10KSB 1 form10ksb093002.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 ------------------- FORM 10-KSB (Mark One) |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended September 30, 2002 ------------------------------------------------------ OR |_| TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from To Commission file Number 000-26119 ------------- CHINA WORLD TRADE CORPORATION -------------------------------------------------------------------------------- (Name of Small Business Issuer in Its Charter) Nevada 87-0629754 ---------------------------- ------------------------------------ (State or other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation) 4th Floor, Goldlion Digital Network Center 138 Tiyu Road East, Tianhe Guangzhon, The PRC 510620 --------------------------------------------- -------------------------- (Address of Principal Executive Offices) (Zip Code) 011-8620-3878-0286 -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) Securities registered under Section 12(b) of the Exchange Act: Name of Each Exchange Title of Each Class on Which Registered -------------------------------------- ------------------------------------- -------------------------------------- ------------------------------------- Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $.001 -------------------------------------------------------------------------------- (Title of Class) -------------------------------------------------------------------------------- (Title of Class) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 past 90 days. Yes No X ---------- ----------- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-SKB. |X| State issuer's revenue for its most recent fiscal year $193,024 ---------------- State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity as sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days (See definition of affiliate in Rule 12b-2 of the Exchange Act.). Note. If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated. ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No X ---------- ----------- APPLICABLE ONLY TO CORPORATE REGISTRANTS State the number of share outstanding of each of the issuer's classes of common equity, as of the latest practicable date. As of April 11, 2003 there were 10,970,497 shares of common stock issued and outstanding Transitional Small Business Disclosure Format (check one): Yes No X ---------- ----------- CHINA WORLD TRADE CORPORATION FORM 10-KSB INDEX
Page PART I Item 1. Description of Business........................................................................2 Item 2. Description of Property.......................................................................11 Item 3. Legal Proceedings.............................................................................11 Item 4. Submission of Matters of a Vote of Security Holders...........................................11 PART II Item 5. Market for Common Equity and Related Stockholder Matters...........................................................................11 Item 6. Management's Discussion and Analysis of Plan of Operations.................................................................................13 Item 7. Financial Statements..........................................................................16 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........................................................17 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.............................................17 Item 10. Executive Compensation........................................................................19 Item 11. Security Ownership of Certain Beneficial Owners and Management................................19 Item 12. Certain Relationships and Related Transactions................................................20 Item 13. Exhibits, List and Reports on Form 8-K........................................................21 Signatures ..............................................................................................23 Certifications ..............................................................................................24 Financial Statements..........................................................................................F-1
PART I ITEM 1. DESCRIPTION OF BUSINESS. When used in this Form 10-KSB, the words "expects," "anticipates," "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. This discussion should be read together with the financial statements and other financial information included in this Form 10-KSB. Company History China World Trade Corporation, ("CWTC" or the "Company) was incorporated in the State of Nevada on January 29, 1998 under the name Txon International Development Corporation to engage in any lawful corporate undertaking, including, but not limited to construction and development services for corporate global expansion. Pursuant to a Share Exchange Agreement dated August 10, 2000, by and among Main Edge International Limited, a British Virgin Islands corporation ("Main Edge") Virtual Edge Limited, a British Virgin Islands corporation and a wholly owned subsidiary of Main Edge ("Virtual Edge"), Richard Ford, Jeanie Hildebrand and Gary Lewis, on August 14, 2000, we acquired from Main Edge all of the shares of Virtual Edge (the "Acquisition") in exchange for an aggregate of one million nine hundred sixty one thousand, one hundred and seventy five (1,961,175) shares of our common stock which shares equaled 75.16% of our issued and outstanding shares after giving effect to the Acquisition. On September 15, 2001 we effectuated an 8 for 1 forward stock split. As a result of the forward stock split, Main Edge held 15,689,400 shares of our common stock which shares equal 75.16% of our issued and outstanding shares. On September 25, 2000 we changed our name from Txon International Development Corporation to China World Trade Corporation. In September, 2002 we underwent a debt for equity capital restructuring whereby certain creditors of the Company converted an aggregate of $2,731,677 into an aggregate of 4,000,000 shares of common stock. We filed a report on Form 8-K with the Securities and Exchange Commission on March 3, 2003, reporting the debt for equity capital restructuring. Our business objective is to broker deals between businesses in China and other communities with the objective of promoting cross-border trade and commerce through the use of state-of-the-art information technology. See "General Business Plan". We plan to achieve our objective by creating an Internet portal to serve foreign and Chinese small to medium sized businesses and by establishing business clubs in China which will provide a physical venue for business executives to meet and network. We will attempt to negotiate business opportunities through our subsidiaries, Infotech Enterprises Ltd., Guangzhou World Trade Center Club and Beijing World Trade Center Club. No assurances, however, can be given that we 2 will be successful in its endeavors. We have no significant assets and believe that we will be able to provide marketable services based solely on the skill, experience and contacts of the individuals who are affiliated with us. See "Directors and Executive Officers, Promoters and Control Person". Our executive office is located at 4th Floor, Goldlion Digital Network Center, 138 Tiyu Road East, Tianhe, Guangzhou, The PRC 510620. Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. In this Annual Report, unless otherwise specified, all dollar amounts are expressed in United States Dollars. History of Virtual Edge Virtual Edge was incorporated in the British Virgin Islands on February 18, 1999 as an investment holding company. On October 5, 1999, Virtual Edge pursuant to a share exchange, acquired a majority interest in Infotech Enterprises Limited ("Infotech"). Infotech was incorporated on July 2, 1999 and is engaged in building a bilingual (Chinese and English) Business-to-Business internet portal. On October 10, 1999, Virtual Edge signed an agreement with Belford Enterprises Limited ("Belford") pursuant to which Belford agreed to transfer its 75% interest in Beijing World Trade Center Club ("BWTCC") to Virtual Edge. BWTCC is a development stage company and is engaged in the establishment of a club located in Beijing, the PRC. The club will provide food and beverages, recreation, business centre services, communication and information services, products exhibitions services, commercial and trading brokerage services to its members. On October 18, 2000, pursuant to a Share Exchange Agreement, with Vast Opportunity Limited, we acquired the remaining interest in Infortech. On November 10, 2001, Virtual Edge Limited signed an agreement with Guangzhou City International Exhibition Co., Ltd. pursuant to which a co-operative joint venture company, Guangzhou World Trade Center Club ("GWTCC") was formed to operate a business club in Guangzhou, the PRC to provide services including food and beverages, recreation, business center, communication and information, products exhibitions, as well as commercial and trading brokerage services to its members. Virtual Edge will share 75% profit from the operation of GWTCC. Located at Goldlion Digital Network Center in Guangzhou, GWTCC had its grand opening on January 28, 2002. General Business Plan China has been considered one of the the fastest growing economy in the world and with its accession into WTO, there will be unique opportunities for foreign investment and international trade. Our plan is to establish and operate World Trade Center Clubs (the "Clubs"), which will be associated with the World Trade Center Association, in major cities in China, where the members can relax, entertain, network and meet potential business partners in person, or via the Video Conferencing facilities of the World Trade Center Association ("WTCA") worldwide network. The World Trade Center Association is a not-for-profit, non -political association whose mission is to assist, develop and facilitate international trade. There are over 300 World Trade Centers in almost 100 countries and over 750,000 companies are affiliated with WTCA members worldwide. 3 The facilities of the Clubs will likely include restaurants, a bar, a fitness center, saunas and spas, conference rooms, video conferencing facilities, smart offices and a library. The services to be offered by the Clubs may include the provision of trade agency and trade information, business services including smart offices, secretarial and translation services, conference room and video conferencing services. The Clubs may also operate a Business Consultation and Fulfillment and Logistics Counseling Service via a 24/7 call center manned by business professionals experienced in the China trade. Members of the Club will be entitle to WTCA membership and be entitled to the services and benefits of over 300 World Trade Centers worldwide. Through our subsidiary Guangzhou World Trade Center Club we provide a full range of top quality commercial and recreational services to our members, the clubhouse is luxuriously decorated and provides an elegant environment under which members can enjoy our facilities that include: * Chinese and western fine dining, * Seminar and conference rooms, * Library, * Executive suites, * Office and meeting room packages, * Videoconferencing facilities * Exhibition rooms, * Cigar and wine corner, * Gym and fitness center, and * Massage, sauna and spas. In terms of business services, it will offer its members: * Liaison work with potential trading partners, * International economic and trade exhibitions and seminars, * Interpreters and secretarial services, * Organized trips to participate in World Trade Center Association sponsored activities, * Reception of visiting delegations of foreign World Trade Center Association member units, * Arrange meetings to see Chinese government bodies, business corporations, and * Legal consultancy and travel agency services. Additionally, we plan to build a Chinese and English Business-to-Business internet portal- at URL www.ChinaWTC.com (the "Portal"). The Portal will be an integrated business and consumer portal that is fast and user friendly. In order to win user loyalty, the Portal will provide easy 4 navigation, quick page loads and a screen design that maximizes the amount of information on display. It will utilize advanced customer relations management techniques or CRM that utilize meta-data analysis to provide one-to-one marketing service to users. Those users will be provided with information, sorted by its relevance according to their profile (continually self learning), and will then be saved the aggravation and time wasting involved in wading through pages of useless data. Important features of the Portal, will include: * a comprehensive database on Chinese for small to medium sized businesses hoping to trade with foreign companies; * a "virtual exhibition center" to provide 24 hour a day product presentation; * a mega powered CRM driven focused intelligent search engine that quickly presents users with a wealth of relevant information; * an exclusive "Office Anywhere" feature that offers a mobile office to members (even on a palm pilot computer); and * a multilingual on-line translation tools to break the language barriers; e-trade and e-shopping etc. 5 Corporate Chart China World Trade Corporation listed on the Pink Sheets LLP Virtual Edge Limited 100% subsidiary of China ------- World Trade Corporation Guangzhou World 75% Trade Center Club - 25% --------------- owned by Guangzou City International Exhibition Infotech Enterprises Ltd.