SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
AMENDMENT NO. 3
General Form for Registration of Securities of Small business Issuers
Commission file number 0-26559
CIK No. 0001082603
XIN NET CORP.
(Exact name of registrant as specified in this charter)
Florida 330-751560
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(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
#830 - 789 West Pender Street, Vancouver, B.C. Canada V6C 1H2
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 632-9638
Securities Registered to be Pursuant to Section 12(b) of the Act:
NONE
Securities Registered to be Pursuant to Section 12(g) of the Act
COMMON STOCK $.001 PAR VALUE
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TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Management's Discussion and Analysis of Financial Condition 25
and Results of Operations
Item 3. Properties 29
Item 4. Security Ownership of Certain Beneficial Owners and Management 29
Item 5. Directors and Executive Officers of the Registrant 31
Item 6. Executive Compensation 33
Item 7. Certain Relationships and Related Transactions 36
Item 8. Description of Securities 38
PART II
Item 1. Market for Registrant's Common Stock and Security Holder Matters 39
Item 2. Legal Proceedings 39
Item 3. Changes in and Disagreements with Accountants on 40
Accounting and Financial Disclosure
Item 4. Recent Sales of Unregistered Securities 40
Item 5. Indemnification of Directors and Officers 58
PART F/S
Financial Statements and Supplementary Data 59
Exhibits, Financial Statement Schedule and Reports on Form 8-K 60
Signature Page 61
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PART I
ITEM 1. BUSINESS
(a) General Description and Development of Business.
HISTORY OF COMPANY
On September 6, 1996, the Company was incorporated under the laws of the
State of Florida under the name of Placer Technologies, Inc. The Company
conducted a small public offering of 200,000 shares @ $.25 per share to achieve
$50,000 in capital. In December 1996 a Rule 15c2-11 filing resulted in trading
approval on the OTCBB.
The Company's initial primary service consisted of developing Web Home
Pages for small businesses in USA. Minimal revenues were generated in 1996.
On April 2, 1997, the Company acquired 100% interest of Infornet Investment
Limited (a Hong Kong corporation) which is the operating subsidiary for the
company joint venture in China. In 1997, Infornet entered into a joint venture
agreement 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. The Infornet/Xin Hai agreement
provides Infornet 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 the Company.
On June 11, 1997, the Company purchased 100% interest of Infornet
Investment Corp., a British Columbia corporation. Infornet Investment Corp.
manages daily operations for the Company.
On July 24, 1998, the Company changed its name from Placer Technologies,
Inc. to Xin Net Corp. in order to reflect the core business more accurately.
BUSINESS
Corporate Overview
The Company structure and major subsidiaries is as follows, with the
jurisdiction of incorporation of each subsidiary included in parentheses:
Xin Net Corp.
(Florida, USA)
Infornet Investment Corp. Infornet Investment Ltd.
(100% Owned) (100% Owned)
(BC. Canada) (Hong Kong)
Placer Technologies Corp.
joint venture
(Beijing, China)
(with Xin Hai Technology Ltd.)
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Business of Issuer. General Operations.
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The primary focus of the Company is to be an internet service company in
China, through the joint venture with Xin Hai Technology Development Ltd. ("Xin
Hai"). 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.
The Company does not have any other operations than its investment in and
the services it provides through the joint venture.
The Company currently maintains an office at: #830 - 789 West Pender
Street, Vancouver, B.C. Canada V6C 1H2 (telephone number is 1-604-632-9638). It
also has offices as part of the joint venture in Beijing at Suite 210, Building
B, No - 11 Wu 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.
The core business is to act as a co-venturer to supply internet services in
China by covering the major cities through a joint venture with an operating
partner-Xin Hai Technology Development Ltd. in Placer Technologies Corp., a
joint venture (the "joint venture"). Businesses include ISP, Home-page portal,
internet advertising, E-commerce and other value-added services.
Current Business
- ----------------
Through its wholly owned subsidiary Infornet Investment Ltd. (Hong Kong)
the Company is 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". The Company entered into the joint venture with Xin Hai
in August 1997.
XIN HAI will contribute all revenues to the joint venture. The joint
venture, exclusively, will collect the revenues from all of the services and
activities of XIN HAI and XIN HAI will receive no revenues other than through
its joint venture participation.
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. The joint venture with Xin Hai Technology
Development Ltd. provides the Company designs and develops the computer software
and computer network systems and provides capital for the ISP business owned and
operated by Xin Hai. All revenues from operations got to the joint venture. The
Infornet/Xin Hai agreement provides Infornet with 80% profit 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. In other words, a) before
Infornet Investment has recouped its capital investment, 80% of the profits go
to Infornet, 20% to XIN HAI; and b) after Infornet has recouped its invested
capital, 51% of profits go to Infornet and 49% go to XIN HAI. 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.
Paying customers: The Company business presently comprises three (3)
aspects: internet access and content services, domain name registration and
online auction & e-commerce. In December 1999, total customers exceeded the
milestone number of 50,000. Of these, approximately 45,000 were paying
customers, the others taking advantage of the various free trial periods or
services offered to them.
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.
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JOINT VENTURE AGREEMENT
- ------------------------
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 venture
- --------------
Under the joint venture agreements, 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 permits 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 parties
for the maximum available period;
- - 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.
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The Company is 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 deficit to the joint venture company. The use of the
sixty percent (60%) internet revenue transferred to the joint venture company
shall be treated as business revenue of the joint venture company and shall be
used to pay returns of investment capital, fees for technical and management
services performed by the joint venture, or remitted as profits to the joint
venture participants.
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.
The Company's wholly owned subsidiary, Infornet Investment Ltd. is
obligated to contribute all of the capital of the joint venture which the
Company provides to Infornet. Under the joint venture the required capital is
$525,000 USD which the company has contributed. The total investment of
$2,000,000 (U.S.) and Infornet Investment Ltd. has already loaned more than
$2,000,000. No further capital contribution is required from Infornet Investment
Ltd., however the Company has advanced and will continue to advance loans to the
joint venture as necessary to continue the business, but subject to the limits
of the Company's capital. XIN HAI has contributed no capital or loans, to the
joint venture.
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.
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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 the Company, that the Company 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 liquidated or sold and
the proceeds will be allocated:
-a) if Infornet Investment Ltd. has not yet recouped its invested
capital, 80% goes to Infornet and 20% goes to Xin Hai.
-b) if Infornet Investment Ltd. has already recouped its invested
capital, 51% goes to Infornet and 49% goes 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.
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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
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 (BDA Report, p.2). Computer usage is rapidly
growing, especially amongst the younger age groups, leading industry analysts to
be optimistic about the prospects for this market (BDA Report, p. 141-142, p.
166-167). 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. (Beijing Review, Vol. 41, No. 50, Dec.
14-20, 1998, also Asia Times, Tuesday, February 4, 1997).
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 (BDA Report p. 144).
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).
PC sales are most relevant to the growth of the number of internet users.
Over 93% of internet users in China access the internet through PC's according
to a survey by CINIC (China Internet Network Information Center). As the number
of chinese homes owning a PC increases, so does the number of internet users.
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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 (BDA Report, p. 163, also China
Internet Network Information Center, June 1999 survey). The China PC market's
exponential growth and technological advancements are the major forces driving
the internet boom. (IDC - International Data Corp.)
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 (BDA Report, p. 53-57 and p.
249). Based on those facts, Xin Net plans 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 Company, through its subsidiary Infornet, participates in the joint
venture 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".
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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."
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.
The Company has introduced an expanded online E-Commerce service to the
Chinese market in 1999. The joint venture now operates a live online auction
site.
To facilitate growth the joint venture will solicit PC manufacturers and
retailers to bundle services, put more effort on system integration services,
and will offer more value-added services. Types of value-added services include:
daily news (world, national, local & community, weather, sports, financial),
hyperlinks to other websites, games, chatrooms, auction, e-commerce (business to
business, business to consumer, consumer to consumer) and advertising. 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. The joint venture currently receives 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. Portal type home page will
be enhanced by the provision of the daily news, hyperlinks, games and chatroom.
E-commerce will be enhanced by having more and more e-business to use our
xinbid.com (presently auction) platform and ultimately adding business to
consumer and consumer to consumer on-line trading. The joint venture will also
look for strategic alliances with suitable partners.
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The network in which the Company participates as a joint venturer has
attracted more than 30,000 subscribers in 2 1/2 years of operations. The joint
venture through Xin Hai Technology Development Ltd. (joint venture partner) has
about 80 employees at its present locations in Beijing, Shenyang and Shanghai.
