UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 Or 15(d) Of The Securities Act Of 1934
For the quarterly period ended November 30, 2000
Commission file number: 0-26217
CHINA NETTV HOLDINGS INC.
(Exact name of small business issuer as specified in its charter)
Nevada 98-02031-70
(State or other jurisdiction of (IRS Employee Identification No.)
incorporation or organization)
Suite 830 - 789 West Pender Street, Vancouver, B.C. V6C 1H2
(Address of principal executive offices)
(604) 689-4407
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.001 par value 13,562,480
(Class) (Outstanding as of November 30, 2000)
1
CHINA NETTV HOLDINGS INC.
FORM 10-QSB
INDEX
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Report on Review by Independent Certified Public Accountants...............3
Consolidated Balance Sheet of China NetTV Holdings Inc. and China
NetTV Corp. at November 30, 2000 and August 31, 2000..................4
Consolidated Statement of Operations
for the three and nine months ended November 30, 2000 and 1999
and for the Period September 15, 1998 (date of inception)
to November 30, 2000..................................................5
Consolidated Statement of Cash Flows
for the nine months ended November 30, 2000 and 1999 and for the
Period September 15, 1998 (date of inception) to November 30, 2000....6
Notes to Financial Statements..............................................7
Item 2. Management's Discussion and Analysis or Plan of Operation.................11
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..........................................14
Signatures.........................................................................15
2
Part I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ANDERSEN ANDERSEN & STRONG, L.C. 941 East 3300 South, Suite 202
- -------------------------------- Salt Lake City, Utah 84106
CERTIFIED PUBLIC ACCOUNTANTS AND
BUSINESS CONSULTANTS Telephone 801 486-0096
Fax 801 486-0098
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
China NetTV Holdings Inc.
We have reviewed the condensed balance sheet of China NetTV Holdings Inc.
(development stage company) as of November 30, 2000 and August 31, 2000 and the
related condensed statement of operations and the condensed statement of cash
flows for the three ended November 30, 2000 and 1999 and the periods September
15, 1998 (date of inception) to November 30, 2000. These financial statements
are the responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making enquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
Andersen Andersen and Strong
Salt Lake City, Utah
January 10, 2001
3
CHINA NETTV HOLDINGS, INC. AND SUBSIDIARY
(Development Stage Company)
CONSOLIDATED BALANCE SHEETS
November 30, 2000 and August 31, 2000
-------------------------------------
ASSETS Nov 30 Aug 31
------ ---------- ----------
Current Assets
Cash $ 9,611 $ 194,931
---------- ----------
Total current assets 9,611 194,931
---------- ----------
Investment in joint venture - Note 6 500,000 -
---------- ----------
$ 509,611 $ 194,931
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable - related parties $ 97,614 $ 84,603
Accounts payable 10,418 1,668
---------- ----------
Total Current Liabilities 108,032 86,271
---------- ----------
STOCKHOLDERS' EQUITY
--------------------
Common stock
200,000,000 shares authorized, at $0.001 par value;
13,562,480 shares issued and outstanding 13,562 13,562
Capital in excess of par value 22,686 22,686
Common stock subscriptions received - Note 3 486,000 170,000
Deficit accumulated during the development stage (120,669) (97,588)
---------- ----------
Total Stockholders' Equity 401,579 108,660
---------- ----------
$ 509,611 $ 194,931
========== ==========
The accompanying notes are an integral part of these financial statements
4
CHINA NETTV HOLDINGS, INC. AND SUBSIDIARY
(Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended November 30, 2000 and 1999
and the Period September 15, 1998 (Date of Inception) to November 30, 2000
--------------------------------------------------------------------------
Sept 15, 1998
Nov 30, Nov 30, to
2000 1999 Nov 30, 2000
----------- ----------- -----------
Revenues $ 1,448 $ - $ 1,448
Expenses 24,529 - 122,117
----------- ----------- -----------
Net loss $ ( 23,081) $ - $ (120,669)
=========== =========== ===========
Net loss per common share
Basic $ - $ -
----------- -----------
Average outstanding shares
Basic 13,562,480 13,562,480
----------- -----------
The accompanying notes are an integral part of these financial statements
5
CHINA NETTV HOLDINGS, INC. AND SUBSIDIARY
(Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended November 30, 2000 and 1999
and the Period September 15, 1998 (Date of Inception) to November 30, 2000
--------------------------------------------------------------------------
Sept 15, 1998
Nov 30, Nov 30, to
2000 1999 Nov 30, 2000
----------- ----------- -----------
Cash flows from operating activities
Net loss $ (23,081) $ - $ (120,669)
Adjustments to reconcile net loss to net ----------- ----------- -----------
cash provided by operating activities
Change in accounts payable 8,750 - 10,418
Capital contribution - expenses - - 9,000
Net Decrease in Cash From Operations (14,331) - (101,251)
Cash Flows from Investing Activity
Investment in joint venture - Note 3 (500,000) - (500,000)
Cash Flows from Financing Activities
Common stock subscriptions received 326,000 - 486,000
Proceeds from loan - related party 13,011 - 97,614
Proceeds from issuance of common stock - - 27,248
329,011 - 610,862
Net (Decrease) Increase in Cash (185,320) - 9,611
Cash at beginning of period 194,931 - -
Cash at end of period $ 9,611 $ - $ 9,611
=========== =========== ===========
The accompanying notes are an integral part of these financial statements
6
CHINA NETTV HOLDINGS, INC. AND SUBSIDIARY
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Note 1 Organization
------------
The Company was incorporated under the laws of the State of Nevada
on September 15, 1998 with the name "Vancouver's Finest Coffee
Company" with authorized common stock of 200,000,000 shares at
$0.001 par value. On May 30, 2000 the name was changed to "China
NetTV Holdings, Inc."
The Company was organized for the purpose of marketing retail
specialty coffee through the establishment of coffee kiosks
however during May 2000 the Company changed its business purpose
to the operations of digital technology. Note 6.
Since its inception the Company has completed Regulation D
offerings of 13,562,480 shares of its capital stock for cash.
The Company is in the development stage.
Note 2 Summary Of Significant Accounting Policies
------------------------------------------
Accounting Methods
------------------
The Company recognizes income and expenses based on the accrual
method of accounting.
Dividend Policy
---------------
The Company has not yet adopted a policy regarding payment of
dividends.
Income Taxes
------------
On November 30, 2000 the Company had a net operating loss
carryforward of $120,669. The tax benefit from the loss carry
forward has been fully offset by a valuation reserve because the
use of the future tax benefit is doubtful since the Company has no
operations. The loss carryforward will expire in 2021
Basic and Diluted Net Income (Loss) Per Share
---------------------------------------------
Basic net income (loss) per share amounts are computed based on
the weighted average number of shares actually outstanding.
Diluted net income (loss) per share amounts are computed using the
weighted average number of common shares and common equivalent
shares outstanding as if shares had been issued on the exercise of
the preferred share rights unless the exercise becomes
antidilutive and then only the basic per share amounts are shown
in the report.
7
China NetTV Holdings, Inc. and Subsidiary
(Development Stage Company)
Notes of Financial Statements - Page 2
Note 2 Summary Of Significant Accounting Policies - continued
------------------------------------------------------
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid instruments purchased with
a maturity, at the time of purchase, of less than three months, to
be cash equivalents.
Principals of Consolidation
---------------------------
The consolidated financial statements shown in this report
includes the historical operating information of the parent and
its wholly owned subsidiary. intercompany transactions have been
eliminated
Concentration of Credit Risk
----------------------------
Financial instruments that potentially subject the Company to
significant concentration of credit risk consists primarily of
cash. Cash balances are maintained in accounts that are not
federally insured for amounts over $100,000 but are other wise in
financial institutions of high credit quality.
Financial Instruments
---------------------
The carrying amounts of financial instruments, including cash, and
accounts payable, are considered by management to be their
estimated fair values.
Estimates and Assumptions
-------------------------
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of the assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were
assumed in preparing these financial statements.
