================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to ______________________.
COMMISSION FILE NUMBER 000-28345
CHINA BROADBAND CORP.
(Exact name of small business issuer as specified in its charter)
NEVADA 72-13812
(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
2080-440-2 AVENUE S.W.,
CALGARY, ALBERTA
CANADA T2P 5E9
(Address of principal place of business or intended principal place of business)
(403) 234-8885
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
----- -----
The number of outstanding common shares, with $0.001 par value, of the
registrant at March 31, 2001 was 19,474,517.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
CHINA BROADBAND CORP.
INDEX TO THE FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
PAGE
PART I - FINANCIAL INFORMATION ..............................................2
ITEM 1. FINANCIAL STATEMENTS..........................................2
China Broadband Corp.
Condensed Consolidated Balance Sheet as of
March 31, 2001 and December 31, 2000 ..................2
Condensed Consolidated Statement of Operations
for the Three Month Period ended March 31, 2001........3
Condensed Consolidated Statement of Stockholders'
Equity as of March 31, 2001............................4
Condensed Consolidated Statement of Cash Flow
for the Three Month Period ended March 31, 2001........6
Notes to the Condensed Consolidated Financial
Statements ............................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .........................12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ...........................................19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES .............................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........19
ITEM 5. OTHER INFORMATION............................................19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................20
SIGNATURES...................................................................22
i
PART I
ITEM 1. FINANCIAL STATEMENTS
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET
(EXPRESSED IN UNITED STATES DOLLARS)
- ---------------------------------------------------------------------------------------------------
MARCH 31, 2001
(UNAUDITED) DECEMBER 31, 2000
$ $
======================================
ASSETS
CURRENT
Cash and cash equivalents 3,865,181 4,668,128
Interest and Goods and Services Tax receivable 93,457 64,201
Prepaid expenses 67,119 117,119
---------- -----------
4,025,757 4,849,448
Investment in Shekou joint venture 2,428,275 2,482,018
Investment in Chengdu joint venture 1,836,874 1,321,884
Property and equipment, net 219,159 220,799
Intangible assets:
Intellectual property (Note 5) 789,057 819,402
Shekou joint venture (Note 5) 2,294,325 2,421,788
Chengdu joint venture (Note 5) 4,588,650 4,843,575
Goodwill (Note 5) 1,938,345 2,046,031
---------- -----------
18,120,442 19,004,945
========== ===========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 585,851 250,840
Promissory note (Note 5) 1,700,000 1,700,000
---------- -----------
2,285,851 1,950,840
---------- -----------
CONTINUING OPERATIONS (Note 3)
CONTINGENCIES (Note 6)
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY
Common stock
$0.001 par value, shares authorized: 50,000,000; 77,936 77,936
shares issued and outstanding: 19,474,517
Additional paid-in capital 21,433,734 20,631,344
Deferred compensation (807,720) (57,995)
Accumulated deficit (4,869,359) (3,597,180)
---------- -----------
15,834,591 17,054,105
---------- -----------
18,120,442 19,004,945
========== ===========
See notes to condensed consolidated financial statements.
2
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
- ---------------------------------------------------------------------------------------
CUMULATIVE PERIOD
FROM DATE OF
THREE MONTHS INCEPTION
ENDED (FEBRUARY 9, 2000)
MARCH 31, 2001 TO MARCH 31, 2001
$ $
====================================
REVENUE
Technical consulting - 208,333
GENERAL AND ADMINISTRATIVE EXPENSES 1,219,849 4,905,247
------------------------------------
(1,219,849) (4,696,914)
EQUITY LOSS IN BIG SKY NETWORK CANADA LTD. - (181,471)
EQUITY LOSS IN SHEKOU JOINT VENTURE (53,743) (256,164)
EQUITY LOSS IN CHENGDU JOINT VENTURE (55,010) (98,716)
INTEREST INCOME 56,423 363,906
------------------------------------
NET LOSS (1,272,179) (4,869,359)
====================================
LOSS PER SHARE
Basic and Diluted (0.07)
===========
SHARES USED IN COMPUTATION - BASIC AND DILUTED 19,474,517
===========
See notes to condensed consolidated financial statements.
3
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(EXPRESSED IN UNITED STATES DOLLARS)
- ----------------------------------------------------------------------------------------------------------------------
Additional TOTAL
Common Paid-in Deferred Accumulated STOCKHOLDERS'
Stock Amount Capital Compensation Deficit EQUITY
Shares $ $ $ $ $
=======================================================================================
Balance, 1,509,850 59,971 - - - 59,971
February 1, 2000
Issue of common stock
for the outstanding shares
of China Broadband
(BVI) Corp. 13,500,000 13,500 696,529 - - 710,029
Stock issued pursuant to
private placement
agreements at $0.20 per
share 500,000 500 98,835 - - 99,335
Stock issued pursuant to
private placement
agreements at $1.00 per
share 1,530,000 1,530 1,518,289 - - 1,519,819
Stock issued pursuant to
private placement
agreements at $7.50 per
share 1,301,667 1,302 9,696,236 - - 9,697,538
Acquisition of the shares
of Big Sky Network
Canada Ltd. 1,133,000 1,133 8,496,367 - - 8,497,500
Issuance of warrants - - 44,472 - - 44,472
Non-cash compensation - - 15,235 - - 15,235
Deferred compensation - - 65,381 (65,381) - -
Amortization of deferred
compensation - - - 7,386 - 7,386
Net loss - - - - (3,597,180) (3,597,180)
---------------------------------------------------------------------------------------
Balance,
December 31, 2000 19,474,517 77,936 20,631,344 (57,995) (3,597,180) 17,054,105
=======================================================================================
Deferred compensation - - 802,390 (802,390) - -
Amortization of deferred
compensation - - - 52,665 - 52,665
Net loss - - - - (1,272,179) (1,272,179)
---------------------------------------------------------------------------------------
Balance,
March 31, 2001 (unaudited) 19,474,517 77,936 21,433,734 (807,720) (4,869,359) 15,834,591
=======================================================================================
See notes to condensed consolidated financial statements.
4
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
- -------------------------------------------------------------------------------------------------------------------
CUMULATIVE PERIOD
FROM DATE OF
INCEPTION
THREE MONTHS ENDED (FEBRUARY 9, 2000)
MARCH 31, 2001 TO MARCH 31, 2001
$ $
==========================================
CASH FLOWS RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net loss (1,272,179) (4,869,359)
Adjustments for:
Amortization 533,679 1,112,692
Equity loss in Big Sky Network Canada Ltd. - 181,471
Equity loss in Shekou joint venture 53,743 256,164
Equity loss in Chengdu joint venture 55,010 98,716
Non-cash stock compensation 52,665 119,758
---------- -----------
(577,082) (3,100,558)
Changes in operating assets and liabilities
Interest and Goods and Services Tax receivable (29,256) (93,457)
Prepaid expenses 50,000 (67,119)
Accounts payable 335,011 (67,947)
---------- -----------
(221,327) (3,329,081)
---------- -----------
FINANCING
Issue of common stock for cash (net of issuance costs) - 11,816,692
---------- -----------
INVESTING
Purchases of property and equipment (11,620) (291,012)
Acquisition of Big Sky Network Canada Ltd. (net of cash acquired) - (2,395,828)
Investment in Chengdu joint venture (570,000) (1,935,590)
---------- -----------
(581,620) (4,622,430)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
(802,947) 3,865,181
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
4,668,128 -
CASH AND CASH EQUIVALENTS, END OF PERIOD 3,865,181 3,865,181
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes - -
========== ===========
Cash paid for interest - -
========== ===========
See notes to condensed consolidated financial statements.
