UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended : December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number: 000-29915
China Xin Network Media Corporation
(formerly Frefax Inc.)
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0786722
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
1255 Peel Street, Suite 550, Montreal, Quebec CANADA H3B 2T9
(Address of principal executive offices)
Tel: (514) 398-0515 Fax: (514) 398-9901
(Issuer's telephone number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
53,816,657 as of January 14, 2002
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
PART I -- FINANCIAL INFORMATION........................................2
- -------------------------------
ITEM 1. FINANCIAL STATEMENTS........................................2
-----------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..........................2
------------------------------------------
ITEM 2. PLAN OF OPERATION...........................................2
--------------------------
PART II -- OTHER INFORMATION...........................................5
- ----------------------------
ITEM 1. LEGAL PROCEEDINGS...........................................5
--------------------------
ITEM 2. CHANGES IN SECURITIES.......................................5
------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................5
---------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........5
------------------------------------------------------------
ITEM 5. OTHER INFORMATION...........................................5
--------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................5
-----------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..........................6
------------------------------------------
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
At the end of this filing are attached audited financial statements for China
Xin Network media Corporation (formerly Frefax, Inc.) and subsidiary, for the
period ending December 31, 2001 which are submitted in compliance with item 310
(b) of Regulation SB.
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Index
Independent Auditors' Report F-1
Consolidated Interim Balance Sheet F-2
Consolidated Interim Statements of Operations and
Comprehensive Income (Loss) F-3
Consolidated Interim Statement of Stockholders' Deficiency F-4
Consolidated Interim Statement of Stockholders' Deficiency F-5
Consolidated Interim Statement of Cash Flows F-6
Consolidated Interim Notes to Financial Statements F-7 - 11
Item 2. Plan of Operation.
In the second quarter ending December 31, 2001, China Xin Network Media
Corporation, herein referred to as CXN Media, (formerly Frefax Inc.) acquired
100% of the outstanding shares of China Xin Network (Canada) (herein referred to
as CXN Canada Inc., on November 8, 2001, in exchange for a total of 28,836,566
newly issued shares of CXN Media common stock to CXN Canada shareholders. The
issuance of the CXN Media shares to CXN Canada effectively created a merger and
change of control, such that CXN Canada is now a wholly owned subsidiary of CXN
Media.
The Company
CXN Canada was incorporated on October 19th, 2000, to acquire the exclusive
commercialization rights to the most reliable and timely financial, economic and
business financial information on China, published by the China Economic
Information Network (CEINet). On November 8, 2001 CXN Canada was acquired by CXN
Media.
CEINet is a subsidiary of the Chinese State Information Center (SIC) that
reports to the State Development Planning Commission.
CEINet was created by the SIC as a professional information service network,
responsible for producing and publishing economic information on China. CEINet
has a local information network in over 150 cities and regions all across China,
forming a financial information network that covers the entire country.
The SIC is a government sponsored institution under the direct management of the
State Development Planning Commission (SDPC). The SDPC reports directly to the
State Council, which is China's cabinet, the highest body, of state
administration.
CEINet currently publishes over 2000 financial news articles and features a week
in Mandarin. This allows CXN Media to provide its subscribers with over 200 new
articles daily. The articles and reports that are published by CXN Media are
sourced primarily from CEINet. CEINet is the Chinese Government's primary source
of financial, economic and business news, used in the planning and economic
development of China.
CXN Media will edit, normalize and properly classify all this data using
industry standard NewsML tags. This process allows CXN Media to display, hide or
arrange certain areas of the same content in different ways. This allows the
content to be automatically prepared for multi-channel publishing. The main
products to be offered by CXN Media include, Real-time Financial News, Corporate
Profiles, Market Research and Monthly Industry Reviews.
CXN Media presently operates from its head office in Montreal and has a staff of
28 editors, translators and support staff in its Beijing editorial office.
