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SCHEDULE 14C
Revised (Amendment #2)
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[ ] Definitive Information Statement
FORLINK SOFTWARE CORPORATION, INC.
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed
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FORLINK SOFTWARE CORPORATION, INC.
FANG YUAN MANSION 9F,
ZHONGGUANCUN SOUTH STREET YI NO. 56,
HAIDIAN DISTRICT, BEIJING, PRC 100044
INFORMATION STATEMENT
This Information Statement is being mailed to the stockholders of
Forlink Software Corporation, Inc. (the "Company"), a Nevada corporation,
commencing on or about July 22, 2001, in connection with the acquisition of a
controlling interest (up to 100% of the outstanding equity) of Beijing Slait
Science & Technology Development Limited Co., a China corporation ("SLAIT"). The
acquisition of SLAIT was approved by the Company's Board of Directors (the
"Board") and by holders of a majority of the outstanding shares of common stock
of the Company pursuant to an agreement dated January 11, 2001. Accordingly, all
necessary corporate approvals in connection with the matter referred to herein
have been obtained and this Information Statement is furnished solely for the
purpose of informing stockholders, in the manner required under the Securities
and Exchange Act of 1934, as amended, (the "Exchange Act") of this corporate
action before it takes effect.
Only holders of record of the Company's shares of common stock at the
close of business on July 17, 2001 are entitled to receive this notice. No
response is being requested from you and you are requested not to respond to the
Information Statement.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
CORPORATE ACTION TAKEN
The Company, as authorized by the necessary approvals of the Board and
a majority of the Company's stockholders, approved the acquisition of a
controlling interest in SLAIT on January 11, 2001. Closing of the acquisition
will occur on the later of August 17, 2001 or 21 days after this Information
Statement has been mailed to all holder's of record entitled to receive this
notice.
NO DISSENTERS RIGHTS
The corporate action described in this Information Statement will not
afford stockholders the opportunity to dissent from the action described herein.
STOCKHOLDER APPROVAL PREVIOUSLY OBTAINED
At all relevant times, the Company has had 25,470,000 shares of common
stock outstanding, each of which was entitled to one vote on any matter brought
to a vote of the Company's stockholders. On January 11, 2001, the holders of a
majority of the outstanding shares of common stock by written agreement approved
the agreement to acquire SLAIT. Such action is sufficient to satisfy the
applicable requirements of Nevada law concerning obtaining shareholder approval.
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SUMMARY OF THE TRANSACTION
Pursuant to a Plan of Reorganization dated January 11, 2001, the Board of
Directors and a majority of the shareholders of Forlink Software Corporation,
Inc. (the "Company"), approved the Company's acquisition of a controlling
interest (up to 100% of the outstanding equity) of Beijing Slait Science &
Technology Development Limited Co. ("SLAIT"). The essential terms of the
acquisition are as follows:
1. The Company will issue up to 59,430,000 shares of common stock of the Company
to SLAIT's shareholders in exchange for up to 100% of the outstanding equity of
SLAIT. The transaction has already been approved by three controlling
shareholders of SLAIT. At Closing, the Company will offer to the other 34
shareholders of SLAIT to exchange their interest in SLAIT for shares of the
Company on a pro rata basis.
2. SLAIT will become a subsidiary of the Company.
3. The former shareholders of SLAIT will become the controlling shareholders of
the Company.
4. All but one Director of the Company will resign, and two of the former
controlling shareholders of SLAIT will become Directors of the Company.
5. The Company will transfer 1,085,000 RMB (approximately US$140,000) to SLAIT,
which will be disbursed to the former shareholders of SLAIT.
6. To the best knowledge of the Company, the Company is not required to obtain
any governmental or regulatory approvals in connection with this transaction.
7. The exchange will be made pursuant to exemptions from registration under
applicable securities laws and the shares of common stock to be issued by the
Company will be restricted.
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DESCRIPTION OF FORLINK SOFTWARE CORPORATION, INC.
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 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.
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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.
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.
LEGAL PROCEEDINGS.
There are no pending legal proceedings involving the Company.
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".
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
- ------------- -------- -------
June 30, 2001 $ 0.25 $ 0.17
March 31, 2001 $ 0.75 $ 0.187
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
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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.
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.
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.
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.
TWELVE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1999.
Results of Operations
TWELVE MONTHS ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
NET SALES $728,477 $67,238
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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.
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
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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.
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.
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000.
Results of Operations
THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
NET SALES $95,290 $212,107
Net sales were derived from Forlink brand "For-Series" internet
software tools sales, computer hardware sales and internet software system
integration services. The net sales for the first quarter of 2001 are down
substantially from the first quarter of 2000 due primarily to the general market
decline of Chinese businesses in the internet industry that are potential
customers of the Company.
Cost of sales were $25,010 during the quarter ended March 31, 2001,
down from $90,089 during the first quarter of 2000. Selling Expenses were $7,445
during the quarter ended March 31, 2001, down from $51,793 during the first
quarter of 2000. The substantial decreases in both of these expenses were due to
both the decline in sales as well as the Company's reduction in overhead and
costs in these areas.
General and administrative ("G&A") expenses were $345,635 during the
quarter ended March 31, 2001, up from $62,601 during the first quarter of 2000.
The increase in G&A expenses was primarily due to substantial non-cash
compensation expenses. Included in the G&A expenses for quarter ended March 31,
2001 were $148,906 in non-cash compensation expenses incurred as a result of the
accounting effect of granting certain stock options in 2000 and the issuance of
shares for services in the first quarter of 2001 under the "Forlink Software
Corporation, Inc. Stock Plan."
For the quarter ended March 31, 2001, the Company had a net loss of
$271,681, compared to net income of $8,725 for the same quarter in 2000.
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As of March 31, 2001, the Company had $87,479 cash on hand, and a
working capital surplus of $99,497. However, 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.
CHANGES IN ACCOUNTANTS
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.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
As of June 30, 2001, 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 35 Chief Executive Officer, Chief Financial November 1999
Officer and Director
Xiaoxia Zhao 36 Chairman, President, Chief Technology November 1999
Officer and Director
Jie Zhang 36 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 34 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
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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 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 in charge
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 and Ma Shengli, each of whom were directors as of December
31, 2000, each resigned as directors effective June 8, 2001.
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-
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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 & 2000 -0- -0- -0- -0-
Director 1999 -0- -0- -0- -0-
1998 -0- -0- -0- -0-
Xiaoxia Zhao, President & 2000 -0- -0- -0- -0-
Director 1999 -0- -0- -0- -0-
1998 -0- -0- -0- -0-
Jie Zhang, Vice 2000 -0- -0- -0- -0-
President, Manager of 1999 -0- -0- -0- -0-
Technological Development 1998 -0- -0- -0- -0-
& Director
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of June 30, 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
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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
All officers and directors of 19,275,000 75.7%
the Company as a group (five
persons)
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(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
June 30, 2001.
(3) Each individual named in the table is an officer or director
of the Company.
(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.
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DESCRIPTION OF
BEIJING SLAIT SCIENCE AND TECHNOLOGY DEVELOPMENT LIMITED, CO.
("SLAIT")
FLOOR 11, BIN HE PLAZA
NO. 1 CHE DAO GOU ROAD
HAIDIAN DISTRICT
BEIJING CHINA
Beijing Slait Science & Technology Development Limited Co. ("SLAIT") is an
Application Integration Technology (AIT) provider. Established in 1998, SLAIT is
focusing on offering AIT and its applications for several industries, including:
Telecommunications, Financial Services, Retailers and Third Party Logistics.
SLAIT provides its customers with state-of-art products and services in both
software and hardware, to allow them to offer e-commerce service to their
customers. SLAIT's customers include Beijing Mobile Communication Company, PICC
(People's Insurance Company of China) and the Agricultural Bank of China
Guangdong Branch.
SLAIT provides services for training consultation and e-commerce transactions
and focuses on assisting customers in providing reliable e-commerce services
total application solutions. SLAIT also assists enterprises in various
industries in fully utilizing their existing investments in developing new
integrated application systems.
SLAIT has approximately 80 employees.
I. COMPANY BUSINESS
SLAIT's business is focused in three areas : (1) developing enterprise
application software, (2) developing enterprise application integration (EAI)
platforms and tools, and (3) application solutions consulting for enterprises.
SLAIT has developed many application systems and solutions in several areas,
such as mobile communication, banking and large enterprises.
II. PRODUCTS AND TOOLS
SLAIT has two application integration platforms:
(1) Transaction Process Control System -- TPCS
TPCS is based on an X/OPEN Ddistributed Traction Process (DTP) model. TPCS
provides a platform and tools for distributed application development. At
present, TPCS 2.0 has been widely used in many large application projects
and products, such as Business Operation Support Systems (BOSS) used by
China Mobile Communications Corp., data center of People's Insurance of
China Corp., etc. TPCS supports many operating systems environments, such
as HP HP-UX, IBM AIX, SUN Solaris, SCO UNIX and Windows platforms.