5
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of China
Broadband Corp. (the "Corporation") and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by generally
accepted accounting principles for annual financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 2001
are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001. For further information, refer to
the consolidated financial statements and notes thereto included in the
Corporation's 2000 "Annual Financial Report to Shareholders" attached
as an appendix to the Proxy Statement for the 2000 Annual Meeting of
Shareholders.
2. INCORPORATION AND BACKGROUND
The Corporation was incorporated in Nevada in February 1993 under the
name "Institute for Counselling, Inc." On April 27, 2000, Institute for
Counselling, Inc. changed its name to China Broadband Corp. The
Corporation is a development stage enterprise and is seeking to become
a leading facilities based enabler of high capacity, high-speed
Internet and data services in major urban markets throughout The
People's Republic of China (the "PRC").
On April 14, 2000, the Corporation, a public shell company, acquired
China Broadband (BVI) Corp. ("CBB - BVI") through a reverse
acquisition, which was accounted for as a recapitalization. This
recapitalization was effected through the issuance of 13,500,000 common
shares of the Corporation, constituting approximately 90% of its shares
outstanding after the acquisition, in exchange for all of the
outstanding shares of CBB - BVI.
As a result of the application of the accounting principles governing
recapitalization, CBB - BVI (incorporated on February 1, 2000) is
treated as the acquiring or continuing entity for financial accounting
purposes.
The recapitalization of CBB - BVI was affected through the issuance of
stock by CBB - BVI in exchange for the acquisition of the tangible net
assets of the Corporation at fair value, which approximates the
Corporation's net assets historical costs. As a result, the
consolidated financial statements are deemed to be a continuation of
CBB - BVI's historical financial statements.
6
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
- --------------------------------------------------------------------------------
3. CONTINUING OPERATIONS
The Corporation's operations may be adversely affected by
significant political, economic and social uncertainties in the
PRC. Although the government of the PRC has been pursuing economic
reform policies, no assurance can be given that it will continue
to pursue such policies or that such policies may not be
significantly altered, especially in the event of a change in
leadership, social or political disruption or unforeseen
circumstances affecting the PRC's political, economic and social
conditions. There is also no guarantee that the pursuit of
economic reforms by the government of the PRC will be consistent
or effective.
The PRC has recently enacted new laws and regulations governing
internet access and the provision of online business, economic and
financial information. Current or proposed laws aimed at limiting
the use of online services could, depending upon interpretation
and application, result in significant uncertainty to the
Corporation, additional costs and technological challenges in
order to comply with any statutory or regulatory requirements
imposed by such legislation. Additional legislation and
regulations that may be enacted by the government of the PRC could
have an adverse effect on the Corporation's business, financial
condition and results of operations.
The success of the Corporation will depend on the acceptance of
broadband Internet services, which remains unproven in the PRC.
The Corporation's joint ventures may not be able to attract and
retain subscribers, or they may face intense competition, which
could have an adverse effect on the Corporation's business,
financial condition and results of operations. The Corporation's
Shekou Joint Venture's ("Shekou JV") services were launched on
June 30, 2000. The Corporation's Chengdu Joint Venture's ("Chengdu
JV") services were launched on October 26, 2000 and as of March
31, 2001 it had connected a small number of subscribers. The
Shekou JV and Chengdu JV are currently expanding their subscriber
base in the Shekou Industrial Zone and Chengdu. Services in Deyang
are expected to commence when the Ministry of Information
Industries' approval is received.
PRC legal restrictions permit payment of dividends by a
sino-foreign joint venture only out of its net income, if any,
determined in accordance with PRC accounting standards and
regulations. Under PRC law, a sino-foreign joint venture will also
be required to set aside a portion of its net income each year to
fund certain reserve funds. These reserves are not distributable
as cash dividends. If the Corporation does not receive
distributions from the joint ventures or if the joint ventures are
not profitable, the Corporation may be unable to meet its
financial obligations or to continue as a going concern.
Substantially all of the Corporation's revenues and operating
expenses will be denominated in Chinese Renminbi, which is
currently freely convertible, however, there can be no assurance
that this will continue or that the ability to purchase or retain
foreign currencies will continue in the future.
These consolidated financial statements have been prepared on a
going concern basis. The Corporation's ability to continue as a
going concern is dependent upon its ability to generate profitable
operations in the future and to obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal
business operations when they come due. The outcome of these
matters cannot be predicted with any certainty at this time. These
consolidated financial statements do not include any adjustments
to the amounts and classification of assets and liabilities that
may be necessary should the Corporation be unable to continue as a
going concern.
7
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
- --------------------------------------------------------------------------------
3. CONTINUING OPERATIONS (CONTINUED)
Management anticipates that the Corporation currently has sufficient
working capital to fund the Corporation's plan of operation through the
quarter ended September 30, 2001. The Corporation's costs to fund its
plan of operation for the fiscal year ending December 31, 2001 is
expected to increase (primarily for salaries, travel, office and other
similar expenses). The working capital is intended to fund the business
operations of Big Sky Network Canada Ltd. ("BSN"), including funding
the capital requirements of new and existing joint ventures, funding
additional technical, management and marketing/sales personnel and
funding comprehensive joint venture marketing and promotional programs
to increase market awareness and subscription sales. Management
believes that additional funding will be required before September 30,
2001 to fund the implementation of BSN's business of entering into
joint ventures.
The consolidated operations of the Corporation requires cash of
$150,000 to $200,000 per month to operate in the PRC and in Canada. The
operating cash break even point for the facilities in Shekou and
Chengdu is estimated by the Corporation to be the equivalent of 3,000
to 4,000 subscribers at present pricing structures. The Corporation is
in discussions with various equipment suppliers for vendor financing or
lease packages for capital equipment. However, failing any new debt or
equity financing, the Corporation could continue the Shekou and Chengdu
joint ventures as they are and inaugurate one additional joint venture
with existing capital and modest growth in the subscriber base. Other
low cost value added services may be added to the revenue mix with
minimal capital requirements, primarily by outsourcing to a variety of
potential partners seeking access to the Chinese market.
