Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
AMENDMENT #4
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss.
240.14a-12
China NetTV Holdings Inc.
-------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
--------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
1
China NetTV Holdings Inc.
(a Nevada, USA company)
World Trade Centre, Suite 536
999 Canada Place, Vancouver
BC V6C 3E2 Canada
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 30, 2005
Notice is hereby given that the Annual Meeting of Shareholders of China
NetTV Holdings Inc., (hereinafter referred to as "the Company") will be held on
the 30th day of December, 2005 at World Trade Centre, Suite 536, 999 Canada
Place, Vancouver, Canada, at 11:30 a.m., Vancouver time, for the following
purposes:
1. To elect directors to hold office until the next annual meeting of
shareholders and qualification of their respective successors.
2. To appoint Clancy and Co., P.L.L.C., Public Accountants, as the auditor
for the company for the year ending December 31, 2005.
3. To approve the Amendment of the Articles of Incorporation to increase
the authorized capital from 200,000,000 to 500,000,000 common shares.
4. To change the name of the Company to Great China Mining, Inc. or as
close thereto as is available and to authorize the Amendment of the Articles of
Incorporation to recite the new name.
5. To transact such other business as may properly come before the annual
meeting or any postponement of or adjournment thereof.
The Board of Directors has fixed the closing of business on November 14,
2005 as the record date for the determination of shareholders entitled to notice
of and to vote at this meeting or any adjournment thereof. The stock transfer
books will not be closed.
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 2004 accompanies this Notice of Annual Meeting and Proxy Statement.
Also accompanying this Notice are the Agenda, Instrument of Proxy, and Notes
thereto.
All stockholders, whether or not they expect to attend the Meeting in
person, are requested either to complete, date, sign, and return the enclosed
form of proxy in the accompanying envelope or to record their proxy by other
authorized means. The proxy may be revoked by the person executing the proxy by
filing with the Secretary of the Company an instrument of revocation or duly
executed proxy bearing a later date, or by electing to vote in person at the
meeting.
Dated at Vancouver, British Columbia, this 19th day of December 2005.
/s/ Anthony Garson
-----------------------
Anthony Garson, CEO
China NetTV Holdings Inc.
2
PROXY STATEMENT
China NetTV Holdings Inc.
(a Nevada, USA company)
World Trade Centre, Suite 536
999 Canada Place, Vancouver
BC V6C 3E2 Canada
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
December 30, 2005
SOLICITATION OF PROXIES
This Proxy Statement is being furnished to the shareholders of China NetTV
Holdings Inc., a Nevada corporation, in connection with the solicitation by the
Board of Directors of proxies to be used at the Annual Meeting of Shareholders
to be held at 11:30 a.m., Vancouver time, December 30, 2005 at World Trade
Centre, Suite 536, 999 Canada Place, Vancouver, Canada.
While it is expected that the solicitation will be primarily by mail,
proxies may be solicited personally or by telephone by the directors, officers,
and regular employees of the Company at nominal cost. All costs of solicitation
of proxies by management will be borne by the Company.
PROXIES ARE BEING SOLICITED BY THE BOARD OF DIRECTORS.
Shareholders are advised that a majority of the shares issued and
outstanding have indicated that they intend to vote in favor of the proposals,
so it is reasonably assured that the actions will be taken.
APPOINTMENT OF PROXYHOLDER
The persons named in the accompanying instrument of proxy are officers of
the Company. A shareholder wishing to appoint some other person (who need not be
a shareholder) to represent him or her at the meeting has the right to do so,
either by inserting such person's name in the blank space provided in the
accompanying proxy and striking out the two printed names, or by completing
another proxy. If a shareholder appoints one of the persons designated in the
accompanying instrument of proxy as a nominee and does not direct the said
nominee to vote either for or against or withhold from voting on a matter or
matters with respect to which an opportunity to specify how the shares
registered in the name of such shareholder shall be voted, the proxy shall be
voted FOR such matter or matters.
The Instrument of Proxy must be in writing and signed by the shareholder or
by the shareholder's attorney duly authorized in writing or, if the shareholder
is a body corporate or association, signed by any individual authorized by a
resolution of the directors or governing body of the body corporate or
association. An Instrument of Proxy will only be valid if it is duly completed,
signed, dated and received at the office of the Company located at World Trade
Centre Suite 536, 999 Canada Place, Vancouver, BC V6C 3E2 Canada (Fax: 1(604)
641 - 1377) not less than 48 hours (excluding Saturdays, Sunday and holidays)
before the commencement of the Meeting or any adjournment thereof, unless the
Chairman of the Meeting elects to exercise his discretion to accept proxies
received subsequently.
REVOCATION OF PROXY
A shareholder who has given an Instrument of Proxy may revoke it by an
instrument in writing signed by the shareholder or by the shareholder's attorney
3
authorized in writing or, if the shareholder is a corporation or association,
signed by any individual authorized by a resolution of the directors or
governing body of the body corporate or association, and delivered to the office
of the Company located at World Trade Centre Suite 536, 999 Canada Place,
Vancouver, BC V6C 3E2 Canada at any time up to and including the last business
day preceding the day of the Meeting, or any adjournment thereof at which the
Instrument of Proxy is to be used, or to the Chairman of the Meeting on the day
of the Meeting or any adjournment thereof or in any other manner provided by
law. A revocation of an Instrument of Proxy does not affect any matter on which
a vote has been taken prior to the revocation.
The Chairman of the Meeting will have the discretion to accept or reject
proxies otherwise deposited.
WE ARE ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED TO SEND US A PROXY.
VOTING OF PROXIES
THE MANAGEMENT REPRESENTATIVES DESIGNATED IN THE ENCLOSED INSTRUMENT OF PROXY
WILL VOTE OR WITHHOLD FROM VOTING THE SHARES IN RESPECT OF WHICH THEY ARE
APPOINTED PROXY ON ANY POLL THAT MAY BE CALLED FOR IN ACCORDANCE WITH THE
INSTRUCTIONS OF THE SHAREHOLDER AS INDICATED ON THE INSTRUMENT OF PROXY AND, IF
THE SHAREHOLDER SPECIFIES A CHOICE WITH RESPECT TO ANY MATTER TO BE ACTED UPON,
THE SHARES WILL BE VOTED ACCORDINGLY. WHERE NO CHOICE OR WHERE BOTH CHOICES ARE
SPECIFIED IN THE INSTRUMENT OF PROXY, IT IS INTENDED THAT SUCH SHARES WILL BE
VOTED "FOR" THE MATTERS OR PERSONS DESCRIBED THEREIN AND IN THIS INFORMATION
CIRCULAR.
The enclosed Instrument of Proxy confers discretionary authority upon the
person appointed proxy thereunder to vote with respect to amendments or
variations of matters identified in the Notice of Meeting and with respect to
other matters that may properly come before the Meeting. In the event that
amendments or variations to matters identified in the Notice of Meeting are
properly brought before the Meeting or any other business is properly brought
before the Meeting, it is the intention of the persons designated in the
enclosed Instrument of Proxy to vote in accordance with their best judgment on
such matters or business. At the time of the printing of this Information
Circular, management of the Company knows of no such amendment, variation or
other matter which may be presented to the Meeting.
VOTING RIGHTS
Stockholders of record of the Company as of the close of business on
November 14, 2005 have the right to receive notice of and to vote at the Annual
Meeting. On November 14, 2005, the Company had issued and outstanding
199,596,575 shares of Common Stock (the "Common Stock"), the only class of
voting securities outstanding. Each share of Common Stock is entitled to one (1)
vote for as many separate nominees as there are directors to be elected and for
or against all other matters presented. For action to be taken at the Annual
Meeting, a majority of the shares entitled to vote must be represented at the
Annual Meeting in person or by proxy. Shares of stock may not be voted
cumulatively. Abstentions and broker non-votes each will be included in
determining the number of shares present and voting at the Annual Meeting.
Abstentions will be counted in tabulations of the votes cast on proposals,
whereas broker non-votes will not be counted for purposes of determining whether
a proposal has been approved.
EXPENSE OF MAILING
The expense of preparing and mailing of this Proxy Statement to
shareholders of the Company is being paid for by the Company. The Company is
also requesting brokers, custodians, nominees and fiduciaries to forward this
Proxy Statement to the beneficial owners of the shares of common stock of the
Company held of record by such persons. The Company will not reimburse such
persons for the cost of forwarding.
4
PROXIES
In voting their Common Stock, stockholders may vote in favor of or against the
proposal to approve the proposals on the agenda or may abstain from voting.
Stockholders should specify their choice on the accompanying proxy card. All
properly executed proxy cards delivered pursuant to this solicitation and not
revoked will be voted at the Meeting in accordance with the directions given. If
no specific instruction are given with regard to the matter to be voted upon,
then the shares represented by a signed proxy card will be voted "FOR" the
approval of the Amendment and in the discretion of such proxies to any other
procedural matters which may properly come before the Meeting or any
adjournments thereof. All proxies delivered pursuant to this solicitation are
revocable at any time before they are voted at the option of the persons
executing them by (i) giving written notice to the Secretary of the Company,(ii)
by delivering a later dated proxy card, or (iii) by voting in person at the
Meeting. All written notices of revocation and other communications with respect
to revocations of proxies should be addressed to Maurice Tsakok, Secretary,
China NetTV Holdings Inc., World Trade Centre, Suite 536, 999 Canada Place,
Vancouver, BC V6C 3E2 Canada.
HOLDERS OF COMMON STOCK ARE REQUIRED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO THE COMPANY IN THE
ACCOMPANYING ENVELOPE.
The person named as proxy is Maurice Tsakok, Secretary and Director of the
Company.
In addition to the solicitation of proxies by mail, the Company, through its
directors, officers, and employees, may solicit proxies from stockholders
personally or by telephone or other forms of communication. The Company will not
reimburse anyone for reasonable out-of-pocket costs and expenses incurred in the
solicitation of proxies. The Company also will request brokerage houses,
nominees, fiduciaries, and other custodians to forward soliciting materials to
beneficial owners, and the Company will reimburse such persons for their
reasonable expenses incurred in doing so. All expenses incurred in connection
with the solicitation of proxies will be borne by the Company.
INTEREST OF PERSONS IN MATTERS TO BE ACTED UPON
No director or shareholder owning 10% or more of the outstanding shares has
indicated her or his intent to oppose any action to be taken at the meeting. Two
directors and two Director Nominees are directly interested in the share
issuance which Proposal #3 is intended to implement. (See discussion under
"Proposal #3" and disclosure of shares to be issued under "Principal Holders of
Voting Securities.")
VOTING SECURITIES AND BENEFICIAL OWNERSHIP
As of the call date of the meeting, November 14, 2005, the total number of
common shares outstanding and entitled to vote was 199,596,575. The holders of
such shares are entitled to one vote for each share held on the record date.
There is no cumulative voting on any matter on the agenda of this meeting. No
additional shares will be issued subsequent to call date and prior to the
meeting.
RECORD DATE
Stock transfer records will remain open. November 14, 2005 shall be the
record date for determining shareholders entitled to vote and receive notice of
the meeting.
5
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of November 14, 2005, with
respect to the shares of common stock of the Company owned by (i) owners of more
than 5% of the outstanding shares of common stock, (ii) each director of the
Company, and (iii) all directors and officers of the Company as a group. Unless
otherwise indicated, all shares are held by the person named and are subject to
sole voting and investment by such person.
Title of Class Name and Address of Beneficial Amount and Nature of Percentage of Percentage of
Owner Beneficial Ownership Class Class
Pre-Transaction(1) Post-Transaction(1)
- ----------------------- ------------------------------------ ------------------------- ------------------ ------------------
Common stock Zhi Wang (Chairman/Director) 20,000,000 total 5.31% 7.29%
116 - 2205 Bridgeport Pkwy. 10,600,000 owned
California 94404 (Plus 9,400,000 shares
issuable under Highland
Acquisition agreement)
- ----------------------- ------------------------------------ ------------------------- ------------------ ------------------
Common stock Richco Investors Inc. 15,000,000 7.51% 5.47%
Suite 900, 789 West Pender Street
Vancouver, B.C., V6C 1H2
- ----------------------- ------------------------------------ ------------------------- ------------------ ------------------
Common stock Anthony Garson 1,000,000* 0.5% .36%
Suite 536, World Trade Centre Options for Common stock
999 Canada Place
Vancouver, BC V6C 3E2
- ----------------------- ------------------------------------ ------------------------- ------------------ ------------------
Common stock Maurice Tsakok (Director) 0 0% 0
900-789 W. Pender St.
Vancouver, BC
Canada V6C 1H2
- ----------------------- ------------------------------------ ------------------------- ------------------ ------------------
Common stock Jie Yang (Director) 2,650,000 owned 1.33% 1.82%
(Plus 2,350,000 shares
issuable under Highland
Acquisition Agreement)
- ----------------------- ------------------------------------ ------------------------- ------------------ ------------------
TOTAL AS A GROUP Pre-transaction 29,250,000 14.65%
Post-transaction 41,000,000 14.95%
- ----------------------- ------------------------------------ ------------------------- ------------------ ------------------
(1) Note: "Transaction" is the issuance of an additional 65,000,000 shares plus
a finder's fee as required by the Highland Acquisition Agreement dated November
5, 2004.
* Issuable or exercisable within 60 days as countable under Section 13d(2).
VOTING REQUIRED FOR APPROVAL
I. A majority of the shares of common stock outstanding at the record
date must be represented at the Annual Meeting in person or by proxy in order
for a quorum to be present and in order to take action upon matters to be voted
upon, but if a quorum should not be present, the meeting may be adjourned
6
without further notice to shareholders, until a quorum is assembled. Each
shareholder will be entitled to cast one vote at the Annual Meeting for each
share of common stock registered in such shareholder's name at the record date.
II. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
Each share of Common Stock entitles the holder thereof to one vote on all
matters to come before the Annual Meeting. Holders of shares of Common Stock are
not entitled to cumulative voting rights.
III. The favorable vote of a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting is
necessary to elect the nominees for directors of the Company. To take the other
actions at the meeting involving amending the Articles of Incorporation, a
majority of the shares issued and outstanding must vote in favor of the Articles
of Amendment.
REMUNERATION AND OTHER TRANSACTIONS WITH MANAGEMENT
(a) Cash Compensation.
Compensation paid by the Company for all services provided during the
fiscal year ended December 31, 2004 (1) to each of the Company's two most highly
compensated executive officers whose cash compensation exceeded $60,000 and (2)
to all officers as a group is set forth below.
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Annual Compensation Long Term Compensation
------------------------------------------------------ ---------------------------------
Name and Other Annual Securities
Principal Compensation Restricted Underlying/Options
Position Year Salary ($) Bonus ($) Awards ($) Stock Grants Agreements
Ronald Xie, 2004 - 30,000 57,600 - 9,639,000(1)
(Finder's fee
under Highland
Acquisition Agreement.)
President/Director 2003 - 20,000 60,000 - -
(resigned on
Nov. 03, 2004)
- ------------------------------------------------------------------------------------------------------------------
Anthony Garson 2004 - - 38,714 - 1,000,000
President/Director 2003 - - 12,089 - -
- ------------------------------------------------------------------------------------------------------------------
Jie Yang 2004 - 10,000 48,043 2,650,000(1) 2,350,000 (1)
(under Highland
Vice President/ 2003 - 10,000 30,000 - Acquisition Agreement)
Director
- ------------------------------------------------------------------------------------------------------------------
Maurice Tsakok 2004 - - 38,520 - -
Secretary/ 2003 - - 19,260 - -
Director
- ------------------------------------------------------------------------------------------------------------------
Gary Gui 2003 - - 11,754 - -
Vice President
(Resigned 2003)
- ------------------------------------------------------------------------------------------------------------------
(1) Pursuant to Highland Acquisition Agreement.
7
Total for Executives 2004 - - 40,000 222,554 1,750,000 11,989,000
2003 - - 30,000 133,103 - -
(b) Compensation Pursuant to Plans. Set forth below under directors.
(c) Other Compensation. None.
(d) Compensation of Directors. See stock options below.
Compensation paid by the Company for all services provided during the
period ended December 31, 2004 (1) to each of the Company's directors whose cash
compensation exceeded $60,000 and (2) to all directors as a group is set forth
below:
DIRECTORS' COMPENSATION 2004
Annual Compensation Security Grants
------------------------------------- ---------------------------------
Name and Annual Consulting Number Number
Principal Retainer Meeting Fees/Other of of Underlying
Position Fees ($) Fees ($) Fees ($) Shares Options/SARs
Ronald Xie, - - - - -
(resigned on
May 4, 2004)
Anthony Garson - - - - 1,000,000
Jie Yang (1) - - - 2,650,000 2,350,000(1)
(Mandatory issuance under
Highland Acquisition Agreement)
Zhi Wang (1) - - 39,000 10,600,000 9,400,000(1)
(Chairman) (Mandatory issuance under
Highland Acquisition Agreement)
Maurice Tsakok - - - - -
Loong Keng Lim - - - - -
(resigned on
March 30, 2004)
- --------------------------------------------------------------------------------------------------------------
Total 2004 - - - 39,000 - 12,750,000
(1) Pursuant to Highland Acquisition Agreement
8
Note: Under an agreement between prior option holders and the Company, options
granted during the period ending on December 31, 2003 have been cancelled.
