**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





x
      ANNUAL REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For
      the
      fiscal year ended **December
      31, 2006**





o
      TRANSITION REPORT UNDER
      SECTION 13 OR 15(d) OF THE EXCHANGE ACT




For
      the
      transition period from: ______________ to __________


Commission
      file number: 0-18731




**Commission
      file number: 0-18731**




**FORLINK
      SOFTWARE CORPORATION, INC.**


(Exact
      name of small business issuer as specified in it charter)




**Nevada**
            
            **87-0438458**(State
                or other jurisdiction of incorporation or
            
            (IRS
                Employer Identificationorganization)
            
            No.)





**9F
      Fang Yuan Mansion, No. 56, ZhongGuanCun South Road
      Yi,**


**Haidian
      District, Beijing, P.R. China**


(Address
      of principal executive offices)




**011-8610
      8802 6368**


(issuer’s
      telephone number)




N/A





(Former
      name, former address and former fiscal year, if changed since last
      report)





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:





Common
      stock, $0.001 par value


(Title
      of
      Class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.  Yes
x
      No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant's knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. 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
      issuer's revenues for the fiscal year ended December 31, 2006: $ 6,917,640.





As
      of
      March 14, 2007, the aggregate market value of the Common Stock held by
      non-affiliates, approximately 40,790,332 shares of Common Stock, was
      approximately $4,486,936 based on an average of the bid and ask prices of
      approximately $0.11 per share of Common Stock on such date.





The
      number of shares outstanding of the issuer's Common Stock, $.001 par value,
      as
      of March 14, 2007 was 89,924,707
      s hares.





Documents
      Incorporated By Reference: None.





Transitional
      Small Business Disclosure Format (check one): Yes o No x







TABLE
      OF
      CONTENTS


TO
      ANNUAL
      REPORT ON FORM 10-KSB


FOR
      YEAR
      ENDED DECEMBER 31, 2006


PagePART
                  IItem
                  1.
              
              
              Description
                  of Business
              
              
              4Item
                  2.
              
              
              Description
                  of Property
              
              
              11Item
                  3.
              
              
              Legal
                  Proceedings
              
              
              12Item
                  4.
              
              
              Submission
                  of Matters to a Vote of Security Holders
              
              
              12PART
                  IIItem
                  5.
              
              
              Market
                  for Registrant's Common Equity and Related Stockholder
                  Matters
              
              
              13Item
                  6.
              
              
              Management's
                  Discussion and Analysis or Plan of Operation
              
              
              14Item
                  7.
              
              
              Financial
                  Statements
              
              
              27Item
                  8.
              
              
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              
              
              29Item
                  8A.
              
              
              Controls
                  and Procedures
              
              
              29Item
                  8B.
              
              
              Other
                  Information
              
              
              29PART
                  IIIItem
                  9.
              
              
              Directors,
                  Executive Officers, Promoters and Control Persons and Corporate
                  Governance; Compliance with Section 16(a) of the Exchange
                  Act
              
              
              30Item
                  10.
              
              
              Executive
                  Compensation
              
              
              32Item
                  11.
              
              
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              
              
              34Item
                  12.
              
              
              Certain
                  Relationships and Related Transactions; Director
                  Independence
              
              
              36Item
                  13.
              
              
              Exhibits
              
              
              36Item
                  14.
              
              
              Principal
                  Accountant Fees and Services
              
              
              37Signatures
              
              
              
              
              
              39




(REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK)




2


**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. 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.





3


**PART
      I**





**Item
      1.**  **Description
      of Business.**





**Company
      History and Recent Developments**





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"), 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”).





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.
      By
      virtue of the share exchange, SLAIT became a wholly-owned subsidiary of the
      Company. The Company also agreed to transfer RMB1,085,000 (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. SLAIT provides 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 have been gradually shifted to Forlink
      Technologies Co., Ltd. (“FTCL”). On February 13, 2004, SLAIT was officially
      dissolved in accordance with relevant PRC regulations. FTCL is the major
      operating company of Forlink in Beijing.





On
      June
      18, 2003, Forlink Technologies (Hong Kong) Limited (“FTHK”) was incorporated in
      Hong Kong 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 a privately held PRC company, All China Logistics
      Online Co., Ltd. ("All China"), 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 and its sole software
      solution provider. FTHK is also responsible for directly importing hardware
      needed in the integration products from overseas companies, and which allows
      us
      to improve our hardware pass-through profit margin.





On
      June
      14, 2004, Forlink Technologies (Chengdu) Limited ("FTCD") was established as
      a
      limited liability company in Chengdu, PRC and subsequently it became a wholly
      owned subsidiary of FTHK in September 2004. FTCD is our software supporting
      office that is currently under initial development stage. Upon completion,
      it
      will be responsible for software outsourcing projects 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. The registered capital of FTCD is $5,000,000 and the fully paid up
      capital was $880,000 as of September 30, 2006.





