UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A-1
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934
For the quarterly period ended March 31, 2005
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)
World Trade Centre, Suite 536, 999 Canada Place, Vancouver, B.C. Canada V6C 3E2
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(Address of principal executive offices)
(604) 641-1366
(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: 193,596,575 shares outstanding as of May 12,
2005 (latest practicable date).
EXPLANATORY NOTE
China NetTV Holdings Inc. is filing this Form 10-QSB/A-1 to its Quarterly Report
on Form 10-QSB for the quarter ended March 31, 2005, as originally filed with
the SEC on May 20, 2005, for the following purposes:
o Including the December 31, 2004, balance sheet (as restated) to the
filing as required by Regulation S-X.
o Correcting the date of inception of the development stage from
September 15, 1998, the date of incorporation, to July 1, 2003, the
date the company entered into the development stage, including
revisions to the financial statements to reflect such.
o Restating the valuation of the Company's Investment in Highland Mining
Inc. ("Highland") due to an error in the calculation of the valuation
of securities issued in connection with the consummation of the Share
Exchange Agreement with Highland during 2004. The Company originally
recorded the investment at the fair market value of the securities
issued at the date of the exchange, as determined by published quoted
market prices. However, the Company has since determined that the
transaction should have been valued at the historical cost basis
incurred by the founding shareholders of Highland, who became the
major shareholders of the Company after the exchange, because the
exchange occurred between entities under common control. The net
effect of error in valuation was a decrease in total assets and total
stockholders' equity by $11,200,000. There was no effect on previously
reported net loss or loss per share amounts. See Note 3 to the
Financial Statements.
o Updating the cumulative amounts from inception columns as a result of
a 2004 restatement recognizing the fair value of the agreement to
issue 9,639,000 shares as an expense item as the finder was an
outsider. The Company originally recorded the amount against
additional paid-in capital. The net effect of the error was an
increase in deficit of $771,120. See Note 3 to the Financial
Statements.
o Recording the fair value of the potential shares to be issued that are
in excess of the authorized share capital as a liability in accordance
with paragraph 19 of Emerging Issues Task Force ("EITF") Issue 00-19.
The net effect of the error was an increase in current liabilities and
net loss for the quarter ended March 31, 2005 by $8,206,077. See Notes
1 and 5 to the Financial Statements and the updates to Part I Item 2.
Management Discussion and Analysis or Plan of Operation under the
captions "Critical Accounting Policies and Estimates" (Contingencies),
"Plan of Operation", and "Risk Factors".
o Revising the Company's disclosures under Item 3 "Controls and
Procedures" to comply with Item 308 (c) of Regulation S-B.
As a result of this amendment, China NetTV Holdings Inc. is filing as exhibits
to this Form 10-QSB/A-1 the certifications pursuant to Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002.
2
CHINA NETTV HOLDINGS INC.
FORM 10-QSB/A-1
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements F-1 - F-11
Item 2. Management's Discussion and Analysis or Plan of
Operation 8
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits 16
Signatures 17
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
BALANCE SHEET
March 31, December 31,
Stated in U.S. dollars 2005 2004
(Restated) (Restated)
- ------------------------------------------------------------------------------------------------
ASSETS (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 1,858,274 900,309
Prepaid expenses and other current assets 8,372 2,287
Prepaid expenses - related party 827 831
- ------------------------------------------------------------------------------------------------
Total Current Assets 1,867,473 903,427
Investment - at equity 694,887 800,000
Fixed assets, net 14,992 9,058
- ------------------------------------------------------------------------------------------------
Total Assets $ 2,577,352 1,712,485
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payables and accrued expenses $ 16,573 47,082
Due to related party 2,453 2,453
Fair value of potential shares to be issued in
excess of authorized share capital 8,206,077 -
Promissory note payable - 100,000
- ------------------------------------------------------------------------------------------------
8,225,103 149,535
Stockholders' Equity
Common Stock : $0.001 Par Value
Authorized : 200,000,000
Issued and Outstanding Shares: 193,596 142,236
[2005 - 193,596,575 shares]
[2004 - 142,236,575 shares]
Subscription received for 24,000,000 shares - 1,200,000
Additional paid in capital 5,890,967 3,542,327
Agreement to issue common stock for acquisition cost
(65,000,000 shares) (Note 3) - -
Agreement to issue common stock for finder's fee
(9,639,000 shares)(Note 3) 771,120 771,120
Accumulated deficit prior to the development stage (1,554,790) (1,554,790)
Accumulated deficit during the development stage (10,948,644) (2,537,943)
- ------------------------------------------------------------------------------------------------
Total Stockholders' Equity (5,647,751) 1,562,950
- ------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 2,577,352 1,712,485
