10KSB 1 d85561e10ksb.txt FORM 10KSB FOR FISCAL YEAR END DECEMBER 31, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from: to --------- --------- Commission file number: 0-18731 ------- FORLINK SOFTWARE CORPORATION, INC. -------------------------------------------------------------------------------- (Name of small business issuer as specified in its charter) NEVADA 84-0438458 ------------------------------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) FANG YUAN MANSION 9F, ZHONGGUANCUN SOUTH STREET YI NO. 56, HAIDIAN DISTRICT, BEIJING CHINA 100044 ------------------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code)
Issuer's telephone number: 011-8610-88026368 ----------------- Securities registered under Section 12(b) of the Exchange Act: None ---- Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value ----------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year. $728,477. --------- As of March 23, 2001 the aggregate market value of the Common Stock held by non-affiliates, approximately 6,195,000 shares of Common Stock, was approximately $1,486,800 based on an average of the bid and ask prices of approximately $.24 per share of Common Stock on such date. The number of shares outstanding of the issuer's Common Stock, $.001 par value, as of March 23, 2001 was 25,470,000 shares. DOCUMENTS INCORPORATED BY REFERENCE: None. Transitional Small Business Disclosure Format (check one): Yes [ ]; No [X] 2 PART I CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, readers of this document and any document incorporated by reference herein, are advised that this document and documents incorporated by reference into this document contain both statements of historical facts and forward looking statements. Forward looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially for those indicated by the forward looking statements. Examples of forward looking statements include, but are not limited to (i) projections of revenues, income or loss, earning or loss per share, capital expenditures, dividends, capital structure and other financial items, (ii) statements of the plans and objectives of the Company or its management or Board of Directors, including the introduction of new products, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) statements of future economic performance, and (iv) statements of assumptions underlying other statements and statements about the Company or its business. This document and any documents incorporated by reference herein also identify important factors which could cause actual results to differ materially from those indicated by forward looking statements. These risks and uncertainties include price competition, the decisions of customers, the actions of competitors, the effects of government regulation, possible delays in the introduction of new products and services, customer acceptance of products and services, the Company's ability to secure debt and/or equity financing on reasonable terms, and other factors which are described herein and/or in documents incorporated by reference herein. The cautionary statements made pursuant to the Private Litigation Securities Reform Act of 1995 above and elsewhere by the Company should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of such Act. Forward looking statements are beyond the ability of the Company to control and in many cases the Company cannot predict what factors would cause results to differ materially from those indicated by the forward looking statements. ITEM 1. DESCRIPTION OF BUSINESS. Business Development. History of the Company Forlink Software Corporation, Inc., formerly Light Energy Management, Inc. and formerly Why Not?, Inc., (the "Company" or the "Registrant"), is a Nevada corporation which was originally incorporated on January 7, 1986 as Why Not?, Inc. under the laws of the State of Utah and subsequently reorganized under the laws of Nevada on December 30, 1993. The Company's reorganization plan was formulated for the purpose of changing the state of domicile and provided that the Company form a new corporation in Nevada which acquired all of the contractual obligations, shareholder rights and identity of the Utah corporation, and then the Utah corporation was dissolved. Merger with Teknocapital Finance Ltd. In May of 1998, the Company entered into an agreement under the terms of which it intended to merge with Teknocapital Finance Ltd. ("Teknocapital"). Pursuant to that merger agreement, the shareholders of Teknocapital would exchange 100% of the issued and outstanding shares of Teknocapital for 4,000,000 of the Company's common stock. Pursuant to that agreement, the existing Board of Directors 1 3 of Why Not?, Inc. resigned. New members were appointed to fill their vacancies and Teknocapital management assumed responsibility for the Company's affairs. Thereafter, the merger agreement with Teknocapital was substantially modified. Specifically, the consideration given for the issuance of the 4,000,000 shares of the Company's common stock was changed from 100% of the issued and outstanding shares of Teknocapital to the execution of promissory notes totaling $275,000 payable to the Company by Harrop & Co. With the execution of these promissory notes, the merger with Teknocapital was abandoned and the Company continued its activities as an unfunded venture in search of a suitable business acquisition or business combination. In November 1998 the Company's name was changed to Light Energy Management, Inc. in anticipation of merging with another company. The merger did not occur, but the Company was unable to register the old name of Why Not?, Inc. Plan of Reorganization with Beijing Forlink Software Technology Co. Ltd. On November 3, 1999, the Company entered into a Plan of Reorganization with Beijing Shijiyonglian Ruanjian Jishu Youxian Gongsi (Beijing Forlink Software Technology Co., Ltd., (hereinafter "BFSTC"), under the terms of which BFSTC gained control of the Company. Pursuant to the Plan of Reorganization, the Company acquired 100% of the issued and outstanding shares of BFSTC in exchange for 20,000,000 shares of the Company's authorized, but unissued, common stock. BFSTC is engaged in the Internet e-commerce and Internet software development business, and the Internet vertical portal business. The business of BFSTC has become the business of the Company. Business of the Company The Company's business is now focused in developing network software and provide system integration services. The Company also owns www.softhouse.com.cn, which is one of the biggest portal sites in China, All of the Company's business is conducted in the People's Republic of China. Effect of Governmental Approval and Regulation The Company is subject to various laws and governmental regulations applicable to business generally. The Company believes it is in compliance with such laws and that such laws do not have a material impact on its operations. Cost of Environmental Regulation The Company anticipates that it will have no material costs associated with compliance either with federal, state or local environmental law. Employees The Company currently has approximately 46 employees, of which all 46 are full-time. ITEM 2. DESCRIPTION OF PROPERTY. The Company currently owns no real property and rents its facilities in Beijing, China. It presently leases space at Fang Yuan Mansion 9F, Zhongguancun South Street Yi No. 56, Haidian District in Beijing, China. The Company has no particular policy regarding each of the following types of investments: (1) investments in real estate or interests in real estate; (2) investments in real estate mortgages; or (3) securities of or interests in entities primarily engaged in real estate activities. 