(2) Object Request Broker Control System -- ORBCS
ORBCS is based on OMG Common Object Request Broker Specification (CORBA).
ORBCS is an application integration platform which SLAIT is developing.
ORBCS 1.0 (based on CORBA 2.3) is used in Data Center projects of Beijing
Mobile Communication Corp.
III. MARKET ANALYSIS
SLAIT has completed numerous application integration projects in fields such as
telecommunications, banking, insurance and e-commerce. The projects include
integrated application solutions, requirement analysis, planning proposal,
systems design, equipment selection, software development, installation and
debugging, risk management and systems maintenance. SLAIT's business has spread
through nearly 20 provinces, cities and autonomous regions.
13
14
SLAIT is focusing on offering Enterprise Application Integration Technology and
its applications. Most technologies on the market today that enable enterprise
application integration (EAI) address only one or two aspects of integration,
forcing users to make multiple buying decisions to integrate portals with their
enterprises. In contrast, SLAIT offers the robust integration brokering and data
center technology needed to address the converging requirements of
application-to application (A2A), business-to business (B2B) and
business-to-consumer (B2C) integration at the Web portal.
The requirement for EAI solutions is very large. The result of IDC research
(www.idc.com) shows that EAI solutions will increase 400% from $2.2 billion in
1998 to 11.6 billion in 2003. The other leading IT research institute - Gartner
Group (www.gartnergroup.com) thinks 98% of new applications will be supported by
EAI technologies in 2001.
IV. COOPERATIVE PARTNERS
SLAIT is an authorized reseller of HP and CISCO, and has experience in server
and workstations for HP along with sales and technical support for network
products for CISCO.
V. COMPETITIVE ANALYSIS
At present, there are only a few software companies focusing on application
integration in China. Most of the software companies in China are focusing on
developing application software based on PC or concentrating systems. There are
three main competitors: Asiainfo Corp, Legend Corp. and China Software Corp.
Representative customers of SLAIT include:
o BANKING
o Inter-city Banking System (ICBS) of Agricultural Bank of China,
Guangdong province
o Network System for Public Service of Agricultural Bank of China,
Jiangmen, Guangdong province
o ISC BC III emulation system transaction control interface (TCI)
o TELECOMMUNICATION
o Integrated charging and business system of Beijing Mobile Communication
Company
o Business and accounting system of Chongqing Mobile Communication
Company
o INSURANCE
o Office automation system of People's Insurance of China Corp. (PICC)
o Secretarial document management system for insurance
o PICC data centralized treatment system
o PICC manager checking system
o PICC vehicle damage-assessment system
o NETWORK ENGINEERING
o Integrated network system project of Beijing Mobile Communication
Company
o Wiring and network project of cities and regions under, and for PICC
Henan (province) branch
o Wiring and network project of PICC Jinan Branch
o Wiring and network project of PICC Jiangxi Province branch
o Wiring and network project of cities and regions under, and for PICC
Dalian (city) branch
o Network project of Tianshan Hotel |X| Network project of Qiaoyuan Hotel
o RETAIL
Management Information System of Beijing Wanfang Supermarket
14
15
PRO-FORMA SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
FORLINK SOFTWARE CORPORATION, INC. AFTER CLOSING OF SLAIT ACQUISITION.
The following table sets forth, on a pro-forma basis after the
acquisition of 100% of the outstanding equity of SLAIT is completed, the stock
ownership of each person known to Forlink Software Corporation, Inc. (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
Amount and Nature of Beneficially and
Name and Address of Beneficial Ownership of Record
Beneficial Owner (1)(4) (2)
------------------------------------- --------------------------- -------------------------
Liang Che 5,781,000 6.8%
Zhong Zhi SRP Co
Shen Nan Zhong RD Shnzhn
Guang Dong Province, China
Xiaoxia Zhao (3) 5,790,500 6.8%
231-2-501 Hui Xing Li
Chao Yang District
Beijing, China
Wei Song 5,612,500 6.6%
18 Golden Star
Irvine, CA 92604, USA
Yi He (3) 25,800,000 30.4%
Floor 11, Bin He Plaza
No. 1 Che Dao Gou Road
Haidian District,
Beijing, China
Hongkeung Lam (3) 10,500,000 12.4%
Floor 11, Bin He Plaza
No. 1 Che Dao Gou Road
Haidian District,
Beijing, China
Jing Zeng 5,760,000 6.8%
Floor 11, Bin He Plaza
No. 1 Che Dao Gou Road
Haidian District,
Beijing, China
All officers and directors of 32,090,500 49.6%
the Company as a group (three
persons)
- -----------------------
(1) Unless otherwise indicated, all shares are directly owned and
investing power is held by the persons named in the table.
15
16
(2) Based upon 84,900,000 shares of Common Stock outstanding immediately
after Closing of the acquisition of SLAIT.
(3) Will be officer or director of the Company upon Closing of the
acquisition of SLAIT.
(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.
DIRECTORS AND EXECUTIVE OFFICERS OF FORLINK SOFTWARE CORPORATION, INC. AFTER
CLOSING OF SLAIT ACQUISITION.
Effective upon Closing of the acquisition of SLAIT, the Officers and Directors
shall be as follows:
XIAOXIA ZHAO, Chairman of the Board of Directors, Secretary, Treasurer. Mr.
Zhao's biography is described above.
YI HE, President Director.
Age 35. From January 1998 to present, Mr. He has been the Founder, Chairman and
President of Beijing SLAIT Science & Technology Development Limited Co. From
March 1993 to January 1998, Mr. He was the President of Beijing Sunny Computer
System Engineering Co. Mr. He has a Master's Degree in Computer Science from
Peking University.
HONKEUNG LAM, Director.
Age 49. From July 2000 to present, present Mr. Lam has been the Chairman of
Beijing Hi Sun In Soft Information Technology Ltd. From June 1998 to June 2000,
Mr. Lam was the Chairman and President of Beijing Jinshili Information
Technology Ltd. From 1992 to February 1998, Mr. Lam was the Manager of Beijing
office of Taiwan Acer Computer (Far East) Co.
MORE INFORMATION
The Company files annual, quarterly and special reports and proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information the Company files at the SEC's
public reference room at 450 Fifth Street N.W., Washington, D.C. 20549, or on
the SEC's web site, http://www.sec.gov.
You may call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may also obtain copies of the filings of the Company has
made with SEC directly from the Company by requesting them in writing or by
telephone at the following address:
Forlink Software Corporation, Inc.
Fang Yuan Mansion 9F
Zhongguancun South Street Yi No. 56
Haidian District, Beijing, PRC 100044
Tel. 011-8610 8802 6368
The payment of expenses related to the preparation, filing and distribution of
this Information Statement has been made by the Company.
By Order of the Board of Directors,
----------------------------------------
Xiaoxia Zhao, Chairman
June ______, 2001
16
17
Annex A
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
18
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
19
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
20
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
21
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
22
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
23
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
24
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
25
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
26
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
27
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
28
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
29
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
30
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
31
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
32
Annex B
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FORLINK SOFTWARE CORPORATION, INC.
UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000
F-1
33
FORLINK SOFTWARE CORPORATION, INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in US Dollars)
March 31, December 31,
2001 2000
------------ ------------
(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents $ 87,479 $ 202,631
Accounts receivable 46,759 40,392
Other receivables, deposits and prepayments (Note 2) 129,012 172,747
Inventories 37,298 37,297
------------ ------------
Total current assets 300,548 453,067
Plant and equipment, net 215,017 227,690
------------ ------------
Total assets $ 515,565 $ 680,757
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Amounts due to stockholders $ 74,490 $ 83,345
Other payables and accrued expenses 123,114 144,093
Other taxes payable 3,447 16,030
------------ ------------
Total current liabilities 201,051 243,468
------------ ------------
Commitments and contingencies
Stockholders' equity
Common stock, par value $0.001 per share;
100,000,000 shares authorized; 25,470,000 and
25,400,000 shares issued and outstanding, respectively 25,470 25,400
Additional paid-in capital 1,530,837 1,382,001
Accumulated losses (1,241,793) (970,112)
------------ ------------
Total stockholders' equity 314,514 437,289
------------ ------------
Total liabilities and stockholders' equity $ 515,565 $ 680,757
============ ============
See accompanying notes to unaudited consolidated condensed financial statements.
