10KSB 1 form10ksb093003.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, 2003 ------------------ 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 of Incorporation) (IRS Employer Identification No.) 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) -------------------------------------------------------------------------------- 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 X No --------- --------- 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 $2,885,600 ---------- 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 December 31, 2003 there were 15,981,601 shares of common stock issued and outstanding Transitional Small Business Disclosure Format (check one): Yes No X --------- --------- PART I 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. ITEM 1. Description of Business. Company History China World Trade Corporation, ("CWTC" or the "Company) was incorporated in the State of Nevada on January 29, 1998 under the name Weston International Development Corporation to engage in any lawful corporate undertaking, including, but not limited to construction and development services for corporate global expansion. On July 28, 1998, the Company changed its name to Txon International Development Corporation. On August 14, 2000, 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, the Company 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 the Company's issued and outstanding shares after giving effect to the Acquisition. On September 15, 2001 the Company changed its name from Txon International Development Corporation to China World Trade Corporation and 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. In September, 2002 the Company 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. 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$0.575 per Share. The Company entered into a share exchange agreement (the "Share Exchange Agreement") dated as of December 17, 2002, with Mr. Tsang Chi Hung ("Mr. Tsang"), the sole beneficial owner of the share capital in General Business Network (Holdings) Ltd. ("GBN"), a Hong Kong company. Pursuant to the Share Exchange Agreement, the Company acquired from Mr. Tsang all of the issued and outstanding shares of GBN in exchange for four million (4,000,000) Shares and warrants (the "Tsang Warrants") to purchase an additional four million (4,000,000) Shares. As of the date of acquisition, GBN owned two rental properties located at 20/F., Goldlion Digital Network Center, Unit 01-10, 138 Tiyu Road East, Tianhe, Guangzhou, the PRC and Flat B, 12/F., Champion Center, 301-309 Nathan Road, Hong Kong, collectively valued in excess of US$ 4,000,000. The Tsang Warrants may be exercised within two year of their issue at an exercise price of US$0.92 per Share. On September 12, 2002, 1,000,000 shares and the first warrants were issued pursuant to the First Share Purchase Agreement. The Second Share Purchase Agreement and the Share Exchange Agreement (the "Acquisition") was each completed on January 24, 2003 and on that date one million (1,000,000) Shares, and the Second Warrants were issued to Powertronic and four million (4,000,000) Shares and the Tsang Warrants were issued to Mr. Tsang. General Our business objective is to open and operate business clubs in the major cities of China in association with the World Trade Center Association in order to position ourselves as the platform to facilitate trade between China and the world market. We currently operate the Guangzhou World Trade Center Club. The Beijing World Trade Center Club, which is located at 2nd Floor, Office Tower II, Landmark Towers Beijing, 8 North Dongsanhuan Road, Beijing PRC, and consisting of 730 squaure meters (equivalent to approximately 8,000 square feet), is currently under renovations and is expected to be fully operational in the first quarter of 2004. Additionally, we expect to open World Trade Center Clubs in Shanghai and Shenzhen in 2005. Finally, we plan to create a Chinese/English internet portal to serve foreign and Chinese small to medium sized businesses. No assurances, however, can be given that we will be successful in our endeavors. Our executive office is located at 4th Floor, Goldlion Digital Network Center, 138 Tiyu Road East, Tianhe, Guangzhou, the PRC 510620. Our financial statements are stated in United States Dollars (US$) 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 engaged in the establishment of a club located in Beijing, the PRC. The Beijing World Trade Center Club, which is currently being renovated and is expected to be opened and operational in the first quarter of 2004, will provide recreation, business center 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 Infotech. 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 fastest growing economy in the world. Their accession into WTO will offer new opportunities for foreign companies to invest and do business in China. WTO membership for China will change the methods of market entry for overseas companies. Foreign companies will need to have well-tailored plans to cope with China's target audience, services, marketing, finance, and human resources for the effective entry into the China market. The unique business culture and legal system in China will cause the local business information and services in China to become a key component to commerce. As a whole, the consequential lower barriers to entry into the China market, and a more transparent investment environment, will provide small and medium sized foreign enterprises with investment opportunities for the first time. China's accession into the WTO also provides huge business opportunities to the small to medium size private companies in China. The increase in involvement from foreign companies and investors in the China market means more opportunities to local companies to do business with foreign companies. Under the trend of globalization, the Chinese market will evolve from many segmented and monopolized markets to an integrated national market that is open to the world economy. The small and medium sized companies in China will enjoy much lower cost to enter into the worldwide market but will also confront intensified competition, lowered profit margins, and new rules of the game. These Chinese companies will need up-to-date business intelligence, professional strategic planning and the access to the worldwide business network to ensure the success in the new environment. and with its imminent accession into WTO, there will be unique opportunities for foreign investment and international trade. The World Trade Centers Association (WTCA) is a not-for-profit corporation that focuses on promoting and assisting world trade activities. Its mission is to encourage world trade by fostering and supporting the development and operation of World Trade Centers (WTCs) in every region of the world. WTCA was established in 1970 and has memberships from more than 330 cities in about 100 countries with global members of over 750,000 enterprises. The World Trade Centers supported by the WTCA provides businesses with access to a diverse array of state-of-the-art international trade services and facilities which enables them to increase their international trade. In the WTCA, every local member of a WTC in a city is automatically a member of all WTCs worldwide. This helps the WTCs to market their local membership, and also vastly increases the amount of services that a WTC can offer to its local members. Therefore, the WTCs worldwide form a reciprocal business network for businesses to access the international trade resources that may be expensive and even inaccessible in a domestic environment. Our plan is to open and operate World Trade Center Clubs (the "Clubs"), which will be associated with the World Trade Center Association, in major cities in China, where Club 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 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 entitled 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. 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. 