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 June 30, 2004
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 900 - 789 West Pender Street, Vancouver, B.C. V6C 1H2
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(Address of principal executive offices)
(604) 689-4407
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(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: 66,675,200 shares outstanding as of August 11,
2004 (latest practicable date).
1
CHINA NETTV HOLDINGS INC.
FORM 10-QSB
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Condensed Notes - Quarter
Ended June 30, 2004 F-1 - F-9
Item 2. Management's Discussion and Analysis or Plan of Operation 3
Item 3. Controls and Procedures 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Default Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CHINA NETTV HOLDINGS INC.
(a development stage company)
INTERIM BALANCE SHEET
JUNE 30, 2004 (unaudited)
Stated in U.S. dollars
- ---------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 17,941
Prepaid expenses and other current assets 3,137
Prepaid expenses - related party 7,733
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Total Current Assets 28,811
Fixed assets, net 20,575
Security deposit 3,117
----------------
Total Assets $ 52,503
================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payables and accrued expenses $ 115,584
Promissory note payable - related party 100,000
Due to related parties 106,055
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321,639
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Commitments and Contingencies -
Stockholders' Deficiency
Common Stock: $0.001 par value; authorized: 200,000,000
Issued and outstanding: 66,675,200 (Note 5) 66,675
Common stock held in escrow - 129,700,000 shares (Note 5) -
Additional Paid In Capital 3,102,073
Accumulated Deficit (3,437,884)
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Total Stockholders' Deficiency (269,136)
----------------
Total Liabilities and Stockholders' Deficiency $ 52,503
================
(See condensed notes to the financial statements)
F-1
CHINA NETTV HOLDINGS INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended Six Months ended
Cumulative June 30, June 30, June 30, June 30,
Stated in U.S. dollars from Inception 2004 2003 2004 2003
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Revenue $ 1,448 $ - $ - $ - $ -
Expenses
General and administrative 2,132,887 289,888 13,468 1,171,235 14,976
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2,131,439 1,171,235
289,888 13,468 14,976
Operating Loss (2,131,439) (289,888) (13,468) (1,171,235) (14,976)
Other Expenses
Interest (7,703) - - - -
Loss on investment (1,280,000) - - - -
Loss on disposal of fixed assets (18,742) (18,742) - (18,742) -
- --------------------------------------------------------------------------------------------------------------------------------
Net Loss Available to Common Stockholders $ (3,437,884) $(308,630) $ (13,468) $ (1,189,977) $ (14,976)
================================================================================================================================
Loss per share attributable to common stockholders: $ (0.00) $ (0.00) $ (0.02) $ (0.00)
==============================================================
Weighted average number of common shares outstanding:
Basic and diluted 66,336,738 37,446,200 64,684,596 37,446,200
==============================================================
(See condensed notes to the financial statements)
F-2
CHINA NETTV HOLDINGS INC.
(a development stage company)
INTERIM STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003 (unaudited)
Cumulative
Stated in U.S. dollars from Inception 2004 2003
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Cash flows from operating activities
Net loss $ (3,437,884) $(1,189,977) $ (14,976)
Adjustments to reconcile net loss to net cash flows used in
operating activities
Depreciation and amortization 13,657 9,038 -
Capital contribution for expenses 9,000 - -
Compensation cost - stock options 220,000 - -
Loss on investment 1,280,000 - -
Loss on disposal of fixed asset 18,742 18,742 -
Common stock issued for services rendered 280,000 280,000 -
Common stock issued for expenses 50,000 - -
Changes in assets and liabilities
Increase in prepaid expenses (3,137) (2,443) -
(Increase) decrease in prepaid expenses - related party (7,733) 21,252 -
(Increase) decrease in security deposits (3,117) 3,011 -
Increase (decrease) in accounts payable and accrued expenses 115,584 50,541 (3,177)
Decrease in accrued expenses - related party - (78,000) -
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Net cash flows used in operating activities (1,464,888) (887,836) (18,153)
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Cash flows from investing activities
Investment in joint venture (1,280,000) - -
Proceeds from disposal of automobile 44,525 44,525 -
Equipment and automobile additions (45,269) (2,061) -
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Net cash flows provided by (used in) investing activities (1,280,744) 42,464 -
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Cash flows from financing activities
Advances (repayments) - amount due to related parties 106,055 3,584 17,785
Principal payments - installment loans payable (52,230) (50,130) -
Promissory note payable - related party 100,000 100,000 -
Proceeds from the issuance of common stock 2,609,748 299,000 -
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Net cash flows provided by financing activities 2,763,573 352,454 17,785
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Increase (decrease) in cash and cash equivalents 17,941 (492,918) (368)
Cash and cash equivalents - beginning of period - 510,859 744
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Cash and cash equivalents - end of period $ 17,941 $ 17,941 $ 376
===========================================================
(See condensed notes to the financial statements)
F-3
CHINA NETTV HOLDINGS INC.
