SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 29, 2000
------------------------------------------------
Date of report (Date of earliest event reported)
China Broadband Corp.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada
----------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-28345 72-1381282
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(Commission File Number) (IRS Employer Identification No.)
2080, 440-2 Ave. SW, Calgary, Alberta, Canada T2P 5E9
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(Address of Principal Executive Offices) (Zip Code)
(403) 234-8885
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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(Former name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not Applicable
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 29, 2000, the China Broadband Corp., a Nevada corporation (the
"Registrant"), acquired, indirectly through China Broadband (BVI) Corp., its
wholly-owned subsidiary, 50,000 shares of common stock, par value $1.00 per
share, of Big Sky Network Canada Ltd., an international business corporation
incorporated pursuant to the laws of the British Virgin Islands ("Big Sky
Networks"), under the terms of a common stock purchase agreement (the "Common
Stock Purchase Agreement") dated September 29, 2000, among SoftNet Systems,
Inc., a Delaware Corporation ("SoftNet"), the Registrant and Big Sky Networks.
Big Sky Networks has 100,000 shares of common stock issued and outstanding, of
which 50% (50,000 shares) were held by SoftNet and 50% (50,000 shares) were held
by China Broadband (BVI). After the acquisition, the Registrant beneficially
owns all of the issued and outstanding capital stock of Big Sky Network.
On October 13, 2000, the Registrant filed a current report on Form 8-K
describing the terms of the acquisition. At that time, it was impractical to
file financial statements for the business acquired and pro forma financial
statements of China Broadband Corp. Attached to this report are the unaudited
financial statements for Big Sky Network Canada Ltd. as of June 30, 2000, and
the unaudited pro forma financial statements of China Broadband Corp. as of June
30, 2000, giving effect to the acquisition of 50% of Big Sky Networks from
SoftNet Systems Inc.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not Applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Not Applicable
ITEM 5. OTHER EVENTS.
Not Applicable.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Not Applicable.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
(1) Financial Statements of the Business Acquired.
The unaudited financial statements of Big Sky Network Canada
Limited as of June 30, 2000 and for the six-month period ended
June 30, 2000;
The audited financial statements of Big Sky Network Canada
Limited as of December 31, 1999 and for the period from May 20,
1999 (date of incorporation) to December 31, 1999.
(2) Pro Forma Financial Information.
The unaudited pro forma consolidated financial statements of
the Registrant dated June 30, 2000.
(b) Exhibits attached pursuant to Item 601 of Regulations:
(1) Exhibit 10.1* - Common Stock Purchase Agreement dated Septem-
ber 29, 2000, among SoftNet Systems, Inc., China Broadband Corp.
and Big Sky Network Canada Ltd.
(2) Exhibit 10.2* - 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, Lu Wang, Wallace Nesbitt and Western Capital Corp.
(3) Exhibit 10.3* - 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.
* Previously filed on October 13, 2000.
ITEM 8. CHANGE IN FISCAL YEAR.
Not Applicable
<PAGE>
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 hereunto duly authorized.
CHINA BROADBAND CORP.
-------------------------------------
(Registrant)
Date December 12, 2000 By: /s/ THOMAS G. MILNE
------------------------ -----------------------------------------
Name: Thomas G. Milne
Title: Chief Financial Officer
and Director
<PAGE>
FINANCIAL STATEMENTS OF
BIG SKY NETWORK CANADA LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
JUNE 30, 2000 AND DECEMBER 31, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
BIG SKY NETWORK CANADA LTD.:
We have audited the balance sheet of BIG SKY NETWORK CANADA LTD. (A DEVELOPMENT
STAGE ENTERPRISE) as of December 31, 1999, and the related statement of
operations, shareholders' equity and cash flows for the period from May 20, 1999
(date of incorporation) to December 31, 1999. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit, such financial statements present fairly, in
all material respects, the financial position of the Corporation as of December
31, 1999, and the results of its operations and its cash flows for the period
from May 20, 1999 (date of incorporation) to December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Corporation will continue as a going concern. The Corporation is a development
stage enterprise engaged in providing high speed internet, data and voice
services in The People's Republic of China. As discussed in Note 1 to the
financial statements, the Corporation's operating losses since inception raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/s/ DELOITTE & TOUCHE LLP
-------------------------
Deloitte & Touche LLP
Calgary, Alberta, Canada
December 5, 2000
<PAGE>
<TABLE>
<CAPTION>
BIG SKY NETWORK CANADA LTD.