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. Sources of Income The Company's source of income consists of three primary revenue components - The World Trade Center business, value-added services, and strategic investments. THE WORLD TRADE CENTER BUSINESS CWTC aims to be the operator of World Trade Centers in major Chinese cities. While the worldwide business network from WTCA together with the reciprocal services will be the core attraction to business persons in China, the business community maintained by CWTC covering major cities in China will be an even more valuable asset in the long term. Through its presence in major cities in China, CWTC will develop a community of active business persons from small and medium sized enterprises with a comment interest in world trade. CWTC will implement the following business operations under the World Trade Center Business Division. Business Club The Business Club is a core component of CWTC. The target market for the Business Club will be the owners and senior managements of the small and medium sized enterprises in China. The Business Club will provide to members a full rage of top quality commercial and recreational services, education programs and the business networking programs, and business club facilities together with an elegant environment. The CWTC Business Club will also help members to liaise with potential trading partners from overseas, to join international economic and trade exhibitions and seminars, and to organize international business trips. As part of the reciprocal arrangement under the WTCA, CWTC Business Club will also provide services to visiting delegations from foreign WTC members. The CWTC Business Club will help foreign companies or business persons to minimize the barrier of doing business in China. Services provided to foreign companies and businessperson may include organizing meetings with Chinese government bodies, business corporations and potential partners. The revenue of the Business Club business will come from membership fees, fees collected from training and events such as seminars. Business Center The Business Center is operated in parallel with the Business Club. While the Business Center's services are not confined to member of the CWTC Business Club, member of the Club will enjoy special discounts for the Business Center services and more dedicated support from the staffs under the Business Club. The Business Center will provide: Temporary offices Seminar and Conference rooms Video conferencing facility Exhibition rooms Interpreters and secretarial services Business consultation services The revenue comes from rental fees of facilities and services fees. Licensing of Intellectual Property Rights CWTC intends to license the China World Trade Center intellectual property rights including the logo and trademark to third parties. The licensees may use the logo and trademark of CWTC to quickly establish a brand for their products such as office accessories, or to attract a group of clients for certain services such as credit cards. Revenue is generated from royalty fees which may be paid in cash, stock or other property. The Credit Card division is the first example of licensing the logo and brand name of CWTC to generate additional revenues. We have formed a partnership with the Agriculture Bank of China (ABC) to issue co-brand credit cards in Guangdong. THE VALUE-ADDED SERVICES CWTC will provide value-added services to generate additional revenues. As a platform to facilitate the international trade and the organizer of a local business person's community, CWTC will leverage these resources to develop value-added services to domestic as well as international business communities. Such services include: Business consultation services Assisting foreign companies in establishing their businesses in China and assisting Chinese companies in developing the international trade dimension of their business. Conducting market research, industrial research and competitive researches for foreign companies that are preparing to enter China and providing product sourcing and matching services. In addition, we intend to assist local PRC companies to seek foreign capital for their expansion programs. Events management services Assisting foreign companies to organize and participate in conferences and exhibitions in China and assisting Chinese companies to organize and participate in conferences and exhibitions overseas. Virtual Office Virtual office services help foreign companies to establish a presence in China at minimum cost. Foreign companies can also manage their communication with their China partners over the Internet. Since different value-added services require different expertise and strategies, CWTC will establish individual operations and separate management teams for each value-added service. The revenue of value-added business division will be the services fees from various services rendered. STRATEGIC INVESTMENTS We will further expand our business through strategic investments. Strategic ventures which have no synergy with our business or have negative impact to our cash flow will not be initially considered. A group of business subsidiaries with synergies will enable us to gain organic growth and lead us to evolve into a conglomerate in the Chinese business environment. 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. 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. 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. Employees As of September 30, 2003, we had 82 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 the Guangzhou World Trade Center 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 and expires on July 31, 2007. Our Beijing World Trade Center Club facilities, which is currently under renovation, will be located at 2nd Floor, Office Tower II, Landmark Towers Beijing, 8 North Dongsanhuan Road, Beijing, PRC. The five year lease for the location of the BWTCC club facilities, which runs from February 1 2004 to January 31, 2009, was executed by Beijing Landmark Towers Co Ltd. and BWTCC. The terms of the lease provide for an aggregate monthly rental and management fees of approximately RMB$121,180 and contains a rent free period from February 1, 2004 to January 31, 2006. Pursuant to the Share Exchange Agreement dated December 17, 2002, entered into by the Company and Mr. Tsang Chi Hung, the Company acquired the entire issued share capital of GBN, which owns two commercial properties, one located at 20/F., Goldlion Digital Network Center, Unit 01-10, 138 Tiyu Road East, Tianhe, Guangzhou, the PRC (the "PRC Property") and the other at Flat B, 12/F., Champion Center, 301-309 Nathan Road, Hong Kong (the "Hong Kong Property"). The Company occupies most of the rental area of the PRC property and rents out the Hong Kong Property at an annual rental income of HK$102,000. 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 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. No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report. 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 common stock was delisted from trading on OTCBB for not being a current reporting company under the Exchange Act of 1934. Our common stock was then quoted under the symbol CWTD on the Pink Sheet from September 2002 to November 2003. As of November 26, 2003, our common stock was again quoted on the OTCBB, under the symbol CWTD. The following table sets forth the range of bid prices of our common stock as quoted on the Pink Sheets LLP, respectively, during the periods indicated. The prices reported represent prices between dealers, do not include markups, markdowns or commissions and do not necessarily represent actual transactions. High (1) Low 2003 First Quarter 0.0001 (2) Second Quarter 0.0001 (2) Third Quarter 0.0001 (2) Fourth Quarter 0.0001 (2) 2002 First Quarter 0.001 (2) Second Quarter 0.001 (2) Third Quarter 0.001 (2) Fourth Quarter 0.001 (2) (1) We 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 common shares 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 Limited September 11 1,000,000 Splendid Partner Holdings Limited September 12 500,000 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. 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 December 31, 2003, there were 84 holders of record of 15,981,601 outstanding share of common stock of the Company. Dividends We have 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 our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our 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 or Plan of Operations. 