UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
AMENDED
(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 As amended March 18,
2002 and amended March 27, 2002
[ ] 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
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ITEM 1. FINANCIAL STATEMENTS........................................2
-----------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..........................2
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ITEM 2. PLAN OF OPERATION...........................................3
--------------------------
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............................6
-----------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.........................F1
------------------------------------------
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
At the end of this filing are attached audited financial statements for Frefax
(now known as China Xin Network media Corporation) and subsidiary, for the
period ending December 31, 2001, which are submitted in compliance with item 310
(b) of Regulation SB. These financials have been amended at the request of the
SEC.
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Financial Statements
For the Period Ended December 31, 2001
and
Cumulative Period From October 19, 2000 (date of inception) to
December 31, 2001
Contents
Review Engagement Report F-1
Unaudited Consolidated Interim Balance Sheet F-2
Unaudited Consolidated Interim Statements of Operations and
Comprehensive Income (Loss) F-3
Unaudited Consolidated Interim Statement of Stockholders' Deficiency F-4
Unaudited Consolidated Interim Statement of Cash Flows F-5
Unaudited Consolidated Interim Notes to Financial Statements F-6
2
ITEM 2. PLAN OF OPERATION
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.
3
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.
4
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
5
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. This form was further amended on January 10th,
to include all the financials. On February 21, 2002, the SEC requested that the
financials be amended reflect the financials of CXN only. This was filed on
March 15, 2002.
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.
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)
March 27, 2002. /s/ Mr. Jean-Francois Amyot
---------------------------
Mr. Jean-Francois Amyot
CEO & Chairman
6
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Financial Statements
For the Period Ended December 31, 2001
and
Cumulative Period From October 19, 2000 (date of inception) to
December 31, 2001
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Financial Statements
December 31, 2001
Contents
Review Engagement Report F-1
Unaudited Consolidated Interim Balance Sheet F-2
Unaudited Consolidated Interim Statements of Operations and
Comprehensive Income (Loss) F-3
Unaudited Consolidated Interim Statement of Stockholders' Deficiency F-4
Unaudited Consolidated Interim Statement of Cash Flows F-5
Unaudited Consolidated Interim Notes to Financial Statements F-6
REVIEW ENGAGEMENT REPORT
To the Shareholders of
Frefax, Inc. and Subsidiary
(A Development Stage Company)
We have reviewed the consolidated interim balance sheet of Frefax, Inc. and
Subsidiary (a development stage company) as at December 31, 2001 and the
consolidated interim statements of operations and comprehensive income (loss)
and cash flows for the period October 1, 2001 to December 31, 2001 and from
October 19, 2000 (date of inception) to December 31, 2000 and cumulative from
October 19, 2000 (date of inception) to December 31, 2001. Our review was made
in accordance with generally accepted standards in the Unites States of America
for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these interim consolidated financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these interim consolidated financial statements are not, in all material
respects, in accordance with generally accepted accounting principles in the
United States of America.
//s Fine & Associates
Fine & Associates
Chartered Accountants
Montreal, Quebec
March 4, 2002
F-1
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Balance Sheet
As at December 31, 2001
(Unaudited)
2001
US$
Assets
Current
Cash 77,784
Receivable use tax 25,988
------
103,772
Capital Assets (Note 2(d)) 71,341
$ 175,113
Liabilities
Current
Accrued expenses $ 50,055
Accrued expenses - related party 9,112
Loans from related parties 37,223
96,390
Loans Payable (Note 7) 744,325
840,715
Shareholders' Deficiency
Common stock - $.001 par value, 50,000,000 shares
Authorized - 50,331,657 shares issued and outstanding 50,332
Paid-in capital deficiency (87,472)
Accumulated deficit during the development stage (628,462)
(665,602)
$ 175,113
See accompanying notes
Approved on Behalf of the Board:
//s Jean-Francois Amyot Director
//s Raymond Boisvert Director
F-2
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
From From Cumulative