Capital Needs
The company currently has enough capital to cover operations till the end of
April 2002. The company will require an additional $1 million to $1.5 in equity
to cover costs associated with;
o Hiring of additional key staff and sales staff;
o Cover development and operating costs of the company's enterprise portal; o
Launch marketing and advertising campaign; o Hire additional translators and
editors in China;
Based on the difficult funding environment faced by most companies, the company
will run a very streamlined sales office and support infrastructure which will
require much lower operating expense and need of ramp up capital. The company
will rely more on using content aggregators and strategic partnership to
distribute its content. This will translate to lower operating margins in the
range of 30-35%.
The company will generate revenue starting March 2002, and is expected to be
cash-flow positive by April 2003 or earlier.
Capital will be raised through, debt financing, private placements or secondary
offerings and should be completed before March 2002.
Product Development & Catalogue
During the next 12 months, the company will be rolling out all its content and
made available through its portal or through various e-content aggregators.
The company has presently available in English, a complete listing of all 1144
companies listed on the Shanghai and Shenzhen stock exchanges.
By the end of 2002, the company plans to have a complete translated database of
all 84,000 companies, including all of China's non-listed state owned
enterprises and major privately owned companies.
All of this data is produced and updated on a regular basis by CEINet, the
company will be transferring the data to its own servers, where the data will be
translated, normalized and available for delivery in various formats.
The company has produced a draft catalogue of all its products, listed below.
(i) China's Public Company Profiles Hoover's type profile for all listed
companies in China's Shanghai and Shenzhen stock exchanges. Reports include
company overview, leading financial ratios, two-year financial data and
five-year historical stock prices. The source of this product comes from CXN
research and the research center of China's State Planning & Development
Commission (SPDC). Over 1100 profiles will be available by January 15, 2002 in
XML and PDF format.
(ii) China's Private and State Owned Company Profiles Fact sheet
information on 84,000 companies including all of China's non-listed state owned
enterprises and major privately owned companies.
(iii)China Macroeconomic Reports Macroeconomic reports from the research
center of China's powerful State Planning and Development Commission and two of
China's prominent brokerage houses Hongyuan Securities and Beijing Securities.
These reports are available in XML format.
(iv) China's 50 Economic Expert Forum Papers produced by China's top
economists on various financial & economical topics. On average, 7 papers are
available each month. The source of this information is the research center of
SPDC. These reports are available in XML format.
(v) Sector Research Reports on major industries in China Sector Research
Reports on major industries produced by Hongyuan Securities Co., Beijing
Securities and other prominent Chinese brokerage houses.
(vi)China Public Company Analysis In-depth coverage and investment
analysis on China's domestically listed companies. The data sources of this
product are prominent Chinese brokerage houses including Hongyuan Securities
Co., Beijing Securities and China Securities.
(vii) Other China Financial, Market & Economic Development Information
CXN's primary data source is the research center of the SPDC. All the titles
included in this section are already available in the Chinese Language. The
English versions of the following titles are currently under preparation.
1. News articles
a. Macroeconomic - information and commentary on China's domestic economy and
major international economies;
b. Industry - daily news articles covering top stories in China by industry
sector and region;
c. Markets - daily news articles and commentary covering China's securities
markets. 2. Macroeconomic and Industry Statistics
a. Macroeconomic - regular updates, historical coverage, and analysis of China's
fixed assets investment, value-added of industry, retail sales, and industrial
GDP, foreign trade, domestic and foreign investment, government fiscal data,
pricing, consumption and livelihood; b. Industry - regular updates, historical
coverage, and analysis of China's industrial production covering over 230 sector
headings, 32 regions, and 35 cities.
Major Expenditure - Portal
The only major purchase anticipated by the company is the development and
launching of its enterprise portal.
It was originally planed to develop and maintain this portal in-house, but to
minimize capital expenditures associated to purchasing servers and maintaining
full time staff to support the infrastructure, the company has decided to
outsource all its enterprise portal needs to ECNext, a company specializing in
developing, managing and hosting portals and web sites for the e-content
industry.