Comprehensive Income
--------------------
The Company has adopted Statement of Financial Accounting
Standards No. 130. The adoption of this standard had no impact on
the total stockholder's equity.
Other Recent Accounting Pronouncements
--------------------------------------
The Company does not expect that the adoption of other recent
accounting pronouncements to have any material impact on its
financial statements.
8
China NetTV Holdings, Inc. and Subsidiary
(Development Stage Company)
Notes of Financial Statements - Page 3
Note 3 Stock Subscriptions Received
----------------------------
The Company has commenced a private placement sale of 10,000,000
units at $1.00 per unit. Each unit consists of one share of common
capital stock of the Company and one warrant. Each warrant
entitles the investor to purchase an additional unit until August
15, 2002 for $1.50. Each additional unit consists of one common
share and one warrant to purchase an additional common share for
$2.50 until August 15, 2003. There is no minimum sales requirement
and the shares will be issued on the closing date of the private
placement. The terms of the sale provides for a commission of 7%
to be paid by cash or common stock of the Company, at the option
of the sales agent, excepting the sales made by related parties.
At November 30, 2000 the Company had received $486,000 for the
purchase of 486,000 units on which a maximum commission of 7% will
be paid on the closing date of the offering .
Note 4 Related Party Transactions
--------------------------
Related parties have acquired 44% of the common stock issued.
Note 5 Stock Option Plan
-----------------
The Company's board of directors approved a stock option plan for
the sale of 2,000,000 shares of the company's common stock at
$2.00 per share. The directors have retained the right to cancel
the plan at any time in the future and can award the options to
officers and directors, employees, and others as designated by the
directors.
Note 6 Acquisition of all Outstanding Shares of China NetTV Inc.
---------------------------------------------------------
During May 2000 the Company acquired all of the outstanding stock
of China NetTV Inc. China NetTV Inc. was organized in the Virgin
Islands on January 31, 2000. China NetTV Inc. does not own any
assets except for the joint venture agreement outlined in the
following.
On June 30, 2000 China NetTV Inc. entered into a joint venture
agreement with Chengdu Qianfeng Digital AV Equipment Co. Ltd., a
Chinese company, by the mutual formation of a joint venture
company known as "Chengdu Qianfeng NetTV CO., LTD in which each
partner will own approximately one half interest. The business
purpose of the joint venture company is to develop network
technology and information appliance products, hardware and
software products of information technology, information
consultant, technique and maintenance service, network system
integration, cable digital TV head-end integration, network
connection equipment, satellite ground station equipment, cable
and wireless digital transmit equipment.
During October 2000 the Company made advances to the joint venture
of $500,000.
9
China NetTV Holdings, Inc. and Subsidiary
(Development Stage Company)
Notes of Financial Statements - Page 4
Note 7 Going Concern
-------------
Continuation of the Company as a going concern is dependent upon
obtaining additional working capital to service its debt and for
its planned activity and the management of the Company has
developed a strategy, which it believes will accomplish this
objective through additional equity funding, and long term
financing, which will enable the Company to operate for the coming
year.
10
ITEM 2. PLAN OF OPERATIONS
On September 6, 2000, the Company announced that its joint venture with Sichuan
Qianfeng Digital Audio/Video Equipment Co. Ltd. ("QF Digital") received approval
from the Ministry of Foreign Trade and Economic Co-operation ("Moftec"). The
joint venture was issued a business license with a business scope that includes
electronics, telecommunications equipment and systems, computer and related
products, network design, integration and implementation, in addition to
information and consulting.
The Company is currently completing a private placement commenced in July 2000
of up to 10,000,000 units at $1.00 per unit. Each unit consists of one share of
common capital stock of the Company and one warrant. Each warrant entitles the
investor to purchase an additional unit until August 15, 2002 for $1.50. Each
additional unit consists of one share of common stock and one warrant to
purchase an additional common share for $2.50 until August 15, 2003. There is no
minimum sales requirement and the shares will be issued on the closing date of
the private placement. The terms of the sale provides for a commission of 7% to
be paid by cash or common stock of the Company, at the option of the sales
agent, excepting the sales made by related parties. At November 30, 2000, the
Company had received $486,000 for the purchase of 486,000 units on which a
maximum of 7% commission will be paid.