4




In
      compliance with PRC’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 (RMB1,000,000) and has been fully paid
      up
      by March 31, 2005. Mr. Yi He and Mr. Wei Li were entrusted as nominee owners
      of
      BFHX to hold 70% and 30%, respectively, of the fully paid up capital of BFHX
      on
      behalf of Forlink, and Forlink is the primary beneficiary. BFHX is considered
      a
      Variable Interest Entity ("VIE") and because Forlink is the primary beneficiary,
      Forlink's consolidated financial statements include BFHX. Upon the request
      of
      Forlink, Mr. Yi He and Mr. Wei Li are required to transfer their ownership
      in
      BFHX to Forlink or to designees of Forlink at any time for the amount of the
      fully paid up capital of BFHX. Mr. Yi He is the Chief Executive Officer, a
      director and a major stockholder of Forlink. Mr. Wei Li is the administration
      manager of FTCL.





Through
      BFHX, on September 28, 2004, we invested $36,232 in Huntington Network
      Technologies (Beijing) Co., Ltd., which is a privately held PRC company and
      operates the Gmgame.com, in exchange for 30% equity interests. Gmgame.com is
      a
      fast growing online game portal committed to providing Chinese players with
      the
      widest variety of online games available. This investment enables us to enter
      a
      fast growing market and utilize our IT expertise to further diversify our
      revenues.





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. It is planned for BFKT to provide
      software and operation support to IPTV (Internet Protocol Television) operators.





On
      March
      28, 2005, BFKT acquired 90% and 95% of shares of Qingdao Jiashi Technologies
      Limited (“QJT”) and Xiamen Kuanshi Technologies Limited (“XKT”), respectively.
      Both QJT and XKT were originally established by Mr. Yi He and Mr. Wei Li on
      March 4, 2005 and March 7, 2005 respectively. Pursuant to the agreement reached
      between BFHX and Mr. Wei Li, Mr. Wei Li was entrusted as nominee owner of QJT
      and XKT to hold 10% and 5%, respectively, of the fully paid up capital of QCT
      and XKT on behalf of BFHX and BFHX is the primary beneficiary. QCT and XKT
      did
      not commence operations since their respective dates of establishment, and
      both
      companies were deregistered in late 2006. A loss on disposal of XKT and QJT
      of
      $1,195 was incurred.





On
      October 24, 2005, Forlink entered on a definitive agreement to acquire a 17.5%
      equity interest from China Liquid Chemical Exchange Company Limited (“CLCE”), a
      limited liability company in PRC. Under the terms of the agreement, Forlink
      deployed the “For-online Electronic Trading System”, a proprietary, integrated
      software solution, to support the Exchange’s operations, including, but not
      limited to, online trading, online billing and payment, user authentication,
      customer care, in exchange for the 17.5% equity interest. This investment is
      expected to increase our return in this fast growing market.





On
      October 3, 2006, we entered into a Transfer of Right to Invest and Project
      Cooperation Agreement (“Statelink Agreement”) with, and acquired 22.73%
      registered capital in Guangxi Caexpo International Trade and Logistics Co.,
      Ltd.
      (“Guangxi Caexpo”), a limited liability company incorporated in Guangxi, PRC,
      from, Statelink International Group, Ltd., a company incorporated in the British
      Virgin Islands (“Statelink”) for cash payment of $2,557,545 (RMB 20,000,000) by
      BFHX and issuance of 13,000,000 shares of our restricted common stock to
      Statelink. Thereafter, we also won the contract from Guangxi Caexpo (the
“Guangxi Contract”) to build an “Electronic Trade and Logistics Information
      Platform and Call Center” (the “ETLI Platform/Call Center”).





5




On
      October 12, 2006, we invested $31,969 (RMB 250,000) in Wuxi Stainless Steel
      Exchange Co., Ltd. (“Wuxi”), a limited liability company in Wuxi, PRC, for a
      12.5% equity interest. In addition, we have agreed to deploy a proprietary,
      integrated software solution (the “Software”), estimated at RMB 1,000,000 to
      support Wuxi’s operations.As of December 31, 2006, the Software has not yet been
      deployed.





On
      October 26, 2006, BFHX established a wholly owned subsidiary, Forlink
      Technologies (Guangxi) Limited (“FTGX”), as a limited liability company in
      Guangxi, PRC to perform the Guangxi Contract and build the ETLI Platform/Call
      Center. At the time of incorporation, BFHX injected RMB 20,000,000
      (approximately US$2,557,545) as registered capital to FTGX.