With minimal upfront development costs and monthly maintenance fees and revenue
sharing arrangement, the company will have a world-class portal online starting
end of February and fully implemented by May 2002.
Staff
The company believes it will require a staff of 75 translators and editors in
its Beijing office by the end of 2002, to support its operations. The company
currently has 28 employees in its Beijing office.
With respect to the company's sales, marketing and advertising and
administrative operations in Montreal, it is expected the current head count of
6 persons will jump to 19. All staff will be ramped up as needed and pending
budget allocation from head office.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
2 Acquisition of China Xin Network (Canada) inc. (1)
3.a Articles of Incorporation of the Company (2)
3.b Amendments to the Articles of Incorporation (2)
3.c By-Laws of the Company (2)
3.d Restated and Amended articles of Incorporation, for name change and increase
capital stock (3)
(1)Previously filed as an Exhibit to Form 8-K dated November 28, 2001
(2)Previously filed as an Exhibit to Form 10-SB12G, General form for
registration of Securities filed on March 10, 2000 (3) Previously filed as an
Exhibit to Form 8-K dated January 5, 2002
Forms 8-K
During the second quarter, covered by this filing, a Form 8-K was filled on
November 28, 2001 reflecting change of control following merger with China Xin
Network. (Canada) Inc. On December 17, 2001 the new management engaged new
accountants for China Xin Network Media Corporation (formerly Frefax). On
December 21, 2001, two separate Form 8-Ks were filled reflecting changes of
auditors. Subsequent to the close of this quarter, China Xin Network Media
Corporation filed a Form 8-K on January 5, 2002 announcing the approval by
Florida Department of State, for its request to change its name from Frefax Inc.
to China Xin Network Media Corporation and in addition request to increase its
capital stock.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
China Xin Network Media Corporation
(Registrant)
February 13, 2002. /s/ Mr. Jean-Francois Amyot
---------------------------
Mr. Jean-Francois Amyot
CEO & Chairman
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc and Subsidiary.)
(A Development Stage Company)
Consolidated Interim Financial Statements
For the Period Ended December 31, 2001
and
Cumulative Period From September 26, 1997
(Date of Inception) to December 31, 2001
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Index
Independent Auditors' Report F-1
Consolidated Interim Balance Sheet F-2
Consolidated Interim Statements of Operations and
Comprehensive Income (Loss) F-3
Consolidated Interim Statement of Stockholders' Deficiency F-4
Consolidated Interim Statement of Stockholders' Deficiency F-5
Consolidated Interim Statement of Cash Flows F-6
Consolidated Interim Notes to Financial Statements F-7 - 11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
We have audited the accompanying interim balance sheet of China Xin Network
Media Corporation and Subsidiary (Formerly Frefax, Inc and Subsidiary) (a
development stage company) (the "Company") as of December 31, 2001 and the
related interim statements of operations and comprehensive income (loss),
stockholders' deficiency and cash flows for the period ended December 31, 2001
and cumulative period from September 26, 1997 (date of inception) to December
31, 2001. These consolidated interim financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated interim financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance whether the consolidated
interim financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable bases for our opinion.
