-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JTS0kS4P/EqJkLvVVda0q63ahl6/RZ2gVC2RexRKyAzFp/X6MpzZydItR8VmjmBJ eJrqlNNKiBvifiJ+oPxSHw== 0001174064-04-000053.txt : 20040218 0001174064-04-000053.hdr.sgml : 20040218 20040218125754 ACCESSION NUMBER: 0001174064-04-000053 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHINA WORLD TRADE CORP CENTRAL INDEX KEY: 0001081834 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 870629754 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26119 FILM NUMBER: 04612505 BUSINESS ADDRESS: STREET 1: GOLDION DIGITAL NETWORK CENTER STREET 2: 138 TI YU RD. E. 4TH FL CITY: TIAN HE GUANGZHOU STATE: K3 ZIP: 00000 BUSINESS PHONE: 01185298826818 MAIL ADDRESS: STREET 1: GOLDION DIGITAL NETWORK CENTER STREET 2: 138 YI TU RD E. CITY: TIAN HE GUANGHOU STATE: K3 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: TXON INTERNATIONAL DEVELOPMENT CORP DATE OF NAME CHANGE: 19990329 10QSB 1 doc1.txt OMB APPROVAL OMB Number: 3235-0416 Expires: December 31, 2005 Estimated average burden hours per response: 174.00 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR the quarterly period ended December 31, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the transition period from _________________ to _________________ Commission file number 000-26119 CHINA WORLD TRADE CORPORATION ----------------------------- (Exact name of small business issuer as specified in its charter) Nevada 87-0629754 - ------------------------------- ------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 4th Floor, Goldlion Digital Network Center 138 Tiyu Road East, Tianhe Guangzhou, PRC -------------- (Address of principal executive offices) (001-8620) 3878 - 0286 (Issuer's telephone number) (Former name, address and fiscal year, if changed since last report) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As at December 31, 2003, there were 15,981,601 shares of common stock outstanding. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] 1 INDEX TO FORM 10-QSB Page No. -------- PART I - ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets - December 31, 2003 and September 30, 2003 3 Condensed Consolidated Statements of Operations - Three Months Ended December 31, 2003 and 2002 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended December 31, 2003 and 2002 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations 14 Item 3. Controls and Procedures 17 PART II - ------- Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits 18 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Unaudited financial statements China World Trade Corporation for the three months ended December 31, 2003 and 2002. CHINA WORLD TRADE CORPORATION Condensed Consolidated Statements of Operations three months ended December 31, 2003 and 2002
CHINA WORLD TRADE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS As of December 31, and September 30, 2003 ==================================================================================== AS OF As of DECEMBER September 30, 31, 2003 2003 UNAUDITED Audited --------- --------- NOTE US$ US$ ASSETS CURRENT ASSETS Cash and cash equivalents 314,771 273,220 Trade and other receivables 4 186,328 240,293 Rental and other deposits 257,169 363,833 Prepayments 558,035 30,031 Inventories 73,383 325,494 --------- --------- TOTAL CURRENT ASSETS 1,389,686 1,232,871 Intangible asset 9(b) 1,770,000 - Goodwill 251,448 251,448 Property, plant and equipment, net 2,858,784 2,881,585 --------- --------- TOTAL ASSETS 6,269,918 4,365,904 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade and other payables 5 1,413,579 1,809,380 Deferred income 23,177 39,991 Short-term bank loan 6 300,000 300,000 Long-term bank loan - current portion 7 43,426 42,994 --------- --------- TOTAL CURRENT LIABILITIES 1,780,182 2,192,365 Long-term bank loan - non-current portion 7 448,323 459,344 --------- --------- TOTAL LIABILITIES 2,228,505 2,651,709 --------- --------- MINORITY INTEREST 3,531 3,531 --------- --------- COMMITMENTS AND CONTINGENCIES 8 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$0.001 each; 50,000,000 shares authorized, 15,981,600 shares issued at December 31, 2003 9 15,982 10,971 Additional paid-in capital 14,347,859 11,096,208 Accumulated deficit (10,325,959) (9,396,515) --------- --------- TOTAL STOCKHOLDERS' EQUITY 4,037,882 1,710,664 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 6,269,918 4,365,904 ========= =========
The financial statements should be read in conjunction with the accompanying notes. 3