2 4 ITEM 3. LEGAL PROCEEDINGS. There are no pending legal proceedings involving the Company. ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS. The Company did not submit any matters to a vote of the shareholders in the fourth quarter of 2000. 3 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock of the Company is currently trading on the Over the Counter Bulletin Board system under the symbol "FRLK". Prior to November of 1999, the Company traded under the symbol "YNOT". There is no assurance that the Common Stock will continue to be quoted or that any liquidity exists for the Company's shareholders. The following table sets forth the range of high and low bid prices for the Company's Common Stock for each quarterly period indicated, as reported by the NASDAQ's Historical Research Department. Quotations reflect inter-dealer prices without retail markup, markdown or commissions and may not represent actual trades. Common Stock
Quarter Ended High Bid Low Bid ------------- ---------- ---------- December 31, 2000 $ 1.968 $ 0.1875 September 30, 2000 $ 4.9375 $ 1.01 June 30, 2000 $ 9.50 $ 4.406 March 31, 2000 $ 23.50 $ 7.25 December 31, 1999 $ 8.125 $ 0.0313 September 30, 1999 $ 0.10 $ 0.02 June 30, 1999 $ 0.09 $ 0.05 March 31, 1999 $ 2.00 $ 0.035
Holders As of March 23, 2001, there were 25,470,000 shares of the Company's common stock outstanding held of record by approximately 831 persons (not including beneficial owners who hold shares at broker/dealers in "street name"). Dividends The Company has never paid cash dividends on its Common Stock and does not intend to do so in the foreseeable future. The Company currently intends to retain its earnings for the operation and expansion of its business. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. Statements contained herein that are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation: well-established competitors who have substantially greater financial resources and longer operating histories, regulatory delays or denials, ability to compete as a start-up company in a highly competitive market, and access to sources of capital. 4 6 The following discussion and analysis should be read in conjunction with the Company's financial statements and notes thereto included elsewhere in this Form 10-KSB. Except for the historical information contained herein, the discussion in this Form 10-KSB contains certain forward looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-KSB should be read as being applicable to all related forward statements wherever they appear in this Form 10-KSB. The Company's actual results could differ materially from those discussed here. As discussed in the Company annual report filed on Form 10-KSB for year end December 31, 1999, on November 3, 1999, the Company completed the reverse acquisition of Beijing Forlink Software Technology Co. Ltd. ("BFST"). After the reverse acquisition, the Company had a total of 25,000,000 shares of common stock issued and outstanding. On December 6, 1999, the Company's name was changed to Forlink Software Corporation, Inc. ("Forlink"). The Company is engaged in the network software development and providing system integration services. The Company also owns www.softhouse.com.cn, which is one of the biggest vertical portal sites in China. The business of BFST has become the business of the Company. As of March 31, 2001, there are 25,470,000 shares of common stock outstanding. Results of Operations Twelve Months Ended December 31, 2000 compared to Twelve Months Ended December 31, 1999.
TWELVE MONTHS ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- NET SALES $728,477 $67,238
Net sales were derived from Forlink brand "For-Series" internet software tools sales, computer hardware sales and internet software system integration services. Net sales of $728,477 for fiscal year ended December 31, 2000 increased by 983% over fiscal year ended December 31, 1999. The revenue growth was primarily attributable to marketing efforts and increased "For-Series" brand awareness. Our "For-Series" internet software tools can support our customers to build a business web site within a short period of time. Our "For-Series" internet software tools are accepted by a considerable number of customers in the People's Republic of China ("PRC"), such as Legend Computer Co., Ltd., Chinese.com, Zhaodaola.com, tom.com, Industrial and Commercial Bank of China, newpalm.com, palm365.com, ccidnet.com, fm365.com, http://www.95950.com, etc. During the fiscal year 2000, the Company mainly expanded the functions of "For-Mail" and "For-Search". Both of these products received a "Five Star Product" rating (the highest possible rating), by "PC COMPUTING" Magazine. Cost of sales consisted principally of salary for internet technicians, costs of promotion, system sales and integration, rent of office, depreciation and other associated costs relating to the delivery of services. Cost of sales of $385,719 for fiscal year ended 2000 increased by 2,143% over the fiscal year ended 1999. The increase in cost of sales was driven by the increase in the purchases of computer related components from third party and increase in the level of sales. As above mentioned, the Company was in the initial development stage during the comparable period. Selling expenses of $135,256 for fiscal year ended 2000 increased by 1,404% over fiscal year ended 1999. The increase in selling expenses was attributable to the increase in headcount number of the departments of sales and customers service. As well, the Company has increased staff salary to a competitive market level. 