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**U.S.SECURITIES AND EXCHANGE COMMISSION****Washington, D.C.  20549**

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**FORM 10-Q**
| **ý** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

**For the quarterlyperiod ended June 30, 2001**
| **o** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

**For the transitionperiod from  _____ to _____**

 

 **Commission File Number:  000-24985**

**PACIFICNET.COM, INC.******(Exactname of small business issuer in its charter)
| **Delaware**  (State or other jurisdiction of  incorporation or organization)                   | **11-2854355**  (I.R.S.  Employer  Identification No.) |
|-------------------------------------------------------------------------------------------------|-------------------------------------------------------------|
|                                                                                            |                                                        |
| **7808 Creekridge Circle, Suite 101  Bloomington, MN**(Address of principal executive  offices) | **55439**(Zip  Code)                                        |

**Registrant’sTelephone Number:  952-829-5888**

(FormerName and Address)

Check whether the issuer (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the past 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. YES ý  NO o

There were 8,187,342 shares ofPacificNet.com, Inc.’s (the “Company”) Common Stock outstanding on August 10,2001.

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**TABLE OF CONTENTS**

|                           |
|--------------------------------|
|                           |
| PART 1 - FINANCIAL INFORMATION |
|                           |
|                           | ITEM  1 - FINANCIAL STATEMENTS |
|                           |   |
|                           | Condensed Consolidated  Balance Sheets – as of June 30, 2001   (unaudited) and December 31, 2000 (audited) |
|                           |   |
|                           | Unaudited  Condensed Consolidated Statements of Operations - for each of the three and  six-month periods ended June 30, 2001 and 2000 |
|                           |   |
|                           | Unaudited  Condensed Consolidated Statements of Cash Flows - for each of the six-month  periods ended June 30, 2001 and 2000 |
|                           |   |
|                           | Notes  to Condensed Consolidated Financial Statements |
|                           |   |
|                           | ITEM  2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS  OF OPERATIONS |
|                           |   |
| PART II - OTHER  INFORMATION   |
|                           |
|                           | ITEM 1 - LEGAL  PROCEEDINGS |
|                           |   |
|                           | ITEM  2 - CHANGES IN SECURITIES AND USE OF PROCEEDS |
|                           |   |
|                           | ITEM 3 -  DEFAULTS UPON SENIOR SECURITIES |
|                           |   |
|                           | ITEM  4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
|                           |   |
|                           | ITEM 5 - OTHER  INFORMATION |
|                           |   |
|                           | ITEM 6  - EXHIBITS AND REPORTS ON FORM 8-K |
|                                |  |  |

 

 

**PACIFICNET.COM, INC. AND SUBSIDIARIES****Condensed Consolidated Balance Sheets**(In thousands of UnitedStates dollars, except par values and share numbers)