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 held 4,000,000 shares of our common stock as of September 30, 2003 (representing approximately 36.4% of the total issued and outstanding shares of our common stock), Powertronic held 2,000,000 shares (or approximately 18.2%), and as a result, Main Edge held 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 years ended 2003 and 2002. The data should be read in conjunction with the audited and unaudited Condensed Consolidated Financial Statements of the Company and related notes thereto. Years (a) (Amounts in ended thousands US$) September 30, 2003 2002 Revenues Sales 2,886 193 COGS (1,213) (84) ------ ------ Gross Margin 1,673 109 Operating Expenses General & Admin Exp (3,954) (1,828) ------ ------ Loss from Operations (2,281) (1,719) Other Income (Expense) Interest (15) (8) Others (29) -- Minority interest 120 93 ------ ------ Net Loss (2,205) (1,634) Year Ended September 30, 2002 Compared to Year Ended September 30, 2001 Operating Revenue 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, 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 year ended September 30, 2003 was $2,886,000, compared to $193,000 for the year 2002, a significant increase. Of the $2,886,000 revenue in year 2003, approximately $1,719,000 (60%) was generated from providing club related services by GWTCC, $814,000 (28%) from trading business, and the remaining revenue of $353,000 (12%) from rental and consultancy services. Only US$193,000 was generated from providing club related services by GWTCC for the year ended September 30, 2003. The management believes that as the economy in China and the businesses of the Company continue to show improving sign, the revenue for the Company will improve significant in the next twelve months. In particular, the management anticipates starting operation of the physical venue of BWTCC in Beijing in the first quarter of 2004, BWTCC is believed to have a significant contribution to the Company's corporate image and businesses. Costs of sales for the year ended September 30, 2003 was $1,213,000, as compared with $84,000 for the year 2002, a significant increase. The increase was the result of increase in activities in relation to the club and trading businesses. Cost of sales for the club business was $423,000 for the twelve-month period ended September 30, 2003 and for the trading business, $790,000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the year ended September 30, 2003 was $3,954,000, as compared with $1,828,000 for the year 2002, an increase of $2,126,000 or 116%. The increase was mainly due to: i) Staff Salaries, Benefit and Allowances: Staff salaries, benefit and allowances increased by $597,000 for the year ended September 30, 2003. The increase was primarily due to the salaries, benefit and allowances paid for staff in the operations of GWTCC. As of September 2003, the Company had approximately 80 full-time employees, down from 110 employees six months ago. ii) Rental, Rates, and Related Expenses: Rental, rates and related expenses increased by $615,000 for the year ended September 30, 2003. The increase was primarily due to the occupancy of the physical venue for the operation of GWTCC. iii) Utilities Expenses: Utilities expenses for the year ended September 30, 2003 was $196,000, as compared with $36,000 for the year 2002, an increase of $160,000. The increase was primarily due to the operation of GWTCC. iv) Commission Expenses: Commission expenses for the year ended September 30, 2003 was $146,000, as compared with only a very minimal amount for the year 2002. The increase was primarily the commission paid to third party for assisting in recruiting World Trade memberships. As the businesses of the Company grow further, the management believes that all the abovementioned expenses will increase in proportion to the increase of revenue for the next twelve months. During the second six-month period of year 2003, the Company has taken serious actions to trim down full time employees from 110 to 82; as well as their related staff costs. Financial Income/(Expenses), Net There was $15,000 in interest expenses incurred and accrued from an outstanding loan for the twelve-month period ended September 30, 2003. This loan was made with a third party in February 2001. All interest expenses in relation to this loan were waived by the third party and the loan was subsequently repaid by the Company in December 2003. Income Taxes The Group is subject to income taxes on an equity basis on income arising in or derived from the tax jurisdiction in which it is domiciled and operates. The Honk Kong subsidiaries incurred losses for taxation purposes for the period and thus Hong Kong Profits Tax has not been provided. Since the PRC subsidiaries have sustained losses for the PRC income tax purposes, the Company has not recorded any PRC income tax expense. PRC income tax in the future will be calculated at the applicable rates relevant to the PRC subsidiaries. Liquidity and Capital Resources Virtual Edge Limited, our wholly owned subsidiary, underwent a capital restructuring in May 2000 in which long-term 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 30-to-1 reverse split of the shares of its common stock and was effective on 1 September 2002. Between September 1 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 takes 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 million in debt and fees owed to third parties The Company and Powertronic Holdings Limited entered into two share purchase agreements on 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. 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. On April 30, 2003, the Company, thru its subsidiary GWTCC, entered into a cooperation agreement with Agricultural Bank of China, Guangdong Branch, to issue co-branded credit cards, the "Kins World Trade" credit card. Pursuant to the agreement, the Company will share certain revenue with Agricultural Bank of China from incomes derived from annual membership fees and merchants' commissions. The Company is working towards finalizing all legal and commercial issues in connection with the issuance of these co-branded credit cards. On November 19, 2003, the Company entered into an acquisition agreement (the "Acquisition Agreement") with Mr. Tsang Chi Hung ("Mr. Tsang"), the beneficial owner of the 21st to 23rd Floors of Goldlion Digital Network Center, 138 Tiyu Road East, Tianhe, Guangzhou, the PRC ("the Premises"). On December 5, 2003, pursuant to the Acquisition Agreement, Mr. Tsang purchased from the Company 3,000,000 common shares and warrants to purchase an additional 6,000,000 common shares for the rights to the after tax rental income of the Premises for a five year period commencing on December 1, 2003 and ending on November 30, 2008. On November 27, 2003, the Company, thru its subsidiary BWTCC entered into a lease agreement with Landmark Towers Beijing Co. Ltd. to lease a 730 sq. meter (equivalent to approximately 8,000 sq. feet) premises located at 2nd Floor, Office Towers II, Landmark Towers Beijing, 8 North Dongsanhuan Road, Beijing, the PRC, for use as the clubs facilities. The BWTCC is currently under renovation and is expected to be opened for business in the first quarter of 2004. CRITICAL ACCOUNTING POLICIES Besides the accounting policies as described in note 5 to the financial statements for the year ended September 30, 2003, the management considers that the Group has not adopted any other critical accounting policies. ITEM 7. Financial Statements. Our financial statements are set forth at the end of this Form 10-KSB INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Independent Auditor's Report Consolidated Balance Sheets September 30, 2003 Consolidated Statements of Operations for the Years Ended September 30, 2003 and 2002 Consolidated Statement of Stockholders' Equity Years Ended September 30, 2002 and 2003 Consolidated Statement of Cash Flows for the Years Ended September 30, 2003 and 2002 Notes to Consolidated Financial Statements ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There has been no disagreements with our accountants on accounting and financial disclosures during the reporting period that requires disclosure pursuant to Item 304 of Regulation S-B. ITEM 8A. Control and Procedures. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the year ended September 30, 2003 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. 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 set forth the names and ages of all our directors and executive officers and the key management personnel as of September 30, 2003. 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 William Tsang Chi Hung 42 Chairman of the Board of Directors John H.W. Hui 45 Vice Chairman of the Board of Directors and President Keith Yat Chor Wong 48 Chief Financial Officer and Director Luo Chao Ming 53 Director Chan Chi Ming 42 Vice President, Information Technology and Director Roy Cho Woon Wu 59 Senior Club Manager and Director James H.C. Mak 55 Director Ringo Wing Hung Leung 45 Director
