U.S. SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A1
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended: Commission File Number:
June 30, 2003 2-98997-NY
CHINA CABLE AND COMMUNICATION, INC.
-------------------------------------------------
(Exact name of Company as specified in its charter)
DELAWARE 11-2717273
------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
Suite 805, One Pacific Place,
88 Queensway, Hong Kong
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(852) 2591 1221
- --------------------------------------------------------------------------------
(Company's telephone number, including area code)
NOVA INTERNATIONAL FILMS, INC.
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Company (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 Company was
required to file such reports) and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock outstanding as of June 30, 2003 was
66,885,369.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
CHINA CABLE AND COMMUNICATION, INC.
FORM 10-QSB/A1
INDEX
Page
EXPLANATORY NOTE 1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements...................................... 2
Item 2. Management's Discussion and Analysis..................... 16
Item 3. Controls and Procedures.................................. 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................ 21
Item 2. Changes in Securities and Use of Proceeds................ 21
Item 3. Defaults Upon Senior Security Holders.................... 21
Item 4. Submission of Matters to a Vote of Security Holders...... 21
Item 5. Other Information........................................ 21
Item 6. Exhibits and Reports on Form 8-K......................... 22
SIGNATURES ......................................................... 22
EXPLANATORY NOTE
----------------
Subsequent to the filing of the Quarterly Report on Form 10-QSB for the six
months ended June 30, 2003, the Company issued certain shares of the Company's
common stock that are related to the six months ended June 30, 2003 and the
expenses incurred during this period should have been recorded in the Company's
consolidated financial statements for the six months ended June 30, 2003. The
Company is filing this Amendment No. 1 on Form 10-QSB/A1 to restate the
previously filed consolidated financial statements on Form 10-QSB for the
quarter ended June 30, 2003. The restatements relate to the following:
a. On August 8, 2003, the Company approved a director's compensation agreement
with Mr. Jun-Tang Zhao, a director of the Company, to compensate him for
acting as a director and head of project development in China to
co-ordinate the Company's investment in the Baoding cable TV network with
the joint venture partner and local government for a period of two years
starting from February 28, 2003 by issuing 1,000,000 shares of the
Company's common stock. In accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") and the Emerging Issues Task Force Consensus in Issue No.
96-18, "Accounting for Equity Instruments that are issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services"
("EITF 96-18"), the Company has accounted for the issuance of stock as
director's compensation based on the fair market value of the Company's
stock as at the date of commencement of this agreement. For the three
months ended June 30, 2003 and the six months ended June 30, 2003, the
Company expensed $77,500 and $103,330, respectively, associated with this
agreement as director's compensation and recorded a liability of $103,333
at June 30, 2003. The director compensation agreement with Mr. Zhao was
terminated on October 27, 2003 and the remaining expense of $516,668 will
be recorded in the third quarter.
b. By a directors' resolution dated August 8, 2003, the Company's board of
directors approved the issuance of 1,200,000 shares of the Company's common
stock to Mr. Yau-Sing Tang, a director of the Company, for his services
rendered in connection with the acquisition of Solar Touch Limited in
February 2003. In accordance with SFAS 123 and EITF 96-18, the Company
expensed $744,000 associated with the issuance of these shares and included
this expense in "Merger Costs" for the six months ended June 30, 2003 and
recorded a liability of $744,000 at June 30, 2003.
All the information presented below in the consolidated financial statements and
the related notes include the above restatements and Item 2 - Management
Discussion and Analysis has been amended accordingly.
This Amendment No. 1 on Form 10-QSB/A1 does not reflect events occurring after
the filing of the Company's original Quarterly Report on Form 10-QSB for the six
months ended June 30, 2003, or modify, amend or update the disclosures therein
in any way other than as set forth above.
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA CABLE AND COMMUNICATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 2003 December 31, 2002
(unaudited) (audited)
(restated)
CURRENT ASSETS
Deferred merger cost $ -- $ 20,468
Deferred consulting fees 3,701,562 --
------------ ------------
Total current assets 3,701,562 20,468
------------ ------------
NON-CURRENT ASSETS
Equity investment 7,459,421 7,218,860
------------ ------------
------------ ------------
$ 11,160,983 $ 7,239,328
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 931,134 $ 20,468
Amount due to a shareholder 3,785 --
Amount due to a director 2,500 --
------------ ------------
Total liabilities 937,419 20,468
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, $.00001 par value;
100,000,000 shares authorized,
66,885,369 shares issued and outstanding 669 1,000
Additional paid-in capital 13,900,550 5,874,892
Retained earnings (deficit) (3,677,655) 1,342,968
------------ ------------
Total stockholders' equity 10,223,564 7,218,860
------------ ------------
Total liabilities and stockholders' equity $ 11,160,983 $ 7,239,328
------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements.
