10QSB 1 form10qsb063003.txt OMB APPROVAL OMB Number: 3235-0416 Expires: December 31, 2005 Estimated average burden hours per response: 174.00 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _________________ to _________________ Commission file number 000-26119 CHINA WORLD TRADE CORPORATION ------------------------------------------------------ (Exact name of small business issuer as specified in its charter) Nevada 87-0629754 ----------------------------- ---------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 4th Floor, Goldlion Digital Network Center 138 Tiyu Road East, Tianhe Guangzhou, PRC ------------------------------------------------------- (Address of principal executive offices) (001-8620) 3878 - 0286 (Issuer's telephone number) --------------------------------------------------------- (Former name, address and fiscal year, if changed since last report) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As at June 30, 2003, there were 10,970,497 shares of common stock outstanding. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] PART I -- FINANCIAL INFORMATION Item 1. Financial Statements. Unaudited financial statements China World Trade Corporation for the three months and nine months ended June 30, 2003. China World Trade Corporation Condensed Consolidated Statements of Operations Three months and nine months ended June 30, 2003 and 2002
------------------------------------------------------------------------------------------------------------------------------------ Three months ended June 30, Nine months ended June 30, --------------------------------- ----------------------------------- 2002 2003 2002 2003 Note US$ US$ US$ US$ Unaudited Unaudited Unaudited Unaudited Operating revenues 328 880,852 328 1,893,950 Operating costs and expenses - (352,207) - (573,609) Selling, general and administrative expenses (188,190) (989,321) (995,195) (2,415,807) --------------- --------------- ----------------- ---------------- Loss from operations (187,862) (460,676) (994,867) (1,095,466) Non-operating (expense) income Other income - 422 - 1,547 Interest expense (2,072) (3,560) (6,046) (8,038) Equity in net loss of affiliate - (32,051) - (32,051) --------------- --------------- ----------------- ---------------- Loss before income taxes (189,934) (495,865) (1,000,913) (1,134 ,008) Provision for income taxes - - - - --------------- --------------- ----------------- ---------------- Loss before minority interest (189,934) (495,865) (1,000,913) (1,134 ,008) Minority interest - 315 - 120,471 --------------- --------------- ----------------- ---------------- Net loss (189,934) (495,550) (1,000,913) (1,013,537) =============== =============== ================= ================ Loss per share of common stock - Basic 5 (0.20) (0.05) (1.09) (0.11) =============== =============== ================= ================ Weighted average number of shares of common stock outstanding 968,384 10,970,497 915,828 9,270,863 =============== =============== ================= ================ See notes to condensed financial statements. ------------------------------------------------------------------------------------------------------------------------------------
China World Trade Corporation Condensed Consolidated Balance Sheet As of June 30, 2003
------------------------------------------------------------------------------------------------------------------------------------ As of As of September June 30, 2002 30, 2003 ASSETS Note US$ US$ Unaudited Current assets Cash and cash equivalents 32,888 121,694 Trade and other receivables 6 43,790 414,459 Rental and other deposits 7 341,731 363,651 Prepayments 2,420 72,877 Inventories 35,930 139,500 ----------------- ---------------- Total current assets 456,759 1,112,181 Goodwill 8 - 187,416 Property, plant and equipment, net 9 3,046 2,963,254 ----------------- ---------------- Total assets 459,805 4,262,851 ================= ================ LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities Trade and other payables 11 807,715 1,270,345 Deferred income 8,114 173,492 Long-term bank loan - current portion 12 - 42,567 ----------------- ---------------- Total current liabilities 815,829 1,486,404 Long-term bank loan - non-current portion 12 - 470,253 ----------------- ---------------- Total liabilities 815,829 1,956,657 ----------------- ---------------- Minority interest 17,777 3,531 ----------------- ---------------- Commitments and contingencies Stockholders' (deficit) equity Preferred stock, par value of US$0.001 each; 10,000,000 shares authorized, none issued or outstanding - - Common stock, par value of US$0.001 each; 50,000,000 shares authorized, 10,970,497 and 6,970,497 shares issued at June 30, 2003 and September 30, 2002 971 10,971 Common stock to be issued 6,000 - Additional paid-in capital 6,810,207 10,496,208 Accumulated deficit (7,190,979) (8,204,516) ----------------- ---------------- Total stockholders' (deficit) equity (373,801) 2,302,663 ----------------- ---------------- Total liabilities and stockholders' (deficit) equity 459,805 4,262,851 ================= ================ See notes to condensed financial statements. ------------------------------------------------------------------------------------------------------------------------------------
China World Trade Corporation Condensed Consolidated Statements of Cash Flows Nine months ended June 30, 2003 and 2002