CHINA WORLD TRADE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three-month period ended December 31, 2003 and 2002 ==================================================================================== THREE-MONTH PERIOD ENDED DECEMBER 31, ------------------------- 2003 2002 UNAUDITED Unaudited --------- --------- NOTE US$ US$ OPERATING REVENUES 885,076 509,559 Operating costs and expenses (679,440) (108,702) Selling, general and administrative expenses (1,193,137) (780,051) --------- --------- LOSS FROM OPERATIONS (987,501) (379,194) NON-OPERATING INCOME (EXPENSES) Other income 982 40 Gain on disposal of interest in a subsidiary 3 61,575 - Interest expense (4,500) (2,206) --------- --------- LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (929,444) (381,360) Provision for income taxes - - --------- --------- LOSS BEFORE MINORITY INTEREST (929,444) (381,360) Minority interest - 79,949 --------- --------- NET LOSS (929,444) (301,411) ========= ========= LOSS PER SHARE OF COMMON STOCK - - Basic (0.07) (0.05) ========= ========= Weighted average number of shares of common stock outstanding 12,640,865 5,970,497 ========= =========
The financial statements should be read in conjunction with the accompanying notes. 4
CHINA WORLD TRADE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three-month period ended December 31, 2003 and 2002 ==================================================================================== THREE-MONTH PERIOD ENDED DECEMBER 31, ------------------------- 2003 2002 UNAUDITED Unaudited --------- --------- NOTE US$ US$ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss (929,444) (301,411) Adjustments to reconcile net loss to net cash used in operating activities: Gain on disposal of a subsidiary 11 (61,575) - Provision for bad debts 39,592 - Minority interest - (79,949) Amortization of intangible assets 30,000 - Stock issued for services 1,456,662 - Depreciation 15,132 1,681 (Decrease) Increase in deferred income (16,814) 389,505 Changes in working capital: Trade and other receivables 7,847 (390,453) Rental and other deposits 99,267 (1,663) Prepayments (528,004) (68,798) Inventories 252,111 (20,647) Trade and other payables (847,040) 455,233 --------- --------- NET CASH USED IN OPERATING ACTIVITIES (482,266) (16,502) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment - (43,779) Proceeds from disposal of a subsidiary 11 654 - --------- --------- NET CASH USED IN INVESTING ACTIVITIES 654 (43,779) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contribution from minority shareholder of a subsidiary - 101,748 Advances from a related party 533,752 - Repayment of amount borrowed (10,589) - --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 523,163 101,748 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 41,551 41,467 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 273,220 32,888 --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR 314,771 74,355 ========= ========= ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 314,771 74,355 ========= ========= NON-CASH INVESTING AND FINANCING ACTIVITIES Common stocks issued for services 1,456,662 - Purchase of intangible asset by issuance of common stocks 1,800,000 - ========= =========
The financial statements should be read in conjunction with the accompanying notes. 5 1. BASIS OF PRESENTATION The accompanying financial data as of December 31, 2003 and for the three-month period ended December 31, 2003 and 2002, have been prepared by the Company, without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's audited annual financial statements for the year ended September 30, 2003. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. In the opinion of the management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of December 31, 2003 and for the three-month period ended December 31, 2003 and 2002, have been made. The results of operations for the three-month period ended December 31, 2003 and 2002 are not necessarily indicative of the operating results for the full year. 2. PREPARATION OF FINANCIAL STATEMENTS The Company has a negative working capital of US$390,496 as of December 31, 2003. Also, the Company has net loss of US$929,444 for the three-month period ended December 31, 2003. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Continuation of the Company as a going concern is dependent upon obtaining additional working capital through additional equity funding and attaining profitable operations in the future. Management has developed a strategy, which it believes can be accomplished and will enable the Company to operate in the future. However, there can be no assurance that the Company will be successful with its efforts to raise additional capital and attain profitable operations. The inability of the Company to secure additional financing and attain profitable operations in the near term could adversely impact the Company's business, financial position and prospects. 3. GAIN ON DISPOSAL OF INTEREST IN A SUBSIDIARY On October 1, 2003, the Company disposed of its 39% shareholding in a 51% subsidiary, Dimension Marketing (China) Limited ("DMCL"), at a consideration of US$500. This resulted in a net gain on disposal of US$61,575. 6 4. TRADE AND OTHER RECEIVABLES