(a Development Stage Enterprise)
Statements of Operations
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------------------------
Cumulative
Period From Period From
Date of Date of
Incorporation Incorporation,
May 20 May 20,
Six Month 1999 1999
Period Ended to to
June 30, December 31, June 30,
2000 1999 2000
(Unaudited)
$ $ $
-------------------- ------------------- --------------------
<S> <C> <C> <C>
GENERAL AND ADMINISTRATIVE
EXPENSES 83,402 19,604 103,006
-------------------- ------------------- --------------------
EQUITY LOSS IN SHEKOU JOINT
VENTURE (82,049) - (82,049)
INTEREST INCOME 5,234 - 5,234
-------------------- ------------------- --------------------
NET LOSS (160,217) (19,604) (179,821)
==================== =================== ====================
LOSS PER SHARE
Basic and diluted (2.05) (0.39)
==================== ===================
SHARES USED IN COMPUTATION,
BASIC AND DILUTED 78,187 50,000
==================== ===================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIG SKY NETWORK CANADA LTD.
(a Development Stage Enterprise)
Statements of Shareholders' Equity
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
-----------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Shares Paid-in Accumulated Shareholders'
Number of Amount Capital Deficit Equity
Shares $ $ $ $
--------------- ------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
BALANCE, MAY 20, 1999 - - - - -
Issue of common shares to founding
shareholders 50,000 - - - -
NET LOSS - - - (19,604) (19,604)
--------------- ------------- ------------------ --------------- -----------------
BALANCE, DECEMBER 31, 1999 50,000 - - (19,604) (19,604)
Issue of common shares for cash 50,000 50,000 2,450,000 - 2,500,000
NET LOSS - - - (160,217) (160,217)
--------------- ------------- ------------------ --------------- -----------------
BALANCE, JUNE 30, 2000 100,000 50,000 2,450,000 (179,821) 2,320,179
=============== ============= ================== =============== =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIG SKY NETWORK CANADA LTD.
(a Development Stage Enterprise)
Balance Sheets
June 30, 2000 and December 31, 1999
(Expressed in United States Dollars)
----------------------------------------------------------------------------------------------
2000 1999
(Unaudited)
$ $
----------------- ------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 1,148,543 -
Interest receivable 631 -
Prepaid expenses 416,666 -
----------------- ------------------
1,565,840 -
Investment in Shekou joint venture (Notes 1 and 3) 2,769,408 -
----------------- ------------------
4,335,248 -
================= ==================
LIABILITIES
CURRENT
Due to officers and directors (Note 6) 19,604 19,604
Due to China Broadband Corp. (Note 7) 1,995,465 -
----------------- ------------------
2,015,069 19,604
----------------- ------------------
CONTINUING OPERATIONS (Note 1)
COMMITMENTS (Notes 1 and 10)
SHAREHOLDERS' EQUITY
Common shares
$1.00 par value, shares authorized: 100,000;
shares issued and outstanding: 100,000 50,000 -
Additional paid-in capital 2,450,000 -
Accumulated deficit (179,821) (19,604)
----------------- ------------------
2,320,179 (19,604)
----------------- ------------------
4,335,248 -
================= ==================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIG SKY NETWORK CANADA LTD.
