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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
___________
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended September 30, 2000
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OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from ________ to _________
Commission file Number ____________
CHINA WORLD TRADE CORPORATION
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(Name of Small Business Issuer in Its Charter)
Nevada 87-0629754
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(State or other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
Jing An Center No. 8, BEI San Huan East
Road Chaoyang District, Beijing, The PRC 100028
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(Address of Principal Executive Offices) (Zip Code)
011-852-988-26818
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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---------------------------------- -----------------------------------
---------------------------------- -----------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001
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(Title of Class)
________________________________________________________________________________
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No_________
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
SKB. [X]
State issuer's revenue for its most recent fiscal year $0
State the aggregate market value of the voting and non-voting common
equity held by no-affiliates computed by reference to the price at which the
common equity as sold, or the average bid and asked price of such common equity,
as of a specified date within the past 60 days (See definition of affiliate in
Rule 12b-2 of the Exchange Act). 5,830,700
Note. If determining whether a person is an affiliate will involve
an unreasonable effort and expense, the issuer may calculate the aggregate
market value of the common equity held by non-affiliates on the basis of
reasonable assumptions, if the assumptions are stated.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes_________ No________
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of share outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. As of January 12, 2001
there were 23,822,800 shares of common stock issued and outstanding
Transitional Small Business Disclosure Format (check one):
Yes_________ No X
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CHINA WORLD TRADE CORPORATION
FORM 10-KSB
INDEX
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Page
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PART I
Item 1. Description of Business....................................................................... 3
Item 2. Description of Properties..................................................................... 10
Item 3. Legal Proceedings............................................................................. 10
Item 4. Submission of Matters of a Vote of Security Holders........................................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................................................... 11
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................... 12
Item 7. Financial Statements.......................................................................... 13
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...........................................................
PART III
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............................................. 13
Item 10. Executive Compensation........................................................................ 16
Item 11. Security Ownership of Certain Beneficial Owners and Management................................ 16
Item 12. Certain Relationships and Related Transactions................................................ 17
Item 13. Exhibits, List and Reports on Form 8-K........................................................ 17
Signatures .............................................................................................. 19
Financial Statements..................................................................................... F-1
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PART I
ITEM 1. Description of Business.
When used in this Form 10-KSB, the words "expects," "anticipates,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties, including
those set forth below under "Risks and Uncertainties," that could cause actual
results to differ materially from those projected. These forward-looking
statements speak only as of the date hereof. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any statement is based. This discussion should be read
together with the financial statements and other financial information included
in this Form 10-KSB.
History of the Company
China World Trade Corporation, ("CWTC" or the "Company) was incorporated in
the State of Nevada on January 29, 1998 under the name Txon International
Development Corporation to engage in any lawful corporate undertaking,
including, but not limited to construction and development services for
corporate global expansion.
On August 14, 2000, pursuant to a Share Exchange Agreement by and among
Main Edge International Limited, a British Virgin Islands corporation ("Main
Edge") Virtual Edge Limited, a British Virgin Islands corporation and wholly
owned subsidiary of Main Edge ("Virtual Edge"), Richard Ford, Jeanie Hildebrand
and Gary Lewis, the Company acquired from Main Edge all of the shares of Virtual
Edge (the "Acquisition") in exchange for an aggregate of one million nine
hundred sixty one thousand, one hundred and seventy five (1,961,175) shares of
the Company's common stock which shares equal 75.16% of the issued and
outstanding shares of the Company after giving effect to the Acquisition. On
September 15, 2000 the Company effectuated an 8:1 forward split, as a result
Main Edge currently holds 15,689,400 shares of the common stock of the Company
which shares equal 75.16% of the issued and outstanding shares of the Company.
The Company filed a report on Form 8-K with the Securities and Exchange
Commission on August 23, 2000 reporting the Acquisition. On September 25, 2000
the Company changed its name to China World Trade Corporation.
Since the Acquisition the Company has continued the operations of Virtual
Edge which has been in the development stage since inception and has very
limited operations to date due to a lack of capital.
The Company objective is to broker deals between China and other
communities with the objective of promoting cross-border trade and commerce
through the use of state-of-the-art information technology. (see "General
Business Plan"). The Company plans to achieve its
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objective by creating an Internet portal to serve foreign and Chinese small to
medium sized businesses and by providing a physical venue for executives to meet
and network.
The Company will attempt to negotiate business opportunities through its
subsidiaries, Infotech Enterprises Ltd. and Beijing World Trade Center Club. No
assurances, however, can be given that the Company will be successful in its
endeavors. The company does not have any significant assets and believes that it
will be able to provide marketable services based solely on the skill,
experience and contacts of the individuals who are affiliated with the Company.
(see "Directors and Executive Officers, Promoters and Control Person".
The Company's executive offices are located at Jing An Center, No. 8, Bei
San Huan East Road Chaoyang district, Beijing, The PRC 100028.
The Company's financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles. In this Annual Report, unless otherwise specified, all
dollar amounts are expressed in United States Dollars.
History of Virtual Edge
Virtual Edge was incorporated in the British Virgin Islands on February 18,
1999 as an investment holding company.
On October 5, 1999, Virtual Edge pursuant to a share exchange, acquired a
majority interest in Infotech Enterprises Limited ("Infotech"). Infotech was
incorporated on July 2, 1999 which is engaged in building a bilingual (Chinese
and English) Business-to-Business portal.
On October 10, 1999, Virtual Edge signed an agreement with Belford
Enterprises Limited ("Belford") pursuant to which Belford agreed to transfer its
75% interest in Beijing World Trade Center Club ("BWTCC") to Virtual Edge. BWTCC
is a development stage company and is engaged in the establishment of a club
located in Beijing, the PRC. The club will provide food and beverages,
recreation, business centre services, communication and information services,
products exhibitions services, commercial and trading brokerage services to its
members.
On October 18, 2000, pursuant to a Share Exchange Agreement, by and among
the Company and Vast Opportunity Limited, the Company acquired the remaining
interest in Infortech.
General Business Plan
The Company is planning to build, through its subsidiary, Infotech, what
management believes to be the first Chinese and English Business-to-Business
portal-ChinaWTC.com. This will be an integrated business and consumer portal
that is fast and user friendly. In order to win user loyalty, the portal will
provide easy navigation, quick page loads and a screen design that maximizes the
amount of information on display. It will utilize advanced customer relations
management techniques or CRM that utilize meta-data analysis to provide one-to-
one marketing
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service to users. Those users will be provided with information, sorted by its
relevance according to their profile (continually self learning), and will then
be saved the aggravation and time wasting involved in wading through pages of
useless data.
Important features of the portal, include:
. a comprehensive database on Chinese for small to medium sized
businesses hoping to trade with foreign companies;
. a "virtual exhibition center" to provide 24 hour a day product
presentation;
. a mega powered CRM driven focused intelligent search engine that
quickly presents users with a wealth of relevant information;
. an exclusive "Office Anywhere" feature that offers a mobile office to
members (even on a palm pilot computer); and
. a multilingual on-line translation tools to break the language
barriers; e-trade and e-shopping etc.
