total of 1.4 million share at
$.40 per share were granted to parties that had contributed to the efforts of
the company in the past. They are: Lancaster Pacific Investment Ltd., Tandoor
Holdings Limited, Marc Hung, Kun Wei and Xin Wei. All 1.4 million share options
were exercised as of April 6, 1999.
Tandoor Holdings was instrumental in the formation of the Company. It
prepared the original business plan for Xin Hai Technologies and helped in the
structuring of the Xin Hai/Infornet Joint Venture. It also helped in
presentations to potential investors.
52
<PAGE>
Lancaster Pacific introduced the Shenyang office team to Xin Hai and
contributed to the establishment of the Company's second operating location. It
also helped in the design of the accounting and management information systems
for Xin Hai.
In May 1999, Marc Hung, President and Director, purchased 80,000 units of
the private placement at the $1.00 offering price. Richco Investors, Inc. Richco
Investors, Inc., a public company of which both Mssrs. Ernest Cheung and Maurice
Tsakok are directors officers and shareholders purchased 700,000 units in the
private placement at $1.00 per unit in May 1999.
In February 1999, Marc Hung, who was neither an officer nor director but
since has become President and Director, was granted and exercised (in March,
1999) an option to purchase 150,000 shares of common stock at $.40 per share.
The option to purchase shares was granted to him for services rendered since
July 1998 as advisor to the Company in matters relating to management,
technology and strategies.
In February 1999, Kun Wei, a shareholder, was granted and exercised (in
March) an option to purchase 330,000 shares of common stock at $.40 per share.
The option to purchase shares was granted to him for contributing to the success
of the Joint Venture, in particular with regards to technology development and
implementation.
In February 1999, Xin Wei, a shareholder, was granted and exercised (in
March) an option to purchase 330,000 shares of common at $.40 per share. The
option to purchase shares was granted to him for contributing to the success of
the Joint Venture, in particular with regards to general management of Xin Hai
Technology Development Ltd., business development and governmental relations.
On September 17, 1999 385,000 units were issued to Richco Investors, Inc.
as a consulting fee for services rendered in structuring the unit placement.
LEGAL MATTERS
The Company from time to time may be a party to certain legal proceedings.
The Company is not presently involved in any legal proceedings.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Clancy & Co.PLLC completed the audit of the balance sheets as of December
31, 1997, and 1998 and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1997, and 1998. The
Independent Audit Report for 1997 contained an opinion which included a
paragraph discussing uncertainties related to continuation of the Company as a
going concern. In connection with these prior audits, no disagreement exists
with any former Accountant on any matter of accounting principles or practices,
finacial statements disclosure, or auditing scope of procedure, which
disagreement which disagreement if not resolved to the satisfaction of the
former Account would have caused the Accountant to make reference in connection
with his reoprt to the subject matter of the disagreement(s).
DESCRIPTION OF SECURITIES
COMMON STOCK
Our Articles of Incorporation as amended authorize the issuance of
50,000,000 shares of common stock at .001 par value. Each record holder of
Common Stock is entitled to one vote for each share held on all matters properly
submitted to the stockholders for their vote. Cumulative voting for the election
of directors is not permitted by the Articles of Incorporation.
53
<PAGE>
Holders of outstanding shares of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out of
legally available funds; and, in the event of liquidation, dissolution or
winding up of the affairs of the Company, holders are entitled to receive,
ratabl the net assets of the Company available to stockholders after
distribution is made to the creditors. Holders of outstanding shares of Common
Stock have no preemptive, conversion or redemptive rights. All of the issued and
outstanding shares of Common Stock are, and all unissued shares when offered and
sold will be, duly authorized, validly issued, fully paid, and nonassessable. To
the extent that additional shares of the Company's Common Stock are issued, the
relative interests of then existing stockholders may be diluted.
WARRANTS
We have issued 5,885,000 warrants as part of our unit private placement in
May 1999. Each warrant entitles the holder to purchase, on or before March 31,
2001, one (1) additional unit of at a price of US $2.00 per unit, each unit
consisting of one (1) common share and one (1) additional warrant. The
additional warrant entitles the holder to purchase one (1) additional common
share of the Issuer at a price of US $5.00 per share on or before March 31,
2002. On September 17, 1999 we issued 385,000 warrants to Richco Investors, Inc.
as part of the 385,000 units awarded for structuring the private placement.
REPORT TO STOCKHOLDERS
We shall make available annual reports to a stockholders containing
audited financial statements reported upon by its independent auditors. We
intends to release unaudited quarterly or other interim reports to its
stockholders as it deems appropriate.
TRANSFER AGENT AND REGISTRAR
Holloday Transfer, Inc., is the transfer agent and registrar for all of
our securities, including the $.001 par value common stock.
LIMITATIONS ON DIRECTOR' LIABILITY
Our bylaws require us to indemnify our directors and officers, and allow us
to indemnify our other employees and agents, to the fullest extent perrmitted by
law. We have also entered into agreements to indemnify our directors and certain
executive officers. We belive thata these provisions and agreements are necesary
to attract and retain qualified directors and executive officers. At present,
there is no pending litigation or proceding involving any director, officer,
employee or agent where indemnification will be required or permitted. We are
not aware of any threatened litigation or proceeding that might result in a
claim for such indemnification. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or
persons controlling our company pursuant to the foregoing provisions, we have
been informed that, in the opinion of the Securities and Exchange Commission,
it is against public policy and is therefore unenforceable.
54
<PAGE>
The Board of Directors may alter, amend or repeal the ByLaws of the
Company by the affirmative vote of at least a majority of the entire Board of
Directors, provided that any ByLaws adopted by the Board of Directors may be
amended or repealed by the shareholders. The shareholders may also adopt,
repeal, or amend, the ByLaws of the Company by the affirmative vote of at least
a majority of the shares that are issued and outstanding and entitled to vote.
PLAN OF DISTRIBUTION
The shares of Common Stock have been registered for offer and sale from
time to time by Selling Stockholders to purchasers directly or through agents,
brokers or dealers. Such sales may be made in the over-the-counter market or
otherwise at market prices then prevailing or in negotiated transactions. No
Selling Stockholder is obligated to sell any Common Stock pursuant to this
Prospectus.
Selling Stockholders and any brokers or dealers participating in the
registration of the shares of Common Stock may be deemed to be "underwriters"
under the Securities Act, and any profit on the sale of the shares of Common
Stock by them and any discounts, commissions or concessions received by any
broker or dealer may be deemed to be underwriting discounts and commissions
under the Securities Act. We are is not aware of any arrangement among Selling
Stockholders to sell or refrain from selling any shares of Common Stock.
Certain expenses in connection with the registration of the shares of
Common Stock pursuant to this Prospectus, including fees and expenses of our
legal counsel and independent auditors, filing fees and printing expenses, will
be borne by us. Selling Stockholders will bear additional legal expenses that
they incur, if any, as well as commissions and discounts received by brokers or
dealers in connection with the sale of shares of Common Stock. We have has
agreed to indemnify Selling Stockholders against certain civil liabilities in
connection with the Registration Statement of which this Prospectus is a part
(the "Registration Statement"), including certain liabilities under the
Securities Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares of Common Stock may not simultaneously
engage in market making activities for specified periods prior to the
commencement of the distribution. In addition, and without limiting the
foregoing, each Selling Stockholder will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Common Stock by Selling Stockholders.
55
<PAGE>
SELLING STOCKHOLDERS
The Registration Statement has been filed pursuant to Rule 415 under the
Securities Act to afford the holders of shares of Common Stock registered
hereby, the opportunity to sell the shares of Common Stock in a public
transaction rather than pursuant to an exemption from the registration and
prospectus delivery requirements of the Securities Act.
We are registering certain outstanding shares of Common Stock owned by
selling shareholders under the Securities Act. The registration fee related to
the registration of these shares is being paid by the Company. The Company will
be responsible for their own accounting expenses, brokerage commissions or
underwriting discounts, and transfer fees incurred in the sale of their shares.
The Selling Security Holders intend to sell their shares directly, through
agents, dealers, or underwriters in the public market or otherwise on terms and
conditions and at prices determined at the time of sale by the Selling Security
Holders or as a result of private negotiations between buyer and seller. We will
not be assisting the Selling Security Holders in selling their shares. We intend
to deliver to the Selling Security Holders copies of a current prospectus to be
used in connection with their sales. They will be advised as to the date as of
which such prospectus will no longer be current. Expenses of any such sale will
be borne by the parties as they may agree. We will realize no proceeds from the
sale of any such shares.
All of the Selling Security Holders are listed below. The Company is
registering all of the shares owned by each Selling Security Holder (concurrent
with the effectiveness of the Registration Statement.) If all of the Selling
Security Holders are successful in offering all of their shares, they will own
no shares of the Company, but may retain warrants to purchase units or shares.
No Selling Security Holder has held any position or office with the Company or
has any material relationship with the Company, except as noted in the
footnotes.
Name & Address Number
- -------------- of Shares
---------
Mitsukiku Investments Ltd 625,000
PO Box 428Les Braves House,
Les Banques
St. Peter Port
Guernsey4V1 3W2
Tandoor Holdings Ltd 570,000
20D Primrose
Mansion
Taikooshing
Hong Kong
Richco Investors Inc. 1,085,000 (1)
830-789 West Pender Street
Vancouver B.C.
Canada V6C 1H2
Development Fund 11 of
Nova Scotia Inc. 190,000
c/o Richco Investors Inc.
830-789 West Pender Street
Vancouver B.C.Canada V6C 1H2
Mr. Minhas Sayani 75,000
PO Box 30020 Dubai
United Arab Emirates
Xerxes Venture Capital Fund Ltd. 50,000
PO Box 88 I Grenville St.
St. Helier, Jersey
JE4 9PF UK
Goldpac Investment Fund 40,000
16D 139 Drake St
Vancouver B.C.
V6Z 2T8 Canada
56
<PAGE>
Nottinghill Resources Ltd. 50,000
Mareva House 4 George St.
Nassau, Bahamas
Mr. Allan Slaughter 10,000
1368 Madrona Dr.
Bay, B.C.
V9P 9C9 Canada
Mr. David Atkinson 7,500
4590 Keith RD
West Vancouver B.C.
V7W 1W2 Canada
Mr. Michael Atkinson 7,500
#210 1315 W. 11th Ave.
Vancouver B.C.
V6H 1K7 Canada
Mrs. Juanita L. Po 5,000
842 Clements Ave.
North Vancouver B.C.
V7R 2K7 Canada
Mr. Joseph Go and 10,000
Mrs. Babs Po
1045 Montroyal Blvd.
N. Vancouver 13C
V7R 2H5 Canada
Bradstone Equity Partners Inc. 200,000
#638-375 Water St.,
Vancouver B.C.
V6B 5C6 Canada
403401 B.C.Ltd. 150,000
#638-375 Water St.,
Vancouver B.C.
