**UNITED STATES**
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-QSB

 

 

(Mark One)

[X] QUARTERLYREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THEQUARTERLY PERIOD ENDED March 31, 2003

 

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THETRANSITION PERIOD FROM ______________ TO ________________

 

Commission File Number____________

 
 
**WITNET INTERNATIONAL****, INC.**
(Exact name of small business issuer as specified in charter)
 

 

          NEVADA                                                                                                                                                          87-0772357

      (State or other                                                                                                                                                   (IRS Employer

     jurisdiction of incorporation)                                                                                                                         Identification No.)

 

 
Suite 404, 357 Bay Street, Toronto, Ontario M5H 2T7

(Address of principal executive offices)

 
 
(416) 367-8273
(Issuer's telephone number)

 
 

The Company had 112,803,021 shares of common stock as of March31, 2003

 

Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
CONTENTS

PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements

 

Item 2.   Management's Discussion and Analysis of Financial Condition

               and Results of Operations
 

Item 3.   Controls and Procedures

PART II. OTHER INFORMATION
 

Item 1.   Legal Proceedings
 

Item 2.   Changes in Securities
 

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
 

**Part I - FinancialInformation**

 

**WITNET INTERNATIONAL INC.**
CONSOLIDATED INTERIM FINANCIAL STATEMENTS

THREE MONTHS ENDEDMARCH 31, 2003 AND 2002

 

**CONTENTS**

 Consolidated  Balance Sheet 1Consolidated Statement of Deficit 2Consolidated  Statement of Earnings3Consolidated Statement of Cash Flows4Notes to Consolidated  Financial Statements 5 - 7    
 

**WITNET INTERNATIONAL INC.**
Consolidated  Balance Sheet

March 31, 2003 and2002

 

 
 **2003** 
2002**ASSETS**   **     Current**                Cash and Cash Equivalents   **$                 72** $         103,240             Accounts receivable**26,084** 91,452             Prepaid Expenses**143,905** 39,580             Loans to shareholders and directors**-** 20,343             Income taxes receivable**8,255**     6,124 **178,316** 260,739    **     Capital Assets****48,384** 51,309**     Guarantee Deposits****8,491**     19,061     **$    235,191**     $    331,109    **LIABILITIES**        **Current**                Accounts payable and accrued expenses**$    231,102** $     31,407             Advances from related company**52,388** 412,538             Loans from shareholders and directors**522,860**     - **806,350** 443,945         **Loan Payable****150,000**     - **956,350**     443,945    **SHAREHOLDERS' DEFICIENCY**   **     Capital Stock (note    3)****500,368** 483,740     **Paid In Capital****2,832,446** 1,556,100     **Accumulated Other    Comprehensive  Income****26,998**54,223     **Accumulated Deficit****(4,080,971)**     (2,206,899) **(721,159)**     (112,836)     **$    235,191**     $  331,109    
 

 

**APPROVED ON BEHALF OFTHE BOARD**

 

**                      "MUN SU HAN"                                                               "JASON CHUNG"             **

**                           Director                                                                                 Director**

1

**WITNET INTERNATIONAL INC.**
Consolidated Statementof Deficit

Three Months EndedMarch 31, 2003 and 2002

 

 
 **2003**     2002    **Deficit - beginning of period****$  (4,047,520)**     $  (2,051,519)         Net loss**(33,451)** (155,380)    **Deficit - end of period****$     (4,080,971)** $     (2,206,899)    
 

2

**WITNET INTERNATIONAL INC.**
Consolidated  Statement of Earnings

Three Months EndedMarch 31, 2003 and 2002

 
 
**2003** 
2002**Revenue**        Service**$     95,153** $      87,487     Other**3,726**     11,144 **98,879** 98,631    **Expenses****132,330**     254,011    **Net Loss****$     (33,451)** $    (155,380)    **Loss Per Share****$     (0.0003)** $      (0.0028)    **Weighted Average Number of Shares****112,803,021**     55,000,000    
 

3

**WITNET INTERNATIONAL INC.**
Consolidated Statementof Cash Flows

Three Months EndedMarch 31, 2003 and 2002

 
 