The Company will also operate BWTCC where the participants can relax,
entertain and meet potential business partners in person, or via the Video
Conferencing facilities of the World Trade Center Association worldwide network.
BWTCC will also operate a Business Consultation and Fulfillment and Logistics
Counseling Service via a 24/7 Call Center manned by business professionals
experienced in the China trade.
Through BWTCC the Company will provide a full range of top quality
commercial and recreational services to its members, the clubhouse is
luxuriously decorated and yet providing an elegant environment under which
members can enjoy its facilities that include:
. Chinese and western fine dining,
. Seminar and conference rooms,
. Library,
. Executive suites,
. Office and meeting room packages,
. Videoconferencing facilities
. Exhibition rooms,
. Cigar and wine corner,
. Gym and fitness center,
. Massage, sauna and spas, and
. 24-lane bowling alley, tennis courts and indoor swimming pool.
In addition, the Company intends to become involved in trade agency business
through mergers and acquisitions. The Company will target trade agents with long
business histories, trading records with significant experience and those
trade agents with a good record of conducting trade with China and with other
trading partners.
In terms of business services, it will offer its members:
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. Liaison work with potential trading partners,
. International economic and trade exhibitions and seminars,
. Interpreters and secretarial services,
. Organized trips to participate in World Trade Center Association
sponsored activities,
. Reception of visiting delegations of foreign World Trade Center
Association member units,
. Arrange meetings to see Chinese officials, business corporations, and
. Legal consultancy and travel agency services.
Marketing Strategy
Our marketing goal is to make the ChinaWTC.com site into a distinctive
Chinese/English language Internet portal and BWTCC into a prestigious trade club
in Beijing, PRC. We will achieve this by placing advertisements with traditional
media, such as newspapers, television, radio, magazines etc.; placing banners on
high traffic web sites; sending e-mails to potential users; participating in
trade shows; employing the services of external PR and Marketing firms;
television "infomercials" and talk shows; outdoor advertising signs and
attending / holding press conferences.
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The Company will form strategic alliances with companies that can
contribute services and local expertise in various market sectors. These
alliances will increase our content and navigation services, support our
advertising services and expand our distribution networks.
An integral part of our success is dependent on the development and
enhancement of our products and services. We will incorporate new technologies
from third parties, expand products and services internally and conduct market
research to remain aware and informed of the evolving user tastes and latest
technologies.
Our initial target market will be small to medium sized businesses with
fewer than 500 employees and annual sales of approximately US$35 million. We
will recruit local corporations to join the virtual membership in order to reach
the overseas customers. The Company will leverage the existing network of World
Trade Corporation Association members and small to medium sized business clients
to gain a rapid and deep penetration of the active members and corporations in
world trade. To enhance the success of the marketing program, The Company will
offer what it believes to be an attractive commission structure for sales
associates.
Sources of Income
The revenue streams of the Company will come from subscriptions
advertisements by vendors, traders and suppliers, transaction fees on
ChinaWTC.com and web solution services from Infotech; membership subscription
and monthly dues, food & beverage sales and business services fees from BWTCC;
and trading commissions of being involved in trade agency businesses. Because of
the initial set up cost and the relatively small membership base, Infotech is
expected to incur an operating loss for the first two years of operation.
However, this loss can be offset by the positive contributions from BWTCC and
the trade agency businesses. After the initial losses, Infotech is expected to
grow at a progressive rate as it will be in a very advantageous position to ride
on the wave of the E-business boom for Asia in the next few years.
Competition
With respect to ChinaWTC.com, management believes that it is in a unique
position in that it believes that it is the first company to offer such online
services in China. Though there are other systems developed by institutions or
companies to address some facets of the trade market, the Company is not aware
of anything similar to ChinaWTC.com. ChinaWTC.com combines the technology, the
marketing of memberships/services/products, the creation of community database
and a cross-border network of people and business, which enables companies of
limited resources to find more business opportunities at a cost that is just a
fraction of what they used to pay. Large companies would also find cost savings
by outsourcing part of their work processes to Infotech. Despite the foregoing,
The Company has identified the following list of possible competitors:
. Sino.com is the most visited web site in China and is quite popular
with overseas Chinese. However, it is a Chinese only site and does not
have a business focus. It also suffers from having a weak search
engine, being slow to download and has none of the advanced features
to be provided by ChinaWTC.com.
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. China.com, which was recently listed on the Nasdaq National Market, is
also a portal, providing free email and news headlines, has failed to
capture member loyalty - down to 39th in the popularity list of
Chinese web sites - largely again because of its lack of focus and
poor design. Moreover, due to its links with the Xinhua News Agency -
the official mouthpiece of the Chinese Communist Party - the
information it provides is heavily biased.
. Hongkong.com, which is owned by the same company as China.com, is a
bilingual portal, however, it also lack focus and although its free
email service is quite popular with Hong Kong residents, for obvious
reasons, the demographics of its members is poor and it has failed to
capture the enthusiasm of advertisers.
The Company is on the alert and is preparing for any challenges. With the
current Board of Directors, the Company has access to those who are
knowledgeable in outsourcing, re-engineering, Internet commerce, logistics and
the latest technologies for making the world smaller. The Company will be
scalable and adaptive to the changing environment, thus enabling it to maintain
the fast growth with high return and at the same time maintaining its
competitiveness.
Industry Overview
The Information Industry in China
According to Killen and Associates, a marketing research firm, information
technology spending in China, including Hong Kong, will rise from RMB 25 billion
in 1997 to RMB 71 billion in 2002, at an annual compound growth rate of 24%.
High capacity network covering the whole country is being put in place. This
network is utilizing the most modern technology and is based on a grid of
optical cables supplemented by satellite and digital microwave systems.
Systems at 8x2.5 Gbps have been adopted on the major transmission trunks
for transmission of broadband information and application of different
categories of services. The urban and rural telephone network, mobile
communications network and the public data and multimedia network have been
completed. The information industry continued its fast growth with an additional
22 million lines were added to the Public Switched Telephone Network to bring
the total to 135 million lines
The Internet in China
The Internet market in China is dominated by Golden Bridge Network, the
internet service provider of ISP set up by the Ministry of Electronics; China
Net, China Telecom's ISP; and a new entrant, the Ministry of Film, Broadcasting
and Television, which has a very attractive fiber, coax cable, microwave and
satellite transmission network throughout the wealthiest provinces and cities.
The highest concentration of Internet subscribers is in the wealthiest cities in
China, namely Beijing and Shanghai, according to China Network Information
Center. The other major growth areas are in the country's three wealthiest
provinces, namely Guangdong, Zhejiang and Jiangsu; followed by Hebei, Fujian,
Shandong, Shaanxi, Sichuan and Heilongjiang.
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Beneath the top-tier operators are a small number of strategic resellers
that provide the dual-account service. Revenue will be split between the top-
tier ISP and its strategic resellers. Further down, there are over 100 resellers
each serving a few hundreds or a few thousands subscribers. In the latest
development, China Telecom is tying up very good marketing partners to launch
this dual-account service, particularly in Beijing, Shanghai, Tianjin,
Guangdong, Sichuan, Shaanxi, Zhejiang, Jiangsu and Shandong, in all covers 60%
of current Internet subscribers.