V6B 5C6 Canada
Silver Shadow Investments Ltd. 20,000
PO Box546 28-30 The Parade
St. Helier Jersey
Channel Islands
Cayman Islands Securities Ltd. 80,000
PO Box 2835 G.T.
Grand Cayman
B. W. I.Chelsea Capital Corp. 70,000
#200-750 W. Pender St.
Vancouver B.C.
V6C 1B5 Canada
Mr.Carlo K.Rahal 25,000
6410 Charing Crt.
Burnaby B.C.
V5E 3Y3 Canada
Mr.David M.Lyall 100,000
6745 W. Blvd
B.C.V6P 5R8 Canada
Ms. Linda A. Massie 10,000
305-1750 West 13th Ave
Vancouver B.C.
V6J 2H1 Canada
Mr. Patrick Hung 60,000
6-1200 Brunette Ave.
Coquitlam B.C.
V3K 1G3 Canada
57
<PAGE>
Ms Chantal Hung 60,000
6C Winston Churchill Lane
Curepipe
Mauritius
Mr. Marc Hung 80,000 (2)
6- 1200 Brunette Ave.
Coquittam B.C.
V3K 1G3 Canada
Hare & Co. 100,000
c\o Bank of New York1
Wall Street - 3rd Floor
New York, N.Y. 10286
Clariden Bank, 180,000
Claridestrasse 26,
8002 Zurich
Switzerland
Mr.Brian Findlay 50,000
29433 Simpson Rd,
Abbotsford, B.C.
V6C I H9 Canada
Mr.Hazel L. Allington 3,500
4614 Woodgreen Dr.
West Vancouver B.C.
V7S 2V2 Canada
Ms.Sharon Allington 1,500
4614 Woodgreen Dr
West Vancouver B.C.
V7S 2V2 Canada
Orbit Leasing Corp. 90,000
310-1324 17th Ave. SW
Calgary Alberta
T2T 5S8 Canada
Taylor Oil Products Ltd. 80,000
PO Box 1062 GT
Grand Cayman.
B.W.I.
Caribbean Avionics Ltd. 280,000
PO Box 599
Carribean Place Providenciales,
Turks & Caicos Is.
Yonderiche
International Consultant 15,000
102-1318 West 6th Ave.
Vancouver, B.C.
V6H 1A7 Canada
Ms. Jane Lee Kennedy 1,500
1253 Hunter Rd
Delta B.C.
V4L 1Y9 Canada
Mr. Billee Davidson 10,000
3902 West 38th Ave.
Vancouver B.C.
V6N 2Y6 Canada
Mr. F. Goelo 120,000
PO Box 10910
Grand Cayman
Cayman Islands
B.W.I.
Aberdeen Holdings Ltd. 50,000
60 Market Square
Belize City
Belize
58
<PAGE>
Mr. Ken Aloysius Kow 16,000
Ms. Dannie Kow
(two names on the cert.)
2957 East 56 Ave
Vancouver B.C.
V5S 2A2 Canada
Mr. Floyd Hill 25,000
1800-609 Granville St.
Vancouver B.C.
V7S IC4 Canada
Ms. Linda Collins 25,000
3939 W. 38th Ave
Vancouver B.C.
V6N 2Y7 Canada
Mr. Patrick C. Lincoln 5,000
17 Leacock CT
Thornhill ON
L3T 6X9 Canada
Mr. Rodney B. Johnston 25,000
17412-29th Ave.
S. Surrey B.C.
V4P 9R1 Canada
Mr. L. C. Allington 50,000
4614 Woodgreen Dr
West Vancouver B.C.
V7S 2V2 Canada
Mr. Hugh Cooper 10,000
425 Rabbit Lane
West Vancouver B.C.
V7S 1J1 Canada
Ms. Sharon Cooper 40,000
425 Rabbit Lane
West Vancouver 13C
V7S 1J1 Canada
J.F. Yang Capital Corp. 250,000
15 Starling House
Charlbert St.London
NW8 7BS UK
Mr. Brent Petterson 2,500
603-1500 Ostler Court,
North Vancouver B.C.
V7G 2S2 Canada
Prism Holdings Inc. 25,000
PO Box 150,
Design House,
Providenciales,
I Turks & Caicos Islands
B.W.I.
Ms.Christine Smith 10,000
#314-3738 Norfolk St.
Burnaby B.C.
V5G 4V4 Canada
First Nevisian Stockbrokers Ltd. 40,000
Barclays Building,
Maw St.Charlestown Nevis
B. W. I.
59
<PAGE>
Tedburn Ltd. 150,000
2C Engineers Road,
Gibraltar
J.R. Ing Associates 35,000
130 Adelaide St. West
Toronto ON
M5P I G6 Canada
Sirhc HoldingsmLtd. 150,000
9 Church St.
Hamilton Hm11
Bermuda
A&E Capital Funding Inc. 250,000
2300 Yonge St. Suite 3000
Toronto ON
M4P 1E4 Canada
Thesis Group Inc. 150,000
19 Hanover Terrace Regents Park
London
NW1 4RJ UK
Mr.Barry Fraser 15,000
1300-777 Dunsmuir St.
Vancouver B.C.
V7Y I K2 Canada
Mr.William Adams 10,000
PO Box 92240102
Skyline Pl.
Garibaldi Highlands
Vancouver B.C.
VON 1TO Canada
Mr.Fred TSE 40,000
186 Stevens Dr.
West Vancouver B.C.
5,885,000
shares
(1) Richco Investors is a public company of which Ernest Cheung and Maurice
Tsakok are directors.
(2) Marc Hung is President and a Director of the Company
60
<PAGE>
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been a very limited market for the shares
of the Company's Common Stock . The offering price will be based upon the market
price at the time of sale of shares. There is no direct relation between the
market price and the assets, book value, shareholders' equity or net worth of
the Company.
LEGAL MATTERS
The law firm of Michael A. Littman, 10200 W. 44th Ave., #400 Wheat Ridge,
Colorado 80033, has acted as counsel for the Company in connection with this
Offering.
EXPERTS
The financial statements of the Company as of December 31, 1998 and as of
June 30, 1999 and for the years then ended have been included in the
Registration Statement in reliance upon the report of Clancey & Co., PLLC,
independent auditor, and upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND INFORMATION
We have filed a Registration Statement on Form SB-2 under the Securities
Act of 1933 with the Securities and Exchange Commission, Washington, DC,
relating to the securities offered hereby. This Prospectus, filed as part of the
Registration Statement, does not contain certain information set forth in, or
annexed as exhibits to, the Registration Statement. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits thereto, which may be
inspected without charge at the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, DC 20549, or inspected and copied at, and obtained at
prescribed rates from, the Public Reference Section of the Securities and
Exchange Commission at its principal office at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549. Statements contained in this
Prospectus regarding the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of the contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by that
reference.
IN ADDITION, WE FILE REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH
THE SEC YOU, MAY READ AND COPY ANY DOCUMENT WE FILE AT THE SEC'S PUBLIC
REFERENCE ROOMS IN WASHINGTON D.C., NEW YORK, NEW YORK AND CHICAGO , ILLINOIS.
PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION ON THE PUBLIC
REFERENCE ROOMS. OUR SEC FILINGS ARE ALSO AVAILABLE TO THE PUBLIC ON THE SEC'S
WEBSITE AT HTTP://WWW.SEC.GOV.
61
<PAGE>
PART II
-------
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is a statement of expenses expected to be incurred by the
company in connection with the issuance and distribution of the securities to be
registered, other than underwriting discounts and commissions.
Legal Fees $35,000*
Accounting Fees $15,000*
Filing Fees $15,000*
Printing & Engraving
share certificates and Prospectuses $10,000*
Non-Accountable Expenses $10,000*
(* Estimates Only)
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three (3) years, the following sales have been made of the
Company's $.001 par value Voting Common Stock. Consideration received is shown.
1996 Year Purchasers List
- -------------------------------------------------------------
Name & Address Date of Number Consideration Price per
- -------------- -------------
Purchase of Shares Share
-------- --------- -----
Sinh Le
1403- 4300 Mayberry St. Burnaby,
B.C. V5H-4A4 12/11/96 1000 $250 $.25
Terrence Johnson
1403- 4030 Mayberry St. Burnaby,
B.C. V5H-4A4 12/11/96 1000 $250 $.25
Kashmir Singh
1025- Augusta Ave, Burnaby,
B.C. V5A-1K3 12/11/96 2000 $500 $.25
Noah Natovitch
121-3280 E. 58th Ave,Vancouver,
B.C V5S-3T2 12/11/96 1000 $250 $.25
Todd H. Weaver
2000 South Ocean Lane #11,
Ft. Lauderdale FL 33316 12/11/96 4000 $1,000 $.25
Fleet Sparrow, Inc.
7 Prince Street, P.O. Box 1117,
Belize City, Belize 12/11/96 2000 $500 $.25
David Mundie
2419 TreeTop Lane, N. Vancouver,
B.C. V2H-2K6 12/11/96 2000 $500 $.25
Redbrook Creek Corp
7 Prince St. P.O. Box 1117,
Belize City, Belize 12/11/96 2000 $500 $.25
Wes Janzen
#100- 8500 Alexandra Road,
Richmond, B.C. V6X-1C4 12/11/96 2000 $500 $.25
Wes Kroeker
#100- 8500 Alexandra Road,
Richmond, B.C. V6X-1C4 12/11/96 2000 $500 $.25
L. James Harder
5512 Okanagan N. Ave., Site 1B
Camp 11, Vernon B.C.V1T-6Y5 12/11/96 2000 $500 $.25
Kari - Anne Chase
85 Walnut Crescent, Whitehorse,
Yukon Y1A-5C7 12/11/96 2000 $500 $.25
62
<PAGE>
Steven Giles
309-727 Hughton Road, Kelowna,
B.C. V1X-7J7 12/11/96 1000 $250 $.25
Robert N. Hatton
1830 Large Ave, RR #5 S-17B, C-53,
Kelowna, B.C. V1X-4K4 12/11/96 1000 $250 $.25
Adrian Klien
575 Perry Road, Kelowna,
B.C. V1X-1J1 12/11/96 1000 $250 $.25
Lamber Dhaliwal
3556 Calder Ave, N.
Vancouver, B.C. 12/11/96 2000 $500 $.25
Biro Dhaliwal
3556 Calder Ave, N.
Vancouver, B.C. 12/11/96 2000 $500 $.25
Doris Mackney
Box 44021, Oyama,
B.C. V4V01ZS 12/11/96 2000 $500 $.25
Stephane Martin
1704 Smithson Dr., Kelowna,
B.C. V1Y-4E3 12/11/96 1000 $250 $.25
Guy Martin
1704 Smithson Dr., Kelowna,
B.C. V1Y-4E3 12/11/96 1000 $250 $.25
Lawrence Kit
Box 32, Vegreville,
Alberta, T9C-1R1
Mervyn Kit
6604-132 A/ Ave.
