Edgar Filing: XIN NET CORP

SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

FOR THE YEAR ENDED DECEMBER 31, 2003

General Form for Registration of Securities of Small Business Issuers
Commission file number 0-26559

CIK No. 0001082603

XIN NET CORP.
-------------
(Exact name of registrant as specified in this charter)

Florida 330-751560
---------- -------------------
(State of other jurisdiction (I.R.S. Employer of incorporation or organization)
Identification No.)

#900 - 789 West Pender Street, Vancouver, B.C. Canada V6C 1H2
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (604) 632-9638

Securities Registered to be Pursuant to Section 12(b) of the Act:

NONE

Securities Registered to be Pursuant to Section 12(g) of the Act

COMMON STOCK $.001 PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.

Yes [X] No [_]

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year: $475,309.

Transitional Small Business Disclosure Format:

Yes [_] No [X]

Aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 31, 2003: $3,298,850 at $.10 per share.

Number of outstanding shares of the registrant's no par value common stock, as
of March 31, 2004: 46,360,010.

TABLE OF CONTENTS

PART I

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for Registrant's Common Stock and Security Holder Matters

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Item 7. Financial Statements and Supplementary Data

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Item 8A. Controls and procedures

PART III

Item 9. Directors and Executive Officers of the Registrant

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management

Item 12. Certain Relationships and Related Transactions

PART IV

Item 13. Exhibits and Reports on Form 8-K

Item 14. Audit Fees

Signature Page

PART I

ITEM 1. BUSINESS
----------------

(a) General Description and Development of Business.

PREVIOUS HISTORY

On September 6, 1996, Xin Net Corp. was incorporated under the laws of the
State of Florida under the name of Placer Technologies, Inc. It conducted a
small public offering of 200,000 shares @ $.25 per share to achieve $50,000 in
capital. In December 1996 a Rule 15c2-11 filing resulted in trading approval on
the OTCBB.

The Company's initial primary service consisted of developing web home pages
for small businesses in USA. It generated minimal revenues in 1996.

On April 2, 1997, the Company acquired 100% interest of Infornet Investment
Limited ("Infornet"), a Hong Kong corporation. In August 1997 Infornet entered
into a joint venture agreement with Xin Hai Technology Development Ltd., ("Xin
Hai"), Xin Hai was an experienced internet-related services provider, but the
business suffered loses and was sold and discontinued in 2001.

On June 11, 1997, the Company purchased 100% interest of Infornet Investment
Corp., a British Columbia corporation. Infornet Investment Corp. is the
subsidiary which manages daily operations of the Company.

On July 24, 1998, the Company changed its name from Placer Technologies, Inc.
to Xin Net Corp.

CORPORATE OVERVIEW

Xin Net Corp.'s structure showing its subsidiaries is as follows, with the
jurisdiction of incorporation of each subsidiary included in parentheses:

Xin Net Corp.
(Florida, USA)

Infornet Investment Corp. Infornet Investment Ltd.
(100% Owned) (100% Owned)
(BC., Canada) (Hong Kong)

Windsor Education Academy Inc.
(51% Owned)
(BC., Canada)

Dawa Business Group, Inc.
(51% Owned)
(BC, Canada)

Xinbiz Corp. Xinbiz Ltd.
(British Virgin Islands) (Hong Kong)
(100% Owned) (Xinbiz Corp. 100% owned)
(Dormant) (Dormant)

The Company also incorporated Xinbiz Corp. (British Virgin Islands) on
January 14, 2000 and its subsidiary Xinbiz Ltd. (Hong Kong) on March 10, 2000.
Both of these companies are wholly owned subsidiaries. Xinbiz Corp. and Xinbiz
Ltd. do not have any operations.

Through Xin Net Corp.'s wholly owned subsidiary, Infornet Investment Ltd.
(Hong Kong), the Company formed a joint venture with Xin Hai Technology
Development Ltd. for upgrading telecommunication technology and services in the
PRC. This evolved into an internet-focused service provider and e-commerce
solutions business.

The Company decided in May 2001 to focus its business in China on
domain name registration and web-hosting services, and to discontinue Internet
access provision services as soon as practicable. On June 22, 2001 the Company
entered into an agreement to sell its ISP assets (Xin Hai).

The price for the sale was $700,000 (USD) payable to in Renminbi at
the official exchange rate. As of December 31, 2003, $500,000 has been received
for the transaction. A loss provision of $200,000 has been made against the
balance of the sales price as the Company has determined that the purchaser will
not be able to pay the remaining balance.

Since the Company started its Internet-related business in China, it
has seen rapid growth in Internet use in China; but it has also seen an equal if
not greater growth in companies entering this arena. As a result, the industry
experienced severely reduced operating margins and continued losses. Although
the Company was considered an early leader in the Domain Name Registration
field, due to the lack of adequate funding, future growth potential against many
competitiors was limited at best. The Company had struggled for several years to
break even and was hoping for some meaningful funding to grow, but the plan was
nullified when the funding failed to materialize. As China becomes more and more
open according to the terms of the WTO, the world's large well-funded companies
have been given access to the China market and seriously compromised the
Company's competitive position.

In February, 2003, the Company signed an agreement to sell the
Company's China assets (Domain name registration) to a subsidiary of Sino-i.com
Limited, a Hong Kong Stock Exchange listed company for a total consideration
of Rmb 20 million (approx. US$ 2.4 million). Infornet Investment Limited is the
Company's wholly owned Hong Kong subsidiary that controls the Company's interest
in Xin Net Telecom Corp. The Company has received all of the purchase price.

Education Business

In 2002, the Company redirected its resources to the education and train
-ing field. In January 6, 2003, the Company announced the acquisition of Windsor
Education Academy Inc., a Richmond, British Columbia based school specializing
in English as a Second Language (ESL) courses to foreign students. Total consid-
eration was C$ 200,000 (about US$ 128,000). Windsor Education Academy Inc., a
Richmond, British Columbia based school offers English as a Second Language
(ESL) courses to foreign students. Windsor is government certified. The Company
will help Windsor to expand locally as well as internationally into China and
Southeast Asia. The Company will look for further companies in this market area
with the goal of introducing foreign accredited programs into the China market.

Xin Net Corp. currently maintains an office at: #900 - 789 West Pender
Street, Vancouver, B.C. Canada V6C 1H2 (telephone number is 1-604-632-9638).

New Acquisition in 2004

In 2004, the Company entered into a Definitive Agreement to acquire 51% of
a SMS provider in China, Beijing Quicknet Telecommunications Corp. Ltd. (Beijing
Quicknet), from non-affiliates. In order to comply with current Chinese law, the
Company will acquire 49% immediately upon closing and will retain the right to
acquire the 2% as soon as it is able to obtain Government approval or achieve a
legal structure (under Chinese law) which allows control of the 2% (thereby
aggregating 51%).

On Closing Date, the Company intends to acquire 49% of Beijing Quicknet for
a price of U$3,060,000 (three million and sixty thousand US dollars) in form of
issuing 6,120,000 (six million one hundred and twenty thousand) common shares of
the Company's stock at a deemed price of US$0.50 per share. The remaining 2%
will be conveyed for US$100 when either of the following is completed to the
satisfaction of the Company (1) the appropriate government ministry in China
approving the transfer of the 2%, or (2) an acceptable legal mechanism for the
transfer of the 2% ownership is arranged. Furthermore, the Company has the
option to acquire the remaining 49% of Beijing Quicknet within 2 years from the
Closing Date. If the Company exercises the option to purchase the remaining 49%
of Beijing Quicknet within first year from the Closing Date, the purchase price
will be US$4,000,000 (four million US dollars); if the Company exercises the
option to purchase the remaining 49% of Beijing Quicknet within the second year
from the Closing Date, the purchase price will be US$5,000,000 (five million US
dollars). The purchase price will be in the form of a combination of cash and
the issuance of common shares of the Company.

The Company will have the right to appoint all of the directors of Beijing
Quicknet after the closing.

Discontinued Internet Services

Up until late 2002, the Company business was focused on domain name registra-
tion, webhosting and web design services under the ChinaDNS banner. It operated
the website www.chinadns.com, the first in the PRC to offer online site registra
-tion. In October 1999, ChinaDNS was approved as an Official Agent of Network
Solutions, Inc.

Due to the continued loss on operations ($254,035 in 2002). In 2003, the Company
entered into an Agreement to sell the domain name registration business to China
Enterprise of ASP for about $2,400,000. We are treating the DNS business as
discontinued operations at this time, as China Enterprise is in full control of
the assets.

CURRENT BUSINESS

Education and Training

The Company is currently offering English as a Second Language (ESL) and related
courses through Windsor Education Academy in the Richmond campus. The Company
owns 51% of Windsor, a B.C. company.

MARKETING

Windsor Education Academy uses the printed media as well as recruitment
agents to attract students. Word of mouth is also an important endorsement.
Windsor is also a British Columbia Provincial Government endorsed ESL provider,
receiving students from government programs, where the fee is paid by the
government. Windsor is continuously working to improve its recognition for
quality and service with the British Columbia Provincial Government.

EMPLOYEES OF WINDSOR SUBSIDIARY

At the end of December 31, 2003, Windsor Education Academy had approximately
eleven employees, consisting of eight full and part time teachers and three
administrative personnel. The key to success is the ability to attract students
either publicly or privately funded. The number of employees will change as the
student body changes and there is no collectively bargaining unit at the
academy.

Education and Training

Windsor Academy has a campus in Richmond, British Columbia. They are equipped
with personal computers and the standard classroom fixtures.

News Advertising Service

On July 3, 2003, the Company has acquired 51% of Dawa Business Group Inc.
("Dawa") in exchange for 49% of Xin Net's subsidiary, Windsor Education Academy
Inc. ("Windsor").

Dawa Business Group Inc. was acquired (51%) in a share exchange with the
Windsor subsidiary to provide media connections for the Windsor subsidiary in
the Chinese Language Community. Dawa achieved some revenues during the year,
but the Company intends to terminate its interest due to unprofitability. The
subsidiary has about 10 employees.

PRODUCTS, SERVICES, MARKETS, METHODS OF DISTRIBUTION AND REVENUES

Education and Training

The Company has redirected its resources to the education and training
field. Windsor Education Academy is the first acquisition. In a recent study
conducted by the OECD (Organization of Economic Co-operation and Development)
and the UNESCO (United Nations Educational Scientific and Cultural Organization)
titled "Financing Education - Investments and Returns", attributed education as
a key ingredient in a country's economic growth. The study also examined sources
of funding and found that 44% of educational expenditure for China came from
private sources compared to an OECD average of 12%. Our first acquisition,
Windsor, is government certified and is profitable. The Company will help
Windsor to expand locally as well as internationally into China and Southeast
Asia. The Company will look for further companies that fit this profile with the
goal of introducing foreign accredited programs into the China market. For the
past several years, supplementary education had become a multi-billion dollar
business in China, the most popular being Foreign Schools, English Training,
Data Processing, Accounting and a variety of other programs. Started several
years ago, this trend is still ascending and with the integration of China into
the world community as well as the growth in personal disposable income, we
expect the growth to continue for a substantial period of time.

DEPENDENCE ON CLIENT BASE

For the Education Services, there are about 100 students, Windsor is
constantly relying on the printed media, word of mouth, recruiting agents and
other marketing channels to increase the number of students.

News/Advertising
----------------

The Company, for its Dawa operations (through the 51% Dawa owned subsid-
iary) has been operating a Chinese language newspaper and press services in the
Chinese language, operating primarily in British Columbia. It sells advertising
and press services to the Chinese community.

Backlog of Orders: None.

Government Contracts: Windsor Education receives a number of ESL students
from the Provincial Government of British Columbia under government programs.

Dawa has no government contracts.

COMPETITIVE CONDITIONS

Education Services
------------------

In Windsor's business, the supplementary education and training market is
very fragmented, there are very few large ones and numerous small schools,
established mostly in larger cities worldwide. There are several keys to a
school's success, such as, quality of its curriculum and graduates, teachers and
facilities, certifications and diplomas offered, location and accessibility,
marketing and advertising, variety of programs offered, etc. The Company is
striving to improve on all fronts as well as expanding through acquisitions and
into the mainland China market.