**2003** 
2002**Cash Flows from Operating Activities**        Net loss**$    (33,451)** $  (155,380)     Adjustment for non-cash items:                Depreciation**5,368** 5,069             Foreign currency translation**19,292**     31,835 **(8,791)** (118,476)     Change in non-cash working capital                Accounts receivable**80,047** (52,375)             Prepaid expenses**(15,914)** (24,380)             Income taxes receivable**(22)** 3,042             Accounts payable and accrued expenses**(148,698)** (38,834)             Advances from related company**119**     304,238 **(93,259)**     73,215    **Cash Flows from Investing Activities**        Capital assets**(19,602)** 3,820     Loans receivable**(26,953)** -     Loans to shareholders and directors**17,759** 19,101     Guarantee Deposits**16,707** 3,739     Investment**-**     1,819 **(12,089)**     28,479    **Net (Decrease) Increase in Cash****(105,348)** 101,694    **Cash - beginning of period****105,420**     1,546    **Cash - end of period****$               72** $      103,240    
4

**WITNET INTERNATIONAL INC.**
Notes to ConsolidatedFinancial Statements

Three Months EndedMarch 31, 2003 and 2002

Unaudited

 
**1.    Operations and Business

 
    a)    Operations
 

On June 28, 2002 the Company entered into a reverse takeover transaction whereby WitnetInternational, Inc. (formerly New Cinema Partners Inc. ("NCPP")), the legal parent, issued55,000,000 common shares in return for all outstanding common shares of Witnet Co. Ltd., (theacquirer for accounting purposes). As a result of this transaction, the former shareholders of WitnetCo. Ltd. received approximately 63% ownership of NCPP. After the transaction the company had96,475,021 common shares issued and outstanding.** 
    b)    Going Concern

 
The Company's financial statements are presented on a going concern basis, which contemplatesthe realization of assets and satisfaction of liabilities in the normal course of business. TheCompany has experienced recurring losses since inception and has negative  cash flows fromoperations that raise substantial doubt as to its ability to continue as a going concern. For thequarters ended March 31, 2003 and 2002, the Company experienced net losses of $33,451 and$155,380 respectively.** 
Beginning in 1997, Korea and other countries in the Asia Pacific region experienced a severecontraction in substantially all aspects of their economies.  This situation is commonly referred toas the 1997 Asian Financial Crisis.  In addition, the industry where the company is involved is aventure whose operational fluctuation is usually higher than other ordinary industries. In responseto the economic fluctuation, the Korean government and the private sector began implementingstructural reforms to historical business practices.  The accompanying financial statements reflectmanagement's current assessment of the impact to date of the economic situation on the financialposition of the Company. Actual results may differ materially from management's currentassessment.** 
The Company's ability to continue as a going concern is also contingent upon its ability to secureadditional financing, initiating sale of its product and attaining profitable operations.** 
Management is pursuing various sources of equity financing. Although the Company plans topursue additional financing, there can be no assurance that the Company will be able to securefinancing when needed or obtain such on terms satisfactory to the Company, if at all.** 
The financial statements do not include any adjustments to reflect the possible future effects onthe recoverability and classification of assets or the amounts and classification of liabilities thatmay result from the possible inability of the Company to continue as a going concern.** 
5** 

2.    Summary of Significant Accounting Policies
 

Theaccounting policies of the company are in accordance with generally acceptedaccounting principles of the United States of America, and their basis ofapplication is consistent. Outlined below are those policies consideredparticularly significant:** 