Edmonton, AB T5C-2 B.C. 12/11/96 1000 $250 $.25
Emil Kit
5365 Bogette Place
Kamloops, B.C. V2C-6B2 12/11/96 1000 $250 $.25
Robert Thompson
14250 Middlebench Rd,
Oyama, B.C. V4V-2B9 12/11/96 1000 $250 $.25
Bob Mackney
P.O. Box 44021,
Oyama, B.C. V4V-1Z5 12/11/96 11,000 $2,750 $.25
Dean Mackney
11574 Artela Rd,
Winfield, B.C. V4V-1H4 12/11/96 1000 $250 $.25
Robert Brown
13525 Lake Pine
Winfield B.C. V4V-1A3 12/11/96 1000 $250 $.25
Susan Bozyk
109-980 Dilworth Dr,
Kelowna, B.C. V1V01S6 12/11/96 500 $125 $.25
Cal McCarthy
10060 McCarthy Road,
Winfield, B.C. V4V-1T1 12/11/96 1000 $250 $.25
Sheelagh Thompson
14250 Middllebench Road,
Oyama, B.C. V4V-2B9 12/11/96 1000 $250 $.25
63
<PAGE>
Tarif Mapara
1790 Boundary Rd,
Burnaby, B.C. V5M-4M2 12/11/96 1000 $250 $.25
Saira Mapara
1790 Boundary Rd,
Burnaby, B.C. V5M-4M2 12/11/96 1000 $250 $.25
Zaher Mapara.
1576 Lodgepole Pl,
Coquitlam, B.C. V3E-2V9 12/11/96 1000 $250 $.25
Mumtaz Mapara
1576 Lodgepole Pl,
Coquitlam, B.C. V3E-2V9 12/11/96 1000 $250 $.25
Riaz Mapara
1576 Lodgepole Pl,
Coquitlam, B.C. V3E-2V9 12/11/96 1000 $250 $.25
Fairous Mapara.
1576 Lodgepole PI,
Coquitlam, B.C. V3E-2V9 12/11/96 1000 $250 $.25
Sam Mapara ITF:
Arman Mapara 2932
Blackbear Ct. Coq, B.C. 12/11/96 1000 $250 $.25
Sam Mapara ITF:
Ariana. Mapara 2932
Blackbear Ct. Coq, B.C. 12/11/96 1000 $250 $.25
Anisha Mapara
2932 Blackbear Court,
Coquitlam, B.C 12/11/96 1000 $250 $.25
Sameer Mapara
2932 Blackbear Court,
Coquitlam, B.C. 12/11/96 1000 $250 $.25
Tazmina MangaIji
8214 Lakeland Drive,
Burnaby, B.C. V5A-4C9 12/11/96 2000 $500 $.25
Maidenhood MangaIji
8214 Lakeland Drive,
Burnaby, B.C. V5A-4C9 12/11/96 2000 $250 $.25
Garry McColl
#1405-2020 Bell Wood Ave,
Burnaby, B.C. V5B-4P8 12/11/96 1000 $250 $.25
Larry Kozak
1103-9595 Erickson Dr,
Burnaby, B.C. V3J-7N9 12/11/96 2000 $500 $.25
64
<PAGE>
Rob Kozak
1103-9595 Erickson Dr,
Burnaby, B.C. V3J-7N9 12/11/96 500 $125 $.25
Garry Messer
25767 La Salina Pl,
Moreno Valley, CA 92551 12/11/96 500 $125 $.25
Sharon Delbridge
25767 La Salina PI,
Moreno Valley, CA 92551 12/11/96 1000 $250 $.25
James M. Lucas
P.O. Box 872,
Blue Jay, CA 92317 12/11/96 2000 $500 $.25
Joe Gamache
1421 Barber Ct.
Bunning, CA 92220 12/11/96 1000 $250 $.25
Dustin Lee Sexton
8350 Magnolia Ave, Unit 125,
Riverside, CA 92504 12/11/96 1000 $250 $.25
Ramona Lee Sexton
3957 San Mateo,
Riverside, CA 92504 12/11/96 1000 $250 $.25
William Navarro
23403 Silver Strike Dr,
Canyon Lake, CA 92587 12/11/96 2000 $500 $.25
Jake Penner
1688 West 65th Ave,
Vancouver, B.C. V6P-2R3 12/11/96 2000 $500 $.25
Vern Craig
1369 Compton Cres,
Tsawwassen, B.C. V4L-IP8 12/11/96 1000 $250 $.25
Doug Maxwell
605 West Kent Ave,
Vancouver, B.C. V6P-6T7 12/11/96 1000 $250 $.25
M. Erik Nylin
RR6-S600, C36,
Courtenay, B.C. V9N-8H9 12/11/96 1000 $250 $.25
Dorothy L. Nylin
RR6-S600, C36,
Courtenay, B.C. V9N-8H9 12/11/96 500 $125 $.25
Richard T, Wotruba
501 Las Alturas Rd,
Santa Barbara, CA 93103 12/11/96 500 $125 $.25
65
<PAGE>
Patricia A. Wotruba
501 Las Alturas Rd,
Santa Barbara, CA 93 10-1 12/11/96 1200 $300 $.25
Bhupinder Mroke
5076 Victoria Dr,
Vancouver, B.C. V5P-3T8 12/11/96 1000 $250 $.25
Jackueline Herauf
#56-28 Berwick Cres NW,
Calgary, AB T3K-IY7 12/11/96 2000 $500 $.25
Larry I Sandler D.D.S
272 Wolverine Lake Dr,
Wolverine Lake, MI 48390 12/11/96 2000 $500 $.25
Linda C. Sandler
272 Wolverine Lake Dr,
Wolverine Lake, NU 483 90 12/11/96 1000 $250 $.25
D. Percy Ryan
2423 37th Street SE,
Calgary, AB T2B-OZI 12/11/96 2000 $500 $.25
Jageero Singh
122 West Braemar Rd, N.
Vancouver, B.C. V7N-2S8 12/11/96 2000 $500 $.25
Jagbir Johl
122 West Braemar Rd, N.
Vancouver, B. C. V7N-2 S 8 12/11/96 2000 $500 $.25
Bob L. Stobbe
9420 98A Ave,
Fort St John, B.C. V 15-1 1R4 12/11/96 500 $125 $.25
Britt L. Weaver
6741 Alexandria Lane,
Charlotte, NC 28270 12/11/96 500 $125 $.25
Katherine H. Weaver
6741 Alexandria Lane,
Charotte, NC 28270 12/11/96 1000 $250 $.25
Dorilda Limoges
6509 Coach Hill Rd SW,
Calgary, A13 T2B-1H5 12/11/96 1000 $250 $.25
Vincent Luong
192 Saratoga Close NE,
Calgary, AB T 1 Y-7AI 12/11/96 1000 $250 $.25
Sigurd B. Peterson
2671 MacDonald Dr,
Victoria, B.C. V8N-1Y1 12/11/96 1000 $250 $.25
66
***
<PAGE>
Dr. John Dale
Box 499, Nelson, B.C. VIL-5R3 12/11/96 1000 $250 $.25
Diana Haschke
Box 489,
Nelson, B.C. VIL-5R3 12/11/96 1000 $250 $.25
Errol Biebrick
104 Pinewind Close NE,
Calgary, AB TI 8-2H3 12/11/96 1000 $250 $.25
Bradley T. Johns
4602- 45th Ave NE #3 29,
Tacoma, WA 98422 12/11/96 1000 $250 $.25
Bhupinder Mann
1182 E, 33rd Ave,
Vancouver, B.C. V5V-3B3 12/11/96 1000 $250 $.25
Nirmal S. Mann
1182 F. 33rd Ave,
Vancouver, B.C. V5V-3B3 12/11/96 1000 $250 $.25
S.P. Swadron
3914 W 11th Ave,
Vancouver, B.C. V6R-2L2 12/11/96 2000 $500 $.25
Sylvia Moir
905 Signal Hill Green SW,
Calgary, AB T3H-2Y4 12/11/96 1000 $250 $.25
John R. Moir
214 555 Strathcona Blvd SW,
Calgary, AB T3H-2Z9 12/11/96 1000 $250 $.25
Charanjit S. Parmar
17924-99A Ave,
Edmonton, AB T5T-3RI 12/11/96 2000 $500 $.25
Harjit K. Parmar
17924-99A Ave,
Edmonton, AB T5T-3RI 12/11/96 2000 $500 $.25
Murray Bisset
11402-120 St,
Edmonton, AB T5G-2Y2 12/11/96 2000 $500 $.25
Tom Schreiber
14316-123 St,
Edmonton, AB T5X-3M2 12/11/96 2000 $500 $.25
Don Pierson
100 Nottingham Rd,
Sherwood Park, AB T8A-5M5 12/11/96 2000 $500 $.25
67
<PAGE>
Usha Bibra
6112-34A Ave,
Edmonton, AB T6L-IE4 12/11/96 1000 $250 $.25
Sachin Bibra
6112-34A Ave,
Edmonton, AB T6L-1E4 12/11/96 500 $125 $.25
KamaIjit Lall
3664-31A St,
Edmonton, AB T6T-1H6 12/11/96 500 $125 $.25
Tajinder Chohan
165 W. 65th Ave,
Vancouver, B.C. V5R-3T7 12/11/96 73,300 $18,325 $.25
------ ------
TOTAL 200,000 $50,000
The offering and sales of the shares was made in reliance upon the exemptions
contained in Rule 504 of Regulation D and Regulation S to offshore residents,
and in Canada pursuant to the exemptions from registration contained in section
55(2) (4) and 55 (2) (9) of the Securities Company Act (B.C. and/or paragraphs
128(a) or 128(h) of the Securities Rules to the Securities Act).
1997 PRIVATE PLACEMENT
- ---- -----------------
Subscriber Date of Consideration Shares Price Per
- --------- Purchase Share
-------------------------------------------
Balraj Mann 6/2/97 $40,000 100,000 $.40
6228 Tiffany Blvd.
Richmond, B.C. V7C 4Z2
Thesis Group Inc. 6/2/97 $20,000 50,000 $.40
19 Hanover Terrace
Regents Park
London, England NW1 4RT
Hare & Co. 6/2/97 $40,00 100,000 $.40
EB.C. Zurich AG
Bellariastrasse 23
8027 Zurich, Switzerland
Cayman Islands Securities Ltd. 6/2/97 $100,000 250,000 $.40
P.0, Box 1062 GT
Grand Cayman
BWI
Strategic Lines Asset Management 6/2/97 $40,000 100,000 $.40
3/F 73 Front Street
Hamilton HM NX
Bermuda
Floyd Hill 6/2/97 $29,000 72,500 $.40
4557 - W, 8th Ave.
