SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB/A
Amendment No. 3
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
CIK NO.: 0001082603
For Quarter Ended Commission File Number
June 30, 2000 0-26559
XIN NET CORP.
---------------------
(Exact name of registrant as specified in its charter)
Florida 330-751560
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(State of incorporation) (I.R.S. Employer
Identification No.)
#830 - 789 West Pender Street, Vancouver, B.C. Canada V6C 1H2
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(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code: (604) 632-9638
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
21,360,000 as of June 30, 2000
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
( Prepared by management and without audit )
Stated in U.S. dollars 2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 3,972,607 $ 5,512,614
Other receivables 211,489 223,466
Inventory (Note 7) 22,568 99,206
Prepaid expenses 227,115 16,361
------------------ ---------------------
Total Current Assets 4,433,779 5,851,647
Property and Equipment, Net (Note 6) 915,423 422,620
Other Assets
Organizational costs, Net 2,111 923
------------------ ---------------------
Total Assets $ 5,351,313 $ 6,275,190
================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 290,118 162,041
Unearned Revenue 410,642 118,739
Current portion of obligation under capital lease (Note 2) 68,197 58,920
------------------ ---------------------
768,957 339,700
Obligation under Capital Lease (Note 2) 87,218 126,269
Commitments and Contingencies (Note 8) - -
Stockholders' Equity
Common stock : $0.001 par value
Authorized : 50,000,000
Issued and outstanding: 21,360,000 (1999: 21,360,000) 21,360 21,360
Additional paid in capital 7,214,025 7,214,025
Accumulated deficit (2,611,404) (1,318,945)
Accumulated other comprehensive income (128,843) (107,219)
-------------------------- ---------------------
Total Stockholders' Equity 4,495,138 5,809,221
-------------------------- ---------------------
Total Liabilities and Stockholders' Equity $ 5,351,313 $ 6,275,190
========================== =====================
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(Prepared by management and without audited)
Three Months Ended June 30 Six Months Ended June 30
Stated in U.S. dollars 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
Revenue
<S> <C> <C> <C> <C>
Internet access cards $ 566,293 $ 191,945 $ 796,680 $ 366,089
Domain name registration 174,684 - 499,210 -
E-Solution 122,239 - 183,451 -
------------------------------------------------------------------
863,216 191,945 1,479,341 366,089
Cost of Revenue
Internet access Cards 118,407 29,550 182,809 65,896
Domain name registration 112,729 - 150,557 -
E-Solution 9,402 - 9,457 -
------------------------------------------------------------------
240,538 29,550 342,823 65,896
------------------------------------------------------------------
Gross Profit 622,678 162,395 1,136,518 300,193
Expenses
Administration and office 748,717 97,647 1,163,848 192,885
Advertising and promotion 628,340 - 851,540 -
Amortization 60,330 1,842 99,644 3,746
Telephone and communication 163,806 123,252 394,399 169,703
------------------------------------------------------------------
1,601,193 222,741 2,509,431 366,334
------------------------------------------------------------------
Operating Profit (Loss) (978,515) (60,346) (1,372,913) (66,141)
Other Income
Interest Income 41,663 44,614 89,753 45,647
Interest Expense (4,736) (1,621) (9,299) (2,726)
------------------------------------------------------------------
Net Earnings (Loss) Available to Common
Stockholders $ (941,588) $ (17,353) $ (1,292,459) $ (23,220)
==================================================================
Basic Earnings (Loss) per Common
Shares (Note 3) $ (0.04) $ (0.00) $ (0.06) $ (0.00)
==================================================================
Basic Weighted Average Common
Shares Outstanding 21,360,000 18,014,780 21,360,000 16,055,773
==================================================================
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2000 AND YEAR ENDED DECEMBER 31, 1999
( Prepared by management and without audit )
Accumulated
Stock Additional Other
Common Amount At Paid In Accumulated Comprehensive
Stated in U.S. dollars Shares Par Value Capital Deficit Income Total
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 14,075,000 $ 14,075 $ 862,990 $ (234,918) $ (111,388) $ 530,759
Exercise of stock option for cash at $0.40
per share in April 1999 1,400,000 1,400 558,600 560,000
Compensatory cost - stock options 42,000 42,000
Private placement of Common stock for cash
at $1.00 per share in May 1999 5,500,000 5,500 5,494,500 5,500,000
Offering Costs (385,000) (385,000)
Common stock for services rendered at
$1.00 per share in September 1999 385,000 385 384,615 385,000
Capital contributions for past services 256,320 256,320
Loss for the year ended December 31, 1999 (1,084,027) (1,084,027)
Other comprehensive income: Translation
Adjustments 4,169 4,169
--------------------------------------------------------------------------------
Balance, December 31, 1999 21,360,000 $ 21,360 $7,214,025 $(1,318,945) $ (107,219) $5,809,221
Loss for the six months ended June 30, 2000 (1,292,459) (1,292,459)
Other comprehensive income : Translation
Adjustments (21,624) (21,624)
--------------------------------------------------------------------------------