4. ACCOUNTING POLICIES
PER SHARE INFORMATION
Basic loss per share ("EPS") excludes dilution and is computed by
dividing net loss attributable to common stockholders by the weighted
average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (warrants to purchase common stock and
common stock options using the treasury stock method) were exercised or
converted into common stock. Potential common shares in the diluted EPS
computation are excluded in net loss periods as their effect would be
antidilutive.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which was subsequently
amended by SFAS No. 137 and 138, established accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair
value for fiscal quarters of fiscal years beginning after June 15,
2000. There was no impact on the Corporation's consolidated financial
position, results of operations or cash flows as a result of adopting
these statements.
8
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
- --------------------------------------------------------------------------------
In December 1999, the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin 101 ("SAB 101"), "Revenue
Recognition" to provide guidance on the recognition, presentation and
disclosure of revenues in financial statements. Management believes
that the Corporation's revenue recognition policy is in compliance with
the provisions of SAB 101 and that the adoption of SAB 101 had no
material effect on the financial position or results of operations of
the Corporation.
In March 2000, the FASB issued FASB Interpretation (FIN) No. 44,
"Accounting for Certain Transactions Involving Stock Compensation." FIN
44 clarifies the application of Accounting Principles Board Opinion No.
25 for certain issues relating to stock compensation. FIN 44 is
effective July 1, 2000, but certain conclusions in it cover specific
events that occur after either December 15, 1998, or January 12, 2000.
To the extent that FIN 44 covers events occurring during the period
after December 15, 1998, or January 12, 2000, but before the effective
date of July 1, 2000, the effects of applying FIN 44 are recognized on
a prospective basis from July 1, 2000. The adoption of FIN 44 by the
Corporation had no material effect on the financial position or results
of operations of the Corporation.
5. ACQUISITION OF BIG SKY NETWORK CANADA LTD.
On September 29, 2000, the Corporation closed a common stock purchase
agreement to buy 50,000 common shares of BSN, increasing its ownership
to 100% of BSN. The acquisition was accounted for as a purchase. The
purchase price was US $12.7 million, consisting of $2.5 million cash, a
$1.7 million promissory note and 1,133,000 common shares of the
Corporation valued at the fair market value of the common shares of
$8,497,500. The purchase price has been allocated as follows:
-----------------
$
-----------------
Assets acquired, excluding cash
Net working capital deficiency (742,327)
Investment in Shekou joint venture 2,684,438
Intellectual property 849,750
Chengdu joint venture 5,098,500
Shekou joint venture 2,549,250
Goodwill 2,153,717
-----------------
-----------------
12,593,328
Cash acquired 104,172
-----------------
-----------------
Net assets acquired 12,697,500
=================
The promissory note bears interest at 8% per annum and is payable at
maturity. The principal is due on September 29, 2001.
The values ascribed to the acquired intangibles including intellectual
property, Shekou joint venture and Chengdu joint venture were based on
an estimation of fair value. The Shekou joint venture and Chengdu joint
venture intangibles represent government approved contracts to provide
internet services in the PRC. The Corporation is reviewing the
valuation of the assets acquired and adjustments may be made to the
values ascribed above.
9
CHINABROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
- --------------------------------------------------------------------------------
6. CONTINGENCIES
On March 29, 2001, The Orbiter Fund Ltd., The Viator Fund Ltd., Lancer
Offshore Inc. and Lancer Partners Limited Partnership (collectively,
the "Plaintiffs") filed an action in the Court of Queen's Bench of
Alberta, Judicial District of Calgary (Action No. 0101-07232), naming
Matthew Heysel, CEO, and China Broadband Corp. as defendants. The
action alleges that Mr. Heysel made certain misrepresentations to the
Plaintiffs in connection with the Plaintiffs' purchase of 500,000
shares of the Corporation's common stock at $1.00 per share and 866,667
shares of China Broadband Corp.'s common stock at $7.50 per share. The
Plaintiffs are seeking, among other things, damages in the amount of
$7,000,000, an accounting of profits and a preservation order
preserving the funds obtained from the Plaintiffs.
The Corporation believes the claims are without merit and intends to
vigorously defend against the claims.
7. COMMITMENTS
a) On February 13, 2001, the Corporation announced that it had
entered into an agreement with a supplier to purchase
equipment and services relating to the Internet services
provided by the joint ventures in the PRC. Under the terms of
the agreement, the Corporation has the option of purchasing up
to $250 million in equipment and services at discounted prices
over the five year term.
b) On March 8, 2001, BSN entered into a cooperative joint venture
agreement with Changsa Guang Da Television Broadcast Network
Ltd. ("Changsa Guang Da") to provide Internet technology
service in Hunan Province, PRC. The agreement, subject to
government approvals, commits Changsa Guang Da to provide
exclusive access to its HFC network, facilities and
frequencies to allow the joint venture to provide Internet
connectivity services to cable TV subscribers of Changsa Guang
Da. The contract duration is 18 years. BSN will receive 65% of
the net revenue during the first five years, 50% for the next
five years and 40% thereafter. Under the terms of the
agreement BSN is required to invest $18 million of capital and
equipment, staged over the life of the joint venture
agreement.
10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS
FORWARD-LOOKING STATEMENTS
Included in this report are various forward-looking statements, which
can be identified by the use of forward looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "continue," "believe" or other
similar words. We have made forward-looking statements with respect to the
following, among others: our goals and strategies; our expectations related to
growth of the Internet in China and the performance of our joint ventures; our
joint venture partners' ability to obtain licenses and permits to operate as
Internet service providers in China; our ability to earn sufficient revenues
from our joint ventures; the importance and expected growth of Internet
technology and the demand for Internet services in China; our ability to
continue as a going concern; and our future revenue performance and our future
results of operations. These statements are forward-looking and reflect our
current expectations. They are subject to a number of risks and uncertainties,
including but not limited to, changes in the economic and political environments
in China, changes in technology, changes in the Internet marketplace in China,
competitive factors and other risks described in our annual report on Form
10-KSB filed with the United States Securities and Exchange Commission. In light
of the many risks and uncertainties surrounding China Broadband, China and the
Internet marketplace, you should keep in mind that we cannot guarantee that the
forward-looking statements described in this report will transpire and you
should not place undue reliance on forward looking statements.
SUMMARY FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
- --------------------------------------------------------------------------------
THREE MONTH CUMULATIVE
PERIOD ENDED PERIOD FROM
MARCH 31, 2001 INCEPTION
FEBRUARY 1, 2000
THROUGH
MARCH 31, 2001
- --------------------------------------------------------------------------------
Net sales.......................... $ 0 $ 208,333
- --------------------------------------------------------------------------------
Loss from operations............... $ 1,219,849 $4,696,914
- --------------------------------------------------------------------------------
Net loss........................... $ 1,272,179 $4,869,359
- --------------------------------------------------------------------------------
Basic loss per common share ....... $(0.07)
- --------------------------------------------------------------------------------
Basic weighted average common shares 19,474,517
outstanding .......................