(a development stage company)
INTERIM STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003 (unaudited)
Cumulative
Stated in U.S. dollars From Inception 2004 2003
- -----------------------------------------------------------------------------------------------------------------
Supplemental Information :
Cash paid for :
Interest $ 206 $ 45 $ -
Income taxes - - -
Non-cash investing and financing activities :
Common stock to be issued for services rendered $ 280,000 $ 280,000
Capital contribution for expenses paid by officer $ 9,000 - -
Common stock issued for expenses $ 50,000 - -
(See condensed notes to the financial statements)
F-4
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of America.
However, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). In the opinion of management,
all adjustments of a normal recurring nature necessary for a fair presentation
have been included. The results for interim periods are not necessarily
indicative of results for the entire year. These condensed financial statements
and accompanying notes should be read in conjunction with the Company's annual
financial statements and the notes thereto for the fiscal year ended August 31,
2003 and four months ended December 31, 2003 included in its Annual Report and
Transition Report on Forms 10-KSB and 10-KT.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has limited operations and has
sustained substantial operating losses in recent years resulting in a
substantial accumulated deficit. In view of these matters, realization of a
major portion of the assets in the accompanying balance sheet is dependent upon
the continued operations of the Company, which in turn is dependent upon the
Company's ability to meet its financing requirements, and the success of its
future operations.
To meet these objectives, the Company plans to seek additional equity and
expects to raise funds through private or public equity investment in order to
support existing operations and expand the range and scope of its business.
There is no assurance that such additional funds will be available for the
Company on acceptable terms, if at all. Management believes that actions
presently taken to revise the Company's operating and financial requirements
provide the opportunity for the Company to continue as a going concern. The
Company's ability to achieve these objectives cannot be determined at this time.
If the Company is unsuccessful in its endeavors, it may have to cease
operations.
NOTE 2 - RELATED PARTY TRANSACTIONS
Consulting Fees. During the three and six months ended June 30, 2004, the
Company incurred consulting fees of $99,386 and $247,986 to certain directors
and/or officers of the Company. The Company has consulting agreements with
certain directors and officers and others with fixed monthly compensation, but
no set commitment term except those as disclosed in Note 5(b). The contracts
also include an unstated number of stock options, with undetermined terms, to be
issued to the parties as deemed fit by the Company.
Due to Related Parties. Due to related parties as of June 30, 2004, primarily
consists of a demand loan from a major shareholder of $104,157 with interest at
prime plus 1% compounded on a semi-annual basis. Accrued interest for the six
months ended June 30, 2004 was $2,558.
Promissory Note. As of June 30, 2004, the Company executed a promissory note
for $100,000 with interest at 0% thereon to a company controlled by Zhi Wang, a
former director and Chairman of the Company. The amount is repayable on May 15,
2005. The Company has the right to prepay the note in whole or in part at any
time without premium or penalty. The funds were obtained to further support work
- -ing capital requirements.
