-----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, FmgRoWIlPWd3SGp8n8fs5xhhY73kovMVfB9FWDkLdIuz/jXQfM9ESbsO9Z7sX2Ew FTC3y1RWdqxEiOwHVYbNMA== 0001264931-04-000101.txt : 20040813 0001264931-04-000101.hdr.sgml : 20040813 20040812181759 ACCESSION NUMBER: 0001264931-04-000101 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040802 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040813 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-26119 FILM NUMBER: 04971466 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 8-K 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): August 2, 2004 CHINA WORLD TRADE CORPORATION ----------------------------- (Exact Name of Registrant as Specified in Charter) Nevada ------ (State or Other Jurisdiction of Incorporation) 000-26119 --------- (Commission File Number) 87-0629754 ---------- (I.R.S. Employer Identification No.) 4th Floor, Goldlion Digital Network Center 138 Tiyu Road East, Tianhe Guangzhou, The PRC 510620 ----------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) 011-8620-3878-0286 ------------------ (Registrant's Telephone Number, Including Area Code) This Current Report on Form 8-K is filed by China World Trade Corporation, a Nevada corporation (the "Registrant"), in connection with the matters described herein. ITEM 1. CHANGES IN CONTROL OF REGISTRANT. Not Applicable. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On August 2, 2004, the Registrant consummated a closing of the transactions contemplated by the Equity Transfer Agreement, dated April 20, 2004 (the "Agreement"), as amended by a Supplementary Agreement to Share Exchange Agreement, dated June 1, 2004 (the Agreement, as amended, being referred to herein as the "Amended Agreement"). Pursuant to the Amended Agreement, a wholly owned subsidiary of the Registrant, General Business Network (Guangzhou) Co., Ltd., a limited liability company organized under the laws of the Peoples' Republic of China ("General Business Network" or the "Transferee"), acquired 51% of the capital stock of Guangdong New Generation Commercial Management Limited, a limited liability company organized and existing under the laws of the Peoples' Republic of China ("New Generation") from Guangdong Huahao Industries Group Co., Ltd., a limited liability company organized and existing under the laws of the Peoples' Republic of China ("Huahao"), Huang Zehua, a citizen and resident of the Peoples' Republic of China ("Huang"), and Suo Hongxia, a citizen and resident of the Peoples' Republic of China ("Suo")(Huahao, Huang and Suo being referred to herein as the "Transferors"), for a purchase price of US$10,232,000. Of this purchase price, approximately US$1,241,000 in cash was paid on the date of closing (with the payment of approximately US$1,500,000 in cash to be deferred until September 30, 2004), and the remainder of the purchase price was paid in the form of approximately US$7,487,000 in market value of restricted shares of the Registrant. Such shares, amounting to 4,081,238 shares of common stock of the Registrant, were delivered to the Transferors at the closing. In addition, Huahao signed a Loan Arrangement Agreement with New Generation pursuant to which it agreed to make US$2,741,000 available to New Generation according to a loan schedule as part of the consideration for the transaction. Pursuant to the Amended Agreement, Huahao and/or its affiliate had earlier agreed to transfer to New Generation or a designee its percentage ownership interests in the following companies: (i) Guangzhou Huahao Insurance Agency Limited; (ii) Guangzhou Xinyou Foreign Enterprise Services Co., Ltd.; (iii) Beijing Xueqinsong Travel Consulting Co., Ltd.; (iv) Guangdong World Trade Link Information Services Co., Ltd.; (v) Zhengzhou Shaolin Tourism Development Co., Ltd.; (vi) Hainan Xinkaili Airline Sevices Co., Ltd.; and (vii) Beijing Xidake Airline Booking Office. As of the closing date, Huahao had transferred its interest in Guangzhou Huahao Insurance Agency Limited, the largest of the seven companies, to New Generation. In addition, an affiliate of Huahao has agreed to transfer 51% of its indirect 40% holding of the capital stock of Guangdong World Trade Link Information Services Co., Ltd. to a wholly owned subsidiary of the Registrant by no later than September 30, 2004. The Registrant currently is the indirect owner of 60% of the capital stock of Guangdong World Trade Link Information Services Co., Ltd., which is a recently organized corporation with minimal assets. Finally, Huahao agreed to make additional transfers of its interests in the five remaining companies by no later than September 30, 2004. The Transferors and Transferee signed a letter of mutual agreement with respect to the schedule for these transfers, which amends the conditions of closing set forth in the Amended Agreement. A copy of the Equity Transfer Agreement, dated April 20, 2004, and the Supplementary Agreement to Share Exchange Agreement, dated June 1, 2004, are attached as Exhibits 10.1 and 10.2 hereto, respectively. The purpose of this Current Report on Form 8-K is to report the closing under the Amended Agreement and to provide the financial statements of New Generation and Guangzhou Huahao Insurance Agency Limited as required by Item 7(a) of Form 8-K and the proforma consolidated financial information required by Item 7(b) of Form 8-K, which financial statements and information were excluded from the Current Report on Form 8-K filed on July 15, 2004 in reliance on Items 7(a)(4) and 7(b)(2), respectively, of Form 8-K. ITEM 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS. ITEM 7(A) - FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED The following financial statements of Guangdong New Generation Commercial Management Limited, a limited liability company organized and existing under the laws of the Peoples' Republic of China, are set forth below: (i)the consolidated balance sheets, (ii) the statements of operations, (iii) the consolidated statements of stockholders' equity, (iv) the consolidated statements of cash flows, in each case for the years ended December 31, 2003 and December 31, 2002, and the three months ended March 31, 2004, and (v) the consolidated notes to the financial statements for such period. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Owners of GUANGDONG NEW GENERATION COMMERCIAL MANAGEMENT LIMITED We have audited the accompanying consolidated balance sheets of Guangdong New Generation Commercial Management Limited as of March 31, 2004, December 31, 2003 and December 31, 2002 and the related statements of operations, owners' equity and cash flows for the three-month period ended March 31, 2004 and for each of the two years ended December 31, 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 audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Guangdong New Generation Commercial Management Limited as of March 31, 2004, December 31, 2003 and December 31, 2002 and the results of its operations and cash flows for the three-month period ended March 31, 2004 and for each of the two years ended December 31, 2003 in conformity with accounting principles generally accepted in the United States. /s/ Moores Rowland Mazars Chartered Accountants Certified Public Accountants Hong Kong Date: August 12, 2004
GUANGDONG NEW GENERATION COMMERCIAL MANAGEMENT LIMITED BALANCE SHEETS - --------------- AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- NOTE US$ US$ US$ ASSETS CURRENT ASSETS Cash and cash equivalents 2,312,366 216,151 994,312 Trade and other receivables 6 1,829,302 963,540 297,799 Other investments 7 12,067 12,067 14,480 ---------- ---------- ---------- TOTAL CURRENT ASSETS 4,153,735 1,191,758 1,306,591 Property, plant and equipment, net 8 119,429 99,883 136,741 ---------- ---------- ---------- TOTAL ASSETS 4,273,164 1,291,641 1,443,332 ========== ========== ========== LIABILITIES AND OWNERS' EQUITY CURRENT LIABILITIES Trade and other payables 9 6,003,374 3,255,508 3,105,387 Tax payables 1,123,445 1,081,082 507,732 Short-term bank loans 10 1,206,695 1,206,695 724,017 ---------- ---------- ---------- TOTAL LIABILITIES 8,333,514 5,543,285 4,337,136 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES 12&17 OWNERS' DEFICIT Paid-in capital 14 603,347 603,347 603,347 Due from a related party 11(b) (4,785,937) (4,425,262) (3,196,285) Statutory reserves 15 301,674 301,674 231,674 Accumulated surplus (deficit) (179,434) (731,403) (532,540) ---------- ---------- ---------- TOTAL OWNERS' DEFICIT (4,060,350) (4,251,644) (2,893,804) ---------- ---------- ---------- TOTAL LIABILITIES AND OWNERS' DEFICIT 4,273,164 1,291,641 1,443,332 ========== ========== ========== The financial statements should be read in conjunction with the accompanying notes.
GUANGDONG NEW GENERATION COMMERCIAL MANAGEMENT LIMITED STATEMENTS OF OPERATIONS - -------------------------- THREE-MONTH PERIOD ENDED Year ended December 31, --------------- ------------------------ MARCH 31, 2004 2003 2002 --------------- ---------- ---------- NOTE US$ US$ US$ OPERATING REVENUES 1,702,463 1,975,098 1,652,756 Operating costs and expenses (956,869) (899,503) (1,140,012) Selling, general and administrative expenses (134,490) (572,878) (406,732) --------------- ---------- ---------- INCOME FROM OPERATIONS 611,104 502,717 106,012 NON-OPERATING INCOME (EXPENSES) Other income 1,958 17,119 12,664 Interest expenses (18,647) (75,251) (79,270) --------------- ---------- ---------- INCOME BEFORE INCOME TAXES 594,415 444,585 39,406 Provision for income taxes 5 (42,446) (573,448) (351,792) --------------- ---------- ---------- NET INCOME (LOSS) 551,969 (128,863) (312,386) =============== ========== ========== The financial statements should be read in conjunction with the accompanying notes.
GUANGDONG NEW GENERATION COMMERCIAL MANAGEMENT LIMITED STATEMENTS OF CASH FLOWS - --------------------------- THREE-MONTH PERIOD ENDED Year ended December 31, --------------- ------------------------ MARCH 31, 2004 2003 2002 --------------- ---------- ---------- US$ US$ US$ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) 551,969 (128,863) (312,386) Adjustments to reconcile net profit to net cash operating activities: Provision for income taxes 42,446 573,448 351,792 Depreciation 9,759 38,137 37,386 Changes in working capital: Trade and other receivables (880,350) (668,304) 72,402 Trade and other payables 2,747,866 150,121 1,567,010 Income taxes paid (83) (98) (6,060) --------------- ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,471,607 (35,559) 1,710,144 --------------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Advances to related parties (346,087) (1,226,414) (911,146) Acquisition of property, plant and equipment - (1,279) - Acquisition of other investments (29,305) (12,067) (10,359) Disposal of other investments - 14,480 (14,480) --------------- ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (375,392) (1,225,280) (935,985) --------------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Inception of bank loan - 1,206,695 1,206,695 Repayment of bank loan - (724,017) (1,086,025) --------------- ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES - 482,678 120,670 --------------- ---------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 2,096,215 (778,161) 894,829 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR/PERIOD 216,151 994,312 99,483 --------------- ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 2,312,366 216,151 994,312 =============== ========== ========== ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 2,312,366 216,151 994,312 =============== ========== ========== The financial statements should be read in conjunction with the accompanying notes.