|                                                                                                                        | **June 30, 2001  (Unaudited)**                                                                   | ** ** | **December 31, 2000** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
|                                                                                                                        | ****                                                                                             |       | ****                  |       |
| **ASSETS**                                                                                                                  |                                                                                             |
| Current Assets:                                                                                                             |                                                                                             |       |                  |       |
| Cash                                                                                                                        | $                                                                                                | 2,582      |                  | $          | 4,197 |   |
| Trade Receivables, net of allowances for accounts of $232   as of June 30, 2001 and $225 as of  December 31, 2000 | 74                                                                                               |       | 344                   |       |
| Inventories – finished goods, net                                                                                      | 458                                                                                              |       | 365                   |       |
| Other Current Assets                                                                                                        | 338                                                                                              |       | 404                   |       |
|                                                                                                                        |                                                                                                  |       |                       |       |
| Total Current Assets                                                                                                        | 3,452                                                                                            |       | 5,310                 |       |
|                                                                                                                        |                                                                                             |       |                  |       |
| Property and Equipment, net                                                                                                 | 619                                                                                              |       | 692                   |       |
| Capitalized Software Development Costs                                                                                      | 293                                                                                              |       | 302                   |       |
| Investments in Affiliated Companies                                                                                         | 481                                                                                              |       | 1,241                 |       |
| Goodwill                                                                                                                    | 86                                                                                               |       | 89                    |       |
|                                                                                                                        |                                                                                             |       |                  |       |
|                                                                                                                        |                                                                                                  |       |                       |       |
| **Total Assets**                                                                                                            | $                                                                                                | 4,931      |                  | $          | 7,634 |   |
|                                                                                                                        |                                                                                                  |       |                       |       |
|                                                                                                                        |                                                                                             |       |                  |       |
| **LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY**                                                                 |                                                                                             |
| Current Liabilities:                                                                                                        |                                                                                             |       |                  |       |
| Accounts Payable                                                                                                            | $                                                                                                | 647        |                  | $          | 331 |   |
| Accrued Expenses                                                                                                            | 54                                                                                               |       | 185                   |       |
| Net Liabilities of Discontinued Operations                                                                                  | 167                                                                                              |       | 438                   |       |
|                                                                                                                        |                                                                                                  |       |                       |       |
| Total Current Liabilities                                                                                                   | 868                                                                                              |       | 954                   |       |
|                                                                                                                        |                                                                                                  |       |                       |       |
|                                                                                                                        |                                                                                             |       |                  |       |
| Minority Interest                                                                                                           | 109                                                                                              |       | 179                   |       |
|                                                                                                                        |                                                                                                  |       |                       |       |
|                                                                                                                        |                                                                                             |       |                  |       |
| Stockholders' Equity:                                                                                                       |                                                                                             |       |                  |       |
| Common Stock, par value $0.0001:                                                                                            |                                                                                             |       |                  |       |
|                                                                                                                        | Authorized - 125,000,000 shares                                                                  |       |                  |       |   |
