SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB
CIK: 0001082603
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended Commission File Number
June 30, 1999 0-26559
XIN NET CORP.
---------------------
(Exact name of registrant as specified in its charter)
Florida 3307251560
--------------- ----------
(State of incorporation) (I.R.S. Employer
Identification No.)
#830 - 789 West Pender Street, Vancouver, B.C. Canada V6C 1H2
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(604) 632-9638
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
20,975,000 common shares as of June 30, 1999
<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 audited)
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>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THREE MONTH PERIOD ENDED JUNE 30, 1999 COMPARED TO THE
SAME PERIOD IN 1998.
The Company experienced expenses for the three month period of $224,362 in 1999
and $98,557 in 1998. The Company had revenues for the period in 1999 of $170,088
and in 1998 had revenues of $144,112. The Company recorded a loss for the period
in 1999 of ($54,274) but had a net income of $45,555 in the same period 1998.
The Company losses may continue as the Company makes expenditures to expand its
operations in China.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999, COMPARED TO THE
SAME PERIOD IN 1998.
The Company had revenues from operations for the six month period in 1999 of
$309,403 and in 1998 revenues of $258,915. The Company incurred $327,060 in
operating expenses in the period in 1999, resulting in an operating loss of
($17,657) compared to expenses in 1998 of $202,126 and an operating profit of
%56,789. The Company had miscellaneous income of $45,647 in the period in 1999
as a result of the interest on deposits. In the period in 1998, the Company had
interest income of $1,927. The net loss in 1999 in the period was ($9,660) as
compared to a net profit of $46,069 in 1998 in the same period.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash capital at the end of the period of $6,399,009 which will
be used to fund operations in China. The Company has material commitments to
expend funds to cover operating expenses of its operations in China and
investment to open two more cities in China with Internet servers for which the
Company has budgeted $1,000,000 over the next six months. The trend of operating
losses should be expected to continue due to costs of equipment and marketing
which precede development of additional revenue for Internet related business.
At the period end, the assets of the Company were $6,981,199 and liabilities
were $144,644, not including long term lease obligations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
None
ITEM 2. CHANGES IN SECURITIES
---------------------
None
<PAGE>
ITEM 3. DEFAULT UPON SENIOR SECURITIES
------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
No reports on Form 8-K were made for the period for which this report
is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 2, 1999
XIN NET CORP.
/s/ Marc Hung
------------------------------------
Marc Hung, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,399,009
<SECURITIES> 0
<RECEIVABLES> 90,090
<ALLOWANCES> 0
<INVENTORY> 15,047
<CURRENT-ASSETS> 6,505,596
<PP&E> 474,657
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,981,199
<CURRENT-LIABILITIES> 144,664
<BONDS> 0
0
0
<COMMON> 20,975
<OTHER-SE> 6,631,086
<TOTAL-LIABILITY-AND-EQUITY> 6,981,199
<SALES> 309,403
<TOTAL-REVENUES> 309,403
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 327,060
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (45,647)
<INCOME-PRETAX> 27,990
<INCOME-TAX> 0
<INCOME-CONTINUING> 27,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,990
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
