SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
CIK NO.: 0001042053
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>
XIN NET CORP.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Stated in U.S. dollars)
(Unaudited)
<PAGE>
<TABLE>
<CAPTION>
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
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 3,972,607 $ 5,512,614
Other receivables 564,394 223,466
Prepaid expenses 153,637 16,361
Inventory 22,568 99,206
------------------ ---------------------
Total Current Assets 4,713,206 5,851,647
Property and Equipment, Net 915,423 422,620
Other Assets
Organizational costs, Net 2,111 923
------------------ ---------------------
Total Assets $ 5,630,740 $ 6,275,190
================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and other accrued liabilities $ 487,902 162,041
Unearned revenue 283,532 118,739
Current portion of obligation under capital lease 60,453 58,920
------------------ ---------------------
831,887 339,700
Obligation under Capital Lease 94,962 126,269
Commitments and Contingencies - -
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 (2,398,051) (107,219)
Accumulated other comprehensive income (133,443) (107,219)
-------------------------- ---------------------
Total Stockholders' Equity 4,703,891 5,809,221
-------------------------- ---------------------
Total Liabilities and Stockholders' Equity $ 5,630,740 $ 6,275,190
========================== =====================
</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 $ 498,094 $ 191,945 $ 794,077 $ 366,089
Domain name registration 1,041,852 - 1,475,208 -
------------------------------------------------------------------
1,539,946 191,945 2,269,285 366,089
Cost of Revenue
Internet access Cards 109,259 29,550 140,616 65,896
Domain name registration 618,398 - 736,545 -
------------------------------------------------------------------
727,657 29,550 877,161 65,896
------------------------------------------------------------------
Gross Profit 812,289 162,395 1,392,124 300,193
Expenses
Administration and office 581,057 97,647 1,190,576 192,885
Advertising and promotion 628,340 - 851,540 -
Amortization 65,855 1,842 105,169 3,746
Interest 4,736 1,621 9,299 2,726
Telephone and communication 236,523 123,252 404,399 169,703
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1,516,511 224,362 2,560,983 369,060
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Operating Profit (Loss) (704,222) (61,967) (1,168,859) (68,867)
Other Income
Interest 41,663 44,614 89,753 45,647
------------------------------------------------------------------
Net Earnings (Loss) Available to Common
Stockholders $ (662,559) $ (17,353) $ (1,079,106) $ (23,220)
==================================================================
Basic Earnings (Loss) per Common
Shares $ (0.03) $ (0.00) $ (0.05) $ (0.00)
==================================================================
Basic Weighted Average Common
Shares Outstanding 21,360,000 18,014,780 21,360,000 16,055,773
==================================================================
</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) (385,500)
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 (1,079,106) (1,079,106)
Other comprehensive income : translation
Adjustments (26,224) (26,224)
--------------------------------------------------------------------------------
Balance, June 30, 2000 21,360,000 $ 21,360 $7,214,025 $ (2,398,051) $ (133,443) $4,703,891
================================================================================
</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 $ (1,079,106) $ (23,220)
Adjustments to reconcile net loss to net cash
Provided by (Used in) operating activities
Depreciation and amortization 105,169 3,746
Compensatory cost - stock options - 42,000
Translation adjustments (26,224) -
Changes in assets and liabilities
(Increase) Decrease in accounts receivable (340,928) (52,714)
(Increase) Decrease in prepaid expenses (137,276) 1,164
Decrease (Increase) in inventory 76,638 (15,047)
(Decrease) in accounts payable 325,861 93,676
Increase in unearned revenue 164,793 9,210
---------------------------------------------
Net cash provided by (used in) operating activities (911,073) 58,815
---------------------------------------------
Cash flows from investing activities
Purchases of property and equipment (597,890) (35,995)
Increase in organizational costs (1,270) -
---------------------------------------------
Net cash flows used in investing activities (599,160) (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>
<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>
<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 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.
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
( Prepared by management and without audit )
2 Capital Lease Obligation ( Continued )
Total minimum lease payments
for the year ended December 31
2000 $ 34,098
2001 68,197
2002 65,003
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167,298
Less: Amount representing interest (11,883)
-------------
Present value of minimum lease payment 155,415
Less: Current portion (60,453)
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$ 94,962
=============
3 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:
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
( Prepared by management and without audit )
<TABLE>
3 Earnings Per Share ( Continued )
<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 $ (662,559) $ (17,353) $ (1,079,106) $ (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 $ (0.03) $ (0.00) $ (0.05) $ (0.00)
========= ======== ========= =========
Diluted earnings per share $ (0.03) $ (0.00) $ (0.05) $ (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.
