Col China Online International 10QSB 2006 Q3 Quarterly report (small business)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 - QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934.

333-39208

(Commission File Number)

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2006.

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD ________.

COL China Online International Inc.

(Exact name of small business issuer as specified in its charter)

Delaware	52-2224845
(State or other jurisdiction of incorporation)	(IRS Employer Identification Number)

3176 South Peoria Court, Suite 100

Aurora, Colorado, 80014

(Address of principal executive offices including zip code)

(303) 695-8530

(Small Business Issuer telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

As of November 10, 2006, the Registrant had outstanding 50,155,000 shares of its common stock, par value $.001.

Transitional Small Business Disclosure Format (Check One):

Yes o No    x   

COL China Online International Inc.

REPORT ON FORM 10-QSB

For the Period Ended September 30, 2006

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION
Item 1	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2006 (unaudited) and June 30, 2006	2
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2006 and 2005 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2006 and 2005 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 3	Controls and Procedures	9

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	10
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3	Defaults Upon Senior Securities	10
Item 4	Submissions of Matters to a Vote of Security Holders	10
Item 5	Other Information	10
Item 6	Exhibits	10

Signature Page Exhibit 31.1 Certification Exhibit 32.1 Certification 11

PART I FINANCIAL INFORMATION

COL CHINA ONLINE INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

Item 1. Financial Statements.

	September 30, 2006 (unaudited)						June 30, 2006
	(US$)			Rmb			Rmb
ASSETS	(Illustrative only)
Current Assets:
Cash		26,169			207,175			200,238
Accounts receivable, net of an allowance for doubtful accounts		5,206			41,211			17,110
Deposits and other receivables		63,076			499,364			506,948
Total current assets		94,451			747,750			724,296
Property, Office Space and Equipment, net of accumulated depreciation and impairment of Rmb12,323,097 (US$1,556,576) and Rmb10,589,897 (US$1,317,930) respectively		26,486			209,692			230,716
Total Assets		120,937			957,442			955,012
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses		103,653			820,610			943,184
Taxes payable		24,769			196,090			234,386
Total current liabilities		128,422			1,016,700			1,177,570
Non-Current Liabilities:
Payable to Majority Stockholder		10,024,394			79,361,119			78,678,141
Other loan		-			-			150,000
Total non-current liabilities		10,024,394			79,361,119			78,828,141
Stockholders’ Deficiency:
Common stock, US$0.001 par value, 100,000,000 shares authorized and 50,155,000 shares issued, outstanding		50,155			408,864			408,864
Additional paid-in capital		146,507			1,214,118			1,214,118
Accumulated deficit		(10,316,763	)		(81,675,755	)		(81,131,250	)
Other comprehensive income		88,222			632,396			457,569
Total stockholders’ deficiency		(10,031,879	)		(79,420,377	)		(79,050,699	)
Total Liabilities and Stockholders’ Deficiency		120,937			957,442			955,012

See accompanying notes to these consolidated financial statements

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COL CHINA ONLINE INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	For the three months ended
	September 30, 2006						September 30, 2005
	(US$)			(Rmb)			(Rmb)
	(Illustrative only)
Net Revenues:
Telecommunication		56,326			445,919			365,579
Marketing fee - PIERS		29,473			233,330			-
Total revenues		85,799			679,249			365,579
Cost of Sales:
Telecommunication		13,939			110,349			347,697
Marketing fee - PIERS		1,085			8,592			-
		15,024			118,941			347,697
Gross Margin		70,775			560,308			17,882
Operating Expenses:
General and administrative		170,106			1,346,701			1,235,430
Amortization and depreciation		2,656			21,024			123,533
Total operating expenses		172,762			1,367,725			1,358,963
Operating loss		(101,987	)		(807,417	)		(1,341,081	)
Rental income		33,157			262,500			-
Other income		52			412			536
Loss Before Minority Interest		(68,778	)		(544,505	)		(1,340,545	)
Minority interest		-			-			-
Net Loss		(68,778	)		(544,505	)		(1,340,545	)
Other Comprehensive Loss		-			-			-
Comprehensive Loss		(68,778	)		(544,505	)		(1,340,545	)
Basic And Fully Diluted Net Loss Per Share		(0.001	)		(0.01	)		(0.03	)
Weighted Average Number Of Common Stock		50,155,000			50,155,000			50,155,000

