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**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


Washington,
D.C. 20549







****


**FORM
10-KSB**











(Mark
One)




x  ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE  ACT OF
1934.




For the
fiscal year ended December 31, 2004




OR





o   TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934.





For the
transition period from _________ to _________





***Commission
file number 000-26119***





**CHINA
WORLD TRADE CORPORATION**


(Exact
name of small business issuer as specified in its charter)





**Nevada**
      (State or other jurisdiction of
      incorporation or organization)
    **87-0629754**
      (IRS Employer Identification
  No.)




**3rd
Floor, Goldlion Digital Network Center**


**138
Tiyu Road East, Tianhe**


**Guangzhou,
PRC**


(Address
of principal executive offices)





**(001-8620)
3878 - 0286**


(Issuer's
telephone number)





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





Securities
registered under Section 12(b) of the Exchange Act: None





Securities
registered under Section 12(g) of the Exchange Act:





Common
Stock, par value $.001 per share


(Title of
Class)





Check
whether the issuer: (1) filed all reports required to be filed by Sections 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 the past 90 days.  Yes x No o





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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-KSB or any
amendment to this Form 10-KSB. x





Issuer's
revenues for its most recent fiscal year were $3,092,744





The
aggregate market value of the issuer's common stock held by non-affiliates was
approximately $29.5 million, based on the average closing bid and ask price for
the common stock on March 28, 2005.





As of
March 31, 2005, there were outstanding 30,889,997shares of the issuer's common
stock, par value $.001.





Transitional
Small Business Disclosure Format (check one):  Yes o No x







*Table of Contents*




**CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION**





The
discussion contained in this 10-KSB under the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") contains forward-looking statements that
involve risks and uncertainties. The issuer's actual results could differ
significantly from those discussed herein. These include statements about our
expectations, beliefs, intentions or strategies for the future, which we
indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
"will," "we believe," "the Company believes," "management believes" and similar
language, including those set forth in the discussion under "Description of
Business," including the "Risk Factors" described in that section, and
"Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-KSB. We base our forward-looking statements
on information currently available to us, and we assume no obligation to update
them. Statements contained in this Form 10-KSB that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995.




2
 *Table of Contents*




**TABLE OF CONTENTS****Part
      I**Item
    
    Page1.
    Description of Business
    42.
    Description of Property
    343.
    Legal Proceedings
    354.
    Submission of Matters to a Vote of Security
      Holders
    35**Part
      II**5.
    Market for Common Equity and Related Stockholder
      Matters
    356.
    Management's Discussion and Analysis or Plan of
      Operation
    417.
    Financial Statements
    508.
    Changes in and Disagreements with Accountants on Accounting
      and
      Financial Disclosure
    518A.
    Disclosure Controls and Procedures
    51**Part
      III**9.
    Directors and Executive Officers of the
      Registrant
    5110.
    Executive Compensation
    5511.
    Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
    5712.
    Certain Relationships and Related
      Transactions
    5813.
    Exhibits, Lists and Reports on Form 8-K
    5814.
    Principal Accountant Fees and Services
    59**Other**Index to Exhibits
    60Signature Page
    61Financial Statements
    63







3
 *Table of Contents*




**PART
I**





**Item
1.**  **Description of Business**





Company
History





China
World Trade Corporation, ("China World Trade” or the "Company) was incorporated
in the State of Nevada on January 29, 1998 under the name Txon International
Development Corporation to conduct any lawful business, to exercise any lawful
purpose and power, and to engage in any lawful act or activity for .which
corporations may be organized under the General Corporation Laws of Nevada





On August
14, 2000, pursuant to a share exchange agreement dated August 10, 2000, by and
among Main Edge International Limited, a British Virgin Islands corporation
("Main Edge"), Virtual Edge Limited, a British Virgin Islands corporation and a
wholly-owned subsidiary of Main Edge ("Virtual Edge"), Richard Ford, Jeanie
Hildebrand and Gary Lewis, the Company acquired from Main Edge all of the shares
of Virtual Edge (the "Acquisition") in exchange for an aggregate of one million
nine hundred sixty one thousand, one hundred and seventy five (1,961,175) shares
of our common stock, which shares equaled 75.16% of Txon International’s issued
and outstanding shares after giving effect to the Acquisition. Both Main Edge
and Virtual Edge were investment holding companies organized to own the stock of
businesses which they acquired. On September 15, 2000, Txon International
Development Corporation changed its name to China World Trade Corporation and
effectuated an 8 for 1 forward stock split. As a result of the forward stock
split, Main Edge held 15,689,400 shares of our common stock, which shares equal
75.16% of our issued and outstanding shares.





In
September 2002, the Company underwent a debt for equity capital restructuring
whereby certain creditors of the Company converted an aggregate of $2,731,677
into an aggregate of 4,000,000 shares of common stock.





Powertronic
Holdings Limited ("Powertronic"), a British Virgin Islands company, entered into
a share purchase agreement dated September 3, 2002 (the "First Share Purchase
Agreement") with the Company, to purchase 1,000,000 Share and warrants (the
"First Warrants") to purchase up to 2,000,000 Shares, for the total purchase
price of US$500,000.00. Powertronic was an investment holding company.
Additionally, Powertronic entered into a second share purchase agreement dated
December 17, 2002 (the "Second Share Purchase Agreement") with the Company, to
purchase an additional 1,000,000 Shares and warrants (the "Second Warrants") to
purchase up to an additional 2,000,000 Shares, for the total purchase price of
US$500,000.00. The First Warrants and the Second Warrants may be exercised
within two year of their issue at an exercise price of US$0.575 per
share.





The
Company entered into a share exchange agreement (the "Share Exchange Agreement")
dated as of December 17, 2002, with Mr. William Chi Hung Tsang ("Mr. Tsang"),
the sole beneficial owner of the share capital in General Business Network
(Holdings) Ltd. ("GBN"), a Hong Kong company. Pursuant to the Share Exchange
Agreement, the Company acquired from Mr. Tsang all of the issued and outstanding
shares of GBN in exchange for four million (4,000,000) Shares and warrants (the
"Tsang Warrants") to purchase an additional four million (4,000,000) Shares. As
of the date of acquisition, GBN owned two rental properties located at 20/F,
Goldlion Digital Network Center, Unit 01-10, 138 Tiyu Road East, Tianhe,
Guangzhou, the PRC and Flat B, 12/F., Champion Center, 301-309 Nathan Road, Hong
Kong, collectively valued in excess of US$ 4,000,000. The Tsang Warrants may be
exercised within two year of their issue at an exercise price of US$0.92 per
Share.





On
September 12, 2002, 1,000,000 shares and the first warrants were issued pursuant
to the First Share Purchase Agreement. The Second Share Purchase Agreement and
the Share Exchange Agreement were each completed on January 24, 2003 and on that
date one million (1,000,000) Shares, and the Second Warrants were issued to
Powertronic and four million (4,000,000) Shares and the Tsang Warrants were
issued to Mr. Tsang.





4
 *Table of Contents*





On May 7,
2004, the Company, through one of its wholly-owned subsidiaries, acquired 51% of
the capital stock of CEO Clubs China Limited (“CEO Clubs China”) for a total
consideration in cash and shares of the common stock of China World Trade in the
amount of US$480,000. CEO Clubs China is a Hong Kong corporation with authorized
chapter to operate under the “CEO Clubs” trademarks in the Greater China Region,
including the PRC, Hong Kong and Taiwan. Comprised of thirteen chapters in the
U.S. and China, the CEO Clubs are a by-invitation-only membership association.
Members must be CEOs of businesses that have above $2,000,000 in annual sales.
Our average club member has $20,000,000 in annual sales. In year 2002, CEO Clubs
opened its first international chapter in China.





On August
2, 2004, we consummated an acquisition of 51% of the capital stock of Guangdong
New Generation Commercial Management Limited, a limited liability company
organized and existing under the laws of the PRC (“New Generation”), for an
aggregate consideration of US$10,232,000, payable approximately US$2,741,000 in
cash and approximately US$7,487,000 in market value of common stock of China
World Trade. New Generation is one of the major competitors in the travel agency
business through operations of its ten subsidiaries in Southern China. It is a
significant competitor in ticketing sales for international and domestic flights
as well as inbound business travel. In addition, its goal is to become one of
the major consolidators of hotel rooms and airline tickets in China. New
Generation has already acquired the necessary licenses to operate as a ticketing
and travel agent in the PRC, a highly regulated business. In addition, New
Generation is also a licensed insurance agent in China to provide, in
particular, accidental and life insurances. While there can be no assurances of
success, the Company expects that New Generation will contribute a significant
revenue base to our company.





Overview





Our
business plan involves the pursuit of three distinct lines of business. These
include (i) the business clubs located in major cities of China, including
Guangzhou, the PRC and Beijing, the PRC, with plans to open clubs in Shanghai
and Shenzhen, the PRC, each club in association with the World Trade Center
Association, by which we have positioned ourselves as a platform to facilitate
trade between China and the world market, (ii) the business travel and related
services, in which our latest acquisition, the New Generation Group of
Companies, a majority indirectly owned subsidiary, will continue as a
consolidator of airline tickets and hotel accommodations in China, and as an
agent for the provision of life and accident insurance in the Guangdong Province
of China, and (iii) the business value-added services, in which we will
concentrate on planning and operating interactive marketing and incentive
programs for merchants, financial institutions, telecom operators, and large
corporations with significant client bases, as well as consultancy services. The
business clubs commenced operations in August 2002; the business travel services
commenced operations in August 2004, resulting from the acquisition of the New
Generation Group of companies; and the business value-added commenced operations
in year 2002, with a small contribution to earnings. Our growth in the
industries of trade, travel and finance, should enable us to provide value added
services and target many cross marketing opportunities. No assurances can be
given, however, that we will be successful in our endeavors.





Our
executive office is located at 3rd Floor, Goldlion Digital Network Center, 138
Tiyu Road East, Tianhe, Guangzhou, the PRC 510620.





We
currently operate the Guangzhou World Trade Center Club, which is located at
3 rd Floor,
Goldlion Digital Network Center, 138 Tiyu Road East, Tianhe, Guangzhou PRC, and
the Beijing World Trade Center Club, which is located at 2nd Floor, Office Tower
II, Landmark Towers Beijing, 8 North Dongsanhuan Road, Beijing, the PRC. We
expect to open World Trade Center Clubs in Shanghai and Shenzhen in 2005. As
part of our Business Clubs, we plan to create a Chinese/English internet portal
to serve foreign and Chinese small to medium sized businesses.





5
 *Table of Contents*





We are
also, through our indirect acquisition of a majority of the capital stock of the
New Generation Group of companies, a business travel service provider in China.
In addition, through another New Generation company, we are actively running a
life and accident insurance agency business in the Guangdong Province. Finally,
through our business value-added services division, we provide business services
in the areas of interactive marketing and incentive programs in China, as well
as consultancy services.





Our
financial statements are stated in United States Dollars (US$) and are prepared
in accordance with United States Generally Accepted Accounting Principles. In
this Annual Report on Form 10-KSB, unless otherwise specified, all dollar
amounts are expressed in United States Dollars.





China
World Trade Corporation


Segment
Revenues


Year
ended December 31





2004
    
    2003
      (unaudited)US$
    
    %
    
    US$
    
    %Business
      Club
    
    
    551,497
    
    
    17.8
    %
    
    1,485,440
    
    
    45.5
    %Business
      TravelTraveling
      Services
    
    
    1,571,412
    
    
    50.8
    %
    
    -
    
    
    0.0
    %Insurance
    
    
    100,193
    
    
    3.3
    %
    
    -
    
    
    0.0
    %Business
      Value-added
    
    
    40,695
    
    
    1.3
    %
    
    212,605
    
    
    6.5
    %Others
    
    
    828,947
    
    
    26.8
    %
    
    1,566,566
    
    
    48.0
    %TOTAL
    
    
    3,092,744
    
    
    100.0
    %
    
    3,264,611
    
    
    100.0
    %





(1)
    Other
      revenues in year 2003 and year 2004 were mostly generated from trading
      business and rental of our properties.





History
of Virtual Edge





Virtual
Edge was incorporated in the British Virgin Islands on February 18, 1999 as an
investment holding company. We currently own 100% of the capital stock of
Virtual Edge, through which we operate our Beijing World Trade Center Club and
Guangzhou World Trade Center Club, in addition to the businesses of Infotech
Enterprises Limited.





On
October 5, 1999, pursuant to a share exchange, Virtual Edge acquired a majority
interest in Infotech Enterprises Limited ("Infotech"). Infotech was incorporated
on July 2, 1999 and is engaged in building a bilingual (Chinese and English)
Business-to-Business internet portal.





On
October 10, 1999, Virtual Edge signed an agreement with Belford Enterprises
Limited ("Belford") pursuant to which Belford agreed to transfer its 75%
interest in Beijing World Trade Center Club ("BWTCC") to Virtual Edge. BWTCC is
engaged in the establishment of a club located in Beijing, the PRC, and provides
recreation, business center services, communication and information services,
products exhibitions services, commercial and trading brokerage services to its
members.





6
 *Table of Contents*





On
October 18, 2000, pursuant to a Share Exchange Agreement with Vast Opportunity
Limited, we acquired the remaining interest in Infotech.





On
November 10, 2001, Virtual Edge Limited signed an agreement with Guangzhou City
International Exhibition Co., Ltd. pursuant to which a co-operative joint
venture company, Guangzhou World Trade Center Club ("GWTCC") was formed to
operate a business club in Guangzhou, the PRC to provide services including food
and beverages, recreation, business center, communication and information,
products exhibitions, as well as commercial and trading brokerage services to
its members. Virtual Edge will share 75% of the profits from the operation of
GWTCC. Located at Goldlion Digital Network Center in Guangzhou, GWTCC had its
grand opening on January 28, 2002.





Our
Corporate Structure





We are a
holding company for twenty-three, direct and indirect, majority and wholly-owned
subsidiaries that operate businesses in China. Seven of these companies are
incorporated under the laws of the British Virgin Islands, five of these
companies are incorporated under the laws of Hong Kong, and the remaining eleven
are incorporated in the People’s Republic of China. All of our business
operations are located in China. Set forth below is an organizational chart
depicting the relationships among our various companies.







7
 *Table of Contents*










8
 *Table of Contents*


OUR
BUSINESS PLAN IN EACH AREA OF OPERATIONS





We are a
holding company with twenty-three majority and wholly owned subsidiaries
incorporated under the laws of the British Virgin Islands, Hong Kong and the
Peoples’ Republic of China. We do not have any operations of our own, but rather
hold equity positions in our operating companies. Our business operations are
organized along the following lines: Business Clubs, Travel and Related
Businesses (Including Insurance Services), and Value Added businesses. In fiscal
2004, we derived approximately $551,000 in revenues, representing 17.8% of total
revenues from our Business Clubs operations; approximately $1,672,000 in
revenues, representing 54.1% of total revenues from our Travel and Related
businesses; approximately $41,000 in revenues, representing 1.3% of total
revenues from our Value Added businesses; and approximately $829,000,
representing 26.8% of total revenues from other operations including operations
in rental and trading businesses.





Business
Plan For Our Business Clubs





The
Opportunity in China





China has
been considered one of the fastest growing economies in the world. The accession
into the World Trade Organization (the “WTO”) will offer new opportunities for
foreign companies to invest and do business in China. WTO membership for China
will change the methods of market entry for overseas companies. Foreign
companies will need to have well-tailored plans to cope with China's target
audience, services, marketing, finance, and human resources for the effective
entry into the China market. The unique business culture and legal system in
China will cause the local business information and services in China to become
a key component to commerce.





As a
whole, the consequential lower barriers to entry into the China market, and a
more attractive investment environment, will provide small and medium sized
foreign enterprises with investment opportunities for the first
time.





China's
accession into the WTO also provides significant business opportunities to the
small to medium size private companies in China. The increase in involvement
from foreign companies and investors in the China market means more
opportunities to do business with foreign companies. Under the trend of
globalization, the Chinese market will evolve from many segmented and
monopolized markets to an integrated national market that is open to the world
economy. The small and medium sized companies in China will enjoy much lower
cost to enter into the worldwide market but will also confront intensified
competition, lowered profit margins, and new rules of the game. These Chinese
companies will need up-to-date business intelligence, professional strategic
planning and the access to the worldwide business network to ensure the success
in the new environment. And with its imminent accession into WTO, there will be
unique opportunities for foreign investment and international
trade.





The World
Trade Centers Association (“WTCA”) is a not-for-profit corporation that focuses
on promoting and assisting world trade activities. Its mission is to encourage
world trade by fostering and supporting the development and operation of World
Trade Centers in every region of the world. WTCA was established in 1970 and has
memberships from more than 330 cities in about 100 countries with global members
of over 750,000 enterprises.





The World
Trade Centers (“WTC”) are individually separated entities supported by the WTCA
that generate revenues and profits from operating businesses with access to a
diverse array of state-of-the-art international trade services and facilities,
which enables them to increase their international trade. In the WTCA, every
local member of a WTC in a city is automatically a member of all WTCs worldwide.
This helps the WTCs to market their local membership, and also vastly increases
the amount of services that a WTC can offer to its local members. Therefore, the
WTCs worldwide form a reciprocal business network for businesses to access the
international trade resources that may be expensive and even inaccessible in a
domestic environment.





9
 *Table of Contents*





Our plan
is to open and operate World Trade Center Clubs (the "Business Clubs"), which
will be associated with the World Trade Center Association, in major cities in
China, where Business Club members can relax, entertain, network and meet
potential business partners in person, or via the Video Conferencing facilities
of the WTCA worldwide network.





The
facilities of the Business Clubs will likely include restaurants, a bar, a
fitness center, saunas and spas, conference rooms, video conferencing
facilities, smart offices and a library. The services to be offered by the
Business Clubs may include the provision of trade agency and trade information,
business services including smart offices, secretarial and translation services,
conference room and video conferencing services. The Business Clubs may also
operate a Business Consultation and Fulfillment and Logistics Counseling Service
via a 24/7 call center manned by business professionals experienced in the China
trade. Members of the Business Club will be entitled to WTCA membership and be
entitled to the services and benefits of over 300 WTCs worldwide.





Facilities
of the Business Clubs





China
World Trade Corporation, through its wholly owned subsidiary, Virtual Edge
Limited, formed cooperative joint venture companies with the provincial branches
of the China Commission for the Promotion of International Trade to operate the
Guangzhou World Trade Center Club and Beijing World Trade Center Club with
regular full membership status granted and authorized by WTCA. In order to
generate revenues and profits, Guangzhou World Trade Center Club and Beijing
World Trade Center Club provide a full range of top quality commercial and
recreational services to our members. The clubhouses are luxuriously decorated
and provide an elegant environment under which members can enjoy our facilities
that include:





·
    Chinese
      and western fine dining,


·
    Seminar
      and conference rooms,


·
    Library,


·
    Executive
      Suites,


·
    Office
      and meeting room packages,


·
    Videoconferencing
      facilities,


·
    Exhibition
      rooms, and


·
    Cigar
      and wine corner.





In terms
of business services, they offer their members:





·
    Liaison
      work with potential trading partners,


·
    International
      economic and trade exhibitions and
seminars,


·
    Interpreters
      and secretarial services,


·
    Organized
      trips to participate in World Trade Center Association sponsored
      activities,


·
    Reception
      of visiting delegations of foreign World Trade Center Association member
      units,


·
    Arrange
      meetings with Chinese government bodies, business corporations,
      and


·
    Legal
      consultancy and travel management services.





10
 *Table of Contents*





Events
Management Services





China
World Trade is planning to assist foreign companies to organize and participate
in conferences and exhibitions in China and assist Chinese companies to organize
and participate in conferences and exhibitions overseas. This is a service for
fee business.





Virtual
Office





Virtual
office services help foreign companies to establish a presence in China at
minimum cost. Each client will be assigned a dedicated phone number, fax number
and mail address. The phone number can be forwarded to a number assigned by the
client, or be answered by a well trained secretary who takes care of the
communication for the client. Foreign companies can also manage their
communication with their China partners over the Internet. These services
started in 2004 and a monthly fixed fee is charged for each
account.





Marketing
Strategy





We plan
to market Business Club memberships mainly to international companies and
businessmen doing business in China and local Chinese companies and businessmen
seeking business opportunities within and outside China. We will utilize the
good reputation and recognition of WTCA and the recreational and business
facilities which will be offered at each Business Club to establish the
Guangzhou Club, Beijing Club and other potential Business Clubs in various
cities in the PRC as the premier business clubs of their kind. We also hope to
make the ChinaWTC.com website into a distinctive Chinese/English language
Internet portal. We will achieve our goals by placing advertisements with
traditional media, such as newspapers, television, radio, magazines etc.;
placing banners on high traffic web sites; sending e-mails to potential users;
participating in trade shows; employing the services of external public
relations and marketing firms; television "infomercials" and talk shows; outdoor
advertising signs and attending / holding press conferences.





We will
form strategic alliances with companies that can contribute services and local
expertise in various market sectors. These alliances will increase our content
and navigation services, support our advertising services and expand our
distribution networks. We will form vertical alliances, such as exhibition
management companies and travel agents, which will either allow us to integrate
their products to our services offerings or to access their distribution
networks. We will also form horizontal alliances, such as golf clubs and other
business clubs, to increase our client base.





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.
The New Generation acquisition has demonstrated the success of our strategies to
grow the revenues of the Company through vertical consolidation. By acquiring
New Generation, we have integrated the services offered by New Generation into
the services offered by the Business Clubs. The Business Clubs services have
also created value to New Generation by allowing New Generation to offer premium
services to a selected group of important clients.





On the
other hand, the acquisition of the CEO Clubs China is an example of our
strategies to horizontally consolidate other business clubs so as to increase
our client base.





11
 *Table of Contents*





Sources
of Income





The
Company will generate income from its Business Club activities in several ways.
CWTC’s goal is to be the operator of World Trade Centers in major Chinese
cities. While the worldwide business network from WTCA together with the
reciprocal services will be the core attraction to businesspersons in China, the
business community maintained by CWTC covering major cities in China will be an
even more valuable asset in the long term. Through its presence in major cities
in China, CWTC will develop a community of active businesspersons from small and
medium sized enterprises with a common interest in world trade.





The
Business Club is a core component of the Company. The target market for the
Business Club will be the owners and senior managements of the small and medium
sized enterprises in China. The Business Club will provide to members a full
range of top quality commercial and recreational services, education programs
and the business networking programs, and Business Club facilities together with
an elegant environment.





Our
Business Club will also help members to liaise with potential trading partners
from overseas, to join international economic and trade exhibitions and
seminars, and to organize international business trips.





As part
of the reciprocal arrangement under the WTCA, the Business Clubs will also
provide services to visiting delegations from foreign WTC members. The CWTC
Business Club will help foreign companies or businesspersons to minimize the
barrier of doing business in China. Services provided to foreign companies and
businessperson may include organizing meetings with Chinese government bodies,
business corporations and potential partners.





The
revenue of the Business Club business will come from membership fees, fees
collected from training and events such as seminars.





At each
Business Club will be a Business Center, which is operated for the benefit of
the members and others. While the Business Center’s services are not confined to
member of the Business Club, members of the Club will enjoy special discounts
for the Business Center services and more dedicated support from the staffs
under the Business Club. The Business Center will provide:





·
    Temporary
      offices


·
    Seminar
      and Conference rooms


·
    Video
      conferencing facility


·
    Exhibition
      rooms


·
    Interpreters
      and secretarial services


·
    Business
      consultation services





The
revenue from a Business Center is derived from rental fees of facilities and
service fees.





The
clients of the Company’s Guangzhou World Trade Center Club in year 2004 included
Fuji Xerox (China) Ltd., UT Starcom Telecom Co. Ltd. Guangzhou Branch, Air
France, American International Assurance Co. Ltd., Guangzhou Branch, Hang Seng
Bank Limited, Netbig Education Holdings Ltd., KPMG Huazhen Certified Public
Accountants, China, and Sun Yaat-sen University.





The
clients of the Company’s Beijing World Trade Center Club in year 2004 included
Daimler Chrysler (China) Limited, VIZRT Media International, Schneider Electric
(China) Investment Co. Ltd, International SOS, and other international
companies.





12
 *Table of Contents*





Finally,
the Company intends to negotiate and acquire the necessary approval from WTCA to
license the China World Trade Center intellectual property rights including the
logo and trademark to third parties. The licensees may use the logo and
trademark of CWTC to quickly establish a brand for their products such as office
accessories, or to attract a group of clients for certain services such as
credit cards offered by the Business Value-Added division. Revenue will be
generated from royalty fees, which may be paid in cash, stock or other
property.





Competition





There are
a number of organizations utilizing the word of “Club” in China. With respect to
the Guangzhou Club, the Beijing Club and the other Business Clubs to be
established in China, we believe that our Business Clubs are a unique facility,
associated with a recognized and respected international organization, whose
mission is the enhancement of international trade, and which offers prestigious
business and recreational facilities to its member. As a result, we do not
foresee any other competitor operating with a business model that is similar to
ours. There are other country clubs in China, such as the Beijing American Club,
which offer more in terms of recreational facilities and services, however, none
of them offer the business services, network of international companies and
online trade information in combination with a first class club environment.
Additionally, there are organizations, like the American Chamber of Commerce,
which provide limited trade and business information and networking
capabilities, but they do not offer a prestigious club setting, recreational
facilities or the amount of business services that are available to Club
members.





Employees





We have
78 employees in our Business Clubs as of December 31, 2004. None of them are
parties to any union or collective bargaining agreement.





Governmental
Regulation of Our Business Club Operations in China





The
operation of our Business Clubs must conform to the governmental regulations and
rules of the Peoples’ Republic of China.





The
Chinese Legal System





The
practical effect of the People’s Republic of China legal system on our business
operations in China can be viewed from two separate but intertwined
considerations. First, as a matter of substantive law, the Foreign Invested
Enterprise laws provide significant protection from government interference. In
addition, these laws guarantee the full enjoyment of the benefits of corporate
Articles and contracts to Foreign Invested Enterprise participants. These laws,
however, do impose standards concerning corporate formation and governance,
which are not qualitatively different from the General Corporation Laws of the
several states. Similarly, the People's Republic of China accounting laws
mandate accounting practices, which are not consistent with US Generally
Accepted Accounting Principles. The China accounting laws require that an annual
"statutory audit" be performed in accordance with People's Republic of China
accounting standards and that the books of account of Foreign Invested
Enterprises are maintained in accordance with Chinese accounting laws. Article
14 of the People's Republic of China Wholly Foreign-Owned Enterprise Law
requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal
reports and statements to designate financial and tax authorities, at the risk
of business license revocation.





13
 *Table of Contents*





Second,
while the enforcement of substantive rights may appear less clear than United
States procedures, the Foreign Invested Enterprises and Wholly Foreign-Owned
Enterprises are Chinese registered companies which enjoy the same status as
other Chinese registered companies in business-to-business dispute resolution.
Because the terms of the respective Articles of Association provide that all
business disputes pertaining to Foreign Invested Enterprises are to be resolved
by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm,
Sweden applying Chinese substantive law, the Chinese minority partner in our
joint venture companies will not assume a privileged position regarding such
disputes. Any award rendered by this arbitration tribunal is, by the express
terms of the respective Articles of Association, enforceable in accordance with
the "United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (1958). "Therefore, as a practical matter, although no
assurances can be given, the Chinese legal infrastructure, while different in
operation from its United States counterpart, should not present any significant
impediment to the operation of Foreign Invested Enterprises.





China's
Accession into the WTO





On
November 11, 2001, China signed an agreement to become a member of the World
Trade Organization sometimes referred to as the WTO, the international body that
sets most trade rules, further integrating China into the global economy and
significantly reducing the barriers to international commerce. China's
membership in the WTO was effective on December 11, 2001. China has agreed upon
its accession to the WTO to reduce tariffs and non-tariff barriers, remove
investment restrictions, provide trading and distribution rights for foreign
firms, and open various service sectors to foreign competition. China's
accession to the WTO may favorably affect our business in that reduced market
barriers and a more transparent investment environment will facilitate increased
investment opportunities in China, while tariff rate reductions and other
enhancements will enable us to develop better investment strategies and attract
investment capital. In addition, the WTO's dispute settlement mechanism provides
a credible and effective tool to enforce members' commercial rights. Also, with
China's entry to the WTO, it is believed that the relevant laws on foreign
investment in China will be amplified and will follow common
practices.





Business
Plan For Our Air-Ticketing and Hotel Booking Businesses





China
World Trade engages in the air-ticketing, hotel room booking and travel agency
businesses through its indirect 51% ownership of Guangdong New Generation
Commercial Management Ltd., a company organized and existing under the laws of
the Peoples’ Republic of China (“New Generation”). New Generation has ten
operating subsidiaries in Southern China through which it operates these
businesses. We believe that there are significant opportunities in the travel
and tourism industry in China, which are set forth below, although there can be
no assurances that we will be able to capitalize on them.





Summary
Of New Generation’s Business Travel Services





We seek
to serve China’s emerging class of frequent independent travelers, or FITs, who
engage in business and leisure travel on their own instead of traveling in
groups. Through our professional team of staff, our nationwide 24-hour toll-free
call center, our user-friendly Chinese and English language website and our
extensive reseller network, we provide our customers with consolidated travel
information and the ability to book airline tickets at discounted rates
nationwide within China. We also provide our customers with the ability to book
hotel rooms at discounted rates in over 200 cities in China. The majority of our
hotel suppliers are three-, four- or five-star hotels, as rated by the China
National Tourism Bureau, catering to higher-end travelers. We also offer other
travel related services, such as vacation packages and corporate travel
services, at competitive prices.





