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 September 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 (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: 66,675,200 shares outstanding as of November 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 September 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 SEPTEMBER 30, 2004 (unaudited) Stated in U.S. dollars - -------------------------------------------------------------------------------- ASSETS Current Assets Cash and Cash Equivalents $ 3,666 Prepaid expenses and other current assets 2,901 Prepaid expenses - related party 6,543 Stock subscription receivable (Note 5) 16,030 ------------- Total Current Assets 29,140 Fixed assets, net (Note 3) 19,098 Security deposit 3,076 ------------- Total Assets $ 51,314 ============= LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities Accounts payables and accrued expenses $ 133,280 Promissory note payable - related party (Note 2) 100,000 Due to related parties (Note 2) 191,735 ------------- 425,015 ------------- Commitments and Contingencies (Note 5) - Stockholders' Deficiency Common Stock: $0.001 par value; authorized: 200,000,000 Issued and outstanding: 66,675,200 (Note 5) 66,675 Common stock subscribed for (Note 5) 16,030 Common stock held in escrow - 129,700,000 shares (Note 5) - Additional Paid In Capital 3,102,073 Accumulated Deficit (3,558,479) ------------- Total Stockholders' Deficiency (373,701) ------------- Total Liabilities and Stockholders' Deficiency $ 51,314 ============= (See condensed notes to the financial statements) F-1 CHINA NETTV HOLDINGS INC. STATEMENTS OF OPERATIONS (Unaudited) Three Months ended Nine Months ended Cumulative September 30, September 30, September 30, September 30, Stated in U.S. dollars from Inception 2004 2003 2004 2003 - -------------------------------------------------------------------------------------------------------------------------------- Revenue $ 1,448 $ - $ - $ - $ - Expenses General and administrative 2,253,482 120,595 103,373 1,291,830 118,349 - -------------------------------------------------------------------------------------------------------------------------------- 2,252,034 120,595 103,373 (1,291,830) 118,349 Operating Loss (2,252,034) (120,595) (103,373) (1,291,830) (118,349) Other Expenses Interest (7,703) - - - - Loss on investment (1,280,000) - - - - Loss on disposal of fixed assets (18,742) - - (18,742) - - -------------------------------------------------------------------------------------------------------------------------------- Net Loss Available to Common Stockholders $ (3,558,479) $(120,595) $(103,373) $ (1,310,572) $(118,349) ================================================================================================================================ 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 66,675,200 42,649,787 65,352,974 39,199,790 ============================================================== (See condensed notes to the financial statements) F-2 CHINA NETTV HOLDINGS INC. (a development stage company) INTERIM STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2003 (unaudited) Cumulative Stated in U.S. dollars from Inception 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net loss $ (3,558,479) $(1,310,572) $ (118,349) Adjustments to reconcile net loss to net cash flows used in operating activities Depreciation and amortization 15,134 10,515 - 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 (2,901) (2,207) - (Increase) decrease in prepaid expenses - related party (6,543) 22,442 - (Increase) decrease in security deposits (3,076) 3,052 - Increase (decrease) in accounts payable and accrued expenses 133,280 68,237 100,566 Decrease in accrued expenses - related party - (78,000) - ----------------------------------------------------------- Net cash flows used in operating activities (1,564,843) (987,791) (17,783) ----------------------------------------------------------- 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) - ----------------------------------------------------------- Net cash flows provided by (used in) investing activities (1,280,744) 42,464 - ----------------------------------------------------------- Cash flows from financing activities Advances (repayments) - amount due to related parties 191,735 89,264 17,081 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 - ----------------------------------------------------------- Net cash flows provided by financing activities 2,849,253 438,134 17,081 ----------------------------------------------------------- Increase (decrease) in cash and cash equivalents 3,666 (507,193) (702) Cash and cash equivalents - beginning of period - 510,859 744 ----------------------------------------------------------- Cash and cash equivalents - end of period $ 3,666 $ 3,666 $ 42 =========================================================== (See condensed notes to the financial statements) F-3 CHINA NETTV