Industry Background
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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 (BDA Report, p. 141-148, 179-198, 200-209). 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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Asia-Pacific internet Growth Opportunities: The Company believes 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. (IDC - International Data Corp.)
The Company believes 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, the Company believes 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
(information provided by IDC):
Compound
Annual
Growth Rate
1998 2003 1998-2003
--------------------------------
(in millions except
penetration rates)
China
Number of internet users (a) 2.4 16.1 46.3%
Number of PCs installed (a) 9.9 35.1 28.8%
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%
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%
(a) International Data Corporation, March 1999
(b) Calculated by dividing number of internet users by country population
(c) Calculated by dividing the number of PCs installed by country population
(d) United States Census Bureau, December 1998
(e) Sum of China, Hong Kong, Taiwan, Australia, New Zealand, Singapore, Malaysia
Thailand, Japan, Philippines, Indonesia, India, South Korea and Vietnam
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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, the Company believes
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, the Company believes 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, the Company expects
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. The Company's services
cater directly to such businesses seeking to expand online, and the joint
venture is able to provide comprehensive solutions to clients ranging from the
design and development of their Web site to access.
As part of providing services, the joint venture also assists 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.
The joint venture has also sought to engage in e-commerce to capitalize on
the revenue generating opportunities through our ISP system. In September 1999,
the joint venture 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. The Company believes that by
offering an integrated platform of content, community and commerce and related
services, the Company is well positioned to capitalize on the growth of the
internet throughout Asia.
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Company Strategy
- ----------------
The Company strategy is to capitalize on the internet growth in Greater
China and Asia and among Chinese users. The Company believes 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, the Company
entered into the joint venture to provide access to subscribers/users, create a
platform for e-commerce and value-added services specifically tailored to the
Greater China market.
The Company believes 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, the strategy is to facilitate e-commerce developments in these
markets and generate revenues on a transaction basis for businesses over the
joint venture network.
In order to increase traffic and build the market, the Company will
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.
Company Products, Services and Solutions
- ------------------------------------
The 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, the 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.
The joint venture is 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. The joint venture also provides web hosting
and web page design services.
The partner in the joint venture, 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. OEM stands for "Original Equipment Manufacturer." Although neither the
joint venture nor Xin Hai is an equipment manufacturer, IBM uses this OEM term
to describe its partnership with Xin Hai. 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, the joint venture partner, is an Internet Service Provider (ISP)
and an Internet Content Provider (ICP) that has more than 30,000 subscribers.
Xin Hai, as part of the joint venture, currently operates a live online auction
site in China www.xinbid.com.
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Xin Hai Network
- ---------------
The joint venture 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 the joint venture to be an
attractive host to online advertisers. The joint venture not only hosts and
serves advertising, but strategically directs internet traffic to Web sites
designed hosted, or maintained or on the joint venture network.
Content Services. The joint venture 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.
Chnmail.com is the joint venture premier site for content, community and
commerce products and services in simplified Chinese, entertainment as well as
providing value-added community services through chat and message board
services.
Marketing
- ---------
The Company has already achieved some name recognition and market share
through URLs. Going forward, the joint venture will seek to achieve even broader
market penetration and increase the use of services by well designed advertising
campaigns and advantageous promotional offers to new subscribers.
Increasing Usage By Existing Consumers. The joint venture regularly
enhances services and update content hosted on the network in order to encourage
frequent visits by users. The joint venture offers community building services
designed to increase user usage and loyalty. The joint venture is 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, the Company believes that consumers who use personalized services will
continue to use the joint venture portals and not switch to a competitive
service.
Joint Venture Employees
- -----------------------
As of the end of November 1999, the joint venture had eighty (80) full-time
employees, consisting of 32 persons in marketing, and in sales, and 32 persons
in technical operations and support. All employees are those of XIN HAI but
exclusively work on the joint venture business. The Company's future success
will depend in part on the ability to continue to attract, retain and motivate
highly qualified technical and marketing personnel. From time to time, the joint
venture also employs independent contractors to support development, marketing,
sales and support and administrative organizations. The joint venture employees
are not represented by any collective bargaining unit and the joint venture has
never experienced a work stoppage.
Facilities
- ----------
Servers. The systems infrastructure consists of multi-vendor server systems
geographically located in China, in Beijing, 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.
15
<PAGE>
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:
- - breach of national security or disclosure of State secrets;
- - infringement on State, social or collective interests or the legal rights
and interests of citizens; or
- - illegal or criminal activities.
Socially destabilizing content includes content that:
- - incites defiance or violation of the PRC Constitution, laws, or
administrative statutes;
- - incites subversion of State power and the overturning of the socialist
system;
- - incites national division and harms national unification;
- - incites hatred and discrimination among nationalities and destroys
national unity;
- - fabricates or distorts the truth, spreads rumors or disrupts social
order;
- - spreads feudal superstition, involves obscenities, pornography.
gambling, violence, murder, horrific acts or instigates criminal acts;
- - openly humiliates another party or slanders another party through a
fabrication of the truth;
- - damages the reputation of a State organ; or
- - violates the Constitution, laws or administrative statutes.
If through the provision of services to users in the PRC, the joint venture
commits any of the above, whether with or without intent, it 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 the joint venture and the Company.
The joint venture partner, Xin Hai, provides regulatory advice and reviews
content provided through the 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 a conservative interpretation of such regulations, the
content provided over the joint venture 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.
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. The joint venture has
complied with these requirements.
16
<PAGE>
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. The joint venture has fulfilled these registration procedures.
The joint venture 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 the principal services of the Company
through its joint venture. The market is focused on China's major cities. Xin
Hai offices in Beijing and Shenyang have been operating since 1997. The Shanghai
office 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 Company arise primarily from: the need for
capital for the joint venture, expanding existing capacity of the joint venture
services, to open more offices in other major cities, to 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 million in May 1999 which provided the needed
working capital for the near and medium term of the Company.
Dependence on client base.
- --------------------------
Presently all revenue comes through the joint venture from subscription
fees, net cards, advertising and domain name registration from the client base
in Beijing, Shanghai and Shenyang. At the end of October 1999, the number of
subscribers totaled over 31,000 and increased to over 40,000 at the end of
November 1999. The joint venture and Company's dependence on this client base
will continue in the foreseeable future.
Backlog of Orders. None.
Government Contracts. None.
17
<PAGE>
Competitive Conditions.
- -----------------------
A number of factors, beyond the Company's control and the effect of which
cannot be accurately predicted, may affect the marketing of the internet access
and services to the joint venture. These factors include political policy on
ISP's operation, political policy to open the doors to foreign investors, and
the availability of adequate capital. The internet Services industry in China is
highly competitive. The joint venture faces competition from government owned
ISPs and other privately owned ISPs. Many of them possess greater financial and
personnel resources than Xin Hai and the joint venture 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 the joint venture. Currently, all ISPs can only rent lines
from Chinese Government Telecommunications Companies. 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 Company'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 the 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. The joint venture is unable to assess or predict at this time what
effect such regulations or legislation could have on its activities in the
future.
(a) Local regulation -
The Company 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 Company 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 laws previously under "Regulations of internet Operations" and
"Government Regulation for Internet Service in China").
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<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) - the Company
entered into a joint venture with Xin Hai Technology Ltd. to provide technology
and capital to expand ISP services in China. The Company 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.
Substantial description of other substantive provisions have been summarized in
the Business section under "Joint Venture Agreement" on page 5.
Number of Persons Employed.
- ---------------------------
As of October 20, 1999, the 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. Xiao-Qing 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.
The joint venture through its partner, Xin Hai, had 80 full-time employees
in the PRC at the end of November 1999.
YEAR 2000 CONSIDERATIONS
The Company has assessed and continue to assess the risk of "Y2K" problems
in the operation of its 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. The Company 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 the joint
venture hardware and software have been upgraded for 2000 compliance
accordingly, the Company does not believe that it 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. Moreover, while
the Company relies on third-parties that may suffer from Year 2000 problems that
could affect the Company's operations, it does 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. The
joint venture has designed a limited contingency plan with respect to Year 2000
problems that may affect the Company or third-party suppliers.
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<PAGE>
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 capital expenditures,
earnings or competitive position.
The Company currently maintains its office at: #830 - 789 West Pender
Street, Vancouver, B.C. Canada V6C 1H2. Its telephone number is 1-604-632-9638.
It also has offices in Beijing at Suite 210, Building B, No - 11Wu Gen Lin Road,
West District, Beijing, PRC.