The Internet market in China first started in 1987, when its use was
limited to the field of academic and educational institutions for research
purposes. The commercial use of Internet began in 1995 with the launching of
ChinaNet.
According to China Network Information Center, a market research firm, in
the last few years the number of Internet subscribers, has increased from 40,000
in 1995, to 100,000 in 1996 and to 2.1 million by the end of 1998. In 1998,
Beijing, the capital, had over 100,000 subscribers. China Network Information
Center estimated the numbers would climb to 6 million by the year 2000.
Legal System in the PRC
Since 1979, many laws and regulations addressing economic matters in
general have been promulgated in the PRC. Despite this activity in developing
the legal system, the PRC does not have a comprehensive system of laws. In
addition, enforcement of existing laws may be uncertain and sporadic, and
implementation and interpretation thereof inconsistent. The PRC judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate law exists in the PRC, it may be difficult to obtain swift and
equitable enforcement of such law, or to obtain enforcement of a judgment by a
court of another jurisdiction. The PRC's legal system is based on written
statutes and, therefore, decided legal cases are without binding legal effect,
although they are often followed by judges as guidance. The interpretation of
PRC laws may be subject to policy changes reflecting domestic political changes.
As the PRC legal system develops, the promulgation of new laws, changes to
existing laws and the preemption of local regulations by national laws may
adversely affect foreign investors. The trend of legislation over the past 18
years has, however, significantly enhanced the protection afforded foreign
investors in enterprises in the PRC. However, there can be no assurance that
changes in such legislation or interpretation thereof will not have an adverse
effect upon the business operations or prospects of the Company.
Employees
As of September 30, 2000, the Company had 5 full-time employees. The
Company believes its future success depends in large part upon the continued
service of its key technical and senior management personnel and its ability to
attract and retain technical and managerial personnel. There can be no assurance
that the Company can retain its key technical and managerial employees or that
it can attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. None of the Company's employees are subject
to any collective bargaining agreements.
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ITEM 2. Description of Property.
The Company has a representative office at 13C Chinaweal 414-424 Jaffe
Road, Wanchai, Hong Kong. The Company also maintains office located at Jing An
Center #8, Bei San Huan East Road, Chaoyang District, Beijing, The PRC 100028.
ITEM 3. Legal Proceedings.
The Company is not a party to any pending or to the best of its knowledge,
any threatened legal proceedings. No director, officer or affiliate of the
Company, or owner of record or of more than five percent (5%) of the securities
of the Company, or any associate of any such director, officer or security
holder is a party adverse to the Company or has a material interest adverse to
the Company in reference to pending litigation.
ITEM 4. Submission of Matters To a Vote of Security Holders.
During the fourth quarter of the fiscal year the following matter were
submitted to the shareholders for approval.
1. An amendment to of the Certificate of Incorporation, as amended, changing the
name of the Company to "China World Trade Corporation" was approved by
written consent of the majority of the shareholders of the Company on August
17, 2000
2. The 2000 Stock Option Plan was approved by the written consent of the
majority of shareholders of the Company on October 20, 2000. The following
summary describes the material features of the Plan.
Purpose
The purpose of the Plan is to promote the long-term success of Shopss
by attracting, motivating and retaining directors, officers and key employees
and consultants of Shopss and its affiliates (the "Participants") through the
use of competitive long-term incentives which are tied to shareholder value.
The Plan seeks to balance Participants' and shareholder interests by
providing incentives to the Participants in the form of stock options which
offer rewards for achieving the long-term strategic and financial objectives
of Shopss.
Common Stock Available
Subject to adjustment as described below, the maximum number of shares
of Common Stock which may be awarded under the Plan may not exceed an
aggregate of 3,000,000 shares over the life of the Plan. The Plan provides
for equitable adjustment of the number of shares subject to the Plan and the
number of shares of each subsequent award of stock thereunder and of the
unexercised portion of the stock option award described below in the event of
a change in the capitalization of the Company due to a stock split, stock
dividend recapitalization, merger or similar event.
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Eligibility
Persons who are eligible to receive stock options granted under the
Plan are those individuals and entities as a compensation committee or such
other committee appointed by the Board of Directors to administer the Plan
(the "Committee") in its discretion determines should be awarded such
incentives given the best interest of Shopss; provided, however, that (i)
incentive stock options ("ISOs") may only be granted to employees of Shopss
and its affiliates and (ii) any person holding capital stock of Shopss or any
affiliate possessing more than 10% of the total combined voting power of all
classes of capital stock of Shopss or any affiliate will not be eligible to
receive ISOs unless the exercise price per share is at least 110% of the fair
market value of the stock on the date the option is granted.
Administration
The authority to control and manage the operation and administration
of the Plan is vested in the Committee appointed by the Board of Directors
from time to time. Members of the Committee shall serve at the pleasure of
the Board of Directors. The Committee may from time to time determine which
officers, directors and key employees and consultants of Shopss and its
affiliates may be granted options under the Plan, the terms thereof
(including, without limitation, determining whether the option is an ISO and
the times at which the option shall become exercisable), and the number of
shares for which an option or options may be granted. If rights of Shopss to
repurchase stock are imposed, the Board of Directors or the Committee may, in
its sole discretion, accelerate, in whole or in part, the time for lapsing of
any rights of Shopss to repurchase shares or forfeiture restrictions. The
Board of Directors or the Committee has the sole authority, in its absolute
discretion. to adopt, amend and rescind such rules and regulations,
consistent with the provisions of the Plan, as, in its opinion, may be
advisable in the administration of the Plan, to construe and interpret the
Plan, the rules and regulations, and the instruments evidencing options
granted under the Plan and to make all other determinations deemed necessary
or advisable for the administration of the Plan. All decisions,
determinations and interpretations of the Committee are binding on all option
holders under the Plan.
PART II
ITEM 5. Market For Common Equity and Related Stockholder Matters.
The Company's common stock began quotation on the Over-the-Counter Bulletin
Board ("OTCBB") on June 28, 2000 under the symbol TXNI. The Company's common
stock is now quoted under the symbol CHWT. The following table sets forth the
range of bid prices of the Company's common stock as quoted on OTCBB during the
periods indicated and the prices reported represent prices between dealers, do
not include markups, markdowns or commissions and do not necessarily represent
actual transactions.
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Quarter High Low
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Period ending September 30, 2000 $2.93 $.016
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Period ending June 30, 2000 $.016 $.016
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The Company's common shares are issued in registered form. Interwest
Transfer Company in Salt Lake City, Utah, is the registrar and transfer agent
for the Company's common stock.
ITEM 6. Management's Discussion and Analysis of Plan of Operations.
OVERVIEW
Pursuant to the Share Exchange Agreement dated as of August 10, 2000, by
and the Company, Virtual Edge and Main Edge, Main Edge transferred all of the
issued and outstanding shares of the capital stock of Virtual Edge to the
Company in exchange of 1,961,175 shares of the pre-split common stock of the
Company, representing approximately 75% of the outstanding shares of the common
stock of the Company. For accounting purposes, the Acquisition will be treated
as a recapitalization of Virtual Edge with Virtual Edge as the acquirer (reverse
acquisition).