Oct. 1,2001 Oct 19, 2000 Ended
Period date of inception) Oct 19 2000
to to (date of inception)
Dec. 31, Dec. 31, to Dec 31
2001 2000 2001
US$ US$ US$
Income $ - $ - $ -
Expenses
Selling, general and administrative expenses 234,586 576 628,462
Loss before Provision for Income Taxes (234,586) (576) (628,462)
Provision for Income Taxes - - -
Comprehensive Net (Loss) $ (234,586) $ (576) $ (628,462)
Basic:
Net loss 0 0
Weighted Avg. Number of Common S/O 50,331,657 50,331,657 50,331,657
See accompanying notes
F-3
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Statements of Stockholders' Deficiency For the Period from
October 19, 2000 (date of inception) to December 31, 2001 (Unaudited)
Accumulated
Deficit Accumulated
Paid-in during the other Stock Total
Common Stock Capital Development Comprehensive Subscriptions Stockholders'
Shares Amount Deficiency Stage Income (Loss) Receivable Deficiency
US$ US$ US$ US$ US$ US$
Balances at June 30, 2001 21,495,091 21,495 279,315 (139,877) (10,807) (196,349) (46,223)
November 8, 2001 issuance of
common stock in connection with
acquisition of subsidiary 28,836,566 28,837 366,787) 139,877 10,807 196,349 9,083
Net loss for the period
Oct 19, 2000,
(date of inception)
to Sept 30, 2001 - - - (393,876) - - (393,876)
Net loss for the period
Oct 1, 2001 to
December 31, 2001 - - - (234,586) - - (234,586)
50,331,657 50,332 (87,472) (628,462) - - (665,602)
See accompanying notes
F-4
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Statements of Cash Flows For the Period Ended
(Unaudited)
October 1, October 19 2000 October 19, 2000
2001 to (date of inception) (date of inception
December 31, to December 31, to December 31
2001 2000 2001
US$ US$ US$
Cash Flows from Operating Activities
Net loss $ (234,586) $ ( 576) $ (628,462)
Adjustments to reconcile net loss to net
Cash used for operating activities:
Depreciation 4,032 - 8,354
Decrease in prepaids and deposits 19,962 - -
Increase in recoverable use tax (6,839) - (25,988)
Accrued Expenses 576
Decrease in accrued expenses 33,348 - 50,054
Decrease in accrued expenses - related parties (65,859) -
112
--------- ------- ----------
Net Cash used for Operating Activities (249,942) - (595,930)
--------- ------- ----------
Cash Flows from Investing Activities
Purchase of capital assets (15,344) - (79,694)
-------- ------- --------
Net Cash used for Investing Activities (15,344) - (79,694)
-------- ------- --------
Cash Flows from Financing Activities
Proceeds from initial capitalization of company and sale of common stock - 9,083 -
Increase in loans payable 335,021 - 744,325
Increase in capital stock 19,754 - 28,837
Write-off of deficit to paid-in capital 139,877 - 139,877
Write-off of other comprehensive income to paid-in capital 10,807 - 10,807
Write-off of stock subscription receivable to paid-in capital 196,349 - 196,349
Decrease in paid-in capital (366,787) - (366,787)
--------- ------- ---------
Net Cash Provided by Financing Activities 335,021 9,083 753,408
------- ------- -------
Net Increase in Cash 69,735 9,083 77,784
Cash - Beginning of Period 8,049 - -
----- ------- -------
Cash - End of Period $ 77,784 $ 9,083 $ 77,784
Supplemental disclosure of non-cash flow information: Cash paid during the year
for:
Interest $ - $ - $ -
Income taxes - - -
$ - $ - $ -
See accompanying notes
F-5
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements As at December 31, 2001
(Unaudited)
1. Background and Organization
Frefax Inc. was incorporated in the State of Florida on September 26, 1997 as
Central Group Inc.
On November 8, 2001, Frefax Inc. acquired China Xin Network (Canada) Inc., (the
Company), a Canadian corporation. Under the acquisition agreement, Frefax Inc.
acquired all of the outstanding common stock of the Company in exchange for
28,836,566 newly issued common shares of its common stock issued on a 2 for 1
basis to the existing shareholders of the Company. The acquisition was treated
as a reverse acquisition.
In order to provide meaningful comparatives, the accompanying historical
financial statements relating to periods prior to November 8, 2001 are those of
the Company. Since Frefax Inc. did not have any assets or liabilities on
November 8, 2001, all amounts reflected in its Stockholder's deficiency were
written off by the Company. Furthermore in this connection, the former Chairman
of Frefax Inc. has signed a statutory declaration to personally indemnify the
Company for any unrecorded liabilities and their 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 9, 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 October 19, 2000 (date of inception) 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-6
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements As at December 31, 2001
(Unaudited)
3. 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 straight-line 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 financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of 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.
