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: March 31, 2004
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.)
#900 - 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 May 15, 2004, 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
March 31, 2004
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Consolidated Financial Statements:
Consolidated Balance
Sheets...................................................................3
Consolidated Statements of
Operations...............................................................4
Consolidated Statements of Cash Flows......................5
Notes to Consolidated Financial
Statements...............................................................6
ITEM 2. Management's Discussion and
Analysis.................................................................13
ITEM 3. Controls and
Procedures...............................................................18
PART II. OTHER INFORMATION
ITEM 1. Legal
Proceedings..............................................................19
ITEM 2. Changes in Securities and Use of
Proceeds.................................................................19
ITEM 3. Defaults Upon Senior
Securities...............................................................19
ITEM 4. Submission of Matters to a Vote of Security
Holders..................................................................19
ITEM 5. Other
Information..............................................................19
ITEM 6. Exhibits and Reports on Form
8-K......................................................................19
SIGNATURE................................................................19
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements have been adjusted with all adjustments, which, in
the opinion of management, are necessary in order to make the financial
statements not misleading.
For financial information, please see the financial statements and the
notes thereto, attached hereto and incorporated herein by this reference.
The financial statements have been prepared by XIN NET CORP. without audit
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
accepted in the United States of America, have been condensed or omitted as
allowed by such rules and regulations, and management believes that the
disclosures are adequate to make the information presented not misleading. These
financial statements include all of the adjustments which, in the opinion of
management, are necessary to a fair presentation of financial position and
results of operations. All such adjustments are of a normal and recurring
nature. These financial statements should be read in conjunction with the
audited financial statements at December 31, 2003, included in the Company's
and Form 10-KSB.
Cautionary and Forward Looking Statements
In addition to statements of historical fact, this Form 10-QSB contains
forward-looking statements. The presentation of future aspects of XIN NET CORP.
(the "Company") found in these statements is subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
reflected in such statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's analysis only as
of the date hereof. Without limiting the generality of the foregoing, words such
as "may," "will," "expect," "believe," "anticipate," "intend," or "could" or the
negative variations thereof or comparable terminology are intended to identify
forward-looking statements.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties that may cause the Company's actual results to be
materially different from any future results expressed or implied in those
statements. Important facts that could prevent the Company from achieving any
stated goals include, but are not limited to, the following:
Some of these risks might include, but are not limited to, the
following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its busi-
ness, inability to raise additional capital or financ
-ing to implement its business plans;
(e) failure to commercialize its technology or to make
sales;
(f) rapid and significant changes in markets;
(g) litigation with or legal claims and allegations by
outside parties;
(h) insufficient revenues to cover operating costs.
There is no assurance that the Company will be profitable, the Company
may not be able to successfully develop, manage or market its products and
services, the Company may not be able to attract or retain qualified executives
and technology personnel, the Company's products and services may become
obsolete, government regulation may hinder the Company's business, additional
dilution in outstanding stock ownership may be incurred due to the issuance of
more shares, warrants and stock options, or the exercise of warrants and stock
options, and other risks inherent in the Company's businesses.
The Company undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Readers should carefully review the factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-QSB and Annual Report on Form 10-KSB
filed by the Company in 2004 and any Current Reports on Form 8-K filed by the
Company.