- 100% Owner of the Business-to- --------------- Business Internet Portal, - China WTC.com - Beijing World Trade Center Club 75% - 25% owned by Beijing Wanlong --------------- Economic Consultance Corporation Ltd.*** (Sino-Foreign Co-operative Joint Venture) World Trade Center Association (WTCA) headquartered Marketing Strategy We plan to market Club memberships mainly to international companies and businessmen doing business in China and local Chinese companies and businessmen seeking business opportunities within and outside China. We will utilize the good reputation and recognition of WTCA and the recreational and business facilities which will be offered at each Club and establish the Guangzhou Club and other potential Clubs in various cities in the PRC as the premier business clubs to be a member of. We will also make the ChinaWTC.com website into a distinctive Chinese/English language Internet portal and the. We will achieve our goals by placing advertisements with traditional media, such as newspapers, television, radio, magazines etc.; placing banners on high traffic web sites; sending e-mails to potential users; participating in trade shows; employing the services of external PR and Marketing firms; television "infomercials" and talk shows; outdoor advertising signs and attending / holding press conferences. We will form strategic alliances with companies that can contribute services and local expertise in various market sectors. These alliances will increase our content and navigation services, support our advertising services and expand our distribution networks. An integral part of our success is dependent on the development and enhancement of our products and services. We will incorporate new technologies from third parties, expand products and services internally and conduct market research to remain aware and informed of the evolving user tastes and latest technologies. 6 Sources of Income Our revenue will come from membership subscription and monthly dues, food & beverage sales and business services fees from the Clubs, subscriptions advertisements by vendors, traders and suppliers, transaction fees on ChinaWTC.com and web solution services. Because of the initial set up cost and the relatively small membership base, we expect to incur an operating loss for the first two to three years of operation. Competition With respect to the Guangzhou Club and the other Clubs to be established in China, the directors believe that the Clubs are a unique business club, associated with a recognized and respected international organization, whose mission is the enhancement of international trade, and which offers prestigious business and recreational facilities to its member. There are other country clubs in China, like the Beijing American Club, which offer more in terms of recreational facilities and services, however, none of them offer the business services, network of international companies and online trade information in combination with a first class club environment. Additionally, there are organizations, like the American Chamber of Commerce, which provide limited trade and business information and networking capabilities, but they do not offer a prestigious club setting, recreational facilities or the amount of business services that are available to Club members. With respect to ChinaWTC.com, management believes that it will be one of the first companies to offer such Chinese/English online services in China. Though there are other systems developed by institutions or companies to address some facets of the trade market, we are not aware of anything similar to ChinaWTC.com. ChinaWTC.com combines the technology, the marketing of memberships/services/products, the creation of community database and a cross-border network of people and business, which enables companies of limited resources to find more business opportunities at a cost that is just a fraction of what they used to pay. Large companies would also find cost savings by outsourcing part of their work processes to Infotech. Despite the foregoing, we have identified the following list of possible competitors: * Sino.com is the most visited web site in China and is quite popular with overseas Chinese. However, it is a Chinese only site and does not have a business focus. It also suffers from having a weak search engine, being slow to download and has none of the advanced features to be provided by ChinaWTC.com. * China.com, which was listed on the Nasdaq National Market, is also a portal, providing free email and news headlines, has failed to capture member loyalty because of its lack of focus and poor design. Moreover, due to its links with the Xinhua News Agency - the official mouthpiece of the Chinese Communist Party - the information it provides may be heavily biased. * Hongkong.com, which is owned by the same company as China.com, is a bilingual portal, however, it also lack focus and although its free email service is quite popular with Hong Kong residents, for obvious reasons, the demographics of its members is poor and it has failed to capture the enthusiasm of advertisers. With our Board of Directors, we have access to those who are knowledgeable in outsourcing, re-engineering, Internet commerce, logistics and the latest technologies for making the world smaller. We will be scalable and adaptive to the changing environment, thus enabling it to maintain the fast growth with high return and at the same time maintaining its competitiveness. 7 Industry Overview THE INFORMATION INDUSTRY IN CHINA According to Killen and Associates, a marketing research firm, information technology spending in China, including Hong Kong, will rise at an annual compound growth rate over of 20%. High capacity network covering the whole country is being put in place. This network is utilizing the most modern technology and is based on a grid of optical cables supplemented by satellite and digital microwave systems. Systems at 8x2.5 Gbps have been adopted on the major transmission trunks for transmission of broadband information and application of different categories of services. The urban and rural telephone network, mobile communications network and the public data and multimedia network have been completed. The information industry continued its fast growth with an additional 22 million lines were added to the Public Switched Telephone Network to bring the total to 135 million lines THE INTERNET IN CHINA The China Internet market is dominated by Golden Bridge Network, the internet service provider of ISP set up by the Ministry of Electronics; China Net, China Telecom's ISP; and a new entrant, the Ministry of Film, Broadcasting and Television, which has a very attractive fiber, coax cable, microwave and satellite transmission network throughout the wealthiest provinces and cities. The highest concentration of Internet subscribers is in the wealthiest cities in China, namely Beijing and Shanghai, according to China Network Information Center. The other major growth areas are in the country's three wealthiest provinces, namely Guangdong, Zhejiang and Jiangsu; followed by Hebei, Fujian, Shandong, Shaanxi, Sichuan and Heilongjiang. Beneath the top-tier operators are a small number of strategic resellers that provide the dual-account service. Revenue will be split between the top-tier ISP and its strategic resellers. Further down, there are over 100 resellers each serving a few hundreds or a few thousands subscribers. In the latest development, China Telecom is tying up very good marketing partners to launch this dual-account service, particularly in Beijing, Shanghai, Tianjin, Guangdong, Sichuan, Shaanxi, Zhejiang, Jiangsu and Shandong, in all covers 60% of current Internet subscribers. The Internet market in China first started in 1987, when its use was limited to the field of academic and educational institutions for research purposes. The commercial use of Internet began in 1995 with the launching of ChinaNet. According to China Network Information Center, a market research firm, in the last few years the number of Internet subscribers, has increased from 40,000 in 1995, to 100,000 in 1996 and to 2.1 million by the end of 1998. In 1998, Beijing, the capital, had over 100,000 subscribers. China Network Information Center estimated the numbers would climb to 6 million by the year 2001. 8 Governmental Regulation Of Our Operations In China A significant number of our subsidiary companies operate from facilities that are located in the People's Republic of China. Accordingly, our subsidiaries' operations must conform to the governmental regulations and rules of China. THE CHINESE LEGAL SYSTEM The practical effect of the People's Republic of China legal system on our business operations in China can be viewed from two separate but intertwined considerations. First, as a matter of substantive law, the Foreign Invested Enterprise laws provide significant protection from government interference. In addition, these laws guarantee the full enjoyment of the benefits of corporate Articles and contracts to Foreign Invested Enterprise participants. These laws, however, do impose standards concerning corporate formation and governance, which are not qualitatively different from the General Corporation Laws of the several states. Similarly, the People's Republic of China accounting laws mandate accounting practices, which are not consistent with US Generally Accepted Accounting Principles. The China accounting laws require that an annual "statutory audit" be performed in accordance with People's Republic of China accounting standards and that the books of account of Foreign Invested Enterprises are maintained in accordance with Chinese accounting laws. Article 14 of the People's Republic of China Wholly Foreign-Owned Enterprise Law requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal reports and statements to designate financial and tax authorities, at the risk of business license revocation. Second, while the enforcement of substantive rights may appear less clear than United States procedures, the Foreign Invested Enterprises and Wholly Foreign- Owned Enterprises are Chinese registered companies which enjoy the same status as other Chinese registered companies in business-to-business dispute resolution. Because the terms of the respective Articles of Association provide that all business disputes pertaining to Foreign Invested Enterprises are to be resolved by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden applying Chinese substantive law, the Chinese minority partner in our joint venture companies will not assume a privileged position regarding such disputes. Any award rendered by this arbitration tribunal is, by the express terms of the respective Articles of Association, enforceable in accordance with the "United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)." Therefore, as a practical matter, although no assurances can be given, the Chinese legal infrastructure, while different in operation from its United States counterpart, should not present any significant impediment to the operation of Foreign Invested Enterprises. ECONOMIC REFORM ISSUES Although the majority of productive assets in China are owned by the Chinese government, in the past several years the government has implemented economic reform measures that emphasize decentralization and encourage private economic activity. Because these economic reform measures may be inconsistent or ineffectual, there are no assurances that: o We will be able to capitalize on economic reforms; o The Chinese government will continue its pursuit of economic reform policies; o The economic policies, even if pursued, will be successful; o Economic policies will not be significantly altered from time to time; and o Business operations in China will not become subject to the risk of nationalization. 