F-7
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements As at December 31, 2001
(Unaudited)
4. 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.
5. 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. Until such time,
the Company is raising investment capital to cover its ongoing operating costs.
6. Accrued Expenses Related Party Accrued expenses at December 31, 2001 consist
of $9,000 professional fees which have been subsequently paid directly by the
Company's President.
7. 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.
F-8
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements As at December 31, 2001
(Unaudited)
8. 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 lease expiring in June 2002, and
August 2003. Minimum monthly payments are approximately $8,726.
9 . 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
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements As at December 31, 2001
(Unaudited)
10. Stockholders' Deficiency
On November 8, 2001, Frefax Inc. acquired the Company. Under the acquisition
agreement, Frefax Inc. acquired all of the outstanding common stock of the
Company in exchange for 28,836,566 newly issued common shares of its common
stock issued on a 2 for 1 basis to the existing shareholders of the Company. The
acquisition was treated as a reverse acquisition.
In order to provide meaningful comparatives, the accompanying historical
financial statements relating to periods prior to November 8, 2001 are those of
the Company. Since Frefax Inc. did not have any assets or liabilities on
November 8, 2001, all amounts reflected in its Stockholder's deficiency were
written off by the Company. Furthermore in this connection, the former Chairman
of Frefax Inc. has signed a statutory declaration to personally indemnify the
Company for any unrecorded liabilities and their 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 9, Frefax Inc. on January 4, 2002 amended and restated its
Articles of Incorporation to reflect the increased Authorized Share Capital.
11. Subsequent Events
On November 8, 2001, Frefax Inc. a US public company acquired 100% of the issued
and outstanding shares of the Company. In exchange Frefax Inc. issued 28,836,566
issued common shares on a 2 for 1 basis to the existing shareholders of the
Company. This acquisition was treated as a reverse takeover, and accordingly the
accompanying historical financial statements relating to periods prior to
November 8, 2001 are those of the Company.
As of November 8, 2001, Frefax Inc. did not have any assets or liabilities.
Furthermore, 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 50,000,000 authorized share capital by 331,657 shares.
On January 4, 2002 Frefax Inc. amended and restated its Articles of
Incorporation to reflect the increased Authorized Share Capital. On the same
date, Frefax Inc. changed its name to CHINA XIN NETWORK MEDIA CORPORATION.
Accordingly the Company has now become a wholly owned subsidiary of CHINA XIN
NETWORK MEDIA CORPORATION.
F-10
China Xin Network (Canada) Inc.
(A Development Stage Company)
Interim Financial Statements
For the Period Ended November 7, 2001
and
Cumulative Period From October 19, 2000 (date of inception) to November 7, 2001
China Xin Network (Canada) Inc.
(A Development Stage Company)
Interim Financial Statements
November 7, 2001
Contents F-11
Review Engagement Report F-12
Unaudited Interim Balance Sheet F-13
Unaudited Interim Statements of Operations and Comprehensive
Income (Loss) F-14
Unaudited Interim Statement of Stockholders' Deficiency F-15
Unaudited Interim Statement of Cash Flows F-16
Unaudited Notes to Interim Financial Statements F-17
F-11
REVIEW ENGAGEMENT REPORT
To the Shareholders of
China Xin Network (Canada) Inc.
(A Development Stage Company)
We have reviewed the interim balance sheet of China Xin Network (Canada) Inc. as
at November 7, 2001 and the interim statements of operations and comprehensive
income (loss), stockholders' deficiency and cash flows for the period then ended
from July 1, 2001 to November 7, 2001 and cumulative from October 19, 2000 (date
of inception) to November 7, 2001. Our review was made in accordance with
generally accepted standards in the United States of America for review
engagements and accordingly consisted primarily of enquiry, analytical
procedures and discussion related to information supplied to us by the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these interim financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these interim financial statements are not, in all material respects, in
accordance with generally accepted accounting principles in the United States of
America.
//s Fine & Associates
Fine & Associates
Chartered Accountants
Montreal, Quebec
March 4, 2002
F-12
China Xin Network (Canada) Inc.
