SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2003
Commission file number 0-26559
CIK No. 0001082603
XIN NET CORP.
(Exact name of registrant as specified in this charter)
Florida 330-751560
------------------------------- --------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
#950 - 789 West Pender Street, Vancouver, B.C. Canada V6C 1H2
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 632-9638
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO
----- -----
As of June 30, 2003, there were 41,360,010 shares of $0.001 par value common
stock outstanding.
XIN NET CORP.
INDEX TO QUARTERLY REPORT
ON FORM 10-QSB
JUNE 30, 2003
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Consolidated Financial Statements:
Consolidated Balance Sheets........................................F-1
Consolidated Statements of Operations..............................F-2
Consolidated Statements of Cash Flows..............................F-3
Consolidated Statement of Stockholders' Equity.....................F-4
Notes to Consolidated Financial Statements..................F-5 - F-10
ITEM 2. Management's Discussion and Analysis.............................12
ITEM 3. Controls and Procedures..........................................14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................16
ITEM 2. Changes in Securities and Use of Proceeds........................16
ITEM 3. Defaults Upon Senior Securities..................................17
ITEM 4. Submission of Matters to a Vote of Security Holders..............17
ITEM 5. Other Information................................................17
ITEM 6. Exhibits and Reports on Form 8-K.................................17
SIGNATURE.....................................................................17
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002
June 30, December 31,
Stated in U.S. dollars 2003 2002
----------------------------------------------------------------------------------------------------------
(unaudited) (audited)
ASSETS
Current Assets
Cash and Cash Equivalents $3,337,992 $957,133
Investments - 1,266
Prepaid Expenses and Other Current Assets 62,273 22,422
Assets of Discontinued Operations - Internet-related Services 2,435,485 2,186,337
Net Assets of Discontinued Operations - ISP 293,347 293,372
------------------- --------------------
Total Current Assets 6,129,097 3,460,530
Investment - at equity 275,229 319,600
Property and Equipment, Net 13,082 10,906
Goodwill 127,124 127,124
------------------- --------------------
Total Assets $6,544,532 $3,918,160
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 133,571 $109,044
Deferred Revenue 13,196 37,725
Liabilities of Discontinued Operations - Internet-related
Services 3,200,857 2,529,996
Security deposit from Beijing Sino Soft Intel Information
Technology Ltd. 500,000 500,000
Security deposit from Sino-i.com Ltd. 2,415,600 -
------------------- --------------------
6,263,224 3,176,765
Commitments and Contingencies - -
Stockholders' Equity
Common Stock : $0.001 Par Value
Authorized : 50,000,000
Issued and Outstanding : 41,360,010 (2002: 41,360,010) 41,360 41,360
Additional Paid In Capital 8,194,045 8,194,045
Accumulated Deficit (7,800,250) (7,345,351)
Accumulated Other Comprehensive Loss (153,847) (148,659)
------------------- --------------------
Total Stockholders' Equity 281,308 741,395
------------------- --------------------
Total Liabilities and Stockholders' Equity $6,544,532 $3,918,160
=================== ====================
F-1
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
(unaudited)
Three months ended June 30, Six months ended June 30,
Stated in U.S. dollars 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------------------------------
Revenue
Tuition fee income $ 77,933 $ - $ 143,283 $ -
----------------- ---------------- --------------- ---------------
Expenses
Advertising and promotion 3,265 1,075 13,027 1,075
Consulting and professional 25,496 35,249 46,426 70,017
Depreciation 2,009 555 3,557 1,109
Foreign exchange loss (14,096) (2,691) (4,455) (2,126)
General and administrative 10,510 2,694 22,684 21,615
Rent 24,598 1,709 43,147 4,234
Salaries, wages and benefits 59,575 2,092 112,494 8,993
----------------- ---------------- --------------------------------
111,357 40,683 236,880 104,917
Operating Loss (33,424) (40,683) (93,597) (104,917)
Other Income and Expenses
Interest income 4 525 8 1,162
Other income 53 12,463 6,048 12,463
Equity (loss) income in undistributed earnings of
