================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________
FORM 10-QSB/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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.)
1980-440-2 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 June 30, 2001 was 19,474,517.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
CHINA BROADBAND CORP.
INDEX TO THE FORM 10-QSB/A
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
PAGE
PART I - FINANCIAL INFORMATION ............................................. 2
ITEM 1. Financial Statements.................................... 2
China Broadband Corp.
Condensed Consolidated Balance Sheet............. 2
Condensed Consolidated Statement of
Operations and Deficit........................... 3
Condensed Consolidated Statement of
Stockholders' Equity............................. 4
Condensed Consolidated Statement of
Cash Flows....................................... 6
Notes to the Condensed Consolidated
Financial Statements ............................ 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition AND Results of Operations .....................15
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings ...................................... 23
ITEM 2. Changes in Securities AND USE OF PROCEEDS............... 23
ITEM 3. Defaults Upon Senior Securities ........................ 23
ITEM 4. Submission of Matters to a Vote of Security Holders..... 23
ITEM 5. Other Information....................................... 24
ITEM 6. Exhibits and Reports on Form 8-K........................ 24
SIGNATURES.................................................................. 27
i
PART I
ITEM 1. FINANCIAL STATEMENTS
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET
(EXPRESSED IN UNITED STATES DOLLARS)
--------------------------------------------------------------------------------------------------------
JUNE 30, 2001 DECEMBER 31, 2000
(UNAUDITED)
$ $
---------------------- -----------------------
ASSETS
CURRENT
Cash and cash equivalents 1,341,488 4,668,128
Due from President (Note 6) 1,538,886 -
Interest and Goods and Services Tax receivable 88,414 64,201
Due from affiliates 48,536 -
Prepaid expenses 30,981 117,119
---------------------- -----------------------
3,048,305 4,849,448
Investment in Shekou joint venture 2,291,680 2,482,018
Investment in Chengdu joint venture 1,629,171 1,321,884
Property and equipment, net 206,165 220,799
Intangible assets:
Intellectual property (Note 5) 758,705 819,402
Shekou joint venture (Note 5) 2,166,826 2,421,788
Chengdu joint venture (Note 5) 4,333,650 4,843,575
Goodwill (Note 5) 1,830,492 2,046,031
---------------------- -----------------------
16,264,994 19,004,945
====================== =======================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 263,108 250,840
Promissory note (Notes 5 and 9) 1,700,000 1,700,000
---------------------- -----------------------
1,963,108 1,950,840
---------------------- -----------------------
CONTINUING OPERATIONS (Note 3)
CONTINGENCIES (Note 7)
COMMITMENTS (Note 8)
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 21,441,331 20,631,344
Deferred compensation (729,958) (57,995)
Accumulated deficit (6,487,423) (3,597,180)
---------------------- -----------------------
14,301,886 17,054,105
---------------------- -----------------------
16,264,994 19,004,945
====================== =======================
See notes to condensed consolidated financial statements.
2
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT (UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
-----------------------------------------------------------------------------------------------------------------------
CUMULATIVE
PERIOD FROM
DATE OF
INCEPTION
THREE MONTHS SIX MONTHS PERIOD FROM FEBRUARY 1,
ENDED ENDED FEBRUARY 1 2000 TO
JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
2001 2000 2001 2000 2001
$ $ $ $ $
----------------- ----------------- ------------------ ----------------- ------------------
REVENUE
Technical consulting - 83,333 - 83,333 208,333
GENERAL AND
ADMINISTRATIVE
EXPENSES (1,441,107) (199,513) (2,660,955) (457,089) (6,346,354)
----------------- ----------------- ------------------ ----------------- ------------------
(1,441,107) (116,180) (2,660,955) (373,756) (6,138,021)
LOSS IN BIG SKY
NETWORK CANADA
LTD. - (80,099) - (80,099) (181,471)
LOSS IN SHEKOU
JOINT VENTURE (50,881) - (104,624) - (307,045)
LOSS IN CHENGDU
JOINT VENTURE (150,560) - (205,570) - (249,276)
INTEREST INCOME 24,484 125,608 80,906 125,608 388,390
----------------- ----------------- ------------------ ----------------- ------------------
NET LOSS (1,618,064) (70,671) (2,890,243) (328,247) (6,487,423)
DEFICIT, BEGINNING
OF PERIOD (4,869,359) - (3,597,180) - -
----------------- ----------------- ------------------ ----------------- ------------------
DEFICIT, END OF
PERIOD (6,487,423) (70,671) (6,487,423) (328,247) (6,487,423)
================= ================= ================== ================= ==================
LOSS PER SHARE
Basic and diluted (0.08) 0.00 (0.15) (0.03) 0.00
================= ================= ================== ================= ==================
SHARES USED IN
COMPUTATION
Basic and diluted 19,474,517 15,415,070 19,474,517 9,679,276 -
================= ================= ================== ================= ==================
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 Stock Paid-in Deferred Accumulated STOCKHOLDERS'
Shares Amount Capital Compensation Deficit EQUITY
$ $ $ $ $
------------- ----------- --------------- ---------------- ----------------- -----------------
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 - - 809,987 (809,987) - -
4
Amortization of deferred
compensation - - - 138,024 - 138,024
Net loss - - - - (2,890,243) (2,890,243)
------------- ----------- --------------- ---------------- ----------------- -----------------
BALANCE,
JUNE 30, 2001
(UNAUDITED) 19,474,517 77,936 21,441,331 (729,958) (6,487,423) (14,301,886)
============= =========== =============== ================ ================= =================
See notes to condensed consolidated financial statements.
