AGREEMENT AND PLAN OF REORGANIZATION
On April 13, 2000, a change in control of the Registrant occurred in conjunction
with closing under an Agreement and Plan of Reorganization (the "Reorganization
Agreement") between the Registrant and ▇▇▇▇▇▇.▇▇▇, Inc. ("Qinnet"), a Delaware
corporation.
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 the Registrant 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, the
Registrant became a wholly-owned subsidiary of Qinnet.
The Reorganization was approved by the unanimous consent of the Board of
Directors of Qinnet on March 11, 2000. The Reorganization 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. Qinnet, formerly known as Telespace Ltd., was incorporated in
the State of Delaware on May 31, 1989.
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 Internet Corporation of America, Inc. for
reporting purposes under the Securities Exchange Act of 1934 and elects to
report under the Act effective March 21, 2000.
A copy of the Reorganization Agreement is filed as an exhibit to this Form 8-K
and is incorporated in its entirety herein. The foregoing description is
qualified by reference to the full text of the Reorganization Agreement.
QINNET CORPORATE ORGANIZATION
Qinnet is a Delaware corporation that was incorporated on May 31, 1989.
Merger Agreement
Qinnet entered into a merger agreement with Qinnet Holdings Corp. ("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 April 13, 2000, there are a
total of 13,109,100 shares of Qinnet Holdings outstanding. Accordingly, Qinnet
will issue a total of 13,109,100 shares of Qinnet common stock upon completion
of the Merger.
A copy of the Merger Agreement is filed as an exhibit to this Form 8-K and is
incorporated in its entirety herein. The foregoing description is qualified by
reference to the full text of the Merger Agreement.
Beijing QinNet Electronic Technologies Co., Ltd. ("Qinnet Beijing")
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.
BUSINESS PLAN OF QINNET HOLDINGS
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, ▇▇▇▇▇▇▇▇ ▇▇▇▇ 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 "▇▇▇.▇▇▇▇▇▇.▇▇▇" Internet web site in
connection with the expansion of its ▇▇▇▇▇▇.▇▇▇ business.
Industry Background - Use of the Internet in China
China has embraced the computer/Internet phenomenon. China has the potential to
become one of the world's largest markets for Internet and related services as
China seeks to catch up with the rest of the industrialized world. Analysts
predict China will have between 10 to 13 million Internet users by 2001 and 33
million users by 2003.
The Chinese government recognizes the Internet to be a powerful tool in which to
improve China's overall economic competitiveness. There are over 15,000
national-level companies in China which have greater than 1,000 employees and
thousands of medium and small companies with more than 100 employees. These
entities, plus government ministries and departments at the local and national
level, will require access to the web in the very near future.
Factors driving the growth of China's Internet market include:
>> The rapidly increasing number of installed telephone lines; >> Declining
access costs making Internet use more affordable; >> High growth rates in the
sales of personal computer's and modems; >> The introduction of new access
mediums (e.g. set top boxes on television's); >> Greater availability of local,
Chinese content; and
>> The government's recognition that the Internet and electronic commerce spur
economic growth.
PLAN OF OPERATIONS AND BUSINESS ACQUISITIONS
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 - ▇▇▇▇▇.▇▇▇ (Tianjin), ▇▇▇▇▇▇▇▇▇▇.▇▇▇ (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 ▇▇▇▇▇▇.▇▇▇ 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. Each of the three operations have additional
management to add to Qinnet Beijing's existing Chinese management capability.
Phase Two - Business Expansion & Integration
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 ▇▇▇▇▇▇.▇▇▇ 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.
