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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 September 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 72-1381282
(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 No ----- --------
The number of outstanding common shares, with $0.001 par value, of the
registrant at September 30, 2001 was 19,474,517.
Transitional Small Business Disclosure Format (check one): Yes No
----- -----
CHINA BROADBAND CORP.
INDEX TO THE FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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...............................5
Condensed Consolidated Statement of
Cash Flows.........................................7
Notes to the Condensed Consolidated
Financial Statements......... .....................9
ITEM 2. Management's Discussion and Analysis of FINANCIAL
CONDITION AND Results of Operations .....................17
PART II -OTHER INFORMATION
ITEM 1. Legal Proceedings .......................................28
ITEM 2. Changes in Securities AND USE OF PROCEEDS................28
ITEM 3. Defaults Upon Senior Securities .........................28
ITEM 4. Submission of Matters to a Vote of Security
Holders..................................................28
ITEM 5. Other Information........................................28
ITEM 6. Exhibits and Reports on Form 8-K.........................28
SIGNATURES...................................................................32
i
PART I
ITEM 1. FINANCIAL STATEMENTS
CHINA BROADBAND CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET
(EXPRESSED IN UNITED STATES DOLLARS)
________________________________________________________________________________________
SEPTEMBER 30, DECEMBER 31,
2001 2000
(UNAUDITED) (AUDITED)
$ $
------------- -------------
ASSETS
CURRENT
Cash and cash equivalents (Note 6) 1,678,472 4,668,128
Interest and Goods and Services Tax receivable 138,090 64,201
Due from affiliates 48,536 -
Prepaid expenses 101,954 117,119
------------- -------------
1,967,052 4,849,448
Investment in Shekou joint venture 2,219,102 2,482,018
Investment in Chengdu joint venture 1,545,051 1,321,884
Property and equipment, net 318,764 220,799
Intangible assets:
Intellectual property (Note 5) 728,307 819,402
Shekou joint venture (Note 5) 2,039,326 2,421,788
Chengdu joint venture (Note 5) 4,078,650 4,843,575
Goodwill (Note 5) 1,722,345 2,046,031
------------- -------------
14,618,597 19,004,945
============= =============
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 142,065 250,840
Promissory note (Notes 5 and 9) - 1,700,000
------------- -------------
142,065 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 21,719,106 20,631,344
Deferred compensation (652,195) (57,995)
Accumulated deficit (6,668,315) (3,597,180)
------------- -------------
14,476,532 17,054,105
------------- -------------
14,618,597 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
PERIOD FROM FEBRUARY 1,
THREE MONTHS NINE MONTHS FEBRUARY 1 2000
ENDED ENDED TO TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000 2001
$ $ $ $ $
---------------- --------------- ------------------- ----------------- ----------------
REVENUE
Technical consulting - 125,000 - 208,333 208,333
GENERAL AND ADMINISTRATIVE
EXPENSES (1,529,098) (895,525) (4,190,053) (1,352,614) (7,869,872)
---------------- --------------- ------------------- ----------------- ----------------
(1,529,098) (770,525) (4,190,053) (1,144,281) (7,661,539)
LOSS IN BIG SKY
NETWORK CANADA
LTD. - (101,372) - (181,471) (181,471)
LOSS IN SHEKOU
JOINT VENTURE (29,719) - (134,343) - (336,764)
LOSS IN CHENGDU
JOINT VENTURE (55,549) - (261,119) - (304,825)
INTEREST INCOME 11,249 123,567 92,155 249,175 394,059
---------------- --------------- ------------------- ----------------- ----------------
LOSS BEFORE
EXTRAORDINARY ITEM (1,603,117) (748,330) (4,493,360) (1,076,577) (8,090,540)
EXTRAORDINARY ITEM
(Note 9) 1,422,225 - 1,422,225 - 1,422,225
---------------- --------------- ------------------- ----------------- ----------------
NET LOSS (180,892) (748,330) (3,071,135) (1,076,577) (6,668,315)
DEFICIT, BEGINNING OF PERIOD (6,487,423) - (3,597,180) - -
---------------- --------------- ------------------- ----------------- ----------------
DEFICIT, END OF PERIOD (6,668,315) (748,330) (6,668,315) (1,076,577) (6,668,315)
================ =============== =================== ================= ================