(A Development Stage Company)
Interim Balance Sheet
As at November 7, 2001
(Unaudited)
2001
US$
Assets
Current
Prepaid and deposits $ 9,339
Loan receivable - employees 1,912
Receivable use tax 22,137
33,388
Capital Assets 66,148
------
$ 99,536
Liabilities
Current
Bank indebtedness $ 3,088
Accrued expenses 81,477
Accrued expenses - related party 14,746
99,311
Loans Payable (Note 7) 443,664
542,975
Shareholders' Deficiency
Stockholders' deficiency
Class "A" common stock - no par value, unlimited shares
Authorized - 14,418,283 shares issued and outstanding 9,083
Deficit (452,522)
(443,439)
$ 99,536
See accompanying notes
Approved on Behalf of the Board:
//s Jean-Francois Amyot Director
//s Raymond Boisvert Director
F-13
China Xin Network (Canada) Inc.
(A Development Stage Company)
Interim Statement of Operations and Comprehensive Income (Loss)
(Unaudited)
Cumulative
period from
October
From 19, 2000
July 1, 2001 (date of
to inception) to
November 7, November 7,
2001 2001
US$ US$
Income $ - $ -
Expenses
Selling, general and administrative expenses 58,646 452,522
------- --------
Loss before Provision for Income Taxes (58,646) (452,522)
Provision for Income Taxes - -
Comprehensive Net (Loss) $ (58,646) $ (452,522)
See accompanying notes
F-14
China Xin Network (Canada) Inc.
(A Development Stage Company)
Interim Statement of Stockholder's Deficiency
For the period from October 19, 2000 (date of inception) to November 7, 2001
(Unaudited)
US$
Class "A" US$ Total
Common Stock US$ Accumulated Stockholders'
Shares Amount Deficit Deficiency
----------- ------ ----------- ----------
Issuance of Class "A" common stock
upon capitalization of company 14,418,283 $ 9,083 $ - $ 9,083
Net loss from date of inception
(October 19, 2000 to June 30, 2001) - - (117,429) (117,429)
Balances at June 30, 2001 14,418,283 9,083 (117,429) (108,346)
Net loss from (July 1, 2001 -
September 30, 2001) - - (276,447) (276,447)
Balance at September 30, 2001 14,418,283 9,083 (393,876) (384,793)
Net loss from October 1, 2001
to November 7 2001 - - (58,646) (58,646)
14,418,283 $ 9,083 $ (452,522) $ (443,439)
See accompanying notes
F-15
China Xin Network (Canada) Inc.
(A Development Stage Company)
Interim Statement of Cash Flows
For the Period Ended
(Unaudited)
Cumulative
period from
October 19, 2000
From July 1, (date of
2001 to inception) to
November 7, November 7,
2001 2001
US$ US$
Cash Flows from Operating Activities
Net loss $ (58,646) $ (452,522)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation - 4,322
(Increase) decrease in:
Recoverable use tax (2,988) (22,137)
Prepaids and deposits 10,623 (9,339)
Loan receivable - employees (1,912) (1,912)
Accrued expenses - related party (51,225) 14,746
Accrued expenses 64,771 81,477
------ ------
Net Cash used for Operating Activities (39,377) (385,365)
-------- ---------
Cash Flows from Investing Activities
Purchase of furniture, fixtures and equipment (6,120) (70,470)
Net Cash used for Investing Activities (6,120) (70,470)
------- --------
Cash Flows from Financing Activities
Proceeds from initial capitalization of company
and from sale of common stock - 9,083
Bank advances 3,088 3,088
Loans payable 34,360 443,664
Net Cash Provided by Financing Activities 37,448 455,835
------ -------
Net Decrease in Cash (8,049) -
Cash - Beginning of Period (8,049) -
------- -
Cash - End of Period $ - $ -
Supplemental disclosure of non-cash flow information: Cash paid during the year
for:
Interest $ - $ -
Income taxes - -
$ - $ -
See accompanying notes
F-16
China Xin Network (Canada) Inc.
(A Development Stage Company)
Notes to Financial Statements
As at November 7, 2001
(Unaudited)
1. Organization
China Xin Network Inc. (the Company) is a Federal Registered Canadian
Company with its head office in Montreal, Canada. The Company is a
Canadian based provider of financial, economic and business information on
China. CXN presently operates from its head office in Montreal and has a
staff of 15 editors, translators and support staff in its Beijing China
editorial office.