On November 21, 2000, the Company announced that it has started to fund the
joint venture with QF Digital. The initial $500,000 of funding, from monies
raised in the Company's private placements, will go towards the production of
200 trial digital set-top boxes for Nanning TV in Guangxi Province, China.
The Company has had no revenues from operations since inception. The operations
of the Company have been financed through private placements.
Results of Operations
- ---------------------
The Company has had no operations during this reporting period.
RISKS AND UNCERTAINTIES
The Company has sought to identify what it believes to be the most significant
risks to its business, but cannot predict whether or to what extent any of such
risks may be realized nor can there be any assurances that the Company has
identified all possible risks that might arise. Investors should carefully
consider all of such risk factors before making an investment decision with
respect to the Company's stock.
11
LIMITED OPERATING HISTORY; ANTICIPATED LOSSES; UNCERTAINLY OF FUTURE RESULTS.
China NetTV Holdings Inc. has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. The Company's
prospects must be evaluated with a view to the risks encountered by a company in
an early stage of development, particularly in light of the uncertainties
relating to the new and evolving distribution methods with which the Company
intends to operate and the acceptance of the Company's business model. To the
extent that such expenses are not subsequently followed by commensurate
revenues, the Company's business, results of operations and financial condition
will be materially adversely affected. There can be no assurance that the
Company will be able to generate sufficient revenues from the sale of their
products. If cash generated by operations is insufficient to satisfy the
Company's liquidity requirements, the Company may be required to sell additional
equity or debt securities. The sale of additional equity or convertible debt
securities would result in additional dilution to the Company's stockholders.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
The Company's quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, most of which are outside the
Company's control, including: the level of use of the Digital Audio/Video
equipment; the demand for high-tech goods; seasonal trends in the purchases of
electronics and advertising placements; the amount and timing of capital
expenditures and other costs relating to the expansion of the Company's
manufacturing operations; the introduction of new products and services by the
Company or its competitors; price competition or pricing changes in the
industry; technical difficulties or product development difficulties; general
economic conditions, and economic conditions specific to Digital Audio/Video
equipment. The Company's quarterly results may also be significantly impacted by
the impact of the accounting treatment of acquisitions, financing transactions
or other matters. Particularly at the Company's early stage of development, such
accounting treatment can have a material impact on the results for any quarter.
Due to the foregoing factors, among others, it is likely that the Company's
operating results will fall below the expectations of the Company or investors
in some future quarter.
LIMITED PUBLIC MARKET, POSSIBLE VOLATILITY OF SHARE PRICE.
The Company's Common Stock is currently quoted on the NASD OTC Bulletin Board
under the ticker symbol CNHD. As of November 30, 2000, there were approximately
13,562,480 shares of Common Stock outstanding, of which approximately 7,562,480
were tradable without restriction under the Securities Act. There can be no
assurance that a trading market will be sustained in the future. Factors such
as, but not limited to, technological innovations, new products, acquisitions or
strategic alliances entered into by the Company or its competitors, failure to
meet security analysts' expectations, government regulatory action, patent or
proprietary rights developments, and market conditions for technology stocks in
general could have a material effect on the volatility of the Company's stock
price.
12
MANAGEMENT OF GROWTH
The Company, through its subsidiaries, expects to experience significant growth
in the number of employees and the scope of its operations. In particular, the
Company intends to hire additional engineering, sales, marketing, and
administrative personnel. Additionally, acquisitions could result in an increase
in employee headcount and business activity. Such activities could result in
increased responsibilities for management. The Company believes that is ability
to increase its customer support capability and to attract, train, and retain
qualified technical, sales, marketing, and management personnel, will be a
critical factor to its future success. In particular, the availability of
qualified sales engineering and management personnel is quite limited, and
competition among companies to attract and retain such personnel is intense.