5
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 SIX MONTHS PERIOD FROM FEBRUARY 1,
ENDED ENDED FEBRUARY 1 2000 TO
JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
2001 2000 2001 2000 2001
$ $ $ $ $
------------------ ----------------- ------------------ ----------------- -----------------
CASH FLOWS
RELATED TO THE
FOLLOWING
ACTIVITIES
OPERATIONS
Net loss (1,618,064) (70,671) (2,890,243) (328,247) (6,487,423)
Adjustments for:
Depreciation and
amortization 676,830 - 1,210,509 - 1,789,522
Loss in Big Sky Network
Canada Ltd. - 80,099 - 80,099 181,471
Loss in Shekou joint
venture 50,881 - 104,624 - 307,045
Loss in Chengdu joint
venture 150,560 - 205,570 - 249,276
Non-cash stock
compensation 85,359 15,235 138,024 15,235 205,117
Changes in operating assets
and liabilities
Interest and Goods and
Services Tax
receivables 5,043 (39,240) (24,213) (39,240) (88,414)
Due from officers and
employees - (186,114) - (215,056) -
Due from President (Note 6) (1,538,886) - (1,538,886) - (1,538,886)
Prepaid expenses 36,138 (64,217) 86,138 (64,217) (30,981)
Accounts payable and
accrued liabilities (322,743) 34,889 12,268 34,889 (390,690)
Shareholder advances - (24,719) - - -
Unearned revenue - 416,666 - 416,666 -
------------------ ----------------- ------------------ ----------------- -----------------
(2,474,882) 161,928 (2,696,209) (99,871) (5,803,963)
------------------ ----------------- ------------------ ----------------- -----------------
6
FINANCING
Decrease in due to
affiliates (48,536) - (48,536) - (48,536)
Issue of common stock
for cash (net of
issuance costs) - 11,342,320 - 11,842,320 11,816,692
------------------ ----------------- ------------------ ----------------- -----------------
(48,536) 11,342,320 (48,536) 11,842,320 11,768,156
------------------ ----------------- ------------------ ----------------- -----------------
INVESTING
Purchases of property
and equipment - - - - (291,287)
Fixed asset additions (275) (56,910) (11,895) (56,910) -
Investment in Chengdu
joint venture - - (570,000) - (1,935,590)
Increase in due from Big
Sky Network Canada
Ltd. - (2,495,465) - (1,995,465) -
Acquisition of Big Sky
Network Canada Ltd
(net of cash acquired) - - - - (2,395,828)
------------------ ----------------- ------------------ ----------------- -----------------
(275) (2,552,375) (581,895) (2,052,375) (4,622,705)
------------------ ----------------- ------------------ ----------------- -----------------
NET (DECREASE)/
INCREASE IN
CASH AND CASH
EQUIVALENTS (2,523,693) 8,951,873 (3,326,640) 9,690,074 1,341,488
CASH AND CASH
EQUIVALENTS,
BEGINNING OF
PERIOD 3,865,181 738,201 4,668,128 - -
------------------ ----------------- ------------------ ----------------- -----------------
CASH AND CASH
EQUIVALENTS,
END OF PERIOD 1,341,488 9,690,074 1,341,488 9,690,074 1,341,488
================== ================= ================== ================= =================
SUPPLEMENTAL
CASH FLOW
INFORMATION:
Cash paid for income
taxes - - - - -
================== ================= ================== ================= =================
Cash paid for interest - - - - -
================== ================= ================== ================= =================
See notes to condensed consolidated financial statements.
7
CHINA BROADBAND CORP. 1
(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 inter-company 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 and six months ended June 30,
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 provider of equipment and technical services
to support Internet usage 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.
8
CHINA BROADBAND CORP. 2
(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 Chinese joint venture partners may not be able to attract
and retain subscribers to their Internet access services to whom the
Corporation could sell equipment and technical services, or the Chinese
joint venture partners 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 June 30, 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 upon receipt
of approvals required for the establishment of the Deyang joint venture
and for our Chinese partner to provide Internet access services.
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
of the Corporation's joint ventures in the PRC will be denominated in
Chinese Renminbi. Such currency is now convertible into foreign
exchange for "current account" payments, such as the remittance of
dividends to the Corporation and the purchase of imported equipment.
However, there can be no assurance such convertibility will continue in
the future.
9
CHINA BROADBAND CORP. 3
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
--------------------------------------------------------------------------------
3. CONTINUING OPERATIONS (CONTINUED)
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.
Management anticipates that the Corporation currently has sufficient
working capital to fund the Corporation's current operations through
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 to fund the implementation of BSN's business of entering into
joint ventures.
The consolidated operations of the Corporation requires cash of
$200,000 to $225,000 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 7,000
to 7,500 combined subscribers on an annualized basis 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.
10
CHINA BROADBAND CORP. 4
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
--------------------------------------------------------------------------------
4. ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB approved SFAS No. 141, "Business Combinations"
and issued this statement in July 2001. SFAS No. 141 establishes new
standards for accounting and reporting requirements for business
combinations and will require that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use
of the pooling-of-interests method will be prohibited. The Corporation
expects to adopt this statement during the first quarter of fiscal
2002. Management does not believe that SFAS No. 141 will have a
material impact on the Corporation's consolidated financial statements.
In June 2001, the FASB approved SFAS No. 142, "Goodwill and Other
Intangible Assets," which supercedes APB Opinion No. 17, "Intangible
Assets". The FASB issued this statement in July 2001. SFAS No. 142
establishes new standards for goodwill acquired in a business
combination and eliminates amortization of goodwill and instead sets
forth methods to periodically evaluate goodwill for impairment. The
Corporation expects to adopt this statement during the first quarter of
fiscal 2002. During the six months ended June 30, 2001, goodwill
amortization totaled $215,372.
