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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
[ ] Transition Report pursuant to 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period to
Commission File Number 0-28659
QINNET.COM, INC.
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(Exact name of small Business Issuer as specified in its charter)
Delaware 75-2610514
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
450 North Brand Boulevard, 6th Floor
Glendale, CA 91203
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (818) 291-6250
--------------
None
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days [ ] Yes [ X ] No
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
1,300,497 Shares of $.0001 par value Common Stock outstanding as of
May 15, 2000.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and Item 310 (b) of
Regulation S-B, and, therefore, do not include all information and
footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity
in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a
fair presentation of the results of operations and financial position
have been included and all such adjustments are of a normal recurring
nature. Operating results for the three months ended March 31, 2000
are not necessarily indicative of the results that can be expected
for the year ending December 31, 1999.
<PAGE>
S. W. HATFIELD, CPA
Certified public accountants
Member: American Institute of Certified Public Accountants
SEC Practice Section
Information Technology Section
Texas Society of Certified Public Accountants
Independent Accountant's Report
-------------------------------
Board of Directors and Shareholders
Qinnet.com, Inc.
We have reviewed the accompanying balance sheets of Qinnet.com,
Inc. (a Delaware corporation) as of March 31, 2000 and 1999 and
the accompanying statement of operations and comprehensive income
and statement of cash flows for the three months ended March 31,
2000 and 1999. These financial statements are prepared in
accordance with the instructions for Form 10-QSB, as issued by
the U. S. Securities and Exchange Commission, and are the sole
responsibility of the company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression on an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note A to the financial statements, the Company is dependent
upon its majority shareholder to maintain the corporate status of
the Company and to provide all nominal working capital support on
the Company's behalf. Because of the Company's lack of operating
assets, its continuance is fully dependent upon the majority
shareholder's continuing support. This situation raises a
substantial doubt about the Company's ability to continue as a
going concern. The majority shareholder intends to continue the
funding of nominal necessary expenses to sustain the corporate
entity. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
S. W. HATFIELD, CPA
Dallas, Texas
April 13, 2000
Use our past to assist your future sm
P. O. Box 820395 9002 Green Oaks Circle, 2nd Floor
Dallas, Texas 75382-0395 Dallas, Texas 75243-7212
214-342-9635 (voice) (fax) 214-342-9601
800-244-0639 [email protected]
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Qinnet.com, Inc.
(formerly TeleSpace Limited)
(a development stage company)
Balance Sheets
March 31, 2000 and 1999
(Unaudited)
March 31, March 31,
2000 1999
---------- ----------
ASSETS
Cash on hand and in bank $ 50,000 $ -
========== ==========
LIABILITIES $ - $ -
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $0.00001 par value.
10,000,000 shares authorized; none
issued and outstanding - -
Common stock - $0.00001 par value.
50,000,000 shares authorized.
1,250,248 shares issued and outstanding 13 13
Additional paid-in capital 50,147 50,147
Contributed capital 5,358 5,358
Deficit accumulated during
the development stage (5,518) (5,518)
---------- ----------
50,000 50,000
Stock subscription receivable - (50,000)
---------- ----------
Total stockholders' equity 50,000 -
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 50,000 $ -
========== ==========
The financial information included herein has been prepared by management
without audit by independent certified public accountants. See accompanying
accountants' review report.
The accompanying notes are an integral part of these financial statements.
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Qinnet.com, Inc.
(formerly TeleSpace Limited)
(a development stage company)
Statements of Operations and Comprehensive Income
Three months ended March 31, 2000 and 1999
Period from May 31, 1989 (date of inception) through June 30, 1999
(Unaudited)
Period from
May 31, 1989
Three Three (date of
months months inception)
ended ended through
March 31, March 31, March 31,
2000 1999 2000
------------ ------------ ----------
Revenues $ - $ - $ -
------------ ------------ ----------
Expenses
Rent and management fees - - 4,000
Other expenses - - 1,433
Amortization of
organization costs - - 85
------------ ------------ ----------
Total expenses - - 5,518
------------ ------------ ----------
Net Loss - - (5,518)
Other Comprehensive Income - - -
------------ ------------ ----------
Comprehensive Loss $ - $ - $ (5,518)
============ ============ ==========
Loss per weighted-average share
of common stock outstanding
computed on net loss - basic
and fully diluted nil nil nil
Weighted-average number of
shares of common stock
outstanding - basic and
fully diluted 1,250,498 1,250,498 568,090
============ ============ ==========
The financial information included herein has been prepared by management
without audit by independent certified public accountants. See accompanying
accountants' review report.
