RICHARDSON & PATEL LLP
10900 Wilshire Boulevard
Suite 500
Los Angeles, CA 90024
Telephone (310) 208-1182
Facsimile (310) 208-1154
June 22, 2005
VIA EDGAR AND FEDERAL EXPRESS
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington DC, 20549
Attn: Bob Carroll
Carlos Pacho
Re: China Cable and Communication, Inc.
Form 10-K for Fiscal Year Ended December 31, 2004
File No. 002-98997-NY
Messrs. Carroll and Pacho:
On behalf of China Cable and Communication, Inc. (the "Company"), we
enclose a marked draft of the Company's proposed Amendment No. 1 to Form-10KSB
for the fiscal year ended December 31, 2004 (the "Amended Report"). The Amended
Report contains revisions that have been made in response to the comments
received from the staff ("Staff") of the Securities and Exchange Commission in
their letter dated June 10, 2005. Set forth below are the Company's responses to
the Staff's comments. We have reproduced the Staff's comments and have followed
each comment with our response. A marked copy of the Amended Report is being
provided supplementally with a copy of this letter for the convenience of the
Staff.
Form 10-KSB for Fiscal Year Ended December 31, 2004
Plan of Operation, page 32
1. Expand the disclosure in the liquidity and capital resources section to
discuss the issuance of a going concern opinion by the auditors. Include a
detailed discussion of management's viable plan for overcoming your
financial difficulties. Discuss in detail your cash requirements during
the next twelve months and your ability to generate sufficient cash to
support operations. Expand this discussion to specifically include the
manner in which you intend to generate future revenues. Update this
disclosure in each subsequent Form 10-Q. Refer to Section 607.02 of the
Financial Reporting Codification.
RESPONSE:
In response to the Staff comment, the Company proposes to include the
following added disclosure in the Amended Report and to subsequent Form
10-QSB's:
The Company's registered independent public accountants, in their
independent accountants' reports on the consolidated financial statements
as of and for the year ended December 31, 2004, have included an
explanatory paragraph in their opinion indicating that there is
substantial doubt about the Company's ability to continue as a going
concern because the Company has suffered recurring losses from operations
and has a working capital deficit.
Although the Company incurred an operating loss for the year ended
December 31, 2004, the Company generated positive cash flows of $2,588,912
from operating activities. The operating loss for the year ended December
31, 2004 included items which are of either a non-cash or a non-recurring
nature: (i) expensed common stock and warrants issued for consulting fees
of $2,564,354, (ii) expensed common stock issued for directors'
compensation of $347,980, and (iii) a provision for bad debt of $3,000,000
relating to a deposit paid in November 2003 for the Company's proposed
acquisition of Macau Media and its subsidiaries.
The cash requirements of the Company and its subsidiaries during the next
twelve months include the normal operating expenditures of the Baoding
joint venture, payments for professional fees, and compensation of the
Company's directors. While the Baoding joint venture has been generating
net income from its operations and does not have any material commitments
for capital expenditures, we anticipate, based on the scale of Baoding
joint venture's existing operations, that the Baoding joint venture's
projected cash flows from operations would be sufficient to support its
planned operations for the next twelve months. To make the required
payments for professional fees and directors' compensation, the Company
expects to receive a cash dividend from the Baoding joint venture. The
board of directors of the Baoding joint venture has proposed to distribute
a cash dividend in the amount of RMB36 million (equivalent to
approximately US$4,337,300) to its equity holders, although the payment of
such dividend is contingent upon the approval by the State Administration
of Foreign Exchange (SAFE), and by the local People's Republic of China
(PRC) tax bureau. In order to fulfill the cash dividend obligation, the
Baoding joint venture plans to borrow money from a local Chinese bank by
using its assets and its right to receive subscription fees as collateral.
The Company's working capital deficit at December 31, 2004 was primarily
caused by the liability arising out of the litigation with Gryphon Master
Fund, L.P. ("Gryphon"). The Company has offered to settle the case by
agreeing to the judgment on Gryphon's claim against the Company. According
to such offer, the Company will pay to Gryphon those debts that were
already accrued and recorded under current liabilities in the financial
statements for the year ended December 31, 2004. To meet this exceptional
cash requirement, we are actively seeking strategic investors in the PRC
and intend to raise additional capital through the issuance of debt or
equity securities, although there can be no assurances that we will be
successful in obtaining this financing. Meanwhile, we will, through our
appointed attorney, negotiate with Gryphon to extend the repayment period
to allow more time for the Company to seek strategic investors or pay the
settlement by issuing shares of the Company's stock.