9 Negative impact upon economic reform policies or nationalization could result in a total investment loss in our common stock. Since 1979, the Chinese government has reformed its economic systems. Because many reforms are unprecedented or experimental, they are expected to be refined and improved. Other political, economic and social factors, such as political changes, changes in the rates of economic growth, unemployment or inflation, or in the disparities in per capita wealth between regions within China, could lead to further readjustment of the reform measures. This refining and readjustment process may negatively affect our operations. Over the last few years, China's economy has registered a high growth rate. Recently, there have been indications that rates of inflation have increased. In response, the Chinese government recently has taken measures to curb this excessively expansive economy. These measures have included devaluations of the Chinese currency, the Rennin, restrictions on the availability of domestic credit, reducing the purchasing capability of certain of its customers, and limited re-centralization of the approval process for purchases of some foreign products. These austerity measures alone may not succeed in slowing down the economy's excessive expansion or control inflation, and may result in severe dislocations in the Chinese economy. The Chinese government may adopt additional measures to further combat inflation, including the establishment of freezes or restraints on certain projects or markets. These measures may adversely affect our telephone communications manufacturing company's operations. To date reforms to China's economic system have not adversely impacted our operations and are not expected to adversely impact operations in the foreseeable future; however, there can be no assurance that the reforms to China's economic system will continue or that we will not be adversely affected by changes in China's political, economic, and social conditions and by changes in policies of the Chinese government, such as changes in laws and regulations, measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and remittance abroad, and reduction in tariff protection and other import restrictions. CHINA'S ACCESSION INTO THE WTO On November 11, 2001, China signed an agreement to become a member of the World Trade Organization sometimes referred to as the WTO, the international body that sets most trade rules, further integrating China into the global economy and significantly reducing the barriers to international commerce. China's membership in the WTO was effective on December 11, 2001. China has agreed upon its accession to the WTO to reduce tariffs and non-tariff barriers, remove investment restrictions, provide trading and distribution rights for foreign firms, and open various service sectors to foreign competition. China's accession to the WTO may favorably affect our business in that reduced market barriers and a more transparent investment environment will facilitate increased investment opportunities in China, while tariff rate reductions and other enhancements will enable us to develop better investment strategies and attract investment capital. In addition, the WTO's dispute settlement mechanism provides a credible and effective tool to enforce members' commercial rights. Also, with China's entry to the WTO, it is believed that the relevant laws on foreign investment in China will be amplified and will follow common practices. 10 Employees As of September 30, 2002, we had 210 full-time employees. We believe our future success will depend in large part upon the continued service of its key technical and senior management personnel and its ability to attract and retain technical and managerial personnel. There can be no assurance that we will retain our key technical and managerial employees or that we can attract, assimilate or retain other highly qualified technical and managerial personnel in the future. None of our employees are subject to any collective bargaining agreements. ITEM 2. DESCRIPTION OF PROPERTY. Our main office and club facilities are located at 4th Floor, Goldlion Digital Network Center, 138 Tiyu Road East, Tianhe, Guangzhou, the PRC 510620. Such office and club facilities are held pursuant to a lease from Guangzhou Silver Disk Property Management Co. Ltd., which provides for an aggregate monthly rental of approximately RMB$350,000 (equivalent to $42,530) and expires on July 31, 2007. ITEM 3. LEGAL PROCEEDINGS. We are not a party to any pending or to the best of its knowledge, any threatened legal proceedings. No director, officer or affiliate, or owner of record or of more than five percent (5%) of our securities, or any associate of any such director, officer or security holder is a party adverse to us or has a material interest adverse to ours in reference to any pending litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company's authorized share capital consists of 50,000,000 shares of common stock with $0.001 par value and 10,000,000 shares of preferred stock with $0.001 par value, of which 29,051,520 shares of common stock and 0 shares of preferred stock was issued and outstanding as of September 1, 2002. On June 3, 2002, the board of directors declared a one for thirty reverse stock split of all the company's issued and outstanding common stock without any change in par value or authorized share capital. The Company's authorized share capital of 50,000,000 shares of common stock with $0.001 par value and 10,000,000 shares of preferred stock with $0.001 par value remains the same after the reverse stock split as it was before the reverse stock split. Shareholder approval required to effect the reverse stock split was obtained, on August 1, 2002 in accordance with the By-Laws of the Company and the reverse stock split took effect on September 1, 2002. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock began quotation on the Over-the-Counter Bulletin Board ("OTCBB") on June 28, 2000 and was initially quoted under the symbol TXON before the symbol was changed to CHWT. On June 26, 2002, our stock was delisted from trading on OTCBB for not being a current reporting company under the Exchange Act of 1934. We are now quoted under the symbol CWTD on the Pink Sheets LLP. The following table sets forth the range of bid prices of our common stock as quoted on OTCBB and the Pink Sheets LLP, respectively, during the periods indicated. 11 The prices reported represent prices between dealers, do not include markups, markdowns or commissions and do not necessarily represent actual transactions. High (1) Low 2000-2001 First Quarter 0.069 (2) Second Quarter 0.024 (2) Third Quarter 0.001 (2) Fourth Quarter 0.007 (2) 2001-2002 First Quarter 0.001 (2) Second Quarter 0.001 (2) Third Quarter 0.001 (2) Fourth Quarter 0.001 (2) (1) The Company declared a 1 for 30 reverse stock split effective September 1, 2002. All reported historical information has been adjusted accordingly to reflect the impact of the reverse stock split. (2) Information not available. Our shares of common stock are issued in registered form. Interwest Transfer Company in Salt Lake City, Utah, is the registrar and transfer agent for our common stock. Effective September 1, 2002, we executed a 1 for 30 reverse stock split of the outstanding shares of common stock. In September, 2002, we underwent a debt-for-equity capital restructuring and issued shares to certain creditors for the settlement of debts and fees pursuant to settlement agreements, as follows: NAME OF CREDITOR DATE (2002) NO. OF CONSIDERATION SHARES Mr. James Mak September 8 87,500 Mr. James Mak September 8 35,000 Mr. Roy Wu September 9 87,500 Mr. Alfred Or September 10 156,645 Mr. Andersen Chan September 10 60,000 Mr. Bernard Chan September 8 73,355 Superwear Limited September 9 500,000 Simple Forturn Inc. September 9 490,000 Sinogolf Limited September 9 510,000 Top-Trained Securities September 11 1,000,000 Limited Splendid Partner Holdings September 12 500,000 Limited I&V Ltd. September 12 500,000 The shares of common stock issued as consideration pursuant to the debt for equity reorganization were issued on January 22, 2003. 12 As a result of two share purchase agreements dated September 3, 2002 and December 17, 2002, respectively, and entered into between the Company and Powertronic Holdings Limited, on January 24, 2003 we issued a total of 2,000,000 shares of common stock and warrants to purchase up to 4,000,000 shares of common stock for a total purchase price of $1,000,000 to Powertronic Holdings Limited. As a result of a share exchange agreement dated December 17, 2002 entered into between the Company and Mr. Tsang Chi Hung, on January 24, 2003, we issued 4,000,000 shares of common stock and warrants to purchase up to 4,000,000 shares of common stock in exchange of 100% share capital of General Business Network (Holdings) Ltd. As of April 11, 2003, there were 79 holders of record of 10,970,497 outstanding share of common stock of the Company. Dividends The Company has not previously paid any cash dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. It is the present intention of management to retain any earnings to provide funds for the operation and expansion of the Company's business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on the Company's results of operation, financial condition, contractual and legal restrictions and other factors the board of directors deem relevant. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS. OVERVIEW Pursuant to the Share Exchange Agreement dated as of August 10, 2000, by us, Virtual Edge, and Main Edge, Main Edge transferred all of the issued and outstanding shares of the capital stock of Virtual Edge to the Company in exchange of 1,961,175 shares of our pre-split common stock, representing approximately 75% of our outstanding shares of the common stock. As a result of an 8-for-1 forward split that was effective on 15th September 2000, Main Edge held 15,689,400 shares of our common stock. As a result of the issue of an aggregate of 8,177,320 pre-split shares of common stock and the 1 for 30 reverse stock split, the debt for equity capital restructuring, the issue of 2,000,000 shares of common stock to Powertronic Holdings Limited and the issue of 4,000,000 shares of common stock to Tsang Chi Hung, Main Edge now holds 522,980 shares of our common stock, representing 4.77% of the issued and outstanding share capital of the Company as of April 11, 2003 (excluding the shares which may be issued pursuant to the exercise of warrants held by Powertronic Holdings Limited and Tsang Chi Hung). RESULTS OF OPERATIONS The following table shows the selected audited and unaudited condensed consolidation income statement data of the Company and its subsidiaries for the twelve-month periods ended 2002 and 2001. The data should be read in conjunction with the audited and unaudited Condensed Consolidated Financial Statements of the Company and related notes thereto. 