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
===================
11
CHINA BROADBAND CORP. 5
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
--------------------------------------------------------------------------------
5. ACQUISITION OF BIG SKY NETWORK CANADA LTD. (CONTINUED)
The promissory note bears interest at 8% per annum and is payable at
maturity. The principal is due on September 29, 2001 (see Note 9).
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 valuation of the assets was performed
by management. In preparing the valuation management made a number of
assumptions which included the estimated subscriber base in both Shekou
and Chengdu, the market value of subscribers based on values assigned
subscribers in the United States and in Europe, the relationships
established with the governments in the municipalities the Corporation
was considering having operations in, the value of the extensive legal
work in establishing the framework to have operations in China and
discussions on the value of those operations with various vendors.
6. RELATED PARTY TRANSACTION
To facilitate its business activities in China, the Corporation elected
to set up banking facilities in Hong Kong with its established Canadian
bank. The Corporation deposited $2 million into an established personal
account of the Corporation's President, Daming Yang, based upon an oral
agreement that such funds would be transferred into the Corporation's
Hong Kong account when established. No formal or written agreement was
entered into with respect to such funds. The banking documentation
process commenced in April 2001 was not completed until September 10,
2001.
During the interim period, Mr. Yang held the Corporation's funds under
the terms of an oral agreement with the Corporation, under which Mr.
Yang agreed to pay expenses related to the Corporation's operations in
China on behalf of the Corporation as instructed by the Corporation's
Chief Executive Officer and Chief Financial Officer. Mr. Yang paid
expenses on behalf of the Corporation when presented with invoices and
instructions from the Corporation's Chief Executive Officer and Chief
Financial Officer. Mr. Yang paid office expenses and salary expenses as
instructed by the Corporation's Chief Executive Officer and Chief
Financial Officer in accordance with the operating budget approved by
the Corporation's Board of Directors.
The following transactions were processed during the time that Mr. Yang
was in possession of the Corporation's funds:
DATE DESCRIPTION AMOUNT
April 17, 2001 Transfer $2,000,000 (less service charges) $1,999,992.43
April 28, 2001 Deposit interest 1618.03
May 15, 2001 Purchase of Modems ($270,000.00)
May 15, 2001 Purchase Term Deposit ($1,500,000.00)
May 31, 2001 Deposit Interest 1730.51
June 28, 2001 Term Deposit Matured $1,505,239.37
June 28, 2001 Purchase Term Deposit ($1,000,000.00)
June 28, 2001 Wire transfer to Chengdu re: Registration & Investment
Wire transfer in transit until July 10, 2001. ($200,000.00)
June 30, 2001 Deposit Interest $305.65
July 7, 2001 Purchase of equipment from Cisco ($90,206.00)
July 7, 2001 Beijing Office expenses for May, June & July ($180,000.00)
July 31, 2001 Interest on account $288.22
August 10, 2001 Salary expenses ($20,032.12)
August 10, 2001 Beijing Office expenses for August & September ($120,032.12)
August 31, 2001 Interest on account 174.50
September 21, 2001 Term Deposit Transferred in 1,005,580.15
September 21, 2001 Salary Expense (15,032.12)
September 21, 2001 Beijing Office expenses for October (55,032.12)
September 21, 2001 Service Fee on Transfer of Funds (32.12)
---------------------------------------------------------------------------------------------------------
BALANCE UPON TRANSFER TO HSBC - HONG KONG $1,064,562.26
=============
During the quarter ended June 30, 2001, the Corporation authorized Mr.
Yang to disburse, from his account, on the Corporation's behalf,
$270,000 to pay for modems purchased for the Chengdu Joint Venture and
initiate a wire transfer of $200,000 as a working capital contribution
in Chengdu. The Corporation earned $8,893.56 in interest on the funds
held by Mr. Yang, for the Corporations's benefit.
Subsequent to the quarter ended June 30, 2001, the Corporation
authorized Mr. Yang to disburse, from his account, on the
Corporation's behalf, $90,206 for the purchase of equipment, $355,000
for Beijing office expenses and $35,000 for salary expenses in China. A
total of $5,882.27 of interest was earned on the Corporation's funds
held in Mr. Yang's account subsequent to June 30, 2001.
On September 10, 2001, a Hong Kong branch of Hong Kong Shanghai Banking
Corporation established an account for the Corporation and the funds
held by Mr. Yang, totaling $1,064,562.26, were transferred to the
Corporation's account on September 21, 2001. Mr. Yang received no
benefit from holding the funds.
7. 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. On October 19, 2001,
a Discontinuance of Action was filed by the Plaintiffs to dismiss the
lawsuit.
12
CHINA BROADBAND CORP. 6
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
--------------------------------------------------------------------------------
8. 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 Changsha Guang Da Television Broadcast Network
Ltd. ("Changsha Guang Da") to provide Internet technology
service in Hunan Province, PRC. The agreement, subject to
government approvals, commits Changsha 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 Changsha
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.
c) On May 1, 2001, the Corporation entered into an agency
agreement for financial advisors services for a period of six
months commencing May 1, 2001. As compensation for services,
the Corporation will pay a monthly fee of Cdn$10,000
(US$6,540).
9. SUBSEQUENT EVENT
On July 27, 2001, the Corporation completed a transaction to cancel a
promissory note payable (see Note 5).
The promissory note was surrendered for a warrant to purchase 500,000
shares of the Corporation's common stock at a price of $1.00 per share.
