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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10 - QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
333-39208
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(Commission File Number)
For the quarterly period ended March 31, 2005
COL China Online International Inc.
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 52-2224845
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(State or other jurisdiction (IRS Employer Identification Number)
of incorporation)
3176 South Peoria Court, Suite 100
Aurora, Colorado, 80014
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(Address of principal executive offices including zip code)
(303) 695-8530
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(Small Business Issuer telephone number, including area code)
N/A
---
(Former Name or Former Address, if Changed Since Last Report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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As of May 9, 2005, the Registrant had outstanding 50,155,000 shares of its
common stock, par value $.001.
Transitional Small Business Disclosure Format (Check One):
Yes No X
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COL China Online International Inc.
FORM 10-QSB
March 31, 2005
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2005
(unaudited) and June 30, 2004 2
Condensed Consolidated Statements of Operations for the
nine months ended March 31, 2005 and 2004 (unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 2005 and 2004 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submissions of Matters to a Vote of Security Holders 12
Item 5 Other Information 12
Item 6 Exhibits 13
Signature Page 14
Exhibit 31 Certifications
Exhibit 32 Certifications
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
COL CHINA ONLINE INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 MARCH 31, 2005 (unaudited)
------------- --------------------------
(Rmb) (Rmb) (US$)
(Illustrative
Only)
ASSETS
CURRENT ASSETS:
Cash 101,532 810,915 97,850
Accounts receivable, net of an allowance for doubtful
accounts 25,500 6,000 725
Prepaid expense and other receivables 396,307 454,452 54,837
Net investment in the lease 988,293 247,073 29,813
----------- ----------- -----------
Total current assets 1,511,632 1,518,440 183,225
PROPERTY, OFFICE SPACE AND EQUIPMENT, net of accumulated
depreciation and impairment of Rmb
10,395,521(US$1,254,377) and Rmb 1,515,019
(US$ 182,810), respectively 1,728,383 1,240,517 149,687
----------- ----------- -----------
TOTAL ASSETS 3,240,015 2,758,957 332,912
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued expenses 1,202,312 608,979 73,482
Advance deposit received 317,980 317,980 38,369
Due to a minority stockholder 187,155 214,660 25,902
Taxes payable 91,977 215,101 25,955
----------- ----------- -----------
Total current liabilities 1,799,424 1,356,720 163,708
NOTES PAYABLE:
Majority Stockholder 71,059,244 76,081,409 9,180,371
STOCKHOLDERS' DEFICIENCY:
Preferred stock, US$0.001 par value, 5,000,000 shares
authorized, none outstanding
Common stock, US$0.001 par value, 100,000,000 shares
authorized, 50,155,000 shares issued and outstanding 408,864 408,864 49,336
Additional paid-in capital 1,214,118 1,214,118 146,502
Accumulated deficit (71,207,705) (76,268,224) (9,202,911)
Other comprehensive loss (33,930) (33,930) (4,094)
----------- ----------- -----------
Total stockholders' deficiency (69,618,653) (74,679,172) (9,011,167)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY 3,240,015 2,758,957 332,912
=========== =========== ===========
See accompanying notes to these condensed consolidated financial statements
Page 2
COL CHINA ONLINE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
-------------------------------------------
MARCH 31, 2004 MARCH 31, 2005
-------------- ---------------------------
(Rmb) (Rmb) (US$)
(Illustrative
Only)
NET REVENUES:
Marketing fees, minority stockholder -- -- --
Telecommunication 39,092 174,441 21,049
----------- ----------- -----------
Total revenues 39,092 174,441 21,049
COST OF SALES:
Telecommunication 166,520 137,944 16,645
----------- ----------- -----------
Gross (loss) profit margin (127,428) 36,497 4,404
OPERATING EXPENSES:
General and administrative 1,721,380 1,052,598 127,009
Amortization and depreciation 142,531 173,286 20,910
----------- ----------- -----------
Total operating expenses 1,863,911 1,225,884 147,919
----------- ----------- -----------
OPERATING LOSS (1,991,339) (1,189,387) (143,515)
Rental income 34,649 -- --
Other income 75,484 95,165 11,483
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (1,881,206) (1,094,222) (132,032)
Minority interest -- -- --
----------- ----------- -----------
