UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
 
 x
              ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For
the fiscal year ended December 31, 2008
 
 o
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the transition period from ____________ to ______________
 
 Commission
File Number 0-18731
 
 FORLINK
SOFTWARE CORPORATION, INC.
 (Exact
name of Registrant as specified in its charter)
 
 Nevada
                (State
      or other jurisdiction of
                incorporation
      or organization)
              87-0438458
                (I.R.S.
      Employer Identification No.)
 
 9F
      Shenzhou Mansion, No. 31
                ZhongGuanCun
      South Road
                Haidian
      District, Beijing, P.R. China
                (Address
      of principal executive offices)
              N/A
                (Zip
      Code)
 
 (0086)
10 6811 8866
 (Issuer's
telephone number, including area code)
 
 Securities
registered pursuant to Section 12(b) of the Act:
 
 Title of each class
              Name of each exchange on which registeredNone
              None
 
 Securities
registered pursuant to Section 12(g) of the Act:
 Title of
Class
 Common
Stock, $.001 par value
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes o No x
 
 Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
  
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer
                              o
                              Accelerated
      filer
                              oNon-accelerated
      filer
                              o
                              Smaller
      reporting company
                              x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on June 30, 2008 was approximately $6,404,715.
The per share stock price for computational purposes was $1.38, based on the
closing sale price per share for the registrant's common stock as reported on
the OTC Bulletin Board on such date.  This value is not intended to be
a representation as to the value or worth of the registrant's common
stock.  The number of non-affiliates of the registrant has been
calculated by subtracting the number of shares held by persons affiliated with
the registrant from the number of outstanding shares.
 
 The
number of shares of the registrant's common stock, $.001 par value, outstanding
on March 14, 2009 was 4,651,173 shares.
  2
  TABLE OF
CONTENTS
 TO ANNUAL
REPORT ON FORM 10-K
 FOR YEAR
ENDED DECEMBER 31, 2008
 
 PagePART
      IItem
      1.
                      Business
                      
                      5Item
      1A.
                      Risk
      Factors
                      
                      12Item
      1B.
                      Unresolved
      Staff Comments
                      
                      13Item
      2.
                      Properties
                      
                      13Item
      3.
                      Legal
      Proceedings
                      
                      14Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      
                      14PART
      IIItem
      5.
                      Market
      for Registrant's Common Equity, Related StockholderMatters
      and Issuer Purchases of Equity Securities
                      
                      14Item
      6.
                      Selected
      Financial Data
                      
                      15Item
      7.
                      Management’s
      Discussion and Analysis or Plan of Operation
                      
                      15Item
      7A.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      
                      23Item
      8.
                      Financial
      Statements and Supplementary Data Changes in and Disagreements with
      Accountants on Accounting and Financial Disclosure
                      
                      23Item
      9.
                      Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                      
                      25Item
      9A(T).
                      Controls
      and Procedures
                      
                      25Item
      9B.
                      Other
      Information
                      
                      26PART
      IIIItem
      10.
                      Directors,
      Executive Officers and Corporate Governance
                      
                      26Item
      11.
                      Executive
      Compensation
                      
                      28Item
      12.
                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                      
                      29Item
      13.
                      Certain
      Relationships and Related Transactions, and Director
      Independence
                      
                      30Item
      14.
                      Principal
      Accounting Fees and Services
                      
                      30Item
      15.
                      Exhibits,
      Financial Statement Schedules
                      
                      32Signatures
                      
                      33
  3
  CAUTIONARY
NOTES REGARDING
 FORWARD
LOOKING INFORMATION
 
 Readers
of this document and any document incorporated by reference herein, are advised
that this document and documents incorporated by reference into this document
contain both statements of historical facts and forward looking
statements.  Forward looking statements are subject to certain risks
and uncertainties, which could cause actual results to differ materially for
those indicated by the forward-looking statements.  Forward-looking
statements usually contain the words “estimate,” “anticipate,” “believe,”
“expect,” or similar expressions, and are subject to numerous known and unknown
risks and uncertainties.  Examples of forward looking statements
include, but are not limited to (i) projections of revenues, income or loss,
earning or loss per share, capital expenditures, dividends, capital structure
and other financial items, (ii) statements of the plans and objectives of the
Company or its management or board of directors, including the introduction of
new products, or estimates or predictions of actions by customers, suppliers,
competitors or regulatory authorities, (iii) statements of future economic
performance, and (iv) statements of assumptions underlying other statements and
statements about the Company or its business.
 
 This
document and any documents incorporated by reference herein also identify
important factors which could cause actual results to differ materially from
those indicated by forward looking statements.  These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products and services, customer acceptance of products and
services, the Company's ability to secure debt and/or equity financing on
reasonable terms, and other factors which are described herein and/or in
documents incorporated by reference herein.
 
 The
cautionary statements made above and elsewhere by the Company should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company.  Forward looking statements are
beyond the ability of the Company to control and in many cases the Company
cannot predict what factors would cause results to differ materially from those
indicated by the forward looking statements.  Unless otherwise
required by applicable law, we do not undertake, and we specifically disclaim
any obligation, to update any forward looking statements to reflect occurrences,
developments, unanticipated events or circumstances after the date of such
statement.
  4
  PART
I
 
 Item
      1.
              Business.
 
 Overview
 
 Forlink
Software Corporation, Inc. (the "Company" or the "Registrant" or "Forlink" or
"we" or "us") is in the business of providing e-business application solutions
and IT outsourcing services in the People’s Republic of China (“PRC” or
“China”).  Through our subsidiaries, we offer our clients business
information management consulting and planning, application software design,
agency and integrated application services for the third party’s software and
other online application services.  We also offer the “For”-series of
software products. Our clients are mainly in the telecom and logistics
industries, as well as government agencies. We have also invested in companies
in logistics, finance and information technology (IT) industries. The
application platforms used by these companies are supported by our integrated
application systems, software and IT outsourcing services. Our headquarters are
located in Beijing, with branch offices in Chengdu, Nanning, Shanghai and
Guangzhou. We also have a research and development (“R&D”) center located in
Chengdu.
 
 Company
Organization and History
 
 We are 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.  From 1996 until 1999,
the Company continued as an unfunded venture in search of a suitable business
acquisition or business combination.
 
 On
November 3, 1999, we entered into a Plan of Reorganization with Beijing Forlink
Software Technology Co., Ltd., (hereinafter "BFSTC"), a limited liability
company organized under the laws of the PRC, under the terms of which BFSTC
gained control of the Company.  Pursuant to the Plan of
Reorganization, we acquired 100% of the registered and fully paid-up capital of
BFSTC in exchange for 20,000,000 shares of the Company's authorized, but
unissued, common stock.  BFSTC is engaged in the provision of computer
software consultancy and engineering services and the development and sale
of computer software in the PRC.  As a part of its computer
consultancy and engineering services, BFSTC is also engaged in the sale of
computer hardware.  In June 2001, BFSTC changed its name to Forlink
Technologies Co. Ltd. (“FTCL”). FTCL is our major
operating subsidiary in China.
 
 In August
2001, we acquired Beijing Slait Science & Technology Development Limited Co.
(“SLAIT”) pursuant to a Plan of Reorganization dated January 11,
2001.  We issued 59,430,000 shares of our common stock to SLAIT’s
original owners in exchange for 100% of the outstanding equity of
SLAIT.  As a result of the share exchange, the former owners of SLAIT
own approximately 70% of the issued and outstanding shares of the Company, and
SLAIT became a wholly-owned subsidiary of the Company.  We also agreed
to transfer 1,085,000 Renminbi (“RMB”) (approximately US$131,039) to the former
owners of SLAIT.  A change in control occurred in which all but one of the
officers and directors of the Company resigned and two former directors (also
former owners) of SLAIT became officers and directors of the
Company.  Prior to its dissolution in 2004, SLAIT provided application
system integration technology and specializes in large volume transaction
processing software for networks such as mobile phone billing and band
operation.  Subsequent to our acquisition, the principal activities of
SLAIT were gradually shifted to those of FTCL.  On February 13, 2004,
SLAIT was officially dissolved in accordance with relevant PRC
regulations.
 
 On June
18, 2003, Forlink Technologies (Hong Kong) Limited (“FTHK”) was incorporated in
Hong Kong Special Administrative Region as a limited liability
company.  In December 2003, FTHK became a wholly owned subsidiary of
Forlink.  FTHK is an investment holding company.  Because of
the favorable business environment in Hong Kong, we can simplify and speed up
investment transactions through this subsidiary.  Through FTHK, on December
18, 2003, we invested $760,870 in All China Logistics Online Co., Ltd. ("All
China Logistics"), a privately held PRC company and a leading provider of
logistic services in China, in exchange for a 17.8% equity
interest.  Through this investment, we have become the second largest
shareholder of All China Logistics and its sole software solution
provider.  FTHK is also responsible for directly importing from overseas
companies certain hardware needed for product integration, which allows us
to improve our hardware pass-through profit margin.
  5
  On June
14, 2004, Forlink Technologies (Chengdu) Limited ("FTCD") was established as a
limited liability company in Chengdu, PRC and subsequently became a wholly owned
subsidiary of FTHK in September 2004. FTCD is in the business of providing
software outsourcing services and software development.  The
registered capital of FTCD is $5,000,000 and the fully paid up capital was
$750,000 as of December 31, 2005.  In April 2006, FTHK further
invested $130,000 in FTCD.  FTCD commenced operations in late
2005.  The registered capital of FTCD was reduced
to $200,000 in December 2007.
 
 In
compliance with China’s foreign investment restrictions on telecom value-added
services and other laws and regulations, we conduct our telecom value-added
services and application integration services for government organizations in
China via Beijing Forlink Hua Xin Technology Co. Ltd. ("BFHX").  BFHX
was established in the PRC on September 19, 2003 as a limited liability
company.  The registered capital of BFHX is $120,733
(RMB 1,000,000) and was fully paid up as of March 31,
2005.  Mr. Yi He and Mr. Wei Li have been entrusted as nominee
owners of BFHX to hold 70% and 30%, respectively, of the fully paid up
capital of BFHX on behalf of Forlink as the primary beneficiary.  BFHX
is considered a Variable Interest Entity ("VIE"), and because we are the
primary beneficiary, our consolidated financial statements include
BFHX.  Upon the request of the Company, Mr. Yi He and Mr. Wei Li
are required to transfer their ownership in BFHX to us or our designee at
any time for the amount of the fully paid registered capital of
BFHX.  Mr. Yi He is the Chief Executive Officer, a director and a
major stockholder of the Company.  Mr. Wei Li is
the administration manager of FTCL.
 
 On March
20, 2005, Beijing Forlink Kuanshi Technologies Limited (“BFKT”) was established
as a limited liability company by BFHX and two individuals, Mr. Jianqiu Fang and
Mr. Bizhao Zhong.  BFHX, Mr. Fang and Mr. Zhong hold 70%, 10% and 20%
of the fully paid up capital of BFKT, respectively.  KFKT was to
provide software and operation support to IPTV (Internet Protocol Television)
operators, but the company was dissolved on November 19, 2007. We recorded an
investment loss of $3,792 after the dissolution of BFKT, with our total
investment loss in BFKT from its establishment to its dissolution in the amount
of $16,932.
 
 On
October 24, 2005, we entered into a definitive agreement to acquire a 17.5%
equity interest from China Liquid Chemical Exchange Company Limited (“CLCE”), a
PRC limited liability company.  Under the terms of the agreement,
Forlink deployed the “For-online Electronic Trading System”, a proprietary,
integrated software solution, to support CLCE’s operations, including, but not
limited to, online trading, online billing and payment, user authentication and
customer care, in exchange for the 17.5% equity interest.  In early
2007, CLCE increased its share capital to $1,708,526 (RMB 13,000,000). As we did
not subscribe for the new shares, our shareholding of CLCE was diluted and as of
December 31 2008 was 13.46%.  CLCE commenced operations fully in early
2007.
 
 On
October 3, 2006, we entered into a Transfer of Right to Invest and Project
Cooperation Agreement (“Statelink Agreement”) with Statelink International
Group, Ltd., a British Virgin Islands company (“Statelink”), pursuant to which
we acquired 22.73% registered capital in Guangxi Caexpo International Trade and
Logistics Co., Ltd. (“Guangxi Caexpo”), a PRC limited liability company in the
businesses of real estate development, advertising and computer distribution,
for cash consideration of $2,557,545 (RMB 20,000,000) from BFHX and stock
consideration of 13,000,000 shares of our restricted common
stock.  Thereafter, we also won a contract from Guangxi Caexpo to
build an “Electronic Trade and Logistics Information Platform and Call Center”
(the “Project”).  On October 26, 2006, BFHX established Forlink
Technologies (Guangxi) Limited (“FTGX”), a PRC limited liability company and
wholly owned subsidiary, to carry out this contract.  At the time of
incorporation, BFHX injected RMB 20,000,000 (approximately US$2,557,545) as
registered capital to FTGX.  The Project was completed in the forth
quarter of 2007, and with the successful deployment of the relevant software,
the client signed the final inspection report in January 2009.  FTGX
now maintains the Project software.
 
 On
October 12, 2006, we invested $31,969 (RMB 250,000) in Wuxi Stainless Steel
Exchange Co., Ltd. (“Wuxi Exchange”), a PRC limited liability company, for a
12.5% equity interest. In addition, we agreed to deploy a proprietary,
integrated software solution, estimated at RMB 1,000,000, to support Wuxi
Exchange’s operations. The software was deployed in February 2007.  On
January 14, 2007, the Company entered into an agreement with a major shareholder
of Wuxi Exchange pursuant to which the Company transferred 2.5% of the Company’s
interest in Wuxi Exchange to this major shareholder for a cash payment of RMB
500,000.
 
 On
January 25, 2007, our board of directors and the majority holders of the
Company’s common stock jointly approved an amendment to our Articles of
Incorporation by written consent, to increase the number of authorized shares of
common stock from 100,000,000 to 200,000,000.  The Certificate of
Amendment to our Articles of Incorporation to effect the increase of the number
of our authorized common shares was filed with Nevada’s Secretary of State on
April 4, 2007.
  6
 
 On April
29, 2007, we invested, through BFHX, $138,158 (RMB 1,050,000) in Beijing GuoXin
Forlink Internet Technologies Limited (“BGXF”), a privately held PRC company
that operates a finance study website, for a 35% equity interest.  The
investment in BGXF is accounted for under the equity method of accounting due to
the Company’s significant influence over the operational and financial policies
of BGXF.  BGXF commenced operations on March 9 2008.  On
October 14, 2008, BGXF increased its registered capital to RMB 4,285,700, and
since we did not invest additional funds into BGXF, the ratio of our holding was
diluted to a 24.5% equity interest.
 
 On July
12, 2007, we invested through FTGX, $1,063,830 (RMB 8,000,000) in Nanning Bulk
Commodities Exchange Corporation Limited (“NNBCE”), a privately held PRC
company, for an 80% equity interest.  NNBCE became a subsidiary of
FTGX.  NNBCE, established on April 29, 2007, commenced operations on
March 28, 2008, and provides logistical e-commerce service.
 
 On
September 5, 2007, we invested through NNBCE, $465,425 (RMB 3,500,000) in
Guangxi Bulk Sugar & Ethanol Exchange Corporation Limited (“GBSEE”), a PRC
limited liability company established on September 12, 2007, for a 35% equity
interest.  On the same date, All China Logistics was entrusted to hold
20% of the fully paid up capital of GBSEE on behalf of NNBCE as the primary
beneficiary.  Upon the request of NNBCE, All China Logistics is
required to transfer its ownership interests in GBSEE to NNBCE or its designees
at any time for the amount of the 20% fully paid up capital.  In
accordance with Financial Accounting Standards Board (“FASB”) Interpretation No.
46R “Consolidation of Variable Interest Entities - An Interpretation of ARB No.
51” (“FIN 46R”), NNBCE is deemed to hold the primary beneficial interest of the
55% equity interest in GBSEE.  GBSEE was established to provide
logistical e-commerce service, but it was dissolved on December 16, 2007 before
it commenced any operations, and NNBCE received payments back of its investment
in GBSEE of $410,397 (RMB 3,000,000) in December 2007; $66,211 (RMB 484,000) in
February 2008, and $2,189 (RMB 16,000) in September 2008.
 
 On
December 24, 2007, our board of directors and the majority holders of the
Company’s common stock jointly approved an amendment to our Articles of
Incorporation by written consent, to effect a 1-for-20 reverse stock split. The
Certificate of Amendment to our Articles of Incorporation to effect the reverse
split was filed with Nevada’s Secretary of State on February 21,
2008.
 
 On March
20, 2008, Forlink invested $71,124 (RMB 500,000), through BFHX, in Shandong
LongDong Internet Technologies Limited (“SDLD”), a PRC limited liability
company, established on October 24, 2007, for a 5% equity
interest.  SDLD, which commenced operations in December 2007, is in
the business of providing of providing primary products e-commerce
services.  The purpose of the investment is to gain cash dividends
from SDLD.
 
 Forlink
and its subsidiaries are all operating companies, and during the reporting
period, none of the companies’ operations were discontinued or
dissolved.  Set forth below is a diagram illustrating our corporate
structure as of December 31, 2008:
  7
 
 
  8
  Employees
 
 As of
December 31, 2008, we had 210 employees, of which 208 are
full-time.  Approximately 156 of our full-time employees are software
and information technology specialists engaged in research and development,
maintenance and support activities.  The remaining employees are
sales, marketing and administrative personnel.
 
 Products
and Solutions
 
 Our
application solutions are developed on Enterprise Application Integration (EAI)
platforms.  Our current product offerings include:
 
 ·
              For-eMarket: Forlink Electronic
      Trading Market system is an online exchange system designed to facilitate
      the matching of vendors with potential
  customers.
 
 ·
              ForCRM: Forlink
      Customer Relations Management System proposes a sales model based on
      certain characteristics of a client’s customers and allows the client to
      customize the system menu and function patterns in accordance with the
      client’s customer relations management
  requirements.
 
 ·
              ForOSS:
      Forlink Operation Support System is our solution for Business &
      Operation Support Systems (BSS/OSS) for e-business carriers and telecom
      carriers, and is consist of software products designed to support existing
      and expanding business operations of communications
      companies.  ForOSS supports billing, customer care, customer
      relation management, accounting, decision support and other internal
      functionalities.
 
 ·
              ForOA: Forlink
      Office Assistance is an internet-based enterprise office system and
      information-sharing platform.
 
 ·
              For-Online:
      For-Online is an enterprise application integration platform designed to
      deliver application service provider (ASP) services over the
      internet.  The applications that can be delivered over the
      internet include many of our flagship products such as ForOA and
      ForCRM.
 
 Distribution
Methods of the Products and Services
 
 We mainly
sell our products and services directly to our customers.  We also utilize
distribution partners to sell our products and services.
 