According
to the Yearbook of China Tourism Statistics 2003, China’s domestic tourism
spending totaled approximately RMB388 in 2002 and RMB344 billion in 2003. Note
there was a decrease of 11% in 2003 due to the outbreak of SARs. In the same
period, CTRIP, one of the best known operators serving FITs in China, derived
RMB105 million in 2002 and 183 million in 2003 from this market, increased 127%
and 73% from the previous year, respectively. This fact to a certain extent
reflects that FITs will be a fast-growing, yet relatively underserved segment in
the travel business.





14
 *Table of Contents*





New
Generation believes that it is a major provider of air ticketing services in
China. Historically, the air ticketing business in China has been limited to a
fragmented presence due to the licensing requirements and significant capital
requirements. CTRIP and E-Long are among the best known participants in this
business and their brand name recognition and volume of transactions is notable.
CTRIP derived US$2.4 million from air ticketing in 2003. In comparison, New
Generation reported US$1.98 million in 2003, and US$4.29 million as of the
twelve months ended December 31, 2004.





Since its
inception in 1998, New Generation has built a substantial air-ticketing
distribution network in China. It offers customers a wide selection of flights
in all major cities in China, usually at significant discounts to published
rates. Our airline ticketing volume has increased from over 440,000 tickets for
the six months ended June 30, 2004 to approximately 995,000 tickets for the year
ended the December 31, 2004. This approximates US$43 million in value of
transactions for the six months ended June 30, 2004 and US$115 million for the
twelve months ended December 31, 2004. We issue and deliver air tickets using a
network of local agents throughout major cities in China. New Generation started
its hotel booking business in April 2004 and revenue generated from this
division is insignificant to date. At this stage in its development, management
is concentrating on establishing a nationwide network through forging business
partnerships and improving its information technology infrastructure. Up to
December 2004, it had contractual arrangements with 300 hotels, and there are
also more than 2,000 hotels in over 200 cities that can be accessed through
subcontracts with other hotel booking agents. In addition, our hotel booking
operations successfully entered a three-party agreement with China Southern
Airlines (CZ), the largest airline group in China, and InterContinental Hotels
Group, a leading global hospitality group. Under this agreement, New Generation
can provide customers with access to any of InterContinental’s 38 hotels in
China and any of China Southern Airlines’ tickets departing from Guangzhou (via
e-ticketing) at special package prices.





To
facilitate rapid growth in hotel booking business, New Generation has created a
comprehensive IT platform to facilitate its operation. A call center and website
approach are believed to be essential to overcome the requirement of having many
geographic locations in order to conduct business. Through telephones and the
website, New Generation’s hotel booking business is not limited to the
established air ticketing network. Instead, New Generation is able to form a
more extensive hotel booking network quickly, that will also benefit our air
ticketing business. For these reasons, although at present the hotel booking
volume appears small, with only 62 room-nights booked for the nine months ended
September 30, 2004, and 473 room-nights booked as of December 31, 2004, we
believe that this business has significant growth potential.





New
Generation has experienced significant growth since commencing in 2002. For the
year ended December 31, 2004, it generated revenues, including revenues
generated from the insurance business, of US$5.2 million, an increase of 78%
over US$2.9 million generated in the twelve months ended December 31, 2003. This
US$2.9 million revenue generated for the year ended December 31, 2003 was a
52.9% increase from the same period in 2002. It recorded a net income of US$2.0
million for the twelve months ended December 31, 2004, and a net income of
US$0.5 million for the twelve months ended December 31, 2003, an increase of
284.6%.





The
Travel And Tourism Industry In China





*The
facts and statistics used in this report relating to the travel industry and
economy in China are derived from various government and institute research
publications. While we have taken reasonable care to ensure that these facts and
statistics presented are accurately reproduced from such sources, we have not
independently verified them. These facts and statistics may not be comparable to
similar facts and statistics collected for the industry or economy in the United
States and other countries.*





15
 *Table of Contents*





In terms
of domestic tourism spending in 2002, the approximately RMB388 billion (US$46.9
billion) travel industry in China is large and growing rapidly. We expect the
industry to continue to experience rapid growth as China’s economy continues to
develop. Travel and tourism in China is characterized by a highly fragmented and
inefficient travel service sector due to many factors, including the lack of
consolidated hotel ownership, the lack of a centralized hotel reservation
system, the localized nature of travel agencies and a dual regulatory regime. We
believe that the fragmented nature of the travel market in China will create
increasing demand for central reservation platforms such as our own capable of
consolidating a wide range of travel information and negotiating favorable terms
with travel suppliers on the basis of scale from our aggregated
demand.





According
to the China National Tourism Administration, as of the end of 2002, China had
more than 11,500 travel agencies, with the top 100 domestic travel agencies
having an aggregate market share of less than 2%. As the requirements of
travelers become more complex, we believe that these local agencies, which had
been accustomed to providing services using state-owned travel suppliers, have
been increasingly unable to respond to the changing needs of business and
leisure travelers in China. In addition, the development of China’s tourism
infrastructure has resulted in an increasing number of travelers who choose to
engage in leisure travel without the constraints inherent in packaged group
tours. These frequent independent travelers, or FITs, represent a key segment of
the growing travel industry in China that we seek to serve.





The
increasing accessibility of the Internet in China creates a foundation for new
markets and opportunities, providing the ability to bring together a large
number of segmented suppliers and customers in a highly fragmented travel
industry. We believe that we are well positioned to benefit from these trends in
China’s travel industry.





According
to market data from CEIC Data Company Ltd., the frequent independent traveler,
or FIT, segment of travelers grew at an approximately 18% compound annual growth
rate from 1999 to 2002 and is the largest growing group of travelers in China.
FITs are defined as travelers who do not travel with tour groups and who require
flexibility in the selection of accommodations and transportation. FITs are
typically more sophisticated urban dwellers who value customized experiences. We
expect that as Chinese travelers become wealthier and more experienced with
leisure travel, the appeal of traditional tours will become less important than
the ability to arrange one’s own schedule.





Traditionally,
most companies in China have relied on either local travel agencies or their
internal resources for business travel planning. Companies in China have begun
to recognize the importance of focusing on their core competency by outsourcing
non-critical functions. A growing number of medium and large-sized companies are
beginning to centralize their corporate travel management by outsourcing to
professional travel service providers.





Inefficiencies
and Fragmentation in the Travel Market in China





The
travel market in China is highly fragmented with an underdeveloped booking,
reservation and fulfillment infrastructure, and with no dominant nationwide
travel agencies. As a result of market reforms, a gradual shift from state-owned
to privately-owned travel agencies and changing travel patterns, the travel
market in China is undergoing a period of change. While competition among the
older state-owned travel agencies and the privately owned travel agencies has
significantly promoted the development of China’s travel service, the industry
remains inefficient and is likely to remain so in the foreseeable
future.





16
 *Table of Contents*


**


*Inefficiencies
in the air-ticketing system* .
Currently, TravelSky Technology Limited, or TravelSky, operates the only
nationwide system for air-ticket reservations in China. Consumers in China do
not have access to direct bookings on TravelSky unless it is done through
individual travel agencies. Moreover, the delivery of air tickets remains
inefficient. The majority of consumers in China receive their air tickets
through physical delivery and payment to the travel agency is made upon
delivery. The process of physical delivery means that consumers in China do not
have a reliable or timely delivery process that can respond to last minute
travel needs. For example, business travelers who change their flight
destinations at the last minute often have to wait for the delivery of a
physical ticket before they can initiate their travel. While some airlines in
China have recently begun to offer electronic ticketing, there is currently no
universal electronic ticketing system available. The International Air Transport
Association (IATA) recently announced that all members should adopt electronic
tickets in 2007. As the employment of e-ticketing requires more capital
investment on IT and relevant facilities, as well as more investment on staff
training, smaller players will most likely be shaken out of the market during
the process. On the other hand, this trend implies that business opportunities
for larger agencies with relatively mature business models and operating at a
large scale, such as New Generation, would survive.





*Inefficiencies
in the hotel reservation system* .
According to the Year Book of China Tourism Statistics 2003, as of December 31,
2002, China had 3,656 three-, four- or five-star hotels. Hotels in China are
generally run independently and are not part of large chains. The largest hotel
chains in China are small relative to the larger hotel chains in the United
States. There is no industry wide electronic reservation infrastructure similar
to that available in the United States and parts of Europe.





There is
no national distribution system for hotel rooms in China. Travel agents
generally have to negotiate room availability and rates with the hotel each time
they make a booking. Hotel suppliers in China are not able to benefit from an
efficient distribution system that is managed by a centralized process. Until
recently, travelers in China did not have access to comprehensive hotel
information or a central location for bookings. Instead, travelers in China are
still mainly interacting through walk-in room reservations, direct call-in
reservations, business conventions and traditional travel agency bookings. There
are some business operators, such as CTRIP and E-Long, developing centralized
hotel booking platforms in China by utilizing scalable information technology
platforms. At present, 70% transactions of CTRIP have been done through
telephone and the rest 30% mainly fulfilled online.





In the
on-line travel business, packaging air tickets with hotel room is increasingly
popular for it reduces customers’ sensitivity on prices and the profit margin
appears higher than traditional method providing ticketing and hotel booking
separately. For Chinese companies conducting this business model, like CTRIP and
E-Long, hotel booking is the dominated source for revenues. In 2003, CTRIP
derived US$18.5
million from
hotel booking business, 84% of its total revenues. Air ticketing contributed 11%
(US$2.4 million) in the same year. *(Source:
CTRIP Annual Report 2003* ). While
in other countries where the “ticket + hotel room” model is more mature, air
ticketing usually contributes to a larger portion of total revenues. Unlike
either case, New Generation has been largely relying on air ticketing since its
inception. As of nine months ended September 30, 2004, the revenue from air
ticketing was about US$3.27 million, representing 90.2% of its total
revenues.





*Inefficiencies
in traditional travel agencies* . Travel
agencies in China tend to be unaffiliated, small office operations. Due to local
licensing requirements, even the four travel agencies that operate on a
nationwide basis are mostly structured such that each office operates
independently from the others. Consumers in China have generally not been able
to enjoy the benefits that can be offered by a nationwide, integrated travel
agency.





17
 *Table of Contents*


**


*Inefficiencies
created by separate regulatory regimes* . Under
current regulations, two distinct regulatory bodies regulate the travel industry
in China. In order to sell air tickets, travel agencies must obtain a permit
from the Civil Aviation Administration of China. If a travel agency intends to
conduct the air-ticketing business in more than one city, an air-ticketing
permit is required for every city, as there is currently no national
air-ticketing license. In addition, in order to conduct other travel-related
business such as hotel reservations, the travel agency must obtain a separate
license from the China National Tourism Administration. Consumers who wish to
purchase both air tickets and make hotel reservations through a single agency
must use a travel agency that performs both functions. Many traditional travel
agencies are unable to perform both functions given the limited number of
licenses that can be issued and the costs associated with obtaining each
license. As a result, consumers are often forced to arrange travel plans with
multiple travel agencies.





The
Opportunity for the New Generation Group





We expect
the travel and tourism industry in China to continue to grow rapidly as China’s
economy continues to expand. China’s travel service industry is fragmented and
inefficient. This fragmentation creates a market opportunity for our centralized
reservation system for air-ticketing and hotel reservations, which offers
comprehensive information and favorable terms negotiated with travel service
suppliers across China who are offered economies of scale from our aggregated
demand.





Our
Strengths





We have
quickly become a major travel service provider in China by capitalizing on our
following competitive strengths:





*Established
large scale ticketing business.* New
Generation has achieved large scale of transactions in the flight ticketing
services. The number of companies providing air ticketing services is much less
than those providing services for room reservations in China. And few players
engage in both businesses. On the supply side, there are thousands of suppliers
for room reservation services, while very limited number of airlines in China.
As a result, hotel operators are confronting more fierce competition than
airlines are. A small company can easily establish contacts with hotels and be
their agents since the capital required is small and the relationship with
suppliers is easy to manage. In contrast, to be an air ticketing agent,
companies have to overcome high capital barrier first and then work hard to
maintain good relationship with airlines. Both are normally very scarce and
critical resources in this business. Since New Generation has achieved large
scale in operations, it has formed mutually dependant relationships with its
upstream suppliers and thus has obtained a strong bargaining position with its
suppliers. And the capital requirement is not a barrier to entry or growth for
New Generation since its systems are already in place. New Generation has
achieved the scale necessary to deal with its upstream suppliers, which include
the airlines, as well as its downstream customers. Potential entrants into the
industry face these capital and scale barriers to entry.





*Extensive
resources in the airport.* New
Generation is the first travel agent in China who provides customers with
seamless pre-boarding services in the terminal. In 1998, it established “Red
Carpet Service Zone” in the old Guangzhou Baiyun International Airport, the
third largest airport in China, to provide customers with extensive services
ranging from air-ticketing, check-in services to airport pick-up. After that,
Hauhao Group, New Generation’s former parent company, and one of our
shareholders, entered into a 10-year joint venture agreement with a subsidiary
of Baiyun Airport Company Ltd. to provide easy boarding services. The joint
venture was reported as the first example in China of cooperation between a
private company and the highly regulated airport industry.





*Brand
leadership* ***.*** As one
of the early movers in the industry to adopt modern communications and Internet
technologies, we believe that we have established one of the best-known brands
for travel services in Southern China. We believe our customers associate the
New Generation brand with value, convenience and confidence.





18
 *Table of Contents*


**


*Nationwide
reach for nationwide travel destinations* ***.*** Our
customers can book domestic and international air tickets and make reservations
for accommodation at over 2,300 hotels in more than 200 cities across China,
vacation packages and rental cars by calling our centralized 24-hour call center
from anywhere in China or by logging onto our website. New Generation is ranked
one of the top air-ticketing companies in China, in terms of volume of tickets
sold and value of transactions. We issue and deliver air tickets using a network
of local agents in major cities in China, covering all the 961 domestic
routes.





*Total
customer focus.* We
provide our customers with comprehensive travel information, allowing them to
conveniently compare prices, browse availability and amenity options, and select
the price and supplier that best meet their individual travel needs. Our
user-friendly websites, well trained call center representatives and continuous
service development efforts reflect our focus on providing superior customer
service.





*Strong
supplier value* ***.*** We offer
our travel suppliers access to aggregated consumer demand and the ability to
promote their services to a large and growing base of frequent independent
travelers seeking higher-end travel services. In addition, our call center and
web-based transaction and service platform, with its easy-to-use supplier
interface, allows our suppliers to promote their services at low incremental
cost and with minimal changes to their existing systems.





In
addition, New Generation has also established a strong business partnership with
the leading Chinese airline groups, including China Southern Airlines and Air
China. By the end of November 2004, New Generation had set up three direct air
ticket sales centers under the name of the Guangzhou Branch of Air China, in
selected strategic locations in Guangzhou. It also entered into a co-operation
agreement with the Guangzhou branch of China Southern Airlines Company Limited
to provide commuters with downtown check-in and connections services for flights
of the China Southern Airline in the new Guangzhou Baiyun International Airport.
The close business partnership not only allows New Generation to benefit from
more favorable sales related promotional and marketing policies, but also,
enables it to get involved in the air carriers’ operational activities as a
value-added services provider.





*Streamlined
business operations through tailored information management
systems.* We have
drawn on our in-depth knowledge of the business practices unique to China’s
travel service industry to develop proprietary processes and technology-based
systems for use in our business. These processes and systems incorporate
customer relationship management, order processing, financial reporting and
performance management and enable us to coordinate effectively the activities of
our staff, agents, suppliers and resellers. This results in streamlined
operations, a higher degree of operating flexibility and stronger customer
relationships through enhanced customer service.





*Scalable
and cost-efficient services* ***.*** Our
services and transaction processing, enabled by our centralized call-center and
web-based distribution technologies, provides superior scalability and
significant cost advantages over traditional methods of travel service
distribution. We can expand our range of services and extend our geographical
reach without making major changes to our existing infrastructure or incurring
significant capital costs.





*Experienced
management* ***.*** We
believe that our management team, which includes Mr. William Chi Hung Tsang, and
a seasoned team of senior managers at the operations level with significant
experience in the areas of travel service operations, marketing, technology and
finance, is well qualified and experienced to handle the challenges of the
travel service industry in China.





19
 *Table of Contents*





Our
Strategy





Our goal
is to become the leading provider of travel services in China. We seek to
achieve revenue and earnings growth by pursuing the following key business
strategies:





*Strengthen
brand awareness and marketing* ***.*** We seek
to strengthen consumer awareness of our brand by pursuing an aggressive
marketing strategy based on online and traditional media
advertising.





We seek
to encourage consumer conversion and the use of our services through
segment-based marketing, targeted promotions and focused telemarketing
efforts.





We also
seek to promote the awareness of our brand and increase our penetration among
our target customers by leveraging the customer bases of other leading
businesses and customer service companies. :





·
    increasing
      advertising using publications such as company brochures and DM
      magazines.


·
    cooperating
      with commercial banks for them to offer co-branded credit cards;
      and


·
    entering
      into arrangements with major airlines in China, such as China Southern
      Airlines, under which travel booking inquiries are directed from their
      service hotlines to us.





*Expand
our range of travel services* ***.*** We
intend to capitalize on our leadership in air-ticketing utilizing a centralized
modern call center and web-based distribution technologies and leverage the
reach and efficiency of our distribution of services by growing our hotel
reservations and other travel related services, such as vacation packages, car
rentals and corporate travel services. We seek to expand the selection of our
destination services, such as restaurant and entertainment bookings, and offer
our customers greater flexibility in choosing the desired combination of travel
services.





The
agreement with InterContinental and China Southern Airlines has forged a strong
business partnership among the three parties. It is anticipated an effective way
to differentiate us from other competitors in the domestic market is through the
provision for “air ticket and hotel” package. We believe that the extensive
network resources based on air-ticketing, IT platform and strategic alliances
with other product and service providers will be converted to our advantage that
competitors will find difficult to imitate.





*Enhance
customer experience.* We seek
to enhance our customer’s experience by providing more personalized care, and by
strengthening and expanding travel supplier relationships to offer our customers
a wider range of travel services. We seek to deliver consistently high-quality
customer service through continuous improvements in the information technology
systems utilized in our call center, and in the content, features and functions
of our websites.





We seek
to retain our most loyal customers and generate repeat ticketing by offering
loyalty rewards and additional specialized services, including dedicated VIP
lounges at airports and a VIP call service with reduced waiting time. Our VIP
call service, staffed by a dedicated team of specially trained representatives,
provides VIP customers personalized travel advice and services. A Customer
Relationship Management (CRM) system will be deployed in the first quarter of
2005. This CRM system will integrate the call center, and websites together with
other resources to offer comprehensive incentive programs and personalized
services in a proactive style. Interactive information delivered through the
mobile telephone network will also be employed.





*Enhance
efficiency and profitability* ***.*** We have
built our operating infrastructure to take advantage of the inherent cost
advantages of our centralized call center and web-based distribution
technologies. We also seek to increase the efficiency of our marketing programs
by tracking the effectiveness of our expenditures on various marketing
activities.





20
 *Table of Contents*





We
continue to capitalize on improvements in electronic commerce infrastructure,
such as the introduction of electronic ticketing. By using exclusive online
promotional offers, we believe we will be able to benefit from the increasing
adoption of online commerce among consumers by attracting additional customers
and migrating existing customers to our websites, thereby lowering our operating
costs.





*Enhance
our technology infrastructure* ***.*** We
design and maintain our systems with a view to enhancing consumer-friendliness
and providing adaptive solutions for our airline and other travel service
suppliers. We seek to streamline our transaction processes through ongoing
technology upgrades to our transaction and services level.





*Selectively
pursue complementary acquisitions* ***.*** We seek
to supplement the organic growth of our business by pursuing acquisitions which
would enable us to expand our service offerings, our customer base and our
distribution network. We seek to capitalize on the opportunities for
consolidation in China’s fragmented and inefficient travel service industry by
selectively exploring opportunities to acquire other travel service businesses
such as air-ticketing agencies, hotel-room consolidators, tour-package agencies
and corporate travel providers.





*Develop
travel solutions for corporate clients.* We will
enhance our travel services by providing corporate travel solution services that
cover more international corporations and large national corporations in the
region. The corporate market is a fast growing market with high profit margin.
With our comprehensive resources in ticketing, hotel reservations, business club
facility and airport services, we are confident that we can be one of the
leading services providers in the region. At the moment, we have over 30
corporate clients including large scale joint ventures such as Guangzhou Honda
and Panasonic Wan Bao. We successfully entered into a service consignment
agreement with the Purchasing Office of the Guangzhou City Government. This
agreement will be valid for two years from January 1, 2005 to December 31, 2006.
Under this agreement, the Company will provide international business travel
packages and related services to key personnel of the Guangzhou City Government
at premium package prices.





Business
Travel Services - Operating Revenues on a Pro-Forma Basis





We offer
our customers a wide selection of travel services. The following table sets
forth the pro-forma amount of our revenues and profit (loss) from operations
represented by each travel-related service for the periods indicated on a dollar
and percentage basis:





**Operating
Revenue on a Pro-Forma Basis**





**Jan
      to Dec 2004**
    
    **Jan
      to Dec 2004**
    
    **Jan
      to Dec 2003**
    
    **Jan
      to Dec 2003**
    
    **Jan
      to Dec 2002**
    
    **Jan
      to Dec 2002**USD
    
    %
    
    USD
    
    %
    
    USD
    
    %**Business
      Travel services**Air-ticketing
    
    
    4,747,447
    
    
    91.68
    %
    
    1,975,098
    
    
    67.99
    %
    
    1,652,756
    
    
    86.63
    %Insurance
    
    
    423,247
    
    
    8.23
    %
    
    929,916
    
    
    32.01
    %
    
    255,052
    
    
    13.37
    %Other
    
    
    7,577
    
    
    0.09
    %
    
    0
    
    
    0.00
    %
    
    0
    
    
    0.00
    %Pro-Forma
      Operating Revenue
    
    
    5,178,271
    
    
    100.00
    %
    
    2,905,014
    
    
    100.00
    %
    
    1,907,808
    
    
    100.00
    %




21
 *Table of Contents*


**Profit
(loss) from Operations on a Pro-Forma Basis**


**Jan
      to Dec 2004**
    
    **Jan
      to Dec 2004**
    
    **Jan
      to Dec 2003**
    
    **Jan
      to Dec 2003**
    
    **Jan
      to Dec 2002**
    
    **Jan
      to Dec 2002**USD
    
    %
    
    USD
    
    %
    
    USD
    
    %**Business
      Travel services**Air-ticketing
    
    
    2,044,606
    
    
    90.31
    %
    
    502,717
    
    
    42.53
    %
    
    106,012
    
    
    105.51
    %Insurance
    
    
    229,996
    
    
    10.16
    %
    
    679,446
    
    
    57.47
    %
    
    (5,536
    )
    
    (5.51
    %)Other
    
    
    (10,547
    )
    
    (0.47
    %)
    
    0
    
    
    0.00
    %
    
    0
    
    
    0.00
    %Pro-Forma
      Profit (loss)
      from
      Operations
    
    
    2,264,055
    
    
    100.00
    %
    
    1,182,163
    
    
    100.00
    %
    
    100,476
    
    
    100.00
    %Pro-Forma
      Net Income (loss)
    
    
    2,018,044
    
    
    
    
    
    524,703
    
    
    
    
    
    (331,323
    )





*Air-ticketing* . We
provide a 24-hour air-ticketing service through our toll-free call center and
websites. We act as agents for all major airlines in China and international
airlines that operate flights that originate from selected cities in China. We
make flight reservations through TravelSky, which is the operator of the only
nationwide system for air-ticket reservations in China, and currently issue and
deliver air tickets using a network of local agents throughout major cities in
China. Under current regulations, travel agents, including us, have no
discretion to offer discounts on airline tickets. However, we have successfully
negotiated escalating commissions with many airlines based on the number of air
tickets we sell.





Our
air-ticketing process begins when a customer initiates an inquiry through our
toll-free call center or our websites. The customer is informed of the available
flights based on their schedule and desired air carrier and we then confirm a
booking for a seat on the selected flight through our call center. Booking
information is sent to one of our local agents in the city where the customer
wants the ticket to be issued and delivered. We have relationships with a
network of local ticketing agents throughout major cities in China. We use these
local agents and other third party delivery companies to deliver the tickets to
our customers and collect payments for the tickets. We then collect the airfare
from the delivery company, pay the agent’s commission and the cost of the
tickets, and retain the balance ourselves. We currently do not pre-purchase air
tickets for resale.





We
believe that air-ticketing sales will continue their rapid pace of growth. In
the year ended December 31, 2004, we sold approximately 995,000 air tickets,
compared to approximately 440,000 air tickets sold in the six months ended June
30, 2004. We anticipate that the expected adoption of e-tickets in China will
allow consumers to better use our call center and websites to book air tickets
and will benefit our air-ticketing business by allowing us to reach a broader
customer base without materially increasing our operating costs.





*Hotel
reservations* . We
currently have room supplier relationships with more than 2,300 hotels in over
200 cities throughout China. We seek to offer a range of hotel options at a
variety of prices, with the majority of our hotel suppliers being three-, four-
or five-star hotels, catering to higher-end customers. For the nine months ended
September 30, 2004, we derived 0.05% of our total revenues from our hotel
bookings.





We act
primarily as an agent in our hotel-related transactions. When a customer makes
an initial inquiry through either our call center or our websites, we match the
customer’s request with our allotment of rooms and make a reservation for the
customer with the appropriate hotel supplier. The hotel supplier returns a
confirmation that is passed along to the customer by phone, fax or email. When
the customer checks into the hotel on the designated date, the hotel informs us
of the customer’s check in. The customer settles his hotel bill directly with
the hotel, and we are entitled to a fraction of the room rate as a commission.
Upon the completion of a customer’s stay, we verify with the hotel the length of
the stay and calculate our commissions, ranging from 10% to 20% of the hotel
room rate, which the hotels pay us on a monthly basis. We pay no penalty to the
hotel for “no shows” on confirmed bookings, although we are not paid any
commission in respect of “no show” bookings. We do not currently pre-purchase
hotel rooms until the customer has paid us, and consequently do not carry
significant inventory risk.





22
 *Table of Contents*





Depending
on our agreement with the individual hotel supplier, we either receive a
guaranteed allotment of hotel room-nights per month or operate on an
“as-requested” basis. Our agreements with hotels typically contain some or all
of the following provisions:





·
    Room
      pricing. The hotel guarantees negotiated room rates that are lower than
      published rates. In addition, the customer is also able to enjoy
      promotional rates if such rates are in
effect.


·
    Room
      supply. The hotel must notify us of any shortages of hotel rooms so that
      we can make alternative accommodations for our
  customers.


·
    Customer
      accommodation. The hotel must upgrade the customer to a higher level of
      accommodation if, due to the fault of the hotel, a customer’s reserved
      room is not available upon check in.


·
    Confirmation
      of the customer’s stay. The hotel must inform us of the length of the
      customer’s stay. We confirm a customer’s length of stay by contacting the
      hotel to verify the customer’s check-in and check-out dates and contact
      customers to crosscheck the information reported by the hotel. We
      continuously rate our hotel on the basis of the accuracy and timeliness of
      the reported information.


·
    Extended
      stay. The hotel must immediately inform us if the customer extends their
      stay beyond the original booking. We then book the extended stay and
      calculate the additional commission.


·
    Commission
      payments. The hotel pays us either a flat, pre-negotiated or an escalating
      commission based on the number of hotel room nights we
    book.





Our
agreements with our hotel room suppliers are in writing for the most part. We
enter into agreements with companies that own hotels. Due to the fragmented
nature of the hotel industry in China where hotels are generally owned
separately, we generally enter into agreements with hotel companies on an
individual hotel basis.





Since our
hotel booking business is at the initial stage, the volume of room-nights is
still too small to help obtain any guarantee on room allotments. To grow its
operations as quickly as possible, New Generation has successfully entered into
a business partnership agreement with InterContinental Hotels Group and China
Southern Airlines. An agreement concerning the purchase of one of the largest
hotel booking service providers in China is also under negotiation. If the
negotiations are successful and an acquisition is consummated, we believe that
the hotel booking business will soon become a significant component of the
business of the Company as a whole.





*Vacation
packages* . We
offer third-party vacation packages that include air transportation, hotel
accommodation and other travel related services to many popular destinations in
China. A vacation package transaction begins in the same way as the majority of
our other transactions, with the customer initiating an inquiry either through
our toll-free call center or our websites. The customer selects the desired
vacation package and places an order with us. After confirming both the hotel
reservation and transportation arrangements with the appropriate travel
supplier, we send our customer a confirmation and arrange for ticket delivery,
if needed, through a local travel agency. The customer pays for the vacation
upon delivery of the appropriate confirmation or air ticket, and we deduct our
commission. In general, our customers only pay a penalty if they cancel their
reservations at a late stage.





23
 *Table of Contents*





We select
vacation packages to serve the unique needs of FITs. Many of our vacation
packages are designed as self-guided tours that permit FITs to travel to desired
locations without adhering to the rigid schedules that are typical of tour group
packages.





*Corporate
travel service* . We have
recently begun to provide companies in China a corporate travel service
providing travel planning, hotel reservations, air-ticketing and rental car
bookings. By centralizing their travel management functions, our corporate
clients can reduce their travel costs and the associated administrative burden.
We also assist companies in planning, executing and streamlining their travel
budgets.