The warrant expires on July 27, 2003. A payment of $115,290.43 was also
made representing the accrued interest on the promissory note from
September 29, 2000 to the closing date at a rate of 8% per annum. Using
the Black-Scholes method of valuing warrants, the warrants have a value
of $277,775, that will result in an extraordinary gain of $1,422,225
in the third quarter. The gain will result in an income tax expense of
approximately $498,000, however, the Corporation has sufficient losses
carried forward to offset the expense.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following table represents unaudited pro forma consolidated
information as at June 30, 2001 and December 31, 2000, had the
promissory note been cancelled on December 31, 2000. The pro forma data
is presented for illustrative purposes only and is not necessarily
indicative of the results of operations of future periods or the
results that actually would have occurred had the promissory note been
cancelled for the entire six month period ending June 30, 2001.
The pro forma results include the impact of certain adjustments
primarily cash, liabilities, paid in capital, accumulated deficit and
interest expense.
13
CHINA BROADBAND CORP. 7
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
--------------------------------------------------------------------------------
9. SUBSEQUENT EVENT (CONTINUED)
-------------- --------------
JUNE 30, December 31,
2001 2000
-------------- --------------
Pro forma cash 1,227,348 4,554,102
Pro forma liabilities 149,082 212,831
Pro forma additional paid in capital 21,719,106 20,909,119
Pro forma accumulated deficit 4,998,146 2,254,981
Pro forma interest expense/fees - 114,026
)
Number of shares 19,474,517 19,474,517
14
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 and on Form S-1, Amendment No. 5 which were 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 PERIOD PERIOD FROM FEBRUARY
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED 1, 2000 TO
ENDED JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------------------------------------------------------------------------
Net Sales $0 $83,333 $0 $83,333
Loss from operations $1,441,107 $116,180 $2,660,955 $373,756
Net loss $1,618,064 $70,671 $2,890,243 $328,247
Basic loss per share ($0.08) ($0.00) ($0.15) ($0.03)
Basic weighted average
common shares
outstanding 19,474,517 15,415,070 19,474,517 9,679,276
---------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
----------------------------------------------------------------------------------------------
June 30, 2001 December 31, 2000
(unaudited) (audited)
----------------------------------------------------------------------------------------------
Cash and cash equivalents $1,341,488 $4,668,128
Working capital $1,085,197 $2,898,608
Total assets $16,264,994 $19,004,945
Long-term obligations - -
Total stockholders' equity $14,301,886 $17,054,105
----------------------------------------------------------------------------------------------
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this Form
10-QSB/A.
OVERVIEW
We were inactive from the date of our incorporation on February 9, 1993
through December 31, 1997. Through December 31, 1997, no significant capital was
raised and no significant expenses incurred. Our share capital at December 31,
1997 consisted of 100 common shares which was paid in capital of $100. During
our fiscal year ended
15
December 31, 1998, we raised $59,971 in capital by selling 2,319,000 common
shares, and incurred start up expenses of $25,095.
On April 14, 2000, we completed a reverse-split of our common stock on
a .65104 for 1 basis reducing our issued and outstanding share capital to
1,509,850 shares of common stock. All information contained in this prospectus
gives effect to the reverse-split.
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
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.
Following our acquisition of China Broadband (BVI) Corp., SoftNet
Systems Inc. acquired an additional 40,000 common shares of China Broadband
(BVI) Corp.'s subsidiary, Big Sky Network Canada Ltd. at a price of $2 million.
The 40,000 shares of Big Sky Network, when added to 10,000 shares of Big Sky
Network previously acquired by SoftNet for $500,000, increased SoftNet's
ownership in Big Sky Network to 50%. The original $500,000 invested in Big Sky
Network was used for working capital and the further $2.0 million was used to
fund Big Sky Network's Shekou joint venture. On September 29, 2000, we purchased
SoftNet's 50% interest in Big Sky Network through China Broadband (BVI) Corp.,
bringing our indirect ownership interest in Big Sky Network to 100%, for
$12,697,500 in the form of the following consideration:
o $2,500,000 in cash;
o a promissory note in the principal amount of $1,700,000, due
September 29, 2001, with interest payable at maturity at the rate
of 8% per annum;
o forgiveness of debt owed, if any, as at the closing date of the
transaction. No debt was owed as of the closing date; and
o 1,133,000 shares of our common stock at a deemed value of $7.50
per share.
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.
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 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. Management is addressing this concern with a plan of equity
and debt financing and profits from future dividends from our joint ventures.
RESULTS OF OPERATIONS
Revenues
CHINA BROADBAND CORP.
For the 3 months and 6 months ended June 30, 2001, the Company did not
earn revenues compared to $83,333 for the 3 months and 6 months ended June 30,
2000. The Company provided technical consulting services to Big Sky Network from
May 1, 2000 to April 30, 2001 pursuant to a Technical Services Agreement with
Big Sky Network. The acquisition of the remaining 50% interest of Big Sky
Network by the Company on September 29, 2000 required that the revenue from this
arrangement be eliminated on consolidation from the acquisition date forward.
The Company earns revenues through its ownership interest in the
operating joint ventures in China.
16
SHEKOU JOINT VENTURE
For the 3 months ended and 6 months ended June 30, 2001, the Company
received subscriber revenue of approximately $89,900 and $199,900, respectively,
compared to nil for the comparative periods of 2000.
The Shekou joint venture commenced to provide services on June 30,
2000. As at June 30, 2001, the Shekou Joint Venture has 3,046 subscribers
connected, and 3,206 subscribers awaiting connection. We anticipate
approximately 1,600 new subscribers will be connected during the upcoming
quarter ending September 30, 2001.