Committees and Meetings
The Board held multiple meetings during the fiscal year ended December 31,
2004. The Company did not have separate Audit and Compensation Committees. The
Board acted as a standing Audit and Compensation Committees. The Audit Committee
conducted its business during the regular meetings of the Board of Directors
during the last fiscal year and in addition, conferred from time to time as
necessary. The Board has no separate nominating committee. The Board acted as
nominating committee. All directors attended more than 75% of the Board meetings
and the meetings of the Board committees on which such directors served.
The Audit Committee has the responsibility to review the scope of the
annual audit, recommend to the Board the appointment of the independent
auditors, and meet with the independent auditors for review and analysis of the
Company's systems, the adequacy of controls and the sufficiency of financial
reporting and accounting compliance.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Securities and Exchange Commission requires disclosure where an
executive officer of a company served or serves as a director or on the
compensation committee of an entity other than the Company and an executive
officer of such other entity served or serves as a director or on the
compensation committee of the Company. The disclosure is made under Management
Experience. Decisions as to executive compensation are made by the Compensation
Committee.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
NOMINATING COMMITTEE INFORMATION
Registrant does not have a standing Nominating Committee or committee
performing similar functions. The Board believes it is appropriate not to have
such a committee and acts as a whole, as the Nominating Committee, because a) it
has a small number of directors, b) it is appropriate for the entire Board to
participate in considering Board members, and c) specific skill sets are
necessary in the Company's business, SEC compliance, mining exploration, and
Chinese language/operations with which the Board as a whole is familiar.
There is no charter for a Nominating Committee. Of the Board members, when
acting as the Nominating Committee, only one would be considered as independent:
Maurice Tsakok. All other members would not be considered independent under
Section 6(a) of the Exchange Act. The Board has no policy regarding
consideration of director candidates recommended by security holder, and, as a
matter of course, members of the Board are, except one, security holders of the
Company and recommend themselves as candidates for election. The Board believes
it is not necessary or appropriate to have a policy in relation to candidates
recommended by security holders at this time, because it would be very difficult
for the Company to find disinterested directors to serve without compensation
for a company operating in China and without directors' and officers' liability
insurance.
All new nominees (excluding directors standing for reelection) are in fact
nominated by existing security holders and directors only. No fees have been
paid to any third party for nominee searches.
Jie Yang and Zhi Wang are currently directors and hold 2,650,000 and
10,600,000 common shares, respectively, with rights to receive an additional
2,350,000 and 9,400,000 common shares, respectively, under the Highland
Acquisition Agreement.
Xiaojun Ma and Jing Wang (Director Nominees) are current shareholders of
3,975,000 and 4,240,000 common shares, respectively, with rights to receive an
additional 3,525,000 and 3,760,000 shares, respectively.
9
ANNUAL REPORT
The Company's Annual Report on Form 10-KSB, as amended, for the year ended
December 31, 2004 (the "Form 10-KSB") is being furnished simultaneously
herewith. The Form 10-KSB/A2 is considered a part of this Proxy Statement and
incorporated herein by this reference.
The Company will also furnish to any stockholder of the Company a copy of
any exhibit to the Form 10-KSB, as amended, as listed thereon, upon request and
upon payment of the Company's reasonable expenses of furnishing such exhibit.
Requests should be directed to Maurice Tsakok, Secretary, at World Trade Centre,
Suite 536, 999 Canada Place, Vancouver, BC V6C 3E2 Canada.
BOARD OF DIRECTORS AND OFFICERS
The persons listed below are Officers and the members of the Board of
Directors. Three persons designated with numerals (1), (2), and (3) are nominees
for Director for the following term. Mr. Tsakok is not standing for reelection
as a director.
The directors and executive officers of the Company as of November 21, 2005
are as follows:
Name Position Held with the Age Period of Service
Company as Officer or
Director
- --------------------------------------------------------------------------------
Anthony Garson(1) President, Director 61 Annual
CEO/CFO
Maurice Tsakok Secretary, Director 52 Annual
Jie Yang(2) Vice President, Director 42 Annual
Zhi Wang(3) Chairman, Director 47 Annual
The directors of the Company hold office until the next annual meeting of
the shareholders and until their successors have been duly elected and
qualified. The officers of the Company are elected at the annual meeting of the
Board of Directors and hold office until their successors are chosen and
qualified or until their death, resignation, or removal. The Company presently
has no executive committee.
The principal occupations of each director and officer of the Company for
at least the past five years are as follows:
MANAGEMENT EXPERIENCE
Anthony Garson, President since May 2004, Vice-Chairman and Director, obtained a
BSc in 1969 from the University of Waterloo, Ontario. He received an MBA from
University of Toronto, Ontario in 1983. Mr. Garson was President and Director of
International Arimex Resources Inc. from 2003 to June 2004. He has been a
Director of Grayd Resource Corporation since 2003. He has been a Director of
DiscFactories Corporation since 1999 and is periodically a Lecturer at
Centennial College. Mr. Garson is a director of Colibri Resource Corp. He is a
nominee for election for another term as Director.
Maurice Tsakok, a Director since May 2000, holds a Mechanical Engineering degree
(1974 University of Minnesota) as well as an MBA (Management Science)(1976
Hofstra University). From 1997 to date, he has been a principal director in
Gemsco Management, Ltd. He was a Director of Xin Net Corp from 1999 to May 2004
and was a Director of Richco Investors Inc. from 1995 to October 2003.
Jie Yang, a Director, age 41, Director, graduated from Beijing University of
International Business & Economics, Beijing, China in 1984 and obtained a
Bachelor of Economics. He has been director and Vice President of Honglu Invest
- -ment Holdings, Inc. since 2001; President of Sundecine Enterprises Inc. (1997-
2001); General Manager, Jianxin Trading Co., 1988-97; Assistant Customs
Supervisor, Beijing Customs Administration, 1984-87. He is a nominee for
election for another term as Director.
10
Zhi Wang, a director, age 47, Director, finished a diploma in business
administration at China Radio & Television University ("CRTVU") in 1984 and
pursued further studies in business administration under exchange program in
Australia 1988. From 2001 to present, he has been Chairman and President of
Honglu Investment Holdings, Inc., Tianyubofeng Science & Technology, Inc., a
Chinese company in aluminum and carbon coke producing business, and Standard
Hotel Management, Co. He is President and General Manager, Ziyuewentao
Enterprises Inc., 1997 to present; General Manager, Tianjin Zangtong Trading
Co., 1993; Managing Director of Hong Kong Zangtong Trading Co., 1990; CEO of
Tibet Autonomous Region Economic & Trade Bureau, Beijing Office, 1987; Member,
the Leading Team on Tibetan Economy, the State Council of China, 1984. He is a
nominee for election for another term as Director.
NOMINEES FOR ELECTION AS DIRECTOR WHO ARE NOT CURRENTLY OFFICERS OR DIRECTORS
Xiaojun Ma, a Director, age 38, earned his BA in Commerce from Beijing
International Studies University in 1990. In 2001 he earned his MBA from
Australian National University. From 1990 - 1996, Mr. Ma was a sales represent-
ative with Tibet International trade Import & Export Corporation, Beijing Office
(an international import and export in Tibet). From 1996 - 1998, Mr. Ma was
General Manager Assistant for Tianjin Panyuan Technology Co. Ltd. (a Sino-
America joint venture company producing three-dimensional animation and flash
for advertisement and media companies). From 1998 - 2000, he was General Manager
Assistant of Tibet Mountains & Waves Inc. (a Chinese company that owns and
operates a three-star hotel in Jin Hai Hu Resort). From 2001 - 2004, Mr. Ma was
Vice General Manager of Honglu Investmetn Holdings Inc. (an exploration and
mining company).
Jing Wang, a Director, age 51, earned her BA in Finance from Renmin University
of China in 1983. From 1983-1993, Ms. Wang was the Accountant Direct, Financial
Manager, and Director of Economy Research Office for the China Textile
Industrial Engineering Institute, a textile consultant company. From 1993-1997,
she was a member of Beijing Exploration & Design Industry Technology and Economy
Committee, a company that manages and supervises companies and projects in the
exploration and design industry. From 1993-1997, she was General Accountant and
Economist for Beijing Exploration & Design Association Textile Industrial
Engineering Consultation Limited. From 1997-1998, she was the General Accountant
for Tianjin Tibet Express Trade Limited, an import and export company, and for
Tianjin Panyuan Technology Co. Ltd., a joint venture company producing
three-dimentional animation and flash for advertisement and media companies.
From 1988 to the present, she has been CFO of Tibet Mountain & Waves Inc., a
hotel management company, Honglu Investment Holdings Inc., a mining and
exploration company, and Tianjin Tibet Express Trade Limited.
PROPOSAL #1
NOMINATION AND ELECTION OF DIRECTORS
The Company's Bylaws currently provide for the number of directors of the
Company to be established by resolution of the Board of Directors and that
number is between 1 and 8. The Board has nominated five persons. At this Annual
Meeting, a Board of five directors will be elected. Except as set forth below,
unless otherwise instructed, the proxy holders will vote the proxies received by
them for Management's nominees named below.
All the nominees are presently directors of the Company. In the event that
any Management nominee shall become available, or if other persons are
nominated, the proxy holders will vote in their discretion for a substitute
nominee. It is not expected that any nominee will be unavailable. The term of
office of each person elected as a director will continue until the next Annual
Meeting of Stockholders or until a successor has been elected and qualified.
11
The proxies solicited hereby cannot be voted for a number of persons
greater than the number of nominees named below. The Certificate of
Incorporation of the Company does not permit cumulative voting. A plurality of
the votes of the holders of the outstanding shares of Common Stock represented
at a meeting at which a quorum is presented may elect directors.
The business experience of each director nominee is shown under "Manage
- -ment Experience" preceding this section in this Proxy Statement.
THE DIRECTORS NOMINATED BY MANAGEMENT ARE:
Anthony Garson
Zhi Wang
Jie Yang
Xiaojun Ma
Jing Wang
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" MANAGEMENT'S NOMINEES.
PROPOSAL #2
INDEPENDENT PUBLIC ACCOUNTANTS
Clancy and Co., P.L.L.C. Independent Certified Accountants ("Clancy"), have
been appointed as the Certifying Accountants for the period through fiscal year
2004 and shareholders are asked to ratify such appointment. Ratification of the
appointment of Clancy as the Company's independent public accountants for the
fiscal year ending December 31, 2005 will require the affirmative vote of a
majority of the shares of Common Stock represented in person or by proxy and
entitled to vote at the Annual Meeting. In the event the stockholders do not
ratify the appointment of Clancy for the forthcoming fiscal year, such
appointment will be reconsidered by the Board. Representatives of Clancy are
expected to be present at the Annual Meeting to make statements if they desire
to do so, and such representatives are expected to be available to respond to
appropriate questions.
Unless marked to the contrary, proxies received will be voted "FOR"
ratification of the appointment of Clancy as independent accountants for the
Company's year ending December 31, 2005.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE COMPANY'S
INDEPENDENT ACCOUNTANTS.
PROPOSAL #3
PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
INCREASE IN AUTHORIZED SHARES
The Board believes that amending its Certificate of Incorporation in order
to increase the number of authorized shares of common stock is in the best
interest of the Company because its acquisition of Highland pursuant to the
Agreement cannot be completed without the authorization of additional shares of
common stock since the Company has issued nearly all of its authorized shares
and 65,000,000 (pursuant to an Agreement to issue shares) and 9,639,000
(finder's fee for the transaction) shares of common stock are yet due. Without
the authorization of additional shares of common stock, the Company cannot
fulfill its obligations under the Agreement or satisfy its substantial need for
more operating capital through the issuance of additional shares of common
stock.
The Company seeks the approval of stockholders to amend the Articles of
Incorporation of the Company to increase the authorized capital of the Company
from 200,000,000 to 500,000,000 shares of common stock. Such increase is
required to enable the Company to complete its remaining obligation under the
Highland Mining, Inc. Acquisition Agreement dated November 5, 2004 which
requires the issuance of an additional 65,000,000 shares of common stock and a
finder's fee of 9,639,000 common shares.
None of the Company's Articles, Bylaws, Employment Agreements or Credit
Agreements have any material anti-takeover consequences. There are no plans or
proposals to adopt other provisions or enter into other arrangements that may
have material anti-takeover consequences.
12
Discussion of Background for Proposed Action
Pursuant to this Proxy Statement, you, as stockholders, are informed that
the action sought is to increase the number of shares of stock that the Company
is authorized to issue to 500 million shares of common stock. Pursuant to the
Highland Mining, Inc. Acquisition Agreement (hereinafter the "Highland
Acquisition Agreement" or "Acquisition Agreement"), 65,000,000 shares of common
stock will be directly issued to the former stockholders of Highland Mining,
Inc., and 9,639,000 shares will be issued for finders' fees in addition to the
85,000,000 shares already issued to Highland shareholders, in order to fully
perform the Acquisition Agreement by delivering the shares as required under the
Agreement. The increase of the authorized share capital is also required for the
Company to engage in future capital raising transactions. The Company has no
present intent to issue any of the newly authorized shares at this date other
than in connection with the acquisition of Highland Mining, Inc.
The following people (including directors and Nominees for Directors) are
entitled to be issued additional shares pursuant to the Highland Acquisition
Agreement dated November 5, 2004 which are in form of an Agreement to issue
shares upon an increase of the authorized shares (see Description and discussion
herein under Proposal #3) as follows:
Du Yan Guang 3,760,000 shares
Fu You Zhen 3,290,000 shares
Gao Fengyi 5,640,000 shares
Han Qing Lin 2,490,000 shares
Ibrahim Abdullah 4,700,000 shares
Ma Xiao Jun (nominee) 3,525,000 shares
Noorappa Abdulrahim Kamaludeen 4,700,000 shares
Wang Donghong 470,000 shares
Wang Jing (nominee) 3,760,000 shares
Wang Lan Mei 3,760,000 shares
Wang Qiang 3,290,000 shares
Wang Yu Lan 3,525,000 shares
Yang Yan 5,640,000 shares
Yi Ting Bin 235,000 shares
Zhang Zhen Kai 235,000 shares
Zhu Guang Min 4,230,000 shares
Jie Yang (Director) 2,350,000 shares
Zhi Wang (Director) 9,400,000 shares
-----------------
Total 65,000,000 shares
Ronald Xie (Finder's Fees) 9,639,000 shares
The additional shares of common stock to be authorized and issued have full
voting rights and have no dividend or interest rates, conversion prices,
redemption prices, maturity dates, or other matters. There are no preemptive
rights regarding the shares of common stock.
ORGANIZATIONAL HISTORY AND REGISTRATION OF HIGHLAND
Highland Mining Inc. fully and legally owns Tianyuan Mineral Exploration Ltd.
("Tianyuan"), as a wholly owned foreign enterprise registered in Tibet, China,
incorporated pursuant to relevant Chinese laws and regulations, which holds an
exploration license covering Xietongmen Mine in Tibet, China.
INVESTMENT IN HIGHLAND MINING INC. AND 25 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 Corporation ("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.
13
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. (This transfer was made to the Company in early 2005.)
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, as its
primary asset, holds an exploration license covering Xietongmen Copper-Gold
Property located near Xiong Village, Xietongmen County, Shigatse area, Tibet
Autonomous Region, China.
This entitles the Company to full legal protection under the Chinese laws and
regulations with respect to its legal rights and interest as the sole foreign
legal owner of Highland, and will enable the Company to repatriate from China
dividends distributed from Highland, other lawful income and funds received
after the liquidation of Highland.
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
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 follows:
Historical cost of 500,000 shares of Highland Mining Inc. $ 800,000
Equity in undistributed losses of investee company -
----------
Investment at equity - December 31, 2004 $ 800,000
==========
Historical cost of 500,000 shares of Highland Mining Inc. $ 800,000
Equity in undistributed losses of investee company (800,000)
----------
Investment in equity - September 30, 2005 $ -
==========
Shareholders are advised that Highland, as 50% owned by Continental Minerals
Corp., managed by Continental, and consolidated into Continental's financial
statements, has not been accounted for separately, and there are no separate
interim financial statements for Highland for 2005. Accordingly, there are no
separate financials a shareholder can review of Highland for interim period in
2005.
MINERAL EXPLORATION OPERATIONS
Please see Exhibits B-1 and B-2 attached hereto.
The Company has agreed to issue a total of 150,000,000 shares of its common
stock under the Acquisition Agreement. As of the date of this Proxy Statement,
Highland shareholders have delivered the shares in Highland, the Company has
issued 85,000,000 shares, and the Company has agreed to deliver 65,000,000
shares to the Highland shareholders upon approval of this Proxy Statement by the
shareholders. The financial statements of Highland for the periods ended
December 31, 2004, as audited, are attached hereto as Exhibit A-1.
14
The shares of common stock of the Company yet to be issued to the
stockholders of Highland under the Acquisition Agreement constitute 65,000,000
shares or 23.70% of the then to be issued and outstanding shares of common stock
of the Company. Highland shareholders delivered to the Company 100% of the
outstanding share ownership of Highland and have received 85,000,000 shares of
the Company, which constitutes 42.59% of the issued and outstanding shares of
the Company prior to the final completion of the issuance and will constitute
30.99% after the completion of the issuance. After the completion of the
issuance, former stockholders of Highland will own 54.70% of the issued and
outstanding shares of the Company (150,000,000 shares).