LOSS PER SHARE BEFORE
EXTRAORDINARY ITEM
Basic and diluted (0.08) (0.04) (0.23) (0.06) -
================ =============== =================== ================= ================
LOSS PER SHARE
Basic and diluted (0.01) (0.04) (0.16) (0.06) -
---------------- --------------- ------------------- ----------------- ----------------
SHARES USED IN COMPUTATION
Basic and diluted 19,474,517 18,366,147 19,474,517 17,023,688 -
================ =============== =================== ================= ================
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) - -
Issuance of warrants - - 277,775 - - 277,775
Amortization of deferred
compensation - - - 215,787 - 215,787
Net loss - - - - (3,071,135) (3,071,135)
------------ ------------- -------------- ---------------- ----------------- -----------------
Balance,
September 30, 2001
(unaudited) 19,474,517 77,936 21,719,106 (652,195) (6,668,315) (14,476,532)
============ ============= ============== ================ ================= =================
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
PERIOD FROM INCEPTION
THREE MONTHS NINE MONTHS FEBRUARY 1 FEBRUARY 1,
ENDED ENDED TO 2000 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000 2001
$ $ $ $ $
--------------- --------------- ----------------- ----------------- -------------------
CASH FLOWS
RELATED TO THE
FOLLOWING
ACTIVITIES
OPERATIONS
Net loss (180,892) (748,330) (3,071,135) (1,076,577) (6,668,315)
Adjustments for:
Extraordinary item (1,422,225) - (1,422,225) - (1,422,225)
Depreciation and
amortization 605,743 3,745 1,816,254 3,745 2,395,265
Loss in Big Sky Network
Canada Ltd. - 101,372 - 181,471 181,471
Loss in Shekou joint
venture 29,719 - 134,343 - 336,764
Loss in Chengdu joint
venture 55,549 - 261,119 - 304,825
Non-cash stock compensation 77,763 - 215,786 15,235 282,880
--------------- --------------- ----------------- ----------------- -------------------
Funds provided by (used in)
operations (834,343) (643,213) (2,065,858) (876,126) (4,589,334)
Changes in operating assets
and liabilities
Interest and Goods and
Services Tax receivables (49,676) (66,203) (73,889) (105,443) (138,090)
Due from officers and
employees - 105,180 - (109,876) -
Prepaid expenses (70,971) 271,666 15,166 207,449 (101,954)
Accounts payable and
accrued liabilities (121,043) 193,885 (108,775) 228,774 (511,733)
Unearned revenue - (416,666) - -
--------------- --------------- ----------------- ----------------- -------------------
(1,076,033) (555,351) (2,233,356) (655,222) (5,341,112)
--------------- --------------- ----------------- ----------------- -------------------
FINANCING
Decrease in due to affiliates - - (48,536) - (48,536)
Issue of common stock
for cash - - - 11,892,503 11,892,503
Share issuance costs - (25,628) - (75,811) (75,811)
--------------- --------------- ----------------- ----------------- -------------------
- (25,628) (48,536) 11,816,692 11,768,156
--------------- --------------- ----------------- ----------------- -------------------
INVESTING
Fixed asset additions (125,869) (201,407) (137,764) (258,317) (417,154)
Increase in due from
Shekou joint venture - (295,015) - (295,015) -
Investment in Chengdu
joint venture - - (570,000) - (1,935,590)
Increase in due from Big
Sky Network Canada
Ltd. - 975,000 - (1,020,465) -
Acquisition of Big Sky
Network Canada Ltd
(net of cash acquired) - (2,395,828) - (2,395,828) (2,395,828)
--------------- --------------- ----------------- ----------------- -------------------
(125,869) (1,917,250) (707,764) (3,969,625) (4,748,572)
--------------- --------------- ----------------- ----------------- -------------------
NET (DECREASE)/
INCREASE IN
CASH AND CASH
EQUIVALENTS (1,201,902) (2,498,229) (2,989,656) 7,191,845 1,678,472
CASH AND CASH
EQUIVALENTS,
BEGINNING OF
PERIOD 2,880,374 9,690,074 4,668,128 - -
--------------- --------------- ----------------- ----------------- -------------------
CASH AND CASH
EQUIVALENTS,
END OF PERIOD 1,678,472 7,191,845 1,678,472 7,191,845 1,678,472
=============== =============== ================= ================= ===================
SUPPLEMENTAL
CASH FLOW
INFORMATION:
Cash paid for income
taxes - - - - -
=============== =============== ================= ================= ===================
Cash paid for interest 115,290 - 115,290 - 115,290
=============== =============== ================= ================= ===================
See notes to condensed consolidated financial statements.