The accompanying notes are an integral part of these financial statements.
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Qinnet.com, Inc.
(formerly TeleSpace Limited)
(a development stage company)
Statements of Cash Flows
Three months ended March 31, 2000 and 1999
Period from May 31, 1989 (date of inception) through June 30, 1999
(Unaudited)
Period from
May 31, 1989
Three Three (date of
months months inception)
ended ended through
March 31, March 31, March 31,
2000 1999 2000
------------ ------------ ----------
Cash Flows from Operating
Activities
Net loss for the period $ - $ - $ (5,518)
Adjustments to reconcile
net loss to
net cash provided by
operating activities
Payment of
organization
costs - - (85)
Amortization of
organizational costs - - 85
------------ ------------ ----------
Net cash used in
operating activities - - (5,518)
------------ ------------ ----------
Cash Flows from Investing
Activities - - -
------------ ------------ ----------
Cash Flows from Financing
Activities
Issuance of common stock - - 160
Collection of stock
subscription receivable 50,000 - 50,000
Capital contributed to
support development - - 5,358
------------ ------------ ----------
Net cash provided by
financing activities 50,000 - 55,518
------------ ------------ ----------
Increase in Cash 50,000 - 50,000
Cash at beginning of period - - -
------------ ------------ ----------
Cash at end of period $ 50,000 $ - $ 50,000
============ ============ ==========
Supplemental Disclosure of
Interest and Income
Taxes Paid
Interest paid for
the period $ - $ - $ - $ -
====== ============ ============ ==========
Income taxes paid
for the period $ - $ - $ - $ -
====== ============ ============ ==========
The financial information included herein has been prepared by management
without audit by independent certified public accountants. See accompanying
accountants' review report.
The accompanying notes are an integral part of these financial statements.
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Qinnet.com, Inc.
(formerly TeleSpace Limited)
(a development stage company)
Notes to Financial Statements
Note A - Organization and Description of Business
Qinnet.com, Inc. (Company) was incorporated on May 31, 1989 as
Specialistics, Inc. under the laws of the State of Delaware, as a
wholly-owned subsidiary of Debbie Reynolds Hotel and Casino, Inc.
(formerly Halter Venture Corporation), a publicly-owned
corporation (DRHC). The Company has had no substantial
operations or substantial assets since inception. The business
purpose of the Company is to seek out and obtain a merger,
acquisition or outright sale transaction whereby the Company's
stockholders will benefit. The Company has not engaged in any
negotiations from inception and has not undertaken any steps to
initiate the search for a merger or acquisition candidate. In
anticipation of various business combination transactions which
did not reach completion, the Company changed its corporate name
to Eastern Group International, Ltd. on July 18, 1996 and
TeleSpace Limited on December 27, 1996, respectively.
The Company changed its corporate name to Qinnet.Com, Inc. on
December 14, 1999.
In October 1992, DRHC divested itself of 100% of its holdings in
the Company by distributing 100% of the issued and outstanding
stock of the Company to DRHC stockholders. The then majority
stockholder of DRHC became the majority stockholder of the
Company. This stockholder then continued to maintain the
corporate status of the Company and provides all nominal working
capital support on the Company's behalf.
