As filed with SEC on __________, 2000, File No. 333-90575
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SEC FILE NO. 333-90575
Commission file number 0-26559
XIN NET CORP.
(Exact name of registrant as specified in its charter)
FLORIDA 7379 33-0751560
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
#830, 789 W. PENDER STREET, VANCOUVER B.C., CANADA V6C IH2
(Address of principal executive offices) (Zip Code)
MARC HUNG, PRESIDENT, #830, 789 W.PENDER STREET, VANCOUVER B.C., CANADA V6C IH2
(604) 632-9638
(Agent for Service of Process)
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering /__/.
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering /__/.
If this form is a post-effective registration statement filed pursuant
to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering /__/.
If delivery of the prospectus is expected to be made pursuant to Rule
434; please check the following box /__/.
Pages i, ii, iii, & iv and 1 of 100 pages
Exhibit Index Begins on Page 101
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<TABLE>
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Calculation of Registration Fee
<S> <C> <C> <C> <C>
Title of each Proposed Proposed Proposed Amount of
class of Amount of maximum maximum registration fee
securities to be shares to be offering price aggregate
registered registered per share offering price
- --------------------------------------------------------------------------------------------------------------------
Common 5,885,000 $1.56 $ 9,180,600(4) $ 4,590.30*
Stock(1)
Common Shares 5,885,000 $2.00 $11,770,000 $ 5,885.00
Underlying A
Warrants(2)
Common Shares 5,885,000 $5.00 $29,425,000 $14,712.50
Underlying B
Warrants(3)
======================= ======================= ======================= ======================= ======================
Total 17,655,000 $42,113,060 $25,187.80
======================= ======================= ======================= ======================= ======================
</TABLE>
* Previously Paid
(1) The shares of Common Stock registered represent the number of shares held by
selling shareholders.
(2) The shares of Common Stock registered represent the shares underlying A
Warrants held by selling shareholders.
(3) The shares of Common Stock registered represent the shares underlying B
Warrants which may be purchased by selling shareholders if the A Warrants are
exercised.
(4) Based on the average of the bid and ask price on the OTC Bulletin Board for
the Company's Common Stock for the trading day preceding amended filing computed
pursuant to Rule 457.
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CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K and Rule 404(a) the following
cross-reference sheet shows the location in the prospectus of the information
required to be included in response to Items of Form SB-2.
PART I
ITEM LOCATION
<S> <C> <C>
Item 1 Forepart of Registration Forepart of Registration
Statement and Outside Front Cover Statement and Outside Front
Page of Prospectus Cover Page of Prospectus
Item 2 Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
Item 3 Summary Information, Risk Factors Summary, Risk Factors
and Ratio of Earnings to Fixed
Charges
Item 4 Use of Proceeds Use of Proceeds
Item 5 Determination of Offering Price Determination of Offering Price
Item 6 Dilution Not Applicable
Item 7 Selling Security Holders Selling Security Holders
Item 8 Plan of Distribution Plan of Distribution
Item 9 Legal Proceedings Legal Matters
Item 10 Directors, Executive Officers, Directors, Executive Officers,
Promoters and Control Persons Promoters and Control Persons
Item 11 Security Ownership of Certain Security Ownership of Certain
Beneficial Ownership and Beneficial Ownership and
Management Management
Item 12 Description of Securities Description of Securities
Item 13 Interest of Named Experts and Experts
Counsel
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Item 14 Disclosure of Commission Position Management - Indemnification of
on Indemnification For Securities Officers and Directors
Act Liabilities
Item 15 Organization within Last Five Business History
Years
Item 16 Description of Business Business History
Item 17 Management Discussion and Management Discussion and
Analysis of Operations Analysis of Operations
Item 18 Description of Property Business History
Item 19 Certain Relationships and Related Relationships and
Party Transactions Related Party Transactions
Item 20 Market for Common Equity and Price Range of Our Common Stock
Related Stockholder Matters & Stockholder Matters
Item 21 Executive Compensation Executive Compensation
Item 22 Financial Statements Financial Statements
Item 23 Changes In and Disagreements Changes In and Disagreements
With Accountants With Accountants
PART II
Item 24 Indemnification of Officers and Indemnification
Directors
Item 25 Other Expenses of Issuance and Other Expenses of Offering
Distribution Registration and Distribution
Item 26 Recent Sales of Unregistered Recent Sales of Unregistered
Securities Securities
Item 27 Exhibits, Financial Statements Exhibits, Financial Statements
and Schedules and Schedules
Item 28 Undertakings Undertakings
Item 29 Financial Statements and Schedules Financial Statements and Schedules
iv
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED __________________, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED, WE MAY
NOT DISTRIBUTE THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
SALE IS NOT PERMITTED.
XIN NET CORP.
17,655,000 Shares of Common Stock
XIN NET CORP. is engaged in an Internet related Joint Venture business
in China.
Xin Net Corp. is registering 17,655,000 shares of common stock,
5,885,000 of which shares are outstanding and 5,885,000 are shares underlying A
Warrants and 5,885,000 are shares underlying B Warrants if the A Warrants are
exercised in full, any and all of which may be sold by selling shareholders.
WE URGE YOU TO READ THE RISK FACTORS BEGINNING ON PAGE 8 ALONG WITH
THIS PROSPECTUS BEFORE YOU MAKE YOUR INVESTMENT DECISION.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these shares, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
We will not receive any proceeds from the shares of common stock sold
by the selling stockholders, but we will receive proceeds of sale of shares
underlying A Warrants and shares underlying B Warrants, if exercised.
This offering (the "Offering") is not being underwritten. 5,885,000
shares of Common Stock being offered have been registered for sale by our
Selling Stockholders (as defined) pursuant to this prospectus from time to time
to purchasers directly, or through agents, brokers or dealers at market or
negotiated prices. We are also registering 11,770,000 shares which underly the A
Warrants, if exercised, and B Warrants, if exercised. Thus, the distribution of
shares of Common Stock may occur over an extended period of time. See "Plan of
Distribution." Since the Common Stock registered is being offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act, we cannot
include fiscal year information about the price to the public of the Common
Stock or the proceeds from any sales of the Common Stock by our Selling
Stockholders.
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Selling Stockholders, Marc Hung, Ernest Cheung, Richco Investors,
Inc., Maurice Tsakok and Development Fund of Nova Scotia, and any broker-dealer
who acts in connection with the sale of shares will be deemed to be
"underwriters," as that term is defined in the Securities Act. Our Selling
Stockholders will pay or assume brokerage commissions or underwriting discounts
incurred in connection with the sale of their shares of Common Stock, which
commissions or discounts will not be paid or assumed by us. See "Plan of
Distribution."
Our Common Stock is currently trading on the OTC Bulletin Board under
the symbol of "XNET." The last reported sale price of common stock on
___________, 1999 on the OTCBB was $________ closing.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Selling Shareholders Price (1) Selling Commissions (2) Proceeds to Selling
Shareholders
============================= =========================== ================================= ==========================
Per Share To be inserted in final amendment
Total
============================= =========================== ================================= ==========================
Price to Purchaser Commissions Proceeds to Company (3)
============================= =========================== ================================= ==========================
Shares Underlying
A Warrants $2.00 $0 $11,770,000
Shares Underlying
B Warrants $5.00 $0 $29,425,000
============================= =========================== ================================= ==========================
</TABLE>
(1) Market price assumed at ________________.
(2) Before deduction of expenses payable by us in connection with this offering,
estimated at $100,000 for filing, printing, legal fees, accounting fees, and
Blue Sky expenses. We will pay all these expenses.
(3) If maximum shares are sold.
We have filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form SB-2 (the "Registration Statement") under the
Securities Act with respect to our shares of Common Stock.
We have disclosed all material terms of contracts and other documents
discussed in the prospectus, but the discussion is not complete and you may
want to see the entire documents which have been filed by us with the SEC.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
Prospectus Summary 4
Summary of Financial Information 7
Risk Factors 9
Risks Relating to the Greater China and Internet Industry 9
Political, Economic and Regulatory Risks in China 11
Other Risks 19
Business 23
Price Range of Our Common Stock & Stockholder Matters 43
Management's Discussion and Analysis of Financial
Condition and Results of Operations 44
Capitalization 49
Management 52
Security Ownership of Principal Owners and Management 58
Relationships and Related Transactions 61
Legal Matters 62
Changes In and Disagreements with Accountants 62
Description of Securities 63
Transfer Agent and Registrar 64
Limitations on Directors Liability 64
Plan of Distribution 64
Selling Stockholders 65
Determination of Offering Price 73
Experts 74
Where You Can Find More Information 74
Index to Financial Statements F-1
</TABLE>
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SIGNIFICANT ASPECTS OF OUR BUSINESS AND THIS
OFFERING, BUT YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL
DATA AND RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION. WHEN WE REFER TO
OUR COMPANY IN THIS PROSPECTUS, WE REFER TO US AND OUR SUBSIDIARIES, AS A
COMBINED ENTITY, EXCEPT WHERE WE INDICATE OTHERWISE. YOU SHOULD CAREFULLY
CONSIDER THE INFORMATION SET FORTH UNDER "RISK FACTORS."
The information set forth in this prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Words "estimated," "intends," "believes," "plans,"
"planning," "expects," and "if" are intended to identify forward-looking
statements. Although management believes that the assumptions made and
expectations reflected in the forward-looking statements are reasonable, it must
be recognized that there is no assurance that the underlying assumptions will,
in fact, prove to be correct or that actual future results will not be different
from the Company's expectations.
We use market data and industry forecasts throughout this prospectus,
which we have obtained from internal surveys, market research, publicly
available information and industry publications. Industry publications generally
state that the information they provide has been obtained from sources believed
to be reliable, but that the accuracy and completeness of this information is
not guaranteed. Similarly, we believe that the surveys and market research we or
others have performed is reliable, but we have not independently verified this
information. We do not represent that any information is accurate.
XIN NET CORP.
On September 6, 1996, we incorporated under the laws of the State of
Florida under the name of Placer Technologies, Inc.
On April 2, 1997, we acquired 100% interest of Infornet Investment
Limited, a Hong Kong corporation ("Infornet"). Through this subsidiary in 1997,
we entered into a Joint Venture Agreement (the "Joint Venture") with Xin Hai
Technology Development Ltd. ("Xin Hai"). Xin Hai is an experienced Internet
Service Provider (ISP) which owns and operates Internet licenses in the cities
of Beijing, Shenyang, Guangzhou and Shanghai, China ("PRC"). The Infornet/Xin
Hai agreement provides us with an 80% interest in the Joint Venture, Placer
Technologies Corp. until Infornet, our subsidiary, has recouped all of its
invested capital, at which time the profit sharing reverts 49% to Xin Hai and
51% to Infornet. Infornet and we are required to provide 100% of the capital
necessary for operations and equipment in the Placer Technologies Corp. Joint
Venture.
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On June 11, 1997, we purchased 100% interest of Infornet Investment
Corp., a British Columbia corporation. Our subsidiary, Infornet Investment
Corp., manages the daily operations for the company.
On July 24, 1998, we changed the company name from Placer Technologies,
Inc. to Xin Net Corp. in order to reflect our core business.
We believe the Greater China and Asian markets, and Chinese language
users globally, represent one of the largest and fastest growing user groups on
the Web today. As the Internet gains broader acceptance as a new business medium
in Greater China and Asia, we believe Internet service provider usage, online
advertising and e-commerce will also experience significant growth. To
capitalize on this opportunity, our business strategy is to continue to improve
and expand our existing business under the Joint Venture, either independently
or through strategic alliances, partnerships or acquisitions, and to continue to
expand our business locations to other cities in Greater China (China, Hong Kong
and Taiwan).
However, business opportunities in the Greater China Internet markets
and our ability to implement our business strategy are, and will in the future,
be limited by:
o The laws and regulations in China under which we conduct our
businesses that impose liability for content retrieved from
any websites we may maintain or require that we obtain
specific licenses, approvals or consents;
o The failure to realize expected growth in Internet usage and
low Internet penetration rates in China that may compromise
our future operating results;
o The lack of a sophisticated Internet infrastructure and
limited Internet access in some markets necessary to deliver
our Internet and services, which may compromise our capacity
for growth;
o The intense competition from existing and potential
competitors with longer operating histories, greater name
recognition, larger customer bases and greater resources that
reduce our user traffic; and
o The economic developments in Greater China that result in
reduced spending for advertising and web solutions services or
that effect our ability to collect payments on our accounts
receivable.
Although we intend to explore all potential markets for our Internet
services throughout Greater Asia, we generated revenue exclusively from the PRC
during the 1998 and 1999 years.
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We are still in the early stages of operations, and we may not fulfill
our stated goals until much later in the future, if at all. We have had a
limited operating history since our organization in 1996 and have experienced
significant losses since inception. We are dependent on private placements with
investors for our resources and funding. See "Risk Factors."
SELLING SHAREHOLDERS
Our Selling Shareholders are offering 5,885,000 common shares, which
they previously purchased, or were granted, for sale as market conditions allow
and if they exercise A Warrants which they hold, they will have up to an
additional 5,885,000 shares to sell. If they then exercise B Warrants, up to an
additional 5,885,000 shares may be sold by the selling shareholders. (See
"Selling Shareholders" and "Plan of Distribution.")
THE OFFERING
The Selling shareholders propose to offer 5,885,000 shares of our
common stock at the market prices, continuously, upon effectiveness of the
Registration Statement. (See "Plan of Distribution" for information concerning
the offering.)
NET PROCEEDS TO THE SELLING SHAREHOLDERS
Offering @ market price $ (To be inserted in final amendment)
Common stock Offered
By selling shareholders 5,885,000 shares
Common stock outstanding now 21,360,000 shares
Common stock outstanding if our
shareholders exercise all of "A" Warrants 27,245,000 shares
Common stock outstanding if all of
"B" Warrants are exercised 33,130,000 shares
Use of Proceeds We will not receive any proceeds
from the sale of shares of Common
Stock by the Selling Stockholders.
We will, however, receive the
proceeds of warrant exercise for
"A" Warrants at $2.00 per share and
"B" Warrants at $5.00 per share.
Proceeds will be used for expansion
and working capital. See "Use of
Proceeds".
OTC Bulletin Board Symbol XNET
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SUMMARY FINANCIAL INFORMATION
The summary financial information presented below as of December 31,
1998 and 1997 was derived from our audited financial statements appearing
elsewhere in this prospectus. The financial information for the nine months
ended September 30, 1999, was derived from our unaudited financial statements.
In the opinion of management the financial information for the nine months ended
September 30, 1999, contain all adjustments, consisting only of normal recurring
accruals necessary for the fair presentation of the results of operations and
financial position for that period. You should read this summary financial
information in conjunction with our plan of operation, financial statements and
related notes to the financial statements, each appearing elsewhere in this
prospectus.
Financial information for the year ended December 31, 1998 is compared
to the year ended December 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---- ----
Total Currents Assets 376,179 365,428
Other 228,396 189,340
------- -------
Total Assets 604,575 554,768
Total Current Liabilities 40,504 12,975
Total Shareholder's Equity 564,071 541,793
Total Revenues and Fees 527,988 96,177
Total Cost of Revenues and Fees
General and Administrative Expenses 510,555 333,084
Income From Operations 17,433 (236,907)
Total Other Income (Expenses) 4,845 7,221
Net Income 22,278 (229,686)
Basic and Diluted Earnings Per
Common Shares $0.001 ($0.02)
============================ ======================
Weighted Average Number of Common
Shares Outstanding 14,075,000 12,127,082
============================ ======================
</TABLE>
<TABLE>
<CAPTION>
The following unaudited supplementary data presents comparative summary
financial information for the nine months ended September 30, 1999, and
1998 (unaudited):
<S> <C> <C>
First Nine Months First Nine Months
1998 1999
--------------------------- ------------------------------
Total Revenues
General & Administrative Expenses 394,739 592,581
Income (loss) From Operations 334,443 857,324
--------------------------- ------------------------------
Operating Profit (Loss) $56,296 $264,743
=========================== ==============================
Basic and Diluted Earnings Per Common Share .00 ($.01)
=========================== ==============================
Basic Weighted Average Number of Common
Shares Outstanding 14,075,000 17,733,278
=========================== ==============================
</TABLE>
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<TABLE>
<CAPTION>
The following unaudited supplementary data presents net income per
share for the fiscal year ended December 31, 1998 and the nine months ended
September 30, 1999 (unaudited).