5
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 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 and nine months ended
September 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.
6
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 September 30, 2001, it had
connected a small number of subscribers. The Shekou JV and Chengdu JV
are working to expand their subscriber base in the Shekou Industrial
Zone and Chengdu.
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.
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. 3
(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 March 30, 2002. 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 December 31,
2001 to fund the implementation of BSN's business of entering into
joint ventures.
The consolidated operations of the Corporation requires cash of
approximately $140,000 per month to operate in Canada and approximately
$60,000 per month to operate in the PRC. 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.
The Corporation evaluates the carrying value of goodwill and long term
tangible and intangible assets in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". As a result of the operating performance in
the joint ventures, the Corporation is engaged in an evaluation of its
long-lived assets.
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 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.
8
CHINA BROADBAND CORP. 4
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
________________________________________________________________________________
4. ACCOUNTING POLICIES (CONTINUED)
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 nine months ended September 30, 2001, goodwill
amortization totaled $323,686.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002. The
Corporation expects to adopt this statement during the first quarter of
fiscal 2002. Management does not believe that SFAS No. 143 will have a
material impact on the Corporation's consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", resolves significant
implementation issues related to FASB Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, and supersedes the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, for the
disposal of a business segment. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001, and interim periods within
those fiscal years. Management is currently reviewing the Corporation's
long-lived assets in accordance with SFAS No. 144. Management is
uncertain if the adopting of SFAS No. 144 will have a significant
impact on the Corporation's financial position until this review is
completed.
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 with a fair market value 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
===================
9
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.
10
CHINA BROADBAND CORP. 6
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
________________________________________________________________________________
6. RELATED PARTY TRANSACTION (CONTINUED)
____________________________________________________________________________________________________________
DESCRIPTION
DATE AMOUNT $
____________________________________________________________________________________________________________
April 17, 2001 Transfer $2,000,000 (less service charges) 1,999,992
April 28, 2001 Deposit interest 1,618
May 15, 2001 Purchase of Modems (270,000)
May 15, 2001 Purchase Term Deposit (1,500,000)
May 31, 2001 Deposit Interest 1,731
June 28, 2001 Term Deposit Matures 1,505,239
June 28, 2001 Purchase Term Deposit (1,000,000)
June 28, 2001 Wire transfer to Chengdu re: Registration & Investment Wire
Transfer in transit until July 10, 2001 (200,000)
June 30, 2001 Deposit Interest 306
July 7, 2001 Purchase of equipment from Cisco (90,206)
July 7, 2001 Beijing Office expenses for May, June & July (180,000)
July 31, 2001 Interest on account 288
August 10, 2001 Salary expenses (20,032)
August 10, 2001 Beijing Office expenses for August and September (120,032)
August 31, 2001 Interest on account 174
September 21, 2001 Term Deposit Transferred in 1,005,580
September 21, 2001 Salary Expense (15,032)
September 21, 2001 Beijing Office expenses for October (55,032)
September 21, 2001 Service Fee on Transfer of Funds (32)
-------------------
BALANCE UPON TRANSFER TO HSBC - HONG KONG 1,064,562
====================
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 $8,894 in interest on the funds held
by Mr. Yang, for the Corporation's benefit.
During the quarter ended September 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 of
interest was earned on the Corporation's funds held in Mr. Yang's
account, for the Corporation's benefits.