Marketing





We market
our services through a combination of direct marketing, online marketing,
traditional media advertising and co-marketing with established brands. We seek
to build our New Generation brand identity which consumers will associate with
choice, convenience and value.





*Direct
marketing* . We
conduct direct marketing activities principally at major airports and
transportation hubs in China. Our promotional efforts at these locations include
the distribution of complimentary membership cards.





*Online
marketing* . These
portals feature hyperlinks to our websites for air-ticket and hotel service
recommendations to their web visitors. In some cases we operate on a co-branded
basis, where we provide our services and our brand is featured on these portals.
In other cases, we operate on a private label basis, where we deliver our
services using the brand name of the originating website. In both cases, we pay
commissions based on the bookings generated through our co-marketers. We feel
that our online marketing effort is an important part of our marketing strategy
and serves as a cost-effective marketing tool. In addition, our online presence
serves as an additional channel to capture targeted customers through
association with established Internet brands in China. We believe that the
Internet will continue to experience growth in China, and our relationships with
top Internet portals in China will position us well to exploit its
potential.





*Traditional
marketing* . Our
traditional media advertising efforts include newspaper and broadcast
advertising. The focus of our media advertising efforts is to promote awareness
of the New Generation brand among our potential customers.





*Co-marketing
relationships* . We seek
to expand our market reach by entering into co-marketing agreements with
companies that have a large customer base and strong brand recognition. We
believe that we are able to reach more customers and capitalize on their brand
recognition in promoting our services and in enhancing our credibility. We have
developed co-marketing agreements with some of the largest companies in China
with a view to establishing our brand.





Distribution





We are
currently a major air ticketing provider in China. Our growth was achieved
through locating our subsidies in the major cities in China. We also package
hotel room booking services and tour packaging services with air tickets to
better meet our customers’ needs. Our business goal is to become a leading
integrator of air ticketing, hotel booking and tour packages. This requires
utilization of our comprehensive distribution system that is comprised
of:





24
 *Table of Contents*




·
    our
      twenty-four hours per day, seven days per week, toll-free call
      center,


·
    our
      popular Internet website, and


·
    our
      extensive nationwide network of resellers.





*Call
center* . We
operate a 24-hour call center staffed by more than 32 customer service
representatives (CSRs). The number of CSRs will increase to 104 by the end of
2005 to meet the requirement of our business development. The call center is
accessible nationwide on a toll free basis for fixed line telephone calls in
China and by calling 4008-168-168 in China. Our call center typically handles
more than 150 calls per day. Although, it currently contributes little to the
total air-ticketing reservations and hotel bookings, we are fully confident that
with our market expansion, 20% of our total transactions will be generated from
on-line transactions. We believe that our call center constitutes a
cost-efficient distribution channel because of the available pool of low-cost
labor in China. We expect our call center will become our principal distribution
channel going forward, due to China’s large and growing mobile and fixed-line
phone subscribers and consumer preference for the personalized service we are
able to provide through our call center.





*Website* . We
offer our travel services through our user-friendly website *www.4008168168.com* . The
website allows us to expand our customer base and improve customer service with
minimum transaction costs. Customers can browse travel service options, compare
prices, book and confirm orders through our website. Our website is designed to
provide customers with a quick, efficient and flexible service that facilitates
comparison among our large number of travel suppliers. To support the
internationalization of our business, we are undertaking a program to construct
an English website and synchronize it with the Chinese one. Customers will be
easily access both websites by logging onto *www.4008168168.com* .





*Reseller
network* . We have
developed an extensive nationwide network of over 60 non-exclusive resellers,
consisting of smaller travel and air-ticketing agencies that utilize our call
center and websites to distribute travel services. We pay our resellers a
portion of our commission, subject to an escalating scale, based on the number
of hotel reservations and air-ticket bookings they generate for us. Our
air-ticketing network generates revenues from resellers’ monthly administration
fees, ticketing system rentals and Physical Identity Devices maintenance fees.
The volume of tickets sold and value of transactions completed are incorporated
into our total volume and total transaction values for New
Generation.





Technology





We
believe that we have a strong technology team in the travel service industry in
China. Our goal is to develop a high-performance, reliable, scalable and secure
system in-house to support our business demands for new features and
functionalities.





We have
built a sophisticated, proprietary back office system encompassing order
processing, customer relationship management, inventory control, business
intelligence and staff performance management functions that coordinates the
activities of our internal departments, clients, agents and partners within a
single cohesive platform. We have also invested in an advanced, in-bound call
center for phone based bookings and a scalable network infrastructure system
utilizing hardware and software from top-tier vendors. Our system connects us
with our suppliers, clients and agents.





Our
infrastructure security system is designed to ensure that our users can only
access and use our system according to their assigned authorization levels. Our
system also includes VPN and encryption technologies to allow for secure
Intranet access, as well as an intrusion detection system, which is designed to
detect security breaches. Our infrastructure security system, however, may not
be adequate at all times and we may experience occasional security
breaches.





As of
December 31, 2004, we employed approximately 400 staff members to maintain and
enhance our transaction and service infrastructure.





25
 *Table of Contents*





Competition





The
travel service industry in China is extremely large, highly fragmented and
intensely competitive. We compete with eLong, Inc., Ctrip.com International,
Ltd, traditional travel agencies such as CTS, CITS and CYTS, and hotel suppliers
that sell their room inventory directly to consumers. The major markets in which
we currently compete include the relatively affluent coastal areas of China. As
China’s market continues to grow, we may face further competition from other new
domestic hotel room consolidators or international players such as expedia.com
or priceline.com that may seek to expand into China. We may also face increasing
competition from hotels and airlines should they further expand into the direct
selling market or engage in alliances with other travel service providers
besides us. We compete on the basis of brand recognition, selection, price, ease
of use, accessibility of information, breadth of services offered, convenience,
and customer service and satisfaction.





We cannot
assure you that we will compete successfully with any of our current or future
competitors.





Employees





We have
404 employees in the New Generation Group of companies that are in the following
job categories: Management and Administration (152), Customer Service (158),
Sales and Marketing (41), Supplier Management (35), and Technical Services
(18).





We
participate in government-mandated multi-employer defined contribution plans
under which certain pensions, medical and other welfare benefits are provided to
employees. We make monthly payments to these plans based on the employee’s
compensation.





We have
not entered into any collective bargaining agreements. We consider our relations
with our employees to be good.





Facilities





Our
headquarters in Guangzhou Rihang Hotel are located in an adjoining property of
approximately 1,740 square meters. Our call center is located in a leased space
of approximately 600 square meters. We lease the premises for our call center
under a two-year term lease, expiring in 2006. We also maintain branch and sales
offices in major cities in Guangdong Province including Foshan, Shunde, Dongguan
Zhongshan and Gaoming. We believe that adequate facilities are available to
accommodate our future expansion plans.





Legal Proceedings





We are
currently not involved in any material litigation, arbitration or administrative
proceedings in the New Generation Group of companies that could have a material
adverse effect on our financial condition or results of operations. From time to
time, we may be involved in disputes with individual employees. So far as we are
aware, no material litigation, arbitration or administrative proceedings are
pending.





Regulation





The
travel industry in China is subject to substantial regulation by the Chinese
government. This section sets forth a summary of certain significant Chinese
regulations that affect our business and our industry.





26
 *Table of Contents*





Scope of
Regulation





Current
PRC laws and regulations impose substantial restrictions on foreign ownership in
air-ticketing, advertising and Internet businesses in China.





Restrictions
on Foreign Ownership





*Air-ticketing.* The
principal regulation governing foreign ownership in air-ticketing business in
China is The Foreign Investment Industrial Guidance Catalogue (2004 revision).
Under this regulation, a foreign investor is allowed to own 100% of any
wholesale and commission-based agency in China after December 11, 2004. As
inferred from the law, air-ticketing does not fall into the statutory prohibited
industries like the wholesale of newspaper and magazine, drugs, agricultural
chemicals and membrane, chemical fertilizer, refined oil and crude oil, so it is
our understanding that beginning on December 11, 2004 foreign investors were
permitted to own 100% of an air-ticket agency.





*Travel
agency.* The
principal regulation governing foreign ownership in travel agencies in China is
the Establishment of Foreign Controlled and Wholly Foreign Owned Travel Agencies
Tentative Provisions (2003). Recently, foreign investors that





·
    primarily
      engage in travel agency business;


·
    have
      annual revenue from travel services exceeding US$40 million (in the case
      of foreign-controlled travel agencies) or US$500 million (in the case of
      wholly foreign owned travel agencies;


·
    are
      members of travel industrial associations in their home countries or
      regions





have been
permitted to establish or own travel agencies in Beijing, Shanghai, Guangzhou,
Shenzhen, Xian or other approved national tourism areas, upon the approval of
the PRC government, subject to substantial restrictions on the scope of their
business. For example, foreign invested travel agencies are prohibited from
engaging in the business of overseas travel by PRC citizens or travel by persons
from the other regions of the PRC to Hong Kong, Macau or Taiwan. In addition,
other than its head office, foreign-invested travel agencies are not allowed to
open branch offices.





Our 51%
ownership of the New Generation Group of companies involves the foreign control
of a travel agency doing business in the Peoples’ Republic of China. The control
of a Chinese travel agency is permissible under the Establishment of Foreign
Controlled and Wholly Foreign Owned Travel Agencies Tentative Provisions (2003), subject
to compliance with the restrictions on the scope of business for passenger air
ticket sales agents, commercial agency, tourist information services and
marketing research planning. All such businesses are not categorized as
"restricted" or "prohibited" by The Foreign Investment Industrial Guidance
Catalogue (2004 revision). We believe the competitive advantage of the travel
agency business of New Generation is not limited by the scope of business
restrictions referred to in the preceding sentence, and, therefore, our
operations are not impacted by laws regulating travel agencies.





*Advertising
Agencies.* The
principal regulations governing foreign ownership in advertising agencies in
China include.





·
    The
      Foreign Investment Industrial Guidance Catalogue (2002);
    and


·
    The
      Administrative Regulations Concerning Foreign Invested Advertising
      Enterprises (2004)





27
 *Table of Contents*





Under
these regulations, foreign investors can currently own up to 70% of the equity
interest in an advertising agency in China. Beginning on December 10, 2005,
foreign investors will be permitted to own 100% of an advertising
agency.





*Internet
content provision.* The
principal regulations governing foreign ownership in the Internet content
provision business in China include:





·
    The
      Administrative Rules for Foreign Investments in Telecommunications
      Enterprises (2001); and


·
    The
      Foreign Investment Industrial Guidance Catalogue
(2002)





Under
these regulations, a foreign entity is prohibited from owning more than 50% of a
Chinese entity that provides value-added telecommunications services, including
Internet content provision.





General
Regulation of Businesses





*Air-ticketing.* The
air-ticketing business is subject to the supervision of the Civil Aviation
Administration of China, or CAAC, and its regional branches. The principal
regulation governing air-ticketing business in China is the Administration on
Civil Aviation Transporting Marketing Agency Business Regulations
(1993).





Under
this regulation, an air-ticketing agency must obtain a permit from CAAC or its
regional branch in every city in which the agency proposes to conduct business.
The two types of air-ticketing permits in China are permits for selling tickets
for international flights and flights to Hong Kong, Macau and Taiwan and permits
for selling tickets for domestic flights in China except flights to Hong Kong,
Macau and Taiwan.





*Travel
agency.* The
travel agency industry is subject to the supervision of the China National
Tourism Administration and local tourism administrations. The principal
regulations governing travel agencies in China include:





·
    The
      Administration of Travel Agencies Regulations (1996), as amended,
      and


·
    The
      Rules of Implementation of the Administration of Travel Agencies
      Regulations (2001)





Under
these regulations, a travel agency must obtain a license from the China National
Tourism Administration in order to conduct cross-border travel business, and a
license from the provincial-level tourism administration in order to conduct a
domestic travel agency business.





*Advertising.* The State
Administration of Industry and Commerce is responsible for regulating
advertising activities in China. The principal regulations governing
advertising, including online advertising in China include:





·
    The
      Advertising Law (1994); and


·
    The
      Administration of Advertising Regulations
(1987)





Under
these regulations, any entity conducting advertising activities must obtain an
advertising permit from the local Administration of Industry and
Commerce.





*Internet
content provision service and online commerce.* The
provision of travel-related content on the websites is subject to Chinese laws
and regulations relating to the ** telecommunications
industry and the Internet, and regulated by various government authorities,
including the Ministry of Information Industry and the State Administration of
Industry and Commerce. The principal regulations governing the
telecommunications industry and the Internet include:





28
 *Table of Contents*




·
    The
      Telecommunications Regulations (2000)


·
    The
      Administrative Measures for Telecommunications Business Operating Licenses
      (2001); and


·
    The
      Internet Information Services Administrative Measures
    (2000)





Under
these regulations, Internet content provision services are classified as
value-added telecommunications businesses, and a commercial operator of such
services must obtain an Internet content provision license from the appropriate
telecommunications authority in order to carry out any commercial Internet
content provision operations in China.





With
respect to online commerce, there are no specific Chinese laws at the national
level governing or defining online commerce activities, and no government
authority has been designated to regulate these activities. There are existing
regulations governing retail business that require companies to obtain licenses
in order to engage in the business. However, it is unclear whether these
existing regulations will be applied to online commerce.





Regulation
of Foreign Currency Exchange and Dividend Distribution





*Foreign
currency exchange.* The
principal regulation governing foreign currency exchange in China is the Foreign
Currency Administration Rules (1996), as amended. Under these rules, the
Renminbi is freely convertible for trade and service-related foreign exchange
transactions, but not for direct investment, loans or investments in securities
outside China without the prior approval of the State Administration of Foreign
Exchange of the People’s Republic of China, or SAFE.





Pursuant
to the Foreign Currency Administration Rules, foreign-invested enterprises in
China may purchase foreign exchange without the approval of SAFE for trade and
service-related foreign exchange transactions by providing commercial documents
evidencing these transactions. They may also retain foreign exchange, subject to
a cap approved by SAFE, to satisfy foreign exchange liabilities or to pay
dividends. However, the relevant Chinese government authorities may limit or
eliminate the ability of foreign-invested enterprises to purchase and retain
foreign currencies in the future. In addition, foreign exchange transactions for
direct investment, loan and investment in securities outside China are still
subject to limitations and require approvals from SAFE.





*Dividend
distribution.* The
principal regulations governing distribution of dividends by foreign-invested
companies include:





·
    The
      Sino-foreign Equity Joint Venture Law (1979), as
  amended;


·
    The
      Regulations of Implementation of the Sino-foreign Equity Joint Venture Law
      (1983), as amended;


·
    The
      Foreign Investment Enterprise Law (1986), as amended;
  and


·
    The
      Regulations of Implementation of the Foreign Investment Enterprise Law
      (1990), as amended.





Under
these regulations, foreign-invested enterprises in China may pay dividends only
out of their accumulated profits, if any, determined in accordance with Chinese
accounting standards and regulations. In addition, wholly foreign owned
enterprises in China are required to set aside at least 10% of their respective
accumulated profits each year, if any, to fund certain reserve funds unless such
reserve funds have reached 50% of their respective registered capital. These
reserves are not distributable as cash dividends.





29
 *Table of Contents*





In
addition, our wholly-owned subsidiaries are required to allocate portions of
their respective after-tax profits to their enterprise expansion funds and staff
welfare and bonus funds at the discretion of their boards of directors. Our
affiliated Chinese entities are required to allocate at least 5% of their
respective after-tax profits to their respective statutory welfare funds.
Allocations to these statutory reserves and funds can only be used for specific
purposes and are not transferable to us in the forms of loans, advances, or cash
dividends.





Business
Plan For Our Life And Accident Insurance Agency Business





China
World Trade is engaged in the accident and life insurance business through its
indirect 51% ownership interest of Hauhao Insurance Agency Ltd., a limited
liability company organized and existing under the laws of the Peoples’ Republic
of China (“Hauhao Insurance”). Hauhao Insurance was formed in 2002 and is
engaged in the life and accident insurance agency business in the Guangdong
Province of China.





Hauhao
Insurance places insurance for and services personal accounts throughout the
Guangdong Province of China. The Company acts as an agent in soliciting,
negotiating and effecting contracts of insurance through insurance companies
located across China, and also acts as a broker in procuring contracts of
insurance on behalf of insured’s. Hauhao Insurance specializes in a popular
market niche known as life and accident insurance.





The
Industry





Insurance
brokerage companies principally serve businesses, public institutions and
individual clients, which we refer to as “insured’s,” by placing general and
specialty insurance coverage on their behalf with insurance carriers, which we
refer to as “insurers,” and providing risk management consulting services.
Through their knowledge of the insurance market and preferred relationships with
insurers, insurance brokers are able to assist their clients by negotiating
competitive rates and policy terms. Insurance brokers also serve as a
distribution channel for insurers and perform much of the administrative and
customer service functions insurers would have to otherwise perform were they to
sell insurance coverage directly. Insurance brokers are typically compensated by
commissions paid by insurers on the premium volume placed. These services,
whether to individuals or institutions, are generally referred to as retail
brokering.





Our
Business





A
substantial portion of the commission and fee business of Hauhao Insurance is
derived from placing insurance for individuals. It services its clients through
its network of four offices in the Guangdong Province. No material part of the
company's business is dependent upon a single customer or on a few customers,
the loss of any one or more of which would have a materially adverse effect on
the Company. We placed insurance for a total of 88,473 customers in 2003 and
21,976 customers in 2004.





Competition





The
insurance brokerage and service business is highly competitive and there are
many insurance brokerage and service organizations as well as individuals
throughout the world who actively compete with the Company in every area of its
business. There are firms in a particular locality which are as large as or
larger than particular local office of our company which is located there. We
believe that the primary factors determining its competitive position with other
organizations in its industry are the overall cost and the quality of services
rendered.





30
 *Table of Contents*





Hauhao
Insurance is also in competition with certain insurance companies which write
insurance directly for their customers. Certain government benefits relating to
life, health, disability, and accident are also alternatives to private
insurance and hence indirectly compete with our business. To date, such direct
writing and government benefits have had, in the opinion of the management of
Hauhao Insurance, relatively little effect on its business and operations, but
we can make no prediction as to their effect in the future.





Commissions
And Fees





The two
major sources of operating revenues are commissions from brokerage and risk
management operations and service fees from risk management operations.
Information with respect to these two major sources as well as investment income
and other revenue, including non-recurring gains, are as follows (in
thousands):





**Pro-Forma
      Data**
    
    **12/31/2001**
      **USD**
    
    **12/31/2002**
      **USD**
    
    **12/31/2003**
      **USD**
    
    **09/30/2004**
      **USD**Commission
      income
    
    
    
    
    
    255,052
    
    
    929,916
    
    
    423,243Fee
      income
    
    
    <Note
      1>
    
    
    -
    
    
    -
    
    
    -Investment
      income & others
    
    
    
    
    
    409
    
    
    99
    
    
    166Non-recurring
      income
    
    
    
    
    
    -
    
    
    -
    
    
    -




Note 1:
The Company incorporated on January 15, 2002, so no data is available on the
above column.




The
primary source of Hauhao’s compensation for its brokerage services is
commissions paid by insurance companies which are usually based on a percentage
of the premium paid by the insured. Commission rates are dependent on a number
of factors including the type of insurance, the particular insurance company and
the capacity in which our company acts. In some cases we are compensated for
brokerage or advisory services directly by a fee from a client, particularly
when insurers do not pay commissions. We also receive contingent commissions
which are generally based on the profit the insurance company makes on the
overall volume of business placed by the company in a given period of time.
Occasionally, we share commissions with other brokers who have participated with
us in placing insurance or servicing insureds. We also receive service fees from
providing risk management operations.





Our
Strengths





·
    Our
      comprehensive distribution network enables us to have easy access to
      individual consumers. Moreover, the size and scale of our air ticketing
      operations in the Guangdong province enable us to distribute life and
      accidental insurance in an efficient manner to all of our
      clients.


·
    Our
      agency agreements with leading insurance companies enable us to deliver
      efficient service after policy sales are made. We entered into agency
      agreements with leading insurance companies, including the People’s
      Insurance Company of China (PICC), Pingan Insurance Company of China and
      the China Pacific Insurance Company, in January 2002. Since 2003, we have
      been granted “green channel” privileges by the above mentioned companies
      as a result of success in turnover, credibility, service level and
      industrial reputation. The lead time required for underwriting and
      settling claims has been shortened to a maximum of 7 working days by
      virtue of our “green channel” status, instead of the regular 15 working
      days for these matters. We believe that this arrangement will
      differentiate us from our competitors and will provide us with better
      opportunities to generate incremental
revenues.


·
    Experienced
      and motivated management team. Our top executive officers have over 35
      years of combined experience in the insurance brokerage and financial
      services industries and are supported by a group of highly motivated
      professionals throughout our operations. Our Chief Executive Officer of
      the New Generation Group, Zeliang Chen, has been with us since 2002.
      During his 10 years in the industry, he has gained substantial experience
      in insurance and financial services, the development of cross selling
      strategies, and operational integration. Due to his track record in the
      industry, he was appointed as the Representative Committee Member of China
      Insurance Brokerage Association in 2003, for a three-year
      term.


·
    Cross-selling
      potential with the air ticketing services. Our strength in the
      air-ticketing business, which results from a large number of individual
      consumers, should benefit our insurance brokerage business. Given the
      similarities in selling procedures, we believe there is a great potential
      for joint marketing opportunities. In fact, life and accidental insurances
      can be incorporated with air-ticketing and hotel booking services into a
      package and sold as a value-added product to our
  customers.





31
 *Table of Contents*





Business
Strategy





Our
objective is to continue our revenue growth while sustaining our profitability,
and, to achieve this, we will focus on capitalizing on our competitive strengths
and implementing the business strategy outlined below:





·
    Increase
      Operating Efficiencies. We expect to realize continued improvement in our
      profit margin by consolidating the back-office operations of our brokerage
      business, completing strategic acquisitions and increasing the
      productivity of our sales professionals. Our management is incentivized to
      improve our profit margins by a variety of equity incentives and
      performance bonuses.


·
    Pursue
      fold-in and strategic acquisitions. We believe in growth through
      acquisitions. We intend to make selective acquisitions of businesses
      currently operating in our geographic footprint and consolidating the
      operations into our existing infrastructure. Our acquisition criteria
      include strong financial performance, talented management, specialized
      area of expertise, critical geographical presence and excellent client and
      insurance carrier relationships.


·
    Enhance
      competitive advantage. Since air-ticketing and hotel booking operations
      are both time consuming and require a long-term investment horizon, the
      majority of the market players are concentrating in either the
      air-ticketing business or hotel booking services. Few players compete in
      both markets. For this reason, we believe that with the combination of our
      strengths in the air ticketing and hotel booking business, we are able to
      enhance our competitive advantage by providing packaged services to meet
      various customer needs. Better integration in business travel related
      products and services can build up business resource barriers to entry,
      which are hard to overcome.





Sales





Our sales
strategy is to be a single distribution point to the individual consumer market,
serving their life and accident insurance and other risk management needs.
Consequently, our sales strategy emphasizes:





·
    Using
      consultative needs assessment to identify our clients’ insurance
      priorities;


·
    Promoting
      teamwork between sales professional and product specialists on a local and
      regional basis.


·
    Maintaining
      an on-going consultative and trusted advisor relationship with out clients
      to increase client retention.





We have
16 sales professionals, who we evaluate by measuring the revenues they generate
from new business and cross-selling and the revenues they are able to retain
from existing clients.





32
 *Table of Contents*





We
originate sales opportunities through a number of channels. We focus primarily
on selling products and services to new and existing clients on a direct basis.
In addition, we sell through approximately 50 professional associations and
affinity groups. Professional associations such as those in the entertainment
and construction industries, generates sales opportunities by virtue of the
recognition we develop in those industries. Finally, a fast-growing component of
our sales strategy is to distribute supplementary voluntary insurance products
to employees of our business clients through worksite marketing arrangements. We
believe that this sales channel can ultimately be used to distribute
non-insurance-related financial products and services as well.





We
utilize sales force automation software to manage and track the progression and
status of sales prospects. Through regular updates to the system by our sales
professionals, we are able to monitor sales opportunities as they evolve from
the initial prospect phase through ultimate acceptance or refusal by the client.
Detailed information on each sales prospect, including client information, size
of revenue opportunity and type of product being sold, is recorded. As a result,
sales force automation is able to serve as both a contact management application
for our sales professionals and a business management tool for our regional and
corporate sales management executives.





Business
Plan For Our Business Value-Added Services





We
provide business value-added services to a variety of customers. These services
concentrate on business consultancy services, interactive marketing and
incentive programs management for merchant chains and large corporations with a
huge user base.





Business
Consultancy Services





China
World Trade’s business consultancy services are focused two areas. (1) China
World Trade provides consultancy services in the financial advisory sector
including mergers and acquisitions advisory services, corporate restructuring
advisory services and corporate finance advisory services. A specialty niche has
been to consult with and advise local PRC companies in seeking foreign capital
for their expansion programs. (2) China World Trade assists Chinese companies in
developing the international trade dimension of their own businesses and assists
foreign companies to establish their businesses in China. China World Trade
helps Chinese companies in business development, marketing, sourcing and public
relationship management in the international business environment. These
services are fee based, and payment to China World Trade is structured either on
a flat fee basis or on a success fee basis. The consultancy services operation
of China World Trade started in the last quarter of 2004.





Interactive
Marketing and Customer Relationship Management Services





This
operation started at the beginning of 2004 when China World Trade jointly issued
credit cards with the Agricultural Bank of China through a co-branding
arrangement. Guangdong World Trade Link Information Services Limited (“WTC
Link”), a subsidiary of China World Trade formed in 2004 to implement the
partnership with the Agricultural Bank of China and to manage the Bank’s
co-brand credit card project. WTC Link is an active provider of interactive
marketing and customer royalty solution and services in China. It provides
services to 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 bankcard holders in the Guangdong Province. The
fees for these services are determined on a negotiated basis. WTC Link has
launched a royalty program with over 300 merchants in Guangzhou. This program
allows merchants to provide discounts to clients who apply the discount by Short
Message Services through mobile telephone networks and receive the authorization
instantly. This program enables WTC Link to capture the mobile phone number and
provide customer relationship management solutions to merchants based on the
analysis of the client’s consumption behavior such as frequency, timing and
spending patterns. An interactive Short Message Services gateway backed by China
Mobil and China Unicom has been established for this project. The income of
Short Message Service can be generated by charging a service fee per message, or
by charging a monthly fixed fee as a service package. It is expected that many
merchants will join this network in fiscal 2005.





China
World Trade establishes individual operations and separate management teams for
each value-added service. The revenue of value-added business division will be
the services fees derived from various services rendered.





33
 *Table of Contents*





Competition





The
definition of value-added services varies from company to company and it is not
meaningful to compare our market position with other potential competitors. We
provide value-added services on a customized basis, and we are not aware of any
other company that offers the services that we do.





Strategic
Investments





We expand
our business activities through strategic investments. Strategic ventures which
have no synergy with our business or have a negative impact on our cash flow
will not be initially considered. A group of business entities or an entity with
synergies that will enable us to experience intrinsic growth will be considered,
especially if they will enable us to evolve into a conglomerate in the Chinese
business environment. The New Generation acquisition is an example of a major
strategic investment by us. By acquiring New Generation, China World Trade can
incorporate New Generation’s services to enhance the business club services, and
at the same time can access New Generation’s huge client base of business
travelers to recruit members for our Business Clubs.





Employees





We
currently have 32 employees in our Value Added Services division. We believe our
future success will depend in large part upon the continued service of its our
technical and senior management personnel and our ability to attract and retain
technical and managerial personnel. There can be no assurance that we will
retain our key technical and managerial employees or that we can attract,
assimilate or retain other highly qualified technical and managerial personnel
in the future. None of our employees are subject to any collective bargaining
agreements.





**Item
2.**  **Description of Property**





Our main
office and the Guangzhou World Trade Center Club facilities are located at 3rd
Floor, Goldlion Digital Network Center, 138 Tiyu Road East, Tianhe, Guangzhou,
and the PRC 510620. Such office and club facilities are held pursuant to a lease
from Guangzhou Silver Disk Property Management Co. Ltd., which provides for an
aggregate monthly rental of approximately RMB$350,000 and expires on July 31,
2007.





Our
Beijing World Trade Center Club facilities are located at 2nd Floor, Office
Tower II, Landmark Towers Beijing, 8 North Dongsanhuan Road, Beijing, the PRC.
The five-year lease for the location of the BWTCC club facilities, which runs
from February 1, 2004 to January 31, 2009, was executed by Beijing Landmark
Towers Co Ltd. and BWTCC. The terms of the lease provide for an aggregate
monthly rental amount and management fees of approximately RMB$121,180 and
contains a rent free period from February 1, 2004 to January 31,
2006.





Pursuant
to the Share Exchange Agreement dated December 17, 2002, entered into by the
Company and Mr. William Chi Hung Tsang, the Company acquired the entire issued
share capital of GBN, which owns two commercial properties, one located at 20/F,
Goldlion Digital Network Center, Unit 01-10, 138 Tiyu Road East, Tianhe,
Guangzhou, the PRC (the "PRC Property") and the other at Flat B, 12/F, Champion
Center, 301-309 Nathan Road, Hong (the "Hong Kong Property"). The Company
occupies most of the rental area of the PRC property and rents out the Hong Kong
Property at an annual rental income of HK$102,000.





34
 *Table of Contents*




**Item
3.**  **Legal Proceedings**


We are
not aware of any pending or threatened legal proceedings, other than as set
forth below, in which we are involved. In addition, we are not aware of any
pending or threatened legal proceedings in which entities affiliated with our
officers, directors or beneficial owners are involved.





