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, 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 November 3,
2005 (latest practicable date).
1
CHINA NETTV HOLDINGS INC.
FORM 10-QSB
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements F-1 - F-11
Item 2. Management's Discussion and Analysis or Plan of Operation 14
Item 3. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holder 23
Item 5. Other Information 23
Item 6. Exhibits 24
Signatures 25
2
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
CHINA NETTV HOLDINGS INC.
(an Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2005
(Unaudited)
September 30, December 31,
Stated in U.S. dollars 2005 2004
ASSETS (Unaudited) (Audited)
- ---------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 908,388 $ 900,309
Prepaid expenses and other current assets 9,792 2,287
Prepaid expenses - related party 510 831
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Assets 918,690 903,427
Investment - at equity (Note 3) - 800,000
Fixed assets, net (Note 4) 13,546 9,058
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $ 932,236 $ 1,712,485
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payables and accrued expenses $ 394,143 $ 47,082
Fair value - potential shares to be issued in excess of authorized
share capital, adjusted for changes in fair value (Note 5(a)) 6,482,898 -
Promissory note payable - 100,000
Due to related party (Note 2) 3,380 2,453
- ---------------------------------------------------------------------------------------------------------------------------
6,880,421 149,535
Commitments and Contingencies (Note 6) - -
Stockholders' Equity and Deficiency
Common Stock : $0.001 Par Value
Authorized : 200,000,000
Issued and Outstanding : 193,596,575 193,596 142,236
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 Other Comprehensive Loss (3,709) -
Accumulated deficit prior to exploration stage (1,554,790) (1,554,790)
Accumulated deficit during exploration stage (11,245,369) (2,537,943)
- ---------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity and Deficiency (5,948,185) 1,562,950
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 932,236 $ 1,712,485
===========================================================================================================================
(See condensed notes to the consolidated financial statements)
F-1
CHINA NETTV HOLDINGS INC.
(an Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three-month and nine-month periods ended September 30, 2005 and 2004
and cumulative amounts from inception (July 1, 2003)
(Unaudited)
Three months ended Nine months ended
Cumulative September 30, September 30,
Stated in U.S. dollars from Inception 2005 2004 2005 2004
Revenue $ - $ - $ - - $ - - $ -
- ----------------------------------------------------------------------------------------------------------------------------
Expenses
Exploration expenses (Note 3) 1,055,450 364,124 - 1,055,450 -
General and administrative 2,136,334 165,697 120,595 391,639 1,291,830
- ----------------------------------------------------------------------------------------------------------------------------
Finder's fees 771,120 - - - -
3,962,904 529,821 120,595 1,447,089 1,291,830
Operating Loss (3,962,904) (529,821) (120,595) (1,447,089) (1,291,830)
Other Income and Expenses
Interest income 22,641 6,279 - 22,579 -
Equity loss (800,000) - - (800,000) -
Accounts payable written off 3,453 - - - -
Interest expenses (9,652) - - (18) -
Loss on disposal of fixed assets (16,009) - - - (18,742)
Fair value of potential shares to be issued
in excess of authorized share capital (6,482,898) (1,525,901) - (6,482,898) -
- ----------------------------------------------------------------------------------------------------------------------------
Net Loss Available to Common Stockholders $ (11,245,369) $(2,049,443) $(120,595) $(8,707,426) $(1,310,572)
============================================================================================================================
Loss per share attributable to common stockholders: $ (0.01) $ (0.00) $ (0.05) $ (0.02)
===============================================================
Weighted average number of common shares outstanding:
Basic and diluted 193,596,575 66,675,200 185,743,095 65,352,974
===============================================================
(See condensed notes to the consolidated financial statements)
F-2
CHINA NETTV HOLDINGS INC.
(an Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND DEFICIENCY
for the period from inception (July 1, 2003) to September 30, 2005
(Unaudited)
Accumulated Accumulated Accumulated
other Deficit Deficit Agreement
Stock Additional comprehen- prior to during to issue
Common Amount At Paid In Subscription sive exploration exploration common
Stated in U.S. dollars Shares Par Value Capital received loss stage stage stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 1, 2003 (incep-
tion) 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)
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 158,585,200 158,585 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 acquisi-
tion 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 12, 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 for acquisition
costs (129,700,000 shares),
finder's fee (6,839,000
shares) and legal costs
(2,800,000 shares)
on July 23, 2003 & April
12, 2004 (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
Issuance of agreement to issue
common stock for the partial
acquisition of Highland Min-
ing Inc. on December 28, 2004
(65,000,000 shares) - - - - - - - - -
Subscription received on Decem-
ber 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 for finder's fee
on acquisition of Highland
Mining Inc. @$0.08 on December
28, 2004 (9,639,000 shares) - - - - - - - 771,120 771,120
F-3
CHINA NETTV HOLDINGS INC.