On September 10, 2001, a Hong Kong branch of Hong Kong Shanghai Banking
Corporation ("HSBC") established on account for the Corporation and the
funds held by Mr. Yang, totaling $1,064,562 were transferred to the
Corporation's account on September 21, 2001. Mr. Yang received no
benefit from holding the funds.
11
CHINA BROADBAND CORP. 7
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
________________________________________________________________________________
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. On October
19, 2001, after Examinations for Discovery of two corporate officers of
the Corporation, but prior to Examinations for Discovery of the
Plaintiffs' officers, the Plaintiffs filed a Discontinuance of Action
with the Alberta court, which evidences the termination and cessation
of the proceedings in the Action.
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. PROMISSORY NOTE
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
for 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.
12
CHINA BROADBAND CORP. 8
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
________________________________________________________________________________
10. SUBSEQUENT EVENTS
On November 13, 2001, the Board of Directors of the Corporation
approved the issuance of 1,200,000 options to directors, officers and
consultants. These options were priced above the fair market value on
the date of grant with an exercise price of $0.82 per share. One-third
of the options vested immediately upon issuance with one-third vesting
one year from the date of grant and the last one-third vesting two
years from the date of grant. All unexercised options expire on
November 13, 2006.
On November 13, 2001, the Corporation announced that BSN had entered
into a 12 year contract with Jitong Network Communications Co. Ltd.
("Jitong") to enable broadband Internet access and value-added services
including IP telephony over Jitong's exiting 1500 kilometre
metropolitan area network in Chong Qing. BSN will contribute
management, technology and capital to deploy within the city core, with
staged expansion throughout the city as capital and resources permit.
Initial capital commitments will be limited to establishing a test
system to validate ongoing deployment.
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, economic and political uncertainties affecting the capital markets,
changes in technology, changes in the Internet marketplace in China, competitive
factors and other risks described in our annual report on Form 10-KSB, Amendment
No. 1 and on Form S-1, Amendment No. 7, 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:
__________________________________________________________________________________________________________________
PERIOD FROM
THREE MONTH THREE MONTH NINE MONTH FEBRUARY 1,
PERIOD ENDED PERIOD ENDED PERIOD ENDED 2000 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
__________________________________________________________________________________________________________________
Net Sales $0 $125,000 $0 $208,333
Loss from operations $1,529,098 $895,525 $4,190,053 $1,352,614
Extraordinary gain $1,422,225 $0 $1,422,225 $0
Net loss $180,892 $748,330 $3,071,135 $1,076,577
Basic loss per share
before Extraordinary
item ($0.08) ($0.04) ($0.23) ($0.06)
Basic loss per share
including
Extraordinary gain ($0.01) ($0.04) ($0.16) ($0.06)
Basic weighted average
common shares
outstanding 19,474,517 18,366,147 19,474,517 17,023,688
__________________________________________________________________________________________________________________
BALANCE SHEET DATA:
__________________________________________________________________________
September 30, 2001 December 31, 2000
(unaudited) (audited)
__________________________________________________________________________
Cash and cash equivalents $1,678,472 $4,668,128
Working capital $1,824,987 $2,898,608
Total assets $14,618,597 $19,004,945
Long-term obligations - -
Total stockholders' equity $14,476,532 $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.
13
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 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 report
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.
o the promissory note issued to SoftNet was cancelled on July 27, 2001
in connection with a transaction, under which we issued a warrant to
purchase 500,000 shares of our common stock at $1.00 per share. The
warrant expires on July 27, 2003.
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.
14
RESULTS OF OPERATIONS
Revenues
CHINA BROADBAND CORP.
For the 3 months and 9 months ended September 30, 2001, the Company did
not earn revenues compared to $125,000 for the 3 months and $208,333 for the 9
months ended September 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.
SHEKOU JOINT VENTURE
For the 3 months ended and 9 months ended September 30, 2001, the
Company received subscriber revenue of approximately $90,379 and $290,267,
respectively, compared to nil for the comparative periods of 2000. As a result
of slow subscriber growth, revenues from the joint venture have been flat in the
third quarter compared to the third quarter.