Vancouver, B.C. V6R 2A4
68
<PAGE>
Richard Angus 6/2/97 $100,000 250,000 $.40
1548 Marine Dr.
Vancouver, B.C. V7V 1H8
Taylor Oil Products 6/2/97 $100,000 250,000 $.40
Box 1062
3rd Floor, One Capital Place
Grand Cayman, BWI
Silver Shadow Investment Ltd. 6/2/97 $100,000 250,000 $.40
P.O. Box 546
St. , Helier, Jersey J E4 8XY
Channel Islands
Billee Davidson 6/2/97 $25,000 62,500 $.40
3902 - W. 38th Avenue
Vancouver, B.C. V6N 2Y6
A. Gregori Imports Ltd, 6/2/97 $60,000 150,000 $.40
112 - 1010 West Georgia St,
Vancouver, B.C. V6E 2Y2
J R Ing & Associates 6/2/97 $30,000 75,000 $.40
1360 W. 32nd
Vancouver, B.C. V6H 2J3
Linda A. Massie 6/2/97 $6,000 15,000 $.40
4379 Arbutus St,
Vancouver, B.C. V6J 4S4
Debby Tonn 6/2/97 $15,000 37,500 $.40
4899 Meadfield Rd.
West Vancouver, B.C.
V7W 3E6
Daphne Killas 6/2/97 $25,000 62,500 $.40
608-1888 York Ave.
Vancouver, B.C. V6J 5A7
Chris MacPherson 6/2/97 $10,000 25,000 $.40
Suite 3434 - 666 Burrard Street
Vancouver, B.C. V6C 2X8
Rod Morreau 6/2/97 $5,000 12,500 $.40
Suite 3434 - 666 Burrard Street
Vancouver, B.C. V6C 2X8
Wendy Chan 6/2/97 $5,000 12,500 $.40
Suite 3434 - 666 Burrard Street
Vancouver, B.C. V6C 2X8
6/2/97 $750,000 1,875,000 $.40
69
<PAGE>
The issuance of the shares was made in reliance upon the exemption contained in
Regulation S as amended, to offshore residents and in Canada pursuant to the
exemptions from registration contained in section 55(2) (4) and 55 (2) (9) of
the Securities Company Act (British Columbia) and/or paragraphs 128(a) or 128(h)
of the Securities Rules to the Securities Act.
1997
Date of Consideration Number of Price per
Purchase Shares Share
Xiao Qing Du March 3,1997 4,000,000
2754 Adanac Street
Vancouver, B.C., V5K 2M9 ( Exchange for
( acquisition of
( 100% of stock of
(Infornet Investment,
( L.T.D.
Jing Liang March 3,1997 1,000,000
403-1333 Haro Street 1,000,000
Vancouver, B.C., V6E 1G4
TOTAL 5,000,000
The issuance of the shares was made in reliance upon the exemption to
Registration contained in Regulation S as amended, to offshore residents, and in
Canada pursuant to the exemptions from registration contained in section 55(2)
(4) and 55 (2) (9) of the Securities Company Act (British Columbia) and/or
paragraphs 128(b) and or 128(h) of the Securities Rules to the Securities Act.
1999 Option Exercise Note:
The Options were granted to persons or entities which
had contributed to the company effort in the past. The average closing price of
the common stock ten (10) days prior to February 26, 1999 was $0.40.
Date of Consideration Price Per Number
Purchase Share of Shares
1. Lancaster Pacific Investment Ltd. 4/6/99 $ 88,000 $.40 220,000
14/F Tung Hip Commercial Building
244-252 Des Voeux Road C.
Hong Kong
2. Tandoor Holdings Limited 4/6/99 $148,000 $.40 370,000
20D Primrose Mansion
Taikooshing, Hong Kong
3. S.Y.Marc Hung 4/4/99 $ 60,000 $.40 150,000
6-1200 Brunette Ave.
Coquitlam, B.C.,
Canada V3K I G3
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<PAGE>
4. Kun Wei 4/4/99 $132,000 $.40 330,000
#69 West Gulou Street
Beijing, P.R. China
5. Xin Wei 4/4/99 $132,000 $.40 330,000
#2754 Adanac Street
Vancouver, B.C.
Canada V5K 2M9
560,000 1,400,000
The issuance of the shares was made in reliance upon the exemption contained in
Regulation S as amended, to offshore residents and in Canada pursuant to the
exemptions from registration contained in section 55(2) (4) and 55 (2) (9) of
the Securities Company Act (British Columbia) and/or paragraphs 128(a) or 128(h)
of the Securities Rules to the Securities Act.
PRIVATE PLACEMENT
Name & Address Number Consideration Date of Price per
of Shares Purchase Share
(Units)
Mitsukiku Investments Ltd 625,000 $625,000 5/19/99 $1.00
PO Box 428
Les Braves House,
Les Banques St. Peter Port
Guernsey
4V1 3W2
Tandoor Holdings Ltd 570,000 $570,000 5/19/99 $1.00
20D Primrose
Mansion
Taikooshing
Hong Kong
Richco Investors Inc. 700,000 $700,000 5/19/99 $1.00
830-789 West Pender Street
Vancouver B.C.
Canada V6C 1H2
Development Fund 11 of
Nova Scotia Inc. 190,000 $190,000 5/19/99 $1.00
c/o Richco Investors Inc.
830-789 West Pender Street
Vancouver B.C.
Canada V6C 1H2
Mr. Minhas Sayani 75,000 $75,000 5/19/99 $1.00
PO Box 30020 Dubai
United Arab Emirates
71
<PAGE>
Xerxes Venture Capital Fund Ltd. 50,000 $50,000 5/19/99 $1.00
PO Box 88 I Grenville St.
St. Helier, Jersey
JE4 9PF UK
Goldpac Investment Fund 40,000 $40,000 5/19/99 $1.00
16D 139 Drake St
Vancouver B.C.
V6Z 2T8 Canada
Nottinghill Resources Ltd. 50,000 $50,000 5/19/99 $1.00
Mareva House 4 George St.
Nassau, Bahamas
Mr. Allan Slaughter 10,000 $ 10,000 5/19/99 $1.00
1368 Madrona Dr. Bay, B.C.
V9P 9C9 Canada
Mr. David Atkinson 7,500 $7,500 5/19/99 $1.00
4590 Keith Rd
West Vancouver B.C.
V7W 1W2 Canada
Mr. Michael Atkinson 7,500 $7,500 5/19/99 $1.00
#210 1315 W. 11th Ave.
Vancouver B.C.
V6H 1K7 Canada
Mrs. Juanita L. Po 5,000 $5,000 5/19/99 $1.00
842 Clements Ave.
North Vancouver B.C.
V7R 2K7 Canada
Mr. Joseph Go and 10,000 $ 10,000 5/19/99 $1.00
Mrs. Babs Po
1045 Montroyal Blvd.
N. Vancouver 13C
V7R 2H5 Canada
Bradstone Equity Partners Inc. 200,000 $200,000 5/19/99 $1.00
#638-375 Water St.,
Vancouver B.C.
V6B 5C6 Canada
403401 B.C. Ltd. 150,000 $150,000 5/19/99 $1.00
#638-375 Water St.,
Vancouver B.C.
V6B 5C6 Canada
Silver Shadow Investments Ltd. 20,000 $20,000 5/19/99 $1.00
PO Box
546 28-30 The Parade
St. Helier Jersey
Channel Islands
72
<PAGE>
Cayman Islands Securities Ltd. 80,000 $80,000 5/19/99 $1.00
PO Box 2835 G.T.
Grand Cayman
B. W. I.
Chelsea Capital Corp. 70,000 $70,000 5/19/99 $1.00
#200-750 W. Pender St.
Vancouver B.C.
V6C 1B5 Canada
Mr.Carlo K.Rahal 25,000 $25,000 5/19/99 $1.00
6410 Charing Crt.
Burnaby B.C.
V5E 3Y3 Canada
Mr.David M.Lyall 100,000 $100,000 5/19/99 $1.00
6745 W. Blvd B.C.
V6P 5R8 Canada
Ms. Linda A. Massie 10,000 $10,000 5/19/99 $1.00
305-1750 West 13th Ave
Vancouver B.C.
V6J 2H1 Canada
Mr. Patrick Hung 60,000 $60,000 5/19/99 $1.00
6-1200 Brunette Ave.
Coquitlam B.C.
V3K 1G3 Canada
Ms Chantal Hung 60,000 $60,000 5/19/99 $1.00
6C Winston Churchill Lane
Curepipe
Mauritius
Mr. Marc Hung 80,000 $80,000 5/19/99 $1.00
6- 1200 Brunette Ave.
Coquittam B.C.
V3K 1G3 Canada
Hare & Co. 100,000 $100,000 5/19/99 $1.00
C\o Bank of New York
1 Wall Street - 3rd Floor
New York, N.Y. 10286
Clariden Bank, 180,000 $180,000 5/19/99 $1.00
Claridestrasse 26,
8002 Zurich
Switzerland
Mr.Brian Findlay 50,000 $50,000 5/19/99 $1.00
29433 Simpson Rd,
Abbotsford, B.C.
V6C I H9 Canada
73
<PAGE>
Mr.Hazel L. Allington 3,500 $3,500 5/19/99 $1.00
4614 Woodgreen Dr.
West Vancouver B.C.
V7S 2V2 Canada
Ms.Sharon Allington 1,500 $1,500 5/19/99 $1.00
4614 Woodgreen Dr
West Vancouver B.C.
V7S 2V2 Canada
Orbit Leasing Corp. 90,000 $90,000 5/19/99 $1.00
310-1324 17th Ave.SW
Calgary Alberta
T2T 5S8 Canada
Taylor Oil Products Ltd. 80,000 $80,000 5/19/99 $1.00
PO Box 1062 GT Grand Cayman.
B.W.I.
Caribbean Avionics Ltd. 280,000 $280,000 5/19/99 $1.00
PO Box 599
Carribean Place Providenciales,
Turks & Caicos Is.
Yonderiche International
Consultant 15,000 $15,000 5/19/99 $1.00
102-1318 West 6th Ave.
Vancouver, B.C.
V6H 1A7 Canada
Ms. Jane Lee Kennedy 1,500 $1,500 5/19/99 $1.00
1253 Hunter Rd
Delta B.C.
V4L 1Y9 Canada
Mr. Billee Davidson 10,000 $10,000 5/19/99 $1.00
3902 West 38th Ave.
Vancouver B.C.
V6N 2Y6 Canada
Mr. F. Goelo 120,000 $120,000 5/19/99 $1.00
PO Box 10910 Grand Cayman
Cayman Islands
B.W.I.
Aberdeen Holdings Ltd. 50,000 $50,000 5/19/99 $1.00
60 Market Square
Belize City
Belize
74
<PAGE>
Mr. Ken Aloysius Kow 16,000 $ 16,000 5/19/99 $1.00
Ms. Dannie Kow
(two names on the cert.)