The Company was incorporated on October 19, 2000 (date of inception) to
acquire the exclusive commercialisation rights to the most reliable and
timely financial, economic and business financial information on China,
published by an agency of the People's Republic of China, the China
Economic Information Network (CEINet). On May 25, 2001, the Company signed
an exclusive agreement with CEINet.
Under the terms of the agreement, the Company has a 12 year exclusive
global distribution rights to disseminate information published by CEINet,
in English, French and Spanish and in Chinese outside China,. The
Company's goal is to be the preferred provider of financial, economic and
business information on China. Subscribers will depend on the Company's
financial news, in-depth research reports and market reviews, which will
be written and edited using the best available practices and quality
control expected by global audience.
2. Accounting Policies
a) Basis of Presentation
The Company is considered to be a development stage company as of
November 7, 2001 since planned principal operations have not yet
commenced.
b) 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.
c) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost less
accumulated depreciation which is provided on the straight-line
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.
d) 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.
F-17
China Xin Network (Canada) Inc.
(A Development Stage Company)
Notes to Interim Financial Statements
As at November 7, 2001
(Unaudited)
2. Accounting Policies - Cont'd
e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
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.
f) Fair Value Disclosure at November 7, 2001
The carrying value of recoverable use tax, loan receivable -
unsecured, accrued expenses - related party, and loans from related
party is a reasonable estimate of their fair value.
g) Foreign Currency Translation
The functional currency for the Company's foreign operation is the
applicable local currency, Canadian dollars. The translation from
Canadian dollars to U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet
date and for revenue and expense accounts using a weighted average
exchange rate during the period. The resulting translation
adjustments are recorded as a component of comprehensive income.
Gains or losses resulting from foreign currency transactions are
included in the statements of operations.
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. Until
such time the Company is raising investment capital to cover its ongoing
operating costs.
4. Accrued Expenses Related Party
Accrued expenses at November 7, 2001 consist of $ 14,746 represents
management fees charged by the Company's officers.
5. Provisions 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
7% for provincial.
F-18
China Xin Network (Canada) Inc.
(A Development Stage Company)
Notes to Financial Statements
As at November 7, 2001
(Unaudited)
6. Commitments and Contingencies
a) Rent
The company leases office spaces under temporary lease arrangements
expiring in June 2002 and August 2003. Minimum monthly payments are $
8,726.
b) 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.
7. Loans Payable
The loans payable bear interest at prime + 2% and are convertible at
the option of the holder at a rate of $ 0.125 per common share for a
total conversion of 3,307,261 common shares and 3,291, 961 warrants.
8. Subsequent Event
On November 8, 2001, Frefax Inc. a US public company acquired 100% of
the issued and outstanding shares of the Company. In exchange Frefax
Inc. issued 28,836,566 issued common shares on a 2 for 1 basis to the
existing shareholders of the Company. This acquisition was treated as a
reverse takeover, and accordingly the accompanying historical financial
statements relating to periods prior to November 8, 2001 are those of
the Company.
As of November 8, 2001, Frefax Inc. did not have any assets or
liabilities. Furthermore, 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 50,000,000 authorized share capital by
331,657 shares. On January 4, 2002 Frefax Inc. amended and restated its
Articles of Incorporation to reflect the increased Authorized Share
Capital. On the same date, Frefax Inc. changed its name to CHINA XIN
NETWORK MEDIA CORPORATION. Accordingly the Company has now become a
wholly owned subsidiary of CHINA XIN NETWORK MEDIA CORPORATION.
F-19
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Financial Statements
For the Period Ended December 31, 2001
and
Cumulative Period From October 19, 2000 (date of inception)
to December 31, 2001
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Financial Statements
December 31, 2001
Contents
Review Engagement Report F-21
Unaudited Consolidated Interim Balance Sheet F-22
Unaudited Consolidated Interim Statements of Operations and
Comprehensive Income (Loss) F-23
Unaudited Consolidated Interim Statement of Stockholders' Deficiency F-24
Unaudited Consolidated Interim Statement of Cash Flows F-25
Unaudited Consolidated Interim Notes to Financial Statements F-26
F-20
REVIEW ENGAGEMENT REPORT
To the Shareholders of
Frefax, Inc. and Subsidiary
(A Development Stage Company)
We have reviewed the consolidated interim balance sheet of Frefax, Inc. and
Subsidiary (a development stage company) as at December 31, 2001 and the
consolidated interim statements of operations and comprehensive income (loss)
and cash flows for the period then ended from November 8, 2001 to December 31,
2001. Our review was made in accordance with generally accepted standards in the
Unites States of America for review engagements and accordingly consisted
primarily of enquiry, analytical procedures and discussion related to
information supplied to us by the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these interim consolidated financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these interim consolidated financial statements are not, in all material
respects, in accordance with generally accepted accounting principles in the
United States of America.