Except
      for FTCD, which is currently under development stage, all of our major group
      companies, i.e. FTCL, FTHK, BFHX and FTGX are operating companies. During the
      reporting period, none of the group companies’ operations were discontinued or
      dissolved. Set forth below is a diagram illustrating our corporate structure
      as
      of December 31, 2006:










**Subsequent
      Events**





On
      January 14, 2007, the Company entered into a Share Transfer Agreement with
      a
      major shareholder of Wuxi for transfer of 2.5% of the Company’s interest in Wuxi
      to the major shareholder for cash payment of RMB 500,000. After the transfer,
      the Company retains 10% equity interest in Wuxi.





**Overview
      of Our Business**





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.





6




We
      have
      four wholly owned subsidiaries, FTCL, FTHK, BFHX and FTGX. Through our
      subsidiaries, we are developing innovative products, solutions, project
      management skills, and the industry expertise necessary for the design and
      implementation of large-scale, specifications-intensive integrated application
      systems, software and Information Technology (“IT”) outsourcing services
      typically required by leading companies in telecom, logistic, finance,
      government, and other industry verticals.





Our
      head
      office is located in Beijing, with individual branch offices in Chengdu,
      Shenyang, Shanghai and Guangzhou. We also have a research and development
      (“R&D”) center located in Chengdu.





**Employees**





As
      of
      December 31, 2006, we have 278 employees, of which 270 are full-time.
      Approximately 244 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. As an incentive, we have created employee stock option
      plans that includes vesting provisions designed to encourage long-term
      employment.





**Products
      and Solutions**





Our
      application solutions are developed on Enterprise Application Integration (EAI)
      platforms. Some of our major product offerings include:





·
            ForOSS:
                Our solution for Business & Operation Support Systems (BSS/OSS) for
                telecom carriers, particularly China Mobile. It consists 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.





·
            ForRMS:
                Forlink Resources Management System is an integrated platform designed
                to
                improve enterprises and organizations’ resources management systems.





·
            For-Online:
                For-Online is an Enterprise Application Integration platform designed
                to
                deliver ASP (Application Service Provider) services over the internet.
                The
                applications that can be delivered over the internet include many
                of
                Forlink’s flagship products, such as ForRMS (Resources Management System),
                For-Mail (E-mail system), For-ISMG (Internet Short Message Gateway),
                For-Online Electronic Trading System, and other Web-related
                applications.





**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 R&D expenses in 2006 and 2005 were $ 1,730,760 and
      $ 1,315,654 ,
      respectively.





7




**Status
      of New Product or Service**





In
      May
      2004, we launched version 1.0 of “For-online”, which delivers enterprise
      applications and services over the Internet to Small and Medium-sized
      Enterprises (SMEs) in China. Since then, we have been continuously upgrading
      For-online to enhance its performance and to provide added features
      and functions. The current For-online version is 3.1, which was launched in
      September of 2006.





**Market
      Opportunities**





Based
      on
      our extensive market research and industry insights, we believe that the major
      market opportunities for our business include the following: EAI (Enterprise
      Application Integration), ASP (Application Services Provider), Software and
      IT
      outsourcing.





**Our
      Strategy**





Our
      objective is to become a leading China-based professional company providing
      world class Enterprise Application Integration (EAI) solutions, software
      services, and IT outsourcing services by continuing to enable our customers
      to
      build, maintain, operate, manage and continuously improve their information
      systems and processes. The key aspects of our strategy include the
      following:





***Maximize
      revenue and reduce overall risk by applying shared core technologies &
platforms to different industry verticals.*** By
      capitalizing on our expertise in core technologies and utilizing them as share
      platforms and resources, we aim to become a leading IT solution provider for
      telecom, logistics, finance, government, and other industry verticals in China.
      We believe this strategy will increase our revenue and reduce overall risk.





***Expand
      our software outsourcing and ASP (Application Services Provider) services to
      enhance our value chains.*** Currently, we are working with University of Sichuan, a prestigious university
      in Southern China, to establish and improve our software factory’s outsourcing
      services and ASP services. We are also increasing our investments in these
      areas. As an important milestone, we have achieved Level 2 (Managed Level of
      Software Process Maturity) of Capability Maturity Model® Integration (CMMI). The
      CMMI project is a key technical initiative at the Software Engineering Institute
      (SEI). Based on the internationally recognized Capability Maturity Model (CMM®)
      framework for software process improvement, CMMI provides an integrated approach
      to process improvement. It is a new and more demanding model for assessing
      a
      company's software engineering capability and the maturity of an organization's
      processes. As an internationally recognized CMMI Level 2 company, our software
      factory can provide trusted software outsourcing services at a lower price
      for
      overseas companies. At the same time, our research and development capabilities
      will enhance our value chains by serving as a shared support platform for our
      other services, including our EAI and ASP services. We believe our
      investments in the above-described areas will enhance our value chains and
      further consolidate our leading position as a professional software and IT
      services provider.





***Improve
      corporate governance and financial standing.*** To
      maximize our shareholders’ value, we are continuously striving to improve our
      corporate governance and our financial standing. It is our goal to apply for
      NASDAQ listing in the future when the listing requirements are met.