|                                                                                                                        | Outstanding - 8,087,342 shares as of June 30, 2001 and  7,937,342 shares as of December 31, 2000 | $          | 1                     |       | $ | 1 |   |
| Additional Paid-In Capital                                                                                                  | 26,686                                                                                           |       | 26,560                |       |
| Accumulated Other Comprehensive Loss                                                                                        | (24                                                                                              | )          | (14                   | )          |
| Accumulated Deficit                                                                                                         | (22,709                                                                                          | )          | (20,046               | )          |
|                                                                                                                        |                                                                                                  |       |                       |       |
| Total Stockholders' Equity                                                                                                  | 3,954                                                                                            |       | 6,501                 |       |
|                                                                                                                        |                                                                                                  |       |                       |       |
|                                                                                                                        |                                                                                             |       |                  |       |
| **Total Liabilities, Minority Interest and  Stockholders' Equity**                                                          | $                                                                                                | 4,931      |                  | $          | 7,634 |   |
|                                                                                                                        |                                                                                                  |       |                       |       |

 

Theaccompanying notes are an integral part of these financial statements.

 

**PACIFICNET.COM, INC. ANDSUBSIDIARIESUnaudited CondensedConsolidated Statements of Operations**(In thousands of UnitedStates dollars, except share amounts)

|                                                                                   | **Three months  ended June 30,**             |   | **Six months ended  June 30,** |   |
|----------------------------------------------------------------------------------------|----------------------------------------------|--------|--------------------------------|--------|
|                                                                                   | ****                                         |   | ****                           |   |
|                                                                                   | **2001**                                     |   | **2000**                       |   | **2001** |   | **2000** |   |
|                                                                                   | ****                                         |   | ****                           |   | **** |   | **** |   |
|                                                                                   |                                         |   |                           |   |   |   |   |   |
| **Revenues**                                                                           | $                                            | 1,840  |                           | $      | 1,103 |   | $ | 3,801 |   | $ | 1,280 |   |
| **Cost of Revenues**                                                                   | (1,800                                       | )      | (201                           | )      | (3,652 | ) | (233 | ) |
|                                                                                   |                                              |   |                                |   |  |   |  |   |
| Gross Margin                                                                           | 40                                           |   | 902                            |   | 149 |   | 1,047 |   |
| **Selling, General and Administrative Expenses**                                       | (963                                         | )      | (583                           | )      | (2,230 | ) | (978 | ) |
|                                                                                   |                                              |   |                                |   |  |   |  |   |
| **(Loss) Income from Operations**                                                      | (923                                         | )      | 319                            |   | (2,081 | ) | 69 |   |
| Interest Income                                                                        | 39                                           |   | 60                             |   | 116 |   | 124 |   |
|                                                                                   |                                              |   |                                |   |  |   |  |   |
| **(Loss) Income before income taxes, minority  interests and discontinued operations** | (884                                         | )      | 379                            |   | (1,965 | ) | 193 |   |
| Equity in Losses of Affiliated Companies                                               | (13                                          | )      | (11                            | )      | (25 | ) | (11 | ) |
| Provision for Impairment Loss of Affiliated Companies                                  | (735                                         | )      | 0                              |   | (735 | ) | 0 |   |
| Minority Interests                                                                     | 50                                           |   | 0                              |   | 62 |   | 0 |   |
|                                                                                   |                                              |   |                                |   |  |   |  |   |
| **(Loss) Income before discontinued operations**                                       | (1,582                                       | )      | 368                            |   | (2,663 | ) | 182 |   |
| Net loss from International Trading business operations                                | 0                                            |   | (405                           | )      | 0 |   | (765 | ) |
|                                                                                   |                                              |   |                                |   |  |   |  |   |
| **Net Loss**                                                                           | $                                            | (1,582 | )                              | $      | (37 | ) | $ | (2,663 | ) | $ | (583 | ) |
|                                                                                   |                                              |   |                                |   |  |   |  |   |
|                                                                                   |                                         |   |                           |   |   |   |   |   |
| **Basic and Diluted (Loss) Earnings Per Common  Share:**                               |                                         |   |                           |   |   |   |   |   |
|                                                                                   | (Loss) income from operations                | $      | (0.12                          | )      | $ | 0.05 |   | $ | (0.26 | ) | $ | 0.01 |   |
|                                                                                   | (Loss) income before discontinued operations | $      | (0.20                          | )      | $ | 0.06 |   | $ | (0.33 | ) | $ | 0.03 |   |
|                                                                                   | Net loss from discontinued operations        | $      | 0.00                           |   | $ | (0.07 | ) | $ | 0.00 |   | $ | (0.13 | ) |
|                                                                                   | Net loss                                     | $      | (0.20                          | )      | $ | (0.01 | ) | $ | (0.33 | ) | $ | (0.10 | ) |
| Weighted average number of shares outstanding:                                         | 7,987,342                                    |   | 6,207,327                      |   | 7,962,342 |   | 5,848,059 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