F-2
34
FORLINK SOFTWARE CORPORATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in US Dollars)
Three Months ended
March 31,
----------------------------
2001 2000
------------ ------------
(Unaudited) (Unaudited)
Net sales $ 95,290 $ 212,107
Cost of sales (25,010) (90,089)
------------ ------------
Gross profit 70,280 122,018
Selling expenses (7,445) (51,793)
General and administrative expenses (345,635) (62,601)
------------ ------------
Operating (loss)/income (282,800) 7,624
Interest income 584 --
Other income, net 10,535 1,101
------------ ------------
(Loss)/income before income tax (271,681) 8,725
Provision for income tax -- --
------------ ------------
Net (loss)/income $ (271,681) $ 8,725
============ ============
Earnings/(loss) per share - basic and diluted $ (0.01) $ --
============ ============
Weighted average common shares
outstanding - basic and diluted 25,455,843 25,000,000
============ ============
See accompanying notes to unaudited consolidated condensed financial statements.
F-3
35
FORLINK SOFTWARE CORPORATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
(Expressed in US Dollars)
Three Months Ended
March 31,
------------------------
2001 2000
---------- ----------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net income/(loss) $ (271,681) $ 8,725
Adjustments to reconcile net income/(loss)
to net cash used in operating activities
Depreciation of plant and equipment 13,383 2,409
Non-cash compensation expenses 148,906 --
Change in:
Accounts receivable (6,367) (2,950)
Other receivables, deposits and prepayments 43,735 (158,276)
Inventories (1) (26,295)
Accounts payable -- 121
Other payables and accrued expenses (20,979) 50,997
Other taxes payable (12,583) 16,203
---------- ----------
Net cash used in operating activities (105,587) (109,066)
---------- ----------
Cash flows from investing activities
Acquisition of plant and equipment (710) (69,654)
---------- ----------
Net cash used in investing activities (710) (69,654)
---------- ----------
Cash flows from financing activities
Monies received from a potential investor -- 300,000
Loans from stockholders 37,039 --
Repayment to stockholders (45,894) (37,428)
---------- ----------
Net cash (used in) provided by financing activities (8,855) 262,572
---------- ----------
Net (decrease)/increase in cash and cash equivalents (115,152) 83,852
Cash and cash equivalents at beginning of period 202,631 856,233
---------- ----------
Cash and cash equivalents at end of period $ 87,479 $ 940,085
========== ==========
See accompanying notes to unaudited consolidated condensed financial statements.
F-4
36
FORLINK SOFTWARE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 1 - Basis of Presentation
The accompanying financial data as of March 31, 2001 and for the three months
ended March 31, 2001 and 2000, have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. However,
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's audited annual financial statements for the year ended December 31,
2000.
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities. Actual results could differ
from these estimates.
In the opinion of Management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows as of March 31, 2001 and for the three
months ended March 31, 2001 and 2000, have been made. The results of operations
for the three months ended March 31, 2001 and 2000 are not necessarily
indicative of the operating results for the full year.
NOTE 2 - OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS
March 31, December 31,
2001 2000
---------- ------------
Other receivables $ 71,026 $ 75,397
Deposits 60 996
Prepayments 57,926 96,354
---------- ------------
$ 129,012 $ 172,747
---------- ------------
F-5
37
FORLINK SOFTWARE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 3 - 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
Outstanding at March 31, 2001 1,337,000 $1.00
All outstanding options at December 31, 2000 and March 31, 2001 are exercisable.
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 re-priced 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. Since September 21, 2000, the market price of the Company's stock
decreased to a level lower than the exercise price. Accordingly, there are no
effects of adopting the Interpretation for the quarter ended March 31, 2001.
F-6
38
FORLINK SOFTWARE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 3 - STOCK PLAN - Continued
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.
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. $100,000 was recognized in the current quarter. 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 : 4.74%
Dividends : 0
Volatility : 85%
As of March 31, 2001, the value of the options was $41,667. In view of US$43,750
was recognised in the fiscal year of 2000, US$2,083 was reversed in the first
quarter of 2001.
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.
F-7
39
FORLINK SOFTWARE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 3 - STOCK PLAN - Continued
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. $18,750 was recognized in the current quarter. 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 : 4.74%
Dividends : 0
Volatility : 85%
As of March 31, 2001, the value of the options was US$10,417. In view of
US$10,938 was recognised in the fiscal year of 2000, US$521 was reversed in the
first quarter of 2001.
On January 18, 2001, 70,000 shares of common stock of the Company were issued to
employees for services rendered. The market value of the issued stock at that
date was $0.47 per share. Expenses was recorded based on the fair value of the
stock at date of issuance. $32,760 was recognised as an expense in the first
quarter of 2001.
NOTE 4 - GOING CONCERN
As of March 31, 2001, the Company has suffered accumulated losses of $1,241,793.
Historically, the Company's major stockholders provided the Company with
financing sources. While there is no assurance that funding will be available,
the Company is continuing to actively seek funding to operate as a going concern
through equity and/or debt financing. There is an uncertainty that management
fund raising exercise will be successful. The accompanying financial statements
do not include any provisions or adjustments, which might result from the
outcome of the uncertainty discussed above.
F-8
40
ANNEX C
BEIJING SLAIT SCIENCE &
TECHNOLOGY DEVELOPMENT LIMITED CO.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
41
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
INDEX TO FINANCIAL STATEMENTS
Pages
Report of Independent Auditors 1
Balance Sheets 2
Statements of Operations 3
Statements of Owners' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 11
42
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Beijing Slait Science & Technology Development Limited Co.
We have audited the accompanying balance sheets of Beijing Slait Science &
Technology Development Limited Co. as of December 31, 2000 and 1999, and the
related statements of operations, owners' equity and cash flows for the years
ended December 31, 2000 and 1999. 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 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Beijing Slait Science &
Technology Development Limited Co. as of December 31, 2000 and 1999 and the
results of its 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
May 7, 2001
-1-
43
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
BALANCE SHEETS
(Expressed in US Dollars)
DECEMBER 31, DECEMBER 31,
2000 1999
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 47,401 $ 19,615
Accounts receivable 57,488 85,304
Other receivables, deposits and prepayments (Note 3) 513,955 431,526
Amounts due from owners (Note 4) 130,711 344,553
Other investments 60,386 60,386
----------- -----------
Total current assets 809,941 941,384
Property, plant and equipment (Note 5) 291,347 195,922
Amount due from related company (Note 6) 160,547 160,547
----------- -----------
TOTAL ASSETS $ 1,261,835 $ 1,297,853
=========== ===========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 342,616 $ 326,009
Other payables and accrued expenses (Note 7) 454,275 453,507
Other taxes payable (Note 8) 56,948 123,826
----------- -----------
Total current liabilities 853,839 903,342
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
OWNERS' EQUITY
Registered capital 131,039 131,039
Retained profits 276,957 263,472
----------- -----------
Total owners' equity 407,996 394,511
----------- -----------
TOTAL LIABILITIES AND OWNERS' EQUITY $ 1,261,835 $ 1,297,853
=========== ===========
See accompanying notes to financial statements.
-2-
44
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENTS OF OPERATIONS
(Expressed in US Dollars)
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
NET SALES $ 2,644,242 $ 1,557,306
COST OF SALES (2,350,507) (1,044,608)
------------ ------------
GROSS PROFIT 293,735 512,698
SELLING EXPENSES (73,405) (60,095)
GENERAL AND ADMINISTRATIVE EXPENSES (207,670) (205,339)
------------ ------------
OPERATING PROFIT 12,660 247,264
INTEREST INCOME 825 1,090
------------ ------------
PROFIT BEFORE INCOME TAX 13,485 248,354
PROVISION FOR INCOME TAX (Note 10) -- --
------------ ------------
NET INCOME $ 13,485 $ 248,354
============ ============
See accompanying notes to financial statements.
-3-
45
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENTS OF OWNERS' EQUITY
(Expressed in US Dollars)
TOTAL
REGISTERED RETAINED OWNERS'
CAPITAL PROFITS EQUITY
--------- --------- ---------
Balance, January 25, 1998 $ -- $ -- $ --
Capital contribution 131,039 -- 131,039
Net income -- 15,118 15,118
--------- --------- ---------
Balance, December 31, 1998 131,039 15,118 146,157
Net income -- 248,354 248,354
--------- --------- ---------
Balance, December 31, 1999 131,039 263,472 394,511
Net income -- 13,485 13,485
--------- --------- ---------
Balance, December 31, 2000 $ 131,039 $ 276,957 $ 407,996
========= ========= =========
See accompanying notes to financial statements.
-4-
46
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENTS OF CASH FLOWS
Increase/(decrease) 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 income $ 13,485 $ 248,354
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation 12,867 7,798
Changes in:
Accounts receivables 27,816 (85,304)
Other receivables, deposits and prepayments (82,429) 2,778,973
Accounts payable 16,607 (200,275)
Others payables and accrued expenses 768 (2,541,953)
Other taxes payable (66,878) 24,856
----------- -----------
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES (77,764) 232,449
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (108,292) (176,920)
Amount due from related company -- 41,063
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (108,292) (135,857)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Amounts due from owners 213,842 (243,103)
----------- -----------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES 213,842 (243,103)
----------- -----------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 27,786 (146,511)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,615 166,126
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 47,401 $ 19,615
----------- -----------
See accompanying notes to financial statements.