GUANGDONG NEW GENERATION COMMERCIAL MANAGEMENT LIMITED STATEMENTS OF OWNERS' EQUITY - ------------------------------- PAID IN Due from a STATUTORY ACCUMULATED CAPITAL related party RESERVES SURPLUS (DEFICIT) --------------- ------------- --------- ----------------- US$ US$ US$ US$ Balance as of December 31, 2001 603,347 (2,448,021) 73,223 (61,703) Net loss - - - (312,386) Net advances to a related party - (748,264) - - Transfer to statutory reserves - - 158,451 (158,451) --------------- ------------- --------- ----------------- Balance as of December 31, 2002 603,347 (3,196,285) 231,674 (532,540) Net income - - - (128,863) Net advances to a related party - (1,228,977) - - Transfer to statutory reserves - - 70,000 (70,000) --------------- ------------- --------- ----------------- Balance as of December 31, 2003 603,347 (4,425,212) 301,674 (731,403) Net income - - - 551,969 Net advances to a related party - (360,675) - - Transfer to statutory reserves - - - - --------------- ------------- --------- ----------------- BALANCE AS OF MARCH 31, 2004 603,347 (4,785,937) 301,674 (179,434) =============== ============= ========= ================= The financial statements should be read in conjunction with the accompanying notes.
1. ORGANIZATION AND NATURE OF BUSINESS The Company was incorporated under the laws of the People's Republic of China ("PRC") on April 3, 1998 as Guangdong New Generation Commercial Management Limited with an operating period from April 3, 1998 to April 28, 2006. Since incorporation, the Company has been engaged in providing air ticketing agency services in the Guangdong Province in the PRC. Although the Company has net profit of US$551,969 for the three-month period ended March 31, 2004, it experienced net loss of US$128,863 and US$312,386 for the year ended December 31, 2003 and 2002 respectively. Besides, it has an owners' deficit of US$4,060,350, US$4,251,644 and US$2,893,804 as of March 31, 2004, December 31, 2003 and December 31, 2002. In consideration of the owners' deficit as of March 31, 2004 in the amount of US$4,060,350, according to the Equity Transfer Agreement entered into between Guangdong Huahao Industries Holdings Limited and China World Trade Corporation in April 2004, the shareholders and management of the Company are obligated and committed to inject additional assets into the Company. In addition, the Company expects to generate over US$2 million net profit for the year ended December 31, 2004. Management believes that the above measures will alleviate the amount of owners' deficit significantly by the end of year 2004. However, there can be no assurance that the Company will be successful with its efforts to attain the plans as mentioned above and its inability to do so could adversely impact the Company's business, financial position and prospects. 2. BASIS OF PRESENTATION The financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("USGAAP"). 3. RECENTLY ISSUED ACCOUNTING STANDARDS There are no new accounting pronouncements for which adoption is expected to have a material effect on the Company's financial statements. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF ACCOUNTING The financial statements are prepared in accordance with generally accepted accounting principles in the United States. 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) REVENUE RECOGNITION The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No.: 101, "Revenue Recognition in Financial Statements" and Emerging Issues Task Force 99-19: "Reporting Revenue Gross as a principal versus Net as an Agent", 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. The Company receives commissions from travel suppliers for air-ticketing services through the Company's transaction and service platform under various services agreements with related and unrelated parties. Commissions from air-ticketing services rendered are recognized after air tickets are issued and delivered to customers. Contracts with certain travel suppliers contain incentive commissions typically subject to achieving specific performance targets and such incentive commissions are recognized when they are reasonably assured that the Company is entitled to such incentive commissions. The Company presents revenues from such transactions on a net basis in the statements of operations as the Company does not assume any inventory risks and generally has no obligations for cancelled airline ticket reservations. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (C) REVENUE RECOGNITION (CONTINUED) For information purposes, the commission income of the Company was derived from air-ticketing services with total value as follows:
THREE-MONTH PERIOD ENDED Year ended December 31, --------------- ------------------------ MARCH 31, 2004 2003 2002 --------------- ---------- ---------- US$ US$ US$ VALUE OF AIR-TICKET FARE 23,345,480 62,324,122 44,300,137 =============== ========== ==========
(C) 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. (D) TRANSLATION OF FOREIGN CURRENCY The Company considers Renminbi as its functional currency as the Company's business activities are based in Renminbi. However, the Company has chosen the United States dollar as its reporting currency. Transactions in currencies other than functional currency during the year are translated into the functional currency at the applicable rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in currencies other than functional currency are translated into functional currency at the applicable rates of exchange in effect at the balance sheet date. Exchange gains and losses are dealt with in the statement of operation. For translation of financial statements into the reporting currency, assets and liabilities are translated at the exchange rate at the balance sheet date, equity accounts are translated at historical exchange rates, and revenues expenses, gains and losses are translated at the weighted average rates of exchange prevailing during the period. Translation adjustments resulting from this process are recorded in accumulated other comprehensive income (loss) within stockholders' equity. (E) 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. (F) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated depreciation and impairment loss. 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 recognized as income or expense in the statements of operations. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (F) PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Depreciation is provided to write off the cost 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 14% to 50% per annum. The Company recognizes an impairment loss on property, plant and equipment 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. (G) 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 under operating leases are recognized as expense on the straight-line basis over the lease terms. The Company leases certain premises under non-cancellable operating leases. Rental expenses under operating leases were US$21,138, US$61,854 and US$137,937 for the three-month period ended March 31, 2004 and each of the two years ended December 31, 2003. (H) 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. (I) 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. (J) ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company'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 Company's estimate of the allowance for doubtful accounts will change. Throughout the periods presented, no provision for doubtful accounts has been made by the Company as the Company has not experienced any collectibility problem over its trade accounts receivable. 5. INCOME TAXES The Company is subject to PRC Enterprise Income Taxes ("EIT") on an entity basis on income arising in or derived from the PRC. The applicable EIT rate is 3% on the net revenues generated during the three-month period ended March 31, 2004. During the years ended December 31, 2003 and 2002, the applicable EIT rate was 33% of net income during the year. 6. TRADE AND OTHER RECEIVABLES
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- NOTE US$ US$ US$ Trade receivables 1,144,170 442,955 - Deposits and other receivables 664,406 485,271 259,922 Due from related parties 11(b) 20,726 35,314 37,877 ---------- ---------- ---------- 1,829,302 963,540 297,799
7. OTHER INVESTMENTS The balance represents "available-for-sale" mutual funds made up of debt and equity securities. As at the balance sheet date, as the cost approximated to the fair value, no gain or loss was recognized. 8. PROPERTY, PLANT AND EQUIPMENT, NET
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- US$ US$ US$ Motor vehicles 63,316 63,316 63,316 Furniture, fixtures and equipment 201,361 172,056 170,777 Less: Accumulated depreciation (145,248) (135,489) (97,352) ---------- ---------- ---------- Net book value 119,429 99,883 136,741
9. TRADE AND OTHER PAYABLES
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- NOTE US$ US$ US$ Trade payables 4,052,587 1,519,648 1,714,901 Accrued charges and other payables 1,370,414 1,054,552 605,032 Due to related parties 11(c) 580,373 681,308 785,454 ---------- ---------- ---------- 6,003,374 3,255,508 3,105,387
10. SHORT-TERM BANK LOANS Guangdong Hauhao Industries Holdings Limited, Guangzhou XZR International Travel Services Limited, Chen Ze Liang and a third party, Guangzhou Yinda Guarantee Service Company Limited provided corporate and personal guarantee to the bank against the bank loans granted to the Company. Please refer to Note 11 to these financial statements for details of relationship of these guarantors with the Company. 11. RELATED PARTY TRANSACTIONS (a) Names and relationship of related parties Existing relationships with the Company ----------------------------------- Guangdong Hauhao Insurance Agency Limited A company in which a director of the Company has a beneficial interest Guangdong Hauhao Industries Holdings Limited A company in which a director of the Company has a beneficial interest Guangzhou XZR International Travel Serivces Limited A company in which a director of the Company has a beneficial interest Guangzhou Easy Boarding Business Services Limited A company in which a director of the Company has a beneficial interest Guangzhou SRX Travel Service Limited A company in which a director of the Company has a beneficial interest Guangzhou Xinledai Travel Agency Services Company Limited A company in which a director of the Company has a beneficial interest Chen Ze Liang A shareholder and a director of the Company (b) Due from related parties