- --------------------------------------------------------------------------------
AS OF MARCH 31, 2001:
- --------------------------------------------------------
Cash and cash equivalents.......... $3,865,181
- --------------------------------------------------------
Working capital.................... $1,739,906
- --------------------------------------------------------
Total assets....................... $ 18,120,442
- --------------------------------------------------------
Long-term obligations.............. -
- --------------------------------------------------------
Total stockholders' equity......... $ 15,834,591
- --------------------------------------------------------
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this Form
10-QSB.
OVERVIEW
We, China Broadband Corp., are a development stage company, which means
we are in the process of developing our business. We have incurred losses since
our inception, and as of March 31, 2001, we had an accumulated deficit of
$4,869,359. We anticipate that we will continue to incur losses in the
foreseeable future. Our auditors have expressed considerable doubt that we will
be able to continue as an ongoing business. Our consolidated financial
statements have been prepared on a going concern basis. Our ability to continue
as a going concern is dependent upon our ability to generate profitable
operations in the future and to obtain the necessary financing to meet
11
our obligations and repay our liabilities arising from normal business
operations when they come due. The outcome of these matters cannot be predicted
with any certainty. Our consolidated financial statements do not include any
adjustments to the amounts and classification of assets and liabilities that may
be necessary should the Company be unable to continue as a going concern.
We, through, Big Sky Network Canada Ltd., a wholly-owned subsidiary
incorporated on May 20, 1999 as a British Virgin Islands corporation, enter into
Chinese government-approved cooperative joint venture relationships with Chinese
partners. Our Chinese partners must be licensed to own and operate high speed
broadband networks and to provide Internet access services to their customers
for a fee. Our joint ventures provide, install and maintain the equipment that
such customers require, and charge a separate fee for such equipment and
services.
Our Chinese partner is responsible for obtaining the necessary Chinese
permits, approvals and licenses. From previous experience, the process of
obtaining required permits, approvals and licenses takes approximately three to
six months. We are not obliged to invest any capital in any particular joint
venture until our Chinese partner has secured the following:
o Approval from the applicable Department of Foreign Trade and Economic
Cooperation approving the establishment of the joint venture;
o Business License from the State Administration of Industry and Commerce
confirming the establishment of the joint venture; and
o Permit from the applicable Posts and Telecommunications Administration
Bureau or other delegate of the Ministry of Information Industries
authorizing our Chinese partner to engage in the business of providing
connections to international computer information networks.
As of March 31, 2001, we have formed the following joint ventures:
- SHEKOU JOINT VENTURE: Shenzhen China Merchants Big Sky Network Ltd., a
joint venture with China Merchants Shekou Industrial Zone Ltd., based in
Shekou, Shenzhen, Guangdong Province;
- CHENGDU JOINT VENTURE: Sichuan Huayu Big Sky Networks Ltd., a
joint venture with Chengdu Huayu Information Industry Co. Ltd., based
in Chengdu, Sichuan Province.
We have also reached agreement to establish a third joint venture,
which is in the process of obtaining Chinese government approval:
- DEYANG JOINT VENTURE: Deyang Guangshi Big Sky Ltd., a joint venture
with Deyang Guangshi Network Development Ltd., based in Deyang, Sichuan
Province.
The Shekou Joint Venture's services were launched on June 30, 2000. The
Chengdu Joint Venture's services were launched on October 26, 2001. We are
currently concentrating efforts to assist the Shekou Joint Venture and Chengdu
Joint Venture in expanding the joint ventures' subscriber base. Service in
Deyang is expected to commence when Chinese regulatory approval is received,
which is anticipated to occur in the second quarter of 2001, and once equipment
and software is installed.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Our History
On April 14, 2000, we acquired all of the issued and outstanding shares
of China Broadband (BVI) Corp., in exchange for 13,500,000 shares of our common
stock. Because we had only 1,509,850 (post reverse-split) shares issued and
outstanding on the date of our acquisition, the former shareholders of China
Broadband (BVI) Corp., acquired control over the predecessor company. In
instances like this, accounting principles require that the transaction be
reflected in financial statements as a reverse acquisition. In this case, common
control started immediately after the completion of the acquisition, effectively
April 14, 2000. Consequently, under the principles of reverse acquisition
12
accounting China Broadband (BVI) Corp. was deemed to be the acquirer and our
consolidated financial statements are presented as a continuation of the
financial position and results from operations of China Broadband (BVI) Corp.
Subsequent to our acquisition of China Broadband (BVI) Corp., China
Broadband Corp. completed three private placements totaling 3,331,667 shares of
common stock for net proceeds of $11,316,692.
On September 29, 2000, we acquired the remaining 50% interest (50,000
shares) in Big Sky Network, our operating subsidiary, from SoftNet Systems,
Inc., bringing our ownership to 100%. As consideration for the 50,000 shares of
Big Sky Network Canada Ltd., we paid SoftNet Systems, Inc. $12.7 million as
follows:
o $2,500,000 in cash,
o a promissory note in the principal amount of $1,700,000,
o forgiveness of debt if any, and
o issued 1,133,000 shares of our common stock at the fair market
value of $8,497,500.
The promissory note requires the principal and interest of 8% per annum
to be paid in full on September 30, 2001. We did not record any debt obligation
of SoftNet Systems, Inc., consequently, there was no debt foregiveness in
connection with the transaction. As a result of our purchase of SoftNet's
interest in Big Sky Network, we had additional non-cash expenses related to the
inclusion of the equity share of losses in our Chinese joint ventures and
depreciation and amortization of capital and intangible assets in our financial
statements.
We had no business activities prior to February 1, 2000. During the
last half of 2000, we launched our commercial operations in China and our Skekou
Joint Venture received its first subscriber revenues as the operating facilities
transitioned from start-up to operation. In Chengdu, we launched our first major
metropolitan operation in October, 2000. During the fourth quarter 2000, we
entered into a Joint Venture Contract with Deyang Guangshi Development Ltd. to
form a joint venture based in Deyang, Sichuan Province. Our Deyang joint venture
partner is in the process of seeking regulatory approvals.
Our success will depend on the acceptance of broadband Internet
services in China, which remains unproven. Our joint ventures may not be able to
attract and retain subscribers, or they may face intense competition, which
could have an adverse effect on our business, financial condition and results of
operations.
RESULTS OF OPERATIONS
The following management's discussion relates to the three month fiscal
period ended March 31, 2001. We began operations on February 1, 2000 (date of
inception) and had no significant activities from February 1, 2000 through March
31, 2000. Management believes that a comparative period discussion of the three
month period ended March 31, 2001 to the period from inception to March 31,
2000, would not be meaningful.
THREE MONTH PERIOD ENDED MARCH 31, 2001.
REVENUES. During the three month period ended March 31, 2001, we earned
no revenues from sales. We earned interest income of $56,423 from cash and
short-term deposits.
During the three months ended March 31, 2001, the Shekou Joint Venture
received revenues from subscribers of approximately $110,000. During the three
month period ended March 31, 2001, the Shekou Joint Venture connected
approximately 670 subscribers, and as a result, the Shekou Joint Venture had
approximately 1,884 subscribers with Internet connection. The Shekou Joint
Venture has 3,300 subscribers waiting to be connected as of March 31, 2001. We
anticipate that the Shekou Joint Venture will connect approximately 2,000
additional subscribers during the quarter ended June 30, 2001.