(b) Parents and Subsidiaries
Parent
XIN NET CORP., a Florida corporation
Subsidiaries
INFORNET INVESTMENT CORP., a British Columbia corporation (100%)
INFORNET INVESTMENT LTD., a Hong Kong corporation (100%)
PLACER TECHNOLOGIES CORP., a joint venture in China (80%, reverting to 51%
Infornet Investment Limited and 20%, reverting to 49%, Xin Hai Technology
Development).
20
<PAGE>
RISK FACTORS
------------
THE ASIAN INTERNET 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. Competitors may better position themselves to compete in this
market as it matures. Many 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 the
Company. Any present or future competitors may provide services that provide
significant performance, price, creative or other advantages over those offered
by the Company. There can be no assurance that the Company will be able to
compete successfully.
COMPETITION WITH RESPECT TO USER TRAFFIC, EASE OF USE AND FUNCTIONALITY INCLUDE:
- - Chinese language based Web search and retrieval companies such as Yahoo!
China.com, Sina.com., Netease, Soho, Shanghai Online, ChinaByte and Netvigator
(which is owned by Hongkong Telecom);
- - English language based Web search and retrieval companies such as Infoseek,
Lycos, Yahoo! and Microsoft Network, (MSN); and
- - Retrieval services and products offered by Altavista, HotWired Ventures, and
Inktomi's HotBot and OpenText.
In the future, the Company and joint venture will encounter competition
from other ISPs and internet companies. Competitors may develop services that
are equal or superior to those offered by the joint venture to users and may
achieve greater market acceptance than the joint venture's 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
The market for internet services in Greater China and Asia has only
recently begun to develop. Since the internet is an unproven medium for
advertising and other commercial services, 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.
21
<PAGE>
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. The Company 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 the joint venture network.
EXPANSION INTO THE PRC INTERNET MARKET DEPENDS ON THE ESTABLISHMENT AND
MAINTENANCE OF AN ADEQUATE TELECOMMUNICATIONS INFRASTUCTURE IN THE PRC BY THE
PRC GOVERNMENT
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. The joint venture relies on this backbone and
China Telecom to provide data communications capacity primarily through local
telecommunications lines. As a result, the joint venture 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. The
Company will have no means of getting access to alternative networks and
services, on a timely basis or at all, in the event of any disruption or
failure. There can be no assurance that the internet infrastructure 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 the joint venture
business could be materially and adversely affected.
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.
22
<PAGE>
A CHANGE IN CURRENCY EXCHANGE RATES COULD INCREASE COSTS RELATIVE TO REVENUES
Historically, substantially all of our revenues and a large part of
expenses and liabilities were denominated in Chinese Renminbi. The Company also
incurs expenses in U.S. and Canadian dollars. In the future, the Company may
also conduct business in Hong Kong and other foreign countries and generate
revenues, expenses and liabilities in other foreign currencies. As a result, the
Company is subject to the effects of exchange rate fluctuations with respect to
any of these currencies. The Company has not entered into agreements or purchase
instruments to hedge the exchange rate risks although the Company may do so in
the future.
RESTRICTIONS ON CURRENCY EXCHANGE RATES COULD INCREASE THE COMPANY'S COSTS
RELATIVE TO REVENUES
Although Chinese governmental policies were introduced in 1996 to allow
greater convertibility of the Renminbi, significant restrictions still remain.
The Company can provide no assurance that the Chinese regulatory authorities
will not impose greater restrictions on the convertibility of the Renminbi.
Because the majority of future revenues may be in the form of Renminbi, any
future restrictions on currency exchange may limit the Company's ability to
utilize revenue generated in Renminbi to fund business activities outside the
PRC.
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 the Company's 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
the Company's business. The PRC economy is also experiencing deflation which may
continue in the future. The current economic situation may adversely affect the
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, the Company's clients
and suppliers may have limited access to credit which may adversely affect
business. In addition, the international financial markets in which the
securities of the PRC government, agencies and private entities are waded also
have experienced significant price fluctuations upon speculation that the PRC
government may devalue the Renminbi which could increase the Company's costs
relative to the PRC revenues.
23
<PAGE>
REGULATION OF THE INFORMATION INDUSTRY IN THE PRC MAY ADVERSELY AFFECT 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. The Company
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 the joint venture's 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 the Company's business,
financial condition and results of operations.
Number of Persons Employed.
- ---------------------------
As of November 30, 1999, the Company had two employees, Xiao-qing Du and
Xin Wei, through Infornet Investment Corp., each at a salary of C$2,500 per
month, involved in the day-to-day management of the Company: Du in Canada and
Wei in China.
The Xin Hai joint venture had over 80 full-time employees in the PRC at
the end of November 1999.
24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information presented herein, should be read in conjunction with the
Registrant's consolidated financial statements and related notes appearing
elsewhere herein.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND CHANGES IN
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Company 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), the Company had
$6,399,009 in cash and current liabilities of $144,664. The increase in cash was
largely due to a private placement of units in May, 1999.
The Company has revenues from joint venture operations at this time.
However capital from private placements and/or borrowing against assets are
required to fund future operations. The Company completed a private offering of
common stock at $0.40 per share for $750,000 in June 1998. In 1999 the Company
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 the financial statements.
RESULTS OF OPERATIONS
The Company will carry out the plan of business as discussed above. The
Company 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, the Company anticipates increased revenues
derived from an increase in subscriber base and expanded e-commerce business.
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 $551,040 in
1998 compared to operating expenses of $251,211 in 1997. Operating loss for
1998 was ($23,052) in contrast to the 1997 operating loss of ($155,034). The
Company had miscellaneous income of $4,845 in 1998 and $7,221 in 1997. The net
loss in 1998 was ($18,207) compared to the net loss in 1997 of ($147,813). The
per share loss for 1998 was ($.001), and the per share loss for 1997 was ($.01).
25
<PAGE>
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 the Company had $6,399,009 in cash.
RESULTS OF OPERATIONS FOR THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED
TO THE SAME PERIOD IN 1998.
The Company has experienced a significant increase in expenses of its joint
venture with an internet Service Provider in China in the period due to growth
of customer base, preparing to open new cities in China for internet access,
aggressive marketing and advertising in China, investment in additional
equipment for new locations and new business, and additional employee salaries.
The Company experienced operating expenses for the three month period of
$530,264 in 1999 and $136,963 in 1998. The Company had revenues for the period
in 1999 of $283,178 and in 1998 had revenues of $135,824. The Company recorded
a net operating loss for the period in 1999 of ($247,086) and a net operating
loss of ($1,139) in the same period 1998. The Company operating losses are
anticipated to continue as the Company makes major expenditures to expand its
operations in China.
The largest categories of increase in the period in 1999 were for
a) administration and office to $103,424 from $46,221 in 1998, due to the
addition of new offices in different cities, b) amortization, which increased to
$38,474 from $17,150 in 1998, mainly due to the addition of computer equipment,
c) business development which increased to $81,682 from $4,800 in 1998, mainly
due to the traveling expenses of senior executives for setting up the new
offices, d) salaries and benefits which increased to $61,352 from $23,283 in
1998, due to hiring of staff for the new offices, and e) selling expenses which
increased to $115,115 from $42,105 in 1998 for the aggressive marketing and
advertising campaign in new cities.
26
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO
THE SAME PERIOD IN 1998.
The Company had revenues from joint venture operations for the nine month
period in 1999 of $592,581 and revenues of $394,739 in 1998. The Company
incurred $857,324 in operating expenses in the period in 1999, resulting in an
operating loss of ($264,743) compared to expenses in 1998 of $338,443 and an
operating profit of $56,296. The Company had miscellaneous income of $108,414 in
the period in 1999 as a result of the interest on deposits. In the period in
1998, the Company had interest income of $1,590. The net loss in 1999 in the
period was ($156,329) as compared to a net profit of $57,886 in 1998 in the same
period.
The largest categories of increase in the period in 1999 were for: a)
administration and office of $191,677 from $82,000 in 1998, due to the addition
of new offices in different cities, b) amortization, which increased to $62,220
from $45,150 in 1998, mainly due to the addition of computer equipment, c)
business development which increased to $90,067 from $7,233 in 1998, mainly due
to the traveling expenses of senior executives for setting up the new offices,
d) salaries and benefits which increased to $113,438 from $58,284 in 1998, due
to hiring of staff for the new offices, and e) selling expenses which increased
to $186,818 from $99,110 in 1998 for the aggressive marketing and advertising
campaign in new cities.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash capital at the end of the period of $6,109,389 which
will be used to fund operations in China. The Company has material commitments
to expend funds to cover operating expenses of operations in China and
investment to expand its business in China with internet servers for which the
Company had previously budgeted $1,000,000 for year 1999. The trend of operating
losses should be expected to continue due to costs of equipment, start up
operations for new locations and marketing which precede development of
additional revenue for the internet.