The Company has no assets or business operations through March
13, 2000. Accordingly, the Company is considered in the
development stage and, as such, has generated no significant
operating revenues and has incurred cumulative operating losses
of approximately $5,500. Accordingly, the Company is fully
dependent upon management and/or significant stockholders to
provide sufficient working capital to preserve the integrity of
the corporate entity during this phase. It is the intent of
management and significant stockholders to provide sufficient
working capital necessary to support and preserve the integrity
of the corporate entity.
During interim periods, the Company follows the accounting
policies set forth in its annual financial statements
accompanying this document. The information presented herein
does not include all disclosures required by generally accepted
accounting principles and the users of financial information
provided for interim periods should refer to the annual financial
information and footnotes contained in its Annual Report Pursuant
to Section 13 or 15(d) of The Securities Exchange Act of 1934 on
Form 10-KSB when reviewing the interim financial results
presented herein.
In the opinion of management, the accompanying interim financial
statements, prepared in accordance with the instructions for Form
10-QSB, are unaudited and contain all material adjustments,
consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations and
cash flows of the Company for the respective interim periods
presented. The current period results of operations are not
necessarily indicative of results which ultimately will be
reported for the full fiscal year ending December 31, 2000.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
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Qinnet.com, Inc.
(formerly TeleSpace Limited)
(a development stage company)
Notes to Financial Statements - Continued
Note B - Summary of Significant Accounting Policies
1. Cash and cash equivalents
-------------------------
The Company considers all cash on hand and in banks, including
accounts in book overdraft positions, certificates of deposit
and other highly-liquid investments with maturities of three
months or less, when purchased, to be cash and cash
equivalents.
2. Organization costs
------------------
Organization costs were amortized over a five year period from
inception using the straight-line basis.
3. Income taxes
------------
For the period May 31, 1989 (date of inception) through
December 31, 1990, the Company was included in the
consolidated income tax return of DRHC. For the two years
ended December 31, 1992 and 1991, respectively, the Company
(and its parent, DRHC) were included in the consolidated
income tax return of the Company's majority stockholder. As
of December 31, 1993, the Company began filing its own
separate federal income tax return. The Company has no net
operating loss carryforwards available to offset financial
statement or tax return taxable income in future periods.
4. Loss per share
--------------
Basic earnings (loss) per share is computed by dividing the
net income (loss) by the weighted-average number of shares of
common stock and common stock equivalents (primarily
outstanding options and warrants). Common stock equivalents
represent the dilutive effect of the assumed exercise of the
outstanding stock options and warrants, using the treasury
stock method. The calculation of fully diluted earnings
(loss) per share assumes the dilutive effect of the exercise
of outstanding options and warrants at either the beginning of
the respective period presented or the date of issuance,
whichever is later. As of March 31, 2000, December 31, 1999
and 1998, the Company had no warrants and options outstanding
which could be deemed to be dilutive.
Note C - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts
payable and notes payable, as applicable, approximates fair value
due to the short term nature of these items and/or the current
interest rates payable in relation to current market conditions.
Note D - Related Party Transactions
For the period May 31, 1989 (date of inception) through September
30, 1992, DRHC provided office space and management services to
the Company for a fee of $100 per month. Total expenses under
this arrangement aggregated $4,000 for the total period.
<PAGE>
Qinnet.com, Inc.
(formerly TeleSpace Limited)
(a development stage company)
Notes to Financial Statements - Continued
Note E - Common Stock Transactions
On June 27, 1996, the Company's Board of Directors approved and
effected a one for seven reverse stock split. Further, on July
29, 1999, the Company's Board of Directors approved and effected
a one for eight reverse stock split. All issued and outstanding
share and per share amounts reflect the cumulative effect of both
reverse splits as of the first day of the first period presented.