Balance, June 30, 2000 21,360,000 $ 21,360 $7,214,025 $ (2,611,404) $ (128,843) $4,495,138
================================================================================
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
( Prepared by management and without audit )
Stated in U.S. dollars 2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (1,292,459) $ (23,220)
Adjustments to reconcile net loss to net cash
Provided by (Used in) operating activities
Depreciation and amortization 99,644 3,746
Compensatory cost - stock options - 42,000
Translation adjustments (21,624) -
Changes in assets and liabilities
(Increase) Decrease in accounts receivable 11,977 (52,714)
(Increase) Decrease in prepaid expenses (210,754) 1,164
Decrease (Increase) in inventory 76,638 (15,047)
(Decrease) in accounts payable 128,077 93,676
Increase in unearned revenue 291,903 9,210
---------------------------------------------
Net cash provided by (used in) operating activities (916,598) 58,815
---------------------------------------------
Cash flows from investing activities
Purchases of property and equipment (592,366) (35,995)
Increase in organizational costs (1,269) -
---------------------------------------------
Net cash flows used in investing activities (593,635) (35,995)
---------------------------------------------
Cash flows from financing activities
Principal repayment on capital lease obligations (29,774) -
Issuance of common stock - 6,060,000
Related party repayment - (20,000)
---------------------------------------------
Net cash provided by (used in) financing activities (29,774) 6,040,000
---------------------------------------------
Increase (Decrease) in cash and cash equivalents (1,540,007) 6,062,820
Cash and cash equivalents - beginning of period 5,512,614 336,189
---------------------------------------------
Cash and cash equivalents - end of period $ 3,972,607 $ 6,399,009
=============================================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
( Prepared by management and without audit )
Stated in U.S. dollars 2000 1999
-------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Information:
Cash paid for:
Interest $ 9,299 $ 2,726
Income taxes - -
Non-cash investing and financing :
Capital contributions for services performed $ - $ -
Compensatory cost - stock option - 42,000
Equipment acquired under capital lease obligation - 214,959
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
( PREPARED BY MANAGEMENT AND WITHOUT AUDIT )
1 BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles. However,
certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted or condensed pursuant to the
rules and regulations of the Securities and Exchange Commission
("SEC"). In the opinion of the management all adjustments of a normal
recurring nature necessary for a fair presentation have been included.
The results for interim periods are not necessarily indicative of
results for the entire year. These condensed consolidated financial
statements and accompanying notes should be read in conjunction with
the Company's annual consolidated financial statements and the notes
thereto for the fiscal year ended December 31, 1999 included in its
Annual Report on Form 10-KSB.
The unaudited condensed consolidated financial statements include Xin
Net Corp. and its subsidiaries. Significant inter-company transactions
and accounts have been eliminated.
Certain prior-period amounts have been reclassified to conform to the
current period's presentation.
2 SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenue is primarily derived from the sale of
nonrefundable subscription services (Internet access usage cards and
content services), domain name registration services and e-solutions.
Revenue derived from Internet access and content services and domain
name registration services is recognized over the period the services
are provided.
In the period prior to July 1, 2000 the Company acted as an agent of
certain accredited registrars of the Internet Corporation for Assigned
Names and Numbers (ICANN) and remitted to these registrars an agreed-on
fixed portion of the fees collected for registering international .com,
.net and .org domain names. Such domain name revenue was recognized
when collected and on a net commission basis. As of July 1, 2000 when
the Company itself became fully operational as an ICANN-accredited
registrar, international domain name revenue is recognized over the
period of the services provided.
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
( PREPARED BY MANAGEMENT AND WITHOUT AUDIT )
REVENUE RECOGNITION (CONTINUED)
The e-solutions revenue consists principally of electronic commerce and
advertising revenues, and developing web-site home pages. The revenue
is recognized as the services are performed or when the goods are
delivered. Additionally, the Company provides consultation and training
services as part of its promotional and advertising packages, but no
revenues have been derived or recorded from such services.
COST RECOGNITION
Cost of revenue includes direct costs to produce products and provide
on-line services.
Cost in relation to provide Internet access and content services and
provide domain name registration in the capacity of a registrar is
recognized over the period of services provided.
Cost in relation to e-solutions is recognized as the services are
performed or when the goods are delivered.