To the extent that we are unable to successfully raise the capital
necessary to meet our financial obligations on a timely basis and under
acceptable terms and conditions, we will not have sufficient cash
resources to settle Gryphon's claims and maintain the Company's normal
operations, and may have to dispose of our interest in the Baoding joint
venture and consider a formal restructuring or reorganization.
Report of Independent Registered Accounting Firm
2. We note that your audit report was signed by an audit firm based in
California. We also note that you conduct your operations in China, your
revenues are generated in China and all of your assets are located in
China. Please tell us where the majority of audit work was conducted and
how you concluded that it is appropriate to have an audit report issued by
an auditor licensed in California.
RESPONSE:
The Company's auditor, Grobstein, Horwath & Company LLP (Grobstein), is a
SEC practicing accountant firm and is registered with the Public Company
Accounting Oversight Board (PCAOB) in the United States. Grobstein is part
of the international accounting network Horwath International (Horwath).
Grobstein retains one of the Horwath China member firms Horwath Hong Kong
CPA Limited (Horwath Hong Kong) to perform the audit field work in the PRC
under Grobstein's direct supervision and on-site involvement. Beijing
Jingdu Certified Public Accountant Co., Ltd. (Horwath Beijing) also signs
off on the PRC tax provision. Both Horwath Hong Kong and Horwath Beijing
are registered with the PCAOB and have received approval.
Note 4. Summary of Significant Accounting Policies
General, page F-9
3. Revise your footnotes to disclose your functional currency and how you
account for the impact foreign currency has on your financial statements.
RESPONSE:
The Company will revise the footnotes to the financial statements for the
year ended December 31, 2004 by including the accounting policy of
"Foreign Currency Translations and Transactions" as shown below:
"Foreign Currency Translations and Transactions
The Renminbi ("RMB"), the national currency of the PRC, is the primary
currency of the economic environment in which the operations of the Joint
Venture are conducted. The Company uses the United States dollar ("U.S.
dollars") for financial reporting purposes.
The Company translates the Joint Venture's assets and liabilities into
U.S. dollars using the applicable unified exchange rates quoted by the
People's Bank of China prevailing at the balance sheet date, and the
statement of income is translated at average unified exchange rates during
the reporting period. Adjustments resulting from the translation of the
Joint Venture's financial statements from RMB into U.S. dollars are
recorded in shareholders' equity as part of accumulated comprehensive
income.
Transactions denominated in currencies other than RMB are translated into
RMB at the unified exchange rates prevailing at the transaction dates.
Gains or losses resulting from transactions in currencies other than RMB
are reflected in the statement of income of the Joint Venture for the
reporting periods."
4. Please tell us whether the restricted net assets of your consolidated and
unconsolidated subsidiaries and your Company's equity in the undistributed
earnings of 50 percent or less owned persons accounted for by the equity
method together exceed 25 percent of consolidated net assets as of the end
of the most recently completed fiscal year. If restricted net assets do
exceed the 25 percent threshold, please disclose what the specific
restrictions are on the transfer of assets of your subsidiaries to you in
the form of loans, advances or cash dividends without the consent of a
third party. If also applicable, please disclose separately the amounts of
such restricted net assets for unconsolidated subsidiaries and
consolidated subsidiaries as of the end of the most recently completed
fiscal year. See Rule 4-08(e)(3) of Regulation S-X.
RESPONSE:
The Company does not have restricted net assets for consolidated and
unconsolidated subsidiaries. Also, the Company accounts for all of its
subsidiaries, including the Baoding joint venture, on a fully consolidated
basis.
Basis of Consolidation, pages F-9
5. Please tell us in detail your consideration of EITF 96-16 in your decision
to present consolidated financial results for the joint venture.
Specifically, tell us why Boading Multimedia does not have substantive
participating rights as defined in EITF 96-16.