NET LOSS (1,881,206) (1,094,222) (132,032)
=========== =========== ===========
OTHER COMPREHENSIVE GAIN -- -- --
----------- ----------- -----------
COMPREHENSIVE LOSSES (1,881,206) (1,094,222) (132,032)
=========== =========== ===========
BASIC AND FULLY DILUTED NET LOSS PER SHARE (0.038) (0.022) (0.003)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES 50,155,000 50,155,000 50,155,000
=========== =========== ===========
See accompanying notes to these condensed consolidated financial statements
Page 3
COL CHINA ONLINE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED
-------------------------------------------
MARCH 31, 2004 MARCH 31, 2005
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(Rmb) (Rmb) (US$)
(Illustrative
Only)
NET REVENUES:
Marketing fees, minority stockholder 65,639 -- --
Telecommunication 39,092 536,803 64,773
----------- ----------- -----------
Total revenues 104,731 536,803 64,773
COST OF SALES:
Telecommunication 451,586 362,157 43,700
----------- ----------- -----------
Gross (loss) profit margin (346,855) 174,646 21,073
OPERATING EXPENSES:
General and administrative 5,564,885 4,881,537 589,030
Amortization and depreciation 485,726 519,857 62,729
----------- ----------- -----------
Total operating expenses 6,050,611 5,401,394 651,759
----------- ----------- -----------
OPERATING LOSS (6,397,466) (5,226,748) (630,686)
Rental income 72,000 -- --
Other income 181,821 166,229 20,058
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (6,143,645) (5,060,519) (610,628)
Minority interest -- -- --
----------- ----------- -----------
NET LOSS (6,143,645) (5,060,519) (610,628)
=========== =========== ===========
OTHER COMPREHENSIVE GAIN 29 -- --
----------- ----------- -----------
COMPREHENSIVE LOSSES (6,143,616) (5,060,519) (610,628)
=========== =========== ===========
BASIC AND FULLY DILUTED NET LOSS PER SHARE (0.122) (0.101) (0.012)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES 50,155,000 50,155,000 50,155,000
=========== =========== ===========
See accompanying notes to these condensed consolidated financial statements
Page 4
COL CHINA ONLINE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED
----------------------------------------
MARCH 31, 2004 MARCH 31, 2005
-------------- -----------------------
(Rmb) (Rmb) (US$)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (6,143,645) (5,060,519) (610,628)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss on disposal of equipment 205,581 -- --
Amortization and depreciation 485,726 487,866 58,868
Bad debts written off 17,713 -- --
Change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivables (50,095) 19,500 2,353
Prepaid expense and other receivables,
and prepayment (1,009,511) (58,145) (7,015)
Increase (decrease) in:
Accounts payable and accrued expenses,
and advance deposit received (1,121,212) (593,333) (71,594)
Taxes payable 4,429 123,124 14,857
---------- ---------- ----------
Net cash used in operating activities (7,611,014) (5,081,507) (613,159)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (424,291) -- --
Sales of equipment and properties 2,027,591 -- --
Expenditure on net investment in the lease (472,232) -- --
Lease payments received 741,219 741,220 89,439
---------- ---------- ----------
Net cash provided by investing activities 1,872,287 741,220 89,439
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage loans repayments (860,612) -- --
Advances from Majority Stockholder 6,391,105 5,022,165 606,000
Minority stockholders interest and advance (7,170) 27,505 3,319
---------- ---------- ----------
Net cash provided by financing activities 5,523,323 5,049,670 609,319
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 29 -- --
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH (215,375) 709,383 85,599
CASH, beginning of period 548,405 101,532 12,251
---------- ---------- ----------
CASH, end of period 333,030 810,915 97,850
========== ========== ==========
CASH PAID FOR INTEREST 3,845 -- --
========== ========== ==========
See accompanying notes to these condensed consolidated financial statements
Page 5
COL CHINA ONLINE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Company Organization and Operations
-----------------------------------
Nature of Operations - COL China Online International Inc. ("COL
International" or the "Company") was incorporated as a Delaware corporation
on February 22, 2000, for the purpose of acquiring and conducting the
engineering services and internet related business of Migration
Developments Limited, a British Virgin Islands Company ("Migration") and
raising equity capital to be utilized in the business of Migration. Prior
to the acquisition of Migration, the Company was considered to be in the
development stage, due to its limited operations and lack of revenues.