**Our
      Competitive Strengths**





·
            ***Professional
                Software Development And Services System***.





Forlink
      has passed the ISO9001:2000 international quality assurance system certification
      and CMMI (Capability Maturity Model Integration) Level 2 certification. This
      indicates that Forlink’s software development and services system is in
      compliance with international standards. 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.




8




·
            ***Fourteen
                Years Of Experience In Industry Applications With Proven Solutions
                And
                Products.***





Forlink
      developed the core application software products such as ForOSS and ForRMS
      based
      on standardized application integration technologies. Recognized by our
      customers, partners and suppliers as a dependable provider of high quality
      services, solutions and products, our previous work has not only strengthened
      relationships but has continually provided new opportunities, as those who
      we
      deal with usually recommend us to those they deal with. Forlink is widely
      approbated by customers for its abundant application integration experience
      and
      proven solutions and products. For example, Forlink has been ranked as a Class
      A
      integration services provider by China Mobile (a global Fortune 500 enterprise)
      for our OSS (Operation Support System), and top 5 leading billing solutions
      provider according to the regular performance review of the solutions by China
      Mobile.





·
            ***Established
                Customer
                Relationships.***





Because
      of our successful track of 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 and further strengthen our
      relationships. 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 customers.





·
            ***A
                Strong And Stable Management
                Team.***





The
      current management team includes pioneers of Application Integration
      Technologies in China. The backgrounds of the individuals in our management
      offer a depth and breadth of experience that is capable of covering all aspects
      related to the control and development of AIT systems. Beyond expertise in
      the
      field, their close working relationships with major long-term customers
      demonstrates a proven ability to sustain and cultivate a successful business.
      The current management team has remained consistent since the commencement
      of
      our business.





**Our
      Strategic Partners**





Partner
      strategies are essential elements of our business model. At this time, we have
      four types of partners that contribute to a continued success of our
      business.





·
            ***Product
                Partners.*******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 for The Excellent sales
                achievement prize in 1999 and the Best Co-operation prize in
                1999.





·
            ***Technology
                Development Partners***.
                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.




9




·
            ***Marketing
                and Product Partners.***These partners provide products and/or technology to be 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.





·
            ***Distribution
                Partners***.
                These partners distribute our solutions and products to our customers.
                Our
                distribution partners include Beijing Federal.





**Competitive
      Conditions**





The
      market for information technology services in China is rapidly growing and
      changing. We compete with both international and local companies. Our principal
      competitors in application integration services are AsiaInfo, Linkage
      Technology, and Digital China. Our principal competitors in the ASP (Application
      Services Provider) field include UFSOFT, MYCRM, and HAN Consulting. Our
      principal competitors in software outsourcing include Neusoft, Dalian HaiHui,
      and China Software & Technology Corporation.





**Government
      Regulation**





The
      Chinese government has generally encouraged the development of the information
      technology industry, and the products and services we offer are not currently
      subject to extensive government regulations.





**Dependence
      on Major Customers**





As
      of
      December 31, 2006, approximately 71% of the Company's total net revenues were
      generated by two customers who each accounted for more than 10% of such
      revenues. The loss of any and/or all of these customers could have a material
      adverse effect on our business.





Our
      largest customer has been Beijing Mobile Communication Company, which is a
      subsidiary of China Mobile. Since 1998, we have been developing and maintaining
      BOSS (Business Operation Support System) for the carrier. BOSS is an integrated
      software platform and it is developed in stages to accommodate the carrier’s
      increasing subscribers and service offerings. We are currently developing and
      maintaining phase two of BOSS.





During
      the fiscal years ended December 31, 2002, 2003, 2004 and 2005, 2006 sales to
      Beijing Mobile Communication Company were, $8,229,159, $8,999,662, $9,002,191,
      $4,122,370 and $4,244,266 respectively, and such sales accounted for, 88%,
      96%,
      89% 70% and 61% of our revenue for these periods, respectively.





Although
      we are an important strategic IT partner of Beijing Mobile, we do not have
      long-term contracts with the carrier. All of our agreements with the carrier
      are
      for short-term projects or sales of third-party hardware. While we feel that
      our
      significant relationships with Beijing Mobile will likely provide additional
      sales agreements in the future, Beijing Mobile 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.





As
      discussed above, the Company won the Guangxi Contract in 2006 to build the
      ETLI
      Platform/Call Center. With the implementation of Guangxi Contract, we expect
      Guangxi Caexpo to be a major customer for the Company in the subsequent
      years.





**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.





10




As
      of
      December 31, 2006, we have been issued 52 patents in the PRC that are
      currently in force and we have 2 patent applications pending in the PRC. 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 every application
      we
      file. 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.