The Chengdu Joint Venture began commercial operations near the end of
2000, and as of March 31, 2001, had approximately 11 subscribers with Internet
connection. The Chengdu Joint Venture does not currently have any
13
additional subscribers awaiting connection. The Chengdu Joint Venture did not
generate any material revenues during the quarter ended March 31, 2001.
Our joint ventures generate revenues through charging an access fee to
the subscriber for use of the equipment that enables their access to the
Internet through their cable television system. Under the terms of the existing
Joint Venture Contracts, the net profits will be distributed to each of the
joint venture parties each year after the joint venture has paid applicable
taxes and set aside the reserve, expansion and staff welfare and bonus funds
mandated by the joint venture contract and Chinese law. These dividends and
distributions are paid to Big Sky Network. These payments may be exchanged into
US currency and repatriated under Chinese law and with the Department of Foreign
Trade and Economic Cooperation approval. The payment of dividends and
distributions from our joint ventures are subject to restrictions under Chinese
law. Our operations in China are also subject to significant legal and
operational uncertainties, such as the potential application of regulations that
prohibit foreign investment in the telecommunications industry in China or that
restrict the remittance of foreign exchange outside of China and the uneven
quality and reliability of telecommunications networks in China.
EXPENSES: During the three month period ended March 31, 2001, we incurred
general operating expenses of $1,219,849. These expenses included the following:
Calgary office $ 154,899
Beijing office 240,000
Professional services 148,879
Investor relations 19,613
Amortization 533,681
Non-cash stock compensation 52,665
Miscellaneous 70,112
----------
$1,219,849
Calgary office expenses consist primarily of costs associated with
maintaining our principal business office in North America. These expenses
including hiring costs, consulting expenses related to 1 administrative and 5
management consultants in Canada, rent expense, insurance expenses and general
office expenses. Calgary office expenses are anticipated to remain stable during
the balance of 2001.
Beijing office expenses consist primarily of costs associated with
maintaining our business operations office in China. These expenses including
hiring costs, accommodations for contract personnel on short-term assignments,
consulting expenses related to 5 non-joint venture management consultants in
China, other consulting fees, rent expense related to our office in Beijing,
travel expenses, insurance expenses and general and other operating costs not
related to the joint ventures. Beijing office expenses are anticipated to
increase during 2001 as we concentrate efforts on assisting our joint ventures
in expanding their subscriber base in Shekou and Chengdu and as our Deyang Joint
Venture commences operation once Chinese regulatory approval is received, which
is anticipated in the second quarter of 2001.
Professional services consist of expenses for professional fees in the
amount of $94,365 associated with our year-end accounting and audit review and
legal fees in the amount of $22,518 for services related to our Securities and
Exchange Commission filings, legal research related to our business and the
preparation of joint venture related legal documents. In addition, we paid
consulting fees in the amount of $31,996 for consulting services related to
corporate governance. We anticipate that professional fees related to accounting
and review will remain stable for the remainder of 2001; however, we expect our
legal expenses to increase as we defend a legal action filed against us. See
"Legal Proceedings".
Investor relations expenses are related to public relations and
investor relations activities. During the quarter ended March 31, 2001, we
entered into an investor relations arrangement with Armour Capital, under which
we agreed to pay a fee of $10,000 per month for investor relations services
beginning September 2000. During the three month period ended March 31, 2001, we
paid Canaccord Capital $15,000 under an investor relations arrangement, which
expired on March 31, 2001.
Amortization and depreciation expenses resulted primarily from the
acquisition of 50% of Big Sky Network. Non-cash stock compensation related to
550,000 options issued on February 2, 2001 and $10,896 related to the
14
amortization of Warrants issued in 2000. Miscellaneous expenses include web site
maintenance, office supplies and professional development expenses.
Overall, we anticipate that expenses will increase during 2001 for the
following reasons:
o We intend to continue to negotiate and finalize letters of intent and
definitive agreements to form joint ventures;
o We intend to support our joint ventures' efforts as they begin
extensive marketing and promotional campaigns to build subscription
bases in Shekou and Chengdu;
o We will incur expenses related to the launch of joint venture services
in Deyang and other potential areas;
o We will incur costs associated with finance raising activities;
o We will incur costs related to hiring additional personnel/consultants
to provide management, technical and support services to our growing
organization; and
o We will incur other costs related to implementing our business plan and
financing our joint venture obligations.
LOSSES. During the three-month period ended March 31, 2001, we incurred
a loss from our operations of $1,219,849 and an equity loss of $108,753 related
to Big Sky Network's ongoing operating expenses. Our loss for the three-month
period ended March 31, 2001, after interest income of $56,423, was $1,272,179.
We anticipate that we will continue to incur losses for the foreseeable future
until our joint ventures are able to generate profits.
Since we are in the development stage, all losses accumulated since
inception have been considered as part of our development stage activities.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, we had cash and cash equivalents of $3,865,181
and working capital, including cash and cash equivalents, of $1,739,906. Since
inception, we have financed operations primarily through sales of equity
securities and have raised a total of $11,316,692, net of share issuance costs
of $75,811. On a consolidated basis, our current operating cash expenditures are
expected to be approximately $150,000 to $200,000 per month through March 31,
2002. Our future capital requirements may increase based on a number of factors,
including:
o rate of expansion of existing joint ventures,
o rate of signing new joint ventures,
o capital equipment requirements for new joint ventures,
o the level of marketing required to expand our service offerings,
o our joint venture partners' ability to lease additional bandwidth as
our subscriber base expands, and
o price competition in our markets.
Our auditors have expressed considerable doubt that we will be able to
continue as an ongoing business. Our ability to continue as a going concern is
dependent upon our ability to generate profitable operations in the future and
to obtain the necessary financing to meet our obligations and repay our
liabilities arising from normal business operations when they come due. The
outcome of these matters cannot be predicted with any certainty at this time.
15
We anticipate that we will be required to raise an additional $2 to $5
million to fund our current plan of operation through March 31, 2002. See "Plan
of Operation." In addition, on March 8, 2001, Big Sky Network Canada Ltd.
entered into a preliminary agreement to form a joint venture with Changsa Guang
Da Television Broadcast Network Ltd. to provide Internet technology service in
Hunan Province. The term of the contract is 18 years, and Big Sky Network will
receive 65% of the net revenue during the first five years, 50% for the next
five years and 40% thereafter. Under the terms of the agreement, we have
committed to invest $18 million of capital and equipment, staged over the life
of the joint venture agreement. Our initial investment during 2001 is
anticipated to be $1 million, with subsequent investments in amounts to be
determined through our negotiations of the definitive joint venture agreements
with our Chinese joint venture partner.We cannot assure you that the joint
venture will receive government regulatory approval or that sufficient financing
will be available to meet our investment commitment.