-5-
47
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Beijing Slait Science & Technology Development Limited Co. ("the Company") was
established in the People's Republic of China (the "PRC") on January 25, 1998 as
a limited liability company. The Company is owned by three individual PRC
citizens, namely Li Wei, He Yi and Yang Li Zhu.
The Company commenced operations in May 1998. The principal activities of the
Company are sale of computer hardware and provision of computer software
consultancy and engineering services in the PRC. The Company has been granted a
ten years operation period which can be extended with approvals from relevant
PRC authorities.
The Company's registered and fully paid up capital is RMB1,085,000.
NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The functional currency of the Company 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 RMB at the
exchange rates ruling at the transaction dates. Gain and loss resulting from
foreign currency transactions are included in the statement of operations. When
assets and liabilities denominated in foreign currencies at the date of balance
sheet are translated into RMB at the market rates of exchange ruling at that
date. All exchange differences are dealt with in the statements of operations.
For the purpose of preparing these financial statements, the financial
statements in RMB have been translated into United States Dollars at US$1.00 =
RMB8.28, translation adjustments are included as a component of owners' equity.
Exchange rates between US$ and RMB are fairly stable during the years presented.
The rates ruling as of December 31, 2000 and 1999 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 owners' equity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less.
-6-
48
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES - CONTINUED
RELATED PARTY
A related party is an entity that can control or significantly influence the
management or operating policies of another entity to the extent one of the
entities may be prevented from pursuing its own interests. A related party may
also be any party the entity deals with that can exercise that control.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION
Property, 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)
-----------
Building 20
Office equipment 5
Motor vehicle 10
Maintenance, repairs and minor renewals are charged directly to the statement of
operations as incurred. Additions and betterments to office 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.
LONG-LIVED ASSETS
The Company periodically reviews their long-lived assets for impairment based
upon the estimated undiscounted 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.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments approximate their fair
values as of December 31, 2000 and 1999 because of the relatively short-term
maturity of these instruments.
-7-
49
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES - CONTINUED
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, its current and planned future
activities relative to derivative instruments, the adoption of SFAS No. 133 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.
REVENUE RECOGNITION
The sale of computer hardware is recognised as revenue on the transfer of risks
of ownership, which generally coincides with the time when the goods are
delivered to customers and title has passed.
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.
OTHER INVESTMENTS
The Company holds an interest in a privately held PRC company. The Company
records the investment at cost because it does not have the ability to exercise
significant influence over the investee.
-8-
50
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 3 - OTHER RECEIVABLE, DEPOSITS AND PREPAYMENTS
DECEMBER 31, DECEMBER 31,
2000 1999
------------- -------------
Other receivables $ 82,337 $ 67,929
Deposits paid to suppliers 396,320 340,801
Prepayments 35,298 22,796
------------- -------------
$ 513,955 $ 431,526
============= =============
NOTE 4 - AMOUNTS DUE FROM OWNERS
The Company, from time to time, received from or made repayment to two of the
owners. The amounts due from owners do not bear any interest and do not have
clearly defined term of repayment.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31, DECEMBER 31,
2000 1999
------------- -------------
Building $ 155,648 $ 153,707
Office equipment 140,845 52,610
Motor vehicle 18,116 --
------------- -------------
314,609 206,317
Less: Accumulated depreciation (23,262) (10,395)
------------- -------------
$ 291,347 $ 195,922
============= =============
Building represents an office situated in Chengdu, PRC. The office was purchased
by the Company under the name of Mr. He Yi, one of the owners and directors of
the Company. By an owners' resolution passed on March 8, 1999, it was ratified
that the title to the office belongs to the Company. The office has been pledged
to a bank for a mortgage loan granted to Mr. He Yi.
NOTE 6 - AMOUNT DUE FROM RELATED COMPANY
The amount due from the related company, in which one of the owners of the
Company has beneficial interests, is unsecured, interest free and without fixed
term of repayment.
-9-
51
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 7 - OTHER PAYABLES AND ACCRUED EXPENSES
DECEMBER 31, DECEMBER 31,
2000 1999
------------- -------------
Deposits from customers $ 256,026 $ 303,176
Other payables 112,329 105,481
Accrued expenses 85,920 44,850
------------- -------------
$ 454,275 $ 453,507
============= =============
NOTE 8 - OTHER TAX PAYABLE
Other taxes payable comprise mainly Valued-Added Tax ("VAT") and Business Tax
("BT"). The Company is subject to output VAT levied at the rate of 17% of its
operating revenue. The input VAT paid on purchases of materials and other direct
inputs can be used to offset the output VAT levied on operating revenue to
determine the net VAT payable or recoverable. BT is charged at a rate of 5% on
the revenue from the provisions of computer consultancy services.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENT
During the years ended December 31, 2000 and 1999, the Company incurred lease
expenses amounting to $82,735 and $80,104 respectively. As of December 31, 2000
and 1999, the Company had commitments under non-cancellable operating leases
expiring in excess of one year amounting to $58,932 and $108,696 respectively.
Rental payments for each of the succeeding period are:
DECEMBER 31, DECEMBER 31,
2000 1999
------------- -------------
January 1, 2000 to December 31, 2000 $ -- $ 36,232
January 1, 2001 to December 31, 2001 40,816 54,348
January 1, 2002 to December 31, 2002 18,116 18,116
------------- -------------
$ 58,932 $ 108,696
============= =============
-10-
52
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 10 - INCOME TAX
No provision for income tax has been made in the financial statements as the
Company is eligible to full income tax exemption for the years ended 2000 and
1999.
Pursuant to an approval document dated October 22, 1998 issued by the Beijing
Tax Bureau, the Company, being a "New Technology Enterprise", is eligible to
full exemption from PRC Corporate Income Tax for the period from February 1,
1999 to December 31, 2000.
No provision for deferred taxation has been made as there is no material
temporary difference at the balance sheet date.
NOTE 11 - SUBSEQUENT EVENT
On January 11, 2001, the Company entered into an agreement of Plan of
Reorganisation ("the Plan") with Forlink Software Corporation, Inc. ("Forlink").
It is agreed that Forlink will issue to the owners of the Company as individuals
59,430,000 authorised but unissued shares of common stock of Forlink in exchange
of 100% of the fully paid up registered capital 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 Forlink as required by Section 14(c) of the Securities Exchange
Act of 1934. As of the latest practicable date, May 7, 2001, the final closing
date of this Plan has not been determined.
-11-
53
ANNEX D
BEIJING SLAIT SCIENCE &
TECHNOLOGY DEVELOPMENT LIMITED CO.
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001
54
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PAGES
Balance Sheet 1
Statements of Operations 2
Statements of Cash Flows 3
Notes to Financial Statements 4
55
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
BALANCE SHEET
(Expressed in US Dollars)
MARCH 31,
2001
---------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 650,104
Accounts receivable 6,039
Other receivables, deposits and prepayments (Note 1) 241,311
Amounts due from owners 51,816
Other investments 60,386
---------------
Total current assets 1,009,656
Property, plant and equipment 319,330
Amount due from related company 160,547
---------------
TOTAL ASSETS $ 1,489,533
---------------
CURRENT LIABILITIES
Accounts payable $ 315,510
Other payables and accrued expenses (Note 2) 843,283
Other taxes payable 47,194
---------------
Total current liabilities 1,205,987
---------------
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY
Registered capital 131,039
Retained profits 152,507
---------------
Total owners' equity 283,546
---------------
TOTAL LIABILITIES AND OWNERS' EQUITY $ 1,489,533
===============
See accompanying notes to financial statements.
-1-
56
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENTS OF OPERATIONS
(Expressed in US Dollars)
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
2001 2000
--------------- ---------------
(UNAUDITED) (UNAUDITED)
NET SALES $ 351,564 $ 353,952
COST OF SALES (337,118) (318,557)
--------------- ---------------
GROSS PROFIT 14,446 35,395
SELLING EXPENSES (12,802) (11,186)
GENERAL AND ADMINISTRATIVE EXPENSES (126,235) (36,304)
--------------- ---------------
OPERATING LOSS (124,591) (12,095)
INTEREST INCOME 141 128
--------------- ---------------
LOSS BEFORE INCOME TAX (124,450) (11,967)
PROVISION FOR INCOME TAX (NOTE 3) -- --
--------------- ---------------
NET LOSS $ (124,450) $ (11,967)
--------------- ---------------
See accompanying notes to financial statements.