================================================================================================
(See condensed notes to the financial statements)
F-1
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF OPERATIONS
For the three-month periods ended March 31, 2005 and 2004
and cumulative amounts from inception to March 31, 2005
(Unaudited)
Cumulative
from inception
Stated in U.S. dollars (July 1, 2003) 2005 2004
(Restated) (Restated)
- ----------------------------------------------------------------------------------------------------------------------------------
Revenue $ - $ - $ -
Expenses
General and administrative 1,851,099 106,404 881,347
Finder's fees 771,120 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Loss (2,622,219) (106,404) (881,347)
Other Income and Expenses
Interest income 6,973 6,911 -
Equity loss (105,113) (105,113) -
Accounts payable written off 3,453 - -
Interest expenses (9,652) (18) -
Loss on disposal of fixed assets (16,009) - -
Fair value of shares to be issued in excess of authorized
share capital (8,206,077) (8,206,077) -
- ----------------------------------------------------------------------------------------------------------------------------------
Net Loss Available to Common Stockholders $(10,948,644) $ (8,410,701) $ (881,347)
==================================================================================================================================
Loss per share attributable to common stockholders: $ (0.05) $ (0.02)
===============================================
Weighted average number of common shares outstanding:
Basic and diluted (2004-restated) 169,774,353 56,193,453
===============================================
(See condensed notes to the financial statements)
F-2
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
for the period from inception (July 1, 2003) to
March 31, 2005
(Unaudited)
Accumulated Accumulated
deficit deficit Agreement
Stock Additional prior to prior to to issue
Common Amount At Paid In Subscription development development common
Stated in U.S. dollars Shares Par Value Capital received stage stage stock Total
(Restated) (Restated) (Restated) (Restated) (Restated) (Restated)(Restated)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 1, 2003 (inception) 37,446,200 $ 37,446 $ 1,364,802 $ - $(1,554,790) $ - - $(152,542)
Issuance of common stock for
Acquisition costs on July 23, 2003 97,700,000 97,700 (97,700) - - - - -
Issuance of common stock for
acquisition costs on July 23, 2003
- related party 6,839,000 6,839 (6,839) - - - - -
Compensation cost - stock options - - 210,000 - - - - 210,000
Net loss, two months ended August 31,
2003 - - - - - (312,248) - (312,248)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 2003 141,985,200 141,985 1,470,263 - (1,554,790) (312,248) - (254,790)
(See condensed notes to the financial statements)
F-3
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
for the period from inception (July 1, 2003) to
March 31, 2005
( Unaudited )
Accumulated Accumulated
deficit deficit Agreement
Stock Additional prior to prior to to issue
Common Amount At Paid In Subscription development development common
Stated in U.S. dollars Shares Par Value Capital received stage stage stock Total
(Restated) (Restated) (Restated) (Restated) (Restated) (Restated)(Restated)
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for cash @
$0.06 on October 29, 2003 15,000,000 15,000 885,000 - - - - 900,000
Issuance of common stock for 7%
finders fee for shares issued on
October 29, 2003 1,050,000 1,050 (1,050) - - - -
Exercise of Series A stock purchase
warrants @$0.10 on December 11, 2003 50,000 50 4,950 - - - - 5,000
Exercise of Series B stock purchase
warrants @$0.15 on December 23, 2003 250,000 250 37,250 - - - - 37,500
Exercise of Series A stock purchase
warrants @$0.10 on December 23, 2003 250,000 250 24,750 - - - - 25,000
Compensation cost - stock options - - 10,000 - - - - 10,000
Net loss, four months ended December
31, 2003 - - - - - (380,869) - (380,869)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 158,585,200 168,585 2,431,163 - (1,554,790) (693,117) - 341,841
Exercise of Series A stock purchase
warrants @$0.10 on January 6, 2004 50,000 50 4,950 - - - - 5,000
Exercise of Series A stock purchase
warrants @$0.10 on January 27, 2004 2,940,000 2,940 291,060 - - - - 294,000
Issuance of common stock into escrow
for acquisition of mineral property
on April 15, 2004 32,000,000 32,000 (32,000) - - - - -
Issuance of common stock for legal
services @$0.10 on April 15, 2004 2,800,000 2,800 277,200 - - - - 280,000
Exercise of Series C stock purchase
warrants @$0.08 on October 1, 2004 200,375 200 15,830 - - - - 16,030
Cancellation of common stock issued
on July 23, 2003 for acquisition
costs (129,700,000), finder's fee
(6,839,000 shares) and legal costs
(2,800,000 shares) (139,339,000) (139,339) (140,661) - - - - (280,000)
Issuance of common stock for the
partial acquisition of Highland
Mining Inc. @ historical cost on
December 28,
2004 (85,000,000 shares) 85,000,000 85,000 715,000 - - - - 800,000
Subscription received on December
31, 2004 for private placement of
24,000,000 shares @$0.05 - - - 1,200,000 - - - 1,200,000
Issuance of Agreement To Issue Common
Stock (65,000,000 shares) for
acquisition of Highland
Mining, Inc. - - - - - - - -
Agreement To Issue Common Stock for
finder's fee on acquisition of
Highland Mining Inc. @ $0.08 on
December 28, 2004 (9,639,000 shares) - - - - - - 771,120 771,120
(See condensed notes to the financial statements)
F-4
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
