1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 27, 2001
FORLINK SOFTWARE CORPORATION, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
<Table>
Nevada 0-18731 87-0438458
---------------------------- ----------- -------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</Table>
Fang Yuan Mansion 9F, Zhongguancun South Road Yi No. 56,
Haidian District, Beijing, PRC 100044
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 011-8610 8802 6368
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
2
ITEM 1. CHANGES IN CONTROL OF THE REGISTRANT. Pursuant to a Plan of
Reorganization for the acquisition of Beijing Slait Science & Technology
Development Limited Co. ("SLAIT"), as discussed below in Item 2, all officers
and directors of the Registrant resigned, with the exception of Xiaoxia Zhao,
who remains as Chairman of the Board of Directors, Secretary and Treasurer, and
will now also serve as Chief Accounting Officer and Chief Financial Officer. Two
former shareholders of SLAIT became officers and directors of the Registrant: Yi
He became President and a Director, and now owns approximately 30.4% of the
voting securities of the Registrant; and Hongkeung Lam became a Director, and
now owns approximately 12.4% of the voting securities of the Registrant. In
addition, Jing Zeng now owns approximately 6.8% of the voting securities of the
Registrant.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
PLAN OF REORGANIZATION.
Pursuant to a Plan of Reorganization dated January 11, 2001, the Board
of Directors and a majority of the shareholders of the Registrant, approved the
Registrant's acquisition of a controlling interest of SLAIT. Closing of the
transaction occurred on August 27, 2001. The Registrant issued 59,430,000 shares
of common stock of the Registrant to SLAIT's 37 shareholders in exchange for
100% of the outstanding equity of SLAIT. The former shareholders of SLAIT now
own approximately 70% of the 84,900,000 issued and outstanding shares of the
Registrant's common stock, and the Registrant owns 100% of the issued and
outstanding shares of SLAIT. By virtue of the Share Exchange, SLAIT becomes a
wholly-owned subsidiary of the Registrant.
The Registrant also agreed to transfer 1,085,000 RMB (approximately US$140,000)
to be disbursed to the former shareholders of SLAIT.
SUMMARY DESCRIPTION OF SLAIT.
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.
RESIGNATIONS AND APPOINTMENT OF DIRECTORS.
Pursuant to the Plan of Reorganization, at Closing all officers and directors of
the Registrant resigned, with the exception of Xiaoxia Zhao, who remains as
Chairman of the Board of Directors, Secretary and Treasurer, and will now also
serve as Chief Accounting Officer and Chief Financial Officer.
1
3
Two former shareholders of SLAIT became officers and directors of the
Registrant. Biographies of the Registrant's new officers and directors follow:
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, 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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired. The required financial
statements of Beijing Slait Science & Technology Development Limited Co. are
being provided herewith, following the signature page.
(b) Pro Forma Financial Information. The required pro forma financial
information is being provided herewith, commencing on page P-1 following the
financial statements.
(c) Exhibits. The following exhibits are furnished in accordance with
the provisions of Item 601 of Regulation S-B.
Exhibit No. Description
2.3 Plan of Reorganization dated January 11, 2001 between
the Corporation and Beijing SLAIT Science &
Technology Development Limited Co. (Filed herewith.)
2
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FORLINK SOFTWARE CORPORATION, INC.
By: /s/ Xiaoxia Zhao
-----------------------------------
Xiaoxia Zhao, Chairman and CFO
Date: August 30, 2001
3
5
BEIJING SLAIT SCIENCE &
TECHNOLOGY DEVELOPMENT LIMITED CO.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
6
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
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
</Table>
7
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-
8
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
BALANCE SHEETS
(Expressed in US Dollars)
<Table>
<Caption>
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
=========== ===========
</Table>
See accompanying notes to financial statements.
-2-
9
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENTS OF OPERATIONS
(Expressed in US Dollars)
<Table>
<Caption>
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
============ ============
</Table>
See accompanying notes to financial statements.