News/Advertising
----------------

For Dawa, the foreign language news/advertising business is very competi
-tive due to low cost of entry and the number of entities publishing in the
locale (B.C.)

XIN NET SPONSORED RESEARCH AND DEVELOPMENT

None.

COMPLIANCE WITH RELATED LAWS AND REGULATIONS

On the Education Services side, Windsor Education Academy Inc. is governed
by the Laws of the Province of British Columbia, Canada. The Company is fully
licensed to conduct its business in the Province. The Company is unable to
assess or predict at this time what effect the regulations or legislation could
have on its activities in the future.

(a) Local regulation

The Company cannot determine to what extent its future operations and
earnings may be affected by new legislation, new regulations or changes in
existing regulations on a local level in Canada.

(b) National regulation

The Company cannot determine to what extent its future operations and
earnings may be affected by new legislation, new regulations or changes in
existing regulations on a national level. (See Discussion of such laws
previously under "Regulations of Internet Operations").

The value of the Company investments in PRC may be adversely affected by
significant political, economic and social uncertainties in the PRC. Any changes
in the policies by the government of the PRC could adversely affect the Company
by, among other factors, changes in laws, regulations or the interpretation
thereof, confiscatory taxation, restrictions on currency conversion, the
expropriation or nationalization of private enterprises, or political
relationships with other countries.

Parent:

XIN NET CORP., a Florida corporation

Subsidiaries:

INFORNET INVESTMENT CORP., a British Columbia corporation (100%)
INFORNET INVESTMENT LTD., a Hong Kong corporation (100%)
XIN BIZ Corp (100% owned BVI Corp.) (Dormant)
XIN BIZ Limited (a Hong Kong Corp) (100% owned subsidiary of XIN BIZ Corp.)
(Dormant)
WINDSOR EDUCATION ACADEMY, INC. (51% owned British Columbia Corp.)
DAWA BUSINESS GROUP INC. (51% owned British Columbia Corp.)

The Company is a minority shareholder of THE LINK GROUP, INC. (formerly
called World Envirotech, Inc.) See Company 2003 Financial Statement, Note 6.

Number of Persons Employed:

As of December 31, 2003, the Company had five employees, Xiao-qing Du, Xin
Wei, Ming Ming Lu, Hui Chen, and Shanshan Hu through Infornet Investment Corp.,
involved in the day-to-day management of its business: Du, Chen, and Hu partly
in Canada and partly in China, and Lu in Canada, and Wei in China.

BUSINESS SEGMENTS

Pending Acquisition in 2004
---------------------------

During the year, the Company had revenues in two segments:

Windsor - ESL Education $280,723
Dawa - Chinese Language News $194,586

The cost of revenue in each segment was:

Windsor $134,340
Dawa $72,279

The gross profit from each of the business segments was:

Windsor $146,383
Dawa $122,307
--------
$268,690

Note: The Registrant owns 51% of the equity in each of Windsor and Dawa.
While revenues and costs of revenues are consolidated for reporting purposes, a
49% minority interest in the two companies exists, which, in effect, reduces the
allocable gross profit by 49% or $131,658.

The Company has entered into a Definitive Agreement to acquire 51% of a SMS
provider in China, Beijing Quicknet Telecommunications Corp. Ltd. (Beijing
Quicknet), from non-affiliates. In order to comply with current Chinese law, the
Company will acquire 49% immediately upon closing and will retain the right to
acquire the 2% as soon as it is able to obtain Government approval or achieve a
legal structure (under Chinese law) which allows control of the 2% (thereby
aggregating 51%).

On Closing Date, the Company will acquire 49% of Beijing Quicknet for a price of
U$3,060,000 (three million and sixty thousand US dollars) in form of issuing
6,120,000 (six million one hundred and twenty thousand) common shares of the
Company's stock at a deemed price of US$0.50 per share. The remaining 2% will be
conveyed for US$100 when either of the following is completed to the
satisfaction of the Company (1) the appropriate government ministry in China
approving the transfer of the 2%, or (2) an acceptable legal mechanism for the
transfer of the 2% ownership is arranged. Furthermore, the Company has the
option to acquire the remaining 49% of Beijing Quicknet within 2 years from the
Closing Date. If the Company exercises the option to purchase the remaining 49%
of Beijing Quicknet within first year from the Closing Date, the purchase price
will be US$4,000,000 (four million US dollars); if the Company exercises the
option to purchase the remaining 49% of Beijing Quicknet within the second year
from the Closing Date, the purchase price will be US$5,000,000 (five million US
dollars).

The Company will have the right to appoint all of the directors of Beijing
Quicknet after the closing.

ITEM 2. PROPERTIES
------------------

Xin Net Corp. currently maintains an office at: #900 - 789 West Pender
Street, Vancouver, B.C. Canada V6C 1H2 (telephone number is 1-604-632-9638). It
also has an office, as part of the joint venture, in Beijing at Room 1858, New
Century Office Tower, No. 6, Southern Road Capital Gym, Beijing 100044, China.
Other Xin Hai/joint venture offices are in Guangzhou, Shanghai, Chengdu, Nanjing
and Shenyang. Windsor Academy currently rents spaces at 7900 Alderbridge Way,
Unit 100, Richmond, BC, Canada.

As of December 31, 2003, the Xin Net Corp. had the following tangible assets.
(The amount is quoted in US Dollar)

(a) Real Estate: None

(b) Computers and Office Equipment: $13,438

ITEM 3. LEGAL PROCEEDINGS
-------------------------

On August 7, 2003, Xin Net Corp. was named as a defendant in the
Supreme Court of British Columbia seeking C$40,313 (US$29,744) allegedly due on
the contract between Edward Kheng Yoong Lee, Sidney Pak Lai Ho, Ricky Chung Hou
NG, and Lilian Lee ("Plaintiffs") and XIN NET Corp. for the sale of Windsor
Education Academy, Inc. XIN NET Corp. intends to vigorously defend the claim.

The Company does not believe the amount involved or the outcome to be
material.

No director, officer or affiliate of Xin Net Corp., and no owner of record or
beneficial owner of more than 5.0% of the securities of the Company, or any
associate of any such director, officer or security holder is a party adverse to
Xin Net Corp. or has a material interest adverse to it in reference to pending
litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------

No matters were submitted during the fiscal year covered by this report to a
vote of security holders of Xin Net Corp., through the solicitation of proxies
or otherwise.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
--------------------------------------------------------------------------------

(a) The Company common stock is traded on the Bulletin Board under the trad-
ing symbol XNET. The following table sets forth high and low bid prices of the
its common stock for years ended December 31, 2002 and December 31, 2003 as
follows:

Bid (U.S. $)

HIGH LOW
---- ---

2003
----
First Quarter 0.34 0.045
Second Quarter 0.29 0.04
Third Quarter 0.29 0.10
Fourth Quarter 0.20 0.09

2002
-----
First Quarter 0.38 0.21
Second Quarter 0.28 0.08
Third Quarter 0.18 0.06
Fourth Quarter 0.15 0.05

The Company shares trade on the Over the Counter Bulletin Board. Quotations,
if made, represent only prices between dealers and do not include retail
markups, markdowns or commissions and accordingly, may not represent actual
transactions.

Because of recent changes in the rules and regulations governing the trading
of small issuers securities, the Company's securities are presently classified
as "Penny Stock," which classification places significant restrictions upon
broker-dealers desiring to make a market in these securities. It has been
difficult for management to interest any broker-dealers in our securities and it
is anticipated that these difficulties will continue until the Company is able
to obtain a listing on NASDAQ at which time market makers may trade its
securities without complying with the stringent requirements. The existence of
market quotations should not be considered evidence of the "established public
trading market." The public trading market is presently limited as to number of
market markers in Company stock and the number of states within which its stock
is permitted to be traded.

(b) As of December 31, 2003, Xin Net Corp. had approximately 5000
shareholders of record of the common stock.

(c) No dividends on outstanding common stock have ever been paid. The Company
does presently have any plans regarding payment of dividends in the foreseeable
future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR RESULTS OF OPERATIONS
----------------------------------------------------------------------

The information presented here should be read in conjunction with Xin Net
Corp's consolidated financial statements and related notes. With the pending
sale of the Chinese Internet operations, the figures presented in the financial
statements are significantly different from the previous year.

CHANGES IN FINANCIAL CONDITION AND BUSINESS

On December 10, 2002, Xin Net Corp. acquired Windsor Education Academy
Inc., a Richmond, British Columbia based school specializing in English as a
Second Language (ESL) courses to foreign students. Total consideration was
C$200,000 (about US$128,00).

On February 26, 2003, the Company sold the interest in Xin Net Telecom Corp.,
the domain name registration business of the Company to a non-affiliated party
("Sino-i.com Limited")and received RMB20 million (approximately U$2.4 million).

On July 3, 2003, the Company has acquired 51% of Dawa Business Group Inc.
("Dawa") in exchange for 49% of Xin Net's subsidiary Windsor Education Academy
Inc. ("Windsor").

The Company has redirected its resources to the education and training field
since the beginning of 2003. The Company helped Windsor to expand locally as
well as internationally into China. For the past 12 months, revenues generated
from both Windsor and Dawa are in line with the revenues in the previous year.
Although Windsor has signed agreements with Chinese schools in various courses,
due to the strict Visa application rule, none of the overseas students have been
permitted to enter Windsor, thus generating no revenue stream from overseas
students.

For the education services side, the Company is using working capital from the
Domain Name sale to explore the local market, launch new courses, set up new
market campaign, sign up with Universities to offer courses in order to get
University degree, sign up with more agents, both domestic and international
and provide marketing materials and financial support to those agents.

Changes in Financial Condition:

At December 31, 2003, the Company's assets had increased to $6,320,612 compared
to $3,918,160 at December 31, 2002. The current assets totaled $5,866,214 at
2003 year-end compared to $3,460,530 at 2002 year-end. Total liabilities at
year-end 2003 were $5,870,451 compared to $3,176,765 at 2002 year-end. At
December 31, 2003 the Company had $ 3,303,677 in cash compared to $957,133 a
year ago. All the major changes are due to the pending sale of the Internet
related ChinaDNS businesses in China.

FUTURE PLANS

On Feb 15, 2004, the Company has entered into a Definitive Agreement to acquire
51% of a SMS provider in China, Beijing Quicknet Telecommunications Corp. Ltd.
(Beijing Quicknet), from non-affiliates. In order to comply with current Chinese
law, the Company will acquire 49% immediately upon closing and will retain the
right to acquire the 2% as soon as it is able to obtain Government approval or
achieve a legal structure (under Chinese law) which allows control of the 2%
(thereby aggregating 51%).

The Company has accumulated more than 300,000 corporate accounts from its
previous domain name registration and web hosting services in China. The Company
wants to continue pursuing in Internet related businesses in China. Acquisition
of Beijing Quicknet gives the Company an opportunity to capitalize in this
rapidly growing market, it also gives the chance for Beijing Quicknet to utilize
these corporate accounts and generate more revenue stream.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2002.

With the pending sale of the Chinese Internet operations and the new acquired
subsidiaries, the figures presented in the financial statements are
significantly different from the previous year.

Revenues. The Company achieved revenues of $475,309 in 2003 in the form of net
sales of education courses (Windsor) and advertisement from the newspaper from
its subsidiaries. The Company had operating cost of $668,369 in 2003, resulting
in a loss of $193,060.

BUSINESS SEGMENTS

Pending Acquisition in 2004
---------------------------

During the year, the Company had revenues in two segments:

Windsor - ESL Education $280,723
Dawa - Chinese Language news $194,586

The cost of revenue in each segment was:

Windsor $134,340
Dawa $72,279

The gross profit from each of the business segments was:

Windsor $146,383
Dawa $122,307
--------
$268,690

Operating Expenses. The Company incurred operating expenses of $461,750 in 2003
compared to operating expenses of $191,269 in 2002 due to the acquisition of the
two subsidiaries.