At the period end, the assets of the Company were $6,981,199 and
liabilities were $144,644, not including long term lease obligations.
NEED FOR ADDITIONAL FINANCING
The Company has 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. The Company 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 the Company 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, the Company
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 the Company can continue toward the business
goal of maintaining and expanding the joint venture for internet services in
China, the Company 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 the Company is 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.
27
<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.
28
<PAGE>
ITEM 3. PROPERTIES
The Company currently maintains an office at #830, 789 W. Pender Street,
Vancouver, B.C., Canada as its corporate headquarters. It also has offices in
Beijing China at Suite 210, Building B, No. 11 Wu Gen Lin Road, West District,
Beijing, PRC, which are the offices of XIN HAI and the joint venture. Other
offices are in Shanghai, Shenyang and Guangzhou.
As of September 30, 1999, The Registrant had the following tangible assets.
(The amount is quoted in US Dollar)
(a) Real Estate. None
(b) Computer and Office Equipment $534,475
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CONFLICTS OF INTEREST
(a) Beneficial owners of five percent (5%) or greater, of the Registrant's
common stock: No preferred stock is outstanding at the date of this offering.
The following sets forth information with respect to ownership by holders of
more than five percent (5%) of the Registrant's common stock known by the
Registrant based upon 21,360,000 shares outstanding at November 30, 1999.
Title of Name and Address Amount of Percent of
Class of Beneficial Owner Beneficial Interest Class
- ----- ------------------- ------------------- -----
Common Stock Xiao-qing Du
#2754 Adanac St. 2,760,000 12.9%
Vancouver, BC V5K 2M9
Common Stock Richco Investors Inc. 2,962,500 13.9%
Ste 830 789 West Pender St.
Vancouver, BC V6C 1H2
Common Stock Ernest Cheung (1) 2,962,500 13.9%
Ste 830 789 West Pender St.
Vancouver, BC V6C 1H2
Common Stock Maurice Tsakok (1) 2,962,500 13.9%
Ste 830 789 West Pender St.
Vancouver, BC V6C 1H2
(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 November 30, 1999.
Title of Name of Amount of Percent of
Class Beneficial Owner Beneficial Ownership Class
- ----- ---------------- -------------------- -----
Common Stock Xiao-qing Du (Director) 2,760,000 12.9%
2754 Adonac St.
Vancouver, B.C. V5K 2M9
29
<PAGE>
Common Stock Ernest Cheung (1) 2,962,500 13.9%
Richco Investors
(See Richco Investors below)
Common Stock Maurice Tsakok (1) 2,962,500 13.9%
Richco Investors
(See Richco Investors below)
Common Stock Richco Investors, Inc. 2,962,000 13.9%
Ste. 830,789 W. Pender St.
Vancouver B.C. V6C 1H2
(beneficially owned by
Ernest Cheung, Director and
Secretary) and Maurice Tsakok
(a Director) are also
Directors 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 5,840,500 27.3%
(1) Through Richo Investors, Inc. which owns 2,962,500 shares. Messrs.
Cheung and Tsakok are officers, directors and shareholders of Richco Investors
Inc.
Compensation Committee Interlocks and Insider Participation
The Company has 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.
Director Renumeration
All directors will be reimbursed for out-of-pocket expenses incurred in
connection with attendance at board and committee meetings. The Company may
grant options to directors under the Company's Stock Incentive Plan.
30
<PAGE>
ITEM 5. 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, Xiao-qing Du, 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 the
wholly-owned subsidiary, Infornet Investment Corp. Xin Wei is an employee of
Infornet Investment Corporation, but he is assigned to the position of President
of XIN HAI Technology Development, Ltd., a full time responsibility. He is also
a director of the joint venture.
(c) Family Relationships. Xiao-qing Du and Xin Wei are husband and wife.
31
<PAGE>
(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 the 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 the 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., the wholly
owned subsidiary in Canada and remains a director of the company.
Ernest Cheung, Secretary and Director, age 49, has been Secretary of the
Company 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, now Merrill Lynch 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 the Company 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 Company since
April 6, 1999. From May 1992 to April 1997, Marc Hung was director, Power System
Technology, a division of Institute 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 Institute 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. From 1997 to date he has been
President and principal of Sinhoy Management, Ltd. From July 1998 to March 1999,
Mr. Hung was on sabbatical for personal reasons, but acted as a consultant to
Xin Net.
Maurice Tsakok, Director, age 47, was employed, from 1994 to 1996, by Sagit
Mutual Funds, a mutual fund company who as a Vice-President was 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). From 1997 to
date he has been a principal director in Gemsco Management, Ltd.
Xin Wei is President of Xin Hai Technology Development Corp., the joint
venture partner in Placer Technology Corp., the 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. Mr.
Wei has been director and secretary of Infornet Investment Corporation since
January 1997. He became president and director of XIN HAI Technology
Development, Ltd. in 1997 and retains such positions.
32
<PAGE>
(e) Directors Compensation
Directors who are also officers of the Registrant receive no cash
compensation for services as a director. The Company may grant options to
directors under the Company's Stock Incentive Plan.
ITEM 6. EXECUTIVE COMPENSATION
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.
EXECUTIVE COMPENSATION
(a) Cash Compensation.
Compensation paid by the 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 $60,000 and (2) to all officers as a group.
33
<PAGE>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Cash Compensation Security Grants
- ------------------------------------------------------------------------------
Name and Year Salary Bonus Consulting Number Securities Long Term
Principal Fees/Other of Underling Compensation/
Position Fees ($) 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 @ $.40/
share(prior
to becoming a
director or
officer)
- ------------------------------------------------------------------------------
Ernest Cheung, 1998 0 0 0 0 0 (1)
Secretary 1999 0 0 2,000 0 0
- ------------------------------------------------------------------------------
Officers as a 1998 20,000 0 0 0 0
Group 1999 15,000 26,500
(CDN) (CDN)
Effective on April 6, 1999, Marc Hung was appointed as President of the
Company and Angela X. Du resigned as the President of the Company. She the
President of Infornet Investment Corp., the wholly owned operating subsidiary in
Canada.
(1)Richco Investors, Inc. of which Mr. Cheung is an officer and director,
and Mr. Tsakok is an officer and director, received 385,000 units for its
services in structuring the private placement.
34
<PAGE>
SUMMARY COMPENSATION TABLE OF DIRECTORS
(To September 30, 1999)
Cash Compensation Security Grants
- -----------------------------------------------------------------------------
Name and Year Annual Meeting Consulting Number Securities
Principal retainer Fees ($) 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)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Marc Hung 1999 0 0 0 0 0
President
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Ernest Cheung, 1998 0 0 0 0 0 (1)
Director 1999 0 0 0 0 0
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maurice Tsakok 1999 0 0 8,000 CDN 0 0 (1)
- ------------------------------------------------------------------------------
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.
35
<PAGE>
(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 employees (or persons who became
officers) that had contributed to the success of the company in the past: Marc
Hung (150,000 shares) and Xin Wei (330,000 shares) (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.
On November 12, 1999 the Company granted 2,136,000 options to purchase
shares at $1.30 per share to entities/persons who contributed to the successful
results achieved by the Company in 1999, as follows:
a. 262,000 options to Gemsco Management Ltd. (owned beneficially by
director Maurice Tsakok) for designing and implementing the Company's corporate
website, advising on technological matters, researching the technology sector
and for services as a director.
b. 262,000 options to Farmind Link Corp. for their role as advisor on
strategic issues, technology market trends, and financial and capital market
issues.
c. 262,000 options to Sinhoy Management Ltd. (owned beneficially by officer
and director Marc Hung) for their contributions to the general management of the
Company, investor relations, technological matters and for services as a
director.
d. 212,000 options to Lancaster Pacific Investment, Ltd. for their
contributions in the areas of regulatory matters, Chinese market conditions and
strategies aimed at penetrating the market.
e. 50,000 options to Ernest Cheung for services rendered as secretary and
director of the Company.
f. 20,000 options to Yonderiche International Consultants Ltd. for services
rendered in matters regarding Chinese government policies and regulations.
g. 1,068,000 options to Weststar Holdings Limited (owned beneficially by
Xiao-qing Du, a director and president of Infornet Investment Corp., and Xin
Wei, a director and secretary of Infornet Investment Corp. and president of XIN
HAI) and employees of Xin Hai Technology Development Ltd., as a group, for the
successful continued development of the business in China and achieving
excellent operational results during the year. The breakdown of the 1,068,000
options is to be determined at a later date.
