China World Trade (CWTD) - Description of business

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 through other subsidiaries of the Company since March 2003. We have commenced our operation in the business travel business since our acquisition of New Generation in August 2004. Investment in listed shares and rental incomes are grouped under others operating revenues and others gross profit. Consolidated operating revenue for the twelve-month period ended December 31, 2006 was $4,339,000, compared to $7,839,000 for the same corresponding period in year 2005, a decrease of $3,500,000 or 44.6%. The decrease was mainly the result of the decrease in revenue generated from business travel services; club and business center; the business value-added services and rental incomes.

Of the $4,339,000 revenue in the twelve-month period ended December 31, 2006, approximately $712,000 (16.4%) was generated from providing club related services by Guangzhou World Trade Center Club and Beijing World Trade Center Club, $2,689,000 (62.0%) from business travel services resulting from the acquisition of the New Generation Group, $928,000 (21.4%) from business value-added services, and the remaining $10,000 (or 0.2%) from rental income. The disposal of 60% of our equity holding of General Business Network (Holdings) Limited ("GBN"), which held a 51% equity interest in New Generation, has significantly reduced our operating revenues. Since the disposal was effective on September 29, 2006, only 9 months of operating revenues from New Generation were consolidated into our results of operations.

Consolidated gross profit decreased by $441,000 or 10.4% for the twelve-month period ended December 31, 2006 over the same corresponding period in year 2005. The decrease was predominantly caused by our business travel services resulting from the disposal of 60% of our equity holdings of GBN and New Generation in September 2006 and our club and business center services. Such a decrease was partially offset by the increase in the business value-added services. As a percentage of total operating revenues, consolidated gross profit margins of 87.1% in 2006 increased from 53.8% in 2005. However, the higher profit margin as a percent of operating revenues for the year ended December 31, 2006 as compared to the same corresponding period in 2005 was primarily contributed by the positive margin from our business value-added services as well as the increased profit margin in our club and business centre. We received common stock as compensation from the client for our services rendered. According to EITF Issue No. 00-8, we recognize our revenue in relation to a project using the share price of the common stock we received on the contract date. Subsequently, we subcontracted part of the services of the same project to an independent consultant at a later date and according to FAS 123, paragraph 8, we needed to record the compensation paid to non-employees in exchange of goods and services at fair value. The positive gross profit margin for the year ended December 31, 2006 of our consulting business was the result of the timing difference between the dates of the contract with our client and the subcontracting during an upward trend of the share prices of the common stock we received for services rendered.

Of the $3,779,000 total gross profit for the year ended December 31, 2006, approximately $675,000 (or 17.9%) was generated from providing club and business center services, approximately $2,167,000 (or 57.3%) from business travel services, approximately $927,000 (or 24.5%) from providing business value-added services, and approximately $10,000 (or 0.3%) from rental income. As compared to the same corresponding period in year 2005, the club and business center services represented a 17.4% (or $735,000) of the total gross profit; 100.8% (or $4,256,000) was generated from the business travel business; a negative 21.2% (or $895,000) from providing business value-added services; and the remaining 2.9% (or $124,000) from other (rental and trading) businesses. The shift in segmental distribution was primarily due to the increase in gross profit in the business value-added services, resulting from the services fee renders from our clients. We foresee that this segment mix will continue to change and balance out in year 2007 upon further development in the club and business centre business.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased by approximately $1,127,000 or 12.3% to $8,041,000 for the year ended December 31, 2006 from $9,168,000 for the same corresponding period in 2005. The decrease was mainly a combination of the decrease in the subcontract fee resulting from our consulting business in the amount of approximately $1,200,000, the decrease in general expense of $1,000,000 incurred from disposed New Generation which accounted for 9 months and offset by the increase in other professional fees and marketing and information and technology in the total amount of approximately $1,000,000,.

Of the $8,041,000 selling, general and administrative expenses incurred for the year ended December 31, 2006, the majority of it was approximately $1,524,000 in staff related costs; approximately $1,660,000 in professional expenses in financial consultancy, investor relations and marketing consultancy; approximately $847,0000 in building management and rental expenses which were necessary for the operations of our world trade centre clubs in Guangzhou and Beijing; approximately $254,000 in director related salaries; approximately $211,000 in the expenses of liquidated damage. Despite the management expects this decreasing trend will likely continue subsequent to the disposal of 60% of our equity interest in GBN and New Generation, they will continue to impose respective measures for trimming costs.