On November 27, 1996, the Company executed a Stock Purchase
Agreement (Agreement) with Telespace, Ltd., a privately-owned
corporation. The Agreement calls for Telespace, Ltd. to
pay$50,000 for approximately 7,714,000 pre-reverse split shares
of restricted, unregistered common stock to be utilized in
facilitating a proposed reverse merger with a privately owned
corporation. The use of the proceeds is intended to pay for
various reorganization, recapitalization and other fees and
expenses related to the change in ownership control and proposed
acquisition transaction. This amount was satisfied in full on
December 31, 1999
Note F - Merger Transactions
On July 1, 1999, the Company entered into a merger agreement with
AmeriCom USA, Inc. (AmeriCom), a publicly-owned Delaware
corporation, whereby the Company would exchange one share of its
common stock for each issued and outstanding share of common
stock of AmeriCom (approximately 33,265,756 shares). The
Company would be the surviving entity of the merger transaction.
Additionally, the Company would assume all obligations related
to issued and outstanding stock options of AmeriCom and the
AmeriCom Option Plan. This transaction did not consummate and
the Company has no further obligations thereunder.
As of March 13, 2000, the Company has an agreement in principle
to merge with Qinnet Holdings Corp. (a Washington State
corporation), a privately-owned corporation controlled by the
Company's controlling shareholder. As of this date, the proposed
merger has not been completed. Due to common control and
ownership of the two merging corporations, this transaction will
be accounted for on an "as-if-pooled" basis in accordance with
Interpretation #39 of Accounting Principles Board Opinion #16
whereby the combined financial statements of the merged entities
will become the historical financial statements of the Company.
In anticipation of this merger transaction, the Company changed
its corporate name to Qinnet.com, Inc. on December 14, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
QINNET CORPORATE ORGANIZATION
Qinnet.com, Inc. ("Qinnet") is a Delaware corporation that was
incorporated on May 31, 1989. Qinnet has no business assets or
operations other than its agreement to merge with Qinnet Holdings
Corp. ("Qinnet Holdings"), as described below.
Qinnet entered into a merger agreement with Qinnet Holdings on
January 12, 2000 (the "Merger Agreement"). Qinnet Holdings Corp.
is a Washington corporation that was incorporated in June, 1999.
The Merger Agreement contemplates the merger of Qinnet and Qinnet
Holdings (the "Merger").
The Merger Agreement contemplates that Qinnet will issue one share
of Qinnet common stock for each share of Qinnet Holdings common
stock upon completion of the Merger. Qinnet plans to file a Form
S-4 registration statement with the Securities and Exchange
Commission under the Securities Act of 1933 (the "Act") in order
to qualify the issue of the Qinnet common stock to the
shareholders of Qinnet Holdings. The closing of the Merger will
be subject to approval by the shareholders of Qinnet and Qinnet
Holdings. As of May 15, 2000, there are a total of 13,109,100
shares of Qinnet Holdings outstanding. In addition, Qinnet
Holdings has granted options to purchase 1,950,000 shares of its
common stock at a price of $5.00 per share under Rule 701 of the
Act. Accordingly, it is anticipated that Qinnet will issue a
total of 13,109,100 shares of Qinnet common stock upon completion
of the Merger, provided that this number will increase if any of
the outstanding options of Qinnet Holdings are exercised prior to
completion of the merger. Any options of Qinnet Holdings not
exercised prior to the merger will survive and continue as options
to purchase shares of Qinnet common stock after the merger on the
same terms and conditions existing prior to the merger.
A copy of the Merger Agreement was filed as an exhibit to the
Company's Form 8-K filed on April 14, 2000
AGREEMENT AND PLAN OF REORGANIZATION
Qinnet entered into an agreement and plan of reorganization with
Internet Corporation of America, Inc. ("ICA") on April 13, 2000
(the "Reorganization Agreement"). Under the Reorganization
Agreement, Qinnet acquired all of the issued and outstanding
shares of the common stock of ICA. The closing under the
Reorganization Agreement consisted of a cash and stock for stock
exchange in which Qinnet acquired all of the issued and
outstanding common stock of ICA in exchange for the payment of
$50,000 and the issuance of 50,000 shares of its common stock. As
a result of this transaction, ICA became a wholly-owned
subsidiary of Qinnet.