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.





**Item
4.**  **Submission of Matters To a Vote of Security
Holders.**





No matter
was submitted to a vote of security holders during the fourth quarter of the
fiscal year covered by this Report.





**PART
II**





**Item
      5.**
    **Market for Common Equity and Related Stockholder
      Matters**





Market
Information





Our
common stock began quotation on the Over-the-Counter Bulletin Board ("OTCBB") on
June 28, 2000 and was initially quoted under the symbol TXON before the symbol
was changed to CHWT. On June 26, 2002, our common stock was delisted from
trading on OTCBB for not being a current reporting company under the Securities
and Exchange Act of 1934. Our common stock was then quoted under the symbol CWTD
on the Pink Sheets from September 2002 to November 2003. As of November 26,
2003, our common stock was again quoted on the OTCBB, under the symbol
CWTD.





The
following table sets forth the range of bid prices of our common stock as quoted
on the OTCBB and Pink Sheets LLP, respectively, during the periods indicated.
The prices reported represent prices between dealers, do not include markups,
markdowns or commissions and do not necessarily represent actual
transactions.





High(1)
    Low2004
    First
      Quarter
    $9.20
    $1.00Second
      Quarter
    $5.00
    $1.07Third
      Quarter
    $9.95
    $1.80Fourth
      Quarter
    $4.50
      $
    $1.852003
    First
      Quarter
    $0.0001
    (2)Second
      Quarter
    $0.0001
    (2)Third
      Quarter
    $0.0001
    (2)Fourth
      Quarter
    $0.0001
    (2)2002
    First
      Quarter
    $0.001
    (2)Second
      Quarter
    $0.001
    (2)Third
      Quarter
    $0.001
    (2)Fourth
      Quarter
    $0.001
    (2)





(1)  We
declared a 1 for 30 reverse stock split effective September 1, 2002. All
reported historical information has been adjusted accordingly to reflect the
impact of the reverse stock split.




(2)  Information
not available.





Our
common shares are issued in registered form. Interwest Transfer Company in Salt
Lake City, Utah, is the registrar and transfer agent for our common
stock.





Effective
September 1, 2002, we executed a 1 for 30 reverse stock split of the outstanding
shares of common stock.





In
September, 2002, we underwent a debt-for-equity capital restructuring and issued
shares to eleven creditors for the settlement of debts and fees pursuant to
settlement agreements, as follows:





35
 *Table of Contents*




Name
      of Creditor
    Date
      (2002)
    Cancellation
      ofIndebtedness
    No.
      of SharesMr.
      James Mak
    September
      8
    $87,500
    87,500Mr.
      James Mak
    September
      8
    $44,301
    35,000Mr.
      Roy Wu
    September
      9
    $91,667
    87,500Mr.
      Alfred Or
    September
      10
    $156,645
    156,645Mr.
      Andersen Chan
    September
      10
    $60,000
    60,000Mr.
      Bernard Chan
    September
      8
    $15,000
    73,355Superwear
      Limited
    September
      9
    $220,000
    500,000Simple
      Fortune Inc.
    September
      9
    $230,000
    490,000Sinogolf
      Limited
    September
      9
    $245,977
    510,000Top-Trained
      Securities Limited
    September
      11
    $944,628
    1,000,000Splendid
      Partner Holdings Limited
    September
      12
    $317,980
    500,000I
      & V Ltd.
    September
      12
    $317,979
    500,000TOTAL
    
    $2,731,677
    4,000,000





The
shares of common stock delivered as consideration pursuant to the debt for
equity restructuring were issued on January 22, 2003.





As a
result of two share purchase agreements dated September 3, 2002 and December 17,
2002, respectively, and entered into between the Company and Powertronic
Holdings Limited, on January 24, 2003 we issued a total of 2,000,000 shares of
common stock and warrants to purchase up to 4,000,000 shares of common stock for
a total purchase price of $1,000,000 to Powertronic Holdings
Limited.





As a
result of a share exchange agreement dated December 17, 2002 entered into
between the Company and Mr. William Chi Hung Tsang, on January 24, 2003, we
issued 4,000,000 shares of common stock and warrants to purchase up to 4,000,000
shares of common stock in exchange of 100% of the share capital of General
Business Network (Holdings) Ltd.





As of
December 31, 2004, there were 103 holders of record of 30,889,997 outstanding
shares of common stock of the Company, not including approximately 1,500 holders
of our shares in street name.





Dividends





We have
not previously paid any cash dividends on its common stock and do not anticipate
paying dividends on its common stock in the foreseeable future. It is the
present intention of management to retain any earnings to provide funds for the
operation and expansion of our business. Any future determination to pay
dividends will be at the discretion of our board of directors and will depend on
our results of operation, financial condition, contractual and legal
restrictions and other factors the board of directors deem
relevant.





Penny
Stock Characterization





Our
Shares are "penny stocks" within the definition of that term as contained in the
Securities Exchange Act of 1934, which are generally equity securities with a
price of less than $5.00. Our shares will then be subject to rules that impose
sales practice and disclosure requirements on certain broker-dealers who engage
in certain transactions involving a penny stock. These will impose restrictions
on the marketability of the common stock.





36
 *Table of Contents*





Under the
penny stock regulations, a broker-dealer selling penny stock to anyone other
than an established customer or "accredited investor" must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to the sale, unless the broker-dealer
is otherwise exempt. Generally, an individual with a net worth in excess of
$5,000,000 or annual income exceeding $200,000 individually or $300,000 together
with his or her spouse is considered an accredited investor. In addition, unless
the broker-dealer or the transaction is otherwise exempt, the penny stock
regulations require the broker-dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock market. A broker-dealer is also
required to disclose commissions payable to the broker-dealer and the Registered
Representative and current bid and offer quotations for the securities. In
addition a broker-dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account, the account’s value and information regarding the limited market in
penny stocks. As a result of these regulations, the ability of broker-dealers to
sell our stock may affect the Selling Stockholders or other or other holders
seeking to sell their shares in the secondary market. In addition, the penny
stock rules generally require that prior to a transaction in a penny stock, the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction.





These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. These additional sales practice and disclosure requirements could
impede the sale of our securities. In addition, the liquidity for our securities
may be adversely affected, with concomitant adverse affects on the price of our
securities.





There are
452,500 outstanding options to purchase shares of our common stock pursuant to
the 2003 Non-Qualified Employee Stock Plan.





Agreements
to Register





On
December 5, 2003, a Registration Rights Agreement was executed by the Company
conferring upon Chi Hung
Tsang demand registration rights for (i) 3,000,000 shares of the Company's
common stock ("Company Shares"), each with par value US$0.001 per share (the
"Common Stock"); and (ii) a two year warrant to purchase up to 6,000,000 shares
of the Common Stock at an exercise price of US$0.75 per share. Upon written
demand, the Company shall, register the shares, the warrants and the shares
issuable upon exercise of the warrants as soon as practicable and in no event
later than 90 days from the notice. In addition, the Company must maintain the
registration statement until all of the securities are sold or otherwise become
freely tradable.





We have a
Registration Rights Agreement, dated August 26, 2004, with the Purchasers under
a Securities Purchase Agreement that was also executed on August 26, 2004,
covering an aggregate of 2,321,003 shares of common stock issued to the
Purchasers, and shares of common stock issuable to the Purchasers upon the
exercise of warrants. In addition, we have a Registration Rights Agreement with
Cornell Capital Partners, LP, dated November 15, 2004, covering the 14,285,714
shares of our common stock that may be registered for sale pursuant to the SEDA,
in addition to 375,000 shares of common stock issued as compensation under the
SEDA.





37
 *Table of Contents*





Shares
Eligible for Future Sale





Upon
effectiveness of this registration statement, the 16,981,717 shares of common
stock sold in this offering will be freely tradable without restrictions under
the Securities Act of 1933, except for any shares held by our "affiliates",
which will be restricted by the resale limitations of Rule 144 under the
Securities Act of 1933.





In
general, under Rule 144 as currently in effect, any of our affiliates and any
person or persons whose sales are aggregated who has beneficially owned his or
her restricted shares for at least one year, may be entitled to sell in the open
market within any three-month period a number of shares of common stock that
does not exceed the greater of (i) 1% of the then outstanding shares of our
common stock, or (ii) the average weekly trading volume in the common stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also affected by limitations on manner of sale, notice requirements, and
availability of current public information about us. Non-affiliates who have
held their restricted shares for two years may be entitled to sell their shares
under Rule 144 without regard to any of the above limitations, provided they
have not been affiliates for the three months preceding such sale.





Further,
Rule 144A as currently in effect, in general, permits unlimited resales of
restricted securities of any issuer provided that the purchaser is an
institution that owns and invests on a discretionary basis at least $100 million
in securities or is a registered broker-dealer that owns and invests $10 million
in securities. Rule 144A allows our existing stockholders to sell their shares
of common stock to such institutions and registered broker-dealers without
regard to any volume or other restrictions. Unlike under Rule 144, restricted
securities sold under Rule 144A to non-affiliates do not lose their status as
restricted securities.





Currently,
approximately 7,100,000 shares of our common stock are available for sale in
accordance with the provisions of Rule 144. Additionally, future sales of stock
owned by our affiliates may be permitted according to Rule 144. The availability
for sale of substantial amounts of common stock under Rule 144 could adversely
affect prevailing market prices for our securities.





Unregistered
Sales of Equity Securities During Period Covered By Report





A. Share
Issuance - Acquisition of CEO Clubs China Limited.





On April
7, 2004, the Company acquired 51% of the capital stock of CEO Clubs China
Limited, a company


organized
and existing under the laws of China (“CEO Clubs”), pursuant to a Share Exchange
Agreement (the “Share Exchange Agreement”) with Centerstage Investments Limited,
Mrs. Yuhuan Wang, Mr. Wencheng Cui, and New Earth Limited (collectively, the
“Sellers”). Under the terms of the Share Exchange Agreement, the Company issued
80,000 shares of restricted common stock and 82,000 shares of free trading
common stock, and paid $240,000 in cash, in exchange for 51% of the common stock
of CEO Clubs, from the Sellers on a pro rata basis.





In this
exchange offer, we relied on the exemption from registration of Section 4(2)
under the Securities Act, based on the following facts: (1) the issuance was an
isolated private transaction which did not involve a public offering; (2) there
were only four offerees, (3) the offerees have agreed to the imposition of a
restrictive legend on the face of the stock certificate representing the
restricted shares, to the effect that they will not resell the stock unless
their shares are registered or an exemption from registration is available; (4)
the offerees were sophisticated investors; (5) there were no subsequent or
contemporaneous public offerings of the stock; (6) the stock was not broken down
into smaller denominations; and (7) the negotiations for the acquisition of CEO
Clubs China and the issuance of the restricted stock pursuant thereto took place
directly between the offerees and our management.





38
 *Table of Contents*





B.   Share
Issuance - Acquisition of New Generation





On August
2, 2004, General Business Network (GZ) Co. Limited, a wholly owned subsidiary of
ours, acquired 51% of the capital stock of Guangdong New Generation Commercial
Management Limited, a limited liability company organized and existing under the
laws of China (“New Generation”), from Guangdong Hauhao Industries Group Co.
Ltd., a limited liability company organized under the laws of China (“Guangdong
Industries”), Huang Zehua, a citizen and resident of China (“Zehua”) and Suo
Hongxia, a citizen and resident of China (“Hongxia”)(Guangdong Industries, Zehua
and Hongxia are collectively referred herein as the “Sellers”), for an aggregate
consideration of US$10,232,000, payable approximately US$2,741,000 in cash and
approximately US$7,487,000 in market value of our common stock. We issued
4,081,238 shares of our restricted common stock pro rata to the Sellers at
closing.





In this
offering, we relied on the exemption from registration of Section 4(2) under the
Securities Act, based on the following facts: (1) the issuance was an isolated
private transaction which did not involve a public offering; (2) there were only
three offerees, (3) the offerees have agreed to the imposition of a restrictive
legend on the face of the stock certificate representing their shares, to the
effect that they will not resell the stock unless their shares are registered or
an exemption from registration is available; (4) the offerees were sophisticated
investors; (5) there were no subsequent or contemporaneous public offerings of
the stock; (6) the stock was not broken down into smaller denominations; and (7)
the negotiations for the acquisition of New Generation and the issuance of the
stock pursuant thereto took place directly between the offerees and our
management.





C. TCMP3
Partners and Bridges & Pipes LLC Investors





On August
26, 2004, we entered into a Securities Purchase Agreement with the TCMP3
Partners and Bridges & PIPES LLC (together being the “Purchasers”),
providing for the issuance by us of (i) 333,334 shares of common stock at a
price of $1.50 per share and 166,667 Series A five year Warrants to purchase
shares of our common stock at $2.50 per share to Bridges & PIPES LLC, and
(ii) 100,000 shares of common stock at a price of $1.50 per share and 50,000
Series A five year Warrants to purchase shares of our common stock at $2.50 per
share to TCMP3 Partners, for an aggregate purchase price of $650,000. In
addition, we granted each Purchaser an option (the “Option”) to purchase that
number of shares equal to the number of shares initially purchased by the
Purchaser on the Closing Date (the “Firm Shares”). Upon exercise of the Option
at a purchase price of $3.00 per share of common stock, the Purchaser would also
receive, without additional consideration, five-year Series B Warrants to
purchase 50% of the Firm Shares at an exercise price equal to $4.00 per share.
To date, neither of the Purchasers has exercised the Option.





In
connection with this offering, we retained the services of Duncan Capital LLC to
act as Placement Agent, and for its services Duncan Capital LLC was entitled to
receive compensation equal to (i) a cash fee of ten percent of the aggregate
purchase price of the shares of common stock and warrants sold, (ii) the
issuance of a five-year non-cashless exercised provisioned warrant to purchase
such number of shares of common stock as shall equal ten percent of the
aggregated number of shares sold in the offering and shares exercised upon
exercised upon exercise of the Series A Warrants and Series B Warrants at an
exercise price of $2.50 per share, and (iii) a cash fee of ten percent upon our
receipt of proceeds, if any, upon the exercise of the Series A Warrants and
Series B Warrants by the Purchasers. Duncan Capital LLC was issued a Placement
Agent’s warrant to purchase 43,000 of our common shares at an exercise price
equal to $2.50 per share, which is being registered pursuant to this prospectus,
in connection with this offering.





In this
offering, we relied on the exemption from registration of Section 4(2) under the
Securities Act and Regulation D promulgated pursuant thereto.





39
 *Table of Contents*





D.   Cornell
Capital Partners, LP and Stealth Capital, LLC





On
December 3, 2004, we had a second closing under the Securities Purchase
Agreement with two new Purchasers, Cornell Capital Partners, LLC and Stealth
Capital, LLC, who together purchased an aggregate of $1,450,000 of our shares of
common stock and Series A Warrants. Cornell Capital purchased 900,000 shares of
common stock at $1.50 per share, and received 450,000 Series A Warrants, for a
total consideration of $1,350,000. Stealth Capital purchased 66,667 shares of
common stock at $1.50 per share, and received 33,334 Series A Warrants, for a
total consideration of $100,000. For its services as Placement Agent, Duncan
Capital, LLC received an additional 69,667 Placement Agent Warrants, which are
exercisable at $2.50 per share. In addition, Bridges & PIPES, LLC was issued
83,334 Series A Warrants and TCMP3 Partners was issued 25,000 Series A Warrants
for their agreement to waive their rights under the Registration Rights
Agreement to be the sole registrants, together with Cornell Capital and Stealth
Capital, in a demand registration made on our Company. They were issued the
warrants pursuant to a Letter Agreement that, among other things, permitted our
Company to enter into a Equity Line of Credit with Cornell Capital Partners, LP
and register the shares to be issued pursuant to the Equity Line of Credit
together with the shares and warrants owned by Bridges & PIPES, LLC and
TCMP3 Partners on one registration statement and to be offered for sale pursuant
to one prospectus.





In
connection with the issuance of securities at this second closing, we relied on
the exemption from registration of Section 4(2) under the Securities Act and
Regulation D promulgated pursuant thereto.





E.
Conversion of Warrants by Chi Hung Tsang and Powertronic Holdings Limited
(“Powertronic”)




On July
20, 2004, Powertronic exercised a two-year warrant. Powertronic purchased
2,000,000 shares of the common stock of the Company at a price of US$0.575 per
share. On December 15, 2004, Powertronic elected to take a cashless exercise of
warrants to purchase 1,574,074 shares of the common stock of the Company. A
total of 3,574,074 shares of common stock of the Company were issued in
connection with the exercise of both warrants. As of December 31, 2004,
Powertronic did not hold any warrants.




In this
issuance of shares upon the exercise of warrants, we relied on the exemption
from registration of Section 4(2) under the Securities Act, based on the
following facts: (1) the issuance was an isolated private transaction which did
not involve a public offering; (2) there was only one offeree, (3) the offeree
has agreed to the imposition of a restrictive legend on the face of the stock
certificate representing its shares, to the effect that it will not resell the
stock unless its shares are registered or an exemption from registration is
available; (4) the offeree was a sophisticated investor; (5) there were no
subsequent or contemporaneous public offerings of the stock; and (6) the stock
was not broken down into smaller denominations.




On March
22, 2004 and July 20, 2004, Mr. William Tsang exercised two 1,500,000 warrants
to purchase 3,000,000 shares of the common stock of the Company at a price of
US$0.75 and US$0.92 per share respectively. On December 15, 2004, Mr. Tsang
elected to take the cashless exercise of warrant to purchase 1,648,148 shares of
the common stock of the Company. A total of 4,648,148 shares of common stock of
the Company were issued accordingly. As of December 31, 2004, Mr. Tsang held
two-year warrants to purchase 4,500,000 shares of the common stock of the
Company at a price of US$0.75.





In this
issuance of shares upon the exercise of warrants, we relied on the exemption
from registration of Section 4(2) under the Securities Act, based on the
following facts: (1) the issuance was an isolated private transaction which did
not involve a public offering; (2) there was only one offeree, (3) the offeree
has agreed to the imposition of a restrictive legend on the face of the stock
certificate representing his shares, to the effect that he will not resell the
stock unless his shares are registered or an exemption from registration is
available; (4) the offeree was a sophisticated investor; (5) there were no
subsequent or contemporaneous public offerings of the stock; and (6) the stock
was not broken down into smaller denominations.





40
 *Table of Contents*




**Item
6.**  **Management's Discussion and Analysis or Plan of
Operation**





**PRELIMINARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS**





This
discussion contains forward-looking statements. The reader 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. Initially, our business objective was 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. We have grown through acquisitions and
internal growth and our business objectives have expanded as set forth in the
following paragraphs.





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 Virtual Edge to the Company in
exchange for 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 owning 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
warrants for the shares of our common stock by Mr. Tsang and Powertronic in
March 2004 and in July 2004, and the 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.




41
 *Table of Contents*





China
World Trade Corporation ("China World Trade") has recently established its
businesses into three distinct divisions, namely the club and business center;
the business travel 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 association with the World Trade Center Association, 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
member operates 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 member of our affiliated CEO Clubs family has
$20 million in annual sales.




Since the
completion of the acquisition of majority stake of Guangdong New Generation
Commercial Management Limited (the “New Generation Group” or “New Generation”)
in August 2004, the Business Travel 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
seven subsidiaries in Southern China in ticketing sales for international and
domestic flights as well as inbound business travel. Being a major consolidator
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 three 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 solid
revenue base to the Company.




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 helps China Telecom to develop and manage the merchants' privilege VIP
member services. WTC Link also established a business 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.




42
 *Table of Contents*





RESULTS
OF OPERATIONS





Effective
for fiscal year 2004, we changed our fiscal year-end to December 31 from
September 30. As a result of this change, the Statements of Consolidated Income
(Loss), Statements of Consolidated Cash Flows and Statements of Consolidated
Shareholders’ Equity presented in this Form 10KSB reflect the Fiscal Years Ended
December 31, 2004 and September 30, 2003.





As a
result of the change of fiscal year-end, for the purpose of Management’s
Discussion and Analysis of Financial Condition and Results of Operations, the
following periods of operations are presented and discussed:





·
    Fiscal
      Year Ended December 31, 2004 compared to the unaudited Twelve Months Ended
      December 31,2003;


·
    Fiscal
      Year Ended September 30, 2003 compared to Fiscal Year Ended September 30,
      2002.





The
discussion of results for the Fiscal Year Ended December 31, 2004 to the
unaudited Twelve Months Ended December 31, 2003 is presented for comparative
purposes only. Management considers this to be a meaningful presentation of
year-to-year results.





The
following table shows the selected audited condensed consolidation income
statement data of the Company and its subsidiaries for the year ended December
31, 2004, September 30, 2003 and September 30, 2002, and the unaudited condensed
consolidation income statement data for the twelve-month period ended December
31, 2003. The data should be read in conjunction with the audited Consolidated
Financial Statements of the Company for the years ended December 31, 2004 and
September 30, 2003 and related notes thereto.








**Twelve****Year
      ended**
    
    
    
    **Months
      Ended**
    
    
    
    **Year
      ended**
    
    
    
    **Year
      ended****Dec
      31,**
    
    **%
      of**
    
    **Dec
      31,**
    
    **%
      of**
    
    **Sep
      30,**
    
    **%
      of**
    
    **Sep
      30,**
    
    **%
      of****2004**
    
    **Revenues**
    
    **2003**
    
    **Revenues**
    
    **2003**
    
    **Revenues**
    
    **2002**
    
    **Revenues****(In
      US$ thousands except per share data)**
    
    
    
    
    
    **(unaudited)****Operating
      revenues**Club
      and business center
    
    
    551
    
    
    17.8
    
    
    1,485
    
    
    45.5
    
    
    1,719
    
    
    59.6
    
    
    193
    
    
    100Business
      travel services
    
    
    1,672
    
    
    54.1
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Business
      value-added services
    
    
    41
    
    
    1.3
    
    
    213
    
    
    6.5
    
    
    289
    
    
    10.0
    
    
    -
    
    
    -Others
    
    
    829
    
    
    26.8
    
    
    1,567
    
    
    48.0
    
    
    878
    
    
    30.4
    
    
    -
    
    
    -Total
      Operating Revenues
    
    
    3,093
    
    
    100.0
    
    
    3,265
    
    
    100.0
    
    
    2,886
    
    
    100.0
    
    
    193
    
    
    100**Gross
      Profit**Club
      and business center
    
    
    460
    
    
    83.4
    
    
    1,121
    
    
    75.5
    
    
    1,269
    
    
    73.8
    
    
    109
    
    
    56.6Business
      travel services
    
    
    1,559
    
    
    93.3
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Business
      value-added services
    
    
    39
    
    
    95.1
    
    
    211
    
    
    99.1
    
    
    289
    
    
    100.0
    
    
    -
    
    
    -Others
    
    
    305
    
    
    36.8
    
    
    168
    
    
    10.7
    
    
    114
    
    
    13.0
    
    
    -
    
    
    -**Total
      Gross Profit**
    
    
    2,363
    
    
    76.4
    
    
    1,500
    
    
    45.9
    
    
    1,672
    
    
    57.9
    
    
    109
    
    
    56.6Selling,
      general and administrative expenses
    
    
    (8,133
    )
    
    (263.0
    )
    
    (4,187
    )
    
    (128.2
    )
    
    (3,768
    )
    
    (130.6
    )
    
    (1,828
    )
    
    (947.0
    )Impairment
      loss and depreciation
    
    
    (1,438
    )
    
    (46.5
    )
    
    (206
    )
    
    (6.3
    )
    
    (186
    )
    
    (6.4
    )
    
    -
    
    
    -**Loss
      from operations**
    
    
    (7,208
    )
    
    (360.3
    )
    
    (2,893
    )
    
    (88.6
    )
    
    (2,282
    )
    
    (79.1
    )
    
    (1,719
    )
    
    (890.4
    )**Non-operating
      income (expenses)**Other
      income
    
    
    140
    
    
    4.5
    
    
    3
    
    
    0.1
    
    
    2
    
    
    0.1
    
    
    -
    
    
    -Interest
      expense
    
    
    (66
    )
    
    (2.1
    )
    
    (14
    )
    
    (0.5
    )
    
    (15
    )
    
    (0.5
    )
    
    (8
    )
    
    (0.3
    )Equity
      in net loss of affiliate
    
    
    -
    
    
    -
    
    
    (32
    )
    
    (1.0
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Gain
      on disposal of interest in a subsidiary
    
    
    -
    
    
    -
    
    
    62
    
    
    2.0
    
    
    -
    
    
    -
    
    
    -
    
    
    -Equity
      in net loss of affiliate
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (32
    )
    
    (1.0
    )
    
    -
    
    
    -**Loss
      before income taxes and minority interest**
    
    
    (7,134
    )
    
    (230.7
    )
    
    (2,874
    )
    
    (88.0
    )
    
    (2,326
    )
    
    (80.6
    )
    
    (1,727
    )
    
    (894.6
    )Income
      taxes
    
    
    (47
    )
    
    (1.5
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -**Loss
      before minority interest**
    
    
    (7,181
    )
    
    (232.2
    )
    
    (2,874
    )
    
    (88.0
    )
    
    (2,326
    )
    
    (80.6
    )
    
    (1,727
    )
    
    (894.6
    )Minority
      interest
    
    
    (413
    )
    
    (13.4
    )
    
    41
    
    
    1.2
    
    
    120
    
    
    4.2
    
    
    93
    
    
    48.2**Net
      loss**
    
    
    (7,594
    )
    
    (245.6
    )
    
    (2,834
    )
    
    (86.8
    )
    
    (2,206
    )
    
    (76.4
    )
    
    (1,634
    )
    
    (1,495.0
    )**Loss
      per share of common stock**-
      Basic
    
    $
    (0.32
    )
    
    
    
    $
    (0.29
    )
    
    
    
    $
    (0.23
    )
    
    
    
    $
    (0.23
    )





FISCAL
YEAR ENDED DECEMBER 31, 2004 COMPARED TO UNAUDITED 12-MONTH PERIOD ENDED
DECEMBER 31, 2003.





43
 *Table of Contents*





OPERATING
REVENUE





The
Company has started to recruit members, and 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.
Trading and rental incomes are grouped under others operating revenues and
others gross profit. Consolidated operating revenue for the twelve-month period
ended December 31, 2004 was $3,093,000, compared to $3,265,000 for the same
corresponding period in year 2003, a decrease of $172,000 or 5.3%. The decrease
was mainly the result of the decrease in revenue generated from club related
businesses and others (trading) business, which were partially offset by an
increase in rental income and travel businesses related businesses. The reason
for the decrease in club related businesses was due to the discontinuation of
the Chinese restaurant to further trim costs of the club facilities in
Guangzhou. The other (trading) business of the Company is under restructuring
and expects to formally resume business in the first quarter of
2005.





We do not
foresee the decrease in operating revenue will continue. However, 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
$3,093,000 revenue in the twelve-month period ended December 31, 2004,
approximately $551,000 (17.8%) was generated from providing club related
services by Guangzhou World Trade Center Club and Beijing World Trade Center
Club, $1,672,000 (54.1%) from business travel services resulting from the
acquisition of the New Generation Group, $41,000 (1.3%) from business
value-added services, and the remaining $829,000 (or 26.8%) from other (rental
and trading) businesses. The acquisition of New Generation will contribute
positively to our operating revenue. In addition, 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
year ended December 31, 2004, New Generation sold a total of over 995,000
tickets on a pro-forma basis, which translates to a total value of air-ticket
fare of approximately $115.2 million. As compared to the same corresponding
period in year 2003, ticket sold of New Generation increased by 509,000 tickets
(or 104.7%) from approximately 486,000 tickets with value of air-ticket fare
increased by $52.9 million (or 84.9%) from $62.3 million. China World Trade’s
consolidated portion of the total value of air-ticket fare for the 5 months
since the acquisition of New Generation in August 2004 was approximately $54.9
million





Consolidated
gross profit increased $863,000 or 57.5% for the twelve-month period ended
December 31, 2004 over the same corresponding period in year 2003. The increase
was predominantly driven by our business travel services resulting from the
acquisition of the New Generation in August 2004. Such an increase was partially
offset by the decrease in the club and business center area. As a percentage of
total operating revenues, consolidated gross profit margins of 76.4% in 2004
increased from 45.9% in 2003. The higher profit margin as a percent of operating
revenues was driven by a mix shift from lower margin trading business to higher
margin business travel services.





Of the
$2,363,000 total gross profit for the year ended December 31, 2004,
approximately $460,000 (or 19.5%) was generated from providing club and business
center services, approximately $1,559,000 (or 66.0%) from business travel
services, approximately $39,000 (or 1.7%) from providing business value-added
services, and the remaining approximately $305,000 (or 12.8%) from other (rental
and trading) businesses. As compared to the same corresponding period in year
2003, the club and business center services represented a 75.5% (or $1,121,000)
of the total gross profit; none was generated from the business travel business;
14.1% (or $211,000) from providing business value-added services; and the
remaining 10.4% (or $168,000) from other (rental and 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.





44
 *Table of Contents*





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





Selling,
general and administrative expenses increased by approximately $3,946,000 or
94.2% to $8,133,000 for the year ended December 31, 2004 from $4,187,000 for the
same corresponding period in 2003. The increase was mainly a combination of the
increase in professional fee resulting from a share placement financing in the
amount of approximately $1.1 million, the increase in other professional fees in
investors relation and researches, marketing and information and technology in
the total amount of approximately $1.2 million, and the employees’ compensation
resulting from exercising their stock options in the amount of approximately
$645,000.