    a)    Basis of Financial Statement Presentation** 
These financial statements have been prepared in conformity with accounting principles generallyaccepted in the United States of America with the assumption that the Company will be able torealize its assets and discharge its liabilities in the normal course of business.** 
    b)    Unit of Measurement** 
The US Dollar has been used as the unit of measurement in these financial statements.** 
    c)    Revenue Recognition** 
The Company recognizes revenues upon delivery of merchandise sold, and on a percentage ofcompletion basis for services rendered for software development and set-up, which is based on theratio of actual costs incurred against the estimated costs to complete the service.** 
    d)    Cash and Cash Equivalents** 
Cash includes currency, cheques issued by others, other currency equivalents, current deposits andpassbook deposits.  Cash equivalents includes securities and short-term money market instrumentsthat can be easily converted into cash.  The investments that mature within three months from theinvestment date, are also included as cash equivalents. ** 
    e)    Investment** 
Investments in saleable securities are carried at cost.  Temporary fluctuation in value is reportedin a separate component of shareholders equity.  A decline in value due to non temporaryimpairment is charged to current operations.** 
    f)    Capital Assets** 
Capital assets are stated at cost.  Major renewals and betterments are capitalized and expendituresfor repairs and maintenance are charged to expense as incurred.  Depreciation is computed usingthe declining balance method at an annual rate of 45.1%.** 
    g)    Government Grants** 
Government grants are recognized as income over the periods necessary to match them with therelated costs that they are intended to compensate.** 

   h)    Accounting forForeign Currency Transactions and Translation** 
The Company's functional currency is the Korean Won.  Transactions in foreign currencies arerecorded in the Korean Won based on the prevailing rates of exchange on the transaction date.Monetary accounts with balances denominated in foreign currencies are recorded and reported inthe accompanying financial statements at the exchange rates prevailing at the balance sheet dateand the resulting translation gains and losses are charged to Accumulated Other Comprehensiveincome in stockholders' equity. **       **   i)    Income Tax** 
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for IncomeTaxes". Deferred taxes are provided on a liability method whereby deferred tax assets arerecognized for deductible temporary differences, and deferred tax liabilities are recognized fortaxable temporary differences. Temporary differences are the differences between the reportedamounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuationallowance when, in the opinion of management, it is more likely than not that some portion or allof the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted forthe effects of changes in tax laws and rates on the date of enactment.** 
    j)    Earnings or Loss per Share** 
The Company adopted FAS No.128, "Earnings per Share" which requires disclosure on thefinancial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) pershare is computed by dividing net income (loss) by the weighted average number of commonshares outstanding for the year. Diluted earnings (loss) per share is computed by dividing netincome (loss) by the weighted average number of common shares outstanding plus common stockequivalents (if dilutive) related to stock options and warrants for each year.** 
6** 
 
3.    Capital Stock 
 
Authorized
    150,000,000 common shares, parvalue $0.001 per share**  **2003**2002Issued       112, 803,021 common shares    (55,000,000 in 2002)**$  500,068**$  483,740

                                                                                

 
4.    Subsequent Events 
 

   a)    On April 3, 2003, the Company entered into an agreement with Julius Czurgo on the marketingof its products. The Company issued 10,000,000 common shares as payment towards theagreement.** 
   b)    On April 15, 2003, the Company entered into an agreement with Consumer Direct Link,Inc.("CDL"). In accordance with this agreement, CDL will market "Mobilick", a remoteaccess/control software solution for a term of 24 months at a retail price of $40.  CDL willreceive 30% of every dollar derived from the retail sale of Mobilick from theCDL/Mobilick E-commerce site.** 
7
 
 

**Item 2. Management's Discussion and Analysis or Plan of Operation.**

The following  discussion  relates to the results of our operations to date, and ourfinancial  condition:  This  report  contains  forward  looking  statements relating to ourCompany's future economic  performance,  plans and objectives of management forfuture operations, projections of revenue mix and other financial items  that are  based onthe  beliefs  of, as well as  assumptions  made by and information  currently  known to,our management.  The words "expects,  intends, believes,   anticipates,   may,  could,  should"  and  similar  expressions  and variationsthereof are  intended to identify  forward-looking  statements.  The cautionary  statementsset forth in this section are intended to emphasize that actual results may differ materiallyfrom those contained in any forward looking statement.

 

Development stage activities
 
The Company has been a development stageenterprise from its inception February 18,1999. As disclosed in the currentreport on the Company's Form 8-K, the Company has completed the acquisition ofWitnet Co. Ltd., a private Korean software company which is now the Company'sprimary operating subsidiary.  The Company has changed its name to WitnetInternational, Inc. and changed its fiscal year end to December 31, the year endof Witnet Co. Ltd.

