SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB/A
CIK: 0001082603
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended Commission File Number
September 30, 1999 0-26559
XIN NET CORP.
(Exact name of registrant as specified in its charter)
Florida 3307251560
(State of incorporation) (I.R.S. Employer
Identification No.)
#830 - 789 West Pender Street, Vancouver, B.C. Canada V6C 1H2
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(604) 632-9638
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
21,360,000 common shares as of September 30, 1999
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<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 2,614
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 6,915,705 862,990
Accumulated Deficit (357,935) (201,606)
Accumulated Other Comprehensive Income (111,388) (111,388)
---------------------- -----------------------
TOTAL STOCKHOLDERS' EQUITY 6,467,742 564,071
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,045,829 $ 604,575
====================== =======================
SEE ACCOMPANYING NOTES
</TABLE>
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<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 audited)
<S> <C> <C> <C> <C>
3 Months Ended September 30 9 Months Ended September 30
STATED IN U.S. DOLLARS 1999 1998 1999 1998
REVENUE $ 283,178 $ 135,824 $ 592,581 $ 394,739
------------ -------------- ---------- ---------
EXPENSES
Administration and 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 filing fees 1,688 - 5,287 -
----------------------- -------------- ----------- ----------
530,264 136,963 857,324 338,443
----------------------- -------------- ----------- ----------
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 Stockholders $ (184,319) $ (830) $ (156,329) $ 57,886
====================== ============== ================ ===========
Basic Earnings (Loss) per
Common Shares (Note 5) $ (0.01) $ - $ (0.01) $ -
====================== ============== ================= ===========
Basic Weighted Average Common
Shares Outstanding (Note 5) 21,033,587 14,075,000 17,733,278 14,075,000
===================== ============== ================= ===========
Diluted Earnings (Loss) Per
Common Shares (Note 5) $ (0.01) $ - $ (0.01) $ -
===================== ============== ================= ===========
Weighted Average Common
Shares Outstanding, Assuming
Dilution (Note 5) 21,033,587 14,075,000 17,733,278 14,075,000
===================== ============== ================= ===========
SEE ACCOMPANYING NOTES
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<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>
Nine Months Ended September 30
STATED IN U.S. DOLLARS 1999 1998
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit (loss) $ (156,329) $ 57,886
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
(Increase) Decrease in accounts receivable (338,908) 9,351
(Increase) in prepaid expenses (6,162) -
(Increase) in inventory (15,970) (14,976)
Increase in accounts payable 358,196 16,235
Increase (Decrease) in other advance (20,000) 20,000
-------------- ---------
(116,953) 133,646
-------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (155,009) (205,887)
Purchases of assets under capital lease (214,225) -
-------------- ---------
(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 - -
Non-cash investing and financing :
Common Stock issued for services $ 385,000 $ -
SEE ACCOMPANYING NOTES
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<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> <C>
Stock Additional Other
Common Amount At Paid In Accumulated Comprehensive
Stated in U.S. dollars Shares Par Value Capital Deficit Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance , December 31, 1998 14,075,000 $ 14,075 $ 862,990 (201,606) $(111,388) $ 564,071
Exercise of Stock Option for cash at $0.40 810,000 810 23,190 324,000
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 30, 1999 (156,329) (156,329)
----------------------------------------------------------------------------------------
Balance, September 30, 1999 21,360,000 $ 21,360 $ 6,915,705 $(357,935) $(111,388) $ 6,467,742
=======================================================================================
SEE ACCOMPANYING NOTES
</TABLE>
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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 ("SEC"). In the opinion of the management all adjustments of
a normal recurring nature necessary for a fair presentation have been included.
The results for interim periods are not necessarily indicative of results for
the entire year. These condensed consolidated financial statements and
accompanying notes should be read in conjunction with the Company's annual
consolidated financial statements and the notes thereto for the fiscal year
ended December 31, 1998 included in its Annual Report on Form 10-KSB.
The unaudited condensed consolidated financial statements include Xin
Net Corp. and its subsidiaries. Significant inter-company transactions and
accounts have been eliminated.