ICA was a reporting company under the Securities Exchange Act of
1934 prior to the acquisition. Upon effectiveness of the
Reorganization Agreement, pursuant to Rule 12g-3(a) of the
General Rules and Regulations of the Securities and Exchange
Commission, Qinnet became the successor issuer to ICA for
reporting purposes under the Securities Exchange Act of 1934 and
has elected to report under the Act effective April 14, 2000.
The Reorganization Agreement was approved
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by the unanimous consent of the Board of Directors of Qinnet on
April 11, 2000. The Reorganization Agreement is intended to qualify
as a reorganization within the meaning of Section 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended. Prior to the
Agreement, Qinnet had 1,250,497 shares of common stock issued and
outstanding. Following the Agreement, Qinnet had 1,300,497 shares
of common stock outstanding.
A copy of the Reorganization Agreement was filed as an exhibit to
the Company's Form 8-K filed on April 14, 2000.
BUSINESS OF QINNET HOLDINGS
The business activities of Qinnet Holdings are carried out in
China by Beijing QinNet Electronic Technologies Co., Ltd.
("Qinnet Beijing"), a wholly owned subsidiary of Qinnet Holdings.
Upon completion of the Merger, Qinnet Beijing will become a
subsidiary of Qinnet.
Qinnet Holding's business plan is to acquire and establish
Internet Service Providers ("ISPs") and Internet Content
Providers ("ICPs") within China. The business objective of Qinnet
Holdings is to provide full Internet, electronic business and
electronic commerce solutions to government entities, private
enterprises and individuals in the various provinces of China.
The goal is to achieve exposure, critical mass and scale to the
high growth potential of this huge, but largely untapped market.
China is considered one of the fastest growing markets for the
Internet in the world. Qinnet Holdings plans to assemble a
management team that has significant Chinese and North American
information technology and business experience in order to
implement its business plan. Qinnet Holdings plans to develop
its "www.qinnet.com" Internet web site in connection with the
expansion of its Qinnet.com business.
BUSINESS PLAN
Qinnet Holdings plans to implement its business plan in three
overlapping phases through its subsidiary, Qinnet Beijing:
Phase One - Acquisition of Tjvan, Brainn and Beijing IT
Qinnet Beijing has entered into three arrangements for the
acquisition of ISP and ICP businesses in China - tjvan.net
(Tianjin), brainninfo.com (Shenyang) and Beijing IT Consulting
(Beijing), each of which is discussed below. These three
businesses are within relatively close proximity to Beijing, and
are the foundation for Qinnet Holdings' expansion plans. These
operations have varying strengths in ISP and ICP operations. All
are characterized by founders and management who are motivated by
the qinnet.com strategy, who have achieved relative success in
their individual operations to-date and are located in cities
which are likely to see high Internet growth. Qinnet Beijing will
acquire 70% of each operation through a local JV and provide
capital, technology and management skill for expansion upon
completion of funding. Each of the three operations have
additional management to add to Qinnet Beijing's existing Chinese
management capability.
Phase Two - Business Expansion & Integration
11
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Phase Two of the business strategy is to acquire an additional six
to eight ISP and ICP business across China by mid 2000. Key
target criteria for business to be acquired will be locations with
large populations, Internet growth potential and good quality JV
partners with strong local connections. Examples include
Shanghai, Guangzhou, and Shenzhen. These areas generally are
located near the coastal region, have a large number of foreign
firms in operation and have a business climate characterized by
strong government support. Businesses with a solid local ISP and
ICP emphasis and strong, motivated management will be targeted.
Phase Two will also necessitate the integration of the
acquisitions under the Qinnet Beijing umbrella. Major web sites
will feature elements of commonality while ensuring local flavor
and input. Qinnet Beijing should be able to benefit from
technology synergies via new hardware and software upgrades. Each
acquisition will operate under common business, technical and
control parameters established by Qinnet Beijing to monitor
performance.
Phase Three - National Rollout
Qinnet Beijing plans to continue acquisitions to truly develop a
nation-wide Internet service under the qinnet.com brand name. The
technical infrastructure and management systems will have been
finalized during Phase Two, allowing Qinnet Beijing to focus on
the rollout of a national IP network and the marketing required
for subscriber growth and expansion into IP services.