AS OF As of DECEMBER September 30, 31, 2003 2003 --------- --------- NOTE US$ US$ Trade receivables 68,393 81,541 Due from related parties 10(c) 113,805 138,553 Other receivables 4,130 20,199 --------- --------- 186,328 240,293 ========= =========
5. TRADE AND OTHER PAYABLES AS OF As of DECEMBER September 30, 31, 2003 2003 --------- --------- NOTE US$ US$ Trade payables 40,875 25,189 Bills payable 389,470 646,558 Accrued charges 101,763 139,895 Other payables 36,664 127,024 Notes payables - 79,616 Due to related parties 10(d) 543,899 726,237 Deposits received 300,908 64,861 --------- --------- 1,413,579 1,809,380 ========= =========
6. SHORT-TERM BANK LOAN The outstanding loan balance as of December 31, 2003 bears interest at 4.26% p.a. over Singapore Interbank Money Market offer Rate ("SIBOR"), which is 1.15% quoted on date of drawing of loan. The whole amount was repaid on January 5, 2004. 7 7. LONG-TERM BANK LOAN The outstanding loan balance of US$491,749 as of December 31, 2003 bears interest at 4% per annum and is repayable serially from 2004 to 2013. The maturity of the long-term bank loan is as follows:
PRINCIPAL PAYABLES DURING THE FOLLOWING PERIODS US$ 43,426 January 2004 to December 2004 45,195 January 2005 to December 2005 47,036 January 2006 to December 2006 48,952 January 2007 to December 2007 50,946 January 2008 to December 2008 256,194 from 2009 onwards - --------- 491,749 =========
8. COMMITMENTS During the period, the Company entered into an agreement with a contractor for decoration of the Company's premises located in Guangzhou, China. The total contracted sum was US$113,312. At the balance sheet date, the Company had capital expenditure commitments contracted but not provided for net of deposit paid amounting to US$58,729. 9. ISSUANCE OF SHARES The following capital stock transactions occurred during the three-month period ended December 31, 2003: a) On December 5, 2003, the Company issued 761,103 shares to Mr. William Tsang for partial settlement of amount due to him. b) Pursuant to an agreement entered between the Company and Mr. William Tsang dated November 19, 2003, the Company acquired the after-tax rental income of a property located in Guangzhou, China for a five-year period commencing from December 1, 2003 to November 30, 2008 in exchange for 3,000,000 newly issued shares of the Company and a two-year warrant to purchase up to 6,000,000 shares of the Company at an agreed price. The 3,000,000 shares were issued on December 5, 2003. Fair value of the issued shares is US$0.6 each, representing the closing bid price of the Company's shares on November 19, 2003. The rental income stream acquired has been capitalised as an intangible asset and is amortized on a straight-line basis over five years. 8 9. ISSUANCE OF SHARES (CONTINUED) c) On December 9, 2003, the Company issued 100,000 and 50,000 shares to Greentree Financial Group, Inc. and RR INV Holding INC respectively for consultancy services provided. d) On December 11, 2003, the Company issued 500,000 shares each to TMT Consultant and Mr. Andy Lau for consultancy services provided. e) On December 16, 2003, the Company issued 100,000 shares to Wall Street Strategies, Inc. for consultancy services provided. For the items (a) and (c) to (e), the shares were recorded at fair values of the shares issued. The amounts were recognised as expenses in the three-month period ended December 31, 2003. 10. RELATED PARTY TRANSACTIONS (a) Names and relationship of related parties
Existing relationships with the Company --------------------------------------- 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. Luo Chao 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 Corporation Ltd. PRC partner of a subsidiary General (Guangzhou) Business Network Ltd. An affiliate of the Company Guangzhou City International Exhibition Co. PRC partner of a subsidiary Guangzhou Cyber Strategy Limited A company in which a director of the Company has beneficial interest Guangzhou Goldlion City Properties Co., Ltd. A company controlled by close family members of a 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
9 10. RELATED PARTY TRANSACTIONS (CONTINUED)