On March 29, 2001, a legal action was filed against us and our Chief
Executive Officer by certain investors, seeking among other things, damages in
the amount of $7,000,000, an accounting of profits and a order which may
prohibit us from expending funds to fund our business. See "Legal Proceedings."
Although we believe the claim is without merit and will vigorously defend
ourselves against the claims, we cannot assure you that the court will not grant
the plaintiffs interim relief, which could affect our ability to fund our plan
of operation. The lawsuit may adversely affect our ability to obtain additional
financing.
Our principal source of capital has been equity financing from
investors and our founders. We are exploring opportunities for equity financing,
vendor financing, bank credit facilities and export credit agency arrangements.
Meeting our future financing requirements is expected to be dependent on access
to equity capital markets. We may not be able to raise additional equity when
required or on favorable terms that are not dilutive to existing shareholders.
The growth of our business in China will require capital investments in
China for the foreseeable future. The joint ventures have generated nominal
revenues to date and any future profits will likely be re-invested in additional
joint ventures. At a future date when surplus earnings in the joint ventures
occurs, there can be no assurance that the joint ventures will be able to pay
dividends from China due to restrictions under Chinese law. We estimate that the
operating cash break even point for the facilities in Shekou will require the
equivalent of 3,000 subscribers at present pricing structures. The Chengdu Joint
Venture efforts to obtain paying subscribers has been slower than anticipated,
and we estimate that operating cash break even point for the facilities in
Chengdu will require the equivalent of 4,000 subscribers at present pricing
structures. We cannot assure you that our joint ventures will attract a
sufficient number of subscribers to become commercially profitable or that our
projections will not change as a result of changes in the economy or other
conditions.
During the three-month period ended March 31, 2001, we completed the
following transactions:
o On February 2, 2001, we issued an additional 550,000 stock options
under the 2000 Stock Option Plan. The Options were granted at an
exercise price of $7.50, fully vested, for a term of three years.
o On February 13, 2001, we announced that we had entered into an agree-
ment with Nortel Networks to purchase equipment and services relating
to the Internet services provided by the joint ventures in China. Under
the terms of the agreement, we have the option of purchasing up to $250
million in equipment and services at discounted prices over a five year
term.
We are in discussions with prospective investors for an additional cash
equity investments and equipment suppliers for vendor financing or leasing
opportunities. We cannot give any assurance that any additional financing can be
finalized in the near future.
OUTLOOK
We have demonstrated that cable television based Internet service can
be operational in China with investment of capital, equipment and technical
skills. We believe that the business climate in China is open to greater use of
the Internet by individuals, schools and businesses. We estimate that our
operational facilities in Shekou and Chengdu can be self-sustaining with a
subscriber base of approximately 3,000 and 4,000 users, respectively. Based on
our previous experience, we believe our third operational site in Deyang will
receive Chinese government approvals in the second quarter of 2001. Our fourth
potential joint venture, Changsa Guang Da, based on our experience, is expected
to receive Chinese government approvals in the third quarter of 2001. Our
marketing efforts in China have resulted in
16
increased opportunities to expand our services in other key cities, and to
develop a significant presence through exclusive arrangements in provincial
capital cities and other strategic locations in China.
We estimate that it requires approximately $1 million of capital,
equipment and technical services to commence commercial Internet service in a
new joint venture. Our current capital resources are limited. There can be no
assurance that we will have sufficient financial, technical and human resources
to undertake new joint ventures or maintain the joint ventures currently in
service.
PLAN OF OPERATION
As of March 31, 2001, our management anticipates that we currently have
sufficient working capital to fund our plan of operation through the third
quarter of 2001.
ESTIMATED CAPITAL REQUIREMENTS
To fund our operations for the twelve months ending March 31, 2002,
management estimates the Company will require additional capital of
approximately $2 million to $5 million. Our current capital and any additional
funds raised are intended to fund the business operations of Big Sky Network,
including the following:
- --------------------------------------------------------------------------------
ESTIMATED FINANCIAL
DESCRIPTION REQUIREMENTS FOR THE
TWELVE MONTH PERIOD
ENDING MARCH 31, 2002
- --------------------------------------------------------------------------------
Shekou Joint Venture - Capital Contributions $0
- --------------------------------------------------------------------------------
Chengdu Joint Venture - Capital Contributions(1) 500,000(2)
- --------------------------------------------------------------------------------
Deyang Joint Venture - Capital Contributions(1) 1,000,000(3)
- --------------------------------------------------------------------------------
Changsa Guang Da Joint Venture - Capital Contributions(1) 1,000,000(4)
- --------------------------------------------------------------------------------
New Joint Venture - Capital Contributions(1) 500,000
- --------------------------------------------------------------------------------
Technical Consulting Expenditures 100,000
- --------------------------------------------------------------------------------
Management Consulting Expenditures 500,000
- --------------------------------------------------------------------------------
Sales and Marketing Expenses 600,000
- --------------------------------------------------------------------------------
Legal and Professional Expenses 200,000
- --------------------------------------------------------------------------------
General Administrative Expenses 700,000
- --------------------------------------------------------------------------------
Capital Raising Expenditures 100,000
- --------------------------------------------------------------------------------
Overhead Expenses 100,000
- --------------------------------------------------------------------------------
Miscellaneous 100,000
- --------------------------------------------------------------------------------
SoftNet Promissory Note Payment 1,700,000
- --------------------------------------------------------------------------------
TOTAL $7,100,000
- --------------------------------------------------------------------------------
1) These estimates represent capital investments only and do not represent
contributions of equipment or technical services. We intend to have these
items underwritten by an expected vendor financing.
2) Under the terms of the Chendgu joint venture agreement, of the total
investment of $5,500,000 required over the term of the agreement, we had
to provide $500,000 within 30 days of the joint venture partner obtaining
all approvals and permits.
3) Under the terms of the Deyang joint venture agreement, of the total
investment of $4,500,000 required over the term of the agreement, we must
provide $1,000,000 within 15 days of the joint venture partner obtaining
all approvals and permits.
4) The payment terms of our obligation of investing $18,000,000 is to
be determined through our negotiations of the definitive joint venture
agreement with our Chinese joint venture partner.
The amount and timing of expenditures during the twelve months ending
March 31, 2002 will depend on the success of any contracts we secure, and there
is no assurance the Company will receive significant revenues or operate
profitably. We anticipate that our current working capital is sufficient to
satisfy our cash requirements through approximately the third quarter of 2001,
thereafter we will require additional financing to continue as a going concern.
Current cash resources are not anticipated to be sufficient to fund the next
phase of our development and management
17
intends to seek additional private equity or debt financing. There can be no
assurances that any such funds will be available, and if funds are raised, that
they will be sufficient to achieve our objective, or result in commercial
success.
We anticipate that we will continue to make capital and equipment
contributions to our joint ventures. We have entered into an agreement with
Nortel Networks to purchase up to $250 million of equipment, software and
services at special pricing for our joint ventures. We cannot assure you that we
will be able to obtain sufficient capital to satisfy all of our obligations
under our joint venture agreements or that any of our joint ventures will be
commercially successful.