 Research
and Development
 
 We are
committed to continuously researching, designing and developing
information technology solutions and software products that meet the needs
of our customers.  Our Chengdu R&D center was
established in February 1998. As of December 31, 2008, we had
56 employees at the Chengdu R&D Center.  Our
R&D expenses in 2008 and 2007 were $639,927 and $690,386,
respectively.
 
 Status
of New Product or Service
 
 We released
For-eMarketPlace 3.1 in August 2008.  Version 3.1 improves upon the
previous version by its ability to support additional platforms such as cellular
telephones and an added search function for system
administrators.  This version is also more reliable than its
predecessor.
 
 Market
Opportunities
 
 Based on
our extensive market research and industry insights, we believe that the major
market opportunities for our business include the following: enterprise
application integration (EAI); application services provider (ASP); software and
IT outsourcing.
  9
 
 Our
Strategy
 
 As
a professional software-solutions and technology service company, our
business objective is to become a leading e-business application solutions and
online application services provider in China. Our operating strategy is to use
shared core technologies and management systems to identify potential clients,
and through consistent long-term technology supports, build tight
strategic partnerships with our clients.
 
 The key
aspects of our strategy include the following:
 
 ·
              Establishaunifiedand
      standard software engineering and projectmanagementsystemto provide
      assurance for designing high-qualitysoftware
      products and services.As an important milestone, we have achieved
      Level 3 (Managed Level of Software Process Maturity) of Capability
      Maturity Model® Integration (CMMI), which was certified by the Software
      Engineering Institution.
 
 ·
              Establish a
      unified e-business application platform and online services
      platform. We provide support for e-business application
      technologies and platforms in different industries, and strive to make
      available to our clients high-quality IT outsourcing services that are
      cost-effective.  To that end, we have made gradual improvements
      to the power and reliability of our For-Online platform since 2004,
      culminating with the launch in August 2007 of For-Online
    4.0.
 
 ·
              Participate
      in our clients’ e-business application operations to become their
      strategic partner. We have invested in several companies in
      logistics, finance, IT industries, whose application platforms are
      supported by our integrated application systems, software and IT
      outsourcing services. These companies include NNBCE, CLCE, BGXF, Wuxi
      Stainless Steel Exchange Co., Ltd.
  and NBBCE.
 
 Our
Competitive Strengths
 
 ·
                Professional
      Software Developmentand Services
      System.
 
 Our
professional software development and services system has substantially
strengthened our competitive advantages by ensuring that we are in compliance
with all relevant international standards and regulations for
business.  We have passed the ISO9001:2000 international quality
assurance system certification and the CMMI (Capability Maturity Model
Integration) Level 2 certification, certifying that our software development and
services system is in compliance with international standards.
 
 ·
                Fifteen
      Years of Experience in Industry Applications with Proven Solutions and
      Products.
 
 Forlink
has developed core application software products such as For-eMarket, ForCRM,
ForOSS and ForROA based on standardized application integration technologies.
 Our customers, strategic partners and suppliers recognize our company as a
dependable provider of high quality services, solutions and products, and
frequently recommend us to their business contacts.
 
 ·
              EstablishedCustomer
      Relationships.
 
 Because
of our successful track record, we have established relationships with leading
companies in telecom, logistic, finance, government, and other industry
verticals in China.  Our in-depth understanding of
their requirements allows us to successfully deliver customized
solutions.  Moreover, we have strong customer service and
research and development teams based in China, which allows us to respond
quickly and efficiently to the needs of our clients.
 
 ·
                A Strongand Stable
      Management Team.
 
 The
current management team has been with Forlink since we commenced business, and
includes pioneers of application integration technologies (AIT) in China.
 The backgrounds of the individuals in our management team offer a depth
and breadth of experience that covers all aspects relating to the control and
development of AIT systems. Beyond expertise in the field, their close working
relationships with major long-term clients demonstrate a proven ability to
sustain and cultivate a successful business.
  10
  Our
Strategic Partners
 
 Strategic
partnerships are essential elements of our business model.  At this time,
we have four types of partners that contribute to the continuing success of our
business.
 
 ·
              ProductPartners.These
      partners provide products and solutions to be integrated in our
      solutions.  We are authorized resellers of Hewlett Packard (“HP”),
      Sun, EMC, Oracle and CISCO systems.  We were awarded by HP with
      its Excellent Sales Achievement Prize in 1999 and the Best Co-operation
      Prize in 1999.
 
 ·
              TechnologyDevelopmentPartners.  These
      partners provide technology (through licensing or other arrangements) for
      our solutions or for joint development.  Our major technology
      development partners include HP, Oracle, BEA, IONA, Redhat, Turbolinux,
      and Redflag-linux.
 
 ·
              Marketing
      and ProductPartners.
      These partners provide products and/or technology that are bundled with
      our solutions and products for marketing purposes.  Our
      marketing and product partners include HP, Intel, IBM, Sun, Compaq,
      Oracle, Informix, CA, Lenovo, Founder, and Digital
  China.
 
 ·
              DistributionPartners.  These
      partners distribute our solutions and products to our customers. Our
      current distribution partner is Beijing
Federal.
 
 Competitive
Conditions
 
 The
market for information technology services in China is rapidly growing and
changing.  We compete with domestic companies. Our principal
competitors in application integration services are Huawei and AsiaInfo.
Our principal competitors in the ASP field include UFSOFT, MYCRM, and HAN
Consulting.  Our principal competitors in software outsourcing include
Neusoft, Dalian HaiHui, and China Software & Technology
Corporation.  All of these companies are leading companies in the
Chinese IT industry, and AsiaInfo is also a listed company on
NASDAQ.
 
 Government
Regulation
 
 The
Chinese government has generally encouraged the development of the information
technology industry, and the products and services we offer are currently not
subject to extensive government regulations.
 
 Dependence
on Major Customers
 
 For the
year ended December 31, 2008, approximately 77% of the Company's total net
revenues were generated by two customers, Beijing Mobile Communication Company
(“Beijing Mobile”) and China HP Company (“China HP”).  The loss of any
or both of these customers could have a material adverse effect on our
business.
 
 Our
largest customer has been China HP.  Since 2005, we have signed a series of
contracts with China HP in connection with the outsourcing of Beijing
Mobile’s Business Operation Support System (BOSS) phase three
system capacity expansion project.  The revenue was recognized in
2008.
 
 During
the year ended December 31, 2008, sales to China HP totaled $2,148,539,
which accounted for 39% of our total revenue for the period.
 
 Although
we are an important strategic IT partner of China HP, we do not have
long-term contracts with China HP.  All of our agreements
with China HP are for short-term projects or sales of third-party hardware.
 While we feel that our significant relationships with China HP will
likely provide additional sales agreements in the future, China HP is not
contractually bound to purchase any products or services from us.  The
loss of this customer could hurt our business by reducing our revenues and
profitability.
 
 Our
second largest customer in 2008 was Beijing Mobile.  Since 1998,
we have been developing and maintaining the carrier’s BOSS.  BOSS is
an integrated software platform and it is developed in stages to accommodate the
carrier’s increasing subscribers and service offerings.  We completed
phase one in 2002, and phrase two in 2006.  We are currently developing
phase three of BOSS while continuing to maintain phases one and
two.
  11
 
 Patents, Intellectual Property, and
Licensing
 
 We rely
on a combination of patents, copyrights, trademarks, trade secrets,
confidentiality agreements, and other contractual restrictions with employees
and third parties to establish and protect our proprietary rights.  Despite
these precautions, the measures we undertake may not prevent misappropriation or
infringement of our proprietary technology.  These measures may not
preclude competitors from independently developing products with functionality
or features similar to our products.
 
 As of
December 31, 2008, we have been issued 58 patents in the PRC that are
currently in force. We also have 2 patent applications submitted for review and
approval.  The normal expiration dates of our issued patents in the
PRC range from 2026 to 2030.  It is possible that we will not receive
patents for applications that we have submitted and those that we plan to
file in the future.  Furthermore, our issued patents may not
adequately protect our technology from infringement or prevent others from
claiming that our products infringe the patents of those third parties. Our
failure to protect our intellectual property could materially harm our
business.  In addition, our competitors may independently develop
similar or superior technology, duplicate our products, or design around our
patents.  It is possible that litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade
secrets, or to determine the validity and scope of the proprietary rights of
others.  Litigation could result in substantial costs and
diversion of resources and could materially harm our
business.
 
 Some of
our products are designed to include software or other intellectual property
licensed from third parties.  While it may be necessary in the future
to seek or renew licenses relating to various aspects of our products, we
believe that such licenses generally could be obtained on commercially
reasonable terms.  However, failure to obtain such licenses on
commercially reasonable terms could materially harm our
business.
 
 Environmental
Matters
 
 None.
 
 Item
1A. Risk Factors.
 
 In
addition to the other information in this report, the following factors should
be considered in evaluating our business and our future prospects:
 
 POLITICAL
AND ECONOMIC POLICIES OF THE CHINESE GOVERNMENT COULD AFFECT OUR INDUSTRY IN
GENERAL AND OUR COMPETITIVE POSITION IN PARTICULAR
 
 Since the
establishment of the People's Republic of China in 1949, the Communist Party has
been the governing political party in the PRC.  The highest bodies of
leadership are the Politburo of the Communist Party, the Central Committee and
the National People's Congress. The State Council, which is the highest
institution of government administration, reports to the National People's
Congress and has under its supervision various commissions, agencies and
ministries, including The Ministry of Information Industry, the
telecommunications regulatory body of the Chinese government.  Since the
late 1970s, the Chinese government has been reforming the Chinese economic
system.  Although we believe that economic reforms and the macroeconomic
measures adopted by the Chinese government have had and will continue to have a
positive effect on economic development in China, there can be no assurance that
the economic reform strategy will not from time to time be modified or revised.
 Such modifications or revisions, if any, could have a material adverse
effect on the overall economic growth of China and investment in the Internet
and the telecommunications industry in China.  Such developments could
reduce, perhaps significantly, the demand for our products and services.
 There is no guarantee that the Chinese government will not impose other
economic or regulatory controls that would have a material adverse effect on our
business.  Furthermore, changes in political, economic and social
conditions in China, adjustments in policies of the Chinese government or
changes in laws and regulations could affect our industry in general and our
competitive position in particular.
 
 THE
GROWTH OF OUR BUSINESS IS DEPENDENT ON GOVERNMENT TELECOMMUNICATIONS
INFRASTRUCTURE AND BUDGETARY POLICY, PARTICULARLY THE ALLOCATION OF FUNDS TO
SUSTAIN THE GROWTH OF THE TELECOMMUNICATIONS INDUSTRY IN CHINA
  12
  Virtually
all of our large customers are directly or indirectly owned or controlled by the
government of China. Accordingly, their business strategies, capital expenditure
budgets and spending plans are largely decided in accordance with government
policies, which, in turn, are determined on a centralized basis at the highest
level by the National Development and Reform Commission of China.  As a
result, the growth of our business is heavily dependent on government policies
for telecommunications and Internet infrastructure. Insufficient government
allocation of funds to sustain the growth of China's telecommunications
industries in the future could reduce the demand for our products and services
and have a material adverse effect on our ability to grow our
business.
 
 CURRENCY
EXCHANGE RATE RISK DUE TO FLUCTUATIONS IN THE EXCHANGE RATE BETWEEN U.S. DOLLARS
AND RENMINBI
 
 The
functional currency of our operations is Renminbi and our financial statements
are expressed in U.S. dollars.  As a result, we are subject to the
effects of exchange rate fluctuations between these currencies.  In July
2005, the Chinese government announced that it would no longer peg its currency
exclusively to US dollar but instead would switch to a managed floating exchange
rate based on market supply and demand with reference to a basket of currencies
determined by the People’s Bank of China. The exchange rate of RMB to USD
changed from RMB 8.28 to RMB 7.82 in late December 2006. Any future
devaluation of the Renminbi against the U.S. dollars may have an adverse effect
on our reported net income.  As our operations are conducted in the
PRC, substantially all our revenues, expenses, assets and liabilities are
denominated in Renminbi.  In general, our exposure to foreign exchange
risks should be limited.  However, the value in our shares may be
affected by the foreign exchange rate between the U.S. dollar and the Renminbi
because the value of our business is effectively denominated in Renminbi, while
our shares are traded in U.S. dollars. Furthermore, a decline in the value of
Renminbi could reduce the U.S. dollar equivalent of the value of the earnings
from, and our investment in, our subsidiaries in the PRC; while an increase in
the value of the Renminbi may require us to exchange more U.S. dollars into
Renminbi to meet the working capital requirements of our subsidiaries in China.
Depreciation of the value of the U.S. dollar will also reduce the value of the
cash we hold in U.S. dollars, which we may use for purposes of future
acquisitions or other business expansion.  We actively monitor our exposure
to these risks and adjust our cash position in the Renminbi and the U.S. dollar
when we believe such adjustments will reduce risks.
 
 GENERAL
RISK OF FINANCING
 
 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.
 
 Item 1B. Unresolved Staff
Comments.
 
 Not
applicable.
 
 Item
2. Properties.
 
 We have
an office in Chengdu, PRC, which houses FTCD. The building is located at
B-16B, Wangfujing Business Mansion, No.5 Huaxingzheng Street, Chengdu,
Sichuan Province, PRC, and was purchased on behalf of the Company by Mr. Yi He,
our Chief Executive Officer.  By a stockholders’ resolution passed on
March 8, 1999, it was ratified that the title to the building belongs to the
Company.  In 2005, the title to the building was transferred to
FTCD.
 
 We
currently rent office space of approximately 2,027 square meters that serves as
our headquarters at 9/F Shenzhou Mansion, No. 31 Zhongguancun Street,
Haidian District, Beijing, China.  We have a renewable lease agreement
for these premises until March 29, 2011.  The total rent from March 30,
2009 to March 29, 2011 is $770,457 (RMB 5,326,944).
 
 In
addition, we currently have three regional field support offices in the PRC,
namely, in Shanghai, Chengdu and Guangzhou.  The leases for these
offices are as follows:
 
 Name
                            
                            Rent Period
                            
                            Size (in m2)
                            
                            Annual RentGuangzhou
      Office
                            
                            3/01/2009
      – 2/28/2010
                            
                            64.70
                            
                            $10,106
      (RMB 69,876)Shanghai
      Office
                            
                            2/28/2008 – 3/31/2009*
                            
                            98.44
                            
                            $24,555(RMB186,839.12)Chengdu
      R&D Center
                            
                            11/22/2008
      – 11/21/2009
                            
                            602.59
                            
                            $35,927
      (RMB
248,400)
  13
 
 * At the
expiration of the lease, we will continue to lease the premises on a
month-to-month basis for $1,956.77 (RMB 14,372.24) per month.
 
 We
believe that the current facilities occupied by the Company and its subsidiaries
will be able to meet the Company’s operational needs for the coming
year.
 
 Item
      3.
              Legal
      Proceedings.
 
 The
Company is not a party to any legal proceedings and to the Company's knowledge,
no such proceedings are threatened or contemplated.  At this time, the
Company has no bankruptcy, receivership, or similar proceedings
pending.
 
 Item
      4.
              Submission
      of Matters to a Vote of Security
Holders.
 
 We did
not submit any matters to a vote of security holders during the fourth quarter
of the fiscal year covered by this annual report.
 
 PART
II
 
 Item
      5.
              Market
      for Registrant’s Common Equity Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
 
 Market
Information
 
 Our common
stock, par value $0.001 per share, is currently trading on the Over the Counter
Bulletin Board system under the symbol "FLSW".  There is no assurance
that our common stock will continue to be quoted or that any liquidity exists
for the Company’s shareholders.
 
 The
following table sets forth the range of high and low bid prices for the
Company's common stock for each quarterly period indicated, as reported by the
“Businessweek Companies” website. Quotations reflect inter-dealer
prices without retail markup, markdown or commissions and may not represent
actual trades.
 
 Common
Stock
 
 QuarterEnded
                    
                    HighBid
                    
                    
                    LowBidDecember
      31, 2008
                    
                    $
                    1.65
                    
                    
                    $
                    0.25September
      30, 2008
                    
                    $
                    1.75
                    
                    
                    $
                    0.55June
      30, 2008
                    
                    $
                    1.80
                    
                    
                    $
                    0.55March
      31, 2008*
                    
                    $
                    1.55
                    
                    
                    $
                    0.07December
      31, 2007
                    
                    $
                    0.11
                    
                    
                    $
                    0.07September
      30, 2007
                    
                    $
                    0.13
                    
                    
                    $
                    0.08June
      30, 2007
                    
                    $
                    0.15
                    
                    
                    $
                    0.08March
      31, 2007
                    
                    $
                    0.22
                    
                    
                    $
                    0.08
 
 *
Increase in stock price commencing in the first quarter of our 2008 fiscal year
reflect the effect of a 1-for-20 reverse stock split of the Company’s common
stock that became effective on February 21, 2008.
 
 Holders
 
 As of
March 14, 2009, there were 4,651,173 shares of the Company's common stock
outstanding held of record by approximately 548 persons (not including
beneficial owners who hold shares at broker/dealers in “street
name”).
  14
 
 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.
 
 Securities
Authorized for Issuance under Equity Compensation Plans
 
 Please
see the discussion in Item 12 titled “Equity Compensation Plan Information”
below.
 
 Sales
of Unregistered Securities
 
 On
October 3, 2006, the Company issued a total of 13,000,000 shares of the
Company’s restricted common stock to Statelink International Group, Ltd.
(“Statelink”) as a part of the Company’s considerations pursuant to a Transfer
of Right to Invest and Project Cooperation Agreement.  The fair market
value of the Company’s common stock as of October 3, 2006 was $0.08 per
share.  The issuance to Statelink was made pursuant to Section 4(2) of
the Securities Act of 1933 and Regulation D promulgated thereunder.
 
 Repurchases
of Equity Securities
 
 The
Company did not repurchase any of its outstanding equity securities during the
fourth quarter of the year ended December 31, 2008.
 
 Item
6.          Selected Financial
Data
 
 Not
applicable.
 
 Item
7.          Management’s Discussion
and Analysis or Plan of Operation
 
 General
 
 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 we believe 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.  We caution investors that any forward looking
statements made by us 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 our
financial statements and notes thereto included elsewhere in this Form
10-K.  Except for the historical information contained herein, the
discussion in this Form 10-K contains certain forward-looking statements that
involve risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions.  The cautionary statements made in this
Form 10-K should be read as being applicable to all related forward looking
statements wherever they appear in this Form 10-K.  The Company's
actual results could differ materially from those discussed here. We
undertake no obligation to update publicly any forward-looking statements for
any reason even if new information becomes available or other events occur in
the future.
 