<S> <C> <C>
PERIOD
1998 1999
(nine months)
--------------------------- -----------------------
Net income 22,278 (264,743)
Basic and diluted Weighted average common shares outstanding 14,075,000 17,733,278
Basic and diluted Income per common share $0.001 ($.01)
=========================== =======================
</TABLE>
The information set forth in this prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act, and Section
21E of the Exchange Act. Words "estimated," "intends," "believes," "plans,"
"planning," "expects," and "if" are intended to identify forward-looking
statements. Although we believe that the assumptions made and expectations
reflected in the forward-looking statements are reasonable, it must be
recognized that there is no assurance that the underlying assumptions will, in
fact, prove to be correct, or that actual future results will not be different
from our expectations.
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE
OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO PURCHASE SHARES OF OUR
COMMON STOCK.
RISKS RELATING TO THE GREATER CHINA AND INTERNET INDUSTRY
OUR 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, our competitors may better position themselves to compete in this
market as it matures. Many of our 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 we do.
Our competition with respect to user traffic, ease of use and
functionality include:
o Chinese language-based Web search and retrieval companies such as Yahoo!
China, Sina.com, Netease, Soho, Shanghai Online, ChinaByte and Netvigator (which
is owned by Hongkong Telecom);
o English language-based Web search and retrieval companies such as
Infoseek, Lycos, Yahoo! and Microsoft Network, (MSN); and
o Retrieval services and products offered by Altavista HotWired Ventures
and Inktomi's HotBot, and OpenText.
In the future, we will encounter competition from other ISPs and
Internet companies. Our competitors may develop services that are equal or
superior to those we offer our users and may achieve greater market acceptance
than our 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, our future operating results from
online advertising and connection 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
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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.
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. We 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 our network.
OUR EXPANSION INTO THE PRC INTERNET MARKET DEPENDS ON THE ESTABLISHMENT AND
MAINTENANCE OF AN ADEQUATE TELECOMMUNICATIONS INFRASTRUCTURE 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. We rely on this backbone and China
Telecom to provide data communications capacity primarily through local
telecommunications lines. As a result, we 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. We will have no means of getting
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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 and, if the necessary infrastructure standards or protocols or
complementary products, services or facilities are not developed by the PRC
government, our business could be materially and adversely affected.
OUR COMPUTER SYSTEM IS VULNERABLE TO HACKING, VIRUSES AND OTHER DISRUPTIONS
Inappropriate use of our Internet services could jeopardize the
security of confidential information stored in our computer system, which may
cause losses to us. Inappropriate use of the Internet includes attempting to
gain unauthorized access to information or systems-commonly known as "Cracking"
or "hacking." Although we have implemented security measures to protect our
facilities, these measures could be circumvented. Alleviating problems caused by
computer viruses or other inappropriate uses or security breaches may require
interruptions, delays or cessation in our services. We do not carry "errors and
omissions" or other insurance covering losses or liabilities caused by computer
viruses or security breaches.
POLITICAL, ECONOMIC AND REGULATORY RISKS IN CHINA
THERE ARE ECONOMIC RISKS ASSOCIATED WITH DOING BUSINESS IN GREATER CHINA
The PRC economy has experienced significant growth in the past decade,
but this growth has been uneven across geographic and economic sectors and has
recently been slowing. There can be no assurance that this growth will not
continue to decrease or that any slow down will not have a negative effect on
our business. The PRC economy is also experiencing deflation which may continue
in the future. The current economic situation may adversely affect our
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, our clients and
suppliers may have limited access to credit which may adversely affect our
business. In addition, the international financial markets in which the
securities of the PRC government, agencies and private entities are traded also
have experienced significant price fluctuations upon speculation that the PRC
government may devalue the Renminbi which could increase our costs relative to
our PRC revenues.
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REGULATION OF THE INFORMATION INDUSTRY IN THE PRC MAY ADVERSELY AFFECT OUR
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. We 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, 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 our website or to
limit or regulate any current or future applications available to users on our
website, this action could have a material adverse effect on our business,
financial condition and results of operations.
The Chinese government also regulates access to the Internet by
imposing strict licensing requirements and requiring ISPs in China to use the
international inbound and outbound Internet backbones. Our business is MOFTEC
(Ministry of Foreign Trade and Economic Cooperation) approved and holds a
license to operate in China. We cannot provide assurance that we will be able to
obtain any necessary additional licenses required in the future or that future
changes in Chinese government policies affecting the provision of information
services, including the provision of online services and Internet access, will
not impose additional regulatory requirements on us or our Service Providers,
intensify competition in the Chinese information industry or otherwise have a
material adverse effect on our business, financial condition and results of
operations.
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RESTRICTIONS ON CURRENCY EXCHANGE COULD INCREASE OUR COSTS RELATIVE TO OUR
REVENUES
Although Chinese governmental policies were introduced in 1996 to allow
greater convertibility of the Renminbi, significant restrictions still remain.
We can provide no assurance that the Chinese regulatory authorities will not
impose greater restrictions on the convertibility of the Renminbi to western
currencies. The government could refuse to allow the exchange, or could restrict
the amount or volume of exchange. Because the majority of our future revenues
may be in the form of Renminbi, any future restrictions on currency exchange may
limit our ability to utilize revenue generated in Renminbi to fund our business
activities outside the PRC, if we ever have any.
WE DEPEND ON LOCAL TELECOM COMPANIES IN CHINA FOR COLLOCATION AND TRANSMISSION
FACILITIES
We must use copper telephone lines controlled by the local telecom
entities in China to provide internet connections to customers. We also depend
on the local telecom companies for rental of space to place server equipment
(collocation) and for a substantial portion of the transmission facilities
(wire, switches, etc.) we use to connect our equipment to our servers and users.
Interruption or impairment of service in an area could significantly affect our
customers and revenues in that area.
Our ability to provide Internet connections services to potential
customers depends on the quality, physical condition, availability and
maintenance of telephone lines within the control of the local telecom companies
in China. We believe that the current condition of telephone lines in many cases
will be inadequate to permit us to fully implement our network services. In
addition, the telecom companies may not maintain the telephone lines in a
condition that will allow us to implement our network effectively. The telephone
lines may not be of sufficient quality or the telecom companies may claim they
are not of sufficient quality to allow us to fully implement or operate our
network services. Further, some customers use technologies other than copper
lines to provide telephone services, and connections might not be available to
these customers.
WE CANNOT PREDICT OUR SUCCESS BECAUSE WE HAVE A HISTORY OF LOSSES AND WE
ANTICIPATE FUTURE LOSSES
We formed our company in September 1996, and we have a short operating
history for you to review in evaluating our business. We have limited historical
financial and operating data upon which you can evaluate our business and
prospects. Our recent revenue growth is primarily a result of our entry into the
Placer Technologies Corp. Joint Venture, and this growth may not be indicative
of our future operating results. We have incurred net losses since our corporate
organization in 1996 and as a result of our Joint Venture we have incurred net
losses. We anticipate that we will continue to incur operating losses for the
foreseeable future due to a high level of planned operating and capital
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expenditures, increased sales and marketing costs, additional personnel hires,
greater levels of product development and our general growth objectives. It is
possible that our operating losses may increase in the future and we may never
achieve or sustain profitability. (See "Management Discussion and Analysis").
BECAUSE OUR MARKET IS NEW AND EVOLVING, WE CANNOT PREDICT ITS FUTURE GROWTH OR
ULTIMATE SIZE, AND WE MAY BE UNABLE TO COMPETE EFFECTIVELY
Our success will depend on the development of this new and rapidly
evolving market of Internet service in China and our ability to compete
effectively in this market through the Joint Venture. We must address many
factors, including,
o expand the geographic coverage of our Internet services;
o enter into agreements and working arrangements with additional Internet
companies, some of which we expect to be our competitors;
o deploy an effective system in each Internet location;
o attract and retain customers;
o successfully develop relationships and activities with our partners and
distributors, including;
o continue to attract, retain and motivate qualified personnel;
o accurately assess potential markets and effectively respond to
competitive developments;
o continue to develop and integrate our operational support system and
other back office systems
o comply with evolving governmental regulatory requirements;
o increase awareness of our services;
o continue to up grade our technologies; and
o effectively manage our expanding operations.
We may not be successful in addressing these factors, and our failure
to address factors would materially and adversely affect our business,
revenues, operating results and financial condition.
OUR STRATEGY OF EXPANSION MAY NOT BE EFFECTIVE DUE TO FACTORS EXISTING IN THE
CHINA MARKETS
Our expansion into new markets in China could be substantially impaired
by:
o unexpected changes in regulatory requirements;
o potentially adverse tax and regulatory consequences;
o tariffs and other trade barriers;
o and political instability and potential currency restrictions.
Any of the above could have a material adverse effect on the success of
our future operations.
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OUR FUTURE REVENUE IS UNCERTAIN
Although we expect to generate revenue from service subscription,
domain name registration, e-commerce and advertising in the future, this revenue
may not be substantial. Our business plan is dependent on the anticipated
expansion of ISP subscribers, domain name registration and e-commerce, web
hosting and services in Greater China and the growth of our revenues is
dependent on increased revenues generated by subscribers and services. We
anticipate that a substantial portion of our future revenues will be derived
from e-commerce, hosting, and other services if online advertising becomes more
broadly accepted in China.
The loss of our subscribers to competition or a reduction in traffic on
these hosted Web sites or on our ISP network may cause advertisers or Web hosts
to withdraw from our business, which, in turn, could reduce our future revenues.
IF ADVERTISING IS BLOCKED, IT MAY AFFECT OUR REVENUES
The development of Web software that blocks Internet advertisements
before they appear on a user's screen may hinder the growth of online
advertising. The expansion of ad blocking an the Internet may decrease our
revenues because when an ad is blocked, it is not downloaded from our ad server,
which means that these advertisements are not tracked as a delivered
advertisement. In addition, advertisers may choose not to advertise on the
Internet and on our advertising network because of the use of Internet
advertisement blocking software. The use of Web software that blocks Internet
advertisements may materially and adversely affect our business.
FAILURE BY THIRD-PARTY SUPPLIERS TO PROVIDE SOFTWARE AND HARDWARE COMPONENTS
WILL AFFECT OUR ABILITY TO OPERATE OUR INTERNET BUSINESS
We depend on third-party suppliers of software and hardware components.
We rely on components that are sourced from only a few suppliers including
computer servers manufactured by IBM or Sun Microsystems Corporation and routers
manufactured by Cisco Systems, Inc. The failure of our suppliers to adjust to
meet increasing demand may prevent them from supplying us with components and
products as and when we require them. Our inability to develop alternative
sources for this software and hardware could delay and increase the cost of
expanding our network infrastructure and could adversely affect our operating
efficiency and results of operations.
WE RELY ON SOFTWARE AND HARDWARE SYSTEMS THAT ARE SUSCEPTIBLE TO FAILURE
Any system failure or inadequacy that causes interruptions in the
availability of our services, or increases the response time of our services, as
a result of increased traffic or otherwise, could reduce user satisfaction,
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future traffic and our attractiveness to advertisers and consumers. In addition,
as the amount of Web pages and traffic increases, there can be no assurance that
we will be able to scale our systems proportionately. We are also dependent upon
Web browsers, other ISPs, and other Web site operators in Greater China and
elsewhere, which have experienced significant system failures and electrical
outages in the past and our users have experienced difficulties due to system
failures unrelated to our systems and services.
We have limited backup systems and redundancy and we have experienced
system failures and electrical outages from time to time in the past, which have
disrupted our operations. We do not presently have a disaster recovery plan in
the event of damage from fire, floods, typhoons, earthquakes, power loss,
telecommunications failures, break-ins and similar events. If any of the
foregoing occurs, we may experience a complete system shut-down. To improve
performance and to prevent disruption of our services, we may have to make
substantial investments to deploy additional servers or one or more copies of
our Web sites to mirror our online resources. Although we carry property
insurance with low coverage limits, our coverage may not be adequate to
compensate us for all loss that may occur. To the extent we do not address the
capacity restraints and redundancy described above, these constraints could have
a material adverse effect on our business, results of operations and financial
condition.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES
ANALYSTS OR INVESTORS
Our annual and quarterly operating results are likely to fluctuate
significantly in the future due to numerous factors, many of which are outside
of our control. These factors include:
o the rate of customer acquisition and turnover;
o the prices our customers are willing to pay;
o the amount and timing of expenditures relating to the expansion of our
services and infrastructure;
o the timing and availability of facilities and transport facilities;
o the success of our relationships with our partners and distributors;
o our ability to deploy our network on a timely basis;
o introduction of new services or technologies by our competitors;
o price competition;
o the ability of our equipment and service suppliers to meet our needs;
o regulatory developments, in China;
o technical difficulties or network downtime;
o the success of our strategic alliances;
o the condition of the telecommunication and network service industries
and general economic conditions; and
o opening new markets and delays in revenues from new market after
incurring expenses.
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Because of these factors, our operating results in one or more future
periods could fail to meet or exceed the expectations of securities analysts or
investors. In that event, any trading price of our common stock would likely
decline.
WE WILL NEED SIGNIFICANT ADDITIONAL FUNDS, WHICH WE MAY NOT BE ABLE TO OBTAIN
The expansion and development of our business will require significant
additional capital. We intend to seek substantial additional financing in the
future to fund the growth of our operations, including funding the significant
capital expenditures and working capital requirements necessary for us to
provide service in our targeted markets. We believe that our current capital
resources will be sufficient to fund our aggregate capital expenditures and
working capital requirements, including operating losses, through approximately
December 2001. In addition, our actual funding requirements may differ
materially if our assumptions underlying this estimate turn out to be incorrect.
We have assumed annual revenues of one million dollars which should suffice to
finance current operations but not the expansion program.
We may be unable to obtain any future equity or debt financing on
acceptable terms or at all. Recently the financial markets have experienced
extreme price fluctuations. A market downturn or general market uncertainty may
adversely affect our ability to secure additional financing. If we are unable to
obtain additional capital or are required to obtain it on terms less
satisfactory than what we desire, we will need to delay deployment of our
network services or take other actions that could adversely affect our business,
prospects, operating results and financial condition. To date, our cash flow
from operations has been insufficient to cover our expenses and capital needs.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
WE MAY BE UNABLE TO EFFECTIVELY EXPAND OUR SERVICES AND PROVIDE A SUBSTANTIAL
NUMBER OF USERS
Due to the limited access of our Internet services, we cannot guarantee
that our business will be able to attract a substantial number of end users at
high volume. Access is limited a) by the relatively low number of computers in
the population, b) cost of computers, and c) local access problems like location
of telephone connection.
PRIVACY CONCERNS MAY PREVENT US FROM SELLING DEMOGRAPHICALLY TARGETED SERVICES
IN THE FUTURE
To the extent we collect data derived from user activity on our network
and from other sources, we cannot be certain that any trade secret, copyright or
other protection will be available for this data or that others will not claim
rights to this data.
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Ad serving technology enables the use of "cookies," in addition to
other mechanisms to deliver targeted advertising, to help compile demographic
information, and to limit the frequency with which an advertisement is shown to
the user. Cookies are bits of information keyed to a specific server, file
pathway or directory locations that are stored on a user's hard drive and passed
to a Web site's server through the user's browser software. Cookies are placed
on the user's hard drive without the user's knowledge or consent, but can be
removed by the user at any time. Due to privacy concerns, some Internet
commentators, advocates and governmental bodies have suggested that the use of
cookies be limited or eliminated. Any limitation on our ability to use cookies
could impair our future targeting capabilities and adversely affect our
business.
OUR FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE FOR OUR COMPUTER SYSTEMS MAY
ADVERSELY AFFECT OUR BUSINESS
Currently, many computer systems and hardware and software products are
coded to accept only two digit entries in the date code field and, consequently,
cannot distinguish 21st century dates from 20th century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to function properly after December 31, 1999. We have conducted
assessments of our Year 2000 readiness and have upgraded or replaced the system
hardware and software that we have identified as non-compliant for Year 2000
purposes. We have contacted our third-party vendors, licensors and providers of
software, hardware, content and services regarding their Year 2000 readiness.