for the period from inception (July 1, 2003) to
March 31, 2005
( Unaudited )
Accumulated Accumulated
deficit deficit Agreement
Stock Additional prior to prior to to issue
Common Amount At Paid In Subscription development development common
Stated in U.S. dollars Shares Par Value Capital received stage stage stock Total
(Restated) (Restated) (Restated) (Restated) (Restated) (Resated)(Restated)
- -----------------------------------------------------------------------------------------------------------------------------------
Legal fees incurred for the issuance
of common stock on December 28, 2004
in connection with the partial acqui-
sition of Highland Mining Inc. - - (20,215) - - - - (20,215)
Net loss, year ended December 31, 2004 - - - - - (1,844,826) - (1,844,826)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 142,236,575 $142,236 $3,512,327 $1,200,000 $(1,554,790)$(2,537,943) $771,120 $1,562,950
Issuance of common stock for cash @
$0.05 on February 7, 2005 24,000,000 24,000 1,176,000 (1,200,000) - - - -
Issuance of common stock for 7%
finder's fee for shares issued on
February 7, 2005 1,680,000 1,680 (1,680) - - - - -
Issuance of common stock for cash
@$0.05 on February 8, 2005 17,000,000 17,000 833,000 - - - - 850,000
Issuance of common stock for cash
@$0.05 on March 10, 2005 5,000,000 5,000 245,000 - - - - 250,000
Issuance of common stock for cash
@$0.05 on March 14, 2005 2,000,000 2,000 98,000 - - - - 100,000
Issuance of common stock for 7%
finder's fee for shares issued
on February 8, March 10 & March
14,2005 1,680,000 1,680 (1,680) - - - - -
Net loss, three months ended March
31, 2005 - - - - - (8,410,701) - (8,410,701)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2005 193,596,575 $ 193,596 $5,890,967 $ - $(1,554,790)$(10,948,644)$771,120$(5,647,751)
===================================================================================================================================
(See condensed notes to the financial statements)
F-5
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CASH FLOWS For the three-month periods
ended March 31, 2005 and 2004
and cumulative amounts from inception (July 1, 2003)
to March 31, 2005
(Unaudited)
Cumulative
Stated in U.S. dollars from Inception 2005 2004
(July 1, 2003)
(Restated) (Restated)
- -------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $(10,948,644) $ (8,410,701) $ (881,347)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 19,357 1,733 5,127
Equity loss 105,113 105,113 -
Compensation cost - stock options 220,000 - -
Agreement to issued common stock for finder's fee 771,120 - -
Accounts payable written off (3,453) - -
Loss on disposal of fixed assets 16,009 - -
Unrealized loss on fair value of potential shares
to be issued in excess of authorized share capital 8,206,077 8,206,077 -
Changes in assets and liabilities
Increase in prepaid expenses and other current
assets (8,372) (6,085) (8,103)
(Increase) decrease in prepaid expenses -
related party (827) 4 15,985
(Increase) decrease in security deposits - - 3,011
Increase (decrease) in accounts payable and
accrued expenses (46,832) (30,509) (19,387)
Increase (decrease) in accrued expenses -
related party - - (78,000)
- -------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,670,452) (134,368) (962,714)
Cash flows from investing activities
Equipment and automobile additions (52,936) (7,667) (2,061)
Proceeds on disposal of fixed assets 44,525 - -
- -------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) investing activities (8,411) (7,667) (2,061)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Advances (repayments) - amount due to related parties (93,540) - 996
Principal payments - installment loans payable (52,230) - (3,809)
Proceeds from the issuance of common stock 3,682,530 1,200,000 1,200,000
Payment on promissory note payable - related party - (100,000) -
- -------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities 3,536,760 1,100,000 1,197,187
- -------------------------------------------------------------------------------------------------------
Increase (Decrease) in cash and cash equivalents 1,857,897 957,965 232,412
Cash and cash equivalents - beginning of period 377 900,309 510,859
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 1,858,274 $ 1,858,274 $ 743,271
=======================================================================================================
Supplemental Information :
Cash paid for :
Interest $ 6,257 $ 18 $ 1,345
Income taxes - - -
Non-cash investing and financing activities :
Common stock issued for services rendered $ - $ - $ 280,000
Common stock issued for acquisition of Highland
Mining Inc. $ 800,000 - -
Agreement to issue shares for finder's fees
paid for acquisition of Highland Mining Inc. $ 771,120 - -
(See condensed notes to the financial statements)
F-6
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 1 - BASIS OF PRESENTATION
The accompanying un-audited 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 December 31, 2004 included in its Annual Report on Form 10-KSB.
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 raised $2,400,000 pursuant to a
non-brokered private placement of 48,000,000 shares of common stock at $0.05 per
share. The Company may seek additional equity as necessary and it 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. Additionally, the Company has also consummated the
partial acquisition of Highland Mining Inc. ("Highland"), which has certain
rights or options to, or interests in 25 mineral properties (including
Xietongmen Copper-Gold Property) in Tibet, China. 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.