See accompanying notes to these consolidated financial statements

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COL CHINA ONLINE INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the three months ended
	September 30, 2006						September 30, 2005
	(US$)			(Rmb)			(Rmb)
	(Illustrative only)
Cash Flows from Operating Activities:
Net loss		(68,778	)		(544,505	)		(1,340,545	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation		2,656			21,024			123,533
Change in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivables		(3,044	)		(24,101	)		(13,059	)
Other assets		958			7,584			110,529
(Decrease) Increase in:
Accounts payable and accrued expenses		(15,483	)		(122,574	)		617,431
Taxes payable		(4,838	)		(38,296	)		(2,852	)
Exchange difference		814			6,445			-
Net cash used in operating activities		(87,715	)		(694,423	)		(504,963	)
Cash Flows from Financing Activities:
Other loan repayment		(18,947	)		(150,000	)		-
Advances from Majority Stockholder		107,446			850,630			219,042
Net cash provided by financing activities		88,499			700,630			219,042
Effect Of Exchange Rate Changes On Cash		92			730			303,897
Net Increase In Cash		876			6,937			17,976
Cash, beginning of period		25,293			200,238			598,654
Cash, end of period		26,169			207,175			616,630

See accompanying notes to these consolidated financial statements

4

COL CHINA ONLINE INTERNATIONAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Company Organization and Operations

Nature of Operations - COL China Online International Inc. (“COL International” or the “Company”) was incorporated as a Delaware corporation on February 22, 2000, for the purpose of acquiring and conducting the engineering services and internet related business of Migration Developments Limited, a British Virgin Islands Company (“Migration”) and raising equity capital to be utilized in the business of Migration. Beginning in approximately January 2004, the Company focused its business on internet and telecommunication convergence solutions and customer-specific solutions for the retail industry.

2. Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements have been prepared on the same basis as the annual financial statements. These financial statements and the notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2006 which was filed October 17, 2006, as may be amended. In the opinion of the Company, all adjustments, including normal recurring adjustments necessary to present fairly the financial position of the Company as of September 30, 2006 and the results of its operations and cash flows for the three months period then ended, have been included. The results of operations for the interim period are not necessarily indicative of the results for the full year.

The amounts included in the financial statements are presented in Renminbi (“Rmb”) which is COL International’s functional currency, because COL International’s operations are primarily located in the PRC. For illustrative purposes, the condensed consolidated balance sheet as September 30, 2006 and condensed consolidated statement of operations for the three months ended September 30, 2006 and condensed consolidated statement of cash flows for the three months ended September 30, 2006 have been translated into US dollars at approximately 7.9168 Rmb to the dollar, which was the exchange rate at September 30, 2006.

3. Recently Issued Accounting Standards

There are no new accounting pronouncements for which adoption is expected to have a material effect on the Company’s condensed consolidated financial statements.

5

COL CHINA ONLINE INTERNATIONAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Comprehensive Loss

The Company accounts for comprehensive loss in accordance with SFAS No. 130, “Reporting Comprehensive Income”. SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined therein, refers to revenues, expenses, gains and losses that are not included in net income but rather are recorded directly in stockholders’ equity. Accumulated other comprehensive income for the three months period ended September 30, 2006, respectively, represented foreign currency translation adjustments.

5. Net Loss Per Share

Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common stock outstanding.

Pursuant to the Company’s 2000 Stock Option Plan, options may be granted to purchase an aggregate of 4,000,000 shares of common stock to key employees and other persons who have or are contributing to the Company’s success. As of September 30, 2006, no options had been granted under the 2000 plan.

6

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This document contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations and intentions. When used in this document, the words “expects”, “anticipates”, “intends” and “plans” and similar expressions are intended to identify certain of these forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Our actual results could differ materially from those discussed in this document. Factors that could cause or contribute to such difference include those discussed below and in the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2006.