2957 East 56 Ave
Vancouver B.C.
V5S 2A2 Canada
Mr. Floyd Hill 25,000 $25,000 5/19/99 $1.00
1800-609 Granville St.
Vancouver B.C.
V7S IC4 Canada
Ms. Linda Collins 25,000 $25,000 5/19/99 $1.00
3939 W. 38th Ave
Vancouver B.C.
V6N 2Y7 Canada
Mr. Patrick C. Lincoln 5,000 $5,000 5/19/99 $1.00
17 Leacock CT
Thornhill ON
L3T 6X9 Canada
Mr. Rodney B. Johnston 25,000 $25,000 5/19/99 $1.00
17412-29th Ave.
S. Surrey B.C.
V4P 9R1 Canada
Mr. L. C. Allington 50,000 $50,000 5/19/99 $1.00
4614 Woodgreen Dr
West Vancouver B.C.
V7S 2V2 Canada
Mr. Hugh Cooper 10,000 $10,000 5/19/99 $1.00
425 Rabbit Lane
West Vancouver B.C.
V7S 1J1 Canada
Ms. Sharon Cooper 40,000 $40,000 5/19/99 $1.00
425 Rabbit Lane
West Vancouver 13C
V7S 1J1 Canada
J.F. Yang Capital Corp. 250,000 $250,000 5/19/99 $1.00
15 Starling House
Charlbert St.
London
NW8 7BS UK
Mr. Brent Petterson 2,500 $2,500 5/19/99 $1.00
603-1500 Ostler Court,
North Vancouver B.C.
V7G 2S2 Canada
75
<PAGE>
Prism Holdings Inc. 25,000 $25,000 5/19/99 $1.00
PO Box 150, Design House,
Providenciales,
I Turks & Caicos Islands
B.W.I.
Ms.Christine Smith 10,000 $10,000 5/19/99 $1.00
#314-3738 Norfolk St.
Burnaby B.C.
V5G 4V4 Canada
First Nevisian Stockbrokers Ltd. 40,000 $40,000 5/19/99 $1.00
Barclays Building. Maw St.
Charlestown Nevis
B. W. I.
Tedburn Ltd. 150,000 $150,000 5/19/99 $1.00
2C Engineers Road,
Gibraltar
J.R. Ing Associates 35,000 $35,000 5/19/99 $1.00
130 Adelaide St. West
Toronto ON
M5P I G6 Canada
Sirhc Holdings Ltd. 150,000 $150,000 5/19/99 $1.00
9 Church St.
Hamilton Hm11
Bermuda
A&E Capital Funding Inc. 250,000 $250,000 5/19/99 $1.00
2300 Yonge St. Suite 3000
Toronto ON
M4P 1E4 Canada
Thesis Group Inc. 150,000 $150,000 5/19/99 $1.00
19 Hanover Terrace Regents Park
London
NW1 4RJ UK
Mr.Barry Fraser 15,000 $15,000 5/19/99 $1.00
1300-777 Dunsmuir St.
Vancouver B.C.
V7Y I K2 Canada
Mr.William Adams 10,000 $10,000 5/19/99 $1.00
PO Box 922
40102 Skyline Pl.
Garibaldi Highlands
Vancouver B.C.
VON 1TO Canada
76
<PAGE>
Mr.Fred TSE 40,000 $40,000 5/19/99 $1.00
186 Stevens Dr
West Vancouver B.C.
5,5000,000 $5,500,000
shares
The issuance of the shares was made in reliance upon the exemption contained in
Regulation S as amended, to offshore residents and in Canada pursuant to the
exemptions from registration contained in section 55(2) (4) and 55 (2) (9) of
the Securities Company Act (British Columbia) and/or paragraphs 128(a) or 128(h)
of the Securities Rules to the Securities Act.
Price per
Date Share Consideration Shares
Xin Wei
2754 Adanac Street
Vancouver, B.C. VSK 3M9 2/20/97 $.001 $750 750,000
Kun Wei
403 No I Blvd
Qianmachang Lane
Gulou Street, West
Beijing, China 2/20/97 $.001 $450 450,000
Xi-ping Qu
403 - 1333 Haro Street
Vancouver, B.C. V6E 1G4 2/20/97 $.001 $300
300,000
Nicole Alagich
1400 - 400 Burrard Street
Vancouver, B.C. V6C 3G2 2/20/97 $.001 $300 3,000
Terry Johnston
1408 - 4300 Mayberry Street
Burnaby, B.C. V5H 4A4 2/20/97 $.001 $300 3,000
Ranjit Bhogal
9042 135 A Street
Surrey, B.C. V3V 7CS 2/20/97 $.001 $300 3,000
Bhupinder Mann
1182 East 33rd Ave.
Vancouver, B.C. V5F 3B3 2/20/97 $.001 $300 3,000
Charles Grahn
203 - 1386 West 73rd Ave
Vancouver, B.C. V6P 3E8 2/20/97 $.001 $300 3,000
Gemsco Management Ltd.
53 Woodland Drive
Delta, B.C. V4L 2H4 2/20/97 $.001 $700 700,000
77
<PAGE>
Farmind Link Corp.
2998 Park Lane
West Vancouver, B.C. V7V 1E9 2/20/97 $.001 $700 700,000
Simon Yuen
19835 64th Avenue
Langley, B.C. V2Y 11.S 2/20/97 $.001 $700 700,000
Lionel Welch
7 Prince Street
Belize City, Belize 2/20/97 $.001 $320 320,000
Kathleen Robinson
P.O. Box 170
Grand Turk
Turks & Caicos Islands, BWI 2/20/97 $.001 $ 10 10,000
Mr. Joseph A. Gamache
1421 Barber Court
Banning CA 92220 2/20/97 $.001 $ 10 10,000
Hartford Capital Corporation
1400 - 400 Burrard Street
Vancouver, B.C. V6C 3G2 2/20/97 $.001 $ 45 45,000
The issuance of the shares was made in reliance upon the exemption contained in
Regulation S as amended, to offshore residents and in Canada pursuant to the
exemptions from registration contained in section 55(2) (4) and 55 (2) (9) of
the Securities Company Act (British Columbia) and/or paragraphs 128(a) or 128(h)
of the Securities Rules to the Securities Act.
78
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit No. Item.
3.1 Articles of Incorporation to Placer Technology, Inc.
3.2 Articles of Amendment to Placer Technology, Inc.
3.3 Articles of Amendment to Placer Technology, Inc. to change name to Xin
Net.*
3.4 Bylaws to Placer Technology, Inc. (Xin Net)*
3.5 Articles of Incorporation to Infornet (B.C.) Investment Corp. &
Amendment.*
3.6 Articles of Incorporation to Micro Express (Hong Kong) and Amedment to
change name to Infornet Investment, LTD. *
3.7 Articles of Association Placer Technology Corp. (China)*
10.1 Contract between Xin Hai Technology Development, L.T.D and Infornet
Investment, L.T.D. dated August 25, 1997.*
10.2 Cooperative Joint Venture Contract Placer Technologies/Xin Hai.*
10.3 EDUVERSE Non-Exclusive Binding Agreement.*
5.1 Form of Opinion of Michael A. Littman
24.1 Consent of Michael A. Littman, dated, 1999.
24.2 Consent of Auditor, dated _________________
* Incorporated by reference to Form 10SB Registration Statement filed June 1999,
file #026559
79
<PAGE>
FINANCIAL STATEMENT SCHEDULES
(1) Financial statements of Xin Net Corp. (formerly Placer Technologies,
Inc.) and subsidiaries
Year 1998 Page
- --------- ----
Cover page
Index to Financial Statements F-1
Independent Auditors' Report for years ended December 31,
1998 and December 31, 1997 F-2
Consolidated Balance Sheet at December 31, 1998 F-3
Consolidated Statement of Stockholders Equity - December 31, 1998 F-4
Consolidated Statement of Operations As of End of December 31 1998 F-5
Consolidated Statement of Cash Flows As of End of December 31, 1998 F-6
Notes to the Consolidated Financial Statements F-7 - F-8
Interim Financial Statements for period ended June 30, 1999
(unaudited) F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Cash Flows F-4
Notes to Financial Statements F-5 - F-7
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
80
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement.
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933; +
(ii) To reflect in the prospectus facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
(ii) To include any material information with respect to the plan of
distribution previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To provide certificates in such denominations and registered in such
names as required by Selected Dealers to permit prompt delivery to each
purchaser.
(5) See Item 14 for Registrant's undertaking with respect to
indemnification.
81
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of ______________, State of _____________, on
______________________.
XIN NET CORP.
By: /s/ Marc Hung
Its: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Xiao-quing Du Director November, 1999
Xiao-quing Du
/s/ S.Y. Marc Hung President and Director November, 1999
S.Y. Marc Hung
/s/ Ernest Cheung Secretary and Director November, 1999
- -----------------
Ernest Cheung
/s/ Maurice Tsakok Director November, 1999
Maurice Tsakok
***
82
<PAGE>
FINANCIAL STATEMENTS
(A Development Stage Company)
XIN NET CORP.
i
<PAGE>
XIN NET CORP.
(FORMERLY
PLACER TECHNOLOGIES, INC.)
AND SUBSIDIARIES
Vancouver, BC
AUDIT REPORT
DECEMBER 31, 1998 AND 1997
CONTENTS
Independent Auditors' Report...............................................F-1
Consolidated Balance Sheet at December 31, 1998 and 1997...................F-2
Consolidated Statement of Operations For The Year Ended
December 31, 1998, For the Period From Inception
(September 12, 1996) To December 31, 1997, and For
the Period From Inception (September 12, 1996)
to December 31, 1998................................................F-3
Consolidated Statement of Stockholders' Equity From Inception
(September 12, 1997) To December 31, 1998...........................F-4
Consolidated Statement of Cash Flows For The Year
Ended December 31, 1998, For the Period From
Inception (September 12, 1996) To December 31,
1997, and For the Period From Inception
(September 12, 1996) to December 31, 1998.......................F-5 F-6
Notes to the Consolidated Financial Statements ........................F-7 F-10
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
ii
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Xin Net Corp. and Subsidiaries
Vancouver, B.C. V6C 1H2
We have audited the consolidated balance sheet of Xin Net Corp. and Subsidiaries
(the Company), as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the consolidated financial position of Xin Net Corp. and Subsidiaries
as of December 31, 1998 and 1997, and the consolidated results of their
operations and their consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
July 25, 1999
F-1
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
1998 1997
----- ----
ASSETS
Current Assets
Cash $ 336,189 $ 337,366
Accounts Receivable 37,376 28,062
Prepaid Expenses 2,614 0
--------- --------
Total Current Assets 376,179 365,428
Property and Equipment, Net (Note 3) 227,427 188,309
Other Assets
Organizational Costs, Net (Note 2) 969 1,031
------- ---------
Total Assets $604,575 $ 554,768
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued Liabilities $20,504 $ 12,975
Other Advances (Note 4) 20,000 0
------- ---------
Total Liabilities 40,504 12,975
Commitments and Contingencies None None
Stockholders' Equity
Common Stock: $0.001 Par Value, Authorized
50,000,000; Issued and Outstanding, 14,075,000 14,075 14,075
Additional Paid In Capital 792,990 792,990
Retained Earnings (Accumulated Deficit) (242,994) (265,272)
-------- ---------
Total Stockholders' Equity 564,071 541,793
------- -------
Total Liabilities and Stockholders' Equity $604,575 $ 554,768
======= ========
The accompanying notes are integral part of these financial statements.