The Shekou joint venture commenced providing services on June 30,
2000. As at September 30, 2001, the Shekou Joint Venture had approximately 3,324
subscribers connected, and approximately 2,927 subscribers awaiting connection.
We anticipate approximately 500 new subscribers will be connected during the
quarter ending December 31, 2001.
The Shekou joint venture generated a gross profit of $28,319 for the 9
months ended September 30, 2001, in the third quarter after cost of sales but
had a net loss of $223,905 after general administration costs for the 9 months
ending September 30, 2001. While the subscriber growth rate has been less than
expected, the joint venture has achieved a 12% penetration rate on the nodes to
which it has access. Our joint venture partner has been slow to deliver Internet
ready nodes, delaying the joint ventures ability to deliver service. We maintain
real-time statistics on node activity, market penetration rates and system
reliability.
CHENGDU JOINT VENTURE
The Chengdu joint venture commenced operations on October 26, 2000. At
September 30, 2001, the Chengdu joint venture has 254 subscribers connected, and
191 subscribers awaiting connection. In order to penetrate this market, new
subscribers are provided with free Internet access for a period of three months.
Subscriber growth in the Chengdu joint venture has been slower than anticipated
because the joint venture partner had limited financial and staffing resources
to meet its contractual commitments during the quarter ended September 30, 2001
and potentially for the next quarter.
The disappointing subscriber growth in the residential market has been
partially offset by Internet access being offered to a major Western hotel in
Chengdu. In addition, we expect to be providing service to two additional major
hotels by the year-end or shortly into the first quarter of 2002.
For the 3 month and 9 month period ended September 30, 2001, the
Chengdu joint venture received subscriber revenue of $1,434 compared to nil for
the comparative periods in 2000. A net loss of $85,460 and $401,721 was incurred
for the 3 month and 9 month period ended September 30, 2001 compared to nil for
the comparative periods in 2000.
15
DEYANG JOINT VENTURE
Based on our experience with the Shekou and Chengdu joint ventures, we
have postponed startup of our Deyang joint venture preferring to invest and
deploy our limited capital to service corporate subscribers in major centers
such as Beijing, Shanghai and Chong Qing.
Basis of Revenue Generation
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 September 30, 2001, and 9 months ended
September 30, 2001, we incurred operating expenses of $1,529,098 and $4,190,053
respectively compared to expenses of $895,525 and $1,352,614 for the comparative
periods of 2000. Expenses have increased during the third quarter of 2001 over
the second quarter of 2001 due to executive management spending more time in
China to assist in the startup of Big Sky Network Technology Services Ltd., a
wholly-owned subsidiary of Big Sky Network Canada Ltd.
The following table shows comparative expenses for the 3 months ended
September 30, 2001, and 9 months ended September 30, 2001, with their
comparative amounts for 2000.
General Operating Expenses
___________________________________________________________________________________________________________________
THREE MONTHS ENDED THREE MONTH ENDED NINE MONTH PERIOD PERIOD FROM FEBRUARY
ENDED 1, 2000 TO
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
(unaudited) (unaudited) (unaudited) (unaudited)
___________________________________________________________________________________________________________________
Calgary Office Costs $270,019 $330,470 $800,714 $512,309
Beijing Office Costs $291,240 $0 $659,440 $0
High Tech Park $61,678 $0 $61,678 $0
Professional Services $180,643 $157,350 $414,591 $281,435
Investor Relations ($41,714) $200,000 $73,941 $200,000
Amortization $605,744 $3,745 $1,816,254 $3,745
Non Cash Compensation $77,762 $0 $215,786 $15,235
Misc. $83,726 $203,960 $147,649 $399,890
- ------- -------- -------- --------
TOTAL $1,529,098 $895,525 $4,190,053 $1,352,614
___________________________________________________________________________________________________________________
16
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 September 30, 2001 and for the 9 months
ending September 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 6 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 at September 30, 2000 and
there are no comparative amounts. We are endeavouring to recruit a financial
controller in the fourth quarter of 2001 to centralize our financial accounting
activities in China. Beijing office costs have increased for salaries relating
to beta testing in Deyang and travel and negotiations to launch Big Sky Network
Technical Services Ltd. in Chengdu during the third quarter.