2
CHINA CABLE AND COMMUNICATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
2003 2002
(restated)
REVENUE $ -- $ --
EXPENSES
Directors' compensation (214,700) --
Professional fees (47,048) --
Consulting fees (945,484) --
------------ ------------
LOSS FROM OPERATIONS (1,207,232) --
OTHER INCOME (EXPENSES)
Merger costs (12,139) --
Interest income 325 --
Bank charges (121) --
Equity in earnings of investment 184,038 140,870
------------ ------------
PROFIT (LOSS) BEFORE TAXES (1,035,129) 140,870
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (1,035,129) $ 140,870
============ ============
Net income (loss) per share - basic and diluted $ (0.02) $ 0.00
============ ============
Weighted average no. of shares outstanding - basic and diluted 64,225,570 49,567,002
============ ============
Note: The number of weighted average shares outstanding as at June 30, 2002 is
the amount of shares issued for the reverse merger and is for comparison
purposes only.
The accompanying notes are an integral part of these
consolidated financial statements.
3
CHINA CABLE AND COMMUNICATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
2003 2002
(restated)
REVENUE $ -- $ --
EXPENSES
Directors' compensation (240,533) --
Professional fees (58,974) --
Consulting fees (1,191,465) --
------------ ------------
LOSS FROM OPERATIONS (1,490,972) --
OTHER INCOME (EXPENSES)
Merger costs (3,770,416) --
Interest income 325 --
Bank charges (121) --
Equity in earnings of investment 240,561 204,342
------------ ------------
PROFIT (LOSS) BEFORE TAXES (5,020,623) 204,342
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (5,020,623) $ 204,342
============ ============
Net income (loss) per share - basic and diluted $ (0.09) $ 0.00
============ ============
Weighted average no. of shares outstanding - basic and diluted 58,786,149 49,567,002
============ ============
Note: The number of weighted average shares outstanding as at June 30, 2002 is
the amount of shares issued for the reverse merger and is for comparison
purposes only.
The accompanying notes are an integral part of these
consolidated financial statements.
4
CHINA CABLE AND COMMUNICATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
2003 2002
(restated)
Cash flows from operating activities:
Net (loss) income $(5,020,623) $ 204,342
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock issued for consulting fees 1,191,465 --
Stock issued for directors' compensation 137,200 --
Merger costs paid by the issue of shares 2,945,000 --
Equity in earnings of investment (240,561) (204,342)
Changes in operating assets and liabilities:
Decrease in deferred merger costs 20,468 --
Increase in accounts payable and accrued liabilities 910,666 --
Increase in amounts due to a shareholder and a director 6,285 --
----------- -----------
Net cash used in operating activities (50,100) --
----------- -----------
Cash flows from financing activities:
Cash received from exercise of options 50,000 --
Cash received in merger 1,809
Repayment of short term loan from related party (1,709) --
----------- -----------
Net cash provided by financing activities 50,100 --
----------- -----------
Net increase in cash -- --
Cash at beginning of period -- --
----------- -----------
Cash at end of period $ -- $ --
=========== ===========
Supplemental Schedule of non-cash investing and financing activities:
Common shares issued for consulting and directors' fees $ 5,030,227 $ --
Common shares issued for merger costs $ 2,945,000 $ --
The accompanying notes are an integral part of these
consolidated financial statements.
5
CHINA CABLE AND COMMUNICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
1. DESCRIPTION OF BUSINESS AND BUSINESS COMBINATION
China Cable and Communication, Inc., formerly Nova International Films,
Inc. (the "Company") was incorporated on November 27, 1984 in the State of
Delaware. During February 2003, the Company acquired all of the issued and
outstanding shares of Solar Touch Limited ("Solar Touch") from Kingston Global
Co. Limited in a reverse merger. As consideration for Solar Touch's shares, the
Company issued 49,567,002 shares of its common stock. Solar Touch is a British
Virgin Islands corporation which owns a 49% equity interest in Baoding Pascali
Broadcasting Cable TV Integrated Information Networking Co., Limited
("Baoding").
Baoding, a company established in the People's Republic of China (the
"PRC") and located in the city of Baoding, was formed pursuant to a joint
venture agreement dated July 23, 1999 and signed between Baoding Pascali
Multimedia Transmission Networking Co. Limited (the "JV partner"), a State-owned
enterprise established in the PRC, and Solar Touch. Baoding is to operate for a
period of 20 years and is principally engaged in the construction and operation
of a cable integrated TV transmission network system in the same area.
2. BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared by the
Company and include all material adjustments which in the opinion of management
are necessary for a fair presentation of financial results for the six months
ended June 30, 2003 and 2002. All adjustments and provisions included in these
statements are of normal recurring nature. The December 31, 2002 audited balance
sheet only includes the balances of Solar Touch Limited and is for comparative
purposes only. The information contained herein is condensed from that which
would appear in the annual financial statements; accordingly, the financial
statements included herein should be reviewed in conjunction with the Solar
Touch financial statements and related notes thereto included in the Form 8-K
dated February 28, 2003 filed by the Company with the Securities and Exchange
Commission. In addition, the financial statements included herein should be read
in conjunction with the financial statements of the Company included in the Form
10-KSB and Form 10-QSB for the year ended October 31, 2002 and the three-month
period ended January 31, 2003, respectively. The results of operations for the
interim period presented are not necessarily indicative of the results that can
be expected for the entire year.