Loss from continuing operations. Loss from continuing operations for 2003 was
$197,943 in contrast to the 2002 operating loss of $653,744. A significant
contributor to the decrease in loss from continuing operations is we treat the
investment in The Link Group as equity. The loss in 2002 from The Link Group,
Inc. was U$480,700.

Loss from discontinued operations. Loss from discontinued operations in 2003 was
$116,334 representing the results of the internet related services operations in
China pending shareholder approval.

Net Loss. The net loss in 2003 was $ 314,277 compared to the net loss in 2002
of $ 907,779. The per share loss for 2003 was $0.01, and the per share loss for
2002 was $0.04.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash capital of $3,303,677 at year-end 2003.

The Company has no other capital resources other than the ability to use its
common stock to achieve additional capital raising. Other than cash capital, its
other assets would be illiquid.

At the fiscal year-end it had $5,866,214 in current assets and current
liabilities of $5,870,451.

The cash capital at the end of the period of $3,303,677 will be used to fund
continuing operations. The sale of the ChinaDNS assets has provided more than
US$2 million in working capital.

Net cash flows used in operating activities increased to $2,253,318 in 2003 from
$(101,446) in 2002 mainly from the sale of the ChinaDNS business which brings in
$2,416,200. The account receivable increased to $95,465 in 2003, as compared to
nil in 2002 is because of the increased advertisement revenue from Dawa and the
collection of this advertisement revenue hasn't been done on time.

Net cash flows used in investing activities in 2003 was $(5,525), representing
there was no major investment made in 2003.

Net cash flows provided by financing activities for 2003 was nil.

The Company has revenues from its subsidiaries: Windsor Education Academy
("Windsor")and Dawa Business News Group Inc. ("Dawa")at this time. However
capital from private placements, borrowing against assets and/or from warrants
being exercised by warrant holders, is required to fund future operations.

On March 15, 2001 the Company amended both the Series "A" and Series "B"
warrants as follows:

- the exercise price of the Series "A" warrants is adjusted to $1.00 each and
their term is extended to the earlier of (a) March 31, 2003 and (b) the 90th day
after the day on which the weighted average trading price of Xin Net Corp.'s
shares exceeds $1.25 per share for ten consecutive days;
- upon exercise of one Series "A" warrant at $1.00, the holder will receive
one Xin Net Corp. common share and one Series "B" warrant;
- the exercise price of the Series "B" warrants is adjusted to $1.50 each and
their term is extended to the earlier of (a) March 31, 2004 and (b) one year
after the 90th day occurrence described above.

On April 1, 2003 the Company amended both the Series "A" and Series "B" warrants
as follows:

(i) the exercise price of the Series "A" Share Purchase Warrants is
adjusted to $0.50 each and their term is extended to March 31, 2005 ;

(ii) upon exercise of one Series "A" Share Purchase Warrant at $0.50,
the holder will receive one common share of the Company and one Series
"B" Share Purchase Warrant; and

(iii) the exercise price of the Series "B" Share Purchase Warrants is
adjusted to $0.75 each and their term is extended to March 31, 2006;

(iv) upon exercise of one Series "B" Share Purchase Warrant at $0.75,
the holder will receive one common share of the Company.

Outstanding warrants are not included in the "Liquidity and Capital Resources"
and they are not valued in the financial statements.

The Company spent U$600,300 for Link Group in 2001, spent U$129,450 for Windsor
in 2002. We have a share swap in 2003 to acquire 51% of Dawa, and reduce our
interests in Windsor from 100% to 51%.

Need for Additional Financing:

The Company believes it has sufficient capital to meet its short-term cash
needs, including the costs of compliance with the continuing reporting
requirements of the Securities Exchange Act of 1934. But it will have to seek
loans or equity placements to cover longer term cash needs to continue
operations and expansion.

No commitments to provide additional funds have been made by management or other
stockholders. Accordingly, there can be no assurance that any additional funds
will be available to the Company to allow it to cover operations expenses.

If future revenue declines, or operations are unprofitable, it will be forced to
develop another line of business, or to finance its operations through the sale
of assets it has, or enter into the sale of stock for additional capital, none
of which may be feasible when needed. The Company has no specific management
ability, nor financial resources or plans to enter any other business as of this
date.

From the aspect of whether it can continue toward the business goal of maintain
-ing and expanding the businesses in Canada and develop new business of SMS
services in China, it may use all of its available capital without generating a
profit.

The effects of inflation have not had a material impact on its operation, nor is
it expected to in the immediate future.

Although the Company is unaware of any major seasonal aspect that would have a
material effect on the financial condition or results of operation, the first
quarter of each fiscal year is always a financial concern. It is not uncommon
for companies to shut down their operation or operate on a skeletal crew during
the Chinese New Year holiday.

Market Risk:

The Company does not hold any derivatives or investments that are subject to
market risk. The carrying values of any financial instruments, approximate fair
value as of those dates because of the relatively short-term maturity of these
instruments which eliminates any potential market risk associated with such
instruments.

Future Trends:

For the Education Services side, we have operated for over a year now, the
competition is very fierce in the market. The Canadian government has tighten
its budget on English training for new immigrants, which leads to reduced
government funding for Windsor, this will have negative effects to the revenue
of Windsor Education Academy. Canadian government also adopts more strict system
to choose schools that can be funded by the government and every school needs to
re-register with the government. There is no assurance that Windsor Education
Academy will continue receiving government funding in the coming years.

For the Dawa News Business Group Services side, the Company commenced operations
in 2003 and based on the industry research available, there is fierce competi-
tion in the market. As more competitors come up in the market, competition on
advertisement price, which is the main revenue stream for the News Services,
become unfavorable to the Company. There is no assurance that the News business
will continue to be profitable. According to the agreement signed between the
Company and Dawa News Press, the Company has the right to reverse the agreement
by disposing its interest in the News business, in exchange for regaining 49%
interest in the Education business.

Recent Accounting Pronouncements:

The FASB issued the following pronouncements, none of which are expected to have
a significant affect on the financial statements:

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 requires companies to record
liabilities for costs associated with exit or disposal activities to be
recognized only when the liability is incurred instead of at the date of
commitment to an exit or disposal activity. Adoption of this standard is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this standard will not have a material impact on the
Company's financial statements.

In October 2002, the FASB issued SFAS No. 147 - "Acquisitions of Certain
Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9," which applies to the acquisition of all or part of a
financial institution, except for a transaction between two or more mutual
enterprises. SFAS No. 147 removes the requirement in SFAS No. 72 and
Interpretation 9 thereto, to recognize and amortize any excess of the fair value
of liabilities assumed over the fair value of tangible and identifiable
intangible assets acquired as an unidentifiable intangible asset. This statement
requires that those transactions be accounted for in accordance with SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." In addition, this statement amends SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include certain financial
institution-related intangible assets. This statement is effective for
acquisitions for which the date of acquisition is on or after October 1, 2002,
and is not applicable to the Company.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amending FASB No. 123, and "Accounting
for Stock-Based Compensation". This statement amends Statement No. 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 amends APB Opinion No. 28 "Interim Financial
Reporting" to require disclosure about those effects in interim financial
information. The Company will adopt the disclosure provisions and the amendment
to APB No. 28 are effective for interim periods beginning after December 15,
2002.

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21 "Revenue Arrangements with Multiple Deliverables". EITF No.
00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and rights to use assets.
The provisions of EITF No. 00-21 will apply to revenue arrangements entered into
in the fiscal periods beginning after June 15, 2003. The Company is currently
evaluating the impact EITF No. 00-21 will have on its financial position and
results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51". FIN46 requires
certain variable interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN46 is effective for all
new interest entities created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1, 2003, the provisions
of FIN46 must be applied for the first interim or annual period beginning after
June 15, 2003. Management is currently evaluating the effect that the adoption
of FIN46 will have on its results of operations and financial condition.
Adequate disclosure has been made for all off balance sheet arrangements that it
is reasonably possible to consolidate under FIN46.

The American Institute of Certified Public Accountants has issued an exposure
draft SOP "Accounting for Certain Costs and Activities Related to Property,
Plant and Equipment ("PP&E")". This proposed SOP applies to all non-government
entities that acquire, construct or replace tangible property, plant and
equipment including lessors and lessees. A significant element of the SOP
requires that entities use component accounting retroactively for all PP&E
assets to the extent future component replacement will be capitalized. At
adoption, entities would have to option to apply component accounting
retroactively for all PP&E assets, to the extent applicable, or to apply
component accounting as an entity incurs capitalizable costs that replace all or
a portion of PP&E. The Company cannot evaluate the ultimate impact of this
exposure draft until it becomes final.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

The response to this item is included as a separate exhibit to this report.
Please see pages F-1 through F-19.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------
None.

ITEM 8A. CONTROLS AND PROCEEDURES
----------------------------------

The management of the company has evaluated the effectiveness of the
issuer's disclosure controls and procedures as of a date within 90 days prior to
the filing date of the report (evaluation date) and have concluded that the
disclosure controls and procedures are adequate and effective based upon their
evaluation as of the evaluation date.

There were no significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of the
most recent evaluation of such, including any corrective actions with regard to
significant deficiencies and material weaknesses.

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS AND SIGNIFICANT MEMBERS OF MANAGEMENT
------------------------------------------------------------------------------

(a) The following table furnishes the information concerning Company
directors and officers as of the date of this report. The directors of the
Registrant are elected every year and serve until their successors are elected
and qualify.

NAME AGE TITLE TERM

Xiao-qing Du 33 President Annual
and Director

Ernest Cheung 53 Director and Secretary Annual

Maurice Tsakok 52 Director Annual

Xin Wei 34 President of Xin Hai Annual
Technology Development Ltd.
(The joint venture partner in China)

The following table sets forth the portion of their time the directors devote
to the Company:

Ernest Cheung 20% Angela Du 100%
Maurice Tsakok 20%

The term of office for each director is one (1) year, or until his/her
successor is elected at the Company annual meeting and is qualified. The term of
office for each of the officers is at the pleasure of the Board of Directors.

(b) Identification of Certain Significant Employees.

Strategic matters and critical decisions are handled by Company directors
and executive officers: Xiao-qing Du, Ernest Cheung and Maurice Tsakok.
Day-to-day management is delegated to Xiao-qing (Angela) Du partly in China and
partly in Canada and Xin Wei in China. Du and Wei are employees of the
wholly-owned subsidiary, Infornet Investment Corp. Xin Wei occupies the position
of President of Xin Hai Technology Development, Ltd. and is also a director of
the Xin Net Telecom Corp. Ltd. (formerly Placer) joint venture. His time is
split approximately 60% Xin Hai (operations) and 40% Xin Net Telecom Corp. Ltd.
(strategies, planning, business development).

(d) Business Experience.

The following is a brief account of the business experience during the past
five years of each of the Company directors and executive officers, including
principal occupations and employment during that period and the name and
principal business of any corporation or other organization in which such
occupation and employment were carried on.

XIAO-QING (ANGELA) DU, President of subsidiary Infornet Investment Corp.
and Director, age 33, was President and Director of our company from 1996 to
April 1999. She received a Bachelor of Science in International Finance in 1992
from East China Normal University. She received a Master of Science in Finance
and Management Science in 1996 from the University of Saskatchewan Canada. She
has been Business Manager of China Machinery & Equipment I/E Corp. (CMEC) from
1992 to 1994. She is now President of Infornet Investment CORP., the Company's
wholly owned subsidiary in Canada, and now is president and director of the
Company.

ERNEST CHEUNG, Secretary and Director, age 53, has been Secretary of the
company since May 1998. He received a B.A. in Math in 1973 from University of
Waterloo Ontario. He received an MBA in Finance and Marketing from Queen's
University, Ontario in 1975. From 1991 to 1993 he was Vice President of Midland
Walwyn Capital, Inc. of Toronto, Canada, now known as Merrill Lynch Canada. From
1992 until 1995 he served as Vice President and Director of Tele Pacific
International Communications Corp. He has also served as President for Richco
Investors, Inc. since 1995. He has been a director of the Company since 1996. He
is currently a Director of Agro International Holdings, Inc. since 1997, Spur
Ventures, Inc. since 1997, Richco Investors, Inc. since 1995 and Drucker
Industries, Inc. since 1997. In 2000, he became President and a Director of
China NetTV Holdings, Inc. In 2002, he became a Director of The Link Group, Inc.
(Formerly World Envirotech, Inc.).