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, other government reporting costs, preparation
and filing of a resale registration statement on Form S-1 and the preparation of
contractual agreements. We expect our professional costs to decrease in the
fourth quarter as our legal fees and auditor fees are expected to be lower as
our Form S-1 registration statement became effective on November 2, 2001.
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.
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 $77,763 for the 3 months ended
September 30, 2001, and $215,787 for the 9 months ended September 30, 2001
compared to nil for the 3 months ended September 30, 2000, and $15,235 for the
period from February 1, 2000 to September 30, 2000.
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 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.
o We will incur general and administrative costs associated with our
subsidiary, Big Sky Network Technical Services Ltd., as it offers
Internet services to corporate subscribers.
17
Losses
For the 3 months ended September 30, 2001, and 9 months ended September
30, 2001, we incurred a loss from operations of $1,529,098 and $4,190,053,
respectively. We had an equity loss from the Shekou and Chengdu joint ventures'
activities in China for the 3 months ending September 30, 2001, and the 9 months
ending September 30, 2001, of $85,268 and $395,462, respectively. Our loss was
reduced by interest income of $11,249 for the 3 months ended September 30, 2001,
and $92,155 for the 9 months ended September 30, 2001, to a net loss before
extraordinary items of $1,603,117 for the 3 months ended September 30, 2001, and
a net loss before extraordinary items of $4,493,360 for the 9 months ended
September 30, 2001.
For the comparable period of 2000, we incurred a net loss of $748,330
for the 3 months ended September 30, 2000, and a net loss of $1,076,577 for the
9 months ended September 30, 2000, after interest income of $123,567 and
$249,175 for the comparable periods in 2000.
Extraordinary Gain
The extraordinary gain resulted from the cancellation of a promissory
note.
On July 27, 2001, we completed a transaction to cancel a promissory
note payable (see Note 5 of "Condensed Consolidated Financial Statements"). The
promissory note was surrendered for a warrant to purchase 500,000 shares of our
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, we have sufficient losses carried forward to
offset the expense.
The net loss for the 3 and 9 months ending September 30, 2001 was
reduced by the extraordinary gain to $180,892 and $3,071,135, respectively. The
net loss per share, before the extraordinary gain, of $0.08 for the 3 months
ending and $0.23 for the 9 months ending September 30, 2001 was reduced by $0.07
to $0.01 and $0.16 for the 3 and 9 month periods ending September 30, 2001,
after the extraordinary gain, respectively.
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 September 30, 2001, we had cash and cash equivalents of
$1,678,472 and working capital, including cash and cash equivalents, of
$1,824,987. 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 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 quarter ended June 30, 2001, our board of directors
determined that it was in the best interest of the Company 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
18
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 one 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.
During the quarter ended September 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 during the quarter ended September 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.
We anticipate that we will be required to raise an additional $6
million to fund our current plan of growth and existing operations through
September 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 Changsha 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 2002 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. On October 19, 2001, after Examinations for Discovery of two
of our corporate officers, but prior to Examinations for Discovery of the
Plaintiffs' officers, the Plaintiffs filed a Discontinuance of Action with the
Alberta court, which evidences the termination and cessation of the proceedings
in the Action.
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.
19
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 NINE-MONTH PERIOD ENDED SEPTEMBER 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 $250 million in
equipment and services at discounted prices over a five-year term.
On June 1, 2001, Shanghai Min Hang Cable Television Center forwarded to
Big Sky Network an expression of interest in the two companies working together
to form a joint venture.
On June 18, 2001, Big Sky Network entered into a Memorandum of
Understanding with Beijing Gehua Cable TV Networks Co., Ltd. to jointly develop
broadband Internet network services. We are to supply equipment, technology,
capital and personnel. Beijing Gehua will supply a network of 10,000 subscribers
as a test group.
On June 20, 2001, Big Sky Network entered into a Letter of Intent with
Chong Qing Branch of Jitong Network Communications Co., Ltd. to jointly build
Internet networks. Under the terms of the agreement, we will provide 80 million
RMB (US$ 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.
