SEC Company Response from CHINA CABLE & COMMUNICATION INC (CIK 0000773394) — Aug 24, 2005
CHINA CABLE & COMMUNICATION INC (CIK 0000773394)
Date: Aug. 24, 2005 · CIK: 0000773394 · Accession: 0001144204-05-026945
AI Filing Summary & Sentiment
Referenced dates: August 2, 2005, August 2, 2005
Letter
Re: China Cable and Communication, Inc. Form 10-KSB for Fiscal Year Ended December 31, 2004 Filed May 16, 2005 File No. 002-98997-NY
RICHARDSON & PATEL LLP 10900 Wilshire Boulevard Suite 500 Los Angeles, CA 90024 Telephone (310) 208-1182 Facsimile (310) 208-1154
August 24, 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
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 10-QSB for the quarterly period ended March 31, 2005 (the "Amended Quarterly Report"). The Amended Quarterly 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 August 2, 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 Quarterly 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
Summary of Significant Accounting Policies General, page F-9
1. We note your response to our prior comment number 4. As defined in Rule 4-08(e)(3) of Regulation S-X, restricted net assets include that amount of the registrant's proportionate share of net assets reflected in the balance sheet of its consolidated and unconsolidated subsidiaries which may not be transferred to the parent company in the form of loans, advances or cash dividends by the subsidiaries without the consent of a third party. We note in your response to our prior comment number 1 that your expected cash dividend from the Baoding joint venture is contingent upon approval by the State Administration of Foreign Exchange and by the local People's Republic of China tax bureau, which would appear to meet the definition of a restricted net asset. Please disclose if there are any assets on your consolidated balance sheet that are not transferable to you without the consent of a third party. If so, please comply with the disclosure required by Rule 4-08(e)(3) of Regulation S-X.
<PAGE>
RESPONSE:
The requirement for the Company's PRC subsidiary to seek the approval by the State Administration of Foreign Exchange (SAFE) is an administrative process imposed by the PRC government on all dividends declared by Sino-foreign joint ventures in China. SAFE needs to ensure that the joint venture has properly paid all of the valued-added and income tax for the periods covered by the dividend declared. Therefore, the process does not constitute a "consent" required from a third party. The Company has obtained a legal opinion from King and Wood, a PRC law firm regarding the Company's position on the declared dividend. (See Attachment 1.)
Currently, the Company's PRC subsidiary has not declared a dividend because the joint venture is still in the process of getting the approval from SAFE. Therefore, the Company has not accrued for a dividend and does not have such asset in its books. Thus, there are no restricted net assets as defined in Rule 4-08(e)(3) of Regulation S-X in the Company's consolidated balance sheet.
Basis of Consolidation, page F-9
2. We note your response to our prior comment number 5. We also note from the risk factors in your Form 10-KSB for the period ended December 31, 2004 that you are dependent on funding through dividend distribution from the joint venture. This dependency is also noted in your response to our prior comment number 1. Exhibit 96-16A(3) of EITF 96-16 states rights to block customary or expected dividends or other distributions may be substantive participating rights. Please tell us why the control over your primary source of funding would not be considered substantive participating rights.
RESPONSE:
Under a Sino-foreign joint venture arrangement, the declaration of dividend is controlled by the board of directors. Since the Company obtained majority control of the joint venture's board of directors effective December 29, 2003, there would not be any substantive participating rights from the minority interest that have an impact over the Company's source of funding.
Impairment, page F-11
3. We note your response to our prior comment #6. Please tell us specifically and provide the quantitative analysis showing how you determined there was no impairment of your long-lived assets given your historical financial results and current going concern status.
<PAGE>
RESPONSE:
Please see attached the five years un-discounted cash flow analysis of the PRC joint venture operation, which is the Company's only asset. (See Attachment 2.)
Form 10-QSB for Fiscal Quarter Ended March 31, 2005
Financial Condition, Liquidity, Capital Resources Plan of Operation, page 26
4. We note your Plan of Operation on page 26 states that you expect to receive a cash dividend from the Baoding joint venture, subject to certain contingencies and on page 27 you state that you will receive the cash dividend. Please amend your Form 10-Q to clarify the status of the cash dividend as of the reporting date.
RESPONSE:
As of the reporting date, SAFE was still reviewing the Company's application to declare the dividend from the joint venture. This is the first time the joint venture has applied for the declaration of dividend and this process can take up to one year. Thus we will amend the subject language on page 27 of the Form 10-QSB for the period ended March 31, 2005 to clarify that the Company is expecting to receive the cash dividend - it will state as follows:
"Although the Company expects to receive the cash dividend from the Baoding joint venture, we cannot meet the exceptional cash requirements of Gryphon's claims, as described above, without seeking strategic investors and raising additional capital through the issuance of debt or equity securities."
