10QSB 1 form10qsb.htm CWTD FORM 10-QSB 06/30/2005 CWTD Form 10-QSB 06/30/2005
 
 
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-QSB
 

(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For
the quarterly period ended June 30, 2005

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________________ to _________________

Commission file number 000-26119
 

CHINA WORLD TRADE CORPORATION
(Exact name of small business issuer as specified in its charter)
 
 

Nevada
87-0629754
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
 
   
 
3rd Floor, Goldlion Digital Network Center
138 Tiyu Road East, Tianhe
Guangzhou, PRC
(Address of principal executive offices)

(011-8620) 3878 - 0286
(Issuer's telephone number)

(Former name, address and fiscal year, if changed since last report)

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As at June 30, 2005, there were 30,989,997 shares of common stock outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
 

 
 
 
   
 
Page No.
PART I
  
   
 
   
 4
- As of June 30, 2005
 
 
 
5
- Three-Month and Six-Month Periods Ended June 30, 2005 and 2004
 
 
 
6
- Six-Month Periods Ended June 30, 2005 and 2004
 
 
7
 
 
 
16
 
 
24
 
 
PART II
 
 
 
25
 
 
25
 
 
25
 
 
25
 
 
25
 
 
Item 6. Exhibits
25
 
 
2
 

PART I -- FINANCIAL INFORMATION


Unaudited financial statements of China World Trade Corporation for the six months ended June 30, 2005 and 2004.

China World Trade Corporation

- Condensed Consolidated Balance Sheet as of June 30, 2005.
- Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2005 and 2004.
- Condensed Consolidated Statements of Cash Flows for the six-months period ended June 30, 2005 and 2004
- Notes to Financial Statements

 
3
 

Unaudited Condensed Consolidated Balance Sheet
As of June 30, 2005
 
       
 
As of
June 30, 2005
  
ASSETS
  
 
Note
  
 
US$
  
           
Current assets
          
Cash and cash equivalents
          
4,280,941
  
Trade and other receivables
    
2
    
2,249,060
  
Rental and other deposits
          
1,925,158
  
Prepayments
          
122,370
  
Available-for-sale securities
    
3
    
5,094,443
  
Inventories
          
123
  
               
Total current assets
          
13,672,095
  
               
Property use rights
          
1,557,567
  
Goodwill
         
11,279,314
  
Available-for-sale securities
    
3
    
1,500,000
  
Property, plant and equipment, net
          
954,752
  
               
Total assets
          
28,963,728
  
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
               
Current liabilities
              
Trade and other payables
    
4
    
6,593,749
  
Due to a shareholder
    
8(e
)
  
7,713
  
Deferred income
          
870,921
  
Short-term bank loan
   
5
    
1,208,153
  
               
Total current liabilities
          
8,680,536
  
               
Minority interest
          
2,054,828
  
               
Commitments and contingencies
              
               
Stockholders' equity
              
Preferred stock, par value of US$0.001 each;
10,000,000 shares authorized, none issued or outstanding
          
-
  
Common stock, par value of US$0.001 each;
50,000,000 shares authorized, 30,989,997 shares
issued and outstanding at June 30, 2005
    
6
    
30,990
  
Additional paid-in capital
          
31,017,628
  
Accumulated other comprehensive income
         
5,231,461
  
Statutory reserve
          
92,435
  
Accumulated deficit
          
(18,144,150
)
               
Total stockholders' equity
          
18,228,364
  
               
Total liabilities and stockholders' equity
          
28,963,728
  
 
The financial statements should be read in conjunction with the accompanying notes.
 
4
 

Unaudited Condensed Consolidated Statements of Operations
Three-month and six-month periods ended June 30, 2005 and 2004
 
   
Three-month periods ended June 30,
  
Six-month period endeds June 30,
  
           
   
2005
  
2004
  
2005
  
2004
  
 
  
US$
  
US$
  
US$
  
US$
  
 
  
Unaudited
  
Unaudited
  
Unaudited
  
Unaudited
  
Operating revenues
                  
      Club and business centre
    
215,481
    
101,694
    
550,860
    
173,089
  
Business traveling services
    
1,091,242
    
-
    
2,106,067
    
-
  
      Business value-added services
    
325,088
    
-
    
616,769
    
-
  
Rental
    
30,284
    
182,588
    
214,700
    
342,844
  
Trading and others
    
34,983
    
51,287
    
121,872
    
123,407
  
                           
     
1,697,078
    
335,569
    
3,610,268
    
639,340
  
 
Operating costs and expenses
 
                          
      Club and business centre
    
(14,826
)
  
(15,744
)
  
(143,341
)
  
(20,237
)
Business traveling services
    
(82,791
)
  
-
    
(119,791
)
  
-
  
      Business value-added services
    
(767,134
)
  
-
    
(767,811
)
  
-
  
Rental
    
-
    
(98,362
)
  
(98,762
)
  
(207,156
)
Trading and others
    
(33,897
)
  
(47,439
)
  
(120,660
)
  
(120,153
)
                           
     
(898,648
)
  
(161,545
)
  
(1,250,365
)
  
(347,546
)
                           
       Impairment and depreciation
    
(73,348
)
  
(78,502
)
  
(126,140
)
  
(321,620
)
       Selling, general and administrative expenses
    
(2,045,863
)
  
(796,606
)
  
(3,569,396
)
  
(2,180,425
)
                           
     
(2,119,211
)
  
(875,108
)
  
(3,695,536
)
  
(2,502,045
)
                           
      Loss from operations
    
(1,320,781
)
  
(701,084
)
  
(1,335,633
)
  
(2,210,251
)
                           
Non-operating income (expenses)
                          
Realized gains on available-for-sale securities
    
1,819,199
    
-
    
1,819,199
    
-
  
Other income
    
21,863
    
102,061
    
39,621
    
102,150
  
Loss on disposal of leasehold land and buildings
    
(254,740
)
  
-
    
(254,740
)
  
-
  
Interest expense
    
(25,452
)
  
(4,738
)
  
(64,621
)
  
(8,730
)
Other
    
(1,146
)
  
-
    
(1,146
)
  
-
  
                           
Profit (Loss) before income taxes and minority interest
    
238,943
    
(603,761
)
  
202,680
    
(2,116,831
)
Provision for income taxes
    
(84,708
)
  
-
    
(112,819
)
  
-
  
                           
Profit (Loss) before minority interest
    
154,235
    
(603,761
)
  
89,861
    
(2,116,831
)
Minority interest
    
(108,598
)
  
628
    
(221,225
)
  
628
  
                           
Net profit (loss)
    
45,637
    
(603,133
)
  
(131,364
)
  
(2,116,203
)
                           
Other comprehensive income
                          
Unrealized gains on available-for-sale securities
                          
Unrealized holding gain arising for the period
    
6,290,660
    
-
    
7,050,660
    
-
  
Less: Reclassification adjustment for gains or losses included in net profit (loss)
    
(1,819,199
)
  
-
    
(1,819,199
 )   
-
  
                           
Comprehensive income (loss)
    
4,517,098
    
(601,133
)
  
5,100,097
    
(2,116,203
)
                           
Profit (Loss) per share of common stock - Basic and diluted
    
0.01
    
(0.03
)
  
(0.01
)
  
(0.12
)
Weighted average number of shares of common stock outstanding
   
30,969,118
    
17,787,331
    
30,929,776
    
17,018,219
  
 
The financial statements should be read in conjunction with the accompanying notes.