------------------------------------------------------------------------------------------------------------------------------------ Nine Nine months months ended June ended June 30, 2002 30, 2003 ------------- ------------- Note US$ US$ Unaudited Unaudited Cash flows from operating activities: Net loss (1,000,913) (1,013,537) Adjustments to reconcile net loss to net cash used in operating activities: Minority interest - (120,471) Equity in net loss of affiliate - 32,051 Stock issued for services 729,969 - Depreciation 15,000 57,390 Impairment loss on property, plant and equipment - 110,005 Increase in deferred income - 165,378 Changes in working capital: Trade and other receivables (241) (264,041) Rental and other deposits - (11,302) Prepayments - (66,145) Inventories - (103,570) Trade and other payables 554,566 683,925 -------------- -------------- Net cash (used in) provided by operating activities 298,381 (530,317) -------------- -------------- Cash flows from investing activities Website development costs (300,000) - Acquisition of subsidiary 14 - 123,707 Acquisition of an affiliate - (32,051) Acquisition of property, plant and equipment - (91,578) -------------- -------------- Net cash (used in) provided by investing activities (300,000) 78 -------------- -------------- Cash flows from financing activities Proceed from issuance of common stock 2,700 - Capital contribution from minority shareholder of a subsidiary - 106,225 Proceed from new bank loan - 512,820 -------------- -------------- Net cash provided by financing activities 2,700 619,045 -------------- -------------- Net increase in cash and cash equivalents 1,081 88,806 Cash and cash equivalents at beginning of period 43 32,888 -------------- -------------- Cash and cash equivalents at end of period 1,124 121,694 ============== ============== See notes to condensed financial statements. ------------------------------------------------------------------------------------------------------------------------------------
China World Trade Corporation Consolidated Statements of Cash Flows (Cont'd) Nine months ended June 30, 2003 and 2002
------------------------------------------------------------------------------------------------------------------------------------ Nine Nine months months ended June ended June 30, 2002 30, 2003 ------------- ------------- Note US$ US$ Unaudited Unaudited Analysis of balances of cash and cash equivalents Cash and bank balances 1,124 121,694 ============== ============== Non-cash operating, investing and financing activities Common stock issued for services 729,969 - Purchase of subsidiary by issuance of common stock - 3,200,000 ============== ==============
China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying financial data as of June 30, 2003 and for the three and nine months ended June 30, 2003 and 2002, have been prepared by the Company, without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's audited annual financial statements for the year ended September 30, 2002. The preparation of financial statements in conformity with general accepted accounting principles requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. In the opinion of the management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of June 30, 2003 and for the three and nine months ended June 30, 2003 and 2002, have been made. The results of operations for the three and nine months ended June 30, 2003 and 2002 are not necessarily indicative of the operating results for the full year. 2. PREPARATION OF FINANCIAL STATEMENTS The Group has a negative working capital of US$377,848 and US$359,070 as of June 30, 2003 and September 30, 2002. In addition, the Group had a net loss of US$495,550 and US$189,934 for the three-month periods ended June 30, 2003 and 2002 respectively. These conditions raise substantial doubt about the Group's ability to continue as a going concern. Continuation of the Group as a going concern is dependent upon obtaining additional working capital through additional equity funding and attaining profitable operations in the future. Management has developed a strategy, which it believes will accomplish these objectives which will enable the Group to operate in the future. However, there can be no assurance that the Group will be successful with its efforts to raise additional capital and attain profitable operations. The inability of the Group to secure additional financing and attain profitable operations in the near term could adversely impact the Group's business, financial position and prospects. China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 3. NEW ACCOUNTING POLICIES Goodwill on consolidation Goodwill represents the excess of the purchase consideration payable in acquisitions of subsidiaries over the fair value of the net assets acquired at the time of acquisition. Goodwill on consolidation is stated at cost when it arises. As part of an ongoing review of the valuation and amortization of goodwill, management assesses the carrying value of the goodwill to determine if changes in facts and circumstances suggest that it may be impaired. If this review indicates that the goodwill is not recoverable, the carrying value of the goodwill would be reduced to its estimated fair market value. On disposal of a subsidiary, any attributable amount of purchased goodwill is included in the calculation of the gain or loss on disposal. Equity method of accounting The equity method of accounting is used when the Company has an investment in, and exercises significant influence over, another entity. Under the equity method, original investments are recorded at cost and adjusted by the Company's share of undistributed earnings or losses of these entities. Revenue recognition The Group recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", when the title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collectibility is reasonably assured. Services revenue is recognized when the services are provided. New accounting pronouncements In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure - an amendment of FASB Statement No. 123". This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Certain provisions of SFAS No. 148 were effective from March 15, 2002. The adoption of this standard did not have an impact on the Group's financial statements. In January 2003, the FASB issued FASB Interpretation No. 46, ("FIN 46") "Consolidation of Variable Interest Entities" which changes the criteria by which one company includes another entity in its consolidated financial statements. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and apply in the first fiscal period beginning after June 15, 2003, for variable interest entities created prior to February 1, 2003. The management believes that adoption of this statement does not have an impact on the Group's financial statements. China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 3. NEW ACCOUNTING POLICIES (CONT'D) New accounting pronouncements (Cont'd) In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". The SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". Subject to certain exceptions, this Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003 and all provisions of this Statement should be applied prospectively. The Group had no derivative instruments outstanding. The management does not expect the adoption of SFAS No. 149 will have a material impact on the Group's consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". The SFAS No.150 improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that those instruments be classified as liabilities in statements of financial position. In addition to its requirements for the classification and measurement of financial instruments in its scope, SFAS No. 150 also requires disclosures about alternative ways of settling the instruments and the capital structure of entities, all of whose shares are mandatorily redeemable. Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The management is now assessing the impact of adoption of SFAS No. 150 on the Group's consolidated financial statements. 4. CHANGE OF FINANCIAL YEAR END The Company has resolved to change its financial year end date from September 30 to December 31 of each calendar year with effect from the period ended December 31, 2003 in order to coincide with that of its major operating subsidiaries, namely Guangzhou World Trade Centre Club (a cooperative joint venture company established in Guangzhou Province, in the People's Republic of China) and General Business Network (Holdings) Limited, another 100% owned subsidiary of the Company. 5. LOSS PER SHARE OF COMMON STOCK On September 1, 2002, all of the Company's issued and outstanding shares of common stock of US$0.001 each underwent a one for thirty reverse stock split, with no change in their par value. The Company's authorized share capital of 50,000,000 shares of common stock of US$0.001 each remains unchanged. The comparative amount of the loss per share of common stock and the weighted average number of shares of common stock outstanding have been adjusted as a result of the reverse stock split mentioned above. China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 6. TRADE AND OTHER RECEIVABLES
As of As of September June 30, 2002 30, 2003 Note US$ US$ Trade receivables 6(a) - 321,708 Due from related parties 13(c) 4,504 92,751 Other receivables 39,286 - -------------- -------------- 43,790 414,459 ============== ==============
(a) Included in trade receivables are amounts receivable from Mr. John Hui of US$9,780 and Mr. William Tsang of US$3,958. These balances are unsecured, interest-free and have credit period ranges from 1 to 3 months. For relationship of these related parties with the Company, please refer to note 13 to these financial statements. 7. RENTAL AND OTHER DEPOSITS Included in rental and other deposits is deposit paid to Guangzhou Goldlion City Properties Co., Ltd. of US$338,283. For relationship with the Company, please refer to note 13 to these financial statements. China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 8. BUSINESS ACQUISITION Pursuant to a Share Exchange Agreement entered into between the Company and Mr. Tsang Chi Hung ("Mr. Tsang") on December 17, 2002, Mr. Tsang agreed to transfer 10,000 ordinary shares of General Business Network (Holdings) Limited ("GBN") to the Company in exchange for the issuance by the Company of 4,000,000 shares of its common stock and a two-year warrant (the "Warrant") to purchase up to 4,000,000 shares of the common stock of the Company. The Warrant is exercisable at a price of US$0.92 per share. The acquisition, which was mainly carried out for the Group's expansion purposes, was completed on January 24, 2003 and GBN became a wholly-owned subsidiary of the Company. GBN was incorporated in Hong Kong on July 15, 2002 and is principally engaged in property investments and investment holding. The acquisition of GBN has been accounted for under the purchase method of accounting. The purchase price of US$3,200,000 was allocated to the assets and liabilities acquired based on their estimated fair values at the date of acquisition. This allocation has resulted in acquired goodwill of US$187,416, which is subject to an impairment review annually. The results of GBN have been included in the consolidated financial statements since the acquisition date. The following unaudited pro forma information presents a summary of our consolidated results of operations as if the acquisition had been taken place on October 1, 2002.