RESULTS OF OPERATIONS
The following table shows the selected audited condensed consolidated
income statement data of the Company and its subsidiaries for the year ended
September 30, 2000 and 1999. The data should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes thereto
included elsewhere in this report.
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For the Year Ended
September 30,
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2000 1999
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(Amounts in thousands $)
Revenues - -
Operating Expenses (702) (307)
Loss from Operations (702) (307)
Other Expenses (3,047) -
Minority Interest 9 -
Net Loss (3,740) (307)
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REVENUE
The Company is in its development stage and there has been no operating
revenue since inception on January 29, 1998 to September 30, 2000.
The Company business plan is to provide trade agency business linking
companies in China and the rest of the world. The Company currently has two
operating units, BWTCC and Infotech. BWTCC will be engaged in the
establishment of a business club located in Beijing, the PRC. The club will
provide food and beverages, recreation, business center services, communication
and information services, product exhibition services, and commercial and
trading brokerage services. Infotech will build a bilingual, English and
Chinese, business-to-business portal.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by approximately $395,000 or
129% to approximately $702,000 for the year ended September 30, 2000 from
$307,000 for the corresponding period in 1999. The increase was mainly due to
the Acquisition and the related professional fees, and the additional of
development stage expenses of Virtual Edge since acquisition.
OTHER EXPENSES
Other expenses for the year ended September 30, 2000 were approximately $3,
047,000 compared to $0 for the corresponding period in 1999. The increase is
due to the writing down of goodwill in connection with the Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Acquisition, the Company's current assets increased to
approximately $259,000 as compared to $1,000 for 1999 and the Company's
current liabilities increased to approximately $2,055,000 compared to $0 for
1999.
There has been no other significant change in financial condition and
liquidity since the fiscal year ended September 30, 1999. The Company's ability
to implement its business plan will depend on obtaining financing in the form of
equity or debt, or a continuation thereof. The Company presently has no
commitments for such financing and no assurances can be given that the Company
will be able to secure such financing, or if so, the terms thereof.
ITEM 7. Financial Statements.
The Financial Statements of the Company are set forth at the end
hereof.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) Of The Exchange Act.
The following table and text sets forth the names and ages of all directors
and executive officers of the Company and the key management personnel as of
September 30, 2000. The Board of Directors of the Company is comprised of only
one class. All of the directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors, and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
stockholders. Also provided is a brief description of the business experience of
each director and executive officer and the key
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management personnel during the past five years and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
Name Age Title
----------------- ----- ---------------------------------------------------
John H.W. Hui 41 President, Chairman of the Board and Secretary
Alfred H.B. Or 38 Chief Operating Officer and Director
Thomas C. Pai 45 Chief Financial Officer and Director
David Jones 56 Vice President, Information Technology and Director
Roy C.W. Wu 56 Vice President, Club Management and Director
Hui Wang 37 Director
Peter Hurst 63 Director
Wai Tung Cheung 43 Director
James H.C. Mak 52 Director
Mr. John Hui, age 41, has been the President, Chairman of the Board and
Secretary of the Company since August 2000. Mr. Hui is the founder of Virtual
Edge and has more than 10 years experience Chinese trade and investment. Mr. Hui
has been a private investor and an entrepreneur for the past five years.
Mr. Alfred H. B. Or, age 38, has been Chief Operating Officer and a Director of
the Company since August 2000. Mr. Or has 15 years of marketing and sales
experience with multinational companies. In 1998, Mr. Or founded Shanghai Cofmos
Gift Co. Ltd., a marketing and sales company in Beijing. From March 1994 until
May 1998 he was the Director of Marketing External Affairs for Amway (China) Co.
Ltd. Mr. Or has established strong government and media relationship in China
over the past 10 years. He specializes in one-to-one direct marketing. Mr. Or
graduated in 1985 from the McMaster University in Ontario, Canada with a
Bachelor of Science degree in Mechanical Engineering.
Mr. James H.C. Mak, age 52, was appointed as Director of the Company in
September 2000. Mr. Mak has been the General Manager of World Trade Center in
Hong Kong since August 1994. In addition, as Deputy General Manger of Kai Shing
Management Co. Ltd., a subsidiary of Sung Hung Kai Property Ltd., Mr. Mak serves
as a General Manager of the Grand Royal Club and the Hong Lok Yuen Country Club
in Hong Kong.
Mr. David Jones, age 56, has been the Vice President - Information Technology
and a Director of the Company since August 2000. Mr. Jones has more than 24
years experience in the information
14
<PAGE>
technology field, including 18 years as a senior design engineer for Unlays
Corporation. Mr. Jones has formed two companies that are still operating. One of
the companies provides software for travel agents enabling them to communicate
with large computerized reservation systems (e.g., SABRE, GALIEO and AMADEUS).
The other company provides Electronic Document Interchange to freight forwarders
and other cargo transportation suppliers. Mr. Jones designed and developed a
comprehensive electronic mail connectivity hub for Hong Kong Telecom and was
responsible for the design and implementation of a weight and balance
application for Cathay Pacific's worldwide network, including an Automatic Load
Distribution System for containerized aircraft. Mr. Jones is an experienced with
Data Communications and Command and Control software and has designed and
implemented such systems for state and metropolitan police forces in the United
States Canada and the U.K. Mr. Jones has worked with banking systems and
inventory control systems and is experienced in data management. Mr. Jones has
also designed databases to handle the processing of NASA LANDSAT Earth Resources
Satellite data for many Middle Eastern countries. Mr. Jones holds an honor
degree from the School of Physics in the University of Wales, Swanses.
Mr. Roy C. W. Wu, age 56, has been the Vice President - Club Management and a
Director of the Company since August 2000. Mr. Wu has more than 30 years of
hotel and restaurant management experience. Since August 1994 Mr. Wu has served
as the Senior Club Manager of the World Trade Center Club in Hong Kong. Mr. Wu
is also the Senior Club Manager of the Grant Royal Club and Hong Lok Yuen
Country Club in Hong Kong.
Hui Wang, age 37, was appointed as a Director of the Company in August 2000. Mr.
Wang has been the Vice President of Asia Simulation and Control System
Engineering Limited in China since 1990.
Mr. Thomas C. Pai, age 45, has been an the Chief Financial Officer and a
Director of the Company since August 2000. Mr. Pai is a Certified Public
Accountant and has over 20 years experience in accounting and auditing. He
obtained his Master of Science degree from California State University and was
employed by Cooper & Lybrand. He is also the Senior VP of Sun Television
Cybernetworks Co. Ltd.
Mr. Peter Hurst, age 63, has been an independent director of the Company since
September 2000. Mr. Hurst has over 20 years extensive working experience in the
banking industry. He was the director of Corporate Banking for National
Westminster Bank PLC, overseeing offshore units in Asia, Pacific and Middle
East. For the past decade, Mr. Hurst acted as a consultant and as a member of
European Advisory Committee for Mitsubishi Electric Co., advising on
organization structure, localization, as well as cultural interchange.