In our opinion, the consolidated interim financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 2001 and the results of its operations and cash flows for the
period ended December 31, 2001 and cumulative period from September 26, 1997
(date of inception) to December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated interim financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 3 to
the financial statements, the Company has suffered recurring losses from
operations and has no established source of revenue which raises substantial
doubt about its ability to continue as a going concern. Management's plan in
regard to these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Chartered Accountants
/s/ Fine & Associates
- -----------------
Fine & Associates
Montreal, Quebec
January 24, 2002
F-1
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Interim Balance Sheet
As at December 31, 2001
Assets
Current
2001
Cash $ 78,271
Receivable use tax (Please discuss) 26,151
------
104,422
Capital Assets (Note 1(d)) 71,787
------
$ 176,209
Liabilities
Current
Accrued expenses $ 50,368
Accrued expenses - related party 9,113
Loans from related parties 37,223
------
96,704
Loans Payable (Note 7) 748,983
-------
845,687
Shareholders' Deficiency
Common stock - $.001 per value, 50,000,000 shares
Authorized - 50,331,657 shares issued and outstanding 50,332
Additional paid-in capital 108,932
-------
Accumulated deficit during the development stage (828,742)
--------
(669,478)
$ 176,209
See accompanying notes
Approved on Behalf of the Board:
/s/ Jean-Francois Amyot
- ----------------------------------
Jean-Francois Amyot
Director
/s/ Raymond Boisvert
- ----------------------------------
Raymond Boisvert
Director
F-2
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Interim Statements of Operations and Comprehensive Income (Loss)
For the
Cumulative
period ended
September 26, 1997
period ended date of inception to
December 31, 2001 December 31, 2001
Income $ - $ -
Expenses
Selling, general and administrative expenses 514,964 632,393
Write-off of stock subscriptions receivable 196,349 196,349
------- -------
Loss before Provision for Income Taxes (711,313) (828,742)
Provision for Income Taxes - -
Comprehensive Net (Loss) $ (711,313) $ (828,742)
------------- ------------
Basic:
Net loss 0 0
Weighted Average Number of Common Shares Outstanding 50,331,657 50,331,657
---------- ----------
See accompanying notes
F-3
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Interim Statements of Stockholders' Deficiency
For the Period from September 26, 1997 (Date of Inception) to December 31, 2001
Accumulated
Deficit Accumulated
Additional during the other Stock Total
Common Stock Paid-in Development Comprehensive Subscriptions Stockholders'
Shares Amount Capital Stage Income (Loss) Receivable Deficiency
$ $ $ $ $ $
------ ------ --------- ----------- ------------ ------------ -----------
Issuance of common stock
upon capitalization of company 500,000 500 2,000 - - - 2,500
Issuance of common stock in
connection with limited offerings 403,000 403 297 - - - 700
Net loss from date of inception
(September 26,1997) to June 30, 1998 - - - (2,954) - - (2,954)
Balances at June 30, 1998 903,000 903 2,297 (2,954) - - 246
Issuance of common stock in
connection with acquisition of subsidiary 10,000,000 10,000 - - - - 10,000
Issuance of common stock in connection
with limited offering (November 1998) 6,001,000 6,001 54,009 - - (60,010) -
Issuance of common stock in connection
with limited offering (February 1999) 2,542,000 2,542 124,558 - - (127,100) -
Accrued interest on subscriptions receivable - - - - - (1,755) (1,755)
Foreign currency translation adjustment - - - - (6,436) - (6,436)
Net loss for the year ended June 30, 1999 - - - (49,719) - - (49,719)
Balances at June 30, 1999 (forwarded) 19,446,000 19,446 180,864 (52,673) (6,436) (188,865) (47,664)
See accompanying notes F-4
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Interim Statements of Stockholders' Deficiency
For the Period from September 26, 1997 (Date of Inception) to December 31, 2001
Accumulated
Deficit Accumulated
Additional during the other Stock Total
Common Stock Paid-in Development Comprehensive Subscriptions Stockholders'
Shares Amount Capital Stage Income (Loss) Receivable Deficiency
$ $ $ $ $ $
------- ------ -------- ------------- ----------- ------------ -----------
Balance at June 30, 1999
(from previous page) 19,446,000 19,446 180,864 (52,673) (6,436) (188,865) (47,664)