BAD DEBTS, IMPAIRMENT LOSS AND DEPRECIATION

A provision for bad debt of approximately $28,000 for the year ended December 31, 2006, as compared to none for the same corresponding period in year 2005. Total impairment loss and depreciation were approximately $319,000 for the year ended December 31, 2006, as compared to the same corresponding period in year 2005, a decrease of $23,000 or 6.7% from $342,000. The decrease was mainly due to the decrease in depreciation and amortization charge in the amount of approximately $23,000 over the corresponding period in year 2005.

FINANCIAL INCOME/(EXPENSES), NET

Interest expenses were approximately $209,000 for the year ended December 31, 2006, as compared to the same corresponding period in year 2005 in the amount of $136,000, an increase of $73,000 or 53.7%. The majority of the increase was the result of consolidating the interest expenses incurred by the New Generation during the period from Janauary 1 to September 29, 2006 in relation to an increased bank loan in the amount of approximately RMB12,250,000 (approximately equals US$1.5 million) to RMB31,250,000 (approximately equals to US$3.9 million) immediately before disposal of 60% of our equity holding of GBN and New Generation on September 29, 2006,.

OTHER INCOME AND REALIZED GAIN

The other income and realized gain decreased by approximately $6,032,000 for the year ended December 31, 2006. The decrease was the result of the reduction on disposal of securities during the reporting period which we received as compensation for our consultancy services rendered. These securities may be sold only when earned under the respective consulting agreements, and it is our intention to sell shares earned as promptly as practicable in order to generate income for the company, subject to compliance with federal securities laws.

LOSS ON DISPOSAL OF INTEREST IN A SUBSIDIARY

Loss on disposal of interest in a subsidiary recorded at approximately $3,211,000 for the year ended December 31, 2006 compared to a gain of $86,000 none for the same corresponding period in year 2005. The loss resulted from the disposal of 60% of our equity holdings in our subsidiary GBN, which is the holding company of New Generation.

IMPAIRMENT LOSS ON INVESTMENT IN AN AFFILIATE

Impairment loss on investment in an affiliate was recorded at approximately $2,140,000 for the year ended December 31, 2006 compared to none for the same corresponding period in year 2005. The loss resulted from the difference between the investment cost and the carrying value on our disposed affiliate.

LOSS ON DISPOSAL OF LEASEHOLD LAND AND BUILDING

The loss on disposal of leasehold land and building decreased by approximately $246,000 to $9,000 for the year ended December 31, 2006, as compared to approximately $255,000 for the same corresponding period in year 2005. The decrease in loss was primarily due to that there is no payment of PRC tax and levy resulting from the disposal of our Guangzhou property for the year ended December 31, 2006, which occurred only for the year ended December 31, 2005.

INCOME TAXES

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

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

Several of our PRC subsidiaries are subject to PRC Enterprise Income Taxes ("EIT") on an entity basis on income arising in and derived from the PRC. The applicable EIT rate is 33%.

Income taxes were $103,000 for the year end December 31, 2006, as compared to US$254,000 for the same corresponding period in year 2005. The decrease of income taxes was mainly from the operation of New Generation.

NET LOSS

Net loss was approximately $10,091,000 for the year ended December 31, 2006, as compared to the same corresponding period in year 2005, a decrease of $10,108,000 or 56,155.6% from a profit of $18,000. The increase in net loss was the result of the recognition of the impairment loss on disposal of interest in a subsidiary and the impairment loss on investment in an affiliate. The loss was also the result of the decrease of net gain from the disposal of securities which were received for compensation of our consultancy services. Management believes that our operations will continue to improve and we do not foresee a trend of losses.

LIQUIDITY AND CAPITAL RESOURCES

Upon disposal of 60% of our equity interest in our former subsidiary, General Business Network (Holdings) Ltd. ("GBN"), on September 29, 2006, we no longer had any banking facilities and outstanding lines of credit as of December 31, 2006.

However, during the nine months period from January 1 to September 29, 2006, we had banking facilities, through our former subsidiary New Generation Commercial Management Ltd., granted in the total amount of approximately $4.2 million, of which approximately $3.9 million had been utilized as of September 29, 2006. These facilities relate to $4.2 million in a short term loan with pledged deposits of $247,000. The weighted average interest rate for these facilities is about 6.635% per annum. These banking facilities, related to a bank loan and pledged deposit and have been disposed indirectly upon the disposal of GBN on September 29, 2006 as mentioned above.