Three Nine months months ended June ended June 30, 2003 30, 2003 US$ US$ Unaudited Unaudited Operating revenues 880,852 1,893,950 ============= ============== Net loss (495,550) (1,127,549) ============= ============== Loss per share (0.05) (0.12) ============= ==============
9. PROPERTY, PLANT AND EQUIPMENT In view of the sluggish economy and the operating loss experienced by the rental operations of the Group, management has carried out a review of the recoverability of certain properties held by reference to the prevailing market price of similar properties. Management believes that an impairment loss of US$45,973 and US$110,005 should be provided for the three-month and nine-month periods ended June 30, 2003 respectively. That loss has been recognised as an expense and included in "selling, general and administrative expenses" in the statement of operations. China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 10. EQUITY IN NET ASSETS OF AFFILIATE On August 26, 2002, the Company signed an agreement with ACV Ltd ("ACV") pursuant to which both parties agreed to form a wholly-foreign owned enterprise named General Business Network (Guangzhou) Limited ("GBN(GZ)"). GBN(GZ) was approved and registered with the Quangzhou Industrial and Commercial Administrative Management Bureau, the PRC, on December 31, 2002. The license granted for the operation of GBN(GZ) is valid for a period of ten years from December 25, 2002 through to December 25, 2012. The registered capital of GBN(GZ) is HK$500,000 (US$64,102). Pursuant to the joint venture agreement, each party shall contribute 50% of the registered capital of GBN(GZ) and in return each party will enjoy 50% interest in GBN(GZ). GBN(GZ) is still in the organization stage and will be engaged in the provision of information technology related services. During the current quarter, the Company had made its 50% contribution to GBN(GZ) in accordance with the terms of the joint venture agreement. Its investment in GBN(GZ) has been accounted for by the equity method during the period. The Group's current period's operations include a loss of $32,051, which represents the Group's share of loss on its investment in GBN(GZ). As GBN(GZ) is still in its preliminary stage of operations, no revenue has been generated and thus loss from operations is resulted. The loss reduced the Group's investment in GBN Guangzhou to zero and, as a consequence, the Group's future financial results will not be negatively affected by GBN(GZ)'s ongoing operations. The Group has no obligation to fund future operating losses of GBN(GZ). 11. TRADE AND OTHER PAYABLES
As of As of September 30, June 2002 30, 2003 Note US$ US$ Trade payables - 61,433 Bills payable - 398,933 Accrued charges 296,316 108,106 Other payables 165,664 108,432 Notes payables 72,796 79,616 Due to related parties 13(d) 272,939 401,257 Deposits received - 112,568 --------------- -------------- 807,715 1,270,345 =============== ==============
China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 12. LONG-TERM BANK LOAN The Group obtained a bank loan of US$512,820 during the three-month period ended June 30, 2003 from a creditworthy commercial bank in Hong Kong to finance its operations. The loan is collateralized by the Group's properties located in the PRC and personal guarantee from a stockholder. The outstanding loan balance as of June 30, 2003 bears interest at 4% per annum and is repayable serially from 2003 to 2013. The maturity of the long-term bank loan is as follows: Principal Payables during the following periods US$ 42,567 July 2003 to June 2004 44,301 July 2004 to June 2005 46,106 July 2005 to June 2006 47,984 July 2006 to June 2007 331,862 from July 2007 onwards --------------- 512,820 =============== China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 13. RELATED PARTY TRANSACTIONS
(a) Names and relationship of related parties Existing relationships with the Company Mr. Alfred Or A shareholder and former director of the Company Mr. Benny Cho A director of a subsidiary Mr. Bernard Chan A shareholder of the Company Mr. Bobby Yu A director of a subsidiary Mr. Chan Chi Ming A director of the Company Mr. James Mak A shareholder and director of the Company Mr. John Hui A shareholder and director of the Company Mr. Ringo Leung A director of the Company Mr. Steven Hui Close family member of a director of the Company Mr. William Tsang A shareholder and director of the Company Beijing Wanlong Economic Consultancy PRC partner of a subsidiary Corporation Ltd. Dimension Marketing Limited A shareholder of a subsidiary GBN(GZ) An affiliate of the Company Guangzhou City International Exhibition PRC partner of a subsidiary Co. Guangzhou Cyber Strategy Limited A company in which a director of the Company has beneficial interest Guangzhou Goldlion City Properties Co., A company controlled by close family members of a director Ltd. Guangzhou Goldlion Commercial Network A company controlled by close family members of a director Co., Ltd. Health & Wealth Inc. A company in which a director of the Company has beneficial interest Pilot Management Limited A shareholder of a subsidiary Powertronic Holdings Limited A shareholder of the Company Union East Consultants Limited A company in which a director of the Company has beneficial interest