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
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RICHARDSON & PATEL LLP
10900 Wilshire Boulevard
Suite 500
Los Angeles, CA 90024
Telephone (310) 208-1182
Facsimile (310) 208-1154
August 24, 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-KSB for Fiscal Year Ended December 31, 2004
Filed May 16, 2005
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 10-QSB
for the quarterly period ended March 31, 2005 (the "Amended Quarterly Report").
The Amended Quarterly 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 August 2, 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 Quarterly 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
Summary of Significant Accounting Policies
General, page F-9
1. We note your response to our prior comment number 4. As defined in Rule
4-08(e)(3) of Regulation S-X, restricted net assets include that amount of
the registrant's proportionate share of net assets reflected in the
balance sheet of its consolidated and unconsolidated subsidiaries which
may not be transferred to the parent company in the form of loans,
advances or cash dividends by the subsidiaries without the consent of a
third party. We note in your response to our prior comment number 1 that
your expected cash dividend from the Baoding joint venture is contingent
upon approval by the State Administration of Foreign Exchange and by the
local People's Republic of China tax bureau, which would appear to meet
the definition of a restricted net asset. Please disclose if there are any
assets on your consolidated balance sheet that are not transferable to you
without the consent of a third party. If so, please comply with the
disclosure required by Rule 4-08(e)(3) of Regulation S-X.
<PAGE>
RESPONSE:
The requirement for the Company's PRC subsidiary to seek the approval by
the State Administration of Foreign Exchange (SAFE) is an administrative
process imposed by the PRC government on all dividends declared by
Sino-foreign joint ventures in China. SAFE needs to ensure that the joint
venture has properly paid all of the valued-added and income tax for the
periods covered by the dividend declared. Therefore, the process does not
constitute a "consent" required from a third party. The Company has
obtained a legal opinion from King and Wood, a PRC law firm regarding the
Company's position on the declared dividend. (See Attachment 1.)
Currently, the Company's PRC subsidiary has not declared a dividend
because the joint venture is still in the process of getting the approval
from SAFE. Therefore, the Company has not accrued for a dividend and does
not have such asset in its books. Thus, there are no restricted net assets
as defined in Rule 4-08(e)(3) of Regulation S-X in the Company's
consolidated balance sheet.
Basis of Consolidation, page F-9
2. We note your response to our prior comment number 5. We also note from the
risk factors in your Form 10-KSB for the period ended December 31, 2004
that you are dependent on funding through dividend distribution from the
joint venture. This dependency is also noted in your response to our prior
comment number 1. Exhibit 96-16A(3) of EITF 96-16 states rights to block
customary or expected dividends or other distributions may be substantive
participating rights. Please tell us why the control over your primary
source of funding would not be considered substantive participating
rights.
RESPONSE:
Under a Sino-foreign joint venture arrangement, the declaration of
dividend is controlled by the board of directors. Since the Company
obtained majority control of the joint venture's board of directors
effective December 29, 2003, there would not be any substantive
participating rights from the minority interest that have an impact over
the Company's source of funding.
Impairment, page F-11
3. We note your response to our prior comment #6. Please tell us specifically
and provide the quantitative analysis showing how you determined there was
no impairment of your long-lived assets given your historical financial
results and current going concern status.
<PAGE>
RESPONSE:
Please see attached the five years un-discounted cash flow analysis of the
PRC joint venture operation, which is the Company's only asset. (See
Attachment 2.)
Form 10-QSB for Fiscal Quarter Ended March 31, 2005
Financial Condition, Liquidity, Capital Resources
Plan of Operation, page 26
4. We note your Plan of Operation on page 26 states that you expect to
receive a cash dividend from the Baoding joint venture, subject to certain
contingencies and on page 27 you state that you will receive the cash
dividend. Please amend your Form 10-Q to clarify the status of the cash
dividend as of the reporting date.
RESPONSE:
As of the reporting date, SAFE was still reviewing the Company's
application to declare the dividend from the joint venture. This is the
first time the joint venture has applied for the declaration of dividend
and this process can take up to one year. Thus we will amend the subject
language on page 27 of the Form 10-QSB for the period ended March 31, 2005
to clarify that the Company is expecting to receive the cash dividend - it
will state as follows:
"Although the Company expects to receive the cash dividend from the
Baoding joint venture, we cannot meet the exceptional cash
requirements of Gryphon's claims, as described above, without
seeking strategic investors and raising additional capital through
the issuance of debt or equity securities."
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
By: /s/ Dominador D. Tolentino
---------------------------
Kevin K. Leung, Esq.
Dominador D. Tolentino, Esq.
Enclosures
cc (w/o encs.): Mr. Yau-Sing Tang, China Cable and Communication, Inc.
Mr. Robert Chiu, Grobstein, Horwath & Company LLP
<PAGE>
Exhibit A
COMPANY ACKNOWLEDGMENT
In connection with responding to the Commission's comment letter dated August 2,
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
China Cable and Communication, Inc.
<PAGE>
Attachment 1
Date: April 21, 2005
To: Baoding Pascali Broadcasting Cable TV Integrated Information
Networking Co. Ltd.