4 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.
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
( Prepared by management and without audit )
<TABLE>
<CAPTION>
4 Segment and Geographic Data (Continued)
For 3 months ended 6/30/2000 China Canada Other Total
---------------------------- ----- ------ ----- -----
<S> <C> <C> <C> <C>
$1,539,946 $ - $ - $1,539,946
Interest revenue
849 - 40,814 41,663
- - - -
Operating income (loss) (587,820) (4,703) (111,699) (704,222)
Total assets 2,933,525 29,014 2,668,201 5,630,740
For 3 months ended 6/30/1999 China Canada Other Total
---------------------------- ----- ------ ----- -----
$ 191,95 $ - $ - $191,945
Interest revenue 1,064 - 43,550 44,614
- - - -
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
---------------------------- ----- ------ ----- -----
$2,269,285 $ - $ - $2,269,285
Interest revenue 849 - 88,904 89,753
- - - -
Operating income (loss) (949,841) (13,193) (205,825) (1,168,859)
Total assets 2,933,525 29,014 2,668,201 5,630,740
For 6 months ended 6/30/1999 China Canada Other Total
---------------------------- ----- ------ ----- -----
$ 366,089 $ - $ - $366,089
Interest revenue 2,097 - 43,550 45,647
- - - -
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 )
<TABLE>
<CAPTION>
4 Segment and Geographic Data (Continued)
3 months ended 6 months ended
-------------- --------------
<S> <C> <C> <C> <C>
06/30/00 06/30/99 06/30/00 06/30/99
-------- -------- -------- --------
$1,539,946 $ 191,945 $2,269,285 $ 366,089
Interest revenue 41,663 44,614 89,753 45,647
- - - -
------------------------------------------------------------
$1,581,609 $ 236,559 $2,359,038 $ 411,736
=========== ========== =========== =========
</TABLE>
5 Total Amount Advanced to Joint Venture
As at June 30, 2000, the total amount advanced to the joint venture
project is $2,302,901.
6 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
=====================================
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
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
$1,539,946 in the second quarter of 2000 as compared to $191,945 in the same
period in 1999. The increase was mainly due to domain name registration started
to grow from July 1999 for which revenue was $1,041,852.
The Company had a cost of revenue of $727,657 which resulted in a gross
profit of $812,289 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 $1,516,511 in the second quarter in
2000 compared to $224,362 in the same period of 1999. The Company had a very
significant increase in expenses in the period in 2000 over 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 quarter were $581,057 for
administration and office, $628,340 for advertising and promotion, and $236,523
for telephone and communication.
The Company had an operating loss of ($704,222) in the period in 2000
compared to a loss of ($61,967) in the period in 1999. The net loss after
interest income in the period was ($622,559) in 2000 and ($17,353) in 1999. Loss
per share was ($0.03) in the period in 2000 and nominal in 1999.
<PAGE>
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
$2,269,285 in the first half of 2000 as compared to $366,089 in the same period
in 1999. The increase was mainly due to domain name registration started to grow
from July 1999.
The Company had a cost of revenue of $877,161 which resulted in a gross
profit of $1,392,124 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 $2,560,983 in the first half in 2000
compared to $369,060 in the first half of 1999. The Company had a very
significant increase in expenses in the period in 2000 over 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 $1,190,576 for
administration and office, $851,540 for advertising and promotion, and $404,399
for telephone and communication.
The Company had an operating loss of ($1,168,859) in the period in 2000
compared to a loss of ($68,867) in 1999. The net loss after interest income in
the period was ($1,079,106 in 2000 and ($23,22)) in 1999. Loss per share was
($0.05) in the period in 2000 and nominal in 1999.
As of June 30, 2000, the Company had total current assets of $4,713,206 of
which $3,972,607 was cash. At the same time, there was $831,887 in current
liabilities leaving a working capital of $3,881,319.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $3,972,607 in cash at June 30, 2000, compared to $5,512,614
at the same time one year earlier. Other current assets for the comparable
periods were $740,599 and $339,033. Current liabilities at June 30, 2000 totaled
$831,887, and the total at June 30, 1999 was $339,700. 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
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None
ITEM 2. CHANGES IN SECURITIES
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None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
------- ------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
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None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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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.
/s/ Marc Hung
Date: 8/15/00 ---------------------------------
Marc Hung, President