Du Yan Guang 3,760,000 shares
Fu You Zhen 3,290,000 shares
Gao Fengyi 5,640,000 shares
Han Qing Lin 2,490,000 shares
Ibrahim Abdullah 4,700,000 shares
Xiao Jun Ma 3,525,000 shares
Noorappa Abdulrahim Kamaludeen 4,700,000 shares
Donghong Wang 470,000 shares
Jing Wang 3,760,000 shares
Lan Mei Wang 3,760,000 shares
Qiang Wang 3,290,000 shares
Yu Lan Wang 3,525,000 shares
Yan Yang 5,640,000 shares
Ting Bin Yi 235,000 shares
Zhen Kai Zhang 235,000 shares
Guang Min Zhu 4,230,000 shares
Jie Yang (Director) 2,350,000 shares
Zhi Wang (Director) 9,400,000 shares
-----------------
Total 65,000,000 shares
Ronald Xie (Finder's Fees) 9,639,000 shares
The completion by the Company of the share issuance to Highland
stockholders requires an increase in the number of authorized shares of common
stock of the Company which is the subject of this Proxy Statement necessary to
allow additional shares of common stock of the Company to be issued to complete
the final step of the Acquisition Agreement for Highland. Although the Company
has received the consent of a majority of its shareholders for these two
matters, it has not yet effected the transaction but intends to do so 10 days
after the mailing of the Definitive Proxy Statement of the stockholders of
record.
The rights of the existing holders of common stock will not be affected,
except that the authorization of a large number of additional shares and the
issuance of additional shares for the pending transaction will allow, in the
future, the following types of actions or events to occur without the current
stockholders being able to effectively prevent such actions or events:
1. Dilution may occur due to the issuance of additional
shares. The percentage ownership of the Company by
the existing shareholders will be diluted from 100%
to 44.70% upon completion of the transaction.
2. Control of the Company by stockholders may change due
to new issuances.
3. The election of the Board of Directors will be
dominated by new large stockholders, effectively
blocking current stockholders from electing
directors.
4. Business plans and operations may change.
5. Mergers, acquisitions, or divestitures may occur
which are approved by the holders of the newly issued
shares.
15
The Company has presented, in the exhibits indicated below and attached
hereto, the following important financial information:
1. Financial statements meeting the requirements of
Regulation S-X, including financial information
required by Rule 3-05 and Article 11 of Regulation
S-X with respect to transactions other than that
pursuant to which action is to be taken as described
in this proxy statement, Exhibit A-1;
2. Item 302 of Regulation S-K, supplementary financial
information (none);
3. Item 303 of Regulation S-K, management's discussion
and analysis of financial condition and results of
operations (Exhibits B-1 and B-2).
Total Shares in the Company
Outstanding as of November 14, 2005 -- 199,596,575 (1)
Highland shareholders now hold 85,000,000 shares or 42.59% of the
currently outstanding shares.
To be issued under Highland Agreement -- 65,000,000
Additional shares as finder's fee 9,639,000.
Such new shares to former Highland shareholders will constitute 23.7% of
the shares outstanding after the issuance under the Highland Acquisition
Agreement.
The former Highland shareholders will own, in the aggregate, 150,000,000
shares after the transaction is approved, which equals 54.7% of the
total to be outstanding after issuance pursuant to the Highland Acquisi-
tion transaction.
Total after Highland Acquisition transaction -- 274,235,575 (1) (100%)
(1) Does not include Management Options to acquire a total of 1,000,000 shares
not included in the Highland Acquisiton Agreement.
Regulatory Approvals: No federal or state regulatory approvals are required
for the transaction.
Reports, Opinions, or Appraisals: No reports, opinions, or appraisals have
been received from any outside party.
Past Contracts or Negotiations: There have been no contracts or
negotiations by parties to the transaction or their affiliates during the period
for which financial statements are presented, except that in August 2004, a
contract with Honglu Mining was cancelled, which involved most of the same
shareholders of Highland Mining, Inc.
Other Potential Acquisitions
- ----------------------------
It is emphasized that management of the Company may effect future
transactions having a potentially adverse impact upon the Company's stockholders
pursuant to the authority and discretion of the Company's management to complete
share issuances without submitting any proposal to the stockholders for their
consideration. Holders of the Company's securities should not anticipate that
the Company necessarily will furnish such holders with any documentation
concerning the proposed issuance prior to any share issuances. All
determinations (except involving a merger where the number of shares of common
stock of the Company issued will equal more than 20% of the issued and
outstanding shares of common stock of the Company prior to the transaction)
involving share issuances are in the discretion and business judgment of the
Board of Directors in their exercise of fiduciary responsibility, but require a
determination by the Board that the shares are being issued for fair and
adequate consideration.
In the future event that the Board continues to issue shares for capital,
services, or acquisitions, the present management and stockholders of the
Company most likely will not have control of a majority of the voting shares of
the Company.
16
It is likely that the Company may acquire other compatible business
opportunities through the issuance of common stock of the Company. Although the
terms of any such transaction cannot be predicted, this could result in
substantial additional dilution in the equity of those who were stockholders of
the Company prior to such issuance. There is no assurance that any future
issuance of shares will be approved at a price or value equal to or greater than
the price which a prior stockholder has paid, or at a price greater than the
then current market price. Typically, unregistered shares are issued at less
than market price due to their illiquidity and restricted nature as a result of,
among other things, the extended holding period and sales limitations which such
shares are subject to.
Schedule 14A requires the following information to be provided to
stockholders:
As to the proposed Highland transaction, stockholders are advised:
1. No securities are being registered under the
Securities Act of 1933.
2. No cash is being offered to any security holder.
3. No voting is being conducted by the security holders
of Highland Mining, Inc. However, the former shareholders of
Highland exchanged their Highland shares to the Company and
received 85,000,000 common shares which they will vote, and 2 of
such persons are directors of the Company. Highland shareholders
have the right to receive an additional 65,000,000 shares under
the Highland Acquisition Agreement.
4. Only the security holders of the Company are voting
on the proposals.
5. Summary Term Sheet: The stock for stock transaction
will have been performed fully by the Company upon the issuance
of the remaining 65,000,000 shares of common stock of
the Company. The Company has completed the share
exchange with Highland for 50% of the shares in
Highland with the issuance of 85,000,000 shares of common
stock. The issuance of the additional 65,000,000
required to perform the convenants of the Acquisition Agreement
is subject to approval of an increase is authorized shares
by the stockholders.
Contact Information:
China NetTV Holdings, Inc.
World Trade Centre, Suite 536
999 Canada Place, Vancouver
BC V6C 3E2 Canada
Attention: Maurice Tsakok
Telephone: (604) 641-1366
17
COMPANY MINERAL EXPLORATION BUSINESS
The Company believes shareholders should be informed as to how the Company
became involved in mineral exploration in Tibet, so a background exists in which
to consider the proposal.
Highland Mining Shareholders had direct or indirect rights or options to, or
interests in, 25 mineral prospects in Tibet, China, subject to terms and
conditions and regulatory requirements attached to the Rights. Highland
Shareholders, subject to terms and conditions and regulatory requirements
related to the rights, assigned these to the Company in early 2005.
The Company decided to focus exclusively on the exploration of these base and
precious metal mineral prospects in Tibet, China. The Company is seeking joint
venture partners to assist in the exploration and possible development of these
mineral prospects. Among the mineral properties, several exhibit copper,
copper/gold, and copper/molybdenum mineralization. Since its private placement
in January of 2005 has given it current working capital and liquidity, the
Company sought to investigate and rank these properties in order to plan a
comprehensive exploration program and joint venture/financial arrangement in
2005. The company raised $2.4 million in private placement to meet its working
capital requirements.
The Company sought experienced and recognized joint venture partners, and the
Company negotiated a "Property Option Agreement" with Hunter Dickinson, Inc. An
initial Agreement was reached in 2004, with Continental Minerals Corporation
("Continental"), a member of the Hunter Dickinson Group, whereby Continental has
acquired the right to earn a 60% interest in the Xietongmen gold-copper prospect
owned by Highland Mining, Inc. The Xietongmen prospect consists of porphyry-like
disseminated and quartz stockwork mineralization.
In November 2004, the terms of the original Agreement had to be modified whereby
under the terms of the Property Option Agreement, Continental has acquired
options to purchase 50% or 60% of the shares of Highland Mining Inc.
("Highland"). Under this Agreement, Continental will pay $2 million ($1.2
million on receiving regulatory approval and the balance $0.80 million after a
year of the agreement date) to the original shareholders of Highland and $5
million investment in Highland to fund exploration of the property. Of this,
prospect expenditures of $3 million must be funded by November 9, 2005 with a
further $2 million of prospect expenditures funded by November 9, 2006.
Continental can then increase its interest in Highland to 60% within the
following year through investment of an additional $3 million in Highland to
fund the exploration. In the event that Continental exercises its options to
acquire the additional 10% shareholding of Highland, the Company's shareholding
will be reduced to 40%. As of date hereof, for accounting purposes, Highland is
treated as a 50% owned subsidiary.
Continental assembled its exploration team, and, with the drilling contractor
visited the Xietongmen Copper-Gold property in December 2004. Subsequently,
Continental made preparation for a Phase I, 25-hole drilling program, comprising
8,000 meters commenced during the first quarter of 2005. This program continues
in late 2005.
The Xietongmen joint venture agreement of Highland with Continental was the
first venture. Concurrently, the Company is reviewing the other mineral
prospects with a view to forming similar joint venture/financial arrangements
and has some ongoing exploration efforts as set forth below. The prospects under
review represent a broad array of precious/base metal and industrial mineral
targets. The Company holds, from original Highland shareholders, a 65% interest
in each of these properties except for three properties in which the Company
retains a 100% interest.
18
Outside of the Highland Mining, Inc. venture, the Company will concentrate its
efforts in the development of mineral prospects in Tibet. Today, Chinese
authorities are making its other efforts to open up the Tibetan plateau to
large-scale mineral development in order to meet domestic demand for raw
materials. The Chinese Government is increasingly seeking foreign investment and
international co-operation to facilitate this particular aspect of their
economic policy. In order to accommodate such development, the Qinghai-Tibet
Railway, one of the regions most important new construction projects, is
expected to be completed by the end of 2006.
EMPLOYEES
As of December 1, 2005, we have four employees. The Company continues to rely on
the expertise of the officers and directors to carry out its business strategy.
The Company anticipates the need for increased administrative and other staff as
the business of the Company grows.
OPERATIONS OF CHINA NETTV HOLDINGS, INC. DURING THE PERIOD DECEMBER 2004 -
DECEMBER 2005
1. YEAR ENDED DECEMBER 31, 2004
The Company has had no operations during the fiscal year ended December 31,
2004, except its activities in cancelling the previous Honglu Agreement,
negotiating the Highland Acquisition Agreement, the option to acquire rights to
explore properties in Tibet, and the Continental Joint Venture discussed
hereinabove involving Highland Mining, Inc. The Company generated no revenue and
incurred expenses of $1,055,134 stemming from general, administrative and
consulting expenditures related to its negotiations to acquire mineral prospects
in China as compared to $698,044 for the same period of last year. The increase
was due to the increased expenses incurred including (i) consulting fees paid to
the directors and consultants for their services and (ii) legal fees incurred.
The Company expects the trend of losses to continue at an increasing rate after
the acquisition of its interest in Highland until it can achieve commercial
production on some of the mineral properties or sell some of mineral properties,
of which there can be no assurance.
Liquidity and Working Capital
As of December 31, 2004, the Company had total current assets of $903,427 and
total current liabilities of $149,535. The Company has a working capital of
$753,892 at December 31, 2004. For the year ended December 31, 2004, the Company
received $299,000 and $16,030 in cash proceeds from the exercise of 2,990,000
and 200,375 Series A and C Stock Purchase Warrants respectively, $100,000 though
the execution of a promissory note and $1,200,000 share subscription for
24,000,000 units 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 by the holders.
The Company arranged a non-brokered private placement of 48,000,000 units at
$0.05 per unit for total proceeds of $2,400,000. Half of the subscriptions were
received on December 31, 2004 and another $850,000 has been received as of
February 25, 2005. 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 acquiring mining properties in the future. A 7% finder's fee has
been paid in shares.
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.
2. OPERATIONS DURING NINE MONTH PERIOD ENDED SEPTEMBER 30, 2005
The Company had no revenues from mineral exploration 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.
19
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.
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.
MINERAL PROPERTIES/EXPLORATION EXPENDITURES -- SUMMARY
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.
20
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.
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 $1.75 million in
total on these four properties in year 2005.
The mineral properties exploration expenditures are summarized as follows:-
Percentage Total
ownership amount Amount required
upon Minimum spending spent up to to reimburse
Mineral Mineral exercise of on exploration September 30, the government upon
Priority Property types agreements required per annum 2005 commercial production
RMB US$ 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
21
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.
RECENT 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
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.
22
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
23
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
- --------------------------------------------------------------------- ---------------------------------------
(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 these 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.
The Company has had only four employees since December 2004. The Company expects
the requirements for services from external consultations, business and other
advisers, and supporting staff will increase as exploration expands. As a
result, the costs and expenses associated with its activities and operations
during the transitional period will also increase. This may change, however, if
the Company has to embark on new projects in the future or exploration is
unsuccessful in mining commencements.
24
Information as to the acquiring company:
SELECTED FINANCIAL DATA
12/31 12/31
CHINA NETTV HOLDINGS, INC. 2004 2003
- -------------------------- ---- ----
Net sales $ - $ -
Income (loss) incurred during development stage (1,844,826) (693,117)
Income (loss) per common share (0.03) (0.02)
Total assets 1,712,485 637,485
Long-term obligations and redeemable preferred
stock - -
Cash dividends declared per share - -
PRO FORMA SELECTED FINANCIAL DATA
POST TRANSACTION SEPTEMBER 30, DECEMBER 31,
2005 2004
Net sales $ - $ -
Operating income before income taxes $ (8,707,426) $(1,844,826)
Operating income from operations per
common share $ (0.05) (0.03)
Total assets $ 932,236 1,712,485
Long-term obligations and redeemable
preferred stock - -
Cash dividends declared per share - -
Note: Pro forma selected financial data assumes the acquisition was completed as of the earliest period presented.
PRO FORMA INFORMATION September 30, 2005
China Net Highland
Book value per share $(0.03) $ 2.54
Cash dividends declared per share - -
Income (loss) per share from continuing
operations $(0.05) $(4.03)
PRO FORMA FINANCIAL INFORMATION
INTRODUCTORY PARAGRAPH:
- ----------------------
BY AN AGREEMENT DATED NOVEMBER 5, 2004, CTVH AND THE SHAREHOLDERS OF HIGHLAND
ENTERED INTO AN ACQUISITION AGREEMENT. ON NOVEMBER 5, 2004, CTVH ORIGINALLY
AGREED TO ISSUE 85,000,000 SHARES AND AN AGREEMENT TO LATER ISSUE 65,000,000
SHARES TO THE SHAREHOLDERS OF HIGHLAND WHEN THE CTVH SHARE AUTHORIZATION WAS
INCREASED IN EXCHANGE FOR 50% OF THE ISSUED AND OUTSTANDING SHARES OF HIGHLAND.
CTVH ALSO AGREED TO ISSUE 9,639,000 COMMON SHARES AS A FINDER'S FEE FOR THE
TRANSACTION.
THE FOLLOWING PRO FORMA FINANCIAL RESULTS SHOWS THE HISTORICAL FINANCIAL
STATEMENTS OF CHINA NETTV HOLDINGS INC. ("CTVH"), AS OF THE LAST AUDITED BALANCE
SHEET DATE AND THE CURRENT INTERIM PERIOD, ADJUSTED AS OF THE BEGINNING OF THE
PERIODS TO REFLECT THE ADDITIONAL SHARES ISSUED ASSUMING CTVH HAD THE REQUIRED
AUTHORIZED CAPITAL TO DO SO. THE ADJUSTMENTS REFLECT ONLY THOSE ITEMS DIRECTLY
ATTRIBUTABLE TO THE TRANSACTION, HAVE A CONTINUING IMPACT AND ARE FACTUALLY
SUPPORTABLE.
25
ASSUMPTIONS:
- -----------
1. SHAREHOLDERS OF CTVH APPROVED THE INCREASE IN THE AUTHORIZED CAPITAL TO 500
MILLION COMMON SHARES.
2. CTVH ISSUED 65,000,000 COMMON SHARES PURSUANT TO THE ACQUISITION AGREEMENT.
3. CTVH ISSUED 9,639,000 COMMON SHARES AS FINDER'S FEES PURSUANT TO THE
ACQUISITION AGREEMENT.
4. THE HISTORICAL TRANSACTION RESULTED IN AN INVESTMENT IN HIGHLAND AT EQUITY.
SINCE HIGHLAND'S FINANCING AND OPERATING DECISIONS ARE CONTROLLED BY ITS
OTHER 50% OWNED ENTITY, CONTINENTAL MINERALS CORPORATION, CONTINENTAL
CONSOLIDATES HIGHLAND'S OPERATIONS IN ITS FINANCIAL STATEMENTS.