investee company (17,975) (105,144) (44,371) (80,792)
----------------- ---------------- --------------------------------
(17,918) (92,156) (38,315) (67,167)
Loss from Continuing Operations (51,342) (132,839) (131,912) (172,084)
Loss from Discontinued Operations - Internet-related Services (89,969) (155,230) (322,987) (224,516)
----------------- ---------------- --------------------------------
Net Loss Available to Common Stockholders $ (141,311) $(288,069) $ (454,899) $ (396,600)
================= ================ ================================
Loss per share attributable to common stockholders:
Loss from continuing operations $ (0.00) $ (0.00) $ (0.00) $ (0.01)
Loss from discontinued operations (0.00) (0.01) (0.01) (0.01)
----------------- ---------------- --------------------------------
Total basic and diluted $ (0.00) $ (0.01) $ (0.01) $ (0.02)
================= ================ ================================
Weighted average number of common shares outstanding:
Basic and diluted 41,360,010 21,360,010 41,360,010 21,360,010
================= ================ ============== ===============
F-2
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2003 AND YEARS ENDED DECEMBER 31, 2002 AND 2001
(Unaudited)
Accumulated
Stock Additional Other
Common Amount At Paid In Accumulated Comprehensive
Stated in U.S. dollars Shares Par Value Capital Deficit Income Total
---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 21,360,010 21,360 7,214,045 (4,926,669) (152,256) 2,156,480
Net loss (1,510,903) (1,510,903)
Translation Adjustments 3,667 3,667
-----------------------------------------------------------------------------------------
Balance, December 31, 2001 21,360,010 21,360 7,214,045 (6,437,572) (148,589) 649,244
Private placement for cash at 20,000,000 20,000 980,000 1,000,000
$0.05 per share in October 2002
Net loss (907,779) (907,779)
Translation Adjustments (70) (70)
-----------------------------------------------------------------------------------------
Balance, December 31, 2002 41,360,010 41,360 8,194,045 (7,345,351) (148,659) 741,395
Net loss (454,899) (454,899)
Translation Adjustments (5,188) (5,188)
-----------------------------------------------------------------------------------------
Balance, June 30, 2003 41,360,010 $41,360 $8,194,045 $(7,800,250) $(153,847) $281,308
=========================================================================================
F-3
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
(unaudited)
Stated in U.S. dollars 2003 2002
-------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss from continuing operations $ (131,912) $ (172,084)
Adjustments to reconcile net loss to net cash
Provided by (Used in) operating activities
Depreciation and amortization 3,557 1,109
Translation adjustments (5,188) (1,510)
Equity (income) loss of The Link Group, Inc. 44,371 80,792
Changes in assets and liabilities
Decrease (Increase) in prepaid expenses and other current assets (39,851) 25,003
Increase (Decrease) in accounts payable 24,527 (36,866)
Decrease in deferred revenue (24,529) -
Increase in security deposits 2,415,600 -
--------------------------------------
Net cash provided by (used in) continuing operations 2,286,575 (103,556)
Net cash provided by discontinued operations 98,726 9,627
--------------------------------------
Net cash provided by (used in) operating activities 2,385,301 (93,929)
Cash flows from investing activities
Purchases of property and equipment (5,708) (30,100)
Reduction in investment 1,266 62,760
Reduction in loan to ProtectServe Pacific Ltd. - 360,400
Investment in The Link Group, Inc. - (600,300)
--------------------------------------
Net cash flows used in investing activities (4,442) (207,240)
--------------------------------------
Cash flows from financing activities
Principal payments on capital lease obligations - (28,885)
--------------------------------------
Net cash flows used in financing activities - (28,885)
--------------------------------------
Increase (Decrease) in cash and cash equivalents 2,380,859 (330,054)
Cash and cash equivalents - beginning of period 957,133 434,215
--------------------------------------
Cash and cash equivalents - end of period $ 3,337,992 $ 104,161
======================================
Supplemental Information :
Cash paid for :
Interest $ 6,399 $ 7,003
Income taxes 10,978 7,176
F-4
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
( Unaudited )
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of America.