CHENGDU JOINT VENTURE
The Chengdu joint venture commenced operations on October 26, 2000. At
June 30, 2001, the Chengdu joint venture has 554 subscribers connected, and 120
subscribers awaiting connection. We anticipate approximately 500 new subscribers
will be connected during the upcoming quarter ending September 30, 2001. The
Chengdu joint venture connected 513 subscribers during June 2001. In order to
penetrate this new market, new subscribers are provided with free Internet
access for a period of three months. As a result, this joint venture has not
reported any revenue during 2001 and 2000.
We anticipate revenues from the Shekou and Chengdu joint ventures to
increase in the quarter ending September 30, 2001, as we connect more
subscribers and the free access period in Chengdu expires.
DEYANG JOINT VENTURE
We supplied equipment and technical expertise to our joint venture
partner to conduct a beta test to determine the compatibility of our systems. We
will commence commercial operations once our joint venture partner has conducted
a successful beta test and obtained the appropriate governmental permits and
approvals. Management does not anticipate any significant revenues from this
joint venture during 2001.
Our joint ventures generate revenues from fees charged to subscribers
for use of the joint ventures modems that enable connection to the Internet
through the 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. The net profits to be distributed
will be 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 3 months ended June 30, 2001, and 6 months ended June 30,
2001, we incurred operating expenses of $1,441,107 and $2,660,955 respectively
compared to expenses of $199,513 and $457,089 for the respective quarters of
2000. Expenses have increased during the second quarter of 2001 over the first
quarter of 2001 due to executive management spending more time in China to
increase the subscriber base in Chengdu, assist in the beta test in Deyang, and
oversee our increased investment in China.
The following table shows comparative expenses for the 3 months ended
June 30, 2001, and 6 months ended June 30, 2001, with their comparative amounts
for 2000.
17
General Operating Expenses
---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTH ENDED SIX MONTH PERIOD ENDED PERIOD FROM FEBRUARY
1, 2000 TO
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------------------------------------------------------------------------
Calgary Office Costs $342,328 $98,310 $530,695 $124,084
Beijing Office Costs $128,200 $368,200
Professional Services $85,069 $75,426 $233,948 $209,788
Investor Relations $96,042 $115,655
Amortization $676,831 $1,210,510
Non Cash Compensation $85,359 $15,235 $138,024 $13,235
Misc. $27,278 $10,542 $63,923 $10,982
- ------- ------- ------- -------
TOTAL $1,441,107 $199,513 $2,660,955 $457,089
---------------------------------------------------------------------------------------------------------------------
Calgary office expense includes the costs of 6 executive management
consultants (including the Chief Executive Officer, President, Chief Financial
Officer, Chief Technology Officer, Vice President-Network Engineering, and Vice
President-Systems Engineering) and 1 administrative consultant in Canada,
travel, rent, telephone, insurance, and other offices costs associated with
maintaining a principal business office in North America. Calgary office costs
have increased for the 3 months ended June 30, 2001 and for the 6 months ending
June 30, 2001, compared to the same periods of 2000. The increase in cost is
attributable to the implementation of our business plan during the second half
of 2000. We expect our travel costs to increase in the upcoming quarter as we
work to secure additional financing.
Beijing office costs include the costs of maintaining business
operations in China. These include salaries and contract fees for 5 non-joint
venture management consultants and their travel, office rent, insurance, and
other non joint venture costs. Also included is a one-time bonus paid to the
staff of $40,000. The Beijing office was not in place for the first half of 2000
and there are no comparative amounts. We plan to recruit a financial controller
in the third quarter of 2001 to centralize our financial accounting activities
in China. This will increase costs in the upcoming quarters.
Professional services include costs for accounting, audit and legal
advisory expense related to the preparation of our reports under the Securities
Exchange Act of 1934 as amended and other government reporting costs as well as
the preparation of contractual agreements. We expect our accounting and audit
fees to remain constant. We expect our legal costs to increase as we defend
legal action filed against us. See "Note 7 - Contigencies" to the unaudited June
30, 2001 financial statements.
Investor relations expense includes those costs related to public
relation activities and fees paid to investor relations services under two
investor relations arrangements. We paid Canaccord Capital Europe $30,000 under
an arrangement extended until April 20, 2001. We also retained Armor Capital for
the period May 1, 2001, to November 1, 2001, for a monthly fee of Cdn$10,000
(approximately US$6,500) to introduce us to institutional investors as we work
towards securing additional financing in the upcoming quarter. We do not
anticipate entering into any further arrangements during the quarter ending
September 30, 2001.
Amortization and depreciation expense result from the amortization of
the cost of the acquisition of Big Sky Network and depreciation of office
equipment and leasehold improvement's in the North American office.
Non-cash compensation relates to amortization of 100,000 warrants
issued on November 1, 2000, amortization of 450,000 options granted on February
2, 2001, and amortization of 10,000 options granted on June 29, 2001. This
results in a non-cash compensation expense of $85,359 for the 3 months ended
June 20, 2001, and $138,024 for the 6 months ended June 30, 2001. There were no
comparative amounts for the 3 months ended June 30, 2000, and 6 months ended
June 30, 2000.
18
Overall, we anticipate that expenses will increase during 2001 compared
to 2000 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
For the 3 months ended June 30, 2001, and 6 months ended June 30, 2001,
we incurred a loss from operations of $1,441,107 and $2,660,955, respectively.
We had an equity loss from the Shekou and Chengdu joint ventures' activities in
China for the 3 months ending June 30, 2001, and the 6 months ending June 30,
2001, of $201,441 and $310,194, respectively. Our loss was reduced by interest
income of $24,484 for the 3 months ended June 30, 2001, and $80,906 for the 6
months ended June 30, 2001, to a net loss of $1,618,064 for the 3 months ended
June 30, 2001, and a net loss of $2,890,243 for the 6 months ended June 30,
2001.