HOLDINGS INC. (a development stage company) INTERIM STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2003 (unaudited) Cumulative Stated in U.S. dollars From Inception 2004 2003 - ----------------------------------------------------------------------------------------------------------------- Supplemental Information : Cash paid for : Interest $ 207 $ 46 $ - 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 SEPTEMBER 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 Due to related parties consists of the following: (i) Consulting Fees. During the three and nine months ended September 30, 2004, the Company incurred consulting fees of $64,254 and $312,240 to certain directors and/or officers and an ex-director 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. (ii) Demand loan. Due to related parties as of September 30, 2004, also includes a demand loan from a major shareholder of $107,052 with interest at prime plus 1% compounded on a semi-annual basis. Accrued interest for the nine months ended September 30, 2004 was $4,050. Promissory Note. As of September 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 working capital requirements. F-5 NOTE 3 - FIXED ASSETS Fixed assets consist of the following: Office equipment $ 8,561 Computer equipment 15,938 -------- Total $24,499 Less: accumulated depreciation (5,401) -------- Net book value $19,098 ======== Depreciation charged to operations for the nine months and three months ended September 30, 2004 and 2003, and the period from inception to September 30, 2004, amounted to $10,515, $1,477, $nil, $nil and $15,134, respectively. NOTE 4 - COMMON STOCK, OPTIONS AND WARRANTS a. Capital Stock During the nine months ended September 30, 2004, 2,990,000 common shares were issued for the exercise of 2,990,000 Series "A" warrants by their holders. The Company issued 129,700,000 common shares in escrow for the acquisition of Honglu Investment Holdings Inc. and Xietongmen Gold-Copper prospect. The Company also issued 9,639,000 as legal fees in relation to the transaction. Due to the subsequent cancellation of the acquisition agreements on November 5, 2004, these shares will be returned to treasury for cancellation. See further details in Note 5(a). b. Stock Options As of September 30, 2004, there are 12,000,000 stock options outstanding. No options were canceled, forfeited, or exercised during the nine months ended September 30, 2004. The weighted average exercise price of the options outstanding and exercisable is $0.20 and the weighted average remaining contractual life is 1.3 years. c. Stock Warrants. During the nine months ended September 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 September 30, 2004, the Company has 3,040,000 and 15,849,625 Series "B" and "C" Stock Purchase Warrants outstanding, respectively. 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. On November 5, 2004, the Company and Honglu shareholders mutually agreed to terminate the Agreement, because the Tibet government had, on August 10, 2004, rejected the application for approval of the Agreement with the Company. All the shares issued under escrow in relation to the Agreement, in total of 129,700,000, have returned to treasury for cancellation. F-6 On February 5, 2004, the Company 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 under certain terms and conditions. On November 9, 2004, the Company and HDI mutually agreed to terminate the exclusive option agreement due to the failure of the Honglu Agreement. On November 5, 2004, the Company and shareholders of Highland Mining Inc., a BVI corporation which owns 100% of Tibet Tianyuan Minerals Exploration Limited ("Highland") have entered into a binding share exchange agreement whereby the Company shall issue 85,000,000 of its common shares from treasury and a debenture convertible into 65,000,000 of the Company's common shares in exchange for 50% of the issued and outstanding shares of Highland held by Highland Shareholders, pursuant to the terms and conditions as hereinafter set forth: 1. If Highland Shareholders are unable to enter into a binding agreement on a share purchase and sale transaction (the "Definitive Agreement") with Hunter Dickinson Inc. ("HDI") to sell and transfer the other 50% of the issued and outstanding shares of Highland (the "Remaining Shares") to HDI on or before March 30, 2005 (the "Outside Date"), or if either or both HDI and Highland Shareholders decide to terminate the Definitive Agreement pursuant to the terms and conditions therein on or before the Outside Date, then unless Highland Shareholders and the Company otherwise agree, Highland Shareholders shall sell and transfer the Remaining Shares to the Company at a nominal price, pursuant to the same terms and conditions contained hereunder as applicable to the parties then. 2. Highland Shareholders have direct or indirect rights or options to, or interests in, (the rights, options and interests together are called "Additional Rights") 25 mineral properties in Tibet, China (the "Additional Properties"), subject to terms and conditions and regulatory requirements attached to the Additional Rights. Highland Shareholders agree to transfer and assign, or shall cause to be transferred and assigned, to the Company the Additional Rights for $1.00, subject to terms and conditions and regulatory requirements attached thereto, and terms and conditions herein. 