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 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, 2002 included in its Annual Report on Form
10-KSB.
The unaudited condensed consolidated financial statements include Xin Net Corp.
and its subsidiaries. Significant inter-company transactions and accounts have
been eliminated.
2. Property and Equipment
Property and equipment consists of the following :
June 30, 2003 December 31, 2002
Equipment $ 24,290 $ 20,284
Library 9,540 9,146
Furniture 9,924 8,606
--------------------------------------------------------
Total 43,754 38,036
Less : Accumulated depreciation (30,672) (27,130)
--------------------------------------------------------
Net book value $ 13,082 $ 10,906
========================================================
The depreciation expense charged to continuing operations for the three-month
and six-month periods ended June 30, 2003 was $2,009 and $3,557 respectively.
3. Investment in The Link Group, Inc. ("Link")
Pursuant to a Share Exchange Agreement dated December 20, 2001, the Company paid
$200,000 cash for 3,882,700 shares of The Link Group, Inc. ("Link").
Pursuant to a Subscription Agreement dated January 18, 2002, the Company paid
$600,300 in a private placement of Link for 14,500,000 (pre-reverse one for four
split) common shares at $0.0414 per share, as well as 10,875,000 special
warrants convertible into 10,875,000 post-reverse one for four split common
shares on or before January 31, 2004 at no additional consideration. The Company
exercised the 10,875,000 special warrants on March 12, 2002. An option to
purchase an additional 7,500,000 post-reverse one for four split common shares
at $0.04 per share, or $300,000, until February 15, 2002, was also granted to
the Company, which was not exercised.
F-5
By an agreement dated January 21, 2002, Link agreed to purchase all of the
outstanding shares of Protectserve Pacific Ltd. ("PSP") through the issuance of
37,500,000 (post-reverse one for four split) common shares. Link has the right
to buy back its shares at $0.001 per share from these individuals if PSP's after
tax profit is less than Hong Kong $9 million dollars ("HKD") for the twelve
months ending December 31, 2002. The buy back formula is for every HKD $333,333
that PSP falls short of the HKD $9 million after tax profit, Link can buy back
one million (post-reverse one for four split) common shares from these
individuals.
On February 18, 2002, the shareholders of Link approved the reverse split of the
issued and outstanding common shares of Link at the ratio of one for four,
thereby making the Company's total Link shares held equal to 15,370,675 shares,
representing 28.8% of the total issued and outstanding shares of Link. On
October 14, 2002, Link cancelled 8,300,000 outstanding common shares as part of
the consideration of the disposition of its subsidiary company and thereafter
the Company's holding in Link correspondingly increases to 34.1%. On March 21,
2003, Link issued 17,500,000 common shares and cancelled 14,000,000 common
shares and thereafter the Company's holding in Link correspondingly changes to
32.32%. The Company accounted for its investment in Link on the equity basis,
which is carried at cost, adjusted for the Company's proportionate share of
their undistributed earnings or losses as follow at June 30, 2003:
Original cost of 15,370,675 shares of The Link Group, Inc. $ 800,300
Equity in undistributed earnings of investee company (525,071)
------------
Investment - at equity $ 275,229
============
The loss incurred by Link for the three-month ended June 30, 2003 has not been
reviewed by their auditors. Management believes that there will not be any
material change made by the auditors after the review. If there is any change
that is material, the Company will file the revised financial statements.
4. Discontinued Operations - Internet-related Services
On February 26, 2003, the Company entered into an agreement to sell the
internet-related services provided in China to a subsidiary company of
Sino-i.com Ltd., a company listed on the Hong Kong Stock Exchange for a total
consideration of RMB 20 million (approximately US$2,500,000). The transaction is
still subject to the approval of shareholders. As of June 30, 2003, the Company
has received RMB 20 million as a security deposit for the transaction. The
decision to sell was due to the lack of funding and high competition in the
market.