 Overview
 
 We are a
leading provider of software solutions and information technology services in
China. We focus on providing Enterprise Application Integration (EAI) solutions
for large companies in the telecom, finance, and logistics
industries.  In May 2004, we launched For-Online, which delivers
enterprise applications and services over the Internet to small and medium-sized
enterprises (SMEs) in China.  Since its launch, For-Online has quickly
become an important channel for delivering and distributing our products and
services to more customers.
  15
 
 In
addition to our core business, we believe that there are opportunities for us to
expand into new areas and to grow our business not only internally but through
acquisitions.  For a description of all of our acquisitions and other
business activities since 1999, please refer to the section titled “Company
History and Recent Developments” under Item 1 (Description of Business) in Part
I of this Annual Report.
 
 Revenues
 
 Our
business includes Forlink brand "For-"series software system sales such as
ForOSS, ForRMS, For-Mail and their copyright licensing, and For-series related
system integration, which consists of hardware sales and other related services
rendered to customers. The following table shows our revenue breakdown by
business line:
 
 YearEndedDecember31,2008
                    
                    
                    2007Sales
      of For-series software
                    
                    $
                    5,310,378
                    
                    
                    $
                    4,684,791as
      a percentage of net sales
                    
                    
                    95
                    %
                    
                    
                    51
                    %For-series
      related system integration
                    
                    $
                    258,499
                    
                    
                    $
                    4,436,457as
      a percentage of net sales
                    
                    
                    5
                    %
                    
                    
                    49
                    %
 
 As
indicated in the foregoing table, sales of For-series software as a percentage
of net sales increased from 51% in 2007 to 95% in 2008, while sales of
For-series related system integration as a percentage of net sales decreased
from 49% in 2007 to 5% in 2008.  These changes were mainly attributable to
our strategy of increasing software sales and reducing low profit margin
hardware projects.
 
 Generally,
we offer our products and services to our customers on a total-solutions basis.
 Most of the contracts we undertake for our customers include revenue from
hardware and software sales and professional services.
 
 Sources
of Revenue
 
 ·
              Hardware
      Revenue:Revenues
      from sales of products are mainly derived from sales of hardware.
      Normally, the hardware that we procure is in connection with
      total-solutions basis system integration
  contracts.
 
 ·
              ServiceRevenue:Service revenue
      consists of revenue for the professional services we provide to our
      customers for network planning, design and systems integration, software
      development, modification and installation, and related training
      services.
 
 ·
              Software
      License Revenue:We
      generate revenue in the form of fees received from customers to whom we
      issue licenses for the use of our software products over an agreed period
      of time.
 
 Costs
of Revenue
 
 Our costs
of revenue include hardware costs, software-related costs and compensation and
travel expenses for the professionals involved in the relevant
projects.  Hardware costs consist primarily of third party hardware
costs.  We recognize hardware costs in full upon delivery of the
hardware to our customers.  Software-related costs consist primarily of
packaging and written manual expenses for our proprietary software products and
software license fees paid to third-party software providers for the right to
sublicense their products to our customers as part of our solutions
offerings.  The costs associated with designing and modifying our
proprietary software are classified as research and development expenses as such
costs are incurred.
 
 Operating
Expenses
 
 Operating
expenses are comprised of selling expenses, research and development expenses
and general and administrative expenses.
 
 Selling
expenses include compensation expenses for employees in our sales and marketing
departments, third party advertising expenses, as well as sales commissions and
sales agency fees.
  16
 
 Research
and development expenses relate to the development of new software and the
modification of existing software. We expense such costs as they are
incurred.
 
 Taxes
 
 According
to the relevant PRC tax rules and regulations, FTCL and BFHX, both of which are
recognized as New Technology Enterprises operating within a New and High
Technology Development Zone, are entitled to an Enterprise Income Tax (“EIT”)
rate of 15%.
 
 Pursuant
to approval documents dated September 23, 1999 and August 2, 2000 issued by the
Beijing Tax Bureau and the State Tax Bureau respectively, FTCL received full
exemption from EIT for fiscal years 1999 through 2002, and a 50% EIT reduction
at the rate of 7.5% for fiscal years 2003 through 2005. As of December, 31,
2008, FTCL was entitled to an EIT rate of 25%.
 
 Pursuant
to an approval document dated January 19, 2004 issued by the State Tax Bureau,
BFHX received full exemption from EIT for fiscal years 2004 through
2006.  As of December 31, 2008, BFHX was entitled to an EIT rate of
7.5%.
 
 Hong Kong
profits tax is calculated at 17.5% on the estimated assessable profits of FTHK
for the period.  The EIT rates for FTCD and NNBCE are
25%.  No provision for EIT and Hong Kong profits tax were made for
FTCL, BFHX, FTCD, FTGX, NNBCE and FTHK as they have not gained taxable income
for the periods.
 
 Revenue
from the sale of hardware procured in China together with the related system
integration is subject to a 17% value added tax (“VAT”).  However,
companies that develop their own software and have the software registered are
generally entitled to a VAT refund.  If the net amount of the VAT
payable exceeds 3% of software sales, the excess portion of the VAT is
refundable upon our application to thetax
authority.  This policy is effective until 2010.  Changes in
Chinese tax laws may adversely affect our future operations.
 
 Foreign
Exchange
 
 Our
functional currency is United States Dollars (USD) and our financial records are
maintained and the financial statements prepared in USD.  The
functional currency of FTHK is Hong Kong Dollars (HKD) and the financial records
are maintained and the financial statements prepared in HKD.  The
functional currency of FTCL, BFHX, FTGX and FTCD 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 each company’s
denominated currency at the exchange rates ruling at the transaction
dates.  Gains and losses resulting from foreign currency transactions
are included in the consolidated statement of operations.  Assets and
liabilities denominated in foreign currencies at the balance sheet date are
translated into each company’s denominated currency at year-end exchange
rates.  All exchange differences are dealt with in the
consolidated statements of operations.
 
 The
financial statements of our operations based outside of the United States have
been translated into USD in accordance with SFAS 52.  We have
determined that the functional currency for each of the Company’s foreign
operations is its applicable local currency.  When translating
functional currency financial statements into USD, year-end exchange rates are
applied to the consolidated balance sheets, while average period rates are
applied to consolidated statements of operations.  Translation gains
and losses are recorded in translation reserve as a component of shareholders’
equity.
 
 The value
of the RMB is subject to changes in China’s central government policies and to
international economic and political developments affecting supply and demand in
the China Foreign Exchange Trading System market.  Since 1994, the
conversion of RMB into foreign currencies, including USD, has been based on
rates set by the People’s Bank of China, which are set daily based on the
previous day’s interbank foreign exchange market rates and current exchange
rates on the world financial markets. Since 1994, the official exchange rate
generally has been stable.  In July 2005, the Chinese government announced
that it will no longer peg its currency exclusively to USD but will switch to a
managed floating exchange rate based on market supply and demand with reference
to a basket of currencies yet to be named by the People’s Bank of China, which
will likely increase the volatility of RMB as compared to USD. The exchange rate
of RMB to USD changed from RMB 8.28 to 8.11 in late July
2005.
  17
 
 The
following table shows the exchange rates and the weighted average rates ruling
for the years ended December 31, 2008 and 2007:
 
 US$
                          
                          
                          HK$
                          
                          
                          RMBExchange
      rate as of December 31,
                          
                          2008
                          
                          
                          1
                          
                          
                          
                          7.78
                          
                          
                          
                          6.832007
                          
                          
                          1
                          
                          
                          
                          7.84
                          
                          
                          
                          7.32Weighted
      average rates ruling for
                          
                          2008
                          
                          
                          1
                          
                          
                          
                          7.81
                          
                          
                          
                          6.912007
                          
                          
                          1
                          
                          
                          
                          7.84
                          
                          
                          
                          7.60
 
 Critical
Accounting Policies and Estimates
 
 We
prepare our consolidated financial statements in accordance with generally
accepted accounting principles in the United States of America. The preparation
of those financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. On an
on-going basis, we evaluate our estimates and judgments, including those related
to revenues and cost of revenues under customer contracts, bad debts, income
taxes, investment in affiliate, long-lived assets and goodwill. We base our
estimates and judgments on historical experience and on various other factors
that we believe are reasonable. Actual results may differ from these estimates
under different assumptions or conditions. We believe the following critical
accounting policies affect the more significant judgments and estimates used in
the preparation of our consolidated financial statements.
 
 Revenue
Recognition
 
 We
generally provide services under multiple element arrangements, which include
software license fees, hardware and software sales, provision of system
integration services including consulting, implementation, and software
maintenance.  We evaluate revenue recognition on a
contract-by-contract basis as the terms of each arrangement vary.  The
evaluation of the contractual arrangements often requires judgments and
estimates that affect the timing of revenue recognized in the statements of
operations.  Specifically, we may be required to make judgments
about:
 
 ·
              whether
      the fees associated with our products and services are fixed or
      determinable;
 ·
              whether
      collection of our fees is reasonably
assured;
 ·
              whether
      professional services are essential to the functionality of the related
      software product;
 ·
              whether
      we have the ability to make reasonably dependable estimates in the
      application of the percentage-of-completion method;
  and
 ·
              whether
      we have verifiable objective evidence of fair value for our products and
      services.
 
 We
recognize revenues in accordance with the provisions of Statements of Position,
or SOP, No. 97-2, “Software Revenue Recognition”, as amended by SOP No. 98-9,
“Modification of SOP 97-2, Software Revenue Recognition, with respect to Certain
Transactions”, Staff Accounting Bulletin, or SAB, 104, “Revenue
Recognition”.  SOP 97-2 and SAB 104 require among other matters, that
there be a signed contract evidencing an arrangement exists, delivery has
occurred, the fee is fixed or determinable, and collectibility is
probable.
 
 Revenue
from provision of system integration services and other related services are
recognized when services are rendered in stages as separate identifiable phases
of a project are completed and accepted by customers.
 
 Revenue
from software sales is recognized when the related products are delivered and
installed and collection of sales proceeds is deemed probable and persuasive
evidence of an arrangement exists.
 
 Software
license revenue is recognized over the accounting periods contained in the terms
of the relevant agreements, commencing upon the delivery of the software
provided that (1) there is evidence of an arrangement, (2) the fee is fixed or
determinable and (3) collection of the fee is considered probable.
 
 In the
case of maintenance revenues, vendor-specific objective evidence, or VSOE, of
fair value is based on substantive renewal prices, and the revenues are
recognized ratably over the maintenance period.
  18
 
 In the
case of consulting and implementation services revenues, where VSOE is based on
prices from stand-alone sale transactions, such revenues are recognized as
services are performed pursuant to paragraph 65 of SOP 97-2.
 
 For
hardware transactions where software is incidental, we do not apply separate
accounting guidance to the hardware and software elements.  We apply
the provisions of EITF 03-05, “Applicability of AICPA Statement of Position
97-2, Software Revenue Recognition, to Non-Software Deliverables in an
Arrangement Containing More-Than-Incidental Software” (EITF 03-05). Per EITF
03-05, if the software is considered not essential to the functionality of the
hardware, then the hardware is not considered “software related” and is excluded
from the scope of SOP 97-2.  Such sale of computer hardware is
recognized as revenue on the transfer of risks and rewards of ownership, which
coincides with the time when the goods are delivered to customers and title has
passed, pursuant to SAB 104.
 
 Revenues
from remote hosting services, where VSOE is based upon consistent pricing
charged to customers based on volumes and performance requirements on a
stand-alone basis and substantive renewal terms, are recognized ratably over the
contract term as the services are performed.  The remote hosting
arrangements generally require the Company to perform one-time set-up activities
and include a one-time set-up fee.  This one-time set-up fee is
generally paid by the customer at contract execution.  The Company
determined that these set-up activities do not constitute a separate unit of
accounting, and accordingly, the related set-up fees are recognized ratably over
the term of the contract.
 
 We
consider the applicability of EITF 00-3, “Application of AICPA Statement of SOP
97-2 to Arrangements That Include the Right to Use Software Stored on Another
Entity’s Hardware”, to the hosting services arrangements on a
contract-by-contract basis.  If we determine that the customer does
not have the contractual right to take possession of our software at any time
during the hosting period without significant penalty, SOP 97-2 does not apply
to these contracts in accordance with EITF 00-3.  Accordingly, these
contracts would be accounted for pursuant to SAB 104.
 
 Income
Taxes
 
 We
account for income taxes in accordance with SFAS No. 109 “Accounting for Income
Taxes”.  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 it is more likely than not that some or all of the deferred tax
assets will not be realized.
 
 Allowance
for Doubtful Accounts
 
 We record
an allowance for doubtful accounts based on specifically identified amounts that
the Company believes to be uncollectible.  We have a limited number of
customers with individually large amounts due at any given balance sheet
date.  Any unanticipated change in one of those customers’ credit
worthiness or other matters affecting the collectibility of amounts due from
such customers, could have a material affect on the results of operations in the
period in which such changes or events occur.  After all attempts to
collect a receivable have failed, the receivable is written off against the
allowance.
 
 Goodwill
 
 SFAS 142,
Goodwill and Other Intangible Assets, requires that goodwill be tested for
impairment on an annual basis (December 31 for us) and between annual tests if
an event occurs or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying value. These events or
circumstances could include a significant change in the business climate, legal
factors, operating performance indicators, competition, sale or disposition of a
significant portion of a company. Application of the goodwill impairment test
requires judgment, including the determination of the fair value of a company.
The fair value of a company is estimated using a discounted cash flow
methodology. This requires significant judgments including estimation of future
cash flows, which is dependent on internal forecasts, estimation of the
long-term rate of growth for our business, the useful life over which cash flows
will occur, and the determination of our weighted average cost of capital.
Changes in these estimates and assumptions could materially affect the
determination of fair value and/or goodwill impairment for a
company.
  19
  Recent
Accounting Pronouncements
 
 In
September 2006, the FASB issued FAS 157, Fair Value Measurements (FAS 157). FAS
157 defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. The provisions of FAS 157 are
effective for the fiscal year beginning after November 15, 2007. We are
currently evaluating the impact of the provisions of FAS 157.
 
 On
February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities: Including an amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 permits all entities to elect to
measure many financial instruments and certain other items at fair value with
changes in fair value reported in earnings. SFAS 159 is effective as of the
beginning of the first fiscal year that begins after November 15, 2007, with
earlier adoption permitted.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”.The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards. This Statement is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008 (that is,
January 1, 2009, for entities with calendar year-ends). Earlier adoption is
prohibited. The effective date of this Statement is the same as that of the
related Statement 141(R).
 
 On
December 21, 2007, SEC issued Staff Accounting Bulletin (“SAB”) No. 110. This
staff accounting bulletin ("SAB") expresses the views of the staff regarding the
use of a "simplified" method, as discussed in SAB No. 107 ("SAB 107"), in
developing an estimate of expected term of "plain vanilla" share options in
accordance with Statement of Financial Accounting Standards No. 123 (revised
2004), Share-Based
Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of whether
the company has sufficient information to make more refined estimates of
expected term. At the time SAB 107 was issued, the staff believed that more
detailed external information about employee exercise behavior (e.g., employee
exercise patterns by industry and/or other categories of companies) would, over
time, become readily available to companies. Therefore, the staff stated in SAB
107 that it would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available by
December 31, 2007. Accordingly, the staff will continue to accept, under certain
circumstances, the use of the simplified method beyond December 31,
2007.
 
 In March
2008, the FASB issued FAS 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 13”3The use and complexity of derivative instruments and hedging activities
have increased significantly over the past several years. Constituents have
expressed concerns that the existing disclosure requirements in FASB Statement
No. 133, Accounting for
Derivative Instruments and Hedging Activities, do not provide adequate
information about how derivative and hedging activities affect an entity’s
financial position, financial performance, and cash flows. Accordingly, this
Statement requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial reporting. This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. This Statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption.
 
 In May
2008, the FASB issued FAS 162, “The Hierarchy of Generally Accepted
Accounting Principles”.This
Statement identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP
hierarchy).
 
 In May
2008, the FASB also issued FAS 163, “Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60.”Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. That diversity results in inconsistencies in the
recognition and measurement of claim liabilities because of differing views
about when a loss has been incurred under FASB Statement No. 5, Accounting for Contingencies.
This Statement requires that an insurance enterprise recognize a claim liability
prior to an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This Statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  This Statement is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for some disclosures
about the insurance enterprise’s risk-management activities. This Statement
requires that disclosures about the risk-management activities of the insurance
enterprise be effective for the first period (including interim periods)
beginning after issuance of this Statement. Except for those disclosures,
earlier application is not permitted.
  20
 
 The
Company does not anticipate that the adoption of these statements will have a
material effect on the Company's financial condition and results of
operations.
 
 Consolidated
Results of Operations
 
 Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
 
 Net
Sales
 
 Our net
sales decreased 39% to $5,568,877 in 2008, from $9,121,248 in 2007.
 Sales of For-series software increased 13% to $5,310,378 in 2008, from
$4,684,791 in 2007.  The decrease in net sales was mainly attributable
a drop in system integration sales, from $4,436,457 in 2007 to $258,499 in
2008, a decrease of 94%.  Our most recent major system integration
project, for Guangxi Caexpo, was completed in 2007.  However, the
significant decrease in system integration sales is in line with our strategy to
slow our system integration activities, which have lower profit
margins compared with software sales.
 
 Cost
of Sales.
 
 Our cost
of sales decreased 56% to $1,836,509 in 2008, from $4,186,187 in 2007.
 This decrease was in line with our decrease in sales for
2008.  Cost of sales, as a percentage of net sales, decreased from
45.89% in 2007 to 32.98% in 2008 largely due to higher margins in software
sales.
 
 Gross Profit.
 
 Gross
profit decreased 24% to $3,732,368 in 2008, from $4,935,061 in 2007, which was
in line with the decrease in sales. Gross profit margin was 67% in 2008,
compared with 54% in 2007, because of the significant drop in system
integration sales, which have lower gross profit margin than software sales.
 
 Operating
Expenses.
 
 Total
operating expenses year-over-year were maintained at comparable levels, with
$3,770,403 in 2008 and $3,907,524 in 2007. This situation resulted largely from
the offset of an increase in general and administrative expenses
versus a decrease in selling expenses.
 
 Selling
expenses decreased 11% to $1,377,501 in 2008, from $1,540,494 in 2007.
 This decrease was comparable with the decrease of net sales.
 
 Research
and development expenses decreased 7% to $639,927 in 2008, from $690,386 in
2007, as a result of our continuing cost control efforts in our R&D
department in 2008.
 
 General
and administrative expenses increased 4% to $1,752,975 in 2008, from $1,676,644
in 2007. The increase was primarily due to the depreciation of the exchange rate
of the US dollar to the Chinese RMB.
 
 Operating
Profit (Loss).
 