(a Development Stage Enterprise)
Statements of Cash Flows
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
-------------------------------------------------------------------------------------------------------------------------
Cumulative
Period From Period From
Date of Date of
Incorporation Incorporation,
May 20 May 20,
Six Month 1999 1999
Period Ended to to
June 30, December 31, June 30,
2000 1999 2000
(Unaudited)
$ $ $
-------------------- ------------------- --------------------
<S> <C> <C> <C>
CASH FLOWS RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net loss (160,217) (19,604) (179,821)
Adjustments for:
Equity loss in Shekou Joint Venture 82,049 - 82,049
-------------------- ------------------- --------------------
(78,168) (19,604) (97,772)
Changes in operating assets and liabilities
Due to officers and directors - 19,604 19,604
Interest receivable (631) - (631)
Prepaid expenses (416,666) - (416,666)
-------------------- ------------------- --------------------
(495,465) - (495,465)
-------------------- ------------------- --------------------
FINANCING
Issue of common shares for cash 2,500,000 - 2,500,000
-------------------- ------------------- --------------------
INVESTING
Investment in Shekou joint venture (2,851,457) - (2,851,457)
Increase in due to China Broadband Corp. 1,995,465 - 1,995,465
-------------------- ------------------- --------------------
(855,992) - (855,992)
-------------------- ------------------- --------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,148,543 - 1,148,543
==================== =================== ====================
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes - - -
==================== =================== ====================
Cash paid for interest - - -
==================== =================== ====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
BIG SKY NETWORK CANADA LTD. 1
(a Development Stage Enterprise)
Notes to the Financial Statements
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
1. INCORPORATION AND NATURE OF BUSINESS
INCORPORATION AND BACKGROUND
Big Sky Network Canada Ltd. (the "Corporation" or "BSN") was
incorporated under the laws of the territory of the British Virgin
Islands on May 20, 1999. The Corporation is a development stage
enterprise and is seeking to become a leading facilities based provider
of high capacity, high speed internet, data and voice services in major
urban markets throughout The People's Republic of China (the "PRC").
The Corporation was incorporated for the purposes of implementing a
business strategy involving joint ventures to provide high speed
internet broadband services in major urban markets through the PRC.
BSN signed a joint venture agreement on September 21, 1999 with China
Merchants Shekou Industrial Zone, Ltd. ("China Merchants") to establish
Shenzhen China Merchants Big Sky Network Ltd. ("Shekou JV"), the
purpose of which is to provide internet access to Chinese residential
and business customers through the existing cable television
infrastructure. Under the terms of the joint venture agreement, China
Merchants agreed to provide all the non-broadcast rights on the cable
network of a cable television station controlled by China Merchants.
BSN is required to contribute a total of $3,000,000 to the Shekou JV as
cash or equipment. BSN is also responsible for providing technical
support to the Shekou JV. Over the Shenzhen JV's 15 year duration, BSN
will be entitled to receive 60% of the profits earned between 2000 and
2004, 50% of the profits earned between 2005 and 2009 and 40% of the
profits earned between 2010 and 2014. BSN is entitled to appoint four
of the seven directors on the Board of Directors of the Shekou JV for
the first five years of its operations and is thereafter, entitled to
appoint three of the seven directors.
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.
<PAGE>
BIG SKY NETWORK CANADA LTD. 2
(a Development Stage Enterprise)
Notes to the Financial Statements
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
1. INCORPORATION AND NATURE OF BUSINESS (Continued)
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 may not be able to attract and retain subscribers, or it
may face intense competition which could have an adverse effect on the
Corporation's business, financial condition and results of operations.
The Corporation's services were launched on June 30, 2000 and is
currently expanding its subscriber base in the Shekou Industrial Zone.
The services in Chengdu were launched on October 26, 2000 (see Note
10(a)).
Substantially all of the Corporation's revenues and operating expenses
will be denominated in the Chinese Renminbi, which is currently freely
convertible, however, there can be no assurance that this will continue
or that the ability to purchase or retain foreign currencies will
continue in the future.
These 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 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.
<PAGE>
BIG SKY NETWORK CANADA LTD. 3
(a Development Stage Enterprise)
Notes to the Financial Statements
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
1. INCORPORATION AND NATURE OF BUSINESS (Continued)
CONTINUING OPERATIONS (Continued)
Management anticipates that the Corporation currently has sufficient
working capital to fund the Corporation's plan of operation through the
year ended December 31, 2000. The Corporation's costs to fund its plan
of operation for the fiscal year ending December 31, 2000 and the next
two fiscal quarters ending June 30, 2001 is expected to increase. The
working capital is intended to fund the business operations of BSN,
including funding the capital requirements of new and existing joint
ventures, funding additional technical, management and marketing/sales
personnel and funding comprehensive joint venture marketing and
promotional programs to increase market awareness and subscription
sales. Management believes that additional funding will be required to
fund the implementation of BSN's business of entering into joint
ventures.
2. SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENTS ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Such estimates include the
valuation allowance for deferred tax assets. Actual results could
differ from those estimates.