(an Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND DEFICIENCY
for the period from inception (July 1, 2003) to September 30, 2005
(Unaudited)
Accumulated Accumulated Accumulated
other Deficit Deficit Agreement
Stock Additional comprehen- prior to during to issue
Common Amount At Paid In Subscription sive exploration exploration common
Stated in U.S. dollars Shares Par Value Capital received loss stage stage stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
Legal fees incurred for the
issuance of common stock on
December 28, 2004 in connec-
tion 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 3,542,327 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) - - - - - -
Foreign currency translation
adjustments - - - - (3,709) - - - (3,709)
Net loss, nine months ended
September 30, 2005 - - - - - - (8,707,426) - (8,707,426)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2005 193,596,575 $193,596 $5,890,967 $ - $(3,709) $(1,554,790) $(11,245,369) $771,120 $(5,948,185)
====================================================================================================================================
(See condensed notes to the consolidated financial statements)
F-4
CHINA NETTV HOLDINGS INC.
(an Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine-month periods ended September 30, 2005 and 2004
and cumulative amounts from inception (July 1, 2003)
(Unaudited)
Cumulative
Stated in U.S. dollars from Inception 2005 2004
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (11,245,369) $ (8,707,426) $ (1,310,572)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 23,057 5,433 10,515
Equity loss 800,000 800,000 -
Compensation cost - stock options 220,000 - -
Translation adjustments (3,709) (3,709) -
Agreement to issued common stock for finder's fee 771,120 - 280,000
Accounts payable written off (3,453) - -
Loss on disposal of fixed assets 16,009 - 18,742
Change in fair value of potential shares to be issued in excess of
authorized share capital 6,482,898 6,482,898 -
Changes in assets and liabilities
Increase in prepaid expenses and other current assets (9,792) (7,505) (2,207)
(Increase) Decrease in prepaid expenses - related party (510) 321 22,442
(Increase) Decrease in security deposits - - 3,052
Increase (Decrease) in accounts payable and accrued expenses 330,738 347,061 68,237
Increase (Decrease) in accrued expenses - related party 927 927 (78,000)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,618,084) (1,082,000) (987,791)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Equipment and automobile additions (55,190) (9,921) (2,061)
Proceeds on disposal of fixed assets 44,525 - 44,525
- -------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) investing activities (10,665) (9,921) 42,464
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Advances (repayments) - amount due to related parties (93,540) - 89,264
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 3,682,530 2,400,000 299,000
Subscription received - (1,200,000) -
- -------------------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities 3,536,760 1,100,000 438,134
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in cash and cash equivalents 908,011 8,079 (507,193)
Cash and cash equivalents - beginning of period 377 900,309 510,859
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 908,388 $ 908,388 $ 3,666
===================================================================================================================
Supplemental Information :
Cash paid for :
Interest $ 6,257 $ 18 $ 46
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 common stock for acquisition of Highland Mining Inc. - - -
Agreement to issue common stock for finder's fees paid for
acquisition of Highland Mining Inc. 771,120 - -
(See condensed notes to the consolidated financial statements)
F-5
CHINA NETTV HOLDINGS INC.
(an Exploration Stage Company)
CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated 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, as
amended.
Going concern
The accompanying consolidated 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 consolidated
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 during the first quarter of 2005. 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") from the former shareholders of Highland ("Highland Shareholders").
Highland Shareholders have certain rights or options to, or interests in 38
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.
Principles of consolidation
The Company acquired 100% interest in Great China Mining (Canada), Inc., a
company incorporated on April 20, 2005, under the laws of British Columbia,
Canada, with certain officers and directors the same as that of the Company.
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant inter-company balances and
transactions have been eliminated in consolidation.
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.