F-2
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
For The Year Ended For The
December 31, 1998 Year Ended
December 31, 1997
Revenues $527,988 $ 96,177
Expenses
General and Administrative 510,555 333,084
------- -------
Operating Income (Loss) 17,433 (236,907)
Other Income
Interest Income 4,845 7,221
----- -----
Net Income (Loss) Available to Common
Stockholders $ 22,278 $ (229,686)
====== ========
Basic Income (Loss) Per Common Share $ 0.001 $ (0.02)
===== ===========
Basic Weighted Average Common
Shares Outstanding 14,075,000 12,127,082
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Loss Accumulated
During the
Additional Development
Common Stock Paid In Stage
Shares Amount Capital Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 3,200,000 $ 3,200 $ 49,800 $ (35,586) $ 17,414
Issuance of Common Stock For Cash at
$.40 Per Share on June 2, 1997 1,875,000 1,875 748,125 750,000
Issuance of Common Stock in Exchange for
Acquisition of Subsidiary on March 3, 1997 5,000,000 5,000 (4,900) 100
Issuance of Common Stock For Services at
$.001 Per Share on February 20, 1997 4,000,000 4,000 4,000
Loss, Year Ended December 31, 1997 (118,313) (118,313)
---------- ----- ---------- ----------- --------
Balance, December 31, 1997, as
previously reported 14,075,000 14,075 793,025 (153,899) 653,201
Prior Period Adjustment - Error In
Consolidation of Subsidiary's 1997
Financial Statements Expressed in
Canadian Dollars Which Should Have
Been in U.S. Dollars (Note 7) (35) (111,373) (111,408)
---------- ----- ---------- --------- --------
Balance, December 31, 1997, as restated 14,075,000 14,075 792,990 (265,272) 541,793
Income, Year Ended December 31, 1998 22,278 22,278
--------- ----- ---------- --------- --------
Balance, December 31, 1998 14,075,000 $14,075 $792,990 $ (242,994) $564,071
========== ====== ======= ======== =======
The accompanying notes are an integral part of these financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
For the Year For the
Ended December Year Ended
31, 1998 December 31, 1997
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) $ 22,278 $(229,686)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided By (Used in) Operating Activities
Depreciation and Amortization 47,930 46,760
Common Stock Issued for Services 0 4,000
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (9,314) (28,062)
(Increase) Decrease in Prepaid Expenses (2,614) 0
(Increase) Decrease in Organizational Costs 0 (1,088)
Increase (Decrease) in Accounts Payable 7,529 12,975
--------- --------
Total Adjustments 43,531 34,585
--------- ---------
Net Cash Provided By (Used in) Operating Activities 65,809 (195,101)
Cash Flows From Investing Activities
Purchase of Property and Equipment (86,986) (235,012)
--------- ---------
Net Cash Flows Used in Investing Activities (86,986) (235,012)
Cash Flows From Financing Activities
Proceeds From Sale of Common Stock 0 750,000
Related Party Advances 20,000 65
--------- ---------
Net Cash Provided by Financing Activities 20,000 750,065
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (1,177) 319,952
Cash and Cash Equivalents, Beginning of Year 337,366 17,414
--------- ---------
Cash and Cash Equivalents, End of Year $ 336,189 $ 337,366
========= =========
For the Year For the
Ended December Year Ended
31, 1998 December 31, 1997
Supplemental Information:
Cash paid for:
Interest $ 0 $ 0
====== ======
Income taxes $ 0 $ 0
====== ======
Noncash Investing and Financing:
Common Stock Issued for Services $ 0 $4,000
====== ======
Common Stock Issued in Exchange for Acquisition of
Subsidiary $ 0 $ 65
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION
Xin Net Corp. (the Company) was incorporated under the laws of the
State of Florida on September 12, 1996, under the name of Placer
Technologies, Inc., with an authorized capital of 2,000 shares of
common stock with a par value of one cent ($0.01) per share. On
December 11, 1996, the Company amended its Articles of Incorporation to
increase its capital stock to 50,000,000 shares with a par value of one
million ($0.001) per share. On July 22, 1998, the Company amended its
Article of Incorporation and changed its name to Xin Net Corp. The
Company is involved in the development of Internet related products and
services, primarily developing web site home pages for small businesses
and electronic mail services.
The Company has two wholly owned subsidiaries: Infornet Investment
Limited, (a Hong Kong Corporation) which is a telecommunication and
management network company providing financial resources and expertise
in telecommunication projects; and Infornet Investment Corp., (a
Canadian Corporation), which is engaged in a similar line of business,
has 100,000,000 common shares of no par value authorized, with 100
shares issued and outstanding.
During 1997, the Company issued 5,000,000 shares of common stock to
acquire the wholly owned subsidiary, Infornet Investment Corp.
(Canada), for a total value of $65, representing the organizational
costs of filing fees. The shares were issued on March 3, 1997.
On August 25, 1997, through the wholly owned subsidiary, Infornet
Investment Limited (Hong Kong), under the laws of the People's Republic
of China, the Company formed an 80% cooperative joint venture called
Placer Technologies Corp. (a limited liability company) with Xin Hai
Technology Development Ltd. (a People's Republic of China Corporation)
as a 20% partner, for a term of twenty (20) years. Xin Hai Technology
Development Ltd. (Xin Hai) is engaged in the business of developing
computer hardware, software, and telecommunication network technology,
and providing consultation and training services. Xin Hai is an
experienced Internet Service Provider (ISP) based in Beijing, China.
ISP licenses are tightly controlled by the Ministry of Information
Industry (MII) and provide a substantial barrier to entry. Xin Hai
plans to position itself as a major supplier of Internet services in
China by covering the major cities.
The joint venture company manufactures and sells computer network
systems, communication equipment and communication engineering
services, including development and construction of Internet access
networks in China. The joint venture will be operated in accordance
with the laws and regulations in China which allow Sino-foreign joint
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
venture companies to construct Internet access networks and to have
ownership rights and rights for return on investment, but disallow
joint venture companies to operate such networks.
The Company was classified as a development stage company in prior
years. The year ended December 31, 1998, is the first year the Company
is no longer in the development stage.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Method of Accounting
The Company's financial statements are prepared using the accrual
method of accounting.
B. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a
maturity of three months or less to be cash and cash equivalents.
C. Concentration of Credit Risk
The Company maintains U.S. Dollar cash balances in Canadian banks, that
are not insured.
D. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, Infornet Investment
Corp. (Canada) and Infornet Investment Limited (Hong Kong). All
significant intercompany transactions and balances have been eliminated
in consolidation.
E. Purchase Method
Investments in companies have been included in the financial report
using the purchase method of accounting. The Company retains the
acquired companies as subsidiaries. The Company's wholly owned
subsidiaries, Infornet Investment Corp. (Canada) and Infornet
Investment Limited (Hong Kong), provide similar Internet services to
the Canadian and Chinese markets.
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. Property and Equipment
Property and equipment, stated at cost, is depreciated under the
straight-line method over their estimated useful lives, ranging from
three to seven years.
G. Revenue Recognition
Revenues are recognized as services are performed.
H. Cost Recognition
Selling, general, and administrative costs are charged to operating
expenses as incurred.
I. Amortization
Costs incurred to organize the Company have been capitalized and are
amortized using the straight-line method over seven years. Amortization
charged to expense during the year ended December 31, 1998 and 1997 was
$62 and $47, respectively.
J. Use of Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses. Actual results could vary from
the estimates that were assumed in preparing the financial statements.
K. Income Taxes
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes." Under SFAS No. 109, deferred tax liabilities and assets
are determined based on the difference between the financial statement
and tax bases of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse.
See Note 5.
L. Per Share of Common Stock
Basic earnings or loss per share has been computed based on the
weighted average number of common shares outstanding. All earnings or
loss per share amounts in the financial statements are basic earnings
or loss per share, as defined by SFAS No. 128, "Earnings Per Share."
M. Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation cost for stock
options, if any, is measured as the excess of the quoted market price
of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock.
SFAS No. 123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based method
of accounting for stock-based employee compensation plans. The Company
has elected to remain on its current method of accounting as described
above, and has adopted the disclosure requirements of SFAS No. 123,
effective January 1, 1997.
N. Foreign Operations
The financial position and results of operations of the Company's
foreign subsidiaries are maintained in a currency other than the
reporting currency. Prior to consolidation, the assets, liabilities,
revenues, expenses, gains and losses are remeasured into the reporting
currency, and any exchange gains or losses that result from remeasuring
foreign currency amounts are included in net income/loss in the
subsidiaries financial statements. Monentary assets and liabilities,
such as property and equipment, accumulated depreciation, intangible
assets, amortization, and common stock, are remeasured into the
reporting currency using historical exchange rates. Monetary assets and
liabilities, such as cash and most liabilities, are remeasured based on
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
current exchange rates. Revenues and expenses related to nonmonetary
items, such as cost of goods sold, depreciation, and amortization of
intangible assets, are remeasured using the historical exchange rates,
while those related to monetary items are remeasured using current
exchange rates. See Note 6.
O. Business Segment Information
The Company implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective January 1, 1998. The
Company's reportable segments are geographic areas that provide
Internet services and products. See Note 6.
P. Capital Structure
The Company has implemented SFAS No. 129, "Disclosure of Information
about Capital Structure," effective January 1, 1998, which established
standards for disclosing information about an entity's capital
structure. The implementation of SFAS No. 129 has no effect on the
Company's financial statements
Q. Comprehensive Income
The Company has implemented SFAS No. 130, "Reporting Comprehensive
Income," effective January 1, 1998, which requires companies to
classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid in capital in the equity section of a statement of financial
position. The implementation of SFAS No. 130 has no effect on the
Company's financial statements.
R. Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
S. Pending Accounting Pronouncements
It is anticipated that current pending accounting pronouncements will
not have an adverse impact on the financial statements of the Company.