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 amount of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. However, actual results could differ materially
from those results.
6
CHINA CABLE AND COMMUNICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
3. RESTATEMENTS
Subsequent to the filing of the Quarterly Report on Form 10-QSB for the six
months ended June 30, 2003, the Company issued certain shares of the Company's
common stock that are related to the six months ended June 30, 2003 and the
expenses incurred during this period should have been recorded in the Company's
consolidated financial statements for the six months ended June 30, 2003. As a
result of issuance of those shares, the Company has restated its previously
reported consolidated financial statements for the six months ended June 30,
2003. The restatements relate to the following:
a. On August 8, 2003, the Company approved a director's compensation agreement
with Mr. Jun-Tang Zhao, a director of the Company, to compensate him for
acting as a director and head of project development in China to
co-ordinate the Company's investment in the Baoding cable TV network with
the joint venture partner and local government for a period of two years
starting from February 28, 2003 by issuing 1,000,000 shares of the
Company's common stock. In accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") and the Emerging Issues Task Force Consensus in Issue No.
96-18, "Accounting for Equity Instruments that are issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services"
("EITF 96-18"), the Company has accounted for the issuance of stock as
director's compensation based on the fair market value of the Company's
stock as at the date of commencement of this agreement. For the three
months ended June 30, 2003 and the six months ended June 30, 2003, the
Company expensed $77,500 and $103,333, respectively, associated with this
agreement as director's compensation and recorded a liability of $103,333
at June 30, 2003. The director compensation agreement with Mr. Zhao was
terminated on October 27, 2003 and the remaining expense of $516,668 will
be recorded in the third quarter.
b. By a directors' resolution dated August 8, 2003, the Company's board of
directors approved the issuance of 1,200,000 shares of the Company's common
stock to Mr. Yau-Sing Tang, a director of the Company, for his services
rendered in connection with the acquisition of Solar Touch Limited in
February 2003. In accordance with SFAS 123 and EIFT 96-18, the Company
expensed $744,000 associated with the issuance of these shares and included
this expense in "Merger Costs" for the six months ended June 30, 2003 and
recorded a liability of $744,000 at June 30, 2003.
The effect of the restatements discussed above on the consolidated balance sheet
at June 30, 2003, the consolidated statement of operations for the three months
ended June 30, 2003 and for the six months ended June 30, 2003 and the
consolidated statement of cash flow for the six month ended June 30, 2003, is
shown in the following tables:
7
CHINA CABLE AND COMMUNICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
3. RESTATEMENTS (Continued)
Consolidated Balance Sheet at June 30, 2003
-------------------------------------------
As previously
reported Restatements As restated
CURRENT ASSETS
Deferred consulting fees $ 3,701,562 $ 3,701,562
NON-CURRENT ASSETS
Equity investment 7,459,421 7,459,421
------------ ------------
Total assets $ 11,160,983 $ 11,160,893
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 83,801 847,333 $ 931,134
Amount due to a shareholder 3,785 3,785
Amount due to a director 2,500 2,500
------------ ------------
Total liabilities 90,086 937,419
------------ ------------
STOCKHOLDERS' EQUITY
Common stocks 669 669
Additional paid-in capital 13,900,550 13,900,550
Retained deficit (2,830,322) (847,333) (3,677,655)
------------ ------------
Total stockholders' equity 11,070,897 10,223,564
------------ ------------
Total liabilities and stockholders' equity $ 11,160,983 $ 11,160,983
============ ============
8
CHINA CABLE AND COMMUNICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
3. RESTATEMENTS (Continued)
Consolidated Statement of Operations
------------------------------------
For the three months ended June 30, 2003
----------------------------------------
As previously
reported Restatements As restated
REVENUE $ -- $ --
EXPENSES
Director's compensation (137,200) (77,500) (214,700)
Professional fees (47,048) (47,048)
Consulting fees (945,484) (945,484)
------------ ------------
LOSS FROM OPERATIONS (1,129,732) (1,207,232)
OTHER INCOME (EXPENSES)
Merger costs (12,139) (12,139)
Interest income 325 325
Bank charges (121) (121)
Equity in earnings of investment 184,038 184,038
------------ ------------
LOSS BEFORE TAXES (957,629) (1,035,129)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS $ (957,629) $ (1,035,129)
------------ ------------
Net loss per share - basic and diluted $ (0.01) $ (0.02)
============ ============
Weighted average no. of shares outstanding
basic and diluted 64,225,570 64,225,570
============ ============
9
CHINA CABLE AND COMMUNICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
3. RESTATEMENTS (Continued)
Consolidated Statement of Operations
------------------------------------
For the six months ended June 30, 2003
--------------------------------------
As previously
reported Restatements As restated
REVENUE $ -- $ --
EXPENSES
Director's compensation (137,200) (103,333) (240,533)