 We
recorded an operating loss of $38,035 in 2008 as compared to an operating profit
of $1,027,538 in 2007, a decrease of 104%.  The decrease was largely due to
the decrease in net sales of 39% from $9,121,248 in 2007 to $5,568,877 in
2008.
  21
 
 Other
Income
 
 Our other
income decreased 49% to $72,533 in 2008, from $143,321 in 2007, as a result
of a decrease in our VAT refund. Our other income is
derived entirely from VAT refund associated with our software
sales.
 
 Net
(Loss)/Profit.
 
 We
recorded a net loss of $1,241,843 in 2008, or basic and diluted loss of $0.27
per share, as compared to net income of $1,508,388 in 2007, or basic and diluted
profit of $0.02 per share.
 
 Liquidity
and Capital Resources
 
 Our
capital requirements are primarily working capital requirements related to costs
of hardware for network solution projects and costs associated with the
expansion of our business.  In order to minimize our working capital
requirements, we generally obtain from our hardware vendors payment terms that
are timed to permit us to receive payment from our customers for the hardware
before our payments to our hardware vendors are due.  However, we sometimes
obtain less favorable payment terms from our customers, thereby increasing our
working capital requirements.  We have historically financed our working
capital and other financing requirements through careful management of our
billing cycle and, to a limited extent, bank loans.  The cash flow
from operating activities was ($553,209) in 2008 as compared to $1,433,398 in
2007.  It was mainly due to the net loss in 2008.  The cash flow from
investing activities and financing activities in 2008 was $357,021 and $10,000,
respectively as compared to ($139,258) and $591,766 in 2007.  The
increase in cash flow from investing activities resulted from the increase in
dividends that we received from companies that we have invested in, from
$88,063 in 2007 to $452,607 in 2008. The decrease in cash flow from financing
activities resulted from the decrease in issuance of common stock under our 2002
Stock Plan and related additional paid-in capital in 2008.
 
 Our
accounts receivable balance at December 31, 2008 was $898,005, as compared to
$1,618,697 at the end of 2007. The decrease is mainly attributable to
better collection from two customers, CLCE and Guangxi Caexpo, despite an
increase in China Mobile’s accounts receivable from $80,933 at December 31,
2007 to $232,750 at December 31, 2008. The balance of CLCE’s accounts
receivable decreased to $50,671 at December 31, 2008 from $515,119 at
December 31, 2007, and the balance of Guangxi Caexpo’s accounts receivable
decreased to $0 at December 31, 2008 from $361,203 at December 31,
2007. Our inventory position at the end of 2008 was $1,019,713, as compared
to $498,356 at the beginning of the year.  At the end of 2008, we had
several inventory items in the process of delivery to two of our major
customers.  This caused the 2008 year-end inventory to be larger than
usual.
 
 We ended
the year with a cash position of $2,543,430. We had negative operating cash
flow of $553,209, primarily due to an increase in our net
assets.
 
 Although
our revenues and operating results for any period are not necessarily indicative
of future periods, we anticipate that our available funds and cash flows
generated from operations will be sufficient to meet our anticipated needs for
working capital, capital expenditures and business expansion through
2008.  We may need to raise additional funds in the future, however,
in order to fund acquisitions, develop new or enhanced services or products,
respond to competitive pressures to compete successfully for larger projects
involving higher levels of hardware purchases, or if our business otherwise
grows more rapidly than we currently predict.  If we do need to raise
additional funds, we expect to raise those funds through new issuances of shares
of our equity securities in one or more public offerings or private placements,
or through credit facilities extended by lending institutions.
 
 Off-Balance
Sheet Arrangements
 
 As of
December 31, 2008, we have not entered into any off-balance sheet arrangements
with any individuals or entities.
 
 Contractual
Obligations
 
 As of
December 31, 2008, we had commitments under non-cancelable operating leases
requiring annual minimum rental payments as follows:
  22
 
 December 31,2008January
      1, 2008 to December 31, 2008
                    
                    $
                    361,336January
      1, 2009 to December 31, 2009
                    
                    
                    442,062January
      1, 2008 to December 31, 2010
                    
                    
                    438,809January
      1, 2010 to December 31, 2011
                    
                    
                    149,427$
                    1,391,634
 
 ITEM
7A.     Quantitative and Qualitative Disclosures about
Market Risk’
 
 Not
applicable.
 
 Item
8.           Financial
Statements.
 
 The
information required by Item 8 and an index thereto commences on the next
page.
  23
  Forlink
Software Corporation, Inc.
  Index
To Consolidated Financial Statements
  PagesReport
      of Independent Registered Public Accounting Firm
                  
                  F-1Consolidated
      Balance Sheets
                  
                  F-2Consolidated
      Statements of Operations
                  
                  F-3Consolidated
      Statements of Stockholders’ Equity
                  
                  F-4Consolidated
      Statements of Cash Flows
                  
                  F-5Notes
      to Consolidated Financial Statements
                  
                  F-6
      - F-21
  24
  REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
board of directors and stockholders of
 Forlink
Software Corporation, Inc.
  We have
audited the accompanying consolidated balance sheets of Forlink Software
Corporation Inc as of December 31, 2008 and 2007, and the related consolidated
statements of income, stockholders’ equity and comprehensive income, and cash
flows for the years then ended. Forlink Software Corporation Inc’s management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 Forlink Software Corporation Inc as
of December 31, 2008 and 2007, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
  /s/ Kenne
Ruan, CPA, P.C.
 
 Woodbridge,
Connecticut
 March 16,
2009
  F-1
 
 Forlink
Software Corporation, Inc.
 
 Consolidated
Balance Sheets
 
 (Expressed
in US Dollars)
 December 31,
                  
                  
                  December 31,2008
                  
                  
                  2007Current
      assetsCash
      and cash equivalents
                  
                  $
                  2,543,430
                  
                  
                  $
                  2,400,901Accounts
      receivable
                  
                  
                  898,005
                  
                  
                  
                  1,618,697Other
      receivables, deposit and prepayments
                  
                  
                  1,627,555
                  
                  
                  
                  530,431Inventories
                  
                  
                  1,019,713
                  
                  
                  
                  498,356Deferred
      Taxes Assets
                  
                  
                  3,160
                  
                  
                  
                  384Total
      current assets
                  
                  
                  6,091,863
                  
                  
                  
                  5,048,769Property,
      plant and equipment
                  
                  
                  593,805
                  
                  
                  
                  659,826Long
      term investments
                  
                  
                  5,074,622
                  
                  
                  
                  4,912,944Goodwill
                  
                  
                  0
                  
                  
                  
                  1,684,023Total
      assets
                  
                  $
                  11,760,290
                  
                  
                  $
                  12,305,562Liabilities
      and stockholders' equityCurrent
      liabilitiesAccounts
      payable
                  
                  $
                  2,050,321
                  
                  
                  $
                  1,598,507Amounts
      due to shareholders
                  
                  
                  378,672
                  
                  
                  
                  325,251Customer
      deposits
                  
                  
                  1,123,060
                  
                  
                  
                  1,735,982Other
      payables and accrued expenses
                  
                  
                  605,319
                  
                  
                  
                  303,366Income
      tax payable
                  
                  
                  16
                  
                  
                  
                  1,540Other
      tax payable
                  
                  
                  973,588
                  
                  
                  
                  860,498Deferred
      Taxes Debt
                  
                  
                  0
                  
                  
                  
                  18,298Total
      current liabilities
                  
                  $
                  5,130,976
                  
                  
                  $
                  4,843,442Commitments
      and contingenciesMinority
      interest
                  
                  $
                  193,295
                  
                  
                  $
                  269,772Stockholders'
      equityCommon
      stock, par value $0.001 per share; 200,000,000 and 200,000,000 shares
      authorized; 4,966,173 and 99,121,707 shares issued and 4,651,173and
      92,821,707 shares outstanding, respectively
                  
                  $
                  99,322
                  
                  
                  $
                  99,122Treasury
      stock
                  
                  
                  (163,800
                  )
                  
                  
                  (163,800
                  )Additional
      paid-in capital
                  
                  
                  10,195,693
                  
                  
                  
                  10,177,812Accumulated
      losses
                  
                  
                  (4,759,592
                  )
                  
                  
                  (3,517,749
                  )Accumulated
      other comprehensive income
                  
                  
                  1,064,396
                  
                  
                  
                  596,963Total
      stockholders' equity
                  
                  $
                  6,436,019
                  
                  
                  $
                  7,192,348Total
      liabilities and stockholders' equity
                  
                  $
                  11,760,290
                  
                  
                  
                  12,305,562
 
 See
accompanying notes to consolidated financial statements.
  F-2
  Forlink
Software Corporation, Inc.
 
 Consolidated
Statements of Operations
 
 (Expressed
in US Dollars)
  Year ended
                        December
                        31,2008
                      
                      
                      Year ended
                        December
                        31,2007Net
      sales
                      
                      $
                      5,568,877
                      
                      
                      $
                      9,121,248Cost
      of sales
                      
                      
                      (1,836,509
                      )
                      
                      
                      (4,186,187
                      )Gross
      profit
                      
                      
                      3,732,368
                      
                      
                      
                      4,935,061Selling
      expenses
                      
                      
                      (1,377,501
                      )
                      
                      
                      (1,540,494
                      )Research
      and development expenses
                      
                      
                      (639,927
                      )
                      
                      
                      (690,386
                      )General
      and administrative expenses
                      
                      
                      (1,752,975
                      )
                      
                      
                      (1,676,644
                      )-Operating
      profit / (loss)
                      
                      
                      (38,035
                      )
                      
                      
                      1,027,538Investment
      income
                      
                      
                      56,646
                      
                      
                      
                      349,284Loss
      on disposal of subsidiaries
                      
                      
                      0
                      
                      
                      
                      (3,792
                      )Interest
      income
                      
                      
                      16,234
                      
                      
                      
                      32,149Interest
      expenses
                      
                      
                      0
                      
                      
                      
                      (24,699
                      )Impairment
      loss on goodwill
                      
                      
                      (1,684,023
                      )
                      
                      
                      0Income
      from cost method investee
                      
                      
                      248,710Other
      income, net
                      
                      
                      72,533
                      
                      
                      
                      143,321Profit
      before income taxes
                      
                      
                      (1,327,935
                      )
                      
                      
                      1,523,801Income
      tax
                      
                      
                      9,615
                      
                      
                      
                      (18,737
                      )Consolidated
      profit
                      
                      
                      (1,318,320
                      )
                      
                      
                      1,505,064Net
      loss attributable to minority interest
                      
                      
                      (76,477
                      )
                      
                      
                      (3,325
                      )Net
      consolidated profit (loss)
                      
                      $
                      (1,241,843
                      )
                      
                      $
                      1,508,389Gain/Loss
      per share
                      
                      $
                      (0.27
                      )
                      
                      $
                      0.02Weighted
      average common shares outstanding - basic and
      diluted
                      
                      
                      4,644,431
                      
                      
                      
                      92,252,786
 
 See
accompanying notes to consolidated financial statements.
  F-3
  Forlink
Software Corporation, Inc.
 
 Consolidated
Statement of Stockholders’ Equity
 
 (Expressed
in US Dollars)
 
 CommonStock
                            
                            
                            
                            
                            
                            
                            
                            
                            Accumulated
                            
                            
                            RetainedNumber
                              ofShare
                              Issued
                            
                            
                            Numberof
                              Share
                              Outstanding
                            
                            
                            Numberof
                              Treasury
                              Stock
                            
                            
                            Amount
                            
                            
                            Treasury
                              Stock
                            
                            
                            Additional
                              Paid-in
                              Capital
                            
                            
                            other
                              comprehensive
                              income
                            
                            
                            Profits/
                              (Accumulated
                              Losses)
                            
                            
                            Total
                              Stockholders’
                              Equity
                            
                            
                            Comprehensive
                              Income/
                              (Losses)Balance,
      December 31, 2006
                            
                            
                            98,224,707
                            
                            
                            
                            89,924,707
                            
                            
                            
                            8,300,000
                            
                            
                            $
                            98,225
                            
                            
                            $
                            (215,800
                            )
                            
                            $
                            9,908,715
                            
                            
                            $
                            214,275
                            
                            
                            $
                            (5,026,137
                            )
                            
                            $
                            4,979,278
                            
                            
                            $Shares
      issued
                            
                            
                            897,000
                            
                            
                            
                            2,897,000
                            
                            
                            
                            (2,000,000
                            )
                            
                            
                            897
                            
                            
                            
                            52,000
                            
                            
                            
                            269,097
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            321,994Net profit
      for the year
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            1,508,389
                            
                            
                            
                            1,508,389
                            
                            
                            
                            1,508,389Translation
      reserve
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            382,689
                            
                            
                            
                            -
                            
                            
                            
                            382,689
                            
                            
                            
                            382,689Comprehensive
      income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            1,891,078Balance,
      December 31, 2007
                            
                            
                            99,121,707
                            
                            
                            
                            92,821,707
                            
                            
                            
                            6,300,000
                            
                            
                            $
                            99,122
                            
                            
                            $
                            (163,800
                            )
                            
                            $
                            10,177,812
                            
                            
                            $
                            596,963
                            
                            
                            $
                            (3,517,749
                            )
                            
                            $
                            7,192,348Shares
      issued
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            200
                            
                            
                            
                            
                            
                            
                            
                            17,881
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            18,081Net
      profit for the year
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (1,241,843
                            )
                            
                            
                            (1,241,843
                            )
                            
                            
                            (1,241,843
                            )Translation
      reserve
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            467,433
                            
                            
                            
                            
                            
                            
                            
                            467,433
                            
                            
                            
                            467,433Comprehensive
      income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (774,410
                            )Balance,
      December 31, 2008
                            
                            
                            99,121,707
                            
                            
                            
                            92,821,707
                            
                            
                            
                            6,300,333
                            
                            
                            $
                            99,322
                            
                            
                            $
                            (163,000
                            )
                            
                            $
                            10,195,693
                            
                            
                            $
                            1,064,396
                            
                            
                            $
                            (4,759,592
                            )
                            
                            $
                            (6,436,019
                            )
 
 See
accompanying notes to consolidated financial statements.
  F-4
 
 Forlink
Software Corporation, Inc.
 
 Consolidated
Statements of Cash Flows
 (Decrease)/Increase
in Cash and Cash Equivalents
 
 (Expressed
in US Dollars)
 Year Ended December 31,2008
                      
                      
                      2007Cash
      flows from operating activitiesNet
      income
                      
                      (1,241,843)
                      
                      
                      
                      1,508,389Adjustment
      to reconcile net income to net cash provided by (used in) operating
      activities:Minority
      interest
                      
                      
                      (76,477
                      )Proceeds
      from transferred of treasury stock
                      
                      
                      -
                      
                      
                      
                      232,294Depreciation
      of property, plant and equipment
                      
                      
                      273,172
                      
                      
                      
                      213,495Loss
      on disposal of property, plant and equipment
                      
                      
                      -
                      
                      
                      
                      (38,814
                      )Loss
      from equity method investee
                      
                      
                      (56,646
                      )
                      
                      
                      (228,326
                      )Loss
      on disposal from subsidiaries
                      
                      
                      -
                      
                      
                      
                      (29,103
                      )Dividend
      from cost method investee
                      
                      
                      (248,710
                      )
                      
                      
                      (88,063
                      )Loss
      from goodwill impairment
                      
                      
                      1,684,023effect
      of  Deferred Taxes
                      
                      
                      (22,342
                      )
                      
                      
                      17,914Charge
      in:Account
      Receivables
                      
                      
                      762,132
                      
                      
                      
                      396,396Other
      receivables, deposits & prepayments
                      
                      
                      (1,063,502
                      )
                      
                      
                      (270,952
                      )Inventories
                      
                      
                      (486,080
                      )
                      
                      
                      (461,839
                      )Account
      Payable
                      
                      
                      338,662
                      
                      
                      
                      1,432,702Amounts
      due to stockholders
                      
                      
                      30,398
                      
                      
                      
                      (550,216
                      )Customers
      deposits
                      
                      
                      (735,804
                      )
                      
                      
                      (1,078,690
                      )Other
      payables & accrued expenses
                      
                      
                      239,262
                      
                      
                      
                      (283,587
                      )Income
      tax payable
                      
                      
                      (1,633
                      )
                      
                      
                      1,540Other
      taxes payable / recoverable
                      
                      
                      52,179
                      
                      
                      
                      660,259Net
      cash used in operating activities
                      
                      
                      (553,209
                      )
                      
                      
                      1,433,398Cash
      flows from investing activitiesAcquisition
      of property, plant & equipments
                      
                      
                      (95,586
                      )
                      
                      
                      12,551Disposal
      of subsidiary
                      
                      
                      -
                      
                      
                      
                      478,142Cash
      payment associated with long term investments
                      
                      
                      -
                      
                      
                      
                      (724,044
                      )Cash
      dividend from cost method investee
                      
                      
                      452,607
                      
                      
                      
                      88,063Cash
      Received from disposal property, plant& equipments
                      
                      
                      -
                      
                      
                      
                      6,030Net
      cash used in investing activities
                      
                      
                      357,021
                      
                      
                      
                      (139,258
                      )Cash
      flow from financing activitiesProceeds
      from issuance of common stock under Plan 2002
                      
                      
                      200
                      
                      
                      
                      897Increase
      in treasury stock
                      
                      
                      -
                      
                      
                      
                      52,000Increase/decrease
      in additional paid in capital
                      
                      
                      9,800
                      
                      
                      
                      269,097Capital
      contribution from minority interest
                      
                      
                      -
                      
                      
                      
                      269,772Net
      cash generated from financing activities
                      
                      
                      10,000
                      
                      
                      
                      591,766Effect
      of exchange rate changes  on cash and cash
      equivalents
                      
                      
                      328,717
                      
                      
                      
                      87,800Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      142,529
                      
                      
                      
                      1,973,706Cash
      and cash equivalents at the beginning of year
                      
                      
                      2,400,901
                      
                      
                      
                      427,195Cash
      and cash equivalents at the end of year
                      
                      
                      2,543,430
                      
                      
                      
                      2,400,901Supplemental
      disclosure of cash flow informationIncome
      tax paid
                      
                      $
                      1,665
                      
                      
                      $
                      6,527Interest
      paid
                      
                      $
                      -
                      
                      
                      $
                      -
 See
accompanying notes to consolidated financial statements.
  F-5
  NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
 
 Forlink
Software Corporation, Inc. (the "Company" or the "Registrant" or "Forlink"), 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.  From 1996
until 1999, the Company continued as an unfunded venture in search of a suitable
business acquisition or business combination.
 