//s Fine & Associates
Fine & Associates
Chartered Accountants
Montreal, Quebec
March 4, 2002
F-21
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Balance Sheet
As at December 31, 2001
(Unaudited)
2001
US$
Assets
Current
Cash $ 77,784
Receivable use tax 25,988
------
103,772
Capital Assets (Note 2(d)) 71,341
------
$ 175,113
Liabilities
Current
Accrued expenses $ 50,055
Accrued expenses - related party 9,112
Loans from related parties 37,223
------
96,390
Loans Payable (Note 7) 744,325
-------
840,715
Shareholders' Deficiency
Common stock - $.001 par value, 50,000,000 shares
Authorized - 50,331,657 shares issued and outstanding 50,332
Paid-in Capital Deficiency (87,472)
Accumulated deficit during the development stage (628,462)
---------
(665,602)
$ 175,113
See accompanying notes
Approved on Behalf of the Board:
//s Jean-Francois Amyot Director
//s Raymond Boisvert Director
F-22
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
From Cumulative
November period ended
8, 2001 October19,2000
to (date of inception)
December 31, to December 31,
2001 2001
US$ US$
Income $ - $ -
Expenses
Selling, general and administrative expenses 175,940 628,462
Loss before Provision for Income Taxes (175,940) (628,462)
Provision for Income Taxes - -
Comprehensive Net (Loss) $ (175,940) $ (628,462)
Basic:
Net loss 0 0
Weighted Average Number of Common Shares Outstanding 50,331,657 50,331,657
See accompanying notes
F-23
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Statements of Stockholders' Deficiency For the Period from
October 19, 2000 (date of inception) to December 31, 2001 (Unaudited)
Accumulated
Deficit Accumulated
Paid-in during the other Stock Total
Common Stock Capital Development Comprehensive Subscriptions Stockholders'
Shares Amount Deficiency Stage Income (Loss) Receivable Deficiency
US$ US$ US$ US$ US$ US$
Balances at June 30, 2001 21,495,091 21,495 279,315 (139,877) (10,807) (196,349) (46,223)
November 8, 2001 issuance of
common stock in connection with
the acquisition of subsidiary 28,836,566 28,837 (366,787) 139,877 10,807 196,349 9,083
Net loss for the period Oct. 19, 2000
(date of inception) to Nov. 7, 2001 - - - (452,522) - - (452,522)
Net loss for the period Nov. 8, 2001 to
December 31, 2001 - - - (175,940) - - (175,940)
50,331,657 50,332 (87,472) (628,462) - - (665,602)
See accompanying notes
F-24
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Statements of Cash Flows
For the Period Ended
(Unaudited)
November 8, October 19,
2001 2000 (date of inception)
to to
December 31, December 31,
2001 2001
US$ US$
Cash Flows from Operating Activities
Net loss $ (175,940) $ (628,462)
Adjustments to reconcile net loss to net
Cash used for operating activities:
Depreciation 2,688 8,354
Decrease in prepaids and deposits 9,339 -
Increase in recoverable use tax (3,851) (25,988)
Decrease in accrued expenses (31,422) 50,054
Decrease in accrued expenses - related parties (14,634) 112
Decrease in loan receivable - employees 1,912 -
----- --
Net Cash used for Operating Activities (211,908) (595,930)
--------- ---------
Cash Flows from Investing Activities
Purchase of capital assets (7,881) (79,694)
Net Cash used for Investing Activities (7,881) (79,694)
------- --------
Cash Flows from Financing Activities
Increase in loans payable 300,661 744,325
Increase in capital stock 19,754 28,837
Write-off of deficit to paid-in capital 139,877 139,877
Write-off of other comprehensive income to paid-in capital 10,807 10,807
Write-off of stock subscription receivable to paid-in capital 196,349 196,349
Decrease in paid-in capital (366,787) (366,787)
Decrease in bank advances (3,088) -
------- ------
Net Cash Provided by Financing Activities 297,573 753,408
------- --------
Net Increase in Cash 77,784 77,784
Cash - Beginning of Period - -
Cash - End of Period $ 77,784 $ 77,784
Supplemental disclosure of non-cash flow information: Cash paid during the year
for:
Interest $ - $ -
Income taxes - -
$ - $ -
See accompanying notes
F-25
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
(Unaudited)
1. Backgrounds and Organization
On November 8, 2001, Frefax Inc. acquired China Xin Network (Canada)
Inc., (the Company) a Canadian corporation. Under the acquisition
agreement, Frefax Inc. acquired all of the outstanding common stock of
the Company in exchange for 28,836,566 newly issued common shares
issued on a 2 for 1 basis to the existing shareholders of the Company.