Plan to Earn Revenues
Qinnet Holdings plans to generate revenues from the following:
a) Dial up and leased line access to individuals and corporate
customers:
b) Content related services including web hosting, web design and
on-line services.
c) Electronic commerce services.
d) IP telephony services.
e) Data communications services, including China nation-wide e-
mail services and installation of ISDN services.
Acquisition of Tjvan.com in Tianjin
In October 1999, Qinnet Beijing and Tianjin Xiandao Information
Network Co., Ltd. ("Tjvan.com") signed an agreement to establish
a joint venture company, in which Qinnet Beijing owns 70% of the
equity interest, to accelerate growth of Tjvan.com's existing
Internet and Internet related business operations. With capital
invested by Qinnet Beijing, the two have agreed to upgrade
existing equipment, add more lines and strengthen marketing
development to increase the current customer base of 8,300 to
20,000 within a year.
Qinnet Beijing has agreed to invest 3 million RMB ($360,000 US) to
acquire a 70% equity interest in Tvan.com and to finance
Tjvan.com's ISP expansion. Expansion of the partnership with
China Unicom will include exclusive ISDN lines and IP Telephony
distributorship in Tianjin as well as co-operating and sharing
access to each others' web sites and customer base. The joint
venture will allow Qinnet Beijing to lever the valuable experience
of Tjvan.com for future ISP operations and
12
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acquisitions. With the capital injection, the joint venture plans
to increase the number of subscribers from 8,300 to greater than
20,000 and 40,000 within two years to become the largest ISP in
Tianjin. This user base in a single location will provide a solid
foundation for Qinnet's growth.
As the second largest ISP in Tianjin, Tjvan.com has established a
strategic alliance with China Unicom Tianjin for ISP dial-up
operations. In this exclusive agreement, China Unicom provides
the ISP dial-up operation with new infrastructure and DDN/ISDN
lines at half price. Tjvan.com provides marketing, customer
support, network management and other related business services.
The two parties will equally share the operating profit. As of
December 31, 1999, Tjvan.com had 8,300 dial-up subscribers with
50% of these being corporate users. The number of subscribers
nearly tripled in 6 months. Tianjin city has an estimated 400,000
PC users with 30,000 Internet subscribers.
Acquisition of Brainninfo.com in Shenyang
Qinnet Beijing has entered into a joint venture agreement with
Shenyang Brainn Information Co., Ltd. ("Braininfo.com") to
establish a joint venture company to accelerate Brainninfo.com's
Internet business development. Qinnet Beijing now owns a
controlling 51% interest in the joint venture company, called
Shenyang Qinnet-Brainn Information Technologies Company Ltd.
Qinnet Beijing has the option to increase its interest to 70% if
Qinnet Beijing elects to provide additional funding to the
Brainninfo.com Internet business in the approximate amount of
$200,000. The business plan for this joint venture is to: (1)
add equipment to expand its service capacity to serve over 2,000
corporate/individual subscribers; (2) construct 50 data
information stations across the City of Shenyang; and (3) jointly
establish the e-book online service to become the first online
book sales web site in the Liaoning Province.
Brainninfo.com is connected to Jitong (China GBNet) and comprises
customer service, research & development, web design, technical
support and international business staff. All key staff are
university graduates with Bachelor, Masters or Ph.D. degrees. In
one year Brainninfo.com developed over 20 web sites and e-
commerce models including the following:
Liaoning Food Web (www.infood.org),
Liaoning Consumer Association Web (www.ln315.org.cn)
China Art & Handcraft Web (www.netdragon.com.cn)
Liaoning Education Publishers Web (www.edupress.com)
Shenyang Electronics Street Information Web (www.brainninfo.com)
The major web sites developed are Liaoning Food Web and Shenyang
Electronics Street Information Web, as well as a "Web City"
(under development and partially in use) which publishes the
latest information on real estate in Shenyang. The Shenyang
Electronics Street Information Web publishes the latest prices of
computer hardware and software daily for 3,500 computer stores
along the "Electronics Street" in Shenyang. Other web sites
under development include job-hunting and housing information.