3. Upon completion of the Exchange, the following individuals shall be elected or appointed as new directors of the Company: Zhi Wang, Jie Yang, Xiaojun Ma, Jing Wang. These new directors are shareholders of Highland Mining, Inc. which owns Tibet Tianyuan Minerals Exploration Limited and are the same individuals who were involved in the previous- ly cancelled transaction. The Company agreed to pay a finder fee in the form of a debenture convertible into 9,639,000 common shares of the Company upon completion of the share exchange. On November 9, 2004, Highland shareholders have entered into a preliminary option agreement with HDI. HDI has an option to acquire 50% of the issued and outstanding shares of Highland through payment of $2,000,000 to Highland shareholders and investment of $5,000,000 in Highland to fund the exploration of the Xietongmen Copper Property located near Xiong Village, Xietongmen County, Rikaze area, Tibet Autonomous Region, China. HDI may acquire a further 10% of the issued and outstanding shares of Highland, through the investment of $3,000,000 in Highland to fund exploration of the Xietongmen Copper Property. The preliminary option agreement is subject to a full due diligence study by HDI. b. Consulting Agreements The Company has entered into a consulting agreement for geological and administrative 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 cancellation of these Agreements as a result of the termination of the Honglu transaction (see above note a). F-7 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. On November 3, 2004, the Company received written resignation notifications from Ronald Xie, Director, effective immediately. d. Non-brokered private placement The Company has arranged a non-brokered private placement for up to 48,000,000 units at $0.05 per unit for total proceeds of $2,400,000. Each unit will consist of one common share and one non-transferable share purchase warrant entitling the holder to purchase one common share for two years, at $0.08 per share in the first year or $0.25 in the second year. The proceeds from this private placement will be used for working capital and acquiring mining properties in the future. A 7% finder's fee will be paid in shares. e. Exercise of Warrants On October 1, 2004, the Company received $16,030 for exercising 200,375 Share Purchase Warrant "C" at $0.08 each. F-8 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 statements 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 fifteen months to complete a share exchange agreement dated July 4, 2003, with Honglu Investment Holdings, Inc. The agreement has been mutually terminated on November 5, 2004 as a result of the inability to obtain the appropriate Chinese government regulatory approval. On February 5, 2004, 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 under certain terms and conditions. On November 9, 2004, the Company and HDI mutually agreed to terminate the exclusive option agreement. On November 5, 2004, the Company and shareholders of Highland Mining Inc. ("Highland") have entered into a binding share exchange agreement whereby the Company shall issue 85,000,000 of its common shares from treasury and a debenture convertible into 65,000,000 of the Company's common shares in exchange for 50% of the issued and outstanding shares of Highland held by Highland Shareholders, pursuant to the terms and conditions as hereinafter set forth:-. 1. If Highland Shareholders are unable to enter into a binding agreement on a share purchase and sale transaction (the "Definitive Agreement") with Hunter Dickinson Inc. ("HDI") to sell and transfer the other 50% of the issued and outstanding shares of Highland (the "Remaining Shares") to HDI on or before March 30, 2005 (the "Outside Date"), or if either or both HDI and Highland Shareholders decide to terminate the Definitive Agreement pursuant to the terms and conditions therein on or before the Outside Date, then unless Highland Shareholders and the Company otherwise agree, Highland Shareholders shall sell and transfer the Remaining Shares to the Company at a nominal price, pursuant to the same terms and conditions contained hereunder as applicable to the parties then. 2. Highland Shareholders have direct or indirect rights or options to, or interests in, (the rights, options and interests together are called "Additional Rights") 25 mineral properties in Tibet, China (the "Additional Properties"), subject to terms and conditions and regulatory requirements attached to the Additional Rights. Highland Shareholders agree to transfer and assign, or shall cause to be transferred and assigned, to the Company the Additional Rights for $1.00, subject to terms and conditions and regulatory requirements attached thereto, and terms and conditions herein. 