Of the
$8,133,000 selling, general and administrative expenses incurred for the year
ended December 31, 2004, the majority of it was approximately $900,000 in staff
related costs; approximately $740,000 in building management and rental expenses
which were necessary for the operations of our world trade center clubs in
Guangzhou and Beijing; and approximately $3.7 million in expenses of non-cash
accounting items. Again, the $3.7 million includes shares of the common stock of
the Company issued for professional services and employees’ stock options. The
share price of these shares was determined by reference of the market price on
contract dates. We recorded the issuance of shares of our common stock resulting
from exercising of the employees’ stock options as compensation expenses in
accordance with the variable price accounting under FIN144. The professional
services acquired were in the areas of marketing, information technology,
investor relations and researches, and financing. The management does not
foresee this increasing trend will continue and they will continue to impose
respective measures for trimming costs.





IMPAIRMENT
LOSS AND DEPRECIATION





Total
impairment loss and depreciation were approximately $1,438,000 for the year
ended December 31, 2004, as compared to the same corresponding period in year
2003, an increase of $1,232,000 or 598.1% from $206,000. The increase was mainly
due to the increase in the impairment losses of intangible assets (18.1%);
goodwill (31.4%); and property, plant and equipment (39.6%); and the remaining
increase in depreciation (10.9%). The management believes that it is necessary
to record the current values of our intangible assets, goodwill, and other fixed
assets so as to reflect their respective abilities of deriving revenues. Under
normal circumstances, we will review the impairment of our assets at the year
end or at the anniversary of such assets.





FINANCIAL
INCOME/(EXPENSES), NET





Interest
expenses were approximately $66,000 for the year ended December 31, 2004, as
compared to the same corresponding period in year 2003 in the amount of $15,000,
an increase of $41,000 or 273.3%. 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)





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 $47,000 for the year end December 31, 2004, as compared to none for
the same corresponding period in year 2003. The increase of income taxes was the
result of consolidating the operation of New Generation since the acquisition of
its business in August 2004.





45
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NET
LOSS





Net loss
was approximately $7.6 million for the year ended December 31, 2004, as compared
to the same corresponding period in year 2003, an increase of $4.8 million or
168.0% from $2.8 million. The increase in net loss was mainly due to $1.2
million in additional impairment loss; and the remaining in shares of our common
stock issued to employees resulting from them exercising their stock options and
to various parties for their respective services rendered in areas of marketing;
information and technology, investor relations and researches; and financing.





The
majority of the net loss was contributed from non-cash accounting treatments in
provision, impairment, and shares issuance. We do not believe that this will be
a continuous trend, and we further believe that the loss will not have any
adverse effect on our operations.





YEAR
ENDED SEPTEMBER 30, 2003 COMPARED TO YEAR ENDED SEPTEMBER 30, 2002.





OPERATING
REVENUE





Consolidated
operating revenue for the year ended September 30, 2003 was $2,886,000, compared
to $193,000 for the year 2002, a significant increase. Of the $2,886,000 revenue
in year 2003, approximately $1,719,000 (59.6%) was generated from providing club
and business center related services by Guangzhou World Trade Center Club,
$289,000 (10.0%) from providing business value-added services, and the remaining
operating revenue of $878,000 (30.4%) from other operations in rental and
trading businesses. Only US$193,000 was generated from providing club and
business center related services by Guangzhou World Trade Center Club for the
year ended September 30, 2003.





Consolidated
gross profit increased $1,563,000, 1433.9% for the year ended September 30, 2003
over the same corresponding period in year 2002. The increase was predominantly
driven by our club and business center related services. As a percentage of
total operating revenues, consolidated gross profit margins of 57.9% in 2003
increased slightly from 56.6% in 2002. Of the $1,672,000 total gross profit for
the year ended September 30, 2003, approximately $1,269,000 (or 75.9%)was
generated from providing club and business center services, none from business
travel services, approximately $289,000 (or 17.3%) from providing business
value-added services, and the remaining approximately $114,000 (or 6.8%) from
other operations in rental and trading businesses. As compared to the same
corresponding period in year 2002, the club and business center services
represented a 100% (or $109,000) of the total gross profit; none was generated
from the business travel business, the business value-added services; and other
operations.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





Selling,
general and administrative expenses for the year ended September 30, 2003 was
$3,768,000, as compared to $1,828,000 for the same corresponding period in year
2002, an increase of $1,941,000 or 106.2%. The increase was mainly due
to:





i)
    Staff
      Salaries, Benefit and Allowances: Staff salaries, benefit and allowances
      increased by $597,000 for the year ended September 30, 2003. The increase
      was primarily due to the salaries, benefit and allowances paid for staff
      in the operations of Guangzhou World Trade Center Club. As of September
      2003, the Company had approximately 80 full-time employees, down from 110
      employees six months ago.





ii)
    Rental,
      Rates, and Related Expenses: Rental, rates and related expenses increased
      by $615,000 for the year ended September 30, 2003. The increase was
      primarily due to the occupancy of the physical venue for the operation of
      Guangzhou World Trade Center Club.





iii)
    Utilities
      Expenses: Utilities expenses for the year ended September 30, 2003 was
      $196,000, as compared with $36,000 for the year 2002, an increase of
      $160,000. The increase was primarily due to the operation of Guangzhou
      World Trade Center Club.





iv)
    Commission
      Expenses: Commission expenses for the year ended September 30, 2003 was
      $146,000, as compared with only a very minimal amount for the year 2002.
      The increase was primarily the commission paid to third party for
      assisting in recruiting World Trade
memberships.





46
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IMPAIRMENT
LOSS AND DEPRECIATION





Total
impairment loss and depreciation were approximately $186,000 for the year ended
September 30, 2003, as compared to an insignificant amount for the same
corresponding period in year 2002. The increase was mainly due to the increase
in the impairment losses of property, plant and equipment (57.8%) and the
remaining increase in depreciation (42.2%). The management believes that it is
necessary to record the current values of our intangible assets, goodwill, and
other fixed assets so as to reflect their respective abilities of deriving
revenues from. Under normal circumstances, we will review the impairment of our
assets at the year end or at the anniversary of such assets.





FINANCIAL
INCOME/(EXPENSES), NET





There was
approximately $15,000 in interest expenses incurred and accrued from an
outstanding loan for the twelve-month period ended September 30, 2003. This loan
was made with a third party in February 2001. All interest expenses in relation
to this loan were waived by the third party and the loan was subsequently repaid
by the Company in December 2003.





INCOME
TAXES





The Group
is subject to income taxes on an equity basis on income arising in or derived
from the tax jurisdiction in which it is domiciled and operates.




The Hong
Kong subsidiaries incurred losses for taxation purposes for the period and thus
Hong Kong Profits Tax has not been provided.





Since the
PRC subsidiaries had sustained losses during the years ended September 30, 2003
and 2002, for the PRC income tax purposes, the Company had not recorded any PRC
income tax expense. PRC income tax in the future will be calculated at the
applicable rates relevant to the PRC subsidiaries.





NET
LOSS





Net loss
was approximately $2.2 million for the year ended September 30, 2003, as
compared to the same corresponding period in year 2002, an increase of $572,000
or 35.0% from $1.6 million. The increase in net loss was mainly due to the above
mentioned increase in selling, general and administrative expenses in the amount
of $1.9 million and impairment loss of $186,000. This increase was partially
offset by the increase in gross profit in the amount of $1.5 million, resulting
in net loss increase of approximately $572,000.





47
 *Table of Contents*





LIQUIDITY
AND CAPITAL RESOURCES





We have
banking facilities granted in the total amount of approximately $2.5 million, of
which approximately $1.2 million has been utilized as of December 31, 2004.
These facilities include $640,000 in revolving loan; $510,000 in mortgage loan;
and the remaining $1.35 million in trust receipt and export letters of credit.
The weighted average interest rate for these facilities is charged on the London
Interbank Offer Rate plus 3.0% per annum.





As of
December 31, 2004, cash and cash equivalents totaled $1.8 million. This cash
position was the result of a combination of net cash provided by financing
activities in the amount of $4,705,276 and by net cash provided by operating
activities of $2,370,946, offsetting by net cash used in investing activities of
$5,566,725. The increase in net cash provided by financing activities was mainly
due to a private placement financing of $2.1 million and warrants exercised by
Mr. Tsang and Powertronic in the total amount of $3.7 million. The net cash used
in investing activities was resulted from by the acquisition of New Generation
and its related assets in the total amount of approximately $5.0 million. Net
cash provided by operating activities could be explained by the change in net
working capital without considering the addition of accounting adjustments of
non cash items. This change in net working capital was due to the decrease in
prepayments of $515,000, the decrease in trade and other receivables of
$4,361,173 and the increase in rental and other deposits of $330,000. The
decrease in trade and other receivables were incurred resulting from the
consolidation of New Generation.





During
the reporting period of year ended December 31, 2004, a total of 14,908,396
shares of the common stock of China World Trade Corporation were issued, of
which 4,081,238 shares were paid as part of the total consideration for the
acquisition of New Generation Group in August 2004; 8,222,222 shares were issued
to Mr. Chi Hung Tsang and Powertronic for their respective exercise of warrants;
1,775,001 shares were issued in relation to a private placement financing and
its related fees; 429,408 shares were issued to employees for exercising their
respective options; and the remaining were paid and issued to the Research Works
Inc, NewsUSA and CEOCast for their respective professional services rendered,
and the acquisition of 51% equity stake of CEO Clubs China Limited.





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





The
Company entered into an Equity Transfer Agreement dated April 20, 2004 and a
Supplementary Agreement dated June 1, 2004 to acquire 51% of the capital stock
of Guangdong New Generation Commercial Management Limited, a limited liability
company organized under the laws of the Peoples’ Republic of China (“New
Generation”) from Guangdong Hauhao Industries Group Co., Ltd. New Generation is
engaged in flight ticketing, insurance and travel agents services. The total
consideration of this acquisition was approximately US$10,232,000, of which
approximately US$1.2 million in cash was paid on closing and the rest of the
cash portion was paid subsequently, and the remaining approximately US$7.5
million was paid by issuing a total of 4,081,238 restricted shares of the common
stock of the Company. This acquisition was closed on August 2, 2004.





On July
20, 2004, the major controlling shareholder and Chairman of China World Trade
Corporation, Mr. Chi Hung Tsang and a second major shareholder, Powertronic
Holdings Limited exercised warrants to purchase additional 3.5 million shares of
the common stock of the Company. As a result, the Company received total net
proceeds of approximately US$2.5 million, which was used to complete the
acquisition of New Generation and to provide additional working capital to
further advance the development of the China World Trade
Corporation.





On August
26, 2004, we completed the first closing of a private placement financing from
two private accredited investors to raise a total of US$650,000. In connection
with this closing, new shares were issued to the two investors on October 29,
2004.





On
December 3, 2004, we completed the second closing of a private placement
financing from two private accredited investors to raise a total of
US$1,450,000. In connection with this closing, new shares were issued to the two
investors on December 8, 2004.





On
November 22, 2004, we entered a Standby Equity Distribution Agreement (“Standby
Equity”) with Cornell Capital Partners, LP to provide up to a total of $30
million funding to the Company over a 24-month period, to be drawn down at our
discretion by issuing of our common stock. The amount of each draw is subject to
a maximum advance amount of $1.5 million, except for the first draw, which may
be in the amount of $3.0 million. The Company intends to use the proceeds from
the first two draws to acquire smaller travel related businesses; to enhance our
travel networking system; and to build and open additional world trade center
clubs in other major cities in China.





We do not
intend to utilize the proceeds from this Standby Equity financing to pay down or
retire any loans. In addition, we do not have any material commitments for
capital expenditures although we have plans for the use of proceeds for the
first two draws of the Standby Equity financing.





On
December 30, 2004, General Business Network (Holdings) Limited entered into a
sale and purchase agreement with Guangzhou Goldlion Environmental Technology
Company Limited for the sale of our property holding located in Guangzhou, the
PRC for a consideration of approximately $2.5 million. This transaction is
expected to complete on or before May 31, 2005.





48
 *Table of Contents*





GOING
CONCERN COMMENT





Our
audited financial statement as of December 31, 2004 was issued a going concern
comment based on us having suffered losses from operations and experienced a
negative working capital. As we mentioned above in the Net Loss section that our
losses were a combination of the $1.2 million in additional impairment loss; and
the remaining in shares of our common stock issued to employees resulting from
them exercising their stock options and to various parties for their respective
services rendered in areas of marketing; information and technology, investor
relations and researches; and financing. On the other hand, the negative working
capital was contributed by the deduction of account receivables from the current
assets for the provision for the $4.0 million bad debt that was accounted for
the addition of goodwill iin accordance with the treatment of pre-acquisition
contingencies under SFAS 141; and the increase in current liabilities of tax
payable and surcharge primarily resulted from the pre-acquisition accounts of
New Generation.





The
majority of the net loss and negative working capital resulted from non-cash
accounting treatments in provision, impairment, and shares issuance. We do not
believe that the loss will be a continuous trend, and we further believe that
the loss and the negative working capital will not have any adverse effect on
our operations. In addition, the Company entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners, LP to provide up to US$30
million financing and we are in the process of seeking approval from the SEC of
our registration statement for this financing. Upon the effectiveness of the
registration statement, we will be able to make draw downs under the $30 million
commitment in an amount equal to $1.5 million per draw (other than the first
draw, which can be up to $3.0 million) for such financing.





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.





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****


**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.





**Item
7.**  **Financial Statements**





The
information required by this Item is located immediately following the signature
page and of this annual report.





50
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 ****
 **Item
8.**  **Changes
in and Disagreements With Accountants on Accounting and Financial****Disclosure**





The
accounting firm of Moores Rowland Mazars audited our financial statements. We
have had no changes in or disagreements with our accountant.





**Item
8A.**  **Controls and Procedures**





**Annual
Evaluation of Controls**





As of the
end of the period covered by this annual report on Form 10-KSB, the Company
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures ("Disclosure Controls"). This evaluation ("Evaluation")
was performed by our President and Chief Executive Officer, John H.W. Hui
("CEO"), and by 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, with respect to the effectiveness of our Disclosure
Controls.





**CEO
and CFO Certifications**





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**





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.





**Limitations
on the Effectiveness of Disclosure Controls**





Our
management does not expect that our Disclosure 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.





51
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****


**Scope
of the Evaluation**





The CEO
and CFO's evaluation of our Disclosure 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
to make modifications if and as necessary. Our intent in this regard is that the
Disclosure Controls will be maintained as dynamic systems that change (including
improvements and corrections) as conditions warrant.





**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.





**PART
III**





**Item 9.**  **Directors
and Executive Officers of the Registrant**





**Directors
and Executive Officers**





Our
Bylaws provide that we shall have that number of directors determined by the
majority vote of the board of directors. Currently we have five directors. Each
director will serve until our next annual shareholder meeting. Directors are
elected for one-year terms. Our Board of Directors elects our officers at the
regular annual meeting of the Board of Directors following the annual meeting of
shareholders. Vacancies may be filled by a majority vote of the remaining
directors then in office. Our directors and executive officers are as
follows:





***Name***
    ***Age***
    ***Position***William
      Chi Hung Tsang
    43
    Chairman,
      Director and PresidentZeliang
      Chen
    39
    Vice
      Chairman and DirectorJohn
      H.W. Hui
    46
    Vice
      Chairman, Chief Executive Office and DirectorChi
      Ming Chan
    43
    General
      Manager and DirectorChao
      Ming Luo
    54
    DirectorBernard
      K. Chan
    41
    Chief
      Financial OfficerYe
      Xin Long
    59
    Independent
      DirectorHamid
      R. Seyedin
    53
    Independent
      DirectorSamuel
      Yung
    46
    Independent
      DirectorChi
      Kin Ho
    35
    Independent
      Director





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****


**Backgrounds
of Directors**





*Executive
Directors*





Mr.
William Chi Hung Tsang, aged 43, is the President and Chairman of the Board of
Directors of China World Trade Corporation. Mr. Tsang has more than 15 years of
experience in leatherwear manufacturing and property investment. Prior to
joining the Company, he was an executive director with a listed company for over
10 years. He is a member of the Beijing Municipal Committee of the Chinese
People’s Political Consultative Conference; committee member of Chinese General
Chamber of Commerce, Hong Kong; vice chairman of Hong Kong United Youth
Association Limited; chief president of New Territories Commercial &
Industrial General Association Ltd.; and vice chairman of both Hong Kong Chamber
of Commerce in China - Guangdong and Guangzhou Federation of Industry &
Commerce. He is also an honorary president of North-East Overseas Chinese
Friendship Association U.S.A., and an honorable citizen of
Guangzhou.





Mr.
Zeliang Chen, aged 39, is the Vice Chairman and Director of the Company. Mr.
Chen graduated with honors from Renmin University of China with a Bachelor of
Law. He is the founder of Guangdong Hua Hao Group of Companies and is a
committee member of the Private Enterprise Council of Guangdong Province. Mr.
Chen now is a Chief Executive Officer and Chairman of Guangdong New Generation
Travel Service Co., Ltd., Director of Guangdong Hauhao Industries Group of
Companies, Director and Vice Chairman of China World Trade
Corporation.





Mr. John
H.W. Hui, aged 46, is the Vice Chairman of the Board of Directors and Chief
Executive Officer of the Company. Mr. Hui has over 10 years experience in China
trade and investment. He is responsible for the overall corporate development of
the Company. Mr. Hui is also the President of Beijing World Trade Center Club
and Guangzhou World Trade Center Club. He has excellent relationships with the
China partners and the principals of the World Trade Center Association in New
York and other WTCs around the world. Mr. Hui is a current member of the Canada
Business Council Beijing, and American Chamber of Commerce,
Guangdong.





Mr. Chi
Ming Chan, aged 43, is a Director and General Manager of the Company. Mr. Chan
is responsible for the strategic planning, corporate development and project
implementation of the Company. Before joining us, Mr. Chan was a Corporate
Development Strategist for Renren Holding Ltd., a publicly listed company on the
Hong Kong Stock Exchange. Mr. Chan founded Asian Information Resources (Holding)
Ltd. in 1995, which eventually listed on the Hong Kong Stock Exchange in 1999. A
specialist in Chinese law and China affairs, Mr. Chan is an expert in
networking, Internet technology, database technology and management of technical
resources. He developed an electronic database system for the Law-on-Line
project of the University of Hong Kong and has provided technical consultancy to
this project since 1991. He has also developed the Dongguan Network, which has
become a successful model for other cities in China. He was appointed by the
Asian Development Bank (ADB) as a consultant for the TA Project No. 2702 - Study
on PRC Legal Information System and the Electronic Data Expert for the TA
project No. 3000. Mr. Chan holds a Master of Law degree from Lancaster
University, the United Kingdom, a Master of Philosophy degree in Physics and
Bachelor Degree in Physics both from the Chinese University of Hong
Kong.





Mr. Chao
Ming Luo, aged 54, is a Director of the Company. Mr. Luo has long-term
collaborative relations with Hong Kong business circles and associations. He was
employed at the Xinhua News Agency Hong Kong from 1983 to 1996; he then joined
the Xinhua News Agency Hong Kong Branch Guangzhou Representative Office in 1996
before joining the Company. He is the Chief Council Member of Guangdong Overseas
Friendship Association, and Council Member of Guangzhou Overseas Friendship
Association. Mr. Luo worked as the Electric Design Technician in Guangzhou
Design Institute and the Assistant of Electric Technology Specialty, Electric
Engineering Department in Guangdong University of Technology.





53
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**


*Independent
Directors and Members of Audit Committee*





Mr. Ye
Xin Long, aged 59, is an Independent Director of the Company. Mr. Ye has over 35
years of experience doing business in China and investing in Chinese
enterprises. He has an excellent relationship with the Beijing Municipal
Government and the Guangzhou Municipal Government.





Mr. Hamid
R. Seyedin, aged 53, is an Independent Director and a member of the audit
committee of the Company. Mr. Seyedin is the CEO of First Washington Group and
President of the American Chamber of Commerce in Guangdong. Under his leadership
since 2003, the American Chamber of Commerce in Guangdong has grown by more than
83% in membership and 300% in revenues. In 1991, former U.S. President George
Bush recognized him in writing for his involvement with the passage of the Fast
Track Procedures for the North American Free Trade Agreement (NAFTA). Appointed
by three governors of the State of Maryland to four terms of office, he served
as the Chairman of Montgomery College and State Chairman of the Maryland
Association of Community Colleges representing all seventeen colleges in the
State. He served on the Board of Directors of the Kennedy Institute, by
appointment of Cardinal James A. Hickey (then Archbishop of Washington). He was
a recipient of an award in business from the U.S. Department of Commerce. He
received recognition from the U.S. Senate Sergeant At Arms for his service to
the U.S. Senate Deliberations. Finally, he served two terms on the Maryland
Advisory Committee of the U.S. Civil Rights Commission.





Mr.
Samuel Yung, aged 46, is an Independent Director and a member of the audit
committee of China World Trade Corporation. Mr. Yung is a Senior District
Director of American International Assurance Co. (Bermuda) Ltd., a member
company of American International Group, Inc. He was the President of The Life
Underwriters Association of Hong Kong in 1991, President of the General Agents
and Managers Association of Hong Kong in 1996, and Advisory Board Chairman of
the General Agents & Managers Association International between 1997 and
1999. Mr. Yung has also participated in numerous community services and served
as council member for a number of government committees. In addition, he also
serves as advisor to many educational associations. Mr. Yung is a Certified
Financial Planner CM , a
Chartered Insurance Agency Manager, a Registered Financial Consultant, a
Certified Manager of Financial Advisor, and a Chartered Financial
Practitioner.





Mr. Chi
Kin Ho, aged 35, is an Independent Director and a member of the audit committee
of the Company. Mr. Ho is a principal of CCP C.P.A. Limited of Hong Kong, an
accounting firm focusing on providing statutory audit service. Mr. Ho is a U.S.
Certified Public Accountant, a member of AICPA, and associate member of Hong
Kong Accounting Association. He has over ten years of experience in both U.S.
and China in the area of financial accounting, U.S. taxation and reporting, as
well as management advisory. Mr. Ho earned his Bachelor of Business
Administration Degree from Hawaii Pacific University.





*Officers*





Mr.
Bernard K. Chan, aged 41, is the Chief Financial Officer of the Company. He
oversees M&A and financial projects of China World Trade Corporation. Mr.
Chan has over 15 years of experience in the areas of financial advisory, direct
private investments and corporate finance. He was a Managing Partner of a local
corporate finance firm concentrating on providing advisory of U.S. listing and
capital raising. Prior to that, Mr. Chan was a member of senior management for
several listed companies in Hong Kong and the largest private landowner in
Hawaii, focusing on direct investments and assets management. He is also a
Registered Investment Advisor. Mr. Chan earned his Master of Business
Administration Degree in International Management and Investment Finance, Master
of Science Degree in Applied Econometrics, and Bachelor of Business
Administration Degree in Investment Finance, all from the University of
Hawaii.





54
 *Table of Contents*





There are
no familial relationships between our officers and directors.





**Code
of Ethics**





The
Company is presently working with its legal counsel to prepare and adopt a code
of ethics that applies to the Company’s principal chief executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions (the "Code of Ethics"). A draft of the Code
of Ethics is attached hereto as Exhibit
14.1 . The
Code of Ethics is being designed with the intent to deter wrongdoing, and to
promote the following:





·
    Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships




·
    Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that a small business issuer files with, or submits to, the
      Commission and in other public communications made by the small business
      issuer




·
    Compliance
      with applicable governmental laws, rules and
regulations




·
    The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code




·
    Accountability
      for adherence to the code





**Section
16(a) Beneficial Ownership Reporting Compliance**





Under
Section 16(a) of the Exchange Act, all executive officers, directors, and each
person who is the beneficial owner of more than 10% of the common stock of a
company that files reports pursuant to Section 12 of the Exchange Act, are
required to report the ownership of such common stock, options, and stock
appreciation rights (other than certain cash-only rights) and any changes in
that ownership with the Commission. Specific due dates for these reports have
been established, and the Company is required to report, in this Form 10-KSB,
any failure to comply therewith during the fiscal year ended December 2004. The
Company believes that all of these filing requirements were satisfied by its
executive officers, directors and by the beneficial owners of more than 10% of
the Company’s common stock. In making this statement, the Company has relied
solely on copies of any reporting forms received by it, and upon any written
representations received from reporting persons that no Form 5 (Annual Statement
of Changes in Beneficial Ownership) was required to be filed under applicable
rules of the Commission.





**Item 10.**  **Executive
Compensation**





No
compensation in excess of $100,000 was awarded to, earned by, or paid to any
executive officer of China World Trade during the years 2004, 2003 and 2002,
except as described below. The following table and the accompanying notes
provide summary information for each of the last three fiscal years concerning
cash and non-cash compensation paid or accrued by our chief executive officer
and other executive officers earning in excess of $100,000 for the past three
years.





55
 *Table of Contents*





SUMMARY
COMPENSATION TABLE




Name
      of officer
    Year
    Salary
    Bonus
    Other
      Annual Compen-sation
    Restricted
      StockAward(s)
    Securities
      Underlying OptionsSARs(#)
    LTIP
      payouts
    All
      Other Compen-
      SationJohn
      Hui, CEO
    2004
    57,692
    -
    -
    206,347
    -
    -
    -John
      Hui, CEO
    2003
    147,436
    -
    -
    -
    -
    -
    -John
      Hui, CEO
    2002
    140,321
    -
    -
    -
    -
    -
    -William
      Chi Hung Tsang, Chairman & Director
    2004
    57,692
    
    
    733,680William
      Chi Hung Tsang, Chairman & Director
    2003
    141,026
    -
    -
    -
    -
    -
    -C.
      M. Chan, Director
    2004
    -
    -
    -
    198,705
    -
    -
    -C.M.
      Chan, Director
    2003
    30,769
    -
    -
    -
    -
    -
    -Luo
      Chaoming, Director
    2004
    17,396
    -
    -
    99,362
    -
    -
    -Bernard
      Chan, CFO
    2004
    -
    -
    -
    218,399
    -
    -
    -








Compensation
of Directors





In 2001,
China World Trade committed itself to compensate each of its Board of Directors
with 2,000 shares of its common stock per annum. Board members typically meet on
a bi-monthly basis.





2003
Non-Qualified Stock Compensation Plan





The
following table sets forth information about our 2003 Non-Qualified Stock
Compensation Plan adopted by our Board of Directors and filed with the
Commission as Exhibit 10.1 to our Registration Statement on Form S-8 on October
28, 2003.





Shares
      remaining available for future issuance
    Shares
      issuable upon exercise of options to be granted in the
      future
    Weighted
      average exercise price of outstanding options638,184
    452,500
    $0.673





Pursuant
to the 2003 plan, we registered 2,000,000 shares of common stock and 1,000,000
options to purchase shares of common stock at $0.673 per share, for a total
registration for issuance of 3,000,000 shares of common stock. The Compensation
Committee of the Board of Directors will issue common stock and award options to
employees, directors, officers, consultants, advisors and other persons
associated with our company. The 2003 plan is intended to provide a method
whereby our company may be stimulated by the personal involvement of our
employees, directors, officers, consultants, advisors and other persons in our
business and reward such involvement, thereby advancing the interests of our
company and all of its shareholders.





As of the
date of this report, a total of 1,503,000 shares of common stock were issued to
consultants and 985,000 options were issued to our management pursuant to our
2003 Non-Qualified Stock Compensation Plan.





56
 *Table of Contents*




**Item 11.**
    **Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





The
following table sets forth the number of shares of common stock beneficially
owned as of December 31, 2004 by (i) those persons or groups known to us who
will beneficially own more than 5% of our common stock; (ii) each Director and
director nominee; (iii) each executive officer whose compensation exceeded
$100,000 in the fiscal year ended December 31, 2004; and, (iv) all directors and
executive officers as a group. The information is determined in accordance with
Rule 13d-3 promulgated under the Exchange Act based upon information furnished
by persons listed or contained in filings made by them with the Securities and
Exchange Commission and upon information provided by such persons directly to
us. Except as indicated below, the stockholders listed possess sole voting and
investment power with respect to their shares.





Name/Address
    Number
      of Shares
    Percentage
      Ownership(1)William
      Chi Hung Tsang
      Room
      1217, The Metropolis Tower, 10 Metropolis Drive, Hunghom, Hong
      Kong
    17,105,948
    48.3%Powertronic
      Holdings Limited
      9
      Des Voeus Road West, 12thFloor, Hong Kong
    5,574,074
    15.8%Grand
      Perfection Limited
      15thFloor, Rihang Hotel, 198 Linhe Road West, Guangzhou, PRC
    2,040,619
    5.8%Bernard
      Chan
      65
      Cadogan Street, 2ndFloor, Kennedy Town, Hong Kong
    104,752
    **Chi
      Ming Chan
      138
      Tiyu Road East, 3rdFloor, Goldlion Digital Network Center, Guangzhou, PRC
    53,272
    **Chao
      Ming Luo
      138
      Tiyu Road East, 3rdFloor, Goldlion Digital Network Center, Guangzhou, PRC
    26,636
    **John
      Hui
      7040
      Granville Avenue, Suite 403, Richmond B.C. Canada
    55,321
    **All
      Officers and Directors as a Group (6 persons)
    19,386,548
    54.8%





** Less
than 1%





(1)  Based on
35,389,997 shares outstanding as of December 31, 2004 (including 4,500,000
shares of common stock issuable on the exercise of outstanding
warrants).