F-5
Common Stock. The Company entered into an agreement with Zhi Wang, a former
director and Chairman of the Company, to finalize an agreement reached in
principle in September 2003 regarding the Xietongmen Gold-Copper prospect. Under
the agreement of April 12, 2004, the Company agreed to issue a total of 40
million common shares of the Company to compensate Zhi Wang for all the pay-
ments, expenses and costs incurred to him in connection with the transfer of the
prospecting permit for the Xietongmen Gold-Copper prospect from Danlu. Prior to
the transfer, the prospecting permit was held by Danlu, an entity 65% owned by
Honglu. The prospecting permit so acquired by the Company is held through Honglu
in order to maintain the continuation and validity of the prospecting permit in
accordance with Chinese laws. The Company issued 32 million restricted common
shares in April 2004 under the agreement, which shares have been returned to the
Company pending the finalization of the transaction under the original agreement
dated July 4, 2003, and undertook to issue 8 million common shares at an un-
specified later date. The Company issued 2,800,000 shares in April 2004 to a
former officer/current director as legal fees for legal services rendered in the
first quarter of 2004 in respect of the transaction. The services were valued at
$0.10 per share, representing the fair market value of the services rendered, or
$280,000. (See Note 5 (a) for further details.)
NOTE 3 - FIXED ASSETS
Fixed assets consist of the following:
Office equipment $ 8,561
Computer equipment 15,938
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Total $24,499
Less: accumulated depreciation (3,924)
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Net book value $20,575
========
Depreciation charged to operations for the six months and three months ended
June 30, 2004 and 2003, and the period from inception to June 30, 2004, amounted
to $9,038, $3,911, $nil, $nil and $13,657, respectively.
NOTE 4 - COMMON STOCK, OPTIONS AND WARRANTS
a. Capital Stock
During the six months ended June 30, 2004, 2,990,000 common shares were issued
for the exercise of 2,990,000 Series "A" warrants by their holders.
The Company also issued 32 million shares for the Xietongmen Gold-Copper
prospect, which are held in escrow pending completion of a Share Exchange Agree-
ment dated July 4, 2003, and 2.8 million shares for the related legal fees
valued at $0.10 per share (see further details in Note 2 and 5).
b. Stock Options
As of June 30, 2004, there are 12,000,000 stock options outstanding. No options
were canceled, forfeited, or exercised during the six months ended June 30,
2004. The weighted average exercise price of the options outstanding and
exercisable is $0.20 and the weighted average remaining contractual life is 1.7
years. (See further details in Note 5(c)).
c. Stock Warrants.
During the six months ended June 30, 2004, 2,990,000 Series "A" warrants were
exercised at $0.10 per share for cash proceeds of $299,000 and 250,000 Series
"A" warrants expired. As of June 30, 2004, the Company has 3,040,000 and
16,050,000 Series "B" and "C" Stock Purchase Warrants outstanding, respectively.
F-6
NOTE 5 - COMMITMENTS AND CONTINGENCIES AND SUBSEQUENT EVENTS
a. SHARE EXCHANGE AGREEMENT AND EXCLUSIVE OPTION AGREEMENT
On July 4, 2003, the Company entered into a share exchange agreement
("Agreement") to acquire all of the issued and outstanding shares of Honglu
Investment Holdings, Inc. ("Honglu"), a Chinese company that owns prospecting
permits and licenses on mineral prospects in Tibet, China. Upon tender of the
100% issued and outstanding shares of Honglu, the Company issued 97,700,000
shares of its common stock into escrow on July 23, 2003. The Company signed an
amendment to the agreement with Zhi Wang to amend the terms of its Acquisition
Agreement with Honglu Shareholders and appointed Zhi Wang to apply for Chinese
government approval to register Honglu as a wholly foreign owned company from a
Chinese domestic company. The Company also agreed with Zhi Wang to subject the
Acquisition Agreement and share exchange to the Company obtaining the
appropriate Chinese government regulatory approval to amend the corporate
registration of Honglu to register the Company as the legal owner of Honglu
under the Chinese laws. On August 20, 2004 the Company was notified by Zhi Wang
that Tibet government had on August 10, 2004 rejected the application for
approval of the share exchange agreement with the Company, which application was
submitted by Honglu on May 8, 2004.