Following our testing and after contacting our vendors and licensors, we have
made a complete evaluation of our Year 2000 readiness, and determined and
completed all known changes necessary to be Year 2000 compliant, and have
developed contingency plans in the event of problems. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Year
2000 Compliance" for detailed information concerning our state of readiness,
potential risks, and contingency plans regarding the Year 2000 issue. If,
however a Year 2000 software problem exists undetected and unremedied, it could
adversely affect our systems for up to two weeks.
WE MAY BE INVOLVED IN FUTURE LITIGATION WITH RESPECT TO OUR USE OF TECHNOLOGY
RIGHTS
We currently license technology from third parties. As we continue to
introduce new services that require new technology, we anticipate that we may
need to license additional third-party technology. We cannot provide assurance
that these technology licenses will be available to us on commercially
reasonable terms, if at all. In addition, it is possible that in the course of
using new technology, we may inadvertently breach the technology rights of
others and face liabilities for the breach. Our inability to obtain any of these
technology licenses or inadvertent breach of others' technology rights could
delay or compromise the introduction of new services and could materially and
adversely affect our business and financial condition.
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We enter into confidentiality agreements with our employees and
consultants, and control access to and distribution of our documentation and
other licensed information. Despite these precautions, it may be possible for a
third-party to copy or otherwise obtain and use our licensed services or
technology without authorization, or to develop similar technology
independently. In addition, there are countries where effective copyright,
trademark and made secret protection may be unavailable or limited, and the
global nature of the Internet makes it virtually impossible to control the
ultimate destination of our products. Policing unauthorized use of our licensed
technology is difficult and time can be no assurance the steps taken by us will
prevent misappropriation or infringement of our licensed technology. In
addition, litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others, which could result in substantial
costs and diversion of our resources and could have a material adverse effect on
our business, results of operations and financial condition.
WE MAY BE HELD LIABLE FOR INFORMATION RETRIEVED FROM OUR NETWORK
Because our services can be used to download and distribute information
to others, there is a risk that claims may be made against us for defamation,
negligence, copyright or trademark infringement or other claims based on the
nature and content of this material, such as violation of censorship laws in the
PRC. Although we carry general liability insurance, our insurance may not cover
potential claims of this type, or may not be adequate to indemnify us for all
liability that may be imposed. Any imposition of liability that is not covered
by our insurance or is in excess of our insurance coverage could have a material
adverse effect on our business, results of operations and financial condition.
See "Political, Economic and Regulatory Risks" and "Regulation of the
Information Industry in PRC may Adversely Affect Our Business" below.
OTHER RISKS
OUR SUCCESS DEPENDS ON OUR RETENTION OF KEY PERSONNEL AND ON THE PERFORMANCE OF
THOSE PERSONNEL
Our success depends on the performance of our officers and key
employees. They are Marc Hung, Angela Du, Xin Wei and Kun Wei. Members of our
management team have worked together for only a short period of time. We do not
have "key person" life insurance policies on any of our employees nor do we have
employment agreements for fixed terms with any of our employees. Any of our
employees, including any member of our management team, may terminate his or her
employment with us at any time. Given our early stage of development, we depend
on our ability to retain and motivate high quality personnel, especially our
management. Our future success also depends on our continuing ability to
identify, hire, train and retain highly qualified technical, sales, marketing
and customer service personnel. Moreover, the industry in which we compete has a
high level of employee mobility and aggressive recruiting of skilled personnel.
We may be unable to continue to employ our key personnel or to attract and
retain qualified personnel in the future. We face intense competition for
qualified personnel, particularly in software development, network engineering
and product management. Please see "Business-Employees" and "Management."
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WE DEPEND ON THIRD PARTIES FOR EQUIPMENT, INSTALLATION AND PROVISION OF FIELD
SERVICE
We currently plan to purchase all of our equipment from vendors and
outsource part of the installation and field service of our networks to third
parties. Our reliance on third party vendors involves number of risks, including
the absence of guaranteed capacity and reduced control over delivery schedules,
quality assurance, delivery and costs. If any of our suppliers reduces or
interrupts its supply, or if any significant installer or suppliers reduces or
interrupts its service to us, this reduction or interruption could disrupt our
business. Although multiple manufacturers currently produce or are developing
equipment that will meet our current and anticipated requirements, our suppliers
may be unable to manufacture and deliver the amount of equipment we order, or
the available supply may be insufficient to meet our demand. If our suppliers or
licensors enter into competition with us, or if our competitors enter into
exclusive or restrictive arrangements with the suppliers or licensors, then
these events may materially and adversely affect the availability and pricing of
the equipment we purchase and technology we license, and our services to
customers.
A SYSTEM FAILURE OR BREACH OF NETWORK SECURITY COULD CAUSE DELAYS OR
INTERRUPTIONS OF SERVICE TO OUR CUSTOMERS
Our operations depend on our ability to avoid damages from fires,
earthquakes, floods, power losses, excessive sustained or peak user demand,
telecommunications failures, network software flaws, transmission cable cuts and
similar events. A natural disaster or other unanticipated problem at our owned
or leased facilities could interrupt our services. Additionally, if a local
carrier, competitive carrier or other service provider fails to provide the
communications capacity we require, as a result of a natural disaster,
operational disruption or any other reason, then this failure could interrupt
our services.
WE EXPECT OUR STOCK PRICE TO BE VOLATILE
The trading price of our common stock has been and is likely to
continue to be highly volatile. Our stock price could fluctuate widely in
response to many factors, including the following:
o our historical and anticipated quarterly and annual operating results;
o announcements of new products or services by us or our competitors or
new competing technologies;
o investor perceptions of us and investments relating to Greater China
and Asia;
o developments in the Internet industry;
o technological innovations;
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o changes in pricing made by us, our competitors or providers of
alternative services;
o the addition or loss of business customers;
o variations between our actual results and analyst and investor
expectations;
o conditions or trends in the telecommunications industry, including
regulatory developments;
o announcements by us of significant acquisitions, strategic
partnerships, Joint Venture or capital commitments;
o additions or departures of key personnel;
o general market and economic conditions.
In addition, in recent years the stock market in general, and the
Nasdaq National Market and the market for Internet and technology companies in
particular, have experienced extreme price and volume fluctuations. These
fluctuations have often been unrelated or disproportionate to the operating
performance of these companies. These market and industry factors may materially
and adversely affect our stock price, regardless of our operating performance.
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS MAY NOT BE ACCURATE
Included in this prospectus are various forward-looking statements
which can be identified by the use of forward looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "continue," "believe" or other
similar words. We have made forward-looking statements with respect to the
following, among others:
o our goals and strategies;
o the importance and expected growth of Internet technology;
o the pace of change in Internet marketplace; the demand for Internet
services; and
o revenues.
These statements are forward-looking and reflect our current
expectations. They are subject to a number of risks and uncertainties, including
but not limited to, changes in the economic and political environments in
Greater China and Asia, changes in technology and changes in the Internet
marketplace. In light of the many risks and uncertainties surrounding, Greater
China, Asia and the Internet marketplace, prospective purchasers of the shares
offered should keep in mind that we cannot guarantee that the forward-looking
statements described this prospectus will transpire.
THERE ARE SPECIAL RISKS INVOLVED WITH INVESTING IN STOCKS OF NON U.S. REVENUE
COMPANIES
You should carefully consider the special risk that revenues are solely
from China, together with all of the other information included in this
prospectus before you decide to purchase our common shares.
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There are major risks associated with investing in our common shares not typical
with investments in common stock of U.S. revenue companies, because all of our
operations and revenues are from China, and are subject to all of the economic,
political, business and regulatory risks previously discussed for China
operations.
DILUTION FROM ISSUANCES OF SHARES IN THE FUTURE
The Company may issue additional shares to finance its future capital
and operations requirements and for acquisitions of other companies to
consolidate into its operations. Any issuance will reduce the present percent of
ownership of previous investors (see "Risk Factor Control") and may result in
additional dilution to investors purchasing shares from this offering.
POSSIBLE DEPRESSIVE EFFECT OF FUTURE SALES OF COMMON STOCK
We have currently outstanding 21,360,000 shares of Common Stock,
including those being offered for resale in this registration. The 5,885,000
shares of Common Stock offered by the Selling Shareholders, and the shares
underlying warrants held by selling shareholders (up to 11,770,000 shares) if
all warrants are exercised, will be freely tradable without restriction under
the Securities Act when our registration statement becomes effective. Subject to
restrictions on transfer referred to below, all other shares of Common Stock
were issued by us in private transactions, are treated as "restricted
securities" as defined under the Securities Act and in the future may be sold in
compliance with Rule 144 under the Securities Act or pursuant to a registration
statement filed under the Securities Act. Rule 144 generally provides that a
person holding restricted securities for a period of one year may sell every
three months in brokerage transactions or market-maker transactions an amount
equal to the greater of (i) one percent (1%) of our issued and outstanding
Common Stock or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks prior to the sale. Rule 144 also permits, under
certain circumstances, the sale of shares without any quantity limitation by a
person who is not an affiliate of the company and who has satisfied a two year
holding period. The sale of substantial numbers of these shares, whether
pursuant to Rule 144 or pursuant to a registration statement, may have a
depressive effect on the market price of our Common Stock.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST OUR COMPANY
All of our assets are located outside the United States. In addition, a
majority of our directors and officers are nationals and/or residents of
countries other than the United States, and all or a substantial portion of our
or these persons' assets are located outside the United States. As a result, it
may be difficult for you within the United States to enforce against them or
against us, judgments obtained in United States courts, including judgments
predicated upon the civil liability provisions of the securities laws of the
United States or any state.
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XIN NET CORP.
PREVIOUS HISTORY
On September 6, 1996, we were incorporated under the laws of the State
of Florida under the name of Placer Technologies, Inc.
On April 2, 1997, we acquired 100% interest of Infornet Investment
Limited (a Hong Kong corporation). Through this subsidiary in 1997, we entered
into a Joint Venture Agreement (the "Joint Venture") with Xin Hai Technology
Development Ltd. ("Xin Hai"). Xin Hai is an experienced Internet Service
Provider (ISP) which owns and operates Internet licenses in the cities of
Beijing, Shenyang, Guangzhou and Shanghai, China. The Infornet/Xin Hai agreement
provides us with an 80% interest in the 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 Infornet.
On June 11, 1997, we purchased 100% interest of Infornet Investment
Corp., a British Columbia corporation. Infornet Investment Corp. manages the
daily operations of Xin Net Corp.
On July 24, 1998, we changed our name from Placer Technologies, Inc. to
Xin Net Corp. in order to reflect our core business more accurately.
BUSINESS
CORPORATE OVERVIEW
Our holding company structure comprising our 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 Limited
(100% Owned) (B.C. Canada) (100% Owned) (Hong Kong)
/
Placer Technologies Corp.
Joint Venture
(Beijing, China)
(with Xin Hai Technology Ltd.)
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BUSINESS OF ISSUER. GENERAL OPERATIONS
Our primary focus is to be a major Internet Company in China, through
our Joint Venture with Xin Hai Technology Development Ltd. Presently Xin Hai,
our 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.
We currently maintain our an office at: #830 - 789 West Pender Street,
Vancouver, B.C. Canada V6C 1H2 (telephone number is 1-604-632-9638). The Joint
Venture office is located at: Suite 1858, New Century Office Tower No. 6,
Southern Road Capital Gym, Beijing, 100044, PRC.
Our core business is to supply Internet services in China by covering
the major cities through a Joint Venture with our operating partner-Xin Hai
Technology Development Ltd. in the Placer Technologies Corp. Joint Venture (the
"Joint Venture.") Businesses include ISP, Home-page portal, Internet
Advertising, Domain Name Registration, E-commerce and other value-added
services.
CURRENT BUSINESS
Through our wholly owned subsidiary Infornet Investment Ltd. (Hong
Kong) we entered 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. We entered into the Joint Venture with Xin Hai in
August 1997.
ISP licenses in China are tightly controlled by the Ministry of
Information Industry and provide a substantial barrier to entry. Foreign
ownership is not yet allowed in Chinese ISP operators. Our Joint Venture with
Xin Hai Technology Development Ltd. provides for us to design and develop the
computer software and computer network systems and provide capital and
management services for the ISP business owned and operated by Xin Hai. The
Infornet/Xin Hai agreement provides Infornet with 80% revenue 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. Xin Hai is currently a supplier
of Internet services in China in the major cities of Beijing, Shanghai,
Guangzhou and Shenyang. Xin Hai management is currently planning to open offices
in six major cities, for which licenses are already held. 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 four million at the end of the
current year, and to 10 million at the end of year 2000. (International Data
Group, IDC).
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Placer Technologies Corp., our 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.
JOINT VENTURE AGREEMENT FOR ISP BUSINESS
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. A summary of the important provisions of the Agreement are as
follows:
JOINT VENTURE
Xin Hai is responsible for:
o 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;
o 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;
o securing and obtaining all necessary licenses, permits and
authorizations from the administration which may be applicable or
necessary to the business of the company;
o 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;
o assisting the joint venture company in contracting for and obtaining
all necessary infrastructure and utility facilities, such as water,
electricity, transportation, etc;
o 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;
o obtaining all necessary permits or authorization from the appropriate
foreign exchange control bureaus confirming that Infornet can have
access to all required U.S. dollars or other foreign currency
acceptable to it and that Infornet can send its investments overseas;
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o Xin Hai warrants that it will not cooperate with any party other than
Infornet with regard to business of the Company;
o Performing any other responsibilities as may be agreed upon by and
between parties.
We are responsible for:
o 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;
o assisting Xin Hai in purchasing and/or leasing equipment, material,
office supplies, transportation, communication lines from local or
overseas suppliers;
o within the China's territory, we 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 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 the second account of Xin Hai shall be used
to cover the operating expenditures. If the amount received is less than actual
expenses, Xin Hai shall obtain the balance from the joint venture company (on a
month by month basis). If the amount is higher than the actual expenses, then
Xin Hai must remit the surplus 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 on 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.
Our wholly owned subsidiary, Infornet Investment Ltd. is obligated to
contribute all of the capital of the Joint Venture, which we provide to
Infornet. Under the Joint Venture the required capital is $525,000 USD which we
have contributed. The total investment including registered capital and
financing (loans) is $2,000,000 USD. We have made loans to the Joint Venture. No
further capital contribution is required from us. We may continue to advance
loans to the Joint Venture as necessary to continue the business, but subject to
the limits of our capital.
In December 1999, the registered capital of the Joint Venture has been
increased to $1,525,000. Infornet Investment Limited has contributed the
additional $1,000,000 in capital.
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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 includes 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.
Xin Hai Technology Development Ltd., because it is the Chinese company
partner in the Joint Venture, holds the ISP operating licenses, industrial
property rights, and operates the internet network. The ownership and title to
all of the assets comprising 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 these assets on behalf of
the Joint Venture. Subject to the prior written approval of the Joint Venture,
title to any assets may be vested in Xin Hai and, in all cases, these assets
shall be held by Xin Hai in trust for the Joint Venture. Xin Hai is not liable
for further capital contribution.
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 comprised of our 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 our company, we 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:
o breach of agreement which goes uncured
o by mutual agreement between the partners;
o in case the Joint Venture is bought by a third party;
o or, in case of bankruptcy, or receivership or liquidation of a party;
o excessive losses due to force majeure.
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Upon termination, the assets of the Joint Venture will be allocated:
a) if Infornet Investment Ltd. has not yet recouped its invested
capital, 80% of the assets go to Infornet and 20% go to Xin Hai.
b) if Infornet Investment Ltd. has already recouped its invested
capital, 51% of the assets go to Infornet and 49% go 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, these acts
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.
FINANCIAL REPORTS
The Joint Venture provides that within eighty (80) days after the end
of each fiscal year, an annual report will be prepared for the fiscal year
containing: audited financial statements as at the end of, and for, the 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 the financial statements stating that the
financial statements have been prepared in accordance with international
generally accepted accounting principles (International GAAP) adopted in China
consistently applied; a report of allocations and distributions (whether
directly or indirectly) to the parties;
INTERNET 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, one 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 underdeveloped economy with little technical or industrial expertise to
the third largest economy in the world after the United States and Japan.
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CHINA - COMPUTER INDUSTRY.