(b) Summary of related party transactions Three Nine months months ended ended June June 30, 2003 30, 2003 US$ US$ Consultancy fee expenses to Mr. Bernard Chan 3,846 8,974 Mr. Bobby Yu - 8,462 Mr. John Hui 57,692 89,743 Mr. William Tsang 57,692 83,333 Mr. Chan Chi Ming 15,385 15,385 Beijing Wanlong Economic Consultancy Corporation Ltd. 4,531 13,592 Guangzhou City International Exhibition Co. 4,531 13,592 Health & Wealth Inc. - 15,024 =============== ===============
China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 13. RELATED PARTY TRANSACTIONS (CONT'D)
(b) Summary of related party transactions (Cont'd) Three Nine months months ended ended June June 30, 2003 30, 2003 US$ US$ Rent and related expenses to Guangzhou Goldlion City Properties Co., Ltd. and Guangzhou Goldlion Commercial Co., Ltd. 170,798 525,331 Dimension Marketing Limited 1,538 1,538 =============== =============== Consultancy fee income from Guangzhou Cyber Strategy Limited 96,154 288,462 =============== =============== Membership fee income from Guangzhou Cyber Strategy Limited 16,008 48,024 Union East Consultants Limited 16,008 16,008 =============== =============== Loans advanced to Dimension Marketing Limited 7,249 7,249 =============== =============== Assets purchase from Dimension Marketing Limited 691 691 =============== ===============
(c) Due from related parties As of June 30, 2003 US$ Mr. John Hui 8,255 Mr. Alfred Or 1,208 Mr. Ringo Leung 7,520 Guangzhou Cyber Strategy Limited 49,142 General (Guangzhou) Business Network Limited 15,531 Pilot Management Limited 3,846 Dimension Marketing Limited 7,249 ------------- Classified as current assets 92,751 =============
The amounts due from related parties represent unsecured advances which are interest-free and repayable on demand, except for an amount due from Dimension Marketing Limited which bears interest at 6% per annum and is repayable on December 23, 2003. China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 13. RELATED PARTY TRANSACTIONS (CONT'D)
(d) Due to related parties As of June 30, 2003 US$ Mr. William Tsang 30,492 Mr. Benny Cho 24,398 Mr. Chan Chi Ming 10,256 Mr. James Mak 2,340 Mr. John Hui 79,454 Mr. Steven Hui 41,179 Guangzhou Goldlion City Properties Co., Ltd. 49,701 Guangzhou City International Exhibition Company 9,061 Beijing Wanlong Economic Consultancy Corporation Ltd. 27,177 Health & Wealth Inc. 18,422 Powertronic Holdings Limited 97,770 Dimension Marketing Limited 11,007 ------------- Classified as current liabilities 401,257 =============
The amounts due to related parties represent unsecured advances which are interest-free and repayable on demand. 14. SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
(a) Summary of effect of acquisition of subsidiary Nine months ended June 30, 2003 US$ Net assets acquired Property, plant and equipment 3,036,025 Cash and cash equivalents 123,707 Trade and other receivables 106,628 Rental and other deposits 10,618 Prepayments 4,312 Trade and other payables (268,706) --------------- 3,012,584 Add: Goodwill arising from acquisition of subsidiary 187,416 --------------- Consideration 3,200,000 ===============
China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 14. SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION (CONT'D)
(b) Analysis of the net inflow of cash and cash equivalents in respect of acquisition during the period Nine months ended June 30, 2003 US$ Consideration (3,200,000) Bank balance and cash acquired 123,707 Issuance of common stock for satisfying the consideration 3,200,000 --------------- Net inflow of cash and cash equivalents 123,707 ===============
15. OPERATING LEASES COMMITMENTS At the balance sheet date, the Group had total outstanding commitments under non-cancellable operating leases, which are payables as follows:
As of June 30, 2003 US$ 2004 560,327 2005 567,947 2006 605,284 2007 648,778 2008 54,367 ---------------- 2,436,703 ================
In addition, the Group has committed to pay contingent rent at 2% to 10% on the monthly turnover of a subsidiary when the subsidiary's monthly turnover exceeds RMB500,000 (US$60,408) during the lease period ending in July 2007. China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 15. OPERATING LEASES COMMITMENTS (CONT'D) At the balance sheet date, the Group had total outstanding commitments under non-cancellable operating leases, which are receivable as follows:
As of June 30, 2003 US$ 2004 131,453 2005 40,644 2006 22,688 2007 7,239 2008 7,239 2009 1,207 --------------- 210,470 ===============
16. BUSINESS SEGMENT INFORMATION