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- US$ US$ US$ Guangdong Hauhao Industries Holdings Limited 4,785,937 4,425,262 3,196,285 ========== ========== ========== Guangzhou XZR International Travel Services Limited - 11,761 37,877 Guangdong Easy Boarding Business Services Limited 18,221 - - Guangzhou SRX Travel Service Limited 2,505 23,553 - ---------- ---------- ---------- 20,726 35,314 37,877 ========== ========== ==========
The amounts due from related parties represent unsecured advances which are interest-free and repayable on demand. 11. RELATED PARTY TRANSACTIONS (CONTINUED) (c) Due to related parties
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- US$ US$ US$ Guandong Xinledai Travel Agency Services Company Limited - - 615,673 Guangdong Easy Boarding Business Services Limited - 80,759 120,669 Guangdong Hauhao Insurance Agency Limited 580,373 600,549 49,112 ---------- ---------- ---------- 580,373 681,308 785,454
The amount due to related parties represent unsecured advances which are interest-free and repayable on demand. 12. OPERATING LEASE COMMITMENTS The Company has total outstanding commitments not provided for under non-cancellable operating leases, which are payables as follows:
AS OF MARCH 31, 2004 ---------- US$ Year ending December 31 2004 42,142 2005 46,914 2006 3,185 ---------- 92,241
13. RETIREMENT PLAN 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 three-month period ended March 31, 2004 and each of the two years ended December 31, 2003 was US$1,747, US$6,607 and US$6,442 respectively. 14. PAID-IN CAPITAL On April 3, 1998, the Company was incorporated in the PRC with registered capital of RMB500,000, which is approximately equivalent to US$60,335. The said amount has been fully paid up upon its incorporation. On February 10, 1999 and May 6, 1999, the registered capital was increased to RMB1,500,000 and RMB5,000,000, which is approximately equivalent to US$181,004 and US$603,347 respectively, by additional cash contributed by the owner. 15. STATUTORY RESERVES Statutory reserves of the Company include the statutory common reserve fund and the statutory common welfare fund. Pursuant to regulations in the PRC, the Company sets aside 10% of its profit after tax for the statutory common reserve fund (except when the fund has reached 50% of the Company's registered capital) and 5% of its profit after tax for the statutory common welfare fund. The statutory common reserve fund can be used for the following purposes: - - to make good losses in previous years; or - - to convert into capital, provided such conversion is approved by a resolution at an owners' general meeting and the balance of the statutory common reserve fund does not fall below 25% of the registered capital. The statutory common welfare fund, which is to be used for the welfare of the staff and workers of the Company, is of a capital nature. 16. POST BALANCE SHEET EVENT On April 1, 2004, the registered capital of the Company has been increased by RMB10,000,000 to RMB15,000,000, which is approximately equivalent to US$1,810,042. The said amount had been satisfied by cash contributed by the owners. Pursuant to an agreement entered into between the owners of the Company and a subsidiary of China World Trade Corporation in April 2004, all of their interests in the Company are to be transferred to a subsidiary of China World Trade Corporation. China World Trade Corporation is a public company listed on the National Association of Securities Dealers Automated Quotations Over-the - -Counter Bulletin Board. 17. CONTINGENCIES The Company has made full tax provision in accordance with relevant laws and regulations in the PRC. However, for PRC tax reporting purpose, the Company only recognizes revenue on a business tax invoices basis instead of when services are provided. Accordingly, the company faces surcharge and penalty, additional to the original amount of taxes payable, ranging from 50% to 500% of the original amount of taxes payable. The Company has already provided for the surcharge and penalty of 50% of the taxes payable in the financial statements. Although the exact amount of penalty cannot be estimated with any reasonable degree of certainty, the board of directors considers it is unlikely that any tax penalty in excess of the amounts provided will be imposed. The following financial statements of Guangdong Hauhao Insurance Agency Limited, a limited liability company organized and existing under the laws of the Peoples' Republic of China, are set forth below: (i) the consolidated balance sheets, (ii) the statements of operations, (iii) the consolidated statements of stockholders' equity, (iv) the consolidated statements of cash flows, in each case for the years ended December 31, 2002 and December 31, 2003, and the three months ended March 31, 2004, and (v) the consolidated notes to the financial statements for such period. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Owners of GUANGDONG HAUHAO INSURANCE AGENCY LIMITED We have audited the accompanying consolidated balance sheets of Guangdong Hauhao Insurance Agency Limited as of March 31, 2004, December 31, 2003 and December 31, 2002 and the related statements of operations, owners' equity and cash flows for the three-month period ended March 31, 2004 and for each of the year/period in the two years period ended December 31, 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 audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Guangdong Hauhao Insurance Agency Limited as of March 31, 2004, December 31, 2003 and December 31, 2002 and the results of its operations and cash flows for the three-month period ended March 31, 2004 and for each of the year/period in the two years period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States. /s/ Moores Rowland Mazars Chartered Accountants Certified Public Accountants Hong Kong Date: August 12, 2004 GUANGDONG HAUHAO INSURANCE AGENCY LIMITED BALANCE SHEETS - ---------------
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- NOTE US$ US$ US$ ASSETS CURRENT ASSETS Cash and cash equivalents 21,406 25,736 38,982 Other receivables 6 581,878 604,166 49,876 Prepayments 845 - 3,620 ---------- ---------- ---------- TOTAL CURRENT ASSETS 604,129 629,902 92,478 Property, plant and equipment, net 7 8,766 8,148 8,932 ---------- ---------- ---------- TOTAL ASSETS 612,895 638,050 101,410 ========== ========== ========== LIABILITIES AND OWNERS' EQUITY CURRENT LIABILITIES Trade and other payables 8 31,962 27,808 143,225 Tax payables 4,573 4,988 368 ---------- ---------- ---------- TOTAL LIABILITIES 36,535 32,796 143,593 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES 10 OWNERS' EQUITY Paid-in capital 12 1,206,695 1,206,695 1,206,695 Due from a related party 9(c) (1,362,989) (1,245,070) (1,238,941) Statutory reserves 13 110,872 97,601 - Accumulated surplus (deficit) 621,782 546,028 (9,937) ---------- ---------- ---------- TOTAL OWNERS' EQUITY 576,360 605,254 (42,183) ---------- ---------- ---------- TOTAL LIABILITIES AND OWNERS' EQUITY 612,895 638,050 101,410 ========== ========== ========== The financial statements should be read in conjunction with the accompanying notes.
GUANGDONG HAUHAO INSURANCE AGENCY LIMITED STATEMENTS OF OPERATIONS - -------------------------- Period from January 15, 2002 THREE-MONTH (date of PERIOD ENDED Year ended incorporation) to MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- NOTE US$ US$ US$ OPERATING REVENUES 163,543 929,916 255,052 Operating costs and expenses (9,724) (61,364) (53,716) Selling, general and administrative expenses (60,282) (189,106) (206,872) ---------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS 93,537 679,446 (5,536) NON-OPERATING INCOME Other income 61 99 409 ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 93,598 679,545 (5,127) Provision for income taxes 5 (4,573) (25,979) (4,810) ---------- ---------- ---------- NET INCOME (LOSS) 89,025 653,566 (9,937) ========== ========== ========== The financial statements should be read in conjunction with the accompanying notes.
GUANGDONG HAUHAO INSURANCE AGENCY LIMITED STATEMENTS OF CASH FLOWS - --------------------------- Period from January 15, 2002 THREE-MONTH (date of PERIOD ENDED Year ended incorporation) to MARCH 31, December 31, December 31, 2004 2003 2002 --------------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) 89,025 653,566 (9,937) Adjustments to reconcile net profit (loss) to net cash used in operating activities: Provision for income taxes 4,573 25,979 4,810 Depreciation 1,059 2,378 933 Changes in working capital: Other receivables 2,112 (2,853) (764) Prepayments (845) 3,620 (3,620) Trade and other payables 4,154 (115,417) 143,225 Income taxes paid (4,988) (21,359) (4,442) --------------- ---------- ---------- NET CASH USED IN OPERATING ACTIVITIES 95,090 545,914 130,205 --------------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Advances to related parties (97,743) (557,566) (1,288,053) Acquisition of property, plant and equipment (1,677) (1,594) (9,865) --------------- ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (99,420) (559,160) (1,297,918) --------------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contribution from owners - - 1,206,695 --------------- ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES - - 1,206,695 --------------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,330) (13,246) 38,982 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD/YEAR 25,736 38,982 - --------------- ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD/YEAR 21,406 25,736 38,982 =============== ========== ========== ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 21,406 25,736 38,982 =============== ========== ========== The financial statements should be read in conjunction with the accompanying notes.
GUANGDONG HAUHAO INSURANCE AGENCY LIMITED STATEMENTS OF OWNERS' EQUITY - ------------------------------- PAID IN Due from a STATUTORY ACCUMULATED CAPITAL related party RESERVES SURPLUS (DEFICIT) --------------- ------------- --------- ----------------- US$ US$ US$ US$ Capital paid in upon incorporation on January 15, 2002 1,206,695 - - - Net advances to a related party - (1,238,941) - - Net loss - - - (9,937) --------------- ------------- --------- ----------------- Balance as of December 31, 2002 1,206,695 (1,238,941) - (9,937) Net income - - - 653,566 Net advances to a related party - (6,129) - - Transfer to statutory reserves - - 97,601 (97,601) --------------- ------------- --------- ----------------- Balance as of December 31, 2003 1,206,695 (1,245,070) 97,601 546,028 Net income - - - 89,025 Net advances to a related party - (117,919) - - Transfer to statutory reserves - - 13,271 (13,271) --------------- ------------- --------- ----------------- BALANCE AS OF MARCH 31, 2004 1,206,695 (1,362,989) 110,872 621,782 =============== ============= ========= ================= The financial statements should be read in conjunction with the accompanying notes.