With 1.2 billion people, China accounts for about one fifth of the
world's population. Computer usage is rapidly growing, especially amongst the
younger age groups, leading industry analysts to be optimistic about the
prospects for this market. Computer consultant International Data Corp. ("IDC")
predicted that personal computer ("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 PC units were sold, making the Chinese market the
second-fastest growing market for PCs in Asia, after India. (Source:
International Data Corp, IDC).
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.
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.
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). (Source: International Data Corp., IDC).
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. China's PC market's
exponential growth and technological advancements are the major forces driving
the Internet boom. (Source: BDA and the Strategis Group).
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 products in the U.S.
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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. Based on those facts, we
plan 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.
We, through our subsidiary Infornet in the Joint Venture, participate
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 Ventures, could
at any time, restrict operations, or expropriate foreign participants' assets in
China. Any action could have disastrous financial consequences to the company
and its business.
GOVERNMENT AND THE TELECOMMUNICATIONS INDUSTRY
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 resides in the cities, the telephone is a common commodity. (BDA
and Strategis Group).
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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.
We have introduced an expanded online E-Commerce service to the Chinese
market in 1999. Xin Hai now operates a live online auction site and provides
online domain name registration services. For our expansion program, we have
completed a $5.5 million private placement of restricted shares in early 1999.
To facilitate growth Xin Hai will solicit PC manufacturers and
retailers to bundle services, put more effort on system integration services,
and will offer more value-added services. 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 domain name
registration business is expected to bring substantial revenues. Moreover, we
anticipate 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. Xin Hai will also enhance its portal type home page and
E-commerce offerings. The Joint Venture will also look for strategic alliances
with suitable partners.
The network in which we participate as a Joint Venturer has attracted
more than 50,000 subscribers in 2 1/2 years of operations. Our Joint Venture
partner, Xin Hai Technology Development Ltd., has more than 100 employees at its
present locations in Beijing, Shenyang, Shanghai and Guangzhou.
INDUSTRY BACKGROUND
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, estimated 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
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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 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. (Statistics provided by IDC).
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.
Asia-Pacific Internet Growth Opportunities. We believe 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. (Statistics provided by IDC).
We believe 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, we believe the recent volatility in Asia-Pacific financial markets has
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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):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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%
</TABLE>
(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, we
believe 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, we believe 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, we expect
online opportunities to develop significantly in Asia.
THE INTERNET AS A NEW BUSINESS MEDIUM
The growth in the number of Internet users, the amounts 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. Our services cater directly
to the businesses seeking to expand online, and we are able to provide
comprehensive solutions to our clients ranging from the design and development
of their Web site to access.
As part of providing services, we also assist 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.
We have also sought to engage in e-commerce ourselves to capitalize on
the revenue generating opportunities through our ISP system. In September 1999,
we launched an 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.
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THE XIN NET OPPORTUNITY
We offer a comprehensive suite of Internet related services to the
Greater China and Asia markets through the Joint Venture with Xin Hai. We
believe that by offering an integrated platform of content, access and community
and commerce related services, we are well positioned to capitalize on the
growth of the Internet throughout Asia, through the Joint Venture.
OUR STRATEGY
Our strategy is to capitalize on the Internet growth in Greater China
and Asia and among Chinese users through our Joint Venture with Xin Hai. We
believe 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, we seek through Strategic partnership to:
(a) Provide access to subscribers/users; and
(b) Create a platform for e-commerce and value-added services specifically
tailored to the Greater China market.
We believe 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, our strategy
is to facilitate e-commerce developments in these markets and generate revenues
on a transaction basis for businesses over our network.
(c) Utilize strategic alliances, business partnerships and acquisitions to
enhance our products and services and to expand our presence
geographically throughout Asia.
In order to increase our traffic and build our market we 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.
OUR SERVICES
All of our services are offered through our Joint Venture with our
partner Xin Hai. Our operating partner in China, Xin Hai, has been granted in
1999 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, our Shanghai office is fully operational as of July 1,
1999. We have opened an office in Guangzhou, the key city in Southern China. All
of the licenses owned by Xin Hai will be part of Joint Venture operations.
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We are 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. Our online domain name registration business,
Chinadns, continues to enjoy significant growth. In October 1999, Chinadns was
approved as an Official Agent of Network Solutions, Inc. Our ChinaDNS.com
business has signed agreements with more than one hundred agents to sell its
domain name registration services in China. Amongst these are several local
telecom companies, including Beijing Telecom and Luo-Yang Telecom, which have
adopted and purchased the proprietary ChinaDNS platform, and Ji Tong, China's
third largest telecommunications company. ChinaDNS has registered over 13,000
domain names, making it one of the largest online domain name registration
services in the country. The Company also has an advertising banner on Yahoo's
CHINESE SITE HTTP://CN.YAHOO.COM. Our Xin Hai joint venture also provides web
hosting and web page design services.
Xin Hai has been awarded "Strategic Partner" status from IBM China.
This status officially identifies Xin Hai as a Value Added Retailer for IBM
hardware and software including Netfinity servers, PC's, Intellistation Work
Stations, ThinkPad, Aptiva Multimedia PC's and all related products. Xin Hai now
has the right to use IBM in its advertising and promotional material, and
receive special support and training from IBM.
Xin Hai has been awarded a nationwide access number. It now owns the
five digit 95777 number which has become the standard access number for all of
our subscribers regardless of the city they are in. The Ministry of Information
Industry (MII) only grants a limited supply of these numbers which, besides the
prestige they confer, constitute a strong selling point. Xin Hai users also
enjoy a substantial discount from the normal telephone usage charges.
On December 21, 1999 Xin Net Corp. was accredited by ICANN (Internet
Corporation for Assigned Names and Numbers) as a new domain name registration
service putting the Company on a comparable position to Network Solutions, Inc.
The Commercial and Industrial Bank of China has signed an agreement to
collect payments from Xin Hai customers through its network of more than 500
branches scattered across Beijing. Xin Hai has also begun a series of special
promotions to increase sales of its prepaid Internet access card, the Instant
Card, and recognition of the Xinnet brand name.
Content Services. Xin Hai 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. Xinnet.com.cn is our premier site
for content, community and commerce products and services in simplified Chinese,
entertainment as well as providing value-added community services through our
chat and message board services.
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MARKETING
We believe we have already achieved some name recognition and market
share through our URLs. Going forward, we will seek to achieve even broader
market penetration and increase the use of our sites by well-designed
advertising campaigns and advantageous promotional offers to new subscribers
Increasing Usage By Existing Consumers. We regularly enhance our
services and update content hosted on our network in order to encourage frequent
visits by users. We offer community building services designed to increase user
usage and loyalty. We are 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, we believe that consumers who
use our personalized services will continue to use our Portals and not switch to
a competitive service.
Xin Hai has entered into a marketing agreement with the Post Office in
Beijing. Ten branches of the Post Office in Beijing have begun to sell Xin Hai's
prepaid Internet access card, the "Instant Card", on a trial basis. If the trial
proves successful, as expected, other branches will follow suit. This agreement
comes on the heel of a similar one signed in September with the Bank of China in
Beijing. The "Instant Card", which is becoming very popular, is also carried by
many department stores in Beijing. Furthermore, China's largest courier services
company, EMS, has agreed to deliver the "Instant Card" to the customers door.
EMPLOYEES
As of the end of September 1999, Xin Hai had eighty (80) full-time
employees, consisting of 32 in marketing, and in sales, and 32 in technical
operations and support. Our future success will depend in part on our ability to
continue to attract, retain and motivate highly qualified technical and
marketing personnel. From time to time, we also employ independent contractors
to support our development, marketing, sales and support and administrative
organizations. Our employees are not represented by any collective bargaining
unit and we have never experienced a work stoppage.
FACILITIES & EQUIPMENT
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.
The Joint Venture has successfully tried and now implemented Cisco
equipment. The new digital equipment, together with previously installed analog
equipment, allows us to service present customers while providing room for
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growth. The Cisco equipment is modular and stackable and can easily be added
upon as required. It replaces equipment previously ordered from Alcatel, but
which the Joint Venture had to cancel due to delivery difficulties.
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:
(d) breach of national security or disclosure of State secrets;
(e) infringement on State, social or collective interests or the legal
rights and interests of citizens; or
(f) illegal or criminal activities.
Socially destabilizing content includes content that:
(g) incites defiance or violation of the PRC Constitution, laws, or
administrative statutes;
(h) incites subversion of State power and the overturning of the
socialist system;
(i) incites national division and harms national unification;
(j) incites hatred and discrimination among nationalities and destroys
national unity;
(k) fabricates or distorts the truth, spreads rumors or disrupts social
order;
(l) spreads feudal superstition, involves obscenities, pornography,
gambling, violence, murder, horrific acts or instigates criminal acts;
(m) openly humiliates another party or slanders another party through a
fabrication of the truth;
(n) damages the reputation of a State organ; or
(o) violates the Constitution, laws or administrative statutes.
If through the provision of our services to our users in the PRC, we
commit any of the above, whether with or without intent, we 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 us.
Our Joint Venture partner Xin Hai, provides regulatory advice to us and
reviews content provided through our network to determine whether the 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 our conservative interpretation of the regulations, the
content we provide: over our network is stringently edited and may not be as
interesting as other Web sites which do not try to comply with PRC regulatory
requirements. These web sites, however, may run the risk of being blocked from
the PRC Internet infrastructure by local public security bureaus.
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<PAGE>
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. We have complied with these
requirements.
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. We have fulfilled these registration procedures.
PRODUCTS, SERVICES, MARKETS, METHODS OF DISTRIBUTION AND REVENUES.
Internet Services are presently our principal services. The market is
focused on China's major cities; Xin Hai offices in Beijing and Shenyang have
been operating since 1997. Shanghai opened in June/July 1999, and Guangzhou
in November 1999. Revenues come from subscription fees, domain name
registration, online usage fees, home page design fees and other miscellaneous
sources.
WORKING CAPITAL NEEDS
Our working capital needs arise primarily from: expand existing
capacity of the services and open new offices through the Joint Venture in other
major cities in China, 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. This provides the needed working capital for moderate growth of the
Joint Venture business up to the end of year 2001. Exercise of 5,885,000 series
A Warrants, and then 5,885,000 series B Warrants would provide further capital
for a much faster and wider growth.
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<PAGE>
DEPENDENCE ON CLIENT BASE.
Presently our sole revenue comes through the Joint Venture from
subscription fees, net cards and domain name registration from the client base
in Beijing, Shanghai, Shenyang and Guangzhou. At the end of November 1999, the
number of our subscribers totaled over 50,000. Our dependence on this client
base will continue in the foreseeable future.
Backlog of Orders. None.
Government Contracts. None.
COMPETITIVE CONDITIONS.
A number of factors, beyond our 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 capital. The
Internet Services industry in China is highly competitive. Xin Hai faces
competition from government-owned ISPs and other privately owned ISPs. Many of
them possess greater financial and personnel resources than Xin Hai 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
line rental is still the major expense of Xin Hai. Currently, all ISPs can only
rent lines from China TeleCom. 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 our 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 bandwidth of the
ChinaNet backbone and gateway.
XIN NET SPONSORED RESEARCH AND DEVELOPMENT. None.
COMPLIANCE WITH RELATED LAWS AND REGULATIONS.
The operations of our Xin Hai 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
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<PAGE>
currently operated locations: Beijing, Guangzhou, Shanghai and Shenyang, as well
as in six other cities. We are unable to assess or predict at this time what
effect the regulations or legislation could have on our activities in the
future.
(a) Local regulation -
We 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 -
We 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 the laws
previously under "Regulations of Internet Operations" and "Government Regulation
for Internet Service in China")
The value of our 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, 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), we entered
into a Joint Venture with Xin Hai Technology Ltd. to provide technology and
capital to expand ISP services in China. We 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. Other substantive
provisions have been summarized in the Business section under "Joint Venture
Agreement for ISP Business."
NUMBER OF PERSONS EMPLOYED
Xin Net Corp., the holding company, has 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 helps
manage the daily operations at head office, more particularly liaisons with Xin
Hai. Xin Wei is responsible for the operations in China. Marc Hung serves as
President full time and assumes the general management responsibilities of the
Company.
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<PAGE>
YEAR 2000 CONSIDERATION
We have assessed and continue to assess the risk of "Y2K" problems in
the operation of our 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. We are 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 our hardware
and software have been upgraded for 2000 compliance accordingly, we do not
believe that we 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. We rely on non-IT systems that may
suffer from Year 2000 problems including telephone systems, facsimile and other
office machines. Moreover, while we rely on third-parties that may suffer from
Year 2000 problems that could affect the Company's operations, we do not believe
that third-party Year 2000 problems will affect the company in a manner that is
different or more substantial than the problems affecting other similarly
situated companies. We have designed a limited contingency plan with respect to
Year 2000 problems that may affect the Company or third-party suppliers.
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 our capital expenditures,
earnings or competitive position.
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PRICE RANGE OF OUR COMMON STOCK & STOCKHOLDER MATTERS
(a) Market Information
The following information sets forth the high and low bid price for our
common stock for each quarter within the two years preceding the date of this
registration statement. The Company's common stock is traded over the counter
and quoted on the OTC Bulletin Board.
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
Because of recent changes in the rules and regulations governing the
trading of small issuers securities, our securities are presently classified as
"Penny Stock," which classification places significant restrictions upon
broker-dealers desiring to make a market in these securities. It has been
difficult for management to interest any broker-dealers in our securities and it
is anticipated that these difficulties will continue until our Company is able
to obtain a listing on NASDAQ at which time market makers may trade our
securities without complying with the stringent requirements. The existence of
market quotations should not be considered evidence of the "established public
trading market." The public trading market is presently extremely limited as to
number of market markers in our stock and the number of states within which our
stock is permitted to be traded.
The over-the-counter market quotations above reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
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<PAGE>
(b) Shareholders. As of October 30, 1999 we had approximately
108 shareholders of record.
(c) Dividends. No dividends have been paid in any year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
We 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 30), we 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.
We have revenues from our operations at this time. However, capital
from private placements and/or borrowing against assets may be required to fund
future operations. We completed a private offering of Common Stock at $0.40 per
share for $750,000 in June 1998. In 1999 we 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 our financial statements.
RESULTS OF OPERATIONS
We will carry out the plan of business as discussed above. We 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, we anticipate increased revenues derived from an increase
in subscriber base, expanded e-commerce business and domain name registration.
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<PAGE>
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 $510,555
in 1998 compared to operating expenses of $333,084 in 1997. Operating income for
1998 was $17,433 in contrast to the 1997 operating loss of ($236,907). The
Company had miscellaneous income of $4,845 in 1998 and $7,221 in 1997. The net
income in 1998 was $22,278 compared to the net loss in 1997 of ($229,686). The
per share income for 1998 was $.001, and the per share loss for 1997 was ($.02)
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 we 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
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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 $36,963 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 $6,981,199 and
liabilities were $144,644, not including long term lease obligations.
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NEED FOR ADDITIONAL FINANCING
We have 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. We 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.
Our proposed expansion budget for years 2000 & 2001:
Assumptions:
1. Cash on hand at 12/31/99 is $5 million (ref. at
9/30/99, cash and cash equivalents = $6 million+)
2. Revenues generated from ongoing business sufficient
to finance existing operations on a break even basis.
3. All series A warrants will be exercised, bringing a
new capital of $11,770,000.
4. No series B warrants are exercised.
Total capital required for expansion: $16,770,000
Cost of opening offices in six (6) new cities $ 6,000,000
Advertisement and promotion $ 900,000
ChinaDNS domain name registration $ 1,000,000
Online auction business $ 2,500,000
Working capital $ 6,000,000
CORPORATE EXPENSES $ 370,000
------------
Total $16,770,000
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 us 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, we will be
forced to develop another line of business, or to finance operations through the
sale of assets, or enter into the sale of stock for additional capital, none of
which may be feasible when needed. We have no other specific management ability,
nor financial resources or plans to enter any other business as of this date.
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From the aspect of whether we can continue toward our business goal of
maintaining and expanding the Joint Venture for Internet Services in China, we
may use all of our 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 we are 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.
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 affect 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 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 Numbers 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
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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 these instruments.