Three months ended June 30, Nine months ended June 30, --------------------------------- -------------------------------- 2002 2003 2002 2003 US$ US$ US$ US$ Operating revenues Club services 328 502,692 328 1,302,143 Consultancy services - 96,154 - 288,462 Rental - 14,780 - 30,224 Sale of goods - 265,173 - 271,068 Others - 2,053 - 2,053 -------------- -------------- -------------- -------------- 328 880,852 328 1,893,950 ============== ============== ============== ============== Profit (Loss) from operations Club services 328 (92,160) 328 (592,040) Consultancy services - 8,208 - 54,645 Rental - (260,842) - (378,990) Sale of goods - (19,224) - (33,528) Others - (20,158) - (20,158) -------------- -------------- -------------- -------------- 328 (384,176) 328 (970,071) Corporate expenses (188,190) (76,500) (995,195) (125,395) -------------- -------------- -------------- -------------- Consolidated operating loss (187,862) (460,676) (994,867) (1,095,466) Other income - 422 - 1,547 Interest expenses (2,072) (3,560) (6,046) (8,038) -------------- -------------- -------------- -------------- Consolidated loss before income taxes (189,934) (463,814) (1,000,913) (1,101,957) ============== ============== ============== ==============
China World Trade Corporation Notes to Condensed Consolidated Financial Statements Three months and nine months ended June 30, 2003 and 2002 -------------------------------------------------------------------------------- 16. BUSINESS SEGMENT INFORMATION (CONT'D)
Three months ended June 30, Nine months ended June 30, --------------------------------- -------------------------------- 2002 2003 2002 2003 US$ US$ US$ US$ Depreciation Club services - 5,985 - 13,537 Rental - 39,068 - 43,278 Sales of goods - 11 - 11 Website development 15,000 - 15,000 - Others - 453 - 564 -------------- -------------- -------------- -------------- 15,000 45,517 15,000 57,390 ============== ============== ============== ============== Three months ended June 30, Nine months ended June 30, --------------------------------- -------------------------------- 2002 2003 2002 2003 US$ US$ US$ US$ Property, plant and equipment additions Club services 836 2,607 836 77,557 Rental - 80 - 5,772 Sales of goods - 261 - 261 Website development 300,000 - 300,000 - Others - 4,453 - 7,988 -------------- -------------- -------------- -------------- 300,836 7,401 300,836 91,578 ============== ============== ============== ============== Three months ended June 30, Nine months ended June 30, --------------------------------- -------------------------------- 2002 2003 2002 2003 US$ US$ US$ US$ Impairment loss on property, plant and equipment Rental - 45,973 - 110,005 ============== ============== ============== ==============
As of June 30, 2003 US$ Total assets Club services 645,135 Consultancy services 4,914 Rental 3,036,839 Sales of goods 363,987 Others 211,976 ----------------- Consolidated total 4,262,851 =================
No geographical segment information is presented as the Group's revenues are substantially generated from China. Item 2. Management's Discussion and Analysis or Plan of Operation. CHINA WORLD TRADE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS All forward-looking statements contained herein are deemed by the company to be covered by and to qualify for the safe harbor protection provided by the private securities litigation reform act of 1995. Prospective shareholders should understand that several factors govern whether any forward - looking statement contained herein will be or can be achieved. Any one of those factors could cause actual results to differ materially from those projected herein. These forward - looking statements include plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the company. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the company. Although the company believes that the assumptions underlying the forward - looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in any of the forward - looking statements contained herein will be realized. Based on actual experience and business development, the company may alter its marketing, capital expenditure plans or other budgets, which may in turn affect the company's results of operations. In light of the significant uncertainties inherent in the forward - looking statements included therein, the inclusion of any such statement should not be regarded as a representation by the company or any other person that the objectives or plans of the company will be achieved. OVERVIEW Pursuant to the Share Exchange Agreement dated as of August 10, 2000, by us, Virtual Edge Limited ("VEL"), and Main Edge International Limited ("Main Edge"), Main Edge transferred all of the issued and outstanding shares of the capital stock of VEL 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. Furthermore, subsequent to two private placement financings by Powertronic Holdings Limited ("Powertronic") in September 2002 and December 2002, the acquisition of all the issued and outstanding shares of General Business Network (Holdings) Ltd. ("GBN") in December 2002 and an 1-for-30 reverse split that was effective on 1st September 2002, Mr. Chi Hung Tsang now holds 4,000,000 shares of our common stock (representing approximately 36.4% of the total issued and outstanding shares of our common stock), Powertronic holds 2,000,000 shares (or approximately 18.2%), and as a result, Main Edge holds only 522,980 shares (or approximately 4.8%). 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 three-month period and nine-month period ended June 30, 2002 and 2003. The data should be read in conjunction with the audited and unaudited Condensed Consolidated Financial Statements of the Company and related notes thereto.