-2-
57
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENT OF CASH FLOWS
Increase in Cash and Cash Equivalents
(Expressed in US Dollars)
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
2001 2000
--------------- ---------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (124,450) $ (11,967)
Adjustments to reconcile net loss
to net cash provided by operating activities
Depreciation 8,970 3,573
Changes in:
Accounts receivable 51,449 85,224
Other receivables, deposits and prepayments 272,644 214,911
Accounts payable (27,106) (285,808)
Others payables and accrued expenses 389,008 177,639
Other taxes payable (9,754) (89,113)
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 560,761 94,459
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (36,953) (6,696)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (36,953) (6,696)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Amounts due from owners 78,895 11,290
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 78,895 11,290
--------------- ---------------
Net increase in cash and cash equivalents 602,703 99,053
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 47,401 19,615
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 650,104 $ 118,668
--------------- ---------------
See accompanying notes to financial statements.
-3-
58
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(EXPRESS IN US DOLLARS)
The financial information, included in this report, has been prepared by Beijing
Slait Science & Technology Development Limited Co. ("the Company"), without
audit. In the opinion of management, the financial information included in this
report contains all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the result for the interim
period. The result shown for interim period is not necessarily indicative of the
results to be expected for the full year.
The following notes to financial statements have been condensed and, therefore,
do not contain all disclosures required in connection with annual financial
statements. Reference should be made to the notes to the Company's year-end
financial statements contained with this filing.
NOTE 1 - OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS
MARCH 31,
2001
---------------
Other receivables $ 91,345
Deposits paid to suppliers 136,793
Prepayments 13,173
---------------
$ 241,311
===============
NOTE 2 - OTHER PAYABLES AND ACCRUED EXPENSES
MARCH 31,
2001
---------------
Deposits from customers $ 723,300
Other payables 75,673
Accrued expenses 44,310
---------------
$ 843,283
===============
NOTE 3 - INCOME TAX
No provision for income tax has been made in the financial statements as the
Company has no assessable income during the three months ended March 31, 2001.
Pursuant to an approval document dated October 22, 1998 issued by the Beijing
Tax Bureau, the Company, being a "New Technology Enterprise", is eligible to
full exemption from PRC Corporate Income Tax for the period from February 1,
1999 to December 31, 2000.
-4-
59
ANNEX E
FORLINK SOFTWARE CORPORATION, INC.
---------------------------------------------
UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND YEAR ENDED DECEMBER 31, 2000
---------------------------------------------
60
FORLINK SOFTWARE CORPORATION, INC.
INDEX TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Pages
Pro-forma Condensed Consolidated Balance Sheet 1
Pro-forma Condensed Consolidated Statement of Operations
- Three Months Ended March 31, 2001 2
Pro-forma Condensed Consolidated Statement of Operations
- Year Ended December 31, 2000 3
Notes to Pro-forma Condensed Consolidated Financial Statements 4
61
FORLINK SOFTWARE CORPORATION, INC.
PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2001
(Expressed in US Dollars)
HISTORICAL PRO-FORMA
---------------------------- -------------------------
SLAIT FORLINK TOTAL
(UNAUDITED) (UNAUDITED) ADJUSTMENTS (UNAUDITED)
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 650,104 $ 87,479 $ -- $ 737,583
Accounts receivable 6,039 46,759 52,798
Other receivables, deposits
and prepayments 241,311 129,012 370,323
Inventories -- 37,298 37,298
Amounts due from
stockholders (owners) 51,816 -- 51,816
Other investments 60,386 -- 60,386
----------- ----------- -----------
Total current assets 1,009,656 300,548 1,310,204
Plant and equipment, net 319,330 215,017 534,347
Goodwill -- -- (A)8,345,286 8,345,286
Amount due from related company 160,547 -- 160,547
----------- ----------- ----------- -----------
TOTAL ASSETS $ 1,489,533 $ 515,565 $ 8,345,286 $10,350,384
=========== =========== =========== ===========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES
Amounts due to stockholders $ -- $ 74,490 (B)131,039 $ 205,529
Accounts payable 315,510 -- 315,510
Other payables and accrued expenses 843,283 123,114 966,397
Other taxes payable 47,194 3,447 50,641
----------- ----------- ----------- -----------
Total current liabilities 1,205,987 201,051 131,039 1,538,077
=========== =========== =========== ===========
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock 25,470 (C) 59,430 84,900
Registered capital/Additional
paid-in capital 131,039 1,530,837 (C)6,913,024 8,574,900
Retained profits/(Accumulated losses) 152,507 (1,241,793) (C)1,241,793 152,507
----------- ----------- ----------- -----------
Total stockholders' equity 283,546 314,514 8,214,247 8,812,307
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,489,533 $ 515,565 $ 8,345,286 $10,350,384
=========== =========== =========== ===========
-1-
62
FORLINK SOFTWARE CORPORATION, INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001
(Expressed in US Dollars)
HISTORICAL PRO-FORMA
---------------------------- ----------------------------
SLAIT FORLINK TOTAL
(UNAUDITED) (UNAUDITED) ADJUSTMENTS (UNAUDITED)
------------ ------------ ------------ ------------
NET SALES $ 351,564 $ 95,290 $ -- $ 446,854
COST OF SALES (337,118) (25,010) (362,128)
------------ ------------ ------------
GROSS PROFIT 14,446 70,280 84,726
SELLING EXPENSES (12,802) (7,445) (20,247)
DEPRECIATION AND AMORTIZATION -- -- (D)(417,264) (417,264)
GENERAL AND ADMINISTRATIVE EXPENSES (126,235) (345,635) (471,870)
------------ ------------ ------------ ------------
OPERATING LOSS (124,591) (282,800) (417,264) (824,655)
INTEREST INCOME 141 584 725
OTHER INCOME, NET -- 10,535 10,535
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX (124,450) (271,681) (417,264) (813,395)
PROVISION FOR INCOME TAX -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (124,450) $ (271,681) $ (417,264) $ (813,395)
============ ============ ============ ============
LOSS PER SHARE (0.01) (0.01)
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 25,455,843 59,430,000 84,885,843
============ ============ ============
-2-
63
FORLINK SOFTWARE CORPORATION, INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(Expressed in US Dollars)
HISTORICAL PRO-FORMA
---------------------------- ----------------------------
SLAIT FORLINK TOTAL
(UNAUDITED) (UNAUDITED) ADJUSTMENTS (UNAUDITED)
------------ ------------ ------------ ------------
NET SALES $ 2,644,242 $ 728,477 $ -- $ 3,372,719
COST OF SALES (2,350,507) (385,719) (2,736,226)
------------ ------------ ------------
GROSS PROFIT 293,735 342,758 636,493
SELLING EXPENSES (73,405) (135,256) (208,661)
DEPRECIATION AND AMORTIZATION -- -- (D) (1,669,057) (1,669,057)
GENERAL AND ADMINISTRATIVE EXPENSES (207,670) (1,062,792) (1,270,462)
RESEARCH AND DEVELOPMENT EXPENSES -- (120,497) (120,497)
------------ ------------ ------------ ------------
OPERATING LOSS 12,660 (975,787) (1,669,057) (2,632,184)
INTEREST INCOME 825 7,943 8,768
OTHER INCOME, NET -- 2,666 2,666
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX 13,485 (965,178) (1,669,057) (2,620,750)
PROVISION FOR INCOME TAX -- -- --
------------ ------------ ------------ ------------
NET LOSS $ 13,485 $ (965,178) $ (1,669,057) $ (2,620,750)
============ ============ ============ ============
LOSS PER SHARE (0.04) (0.03)
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 25,237,808 59,430,000 84,667,808
============ ============ ============
-3-
64
FORLINK SOFTWARE CORPORATION, INC.
NOTES TO PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro-forma financial positions as of March 31, 2001 are presented as if Forlink
Software Corporation, Inc. and Beijing Slait Science & Technology Development
Limited Co. ("Slait") were combined at March 31, 2001.
Pro-forma operating results are presented as if Forlink and Slait were combined
at January 1, 2000.
Forlink will issue 59,430,000 shares of stock and $131,039 in cash for the net
assets of Slait. As a result of the merger, the former owners of Slait will hold
a majority interest in the combined entity. Generally accepted accounting
principles require in certain circumstances that a company whose shareholders
retain the majority voting interest in the combined business to be treated as
the acquirer for financial reporting purposes. Accordingly, the merger will be
accounted for as a "reverse merger" whereby Slait is deemed to have purchased
Forlink. However, Forlink remains the legal entity and the Registrant for
Security and Exchange Commission reporting purposes.