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 June 30
2001 $ 68,197
2002 68,197
2003 30,904
-----------------------
167,298
Less : Amount representing interest (11,883)
-----------------------
Present value of minimum lease payment 155,415
Less : Current portion (68,197)
-----------------------
$ 87,218
=======================
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
( PREPARED BY MANAGEMENT AND WITHOUT AUDIT )
4 EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings available
to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed
by dividing net earnings available to common stockholders by the
weighted-average number of common shares outstanding during the period
increased to include the number of additional common shares that would
have been outstanding if potentially dilutive common shares had been
issued.
The following table sets forth the computations of shares and net
earnings used in the calculation of basic and diluted earnings per
share for the second quarter and the six-month periods ended June 30,
2000 and 1999 :
<S> <C> <C> <C> <C>
Three months ended Six months ended
06/30/00 06/30/99 06/30/00 06/30/99
-------- -------- -------- --------
Net income (loss) for the period $ (941,588) $ (17,353) $ (1,292,459) $ (23,220)
Weighted-average shares outstanding 21,360,000 18,014,780 21,360,000 16,055,773
Effect of dilutive securities :
Dilutive options - - - -
Dilutive warrants - - - -
------------------------- -----------------------------
Dilutive potential common shares
- - - -
------------------------- -----------------------------
Adjusted weighted-average shares and
assumed conversions 21,360,000 18,014,780 21,360,000 16,055,773
Basic earnings per share $ (0.04) $ (0.00) $ (0.06) $ (0.00)
========= ======== ========= =========
Diluted earnings per share $ (0.04) $ (0.00) $ (0.06) $ (0.00)
========= ======== ========= =========
</TABLE>
Due to the loss for the three-month and six-month periods ended June
30, 2000 and 1999, the effect of outstanding options and warrants was
not included as the effect would be anti-dilutive.
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
( PREPARED BY MANAGEMENT AND WITHOUT AUDIT )
5 SEGMENT AND GEOGRAPHIC DATA
The Company's reportable segments are geographic areas that provide
internet services and products to the Chinese markets. Summarized
financial information concerning the Company's reportable segments is
shown in the following table. The "Other" column includes corporate
related items, and, as it relates to segment profit (loss), income and
expenses not allocated to reportable segments.
<S> <C> <C> <C> <C>
For 3 months ended 6/30/2000 China Canada Other Total
---------------------------- ----- ------ ----- -----
Revenue from customers $ 863,216 $ - $ - $ 863,216
Interest revenue 849 - 40,814 41,663
Inter-segment revenue - - - -
Operating income (loss) (864,240) (7,312) (111,699) (983,251)
Total assets 2,654,098 29,014 2,668,201 5,351,313
For 3 months ended 6/30/1999 China Canada Other Total
---------------------------- ----- ------ ----- -----
Revenue from customers $191,945 $ - $ - $191,945
Interest revenue 1,064 - 43,550 44,614
Inter-segment revenue - - - -
Operating income (loss) 26,116 (29,849) (58,234) (61,967)
Total assets 1,311,607 322,818 5,346,774 6,981,199
For 6 months ended 6/30/2000 China Canada Other Total
---------------------------- ----- ------ ----- -----
Revenue from customers $1,479,341 $ - $ - $1,479,341
Interest revenue 849 - 88,904 89,753
Inter-segment revenue - - - -
Operating income (loss) (1,163,194) (13,193) (205,825) (1,382,212)
Total assets 2,654,098 29,014 2,668,201 5,351,313
For 6 months ended 6/30/1999 China Canada Other Total
---------------------------- ----- ------ ----- -----
Revenue from customers $ 366,089 $ - $ - $366,089
Interest revenue 2,097 - 43,550 45,647
Inter-segment revenue - - - -
Operating income (loss) 97,143 (51,043) (114,967) (68,867)
Total assets 1,311,607 322,818 5,346,774 6,981,199
</TABLE>
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
( PREPARED BY MANAGEMENT AND WITHOUT AUDIT )
6 TOTAL AMOUNT ADVANCED TO JOINT VENTURE
As at June 30, 2000, the total amount advanced to the joint venture
project is $2,302,901.
7 PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30, 2000 December 31, 1999
Office equipment 138,945 8,586
Equipment 883,444 521,627
Furniture 29,413 5,455
-------------------------------------
Total 1,051,802 535,668
Less: Accumulated depreciation (136,379) (113,048)
-------------------------------------
Net book value 915,423 422,620
=====================================
The total depreciation expense charged to operations for the six-month
period is $99,562.
8 INVENTORY
Inventory at June 30, 2000, of $22,568, consists of internet access
cards, modems and accessories.
9 COMMITMENTS AND CONTINGENCIES
The Company issued a standby letter of credit in sum of $100,000 as
security deposit to a domain name registrar in June 2000. The standby
letter of credit is secured by the same amount of fixed deposit
maintained at a bank and will expire on June 30, 2001.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
This financial statement contains figures that have been amended
principally as a result of: (a) adopting recommendations from the Securities and
Exchange Commission regarding recognition of domain name registration revenue,
(b) writing off a start-up cost and (c) using available actual results instead
of management estimates.