 
5
 

Unaudited Condensed Consolidated Statements of Cash Flows
Six-month periods ended June 30, 2005 and 2004
 
   
Six-month periods ended
June 30,
  
   
2005
 
2004
 
 
 
Unaudited
 
Unaudited
  
   
US$
  
 
US$
  
Cash flows from operating activities:
          
Net loss
    
(131,364
)
  
(2,116,203
)
               
Adjustments to reconcile net loss to net cash used in operating activities:
              
Loss on disposal of leasehold land and building
    
25,676
    
-
  
Realized gain an available-for-sale securities
    
(1,819,199
)
  
-
  
Gain on increase in ownership of a subsidiary
    
(9,463
)
  
-
  
Minority interest
    
221,225
    
(628
)
Amortization of intangible assets
    
90,000
    
180,000
  
Stock issued for services
   
132,500
    
496,200
  
Available for sale securities received as income
    
(602,043
)
  
-
  
Depreciation and amortization
    
135,676
    
70,173
  
Impairment loss on goodwill
    
-
    
251,448
  
Decrease in deferred income
    
(13,759
)
  
(16,626
)
Changes in working capital:
              
Trade and other receivables
    
193,908
    
75,236
  
Rental and other deposits
    
(222,302
)
  
2,216
  
Prepayments
    
8,137
    
455,607
  
Inventories
    
170,897
    
64,241
  
Trade and other payables
    
96,578
    
(631,655
)
Income tax payable
    
79,098
    
-
  
               
Net cash used in operating activities
    
(1,644,435
)
  
(1,169,991
)
               
Cash flows from investing activities:
              
Acquisition of property, plant and equipment
    
(243,624
)
  
(471,138
)
   Proceeds from disposal of intagible assets     1,320,000     -  
Proceeds from disposal of property, plant and equipment
    
2,457,382
    
-
  
Proceeds from disposal of short-term investment
    
24,163
    
-
  
Proceeds from disposal of available-for-sale securities
    
1,919,892
    
-
  
Acquisition of available-for-sale securities
    
(3,675
)
  
-
  
               
Net cash provided by (used in) investing activities
    
5,474,138
    
(471,138
)
               
Cash flows from financing activities:
              
(Repayment to) Advance from a shareholder
    
(320,536
 )   
555,789
  
Repayment of amount borrowed
    
(1,052,494
)
  
(321,496
)
Issuance of new shares
   
-
    
1,125,000
  
               
Net cash (used in) provided by financing activities
    
(1,373,030
)
  
1,359,293
  
               
Net increase (decrease) in cash and cash equivalents
    
2,456,673
    
(281,836
)
               
Cash and cash equivalents at beginning of period
    
1,824,268
    
314,771
  
               
Cash and cash equivalents at end of period
    
4,280,941
    
32,935
  
               
Analysis of balances of cash and cash equivalents
              
Cash and bank balances
    
4,280,941
    
32,935
  
               
Supplemental disclosure information
              
Interest paid
    
70,868
    
14,605
  
Income taxes paid
    
33,721
    
-
  
               
 
The financial statements should be read in conjunction with the accompanying notes.

 
6
 
 
 
China World Trade Corporation

Unaudited Condensed Consolidated Statements of Cash Flows
Six-month periods ended June 30, 2005 and 2004
(continued)
   
Six-month periods ended
June 30,
  
   
2005
 
2004
 
 
 
Unaudited
 
Unaudited
  
   
US$
  
 
US$
  
 
Non-cash investing and financing activities
 
          
Common stocks issued for services
    
132,500
    
496,200
  
Available-for-sale securities received
    
602,043
    
-
  
Purchase of subsidiary by:
             
- issuance of common stock
    
-
    
240,000
  
- purchase consideration in arrear
    
-
    
120,000
  

The financial statements should be read in conjunction with the accompanying notes.

 
7


Notes to Unaudited Condensed Consolidated Financial Statements
Three-month and six-month periods ended June 30, 2005 and 2004
 
1. BASIS OF PRESENTATION

The accompanying financial data as of June 30, 2005 and for the three-month and six-month periods ended June 30, 2005 and 2004 have been prepared by the Company without audit.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s audited financial statements for the year ended December 31, 2004.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.

In the opinion of the management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of June 30, 2005 and for the three-month and six-month periods ended June 30, 2005 and 2004, have been made. The results of operations for the three-month and six-month periods ended June 30, 2005 and 2004 are not necessarily indicative of the operating results for the full year. 


2. TRADE AND OTHER RECEIVABLES
       
As of
June 30, 2005
  
   
 
Note
  
 
US$
  
           
Trade receivables
          
1,475,431
  
Due from related parties
    
8(c
)
  
736,793
  
Other receivables
          
36,836
  
               
           
2,249,060
  
 
 
8

China World Trade Corporation

Notes to Unaudited Condensed Consolidated Financial Statements
Three-month and six-month periods ended June 30, 2005 and 2004
 
3. AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities represent equity securities of which the aggregate cost, gross unrealized gains and losses and fair value are as follows:

   
 
As of June 30, 2005
  
   
 
Cost
  
 
Gross unrealized gains
  
 
Fair value
  
   
US$
  
 
US$
  
 
US$
  
Available-for-sale:
                    
Equity securities
                    
Current assets
    
1,262,982
    
3,831,461
    
5,094,443
  
Non-current assets
    
100,000
    
1,400,000
    
1,500,000
  
                     
     
1,362,982
    
5,231,461
    
6,594,443
  

As of June 30, 2005, available-for-sale securities classified as non-current assets mainly consisted of restricted shares which were not disposable within one year.


4. TRADE AND OTHER PAYABLES
       
As of
June 30, 2005
  
   
 
Note
  
 
US$
  
           
Trade payables
          
2,763,969
  
Accrued charges
          
609,573
  
Other payables
          
792,301
  
Tax payable
          
1,270,118
  
Tax payable - surcharge
          
1,004,378
  
Due to related parties
    
8(d
)
  
144,835
  
Deposits received
          
8,575
  
               
           
6,593,749
  


5. SHORT-TERM BANK LOAN

The outstanding loan balance of US$1,208,153 as of June 30, 2005 borne interest at 7.254% per annum and is repayable within one year.
 
 
9
 
China World Trade Corporation

Notes to Unaudited Condensed Consolidated Financial Statements
Three-month and six-month periods ended June 30, 2005 and 2004
 
6. ISSUANCE OF SHARES

On April 18, 2005, the Company issued 100,000 shares to Greentree Financial Group, Inc.

7. STOCK-BASED COMPENSATION

The Company records compensation expense for stock-based employee compensation plans using the intrinsic value method in which compensation expense, if any, is measured as the excess of the market price of the stock over the exercise price of the award on the measurement date.

On December 31, 2003, the Board of Directors adopted a stock option plan (The 2003 Plan). The 2003 Plan allows the Board of Directors to grant stock options to various employees of the Company. 1,000,000 stock options were issued in accordance with the terms of the 2003 Plan on December 31, 2003 to certain officers and directors at an exercise price of US$0.673 per share. On February 20, 2004, the Company cancelled 95,000 options due to resignations and job repostings. The stock options will vest and become exercisable according to the following schedule:

On April 30, 2004: 25%
On December 30, 2004: 25%
Each quarter thereafter: 6.25% (until fully vested)

As the exercise price of the options issued pursuant to the 2003 Plan is higher than the market price of the underlying stock on the date of grant,  no compensation expense has been recognized for stock options granted.
 
 
10
 
China World Trade Corporation

Notes to Unaudited Condensed Consolidated Financial Statements
Three-month and six-month periods ended June 30, 2005 and 2004
 
7.
STOCK-BASED COMPENSATION (CONTINUED)

Had compensation expenses for the same stock options been determined based on their fair values at the dates of grant and amortized over the period from the date of grant to the date that the awards vest, consistent with the provisions of SFAS No. 123, the Company's net profit (loss) and profit (loss) per share would have been reported as follows:

   
 
Three-month period ended June 30,
 
  
 
Six-month period ended June 30,
 
  
   
2005
 
2004
 
2005
 
2004
  
   
 
US$
  
 
US$
  
 
US$
  
 
US$
  
                   
Net profit (loss) as reported
    
45,637
    
(603,133
)
  
(131,364
)
  
(2,116,203
)
Total stock-based compensation expenses determined under fair value based on method for all awards, net of tax
    
(46,629
)
  
(81,175
)
  
(93,258
)
  
(202,938
)
                           
Pro forma
    
(992
)
  
(684,308
)
  
(224,622
)
  
(2,319,141
)
                           
Profit (Loss) per share - Basic and diluted
                          
As reported
    
0.01
    
(0.4
)
  
(0.01
)
  
(0.13
)
                           
Pro forma
    
(0.01
)
  
(0.4
)
  
(0.01
)
  
(0.14
)

The fair value of the options granted is estimated on the date of the grant using a Black-Scholes option pricing model with the following weighted average assumptions used:

Expected dividend yield None
Risk-free interest rate 2.1%
Expected stock price volatility 224%
Contractual life 3 years

The weighted average fair value per option granted at the date of grant was US$0.62. For purposes of pro forma disclosure, the estimated fair value of the options is amortized on a straight line basis to expense over the options’ vesting periods, i.e., 3 years as prescribed under the 2003 Plan.
 