**SEC
      Reports Available on Website**





The
      Company’s Annual Report on Form 10-KSB, Quarterly Reports on Form 10-QSB,
      Current Reports on Form 8-K, and amendments to reports filed pursuant to
      Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended,
      are
      available free of charge through our website (http://www.forlink.com) when
      such
      reports are available on the U.S. Securities and Exchange Commission
      (“SEC”) website. The public may read and copy any materials filed by the
      Company with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW,
      Washington, DC 20549. The public may obtain information on the operation of
      the
      Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
      an
      Internet site that contains reports, proxy and information statements and other
      information regarding issuers that file electronically with the SEC at
      http://www.sec.gov. The contents of these websites are not incorporated into
      this filing. Further, the Company’s references to the URLs for these websites
      are intended to be inactive textual references only.





**Item
      2.  Description of Property.**





We
      currently rent our facilities at 9/F, 16/F Fang Yuan Mansion, No. 56
      Zhongguancun South Road Yi, Haidian District, Beijing, China and space at 11/F,
      Bin He Plaza, No.1 Che Dao Gou Road, Haidian District, Beijing, China.





We
      own an
      office in the city of Chengdu, PRC that serves as our software development
      center. It is located at B-16B, WangFuJing Business Mansion, No.5 HuaXingZheng
      Street, ChengDu, SiChuan Province, PRC.





11




In
      addition, we currently have three regional field support offices in the PRC,
      namely, in Shanghai, Chengdu and Guangzhou.





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 Matter to a Vote of Security Holders.**





The
      Company did not submit any matters to a vote of the shareholders in the fourth
      quarter of 2006.




12




**PART
      II**





**Item
      5.**  **Market
      for Registrant’s Common Equity and Related Stockholder
      Matters.**





The
      Common Stock of the Company is currently trading on the Over the Counter
      Bulletin Board system under the symbol "FRLK". There is no assurance that the
      Common Stock will continue to be quoted or that any liquidity exists for the
      Company’s shareholders.





The
      following table sets forth the range of high and low bid prices for the
      Company's Common Stock for each quarterly period indicated, as reported by
      the
      Yahoo’s Finance website. Quotations reflect inter-dealer prices without retail
      markup, markdown or commissions and may not represent actual
      trades.





Common
      Stock




Quarter
                Ended
            
            High
                Bid
            
            Low
                BidDecember
                31, 2006
            
            $
            0.22
            
            $
            0.07September
                30, 2006
            
            $
            0.09
            
            $
            0.02June
                30, 2006
            
            $
            0.07
            
            $
            0.02March
                31, 2006
            
            $
            0.10
            
            $
            0.06December
                31, 2005
            
            $
            0.12
            
            $
            0.06September
                30, 2005
            
            $
            0.11
            
            $
            0.07June
                30, 2005
            
            $
            0.17
            
            $
            0.07March
                31, 2005
            
            $
            0.23
            
            $
            0.17





**Holders**





As
      of
      March 14, 2007, there were 98,224,707 shares of the Company's common stock
      outstanding held of record by approximately 550 persons (not including
      beneficial owners who hold shares at broker/dealers in “street name”).




**Dividends**





The
      Company has never paid cash dividends on its Common Stock and does not intend
      to
      do so in the foreseeable future. The Company currently intends to retain its
      earnings for the operation and expansion of its business.





**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 pursuant to 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, 2006.





13





**Item
      6. 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.
      Althou gh
      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-KSB.
      Except for the historical information contained herein, the discussion in this
      Form 10-KSB contains certain forward-looking statements that involve risks
      and
      uncertainties, such as statements of our plans, objectives, expectations and
      intentions. The cautionary statements made in this Form 10-KSB should be read
      as
      being applicable to all related forward looking statements wherever they appear
      in this Form 10-KSB. The Company's actual results could differ materially from
      those discussed here.





**Overview**





We
      are a
      leading provider of software solutions and information technology services
      in
      China (the “PRC” or “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. For-online is quickly becoming an important new
      channel for delivering and distributing our products and services to more
      customers.





On
      August
      28, 2001, we completed the acquisition of Beijing Slait Science & Technology
      Development Limited Co. ("Slait"). Slait was engaged in the development and
      sale
      of network software systems and provision of enterprise application system
      integration services for telecommunication companies and network services
      providers in China. Slait was also engaged in the sale of computer hardware.
      Subsequent to the acquisition, the principal activities of Slait were gradually
      shifted to Forlink Technologies Co., Ltd. (“FTCL”). On February 13, 2004, Slait
      was officially dissolved in accordance with relevant PRC regulations. FTCL
      is
      the major operating company of the Group in Beijing.





We
      have
      derived, and believe that we will continue to derive, a significant portion
      of
      our revenues from Beijing Mobile Communication Company, a subsidiary of China
      Mobile. Since 1998, we have been developing and maintaining BOSS (Business
      Operation Support System) for the carrier. BOSS is an integrated software
      platform and it is developed in stages to accommodate the carrier’s increasing
      subscribers and service offerings. We are currently developing and maintaining
      phase two of BOSS.