 On
November 3, 1999, the Company entered into a Plan of Reorganization with Beijing
Forlink Software Technology Co., Ltd., (hereinafter "BFSTC"), a limited
liability company organized under the laws of the People’s Republic of China
(“PRC” or “China”), under the terms of which BFSTC gained control of the
Company.  Pursuant to the Plan of Reorganization, the Company acquired
100% of the registered and fully paid-up capital of BFSTC in exchange for
20,000,000 shares of the Company's authorized, but unissued, common
stock.  BFSTC is engaged in the provision of computer software
consultancy and engineering services and the development and sale of computer
software in the People’s Republic of China (“PRC”).  As a part of its
computer consultancy and engineering services, BFSTC is also engaged in the sale
of computer hardware.  In June 2001, BFSTC changed its name to Forlink
Technologies Co. Ltd. (“FTCL”). FTCL is the Company’s major operating subsidiary
in China.
 
 In August
2001, the Company acquired Beijing Slait Science & Technology Development
Limited Co. (“SLAIT”) pursuant to a Plan of Reorganization dated January 11,
2001.  The Company issued 59,430,000 shares of its common stock to
SLAIT’s original beneficial owners in exchange for 100% of the outstanding
equity of SLAIT.  As a result of the share exchange, the former
beneficial owners of SLAIT own approximately 70% of the issued and outstanding
shares of the Company, and SLAIT became a wholly-owned subsidiary of the
Company.  The Company also agreed to transfer 1,085,000 Renminbi
(“RMB”) (approximately US$131,039) to the former owners of
SLAIT.   A change in control occurred in which all but one of the
officers and directors of the Company resigned and two former directors (also
former owners) of SLAIT became officers and directors of the
Company.  Prior to its dissolution 2004, SLAIT
provided application system integration technology and specializes in large
volume transaction processing software for networks such as mobile phone billing
and band operation.  Subsequent to the acquisition, the principal
activities of SLAIT were gradually shifted to those of FTCL.   On
February 13, 2004, SLAIT was officially dissolved in accordance with relevant
PRC regulations.
 
 On June
18, 2003, Forlink Technologies (Hong Kong) Limited (“FTHK”) was incorporated in
Hong Kong Special Administrative Region as a limited liability
company.  In December 2003, FTHK became a wholly owned subsidiary of
Forlink.  FTHK is an investment holding company set up to take advantage of
the favorable business environment in Hong Kong and to facilitate the
Company’s investment transactions.  Through FTHK, on December 18, 2003, the
Company invested $760,870 in All China Logistics Online Co., Ltd. ("All China
Logistics"), a privately held PRC company providing logistic services in China,
in exchange for a 17.8% equity interest.
 
 On June
14, 2004, Forlink Technologies (Chengdu) Limited ("FTCD") was established as a
limited liability company in Chengdu, PRC and subsequently became a wholly owned
subsidiary of FTHK in September 2004. FTCD is in the business of providing
software outsourcing services and software development.  The
registered capital of FTCD is $5,000,000 and the fully paid up capital was
$750,000 as of December 31, 2005. In April 2006, FTHK further invested $130,000
in FTCD. FTCD commenced operations in late 2005. The registered capital of FTCD
was reduced to $200,000 in December 2007, which amount was fully paid as of
December 2007.
 
 In
compliance with China’s foreign investment restrictions on telecom value-added
services and other laws and regulations, the Company conducts telecom
value-added services and application integration services for government
organizations in China via Beijing Forlink Hua Xin Technology Co. Ltd.
("BFHX"). BFHX was established in the PRC on September 19, 2003 as a
limited liability company.  The registered capital of BFHX is
$120,733 (RMB 1,000,000) and was fully paid up as of March 31,
2005.  Mr. Yi He and Mr. Wei Li have been entrusted as
nominee owners of BFHX to hold 70% and 30%, respectively, of the fully paid
up capital of BFHX on behalf of the Company as the primary
beneficiary.  BFHX is considered a Variable Interest Entity
("VIE"), and because the Company is the primary beneficiary, the
Company’s consolidated financial statements include BFHX.  Upon
the request of the Company, Mr. Yi He and Mr. Wei Li are required to
transfer their ownership interests in BFHX to the Company or its designees
at any time for the amount of the fully paid registered capital of
BFHX.  Mr. Yi He is the Chief Executive Officer, a director and a
major stockholder of the Company.  Mr. Wei Li is
the administration manager of FTCL.
 
 On March
20, 2005, Beijing Forlink Kuanshi Technologies Limited (“BFKT”) was established
as a limited liability company by BFHX and two individuals, Mr. Jianqiu Fang and
Mr. Bizhao Zhong.  BFHX, Mr. Fang and Mr. Zhong hold 70%, 10% and 20%
of the fully paid up capital of BFKT, respectively.  KFKT was to
provide software and operation support to IPTV (Internet Protocol Television)
operators, but the company was dissolved on November 19, 2007. We recorded an
investment loss of $3,792 after the dissolution of BFKT, with our total
investment loss in BFKT from its establishment to its dissolution in the amount
of $16,932.
  F-6
  On
October 24, 2005, the Company entered into a definitive agreement to acquire a
17.5% equity interest of China Liquid Chemical Exchange Company Limited
(“CLCE”), a PRC limited liability company, in exchange for deployment of the
Company’s For-online Electronic Trading System.  In early 2007, CLCE
increased its share capital to $1,708,526 (RMB 13,000,000). As the Company did
not subscribed the new shares, the Company’s shareholding of CLCE was diluted
and as of December 31 2007 was 13.46%. CLCE commenced operations fully in early
2007.
 
 On
October 3, 2006, the Company entered into a Transfer of Right to Invest and
Project Cooperation Agreement (“Statelink Agreement”) with Statelink
International Group, Ltd., a British Virgin Islands company (“Statelink”),
pursuant to which the Company acquired 22.73% registered capital in Guangxi
Caexpo International Trade and Logistics Co., Ltd. (“Guangxi Caexpo”), a PRC
limited liability company in the businesses of real estate development,
advertising and computer distribution for cash consideration of $2,557,545 (RMB
20,000,000) from BFHX and stock consideration of 13,000,000 shares of the
Company’s restricted common stock. On October 26, 2006, BFHX established Forlink
Technologies (Guangxi) Limited (“FTGX”), a PRC limited liability company, to
carry out a contract from Guangxi Caexpo to build an “Electronic Trade and
Logistics Information Platform and Call Center” (the “Project”). At the time of
incorporation, BFHX injected RMB 20,000,000 (approximately US$2,557,545) as
registered capital to FTGX.
 
 On
October 12, 2006, the Company invested $31,969 (RMB 250,000) in Wuxi Stainless
Steel Exchange Co., Ltd. (“Wuxi Exchange”), a PRC limited liability company, for
a 12.5% equity interest. On January 14, 2007, the Company entered into an
agreement with a major shareholder of Wuxi Exchange to transfer 2.5% of the
Company’s interest in Wuxi Exchange to the major shareholder for a cash payment
of RMB 500,000.
 
 On
January 25, 2007, the board of directors and the majority holders of the
Company’s common stock jointly approved an amendment to the Company’s Articles
of Incorporation by written consent, to increase the number of authorized shares
of common stock from 100,000,000 to 200,000,000.  The Certificate of
Amendment to the Articles of Incorporation to effect the increase of the number
of the Company’s authorized common shares was filed with Nevada’s Secretary of
State on April 4, 2007.
 
 On April
29, 2007, the Company invested, through BFHX, $138,158 (RMB 1,050,000) in
Beijing GuoXin Forlink Internet Technologies Limited (“BGXF”), a privately held
PRC company that operates a finance study website, for a 35% equity
interest.  The investment in BGXF is accounted for under the equity
method of accounting due to the Company’s significant influence over the
operational and financial policies of BGXF.  BGXF commenced operations
on March 9 2008. On October 14, 2008, the registered capital of BGXF was
increased to RMB 4,285,700, and since the Company did not invest additional
funds into BGFX, the ratio of its holding was diluted to a 24.5% equity
interest.
 
 On July
12, 2007, the Company invested through FTGX, $1,063,830 (RMB 8,000,000) in
Nanning Bulk Commodities Exchange Corporation Limited (“NNBCE”), a privately
held PRC company, for an 80% equity interest.  NNBCE became a
subsidiary of FTGX.  NNBCE, set up on April 29, 2007, commenced
operations on March 28, 2008, and provides logistical e-commerce
service.
  On
September 5, 2007, the Company invested $465,425 (RMB 3,500,000), through NNBCE,
in Guangxi Bulk Sugar & Ethanol Exchange Corporation Limited (“GBSEE”), a
PRC limited liability company established on September 12, 2007, for a 35%
equity interest. Concurrently, All China Logistics was entrusted as nominee
owner of GBSEE to hold 20% of the fully paid up capital of GBSEE on behalf of
NNBCE as the primary beneficiary. Upon the request of NNBCE, All China Logistics
is required to transfer its ownership interests in GBSEE to NNBCE or its
designees at any time for the amount of the 20% fully paid up capital. In
accordance with Financial Accounting Standards Board (“FASB”) Interpretation No.
46R “Consolidation of Variable Interest Entities - An Interpretation of ARB No.
51” (“FIN 46R”), NNBCE is deemed to hold the primary beneficial interest of 55%
equity interest in GBSEE. GBSEE was established to provide logistical e-commerce
service, but it was dissolved on December 16, 2007 before it commenced any
operations and NNBCE received payments back of its investment in GBSEE of
$410,397 (RMB 3,000,000) in December 2007; $66,211 (RMB 484,000) in February
2008, and $2,189 (RMB 16,000) in September 2008.
 
 On
December 24, 2007, the board of directors and the majority holders of the
Company’s common stock jointly approved an amendment to the Company’s Articles
of Incorporation by written consent, to effect a 1-for-20 reverse stock split.
The Certificate of Amendment to the Articles of Incorporation to effect the
reverse split was filed with Nevada’s Secretary of State on February 21,
2008.
 
 On March
20, 2008, the Company invested $71,124 (RMB 500,000), through BFHX, in Shandong
LongDong Internet Technologies Limited (“SDLD”), a PRC limited liability company
established on October 24, 2007, for a 5% equity interest.  SDLD,
which commenced operations in December 2007, is in the business of providing of
providing primary products e-commerce services.  The purpose of this
investment is to gain cash dividends from SDLD.
 
 The
principal activities of the Company are the development and sale of network
software systems and the provision of enterprise application system integration
services in the PRC.  The Company is also engaged in the sale of
computer hardware.  Set forth below is a diagram illustrating our
corporate structure as of December 31, 2008:
  F-7
 
 
  F-8
  NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT 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 that include the
financial statements of Forlink and its subsidiaries, namely, FTCL, FTHK, BFHX,
FTCD, FTGX, and NNBCE. All inter-company transactions and balances have been
eliminated.
 
 Minority
interests at the balance sheet date, being the portion of the net assets of
subsidiaries attributable to equity interests that are not owned by Forlink,
whether directly or indirectly through subsidiaries, are presented in the
consolidated balance sheet separately from liabilities and the shareholders’
equity. Minority interests in the results of the Company for the years are also
separately presented in the income statement.
 
 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.
 
 Foreign
Currency Translation and Transactions
 
 The
functional currency of Forlink is US$ and the financial records are maintained
and the financial statements prepared in US$. The functional currency of FTHK is
HK$ and its financial records are maintained, and its financial statements
prepared, in HK$. The functional currency of FTCL, BFHX, FTCD, FTGX, and NNBCE
is Renminbi (RMB) and their financial records are maintained, and their
financial statements are prepared, in RMB.
 
 Foreign
currency transactions during the period are translated into each company’s
denominated currency at the exchange rates at the transaction dates. Gain and
loss resulting from foreign currency transactions are included in the
consolidated statement of operations. Assets and liabilities denominated in
foreign currencies at the balance sheet date are translated into each company’s
denominated currency at the yearend exchange rates. All exchange differences are
dealt with in the consolidated statements of operations.
 
 The
financial statements of the Company’s operations based outside of the United
States have been translated into US$ in accordance with SFAS 52. Management has
determined that the functional currency for each of the Company’s foreign
operations is its applicable local currency. When translating functional
currency financial statements into US$, yearend exchange rates are applied to
the consolidated balance sheets, while average period rates are applied to
consolidated statements of operations. Translation gains and losses are recorded
in translation reserve as a component of stockholders’ equity.
  The value
of the RMB is subject to changes in China’s central government policies and to
international economic and political developments affecting supply and demand in
the China Foreign Exchange Trading System market. Since 1994, the conversion of
RMB into foreign currencies, including USD, has been based on rates set by the
People’s Bank of China, which are set daily based on the previous day’s
inter-bank foreign exchange market rates and current exchange rates on the world
financial markets. Since 1994, the official exchange rate generally has been
stable.  In July 2005, the Chinese government announced that it will
no longer peg its currency exclusively to USD but will switch to a managed
floating exchange rate based on market supply and demand with reference to a
basket of currencies which will likely increase the volatility of RMB as
compared to USD.  The exchange rate of RMB to USD changed from RMB8.28
to RMB8.11 in late July 2005.
 
 The
exchange rates used as of December 31, 2008 and 2007 are US$1:HK$7.78:RMB6.83
and US$1:HK$7.84:RMB7.32, respectively. The weighted average rates ruling for
the years ended December 31, 2008 and 2007 are US$1:HK$7.81:RMB6.91, and re
US$1:HK$7.84:RMB7.60, respectively.
 
 Foreign
Currency Risk
 
 The RMB
is not a freely convertible currency. The State Administration for Foreign
Exchange, under the authority of the People’s Bank of China, controls the
conversion of RMB into foreign currencies. The value of the RMB is subject to
changes in central government policies and to international economic and
political developments affecting supply and demand in the China Foreign Exchange
Trading System market.
 
 The PRC
subsidiaries conduct their business substantially in the PRC, and their
financial performance and position are measured in terms of RMB. Any devaluation
of the RMB against the USD would consequently have an adverse effect on the
financial performance and asset values of the Company when measured in terms of
USD. The PRC subsidiaries’ products are primarily procured, sold and delivered
in the PRC for RMB.  Thus, their revenues and profits are
predominantly denominated in RMB.  Should the RMB devalue against USD,
such devaluation could have a material adverse effect on the Company’s profits
and the foreign currency equivalent of such profits repatriated by the PRC
entities to the Company.
  F-9
 
 Cash
and Cash Equivalents
 
 Cash and
cash equivalents include cash in hand and all highly liquid investments with an
original maturity of three months or less.
 
 Allowance
for Doubtful Accounts
 
 We record
an allowance for doubtful accounts based on specifically identified amounts that
the Company believes to be uncollectible. We have a limited number of customers
with individually large amounts due at any given balance sheet
date.  Any unanticipated change in one of those customers’ credit
worthiness or other matters affecting the collectibility of amounts due from
such customers, could have a material affect on the results of operations in the
period in which such changes or events occur. After all attempts to collect a
receivable have failed, the receivable is written off against the
allowance.
 
 Inventories
 
 Inventories
are stated at the lower of cost or market.  For inventory used in
system integration services, cost is calculated using the specific
identification method.  For the sale of computer hardware, cost is
calculated using first-in, first-out method.  Cost 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.
 
 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
                  
                  20Computer
      equipment
                  
                  5Office
      equipment
                  
                  5Motor
      vehicle
                  
                  10
 
 Major
improvements of property, plant and equipment are capitalized, while
expenditures for repair and maintenance and minor renewals and betterments are
charged directly to the statements of operations as incurred.  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.
 
 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 software 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
term investments
 
 The
Company’s long term investments consist of (1) equity investments which are
accounted for in accordance with the equity method and (2) cost investments
which are accounted for under the cost method.  Under the equity
method, each such investment is reported at cost plus the Company’s
proportionate share of the income or loss or other changes in stockholders’
equity of each such investee since its acquisition.  The consolidated
results of operations include such proportionate share of income or
loss.  See Note 8.
 
 Fair
Values of Financial Instruments
 
 The
carrying amounts of financial instruments (cash and cash equivalents,
investments, accounts receivable and accounts payable) approximate their fair
values as of December 31, 2008 and 2007 because of the relatively short-term
maturity of these instruments.
  F-10
 
 Goodwill
 
 SFAS 142,
Goodwill and Other Intangible Assets, requires that goodwill be tested for
impairment on an annual basis (December 31 for us) and between annual tests if
an event occurs or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying value.  These
events or circumstances could include a significant change in the business
climate, legal factors, operating performance indicators, competition, sale or
disposition of a significant portion of a company.  Application of the
goodwill impairment test requires judgment, including the determination of the
fair value of a company. The fair value of a company is estimated using a
discounted cash flow methodology.  This requires significant judgments
including estimation of future cash flows, which is dependent on internal
forecasts, estimation of the long-term rate of growth for our business, the
useful life over which cash flows will occur, and the determination of our
weighted average cost of capital.  Changes in these estimates and
assumptions could materially affect the determination of fair value and/or
goodwill impairment for a company.
 
 Revenue
Recognition
 
 The
Company generally provides services under multiple element arrangements, which
include software license fees, hardware and software sales, and the provision of
system integration services including consulting, implementation, and software
maintenance.  The Company evaluates revenue recognition on a
contract-by-contract basis as the terms of each arrangement vary.  The
evaluation of the contractual arrangements often requires judgments and
estimates that affect the timing of revenue recognized in the statements of
operations.  Specifically, the Company may be required to make
judgments about:
 
 ·
              whether
      the fees associated with our products and services are fixed or
      determinable;
 ·
              whether
      collection of our fees is reasonably
assured;
 ·
              whether
      professional services are essential to the functionality of the related
      software product;
 ·
              whether
      we have the ability to make reasonably dependable estimates in the
      application of the percentage-of-completion method;
  and
 ·
              whether
      we have verifiable objective evidence of fair value for our products and
      services.
  The
Company recognizes revenues in accordance with the provisions of Statements of
Position, or SOP, No. 97-2, “Software Revenue Recognition,” as amended by SOP
No. 98-9, “Modification of SOP 97-2, Software Revenue Recognition, with respect
to Certain Transactions,” Staff Accounting Bulletin, or SAB, 104, “Revenue
Recognition.” SOP 97-2 and SAB 104 require among other matters, that there be a
signed contract evidencing an arrangement exists, delivery has occurred, the fee
is fixed or determinable, and collectibility is probable.
 
 Software
license revenue is recognized over the accounting periods contained in the terms
of the relevant agreements, commencing upon the delivery of the software
provided that (1) there is evidence of an arrangement, (2) the fee is fixed or
determinable and (3) collection of the fee is considered probable.
 
 Revenue
from non-software, multiple-element arrangements is recognized in accordance
with Emerging Issues Task Force No. 00-21, “Revenue Arrangements with Multiple
Deliverables” (“EITF No. 00-21”).  Under EITF 00-21, the Company
recognizes revenue from the multiple-deliverables which has value to the
customer on a stand-alone basis.  Deliverables in an arrangement that
do not meet the separation criteria in EITF 00-21 are treated as one unit of
accounting for purposes of revenue recognition.
 