11

China World Trade Corporation

Notes to Unaudited Condensed Consolidated Financial Statements
Three-month and six-month periods ended June 30, 2005 and 2004
 
8. RELATED PARTY TRANSACTIONS

(a) Names and relationship of related parties

 
 
Existing relationships with the Company
 
Mr. Bernard Chan
 
An officer and a shareholder of the Company
 
Mr. Chan Chi Ming
 
A director and a shareholder of the Company
 
Mr. Luo Chao Ming
 
A director and a shareholder of the Company
 
Mr. John Hui
 
A director and a shareholder  of the Company
 
Mr. Ringo Leung
 
A former director of the Company
 
Mr. William Tsang
 
A shareholder and director of the Company
 
Mr. Ho Chi Kin
 
An independent director of the Company
 
Mr. Chan Zeliang
 
A shareholder and director of the Company
 
Mr. Huang Zehua
 
A shareholder of a subsidiary
 
Ms. Suo Hongxia
 
A shareholder of a subsidiary
 
Mr. Chen De Xiong
 
A shareholder of a subsidiary
 
Mr. Li Jingping
 
A director a subsidiary
 
Beijing Wanlong Economic Consultancy Corporation Ltd.
 
PRC partner of a subsidiary
 
Guangzhou City International Exhibition Co.
 
PRC partner of a subsidiary
 
Guangzhou Cyber Strategy Limited
 
A company in which a director of the Company has beneficial interest
 
Guangzhou Goldlion City Properties Co., Ltd.
 
A company controlled by close family members of a director
 
Guangzhou Goldlion Environmental Technology Co. Ltd.
 
A company controlled by close family members of a director
 
Goldlion Holding Limited
 
A company controlled by close family members of a director
 
Xelex Inc.
 
A company in which a shareholder of the Company has beneficial interest
 
Top Link Ventures Limited
 
A company in which a director of the Company has beneficial interest
 
Guangzhou Huahao Industries Group Co. Ltd.
 
A company controlled by a director of the Company
 
Guangzhou Sanranxin Travel Ltd.
 
A company in which a director of the Company has beneficial interest
 
12
 
China World Trade Corporation

Notes to Unaudited Condensed Consolidated Financial Statements
Three-month and six-month periods ended June 30, 2005 and 2004
 
8. RELATED PARTY TRANSACTIONS (CONTINUED)

(b) Summary of related party transactions

   
 
Three-month period ended June 30,
 
 
 
Six-month period ended June 30,
 
 
 
 
 
2005
 
 
2004
 
 
2005
 
 
2004
 
 
 
 
US$
 
 
US$
 
 
US$
 
 
US$
  
Consulting fee expenses to
                  
Mr. Ringo Leung
    
-
    
-
    
-
    
5,128
  
Mr. Chan Chi Ming
    
28,030
    
-
    
47,255
    
-
  
Mr. Bernard Chan
    
24,548
    
-
    
43,778
    
2,564
  
Mr. John Hui
    
37,500
    
-
    
75,000
    
57,692
  
Mr. William Tsang
    
32,041
    
-
    
64,083
    
57,692
  
Mr. Luo Chao Ming
    
4,720
    
4,349
    
9,441
    
8,698
  
Mro Ho Chi Kin
    
1,500
    
-
    
3,000
    
-
  
Mr. Chan Zeliang
    
4,023
    
-
    
7,648
    
-
  
Mr. Huang Zehua
    
1,577
    
-
    
1,577
    
-
  
Ms. Suo Hongxia
    
453
    
-
    
453
    
-
  
Beijing Wanlong Economic Consultancy Corporation Ltd.
    
4,531
    
4,531
    
9,061
    
9,062
  
Guangzhou City International Exhibition Co.
    
4,531
    
4,531
    
9,061
    
9,062
  
Xelex Inc.
    
-
    
15,385
    
-
    
20,513
  
Top Link Ventures Limited
    
-
    
15,385
    
-
    
30,770
  
Guangzhou Cyber Strategy Limited
    
-
    
-
    
-
    
1,938
  
                           
Sponsorship expenses to
                          
Goldion Holding Limited
    
2,396
    
-
    
4,643
    
-
  
                           
Rent and related expenses to
                          
Guangzhou Goldlion City Properties Co., Ltd.
    
62,981
    
113,384
    
149,970
    
220,918
  
Guangzhou Goldlion Environmental Technology Co. Ltd.
    
33,337
    
-
    
53,899
    
-
  
                           
Rental compensation income from
                          
Guangzhou Goldlion City Properties Co. Ltd.
    
-
    
-
    
3,854
    
-
  
                           
Sale of leasehold land and buildings to
                          
Guangzhou Goldlion Environmental Technology Co. Ltd.
    
2,457,382
    
-
    
2,457,382
    
-
  
                           
Personal guarantee granted from
                          
Mr. William Tsang
    
19,231
    
19,231
    
19,231
    
19,231
  
                           
Intangible asset sold to
                          
Mr. William Tsang
    
-
    
-
    
1,320,000
    
-
  

 
13
 
China World Trade Corporation

Notes to Unaudited Condensed Consolidated Financial Statements
Three-month and six-month periods ended June 30, 2005 and 2004
 
8. RELATED PARTY TRANSACTIONS (CONTINUED)

(c)  
Due from related parties
   
 
As of
June 30, 2005
 
 
 
 
US$
  
       
Guangzhou Huahao Industries Group Co. Ltd.
    
130,676
  
Mr. Li Jingping
    
1,363
  
Ms. Huang Zehua
    
240,422
  
Mr. Chen De Xiong
    
364,332
  
         
     
736,793
  

 
The amounts due from related parties represent unsecured advances which are interest-free and repayable on demand.

(d)  
Due to related parties
   
 
As of
June 30, 2005
 
 
 
 
US$
  
       
Mr. John Hui
    
69,951
  
Mr. Ringo Leung
    
1,094
  
Guangzhou Goldlion City Properties Co., Ltd.
    
3,983
  
Guangzhou City International Exhibition Company
    
9,061
  
Ms. Suo Hongxia
    
24,163
  
Guangzhou Sanranxin Travel Ltd.
    
36,583
  
         
Classified as current liabilities
    
144,835
  
         
 
The amounts due to related parties represent unsecured advances which are interest-free and repayable on demand.

(e) Due to a shareholder
   
 
As of
June 30, 2005
 
 
 
 
US$
  
       
Mr. William Tsang
    
7,713
  
         
The amount due to a shareholder represents unsecured advances which is interest-free and repayable on demand.