CASH EQUIVALENTS
The Corporation considers all highly liquid debt instruments with
maturities at the date of purchase of three months or less to be cash
equivalents.
INVESTMENT IN JOINT VENTURE
The joint venture in Shekou is accounted for under the equity method of
accounting.
<PAGE>
BIG SKY NETWORK CANADA LTD. 4
(a Development Stage Enterprise)
Notes to the Financial Statements
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Corporation accounts for income taxes under an asset and liability
approach. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, and operating loss and tax credit carryforwards
measured by applying currently enacted tax laws. Valuation allowances
are provided when necessary to reduce net deferred tax assets to an
amount that is more likely than not to be realized.
NET LOSS PER SHARE
Basic loss per share ("EPS") excludes dilution and is computed by
dividing net loss attributable to common shareholders 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 (convertible preferred stock, warrants
to purchase convertible preferred stock and common stock options and
warrants 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 STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which as subsequently amended by
SFAS No. 137 and 138, established accounting and reporting standards
requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair
value for fiscal quarters of fiscal years beginning after June 15,
2000. Management believes that these statements will not have a
significant impact on the Corporation's consolidated financial
position, results of operations or cash flows.
In December 1999, the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin 101 ("SAB 101"), "Revenue
Recognition" to provide guidance on the recognition, presentation and
disclosure of revenues in financial statements. Management believes
that its revenue recognition practices are in conformity with SAB 101.
<PAGE>
BIG SKY NETWORK CANADA LTD. 5
(a Development Stage Enterprise)
Notes to the Financial Statements
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
3. INVESTMENT IN JOINT VENTURE
As discussed in Note 1, BSN participates in the Shekou JV.
Summarized financial information for the Shekou JV is as follows:
---------
$
---------
Current assets 2,216,455
Other assets 154,070
---------
Total assets 2,370,525
=========
Current liabilities 7,283
Capital 2,363,242
---------
Total liabilities and capital 2,370,525
=========
Net loss (136,748)
=========
4. COMMON SHARES
The Corporation has issued the following shares:
i) On May 20, 1999 the Corporation issued 50,000 founder (bearer)
shares for no consideration;
ii) On February 22, 2000, the Corporation issued an additional
10,000 shares to a third party for cash consideration of
$500,000.
iii) On April 25, 2000, the Corporation issued a further 40,000
shares to the third party for cash consideration of
$2,000,000. As a result of this transaction, China Broadband
(BVI) Corp. ("CBB - BVI") no longer controlled BSN.
CBB - BVI acquired 50,000 founder shares representing all of the
outstanding shares of BSN, from officers, directors and persons related
to the officers and directors for 12,500,000 common shares of CBB -
BVI. CBB - BVI was incorporated for the purpose of acquiring the shares
of BSN. BSN did not have any substantial operations prior to February
1, 2000. This transaction was accounted for as a recapitalization of
BSN. This recapitalization was effected through the issuance of
12,500,000 common shares of CBB - BVI constituting all of its issued
and outstanding shares.
5. INCOME TAXES
The Corporation did not provide any current or deferred U.S. federal or
foreign income tax provision or benefit because it has experienced an
operating loss since inception. The Corporation is not liable for any
state taxes. The Corporation has provided a full valuation allowance on
the deferred tax asset, consisting primarily of a net operating loss,
because of uncertainty regarding its realizability.
The Corporation had net operating losses of approximately $179,821 for
U.S. federal purposes. Utilization of the net operating loss, which
begins to expire at various times starting in 2007, may be subject to
certain limitations under Section 382 of the Internal Revenue Code of
1986, as amended.
<PAGE>
BIG SKY NETWORK CANADA LTD. 6
(a Development Stage Enterprise)
Notes to the Financial Statements
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
6. DUE TO OFFICERS AND DIRECTORS
The amounts due to officers and directors are advances to the
Corporation to fund expenses. They are non-interest bearing and payable
on demand.
7. DUE TO CHINA BROADBAND CORP.
The advance from China Broadband Corp. is unsecured, non-interest
bearing and payable on demand.