**PACIFICNET.COM, INC. AND SUBSIDIARIESUnaudited Condensed Consolidated Condensed Statements of Cash Flows**(Inthousands of United States dollars)

|                                             | **Six months ended June 30,**                         |   |
|--------------------------------------------------|-------------------------------------------------------|--------|
|                                             | **2001**                                              |   | **2000** |   |
|                                             | ****                                                  |   | **** |   |
| **Cash Flows Used in Operating activities:**     |                                                  |   |   |   |
| Net loss                                         | $                                                     | (2,663 | ) | $ | (583 | ) |
| Adjustments:                                     |                                                  |   |   |   |   |   |
|                                             | Loss from discontinued operations                     | -      |   | 765 |   |
|                                             | Equity in Losses of Affiliated Companies              | 25     |   | 11 |   |
|                                             | Provision for Impairment Loss of Affiliated Companies | 735    |   | - |   |
|                                             | Minority Interest                                     | (70    | ) | 0 |   |
|                                             | Depreciation                                          | 105    |   | 33 |   |
|                                             | Amortization                                          | 75     |   | 0 |   |
|                                             | Changes in Current Assets and Current Liabilities:    |   |   |   |   |
|                                             | Trade Receivables and Other Current Assets            | 336    |   | (1,179 | )  |
|                                             | Inventories, net                                      | (93    | ) | 0 |   |
|                                             | Accounts Payable and Accrued Expenses                 | 185    |   | 230 |   |
|                                             |                                                  |        |   |  |   |
|                                             | Net Cash Used in Continuing Operations                | (1,365 | ) | (723 | ) |
|                                             | Net Cash Used in Discontinued Operations              | (271   | ) | (1,649 | ) |
|                                             |                                                  |        |   |  |   |
|                                             | Net Cash Used in Operating Activities                 | (1,636 | ) | (2,372 | ) |
|                                             |                                                  |        |   |  |   |
| **Cash Flows Used in Investing Activities:**     |                                                  |   |   |   |
|                                             | Acquisition of Property and Equipment                 | (32    | ) | (300 | ) |
|                                             | Acquisition of Equity Interest in Affiliated Company  | 0      |   | (218 | ) |
|                                             | Acquisition of Capitalized Software Development Costs | (63    | ) | 0 |   |
|                                             |                                                       |   |  |   |
|                                             | Net Cash Used in Investing Activities                 | (95    | ) | (518 | ) |
|                                             |                                                  |        |   |  |   |
| **Cash Flows Provided by Financing Activities:** |                                                  |   |   |   |
|                                             | Proceeds from Issuance of Common Stock                | 126    |   | 3,406 |   |
|                                             |                                                  |        |   |  |   |
|                                             |                                                  |   |   |   |
| **Effect of Exchange Rate Changes on Cash**      | (10                                                   | )      | (13 | ) |
|                                             |                                                       |   |  |   |
|                                             |                                                  |   |   |   |
| **(Decrease) Increase in cash**                  | (1,615                                                | )      | 503 |   |
| **Cash, beginning of period**                    | 4,197                                                 |   | 4,061 |   |
|                                             |                                                       |   |  |   |
| **Cash, end of period**                          | $                                                     | 2,582  |   | $ | 4,564 |   |
|                                             |                                                       |   |  |   |
|                                                  |                                                       |        |  |  |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these financial statements.