Overview

COL China Online International, Inc. (the “Company”, “we” or “us”) was formed for the purpose of acquiring and conducting the engineering services and the internet related business of Migration Development Limited, a British Virgin Islands Company (“Migration”), and raising equity capital to be utilized in the business of Migration.

Going concern - The ability of the Company to continue operations as a going concern is dependent upon the continuing support from Honview International Limited (“Honview”), a former shareholder of Migration, which is now a major stockholder of the Company, until such time as, when or if, the combined entity of the Company and Migration achieve profitable operations and/or additional funds are raised in future private and public offerings.

Plan of Operations - Because the Company’s past business model of attempting to be the IT department for small and medium-sized business by offering a broad range of IT services and providing electronic commerce services has not been successful, the Company developed a new business model. The Company now focuses on providing internet and telecommunication convergence solutions to its customers.

In November 2005, we signed an Overseas Representative Agreement (“ORA”) on revenue sharing basis with Commonwealth Business Media, Inc. (“CBM”) to promote and market CBM’s trade data products to end users in the region of Eastern China. Port Import Export Reporting Service (“PIERS”), a division of CBM, is legally authorized by the U.S. Customs and Border Protection (title 19, code of Federal Regulations, part 103.31) to collect and publish import/export information derived from manifests of vessels calling at U.S. ports. The ORA signed with CBM, subject to renewal upon consent by both parties, is for a period of two years commencing from November 21, 2005. We may recruit more staff should our plans of operations prove successful, of which there is no assurance.

We have a negative cash flow from operating activities and are seeking additional financing in order to satisfy our cash requirements. We anticipate that we will require approximately Rmb2,000,000 (or approximately US$253,000) in financing during the next 12 months to satisfy our cash requirements for the development of our business plan. The Company, through its Migration subsidiary, currently employs approximately 35 employees in China. We may recruit more staff should our plan of operations prove successful, of which there is no assurance.

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Results of Operations

Revenues for the three months ended September 30, 2006 was the services commission revenues from telecommunication of Rmb445,919 (US$56,326) compared to services commission revenues from telecommunication of Rmb365,579 for the three months ended September 30, 2005 and marketing fee derived from sales of trade data products on revenue sharing basis of Rmb233,330 (US$29,473) for the three months ended September 30, 2006. There was no marketing fee income recognized for the three months ended September 30, 2005.

The Company contracted with a telecommunication services company selling Internet phone (IP phone) to end-users and receives telecommunication services commission income from the agent, which is a percentage of monthly usage of the end users.

Marketing fee is derived from sales of trade data products from CBM. The Company contracted with CBM on revenue sharing basis to promote and market their trade data products to end users in the region of Eastern China.

For the three months period ended September 30, 2006, the Company had other income of Rmb412 (US$52) as compared to Rmb536 for the three months period ended September 30, 2005. "Other income" primarily represents interest income and miscellaneous income.

General and administrative costs include salaries, rent, travel other overhead costs. For the three months ended September 30, 2006, general and administrative costs totaled Rmb1,346,701 (US$170,106), as compared with Rmb1,235,430 for the three months ended September 30, 2005.

Amortization and depreciation expense for the three months ended September 30, 2006 was Rmb21,024 (US$2,656), as compared with Rmb123,533 for the three months ended September 30, 2005. The decrease is due to some fixed assets fully depreciated in last year.

We have not recognized any future tax benefits resulting from its operating losses due to the uncertainty of future realization. No share of loss has been absorbed by our majority shareholder, Honeview, for both the three months ended September 30, 2006 and 2005 as its initial capital contribution was fully absorbed.

The above operations have resulted in net losses of Rmb544,505 (US$68,778) for the three months ended September 30, 2006 and Rmb1,340,545 for the three months ended September 30, 2005. The Company expects to continue to incur losses until its services are more fully developed and accepted in China.

Liquidity and Capital Resources

As of September 30, 2006, we had negative working capital of Rmb268,950 (US$33,971), as compared with Rmb453,274 for our fiscal year ended June 30, 2006. As of September 30, 2006, advances from our majority stockholder totaled Rmb79,361,119 (US$10,024,394) compared to advances from the majority stockholder of Rmb78,678,141 as of June 30, 2006. The Company’s management believes the majority stockholder will continue to provide financial support to the Company.