LEGAL PROCEEDINGS
The Company, in the normal course of business, may be engaged in
lawsuits, as a plaintiff or defendant, involving matters such as compensation
disputes, employment matters, contract disputes and other matters related to its
business. No lawsuits are presently pending against the Company.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters have been
submitted to security holders in the past year.
CAPITALIZATION
Our capitalization as of September 30, 1999 and as adjusted to reflect
the sale and issuance of the shares underlying the A warrants and shares
underlying B warrants being registered by us is as follows (see Financial
Statements for further information):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount Amount to be outstanding if
outstanding as Warrants are exercised
--------------------------------------------
of December "A" Warrant "B" Warrant
31, 1999(1) Shares Shares
STOCKHOLDER'S EQUITY
Common Stock, $0.001 par value,
50,000,000 shares authorized 21,360,000 27,245,000 31,130,000
Paid in Capital 21,360 27,245 31,130
Capital in excess of par value (2) 6,845,705 18,588,459 48,009,515
Accumulated deficit (399,323) (499,323)(3) (499,323)(3)
---------------------- ----------------------- --------------------
TOTAL SHAREHOLDER'S EQUITY 6,467,742 18,116,381 47,541,382
---------------------- ----------------------- --------------------
</TABLE>
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(1) Does not include up to 2,136,000 shares reserved for issuance pursuant to an
Incentive Stock Option Plan. See "Management: Stock Option Plans."
(2) After estimated expenses of this offering.
(3) Assumes $100,000 in expensed incurred.
OUR PROPOSED USE OF PROCEEDS
From Exercise of 5,885,000 Series A warrants at
US$2.00/warrant and 5,885,000 Series B
warrants at US$5.00/warrant
(US$11,770,000 + US$ 29,425,000)
We will not receive any of the proceeds of the sale of 5,885,000 shares
by selling shareholders.
We will use the proceeds resulting from the exercise of the 5,885,000
series A warrants and the 5,885,000 series B warrants if all are exercised for a
total amount of US$41,195,000 to expand the business in China, by opening new
offices in the six (6) cities for which ISP licenses are already in hand and in
another nineteen (19) major cities, and make new Internet ventures or
acquisitions.
The following breakdown indicates our best estimates at the present
time. However, actual numbers for any expenditure item may differ significantly
from estimates.
After deducting the estimated registration expenses not yet paid, our
net proceeds from this offering will be approximately $11,770,000 if the
maximum number of "A" Warrants is sold and $29,425,000 if the maximum number
of "B" Warrants is sold. We expect to apply the net proceeds of the "A" Warrants
substantially in the manner set forth below. In the case of the maximum
exercise, we expect to expend the proceeds during the next 12 months, and in the
case of the "B" Warrants exercises, we anticipate expending proceeds during the
next 36 months.
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
A Warrant % B Warrant %
Proceeds Proceeds
------------------ ----------- ------------------ -----------
Joint Venture Expenses:
Telecom Lines Leasing 1,200,000 10.0% 3,800,000 12.9%
Software 1,200,000 10.0% 3,800,000 12.9%
Offices (News) 300,000 2.5% 950,000 3.2%
Advertising Promotion 900,000 7.6% 1,100,000 3.7%
Online Auction Expenses 1,500,000 12.7% 1,500,000 5.0%
Domain Name 500,000 4.2% 500,000 0.5%
Hardware 1,500,000 12.7% 5,700,000 10.0%
General and Administrative Expenses
Officers' Salaries and Related 300,000 2.5% 450,000 1.5%
Benefits (2)
Support Personnel (3) 1,000,000 8.4% 1,500,000 5.0%
Office Rent 100,000 0.8% 150,000 0.5%
Accounting and Legal 200,000 1.6% 300,000 10.0%
Travel and Related Expenses 100,000 0.8% 150,000 0.5%
Working Capital and Contingency 2,540,000 21.5% 10,025,000 34.0%
TOTAL 11,770,000 100.0% 29,425,000 100.0%
</TABLE>
(1) See Business
(2) See Management: Executive Compensation
(3) See Business: Employees
Our projected expenditures are estimates or approximations only. To the extent
that the proposed expenditures cannot be achieved for the scheduled amounts,
supplemental amounts required may be drawn from other categories of estimated
expenses, if available, or derived from additional financing, of which there can
be no assurance. Any amounts not expended for scheduled purposes will be used as
general working capital.
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<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
AND SIGNIFICANT MEMBERS OF MANAGEMENT
(a) The following table furnishes the information concerning our
directors and officers as of December 23, 1999. The directors of the Registrant
are elected every year and serve until their successors are elected and qualify.
<S> <C> <C> <C>
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)
</TABLE>
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 our annual meeting and is qualified. The term of office
for each officer of our company is at the pleasure of the board of directors.
The board of directors has neither a 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.
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(b) Identification of 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 our
wholly-owned subsidiary, Infornet Investment Corp.
(c) Family Relationships. Xiao-qing Du and Xin Wei are husband and
wife.
(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 our Company, including
principal occupations and employment during that period and the name and
principal business of any corporation or other organization in which the
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 our 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., our
wholly owned subsidiary in Canada, and remains a director of our company.
ERNEST CHEUNG, Secretary and Director, age 49, has been Secretary of
our company since May 1998. He received a B.A. in 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 known as Merrill Lynch Canada. From
1992 until 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 our 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 our company since
April 6, 1999. From May 1992 to April 1997, Marc Hung was director of Power
System Technology, a division of Institut 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
53
<PAGE>
for Magnetic Fusion (CCFM), a fundamental research entity formed by
Hydro-Quebec, the Institut 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.
MAURICE TSAKOK, Director (since 1997), 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).
XIN WEI is President of Xin Hai Technology Development Corp., the Joint
Venture partner in Placer Technology Corp., our 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, and
also served as a director of Xin Hai Technology Development Corp.
EXECUTIVE COMPENSATION
(a) Cash Compensation.
Compensation paid by our 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 $60,000 and (2) to all officers as a
group.
54
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Compensation Security Grants
Name and Year Salary Bonus Consulting Number Securities Long Term
Principal Fees/Other of Underlying Compensa-
Position Fees ($) Shares Options/ tion/Option
SARs (#)
- -------------------- -------- ------------ ----------- ---------------- ------------- ----------------- -----------------
Xiao-qing Du 1997 20,000 0 0 0 0 0
President of
Infornet
Subsidiary
1998 20,000 0 0 0 0 0
1999 15,000 0 14,500 0 0 0
- -------------------- -------- ------------ ----------- ---------------- ------------- ----------------- -----------------
Marc Hung, 1998 0 0 0 0 0 0
President
1999 0 0 10,000 0 0 **
- -------------------- -------- ------------ ----------- ---------------- ------------- ----------------- -----------------
Ernest 1998 0 0 0 0 0 0
Cheung,
Secretary
1999 0 0 2,000 0 0 0(1)
- -------------------- -------- ------------ ----------- ---------------- ------------- ----------------- -----------------
Officers as a 1998 20,000 0 0 0 0 0
Group
1999 15,000 0 26,500 0 0 **
(CND)
- -------------------- -------- ------------ ----------- ---------------- ------------- ----------------- -----------------
</TABLE>
**150,000 options @ $.40/share (prior to becoming a director or officer)
Effective on April 6, 1999, Marc Hung was appointed as President of the
company and Angela Du resigned as the President of our company. Angela Du is the
President of Infornet Investment Corp., our wholly owned operating subsidiary in
Canada.
(1)Richco Investors, Inc. of which Mr. Cheung is an officer and director and Mr.
Tsakok is an officer and director, received 385,000 units for its services in
structuring the private placement in May 1999.
55
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF DIRECTORS
(To September 30, 1999)
<S> <C> <C> <C> <C> <C> <C>
Name and Year Annual Meeting Consulting Number of Securities
Principal retainer Fees ($) Fees/Other Shares Underlying
Position Fees ($) Fees ($) 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
(resigned in 1999 0 0 0 0 0
1999)
- -------------------- -------- ----------- ----------- ---------------- ------------- -----------------
Ernest Cheung, 1998 0 0 0 0 0
Director
1999 0 0 0 0 0 (1)
- -------------------- -------- ----------- ----------- ---------------- ------------- -----------------
Marc Hung, 1999 0 0 0 0 0
Director
- -------------------- -------- ----------- ----------- ---------------- ------------- -----------------
Maurice Tsakok, 1999 0 0 8,000 (CND) 0 0 (1)
Director
- -------------------- -------- ----------- ----------- ---------------- ------------- -----------------
Directors as a 1999 0 0 8,000 (CND) 0 0
Group
==================== ======== =========== =========== ================ ============= =================
</TABLE>
(1)Richco Investors, Inc. of which Mr. Tsakok and Mr. Cheung are
officers and directors received 385,000 units for its services in structuring
the private placement in May 1999.
No director, except for those who are also officers of the Company as
listed above, received any compensation in 1998.
56
<PAGE>
Effective on May 1, 1998, Jing Liang resigned from his position as
Secretary. Ernest Cheung was appointed Secretary as of the same date.
Effective March 10, 1999 Jing Liang resigned as director.
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.
(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 our 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 our subsidiary, 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. 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
that 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; and
(g) 1,068,000 options to a group of persons who made key
contributions to the successful continued development of the
business in China and helped Xin Hai Technology Development
Ltd. achieve 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 of the stock for the five trading days ended
on November 12, 1999 was $1.28 per share.
Section 16(a) of the Securities Exchange Act of 1934, requires our
officers and directors, and persons who own more than 10% of a registered class
of our securities, to file reports of ownership and changes in ownership of our
equity securities with the SEC and NASDAQ. Officers, directors and greater-than
10% shareholders are required by the SEC regulation to furnish our company with
copies of all Section 16(a) information that they file.
Some of our officers and directors 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 our business conflict with the demands of their other business
and investment activities. These conflicts may require that we attempt to employ
additional personnel. There is no assurance that the services of these persons
will be available to us or that they can be obtained upon terms favorable to us.
There is no procedure in place which would allow our 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.
57
<PAGE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF PRINCIPAL OWNERS AND MANAGEMENT
(a) Beneficial owners of five percent (5%) or greater, of our Common
Stock: The following sets forth information with respect to ownership by holders
of more than five percent (5%) of our Common Stock known by us based upon
21,360,000 shares outstanding at November 10, 1999.
<S> <C> <C> <C>
Title of Name and Address Amount of Percent of If "A" If "B"
Class of Beneficial Owner Beneficial Interest Class Warrants Warrants
exercised* exercised**
- -----------------------------------------------------------------------------------------------------------------------------------
Common Xiao-qing Du
Stock #2754 Adanac St. 2,760,000 12.9% 10.0% 8.3%
Vancouver, BC V5K 2M9 (2)(3)
Common Richco Investors, Inc. 2,772,500 13.0% 14.0% 16.0%
Stock Ste. 830-789 West Pender St. (4)(5)(12)
Vancouver, BC V6C 1H2
Common Ernest Cheung 2,962,500 13.9% 14.8% 16.4%
Stock Ste. 830-789 West Pender St. (1)(6)(7)(12)(15)
Vancouver, BC V6C 1H2
Common Maurice Tsakok 2,772,500 13.0% 14.0% 16.0%
Stock Ste. 830-789 West Pender St. (1)(8)(9)(13)
Vancouver, BC V6C 1H2
</TABLE>
<TABLE>
<CAPTION>
(b) The following sets forth information with respect to our Common
Stock beneficially owned by each Officer and Director, and by all Directors and
Officers as a group, at November 10, 1999.
<S> <C> <C> <C>
Title of Name and Address Amount of Percent of If "A" If "B"
Class of Beneficial Owner Beneficial Interest Class Warrants Warrants
exercised exercised
- ----------------------------------------------------------------------------------------------------------------------------------
Common Xiao-qing Du (Director) 2,760,000 12.9% 10.0% 8.3%
Stock 2754 Addnac St. (2)(3)
Vancouver, B.C. V5K 2M9
Common Ernest Cheung 2,962,500 13.9% 14.8% 16.4%
Stock (Secretary & Director) (1)(6)(7)(12)(15)
(See Richco Investors above)
58
<PAGE>
Common Maurice Tsakok 2,772,500 13.0% 14.0% 16.0%
Stock (Director) (1)(8)(9)(13)
(See Richco Investors above)
Common S.Y. Marc Hung (President & Director) 118,000 .5% .7% .8%
Stock Ste. 830-789 W. Pender St. (10)(11)(14)
Vancouver B.C. V6C 1H2
Total for officers and directors as a group 5,840,500 27.3% 25.5% 25.5%
</TABLE>
(1)Through Richco Investors, Inc., which owns 2,772,500 shares. Messrs. Cheung
and Tsakok are officers, directors and shareholders of Richco Investors Inc.
(2)Ms. Du may participate in options to purchase shares, but the amount is
indeterminate.
(3)Ms. Du may participate in options to purchase shares, but the amount is
indeterminate.
(4)Richco Investors has 1,085,000 A Warrants to purchase shares of common stock.
(5)Richco Investors has 1,085,000 B Warrants to purchase shares of common
stock *.
(6)Ernest Cheung is an officer and director of Richco Investors, Inc.
(see Note 5).
(7)Ernest Cheung is an officer and director of Richco Investors, Inc.
(see Note 5).
(8)Maurice Tsakok is an officer and director of Richco Investors, Inc.
(see Note 5).
(9)Maurice Tsakok is an officer and director of Richco Investors, Inc.
(see Note 5).
(10)Marc Hung has 80,000 A Warrants to purchase shares of common stock.
(11)Marc Hung has 80,000 B Warrants to purchase shares of common stock.*
59
<PAGE>
(12)Ernest Cheung has 50,000 options to purchase shares at $1.30.
(13)Maurice Tsakok has 262,000 options to purchase shares at $1.30.
(14)Marc Hung has 262,000 options to purchase shares at $1.30.
(15)Ernest Cheung is President of Development Fund II of Nova Scotia, Inc. which
owns 190,000 common shares.
*If all "A" Warrants for Units are exercised.
**If all "B" Warrants for Shares are exercised.
Compensation Committee
We have established a Compensation Committee on October 5, 1999 which
consists of two directors, Marc Hung and Ernest Cheung. 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.
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. Our Audit Committee will be charged with recommending the engagement of
independent accountants to audit our financial statements, discussing the scope
and results of the audit with the independent accountants, reviewing the
functions of our management and independent accountants pertaining to our
financial statements and performing other related duties and functions as are
deemed appropriate by our Audit Committee and our Board of Directors.
DIRECTOR RENUMERATION
All directors will be reimbursed for out-of-pocket expenses incurred in
connection with attendance at board and committee meetings. We have granted
options to directors under our Stock Incentive Plan subsequently adopted.
60
<PAGE>
RELATIONSHIPS AND RELATED TRANSACTIONS
On February 20, 1997, we 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., our
Joint Venture Partner in China.
In 1997, we issued 5,000,000 shares of common stock to acquire the
wholly owned subsidiary, Infornet Investment Corp. (Canada) to X. Qing (Angela)
Du - 4,000,000 shares and Jing Liang - 1,000,000 shares.
On August 25, 1997, through the wholly-owned subsidiary, Infornet
Investment Limited (Hong Kong), the Company formed a 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, owning and operating Internet Service
Providers, and providing consultation and training services.
On February 26, 1999, stock options for a total of 1.4 million shares
at $.40 per share were granted to parties that had contributed to the efforts of
the company in the past. The option recipients were Lancaster Pacific Investment
Ltd., Tandoor Holdings Limited, Marc Hung, Kun Wei and Xin Wei. All 1.4 million
share options were exercised as of April 6, 1999.
(1) Tandoor Holdings was instrumental in the formation of
the Company. It prepared the original business plan
for Xin Hai Technologies and helped in the
structuring of the Xin Hai/Infornet Joint Venture. It
also helped in presentations to potential investors.
(2) Lancaster Pacific introduced the Shenyang office team
to Xin Hai and contributed to the establishment of
the Company's second operating location. It also
helped in the design of the accounting and management
information systems for Xin Hai.
(3) 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.
61
<PAGE>
(4) In February 1999, Kun Wei, a shareholder, was granted
and exercised (in March 1999) an option to purchase
330,000 shares of common stock 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 technology development and
implementation.
(5) 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.
(6) In May 1999, Marc Hung, President and Director,
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 and purchased 700,000 units in the
private placement at $1.00 per unit in May 1999.