The estimated loss on disposal of the internet-related business, together with
the related assets and liabilities to be disposed, is as follows:
Sales proceeds $ 2,500,000
Less : Current assets (2,286,013)
Capital assets (442,820)
Add : Current liabilities 3,200,859
--------------
2,972,026
Less : Write off of loan balance due from internet-
related business (3,084,544)
--------------
Estimated loss on disposal of internet-related business $ (112,518)
==============
F-6
The results of the discontinued internet-related services for the three-month
and six-month periods ended June 30, 2003 and 2002 are as follows:
Three months ended June 30, Six months ended June 30,
2003 2002 2003 2002
Revenue $ 1,292,708 $ 1,111,286 $ 2,372,554 $ 2,119,876
Operating Costs (1,382,677) (1,266,516) (2,695,541) (2,344,392)
---------------- -------------- ----------------- -----------------
Net Loss $ (89,969) $ (155,230) $ (322,987) $ (224,516)
================ ============== ================= =================
5. Discontinued Operations - ISP Services
The Board of Directors of the Company decided to discontinue the unprofitable
ISP services in the PRC. The Company's joint venture partner, Xin Hai, signed an
agreement on June 22, 2001 to sell its ISP operation and related assets to a
private company in Beijing, PRC for sales proceeds of $700,000. The agreement is
subject to payments being made by the other party at specified dates and to
Company shareholders' approval. The net assets classified as held for sale have
been grouped on the accompanying consolidated balance sheets as Net Assets of
Discontinued Operations. As of June 30, 2003, $500,000 has been received as a
security deposit for the transaction. A provision of $200,000 has been made
against the balance of the sales proceeds as the Company has determined that the
purchaser has a liquidity problem and may not be able pay the remaining balance.
The estimated gain on disposal of the ISP services, together with the related
assets and liabilities to be disposed, is as follows:
Sales proceeds $ 700,000
Less : Capital assets (320,797)
Accounts receivable (289,896)
Add : Deferred revenue 317,321
Less : Provision for doubtful debt (200,000)
-------------
$ 206,628
=============
6. Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per share are computed by dividing net earnings (loss)
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-7
The following table sets forth the computations of shares and net loss used in
the calculation of basic and diluted loss per share for the three-month and
six-month periods ended June 30, 2003 and 2002:
Three months ended June 30, Six months ended June 30,
2003 2002 2003 2002
Loss from continuing operations $ (51,342) $ (132,839) $ (131,912) $ (172,084)
Loss from discontinued operations (89,969) (155,230) (322,987) (224,516)
------------- ------------- ------------- -------------
Net loss for the year (141,311) (288,069) (454,899) (396,600)
Weighted-average shares outstanding 41,360,010 21,360,010 41,360,010 21,360,010
Effect of dilutive securities :
Dilutive options - $1.30 - - - -
Dilutive warrants - $0.50 - - - -
Dilutive warrants - $0.75 - - - -
------------- ------------- ------------- -------------
Dilutive potential common shares - - - -
------------- ------------- ------------- -------------
Adjusted weighted-average shares and assumed conversions 41,360,010 21,360,010 41,360,010 21,360,010
Loss per share attributable to common shareholders:
Loss from continuing operations (0.00) (0.00) (0.00) (0.01)
Loss from discontinued operations (0.00) (0.01) (0.01) (0.01)
------------- ------------- ------------- -------------
Total basic and diluted loss per share $ (0.00) $ (0.01) $ (0.01) $ (0.02)
============= ============= ============= =============
The effect of outstanding options and warrants was not included as the effect
would be antidilutive.