3. Upon completion of the Exchange, the following individuals shall be elected or appointed as directors of the Company: Zhi Wang, Jie Yang, Xiaojun Ma, Jing Wang. These new directors are shareholders of Highland Mining Inc. which owns Tibet Tianyuan Minerals Exploration Limited and are the same individuals who where involved in the previously cancelled transaction. The Company has to pay a finder fee in the form of a debenture convertible into 9,639,000 common shares of the Company upon completion of the share exchange. On November 9, 2004, Highland shareholders have entered into a preliminary option agreement with HDI. HDI has an option to acquire 50% of the issued and outstanding shares of Highland through payment of $2,000,000 to Highland shareholders and investment of $5,000,000 in Highland to fund the exploration of the Xietongmen Copper Property located near Xiong Village, Xietongmen County, Rikaze area, Tibet Autonomous Region, China. HDI may acquire a further 10% of the issued and outstanding shares of Highland, through the investment of $3,000,000 in Highland to fund exploration of the Xietongmen Copper Property. The preliminary option agreement is subject to a full due diligence study by HDI. The majority of the Company's expenses for the three and nine months ended September 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. 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 funding will be necessary if the Company begins to seek other business opportunities. 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. LIQUIDITY AND WORKING CAPITAL As of September 30, 2004, the Company had total current assets of $29,140 and total current liabilities of $425,015. The Company has a negative working capital of ($395,875) at September 30, 2004. For the nine months ended September 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. On October 1, 2004, the Company received $16,030 for exercising 200,375 Share Purchase Warrant "C" at $0.08 each. The Company has arranged a non-brokered private placement for up to 48,000,000 units at $0.05 per unit for total proceeds of $2,400,000. Each unit will consist of one common share and one non-transferable share purchase warrant entitling the holder to purchase one common share for two years, at $0.08 per share in the first year or $0.25 in the second year. The proceeds from this private placement will be used for working capital and acquiring mining properties in the future. A 7% finder's fee will be paid in shares. There is no assurance the Company will receive the funding. 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 and 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. 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 September 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. 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 personnel 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 The Company has arranged a non-brokered private placement for up to 48,000,000 units at $0.05 per unit for total proceeds of $2,400,000. Each unit will consist of one common share and one non-transferable share purchase warrant entitling the holder to purchase one common share for two years, at $0.08 per share in the first year or $0.25 in the second year. The proceeds from this private placement will be used for working capital and acquiring mining properties in the future. A 7% finder's fee will be paid in shares. There is no guarantee the Company will receive the funding. 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. 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." 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 were subject to Chinese government regulatory approval. On November 5, 2004, the Company and Honglu shareholders mutually agreed to terminate the Agreement as the Tibet government had on August 10, 2004 rejected the application for approval of the Agreement with the Company. All the shares issued under escrow in relation to the Agreement have been returned to treasury for cancellation. 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. 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - None ITEM 2. CHANGES IN SECURITIES - None 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, 8-K/A filed during the quarter ended September 30, 2004: o July 14, 2004 o August 9, 2004 o August 31, 2004 o September 2, 2004 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: November 18, 2004 China NetTV Holdings Inc. /s/ Anthony Garson November 18, 2004 ----------------------------- Anthony Garson President November 18, 2004 /s/ Maurice Tsakok -------------------------------- Maurice Tsakok Secretary and Director