The average closing price for the five trading days ended on November 12,
1999 was $1.28 per share.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED 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. Mr. Wei is President of Xin Hai Technology
Development, Ltd., the joint venture partner of the Company in China.
36
<PAGE>
During 1997, the Company issued 5,000,000 shares of common stock to acquire
the wholly owned subsidiary, Infornet Investment Ltd. (Canada) to Xiao-qing
(Angela) Du - 4,000,000 shares and Jing Liang - 1,000,000 shares. Angela Du
manages the Infornet subsidiary. Jing Liang was Secretary and Director of the
Company but resigned in early 1999.
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 480,000 shares at $.40 per share
were granted to related parties that had contributed to the efforts of the
company in the past. They are: Marc Hung and Xin Wei. All share options were
exercised as of April 6, 1999.
In May 1999, Marc Hung, President and Director of the Company, purchased
80,000 units of the private placement at the $1.00 offering price. Richco
Investors, Inc., a public company of which both Messrs. 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, Xin Wei, a shareholder, who is President of Xin Hai
Technology Development, Ltd., the Company's joint venture Partner, was granted
and exercised (in March 1999) 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.
The units consisted of one share and a warrant to purchase an additional
unit at $2.00 per unit, such additional unit consisting of one share and a
warrant to purchase an additional share at $5.00 per share.
On November 12, 1999 the Company granted 2,136,000 options to purchase
shares at $1.30 per share to entities/persons who contributed to the successful
results achieved by the Company in 1999, as follows:
a. 262,000 options to Gemsco Management Ltd. (owned beneficially by
director Maurice Tsakok) for designing and implementing the Company's corporate
website, advising on technological matters, researching the technology sector
and for services as a director.
b. 262,000 options to Farmind Link Corp. for their role as advisor on
strategic issues, technology market trends, and financial and capital market
issues.
c. 262,000 options to Sinhoy Management Ltd. (owned beneficially by officer
and director Marc Hung) for their contributions to the general management of the
Company, investor relations, technological matters and for services as a
director.
d. 50,000 options to Ernest Cheung for services rendered as secretary and
director of the Company.
e. 1,068,000 options to Weststar Holdings Limited (owned beneficially by
Xiao-qing Du, a director and president of Infornet Investment Corp., and Xin
Wei, a director and secretary of Infornet Investment Corp. and president of XIN
HAI) and employees of Xin Hai Technology Development Ltd., as a group, for the
successful continued development of the business in China and achieving
excellent operational results during the year. The breakdown of the 1,068,000
options is to be determined at a later date.
37
<PAGE>
Richco Investors is an affiliate of the Company through share ownership,
and Ernest Cheung and Maurice Tsakok are Officers and Directors of Richco. Mr.
Cheung is Secretary and Director of the Company and Mr. Tsakok is a Director of
the Company.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles of Incorporation as amended authorize the issuance
of 50,000,000 shares of common stock no 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.
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,
ratable, 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
The Company has issued 5,885,000 warrants as part of the unit private
placement in May 1999. Each warrant entitles the holder to purchase, on or
before March 31, 2001, one (1) additional unit 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)
unit at $2.00 per unit on or before March 31, 2001 consisting of one share
and one warrant to purchase one common share of the issuer at a price of US
$5.00 per share on or before March 31, 2002. On September 17, 1999 the
Company issued 385,000 warrants to Richco Investors, Inc. for services
rendered in structuring the private placement.
TRANSFER AGENT
The Company has engaged Holloday Stock Transfer, Inc., 2939 North 67th
Place, Scottsdale, Arizona, 85251 as transfer agent.
REPORTS TO STOCKHOLDERS
The Company plans to furnish its stockholders with an annual report for
each fiscal year containing financial statements audited by its independent
certified public accountants. In the event the Company enters into a business
combination with another company, it is the present intention of management to
continue furnishing annual reports to stockholders. Additionally, the Company
may, in its sole discretion, issue unaudited quarterly or other interim reports
to its stockholders when it deems appropriate. The Company intends to comply
with the periodic reporting requirements of the Securities Exchange Act of 1934
for so long as it is subject to those requirements.
38
<PAGE>
PART II
ITEM 1. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) The Registrant's common stock is traded on the NASD Electronic Bulletin
Board. The following table sets forth high and low bid prices of the
Registrant's common stock for years ended December 31, 1997 and December 31,
1998 and for the first nine months of 1999 as follows:
Bid (U.S. $)
------------
1999
----
High Low
---- ---
First Quarter $2.00 $ .34
Second Quarter $6.625 $1.625
Third Quarter $4.00 $1.469
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
Such Bulletin Board quotations reflect interdealer prices, without mark
up, mark down or commission and may not necessarily represent actual
transactions.
(b) As of November 10, 1999, the Registrant had approximately 108
shareholders of record of the common stock.
(c) No dividends on outstanding common stock have been paid within the last
two fiscal years, and interim periods. The Registrant does not anticipate or
intend upon paying dividends for the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings and no such
proceedings are known to be contemplated.
39
<PAGE>
No director, officer or affiliate of the Company, and no owner of record
of beneficial owner of more than 5.0% of the securities of the Company, or any
associate of any such director, officer or security holder is a party adverse to
the Company or has a material interest adverse to the Company in reference to
pending litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In connection with the audits of the most recent fiscal years and any
interim period preceding resignation, no disagreements exist with any former
accountant on any matter of accounting principles or procedure, which
disagreements if not resolved to the satisfaction of the former accountant would
have caused them to make reference in connection with their report to the
subject matter of the disagreement(s).
The principal accountant's report on the financial statements for any of
the past two years contained no adverse opinion or a disclaimer of opinion nor
was qualified as to uncertainty, audit scope or accounting principles.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Since September 12, 1996 (the date of the Company's formation), the
Company has sold its common stock to the persons listed in the table below in
transactions summarized as follows:
Consideration consisted of pre-incorporation consulting services rendered
to the Registrant related to investigating and developing the Registrant's
proposed business plan and capital structure and completing the organization and
incorporation of the Registrant.
Date of Price per
Consideration Purchase # of Shares share
------------- --------- ----------- --------
Ken Finkelstein Founder 10/96 3,000,000 $.001
Services rendered
Prior to Nov. 1996
Consideration consisted of pre-incorporation consulting services rendered
to the Registrant related to investigating and developing the Registrant's
proposed business plan and capital structure and completing the organization and
incorporation of the Registrant.
1996 Original Purchasers List
- ---- ------------------------
Name and 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
40
<PAGE>
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
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
41
<PAGE>
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
42
<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
43
<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
44
<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
45
<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
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<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
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Floyd Hill 6/2/97 $29,000 72,500 $.40
4557 - W, 8th Ave.
Vancouver, B.C. V6R 2A4
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
TOTAL 6/2/97 $750,000 1,875,000 $.40
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<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
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
- ---- ---------------
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
4. Kun Wei 4/4/99 $132,000 $.40 330,000
#69 West Gulou Street
Beijing, P.R. China
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<PAGE>
5. Xin Wei 4/4/99 $132,000 $.40 330,000
#2754 Adanac Street
Vancouver, B.C.
Canada V5K 2M9
TOTAL 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
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
50
<PAGE>
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
Cayman Islands Securities Ltd. 80,000 $80,000 5/19/99 $1.00
PO Box 2835 G.T.
Grand Cayman
B. W. I.
51
<PAGE>
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
Mr.Hazel L. Allington 3,500 $3,500 5/19/99 $1.00
4614 Woodgreen Dr.
West Vancouver B.C.
V7S 2V2 Canada
52
<PAGE>
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
Mr. Ken Aloysius Kow 16,000 $ 16,000 5/19/99 $1.00
Ms. Dannie Kow
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
53
<PAGE>
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
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.
54
<PAGE>
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
Mr.Fred TSE 40,000 $40,000 5/19/99 $1.00
186 Stevens Dr
West Vancouver B.C.
TOTAL 5,500,000 $5,500,000
shares
*The Offering consisted of Units - each unit containing one share and
one warrant. The warrant entitles the holder to purchase one additional
common unit of the issuer at $2.00 per unit on or before March 31, 2001,
which unit consists of one common share and one additional warrant to
purchase a share of common stock at $5.00 per share on or before March 31, 2002.
On September 17, 1999 the Company issued 385,000 Units to Richco Investors
Inc. for consulting services in structuring Private Placement.
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.