Mr. William Tsang Mr. William Tsang, the Chairman of the Board of Directors, is a Member of the Beijing Municipal Political Consultative Conference and Honorary Citizen of Guangzhou City. Mr. Tsang is also the President of the Commercial & Industrial General Association of New Territories of Hong Kong Ltd., Committee Member of The Chinese General Chamber of Commerce, Vice Chairman of Hong Kong Chamber of Commerce in China -Guangdong, and Vice Chairman of Guangzhou Federation of Industry & Commerce. He was an executive director of Goldlion Holdings Ltd., a public company listed in Hong Kong Stock Exchange. Mr. John H.W. Hui Mr. John H.W. Hui, the Vice Chairman of the Board of Directors and the President of the Company. Mr. Hui has over 10 years' experience in China trade & investment. He is responsible for overall planning and corporate development of the Company. Mr. Hui is also the President of Beijing World Trade Center Club and Guangzhou Word Trade Center Club. He has excellent relationships with the Chinese partners (CCPIT) and the principles of the World Trade Center Association in New York and other WTCs around the world. Mr. Hui is a current member of the Canada China Business Council Beijing, and American Chamber of Commerce, Guangdong. Mr. Wong, Yat Chor Keith Mr. Wong, the Chief Financial Officer and a Director of the Company, has over twenty years experience as a professional accounting manager. He holds different professional qualifications including ACIS (Associate Member of the Institute of Chartered Secretaries and Administrators, Canada Branch), CGA (Member of Certified General Accountants Association of B.C. and Canada), CPA (Member of American Institute of Certified Public Accountants (AICPA) and Washington State Board of Accountancy), AHKSA (Associate Member of Hong Kong Society of Accountants). Mr. Luo Chao Ming Mr. Luo, a Director, has long-term collaborative relations with Hong Kong business circles and associations. He was employed at the Xinhua News Agency Hong Kong Branch from 1983 to 1996. Mr. Luo joined Xinhua News Agency Hong Kong Branch Guangzhou Representative Office in 1996. He is the Chief Council Member of Guangdong Overseas Friendship Association, and Council Member of Guangzhou Overseas Friendship Association. Mr. Luo worked as the Electric Design Technician in Guangzhou Design Institute and the Assistant of Electric Technology Specialty, Electric Engineering Department in Guangdong University of Technology. Mr. Chan Chi Ming Mr. Chan, a Director of the Company, is the founder of Asian Information Resources (Holding) Ltd. At the end of 1999, Mr. Chan successfully led the Company through its initial public offering and its shares were listed on the GEM Board of the Stock Exchange of Hong Kong Limited and was appointed as the Group CEO after the Company was listed. Mr. Chan is the Corporate Development Strategist of a publicly listed company in the Hong Kong between July 2001 and June 2003. Mr. Chan specializes in content and technology development and Chinese law and China affairs, Mr. Chan is also an acknowledged expert in networking, Internet technology, database technology and management of technical resources. Mr. James H.C. Mak Mr. Mak is the General Manager of World Trade Center Club, Hong Kong. Mr. Mak has over 20 years of Senior Management in the F & B industry. He was senior administration manager of Maxim's Group of Restaurants. As the deputy general-manager of Kai Shing Management Co. Ltd. (a subsidiary of Sun Hung Property Ltd.). He is in charge as general manager of the following clubs: Grand Royal Club, Hong Kong and Hong Lok Yuen Country Club, Hong Kong. Mr. Roy Cho Woon Wu Mr. Wu is currently the Senior Club-Manager of the World Trade Center Club, H.K. Mr. Wu is also Senior Club-Manager of the Grand Royal Club, Hong Lok Yuen Country Club, H.K. Mr. Wu has over 30 years' Hotel & Restaurant Management experience. He was the Food and Beverage manager for the Peninsula Group in Hong Kong, China Hotel in Canton, and New World Hotel in Beijing. Mr. Wu was also the general manager of the New World Hotel of Xi'an in China. Mr. Ringo Leung Mr. Ringo Leung Wing Hung, is currently a Director of the Company. Mr. Leung has over 20 years experience in leather goods and trading business. He was a director of Pak Tak Co. Ltd, a leather goods trading company from May 1980 to January 1984. Between 1984 and 2000, Mr. Leung was involved in trading business of his own company. From October 2000 to January 2003, he was the Assistant to the Managing Director of Goldlion (Far East) Limited. Currently, Mr. Leung is also a director of Polysend Trading Limited. 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. ITEM 10. Executive Compensation. The following table sets forth the compensation paid during fiscal year ended September 30, 2001, 2002 and 2003 to our Chief Executive Officer. No other 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 ($) ($) ($) ($) ($) ----------------------- --------- --------------- --------- ---------- ---------- -------------- --------- ---------- William Tsang, 2003 $141,026 Chairman ----------------------- --------- --------------- --------- ---------- ---------- -------------- --------- ---------- John Hui, President 2003 $147,436 ----------------------- --------- --------------- --------- ---------- ---------- -------------- --------- ---------- John Hui, President 2002 $140,321 - - - - - - and Secretary ----------------------- --------- --------------- --------- ---------- ---------- -------------- --------- ----------
We have no long-term employment or consulting agreements with any of our executive officers or directors. ITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth the number of shares of common stock beneficially owned as of September 30, 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, 2003 or calendar year ended December 31, 2002; 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 Name/Address(1) Number of Shares Ownership(1) ------------ ---------------- ------------ Wong Yat Chor, Keith (2) (3) 1,000,000 9.12% Chan Sai Yee, Clarence (2) (3) 1,000,000 9.12% Roy C.W. Wu 87,500 ** James H.C. Mak 122,500 ** Top-Trained Securities Ltd. 1,000,000 9.12% Powertronic Holdings Limited (3) 2,000,000 18.23% Tsang Chi Hung (4) 4,000,000 36.46% All Officers and Directors as a Group 5,210,000 47.49% (8 persons)
**Less than 1% (1) Based on 10,970,497 shares outstanding as of September 30, 2003 and not including 8,000,000 share of common stock to be issued on the exercise of the outstanding warrants. (2) Mr. Wong Yat Chor, Keith and Mr. Chan Sai Yee, Clarence, each indirectly owns 1,000,000 pursuant to their repsective 50% ownership of all the share capital of Powertronic Holdings Limited. (3) Assuming Powertronic Holdings Limited does not exercise its right to purchase 4,000,000 shares of common stock pursuant to two warrants issued by the Company. (4) Assuming Tsang Chi Hung does not exercise his right to purchase 4,000,000 shares of common stock pursuant to a warrant issued by the Company. ITEM 12. Certain Relationships and Related Transactions. The following table sets forth the names and relationships of certain related parties.
Name 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 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 Ltd. director Guangzhou Goldlion Commercial Network A company controlled by close family members of a Co., Ltd. director Health & Wealth Inc. A company in which a director of the Company has beneficial interest Pilot Management Limited A shareholder of a subsidiary Union East Consultants Limited A company in which a director of the Company has beneficial interest
The following is a summary of related party transactions of the year ended September 30, 2002 and 2003.
Year ended September 30, ----------------------------------------- 2002 2003 US$ US$ Consultancy fee expenses to --------------------------- Mr. Bernard Chan - 17,948 Mr. Bobby Yu - 8,462 Mr. John Hui - 146,436 Mr. William Tsang - 141,026 Mr. Chan Chi Ming - 30,769 Beijing Wanlong Economic Consultancy Corporation Ltd. - 18,122 Guangzhou City International Exhibition Co. - 18,122 Health & Wealth Inc. - 15,024 ================== ================ Rent and related expenses to ---------------------------- Guangzhou Goldlion City Properties Co., Ltd. And Guangzhou Goldlion Commercial Co., Ltd. - 713,044 Dimension Marketing Limited - 2,692 ================== ================ Consultancy fee income from --------------------------- Guangzhou Cyber Strategy Limited - 288,462 ================== ================ Membership fee income from -------------------------- Guangzhou Cyber Strategy Limited - 48,024 Union East Consultants Limited - 32,016 ================== ================ Assets purchased from --------------------- Dimension Marketing Limited - 691 ================== ================ Personal guarantee granted from ------------------------------- Mr. William Tsang - 19,231 ================== ================
The following is a summary of the amounts due from related parties:
As of September 30, 2003 US$ Mr. Alfred Or 1,208 Guangzhou Cyber Strategy Limited 59,909 General (Guangzhou) Business Network Limited 73,590 Pilot Management Limited 3,846 ------------------ Classified as current assets 138,553 ==================
The amounts due from related parties represent unsecured advances which are interest-free and repayable on demand.