For the comparable period of 2000, we incurred a net loss of $70,671
for the 3 months ended June 30, 2000, and a net loss of $328,247 for the 6
months ended June 30, 2000, after interest income of $125,608 for the 3 and 6
months ending June 30, 2000.
We anticipate losses to continue as we build our subscriber base in the
Chengdu and Shekou joint ventures.
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 June 30, 2001, we had cash and cash equivalents of $1,341,488 and
working capital, including cash and cash equivalents, of $1,085,197. 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 $200,000 to $225,000 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.
During the period ended June 30, 2001, our board of directors
determined that it was in the best interest of the corporation to establish a
banking relationship and accounts in Hong Kong to fund its activities in Asia.
We commenced discussions with the Hong Kong branch of Hong Kong Shanghai Bank
Corporation in April 2001 and completed the documentation to establish an
account as approved by its Board of Directors. We transferred $2,000,000 into an
established personal account of our President, Daming Yang, in anticipation of
depositing funds into the Company's HSBC - Hong Kong account. We had an oral
agreement with Mr. Yang under which he was to hold the money for the Company and
transfer such funds after our HSBC account was opened, which was anticipated to
take a few days. We had no formal or legal agreement with Mr. Yang related to
the funds. The process of establishing the account, however, was repeatedly
delayed by HSBC Hong Kong's request for information and certified copies of
various corporate and other documents, in notarized form, including notarized
copies of the passports of the Company's officers and at least on independent
director. We worked diligently with HSBC Hong Kong and its branch in Calgary to
provide HSBC Hong Kong with the requested documentation and information.
During the interim period, Mr. Yang held the funds under the terms of
an oral agreement with us, under which Mr. Yang agreed to pay expenses related
to our operations in China on our behalf as instructed by our Chief Executive
Officer and Chief Financial Officer. Mr. Yang paid expenses on our behalf when
presented with invoices and instructions from our Chief Executive Officer and
Chief Financial Officer. Mr. Yang paid office expenses and salary expenses as
instructed by our Chief Executive Officer and Chief Financial Officer in
accordance with the operating budget approved by our Board of Directors.
During the quarter ended June 30, 2001, Mr. Yang disbursed, from his
account, on our behalf, $270,000 to pay for modems purchased for our Chengdu
Joint Venture and $200,000 as a working capital contribution in Chengdu. We
earned $8,893.56 in interest on the funds held by Mr. Yang, for our benefit.
Subsequent to the quarter ended June 30, 2001, Mr. Yang disbursed, from
his account, on our behalf, $90,206 as an initial payment for the purchase of
equipment, $355,000 for Beijing office expenses and $35,000 for salary expenses
in China. A total of $5,882.27 of interest was earned on our funds held in Mr.
Yang's account subsequent to June 30, 2001.
On September 10, 2001, HSBC Hong Kong established an account for the
Company and the funds held by Mr. Yang, totalling $1,064,562.26, were
transferred to our account on September 21, 2001. Mr. Yang received no benefit
from holding the funds.
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. We will be unable to
continue as a going concern if we are unable to earn sufficient revenues from
our operations or to raise additional capital through debt or equity financings
to meet our working capital and joint venture capital contribution obligations.
The outcome of these matters cannot be predicted with any certainty at this
time.
19
We anticipate that we will be required to raise an additional $6
million to fund our current plan of growth and existing operations through June
30, 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.
As disclosed in our Form 10-QSB filed on May 15, 2001, a legal action
was filed on March 29, 2001, 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. On October 19, 2001, a Discontinuance of
Action was filed by the Plaintiffs to dismiss the lawsuit.
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 - 3,500 subscribers on an annualized basis at present
pricing structures. The Chengdu Joint Venture's 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 on an annualized basis 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 six-month period ended June 30, 2001, we completed the
following transactions:
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.
On February 13, 2001, we announced that we had entered into an
agreement 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 $250 million in
equipment and services at discounted prices over a five-year term.
On June 1, 2001, Shanghai Min Hang Cable Television Center forwarded to
Big Sky Network an expression of interest in the two companies working together
to form a joint venture.
On June 18, 2001, Big Sky Network entered into a Memorandum of
Understanding with Beijing Gehua Cable TV Networks Co., Ltd. to jointly develop
broadband Internet network services. We are to supply equipment, technology,
capital and personnel. Beijing Gehua will supply a network of 10,000 subscribers
as a test group.
On June 20, 2001, Big Sky Network entered into a Letter of Intent with
Chongqing Branch of Ji Tong Network Communications Co., Ltd. to jointly build
Internet networks. Under the terms of the agreement, we will provide 80 million
RMB (US$ 9.64 million) and technical personnel. The agreement calls for the
project to be deployed in two stages. The first stage consisting of connecting
60,000 households before the end of 2001 and stage two calls for the number of
connected households to be 100,000.
20
On June 29, 2001 we issued an additional 460,000 stock options under
the 2000 Stock Option Plan. These options were granted at $1.00 for a term of 5
years. One third of the options vested upon granting with the balance vesting
one third on the first anniversary of the grant and the last third vesting on
the second anniversary of the grant.
Subsequent to the six-month period ended June 30, 2001, we completed
the following transactions:
On July 10, 2001, Big Sky Network entered into a Memorandum of
Understanding with Fujian Provincial Radio and TV Network Co. Ltd. to pursue
negotiations to develop and build a broadband data transmission network jointly.