55
<PAGE>
Price per
Date Share Consideration Shares
---- ----- ------------- ------
Xin Wei
2754 Adanac Street
Vancouver, B.C. VSK 3M9 2/20/97 $.001 750 services(1) 750,000
Kun Wei
403 No I Blvd
Qianmachang Lane
Gulou Street, West
Beijing, China 2/20/97 $.001 450 services(2) 450,000
Xi-ping Qu
403 - 1333 Haro Street
Vancouver, B.C. V6E 1G4 2/20/97 $.001 300 services(3) 300,000
Nicole Alagich
1400 - 400 Burrard Street clerical
Vancouver, B.C. V6C 3G2 2/20/97 $.001 .30 services 3,000
Terry Johnston
1408 - 4300 Mayberry Street clerical
Burnaby, B.C. V5H 4A4 2/20/97 $.001 3.00 services 3,000
Ranjit Bhogal
9042 135 A Street clerical
Surrey, B.C. V3V 7CS 2/20/97 $.001 3.00 services 3,000
Bhupinder Mann
1182 East 33rd Ave. clerical
Vancouver, B.C. V5F 3B3 2/20/97 $.001 3.00 services 3,000
Charles Grahn
203 - 1386 West 73rd Ave clerical
Vancouver, B.C. V6P 3E8 2/20/97 $.001 3.00 services 3,000
Gemsco Management Ltd.
53 Woodland Drive
Delta, B.C. V4L 2H4 2/20/97 $.001 700 services(4) 700,000
Farmind Link Corp.
2998 Park Lane
West Vancouver, B.C. V7V 1E9 2/20/97 $.001 700 services(5) 700,000
Simon Yuen
19835 64th Avenue
Langley, B.C. V2Y 11.S 2/20/97 $.001 700 services(6) 700,000
Lionel Welch Public
7 Prince Street Relations
Belize City, Belize 2/20/97 $.001 320 services 320,000
(1) Founding Xin Hai Technology Development Limited and obtaining the necessary
ISP permit, business license and MOFTEC approval.
(2) Contributing to founding Xin Hai Technology through technology assessment
and selection, contacting vendors and implementing the hardware and software
(3) Contributing to founding Xin Hai Technology Development Limited through
financial investors relations and office planning and set-up.
(4) Providing advice on technological matters and researching technological
sector.
(5) Providing advice on strategic issues, technology market trends and financial
and capital market issues.
(6) Contributing to the formation of the Company and providing services on
programming and software matters.
56
<PAGE>
Kathleen Robinson
P.O. Box 170 Public
Grand Turk Relations
Turks & Caicos Islands, BWI 2/20/97 $.001 10 services 10,000
Mr. Joseph A. Gamache Public
1421 Barber Court Relations
Banning CA 92220 2/20/97 $.001 10 services 10,000
Hartford Capital Corporation Public
1400 - 400 Burrard Street Relations
Vancouver, B.C. V6C 3G2 2/20/97 $.001 45 services 45,000
------
4,000,000
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.
Each of the sales listed above was made for services as listed. All of the
listed sales were made in reliance upon the exemption from registration offered
by Section 4 (2) of the Securities Act of 1933, as amended. Based upon
Subscription Agreements completed by each of the subscribers, the Company had
reasonable grounds to believe immediately prior to making an offer to the
private investors, and did in fact believe, when such subscriptions were
accepted, that such purchasers (1) were purchasing for investment and not with a
view to distribution, and (2) had such knowledge and experience in financial and
business matters that they were capable of evaluating the merits and risks of
their investment and were able to bear those risks. The purchasers had access to
pertinent information enabling them to ask informed questions. The shares were
issued without the benefit of registration. An appropriate restrictive legend is
imprinted upon each of the certificates representing such shares, and
stop-transfer instructions have been entered in the Company's transfer records.
All such sales were effected without the aid of underwriters.
57
<PAGE>
On November 12, 1999 the Company granted 2,136,000 options to purchase
shares at $1.30 per share to entities/persons who contributed to the successful
results achieved by the Company in 1999, as follows:
a. 262,000 options to Gemsco Management Ltd. for designing and implementing
the Company's corporate website, advising on technological matters, researching
the technology sector and for services as a director.
b. 262,000 options to Farmind Link Corp. for their role as advisor on
strategic issues, technology market trends, and financial and capital market
issues.
c. 262,000 options to Sinhoy Management Ltd. for their contributions to the
general management of the Company, investor relations, technological matters and
for services as a director.
d. 212,000 options to Lancaster Pacific Investment, Ltd. for their
contributions in the areas of regulatory matters, Chinese market conditions and
strategies aimed at penetrating the market.
e. 50,000 options to Ernest Cheung for services rendered as secretary and
director of the Company.
f. 20,000 options to Yonderiche International Consultants Ltd. for services
rendered in matters regarding Chinese government policies and regulations.
g. 1,068,000 options to Weststar Holdings Limited and employees of Xin Hai
Technology Development Ltd., as a group, for the successful continued
development of the business in China and achieving excellent operational results
during the year. The breakdown of the 1,068,000 options is to be determined at a
later date.
The average closing price for the five trading days ended on November 12,
1999 was $1.28 per share.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Florida Statutes provide that the Company may indemnify its officers and
directors for costs and expenses incurred in connection with the defense of
actions, suits, or proceedings where the officer or director acted in good faith
and in a manner he reasonable believed to be in the Company's best interest and
is a party by reason of his status as an officer or director, acted in good
faith and in a manner he reasonably believed to be in the Company's best
interest and is a party by reason of his status as an officer or director,
absent a finding of negligence or misconduct in the performance of duty.
As permitted by Florida Statutes, the Company may indemnify its directors
and officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil or criminal action brought against them on account of their
being or having been Company directors or officers unless, in any such action,
they are adjudged to have acted with gross negligence or willful misconduct.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in that Act and is, therefore, unenforceable.
58
<PAGE>
Exclusion of Liability
- ----------------------
The Florida Corporation Act excludes personal liability for its directors
for monetary damages based upon any violation of their fiduciary duties as
directors, except as to liability for any breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, acts in violation of the Florida Corporation Act, or any
transaction from which a director receives an improper personal benefit. This
exclusion of liability does not limit any right which a director may have to be
indemnified and does not affect any director's liability under federal or
applicable state securities laws.
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is included as a separate Exhibit to this report.
Please see pages F-1 through F-14 and Pages F-1 through F-9.
59
<PAGE>
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Schedules. The following financial statements
and schedules for the Registrant as of September 30, 1998 and for the fiscal
year of 1997 are filed as part of this report.
(1) Financial statements of Xin Net Corp. (formerly Placer Technologies,
Inc.) and subsidiaries.
Year 1997
- --------- Page
----
Cover Page
Index to Financial Statements F-1
Independent Auditor's Report for years ended
December 31, 1998 and December 31, 1997 F-2
Consolidated Balance Sheet at end of December 31, 1998 F-3
Consolidated Statement of Operations at end of December 31, 1998 F-4
Consolidated Statement of Stockholders' Equity at end of
December 31, 1998 F-5
Consolidated Statement of Cash Flows at end of December 31, 1998 F-6
Notes to the Consolidated Financial Statements F-7 -F-14
(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.
Interim Financial Statements for period ended
September 30, 1999 (unaudited) F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Cash Flows F-4
Statement of Stockholders' Equity F-5
Notes to Financial Statements F-6 - F-9
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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: March 10, 2000
XIN NET CORP.
by:/s/ Marc Hung, President
----------------------------
Marc Hung, President
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
/s/Xiao-qing Du Director March 10, 2000
- -----------------
Xiao-qing Du
/s/ S.Y. Marc Hung President and Director March 10, 2000
- ------------------
S.Y. Marc Hung
/s/Ernest Cheung Secretary and Director March 10, 2000
- -----------------
Ernest Cheung
/s/Maurice Tsakok Director March 10, 2000
- ----------------
Maurice Tsakok
61
<PAGE>
FINANCIAL STATEMENTS
XIN NET CORP.
<PAGE>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet as of December 31, 1998 and 1997 . . . F-3
Consolidated Statement of Operations For The Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Stockholders' Equity For The Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Cash Flows For The Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . F-6
Notes to the Consolidated Financial Statements . . . . . . . . . . F-7-F-14
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
F-1
<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.