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1998 1997
Office Equipment $ 3,440 $ 3,767
Equipment 279,551 228,239
Furniture 3,349 3,004
---------- ---------
Total 286,340 235,010
Less Accumulated Depreciation (58,913) (46,701)
---------- ---------
Net Book Value $ 227,427 $ 188,309
========== =========
Depreciation charged to expense during the year ended December 31, 1998
and 1997, was $47,868 and $46,701.
NOTE 4 - OTHER ADVANCES
Other advances of $20,000 at December 31, 1998, represent funds
advanced to the Company, bearing no interest and due on demand. The
advance was paid in full as of the date of issuance of these financial
statements.
NOTE 5 - INCOME TAXES
There is no current or deferred tax expense for the years ended
December 31, 1998 and 1997, due to the Company's loss position. The
benefits of timing differences have not been previously recorded.
The deferred tax consequences of temporary differences in reporting
items for financial statement and income tax purposes are recognized,
as appropriate. Realization of the future tax benefits related to the
deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the net operating
loss carryforward period. Management has considered these factors in
reaching its conclusion as to the valuation allowance for financial
reporting purposes. The income tax effect of temporary differences
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
comprising the deferred tax assets and deferred tax liabilities on the
accompanying consolidated balance sheet is a result of the following:
NOTE 5 - INCOME TAXES (CONTINUED)
Deferred Taxes 1998 1997
----------------------------------- ---------- ----
Net Operating Loss Carryforwards $ 63,668 $ 32,729
Valuation Allowance (63,668) (32,729)
------ ------
Net Deferred Tax Assets $ 0 $ 0
====== ======
The Company has available net operating loss carryforwards of $187,259
for tax purposes to offset future taxable income, which expire
principally in the year 2012.
Pursuant to the Tax Reform Act of 1986, annual utilization of the
Company's net operating loss carryforwards may be limited if a
cumulative change in ownership of more than 50% is deemed to occur
within any three-year period.
NOTE 6 - SEGMENT AND GEOGRAPHIC DATA
The Company's reportable segments are geographic areas that provide
Internet services and products to the Chinese markets. Summarized
financial information concerning the Company's reportable segments is
shown in the following table. The "Other" column includes corporate
related items, and, as it relates to segment profit (loss), income and
expense not allocated to reportable segments.
<TABLE>
<CAPTION>
China Canada Other Total
<S> <C> <C> <C> <C>
December 31, 1998
Revenue $ 527,988 $43,827 $ 0 $ 571,815
Operating Income (Loss) 114,747 (20,972) (71,497) 22,278
Total Assets 593,510 5,759 5,306 604,575
Capital Expenditures 282,900 3,440 0 286,340
Depreciation/Amortization 47,146 784 0 47,930
Interest Income 3,566 1,279 0 4,845
December 31, 1997
Revenue $ 96,177 $54,625 $ 0 $ 150,802
Operating Loss (139,659) 1,066 (91,093) (229,686)
Total Assets 255,138 298,984 646 554,768
Capital Expenditures 231,243 3,767 0 235,010
Depreciation/Amortization 46,249 511 0 46,760
Interest Income 0 7,124 97 7,221
</TABLE>
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Reconciliation of Segment Information - The reconciling item to adjust
total revenues to consolidated revenues is the amount of revenues
recorded on Canada's books (a subsidiary) as management fee income,
recorded as an expense on the parent's books, and eliminated in
consolidation. Management fee income/expense are $43,827 and $54,625
for the years ended December 31, 1998 and 1997, respectively.
NOTE 7 - PRIOR PERIOD ADJUSTMENT
The accompanying financial statements for 1997 have been restated to
correct an error in the consolidation of the Canadian subsidiary's
financial statements expressed in Canadian dollars which should have
been U.S. Dollars. The effect of the restatement was to decrease net
income by $111,373 for 1997.
NOTE 8 - SUBSEQUENT EVENTS
(1) The Company completed an Offering in May 1999 and has issued
5,500,000 shares of common stock, at $1.00 per share, or $5,500,000.
The Company has received all of the proceeds as of the date of issuance
of these financial statements.
(2) The Company granted 1,400,000 incentive options on February 26,
1999, exercisable at $0.40 per share and expiring on February 28, 2004.
On April 6, 1999, all of the options were exercised at $0.40 per share,
or $560,000. The Company has received all of the proceeds as of the
date of issuance of these financial statements.
F-6
<PAGE>
Interim Financial Statements
for Period Ended June 30, 1999
(unaudited)
<PAGE>
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
( Prepared by management and without audit )
Stated in U.S. dollars June 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 6,399,009 $ 336,189
Accounts Receivable 37,376
90,090
Prepaid Expenses
1,450 2,614
Inventory
15,047 -
------------------- -------------------------
Total Current Assets 6,505,596 376,179
Property and Equipment, Net 227,427
474,657
Other Assets
Organizational Costs, Net
946 969
------------------- -------------------------
Total Assets $ 6,981,199 $ 604,575
=================== =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued
Liabilities $ 114,180 $ 20,504
Other Advances 20,000
-
Current portion of Obligation under
Capital Lease (Note 2) 30,484 -
------------------- -------------------------
144,664 40,504
Obligation under Capital Lease (Note 2) 184,474
-
Commitments and Contingencies
- -
Stockholders' Equity (Note 3)
Common Stock: $0.001 Par Value
Authorized: 50,000,000
Issued and Outstanding: 20,975,000 20,975 14,075
Additional Paid In Capital 6,846,090 792,990
Accumulated Deficit (215,004) (242,994)
------------------- -------------------------
Total Stockholders' Equity 6,652,061 564,071
------------------- -------------------------
Total Liabilities and Stockholders' Equity $ 6,981,199 $ 604,575
=================== =========================
</TABLE>
See Accompanying Notes
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(Prepared by management and without audit)
Three Months Ended June 30 Six Months Ended June 30
Stated in U.S. dollars 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 170,088 $ 144,112 $ 309,403 $ 258,915
----------------- ------------------ ----------------- -----------------
Expenses
Administration and office
38,748 13,988 58,253 26,424
Amortization
1,842 1,265 3,746 2,558
Business development
8,385 1,577 8,386 2,433
Consulting and management fees
15,951 - 25,874 -
Foreign exchange (gain) / loss
(261) 6,034 (261) 3,386
Interest
1,621 969 2,726 1,399
Professional fees
9,411 564 19,479 908
Rent
4,346 - 6,470 -
Salaries and benefits
17,469 12,639 29,086 35,001
Selling expenses
123,252 61,521 169,703 130,017
Shareholder information, transfer
agent and filing fees 3,598 - 3,598 -
----------------- ------------------ ----------------- -----------------
224,362 98,557 327,060 202,126
----------------- ------------------ ----------------- -----------------
Operating Profit (Loss)
(54,274) 45,555 (17,657) 56,789
Other Income
Interest
44,614 514 45,647 1,927
----------------- ------------------ ----------------- -----------------
Net Earnings (Loss) Available to Common
Stockholders $ (9,660) $ 46,069 $ 27,990 $ 58,716
========== ================ =========== ==========
Basic Earnings (Loss) per Common Shares
(Note 4) $ - $ - $ - $ -
========= ========= ========= ========
Basic Weighted Average Common Shares
Outstanding (Note 4)
18,014,780 14,075,000 16,055,773 14,075,000
=========== =========== =========== ==========
Diluted Earnings (Loss) per Common Shares
(Note 4) $ - $ - $ - $ -
=========== =========== =========== ========
Weighted Average Common Shares Outstanding,
Assuming Dilution (Note 4)
18,014,780 14,075,000 17,385,106 14,075,000
=========== =========== =========== ==========
</TABLE>
See Accompanying Notes
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
( Prepared by management and without audit )
Three Months Ended June 30 Six Months Ended June 30
Stated in U.S. dollars 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net profit (loss) $ (9,660) $ 46,069 $ 27,990 $ 58,716
Adjustments to reconcile net loss to net cash
Provided by (Used in) operating activities
Depreciation and amortization 3,746
1,842 1,265 2,558
Changes in assets and liabilities
(Increase) Decrease in accounts
receivable (24,583) 55,366 (52,714) (62,103)
(Increase) Decrease in prepaid expenses (1,450)
- 1,164 -
Increase in inventory (11,952) (15,047) (14,809)
(45)
Increase (Decrease) in accounts payable 14,254 (28,010) (8,408)
93,676
Decrease in other advance (20,000) (20,000)
- -
-------------- --------------- --------------- ---------------
(39,642) (24,046)
62,738 38,815
-------------- --------------- --------------- ---------------
Cash flows from investing activities
Purchases of property and equipment (230,708) (2,657) (250,953) (41,473)
Cash flows from financing activities
Increase in obligation under capital lease 214,958 214,958
- -
Issuance of common stock 6,900 6,900
- -
Issuance of additional paid in capital 6,053,100 6,053,100
- -
-------------- --------------- --------------- ---------------
6,274,958 6,274,958
- -
-------------- --------------- --------------- ---------------
Increase (Decrease) in cash and cash equivalents
6,004,608 60,081 6,062,820 (65,519)
Cash and cash equivalents - beginning of period
394,401 211,766 336,189 337,366
-------------- --------------- --------------- ---------------
Cash and cash equivalents - end of period $6,399,009 $ 271,847 $6,399,009 $ 271,847
=========== ========== =========== =========
</TABLE>
See Accompanying Notes
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED JUNE 30,
1999 ( Prepared by management and without audit )
Stock Additional
Common Amount At Paid In Accumulated
Stated in U.S. dollars Shares Par Value Capital Deficit Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 14,075,000 $ 14,075 $ 792,990 $(242,994) $ 564,071
Exercise of Stock Option for cash at $0.40 per
share on April 4, 1999 810,000 810 323,190 324,000
Exercise of Stock Option for cash at $0.40 per
share on April 6, 1999 590,000 590 235,410 236,000
Issuance of Common Stock for cash at $1.00 per
share on May 19, 1999 5,500,000 5,500 5,494,500 5,500,000
Profit for the six months ended June 30, 1999
27,990 27,990
---------------------------------------------------------------------------
Balance, June 30, 1999 20,975,000 $ 20,975 $6,846,090 $ (215,004) $ 6,652,061
============= ========== =========== ============= ============
</TABLE>
See Accompanying Notes
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
( Prepared by management and without audit )
1 Basis of Presentation
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles. However,
certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted or condensed pursuant to the
rules and regulations of the Securities and Exchange Commission
("SEC"). In the opinion of the management all adjustments of a normal
recurring nature necessary for a fair presentation have been included.
The results for interim periods are not necessarily indicative of
results for the entire year. These condensed consolidated financial
statements and accompanying notes should be read in conjunction with
the Company's annual consolidated financial statements and the notes
thereto for the fiscal year ended December 31, 1998 included in its
Annual Report on Form 10-KSB.
The unaudited condensed consolidated financial statements include Xin
Net Corp. and its subsidiaries. Significant inter-company transactions
and accounts have been eliminated.