(b) Summary of related party transactions THREE-MONTH PERIOD ENDED DECEMBER 31, ------------------------- 2003 2002 --------- --------- US$ US$ Consultancy fee expenses to - --------------------------- Mr. Ringo Leung 7,692 - Mr. Bernard Chan 3,846 - Mr. Bobby Yu - 4,231 Mr. John Hui 57,692 6,410 Mr. William Tsang 57,692 - Mr. Chan Chi Ming 15,385 - Mr. Luo Chao Ming 4,349 - Beijing Wanlong Economic Consultancy Corporation Ltd. 4,531 4,531 Guangzhou City International Exhibition Co. 4,531 4,531 Health & Wealth Inc. - 11,627 ========= ========= Rent and related expenses to - ---------------------------- Guangzhou Goldlion City Properties Co., Ltd. 79,708 - ========= ========= Consultancy fee income from - --------------------------- Health & Wealth Inc. 18,422 - Guangzhou Cyber Strategy Limited 3,058 96,154 ========= ========= Membership fee income from - -------------------------- Guangzhou Cyber Strategy Limited - 16,008 Union East Consultants Limited 16,008 - ========= ========= Intangible assets purchased from - -------------------------------- Mr. William Tsang 1,800,000 - ========= ========= Personal guarantee granted from - ------------------------------- Mr. William Tsang 19,231 - ========= =========
10 10. RELATED PARTY TRANSACTIONS (CONTINUED) (c) Due from related parties
AS OF As of DECEMBER September 30, 31, 2003 2003 --------- --------- US$ US$ Mr. Alfred Or - 1,208 Mr. Ringo Leung 7,520 - Guangzhou Cyber Strategy Limited 55,975 59,909 General (Guangzhou) Business Network Limited 46,464 73,590 Pilot Management Limited 3,846 3,846 --------- --------- Classified as current assets 113,805 138,553 ========= =========
The amounts due from related parties represent unsecured advances which are interest-free and repayable on demand. (d) Due to related parties
AS OF As of DECEMBER September 30, 31, 2003 2003 --------- --------- US$ US$ Mr. William Tsang 399,206 475,224 Mr. Chan Chi Ming 5,128 5,128 Mr. James Mak 2,340 2,340 Mr. John Hui 80,717 44,264 Mr. Steven Hui 41,179 41,179 Mr. Ringo Leung - 5,776 Guangzhou Goldlion City Properties Co., Ltd. 6,274 17,022 Beijing Wanlong Economic Consultancy Corporation Ltd. 9,055 31,708 Guangzhou City International Exhibition Co. - 4,530 Health & Wealth Inc. - 18,421 Dimension Marketing Limited - 80,645 --------- --------- Classified as current liabilities 543,899 726,237 ========= =========
The amounts due to related parties represent unsecured advances which are interest-free and repayable on demand. 11 11. SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Summary of effect of disposal of subsidiary THREE-MONTH PERIOD ENDED DECEMBER 31, 2003 US$ NET ASSETS DISPOSED OF: Property, plant and equipment 7,669 Trade and other receivables 18,341 Deposits paid 7,397 Trade and other payables (83,013) Due to holding company (11,315) ------------ (60,921) Less: Minority Interest - ------------ (60,921) Gain on disposal 61,575 ------------ Consideration 654 ============ Satisfied by: Cash consideration 654 ============ Analysis of net inflow of cash and cash equivalent in respect of the disposal of subsidiary is as follow: Cash received 654 ============
12 12. BUSINESS SEGMENT INFORMATION
THREE-MONTH PERIOD ENDED DECEMBER 31, ------------------------- 2003 2002 --------- --------- US$ US$ OPERATING REVENUES Club services 178,048 413,405 Consultancy service - 96,154 Rental 65,576 - Sale of goods 641,452 - --------- --------- 885,076 509,559 ========= =========
THREE-MONTH PERIOD ENDED DECEMBER 31, ------------------------- 2003 2002 --------- --------- US$ US$ PROFIT (LOSS) FROM OPERATIONS Club services (147,439) (319,795) Consultancy service - 55,266 Rental 185,486 - Sale of goods (21,471) - --------- --------- 16,576 (264,529) Corporate expenses (1,004,077) (36,882) --------- --------- Consolidated operating loss (987,501) (301,411) Gain on disposal of interest in a subsidiary 61,575 - Other income 982 - Interest expense (4,500) - --------- --------- Consolidated loss before income taxes (929,444) (301,411) ========= =========
13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. CHINA WORLD TRADE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS All forward-looking statements contained herein are deemed by the company to be covered by and to qualify for the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. Prospective shareholders should understand that several factors govern whether any forward - looking statement contained herein will be or can be achieved. Any one of those factors could cause actual results to differ materially from those projected herein. In our case, these factors are the following: (i) the foreign investment climate and international trade operations in China; (ii) China's advancement into the World Trade Organization (WTO) and (iii) the general economic growth in China, which is cyclical in nature. Our 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 We were incorporated in the State of Nevada in 1998 to engage in any lawful corporate undertaking. 