5 7 General and administrative ("G&A") expenses of $1,062,792 for fiscal year ended 2000 increased by 2,494% over fiscal year ended 1999. On a year to date basis, G&A expenses for fiscal year ended 2000 totaled $1,062,792, an increase of 2,594% over fiscal year ended 1999. The increase in G&A expenses was because of substantial non-cash compensation expenses (described below), in addition to the increase in salary of employees at the management level, and increased rental expenses of $137,984 and advertising expenses of approximately $178,739 during the year 2000. The number of employees was increased from 15 as of December 31, 1999 to 50 as of December 31, 2000. The Company has also taken an aggressive marketing strategy such as launching a net flash program on China Central TV channel and other 12 TV channels. In order to recruit experienced computer engineers/technicians, the Company has to increase the staff's salary to a competitive market level. Included in the G&A expenses for fiscal year ended December 31, 2000 were $331,771 in non-cash compensation expenses incurred as a result of the accounting effect of granting and repricing certain stock options and the issuance of shares for services under the "Forlink Software Corporation, Inc. Stock Plan." Liquidity and Capital Resources During the fiscal year ended December 31, 2000, the Company used $221,402 to acquire plant and equipment. During the fiscal year ended December 31, 2000, $262,572 (net) was provided by financing activities. As of December 31, 2000, the Company had $202,631 cash on hand, and a working capital surplus of $209,599. However, due to the rapid growth of the Company, additional capital may be required. In order for the Company to meet its continuing cash requirements and to successfully implement its growth strategy, the Company will need to rely on increased future revenues and/or will require additional financing. In the event additional financing is required, no assurances can be given that such financing will be available in the amount required or, if available, that it can be on terms satisfactory to the Company. Competition As an internet software tools development company, the Company stands in a unique position in the growing internet market in the PRC. The Company has developed "For-Series" internet tools, "For-Mail", "For-Search" etc. All the products are used by a considerable number of reputable companies in the PRC. In order to solidify our products' leading market position, more resources will be allocated to the product developments. Management of Growth If the Company is successful in implementing its growth strategy, the Company believes it can undergo a period of rapid growth. The Company will focus on "For-Mail" and "For-Search" development and marketing promotion. The Company will develop "For-Mail" and "For-Search" in depth and, based on these two products, develop software application for users in the finance and banking industrial sector and certain government departments such as the Public Security Bureau. The Company has integrated the SMS and WAP to its "For-Mail" and "For-Search". The new system has been implemented on two influential wireless sites in the PRC. Acquisition of Slait The Company is in the process of acquiring SLAIT, which is a leading AIT (Application Integration Technology) company in China. SLAIT was founded in January of 1998 and specializes in large volume transaction processing software for network such as mobile phone billing and band operation. SLAIT's unaudited revenues for year end 2000 were approximately $3,000,000. The combination with 6 8 SLAIT allows the Company to bid for larger integration contracts. Subject to shareholder approval, the Company has proposed to acquire SLAIT from SLAIT's shareholders in exchange for 59,430,000 shares of Common Stock of the Company and approximately US$140,000. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized as income in the period of change. SFAS No. 133 as amended by SFAS No. 137 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, the adoption of the standard did not affect the Company's financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101, as amended, summarizes and clarifies certain existing accounting principles for the recognition and classification of revenues in the financial statements. The adoption of SAB 101 did not have any effect on the Company's financial statements. ITEM 7. FINANCIAL STATEMENTS. The information required by Item 7 and an index thereto commences on page F-1, which pages follow this page. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On January 4, 2000 the Company dismissed the independent accountant firm of Smith & Company and appointed BDO International as its new certified public accountants. The change in the accounting firms was the result of the Company's reorganization in November 1999. A Current Report on Form 8-K was filed on January 10, 2000 to report the change in the accountants. 7 9 FORLINK SOFTWARE CORPORATION, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999
PAGES Report of Independent Auditors F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Stockholders' Equity F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 - F-15
10 REPORT OF INDEPENDENT AUDITORS To the Board of Directors of Forlink Software Corporation, Inc. We have audited the accompanying consolidated balance sheets of Forlink Software Corporation, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 2000 and 1999. These consolidated 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 generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 Forlink Software Corporation, Inc. as of December 31, 2000 and 1999 and the results of its consolidated operations and cash flows for the years ended December 31, 2000 and 1999, in conformity with generally accepted accounting principles in the United States of America. BDO INTERNATIONAL Hong Kong, February 13, 2001 F-1 11 FORLINK SOFTWARE CORPORATION, INC. CONSOLIDATED BALANCE SHEETS (Expressed in US Dollars)
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 202,631 $ 856,233 Accounts receivable 40,392 1,690 Other receivables, deposits and prepayments (Note 4) 172,747 17,044 Inventories (Note 5) 37,297 34,286 ----------- ----------- Total current assets 453,067 909,253 PLANT AND EQUIPMENT, NET (Note 6) 227,690 43,792 ----------- ----------- TOTAL ASSETS $ 680,757 $ 953,045 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Amounts due to stockholders (Note 7) $ 83,345 $ 120,773 Other payables and accrued expenses (Note 8) 144,093 560,476 Other taxes payable (Note 9) 16,030 1,100 ----------- ----------- Total current liabilities 243,468 682,349 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY Common stock, par value $0.001 per share; 100,000,000 shares authorized; 25,400,000 and 25,000,000 shares issued and outstanding, respectively 25,400 25,000 Additional paid-in capital 1,382,001 250,630 Accumulated losses (970,112) (4,934) ----------- ----------- Total stockholders' equity 437,289 270,696 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 680,757 $ 953,045 =========== ===========
See accompanying notes to consolidated financial statements. F-2 12 FORLINK SOFTWARE CORPORATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in US Dollars)
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ NET SALES $ 728,477 $ 67,238 COST OF SALES (385,719) (17,200) ------------ ------------ GROSS PROFIT 342,758 50,038 SELLING EXPENSES (135,256) (8,992) GENERAL AND ADMINISTRATIVE EXPENSES (1,062,792) (40,975) RESEARCH AND DEVELOPMENT EXPENSES (120,497) -- ------------ ------------ OPERATING (LOSS)/INCOME (975,787) 71 INTEREST INCOME 7,943 1,432 OTHER INCOME, NET 2,666 10 ------------ ------------ (LOSS)/INCOME BEFORE INCOME TAX (965,178) 1,513 PROVISION FOR INCOME TAX (NOTE 11) -- -- ------------ ------------ NET (LOSS)/INCOME $ (965,178) $ 1,513 ============ ============ EARNINGS/(LOSS) PER SHARE - BASIC AND DILUTED $ (0.04) $ -- ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 25,237,808 20,833,000 ============ ============ - DILUTED 25,237,808 20,833,000 ============ ============