Upon receipt of the audit of Honglu, the stock for stock transaction between the
Company and Honglu Shareholders was completed on February 27, 2004, and
97,700,000 shares were released and delivered to Honglu Shareholders. These
shares issued were called back into escrow in June 2004 in anticipation that the
share exchange agreement with Honglu Shareholders would be subject to the
Company being able to register Honglu as its wholly owned Chinese subsidiary.
In order to amend Honglu's corporate registration and to register the Company as
the legal owner of Honglu, Honglu made a separate application on May 8, 2004 for
an approval from the Chinese government for Honglu to re-register as a wholly
foreign owned enterprise. On August 20, 2004, the Company was notified by Zhi
Wang, the legal representative of Honglu Investment Holdings Inc., and the
former chairman of the Company that the share exchange between Honglu and China
NetTV Holdings, Inc. entered into on July 4, 2003 has been rejected by the
Department of Commerce of Tibet Autonomous Region. The Company understands that
Zhi Wang and Honglu have requested termination and are proceeding to terminate
the Acquisition Agreement. The Company further understands that it will be
unable to conduct any business activities in respect of Honglu, its subsidiary
Danlu and the mineral claims in respect of Honglu and Danlu holding prospecting
and/or mining permits/licenses, without Honglu's agreement and active
participation and cooperation. As a foreign company, the Company, acting alone
and without venture with Honglu, does not meet the formal and substantive legal
and regulatory requirements of China regarding mineral exploration and mining
operations.
The Company intends to continue to attempt to negotiate different arrangements
with Zhi Wang/Honglu to participate in China/Tibet mineral exploration. Due to
the development referenced above, the Company is unable to conduct any business
activitites as planned in respect of Honglu and the properties held by Honglu
and its subsidiary, Danlu. As a practical matter, the Company considers that the
Share Exchange Agreement between the Company and Honglu shareholders has been
terminated on the grounds that it is forced to abandon any business activities
in respect of Honglu, Danlu, and the mineral claims for which they hold
prospecting/mining permits/licenses.
F-7
As a result, the Company intends to immediately request the cancellation of the
shares held in escrow issued in connection with the Honglu related agreements
totalling 129,700,000. In addition, the Company intends to request the cancela-
tion of the 7% finders fee shares (6,839,000) and the cancellation of legal fees
shares (2,800,000) due to the inability to consummate the Honglu transaction.
While the Company remains interested in minerals exploration in China, it is
unknown what, if any, participation it may have in any exploration.
Although the Company has granted to Hunter Dickinson, Inc. ("HDI") an exclusive
option to acquire an aggregate 50% of the Property Rights to the Xietongmen
Gold-Copper Prospect in Tibet and a further option to acquire up to a further
10% of Property Rights, for an aggregate of 60% of such Property Rights, the
Company has notified HDI of the termination of the Honglu transaction. The
Company expects the exclusive option with HDI to be terminated by mutual
release, the form of which has been presented by HDI. Due to the development in
the transaction with Honglu, the Company will be unable to perform any of its
obligations under the Property Option Agreement.
The terms and conditions of the exclusive option granted were:
(i) Hunter Dickinson, Inc. will make the following cash payments totalling
$2,000,000 (the "Acquisition Costs") to the Company:
* $500,000 on the date of acceptance of by the TSX Venture Exchange ("Effective
Date") or under certain circumstances contemplated in the Agreement; and
* $250,000 every four (4) months thereafter until the full balance of the
Acquisition Costs are paid in full; and
(ii) Hunter Dickinson, Inc. will expend $5,000,000 in exploration costs within
twenty-four (24) months following the Effective Date; and a minimum of
$3,000,000 is to be expended within twelve (12) months following the Effective
Date. The total expenditures shall be incurred in accordance with a work
program, which shall include an estimated thirty (30) drill holes during the
first twelve (12) months following the Effective Date.