F-6
Significant Accounting Policies
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 a
sufficient number of authorized and unissued shares and the 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
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.
Reclassifications
Certain of the comparative figures have been reclassified to conform to the
current period's presentation.
Recent accounting pronouncements
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" ("SFAS No. 123R"). SFAS No. 123R addresses all forms of share-based
payment ("SBP") awards, including shares issued under employee stock purchase
plans, stock options, restricted stock and stock appreciation rights. SFAS No.
123R will require the Company to expense SBP awards with compensation cost for
SBP transactions measured at fair value. On March 29, 2005, the SEC issued Staff
Accounting Bulletin (SAB) 107 which expresses the views of the SEC regarding the
interaction between SFAS No. 123R and certain SEC rules and regulations and
provides the SEC's views regarding the valuation of share-based payment
arrangements for public companies. In April 2005, the SEC issued a release which
amends the compliance dates for SFAS No. 123R. We do not expect the adoption of
SFAS No. 123R and SAB 107 to have a material impact on the Company's financial
statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections". SFAS No. 154 replaces APB Opinion No. 20 "Accounting Changes" and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". SFAS
No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. The adoption of this statement does affect the Company's financial
statements. (See Note 3)
F-7
NOTE 2 - RELATED PARTY TRANSACTIONS
Consulting Fees - During the three-month and nine-month periods ended September
30, 2005, the Company incurred consulting fees of $59,316 (2004: $64,254) and
$148,601 (2004: $312,240) to certain directors and officers of the Company.
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.
Due to related parties of $3,380 are owing to a director and a company with
common directors and are unsecured, non-interest bearing and has no specific
terms of repayment.
NOTE 3 - INVESTMENT IN HIGHLAND MINING INC. AND 46 OTHER MINERAL PROPERTIES
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 Shares for issuance of 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 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.
The Company also issued an Agreement to Issue Shares for 9,639,000 common shares
as finder's fee for the transaction.
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, Shigatse area, Tibet Autonomous Region, China.
On December 23, 2004, Highland shareholders entered into an option agreement
with Continental. Continental can earn 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 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
F-8
additional $3,000,000 by November 5, 2007 in Highland to fund exploration of the
Xietongmen Copper-Gold Property. If Continental exercises its option to earn a
further 10% equity interest in Highland by fulfilling the related terms and
conditions, the Company shareholding in Highland will be reduced to 40%.
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.
Net investment in Highland at September 30, 2005 follows:
Historical cost of 500,000 shares of Highland Mining Inc. $ 800,000
Equity in undistrbuted losses of investee company (800,000)
----------
Investment in equity $ -
==========
In March and April 2005, the Company signed Lease and Option Agreements with
three private companies in China to acquire 60% to 80% equity interest in nine
mineral properties in Tibet, China through spending a minimum of $200,000 to
$400,000 on each of these properties each year for a two- year period. The
Company has committed to spend approximately $1.75 million in total on four of
these mineral properties in year 2005. Up to September 30, 2005, total
exploration expenses incurred by the Company on these four mineral properties
were $1,055,450, which can be summarized as follows:-
Mineral properties Banongla Donggapu Tangbai Zemuduola Total
- -------------------------------------------------------------------------------------------------------
Exploration expenses
Drilling $ - $ 17,503 $ 73,755 $ 80,248 $ 171,506
Geological survey 62,564 61,639 38,540 76,423 239,166
Geophysical - 42,921 64,488 49,096 156,505
Miscellaeous 3,711 19,858 8,737 39,883 72,189
Road construction - 77,030 110,101 187,131
Surface and adit work - 40,515 29,125 70,228 139,868
Travel 1,053 8,328 6,301 12,873 28,555
Wages and benefits 1,306 14,618 7,292 37,314 60,530
------------------------------------------------------------------------
$ 68,634 $ 282,412 $ 228,238 $ 476,166 $ 1,055,450
========================================================================
NOTE 4 - FIXED ASSETS
Fixed assets consist of the following:
Office equipment $ 1,155
Computer equipment 21,963
Computer software 1,014
---------------
24,132
Less: accumulated depreciation (10,586)
---------------
$ 13,546
===============
Depreciation charged to operations for the three-month and nine-month periods
ended September 30, 2005, and the period from inception to September 30, 2005,
amounted to $1,898 (2004: $1,477), $5,433 (2004: $10,515), and $23,056,
respectively.