13 Twelve months ended (AMOUNTS IN THOUSANDS US$) September 30, 2002 2001 Revenues Sales 193 -- COGS (84) -- --- --- Gross Margin 109 -- Operating Expenses General & Admin Exp. (1,828) (914) ------ ---- Loss from Operations (1,719) (914) Other Income (Expense) Interest (8) (5) Write down of Goodwill -- (559) Minority interest 93 23 -- -- Net Loss (1,634) (1,455) Twelve-month Period Ended September 30, 2002 Compared to Twelve-Month Period Ended September 30, 2001 Operating Revenue The Company has started to recruit members, and to provide catering and business center services through its subsidiary Guangzhou World Trade Center Club located in Guangdong Province, the PRC since June 2002. Sales revenue for the twelve-month period ended September 30, 2002 was $193,000, compared to none for the same corresponding period in year 2001. Of the $193,000 revenue in fiscal year 2002, approximately $165,000 (85%) was generated from providing catering services, $27,000 (14%) from providing business center and conference services, and the remaining revenue (1%) from new membership fees. The aim of the Company is to continue to provide trade agency business linking companies in China and the rest of the world. As of September 30, 2002, we had three operating arms, namely the Beijing World Trade Center Club ("BWTCC"), Guangzhou World Trade Center Club ("GWTCC") and Infotech Enterprises Limited ("Infotech"). BWTCC will be engaged in the establishment of a business club located in Beijing and GWTCC is engaged in the operation with the business club in Guangzhou, the PRC. The GWTCC provides food and beverages, recreation, business center services, communication and information services, products exhibitions services, and commercial and trading brokerage services. Infotech will build a bilingual, English and Chinese, business-to-business portal for the Company as well as providing system integration related services to third parties customers and members. 14 GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased by $914,000 or 100.0% to $1.8 million for the twelve-month period ended September 30, 2002 from $914,000 for the corresponding period in 2001. The increase was mainly due to: i) Staff Salaries, Benefit and Allowances: Staff salaries, benefit and allowances increased by $157,000 for the twelve-month period ended September 30, 2002, compared to a very minimal amount for the same corresponding period in year 2001. The increase was primarily due to the salaries, benefit and allowances paid for staff in the operations of GWTCC. ii) Professional Fees: Professional Fees increased $745,000. These professional fees incurred at a result of additional appointments of several outside advisors for marketing memberships, promoting corporate image, as well as providing corporate advisory services. Most of these fees were subsequently paid by issuing new shares to individual professionals. Financial Income/(Expenses) There was only $8,000 in interest expenses incurred and accrued from an outstanding loan for the twelve-month period ended September 30, 2002. This loan was made with a third party in February 2001. Income Taxes The Company did not generate any profit for the period from the establishment of the Company to September 30, 2002. Thus, no income taxes was incurred for the reporting period. Liquidity and Capital Resources Virtual Edge Limited, our wholly owned subsidiary, underwent a capital restructuring in May 2000 in which long-team debt was partly reduced in the amount of US$2.5 million by new issuance of share capital in the same amount. The Company underwent a 1 for 30 reverse stock split of the shares of its common stock, effective on September 1, 2002. Between September 8 and September 12, 2002, the Company entered into agreements with its subsidiaries whereas the Company would take on approximately $2.7 million in debt from subsidiaries to related parties, and in exchange, the subsidiaries became liable to the Company for the same amount of debt that was taken on by the Company. The Company issued a total of 4 million post-split shares in exchange for cancellation of approximately $380,000 in debt owed to related parties as well as approximately $2.3 in debt and fees owed to third parties The Company and Powertronic Holdings Limited entered into two share purchase agreements dated September 3, 2002 and December 17, 2002 to purchase 2,000,000 shares and warrants (to purchase up to another 4,000,000 shares) for a total purchase price of $1,000,000. These two private financings were completed on January 24, 2003 and the respective shares were issued accordingly. 15 We believe that the level of financial resources is a significant factor for our future development and accordingly may choose at any time to raise capital through debt or equity financing to strengthen its financial position, facilitate growth and provide us with additional flexibility to take advantage of business opportunities. OTHER SIGNIFICANT EVENTS The Company entered into a share exchange agreement dated December 17, 2002 with Mr. Tsang Chi Hung, the sole beneficial owner of the share capital in General Business Network (Holdings) Limited, a Hong Kong company ("GBN"). Pursuant to the agreement, the Company acquired all of the issued and outstanding shares of GBN in exchange of 4 million shares of the common stock of the Company and warrants to purchase an additional 4 million shares at $0.92 per share. GBN is an investment holding company with investments in real estate properties primarily for rental purposes. GBN intends to broaden its investment profile in the areas of trading, insurance, media, and/or tourism. ITEM 7. FINANCIAL STATEMENTS. Our financial statements are set forth at the end of this Form 10-KSB. CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 CONTENTS Page Independent Auditor's Report F - 1 Consolidated Balance Sheets September 30, 2002 and 2001 F - 3 Consolidated Statements of Operations for the Years Ended September 30, 2002 and 2001 F - 5 Consolidated Statement of Stockholders' Equity Since January 29, 1998 (Inception) to September 30, 2002 F - 6 Consolidated Statement of Cash Flows for the Years Ended September 30, 2002 and 2001 F - 7 Notes to Consolidated Financial Statements F - 9 16 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There has been no disagreements with the Company's accountants on accounting and financial disclosures during the reporting period that requires disclosure pursuant to Item 304 of Regulation S-B. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The following table and text sets forth the names and ages of all our directors and executive officers and the key management personnel as of September 30, 2002. The Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Executive officers serve at the discretion of the Board of Directors, and are appointed to serve until the first Board of Directors meeting following the annual meeting of stockholders. Also provided is a brief description of the business experience of each director and executive officer and the key management personnel during the past five years and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities laws. NAME AGE TITLE John H.W. Hui 43 President, Chairman of the Board and Secretary Alfred H.B. Or 40 Chief Operating Officer and Director David Jones 58 Vice President, Information Technology and Director Roy C.W. Wu 58 Vice President, Club Management and Director James H.C. Mak 54 Director Mr. John Hui, has been our the President, Chairman of the Board and Secretary since August 2001. Mr. Hui is the founder of Virtual Edge Limited and has more than 12 years experience n Chinese trade and investment. Mr. Hui has been a private investor and an entrepreneur for the past five years. Mr. Alfred H.B. Or, has been our Chief Operating Officer and a Director since August 2001. Mr. Or has 15 years of marketing and sales experience with multinational companies. In 1998, Mr. Or founded Shanghai Cofmos Gift Co. Ltd., a marketing and sales company in Beijing. From March 1994 until May 1998 he was the Director of Marketing External Affairs for Amway (China) Co. Ltd. Mr. Or has established strong government and media relationship in China over the past 10 years. He specializes in one-to-one direct marketing. Mr. Or was born in Hong Kong and graduated in 1985 from the McMaster University in Ontario, Canada with a Bachelor of Science degree in Mechanical Engineering. 17 Mr. David Jones, has been the Vice President - Information Technology and a Director since August 2001. Mr. Jones has more than 24 years experience in the information technology field, including 18 years as a senior design engineer for Unlays Corporation. Mr. Jones has formed two companies that are still operating. One of the companies provides software for travel agents enabling them to communicate with large computerized reservation systems. The other company provides Electronic Document Interchange to freight forwarders and other cargo transportation suppliers. Mr. Jones designed and developed a comprehensive electronic mail connectivity hub for Hong Kong Telecom and was responsible for the design and implementation of a weight and balance application for Cathay Pacific's worldwide network, including an Automatic Load Distribution System for containerized aircraft. Mr. Jones is an experienced with Data Communications and Command and Control software and has designed and implemented such systems for state and metropolitan police forces in the United States Canada and the U.K. Mr. Jones has worked with banking systems and inventory control systems and is experienced in data management. Mr. Jones has also designed databases to handle the processing of NASA LANDSAT Earth Resources Satellite data for many Middle Eastern countries. Mr. Jones holds an honor degree from the School of Physics in the University of Wales, Swanses. Mr. Roy C. W. Wu, has been the Vice President - Club Management and a Director since August 2001. Mr. Wu has more than 30 years of hotel and restaurant management experience. Since August 1994 Mr. Wu has served as the Senior Club Manager of the World Trade Center Club in Hong Kong. Mr. Wu is also the Senior Club Manager of the Grant Royal Club and Hong Lok Yuen Country Club in Hong Kong. James H.C. Mak, was appointed as a Director in September 2001. Mr. Mak has been the General Manager of World Trade Center in Hong Kong since August 1994. In addition, as Deputy General Manger of Kai Shing Management Co. Ltd., a subsidiary of Sung Hung Kai Property Ltd., Mr. Mak serves as a General Manager of the Grand Royal Club and the Hong Lok Yuen Country Club in Hong Kong. There are no familial relationships between our officers and directors. Section 16(a) Beneficial Ownership Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by Commission regulations to furnish us with copies of all Section 16(a) reports they file. To the best of our knowledge (based solely upon a review of the Form 3, 4 and 5 filed), we believer that as of the end of this fiscal year, no officer, director or 10% beneficial shareholder failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934, as amended. 18 ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth the compensation paid during fiscal year ended September 30, 2000, 2001 and 2002 to our President. No executive officer received annual compensation in excess of $100,000 per annum.