(iii) Hunter Dickinson, Inc. must give the Company notice in writing of the
exercise of the Option to acquire the additional 10%. Hunter Dickinson, Inc.
shall not be entitled to exercise the Option at a time when it is in default.
(iv) Hunter Dickinson, Inc., upon announcing the Property Option Agreement,
assigned the Agreement to Continental Minerals Corporation ("Continental"), a
member of the Hunter Dickinson Group, pursuant to the Agreement. The Company
learned subsequently that Continental had received the TSX approval required
under the Property Option Agreement. As of the date of this filing, however, the
Property Option Agreement has not been exercised. At the request of Hunter
Dickinson, Inc., the Company has entered into negotiations with Hunter
Dickinson, Inc. for an amendment of the Property Option Agreement.
b. Consulting Agreements
The Company has entered into a consulting agreement for geological and admini-
strative services provided at $5,000 per month expiring on December 31, 2006.
The Company also has entered into a consulting agreement with a consultant for
geological services provided at $4,200 Canadian dollars per month expiring on
December 31, 2006. The Company intends to request cancelation of these Agree-
ments as a result of the termination of the Honglu transaction (see above note).
F-8
c. Resignation of officers and directors.
On August 23, 2004, the Company received written resignation notifications from
Jie Yang, Vice President and Director, and Zhi Wang, Chairman, effective
immediately. Accordingly, related stock options granted to these individuals
totalling 4.5 million are expected to be canceled.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information presented here should be read in conjunction with China NetTV
Holdings Inc.'s (the "Company") financial statements and other information
included in this Form 10-QSB. The Company has presented its quarterly financial
statements, which should be read in conjunction with its annual financial state-
ments and the notes thereto for the fiscal year ended August 31, 2003 and in its
10-KT Transition report as of and for the four months ending December 31, 2003.
When used in this Form 10-QSB, the words "expects", "anticipates", "estimates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to risks and uncertainties, including those set
forth below under "Risks and Uncertainties," that could cause actual results to
differ materially from those projected. These forward-looking statements speak
only as of the date hereof. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any statement is based.
PLAN OF OPERATION
- -----------------
The Company has had no revenues from operations since inception. The operations
of the Company have been financed through private placements and loans. During
May 2004, the Company executed a promissory note for $100,000, with interest at
0% thereon, due one year from the date of the note with a former officer and
director of the Company. The Company has the right to prepay the note in whole
or in part at any time without premium or penalty. The funds were obtained to
further support working capital requirements.
The Company has expended substantially all of its efforts during the last twelve
months to complete a share exchange agreement dated July 4, 2003, with Honglu
Investment Holdings, Inc., as more fully described in previous filings. However,
the Company received notification from Zhi Wang in August 2004, that the trans-
action terminated as a result of the inability to obtain the appropriate Chinese
government regulatory approval.
The majority of the Company's expenses for the three and six months ended June
30, 2004 have consisted of the following major expenses: consulting fees, legal
and professional fees, and travel and promotion expenses. Such fees were
incurred in connection with efforts to consummate the acquisition of Honglu,
negotiating an Option Agreement with Hunter Dickinson, Inc., and looking for
further acquisitions.
The Company is currently reviewing its options. While the Company remains
interested in minerals exploration in China, it is unknown what, if any, partici
- -pation we may have in any exploration.
3
To date, we have not been profitable in any of our endeavors and we face all the
risks common to companies in their early stages of development, including
undercapitalization and uncertainty of funding sources, high initial expenditure
levels and uncertain revenue streams, an unproven business model, and
difficulties in managing growth. Our recurring losses raise substantial doubt
about our ability to continue as a going concern. Our financial statements do
not reflect any adjustments that might result from the outcome of this
uncertainty. We believe we will continue to incur losses for at least the next
12 months and will require additional cash to satisfy our operations. The
Company's future funding requirements will depend on numerous factors, many of
which are beyond our control.