1. ORGANIZATION AND NATURE OF BUSINESS The Company was incorporated under the laws of the People's Republic of China ("PRC") on January 15, 2002 with an operating period from January 15, 2002 to January 15, 2005. Pursuant to the regulation of insurance agency business in the PRC, renewal of business license shall be applied for prior to sixty days of the expiry date of the business license. Management shall arrange for renewal of its business license in accordance with the regulation. Since incorporation, the Company has been engaged in providing insurance agency services in the Guangdong Province in the PRC. 2. BASIS OF PRESENTATION The financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("USGAAP"). 3. RECENTLY ISSUED ACCOUNTING STANDARDS There are no new accounting pronouncements for which adoption is expected to have a material effect on the Company's financial statements. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF ACCOUNTING The financial statements are prepared in accordance with generally accepted accounting principles in the United States. 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) REVENUE RECOGNITION The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No.: 101, "Revenue Recognition in Financial Statements" and Emerging Issues Task Force 99-19: "Reporting Revenue Gross as a principal versus Net as an Agent", 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. The Company receives commissions from insurance companies for insurance agency services provided. Commissions from insurance agency services rendered are recognized upon provision of such services. The Company presents revenues from such transactions on a net basis in the statements of operations and comprehensive income (loss) as the Company does not assume any inventory risks and generally has no obligations for cancelled insurance policies. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (B) REVENUE RECOGNITION (CONT'D) For information purposes, the commission income of the Company was derived from insurance policies with total premium income as follows:
THREE-MONTH PERIOD ENDED Year ended December 31, --------------- ------------------------ MARCH 31, 2004 2003 2002 --------------- ---------- ---------- US$ US$ US$ PREMIUM INCOME OF INSURANCE POLICIES 1,345,381 36,725,635 2,119,703 --------------- ---------- ----------
(C) 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. (D) TRANSLATION OF FOREIGN CURRENCY The Company considers Renminbi as its functional currency as the Company's business activities are based in Renminbi. However, the Company has chosen the United States dollar as its reporting currency. Transactions in currencies other than functional currency during the year are translated into the functional currency at the applicable rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in currencies other than functional currency are translated into functional currency at the applicable rates of exchange in effect at the balance sheet date. Exchange gains and losses are dealt with in the statement of operation. For translation of financial statements into the reporting currency, assets and liabilities are translated at the exchange rate at the balance sheet date, equity accounts are translated at historical exchange rates, and revenues expenses, gains and losses are translated at the weighted average rates of exchange prevailing during the period. Translation adjustments resulting from this process are recorded in accumulated other comprehensive income (loss) within stockholders' equity. (E) 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 business activities and accounts receivable are principally with insurance companies in the PRC. Management believes that no significant credit risk exists as credit losses, when realized, have been within the range of management's expectations. (F) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated depreciation. 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. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (F) PROPERTY, PLANT AND EQUIPMENT (CONT'D) 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 recognized as income or expense in the statements of operations. Depreciation is provided to write off the cost 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 20% per annum. The Company recognizes an impairment loss on property, plant and equipment 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. (G) 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 under operating leases are recognized as expense on the straight-line basis over the lease terms. The Company leases certain premises under non-cancellable operating leases. Rental expenses under operating leases were US$18,100, US$72,402 and US$60,335 for the three-month period ended March 31, 2004 and each of the year/period ended December 31, 2003. (H) RELATED PARTIES Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. (I) USE OF ESTIMATES The preparation of the financial statements in conformity with USGAAP requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reported periods. Actual amounts could differ from those estimates. Estimates are used for, but not limited to, the accounting for certain items such as allowance for doubtful accounts, depreciation, taxes and contingencies. (J) ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful account will change. Accounts receivable are presented net of allowances for doubtful accounts of US$-, US$- and US$109,018 for the three-month period ended March 31, 2004 and each of the years of the two year period ended December 31, 2003 respectively. 5. INCOME TAXES The Company is subject to PRC Enterprise Income Tax ("EIT") on an entity basis on income arising in or derived from the PRC. The applicable EIT tax rate is 8% on the net revenues generated during the year. 6. OTHER RECEIVABLES
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- NOTE US$ US$ US$ Other receivables 1,505 3,617 764 Due from related parties 9(c) 580,373 600,549 49,112 ---------- ---------- ---------- 581,878 604,166 49,876
7. PROPERTY, PLANT AND EQUIPMENT, NET
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- US$ US$ US$ Furniture, fixtures and equipment 13,136 11,459 9,865 Less: Accumulated depreciation (4,370) (3,311) (933) ---------- ---------- ---------- Net book value 8,766 8,148 8,932
8. TRADE AND OTHER PAYABLES
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- US$ US$ US$ Accrued charges 19,772 13,218 55,164 Other payables 12,190 14,590 88,061 ---------- ---------- ---------- 31,962 27,808 143,225
9. RELATED PARTY TRANSACTIONS (a) Names and relationship of related parties Existing relationships with the Company ----------------------------------- Guangdong New Generation Commercial Management Limited A company in which a director of the Company has a beneficial interest Guangdong Hauhao Industries Holdings Limited A company in which a director of the Company has a beneficial interest (b) Summary of related party transactions
PERIOD ENDED Year ended December 31, --------------- ------------------------ MARCH 31, 2004 2003 2002 --------------- ---------- ---------- US$ US$ US$ Rent expenses to - ------------------ Guangdong Huahao Industries Holdings Limited 18,100 72,402 60,335 --------------- ---------- ----------
(c) Due from related parties
AS OF As of As of MARCH 31, December 31, December 31, 2004 2003 2002 ---------- ---------- ---------- US$ US$ US$ Guangdong New Generation Commercial Management Limited 580,373 600,549 49,112 ========== ========== ========== Guangdong Hauhao Industries Holdings Limited 1,362,989 1,245,070 1,238,941 ========== ========== ==========
The amounts due from related parties represent unsecured advances which are interest-free and repayable on demand. 10. OPERATING LEASE COMMITMENTS The Company has total outstanding commitments not provided for under non-cancellable operating leases, which are payables as follows:
AS OF MARCH 31, 2004 ---------- US$ Year ending December 31 2004 54,303 2005 72,402 ---------- 90,503
11. RETIREMENT PLAN 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 three-month period ended March 31, 2004 and each of the year/period ended December 31, 2003 was US$598, US$3,092 and US$1,650 respectively. 12. PAID-IN CAPITAL On January 15, 2002, the Company was incorporated in the PRC with registered capital of RMB10,000,000, which is approximately equivalent to US$1,206,695. The said amount has been fully paid up upon its incorporation. 13. STATUTORY RESERVES Statutory reserves of the Company include the statutory common reserve fund and the statutory common welfare fund. Pursuant to regulations in the PRC, the Company sets aside 10% of its profit after tax for the statutory common reserve fund (except when the fund has reached 50% of the Company's registered capital) and 5% of its profit after tax for the statutory common welfare fund. The statutory common reserve fund can be used for the following purposes: - - to make good losses in previous years; or - - to convert into capital, provided such conversion is approved by a resolution at a owners' general meeting and the balance of the statutory common reserve fund does not fall below 25% of the registered capital. The statutory common welfare fund, which is to be used for the welfare of the staff and workers of the Company, is of a capital nature. ITEM 7(b) - PROFORMA FINANCIAL STATEMENTS The following proforma financial statements of China World Trade Corporation and (i) Guangdong New Generation Commercial Management Limited and (ii) Guangdong Hauhao Insurance Agency Limited (hereinafter the "Constituent Companies") are also set forth below: Consolidated (Unaudited) Condensed ProForma Balance Sheet of the Constituent Companies as at March 31, 2004, and Consolidated (Unaudited) Condensed ProForma Statement of Operations for the years ended March 31, 2004 and 2003. PROFORMA FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated balance sheet as of March 31, 2004 and the unaudited pro forma condensed consolidated statements of operations for the three-month period ended March 31, 2004 and for the year ended September 30, 2003 are based on the historical financial statements of China World Trade Corporation (the "Company"), Guangdong New Generation Commercial Management Limited ("GNGCM") and Guangdong Hauhao Insurance Agency Limited ("GHIAL") after giving effect to the acquisition of GNGCM and GHIAL by the Company ("Acquisition") using the purchase method of accounting and the assumptions and adjustments described in the accounting notes to the unaudited pro forma condensed consolidated financial statements. The Acquisition was completed on [August 2, 2004]. The unaudited pro forma condensed consolidated balance sheet of the Company, GNGCM and GHIAL as of March 31, 2004 is presented to give effect to the Acquisition as if it had occurred on March 31, 2004. The unaudited pro forma condensed consolidated statements of operations of the Company, GNGCM and GHIAL for the three-month period ended Mach 31, 2004 and for the year ended September 30, 2003 are presented as if the Acquisition had taken place on October 1, 2002. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in the Company's Form 10-KSB for the year ended September 30, 2003 filed on January 13, 2004, the Company's Form-10QSB quarterly report for the three-month period ended March 31, 2004 filed on May 14, 2004 and the audited financial statements of GNGCM and GHIAL for the year ended December 31, 2003 and for the three-month period ended March 31, 2004 prepared in accordance with the accounting principles generally accepted in the United States of America ("USGAAP"). The unaudited pro forma condensed consolidated financial statements are not intended to be representative or indicative of the consolidated results of operations or financial condition of the Company that would have been reported had the Acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of the Company.