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
in May 1999. 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.
LEGAL MATTERS
The Company from time to time may be a party to legal proceedings. The
Company is not presently involved in any legal proceedings.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Clancy & Co. P.L.L.C. completed the audit of the balance sheets as of
December 31, 1997, and 1998 and the related statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997, and
1998. The Independent Audit Report for 1997 contained an opinion which included
a paragraph discussing uncertainties related to continuation of the Company as a
going concern. In connection with these prior audits, no disagreement exists
with any former Accountant on any matter of accounting principles or practices,
financial statements disclosure, or auditing scope of procedure, which
62
<PAGE>
disagreement, if not resolved to the satisfaction of the former Accountant,
would have caused the Accountant to make reference in connection with his report
to the subject matter of the disagreement(s).
DESCRIPTION OF SECURITIES
COMMON STOCK
Our Articles of Incorporation as amended authorize the issuance of
50,000,000 shares of common stock at $.001 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 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, ratably 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
We have issued 5,500,000 warrants as part of our 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 21, 2001 consisting of one share and one warrant to
purchase on common share of the Issuer at a price of US $5.00 per share on or
before March 31, 2002. On September 17, 1999 we issued 385,000 warrants to
Richco Investors, Inc. for services rendered in structuring the private
placement in May 1999.
REPORT TO STOCKHOLDERS
We shall make available annual reports to a stockholders containing
audited financial statements reported upon by our independent auditors. We
intend to release unaudited quarterly and other interim reports to our
stockholders as we deem appropriate.
63
<PAGE>
TRANSFER AGENT AND REGISTRAR
Holladay Transfer, Inc. is the transfer agent and registrar for all of
our securities, including the $.001 par value common stock.
LIMITATIONS ON DIRECTOR LIABILITY
Our bylaws require us to indemnify our directors and officers, and
allow us to indemnify our other employees and agents, to the fullest extent
permitted by law. We have also entered into agreements to indemnify our
directors and executive officers. We believe that these provisions and
agreements are necessary to attract and retain qualified directors and executive
officers. At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent where indemnification will be required or
permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for indemnification. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling our company pursuant to the foregoing
provisions, we have been informed that, in the opinion of the Securities and
Exchange Commission, it is against public policy and is therefore unenforceable.
The Board of Directors may alter, amend or repeal the Bylaws of the
Company by the affirmative vote of at least a majority of the entire Board of
Directors, provided that any Bylaws adopted by the Board of Directors may be
amended or repealed by the shareholders. The shareholders may also adopt,
repeal, or amend, the Bylaws of the Company by the affirmative vote of at least
a majority of the shares that are issued and outstanding and entitled to vote.
PLAN OF DISTRIBUTION
The shares of Common Stock have been registered for offer and sale from
time to time by Selling Stockholders to purchasers directly or through agents,
brokers or dealers. These sales may be made in the over-the-counter market or
otherwise at market prices then prevailing or in negotiated transactions. No
Selling Stockholder is obligated to sell any Common Stock pursuant to this
prospectus.
Selling Stockholders and any brokers or dealers participating in the
registration of the shares of Common Stock may be deemed to be "underwriters"
under the Securities Act, and any profit on the sale of the shares of Common
Stock by them and any discounts, commissions or concessions received by any
broker or dealer may be deemed to be underwriting discounts and commissions
under the Securities Act. We are not aware of any arrangement among Selling
Stockholders to sell or refrain from selling any shares of Common Stock.
Expenses in connection with the registration of the shares of Common
Stock pursuant to this prospectus, including fees and expenses of our legal
64
<PAGE>
counsel and independent auditors, filing fees and printing expenses, will be
borne by us. Selling Stockholders will bear additional legal expenses that they
incur, if any, as well as commissions and discounts received by brokers or
dealers in connection with the sale of shares of Common Stock. We have agreed to
indemnify Selling Stockholders against civil liabilities in connection with the
Registration Statement of which this prospectus is a part (the "Registration
Statement"), including liabilities under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the shares of Common Stock may not
simultaneously engage in market making activities for specified periods prior to
the commencement of the distribution. In addition, and without limiting the
foregoing, each Selling Stockholder will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Common Stock by Selling Stockholders.
SELLING STOCKHOLDERS
Our Registration Statement has been filed pursuant to Rule 415 under
the Securities Act to afford our holders of shares of Common Stock being
registered, the opportunity to sell the shares of Common Stock in a public
transaction rather than pursuant to an exemption from the registration and
prospectus delivery requirements of the Securities Act.
We are registering outstanding shares of Common Stock owned by selling
shareholders under the Securities Act and shares underlying A Warrants and B
Warrants. The registration fee related to the registration of these shares is
being paid by the Company. The selling shareholders will be responsible for
their own accounting expenses, brokerage commissions or underwriting discounts,
and transfer fees incurred in the sale of their shares. The Selling Security
Holders intend to sell their shares directly, through agents, dealers, or
underwriters in the public market or otherwise on terms and conditions and at
prices determined at the time of sale by the Selling Security Holders or as a
result of private negotiations between buyer and seller. We will not be
assisting the Selling Security Holders in selling their shares. We intend to
deliver to the Selling Security Holders copies of a current prospectus to be
used in connection with their sales. They will be advised as to the date as of
which this prospectus will no longer be current. Expenses of any sale will be
borne by the parties as they may agree. We will realize no proceeds from the
sale of any of the shares now held by Selling Shareholders, but will receive
$2.00 per share upon exercise of "A" Warrants and $5.00 per share upon exercise
of "B" Warrants.
All of the Selling Security Holders are listed below. The Company is
registering the specified shares owned by each Selling Security Holder
(concurrent with the effectiveness of the Registration Statement) and common
shares underlying A warrants and B warrants. If all of the Selling Security
Holders are successful in offering all of their shares currently owned, they
will own no shares of the Company, but may retain warrants to purchase units or
shares until warrants are exercised. Several Selling Security Holders have held
positions or offices with the Company or have material relationships with the
Company, as noted in the footnotes.
65
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Shares Owned Percentage of
NAME & ADDRESS before Offering Number Shares Underlying Common Owned if
(excluding Warratnts) of Shares Offered A Warrants B Warrants all Shares and
To Be Offered To Be Offered Warrant Shares
are Sold
- -----------------------------------------------------------------------------------------------------------------------------------
Mitsukiku Investments Ltd 625,000 625,000 625,000 625,000 0%
PO Box 428 Les Braves House,
Les Banques
St. Peter Port
Guernsey 4V1 3W2
Tandoor Holdings Ltd 570,000 570,000 570,000 570,000 0%
20D Primrose
Mansion
Taikooshing
Hong Kong
Richco Investors Inc. 2,772,500 1,085,000 (1)(3) 1,085,000 1,085,000 6%
830-789 West Pender Street
Vancouver B.C., Canada V6C 1H2 3,152,500(4) 1,275,000 (4) 1,275,000(4) 1,275,000(4) 6%(4)
Development Fund II of
Nova Scotia Inc. 190,000 190,000 (1)(3) 190,000 190,000 6%
c/o Richco Investors Inc.
830-789 West Pender Street
Vancouver B.C., Canada V6C 1H2 3,152,500(4) 1,275,000 (4) 1,275,000(4) 1,275,000(4) 6%(4)
Mr. Minhas Sayani 75,000 75,000 75,000 75,000 0%
PO Box 30020 Dubai
United Arab Emirates
66
<PAGE>
Xerxes Venture Capital Fund Ltd. 50,000 50,000 50,000 50,000 0%
PO Box 88 I Grenville St.
St. Helier, Jersey
JE4 9PF UK
Goldpac Investment Fund 40,000 40,000 40,000 40,000 0%
16D 139 Drake St
Vancouver B.C.
V6Z 2T8 Canada
Nottinghill Resources Ltd. 50,000 50,000 50,000 50,000 0%
Mareva House 4 George St.
Nassau, Bahamas
Mr. Allan Slaughter 10,000 10,000 10,000 10,000 0%
1368 Madrona Dr.
Bay, B.C.
V9P 9C9 Canada
Mr. David Atkinson 7,500 7,500 7,500 7,500 0%
4590 Keith RD
West Vancouver B.C.
V7W 1W2 Canada
Mr. Michael Atkinson 7,500 7,500 7,500 7,500 0%
#210 1315 W. 11th Ave.
Vancouver B.C.
V6H 1K7 Canada
Mrs. Juanita L. Po 5,000 5,000 5,000 5,000 0%
842 Clements Ave.
North Vancouver B.C.
V7R 2K7 Canada
Mr. Joseph Go and 10,000 10,000 10,000 10,000 0%
Mrs. Babs Po
1045 Montroyal Blvd.
N. Vancouver 13C
V7R 2H5 Canada
67
<PAGE>
Bradstone Equity Partners Inc. 200,000 200,000 200,000 200,000 0%
#638-375 Water St.,
Vancouver B.C.
V6B 5C6 Canada
403401 B.C.Ltd. 150,000 150,000 150,000 150,000 0%
#638-375 Water St.,
Vancouver B.C. V6B 5C6 Canada
Silver Shadow Investments Ltd. 20,000 20,000 20,000 20,000 0%
PO Box546 28-30 The Parade
St. Helier Jersey
Channel Islands
Cayman Islands Securities Ltd. 80,000 80,000 80,000 80,000 0%
PO Box 2835 G.T.
Grand Cayman
B. W. I. Chelsea Capital Corp. 70,000 70,000 70,000 70,000 0%
#200-750 W. Pender St.
Vancouver B.C.
V6C 1B5 Canada
Mr. Carlo K. Rahal 25,000 25,000 25,000 25,000 0%
6410 Charing Crt.
Burnaby B.C.
V5E 3Y3 Canada
Mr. David M. Lyall 100,000 100,000 100,000 100,000 0%
6745 W. Blvd
B.C.V6P 5R8 Canada
Ms. Linda A. Massie 10,000 10,000 10,000 10,000 0%
305-1750 West 13th Ave
Vancouver B.C.
V6J 2H1 Canada
Mr. Patrick Hung 60,000 60,000 60,000 60,000 0%
6-1200 Brunette Ave.
Coquitlam B.C.
V3K 1G3 Canada
68
<PAGE>
Ms Chantal Hung 60,000 60,000 60,000 60,000 0%
6C Winston Churchill Lane
Curepipe
Mauritius
Mr. Marc Hung 118,000 80,000 (2) 80,000 80,000 .12%
(President & Director)
6- 1200 Brunette Ave.
Coquittam B.C.
V3K 1G3 Canada
Hare & Co. 100,000 100,000 100,000 100,000 0%
c\o Bank of New York1
Wall Street - 3rd Floor
New York, N.Y. 10286
Clariden Bank, 180,000 180,000 180,000 180,000 0%
Claridestrasse 26,
8002 Zurich
Switzerland
Mr. Brian Findlay 50,000 50,000 50,000 50,000 0%
29433 Simpson Rd,
Abbotsford, B.C.
V6C I H9 Canada
Mrs. Hazel L. Allington 3,500 3,500 3,500 3,500 0%
4614 Woodgreen Dr.
West Vancouver B.C.
V7S 2V2 Canada
Ms. Sharon Allington 1,500 1,500 1,500 1,500 0%
4614 Woodgreen Dr
West Vancouver B.C.
V7S 2V2 Canada
Orbit Leasing Corp. 90,000 90,000 90,000 90,000 0%
310-1324 17th Ave. SW
Calgary Alberta
T2T 5S8 Canada
69
<PAGE>
Taylor Oil Products Ltd. 80,000 80,000 80,000 80,000 0%
PO Box 1062 GT
Grand Cayman.
B.W.I.
Caribbean Avionics Ltd. 280,000 280,000 280,000 280,000 0%
PO Box 599
Carribean Place Providenciales,
Turks & Caicos Is.
Yonderiche
International Consultant 15,000 15,000 15,000 15,000 0%
102-1318 West 6th Ave.
Vancouver, B.C.
V6H 1A7 Canada
Ms. Jane Lee Kennedy 1,500 1,500 1,500 1,500 0%
1253 Hunter Rd
Delta B.C.
V4L 1Y9 Canada
Mrs. Billee Davidson 10,000 10,000 10,000 10,000 0%
3902 West 38th Ave.
Vancouver B.C.
V6N 2Y6 Canada
Mr. F. Goelo 120,000 120,000 120,000 120,000 0%
PO Box 10910
Grand Cayman
Cayman Islands
B.W.I.
Aberdeen Holdings Ltd. 50,000 50,000 50,000 50,000 0%
60 Market Square
Belize City
Belize
Mr. Ken Aloysius Kow 16,000 16,000 16,000 16,000 0%
Ms. Dannie Kow
2957 East 56 Ave
Vancouver B.C.
V5S 2A2 Canada
70
<PAGE>
Mr. Floyd Hill 25,000 25,000 25,000 25,000 0%
1800-609 Granville St.
Vancouver B.C.
V7S IC4 Canada
Ms. Linda Collins 25,000 25,000 25,000 25,000 0%
3939 W. 38th Ave
Vancouver B.C.
V6N 2Y7 Canada
Mr. Patrick C. Lincoln 5,000 5,000 5,000 5,000 0%
17 Leacock CT
Thornhill ON
L3T 6X9 Canada
Mr. Rodney B. Johnston 25,000 25,000 25,000 25,000 0%
17412-29th Ave.
S. Surrey B.C.
V4P 9R1 Canada
Mr. L. C. Allington 50,000 50,000 50,000 50,000 0%
4614 Woodgreen Dr
West Vancouver B.C.
V7S 2V2 Canada
Mr. Hugh Cooper 10,000 10,000 10,000 10,000 0%
425 Rabbit Lane
West Vancouver B.C.
V7S 1J1 Canada
Ms. Sharon Cooper 40,000 40,000 40,000 40,000 0%
425 Rabbit Lane
West Vancouver 13C
V7S 1J1 Canada
J.F. Yang Capital Corp. 250,000 250,000 250,000 250,000 0%
15 Starling House
Charlbert St.London
NW8 7BS UK
71
<PAGE>
Mr. Brent Petterson 2,500 2,500 2,500 2,500 0%
603-1500 Ostler Court,
North Vancouver B.C.
V7G 2S2 Canada
Prism Holdings Inc. 25,000 25,000 25,000 25,000 0%
PO Box 150,
Design House,
Providenciales,
I Turks & Caicos Islands B.W.I.
Ms. Christine Smith 10,000 10,000 10,000 10,000 0%
#314-3738 Norfolk St.
Burnaby B.C.
V5G 4V4 Canada
First Nevisian Stockbrokers Ltd. 40,000 40,000 40,000 40,000 0%
Barclays Building,
Maw St. Charlestown Nevis
B.W.I.
Tedburn Ltd. 150,000 150,000 150,000 150,000 0%
2C Engineers Road,
Gibraltar
J.R. Ing Associates 35,000 35,000 35,000 35,000 0%
130 Adelaide St. West
Toronto ON
M5P I G6 Canada
Sirhc Holdings, Ltd. 150,000 150,000 150,000 150,000 0%
9 Church St.
Hamilton Hm11
Bermuda
A&E Capital Funding Inc. 250,000 250,000 250,000 250,000 0%
2300 Yonge St. Suite 3000
Toronto ON
M4P 1E4 Canada
72
<PAGE>
Thesis Group Inc. 150,000 150,000 150,000 150,000 0%
19 Hanover Terrace Regents Park
London
NW1 4RJ UK
Mr. Barry Fraser 15,000 15,000 15,000 15,000 0%
1300-777 Dunsmuir St.
Vancouver B.C.
V7Y I K2 Canada
Mr. William Adams 10,000 10,000 10,000 10,000 0%
PO Box 92240102
Skyline Pl.
Garibaldi Highlands
Vancouver B.C.
VON 1TO Canada
Mr. Fred TSE 40,000 40,000 40,000 40,000 0%
186 Stevens Dr.
West Vancouver B.C.
TOTAL 5,885,000 shares
</TABLE>
(1) Richco Investors is a public company of which Ernest Cheung and
Maurice Tsakok are directors. Richco owns a total of 2,772,500 shares plus
770,000 warrants for additional units of our stock.
(2) Marc Hung is President and a Director of our Company.