**PACIFICNET.COM, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS****(Amountsexpressed in United States dollars unless otherwise stated)**

```
 
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**1.  BASIS OF PRESENTATION**

*Interim FinancialStatements. *The interimfinancial statements are prepared pursuant to the requirements for reporting onForm 10-Q.  The December 31, 2000balance sheet data was derived from audited financial statements but does notinclude all disclosures required by generally accepted accountingprinciples.  The interim financialstatements and notes thereto should be read in conjunction with the financialstatements and notes included in the annual report of PacificNet.com, Inc.(referred to herein as "PacificNet," "PACT" or the"Company") on Form 10-KSB for the fiscal year ended December 31,2000.  In the opinion of management, theinterim financial statements reflect all adjustments of a normal recurringnature necessary for a fair presentation of the results for the interim periodspresented.

*Investmentsin Affiliated Companies.*  The Company’s investments in affiliatedcompanies for which its ownership exceeds 20% (PacificNet-NTSC.com Sdn.Bhdand  Xmedia Holdings Inc.), but are notmajority-owned or controlled, are accounted for using the equity method. TheCompany’s investment in affiliated companies for which its ownership is lessthan 20% (ABCDEnet.com), is accounted for using the cost method.  Under the equity method, the Company’sproportionate share of each affiliate’s net income or loss and amortization ofthe Company’s net excess investment over its equity in each affiliate’s netassets is included in “equity in losses of affiliated companies”.  The Company assesses the need to recordimpairment losses on its investments when indicators of impairment arepresent.  Indicators of value generallyinclude revenue growth, operating results, cash flows and other measures.  Management then determines whether there hasbeen a permanent impairment of value based upon events and circumstances thathave occurred since acquisition.  Duringthe quarterly period ended June 30, 2001, a provision for impairment loss of($735,000) related to the Company's investments in APP China Group Limited andCypress Rise has been made.

*OperatingResults for Future Periods.*  These results are not necessarily indicativeof the operating results that may be expected for the entire year endingDecember 31, 2001 and future periods.

*Restatementof Historical Financial Statements. *Thehistorical financial statements prior to the reverse merger transaction (seenote 3 below) have been restated to be those of the accounting acquirer,PacificNet.com LLC (“PLLC”).  Historicalstockholders’ equity prior to the reverse merger has been retroactively restated(a recapitalization) for the equivalent number of shares received in the mergerafter giving effect to any difference in par value of the issuer’s andacquirer’s stock with an offset to paid-in-capital.

**2.  RECENT ACCOUNTING PRONOUNCEMENTS**

In July 2001, the Financial Accounting StandardsBoard ("FASB") issued Statement of Financial Accounting Standards No.141 ("SFAS 141"), "Business Combinations."  SFAS 141 requires the purchase method ofaccounting for business combinations initiated after June 30, 2001 andeliminates the pooling-of-interests method. The Company does not believe that the adoption of SFAS 141 will have asignificant impact on its financial statements.

In July 2001, the FASB issued Statement ofFinancial Accounting Standards No. 142 ("SFAS 142"), "Goodwilland Other Intangible Assets," which is effective January 1, 2002.  SFAS 142 requires, among other things, thediscontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassificationof certain existing recognized intangibles as goodwill, reassessment of theuseful lives of existing recognized intangibles, reclassification of certainintangibles out of previously reported goodwill and the identification ofreporting units for purposes of assessing potential future impairments ofgoodwill. SFAS 142 also requires the Company to complete a transitionalgoodwill impairment test six months from the date of adoption. The Company iscurrently assessing but has not yet determined the impact of SFAS 142 on itsfinancial position and results of operations.

**3.  BUSINESS COMBINATIONS AND DISPOSITIONS**

*Acquisition of PacificNet.com LLC.*  On July 27, 2000, in exchange for all theownership interests in PLLC, the Company issued 7,166,667 shares of its CommonStock to the former owners of PLLC.  Thistransaction was accounted for as a purchase and treated as a reverse mergersince the former owners of PLLC controlled over 80% of the total shares ofCommon Stock of the Company outstanding immediately following the acquisitionon July 27, 2000. The shares issued by the Company in connection with thereverse merger of PLLC are not registered under the Securities Act of 1933, asamended, and are subject to restrictions on transferability for a period of oneyear from the date of issuance.

*Disposition of Creative Master Business.* In September 2000, the Company’s Board ofDirectors approved a plan to dispose of its die-cast replica manufacturingbusiness (“the Creative Master business”). On October 2, 2000, the Company sold the Creative Master business to amanagement group led by Mr. Carl Tong, former Chief Executive Officer of theCompany.  As consideration for thisbusiness, the management group i) returned 895,765 shares of the Company’sCommon Stock with a quoted market value of approximately $4.9 million, ii)assumed all indebtedness and obligations of the Company related to the CreativeMaster business and iii) relinquished any claim with respect to an intercompanybalance of $1.5 million payable by the Company.

The 895,765 shares of Common Stockreturned to the Company are held as treasury stock at June 30, 2001 andrepresented a 10.14% reduction in the total number of shares outstandingimmediately before the return.  The netliabilities and results of operations for the Creative Master business arereflected as discontinued operations in the accompanying financial statements.

*Laptizen.com Limited. *In June 2000, theCompany completed its acquisition of 55% of Laptizen.com Limited (“Laptizen”),a Hong Kong based B2B computer system, e-commerce portal and value addedreseller and service provider for computer systems for consideration of$320,000.  Laptizen commenced operationsin July 2000.