 

Since September 2002, in connection with the acquisition of  Witnet, theCompany is now  pursuing the business of Witnet Co. Ltd. and will continue thebase of operations in Seoul, South Korea and continue the marketing of its primarywireless internet related products, "Mobilick", "X-Stan" and "X- Soloman" in SouthKorea and Japan.  The Company has also commenced marketing of those products inNorth America and Europe.

 

Additionally, the Company will continue to enter into service related business opportunities however, it will attempt to maximize the profitability of such engagementsby reducing the number of its permanent employees and rather engage special teams forsuch service engagements. Historically the Company had maintained full time employeeson staff in anticipation of service work and this method has proven to be a financialburden and generally not profitable. Additionally, the company's main focus will be onthe marketing of its primary product "Mobilick" in an effort to benefit from theinvestment made to date in the development of the product. 

 

The Company has reduced its Research and Development spending and refocused onmarketing of its main products. As a result the Company reduced the number ofemployees through the reduction of R&D staff. The Company has commenced marketingof its products in North America and should start to see results of this activity by the firstquarter of 2003. 

 

The Company entered into its first relationship with a North American company to sellits products in January 2003 through the signing of a Letter of Intent with ConsumerDirect Link, Inc. (CDL) who the company intends to co-market its products with themobile secure pervasive computer products of CDL.  The Company believes this is animportant factor in the entry into the North American market place due to CDL's newproduct launch and their association with IBM.

 

The Company expects that it will employee fourteen (14) full time employees, and four(4) outside consultants during the next twelve months. Also, the Company intends toconduct a private placement financing to assist in its operations through debt and orequity financing. The financing is intended to extend its marketing efforts over the nexttwelve months. 
 

Since March 2001 the Company was in the process of identifying and evaluating variousacquisition candidate companies and or assets. The Company has entered into severalletters of intent and agreements to acquire various companies or various companies assetshowever, to date, has not closed the acquisition of any such company or any such assets.

 

Since July, 2000 the Company was in the process of developing a film production anddistribution business by utilizing assets and talent it acquired pursuant to an assetacquisition consummated on June 27, 2000.

 

Prior to that the Company had been involved in a venture to develop and market internetsoft-ware, and a venture to create own and manage a proprietary type of movie theatres,none of which had resulted in any revenues.

 

From March 2001 to September 15, 2002, management devoted the majority of its effortsto initiating the process of finding a suitable business for the Company to becomeinvolved with. This process concluded with the September 15, 2002 closing on the acquisition of Witnet Co., Ltd.

 

These activities were funded by the Company's management and investments fromstockholders. 
 

For the year ended December 31, 2002, this amount was $532,054 which wassubsequently exchanged for equity.
 

In February, 2002, the Company accepted the resignation of John Cox who has acted asSecretary and Director of the Company.

 

The Company has not yet generated sufficient revenues during its limited operatingperiod of reorganization to fund its ongoing operating expenses, or fund its marketingplans and product development activities. There can be no assurance that development ofthe marketing plans will be completed and fully tested in a timely manner and within thebudget constraints of management and that the Company's marketing research willprovide a profitable path.

 

Results of Operations for the quarter ended March31, 2003

 

For the quarter ended March 31, 2003, the Company generated net sales of $98,879.The Company's general and administrative costs aggregated approximately $132,330 forthe quarter ended March 31, 2003. These expenses represent carry over lossesfrom the Company's re-organization, bank charges and the payment of fees to thestock transfer agent and other expenses necessary for the continuation of thebusiness. 

 

Liquidity and Capital Resources. 