In the period prior to July 1,2000 the Company acted as an agent of
certain accredited registrars of the Internet Corporation for assigned Names and
Numbers (ICANN) and remitted to these registrars an agreed-on fixed portion of
the fees collected for registering international .com, .net and .org domain
names. Such domain name revenue is recognized when collected and on a net
commission basis. (In the initial filing of the 2ND quarter financial statement,
such revenue was recognized on a gross revenue basis and agent-related costs
were included in the "cost of revenue" item). As of July 1, 2000 when the
Company itself became fully operational as an ICANN-accredited registrar,
international domain name revenue is recognized over the period of the services
rendered.
The Company also registers .cn domain names. The .cn domain name
registry is administered by China Internet Network Information Center (CNNIC).
The .cn domain name revenue is recognized over the period of the services
rendered.( In the initial filing of the 2nd quarter financial statement, such
revenue was recognized when it was collected).
The changes in domain name registration revenue and cost resulted in a
decrease in gross profit margin of $189,611.
In addition, the Company has now written off a start-up cost of
$56,324, whereas this cost was included in pre-paid expenses in its initial
filing. Some other figures have also been amended to reflect actual results
instead of management estimates, resulting in a net increase in expenses
amounting to $33,094.
As a consequence of the various changes, the period's operating loss
increased from ($704,222) to ($978,515) and net earnings available to common
stockholders decreased from ($662,559) to ($941,588).
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO
THE SAME PERIOD IN 1999
The Company had revenues from its operations in China in the amount of
$863,216 in the second quarter of 2000 as compared to $191,945 in the same
period in 1999. The increase was due to significant growth in sales of internet
access services and the introduction of domain name registration services and
e-solutions services.
The Company had a cost of revenue of $240,538 which resulted in a gross
profit of $622,678 in the second quarter of 2000, as opposed to a cost of
revenue of $29,550 which resulted in a gross profit of $162,395 in the second
quarter in 1999.
The Company incurred total expenses of $1,601,193 in the second quarter in
2000 compared to $222,741 in the same period of 1999, as a result of
expenditures to expand its ISP, Domain Name Registration and E-commerce business
in China.
<PAGE>
The largest expenses of operations in the quarter were $748,717 for
administration and office, $628,340 for advertising and promotion, and $163,806
for telephone and communication.
The Company had an operating loss of ($978,515) in the period in 2000
compared to a loss of ($60,346) in the period in 1999. Loss per share was
($0.04) in the period in 2000 and nominal in 1999.
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO
THE SAME PERIOD IN 1999
The Company had revenues from its operations in China in the amount of
$1,479,341 in the first half of 2000 as compared to $366,089 in the same period
in 1999. The increase was due to significant growth in the sales of internet
access services and the introduction of domain name registration services and
e-solutions services.
The Company had a cost of revenue of $342,823 which resulted in a gross
profit of $1,136,518 in the first half of 2000, as opposed to a cost of revenue
of $65,896 which resulted in a gross profit of $300,193 in the first half in
1999.
The Company incurred total expenses of $2,509,431 in the first half in 2000
compared to $366,334 in the first half of 1999, as a result of expenditures to
expand its ISP, Domain Name Registration and E-commerce business in China.
The largest expenses of operations in the first half were $1,163,848 for
administration and office, $851,540 for advertising and promotion, and $394,399
for telephone and communication.
The Company had an operating loss of ($1,372,913) in the period in 2000
compared to a loss of ($66,141) in 1999. Loss per share was ($0.06) in the
period in 2000 and nominal in 1999.
Interest income: Interest income was $89,753 in the six month period
ended June 30, 2000 as compared to $45,647 for the same period in 1999. Interest
income earned in the future will be dependent on Company funding cycles and
prevailing interest rates.
Provision for income tax: As of the six month ended June 30, 2000, the
Company's accumulated deficit was ($2,611,404) and as a result, there has been
no provision for income taxes to date. The Company has net operating loss carry
forwards that will expire principally in 2012 unless utilized by the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had total current assets of $4,433,779
of which $3,972,607 was cash. At the same time, there was $768,957 in current
liabilities leaving a working capital of $3,664,822.The Company has no debt.
The Company had $3,972,607 in cash at June 30, 2000, compared to $6,399,009
at the same time one year earlier. The capital structure with the exception of
the accumulated losses has remained the same for both periods.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
------ -----------------
None
ITEM 2. CHANGES IN SECURITIES
------- ---------------------
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
------- ------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
------- -----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------- --------------------------------
None
<PAGE>
XIN NET CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XIN NET CORP.
By:/s/Marc Hung
Date: December 22, 2000 ---------------------------------
Marc Hung, President