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Stated in U.S. dollars 2004 2003
-----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 3,304,019 $ 3,303,677
Accounts receivable, net of allowance of $22,505 (2003: $58,678) 103,227 95,465
Prepaid Expenses and Other Current Assets 24,446 31,587
Assets to be disposed of 2,435,485 2,435,485
---------------------------------------
Total Current Assets 5,867,177 5,866,214
Investment - at equity 253,524 253,524
Property and Equipment, Net 12,416 13,438
Goodwill 187,436 187,436
------------------- -------------------
Total Assets $ 6,320,553 $ 6,320,612
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 243,082 $ 225,040
Deferred Revenue 20,624 28,354
Liabilities to be disposed of 3,200,857 3,200,857
Security deposit from Sino-i.com Ltd. 2,415,800 2,416,200
------------------- -------------------
5,880,363 5,870,451
Minority Interest 43,190 38,147
Commitments and Contingencies - -
Stockholders' Equity
Common Stock : $0.001 Par Value
Authorized : 50,000,000
Issued and Outstanding : 41,360,010 (2003: 41,360,010) 41,360 41,360
Additional Paid In Capital 8,194,045 8,194,045
Accumulated Deficit (7,678,545) (7,659,628)
Accumulated Other Comprehensive Loss (159,860) (163,763)
---------------------------------------
Total Stockholders' Equity 397,000 412,014
------------------- -------------------
Total Liabilities and Stockholders' Equity $ 6,320,553 $ 6,320,612
=================== ===================
F-1
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
Stated in U.S. dollars 2004 2003
-------------------------------------------------------------------------------------------------------------------
Revenue
Tuition fee $ 60,146 $ 65,350
Commercial press 106,765 -
-------------------- -------------------
166,911
65,350
Cost of revenue
Tuition fee 14,545 -
Commercial press 18,830 -
-------------------- -------------------
33,375
-
Gross profit 133,536 65,350
Expenses
Consulting and professional 18,544 20,930
Depreciation 1,032 1,548
General and administrative 32,633 31,577
Rent 17,416 18,549
Salaries, wages and sub-contract 78,247 52,919
-------------------- -------------------
147,872 125,523
Operating Loss (14,336) (60,173)
Other Income and Expenses
Interest income 1 4
Other income 461 5,995
Equity loss in undistributed earnings of investee company - (26,396)
-------------------- -------------------
(20,397)
462
Loss before minority interest and discontinued operations (13,874) (80,570)
Minority interest (5,043) -
-------------------- -------------------
Loss from Continuing Operations (18,917) (80,570)
Discontinued operations
Loss from Assets held for sale - (233,018)
-------------------- -------------------
Net Loss Available to Common Stockholders $ (18,917) $ (313,588)
==================== ===================
Loss per share attributable to common stockholders:
Loss from continuing operations $ (0.00) $ (0.00)
Loss from discontinued operations 0.00 (0.01)
-------------------- -------------------
Total basic and diluted $ (0.00) $ (0.01)
==================== ===================
Weighted average number of common shares outstanding:
Basic and diluted 41,360,010 41,360,010
==================== ===================
F-2
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
Stated in U.S. dollars 2004 2003
---------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (18,917) $ (313,588)
Less: loss from assets held for sale - 233,018
Adjustments to reconcile net loss to net cash
Provided by (Used in) operating activities
Depreciation and amortization 1,032 1,548
Translation adjustments 3,903 7,252
Minority interest 5,043 -
Equity loss of The Link Group, Inc. - 26,396
Changes in assets and liabilities
Increase in accounts receivable (7,762) -
Decrease in prepaid expenses and other current assets 7,131 1,637
Increase in accounts payable 18,042 102,867
Decrease in deferred revenue (7,730) (37,725)
Increase in security deposits - 362,430
------------------------------------
Net cash provided by operating activities 742 383,835
------------------------------------
Cash flows from investing activities
Purchases of property and equipment - (1,678)
Reduction in investment - 1,266
------------------------------------
Net cash flows used in investing activities - (412)
------------------------------------
Effect of exchange rate changes on cash (400) -
Net cash provided by continuing operations 342 383,423
Net cash used in assets held for sale - (66,448)
------------------------------------
Increase in cash and cash equivalents 342 316,975
Cash and cash equivalents - beginning of period 3,303,677 957,133
------------------------------------
Cash and cash equivalents - end of period $ 3,304,019 $ 1,274,108
====================================
Supplemental Information :
Cash paid for :
Interest $ - $ 3,655
Income taxes - 8,701
F-3
XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
( 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, 2003 included in its Annual Report on Form
10-KSB.
The unaudited condensed consolidated financial statements include Xin Net Corp.
and its subsidiaries. Significant inter-company transactions and accounts have
been eliminated.
Certain items have been reclassified to conform to the current period
presentation. There is no effect on total results of operations or shareholders'
equity.
2. Property and Equipment
Property and equipment consists of the following :
March 31, 2004 December 31, 2003
-------------- -----------------
Equipment $ 31,160 $ 31,160
Library 9,554 9,554
Furniture 10,683 10,683
--------------------------------------------
Total 51,397 51,397
Less : Accumulated depreciation (38,981) (37,959)
--------------------------------------------
Net book value $ 12,416 $ 13,438
============================================
The depreciation expense charged to continuing operations for the three-month
period ended March 31, 2004 was $1,032.
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-3
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 28,
2003, Link issued 3,000,000 common shares and cancelled 14,000,000 common shares
and thereafter the Company's holding in Link correspondingly changes to 24.8%.
On August 5, 2003, Link cancelled 22,200,000 shares pursuant to a repurchase
agreement and thereafter the Company's holding in Link correspondingly increases
to 38.6%.