**4.  SUBSEQUENT EVENT**

On July 31, 2001, the Company made apublic announcement that it had entered into an agreement dated July 28, 2001for the sale and purchase of an equity interest in a Joint Venture in thePeople's Republic of China by Holley Group Co., Ltd ("China Holley").Under the agreement, the Company will acquire a 51% ownership interest in ChinaHolley's energy management, procurement and IT solutions operating unit("HolleyE").  On June 14,2001, PacificNet made a public announcement that it had entered into an Agreementin Principle with China Holley for this acquisition.

Under the terms of the transactionPacificNet will issue approximately 4,000,000 unregistered shares of its commonstock (to be held in escrow) to China Holley in exchange for a 51% interest inthe HolleyE.  The transaction has beenapproved by the Board of Directors of both the Company and China Holley.  The transaction is subject to customaryclosing conditions and is expected to close on or before October 31, 2001.

**ITEM 2 -  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS**

The statements contained in this Form10-Q that are not purely historical are forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended.  These include statements about the Company’sexpectations, beliefs, intentions or strategies for the future, which areindicated by words or phrases such as “anticipate,” “expect,” “intend,” “plan,”“will,” “the Company believes,” “management believes” and similar words orphrases.  The forward-looking statementsare based on the Company’s current expectations and are subject to certainrisks, uncertainties and assumptions. The Company’s actual results could differmaterially from results anticipated in these forward-looking statements.  All forward-looking statements included inthis document are based on information available to the Company on the date hereof,and the Company assumes no obligation to update any such forward-lookingstatements.

**THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHSENDED JUNE 30, 2000**

*Revenues. *Revenues for the three months ended June 30, 2001were $1,840,000, an increase of $737,000 from $1,103,000 for the three monthsended June 30, 2000.  For the threemonths ended June 30, 2001, revenues consisted of $115,000 derived fromservices rendered and $1,725,000 from the sales of products and systems throughits Laptizen subsidiary.

During the three months ended June 30,2001, all of PacificNet’s revenue was generated from customers in Asia.

*Cost of Revenues. *Cost of revenues for the three months ended June30, 2001 was $1,800,000 an increase of $1,599,000 from $201,000 for the threemonths ended June 30, 2000.  Thisincrease was due to a corresponding increase in revenues.  Cost of revenues, as a percentage ofrevenues, was 152% for services rendered and 94% for the sales of products andsystems through the Laptizen subsidiary for the three months ended June 30, 2001.

Gross margin for the three months endedJune 30, 2001 was $40,000 a decrease of $862,000 from $902,000 for the threemonths ended June 30, 2000.  Grossmargins for the three months ended June 30, 2001, were comprised of (52)% forservices rendered and 6% for products and systems sold.  The decrease in margin for services renderedresulted from two primary factors:  1)premium pricing received on consulting projects during fiscal 2000 compared tofiscal 2001; and 2) additional costs incurred to complete fixed price servicescontracts during fiscal 2001.

*Selling, General and Administrative Expenses.*Selling, general and administrative expensestotaled $963,000 for the three months ended June 30, 2001, an increase of$380,000 from $583,000 for the three months ended June 30, 2000.   The increase is primarily related to higherbusiness activity levels in 2001 over 2000.

As of June 30, 2001, the Company’sestimated monthly cash requirement for selling,general and administrative expenses during the subsequent three-monthperiod was approximately $250,000; a decrease of approximately $40,000 from theactual monthly cash requirement rate for the three-months ended June 30, 2001.

*Equityin Losses of Affiliated Companies**. *TheCompany’s equity in losses of affiliated companies totaled $13,000 for the three months endedJune 30, 2001, as compared to losses of $11,000 for the three months ended June 30, 2000. Theloss reflects the Company’s 40% equity in losses in PacificNet-NTSC.comSdn.Bhd, a Malaysian based consulting company and reseller of the Company’sproducts that was acquired in May 2000.

*InterestIncome**. *Interest income was $39,000 for the three months ended June 30, 2001, ascompared to $60,000 for the three months ended June 30, 2000. The decrease isdue to the lower net cash balances.

*Income Taxes. *No tax provision has been recorded for the threemonths ended June 30, 2001, as the result of the cumulative operating lossgenerated by the Company.

*Minority Interests.  *Minorityinterests for the three months ended June 30, 2001 totaled $50,000, comparedwith $0 for the same period in the prior year and consisted of minorityinterest in the losses of Laptizen that commenced operations in July 2000.

**SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDEDJUNE 30, 2000**

*Revenues. *Revenues for the six months ended June 30, 2001were $3,801,000, an increase of $2,521,000 from $1,280,000 for the six monthsended June 30, 2000.  For the six monthsended June 30, 2001, revenues consisted of $309,000 derived from servicesrendered and $3,492,000 from the sales of products and systems throughLaptizen.

During the six months ended June 30,2001, all of PacificNet’s revenue was generated from customers in Asia.

*Cost of Revenues.* Cost ofrevenues for the six months ended June 30, 2001 was $3,652,000 an increase of$3,419,000 from $233,000 for the six months ended June 30, 2000.  This increase was due to a correspondingincrease in revenues.  Cost of revenues,as a percentage of revenues, was 129% for services rendered and 93% for thesales of products and systems through Laptizen for the six months ended June30, 2001.

Gross margin for the six months endedJune 30, 2001 was $149,000 a decrease of $898,000 from $1,047,000 for the sixmonths ended June 30, 2000.  Grossmargins for the six months ended June 30, 2001, were comprised of (29)% forservices rendered and 7% for products and systems sold.  The decrease in margin for services renderedresulted from two primary factors:  1)premium pricing received on consulting projects during fiscal 2000 compared tofiscal 2001; and 2) additional costs incurred to complete fixed price servicescontracts during fiscal 2001.