Professional fees (58,974) (58,974)
Consulting fees (1,191,465) (1,191,465)
------------ ------------
LOSS FROM OPERATIONS (1,387,639) (1,490,972)
OTHER INCOME (EXPENSES)
Merger costs (3,026,416) (744,000) (3,770,416)
Interest income 325 325
Bank charges (121) (121)
Equity in earnings of investment 240,561 240,561
------------ ------------
LOSS BEFORE TAXES (4,173,290) (5,020,623)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS $ (4,173,290) $ (5,020,623)
Net loss per share - basic and diluted $ (0.07) $ (0.09)
============ ============
Weighted average no. of shares outstanding
basic and diluted 58,786,149 58,786,149
============ ============
10
CHINA CABLE AND COMMUNICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
3. RESTATEMENTS (Continued)
Consolidated Statement of Operations
------------------------------------
For the six months ended June 30, 2003
--------------------------------------
As previously
reported Restatements As restated
Cash flows from operating activities:
Net loss $(4,173,290) (847,333) $(5,020,623)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock issued for consulting fees 1,191,465 1,191,465
Merger costs paid by the issue of shares 2,945,000 2,945,000
Stock issued for director's compensation 137,200 137,200
Equity in earnings of investment (240,561) (240,561)
Changes in operating assets and liabilities:
Decrease in deferred merger costs 20,468 20,468
Increase in accounts payable and accrued
liabilities 63,333 847,333 910,666
Increase in amounts due to a shareholder and a
director 6,285 6,285
----------- -----------
Net cash used in operating activities (50,100) (50,100)
----------- -----------
Cash flows from financing activities:
Cash received from exercise of options 50,000 50,000
Cash received in merger 1,809 1,809
Repayment of short term loan from related party
(1,709) (1,709)
----------- -----------
Net cash provided by financing activities 50,100 50,100
----------- -----------
Net increase in cash -- --
Cash at beginning of period -- --
----------- -----------
Cash at end of period $ -- $ --
=========== ===========
11
CHINA CABLE AND COMMUNICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(UNITED STATES DOLLARS)
4. EQUITY INVESTMENT
The equity investment represents a 49% equity interest in Baoding, a
company established in the PRC and principally engaged in the construction and
operation of a cable integrated TV transmission network system in Baoding, the
PRC.
Baoding maintains its books and records in Renminbi ("RMB") the PRC's
currency. Translation of amounts in United States dollars ("US$") has been made
at the single rate of exchange of US$1.00:RMB8.3. No representation is made that
RMB amounts have been or could be, converted into US$ at that rate. On January
1, 1994, the PRC government introduced a single rate of exchange as quoted daily
by the People's Bank of China (the "Unified Exchange Rate"). This quotation of
exchange rates does not imply free convertibility of RMB to other foreign
currencies. All foreign exchange transactions continue to take place either
through the Bank of China or other banks authorized to buy and sell foreign
currencies at the exchange rate quoted by the People's Bank of China. Approval
of foreign currency payments by the Bank of China or other institutions requires
submitting a payment application form together with suppliers' invoices,
shipping documents and signed contracts.
As of June 30, 2003, the unaudited condensed balance sheet of Baoding was
as follows:
Current assets $ 1,844,629
Non-current assets 17,156,001
-----------
Total assets $19,000,630
===========
Current liabilities $ 3,720,744
Non-current liabilities --
Capital and reserves 15,279,886
-----------
Total liabilities and equity $19,000,630
===========
The unaudited results of operations of Baoding for the three months ended
June 30, 2003 and 2002 are summarized as follows:
2003 2002
Net sales $ 1,406,510 $ 1,099,098
=========== ===========
Income from operations $ 541,733 $ 287,353
Other income (expenses) 143 137
----------- -----------
Income before tax provision 541,876 287,490
Income tax (166,288) --
----------- -----------
Net income $ 375,588 $ 287,490
=========== ===========
The Company's equity in earnings
of Baoding (49%) $ 184,038 $ 140,870
=========== ===========
12
The unaudited results of operations of Baoding for the six months ended
June 30, 2003 and 2002 are summarized as follows:
2003 2002
Net sales $ 2,227,058 $ 1,943,486
=========== ===========
Income from operations $ 657,142 $ 418,536
Other income (expenses) 87 (1,512)
----------- -----------
Income before tax provision 657,229 417,024
Income tax (166,288) --
----------- -----------
Net income $ 490,941 $ 417,024
=========== ===========
The Company's equity in earnings
of Baoding (49%) $ 240,561 $ 204,342
=========== ===========
5. INCOME TAXES
The Company is a British Virgin Islands investment holding company and does
not carry on any business and does not maintain any offices in the United States
of America. No provision for income taxes or tax benefits for the Company has
been made.
The Company provides for deferred income taxes using the liability method,
by which deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities. The tax consequences of those differences are classified as current
or non-current based upon the classification of the related asset and
liabilities in the financial statements. No provision for deferred taxation has
been made, as there are no temporary differences at the balance sheet date.
