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 May 31, 2002
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.)
ncorporation 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
-------------- --------------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $0.001 par value 37,446,200
(Class) (Outstanding as of July 15, 2002)
CHINA NETTV HOLDINGS INC.
FORM 10-QSB
INDEX
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet of China NetTV Holdings Inc. and
Subsidiary at May 31, 2002 and August 31, 2001...................3
Consolidated Statement of Operations
for the six and nine months ended May 31, 2002 and 2001
and for the Period September 15, 1998 (date of inception) to
May 31, 2002.....................................................4
Consolidated Statement of Cash Flows for the nine months ended May 31,
2002 and 2001 and for the period September 15, 1998 (date of
inception)
to May 31, 2002.................................................5
Statement of Changes in Stockholders' Equity
for the period September 15, 1998 (date of inception) to
May 31, 2002......................................................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 (UNAUDITED)
CHINA NETTV HOLDINGS, INC. AND SUBSIDIARY
(Development Stage Company)
CONSOLIDATED BALANCE SHEETS
May 31, 2002 and August 31, 2001
--------------------------------
May 31, August 31,
ASSETS 2002 2001
------ ---- ----
Current Assets
Cash $ 992 $ 17,992
------------ ------------
Total current assets 992 17,992
------------ ------------
Investment in joint venture - Note 3 1,280,000 1,280,000
------------ ------------
$ 1,280,992 $ 1,297,992
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable - related parties $ 76,193 $ 76,193
Accounts payable 45,874 35,292
------------ ------------
Total Current Liabilities 122,067 111,485
------------ ------------
STOCKHOLDERS' EQUITY
Common stock
200,000,000 shares authorized, at $0.001 par value;
37,446,200 shares issued and outstanding 37,446 36,809
Capital in excess of par value 1,364,802 1,160,439
Common stock subscriptions - 155,000
Deficit accumulated during the development stage (243,323) (165,741)
------------ ------------
Total Stockholders' Equity 1,158,925 1,186,507
------------ ------------
$ 1,280,992 $ 1,297,992
============ ============
The accompanying notes are an integral part of these financial statements.
3
CHINA NETTV HOLDINGS, INC. AND SUBSIDIARY
(Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS For the
Three and Nine Months Ended May 31, 2002 and May 31, 2001
and the Period September 15, 1998 (Date of Inception) to May 31, 2002
---------------------------------------------------------------------
3 months 9 months
-------- --------
May 31, May 31, May 31, May 31, Sept 15, 1998
2002 2001 2002 2001 to May 31, 2002
---- ---- ---- ---- ---------------
Revenues $ - $ - $ - $ 1,448 $ 1,448
Expenses 15,036 9,374 77,582 53,754 244,771
------------- ------------- ------------- ------------- -------------
Net loss $ (15,036) $ (9,374) $ (77,582) $ (52,306) $ (243,323)
============= ============= ============= ============= =============
Net loss per common share
Basic $ - $ - $ - $ -
------------- ------------- ------------- -------------
Average outstanding shares
Basic 37,446,200 35,357,000 37,276,756 35,357,000
------------- ------------- ------------- -------------
The accompanying notes are an integral part of these financial statements.
4
CHINA NETTV HOLDINGS, INC. AND SUBSIDIARY
(Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended May 31, 2002 and May 31, 2001
and the Period September 15, 1998 (Date of Inception) to May 31, 2002
---------------------------------------------------------------------
9 months
--------
May 31, May 31, Sept 15, 1998
2002 2001 to May 31, 2002
---- ---- ---------------
Cash flows from operating activities
Net loss $ (77,582) $ (52,306) $ (243,323)
Adjustments to reconcile net loss to net
cash provided by operating activities
Change in accounts payable 10,582 66,223 45,874
Capital contribution - expenses - - 9,000
Issuance of common stock for expense 50,000 - 50,000
------------ ------------ ------------
Net Decrease in Cash From Operations (17,000) 13,917 (138,449)
------------ ------------ ------------
Cash Flows from Investing Activity
Investment in joint venture - Note 7 - (930,000) (1,280,000)
------------ ------------ ------------
Cash Flows from Financing Activities
Common stock subscriptions received - 55,000 155,000
Proceeds from loan - related party - (8,410) 76,193
Proceeds from issuance of common stock - 936,000 1,188,248
------------ ------------ ------------
- 982,590 1,419,441
------------ ------------ ------------
Net Increase (Decrease) in Cash (17,000) 66,507 992
Cash at beginning of period 17,992 194,931 -
------------ ------------ ------------
Cash at end of period $ 992 $ 261,438 $ 992
============ ============= ============
Schedule of non-cash flows from operating activities:
Capital contributions
- expenses paid by officer $ - $ - $ 9,000
Issuance of 250,000 common shares for
consulting expense - at $0.20 50,000 - 50,000
------------ ------------ ------------
$ 50,000 $ - $ 59,000
============ ============= ============
The accompanying notes are an integral part of these financial statements.