We anticipate that we will hire additional technical, administrative
and sales and marketing personnel during the twelve months ending March 31,
2002, although we have no current plans to do so. We also anticipate that our
joint ventures will hire technical, administrative and sales and marketing
personnel during 2001 to support their operations and to launch their services.
We estimate that each joint venture will hire between 8 and 15 employees during
2001, subject to the joint venture's needs and the development stage of their
business.
We do not engage in research and development activities.
PART II
ITEM 1. LEGAL PROCEEDINGS
On April 18, 2001, we were served with a Statement of Claim which had
been filed on March 29, 2001, in the Court of Queen's Bench of Alberta, Judicial
District of Calgary (Action No. 0101-07232), naming China Broadband Corp. and
Matthew Heysel as defendants. The Orbiter Fund Ltd., The Viator Fund Ltd.,
Lancer Offshore Inc. and Lancer Partners Limited Partnership (collectively, the
"Plaintiffs") allege that Mr. Heysel made certain misrepresentations to the
Plaintiffs in connection with the Plaintiffs' purchase of 500,000 shares of
China Broadband Corp.'s common stock at $1.00 per share and 866,667 shares of
China Broadband Corp.'s common stock at $7.50 per share. The Plaintiffs are
seeking, among other things, damages in the amount of $7,000,000, an accounting
of profits and a preservation order preserving the funds obtained from the
Plaintiffs.
We believe the claim against ourselves and Mr. Heysel is without merit
and we intend to vigorously defend ourselves against the claim and will seek an
expeditious dismissal of the claim.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a) SALES OF UNREGISTERED SECURITIES
None.
b) USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits.
EXHIBIT NO. DESCRIPTION
3.1 (1) Certificate of Incorporation of the Company consisting
of the Articles of Incorporation filed with the
Secretary of the State of Nevada on February 9, 1993
3.2 (5) Certificate of Amendment to Articles of Incorporation
of Institute For Counseling, Inc. filed with the
Secretary of the State of Nevada on March 22, 2000
3.3 (3) Certificate of Amendment to Articles of Incorporation
of Institute For Counseling, Inc. filed with the
Secretary of the State of Nevada on April 14, 2000
3.4 (1) By-Laws of the Company, dated November 9, 1993
10.1(2) Purchase Agreement for the Acquisition of China Broad-
band (BVI) Corp. among Institute For Counseling, Inc.
and China Broadband (BVI) Corp.
10.2 (2) Cooperative Joint Venture Contract For Shenzhen China
Merchants Big Sky Network Ltd.
10.3 (4) Common Stock Purchase Agreement dated September 29,
2000, among SoftNet Systems, Inc., China Broadband
Corp. and Big Sky Network Canada Ltd.
10.4 (4) Termination Agreement dated September 29, 2000, among
SoftNet Systems, Inc., China Broadband Corp., Big Sky
Network Canada Ltd. and Matthew Heysel, for himself
and as attorney-in-fact for Daming Yang, Kai Yang,
Wei Yang, Jeff Xue, Donghe Xue, Lu Wang, Wallace
Nesbitt and Western Capital Corp.
10.5 (4) Termination Agreement dated September 29, 2000, among
SoftNet Systems, Inc., China Broadband Corp., Big Sky
Network Canada Ltd., China Broadband (BVI) Corp.,
Matthew Heysel and Daming Yang.
10.6 (5) Cooperative Joint Venture Contract For Sichuan Huayu
Big Sky Network Ltd. dated July 8, 2000
10.7 (5) Strategic Partnership Agreement Between Chengdu Huayu
Information Industry Co., Ltd. and Big Sky Network
Canada Ltd.
10.8 (5) Cooperative Joint Venture Contract For Deyang Guangshi
Big Sky Ltd. dated November 25, 2000
10.9 (5) Consulting Agreement MH Financial Management, for the
services of Matthew Heysel
10.10 (5) China Broadband Stock Option Plan
10.11 (5) Form of Stock Option Agreement
10.12 (5) Form of Restricted Stock Purchase Agreement
10.13 (5) Letter Agreement dated July 25, 2000 by and between
China Broadband Corp. and Canaccord International
Ltd.
10.14 (5) Joint Development Agreement of City-Wide-Area High
Speed Broadband and Data Transmission Services
Networks of China Between Big Sky Network Canada Ltd.
and Jitong Network Communications Co. Ltd.
10.15 (5) Consulting Agreement Daming Yang
10.16 (5) Consulting Agreement and Precise Details Inc. for the
services of Thomas Milne
10.17 (8) Agreement to the Establishment of Cooperation Joint
Venture between Big Sky Network Canada Ltd. and
Zhuhai Cable Television Station, dated May 27, 1999
19
10.18 (8) Letter of Intent, dated March 1, 2000, between Big Sky
Network Canada Ltd. and Dalian Metropolitan Area
Network Center
10.19 (8) Letter of Intent, dated November 8, 2000, between Big
Sky Network Canada Ltd. and Hunan Provincial
Television and Broadcast Media Co. Ltd.
10.20 (8) Preliminary Agreement to Form a Contractual Joint
Venture, dated March 8, 2001 between Big Sky Network
Canada Ltd. and Changsa Guang Da Television
10.21 (6) Purchase and License Agreement, dated September 28,
2000, between China Broadband Corp. and Nortel
Networks Limited
10.22 (6) Amendment, dated January 1, 2001, to the Purchase and
License Agreement between China Broadband Corp. and
Nortel Networks Limited
10.23 (8) Consulting Agreement, dated December 22, 2000, between
China Broadband Corp and Barry L. Mackie
10.24 (8) Consulting Agreement, dated October 1, 2000, between
China Broadband Corp and Richard Lam
10.25 (8) Consulting Agreement, dated October 1, 2000, between
China Broadband Corp and Ping Chang Yung
10.26 (8) Consulting Agreement, dated October 1, 2000, between
China Broadband Corp and YungPC AP
10.27 (7) Common Stock Purchase Agreement dated September 29,
2000, among SoftNet Systems, Inc., China Broadband
Corp. and Big Sky Network Canada Ltd.
10.28 (7) Termination Agreement dated September 29, 2000, among
SoftNet Systems, Inc., China Broadband Corp., Big Sky
Network Canada Ltd. and Matthew Heysel, for himself
and as attorney-in-fact for Daming Yang, Kai Yang,
Wei Yang, Jeff Xue, Donghe Xue, Lu Wang, Wallace
Nesbitt and Western Capital Corp.
10.29 (7) Termination Agreement dated September 29, 2000, among
SoftNet Systems, Inc., China Broadband Corp., Big Sky
Network Canada Ltd., China Broadband (BVI) Corp.,
Matthew Heysel and Daming Yang
16.1 (9) Change in Auditor Letter of Amisano Hanson
16.2 (10) Change in Auditor Letter of Arthur Anderson LLP
21.1 (5) List of subsidiaries of registrant
(1) Previously filed on Form 10-SB on December 2, 1999.