See accompanying notes to consolidated financial statements. F-3 13 FORLINK SOFTWARE CORPORATION, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Expressed in US Dollars)
COMMON STOCK -------------------------- NUMBER ADDITIONAL TOTAL OF PAID-IN SUBSCRIPTION ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL RECEIVABLE LOSSES EQUITY ----------- ----------- ----------- ------------ ----------- ------------ Balance, November 11, 1998 -- $ -- $ -- $ -- $ -- $ -- Issuance of common stock to BFST's stockholders 20,000,000 20,000 100,773 -- -- 120,773 Net loss -- -- -- -- (6,447) (6,447) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 20,000,000 20,000 100,773 -- (6,447) 114,326 Return of capital to BFST's stockholders -- -- (120,773) -- -- (120,773) Issuance of common stock in connection with reverse acquisition (Note 1) 5,000,000 5,000 270,630 (275,000) -- 630 Payment of subscription receivable (Note 3) -- -- -- 275,000 -- 275,000 Net income -- -- -- -- 1,513 1,513 ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1999 25,000,000 25,000 250,630 -- (4,934) 270,696 Issuance of common stock (Note 8) 200,000 200 799,800 -- -- 800,000 Issuance of common stock in connection with compensation payments (Note 12) 200,000 200 276,883 -- -- 277,083 Issuance of options to consultants/lawyers -- -- 54,688 -- -- 54,688 Net loss -- -- -- -- (965,178) (965,178) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2000 25,400,000 $ 25,400 $ 1,382,001 $ -- $ (970,112) $ 437,289 =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 14 FORLINK SOFTWARE CORPORATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Decrease)/Increase in Cash and Cash Equivalents (Expressed in US Dollars)
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss)/income $(965,178) $ 1,513 Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities Depreciation of plant and equipment 37,504 4,773 Non-cash compensation expenses 331,771 -- Changes in: Accounts receivable (38,702) (1,690) Other receivables, deposits and prepayments (155,703) (17,016) Inventories (3,011) (34,286) Other payables and accrued expenses 83,617 55,756 Other taxes payable 14,930 1,072 --------- --------- NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES (694,772) 10,122 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of plant and equipment (221,402) (18,483) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (221,402) (18,483) --------- --------- Cash flows from financing activities Payment of subscription of common stock 300,000 275,000 Monies received from potential investor -- 500,000 Capital contribution by stockholder -- 630 Repayment to stockholders (37,428) -- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 262,572 775,630 --------- --------- NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (653,602) 767,269 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 856,233 88,964 --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 202,631 $ 856,233 ========= ========= SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTIONS Loan from potential investor capitalized $ 500,000 $ -- ========= =========
See accompanying notes to consolidated financial statements. F-5 15 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS Beijing Forlink Software Technology Co., Ltd. ("BFST") was established in the People's Republic of China (the "PRC") on November 11, 1998 as a limited liability company. It commenced operations in May 1999. The principal activities of BFST are the provision of computer software consultancy and engineering services and the development and sale of computer software in the PRC. As a part of computer consultancy and engineering services, sale of computer hardware is also a significant business to the Company. On November 3, 1999, 100% of the common stock of BFST was acquired by Light Energy Management, Inc. ("LEM"), in exchange for 20,000,000 shares of LEM's $0.001 par value common stock, plus a cash consideration of Renminbi (RMB) 1,000,000. For accounting purposes, the acquisition has been treated as the acquisition of LEM by BFST with BFST as the acquirer (reverse acquisition). The historical financial statements prior to November 3, 1999 are those of BFST. All shares and per share data prior to the acquisition have been restated to reflect the stock issuance as a recapitalization of BFST. LEM was initially incorporated in the State of Utah on January 7, 1986, under the name of Why Not?, Inc. ("Why Not"). On December 30, 1993, Why Not was dissolved as a Utah corporation and re-incorporated as a Nevada corporation. In December 1998, Why Not changed its name to Light Energy Management, Inc. On December 6, 1999, LEM changed its name to Forlink Software Corporation, Inc. ("the Company"). NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES BASIS OF ACCOUNTING AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America and present the financial statements of the Company and its wholly owned subsidiary, BFST. All material intercompany transactions have been eliminated. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The functional currency of the Company is US$ and the financial records are maintained and the financial statements prepared in US$. The functional currency of BFST is Renminbi (RMB) and the financial records are maintained and the financial statements are prepared in RMB. Foreign currency transactions during the year are translated into US$ at the exchange rates ruling at the transaction dates. Gain and loss resulting from foreign currency transactions are included in the statement of operations. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into US$ at year end exchange rates. When assets, liabilities and equity denominated in RMB are translated into US$, translation adjustments are included as a component of stockholders' equity. Exchange rates between US$ and RMB are fairly stable during the year presented. The rates ruling as of December 31, 1999 and 2000 are US$1 : RMB8.28 and US$1 : RMB8.28, respectively. Due to the stability of the exchange rates, there were no net adjustments in stockholders' equity. F-6 16 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES - CONTINUED REVENUE RECOGNITION Revenue from software sales is recognised when all shipment obligations have been met, fees are fixed and determinable, collection of sales proceeds is deemed probable and persuasive evidence of an arrangement exists. In particular, revenue from provision of computer consultancy and engineering services is recognised when services are rendered in stages as separate identifiable phases of a project are completed. The sale of computer hardware is recognised as revenue on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and title has passed. INVENTORIES Inventories are stated at the lower of cost or market. Cost of raw materials includes cost of purchase computed using the first-in-first-out method; cost of work-in-progress and finished goods includes cost of materials, direct labor and an appropriate proportion of production overheads that have been incurred in bringing the inventories to their present location and condition. Market value is determined by reference to the sales proceeds of items sold in the ordinary course of business after the balance sheet date or to management estimates based on prevailing market conditions. CASH AND CASH EQUIVALENTS Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. PLANT, EQUIPMENT AND DEPRECIATION Plant and equipment are stated at cost. Depreciation is computed using the straight-line method to allocate the cost of depreciable assets over the estimated useful lives of the assets as follows:
ESTIMATED USEFUL LIFE (IN YEARS) ----------- Computer equipment 5 Office equipment 5 Motor vehicle 5-10 Leasehold improvements Over lease term
F-7 17 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES - CONTINUED PLANT, EQUIPMENT AND DEPRECIATION - CONTINUED Maintenance, repairs and minor renewals are charged directly to the statement of operations as incurred. Additions and betterment to plant and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in the statement of operations. ADVERTISING COSTS All advertising costs incurred in the promotion of the Company's products and services are expensed as incurred. PROJECT AND COMPUTER SOFTWARE DEVELOPMENT COSTS In accordance with SFAS No. 86 "Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed" software development costs are expensed as incurred until technological feasibility in the form of a working model has been established. Deferred software development costs will be amortized over the estimated economic life of the software once the product is available for general release to customers. For the current products, the Company determined that technological feasibility was reached at the point in time it was available for general distribution. Therefore, no costs were capitalized. LONG-LIVED ASSETS The Company periodically reviews their long-lived assets for impairment based upon the estimated future cash flows expected to result from the use of the asset and its eventual disposition. When events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, the asset is written down to its net realizable value. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109. Under SFAS No. 109, deferred tax liabilities or assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. F-8 18 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES - CONTINUED NET LOSS PER COMMON SHARE The Company computes net loss per share in accordance with SFAS No. 128, Earnings per Share ("SFAS No. 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by dividing the net loss available to common shareholders for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net loss per share gives effect to common stock equivalents, however, potential common shares are excluded if their effect is antidilutive. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of certain financial instruments, including cash, accounts receivable and other payables and accrued expenses approximate their fair values as of December 31, 2000 and 1999 because of the relatively short-term maturity of these instruments. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized as income in the period of change. SFAS No. 133 as amended by SFAS No. 137 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, the adoption of the standard did not affect the Company's financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101, as amended, summarizes and clarifies certain existing accounting principles for the recognition and classification of revenues in the financial statements. The adoption of SAB 101 did not have any effect on the Company's financial statements. NOTE 3 - SUBSCRIPTION RECEIVABLE This represents subscription monies receivable in connection with the private placement of 4,000,000 shares of common stock of LEM prior to the reverse acquisition of BFST. The monies were fully received in December 1999. F-9 19 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 4 - OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Other receivables $ 75,397 $ 36 Deposits 996 4,469 Prepayments 96,354 12,539 -------- -------- $172,747 $ 17,044 ======== ========
NOTE 5 - INVENTORIES
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Raw materials $37,297 $ 892 Work-in-progress -- 33,394 Finished goods -- -- ------- ------- $37,297 $34,286 ======= =======
NOTE 6 - PLANT AND EQUIPMENT, NET
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Computer equipment $ 97,158 $ 27,734 Office equipment 69,588 2,046 Motor vehicle 67,341 18,785 Leasehold improvement 35,880 -- -------- -------- 269,967 48,565 Less: Accumulated depreciation 42,277 4,773 -------- -------- $227,690 $ 43,792 ======== ========
F-10 20 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 7 - AMOUNTS DUE TO STOCKHOLDERS The amounts represent cash consideration payable to the original investors of BFST in connection with the reverse acquisition of BFST by the Company. These investors became the major stockholders of the Company following the reverse acquisition. NOTE 8 - SUBSCRIPTION OF COMMON STOCK The Company has a plan to raise $2,000,000 through the sale of 200,000 shares of its common stock at $4.00 per share to an investor and the investor would also receive warrants to purchase 200,000 shares of common stock at $6.00 per share. Other payables and accrued expenses at December 31, 1999 included $500,000 non-refundable monies received from the investor in this offer. During the year of 2000, an additional $300,000 was received from the investor. On July 19, 2000, the Company issued 200,000 shares of its common stock to the investor. Accordingly, $800,000 was capitalized as common stock and additional paid-in-capital. NOTE 9 - OTHER TAXES PAYABLE Other taxes payable comprise mainly Valued-Added Tax ("VAT") and Business Tax ("BT"). VAT is charged at rates of 6% to 17% on the selling price of BFST's products. BT is charged at a rate of 5% on the revenue from the provision of software consultancy services. Since September 2000, in accordance with relevant PRC tax regulation, all of the Company's operating income becomes subject to VAT of a rate of 17%. However, since then the Company enjoys a beneficial tax treatment as a high-tech company. Accordingly, the effective VAT tax rate would be around 3%. NOTE 10 - COMMITMENTS AND CONTINGENCIES OPERATING LEASE COMMITMENT During the year ended December 31, 2000 and 1999, BFST incurred lease expenses amounting to $137,570 and $1,861 respectively. As of December 31, 2000, the Company had commitments under non-cancellable operating lease expiring in excess of one year amounting to $282,346. Rental payments for each of the succeeding periods are: January 1, 2001 to December 31, 2001 $242,011 January 1, 2002 to December 31, 2002 40,335 -------- $282,346 ========