(A) To reflect the excess of acquisition cost over the estimated fair value
of net assets acquired. The fair value of the net assets acquired is
based upon a value of $0.34 per share, the closing price of Forlink's
common stock on January 11, 2001. The purchase price, purchase-price
allocation, and financing of the transaction are summarized as follows:
Consideration paid as:
Common stock of Forlink deemed to be issued $ 8,659,800
Allocated to historical book value/fair value of
Forlink's assets and liabilities 314,514
--------------
Excess purchase price over allocation to
identifiable assets and liabilities (goodwill) $ 8,345,286
==============
(B) In accordance with terms of the acquisition, Forlink would transfer
RMB1,085,000 (US$131,039) to Slait, this amount would be disbursed to
the original owners of Slait. RMB1,085,000 (US$131,039) would be
financed by loans from major stockholders of Forlink.
(C) To reflect elimination of shareholders' equity accounts of Forlink and
to reflect the issuance of Forlink's common stock as consideration for
the acquisition.
(D) To reflect the increase in depreciation and amortization expense due to
the amortization of goodwill on a straight-line basis over 5 years.
-4-
65
ANNEX F
PLAN OF REORGANIZATION
THIS AGREEMENT is effective the 11th day of January, 2001, and is made by and
among Forlink Software Corporation Inc., a corporation organized under the laws
of the State of Nevada, United States of America, hereinafter called "FORLINK",
Beijing SLAIT Science & Technology Development Limited Co. (Beijing Shili
Chuangheng Keji Fazhan Youxian Gongsi.), a company organized under the laws of
China, hereinafter called "SLAIT", Yi He, Hongkeung Lam, Jing Zeng, hereinafter
called "SHAREHOLDERS", Xiaoxia Zhao, Liang Che, Wei Song, Michael Harrop and Jie
Zhang, hereinafter called "FORLINK SHAREHOLDERS".
RECITALS:
WHEREAS, FORLINK desires to acquire 100% of the issued and outstanding
shares of the common stock of SLAIT, in exchange for 59,430,000 authorized but
unissued shares of the $.001 par value common stock of FORLINK, pursuant to a
plan of reorganization within the meaning of IRC (1986), Section 368(a)(1)(B),
as amended; and
WHEREAS, SHAREHOLDERS, whose consent is evidenced in Exhibit 1.02
desire to exchange 100% of the issued and outstanding shares of the common stock
of SLAIT (the "SLAIT Shares"), currently owned by SHAREHOLDERS, in exchange for
said 59,430,000 shares of FORLINK (the "FORLINK Shares").
NOW THEREFORE, in consideration of the mutual promises, covenants and
representations contained herein, and to consummate the foregoing plan of
reorganization, the parties hereby adopt said plan of organization and agree as
follows:
ARTICLE I
EXCHANGE OF SECURITIES
1.01 ISSUANCE OF FORLINK SHARES. Subject to all of the terms and
conditions of this Agreement, FORLINK agrees to issue to SHAREHOLDERS as
individuals 59,430,000 fully paid and nonassessable unregistered shares of
FORLINK common stock in exchange for 100% of the outstanding SLAIT common stock,
all of which is currently owned by SHAREHOLDERS.
1.02 TRANSFER OF SLAIT SHARES. In exchange for FORLINK's stock being
issued to SHAREHOLDERS as above described, SHAREHOLDERS shall deliver to FORLINK
100% of the outstanding common stock of SLAIT.
Page 1 of 10
66
ARTICLE II
REPRESENTATIONS, AGREEMENTS AND WARRANTIES OF
SHAREHOLDERS AND SLAIT AS OF JANUARY 11TH 2001
2.01 ORGANIZATION. SLAIT is a corporation duly organized, validly
existing, and in good standing under the laws of China, has all necessary
corporate powers to own its properties and to carry on its business as now owned
and operated by it, is duly qualified to do business and is in good standings in
any jurisdiction its business requires qualification.
2.02 CAPITAL. The SLAIT Shares consist of 1,000,000 shares of common
stock, of Beijing SLAIT Science & Technology Development Limited Co. (Beijing
Shili Chuangheng Keji Fazhang Youxian Gongsi.). There are no there shares of
common stock currently issued and outstanding. All of the issued and outstanding
shares are validly issued, fully paid and nonassessable. There are no options,
warrants, calls, rights, commitments or agreements of any character to which
SLAIT is a party or by which it is bound obligating SLAIT to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of SLAIT or obligating SLAIT to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement.
2.03 SUBSIDIARIES. SLAIT does not have any subsidiaries.
2.04 DIRECTORS AND OFFICERS. Exhibit 2.04 to this Agreement contains
the names and titles of all directors and officers of SLAIT as of the date of
this Agreement.
2.05 FINANCIAL STATEMENTS. Exhibit 2.05 to this Agreement includes the
unaudited financial statements of SLAIT as of December 31, 2000.
2.06 ABSENCE OF CHANGES. Since the date of SLAIT's most recent
financial statements included in Exhibit 2.05 there have been no changes in its
financial condition or operations, except for changes in the ordinary course of
business.
2.07 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date of SLAIT's most
recent balance sheet included in Exhibit 2.05 it did not have any material debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, as required by GAAP or other
appropriate standards, that is not reflected in such balance sheet.
2.08 TAX RETURNS. Within the times and in the manner prescribed by law,
SLAIT has filed all federal, state and local tax returns required by law, has
paid all taxes, assessments and penalties due and payable and has made adequate
provision on its most recent balance sheet for any unpaid taxes. There are no
present disputes as to taxes of any nature payable by SLAIT.
2.09 INVESTIGATION OF FINANCIAL CONDITION. Without in any manner
reducing or otherwise mitigating the representations contained herein, FORLINK
and/or its representatives shall have the opportunity to meet with accountants
and attorneys to discuss the financial condition of SLAIT. SLAIT shall make
available to FORLINK and/or its attorneys all books and records of SLAIT. If the
transaction contemplated hereby is not completed, all documents received by
FORLINK and/or its attorneys shall be returned to SLAIT and all information so
received shall be treated as confidential.
2.10 PATENTS TRADE NAMES AND RIGHTS. SLAIT owns or holds all necessary
patents, trademarks, service marks, trade names, copyrights and other rights
necessary to the conduct or proposed conduct of its business.
2.11 COMPLIANCE WITH LAWS. As of January 11th, 2001, SLAIT has complied
with, and is not in violation of, applicable federal, state or local statutes,
laws and regulations affecting its properties or the operation of its business.
2.12 LITIGATION. SLAIT is not a party to, nor to the best of its
knowledge is there pending or threatened, any suit, action, arbitration or
legal, administrative or other proceeding, or governmental investigation
concerning its business, assets or financial condition. SLAIT is not in default
with respect to
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any order, writ, injunction or decree of any federal, state, local or foreign
court or agency, nor is it engaged in any lawsuits to recover monies due to it.
2.13 AUTHORITY. The Board of Directors of SLAIT authorized the
execution of this Agreement and the consummation of the transactions
contemplated herein and has full power and authority to execute, deliver and
perform this agreement.
2.14 ABILITY TO CARRY OUT OBLIGATIONS. The execution and delivery of
this Agreement by SLAIT and the performance of its obligations hereunder in the
time and manner contemplated will not cause, constitute or conflict with or
result in (i) any breach of the provisions of any license, indenture, mortgage,
charter, instrument, certificate of incorporation, bylaw or other agreement or
instrument to which it is a party or by which it may be bound, nor will any
consents or authorizations of any party other than those hereto be required,
(ii) an event that would permit any party to any agreement or instrument to
terminate it or to accelerate the maturity of any indebtedness or other
obligation, or (iii) an event that would result in the creation or imposition of
any lien, charge or encumbrance on any asset.
2.15 FULL DISCLOSURE. None of the representations and warranties made
by SHAREHOLDERS or SLAIT herein or in any exhibit, certificate or memorandum
furnished or to be furnished by SHAREHOLDERS or SLAIT, or on either's behalf,
contains or will contain any untrue statement of material fact, or omits any
material fact, the omission of which would be misleading.
2.16 ASSETS. SLAIT has good and marketable title to all of its property
free and clear of any and all liens, claims or encumbrances except as may be
indicated in Exhibit 2.05.
2.17 INDEMNIFICATION. SHAREHOLDERS and SLAIT agree to defend and hold
FORLINK and its officers and directors harmless against and in respect of any
and all claims, demands, losses, costs, expenses, obligations, liabilities or
damages, including interest, penalties and reasonable attorney's fees, that it
shall incur or suffer, which arise out of, result from or relate to any breach
of this Agreement or failure by SHAREHOLDERS or SLAIT to perform with respect to
any of its representations, warranties or covenants contained in this Agreement
or in any exhibit or other instrument furnished or to be furnished under this
Agreement.
2.18 AUTHORITY TO EXCHANGE. As of the date of this Agreement,
SHAREHOLDERS hold 100% of the shares of SLAIT common stock. Such shares are
owned of record and beneficially by SHAREHOLDERS and such shares are not subject
to any lien, encumbrance or pledge. SHAREHOLDERS hold authority to exchange such
shares pursuant to this Agreement.