8. FINANCIAL INSTRUMENTS
Revenue from future operations in the PRC are denominated in Chinese
Renminbi ("RMB") and many of the Corporation's expenses are denominated
in U.S. dollars. The official exchange rate for the conversion of RMB
to U.S. dollars has been stable, with the RMB increasing slightly in
recent years. The Corporation does not expect to use any foreign
exchange hedges or derivative instruments in the near future. The
Corporation is exploring credit financing opportunities but does not
currently require any interest rate risk management, hedging or
derivative instruments.
The carrying amounts for cash and cash equivalents and due to officers
and directors are a reasonable estimate of their fair values.
9. SEGMENTED INFORMATION
The Corporation operates in one reportable segment: provider of high
capacity, high speed internet, data and voice services in major urban
markets throughout the PRC. The Corporation's operating activities are
entirely in the PRC. It is not expected that commercial operations will
be carried on in any other country. The Corporation's administrative
and corporate activities are carried on in the United States and
Canada.
10. SUBSEQUENT EVENTS
a) On July 8, 2000, BSN signed a joint venture agreement with Chengdu
Huayu Information Industry Co., Ltd. ("Chengdu Huayu") to
establish Sichuan Huaya Big Sky Network Ltd. ("Chengdu JV"), the
purpose of which is to develop an advanced broadband software and
hardware platform for data transmission and internet related
business in the Chengdu area. Under the terms of the joint venture
agreement, Chengdu Huayu agreed to provide the entire software and
hardware data transmission platform of its Huaya HFC network and
the rights to use all of its facilities and equipment. BSN is
required to contribute a maximum of $5,500,000 to the Chengdu JV
in cash or equipment. Over the Chengdu JV's 20 year term, BSN will
be entitled to receive 65% of the profits earned between 2001 and
2007, 50% of the profits between 2008 and 2013 and 35% of the
profits earned between 2014 and 2020. BSN is entitled to appoint
four of the seven Board of Directors of the Chengdu JV for the
first seven years of its operations and is thereafter entitled to
appoint three of the seven directors.
<PAGE>
BIG SKY NETWORK CANADA LTD. 7
(a Development Stage Enterprise)
Notes to the Financial Statements
Six-Month Period Ended June 30, 2000 and the Period From
Date of Incorporation, May 20, 1999 to December 31, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
10. SUBSEQUENT EVENTS (Continued)
b) On September 29, 2000, CBB - BVI purchased the shares held by the
third party (see Note 4). As a result of this transaction, CBB -
BVI owns 100% of BSN.
c) On November 25, 2000, BSN signed a joint venture agreement with
Deyang Guangshi Network Development Ltd. ("Deyang Guangshi") to
establish Deyang Guangshi Big Sky Ltd. ("Deyang JV"), the purpose
of which is to develop an advanced broadband software and hardware
platform for data transmission and internet related business in
the Deyang area. Under the terms of the joint venture agreement,
Deyang Guangshi agreed to provide the entire software and hardware
data transmission platform of its Deyang HFC network and the
rights to use all of its facilities and equipment. BSN is required
to contribute $4,500,000 to the Deyang JV in cash or equipment.
Over the Deyang JV's 20 year term, BSN will be entitled to receive
80% of the profits earned between 2001 and 2005, 60% of the
profits between 2006 and 2010, 50% of the profits earned between
2011 and 2015, and 40% of the profits earned between 2016 and
2020. BSN is entitled to appoint four of the seven Board of
Directors of the Deyang JV for the first ten years of its
operations and is thereafter entitled to appoint three of the
seven directors.
<PAGE>
<TABLE>
<CAPTION>
CHINA BROADBAND CORP.