Although
      we are an important strategic IT partner of Beijing Mobile, we do not have
      long-term contracts with the carrier. All of our agreements with the carrier
      are
      for short-term projects or sales of third-party hardware. While we feel that
      our
      significant relationships with Beijing Mobile will likely provide additional
      sales agreements in the future, Beijing Mobile is not contractually bound to
      purchase any products or services from us. Loss of this customer could hurt
      our
      business by reducing our revenues and profitability.




14




During
      the fiscal years ended December 31, 2002,
      2003, 2004, 2005, and 2006 sales to Beijing Mobile Communication Company were
      $ 8,229,159,
      $8,999,662, $9,002,191, $4,122,370, and
      $4,244,266 respectively,
      accounting for 88%,
      96%,
      89% , 70% and 61 %,
      of our
      revenue for these periods, respectively.





We
      believe that there are opportunities for us to expand into new business areas
      and to grow our business not only internally but through
      acquisitions.





On
      October 3, 2006, we entered into a Transfer of Right to Invest and Project
      Cooperation Agreement (“Statelink Agreement”) with, and acquired 22.73%
      registered capital in Guangxi Caexpo International Trade and Logistics Co.,
      Ltd.
      (“Guangxi Caexpo”), a limited liability company incorporated in Guangxi, PRC,
      from, Statelink International Group, Ltd., a company incorporated in the British
      Virgin Islands (“Statelink”) for cash payment of $2,557,545 (RMB 20,000,000) by
      BFHX and issuance of 13,000,000 shares of our restricted common stock to
      Statelink. Thereafter, we also won the contract from Guangxi Caexpo (the
“Guangxi Contract”) to build an “Electronic Trade and Logistics Information
      Platform and Call Center” (the “ETLI Platform/Call Center”).




On
      October 12, 2006, we invested $31,969 (RMB 250,000) in Wuxi Stainless Steel
      Exchange Co., Ltd. (“Wuxi”), a limited liability company in Wuxi, PRC, for a
      12.5% equity interest. In addition, we have agreed to deploy a proprietary,
      integrated software solution (the “Software”), estimated at RMB 1,000,000 to
      support Wuxi’s operations. As of December 31, 2006, the Software has not yet
      been deployed.





On
      October 26, 2006, BFHX established a wholly owned subsidiary, Forlink
      Technologies (Guangxi) Limited (“FTGX”), as a limited liability company in
      Guangxi, PRC to perform the Guangxi Contract and build the ETLI Platform/Call
      Center. At the time of incorporation, BFHX injected RMB 20,000,000
      (approximately US$2,557,545) as registered capital to FTGX. FTGX commenced
      business in late 2006.





For
      a
      description of our acquisitions and other business activities prior to 2006,
      please refer to the section entitled “Company History and Recent Developments”
under Item 1 (Description of Business) of Part I of this annual report.





15




**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:


Year
                  Ended December 31,2006
              
              2005Sales
                  of For-series software
              
              $
              2,722,368
              
              $
              2,545,383as
                  a percentage of net sales
              
              
              39
              %
              
              43
              %For-series
                  related system integration
              
              $
              4,195,272
              
              $
              3,366,940as
                  a percentage of net sales
              
              
              61
              %
              
              57
              %





As
      indicated in the foregoing table, sales of For-series software as a percentage
      of net sales decreased from 43 %
      in 2005 to 39 %
      in 2006,
      while sales of
      For-series related system integration as a percentage of net sales increased
      from 57 %
      in 2005 to 61 %
      in 2006. These
      changes were mainly attributable to our strategy of increasing software sales
      and reducing low profit margin hardware projects. And the increased sales of
      For-series related system integration was also attributable to increased
      competition in the system integration market.





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.





***Service
      Revenue***





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.





16




**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.





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, which are entities
      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, which is
      recognized as a New Technology Enterprise, was eligible for a full exemption
      from EIT for the fiscal years 1999, 2000, 2001 and 2002. FTCL also became
      eligible for a 50% EIT reduction at the rate of 7.5% for the fiscal years 2003,
      2004 and 2005.





Pursuant
      to an approval document dated January 19, 2004 issued by the State Tax Bureau,
      BFHX, which is recognized as a New Technology Enterprise, is eligible for full
      exemption from EIT for the fiscal years 2004, 2005 and 2006.





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





The
      EIT
      rates for FTCD, BFKT, QJT and XKT range from 15% to 33%. No provision for EIT
      was made for BFKT for
      the
      fiscal year 2006 as
      it had
      not commenced operations during the year. No provision was provided for QJT
      and XKT because both entities did not commence operations after they were
      established and both entities were deregistered during the year.