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.
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 7, 2001, we invested $90,206 of equipment into a wholly owned
subsidiary, Big Sky Network Technology Services Ltd., to provide Internet
services to corporate subscribers in an area of Chengdu called High Tech Park.
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
to 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.
20
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 254 at September 30, 2001 and approximately 290 at November 9, 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.
The subscriber base in Shekou increased from 3,046 reported at June 30,
2001 to 3,324 at September 30, 2001 and decreased to approximately 2,479 at
November 9, 2001. Factors contributing to this decrease are in some areas of
Shekou, our Chinese joint venture partner's equipment was unable to provide our
subscribers with a quality of service consistent with our expectations.
Subsequent Events
Subsequent to the quarter ended September 30, 2001, we completed the
following transactions:
On November 13, 2001, our Board of Directors approved the issuance of
1,200,000 options to directors, officers and consultants. These options were
priced above the fair market value on the date of grant with an exercise price
of $0.82 per share. One-third of the options vested immediately upon issuance
with one-third vesting one year from the date of grant and the last one-third
vesting two years from the date of grant. All unused options expire on November
13, 2006.
On November 13, 2001, our Human Resources and Compensation Committee
approved the extension of the consulting contracts for Matthew Heysel, Thomas G.
Milne and Daming Yang for a term of six months effective October 1, 2001. These
contracts were renewed under the same terms and conditions as their recently
expired contracts.
On November 13, 2001, the Corporation announced that BSN had entered
into a 12 year contract with Jitong Network Communications Co. Ltd. ("Jitong")
to enable broadband Internet access and value-added services including IP
telephony over Jitong's exiting 1500 kilometre metropolitan area network in
Chong Qing. BSN will contribute management, technology and capital to deploy
within the city core, with staged expansion throughout the city as capital and
resources permit. Initial capital commitments will be limited to establishing a
test system to validate ongoing deployment.
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
On November 10, 2001, the World Trade Organization ("WTO") voted in
favour of admitting the Peoples Republic of China into the WTO. WTO membership
is expected to ease restrictions on foreign investment, movement of capital and
generally reduce the uncertainties of doing business in China.
Our Shekou joint venture has demonstrated that the combination of
equipment, technical skills and capital can generate an operating profit with
approximately 3,000 subscribers.
We believe that the demand for Internet access and services for
individuals, schools and business in China will continue to grow provided the
service can be offered at a reasonable cost. In Shekou and Chengdu we are
working to manage and reduce our cost structure to remain competitive and focus
to increase our customer base through existing infrastructure as our partners
work to improve their equipment to increase the quality of service that can be
provided.
Due to limited capital and lower than expected results from the Shekou
and Chengdu joint ventures, we have decided to postpone the startup of service
through the Deyang joint venture.
Our efforts have also shown that the path to profitability can be
accelerated by offering Internet access service to corporate subscribers. As a
result, we commenced offering services to corporate customers in the High Tech
Business Park located in Chengdu. We believe these commercial subscribers can
afford Internet access on an ongoing basis and balance the on-line use of
bandwidth from residential subscribers. We intend to focus a portion of our
efforts at this market.
Our preliminary agreement to form a joint venture with Changsha Guang
Da, Beijing Gehua, Chong Qing and Shanghai Min Hang are expected to receive
governmental approval and permits contemporaneously with our ability to finance
the capital investment required. We believe that our marketing efforts in China
will result in increased opportunities in the high growth corporate markets in
major centers.
We estimate that it requires approximately $1 million of capital and
equipment to commence commercial Internet service in a new joint venture. Our
current capital resources are limited. There can be no assurances that we will
have sufficient financial, technical and human resources to undertake new
ventures or maintain the ventures currently in service.
Subject to additional debt or equity financing, we intend to continue
our efforts towards the corporate subscriber market and evaluate our
alternatives in Shekou and Chengdu to improve the quality of service to existing
subscribers and manage our cost structure to remain competitive. We will limit
further investments in these joint ventures until we determine we can compete
and grow the subscriber bases. Any decision to
21
postpone further investments in these joint ventures will reduce our ability to
realize the carrying value of these investments and may result in a one-time
charge for the reduction in carrying value of these assets.