CHINA NETTV HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
September 30, 2005
(Unaudited)
Stated in U.S. dollars Historical Adjustments Pro-forma
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 908,388 $ 908,388
Prepaid expenses and other current assets 9,792 9,792
Prepaid expenses - related party 510 510
- --------------------------------------------------------------------------------------------- -------------------
Total Current Assets 918,690 918,690
Investment in Highland Mining Inc. - -
Fixed assets, net 13,546 13,546
- --------------------------------------------------------------------------------------------- -------------------
Total Assets $ 932,236 $ 932,236
============================================================================================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Accounts payables and accrued expenses $ 394,143 $ 394,143
Fair value - potential shares to be issued in excess of authorized share capital,
adjusted for changes in fair value 6,482,898 (6,482,898) -
Due to related parties 3,380 3,380
- --------------------------------------------------------------------------------------------- -------------------
6,880,421 397,523
Stockholders' Equity (Deficiency)
Common Stock : $0.001 Par Value
Authorized : 200,000,000
Issued and Outstanding : 193,596,575 193,596 74,639 268,235
Additional Paid In Capital 5,890,967 696,481 6,587,448
Agreement to issue Common Stock for acquisition cost (65,000,000 shares) - -
Agreement to issue Common Stock for finder's fee (9,639,000 shares) 771,120 (771,120) -
Accumulated other comprehensive loss (3,709) (3,709)
Accumulated deficit prior to the development stage (1,554,790) (1,554,790)
Accumulated deficit during the development stage (11,245,369) 6,482,898 (4,762,471)
- --------------------------------------------------------------------------------------------- -------------------
Total Stockholders' Equity (Deficiency) (5,948,185) 534,713
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 932,236 - $ 932,236
================================================================================================================================
26
CHINA NETTV HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
for the nine months ended September 30, 2005
(Unaudited)
Stated in U.S. dollars Historical Adjustments Pro-forma
- -----------------------------------------------------------------------------------------------------------------------------
Revenue $ - - $ -
Expenses
Exploration expenses 1,055,450 1,055,450
General and administrative 391,639 391,639
- -------------------------------------------------------------------------------- ---------------------
Operating Loss (1,447,089) (1,447,089)
Other Income and Expenses
Interest income 22,579 22,579
Equity loss (800,000) (800,000)
Accounts payable written off (18) (18)
Fair value of potential shares to be issued in excess of
authorized share capital (6,482,898) 6,482,898 -
- -------------------------------------------------------------------------------- ---------------------
(7,260,337) (777,439)
Net Loss Available to Common Stockholders $ (8,707,426) $ (2,224,528)
================================================================================ =====================
Loss per share attributable to common stockholders: $ (0.05) $ (0.01)
================ =====================
Weighted average number of common shares outstanding:
Basic and diluted 185,743,095 260,382,095
================ =====================
27
CHINA NETTV HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 2004
Stated in U.S. dollars Adjustments Pro-forma
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 900,309
Prepaid expenses and other current assets 2,287
Prepaid expenses - related party 831
- -------------------------------------------------------------------------- -------------------
Total Current Assets 903,427
Investment in Highland Mining Inc. 800,000
Fixed assets, net 9,058
- -------------------------------------------------------------------------- -------------------
Total Assets $ 1,712,485
========================================================================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payables and accrued expenses $ 47,082
Promissory note payable 100,000
Due to related parties 2,453
149,535
Stockholders' Equity
Common Stock : $0.001 Par Value
Authorized : 200,000,000
Issued and Outstanding : 142,236,575 74,639 216,875
Additional Paid In Capital 696,481 4,238,808
Subscription Received for 24,000,000 shares 1,200,000
Agreement to issue Common Stock for acquisition cost (65,000,000 shares) - -
Agreement to issue Common Stock for finder's fee (9,639,000 shares) (771,120) -
Accumulated deficit prior to the development stage (1,554,790)
Accumulated deficit during the development stage (2,537,943)
- -------------------------------------------------------------------------- -------------------
Total Stockholders' Equity 1,562,950
Total Liabilities and Stockholders' Equity - $ 1,712,485
=============================================================================================================
28
CHINA NETTV HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2004
(Audited)
Stated in U.S. dollars Historical Adjustments Pro-forma
- -----------------------------------------------------------------------------------------------------------------------------
Revenue $ - $ -
Expenses
General and administrative 1,055,134 1,055,134
Finder's fee 771,120 771,120
- --------------------------------------------------------------------------------- ---------------------
Operating Loss (1,826,254) (1,826,254)
Other Income and Expenses
Interest income 62 62
Accounts payable written off 3,453 3,453
Interest expenses (6,078) (6,078)
Loss on disposal of fixed assets (16,009) (16,009)
- --------------------------------------------------------------------------------- ---------------------
(18,572) (18,572)
- --------------------------------------------------------------------------------- ---------------------
Net Loss Available to Common Stockholders $ (1,844,826) $ (1,844,826)
================================================================================= =====================
Loss per share attributable to common stockholders: $ (0.01) $ (0.01)
======================== =====================
Weighted average number of common shares outstanding:
Basic and diluted 165,361,461 166,177,188
======================== =====================
The following is a summary of the total issued and outstanding shares of CTVH
upon completion of the Acquisition Agreement:
TOTAL ISSUED AND OUTSTANDING SHARES OF CTVH UPON COMPLETION OF THE ACQUISITION
- ------------------------------------------------------------------------------
Issued and outstanding shares as at December 1, 2005 199,585,200
Shares to the remaining shareholders pursuant
to Acquisition Agreement of Highland 65,000,000
Shares for the finder's fees in relation to
the acquisition of Highland 9,639,000
------------
Total issued and outstanding shares upon completion of
acquisition 274,235,575
============
The Company has elected to deliver this Proxy Statement together with a
copy of its latest Form 10-KSB, as amended, pursuant to Section 13a of the
Exchange Act, which, at the time of original preparation, met the requirements
of either Rule 14a-3 or Rule 14c-3.
29
The 10-QSB for the period ended September 30, 2005 is also attached hereto
in its entirety and incorporated herein by this reference.
PROPOSAL #4
PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
NAME CHANGE
The Company seeks the approval of stockholders to change the name of
the Company from its current corporate name to Great China Mining, Inc.
This requires an amendment to our Articles of Incorporation.
We believe the name change in our Articles of Incorporation is in
the best interest of our corporation to create a name which is not related to a
defunct business attempt in the technology sector in which the company may never
again engage.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NAME CHANGE.
UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED WILL BE VOTED "FOR" THE
AMENDMENT TO THE ARTICLES OF INCORPORATION.
SHAREHOLDER PROPOSALS
Shareholders are entitled to submit proposals on matter appropriate for
shareholder action consistent with regulations of the Securities and Exchange
Commission. Should a shareholder intend to present a proposal at next year's
annual meeting, it must be received by the secretary of the Company at World
Trade Centre, Suite 536, 999 Canada Place, Vancouver, BC V6C 3E2 Canada, not
later than 30 days prior to fiscal year end, in order to be included in the
Company's proxy statement and form of proxy relating to that meeting. It is
anticipated that the next annual meeting will be held in May, 2006.
Other Matters. Management knows of no business that will be presented
for consideration at the Annual Meeting other than as stated in the Notice of
Annual Meeting. If, however, other matters are properly brought before the
Annual Meeting, it is the intention of the persons named in the accompanying
form of proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
Dated: ________________, 2005
By Order of the Board of Directors
By: ----------------------------------
________________, President
30
PROXY
China NetTV Holdings Inc.
World Trade Centre, Suite 536
999 Canada Place, Vancouver
BC V6C 3E2 Canada
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 30, 2005
The undersigned hereby appoints Maurice Tsakok, with full power of
substitution, for and in the name or names of the undersigned, to vote all
shares of Common Stock of China NetTV Holdings Inc. held of record by the
undersigned at the Annual Meeting of Stockholders to be held on December 30,
2005, at 11:30 a.m., at World Trade Centre, Suite 536, 999 Canada Place,
Vancouver, Canada, and at any adjournment thereof, upon the matters described in
the accompanying Notice of Annual Meeting and Proxy Statement, receipt of which
is hereby acknowledged, and upon any other business that may properly come
before, and matters incident to the conduct of, the meeting or any adjournment
thereof. Said person is directed to vote on the matters described in the Notice
of Annual Meeting and Proxy Statement as follows, and otherwise in their
discretion upon such other business as may properly come before, and matters
incident to the conduct of the meeting and any adjournment thereof.
1. To elect directors to hold office until the next annual meeting of
stockholders or until their respective successors have been elected and
qualified:
Nominees: [Anthony Garson, Xiaojun Ma, Jing Wang, Jie Yang, and Zhi
Wang]
[_] FOR: nominees listed above (except as marked to the contrary
below).
[_] WITHHOLD authority to vote for nominee(s) specified below
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), write
the applicable name(s) in the space provided below.
- --------------------------------------------------------------------------------
2. To appoint Clancy & Co., Chartered Accountants, as the auditor for the
company for the year ensuing.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To approve the Amendment of the Articles of Incorporation to increase the
authorized capital to from 200,000,000 to 500,000,000 common shares.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To change the name of the Company to Great China Mining, Inc. or as close
thereto as is available and to authorize the Amendment of the Articles of
Incorporation.
[_] FOR [_] AGAINST [_] ABSTAIN
31
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND RETURN THIS PROXY
CARD IN THE ENCLOSED ENVELOPE.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED,
WILL BE VOTED "FOR" THE STATED PROPOSALS.
- ----------------------- ----------------------------------------
# of Shares owned Signature of Stockholder
-----------------------------------------
Printed Name
----------------------------------------
Signature if held jointly
----------------------------------------
Printed name
Dated: __________________________, 2005
IMPORTANT: If shares are jointly owned, both owners should sign. If signing as
attorney, executor, administrator, trustee, guardian or other person signing in
a representative capacity, please give your full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
32
EXHIBIT A-1
HIGHLAND MINING, INC.
(an exploration stage company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm................. A-1-2
Consolidated Balance Sheet.............................................. A-1-3
Consolidated Statement of Operations.................................... A-1-4
Consolidated Statement of Changes in Stockholders' Equity............... A-1-5
Consolidated Statement of Cash Flows.................................... A-1-6
Notes to the Consolidated Financial Statements.......................... A-1-7
A-1-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Highland Mining, Inc.
We have audited the consolidated balance sheets of Highland Mining, Inc. (an
exploration stage company) as of October 31, 2004 and December 31, 2004, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the period from June 18, 2004 (inception of the exploration
stage) to October 31, 2004, for the period from November 1, 2004 to December 31,
2004, and the cumulative period from inception of the exploration stage to
December 31, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Highland Mining, Inc. at October 31, 2004 and December 31, 2004, and the
consolidated results of its operations and its cash flows for the period from
inception of the exploration stage to October 31, 2004, for the period from
November 1, 2004 to December 31, 2004, and the cumulative period from inception
of the exploration stage to December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company has
been in the exploration stage since its inception on June 18, 2004, has limited
operations and has sustained substantial operating losses resulting in an
accumulated deficit. Unless the Company attains future profitable operations
and/or obtains additional financing, there is substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regards
to these matters are discussed in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Clancy and Co., P.L.L.C.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
October 5, 2005
A-1-2
HIGHLAND MINING, INC.
(an exploration stage company)
CONSOLIDATED BALANCE SHEETS
Stated in U.S. dollars December 31, 2004 October 31, 2004
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 93,140 $ 108,875
Prepaid expenses 1,161 52
- ------------------------------------------------------------------------------------------------------------------
Total Current Assets 94,301 108,927
Due from related party (Note 4) 39,986 51,663
Mineral property (Note 3) 1,564,797 1,565,185
- ------------------------------------------------------------------------------------------------------------------
Total Assets $1,699,084 $ 1,725,775
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $21,060 $ 11,083
Promissory note payable - related party (Note 4) - 642,474
Due to related parties (Note 4) 556,304 421,611
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 577,364 1,075,168
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 6) - -
Stockholders' Equity
Common stock : $1.00 par value, authorized: 1,000,000
Issued and outstanding: 1,000,000 1,000,000 1,000,000
Additional paid-in capital 642,474 -
Accumulated other comprehensive loss (2,676) (2,279)
Accumulated deficit during the exploration stage (518,078) (347,114)
- ------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,121,720 650,607
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,699,084 $1,725,775
==================================================================================================================
The accompanying notes are an integral part of these financial statements.
A-1-3
HIGHLAND MINING, INC.
(an exploration stage company)
CONSOLIDAED STATEMENTS OF OPERATIONS
Cumulative amounts
from inception of For the period from For the period from
the exploration November 1, 2004 to inception
Stated in U.S. dollars stage December 31, 2004 to October 31, 2004
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses
Consulting and professional $ 20,962 10,000 10,962
Exploration expenses (Note 3) 326,128 121,650 204,478
Foreign exchange loss 28,421 9,613 18,808
General and administrative 28,772 1,292 27,480
Salaries, wages and benefits 45,463 16,757 28,706
Travel expenses 72,751 12,137 60,614
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 522,497 (171,449) 351,048
Operating loss (522,497) (171,449) (351,048)
Other income - interest income 4,419 485 3,934
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (518,078) (170,964) (347,114)
==================================================================================================================================
Basic and diluted loss per share $ (0.56) (0.17) (0.39)
======================================================================
Basic and diluted weighted average shares outstanding $ 928,934 1,000,000 897,059
======================================================================
The accompanying notes are an integral part of these financial statements.
A-1-4
HIGHLAND MINING, INC.
(an exploration stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 18, 2004 (INCEPTION OF THE EXPLORATION STAGE)
TO DECEMBER 31, 2004
Common Additional Accumulated
Common Stock at Paid-In Accumulated Other
Stated in U.S. dollars Shares Par Value Capital Deficit Comp. Loss Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 18, 2004 (inception) - $ - $ - $ - $ - $ -
Common stock issued for cash at $1.00
per share on July 2, 2004 1,000,000 1,000,000 - - - 1,000,000
Net loss, inception to October 31, 2004 - - - (347,114) (2,279) (349,393)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - October 31, 2004 1,000,000 1,000,000 - (347,114) (2,279) 650,607
Cancellation of promissory note on
November - - 642,474 - 642,474
Net loss, two months period ended
December 31, 2004 (170,964) (397) (171,361)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2004 1,000,000 $1,000,000 $ 642,474 $ (518,078) $ (2,676) $ 1,121,720
====================================================================================================================================
The accompanying notes are an integral part of these financial statements.
A-1-5
HIGHLAND MINING, INC.
(an exploration stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative amounts
from inception of For the period from For the period
the exploration November 1, 2004 to from inception to
Stated in U.S. dollars stage December 31, 2004 October 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (518,078) $ (170,964) $ (347,114)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Translation adjustments (2,676) (397) (2,279)
Cancellation of promissory note 642,474 - -
Changes in assets and liabilities:
Increase in prepaid expenses (1,161) (1,109) (52)
Increase in accounts payable and accrued expenses 21,060 9,977 11,083
- ------------------------------------------------------------------------------------------------------------------------------
Net cash flows used in operating activities 141,619 (162,493) (338,362)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Investment in mineral properties (1,564,797) 388( (1,565,185)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (1,564,797) 388 (1,565,185)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Advances - amounts to related parties 556,304 134,693 421,611
Due from related party - Honglu (39,986) 11,677 (51,663)
Proceeds from the issuance of promissory notes - - 642,474
Proceeds from the issuance of common stock 1,000,000 - 1,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities 1,516,318 146,370 2,012,422
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 93,140 (15,735) 108,875
Cash and cash equivalents - beginning of period - 108,875- -
-------------------------------------------------------------
Cash and cash equivalents - end of period $ 94,140 93,140 $ 108,875
=============================================================
Supplemental information
Cash paid for interest and income taxes - - -
=============================================================
Non-cash investing and financing activities:
Cancellation of promissory note $ 642,474 $ 642,474 -
=============================================================
The accompanying notes are an integral part of these financial statements.
A-1-6
HIGHLAND MINING INC.
(an exploration stage company)
Notes to the Consolidated Financial Statements
December 31, 2004 and October 31, 2004
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
1. Nature of Business and Going Concern
Highland Mining Inc. (the "Company") was duly incorporated on June 18, 2004
under the laws of the British Virgin Islands ("BVI") with an authorized capital
of 1,000,000 shares at a par value of $1 each. Its principal business activity
is the exploration of mineral properties located in Tibet, People's Republic of
China ("China") through its wholly-owned subsidiary, Tibet Tian Yuan Minerals
Exploration Ltd. ("Tian Yuan"), which was incorporated on April 7, 2004 under
the laws of Tibet, China. Tian Yuan received permission to operate as a wholly
owned foreign enterprise ("WOFE") on August 20, 2004 and commenced active
business on that date.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States, which contemplate
continuation of the Company as a going concern. However, the Company has limited
operations and has sustained substantial operating losses since inception. In
view of these matters, realization of a major portion of the assets in the
accompanying balance sheets 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.