Planned 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
Acquisition of ▇▇▇▇▇.▇▇▇ in Tianjin
In October 1999, Qinnet Beijing and Tianjin Xiandao Information Network Co.,
Ltd. ("▇▇▇▇▇.▇▇▇") signed an agreement to establish a joint venture company, in
which Qinnet Beijing owns 70% of the equity interest, to accelerate growth of
▇▇▇▇▇.▇▇▇'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 ▇▇▇▇.▇▇▇ and to finance ▇▇▇▇▇.▇▇▇'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 ▇▇▇▇▇.▇▇▇ for future ISP operations
and 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, ▇▇▇▇▇.▇▇▇ 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. ▇▇▇▇▇.▇▇▇ 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,
▇▇▇▇▇.▇▇▇ 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 ▇▇▇▇▇▇▇▇▇▇.▇▇▇ in Shenyang
Qinnet Beijing has entered into a joint venture agreement with Shenyang Brainn
Information Co., Ltd. ("▇▇▇▇▇▇▇▇▇.▇▇▇") to establish a joint venture company to
accelerate ▇▇▇▇▇▇▇▇▇▇.▇▇▇'s Internet business development. Qinnet Beijing now
owns the controlling interest in the joint venture company, called Shenyang
Qinnet-Brainn Information Technologies Company Ltd. 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.
▇▇▇▇▇▇▇▇▇▇.▇▇▇ 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 ▇▇▇▇▇▇▇▇▇▇.▇▇▇ developed over 20 web sites and
e-commerce models including the following:
Liaoning Food Web (▇▇▇.▇▇▇▇▇▇.▇▇▇),
Liaoning Consumer Association Web (▇▇▇.▇▇▇▇▇.▇▇▇.▇▇)
China Art & Handcraft Web (▇▇▇.▇▇▇▇▇▇▇▇▇.▇▇▇.▇▇)
Liaoning Education Publishers Web (▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇)
Shenyang Electronics Street Information Web (▇▇▇.▇▇▇▇▇▇▇▇▇▇.▇▇▇)
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.
▇▇▇▇▇▇▇▇▇▇.▇▇▇ is currently negotiating with the largest book publishing house
in the Northeast of China to establish an online book sales operation.
▇▇▇▇▇▇▇▇▇▇.▇▇▇ 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 entered into an agreement to acquire Beijing IT Consulting
Co., Ltd. ("BITC"). BITC created two web sites a year ago. These two web sites,
▇▇▇.▇▇▇▇▇▇.▇▇▇ ("cheyou" in Chinese means "Friends of Automobiles") and
▇▇▇.▇▇▇▇▇.▇▇▇ ("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 and BITC
have agreed to merge the two operations in one at the BQET's locations at ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇., ▇▇▇▇▇▇▇.
Additional Financing Required
Qinnet Holdings will require additional equity financing in order to achieve its
stated plan of operations. The business plan of Qinnet Holdings may differ from
the stated plan of operations. Qinnet Holdings may decide not to pursue the
stated plan of operations. In addition, the Qinnet Holdings may modify the
stated plan of operations based on the available amount of financing in the
event that Qinnet Holdings cannot achieve the required equity financings to
complete 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 meet the stated plan of operations.
The Registrant 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 the Registrant 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.
Competition
While at least several hundred ISP's were established in the mid 1990's, only a
few today can claim any meaningful level of subscribers. No major entity has
emerged as a nationwide, unified provider of ISP and ICP services. China
Telecom, via its ChinaNet 163 and 169 services, dominates the ISP market. The
term "ChinaNet" does not describe a single ISP, with one management or ownership
structure. ChinaNet is in fact an umbrella brand used by a family of ISP's owned
and operated by the provincial telecom authorities ("PTA's"). These ISP's have
traditionally acted as autonomous and un-coordinated operating units that has
limited the effectiveness of ChinaNet's nationwide capabilities. The biggest
obstacle to the offering of a coordinated and consistent "ChinaNet" ISP service
is not capital or bandwidth, but the lack of a customer service orientation,
inadequate management resources and an inefficient and unreliable billing and
clearing system. The ChinaNet brand is still immature and it is not clear that
it will ever develop into a real brand name for ISP service.
