Management`s Discussions: 10QSB, QINNET COM INC
MONDAY, AUGUST 21, 2000 8:52 AM
- Edgar Online
(Edgar Online via COMTEX)
Company Name: QINNET COM INC
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 August 4, 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.
Qinnet Holdings is presently preparing the audited financial statements which will be necessary to complete the filing of the Form S-4 registration statement. The Company is not able to proceed with the filing of the Form S-4 registration statement or completion of the Merger until such time as audited financial statements for Qinnet Holdings have been finalized. The auditors for Qinnet Holdings have requested certain legal opinions regarding the corporate organization of Qinnet Holdings and its subsidiaries in China. Qinnet Holdings is working with its legal counsel in China in order to finalize the required legal opinions.
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 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 become a leading Internet Technology Provider (ITP) to Chinese companies and businesses in the fields of electronic commerce, Internet Service Providers ("ISPs") and Internet Content Providers ("ICPs") across 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 overlapping phases through its subsidiary, Qinnet Beijing:
Acquisition of Tjvan, Brainn and Beijing IT
Qinnet Beijing has completed three acquisitions 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 as ITP, 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 has acquired 70% of each operation through a local JV and is providing capital, technology and management skill for expansion. Each of the three operations has additional management to add to Qinnet Beijing's existing Chinese management capability.
Business Expansion & Integration
The business expansion strategy is to leverage our existing resources within China to identify additional business opportunities across the country. The rapid development of the Internet has created various technology needs in many areas. The Company plans on targeting small to medium sized businesses located in areas with large populations and large Internet growth potentials. The company plans on providing Internet technology to these enterprises in the form of web site design, web hosting and business to business e-commerce solutions. Additionally, the Company will seek to identify additional 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.
This phase of business expansion and integration 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.
Plan to Earn Revenues
Qinnet Holdings plans to generate revenues from the following:
a) Content related services including web hosting, web design and on-line services. b) IP telephony services. c) Electronic Book Publishing, on-line book sales via JV and new E-Book web site. d) Electronic commerce services. e) Data communications services, including China nation-wide e- mail services and installation of ISDN services. f) Dial up and leased line access to individuals and corporate customers:
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 12,000 to 20,000 within a year.
Qinnet Beijing has invested 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 other's 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 acquisitions. With the capital injection, the joint venture plans to increase the number of subscribers from 12,000 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. As of August 1, 2000 the number of subscribers had increase to over 12,000. 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") and has established 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) jointly establish the e-book online service to become the first online book sales web site in the Liaoning Province, (2) add equipment to expand its service capacity to serve over 2,000 corporate/individual subscribers; (3) construct 50 data information stations across the City of Shenyang.
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.
Through the assistance of Brainninfo.com, Qinnet.Com has completed negotiation and entered into a joint venture with Liaoning Educational Press the largest book publishing house in the Northeast of China. This joint venture will establish the first and only Electronic book publishing business in China and will create an online book sales operation. Brainninfo.com has also developed and patented software for e-commerce solutions to establish 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. BITC is in the process of completing a software module program that will allow small to medium sized businesses to establish web sites in a cost effective and swift fashion and allow them to build their own e-commerce business. BTIC will commence marketing and sales efforts for this web site design service in the fourth quarter of 2000. BTIC will also provide hosting service to this client base. It is anticipated that each customer will retain BTIC for future web design and hosting work as their business mature through the Internet. Since Qinnet Beijing is also headquartered in Beijing, Qinnet Beijing has merged the operations of BITC with its operations in Beijing.
Beijing Qinnet has entered into a joint venture with NetTop. NetTop is an IP Internet technology company. NetTop manages data traffic "voice and data transmission" between North America and Asia to China. This joint venture is named QinTop. Beijing Qinnet has invested 2,000,000 RMB to this project to date. QinTop's business will be the expansion of IP services to China. Total funding to date has been 2,000, 000 RMB. The company anticipated significant revenues and operating profits to begin over the next 6 -12 months.
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. Commencement of hardware purchasing for the QinTop IP data transmission network between North America, Asia and China. The Company plans to purchase hardware from major manufacturers such as CISCO. The projected initial hardware, software and communications lines costs are up to $500,000.
B. Establish web site and e-publishing business operations through the joint venture with Liaoning Educational Press. Total expenditures are under evaluation. It is anticipated that significant levels of capital investment will be required for these operations.
C. 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;
D. 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;
E. 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;
F. Evaluate and complete further acquisitions of Internet Technology provider businesses based in China. Qinnet Holdings anticipates spending approximately $300,000 on acquisitions over the next twelve months.
G. 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 $5, 100,000 over the next twelve month period in pursuing its stated plan of operations. Of these anticipated expenditures, we anticipate that approximately $2,000,000 will be spent in the next six months. Qinnet Holdings currently has cash in the approximate amount of $2,580,000. Accordingly, Qinnet Holdings will be able to complete its stated plan of operations without additional financing over the next six month period.
Qinnet Holding currently employs over 100 people in its operations and 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 will require additional equity financing to complete its objectives. The Company will plan its expenditures around its capital resources in order to maintain its operations: (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. However, the Company is seeking the appropriate investment banking relationships to assist in the funding process and is currently in discussions with several major investment organizations regarding the companies capital needs. 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 |