 In the
case of maintenance revenues, vendor-specific objective evidence, or VSOE, of
fair value is based on substantive renewal prices, and the revenues are
recognized ratably over the maintenance period.
 
 In the
case of consulting and implementation services revenues, where VSOE is based on
prices from stand-alone sale transactions, the revenues are recognized as
services are performed pursuant to paragraph 65 of SOP 97-2.
 
 For
hardware transactions where software is incidental, the Company does
not apply separate accounting guidance to the hardware and software
elements. The Company applies the provisions of EITF 03-05, “Applicability
of AICPA Statement of Position 97-2, Software Revenue Recognition, to
Non-Software Deliverables in an Arrangement Containing More-Than-Incidental
Software” (EITF 03-05).  Per EITF 03-05, if the software is considered
not essential to the functionality of the hardware, then the hardware is not
considered “software related” and is excluded from the scope of SOP
97-2.  Such sale of computer hardware is recognized 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, pursuant to
SAB 104.
 
 Remote
hosting services, where VSOE is based upon consistent pricing charged to
customers based on volumes and performance requirements on a stand-alone basis
and substantive renewal terms, are recognized ratably over the contract term as
the services are performed. The remote hosting arrangements generally require
the Company to perform one-time set-up activities and include a one-time set-up
fee. This one-time set-up fee is generally paid by the customer at contract
execution.  The Company has determined that these set-up activities do
not constitute a separate unit of accounting, and accordingly the related set-up
fees are recognized ratably over the term of the contract.
  F-11
 
 The
Company is considering the applicability of EITF 00-3, “Application of AICPA
Statement of SOP 97-2 to Arrangements That Include the Right to Use Software
Stored on Another Entity’s Hardware,” to the hosting services arrangements on a
contract-by-contract basis.  If the Company determines that the
customer does not have the contractual right to take possession of the Company’s
software at any time during the hosting period without significant penalty, SOP
97-2 would not apply to these contracts in accordance with EITF 00-3.
Accordingly, these contracts would be accounted for pursuant to SAP
104.
 
 Stock
Based Compensation
 
 Effective
January 1, 2006, we adopted Statement of Financial Accounting Standards 123(R),
Share-Based Payment
(SFAS 123(R)), using the modified prospective application transition method.
Before we adopted SFAS 123(R), we accounted for share-based compensation in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.
  SFAS
123(R) requires the Company to record the cost of stock options and other
equity-based compensation in its income statement based upon the estimated fair
value of those rewards.  The Company elected to use the modified
prospective method for adoption, which requires compensation expense to be
recorded for all unvested stock options and other equity-based compensation
beginning in the first quarter of adoption. Accordingly, prior periods have not
been restated to reflect stock based compensation.  On January 1,
2006, the Company adopted SFAS 123(R) using the modified prospective method, and
the adoption of this standard did not have a material impact on the Company’s
consolidated financial statements because most of the Company’s outstanding
stock options were vested as of December 31, 2005 and the unvested portion of
the stock options was considered immaterial.
 
 SFAS
123(R) also requires the Company to estimate forfeitures in calculating the
expense relating to share-based compensation as opposed to recognizing
forfeitures as an expense reduction as they incur.  The adjustment to
apply estimated forfeitures to previously share-based compensation was
considered immaterial by the Company and as such was not classified as a
cumulative effect of a change in accounting principle.  As of January
1, 2006, the Company had no unrecognized compensation cost remaining associated
with existing stock option grants. Also, the Company made no modifications to
outstanding stock option grants prior to the adoption of Statement
No. 123(R), and there were no changes in valuation methodologies or
assumptions compared to those used by the Company prior to January 1,
2006.
 
 In
November 2005, the FASB issued FSP No. 123(R)-3, “Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment Awards.” The
Company adopted the alternative transition method provided in the FSP for
calculating the tax effects of share-based compensation pursuant to FAS 123(R)
in the fourth quarter of fiscal 2006. The alternative transition method includes
simplified methods to establish the beginning balance of the Additional Paid-in
Capital (“APIC”) pool related to the tax effects of employee share-based
compensation, and to determine the subsequent impact on the APIC pool and
Consolidated Statements of Cash Flows of the tax effects of employee share-based
compensation awards that are outstanding upon adoption of FAS 123(R). The
adoption did not have a material impact on the Company’s results of operations
and financial position.
 
 In
February 2006, the FASB issued FASB Staff Position No. FAS 123(R)-4,
“Classification of Options and Similar Instruments Issued as Employee
Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent
Event.” This position amended SFAS 123(R) to incorporate that a cash settlement
feature that can be exercised only upon the occurrence of a contingent event
that is outside the employee’s control does not meet certain conditions in SFAS
123(R) until it becomes probable that the event will occur. The guidance in this
FASB Staff Position was required to be applied upon initial adoption of
Statement No. 123(R). The Company does not have any option grants that
allow for cash settlement.
 
 The
Company did not adopt any new share-based compensation plans in 2008. 200,000
stock options issued under the Company’s 2002 Stock Plan were exercised during
the year 2008.
 
 Advertising
costs
 
 All
advertising costs incurred in the promotion of the Company’s products and
services are expensed as incurred.  Advertising expenses were
insignificant for 2008 and 2007.
 
 Income
Taxes
 
 The
Company accounts for income taxes in accordance with SFAS No. 109 “Accounting
for Income Taxes.” 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 it is more likely than not that some or all of the deferred tax
assets not be realized.
  F-12
 
 In July,
2006, the FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109(FIN 48).  This Interpretation
provides guidance for recognizing and measuring uncertain tax positions, as
defined in SFAS No. 109, Accounting for Income Taxes.
FIN 48 prescribes a threshold condition that a tax position must meet for any of
the benefit of the uncertain tax position to be recognized in the financial
statements.  Guidance is also provided regarding derecognition,
classification and disclosure of these uncertain tax positions.
 
 Earnings
Per Common Share
 
 The
Company computes net earnings per share in accordance with SFAS No. 128,
“Earnings per Share” and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). Under
the provisions of SFAS No. 128 and SAB 98, basic net earnings per share is
computed by dividing the net earnings 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 earnings per share gives
effect to common stock equivalents, however, potential common stock in the
diluted EPS computation are excluded in net loss periods, as their effect is
anti-dilutive.
  Recent
Accounting Pronouncements
 
 In
September 2006, the FASB issued FAS 157, Fair Value Measurements (FAS
157). FAS 157 defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. The provisions of FAS 157 are
effective for the fiscal year beginning after November 15, 2007.
 
 On
February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities: Including an amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 permits all entities to elect to
measure many financial instruments and certain other items at fair value with
changes in fair value reported in earnings. SFAS 159 is effective as of the
beginning of the first fiscal year that begins after November 15, 2007, with
earlier adoption permitted.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”.The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards. This Statement is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008 (that is,
January 1, 2009, for entities with calendar year-ends). Earlier adoption is
prohibited. The effective date of this Statement is the same as that of the
related Statement 141(R).
 
 On
December 21, 2007, SEC issued Staff Accounting Bulletin (“SAB”) No. 110. This
staff accounting bulletin ("SAB") expresses the views of the staff regarding the
use of a "simplified" method, as discussed in SAB No. 107 ("SAB 107"), in
developing an estimate of expected term of "plain vanilla" share options in
accordance with Statement of Financial Accounting Standards No. 123 (revised
2004), Share-Based
Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of whether
the company has sufficient information to make more refined estimates of
expected term. At the time SAB 107 was issued, the staff believed that more
detailed external information about employee exercise behavior (e.g., employee
exercise patterns by industry and/or other categories of companies) would, over
time, become readily available to companies. Therefore, the staff stated in SAB
107 that it would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available by
December 31, 2007. Accordingly, the staff will continue to accept, under certain
circumstances, the use of the simplified method beyond December 31,
2007.
 
 In March
2008, the FASB issued FAS 161, “Disclosures about
Derivative Instruments and Hedging Activities—an amendment of FASB Statement No.
133”The use and complexity
of derivative instruments and hedging activities have increased significantly
over the past several years. Constituents have expressed concerns that the
existing disclosure requirements in FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, do not provide adequate information
about how derivative and hedging activities affect an entity’s financial
position, financial performance, and cash flows. Accordingly, this Statement
requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial reporting. This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. This Statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption.
 
 In May
2008, the FASB issued FAS 162, “The Hierarchy of Generally Accepted
Accounting Principles”.This
Statement identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP
hierarchy).
  F-13
  In May
2008, the FASB also issued FAS 163, “Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60.”Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. That diversity results in inconsistencies in the
recognition and measurement of claim liabilities because of differing views
about when a loss has been incurred under FASB Statement No. 5, Accounting for Contingencies.
This Statement requires that an insurance enterprise recognize a claim liability
prior to an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This Statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  This Statement is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for some disclosures
about the insurance enterprise’s risk-management activities. This Statement
requires that disclosures about the risk-management activities of the insurance
enterprise be effective for the first period (including interim periods)
beginning after issuance of this Statement. Except for those disclosures,
earlier application is not permitted.
 
 The
Company does not anticipate that the adoption of these statements will have a
material effect on the Company's financial condition and results of
operations.
 
 NOTE
3 - ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
 Accounts
receivable are customer obligations due under normal trade terms. The Company
performs continuing credit evaluations of the customers’ financial conditions
and the Company generally does not require collateral.
 
 Senior
management reviews accounts receivable from time to time to determine if any
receivables will potentially be uncollectible. The Company included any accounts
receivable balances that are determined to be uncollectible in the allowance for
doubtful accounts. After all attempts to collect a receivable have failed, the
receivable is written off against the allowance. Based on the information
available to the Company, $54,400 (2007: $48,033) for doubtful accounts as of
December 31, 2008 is required.
 
 NOTE
4 - OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS
 
 December 31,
                    
                    December 31,2008
                    
                    2007Other
      receivables
                    
                    $
                    1,545,025
                    
                    
                    $
                    398,085Deposits
                    
                    
                    58,875
                    
                    
                    
                    73,275Prepayments
                    
                    
                    23,655
                    
                    
                    
                    59,071$
                    1,627,555
                    
                    
                    $
                    530,431
  NOTE
5 - INVENTORIES
 
 December 31,
                    
                    December 31,2008
                    
                    2007Computer
      hardware and software
                    
                    $
                    13,335
                    
                    
                    $
                    29,765Work-in-progress
                    
                    
                    1,006,378
                    
                    
                    
                    468,591$
                    1,019,713
                    
                    
                    $
                    498,356
 
 All the
inventories were purchased for identified system integration
contracts.
 
 Work-in-progress
includes payroll and other operating expenses associated with various contracts
in progress.
  NOTE
6 - RELATED PARTY
 
 The
Company has had and expects to have transactions in the ordinary course of
business with many of its stockholders, directors, senior officers and other
affiliates (and their associates) on substantially the same terms as those
prevailing for comparable transactions with others. Listed below is a summary of
material relationships or transactions with the Company’s stockholders,
directors, senior officers and other affiliates:
  F-14
  Amounts
due to stockholders
 
 The
Company, from time to time, received from or made repayment to one major
stockholder who is also a member of management of the Company. The amounts due
to stockholders do not bear any interest and do not have clearly defined terms
of repayment.
 
 As of
December 31, 2008 and 2007, the amounts due to stockholders represented advances
from stockholders with the amount of $378,672 and $325,251,
respectively.
 
 Related
Party Transactions
 
 Sales
                          
                          
                          Receivable
                          
                          
                          Customer DepositRelated
                          
                          Year
      Ended Dec 31,
                          
                          
                          As
      of Dec 31,
                          
                          
                          As
      of Dec 31,party
                          
                          2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007All
      China
                          
                          
                          -
                          
                          
                          $
                          167,255
                          
                          
                          $
                          501,642
                          
                          
                          $
                          237,264
                          
                          
                          $
                          48,246
                          
                          
                          $
                          -Guangxi
      Caexpo
                          
                          
                          -
                          
                          
                          
                          4,878,812
                          
                          
                          
                          294,262
                          
                          
                          
                          361,203
                          
                          
                          
                          -
                          
                          
                          
                          -BGXF
                          
                          
                          -
                          
                          
                          
                          112,313
                          
                          
                          
                          -
                          
                          
                          
                          111,144
                          
                          
                          
                          -GBSEE
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          68,306
                          
                          
                          
                          -
                          
                          
                          
                          -SDLD
                          
                          
                          123,619
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          9,752Total
                          
                          $
                          123,619
                          
                          
                          $
                          5,158,380
                          
                          
                          $
                          795,904
                          
                          
                          $
                          777,917
                          
                          
                          $
                          57,998
                          
                          
                          $
                          0
  NOTE
7 - PROPERTY, PLANT AND EQUIPMENT, NET
 
 December 31,
                      
                      
                      December 31,2008
                      
                      
                      2007Building
                      
                      $
                      213,705
                      
                      
                      $
                      214,173Computer
      and office equipment
                      
                      
                      1,060,165
                      
                      
                      
                      1,188,353Motor
      vehicles
                      
                      
                      211,698
                      
                      
                      
                      170,9991,485,568
                      
                      
                      
                      1,573,525Less:
      Accumulated depreciation
                      
                      
                      (891,763
                      )
                      
                      
                      (913,699
                      )$
                      593,805
                      
                      
                      
                      659,826
  The
building is located in Chengdu, PRC and was purchased on behalf of the Company
by Mr. Yi He, one of the stockholders and directors of the Company. By a
stockholders’ resolution passed on March 8, 1999, it was ratified that the title
to the building belonged to the Company. In 2005, the title to the building was
transferred to FTCD.
  NOTE
8 - LONG TERM INVESTMENTS
 
 December 31,
                      
                      December 31,2008
                      
                      2007Equity
      investments
                      
                      $
                      236,344
                      
                      
                      $
                      353,776Cost
      investments
                      
                      
                      4,838,278
                      
                      
                      
                      4,559,168$
                      5,074,622
                      
                      
                      
                      4,912,944
 
 In
December 2003, the Company invested $760,870 in a privately held PRC company,
All China Logistics Online Co., Ltd., for a 17.8% equity interest. The Company
has recorded the investment at cost because it does not have the ability to
exercise significant influence over the investee.
  F-15
 
 In
October 2004, the Company invested $36,232 in a privately held PRC company,
Huntington Network Technologies (Beijing) Co., Ltd. (“HNTB”), for a 30% equity
interest.  The investment was made through the Company’s subsidiary,
BFHX.  The investment in HNTB is accounted for under the equity method
of accounting due to the Company’s significant influence over the operational
and financial policies of HNTB.  For the year ended December 31, 2007
and year ended December 31, 2006, the Company did not receive any distributions
from HNTB’s net results, as the investment was impaired in full in 2005 of
$37,516 and the company was deregistered.
 
 On
October 24, 2005, the Company set up China Liquid Chemical Exchange Company
Limited, a limited liability company in PRC, and shares the risk and rewards up
to the equity interest of 17.5%.  The consideration is made in form of
the Company-developed “For-Online Electronic Trading System” without any cash
outflow.  Therefore, the Company recorded the contribution of software
at the lower of its carrying amount or fair value, and accounted for under the
equity method under SOP 78-9.  As of December 31, 2008 and 2007, the
Company’s share of the joint venture’s profit (loss) was $205,505 and $212,385,
respectively.
 
 On
October 3, 2006, the Company acquired 22.73% of registered capital in Guangxi
Caexpo International Trade and Logistics Co., Ltd. (“Guangxi Caexpo”), a private
held PRC company, from Statelink International Group, Ltd., a company
incorporated in the British Virgin Islands (“Statelink”). Consideration paid to
Statelink for this acquisition included a cash payment of $2,557,545 (RMB
20,000,000) by BFHX and 13,000,000 shares of the Company’s restricted common
stock.  The acquisition cost of the common shares issued to Statelink
is based on a per share price of $0.075, which was the average market price of
the Company’s common shares over a 10-day period before and after the terms of
the acquisition were agreed to. The overall acquisition cost of this acquisition
was $3,529,450.  The Company recorded the investment at cost because
it does not have the ability to exercise significant influence over Guangxi
Caexpo; in fact, Guangxi Caexpo’s strategic and business decisions are dominated
by other major shareholders.
 
 On
October 12, 2006, the Company entered into a definitive agreement to acquire
12.5% of registered capital in Wuxi Stainless Steel Exchange Co., Ltd. (“Wuxi”),
a private held PRC company.  In exchange for the 12.5% registered
capital, the Company was to deploy a proprietary, integrated software solution
(“software”), estimated at RMB 1,000,000, by reference to the similar products
sold to third parties in 2006, to support Wuxi’s operations, plus RMB 250,000
cash payment to Wuxi.  In 2006, the Company contributed cash of
$31,969 (RMB 250,000), the software been deployed to Wuxi in December 2006. The
Company recorded the investment at cost because it does not have the ability to
exercise significant influence over Wuxi.  On January 14, 2007, the
Company entered into a Share Transfer Agreement with a major shareholder of Wuxi
to transfer 2.5% interest in Wuxi held by the Company to the major shareholder
for a cash payment of RMB 500,000.  After this transfer, the Company
continues to hold a 10% equity interest in Wuxi.
 
 On April
29, 2007, the Company invested $138,158 in a privately held PRC company, Beijing
GuoXin Forlink Internet Technologies Limited (“BGXF”), for a 35% equity
interest. The Company’s investment was made through BFHX.  The
investment in BGXF is accounted for under the equity method of the accounting
due to the Company’s significant influence over the operational and financial
policies of BGXF. On March 9, 2008, BGXF commenced operations.
 
 On
September 17, 2007, the Company invested $99,734 in a privately held PRC
Company, Ningbo Bulk Commodities Exchange Corporation Limited (“NBBCE”), for a
25% equity interest.  The Company’s investment was made through
BFHX.  The Company recorded the investment at cost as the Company does
not have the ability to exercise significant influence over NBBCE because
NBBCE’s strategic and business decisions are dominated by another major
shareholder.
 
 On March
20, 2008, Forlink invested $71,124 (500,000 RMB), through BFHX, in Shandong
LongDong Internet Technologies Limited (“SDLD”), a PRC limited liability
company, established on October 24, 2007, for a 5% equity
interest.  SDLD, which commenced operations in December 2007, is in
the business of providing of providing primary products e-commerce
services.  The purpose of this investment is to gain cash dividends
from SDLD.
 
 NOTE
9 - GOODWILL
 
 Goodwill
represents the excess of the acquisition cost of Beijing Slait Science &
Technology Development Limited Co. (“Slait”) over the estimated fair value of
net assets acquired as of August 27, 2001 as described in Note 1.
 
 The
acquisition was completed after June 30, 2001, and no amortization of goodwill
was necessary in accordance with SFAS No. 142 “Goodwill and other Intangible
Assets.”
 