From: Mr. Gao Yue, the Lawyer
Beijing King & Wood Law Firm
Subject: Matters regarding the dividend distribution of the subject company
To whom it may concern:
We, at your request in regard to the dividend distribution and the shareholders'
intention to offset the debt, offer our legal opinion as below.
According to the stipulation of Provision 177 of the "Company Law of the
People's Republic of China", the dividend that can be distributed by the Company
is the net profit after tax and deduction of legal surplus, legal welfare fund
and arbitrary surplus.
I. The substantive conditions of dividend distribution
In view of that the company has achieved a certain amount of profit in the
fiscal year, you can distribute the dividend to the shareholders when there is
still a surplus after deduction of the following:
1. The income tax you should pay according to relevant law;
2. The confiscated property and money you shall pay in case of that the
company has violated the compulsory legal regulations;
3. Making up for the loss;
4. Retention of the legal surplus and legal welfare fund; and
5. The arbitrary surplus to be retained according to the resolution of
shareholders meeting.
II. The formative conditions of dividend distribution
When you distribute the dividend, you must abide by legal procedural conditions
and the resolution regarding dividend distribution shall be made by the
shareholders meeting.
III. The criteria of dividend distribution
The criteria of your dividend distribution shall comply with the equality
principle of shareholders, especially the principle of share equality.
IV. The types of dividend
You can distribute the dividend based on the types below:
1. Cash dividend, stock dividend, bond dividend, promissory note dividend and
dividend of other property;
<PAGE>
2. Normal dividend and special dividend; and
3. Comprehensive dividend and optional dividend.
In addition, according to the stipulation of Provision 76 of The Detailed Rules
for the Implementation of the Law of the People's Republic of China on
Chinese-foreign Contractual Joint Ventures, the profit distribution principle to
be followed by the Chinese-foreign contractual joint venture after paying the
income tax complying with the Income Tax Law of the People's Republic of China
for Enterprises with Foreign Investment and Foreign Enterprises is as follows:
1. Retain the reserve fund, award and welfare fund for the employees, and
enterprise development fund, the proportions of retention of which are
decided by the board of directors;
2. The reserve fund, besides being used to offset the loss of the
Chinese-foreign contractual joint venture, can be used to increase the
capital of the enterprise and expand production after approval from the
governing authority is gained.
3. The profit available for distribution after retention of the three funds
as set forth in 1 of this provision shall, if the board of directors has
decided to distribute, be distributed according to the proportions of
capital contribution of the parties of the joint venture.
Based on the legal regulations above, there is no prescribed stipulation among
the existing laws of China regarding the profit for the joint venture to
distribute after making up for the loss and retaining funds, and the profit of
the joint venture can be distributed according to the distribution scheme
decided by the board of directors.
To summarize, according to the principle set forth in Provision 4 of the Company
Law of the People's Republic of China, "The shareholders of a company, as
capital contributors, have the right to enjoy the benefits of the assets of the
company, make major decisions, choose managers, etc. in accordance with the
amount of capital they have invested in the company", you have the right to
legally distribute the dividend, and the shareholders are sufficiently entitled
to, after legally getting the dividend above, corresponding disposal right
including but not limited to offsetting the debt.
The legal advice above is given based only on the situation you have stated and
the currently effective laws, regulations and jurisdiction of China. We reserve
the right to make revision or major revision to the advice above when new
changes occur.
Yours sincerely
For and on behalf of
KING & WOOD LAW FIRM
Signed by Gao Yue
--------------------
Gao Yue
Lawyer
<PAGE>
ATTACHMENT 2
BAODING PASCALI BROADCASTING CABLE TV
INTERGRATED INFORMATION NETWORKING CO., LTD.
5 YEARS PROFIT FORECAST
(Expressed in USD)
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2005
-----------------------------------------------------------------------
Forecast
Actual ---------------------------------------- Total
Jan - Mar Apr - June Jul - Sep Oct - Dec 2005
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
- Analog Television Service 979,363 1,028,331 1,079,748 1,133,735 4,221,177
- High Speed Internet Service 70,901 71,610 73,042 75,233 290,786
- Digital Television Service 465,665 488,948 513,395 564,735 2,032,743
----------- ----------- ----------- ----------- -----------
Total revenue, net of VAT 1,515,929 1,588,889 1,666,185 1,773,703 6,544,706
Operating expenses
- Analog Television Service (197,975) (207,874) (218,268) (229,181) (853,298)
- Digital Television Service (343,906) (345,626) (347,354) (357,775) (1,394,661)
Administrative expenses (100,266) (103,274) (106,372) (111,691) (421,603)
Depreciation (394,604) (394,604) (394,604) (394,604) (1,578,416)
Amortization (30,171) (30,171) (30,171) (30,171) (120,684)
----------- ----------- ----------- ----------- -----------
Profit from operation 449,007 507,340 569,416 650,281 2,176,044
Other income (expenses), net (1