7. Share Purchase Warrants
On April 1, 2003, the Company extended its outstanding 5,884,990 million Series
"A" Share Purchase Warrants as follows:
(i) the exercise price of the Series "A" Share Purchase Warrants is
adjusted to $0.50 each and their term is extended to March 31,
2005:
(ii) upon exercise of one Series "A" Share Purchase Warrants at $0.50,
the holder will receive one common share of the company and one
Series "B" Share Purchase Warrant; and
(iii) the exercise price of the Series "B" Share Purchase Warrants is
adjusted to $0.75 each and their term is extended to March 31,
2006;
(iv) upon exercise of one Series "B" Share Purchase Warrant at $0.75,
the holder will receive one common share of the Company.
8. Total Amount Advanced to Joint Venture
As at June 30, 2003, the total amount advanced to the joint venture project is
$3,084,544.
F-8
9. Segment and Geographic Data
The Company's reportable segments are geographic areas that provide English as a
Second Language ("ESL") courses to foreign students in Canada. Summarized
financial information concerning the Company's reportable segments is shown in
the following table. The "Other" column includes corporate related items, and,
as it relates to segment profit (loss), income and expenses not allocated to
reportable segments.
China Canada Other Total
For the three months ended June 30, 2003
Revenue from continuing operations $ - $ 77,933 $ - $ 77,933
Operating Loss (122) (21,356) (11,946) (33,424)
Total Assets 5,976,953 57,233 510,346 6,544,532
Depreciation / Amortization - 1,830 179 2,009
Interest Income - 2 2 4
For the three months ended June 30, 2002
Revenue from continuing operations $ - $ - $ - $ -
Operating Loss (1,081) (3,042) (36,560) (40,683)
Total Assets 2,347,030 8,885 817,780 3,173,695
Depreciation / Amortization - 65 490 555
Interest Income - - 525 525
For the six months ended June 30, 2003
Revenue from continuing operations $ - $ 143,283 $ - $ 143,283
Operating Loss (908) (70,688) (22,001) (93,597)
Total Assets 5,976,953 57,233 510,346 6,544,532
Depreciation / Amortization - 3,200 357 3,557
Interest Income - 4 4 8
For the six months ended June 30, 2002
Revenue from continuing operations $ - $ - $ - $ -
Operating Loss (1,594) (8,351) (94,972) (104,917)
Total Assets 2,347,030 8,885 817,780 3,173,695
Depreciation / Amortization - 129 980 1,109
Interest Income 1 - 1,161 1,162
F-9
10. Subsequent Events
On July 3, 2003, the Company acquired 51% of the outstanding and issued shares
of Dawa Business Group Inc. ("Dawa") in exchange for 49% of the outstanding and
issued shares of the Company's subsidiary Windsor Education Academy Inc.
("Windsor").
Dawa's main business is the publication of a weekly Chinese community newspaper
and a monthly magazine featuring education and employment in Vancouver's Chinese
community. The Company acquired Windsor on December 10, 2002, a licensed school
specializing in offering ESL courses to foreign students. The Company can
promote Windsor and its affiliated educational products through the Dawa
publications.
11. Contingency
The Company has been sued as a defendant in the Supreme Court of British
Columbia seeking C$40,313 ($29,744) allegedly due on the contract between the
ex-owners of Windsor and the Company for the sale of Windsor. The Company
intends to vigorously defend the claim.
As the Company considers that the claim is without merit, no provision has been
made in the financial statements for the amount involved.
F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information presented here should be read in conjunction with Xin Net
Corp.'s consolidated financial statements and related notes. In addition to
historical information, the following discussion and other parts of this
document contain certain forward-looking information. When used in this
discussion, the words "believes," "anticipates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially from those projected due to a number of factors beyond the
Company's control. The Company does not undertake to publicly update or revise
any of its forward-looking statements even if experience or future changes show
that the indicated results or events will not be realized. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. Readers are also urged to carefully review and
consider the Company's discussions regarding the various factors, which affect
its business, included in this section and elsewhere in this report.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2003 COMPARED TO THE SAME
PERIOD IN 2002.