Mr. Wai Tung Cheung, age 43, has been an independent director of the Company
since September 2000. Mr. Cheung is the Chairman of Cultureroom Limited, a
listed company in Hong Kong Stock Exchange and is responsible for the corporate
strategic planning and business development of the company. Mr. Cheung has over
15 years senior level management experiences and is also the Chairman of ViaGOLD
Capital Limited, a company listed on the stock exchange of Australia. He was the
CEO of COSCO Group in Hong Kong and Singapore.
Section 16(a) Beneficial Ownership Compliance
15
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who own more than 10%
of a registered class of the Company's equity securities to file with the
Securities and Exchange Commission initial statements of beneficial ownership,
reports of changes in ownership and annual reports concerning their ownership of
common stock and other equity securities of the Company, on Forms 3, 4 and 5
respectively. Executive officers, directors and greater than 10% shareholders
are required by Commission regulations to furnish the Company with copies of all
Section 16(a) reports they file. To the best of the Company's knowledge (based
solely upon a review of the Form 3, 4 and 5 filed), no officer, director or 10%
beneficial shareholder failed to file on a timely basis any reports required by
Section 16(a) of the Securities Exchange Act of 1934, as amended.
ITEM 10. Executive Compensation.
The following table sets forth the compensation paid during fiscal years
ended September 30, 1999 and 2000 to the Company's Chief Executive Officer. No
officer of the company received compensation in excess of $100,000.
Name Position Compensation/(1)/
---- -------- -----------------
John H.W. Hui President, Chairman of $28,624/(2)/
the Board and Secretary
------------------
/(1)/ Including 500,000 stock options issued on October 23, 2000. The options
have an exercise price of $2.18 as of the date hereof no options have been
exercised.
/(2)/ Management fee for the period from August 14, 2000, the date of the
Acquisition, to September 30, 2000, based on an annual rate of $80,000.
Neither the Company nor any subsidiary maintains or has maintained in
the past, any employee benefit plans.
During the year ended September 30, 2000, certain corporate actions were
conducted by unanimous written consent of the board of directors. Directors
receive no compensation for serving on the board of directors, but are
reimbursed for any out-of-pocket expenses, if any, incurred in attending board
meetings.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of common stock
beneficially owned as of September 30, 2000 by (i) those persons or groups known
to the Company who will beneficially own more than 5% of the Company's common
stock; (ii) each director and director nominee; (iii) each executive officer of
the Company to assume office after the closing of the Acquisition; and, (iv) all
directors and executive
16
<PAGE>
officers as a group. The information is determined in accordance with Rule 13d-3
promulgated under the Exchange Act based upon information furnished by persons
listed or contained in filings made by them with the Securities and Exchange
Commission by information provided by such persons directly to the Company.
Except as indicated below, the stockholders listed possess sole voting and
investment power with respect to their shares.
Name Number of Shares Percentage Ownership
---- ---------------- --------------------
John H.W. Hui 500,000* **
Alfred H.B. Or 275,000* **
Thomas C. Pai 125,000* **
David Jones 275,000* **
Roy C.W. Wu 375,000* **
Hui Wang 125,000* **
Peter Hurst 125,000* **
Wai Tung Cheung 125,000* **
James H.C. Mak 200,000* **
All Officers and Directors 2,125,000* 9.97
as a Group (9 persons)
Main Edge 15,689,400 75.14
-------------------
* Stock Option issued on October 23, 2000 with an exercise price of $2.18. As of
the date hereof, no options have been exercised.
**Less than 1%
ITEM 12. Certain Relationships and Related Transactions.
Names and relationship of related parties
and their existing relationships with the Company
-------------------------------------------------
Mr. John H. W. Hui............... President and Director of the Company
Mr. Steven K. F. Hui............. Close family member of Mr. Hui, a
director and officer of the Company
Mr. Alfred Or.................... A director and officer of the Company
Belford Enterprises Limited...... A company in which a director of the
Company has beneficial interest
Main Edge International Limited.. Majority shareholder of the Company
PRC Partner...................... PRC partner of a subsidiary
Since the Acquisition the Company has paid management fees to Mr. John H.
W. Hui and Mr. Alfred Or in the amount of $28,634 each based on an annual amount
of $80,000.
As of September 30, 2000 the Company owes the following amounts to related
parties for unsecured advances which are interest-free and repayable on demand.
<TABLE>
<CAPTION>
September 30,
2000
------------
<S> <C>
Mr. John H. W. Hui $ 58,757
Mr. Steven K. F. Hui 118,192
Mr. Alfred Or 76,645
Vast Opportunity Limited 131,801
Belford Enterprises Limited 809,412
Main Edge International Limited 695,977
PRC Partner 31,708
------------
$ 1,922,492
------------
</TABLE>
ITEM 13. Exhibits, List and Reports on Form 8-K.
Exhibit Number Description
2.1 Share Exchange Agreement dated as of August 10, 2000,
Incorporated herein by reference from the Company's filing on
Form 8-K filed on August 23, 2000.
3.1 Articles of Incorporation, Incorporated herein by reference from
the Company's fling on Form 10-SB on December 12, 1999.
3.2 Bylaws Incorporated herein by reference from the Company's filing
on Form 10-SB on December 12, 1999.
17
<PAGE>
10.1 2000 Stock Option Plan*
11.1 Statement of Computation of per share earning*
21.1 Subsidiaries of the Registrant*
--------------------
*Filed herewith
Reports on Form 8-K
Report on Form 8-K was filed by the Company on August 23, 2000 listing items 1,
2 and 5.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINA WORLD TRADE CORPORATION
Dated: January 12, 2001 By: /s/ John H.W. Hui
-------------------------------------------
Name: John H.W. Hui
Title: President and Secretary
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Dated: January 12, 2001 By: /s/ Alfred Or
-------------------------------------------
Name: ALFRED OR
Title: Chief Operating Officer and Director
Dated: January 12, 2001 By: /s/ James Mak
-------------------------------------------
Name: JAMES MAK
Title: Director
Dated: January 12, 2001 By: /s/ Roy Wu
-------------------------------------------
Name: ROY WU
Title: Vice President, Club Management and
Director
Dated: January 12, 2001 By: /s/ David Jones
-------------------------------------------
Name: DAVID JONES
Title: Vice President, Information
Technology and Director
Dated: January 12, 2001 By: /s/ John H.W. Hui
-------------------------------------------
Name: JOHN H.W. HUI
Title: President and Secretary
Dated: January , 2001 By:
-------------------------------------------
19
<PAGE>
CHINA WORLD TRADE CORPORATION
AND
SUBSIDIARIES
(A Development Stage Company)
- : -
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
<PAGE>
CONTENTS
Page
----
Independent Auditor's Report........................................... F - 3
Consolidated Balance Sheets
September 30, 2000 and 1999.......................................... F - 4
Consolidated Statements of Operations for the
Years Ended September 30, 2000 and 1999 ............................ F - 5
Consolidated Statement of Stockholders' Equity
Since January 29, 1998 (Inception) to September 30, 2000............ F - 6
Consolidated Statements of Cash Flows for the
Years Ended September 30, 2000 and 1999............................. F - 8
Notes to Consolidated Financial Statements............................. F - 9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
China World Trade Corporation and Subsidiaries
(A Development Stage Company)
Board Members:
We have audited the consolidated balance sheets of China World Trade
Corporation and Subsidiaries (a Development Stage Company) as of September 30,
2000 and 1999, and the related consolidated statements of operations, and cash
flows for the years ended September 30, 2000 and 1999, and the consolidated
statement of stockholders' equity since January 29, 1998 (inception) to
September 30, 2000 then ended. 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 did not audit the financial
statements of Virtual Edge Limited, a wholly-owned subsidiary, which statements
reflect total assets of $260,564 as of September 30, 2000 and total revenues of
$0 for the period August 14, 2000 to September 30, 2000 then ended. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Virtual Edge
Limited, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits of the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of China World Trade Corporation and
Subsidiaries (a development Stage Company), as of September 30, 2000 and 1999
and the results of its operations, and its cash flows for the years ended
September 30, 2000 and 1999, in conformity with generally accepted accounting
principles.