F-9
NOTE 5 - COMMON STOCK, OPTIONS AND WARRANTS
a. Common Stock
Private Placement
Upon the completion of the non-brokered private placement in the first quarter
of 2005 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.
Potential Shares to be Issued in Excess of Authorized Share Capital
As of September 30, 2005, the Company had 42,796,950 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
$6,482,898 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 September
30, 2005 using the Black-Scholes option pricing model with weighted average
assumptions as follows:
Risk free interest rate 3.06% to 3.30%
Expected life of warrants and options in years 0.45 to 1.00 years
Expected volatility 88.60% to 106.03%
Dividend per share $0.00
b. Stock Options
As of September 30, 2005, there are 1,000,000 stock options outstanding.
5,000,000 stock options at an exercise price of $0.40 each expired on May 31,
2005. No options were canceled, forfeited, or exercised during the nine months
ended September 30, 2005. The weighted average exercise price of the options
outstanding and exercisable is $0.10 and the weighted average remaining
contractual life is 0.92 years.
c. Stock Purchase Warrants
The outstanding stock purchase warrants as of September 30, 2005 can be
summarized as follows:-
Number Exercise price Expiry
Warrants outstanding for each share date
Series "D" 200,375 $0.75 September 30, 2006
Series "E" 48,000,000 $0.08 on or before March 14, 2006 March 14, 2007
or $0.25 thereafter
-------------------
48,200,375
===================
During the nine months ended September 30, 2005, 3,040,000 Series "B" and
15,849,625 Series "C" Warrants were expired and no warrants were exercised.
F-10
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Mineral Properties
The Company has direct and indirect rights to earn interest in 46 mineral
properties. The Company is required by the Chinese authority to spend a
specified minimum amount on a mineral property on a yearly basis in order to
renew the exploration permit on that property. The Company has to incur
approximately $1.7 million each year for maintaining the related exploration
permits.
The Company is also required to reimburse the previous exploration expenditures
incurred by the Chinese regulatory authority in a mineral property if the
Company decides to have commercial mining of that property. The Company has to
pay approximately $13.4 million to the Chinese authority if all the 46 mineral
properties are put into commercial production.
Potential Shares to be Issued in Excess of Authorized Share Capital - See Note
5(a).
NOTE 7 - SUBSEQUENT EVENTS
On November 9, 2005, 3,000,000 Series "E" warrants were exercised at $0.08 each
for $240,000. On November 14, 2005, another 3,000,000 Series "E" warrants were
exercised at $0.08 each for $240,000.
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") consolidated 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, as amended.
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
and nine months ended September 30, 2005, the Company recorded the change in
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 three and nine
months ended September 30, 2005 by $1,525,901 and $6,482,898, respectively. As
of September 30, 2005, the Company had 42,796,950 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 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.
3
PLAN OF OPERATIONS
The Company had no revenues from operations since inception of the exploration
stage (July 1, 2003). 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 base metal deposits in
Tibet and other areas of China in view of China's recent economic growth demand
on the need for domestic production of metals.
Currently, China places fourth in the worldwide production of copper but
substantially falls short of its domestic requirements. The development of
partially developed base and precious metal deposit in South Western China is
seen as an opportunity to aid China in meeting its domestic requirements.
The majority of the Company's expenses for the three and nine months ended
September 30, 2005 have consisted of the following significant items:
exploration expenses, consulting fees, legal and professional fees, and rental
expenses. Such fees were incurred in connection with efforts to carry out the
exploration program on a prioritized basis and corporate maintenance.
Additionally, during the three and nine months ended September 30, 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
was an increase in current liabilities and net loss for the three and nine
months ended September 30, 2005, by $1,525,901 and $6,482,898, respectively.
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 choose 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
September 30, 2005, the Company had 42,796,950 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. Management does
not expect any cash outlay due to recognition of this liability.
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 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. 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.
PRIORITY OF MINERAL PROPERTIES
In March and April 2005, the Company signed Lease and Option Agreements with
three private companies in China to acquire 60% to 80% equity interest in 9
mineral properties in Tibet, China through spending a minimum of $200,000 to
$400,000 on each of these properties each year for a two- year period.
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 properties 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 has prioritized these properties 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.