In early 1999, several leading, independent ISP's signed up as resellers of
ChinaNet services. These ISP's (including China Online, Infohighway and Homeway)
have effectively given up in their attempts to operate separately in competition
against China Telecom.
In early 2000, Singapore's Pacific Internet (Nasdaq: PCNTF) announced a JV with
▇▇▇▇▇▇▇ Corporation to offer technical, marketing and management services to
licensed Chinese ISP's. Pacific Internet has ISP interests in Singapore, India,
Thailand the Philippines. Its investment in China is evidence that interest in
the Chinese ISP market is increasing significantly.
No single ISP has emerged in China as a leading, nationwide ISP service. This
has been due to numerous factors including lack of capital, lack of skilled
management resources and the cost disadvantages imposed by China Telecom.
Government Regulation
Overall regulation of the Internet in China is unclear, a situation which has
been exacerbated by the number of (government) players seeking to exert control
over this fast growing sector. Prior to the creation of the Ministry of Industry
and Information (MII) in March 1999, the Ministry of Post and Telecommunications
plus various provincial government authorities were responsible for the granting
of ISP licenses. These licenses were granted in the early to mid 1990's and
usually had a 5 year duration. With this 5 year period starting to expire, many
ISP's now are required to go to their respective Bureau of Industry and
Information for renewal and extension. Whilst there is no clear framework
established under the MII system, ISPs may receive new 5 year licenses upon
application.
Among other things, the recently created MII is responsible for:
>> Setting upper limits on the access charges which ISPs can charge consumers;
>> Establishing the DDN charges ISPs must pay to China Telecom; >> Establishing
the framework in which China Telecom's regulated monopoly is to be disbanded; >>
Enhancing the level of local competition in China's telecommunications industry.
ISPs and portal sites serving the mainland China market need to ensure that
content provided on the net meets certain government requirements - the
authorities do not tolerate sites that promote pornography or are deemed
anti-government in any manner whatsoever.
DESCRIPTION OF PROPERTY
▇▇▇▇▇▇ does not own any real property. Qinnet is currently in the process of
establishing its head office in Glendale, California. Qinnet anticipates
entering into a lease agreement upon Qinnet finding acceptable premises on
agreeable terms.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following information sets forth the names of the officers and directors of
Qinnet, their present positions with ▇▇▇▇▇▇, and their biographical information.
Name Age Office(s) Held
---- --- ----------------
▇▇▇▇▇▇ ▇▇▇▇ Director and President
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Director, Secretary and Treasurer
▇▇. ▇▇▇▇▇▇ ▇▇▇▇ was appointed as President and a director of Qinnet on October
26, 1999. In 1997, ▇▇. ▇▇▇▇ established his first Internet service provider
operation in Chengdu, the capital of Sichuan Province, which was one of very few
earliest Internet service provider operations in China. Since then, ▇▇. ▇▇▇▇ has
pursued and researched various Internet opportunities in China. From 1995 to
1998, ▇▇. ▇▇▇▇ was President of Agro International, a publicly-listed Canadian
company. From 1993 thru 1994, he was a senior consultant for International
Business for the Canadian International Trade & Development Corporation. Prior
to moving to Canada to further his education, ▇▇. ▇▇▇▇ was a division manager in
Heilongjiang Province, China from 1984 - 1987. ▇▇. ▇▇▇▇ received ▇.▇▇. and Ph.D.
degrees in Engineering from Canada and a ▇.▇▇. degree from China. Most of his
work was related to computer programming and mathematical modeling and
simulation. ▇▇. ▇▇▇▇ speaks fluent mandarin and resides in both China and
Canada.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ was appointed as Secretary and Treasurer and a director of Qinnet
on October 26, 1999. ▇▇. ▇▇▇▇▇▇▇▇ holds a Mechanical Engineering degree from the
University of New Brunswick. ▇▇. ▇▇▇▇▇▇▇▇ spent from 1995 to 1998 employed by
Turbodyne Technologies Inc. as their head of corporate and investor relations.