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 of March 31, 2004, the investee company's
financial statements were not sufficiently timely for the Company to apply the
equity method currently. Therefore, the Company recorded its share of the
investee's losses from the most recent available financial statements, which
were the unaudited financial statements as of September 30, 2003.
Original cost of 15,370,675 shares of The Link Group, Inc. $ 800,300
Equity in undistributed earnings of investee company (546,776)
-------------
Investment - at equity $ 253,524
=============
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 total
consideration of RMB 20 million (approximately US$2,415,800), which the Company
has received and classified as a security deposit as of March 31, 2004. The
transaction is subject to the approval of shareholders.
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 $ 2,415,800
Less : Current assets (1,992,665)
Capital assets (442,820)
Add : Current liabilities 3,200,857
-------------------
3,182,372
Less : Write off of loan balance due from internet-related business (3,084,544)
-------------------
Estimated gain on disposal of internet-related business $ 96,628
===================
F-4
The results of the discontinued internet-related services for the three months
ended March 31, 2004 and 2003 are as follows:
2004 2003
Revenue $ - $ 1,079,846
Operating Costs - (1,312,864)
----------------- --------------------
Net Loss $ - $ (233,018)
================= ====================
5. 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.
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 months ended
March 31, 2004 and 2003:
2004 2003
Loss from continuing operations $ (18,917) $ (80,570)
Loss from discontinued operations - (233,018)
-------------- -----------------
Net loss for the year (18,917) (313,588)
Weighted-average shares outstanding 41,360,010 24,757,270
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 41,360,010
Loss per share attributable to common shareholders:
Loss from continuing operations (0.00) (0.00)
Loss from discontinued operations (0.00) (0.01)
-------------- -----------------
Total basic and diluted loss per share $ (0.00) $ (0.01)
============== =================
F-5
The effect of outstanding options and warrants was not included as the effect
would be antidilutive.
6. 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.
7. Segment and Geographic Data
The Company's reportable segments are geographic areas. 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.
Canada China Other Total
------ ----- ----- -----
Three months ended March 31, 2004
---------------------------------
Revenue from continuing operations $166,911 $ - $ - $ 166,911
Operating loss (12,028) (955) (1,353) (14,336)
Total assets 158,287 5,675,378 486,888 6,320,553
Three months ended March 31, 2003
---------------------------------
Revenue from continuing operations $ 65,350 $ - $ - $ 65,350
Operating loss (49,332) (786) (10,055) (60,173)
Total assets 33,647 3,825,596 856,935 4,716,178
8. Acquisition of Beijing Quicknet Telecommunication Corp. Ltd.
On February 18, 2004, the Company entered into a definitive agreement to acquire
a 51% equity interest from the shareholders of a short message system ("SMS")
provider, Beijing Quicknet Telecommunication Corp. Ltd. ("Quicknet"), located in
Beijing, China, for a price of $3,060,000 in form of issuing 6,120,000 shares of
common stock of the Company at a deemed price of $0.50 per share. The Company
has an option to acquire the remaining 49% equity interest in Quicknet within
the first year from the closing date for $4,000,000. The Company has another
option to acquire the remaining 49% equity interest in Quicknet within the
second year from the closing date for $5,000,000. As a general rule, the Company
and 50% in cash. The final percentage of shares versus cash can be negotiated
between both parties.
F-6
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 MARCH 31, 2004 AS COMPARED TO THE
QUARTER ENDED MARCH 31, 2003
Revenues. The Company achieved revenues of $166,911 in the first quarter 2004
compared $65,350 in the first quarter 2003 in the form of net sales of education
courses (Windsor) and advertisement from the newspaper from its subsidiaries.
The Company had operating cost of $181,247 in the first quarter 2004, resulting
in a loss of $14,366.
Business Segments
Pending Acquisition in 2004
---------------------------
During the quarter, the Company had revenues in two segments:
Windsor - ESL Education $60,146
Dawa - Chinese Language news $106,765
The cost of revenue in each segment was:
Windsor $14,545
Dawa $18,830
The gross profit from each of the business segments was:
Windsor $45,601
Dawa $87,935
--------
$133,536
Note: The Registrant owns 51% of the equity in each of Windsor and Dawa.
While revenues and costs of revenues are consolidated for reporting purposes, a
49% minority interest in the two companies exists, which, in effect, reduces the
allocable gross profit by 49% or $65,433.
Operating Expenses. The Company incurred operating expenses of $147,872 in the
first quarter 2004 compared to operating expenses of $125,523 in the first
quarter 2003.