The Company's efforts have been concentrated in expenditures related to
exploration of mineral properties. The Company has not determined whether the
properties contain ore reserves that are economically recoverable. The ultimate
realization of the Company's exploration activities is dependent upon the
success of future sales, the existence of economically recoverable reserves, the
ability of the Company to obtain financing or make other arrangements for
exploration, and upon future profitable production, which cannot be determined
at this time. Accordingly, no provision for any asset impairment that may
result, in the event the Company is not successful in its exploration
activities, has been made in the accompanying financial statements.
To meet these objectives, the founding shareholders of the Company signed an
Option Agreement with Continental Minerals Corporation ("KMK"), a company listed
on the Toronto Venture Exchange under the trading symbol "KMK" and China NetTV
Holding Inc. ("CTVH"), a company listed on the Nasdaq OTCBB under the trading
symbol "CTVH" in November 2004 to induce funds into the Company for exploration
purposes. (See Note 4 for details)
Management believes its concessions can ultimately be sold or developed to
enable the Company to continue its operations. However, there are inherent
uncertainties in mining operations and management cannot provide assurances that
it will be successful in this endeavor. Furthermore, the Company is in the
exploration stage, as it has not realized any revenues from its planned
operations.
2. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, after elimination of
intercompany accounts and transactions. The wholly-owned subsidiary of the
Company is listed in Note 1.
A-1-7
Accounting method - The financial statements are prepared under the accrual
method of accounting.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk - The Company's mineral exploration activities are
located in Tibet and its inability to locate a commercially minable reserve
would have a significant, financially disruptive effect on the operations of the
Company.
Cash and cash equivalents - The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents. The balances at October 31, 2004 and December 31, 2004 consisted of
cash only.
Revenue Recognition Policy - The Company recognizes revenue when there is a
mutually executed contract, the contract price is fixed and determinable,
delivery of the product has occurred, and collectibility of the contract price
is considered probable. There have been no recognized revenues since inception.
Impairment or Disposal of Long-lived Assets - The Company reports the impairment
of long-lived assets and certain identifiable intangibles in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-lived Assets". Certain long-lived assets and
identifiable intangibles held by the Company are reviewed for impairment
whenever assets or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Accordingly, an impairment loss is recognized in
the period it is determined. A component of an entity that is classified as held
for sale or that has been disposed of is presented as a discontinued operation
if the operations and cash flows of the component will be (or have been)
eliminated from the ongoing operations of the entity and the entity will not
have any significant continuing involvement in the operations of the component.
Exploration Stage Activities - The Company has been in the exploration stage
since its inception and has no revenues from operations. The Company is
primarily engaged in the acquisition and exploration of mineral reserves. Should
the Company locate a commercially minable reserve, the Company would expect to
actively prepare the site for extraction.
Mineral property and exploration costs - Acquisition costs of mineral properties
are capitalized until the property is placed into production, sold, or abandoned
or management has determined that there have been an impairment in value.
Mineral properties are periodically assessed for impairment of value and any
diminution in value is charged to operations at the time of impairment. Should a
property be abandoned, its unamortized capitalized costs are charged to
operations. The Company charges to operations the allocable portion of
capitalized costs attributable to properties sold. Capitalized costs are
allocated to properties abandoned or sold based on the proportion of claims
abandoned or sold to the claims remaining within the project area. These costs
will be amortized on a unit-of-production basis over the estimated useful life
of the related properties following the commencement of production, or written
off if the property is sold, allowed to lapse or abandoned. Mineral property
acquisition costs include the cash consideration and the estimated fair market
value of common shares on the date of issue or as otherwise provided under the
agreed terms for the mineral property interest. Exploration expenses incurred
prior to the determination of the feasibility of mining operations and periodic
option payments are expensed as incurred. Revenues from the sale of mineral
properties which are sold before the property reaches the production stage are
credited against the cost of the property. (See Note 3)
Advertising costs - Advertising costs are expensed as incurred. There were no
advertising costs for the periods presented.
A-1-8
Research and development costs - Research and development costs are charged to
expense as incurred.
Income taxes - The Company accounts for income taxes under the provisions of
SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income
tax assets and liabilities are computed for differences between the financial
statements and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future, based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Provision for income taxes consists of taxes currently due plus
deferred taxes. There are no deferred taxes or provision for income taxes for
any of the periods presented. Valuation allowances are established when
necessary to reduce deferred income tax assets to the amount expected to be
realized.
The Company is not subject to any income tax as it is duly organized as a BVI
Company. The Company through its wholly-owned subsidiary, Tian Yuan, is governed
by the Income Tax Law of the People's Republic of China ("PRC") concerning
Foreign Investment Enterprises ("FIEs") and Foreign Enterprises and various
local income tax laws (the "Income Tax Laws").
Under the Income Tax Laws, FIEs generally are subject to an income tax at an
effective rate of 33% (30% state income taxes plus 3% local income taxes) on
incomes reported in the statutory financial statements after appropriate tax
adjustments, unless the enterprise is located in a specially designated region
for which more favorable effective tax rates are applicable at a reduced rate of
15%. Tian Yuan operates as a WOFE in the PRC and is exempted from income taxes
in the first and second years and allowed a fifty percent reduction in the
standard tax rates in the third to fifth years. The Company is not subject to
any local income tax of 3% until the exemption and reduction periods expire in
2009. Ultimately, for Chinese income tax purposes, the tax position of the
Company must be approved by the appropriate Chinese taxing authority.
Foreign currency translations - Monetary assets and liabilities denominated in
foreign currencies are translated at the exchange rate in effect at the balance
sheet date and non-monetary assets and liabilities at the exchange rates in
effect at the time of acquisition or issue. Revenues and expenses are translated
at the average exchange rate in effect during the period or at the historical
rate for the related non-monetary asset or liability. Realized and unrealized
foreign exchange gains and losses are included in earnings.
The consolidated financial statements are presented in U.S. dollars and the
functional currency of Tian Yuan is Chinese Renminbi ("RMB"). The assets and
liabilities of Tian Yuan are translated into U.S. dollars at period-end exchange
rates and resulting translation adjustments are reflected as a separate
component of stockholders' equity. Revenues and expenses of Tian Yuan are
translated at exchange rates in effect on the transaction dates. Transaction
gains or losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
consolidated statement of operations of Tian Yuan as they occur.
Fair value of financial instruments - For certain of the Company's financial
instruments, including cash and cash equivalents, prepaid expenses, accounts
payable and other accrued liabilities, and due from related parties, the
carrying amounts approximate fair value due to their short maturities.
Earnings per share - Basic earnings or loss per share ("EPS") is computed by
dividing net loss (numerator) by the weighted average number of common shares
outstanding (denominator). Diluted EPS is computed by dividing net loss
(numerator) by the weighted average number of common shares outstanding plus
dilutive common stock equivalents, for which there were none for any of the
periods presented. All per share and per share information are adjusted
retroactively to reflect stock splits and changes in par value.
Stock-based compensation - The Company accounts for stock-based compensation
using the fair value method prescribed in SFAS No.123, "Accounting for
A-1-9
Stock-Based Compensation," and SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amending FASB No. 123, and "Accounting
for Stock-Based Compensation". SFAS No. 148 amends Statement No. 123 to provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation.
SFAS No. 148 amends APB Opinion No. 28 "Interim Financial Reporting" to require
disclosure about those effects in interim financial information. The adoption of
SFAS No. 148 has no impact on the Company. As of October 31, 2004 and December
31, 2004, the Company did not have any stock option plan or outstanding options.
Comprehensive income - The Company includes items of other comprehensive income
(loss) by their nature, such as translation adjustments, in the financial
statements and displays the accumulated balance of other comprehensive income
(loss) separately from accumulated deficit and additional paid-in capital in the
equity section of the balance sheet. The Company discloses total comprehensive
loss, its components and accumulated balances on its statement of stockholders'
equity.
Related party transaction - A related party is generally defined as (i) any
person that holds 10% or more of the Company's securities and their immediate
families, (ii) the Company's management, (iii) someone that directly or
indirectly controls, is controlled by or is under common control with the
Company, or (iv) anyone who can significantly influence the financial and
operating decisions of the Company. A transaction is considered to be a related
party transaction when there is a transfer of resources or obligations between
related parties.
Recent Accounting Pronouncements - The Financial Accounting Standards Board
issued the following pronouncements during 2004, none of which are expected to
have a significant affect on the Company's consolidated financial statements:
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs (An Amendment
of ARB No. 43, Chapter 4)". SFAS 151 amends and clarifies financial accounting
and reporting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). The Company has adopted the provisions of
SFAS No. 151 which are effective in general for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of this statement does
not affect the Company.
In December 2004, the FASB issued a revision of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123R). SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. SFAS 123R establishes
standards for the accounting for transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. SFAS 123R does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
SFAS 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." SFAS 123R is effective for interim
reporting period that begins after June 15, 2005. The Company is in the process
of determining the effect of the adoption of SFAS 123R will have on its
financial position, results of operations, or cash flows.
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67,"
which discusses the accounting and reporting of real estate time-sharing
transactions. This Statement is effective for financial statements for fiscal
A-1-10
years beginning after June 15, 2005, and restatement of previously issued
financial statements is not permitted. This statement does not affect the
Company.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- - an amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged and provided an exception to the basic measurement
principle (fair value) for exchanges of similar productive assets. That
exception required that some nonmonetary exchanges, although commercially
substantive, be recorded on a carryover basis. This Statement eliminates the
exception to fair value for exchanges of similar productive assets and replaces
it with a general exception for exchange transactions that do not have
commercial substance--that is, transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. The provisions of
this Statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005, applied prospectively. This statement
does not affect the Company.
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 SFAS No. 154 does not have any impact on the Company's
financial statements.
3. Mineral Property
On September 20, 2004, the Company acquired Tian Yuan for a cash payment of
$1,600,000 (RMB13222880), which holds the exploration permit of Xietongmen
Copper-Gold Property in Tibet, China. Title to mining properties involves
certain inherent risks due to the difficulties in determining the validity of
certain claims as well as the potential for problems arising from the often
complicated conveyancing history characteristic of many mining properties. The
Company does not have title insurance but has investigated title to all of its
mineral properties and, to the best of its knowledge and belief, titles to all
of its properties are in good standing.
RMB USD
-------------------- -------------------
Balance, beginning of period $ - -
Acquired during the period 12,953,616 1,565,185
-------------------- -------------------
Balance - October 31, 2004 $ 12,953,616 1,565,185
==================== ===================
Balance, beginning of period $ - -
Acquired during the period 12,953,616 1,564,797
Balance - December 31, 2004 $ 12,953,616 1,564,797
==================== ===================
The Company incurred the following exploration expenses in the Xietongmen
Copper-Gold Property:
Cumulative amounts
For the period from For the period from from inception of
inception to October November 1, 2004 to the exploration
31, 2004 December 31, 2004 stage
------------------------ ------------------------ ----------------------
Exploration expenses:
Assay and analysis $ 12,326 3,967 16,293
Storage and handling/shipping 7,023 1,646 8,669
Drill contractor 792 91,895 92,687
Rentals/leases 1,772 754 2,526
Geological services and supplies 9,107 146 9,253
Geological wages 113,062 11,030 124,092
Geological director salaries 5,261 1,827 7,088
Freight - 31 31
Graphics mapping wages 4,229 68 4,297
Graphics services 986 592 1,578
Field supplies 32,243 7,055 39,298
Site contractors 17,677 2,639 20,316
------------------------ ------------------------ ----------------------
$ 204,478 121,650 326,128
======================== ======================== ======================
A-1-11
4. Related Party Transactions
(a) For the periods from inception to October 31, 2004, November 1, 2004
to December 31, 2004, and cumulative amounts from inception to
December 31, 2004, the Company incurred $25,139, $16,767, and $41,906,
respectively, for management services provided by an ex-shareholder
and ex-director of the Company. As of December 31, 2004 and October
31, 2004, the Company has amounts of $41,906 and $25,139 respectively
due to the ex-shareholder and ex-director of the Company.
As of October 31, 2004, the Company issued a promissory note to an
ex-shareholder and ex-director of the Company for an advance of
$642,474. In November 2004, the ex-shareholder and ex-director agreed
to waive the amount due to him and the amount $642,474 is recorded as
a contribution (additional paid-in capital) of the Company.
(b) As of December 31, 2004 and October 31, 2004, the Company had an
amount of $17,775 and $32,867 payable to four ex-directors of Tian
Yuan. The amounts were non-interest bearing and had no specific terms
of repayment.
(c) As of December 31, 2004 and October 31, 2004, the Company has amounts
of $496,623 and $363,605, respectively, payable to N8C Resources Inc.
("N8C"). N8C is incorporated in the Cayman Islands and is a
wholly-owned subsidiary of KMK. Through N8C, KMK may earn up to a 60%
interest in the Company, as described below. N8C has certain directors
in common with the Company and provides geological, technical,
corporate development, administrative and management services to, and
incurs third party costs on behalf of, the Company. The amounts due to
N8C were advanced by N8C to the Company to enable the Company to
conduct its exploration program at the Xietongmen Property. These
amounts bear interest at LIBOR plus 2% per annum, compounded monthly
effective from April 15, 2005. Half of these amounts will be assigned
to CTVH and the remaining half of these amounts will be assigned to
CTVH at a nominal amount in the event that N8C or KMK abandons the
Xietongmen exploration program.
(d) As of December 31, 2004 and October 31, 2004, the Company had amounts
of $39,986 and $51,663, respectively, due from Honglu Investment
Holdings Limited, which has directors in common with CTVH.
(e) The founding shareholders of the Company signed an Option Agreement
with Continental Minerals Corporation ("KMK"), a company listed on the
Toronto Venture Exchange under the trading symbol "KMK" and China
NetTV Holding Inc. ("CTVH"), a company listed on the Nasdaq OTCBB
under the trading symbol "CTVH" in November 2004. Under the Option
Agreement, KMK acquired options to earn up to 60% of the equity
interest of the Company, which owns 100% of the Xietongmen Copper-Gold
Property located approximately 240 kilometers southwest of Lhasa in
Tibet, China, through its wholly owned subsidiary, Tian Yuan.
KMK can earn an initial 50% equity interest in the Company ("Tranche
One") by making an initial payment of $2 million comprising $1.2
million upon receipt of regulatory approvals (paid in December 2004)
and $0.8 million balance within one year to the founding shareholders
of the Company, and spending a further $5 million for exploration of
the Xietongmen Copper-Gold Property. Of this, exploration expenditures
of $3 million are to be spent by November 9, 2005 with a further $2
million of exploration expenditures to be spent by November 9, 2006.
Upon acquisition of 50% of the Company, KMK can increase its interest
in the Company to 60% ("Tranche Two") by spending a further $3 million
in the exploration of the Xietongmen Copper-Gold Property within the
ensuing year, i.e. November 9, 2007.
A-1-12
The founding shareholders also sold the remaining 50% of the equity
interest of the Company to CTVH in exchange for 85,000,000 of common
shares of CTVH from treasury and an agreement to issue 65,000,000 of
the common shares of CTVH. In the event KMK exercises its options to
increase the ownership in the Company to 60% by fulfilling the terms
and conditions mentioned above, CTVH will relinquish 10% of its equity
interest in the Company.
Under the Shareholders Agreement dated December 23, 2004, KMK will
manage the Company and Tian Yuan during the option period. Once the
option is exercised, further funding of the Company will 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 any party's shareholdings in the Company
fall below 15%, it may elect to convert its holdings to an entitlement
of 12.5% of the after pay-back profit of the Company.
5. Segmented Information
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operation decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance.
The Company's only operating segment is mineral exploration and its operations
are centralized whereby the Company's head office is responsible for the
exploration results and providing support in addressing local and regional
issues. The Company's two geographic segments are BVI and China and the
following represents the segment information for the periods presented:
From inception to December 31, 2004 BVI China Total
- ---------------------------------------------------- -- ------------------- ----------------- -----------------
Loss for the period $ 519,047 (969) 518,078
Interest revenue $ 3,450 969 4,419
Interest expense $ - - -
Mineral property interest $ - 1,564,797 1,564,797
Total assets $ 82,533 1,616,551 1,699,084
From November 1, to December 31, 2004 BVI China Total
- ---------------------------------------------------- -- ------------------- ----------------- -----------------
Loss for the period $ 171,438 (474) 170,964
Interest revenue $ 11 474 485
Interest expense $ - - -
Mineral property interest $ - 1,564,797 1,564,797
Total assets $ 82,533 1,616,551 1,699,084
From inception to October 31, 2004 BVI China Total
- ---------------------------------------------------- -- ------------------- ----------------- -----------------
Loss (profit) for the period $ 347,609 (495) 347,114
Interest revenue $ 3,439 495 3,934
Interest expense $ - - -
Mineral property interest $ - 1,565,185 1,565,185
Total assets $ 94,571 1,631,204 1,725,775
6. Commitments, Obligations and Contingencies
(1) According to an agreement with the local Chinese authority, the Company has
agreed to pay RMB120000 ($14,496) in the mid of year 2005 in the form of three
motor vehicles in lieu of the payment of land compensation fees. The Company met
its obligation in May 2005.
A-1-13
(2) The Company's mining activities are subject to laws and regulations
controlling not only the exploration and mining of mineral properties, but also
the effect of such activities on the environment. Compliance with such laws and
regulations may necessitate additional capital outlays, affect the economics of
a project, and cause changes or delays in the Company's activities. For
exploration license renewal purpose, the Company has to incur a minimum of
RMB129100 ($15,596) per annum on exploration activities at the Xietongmen
Copper-Gold Property.