SUMMARY COMPENSATION TABLE --------------------------------------------------------------------------------- ----------------------------------- Annual Compensation Long-Term Compensation --------------------------------------------------------------------------------- ----------------------------------- Awards Payouts ----------------------- --------- --------------- --------- ---------- ---------- -------------- -------------------- Other Securities Annual Restricted Underlying All Compensa-tiStock Options/SARs LTIP Other Name and Principal Year Salary Bonus ($) Award(s) (#) Payouts Compensa-tion Position ($) ($) ($) ($) ($) ----------------------- --------- --------------- --------- ---------- ---------- -------------- --------- ---------- John Hui, President 2002 $140,321 - - - - - - and Secretary ----------------------- --------- --------------- --------- ---------- ---------- -------------- --------- ---------- John Hui, President 2001 $90,000 - - - - - - and Secretary ----------------------- --------- --------------- --------- ---------- ---------- -------------- --------- ---------- John Hui, CEO 2000 $28,624(1)(2) - - - 210,000 - - ----------------------- --------- --------------- --------- ---------- ---------- -------------- --------- ----------
_______________ (1) Including 500,000 stock options issued on October 23, 2000. The options have an exercise price of $2.18 as of the date hereof no options have been exercised. (2) Management fee for the period from August 14, 2000, the date of the acquisition of Virtual Edge to September 30, 2002, based on an annual rate of $80,000. We have no long-term employment or consulting agreements with any of our executive officers or directors. During the year ended September 30, 2002, certain corporate actions were conducted by unanimous written consent of the Board of Directors. Two of the directors, Mr. James Mak and Mr. Roy Wu received $41,667 each. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth the number of shares of common stock beneficially owned as of April 11, 2003 by (i) those persons or groups known to us who will beneficially own more than 5% of our common stock; (ii) each director and director nominee; (iii) each executive officer whose compensation exceeded $100,000 in the fiscal year ended September 30, 2001 or calendar year ended December 31, 2001; and, (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act based upon information furnished by persons listed or contained in filings made by them with the Securities and Exchange Commission by information provided by such persons directly to us. Except as indicated below, the stockholders listed possess sole voting and investment power with respect to their shares. PERCENTAGE OWNERSHIP(1) NAME/ADDRESS(1) NUMBER OF SHARES Alfred H.B. Or 156,645 ** Roy C.W. Wu 87,500 ** James H.C. Mak 122,500 ** Top-Trained Securities Ltd. 1,000,000 5.27% Powertronic Holdings Limited (2) 6,000,000 31.63% Tsang Chi Hung (3) 8,000,000 42.17% All Officers and Directors as a Group (3 persons) 366,645 1.93% **Less than 1% (1) Based on 10,970,497 shares outstanding as of April 11, 2003 and 8,000,000 share of common stock to be issue on the exercised of the outstanding warrants. (2) Assuming Powertronic Holdings Limited exercises its right to purchase 4,000,000 shares of common stock pursuant to two warrants issued by the Company. (3) Assuming Tsang Chi Hung exercises his right to purchase 4,000,000 shares of common stock pursuant to a warrant issued by the Company. 19 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The following table sets forth the names and relationship of certain related parties.
NAME RELATIONSHIP Mr. Roy Wu Vice President, Club Management and Director Mr. James Mak Director Mr. John H.W. Hui President, Chairman of the Board and Secretary Mr. Steven K.F. Hui Close family member of a director Mr. Alfred Or Former Director Belford Enterprise Limited A company in which one of our directors has beneficial interest Union East Consultants Ltd. A company in which one of our shareholders has beneficial interest Yes Mind Investments Ltd. A shareholder PRC Partner PRC partner of a subsidiary
Management Fees for 2002 in the amount of $223,655 were paid to Mr. John H.W. Hui, Mr. James Mak, and Mr. Roy Wu. As of September 30, 2001 and 2002 we owed the following amounts to related parties. September 30 ---------------------------------- 2001 2002 ---------- -------- Mr. James Mak $50,000 $2,339 Mr. Roy Wu 50,000 -- Mr. John H.W. Hui 452,446 -- Mr. Steven K.F. Hui 54,082 54,081 Mr. Alfred Or 156,645 -- Belford Enterprises Limited 13,677 -- Union East Consultants Limited -- 184,812 Yes Mind Investments Limited 695,977 -- PRC Partner 49,827 31,707 ---------- -------- $1,522,654 $272,939 The amounts due to related parties represent unsecured advances that are interest-free and repayable on demand. 20 ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
Exhibit Number Description 4.1* Warrants dated January 24, 2003, issued by the Company to Powertronic Holdings Limited. 4.2* Warrants dated January 24, 2003, issued by the Company to Powertronic Holdings Limited. 4.3* Warrants dated January 24, 2003, issued by the Company to Tsang Chi Hung. 4.4* Registration Rights Agreement dated September 3, 2002 between the Company and Powertronic. 4.5* Registration Rights Agreement dated December 17, 2002 between the Company and Powertronic. 4.6* Registration Rights Agreement dated December 17, 2002 between the Company and Tsang Chi Hung. 10.1* Settlement Agreement dated September 8, 2002 between the Company and Mr. James Mak. 10.2* Settlement Agreement dated September 8, 2002 between the Company and Mr. James Mak. 10.3* Settlement Agreement dated September 9, 2002 between the Company and Mr. Roy Wu. 10.4* Settlement Agreement dated September 10, 2002 between the Company and Mr. Alfred Or. 10.5* Settlement Agreement dated September 10, 2002 between the Company and Mr. Andersen Chan. 10.6* Settlement Agreement dated September 8, 2002 between the Company and Mr. Bernard Kwong-chung Chan. 10.7* Settlement Agreement dated September 9, 2002 between the Company and Superwear Limited. 10.8* Settlement Agreement dated September 9, 2002 between the Company and Simple Fortune Inc. 10.9* Settlement Agreement dated September 9, 2002 between the Company and Sinogolf Limited 10.10* Settlement Agreement dated September 11, 2002 between the Company and Top-Trained Securities Limited. 10.11* Settlement Agreement dated September 12, 2002 between the Company and Splendid Partner Holdings Limited. 10.12* Settlement Agreement dated September 12, 2002 between the Company and I&V Ltd.