6.EARNINGS (LOSS) PER COMMON SHARE
Basic EPS amounts are based on the weighted average shares of common stock
outstanding. Diluted EPS assumes the conversion, exercise or issuance of all
potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per
share. For presentation and comparative purposes, the Company has assumed
49,567,002 shares were outstanding during 2002 to the date of the reverse merger
of the Company and Solar Touch Limited.
7. CONSULTING AGREEMENTS
On February 28, 2003, the Company entered into one-year consulting
agreements with GCA Consulting Limited ("GCA") and Orient Financial Services,
Inc. ("Orient"). The services to be rendered include consultation and advisory
services relating to administrative and corporate development of the Company and
other managerial assistance as mutually agreed upon between the parties hereto.
As consideration for the services to be rendered, the Company issued 2,960,931
and 1,800,000 shares of common stock to GCA and Orient, respectively.
13
On May 3, 2003, the Company entered into a one-year consulting agreement
with Mr. Patrick J. Ko. The services to be rendered include consultation and
advisory services relating to management and identification of potential
strategic partners in the United States. As consideration for the services to be
rendered, the Company issued 500,000 shares of common stock and five-year
warrants to purchase 250,000 shares of common stock, with an exercise price
equal to $0.45 per share. On May 30, 2003, the Company entered into a one-year
consulting agreement with Mr. Rong-song Ni. The services to be rendered include
consultation and advisory services relating to the strategic planning of the
Company and identification of a potential joint venture partner in China. As
consideration for the services to be rendered, the Company issued 1,000,000
shares of common stock and five-year warrants to purchase 1,000,000 shares of
common stock, with an exercise price of $0.45 per share. On June 26, 2003, the
Company entered into a one-month consulting agreement with Mr. Jason M. Genet
who is primarily focused on identification of potential merger and acquisition
activities and strategic partnership. As consideration for the services
rendered, the Company issued 75,000 shares of common stock.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") and the Emerging Issues
Task Force Consensus in Issue No. 96-18, "Accounting for Equity Instruments that
are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18"), the Company has accounted for the
consulting agreements based on the fair market value of the Company's stock at
the commencement date of the agreement. For the three months and six months
ended June 30, 2003, the Company expensed $945,484 and $1,191,465, respectively
associated with these agreements and recorded deferred consulting fees of
$3,701,562 at June 30, 2003.
8. OPTION AGREEMENT
On February 28, 2003, the Company granted an option to DSS Associates,
Carter Fleming International Ltd., Grand Unison Limited, and Emerging Growth
Partners, Inc. (the "Optionees") to purchase an aggregate of 4,750,000 shares of
common stock of the Company for $50,000. The optionees facilitated the
acquisition of the Company and Solar Touch. On April 30, 2003, the optionees
exercised the 4,750,000 options. In accordance with SFAS 123 and EITF 96-18, the
Company expensed $2,945,000 associated with these options and included this
expense in "Merger Costs" for the six months ended June 30, 2003.
9. DIRECTORS' COMPENSATION
During the six months ended June 30, 2003, 196,000 shares of the Company's
common stock were issued in lieu of cash to three of its directors, Mr. George
Raney, Mr. Raymond Ying-Wai Kwan, and Mr. Yau-Sing Tang as compensation for
their services rendered to the Company. In addition, on August 8, 2003, the
Company approved another director's compensation agreement with Mr. Jun-Tang
Zhao to compensate him for acting as a director and head of project development
in China for a period of two years starting from February 28, 2003 by issuing
1,000,000 shares of the Company's common stock. (See Note 3.) In accordance with
SFAS 123 and EITF 96-18, the Company has accounted for the directors'
compensation based on the approximate fair market value of the Company's stock
for the periods the services were rendered. For the three months and six months
ended June 30, 2003, the Company expensed $214,700 and $240,533 respectively, as
directors' compensation and recorded a liability of $103,333 at June 30, 2003.
Subsequent to August 8, 2003, the 1,000,000 shares were issued to Mr. Zhao. The
director compensation agreement with Mr. Zhao was terminated on October 27, 2003
and the remaining expense of $516,668 will be recorded in the third quarter.
14
10. SHARES ISSUED TO MR. YAU-SING TANG
By a directors' resolution dated August 8, 2003, the Company's board of
directors approved the issuance of 1,200,000 shares of the Company's common
stock to Mr. Yau-Sing Tang for his services rendered in connection with the
acquisition of Solar Touch Limited on February 28, 2003. In accordance with SFAS
123 and EITF 96-18, the Company expensed $744,000 associated with the issuance
of these shares and recorded this expense in "Merger Costs" for the six months
ended June 30, 2003 and recorded a liability of $744,000 at June 30, 2003.
Subsequent to August 8, 2003, the 1,200,000 shares were issued to Mr. Tang. (See
Note 3.)