A-1-14
EXHIBIT B-1
CHINA NETTV HOLDINGS INC.
INDEX TO FINANCIAL STATEMENTS AND MD&A
Report of Independent Registered Public Accounting Firm...................B-1-2
Balance Sheet.............................................................B-1-3
Statement of Operations...................................................B-1-4
Statement of Changes in Stockholders' Equity..............................B-1-5
Statement of Cash Flows...................................................B-1-9
Notes to the Financial Statements.........................................B-1-11
Management's Discussion and Analysis......................................B-1-23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of China NetTV Holdings Inc.
We have audited the balance sheet of China NetTV Holdings Inc. (a development
stage company) (a Nevada corporation) as of December 31, 2004, and the related
statement of operations, changes in stockholders' equity and cash flows for the
years ended December 31, 2004 and 2003, and the cumulative amounts from
inception of the development stage (July 1, 2003) to December 31, 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of China NetTV Holdings Inc. at
December 31, 2004, and the results of its operations and its cash flows for the
years ended December 31, 2004 and 2003, and the cumulative amounts from
inception of the development stage to December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.
As described in Note 2 to the financial statements, the December 31, 2004,
financial statements have been restated.
As discussed in Note 1 to the financial statements, the Company entered the
development stage in July 1, 2003, and has incurred significant losses both
prior to and during the development stage resulting in a significant accumulated
deficit. Unless the Company attains future profitable operations and/or obtains
additional financing, there is substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regards to these matters are
discussed in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Clancy and Co., P.L.L.C.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
February 25, 2005, except for Note 2 and Note 10, as to which the date is as of
October 5, 2005 and October 11, 2005, respectively
B-1-2
CHINA NETTV HOLDINGS INC.
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31, 2004
Stated in U.S. dollars
- ------------------------------------------------------------------------------------------------------------------
ASSETS (Restated)
Current Assets
Cash and cash equivalents $ 900,309
Prepaid expenses and other current assets 2,287
Prepaid expenses - related party 831
---------------------
Total Current Assets 903,427
Investment - at equity (Note 2) 800,000
Fixed assets, net (Note 3) 9,058
---------------------
Total Assets $ 1,712,485
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 47,082
Promissory note payable - related party (Note 4) 100,000
Due to related parties 2,453
---------------------
Total current liabilities 149,535
---------------------
Commitments and contingencies (Notes 2, 9 and 10) -
Stockholders' Equity
Common stock : $0.001 par value, authorized: 200,000,000
Issued and outstanding: 142,236,575 shares 142,236
Additional paid-in capital 3,542,327
Common stock subscription received (Note 8) 1,200,000
Agreement to issue common stock for acquisition cost (65,000,000 shares) (Note 2) -
Agreement to issue common stock for finder's fee (9,639,000 shares) (Note 2) 771,120
Accumulated deficit prior to the development stage (1,554,790)
Accumulated deficit during the development stage (2,537,943)
---------------------
Total Stockholders' Equity 1,562,950
---------------------
Total Liabilities and Stockholders' Equity $ 1,712,485
=====================
The accompanying notes are an integral part of these financial statements.
B-1-3
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003, AND
CUMULATIVE AMOUNTS FROM INCEPTION (JULY 1, 2003)
TO DECEMBER 31, 2004
Cumulative
Stated in U.S. dollars From Inception 2004 2003
(Restated) (Restated)
- ------------------------------------------------------------------------------------------------------------------------
Revenues $ - $ - $ -
General and administrative expenses 1,744,695 1,055,134 698,044
Finder's fee 771,120 771,120 -
------------------------------------------------------------
Operating loss (2,515,815) (1,826,254) (698,044)
Other expenses
Interest income 62 62 -
Accounts payable written off 3,453 3,453 -
Loss on disposal of fixed assets (16,009) (16,009) -
Interest expense (9,634) (6,078) (10,048)
------------------------------------------------------------
Total other expenses (22,128) (18,572) (10,048)
------------------------------------------------------------
Provision for income taxes - - -
------------------------------------------------------------
Net loss available to common stockholders $ (2,537,943) $ (1,844,826) $ (708,092)
Net loss incurred prior to the development stage (Restated) - - $
(14,975)
Net loss incurred during the development stage (Restated) $ (2,537,943) $ (1,844,826) $ (693,117)
-----------------------------------------------------------
============================================================
Basic and diluted loss per share $ (0.03) $ (0.02)
=========================================
Weighted average common shares outstanding (Restated) 57,805,857 43,058,972
=========================================
The accompanying notes are an integral part of these financial statements.
B-1-4
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FROM INCEPTION (JULY 1, 2003) TO DECEMBER 31, 2004
Accumulated Accumulated
Deficit Deficit Agreement
Common Additional Common stock prior to during to issue
Common Stock 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 into
escrow 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) - - - - -
Comprehensive loss:
Net loss, two months ended
August 31, 2003 - - - - - (312,248) - (312,248)
Compensation cost - stock options - - 210,000 - - - -
(210,000)
-------------------------------------------------------------------------------------------------
Balance, August 31, 2003 141,985,200 141,985 1,470,263 - (1,554,790) (312,248) - (254,790)
The accompanying notes are an integral part of these financial statements.
B-1-5
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FROM INCEPTION (July 1, 2003) TO DECEMBER 31, 2004
Accumulated Accumulated
Deficit Deficit Agreement
Common Additional Common stock prior to during to issue
Common Stock 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
Comprehensive loss:
Net loss, four months ended
December 31, 2003 - - - - - (380,869) - (380,869)
------------------------------------------------------------------------------------------------
Balance, December 31, 2003 158,585,200 158,885 2,431,163 - (1,554,790) (693,117) - 341,841
Exercise of Series A stock purchase
warrants at $0.10 per share on
January 6, 2004 50,000 50 4,950 - - - - 5,000
Exercise of Series A stock purchase
B-1-6
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FROM INCEPTION (July 1, 2003) TO DECEMBER 31, 2004
Accumulated Accumulated
Deficit Deficit Agreement
Common Additional Common stock prior to during to issue
Common Stock 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)
- ------------------------------------------------------------------------------------------------------------------------------------
warrants at $0.10 per share 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 at $0.10 per share on
April 28, 2004 - related party 2,800,000 2,800 277,200 - - - - 280,000
Exercise of Series C stock purchase
warrants at $0.08 per share on
October 1, 2004 200,375 200 15,830 - - - - 16,030
Cancellation of common stock issued
in escrow for acquisition costs
(97,700,000 Shares), finder's
fee (6,839,000 Shares) on July
23, 2003 And legal costs
(2,800,000 shares) on April 28,
2004 (139,339,000) (139,339) (140,661) - - - - (280,000)
Issuance of common stock for the
partial acquisition of Highland
Mining Inc. at historical cost
on December 29, 2004
(85,000,000 shares) 85,000,000 85,000 715,000 - - - - 800,000
The accompanying notes are an integral part of these financial statements.
B-1-7
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FROM INCEPTION (July 1, 2003) TO DECEMBER 31, 2004
Accumulated Accumulated
Deficit Deficit Agreement
Common Additional Common stock prior to during to issue
Common Stock 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 Agreement To Issue
Common
Stock (65,000,000 shares) for
acquisition of Highland Mining,
Inc. - - - - - - - -
Issuance of agreement to issue
common
stock for finder's fee on acqui-
sition of Highland Mining Inc.
for 9,639,000 shares at $0.08
per share on December 29, 2004 - - - - - - 771,120 -
Legal fees incurred for issuance
of common stock on December 29,
2004 in connection with the
partial acquisition of Highland
Mining Inc. - - (20,215) - - - - (20,215)
Subscription received on December
31, 2004 for private placement
of 24,000,000 shares at $0.05 - - - 1,200,000 - - - 1,200,000
Comprehensive loss:
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
====================================================================================================================================
The accompanying notes are an integral part of these financial statements.
B-1-8
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003, AND
CUMULATIVE AMOUNTS FROM INCEPTION (JULY 1, 2003)
TO DECEMBER 31, 2004
Cumulative
Stated in U.S. dollars from inception 2004 2003
(Restated) (Restated)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (2,537,943) $ (1,844,826) $ (708,092)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 17,624 13,004 4,620
Compensation cost - stock options 220,000 220,000
Common stock issued for expenses 771,120 771,120 -
Accounts payable written off (3,453) (3,453) -
Loss on disposal of fixed assets 16,009 16,009 -
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses (2,287) (1,593) (694)
(Increase) decrease in prepaid expenses - related party (831) 28,154 (28,985)
(Increase) decrease in security deposit - 6,128 (6,128)
Increase (decrease) in accounts payable and accrued
expenses (16,323) (24,439) 4,939
Increase (decrease) in accrued expenses - related party - (78,000) 78,000
-------------------------------------------------------------
Net cash flows used in operating activities (1,536,084) (1,117,896) (436,340)
Cash flows from investing activities
Capital expenditures (45,269) (2,061) (43,208)
Proceeds from disposal of fixed assets 44,525 44,525 -
-------------------------------------------------------------
Net cash flows used in investing activities (744) 42,464 (43,208)
Cash flows from financing activities
Advances (repayments) - amounts due from related parties (93,540) (100,018) 24,263
Principal payments - installment loans payable (52,230) (50,130) (2,100)
Cash received under promissory note payable - related party 100,000 100,000 -
Proceeds from the issuance of common stock 1,282,530 315,030 967,500
Proceeds from subscription received 1,200,000 1,200,000 -
-------------------------------------------------------------
Net cash flows provided by financing activities 2,436,760 1,464,882 989,663
-------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 899,932 389,450 510,115
Cash and cash equivalents - beginning of period 377 510,859 744
-------------------------------------------------------------
Cash and cash equivalents - end of period $ 900,309 $ 900,309 $ 510,859
=============================================================
Supplemental information Cash paid for:
Interest $ 6,239 $ 6,078 $ 343
=============================================================
Income taxes - - -
=============================================================
The accompanying notes are an integral part of these financial statements.
B-1-9
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003, AND
CUMULATIVE AMOUNTS FROM INCEPTION (JULY 1, 2003)
TO DECEMBER 31, 2004
Cumulative
Stated in U.S. dollars from inception 2004 2003
(Restated) (Restated)
- ------------------------------------------------------------------------------------------------------------------------------
Non-cash investing and financing activities:
Common stock issued for acquisition of Highland Mining Inc. $ 800,000 $ 800,000 -
=============================================================
Agreement To Issue Common Stock issued for acquisition of Highland
Mining Inc. $ - $ - -
=============================================================
Agreement To Issue Common Stock issued for finder's fee paid for
acquisition of Highland Mining Inc. $ 771,120 $ 771,120 -
=============================================================
The accompanying notes are an integral part of these financial statements.
B-1-10
CHINA NETTV HOLDINGS INC.
CHINA NETTV HOLDINGS INC.
(a Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Basis of Presentation
China NetTV Holdings Inc. ("the Company") was incorporated under the laws of the
State of Nevada on September 15, 1998, under the name "Vancouver's Finest Coffee
Company," with an authorized capital of 200,000,000 shares of $0.001 par value
common stock. On May 30, 2000, the name was changed to China NetTV Holdings Inc.
On November 28, 2003, the Company's board of directors voted to abandon the
Company's inactive subsidiary, China NetTV Inc. with immediate effect. There
were no assets or liabilities in this inactive subsidiary.
The Company was originally organized for the purpose of marketing retail
specialty coffee. The Company later changed its business direction to the
operations of digital technology in May 2000 and then to the acquisition of
interests in mineral properties on or about July 1, 2003 (See Notes 2 and 8), at
which date the Company entered the development stage. On December 1, 2003, the
Company changed its fiscal year end from August 31 to December 31.
The Company is a development stage company as defined by Financial Accounting
Standards Board No. 7. 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 has arranged to raise $2,400,000 pursuant
to a non-brokered private placement of 48,000,000 shares of common stock at
$0.05 per share. (See Notes 8 and 10) 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.,
which has certain rights or options to, or interests in 25 mineral properties in
Tibet, China. (See Note 2) 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.
Summary of Significant Accounting Policies
Accounting method - The financial statements are prepared under the accrual
method of accounting.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents - The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
B-1-11
Fixed assets - Fixed assets, stated at cost, are depreciated over the asset's
estimated useful life, ranging from three to five years. Significant
improvements and betterments are capitalized where it is probable that the
expenditure resulted in an increase in the future economic benefits expected to
be obtained form the use of the asset beyond its originally assessed standard of
performance. Routine repairs and maintenance are expensed when incurred. Gains
and losses on disposal of fixed assets are recognized in the statement of
operations based on the net disposal proceeds less the carrying amount of the
assets.
Impairment or Disposal of Long-lived Assets - The Company reports the impairment
of long-lived assets and certain identifiable intangibles in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-lived Assets". Certain long-lived assets and
identifiable intangibles held by the Company are reviewed for impairment
whenever assets or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Accordingly, an impairment loss is recognized in
the period it is determined. A component of an entity that is classified as held
for sale or that has been disposed of is presented as a discontinued operation
if the operations and cash flows of the component will be (or have been)
eliminated from the ongoing operations of the entity and the entity will not
have any significant continuing involvement in the operations of the component.
Advertising costs - Advertising costs are expensed as incurred. There were no
advertising costs for the periods presented.
Offering costs - Costs directly attributable to any proposed or actual offering
of securities are charged against the gross proceeds of the offering. Costs of
an aborted offering are expensed.
Revenue recognition - Revenue is recognized on the sale and delivery of a
product or the completion of a service rendered.
Income taxes - The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred income tax assets and liabilities
are computed for differences between the financial statements and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future, based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established when necessary, to reduce deferred income tax assets to the amount
expected to be realized.
Foreign currency translations - The assets and liabilities of the Company's
foreign operations are generally translated into U.S. dollars at current
exchange rates, and revenues and expenses are translated at average exchange
rates for the year. Resulting translation adjustments are reflected as a
separate component of stockholders' equity. Transaction gains and losses that
arise from exchange rate fluctuations on transactions denominated in a currency
other than the functional currency, except those transactions which operate as a
hedge of an identifiable foreign currency commitment or as a hedge of a foreign
currency investment position, are included in the results of operations as
incurred.
Fair value of financial instruments - For certain of the Company's financial
instruments, including cash and cash equivalents, prepaid expenses, accounts
payable and other accrued liabilities, and promissory notes payable, the
carrying amounts approximate fair value due to their short maturities.
Earnings per share - Basic earnings or loss per share are based on the weighted
average number of common shares outstanding. Diluted earnings or loss per share
is based on the weighted average number of common shares outstanding and
dilutive common stock equivalents. Basic earnings/loss per share is computed by
dividing income/loss (numerator) applicable to common stockholders by the
weighted average number of common shares outstanding (denominator) for the
period. All earnings or loss per share amounts in the financial statements are
basic earnings or loss per share, as defined by SFAS No. 128, "Earnings Per
Share." Diluted earnings or loss per share does not differ materially from basic
earnings or loss per share for all periods presented. Convertible securities
that could potentially dilute basic earnings per share in the future such as
options and warrants are not included in the computation of diluted earnings per
share because to do so would be antidilutive. All per share and per share
information are adjusted retroactively to reflect stock splits and changes in
par value.
B-1-12
Stock-based compensation - The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation
cost for stock options, if any, is measured as the excess of the quoted market
price of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock. SFAS No.123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. The Company has elected to remain on its current method of accounting as
described above, and has adopted the disclosure requirements of SFAS No. 123. In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amending FASB No. 123, and "Accounting
for Stock-Based Compensation". This statement amends Statement No. 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 amends APB Opinion No. 28 "Interim Financial
Reporting" to require disclosure about those effects in interim financial
information. The Company adopts the disclosure provisions and the amendment to
APB No. 28 effective for interim periods beginning after December 15, 2002.
Had compensation expense for the Company's stock-based compensation plans been
determined under FAS No. 123, based on the fair market value at the grant dates,
the Company's pro forma net loss and pro forma net loss per share would have
been reflected as follows at December 31:
2004 2003
------------ ----------
Net loss
As reported $1,844,826 $ 708,092
Stock-based employee compensation cost, net of tax - 576,467
------------ -----------
Pro forma $1,844,826 $1,284,559
============ ===========
Loss per share
As reported $ 0.03 $ 0.02
============ ===========
Pro forma $ 0.03 $ 0.03
============ ===========
Comprehensive income - The Company includes items of other comprehensive income
(loss) by their nature, such as translation adjustments, in a financial
statement and displays the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. The Company discloses total comprehensive loss,
its components and accumulated balances on its statement of stockholders'
equity.
Related party transaction - A related party is generally defined as (i) any
person that holds 10% or more of the Company's securities and their immediate
families, (ii) the Company's management, (iii) someone that directly or
indirectly controls, is controlled by or is under common control with the
Company, or (iv) anyone who can significantly influence the financial and
operating decisions of the Company. A transaction is considered to be a related
party transaction when there is a transfer of resources or obligations between
related parties.