F-11 21 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 11 - INCOME TAX Pursuant to an approval document dated June 23, 1999 issued by the Beijing Tax Bureau, BFST, being a "New Technology Enterprise" is eligible to full exemption from PRC Corporate Income Tax for a period of 3 years commencing January 1, 1999, followed by a 50% reduction from the years from 2003 to 2005. No provision for deferred taxation has been made as there is no material temporary difference at the balance sheet date. NOTE 12 - STOCK PLAN On June 1, 2000, the stockholders of Company approved a plan of stock-based compensation incentives for selected eligible participants who are the staff and consultants of the Company. This plan is known as the "Forlink Software Corporation, Inc. Stock Plan" (the "Plan"). The total number of shares of common stock reserved for issuance by the Company either directly as stock awards or underlying options granted under this Plan shall not be more than 1,600,000. Under terms of the Plan, options can be issued to purchase shares of the Company's common stock. The Board of Directors shall determine the terms and conditions of each option granted to eligible participants, which terms shall be set forth in writing. The terms and conditions so set by the Board of Directors may vary from one eligible participant to another. The Company will account for the options issued to employees using the intrinsic value method of accounting prescribed by the Accounting Principle Board Opinion No. 25, "Accounting for Stock Issued to Employees". The Company will also provide the proforma disclosures required by SFAS No. 123, "Accounting for Stock Based Compensation". The following table summarizes the activity on stock options under the stock plan:
Weighted Average Number of shares Exercise Price ---------------- ---------------- Outstanding at December 31, 1999 0 0 Granted 1,968,000 $2.28 Exercised 0 0 Forfeited or Cancelled 631,000 $5.00 Outstanding at December 31, 2000 1,337,000 $1.00
All outstanding options at December 31, 2000 are exercisable. The weighted average fair value of options, calculated using the Black-Scholes option pricing mode, granted during 2000 was $2.06 per share. The weighted average remaining life of options outstanding at December 31, 2000 was 6 years. All outstanding options were exercisable at $1. F-12 22 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 12 - STOCK PLAN - CONTINUED If the Company had elected to recognize compensation cost based on the fair value at the grant dates for options issued under the plans described above, consistent with the method prescribed by SFAS 123, net loss and loss per share would have been changed to the pro forma amounts indicated below for the year ended December 31, 2000: Net loss As reported $ (965,178) Proforma $(1,450,458) Basic and diluted earnings per share As reported $ (0.04) Proforma $ (0.06)
The fair value of stock options used to compute pro forma net income applicable to common shareholders and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 2000: Dividend yield of 0%; expected volatility of 90%; a risk-free interest rate of 5.98%; and an expected option life of 5.5 years. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25. The Interpretation, which has been adopted prospectively as of July 1, 2000, requires that stock options that have been modified to reduce the exercise price be accounted for as variable. The Company repriced 337,000 stock options on September 21, 2000, and reduced the exercise price to $1 per share, the then-current market price of the stock. Under the Interpretation, the options are accounted for as variable from September 21, 2000 until the options are exercised, forfeited or expire unexercised. Because the market price of the Company's stock increased since September 21, 2000, the effect of adopting the Interpretation was to increase net loss for the quarter ended September 30, 2000 by $252,750 or $0.01 per share. However, as of December 31, 2000, the market price of the Company's stock decreased to a level lower than the exercise price. Accordingly, on a year to date basis, there are no effects of adoption the Interpretation and the effect for the quarter ended September 30, 2000 was reversed as of the year end date. On June 1, 2000, a fee agreement was entered into between the Company and Futro and Tranernicht LLC, the corporate attorneys of the Company ("the Attorneys"). It is agreed that the Attorneys would accept as compensation from the Company in full for all legal services provided and to be provided from the date of June 1, 2000 to April 30, 2001, a fee consisting of the following: (a) 100,000 shares of common stock of the Company; and (b) options to acquire 100,000 shares of common stock of the Company, at an exercise price of $5.00 per share. F-13 23 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 12 - STOCK PLAN - CONTINUED On July 20, 2000, 100,000 shares of common stock were issued to the Attorneys. The market value as of that date was $4.00 per share. Expense is recorded based on the fair value of the stock at grant date and recognized over the service period of the contract. $233,333 was recognized in the current year. Up to date, the options have not been issued to the Attorneys. However, on September 21, 2000, the terms of the agreement were changed to issue 500,000 options at $1. The value of the options is recognized as expense over the service period of the contract. The value of the options was determined using a Black Scholes model using the following assumptions: Expected life : 5.5 years; Risk free rate : 5.03%; Dividends : 0; Volatility : 90%.
$43,750 was recognized in the current year. On June 1, 2000, a consulting agreement was entered into between the Company and Netreach Studios, Ltd., a marketing consultant of the Company ("the Consultant"). The Consultant would accept as compensation from the Company in full for all consulting services to be provided from June 1, 2000 to May 31, 2004, a fee consisting of the following: (a) 100,000 shares of common stock of the Company; and (b) options to acquire 100,000 shares of common stock of the Company, at an exercise price of $5.00 per share. On July 20, 2000, 100,000 shares of common stock were issued to the Consultant. The market value as of that date was $3.00 per share. Expense is recorded based on the fair value of the stock at grant date and recognized over the service period of the contract. $43,750 was recognized in the current year. Up to date, the options have not been issued to the Consultant. However, on September 21, 2000, the terms of the agreement were changed to issue 500,000 options at $1. The value of the options is recognized as expense over the service period of the contract. The value of the options was determined using a Black Scholes model using the following assumptions: Expected life : 5.5 years; Risk free rate : 5.03%; Dividends : 0; Volatility : 90%.