Due to the "start up" nature of the Company's business, we expect to incur
losses as we expand. We expect to raise additional funds through private or
public equity investment in order to expand the range and scope of our business
operations. We will seek access to private or public equity but there is no
assurance that such additional funds will be available for the Company to
finance its operations on acceptable terms, if at all. However, additional fund-
ing will be necessary if the Company begins to seek other business
opportunities.
We have explored the possibility of acquiring a profitable business, selling or
merging with another Company. Although we have not been able to successfully
effectuate such a transaction nor have we entered into any binding agreement to
effect such a transaction, the board of directors of the Company does consider
such offers and would consider all of the terms of any such offer as part of its
fiduciary duty to determine whether any such transaction is in the best interest
of the Company's stockholders. If our board of directors does determine that the
acquisition of a profitable business, a sale or merger of the Company is in the
best interests of the Company's stockholders, our board of directors may
determine to pursue such a transaction and the consideration to be paid in
connection with such transaction would be used to expand our business and fund
future operations. We cannot assure you that we will be able to raise funds
through a sale or equity transaction, or if such funding is available, that it
will be on favorable terms. Our common stock is currently traded on the
over-the-counter market on an electronic bulletin board.
4
LIQUIDITY AND WORKING CAPITAL
- -----------------------------
As of June 30, 2004, the Company had total current assets of $28,811 and total
current liabilities of $321,639. The Company has a negative working capital of
($292,828) at June 30, 2004. For the six months ended June 30, 2004, the Company
received $299,000 in cash proceeds from the exercise of 2,990,000 Series A Stock
Purchase Warrants and $100,000 though the execution of a promissory note. The
Company has no other capital resources other than the ability to use its common
stock to achieve additional capital or exercise of the warrants by the holders.
Although the Company has granted to Hunter Dickinson, Inc. ("HDI") an exclusive
option to acquire an aggregate 50% of the Property Rights to the Xietongmen
Gold-Copper Prospect in Tibet and a further option to acquire up to a further
10% of Property Rights, for an aggregate of 60% of such Property Rights, the
Company has notified HDI of the termination of the Honglu transaction. The
Company expects the exclusive option with HDI to be terminated by mutual
release, the form of which has been presented by HDI. Due to the development in
the transaction with Honglu, the Company will be unable to perform any of its
obligations under the Property Option Agreement.
The terms and conditions of the exclusive option granted were:
(i) Hunter Dickinson, Inc. will make the following cash payments totalling
$2,000,000 (the "Acquisition Costs") to the Company:
* $500,000 on the date of acceptance of by the TSX Venture Exchange ("Effective
Date") or under certain circumstances contemplated in the Agreement; and
* $250,000 every four (4) months thereafter until the full balance of the
Acquisition Costs are paid in full; and
(ii) Hunter Dickinson, Inc. will expend $5,000,000 in exploration costs within
twenty-four (24) months following the Effective Date; and a minimum of
$3,000,000 is to be expended within twelve (12) months following the Effective
Date. The total expenditures shall be incurred in accordance with a work
program, which shall include an estimated thirty (30) drill holes during the
first twelve (12) months following the Effective Date.
(iii) Hunter Dickinson, Inc. must give the Company notice in writing of the
exercise of the Option to acquire the additional 10%. Hunter Dickinson, Inc.
shall not be entitled to exercise the Option at a time when it is in default.
5
(iv) Hunter Dickinson, Inc., upon announcing the Property Option Agreement,
assigned the Agreement to Continental Minerals Corporation ("Continental"), a
member of the Hunter Dickinson Group, pursuant to the Agreement. The Company
learned subsequently that Continental had received the TSX approval required
under the Property Option Agreement. As of the date of this filing, however, the
Property Option Agreement has not been exercised. At the request of Hunter
Dickinson, Inc., the Company has entered into negotiations with Hunter
Dickinson, Inc. for an amendment of the Property Option Agreement.