CHINA WORLD TRADE CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2004 - ------------------------ PRO FORMA Pro forma CONSOLIDATED GNGCM GHIAL The Company adjustments BALANCE ----------- ----------- ----------- ----------- ----------- US$ US$ US$ US$ US$ ASSETS CURRENT ASSETS Cash and cash equivalents 2,312,366 21,406 827,792 (2,745,000) (a) 2,916,564 2,500,000 (b) Trade receivable 1,144,170 - 18,015 1,162,185 Other receivable - 581,878 24,847 606,725 Due from related parties 20,736 - 115,525 136,251 Rental and other deposits 664,406 - 338,732 1,003,138 Prepayments - 845 87,989 88,834 Inventories - - 50,682 50,682 Short term investment 12,067 - - 12,067 ----------- ----------- ----------- ----------- TOTAL CURRENT ASSTS 4,153,735 604,129 1,463,582 5,976,446 Intangible asset - - 1,680,000 1,680,000 Goodwill - - 30,000 14,139,499 (c) 14,169,499 Property, plant and equipment, net 119,429 8,766 3,041,713 3,169,908 Investment in a subsidiary - - - 10,232,000 (a) - (10,232,000) (c) ----------- ----------- ----------- ----------- TOTAL ASSETS 4,273,164 612,895 6,215,295 24,995,853 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade payables 4,052,587 - 19,671 4,072,258 Accrued charges 1,370,414 - 95,428 1,465,842 Other payables - 31,962 107,755 139,717 Tax payables 1,123,445 4,573 1,128,018 Due to related parties 580,373 - 140,926 721,299 Deposits received - - 39,471 39,471 Deferred income - 6,362 6,362 Short term bank loan 1,206,695 - - 1,206,695 Long-term bank loan - current portion - 43,861 43,861 ----------- ----------- ----------- ----------- TOTAL CURRENT LIABILITIES 8,333,514 36,535 453,474 8,823,523 Long-term bank loan - - non-current portion - - 437,194 437,194 Due to a shareholder - - 1,299,615 1,299,615 ----------- ----------- ----------- ----------- Total liabilities 8,333,514 36,535 2,190,283 10,560,332 ----------- ----------- ----------- ----------- Minority interest - - - 423,509 (c) 423,509 ----------- ----------- ----------- ----------- STOCKHOLDERS' EQUITY 4,081 (a) 3,500 (b) Common stock 603,347 1,206,695 17,726 (1,810,042) (c) 25,307 Additional paid-in capital - - 15,846,315 7,482,919 (a) 25,825,734 2,496,500 (b) Due from related party (4,785,937) (1,362,989) - 6,148,926 (c) - Dedicated reserves 301,674 110,872 - (412,546) (c) - Accumulated (deficit) profit (179,434) 621,782 (11,839,029) (442,348) (c) (11,839,029) ----------- ----------- ----------- ----------- TOTAL STOCKHOLDERS' EQUITY (4,060,350) 576,360 4,025,012 14,012,012 ----------- ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 4,273,164 612,895 6,215,295 24,995,853 =========== =========== =========== ===========
CHINA WORLD TRADE CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE-MONTH PERIOD ENDED MARCH 31, 2004 - -------------------------------------------- PRO FORMA Pro forma CONSOLIDATED GNGCM GHIAL The Company adjustments BALANCE ----------- ----------- ----------- ----------- ----------- US$ US$ US$ US$ US$ OPERATING REVENUES 1,702,463 163,543 303,771 2,169,777 ----------- ----------- ----------- ----------- OPERATING EXPENSES Operating costs and expenses (956,869) (9,724) (186,001) (1,152,594) Selling, general and administrative expenses (134,490) (60,282) (1,626,937) (1,821,709) ----------- ----------- ----------- ----------- PROFIT (LOSS) FROM OPERATIONS 611,104 93,537 (1,509,167) (804,526) NON-OPERATING (EXPENSES) INCOME Other income 1,958 61 89 2,108 Interest expenses (18,647) - (3,992) (22,639) ----------- ----------- ----------- ----------- PROFIT (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 594,415 93,598 (1,513,070) (825,057) INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS Provision for income taxes (42,446) (4,573) - (47,019) ----------- ----------- ----------- ----------- PROFIT (LOSS) BEFORE MINORITY INTEREST 551,969 89,025 (1,513,070) (872,076) ----------- ----------- ----------- ----------- MINORITY INTEREST - - - (335,880) (d) (335,880) ----------- ----------- ----------- ----------- NET PROFIT (LOSS) 551,969 89,025 (1,513,070) (1,207,956) =========== =========== =========== =========== LOSS PER SHARE OF COMMON STOCK - - Basic - - (0.09) (0.06) =========== =========== =========== =========== Weighted average number of shares of common stock outstanding - - 16,249,106 4,081,238 (e) 20,330,344 =========== =========== =========== ===========
CHINA WORLD TRADE CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 2003 - --------------------------------- PRO FORMA Pro forma CONSOLIDATED GNGCM GHIAL The Company adjustments BALANCE ----------- ----------- ----------- ----------- ----------- US$ US$ US$ US$ US$ OPERATING REVENUES 1,975,098 929,916 2,885,600 5,790,614 OPERATING EXPENSES Operating costs and expenses (899,503) (61,364) (1,213,169) (2,174,036) Selling, general and administrative expenses (572,878) (189,106) (3,954,066) (4,716,050) ----------- ----------- ----------- ----------- PROFIT (LOSS) FROM OPERATIONS 502,717 679,446 (2,281,635) (1,099,472) NON-OPERATING (EXPENSES) INCOME Other income 17,119 99 2,490 19,708 Interest expenses (75,251) - (14,811) (90,062) Equity in net loss of affiliate - - (32,051) (32,051) ----------- ----------- ----------- ----------- PROFIT (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 444,585 679,545 (2,326,007) (1,201,877) INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS Provision for income taxes (573,448) (25,979) - (599,427) ----------- ----------- ----------- ----------- PROFIT (LOSS) BEFORE MINORITY INTEREST (128,863) 653,566 (2,326,007) (1,801,304) MINORITY INTEREST - - 120,471 (417,097) (d) (296,626) ----------- ----------- ----------- ----------- NET PROFIT (LOSS) (128,863) 653,566 (2,205,536) (2,097,930) =========== =========== =========== =========== LOSS PER SHARE OF COMMON STOCK - - Basic - - (0.23) (0.15) =========== =========== =========== =========== Weighted average number of shares of common stock outstanding - - 9,699,264 4,081,238 (e) 13,780,502 =========== =========== =========== ===========
1. BASIS OF PRO FORMA PRESENTATION The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in the Company's Form 10-KSB for the year September 30, 2003 filed on January 13, 2004, the Company's Form-10QSB quarterly report for the three-month period ended March 31, 2004 filed on May 14, 2004 and the audited financial statements of GNGCM and GHIAL for the year ended December 31, 2003 and for the three-month period ended March 31, 2004 prepared in accordance with USGAAP. The Company has changed its financial year end date from September 30 to December 31 of each calendar year with effect from the period ended December 31, 2003. Therefore the Company's Form 10-KSB for its financial year ended December 31, 2003 covers the year ended September 30, 2003 and its Form 10-QSB for the first quarter falling into the financial year ending December 31, 2004 covers the three-month period ended March 31, 2004. The statutory financial statements of GNGCM and GHIAL are prepared in accordance with accounting principles generally accepted in the Peoples' Republic of China, which differ in certain significant respects from the USGAAP. For the purposes of preparing these unaudited pro forma condensed consolidated financial statements, management of GNGCM and GHIAL has prepared a set of financial statements for each of the companies under USGAAP. These financial statements have been audited and adopted as the bases for preparing these unaudited pro forma condensed consolidated financial statements. However, the financial year end date of both GNGCM and GHIAL falls on December 31. Accordingly, their results for the year ended December 31, 2003 have been adopted in preparing the unaudited pro forma condensed statement of operations for the year ended September 30, 2003. On April 20, 2004, a wholly-owned subsidiary of the Company (the "Transferee") entered into an Equity Transfer Agreement (the "Agreement") with the major shareholders of GNGCM and GHIAL (the "Transferors"), pursuant to which the Transferee would acquire from the Transferors 51% interest in GNGCM for an aggregate consideration of approximately US$11,127,000 of which US$3,640,000 was to be paid in the form of cash and US$7,487,000 was to be paid in the form of restricted shares issued by the Company. The Agreement also contemplated a loan agreement in the amount of US$3,640,000 pursuant to which the one of the Transferors would loan the said amount to GNGCM as part of the transaction. Completion of the Agreement was subject to a group reorganisation to be completed by GNGCM. Upon completion of the reorganisation, GNGCM shall hold 7 subsidiaries, with GHIAL being the most significant one. On June 1, 2004, a supplementary agreement to the Agreement was entered into by making several changes to the Agreement, amongst which the aggregate consideration was reduced to US$10,232,000, of which US$2,745,000 was to be paid in the form of cash and US$7,487,000 was to be paid in the form of restricted shares of the Company. The Acquisition, which was mainly carried out for the Company's expansion purposes, was completed on August 2, 2004 and the Company has issued 4,081,238 shares of US$0.001 to satisfy the consideration which was to be paid in the form of shares of the Company. 2. PRO FORMA ADJUSTMENTS Pro forma adjustments are necessary to reflect the adjustments necessary to give full effect to the acquisition as if it had been occurred at the beginning of the periods presented. These pro forma adjustments include the adjustments for the difference between the considerations paid for the assets acquired and the estimated fair value of such assets and to eliminate minority interests. As there were no intercompany transactions or balances, no pro forma adjustments for elimination in this respect is necessary. Certain reclassifications have been made to conform GNGCM's and GHIAL's historical amounts to the Company's presentation. The pro forma consolidated provision for income taxes does not reflect the amounts that would have resulted had the Company, GNGCM and GHIAL filed consolidated income tax returns during the periods presented. The pro forma adjustments included in the unaudited pro forma condensed consolidated financials statements are as follows: (a) Adjustment to record the consideration for the acquisition of 51% interest in GNGCM and 26.5% effective interest in GHIAL of the total purchase price of US$10,232,000, approximately US$1,241,000 in cash was paid on August 2, 2004, approximately US$1,500,000 in cash was deferred until September 30, 2004 and the remainder of the purchase price was satisfied in the form of approximately US$7,487,000 in market value of 4,081,238 shares of US$0.001. (b) Adjustment to reflect exercise of warrants by two of the major shareholders. In July 2004, two of the major shareholders of the company exercised warrants to purchase 3,500,000 shares of US$0.001 at a total consideration of US$2,500,000. Part of the consideration was used for settlement of the purchase price for the acquisition as mentioned in (a) above. (c) Elimination of investment in GNGCM and GHIAL: GNGCM GHIAL Total --------- --------- ---------- US$ US$ US$ Consideration 10,232,000 Common stock (603,347) (1,206,695) (1,810,042) Due from related party 4,785,937 1,362,989 6,148,926 Dedicated reserves (301,674) (110,872) (412,546) Retained earnings 179,434 (621,782) (442,348) Minority interests - 423,509 423,509 --------- --------- ---------- 14,139,499 ========== (d) Adjustment to reflect the minority interest's share of results of GNGCM and GHIAL for the three-month period ended March 31, 2004 and for the year ended December 31, 2003. (e) Adjustment to reflect the increase in weighted average number of shares outstanding by 4,081,238 common stocks as if they had been issued on October 1, 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CHINA WORLD TRADE CORPORATION By: /s/ John Hui -------------- John Hui President Date: August 12, 2004 EXHIBIT INDEX Exhibit Number Description - ------- ----------- 10.1 Equity Transfer Agreement, dated April 20, 2004. 10.2 Supplementary Agreement to Share Exchange Agreement, dated June 1, 2004. EX-10.1 2 doc2.txt EQUITY TRANSFER AGREEMENT DATED 4/20/04 Exhibit 10.1 GUANGDONG NEW GENERATION BUSINESS MANAGEMENT CO. LTD. EQUITY TRANSFER AGREEMENT The present agreement is entered into among the following parties in Guangzhou on the 20th day of April 2004. Guoji Enterprise Co., Ltd., a limited liability company established with effective duration in accordance with the laws in the British Virgin Islands. Its address of registration is Akara Bldg. 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands. The company is a wholly-owned subsidiary company of China World Trade Corporation. The legal representative of the company is Zeng Zhixiong (hereinafter abbreviated as Party A or Transferee). Guangdong Huahao Industries Group Co., Ltd., a limited liability company established with effective duration in accordance with the laws in China. Its address of registration is 15/F, No. 198 Linhexiheng Road, Tianhe District, Guangzhou City, Guangdong Province, China. The legal representative of the company is Chen Zeliang (hereinafter abbreviated as Party B, or collectively referred to as Transferors together with Party C and Party D). Huang Zehua, a natural person of Chinese nationality, whose ID No. is 445221790628656 and whose place of residence is Denggang Town, Jiedong County, Guangdong Province (hereinafter abbreviated as Party C, or collectively referred to as Transferors together with Party B and Party D). Suo Hongxia, a natural person of Chinese nationality, whose ID No. is 410311710225004 and whose place of residence is Room 903, No. 14 Huajing Road, Guangzhou City, Guangdong Province, China (hereinafter abbreviated as Party D, or collectively referred to as Transferors together with Party B and Party C). PREFACE Whereas: 1. Parties B, C and D jointly invested in the establishment of Guangdong New Generation Business Management Co., Ltd. (hereinafter abbreviated as "Target Company") on April 3, 1998. The primary business scope of the company includes market research and planning, sales agency of airline passenger and freight transportation, business agency and consultation on travel information. Its address of registration is Ground Floor, No. 980 North Jiefang Road, Yuexiu District, Guangzhou City, Guangdong Province, China. The legal representative of the company is Zhu Jianxin. 