Certain of the comparative figures have been reclassified to conform with the
current period's presentation.
Significant Accounting Policy
Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock
The Company accounts for derivative financial instruments indexed to, and
potentially settled in, the Company's own common shares as a liability in
accordance with paragraph 19 of Emerging Issues Task Force ("EITF") Issue 00-19.
For all contractual arrangements for which the Company does not have available a
sufficient number of authorized and unissued shares and share settlement is not
controlled by the Company, i.e. shareholder approval is required to be obtained
to increase the Company's authorized shares in order to net-share or physically
settle a contract, the Company is required to recognize an asset or liability
measured at fair value. Changes in fair value are reported in earnings and
disclosed in the financial statements as long as the contracts remain classified
as assets or liabilities. If contracts classified as assets or liabilities are
ultimately settled in shares, any gains or losses on those contracts are
included in earnings. The classification of a contract is reassessed at each
balance sheet date.
If the classification changes as a result of events during the period, the
contract is reclassified as of the date of the event that caused the
reclassification. There is no limit on the number of times a contract may be
F-7
reclassified. If a contract is reclassified from permanent or temporary equity
to an asset or a liability, the change in fair value of the contract during the
period the contract was classified as equity is accounted for as an adjustment
to stockholders' equity. The contract subsequently is marked to fair value
through earnings. If a contract is reclassified from an asset or a liability to
equity, gains or losses recorded to account for the contract at fair value
during the period that the contract was classified as an asset or a liability
should not be reversed.
NOTE 2 - RELATED PARTY TRANSACTIONS
Consulting Fees - During the three months ended March 31, 2005, the Company
incurred consulting fees of $54,726 (2004: $148,601) to certain directors and
officers of the Company.
Due to related party of $2,453 is owing to a director and is unsecured,
non-interest bearing and has no specific terms of repayment.
The Company has a consulting agreement with a director of the Company for his
services at $3,000 per month until December 31, 2006. The Company has two
consulting agreements with two officers of the Company for their consulting
services at C$3,500 and C$6,000 per month until December 31, 2006 and January
12, 2007 respectively. The Company also has a consulting agreement with a
geologist for his consulting services at C$3,200 per month until December 31,
2006.
NOTE 3 - INVESTMENT IN HIGHLAND MINING INC. / CORRECTION OF AN ERROR -
RESTATEMENT
Background of transaction
On November 5, 2004, the Company and Highland Shareholders entered into a Share
Exchange Agreement whereby the Company agreed to issue 85,000,000 of its common
shares from treasury and an Agreement To Issue Common Stock for issuance of
65,000,000 of the Company's common shares (after the increase of authorized
common stock of the Company to be approved in the coming Annual General Meeting)
in exchange for 50% of the issued and outstanding shares of Highland held by
Highland Shareholders, pursuant to the terms and conditions hereafter 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
Continental Minerals Corp. ("Continental"), a company listed on the Toronto
Venture Exchange, to sell and transfer the other 50% of the issued and
outstanding shares of Highland (the "Remaining Shares") to Continental on or
before March 30, 2005 (the "Outside Date"), or if either or both Continental 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 prospects (including Xietongmen Copper-Gold
Property) in Tibet, China (the "Additional Properties"), subject to terms and
conditions and regulatory requirements attached to the Additional Rights.
Highland Shareholders agreed 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.
During 2004, the Company issued an Agreement to Issue Common Stock for issuance
of 9,639,000 of the Company's common shares (after the increase of authorized
common stock of the Company to be approved in the coming Annual General Meeting)
as finder's fee for the transaction (see restatement paragraph below).
Highland fully and legally owns Tianyuan Mineral Exploration Ltd. ("Tianyuan"),
as a wholly owned foreign enterprise ("WOFE") registered in Tibet, China,
incorporated pursuant to relevant Chinese laws and regulations, which holds an
exploration license covering Xietongmen Copper-Gold Property located near Xiong
Village, Xietongmen County, Rikaze area, Tibet Autonomous Region, China.
On December 23, 2004, Highland shareholders entered into an option agreement
with Continental. Continental earned 50% interest of the issued and outstanding
shares of Highland by agreement to pay $2,000,000 to Highland shareholders and
investment of $3,000,000 and $2,000,000 by November 5, 2005 and November 5, 2006
F-8
respectively in Highland to fund the exploration of the Xietongmen Copper-Gold
Property. Continental may earn a further 10% of the issued and outstanding
shares of Highland, through the investment of an additional $3,000,000 by
November 5, 2007 in Highland to fund exploration of the Xietongmen Copper-Gold
Property.