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 a club in Guangzhou, PRC, and are in the process of opening a club in Beijing, PRC, which is expected to be completed and fully operational in the first quarter of 2004. Additionally, we expect to open a club in Shanghai and Shenzhen, PRC in 2005. Finally, we plan to create a Chinese/English internet portal to serve foreign and Chinese small to medium sized business. No assurances can be given, however, that we will be successful in our endeavors. Our growth and development as a business enterprise has been marked by a number of significant corporate events. Pursuant to a Share Exchange Agreement, dated as of August 10, 2000, between 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. According, we controlled the operations of VEL, and Main Edge became our majority stockholder. We then undertook an 8-for-1 forward split that was effective on 15th day of September 2000, which resulted in Main Edge owing 15,689,400 shares of our common stock. Then, three major developments occurred. These were: (i) the consummation of two private placement financings by Powertronic Holdings Limited ("Powertronic") in September 2002 and December 2002 in which it acquired shares of our common stock, (ii) an acquisition of all the issued and outstanding shares of General Business Network (Holdings) Ltd. in December 2002, and (iii) a 1-for-30 reverse stock split that was effective on September 1, 2002. As a result of these transactions, Mr. Chi Hung Tsang became the new major shareholder and now owns 4,000,000 shares of our common stock and Powertronic owns 2,000,000 shares. Mr. Chi Hung Tsang is currently Chairman of our Board of Directors. 14 RESULTS OF OPERATIONS The following table shows the selected unaudited condensed consolidated income statement data of the Company and its subsidiaries for the three months ended December 31, 2003 and 2002. The data should be read in conjunction with the audited Consolidated Financial Statements of the Company for the year ended September 30, 2003 and related notes thereto.
THREE-MONTH PERIOD ENDED DECEMBER 31, (Amounts in thousands US$) ------------------------- 2003 2002 --------- --------- Revenue 885 510 Operating costs and expenses (679) (109) --------- --------- Gross profit 206 401 Selling, general & administrative expenses (1,193) (780) --------- --------- Loss from operations (987) (379) Other operating income (expenses) 63 -- Interest income (expenses) (5) (2) Minority interests -- 80 --------- --------- Net loss (929) (301) ========= =========
THREE-MONTH PERIOD ENDED DECEMBER 31, 2003 COMPARED TO THE THREE-MONTH PERIOD ENDED DECEMBER 31, 2002 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 December 31, 2003, we had four divisions, namely the Beijing World Trade Center Club ("BWTCC"), Guangzhou World Trade Center Club ("GWTCC"), Infotech Enterprises Limited ("Infotech"), and General Business Network (Holdings) Limited ("GBN"). Upon completion of all of the renovations, BWTCC will be engaged in the establishment of a business club located in Beijing, PRC, which we expect to occur in the first quarter of 2004. GWTCC is engaged in the operation of the established business club in Guangzhou, PRC. GWTCC provides food and beverages, recreation, business center services, communication and information services, products exhibitions services, and commercial and trading brokerage services. Infotech plans to build a bilingual, English and Chinese, business-to-business internet portal 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. Since June 2002, the Company was involved in recruiting members and providing consultancy, catering and business center services through its subsidiary GWTCC located in Guangzhou, PRC. Since March 2003, the Company was involved in a trading business through a subsidiary of GBN. Sales revenue for the three-month period ended December 31, 2003 was $885,000, compared to $510,000 for the same corresponding period in year 2002, an increase of $375,000 or 74%. The increase was primarily the result of the increase in revenue generated from the trading related businesses, which was partially offset by a decrease in club related businesses. Of the $885,000 in revenue during the year 2003, approximately $178,000 (20%) was generated from providing club related services by GWTCC, $641,000 (72%) from the trading business, and the remaining revenue of $66,000 (8%) from rental and consultancy services. Costs of sales was $679,000 for the three-month period ended December 31, 2003, as compared to the same corresponding period in year 2002 of $109,000, an increase of $570,000. The $570,000 increase was primarily incurred in relation to the trading business and catering services that the Company provided through GBN and GWTCC. These businesses traditionally yield higher sales volumes but provide lower gross margins. 