2.19 INVESTMENT INTENT. Each of the SHAREHOLDERS understands and
acknowledges that the shares of FORLINK common stock offered for exchange or
sale pursuant to this Agreement are being offered in reliance upon the exemption
from registration requirements of the Securities Act of 1993, as amended (the
"Act"), pursuant to Section 4(2) of the Act and the rules and regulations
promulgated thereunder, for nonpublic offerings and makes the following
representations, agreements and warranties with the intent that the same may be
relied upon in determining the suitability of each of the SHAREHOLDERS as a
purchaser of FORLINK common stock:
(a) The shares of FORLINK common stock are being acquired solely for
the account of each of the SHAREHOLDERS for investment purposes only, and not
with a view to, or for sale in connection with, any distribution thereof, and
with no present intention of distributing or reselling any part of the FORLINK
common stock acquired;
(b) Each of the SHAREHOLDERS agrees not to dispose of its FORLINK
common stock or any portion thereof unless and until counsel for FORLINK shall
have determined that the intended disposition is permissible and does not
violate the Act or any applicable Federal or state securities laws, or the rules
and regulations thereunder.
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(c) Each of the SHAREHOLDERS agrees that the certificates evidencing
the FORLINK common stock acquired pursuant to this Agreement will have a legend
placed thereon stating that they have not been registered under the Act or any
state securities laws and setting forth or referring to the restrictions on
transferability and sale of the FORLINK common stock, and that stop transfer
instructions shall be placed with the transfer agent for said certificate.
(d) Each of the SHAREHOLDERS acknowledges that FORLINK has made all
records and documentation pertaining to FORLINK common stock available to them
and to their qualified representatives, if any, and has offered such person or
persons an opportunity to ask questions and further discuss the proposed
acquisitions of FORLINK common stock, and any available information pertaining
thereto, with the officers and directors of FORLINK, and that all such questions
and information requested have been answered by FORLINK and its officers and
directors to each of the SHAREHOLDERS' satisfaction.
(e) Each of the SHAREHOLDERS has carefully evaluated its financial
resources and investment position and the risks associated with this transaction
and is able to bear the economic risks of this transaction; and it has
substantial knowledge and experience in financial, business and investment
matters and is qualified as a sophisticated investor, and is capable of
evaluating the merits and risks of this transaction; and desires to acquire the
FORLINK common stock on the terms and conditions set forth;
(f) Each of the SHAREHOLDERS is able to bear the economic risk of an
investment in the FORLINK common stock; and
(g) Each of the SHAREHOLDERS understands that an investment in the
FORLINK common stock is illiquid and each of the SHAREHOLDERS has no need for
liquidity in this investment.
2.20 RECEIPT OF RELEVANT INFORMATION. SHAREHOLDERS and SLAIT have
received from FORLINK all financial and other information concerning FORLINK and
its promoters, officers and directors, including, but not limited to Annual
Report on Form 10-KSB for the year ended December 31st 1999, Forms 10-QSB for
the quarters ended March 31th 2000, June 30th 2000, and September 30th 2000, as
filed with the Securities and Exchange Commission, including all amendments
thereto, and all other documents and information they have requested.
2.21 PUBLIC CORPORATION. SLAIT and SHAREHOLDERS are aware that FORLINK
has public shareholders, further that public companies are subject to extensive
and complex state, federal and other regulations. Among other requirements,
SHAREHOLDERS and SLAIT are aware that a Form 8-K must be filed with the United
States Securities and Exchange Commission within fifteen days after closing,
which filing requires that audited financial statements be filed within sixty
days after the due date of the Form 8-K, and they agree that such filings shall
be the responsibility of the officers and directors of FORLINK. SHAREHOLDERS and
SLAIT are aware of the legal requirements and obligations of public companies,
and are fully aware of their responsibilities, following closing, to fully
comply will all securities laws and regulations, and agree to do so.
2.22 NO ASSURANCES OR WARRANTIES. SHAREHOLDERS and SLAIT acknowledge
that there can be no assurance regarding the tax consequences of this
transaction, nor can there be any assurance that the Internal Revenue Code or
the regulations promulgated thereunder will not be amended in such manner as to
deprive them of any tax benefit that might otherwise be received. SHAREHOLDERS
and SLAIT are relying upon the advice of their own tax advisors with respect to
the tax aspects of this transaction. No representations or warranties have been
made by FORLINK or its officers, directors, affiliates or agents, as to the
benefits to be derived by SHAREHOLDERS or SLAIT in completing this transaction,
nor have any of them made any warranty or agreement, expressed of implied, as to
the tax or securities consequences of the transactions contemplated by this
Agreement or the tax or securities consequences of any action pursuant to or
growing out of this Agreement.
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ARTICLE III
REPRESENTATIONS, AGREEMENTS AND WARRANTIES OF FORLINK
AS OF JANUARY 11TH 2001
FORLINK REPRESENTS, AGREES AND WARRANTS THAT:
3.01 ORGANIZATION. FORLINK is a corporation duly organized, validity
existing, and in good standing under the laws of Nevada, has all necessary
corporate powers to own properties and carry on its business as now owned and
operated by it, is duly qualified to do business and is in good standing in each
of the jurisdictions where its business requires qualification.
3.02 CAPITAL. The authorized capital stock of FORLINK consists of
100,000,000 shares of $.001 par value common stock of which 25,400,000 shares
are currently issued and outstanding and held by over 800 shareholders. All of
the issued and outstanding shares are validly issued, fully paid and
nonassessable. All currently outstanding shares of FORLINK Common Stock have
been issued in compliance with applicable federal and state securities laws.
3.03 SUBSIDIARIES. FORLINK has one fully owned subsidiary, Beijing
Forlink Software Corporation Inc.
3.04 DIRECTORS AND OFFICERS. Exhibit 3.04 to this Agreement contains
the names and titles of all officers and directors of FORLINK as of the date of
this Agreement.
3.05 FINANCIAL STATEMENTS. Exhibit 3.05 to this Agreement includes
FORLINK's audited financial statements as of December 31st 1999 and unaudited
financial statements for the period ended September 30, 2000. The financial
statements have been prepared in accordance with generally accepted accounting
principles and practices consistently followed throughout the period indicated
and fairly present the financial position of FORLINK as of the dates of the
balance sheets included in the financial statements and the results of
operations for the periods indicated.
3.06 ABSENCE OF CHANGES. Since the date of FORLINK's most recent
financial statements on Form 10-QSB for the quarter ended September 30th 2000,
there has not been any change in its financial condition or operations except
for changes in the ordinary course of business.
3.07 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date of FORLINK's
most recent balance sheet, included in Exhibit 3.05, it did not have any
material debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
in such balance sheet.
3.08 TAX RETURNS. Within the times and in the manner prescribed by law,
FORLINK has filed all federal, state or local tax returns required by law, has
paid all taxes, assessments and penalties due and payable and has made adequate
provision on its most recent balance sheet for any unpaid taxes. There are no
present disputes as to taxes of any nature payable by FORLINK.
3.09 INVESTIGATION OF FINANCIAL CONDITION. Without in any manner
reducing or otherwise mitigating the representations contained herein, SLAIT and
SHAREHOLDERS shall have the opportunity to meet with FORLINK's accountants and
attorneys to discuss the financial condition of FORLINK. FORLINK shall make
available to SLAIT and SHAREHOLDERS all books and records of FORLINK.
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3.10 PATENTS, TRADE NAMES AND RIGHTS. FORLINK owns or holds all
necessary patents, trademarks, service marks, trade names, copyrights and other
rights necessary to the conduct or proposed conduct of its business.
3.11 COMPLIANCE WITH LAWS. FORLINK has complied with, and is not in
violation of, applicable federal, state or local statues, laws and regulations
affecting its properties, securities or the operation of its business.
3.12 LITIGATION. FORLINK is not a party to, nor to the best of its
knowledge is there pending or threatened, any suit, action, arbitration or
legal, administrative or other proceedings, or governmental investigation
concerning its business, assets or financial condition. FORLINK is not in
default with respect to any order, writ, injunction or decree of any federal,
state local or foreign court or agency, nor is it engaged in, nor does it
anticipate it will be necessary to engage in, any lawsuits to recover money or
real or personal property.
3.13 AUTHORITY. The Board of Directors of FORLINK has authorized the
execution of this Agreement and the transactions contemplated herein, and it has
full power and authority to execute, deliver and perform this Agreement. A
Majority Consent of FORLINK shareholders has been obtained in approval of this
Agreement (Exhibit 3.13).