$10,938 was recognized in the current year. F-14 24 FORLINK SOFTWARE CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) NOTE 13 - SUBSEQUENT EVENT On January 11, 2001, the Company entered into an agreement of Plan of reorganization ("the Plan") with Beijing SLAIT Science & Technology Development Limited Company ("SLAIT"). It is agreed that the Company will issue to the shareholders of SLAIT as individuals 59,430,000 authorized but unissued shares of common stock of the Company in exchange of 100% of the issued and outstanding shares of the common stock of SLAIT. The closing of this exchange transaction shall be on the date that is no earlier than 20 days after the completion of a mailing of a Definitive Information Statement to the shareholders of the Company as required by Section 14(c) of the Securities Exchange Act of 1934. As of the latest practicable date, February 13, 2001, the final closing date of this Plan has not been determined. F-15 25 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. As of December 31, 2000 and as of the date of filing this report, the directors and executive officers of the Company, their ages, positions in the Company, the dates of their initial election or appointment as director or executive officer, and the expiration of the terms as directors were, and are, as follows:
Name Age Position Director Since ---- --- -------- -------------- Liang Che 36 Chief Executive Officer, Chief Financial November 1999 Officer and Director Xiaoxia Zhao 37 Chairman, President, Chief Technology Officer and Director November 1999 Jie Zhang 35 Vice President, Manager of November 1999 Technology Development Department and Director Wei Song 36 Director November 1999 Michael Harrop 55 Director May 1998 Huakang He 55 Director October 2000 Ma Shengli 55 Director October 2000
The Company's directors are elected at the annual meeting of stockholders, or via an appropriate shareholder consent, and hold office until their successors are elected and qualified. The Company's officers are appointed annually by the Board of Directors and serve at the pleasure of the Board. LIANG CHE has been Chief Executive Officer, Chief Financial Officer and director of the Company since November 1999. During the period covering 1996 until 1998, he was President of Shenzhen Shen Pu Computer Co., Ltd. and developed the Shanghai railway ticketing system, which is the largest ticketing system in China. From 1992 to 1996, he was the General Manager of the Middle China/South West China District. Liang Che has a Masters Degree in Computer Science. XIAOXIA ZHAO has been Chairman, President, Chief Technical Officer and director of the Company since November 1999. During the period from January 1998 until October 1998, he was Vice President and Chief Technical Officer of GBS InfoTech Co. From August 1997 to January 1998, he was Chief Engineer and in charge of technology management and the system integration department of Beijing Long Ma Software Development Co., Ltd. From 1996 until 1997, he was the leading engineer in charge of the Yahoo!Japan operation and support, cooperated with Panasonic to develop a specialized search engine, worked with Lotus on category and search system development and with Reuters and Daily News on news page developments. During the period from 1991 to 1996, he was a System Engineer with the Japan Itochu Group CRC Research Institute. Xiaoxia Zhao has a Masters Degree in Computer Science. JIE ZHANG has been Vice President, Manager of Technology Development Department and director of the Company since November 1999. From 1989 to 1998, Jie Zhang was Senior Engineer for South China Computer Co. and in charge of CEDGA monitor cards, iron temperature control ASIC chip development, network design for networks composed of SUN, SGI, and CISCO equipment. During the period from February 1995 until August 1996, he was sent to Japan to research international banking 8 26 software system on the Fujitsu M series super computer. Jie Zhang has a Masters Degree in Computer Science. WEI SONG has been a director of the Company since November 1999. From 1995 until 1998, she was President of Yun Tiing International, Inc. an incharge computer imp/exp business. During the period covering 1986 to 1995, she was Manager of the computer department of Hong Kong Da Cang Co., Ltd. Wei Song has a Bachelors Degree in Computer Science. MICHAEL HARROP was President of the Company from May 1998 until November 1999 and is currently a director of the Company. Mr. Harrop is President of Harrop, Lees, Brown & Co. in Geneva Switzerland and for the past five years has been involved in venture capital activities. He is a director of Century Milestone S&T Co., Ltd. (formerly Haas Neuveux & Company) and VIPC Communications, Inc. Mr. Harrop was educated at Cambridge University. HUAKANG HE has been a director of the Company since October 2000. Huakang He has been the Standing Director of China Computer Academic since April 2000. From July 1993 until July 1998, he was General Manager of the Greatwall Software & System Corporation of China. During the period covering July 1998 to January 2000, Huakang He was appointed Chairman of the Board of Greatwall Software & System Corporation of China in addition to being General Manager. Since June 1997, he has been Director and Vice General Manager of the Greatwall Corporation, Inc. in Shenzhen China. Since October 1996, Huakang He has been Vice President of the Chamber of Information Industry Association of China. Since June 1996, he has been Chief Director of the Digital Product Union of China Information Industry Association and from November 1995 he has been Director and Vice General Manager of the Greatwall Computer Group Corporation of China. Huakang He is a certified Engineer Professor. He received a B.A. degree in Industrial Automatization of Electrical Engineering from Tshinghua University in February 1968. In March 1981, Huakang He received a Masters Degree in Automation from Tsinghua University. MA SHENGLI has been a director of the Company since October 2000. Since February 1998, Ma Shengli has been Vice President of Hongtaxingye Investment Corporation, Inc. From January 1994 until February 1998 she was Finance Director of the Greatwall Software & System Corporation of China. During the period from July 1989 until January 1994, Ma Shengli was Project Manager of the Greatwall Computer Group Corporation of China. From September 1985 until July 1989 she attended Renming University of China and received a BS degree in Management Information Systems. Since October 1998 she has been in the MBA program at The Open University of Hong Kong. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS Michael Harrop, by virtue of the unlimited personal guarantee accorded by him to Harrop & Cie, S.A., (formerly HF Trade & Finance S.A.) a Swiss venture capital company that became insolvent subsequent to having acted as guarantor of certain investments, underwent bankruptcy proceedings during 1994 in the District of Nyon, Switzerland. The bankruptcy procedure was closed without complaint or suit on December 22, 1995 by order of the President of the Tribunal of the District of Nyon, Switzerland. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Officers, directors, and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of copies of such reports received or written representations from certain reporting persons, the Company believes that, during the year ended December 31, 2000, all Section 16(a) filing requirements applicable to its officers, directors and ten percent shareholders were in compliance with SEC regulations, except that Michael Harrop, a director, has not reported the sale of 400,000 shares of restricted common stock in a private transaction on or about October 1, 2000. 9 27 ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth information about compensation paid to, or accrued for the benefit of the Company's officers and directors during the years ended December 31, 2000, 1999 and 1998. This information includes amounts that were paid to the management of Beijing Forlink Software Technology Co., Inc. prior to the acquisition by the Company and amounts paid to such management after the acquisition. None of the Company's directors or executive officers earned more than $100,000 during the years ended December 31, 2000, 1999 and 1998. Summary Compensation Table
Annual Compensation ---------------------------------- (a) (b) (c) (d) (e) Name Year Other And Ended Annual Principal December Salary Bonus Compensation Position 31 ($) ($) ($) --------- -------- ------- ----- ------------ Liang Che, CEO, CFO & Director 2000 $19,958 -0- -0- 1999 2,927 -0- -0- 1998 -0- -0- -0- Xiaoxia Zhao, President & Director 2000 $19,955 -0- -0- 1999 2,905 -0- -0- 1998 -0- -0- -0- Jie Zhang, Vice President, Manager of 2000 $16,793 -0- -0- Technological Development & Director 1999 1,561 -0- -0- 1998 -0- -0- -0-
Long Term Compensation ----------------------------------- Awards Payouts ----------------------------------- (a) (b) (f) (g) (h) (i) Name Year Restricted All And Ended Stock Shares LTIP Other Principal December Award(s) Underlying Payouts Compensation Position 31 ($) Options ($) ($) --------- -------- ---------- ---------- ------- ------------ Liang Che, CEO, CFO & Director 2000 -0- -0- -0- -0- 1999 -0- -0- -0- -0- 1998 -0- -0- -0- -0- Xiaoxia Zhao, President & Director 2000 -0- -0- -0- -0- 1999 -0- -0- -0- -0- 1998 -0- -0- -0- -0- Jie Zhang, Vice President, Manager 2000 -0- -0- -0- -0- of Technological Development & 1999 -0- -0- -0- -0- Director 1998 -0- -0- -0- -0-
Because no options, stock appreciation rights or Long-Term Incentive Plans have been granted to any of the executive officers, the information and tables otherwise required by this Item which relate to such forms of compensation have been omitted. There are no written employment agreements with any of the Company's executive officers. 10 28 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth, as of March 23, 2001, the stock ownership of each person known to the Company to be the beneficial owner of five percent (5%) or more of the Company's Common Stock, each executive officer and director individually and all executive and directors of the Company as a group.