Respectfully submitted,
/s/ Robison, Hill & Co.
------------------------------------
Certified Public Accountants
Salt Lake City, Utah
January 11, 2001
F-3
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
---------------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 479 $ 1,035
Rental deposits 258,299 -
Other receivables 362 -
-------------- --------------
Total Current Assets 259,140 1,035
Fixed Assets
Furniture and fixtures 2,848 -
Less: Accumulated depreciation (1,424) -
-------------- --------------
Total Fixed Assets 1,424 -
-------------- --------------
Total Assets $ 260,564 $ 1,035
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accrued Liabilities $ 132,663 $ 86
Due to related parties 1,922,492 -
-------------- --------------
Total Liabilities 2,055,155 86
-------------- --------------
Minority Interest 22,935 -
-------------- --------------
Stockholders' Equity
Preferred stock (par value $0.001), 10,000,000 shares
authorized, no shares issued at September 30, 2000 and 1999 - -
Common stock (par value $0.001), 50,000,000 shares
authorized, 21,322,800 and 4,184,800 shares issued at
September 30, 2000 and 1999 21,323 4,185
Capital in excess of par value 2,262,703 358,530
Deficit accumulated during development stage (4,101,552) (361,766)
-------------- --------------
Total Stockholders' Equity (1,817,526) 949
-------------- --------------
Total Liabilities and Stockholders' Equity $ 260,564 $ 1,035
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
For the Year Ended Since
September 30, Inception of
-------------------------------------- Development
2000 1999 Stage
------------------ ------------------- -------------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
------------------ ------------------- -------------------
Expenses
Selling, general and administrative expenses 701,748 306,752 1,063,514
------------------ ------------------- -------------------
Operating Loss (701,748) (306,752) (1,063,514)
Other income (expense):
Write down of goodwill (3,047,082) - (3,047,082)
Minority Interest 9,044 - 9,044
------------------ ------------------- -------------------
Loss before taxes (3,739,786) (306,752) (4,101,552)
Income taxes - - -
------------------ ------------------- -------------------
Net Loss $ (3,739,786) $ (306,752) $ (4,101,522)
================== =================== ===================
Basic per Share Amounts
Net Income (Loss) $ (0.29) $ (0.10)
================== ===================
Weighted Average Shares Outstanding 13,065,584 2,972,400
================== ===================
</TABLE>
The accompanying nots are an integral part of these financial statements.
F-5
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------- During
Preferred To be Issued Excess of Development
Stock Shares Shares Amount Par value Stage
-------------- -------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stock issued in exchange for cash - 2,200,000 - $ 2,200 $ 107,800 $ -
Net Loss - - - - - (55,014)
-------------- -------------- ------------- ------------- -------------- ------------
Balance September 30, 1998 - 2,200,000 - 2,200 107,800 (55,014)
June 5, 2000 Reverse stock split
1:10 - (1,980,000) - (1,980) (97,020)
September 5, 2000 Stock split 8:1 - 1,540,000 - 1,540 97,460
-------------- --------------- ------------- ------------- -------------- ------------
Restated balance at September 30,
1998 - 1,760,000 - 1,760 108,240 (55,014)
Issuance of common stock to be
issued - (1,760,000) 1,760,000 - - -
December 12, 1998 Stock issued in
exchange for cash - - 2,424,800 2,425 210,675 -
Contributed Capital - - - - 39,615 -
Net Loss - - - - - (306,752)
-------------- -------------- ------------- ------------- -------------- ------------
Balance September 30, 1999 - - 4,184,800 $ 4,185 $ 358,530 $ (361,766)
</TABLE>
F-6
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------- During
Preferred To be Issued Excess of Development
Stock Shares Shares Amount Par value Stage
------------ -------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance September 30, 1999 - - 4,184,800 $ 4,185 $ 358,530 $ (361,766)
June 5, 2000 Stock issued in lieu of
salaries - - 32,000,000 32,000 (28,000) -
July 26, 2000 Stock option
exercised at $0.02 - - 4,000,000 4,000 6,000 -
August 14, 2000 Cancellation of
Shares - - (34,996,400) (34,996) 34,996 -
August 14, 2000 Stock issued in
lieu of services - - 445,000 445 52,121 -
August 14, 2000 Stock issued to
acquire Virtual Edge Limited
subsidiary - - 15,689,400 15,689 1,837,621 -
Contributed Capital - - - - 1,435 -
Net Loss - - - - - (3,739,786)
------------ -------------- ------------ ------------- ------------- -------------
Balance September 30, 2000 - - 21,322,800 $ 21,323 $ 2,262,703 $(4,101,552)
============ ============== ============ ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
For the Year Ended Since
September 30, Inception of
------------------------------------ Development
2000 1999 Stage
---------------- ----------------- -----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Cash paid to suppliers and employees $ (12,470) $ (318,948) $ (351,950)
---------------- ----------------- -----------------
Net cash used in operating activities (12,470) (318,948) (351,950)
---------------- ----------------- -----------------
Cash Flows from Investing Activities:
Investment in deferred development costs - - (6,000)
---------------- ----------------- -----------------
Net cash used by investing activities - - (6,000)
---------------- ----------------- -----------------
Cash Flows from Financing Activities:
Proceeds from common stock to be issued - 213,100 323,100
Proceeds from issuance of common stock 10,479 - 10,479
Contributed capital from shareholders 1,435 23,415 24,850
---------------- ----------------- -----------------
Net cash provided by financing activities 11,914 236,515 358,429
---------------- ----------------- -----------------
Net change in cash and cash equivalents (556) (82,433) 479
Cash and cash equivalents at beginning of year 1,035 83,468 -
---------------- ----------------- -----------------
Cash and cash equivalents at end of year $ 479 $ 1,035 $ 479
================ ================= =================
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
Net loss (3,739,786) (306,752) (4,101,552)
Adjustments used to reconcile net loss to Net cash used
in operating activities:
Depreciation 54 54
Loss on Investments - 6,000 6,000
Goodwill writedown 3,047,082 3,047,082
Increase (Decrease) in accounts payable - (12,165) 86
Increase (Decrease) in accrued expenses 575,390 (6,031) 575,390
Increase (Decrease) in accounts payable officers - - 16,200
Increase (Decrease) in due to related party 57,268 57,268
Stock issued for services 52,566 52,566
Stock issued for salaries 4,000 4,000
Minority Interest (9,044) (9,044)
---------------- ----------------- -----------------
Net cash used in operating activities $ (12,470) $ (318,948) $ 351,950
================ ================= =================
</TABLE>
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
- In 1999 shareholder advances of $16,200 were converted to Capital in Excess
of Par Value.