The acquisition was treated as a reverse acquisition, and accordingly
the accompanying historical financial statements relating to periods
prior to November 8, 2001 are those of the Company.
As of November 8, 2001, Frefax Inc. did not have any assets or
liabilities. Furthermore in this connection, the former Chairman of
Frefax Inc. has signed a statutory declaration to personally indemnify
the Company for any unrecorded liabilities and their 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 9, 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 October 19, 2000 (date of inception)
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-26
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
(Unaudited)
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 straight-line
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 financial statements in conformity with generally
accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
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.
F-27
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
(Unaudited)
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.
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. Until
such time the company is raising investment capital to cover its ongoing
operating costs.
4. Accrued Expenses Related Party
Accrued expenses at December 31, 2001 consist of $9,000 professional fees,
which have been paid subsequently by the Company's President.
5. Provisions 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.
F-28
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
(Unaudited)
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 lease 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-29
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Interim Financial Statements
As at December 31, 2001
(Unaudited)
8. Stockholders' Deficiency
a) As of the date of the reverse merger, with CXN, H 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. Subsequent Events
On November 8, 2001, Frefax Inc. a US public company acquired 100% of
the issued and outstanding shares of the Company. In exchange Frefax
Inc. issued 28,836,566 issued common shares on a 2 for 1 basis to the
existing shareholders of the Company. This acquisition was treated as a
reverse takeover, and accordingly the accompanying historical financial
statements relating to periods prior to November 8, 2001 are those of
the Company.
As of November 8, 2001, Frefax Inc. did not have any assets or
liabilities. Furthermore, 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 50,000,000 authorized share capital by
331,657 shares. On January 4, 2002 Frefax Inc. amended and restated its
Articles of Incorporation to reflect the increased Authorized Share
Capital. On the same date, Frefax Inc. changed its name to CHINA XIN
NETWORK MEDIA CORPORATION. Accordingly the Company has now become a
wholly owned subsidiary of CHINA XIN NETWORK MEDIA CORPORATION.
F-30
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Financial Statements
For the Period Ended December 31, 2001
and
Cumulative Period From October 19, 2000 (date of inception)
to December 31, 2001
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Financial Statements
December 31, 2001
Contents
Review Engagement Report F-32
Unaudited Consolidated Interim Balance Sheet F-33
Unaudited Consolidated Interim Statements of Operations and
Comprehensive Income (Loss) F-34
Unaudited Consolidated Interim Statement of Stockholders' Deficiency F-35
Unaudited Consolidated Interim Statement of Cash Flows F-36
Unaudited Consolidated Interim Notes to Financial Statements F-37
F-31
REVIEW ENGAGEMENT REPORT
To the Shareholders of
Frefax, Inc. and Subsidiary
(A Development Stage Company)
We have reviewed the consolidated interim balance sheet of Frefax, Inc. and
Subsidiary (a development stage company) as at December 31, 2001 and the
consolidated interim statements of operations and comprehensive income (loss)
and cash flows for the period October 1, 2001 to December 31, 2001 and from
October 19, 2000 (date of inception) to December 31, 2000 and cumulative from
October 19, 2000 (date of inception) to December 31, 2001. Our review was made
in accordance with generally accepted standards in the Unites States of America
for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these interim consolidated financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these interim consolidated financial statements are not, in all material
respects, in accordance with generally accepted accounting principles in the
United States of America.