 
14
 
China World Trade Corporation

Notes to Unaudited Condensed Consolidated Financial Statements
Three-month and six-month periods ended June 30, 2005 and 2004
 
9. BUSINESS SEGMENT INFORMATION

   
 
Three-month period ended June 30,
  
 
Six-month period ended June 30,
  
   
 
2005
 
 
2004
 
 
2005
 
 
2004
 
 
 
 
US$
 
 
US$
 
 
US$
 
 
US$
  
Operating revenues
                  
Club and business centre
    
215,481
    
101,694
    
550,860
    
173,089
  
Business traveling services
    
1,091,242
    
-
    
2,106,067
    
-
  
Business value-added service
    
325,088
    
-
    
616,769
    
-
  
Rental
    
30,284
    
182,588
    
214,700
    
342,844
  
Trading and others
    
34,983
    
51,287
    
121,872
    
123,407
  
                           
     
1,697,078
    
335,569
    
3,610,268
    
639,340
  
                           
Profit (Loss) from operations
                          
Club and business centre
    
(107,096
)
  
(281,179
)
  
(198,499
)
  
(504,179
)
Business traveling services
    
302,704
    
-
    
609,327
    
-
  
Business value-added service
    
(901,602
)
  
-
    
(670,733
)
  
-
  
Rental
    
(339,807
)
  
(41,096
)
  
(354,378
)
  
(85,743
)
Trading and others
    
(5,467
)
  
825
    
(65,052
)
  
(27,990
)
                           
     
(1,051,268
)
  
(321,450
)
  
(679,335
)
  
(617,912
)
Corporate expenses
    
(524,254
)
  
(379,634
)
  
(911,040
)
  
(1,592,339
)
                           
Consolidated operating loss
    
(1,575,522
)
  
(701,084
)
  
(1,590,375
)
  
(2,210,251
)
Realized gains on available-for sale securities
    
1,819,199
    
-
    
1,819,199
        
Other income
    
21,863
    
102,061
    
39,621
    
102,150
  
Interest expense
    
(25,452
)
  
(4,738
)
  
(64,619
)
  
(8,730
)
Other expenses
    
(1,146
)
  
-
    
(1,146
)
  
-
  
                           
Consolidated loss before income taxes and minority interest
    
238,942
    
(603,761
)
  
202,680
    
(2,116,831
)


10. CONTINGENCIES

Prior to the acquisition by the Company, Guangdong New Generation Commercial Management Limited (“GNGCM”) had been paying Mainland China income tax based on a calculation which was not in accordance with the standard rates stipulated by the Mainland China tax law. The shortfall of the underpaid tax liabilities, related surcharges and penalties up to the date of acquisition by the Company has been fully accrued in the consolidated financial statements. However, GNGCM could potentially be liable for further surcharge for late payments and penalties above the amount already accrued, for the period since the date of acquisition by the Company up to the balance sheet date. A shareholder of GNGCM has indemnified the Company against such shortfall and additional tax-related liabilities. As of June 30, 2005, the estimated further surcharges and penalties which GNGCM is potentially liable for amounted to US$ 209,777 and US$ 6,567,711 respectively. The estimated penalties are based on the highest assesable rate, which range from 50% and 500%.
 

15
 


Item 2.   Management's discussion and analysis of financial conditions and results of operation
 
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
    All forward-looking statements contained herein are deemed by the company to be covered by and to qualify for the safe harbor protection provided by the private securities litigation reform act of 1995. Prospective shareholders should understand that several factors govern whether any forward - looking statement contained herein will be or can be achieved. Any one of those factors could cause actual results to differ materially from those projected herein. These forward - looking statements include plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the company. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the company. Although the company believes that the assumptions underlying the forward - looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in any of the forward - looking statements contained herein will be realized. Based on actual experience and business development, the company may alter its marketing, capital expenditure plans or other budgets, which may in turn affect the company's results of operations. In light of the significant uncertainties inherent in the forward - looking statements included therein, the inclusion of any such statement should not be regarded as a representation by the company or any other person that the objectives or plans of the company will be achieved.
 
OVERVIEW
 
    We were incorporated in the State of Nevada in 1998 to engage in any lawful corporate undertaking. Our business objective is to open and operate business clubs in the major cities of China in association with the World Trade Center Association in order to position ourselves as the platform to facilitate trade between China and the world market. We currently operate two clubs, one in Guangzhou and the other in Beijing, PRC. Additionally, we expect to open clubs in Shanghai and Shenzhen, PRC in 2005. In addition, as described below, with our acquisition of 51% of Guangdong New Generation Commercial Management Limited (the “New Generation Group” or “New Generation”) in August 2004, we aim to be one of the market leaders in the travel agency business through the operations of its ten subsidiaries in Southern China in ticketing sales for international and domestic flights as well as inbound business travel.  No assurances can be given, however, that we will be successful in our endeavors.
 
16
 
    Our growth and development as a business enterprise has been marked by a number of significant corporate events. Pursuant to a Share Exchange Agreement, dated as of August 10, 2000, between Virtual Edge Limited ("Virtual Edge") and Main Edge International Limited ("Main Edge"), Main Edge transferred all of the issued and outstanding shares of the capital stock of VEL to the Company in exchange of 1,961,175 shares of our pre-split common stock, representing approximately 75% of our outstanding shares of the common stock. According, we controlled the operations of Virtual Edge, and Main Edge became our majority stockholder. We then undertook an 8-for-1 forward split that was effective on 15th day of September 2000, which resulted in Main Edge owing 15,689,400 shares of our common stock. Then, five major developments occurred. These were: (i) the consummation of two private placement financings by Powertronic Holdings Limited ("Powertronic") in September 2002 and December 2002 in which it acquired shares of our common stock, (ii) an acquisition of all the issued and outstanding shares of General Business Network (Holdings) Ltd. in December 2002, (iii) a 1-for-30 reverse stock split that was effective on September 1, 2002. (iv) the assignment of the rights of the after tax rental income of certain premises from Mr. Tsang for a five year period in December 2003, and (v) the exercise of warrant for the shares of our common stock by Mr. Tsang and Powertronic in March 2004 and in July 2004, and further exercise additional warrants in December 2004. As a result of these transactions, Mr. Chi Hung Tsang became the new major shareholder and owns over 12,600,000 shares of our common stock and Powertronic owns over 5,500,000 shares. Mr. Chi Hung Tsang is currently President and Chairman of our Board of Directors.
 
    The aim of the Company is to continue to provide travel and trade agency businesses linking companies in China and the rest of the world. China World Trade Corporation ("China World Trade") has established its businesses into three distinct divisions, namely the club and business center; the business traveling services; and the business value-added services. The Club and Business Center Division is devoted to the building of the World Trade brand in China. Its objective is to open and operate business clubs in the major cities of China in order to position the company as the platform to facilitate trade between China and the world market. China World Trade currently operates the Guangzhou World Trade Center Club, consisting of over 4,000 square meters, and The Beijing World Trade Center Club, which is located at 2nd Floor, Office Tower II, Landmark Towers Beijing, 8 North Dongsanhuan Road, Beijing PRC, and consisting of 730 square meters. In addition, since the acquisition of CEO Clubs China Limited ("CEO Clubs") in May 2004, CEO Clubs will complement China World Trade's offerings by targeting higher profile leadership from larger companies than those normally associated with China World Trade. The CEO Clubs family, of which each family members is operating independently of each other, has thirteen chapters in the US and China. It focuses on recruiting CEO's of companies with annual sales exceeding $2 million as members. The average club member has $20 million in annual sales.
 
Since the completion of the acquisition of majority stake of New Generation in August 2004, the Business Traveling Services Division will provide the necessary platform for China World Trade Corporation to focus on the high growth, travel related businesses. New Generation aims to be the pioneer and to become one of the market leaders in the travel agency businesses through the operations of its 10 subsidiaries in Southern China in ticketing sales for international and domestic flights as well as inbound business travel. Being one of the leading consolidators of hotel accommodations and airline tickets in China, New Generation has already acquired the necessary licenses to operate as a ticketing and travel agent in the PRC. These licenses include 26 licenses as a ticketing agent for international and domestic flights for both cargo and passengers issued by the Civil Aviation Administration of China and the International Air Transport Association and 3 licenses as a domestic and international travel agent issued by the Administrative Bureau of Tourism of China. In addition, New Generation is also an authorized/licensed insurance agent in China to provide, in particular, accidental and life insurances. New Generation also provides premium "red carpet" airport based services to prestigious clients and participates in the opening and continued development of the new Guangzhou Baiyun International Airport. New Generation is believed to contribute a superior revenue base to the Company.
 