The following is a summary of the amounts due to related parties As of September 30, 2003 US$ Mr. William Tsang 475,224 Mr. Ringo Leung 5,776 Mr. Chan Chi Ming 5,128 Mr. James Mak 2,340 Mr. John Hui 44,264 Mr. Steven Hui 41,179 Guangzhou Goldlion City Properties Co., Ltd. 17,022 Guangzhou City International Exhibition Company 4,530 Beijing Wanlong Economic Consultancy Corporation Ltd. 31,708 Health & Wealth Inc. 18,421 Dimension Marketing Limited 80,645 ------------------- Classified as current liabilities 726,237 ===================
The amounts due to related parties represent unsecured advances which are interest-free and repayable on demand. ITEM 13. Exhibits and Reports on Form 8-K. Exhibit Number Description 31.1 Principal Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Principal Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Principal Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Principal Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 --------------------- *Incorporated by reference to the respective exhibits filed with the Company's Current Report on Form 8K dated December 15, 2003. Reports on Form 8-K None. ITEM 14. Principal Accountant Fees and Services. Audit Fees. Audit fees billed by Moores Rowland Mazars for services rendered in auditing our financial statements for fiscal 2003 and reviewing the financial statements included in our quarterly reports on Form 10-Q for fiscal years 2003 totaled $44,872. Audit Fees billed by Robison, Hill & Co. in auditing our financial statements for fiscal 2002 and reviewing the financial statements, included in our quarterly reports on Form 10-Q for fiscal year 2002 totaled 13,346. Financial Information System Design and Implementation Fees. Moores Rowland Mazars did not bill us for any financial information systems design and implementation services during fiscal year 2003 or 2002. All Other Fees. No fees were billed by Moores Rowland Mazars for all other non-audit services, including tax-related services, provided during fiscal 2003 and 2002. 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: January 13, 2004 By: /s/ John H. W. Hui Name: John H.W. Hui Title: President and Director 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: January 13, 2004 By: /s/ Keith Wong Name: Keith Wong Title: Chief Financial Officer and Director Independent Auditors' Report To the Board of Directors and Stockholders of China World Trade Corporation We have audited the accompanying consolidated balance sheet of China World Trade Corporation (a Nevada corporation) and subsidiaries as of September 30, 2003 and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended September 30, 2003. 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 audit. The financial statements of the Group as of September 30, 2002 were audited by other auditors whose report, dated March 17, 2003 and included a going concern emphasize paragraph, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the 2003 consolidated financial statements referred to above present fairly, in all material respects, the financial position of China World Trade Corporation and subsidiaries as of September 30, 2003 and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Group will continue as a going concern. As discussed in Note 3 to the financial statements, the Group has suffered losses from operations during the year and has a negative working capital that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Moores Rowland Mazars Chartered Accountants Certified Public Accountants Hong Kong Date: 13 January, 2004
China World Trade Corporation Consolidated Statements of Operations ------------------------------------------------------------------------------------------------------------------------- Year ended September 30, ------------------------------------------ 2002 2003 Note US$ US$ Operating revenues 193,024 2,885,600 Operating costs and expenses (83,738) (1,213,169) Selling, general and administrative expenses (1,827,959) (3,954,066) ------------------ ------------------ Loss from operations (1,718,673) (2,281,635) Non-operating (expenses) income Other income - 2,490 Interest expense (8,120) (14,811) Equity in net loss of affiliate 13 - (32,051) ------------------ ------------------ Loss before income taxes and minority interest (1,726,793) (2,326,007) Provision for income taxes 7 - - ------------------ ------------------ Loss before minority interest (1,726,793) (2,326,007) Minority interest 92,976 120,471 ------------------ ------------------ Net loss (1,633,817) (2,205,536) ================== ================== Loss per share of common stock 8 - Basic (0.23) (0.23) ================== ================== Weighted average number of shares of common stock outstanding 6,970,497 9,699,264 ================== ==================
China World Trade Corporation Consolidated Balance Sheet ------------------------------------------------------------------------------------------------------------------------- As of September 30, 2003 ASSETS Note US$ Current assets Cash and cash equivalents 273,220 Trade and other receivables 9 240,293 Rental and other deposits 10 363,833 Prepayments 30,031 Inventories 325,494 ------------------ Total current assets 1,232,871 Goodwill 11 251,448 Property, plant and equipment, net 12 2,881,585 ------------------ Total assets 4,365,904 ================== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Trade and other payables 14 1,809,380 Deferred income 39,991 Short-term bank loan 15 300,000 Long-term bank loan - current portion 16 42,994 ------------------ Total current liabilities 2,192,365 Long-term bank loan - non-current portion 16 459,344 ------------------ Total liabilities 2,651,709 ------------------ Minority interest 3,531 ------------------ Commitments and contingencies Stockholders' 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$0.001 each; 50,000,000 shares authorized, 10,970,497 shares issued at September 30, 2003 10,971 Additional paid-in capital 11,096,208 Accumulated deficit (9,396,515) ------------------ Total stockholders' equity 1,710,664 ------------------ Total liabilities and stockholders' equity 4,365,904 ==================
China World Trade Corporation Consolidated Statements of Cash Flows ------------------------------------------------------------------------------------------------------------------------- Year ended September 30, --------------------------------------- ---------------- ------------------ 2002 2003 Note US$ US$ Cash flows from operating activities: Net loss (1,633,817) (2,205,536) Adjustments to reconcile net loss to net cash used in operating activities: Minority interest 17,777 (120,471) Equity in net loss of affiliate - 32,051 Stock issued for services 1,948,843 600,000 Property, plant and equipment written off 854 Depreciation 229 79,303 Impairment loss on property, plant and equipment - 106,975 Increase in deferred income 8,114 31,877 Changes in working capital: Trade and other receivables (38,924) (89,875) Rental and other deposits (341,731) (11,484) Prepayments (2,420) (23,299) Inventories (35,930) (289,564) Trade and other payables (882,466) 1,222,960 ---------------- ------------------ Net cash used in operating activities (959,471) (667,063) ---------------- ------------------ Cash flows from investing activities: Acquisition of subsidiary 20 - 123,707 Acquisition of an affiliate - (32,051) Acquisition of property, plant and equipment (3,275) (92,824) ---------------- ------------------ Net cash used in investing activities (3,275) (1,168) ---------------- ------------------ Cash flows from financing activities: Proceed from common stock to be issued 500,000 - Capital contribution from minority shareholder of a subsidiary - 106,225 Increase in notes payables 72,796 - Advances from other creditors 161,278 - Net advances from related parties 261,517 - Proceed from new bank loan - 812,820 Repayment of amount borrowed - (10,482) ---------------- ------------------ Net cash provided by financing activities 995,591 908,563 ---------------- ------------------ Net increase in cash and cash equivalents 32,845 240,332 Cash and cash equivalents at beginning of year 43 32,888 ---------------- ------------------ Cash and cash equivalents at end of year 32,888 273,220 ================ ================== Analysis of balances of cash and cash equivalents Cash and bank balances 32,888 273,220 ================ ================== Non-cash investing and financing activities Common stock issued for services 729,969 600,000 Purchase of subsidiary by issuance of common stock 20 - 3,200,000 ================ ==================