//s Fine & Associates
Fine & Associates
Chartered Accountants
Montreal, Quebec
March 4, 2002
F-32
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Balance Sheet
As at December 31, 2001
(Unaudited)
2001
US$
Assets
Current
Cash 77,784
Receivable use tax 25,988
------
103,772
Capital Assets (Note 2(d)) 71,341
$ 175,113
Liabilities
Current
Accrued expenses $ 50,055
Accrued expenses - related party 9,112
Loans from related parties 37,223
96,390
Loans Payable (Note 7) 744,325
840,715
Shareholders' Deficiency
Common stock - $.001 par value, 50,000,000 shares
Authorized - 50,331,657 shares issued and outstanding 50,332
Paid-in capital deficiency (87,472)
Accumulated deficit during the development stage (628,462)
(665,602)
$ 175,113
See accompanying notes
Approved on Behalf of the Board:
//s Jean-Francois Amyot Director
//s Raymond Boisvert Director
F-33
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
From From Cumulative
Oct. 1,2001 Oct 19, 2000 Ended
Period date of inception) Oct 19 2000
to to (date of inception)
Dec. 31, Dec. 31, to Dec 31
2001 2000 2001
US$ US$ US$
Income $ - $ - $ -
Expenses
Selling, general and administrative expenses 234,586 576 628,462
Loss before Provision for Income Taxes (234,586) (576) (628,462)
Provision for Income Taxes - - -
Comprehensive Net (Loss) $ (234,586) $ (576) $ (628,462)
Basic:
Net loss 0 0
Weighted Avg. Number of Common S/O 50,331,657 50,331,657 50,331,657
See accompanying notes
F-34
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Statements of Stockholders' Deficiency For the Period from
October 19, 2000 (date of inception) to December 31, 2001 (Unaudited)
Accumulated
Deficit Accumulated
Paid-in during the other Stock Total
Common Stock Capital Development Comprehensive Subscriptions Stockholders'
Shares Amount Deficiency Stage Income (Loss) Receivable Deficiency
US$ US$ US$ US$ US$ US$
Balances at June 30, 2001 21,495,091 21,495 279,315 (139,877) (10,807) (196,349) (46,223)
November 8, 2001 issuance of
common stock in connection with
acquisition of subsidiary 28,836,566 28,837 366,787) 139,877 10,807 196,349 9,083
Net loss for the period
Oct 19, 2000,
(date of inception)
to Sept 30, 2001 - - - (393,876) - - (393,876)
Net loss for the period
Oct 1, 2001 to
December 31, 2001 - - - (234,586) - - (234,586)
50,331,657 50,332 (87,472) (628,462) - - (665,602)
See accompanying notes
F-35
Frefax, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Interim Statements of Cash Flows
For the Period Ended
(Unaudited)
October 1, October 19, 2000
2001 to (date of inception) to
December 31, December 31,
2001 2001
US$ US$
Cash Flows from Operating Activities
Net loss $ (234,586) $ (628,462)
Adjustments to reconcile net loss to net
Cash used for operating activities:
Depreciation 4,032 8,354
Decrease in prepaids and deposits 19,962 -
Increase in recoverable use tax (6,839) (25,988)
Decrease in accrued expenses 33,348 50,054
Decrease in accrued expenses - related parties (65,859) 112
-------- ---
Net Cash used for Operating Activities (249,942) (595,930)
--------- ---------
Cash Flows from Investing Activities
Purchase of capital assets (15,344) (79,694)
-------- --------
Net Cash used for Investing Activities (15,344) (79,694)
-------- --------
Cash Flows from Financing Activities
Increase in loans payable 335,021 744,325
Increase in capital stock 19,754 28,837
Write-off of deficit to paid-in capital 139,877 139,877
Write-off of other comprehensive income to paid-in capital 10,807 10,807
Write-off of stock subscription receivable to paid-in capital 196,349 196,349
Decrease in paid-in capital (366,787) (366,787)
--------- ---------
Net Cash Provided by Financing Activities 335,021 753,408
------- -------
Net Increase in Cash 69,735 77,784
Cash - Beginning of Period 8,049 -
----- -----
Cash - End of Period $ 77,784 $ 77,784
Supplemental disclosure of non-cash flow information: Cash paid during the year
for:
Interest $ - $ -
Income taxes - -
$ - $ -
See accompanying notes
F-36