Previous to this, ▇▇. ▇▇▇▇▇▇▇▇ worked in the engineering and manufacturing
divisions of Spar Aerospace Ltd., where he was responsible for the design and
manufacture of several communications satellites. ▇▇. ▇▇▇▇▇▇▇▇ is a director of
Four Crown Foods Inc., a Canadian federal corporation which is a reporting
issuer under the Securities Exchange Act of 1934. ▇▇. ▇▇▇▇▇▇▇▇ has worked with
the Four Crown Foods since 1999.
Terms of Office
Directors of Qinnet are appointed for one year terms to hold office until the
next annual general meeting of the holders of ▇▇▇▇▇▇'s Common Stock or until
removed from office in accordance with Qinnet's by-laws. Officers of Qinnet are
appointed by ▇▇▇▇▇▇'s board of directors and hold office until removed by
▇▇▇▇▇▇'s board of directors.
REMUNERATION OF OFFICERS AND DIRECTORS
The following table sets forth certain information as to Qinnet's highest paid
officers and directors for its first fiscal year ended December 31, 1999. No
other compensation was paid or will be paid to any such officers or directors
other than the cash compensation set forth above under this Item 6 "Business -
Employees".
Summary Compensation Table
Name of Individual or Capacities in which Aggregate
Identity of Group Remuneration was Received Remuneration
▇▇▇▇▇▇ ▇▇▇▇ Director and President NIL
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Director and Secretary NIL
Treasurer
Officers and Directors Directors and Officers NIL
of Qinnet as a Group
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
The following table sets forth, as of April 13, 2000, the beneficial ownership
of ▇▇▇▇▇▇'s Common Stock by each officer and director of Qinnet, by each person
known by ▇▇▇▇▇▇ to beneficially own more than 5% of Qinnet's Common Stock
outstanding and by the officers and directors of Qinnet as a group. Except as
otherwise indicated, all shares are owned directly.
Name and address Number of Shares Percentage of
Title of class of beneficial owner of Common Stock Common Stock(1)
Common Stock ▇▇▇▇▇▇ ▇▇▇▇ 1,032,000 79.4
Director and President
Suite B, ▇▇▇▇ ▇▇▇ ▇▇▇. N.E.
Redmond, WA 98052
Common Stock ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ NIL 0.0%
Director, Secretary
and Treasurer
Suite ▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Common Stock All Officers and Directors 1,032,000 79.4%
as a Group (2 persons)
--------------------------------------------------------------------------------
(1) Based on 1,300,497 shares of Common Stock of Qinnet issued and outstanding
on April 13, 2000.
Interest of Management and Others in Certain Transactions
Except as disclosed below, none of the following persons has any direct or
indirect material interest in any transaction to which ▇▇▇▇▇▇ is a party since
the incorporation of Qinnet during the past two years or in any proposed
transaction to which ▇▇▇▇▇▇ is proposed to be a party:
(A) any director or officer of Qinnet;
(B) any proposed nominee for election as a director of Qinnet;
(C) any person who beneficially owns, directly or indirectly,
shares carrying more than 10% of the voting rights attached to
Qinnet's Common Stock; or
(D) any relative or spouse of any of the foregoing persons, or any
relative of such spouse, who has the same house as such person
or who is a director or officer of any parent or subsidiary of
Qinnet.
Qinnet has entered into the Merger Agreement with Qinnet Holdings. Each of ▇▇.
▇▇▇▇▇▇ ▇▇▇▇, the President and a director of Qinnet, and ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
Secretary and Treasurer and a director of Qinnet, is an officer and a director
of Qinnet Holdings. ▇▇. ▇▇▇▇ does not own any of the shares of Qinnet Holdings.
▇▇. ▇▇▇▇▇▇▇▇ does not own any of the shares of Qinnet Holdings.