- On August 14, 2000, 15,689,400 shares of common stock were issued to
acquire Virtual Edge Limited and 34, 996,400 shares were canceled pursuant
to a share exchange agreement.
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
--------------------------------------------------------
This summary of accounting policies for China World Trade Corporation is
presented to assist in understanding the Company' financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Organization and Basis of Presentation
--------------------------------------
The Company was incorporated under the laws of the state of Nevada on
January 29, 1998 as Txon International Development Corporation. On August 14,
2000 the Company acquired 100% of Virtual Edge Limited (a British Virgin Islands
Company) pursuant to a share exchange agreement and thereafter assumed the
operations of Virtual Edge. On September 25, 2000 the Company changed its name
to China World Trade Corporation. The Company is in the development stage since
January 29, 1998 (inception) and has not commenced planned principal operations.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of China World
Trade Corporation and its wholly-owned subsidiary, Virtual Edge Limited, a
British Virgin Islands Company and its majority owned subsidiaries Infotech
Enterprises Limited ("Infotech"), a British Virgin Islands Company (51% owned),
and Beijing World Trade Center Club, a People's Republic of China Company (75%
owned).
The results of subsidiaries acquired during the year are consolidated from
their effective dates of acquisition.
All significant inter-company accounts and transactions have been
eliminated.
Nature of Business
------------------
The Company through its subsidiaries intends to build a bilingual (Chinese
and English) Business to Business Portal, and establish a club in Beijing to
provide food and beverages, recreation, business center services, communication
and information services, product exhibition services and trading brokerage
services to its member.
F-9
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
--------------------------------------------------------------------
Cash Equivalents
----------------
For the purpose of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with maturity of three months or less to be
cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
--------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles required 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 the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Translation of Foreign Currrency
--------------------------------
The Companies functional currencies include U.S. Dollars and Chinese
Renminbi. All balance sheet accounts of foreign operations are translated into
U.S. dollars at the year-end rate of exchange and statement of operations items
are translated at the weighted average exchange rates for the year. The
resulting translation adjustments are made directly to a separate component of
the stockholders' equity. Gains or losses from other foreign currency
transactions, such as those resulting from the settlement of foreign receivables
or payables, are included in the Statements of Operations.
Concentration of Credit Risk
----------------------------
The Company has no significant off-balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash balances
with one financial institution, in the form of demand deposits.
F-10
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
--------------------------------------------------------------------
Depreciation
------------
Property, plant and equipment, are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
economic useful lives of the related assets as follows:
Furniture & Fixtures 5-10 years
Equipment 5-7 years
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
The Company has adopted the Financial Accounting Standards Board SFAS No.,
121, "Accounting for the Impairment of Long-lived Assets." SFAS No. 121
addresses the accounting for (i) impairment of long-lived assets, certain
identified intangibles and goodwill related to assets to be held and used, and
(ii) long-live lived assets and certain identifiable intangibles to be disposed
of. SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash flows from the
used of the asset and its eventual disposition (undiscounted and without
interest charges) is less than the carrying amount of the asset, an impairment
loss is recognized.
Net Loss per Common Share
-------------------------
There are no dilutive potential common stock equivalents for 2000 and 1999
and are thus not considered.
The reconciliations of the numerators and denominators of the basic EPS
computations are as follows:
F-11
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
--------------------------------------------------------------------
Net Loss per Common Share (Continued)
-------------------------------------
<TABLE>
<S> <C> <C> <C>
2000
-------------------------------------
Number
of
Loss Shares Loss Per
(numerator) (denominator) Share
-------------------------------------
Loss to Common Shareholders $ (3,739,786) 13,065,584 $ (0.29)
=====================================
1999
-------------------------------------
Number
of
Loss Shares Loss Per
(numerator) (denominator) Share
-------------------------------------
Loss to Common Shareholders $ 306,752 2,972,400 $(0.10)
=====================================
</TABLE>
NOTE 2 - INCOME TAXES
---------------------
The Company has accumulated tax losses estimated at $543,000 expiring in
years beginning 2013. Current tax laws limit the amount of loss available to be
offset against future taxable income when a substantial change in ownership
occurs. The amount of net operating loss carryforward available to offset future
taxable income will be limited if there is a substantial change in ownership. In
accordance with SFAS No. 109, a valuation allowance is provided when it is more
likely than not that all or some portion of the deferred tax asset will not be
realized. Due to the uncertainty with respect to the ultimate realization of the
net operating loss carry forward, the Company established a valuation allowance
for the entire net deferred income tax asset as of September 30, 2000.
NOTE 3 - GOING CONCERN / DEVELOPMENT STAGE
------------------------------------------
The Company has not begun principal operations and as is common with a
development stage company, the Company has had recurring losses during its
development stage. Continuation of the Company as a going concern is dependent
upon obtaining the additional working capital necessary to be successful in its
planned activity, and the management of the Company has developed a strategy,
which it believes will accomplish this objective through additional equity
funding and long term financing, which will enable the Company to operate for
the coming year.
F-12
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(Continued)
NOTE 4 - COMMITMENTS
--------------------
As of September 30, 2000 all activities of the Company have been conducted
by corporate officers from either their homes or business offices. Currently,
there are no outstanding debts owed by the Company for the use of these
facilities and there are no commitments for future use of the facilities.
NOTE 5 - RELATED PARTY TRANSACTIONS
-----------------------------------
(a) Names and relationship of related parties
Existing relationships with the Company
---------------------------------------
Mr. John H. W. Hui President and Director of the Company
Mr. Steven K. F. Hui Close family member of a director of a
subsidiary of the Company
Mr. Alfred Or A director of the Company
Vast Opportunity Limited ("M") Minority shareholder of a subsidiary
Belford Enterprises Limited A company in which a director of the
Company has a beneficial interest
Main Edge International Limited Major shareholder of the Company
PRC Partner PRC partner of a subsidiary
(b) Summary of related party transactions
Since the acquisition (August 14, 2000) of Virtual Edge Limited, a wholly
owned subsidiary , the Company has paid management fees to Mr. John H. W. Hui
and Mr. Alfred Or in the amount of $28,634 each based on an annual amount of
$80,000 each.
F-13
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(Continued)
(c) As of September 30, 2000 the Company owes the following amounts to related
parties, for unsecured advances which are interest-free and repayable on
demand.