Loss from continuing operations. Loss from continuing operations for the first
quarter 2004 was $18,917 in contrast to the first quarter 2003 operating loss of
$80,570. A significant contributor to the decrease in loss from continuing
operations is we treat the investment in The Link Group as equity. The loss in
the first quarter 2003 from The Link Group, Inc. was $26,396.
Loss from discontinued operations. Loss from discontinued operations in the
first quarter 2003 was $233,018 representing the results of the internet related
services operations in China pending shareholder approval.
Net Loss. The net loss in the first quarter 2004 was $ 18,917 compared to the
net loss in the first quarter 2003 of $ 313,588. The per share loss for the
first quarter 2004 was nil, and the per share loss for the first quarter 2003
was $0.01.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash capital of $3,304,019 at the quarter ended March 31, 2004.
The Company has no other capital resources other than the ability to use its
common stock to achieve additional capital raising. Other than cash capital, its
other assets would be illiquid.
At the quarter ended March 31, 2004 it had $5,867,177 in current assets and
current liabilities of $5,880,363.
The cash capital at the end of the period of $3,304,019 will be used to fund
continuing operations. The sale of the ChinaDNS assets has provided more than
US$2 million in working capital.
Net cash flows used in operating activities decreased to $742 for the quarter
ended March 31, 2004 from $383,835 for the quarter ended March 31, 2003 .
Net cash flows used in investing activities for the quarter ended March 31, 2004
was nil representing there was no major investment made.
Changes in Financial Condition:
At the end of the first quarter 2004 Company had assets $6,320,553 compared
to $6,320,612 at year-end 2003. The current assets totaled $5,867,177 at the end
of the first quarter 2004 compared to $5,866,214 at 2003 year-end. Total
liabilities at the end of the first quarter 2004 were $5,880,363 compared to
$5,870,451 at 2003 year-end. At March 31, 2004 the Company had $ 3,304,019 in
cash compared to $3,303,677 2003 year-end.
FUTURE PLANS
On Feb 15, 2004, the Company has entered into a Definitive Agreement to acquire
51% of a SMS provider in China, Beijing Quicknet Telecommunications Corp. Ltd.
(Beijing Quicknet), from non-affiliates. In order to comply with current Chinese
law, the Company will acquire 49% immediately upon closing and will retain the
right to acquire the 2% as soon as it is able to obtain Government approval or
achieve a legal structure (under Chinese law) which allows control of the 2%
(thereby aggregating 51%).
The Company has accumulated more than 300,000 corporate accounts from its
previous domain name registration and web hosting services in China. The Company
wants to continue pursuing in Internet related businesses in China. Acquisition
of Beijing Quicknet gives the Company an opportunity to capitalize in this
rapidly growing market, it also gives the chance for Beijing Quicknet to utilize
these corporate accounts and generate more revenue stream.
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. However, 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.
From the aspect of whether it can continue toward the business goal of
maintaining and expanding the businesses in Canada and develop new business of
SMS services in China, it may use all of its available capital without
generating a profit.
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 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 such
instruments.
Future Trends:
For the Education Services side, we have operated for over a year now, the
competition is very fierce in the market. The Canadian government has tighten
its budget on English training for new immigrants, which leads to reduced
government funding for Windsor, this will have negative effects to the revenue
of Windsor Education Academy. Canadian government also adopts more strict system
to choose schools that can be funded by the government and every school needs to
re-register with the government. There is no assurance that Windsor Education
Academy will continue receiving government funding in the coming years.
For the Dawa News Business Group Services side, the Company commenced operations
in 2003 and based on the industry research available, there is fierce
competition in the market. As more competitors come up in the market,
competition on advertisement price, which is the main revenue stream for the
News Services, become unfavorable to the Company. There is no assurance that the
News business will continue to be profitable. According to the agreement signed
between the Company and Dawa News Press, the Company has the right to reverse
the agreement by disposing its interest in the News business, in exchange for
regaining 49% interest in the Education business.
ITEM 3. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures:
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time period
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. As of the end of the period covered by this
report, the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon and as of the date of that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
b. Changes in Internal Control over Financial Reporting:
There were no changes in the Company's internal control over financial reporting
identified in connection with the Company evaluation of these controls as of the
end of the period covered by this report that could have significantly affected
those controls subsequent to the date of the evaluation referred to in the
previous paragraph, including any correction action with regard to significant
deficiencies and material weakness.
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.
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 March 31, 2004. (incorporated by reference)
8-K filed 2-17-04
8-K/A filed 2-25-04
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: May 24, 2004
XIN NET CORP.
by: /s/ Angela Du
----------------------------
Angela Du,
Secretary/Director