Mr. Cheung is an officer or director in the following public companies:

Name of Issuer Symbol Market Position From To Business
-------------- ------ ------ -------- ---- -- --------

Agro International Holdings Inc. AOH CDNX President Jan-97 Current Agriculture
China NetTV Holdings Inc.* CTVH OTCBB President May-00 2003 Set-Top Box Technology
Drucker, Inc.*. DKIN OTCBB Secretary Apr-97 2003 Oil & Gas
ITI World Investment Group Inc. IWI.A CDNX Jun-98 Current Beverage Distribution
NetNation Communications Inc. NNCI Nasdaq Small Cap. Apr-99 Current Domain Name
Registration
Richco Investors Inc. YRU.A CDNX President May-95 Current Financial, Management,
Capital Market Services
Spur Ventures Inc. SVU CDNX Mar-97 Current Fertilizer
The Link Group Inc.* LNKG OTCBB Secretary Dec-01 Current Internet Surveillance
Xin Net Corp.* XNET OTCBB Secretary Mar-97 Current China Internet

* Reporting Companies in US

He has held a Canadian Securities license but is currently inactive. He
has been a Director and Secretary of Registrant since January 1997.

MAURICE TSAKOK, Director (since 1997), age 52, was employed from 1994 to
1996 by Sagit Mutual Funds, a mutual fund company, who as a vice-president was
responsible for computer operations and research on global technology companies.
From 1997 to present, he acted as a consultant on the high-tech industry and
provides technical analysis on high-tech companies. He holds a Mechanical
Engineering degree (1974 University of Minnesota) as well as an MBA specializing
in Management Information Systems (MIS) (1976 Hofstra University). In 2000, he
became a Director of China NetTV Holdings, Inc. In 2002, he became a Director of
The Link Group, Inc. (formerly World Envirotech, Inc.).

(e) Committees of the Board of Directors

The Board of Directors does not have a nominating committee. Therefore, the
selection of persons or election to the Board of Directors was neither
independently made nor negotiated at arm's length.

Compensation Committee. The Company established a Compensation Committee on
October 5, 1999, which consists of two directors, Angela Du and Ernest Cheung.
The Compensation Committee will be responsible for reviewing general policy
matters relating to compensation and benefits of directors and officers,
determining the total compensation of its officers and directors.

Audit Committee. On August 31, 1999, the Board of Directors established an
Audit Committee, which consists of two directors, Angela Du and Ernest Cheung.
The Audit Committee will be charged with recommending the engagement of
independent accountants to audit Company financial statements, discussing the
scope and results of the audit with the independent accountants, reviewing the
functions of Company management and independent accountants pertaining to its
financial statements and performing other related duties and functions as are
deemed appropriate by the Audit Committee and the Board of Directors.

Qualified Financial Expert. The Company has not hired a qualified financial
expert and will only do so when operations warrant the expenditure for such
experts.

(f) Resolution of conflicts of interest

As mentioned earlier, some officers and directors will not devote more than a
portion of their time to the affairs of the Company. There will be occasions
when the time requirements of Company business conflict with the demands of
their other business and investment activities. Such conflict may require that
the Company attempt to employ additional personnel. There is no assurance that
the services of such persons will be available or that they can be obtained upon
terms favorable to the Company.

There is no procedure in place which would allow Company officers or
directors to resolve potential conflicts in an arms-length fashion. Accordingly,
they will be required to use their discretion to resolve them in a manner which
they consider appropriate.

Code of Ethics. The Company has not adopted a Code of Ethics.

ITEM 10. EXECUTIVE COMPENSATION AND COMPLIANCE WITH SECTION 16(a)
-----------------------------------------------------------------

(a) Officers' Compensation

Compensation paid by the Company for all services provided up to December 31,
2003, (1) to each of the executive officers and (2) to all officers as a group.

SUMMARY COMPENSATION TABLE OF EXECUTIVES
Cash Compensation Security Grants
----------------------------------------------------------------------------------------------------------

Name and Year Salary Bonus Annual Restricted Securities Long Term LTIP All Other
Principal Compensation Stock Underlying Compensation/ Payments Compensation
/Other($) Awards Options/ Options
Position SARs(#)
(SHARES)
----------------------------------------------------------------------------------------------------------
Xiao-qing Du 2000 30,000 0 0 0 0 0 0 0
President of 2001 32,084 0 0 0 0 0 0 0
Infornet 2002 4,809 0 0 0 0 0 0 0
Subsidiary (CDN)
2003 0 0 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------------------
Ernest Cheung 2000 0 0 24,000 0 0 0 0 0
Secretary 2001 0 0 24,000 0 0 0 0 0
2002 0 0 24,000 0 0 0 0 0
(CDN)
2003 0 0 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------------------
Officers as 2000 30,000 0 24,000 0 0 0 0 0
A Group 2001 32,084 0 24,000 0 0 0 0 0
2002 4,809 0 24,000 0 0 0 0 0
(CDN) (CDN)
2003 0 0 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------------------

(1)Ernest Cheung received 50,000 options to buy 50,000 shares at $1.30 per
share, plus Richco Investors, Inc. of which Mr. Cheung is an officer and
director, and Mr. Tsakok is an officer and director, received 385,000 units for
its services in structuring the private placement. The "unit" is defined in Item
6 under "Liquidity and Capital Resources".

(2) 262,000 options to buy 262,000 shares at $1.30 per share.

(3) See Note (g) under "Stock purchase options" following Summary
Compensation Tables of Directors.

There have been no Option/SAR grants or exercises in the last fiscal year
reportable under Reg. S-B, 402(c) or (d).

(b) Directors' Compensation

Directors who are also officers of Xin Net Corp. receive no cash compensation
for services as a director. However, the directors will be reimbursed for
out-of-pocket expenses incurred in connection with attendance at board and
committee meetings. The Company has granted options to directors under its Stock
Incentive Plan subsequently adopted.

SUMMARY COMPENSATION TABLE OF DIRECTORS
(To December 31, 2003)
Cash Compensation Security Grants
-------------------------------------------------------------------------------------------------------------

Name and Year Annual Meeting Consulting Number Securities LTIP All Other
Principal retainer Fees ($) Fees/Other of Underlying Payments Compensation
Position Fees ($) Fees($) Shares (#) Options/SARs(#)
(SHARES)
------------------------------------------------------------------------------------------------------------
Xiao-qing Du, 2000 0 0 0 0 0 0 0
Director 2001 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------------------
Ernest Cheung, 2000 0 0 0 0 0 0 0
Director 2001 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0
------------------------------------------------------------------------------------------------------------
Maurice Tsakok 2000 0 0 24,000 CDN 0 0 0 0
Director 2001 0 0 24,000 CDN 0 0 0 0
2002 0 0 24,000 CDN 0 0 0 0
2003 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------------------
Directors as a 2000 0 0 53,500 CDN 0 0 0 0
group 2001 0 0 84,000 CDN 0 0 0 0
2002 0 0 54,000 CDN 0 0 0 0
2003 0 0 0 0 0 0 0
------------------------------------------------------------------------------------------------------------

There have been no Option/SAR grants or exercises in the last fiscal year
reportable under Reg. S-B, 402(c) or (d).

Termination of Employment and Change of Control Arrangements:

None.

Stock purchase options:

On February 26, 1999, stock options for a total of 480,000 shares at $.40 per
share were granted to officers and employees (or persons who became officers)
that had contributed to the success of the company in the past: Marc Hung
(150,000 shares) and Xin Wei (330,000 shares) (Note: Mr. Wei is not an officer
of Xin Net Corp., but an employee and officer of its subsidiary, Infornet
Investment Corp.) All share options were exercised as of April 6, 1999.

On November 12, 1999 the Company granted 2,136,000 options to purchase shares
at $1.30 per share to entities/persons who contributed to the successful results
achieved by the Company in 1999, as follows:

(a) 262,000 options to Gemsco Management Ltd., beneficially Maurice
Tsakok, for designing and implementing the Company's corporate
website, advising on technological matters, researching the technology
sector and for services as a director;
(b) 262,000 options to Farmind Link Corp. for their role as advisor on
strategic issues, technology market trends, and financial and capital
market issues;
(c) 262,000 options to Sinhoy Management Ltd., beneficially Marc Hung, for
their contributions to the general management of our company, investor
relations, technological matters and for services as a director;
(d) 212,000 options to Lancaster Pacific Investment, Ltd. for their
contributions in the areas of regulatory matters, Chinese market
conditions and strategies aimed at penetrating that market;
(e) 50,000 options to Ernest Cheung for services rendered as secretary and
director;
(f) 20,000 options to Yonderiche International Consultants Ltd. for
services rendered in matters regarding Chinese government policies and
regulations; and
(g) 1,068,000 options to Weststar Holdings Limited (owned beneficially by
Xiao-qing Du, a director and president of Infornet Investment Corp.,
and Xin Wei, a director and secretary of Infornet Investment Corp. and
President of Xin Hai) and employees of Xin Hai Technology Development
Ltd., as a group, for the successful continued development of the
business in China and achieving excellent operational results during
the year. The breakdown of the 1,068,000 options is to be determined
at a later date.

The average closing price of the Company's stock for the five trading days
ended on November 12, 1999 was $1.28 per share. The closing price for the
Company's stock on November 12, 1999 was $1.187 per share.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors, and greater than ten percent stockholders are
required by regulation to furnish to the Company copies of all Section 16(s)
forms they file.

No person failed to file forms on a timely basis during the past fiscal
year as required under Section 16(a) based upon information available to the
Company.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

Section 16(a) of the Securities Exchange Act of 1934, as amended (The
"Exchange Act"), requires Company officers and directors, and persons who own
more than 10% of a registered class of the its equity securities, to file
reports of ownership and changes in ownership of Company equity securities with
the Securities and Exchange Commission and NASDAQ. Officers, directors and
greater-than 10% shareholders are required by the Securities and Exchange
Commission regulation to furnish to the Company with copies of all Section 16(a)
that they file.

(a) Beneficial owners of five percent (5%) or greater, of Company common
stock: The following sets forth information with respect to ownership by holders
of more than five percent (5%) of its common stock known by the Company based
upon 41,360,010 shares outstanding at December 31, 2003, and in the event of
exercise of all options for our stock.

Common Xiao-qing Du
Stock Ste. 830-789 West Pender St. 2,760,000 6.7% 5.2% 4.3%
Vancouver, BC V6C 1H2 (2)
Common Richco Investors, Inc. 5,611,500 13.5% 10.6% 8.7%
Stock Ste. 830-789 West Pender St. (1)(3)(4)(7)(8)
Vancouver, BC V6C 1H2
Common Ernest Cheung 5,349,500 12.9% 10.6% 8.3%
Stock Ste. 830-789 West Pender St. (1)(3)(6)(7)(8)
Vancouver, BC V6C 1H2
Common Maurice Tsakok 4,991,500 12.0% 9.5% 7.7%
Stock Ste. 830-789 West Pender St. (1)(3)(5)(8)
Vancouver, BC V6C 1H2

(b) The following sets forth information with respect to the Company common
stock beneficially owned by each Officer and Director, and by all Directors and
Officers as a group, at December 31, 2003, and in the event of exercise of all
options for our stock.