21
10.13* Share Purchase Agreement dated September 3, 2002, between the Company and Powertronic Holdings Limited. 10.14* Share Purchase Agreement dated December 17, 2002, between the Company and Powertronic Holdings Limited. 10.15* Share Exchange Agreement dated December 17, 2002, between the Company and Tsang Chi Hung. 99.1 Certification of Periodic Report of Chief Executive Officer 99.2 Certification of Periodic Report of Chief Financial Officer
_____________________ *Incorporated by reference to the respective exhibits filed with the Company's Current Report on Form 8K dated February 26, 2003 and filed on March 3, 2003. Reports on Form 8-K None. 22 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHINA WORLD TRADE CORPORATION Dated: April 11, 2003 By: /s/ John H. W. Hui Name: John H.W. Hui Title: Director and President In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: April 11, 2003 By: /s/ John H.W. Hui Name: John H.W. Hui Title: President, Secretary and Chief Financial Officer 23 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John H.W. Hui, certify that: 1. I have reviewed this annual report on Form 10-KSB of China World Trade Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial date and have identified for the registrant's auditors any auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 24 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 11, 2003 _/s/ John H.W. Hui____________________ John H.W. Hui Chief Executive Officer 25 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John H.W. Hui, certify that: 1. I have reviewed this annual report on Form 10-KSB of China World Trade Corporation; 2. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial date and have identified for the registrant's auditors any auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 26 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 11, 2003 _/s/ John H.W. Hui____________________ John H.W. Hui Chief Financial Officer 27 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) - : - FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 CONTENTS
Page Independent Auditor's Report...............................................................................F - 1 Consolidated Balance Sheets September 30, 2002 and 2001..............................................................................F - 3 Consolidated Statements of Operations for the Years Ended September 30, 2002 and 2001 ................................................................F - 5 Consolidated Statement of Stockholders' Equity Since January 29, 1998 (Inception) to September 30, 2002................................................F - 6 Consolidated Statements of Cash Flows for the Years Ended September 30, 2002 and 2001.................................................................F - 7 Notes to Consolidated Financial Statements.................................................................F - 9
INDEPENDENT AUDITOR'S REPORT Board of Directors China World Trade Corporation and Subsidiaries (Formerly A Development Stage Company) Board Members: We have audited the consolidated balance sheets of China World Trade Corporation and Subsidiaries (a Development Stage Company) as of September 30, 2002 and 2001, and the related consolidated statements of operations, and cash flows for the years ended September 30, 2002 and 2001, and the consolidated statement of stockholders' equity since January 29, 1998 (inception) to September 30, 2002 then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Virtual Edge Limited, a wholly-owned subsidiary, which statements reflect total assets of $618,013 and $143,578 as of September 30, 2002 and 2001 respectfully, and total revenues of $193,097 and $0 for the years ended September 30, 2002 and 2001 respectfully. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Virtual Edge Limited, is based solely on the report of the other auditors. We conducted our audits 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 audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits of the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China World Trade Corporation and Subsidiaries (a development Stage Company), as of September 30, 2002 and 2001 and the results of its operations, and its cash flows for the years ended September 30, 2002 and 2001, in conformity with accounting principles generally accepted in the United States of America. F - 1 The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company was in the development stage in prior years and has started operation on August 1, 2002 and has suffered losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in note 9 to the financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Respectfully submitted, /S/ ROBISON, HILL & CO. Certified Public Accountants Salt Lake City, Utah March 17, 2003 F - 2 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) BALANCE SHEET
September 30, -------------------------------------- 2002 2001 ------------------ ------------------ ASSETS Current Assets Cash and cash equivalents $ 32,888 $ 43 Rental deposits 341,731 - Prepayments 2,420 - Due from related parties 4,504 - Other receivables 39,286 362 Inventory 35,930 - ------------------ ------------------ Total Current Assets 456,759 405 Fixed Assets Furniture and fixtures 3,275 2,848 Less: Accumulated depreciation (229) (1,994) ------------------ ------------------ Total Fixed Assets 3,046 854 ------------------ ------------------ Total Assets $ 459,805 $ 1,259 ================== ==================
F - 3 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) BALANCE SHEET (Continued)
September 30, -------------------------------------- 2002 2001 ------------------ ------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accrued Liabilities $ 296,316 $ 185,040 Other Payables 165,664 998,128 Notes Payable 72,796 - Deferred membership fee income 8,114 - Due to related parties 272,939 1,522,654 ------------------ ------------------ Total Liabilities 815,829 2,705,822 ------------------ ------------------ Minority Interest 17,777 98 ------------------ ------------------ Stockholders' Equity Preferred stock (par value $0.001), 10,000,000 shares authorized, no shares issued at September 30, 2002 and 2001 - - Common stock (par value $0.001), 50,000,000 shares authorized, 6,970,497 and 796,205 shares issued at September 30, 2002 and 2001 971 794 Common stock to be issued 6,000 2 Additional paid in capital 6,810,207 2,851,705 Retained earnings (deficit) (7,190,979) (5,557,162) ------------------ ------------------ Total Stockholders' Equity (373,801) (2,704,661) ------------------ ------------------ Total Liabilities and Stockholders' Equity $ 459,805 $ 1,259 ================== ==================
The accompanying notes are an integral part of these financial statements. F - 4 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) STATEMENT OF OPERATIONS
For the Year Ended September 30, ---------------------------------------- 2002 2001 ------------------ ------------------ Revenues Sales $ 193,024 $ - Cost of Sales (83,738) - ------------------ ------------------ Gross Margin 109,286 - Expenses Selling, general and administrative expenses 1,827,959 914,469 ------------------ ------------------ Operating Loss (1,718,673) (914,469) Other income (expense): Write down of goodwill - (559,375) Interest (8,120) (4,603) Minority Interest 92,976 22,837 ------------------ ------------------ Loss before taxes (1,633,817) (1,455,610) Income taxes - - ------------------ ------------------ Net Loss $ (1,633,817) $ (1,455,610) ================== ================== Basic per Share Amounts Net Income (Loss) $ (1.17) $ (1.84) ================== ================== Weighted Average Shares Outstanding 1,399,463 790,201 ================== ==================
The accompanying nots are an integral part of these financial statements. F - 5 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Additional Retained --------------------------------------- Preferred Paid in Earnings / Stock Shares Amount To be Issued Capital (Deficit) --------- ----------- ----------- ----------- ----------- ----------- Balance September 30, 2000 -- 710,871 $ 711 $ -- $ 2,283,315 $(4,101,552) October 18, 2000 Stock issued pursuant to a share exchange agreement with Vast Opportunity Limited -- 83,334 83 -- 559,292 -- Stock issued in exchange for services -- 2,000 -- 2 6,598 -- Contributed Capital -- -- -- -- 2,500 -- Net Loss -- -- -- -- -- (1,455,610) --------- ----------- ----------- ----------- ----------- ----------- Balance September 30, 2001 -- 796,205 794 2 2,851,705 (5,557,162) Stock issued in exchange for consulting services -- 1,228,689 156 1,073 626,771 -- Issuance of stock to be issued -- -- 2 (2) -- -- December 30, 2001 Stock issued as consideration for payment of contract for construction of a web portal -- 18,958 19 -- 119,981 -- September 2002 Stock issued in exchange for debt cancellation -- 3,926,645 -- 3,927 2,712,750 -- September 3, 2002 stock issued for cash pursuant to share purchase agreement -- 1,000,000 -- 1,000 499,000 -- Net Loss -- -- -- -- -- (1,633,817) --------- ----------- ----------- ----------- ----------- ----------- Balance September 30, 2002 -- 6,970,497 $ 971 $ 6,000 $ 6,810,207 $(7,190,979) ========= =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F - 6 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) STATEMENT OF CASH FLOWS
For the Year Ended September 30, ---------------------------------------- 2002 2001 ------------------ ------------------ Cash Flows from Operating Activities: Cash paid to suppliers and employees $ (959,471) $ 390,302 ------------------ ------------------ Net cash used in operating activities (959,471) 390,302 ------------------ ------------------ Cash Flows from Investing Activities: Purchase of fixed assets (3,275) - ------------------ ------------------ Net cash used by investing activities (3,275) - ------------------ ------------------ Cash Flows from Financing Activities: Net advances from (repayments to) related parties 266,021 (399,838) Proceeds from common stock to be issued 500,000 6,600 Increase in amounts due from related parties (4,504) - Increase in notes payables 72,796 - Advances from other payables 161,278 Contributed capital from shareholders - 2,500 ------------------ ------------------ Net cash provided by financing activities 995,591 (390,738) ------------------ ------------------ Net change in cash and cash equivalents 32,845 (436) Cash and cash equivalents at beginning of year 43 479 ------------------ ------------------ Cash and cash equivalents at end of year $ 32,888 $ 43 ================== ==================
F - 7 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) STATEMENT OF CASH FLOWS (Continued)
For the Year Ended September 30, ---------------------------------------- 2002 2001 ------------------ ------------------ Reconciliation of Net Loss to Net Cash Used in Operating Activities: Net loss $ (1,633,817) $ (1,455,610) Adjustments used to reconcile net loss to Net cash used in operating activities: Depreciation 229 570 Goodwill writedown - 559,375 Loss from asset written off 854 - (Increase) Decrease in rental deposits (341,731) 258,299 (Increase) Decrease in prepayments (2,420) - (Increase) Decrease in other receivables (38,924) - Inventories (35,930) - Increase (Decrease) in accrued liabilities 111,276 52,377 Increase (Decrease) in other payables (993,742) 998,128 Increase (Decrease) in deferred membership fee income 8,114 - Stock issued for services 1,948,843 - Minority Interest 17,777 (22,837) ------------------ ------------------ Net cash used in operating activities $ (959,471) $ 390,302 ================== ==================