17
 
The Business Value-Added Services Division concentrates on value-added services of credit cards and merchant related businesses as well as on consultancy services. Guangdong World Trade Link Information Service Limited ("WTC Link"), a subsidiary of China World Trade, formed a partnership with the Agricultural Bank of China to manage the Company's co-brand credit card project. WTC Link is an active provider of customer relationship management solution and services in China. It helped China Telecom to develop and manage the merchants' privilege VIP member services. WTC Link also formed a partnership with China Unionpay to develop the royalty systems for bank card holders in Guangdong Province, China. In addition, this Division also provides consultancy services to China World Trade's members and clients in the financial services areas including mergers and acquisitions, corporate restructuring and financing.
 
RESULTS OF OPERATIONS
 
The following table shows the selected unaudited condensed consolidation income statement data of the Company and its subsidiaries for the three-month and six-month periods ended June 30, 2005 and June 30, 2004. The data should be read in conjunction with the unaudited Consolidated Financial Statements of the Company for the three-month and six-month periods ended June 30, 2005 and June 30, 2004 and related notes thereto.

   
3 months Ended June 30,
 
6 months Ended June 30,
  
       
% of
      
% of
      
% of
      
% of
  
   
2005
  
Rev.
  
2004
  
Rev.
  
2005
  
Rev.
  
2004
  
Rev.
  
(In US$ thousands
except per share data)
  
(unaudited)
      
(unaudited)
      
(unaudited)
      
(unaudited)
      
                                   
Operating revenues
                                  
Club and business centre
    
216
    
12.7
   
90
    
26.8
    
551
    
15.3
   
161
    
25.2
  
Business traveling services
    
1,091
    
64.3
   
--
   
--
   
2,106
    
58.3
   
--
   
--
 
Business value-added services
    
325
    
19.2
    
12
    
3.6
    
617
    
17.1
    
12
    
1.9
  
Others
    
65
    
3.8
   
234
   
69.6
   
336
    
9.3
   
466
   
72.9
 
Total Operating Revenues
    
1,697
   
100.0
   
336
   
100.0
   
3,610
    
100.0
   
639
   
100.0
 
                                                   
Gross Profit
                                                  
Club and business centre
    
201
   
11.8
   
74
   
22.0
   
408
   
11.3
   
141
   
22.1
 
Business traveling services
    
1,008
   
59.4
   
--
   
--
   
1,986
   
55.0
   
--
   
--
 
Business value-added services
    
(442
)
  
(26.0
)
  
12
    
3.6
    
(151
)
  
(4.2
)
  
12
    
1.9
  
Others
    
31
   
1.8
   
88
   
26.2
   
117
   
3.2
   
139
   
21.8
 
Total Gross Profit
    
798
   
47.0
   
174
   
51.8
    
2,360
   
65.4
    
292
   
45.7
  
                                                   
Impairment and depreciation      
(73
 )  
4.3
       (79  )   23.5      (126  )   3.5      (322  )   50.4   
Selling, general and administrative exp
    
(2,046
)
  
(120.6
)
  
(875
)
  
(260.4
)
  
(3,569
)
  
(98.9
)
  
(2,502
)
  
(391.5
)
                                                   
Loss from operations
    
(1,321
)
  
(77.8
)
  
(701
)
  
(208.6
)
  
(1,336
)
  
(37.0
)
  
(2,210
)
  
(345.9
)
                                                   
Non-operating income (expenses)
                                                  
Other Income and realized gain
    
1,840
    
108.5
    
102
    
33.0
    
1,859
    
51.5
    
102
    
16.0
  
Interest expense
    
(25
)
  
(1.5
)
  
(5
)
  
(1.5
)
  
(65
)
  
(1.8
)
  
(9
)
  
(1.4
)
Loss on disposal of leasehold land and buildings 
    
(255
)
  
(15.0
)
  
--
    
-- 
    
(255
)
  
(14.2
 )   
-- 
    
-- 
  
                                                   
Profit (loss) before income taxes and minority interest
    
239
    
14.1
    
(604
)
  
(179.8
)
  
203
    
5.6
    
(2,117
)
  
(331.3
)
                                                   
Income taxes
    
(85
)
  
(5.0
)
  
--
   
-
   
(113
)
  
(3.1
)
  
--
   
-
 
                                                   
Profit (loss) before minority interest
    
154
    
9.1
    
(604
)
  
(179.8
)
  
90
    
2.5
    
(2,117
)
  
(331.3
)
                                                   
Minority interest
    
(109
)
  
(6.4
)
  
1
   
0.3
   
(221
)
  
(6.1
)
  
1
   
0.2
 
                                                   
Net profit (loss)
    
45
    
2.7
    
(603
)
  
(179.5
)
  
(131
)
  
(3.6
)
  
(2,116
)
  
(331.1
)
                                                   
Other comprehensive income
    
4,472
    
263.5
    
--
    
--
    
5,231
    
144.9
    
--
    
--
  
                                                   
Comprehensive Income
    
4,517
    
266.2
    
(603
)
  
(179.5
)
  
5,100
    
141.3
    
(2,116
)
  
(331.1
)
                                                   

18
 
THREE-MONTH PERIOD ENDED JUNE 30, 2005 COMPARED TO THREE-MONTH PERIOD ENDED JUNE 30, 2004
 
OPERATING REVENUE
 
The Company has started to provide club and business center services through its subsidiary Guangzhou World Trade Center Club located in Guangdong Province, the PRC since June 2002, business value-added services and others business (trading) through a subsidiary of General Business Network (Holdings) Limited since March 2003. We have commenced our operation in the business travel business since our acquisition of New Generation in August 2004. Cattle hide trading and rental incomes are grouped under others operating revenues and others gross profit. Consolidated operating revenue for the three-month period ended June 30, 2005 was $1,697,000, compared to $336,000 for the same corresponding period in year 2004, an increase of $1,361,000 or 405.1%. The increase was mainly the result of the increase in revenues generated from our business areas.
 
Our segmental mix of the operating revenues will continue to shift since our acquisition of the travel business and further development of our business value-added services. We will continue to utilize the World Trade Center Clubs in various major cities in China to provide the necessary platform for the growth of our businesses.
 
Of the $1,697,000 revenue in the three-month period ended June 30, 2005, approximately $216,000 (12.7%) was generated from providing club related services by Guangzhou World Trade Center Club and Beijing World Trade Center Club, $1,091,000 (64.3%) from business travel services resulting from the acquisition of the New Generation Group, $325,000 (19.2%) from business value-added services, and the remaining $65,000 (or 3.8%) from other (rental and cattle hide trading) businesses. The acquisition of New Generation and the continuous development of our business value-added services will contribute positively to our operating revenue. In general, our cost of sales is generally positively related to our operating revenue, i.e., the higher the operating revenue, the higher the cost of sales and vice versa.
 
For the three-month period ended June 30, 2005, New Generation sold a total of over 310,000 tickets, which translates to a total value of air-ticket fare of approximately $34.4 million. As compared to the same corresponding period in year 2004, ticket sold of New Generation increased by 73,000 tickets (or 30.8%) from approximately 237,000 tickets with value of air-ticket fare increased by $7.0 million (or 25.5%) from $27.4 million.
 
Consolidated gross profit increased by $624,000 or 358.6% for the three-month period ended June 30, 2005 over the same corresponding period in year 2004. The increase was predominantly driven by our business travel services resulting from the acquisition of the New Generation in August 2004 and by our business value-added services resulting from providing various consultancy services to our members. These increases were partially offset by the decrease in other (rental and cattle hide trading) businesses. As a percentage of total operating revenues, the consolidated gross profit margin of 47.0% for the three-month period ended 2005 decreased from 51.8% for the same corresponding period in 2004. Our profit margin was driven by a mix shift from lower margin trading business to higher margin business travel services. However, the lower profit margin as a percent of operating revenues for the 3 month period ended June 30, 2005 as compared to the same corresponding period in 2004 was primarily contributed by the negative margin from our business value-added services. We received common shares as compensation from the client for our services rendered. According to EITF Issue No. 00-8, we recognized our revenue in relation to the project using the share price of the common stock we received on the contract date. On the other hand, we seconded part of the services of the same project to an independent consultant at a later date and according to FAS 123, paragraph 8, we needed to record the compensation paid to non-employees in exchange of goods and services at fair value. The negative gross profit margin for the 3-month period ended June 30, 2005 of our consulting business was the result of the timing different between the dates of the contract with our client and the secondment during an upward trend of the share prices of the common stock we received for services rendered.
 