PLAN OF OPERATION
As of November 9, 2001, our management anticipates that we currently
have sufficient working capital to fund our current operations through March
2002.
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:
________________________________________________________________________________________________________
ESTIMATED FINANCIAL REQUIREMENTS FOR THE
DESCRIPTION TWELVE MONTH PERIOD
ENDING SEPTEMBER 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
Chong Qing Joint Venture - Capital Contributions1 500,000 6
Big Sky Network Technology Services Ltd. 0
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
==========
________________________________________________________________________________________________________
<FN>
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 2002.
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 2002.
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 2002.
</FN>
The amount and timing of expenditures during the twelve months ending
September 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 March 30, 2002, 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
22
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 September 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.
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 supersedes 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 9 months ended September 30, 2001,
goodwill amortization totalled $323,686.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The Corporation expects to adopt this statement
during the first quarter of fiscal 2002. Management does not believe that SFAS
No. 143 will have a material impact on the Corporation's consolidated financial
statements.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", resolves significant
implementation issues related to FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and
supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a business segment. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years. Management is currently reviewing the
Corporation's long-lived assets in accordance with SFAS No. 144. Management is
uncertain if the adopting of SFAS No. 144 will have a significant impact on the
Corporation's financial position until this review is completed.
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
During the quarter ended September 30, 2001, we issued a warrant
exercisable to purchase 500,000 shares of our common stock at $1.00 per share to
Canaccord International Ltd., an institutional non-U.S. person outside the
United States. The warrant was issued in reliance upon an exemption available
under Regulation S promulgated under the Securities Act of 1933, as amended.
23
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
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 (14) 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
24
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
10.30 (12) Letter of Intent dated June 1, 2001 between Big Sky Network Canada Ltd. and Shanghai
Min Hang Cable Television Center
10.31 (12) Memorandum of Understanding dated June 18, 2001 between Big Sky Network Canada Ltd.
and Beijing Gehua Cable TV Networks Co., Ltd.
10.32 (12) Letter of Intent between Big Sky Network Canada Ltd. and Chong Qing Branch of Ji Tong
Network Communications Co., Ltd.
25
10.33 (12) Consulting Agreement dated April1, 2001 between China Broadband Corp. and Precise
Details Inc.
10.34 (12) Consulting Agreement dated April 1, 2001 between China Broadband Corp. and M.H.
Financial
10.35 (12) 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 (12) Heysel
10.37 (13) Memorandum of Understanding between Big Sky Network Canada Ltd. and Fujian Provincial
Radio and Television Network Co. Ltd. dated July 10, 2001
10.38 (14) Note Cancellation Agreement between China Broadband Corp. and Canaccord International
Ltd.
10.39 (15) Consulting Agreement, dated July 1, 2001, between China Broadband Corp and Barry L.
Mackie
10.40 (15) Memorandum of Understanding between Chengdu Big Sky Network Technology Services Ltd.
and Jitong Network Communications Co. dated October 15, 2001
10.41 (15) Consulting Agreement, dated April 1, 2001 between China Broadband Corp. and Richard
Lam
16.1 (9) Change in Auditor Letter of Amisano Hanson
16.2 (10) Change in Auditor Letter of Arthur Anderson LLP
21.1 List of subsidiaries of registrant
<FN>
(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. 1 on April 6, 2001.
(12) Previously filed on Form S-1, Amendment No. 3 on July 2, 2001.
(13) Previously filed on Form S-1, Amendment No. 4 on July 27, 2001.
(14) Previously filed on Form S-1, Amendment No. 5 on August 10, 2001.
(15) Previously filed on Form S-1, Amendment No. 7 on October 25, 2001.
</FN>
b) Reports on Form 8-K.
i. None.
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: November 14, 2001 By: /s/ MATTHEW HEYSEL
------------------
Name: Matthew Heysel
Title: Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2001 By: /s/ THOMAS MILNE
----------------
Name: Thomas Milne
Title: Chief Financial Officer
(Principal Accounting Officer)
27