(a Development Stage Enterprise)
Pro Forma Consolidated Statement of Operations
For The Period Ended June 30, 2000
(Expressed in United States Dollars)
-----------------------------------------------------------------------------------------------------------------------------------
Big Sky
China Network
Broadband Canada Pro Forma Pro Forma
Corp. Ltd. Adjustments Statement
$ $ $ $
---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
REVENUE
Technical consulting 83,333 - (83,333) -
---------------- ---------------- ----------------
GENERAL AND ADMINISTRATIVE EXPENSES 457,089 103,006 (83,333) 476,762
---------------- ---------------- ----------------
(373,756) (103,006) (476,762)
---------------- ---------------- ----------------
AMORTIZATION EXPENSE
Shekou Joint Venture - - 212,438 212,438
Chengdu Joint Venture - - 424,875 424,875
Goodwill - - 117,616 117,616
Intellectual property - - 70,813 70,813
---------------- ---------------- ----------------
- - 825,742
---------------- ---------------- ----------------
EQUITY LOSS IN BIG SKY NETWORK CANADA
LTD. (80,099) - 80,099 -
EQUITY LOSS IN SHEKOU JOINT VENTURE - (82,049) (82,049)
INTEREST INCOME 125,608 5,234 130,842
INTEREST EXPENSE - - (56,109) (56,109)
---------------- ---------------- ----------------
NET LOSS (328,247) (179,821) (1,309,820)
================ ================ ================
BASIC AND DILUTED LOSS PER SHARE (0.02) (2.81) (0.08)
================ ================ ================
WEIGHTED AVERAGE NUMBER OF SHARES 16,205,766 64,016 17,338,766
================ ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHINA BROADBAND CORP.
(a Development Stage Enterprise)
Pro Forma Consolidated Balance Sheet
June 30, 2000
(Expressed in United States Dollars)
----------------------------------------------------------------------------------------------------------------------------------
Big Sky
China Network
Broadband Canada Pro Forma Pro Forma
Corp. Ltd. Adjustments Statement
$ $ $ $
------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 9,690,074 1,148,543 (2,395,828) 8,442,789
Interest receivable 39,240 631 39,871
Due from officers and employees 215,056 - 215,056
Prepaid expenses 64,217 416,666 (416,666) 64,217
------------------ ------------------- ------------------
10,008,587 1,565,840 8,761,933
Due from Big Sky Network Canada Ltd. 1,995,465 - (1,995,465) -
Investment in Big Sky Network Canada Ltd. 189,901 - (189,901) -
Investment in Shekou Joint Venture - 2,769,408 (2,769,408) -
Fixed assets 56,910 - - 56,910
Investment in Shekou Joint Venture - - 2,684,438 2,684,438
Intangible assets:
Shekou Joint Venture - - 2,549,250 2,549,250
Chengdu Joint Venture - - 5,098,500 5,098,500
Goodwill - - 1,411,390 1,411,390
Intellectual property - - 849,750 849,750
------------------ ------------------- ------------------
12,250,863 4,335,248 21,412,171
Accumulated amortization:
Shekou Joint Venture - - (212,438) (212,438)
Chengdu Joint Venture - - (424,875) (424,875)
Goodwill - - (117,616) (117,616)
Intellectual property - - (70,813) (70,813)
------------------ ------------------- ------------------
12,250,863 4,335,248 20,586,429
================== =================== ==================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 34,889 - 34,889
Accrued interest payable on promissory note - - 56,109 56,109
Due to China Broadband Corp. - 1,995,465 (1,995,465) -
Unearned revenue 416,666 - (416,666) -
Due to officers and directors - 19,604 - 19,604
Promissory note - - 1,700,000 1,700,000
------------------ ------------------- ------------------
451,555 2,015,069 1,810,602
------------------ ------------------- ------------------
STOCKHOLDERS' EQUITY
Common stock 76,803 50,000 (61,367) 65,436
Additional paid in capital 12,050,752 2,450,000 5,788,867 20,289,619
Accumulated deficit (328,247) (179,821) (1,071,160) (1,579,228)
------------------ ------------------- ------------------
11,799,308 2,320,179 18,775,827
------------------ ------------------- ------------------
12,250,863 4,335,248 20,586,429
================== =================== ==================
</TABLE>
<PAGE>
CHINA BROADBAND CORP. 1
(a Development Stage Corporation)
Notes For the Pro Forma Financial Statements
For The Period Ended June 30, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated balance sheet as of
June 30, 2000 has been derived from the unaudited consolidated balance
sheet of China Broadband Corp. (the "Company" or "CBBD") as of June 30,
2000 and the unaudited balance sheet of Big Sky Network Canada Ltd.
("BSN") as of June 30, 2000.
The accompanying unaudited pro forma consolidated financial statements
of operations for the nine months ended June 30, 2000 has been derived
from:
o Unaudited consolidated statement of operations for the period
from February 1, 2000 (date of incorporation) to June 30, 2000
for the Company; and
o Unaudited statement of operations for BSN for the six-month period
ended June 30, 2000 and from the audited statement of operations
for the period from May 20, 1999 (date of incorporation) to
December 31, 1999.