Title of Name and Address Amount of Percent of If"A" If "B"
Class of Beneficial Owner Beneficial Interest Class warrants warrants
exercised* exercised**
----------------------------------------------------------------------------------------------------------------------------------
Common Xiao-qing Du (Director) 2,760,000 6.7% 5.2% 4.3%
Stock Ste. 830-789 West Pender St. (2)
Vancouver, B.C. V6C 1H2
Common Ernest Cheung 5,611,500 13.5% 10.6% 8.7%
Stock (Secretary & Director) (1)(3)(4)(7)(8)
(Including Richco Investors above)
Common Maurice Tsakok 5,611,500 13.5% 10.6% 8.7%
Stock (Director) (1)(3)(5)(8)
(Including Richco Investors above)
Total for officers and directors as a group 8,911,500 33.7 26.14 21.7

(1) Richco Investors, Inc., owns 2,559,500 shares. Messrs. Cheung and Tsakok
are officers, directors and beneficial owners of Richco Investors Inc.
For purposes of this table, the shares owned by Richco are deemed owned
by Mr.Cheung and Mr. Tsakok, individually.

(2) As an officer Ms. Du may participate in the company stock option plan and
receive options to purchase shares, but the amount is indeterminate at
this time, since options are awarded by the Award Committee.

(3) Richco Investors has 1,085,000 "A" warrants to purchase shares of common
stock and has 1,085,000 "B" warrants to purchase shares of common stock
*.
(4) Ernest Cheung has 50,000 options to purchase shares at $1.30.

(5) Maurice Tsakok has 262,000 options to purchase shares at $1.30.

(6) Ernest Cheung is President of Development Fund II of Nova Scotia, Inc.
which owns 190,000 common shares and 190,000 "A" warrants and 190,000
"B" warrants.

(7) Includes all shares of Richco Investors, Inc., Ernest Cheung, Maurice
Tsakok, and Development Fund II of Nova Scotia since there is common
control.

(8) Assumes exercise of all warrants and options within 60 days pursuant to
Rule 13(d)3(d)(i).

*If all "A" warrants for units are exercised. **If all "B" warrants for
shares are exercised.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
Equity Investment - The Company's equity investment is with a company (The Link
Group, Inc.) that is under common control with this company.

Options - Of the 2,136,000 stock options outstanding as of December 31, 2003,
1,642,000 options are held by current officers and directors of the Company and
262,000 options are held by the Company's former president, who resigned in
April of 2003.

Warrants - There are 1,275,000 "A" and "B" warrants to purchase shares of common
stock held by two different entities whose director is the same as this Company.
The Company's former President has 80,000 "A" and "B" warrants to purchase
shares of common stock, and a family member of the Company's former President
has 60,000 "A" and "B" warrants to purchase common stock. All of the warrants
are outstanding as of December 31, 2003.

Advances to Joint Venture - The Company has made loans to the joint venture
during the periods presented. These loans bear no interest and are payable on
demand. Total advances to the joint venture as of December 31, 2003 and 2002
were $3,084,544 and $3,152,184, respectively.

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

---------------------------------------------------
(a) Exhibits

10.11 Share Purchase Agreement (Incorporated by reference)
Previously filed 8K 12/24/01
10.1 Investment Banking Agreement (Incorporated by reference)
Previously filed 8K 11/28/01
10.1 Share Exchange Agreement (Incorporated by reference)
Previously filed 8K 10/03/01
3.2 Amended Bylaws (Incorporated by reference)
Previously filed 8K 8/15/01
10.1 Letter of Intent (Incorporated by reference)
Previously filed 8K 8/03/01
10.1 Assets Transfer Agreement (Incorporated by reference)
Previously filed 8K 7/12/01
31.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K.

8-K filed 1-23-03
8-K filed 4-4-03
8-K filed 7-29-03

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

General. Clancy & Co., PLLC. ("C&C") is the Company's principal
auditing accountant firm. The Company's Board of Directors has considered
whether the provisions of audit services is compatible with maintaining C&C's
independence.

Audit Fees. C&C billed the Company for the following professional
services: audit of the annual financial statement of the Company for the fiscal
year ended December 31, 2002 and quarterly review $28,850. C&C billed the
Company $31,230 for the 2003 audit and 2003 quarterly reviews.

There were no audit related fees in 2002 or 2003. C&C billed the Company
$2,050 for tax fees or other fees in 2002. There were no tax fees in 2003.

The Company's Board acts as the audit committee and had no
"pre-approval policies and procedures" in effect for the auditors' engagement
for the audit year 2002 and 2003.

All audit work was performed by the auditors' full time employees.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

DATE: April 15, 2004
XIN NET CORP.

by: /s/ Xiao-qing Du
----------------------------
Xiao-qing Du, President

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.

President, Director and April 15, 2004
/s/ Xiao-qing Du Principal Accounting Officer
------------------
Xiao-qing Du

Secretary, Director and April 15, 2004
/s/ Ernest Cheung Principal Financial Officer
-----------------
Ernest Cheung

/s/ Maurice Tsakok Director April 15, 2004
----------------
Maurice Tsakok

XIN NET CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report............................................................. F-1

Consolidated Balance Sheets.............................................................. F-2

Consolidated Statements of Operations.................................................... F-3

Consolidated Statements of Changes in Stockholders' Equity............................... F-4

Consolidated Statements of Cash Flows.................................................... F-5

Notes to the Consolidated Financial Statements........................................... F-6 - F-17

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Xin Net Corp.

We have audited the consolidated balance sheets of Xin Net Corp. (a Florida
corporation) and Subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Xin Net Corp. and
Subsidiaries at December 31, 2003 and 2002, and the consolidated results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.

/s/ Clancy and Co., P.L.L.C.
Clancy and Co., P.L.L.C.
Phoenix, Arizona

March 12, 2004

F-1

XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
Stated in U.S. dollars 2003 2002
------------------------------------------------------------------------------------------------------------------

ASSETS
Current Assets

Cash and short-term deposits $ 3,303,677 $ 957,133

Investments (Note 4) - 1,266
Accounts receivable, net of allowance of $58,678 95,465 -

Prepaid expenses and other current assets 31,587 22,422

Assets to be disposed of (Note 9) 2,435,485 2,186,337

Net assets of discontinued operations (Note 10) - 293,372
-------------------- ----------------------
Total Current Assets 5,866,214
3,460,530

Investment - at equity (Note 6) 253,524 319,600

Property and Equipment, Net (Note 5) 13,438 10,906

Goodwill (Note 7, 8) 187,436 127,124

-------------------- ----------------------

Total Assets $ 6,320,612 $ 3,918,160
==================== ======================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable and other accrued liabilities $ 225,040 $ 109,044

Deferred revenue 28,354 37,725

Security deposit from Sino-i.com Ltd. (Note 9) 2,416,200 -

Liabilities to be disposed of (Note 9) 3,200,857 2,529,996
-------------------- ----------------------
Total Current Liabilities 5,870,451
3,176,765

Minority Interest 38,147 -

Stockholders' Equity
Common stock : $0.001 par value, authorized: 50,000,000

Issued and outstanding: 41,360,010 shares 41,360 41,360

Additional paid-in capital 8,194,045 8,194,045

Accumulated deficit (7,659,628) (7,345,351)

Accumulated other comprehensive loss (163,763) (148,659)
-------------------- ----------------------
Total Stockholders' Equity 412,014
741,395

-------------------- ----------------------

Total Liabilities and Stockholders' Deficiency $ 6,320,612 $ 3,918,160
==================== ======================

The accompanying notes are an integral part of these financial statements.

F-2

XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Stated in U.S. dollars 2003 2002
------------------------------------------------------------------------------------------------------------------------

Revenue
Tuition fee $ 280,723 $ -
Commercial press 194,586 -
-------------------- ---------------------
475,309 -
Cost of revenue
Tuition fee 134,340 -
Commercial press 72,279 -
-------------------- ---------------------
206,619 -
-------------------- ---------------------

Gross profit 268,690 -

Expenses

Depreciation 8,140 2,221
Consulting and professional 118,338 47,376
General and administrative 104,188 121,311
Rent 74,196 7,285

Salaries, wages and benefits 156,888 13,076
-------------------- ---------------------
461,750 191,269
-------------------- ---------------------
Operating Loss (193,060) (191,269)

Other Income (Expense)
Interest income 15,066 1,272
Other income 7,903 16,953
Bad debt recovery 12,178 -
Equity loss in undistributed earnings of investee company (Note 6) (66,076) (480,700)
-------------------- ---------------------
Total Other Income (Expense) (30,929) (462,475)
-------------------- ---------------------

Loss before Minority Interest, Taxes and Discontinued Operations (223,989) (653,744)
Minority Interest 26,046 -
Provision for Income Taxes - -
-------------------- ---------------------
Loss from Continuing Operations (197,943) (653,744)
-------------------- ---------------------

Discontinued Operations
Loss from Assets Held for Sale (Note 9) (322,987) (254,035)
Gain on disposal of ISP Operation (Note 10) 206,653 -
-------------------- ---------------------
Loss from discontinued operations (116,334)
-------------------- ---------------------

Net Loss Available to Common Stockholders $ (314,277) $ (907,779)
==================== =====================

Loss per share available to common stockholders:
Loss from continuing operations $ (0.01) $ (0.03)
Loss from discontinued operations (0.00) (0.01)
-------------------- ---------------------
Total basic and diluted $ (0.01) $ (0.04)
==================== =====================
Basic and diluted weighted average common shares outstanding: 41,360,010 24,757,270
==================== =====================

The accompanying notes are an integral part of these financial statements.

F-3

XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

Accumulated
Stock Additional Other
Common Amount At Paid-In Accumulated Comprehensive
Stated in U.S. dollars Shares Par Value Capital Deficit Income (Loss) Total
-------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2001 21,360,010 $ 21,360 $ 7,214,045 $ (6,437,572) $ (148,589) $ 649,244

Common stock issued for cash 20,000,000 20,000 980,000 1,000,000

Components of comprehensive loss:
Net loss (907,779) (907,779)
Translation adjustments (70) (70)
----------
Total comprehensive loss (907,849)
----------
----------------------------------------------------------------------------------------------
Balance, December 31, 2002 41,360,010 41,360 8,194,045 (7,345,351) (148,659) 741,395

Components of comprehensive loss:
Net loss (314,277) (314,277)
Translation adjustments (15,104) (15,104)
----------
Total comprehensive loss (329,381)
----------------------------------------------------------------------------------------------
Balance, December 31, 2003 41,360,010 $ 41,360 $ 8,194,045 $ (7,659,628) $ (163,763) $ 412,014
==============================================================================================

The accompanying notes are an integral part of these financial statements.

F-4

XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Stated in U.S. dollars 2003 2002
-------------------------------------------------------------------------------------------------------------

Cash flows from operating activities
Net loss $ (314,277) $ (907,779)
Less: loss from assets held for sale 322,987 254,035
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation 8,140 2,221
Translation adjustments (15,104) (70)
Minority interest (26,046) -
Gain on disposal of ISP operations (206,653) -
Equity loss of investee company 66,076 480,700
Changes in assets and liabilities
(Increase) decrease in accounts receivable (95,465) -
(Increase) decrease in prepaid expenses and other current assets (9,165) 7,328
Increase in accounts payable 115,996 24,394
Increase in deferred revenue (9,371) 37,725
Increase in security deposits 2,416,200 -
-----------------------------------------
Net cash flows used in operating activities 2,253,318 (101,446)

Cash flows from investing activities
Purchases of property and equipment (10,661) (9,379)
Reduction (purchase) in investment 1,266 62,811

Reduction (increase) in loan to ProtectServe Pacific Ltd. - 360,400
Investment in The Link Group, Inc. - (600,300)
Cash acquired in Windsor subsidiary acquisition - 26,739
Cash acquired in Dawa subsidiary acquisition 3,870 -
Cash paid for purchase of Windsor subsidiary - (129,450)
-----------------------------------------
Net cash flows used in investing activities (5,525) (289,179)

Cash flows from financing activities
Principal payments on capital lease obligations - (28,885)

Proceeds from the issuance of common stock - 1,000,000
-----------------------------------------
Net cash flows provided by financing activities - 971,115
-----------------------------------------
Net cash provided by continuing operations 2,247,793 580,490
Net cash provided by (used in) assets held for sale 98,751 (57,572)
-----------------------------------------
Increase (decrease) in cash and cash equivalents 2,346,544 522,918
Cash and cash equivalents - beginning of year 957,133 434,215
-----------------------------------------
Cash and cash equivalents - end of year $ 3,303,677 $ 957,133
=========================================
Cash paid for:
Interest $ 6,565 $ 11,214
=========================================
Income taxes $ 10,978 $ 7,176
=========================================

The accompanying notes are an integral part of these financial statements.