On July 27, 2001, China Broadband Corp. and Canaccord International
Ltd. completed a promissory note cancellation transaction, under which the
$1,700,000 Promissory Note we issued to SoftNet was surrendered for cancellation
Canaccord International Ltd. for the following consideration:
o A Warrant to purchase 500,000 shares of our common stock at a
price of $1.00 per share, exerciseable until July 27, 2003. The
Warrant has not been registered and the Warrant was issued
pursuant to an exemption from registration under Regulation S
promulgated under the Securities Act of 1933.
o A payment of $115,290.43 representing the accrued interest on the
Promissory Note to the date to closing at the rate of 8% per
annum.
The Promissory Note, originally issued to SoftNet Systems, Inc. on
September 29, 2000, was acquired by Canaccord International Ltd. in a private
transaction between SoftNet and Canaccord.
The subscriber base in Chengdu decreased from 554 reported at June 30,
2001 to 264 at October 12, 2001. Factors contributing to this decrease are:
o In some areas of Chengdu, our Chinese joint venture partner's
equipment was unable to provide our subscribers with a quality of
service consistent with our expectations.
o A number of our subscribers cancelled service at the end of a free
introductory Internet access period.
We are in discussions with prospective investors for 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
Our Shekou and Chengdu joint ventures demonstrated that providing
equipment and technical services to users of broadband Internet services can be
operational with investment of capital, equipment and technical skills. We
believe that the demand for Internet access and services for individuals,
schools and businesses in China will continue to increase. We estimate that our
operational facilities in Shekou and Chengdu can be profitable with a subscriber
base of approximately 3,000 and 4,000 users, respectively. Our third joint
venture in Deyang is expected to receive governmental approval and permits prior
to the end of 2001. Our preliminary agreement to form a joint venture with
Changsha Guang Da, Beijing Gehua, Chongqing and Shanghai Min Hang are also
expected to receive governmental approval and permits prior to the end of 2001.
We believe that our marketing efforts in China will result in increased
opportunities to expand our services to other key cities. Our goal is to enter
into 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 October 19, 2001, our management anticipates that we currently
have sufficient working capital to fund our current operations through 2001.
Estimated Capital Requirements
To fund our operations for the twelve months ending June 30, 2002,
management estimates that we will require additional capital of approximately $6
million. Our current capital and any additional funds raised are intended to
fund the business operations of Big Sky Network, including the following:
21
--------------------------------------------------------------------------------
ESTIMATED FINANCIAL
REQUIREMENTS FOR THE
DESCRIPTION TWELVE MONTH PERIOD
ENDING JUNE 30, 2002
--------------------------------------------------------------------------------
Shekou Joint Venture - Capital Contributions $0
Chengdu Joint Venture - Capital Contributions1 750,000 2
Deyang Joint Venture - Capital Contributions1 1,000,000 3
Changsha Guang Da Joint Venture - Capital Contributions1 1,000,000 4
Shanghai Min Hang Joint Venture - Capital Contributions1 500,000 5
Beijing Gehua Joint Venture - Capital Contributions 1 500,000 5
Chongquing Joint Venture - Capital Contributions1 500,000 6
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
--------
TOTAL $6,650,000
==========
--------------------------------------------------------------------------------
1) These estimates represent capital investments only and do not
represent contributions of equipment or technical services. We
intend to obtain vendor financing for the equipment required for
these joint ventures.
2) Under the terms of the Chengdu joint venture agreement, of the
total investment of $3,000,000 required
over the term of the agreement.
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 $500,000 within 10 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. We
estimate our initial contribution will be $1 million in 2001.
5) The capital investment terms are to be determined through further
negotiations of joint venture agreements. We estimate our initial
capital contribution will be $500,000 in 2001.
6) The payment terms of our obligation of investing 80 million RMB
(US$9.64 million) is to be determined through negotiations of the
definitive joint venture agreement. We estimate our initial
contribution will be $500,000 in 2001.
The amount and timing of expenditures during the twelve months ending
June 30, 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 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 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 June 30, 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.
22
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB approved SFAS No. 141, "Business Combinations"
and issued this statement in July 2001. SFAS No. 141 establishes new standards
for accounting and reporting requirements for business combinations and will
require that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Use of the pooling-of-interests
method will be prohibited. The Corporation expects to adopt this statement
during the first quarter of fiscal 2002. Management does not believe that SFAS
No. 141 will have a material impact on the Corporation's consolidated financial
statements.
In June 2001, the FASB approved SFAS No. 142, "Goodwill and Other
Intangible Assets," which supercedes APB Opinion No. 17, "Intangible Assets".
The FASB issued this statement in July 2001. SFAS No. 142 establishes new
standards for goodwill acquired in a business combination and eliminates
amortization of goodwill and instead sets forth methods to periodically evaluate
goodwill for impairment. The Corporation expects to adopt this statement during
the first quarter of fiscal 2002. During the six months ended June 30, 2001,
goodwill amortization totaled $215,372.
PART II
ITEM 1. LEGAL PROCEEDINGS
See the following forms filed with the United States Securities and
Exchanged Commission:
o Form 8-K filed on April 24, 2001
o Form 10-QSB - Item 1. Legal Proceedings filed on May 15, 2001
o Form 8-K filed on October 24, 2001
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
The annual meeting of Shareholders was held on June 29, 2001 at which
the following items were voted upon:
ITEM FOR AGAINST ABSTAIN NON-VOTE
1) Election of members of the Board of Directors
Ian Aaron 10,738,066 250,000 -- --
John Brooks 10,738,066 250,000 -- --
Matthew Heysel 10,737,966 250,100 -- --
Richard Hurwitz 10,738,066 250,000 -- --
Thomas Milne 10,738,066 250,000 -- --
Daming Yang 10,738,066 250,000 -- --
2) Approve the appointment of Deloitte & Touche LLP 10,988,066 0 -- --
3) Approval and adoption of the China Broadband 10,367,628 250,200 10,100 360,138
Corp. 2000 Stock Option Plan
23
ITEM 5. OTHER INFORMATION
On July 27, 2001, China Broadband Corp. and Canaccord International
Ltd. completed a promissory note cancellation transaction, in which Canaccord
International Ltd. surrendered our promissory note in the amount of $1,700,000
in exchange for:
o A Warrant to purchase 500,000 shares of our common stock at a
price of $1.00 per share. The Warrant has an expiry date of July
27, 2003. The shares underlying the Warrant have not been
registered and these securities were issued pursuant to an
exemption from registration under Regulation S promulgated under
the Securities Act of 1933.