Certain prior-period amounts have been reclassified to conform to the
current period's presentation.
2 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.
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XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(PREPARED BY MANAGEMENT AND WITHOUT AUDIT)
3 CAPITAL LEASE OBLIGATION ( CONTINUED )
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
==============
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.
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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 ( CONTINUED )
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. In accordance with paragraph 8 of SFAS No. 123,
"Accounting for Stock-Based Compensation", the fair value of the service
performed was used to account for the consideration received.
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.
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 :
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<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
Effect of dilutive securities :
Dilutive warrants - - - -
------------------------- ---------------------------
Dilutive potential common shares - - - -
------------------------- ---------------------------
Adjusted weighted-average shares and
assumed conversions 21,033,587 14,075,000 17,733,278 14,075,000
BASIC EARNINGS PER SHARE $ (0.01) $ (0.00) $ (0.01) $ 0.00
=============== ============== ===========
DILUTED EARNINGS PER SHARE $ (0.01) $ (0.00) $ (0.01) $ 0.00
=============== ============== ===========
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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 )
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 segment profit (loss), income and expenses not allocated to
reportable segments.
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For 3 months ended 9/30/1999 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 9/30/1998 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
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<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 9 MONTHS ENDED 9/30/1999 CHINA CANADA OTHER TOTAL
---------------------------- ----- ------ ----- -----
Revenue from customers $ 592,581 $ - $ - $592,581
Interest revenue - - 108,414 108,414
Inter-segment revenue - - - -
Operating income (loss) (16,440) (111,146) (137,157) (264,743)
Total assets 1,901,305 253,995 4,890,529 7,045,829
FOR 9 MONTHS ENDED 9/30/1998 CHINA CANADA OTHER TOTAL
---------------------------- ----- ------ ----- -----
Revenue from customers $ 394,739 $ - $ - $394,739
Interest revenue 293 1,297 - 1,590
Inter-segment revenue - - - -
Operating income (loss) 116,172 (53,705) (6,171) 56,296
Total assets 583,451 4,767 14,389 602,607
RECONCILIATION OF SEGMENT INFORMATION
3 MONTHS ENDED 9 MONTHS ENDED
-------------- --------------
09/30/99 09/30/98 09/30/99 09/30/98
-------- -------- -------- --------
Revenue from customers $ 283,178 $ 135,824 $592,581 $ 394,739
Interest revenue 62,767 309 108,414 1,590
Inter-segment revenues - - - -
------------------------------------------------------------
TOTAL CONSOLIDATED REVENUES $ 345,945 $ 136,133 $ 700,995 $ 396,329
=========== ========== ========= =========
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
RESULTS OF OPERATIONS FOR THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED
TO THE SAME PERIOD IN 1998.
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, b) amortization,
which increased to $81,682 from $17,150 in 1998, c) business development which
increased to 481,682 from $4,800 in 1998, d) salaries and benefits which
increased to $61,352 from $23,283 in 1998, and e) selling expenses which
increased to $115,115 from $42,105 in 1998.
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.
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 $7,045,829 and liabilities
were $378,700, not including long term lease obligations.
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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
In September 1999, the Company issued, to Richco Investors,
Inc., 385,000 Units consisting of one share and one warrant to purchase
additional units consisting of a share and a warrant to purchase a share in
consideration for consulting services rendered to the Company in structuring the
private placement which raised $5,500,000 in May 1999. Richco Investors, Inc.
owns 2,962,500 shares of the Company's common stock and is managed and
controlled by Ernest Cheung and Maurice Tsakok, who are officers and Directors
of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were made for the period for which this report
is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 22, 2000
XIN NET CORP.
/s/ Marc Hung
------------------------------------
Marc Hung, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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<RECEIVABLES> 376284
<ALLOWANCES> 0
<INVENTORY> 15970
<CURRENT-ASSETS> 6510419
<PP&E> 534475
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<TOTAL-ASSETS> 7045829
<CURRENT-LIABILITIES> 378700
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0
0
<COMMON> 21360
<OTHER-SE> 6446382
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<OTHER-EXPENSES> 857324
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</TABLE>