 However,
in the quarter ended June 30, 2002, the closing trading price of the Company’s
common stock had fallen to $0.05 per share, which indicated that there might be
a potential impairment of goodwill since January 1, 2002.  Therefore,
the Company performed an additional impairment test as of June 30,
2002.  As a result of the impairment test performed, which was based
on the fair value of the Company as determined by the trading price of the
Company’s common stock, an impairment of $5,308,760 was recorded in the quarter
ended June 30, 2002.  As the closing trading price of the Company’s
common stock as of December 31, 2002 had fallen to $0.04 per share, a total
impairment of $6,966,546 was recorded for the year ended December 31,
2002.
  F-16





Since
December 31, 2003, the Company has conducted an annual impairment test at
December 31 of each year. Based on the results of the first step of such tests,
the Company believes that there was no further impairment of goodwill as of
December 31, 2004, 2005, 2006, and 2007.





During
2008, especially in the last two quarters, the price of the Company’s common
stock was impacted by declines in the overall financial market and had fallen to
$1.20 per share at September 30, 2008, and $0.90 per share at December 31, 2008.
The goodwill was determined from the difference between the fair value of the
Company’s common stock and the book value of the Company’s net assets. The
result of the annual impairment test for 2008 indicated that the goodwill had
been impaired by the declining prices, and the fair value of common stock was
much lower than the net assets of the book value.  The Company
believed that the impairment was other than temporary. Based on the result of
the impairment testing, the balance of $1,684,023 was written off for the year
ended December 31, 2008.





NOTE
10 - OTHER PAYABLES AND ACCRUED EXPENSES





December 31,
                            
                            December 31,2008
                            
                            2007Other
      payables
                            $
                            428,334
                            
                            $
                            161,846Accrued
      salaries & wages
                            
                            176,985
                            
                            
                            141,073Other
      accrued expenses
                            
                            -
                            
                            
                            447$
                            605,319
                            
                            $
                            303,366





NOTE
11 - MINORITY INTEREST





The
minority interest balance of $193,295 represents cash provided by minority
shareholders of NNBCE.





NOTE
12 - INCOME TAX





According
to the relevant PRC tax rules and regulations, FTCL, which is recognized as a
New Technology Enterprise operating within a New and High Technology Development
Zone, is entitled to an Enterprise Income Tax (“EIT”) rate of 15%.





Pursuant
to approval documents dated September 23, 1999 and August 2, 2000 issued by the
Beijing Tax Bureau and State Tax Bureau respectively, FTCL was fully exempted
from EIT for fiscal years 1999, 2000, 2001 and 2002. FTCL received a 50% EIT
reduction at the rate of 7.5% for fiscal years 2003, 2004 and
2005.  As of December 31, 2008, FTCL was entitled to an EIT rate of
15%.





Pursuant
to an approval document dated January 19, 2004 issued by the State Tax Bureau,
BFHX was fully exempted from EIT for fiscal years 2004, 2005 and
2006.  As of December 31, 2008, BFHX was entitled to an EIT rate of
7.5%.





Hong Kong
profits tax is calculated at 17.5% on the estimated assessable profits of FTHK
for the period. The EIT rate for FTCD, FTGX and NNBCE is 25%.  No
provision for EIT and Hong Kong profits tax were made for FTCL,  FTCD,
FTGX, NNBCE and FTHK as they have not gained taxable income for the
periods.





On
January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109(FIN 48).  This Interpretation
provides guidance for recognizing and measuring uncertain tax positions, as
defined in SFAS No. 109, Accounting for Income Taxes.
FIN 48 prescribes a threshold condition that a tax position must meet for any of
the benefits of the uncertain tax position to be recognized in the financial
statements. Guidance is also provided regarding derecognition, classification
and disclosure of these uncertain tax positions. The Company classified all
interest and penalties related to tax uncertainties as income tax expense. The
Company’s liability for income taxes includes the liability for unrecognized tax
benefits, interest and penalties which relate to tax years still subject to
review by taxing authorities. Audit periods remain open for review until the
statute of limitations has passed. The completion of review or the expiration of
the statute of limitations for a given audit period could result in an
adjustment to our liability for income taxes. Any such adjustment could be
material to the Company’s results of operations for any given quarterly or
annual period based, in part, upon the results of operations for the given
period. As of December 31, 2007, the Company does not have any liability for
uncertain tax positions. The adoption of FIN 48 did not have a material impact
on the Company’s results operations, financial position or
liquidity.


F-17




On March
16, 2007, the 5th Plenary Session of the 10th National People's Congress passed
the Corporate Income Tax Law of the PRC ("the New Corporate Income Tax Law"),
which took effect on January 1, 2008.  Beginning on that date, the EIT
rate is expected to gradually increase to the standard rate of 25% over a
five-year transition period.  However, the New Corporate Income Tax
Law does not specify how the existing preferential tax rate will gradually
increase to the standard rate of 25%.  Also, under the New Corporate
Income Tax Law, certain high technology enterprises will continue to be entitled
to a reduced tax rate of 15%.  However, the implementation rules
regarding the preferential tax policies (e.g. the details on how the taxpayer
can qualify as a high-tech enterprise under the New Corporate Income Tax Law)
have yet to be made public. Consequently, the Company is not able to make an
estimate of the expected financial effect of the New Corporate Income Tax Law on
its deferred tax assets and liabilities.  The enactment of the New
Corporate Income Tax Law did not have any financial effect on the provision for
income tax for the year ended December 31, 2008 and on the amounts accrued in
the balance sheet in respect of current tax payable.





Reconciliation
between the provision for income taxes computed by applying the statutory tax
rate in Mainland China to income before income taxes and the actual provision
for income taxes is as follows:





YE 2008
                                
                                
                                
                                YE 2007USD
                                
                                
                                
                                USDProvision
      of income taxes at statutory tax rate of 15%
                                
                                
                                (199,190
                                )
                                
                                
                                
                                227,725Tax
      holidays and concessions
                                
                                
                                -
                                
                                
                                
                                
                                (18,214
                                )Effect
      of different tax rate of a subsidiary operating in Hong
    Kong
                                
                                
                                2,880
                                
                                
                                
                                
                                (11,115
                                )Permanent
      difference
                                
                                
                                210,879
                                
                                
                                
                                
                                7,066Increase
      in valuation allowance
                                
                                
                                (33,529
                                )
                                
                                
                                
                                (186,816
                                )Timing
      different on revenue recognition & FA, etc.
                                
                                
                                28,912Others
                                
                                
                                (336
                                )
                                
                                
                                
                                91Effective tax
                                
                                
                                9,616
                                
                                
                                
                                
                                18,737





NOTE
13 - OTHER TAXES RECOVERABLE/(PAYABLE)





Other
taxes payable comprise mainly of the 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 other services.





As part
of the PRC government’s policy of encouraging software development in the PRC,
companies that fulfill certain criteria set by the relevant authorities, and
which develop their own software products and have the software products
registered with the relevant authorities in the PRC, are entitled to a refund of
VAT equivalent to the excess over 3% of revenue paid in the month when output
VAT exceeds input VAT (excluding export sales).  The excess portion of
the VAT is refundable and is recorded by the Company on an accrual basis. The
VAT rebate included in other income was $65,561 and $98,692 for the years ended
December 31, 2008 and 2007, respectively.





NOTE
14 - COMMITMENTS AND CONTINGENCIES





Operating
Lease Commitment





During
the years ended December 31, 2008 and 2007, the Company incurred lease expenses
amounting to $361,336 and $489,583 respectively.  As of December 31,
2008 and 2007, the Company had commitments under non-cancelable operating
leases, requiring annual minimum rentals as follows:




December 31,
                        
                        
                        December 31,2008
                        
                        
                        2007January
      1, 2008 to December 31, 2008
                        
                        $
                        361,336
                        
                        
                        $
                        351,289January
      1, 2009 to December 31, 2009
                        
                        
                        442,062
                        
                        
                        
                        111,750January
      1, 2008 to December 31, 2010
                        
                        
                        438,809
                        
                        
                        
                        47,931January
      1, 2010 to December 31, 2011
                        
                        
                        149,427
                        
                        
                        
                        393January
      1, 2008 to December 31, 2012
                        
                        $
                        1,391,634
                        
                        
                        $
                        511,363




NOTE
15 - STOCK PLAN




On August
16, 2002, the Company established the “Forlink Software Corporation, Inc. 2002
Stock Plan” (the “2002 Plan”), and reserved 8,000,000 shares of common stock for
issuance under the 2002 Plan either directly as stock awards or underlying
options . The board of directors would determine the terms and conditions of
each option granted under the 2002 plan, which terms and conditions would be in
writing and may vary from one eligible participant to another.  On
August 15, 2007, the 2002 Plan expired pursuant to its terms.


F-18





The
following table summarizes the activities of stock options granted under the
2002 Plan prior to its expiration:





Number of shares
                                          
                                          
                                          Weighted
                                            average exercise
                                            priceGranted
      on September 7, 2004
                                          
                                          
                                          3,315,000
                                          
                                          
                                          $
                                          0.10Exercised
                                          
                                          
                                          (15,000
                                          )
                                          
                                          $
                                          (0.10
                                          )Forfeited
      or Cancelled
                                          
                                          
                                          0
                                          
                                          
                                          $
                                          0.00Outstanding
      at December 31, 2004
                                          
                                          
                                          3,300,000
                                          
                                          
                                          $
                                          0.10Exercised
                                          
                                          
                                          (136,500
                                          )
                                          
                                          $
                                          (0.10
                                          )Forfeited
      or Cancelled
                                          
                                          
                                          (132,500
                                          )
                                          
                                          $
                                          (0.10
                                          )Outstanding
      at December 31, 2005
                                          
                                          
                                          3,031,000
                                          
                                          
                                          $
                                          0.10Exercised
                                          
                                          
                                          0
                                          
                                          
                                          $
                                          0.00Forfeited
      or Cancelled
                                          
                                          
                                          (1,734,000
                                          )
                                          
                                          $
                                          (0.10
                                          )Outstanding
      at December 31, 2006
                                          
                                          
                                          1,297,000
                                          
                                          
                                          $
                                          0.10Exercised
                                          
                                          
                                          (897,000
                                          )
                                          
                                          $
                                          (0.10
                                          )Forfeited
      or Cancelled
                                          
                                          
                                          0
                                          
                                          
                                          $
                                          0.00Outstanding
      at December 31, 2007
                                          
                                          
                                          400,000
                                          
                                          
                                          $
                                          0.10Exercised
                                          
                                          
                                          (200,000
                                          )
                                          
                                          
                                          (0.10
                                          )Forfeited
      or Cancelled
                                          
                                          
                                          (200,000
                                          )
                                          
                                          
                                          (0.10
                                          )Outstanding
      at December 31, 2008
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0.00Fully
      vested and exercisable at December 31, 2008
                                          
                                          
                                          0
                                          
                                          
                                          $
                                          0.10




On
September 7, 2004, 3,315,000 options were granted to the Company’s employees to
purchase the Company’s shares of common stock, $0.001 par value, at an exercise
price of $0.10 per share. Of the 3,315,000 options, 800,000 options with a
5-year vesting period were granted to an employee, and 2,515,000 options with a
3-year vesting period were granted to selected employees. Of the 2,515,000
options with the 3-year vesting period, 2,385,000 options was to expire on
December 30, 2006 (the “December 2006 Options”), while the remaining 130,000
options expired on June 30, 2007 (the “June 2007 Options”).  The
expiration date for 800,000 options with the 5-year vesting period is June 30,
2009 (the “June 2009 Options”).  On September 7, 2004, January 1,
2005, January 1, 2006 and January 1, 2007, 854,500 (the “December 2006
Options”), 904,500, 1,156,000 (400,000 of “June 2009 Options”; 130,000 of “ June
2007 Options”; and 626,000 of “December 2006 Options”) and 200,000 (the “June
2009 Options”) options were vested to employees respectively.  The
market price of the stock as of September 7, 2004 and January 1, 2005 was $0.10
per share.  In December 2006, the Company extended the expiration date
of the December 2006 Options by one month to the end of January 2007, but there
was no additional compensation expense as the Company considered the amount
immaterial.  On January 29, 2007, 367,000 options of the “December
2006 Options” and 400,000 of the “June 2009 options” were exercised. On July 6,
2007, 130,000 options of the “June 2007 Options” were exercised.




The
following table summarizes the cumulative activities up to December 31, 2008 of
the options issued under the 2002 Plan with different expiration
dates:




Granted
                                            
                                            Exercised
                                            
                                            Forfeited or
                                              Cancelled
                                            
                                            Outstanding at
                                              December 31,
                                              2008December
      2006 Options
                                            
                                            
                                            2,385,000
                                            
                                            518,500
                                            
                                            
                                            1,866,500
                                            
                                            0June
      2007 Options
                                            
                                            
                                            130,000
                                            
                                            130,000
                                            
                                            
                                            0
                                            
                                            0June
      2009 Options
                                            
                                            
                                            800,000
                                            
                                            600,000
                                            
                                            
                                            200,000
                                            
                                            03,315,000
                                            
                                            1,248,500
                                            
                                            
                                            2,066,500
                                            
                                            0





The
weighted average fair value of the December 2006 Options, the June 2007 Options
and the June 2009 Options granted on the date of grant, were $0.042, $0.046 and
$0.058 per option, respectively. At December 31, 2008 all future compensation
expenses were recognized.





There was
no aggregate intrinsic value of options outstanding and exercisable as of
December 31 2008 and December 31, 2007 The aggregate intrinsic value represents
the intrinsic value, based on options with an exercise price less than the
market value of the Company’s stock on December 31 2008 and December 31, 2007
which would have been received by the option holders had those option holders
exercised those options at of that date.


F-19





The
Company calculated the fair value of each option award on the date of grant
using the Black-Scholes option pricing model. The following assumptions were
used for each respective option.





The value of OptionsDecember
                                    2006 Options
                                  
                                  
                                  June 2007
                                    Options
                                  
                                  
                                  June 2009
                                    OptionsRisk-free
      interest rate
                                  
                                  
                                  2.17
                                  %
                                  
                                  2.28
                                  %
                                  
                                  2.66
                                  %Expected
      lives (in years)
                                  
                                  
                                  1.167
                                  
                                  
                                  1.417
                                  
                                  
                                  2.417Dividend
      yield
                                  
                                  
                                  0
                                  %
                                  
                                  0
                                  %
                                  
                                  0
                                  %Expected
      volatility
                                  
                                  
                                  100
                                  %
                                  
                                  100
                                  %
                                  
                                  100
                                  %




NOTE
16 - CONCENTRATION OF CUSTOMERS





During
the year, the following customers accounted for more than 10% of total
sales:





Years
      EndedDecember 31,2008
                        
                        2007Net
      sales derived from - Customer A
                        
                        
                        2,089,554
                        
                        2,969,259-
      Customer B
                        
                        
                        *
                        
                        4,885,231-
      Customer C
                        
                        
                        *
                        
                        *-Customer
      D
                        
                        
                        82,966
                        
                        *-
      Customer E
                        
                        
                        2,148,539
                        
                        *%
      to total net sales - Customer A
                        
                        
                        38%
                        
                        33%-
      Customer B
                        
                        
                        *
                        
                        54%-
      Customer C
                        
                        
                        *
                        
                        *-Customer
      D
                        
                        
                        1%-
      Customer E
                        
                        
                        39%Account
      receivable from - Customer A
                        
                        
                        232,750
                        
                        80,933-
      Customer B
                        
                        
                        *
                        
                        361,203-
      Customer C
                        
                        
                        50,671
                        
                        515,119-Customer
      D
                        
                        
                        56,681
                        
                        *-
      Customer E
                        
                        
                        244,657
                        
                        *%
      to total accounts receivable- Customer A
                        
                        
                        26%
                        
                        *-
      Customer B
                        
                        
                        *
                        
                        23%-
      Customer C
                        
                        
                        6%
                        
                        33%-Customer
      D
                        
                        
                        6%
                        
                        *-
      Customer E
                        
                        
                        27%
                        
                        *





* less
than 10%


F-20





Note
17 – GAIN (LOSS) PER SHARE





The
Company reported a gain of $0.02 per share for the year 2007 but a loss of
($0.27) per share for the year 2008. The loss of ($0.27) per share was
calculated based on the number of shares outstanding post 1:20 reverse stock
split effected in February 2008. If the reverse stock split had not happened,
the loss per share would be ($0.01).


F-21


Item 9.  Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure.





None.





Item
9A(T).   Controls and Procedures.




Evaluation
of Disclosure Controls and Procedures




Our
management evaluated our disclosure controls and procedures (as defined in Rule
13a-15(e) or Rule 15a-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) and internal control over financial reporting. The
evaluation was conducted under the supervision and with the participation of our
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the
effectiveness of the design and operation of our disclosure controls and
procedures (“Disclosure Controls”) as of the end of the period covered by this
report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation,
our CEO and CFO concluded that our Disclosure Controls were effective as of the
end of the period covered by this report. In addition, no change in internal
control over financial reporting occurred during the year ended December 31,
2008, that has materially affected, or is reasonably likely to materially
affect, such internal control over financial reporting. It should be noted that
any system of controls is based in part upon certain assumptions designed to
obtain reasonable (and not absolute) assurance as to its effectiveness, and
there can be no assurance that any design will succeed in achieving its stated
goals. Notwithstanding this caution, the CEO and CFO have reasonable assurance
that the disclosure controls and procedures were effective as of December 31,
2008.




Management’s
Report on Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act.  The Company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles in the United States of America.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with internal control policies or procedures may
deteriorate.




Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control - Integrated
Framework.  Management’s assessment included evaluating the
design of the Company’s internal control over financial reporting and testing of
the operational effectiveness of the Company’s internal control over financial
reporting.  Based on our assessment, we concluded that, as of December
31, 2008, the Company’s internal control over financial reporting was effective
based on the criteria issued by COSO in Internal Control – Integrated
Framework.




This
report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.





Changes
in Internal Controls





There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended) during the quarter ended December 31, 2008 that have materially
affected, or are reasonably likely to materially affect, our international
control over financial reporting.


25





Item
9B.  Other Information.





None.





PART
III





Item
      10.
            Directors,
      Executive Officers, and Corporate
Governance





As of
December 31, 2008 and as of the date of the filing of this report, the
directors and executive officers of the Company, their ages, positions in the
Company, the dates of their initial election or appointment as director or
executive officer, and the expiration of the terms as directors (if applicable)
were as follows:





Name
                
                Age
                
                Position
                
                SinceYi
      He
                
                42
                
                Chief
      Executive Officer, Chairman of theboard
      of directors
                
                August
      2001Hongkeung
      Lam
                
                56
                
                Chief
      Financial Officer, ChiefAccounting
      Officer, Secretary andDirector
                
                August
      2001Guoliang
      Tian
                
                69
                
                Director
                
                May
      2003Yu
      Fang
                
                62
                
                Director
                
                May
      2003Zhenying
      Sun
                
                52
                
                Director
                
                November
      2006





The
Company's directors 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.