5
CHINA NETTV HOLDINGS, INC. AND SUBSIDIARY
(Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the period September 15, 1998 (Date of Inception) to May 31, 2002
---------------------------------------------------------------------
Capital in
Common Stock Excess of Accumulated
Shares* Amount Par Value Deficit
------------ ------------ ------------ ------------
Balance, September 15, 1998
(date of inception) -- $ -- $ -- $ --
Issuance of common stock for cash
- at $0.0004 - February 5, 1999 15,000,000 15,000 (9,000) --
Issuance of common stock for cash
- at $0.0008 - February 7, 1999 18,750,000 18,750 (3,750) --
Issuance of common stock for cash
- at $0.04 - February 23, 1999 156,200 156 6,092 --
Capital contributions
- expenses paid by officers -- -- 4,500 --
Net operating loss for the year ended
August 31, 1999 -- -- -- (18,593)
------------ ------------ ------------ ------------
Balance, August 31, 1999 33,906,200 33,906 (2,158) (18,593)
Capital contributions
- expenses paid by officers -- -- 4,500 --
Net operating loss for the year ended
August 31, 2000 -- -- -- (78,995)
------------ ------------ ------------ ------------
Balance, August 31, 2000 33,906,200 33,906 2,342 (97,588)
Issuance of common stock for cash
- at $0.40 2,902,500 2,903 1,158,097 --
Net operating loss for the year
ended August 31, 2001 -- -- -- (68,153)
------------ ------------ ------------ ------------
Balance, August 31, 2001 36,808,700 36,809 1,160,439 (165,741)
Issuance of common stock for cash
- at $0.40 387,500 387 154,845 --
Issuance of common stock for
consulting fee - at $0.20 250,000 250 49,900 --
------------ ------------ ------------ ------------
37,446,200 37,446 1,364,802 (165,741)
Net operating loss for the nine months
ended May 31, 2002 -- -- -- (77,582)
------------ ------------ ------------ ------------
Balance, May 31, 2002 37,446,200 $ 37,446 $ 1,364,802 $ (243,323)
============ ============ ============ ============
* The number of shares outstanding has been retroactively restated for the
effect of a forward stock split completed on December 17, 2001 on a basis of 5
for 2.
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
May 31, 2002
------------
Note 1 Interim Financial Statements
----------------------------
The accompanying balance sheets of China NetTV Holdings, Inc. at May
31, 2002 and August 31, 2001 and the related statements of operations
and cash flows for the three and nine months ended May 31, 2002 and
2001 and the period September 15, 1998 (Date of Inception) to May 31,
2002 have been prepared by the Company's management in conformity with
accounting principles generally accepted in the United States of
America. In the opinion of management, all adjustments considered
necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a
normal recurring nature.
Operation results for the quarter ended May 31, 2002 are not
necessarily indicative of the results that can be expected for the year
ending August 31, 2002.
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 May 31, 2002, the Company had a net operating loss carryforward of
$243,323. The tax benefit of approximately $72,997 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 2023.
Basic Net Income (Loss) Per Share
---------------------------------
Basic net income (loss) per share amounts are computed based on the
weighted average number of shares actually outstanding.
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
operating information of the parent and its wholly owned subsidiary.
All intercompany transactions have been eliminated.
7
China NetTV Holdings, Inc. and Subsidiary
(Development Stage Company)
Notes to the Financial Statements
May 31, 2002 - Page 8
Note 2 Summary Of Significant Accounting Policies - (cont'd)
------------------------------------------
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.
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.
Note 3 Acquisition of all Outstanding Shares of China NetTV Inc.
---------------------------------------------------------
During May 2000 the Company acquired all of the outstanding stock of
China NetTV Inc. (subsidiary) which was organized in the Virgin Islands
on January 31, 2000. China NetTV Inc. does not have any operations and
does not own any assets except for the joint venture agreement outlined
in the following.