Brainninfo.com is currently negotiating with the largest book
publishing house in the Northeast
13
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of China to establish an online book sales operation. Brainninfo.com
has also developed and patented software for online bookstores which
can be sold to any bookstore that wants to go on-line.
Greater Shenyang is one of the largest cities in China with a
population over 10 million. It is the capital of Liaoning
province, the industrial and hi-tech center of Northeast China.
Greater Shenyang includes 7 large cities with over million people
each located in close proximity to each other (Fushun, Fuxin,
Dalian, Yingkou, Anshan, and Benxi).
Acquisition of Beijing IT Consulting Co., Ltd. in Beijing
Qinnet Beijing has acquired Beijing IT Consulting Co., Ltd.
("BITC"). BITC created two web sites a year ago. These two web
sites, www.cheyou.com ("cheyou" in Chinese means "Friends of
Automobiles") and www.xinxi.net ("xinxi" in Chinese means
"Information"), were designed to provide services for over 1,000
registered corporate customers and receive over 20,000 page views
per day in the Chinese auto industry and the general public.
Since Qinnet Beijing is also headquartered in Beijing, Qinnet
Beijing has merged the operations of BITC with its operations in
Beijing.
PLAN OF OPERATIONS
Qinnet Holdings' plan of operations for the next twelve months is
to complete the following objectives within the time period
specified:
A. Commence the installation of ISDN lines for ISP service in
Tianjin pursuant to an agreement with a joint venture
partner. Under the agreement, Qinnet Beijing will
participate with its partner in the ISDN project on a 50/50
basis. Qinnet Holdings anticipates spending approximately
$500,000 on installation of ISDN services over the next
twelve months;
B. Commence establishment of a China nation-wide e-mail system
based on IP telephony and accessible to users by computer,
conventional telephone, cellular telephones, facsimile
machines and pager devices. Qinnet Holdings anticipates
spending approximately $1,800,000 on start-up costs for this
e-mail system over the next twelve months;
C. Continue to fund its existing joint venture arrangements,
including its joint venture arrangements with Tjvan.com and
Braininfo.com. Qinnet Holdings anticipates spending
approximately $1,000,000 on funding its existing joint
venture arrangements over the next twelve months;
D. Evaluate and complete further acquisitions of Internet
service provider businesses based in China. Qinnet Holdings
anticipates spending approximately $300,000 on acquisitions
over the next twelve months.
E. Market and promote the existing ISP operations of Beijing
Qinnet and continue to market
14
<PAGE>
the "Qinnet" brand name in China and abroad. Qinnet Holdings
anticipates spending approximately $500,000 on marketing expenses
over the next twelve months.
F. In addition to the above expenses, Qinnet Holdings
anticipates spending approximately $800,000 on working
capital over the next twelve months.
Qinnet Holdings anticipates that it will spend approximately
$4,900,000 over the next twelve month period in pursuing its
stated plan of operations. Of these anticipated expenditures, we
anticipate that approximately $3,000,000 will be spent in the
next six months. Qinnet Holdings currently has cash in the
approximate amount of $4,900,000. Accordingly, Qinnet Holdings
will be able to complete its stated plan of operations without
additional financing over the next twelve month period.
Qinnet Holding anticipates hiring 200 additional employees over
the next twelve months if Qinnet Holdings is successful in
implementing its plan of operations. Of these employees, 180 are
anticipated to be located in China and 20 are anticipated to be
in North America. Of the Chinese employees, Qinnet Holdings
anticipates that 60 would be employees with technical expertise,
100 would be employees engaged in marketing and servicing of
customers and 20 would be management employees.