4
The Company has committed to spend approximately $1.3 million in total on four
of these mineral properties, Zemuduola, Banongla, Tangbai and Donggapu, in year
2005. In view of the favourable results on the current exploration programs, the
Company has increased its commitment to spend approximately $1.75 million in
total on these four properties in year 2005.
The priority of the mineral properties on hand is summarized as follows:-
Percentage Total
ownership amount Amount required
upon Minimum spending spent up to to reimburse
Mineral Mineral exercise of on exploration September 30, the government upon
Priority Property types agreements required per annum 2005 commercial production
RMB US$ RMB US$
Very high Banongla Cu, Au 80% - 100%(1) $ 695,800 $ 86,175 $ 68,634 $ - $ -
Donggapu Cu, Au 60% 218,900 27,111 282,412 - -
Tangbai Cu, Au 80% - 100%(1) 419,000 51,893 228,238 - -
Zemuduola Cu, Au 60% 179,600 22,243 476,166 - -
(1) - The Company has an option to increase its holding to 100% of the mineral
properties on fulfillment of conditions of the agreements.
Cu - Copper, Au - Gold
Percentage Total
ownership amount Amount required
upon Minimum spending spent up to to reimburse
Mineral Mineral exercise of on exploration September 30, the government upon
Priority Property types agreements required per annum 2005 commercial production
RMB US$ RMB US$
High Duoxiasongduo Cu, Mo 65% $ 29,400 $ 3,641 $ - $ 3,840,000 $ 475,584
Malasongduo Cu, Mo 65% 33,100 4,099 - 6,100,000 755,485
Mangzong Cu, Mo 65% 44,100 5,462 - 14,515,200 1,797,708
Bande Cu, Mo 80% - 100%(1) 942,000 116,667 - - -
Wada Cu, Mo 80% - 100%(1) 294,100 36,424 - - -
Medium Dingqinnong Cu, Ag, Zn, Pb 65% $ 43,700 $ 5,412 $ - $ 6,678,000 $ 827,070
Gegongnong Cu, Au 65% 373,900 46,308 - 19,124,300 2,368,545
Jiama Cu, Pb, Zn, Au 65% 13,972 1,730 - 30,000,000 3,715,500
Jiama (S) Cu, Pb, Zn, Au 80% - 100%(1) 303,900 37,638 - - -
Niangguchu Au, Ag 65% 11,200 1,387 - 5,042,400 624,501
Zhanaga Cu, Mo 65% 33,000 4,087 - 5,509,600 682,364
(1) - The Company has an option to increase its holding to 100% of the mineral
properties on fulfillment of conditions of the agreements.
Cu - Copper, Au - Gold, Mo - Molybdenum, Ag - Silver, Zn - Zinc, Pb - Lead
5
Percentage Total
ownership amount Amount required
upon Minimum spending spent up to to reimburse
Mineral Mineral exercise of on exploration September 30, the government upon
Priority Property types agreements required per annum 2005 commercial production
RMB US$ RMB US$
Low Chaerkang Cu, Au 65% $ 537,900 $ 66,619 $ - $ - $ -
Chawudaerga Cu, Fe 65% 458,500 56,785 - - -
Chenxiong Cu, Au 65% 460,300 57,008 - - -
Gaerqiong Cu, Au 60% 79,600 9,858 - 49,500 6,131
Jiangeluopu Cu, Fe 65% 413,100 51,162 - - -
Kexiangma Cu, Au 65% 458,900 56,835 - - -
Lajie Cu, Fe 65% 961,900 119,131 - - -
Numamaerge Cu, Fe 65% 439,800 54,469 - - -
Xianqian Cu, Fe 65% 459,900 56,959 - - -
Xibu Cu, Fe 65% 481,600 59,646 - - -
Yeluansang Cu, Au 65% 462,300 57,256 - - -
Zhaduogaerbo Cu, Au 60% 347,500 43,038 - - -
Zhuola Suotong Cu, Au 65% 479,300 59,361 - - -
Zongdu Cu, Fe 65% 470,700 58,296 - - -
Cu - Copper, Au - Gold, Fe - Iron
Percentage Total
ownership amount Amount required
upon Minimum spending spent up to to reimburse
Mineral Mineral exercise of on exploration September 30, the government upon
Priority Property types agreements required per annum 2005 commercial production
RMB US$ RMB US$
Very low Binda Pb, Sb, Ag 65% $ 51,500 $ 6,378 $ - $ 338,800 $ 41,960
