U.S. SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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) 2891-3130
- --------------------------------------------------------------------------------
(Company's telephone number, including area code)
NOVA INTERNATIONAL FILMS, INC.
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(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
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.................................................1
Item 2. Management's Discussion and Analysis.................................9
Item 3. Controls and Procedures.............................................13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................14
Item 2. Changes in Securities and Use of Proceeds...........................14
Item 3. Defaults Upon Senior Security Holders...............................14
Item 4. Submission of Matters to a Vote of Security Holders.................14
Item 5. Other Information...................................................14
Item 6. Exhibits and Reports on Form 8-K....................................14
SIGNATURES...................................................................15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA CABLE AND COMMUNICATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2003 2002
(unaudited) (audited)
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 $ 83,801 $ 20,468
Amount due to a shareholder 3,785 --
Amount due to a director 2,500 --
------------ ------------
Total liabilities 90,086 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) (2,830,322) 1,342,968
------------ ------------
Total stockholders' equity 11,070,897 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.
1
CHINA CABLE AND COMMUNICATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(unaudited)
2003 2002
REVENUE $ -- $ --
EXPENSES
Directors' compensation (137,200) --
Professional fees (47,048) --
Consulting fees (945,484) --
------------ ------------
LOSS FROM OPERATIONS (1,129,732) --
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 (957,629) 140,870
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (957,629) $ 140,870
============ ============
Net income (loss) per share - basic and diluted $ (0.01) $ 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.
2
CHINA CABLE AND COMMUNICATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(unaudited)
2003 2002
REVENUE $ -- $ --
EXPENSES
Directors' compensation (137,200) --
Professional fees (58,974) --
Consulting fees (1,191,465) --
------------ ------------
LOSS FROM OPERATIONS (1,387,639) --
OTHER INCOME (EXPENSES)
Merger costs (3,026,416) --
Interest income 325 --
Bank charges (121) --
Equity in earnings of investment 240,561 204,342
------------ ------------
PROFIT (LOSS) BEFORE TAXES (4,173,290) 204,342
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (4,173,290) $ 204,342
============ ============
Net income (loss) per share - basic and diluted $ (0.07) $ 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.
3
CHINA CABLE AND COMMUNICATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(unaudited)
2003 2002
Cash flows from operating activities:
Net (loss) income $(4,173,290) $ 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 63,333 --
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.
4
CHINA CABLE AND COMMUNICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE 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.
5
3. 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
=========== ===========
6
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
=========== ===========
4. 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.
5. 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.
6. 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.
7
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.
7. 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.
8. 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 accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), 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 $137,200 as directors' compensation.
9. 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.
8
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 Boading Pascali Broadcasting Cable TV Integrated
Information Networking, Co., Ltd. ("Boading"). Boading, 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 Boading, 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
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.
9
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 $1,129,732 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 $137,800, 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 $957,629 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 $137,200,
professional fees of $47,048 and consulting fees of $945,484.
10
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 $1,387,639 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 $137,200, 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 $3,026,416 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 $4,173,290 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 $3,026,416 incurred
in relation to the Company's acquisition of Solar Touch in a reverse merger,
directors' compensation of $137,200, 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, we had a working capital deficiency of $90,086.
The working capital deficiency was due to the accrued expenses of $83,801, 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.
11
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
12
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
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.
13
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
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 6 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
number Description
------- -----------
31.1 Chief Executive Officer-Section 302 Certification pursuant
to Sarbane-Oxley Act.
31.2 Chief Financial Officer- Section 302 Certification pursuant
to Sarbane-Oxley Act.
32.1 Chief Executive Officer and Chief Financial Officer-Section
906 Certification pursuant to Sarbane-Oxley Act.
14
(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: August 12, 2003
/s/ Raymond Ying-Wai Kwan
-----------------------------------
Name: Raymond Ying-Wai Kwan
Title: Chief Executive Officer
Date: August 12, 2003 /s/ Yau-Sing Tang
-----------------------------------
Name: Yau-Sing Tang
Title: Chief Financial Officer