-3-
10
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENTS OF OWNERS' EQUITY
(Expressed in US Dollars)
<Table>
<Caption>
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
========= ========= =========
</Table>
See accompanying notes to financial statements.
-4-
11
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENTS OF CASH FLOWS
Increase/(decrease) in Cash and Cash Equivalents
(Expressed in US Dollars)
<Table>
<Caption>
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
----------- -----------
</Table>
See accompanying notes to financial statements.
-5-
12
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-
13
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:
<Table>
<Caption>
ESTIMATED
USEFUL LIFE
(IN YEARS)
-----------
Building 20
Office equipment 5
Motor vehicle 10
</Table>
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-
14
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-
15
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 3 - OTHER RECEIVABLE, DEPOSITS AND PREPAYMENTS
<Table>
<Caption>
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
============= =============
</Table>
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
<Table>
<Caption>
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
============= =============
</Table>
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-
16
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 7 - OTHER PAYABLES AND ACCRUED EXPENSES
<Table>
<Caption>
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
============= =============
</Table>
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:
<Table>
<Caption>
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
============= =============
</Table>
-10-
17
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-
18
BEIJING SLAIT SCIENCE &
TECHNOLOGY DEVELOPMENT LIMITED CO.
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2001
19
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGES
Balance Sheet 1
Statements of Operations 2
Statements of Cash Flows 3
Notes to Financial Statements 4-5
</Table>
20
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
BALANCE SHEET
(Expressed in US Dollars)
<Table>
<Caption>
JUNE 30, 2001
--------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 265,087
Accounts receivable 294,095
Other receivables, deposits and prepayments (Note 1) 154,477
Amounts due from owners 48,902
Other taxes recoverable 18,653
Inventories (Note 2) 175,143
--------------
Total current assets 956,357
Property, plant and equipment 239,172
Amount due from related company 34,783
--------------
TOTAL ASSETS $ 1,230,312
==============
CURRENT LIABILITIES
Accounts payable $ 176,318
Other payables and accrued expenses (Note 3) 575,300
Income tax payable 18,784
--------------
Total current liabilities 770,402
--------------
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY
Registered capital 131,039
Retained profits 328,871
--------------
Total owners' equity 459,910
--------------
TOTAL LIABILITIES AND OWNERS' EQUITY $ 1,230,312
==============
</Table>
See accompanying notes to unaudited financial statements
-1-
21
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENTS OF OPERATIONS
(Expressed in US Dollars)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
NET SALES $ 2,869,331 $ 564,721 $ 3,220,895 $ 918,673
COST OF SALES (Note 4) (2,516,741) (495,107) (2,853,859) (813,664)
------------ ------------ ------------ ------------
GROSS PROFIT 352,590 69,614 367,036 105,009
SELLING EXPENSES (18,753) (24,881) (31,555) (36,067)
GENERAL AND
ADMINISTRATIVE EXPENSES (151,733) (33,850) (277,968) (70,154)
------------ ------------ ------------ ------------
OPERATING PROFIT/(LOSS) 182,104 10,883 57,513 (1,212)
OTHER INCOME 12,077 -- 12,077 --
INTEREST INCOME 967 393 1,108 521
------------ ------------ ------------ ------------
PROFIT/(LOSS) BEFORE
INCOME TAX 195,148 11,276 70,698 (691)
PROVISION FOR
INCOME TAX (Note 5) (18,784) -- (18,784) --