RESPONSE:
Along with the Company's desire to provide the most meaningful financial
presentation, EITF 96-16 was a primary consideration in its decision to
present consolidated financial results for the Joint Venture. As stated in
Note 4 to the financial statements for the year ended December 31, 2004
under "Basis of Consolidation", the amended Joint Venture agreement gave
the Company control of the Board of Directors and the greatest percentage
of direct ownership in the Joint Venture. The agreement states that the
Board is the highest authority of the Joint Venture and that changes in
the Board can only be made after a unanimous vote of the Board. This
follows the PRC's Sino Foreign Joint Venture law that allows foreign
investors that are not majority owners to have the "substantive
participating rights" necessary to control the Joint Venture. Furthermore,
the agreement gives the Company the right to fill key management
positions, including the position of the General Manager who is vested
with the responsibility to carry out the decisions of the Board and to
organize and be in charge of the Joint Venture's daily operation and
management. Based on these facts, the Company concluded that, while
Baoding Multimedia holds certain "protective rights", it is the Company
that holds the "substantive participating rights" as described in EITF
96-16 and thus it should consolidate the financial results of the Joint
Venture.
Impairment, page F-11
6. Revise your disclosure to include how you test for impairment of your
long-lived assets under SFAS No. 144. Tell us how you determined there was
no impairment of your property and equipment and intangible assets in 2004
and 2003.
RESPONSE:
In response to the Staff comment, the Company proposes to include the
following revised disclosure, which includes the Company's impairment test
for its long-lived assets:
The Company applies the provisions of Statement of Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144"), issued by the Financial Accounting Standards
Board ("FASB"). SFAS No. 144 requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable through the
estimated undiscounted cash flows expected to result from the use and
eventual disposition of the assets. Whenever any such impairment exists,
an impairment loss will be recognized for the amount by which the carrying
value exceeds the fair value.
The Company tests its long-lived assets, including property and equipment
and intangible assets subject to periodic amortization, for recoverability
at least annually or more frequently upon the occurrence of an event or
when circumstances indicate that the net carrying amount is greater than
its fair value. Assets are grouped and evaluated at the lowest level for
their identifiable cash flows that are largely independent of the cash
flows of other groups of assets. The Company has identified this lowest
level to be principally the cable TV network in a specific region of
Baoding city. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then
compares the carrying amount of the asset to the future estimated cash
flows expected to result from the use of the asset. If the carrying amount
of the asset exceeds estimated expected undiscounted future cash flows,
the Company measures the amount of impairment by comparing the carrying
amount of the asset to its fair value. The estimation of fair value is
generally measured by discounting expected future cash flows as the rate
the Company utilizes to evaluate potential investments. The Company
estimates fair value based on the information available in making whatever
estimates, judgments and projections are considered necessary. Based on
the above impairment tests, there was no impairment of long-lived assets
during the years ended December 31, 2004 and 2003.
Note 15. Stock Compensation Plan, page F-20
7. Please comply with the disclosure requirements of SFAS No. 123 and APB No.
25.
RESPONSE:
In response to the staff comment, the Company proposes to add the
following disclosure in the Amended Report:
The Company has not granted any options to management, officers and staff
since the Stock Compensation Plan became effective on May 23, 2003.
Accordingly, there were no outstanding staff options at December 31, 2004.
Form 10-Q for Fiscal Quarters Ended March 31, 2005
8. We note your Form 10-Q for the period ended March 31,2005 has not been
filed as of the issue date of this letter. The extension period following
your notification of late filing has elapsed. Please file as soon as
possible or tell us why you have not filed in a timely manner.
RESPONSE:
The Company has filed its Quarterly Report on Form 10-QSB for the
three-month period ended March 31, 2005 on June 21, 2005.
We hope that the information contained in this letter satisfactorily addresses
the comments by the Staff. Please do not hesitate to contact the undersigned by
telephone at (310) 208-1182, or by facsimile at (310) 208-1154.
Very truly yours,
RICHARDSON & PATEL LLP
/s/ Kevin K. Leung
------------------------
Kevin K. Leung, Esq.
Enclosures
cc (w/o encs.): Mr. Yau-Sing Tang, China Cable and Communication, Inc.
Mr. Robert Chiu, Grobstein, Horwath & Company LLP
Exhibit A
COMPANY ACKNOWLEDGMENT
In connection with responding to the Commission's comment letter dated June 10,
2005, China Cable and Communication, Inc. (the "Company") acknowledges that:
1. the Company is responsible for the adequacy and accuracy of the disclosure
in the filings;
2. staff comments or changes to disclosure in response to staff comments in
the filings reviewed by the staff do not foreclose the Commission from
taking any action with respect to the filing; and
3. the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
CHINA CABLE AND COMMUNICATION, INC.
By: /s/ Yau-Sing Tang
--------------------------------------
Yau-Sing Tang
President and Chief Financial Officer