As of December 31, 2006, cash and cash equivalents totaled $107,144. This cash position was the result of a combination of net cash provided by financing activities in the amount of $3,087,415, offsetting by net cash used in investing activities in the amount of $1,875,448 and the net cash used in operating activities in the amount of $4,339,686. The increase in financing activities was mainly due to the increase in the proceeds of additional bank loan of $2,037,716, offsetting by a repayment of $524,866 during the 9 months period from January 1 to September 29, 2006, through our previous subsidiary New Generation, and the advance from a shareholder of $1,529,565. The net cash used in investing activities was mainly due to the disposal of a subsidiary of $1,253,749, acquisition of a subsidiary amount to $394,641 and the acquisition of property, plant and equipment of $406,267. The net cash used in operating activities was mainly the result from the net loss of $10,090,975, increase in account receivables of $1,002,201 and increase in due from related companies of $1,156,351 offsetting by loss on disposal of a subsidiary $3,210,538 and impairment loss on investment in an affiliate $2,140,359; and the stock, option and warrants issued for services amount to $1,391,977.

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.

The Company has taken the position that its earlier filing with the Commission of a Registration Statement on Form SB-2 covering the proposed sale in a secondary offering of $30.0 million of Registrable Securities pursuant to a Standby Equity Distribution Agreement, and the proposed sale of other securities pursuant to a Securities Purchase Agreement dated August 26, 2004, has been terminated as a result of the failure of such registration statement to be declared effective by the Commission after the filing of a sixth and final amendment on February 3, 2006. We do not have immediate plans to have a public offering of our common stock.

OTHER SIGNIFICANT EVENTS

On September 29, 2006, the Company through its wholly owned subsidiary, China Chance Enterprises Limited, sold 100% outstanding capital stock of Rejoice Success Limited ("Rejoice") to Wisdom Plus Limited ("Wisdom Plus") at a consideration of $4,000,000. Rejoice owns 60% of the outstanding capital stock of General Business Network (Holdings) Limited ("GBN"), which indirectly owns 51% of the outstanding capital stock of New Generation Commercial Management Limited ("New Generation").

New Generation engages in the travel agency business by operating ten subsidiaries in Southern China. To date, New Generation has accumulated a substantial market share in ticketing sales for international and domestic flights as well as inbound business travel. In addition, Guangzhou Huahao Insurance Agency Limited, one of the New Generation group of companies, is also a licensed insurance agent in China, providing accidental and life insurance to individual policy holders in the Guangzhou Province of China.

The purchase price will be paid by 4 installments from September 30, 2006 to July 29, 2007 in cash or shares of common stock issued by any Pink Sheet companies or OTCBB companies in lieu of the consideration. The amount of share certificates shall be agreed by both parties in a separate agreement.

While cash of US$100,000 had been received as of December 31, 2006, the second payment of cash of $900,000 was received on February 8, 2007 in accordance with the Agreement with the following schedules: US$100,000 to be paid on September 30, 2006; US$900,000 to be paid on January 29, 2007; US$1,000,000 to be paid on April 29, 2007; and US$2,000,000 to be paid on July 29, 2007. As of the date of issuance of this report, total cash of US$1,000,000 had been duly received in accordance with the Agreement.

On September 25, 2006, the Company together with its wholly owned subsidiary, Rainbow Wish Limited ("Rainbow Wish"), entered into a Share Exchange Agreement (the "Agreement") with CWT International Excursion Investment Limited, a company organized and existing under the laws of the British Virgin Islands ("CWT Excursion"), and Chi Hung Tsang, the Chairman of the Company and holder of sixty percent (60%) of the capital stock of CWT Excursion, and also a citizen and resident of the People's Republic of China. Pursuant to the terms of the Agreement, the Company will issue 9,000,000 shares of its common stock (the "CWTD Shares") to Mr. Tsang in exchange for 25 common shares of CWT Excursion owned by him (the "CWT Excursion Shares") to Rainbow Wish, presenting a 25% equity interest in CWT Excursion.

CWT Excursion was incorporated on March 22, 2006, and is the owner of 51% of the equity interest in a joint venture company known as Suzhou Tongli (International) Excursion Development Limited, which is a company organized and existing under the laws of the People's Republic of China ("Suzhou Tongli"). Suzhou Tongli is in the business of operating tourist concessions in Tongli Town, Suzhou City, Jiangsu Province, People's Republic of China.

Pursuant to the Agreement, Mr. Tsang has also agreed to grant Rainbow Wish the option to purchase an additional 35% of the capital stock of CWT Excursion within twelve months of the date hereof, at a price that will be agreed upon by both parties at the time of exercise of said option in a separate agreement.

The acquisition consideration of CWT Excursion amounts to $6,408,000. It is the fair market value of the CWTD Shares to be issued to Mr. Tsang, based on the closing bid price for the common stock of CWTD in the last five trading days preceding the date of the Agreement of $0.712.

CRITICAL ACCOUNTING POLICIES

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

Valuation of long-lived assets

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

Allowance for Doubtful Accounts

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

Goodwill on consolidation

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