19
 
Of the $798,000 total gross profit for the 3-month period ended June 30, 2005, approximately $201,000 (or 25.2%) was generated from providing club and business center services, approximately $1,008,000 (or 126.3%) from business travel services, approximately negative $442,000 (or negative 55.4%) from providing business value-added services, and the remaining approximately $31,000 (or 3.9%) from other (rental and cattle hide trading) businesses. As compared to the same corresponding period in year 2004, the club and business center services represented a 42.5% (or $74,000) of the total gross profit; none was generated from the business travel business, a 6.9% (or $12,000) from the business value-added services; and the remaining 50.6% (or $88,000) from other (rental and cattle hide trading) businesses. The shift in segmental distribution was primarily due to the increase in gross profit in the business travel services, resulting from the acquisition of the New Generation Group. We foresee that this segment mix will continue to change and balance out in year 2005 upon further development in the business value-added services and the expected opening of World Trade Center Club Shanghai in the second half of year 2005 as well as the cessation of our cattle hide trading business in July 2005.
 
IMPAIRMENT LOSS AND DEPRECIATION
 
Total impairment loss and depreciation were approximately $73,000 for the three-month period ended June 30, 2005, as compared to the same corresponding period in year 2004, a decrease of $4,000 or 5.1% from $79,000. The decrease was mainly due to the decrease in the impairment loss in the amount of approximately $30,000, there was no impairment loss recorded for the three-month period ended June 30, 2005. This decrease of impairment loss was offset by the increase of depreciation and amortization in the amount of approximately $26,000 over the corresponding period in year 2004. Under normal circumstances, we will review the impairment of our assets at the year end or at the anniversary of such assets.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
Selling, general and administrative expenses increased by approximately $1,171,000 or 133.8% to $2,046,000 for the three-month period ended June 30, 2005 from $875,000 for the same corresponding period in 2004. The increase was mainly due to (1) the increase in director and staff related costs predominantly resulting from the consolidation of the operation of New Generation Group in the amount of approximately $563,000; (2) the increase in various advertising expenses in the amount of approximately $62,000; and (3) the increase in rental and related expenses in the amount of approximately $68,000 resulting from the consolidation of the operation of New Generation Group for the rental expenses of its sale branches.
 
OTHER INCOME AND REALIZED GAIN
 
The other income and realized gain increased by approximately $1,738,000 for the three-month period ended June 30, 2005. The increase was primarily the result of the net gain on disposal of securities of approximately $1,819,000 during the reporting period for which we received as the compensation of our consultancy services rendered.
 
FINANCIAL INCOME/(EXPENSES), NET
 
Interest expenses were approximately $25,000 for the three-month period ended June 30, 2005, as compared to the same corresponding period in year 2004 in the amount of $5,000, an increase of $20,000. The majority of the increase was the result of consolidating the interest expenses incurred by the New Generation in relation to a bank loan in the amount of RMB10,000,000 (approximately equals US$1.2 million).
 
LOSS ON DISPOSAL OF LEASEHOLD LAND AND BUILDINGS

The loss on disposal of leasehold land and building increased by approximately $255,000 for the three-month period ended June 30, 2005, as compared to none for the same corresponding period in year 2004. The loss was primarily the result from the payment of PRC tax and levy in the amount of approximately $229,000 resulting from the disposal of our Guangzhou property in May 2005.
 
INCOME TAXES
 
The Group is subject to income taxes on an equity basis on income arising in or derived from the tax jurisdiction in which it is domiciled and operates.
 
The Hong Kong subsidiaries incurred losses for taxation purposes for the period and thus Hong Kong Profits Tax has not been provided.
 
Several of our PRC subsidiaries are subject to PRC Enterprise Income Taxes (“EIT”) on an entity basis on income arising in and derived from the PRC. The applicable EIT rate is 33%.
 
Income taxes were $85,000 for the three-month period end June 30, 2005, as compared to none for the same corresponding period in year 2004. The increase of income taxes was the result of consolidating the operation of New Generation since the acquisition of its business in August 2004.

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NET INCOME / COMPREHENSIVE INCOME
 
We experienced our first time net income of approximately $45,000 for the three-month period ended June 30, 2005, as compared to the same corresponding period in year 2004, an increase from the net loss in the amount of $648,000. The increase in net income was the result of the recognition of the net gain from the disposal of securities which were received for compensation of our consultancy services. The increase was partially offset by the increase in loss from operations in the amount of $1,321,000 for the three-month period ended June 30, 2005, as compared to $701,000 for the same corresponding period last year. The management believes that our operations will continue to improve and we do not foresee a trend of losses.
 
In addition, we recorded an unrealized gain on short-term investments (fair value adjustment) which is classified as other comprehensive income in the amount of approximately $4,471,000 for the three-month period ended June 30, 2005, as compared to none for the same corresponding period in year 2004. This increase was the result of the unrealized appreciation of the shares of common stocks we received as compensation of our consultancy services rendered. The management believes that this unrealized gain (or loss) will fluctuate from quarter to quarter if we continue to hold these shares. We intend and plan to offload these shares as soon as possible and within a period of 12 months upon receiving them from our client members.
 
The accounting profit or net positive comprehensive income, after taking the unrealized gain on the available for sale securities into consideration, for the three-month period ended June 30, 2005 in the amount of approximately $4,517,000, as compared to a net comprehensive loss of $603,000 for the same corresponding period in year 2004, an increase of 849.1%. Again, this unrealized gain (or loss) will vary from quarter to quarter if we continue to hold on to these shares.
 
SIX-MONTH PERIOD ENDED JUNE 30, 2005 COMPARED TO SIX-MONTH PERIOD ENDED JUNE 30, 2004

OPERATING REVENUE
 
Consolidated operating revenue for the six-month period ended June 30, 2005 was $3,610,000, compared to $639,000 for the same corresponding period in year 2004, an increase of $2,971,000 or 464.9%. The increase was mainly the result of the increase in revenues generated from various segments of our businesses.
 
Of the $3,610,000 revenue in the six-month period ended June 30, 2005, approximately $551,000 (15.3%) was generated from providing club related services by Guangzhou World Trade Center Club and Beijing World Trade Center Club, $2,106,000 (58.3%) from business travel services resulting from the acquisition of the New Generation Group, $617,000 (17.1%) from business value-added services, and the remaining $336,000 (or 9.3%) from other (rental and cattle trading) businesses. The acquisition of New Generation and the continuous development of our business value-added services will contribute positively to our operating revenue.
 
For the six-month period ended June 30, 2005, New Generation sold a total of over 596,000 tickets, which translates to a total value of air-ticket fare of approximately $66.2 million. As compared to the same corresponding period in year 2004, ticket sold of New Generation increased by 150 tickets (or 33.8%) from approximately 446,000 tickets with value of air-ticket fare increased by $15.4 million (or 30.4%) from $50.8 million.
 
Consolidated gross profit increased by $2,068,000 or 708.2% for the six-month period ended June 30, 2005 over the same corresponding period in year 2004. The increase was predominantly driven by our business travel services resulting from the acquisition of the New Generation in August 2004 and by our business value-added services resulting from providing various consultancy services to our members. These increases were partially offset by the decrease in other (rental and cattle trading) businesses.
 