o A payment of $115,290.43 representing the accrued interest on the
Promissory Note to the date to closing at the rate of 8% per
annum.
The Promissory Note was originally issued to SoftNet Systems, Inc. on
September 29, 2000.
See Note 9 to the Condensed Consolidated Financial Statements contained
herein.
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
3.5 (13) Amended and Restated By-Laws of the Company, dated August 8, 2001
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.
24
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
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 Changsha 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
Letter of Intent dated June 1, 2001 between Big Sky Network Canada Ltd. and Shanghai
10.30 (11) Min Hang Cable Television Center
25
10.31 (11) Memorandum of Understanding dated June 18, 2001 between Big Sky Network Canada Ltd.
and Beijing Gehua Cable TV Networks Co., Ltd.
10.32 (11) Letter of Intent between Big Sky Network Canada Ltd. and Chong Qing Branch of Ji Tong
Network Communications Co., Ltd.
10.33 (11) Consulting Agreement dated April1, 2001 between China Broadband Corp. and Precise
Details Inc.
10.34 (11) Consulting Agreement dated April 1, 2001 between China Broadband Corp. and M.H.
Financial
10.35 (11) Consulting Agreement dated April 1, 2001 between China Broadband Corp. and Daming Yang
Indemnity Agreement dated June 29, 2001 between China Broadband Corp. and Matthew
10.36 (11) Heysel
10.37 (12) Memorandum of Understanding between Big Sky Network Canada Ltd. and Fujian Provincial
Radio and Television Network Co. Ltd. dated July 10, 2001
10.38 (13) Note Cancellation Agreement between China Broadband Corp. and Canaccord International
Ltd.
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) Previously filed on Form 10-QSB on March 15, 2001, excluding schedules
and exhibits. Amended to include schedules and exhibits and re-filed on
Amendment No. 3 to Form S-1. Amended to mark omitted material and
re-filed on Amendment No. 5 to Form S-1. Certain portions of the
material have been omitted pursuant to an application for confidential
treatment which has been filed with the United States Securities and
Exchange Commission under Rule 406 of the Securities Exchange Act of
1933, as amended.
(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.
(11) Previously filed on Form S-1, Amendment No. 3 on July 2, 2001.
(12) Previously filed on Form S-1, Amendment No. 4 on July 27, 2001.
(13) Previously filed on Form S-1, Amendment No. 5 on August 10, 2001.
b) Reports on Form 8-K.
i. Form 8-K filed April 24, 2001 reporting a legal action instigated against the Company.
26
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: October 24, 2001 By: /s/ MATTHEW HEYSEL
------------------
Name: Matthew Heysel
Title: Chief Executive Officer
(Principal Executive Officer)
Date: October 24, 2001 By: /s/ THOMAS MILNE
----------------
Name: Thomas Milne
Title: Chief Financial Officer
(Principal Accounting Officer)
27
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
3.5 (13) Amended and Restated By-Laws of the Company, dated August 8, 2001
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
28
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 Changsha 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
Letter of Intent dated June 1, 2001 between Big Sky Network Canada Ltd. and Shanghai
10.30 (11) Min Hang Cable Television Center
10.31 (11) Memorandum of Understanding dated June 18, 2001 between Big Sky Network Canada Ltd.
and Beijing Gehua Cable TV Networks Co., Ltd.
10.32 (11) Letter of Intent between Big Sky Network Canada Ltd. and Chong Qing Branch of Ji Tong
Network Communications Co., Ltd.
10.33 (11) Consulting Agreement dated April1, 2001 between China Broadband Corp. and Precise
Details Inc.
10.34 (11) Consulting Agreement dated April 1, 2001 between China Broadband Corp. and M.H.
Financial
10.35 (11) Consulting Agreement dated April 1, 2001 between China Broadband Corp. and Daming Yang
Indemnity Agreement dated June 29, 2001 between China Broadband Corp. and Matthew
10.36 (11) Heysel
10.37 (12) Memorandum of Understanding between Big Sky Network Canada Ltd. and Fujian Provincial
Radio and Television Network Co. Ltd. dated July 10, 2001
10.38 (13) Note Cancellation Agreement between China Broadband Corp. and Canaccord International
Ltd.
29
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) Previously filed on Form 10-QSB on March 15, 2001, excluding schedules
and exhibits. Amended to include schedules and exhibits and re-filed on
Amendment No. 3 to Form S-1. Amended to mark omitted material and
re-filed on Amendment No. 5 to Form S-1. Certain portions of the
material have been omitted pursuant to an application for confidential
treatment which has been filed with the United States Securities and
Exchange Commission under Rule 406 of the Securities Exchange Act of
1933, as amended.
(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.
(11) Previously filed on Form S-1, Amendment No. 3 on July 2, 2001.
(12) Previously filed on Form S-1, Amendment No. 4 on July 27, 2001.
(13) Previously filed on Form S-1, Amendment No. 5 on August 10, 2001.
30