/s/Clancy and Co., P.L.L.C.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
July 25, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
<S> <C> <C>
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
Additional Paid In Capital 862,990 822,490
Retained Earnings (Accumulated Deficit) (201,606) (183,399)
ACCUMULATED OTHER COMPREHENSIVE INCOME (111,388) (111,373)
--------- ----------
TOTAL STOCKHOLDERS' EQUITY 564,071 541,793
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 604,575 $ 554,768
======= ========
The accompanying notes are an integral part of these financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<S> <C> <C>
For The For The
Year Ended Year Ended
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------- -----------------
Revenues $ 527,988 $ 96,177
Expenses
GENERAL AND ADMINISTRATIVE 551,040 251,211
------- -------
Operating Loss (23,052) (155,034)
Other Income
INTEREST INCOME 4,845 7,221
--------- ---------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (18,207) $ (147,813)
========= ==========
BASIC LOSS PER COMMON SHARE $ (0.001) $ (0.01)
========= ==========
Basic Weighted Average Common
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 STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<S> <C> <C> <C> <C> <C> <C>
Retained Accumulated
Additional Earnings/ Other
Common Stock Paid In Accumulated Comprehensive
Shares Amount Capital Deficit Income Total
--------- ------ ------- --------- ---------- --------
Balance, December 31, 1996 3,200,000 $3,200 $49,800 $(35,586) $ 0 $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
Capital Contributions for
Past Services 29,500 29,500
Loss, Year Ended December
31, 1997 (147,813) (147,813)
---------- ------ -------- -------- --------- ----------
Balance, December 31,
1997, as previously
reported 14,075,000 14,075 822,525 (183,399) 653,201
Prior Period Adjustment -
(Note 7) Correction of Error
due to Translation Adjustments
(35) (111,373) (111,408)
---------- -------- ---------- -------- --------- ---------
Balance, December 31,
1997, as restated 14,075,000 14,075 822,490 (183,399) (111,373) 541,793
Loss, Year Ended
December 31, 1998 (18,207) (18,207)
--------- -------- ---------- --------- --------- ---------
Capital Contributions for
Past Services 40,500 40,500
Other Comprehensive Income:
Translation Adjustments (15) (15)
Balance, December 31, 1998 14,075,000 $14,075 $862,990 $(201,606) $(111,388) $564,071
========== ======== ======== ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<S> <C> <C>
For the Year For the
Ended Year Ended
December 31, 1998 December 31, 1997
------------------ -----------------
Cash Flows From Operating Activities
Net Loss $ (18,207) $ (147,813)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities
Depreciation and Amortization 47,930 46,760
Capital Contributions For Services Performed 40,500 29,500
Common Stock Issued for Services 0 4,000
Translation Adjustments (15) (111,373)
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 84,016 (47,288)
------ --------
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 Year Ended
December 31, 1998 December 31, 1997
------------------ -----------------
SUPPLEMENTAL INFORMATION:
Cash paid for:
Interest $ 0 $ 0
========== ===========
Income Taxes $ 0 $ 0
========== ===========
Noncash Investing and Financing:
Capital Contributions For Services Performed $ 40,500 $ 29,500
========== ===========
Common Stock Issued for Services $ 0 $ 4,000
========== ==========
Common Stock Issued in Exchange for Acquisition of Subsidiary $ 0 $ 65
========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
</TABLE>
<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
mil ($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.
The Company acquired Infornet Investment Limited, formerly Micro
Express Limited, at no cost. The name change took place on July 18,
1997.
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. In accordance with
Statement of Financial Accounting Standards ("SFAS") 94, "Consolidation
of All Majority-Owned Subsidiaries," the purchase method is used to
account for the investment in the joint venture because the Company has
the ability to control the decisions of the joint venture. The joint
venture designates 80% of the assets to Infornet and 20% to Xin Hai,
until recoupment of the Company's invested capital. Therefore, until
this point, 100% of the profits and losses are consolidated and no
minority interest is recorded. Once the invested capital has been
recouped the allocation changes to 51%/49%.
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 sells computer network systems, communication
equipment and communication engineering services, including development
and construction of Internet access
F-7
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION (CONTINUED)
-----------------------
networks in China. The joint venture will be operated in accordance
with the laws and regulations in China which allow Sino-foreign joint
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. Total advances to
joint venture for the years ended December 31, 1998 and 1997 are
$624,883 and $381,673, respectively.
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) and the
corporate joint venture to include the assets, liabilities, revenues
and expenses of all entities over which the Company has control. 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 on the basis of the fair value
of the acquired assets less liabilities assumed. 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. The Company also consolidates the
assets, liabilities, revenues and expenses of the joint venture because
it has control over its operating and financing decisions.
F-8
<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
The Company's revenue is derived from the non-refundable payment of
Internet access usage time and is recognized upon sale to the customer.
Revenues are considered earned at this point because there is no
further obligation from the Company, therefore it is entitled to the
benefits represented by the revenues that have been accomplished.
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 SFAS No.
109, "Accounting for 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
Effective January 1, 1997, 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."
F-9
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
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 Functional Currency in China for subsidiary operations is the
Renmibi. Assets and Liabilities recorded in foreign currencies are
translated at the exchange rate on the balance sheet date. Translation
adjustments resulting from this process are charged or credited to
other comprehensive income. Revenue and expenses are translated at
average rates of exchange prevailing during the year. Gains and losses
on foreign currency transactions are included in other expenses. 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 required the Company to
F-10
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
reclassify translation adjustments as other comprehensive income, as a
separate component of stockholders' equity.
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.
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
F-11
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - INCOME TAXES (CONTINUED)
-----------------------
considered these factors in reaching its conclusion as to the valuation
allowance for financial reporting purposes. The income tax effect of
temporary differences comprising the deferred tax assets and deferred
tax liabilities on the accompanying consolidated balance sheet is a
result of the following:
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.
F-12
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
---------------------------------------
<S> <C> <C> <C> <C>
CHINA CANADA OTHER TOTAL
----- ------ ----- -----
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 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>
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 assets
and retained earning proportionately by $111,373 due to a translation
adjustment resulting from translating the subsidiaries' financial
statements from the functional currency into the reporting currency as
comprehensive income, as a separate component of stockholders' equity.
NOTE 8 - SUBSEQUENT EVENTS
(1) On May 19, 1999, the Company issued 5,500,000 shares of common
stock through a private placement offering. The Company has received
all of the proceeds as of the date of issuance of these financial
statements. The offering is comprised of up to 5,500,000 units at $1.00
per unit, each 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 Company at a price of $2.00 per unit, each unit consisting of
one (1) common share and one (1) additional warrant. The additional
warrant entitles the holder to
F-13
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - SUBSEQUENT EVENTS (CONTINUED)
----------------------------
purchase one (1) additional common share of the Company at a price of
$5.00 per share on or before March 31, 2002.
A consulting fee of 7% for structuring and arranging the private
placement will be paid by the issuance of 385,000 units at a $1.00 per
unit, each 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 Company at a price of $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 Company at a price of $5.00 per share on or before March 31,
2002.
The warrants were not valued because the exercise price of the warrants
exceeded the fair market value of the common stock at the date of
issuance which was 1 5/8 on May 19, 1999.