F-5

XIN NET CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Xin Net Corp. ("the Company") was incorporated under the laws of the State of
Florida on September 12, 1996 with an authorized capital of 50,000,000 shares of
$0.001 par value common stock. The Company's principal business activities
include providing education and training courses for foreign students and
commercial publication of a weekly Chinese community newspaper and a monthly
magazine featuring education and employment in Vancouver's Chinese community.
The Company promotes its affiliated educational products through its commercial
publications activities.

Prior to June 2003, the Company provided internet-related services, including
domain name registration, web-hosting and other value-added services, such as
e-commerce and advertising in several major cities in the Peoples Republic of
China ("PRC"). Due to the lack of funding and high competition in the market,
the Company signed an agreement to sell its internet-related services in the PRC
(see Note 9 for details).

Summary of Significant Accounting Policies

Principles of consolidation - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned and majority-owned
subsidiaries. The Company also consolidates the assets, liabilities, revenues
and expenses of the joint venture because it has control over its operating and
financing decisions. All significant inter-company transactions and balances
have been eliminated in consolidation.

Accounting method - The Company's financial statements are prepared using the
accrual method of accounting.

Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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.

Concentration of credit risk - The Company maintains Renminbi cash balances in
banks of the People's Republic of China and U.S. Dollar cash balances in
Canadian and Hong Kong banks that are not insured. Revenues were derived in
geographic locations outside the United States. The ELSA program of Windsor
accounts for 76% of the total tuition fees and 45% of the total revenue of the
Company.

Cash and cash equivalents - Cash equivalents consists of time deposits with
original maturities of three months or less.

Investments - The Company determines the appropriate classification of
marketable debt and equity securities at the time of purchase and reevaluates
such designation as of each balance sheet date. All marketable debt securities
are classified as held-to-maturity and are carried at amortized cost, which
approximates fair value.

F-6

Accounts receivable and allowance for doubtful accounts - Accounts receivable
are recorded net of allowances for doubtful accounts and reserves for returns.
In the normal course of business, the Company extends credit to customers that
satisfy predefined credit criteria. The Company is required to estimate the
collectability of its receivables. Reserves for returns are based on historical
return rates and sales patterns. Allowances for doubtful accounts are
established through the evaluation of accounts receivable agings and prior
collection experience to estimate the ultimate realization of these receivables.

Property and equipment - Property and equipment, stated at cost, is depreciated
under the straight-line method over their estimated useful lives, ranging from
three to seven years.

Goodwill - Goodwill is the excess of the acquisition cost of businesses over the
fair value of the identifiable net assets (tangible and intangible) acquired.
Goodwill acquired has to be evaluated for impairment at the beginning of year
2002 and on an annual basis going forward according to Statement of Financial
Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets".
The standard requires a two-step process to be performed to analyze whether or
not goodwill has been impaired. Step one requires that the fair value to be
compared to book value. If the fair value is higher than the book value, no
impairment is indicated and there is no need to perform the second step of the
process. If the fair value is lower than the book value, step two must be
evaluated. Step two requires a hypothetical purchase price allocation analysis
to be done to reflect a current book value of goodwill. The current value is
then compared to the carrying value of goodwill. If the current fair value is
lower than the carrying value, an impairment must be recorded. Annually, the
goodwill is tested for impairment in the fourth quarter.

Long-lived assets - The Company records impairment losses on long-lived assets
used in operation when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount.

Revenue recognition - The Company's revenues for 2003 consisted of revenues from
education and training services and the commercial printing. In accordance with
S.E.C. Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," the Company recognizes revenue when the following criteria are met:
persuasive evidence that an arrangement exists; delivery has occurred or
services have been rendered; the price to the customer is fixed or determinable;
and collectability is reasonably assured. If all of the above criteria have been
met, revenues are principally recognized upon shipment of products or when
services have been rendered. Revenues derived from education and training are
recognized as the services are performed. Revenues derived from commercial
printing are recognized when the job is delivered to the customer. Amounts
received from customers in advance of revenue recognition are deferred and
classified on the balance sheet as "deferred revenue."

The Company's revenues for 2002, which are included in discontinued operations,
consisted of revenues from domain name registration services and e-solutions.
Revenues derived from domain name registration services are recognized over the
period the services are provided. E-solutions revenues are recognized as the
services are performed or when the goods are delivered and consisted principally
of electronic commerce, software development and developing web-site home pages.

Cost recognition - Cost of revenues includes direct costs to produce products
and provide services.

Deferred revenue and deferred cost - Deferred revenue for 2003 primarily of
education and training revenue received prior to the services being performed.

Deferred revenue for 2002, which is included as a component of "Liabilities to
be disposed of" consists of prepaid domain name registration fees. End users
receive certain elements of the Company's revenues over a period of time. As a
result, the Company's revenue recognized represents the fair value of these
elements over the product's life cycle. Deferred cost for 2002, which is
included as a component of "Assets to be disposed of" consists of amounts paid
to various registrars for domain name registration fees and are deferred on the
same basis as revenue.

Product development costs - In accordance with American Institute of Certified
Public Accountant's ("AICPA") Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,"
computer software costs incurred in the preliminary project stage, such as
direct labor and related overhead, and purchased software and computer equipment
from third parties, are expensed as incurred. Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed," does not materially affect the Company.

F-7

Advertising costs - Advertising costs are expensed as incurred. Total
advertising costs charged to operations amounted to $16,822 for 2003 and $1,075
for 2002. Total advertising costs included in discontinued operations amounted
to $155,075 for 2003 and $168,902 for 2002.

Income taxes - The Company accounts for income taxes under the provisions of
SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income
tax assets and liabilities are computed for differences between the financial
statements and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future, based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary, to reduce
deferred income tax assets to the amount expected to be realized.

Foreign currency translations - The assets and liabilities of the Company's
foreign operations are generally translated into U.S. dollars at current
exchange rates, and revenues and expenses are translated at average exchange
rates for the year. Resulting translation adjustments are reflected as a
separate component of stockholders' equity. Transaction gains and losses that
arise from exchange rate fluctuations on transactions denominated in a currency
other than the functional currency, except those transactions which operate as a
hedge of an identifiable foreign currency commitment or as a hedge of a foreign
currency investment position, are included in the results of operations as
incurred.

Fair value of financial instruments - For certain of the Company's financial
instruments, including cash and cash equivalents, prepaid expenses and other
current assets, accounts payable and other accrued liabilities, and deferred
revenues, the carrying amounts approximate fair value due to their short
maturities.

Business segment information - The Company discloses information about its
reportable segments in accordance with SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company's reportable segments are
geographic areas. The accounting policies of the operating segments are the same
as those for the Company.

Earnings per share - Basic earnings or loss per share are based on the weighted
average number of common shares outstanding. Diluted earnings or loss per share
is based on the weighted average number of common shares outstanding and
dilutive common stock equivalents. Basic earnings/loss per share is computed by
dividing income/loss (numerator) applicable to common stockholders by the
weighted average number of common shares outstanding (denominator) for the
period. All earnings or loss per share amounts in the financial statements are
basic earnings or loss per share, as defined by SFAS No. 128, "Earnings Per
Share." Diluted earnings or loss per share does not differ materially from basic
earnings or loss per share for all periods presented. Convertible securities
that could potentially dilute basic earnings per share in the future such as
options and warrants are not included in the computation of diluted earnings per
share because to do so would be antidilutive. All per share and per share
information are adjusted retroactively to reflect stock splits and changes in
par value.

Stock-based compensation - The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation
cost for stock options, if any, is measured as the excess of the quoted market
price of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock. SFAS No.123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. The Company has elected to remain on its current method of accounting as
described above, and has adopted the disclosure requirements of SFAS No. 123. In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amending FASB No. 123, and "Accounting
for Stock-Based Compensation". This statement amends Statement No. 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 amends APB Opinion No. 28 "Interim Financial
Reporting" to require disclosure about those effects in interim financial
information. The Company adopts the disclosure provisions and the amendment to
APB No. 28 effective for interim periods beginning after December 15, 2002.

F-8

Comprehensive income - The Company includes items of other comprehensive income
(loss) by their nature, such as translation adjustments, in a financial state-
ment and displays the accumulated balance of other comprehensive income separate
-ly from retained earnings and additional paid-in capital in the equity section
of the balance sheet. The company discloses total comprehensive income (loss),
its components and accumulated balances on its statement of stockholders'
equity.

Capital structure - The Company discloses its capital structure in accordance
with SFAS No. 129, "Disclosure of Information about Capital Structure," which
established standards for disclosing information about an entity's capital
structure.

Related party transaction - A related party is generally defined as (i) any
person that holds 10% or more of the Company's securities and their immediate
families, (ii) the Company's management, (iii) someone that directly or
indirectly controls, is controlled by or is under common control with the
Company, or (iv) anyone who can significantly influence the financial and
operating decisions of the Company. A transaction is considered to be a related
party transaction when there is a transfer of resources or obligations between
related parties.

Reclassification - Certain prior period amounts have been reclassified to
conform to the current year presentation. These changes had no effect on
previously reported results of operations or total stockholders' equity. Recent
Accounting Pronouncements - The FASB issued the following pronouncements during
2003, none of which are expected to have a significant affect on the financial
statements:

In January 2003, the Financial Accounting Standard Board issued FASB
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities -
An Interpretation of Accounting Research Bulletin (ARB) No. 51". This
interpretation addressed the requirements for business enterprises to
consolidate related entities in which they are determined to be the primary
economic beneficiary as a result of their variable economic interest. The
interpretation is intended to provide guidance in judging multiple economic
interests in an entity and in determining the primary beneficiary. The
interpretation outlines disclosure requirements for variable interest entities
in existence prior to January 31, 2003, outlines consolidation requirements for
variable interest entities created after January 31, 2003. The company has
reviewed its major commercial relationship and its overall economic interests
with other companies consisting of related parties, manufacture vendors, loan
creditors and other suppliers to determine the extent of its variable economic
interest in these parties. The review has not resulted in a determination that
the Company would be judged to be the primary economic beneficiary in any
material relationships, or that any material entities would be judged to be
variable interest entities of the Company.

In April 2003, the FASB issued SFAS No. 149, "Accounting for Amendment of
Statement 133 on Derivative Instruments and Hedging Activities," which amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is generally effective for
contracts entered into or modified after June 30, 2003, and all provisions
should be applied prospectively. This statement does not affect the Company.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The Company does not believe that the
implementation of SFAS No. 150 will have a material impact on the financial
condition, results of operations or cash flows.

F-9

NOTE 2 - SUBSIDIARIES
---------------------

(1) The Company's wholly-owned subsidiaries are as follows:

a. Infornet Investment Limited (a Hong Kong corporation) ("Infornet HK") is a
telecommunication and management network company providing financial
resources and expertise in telecommunication projects. This subsidiary was
originally incorporated as Micro Express Limited and was acquired at no
cost. The name was changed to Infornet Investment Limited on July 18,
1997.
b. Infornet Investment Corp., (a Canadian corporation) ("Infornet Canada") is
engaged in a similar line of business of the Company. The Company issued
5,000,000 shares of common stock to acquire this subsidiary for a total
value of $65, representing organizational costs and filing fees.
c. Xinbiz (HK) Limited (a Hong Kong corporation) ("Xinbiz Ltd.") and Xinbiz
Corp. (a British Virgin Islands corporation) ("Xinbiz Corp."). Both
subsidiaries were inactive during 2003 and 2002.
d. Windsor Education Academy Inc., (a Canadian Corporation) ("Windsor") is
engaged in providing English as a secondary language training program to
foreign students. (See Note 7)
e. Dawa Business Group Inc. (a Canadian Corporation) ("Dawa") is engaged in
the publication of a weekly Chinese community newspaper and a monthly
magazine featuring education and employment in Vancouver's Chinese
community. (See Note 8)

NOTE 3 - JOINT VENTURE
----------------------

On August 25, 1997, through its wholly-owned subsidiary Infornet HK, under the
laws of the PRC, formed an 80% cooperative joint venture called Xinnet Telecom
Corp., Ltd. (a PRC corporation) with Xin Hai Technology Development Ltd. (a PRC
Corporation) ("Xin Hai") as a 20% partner, for a term of twenty (20) years.
Infornet HK is obligated to contribute all of the capital of the joint venture.
The initial registered capital was $525,000 and was subsequently increased by
$1,000,000 by an amendment to the joint venture agreement dated December 15,
1999, for a total registered capital of $1,525,000. The total registered capital
was increased to $1,750,000 during 2000. Infornet HK has already contributed
this figure and no further capital contribution is required. Infornet HK
continues to advance loans to the joint venture as necessary to fund the
operations of the business.