Certain prior-period amounts have been reclassified to conform to the
current period's presentation.
2 Capital Lease Obligation
The Company leases computer equipment, repayable at approximately
$5,729 (CND 8,434) per month to June 30, 2002. The liability includes
imputed interest at an average rate of 4.64% per annum.
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
( Prepared by management and without audit )
<TABLE>
<CAPTION>
2 Capital Lease Obligation (Continued)
Total minimum lease payments
for the year ended December 31
<S> <C> <C>
1999 $ 34,373
2000 68,746
2001 68,746
2002 59,686
-----------------------
231,551
Less: Amount representing interest (16,593)
-----------------------
Present value of minimum lease payment 214,958
Less : Current portion (30,484)
=======================
$ 184,474
=======================
</TABLE>
3 Stockholders' Equity
On February 26, 1999, stock options for a total of 1.4 million shares
at $0.40 per share were granted. All the options were exercised as of
April 6, 1999.
In May 1999, the Company issued 5,500,000 common shares through its
unit private placement, at $1.00 per share, or $5,500,000. Each common
share was issued with a warrant. Each warrant entitles the holder to
purchase, on or before March 31, 2001, one additional unit of common
share at a price of $2.00 per unit, each unit consisting of one common
share and one additional warrant. The additional warrant entitles the
holder to purchase one additional common share at a price of $5.00 per
share on or before March 31, 2002.
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
( Prepared by management and without audit )
4 Earnings Per Share
Basic earnings per share is computed by dividing net earnings available
to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed
by dividing net earnings available to common stockholders by the
weighted-average number of common shares outstanding during the period
increased to include the number of additional common shares that would
have been outstanding if potentially dilutive common shares had been
issued.
The following table sets forth the computations of shares and net
earnings used in the calculation of basic and diluted earnings per
share for the second quarter and the first half of 1999 and 1998 :
<TABLE>
<CAPTION>
Three months ended Six months ended
6/30/99 6/30/98 6/30/99 6/30/98
<S> <C> <C> <C> <C>
Net earnings (loss) for the period $ (9,660) $ 46,069 $ 27,990 $ 58,716
Weighted-average shares outstanding 18,014,780 14,075,000 16,055,773 14,075,000
------------------------- ------------------------
Effect of dilutive securities :
Dilutive options - 222,488
- -
Dilutive warrants - 1,106,844
- -
------------------------- ------------------------
Dilutive potential common shares - 1,329,332
- -
------------------------- ------------------------
Adjusted weighted-average shares and assumed
conversions 18,014,780 14,075,000 17,385,106 14,075,000
========== ========== ========== ==========
Basic earnings per share $ (0.00) $ 0.00 $ 0.00 $ 0.00
========= ======== ======== =======
Diluted earnings per share $ (0.00) $ 0.00 $ 0.00 $ 0.00
========= ======== ======== =======
</TABLE>
Due to the loss for the three months ended June 30, 1999, the effect of
outstanding options and warrants was not included as the effect would
be anti-dilutive.
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
( Prepared by management and without audit )
4 Earnings Per Share (Continued)
Warrants to purchase approximately 2,767,000 weighted-average shares of
common stock were outstanding during the quarter ended June 30, 1999,
that were not included in the computation of diluted earnings per share
for the six months ended June 30, 1999, because the warrants' exercise
price was greater than the average market price of the Company's common
stock during the period and, therefore, the effect would be
anti-dilutive.
5 Segment and Geographic Data
The Company's reportable segments are geographic areas that provide
internet services and products to the Chinese markets. Summarized
financial information concerning the Company's reportable segments is
shown in the following table. The "Other" column includes corporate
related items, and, as it relates to segment profit (loss), income and
expenses not allocated to reportable segments.
<TABLE>
<CAPTION>
For three months ended 6/30/1999 China Canada Other Total
-------------------------------- ----- ------ ----- -----
<S> <C> <C> <C> <C>
Revenue from customers $170,088 $ - $ - $ 170,088
Interest revenue 1,064 43,550 44,614
-
Inter-segment revenue
- - - -
Operating income (loss) 34,873 (29,849) (14,684) (9,660)
Total assets 1,311,607 322,818 5,346,774 6,981,199
For three months ended 6/30/1998 China Canada Other Total
-------------------------------- ----- ------ ----- -----
Revenue from customers $144,112 $ - $ - $ 144,112
Interest revenue 460 54 514
-
Inter-segment revenue
- - - -
Operating income (loss) 70,513 (24,233) (211) 46,069
Total assets 574,316 30,365 395 605,076
</TABLE>
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
( Prepared by management and without audit )
<TABLE>
<CAPTION>
5 Segment and Geographic Data (Continued)
For six months ended 6/30/1999 China Canada Other Total
------------------------------ ----- ------ ----- -----
<S> <C> <C> <C> <C>
Revenue from customers $309,403 $ - $ - $309,403
Interest revenue 2,097 43,550 45,647
-
Inter-segment revenue
- - - -
Operating income (loss) 108,450 (51,043) (29,417) 27,990
Total assets 1,311,607 322,818 5,346,774 6,981,199
For six months ended 6/30/1998 China Canada Other Total
------------------------------ ----- ------ ----- -----
Revenue from customers $258,915 $ - $ - $258,915
Interest revenue 646 1,281 - 1,927
Inter-segment revenue
- - - -
Operating income (loss) 106,125 (46,788) (621) 58,716
Total assets 574,316 30,365 395 605,076
Reconciliation of segment 3 months ended 6 months ended
-------------------------
Information 6/30/99 6/30/98 6/30/99 6/30/98
Revenue from customers $ 170,088 $144,112 $309,403 $258,915
Interest revenue 44,614 514 45,647 1,927
Inter-segment revenues
- - - -
-------------------------------------------------------
Total consolidated revenues $ 214,702 $144,626 $355,050 $260,842
========== ========= ========= ========
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
---------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------
XIN NET CORP.
(Exact name of Registrant as specified in charter)
-------------------------------
EXHIBITS
83
<PAGE>
EXHIBIT INDEX
Exhibit No. Item.
Incorporated by reference to Form 10SB Registration Statement filed June 1999,
file #026559
3.1 Articles of Incorporation to Placer Technology, Inc.
3.2 Articles of Amendment to Placer Technology, Inc.
3.3 Articles of Amendment to Placer Technology, Inc. to change name to Xin
Net.*
3.4 Bylaws to Placer Technology, Inc. (Xin Net)*
3.5 Articles of Incorporation to Infornet (B.C.) Investment Corp. &
Amendment.*
3.6 Articles of Incorporation to Micro Express (Hong Kong) and Amedment to
change name to Infornet Investment, LTD. *
3.7 Articles of Association Placer Technology Corp. (China)*
10.1 Contract between Xin Hai Technology Development, L.T.D and Infornet
Investment, L.T.D. dated August 25, 1997.*
10.2 Cooperative Joint Venture Contract Placer Technologies/Xin Hai.*
10.3 EDUVERSE Non-Exclusive Binding Agreement.*
5.1 Form of Opinion of Michael A. Littman
24.1 Consent of Michael A. Littman, dated, 1999.
24.2 Consent of Auditor, dated _________________
*To be filed by Amendment
** Previously Filed
84
EXHIBIT 5.1
Michael A. Littman
Attorney at Law
10200 W. 44th Ave., #400
Wheat Ridge, CO 80033
(303) 422-8127 Fax: (303) 422-7796
XIN NET CORP.
Re: SB-2 Registration Statement for common shares of XIN NET CORP.
Gentlemen:
At your request, I have examined the form of Registration Statement No.,
______________ which you are filing with the Securities and Exchange Commission,
on Form SB-2 (the "Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of up to 5,885,000 shares of your
Common Stock (the "Stock") issuable pursuant to the 1999 Registration Statement
file No. ___________ when effective.
In rendering the following opinion, I have examined and relied only upon
the documents, and certificates of officers and directors of the Company as are
specifically described below. In my examination, I have assumed the genuineness
of all signatures, the authenticity, accuracy and completeness of the documents
submitted to me as originals, and the conformity with the original documents of
all documents submitted to me as copies. My examination was limited to the
following documents and not others:
1. Certificate of Incorporation of the Company, as amended to date;
2. Bylaws of the Company, as amended to date;
3. Certified Resolutions adopted by the Board of Directors of the Company
authorizing the Plan and the issuance of the Stock.
4. The Registration Statement.
I have not undertaken, nor do I intend to undertake, any independent
investigation beyond such documents and records, or to verify the adequacy of
accuracy of such documents and records.
Based on the foregoing, it is my opinion that the Stock being registered
under the Registration Statement, when issued, is duly and validly authorized,
fully paid and non-assessable.
85
<PAGE>
I express no opinion as to compliance with the securities or "blue sky"
laws of any state in which the Stock is proposed to be offered and sold or as to
the effect, if any, which non-compliance with such laws might have on the
validity of transfer of the Stock.
I consent to the filing of this opinion as an exhibit to any filing made
with the Securities and Exchange Commission or under any state or other
jurisdiction's securities act for the purpose of registering, qualifying or
establishing eligibility for an exemption from registration or qualification of
the Stock described in the Registration Statement in connection with the
offering described therein. Other than as provided in the preceding sentence,
this opinion (i) is addressed solely to you, (ii) may not be relied upon by any
other party, (iii) covers only matters of Florida and federal law and nothing in
this opinion shall be deemed to imply any opinion related to the laws of any
other jurisdiction, (iv) may not be quoted or reproduced or delivered by you to
any other person, and (v) may not be relied upon for any other purpose
whatsoever. Nothing herein shall be deemed to relate to or constitute an opinion
concerning any matters not specifically set forth above.
By giving you this opinion and consent, I do not admit that I are a expert
with respect to any part of the Registration Statement or Prospectus within the
meaning of the term "expert" as used in Section 11 of the Securities Act of
1933, as amended, or the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder.
The information set forth herein is as of the date of this letter. I
disclaim any undertaking to advise you of changes which may be brought to my
attention after the effective date of the Registration Statement.
Sincerely,
/s/ Michael A. Littman
----------------------
Michael A. Littman
86
EXHIBIT 24.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
XIN NET CORP.
We consent to the reference of our firm under the caption "Experts" and the
use of our report dated, 1999, in the Registration Statement (Form SB-2) and
related Prospectus, of XIN NET CORP. for the registration of 5,885,000 shares of
common stock.
CLANCY & CO. LLC
87
EXHIBIT 24.2
Michael A. Littman
Attorney at Law
10200 W. 44th Avenue, Suite 400
Wheat Ridge, CO 80033
CONSENT
I hereby consent to the use in the Form SB-2 of XIN NET CORP. under the
Securities Act of 1933, of my opinion letter dated September 10, 1999.
/s/ Michael A. Littman
---------------------
Michael A. Littman
Attorney at Law
November 3, 1999
88
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