(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-14
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
INTERIM FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED)
F-1
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(PREPARED BY MANAGEMENT AND WITHOUT AUDIT)
<S> <C> <C>
Stated in U.S. dollars September 30, 1999 December 31, 1998
-----------------------------------------------
ASSETS
Current Assets
Cash $6,109,389 $336,189
Accounts Receivable 376,284 37,376
Prepaid Expenses 8,776 2,514
Inventory (Note 2) 15,970 -
------------------------------------------------
Total Current Assets 6,510,419 376,179
Property and Equipment, Net 534,475 227,427
Other Assets
Organizational Costs, Net 935 969
Total Assets $7,045,829 $604,575
================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued Liabilities $378,700 $20,504
Other Advances - 20,000
Current portion of Obligation under Capital
Lease (Note 3) 58,040 -
------------------------------------------------
436,740 40,504
Obligation under Capital Lease (Note 3) 141,347 -
Commitments and Contingencies - -
Stockholders' Equity (Note 4)
Common Stock: $0.001 Par Value Authorized:
50,000,000
Issued and Outstanding: 21,360,000 (1998:
14,075,000) 21,360 14,075
Additional Paid In Capital 6,845,705 862,990
Accumulated Deficit (399,323) (201,606)
------------------------------------------------
Accumulated Other Comphrehensive Income - (111,388)
------------------------------------------------
Total Stockholders' Equity 6,467,742 564,071
------------------------------------------------
Total Liabilities and Stockholders' Equity $7,045,829 $604,575
================================================
See Accompanying Notes
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(PREPARED BY MANAGEMENT AND WITHOUT AUDIT)
Stated in U.S. dollars
<S> <C> <C> <C> <C>
Three Months Ended Sept. 30 Nine Months Ended Sept. 30
1999 1998 1999 1998
-----------------------------------------------------------------------------
Revenue $283,178 $135,824 $592,581 $394,739
Expenses
Administration & office 103,424 46,221 191,677 82,000
Amortization 38,474 17,150 62,220 45,150
Business development 81,682 4,800 90,067 7,233
Consulting and management fees 20,110 15,469 45,984 37,039
Foreign exchange (gain) loss 1,055 (29,133) 794 (25,747)
Interest 2,973 1,016 5,699 2,415
Professional fees 71,557 16,052 91,036 32,959
Rent 32,834 - 64,304 -
Salaries and benefits 61,352 23,283 113,438 58,284
Selling expenses 115,115 42,105 186,818 99,110
Shareholder information, transfer agent and 1,688 - 5,287 -
filing fees
-----------------------------------------------------------------------------
530,264 136,963 857,324 334,443
-----------------------------------------------------------------------------
Operating Profit (Loss) (247,086) (1,139) (264,743) 56,296
Other Income
Interest 62,767 309 108,414 1,590
-----------------------------------------------------------------------------
Net Earnings (Loss) Available to Common ($184,319) ($830) ($156,329) $57,886
Stockholders
=============================================================================
Basic Earnings (Loss) per Common shares (Note 5) ($0.01) $- ($0.01) $-
=============================================================================
Basic Weighted Average Common shares 21,033,587 14,075,000 17,733,278 14,075,000
outstanding (Note 5)
=============================================================================
Diluted Earnings (Loss) per common share (Note 5) ($0.01) $- ($0.01) $-
=============================================================================
Weighted Average Common shares 21,033,587 14,075,000 17,733,278 14,075,000
Outstanding, Assuming Dilution (Note 5)
=============================================================================
See Accompanying Notes
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(PREPARED BY MANAGEMENT AND WITHOUT AUDIT)
<S> <C> <C>
Stated in U.S. Dollars Nine Months Ended September 30
1999 1998
--------------- --------------
Cash flows from operating activities ($156,329) ($57,886)
Net profit (loss)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities
Depreciation and amortization 62,220 45,150
Changes in assets and liabilities (338,908) 9,351
(Increase) Decrease in accounts receivable (6,162) -
(Increase) in prepaid expenses (15,970) (14,976)
(Increase) in inventory 358,196 16,235
Increase in accounts payable (20,000) 20,000
----------------------------------
Increase (Decrease) in other advance (116,953) 133,646
----------------------------------
Cash flows from investing activities (155,009) (205,887)
Purchases of property and equipment (214,225) -
----------------------------------
Purchases of assets under capital lease (369,234) (205,887)
----------------------------------
Cash flows from financing activities
Increase (Decrease) in obligation under capital lease 199,387 -
Issuance of common stock 6,060,000 35
----------------------------------
6,259,387 35
----------------------------------
Increase (Decrease) in cash and cash equivalents 5,773,200 (72,206)
Cash and cash equivalents - beginning of period 336,189 337,366
----------------------------------
Cash and cash equivalents - end of period $6,109,389 $265,160
==================================
Supplemental Information
Cash paid for:
Interest $5,699 $2,415
Income Taxes - -
Noncash investing and financing
Common stock issued for services $385,000 $-
See Accompanying Notes
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(PREPARED BY MANAGEMENT AND WITHOUT AUDIT)
<S> <C> <C> <C> <C> <C>
Stated in U.S. dollars
Additional Paid
Stock Amount In Capital Accumulated
Common Shares at Par Value Deficit Total
---------------------------------------------------------------------------------------
Balance, December 31, 1998 14,075,000 $14,075 $862,990 ($201,606) $564,071
Exercise of Stock Option for cash at $0.40 810,000 810 232,190 324,000
per share on April 4, 1999
Exercise of Stock Option for cash at $0.40 590,000 590 235,410 236,000
per share on April 6, 1999
Private placement of common stock for cash 5,500,000 5,500 5,109,500 5,115,000
at $1.00 per share on May 19, 1999, net of
costs of $385,000
Issuance of common stock for services at 385,000 385 384,615 385,000
$1.00 per share on September 17, 1999
Loss for the nine months ended September (156,329) (156,329)
30, 1999
---------------------------------------------------------------------------------------
Balance, September 30, 1999 21,360,000 $21,360 $6,845,705 ($357,935) $6,467,742
=======================================================================================
See Accompanying Notes
F-5
</TABLE>
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
(ASEC"). 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
Form 10-SB.
2 INVENTORY
Inventory is stated at lower of first-in, first-out cost or market.
3 CAPITAL LEASE OBLIGATION
The Company leases computer equipment through its wholly owned
subsidiary company, Infornet Investment Corp., repayable at
approximately $5,719 (CND 8,407) per month to June 30, 2002. The
liability includes imputed interest at an average rate of 6.12% per
annum.
Total minimum lease payments
for the year ended December 31
1999 $ 17,133
2000 68,530
2001 68,530
2002 65,167
--------
219,360
LESS: AMOUNT REPRESENTING INTEREST (19,973)
----------
Present value of minimum lease payment 199,387
LESS: CURRENT PORTION (58,040)
----------
$141,347
==========
F-6
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(PREPARED BY MANAGEMENT AND WITHOUT AUDIT)
4 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.
In September 1999, the Company issued 385,000 common shares to Richco
Investors, Inc., a related company with two directors in common with
the Company, for their services of structuring the private placement.
Each common share was issued with a warrant that bears the same terms
as those issued under the private placement. The service charge equaled
to 7% of the value of the private placement or $385,000.
5 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.
F-7
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(PREPARED BY MANAGEMENT AND WITHOUT AUDIT)
5 EARNINGS PER SHARE (CONTINUED)
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 third quarter and the nine month ended 1999 and 1998:
<S> <C> <C> <C> <C>
Three months ended Nine months ended
09/30/99 09/30/98 09/30/99 09/30/98
-----------------------------------------------------------------------------
Net income (loss) for the period ($184,319) ($830) ($156,329) $57,886
Weighted-average shares outstanding 21,033,587 14,075,000 17,733,278 14,075,000
Effective dilutive securities;
Dilutive warrants - - - -
Dilutive potential common shares - - - -
Adjusted weighted-average shares and assumed 21,033,587 14,075,000 17,733,278 14,075,000
conversions
Basic earnings per share ($0.01) ($0.00) ($0.01) $0.00
=============================================================================
Diluted earnings per share ($0.01) ($0.00) ($0.01) $0.00
=============================================================================
</TABLE>
Due to the loss for the three months and nine months ended September 30, 1999,
the effect of outstanding warrants was not included as the effect would be
anti-dilutive.
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 the segment profit (loss), income and expenses are not
allocated to reportable segments.
F-8
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(PREPARED BY MANAGEMENT AND WITHOUT AUDIT)
6 SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<S> <C> <C> <C> <C>
For 3 months ended 9/30/99 China Canada Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue from customers $283,178 - $- $283,178
Interest revenue - - 62,767 62,767
Inter-segment revenue - - - -
Operating income (loss) (124,890) (60,103) (62,093) (247,086)
Total assets 1,901,305 253,995 4,890,529 7,045,829
For 3 months ended 9/30/98 China Canada Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue from customers $135,824 - - $135,824
Interest revenue - 309 - 309
Inter-segment revenue - - - -
Operating income (loss) 10,047 (5,636) (5,550) (1,139)
Total Assets 583,451 4,767 14,389 602,607
</TABLE>
F-9
<PAGE>
EXHIBIT LIST
------------
SK #
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 Corp. (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
Amendment 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*
10.4 Addendum to Agreement/Cooperative Joint Venture*
* Previously filed with Form 10SB.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 336,189 6,109,389
<SECURITIES> 0 0
<RECEIVABLES> 37,376 376,284
<ALLOWANCES> 0 0
<INVENTORY> 0 15,970
<CURRENT-ASSETS> 376,179 6,510,419
<PP&E> 227,427 534,475
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 604,575 7,045,829
<CURRENT-LIABILITIES> 40,504 436,740
<BONDS> 0 0
0 0
0 0
<COMMON> 14,075 21,360
<OTHER-SE> 549,996 6,446,382
<TOTAL-LIABILITY-AND-EQUITY> 604,575 7,045,829
<SALES> 0 0
<TOTAL-REVENUES> 527,988 283,178
<CGS> 0 0
<TOTAL-COSTS> 551,040 550,264
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (4,845) (62,767)
<INCOME-PRETAX> (18,207) (184,319)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (18,207) (184,319)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (18,207) (184,319)
<EPS-BASIC> (0.001) (.01)
<EPS-DILUTED> (0.001) (.01)
</TABLE>