Under the Shareholders Agreement dated December 23, 2004 between Continental,
the Company and other related parties, Continental will manage Highland and
Tianyuan during the option period. Once the option is exercised, further funding
of Highland would be proportional to interests held in the project, with a
proportionate reduction in the shareholdings of any shareholder which fails to
match the funding of the others. If the other parties' shareholdings in Highland
fall below 15%, those parties may elect to convert their holdings to an
entitlement of 12.5% of the after pay-back profit of Highland.
Correction of Error - Restatement
The Company has restated the valuation of its Investment in Highland due to an
error in the calculation of the valuation of securities issued in connection
with the consummation of the Share Exchange Agreement with Highland during 2004.
The Company originally recorded the investment at the fair market value of the
securities issued at the date of the exchange, as determined by published quoted
market prices. However, the Company has since determined that the transaction
should have been valued at the historical cost basis incurred by the founding
shareholders of Highland, who became the major shareholders of the Company after
the exchange, because the exchange occurred between entities under common
control. The historical cost basis was $800,000. For the remaining 24 mineral
properties, the historical costs are nominal. The net effect of error in
valuation was a decrease in total assets and total stockholders' equity by
$11,200,000. There was no effect on previously reported net loss and net loss
per share amounts.
Restatement of the 2004 balance sheet items can be summarized as follows:
Investment in Highland Mining Inc.
Balance previously recorded (at fair market value) $ 12,000,000
Adjustment (11,200,000)
-------------
Restated amount (at historical cost) $ 800,000
=============
Adjustment paid-in capital
Balance previously recorded (at fair market value) $ 8,771,207
Adjustment (5,228,880)
------------
Restated amount (at historical cost) $ 3,542,327
============
Agreement to issue common stock for acquisition cost (65,000,000 shares)
Balance previously recorded (at fair market value) $ 5,971,120
Adjustment (5,971,120)
------------
Restated amount (at historical cost) $ -
============
The Company has also restated the fair value of the agreement to issue 9,639,000
shares as an expense item as the finder was an outsider. The Company originally
recorded the amount as a reduction in additional paid-in capital. The net effect
of the error was an increase in deficit of $771,120.
Restatement of the items in 2004 Statement of Operations can be summarized as
follows:
Net loss available to common stockholders
Balance previously recorded $(1,073,706)
Adjustment: Finder's fee (771,120)
------------
Restated amount $(1,844,826)
============
Loss per share attributable to common stockholders
Amount previously recorded $ (0.02)
============
Restated amount $ (0.03)
============
The Company accounts for its investment in Highland on the equity basis, which
is carried at cost, adjusted for the Company's proportionate share of their
undistributed earnings or losses.
F-9
Original cost of 500,000 shares of
Highland Mining, Inc. $ 800,000
Equity in undistributed losses of
investee company (105,113)
------------
Investment in equity $ 694,887
============
NOTE 4 - FIXED ASSETS
Fixed assets consist of the following:
Office equipment $ 1,155
Computer equipment 20,719
-------
21,874
Less: accumulated depreciation (6,882)
--------
$14,992
========
NOTE 5 - COMMON STOCK, OPTIONS AND WARRANTS
a. Common Stock
Investment in Highland Mining, Inc.
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
as the Tibet government had on August 10, 2004 rejected the application for
approval of the Agreement with the Company. All of the shares issued pursuant to
the agreement were subsequently canceled effective that same date.
Upon completion of the Definitive Agreement between the Highland Shareholders
and Continental, the Highland Shareholders transferred a total of 50% of the
outstanding and issued shares of Highland to the Company on December 28, 2004
and the Company issued 85,000,000 shares and an Agreement to Issue Common Stock
for 65,000,000 shares after an increase in authorized capital stock on the
coming Annual General Meeting to the shareholders of Highland for the
acquisition of 50% equity interest in Highland. The transaction was accounted
for upon receipt of the shares of Highland in December 2004.
Potential Shares to be Issued in Excess of Authorized Share Capital / Correction
of an Error - Restatement
The Company has to record the fair value of the potential shares to be issued
that are in excess of the authorized share capital as a liability in accordance
with paragraph 20 of Emerging Issues Task Force ("EITF") Issue 00-19. The net
effect of the error was an increase in current liability and net loss for the
quarter ended March 31, 2005, by $8,206,077.
Restatement of the items in Statement of Operations for the quarter ended March
31, 2005 can be summarized as follows:
Net loss available to common stockholders
Balance previously recorded $ (204,624)
Adjustment: Fair value of shares to be issued in
excess of authorized share capital (8,206,077)
------------
Restated amount $(8,410,701)
============
Loss per share attributable to common stockholders
Amount previously recorded $ (0.00)
============
Restated amount $ (0.05)
============
F-10
As of March 31, 2005, the Company had 79,496,200 potential shares to be issued
under contractual arrangements, mainly from outstanding warrants and options,
that were in excess of the unissued shares from the authorized share capital
("the potential shares"). The fair value of the potential shares was $8,206,077
and has been recorded as an expense with an offset to current liabilities..