3.14 ABILITY TO CARRY OUT OBLIGATIONS. The execution and delivery of
this Agreement by FORLINK and the performance of its obligations hereunder will
not cause, constitute, conflict with or result in (i) any breach of the
provisions of any license, indenture, mortgage, charter, instrument, certificate
of incorporation, bylaw or other agreement or instrument to which it is a party
or by which it may be bound, nor will any consents or authorizations of any
party other than those hereto be required, (ii) an event that would permit any
party to any agreement or instrument to terminate it or to accelerate the
maturity of any indebtedness or other obligation, or (iii) an event that would
result in a creation or imposition of any lien, charge or encumbrance on any
asset.
3.15 FULL DISCLOSURE. None of the representations and warranties made
by FORLINK herein, or in any exhibit, certificate of memorandum furnished or to
be furnished by it or on its behalf, contains or will contain any untrue
statement of a material fact, or omits any material fact the omission of which
would be misleading.
3.16 ASSETS. FORLINK has good and marketable title to all of its
property free and clear of any and all liens, claims and encumbrances, except as
may be indicated in Exhibit 3.05.
3.17 INDEMNIFICATION. FORLINK agrees to indemnify, defend and hold
harmless SLAIT against and in respect to any and all claims, demands, losses,
cost, expenses, obligations, liabilities or damages, including interest,
penalties and reasonable attorney's fees, incurred or suffered, which arise out
of, result from or relate to any breach of, or failure by FORLINK to perform,
any of its representations, warranties or covenants in this Agreement or in any
exhibit or other instrument furnished or to be furnished under this Agreement.
3.18 VALIDITY OF FORLINK SHARES. The shares of FORLINK common stock to
be issued pursuant to this Agreement will be duly authorized, validly issued,
fully paid and nonassessable under Nevada law.
3.19 NO ASSURANCES OR WARRANTIES. FORLINK acknowledges that there can
be no assurance regarding the tax consequences of this transaction, nor can
there be any assurance that the Internal Revenue Code or the regulations
promulgated thereunder will not be amended in such manner as to deprive it of
any tax benefit that might otherwise be received. FORLINK is relying upon the
advice of its own tax advisors with respect to the tax aspects of this
transaction. No representations or warranties have been made by SHAREHOLDERS or
SLAIT or their officers, directors, affiliates or agents, as to the benefits to
be derived
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by FORLINK in completing this transaction, nor have any of them made any
warranty or agreement, expressed or implied, as to the tax or securities
consequences of the transactions contemplated by this Agreement or the tax or
securities consequences of any action pursuant to or growing out of this
Agreement.
ARTICLE IV
ACTIONS PRIOR TO CLOSING
4.01 INVESTIGATIVE RIGHTS. Prior to the Closing Date each party shall
provide to the other parties, including the parties' counsel, accountants and
other authorized representatives, full access during normal business hours (upon
reasonable advance written notice) to such parties' books and records.
4.02 CONDUCT OF BUSINESS. Prior to the Closing Date, each party shall
conduct its business in the normal course and shall not sell, pledge or assign
any assets, without the prior written approval of the other parties. No party
shall amend its certificate of incorporation or bylaws, declare dividends,
redeem or sell stock or other securities, incur additional liabilities, acquire
or dispose of fixed assets, change employment terms, enter into any material or
long-term contract, guarantee obligations of any third party, settle or
discharge any balance sheet receivable for less than its stated amount, pay more
on any liability than its stated amount or enter into any other transaction
other than in the regular course of business.
4.03 STATUS OF SEC FILINGS. Prior to and after the Closing Date,
FORLINK, and its officers and directors shall prepare and file all required
filings and reports including the Form 8-K required by this transaction, but
subject to the filing of an amendment reflecting the audited consolidated
balance sheets of the combined Companies.
4.04 GOVERNMENTAL APPROVALS. Prior to and as a condition to Closing,
both parties cooperate to obtain any required consents, approvals or waivers
from any governmental entity within the Peoples Republic of China. If approval
by any governmental entity is required, then such government approval is a
condition precedent to the validity of this Agreement.
ARTICLE V
CLOSING
5.01 CLOSING. The closing (the "Closing") of this transaction shall be
held at the offices of FORLINK, or such other place as shall be mutually agreed
upon, 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 FORLINK, as
required by Section 14(C ) of the Securities Exchange Act of 1934, as amended
(the "Closing Date"). At the Closing, the following shall occur:
(a) FORLINK shall deliver 59,430,000 shares of its $.001 par value
common stock issued pursuant to this Agreement in a certificate or certificates
representing such shares to each of the SHAREHOLDERS in proportion to the shares
of SLAIT being exchanged.
(b) SHAREHOLDERS shall deliver the certificates representing 100% of
the shares of SLAIT common stock (the "SLAIT shares");
(c) FORLINK shall deliver a signed consent or minutes of its Board of
Directors. and a Majority Consent of its shareholders, approving this Agreement
and authorizing the matters set forth herein;
(d) SLAIT shall deliver a signed consent or minutes of its Board of
Directors approving this Agreement and authorizing the matters set forth herein;
and
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(e) FORLINK's existing Board of Directors will (i) elect two
individuals, as named by SHAREHOLDERS, to act as officers and directors of
FORLINK in the capacities set forth in Exhibit 5.01(e) and (ii) six of the seven
current directors will resign their positions with FORLINK effective the Closing
Date.
(f) FORLINK shall transfer 1,085,000 RMB(approximately US$140,000) to
SLAIT, this amount would be disbursed, pro-rata, to the selling SHAREHOLDERS.
ARTICLE VI
MISCELLANEOUS
6.01 CAPTIONS AND HEADINGS. The article and paragraph headings
throughout this Agreement are for convenience and reference only and shall not
be deemed to define, limit or add to the meaning of any provision of this
Agreement.
6.02 NO ORAL CHANGE. This Agreement may not be changed or modified
except in writing signed by the party against whom enforcement of any change or
modification is sought.
6.03 NON-WAIVER. Except as otherwise expressly provided herein, no
waiver of a covenant, condition or provision of this Agreement shall be deemed
to have been made unless executed in writing and signed by the party against
whom such waiver is charged. The failure of any party to insist in any one or
more cases upon the performance of any covenant, condition or provision of this
Agreement shall not be construed as a waiver or relinquishment for the future of
any such covenant, condition or provision. No waiver by any party of one breach
by the other shall be construed as a waiver with respect to a subsequent breach.
6.04 TIME OF ESSENCE. Time is of the essence of this Agreement and of
each and every provision hereof.
6.05 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings.
6.06 CHOICE OF LAW/ARBITRATION. This Agreement and its application,
shall be governed under the laws of the State of Nevada. Any and all disputes
and controversies of every kind and nature between the parties hereto arising
out of or relating to this Agreement relating to the existence, construction,
validity, interpretation or meaning, performance, non-performance enforcement,
operation, breach, continuance of termination thereof shall be subject to an
arbitration mutually agreeable to the parties or, in the absence of such mutual
agreement, then subject to arbitration in accordance with International
Arbitration Rules. It is the intent of the parties hereto and the purpose of
this provision to make the submission to arbitration of any dispute or
controversy arising hereunder an express condition precedent to any legal or
equitable action or proceeding of any nature whatsoever.
6.07 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
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6.08 NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been given
on the date of service if served personally on the party to whom notice is to be
given, or on the third day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage prepaid,
and properly addressed as follows:
Forlink Software Corporation Inc. SLAIT and SHAREHOLDERS
Fang Yuan Mansion 9F Floor 11, Bin He Plaza,
ZhongGuangcun South St. Yi No. 56 No. 1 Che Dao Gou Road,
Beijing, China Haidian District,
Beijing, China
6.09 EXPENSES. The parties will pay their own legal, accounting and
other expenses incurred in connection with this Agreement.
6.10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties and covenants set forth in this Agreement or in any instrument,
certificate, opinion or other writing provided for in it, shall survive the
Closing Date.
6.11 FURTHER DOCUMENTS. The parties agree to execute any and all other
documents and to take such other action or corporate proceedings as may be
necessary or desirable to carry out the terms hereof.
6.12 LEGAL COUNSEL. This agreement shall be subject to approval by
legal counsel of both SLAIT and FORLINK.
6.13 SIGNATURES. This Agreement and its Exhibits when duly signed,
shall be deemed executed by facsimile. Immediate delivery of originals shall
follow any facsimile transmission.
IN WITNESS WHEREOF, the parties have executed this Agreement on January 11,
2001.
[The next page is the signature page]
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FORLINK SOFTWARE CORPORATION INC.
----------------------------
President, Xiaoxia Zhao
----------------------------
CEO, Liang Che
----------------------------
VP, Jie Zhang
----------------------------
Director, Wei Song
----------------------------
Director, Michael Harrop
----------------------------
Director, Huakang He
----------------------------
Director, Shengli Ma
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
----------------------------
President, Yi He No. SLAIT shares owned: 434,124
----------------------------
Director, Hongkeung Lam No. SLAIT shares owned: 176,678
----------------------------
Shareholder, Jing Zeng No. SLAIT share owned : 96,921
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