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Of the $2,360,000 total gross profit for the six-month period ended June 30, 2005, approximately $408,000 (or 17.3%) was generated from providing club and business center services, approximately $1,986,000 (or 84.2%) from business travel services, approximately negative $151,000 (or negative 6.4%) from providing business value-added services, and the remaining approximately $117,000 (or 4.9%) from other (rental and cattle hide trading) businesses. As compared to the same corresponding period in year 2004, the club and business center services represented a 48.3% (or $141,000) of the total gross profit; none was generated from the business travel business, a 4.1% (or $12,000) from the business value-added services; and the remaining 47.6% (or $139,000) from other (rental and cattle hide trading) businesses. The shift in segmental distribution was primarily due to the increase in gross profit in the business travel services, resulting from the acquisition of the New Generation Group. We foresee that this segment mix will continue to change and balance out in year 2005 upon further development in the business value-added services and the expected opening of World Trade Center Club Shanghai in the second half of year 2005 as well as the cessation of our cattle hide trading business in July 2005.

IMPAIRMENT LOSS AND DEPRECIATION
 
Total impairment loss and depreciation were approximately $126,000 for the six-month period ended June 30, 2005, as compared to the same corresponding period in year 2004, a decrease of $196,000 or 60.9% from $322,000. The decrease was mainly due to the decrease in the impairment loss in the amount of approximately $251,000, there was no impairment loss recorded for the six-month period ended June 30, 2005. This decrease of impairment loss was offset by the increase of depreciation and amortization in the amount of approximately $125,000 over the corresponding period in year 2004.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
Selling, general and administrative expenses increased by approximately $1,067,000 or 42.6% to $3,569,000 for the six-month period ended June 30, 2005 from $2,502,000 for the same corresponding period in 2004. The increase was mainly due to (1) the increase in director and staff related costs predominantly resulting from the consolidation of the operation of New Generation Group in the amount of approximately $943,000; and (2) various advertising expenses in the amount of approximately $116,000.
 
OTHER INCOME AND REALIZED GAIN
 
The other income and realized gain increased by approximately $1,575,000 for the six-month period ended June 30, 2005. The increase was primarily the result of the net gain on disposal of securities of approximately $1,819,000 during the reporting period for which we received as the compensation of our consultancy services rendered.
 
FINANCIAL INCOME/(EXPENSES), NET
 
Interest expenses were approximately $65,000 for the six-month period ended June 30, 2005, as compared to the same corresponding period in year 2004 in the amount of $9,000, an increase of $56,000. The majority of the increase was the result of consolidating the interest expenses incurred by the New Generation in relation to a bank loan in the amount of RMB10,000,000 (approximately equals US$1.2 million).
 
LOSS ON DISPOSAL OF LEASEHOLD LAND AND BUILDINGS

The loss on disposal of leasehold land and building increased by approximately $255,000 for the six-month period ended June 30, 2005, as compared to none for the same corresponding period in year 2004. The loss was primarily the result from the payment of PRC tax and levy in the amount of approximately $229,000 resulting from the disposal of our Guangzhou property in May 2005.
 
INCOME TAXES
 
Income taxes were $113,000 for the six-month period end June 30, 2005, as compared to none for the same corresponding period in year 2004. The increase of income taxes was the result of consolidating the operation of New Generation since the acquisition of its business in August 2004.
 
NET INCOME / COMPREHENSIVE INCOME
 
Net loss was approximately $131,000 for the six-month period ended June 30, 2005, as compared to the same corresponding period in year 2004, an improvement of approximately $1,985,000. The decrease in net loss was the result of the recognition of the net gain from the disposal of securities which were received for compensation of our consultancy services. In addition, the improvement in loss from operations also contributed to the decrease in net loss. The management believes that our operations will continue to improve and we do not foresee a trend of losses.
 
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In addition, we recorded an unrealized gain on short-term investments (fair value adjustment) which is classified as other comprehensive income in the amount of approximately $5,231,000 for the six-month period ended June 30, 2005, as compared to none for the same corresponding period in year 2004. This increase was the result of the unrealized appreciation of the shares of common stocks we received as compensation of our consultancy services rendered. The management believes that this unrealized gain (or loss) will fluctuate from quarter to quarter if we continue to hold these shares. We intend and plan to offload these shares as soon as possible and within a period of 12 months upon receiving them from our client members.
 
The accounting profit or net positive comprehensive income, after taking the unrealized gain on the available for sale securities into consideration, for the six-month period ended June 30, 2005 was approximately $5,100,000, as compared to a net comprehensive loss of $2,116,000 for the same corresponding period in year 2004, an increase of 341.0%. Again, this unrealized gain (or loss) will vary from quarter to quarter if we continue to hold on to these shares.
 
LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2005, cash and cash equivalents totaled $4,280,941, as compared to June 30, 2004 of $32,935, a significant increase. This increase in cash position in the amount of approximately $2,457,000 during the six-month period ended June 30, 2005 was the result of a combination of net cash provided by investing activities in the amount of approximately $5,474,000 offsetting by net cash used in operating activities of approximately $1,644,000 and net cash used in financing activities of approximately $1,373,000. The increase in net cash provided by investing activities was mainly due to the proceeds from disposal of property and intangible assets in the amount of approximately $3,777,000 and the proceeds from disposal of securities which were compensated for our consultancy services rendered in the amount of approximately $1,920,000. The net cash used in financing activities was contributed by the repayment of bank loans and loan from a shareholder approximately totaled $1,373,000. Net cash used in operating activities could be explained by the change in net working capital without considering the addition of accounting treatments. This change in net working capital totaling approximately $326,000 was due to the increases in trade and other receivables of approximately $194,000; in inventories of approximately $171,000; in trade and other payables of approximately $176,000; and the decrease in rental and other deposits of approximately $222,000. Theses increases in working capital trade were incurred resulting from the consolidation of the operations of the New Generation and the decrease in rental and other deposits were also resulted from the expansion of New Generation’s selling branches.
 
During the reporting period of the six-month ended June 30, 2005, 100,000 shares of our common stock were issued to Greentree Financial Group, Inc. and our total issued and outstanding shares of our common stock is 30,989,997 as of June 30, 2005.
 
We believe that the level of financial resources is a significant factor for our future development and accordingly may choose at any time to raise capital through private debt or equity financing to strengthen its financial position, facilitate growth and provide us with additional flexibility to take advantage of business opportunities. However, other than the committed Standby Equity financing provided by Cornell Capital Partners, LC, we do not have immediate plan to have a public offering of our common stock.

OTHER SIGNIFICANT EVENTS
 
On May 31, 2005, we closed the sale of our property at 20th Floor, Goldlion Digital Network Center, 138 Tiyu Road East, Tianhe, Guangzhou, pursuant to an Agreement for Purchase and Sale, dated December 30, 2004, at approximately 1% discount to our book value in the amount of $2,457,000. The net proceed of the sale will be used to provide additional working capital for our group of companies.

On July 20, 2005, our subsidiary New Generation Commercial Management Limited entered a cooperation contract with Guangdong Rising Hotel Group (“Rising Group”). Under the contract, New Generation has the right to acquire up to 70% of the total registered capital of Guangdong Hao Shi Guang Travel Agency Ltd. (“ Hao Shi Guang”), a wholly owned subsidiary of the Rising Group. The capital commitment will be based on the net asset value of the valuation report of Hao Shi Guang, which is currently under the preparation by a certified public accounting firm in the PRC. The management believes that the net asset value of Hao Shi Guang is approximately $60,000. Under the same contract, New Generation has another right to acquire up to 70% of the registered capital of Guangdong Kai Xuan Transport Limited (“Kai Xuan Transport”), also a whole owned subsidiary of Rising Group. A down payment of approximately $62,000 was paid on July 29, 2005 and the final capital commitment will also be based on the net asset value of the valuation report being prepared by a certified public accounting firm in the PRC.

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CRITICAL ACCOUNTING POLICIES

In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavourable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our businesses operate in environments where we pay a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
 
Valuation of long-lived assets

We review our long-lived assets for impairment, including property, plant and equipment, and identifiable intangibles with definite lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of our long-lived assets, we evaluate the probability that future undiscounted net cash flows will be greater than the carrying amount of our assets. Impairment is measured based on the difference between the carrying amount of our assets and their estimated fair value.