The fair value of the potential shares to be issued is estimated at March 31,
2005 using the Black-Scholes option pricing model with weighted average
assumptions as follows:
Risk free interest rate 2.62% to 3.14%
Expected life of warrants and options in years 0.17 to 1.50 years
Expected volatility 60% to 183%
Dividend per share $0.00
Private Placement
Upon the completion of the private placement for 48,000,000 units subscribed for
at $0.05 per unit, the Company issued 48,000,000 units consisting of one common
share and one non-transferable share purchase warrant (Series "E" 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 Company also issued
3,360,000 shares as finders' fee for the transaction.
b. Stock Options
As of March 31, 2005, there are 6,000,000 stock options outstanding. No options
were canceled, forfeited, or exercised during the three months ended March 31,
2005. The weighted average exercise price of the options outstanding and
exercisable is $0.20 and the weighted average remaining contractual life is 0.36
years.
c. Stock Purchase Warrants
As of March 31, 2005, the Company has 15,849,625 Series "C" Warrants, 200,375
Series "D" Warrants and 48,000,000 Series "E" Warrants outstanding.
o Each Series "C" Warrant entitles the holder to purchase one additional share
at $0.08 on or before September 30, 2004 or $0.25 on or before September 30,
2005, and will expire on September 30, 2005. Upon exercise of a Series "C"
Warrant, the purchaser will receive an additional non-transferable Series "D"
Warrant to purchase an additional share for $0.75 until September 30, 2006. o
Each Series "E" Warrant entitles the holder to purchase one additional share at
$0.08 on or before March 14, 2006 or at $0.25 on or before March 14, 2007, and
will expire on March 14, 2007.
During the three months ended March 31, 2005, 3,040,000 Series "B" Warrants were
expired and no warrants were exercised.
F-11
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 financial year ended December 31, 2004
filed under Form 10-KSB.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Form 10-QSB that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These include statements about the Company's expectations, beliefs,
intentions or strategies for the future, which are indicated by words or phrases
such as "anticipate," "expect," "intend," "plan," "will," "the Company
believes," "management believes" and similar words or phrases. The
forward-looking statements are based on the Company's current expectations and
are subject to certain risks, uncertainties and assumptions. The Company's
actual results could differ materially from results anticipated in these
forward-looking statements. All forward-looking statements included in this
document are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements.
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:
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. During the three
months ended March 31, 2005, the Company recorded the fair value of potential
shares to be issued under contractual arrangements that are in excess of the
authorized share capital as a liability in accordance with paragraph 19 of
Emerging Issues Task Force ("EITF") Issue 00-19. The net effect was an increase
in current liabilities and net loss for the quarter ended March 31, 2005, by
$8,206,077. As of March 31, 2005, the Company had 79,496,200 potential shares to
be issued under contractual arrangements, mainly from outstanding warrants and
options, in excess of the unissued shares from the authorized share capital.
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.
Valuation Of Long-Lived Assets - We review property, plant and equipment and
other assets for impairment whenever events or changes in circumstances indicate
the carrying value of an asset may not be recoverable. Our asset impairment
review assesses the fair value of the assets based on the future cash flows the
assets are expected to generate. An impairment loss is recognized when estimated
undiscounted future cash flows expected to result from the use of the asset plus
net proceeds expected from disposition of the asset (if any) are less than the
carrying value of the asset. When an impairment is identified, the carrying
amount of the asset is reduced to its estimated fair value. Deterioration of our
business in a geographic region could lead to impairment adjustments when
identified. The accounting effect of an impairment loss would be a charge to
income, thereby reducing our net profit.
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 from
shareholders.
The Company intends to explore for copper, gold and other mineral deposits in
Tibet and other areas of China in response to China's recent economic growth and
increased demand for domestic production of metals.
Currently, China places fourth in the world wide production of copper but
substantially falls short of its domestic requirements. The exploration of base
and precious metal deposits in South Western China may present an opportunity to
supply some of China's domestic requirements.
The majority of the Company's expenses for the three months ended March 31, 2005
primarily consisted of the following significant items: consulting fees, legal
and professional fees, and rental expenses. Such fees were incurred in
connection with efforts to co-ordinate with Continental Minerals Corp.
("Continental") on the work of Highland Mining Inc. ("Highland") and corporate
maintenance. The expenses incurred in both 2005 and 2004 in the quarter were for
general and administrative costs related to the Company's attempts to negotiate,
analyze, and finance its business plan to act as a mineral exploration company
in China, specifically Tibet. The Company incurred fewer expenses in 2005 than
in 2004 in the period because it had negotiated an arrangement with Continental
to own 50% of Highland Mining Inc. and Continental was advancing costs of
analysis, data gathering, and exploration.
Additionally, during the three months ended March 31, 2005, the Company recorded
the fair value of potential shares to be issued under contractual arrangements
that are in excess of the authorized share capital as a liability in accordance
with paragraph 19 of Emerging Issues Task Force ("EITF") Issue 00-19 with the
change in fair value reported in earnings. The net effect of the error was an
increase in current liabilities and net loss for the quarter ended March 31,
2005, by $8,206,077. Although this was a non-cash entry affecting the results of
operations for the quarter ended, the amount represents the amount the Company
would have to pay to repurchase shares in the open market to satisfy the
exercise by holders of the warrants and options under contractual arrangements.