In July 2001, the Company completed its initial public offering of common
stock. The Company issued 1,655,000 shares of common stock in this offering
at US$0.05 per share (approximately US$83,000). All net proceeds from this
offering were used to pay costs associated with the offering.
On December 24, 2001, the Company acquired all the outstanding shares of
common stock of Migration in exchange for 40.2 million shares of the
Company's common stock. As a result of the acquisition, Migration became a
wholly owned subsidiary of the Company.
For financial reporting purposes, the acquisition of Migration by the
Company on December 24, 2001 has been treated as a reverse acquisition.
Migration is the continuing entity for financial reporting and the
acquisition of the Company is considered a recapitalization and
restructuring of Migration. On this basis, the historical financial
statements prior to December 24, 2001 represent the financial statements of
Migration. The historical shareholders' equity accounts of the Company have
been retroactively restated to reflect the issuance of 40,200,000 shares of
common stock since inception of Migration and the issuance of 9,955,000
shares of stock upon the merger with the Company.
Migration was formed on May 18, 1998 and has two subsidiaries, Shenzhen
Knowledge & Communications Co., Ltd. (formerly Shenzhen Rayes Electronic
Systems Co., Ltd.) ("Joint Venture") and Shanghai Shangyi Science and Trade
Information Consulting Co., Ltd. ("Shangyi"), in which it has 90% and 70%
equity interests, respectively. The Joint Venture and Shangyi are
Sino-foreign equity joint ventures in the People's Republic of China (PRC).
Most of the operations of Migration are through the Joint Venture, which
did not commence substantive operations until the Spring of 1999. The
acquisitions of Joint Venture and Shangyi had been accounted for as
purchases by Migration.
Migration initially provided marketing and technical services for the
Internet Service Provider (ISP) and value-added services generally related
to the installation of computer network systems (i.e., Local Area Networks
or LANs) in the PRC.
The Company is developing two IT business through two divisions. COL
Convergence will focus on the providing of internet and telecommunication
convergence solutions and COL Interactive will focus on providing
customer-specific solutions for the retail industry.
Page 6
COL CHINA ONLINE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Basis of Presentation
---------------------
The unaudited condensed consolidated financial statements have been
prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such SEC rules and regulations; nevertheless, the Company
believes that the disclosures are adequate to make the information
presented not misleading. These financial statements have been prepared on
the same basis as the annual financial statements. These financial
statements and the notes hereto should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended June 30, 2004 which was filed
October 13, 2004. In the opinion of the Company, all adjustments, including
normal recurring adjustments necessary to present fairly the financial
position of the Company as of March 31, 2005 and the results of its
operations and cash flows for the quarter and nine month periods then
ended, have been included. The results of operations for the interim period
are not necessarily indicative of the results for the full year.
The amounts included in the financial statements are presented in Renminbi
("Rmb") which is COL International's functional currency, unless otherwise
indicated as US dollars, because COL International's operations are
primarily located in the PRC. For illustrative purposes, the condensed
consolidated balance sheet as March 31, 2005 and condensed consolidated
statement of operations for the three months and nine months ended March
31, 2005 and condensed consolidated statement of cash flows for the three
months ended March 31, 2005 have been translated into US dollars at
approximately 8.2870 Rmb to the dollar, which was the exchange rate at
March 31, 2005.
3. Recently Issued Accounting Standards
------------------------------------
There are no new accounting pronouncements for which adoption is expected
to have a material effect on the Company's condensed consolidated financial
statements.
4. Comprehensive Income (Loss)
---------------------------
The Company accounts for comprehensive income (loss) in accordance with
SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes
standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined therein, refers to
revenues, expenses, gains and losses that are not included in net income
but rather are recorded directly in stockholders' equity. Accumulated other
comprehensive loss for the quarter and nine months ended March 31, 2005,
respectively, represented foreign currency translation adjustments.
5. Net Loss Per Share
------------------
Basic and diluted net loss per share is computed by dividing net loss by
the weighted average number of common shares outstanding.
Pursuant to the Company's 2000 Stock Option Plan, options may be granted to
purchase an aggregate of 4,000,000 shares of common stock to key employees
and other persons who have or are contributing to the Company's success. As
of March 31, 2005, no options had been granted under the 2000 plan.