57
 *Table of Contents*


****


**Item 12.**  **Certain
Relationships and Related Transactions**





The
Company entered into a acquisition agreement (the "Acquisition Agreement") dated
November 19, 2003, with Mr. William Chi Hung Tsang ("Mr. Tsang"), the owner of
the 21st to 23rd Floor of Goldlion Digital Network Center, 138 Tiyu Road,
Tianhe, Guangzhou 510620, the PRC (the "Premises"). Mr. Tsang assigned to the
company rents and other consideration valued at $1,800,000. Mr. Tsang was issued
3,000,000 common shares and warrants to purchase an additional 6,000,000 common
shares (the “Warrants") for US$1,800,000 (US$0.60 per common share). The
Warrants may be exercised between December 5, 2003 and December 1, 2005 at an
exercise price of US$0.75 per common share.





By a
Settlement Agreement dated December 5, 2003, the Company converted US$456,661.73
that was previously advanced by Mr. Tsang into 761,103 common shares of the
Company. In the quarter ended December 31, 2003, a personal guarantee was
granted from Mr. Tsang in the amount of $19, 231. As a result of these
transactions, Mr. Tsang will beneficially own 48.3% of the common shares of the
Company, assuming exercise of all of his warrants.





The
Company entered into several consulting agreements. On December 9, 2003, the
Company issued 100,000 and 50,000 shares to Greentree Financial Group, Inc. and
RR Inv Holding Inc., respectively. On December 11, 2003, the Company issued
500,000 shares each to TMT Consultant and Mr. Andy Lau for consultancy services
provided. On December 16, 2003, the Company issued 100,000 shares to Wall Street
Strategies, Inc. for consultancy services provided.





The
Company entered into a relationship with respect to rent and related expenses
with Guangzhou Goldlion City Properties Co., Ltd. and Guangzhou Cyber Strategy
Limited in the approximate amount of $96,154, and Dimension Marketing Limited in
the amount of $80,645. These amounts have been classified as current
liabilities.





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





**Item 13.**  **Exhibits
and Reports on Form 8-K**





(a)  Exhibits . The
exhibit list required by Item 13 of Form 10-KSB is provided in the " Index
to Exhibits " located
herein, immediately following Item 15.





(b)  Reports
on Form 8-K Filed in Last Quarter of Fiscal Year 2004





(1)   On August
13, 2004, the Company filed a Form 8-K in order to publish its unaudited pro
forma financial statements reflecting a transaction closing on August 2,
2004.





(2)
    On
      November 8, 2004, the Company filed a Form 8-K in order to report the new
      appointment of a president and vice-chairman and the election of new
      directors.





(3)
    On
      November 22, 2004, the Company filed a Form 8-K in order to report that
      the Company entered into a Standby Equity Distribution Agreement and a
      Registration Rights Agreement, with US-based investment fund, Cornell
      Capital Partners LP for $30.0 million.





(4)
    On
      December 9, 2004, the Company filed a Form 8-K regarding an unregistered
      sale of equity securities.





(5)
    On
      January 5, 2005, the Company filed a Form 8-K in order to report an
      Agreement for Sale and Purchase of real estate, dated December 30, 2004,
      between General Business Network (Holdings) Limited, a wholly-owned
      subsidiary of the Company, and Guangzhou Goldlion Environmental Technology
      Company Ltd.





(6)
    On
      January 24, 2005, the Company filed a Form 8-K in order to report a
      Complaint, dated December 10, 2004.





58
 *Table of Contents*


****


**Item 14.**  **Principal
Accountant Fees and Services**





**Fees
Billed For Audit and Non-Audit Services**





The
following table represents the aggregate fees billed for professional audit
services rendered to accounting firm of Moores Rowland Mazars, our current
independent auditor, ("Moores") for the audit of the Company's annual financial
statements for the years ended December 31, 2004 and unaudited twelve-month
period ended December 31, 2003, and all fees billed for other services rendered
by Moores during those periods.





Year
      Ended December 31
    
    2004
    
    2003Audit
      Fees(1)
    
    
    84,948
    
    
    40,827Audit-Related
      Fees (acquisition audit fee of New Generation)(2)
    
    
    64,103
    
    
    -Tax
      Fees(3)
    
    
    513
    
    
    -All
      Other Fees(4)
    
    
    -
    
    
    -Total
      Accounting Fees and Services
    
    
    149,564
    
    
    40,827







(1)
    *Audit
      Fees*.These
      are fees for professional services for the audit of the Company's annual
      financial statements, and for the review of the financial statements
      included in the Company's filings on Form 10-QSB, and for services that
      are normally provided in connection with statutory and regulatory filings
      or engagements.




(2)
    *Audit-Related
      Fees*.
      These are fees for the assurance and related services reasonably related
      to the performance of the audit or the review of the Company's financial
      statements.




(3)
    *Tax
      Fees*.
      These are fees for professional services with respect to tax compliance,
      tax advice, and tax planning.




(4)
    *All
      Other Fees*.
      These are fees for permissible work that does not fall within any of the
      other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
      Fees.





**Pre-Approval
Policy For Audit and Non-Audit Services**





The
Company does not have a standing audit committee, and the full Board performs
all functions of an audit committee, including the pre-approval of all audit and
non-audit services before the Company engages an accountant. All of the services
rendered to the Company by accounting firm of Moores Rowland Mazars after May
2003 were pre-approved by the Board of Directors of the Company.





The
Company is presently working with its legal counsel to establish formal
pre-approval policies and procedures for future engagements of the Company's
accountants. The new policies and procedures will be detailed as to the
particular service, will require that the Board or an audit committee thereof be
informed of each service, and will prohibit the delegation of pre-approval
responsibilities to management. It is currently anticipated that the Company's
new policy will provide (i) for an annual pre-approval, by the Board or audit
committee, of all audit, audit-related and non-audit services proposed to be
rendered by the independent auditor for the fiscal year, as specifically
described in the auditor's engagement letter, and (ii) that additional
engagements of the auditor, which were not approved in the annual pre-approval
process, and engagements that are anticipated to exceed previously approved
thresholds, will be presented on a case-by-case basis, by the President or
Controller, for pre-approval by the Board or audit committee, before management
engages the auditors for any such purposes. The new policy and procedures may
authorize the Board or audit committee to delegate, to one or more of its
members, the authority to pre-approve certain permitted services, *provided
that* the
estimated fee for any such service does not exceed a specified dollar amount (to
be determined). All pre-approvals shall be contingent on a finding, by the
Board, audit committee, or delegate, as the case may be, that the provision of
the proposed services is compatible with the maintenance of the auditor's
independence in the conduct of its auditing functions. In no event shall any
non-audit related service be approved that would result in the independent
auditor no longer being considered independent under the applicable rules and
regulations of the Securities and Exchange Commission.




59
 *Table of Contents*





**INDEX TO EXHIBITS**





The
following exhibits are filed as part of this report:








ExhibitNumber
    Description14.1
    Code of Ethics *31.1
    Rule 13a-14(a)/15d-14(a) Certifications of John H.W.
      Hui, Vice Chairman and CEO *31.2
    Rule 13a-14(a)/15d-14(a) Certifications of Bernard Chan,
      Chief Financial Officer *32.1
    Section 1350 Certifications of John H.W. Hui, Vice
      Chairman and CEO *32.2
    Section 1350 Certifications of Bernard Chan, Chief
      Financial Officer *




*  Filed
herewith.




60
 *Table of Contents*





**SIGNATURES**





In
accordance with the 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.





Date:
April 14, 2005





CHINA
      WORLD TRADE CORPORATIONBy:
    /s/
      John H.W. HuiJohn
      H.W. Hui, Chief Executive Officer





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





Signature
    Title
    Date/s/
      John H.W. Hui
    Chief
      Executive Officer
    April
      14, 2005John
      H.W. Hui
    Vice
      Chairman/s/
      Bernard Chan
    Chief
      Financial Officer
    April
      14, 2005Bernard
      Chan





Pursuant
to the requirements of the Exchange Act, this report has been signed by the
following persons in the capacities and on the date indicated.





Signature
    Title
    Date/s/
      William C.H. Tsang
    Chairman
      and Director
    April
      14, 2005William
      C.H. Tsang/s/
      John H.W. Hui
    Chief
      Executive Officer
    April
      14, 2005John
      H.W. Hui
    Vice
      Chairman and Director/s/
      Zeliang Chen
    Vice
      Chairman and Director
    April
      14, 2005Zeliang
      Chen/s/
      Chi Ming Chan
    General
      manager
    April
      14, 2005Chi
      Ming Chan
    and
      Director/s/
      Chao Ming Luo
    Director
    April
      14, 2005Chao
      Ming Luo







61
 *Table of Contents*




**Report
of Independent Registered Public Accounting Firm**








To the
Board of Directors and Shareholders of


**China
World Trade Corporation**








We have
audited the accompanying consolidated balance sheet of China World Trade
Corporation (a Nevada corporation) and its subsidiaries as of December 31, 2004
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years ended December 31, 2004 and September 30, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of China World
Trade Corporation and its subsidiaries as of December 31, 2004 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2004 and September 30, 2003 in conformity with generally
accepted accounting principles in the United States.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3(b) to the financial
statements, the Company has suffered losses from operations during the year and
has a negative working capital that raise substantial doubt about its ability to
continue as a going concern. Management’s plans in regard to these matters are
also described in Note 3(b). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.











/s/
MOORES ROWLAND MAZARS





*Chartered
Accountants*


*Certified
Public Accountants*


Hong
Kong





Date:
April 14, 2004





62
 *Table of Contents*





**China
      World Trade Corporation**
      
      **Consolidated Balance
Sheet**





**As
      of**
      **December
      31,**
      **2004****ASSETS**
      ****
    
    
    **Note**
      ****
    
    **
    **
      *US$***Current
      assets**Cash
      and cash equivalents
    
    
    
    
    
    **1,824,268**Trade
      and other receivables
    
    
    *6*
    
    
    **2,743,798**Rental
      and other deposits
    
    
    *7*
    
    
    **1,702,856**Prepayments
    
    
    
    
    
    **63,007**Inventories
    
    
    *8*
    
    
    **171,020**Short-term
      investments
    
    
    *9*
    
    
    **24,163*****Total
      current assets***
    
    
    
    
    
    **6,529,112***Intangible
      asset*
    
    
    *10*
    
    
    **1,410,000***Property
      use rights*
    
    
    *11*
    
    
    **1,576,639***Goodwill*
    
    
    *12*
    
    
    **11,279,314***Property,
      plant and equipment, net*
    
    
    *13*
    
    
    **3,310,791*****Total
      assets***
    
    
    
    
    
    **24,105,856****LIABILITIES
      AND SHAREHOLDERS' EQUITY****Current
      liabilities**Trade
      and other payables
    
    
    *14*
    
    
    **6,425,786**Deferred
      income
    
    
    
    
    
    **26,723**Short-term
      bank loan
    
    
    *15*
    
    
    **1,812,229**Mortgage
      loan
    
    
    *16*
    
    
    **448,418****Total
      current liabilities**
    
    
    
    
    
    **8,713,156**Due
      to a shareholder
    
    
    *19(e*
    *)*
    
    **320,536****Total
      liabilities**
    
    
    
    
    
    **9,033,692****Minority
      interest**
    
    
    
    
    
    **2,143,897****Commitments
      and contingencies**
    
    
    *20*
    
    
    **-****Shareholders'
      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, 30,889,997 shares issued and outstanding as of December
      31, 2004
    
    
    *22*
    
    
    **30,890**Additional
      paid-in capital
    
    
    
    
    
    **30,817,729**Statutory
      reserves
    
    
    *25*
    
    
    **44,403**Accumulated
      deficit
    
    
    
    
    
    **(17,964,755**
    **)****Total
      shareholders’ equity**
    
    
    
    
    
    **12,928,267****Total
      liabilities and shareholders’ equity**
    
    
    
    
    
    **24,105,856**
  The
      accompanying notes are an integral part of these financial
      statements.


63
 *Table of Contents*


**China
      World Trade Corporation**
      
      **Consolidated
      Statements of Operations**




**Year
      ended**
      **December
      31,**
    
    Year
      ended September 30,**2004**
    
    2003**Note**
    
    ***US$***
    
    *US$***Operating
      revenues**
    
    
    *3(e*******
    *****)***Club
      and business centre
    
    
    
    
    
    **551,497**
    
    
    1,718,854Business
      traveling services
    
    
    
    
    
    **1,671,605**
    
    
    -Business
      value-added services
    
    
    
    
    
    **40,695**
    
    
    288,462Rental
    
    
    
    
    
    **701,284**
    
    
    47,189Trading
      and others
    
    
    
    
    
    **127,663**
    
    
    831,095**3,092,744**
    
    
    2,885,600**Operating
      costs and expenses**Club
      and business centre
    
    
    
    
    
    **(91,415**
    **)**
    
    (450,002
    )Business
      traveling services
    
    
    
    
    
    **(112,588**
    **)**
    
    -Business
      value-added services
    
    
    
    
    
    **(1,841**
    **)**
    
    -Rental
    
    
    
    
    
    **(403,735**
    **)**
    
    -Trading
      and others
    
    
    
    
    
    **(120,224**
    **)**
    
    (763,167
    )**(729,803**
    **)**
    
    (1,213,169
    )**Other
      expenses**Depreciation
    
    
    
    
    
    **(233,298**
    **)**
    
    (79,303
    )Impairment
      losses on intangible assets
    
    
    *10*
    
    
    **(222,676**
    **)**
    
    -Impairment
      loss on goodwill
    
    
    *12*
    
    
    **(388,118**
    **)**
    
    -Impairment
      of property, plant and equipment
    
    
    *13*
    
    
    **(594,343**
    **)**
    
    (106,975
    )Selling,
      general and administrative expenses
    
    
    
    
    
    **(8,133,140**
    **)**
    
    (3,767,788
    )**(9,571,575**
    **)**
    
    (3,954,066
    )**Loss
      from operations**
    
    
    
    
    
    **(7,208,634**
    **)**
    
    (2,281,635
    )**Non-operating
      income (expense)**Other
      income
    
    
    
    
    
    **140,014**
    
    
    2,490Interest
      expense
    
    
    
    
    
    **(65,909**
    **)**
    
    (14,811
    )Equity
      in net loss of affiliate
    
    
    
    
    
    **-**
    
    
    (32,051
    )**Loss
      before income taxes and minority interests**
    
    
    
    
    
    **(7,134,529**
    **)**
    
    (2,326,007
    )Income
      taxes expense
    
    
    *5*
    
    
    **(46,553**
    **)**
    
    -**Loss
      before minority interests**
    
    
    
    
    
    **(7,181,082**
    **)**
    
    (2,326,007
    )Minority
      interests
    
    
    
    
    
    **(413,311**
    **)**
    
    120,471**Net
      loss**
    
    
    
    
    
    **(7,594,393**
    **)**
    
    (2,205,536
    )**Loss
      per share**
      -
      Basic and diluted
    
    
    *3(s*
    *)*
    
    **(0.36**
    **)**
    
    (0.23
    )Weighted
      average number of shares used in calculating basic loss per
      share
    
    
    
    
    
    **21,102,405**
    
    
    9,699,264
   The
      accompanying notes are an integral part of these financial
      statements.


64
 *Table of Contents*




**China
      World Trade Corporation**
      
      **Consolidated
      Statements of Shareholders' Equity**




**Common
      stock***No.
      of*
      *shares*
    
    **Amount**
      **issued**
    
    **Amount**
      **to
      be**
      **issued**
    
    **Additional**
      **paid
      in**
      **capital**
    
    **Statutory**
      **reserves**
    
    **Accumulated**
      **deficit****US$**
    
    *US$*
    
    *US$*
    
    *US$*
    
    *US$*Balanceas
      of October 1, 2002
    
    
    6,970,497
    
    
    971
    
    
    6,000
    
    
    6,810,207
    
    
    -
    
    
    (7,190,979
    )Cancellation
      of stock issued for services on October 1, 2002
    
    
    (1,000,000
    )
    
    -
    
    
    (1,000
    )
    
    (8,999
    )
    
    -
    
    
    -Issuance
      of common stock to be issued on January 22, 2003
    
    
    -
    
    
    5,000
    
    
    (5,000
    )
    
    300,000
    
    
    -
    
    
    -Common
      stock issued for acquisition of a subsidiary on January 24,
      2003
    
    
    4,000,000
    
    
    4,000
    
    
    -
    
    
    3,196,000
    
    
    -
    
    
    -Issuance
      of common stock for cash and services on January 24, 2003
    
    
    1,000,000
    
    
    1,000
    
    
    -
    
    
    799,000
    
    
    -
    
    
    -Net
      loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,205,536
    )Balance
      as of September 30, 2003
    
    
    10,970,497
    
    
    10,971
    
    
    -
    
    
    11,096,208
    
    
    -
    
    
    (9,396,515
    )






The
      accompanying notes are an integral part of these financial
      statements.




65
 *Table of Contents*


**China
      World Trade Corporation**
      
      **Consolidated
      Statements of Shareholders'
Equity**




**Common
      stock**No.
      of shares
    
    ***Amount***
      ***issued***
    
    **Additional**
      **paid
      in**
      **capital**
    
    **Statutory**
      **reserves**
    
    **Accumulated**
      **deficit***Note*
    
    
    
    US$
    
    *US$*
    
    *US$*
    
    *US$*Balance
      as of January 1, 2004
    
    
    
    
    
    15,981,601
    
    
    15,982
    
    
    14,347,859
    
    
    -
    
    
    (10,325,959
    )Common
      stock issued in exchange for services in February 2004
    
    
    22I-(e
    )
    
    244,000
    
    
    244
    
    
    374,956
    
    
    -
    
    
    -Exercise
      of warrants on March 22, 2004
    
    
    22(b
    )
    
    1,500,000
    
    
    1,500
    
    
    1,123,500
    
    
    -
    
    
    -Option
      issued in exchange for services on February 27, 2004
    
    
    23(b
    )
    
    -
    
    
    -
    
    
    311,200
    
    
    -
    
    
    -Common
      stock issued in exchange for services on May 7, 2004
    
    
    22(f
    )
    
    24,027
    
    
    24
    
    
    99,976
    
    
    -
    
    
    -Common
      stock issued as consideration for acquisition of a subsidiary on May 7,
      2004
    
    
    22(g
    )
    
    80,000
    
    
    80
    
    
    239,920
    
    
    -
    
    
    -Common
      stock issue in exchange for service on July 12, 2004
    
    
    22(h
    )
    
    50,500
    
    
    51
    
    
    160,149
    
    
    -
    
    
    -Exercise
      of warrants on July 20, 2004
    
    
    22(a
    )
    
    2,000,000
    
    
    2,000
    
    
    1,148,000
    
    
    -
    
    
    -Exercise
      of warrants on July 20, 2004
    
    
    22(b
    )
    
    1,500,000
    
    
    1,500
    
    
    1,378,500
    
    
    -
    
    
    -Common
      stock issued as consideration for acquisition of a subsidiary on July 30,
      2004
    
    
    22(i
    )
    
    4,081,238
    
    
    4,081
    
    
    7,459,687
    
    
    -
    
    
    -Common
      stock issued as a compensation for termination of a
    contract
    
    
    22(j
    )
    
    2,000
    
    
    2
    
    
    4,998
    
    
    -
    
    
    -Common
      stock issued upon 1stprivate placement
    
    
    23
    
    
    433,333
    
    
    433
    
    
    649,567
    
    
    -
    
    
    -Modification
      of The 2003 Plan
    
    
    3(g
    )
    
    -
    
    
    -
    
    
    645,718
    
    
    -
    
    
    -Exercise
      of options of The 2003 Plan
    
    
    22(k
    )
    
    370,857
    
    
    371
    
    
    -
    
    
    -
    
    
    -Exercise
      of options for services
    
    
    23(b
    )
    
    58,552
    
    
    58
    
    
    -
    
    
    -
    
    
    -Common
      stock issued in exchange for placement agent services
    
    
    23
    
    
    375,000
    
    
    375
    
    
    862,125
    
    
    -
    
    
    -Warrant
      issued in exchange for placement agent services
    
    
    23
    
    
    -
    
    
    -
    
    
    288,427
    
    
    -
    
    
    -Common
      stock issued upon 2ndprivate placement
    
    
    23
    
    
    966,667
    
    
    967
    
    
    1,449,034
    
    
    -
    
    
    -Warrant
      issued for waiver of sole registrants
    
    
    23
    
    
    -
    
    
    -
    
    
    277,335
    
    
    -
    
    
    -Exercise
      of warrants on December 15, 2004
    
    
    22(a
    )
    
    1,574,074
    
    
    1,574
    
    
    (1,574
    )
    
    -
    
    
    -Exercise
      of warrants on December 15, 2004
    
    
    22(b
    )
    
    1,648,148
    
    
    1,648
    
    
    (1,648
    )
    
    -
    
    
    -Net
      loss
    
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (7,594,393
    )Transfer
      to statutory reserves
    
    
    25
    
    
    -
    
    
    -
    
    
    -
    
    
    44,403
    
    
    (44,403
    )**Balance
      as of December 31, 2004**
    
    
    
    
    
    **30,889,997**
    
    
    **30,890**
    
    
    **30,817,729**
    
    
    **44,403**
    
    
    **(17,964,755**
    **)**




The
      accompanying notes are an integral part of these financial
      statements.




66
 *Table of Contents*




**China
      World Trade Corporation**
      
      **Consolidated
      Statements of Cash Flows**




**Year
      ended**
      **December
      31,**
    
    Year
      ended September 30,**2004**
    
    2003***Note***
    
    ***US$***
    
    *US$***Cash
      flows from operating activities:**Net
      loss
    
    
    
    
    
    **(7,594,393**
    **)**
    
    (2,205,536
    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Minority
      interest
    
    
    
    
    
    **413,311**
    
    
    (120,471
    )Amortization
      on intangible asset
    
    
    
    
    
    **360,000**
    
    
    -Equity
      in net loss of affiliate
    
    
    
    
    
    **-**
    
    
    32,051Depreciation
    
    
    
    
    
    **233,298**
    
    
    79,303Impairment
      loss on property, plant and equipment
    
    
    
    
    
    **594,343**
    
    
    106,975Impairment
      loss on goodwill
    
    
    
    
    
    **388,118**
    
    
    -Impairment
      loss on intangible assets
    
    
    
    
    
    **222,676**
    
    
    -Increase
      in deferred income
    
    
    
    
    
    **3,546**
    
    
    31,877Provision
      for bad debts due from related companies
    
    
    
    
    
    **236,247**
    
    
    -Stock,
      options and warrants issued for services
    
    
    
    
    
    **2,379,862**
    
    
    600,000Cashless
      exercise of option
    
    
    
    
    
    **429**
    
    
    -Staff
      compensation cost
    
    
    
    
    
    **645,718**
    
    
    -Changes
      in working capital:Trade
      and other receivables
    
    
    
    
    
    **4,361,173**
    
    
    (89,875
    )Rental
      and other deposits
    
    
    
    
    
    **(329,535**
    **)**
    
    (11,484
    )*Prepayments*
    
    
    
    
    
    **515,499**
    
    
    (23,299
    )Inventories
    
    
    
    
    
    **(97,637**
    **)**
    
    (289,564
    )Income
      taxes payable
    
    
    
    
    
    **37,400**
    
    
    -Trade
      and other payables
    
    
    
    
    
    **891**
    
    
    1,222,960**Net
      cash provided from (used in) operating activities**
    
    
    
    
    
    **2,370,946**
    
    
    (667,063
    )**Cash
      flows from investing activities:**Acquisition
      of a subsidiary
    
    
    
    
    
    **(3,301,464**
    **)**
    
    123,707Acquisition
      of an affiliate
    
    
    
    
    
    **-**
    
    
    (32,051
    )Acquisition
      of property, plant and equipment
    
    
    
    
    
    **(688,622**
    **)**
    
    (92,824
    )Acquisition
      of intangible assets
    
    
    
    
    
    **(1,576,639**
    **)**
    
    -**Net
      cash used in investing activities**
    
    
    
    
    
    **(5,566,725**
    **)**
    
    (1,168
    )**Cash
      flows from financing activities:**Capital
      contribution from minority shareholder of a subsidiary
    
    
    
    
    
    **-**
    
    
    106,225Proceeds
      from issuance of shares upon exercise of warrants
    
    
    
    
    
    **3,655,000**
    
    
    -Proceeds
      from issuance of shares upon private placements
    
    
    
    
    
    **2,100,001**
    
    
    -Advance
      from a shareholder
    
    
    
    
    
    **320,536**
    
    
    -Proceeds
      from new bank loan
    
    
    
    
    
    **604,076**
    
    
    812,820Repayment
      of amount borrowed
    
    
    
    
    
    **(1,974,337**
    **)**
    
    (10,482
    )**Net
      cash provided by financing activities**
    
    
    
    
    
    **4,705,276**
    
    
    908,563**Net
      increase in cash and cash equivalents**
    
    
    
    
    
    **1,509,497**
    
    
    240,332**Cash
      and cash equivalents at beginning of year**
    
    
    
    
    
    **314,771**
    
    
    32,888**Cash
      and cash equivalents at end of year**
    
    
    
    
    
    **1,824,268**
    
    
    273,220**Analysis
      of balances of cash and cash equivalents**Cash
      and bank balances
    
    
    
    
    
    **1,824,268**
    
    
    273,220**Supplemental
      disclosure information:**Interest
      paid
    
    
    
    
    
    **61,157**
    
    
    14,811Income
      taxes paid
    
    
    
    
    
    **9,153**
    
    
    **-****Non-cash
      investing and financing activities**Stocks,
      options and warrants issued for services
    
    
    
    
    
    **3,025,580**
    
    
    600,000Purchase
      of subsidiaries by:-
      issuance of common stock
    
    
    
    
    
    **7,706,383**
    
    
    3,200,000-
      purchase consideration in arrear
    
    
    
    
    
    **120,000**
    
    
    -




The
      accompanying notes are an integral part of these financial
      statements.
  
 67
 *Table of Contents*




**China
      World Trade Corporation**
      **Notes
      to Financial Statements**




**1.**  **ORGANIZATION
AND NATURE OF BUSINESS**




China
World Trade Corporation (“CWTC”) was incorporated under the laws of the State of
Nevada on January 29, 1998 as Weston International Development Corporation. On
July 28, 1998, the name was changed to Txon International Development
Corporation. On September 15, 2000 CWTC changed to its existing name. CWTC acts
as an investment holding company.





Details
of the major subsidiaries and their principal activities as of the date of this
report are summarized below:





**Name
      of company**
    **Date
      of acquisition/**
      **formation**
    **Place
      of  incorporation**
    **Equity
      interest owned by the Company**
    **Principal
      activities**Virtual
      Edge Limited
    August
      14, 2001
    BVI
    100%
    Investment
      holdingGeneral
      Business Network (Holdings) Limited
    January
      24, 2003
    Hong
      Kong
    100%
    Investment
      holding and properties investmentGuangzhou
      World Trade Centre Club
    December
      29, 2001
    PRC
    75%
    Club
      servicesPolysend
      Trading Limited
    March
      6, 2003
    Hong
      Kong
    100%
    Leather
      tradingBeijing
      World Trade Centre Club
    April
      1, 1999
    PRC
    75%
    Club
      servicesSino
      Platform Limited
    January
      4, 2004
    BVI
    100%
    Investment
      holdingWTC
      Link International Limited
    February
      4, 2004
    Hong
      Kong
    60%
    Investment
      holdingChina
      Chance Enterprises Limited
    January
      26, 2004
    BVI
    100%
    Investment
      holdingCEO
      Clubs China Limited
    May
      7, 2004
    Hong
      Kong
    51%
    LicensingGuangdong
      New Generation Commercial Management Limited
    August
      2, 2004
    PRC
    51%
    Travel
      ticketing agency and investment holding




68
 *Table of Contents*
 ****
 **China
World Trade Corporation**
 
 **Notes
to Financial Statements**








**1.**  **ORGANIZATION
AND NATURE OF BUSINESS (CONTINUED)**





**Name
      of company**
    **Date
      of acquisition/**
      
      **formation**
    **Place
      of incorporation**
    **Equity
      interest owned by the Company**
    **Principal
      activities**General
      Business Network (Guangzhou) Company Limited
    December
      25, 2002
    PRC
    100%
    Investment
      holding and property holdingGuangdong
      WTC Link Limited
    June
      21, 2004
    PRC
    60%
    Customer
      relationship managementGuangzhou
      Airport Tour Service Limited
    August
      2, 2004
    PRC
    25.6%
    Travel
      ticketing agencyGuangdong
      New Generation Commercial Tour Service Limited
    July
      29, 2004
    PRC
    25.6%
    Room
      booking services and travel ticketing agencyGuangzhou
      Xinyou Foreign Enterprise Services Limited
    May
      18, 2004
    PRC
    30.6%
    Garment
      tradingGuangzhou
      Hongyan Travel Services Limited
    July
      17, 2004
    PRC
    30.6%
    Travel
      ticketing agencyGuangdong
      Hauhao Insurance Agency Limited
    January
      15, 2002
    PRC
    31.6%
    Insurance
      agency







**2.**  **CHANGE
IN FINANCIAL YEAR**





Effective
for financial year 2004, the Company changed its financial year end from
September 30 to December 31 of each year. As a result of this change, the
consolidated statements of operations, consolidated statements of cash flows and
consolidated statements of shareholders’ equity are presented for the financial
year ended December 31, 2004 and September 30, 2003. In addition, the
consolidated balance sheet as of December 31, 2004 is presented.