Allowance for Doubtful Accounts

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience credit loss rates similar to those we have experienced in the past. Measurement of such losses requires consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and financial health of specific customers.

Goodwill on consolidation

Our long-lived assets include goodwill. SFAS No. 142 "Goodwill and Other Intangible Assets" requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests in certain circumstances. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.
 

Quarterly Evaluation of Controls

As of the end of the period covered by this quarterly report on Form 10-QSB, we evaluated the effectiveness of the design and operation of (i) our disclosure controls and procedures ("Disclosure Controls"), and (ii) our internal control over financial reporting ("Internal Controls"). This evaluation ("Evaluation") was performed by our President and Chief Executive Officer, John H.W. Hui ("CEO") and Bernard Chan, our Chief Financial Officer ("CFO"). In this section, we present the conclusions of our CEO and CFO based on and as of the date of the Evaluation, (i) with respect to the effectiveness of our Disclosure Controls, and (ii) with respect to any change in our Internal Controls that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect our Internal Controls.


Attached to this annual report, as Exhibits 31.1 and 31.2, are certain certifications of the CEO and CFO, which are required in accordance with the Exchange Act and the Commission's rules implementing such section (the "Rule 13a-14(a)/15d-14(a) Certifications"). This section of the annual report contains the information concerning the Evaluation referred to in the Rule 13a-14(a)/15d-14(a) Certifications. This information should be read in conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete understanding of the topic presented.

Disclosure Controls and Internal Controls

Disclosure Controls are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed with the Commission under the Exchange Act, such as this annual report, is recorded, processed, summarized and reported within the time period specified in the Commission's rules and forms. Disclosure Controls are also designed with the objective of ensuring that material information relating to the Company is made known to the CEO and the CFO by others, particularly during the period in which the applicable report is being prepared. Internal Controls, on the other hand, are procedures which are designed with the objective of providing reasonable assurance that (i) our transactions are properly authorized, (ii) the Company's assets are safeguarded against unauthorized or improper use, and (iii) our transactions are properly recorded and reported, all to permit the preparation of complete and accurate financial statements in conformity with accounting principals generally accepted in the United States.

Limitations on the Effectiveness of Controls

Our management does not expect that our Disclosure Controls or our Internal Controls will prevent all error and all fraud. A control system, no matter how well developed and operated, can provide only reasonable, but not absolute assurance that the objectives of the control system are met. Further, the design of the control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances so of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision -making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of a system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Scope of the Evaluation

The CEO and CFO's evaluation of our Disclosure Controls and Internal Controls included a review of the controls' (i) objectives, (ii) design, (iii) implementation, and (iv) the effect of the controls on the information generated for use in this annual report. In the course of the Evaluation, the CEO and CFO sought to identify data errors, control problems, acts of fraud, and they sought to confirm that appropriate corrective action, including process improvements, was being undertaken. This type of evaluation is done on a quarterly basis so that the conclusions concerning the effectiveness of our controls can be reported in our quarterly reports on Form 10-QSB and annual reports on Form 10-KSB. The overall goals of these various evaluation activities are to monitor our Disclosure Controls and our Internal Controls, and to make modifications if and as necessary. Our external auditors also review Internal Controls in connection with their audit and review activities. Our intent in this regard is that the Disclosure Controls and the Internal Controls will be maintained as dynamic systems that change (including improvements and corrections) as conditions warrant.

Among other matters, we sought in our Evaluation to determine whether there were any significant deficiencies or material weaknesses in our Internal Controls, which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information, or whether we had identified any acts of fraud, whether or not material, involving management or other employees who have a significant role in our Internal Controls. This information was important for both the Evaluation, generally, and because the Rule 13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO disclose that information to our Board (audit committee), and to our independent auditors, and to report on related matters in this section of the annual report. In the professional auditing literature, "significant deficiencies" are referred to as "reportable conditions". These are control issues that could have significant adverse affect on the ability to record, process, summarize and report financial data in the financial statements. A "material weakness" is defined in the auditing literature as a particularly serious reportable condition where the internal control does not reduce, to a relatively low level, the risk that misstatement cause by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employee in the normal course of performing their assigned functions. We also sought to deal with other controls matters in the Evaluation, and in each case, if a problem was identified; we considered what revisions, improvements and/or corrections to make in accordance with our ongoing procedures.

Conclusions

Based upon the Evaluation, the Company's CEO and CFO have concluded that, subject to the limitations noted above, our Disclosure Controls are effective to ensure that material information relating to the Company is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared, and that our Internal Controls are effective to provide reasonable assurance that our financial statements are fairly presented inconformity with accounting principals generally accepted in the United States. Additionally, there has been no change in our Internal Controls that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to affect, our Internal Controls.

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We are not a party to any pending or to the best of our knowledge, any threatened legal proceedings, except as set forth below. No director, officer or affiliate, or owner of record of more than five percent (5%) of our securities, or any associate of any such director, officer or security holder is a party adverse to us or has a material interest adverse to ours in any pending litigation.

On December 10, 2004, Kenneth P. Silverman, Esq., as Trustee for the Estate of Chief Executive Officers Clubs, Inc. (the “Trustee”), filed a Complaint against CEO Clubs China Limited, China World Trade Corporation, Simon Guo and J.P. Li (the “Complaint”), which commenced an Adversary Proceeding relating to a Chapter 7 bankruptcy case pending in the U.S. Bankruptcy Court for the Southern District of New York, captioned as In Re: Chief Executive Officers Clubs, Inc., Debtor. The Complaint alleges, among other things, that certain assets of the Chief Executive Officers Clubs, Inc. bankruptcy estate were transferred to our Company in violation of Section 549 of the Bankruptcy Code. It requests that the Bankruptcy Court order, among other things, a return of such assets by our Company and/or seeks a judgment against us in the amount of not less than $480,000.00.
 
As previously disclosed, on May 7, 2004, the Company acquired 51% of the outstanding capital stock of CEO Clubs China Limited, a Hong Kong corporation (“CEO Clubs China”), through one of its wholly-owned subsidiaries, for a total consideration of cash and shares of common stock amounting to US$480,000. CEO Clubs China is an authorized chapter to operate under the “CEO Clubs” trademarks in the Greater China region, including the Peoples’ Republic of China, Hong Kong and Taiwan.

We have engaged counsel and are vigorously defending the Adversary Proceeding. We filed a Motion To Dismiss which was heard on March 22, 2005, and the judge ruled in favor of the Trustee by refusing to dismiss the case at this preliminary stage of the proceedings. Notwithstanding that decision, our primary defense is that we purchased the stock of CEO Clubs China, and did not acquire any assets of the Chief Executive Officers Clubs, Inc. bankruptcy estate. We believe that this defense will be meritorious should the matter ever come to trial.


On April 18, 2005, we issued 100,000 shares of common stock to Greentree Financial Group, Inc. for consulting services which included (a) assistance in the preparation of private offering documents, (b) compliance with Blue Sky regulations, (c) compliance with the SEC's periodic reporting requirements, (d) tax and accounting services, (e) EDGAR services, (f) preparation of interim financial information, (g) locating product vendors and (h) other consulting services. In this issuance, we relied on an exemption provided by Section 4(2) of the Securities Act of 1933, as amended.
 

None


None


None


(a) Exhibits:

3.1 Articles of incorporation are hereby incorporated by reference into Form


(b) Reports on Form 8-K;

1.   On July 6, 2005 we filed an amendment to a current report on Form 8-K/A in order to respond to the Commissions comments on our Form 8-K, dated May 5, 2003, which reported a change in our certifying accountants.
 
 

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In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
 
China World Trade Corporation
(Registrant)
 
 		  
 		  
 
Date: August 15, 2005 By:   /s/ John H.W. Hui
 
John H.W. Hui
Chief Executive Officer

 
     
   
 
 		  
 		  
 
Date: August 15, 2005 By:   /s/ Bernard Chan
 
Bernard Chan
Chief Financial Officer
 
 
 
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