The Company had $77,933 in revenue in the period in 2003 from educational
services, which division it acquired in early 2003. The Company discontinued
operations in China for its domain name registration service within its Infornet
subsidiary, since it has been sold, and results of 2002 revenues (now
discontinued) for the period have been omitted.
The Company incurred expenses in the quarter totalling $111,357 in 2003
compared to $40,683 in 2002. These expenses were those of the registrant (in
2002), not of the discontinued operations in China. The largest components of
expenses were consulting and professional of $25,496 in 2003 and $35,249 in
2002, wages, salaries, and benefits of $59,575 in 2003 compared to $2,092 in
2002, general and administrative of $10,510 in 2003 and $2,694 in 2002, rent of
$24,598 in 2003 and $1,709 in 2002, foreign exchange loss of $14,096 in 2003 and
$2,691 in 2002, and advertising and promotion of $3,265 in 2003 and $1,075 in
2002.
The Company had other income of $53 in the period in 2003 compared to
$12,463 in 2002. The Company had a loss of $17,975 in 2003 and a loss of
$105,144 in 2002 for equity loss in undistributed earnings of investee company.
The loss from continuing operations was $51,342 in 2003 in the period
compared to $132,839 in 2002. The loss from discontinued operations was $89,969
in the period in 2003 and $155,230 in 2002. Total net loss was $141,311 in the
quarter in 2003 compared to $288,069 in the same quarter in 2002. The loss per
share was nominal in 2003 and 2002 on continuing operations.
The loss per share was nominal in the quarter of 2003 and $0.01 in the same
period of 2002 on discontinued operations.
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2003 AS COMPARED
TO THE SIX MONTH PERIOD ENDED JUNE 30, 2002.
The Company had $143,283 in revenue in the period in 2003 from educational
services, which division it acquired in early 2003. The Company discontinued
operations in China for its domain name registration service within its Infornet
subsidiary, since it has been sold, and results of 2002 revenues (now
discontinued) for the period have been omitted.
3
The Company incurred expenses in the period totalling $236,880 in 2003
compared to $104,917 in 2002. These expenses were those of the registrant (in
2002), not of the discontinued operations in China. The largest components of
expenses were consulting and professional of $46,426 in 2003 and $70,017 in
2002, wages, salaries, and benefits of $112,494 in 2003 compared to $8,993 in
2002, general and administrative of $22,684 in 2003 and $21,615 in 2002, rent of
$43,147 in 2003 and $4,234 in 2002, foreign exchange loss of $4,455 in 2003 and
$2,126 in 2002, and advertising and promotion of $13,027 in 2003 and $1,075 in
2002.
The Company had other income of $6,048 in the period in 2003 compared to
$12,463 in 2002. The Company had a loss of $44,371 in 2003 and a loss of $80,972
in 2002 for equity loss in undistributed earnings of investee company.
The loss from continuing operations was $131,912 in 2003 in the period
compared to $172,084 in 2002. The loss from discontinued operations was $322,987
in the period in 2003 and $224,516 in 2002. Total net loss was $454,899 in the
period in 2003 compared to $396,600 in the same period in
2002. The loss per share was nominal in the period of 2003 and $0.01 in the same
period 2002 on continuing operations. The loss per share was $0.01 in the period
of 2003 and the same period of 2002 on discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net cash and cash equivalents of $3,337,992 at June 30,
2003.
The Company has no other capital resources other than the ability to use
its common stock to achieve additional capital raising. It did not raise any
additional capital during the second quarter of 2003. It has equipment of
$13,082 on the books, which is not necessarily liquid at such value. It has an
investment in The Link Group, Inc. valued at $275,229. Other than cash capital,
its other assets would be illiquid.
At the end of the quarter, it had $6,129,097 in current assets. It had
current liabilities of $6,263,224, which included a security deposit of $500,000
from the sale of its Internet Access Provision business in June 2001 and a
security deposit of $2,415,600 from the sale of its Internet related business in
February 2003.