Page 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This document contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. When used in this document, the words "expects",
"anticipates", "intends" and "plans" and similar expressions are intended to
identify certain of these forward-looking statements. The cautionary statements
made in this document should be read as being applicable to all related
forward-looking statements wherever they appear in this document. Our actual
results could differ materially from those discussed in this document. Factors
that could cause or contribute to such difference include those discussed below
and in the Company's Annual Report on Form 10-KSB for the year ended June 30,
2004.
Overview
COL China Online International, Inc. (the "Company" or "COL International") was
formed for the purpose of acquiring and conducting the engineering services and
the internet related business of Migration Development Limited, a British Virgin
Islands Company ("Migration") and raising equity capital to be utilized in the
business of Migration. Beginning in approximately January 2004, the Company
focused its business on internet and telecommunication convergence solutions and
customer-specific solutions for the retail industry.
Initial Public Offering - In July 2001, the Company completed its initial public
offering of common stock. The Company issued 1,655,000 shares of common stock in
this offering at US$0.05 per share (approximately US$83,000). All net proceeds
from this offering were used to pay costs associated with the offering.
Going concern - The ability of COL International to continue operations as a
going concern is dependent upon continued support from Honview International
Limited ("Honview"), a former shareholder of Migration, which is now a major
stockholder of COL International, and the ability of Migration to achieve
profitable operations and/or additional funds to be raised in future private and
public offerings.
Acquisition - In December 2001, the Company acquired all the outstanding shares
of common stock of Migration in exchange for 40.2 million shares of the
Company's common stock. As a result of the acquisition, Migration became a
wholly owned subsidiary of COL International. However, for accounting purposes,
this transaction is treated a reverse acquisition, whereby Migration is
considered as an acquirer.
Migration was formed on May 18, 1998 and has two subsidiaries, Shenzhen
Knowledge & Communications Co., Ltd. (formerly Shenzhen Rayes Electronic Systems
Co., Ltd.) ("Joint Venture") and Shanghai Shangyi Science and Trade Information
Consulting Co., Ltd. ("Shangyi"), in which it has 90% and 70% equity interests,
respectively. The Joint Venture and Shangyi are Sino-foreign equity joint
ventures in the People's Republic of China (the "PRC"). Most of the operations
of Migration are through the Joint Venture, which did not commence substantive
operations until the Spring of 1999.
Migration initially provided marketing and technical services for Internet
Service Providers ("ISP") and value - added services generally related to the
installation of computer network systems (i.e., Local Area Networks or LANs) in
the PRC.
Page 8
Plan of Operations - Because the Company's past business model was not
successful, the Company has developed a new business model. The Company is
developing two IT business ("COL Convergence" and "COL Interactive"). COL
Convergence will focus on the provision of internet and telecommunication
convergence solutions and COL Interactive will focus on providing
customer-specific solutions for the retail industry.
COL Convergence Business Overview
- ---------------------------------
COL Convergence (COLc) intends to develop as a leading provider of communication
services offering tailored solutions to multinational companies in China.
The mission of COLc is to help its customers obtain the communication
environment they need to be able to compete on the highest levels. After a
custom-made plan is developed for each client, COLc plans to deploy and manage
the technology with its experienced staff of engineers and managers.
COLc is currently discussing possible business engagement with a number of
telecommunication network providers.
COL Interactive Business Overview
- ---------------------------------
The aim of COL Interactive (COLi) is to increase sales for retail groups and
leading Famous Multinational Conglomerates (FMCG) operating in the greater China
area by implementing and integrating various technologies "In-Store".
COLi's philosophy is based around "Customer Specific Services". By linking
consumers and their purchasing history and habits with in-store point of
purchasing advertising devices, COLi believes it can market FMCG's products in
the most effective way and increase sales in all areas.
In-store advertising has the strongest influence over the in-store purchase
decision and impulse buy. COLi plans to take traditional in-store advertisement
to the next stage by implementing and integrating its multimedia and interactive
technologies.
COLi intends to partner with leading retail groups in the region and is
currently negotiating with one of China's largest retail chain stores and a
convenience store chain.
Although the Company has a positive cash flow from operating activities, the
Company is seeking additional financing in order to satisfy its cash
requirements. The Company anticipates that it will require approximately
Rmb6,000,000 (or approximately US$724,000) in financing during the current year
to satisfy its cash requirements. COL International, through its Migration
subsidiary, currently employs approximately 30 employees in China. The Company
may recruit more staff should its plan of operations prove successful, of which
there is no assurance.