Revenue
      from the sale of hardware procured in China together with revenue from the
      related system integration is subject to a 17%
      value
      added tax. Although sales of software in China are subject to a 17% value added
      tax as well, companies that develop their own software and have the software
      registered are generally entitled to a value added tax refund. If the net amount
      of the value added tax payable exceeds 3% of software sales, the excess portion
      of the value added tax is refundable upon our application to the  tax
      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 Slait, FTCL, BFHX and FTCD is Renminbi (RMB) and the
      financial records are maintained and the financial statements are prepared
      in
      RMB.





17




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 would no longer
      peg its currency exclusively to USD but would instead 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, and
      this may 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.




Exchange
      rates between USD , HKD and
      RMB had minimal fluctuations during the periods presented. The rates
      ruling for 2006 and 2005 are USD 1: HKD 7.75:
      RMB
      7.82 and USD 1: HKD 7.75:
      RMB 8.11, respectively.





**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 r equires
      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;




18




·
            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.





In
      the
      case of consulting and implementation services revenues, where VSOE is based
      on
      prices from stand-alone sale transactions, and the 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.





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.





19




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 customer’s 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.





***Recent
      Accounting Pronouncements***





In
      February 2006, the FASB issued FAS 155, Accounting for Certain Hybrid Financial Instruments (FAS155), an amendment of FAS 140 and FAS 133. FAS155 permits the
      Company to elect to measure any hybrid financial instrument at fair value (with
      changes in fair value recognized in earnings) if the hybrid instrument contains
      an embedded derivative that would otherwise be required to be bifurcated and
      accounted for separately under
      FAS 133. The election to measure the hybrid instrument at fair value is made
      on
      an instrument-by-instrument basis and is irreversible. The Statement will be
      effective for all instruments acquired, issued, or subject to a re-measurement
      event occurring after the beginning of the Company’s fiscal year that begins
      after September 15.2006, with earlier adoption permitted as of the beginning
      of
      the Company’s 2006 fiscal year, provided that financial statements for any
      interim period of that fiscal year have not yet been issued. We do not expect
      the adoption of FAS155 will have a material impact on our financial position
      or
      results of operations.





20




In
      March
      2006, the FASB issued FAS 156 *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* (FAS
      156), an amendment to portions of FAS 133, FAS 140 and FTB 87-3. FAS 156
      requires that all separately recognized servicing assets and servicing
      liabilities be initially measured at fair value, if practicable. It also
      permits, but does not require, the subsequent measurement of servicing assets
      and servicing liabilities at fair value. Derivative instruments used to mitigate
      the risks inherent in servicing assets and servicing liabilities must be
      accounted for at faire value. Under FAS 156 an election can also be made for
      subsequent fair value measurement fo servicing assets and servicing liabilities by
      class ,
      thus
      simplifying the accounting and provide for income statement recognition of
      potential offsetting changes in the fair value of servicing assets, servicing
      liabilities and related derivative instruments. This Statement will be effective
      beginning the first fiscal year that begins after September
      15, 2006. We do not
      expect the adoption of FAS 156 will have a material impact on our financial
      position or results of operations.





In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes-an interpretation of FASB Statement No.
      109* ( FIN48).
      This Interpretation provides guidance for recognizing and measuring uncertain
      tax positions, as defined in SFAS No. 109, *Accounting
      for Income Taxed* .
      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 .
      FIN 48
      is effective for fiscal years beginning after December 15,
      2006. We do
      not expect that this Interpretation will have a material impact on our financial position ,
      results
      of operations or cash flows.





In
      June
      2006, the EITF reached consensus on and ratified EITF Issue 06-03, *How
      Taxes Collected from Customers and Remitted to Governmental Authorities Should
      Be Presented in the Income Statement* (EITF
      06-03). The scope of this Issue includes any tax assessed by a governmental
      authority that is directly imposed on a revenue-producing transaction between
      a
      seller and a customer and may include, but is not limited to, sales, use, value
      added, and some excise taxes. The Task Force concluded that the presentation
      of
      taxes within the scope of the Issue on either a gross (included in revenues and costs ) or a net ( excluded from revenues ) basis
      is
      an accounting policy decision that should be disclosed pursuant to Opinion
      22.
      In addition, for any such taxes that are reported on a gross basis, a company
      should disclose the amounts of those taxes in interim and annual financial
      statements for each period for which an income statement is presented if those
      amounts are significant. The disclosure of those taxes can be done on an
      aggregate basis. The consensus in this Issue should be applied to financial
      reports for interim and annual reporting periods beginning after December 15,
      2006. We believe the adoption of EITF
      06-03 will not have a material impact on our method for recording and reporting
      these types of taxes in our consolidated financial statements, as the Company’s
      policy is to exclude all such taxes from revenue.