Three months ended Nine months ended (Amounts in thousands US$) June 30, June 30, 2002 2003 2002 2003 Operating revenue 0.3 881 0.3 1,894 Operating costs and expenses --- (352) --- (574) Selling, general & administrative expenses (188) (989) (995) (2,416) ----- ----- ----- ------- Loss from Operations (188) (460) (995) (1,099) Interest (2) (3) (6) (6) Equity in net loss of affiliate --- (32) --- (32) Minority interest 0 0 0 120 - - - --- Net Loss (190) (495) (1,001) (1,014)
Three-Month Period Ended june 30, 2003 Compared to Three-Month Period Ended june 30, 2002 Operating Revenue The aim of the Company is to continue to establish and operate World Trade Center Clubs (in association with the World Trade Center Association) and to provide trade agency business linking companies in China and the rest of the world. As of June 30, 2003, we had four operating arms, namely the Beijing World Trade Center Club ("BWTCC"), Guangzhou World Trade Center Club ("GWTCC"), Infotech Enterprises Limited ("Infotech), and General Business Network (Holdings) Limited. 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. 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. GBN is an investment holding company, which primarily engages in property investments, advertising and promotional businesses and trading business. The Company has started to recruit members, and to provide consultancy, catering and business center services through its subsidiary GWTCC located in Guangdong Province, the PRC since June 2002, and trading business through a subsidiary of GBN since March 2003. Sales revenue for the three-month period ended June 30, 2003 was $881,000, compared to very minimal for the same corresponding period in year 2002. Of the $881,000 revenue in year 2003, approximately $503,000 (57%) was generated from providing club related services by GWTCC, $265,000 (30%) from trading business, and the remaining revenue of $113,000 (13%) from rental and consultancy services. Costs of sales increased by $352,000 for the three-month period ended June 30, 2003, as compared to none for the same corresponding period in year 2002. The $352,000 was primarily incurred in relation to the trading business and catering services that the Company provided through GBN and GWTCC. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased by $801,000 or 426% to $989,000 for the three-month period ended June 30, 2003 from $188,000 for the same corresponding period in 2002. The increase was mainly due to: i) Staff Salaries, Welfare and Allowances: Staff salaries, welfare and allowances was $154,000 for the three-month period ended June 30, 2003, compared to $12,000 for the same corresponding period in 2002, an increase of $142,000. The increase was primarily due to the salaries paid to staff for the operations of GWTCC. ii) Legal and Professional Fees: Legal and professional fees increased by $179,000 or 232% to $256,000 for the three-month period ended June 30, 2003 from $77,000 for the same corresponding period in 2002. The increase was mainly due to the additional fees paid to legal, accounting and US securities professionals to maintain the corporate status of the Company and to seek future capital raising opportunities. iii) Rental, Rates and Related Expenses:Rental and rates expenses increased by $187,000 for the three-month period ended June 30, 2003, as compared to none for the same corresponding period in 2002. The rental and rates expenses were primarily the result of renting the physical premises for the operation of GWTCC. iv) Utility Expenses: Utility expenses were $45,000 for the three-month period ended June 30, 2003, as compared to none for the same corresponding period in 2002. The increase was mainly due to the operation of GWTCC in Guangzhou, the PRC during the reporting period. v) Impairment Loss on Property: Impairment loss on property increased by $46,000 for the three-month period ended June 30, 2003, as compared to none for the same corresponding period in 2002. This non-cash accounting entry was taken as a result of the Company's conservative approach towards an investment property of the Company in Hong Kong. vi) Marketing Services Expense: Marketing services expense increased by $109,000 for the three-month period ended June 30, 2003, as compared to none for the same corresponding period in 2002. This increase was mainly due to additional efforts on marketing and promotion of new China World Trade Club membership. Financial Income/(Expenses), Net There were only $3,000 of interest expenses incurred from GWTCC for the three-month period ended June 30, 2003, as compared to $2,000 for the same corresponding period in 2002. Income Taxes The Company is still at it development stage and did not generate any income for period since inception to June 30, 2003. Thus, no income taxes incurred for the reporting periods. Liquidity and Capital Resources The Company obtained a bank loan of US$512,820 (or HK$4,000,000) during the three-month period ended June 30, 2003 from a creditworthy commercial bank in Hong Kong to support its operations. The loan is collateralized by the Company's properties located in the PRC. There has been no other significant change in financial condition and liquidity since last reporting period to June 30, 2003. 