Accrued interest on subscriptions receivable - - - - - (3,742) (3,742)
Foreign currency translation adjustment - - - - (4,936) - (4,936)
Net loss for the year ended June 30, 2000 - - - (35,300) - - (35,300)
Balances at June 30, 2000 19,446,000 19,446 180,864 (87,973) (11,372) (192,607) (91,642)
Issuance of common stock for services
rendered 2,049,091 2,049 98,451 - - - 100,500
Accrued interest on subscriptions receivable - - - - - (3,742) (3,742)
Foreign currency translation adjustment - - - - 565 - 565
Net loss for the year ended June 30, 2001 - - - (51,904) - - (51,904)
Balances at June 30, 2001 21,495,091 21,495 279,315 (139,877) (10,807) (196,349) (46,223)
Issuance of common stock on reverse takeover
of CXN (Canada) Inc. 28,836,566 28,837 (170,383) 22,448 10,807 - (108,291)
Net loss for the period ended
September 30, 2001 - - - (711,313) - 196,349 (514,964)
50,331,657 50,332 108,932 (828,742) - - (669,478)
--------------------------------------------------------------------------------
See accompanying notes F-5
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Interim Statements of Cash Flows
For the Year Ended December 31, 2001
2001
Cash Flows from Operating Activities
Net loss $ (711,313)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation 4,294
Decrease in recoverable use tax (26,151)
Increase in accrued expenses - related party 113
Increase in accrued expenses 50,368
Decrease in stock subscriptions receivable 196,349
-------
Net Cash used for Operating Activities (486,340)
--------
Cash Flows from Investing Activities
Acquisition of wholly-owned subsidiary (108,291)
Purchase of furniture, fixtures and equipment (76,081)
-------
Net Cash used for Investing Activities (184,372)
---------
Cash Flows from Financing Activities
Advances to shareholder -
Loans payable 748,983
-------
Net Cash Provided by financing Activities 748,983
-------
Net Increase in Cash 78,271
------
Cash - Beginning of Year -
Cash - End of Year $ 78,271
---------
Supplemental disclosure of non-cash flow information: Cash paid during the year
for:
Interest -
Income taxes -
-
See accompanying notes F-6
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
1. Background and Organisation
Prior to operating under its current name of China Xin Network Media Corporation
(the Company), Frefax Inc. was incorporated in the State of Florida on September
26, 1997 as Central Group Inc. Frefax , under a stock purchase agreement dated
July 30, 1998 with the shareholders of Frefax, Inc. (Canada), ("Frefax Canada"),
a company incorporated in the Province of Ontario, Canada issued an aggregate of
10,000,000 shares at a $.001 par value common stock to the shareholders of
Frefax Canada in exchange for 100% of Frefax Canada's issued and outstanding
common stock. Accordingly, Frefax Canada became a wholly-owned subsidiary of
Frefax Inc..
Frefax Canada was incorporated on September 5, 1996 for the purpose of
developing software to be utilized in reducing long distance telephone fax
charges. Frefax Inc., Canada ceased pursuing this activity prior to June 30,
2000.
In May 2001, the Frefax Inc., sold 100% of Frefax (Canada) for a total net
proceeds of $68,389, which were equal to the total net asset value of the
subsidiary.
On November 8, 2001, Frefax Inc. acquired China Xin Network (Canada ) Inc.,
(CXN), a Canadian Corporation . Under the acquisition agreement, Frefax Inc.
acquired all of the outstanding common stock of CXN in exchange for 28,836,566
newly issued common shares of its common stock issued on a 2 for 1 basis to the
existing CXN shareholders. The acquisition was l treated as a reverse
acquisition, and accordingly the accompanying historical financial statements
relating to periods prior to November 8, 2001 are those of CXN. The transaction
is considered a capital transaction whereby CXN contributes its stock for the
net assets of Frefax Inc.
As of November 8, 2001 Frefax Inc. did not have any assets or liabilities.
Further more in this connection the former Chairman of the Company has signed a
statutory declaration to personally indemnify the Company for any unrecorded
liabilities and third party claims if any, that may arise in the future.
As a result of the issuance of 28,836,566 new shares of common stock, Frefax
Inc. was in excess of its 50,000,00 Authorized shares by 331,657 shares As
stated in Note 10, Frefax Inc. on January 4, 2002 amended and restated its
Articles of Incorporation to reflect the increased Authorized Share Capital.