Percent Owned Name and Address of Amount and Nature of Beneficially and Beneficial Owner Beneficial Ownership of Record (3) (1)(4) (2) ------------------- -------------------- ----------------- Liang Che 5,781,000 22.7% Zhong Zhi SRP Co Shen Nan Zhong RD Shnzhn Guang Dong Province China Xiaoxia Zhao 5,790,500 22.7% 231-2-501 Hui Xing Li Chao Yang District Beijing, China Wei Song 5,612,500 22.0% 18 Golden Star Irvine, CA 92604, USA Jie Zhang 1,291,000 5.1% No. 21 Shiu Jun Nan Nie Guangzhou Guang Dong Province, China Michael Harrop 800,000 3.1% 94 Rue de Lausanne, CH1202 Geneva, Switzerland Huakang He 0 0% 6-4-602 Fengya Yuan, Huelongguan, Beijing Ma Shengli 0 0% 9F Fangyuan Masion, Zhongguancun South Road Yi 56, Haidian, Beijing All officers and directors of the Company as 19,275,000 75.7% a group (seven persons)
---------- (1) Unless otherwise indicated, all shares are directly owned and investing power is held by the persons named in the table. (2) Based upon 25,470,000 shares of Common Stock outstanding as of March 23, 2001. (3) Each individual named in the table is an officer or director of the Company. 11 29 (4) All of the shares of Common Stock held by officers, directors and principal shareholders listed above are "restricted securities" and, as such, are subject to limitations on resale. The shares may be sold pursuant to Rule 144 of the Securities Act of 1933, as amended, under certain circumstances. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company entered into a modification agreement with Michael Harrop, d/b/a Harrop & Co. under the terms of which the Company agreed to modify the consideration for the issuance of 4,000,000 shares of the Company's common stock in May of 1998. Under the terms of this agreement, Mr. Harrop, an officer and director of the Company, executed a promissory note in favor of the Company in the amount of $275,000 and bore interest at the rate of 1 percent per annum. The note has since been paid in full. On November 3, 1999, the Company entered into a Plan of Reorganization with Beijing Shijiyonglian Ruanjian Jishu Youxian Gongsi (Beijing Forlink Software Technology Co. Ltd., (hereinafter "BFSTC"), under the terms of which BFSTC gained control of the Company. Pursuant to the Plan of Reorganization (the "Plan"), the Company acquired 100% of the issued and outstanding shares of BFSTC in exchange for 20,000,000 shares of restricted Common Stock of the Company. Under the terms of the Plan, Liang Che, Xiaoxia Zhao, and Wei Song were issued 5,812,500 shares each, and Jie Zhang was issued 1,312,500 shares. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit Number Description ------- ----------- 2.1 Plan of Reorganization with Beijing Forlink Software Technology Co. Ltd. dated November 3, 1999 (Incorporated by reference to Exhibit No. 2.1 of the current report on Form 8-K dated November 3, 1999, and filed November 18, 1999.) 2.2 Addendum to the Plan of Reorganization dated November 3, 1999. (Incorporated by reference to Exhibit No. 2.2 of the current report on Form 8-K/A-2 dated November 3, 1999, and filed March 31, 2000.) 3.1 Articles of Incorporation, as amended and currently in effect. (Incorporated by reference to Exhibit No. 3.1 of the Form 10-QSB for the quarter ended March 31, 2000, and filed on May 13, 2000.) 3.2 Bylaws dated May 11, 2000. (Incorporated by reference to Exhibit No. 3.2 of the Form 10-QSB for the quarter ended March 31, 2000, and filed on May 13, 2000.) 10.1 Forlink Software Corporation, Inc. Stock Plan dated June 1, 2000. (Incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-8 (file no. 333-41700) filed July 19, 2000.) (b) Reports on Form 8-K The Company did not file any Current Reports on Form 8-K during the quarter ended December 31, 2000. 12 30 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FORLINK SOFTWARE CORPORATION, INC. Dated: April 12, 2001. By: /s/ Liang Che ----------------------------------------- Liang Che, Chief Executive Officer, Chief Financial and Accounting Officer and Director 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. By: /s/ Liang Che ----------------------------------------- Liang Che, Chief Executive Officer, Chief Financial and Accounting Officer and Director Date: April 12, 2001 By: /s/ Xiaoxia Zhao ----------------------------------------- Xiaoxia Zhao, Director Date: April 12, 2001 By: /s/ Jie Zhang ----------------------------------------- Jie Zhang, Director Date: April 12, 2001 By: /s/ Michael Harrop ----------------------------------------- Michael Harrop, Director Date: April 12, 2001 13