 

The Company had a cash balance of $72 atMarch 31, 2003, as compared to $103,240 for the quarter ended March 31, 2002.    During the next twelve months the Company's Plan ofOperation recognizes that due to the fact that the company does not have sufficient cashon hand to continue its current operations based on its current general and administrativeexpenses that the company will require private placement financing or will requireadditional loans from shareholders or the officers and directors of the Company.Additionally, the Company recognizes that there are no assurances that it will besuccessful in obtaining any private placement financing the Company is confident that itwill be capable of obtaining such loans. The Company intends to sell its intellectualproperty rights at this time however, in connection with the development financingstrategy it may joint venture or co-produce projects related to the underlying intellectualproperty. The Company does not anticipate a significant increase or decrease in thenumber of full time employees it currently employs. In view of the uncertaintiesconcerning the Company's continued existence as a going concern, the Company doesnot plan to pursue its business plan as an independent film production company. In orderto mitigate the possibility of the Company failing to maintain as a going concern theCompany will endeavor to initiate the following steps: 1. The Company will endeavor tocomplete an acquisition in the software development field. 2. The Company willendeavor to complete a private placement to fund future operations should the Companycomplete an acquisition in the software development field.

 

The Company's current expenses are manageable. All the Company's executives andconsultants have not taken a salary to date and will not draw a salary until such time asthe Company completes a significant financing. Management loans should satisfy currentexpenses until such time the Company completes any such financing and managementbelieves that it will be capable of maintaining under current arrangements for at least thenext twelve months. Thereafter, if cash generated from operations is insufficient tosatisfy the Company's working capital and capital expenditure requirements, theCompany may be required to sell additional equity or debt securities or obtain additionalcredit facilities. There can be no assurance that such financing, if required, will beavailable on satisfactory terms, if at all.

 

 

**Item 3.   Controls and Procedures.**

 

The Company's Chief Executive Officer and Chief Financial Officer have concluded, basedon an evaluation conducted within 90 days prior to the filing date of this quarterly report on Form10-QSB, that the Company's disclosure controls and procedures have functioned effectively so asto provide those officers the information necessary whether:
 

        (i) this quarterly report on Form 10-QSB contains any untrue statement of a materialfact or omits to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report on Form 10-QSB, and
 

        (ii) the financial statements, and other financial information included in this quarterlyreport on Form 10-QSB, fairly present in all material respects the financial condition,results of operations and cash flows of the Company as of, and for, the periodspresented in this quarterly report on Form 10-QSB.
There have been no significant changes in the Company's internal controls or in other factorssince the date of the Chief Executive Officer's and Chief Financial Officer's evaluation that couldsignificantly affect these internal controls, including any corrective actions with regards to significantdeficiencies and material weaknesses. 

**PART II -- OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

    None.

 

Item 2. Changes in Securities
None

Item 3.  Defaults Upon Senior Securities

         None.

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

         None.

Item 5.  Other Information

         None
 

**Item 6. Exhibits and Reports on Form 8-K.**

       None.

 

**SIGNATURES**

 

 In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

 

 

**WITNET INTERNATIONAL, INC.**

(Registrant) 

 

Date: May 23, 2003

 

/s/ Jason Chung, CFO                                           /s/ Mun Su Hun

Jason Chung, CFO                                                Mun Su Hun, President

 

6

**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATIONS**

****

 I, Jason Chung, certify that: 

1.    I have reviewed this quarterly report on Form 10-QSB of Witnet International Inc.;

2.    Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material face necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 

4.    The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: 

     a.    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; 

     b.    evaluated the effectiveness of the registrant's disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the"Evaluation Date"); and 

 

    c.    presented in this quarterly our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 

5.    The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): 

     

     a.    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and 

     

     b.    any fraud, whether or not material, that involves management or other employees who

have a significant role in the registrant's internal controls; and 

6.    The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent, evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses. 

 

Date:     May 23, 2003

 

 /s/ Jason Chung 

Jason Chung, Chief Financial Officer 

7

**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATIONS**

****

 I, Mun Su Han, certify that: 

1.    I have reviewed this quarterly report on Form 10-QSB of Witnet International Inc.;

2.    Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material face necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 

4.    The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: 

     a.    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; 

     b.    evaluated the effectiveness of the registrant's disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the"Evaluation Date"); and 

 

    c.    presented in this quarterly our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 

5.    The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): 

     

     a.    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and 

     

     b.    any fraud, whether or not material, that involves management or other employees who

have a significant role in the registrant's internal controls; and 

6.    The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent, evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses. 

 

Date:     May 23, 2003

 

 /s/ Mun Su Han

Mun Su Han, President 

8********************************************************************