COMMON STOCK OF QINNET
Under Qinnet's Certificate of Incorporation, the total number of shares of all
classes of stock that Qinnet shall have authority to issue is 50,000,000 shares
of common stock, par value $0.00001 per share (the " Common Stock"). As of April
13, 2000, a total of 1,300,497 shares of Common Stock are issued and
outstanding.
Common Stock
Holders of Common Stock have the right to cast one vote for each share held of
record on all matters submitted to a vote of holders of Common Stock, other than
votes for the election of directors. Holders of one percent (1%) of the capital
stock issued and outstanding and entitled to vote, represented in person or by
proxy, are necessary to constitute a quorum at any meeting of Qinnet's
stockholders. The vote by the holders of a majority of such outstanding shares
is required to effect certain fundamental corporate changes such as liquidation,
merger or amendment of Qinnet's Certificate of Incorporation.
Holders of Common Stock are entitled to receive dividends pro rata based on the
number of shares held, when, as and if declared by the Board of Directors, from
funds legally available therefor. In the event of the liquidation, dissolution
or winding up of the affairs of Qinnet, all assets and funds of Qinnet remaining
after the payment of all debts and other liabilities shall be distributed, pro
rata, among the holders of the Common Stock. Holders of Common Stock are not
entitled to pre-emptive or subscription or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock.
Share Purchase Warrants
Qinnet has not issued and does not have outstanding any warrants to purchase
shares of the Common Stock.
Options
▇▇▇▇▇▇ has issued a total of 187,000 options to purchase shares of the Common
Stock to its directors, officers and permitted consultants. Each outstanding
option is exercisable at a price of $13.00 per share. The options have been
granted by ▇▇▇▇▇▇ pursuant to Qinnet's incentive stock option plan.
Convertible Securities
▇▇▇▇▇▇ has not issued and does not have outstanding any securities convertible
into shares of Common Stock or any rights convertible or exchangeable into
shares of Common Stock
Transfer Agent
Securities Transfer Corporation of Dallas, Texas is the transfer agent for the
Shares.
Market Price of and Dividends on the Registrant's Common Equity and Other
Stockholder Matters
▇▇▇▇▇▇'s Common Stock is traded on the OTC Bulletin Board under the symbol
"QNNTE". The first day in which ▇▇▇▇▇▇'s shares traded was January 12, 2000. The
high and the low bid prices for Qinnet's shares for each quarter of actual
trading were:
Quarter High Low
January 10, 2000 to $17.125 $9.25
March 31, 2000
April 1, 2000 to $14.00 $13.00
April 13, 2000
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
As of April 13, 2000, there were 703 registered shareholders of Qinnet.
None of the holders of Qinnet's Common Stock have any right to require Qinnet to
register any shares of Qinnet's Common Stock pursuant to the 1933 Act. Qinnet
anticipates registering the shares to be issued upon completion of the Merger
Agreement by the filing of a Form S-4 registration statement under the Act.
Qinnet has not declared any dividends on its Common Stock since its inception.
There are no dividend restrictions that limit ▇▇▇▇▇▇'s ability to pay dividends
on Common Stock in Qinnet's Certificate of Incorporation or By-Laws.
Legal Proceedings
▇▇▇▇▇▇ is not currently a party to any legal proceedings.
Changes in and Disagreements with Accountants
None.
Recent Sales of Unregistered Securities
▇▇▇▇▇▇ completed the issuance of 50,000 shares of its common stock to Halter
Capital Corporation on completion of the Reorganization Agreement. These shares
were issued pursuant to Section 4(2) of the Act on April 13, 2000.
Qinnet has granted options to purchase a total of 187,000 shares of Common Stock
to its officers, directors, employees and permitted consultants pursuant to
Qinnet's incentive stock option plan. Each option is exercisable at a price of
$13.00 per share. The options were granted pursuant to Rule 701 of the Act.
▇▇▇▇▇▇ has not issued any other securities during the past three years.