<TABLE>
<CAPTION>
September 30,
2000
-------------
<S> <C>
Mr. John H. W. Hui $ 58,757
Mr. Steven K.F. Hui 118,192
Mr. Alfred Or 76,645
Vast Opportunity Limited 131,801
Belford Enterprises Limited 809,412
Main Edge International Limited 695,977
PRC Partner 31,708
-------------
$ 1,922,492
-------------
</TABLE>
NOTE 6 - ACQUISITION OF SUBSIDIARIES
------------------------------------
On August 14, 2000, the Company and Virual Edge Limited ("VEL"), and Main
Edge International Limited ("Main Edge") entered into a share exchange agreement
that provides for the purchase of VEL by the Company from Main Edge.
In the exchange, the Company issued 1,961,175 (approximately 75%) shares of
the Company's common stock to Main Edge in exchange for 100% of the issued and
outstanding shares of capital stock of VEL. The shares have been valued at $0.94
per share. The excess purchase price paid of $3,047,082 over the net tangible
assets acquired was recorded as goodwill and has been written off in the
accompanying financial statements.
F-14
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(Continued)
-----------
NOTE 7 - STOCK OPTIONS AND WARRANTS
------------------------------------
On May 27, 2000 the Company adopted a Year 2000 Non-Qualified Stock Option
Plan for its employees, directors and consultants (the "Plan"). The Plan
provides for the issuance of options for the purchase of up to 1,000,000 common
shares of the Company by officers, directors or consultants to the Company.
Pursuant to to the plan, the Company issued 500,000 to officers and
consultants with an exercise price of $0.02 per shares with an expiration date
of May 27, 2002. As of September 30, 2000, all options have been exercised.
All options and warrants have been granted at exercise prices greater than
the market value on the date of granting. All options vest 100% at date of
grant.
<TABLE>
<S> <C> <C>
2000 1999
-------- --------
Options outstanding, beginning of year - -
Granted 500,000 -
Canceled - -
Exercised (500,000) -
-------- --------
Options and warrants outstanding, end of year - -
-------- --------
Price for options and warrants outstanding, end of year $ - $ -
Options and warrants granted subsequent to year end - -
Option and warrant price granted subsequent to year end $ - $ -
</TABLE>
NOTE 8 - SUBSEQUENT EVENTS
--------------------------
Pursuant to a Share Exchange Agreement entered into between the Company and
Vast Opportunity Limited ("VOL"), VOL transferred its 49 shares of the common
stock , par value $1 of Infotech to the Company in exchange for the issuance by
the Company of 2,500,000 shares of its common stock with par value of $0.001.
F-15
<PAGE>
CHINA WORLD TRADE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(Continued)
NOTE 8 - SUBSEQUENT EVENTS (Continued)
--------------------------------------
On the closing date, October 18, 2000, Infotech became a wholly-owned
subsidiary of the Company, with 49% shareholding directly held by the Company
and 51% shareholding held by Virtual Edge Limited, a wholly owned subsidiary of
the Company.
On October 20, 2000, the Company adopted the 2000 Stock Option Plan that
was approved by the written consent of a majority of shareholders and the Board
of Directors. The purpose of the plan is to attract, motivate and retain
directors, officers and key employees and consultants through the use of long-
term incentives which are tied to shareholder value. The plan provides for a
maximum of 3,000,000 shares of common stock awarded under the plan with an
exercise price of $2.18 per share.
F-16
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On August 10, 2000 China World Trade Corporation (a development stage
company) (the "Company") and Virtual Edge Limited ("VEL"), and Main Edge
International Limited ("Main Edge") entered into a share exchange agreement that
provides for the purchase of VEL by the Company from Main Edge. The following
unaudited pro forma condensed combined financial statements are based on the
September 30, 2000 historical financial statements of the Company and VEL
contained elsewhere herein, giving effect to the transaction under the purchase
method of accounting, with the Company treated as the acquiring entity for
financial reporting purposes. The unaudited pro forma condensed combined
statement of operations presents the results of operations of the Company,
assuming the merger was completed on October 1, 1999.
The unaudited pro forma condensed combined financial statements have been
prepared by management of the Company and VEL based on the financial statements
included elsewhere herein. The pro forma adjustments include certain assumptions
and preliminary estimates as discussed in the accompanying notes and are subject
to change. These pro forma statements may not be indicative of the results that
actually would have occurred if the combination had been in effect on the dates
indicated or which may be obtained in the future. These pro forma financial
statements should be read in conjunction with the accompanying notes and the
historical financial information of both the Company and VEL (including the
notes thereto) included in this Form. See "FINANCIAL STATEMENTS."
F-17
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
--------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 2000
-------------------------------------
<TABLE>
<CAPTION>
China
Virtual World Pro Forma
Edge Trade Pro Forma Combined
Limited Corporation Adjustments Balance
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues: $ - $ - $ - $ -
---------
Operating Expenses:
------------------
General & Administrative 2,510,678 118,161 - 2,628,839
------------------ ------------------ ----------------- ----------------
Net Income (Loss) from Operations (2,510,678) (118,161) - (2,628,839)
Other Income (Expense):
---------------------
Write-off of Goodwill (1,749,107) - (3,047,082)A (4,796,189)
------------------ ------------------ ----------------- ----------------
Minority Interest 242,345 - - 242,345
Net Income (Loss) before Taxes (4,017,440) (118,161) (3,047,082) (7,182,683)
Income Taxes - - - -
------------------ ------------------ ----------------- ----------------
Net Income (Loss) $ (4,017,440) $(118,161) $ (3,047,082) $ (7,182,683)
================== ================== ================= ================
Loss per share $ (1.61) $ (0.01) $ (0.34)
================== ================== ================
Weighted average shares outstanding 2,500,000 21,322,800 21,322,800
================== ================== ================
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements.
F-18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
--------------------------------------------------------------------
(1) General
In the exchange, the Company issued 1,961,175 (approximately 75%) shares of
the Company's common stock to Main Edge in exchange for 100% of the issued and
outstanding shares of capital stock of VEL. The Company has not yet performed a
detailed evaluation and appraisal of the fair market value of the net assets
sold in order to allocate the purchase price among the assets sold. For purposes
of preparing these pro forma financial statements, certain assumptions as set
forth in the notes to the pro forma adjustments have been made in allocating the
sales price to the net assets sold. As such, the pro forma adjustments discussed
below are subject to change based on final appraisals and determination of the
fair market value of the assets and liabilities of VEL.
(2) Fiscal Year Ends
The unaudited pro forma condensed combined statements of operations for the
year ended September 30, 2000, include the Company's and VEL's operations on a
common fiscal year. The financial statements of VEL have been conformed to the
fiscal year ended September 30, 2000 by including the operating results of VEL
for the six month period April 1, 2000 to September 30, 2000 and the six month
period October 1, 1999 to March 31, 2000 and including such operating results
for VEL for the twelve months ended September 30, 2000.
(3) Pro Forma Adjustments
The adjustments to the accompanying unaudited pro forma statements of
operations as of September 30, 2000 are described below:
(A) Write-off of purchased goodwill.
F-19