China World Trade Corporation Consolidated Statements of Stockholders' Equity ------------------------------------------------------------------------------------------------------------------------- Common stock --------------------------------------------- Amount Additional Amount to be paid in Accumulated issued issued capital deficit No. of shares US$ US$ US$ US$ ---------------- ------------- ------------ --------------- ------------------- Balance as of September 30, 2001 796,205 794 2 2,851,705 (5,557,162) Stock issued for services on December 20, 2001 1,228,689 156 1,073 626,771 - Issuance of stock to be issued - 2 (2) - - Stock issued for construction of a web portal on December 20, 2001 18,958 19 - 119,981 - Stock issued in exchange for debt cancellation on September 12, 2002 3,926,645 - 3,927 2,712,750 - Stock issued for cash on September 12, 2002 1,000,000 - 1,000 499,000 - Net loss - - - - (1,633,817) ---------------- ------------- ------------ --------------- ------------------- Balance as of September 30, 2002 6,970,497 971 6,000 6,810,207 (7,190,979) Stock issued in exchange for shareholdings in a subsidiary on January 24, 2003 4,000,000 4,000 - 3,196,000 - Adjustment to value of stock issued for services on January 22, 2003 - - - 300,000 - Cancellation of stock issued for services on October 1, 2002 (1,000,000) - (1,000) (8,999) - Issuance of stock to be issued on January 22, 2003 - 5,000 (5,000) - - Issuance of stock for cash and services on January 24, 2003 1,000,000 1,000 - 799,000 - Net loss - - - - (2,205,536) ---------------- ------------- ------------ --------------- ------------------- Balance as of September 30, 2003 10,970,497 10,971 - 11,096,208 (9,396,515) ================ ============= ============ =============== ===================
China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 1. ORGANIZATION AND NATURE OF BUSINESS 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% shareholdings of Virtual Edge Limited, a British Virgin Islands ("BVI") company, pursuant to a share exchange agreement dated August 10, 2000. On September 15, 2000 the Company changed its name to China World Trade Corporation. One of its subsidiaries incorporated in the People's Republic of China ("PRC") has commenced its business in providing catering services, product exhibition services, business center and conference services, and communication and information services to its members since August 1, 2002. Pursuant to the Share Exchange Agreement entered into between the Company and Mr. William 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. Details of the subsidiaries and their principal activities as of the date of this report are summarized below:
Date of acquisition/ Place of Equity interest owned Principal Name of company formation incorporation by the Company activities Direct Indirect Virtual Edge Limited August 14, 2001 BVI 100% - Investment holding General Business Network January 24, 2003 Hong Kong 100% - Investment (Holdings) Limited holding and properties investment Guangzhou World Trade Centre December 29, 2001 PRC - 75% Club services Club Polysend Trading Limited March 6, 2003 Hong Kong - 70% Leather trading Dimension Marketing (China) March 14, 2003 Hong Kong - 51% Advertising Limited business Infotech Enterprises Limited July 2, 1999 BVI 49% 51% Inactive Beijing World Trade Centre April 1, 1999 PRC - 75% Inactive Club GBN Wealth Management Limited April 4, 2003 Hong Kong - 70% Inactive Topstar International Limited March 18, 2003 BVI - 100% Inactive
China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 2. BASIS OF PRESENTATION The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("USGAAP"). This basis of accounting differs from that used in the statutory financial statements of the subsidiaries incorporated in BVI, Hong Kong and the PRC, which were prepared in accordance with generally accepted accounting principles in Hong Kong, and the accounting principles and the relevant financial regulations applicable to enterprises with foreign investments as established by the Ministry of Finance of China respectively. 3. PREPARATION OF FINANCIAL STATEMENTS The Group has a negative working capital of US$866,077 as of September 30, 2003. In addition, the Group had a loss of US$2,176,151 and US$1,633,817 for the years ended September 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. The 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 attaining profitable operations. The inability of the Group to secure additional financing and attaining profitable operations in the near term could adversely impact the Group's business, financial position and prospects. 4. NEW ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board ("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 impact on the Group's financial statements. In May 2003, the FASB issued Statement of Financial Accounting Standard ("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 September 15, 2003. Management believes that adoption of the SFAS No. 156 does not have significant impact on its consolidated financial statements. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of accounting The financial statements are prepared in accordance with generally accepted accounting principles in the US. The measurement basis used in the preparation of the financial statements is historical cost. Cost in relation to assets represents the cash paid or the fair value of the assets, as appropriate. (b) Principles of consolidation The consolidated financial statements include the financial information of the Company and its subsidiaries. The results of subsidiaries acquired or disposed of during the year are consolidated from or up to the date of their effective dates of acquisition or disposal respectively. All material intercompany balances and transactions have been eliminated in consolidation. (c) 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. (d) 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. (e) Deferred income Deferred income represents unamortized non-refundable admission fees and membership fees received but the related services, or portion of the services have not yet been rendered. (f) Statement of cash flows Cash equivalents are defined as short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as a cash equivalent only when it has a maturity of three months or less from its acquisition date. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Translation of foreign currency The subsidiaries maintain their accounting books and records in United States Dollars ("US$"), Hong Kong Dollars ("HK$") and Renminbi ("RMB"). Foreign currency transactions during the year are translated to US$ at the approximate rates of exchange on the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at year end and translated at the approximate rates of exchange ruling at the balance sheet date. Non-monetary assets and liabilities are translated at the rates of exchange prevailing at the time the asset or liability was acquired. Exchange gains or losses are recorded in the statements of operations. On consolidation, the financial statements of the subsidiaries whose accounting books and records are denominated in currencies other than US$ are translated into US$ using the closing rate method, whereby the balance sheet items are translated into US$ using the exchange rates at the respective balance sheet dates. The share capital and retained earnings are translated at exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the year. All exchange differences arising on the consolidation are recorded within equity. Historically, foreign exchange transactions have not been material to the financial statements. (h) 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 in one financial institution. (i) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Major costs incurred in restoring assets to their normal working conditions are charged to the income statement. Improvements are capitalised and depreciated over their expected useful lives. The gain or loss arising from the retirement or disposal of property, plant and equipment is determined as the difference between the estimated net sales proceeds and the carrying amount of the assets and is recognised as income or expense in the income statement. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Property, plant and equipment (Continued) Depreciation is provided to write off the cost less accumulated impairment losses of property, plant and equipment, over their estimated useful lives from the date on which they become fully operational and after taking into account of their estimated residual values, using the straight-line method, at the following rates per annum: Land and buildings 50 years Leasehold improvements 2 - 3 years Furniture and fixtures 5 - 10 years Office and computer equipment 3 - 5 years The Group recognizes an impairment loss on PPE when evidence, such as the sum of expected future cash flows (undiscounted and without interest charges), indicates that future operations will not produce sufficient revenue to cover the related future costs, including depreciation, and when the carrying amount of asset cannot be realized through sale. Measurement of the impairment loss is based on the fair value of the assets. (j) 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. (k) Inventories Inventories are stated at the lower of cost and net realizable value. Cost, which comprises all costs of purchase and, where applicable, other costs that has been incurred in bringing the inventories to their present location and condition, is calculated using the first-in, first-out method. Net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (l) Operating leases Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Rentals payable and receivable under operating leases are recognised as expense and revenue on the straight-line basis over the lease terms. The Group leases certain premises under non-cancellable operating leases. Rental expenses under operating leases were US$123,324 and US$698,694 for the year ended September 30, 2002 and 2003 respectively. There was no capital lease currently in effect. (m) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Use of estimates The preparation of the financial statements in conformity with USGAAP requires the Company's 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 financial statements and the reported amounts of revenues and expenses during the reported periods. Actual amounts could differ from those estimates. Estimates are used for, but not limited to, the accounting for certain items such as allowance for doubtful accounts, depreciation, taxes and contingencies. (o) Earnings (Loss) per share Basic earnings (loss) per share exclude dilution and are computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding for the periods. Diluted earnings per share are computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding adjusted to reflect potentially dilutive securities. (p) Segment reporting The Group adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". Segment information is disclosed in Note 24 to the financial statements. (q) Allowance for doubtful accounts The Group provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Group's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Group's estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of US$30,502 as of September 30, 2003. (r) Affiliate An affiliate is an entity controlled by another entity directly, or indirectly through one or more intermediaries. The term control (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise. 6. 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, the PRC) and General Business Network (Holdings) Limited, another 100% owned subsidiary of the Company. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 7. INCOME TAXES The Group is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which it is domiciled and operates. The Hong Kong subsidiaries incurred losses for taxation purposes for the year and thus Hong Kong Profits Tax has not been provided. Since the PRC subsidiaries have sustained losses for the PRC income tax purposes, the Company has not recorded any PRC income tax expense. PRC income tax in the future will be calculated at the applicable rates relevant to the PRC subsidiaries. 8. 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$0.001 each remains unchanged. The comparative amount of the loss per share of common stock and the weighted average number of shares of common stock outstanding have been adjusted as a result of the reverse stock split mentioned above. 9. TRADE AND OTHER RECEIVABLES
As of September 30, 2003 Note US$ Trade receivables 81,541 Due from related parties 19(c) 138,553 Other receivables 20,199 --------------------- 240,293 =====================
10. 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 19 to these financial statements. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 11. GOODWILL The acquisition of GBN, details of which has been mentioned in note 1 above, 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$251,448, which is subject to an impairment review annually. The results of GBN have been included in the consolidated financial statements since the acquisition date. The following unaudited pro forma information presents a summary of our consolidated results of operations as if the acquisition had been taken place on October 1, 2002.
Year ended September 30, ------------------ 2003 US$ Operating revenues 2,885,600 =================== Net loss (2,319,548) =================== Loss per share (0.24) ===================
12. PROPERTY, PLANT AND EQUIPMENT, NET
As of September 30, 2003 (2) US$ (4) Land and buildings 2,997,559 Leasehold improvements 102,649 Furniture and fixtures 5,583 Office and computer equipment 34,279 Less: Accumulated depreciation (258,485) -------------------- Net book value 2,881,585 ====================
In view of the sluggish economy and the operating loss experienced by the rental and club 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 should be provided for the year ended September 30, 2003. In addition, the management also considers that an impairment loss of US$61,002 should be recognised on the leasehold improvements carried on the balance sheet. These losses have been recognised as an expense and included in "selling, general and administrative expenses" in the statements of operations. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 13. 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 Guangzhou 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. On 12 June 2003, 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 year's operations include a loss of $32,051, which represents the Group's share of loss on its investment in GBN(GZ). As GBN(GZ) is still in its preliminary stage of operations, no revenue has been generated and thus loss from operations is resulted. The loss reduced the Group's investment in GBN Guangzhou to zero and, as a consequence, the Group's future financial results will not be negatively affected by GBN(GZ)'s ongoing operations. The Group has no obligation to fund future operating losses of GBN(GZ). 14. TRADE AND OTHER PAYABLES
As of September 30, 2003 Note US$ Trade payables 25,189 Bills payable 646,558 Accrued charges 139,895 Other payables 127,024 Notes payables 14(a) 79,616 Due to related parties 19(d) 726,237 Deposits received 64,861 -------------------- 1,809,380 ====================
14(a) On February 15, 2001 the Company entered into a promissory note with a third party in the amount of US$60,000 with a 12% annual interest rate and is due upon demand. Pursuant to a release agreement dated December 9, 2003, the Company settled the promissory note for a total payment of US$70,054, with the remaining balance of US$9,562 being waived by the lender. Out of the total payment of US$70,054, US$45,000 and US$25,054 represent amount paid by Mr. William Tsang and Mr. John Hui on behalf of the Company respectively. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 15. SHORT-TERM BANK LOAN The Group obtained a bank loan of US$300,000 during the year from a creditworthy commercial bank in Guangzhou to finance its operations. The loan is collateralised by the Group's properties located in the PRC and deposits placed in the bank. The outstanding loan balance as of September 30, 2003 bears interest at 3% p.a. over Singapore Interbank Money Market Offer Rate ("SIBOR"), which is 1.15% quoted on date of drawing of loan. The whole amount would be repayable on November 30, 2003. 16. LONG-TERM BANK LOAN The Group obtained a bank loan of US$512,820 as of September 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. The outstanding loan balance of US$502,338 as of September 30, 2003 bears interest at 4% per annum and is repayable serially from 2003 to 2013. The maturity of the long-term bank loan is as follows: Principal Payables during the following periods US$ 42,994 October 2003 to September 2004 44,746 October 2004 to September 2005 46,569 October 2005 to September 2006 48,466 October 2006 to September 2007 319,563 from October 2007 onwards ---------------- 502,338 ================ China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 17. BANKING FACILITIES The Group had various lines of credit under banking facilities as follows:
As of September 30, 2003 US$ Facilities granted Committed credit lines 2,162,594 ==================== Utilized Committed credit lines 1,453,106 ==================== Unutilized facilities Committed credit line 709,487 ====================
Details of guarantees and related parties transactions were disclosed in notes 15, 16 and 18 respectively. 18. PLEDGE OF ASSETS The Group has pledged land and buildings with a net book value of approximately US$2,737,869 to secure general banking facilities granted to the Group. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 19. RELATED PARTY TRANSACTIONS