The joint venture agreement designated distribution of 80% of the profits to
Infornet HK and 20% to Xin Hai, until the recoupment of Infornet HK's invested
capital. On April 25, 2000, the Company amended the joint venture agreement to
reallocate the distribution of profits as 100% to Infornet HK and 0% to Xin Hai,
until Infornet HK's total investment in the joint venture has been fully
recovered by Infornet HK. On April 13, 2000, the joint venture agreement was
amended to give Infornet HK control over the joint venture for another fifteen
(15) years after the recovery of its total investment and interest from external
financing in the joint venture. Infornet HK has, since inception of the joint
venture, and will in the future for fifteen years subsequent to the recovery of
total investment and interest from external financing, approve all board of
directors of the joint venture company. Due to the life of the joint venture,
twenty (20) years, Infornet HK will control the joint venture for substantially
all of the joint venture life.

In accordance with SFAS No. 94, "Consolidation of All Majority-Owned
Subsidiaries," the purchase method is used to account for the investment in the
joint venture because the joint venture company's board of directors is
authorized to make all major decisions for the joint venture and all the
directors of the board are approved by the Company. Therefore, until this point,
100% of the profits and losses are consolidated and no minority interest is
recorded. Total advances to the joint venture as of December 31, 2003 and 2002
were $3,084,544 and $3,152,184, respectively. (See Note 16)

F-10

The Company operates in accordance with the laws and regulations in the PRC,
which allow Sino-foreign joint venture companies to construct Internet access
networks and to have ownership rights, and rights for return on investment, but
disallow joint venture companies to operate such networks. Internet Service
Provider ("ISP") licenses are tightly controlled by the Ministry of Information
Industry of China and provide a substantial barrier to entry. Therefore, Xin Hai
holds the business, including all ISP operating licenses, industrial property
rights, and network. The ownership and title to all of the assets comprising the
Internet network remain with the Company during the term of the joint venture.
Xin Hai is entitled to the custody and control of such assets on behalf of the
Company.

In June 2001, the Board of Directors of the Company decided to discontinue the
unprofitable ISP services in the PRC and the Company's joint venture partner
signed an agreement on June 22, 2001 to sell its ISP operation and related
assets to a private company in Beijing, PRC for sales proceeds of $700,000. The
transaction is subject to the approval of shareholders. (See Note 10)

In February 2003, the Board of Directors of the Company decided to sell the
unprofitable internet-related services in the PRC to a subsidiary company of
Sino-i.com Ltd., a company listed on the Hong Kong Stock Exchange, for total
consideration of RMB 20 million (approximately US$2,500,000). The transaction is
subject to the approval of shareholders. (See Note 9)

NOTE 4 - MARKETABLE DEBT SECURITIES
-----------------------------------

All marketable debt securities are classified as held-to-maturity and carried at
amortized cost. Their estimated fair values approximated their amortized cost
and therefore, there were no significant unrealized gains or losses.

Investments at December 31, 2002, consisted of one Canadian Guarantee Investment
Certificates ("GIC") purchased for $2,000 Canadian Dollars, or $1,266 U.S.
Dollars, with a maturity date of April 14, 2003. Accrued interest receivable at
December 31, 2002 was $14.

NOTE 5 - PROPERTY AND EQUIPMENT
-------------------------------

Property and equipment consists of the following at December 31:

2003 2002
---------------- ---------------
Equipment $ 31,160 $ 20,284
Library 9,554 9,146
Furniture 10,683 8,606
---------------- ---------------
Total 51,397 38,036
Less accumulated depreciation 37,959 27,130
---------------- ---------------
$ 13,438 $ 10,906
================ ===============

F-11

Depreciation charged to operations amounted to $8,140 for 2003 and $2,221 for
2002. Depreciation included in discontinued operations amounted to $125,059 for
2003 and $267,087 for 2002.

NOTE 6 - INVESTMENT - AT EQUITY
-------------------------------

Pursuant to a Share Exchange Agreement dated December 20, 2001, the Company paid
$200,000 cash for 3,882,700 shares of The Link Group, Inc. ("Link") representing
a 71.87% majority ownership interest and accounted for the acquisition under the
purchase method of accounting. The Company accounts for the remaining 28.13%
interest in Link as minority interest in the accompanying consolidated financial
statements. Link is a development stage company traded on the NASDAQ as an
over-the-counter bulletin board company. Goodwill represents the cost in excess
of the net assets acquired of Link. (See Note 16)

Pursuant to a Subscription Agreement dated January 18, 2002, the Company paid
$600,300 in a private placement of Link for 14,500,000 (pre-reverse one for four
split) common shares at $0.0414 per share, as well as 10,875,000 special
warrants convertible into 10,875,000 post-reverse one for four split common
shares on or before January 31, 2004 at no additional consideration. An option
to purchase an additional 7,500,000 post-reverse one for four split common
shares at $0.04 per share, or $300,000, until February 15, 2002, was also
granted to the Company, which was not exercised. The private placement and
option transaction took place with another public company having directors in
common.

Link completed a Share Exchange Agreement dated January 21, 2002 and agreed to
purchase all of the issued and outstanding shares of Protectserve Pacific Ltd.
(a Hong Kong company) ("PSP"). As of December 31, 2001, the Company had advanced
$360,400 to PSP, which was repaid by PSP in January 2002. By an agreement dated
January 21, 2002, Link agreed to purchase all of the outstanding shares of PSP
through the issuance of 37,500,000 (post-reverse one for four split) common
shares. Link had the right to buy back its shares at $0.001 per share from these
individuals if PSP's after tax profit was less than Hong Kong $9 million dollars
("HKD") for the twelve months ending December 31, 2002. The buy back formula was
for every HKD $333,333 that PSP falls short of the HKD $9 million after tax
profit, Link can buy back one million (post-reverse one for four split) common
shares from these individuals.

On February 18, 2002, the shareholders of Link approved the reverse split of the
issued and outstanding common shares of Link at the ratio of one for four,
thereby making the Company's total Link shares held equal to 15,370,675 shares,
representing 28.8% of the total issued and outstanding shares of Link. On
October 14, 2002, Link cancelled 8,300,000 outstanding common shares as part of
the consideration of the disposition of its subsidiary company and thereafter
the Company's holding in Link correspondingly increased to 34.1%. On March 28,
2003, Link issued 3,000,000 common shares and cancelled 14,000,000 common shares
and thereafter the Company's holding in Link correspondingly changed to 24.8%.
On August 5, 2003, Link cancelled 22,200,000 shares pursuant to a repurchase
agreement and thereafter the Company's holding in Link correspondingly increased
to 38.6%.

The Company accounts for its investment in Link on the equity basis, which is
carried at cost, adjusted for the Company's proportionate share of their
undistributed earnings or losses. As of December 31, 2003, the investee
company's financial statements were not sufficiently timely for the Company to
apply the equity method currently. Therefore, the Company recorded its share of
the investee's losses from the most recent available financial statements, which
were the unaudited financial statements as of September 30, 2003.

F-12

The net investment represents the following at December 31:

2003 2002
--------------- ---------------

Original cost of 15,370,675 shares of The Link Group, Inc. $ 800,300 $ 800,300
Equity in undistributed losses of investee company (546,776) (480,700)
--------------- ---------------
$ 253,524 $ 319,600
=============== ===============

NOTE 7 - ACQUISITION OF WINDSOR EDUCATION ACADEMY INC. ("Windsor")
------------------------------------------------------------------

On December 10, 2002, the Company acquired all the outstanding and issued
capital of Windsor for $129,450 (Canadian $200,000). Windsor is engaged in
providing English as a secondary language program to new immigrants in Canada.
Windsor has a "Services Agreement" with the provincial government on providing
English Language Service for Adults (ELSA), which is aimed at new immigrants who
need improvement in English. The contract is renewed on a yearly basis. The
financial assistance provided by the provincial government is based on the
estimated cost to be incurred by the Company in that year in relation to the
program, but in no event is greater than the amount stated in the agreement. The
government funds the agreement in four installments beginning on September 1,
2003, and thereafter on December 1, 2003, April 1, 2004, and July 1, 2004. The
Company records the payments received in each quarter as unearned revenue and
recognizes revenue over the quarter on a pro-rata basis.

Cash at bank $ 26,739
Receivables and prepaid expenses 6,534
Capital assets 9,345
Goodwill 127,124
Accounts payable (2,567)
Deferred revenue (37,725)
---------------
Total purchase price $ 129,450
===============

The consolidated financial statements for the year ended December 31, 2002, do
not include any operations of Windsor as the transactions occurring between the
acquisition date and December 31, 2002, were immaterial. The following unaudited
pro forma information for 2002 is based on the assumption that the acquisition
took place as of the beginning of the period, January 1, 2002:

Net revenues $ 403,240
===============

Net loss $ (251,850)
===============

Basic and diluted loss per share $ (0.01)
===============

NOTE 8 - ACQUISITION OF DAWA BUSINESS GROUP INC. ("DAWA")
---------------------------------------------------------

On July 3, 2003, the Company acquired 51% of the outstanding and issued shares
of Dawa in exchange for 49% of the outstanding and issued shares of Windsor.
Dawa's main business is the publication of a weekly Chinese community newspaper
and a monthly magazine featuring education and employment in Vancouver's Chinese
community. The Company promotes Windsor and its affiliated educational products
through the Dawa publications.

Dawa's financial information is incorporated into the consolidation of the
Company effective June 30, 2003, as the transactions that occurred between the
period June 30, 2003 to July 2, 2003were immaterial.

F-13

The value assigned to assets and liabilities acquired can be summarized as
follows:

Cash at bank $ 2,395
Accounts receivables 14,916
Capital assets 2,110
Other assets 133
Goodwill 60,312
Accounts payable and accrued liabilities (17,575)
---------------
Fair value of net assets acquired $ 62,291
===============

The following unaudited pro forma information is based on the assumption that
the acquisition took place as of beginning of the period (January 1, 2003), with
comparative information for the immediately preceding period as though the
acquisition had been completed at the beginning of that period:

2003 2002
--------------- ---------------

Net sales $ 624,647 $ 165,241
=============== ===============

Net loss $ (14,146) $ (704,155)
=============== ===============

Basic and diluted loss per share $ (0.00) $ (0.03)
=============== ===============

NOTE 9 - DISCONTINUED OPERATIONS - ASSETS HELD FOR SALE
-------------------------------------------------------

On February 26, 2003, the Company entered into an agreement to sell the
internet-related services provided in China to a subsidiary company of
Sino-i.com Ltd., a company listed on the Hong Kong Stock Exchange, for total
consideration of RMB 20 million (approximately US$2,500,000), which the Company
has received and classified as a security deposit as of December 31, 2003. The
transaction is subject to the approval of shareholders. The internet-related
business is included in the China segment information in Note 12.