Recent Accounting Pronouncements - The Financial Accounting Standards issued the
following pronouncements during 2004, none of which are expected to have a
significant affect on the financial statements:
In March 2004, the EITF reached final consensuses on EITF 03-6 which provides
additional guidance to determine whether a security is a participating security
and therefore subject to the two-class method under SFAS 128. The guidance in
EITF 03-6 clarifies the notion of what constitutes a participating security, and
is effective for fiscal periods (interim or annual) beginning after March 31,
2004. EITF 03-06 provides guidance in applying the two-class method of
B-1-13
calculating earnings per share for companies that have issued securities other
than common stock that contractually entitle the holder to participate in any
dividends declared and earnings of the company. The opinion defines what
constitutes a participating security and how to apply the two-class method of
calculating earnings per share to those securities. In addition, the consensuses
in EITF 03-6 nullify the guidance in EITF Topic No. D-95, "Effect of
Participating Convertible Securities on the Computation of Basic Earnings Per
Share", and requires the use of the two-class method to compute basic EPS by
companies with participating convertible securities. The adoption did not have
an impact on our calculation of earnings per share.
In April 2004, the EITF reached consensus on EITF Issue No. 03-6, "Participating
Securities and the Two Class Method under FASB Statement No. 128" ("EITF 03-6").
EITF 03-6 addresses a number of questions regarding the computation of earnings
per share by companies that have issued securities other than common stock that
contractually entitle the holder to participate in the dividends and earnings of
the company when, and if, it declares dividends on its common stock. EITF 03-6
also provides further guidance in applying the two-class method of calculating
earnings per share, clarifying what constitutes a participating security and how
to apply the two-class method of computing earnings per share once it is
determined that a security is participating, including how to allocate
undistributed earnings to such a security. EITF 03-6 is effective for fiscal
periods beginning after March 31, 2004 and requires retroactive restatement of
prior earning per share amounts. This statement does not affect the Company.
In June 2004, the FASB issued EITF Issue No. 02-14, "Whether an Investor Should
Apply the Equity Method of Accounting to Investments Other Than Common Stock."
EITF Issue No. 02-14 addresses whether the equity method of accounting applies
when an investor does not have an investment in voting common stock of an
investee but exercises significant influence through other means. EITF Issue No.
02-14 states that an investor should only apply the equity method of accounting
when it has investments in either common stock or in-substance common stock of a
corporation, provided that the investor has the ability to exercise significant
influence over the operating and financial policies of the investee. The
accounting provisions of EITF Issue No. 02-14 are effective for the reporting
period beginning after September 15, 2004. The Company is in the process of
determining the effect, if any, of the adoption of EITF Issue No. 02-14 will
have on the Company's financial position, results of operations, or cash flows.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4." The amendments made by SFAS No. 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after November 23, 2004. The
Company does not believe the adoption of SFAS No. 151 will have a material
impact on our financial position, results of operations or cash flows.
In December 2004, the FASB issued a revision of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123R). SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. SFAS 123R establishes
standards for the accounting for transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. SFAS 123R does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
SFAS 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." SFAS 123R is effective for interim
reporting period that begins after June 15, 2005. The Company is in the process
of determining the effect of the adoption of SFAS 123R will have on its
financial position, results of operations, or cash flows.
B-1-14
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67,"
which discusses the accounting and reporting of real estate time-sharing
transactions. This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005, and restatement of previously issued
financial statements is not permitted. This statement does not affect the
Company.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- - an amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged and provided an exception to the basic measurement
principle (fair value) for exchanges of similar productive assets. That
exception required that some nonmonetary exchanges, although commercially
substantive, be recorded on a carryover basis. This Statement eliminates the
exception to fair value for exchanges of similar productive assets and replaces
it with a general exception for exchange transactions that do not have
commercial substance--that is, transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. The provisions of
this Statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005, applied prospectively. This statement
does not affect the Company.
NOTE 2 - INVESTMENT IN HIGHLAND MINING INC. / CORRECTION OF ERROR - RESTATEMENT
Background of transaction
On November 5, 2004, the Company and shareholders of Highland Mining Inc.
("Highland") entered into a binding 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 as hereinafter set forth:
1. If Highland Shareholders are unable to enter into a binding agreement on a
share purchase and sale transaction (the "Definitive Agreement") with
Continental Minerals Corporation ("Continental", assignee of the option
agreement with Hunter Dickinson, Inc. and 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 properties (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
agree to transfer and assign, or shall cause to be transferred and assigned, to
the Company the Additional Rights for $1.00, subject to terms and conditions and
regulatory requirements attached thereto, and terms and conditions herein.
Highland, a British Virgin Islands company, fully owns Tianyuan Mineral
Exploration Ltd. ("Tianyuan"), a private Chinese corporation, 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 November 9, 2004, the Highland shareholders signed a formal agreement (the
"Preliminary Option Agreement") with Continental, whereby Continental has an
option to purchase 50% of the shares of Highland through payment of $2,000,000
to the original Highland shareholders and funding Highland a further $5,000,000
B-1-15
of exploration expenses on the Xietongmen Property. Of this, exploration
expenditures of $3,000,000 are to be funded by November 2005 with a further $2
million of exploration expenditures to be funded by November 2006. Continental
may acquire a further 10% of the issued and outstanding shares of Highland by
funding an additional $3,000,000 (by 2007) for exploration expenditures on the
Xietongmen Property. In the event that Continental exercises its options to
acquire the additional 10% shareholding of Highland, the Company's shareholdings
will be reduced to 40%. The Formal Agreement was finalized on December 23, 2004.
Under a 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 and the first $8,000,000
in exploration expenses is funded, 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.
Upon consummation of the Definitive Agreement between the Highland Shareholders
and Continental on December 20, 2004, the Highland Shareholders transferred a
total of 50% of the outstanding and issued shares of Highland to the Company in
exchange for 85,000,000 shares of the Company's common stock. The Company issued
an agreement to issue common stock for the issuance of 9,639,000 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. At the
Company's option, at any time within 90 days of the date of the debenture
(November 5, 2004), it can send a notice to the holder indicating its intention
to pay the holder a cash payment in lieu of shares on the basis of $0.25 per
share.
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. 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
============
Additional 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 is 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 loss of $771,120 and loss per share was
increased by $0.01.
B-1-16
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)
------------
Restatement amount $(1,844,826)
============
Loss per share attributable to common stockholders
Amount previously recorded $ (0.02)
Restated amount $ (0.03)
The financial statements for the year ended December 31, 2004 do not include any
post-acquisition income or loss of Highland as the transactions of Highland
occurring from December 20, 2004 to December 31, 2004 were immaterial. Highland
Mining Inc. was incorporated on June 18, 2004. The Company is classified as an
"exploration stage company", which did not generate any revenues for 2004 and
incurred an operating loss of $518,078. The condensed consolidated balance sheet
of Highland Mining Inc. as of December 31, 2004 was as follows:
Current Assets $ 94,301
Mineral Property 1,564,797
Due from related party 39,986
---------------
Total Assets $ 1,699,084
===============
Current Liabilities
Accounts payable $ 21,060
Due to related parties 556,304
---------------
Total Liabilities 577,364
Stockholders equity 1,121,720
---------------
Total Liabilities and Stockholders' Equity $ 1,699,084
===============
NOTE 3 - FIXED ASSETS
Fixed assets consist of the following:
Office and computer equipment $ 14,207
Less : accumulated depreciation (5,149)
---------------
$ 9,058
===============
Depreciation charged to operations for year ended December 31, 2004 and 2003,
and the cumulative amounts from inception amounted to $13,004, $4,620 and
$17,624, respectively.
B-1-17
NOTE 4 - PROMISSORY NOTE PAYABLE
The Company executed a promissory note for $100,000 with interest at 0% thereon
to a company controlled by Zhi Wang, a Director and Chairman of the Company. The
amount is repayable on May 15, 2005. The Company has the right to prepay the
note in whole or in part at any time without premium or penalty. The funds were
obtained to further support working capital requirements. The note was repaid in
January 2005.
NOTE 5 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2004, the Company incurred consulting fees of
$318,834 (2003: $241,103) to certain directors, ex-director and/or officers of
the Company. The Company has consulting agreements with a director and an
officer of the Company as detailed in Note 9.
NOTE 6 - INCOME TAXES
There is no current or deferred tax expense for the years ended December 31,
2004 and 2003, due to the Company's loss position. The Company has fully
reserved for any benefits of these losses. The deferred tax consequences of
temporary differences in reporting items for financial statement and income tax
purposes are recognized, as appropriate. Realization of the future tax benefits
related to the deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the net operating loss carry
forward period. Management has considered these factors in reaching its
conclusion as to the valuation allowance for financial reporting purposes. The
income tax effect of temporary differences comprising the deferred tax assets on
the accompanying balance sheet is as follows:
Deferred tax asset from net operating loss carry forwards $ 1,392,000
Valuation allowance (1,392,000)
---------------
Net deferred tax assets $ -
===============
The Company has available net operating loss carry forwards of approximately
$2,200,000 for tax purposes to offset future taxable income, which expire
through 2024. Pursuant to the Tax Reform Act of 1986, annual utilization of the
Company's net operating loss carryforwards may be limited if a cumulative change
in ownership of more than 50% is deemed to occur within any three-year period.
The difference between income taxes at statutory rates and the amount presented
in the financial statements for the years ended December 31, 2004 and 2003, and
cumulative from inception, is a result of the following approximated amounts:
B-1-18
Cumulative
2004 2003 From Inception
Statutory federal income tax rate - expense (benefit) $ 627,000 $ 241,000 $ 1,392,000
Change in valuation allowance (627,000) (241,000) (1,392,000)
------------------- ----------------- ---------------------
$ - $ - $ -
=================== ================= =====================
NOTE 7 - STOCK-BASED COMPENSATION
Stock options
On May 31, 2000, the Company's board of directors approved a stock option plan
for the sale of 5,000,000 shares of the Company's common stock at $0.40 per
share. There are 5,000,000 options outstanding under the plan and none have been
exercised to date. The stock option plan will expire on May 31, 2005, and the
directors have retained the right to cancel the plan at any time before May 31,
2005, and can make awards to the officers and directors, employees, and others
as designated by the directors. The fair value of the stock options granted was
approximately $1,619,000 and has been recorded as compensation expense for pro
forma purposes only.
On July 5, 2003, the Company granted stock options to three directors of the
Company for the sale of 6,000,000 shares of the Company's common stock at $0.05
per share with expiry date on August 1, 2006, for their services in the past.
Compensation cost recognized in these financial statements for options granted
below fair market value amounted to $210,000. The originally issued financial
statements for the year ended August 31, 2003, did not include recognition of
compensation cost and accordingly, have been restated for that amount. There was
no effect on previously reported total stockholders' deficiency. Net loss for
the year ended August 31, 2003, increased by $210,000, but there was no
significant effect on previously reported loss per share. The fair value of the
stock options granted was approximately $477,149 and has been recorded as
compensation expense for pro forma purposes only. These options were
subsequently cancelled on November 4, 2004.
On September 11, 2003, the Company granted stock options to a director of the
Company for the sale of 1,000,000 shares of the Company's common stock at $0.10
per share with expiry date on August 1, 2006, for his services in the past.
Compensation cost recognized in these financial statements for options granted
below fair market value amounted to $10,000. The fair value of the stock options
granted was approximately $99,318 and has been recorded as compensation expense
for pro forma purposes only.
As of December 31, 2004, there are 6,000,000 stock options outstanding.
6,000,000 options were cancelled and no options were forfeited or exercised
during the year ended December 31, 2004. The weighted average exercise price of
the options outstanding and exercisable is $0.35 and the weighted average
remaining contractual life is 0.8 years.
B-1-19
Stock warrants
The Company has issued 3,540,000 Series "A" Stock Purchase Warrants with an
exercise price of $0.10 each that can be exercised at the earlier of:
1. August 15, 2004; or
2. the 90th day after the day on which the weighted average trading price of the
Company's shares exceed $0.13 per share for 10 consecutive trading days.
Upon exercise of the Series "A" Stock Purchase Warrant at $0.10, the holder will
receive one Common Share of the Company and an additional Series "B" Stock
Purchase Warrant exercisable at $0.15. The term of the Series "B" warrant will
be adjusted accordingly to expire one year after the occurrence of either (i) or
(ii) as described above.
The Company also issued 16,050,000 units Series "C" Stock Purchase Warrants on
completion of a non-brokered private placement on October 16, 2003. Each Series
"C" warrant entitles the holder to purchase one additional share within the
first year at $0.08 or $0.25 in the second year. Upon exercise of a Series "C"
Stock Purchase Warrant, the purchaser will receive an additional
non-transferable Series "D" Stock Purchase Warrant to purchase an additional
share for $0.75 until September 30, 2006. (See Note 8)
During the year ended December 31, 2004, 2,990,000 Series "A" warrants and
200,375 Series "C" warrants were exercised at $0.10 and at $0.08 per share,
respectively, for cash proceeds of $299,000 and $16,030, respectively, and
250,000 Series "A" warrants that expired.
As of December 31, 2004, the Company has 3,040,000, 15,849,625 and 200,375
Series "B", "C" and "D" Stock Purchase Warrants outstanding, respectively. (See
Note 8)
NOTE 8 - STOCKHOLDERS' EQUITY
Stock split - On December 12, 2001, the Company completed a forward common stock
split of 2 1/2 shares for 1 outstanding share. The financial statements have
been retroactively restated to reflect the split.
Private Placements of Common Stock
(i) On October 16, 2003, the Company completed non-brokered private placement of
15,000,000 units of common stock at $0.06 per share for cash proceeds of
$900,000. Each unit consist of one common share and one non-transferable Series
"C" Stock 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 per share in the second
year. Upon exercising each warrant, the holder of each warrant will receive one
additional non-transferable Series "D" Stock Purchase Warrant to purchase an
additional share for $0.75 until September 30, 2006. The Company paid a 7%
finder's fee by issuing 1,050,000 units with the same terms and conditions. The
finder's fee common stock issued was valued at the fair market value of the
common stock ($63,000) and charged against additional paid-in capital as a cost
of the offering. (See Note 7)
(ii) The Company has arranged a non-brokered private placement for up to
48,000,000 units at $0.05 per unit for total proceeds of $2,400,000. Each unit
will consist of one common share and one non-transferable share purchase warrant
entitling the holder to purchase one common share for two years, at $0.08 per
share in the first year or $0.25 in the second year. The proceeds from this
private placement will be used for working capital and acquiring mining
properties in the future. A 7% finder's fee will be paid in shares. The Company
received the first $1,200,000 on December 31, 2004, which is classified as
subscription received under stockholders' equity on the balance sheet as the
share certificates have not been received. (See Note 10)
B-1-20
Share Exchange Agreement - On July 4, 2003, the Company entered into a share
exchange agreement ("Agreement") to acquire all of the issued and outstanding
shares of Honglu Investment Holdings, Inc. ("Honglu"), a Chinese company that
owns prospecting permits and licenses on mineral prospects in Tibet, China. On
November 5, 2004, the Company and Honglu shareholders mutually agreed to
terminate the Agreement 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 in relation to the Agreement were returned to the Company and
cancelled effective this same date. (See Note 2)
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Operating leases - In December 2003, the Company entered into a lease for office
space under a non-cancelable operating lease for a term of 3 years beginning
January 2004 and expiring on December 31, 2006, with two free months rent.
Future commitments for the years ended December 31 are approximately as follows:
(2005-2006: $17,000 per year). Rent expense charged to operations for years
ended December 31, 2004 and 2003, and the cumulative amounts from inception
amounted to $13,588, $nil, and $13,588, respectively.
Commitments - (i) The Company has a consulting agreement with a director of the
Company for his services at $3,000 per month until December 31, 2006.; (ii) The
Company has a consulting agreement with an officer of the Company for his
consulting services at C$3,500 per month until December 31, 2006.; (iii) The
Company also has a consulting agreement with a geologist for his consulting
services at C$3,200 per month until December 31, 2006.; (iv) On February 5,
2004, the Company granted to Continental Minerals Corporation (a Hunter
Dickinson, Inc. group company) an exclusive option to acquire an aggregate 50%
of the Property Rights to the Xietongmen Gold-Copper Prospect in Tibet and a
further option to acquire up to a further 10% of Property Rights, for an
aggregate of 60% of such Property Rights under certain terms and conditions. On
November 9, 2004, the Company and Continental mutually agreed to terminate the
exclusive option agreement.
Stock options and warrants - See details in Notes 7 and 10.
Mineral properties - The Company has direct and indirect rights to earn interest
in 25 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 $444,000 each year for maintaining the related exploration
permits.
The Company is also required to reimburse the previous exploration expenditures
incurred by the Chinese 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 25 mineral properties are put
into commercial production.
NOTE 10 - SUBSEQUENT EVENTS
o Subsequent to year end, the Company received $850,000 of the
$1,200,000 non-brokered private placement for the remaining 24,000,000
units subscribed for at $0.05 per unit. As a result of the completion
of the private placement, the Company has contractual arrangements to
issue common stock that exceeds its authorized and available shares.
In accordance with Emerging Issues Task Force ("EITF") Issue 00-19,
the Company will recognize a liability and related expense in 2005 for
those contracts that could require the Company to obtain shareholder
approval to increase its authorized shares prior to being able to
satisfy its obligations under those arrangements. As of October 11,
B-1-21
2005, the Company had 42,796,200 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. 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.