During strong business cycles, the Company expects to experience continued
difficulty in filling its needs for qualified sales, engineering, and other
personnel.
The Company's future success will be highly dependent upon its ability to
successfully manage the expansion of its operations. The Company's ability to
manage and support its growth effectively will be substantially dependent on its
ability to implement adequate improvements to financial and management controls,
reporting and order entry systems, and other procedures and hire sufficient
numbers of financial, accounting, administrative, and management personnel. The
Company's expansion and the resulting growth in the number of its employees has
resulted in increased responsibility for both existing and new management
personnel. The Company is in the process of establishing and upgrading its
financial accounting and procedures. There can be no assurance that the Company
will be able to identify, attract, and retain experienced accounting and
financial personnel. The Company's future operating results will depend on the
ability of its management and other key employees to implement and improve its
systems for operations, financial control, and information management, and to
recruit, train, and manage its employee base. There can be no assurance that the
Company will be able to achieve or manage any such growth successfully or to
implement and maintain adequate financial and management controls and
procedures, and any inability to do so would have a material adverse effect on
the Company's business, results of operations, and financial condition.
The Company's future success depends upon its ability to address potential
market opportunities while managing its expenses to match its ability to finance
its operations. This need to manage its expenses will place a significant strain
on the Company's management and operational resources. If the Company is unable
to manage its expenses effectively, the Company's business, results of
operations, and financial condition will be materially adversely affected.
RISKS ASSOCIATED WITH ACQUISITIONS.
As part of its business strategy, the Company expects to acquire assets and
businesses relating to or complementary to its operations. These acquisitions by
the Company will involve risks commonly encountered in acquisitions of
companies. These risks include, among other things, the following: the Company
may be exposed to unknown liabilities of the acquired companies; the Company may
incur acquisition costs and expenses higher than it anticipated; fluctuations in
the Company's quarterly and annual operating results may occur due to the costs
and expenses of acquiring and integrating new businesses or technologies; the
Company may experience difficulties and expenses in assimilating the operations
and personnel of the acquired businesses; the Company's ongoing business may be
disrupted and its management's time and attention diverted; the Company may be
unable to integrate successfully.
13
POLITICAL RISKS
The market in China is monitored by the government, which could impose taxes or
restrictions at any time which would make operations unprofitable and infeasible
and cause a write-off of capital investment in Chinese manufacturing
opportunities.
A number of factors, beyond the Company's control and the effect of which cannot
be accurately predicted may affect the marketing of the Company's digital
set-top boxes. These factors include political policy on foreign ownership,
political policy to open the doors to foreign investors, and political policy on
technology exports.
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS
The future success of the Company will depend in part on its ability to generate
sales within China. There can be no assurance, however, that the Company will be
successful in generating sales of its products. In addition, these will be
subject to a number of risks, including: foreign currency risk; the risks that
agreements may be difficult or impossible to enforce and receivables difficult
to collect through a foreign country's legal system; foreign customers may have
longer payment cycles; or foreign countries could impose withholding taxes or
otherwise tax the Company's foreign income, impose tariffs, embargoes, or
exchange controls, or adopt other restrictions on foreign trade. In addition,
the laws of certain countries do not protect the Company's offerings and
intellectual property rights to the same extent as the laws of the United
States. The Company has taken steps to mitigate these risks through joint
ventures with domestic Chinese companies, but there can be no assurance in the
adequacy of these protection measures.
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Registrant (1)
3.2 By-laws of the Registrant (1)
99.1 News Release of Registrant, dated September 6, 2000
99.2 News Release of Registrant, dated November 21, 2000
----------------------------
(1) Included as an Exhibit to China NetTV Holdings Inc.'s
registration statement on Form 10-SB filed on May 28, 1999
14
(b) Reports on Form 8-K filed during the three months ended November 30,
2000.
There have been no current reports on Form 8-K filed by the Registrant
for the three months ended November 30, 2000.
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.
Date: January 12, 2000 China NetTV Holdings Inc.
/S/ Ernest Cheung
--------------------------
Ernest Cheung
President
15