Assets to be disposed of comprise the following at December 31:

2003 2002
--------------- ---------------

Cash and cash equivalents $ 438,684 $ 737,516
Other current assets 217,102 187,975
Deferred costs 1,336,879 787,584
Property and equipment 442,820 473,262
--------------- ---------------
$2,435,485 $ 2,186,337
=============== ===============

Liabilities to be disposed of comprise the following at December 31:

2003 2002
--------------- ---------------

Accounts payable and other accrued liabilities $ 781,535 $ 624,326
Deferred revenue 2,419,322 1,905,670
--------------- ---------------
$3,200,857 $ 2,529,996
=============== ===============

F-14

Results of operations for the assets held for sale, which are included in
discontinued operations, are as follows:

2003 2002
--------------- ---------------

Revenues $2,372,887 $ 4,358,581
Operating costs 2,695,874 4,612,616
--------------- ---------------
Net loss $ (322,987) $ (254,035)
=============== ===============

Results of operations for 2003 includes the six months ended June 30, 2003,
which covers the operating period for 2003 through the date when the entire
proceeds were received pursuant to the purchase agreement. The operations and
cash flows of the component subsequent to that date have been eliminated from
the ongoing operations of the Company and the Company does not have any
significant continuing involvement in the operations of the component. There is
no resulting income tax effect.

NOTE 10 - GAIN ON DISPOSAL OF ISP OPERATIONS
--------------------------------------------

The Board of Directors of the Company decided to discontinue the unprofitable
ISP services in the PRC. The Company's joint venture partner, Xin Hai, signed an
agreement on June 22, 2001 to sell its ISP operations and related assets to a
private company in Beijing, PRC for sales proceeds of $700,000. As of December
31, 2003, $500,000 has been received as a security deposit for the transaction.
A provision of $200,000 has been made against the balance of the sales proceeds
as the Company has determined that the purchaser has a liquidity problem and
will not be able pay the remaining balance. The agreement was subject to
payments being made by the other party at specified dates and to Company
shareholders' approval.

Pursuant to Florida law, the Company was required to obtain shareholder approval
for the sale of all or substantially all of the assets for a Florida
corporation. However, if the assets do not represent all or substantially all of
the business, the Board can approve it without shareholder approval, which it
did by written consent. Because there has been no operations or cash flows
consolidated in the financial statements since 2001, the Company has eliminated
this component from its ongoing operations and it does not have any significant
continuing involvement in the operations of the component.

Gain on the disposal of the ISP services was calculated as follows:

Sales proceeds $ 700,000
Add: Deferred revenue 317,321
Less: Capital assets (320,772)
Accounts receivable (289,896)
Provision for doubtful debt (200,000)
---------------
$ 206,653
===============

F-15

NOTE 11 - INCOME TAXES
----------------------

There is no current or deferred tax expense for the years ended December 31,
2003 and 2002, due to the Company's loss position. The Company has fully
reserved for any benefits of these losses. The deferred tax consequences of
temporary differences in reporting items for financial statement and income tax
purposes are recognized, as appropriate. Realization of the future tax benefits
related to the deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the net operating loss
carryforward period. Management has considered these factors in reaching its
conclusion as to the valuation allowance for financial reporting purposes. The
income tax effect of temporary differences comprising the deferred tax assets
and deferred tax liabilities on the accompanying consolidated balance sheets is
a result of the following:

2003 2002
--------------- ---------------

Deferred tax assets $ 624,000 $ 400,000
Valuation allowance (624,000) (400,000)
--------------- ---------------
Net deferred tax assets $ - $ -
=============== ===============

The net change in the valuation allowance for 2003 and 2002 was an increase of
$24,000 and $52,000, respectively, and are principally the result of net
operating loss carryforwards. The Company has available net operating loss
carryforwards of approximately $1,200,000 for tax purposes to offset future
taxable income, which expire through 2023. All of the net operating loss
carryforwards were generated by the parent company. The Company does not file a
consolidated tax return because all of its subsidiaries are foreign
corporations. Pursuant to the Tax Reform Act of 1986, annual utilization of the
Company's net operating loss carryforwards may be limited if a cumulative change
in ownership of more than 50% is deemed to occur within any three-year period. A
reconciliation between the statutory federal income tax rate and the effective
income rate of income tax expense for the years ended December 31, 2003 and 2002
is as follows:

2003 2002
--------------- ---------------

Statutory federal income tax rate (34.0%) (34.0%)
Valuation allowance 34.0% 34.0%
--------------- ---------------
Effective income tax rate - -
=============== ===============

F-16

NOTE 12 - SEGMENT AND GEOGRAPHIC DATA
-------------------------------------

The Company's reportable segments are geographic areas. Summarized financial
information concerning the Company's reportable segments is shown in the
following table. The "Other" column includes corporate related items, and, as it
relates to segment profit (loss), income and expense not allocated to reportable
segments.

China Canada Other Total
----------------- ---------------- ----------------- -------------------

For the year ended December 31, 2003
------------------------------------

Revenue from continuing operations $ - $ 475,309 $ - $475,309

Operating loss (2,395) (112,675) (77,990) (193,060)

Total assets 5,675,109 151,474 494,029 6,320,612

7,426 1,961 8,140

Interest income 15,049 12 1,230 15,066

Loss from discontinued operations (116,334) - - (116,334)
Equity loss in undistributed earnings
of investee company - - (480,700) (66,076)

Investment in equity method investee - - 253,524 253,524

For the year ended December 31, 2002
------------------------------------

Revenue from continuing operations - - - -

Operating loss $(2,604) $(17,378) $(171,287) $(191,269)

Total assets 3,392,617 49,131 476,412 3,918,160

Depreciation - 260 1,961 2,221

Interest income 42 - 1,230 1,272

Loss from discontinued operations (254,035) - - (254,035)
Equity loss in undistributed earnings
of investee company - - (480,700) (480,700)

Investment in equity method investee - - 319,600 319,600

F-17

NOTE 13 - STOCK OPTIONS
-----------------------

The Company granted incentive stock options exercisable during 1999 to certain
directors, officers, and employees of the Company who contributed services to
the Company. (See Note 16) Options outstanding at December 31, 2003 and 2002
were 2,136,000 with an option price of $1.30. No options were granted,
canceled, forfeited, or exercised during 2003 or 2002. The weighted average
exercise price of the options outstanding and exercisable is $1.30 and the
weighted average remaining contractual life is 0.9 years. The Company accounts
for stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," under which no compensation cost for stock options is recognized
for stock options awards granted at or above fair market value.

Had compensation expense for the Company's stock-based compensation plans been
determined under FAS No. 123, based on the fair market value at the grant
dates, the Company's pro forma net loss and pro forma net loss per share would
have been reflected as follows at December 31:

2003 2002
--------------- ----------------
Net loss
As reported $ (314,277) $ (907,779)
Stock-based employee compensation
cost, net of tax (122,758) (122,758)
--------------- ----------------
Pro forma $ (437,035) $(1,030,537)
=============== ================

Loss per share
As reported $ (0.01) $ (0.04)
=============== ================
Pro forma $ (0.01) $ (0.04)
=============== ================

The fair value of each option grant was $1.17 and was estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumption used for those options granted during 1999: dividend
yield of 0%, expected volatility of 217%, risk-free interest rate of 5%, and an
expected life of 5 years.

NOTE 14 - WARRANTS
------------------

The Company issued 5,500,000 Series A warrants as part of the unit private
placement in May 1999. Each Series A warrant entitles the holder to purchase, on
or before March 31, 2001, one (1) additional unit at a price of $2.00 per unit,
each unit consisting of one (1) common share and one (1) Series B warrant. The
Series B warrant entitles the holder to purchase one (1) additional common share
of the Company at a price of $5.00 per share on or before March 31, 2002.

The Company also issued 385,000 Series A warrants as part of the unit private
placement in May 1999 to Richco Investors, Inc. for services rendered in
structuring and arranging the private placement. Each warrant entitles the
holder to purchase, on or before March 31, 2001, one (1) additional unit at a
price of $2.00 per unit, each unit consisting of one (1) common share and one
(1) Series B warrant. The Series B warrant entitles the holder to purchase one
(1) additional common share of the Company at a price of $5.00 per share on or
before March 31, 2002. The warrants were not valued because the exercise price
of the warrants exceeded the fair market value of the common stock at the date
of issuance. (See Note 16)

F-18

On September 29, 2000, ten (10) Series A warrants were exercised at a price of
$2.00 per share, or $20. As of the date of issuance of these financial
statements, 5,884,990 Series A warrants are outstanding. On March 15, 2001, the
Board of Directors of the Company adjusted the exercise price of the 5,884,990
Series A warrants outstanding to $1.00 per unit and extended their term to the
earlier of March 31, 2003, or the 90th day after the day on which the weighted
average trading price of the Company's shares exceeds $1.25 per share for ten
(10) consecutive trading days. Additionally, the exercise price of the Series B
warrants was adjusted to $1.50 each and the term extended to the earlier of
March 31, 2004 or one year after the occurrence of the 90th day after the day on
which the weighted average trading price of the Company's shares exceeds $1.25
per share for ten (10) consecutive trading days.

On April 1, 2003, the Company extended its outstanding 5,884,990 million Series
"A" Share Purchase Warrants as follows:

(i) the exercise price of the Series "A" Share Purchase Warrants is
adjusted to $0.50 each and their term is extended to March 31, 2005:
(ii) upon exercise of one Series "A" Share Purchase Warrants at $0.50, the
holder will receive one common share of the company and one Series "B"
Share Purchase Warrant; and
(iii) the exercise price of the Series "B" Share Purchase Warrants is
adjusted to $0.75 each and their term is extended to March 31, 2006;
(iv) upon exercise of one Series "B" Share Purchase Warrant at $0.75, the
holder will receive one common share of the Company.

NOTE 15 - COMMITMENTS
---------------------

Operating leases - The Company leases office space under various operating
leases expiring through May 2005. Total rent expense charged to operations
during 2003 and 2002 was $74,196 and $7,285, respectively. Future minimum rental
commitments are (approximately) as follows: (2004: $57,000 and 2005: $9,000)

NOTE 16 - RELATED PARTY TRANSACTIONS
------------------------------------

Consulting fees - The Company was charged approximately $nil and $71,000 during
year 2003 and 2002, respectively, for consulting fees paid to certain
individuals who are also officers or directors of the Company.

Equity investment - The Company's equity investment is with a company that is
under common control with this company. (See Note 6)

Options - The Company's former president was granted 262,000 options to purchase
shares at $1.30. The Company's current directors and officers were granted
1,612,000 options to purchase shares at $1.30. All of the options are outstand-
ing as of December 31, 2003.

Warrants - Richco Investors Inc. has 1,085,000 "A" warrants to purchase shares
of common stock and has 1,085,000 "B" warrants to purchase shares of common
stock. The Company's former President has 80,000 "A" warrants to purchase shares
of common stock and has 80,000 "B" warrants to purchase shares of common stock.
Another entity controlled by one of the directors of this Company has 190,000
"A" warrants and 190,000 "B" warrants. All of the warrants are outstanding as of
December 31, 2003.

F-19

NOTE 17 - PRIVATE PLACEMENT
---------------------------

The Company completed a private placeemnt of 20,000,000 shares of common stock
at $0.05 per share for net proceeds of $1,000,000 on October 31, 2002. The
tranasction was approved by the Board of Directors on October 30, 2002.

NOTE 18 - SUBSEQUENT EVENTS
---------------------------

On February 15, 2004, the Company entered into a definitive agreement to acquire
a 51% equity interest from the shareholders of a short message system ("SMS")
provider, Beijing Quicknet Telecommunication Corp. Ltd. ("Quicknet"), located in
Beijing, China for a price of $3,060,000 in form of issuing 6,120,000 shares of
common stock of the Company at a deemed price of $0.50 per share. In order to
comply with current Chinese law, the Company will acquire 49% immediately upon
closing and will retain the right to acquire the 2% as soon as it is able to
obtain Government approval or achieve a legal structure (under Chinese law)
which allows control of the 2% (thereby aggregating 51%). The Company has an
option to acquire the remaining 49% equity interest in Quicknet within the first
year from the closing date for $4,000,000. The Company has another option to
acquire the remaining 49% equity interest in Quicknet within the second year
from the closing date for $5,000,000. As a general rule, the Company can pay
these amounts by 50% in shares of the common stock of the Company and 50% in
cash. The final percentage of shares versus cash can be negotiated between both
parties.

F-20