(3) Development Fund II of Nova Scotia, Inc. has Ernest Cheung as
President. Richco Investors, Inc. has non-voting shares of the Fund, but does
not control the Board. Mr. Cheung is an officer and director of Xin Net Corp.
(4) Assumes that Richco Investors, Inc. and Development Fund II of Nova
Scotia, Inc. are aggregated due to Ernest Cheung being an officer of both
companies (under Reg. 13d-3).
DETERMINATION OF OFFERING PRICE
There has been a very limited market for the shares of our Common
Stock. The offering price will be based upon the market price at the time of
sale of shares now outstanding and the shares underlying our "A" Warrants will
be purchased @ $2.00 per share and the shares underlying our "B" Warrants will
be purchased @ $5.00 per share. There is no direct relation between any price
and the assets, book value, shareholders' equity or net worth of our Company.
LEGAL MATTERS
The law firm of Michael A. Littman, 10200 W. 44th Ave., #400 Wheat
Ridge, Colorado 80033, has acted as our counsel in connection with this
Offering.
73
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1997 and
1998 and for the years then ended have been included in the Registration
Statement in reliance upon the report of Clancy & Co., P.L.L.C., independent
auditor, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND INFORMATION
We have filed a Registration Statement on Form SB-2 under the
Securities Act of 1933 with the Securities and Exchange Commission, Washington,
D.C., relating to the securities offered. For further information with respect
to us and the securities offered, you may review the Registration Statement,
including the exhibits, without charge at the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, or inspected and
copied at, and obtained at prescribed rates from, the Public Reference Section
of the Securities and Exchange Commission at its principal office at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
IN ADDITION, WE FILE REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH THE
SEC. YOU MAY READ AND COPY ANY DOCUMENT WE FILE AT THE SEC'S PUBLIC REFERENCE
ROOMS IN WASHINGTON, D.C., NEW YORK, NEW YORK AND CHICAGO, ILLINOIS. PLEASE CALL
THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION ON THE PUBLIC REFERENCE ROOMS.
OUR SEC FILINGS ARE ALSO AVAILABLE TO THE PUBLIC ON THE SEC'S WEBSITE AT
HTTP://WWW.SEC.GOV.
74
<PAGE>
PART II
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is a statement of expenses expected to be incurred by
the company in connection with the issuance and distribution of the securities
to be registered, other than underwriting discounts and commissions.
Legal Fees $35,000*
Accounting Fees $15,000*
Filing Fees $15,000*
Printing & Engraving
share certificates and prospectuses $10,000*
Non-Accountable Expenses $10,000*
(* Estimates Only)
<TABLE>
<CAPTION>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three (3) years, the following sales have been made of
the Company's $.001 par value Voting Common Stock. Consideration received is
shown.
1996 YEAR PURCHASERS LIST
<S> <C> <C> <C> <C>
NAME & ADDRESS DATE OF NUMBER CONSIDERATION PRICE
PURCHASE OF SHARES PER
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
Kashmir Singh
1025- Augusta Ave, Burnaby,
B.C. V5A-1K3 12/11/96 2000 $500 $.25
75
<PAGE>
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
76
<PAGE>
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
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
77
<PAGE>
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
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
78
<PAGE>
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 $500 $.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
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
79
<PAGE>
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
80
<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
81
<PAGE>
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
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
82
<PAGE>
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
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 $8,325 $.25
------ ------
TOTAL 200,000 $50,000
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
SUBSCRIBER DATE OF CONSIDERATION SHARES PRICE
PURCHASE PER
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 $40,000 100,000 $.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
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
84
<PAGE>
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
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
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,
( Corp.
Jing Liang March 3,1997 1,000,000
403-1333 Haro Street
Vancouver, B.C., V6E 1G4
TOTAL 5,000,000
</TABLE>
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.
86
<PAGE>
<TABLE>
<CAPTION>
1999 OPTION EXERCISE NOTE:
The Options were granted to persons or entities which had contributed
to our company effort in the past. The average closing price of the common stock
ten (10) days prior to February 26, 1999 was $0.40.
<S> <C> <C> <C> <C>
DATE OF CONSIDERATION PRICE NUMBER
PURCHASE PER OF SHARES
SHARE
- ------------------------------------------------------------------------------------------------------------
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
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
</TABLE>
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.
87
<PAGE>
<TABLE>
<CAPTION>
1999 PRIVATE PLACEMENT
<S> <C> <C> <C> <C>
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 190,000 $190,000 5/19/99 $1.00
Nova Scotia Inc.
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
88
<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
89
<PAGE>
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.
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
90
<PAGE>
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
Mrs. Hazel L. Allington 3,500 $3,500 5/19/99 $1.00
4614 Woodgreen Dr.
West Vancouver B.C.
V7S 2V2 Canada
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.
91
<PAGE>
Yonderiche International 15,000 $15,000 5/19/99 $1.00
Consultant
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
Mrs. 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
Ms. Linda Collins 25,000 $25,000 5/19/99 $1.00
3939 W. 38th Ave
Vancouver B.C.
V6N 2Y7 Canada
92
<PAGE>
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.
93
<PAGE>
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.
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
94
<PAGE>
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 5,5000,000 $5,500,000
shares
</TABLE>
*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, 385,000 units were issued to Richco Investors,
Inc. as a consulting fee for structuring the 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRICE PER
DATE SHARE CONSIDERATION SHARES
- -------------------------------------------------------------------------------------------------------------
Xin Wei
2754 Adanac Street
Vancouver, B.C. VSK 3M9 2/20/97 $.001 $750 750,000
Kun Wei
403 No I Blvd
Qianmachang Lane
Gulou Street, West
Beijing, China 2/20/97 $.001 $450 450,000
Xi-ping Qu
403 - 1333 Haro Street
Vancouver, B.C. V6E 1G4 2/20/97 $.001 $300 300,000
95
<PAGE>
Nicole Alagich
1400 - 400 Burrard Street
Vancouver, B.C. V6C 3G2 2/20/97 $.001 $3 3,000
Terry Johnston
1408 - 4300 Mayberry Street
Burnaby, B.C. V5H 4A4 2/20/97 $.001 $3 3,000
Ranjit Bhogal
9042 135 A Street
Surrey, B.C. V3V 7CS 2/20/97 $.001 $3 3,000
Bhupinder Mann
1182 East 33rd Ave.
Vancouver, B.C. V5F 3B3 2/20/97 $.001 $3 3,000
Charles Grahn
203 - 1386 West 73rd Ave
Vancouver, B.C. V6P 3E8 2/20/97 $.001 $3 3,000
Gemsco Management Ltd.
53 Woodland Drive
Delta, B.C. V4L 2H4 2/20/97 $.001 $700 700,000
Farmind Link Corp.
2998 Park Lane
West Vancouver, B.C. V7V 1E9 2/20/97 $.001 $700 700,000
Simon Yuen
19835 64th Avenue
Langley, B.C. V2Y 11S 2/20/97 $.001 $700 700,000
Lionel Welch
7 Prince Street
Belize City, Belize 2/20/97 $.001 $320 320,000
Kathleen Robinson
P.O. Box 170
Grand Turk
Turks & Caicos Islands, BWI 2/20/97 $.001 $10 10,000
Mr. Joseph A. Gamache
1421 Barber Court
Banning CA 92220 2/20/97 $.001 $10 10,000
Hartford Capital Corporation
1400 - 400 Burrard Street
Vancouver, B.C. V6C 3G2 2/20/97 $.001 $ 45 45,000
</TABLE>
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.
96
<PAGE>
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<S> <C>
Exhibit No. Item.
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 Technology, Inc. (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)*
5.1 Form of Opinion of Michael A. Littman
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 "A" Warrant Certificate
10.5 "B" Warrant Certificate
23.1 Consent of Michael A. Littman, dated November 8, 1999.
23.2 Consent of Auditor, dated November 8, 1999
* Incorporated by reference to Form 10SB Registration Statement filed June 1999, file #026559
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL STATEMENT SCHEDULES
(1) Financial statements of Xin Net Corp. (formerly Placer Technologies, Inc.) and subsidiaries
YEAR 1998 PAGE
Cover page i
Index to Financial Statements ii
Independent Auditors' Report for years ended December 31,
1998 and December 31, 1997 F-1
Consolidated Balance Sheet at December 31, 1998 F-2
Consolidated Statement of Stockholders Equity - December 31, 1998 F-4
Consolidated Statement of Operations As of End of December 31, 1998 F-3
Consolidated Statement of Cash Flows As of End of December 31, 1998 F-5
Notes to the Consolidated Financial Statements F-6 - F-14
NEW INTERIM FINANCIAL STATEMENTS FOR PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED)
Consolidated Balance Sheets F-1
Consolidated Statement of Operations F-2
Consolidated Statement of Cash Flows F-3
Consolidated Statement of Stockholders Equity F-4
Notes to Financial Statements F-5 - F-8
(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.
</TABLE>
98
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
a post effective amendment to this registration statement.
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933; +
(ii) To reflect in the prospectus facts or events arising
after the effective date of the registration statement (or the
most recent post effective amendment) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
(iii) To include any material information with respect to the
plan of distribution previously disclosed in the registration
statement or any material change to the information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of these securities at that time shall be deemed to be the initial bona
fide offering.
(3) To remove from registration by means of a post effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide certificates in denominations and registered in names as
required by Selected Dealers to permit prompt delivery to each purchaser.
(5) See Item 14 for Registrant's undertaking with respect to
indemnification.
99
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of ______________, State of _____________, on
January 7, 2000.
XIN NET CORP.
BY:/s/S.Y. MARC HUNG
Its: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------------------------------------
/s/Xiao-qing Du Director January 7, 2000
Xiao-qing Du
/s/S.Y. Marc Hung President and Director January 7, 2000
S.Y. Marc Hung
/s/Ernest Cheung Secretary and Director January 7, 2000
Ernest Cheung
/s/Maurice Tsakok Director January 7, 2000
Maurice Tsakok
100
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
XIN NET CORP.
(A Development Stage Company)
i
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP.
(FORMERLY PLACER TECHNOLOGIES, INC.)
AND SUBSIDIARIES
Vancouver, BC
AUDIT REPORT
DECEMBER 31, 1998 AND 1997
CONTENTS
<S> <C>
Independent Auditors' Report............................................... F-1
Consolidated Balance Sheet at December 31, 1998 and 1997................... F-2
Consolidated Statement of Operations For The Year Ended December 31, 1998, For
the Period From Inception (September 12, 1996) To December 31, 1997, and
For the Period From Inception (September 12, 1996)
to December 31, 1998................................................ F-3
Consolidated Statement of Stockholders' Equity From Inception
(September 12, 1997) To December 31, 1998........................... F-4
Consolidated Statement of Cash Flows For The Year
Ended December 31, 1998, For the Period From
Inception (September 12, 1996) To December 31,
1997, and For the Period From Inception
(September 12, 1996) to December 31, 1998....................... F-5 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.
ii
</TABLE>
<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-1
<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
50,000,000; Issued and Outstanding, 14,075,000 14,075 14,075
Additional Paid In Capital 792,990 792,990
RETAINED EARNINGS (ACCUMULATED DEFICIT) (242,994) (265,272)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 564,071 541,793
------------ ------------
Total Liabilities and Stockholders' Equity $ 604,575 $ 554,768
=========== ============
The accompanying notes are integral part of these financial statements.
F-2
</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 Year Ended For The Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Revenues $527,988 $ 96,177
Expenses
General and Administrative 510,555 333,084
------------ --------------
Operating Income (Loss) 17,433 (236,907)
Other Income
Interest Income 4,845 7,221
------------ --------------
Net Income (Loss) Available to Common
Stockholders $ 22,278 $ (229,686)
============ ==============
Basic Income (Loss) Per Common Share $ 0.00 $ (0.02)
============ ==============
Basic Weighted Average Common
Shares Outstanding 14,075,000 12,127,082
============ ==============
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 STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
<S> <C> <C> <C> <C> <C>
Common Stock Additional Loss Total
Shares Amount Paid In Accumulated
Capital During the
Development
Stage
----------------- ------------- --------------- ------------------- ---------------
Balance, December 31, 1996 3,200,000 $3,200 $49,800 $(35,586) $17,414
Issuance of Common Stock 1,875,000 1,875 748,125 750,000
For Cash at $.40 Per Share
on June 2, 1997
Issuance of Common Stock 5,000,000 5,000 (4,900) 100
in Exchange for Acquisition
of Subsidiary on March 3, 1997
Issuance of Common Stock 4,000,000 4,000 4,000
For Services at $.001 Per
Share on February 20, 1997
Loss, Year Ended (118,313) (118,313)
December 31, 1997
----------------- ------------- --------------- ------------------- ---------------
Balance, December 31, 1997, 14,075,000 14,075 793,025 (153,899) 653,201
As previously reported
Prior Period Adjustment - (35) (111,373) (111,408)
Error in Consolidation of
Subsidiary's 1997 Financial
Statements Expressed in
Canadian Dollars Which
Should Have Been in U.S.
Dollars (Note 7)
----------------- ------------- --------------- ------------------- ---------------
Balance, December 31, 1997, 14,075,000 14,075 792,990 (265,272) 541,793
as restated
Income, Year Ended 22,278 22,278
December 31, 1998
----------------- ------------- --------------- ------------------- ----------------
Balance, December 31, 1998 14,075,000 $14,075 $792,990 $(242,994) $564,071
================= ============= =============== =================== ===============
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 CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<S> <C> <C>
For the Year For the Year
Ended Ended
December 31, December 31,
1998 1997
---------------------- -------------------
Cash Flows from Operating Activities
Net Income (Loss) $22,278 $(229,686)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in)
Operating Activities
Depreciation and Amortization 47,930 46,760
Common Stock Issued for Services 0 4,000
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 45,531 34,585
---------------------- -------------------
Net Cash Provided by (Used in) Operating Activities 65,809 (195,101)
Cash Flows From Investing Activities Purchase of (86,986) (235,012)
Property and Equipment
---------------------- -------------------
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 20,000 750,065
---------------------- -------------------
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
====================== ===================
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 (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<S> <C> <C>
For the Year For the Year
Ended Ended
December 31, December 31,
1998 1997
---------------------- -------------------
Supplemental Information:
Cash Paid for:
Interest $0 $0
====================== ===================
Income Taxes $0 $0
====================== ===================
Noncash Investing and Financing:
Common Stock Issued for Services $0 $4,000
====================== ===================
Common Stock Issued in Exchange for Acquisition $0 $65
of Subsidiary
====================== ===================
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 million ($0.00l) 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.
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 FAS 94, "Consolidated
Financial Statements," the equity method is used to account for
the investment in the joint venture. 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 manufactures and sells computer network
systems, communication equipment and communication engineering
services, including development and construction of Internet
access 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.
F-7
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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). 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.
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
Revenues from products and services are recognized at the time
goods are shipped or services are provided to the customer.
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
Statement of Financial Accounting Standards ("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.
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)
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 SPAS No. 128, "Earnings Per Share."
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 financial position and results of operations of the Company's
foreign subsidiaries are maintained in a currency other than the
reporting currency. Prior to consolidation, the assets,
liabilities, revenues, expenses, gains and losses are remeasured
into the reporting currency, and any exchange gains or losses that
result from remeasuring foreign currency amounts are included in
net income/loss in the subsidiaries financial statements. Monetary
assets and liabilities, such as property and equipment,
accumulated depreciation, intangible assets, amortization, and
common stock, are remeasured into the reporting currency using
historical exchange rates. Monetary assets and liabilities, such
as cash and most liabilities, are remeasured based on current
exchange rates. Revenues and expenses related to nonmonetary
items, such as cost of goods sold, depreciation, and amortization
of intangible assets, are remeasured using the historical exchange
rates, while those related to monetary items are remeasured using
current exchange rates. See Note 6.
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)
0. 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 has no
effect on the Company's financial statements.
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.
F-11
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<S> <C> <C>
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.