11. SUBSEQUENT EVENT
During July 2003, the Company entered into one-year consulting agreements
with Mr. Chiu-wing Chiu and Mr. Wai Tam. The services to be rendered include
identifying sources for the acquisition of the Company's equity securities. As
consideration for the services to be rendered, the Company will issue 600,000
and 2,200,000 shares of common stock to Mr. Chiu and Mr. Tam respectively. In
accordance with SFAS 123 and EITF 96-18, the total value of the services is
$1,120,000 and will be expensed over the terms of the agreements.
15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
This quarterly report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, and Section 21E
of the Securities Exchange Act of 1934. These statements relate to future events
or the Company's future financial performance. The Company has attempted to
identity forward-looking statements by terminology including "anticipates,"
"believes," "expects," "can," "continue," "could," estimates," "intends," "may,"
"plans," "potential," "predict," "should" or "will" or the negative of these
terms or other comparable terminology. Although the Company believes that the
expectation reflected in the forward-looking statements are reasonable, the
Company cannot guarantee future results, level of activity, performance or
achievements. The Company expectations are as of the date this Form 10-QSB is
filed, and the Company does not intend to update any of the forward-looking
statements after the date this quarterly report on Form 10-QSB is filed to
confirm these statements to actual results, unless required by law.
Overview
China Cable and Communication, Inc., formerly Nova International Films,
Inc. (the "Company") was incorporated on November 27, 1984 in the State of
Delaware. Prior to May 1993, the Company was principally engaged in the business
of developing, financing and producing motion pictures for distribution. Since
May 1993, however, the Company did not have current business operations until
February 2003 when pursuant to a Share Exchange Agreement (the "Exchange
Agreement") the Company acquired a 100% ownership interest in Solar Touch
Limited ("Solar Touch") in exchange for 49,567,002 (post-split) shares of the
Company's common stock. In addition, the Share Exchange Agreement provided for
the issuance of approximately 4,761,000 (post-split) shares to certain financial
consultants. Solar Touch is a British Virgin Islands corporation which owns a
49% equity interest in Baoding Pascali Broadcasting Cable TV Integrated
Information Networking, Co., Ltd. ("Baoding"). Baoding, a company established in
the People's Republic of China ("PRC"), owns and operates an exclusive cable TV
network ("Baoding network") in the municipality of Baoding, near Beijing, in the
PRC. Baoding network is one of the major backbone cable television networks in
Hebei Province in the PRC. Located 85 miles south of Beijing, Baoding network
currently has 200,000 subscribers within a population of approximately 10
million, comprising approximately 1.9 million households. With its fiber optic
network, Baoding network is capable of transmitting 37 analog television
programs, 6 digital signals and 1 FM music program. Baoding currently offers 39
channels within Baoding city and 8 channels to Baoding metropolitan area.
Pursuant to the Exchange Agreement, on February 28, 2003 (the "Closing
Date"), the Company acquired (the "Acquisition") from Kingston Global Co.
Limited ("Kingston") all of the issued and outstanding equity interests of Solar
Touch (the "Solar Touch Shares"). As consideration for the Solar Touch Shares,
the Company issued 49,567,002 shares of its common stock to Kingston and Sino
Concept Enterprises Limited (the "Sellers"). In addition to the common stock
issued to the Sellers, the Company also issued 4,760,931 shares to the Seller's
financial consultants. The consideration for the Acquisition was determined
through arms length negotiations between the management of the Company and the
Sellers.
On the Closing Date, Mr. Martin Rifkin resigned as President, Treasurer and
a Director of the Company. On the same day, Mr. William Rifkin resigned as
Chairman of the Board, Secretary and a Director of the Company. Effective March
1, 2003, Messrs. Jun-Tang Zhao, Raymond Ying-Wai Kwan, Yau-Sing Tang and George
Raney began serving their terms as members of the Board of Directors of the
16
Company. The newly elected directors appointed Mr. Raymond Ying-Wai Kwan as
Chief Executive Officer and Mr. Yau-Sing Tang as Chairman of the Board of
Directors and Chief Financial Officer.
On February 28, 2003, the Company granted an option to DSS Associates,
Carter Fleming International Ltd, Grand Unison Ltd, and Emerging Growth Partners
Inc. (the "Optionees") to purchase an aggregate of 4,750,000 (post-split) shares
of common stock in the Company for a total of $50,000. On April 30, 2003, the
Optionees exercised the option in full by delivering to the Company a duly
executed Notice of Exercise and by wire transferring the aggregate exercise
price for the shares to the Company.
On July 1, 2003, the Company changed its name from Nova International
Films, Inc. to China Cable and Communication, Inc.
Results of operations
Three months ended June 30, 2003 and 2002:
Revenue
The Company had no revenue for the three months ended June 30, 2003 and
2002 respectively (See Equity in earnings of investment below).
Loss from operations
For the three months ended June 30, 2003, the Company had a loss from
operations of $1,207,232 as compared to a loss from operation of $0 for the
three months ended June 30, 2002. The loss is attributable to directors'
compensation of $214,700, professional fees of $47,048 and consulting fees of
$945,484.