2. The Target Company is a limited liability company established with effective duration in accordance with the laws in China. The company's registered capital is RMB fifteen million ( 15,000,000.00). The Transferors are the existing shareholders of the Target Company and, as of the date this agreement is signed, hold one hundred percent (100%) of the shares of the Target Company. To be specific, Parties B, C and D respectively hold eight-six point sixty-seven percent (86.67%), ten percent (10%) and three point thirty-three percent (3.33%) of the shares of the Target Company. 3. The Transferors agree to transfer to the Transferee fifty-one percent (51%) of the shares of the Target Company that they hold in accordance with the prices set in Article 2.2 below as well as other terms and conditions set out in this agreement. The Transferee agrees to take over the transferred shares and rights as mentioned above in accordance with the conditions set out in the terms of this agreement. Now therefore, the parties hereby enter into the following agreement on the basis of equality, voluntariness and consultation and in accordance with the existing laws, administrative rules and regulatory documents in China: Article One Definition 1.1 In this agreement the following words and phrases are defined as follows unless otherwise specified in the context: (1) "China" refers to the People's Republic of China (not including Hong Kong and Macao Special Administrative Regions and Taiwan Province); (2) "Hong Kong" refers to the Hong Kong Special Administrative Region of the People's Republic of China); (3) "Renminbi" refers to the legal currency in the People's Republic of China; (4) "Share" refers to the shareholder's equity as held by the existing shareholder based on the proportion of the amount of registered capital it contributes according to the related legal documents in the total amount of registered capital of the Target Company. Generally speaking, the shares may take the form of stocks, share of equities and so on. In this agreement the shares are calculated in percentages. (5) "Transferred shares" refer to the fifty-one percent (51%) of the equities in the Target Company that the Transferors transfer out in accordance with the conditions and arrangements in this agreement. (6) "Transfer price" refers to the transfer price as specified in Articles 2.2.1 and 2.2.2 of this agreement. (7) "Transfer completion date" refers to the details in Article 6.1. (8) "Existing shareholders" refer to the shareholders of the Target Company as specified by the most recently dated effective contracts or regulations before this agreement is signed and takes effect, i.e. the transferring shareholders and the Transferors of the equities in this agreement. (9) "Several enterprises" refers to the holding and (or) shareholding companies by the Transferors as in Appendix 1. (10) This agreement refers to the entire text, complete appendices of the agreement as well as all other documents that all parties agree to list as the appendices of the agreement. (11) "China World Trade Corporation" refers to the company registered in the State of Nevada in the United States of America and approved by the securities regulatory authority in the United States as listed company. To avoid misinterpretation, it is important to note that China World Trade Corporation holds one hundred percent (100%) of the rights of the Transferee. (12) "Asset assessment date" refers to the base date of the asset assessment. 1.2 Articles, clauses, items and appendices refer to the articles, clauses, items and appendices of this agreement. 1.3 The headings in this agreement are made for the sake of convenience and do not affect the understanding and interpretation to the agreement. Article Two Equity Transfer 2.1 Share of Transfer 2.1.1 All the parties in this agreement agree that the Transferors will make a one-time transfer to the Transferee of fifty-one percent (51%) of the shares of the Target Company that they hold in accordance with the conditions set in this agreement. To be specific, (a) Party B transfers thirty-seven point sixty-seven (37.67%) of the shares it originally owns in the Target Company and retains forty-nine percent (49%) of the shares; (b) Party C transfers all of the shares (10%) it originally owns in the Target Company; (c) Party D transfers all of the shares (3.33%) it originally owns in the Target Company. 2.1.2 After the paid transfer of the fifty-one percent (51%) of the shares from the above-mentioned Target Company, the Transferee becomes the controlling shareholder of the Target Company. Upon the completion of the transfer, the composition of the shares in the Target Company becomes: Party A owns fifty-one percent (51%) of the shares and Party B owns forty-nine percent (49%) of the shares. 2.2 Transfer Price 2.2.1 The Transferee purchases the "transfer shares" from the Transferees at the transfer price of RMB ninety-one million eight hundred thousand (91,800,000.00), in which parties B, C and D respectively obtain the transfer prices of RMB seventy-nine million five hundred sixty-three thousand and sixty (79,563,060.00), RMB nine million one hundred eighty thousand (9,180,000.00) and RMB three million fifty-six thousand ninety-four (3,056,940.00). 2.2.2 The Transfer Price refers to the purchase price of the transfer shares, including the variety of shareholder's equities contained in the transfer shares. Such shareholder's equities refer to all the current and potential equities attached to the transfer shares, including all the benefits represented by fifty-one percent (51%) of all the personal properties and real estate as well as the tangible and intangible assets that the Target Company owns. They also include but are not limited to all the profits and dividends prior to the completion date of the equity transfer for the year 2004. The Transfer Price does not include: (a) any liabilities or other account payable (hereinafter abbreviated as "Undisclosed Liabilities") of the Target Company not listed in Appendix 2 of this agreement and (b) the existing shortfall, damage, reduction or loss of use value between the current assets of the Target Company and the checklist contents in Appendix 3 (collectively referred to as "Property Devaluation or Damage".) 2.2.3 In case of Undisclosed Liabilities and Property Devaluation or Damage (if existing), the Transferee shall shoulder the compensation responsibilities in the proportion of fifty-one percent (51%) of the amount of the Undisclosed Liabilities. Article Three Payment 3.1 Means of Payment 3.1.1 All the parties of the agreement agree that the Transferee shall pay to the Transferors the Transfer Price by means of the Renminbi it legally owns and the stocks it has the right of disposal of. Among the payment, (a) RMB thirty million (30,000,000.00) shall be made in cash, and (b) the remaining Transfer Price to the Transferors shall be in the form of the additionally issued common stocks from China World Trade Corporation which will apply to the securities regulatory authority in the United States for such issuance. The unit price per share of the stocks used for payment is converted as ninety percent (90%) of the average closing price for the ten (10) trading days prior to the completion date of the transfer for China World Trade Corporation as well as the foreign exchange rate published by the State Administration of Foreign Exchange of China as of the date of the additional issuance. 3.2 Time of Payment 3.2.1 The Transferee shall, on or before May 10, 2004, pay RMB ten million (10,000,000.00) to Party B of this agreement in the form of loan (see Appendix 4; the Target Company and the primary shareholder Chen Zeliang of Party B shall guarantee such a loan). By the time when all the prerequisites detailed in Clause 4.1 below are satisfied and fulfilled before the deadline specified in Clause 5.1, this loan may be converted into the Transfer Price to the Transferors. 3.2.2 Within five (5) business days of the satisfaction and fulfillment of all the prerequisites detailed in Clause 4.1 of this agreement and of the completion of procedures by the Target Company with registration management authority for the change of shareholders and for the new business license, the Transferee shall pay to the Transferors the cash portion of the remaining Transfer Price. The stock portion shall be paid to the Transferors within two (2) months thereafter. 3.2.3 All the parties shall pay the taxes incurred in "Equity Transfer" in this agreement in accordance with the laws and regulations. 3.2.4 The Transferee has the right to pay the Transfer Price to the Transferors in any equivalent foreign currency (if necessary and not contrary to the existing related laws and regulations in China). Article Four Prerequisites of the Equity Transfer 4.1 Only after the following prerequisites are completely satisfied will the Transferee fulfill the obligation of paying off the entire Transfer Price. (1) For the purpose of the transactions in this agreement, the Transferors shall unconditionally transfer to the Target Company all the shares they control and own in several enterprises so that the Target Company will legally become the legitimate shareholders of the several enterprises mentioned above and enjoy the shareholder's rights in proportion to the shares transferred. The Transferors shall complete the related registration procedures for the change of shareholders on or before June 1, 2004. However, the registration procedures for the change of shareholders for Easy Boarding Business Trip Service Co., Ltd. of Guangzhou Baiyun International Airport and Guangzhou Airport Travel Agency Co., Ltd. are not subject to the above-mentioned time constraint, but such registration procedures for the change of shareholders shall be completed on or before September 30, 2004. (2) For the purpose of the transactions in this agreement, the Transferors shall urge the Target Company to complete the purchase of sixty percent (60%) of the shares from each of Hainan Xinkaili Airline Service Co., Ltd, Beijing Golden Eagle Airline Service Co., Ltd. and Zhengzhou Shaolin Tourism Development Co., Ltd. The related registration procedures of the change of equities shall also be completed on or before June 1, 2004. (3) For the purpose of the transactions in this agreement, China World Trade Corporation shall apply to the securities regulatory authority in the United States for the additional issuance of common stocks and the approval shall be obtained on or before June 15, 2004. (4) The Target Company and Party B of this agreement shall have signed a loan arrangement document on or before May 10, 2004, which mainly indicates that Party B will unconditionally provide to the Target Company with RMB thirty million (30,000,000.00) (see Appendix 5). (5) The Target Company and the Transferee shall have signed a loan arrangement document on or before May 10, 2004, which mainly indicates that the Transferee will provide to the Target Company not more than RMB thirty-one --- million two hundred twenty-four thousand five hundred (31,224,500.00) (see Appendix 6). (6) The Transferors shall have completed all the legal procedures regarding the transfer of shares to the Transferee. (7) The Transferors shall have completed all the approval, change application and registrations regarding the equity transfer as required by the related national regulatory authority. (8) Party B of this agreement shall have provided the resolution by the Board of Directors and the shareholders' meeting of Party B approving such an equity transfer. (9) The Transferors shall have signed a disclaimer exempting the Transferee from undisclosed liabilities before the equity transfer completion date and the tax responsibilities likely to be caused by the transfer. (10) The law firm that the Transferee engages shall have provided legal opinion proving the all above legal documents supplied by the Transferors are true and authentic. The law firm shall also have confirmed that the various transactions detailed in this agreement are effective and legal according to the law and that the agreement has the same legal binding force to all the signing parties. 4.2 The Transferee has the right to decide, of its own will, to abandon all or any prerequisites mentioned in the above Clause 4.1 (except Clause 4.1 (6)). Such a decision to abandon shall be made in writing. Article Five Term and Termination 5.1 Unless otherwise specified, the prerequisites detailed in the above Clause 4.1 shall be completed on or before June 15, 2004. 5.2 In case any of the prerequisites in the above Clause 4.1 is not fulfilled before the deadline specified in the above Clause 5.1 and the Transferee is not willing to drop these prerequisites, this agreement is deemed as terminated. All the rights, obligations and responsibilities for the parties of this agreement become ineffective immediately and cease to be binding for the parties concerned. When this happens, the Transferors may not require the Transferee to pay the Transfer Price as per this agreement. Meanwhile, Party B of this agreement should, immediately or no later than fifteen (15) business days after the termination of this agreement, return to the Transferee the loan and the interest that the Transferee has already paid to Party B in accordance with Clause 3.2.1 of this agreement. 