Indemnification of Directors and Officers
The officers and directors of Qinnet are indemnified as provided under the
Delaware General Corporation Law and the Bylaws of Qinnet.
The By-laws of Qinnet provide that Qinnet will indemnify its directors and
officers to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that Qinnet may modify the extent of such
indemnification by individual contracts with its directors and officers; and,
provided, further, that Qinnet shall not be required to indemnify any director
or officer in connection with any proceeding (or part thereof) initiated by such
person unless (i) such indemnification is expressly required to be made by law,
(ii) the proceeding was authorized by the Board of Directors of Qinnet, (iii)
such indemnification is provided by Qinnet, in its sole discretion, pursuant to
the powers vested in Qinnet under the Nevada General Company Law or (iv) such
indemnification is required to be made pursuant to the By-laws.
The By-laws of Qinnet provide that ▇▇▇▇▇▇ will advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
Qinnet, or is or was serving at the request of Qinnet as a director or executive
officer of another Company, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding, promptly following
request therefor, all expenses incurred by any director or officer in connection
with such proceeding upon receipt of an undertaking by or on behalf of such
person to repay said amounts if it should be determined ultimately that such
person is not entitled to be indemnified under the By-laws of Qinnet or
otherwise.
The By-laws of Qinnet provide that no advance shall be made by Qinnet to an
officer of Qinnet (except by reason of the fact that such officer is or was a
director of Qinnet in which event this paragraph shall not apply) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made (i) by the Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of Qinnet.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
Form 8-K and any other filings we may make with the United States Securities and
Exchange Commission in the future before investing in our common stock. If any
of the following risks occur, or if others occur, our business, operating
results and financial condition could be seriously harmed. The trading price of
our common stock could decline due to any of these risks, and you may lose all
or part of your investment.
RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL
AS WE HAVE ONLY RECENTLY COMMENCED BUSINESS OPERATIONS, WE FACE A HIGH RISK OF
BUSINESS FAILURE
Qinnet Holdings commenced business operations in 1999. We are presently in the
process of establishing our Internet service provider operations. Accordingly,
we have only a limited operating history for you to evaluate our business. You
must consider the risks, expenses and uncertainties that an early stage company
like ours faces. These risks include our ability to: (i) compete acquisitions of
Internet service provider business in China; (ii) attract the Chinese community
to use our Internet service provider operations; (iii) enter into agreements
with telecommunication providers in China to enable us to provide Internet
service provider operations; and (iv) respond effectively to competitive
pressures. If we are unsuccessful in addressing these risks, our business,
financial condition and results of operations will be materially and adversely
affected and our business may fail.
AS WE HAVE NEVER MADE MONEY, WE EXPECT OUR LOSSES TO CONTINUE
We have never been profitable. We expect to continue to incur significant losses
for the foreseeable future as we will incur increased operating expenses while
we complete development of our Internet service provider operations prior to
realizing any revenues from our operations. If we are not able to generate
significant revenues from our Internet service provider operations, then we may
not be able to achieve profitability.
IF WE ARE NOT BE ABLE TO OBTAIN SUFFICIENT FUNDS TO ESTABLISH OUR BUSINESS, THEN
OUR BUSINESS MAY FAIL
Our business plan calls for increased expenses associated with the development
and marketing of our Internet service provider operations. We anticipate that
revenues from operations will initially not be sufficient to cover these
expenses. Accordingly, we will likely have substantial future capital
requirements after this offering. There is no assurance that we will be able to
obtain additional financing. Obtaining additional financing will be subject to a
number of factors, including: (i) market conditions; (ii) our operating
performance; and (iii) investor sentiment. These factors may make the timing,
amount, terms and conditions of additional financing unattractive for us. If we
are unable to raise additional capital, we may not be able to implement our
business plan and our business may fail.