RISK FACTORS
We have sought to identify what we believe to be the most significant risks to
our business. However, we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business. These are factors that
we think could cause our actual results to differ materially from expected
results. Other factors besides those listed here could adversely affect us.
Limited Operating History; Anticipated Losses; Uncertainty 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 its
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.
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 CTVH. As of June 30, 2004, there were approximately
66,675,200 shares of Common Stock outstanding. There can be no assurance that a
trading market will be sustained in the future.
Potential Fluctuations in Quarterly Results
- -------------------------------------------
Significant variations in our quarterly operating results may adversely affect
the market price of our common stock. Our operating results have varied on a
quarterly basis during our limited operating history, and we expect to
experience significant fluctuations in future quarterly operating results. These
fluctuations have been and may in the future be caused by numerous factors, many
of which are outside of our control. We believe that period-to-period
comparisons of our results of operations will not necessarily be meaningful and
that you should not rely upon them as an indication of future performance. Also,
it is likely that our operating results could be below the expectations of
public market analysts and investors. This could adversely affect the market
price of our common stock.
6
Dependence on Executive Officers and Technical Personnel
- --------------------------------------------------------
The success of our business plan depends on attracting qualified personnel, and
failure to retain the necessary personnel could adversely affect our business.
Competition for qualified personnel is intense, and we may need to pay premium
wages to attract and retain personnel. Attracting and retaining qualified person
- -nel is critical to our business. Inability to attract and retain the qualified
personnel necessary would limit our ability to implement our business plan
successfully.
Need for Additional Financing
- -----------------------------
No commitments to provide additional funds have been made by management or other
stockholders. Accordingly, there can be no assurance that any additional funds
will be available to the Company to allow it to cover operation expenses.
If future operations are unprofitable, the Company will be forced to develop
another line of business, or to finance its operations through the sale of
assets it has, or enter into the sale of stock for additional capital, none of
which may be feasible when needed. The Company has no specific management
ability or financial resources or plans to enter any other business as of this
date.
The effects of inflation have not had a material impact on its operation, nor is
it expected to in the immediate future.
Market Risk
- -----------
The Company does not hold any derivatives or other investments that are subject
to market risk. The carrying values of any financial instruments approximate
fair value as of those dates because of the relatively short-term maturity of
these instruments, which eliminates any potential market risk, associated with
such instruments.
Other 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.
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We are Considered a Penny Stock
- -------------------------------
The Company's stock differs from many stocks, in that it is a "penny stock." The
Securities and Exchange Commission has adopted a number of rules to regulate
"penny stocks." These rules include, but are not limited to, Rules 3a5l-l,
15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and
Exchange Act of 1934, as amended.
Because our securities probably constitute "penny stock" within the meaning of
the rules, the rules would apply to us and our securities. The rules may further
affect the ability of owners of our stock to sell their securities in any market
that may develop for them. There may be a limited market for penny stocks, due
to the regulatory burdens on broker-dealers. The market among dealers may not be
active. Investors in penny stock often are unable to sell stock back to the
dealer that sold them the stock. The mark-ups or commissions charged by the
broker-dealers may be greater than any profit a seller may make. Because of
large dealer spreads, investors may be unable to sell the stock immediately back
to the dealer at the same price the dealer sold the stock to the investor. In
some cases, the stock may fall quickly in value. Investors may be unable to reap
any profit from any sale of the stock, if they can sell it at all.
Stockholders should be aware that, according to the Securities and Exchange
Commission Release No. 34- 29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. These patterns include:
o Control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer;
o Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases;
o Boiler room" practices involving high pressure sales tactics and unrealistic
price projections by
(i) Excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and inexperienced sales persons;
(ii) The wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level, along with
the inevitable collapse of those prices with consequent investor losses.
Furthermore, the "penny stock" designation may adversely affect the development
of any public market for the Company's shares of common stock or, if such a
market develops, its continuation. Broker-dealers are required to personally
determine whether an investment in "penny stock" is suitable for customers.