Ganzhongxiong Pb, Zn 65% 64,500 7,988 - 156,200 19,345
Gexiong Ni, Ta 100% 37,000 4,582 - - -
Jiaduoling Fe 65% 171,600 21,253 - 312,200 38,666
Jiduipu Marble 65% 103,000 12,757 - - -
Kada Quartz sandstone 65% 37,200 4,607 - - -
Lazi Cr, Fe 65% 359,200 44,487 - - -
Lamayejia Cr, Fe 65% 598,100 74,075 - - -
Longrenla Fe 65% 466,600 57,788 - - -
Meiduo Sb 65% 13,197 1,634 - 11,610,800 1,437,998
Nanyuela Pb, Zn 65% 132,200 16,373 - 197,400 24,448
Nianggui Corundum 65% 41,200 5,103 - 1,367,800 169,402
Panong Ni, Ta 100% 22,400 2,774 - - -
Qinong Ni, Ta 100% 1,181,000 146,267 - - -
Youzha Salt 65% 129,200 16,001 - 5,570,000 689,844
Yuqu Ir, Os 65% 55,100 6,824 - 100,200 12,410
Zonglongge Ni, Ta 65% 64,000 7,926 - 100,000 12,385
Cu - Copper, Au - Gold, Mo - Molybdenum, Ag - Silver, Zn - Zinc, Pb - Lead, Sb -
Antimony, Ni - Nickel, Ta - Tantalum,
Fe - Iron, Cr - Chromium, Ir - Iridium, Os - Osmium
Please refer to our web-site www.ctvh-holdings.com for updates on these
properties.
UPDATES ON MINERAL PROPERTIES
(a) Xietongmen Copper-Gold Property
A grid drilling program, designed to systematically delineate the copper-gold
mineralization on the property is currently underway and is focused in an area
6
measuring approximately 250 meters by 300 meters. Six drill rigs are on site
with the goal to systematically delineate the deposit that is open to expansion
in all lateral directions. The drill holes are located at 50 meters spacing to
infill between and step out from the high-grade drill holes and cross cut
reported in 2003-2005. The drill holes are placed to confirm continuity,
structural controls and orientation of the mineralized body.
Statistics for Drilling program on Xietongmen Copper - Gold Property - 2005
Up to June 30, 2005 July - Sep 2005 Up to Sep 30, 2005
1. Drilled (meter) 4,911.80 8990.06 13,901.86
- ----------------------------------------------- ----------------------- ------------------- ----------------------
2. Area covered (meter by meter) 150 x 200 250 x300 250 x300
- ----------------------------------------------- ----------------------- ------------------- ----------------------
3. Assay results reported (hole) - 22 drill holes 22 drill holes
- ----------------------------------------------- ----------------------- ------------------- ----------------------
3.1 Average mineralized length (meter) - 230.82 230.82
- ----------------------------------------------- ----------------------- ------------------- ----------------------
3.2 Longest mineralized length (meter) - 321 321
- ----------------------------------------------- ----------------------- ------------------- ----------------------
3.3 Shortest mineralized length (meter) - 55.5 55.5
- ----------------------------------------------- ----------------------- ------------------- ----------------------
(b) Four properties surrounding Xietongmen Copper-Gold Property
In conjunction with Chinese advisors and an independent consultant, the Company
instigated a work program on Zemuduola, Donggapu, Tangbai and Banongla
properties surrounding Xietongmen in 2005 to be completed by year-end 2005.
(Press Release June 29, 2005)
(i) Zemuduola
A decision was made to complete an eighteen km access road through the Zemuduola
property in order to readily access the above zones and additional anomalous
targets located on both the Zemuduola and the adjacent Donggapu property. The
road allowed mobilization of trenching and bulldozer equipment and a drill rig
as a prelude to a planned diamond-drilling program.