Page 9
Results of Operations
Revenues for the three months and nine months ended March 31, 2005
represented telecommunication services revenue of Rmb174,441 (US$21,049) and
Rmb536,803 (US$64,773), respectively, as compared to Rmb39,092 (US$4,717) for
both of the three months and nine months ended March 31, 2004. The Company has
marketing fees received from Shenzhen Rayes Group Co., Ltd. of Rmb65,639
(US$7,921) for the nine months ended March 31, 2004 but no revenues were derived
from the three months and nine months ended March 31, 2005.
The Company contracted with a telecommunication services company selling
IDD (IP phone) to end-users and receives telecommunication services commission
income from the agent, which is a percentage of monthly usage end-users.
During the quarter ended September 30, 2004, the Company contracted with
Railcomm Internet for the installation and promotion of inter-call services. The
Company received income from end-users for the installation services provided
and commission from Railcomm, which is a percentage of monthly usage end-users.
The Company also contracted with a supermarket, which allowed COL
International to install projectors in its shops. According to the initial plan,
the In-store advertising income would be derived from projecting advertising
programs from the projectors installed in supermarkets. However, the plan was
eventually unsuccessful and was abandoned.
The ISP services business was terminated and transferred to a third party
in December 2003. No revenue was derived from advertising upon the termination.
In the past, marketing fees were related to the Joint Venture's share of 50
percent of the revenues generated from ISP services owned by a minority
shareholder, Rayes Group, and computer hosting of web sites for customers.
In connection with these services, the Company has an agreement with Rayes
Group to reimburse Rayes Group for its actual transmission (i.e., telephone
line) costs, provided that Rayes Group will pay all incremental costs related to
expansion of the telecommunications facilities related to the ISP operations.
These amounts totaled Rmb166,520 (US$20,094) and Rmb137,944 (US$16,645) for
the three months period ended March 31, 2004 and 2005, respectively. The Joint
Venture has no long-term commitments in connection with its telecommunication
costs other than management fees payable to the Rayes Group for providing
services. The decrease in telecommunication costs is primarily due to the
ceasing of the Company's related ISP business.
Other income for the three months and nine months ended March 31, 2005 was
Rmb95,165 (US$11,483) and Rmb166,229 (US$20,058), as compared to Rmb75,484
(US$9,109) and Rmb181,821 (US$21,856) for the three months and nine months ended
March 31, 2004. "Other income" primarily represents lease income, interest
income and miscellaneous income.
Starting from 2003, the Company purchased and leased out a system of
computer network and software for generating lease income, the cost of the
system is approximately Rmb1,976,000 (US$238,456) and has been recorded in net
investment in the lease of Rmb247,073 (US$29,813) in the Company's condensed
consolidated balance sheet as of March 31, 2005. The relevant lease income for
the three months and nine months ended March 31, 2004 was Rmb34,649 (US$4,181)
and Rmb103,945 (US$12,543), respectively.
Page 10
General and administrative costs include salaries, rent, travel and other
overhead costs. For the three months ended March 31, 2004 and 2005, general and
administrative costs totaled Rmb1,721,380 (US$207,721) and Rmb1,052,598
(US$127,009), respectively. For the nine months ended March 31, 2004 and 2005,
general and administrative costs totaled Rmb5,564,885 (US$671,520) and
Rmb4,881,537 (US$589,030), respectively. The decrease in general and
administrative costs are mainly resulted from the decrease in salaries in COL.
Amortization and depreciation expense for the three months ended March 31,
2004 and 2005 was Rmb142,531 (US$17,199) and Rmb173,286 (US$20,910),
respectively. For nine months ended March 31, 2004 and 2005, amortization and
depreciation expenses were Rmb485,726 (US$58,613) and Rmb519,857 (US$62,729).
The Company has not recognized any future tax benefits resulting from its
operating losses due to the uncertainty of future realization.
No share of loss has been absorbed by minority shareholder for the three
months ended March 31, 2005 as its initial capital contribution was fully
absorbed.