(2) Previously filed on Form 8-K filed on April 28, 2000.
(3) Previously filed on Form 10-KSB on July 11, 2000.
(4) Previously filed on Form 8-K filed on September 29, 2000.
(5) Previously filed on Form S-1 filed on December 6, 2000.
(6) Excluding schedules and exhibits, which the Registrant will
provide to the staff of the United States Securities and
Exchange Commission upon written request.
(7) Previously filed on Form 8-K/A on December 12, 2000.
(8) Previously filed on Form 10-KSB on March 28, 2001.
(9) Previously filed on Form 8K on August 25, 2000.
(10) Previously filed on Form 8K on September 26, 2000.
b) Reports on Form 8-K.
None.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHINA BROADBAND CORP.
Date: May 14, 2001 By: /s/ MATTHEW HEYSEL
------------------
Name: Matthew Heysel
Title: Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2001 By: /s/ THOMAS MILNE
----------------
Name: Thomas Milne
Title: Chief Financial Officer
(Principal Accounting
Officer)
21
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 (1) Certificate of Incorporation of the Company consisting of the
Articles of Incorporation filed with the Secretary of the State of
Nevada on February 9, 1993
3.2 (5) Certificate of Amendment to Articles of Incorporation of Institute
For Counseling, Inc. filed with the Secretary of the State of
Nevada on March 22, 2000
3.3 (3) Certificate of Amendment to Articles of Incorporation of Institute
For Counseling, Inc. filed with the Secretary of the State of
Nevada on April 14, 2000
3.4 (1) By-Laws of the Company, dated November 9, 1993
10.1(2) Purchase Agreement for the Acquisition of China Broadband (BVI)
Corp. among Institute For Counseling, Inc. and China Broadband
(BVI) Corp.
10.2 (2) Cooperative Joint Venture Contract For Shenzhen China Merchants Big
Sky Network Ltd.
10.3 (4) Common Stock Purchase Agreement dated September 29, 2000, among
SoftNet Systems, Inc., China Broadband Corp. and Big Sky Network
Canada Ltd.
10.4 (4) Termination Agreement dated September 29, 2000, among SoftNet
Systems, Inc., China Broadband Corp., Big Sky Network Canada Ltd.
and Matthew Heysel, for himself and as attorney-in-fact for Daming
Yang, Kai Yang, Wei Yang, Jeff Xue, Donghe Xue, Lu Wang, Wallace
Nesbitt and Western Capital Corp.
10.5 (4) Termination Agreement dated September 29, 2000, among SoftNet
Systems, Inc., China Broadband Corp., Big Sky Network Canada Ltd.,
China Broadband (BVI) Corp., Matthew Heysel and Daming Yang.
10.6 (5) Cooperative Joint Venture Contract For Sichuan Huayu Big Sky
Network Ltd. dated July 8, 2000
10.7 (5) Strategic Partnership Agreement Between Chengdu Huayu Information
Industry Co., Ltd. and Big Sky Network Canada Ltd.
10.8 (5) Cooperative Joint Venture Contract For Deyang Guangshi Big Sky Ltd.
dated November 25, 2000
10.9 (5) Consulting Agreement MH Financial Management, for the services of
Matthew Heysel
10.10 (5) China Broadband Stock Option Plan
10.11 (5) Form of Stock Option Agreement
10.12 (5) Form of Restricted Stock Purchase Agreement
10.13 (5) Letter Agreement dated July 25, 2000 by and between China Broadband
Corp. and Canaccord International Ltd.
10.14 (5) Joint Development Agreement of City-Wide-Area High Speed Broadband
and Data Transmission Services Networks of China Between Big Sky
Network Canada Ltd. and Jitong Network Communications Co. Ltd.
10.15 (5) Consulting Agreement Daming Yang
10.16 (5) Consulting Agreement and Precise Details Inc. for the services of
Thomas Milne
10.17 (8) Agreement to the Establishment of Cooperation Joint Venture between
Big Sky Network Canada Ltd. and Zhuhai Cable Television Station,
dated May 27, 1999
22
10.18 (8) Letter of Intent, dated March 1, 2000, between Big Sky Network
Canada Ltd. and Dalian Metropolitan Area Network Center
10.19 (8) Letter of Intent, dated November 8, 2000, between Big Sky Network
Canada Ltd. and Hunan Provincial Television and Broadcast Media
Co. Ltd.
10.20 (8) Preliminary Agreement to Form a Contractual Joint Venture, dated
March 8, 2001 between Big Sky Network Canada Ltd. and Changsa
Guang Da Television
10.21 (6) Purchase and License Agreement, dated September 28, 2000, between
China Broadband Corp. and Nortel Networks Limited
10.22 (6) Amendment, dated January 1, 2001, to the Purchase and License
Agreement between China Broadband Corp. and Nortel Networks
Limited
10.23 (8) Consulting Agreement, dated December 22, 2000, between China Broad-
band Corp and Barry L. Mackie
10.24 (8) Consulting Agreement, dated October 1, 2000, between China Broad-
band Corp and Richard Lam
10.25 (8) Consulting Agreement, dated October 1, 2000, between China Broad-
band Corp and Ping Chang Yung
10.26 (8) Consulting Agreement, dated October 1, 2000, between China Broad-
band Corp and YungPC AP
10.27 (7) Common Stock Purchase Agreement dated September 29, 2000, among
SoftNet Systems, Inc., China Broadband Corp. and Big Sky Network
Canada Ltd.
10.28 (7) Termination Agreement dated September 29, 2000, among SoftNet
Systems, Inc., China Broadband Corp., Big Sky Network Canada Ltd.
and Matthew Heysel, for himself and as attorney-in-fact for Daming
Yang, Kai Yang, Wei Yang, Jeff Xue, Donghe Xue, Lu Wang, Wallace
Nesbitt and Western Capital Corp.
10.29 (7) Termination Agreement dated September 29, 2000, among SoftNet
Systems, Inc., China Broadband Corp., Big Sky Network Canada Ltd.,
China Broadband (BVI) Corp., Matthew Heysel and Daming Yang
16.1 (9) Change in Auditor Letter of Amisano Hanson
16.2 (10) Change in Auditor Letter of Arthur Anderson LLP
21.1 (5) List of subsidiaries of registrant
(1) Previously filed on Form 10-SB on December 2, 1999.
(2) Previously filed on Form 8-K filed on April 28, 2000.
(3) Previously filed on Form 10-KSB on July 11, 2000.
(4) Previously filed on Form 8-K filed on September 29, 2000.
(5) Previously filed on Form S-1 filed on December 6, 2000.
(6) Excluding schedules and exhibits, which the Registrant will
provide to the staff of the United States Securities and
Exchange Commission upon written request.
(7) Previously filed on Form 8-K/A on December 12, 2000.
(8) Previously filed on Form 10-KSB on March 28, 2001.
(9) Previously filed on Form 8K on August 25, 2000.
(10) Previously filed on Form 8K on September 26, 2000.
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