2. Accounting Policies
a) Basis of Presentation
The Company is considered to be a development stage company as of December 31,
2001 since planned principal operations have not yet commenced.
b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company from September 26, 1997 (date of inception) and its wholly-owned
subsidiary, CXN Canada from October 2001 herein after referred to as the
("Companies") after elimination of all significant intercompany transaction and
accounts.
c) Cash and Cash Equivalent
The Company considers highly liquid investments with maturities of three months
or less at the time of purchase to be cash equivalents.
F-7
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
2. Accounting Policies (Cont'd)
d) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost less accumulated
depreciation which is provided on the declining balance basis, over the
estimated useful lives of the assets which range between three and seven years.
Expenditures for maintenance and repairs are expensed as incurred.
e) Income Taxes
The Company accounts for income taxes in accordance with the "liability method"
of accounting for income taxes. Accordingly, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse. Current income taxes are based
on the respective periods' taxable income for federal, state and foreign income
tax reporting purposes. As at December 31, 2001 these amounts were...Nil
f) Earnings per Share
Earnings per common share is computed pursuant to SFAS No. 128 "Earnings Per
Share". Basic earnings per share is computed as net income (loss) available to
common shareholders divided by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants and convertible preferred stock.
g) Use of Estimates
The preparation of the accompanying financial statements, which are in
conformity with generally accepted accounting principles in the United States of
America, requires management to make estimates and assumptions that materially
affect the reported amounts of assets and liabilities; disclosure of material
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
h) Fair Value Disclosure at December 31, 2001
The carrying value of recoverable use tax, accrued expenses - related party, and
loans from related party is a reasonable estimate of their fair value.
i) Effect of New Accounting Standards
The Company does not believe that any recently issued accounting standards, not
yet adopted by the Company, will have a material impact on its financial
position and results of operations when adopted.
During June 2001, SFAS No. 141, "Business Combinations" was issued. This
standard addresses financial accounting and reporting for business combinations.
All business combinations within the scope of SFAS 141 are to be accounted for
using one method - the purchase method. Use of the pooling-of-interests method
is prohibited. The provisions of SFAS 141 apply to all business combinations
initiated after June 30, 2001. It also applies to all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001 or later.
During June 2001, SFAS No. 142, "Goodwill" and Other Intangible Assets" was
issued. This standard addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. SFAS 142 also addresses how goodwill and other intangibles assets
should be accounted for after they have been initially recognized in the
financial statements. The provision of SFAS 142 is effective for fiscal years
beginning after December 15, 2001.
F-8
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
3. Going Concern
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has not established revenues sufficient to cover its
operating costs and allow it to continue as a going concern.
4. Accrued Expenses Related Party
Accrued expenses at December 30, 2001 consist of $9,000 professional fees which
have been subsequently paid directly by the Company's President.
5. Provision for Income Tax
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related to differences between the financial statement and income tax bases of
assets and liabilities for financial statement and income tax reporting
purposes. Deferred tax assets and liabilities represent the future tax return
consequences of these temporary differences, which will either be taxable or
deductible in the year when the assets or liabilities are recovered or settled.
Accordingly, measurement of the deferred tax assets and liabilities attributable
to the book-tax basis differentials are computed by the Company at a rate of
approximately 34% for federal and 6% for state.
6. Commitments and Contingencies
a) Insurance
The Company maintains adequate property and general liability insurance. At the
date of the Balance Sheet the Company is not aware of any claims.
b) Rent
The Company leases office space under temporary leases expiring in June 2002 ,
and August 2003. Minimum monthly payments are approximately $8,726.
7. Loans Payable
The loans payable bear interest at prime + 2% and are convertible into common
shares of the Company at the option of the holder at a rate of $0.125 per common
share for a total of 6,020,932 common shares and 6,005,632 warrants.