(a) Names and relationship of related parties Existing relationships with the Company Mr. Alfred Or A shareholder and former director of the Company Mr. Benny Cho A director of a subsidiary Mr. Bernard Chan A shareholder of the Company Mr. Bobby Yu A director of a subsidiary Mr. Chan Chi Ming A director of the Company Mr. James Mak A shareholder and director of the Company Mr. John Hui A director of the Company Mr. Ringo Leung A director of the Company Mr. Steven Hui Close family member of a director of the Company Mr. William Tsang A shareholder and director of the Company Beijing Wanlong Economic Consultancy PRC partner of a subsidiary Corporation Ltd. Dimension Marketing Limited A shareholder of a subsidiary GBN(GZ) An affiliate of the Company Guangzhou City International Exhibition PRC partner of a subsidiary Co. Guangzhou Cyber Strategy Limited A company in which a director of the Company has beneficial interest Guangzhou Goldlion City Properties Co., A company controlled by close family members of a Ltd. director Guangzhou Goldlion Commercial Network A company controlled by close family members of a Co., Ltd. director Health & Wealth Inc. A company in which a director of the Company has beneficial interest Pilot Management Limited A shareholder of a subsidiary Union East Consultants Limited A company in which a director of the Company has beneficial interest
China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 19. RELATED PARTY TRANSACTIONS (CONTINUED)
(b) Summary of related party transactions Year ended September 30, ----------------------------------------- 2002 (6) 2003 US$ (7) US$ Consultancy fee expenses to Mr. Bernard Chan - 17,948 Mr. Bobby Yu - 8,462 Mr. John Hui - 146,436 Mr. William Tsang - 141,026 Mr. Chan Chi Ming - 30,769 Beijing Wanlong Economic Consultancy Corporation Ltd. - 18,122 Guangzhou City International Exhibition Co. - 18,122 Health & Wealth Inc. - 15,024 ================== ================ Rent and related expenses to Guangzhou Goldlion City Properties Co., Ltd. And Guangzhou Goldlion Commercial Co., Ltd. - 713,044 Dimension Marketing Limited - 2,692 ================== ================ Consultancy fee income from Guangzhou Cyber Strategy Limited - 288,462 ================== ================ Membership fee income from Guangzhou Cyber Strategy Limited - 48,024 Union East Consultants Limited - 32,016 ================== ================ Assets purchased from Dimension Marketing Limited - 691 ================== ================ Personal guarantee granted from Mr. William Tsang - 19,231 ================== ================
China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 19. RELATED PARTY TRANSACTIONS (CONTINUED)
(c) Due from related parties As of September 30, 2003 US$ Mr. Alfred Or 1,208 Guangzhou Cyber Strategy Limited 59,909 General (Guangzhou) Business Network Limited 73,590 Pilot Management Limited 3,846 ------------------ Classified as current assets 138,553 ==================
The amounts due from related parties represent unsecured advances which are interest-free and repayable on demand.
(d) Due to related parties As of September 30, 2003 US$ Mr. William Tsang 475,224 Mr. Ringo Leung 5,776 Mr. Chan Chi Ming 5,128 Mr. James Mak 2,340 Mr. John Hui 44,264 Mr. Steven Hui 41,179 Guangzhou Goldlion City Properties Co., Ltd. 17,022 Guangzhou City International Exhibition Company 4,530 Beijing Wanlong Economic Consultancy Corporation Ltd. 31,708 Health & Wealth Inc. 18,421 Dimension Marketing Limited 80,645 ------------------- Classified as current liabilities 726,237 ===================
The amounts due to related parties represent unsecured advances which are interest-free and repayable on demand. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 20. SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
(a) Summary of effect of acquisition of subsidiary Year ended September 30, 2003 US$ Net assets acquired Property, plant and equipment 2,971,993 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) -------------------- 2,948,552 Add: Goodwill arising from acquisition of subsidiary 251,448 -------------------- Consideration 3,200,000 ==================== (b) Analysis of the net inflow of cash and cash equivalents in respect of acquisition during the period Year ended September 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 ====================
China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 21. OPERATING LEASE COMMITMENT
As of September 30, 2003, the Group has total outstanding commitments not provided for under non-cancelable operating leases, which are payables as follows: As of September 30, 2003 US$ 2004 568,470 2005 572,664 2006 616,158 2007 543,668 2008 - ------------------- 2,300,960 =================== 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$60,408) during the lease period ending in July 2007. The total outstanding commitments under non-cancelable operating leases, which are receivable as follows: As of September 30, 2003 US$ 2004 85,536 2005 24,177 2006 10,814 ------------------- 120,527 ===================
22. RETIREMENT PLAN The Group did not operate any retirement plan before December 2000. Following the implementation of the Mandatory Provident Fund ("MPF") in Hong Kong with effect from December 2000, the Group operates a Mandatory Provident Fund ("MPF") plans for its Hong Kong employees. The pension expenses charged to the statement of operations amounted to US$115 and US$720 for the years ended September 30, 2002 and 2003 respectively. China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 22. RETIREMENT PLAN (CONTINUED) As stipulated by PRC regulations, the Group maintains a defined contribution retirement plan for all of its employees who are residents of PRC. All retired employees of the Group are entitled to an annual pension equal to their basic annual salary upon retirement. The Group contributed to a state sponsored retirement plan at a certain percentage of the gross salary of its employees and has no further obligations for the actual pension payments or post-retirement benefits beyond the annual contributions. The state sponsored retirement plan is responsible for the entire pension obligations payable to all employees. The pension expense for the years ended September 30, 2002 and 2003 was US$1,960 and US$36,329 respectively. 23. 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$800,000. 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$800,000. 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. As mentioned in note 1 above, the Company issued a two-year warrant to Mr. Tsang at an exercise price of US$0.92 per share. All options and warrants have been granted at exercise prices greater than the market value on the date of granting. All options vest 100% at date of grant.
2003 US$ Options outstanding, beginning of year 2,000,000 Granted 4,000,000 Canceled - Exercised - --------------- Options and warrants outstanding, end of year 6,000,000 ===============
China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 24. BUSINESS SEGMENT INFORMATION
Year ended September 30, --------------------------------------- 2002 2003 US$ US$ Operating revenues Club services 193,024 1,718,854 Consultancy service - 288,462 Rental - 47,189 Sale of goods - 814,111 Others - 16,984 ---------------- ---------------- 193,024 2,885,600 ================ ================ Year ended September 30, --------------------------------------- 2002 2003 US$ US$ Profit (Loss) from operations Club services (341,365) (910,942) Consultancy service (616,946) 54,644 Rental - (511,352) Sale of goods - (33,528) Others - (62,429) ---------------- ---------------- (958,311) (1,463,607) Corporate expenses (760,362) (818,028) ---------------- ---------------- Consolidated operating loss (1,718,673) (2,281,635) Other income - 2,490 Interest expense (8,120) (14,811) Equity in net loss of affiliate - (32,051) ---------------- ---------------- Consolidated loss before income taxes (1,726,793) (2,326,007) ================ ================
China World Trade Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 24. BUSINESS SEGMENT INFORMATION (CONTINUED)
As of September 30, 2003 US$ Total assets Club services 236,599 Consultancy service - Rental 3,904,394 Sale of goods 4,440 Others 220,471 ------------------- Consolidation total 4,365,904 ===================
25. POST BALANCE SHEET EVENT Subsequent to the balance sheet date, the Company has issued 3,761,103 shares to Mr. William Tsang in consideration for assignment of the 5-year rental income of the properties owned by him and settlement of amount due him. In addition, the Company has issued 1,250,000 shares for consultancy services provided by the third party consultants.