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. Nine-Month Period Ended June 30, 2003 Compared to Nine-Month Period Ended June 30, 2002 Operating Revenue Operating revenue for the nine-month period ended June 30, 2003 was $1,894,000, compared to an insignificant amount for the same corresponding period in year 2002. Of the $1,894,000 revenue generated in year 2003, approximately $1,302,000 (69%) was generated from providing club related services, $271,000 (14%) from trading business, and the remaining revenue of $321,000 (17%) from rental and consultancy services. Costs of sales increased by $574,000 for the nine-month period ended June 30, 2003, as compared to none for the same corresponding period in year 2002. The $574,000 was primarily incurred in relation to the trading business and catering services that the Company provided through GBN and GWTCC. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased by $1,421,000 or 143% to $2,416,000 for the nine-month period ended June 30, 2003 from $995,000 for the corresponding period in 2002. The increase was mainly due to: i) Staff Salaries, Welfare and Allowances: Staff salaries, welfare and allowances was $529,000 for the nine-month period ended June 30, 2003, compared to $24,000 for the same corresponding period in 2002, an increase of $505,000. The increase was primarily due to the salaries paid to staff for the operations of GWTCC ii) Rental, Rates and Related Expenses:Rental and rates expenses increased by $495,000 for the nine-month period ended June 30, 2003, as compared to only $8,000 for the same corresponding period in 2002. The rental and rates expenses were primarily the result of renting the physical premises for the operation of GWTCC. iii) Legal and Professional Fees: Legal and professional fees increased by $139,000 or 73% to $331,000 for the nine-month period ended June 30, 2003 from $192,000 for the same corresponding period in 2002. The increase was mainly due to the additional fees paid to legal, accounting and US securities professionals to maintain the corporate status of the Company and to seek future capital raising opportunities. iv) Utility Expenses: Utility expenses were $152,000 for the nine-month period ended June 30, 2003, as compared to none for the same corresponding period in 2002. The increase was mainly due to the operation of GWTCC in Guangzhou, the PRC during the reporting period. v) Impairment Loss on Property: Impairment loss on property increased by $110,000 for the nine-month period ended June 30, 2003, as compared to none for the same corresponding period in 2002. This non-cash accounting entry was taken as a result of the Company's conservative approach towards an investment property of the Company in Hong Kong. Financial Income/(Expenses), Net There was an insignificant amount of $6,000 of interest expenses for the nine-month period ended June 30, 2003, compared to $6,000 for the same corresponding period in year 2002. Income Taxes The Company is still at it development stage and did not generate any income for period since inception to June 30, 2003. Thus, no income taxes incurred for the reporting periods. CRITICAL ACCOUNTING POLICIES Besides the accounting policies as described in note 1 to the financial statements for the period ended June 30, 2003, the management considers that the Group has not adopted any other critical accounting policies. Item 3. Controls and Procedures. Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with participation of the Company's management, including the Chief Executive Officer and Principal Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based on the evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II -- OTHER INFORMATION Item 1. Legal Proceedings. We are not a party to any pending or to the best of our knowledge, any threatened legal proceedings. No director, officer or affiliate, or owner of record 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 any pending litigation. Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 31.1 CEO Certification Pursuant to Section 302 31.2 CFO Certification Pursuant to Section 302 32.1 CEO Certification Pursuant to Section 906 32.1 CFO Certification Pursuant to Section 906 (b) Reports on Form 8-K; None SIGNATURES In accordance with the requirements 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 -------------------------------- (Registrant) Date: August 19, 2003 /s/ John H.W. Hui ------------------------------- -------------------------------- John H.W. Hui Chief Executive Officer Date: August 19, 2003 /s/ Keith Wong -------------------------------- -------------------------------- Keith Wong Chief Financial Officer *Print the name and title of each signing officer under his signature.