------------ ------------ ------------ ------------
NET INCOME/(LOSS) $ 176,364 $ 11,276 $ 51,914 $ (691)
============ ============ ============ ============
</Table>
See accompanying notes to unaudited financial statements
-2-
22
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
STATEMENT OF CASH FLOWS
Increase in Cash and Cash Equivalents
(Expressed in US Dollars)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
--------------- ------------
2001 2000
------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ 51,914 $ (691)
Adjustments to reconcile net loss
to net cash provided by operating activities
Depreciation 13,857 7,749
Transfer of computer equipment 101,945 --
Changes in:
Accounts receivable (236,607) 85,304
Other receivables, deposits and prepayments 359,478 (186,520)
Inventories (175,143) --
Accounts payable (166,298) (219,963)
Others payables and accrued expenses 121,025 746,467
Other taxes recoverable (75,601) (176,457)
Income tax payable 18,784 --
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,354 255,889
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (63,627) (75,984)
Proceed from disposal of other investment 60,386 --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (3,241) (75,984)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment from amounts due from owners 81,809 11,290
Repayment from amount due from related company 125,764 --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 207,573 11,290
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 217,686 191,195
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 47,401 19,615
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 265,087 $ 210,810
============ ============
</Table>
See accompanying notes to unaudited financial statements
-3-
23
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
<Table>
<Caption>
JUNE 30, 2001
-------------
Other receivables $ 42,359
Deposits paid to suppliers 88,445
Prepayments 23,673
------------
$ 154,477
============
</Table>
NOTE 2 - INVENTORIES
<Table>
<Caption>
JUNE 30, 2001
-------------
Finished goods $ 175,143
-------------
</Table>
Inventories are stated at the lower of cost or market. Cost is computed using
first-in, first-out method and includes all costs of purchase, cost of
conversion and other costs 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.
NOTE 3 - OTHER PAYABLES AND ACCRUED EXPENSES
<Table>
<Caption>
JUNE 30, 2001
-------------
Deposits from customers $ 452,869
Other payables 73,816
Accrued expenses 48,615
------------
$ 575,300
============
</Table>
-4-
24
BEIJING SLAIT SCIENCE & TECHNOLOGY DEVELOPMENT LIMITED CO.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(EXPRESS IN US DOLLARS)
NOTE 4 - TRANSFER OF COMPUTER EQUIPMENT
During the three months ended June 30, 2001 computer equipment with a carrying
amount of $101,945 was transferred to customers in connection with computer
engineering projects during the period. The carrying value of the equipment was
included as a component of cost of sales.
NOTE 5 - INCOME TAX
Income tax represents current PRC income tax which is calculated at the
statutory income tax rate of 15% on the assessable income for the six months
ended June 30, 2001.
The difference between the statutory rate and the effective rate relates
principally to nondeductible expenses.
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.
-5-
25
FORLINK SOFTWARE CORPORATION, INC.
----------
Unaudited Pro-forma Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2001 and Year Ended December 31, 2000
----------
26
FORLINK SOFTWARE CORPORATION, INC.
INDEX TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGES
Pro-forma Condensed Consolidated Balance Sheet 1
Pro-forma Condensed Consolidated Statement of Operations
- Six Months Ended June 30, 2001 2
- Year Ended December 31, 2000 3
Notes to Pro-forma Condensed Consolidated Financial Statements 4
</Table>
27
FORLINK SOFTWARE CORPORATION, INC.
PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2001
(Expressed in US Dollars)
<Table>
<Caption>
HISTORICAL PRO-FORMA
--------------------------- ---------------------------
Slait Forlink Total
(Unaudited) (Unaudited) Adjustments (Unaudited)
------------ ------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 265,087 $ 58,662 $ -- $ 323,749
Accounts receivable 294,095 5,321 299,416
Other receivables, deposits
and prepayments 154,477 94,962 249,439
Inventories 175,143 41,303 216,446
Amounts due from
stockholders (owners) 48,902 -- 48,902
Other taxes recoverable 18,653 -- 18,653
------------ ------------ ------------
Total current assets 956,357 200,248 1,156,605
Plant and equipment, net 239,172 201,622 440,794
Goodwill -- -- (A)8,451,524 8,451,524
Amount due from related company 34,783 -- 34,783
------------ ------------ ------------ ------------
Total assets $ 1,230,312 $ 401,870 $ 8,451,524 $ 10,083,706
------------ ------------ ------------ ------------
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Amounts due to stockholders $ -- $ 46,661 (B) 131,039 $ 177,700
Accounts payable 176,318 -- 176,318
Other payables and accrued expenses 575,300 146,933 722,233
Income tax payable 18,784 -- 18,784
------------ ------------ ------------ ------------
Total current liabilities 770,402 193,594 131,039 1,095,035
------------ ------------ ------------ ------------
Commitments and contingencies
Stockholders' equity
Common stock -- 25,470 (C) 59,430 84,900
Registered capital/Additional
paid-in capital 131,039 1,608,649 (C)6,835,212 8,574,900
Retained profits/(Accumulated losses) 328,871 (1,425,843) (C)1,425,843 328,871
------------ ------------ ------------ ------------
Total stockholders' equity 459,910 208,276 8,320,485 8,988,671
------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity $ 1,230,312 $ 401,870 $ 8,451,524 $ 10,083,706
------------ ------------ ------------ ------------
</Table>
-1-
28
FORLINK SOFTWARE CORPORATION, INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
(Expressed in US Dollars)
<Table>
<Caption>
HISTORICAL PRO-FORMA
---------------------------- ----------------------------
Slait Forlink Total
(Unaudited) (Unaudited) Adjustments (Unaudited)
------------ ------------ ------------ ------------
Net sales $ 3,220,895 $ 182,571 $ -- $ 3,403,466
Cost of sales (2,853,859) (49,353) (2,903,212)
------------ ------------ ------------
Gross profit 367,036 133,218 500,254
Selling expenses (31,555) (15,705) (47,260)
General and administrative expenses (277,968) (574,105) (852,073)
------------ ------------ ------------
Operating profit/(loss) 57,513 (456,592) (399,079)
Interest income 1,108 861 1,969
Other income, net 12,077 -- 12,077
------------ ------------ ------------
Profit/(loss) before income tax 70,698 (455,731) (385,033)
Provision for income tax (18,784) -- (18,784)
------------ ------------ ------------
Net profit/(loss) $ 51,914 $ (455,731) $ (403,817)
============ ============ ============
Loss per share -- --
============ ============
Weighted average common shares
outstanding 25,463,039 59,430,000 84,893,039
============ ============ ============
</Table>
-2-
29
FORLINK SOFTWARE CORPORATION, INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(Expressed in US Dollars)
<Table>
<Caption>
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)
General and administrative expenses (207,670) (1,062,792) (1,270,462)
Research and development expenses -- (120,497) (120,497)
------------ ------------ ------------
Operating profit/(loss) 12,660 (975,787) (963,172)
Interest income 825 7,943 8,768
Other income, net -- 2,666 2,666
------------ ------------ ------------
Profit/(loss) before income tax 13,485 (965,178) (951,693)
Provision for income tax -- -- --
------------ ------------ ------------
Net loss $ 13,485 $ (965,178) $ (951,693)
============ ============ ============
Loss per share (0.04) (0.01)
============ ============
Weighted average common shares
outstanding 25,237,808 59,430,000 84,667,808
============ ============ ============
</Table>
-3-
30
FORLINK SOFTWARE CORPORATION, INC.
NOTES TO PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro-forma financial positions as of June 30, 2001 are presented as if Forlink
Software Corporation, Inc. and Beijing Slait Science & Technology Development
Limited Co. ("Slait") were combined at June 30, 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:
<Table>
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 208,276
------------
Excess purchase price over allocation to
identifiable assets and liabilities (goodwill) $ 8,451,524
------------
</Table>
This acquisition will be accounted for in accordance to FAS 141,
Business Combinations, and FAS 142, Goodwill and other Intangible
Assets. Therefore, the pro-forma financial statements reflect this
combination in accordance with these statements.
(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.
-4-
31
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.3 Plan of Reorganization dated January 11, 2001 between the
Corporation and Beijing SLAIT Science & Technology Development
Limited Co. (Filed herewith.)
</Table>