The cash capital at the end of the quarter of $3,337,992 will be used to
fund continued operations, which management believes is adequate to satisfy its
cash requirements for at least the next twelve months. The trend of operating
losses could continue due to costs of equipment, design of new value-added
services, start up operations for new locations and advertising & marketing
which precede development of additional revenue for the Company.
Net cash flows provided by continuing operations increased to $2,286,575 in
the first six month period in 2003 from ($103,556) in the corresponding period
in 2002. Net cash flow used in investing activities increased to ($4,442) in
first six month period 2003 from ($207,240) in the corresponding period in 2002.
Net cash flow used in financing activities increased to $0 in first six month
period of 2003 compared to ($28,885) in first six month period of 2002.
4
Changes in Financial Condition:
At the end of the second quarter 2003 Company assets had increased to
$6,544,532 compared to $3,918,160 at year-end 2002. The current assets
$6,129,097 at the end of second quarter 2003 compared to $3,460,530 at year-end
2002. Total liabilities at end of second quarter 2003 were $6,263,224 compared
to $3,176,765 at year-end 2002. At June 30, 2003 the Company had $3,337,992 in
cash compared to $957,133 at year-end 2002. The positive changes resulted from
the sale of its operations in China and the achievement of a private placement
of stock for $1,000,000 in late 2002.
Need for Additional Financing:
The Company believes it has sufficient capital to meet its short-term cash
needs, including the costs of compliance with the continuing reporting
requirements of the Securities Exchange Act of 1934. But if losses continue it
may have to seek loans or equity placements to cover longer term cash needs to
continue operations and expansion.
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 the Company to allow it to cover operations expenses.
If future revenue declines, or operations are unprofitable, it will be
forced to develop another line of business, or to finance its operations through
the sale of assets it has, or enter into the sale of stock for additional
capital, none of which may be feasible when needed. The Company has no specific
management ability, nor financial resources or plans to enter any other business
as of this date.
The effects of inflation have not had a material impact on its operation,
nor is it expected to in the immediate future.
Market Risk:
The Company's investments in The Link Group, Inc. will be subject to market
volatility. It does not hold any derivatives or other 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 such instruments.
Future Trends:
The Company will continue its cost-saving measures and ongoing efforts to
increase revenues in order to achieve profitability. However the Company cannot
assure that any profit on revenues can occur in the future. It may have to
continue to advertise and promote its business. Operating losses may continue.
If the Company acquires additional capital, for example through sale of stock in
private placements or through investors exercising warrants, it may be able to
advertise and promote its services more aggressively and expand its business
more rapidly.
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ITEM 3. CONTROLS AND PROCEDURES
The President, the chief executive officer and the chief financial officer of
the Company, have concluded based on their evaluation as of a date within 90
days prior to the date of the filing of this Report, that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports filed or submitted by it
under the Securities Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and include controls and procedures designed to
ensure that information required to be disclosed by the Company in such reports
is accumulated and communicated to the Registrant's management, including the
president, as appropriate to allow timely decisions regarding required
disclosure.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
such evaluation.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings -
On August 7, 2003, Xin Net Corp. was named as a defendant in the
Supreme Court of British Columbia seeking C$40,313 (US$29,744) allegedly due on
the contract between Edward Kheng Yoong Lee, Sidney Pak Lai Ho, Ricky Chung Hou
NG, and Lilian Lee ("Plaintiffs") and XIN NET Corp. for the sale of Windsor
Education Academy, Inc. XIN NET Corp. intends to vigorously defend the claim.
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
None.
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Item 6. Exhibits and reports on Form 8-K
(a) The following are filed as Exhibits to this
Quarterly Report. The numbers refer to the Exhibit Table of
Item 601 of Regulation S-K:
None.
(b) Reports on Form 8-K filed during the three months
ended June 30, 2003. (incorporated by reference)
8-K filed 4-4-03
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
Dated: August 19, 2003
XIN NET CORP.
by: /s/ Ernest Cheung
----------------------------
Ernest Cheung,
Secretary/Director
8