As of December 31st, 2001, the majority of the holders of the loans payable have
agreed to the conversion privilege.
F-9
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
8. Stockholders' Deficiency
a) Capitalization
Frefax Inc. was initially organized during September 1997 by issuing an
aggregate of 500,000 shares of its $.001 par value common stock to its founder
for $2,500.
b) Acquisition of Subsidiary
Pursuant to a stock purchase agreement dated July 30, 1998 between Frefax Inc.
and the shareholders of Frefax Canada, Frefax issued an aggregate of 10,000,000
shares of its $.001 par value common stock to the shareholders of Frefax Canada
in exchange for 100% of Frefax Canada, as a result of which Frefax Canada became
a wholly-owned subsidiary of Frefax Inc.. Such transaction is considered a
capital transaction whereby Frefax Canada contributed its stock for the net book
value ofFrefax Inc. , and accordingly, no goodwill was recognized.
c) Limited Offering Memorandums
During October 1997Frefax Inc initiated two Limited Offerings pursuant to Rule
504 of Regulation DF promulgated under the Securities Act of 1933. FRefax Inc.,
offered 400,000 shares of its common stock at $.001 per share and 4,000 shares
of its common stock of $.10 per share, respectively. Frefax Inc., sold an
aggregate of 403,000 shares of common stock yielding net proceeds of $700.
d) Private Offerings
i) During November 1998, Frefax Inc., offered 7,500,000 shares of its common
stock at $.01 per share pursuant to rule 504 of regulation D promulgated under
the Securities Act of 1933. Frefax Inc., sold a total of 6,001,000 shares of
common stock in exchange for a promissory note of $60,010 which had been
previously classified as a stock subscription receivable thereby reducing
stockholder's equity.
ii) During February 1999, Frefax Inc., offered 10,000,000 shares of its common
stock at $.05 per share pursuant to Rule stock in exchange for a promissory note
of $127,100, which was also previously classified as a stock subscription
thereby reducing stockholder's equity. These promissory notes were callable on
demand and were accruing interest at a rate of 2% per annum. As of December 31,
2001, the Company has decided to write off all these promissory notes together
with related accrued interest receivable of $ 10,175 as it believes that these
promissory notes no longer have any realizable values.
e) Shares Issued for Services Rendered
In June 2001, 2,049,091 shares of common stock were issued in exchange for
services rendered at a value of $100,500, or $.05 per share, including a total
of 1,622,728 shares issued to the Chairman as compensation.
F-10
China Xin Network Media Corporation and Subsidiary
(Formerly Frefax, Inc. and Subsidiary)(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
8. Stockholders' Deficiency (Cont'd)
f) As of the date of the reverse merger, with CXN, subsequently referred to as
the Company, Frefax Inc., had no assets or liabilities. Furthermore the former
Chairman of Frefax Inc., has signed a statutory declaration to personally
indemnify the Company for any unrecorded liabilities and third party claims, if
any, that may arise in the future.
As a result of the issuance of 28,836,566 new shares of common stock, Frefax
Inc., exceeded its Authorized Share Capitals by 331,657 shares .
On January 4, 2002, the Company obtained approval to amend and restate its
Articles of Incorporation to reflect the increase to its Authorized Share
Capital. Simultaneously the authorities accepted the change of the Company's
name to China Xin Network Media Corporation,
9. Related Party Transactions
In June 2001, 1,622,728 shares of common stock were issued to the Chairman for
compensation at a value of $80,000, or $0.05 per share.
10. Subsequent Events
On January 4, 2002, the Company obtained approval to amend and restate its
Articles of Incorporation to reflect the increase to its Authorized Share
Capital. Simultaneously the authorities accepted the change of the Company's
name to China Xin Network Media Corporation,
The Company currently trades on the Pink Sheets under the symbol CXIN .
On January 25th , 2002, the Company has made the necessary arrangements to file
a request to list its shares on the OTCBB.
F-11