Yi He has
been a director of the Company since August 2001, and the Chief Executive
Officer since May 2003.  Mr. He is the founder of Beijing SLAIT Science
& Technology Development Limited Co., where he served as Chairman and
President from January 1998 to August of 2001.  From March 1993
to January 1998, Mr. He was the President of Beijing Sunny Computer System
Engineering Co.  Mr. He has a Master Degree in Computer Science from
Peking University.





Hongkeung
Lam has been the Chief Financial Officer, Chief Accounting Officer, Secretary
and a director of the Company since August 2001.  From July 2000 to
August 2001, Mr. Lam was 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.





Guoliang
Tian has been a director of the Company since May 2003.  Currently, Mr.
Tian is a professor with the Institute of Remote Sensing Applications at the
Chinese Academy of Sciences, where he has been employed since 1986, and he is in
charge of the study of natural disaster monitoring and
assessment.  His areas of expertise and studies involve the use of
remote sensing data to research and monitor geographic and atmospheric
changes.  He has published 105 papers and 4 books.  In 1965, Mr.
Tian received a degree in physics from Jilin University of China.





Yu Fang
has been a director of the Company since May 2003.  Currently Mr. Fang is a
professor at Peking University, where he has been employed since 1987.  He
has served as the Vice Director of the Institute of Remote Sensing and
Geographic Information System at Peking University since 2001.  From
1982 until 2000, he worked in the Department of Computer Science &
Technology at Peking University, and served as Vice Chairman of the Department
of Computer Science & Technology at Peking University from 1987 to 1999.
 His areas of expertise and studies are software engineering, geographic
information systems, management information systems, and parallel processing and
distribution systems.  He has written 68 articles and 5
books.  In 1982, Mr. Fang received a Masters Degree in Computer
Science at Peking University after graduating from the Department of Mathematics
at Peking University in 1968.


26





Zhenying
Sun has been a director of the Company since November 2006.  Ms. Sun is
currently the President of New West International, Inc., a real estate
development and trading company, and she has held this position since 2001.
 Ms. Sun is also a director of Statelink International Group, Inc.
 From 2003 until the present, Ms. Sun has also served as the Finance
Director of Nanning New West Property & Investment Ltd.  Ms. Sun
graduated with a degree in accounting from Beijing Xicheng Finance & Trade
School in 1990.  Ms. Sun also graduated with a degree in accounting from
the Machine Industry Management Staff College, which she attended from 1990 to
1992.





Family
Relationships





There are
no family relationships between or among any of our current directors, executive
officers or persons nominated or charged by the Company to become directors or
executive officers.  There are no family relationships among our
officers and directors and the officers and directors of our direct and indirect
subsidiaries.





Involvement
in Certain Legal Proceedings




None of
our directors or executive officers has, during the past five
years:





(a)
            Had
      any bankruptcy petition filed by or against any business of which such
      person was a general partner or executive officer either at the time of
      the bankruptcy or within two years prior to that
  time;





(b)
            Been
      convicted in a criminal proceeding or subject to a pending criminal
      proceeding;





(c)
            Been
      subject to any order, judgment, or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction or any
      federal or state authority, permanently or temporarily enjoining, barring,
      suspending or otherwise limiting his involvement in any type of business,
      securities, futures, commodities or banking activities;
  and





(d)
            Been
      found by a court of competent jurisdiction (in a civil action), the
      Securities and Exchange Commission or the Commodity Futures Trading
      Commission to have violated a federal or state securities or commodities
      law, and the judgment has not been reversed, suspended, or
      vacated.





Audit
Committee and Audit Committee Financial Expert Disclosure





The
Company does not have a separately designated standing audit committee at this
time because it is not required to do so.  Accordingly, the Company does
not have an audit committee financial expert.





Material
Changes to the Procedures by which Security Holders May Recommend Nominees to
the board of directors




There
have been no material changes to the procedures by which security holders may
recommend nominees to the board of directors.





Code
of Ethics





On August
3, 2004, the board of directors established a written code of ethics that
applies to the Company’s senior executive and financial officers. A copy of the
code of ethics is posted on the Corporation’s web-site at
www.forlink.com.





Compliance
With Section 16(a) of the Securities Exchange Act of 1934





Section
16(a) of the Securities Exchange Act of 1934 requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (“SEC”). Officers,
directors, and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
 Based solely on review of copies of such reports received or written
representations from certain reporting persons, the Company believes that,
during the year ended December 31, 2008, all Section 16(a) filing requirements
applicable to its officers, directors and ten percent shareholders were in
compliance with SEC regulations.


27





Item
11.         Executive
Compensation.





The
following summary compensation table indicates the cash and non-cash
compensation earned for years ended December 31, 2008 and 2007 by our Chief
Executive Officer and each of our other two highest paid executives, whose total
compensation exceeded $100,000 (if any) for the years ended December 31,
2008 and 2007.





SUMMARY COMPENSATION TABLEName and Principal
                                    Position
                                  
                                  Year
                                  
                                  Salary
                                    ($)
                                  
                                  Bonus
                                    ($)
                                  
                                  Stock
                                    Awards
                                    ( $)
                                  
                                  Option
                                    Awards
                                    ($)
                                  
                                  Non-Equity
                                    Incentive Plan
                                    Compensation
                                    ($)
                                  
                                  Nonqualified
                                    Deferred
                                    Compensation
                                    Earnings
                                    ($)
                                  
                                  All Other
                                    Compensation
                                    ( $)
                                  
                                  Total
                                    ($)Yi
      He,
                                  
                                  
                                  2008
                                  
                                  43,407
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  43,407current
      CEO (1)
                                  
                                  
                                  2007
                                  
                                  108,105
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  108,105





1 Yi He
became the Company’s Chief Executive Officer on May 15, 2003.  Mr. He
is not compensated for his services as a director of the Company.





Outstanding
Equity Awards at Fiscal Year-End




There
were no unexercised options, unvested stock awards or equity incentive plan
awards for any of the above-named executive officers outstanding as of December
31, 2008.




Employment
Agreements, Termination of Employment and Change-in-Control Arrangements with
our Executive Officers





We
currently have no employment agreements with any of our executive officers, nor
any compensatory plans or arrangements resulting from the resignation,
retirement or any other termination of any of our executive officers, from a
change-in-control, or from a change in any executive officer’s responsibilities
following a change-in-control.





Compensation
of Directors





The
Company paid no compensation to its directors for any services provided as
a director during the year ended December 31, 2008.  There are no
other formal or informal understandings or arrangements relating to
compensation; however, the directors may be reimbursed for all reasonable
expenses incurred by them in conducting the Company’s business.  These
expenses would include out-of-pocket expenses for such items as travel,
telephone, and postage.  For the fiscal year 2008, none of the directors
received reimbursement payments from the Company.





Indemnification
of Officers and Directors





We are a
Nevada corporation, and accordingly, we are subject to the corporate laws under
the Nevada Revised Statutes. Article XII of our articles of incorporation
contains the following indemnification provision for our directors and
officers:





No
director or officer of the Corporation shall be personally liable to the
Corporation or any of its stockholders for damage for breach of fiduciary duty
as a director or officer involving any act or omission of any such director or
officer provided, however, that the foregoing provision shall not eliminate or
limit the liability of a director or officer for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation to acts or
omissions prior to such repeal or modification.





Such
indemnification provision may be sufficiently broad to permit indemnification of
our executive officers and directors for liabilities (including reimbursement of
expenses incurred) arising under the Securities Act of 1933.


28





Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provision, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. No pending material
litigation or proceeding involving our directors, executive officers, employees
or other agents as to which indemnification is being sought exists, and we are
not aware of any pending or threatened material litigation that may result in
claims for indemnification by any of our directors or executive
officers.





We do not
currently carry directors’ and officers’ liability insurance covering our
directors and officers, nor do we have plans to do so. Insofar as
indemnification for liabilities under the Securities Act may be permitted to
directors, officers, or persons controlling the Company pursuant to the
foregoing provisions, we have been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.





Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.





The following table sets forth certain
information with respect to the beneficial ownership of our common stock as of
March 14, 2009, by: (i) each person known to beneficially own more than five
percent of our common stock; (ii) each of our officers, directors and nominees
for election as director; and (iii) all of our directors and executive officers
as a group.





The number of shares beneficially owned
by each director or executive officer is determined under rules of the SEC, and
the information is not necessarily indicative of beneficial ownership for any
other purpose. Under the SEC rules, beneficial ownership includes any shares as
to which the individual has the sole or shared voting power or investment power.
In addition, beneficial ownership includes any shares that the individual has
the right to acquire within 60 days. Unless otherwise indicated, each person
listed below has sole investment and voting power (or shares such powers with
his or her spouse). In certain instances, the number of shares listed includes
(in addition to shares owned directly), shares held by the spouse or children of
the person, or by a trust or estate of which the person is a trustee or an
executor or in which the person may have a beneficial
interest.




Title of Class
                        
                        Name and Address of Beneficial
                          Owner
                        
                        Amount and Nature of
                          Beneficial Ownership3
                        
                        
                        Percentage Owned
                          Beneficially5Common
      Stock
                        
                        Yi
      He1
                        
                        
                        1,290,001
                        
                        
                        
                        27.8
                        %Common
      Stock
                        
                        Hongkeung
      Lam1
                        
                        
                        525,000
                        
                        
                        
                        11.3
                        %Common
      Stock
                        
                        Guoliang
      Tian1
                        
                        
                        -0-
                        
                        
                        
                        —Common
      Stock
                        
                        Yu
      Fang1
                        
                        
                        -0-
                        
                        
                        
                        —Common
      Stock
                        
                        Zhenying
      Sun1
                        
                        
                        650,0004
                        
                        
                        
                        14.0
                        %Common
      Stock
                        
                        Jing
      Zeng2
                        
                        
                        288,000
                        
                        
                        
                        6.2
                        %Common
      Stock
                        
                        Statelink
      International Group, Ltd.2
                        
                        
                        650,0004
                        
                        
                        
                        14.0
                        %Common
      Stock
                        
                        All
      officers and directors of the Company as a group (five
      persons)
                        
                        
                        2,465,001
                        
                        
                        
                        53.1
                        %





1 An
officer and/or director of the Company.  The address for each officer
and director is in care of the Company at 9/F Shenzhou Mansion, No. 31
Zhongguancun Street, Haidian District, Beijing, China.





2A
beneficial owner of more than five percent of the Company’s common
stock.  The address for each beneficial owner is in care of the
Company at 9/F Shenzhou Mansion, No. 31 Zhongguancun Street, Haidian District,
Beijing, China.





3Unless
otherwise indicated, all shares are directly owned and investing power is held
by the persons named in the table.





4These
shares of common stock are held directly by Statelink International Group, Ltd.,
of which Ms. Sun is the controlling person and has both voting and dispositive
power over these shares.





5Based
upon 4,651,173 shares of Common Stock outstanding as of March 14,
2009.


29





Equity
Compensation Plan Information





As of
December 31, 2008, we did not have any equity compensation plan in
effect.  The Company’s 2002 Stock Plan, which was adopted on August
16, 2002, expired as of August 15, 2007, pursuant to the terms of such plan. The
plan had not been approved by our shareholders prior to its
expiration.





Item
13.         Certain Relationships
and Related Transactions, and Director Independence.





Transactions
with Related Person





The
Company, from time to time, received from or made repayments to Mr. Yi He, who
is a major stockholder and our Chief Executive
Officer.  The amounts due from/to stockholders do not bear any
interest and do not have clearly defined terms of repayment.  The
amounts due from stockholders as of December 31, 2008 and December 31, 2007,
which were $75,734.26 and $237,631.08 respectively, represented travel advances
to Mr. Yi He. The amounts due to stockholders as of December 31, 2008 and
December 31, 2007, which were $378,672 and $325,251, respectively, represented
advances from stockholders.





Other
than the transactions described above, we have not entered into any transactions
with our officers, directors, persons nominated for these positions, beneficial
owners of 5% or more of our common stock, or family members of these persons
since the beginning of our last fiscal year wherein the amount involved in the
transaction or a series of similar transactions exceeded $120,000.





Director
Independence





The
Company has determined that the following directors are independent under the
independence standards of NASDAQ Marketplace Rule 4200(a)(15): Guoliang Tian, Yu
Fang and Zhengying Sun.  In determining independence, the Board
reviews and seeks to determine whether directors have any material relationship
with the Company, direct or indirect, which would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. The
Board reviews business, professional, charitable and familial relationships of
the independent directors in determining independence.





Item
14.         Principal Accounting
Fees and Services.





Change
of Auditor





Our
current principal independent auditor is Kenne Ruan, CPA, P.C. (“Kenne Ruan”),
whom we engaged on January 16, 2008, after dismissal of our prior principal
independent auditor, BDO McCabe Lo Limited, Certified Public Accountants
(“BDO”).  BDO performed the audit for the fiscal year ended December
31, 2006 and reviewed the Company’s unaudited financial statements through the
quarter ended September 30, 2007.  The following are the services
provided and the amounts billed.





Audit
Fees





The
aggregate fees billed for professional services rendered by Kenne Ruan, CPA,
P.C. for the audit of our 2008 annual financial statements and the reviews of
the financial statements included in our quarterly reports on Form 10-Q for
fiscal year 2008 were $100,000.  The aggregate fees billed for
professional services rendered by Kenne Ruan for the audit of our 2007 annual
financial statements and the reviews of the financial statements included in our
quarterly reports on Form 10-QSB for fiscal year 2007 were
$82,400.





The
aggregate fees billed for professional services rendered by BDO for reviews of
the financial statements included in our quarterly reports on Form 10-QSB during
fiscal year 2007 were $32,400.





Audit-Related
Fees





There
were no other fees billed by Kenne Ruan during the last two fiscal years for
assurance and related services that were reasonably related to the performance
of the audit or review of the Company’s financial statements and not reported
under “Audit Fees” above.


30





There
were no other fees billed by BDO during fiscal year 2007 for assurance and
related services that were reasonably related to the performance of the review
of the Company’s financial statements and not reported under “Audit Fees”
above.





Tax
Fees





There
were no fees billed for professional services rendered by Kenne Ruan for tax
compliance services in fiscal years 2008 and 2007.





There
were no fees billed for professional services rendered by BDO for tax compliance
services in fiscal year 2007.





All
Other Fees





There
were no other fees billed by Kenne Ruan during the last two fiscal years for
products and services provided by Kenne Ruan outside of those fees disclosed
above under “Audit Fees.”





There
were no other fees billed by BDO during fiscal year 2007 for products and
services provided by BDO outside of BDO’s fee disclosed above under “Audit
Fees.”





Pre-Approval
Policy and Procedures





The
Company’s board of directors reviews and approves audit and permissible
non-audit services performed by our auditors, as well as the fees charged for
such services.  In reviewing the non-audit service fees and
appointment of the Company’s auditors, the board of directors considered whether
the provision of such services is compatible with maintaining the auditors’
independence.  All of the services provided and fees charged by our
auditors were pre-approved by the board of directors.





Item
      15.
            Exhibits.





(1) Financial
Statements





The
following consolidated financial statements of the Company are included in Part
II, Item 8 of this report:





Report of
Kenne Ruan, CPA, P.C., Independent Auditors




Consolidated
Balance Sheets at December 31, 2008 and 2007




Consolidated
Statements of Operations and Comprehensive Income for the Years Ended December
31, 2008 and 2007




Consolidated
Statements of Stockholders’ Equity for the Years Ended December 31, 2008 and
2007




Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008 and
2007




Notes to
Consolidated Financial Statements





(2)
Financial Statement Schedules




Schedules
are omitted because the required information is not present or is not present in
amounts sufficient to require submission of the schedule or because the
information required is given in the consolidated financial statements or the
notes thereto.


31




(3)
Exhibits





ExhibitNumber
              
              Description3.1
              
              Articles
      of Incorporation, as amended. (Incorporated by reference to Exhibit No.
      3.1 of the Form 10-QSB for the quarter ended March 31, 2000, and filed on
      May 13, 2000.)3.2
              
              Certificate
      of Amendment to Increase Number of Authorized Shares of Common Stock as
      filed with the Nevada Secretary of State on April 4, 2007 (Filed
      herewith)3.3
              
              Certificate
      of Amendment to Effect a 1-for-20 Reverse Stock Split as filed with the
      Nevada Secretary of State on February 21, 2008 (Filed
      herewith)3.4
              
              Bylaws
      dated May 11, 2000. (Incorporated by reference to Exhibit No. 3.2 of the
      Form 10-QSB for the quarter ended March 31, 2000, and filed on May 13,
      2000.)3.5
              
              Text
      of Amendment to Bylaws of Forlink Software Corporation, Inc. (Incorporated
      by reference to Exhibit 3.3 of the Company’s Form 8-K filed on January 18,
      2007.)10
              
              Transfer
      of “Right to Invest” and Project Cooperation Agreement dated October 3,
      2006, by and between the Company and Statelink International Group, Ltd.
      (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report
      on Form 8-K (file no. 000-18731) filed October 10,
  2006.)14
              
              Code
      of Ethics (Filed herewith.)21
              
              List
      of Subsidiaries (Filed herewith.)31.1
              
              Section
      302 Certification by the Corporation’s Chief Executive
      Officer.  (Filed herewith.)31.2
              
              Section
      302 Certification by the Corporation’s Chief Financial
      Officer.  (Filed herewith.)32.1
              
              Section
      906 Certification by the Corporation’s Chief Executive
      Officer.  (Filed herewith.)32.2
              
              Section
      906 Certification by the Corporation’s Chief Financial
      Officer.  (Filed
herewith.)


32


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





FORLINK
      SOFTWARE CORPORATION, INC.(Registrant)Date:
      March 30, 2009
                        By:
                        /s/
      Yi HeYi
      HeChief
      Executive OfficerDate:
      March 30, 2009
                        By:
                        /s/
      Hongkeung LamHongkeung
      LamChief
      Financial and Accounting
Officer





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





Date:
      March 30, 2009
                                    By:
                                    /s/
      Yi HeYi
      He, DirectorDate:
      March 30, 2009
                                    By:
                                    /s/
      Hongkeung LamHongkeung
      Lam, DirectorDate:
      March 30, 2009
                                    By:
                                    /s/
      Guoliang TianGuoliang
      Tian, DirectorDate:
      March 30, 2009
                                    By:
                                    /s/
      Yu FangYu
      Fang, DirectorDate:
      March 30, 2009
                                    By:
                                    /s/
      Zhenying SunZhenying
      Sun,
Director


33