Merger costs
For the three months ended June 30, 2003, the Company incurred merger costs
of $12,139 as a result of the Company's acquisition of Solar Touch in a reverse
merger whereas there was no such expense for the three months ended June 30,
2002.
Equity in earnings of investment
This represents the Company's 49% share of undistributed earnings of its
investment in Baoding. For the three months ended June 30, 2003, the Company's
49% share of earnings of its investment in Baoding was $184,038 which was a
$43,168 or 31% increase from $140,870 for the three months ended June 30, 2002.
This is primarily due to the increase in net sales of Baoding by $307,412 or 28%
from $1,099,098 for the three months ended June 30, 2002 to $1,406,510 for the
three months ended June 30, 2003 and accordingly, the increase in net income of
Baoding by $88,098 or 31% from $287,490 for the three months ended June 30, 2002
to $375,588 for the three months ended June 30, 2003.
Net income (loss)
The Company recorded a net loss of $1,035,129 for the three months ended
June 30, 2003 as compared to a net profit of $140,870 for the three months ended
June 30, 2002. This is primarily due to directors' compensation of $214,700,
professional fees of $47,048 and consulting fees of $945,484.
17
Six months ended June 30, 2003 and 2002:
Revenue
The Company had no revenue for the six months ended June 30, 2003 and 2002
respectively (See Equity in earnings of investment below).
Loss from operations
For the six months ended June 30, 2003, the Company had a loss from
operations of $1,490,972 as compared to a loss from operation of $0 for the six
months ended June 30, 2002. The loss is attributable to directors' compensation
of $240,533, professional fees of $58,974 and consulting fees of $1,191,465.
Merger costs
For the six months ended June 30, 2003, the Company incurred merger costs
of $3,770,416 as a result of the Company's acquisition of Solar Touch in a
reverse merger whereas there was no such expense for the six months ended June
30, 2002.
Equity in earnings of investment
This represents the Company's 49% share of undistributed earnings of its
investment in Baoding. For the six months ended June 30, 2003, the Company's 49%
share of earnings of its investment in Baoding was $240,561 which was a $36,219
or 18% increase from $204,342 for the six months ended June 30, 2002. This is
primarily due to the increase in net sales of Baoding by $283,572 or 15% from
$1,943,486 for the six months ended June 30, 2002 to $2,227,058 for the six
months ended June 30, 2003 and accordingly, the increase in net income of
Baoding by $73,917 or 18% from $417,024 for the six months ended June 30, 2002
to $490,941 for the six months ended June 30, 2003.
Net income (loss)
The Company recorded a net loss of $5,020,623 for the six months ended
June 30, 2003 as compared to a net profit of $204,342 for the six months ended
June 30, 2002. This is primarily due to the merger costs of $3,770,416 incurred
in relation to the Company's acquisition of Solar Touch in a reverse merger,
directors' compensation of $240,533, professional fees of $58,974 and consulting
fees of $1,191,465.
Financial condition, liquidity, capital resources
For the six months ended June 30, 2003, we received $50,000 from the
issuance of 4,750,000 shares of common stock due to the exercise of 4,750,000
options by the optionees on April 30, 2003. We used cash of $50,100 during the
six months ended June 30, 2003 in operating activities.
As of June 30, 2003, our current assets include deferred consulting fees of
$3,701,562 and our current liabilities include accrued merger and other expense
of $827,802, accrued directors' compensation of $103,333, the amount due to a
shareholder of $3,785 and the amount due to a director of $2,500.
We had no significant capital expenditure commitment outstanding as of June
30, 2003.
18
Plan of Operation
In view of the absence of working capital to finance the Company's
operations and working captial requirements, the Company is looking for the
opportunity of raising necessary capital by private placement of new shares or
issuance of debentures. The Company's costs mainly include only those costs
necessary to retain its corporate charter, file necessary tax returns and report
to the Securities and Exchange Commission, and certain professional expenses
such as accountants' and attorney's fees to maintain the corporate compliance.
We believe that we have access to sufficient working capital to provide for
these costs.
Exchange rate
Fluctuations of currency exchange rates between Renminbi and United States
dollar could adversely affect our business since our sole investment conducts
its business primarily in China, and its revenue from operations is settled in
Renminbi. The Chinese government controls its foreign reserves through
restrictions on imports and conversion of Renminbi into foreign currency.
Although the Renminbi to United States dollar exchange rate has been stable
since January 1, 1994 and the Chinese government has stated its intention to
maintain the stability of the value of Renminbi, there can be no assurance that
exchange rates will remain stable. The Renminbi could devalue against the United
States dollar. Exchange rate fluctuations may adversely affect our revenue
arising from the sales of products in China and denominated in Renminbi and our
financial performance when measured in United States dollar.
Recent accounting pronouncements
In April 2002, The Financial Accounting Standards Board (FASB) issued SFAS
Statement No. 145, "Recission of FASB Statements No. 4, 22 and 64. Amendment of
FASB Statement No. 13, and Technical Corrections." The Statement addresses the
accounting for extinguishment of debt, sale-leaseback transactions and certain
lease modifications. The Statement is effective for transactions occurring after
May 15, 2002. The Company does not expect the adoption of Statement No. 15 to
have a material impact on the Company's future results of operations or
financial position.