69
 *Table of Contents*
 ****
 **China
World Trade Corporation**
 
 **Notes
to Financial Statements**




**2.**  **CHANGE
IN FINANCIAL YEAR (CONTINUED)**




****For
comparative purposes only, the following table presents the condensed results of
operations for the three-month periods ended December 31, 2003 and
2002:





Three-month
      period ended December31,
      2003
    
    Three-month
      period ended December31,
      2002*(Audited)*
    
    *(Unaudited)**US$*
    
    US$**Operating
      revenues**Club
      and business centre
    
    
    178,048
    
    
    413,405Business
      value-added services
    
    
    707,028
    
    
    96,154885,076
    
    
    509,559**Operating
      costs and expenses**Club
      and business centre
    
    
    (23,507
    )
    
    (108,702
    )Business
      value-added services
    
    
    (655,933
    )
    
    -(679,440
    )
    
    (108,702
    )**Other
      expenses**Depreciation
    
    
    (15,132
    )
    
    (1,681
    )Amortization
      of intangible assets
    
    
    (30,000
    )
    
    -Selling,
      general and administrative expenses
    
    
    (1,148,005
    )
    
    (780,576
    )(1,193,137
    )
    
    (782,257
    )**Loss
      from operations**
    
    
    (987,501
    )
    
    (381,400
    )**Non-operating
      income (expense)**Other
      income
    
    
    62,557
    
    
    40Interest
      expense
    
    
    (4,500
    )
    
    -**Loss
      before income taxes and minority interests**
    
    
    (929,444
    )
    
    (381,360
    )Income
      taxes expense
    
    
    -
    
    
    -**Loss
      before minority interests**
    
    
    (929,444
    )
    
    (381,360
    )Minority
      interests
    
    
    -
    
    
    79,949**Net
      loss**
    
    
    (929,444
    )
    
    (301,411
    )**Loss
      per share - Basic**
    
    
    (0.07
    )
    
    (0.05
    )Weighted
      average number of shares used in calculating basic loss per
      share
    
    
    12,640,865
    
    
    5,970,497





70
 *Table of Contents*
 ****
 **China
World Trade Corporation**
 
 **Notes
to Financial Statements**




**3.**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





**(a)**
    **Basis
      of accounting**


The
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States (“USGAAP”). The measurement basis
used in the preparation of the financial statements is historical cost.





**(b)**
    **Preparation
      of financial statements**


The
Company has a negative working capital of US$2,184,044 as of December 31, 2004.
In addition, the Company had net loss of US$7,594,393 and US$2,205,536 for the
years ended December 31, 2004 and September 30, 2003 respectively.





Continuation
      of the Company as a going concern is dependent upon obtaining additional
      working capital through additional equity funding and attaining profitable
      operations in the future. Management has developed a strategy, which it
      believes can be accomplished and will enable the Company to operate in the
      future. However, there can be no assurance that the Company will be
      successful with its efforts to attain profitable operations. Moreover the
      Company entered into agreements relating to private placements to obtain
      additional financing (see note 23). The inability of the Company to secure
      additional financing and attain profitable operations in the near term
      could adversely impact the Company’s business, financial position and
      prospects.





**(c)**
    **Principles
      of consolidation**


The
consolidated financial statements include the financial information of the
Company and its subsidiaries. The results of subsidiaries acquired or disposed
of during the year are consolidated from or up to the date of their effective
dates of acquisition or disposal respectively.





All
material intercompany balances and transactions have been eliminated on
consolidation.





**(d)**
    **Goodwill
      on consolidation**


Goodwill
represents the excess of the purchase consideration payable in acquisitions of
subsidiaries over the fair value of the net assets acquired at the time of
acquisition. Goodwill on consolidation is stated at cost when it arises. As part
of an ongoing review of the valuation of goodwill, management assesses the
carrying value of the goodwill to determine if changes in facts and
circumstances suggest that it may be impaired. If this review indicates that the
goodwill is not recoverable, the carrying value of the goodwill would be reduced
to its estimated fair market value.





On
disposal of a subsidiary, any attributable amount of purchased goodwill is
included in the calculation of the gain or loss on disposal.





71
 *Table of Contents*
 ****
 **China
World Trade Corporation**
 
 **Notes
to Financial Statements**




**3.**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)**




**(e)**
    **Revenue
      recognition**


**(i)**  **Club
and business centre**


*Business
club membership*


The
Company, through its Business Club, provides members a commercial and
recreational service, education programs and business networking programs. The
Company generally records membership revenue as deferred income on its
consolidated balance sheets and recognizes it over the membership period.
Revenues generated from memberships that are subject to a pro rata refund are
recognized ratably over the membership period.





**(ii)**  **Business
traveling services**


*Travel
distribution services*


The
Company engages in the air-ticketing, hotel room booking and travel agency
businesses and receives commissions from travel suppliers for air travel, hotel
rooms, vacation packages and cruises booked through its toll-free call center,
websites and reseller network. Commissions from travel providers are recognized
upon delivery of the appropriate confirmation or air ticket to the customers.
Commissions from hotel room booking are recognized upon the confirmation of a
customer’s stay with the hotel. The Company is not the primary obligor of the
arrangement of these services and revenue is reported net in accordance with
EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an
Agent.”





For
information purposes, the commission income of the Company was derived from
air-ticketing services with total values as follows:


**Year
      ended**
    
    Year
      ended**December
      31, 2004**
    
    September
      30, 2003**US$**
    
    US$Value
      of air-ticket fare
    
    
    
    **54,890,272**
    
    -




*Life
and accident insurance agency business*


The
Company engages in the life and accident insurance agency business in PRC.
Commission revenues from the carriers for life and accident insurance are
received and recognized during the underlying policy period.





For
information purposes, the commission income of the Company was derived from
insurance policies with total premium income as follows:


**Year
      ended**
    
    Year
      ended**December
      31, 2004**
    
    September
      30, 2003***US$***
    
    *US$*Premium
      income of insurance policies
    
    
    
    **2,489,675**
    
    -





72
 *Table of Contents*
 ****
 **China
World Trade Corporation**
 
 **Notes
to Financial Statements**




**3.**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




**(e)**
    **Revenue
      recognition (continued)**




**(iii)**  **Business
value-added services**




Revenues
from various business consultancy services contracts are recognized as services
are provided. There are two basic types of services contracts: (1) fixed price
(or flat fee basis) services contracts and (2) services contracts which may or
may not be signed in advance for similar service on a success basis (success fee
basis). Fixed price services contracts are generally performed evenly over the
contract period, and, accordingly, revenue is recognized on a pro-rata basis
over the life of the contract. Revenues derived from other services contracts
are recognized when the services are performed in accordance with Staff
Accounting Bulletin No. 104, "Revenue Recognition, revised and updated."
Expenses related to all services contracts are recognized as
incurred.




**(iv)**  **Rental**




*Leased
business facilities*




The
Company also leases business facilities to members of the Club. The lease
revenues are recognized based on the lease term of the facilities.




**(v)**
    **Trading
      and others**




*Sales
of goods*




The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements", when the title and risk of
loss have passed to the customer, there is persuasive evidence of an
arrangement, delivery has occurred or services have been rendered, the sales
price is determinable, and collectibility is reasonably assured.




**(f)**
    **Deferred
      income**




Deferred
income represents unamortized non-refundable admission fees membership fees and
licensing fee received but the related services, or portion of the services,
have not yet been rendered.




**(g)**
    **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.





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World Trade Corporation**
 
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to Financial Statements**




**3.**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




**(g)**
    **Stock-based
      compensation (continued)**




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 granted 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. 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)




By an
ordinary resolution passed at a directors’ meeting held on October 31, 2004, the
option holders of The 2003 Plan were allowed to begin exercising 50% of the
total entitlements as of November 1, 2004 (ahead of the original entitlement on
December 30, 2004) and on a cashless basis. The terms and conditions of the
remaining 50% of their entitlements under The 2003 Plan shall stay the
same.




As the
exercise price of the Company’s incentive stock options is higher than the
market price of the underlying stock on the date of grant, pursuant to APB
Opinion No. 25, no compensation expense has been recognized for stock options
granted to employees at the date of grant.





Following
modification the options granted under The 2003 Plan, the modified award (i.e.
50% of the total entitlements) was fully vested at October 31, 2004. The new
measurement of stock-based compensation was required and based on the intrinsic
value of the Company’s common stock at the date immediately prior to the
modification (i.e. October 31, 2004). The compensation cost was recognized in
the consolidated statement of operations and the same amount was credited to the
Company’s additional paid-in capital.





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World Trade Corporation**
 
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to Financial Statements**




**3.**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




**(g)**
    **Stock-based
      compensation (continued)**




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





***Year
      ended***
    
    Year
      ended***December
      31, 2004***
    
    September
      30, 2003*US$*
    
    *US$*Net
      loss, as reported
    
    
    **(7,594,393**
    **)**
    
    (2,205,536
    )Total
      stock-based employee compensation expense determined under intrinsic value
      based on method for all awards, net of tax
    
    
    **645,718**Total
      stock-based employee compensation expense determined under fair value
      based on method for all awards, net of tax
    
    
    **(891,425**
    **)**
    
    -Pro
      forma
    
    
    **(7,840,100**
    **)**
    
    (2,205,536
    )Loss
      per share - Basic and dilutedAs
      reported
    
    
    **(0.36**
    **)**
    
    (0.23
    )Pro
      forma
    
    
    **(0.37**
    **)**
    
    (0.23
    )




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






The
weighted average fair value per option granted at the date of grant and date of
modification was US$0.62 and US$1.97 respectively. 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.





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to Financial Statements**







**3.**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





**(h)**
    **Statement
      of cash flows**
  Cash
equivalents are defined as short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value. An investment normally qualifies as a
cash equivalent only when it has a maturity of three months or less from its
acquisition date.
  **(i)**
    **Translation
      of foreign currency**
  The
subsidiaries maintain their accounting books and records in United States
Dollars ("US$"), Hong Kong Dollars ("HK$") and Renminbi ("RMB"). Foreign
currency transactions during the year are translated to functional currencies of
the respective subsidiaries at the approximate rates of exchange on the dates of
transactions. Monetary assets and liabilities denominated in foreign currencies
at year end are translated at the approximate rates of exchange ruling at the
balance sheet date. Non-monetary assets and liabilities are translated at the
rates of exchange prevailing at the time the asset or liability was acquired.
Exchange gains or losses are recorded in the statements of
operations.


On
consolidation, the financial statements of the subsidiaries whose accounting
books and records are denominated in currencies other than US$ are translated
into US$ using the closing rate method, whereby the balance sheet items are
translated into US$ using the exchange rates at the respective balance sheet
dates. The share capital and retained earnings are translated at exchange rates
prevailing at the time of the transactions while income and expenses items are
translated at the average exchange rate for the year.




All
exchange differences arising on consolidation are recorded within equity.
Historically, foreign exchange transactions have not been material to the
financial statements.




**(j)**
    **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.





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World Trade Corporation**
 
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to Financial Statements**





**3**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




**(k)** **Property,
plant and equipment and depreciation**




Property,
plant and equipment are stated at cost less accumulated depreciation and
accumulated impairment loss.




The cost
of an item of property, plant and equipment comprises its purchase price
and **** any
directly attributable costs of bringing the asset to its working condition and
location for its intended use. Major costs incurred in restoring assets to their
normal working conditions are charged to the income statement. Improvements are
capitalised and depreciated over their expected useful lives.




The gain
or loss arising from the retirement or disposal of property, plant and equipment
is determined as the difference between the estimated net sales proceeds and the
carrying amount of the assets and is recognized as income or expense in the
income statement.




Depreciation
is provided to write off the cost of property, plant and equipment over their
estimated useful lives from the date on which they become fully operational and
after taking into account of their estimated residual values, using the
straight-line method, at the following rates per annum:




Leasehold
land and
buildings 50
years


Leasehold
improvements  2 - 3
years


Furniture
and
fixtures 5 - 10
years


Office
and computer
equipment 3 - 5
years


Motor
vehicles 6
years




**(l)**
    **Impairment
      of long-lived assets**





Long-lived
assets are reviewed at least annually for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the undiscounted future net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, impairment is measured as the difference between the carrying
amount and fair value of the asset. Goodwill will not be allocated to long-lived
assets when tested for impairment.




**(m)**  **Property-use
rights**




Property-use
rights are stated at cost less accumulated amortization and impairment losses.
Costs of the property-use rights are amortized over the term of the relevant
rights on a straight line basis.





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World Trade Corporation**
 
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to Financial Statements**




**3.**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




****


****(n)**
    **Intangible
      asset****




The
intangible asset represents the rental income stream acquired capitalized and is
amortized on a straight-line basis over five years.




**(o)**
    **Inventories**




Inventories
are stated at the lower of cost or market. Cost, which comprises all costs of
purchase and, where applicable, other costs that has been incurred in bringing
the inventories to their present location and condition, is calculated using the
first-in, first-out method. Estimated losses on inventories represent reserves
for obsolescence, excess quantities, irregular and slow moving inventory. The
Company estimates the loss / write-down on the basis of its assessment of the
inventory’s net realizable value based upon current market conditions and
historical experience.




**(p)**
    **Operating
      leases**




Leases
where substantially all the rewards and risks of ownership of assets remain with
the leasing company are accounted for as operating leases. Rentals payable and
receivable under operating leases are recognized as expense and revenue on the
straight-line basis over the lease terms.




The
Company leases certain premises under non-cancellable operating leases. Rental
expenses under operating leases were US$564,198 and US$698,694 for the years
ended December 31, 2004 and September 30, 2003 respectively.




**(q)**
    **Related
      parties**




Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence.




****


**(r)**
    **Use
      of estimates**




The
preparation of the financial statements in conformity with USGAAP requires the
Company’s management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual amounts could differ
from those estimates. Estimates are used for, but not limited to, the accounting
for certain items such as allowance for doubtful accounts, depreciation, taxes
and contingencies.





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World Trade Corporation**
 
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to Financial Statements**




**3.**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





**(s)**
    **Loss
      per share**




Basic
loss per share is computed by dividing loss available to common shareholders by
the weighted average number of common stocks outstanding during the
years.




At the
end of each year, the Company had outstanding stock warrants and options whose
exercise or conversion could, under certain circumstances, further dilute loss
per share. The following shares of potentially issuable common stock were not
included in the above weighted average shares outstanding because to do so would
have had an anti-dilutive effect on loss per share for the years
presented.




**As
      of December 31, 2004**
    
    As
      of
      September
      30, 2003Warrants
    
    
    **5,421,002**
    
    8,000,000Options
    
    
    **1,852,500**
    
    -**7,273,502**
    
    8,000,000




**(t)**
    **Segment
      reporting**




The
Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information". Segment information is disclosed in Note 26 to the
financial statements.





**(u)**
    **Allowance
      for doubtful accounts**




The
Company provides an allowance for doubtful accounts equal to the estimated
uncollectible amounts. The Company's estimate is based on historical collection
experience and a review of the current status of trade accounts receivable. It
is reasonably possible that the Company's estimate of the allowance for doubtful
accounts will change. Trade and other receivables are presented net of an
allowance for doubtful accounts of US$4,171,634 as of December 31,
2004.




**(v)**
    **New
      accounting pronouncements**
  In
November 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 151 “Inventory Costs, an
Amendment of ARB No. 43, Chapter 4”. This statement amends ARB No. 43, Chapter 4
to clarify that abnormal amounts of idle facility expense, freight, handling
costs, and spoilage should be recognized as current-period charges regardless of
whether they meet the criterion of “so abnormal” and that fixed production
overheads should be allocated to inventory based on the normal capacity of the
production facilities. The guidance is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005; however, earlier application
is permitted for inventory costs incurred during fiscal year beginning after
November 23, 2004. The provisions of SFAS No. 151 should be applied
prospectively. The Company believes that SFAS No. 151 will not have a
significant impact on its financial statements when it is
adopted.





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World Trade Corporation**
 
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to Financial Statements**




**3.**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





****(v)**
    **New
      accounting pronouncements (continued)**

In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment”. This statement provides investors and other users of financial
statement with more complete and neutral financial information by requiring that
the compensation cost relating to share-based payment transactions be recognized
in financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued. SFAS No. 123(R) covers a wide range
of share-based compensation arrangements including share options, restricted
share plans, performance-based awards, share appreciation rights, and employee
share purchase plans. SFAS 123(R) replaces SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion No. 25, “Accounting for
Stock issued to Employees”. Public entities that file as small business issuers
will be required to apply this statement as of the first interim or annual
reporting period that begins after December 15, 2005. The adoption of this
pronouncement may impact the Company’s results of operations or financial
position and the management is conducting a detailed
assessment.**




**4.**  **ACQUISITIONS**





(a)
    On
      May 7, 2004, the Company acquired 51% interests of CEO Clubs China Limited
      (“CEO”). CEO was incorporated in Hong Kong and holds an exclusive right
      for licensing the brand name “CEO Club” in the PRC. The exclusive right
      acquired is separately allocated as an intangible
asset.




Details
of the identifiable assets acquired at the date of acquisition are as
follows:


***US$*****Assets
      acquired**Trade
      and other receivable
    
    
    **1,282**Intangible
      asset
    
    
    **222,676**Goodwill
    
    
    **136,670**Net
      assets acquired
    
    
    **360,628**Shared
      by minority interest
    
    
    **(628**
    **)****360,000****Satisfied
      by:**Issuance
      of common stock
    
    
    **240,000**Purchase
      consideration in arrear
    
    
    **120,000**Consideration
    
    
    **360,000**





In
addition to the above consideration of US$360,000, the Company has committed to
inject cash of US$120,000 to the newly acquired subsidiary as operating
funds.





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World Trade Corporation**
 
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to Financial Statements**




**4.**  **ACQUISITIONS
(CONTINUED)**




(b)
    Pursuant
      to an amendment to the Articles of General (Guangzhou) Business Network
      Limited (“GBN(GZ)”) dated May 26, 2004, the registered capital was
      increased from US$64,102 to US$1,983,974 which was wholly contributed by
      the Company. Before the increase in registered capital, the Company had
      50% interest in GBN(GZ) and recognized it as an associate. The Company
      acquired the remaining capital of GBN(GZ) on July 26, 2004.




Details
of the identifiable assets acquired and liabilities assumed at the date of
acquisition are as follows:


***US$*****Assets
      acquired**Property,
      plant and equipment
    
    
    **1,047**Cash
      and cash equivalents
    
    
    **76,881**Trade
      and other receivables
    
    
    **1,484,040**Prepayments
    
    
    **4,078**Goodwill
    
    
    **176,299****1,742,345****Liabilities
      assumed**Trade
      and other payables
    
    
    **(47,239**
    **)**Short-term
      bank loans
    
    
    **(1,631,006**
    **)****(1,678,245**
    **)**Net
      assets acquired
    
    
    **64,100**Equity
      in net loss of GBN(GZ) in previous years
    
    
    **(32,051**
    **)**Consideration
      - cash
    
    
    **32,049**




(c)
    On
      April 20, 2004, a wholly-owned subsidiary of the Company (the
      “Transferee”) entered into an Equity Transfer Agreement (the “Agreement”)
      with the major shareholders of Guangdong New Generation Commercial
      Management Limited (“GNGCM”) and Guangdong Hauhao Insurance Agency Limited
      (“GHIAL”) the (“Transferors”), pursuant to which the Transferee would
      acquire from the Transferors 51% interest in GNGCM (the “Acquisition’) for
      an aggregate consideration of approximately US$11,127,000 of which
      US$3,640,000 was to be paid in the form of cash and US$7,487,000 was to be
      paid in the form of restricted shares issued by the Company. The Agreement
      also contemplated a loan agreement in the amount of US$3,640,000 pursuant
      to which one of the Transferors would loan the said amount to GNGCM as
      part of the transaction. On June 1, 2004, a supplementary agreement to the
      Agreement was entered into by making several changes to the Agreement,
      amongst which the aggregate consideration was reduced to US$10,198,041, of
      which US$2,731,658 was to be paid in the form of cash and US$7,466,383 was
      to be paid in the form of restricted shares of the
  Company.




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World Trade Corporation**
 
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to Financial Statements**








**4.**  **ACQUISITIONS
(CONTINUED)**




Completion
of the acquisition of GNGCM Group enables the Company to expand its business to
the high growth, travel-related businesses. The acquisition has been accounted
for under the purchase method of accounting. The purchase price of US$10,198,041
was allocated to the assets and liabilities acquired based on their estimated
fair value at the date of acquisition. This allocation has resulted in acquired
goodwill of US$8,652,530 in a condition that a preacquisition contingency
relating to the collectibility of an other receivable amount was not
determined. The
determination of the latest fair value of the acquired GNGCM’s assets resulted
in an increase of goodwill by US$2,450,485 principally due to the changes from
initially determined values of that receivable amount. The
results of GNGCM Group have been included in the consolidated financial
statements since the acquisition date.




Details
of the identifiable assets acquired and liabilities assumed at the date of
acquisition are as follows:


***US$*****Assets
      acquired**Property,
      plant and equipment
    
    
    **2,166,618**Cash
      and cash equivalents
    
    
    **567,546**Trade
      and other receivables
    
    
    **3,285,584**Rental
      and other deposits
    
    
    **1,116,152**Prepayments
    
    
    **17,833**Short-term
      investments
    
    
    **24,163**Goodwill
    
    
    **11,103,015****18,280,911****Liabilities
      assumed**Trade
      and other payables
    
    
    **(6,874,717**
    **)**Short-term
      bank loans
    
    
    **(1,208,153**
    **)****(8,082,870**
    **)**Net
      assets acquired
    
    
    **10,198,041*****US$*****Satisfied
      by:**Issuance
      of common stock
    
    
    **7,466,383**Cash
    
    
    **2,731,658**Consideration
    
    
    **10,198,041**








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World Trade Corporation**
 
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to Financial Statements**








**4.**  **ACQUISITIONS
(CONTINUED)**





(d)
    The
      Company’s consolidated results of operations have incorporated CEO and
      GNGCM on a consolidated basis from the date of acquisition. The following
      unaudited pro forma information presents a summary of the consolidated
      results of operations as if the acquisitions had been taken place on
      January 1, 2004.





**Year
      ended**
      **December
      31,**
      **2004*****US$***Operating
      revenues
    
    
    **6,414,430**Net
      loss
    
    
    **(6,745,580**
    **)**Loss
      per share - Basic
    
    
    **(0.32**
    **)**








**5.**  **INCOME
TAXES**





The
Company and its subsidiaries are subject to income taxes on an entity basis on
income arising in or derived from the tax jurisdiction in which it is domiciled
and operated.





The
      Hong Kong subsidiaries incurred losses for taxation purposes for the year
      and thus Hong Kong Profits Tax has not been
provided.





Several
PRC subsidiaries are subject to PRC Enterprise Income Taxes (“EIT”) on an entity
basis on income arising in or derived from the PRC. Income tax expense comprises
of the following:





**Year
      ended**
      **December
      31,**
    
    Year
      ended
      September
      30,**2004**
    
    2003***US$***
    
    *US$*Current
      taxes arising in foreign subsidiaries for the year
    
    
    (46,553
    )
    
    -





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World Trade Corporation**
 
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to Financial Statements**








**5.**  **INCOME
TAXES (CONTINUED)**





Reconciliation
to the expected statutory tax rate in the PRC of 33% *(2003:
33%)* is as
follows:





**Year
      ended**
      **December
      31,**
    
    
    
    Year
      ended
      September
      30,**2004**
    
    
    
    2003%
    
    
    
    %Statutory
      rate
    
    
    33.0
    
    
    
    
    
    33.0Non-deductible
      expenses
    
    
    (9.9
    )
    
    
    
    
    (15.8
    )Tax
      effect of net operating losses
    
    
    (23.6
    )
    
    
    
    
    (12.5
    )Unrecognised
      temporary differences
    
    
    0.2
    
    
    
    
    
    (2.6
    )Subsidiary
      not subject to tax
    
    
    (1.3
    )
    
    
    
    
    3.1Tax
      rate differential between subsidiaries
    
    
    (1.3
    )
    
    
    
    
    (5.2
    )Over
      provision in prior years related to a newly-acquired subsidiary
    
    
    2.0
    
    
    
    
    
    -Others
    
    
    0.2
    
    
    
    
    
    -(0.7
    )
    
    
    
    
    -





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities are as follows:





**As
      of**
      **December
      31,**
      **2004*****US$*****Deferred
      tax assets**Net
      operating loss
    
    
    **9,055,752**Depreciation
    
    
    **101,462**Deferred
      expenditure
    
    
    **3,745,025****12,902,239**Valuation
      allowance
    
    
    **(12,902,239**
    **)****Total
      deferred tax assets**
    
    
    **-**





In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.





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World Trade Corporation**
 
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to Financial Statements**








**6.**  **TRADE
AND OTHER RECEIVABLES**


**As
      of**
      **December
      31,**
      **2004*****Note***
    
    ***US$***Trade
      receivables
    
    
    
    
    
    **1,467,618**Due
      from related parties
    
    
    *19(c*
    *)*
    
    **1,253,479**Other
      receivables
    
    
    
    
    
    **22,701****2,743,798**








**7.**
    **RENTAL
      AND OTHER DEPOSITS**





Included
in rental and other deposits are deposits paid to Guangzhou Goldlion City
Properties Co., Ltd. of US$209,735 as of December 31, 2004. For relationship
with the Company, please refer to note 19(a) to these financial
statements.








**8.**  **INVENTORIES**


**As
      of**
      **December
      31,**
      **2004*****US$***Trading
      goods
    
    
    **152,892**Food
      and beverage
    
    
    **18,128****171,020**





Inventories
are presented net of an allowance for valuation allowance for inventory losses
of US$16,204 as of December 31, 2004.




**9.**  **SHORT-TERM
INVESTMENTS**





The
balance represents “available-for-sale” mutual funds made up of debt and equity
securities. As at the balance sheet date, as the cost approximated to the fair
value, no gain or loss was recognized.








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World Trade Corporation**
 
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to Financial Statements**








**10.**  **INTANGIBLE
ASSET**





Pursuant
to an agreement entered between the Company and Mr. William Tsang dated November
19, 2003, the Company acquired the after-tax rental income of a property located
in Guangzhou , the PRC for a five-year period commencing from December 1, 2003.
The Company acquired the after-tax rental income at a consideration of the
issuance of 3,000,000 newly issued shares of the Company and a two-year warrant
to purchase up to 6,000,000 shares of the common stock of the Company. The
rental income stream acquired has been capitalized as an intangible asset and is
amortized on a straight-line basis over five years.


**As
      of**
      **December
      31,**
      **2004*****US$***Carrying
      value, beginning of year
    
    
    **1,770,000**Amortization
    
    
    **(360,000**
    **)**Carrying
      value, end of year
    
    
    **1,410,000**





An
intangible asset of US$222,676 arising from the acquisition of CEO, as mentioned
in note 4 above, was impaired during the year.








**11.**  **PROPERTY
USE RIGHTS**





Pursuant
to agreements entered into between a subsidiary of the Company, GNGMC, and
Guangdong Hauhao Industries Group Co. Limited and Chen Zeliang dated December
28, 2004, GNGMC acquired the property use rights of their office premises
located in Guangzhou for a 41-year period and 42-year period commencing from the
date of agreements to October 30, 2045 and March 30, 2046 respectively. The
total consideration of these transactions were US$1,576,639. The property use
rights acquired have been capitalized and are being amortized on a straight-line
basis over their lease terms.








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World Trade Corporation**
 
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to Financial Statements**








**12.**  **GOODWILL**


**As
      of**
      **December
      31,**
      **2004***US$*Carrying
      value, beginning of year
    
    
    **251,448**Goodwill
      acquired
    
    
    **11,415,984**Impairment
      loss
    
    
    **(388,118**
    **)**Carrying
      value, end of year
    
    
    **11,279,314**





Details
of the goodwill acquired during the year are summarized in note 4 above.





During
the year, management reviewed the carrying value of goodwill. In view of the
fact that two of the subsidiaries have sustained losses, full provision for
impairment loss on the carrying value of the goodwill of US$388,118 was made and
is included in the consolidated statement of operations for the year ended
December 31, 2004.








**13.**  **PROPERTY,
PLANT AND EQUIPMENT, NET**


**As
      of**
      **December
      31,**
      **2004*****US$***Leasehold
      land and buildings
    
    
    **3,292,952**Leasehold
      improvements
    
    
    **595,599**Furniture
      and fixtures
    
    
    **42,163**Office
      and computer equipment
    
    
    **368,586**Motor
      vehicles
    
    
    **219,969****4,519,269**Less:
      Accumulated depreciation and impairment loss
    
    
    **(1,208,478**
    **)**Net
      book value
    
    
    **3,310,791**





In view
of the operating loss experienced by the club operations of the Company,
management considers that impairment losses of US$368,509, US$9,306 and
US$21,798 should be recognized on the leasehold improvements, office equipment
and furniture and fixtures respectively carried on the balance sheet. These
losses have been recognized as expenses and included in the consolidated
statement of operations.








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World Trade Corporation**
 
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to Financial Statements**








**13.**  **PROPERTY,
PLANT AND EQUIPMENT, NET (CONTINUED)**





A
subsidiary of the Company entered into a sale and purchase agreement with,
Guangzhou Goldlion Environmental Technology Company Limited, a related party, on
December 30, 2004. Pursuant to the agreement, the subsidiary would dispose of
the leasehold land and buildings located in the PRC at a consideration of
US$2,456,522. The completion date of the transaction is expected on or before
May 31, 2005. The management considered that the selling price is lower than the
carrying amount and employed a surveyor to assess the market price of the
leasehold land and buildings at of December 31, 2004 by using an investment
approach. As a result, an impairment of US$194,730 should be recognised on the
leasehold land and buildings carried on the balance sheet. This loss has also
been recognized as an expense and included in the consolidated statement of
operations and the leasehold land and buildings are included in the segment of
“Rental”.