RISKS RELATED TO OUR MARKETS AND STRATEGY
IF THE INTERNET IS NOT WIDELY ACCEPTED, OUR BUSINESS WILL SUFFER
We expect to derive a portion of our revenue for the foreseeable future from
Internet service provider revenues, and to a lesser extent, from electronic
commerce. Electronic commerce and the Internet are new and rapidly evolving
markets, particularly in developing nations such as China. If the Internet is
not accepted in China, our business will suffer.
OUR BUSINESS OPERATIONS MAY BE ADVERSELY AFFECTED BY SOCIAL AND POLITICAL
CONDITIONS IN CHINA
We expect to establish our Internet service provider operations in China and to
derive a substantial portion of our revenues from the domestic Chinese market.
Social and political conditions in China may be more volatile than in developed
countries. This volatility may cause our operations to fluctuate. This
volatility could make it difficult for our business to grow, which could have an
adverse effect on our stock price. Historically, volatility has been caused by:
(i) significant governmental influence over many aspects of telecommunication
industry; (ii) political uncertainty; (iii) unexpected changes in regulatory
requirements; (iv) slow or negative growth; (v) imposition of trade barriers. We
have no control over these matters. Volatility resulting from these matters may
decrease our ability to expand our Internet service provider operations in
China, adversely affect Internet availability to Chinese consumers, create
uncertainty regarding our operating climate and adversely affect our customers'
advertising budgets, all of which may adversely impact our business.
IF THE CHINESE CURRENCY DEPRECIATES RELATIVE TO THE U.S. DOLLAR, THEN OUR
REVENUES MAY DECLINE
Our reporting currency is the U.S. dollar. We anticipate that our revenues from
operations within China will be earned in Chinese currency. Our revenues from
domestic Chinese customers will decline in value if the Chinese currency
depreciates relative to the U.S. dollar. Accordingly, our revenues may decrease
if the Chinese currency depreciates relative to the U.S. dollar, with the result
that our business operations and financial condition may be harmed.
IF INTERNET USE IN CHINA DOES NOT GROW, OUR BUSINESS WILL SUFFER
The Internet market in China is in an early stage of development. Our future
success depends on the continued growth of the Internet in China. In addition,
our future success depends on the number of Chinese consumers accepting and
using the Internet increasing. Our business, financial condition and results of
operations will be materially and adversely affected if Internet usage by
resident Chinese does not continue to grow or grows more slowly than we
anticipate. Internet usage in these markets may be inhibited for a number of
reasons, including: (i) the cost of Internet access; (ii) the availability of
telecommunications infrastructure; (iii) ease of use and language barriers; and
(iv) quality of service.
UNDERDEVELOPED TELECOMMUNICATIONS INFRASTRUCTURE MAY LIMIT THE GROWTH OF THE
INTERNET IN CHINA AND ADVERSELY AFFECT OUR BUSINESS
Access to the Internet requires a relatively advanced telecommunications
infrastructure. The telecommunications infrastructure in many parts of China is
not as well-developed as in the United States or Europe. The quality and
continued development of the telecommunications infrastructure in China will
have a substantial impact on our ability to deliver our services and on the
market acceptance of the Internet in China in general. If further improvements
to the Chinese telecommunications infrastructure are not made, the Internet will
not gain broad market acceptance in China. If access to the Internet in China
does not continue to grow or grows more slowly than we anticipate, our business,
financial condition and results of operations will be materially and adversely
affected.
IF WE ARE NOT ABLE TO EFFECTIVELY MANAGE OUR EXPANDING OPERATIONS, THEN OUR
BUSINESS WILL BE HARMED
Our business plan anticipates that our business operations will undergo
significant expansion as we establish our Internet service provider operations.
This expansion will require that we hire additional personnel and establish
offices in locations within China. We anticipate that this growth will place a
significant strain on our managerial, operational and financial resources. To
accommodate this growth, we must successfully find and train additional
employees, acquire and implement new computer hardware and software systems and
establish new offices. We may not succeed with these efforts. Our failure to
expand in an efficient manner could cause our expenses to be greater than
anticipated, our revenues to grow more slowly than expected and could otherwise
have a material adverse effect on our business, financial condition and results
of operations.