If any or all of the holders chose to exercise their warrants or options, the
Company does not currently have the financial resources to meet its obligations.
Although the liability exists and there is a possibility the holders of the
warrants or options to choose to exercise, management believes the possibility
of this occurrence is remote as approximately all of the holders are current
shareholders, officers or directors of the Company and understand the
significant consequences to the Company under these circumstances. As of March
31, 2005, the Company had 79,496,200 potential shares to be issued under
contractual arrangements, mainly from outstanding warrants and options, in
excess of the unissued shares from the authorized share capital.
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
under-capitalization 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 from exploration activities for at least the next twelve months at an
increased rate as no near term revenue production can be foreseen. 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. 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.
CONCENTRATION OF CREDIT RISK.
The Company's operations are currently in Tibet and other areas of China. If the
Company was unable to derive any revenues from its current business operations,
it would have a significant, financially disruptive effect on the operations of
the Company. Based on the current economic environment in China, the Company
does not expect any material adverse impact to its business, financial condition
and results of operations.
UPDATES ON MINERAL PROSPECTS
(a) Xietongmen Copper-Gold Prospects
The planned Phase 1 program encompasses 8,000 meters of drilling in
approximately 26 holes. Four drills are currently running in the program.
Drilling is focused in an area measuring approximately 250 meters by 300 meters
to infill between and step out from the high-grade drill holes and cross cut.
Drill holes are planned at 50 meters spacing to confirm the continuity,
structural control and orientation of mineral occurrences. If successful, a more
extensive second phase program is planned. Phase 2 drilling would step out at
100 meters spacing to expand the coverage to an area of 800 meters by 1,000
meters. Mark Rebagliati, P.Eng., a Qualified Person as defined under NI 43-101
Canadian Securities Regulation, is supervising the drilling program.
(b) Acquisition of new mineral prospects
On March 11, 2005, the Company acquired an additional 13 mineral prospects
through an arrangement with Honglu Investment Holdings Inc. ("Honglu") and
Honglu shareholders. The new mineral properties primarily represent copper-gold
prospects. The Company has acquired the interests collectively known as
Additional Rights by agreeing with the Honglu Shareholders to meet certain
annual land payments and exploration / work commitments. The Company has
increased its mineral exploration rights from 25 to 38 mineral prospects.
The prospects under review represent a broad array of precious/base metal and
industrial mineral targets and are at various stages of exploration. The Company
intends to analyze which prospects to retain in order to minimize upkeep
expenditures. A first priority has been to select copper-gold/molybdenum targets
that suggest porphyry style mineralization.
The Company is analyzing these prospects with a view to seeking an experienced
and capable mining company as a joint venture partner. The joint venture would
be formed with the intention of exploring, developing and bringing into
production the selected prospects.
Liquidity and Working Capital
As of March 31, 2005, the Company had total current assets of $1,867,473 and
total current liabilities of $8,225,103 resulting in a negative working capital
of $6,357,630. For the three-month ended March 31, 2005, the Company received
$1,200,000 from the proceeds from the issuance of 24,000,000 units of common
stock subscribed for at $0.05 each. 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 or options by the holders. Each unit consists 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 exploration and identification of mineral
prospects in the future. A total of 3,360,000 shares were issued as a finder's
fee for the transaction.
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.
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.
Potential Shares to be Issued in Excess of Authorized Share Capital
The Company has 79,496,200 potential shares to be issued under contractual
arrangements, mainly from outstanding warrants and options, in excess of the
Company's unissued shares from its authorized share capital. If any or all of
the holders of these convertible equity instruments elect to exercise their
warrants or options, the Company would not currently have the financial
resources to meet its obligations. Although the liability exists and there is a
possibility the holders of the warrants or options choose to exercise,
management believes the possibility of this occurrence is remote as
approximately all of the holders are current shareholders, officers or directors
of the Company and understand the significant consequences to the Company under
these circumstances. Management does not expect any cash outlay due to
recognition of this liability.
Penny Stock Risk
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
signed 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.
Limited Operating History; Anticipated Losses; Uncertainty of Future Results
China NetTV Holdings Inc. has only a limited and unprofitable 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 March 31, 2005, there were approximately
193,596,575 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.
Management of Growth
The Company expects to experience significant growth in the number of employees
and the scope of its operations. In particular, the Company intends to hire
additional staff for mineral exploration and administrative support. Such
activities can result in increased responsibilities for management. The Company
expects to experience difficulty in filling its needs for qualified personnel.
The Company's future success depends upon its ability to raise adequate
financing to meet its mineral exploration and operation expenses. 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.