As the results of operations for the period from May 20, 1999 (date of
incorporation) to September 30, 1999 for BSN are not significant, the
results have not been adjusted in the presentation of the pro forma
statement of operations for the nine months ended June 30, 2000, nor
has a pro forma statement of operations for the Company for the year
ended September 30, 1999 been presented.
The unaudited pro forma balance sheet gives effect to the transaction
(described in Note 3 of the CBBD unaudited consolidated financial
statements for the period ended September 30, 2000 previously filed in
the 10-QSB) as if it occurred on the balance sheet date, while the
unaudited pro forma consolidated statement of operations gives effect
to the transaction as if it had occurred at the beginning of the
period.
Because of the acquisition transaction that occurred in September 2000
the unaudited consolidated balance sheet and the consolidated
statement of operations for the period ended June 30, 2000 was adjusted
to reflect the September 2000 acquisition as though it had occurred at
the beginning of the period as follows:
a) Eliminate the inter-company transactions between CBBD and BSN.
b) Eliminate the Investment in Big Sky Network Canada Ltd. and the
related equity loss.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of the results of operations that would have
actually occurred for the period presented had the transaction been
effected on February 1, 2000 or of the results expected in future
years. In preparing the unaudited pro forma consolidated financial
statements, no adjustments have been made to reflect operating
synergies or general and administrative cost savings expected to result
from combining the operations of CBBD and BSN.
<PAGE>
CHINA BROADBAND CORP. 2
(a Development Stage Corporation)
Notes For the Pro Forma Financial Statements
For The Period Ended June 30, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
2. SIGNIFICANT ASSUMPTIONS AND ADJUSTMENTS
a) The unaudited pro forma consolidated balance sheet as of June 30,
2000 assumes the cash payment of $2,500,000, the promissory note
for $1,700,000 and the issuance of 1,133,000 shares by CBBD for
total consideration of $12,697,500 for the remaining issued and
outstanding shares of BSN, thereby increasing its ownership to
100% of BSN.
b) The values assigned to the net assets of BSN at June 30, 2000 are
set out below:
-----------------
$
-----------------
Fair value of assets acquired
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 1,411,390
-----------------
-----------------
12,593,328
Cash acquired 104,172
-----------------
-----------------
Net assets acquired 12,697,500
=================
The Company is reviewing the valuation of the assets acquired and
adjustments may be made to the values ascribed above.
<PAGE>
CHINA BROADBAND CORP. 3
(a Development Stage Corporation)
Notes For the Pro Forma Financial Statements
For The Period Ended June 30, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
2. SIGNIFICANT ASSUMPTIONS AND ADJUSTMENTS (Continued)
c) The unaudited pro forma consolidated statement of operations for
the period ended June 30, 2000 gives effect to the acquisition
described in Note 2(b) and assumes the following:
o Amortization of the book value, which results from the
acquisition, is recorded as if the acquisition had occurred at the
beginning of the period. The amortization of the Shekou Joint
Venture, the Chengdu Joint Venture, intellectual property and
goodwill is computed on a straight line basis over 5 years.
Amortization is as follows:
---------------
$
---------------
Shekou Joint Venture 212,438
Chengdu Joint Venture 424,875
Goodwill 117,616
Intellectual property 70,813
o The loss per share gives effect to the issuance of the additional
common shares (see Note 2(a)) of the Company as if the shares had
been issued at the beginning of the period.
d) The following inter-company transactions were eliminated:
i) Technical consulting revenue and expenses of $83,333 were
eliminated on the pro forma consolidated statement of opera-
tions. Prepaid expenses and unearned revenue were reduced
by $416,666 on the pro forma consolidated balance sheet
relating to the technical consulting services agreement.
ii) Inter-company advances of $1,995,465 were eliminated on the
pro forma consolidated balance sheet.
iii) The CBBD equity investment account in BSN of $189,901 and the
investment in Shekou Joint Venture of $2,769,408 was
eliminated on the pro forma consolidated balance sheet as
CBBD now owns 100% of BSN.
e) Interest expense on the promissory note (see Note 2(a)) of $56,109
was recorded on the pro forma consolidated statement of operations.