15 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased by $413,000 or 53% to $1,193,000 for the three-month period ended December 31, 2003 from $780,000 for the same corresponding period in 2002. The increase was primarily due to: i) Legal and Professional Fees: Legal and professional fees increased by $523,000 for the three-month period ended December 31, 2003, as compared to the same corresponding period in 2002. The increase was mainly due to the additional fees paid to legal, accounting, outside consultants and US securities professionals to maintain the corporate status of the Company, to market the co-brand WTC Kin's Card, to provide IT advices, and to seek future capital raising opportunities. The outside consultants and the US securities professionals were paid by the issuance of shares rather than by cash. The shares were valued at the market price on the date of issuance which yielded an aggregate value of approximately $ 1,457,000. Of this amount, approximately $ 516,000 is included under selling, general and administrative expenses and approximately $ 484,000 is included under prepayments in the accompanying financial statements. The remaining $ 457,000 was the repayment of cash advances from a director of the company. We expect the prepayments to be expensed in their entirety during fiscal 2004. The increase in expenses was partially offset by the decrease in utility expenses ($41,000) and rental expenses ($103,000). FINANCIAL INCOME/ (EXPENSES), NET There was an insignificant amount of approximately $5,000 of interest expenses for the three-month period ended December 31, 2003, compared to $ 2,000 for the same corresponding period in year 2002. 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 Hong 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. NET INCOME (LOSS) We had a net loss of $ 929,444 for the three-month period ended December 31, 2003, compared to a net loss of $ 301,411 for the three-month period ended December 31, 2002, an increase of $ 628,033. This increased loss was due primarily to $516,000 in common stock issued for professional services. LIQUIDITY AND CAPITAL RESOURCES On December 31, 2003, we had cash and cash equivalents of $314,771 and a net increase of cash and cash equivalents of $41,551 for the period ended December 31, 2003. This compares with cash and cash equivalents of $74,335 on December 31, 2002 and a net increase of cash and cash equivalents of $41,467 for the three month period ended December 31, 2002. On December 31, 2003, we had a working capital deficit of $390,496 as compared to a working capital deficit of $680,780 on December 31, 2002. The decrease in our working capital deficit was primarily attributable to an increase in cash and prepayments of $41,551 and $486,817, respectively, partially offset by $300,000 in a short-term bank loan. Net cash used in operating activities was $482,266 for the three months ended December 31, 2003 as compared with $16,502 in net cash used in operating activities for the same period ended December 31, 2002. The increase in cash was primarily attributable to $1,456,662 in common stock issued for services, partially offset by the increase in prepayments, trade payables and the net loss for the period of $528,004, $847,040 and $929,444. Net cash provided by investing activities was a nominal $654 for the three months ended December 31, 2003 as compared with net cash used in investing activities of $43,779 for the same period ended December 31, 2002. Cash flows for the 2002 period were from acquisitions of property plant and equipment during the period. 16 Net cash provided by financing activities totaled $523,163 for the three months ended December 31, 2003 as compared with net cash provided by financing activities of $101,748 for the three months ended December 31, 2002. The cash provided by financing activities for the 2003 period included advances of $533,752 from a related party and a loan repayment of $10,589 while the cash provided by financing activities during the 2002 period was attributable to shareholder capital contributions. If revenues increase during 2004, we may have sufficient cash flow from operations. During the three months ended December 31, 2003, we had a negative $482,266 in cash flow from operations. If operations do not provide