Need for Additional Financing
The Company believes it has sufficient capital to meet its short-term cash
needs, including the costs of compliance with the continuing reporting
requirements of the Securities Exchange Act of 1934. However, if losses continue
it may have to seek loans or equity placements to cover longer term cash needs
to continue operations and expansion.
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, it 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.
Political, Economic and Regulatory Risks in China
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 investment in the mineral properties. Other factors
include political policy on foreign ownership, political policy to open the
doors to foreign investors, and political policy on mineral claims and metal
prices.
There are economic risks associated with doing business in China which could
affect our operations. The Chinese economy has experienced significant growth in
the past decade, but this growth has been uneven across geographic and economic
sectors and has recently been slowing. There can be no assurance that this
growth will not continue to decrease or that the slow down will not have a
negative effect on our business. The Chinese economy is also experiencing
deflation which may continue in the future. The current economic situation may
adversely affect our ability to do business or sell minerals, if ever the
Company produces, as a result of slowing domestic demand and deflation.
The regulation of the minerals industry in China may adversely affect our
business. The China enacted regulations governing minerals extraction. Because
many Chinese laws, regulations and legal requirements with regard to foreign
investments in the minerals industry are relatively new and untested, their
interpretation and enforcement by Chinese authorities may involve significant
uncertainty. In addition, the Chinese legal system is a civil law system in
which decided legal cases have little precedential value. As a result in many
cases it is difficult to predict outcomes. We cannot predict the effect of
further developments in the Chinese legal system, particularly with regard to
the minerals industry, including the promulgation of new laws, changes to
existing laws or the interpretation or enforcement, or the preemption of local
regulations by national laws.
The restrictions on currency exchange could limit our ability to repatriate our
revenues from China. Although Chinese governmental policies were introduced in
1996 to allow greater convertibility of the Renminbi, significant restrictions
still remain. We can provide no assurance that the Chinese regulatory
authorities will not impose greater restrictions on the convertibility of the
Renminbi to western currencies. The government could refuse to allow the
exchange, or could restrict the amount or volume of exchange. Because the
majority of our future revenues may be in the form of Renminbi, any future
restrictions on currency exchange may limit our ability to utilize revenue
generated in Renminbi to fund our business activities outside China, if we ever
have any. This restriction, if it occurs, may affect our ability to pay
repatriate any profits in U.S. dollars or other acceptable currency.
A general economic downturn in China could adversely affect our business. In the
last few years the general health of the economy, in China where we have
conducted all of our operations to date, has been relatively strong and growing,
a consequence of which has been increasing capital spending by individuals and
growing companies to keep pace with rapid technological advances. To the extent
the general economic health of China declines from recent levels, or to the
extent individuals or companies fear a decline is imminent, these individuals
and companies may reduce demand for minerals. Any decline or concern about an
imminent decline could delay decisions among certain of our customers to
purchase production if we ever have any or could delay decisions by our
prospective customers to make initial commitments to purchase. Such downturn
would have a material and adverse effect on our business, prospects, operating
results and financial condition.
Other Risks and Uncertainties
The business of mineral deposit exploration and extraction involves a high
degree of risk. Few prospects that are explored are ultimately developed into
production. At present, none of Highland's prospects has a known body of
commercial ore. Other risks facing the Company include competition, reliance on
third parties and joint venture partners, environmental and insurance risks,
political and environmental instability, statutory and regulatory requirements,
fluctuations in mineral prices and foreign currency, share price volatility,
title risks, and uncertainty of additional financing.
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.
ITEM 3. CONTROLS AND PROCEDURES
Based on an evaluation as of the date of the end of the period covered by this
report, our Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as required by Exchange Act Rule 13a-15. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of the end of the
period covered by this report.
There were no changes in our internal controls over financial reporting that
occurred during the quarter ended March 31, 2005, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three months ended March 31, 2005, the Company sold 24,000,000 shares
of its common stock at $0.05 per share to institutional and accredited investors
and issued 3,360,000 shares of common stock as a finders' fee. All sales of the
shares were exempt from registration pursuant to Regulation S under the
Securities Act because they were sold outside of the U.S. to non-U.S. residents
as follows: a) 17,000,000 shares of common stock for cash at $0.05 on February
8, 2005; b) 5,000,000 shares of common stock for cash at $0.05 on March 10,
2005; and c) 2,000,000 shares of common stock for cash at $0.05 on March 14,
2005.
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
The following exhibits are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32.1 18 U.S.C. Section 1350 Certifications of Chief Executive Officer
32.2 18 U.S.C. Section 1350 Certifications of Chief Financial Officer
REPORTS ON FORM 8-K
8-K filed January 28, 2005
8-K filed February 11, 2005
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CHINA NETTV HOLDINGS INC.
Date: November 10, 2005 By: /s/ Anthony Garson
------------------------------------
Chief Executive Officer (Principal
Executive Officer)
Date: November 10, 2005 By: /s/ Anthony Garson
------------------------------------
Chief Financial Officer (Principal
Financial Officer)