The acquisition was recorded as a purchase with no value being
recognized.
On June 30, 2000 China NetTV Inc. (subsidiary) (party B) entered into a
joint venture agreement with Chengdu Qianfeng Digital AV Equipment Co.
Ltd., (party A) 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.
8
China NetTV Holdings, Inc. and Subsidiary
(Development Stage Company)
Notes to the Financial Statements
May 31, 2002 - Page 9
Note 3 Acquisition of all Outstanding Shares of China NetTV Inc. - (cont'd)
---------------------------------------------------------
The terms of the joint venture agreement provides for the contributions
by each party as follows:
Party A to contribute all its effective assets, based on an appraisal,
as its investment. Party B to contribute cash, as its investment, as
outlined in the following;
(1) $1,500,000 as an initial payment to purchase a 13% interest in
the joint venture.
(2) $9,006,000, due in installments as needed during the
development of the project, to purchase the balance of 38%
interest in the joint venture.
The terms of the original joint venture agreement provided for
installment payments, on stated dates, (which were not met) by party B
of the amounts listed above, however, the due dates of the payments
have been extended and are presently being re-negotiated by the parties
including a change in the default provisions. At the date of this
report the agreement is considered to be in good standing by both
parties.
On the date of this report party B had paid $1,280,000 of the
$1,500,000 due, to complete the purchase of the initial interest in the
joint venture.
In the event that party B fails to contribute the total amount of
$10,506,000 by the dates to be negotiated, then party B's interest in
the joint venture will be adjusted to the actual investment made by
party B.
On the date of this report the joint venture had completed an agreement
of acceptance, with the province of Sichuan, China, to provide a
digital cable system and negotiations were in progress for five other
provinces. There can be no assurance that the joint venture will be
successful in the negotiations.
Note 4 Significant Transactions with Related Parties
---------------------------------------------
Officers and directors have acquired 40% of the common stock issued and
have made non interest bearing, demand, loans to the Company of
$76,193.
Note 5 Stock Option Plan
-----------------
The Company's board of directors approved a stock option plan for the
sale of 5,000,000 shares of the company's common stock at $0.40 per
share. The stock option plan will expire in May 2005 or the directors
have retained the right to cancel the plan at any time before May 2005
and can make awards to the officers and directors, employees, and
others as designated by the directors.
No options or shares have been issued under the plan.
9
China NetTV Holdings, Inc. and Subsidiary
(Development Stage Company)
Notes to the Financial Statements
May 31, 2002 - Page 10
Note 6 Going Concern
-------------
The Company does not have the working capital necessary to service its
debt and to comply with the terms of the contract outlined in Note 3.
Continuation of the Company as a going concern is dependent upon
obtaining additional working capital and the management of the Company
has developed a strategy, which it believes will accomplish this
objective through additional equity funding which will enable the
Company to operate for the coming year.
10
ITEM 2. PLAN OF OPERATIONS
The following should be read in conjunction with the Company's consolidated
financial statements and notes thereto, included elsewhere within this report.
Plan of Operations
- ------------------
The Company is continuing to use the proceeds from private placements to fund
the Company's joint venture with Chengdu Qianfeng Digital AV Equipment Co. Ltd.,
in the production of trial digital set-top boxes for Nanning TV in Guangxi
Province and to fund other opportunities relating to the growing demand for
digital data transmission technology and solutions for the television
broadcasting and cable industries in 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. During the
quarterly period covered by this report, the Company received no revenue and
incurred expenses of $15,036 stemming from general, administrative and tax
expenditures.
Liquidity
- ---------
As of May 31, 2002 the Company had total current assets of $1,280,992 and total
liabilities of $122,067.
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.
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.
11
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, 2001, there were approximately
14,723,480 shares of Common Stock outstanding. 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.
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.
12
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.
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.
13
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)
99.2 Press Release dated April 9, 2002: CTVH Appoints Hornblower &
Weeks, Inc. as Investment Banker
--------------------------------
(1) Included as an Exhibit to China NetTV Holdings Inc.'s
registration statement on Form 10-SB filed on May 28, 1999
(b) Reports on Form 8-K filed during the three months ended May 31, 2002.
There have been no current reports on Form 8-K filed by the Registrant
for the three months ended May 31, 2002.
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: July 15, 2002 China NetTV Holdings Inc.
/s/ Ernest Cheung
--------------------------
Ernest Cheung
President