*Selling, General and Administrative Expenses.* Selling,general and administrative expenses totaled $2,230,000 for the six months endedJune 30, 2001, an increase of $1,252,000 from $978,000 for the six months endedJune 30, 2000.   The increase isprimarily related to higher business activity levels in 2001 over 2000.

*Equityin Affiliated Companies**.* The Company’s equity in losses of affiliatedcompanies totaled $25,000 forthe six months ended June 30, 2001, as compared to $11,000 for the six months ended June 30, 2000. Theincrease reflects the Company’s 40% equity in losses in PacificNet-NTSC.comSdn.Bhd, a Malaysian based consulting company and reseller of the Company’sproducts that was acquired in May 2000.

*InterestIncome**. *Interest income was $116,000 for the six monthsended June 30, 2001, as compared to $124,000 for the six months ended June 30, 2000. Thedecrease is due to the lower net cash balances in 2001 as compared to 2000.

*Income Taxes.* No taxprovision has been recorded for the six months ended June 30, 2001, as theresult of the cumulative operating loss generated by the Company.

*Minority Interests. * Minorityinterests for the six months ended June 30, 2001 totaled $62,000, compared with$0 for the same period in the prior year and consisted of minority interest inthe losses of Laptizen that commenced operations in July 2000.

**LIQUIDITY AND CAPITAL RESOURCES**

*Cash.* TheCompany’s cash balance decreased by $1.6 million to $2.6 million at June 30,2001, as compared to $4.2 million at December 31, 2000.  Operating activities used $1.6 million ofcash comprised of  $1.4 million forcontinuing operations and $271,000 for discontinued operations.

*WorkingCapital.* The Company’s working capital decreased $1.8million to $2.6 million at June 30, 2001, as compared to $4.4 million atDecember 31, 2000.  When compared tobalances at December 31, 2000, the decrease in working capital at June 30, 2001reflects a decrease in cash of $1,615,000 and a decrease in net accountsreceivable of $270,000, offset by an increase in other current assets  of $27,000 and a decrease in current liabilities of $86,000.    The Company anticipates that as revenueand operating activity levels increase, working capital financing requirementswill also increase.

*Propertyand Equipment Additions.* For the six months ended June 30, 2001,additions to property and equipment aggregated $32,000.  The Company does not anticipate materialexpenditures for additions to property and equipment over the next year.

*Investmentsin Affiliated Companies and Goodwill.  *Asof June 30, 2001, investments in affiliated companies and goodwill aggregated$567,000 as compared to $1,330,000 as of December 31, 2000.  The decreaseof $763,000 reflects the Company's share of losses of affiliated companies of$25,000, amortization of goodwill of $3,000 and the provision for impairmentloss of $735,000 related to the Company’s investments in APP China GroupLimited and Cypress Rise.

*Commitmentsfor Additional Funding of Affiliated Companies*.  The Company believes that affiliatedcompanies in which it participates will generate incremental service revenuesand product sales in 2001.  The Companydoes not anticipate that it will enter into additional joint venturearrangements and other investment structures over the next twelve months.

*Cash Needs for the Foreseeable Future.*  As ofJune 30, 2001, the Company had approximately $2.6 million of cash.  The Company expects that its cash needs forthe foreseeable future will arise primarily from working capital requirements,technology development and capital expenditures.  The Company expects that the principal sources of cash will becash on hand.  In the event thatadditional credit facilities are required, the Company believes that theseadditional credit facilities can be negotiated at market rates currently ineffect.  The Company believes that thesesources will be adequate to meet anticipated cash requirements for theremainder of fiscal 2001.

*Inflation*.  Inflation has not had a material impact onPacificNet’s business in recent years.

*Currency Exchange Fluctuations.*  All of PacificNet’s revenues are denominatedeither in U.S. dollars or Hong Kong dollars, while its expenses are denominatedprimarily in Hong Kong dollars and Renminbi, the currency of the PRC(“RMB”).  There can be no assurance thatthe RMB-to-U.S. dollar rate will remain stable.  Although a devaluation of the Hong Kong dollar or RMB relative tothe U.S. dollar would likely reduce PacificNet’s expenses (as expressed in U.S.dollars), any material increase in the value of the Hong Kong dollar or RMBrelative to the U.S. dollar would increase PacificNet’s expenses, and couldhave a material adverse effect on PacificNet’s business, financial conditionand results of operations.  PacificNethas never engaged in currency hedging operations and has no present intentionto do so.

*Seasonality and Quarterly Fluctuations*.  PacificNet has not experienced fluctuationsin quarterly revenues from its e-commerce solutions business sinceinception.  The Company believes thatits business is not subject to seasonal and quarterly fluctuations; however,since the Company, in its current form of business operations as an Asian ITsolutions and consulting company, has only been in existence since July 1999,the Company does not have sufficient operating history to determine whetherseasonal and quarterly fluctuations exist within its business lines.

**PART II- OTHER INFORMATION**

**ITEM 1- LEGAL PROCEEDINGS**

**NONE**

**ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS**

**NONE**

**ITEM 3 - DEFAULTS UPON SENIOR SECURITIES**

**NONE**

**ITEM 4  - SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

  a)  The Registrant held an annualmeeting of stockholders on June 15, 2001.

  b)  The following persons wereelected to the Board of Directors:

             TonyTong             David Bussmann             Allan Yap             Michael Gaard             Chih Cheung             Charles Mueller

  c)  Brief description of thematters voted upon at the annual meeting:

 

|   | 1. | ELECTION  OF DIRECTORS |
|--------|----|------------------------|