In July 2002, the FASB issued SFAS Statement No. 146, "Accounting for Cost
Associated with Exit or Diposal Activities." The Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supercedes Emergin Issues Task Force Issue No. 94-3, "Liabilitiy Recognition
for Certain Employee Termination Benefits and Other Costs to Exit and Activity
(Including Certain Costs Incurred in a Restructing)." The provisions of
Statement No. 146 are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not expect the adoption of
Statement No. 146 to have a material impact on the Company's future results of
operations or financial position.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Acquisitions of Financial Institutions, except Transactions between
Two or More Mutual Enterprises." The Company does not expect this standard will
have any effect on its financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
19
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN 45 is not expected to have a material effect on the
Company's financial position, results of operations, or cash flows.
In December 2002, the FASB issued SFAS No.148, "Accounting for Stock-Based
Compensation. Transition and Disclosure" SFAS No. 148 amends SFAS No. 123
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The Company does not expect the adoption of SFAS No. 148 to have a
material effect on our financial position, results of operations, or cash flows.
ITEM 3. CONTROLS AND PROCEDURES
1) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act of 1934 is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in the reports filed under the Exchange Act of 1934 is
accumulated and communicated to the Company's management, including its
principal executive and financial officers, as appropriate, to allow timely
decisions regarding required disclosure.
Within the 90 days prior to the filing of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including its principal executive and financial officer of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based upon and as of the date of that evaluation, the
Company's principal executive and financial officer concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports that Company files and submits under the
Exchange Act of 1934 is recorded, processed, summarized and reported as and when
required.
2) Changes in Internal Control
There were no changes in the Company's internal controls or in other
factors that could have significantly affected those controls subsequent to the
date of the Company's most recent evaluation.
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds.
On February 28, 2003, we issued 49,567,002 shares of our common stock as
consideration for the acquisition of all of the issued and outstanding equity
interests of Solar Touch Limited. These shares were issued to two parties
located in the People's Republic of China pursuant to Section 4(2) of the
Securities Act of 1933, as amended. In addition, we also issued 4,760,931 shares
to the Sellers' financial consultants. The consideration for the acquisition was
determined through arms length negotiations between the management of the
Company and the Sellers.
On April 30, 2003, we issued 4,750,000 shares of our common stock pursuant
to the exercise of options by DSS Associates, Carter Fleming International Ltd.,
Grand Unison Limited, and Emerging Growth Partners, Inc. (the "Optionees") for
$50,000. The Optionees facilitated the acquisition of Solar Touch by the
Company.
During the six months ended June 30, 2003, compensation to three of our
directors, Mr. George Raney, Mr. Yau-Sing Tang and Mr. Raymond Ying-Wai Kwan,
were paid by the issuance of 196,000 shares in lieu of cash. In addition,
1,575,000 shares of our common stock were issued to three consultants as payment
for their consulting services rendered to the Company (see Note 7 to the
consolidated financial statements).
Subsequent to June 30, 2003, we issued 1,000,000 shares of common stock to
Mr. Jun-Tang Zhao, a director of the Company, as compensation for services to
the Company. A portion of these services related to the six months ended June
30, 2003 (see Note 9 to the consolidated financial statements). Also subsequent
to June 30, 2003, the Company issued 1,200,000 shares of common stock to Mr.
Yau-Sing Tang, a director of the Company, for his services rendered in
connection with the acquisition of Solar Touch Limited on February 28, 2003 (see
Note 10 to the consolidated financial statements).
All such issuances were made pursuant to Section 4(2) of the Securities Act
of 1933, as amended, and pursuant to Regulation D promulgated thereunder.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
number Description
31 Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certifications of the Chief Executive Officer and the Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
During the six months ended June 30, 2003, the Company filed the following
reports on the Form 8-K:
Form Filing date Event reported
---- ----------- --------------
8-K January 10, 2003 A report on Form 8-K (item 4), which
announced the change in the Company's
certifying accountant
8-K March 17, 2003 A report on Form 8-K (items 1, 2, 5and 7)
which announced the changes in control
of the Company, the Company's acquisition
of Solar Touch and the change in the
address of the Company's principal
executive office
8-K May 15, 2003 A report on Form 8-K (items 4, 7 and 8)
which announced the change in the
Company's certifying accountant and the
change in the fiscal year
8-K/A May 19, 2003 A report on Form 8-K/A (item 7) relating
to the audited financial statements of
Solar Touch
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINA CABLE AND COMMUNICATION, INC.
Date: November 12, 2003
/s/ Raymond Ying-Wai Kwan
------------------------------------
Name: Raymond Ying-Wai Kwan
Title: Chief Executive Officer
Date: November 12, 2003 /s/ Yau-Sing Tang
------------------------------------
Name: Yau-Sing Tang
Title: Chief Financial Officer
22