IF WE ARE UNABLE TO HIRE AND RETAIN KEY PERSONNEL THAT ARE IN HIGH DEMAND, THEN
WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN AND OUR BUSINESS WILL SUFFER
We depend on the services of our senior management and key technical personnel.
Our inability to attract and hire technical personnel could have a material
adverse effect on our business, financial condition and results of operations.
In addition, our success is largely dependent on our ability to hire highly
qualified managerial, sales and technical personnel. These individuals are in
high demand and we may not be able to attract the staff we need.
IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY AGAINST OUR COMPETITORS, THEN WE MAY
NOT BE ABLE TO ACHIEVE MARKET ACCEPTANCE AND OUR BUSINESS MAY BE HARMED
There are many companies that provide Internet service provider operations in
China. Competition is intense and is expected to increase significantly in the
future because there of the potential rewards of establishing successful
Internet service provider operations in China. Competition could materially and
adversely affect our business, financial condition and results of operations. In
addition, our competitors may develop competing Internet service provider
operations that achieve greater market acceptance. It is also possible that new
competitors may emerge and acquire significant market share. Our inability to
respond to competition will have a material and adverse effect on our business,
financial condition and results of operations.
RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY INFRASTRUCTURE
IF WE EXPERIENCE UNEXPECTED NETWORK INTERRUPTIONS CAUSED BY SYSTEM FAILURES,
THEN WE MAY EXPERIENCE REDUCED VISITOR TRAFFIC, REDUCED REVENUE AND HARM TO OUR
REPUTATION
Once we commence operations, our business operations will depend on the
continued, uninterrupted operation of the computer systems and networks that
will operate our Web sites. These computer systems and networks are vulnerable
to disruptions, such as system crashes, that could cause our Web sites to cease
operation. If we experience delays and interruptions, we may lose customers with
the result that we could experience a delay in achieving revenues or a decrease
in revenues. We plan to maintain our computer servers in China and we will rely
on telecommunication systems in China for the operation and use of our Web
sites. If we fail to protect our systems against damage from fire, hurricanes,
power loss, telecommunications failure, break-ins or other events, disruptions
to our Internet service provider operations could have a material adverse effect
on our business, financial condition and results of operations.
RISKS RELATED TO LEGAL UNCERTAINTY
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATIONS AND LEGAL
UNCERTAINTIES AFFECTING THE INTERNET WHICH COULD ADVERSELY AFFECT OUR BUSINESS
Government regulation could slow the growth of the Internet in China. This could
delay growth in demand for our Internet service operations and limit the growth
of our revenues.
OUR STOCK PRICE MAY BE VOLATILE.
We anticipate that the market price of our common stock may be subject to wide
fluctuations in response to several factors, such as:
1. actual or anticipated variations in our results of operations;
2. our ability or inability to generate new revenues;
3. increased competition; and
4. conditions and trends in the Internet and electronic commerce industries.
Further, we anticipate that our common stock may be traded on the Nasdaq OTC
Bulletin Board. Companies traded on the OTC Bulletin Board have traditionally
experienced extreme price and volume fluctuations. There is no assurance that
our common stock will continue to be traded on the OTC Bulletin Board. If our
common stock is traded on the OTC Bulletin Board, our stock price may be
adversely impacted by factors that are unrelated or disproportionate to our
operating performance. The trading prices of many technology companies' stocks
are at or near historical highs and reflect price earnings ratios substantially
above historical levels. These market fluctuations, as well as general economic,
political and market conditions, such as recessions, interest rates or
international currency fluctuations may adversely affect the market price of our
common stock.
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES
In the past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. Many companies in our industry have been subject to this
type of litigation in the past. We may also become involved in this type of
litigation. Litigation is often expensive and diverts management's attention and
resources, which could have a material adverse effect upon our business,
financial condition and results of operations.