Qinnet Holdings may require additional equity financing if: (i)
Qinnet Holdings wishes to expand or accelerate its plan of
operations; (ii) the actual costs incurred in pursuing the stated
plan of operations are greater than anticipated; or (iii) Qinnet
Holdings is not successful in achieving revenues upon completion
of the stated plan of operations. Qinnet Holdings does not have
any arrangement in place for any debt or equity financing which
would enable Qinnet Holdings to achieve additional financing if
required. There is no assurance that Qinnet Holdings will be
able to secure additional financing if additional financing is
required.
The business plan of Qinnet Holdings may differ from the stated
plan of operations. The board of directors of Qinnet Holdings
may decide not to pursue the stated plan of operations. In
addition, the Qinnet Holdings may modify the stated plan of
operations if actual costs are greater than anticipated or if
Qinnet Holdings secures financing in order to expand or
accelerate its plan of operations.
Qinnet believes the above statements may be forward-looking
statements. Actual results and the actual plan of operations may
differ materially from what is stated above. Factors which may
cause the actual results of Qinnet or its actual plan of
operations to vary include, among other things, decisions of the
board of directors not to pursue a specific course of action
based on its re-assessment of the facts or new facts, changes in
the Internet business or general economic conditions and those
other factors identified herein.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Appointment of New Directors
Mr. Paul Schwartz and Mr. Lynn Paterson were appointed to the
board of directors of the Company on May 8, 2000. The Company's
board of directors is presently comprised of Mr. Weiguo Lang, Mr.
Scott Houghton, Mr. Schwartz and Mr. Paterson.
Mr. Lynn Paterson was a senior executive with B.C. Telecom ("B.C.
Tel) until his retirement in 1995. Mr. Paterson was the
president and chief operating officer of B.C. Tel when he retired
in 1995. Mr. Paterson worked for 31 years with B.C. Tel in many
senior management and executive positions, including the position
of executive vice-president of diversified operations from 1987
to 1990. Mr. Paterson was appointed chief operating officer of
B.C. Tel in 1990 and was appointed president in 1995.
Mr. Schwartz has ten years of experience as a stock broker and in
investment banking. Mr. Schwartz has held vice-president of
investment positions with Josephthal Lyon and Ross, Spencer Trask
and Thomas James. Mr. Schwartz has been senior vice-president of
new business development for Turbodyne Technologies Inc. since
1998. Turbodyne Technologies is an automotive component
manufacturing company in California. Mr. Schwartz is responsible
for creating strategic alliances with industry leading companies
in the automotive components industry.
Stock Option Plan
The board of directors approved the Company's stock option plan
on March 31, 2000. The maximum aggregate number of shares of the
Company's common stock that may be optioned under the stock
option plan is 187,500 shares. This maximum aggregate number of
shares of the
16
<PAGE>
Company's common stock that may be optioned and sold under the
stock option plan will be increased effective the first day of
each of the Company's fiscal quarters, beginning with the
fiscal quarter commencing June 30, 2000, by an amount equal to
the lesser of:
(1) The number of shares which is equal to 15% of the
outstanding shares of the common stock on the first day
of the applicable fiscal quarter, less the number of
shares of common stock which may be optioned and sold
under the plan prior to the first day of the applicable
fiscal quarter; and
(2) a lesser number of shares of common stock determined by
the board of directors of the Company.
The Company granted options to purchase a total of 187,500 shares
of the Company's common stock at a price of $10.00 per share on
April 17, 2000. The options were granted to employees of the
Company. The options are exercisable for a three year period
expiring April 17, 2003 and are fully vested. The Company has
cancelled the previously granted options to purchase a total of
187,500 shares at a price of $13.00 per share.
Item 6. Exhibits and Reports on Form 8-K.
EXHIBITS
27.1 Financial Data Schedule
REPORTS ON FORM 8-K
Current Report on Form 8-K filed April 14, 2000
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned,
thereunto duly authorised.
QINNET.COM, INC.
Date: May 18, 2000
/s/ Weiguo Lang
By: _____________________________________
WEIGUO LANG, Director
President and Chief Executive Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN
THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 50000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50000
<PP&E> 0
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0
0
<COMMON> 13
<OTHER-SE> 49987
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