The Company filed its Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 to obtain shareholder approval to
amend its Articles of Incorporation to increase the authorized capital
from 200,000,000 to 500,000,000 common shares.
o 3,040,000 Series "B" warrants expired in January 2005.
B-1-22
MANAGEMENT'S DISCUSSION AND ANALYSIS
In September 2000, the Joint Venture Company Chengdu Qianfeng NetTV Co., Ltd.
was formed after receiving approval from Moftec (Ministry of Foreign Trade and
Economic Cooperation).
The Company funded the Joint Venture with Sichuan QianFeng Digital Audio/Video
Equipment Co. Ltd., in the production of trial digital set-top boxes for Nanning
TV in Guangxi Province in China until 2002.
As of August 31, 2002 the Company had paid $1,280,000 of the $1,500,000 due to
complete the purchase of the initial interest in the joint venture, however,
thereafter it was unable to complete the terms of the agreement, abandon the
joint venture, and, therefore, management has elected to expense the joint
venture payments from the company's books.
The Company believes there will be no further liability in connection with the
agreement.
On July 4, 2003, the Company entered into a share exchange agreement
("Agreement") to acquire all of the issued and outstanding shares of Honglu
Investment Holdings, Inc. ("Honglu"), a Chinese company that held prospecting
permits and licenses on mineral prospects in Tibet, China. On November 5, 2004,
the Company and Honglu shareholders mutually agreed to terminate the Agreement
because the Tibet government had on August 10, 2004 rejected the application for
approval of the Agreement with the Company. All the shares issued under escrow
in relation to the Agreement, in total of 129,700,000, were returned to treasury
for cancellation on February 14, 2005.
CURRENT BUSINESS
On November 5, 2004, the Company and shareholders of Highland Mining Inc.
("Highland") 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 (to be
issued 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 Hunter
Dickinson Inc. ("HDI") to sell and transfer the other 50% of the issued and
outstanding shares of Highland (the "Remaining Shares") to HDI on or before
March 30, 2005 (the "Outside Date"), or if either or both HDI and Highland
Shareholders decide to terminate the Definitive Agreement pursuant to the terms
and conditions therein on or before the Outside Date, then unless Highland
Shareholders and the Company otherwise agree, Highland Shareholders shall sell
and transfer the Remaining Shares to the Company at a nominal price, pursuant to
the same terms and conditions contained hereunder as applicable to the parties
then.
B-1-23
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 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. No rights have yet been transferred.
Upon completion of the Exchange, the following individuals were elected or
appointed as directors of the Company: Zhi Wang, Jie Yang, Xiaojun Ma, Jing Wang
and Maurice Tsakok.
The Company agreed to pay a finder's fee in the form of an agreement to issue
common stock for issuance of 9,639,000 common shares of the Company upon
completion of the share exchange and the increase of authorized common stock of
the Company to be approved in the coming Annual General Meeting.
On November 9, 2004, Highland shareholders entered into an option agreement with
Continental Minerals Corp. ("Continental") ( a Hunter Dickinson, Inc. group
company). Continental obtained an option to acquire 50% of the issued and
outstanding shares of Highland through payment of $2,000,000 to Highland
shareholders and investment of $5,000,000 in Highland to fund the exploration of
the Xietongmen Copper-Gold Property located near Xiong Village, Xietongmen
County, Rikaze area, Tibet Autonomous Region, China. Continental may acquire a
further 10% of the issued and outstanding shares of Highland, through the
investment of $3,000,000 in Highland to fund exploration of the Xietongmen
Copper-Gold Property, in the event of its doing so, the Company's shareholdings
in Highland will be reduced to 40%. The preliminary option agreement is subject
to a feasibility study by Continental and customary title matters, permits, and
approvals.
HIGHLAND MINING INC.
Highland Mining Inc. fully and legally owns Tianyuan Mineral Exploration Ltd.
("Tianyuan"), as a wholly owned foreign enterprise registered in Tibet, China,
incorporated pursuant to relevant Chinese laws and regulations, which holds an
exploration license covering Xietongmen Mine in Tibet, China.
Highland Mining Shareholders has direct or indirect rights or options to, or
interests in, 25 mineral prospects (including Xietongmen) in Tibet, China,
subject to terms and conditions and regulatory requirements attached to the
Rights. Highland Shareholders, subject to terms and conditions and regulatory
requirements related to the rights.
On February 5, 2004, the Company had granted to Hunter Dickinson, Inc. ("HDI")
an exclusive option to acquire an aggregate 50% of the Property Rights to the
Xietongmen Gold-Copper Prospect in Tibet and a further option to acquire up to a
further 10% of Property Rights, for an aggregate of 60% of such Property Rights
under certain terms and conditions. On November 9, 2004, the Company and HDI
mutually agreed to terminate the exclusive option agreement due to the failure
to achieve approval of the Honglu transaction from the Tibet government.
The Company as a junior mining company has assembled a portfolio of 25
base/precious metal and industrial mineral prospects upon which it holds options
in Tibet, China through its 50% owned Chinese subsidiary Highland Mining Inc.
It is the Company's intention to focus exclusively on the exploration of these
base and precious metal mineral prospects in Tibet, China. The Company is
seeking joint venture partners to assist in the exploration and possible
development of these mineral prospects.
B-1-24
Initially, the Company will concentrate its efforts in the development of
mineral prospects in Tibet. Today, Chinese authorities are making unprecedented
efforts to open up the Tibetan plateau to large-scale mineral development in
order to meet domestic demand for raw materials. The Chinese Government is
increasingly seeking foreign investment and international co-operation to
facilitate this particular aspect of their economic policy. In order to
accommodate such development, the Qinghai-Tibet Railway, one of the regions most
important new construction projects, is expected to be completed by the end of
2006.
The Company sought experienced and recognized joint venture partners, and the
Company negotiated a "Property Option Agreement" with Hunter Dickinson, Inc. An
initial Agreement was reached in February 2004, with Continental Minerals
Corporation ("Continental"), a member of the Hunter Dickinson Group, whereby
Continental has acquired the right to earn a 60% interest in the Company's
Xietongmen gold-copper prospect. The Xietongmen prospect consists of
porphyry-like disseminated and quartz stockwork mineralization.
Among the mineral properties, several exhibit copper, copper/gold, and
copper/molybdenum mineralization. Since its private placement in January of 2005
has given it current working capital and liquidity, The Company intends to
investigate and rank these properties in order to plan a comprehensive
exploration program and joint venture/financial arrangement in the next year.
The company raised $2.4 million in private placement to meet its working capital
requirements.
In November 2004, the terms of the original Agreement had to be modified whereby
under the terms of the Property Option Agreement, Continental has acquired
options to purchase 50% or 60% of the shares of Highland Mining Inc.
("Highland"). Under this Agreement, Continental will pay $2 million ($1.2
million on receiving regulatory approval and the balance $0.80 million after a
year of the agreement date) to the original shareholders of Highland and $5
million investment in Highland to fund exploration of the property. Of this,
prospect expenditures of $3 million must be funded by November 9, 2005 with a
further $2 million of prospect expenditures funded by November 9, 2006.
Continental can then increase its interest in Highland to 60% within the
following year through investment of an additional $3 million in Highland to
fund the exploration. In the event that Continental exercises its options to
acquire the additional 10% shareholding of Highland, the Company's shareholding
will be reduced to 40%.
The Xietongmen joint venture agreement is the first venture. Concurrently, the
Company is reviewing and prioritizing the other 24 mineral prospects with a view
to forming similar joint venture/financial arrangements. The prospects under
review represent a broad array of precious/base metal and industrial mineral
targets. The Company holds, through original Highland shareholders, a 65%
interest in each of these properties except for three properties in which the
Company retains a 100% interest.
Continental assembled its exploration team, and, with the drilling contractor
visited the Xietongmen Copper-Gold property in December 2004. Subsequently,
Continental made preparation for a Phase I, 25-hole drilling program, comprising
8,000 meters to commence during the first quarter of 2005. This program is on
target.
B-1-25
Plan of Operations
The Company has had no revenues from operations since inception. The operations
of the Company have been financed through private placements and loans.
The Company has expended substantially all of its efforts during the last
fifteen months to achieve a participation in mineral prospect exploration in
Tibet with the appropriate Chinese government regulatory approval.
2005 BUDGET
Rent $ 44,444
Salaries and wages 118,519
Traveling/conference/seminars, etc. 18,519
Communications and other expenses 18,519
Consulting fees 77,778
Audit and accounting fees 18,519
Professional and legal fees 74,074
Exploration expenses 500,000
Investigation expenses 500,000
-------
$1,370,372
The Company intends to develop gold and other mineral deposits in Tibet and
other areas of China recognizing that China's recent economic growth rate has
placed an increasing demand on the need 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 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 year ended December 31, 2004 have
consisted of the following major expenses: consulting fees, legal and
professional fees, and travel and promotion expenses. Such fees were incurred in
connection with efforts to consummate the acquisition of Honglu, negotiating an
Option Agreement with Continental Minerals Corporation (a Hunter Dickinson, Inc.
group company), and the subsequent acquisition of 50% interest in Highland.
To date, we have not been profitable in any of our endeavors and we face all the
risks common to companies in their early stages of development, including
undercapitalization and uncertainty of funding sources, high initial expenditure
levels and uncertain revenue streams, an unproven business model, and
difficulties in managing growth. Our recurring losses raise substantial doubt
about our ability to continue as a going concern. Our financial statements do
not reflect any adjustments that might result from the outcome of this
uncertainty. We believe we will continue to incur losses for at least the next
12 months and will require additional cash to satisfy our operations. The
Company's future funding requirements will depend on numerous factors, many of
which are beyond our control.
Due to the "start up" nature of the Company's business, we expect to incur
losses as we expand. We expect to raise additional funds through private or
public equity investment in order to expand the range and scope of our business
operations. We will seek access to private or public equity but there is no
assurance that such additional funds will be available for the Company to
finance its operations on acceptable terms, if at all. 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.
B-1-26
The Company has had no operations during the fiscal year ended December 31,
2004. The Company generated no revenue and incurred expenses of $1,055,134
stemming from general, administrative and consulting expenditures related to its
negotiations to acquire mineral prospects in China as compared to $698,044 for
the same period of last year. The increase was mainly due to the increased
expenses incurred including (i) consulting fees paid to the directors and
consultants for their services and (ii) legal fees incurred.
The Company has determined that the transaction must be 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 entitles under common control.
Liquidity and Working Capital
As of December 31, 2004, the Company had total current assets of $903,427 and
total current liabilities of $149,535. The Company has a working capital of
$753,892 at December 31, 2004. For the year ended December 31, 2004, the Company
received $299,000 and $16,030 in cash proceeds from the exercise of 2,990,000
and 200,375 Series A and C Stock Purchase Warrants respectively, $100,000 though
the execution of a promissory note and $1,200,000 share subscription for
24,000,000 units 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 by the holders.
The Company has arranged a non-brokered private placement of 48,000,000 units at
$0.05 per unit for total proceeds of $2,400,000. Half of the subscriptions were
received on December 31, 2004 and another $850,000 has been received as of
February 25, 2005. 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 acquiring mining properties in the future. A 7% finder's fee will be
paid in shares.
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.
B-1-27
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (CHTV)
The information presented here should be read in conjunction with China,
NetTV Holdings, Inc.'s financial statements and other information included in
its Form 10-KSB, as amended. When used in its Form 10-KSB, as amended, the words
"expects," "anticipates," "estimates" and similar expressions are-intended to
identify forward-looking statements. Such statements are subject to risks and
uncertainties, including those set forth below under "Risks and Uncertainties,"
that could cause actual results to differ materially from those projected. These
forward-looking statements speak only as of the date hereof. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any statement is based.
The Company has had no revenues from operations since inception. The operations
of the Company have been financed through private placements and loans.
The Company has expended substantially all of its efforts during the last
fifteen months to achieve a participation in mineral prospect exploration in
Tibet with the appropriate Chinese government regulatory approval.
2005 BUDGET
Rent $ 44,444
Salaries and wages 118,519
Traveling/conference/seminars, etc. 18,519
Communications and other expenses 18,519
Consulting fees 77,778
Audit and accounting fees 18,519
Professional and legal fees 74,074
Exploration expenses 500,000
Investigation expenses 500,000
-------
$1,370,372
The Company intends to develop gold and other mineral deposits in Tibet and
other areas of China recognizing that China's recent economic growth rate has
placed an increasing demand on the need 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 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 year ended December 31, 2004 have
consisted of the following major expenses: consulting fees, legal and
professional fees, and travel and promotion expenses. Such fees were incurred in
connection with efforts to consummate the acquisition of Honglu, negotiating an
Option Agreement with Continental Minerals Corporation (a Hunter Dickinson, Inc.
group company), and the subsequent acquisition of 50% interest in Highland.
To date, we have not been profitable in any of our endeavors and we face all the
risks common to companies in their early stages of development, including
undercapitalization and uncertainty of funding sources, high initial expenditure
levels and uncertain revenue streams, an unproven business model, and
difficulties in managing growth. Our recurring losses raise substantial doubt
about our ability to continue as a going concern. Our financial statements do
not reflect any adjustments that might result from the outcome of this
uncertainty. We believe we will continue to incur losses for at least the next
12 months and will require additional cash to satisfy our operations. The
Company's future funding requirements will depend on numerous factors, many of
which are beyond our control.
Due to the "start up" nature of the Company's business, we expect to incur
losses as we expand. We expect to raise additional funds through private or
public equity investment in order to expand the range and scope of our business
operations. We will seek access to private or public equity but there is no
assurance that such additional funds will be available for the Company to
finance its operations on acceptable terms, if at all. 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.
B-1-28
Change of Management
Maurice Tsakok has been a Director since May 2000. Ronald Xiuru Xie was
appointed to the Board effective July 5, 2003 and he resigned on November 3,
2004. Zhi Wang, Jie Yang and Anthony Garson were appointed to the Board on
August 4, 2003. Zhi Wang and Jie Yang resigned on August 23, 2004 and have been
reappointed as directors on November 5, 2004.
Ronald Xiuru Xie was the President of the Company from July 5, 2003 to May 4,
2004. Anthony Garson has been appointed as President on May 10, 2004. Maurice
Tsakok continues to act as Secretary of the Company.
Results of Operations
The Company has had no operations during the fiscal year ended December 31,
2004. The Company generated no revenue and incurred expenses of $1,055,134
stemming from general, administrative and consulting expenditures related to its
negotiations to acquire mineral prospects in China as compared to $698,044 for
the same period of last year. The increase was mainly due to the increased
expenses incurred including (i) consulting fees paid to the directors and
consultants for their services and (ii) legal fees incurred.
The Company expects the trend of losses to continue at an increasing rate after
the acquisition of 50% interest in Highland until we can achieve commercial
production on some of the mineral properties or sell some of mineral properties,
of which there can be no assurance.
Liquidity and Working Capital
As of December 31, 2004, the Company had total current assets of $903,427 and
total current liabilities of $149,535. The Company has a working capital of
$753,892 at December 31, 2004. For the year ended December 31, 2004, the Company
received $299,000 and $16,030 in cash proceeds from the exercise of 2,990,000
and 200,375 Series A and C Stock Purchase Warrants respectively, $100,000 though
the execution of a promissory note and $1,200,000 share subscription for
24,000,000 units 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 by the holders.
The Company has arranged a non-brokered private placement of 48,000,000 units at
$0.05 per unit for total proceeds of $2,400,000. Half of the subscriptions were
received on December 31, 2004 and another $850,000 has been received as of
February 25, 2005. 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 acquiring mining properties in the future. A 7% finder's fee will be
paid in shares.
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.
NEED FOR ADDITIONAL FINANCING
No commitments to provide additional funds have been made by management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to the Company to allow it to cover expenses as they may
be incurred.
In the event the Company's cash assets and other prove to be inadequate to
meet the Company's operational needs, the Company might seek to compensate
providers of services by issuances of stock in lieu of cash.
The Company has no plans at this time for purchases or sales of significant
fixed assets, which would occur in the next twelve months.
The Company has hired one employee since January 12, 2005. The Company has
no expectation or anticipation of significant changes in number of employees in
the next twelve months, it may acquire or add employees of an unknown number in
the next twelve months.
B-1-29
B-2-1
CHINA NETTV HOLDINGS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Consolidated Balance Sheet.............................................. B-2-2
Consolidated Statement of Operations.................................... B-2-3
Consolidated Statement of Changes in Stockholders' Equity............... B-2-4
Consolidated Statement of Cash Flows.................................... B-2-5
Notes to the Consolidated Financial Statements.......................... B-2-6
Management's Discussion and Analysis.................................... B-2-14
B-2-1
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)
B-2-2
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)
B-2-3
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
- ------------------------------------------------------------------------------------------------------------------------------------
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 20, 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
B-2-4
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 20, 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)
B-2-5
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)
B-2-6
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.
B-2-7
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)
B-2-8
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
B-2-9
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.
B-2-10
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.
B-2-11
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.
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.
B-2-12
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.
B-2-13
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.
B-2-14
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.
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
B-2-15
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
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
B-2-16
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.
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.
B-2-17
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.
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.
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.
B-2-18