Penny stocks are securities (i) with a price of less than five dollars per
share; (ii) that are not traded on a "recognized" national exchange; (iii) whose
prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed
stocks must still meet requirement (i) above); or (iv) of an issuer with net
tangible assets less than $2,000,000 (if the issuer has been in continuous
operation for at least three years) or $5,000,000 (if in continuous operation
for less than three years), or with average annual revenues of less than
$6,000,000 for the last three years.
Section 15(g) of the Exchange Act, and Rule 15g-2 of the Commission require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in a
penny stock for the investor's account. Potential investors in the Company's
common stock are urged to obtain and read such disclosure carefully before
purchasing any shares that are deemed to be "penny stock."
8
Rule 15g-9 of the Commission requires broker-dealers in penny stocks to approve
the account of any investor for transactions in such stocks before selling any
penny stock to that investor. This procedure requires the broker-dealer to (i)
obtain from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a sign-
ed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for the Company's stockholders to resell their shares to third parties
or to otherwise dispose of them.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis or plan of operation is based upon our financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used or changes in the accounting estimate that are reasonably
likely to occur could materially change the financial statements. We believe the
following critical accounting policies reflect our more significant estimates
and assumptions used in the preparation of our financial statements:
Common stock held in escrow - The Company has issued 129,700,000 shares of
common stock that are held in escrow, which have not been valued pursuant to
consummation of certain agreements, which are subject to Chinese government
regulatory approval. As of the quarter ended June 30, 2004 and the date of this
filing, the Company has been notified that the Chinese government has
disapproved the transaction. The Company expects the shares will be returned
immediately and thereafter canceled by the Company.
Contingencies - We may be subject to certain asserted and unasserted claims
encountered in the normal course of business. It is our belief that the
resolution of these matters will not have a material adverse effect on our
financial position or results of operations, however, we cannot provide
assurance that damages that result in a material adverse effect on our financial
position or results of operations will not be imposed in these matters. We
account for contingent liabilities when it is probable that future expenditures
will be made and such expenditures can be reasonably estimated.
Income Taxes - We record a valuation allowance to reduce our deferred tax assets
to the amount that is more likely than not to be realized. We have considered
future market growth, forecasted earnings, future taxable income, and prudent
and feasible tax planning strategies in determining the need for a valuation
allowance. We currently have recorded a full valuation allowance against net
deferred tax assets as we currently believe it is more likely than not that the
deferred tax assets will not be realized.
9
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including our principal executive officer and the principal financial officer,
the Company conducted an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end
of the period covered by this report (the "Evaluation Date"). Based on this
evaluation, the Company's principal executive officer and principal financial
officer concluded as of the Evaluation Date, that the Company's disclosure
controls and procedures were effective such that the material information
required to be included in our Securities and Exchange Commission ("SEC")
reports is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms relating to the Company, including our
consolidating subsidiaries, and was made known to them by others within those
entities, particularly during the period when this report was being prepared.
Additionally, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date. We have not identified any significant
deficiencies or material weaknesses in our internal controls, and therefore
there were no corrective actions taken.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES - The following issuance of common stock was made
during the quarter:
The Company issued 2,800,000 shares of common stock for services rendered valued
at $0.10 per share. The shares were issued by the Company pursuant to Section
4(2) of the Securities Act of 1933, as amended.
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
31 Certification of the Chief Executive and Financial Officer pursuant to Rule
13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification of the Chief Executive and Financial Officer pursuant to 18
U.S.C.Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K filed during the quarter ended June 30, 2004:
o April 8, 2004
o May 10, 2004
o May 11, 2004
o May 13, 2004
11
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: September 7, 2004 China NetTV Holdings Inc.
/s/ Anthony Garson
September 7, 2004 -----------------------------
Anthony Garson
President
September 7, 2004 /s/ Maurice Tsakok
--------------------------------
Maurice Tsakok
Secretary and Director
12