Cash used in operating activities for the three months ended September 30, 2006 was Rmb694,423 (US$87,715) as compared with Rmb504,963 for the three months ended September 30, 2005. The cash used in operations was to fund operating losses of Rmb544,505 (US$68,778) and Rmb1,340,545, generally offset by non-cash expenses related to amortization and depreciation of Rmb21,024 (US$2,656) and Rmb123,533 for the three months ended September 30, 2006 and 2005, respectively.

8

Cash flows from financing activities have generally come from advances by the majority stockholder of the Company. During the three months ended September 30, 2006 and 2005, the majority stockholder has advanced Rmb700,630 (US$88,499) and Rmb219,042, respectively.

Critical Accounting Policies

The Company’s significant accounting policies are described in note 2 to the financial statements for the three months ended September 30, 2006 and 2005 included in the accompanying financial statements and notes to consolidated financial statements. The Company believes its most critical accounting policies include accounting for provision for impairment loss.

No provision for impairment loss on fixed assets is made for the three months ended September 30, 2006, and the year ended June 30, 2006, respectively, because the recoverable amount of fixed assets is estimated to be higher than its carrying value at the respective period-end and year-end date by the management.

Off Balance Sheet Arrangements

The Company has no off balance sheet arrangements.

Item 3. Controls and Procedures.

Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with participation of the Company's management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14 (c) under the Securities Exchange Act of 1934). Based on their evaluation, as of September 30, 2006, our Chief Executive Officer and Principal Financial Officer have concluded that disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were not significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

9

PART II - OTHER INFORMATION

Item 1Legal Proceedings

None

Item 2Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3Defaults Upon Senior Securities

None

Item 4Submission of Matters to a Vote of Security Holders

None

Item 5Other Information

None

Item 6.Exhibits

Exhibit No.	Description
2.1	Stock Exchange Agreement between and among Migration Developments Limited, the Company and the shareholders of Migration Developments Limited dated June 8, 2000 (1)
3.1	Certificate Of Incorporation filed with the Delaware Secretary Of State effective as of February 22, 2000 (1)
3.2	Certificate of Amendment to the Certificate of Incorporation filed with the Delaware Secretary of State effective as of April 3, 2000 (1)
3.3	Amended and Restated Bylaws (2)
3.4	Sino-Foreign Joint Venture Contract (1) (3)
3.5	Articles of Association of the Sino-Foreign Joint Venture (1)
4.1	Specimen Common Stock Certificate (1)
31.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.2	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

____________________

(1) Incorporated by reference from the Company’s Form SB-2 Registration Statement dated June 13, 2000 (File No. 333-39208)

(2) Incorporated by reference from the Company’s Amendment No. 3 to Form SB-2 Registration Statement dated January 17, 2001 (File No. 333-39208)

(3) Translated into English from Chinese

10

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	COL CHINA ONLINE INTERNATIONAL INC.
Date: November 14, 2006	By:	/s/ Chi Keung Wong
		Chi Keung Wong
		Chief Executive Officer and Chief Financial Officer

11

EXHIBIT INDEX

Exhibit No.	Description
2.1	Stock Exchange Agreement between and among Migration Developments Limited, the Company and the shareholders of Migration Developments Limited dated June 8, 2000 (1)
3.1	Certificate Of Incorporation filed with the Delaware Secretary Of State effective as of February 22, 2000 (1)
3.2	Certificate of Amendment to the Certificate of Incorporation filed with the Delaware Secretary of State effective as of April 3, 2000 (1)
3.3	Amended and Restated Bylaws (2)
3.4	Sino-Foreign Joint Venture Contract (1) (3)
3.5	Articles of Association of the Sino-Foreign Joint Venture (1)
4.1	Specimen Common Stock Certificate (1)
31.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.2	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

____________________

(1) Incorporated by reference from the Company’s Form SB-2 Registration Statement dated June 13, 2000 (File No. 333-39208)

(2) Incorporated by reference from the Company’s Amendment No. 3 to Form SB-2 Registration Statement dated January 17, 2001 (File No. 333-39208)

(3) Translated into English from Chinese

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