The above has resulted in net losses of Rmb1,881,206 (US$227,007) and
Rmb1,094,222 (US$132,032) for the three months ended March 31, 2004 and 2005,
respectively, compared to Rmb6,143,645 (US$741,359) and Rmb5,060,519
(US$610,628) for the nine months ended March 31, 2004 and 2005. The Company
expects to continue to incur losses until its services are more fully developed
and accepted in China.
Liquidity and Capital Resources
COL's ability to continue operations is currently dependent upon continuing
financial support from its majority stockholder. As of March 31, 2005 and June
30, 2004, the Company had a positive working capital of Rmb161,720 (US$19,517)
and negative working capital of Rmb287,792 (US$34,728), respectively. As of
March 31, 2005, advances from the majority stockholder totaled Rmb76,081,409
(US$9,180,371). The Company's management believes the majority stockholder will
continue to provide financial support to the Company, although the majority
stockholder's agreement with the Company to provide financial support up to US$8
million expired January 1, 2004.
Cash used in operating activities for the nine months ended March 31, 2005
was Rmb5,081,507 (US$613,159) as compared with Rmb7,611,014 (US$918,428) for the
nine months ended March 31, 2004. The cash used in operations was to fund
operating losses of Rmb6,143,645 (US$741,359) and Rmb5,060,519 (US$610,628),
generally offset by non-cash expenses related to amortization and depreciation
of Rmb485,726 (US$58,613) and Rmb519,857 (US$62,729) for the nine months ended
March 31, 2004 and 2005, respectively.
Cash provided by investing activities for the nine months ended March 31,
2005 was Rmb741,220 (US$89,439) as compared to cash provided by investing
activities of Rmb1,872,287 (US$225,931) for the nine months ended March 31,
2004. During the quarter, the Company received Rmb247,074 (US$29,813) from the
lease of computer equipment and software.
Cash flows from financing activities have generally come from advances by
the majority stockholder of the Company. During the nine months ended March 31,
2004 and 2005, the majority stockholder has advanced Rmb6,391,105 (US$771,221)
and Rmb5,022,165 (US$606,000), respectively.
Page 11
Critical Accounting Policies
The Company's significant accounting policies are described in note 2 to
the financial statements for the year ended June 30, 2003 and 2004 included in
the Company's Form 10-KSB. The Company believes its most critical accounting
policies include accounting for provision for doubtful debts and impairment loss
provision.
No provision for impairment loss on fixed assets and net investment in the
lease is made for the three months and nine months ended March 31, 2005,
respectively, because the carrying value of fixed assets, net of accumulated
depreciation and impairment of Rmb10,395,521 (US$1,254,377) and Rmb1,515,019
(US$182,810), respectively, and the carrying value of net investment in the
lease are stated at its recoverable amount at the period-end date estimated by
the management.
ITEMS 3 CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with participation of the Company's
management, including our Chief Executive Officer and Principal Financial
Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-14 (c) under the Securities Exchange Act of 1934). Based on
their evaluation, as of March 31, 2005, our Chief Executive Officer and
Principal Financial Officer have concluded that disclosure controls and
procedures are, to the best of their knowledge, effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. Subsequent to the date of their evaluation, there were not
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Unregistered Sales of Equity securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
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Item 6. Exhibits
Exhibits.
---------
Exhibit No. Description
----------- -----------
3.1 Certificate Of Incorporation filed with the
Delaware Secretary Of State effective as of
February 22, 2000 (2)
3.2 Certificate Of Amendment To The Certificate Of
Incorporation filed with the Delaware Secretary Of
State effective as of April 3, 2000 (2)
3.3 Amended And Restated Bylaws (3)
3.4 Sino-Foreign Joint Venture Contract (1) (2)
3.5 Articles Of Association of the Sino-Foreign Joint
Venture (1) (2)
31 Certifications of the Chief Executive Officer and
Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32 Certifications of Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
-------------------
(1) Translated into English from Chinese.
(2) Incorporated by reference from the Company's Registration
Statement on Form SB-2 on June 13, 2000 (Registration No.
333-39208).
(3) Incorporated by reference from Amendment No. 3 to the Company's
Registration Statement on Form SB-2 on January 17, 2001
(Registration No. 333-39208).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
COL CHINA ONLINE INTERNATIONAL INC.
Date: May 17, 2005 By: /s/ Chi Keung Wong
------------------------------
Chi Keung Wong
Chief Executive Officer and
Chief Financial Officer
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