5.3 The Target Company shall complete its change of equities within fifteen (15) days calculated from the completion date set in Clause 5.1, namely June 15, 2004 (Postponement may be allowed if the place of registration of Party A or its appointed Transferee is not in Mainland China, thus having to obtain certain permits pertaining to Chinese-foreign joint ventures which may cause postponement and delay in time.) 5.4 For the purpose of the transactions in this agreement, the Transferors and the Transferee will jointly appoint a legally qualified asset evaluation and account auditing authority to complete the asset evaluation and financial auditing to the Target Company in accordance with the internationally prevailing rules before July 30, 2004. 5.5 In case of automatic termination of the agreement as detailed in Clause 5.2, the parties involved will restore the transferred shares. Mutual cooperation will be expected in the completion of various required procedures (if necessary and not contrary to the existing related laws and regulations in China). Unless regulated in this agreement or otherwise agreed by the parties, the Transferee may not charge any fees to the Transferors. 5.6 All the parties of this agreement agree that no party will be considered defaulter if, after reasonable efforts have been made by various parties, the prerequisites set out in Clause 4.1 still cannot be fulfilled and this agreement will thus be automatically terminated. In this case no party may claim damage compensation from other parties. Article Six Equity Transfer Completion Date 6.1 This agreement will take effect upon signing. Upon completion of various legal procedures regarding change and registration as required by the equity transfer, the Transferee will have the legal ownership of the transferred shares and become the shareholder of the Target Company. However, the rights and obligations for various parties in this agreement will not considered fulfilled until the prerequisites under Clause 4.1 of this agreement are fully satisfied and fulfilled before the deadline and until the day when the Transferee has actually paid the Transfer Price to the Transferors. 6.2 The Transferors agree to deploy all their resources to cooperate with the accountant appointed by China World Trade Corporate in the auditing and reporting of the financial status of the Target Company during the past three years and three months in accordance with the American accounting standards, so that China World Trade Corporation may comply with the disclosure requirements for the company to be listed in the United States. This auditing report must be completed within sixty (60) days starting from the completion date of the transfer. Article Seven Appointment and Dismissal of the Board Directors 7.1 At the time of the equity change for the Target Company, the Transferee has the right to appoint directors into the Board of Directors of the Target Company in accordance with the pertinent regulations of the Target Company and require them to assume all the responsibilities and obligations as directors. Article Eight Asset Assessment Date for the Target Company 8.1 In accordance with Clause 5.4 of this agreement, the asset evaluation date for the Target Company is May 31, 2004, which is also the asset assessment date for the company. 8.2 The Transferors do not have to disclose any information regarding the normal business operation between the asset assessment date for the company and the equity transfer completion date. The Transferors shall take the initiative to fulfill the rights and obligations of the shareholders and keep the assets of the company intact without depreciation or damage. Article Nine Statement and Guaranty 9.1 One party of this agreement is hereby making the following statement and guaranty to the other parties: (1) All the information in the statement and guaranty made by the various parties of this agreement is authentic, complete and accurate. (2) All the parties in this agreement have full civil capacity. (3) All the parties in this agreement have all the rights, authorization and permission required for the signing of the agreement as well as the rights, authorization and permission required for the fulfillment of every obligation listed in this agreement. (4) After the authorized legal representatives of the parties in the agreement have signed the agreement, the relevant regulations in this agreement constitute the legal, effective and binding obligations. (5) Both the signing of the agreement and the fulfillment of the obligations listed in the agreement will not contravene, violate or go against the business license/business registration permit, rules, any laws and regulations, or the approval of any government organization or authority, or the regulations of any contract or agreement as a signing party. (6) Prior to the date when this agreement becomes effective, no circumstance will possibly constitute violation of related laws or prevention of fulfillment of obligations listed in this agreement. (7) To the best of its knowledge, there is no pending or forthcoming lawsuit, arbitration or other legal, administrative or government investigation that is related to the issues addressed in this agreement or that may have negative effect on the signing of the agreement or fulfillment of the obligations listed in the agreement. (8) The party discloses to other parties all the documents from government departments that it holds and that are related to the transactions drafted in this agreement. Neither these documents nor documents previously provided to other parties contain any untruthful representation or omissive representation of important facts so that no contents of these documents contain any inaccurate information about important facts. 9.2 The Transferors make the following guaranty and commitment to the Transferee: (1) Apart from the written disclosure to the Transferee prior to the signing date of this agreement, there is no ongoing, pending or upcoming major lawsuit, arbitration or administrative procedures related to the equities that the Transferors own of the Target Company. (2) Apart from the written disclosure to the Transferee prior to the signing date of this agreement, there is no guarantee, pledge or warranty to any third party about the equities that the Transferors own of the Target Company. In addition, the Transferors are the legal and full owners of such equities. (3) As of the signing date of this agreement and the equity transfer completion date, the Target Company does not owe the Transferors any debt, profit or any other money. 9.3 The commitment and guaranty (see Appendix 7) that the Transferors make about the behavior of the Target Company are truthful and accurate, and do not contain any omissive information which may be misleading to the Transferee. 9.4 Unless otherwise prescribed in this agreement, the commitments and guaranties under Clauses 8.1 and 8.2 of this agreement and Article Nine remain legally effective after the completion of the share transfer until June 30, 2005. 9.5 If, before the prerequisites under Clause 4.1 are fully satisfied, any guaranty or commitment is confirmed to be untruthful, misleading, inaccurate or incomplete, the Transferee may, within 14 days of receipt of the aforementioned notice or awareness of the related incident, notify the Transferors in writing of the cancellation of the purchase of the "transferred shares" without having to bear any legal liabilities. 9.6 The Transferors promise to notify the Transferee in writing in a timely manner should there be any major incident in serious violation or contravention of the guaranty before the prerequisites under Clause 4.1 are fully satisfied. Article Ten Liability for Breach of Contract 10.1 The occurrence of any of the following incidents will constitute the breach of contract by the party involved under this agreement: (1) Any party acts in violation of any clause of this agreement. (2) Any party violates any statement, guaranty or commitment it makes in this agreement, or any statement, guaranty or commitment that any party makes in this agreement is deemed untruthful, incorrect or misleading. (3) The Transferors, without prior consent from the Transferee, directly or indirectly sell any asset it owns in the Target Company to a third party. (4) Within two (2) years of the signing of the contract, the Transferors or the current shareholders of Party B of this agreement conduct the same business as the Target Company. 10.2 In case of breach of contract by any party, the other party has the right to request the immediate termination of the agreement and/or request compensation for the damage thus caused. Article Eleven Confidentiality 11.1 Unless otherwise agreed in this agreement, all parties shall make best efforts to meek confidential all kinds of commercial information, data and/or documents about the other party obtained in the course of fulfilling this agreement, including any content in this agreement and other cooperative projects the other parties may be involved in. All parties shall require that their employees, agents and suppliers only obtain the above information when it is needed for the fulfillment of the obligations of the agreement. 11.2 The above restrictions do not apply to: (1) the data and information generally obtainable by the public at the time of disclosure. (2) the data generally obtainable by the public after disclosure not due to the fault of the receiving party. (3) the data that the receiving party may prove already owned prior to disclosure and not obtained directly or indirectly from other parties. (4) the above confidential information that any party discloses to its direct legal counsel and financial advisor; such disclosure is made as an obligation to the related government department as required by the law or is made as required by the normal business operation. (5) disclosure that any party makes to its bank and/or other organization providing financing under the circumstance of the normal business operation. (6) disclosure that the Transferee makes as required by the securities regulatory authority or related laws and regulations. 11.3 Both parties shall enjoin their respective directors, senior staff and other employees and directors, senior staff and other employees of their affiliate companies to observe the confidentiality obligations prescribed in this agreement. 11.4 For whatever reason this agreement is terminated, the contents in this article remain their original effectiveness. Article Twelve Forces Majeure 12.1 Forces Majeure refer to any incident that all parties or any one party of the agreement cannot control or predict, or may predict but cannot avoid, and that happens after the signing date of the agreement and makes any one party unable to fully or partially fulfill this agreement. Forces majeure include but are not limited to strike, staff riot, explosion, fire, flood, earthquake, hurricane and/or other natural disaster and war, civil commotion, intentional destruction, requisition, confiscation, government behavior on sovereignty, changes in laws or inability to continue mutual cooperation due to the failure to obtain government approval to certain issues or due to some mandatory regulations and requirements from the government, as well as the occurrence of other major event or outburst of any incident. 12.2 In case of forces majeure, the party prevented from fulfilling this agreement shall notify the other parties in the quickest manner without any delay, and provide the other parties with a detailed written report on the event within fifteen (15) days of the happening of the force majeure. The party affected by the force majeure shall take all reasonable actions to eliminate the impact of the force majeure and reduce the damage it causes to various parties. The parties shall, based on the impact of the force majeure on the fulfillment of this agreement, decide whether to terminate or postpone the fulfillment of this agreement, or either partially or fully exempt the affected party from the obligations of this agreement. Article Thirteen Notice 13.1 The notice under this agreement shall be served in person, via fax or express mail service to the address and number indicated below unless any one party has notified the other parties in writing of the change in address and number. If delivered via express mail service, the notice is deemed served after five (5) days of being mailed. If delivered in person or via fax, the notice is deemed served the day following the delivery day. If delivered via fax, the original notice shall be mailed via express mail service or delivered in person to the other parties. Party A: Guoji Enterprise Co., Ltd. ---------------------------- Address: Room 1217, 12/F, The Metropolis Tower, 10 Metropolis Drive, Hunghom, Hong Kong Receiver: Zeng Zhixiong Telephone: 852-2787 2005 Fax: 852-2787 0005 Party B: Guangdong Huahao Industries Group Co., Ltd. Address: 15/F, No. 198 Linhexiheng Road, Tianhe District, Guangzhou City, Guangdong Province, China Receiver: Chen Zeliang Telephone: 8620-8764 8193 Fax: 8620-8764 8166 Party C: Huang Zehua Address: Telephone: Fax: Party D: Suo Hongxia Address: Telephone: Fax: Article Fourteen Supplementary Provisions 14.1 Any amendment to the agreement takes official effect at the consultation and approval of the parties involved and at the signature of the authorized representatives on the written document. It shall form an integral part of the agreement and the amended contents of the agreement shall prevail over the original contents. 