**14.**  **TRADE
AND OTHER PAYABLES**


**As
      of**
      **December
      31,**
      **2004*****Note***
    
    ***US$***Trade
      payables
    
    
    
    
    
    **2,367,127**Bills
      payable
    
    
    
    
    
    **168,525**Tax
      payable
    
    
    
    
    
    **1,191,020**Tax
      payable - surcharge
    
    
    
    
    
    **1,004,377**Accrued
      charges
    
    
    
    
    
    **385,105**Other
      payables
    
    
    
    
    
    **528,199**Due
      to related parties
    
    
    *19(d*
    *)*
    
    **112,047**Deposits
      received
    
    
    
    
    
    **669,386****6,425,786**








**15.**  **SHORT-TERM
BANK LOAN**





Guangdong
Hauhao Industries Holdings Limited, Guangzhou XZR International Travel Services
Limited, Chen Ze Liang and a third party, Guangzhou Yinda Guarantee Service
Company Limited provided corporate and personal guarantee to the bank against
the bank loans granted to the Company. Please refer to note 19 to these
financial statements for details of relationship of these guarantors with the
Company.








**16.**  **MORTGAGE
LOAN**





The
Company obtained a bank loan from a commercial bank in Hong Kong to finance its
operations. The loan is collateralized by the Company's properties located in
the PRC. As management has decided to repay early the mortgage loan in 2005, the
outstanding loan balance is classified as current liabilities as of December 31,
2004.











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World Trade Corporation**
 
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to Financial Statements**








**17.**  **BANKING
FACILITIES**





The
Company had various lines of credit under banking facilities as
follows:


**As
      of**
      **December
      31,**
      **2004*****US$*****Facilities
      granted**Committed
      credit lines
    
    
    **2,455,231****Utilized**Committed
      credit lines
    
    
    **1,220,989****Unutilized
      facilities**Committed
      credit line
    
    
    **1,234,242**





Details
of guarantees and related parties transactions in relation to these banking
facilities are disclosed in notes 18 and 19(b) respectively.





**18.**
    **PLEDGE
      OF ASSETS**




The
Company has pledged land and buildings with a net book value of
US$2,454,567 ** to secure
general banking facilities granted to the Company.




**19.**  **RELATED
PARTY TRANSACTIONS**





(a)  Names and
relationship of related parties





Existing
      relationships with the CompanyBeijing
      Wanlong Economic Consultancy Corporation Ltd.
    PRC
      partner of a subsidiaryBernard
      Chan
    An
      officer and a shareholder of the CompanyBobby
      Yu
    A
      former director of a subsidiaryChan
      Chi Ming
    A
      director of the CompanyChen
      De Xiong
    A
      shareholder of a subsidiaryChen
      Zeliang
    A
      shareholder and director of the CompanyDimension
      Marketing Limited
    A
      shareholder of a former subsidiaryGuangzhou
      City International Exhibition Co.
    PRC
      partner of a subsidiary








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World Trade Corporation**
 
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to Financial Statements**




**19.**  **RELATED
PARTY TRANSACTIONS (CONTINUED)**





(a)  Names and
relationship of related parties (Continued)





Existing
      relationships with the CompanyGuangzhou
      Cyber Strategy Limited
    A
      company in which a director of the Company has beneficial
      interestGuangzhou
      Goldlion City Properties Co., Ltd.
    A
      company controlled by close family members of a
directorGuangzhou
      Goldlion Commercial Co., Ltd.
    A
      company controlled by close family members of a
directorGuangzhou
      Sanranxin Travel Ltd
    A
      company in which a director of the Company has beneficial
      interestGuangzhou
      XZR International Travel Services Limited
    A
      company in which a shareholder of the Company has beneficial
      interestHealth
      & Wealth Inc.
    A
      company in which a director of the Company has beneficial
      interestHo
      Chi Kin
    An
      independent director of the CompanyHauhao
      Industries Group Co. Ltd.
    A
      shareholder of a subsidiaryHuang
      Ze Hua
    A
      shareholder of a subsidiaryJames
      Mak
    A
      shareholder of the CompanyJohn
      Hui
    A
      director of the CompanyLi
      Jingping
    A
      director of a subsidiaryCui
      Wencheng
    A
      shareholder of the CompanyLuo
      Chao Ming
    A
      director of the CompanyRingo
      Leung
    A
      former director of the CompanySimon
      Guo
    A
      director of a subsidiarySuo
      Hong Xia
    A
      shareholder of a subsidiaryTop
      Link Ventures Limited
    A
      company in which a director of the Company has beneficial
      interestUnion
      East Consultants Limited
    A
      company in which a former director of the Company has beneficial
      interestWilliam
      Tsang
    A
      shareholder and director of the CompanyXelex
      Inc.
    A
      company in which an officer and a shareholder of the Company is a
      directorYang
      Xiu
    A
      shareholder of the CompanyZhao
      Lin
    A
      shareholder of the Company








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World Trade Corporation**
 
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to Financial Statements**





**19.**  **RELATED
PARTY TRANSACTIONS (CONTINUED)**





(b)
    Summary
      of related party transactions


**Year
      ended**
      **December
      31,**
    
    **Year
      ended**
      **September
      30,****2004**
    
    
    **2003********
    
    
    ***US$***
    
    ***$***
    ***US***Assets
      purchased fromDimension
      Marketing Limited
    
    
    **-**
    
    
    691Hauhao
      Industries Group Co. Ltd.
    
    
    **1,576,639**
    
    
    -Suo
      Hong Xia
    
    
    **235,590**Chen
      Zeliang
    
    
    **125,285**
    
    
    -


As of
December 31, 2004, the titles of leasehold land and buildings of US$206,232 and
US$89,162 purchased from Suo Hong Xia and Chen Zeliang have not been transferred
to the Company and the procedures are still in progress.





**Year
      ended**
      **December
      31,**
    
    **Year
      ended**
      **September
      30,****2004**
    
    **2003*****US$***
    
    ***US$***Allowance
      for doubtful accounts toGuangzhou
      Cyber Strategy Limited
    
    
    **236,247**
    
    
    -Consultancy
      fee expenses toBeijing
      Wanlong Economic Consultancy Corporation Ltd.
    
    
    **18,122**
    
    
    18,122Bernard
      Chan
    
    
    **2,564**
    
    
    17,948Bobby
      Yu
    
    
    **-**
    
    
    8,462Chan
      Chi Ming
    
    
    **-**
    
    
    30,769Guangzhou
      City International Exhibition Co.
    
    
    **18,122**
    
    
    18,122Guangzhou
      Cyber Strategy Limited
    
    
    **1,938**
    
    
    -Health
      & Wealth Inc.
    
    
    **-**
    
    
    15,024Ho
      Chi Kin
    
    
    **3,000**
    
    
    -John
      Hui
    
    
    **57,692**
    
    
    146,436Luo
      Chao Ming
    
    
    **17,397**
    
    
    -Ringo
      Leung
    
    
    **5,128**
    
    
    -Top
      Link Ventures Limited
    
    
    **61,538**
    
    
    -William
      Tsang
    
    
    **57,692**
    
    
    141,026Xelex
      Inc.
    
    
    **56,410**
    
    
    -Rent
      and related expenses toDimension
      Marketing Limited
    
    
    **-**
    
    
    2,692Guangzhou
      Goldlion City Properties Co., Ltd. and Guangzhou Goldlion Commercial Co.,
      Ltd.
    
    
    **455,744**
    
    
    713,044Hauhao
      Industries Group Co. Ltd.
    
    
    **46,103**
    
    
    -




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to Financial Statements**




**19.**  **RELATED
PARTY TRANSACTIONS (CONTINUED)**





(b)  Summary
of related party transactions (Continued)





**Year
      ended**
      **December
      31,**
    
    **Year
      ended**
      **September
      30,****2004**
    
    **2003*****US$***
    
    ***US$***Consultancy
      fee income fromGuangzhou
      Cyber Strategy Limited
    
    
    **-**
    
    
    288,462Membership
      fee income fromGuangzhou
      Cyber Strategy Limited
    
    
    **-**
    
    
    48,024Union
      East Consultants Limited
    
    
    **16,008**
    
    
    32,016Personal
      guarantee granted fromMr.
      William Tsang
    
    
    **19,231**
    
    
    19,231Traveling
      expenses toGuangzhou
      Sanranxin Travel Ltd.
    
    
    **4,139**
    
    
    **-**





(c)
    Due
      from related parties


**As
      of**
      **December
      31,**
      **2004*****US$***Hauhao
      Industries Group Co. Ltd.
    
    
    **350,989**Huang
      Ze Hua
    
    
    **360,029**Chen
      De Xiong
    
    
    **542,461**Classified
      as current assets
    
    
    **1,253,479**





The
      amounts due from related parties as of December 31, 2004 represented
      unsecured advances which were interest-free and repayable on demand.
      During the fourth quarter of 2004, the Company determined that receivables
      in the amount of US$236,247 were uncollectible and provision for doubtful
      debts has been made accordingly.





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World Trade Corporation**
 
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to Financial Statements**








**19.**  **RELATED
PARTY TRANSACTIONS (CONTINUED)**





(d)
    Due
      to related parties





**As
      of**
      **December
      31,**
      **2004*****US$***Suo
      Hong Xia
    
    
    **24,163**Mr.
      Ringo Leung
    
    
    **1,094**Mr.
      John Hui
    
    
    **3,625**Guangzhou
      Goldlion City Properties Co., Ltd.
    
    
    **3,784**Guangzhon
      Sanranxin Travel Ltd.
    
    
    **4,178**Beijing
      Wanlong Economic Consultancy Corporation Ltd.
    
    
    **18,122**Cui
      Wencheng
    
    
    **5,808**Yang
      Xiu
    
    
    **3,744**Simon
      Guo
    
    
    **14,471**Li
      Jingping
    
    
    **30,249**Zhao
      Lin
    
    
    **2,809**Classified
      as current liabilities
    
    
    **112,047**





The amounts due to related
parties as of December 31, 2004 represented unsecured advances which were
interest-free and repayable on demand.




(e)  Due to a
shareholder




The amount due
to Mr. William Tsang represented unsecured advances which were interest-free and
not repayable within one year.








**20.**
    **OPERATING
      LEASE COMMITMENT**





(a)  Operating
lease payables





As of
December 31, 2004, the Company has total outstanding commitments not provided
for under non-cancelable operating leases, which are payable as
follows:


**As
      of**
      **December
      31,**
      **2004*****US$***2005
    
    
    **673,445**2006
    
    
    **690,087**2007
    
    
    **451,525**2008
    
    
    **157,572**2009
    
    
    **31,688****2,004,317**





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World Trade Corporation**
 
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to Financial Statements**








**20.**
    **OPERATING
      LEASE COMMITMENT (CONTINUED)**





(a)  Operating
lease payables (Continued)





In
addition, the Company has committed to pay contingent rent at 2% to 10% on the
monthly turnover of a subsidiary when the subsidiary's monthly turnover exceeds
RMB500,000 (US$60,408) during the lease period ending in July 2007.





The
Company has also committed to pay contingent rental at the higher of the agreed
rent and the following portion of the membership fee income of a
subsidiary:





·
    15%
      on the membership fee income of the subsidiary for the period from
      February 1, 2004 to January 31, 2006





·
    7.5%
      on the membership fee income of the subsidiary for the period of February
      1, 2006 to January 31, 2009





(b)  Operating
lease receivables





The total
outstanding commitments under non-cancelable operating leases, which are
receivable as follows:


**As
      of**
      **December
      31**
      **2004*****US$*****257,821**2005
    
    
    **145,464**2006
    
    
    **25,731**2007**429,016**





As of
December 31, 2004, property, plant and equipment held for use under operating
leases include gross amounts of US$2,997,558 and accumulated depreciation.
Depreciation of property, plant and equipment in respect of assets held for use
under operating leases are US$37,804 and US$52,342 for the year ended December
31, 2004 and September 30, 2003.





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World Trade Corporation**
 
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to Financial Statements**








**21.**  **RETIREMENT
PLAN**





The
Company operates a Mandatory Provident Fund (“MPF”) plan for its Hong Kong
employees. The pension expenses charged to the consolidated statement of
operations amounted to US$6,150 and US$720 for the year ended December 31, 2004
and September 30, 2003 respectively.





As
stipulated by the PRC regulations, all retired employees of the Company who are
residents of the PRC are entitled to an annual pension equal to their basic
annual salary upon retirement. The Company contributed to a state-sponsored
retirement plan at a certain percentage of the gross salary of its employees and
has no further obligations for the actual pension payments or post-retirement
benefits beyond the annual contributions. The state-sponsored retirement plan is
responsible for the entire pension obligations payable to all employees. The
pension expense for the year ended December 31, 2004 and September 30, 2003 was
US$58,591 and US$36,329 respectively.




**22.**
    **COMMON
      STOCK**





a)
    On
      July 20, 2004, Powertronic exercised a two-year warrant to purchase
      2,000,000 shares of the common stock of the Company at a price of US$0.575
      per share. On December 15, 2004, Powertronic was allowed to take the
      cashless exercise of warrants for 2,000,000 shares to purchase 1,574,074
      shares of the common stock of the Company. A total of 3,574,074 shares of
      common stock of the Company were issued accordingly.





b)
    On
      March 22, 2004 and July 20, 2004, Mr. William Tsang exercised two
      1,500,000 warrants to purchase 3,000,000 shares of the common stock of the
      Company at a price of US$0.75 and US$0.92 per share respectively. On
      December 15, 2004, Mr. Tsang exercised warrant on a cashless basis for
      2,500,000 shares at a price of US$0.92 per share to acquire 1,648,148
      shares of the common stock of the Company. As a result the exercise of
      these warrants, a total of 4,648,148 shares of common stock of the Company
      were issued accordingly.





c)
    On
      February 6 and 26, 2004, the Company issued 75,000 and 50,000 shares
      respectively to Wall Street Strategies, Inc. for consulting services
      provided.





d)
    On
      February 13, 2004, the Company issued 69,000 shares to Greentree Financial
      Group, Inc. for consulting services
provided.





e)
    On
      February 23, 2004, the Company issued 50,000 shares to Mr. Richard
      Romanelli for advisory services provided.




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World Trade Corporation**
 
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**22.**
    **COMMON
      STOCK (CONTINUED)**




f)
    On
      May 7, 2004, the Company issued 24,027 shares to The Research Works, Inc.
      for consulting services provided.




g)
    On
      May 7, 2004, the Company issued 80,000 shares to the shareholders of CEO
      Clubs China Limited as part of the total consideration for 5,100 shares of
      CEO Clubs China Limited.




h)
    On
      July 12, 2004, the Company issued 50,500 shares to CEOcast Inc. for
      consulting services provided.




i)
    On
      July 30, 2004, the Company issued 4,081,238 shares to the shareholders of
      Guangdong New Generation Commercial Management Limited (“GNGCM”) and
      Guangdong Hauhao Insurance Agency Limited (“GHIAL”) as part of the total
      consideration for the acquisition of 51% interest of
  GNGCM.




j)
    On
      August 31, 2004, the Company issued 2,000 shares to The Equitis Group as a
      compensation for termination of a contract.




k)
    On
      November 9, 2004, 452,500 options under The 2003 Plan were exercised. As
      mentioned in note 3(g) above, the option holders were allowed to take the
      cashless exercise of 370,857 shares, a total of 370,857 common stock of
      the Company were issued accordingly.






**23.**
    **OPTIONS
      AND WARRANTS**




(a)(i)
    On
      December 31, 2003, the Company adopted The 2003 Plan which was approved by
      the shareholders on the same date. The 2003 Plan allows the Board of
      Directors, or a committee thereof at the Board’s discretion, to provide
      for a total 1,000,000 stock options to officers, directors and key
      employees of the Company. All the stock options provided, were issued in
      accordance with the terms of The 2003 Plan on the same day to certain
      officers, directors and key employees of the Company at an exercise price
      of US$0.673 per share and are exercisable during the period from April 30,
      2004 to December 30, 2006.




(a)
    (ii)
    On
      February 20, 2004, the Company cancelled 65,000 options and 30,000 options
      for the reason of resignation and job reposting
    respectively.




(b)
    On
      February 27, 2004, the Company entered into an agreement with Xelex Inc.
      for consulting services provided. Apart from the consultancy fee expenses
      disclosed in note 19(b) to financial statements, an option to acquire
      80,000 shares at an exercise price of US$1 per share was issued to Xelex
      Inc.. The stock option was fully vested and became exercisable on
      September 1, 2004. On November 9, 2004, the option was fully exercised on
      a cashless basis. A total of 58,552 common stocks of the Company were
      issued.





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World Trade Corporation**
 
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**23.**
    **OPTIONS
      AND WARRANTS (CONTINUED)**




The fair
value of this option, which is estimated by the Black-Scholes option pricing
model, was US$3.89. The additional expense was recognized in the consolidated
statement of operations and the same amount was credited to the Company’s
additional paid-in capital. The following weighted-average assumptions have been
adopted in applying the Black-Scholes option pricing model:




Expected
dividend yield None


Risk-free
interest
rate 2.1%


Expected
volatility 367%


Contractual
life 2
years





(c)
    The
      stock options activities and related information are summarized as
      follows:





**Year
      ended December 31, 2004**
    
    Year
      ended September 30, 2003**Number
      of Options**
    
    **Weighted
      average exercise price**
    
    **Number
      of Options**
    
    **Weighted
      average exercise price*****US$***
    
    
    
    *US$*Outstanding,
      beginning of year
    
    
    **1,000,000**
    
    
    **0.673**
    
    
    -
    
    
    -Granted
      (note 23(b))
    
    
    **80,000**
    
    
    **1.000**
    
    
    -
    
    
    -Granted
      (note 24(a))
    
    
    **1,400,000**
    
    
    **2.500**
    
    
    -
    
    
    -Exercised-
      The 2003 Plan (note 22(k))
    
    
    **(452,500**
    **)**
    
    **0.673**
    
    
    -
    
    
    --
      Xelex Inc. (note 23(b)
    
    
    **(80,000**
    **)**
    
    **1.000**
    
    
    -
    
    
    -Cancelled
      (note 23 (a)(ii))
    
    
    **(95,000**
    **)**
    
    **0.673**
    
    
    -
    
    
    -Outstanding,
      end of year
    
    
    **1,852,500**
    
    
    **2.432**
    
    
    -
    
    
    -Exercise
      price is less than market price on date of grant
    
    
    **1,480,000**
    
    
    **2.892**
    
    
    -
    
    
    -Exercisable,
      end of year
    
    
    **1,400,000**
    
    
    **3.000**
    
    
    -
    
    
    -





**As
      of December 31, 2004**Weighted
      average remaining contractual life
    
    
    **4.267
      years**Range
      of exercise priceUS$0.673
    
    
    **452,500**US$3.000
    
    
    **1,400,000**


98
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World Trade Corporation**
 
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to Financial Statements**


**23.**
    **OPTIONS
      AND WARRANTS (CONTINUED)**





(d)  The
warrant activities and related information are summarized as
follows:





**Year
      ended December 31, 2004**
    
    Year
      ended September 30, 2003**Number
      of Warrants**
    
    **Weighted
      average exercise price**
    
    **Number
      of Warrants**
    
    **Weighted
      average exercise price*****US$***
    
    
    
    *US$*Outstanding,
      beginning of year
    **14,000,000**
    
    **0.749**
    
    2,000,000
    
    0.575Granted
      (note 24(a) & (c))
    **921,002**
    
    **2.500**
    
    6,000,000
    
    0.805Exercised
      (note 22(a) & (b))
    **(9,500,000)**
    
    **(0.748)**
    
    -
    
    -Outstanding,
      end of year
    **5,421,002**
    
    **1.047**
    
    8,000,000
    
    0.748Exercise
      price is less than market price on date of grant
    **4,500,000**
    
    **0.750**
    
    -
    
    -Exercise
      price exceeds market price on date of grant
    **921,002**
    
    **2.500**
    
    -
    
    -Exercisable,
      end of year
    **5,421,002**
    
    **1.047**
    
    -
    
    -





**As
      of December 31, 2004**Weighted
      average remaining contractual life
    
    
    **1.590
      years**Range
      of exercise priceUS$0.750
    
    
    **4,500,000**US$2.500
    
    
    **921,002**




99
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 ****
 **China
World Trade Corporation**
 
 **Notes
to Financial Statements**




**24.**
    **PRIVATE
      PLACEMENTS OF COMMON STOCK AND WARRANTS TO PURCHASE COMMON
      STOCK**




(a)
    On
      August 26, 2004, the Company entered into a Securities Purchase Agreement
      with Bridges & PIPES, LLC, TCMP3 Partners, Connell Capital Partners,
      LP and Stealth Capital, LLC (the “Purchasers”), providing for the issuance
      by the Company to the Purchasers, of the (i) number of shares of Common
      Stock, and (ii) Series A Warrants, subject to an option in favor of the
      Purchasers to purchase additional shares of common stock and receive
      additional warrants.





On August
26, 2004 and December 3, 2004 under the Securities Purchase Agreement, the
Purchasers acquired in the aggregate 433,333 and 966,667 shares of common stock
respectively, at a price of US$1.5 per share, for an aggregate purchase price of
US$2,100,000. Upon purchase, the Purchasers were also issued 700,001 five-year
Series A Warrants to purchase that number of warrant shares at an exercise price
equal to US$2.5 per share, without any additional consideration. In addition,
the Company granted each Purchaser an option (the "Option") to purchase that
number of shares of common stock equal to 1,400,001 shares (the "Firm Shares").
Upon exercise of the Option at a purchase price of US$3 per share of common
stock, the Purchaser would also receive, without additional consideration,
five-year Series B Warrants to purchase 50% of the Firm Shares at an exercise
price equal to US$4 per share.




The fair
values of attached Series A Warrants, Options and Series B Warrants were
recorded in the Company’s additional paid-in capital.





In
addition, the Company has issued 112,667 Placement Agent's Warrants to Duncan
Capital, LLC, who acted as Placement Agent to the Company in connection with the
offering. Such warrants are five-year non-cashless exercise, provisioned
warrants to purchase shares of common stock at US$2.5 per share. The costs
associated with these transactions are also accounted for based on the fair
value of these warrants at the date of issue.





On August
26, 2004, the Company also entered into a Registration Rights Agreement with the
investors signatories thereto, which provides that on or prior to 45 days after
the Escrow Date, the Company shall prepare and file with the Commission a
Registration Statement covering the resale of all of the Registrable Securities
(defined as the Firm Shares, Option Shares, shares issuable upon exercise of the
Agent's Warrants and shares issuable upon exercise of the Series A Warrants and
the Series B Warrants) for an offering to be made on a continuous basis pursuant
to Rule 415 under the Securities Act. In addition, the Registration Rights
Agreement also contains certain piggy-back registration rights in favor of the
holders of Registrable Securities. All fees and expenses incident to the
performance of or compliance with the Registration Rights Agreement are to be
borne by the Company.




100
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 ****
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World Trade Corporation**
 
 **Notes
to Financial Statements**




**24.**
    **PRIVATE
      PLACEMENTS OF COMMON STOCK AND WARRANTS TO PURCHASE COMMON STOCK
      (CONTINUED)**





(b)
    On
      November 22, 2004, the Company entered into a Standby Equity Distribution
      Agreement (a "SEDA") and a Registration Rights Agreement, with US-based
      investment fund, Cornell Capital Partners, LP ("Cornell Capital") for
      US$30,000,000. Under the SEDA, Cornell has committed to provide up to
      US$30,000,000 of funding to the Company over a 24-month period, to be
      drawn down at the Company's discretion by the purchase of the Company's
      common stock. The purchase price of the shares purchased under the SEDA
      with respect to any advance will equal 99% of, or a 1% discount to, the
      lowest closing bid price of the common stock during the five consecutive
      trading day period immediately following the notice date. The amount of
      each advance is subject to a maximum advance amount of $1,500,000, except
      for the first advance, which may be in the amount of $3,000,000. Cornell
      Capital intends to sell any shares purchased under the SEDA at the then
      prevailing market price. Duncan Capital, LLC has been engaged by the
      Company to act as Placement Agent with respect to the
  SEDA.





(c)
    In
      connection with the SEDA, the Company has entered into a Letter Agreement,
      dated as of November 19, 2004 (the "Letter Agreement"), pursuant to which
      it agreed to (a) not make any draw-downs under the SEDA for a period of
      thirty days from the date of effectiveness of the soon-to-be-filed
      registration statement, and (b) issue to Bridges & PIPES, LLC and
      TCMP3 Partners, the two Purchasers at the first closing referred to above,
      83,334 Series A Warrants and 25,000 Series A Warrants, respectively, in
      order to induce such Purchasers to waive their rights to be the sole
      registrants on the registration statement. The costs associated with these
      compensations are also accounted for based on the fair value of these
      warrants at the date of issue.




Using the
Black-Scholes option pricing model with the following weighted-average
assumptions:




Expected
dividend
yield None


Risk-free
interest
rate 3.61%


Expected
volatility 211%


Contractual
life 5
years




The fair
value of these warrants was estimated as US$2.56 for the year ended December 31,
2004. The additional expenses for placement services provided and compensation
of were recognized in the consolidated statement of operations and the same
amounts were credited to the Company’s additional paid-in capital.





101
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 ****
 **China
World Trade Corporation**
 
 **Notes
to Financial Statements**




**25.**
    **STATUTORY
      RESERVES**





Statutory
      reserves of the Company’s PRC subsidiaries include the statutory common
      reserve fund and the statutory common welfare fund. Pursuant to
      regulations in the PRC, the subsidiaries set aside 10% of their profits
      after tax for the statutory common reserve fund (except when the fund has
      reached 50% of the Company’s registered capital) and 5% of their profits
      after tax for the statutory common welfare fund. The statutory common
      reserve fund can be used for the following
purposes:





·
    to
      make good losses in previous years; or


·
    to
      convert into capital, provided such conversion is approved by a resolution
      at a owners’ general meeting and the balance of the statutory common
      reserve fund does not fall below 25% of the registered
      capital.





The
statutory common welfare fund, which is to be used for the welfare of the staff
and workers of the subsidiaries, is of a capital nature.




**26.**  **BUSINESS
SEGMENT INFORMATION**


**Year
      ended**
      **December
      31,**
    
    Year
      ended
      September
      30,**2004**
    
    2003***US$***
    
    *US$***Operating
      revenues**Club
      and business centre
    
    
    551,497
    
    
    1,718,854Business
      traveling services
    
    
    1,671,605
    
    
    -Business
      value-added services
    
    
    40,695
    
    
    288,462Rental
    
    
    701,284
    
    
    47,189Trading
      and others
    
    
    127,663
    
    
    831,095**3,092,744**
    
    
    2,885,600




102
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 ****
 **China
World Trade Corporation**
 
 **Notes
to Financial Statements**




**26.**  **BUSINESS
SEGMENT INFORMATION (CONTINUED)**





**Year
      ended**
      **December
      31,**
    
    Year
      ended
      September
      30,**2004**
    
    2003***US$***
    
    *US$***Profit
      (Loss) from operations**Club
      and business centre
    
    
    (1,705,288
    )
    
    (910,942
    )Business
      traveling services
    
    
    904,951
    
    
    -Business
      value-added services
    
    
    (113,569
    )
    
    -Rental
    
    
    (347,069
    )
    
    (511,352
    )Trading
      and others
    
    
    (54,096
    )
    
    (62,429
    )**(1,315,071**
    **)**
    
    (1,463,607
    )Corporate
      expenses
    
    
    **(5,893,563**
    **)**
    
    (818,028
    )Consolidated
      operating loss
    
    
    **(7,208,634**
    **)**
    
    (2,281,635
    )Other
      income
    
    
    **140,014**
    
    
    2,490Interest
      expense
    
    
    **(65,909**
    **)**
    
    (14,811
    )Equity
      in net loss of affiliate
    
    
    **-**
    
    
    (32,051
    )Net
      loss before income taxes
    
    
    **(7,134,529**
    **)**
    
    (2,326,007
    )





**As
      of**
      **December
      31,**
      **2004*****US$*****Total
      assets**Club
      and business centre
    
    
    **327,008**Business
      traveling services
    
    
    **15,600,135**Business
      value-added services
    
    
    **-**Rental
    
    
    **5,163,770**Trading
      and others
    
    
    **564,458****21,655,371**




103
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 ****
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World Trade Corporation**
 
 **Notes
to Financial Statements**




**27.**  **CONTINGENCIES**




Prior to
the completion of acquisition by the Company, GNGCM had been paying Mainland
China income tax at a basis of calculation which was not in accordance with the
standard basis of calculation as stipulated by the Mainland China tax law. The
shortfall of the underpaid tax liabilities, related surcharges and penalty up to
the date of acquisition by the Company has already been fully provided in the
consolidated financial statements. However, GNGCM would potentially be liable to
further surcharge for late payment and penalty, additional to the amount being
provided, for the period since the date of acquisition by the Company and up to
the balance sheet date. A shareholder of GNGCM has undertaken to indemnify the
Company against such shortfall and additional tax-related liabilities. As of
December 31, 2004, the estimated further surcharges and penalties which GNGCM
was potentially liable amounted to US$126,873 and US$6,468,044 respectively. The
estimated further penalties were based on the highest charge rate of the range
from 50% to 500%.




104
 **