Allocated field work Completed as of September 30, 2005
- ----------------------------------------------------------------------- -----------------------------------------
1:2,000 geological mapping covering 9 sq. km 4.5 sq. km
- ----------------------------------------------------------------------- -----------------------------------------
Geophysical IP survey covering 9 km (Revised 10.80 km) 10.80 km
- ----------------------------------------------------------------------- -----------------------------------------
Trenching program- 3,000 cu. meters (Revised 4,472 cu. meters) 4,472 cu. meters
- ----------------------------------------------------------------------- -----------------------------------------
Drilling program- 1,500 meters 226.4 meters
- ----------------------------------------------------------------------- -----------------------------------------
(ii) Donggapu
The above-mentioned 18 km access road extends 7 km into Zone IV on Donggapu
property. An additional eight kilometers of road accessing Zone IV to Zone III
is still in process.
Allocated field work Completed as of September 30, 2005
- --------------------------------------------------------------------- ---------------------------------------
1: 5,000 geological mapping covering 12 sq. km 10 sq. km
- --------------------------------------------------------------------- ---------------------------------------
1:10,000 geochemical soil survey: 10 sq. km 10 sq. km
- --------------------------------------------------------------------- ---------------------------------------
Geophysical IP survey covering 7 km (Revised 21.9 km) 21.9 km
- --------------------------------------------------------------------- ---------------------------------------
Trenching program- 2,000 cu. meters (Revised 5,442 cu. meters) 5,442 cu. meters
- --------------------------------------------------------------------- ---------------------------------------
Drilling program- 900 meters Hole ZK701 in process
- --------------------------------------------------------------------- ---------------------------------------
(iii) Tangbai
Allocated field work Completed as of September 30, 2005
- --------------------------------------------------------------------- ---------------------------------------
1:25,000 geological mapping survey covering 37.9 sq. km 37.9 sq. km
- --------------------------------------------------------------------- ---------------------------------------
1:50,000 geochemical stream survey: 37.9 sq. km 37.9 sq. km
- --------------------------------------------------------------------- ---------------------------------------
Geophysical IP survey covering 12 km 10.18 km
- --------------------------------------------------------------------- ---------------------------------------
Trenching program- 2,000 cu. meters 1,509 cu. meters
- --------------------------------------------------------------------- ---------------------------------------
Drilling program- 393 meters 393 meters
- --------------------------------------------------------------------- ---------------------------------------
7
(iv) Banongla
Allocated field work Completed as of September 30, 2005
- --------------------------------------------------------------------- ---------------------------------------
1: 25,000 geological mapping covering 69.6 sq. km 69.6 sq. km
- --------------------------------------------------------------------- ---------------------------------------
1:50,000 geochemical stream survey: 69.6 sq. km 69.6 sq. km
- --------------------------------------------------------------------- ---------------------------------------
Trenching program- 200 cu. meters 200 cu. meters
- --------------------------------------------------------------------- ---------------------------------------
Most of the fieldwork has been completed on all the properties except for the
drilling program on the Zemuduola and Donggapu properties. Assay results for the
ZK801 drill core from the Zemuduola property is pending. Assay results from the
Tangbai drill site is also pending. In addition, trench samples taken from both
Donggapu and Zemuduola are pending.
Liquidity and Working Capital
As of September 30, 2005, the Company had total current assets of $918,690 and
total current liabilities of $6,880,421 resulting in a negative working capital
of $5,961,731. For the nine-month period ended September 30, 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. 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 or
options 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 42,796,950 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.
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.
8
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.
9
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, 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, which 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, we will be forced to develop another line
of business, or to finance our 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.
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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 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.
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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
As of the end of the period covered by this report, the Company carried out an
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to the Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by them in the reports that we
file under the Exchange Act is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Company's internal controls or in the other factors
that could significantly affect those controls since the most recent evaluation
of such controls.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On November 9, 2005, the Company sold 3,000,000 shares pursuant to exercise of
Series E Warrants at $.08 per share for total proceeds of $240,000. The proceeds
will be used to pay operating and exploration expenses. The sale was conducted
under an exemption from Registration under Reg. S and Section 4(6). On November
14, 2005, another 3,000,000 Series "E" warrants were exercised at $0.08 each for
$240,000.
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
EXHIBITS
The following exhibits are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
32.1 18 U.S.C. Section 1350 Certifications
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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 11, 2005 By: /s/ Anthony Garson
------------------------------------
Chief Executive Officer (Principal
Executive Officer)
Date: November 11, 2005 By: /s/ Anthony Garson
------------------------------------
Chief Financial Officer (Principal
Financial Officer)