Supplemental Disclosure of Non-Cash Investing and Financing Activities: - On October 18, 2000, 2,500,000 shares of common stock were issued to acquire 49% of Infotech Enterprises Limited pursuant to a share exchange agreement. - In September 2002, 3,926,645 shares of common stock were issued in exchange for cancellation of debt The accompanying notes are an integral part of these financial statements. F - 8 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES This summary of accounting policies for China World Trade Corporation is presented to assist in understanding the Company' financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Organization and Basis of Presentation The Company was incorporated under the laws of the state of Nevada on January 29, 1998 as Weston International Development Corporation. On July 28, 1998 the name of the Company was changed to Txon International Development Corporation. On August 14, 2000 the Company acquired 100% of Virtual Edge Limited (a British Virgin Islands Company) pursuant to a share exchange agreement. On September 15, 2000 the Company changed its name to China World Trade Corporation. The Company is in the development stage since January 29, 1998 (inception) and has not commenced planned principal operations. Pursuant to a Share Exchange Agreement entered into between the Company and Vast Opportunity Limited ("VOL"), VOL transferred its 49 shares of the common stock, par value $1 of Infotech to the Company in exchange for the issuance by the Company of 2,500,000 shares of its common stock with par value of $0.001. The transaction was completed on October 18, 2000 when Infotech became a wholly-owned subsidiary of the Company, with 49% shareholding directly held by the Company and 51% shareholding held by Virtual Edge Limited, a wholly owned subsidiary of the Company. Principles of Consolidation The consolidated financial statements include the accounts of China World Trade Corporation ("CWTC") and its wholly-owned subsidiaries: o Virtual Edge Limited ("VEL"), a British Virgin Islands Company (100% owned by CWTC) o Infotech Enterprises Limited ("Infotech"), a British Virgin Islands Company (49% owned by CWTC and 51% owned by VEL) o Beijing World Trade Center Club ("BWTCC"), a People's Republic of China Company (75% owned by VEL) o Guangzhou World Trade Centre Club Limited ("GWTCC"), a People's Republic of China Company (75% owned by VEL) F - 9 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (continued) The results of subsidiaries acquired during the year are consolidated from their effective dates of acquisition. All significant inter-company accounts and transactions have been eliminated. Nature of Business The Company through its subsidiaries intends to build a bilingual (Chinese and English) Business to Business Portal, and establish a club in Beijing to provide food and beverages, recreation, business center services, communication and information services, product exhibition services and trading brokerage services to its member. Cash Equivalents For the purpose of reporting cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles required 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. Actual results could differ from those estimates. Translation of Foreign Currency The Companies functional currencies include U.S. Dollars and Chinese Renminbi. All balance sheet accounts of foreign operations are translated into U.S. dollars at the year-end rate of exchange and statement of operations items are translated at the weighted average exchange rates for the year. The resulting translation adjustments are made directly to a separate component of the stockholders' equity. Gains or losses from other foreign currency transactions, such as those resulting from the settlement of foreign receivables or payables, are included in the Statements of Operations. F - 10 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (continued) Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. Depreciation Property, plant and equipment, are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated economic useful lives of the related assets as follows: Furniture & Fixtures 5-10 years Equipment 3- 5 years Maintenance and repairs are charged to operations; betterments are capitalized. The cost of property sold or otherwise disposed of and the accumulated depreciation thereon are eliminated from the property and related accumulated depreciation accounts, and any resulting gain or loss is credited or charged to income. The Company has adopted the Financial Accounting Standards Board SFAS No., 121, "Accounting for the Impairment of Long-lived Assets." SFAS No. 121 addresses the accounting for (i) impairment of long-lived assets, certain identified intangibles and goodwill related to assets to be held and used, and (ii) long-live lived assets and certain identifiable intangibles to be disposed of. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows from the used of the asset and its eventual disposition (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Inventories Inventories comprise raw materials and merchandize goods, are stated at the lower of cost and net realizable value. Cost of raw material is calculated on the first-in first-out by reference to invoiced value. Cost of merchandize goods represents actual purchase amount. Net realizable value is determined on the basis of anticipated sales proceeds less estimated selling expenses. F - 11 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (continued) Net Loss per Common Share There are no dilutive potential common stock equivalents for 2002 and 2001 and are thus not considered. The reconciliations of the numerators and denominators of the basic EPS computations are as follows:
2002 --------------------------------------------------------- Number of Loss Shares Loss Per (numerator) (denominator) Share ------------------ ----------------- ----------------- Loss to Common Shareholders $ (1,633,817) 1,399,463 $ (1.17) ================== ================= ================= 2001 --------------------------------------------------------- Number of Loss Shares Loss Per (numerator) (denominator) Share ------------------ ----------------- ----------------- Loss to Common Shareholders $ (1,455,610) 790,201 $ (1.84) ================== ================= =================
NOTE 2 - INCOME TAXES The Company has accumulated tax losses estimated at 7,190,979 expiring in years beginning 2013. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. The amount of net operating loss carryforward available to offset future taxable income will be limited if there is a substantial change in ownership. In accordance with SFAS No. 109, a valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax asset will not be realized. Due to the uncertainty with respect to the ultimate realization of the net operating loss carry forward, the Company established a valuation allowance for the entire net deferred income tax asset as of September 30, 2002. F - 12 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 3 - COMMITMENTS The Company has subsidiaries that are committed under long-term operating leases for rental of its offices and clubs. The original terms of leases range from 5 months to 5 years, which are renewable. For certain leases, the Group is required to pay additional rent based on a certain percentage of sales. Total rent expenses includes the following :
September 31, ---------------------------------------- 2002 2001 ------------------ ------------------ Minimum Rent $ 82,808 $ 90,341 Percentage rent based on sales 922 - ------------------ ------------------ $ 83,730 $ 90,341 ================== ==================
As of September 30, 2002 future minimum lease payment (excluding percentage rent) due under existing non-cancellable operating leases are as follows :
Fiscal years 2003 $ 517,684 2004 541,148 2005 572,554 2006 616,039 2007 543,563 ------------------ $ 2,790,988 ==================
NOTE 4 - DEMAND NOTE On February 15, 2001 the Company entered into a promissory note with a third party in the amount of 60,000 with a 12% annual interest rate and is due upon demand. As of September 30, 2002 accrued principal and interest outstanding is 72,796. F - 13 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 5 - RELATED PARTY TRANSACTIONS (a) Names and relationship of related parties Existing relationships with the Company Mr. Roy Wu A director of immediate holding company Mr. James Mak A director of a jointly controlled entity Mr. John H. W. Hui A director of the Company Mr. Steven K. F. Hui Close family member of a director of the company Mr. Alfred Or A director of a subsidiary Belford Enterprises Limited A company in which a director of the company has beneficial interest Main Edge International Limited Ultimate holding company Union East Consultants Limited A company in which a director of the company has beneficial interest PRC Partner PRC partner of a subsidiary Guangzhou City International Exhibition Company PRC partner of a subsidiary (b) Due to related parties: Between September 1 and September 12, 2002 the Company entered into agreements with its subsidiaries whereas the Company would take on $2,733,307.51 in debt from subsidiaries to related parties John Hui, Roy Wu, James Mak, Alfred Or, Yes Mind Investments Limited, Belford Enterprises and other non-related parties. In exchange, the subsidiaries became liable to the Company for the same amount of debt take on by the Company. The Company also issued 3,926,645 shares of common stock in exchange for cancellation of $380,113 in debt owed to related parties of James Mak, Roy Wu, and Alfred Or as well as $2,276,564 in debt owed to additional third parties. F - 14 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 5 - RELATED PARTY TRANSACTIONS (continued) The amount due to related parties were as follows:
September 31, --------------------------------------- 2002 2001 ------------------ ------------------ Mr. James Mak $ 2,339 $ 50,000 Mr. Roy Wu - 50,000 Mr. John H. W. Hui - 452,446 Mr. Steven K.F. Hui 54,081 54,082 Mr. Alfred Or - 156,645 Belford Enterprises Limited - 13,677 Union East Consultants Limited 184,812 - Yes Mind Investments Limited - 695,977 PRC Partner 31,707 49,827 ------------------ ------------------ $ 272,939 $ 1,522,654 ================== ==================
The amounts due to related parties represent unsecured advances which are interest-free and repayable on demand. (c) Due from a related party :
September 31, -------------------------------------- 2002 2001 ------------------ ------------------ Mr. John H. W. Hui $ 4,504 $ - ------------------ ------------------ Classified as current assets $ 4,504 $ - ================== ==================
NOTE 6 - ACQUISITION OF SUBSIDIARIES Pursuant to a Share Exchange Agreement entered into between the Company and Vast Opportunity Limited ("VOL"), VOL transferred its 49 shares of the common stock, par value $1 of Infotech to the Company in exchange for the issuance by the Company of 2,500,000 shares of its common stock with par value of $0.001. The transaction was completed on October 18, 2000 when Infotech became a wholly-owned subsidiary of the Company, with 49% shareholding directly held by the Company and 51% shareholding held by Virtual Edge Limited, a wholly owned subsidiary of the Company. F - 15 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 7 - STOCK OPTIONS AND WARRANTS Powertronic Holdings Limited ("Powertronic"), a British Virgin Islands company, entered into a share purchase agreement dated September 3, 2002 (the "First Share Purchase Agreement") with the Company, to purchase 1,000,000 Share and warrants (the "First Warrants") to purchase up to 2,000,000 Shares, for the total purchase price of US$500,000.00. Additionally, Powertronic entered into a second share purchase agreement dated December 17, 2002 ( the "Second Share Purchase Agreement") with the Company, to purchase an additional 1,000,000 Shares and warrants (the "Second Warrants") to purchase up to an additional 2,000,000 Shares, for the total purchase price of US$500,000.00. The First Warrants and The Second Warrants may be exercised within two year of their issue at an exercise price of US$0.575 per Share. The Company entered into a share exchange agreement (the "Share Exchange Agreement") dated as of December 17, 2002, with Mr. Tsang Chi Hung ("Mr. Tsang"), the sole beneficial owner of the share capital in General Business Network (Holdings) Ltd. ("GBN"), a Hong Kong company. Pursuant to the Share Exchange Agreement, the Company acquired from Mr. Tsang all of the issued and outstanding shares of GBN in exchange for four million (4,000,000) Shares and warrants (the "Tsang Warrants") to purchase an additional four million (4,000,000) Shares. The Tsang Warrants may be exercised within two year of their issue at an exercise price of US$0.92 per Share. All options and warrants have been granted at exercise prices greater than the market value on the date of granting. All options vest 100% at date of grant.