```
 
```

| NAME            | FOR       |   | AGAINST |   | ABSTAIN |   |
|-----------------|-----------|--------|---------|--------|---------|--------|
| Tony Tong       | 4,429,488 |   | 51,250  |   | 452,855 |   |
| David Bussmann  | 4,429,488 |   | 51,250  |   | 452,855 |   |
| Allan Yap       | 4,480,738 |   | 0       |   | 452,855 |   |
| Michael Gaard   | 4,429,488 |   | 51,250  |   | 452,855 |   |
| Chih Cheung     | 4,100,596 |   | 380,142 |   | 452,855 |   |
| Charles Mueller | 4,429,488 |   | 51,250  |   | 452,855 |   |

 

|   | 2. | RATIFY  THE APPOINTMENT BY THE BOARD OF DIRECTORS OF ARTHUR ANDERSEN & CO.  AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2001 |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| FOR       | AGAINST |   | ABSTAIN |   |
|-----------|---------|--------|---------|--------|
| 4,480,738 | 0       |   | 452,855 |   |

```
 
```

**ITEM 5- OTHER INFORMATION**

**Transactionwith China Holley**** –**On July 31, 2001, the Company issued a press releasethat it had entered into an agreement dated July 28, 2001 for the sale andpurchase of an equity interest in a Joint Venture in the People’s Republic ofChina by Holley Group Co., Ltd.  (“ChinaHolley”).  Under the agreement, theCompany will acquire a 51% ownership interest in China Holley’s energymanagement, procurement and IT solutions operating unit("HolleyE").  On June 14,2001, PacificNet announced that it had entered into an agreement in principlewith China Holley for this acquisition.

Under the terms of the transactionPacificNet will issue approximately 4,000,000 unregistered shares of its commonstock (to be held in escrow) to China Holley in exchange for a 51% interest inHolleyE.  China Holley will beresponsible for contributing the initial operating assets and working capitalfinancing for HolleyE.  China Holley will procure a minimum of $95 millionof electrical devices from HolleyE through 2003 and contract for thedevelopment of energy management system solutions for the China market.  Shares of PacificNet stock will be releasedfrom escrow to China Holley as China Holley meets specified procurementmilestones.

The transaction has been approved by theBoard of Directors of both the Company and China Holley.  The transaction is subject to customaryclosing conditions, including the completion of due diligence and the receiptof applicable regulatory approvals and consents as set for in the agreement andis expected to close on or before October 31, 2001.  PacificNet will be required to obtain prior shareholder approvalin the event that shares released from escrow to China Holley exceed amountspermitted under NASDAQ rules.

Reference is made to Exhibit 10.8 filedas part of this report that contains the agreement dated July 28, 2001 for thesale and purchase of an equity interest in a joint venture in the People’sRepublic of China by Holley Group Co., Ltd.

**ITEM6.   EXHIBITS AND REPORTS ON FORM 8-K**

             (a)         Exhibits

             Thefollowing exhibits are filed as part of this report:

| Exhibit Number | Description                                                                                                                                                           |   |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                |                                                                                                                                                                       |   |
|           |                                                                                                                                                                  |   |
| 2.1            | Share  Exchange Agreement by and among Davin Enterprises, Inc., Carl Tong, Leo Kwok  and Acma Strategic Holdings Limited dated December 15, 1997. (1)                 |   |
| 2.2            | Share  Exchange Agreement dated February 17, 2000, between Registrant and holders of  membership interests in PacificNet.com LLC. (3)                                 |   |
| 2.3            | Supplement  to Share Exchange Agreement dated April 29, 2000, between Registrant and  holders of membership interests in PacificNet.com LLC. (3)                      |   |
| 2.4            | Agreement  dated September 30, 2000, among the Company and the "Purchasers"  named therein. (4)                                                             |   |
| 2.5            | Supplemental  Agreement dated October 3, 2000, among the Company and the  "Purchasers" named therein. (4)                                                   |   |
| 2.6            | Deed  of Waiver, dated October 3, 2000, by Creative Master Limited in favor of the  Company. (4)                                                                      |   |
| 3.1            | Certificate  of Incorporation, as amended. (3)                                                                                                                        |   |
| 3.2            | By  Laws of the Company. (5)                                                                                                                                          |   |
| 3.3            | Amendment  to By Laws of the Company. (2)                                                                                                                             |   |
| 4              | Specimen  Stock Certificate of the Company.                                                                                                                           |   |
| 10.1           | Form  of Indemnification Agreement with officers and directors. (1)                                                                                                   |   |
| 10.2           | Amendment  to 1998 Stock Option Plan. (6)                                                                                                                             |   |
| 10.3           | Form  of Notice of Stock Option Grant and Stock Option Agreement under the 1998  Stock Option Plan. (3)                                                               |   |
| 10.5           | Underwriting  Agreement, dated December 22, 1998, among the Company and the underwriters  named therein. (2)                                                          |   |
| 10.6           | Sub-Lease  Agreement LDA-2 dated September 22, 2000. (6)                                                                                                              |   |
| 10.7           | Sub-Lease  Agreement LDA-3 dated May 8, 2000. (6)                                                                                                                     |   |
| 10.8           | Agreement  dated July 28, 2001 for the sale and purchase of an equity interest in a  joint venture in the People’s Republic of China with Holley Group Co., Ltd. |   |

 

----

 (1) Incorporated by reference to the Company's Form SB-2 filed onOctober 21, 1998. (2) Incorporated by reference to theCompany's Form 10-KSB filed on March 30, 1999. (3) Incorporated by reference to theCompany's Form 8-K filed on August 11, 2000. (4) Incorporated by reference to the Company'sForm 8-K filed on October17, 2000. (5) Incorporated by reference to theexhibits of the Company's registration statement (file no. 33-14521-NY). (6) Incorporated by reference to theCompany's Form 10-KSB filed on March 30, 2001.             (b)        Reports on Form 8-K:
**Form8-K  - May 25, 2001****     **For purposes of NASDAQ compliance, the Companyrevised its table of security ownership of management and certain beneficialowners filed with the Securities Exchange Commission on April 30, 2001 as partof the Company's Definitive Proxy Statement for its 2001 Shareholder Meeting.**SIGNATURES**
In accordance with the requirements ofthe Securities Exchange Act of 1934, as amended, the Registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.
  PACIFICNET.COM, INC.     Date:  August 10, 2001By:/s/  TONY TONG       Tony  Tong  Chief Executive Officer     Date:  August 10, 2001By:/s/  CHARLES W. MUELLER      Charles  W. Mueller  Chief Financial Officer 
 

**INDEX TO EXHIBITS**
**Exhibit** **Number****Description**********  4Specimen  Stock Certificate of the Company.10.8Agreement  dated July 28, 2001 for the sale and purchase of an equity interest in a  joint venture in the People’s Republic of China with Holley Group Co., Ltd.