the necessary cash flow, we may need to raise capital through either debt or equity financing. There can be no assurance that such capital will be available to us when needed or on terms favorable to the Company. Overall, we have funded our cash needs from inception through December 31, 2003, with a series of debt and equity transactions, primarily with related parties. The failure to receive financing, if needed, could have a material adverse effect on operations and our financial condition. GOING CONCERN OPINION As shown in our accompanying financial statements, our independent auditors have raised substantial doubt about our ability to continue as a going concern. The ability of China World Trade Corporation to continue as a going concern is dependent on developing operations, increasing revenues and obtaining new capital. Management has enacted the following plan to address these issues: (1) obtain funding from new investors to alleviate the China World Trade Corporation's capital deficiency, (2) refinance existing corporate debt, and (2) seek additional trade and distribution affiliates to increase sales and improve cash flows. OTHER SIGNIFICANT EVENTS 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 in exchange for giving the Company the rights to the after tax rental income of the Premises we occupy for a five year period commencing on December 1, 2003 and ending on November 30, 2008. As reported in Form 8-K on December 15, 2003, this transaction has the following effects: (1) The acquisition of shares by Mr, Tsang, our Chairman, resulted in a change of control of our Company; and (2) We recorded an intangible asset of $1,800,000 which represents the present value of future cash flows we will receive under this Acquisition Agreement. As of December 31, 2003, the current book value of the intangible asset was $1,770,000 and is being amortized on a straight line basis for five years. On November 27, 2003, the Company, thru its subsidiary BWTCC entered into a lease agreement with Landmark Towers Beijing to lease a 730 sq. meter premises located at 2nd Floor, Office Towers II, Landmark Towers Beijing, 8 North Dongsanhuan Road, Beijing, PRC, for use as a club facility. 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, no other material accounting policies have been adopted by the Company. ITEM 3. CONTROLS AND PROCEDURES. Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with participation of the Company's management, including the Chief Executive Officer and Principal Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based on the evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 17 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. We are not a party to any pending or to the best of our knowledge, any threatened legal proceedings. No director, officer or affiliate, or owner of record of more than five percent (5%) of our securities, or any associate of any such director, officer or security holder is a party adverse to us or has a material interest adverse to ours in any pending litigation. ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 3.1 Articles of incorporation are hereby incorporated by reference into Form 31.1 CEO & CFO Certification Pursuant to Section 302 32.1 CEO & CFO Certification Pursuant to Section 906 (b) Reports on Form 8-K; 1. Form 8-K was filed on November 10, 2003 to report an amendment to our Share Purchase Agreement with Powertronic Holdings, Ltd. 2. Form 8-K was files on December 15, 2003 to report an acquisition of shares by Mr. Tsang Chi Hung which resulted in a change of control in the Company. 18 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. China World Trade Corporation (Registrant) Date: February 19, 2004 /s/ John H.W. Hui - ------------------------ ----------------- John H.W. Hui Chief Executive Officer Interim Chief Financial Officer EX-31.1 3 doc2.txt CEO & CFO CERTIFICATION (SECTION 302) Exhibit 31.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John H.W. Hui, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of China World Trade Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 19, 2004 /s/ John H.W. Hui - ----------------- John H.W. Hui Chief Executive Officer EX-32.1 4 doc3.txt CEO & CFO CERTIFICATION (SECTION 906) Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of China World Trade Corporation, a Nevada company (the "Company") on Form 10-QSB for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John H.W. Hui, Chief Executive Officer and Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John H.W. Hui - ----------------- John H.W. Hui Interim Chief Financial Officer Date: February 19, 2004 -----END PRIVACY-ENHANCED MESSAGE-----