2002 2001 ------------------ ------------------ Options outstanding, beginning of year $ - $ - Granted 2,000,000 - Canceled - - Exercised - - ------------------ ------------------ Options and warrants outstanding, end of year $ 2,000,000 $ - ------------------ ------------------ Price for options and warrants outstanding, end of year $ 0.575 $ - Options and warrants granted subsequent to year end 6,000,000 - Option and warrant price granted subsequent to year end $ 0.805 $ -
F - 16 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 8 - AGREEMENTS On November 10, 2001, Virtual Edge Limited signed an agreement with Guangzhou City International Exhibition Company ("GCIEC") pursuant to which both parties agreed to form a new jointly controlled entity named Guangzhou World Trade Centre Club Limited ("GWTCC"). The total investment cost is $1,200,000 and the registered capital is $850,000. The company is responsible for providing $1,200,000 in return to share 75% interest. GWTCC has been approved and registered with the Quangzhou Industrial and Commercial Administrative Management Bureau, the PRC, on December 29, 2001. The license granted for the operation of GWTCC is valid for a period of twenty years from December 2001 through to December 2021. GWTCC is still in development stage and is engaged in the establishment of a club located in Guangzhou, the PRC. The club will provide food and beverages, recreation, business center services, commercial and trading brokerage services to its members. On October 25, 2001, the Company signed on behalf of Infotech an agreement with CBIT Corporation Limited ("CBIT") whereby CBIT agrees to build a Business-to-Business Portal for the consideration of $300,000. 40% of the consideration was settled by the issuance of new shares of common stock with value equivalent to $120,000 (the "Consideration Shares"). The issue price of the Consideration Shares was calculated as the average closing price of the last 10 trading days before the agreement was signed. On December 30, 2001 the Company issued 568,720 shares as consideration and the corresponding asset and remaining liability have been booked. The service agreement was terminated during current year and the cost of $120,000 was written off to consolidated statement of operations. It has been determined that the remaining $180,000 liability and asset balance should be removed from the financial statements due to the termination of the service agreement. On November 27, 2001, the Company entered into a consulting agreement with Guo Wei Bin. The Company agrees to appoint Guo Wei Bin as the consultant for the liaison with the relevant Chinese government officials in relation to the operations of the World Trade Center Clubs. The agreement shall be for the term of 24 months and may be terminated by either party upon one month advanced written notice. The Company agreed to compensate Guo Wei Bin for services provided through the issuance of 300,000 new shares of common stock of the Company. On December 30, 2001 the Company issued these shares as consideration and the corresponding expense has been booked. On November 29, 2001, the Company entered into a consulting agreement with Lee Kit Bing. The Company agrees to appoint Lee Kit Bing as the consultant for the liaison with the setting up of the World Trade Center Clubs in the PRC and the continuation to liaise with relevant Chinese Officials. The agreement shall be for the term of 24 months and may be terminated by F - 17 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 8 - AGREEMENTS (Continued) either party upon one month advanced written notice. The Company agreed to compensate Lee Kit Bing for services provided through the issuance of 2,000,000 new shares of common stock of the Company. On December 30, 2001 the Company issued these shares as consideration and the corresponding expense has been booked. On December 3, 2001, the Company entered into a consulting agreement with Wong Chi Ming. The Company agrees to appoint Wong Chi Ming as the consultant to provide Hong Kong corporate finance services. The agreement shall be for the term of 24 months and may be terminated by either party upon one month advanced written notice. The Company agreed to compensate Wong Chi Ming for services provided through the issuance of 2,000,000 new shares of common stock of the Company. On December 30, 2001 the Company issued these shares as consideration and the corresponding expense has been booked. On December 4, 2001, the Company entered into a consulting agreement with Kwok Shuk Man. The Company agrees to appoint Kwok Shuk Man as the consultant for the liaison with the relevant Chinese government officials in relation to the operations of the World Trade Center Clubs. The agreement shall be for the term of 24 months and may be terminated by either party upon one month advanced written notice. The Company agreed to compensate Kwok Shuk Man for services provided through the issuance of 300,000 new shares of common stock of the Company. On December 30, 2001 the Company issued these shares as consideration and the corresponding expense has been booked. On May 1, 2002, the Company entered into a consulting agreement with Mr. Bernard Chan. Mr Chan agrees to be a liaison with US SEC attorney, independent auditor, and public relations. He also agrees to assist with the compilation and preparation of financial projections and assist in the Companies business activities and operations. In return the Company agrees to pay $1,250 per month, issue stock worth $5,000 per month as determined by the closing price of the Company on the last trading day of the preceding month. This agreement shall be for a term of twelve months and automatically renew for an additional twelve months, unless notice is given by either party one month prior to renewal. The agreement was subsequently changed to remove the $5,000 per month of stock compensation as of August 1, 2002 On July 30, 2002, the Company entered into an agreement with Yungenghu & Company to provide financial advisory services for evaluating the fund raising plans, development and implementation of a financing plan, restructuring and operation of target companies, evaluating the engagement of any professional firms, and financial planning and coordinating the implementation of F - 18 CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES (Formerly A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (Continued) NOTE 8 - AGREEMENTS (Continued) transactions. In return the Company agreed to pay a retainer of $15,000 and agreed to issue 1,000,000 shares of its registered common stock. Upon the closing of any fund raising for the Company they shall receive 1% of the aggregate principal amount of the securities sold up to $5,000,000, 0.9% of the aggregate principal amount of the securities sold between $5,000,000 and $10,000,000, and 0.8% of the amount of securities sold over $10,000,000. A warrant to purchase 1% of the securities sold in each offering at an exercise price per share equal to the conversion price or the issuance price of securities issued. The warrants shall be exercisable after one year from issuance thru year five. NOTE 9 - GOING CONCERN Since inception, the Company has incurred recurring losses from operations, has an accumulated deficit of $7,190,979 and $5,557,162 at September 30, 2002 and September 30, 2001 respectively and has a negative working capital of $359,070 and 2,705,417 at September 30, 2002 and 2001 respectively. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Continuation of the Company as a going concern is dependent upon obtaining additional working capital and management has developed a strategy, which it believes will accomplish this objective through additional equity funding which will enable the Company to operate in the future. However, there can be no assurance that the Company will be successful with its efforts to raise additional capital. The inability of the Company to secure additional financing in the near term could adversely impact the Company's business, financial position and prospects. F - 19