</TABLE>
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 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:
F-12
<PAGE>
<TABLE>
<CAPTION>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - INCOME TAXES (CONTINUED)
<S> <C> <C>
Deferred Taxes 1998 1997
- ----------------------------------------- ------------------------ -------------------------
Net Operating Loss Carryforwards $63,668 $32,729
Valuation Allowances (63,668) (32,729)
------------------------ -------------------------
Net Deferred Tax Assets $0 $0
======================== =========================
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1998 China Canada Other Total
- --------------------------------- --------------- ------------- ---------------- ----------------------------
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 3,566 1,279 0 4,845
December 31, 1997 China Canada Other Total
- --------------------------------- --------------- ------------- ---------------- ----------------------------
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
Amortization 46,249 511 0 46,760
Interest Income 0 7,124 97 7,221
</TABLE>
F-13
<PAGE>
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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 net income by $111,373 for 1997.
NOTE 8 - SUBSEQUENT EVENTS
(1) The Company completed an Offering in May 1999 and has issued
5,500,000 shares of common stock, at $1.00 per share, or $5,500,000. The Company
has received all of the proceeds as of the date of issuance of these financial
statements.
(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>
Interim Financial Statements
for Period Ended September 30, 1999
(unaudited)
<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 6,845,705 792,990
Accumulated Deficit (399,323) (242,994)
------------------------------ -----------------------------
Total Stockholders' Equity 6,467,742 564,071
------------------------------ -----------------------------
Total Liabilities and Stockholders' Equity $7,045,829 $604,575
============================== =============================
See Accompanying Notes
F-1
</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 ($0.01) $- ($0.01) $-
(Note 5)
========================= ================= ====================== ==============
Basic Weighted Average Common shares 21,033,587 14,075,00 17,733,278 14,075,000
outstanding (Note 5)
========================= ================= ====================== ==============
Diluted Earnings (Loss) per common share ($0.01) $- ($0.01) $-
(Note 5)
========================= ================= ====================== ==============
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-2
</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 1999
------------------------ -----------------------
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-3
</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)
Stated in U.S. dollars
<S> <C> <C> <C> <C> <C>
Additional
Stock Paid In Accumulated
Common Amount at Capital Deficit Total
Shares Par Value
----------------- ---------------- ----------------- ------------------- ------------------
Balance, December 31, 1998 14,075,000 $14,075 $792,990 ($242,994) $564,071
Exercise of Stock Option for cash at 810,000 810 232,190 324,000
$0.40 per share on April 4, 1999
Exercise of Stock Option for cash at 590,000 590 235,410 236,000
$0.40 per share on April 6, 1999
Private placement of common stock for 5,500,000 5,500 5,109,500 5,115,000
cash at $1.00 per share on May 19,
1999, net of costs of $385,000
Issuance of common stock for services 385,000 385 384,615 385,000
at $1.00 per share on September 17,
1999
Loss for the nine months ended (156,329) (156,329)
September 30, 1999
----------------- ---------------- ----------------- ------------------- ------------------
Balance, September 30, 1999 21,360,000 $21,360 $6,845,705 ($399,323) $6,467,742
================= ================ ================= =================== ==================
See Accompanying Notes
F-4
</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 ("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 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-5
<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-6
<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-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)
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-8
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
XIN NET CORP.
(Exact name of Registrant as specified in charter)
EXHIBITS
101
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
Exhibit No. Item
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 Technology, Inc. (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)*
5.1 Form of Opinion of Michael A. Littman
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 "A" Warrant Certificate
10.5 "B" Warrant Certificate
23.1 Consent of Michael A. Littman, dated November 8, 1999.
23.2 Consent of Auditor, dated November 8, 1999
*Incorporated by reference to Form 10SB Registration Statement filed June 1999, file #026559
102
</TABLE>
EX-5.1
FORM OF OPINION
<PAGE>
EXHIBIT 5.1
Michael A. Littman
Attorney at Law
10200 W. 44th Ave., #400
Wheat Ridge, CO 80033
(303) 422-8127 Fax: (303) 422-7796
November 8, 1999
XIN NET CORP.
Re: SB-2 Registration Statement for common shares of XIN NET CORP.
Gentlemen:
At your request, I have examined the form of Registration Statement No.
333-90575 which you are filing with the Securities and Exchange Commission, on
Form SB-2 (the "Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of up to 5,885,000 shares of your
Common Stock (the "Stock") issuable pursuant to the 1999 Registration Statement
file No. 333-90575 when effective.
In rendering the following opinion, I have examined and relied
only upon the documents, and certificates of officers and directors of the
Company as are specifically described below. In my examination, I have assumed
the genuineness of all signatures, the authenticity, accuracy and completeness
of the documents submitted to me as originals, and the conformity with the
original documents of all documents submitted to me as copies. My examination
was limited to the following documents and not others:
a.Certificate of Incorporation of the Company, as amended to date;
b.Bylaws of the Company, as amended to date;
c.Certified Resolutions adopted by the Board of Directors of the
Company authorizing the Plan and the issuance of the Stock.
d.The Registration Statement.
I have not undertaken, nor do I intend to undertake, any
independent investigation beyond such documents and records, or to verify the
adequacy of accuracy of such documents and records.
Based on the foregoing, it is my opinion that the Stock being
registered under the Registration Statement, when issued, is duly and validly
authorized, fully paid and non-assessable.
I express no opinion as to compliance with the securities or "blue
sky" laws of any state in which the Stock is proposed to be offered and sold or
as to the effect, if any, which non-compliance with such laws might have on the
validity of transfer of the Stock.
<PAGE>
I consent to the filing of this opinion as an exhibit to any
filing made with the Securities and Exchange Commission or under any state or
other jurisdiction's securities act for the purpose of registering, qualifying
or establishing eligibility for an exemption from registration or qualification
of the Stock described in the Registration Statement in connection with the
offering described therein. Other than as provided in the preceding sentence,
this opinion (i) is addressed solely to you, (ii) may not be relied upon by any
other party, (iii) covers only matters of Florida and federal law and nothing in
this opinion shall be deemed to imply any opinion related to the laws of any
other jurisdiction, (iv) may not be quoted or reproduced or delivered by you to
any other person, and (v) may not be relied upon for any other purpose
whatsoever. Nothing herein shall be deemed to relate to or constitute an opinion
concerning any matters not specifically set forth above.
By giving you this opinion and consent, I do not admit that I am a
expert with respect to any part of the Registration Statement or Prospectus
within the meaning of the term "expert" as used in Section 11 of the Securities
Act of 1933, as amended, or the Rules and Regulations of the Securities and
Exchange Commission promulgated thereunder.
The information set forth herein is as of the date of this letter.
I disclaim any undertaking to advise you of changes which may be brought to my
attention after the effective date of the Registration Statement.
Sincerely,
/s/Michael A. Littman
------------------------
Michael A. Littman
EXHIBIT 10.4
"A" WARRANT CERTIFICATE
<PAGE>
The shares to be issued upon the exercise of these warrants have not been
registered under the Securities Act of 1933 (The Act) and are restricted
securities as that term is defined in Rule 144 under The Act. The shares may not
be offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under The Act or pursuant to an exemption from
registration under The Act. The availability of which is to be established to
the satisfaction of the company.
No. Warrants to Purchase
Units
SERIES "A" SHARE PURCHASE WARRANT
XIN NET CORP.
THIS IS TO CERTIFY THAT, for the value received, ______________________ (the
"Warrant Holder") of ________________________ shall have the right to purchase
from Xin Net Corp. (the "Company"), upon and subject to the terms and conditions
hereinafter referred to, at any time up to 4:00 p.m. (Vancouver time) on March
31, 2001 (the "Expiry Time") one Unit of the Company upon the exercise of one
Series "A" Unit purchase warrant represented hereby at the price of US$2.00 per
Unit. Each Unit consisting of one fully paid and non-assessable common share of
the Company and one Additional Warrant which entitles the holder to purchase one
Additional Common Share at US$5.00 on or before March 31, 2002. After the Expiry
Time this warrant certificate and all rights conferred hereby shall be void and
of no value.
The right to purchase Units of the Company may only be exercised by the Warrant
Holder within the time herein before set out by:
(a) duly completing and executing the subscription form
attached hereto, in the manner therein indicated;
(b) surrendering this warrant certificate to the Company
at 830-789 West Pender Street, Vancouver, BC, Canada
V6C 1H2; and
(c) paying the appropriate purchase price for the Units
of the Company subscribed for, either in cash or by
certified check.
Upon surrender and payment, the Company will issue to the Warrant Holder the
number of Units subscribed for. Within ten business days of surrender and
payment, the Company will mail to the Warrant Holder certificates evidencing the
Units subscribed for. If the Warrant Holder subscribed for a lesser number of
Units than the number of Units permitted by this warrant certificate, the
Company shall forthwith cause to be delivered to the Warrant Holder a further
warrant certificate in respect of the Units referred to in this warrant
certificate but not subscribed for.
THE WARRANTS REPRESENTED HEREBY AND ALL RIGHTS HEREUNDER ARE NON-TRANSFERABLE.
In the event of any subdivision of the common shares of the Company as such
shares are constituted on the date hereof, at any time while this warrant
certificate is outstanding, into a greater number of common shares, the Company
will thereafter deliver at the time or times of purchase of the Units hereunder,
in addition to the number of Units in respect of which the right to purchase is
then being exercised, such additional number of Units as result from such
subdivision without any additional payment or other consideration therefor.
<PAGE>
In the event of any consolidation of the common shares of the Company as such
common shares are constituted on the date hereof, at any time while this warrant
certificate is outstanding, into a lesser number of common shares, the number of
Units represented by this warrant certificate shall thereafter be deemed to be
consolidated in like manner and any subscription by the Warrant Holder for
shares hereunder shall be deemed to be a subscription for Units of the Company
as consolidated.
In the event of any reclassification of the common shares of the Company at any
time while this warrant certificate is outstanding, the Company shall thereafter
deliver at the time of purchase of Units hereunder the number of Units of the
appropriate class resulting from the reclassification as the Warrant Holder
would have been entitled to receive in respect of the number of Units so
purchased had the right to purchase been exercised before such reclassification.
The holding of this warrant certificate or the warrants represented hereby shall
not constitute the Warrant Holder a member of the Company.
Time shall be of the essence hereof.
IN WITNESS WHEREOF the Company has caused this warrant certificate to be issued
by its duly authorized signatory.
XIN NET CORP.
By:________________________
Authorized Signatory
<PAGE>
SUBSCRIPTION FORM
To: Xin Net Corp.
Dear Sirs:
The undersigned hereby exercises the right to purchase and hereby subscribed for
_________________ Units in Xin Net Corp. referred to in the warrant certificate
surrendered herewith according to the conditions thereof and herewith makes
payment by cash or certified check of the purchase price in full for the said
Units.
Please issue certificates for the Units being purchased as follows in the name
of the undersigned:
NAME: _____________________________
ADDRESS: _____________________________
_____________________________
Please deliver a warrant certificate in respect of the Units referred to in the
warrant certificate surrendered herewith but not presently subscribed for, to
the undersigned.
DATED this _______ day of ____________________, _______________.
EXHIBIT 10.5
"B" WARRANT CERTIFICATE
<PAGE>
The shares to be issued upon the exercise of these warrants have not been
registered under the Securities Act of 1933 (The Act) and are restricted
securities as that term is defined in Rule 144 under The Act. The shares may not
be offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under The Act or pursuant to an exemption from
registration under The Act. The availability of which is to be established to
the satisfaction of the company.
No. Warrants to Purchase
Units
SERIES "B" SHARE PURCHASE WARRANT
XIN NET CORP.
THIS IS TO CERTIFY THAT, for the value received, ______________________ (the
"Warrant Holder") of ________________________ shall have the right to purchase
from Xin Net Corp. (the "Company"), upon and subject to the terms and conditions
hereinafter referred to, at any time up to 4:00 p.m. (Vancouver time) on March
31, 2002 (the "Expiry Time") one Share of the Company upon the exercise of one
Series "B" Share purchase warrant represented hereby at the price of US$5.00 per
Share. Each Share shall consist of one fully paid and non-assessable common
share of the Company. After the Expiry Time this warrant certificate and all
rights conferred hereby shall be void and of no value.
The right to purchase Shares of the Company may only be exercised by the Warrant
Holder within the time herein before set out by:
(a) duly completing and executing the subscription form
attached hereto, in the manner therein indicated;
(b) surrendering this warrant certificate to the Company
at 830-789 West Pender Street, Vancouver, BC, Canada
V6C 1H2; and
(c) paying the appropriate purchase price for the Shares
of the Company subscribed for, either in cash or by
certified check.
Upon surrender and payment, the Company will issue to the Warrant Holder the
number of Shares subscribed for. Within ten business days of surrender and
payment, the Company will mail to the Warrant Holder certificates evidencing the
Shares subscribed for. If the Warrant Holder subscribed for a lesser number of
Shares than the number of Shares permitted by this warrant certificate, the
Company shall forthwith cause to be delivered to the Warrant Holder a further
warrant certificate in respect of the Shares referred to in this warrant
certificate but not subscribed for.
THE WARRANTS REPRESENTED HEREBY AND ALL RIGHTS HEREUNDER ARE NON-TRANSFERABLE.
In the event of any subdivision of the common shares of the Company as such
shares are constituted on the date hereof, at any time while this warrant
certificate is outstanding, into a greater number of common shares, the Company
will thereafter deliver at the time or times of purchase of the Shares
hereunder, in addition to the number of Shares in respect of which the right to
purchase is then being exercised, such additional number of Shares as result
from such subdivision without any additional payment or other consideration
therefor.
<PAGE>
In the event of any consolidation of the common shares of the Company as such
common shares are constituted on the date hereof, at any time while this warrant
certificate is outstanding, into a lesser number of common shares, the number of
Shares represented by this warrant certificate shall thereafter be deemed to be
consolidated in like manner and any subscription by the Warrant Holder for
shares hereunder shall be deemed to be a subscription for Units of the Company
as consolidated.
In the event of any reclassification of the common shares of the Company at any
time while this warrant certificate is outstanding, the Company shall thereafter
deliver at the time of purchase of Shares hereunder the number of Shares of the
appropriate class resulting from the reclassification as the Warrant Holder
would have been entitled to receive in respect of the number of Shares so
purchased had the right to purchase been exercised before such reclassification.
The holding of this warrant certificate or the warrants represented hereby shall
not constitute the Warrant Holder a member of the Company.
Time shall be of the essence hereof.
IN WITNESS WHEREOF the Company has caused this warrant certificate to be issued
by its duly authorized signatory.
XIN NET CORP.
By:________________________
Authorized Signatory
<PAGE>
SUBSCRIPTION FORM
To: Xin Net Corp.
Dear Sirs:
The undersigned hereby exercises the right to purchase and hereby subscribed for
_________________ Shares in Xin Net Corp. referred to in the warrant certificate
surrendered herewith according to the conditions thereof and herewith makes
payment by cash or certified check of the purchase price in full for the said
Shares.
Please issue certificates for the Shares being purchased as follows in the name
of the undersigned:
NAME: _____________________________
ADDRESS: _____________________________
_____________________________
Please deliver a warrant certificate in respect of the Shares referred to in the
warrant certificate surrendered herewith but not presently subscribed for, to
the undersigned.
DATED this _______ day of ____________________, _______________.
EX-23.1
CONSENT OF MICHAEL A. LITTMAN
<PAGE>
EXHIBIT 23.1
Michael A. Littman
Attorney at Law
10200 W. 44th Avenue, Suite 400
Wheat Ridge, CO 80033
(303) 422-8127 Fax: (303) 422-7796
CONSENT
I hereby consent to the use in the Form SB-2 of XIN NET CORP. under the
Securities Act of 1933, of my opinion letter dated November 8, 1999.
/s/Michael A. Littman
-----------------------
Michael A. Littman
Attorney at Law
November 8, 1999
EX-23.2
CONSENT OF AUDITOR
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
November 8, 1999
XIN NET CORP.
We consent to the reference of our firm under the caption "Experts" and
the use of our report dated July 25, 1999, in the Registration Statement (Form
SB-2) and related Prospectus, of XIN NET CORP. for the registration of 5,885,000
shares of common stock.
CLANCY & CO, P.L.L.C.
BY:/S/CLANCY & CO., P.L.L.C.
<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> 510,555 550,264
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (4,845) (62,767)
<INCOME-PRETAX> 22,278 (184,319)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 22,278 (184,319)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 22,278 (184,319)
<EPS-BASIC> 0.001 (.01)
<EPS-DILUTED> 0.001 (.01)
</TABLE>