14.2 Any extension or continuation that any party of the agreement grants to the other party for the latter's default or delay shall not be deemed as the abandonment of the party's rights and power. Nor shall it damage, affect or limit all the right and power the party has in accordance with the related laws and regulations of China. 14.3 Invalidity, ineffectiveness and inexecutability of any clause in this agreement do not affect or undermine the effectiveness, effect and executability of other clauses. However, all parties of the agreement shall stop performing the invalid, ineffective and inexecutable clauses and make amendments within the scope closest to their original meanings so that they become valid, effective and executable for the particular facts and situations. 14.4 Depending on the needs of the situation, the equity transferee may transfer all or partial rights and obligations in this agreement to its affiliated company. In doing so the Transferee shall send written notice to the Transferors. 14.5 The Transferee shall be responsible for the auditing and assessment fees for the Target Company as incurred in the equity transfer mentioned in this agreement. 14.6 All the arrangements on equity transfer between the parties involved in this agreement shall replace any previous intent, expression or understanding regarding this agreement. Amendments or additions may be made only when the authorized representatives from both parties have signed the written documents. 14.7 If not fully fulfilled before the transfer completion date, the arrangements in this agreement shall remain fully effective after the transfer completion date. 14.8 For any business not covered in this agreement, the parties may enter into additional agreement through direct consultation and negotiation. 14.9 The original of this agreement is made in quadruplicate in Chinese, with each party holding one copy. Article Fifteen Applicable Laws 15.1 The laws, administrative regulations and normative documents apply to the signing, validity, interpretation, fulfillment, implementation and settlement of disputes in this agreement. Article Sixteen Settlement of Disputes 16.1 For all the disputes arising from the fulfillment of this agreement or in connection with the agreement, the parties involved in the agreement shall settle through negotiation. In the case of failure in negotiations, any party may submit the dispute to China International Economic & Trade Arbitration Commission, Shenzhen Commission, which will conduct arbitration in accordance with the Commission's arbitration rules in effect at the time of application for arbitration. The arbitral award is final and has ultimate legal effect on all parties. Article Seventeen Appendices 17.1 All the appendices to this agreement are integral part of the agreement and have same legal effect as the main body of the agreement. (There is no text on this page) Party A: Authorized Representative (Signature): Party B (Seal): Authorized Representative (Signature): Party C (Signature): Party D (Signature): EX-10.2 3 doc3.txt SUPPLEMENTARY AGREEMENT DATED 6/1/04 Exhibit 10.2 SUPPLEMENTARY AGREEMENT TO GUANGDONG NEW GENERATION BUSINESS MANAGEMENT CO. LTD. SHARE EXCHANGE AGREEMENT The present supplementary agreement is entered into among the following parties in Guangzhou on the 1st day of June 2004. China Chance Enterprises Limited, a limited liability company established with effective duration in accordance with the laws in the British Virgin Islands. Its address of registration is Akara Bldg. 24 De Castro Street, Wickhams Cayi, Road Town, Tortola, British Virgin Islands. The company is a wholly-owned subsidiary company of China World Trade Corporation. The legal representative of the company is Zeng Zhixiong (hereinafter abbreviated as Party A or Transferee). Guangdong Huahao Industries Group Co., Ltd., a limited liability company established with effective duration in accordance with the laws in China. Its address of registration is 15/F, No. 198 Linhexiheng Road, Tianhe District, Guangzhou City, Guangdong Province, China. The legal representative of the company is Chen Zeliang (hereinafter abbreviated as Party B, or collectively referred to as Transferors together with Party C and Party D). Huang Zehua, a natural person of Chinese nationality, whose ID No. is 445221790628656 and whose place of residence is Denggang Town, Jiedong County, Guangdong Province (hereinafter abbreviated as Party C, or collectively referred to as Transferors together with Party B and Party D). Suo Hongxia, a natural person of Chinese nationality, whose ID No. is 410311197102250048 and whose place of residence is Room 903, No. 148 Huajing Road, Guangzhou City, Guangdong Province, China (hereinafter abbreviated as Party D, or collectively referred to as Transferors together with Party B and Party C). Whereas: 1. On the 20th day of April 2004 the Transferors and the Transferee jointly signed "Guangdong New Generation Business Management Co., Ltd. Equity Transfer Agreement" (hereinafter abbreviated as "Equity Transfer Agreement"). 2. Through mutual negotiation, the two parties agree to sign the following supplementary agreement in accordance with the stipulations in Clause 14.8 of Article 14 Supplementary Provisions of this Equity Transfer Agreement and based on the actual implementation of Clauses 4.1 (1) and (2) in Article 4 as well as the fact of the clerical error. Article 1 Amendment of the Clerical Error In the original Clause 4.1 (2) of Article 4 in the Equity Transfer Agreement, "Beijing Golden Eagle Airline Service Co., Ltd." is a clerical error in the company name. The two parties agree to amend the company name to read "Beijing Xidake Airline Booking Office." Article 2 Supplementary Clauses In accordance with the stipulations of Clause 4.1 (2) in Article 4 of the Equity Transfer Agreement, the Transferors shall urge the Target Company to purchase "Zhengzhou Shaolin Tourism Development Co., Ltd.," "Hainan Xinkaili Airline Services Co., Ltd.," and "Beijing Xidake Airline Booking Office." However, in the course of purchases, some objective uncertainties may occur and certain individual purchases may go awry unexpectedly. The Transferors therefore are obligated to update the Transferee on the progress in a timely manner. Besides, in accordance with the stipulations of Clause 14.3 in Article 14 of the Equity Transfer Agreement, the Transferee allows the Transferors to purchase companies with similar major business as supplementary. Yet related purchases may not take place without the written consent of the Transferee. The equity transfer completion date for the companies purchased as supplementary will be decided separately by the two parties. Article 3 Amendments of Clause In consideration of the fact that the change of equities for Guangdong World Trade Cyber Information Services Co., Ltd. is rather complicated, the two parties agree after mutual negotiation to amend the contents of Clause 4.1 (1) in Article 4 of the Equity Transfer Agreement from " However, the registration procedures for the change of shareholders for Easy Boarding Business Trip Service Co., Ltd. of Guangzhou Baiyun International Airport and Guangzhou Airport Travel Agency Co., Ltd. are not subject to the above-mentioned time constraint, but such registration procedures for the change of shareholders shall be completed on or before September 30, 2004." into " However, the registration procedures for the change of shareholders for Guangdong World Trade Cyber Information Services Co., Ltd. are not subject to the above-mentioned time constraint, but such registration procedures for the change of shareholders shall be completed on or before September 30, 2004." Article 4 Amendment and Cancellation of Loan Arrangement Agreement 4.1 According to Clause 2.2.1 in the Equity Transfer Agreement, "The Transferee purchases the 'transfer shares' from the Transferors at the transfer price of RMB ninety-one million eight hundred thousand (91,800,000.00), in which Party B obtains the transfer prices of RMB seventy-nine million five hundred sixty-three thousand and sixty (79,563,060.00)" The contents are hereby amended to read "The Transferee purchases the 'transfer shares' from the Transferors at the transfer price of RMB eighty-four million four hundred ten thousand and two hundred (84,410,200.00), in which Party B obtains the transfer price of RMB seventy-two million one hundred seventy three thousand and two hundred sixty (72,173,260) " 4.2 According to Clause 3.1.1 in Article 3 of the Equity Transfer Agreement, " (a) RMB thirty million (30,000,000.00) shall be made in cash." The contents are hereby amended to read " (a) RMB twenty-two million six hundred ten thousand and two hundred (22,610,200.00) shall be made in cash " 4.3 According to Clause 4 in Article 4 of the Equity Transfer Agreement, "The Target Company and Party B of this agreement shall have signed a fund arrangement document on or before May 10, 2004, which mainly indicates that Party B will unconditionally provide to the Target Company with RMB thirty million (30,000,000.00) (see Appendix 5)." The contents are hereby amended to read "The Target Company and Party B of this agreement shall have signed a fund arrangement document on or before June 5, 2004, which mainly indicates that Party B will unconditionally provide to the Target Company with RMB twenty-two million six hundred ten thousand and two hundred (22,610,200.00) (see Appendix 5)." 4.4 Clause 5 in Article 4 of the Equity Transfer Agreement, which reads "The Target Company and the Transferee shall have signed a loan arrangement document on or before May 10, 2004, which mainly indicates that the Transferee will provide to the Target Company not more than RMB thirty-one --- million two hundred twenty-four thousand and five hundred (31,224,500.00) (see Appendix 6).", is hereby cancelled. The corresponding appendix will also be removed from the Appendix Checklist. Article 5 Amendment of Time 5.1 According to Clause 3.2.1 in Article 3 of the Equity Transfer Agreement, "The Transferee shall, on or before May 10, 2004 " The contents are hereby amended to read "The Transferee shall, on or before June 10, 2004 " 5.2 According to the second sentence of Point (1) of Clause 4.1 in Article 4 of the Equity Transfer Agreement, "The Transferors shall complete the related registration procedures for the change of shareholders on or before June 1, 2004." The contents are hereby amended to read "The Transferors shall complete the related registration procedures for the change of shareholders on or before June 30, 2004." 5.3 According to Point (2) of Clause 4.1 in Article 4 of the Equity Transfer Agreement, " The related registration procedures of the change of equities shall also be completed on or before June 1, 2004." The contents are hereby amended to read " The related registration procedures of the change of equities shall also be completed on or before June 30, 2004." 5.4 According to Clause 5.1 in Article 5 of the Equity Transfer Agreement, " shall be fully completed on or before June 15, 2004." The contents are hereby amended to read "shall be fully completed on or before July 10, 2004." Article 6 Time Frame 6.1 According to Clause 5.3 in Article 5 of the Equity Transfer Agreement, "The Target Company shall complete its change of equities within fifteen (15) days calculated from the completion date set in Clause 5.1, namely June 15, 2004" The contents are hereby amended to read "The Target Company shall complete its change of equities before August 10, 2004 " 6.2 According to Appendix 5 of the Equity Transfer Agreement, Party B shall unconditionally provide to the Target Company with the fund arrangement agreement totalling RMB twenty-two million six hundred ten thousand and two hundred (22,610,200.00). Party B shall complete such fund arrangement before August 15, 2004. 6.3 The Transferee shall pay for the additionally issued common stocks that China World Trade Corporation applies to the securities regulatory authority in the United States on September 15 as payment for the remaining transfer price. Article 7 Addition of Appendix to the Main Agreement 7.1 An Appendix 8 is added to the Equity Transfer Agreement. The Appendix is named "Transferors' Guaranty of the 2003 and 2004 Quarter 1 financial situation of Guangdong New Generation Business Management Co., Ltd." Article 8 Supplementary Provisions 8.1 This current agreement is the supplementary agreement to the Equity Transfer Agreement. 8.2 This current supplementary agreement is effective after both parties have signed their names. 8.3 This current supplementary agreement is made in duplicate with each party holding to one copy. Party A: Authorized Representative (Signature): Party B (Seal): Authorized Representative (Signature): Party C (Signature): Party D (Signature): -----END PRIVACY-ENHANCED MESSAGE-----