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin (SAB) 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* .
      SAB 108
      provides guidance on how prior year misstatements should be taken into
      consideration when quantifying misstatements in current year financial
      statements for purposes of determining whether the current year’s financial
      statements are materially misstated. SAB
      108
      is effective for fiscal years ending on or after November 15, 2006. We adopted
      the provision of SAB 108 in fiscal year 2006, which had no impact on our
      financial statements.





21




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.





In
      September 2006, the FASB issued FAS 158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans* ( FAS
      158).
      FAS 158 requires employers to fully recognize the obligations associated with
      single-employer defined benefit pension, retiree healthcare and other
      postretirement plans in their financial statements. The requirement set forth
      in
      FAS 158 that we recognize the funded status of a benefit plan, and the
      disclosure requirements of FAS 158 are effective as of the end of the fiscal
      year ending after December 15, 2006 for entities with publicly traded equity
      securities. The requirement to measure plan assets and benefit obligations
      as of
      the date of the employer’s fiscal year-end statement of financial position is
      effective for fiscal years ending after December 15, 2008. The adoption of
      FAS
      158 did not have any effect on our financial position at December 31,
      2006.





**Consolidated
      Results of Operations**





**Year
      Ended December 31, 2006 Compared to Year Ended December 31,
      2005**





***Net*** ***Sales***





Our
      net
      sales increased
      17% to $6,917,640 in 2006, from $ 5,912,323 in 2005. Sales of For-series
      software increased 7 %
      to $2,722,368 in 2006, from $2,545,383 in 2005. Sales of
      For-series related system integration increased
      24% to $4,195,272from $3,366,940 in 2005. The
      increase in net sales was mainly attributable to our strategy of increasing
      software sales and reducing low profit margin hardware projects. The increased
      sales of For-series related system integration was also attributable to
      increased competition in the system integration market.





***Cost
      of*** ***Sales*** ***.***





Our
      cost
      of sales decreased 23%
      to $
      2,914,754 in 2006, from $ 3,772,620 in 2005. The
      decrease was mainly due to decreased hardware pass-through.





***Gross*** ***Profit*** ***.***





Gross
      profit increased
      87% to $4,002,886 in 2006, from $2,139,703 in 2005. The increase
      was mainly
      due to an increased percentage of
      net sales of
      software and service and decreased cost of sales. Gross profit
      margin increased 61% to
      58% in 2006, from 36% in 2005.





***Operating*** ****** ***Expenses*** ***.***





Total
      operating expenses increased 5% to $3,910,507 in 2006, from $3,711,242 in 2005.
      The increase resulted largely from increases in selling expenses, and research
      and development expenses.





Selling
      expenses increased 9% to $818,146 in 2006, from $750,264 in
      2005.
      This increase was primarily due to our increased advertising expenses and sales
      efforts to market our fast growing ASP (Application Service Provider) services
“For-online”, our IT outsourcing services, as well as our EAI (Enterprise
      Application Integration) services.





22




Research
      and development expenses increased 32% to $1,730,760 in 2006, from $1,315,654
      in
      2005 due to our continued focus on developing new products and solutions to
      increase our competitive advantages.





General
      and administrative expenses decreased 17% to $1,361,601 in 2006, from $1,645,324
      in 2005. The decrease
      was primarily due to
      reduced rent
      expenses.





***Operating*** ***Profit*** ***(*** ***Loss*** ***).***





We
      recorded an operating profit of
      $92,379 in 2006
      as
      compared to an
      operating loss of $ 1,571,539
      in 2005, an increase of 106%. The increase was
      largely due to increased
      net sale s,
      and
      decreases in cost of
      sales and general
      and administrative expenses, as discussed above.





***Other
      income***





Our
      other
      income increased 14% to $210,724 in 2006, from $184,029 in 2005. This increase
      was mainly due to increased software sales. Our other income comes from a value
      added tax refund associated with software sales. Software sales in China are
      subject to a 17% value added tax. However, companies that develop their own
      software and have the software registered are generally entitled to a value
      added tax refund. If the net amount of the value added tax payable exceeds
      3% of
      software sales, then the excess portion of the value added tax is refundable
      to
      us upon our application to tax authority. This policy is effective until
      2010 .





***Net
      (*** ***Loss*** ***)
      /*** ***Profit*** ***.***





We
      recorded a net income
      of $305,497
      in 2006, or basic and diluted profit of $0.00 per share, as compared to net loss
      of $1,394,177 in 2005, or basic and diluted loss
      of $0.02
      per share.





**Liquidity
      and Capital Resources**





Our
      capital requirements are pr imarily
      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.




Our
      accounts receivable balance at December 31, 2006 was $1,886,251, as compared
      to
      $861,000 at the end of 2005. The increase is mainly attributable to receivables from
      Beijing Mobile
      and All China Logistics Online Co., Ltd.





Our
      inventory position at the end of 2006 was $34,182, as compared to $264,839
      at
      the beginning of the year. At the end of 2005, we had several inventory items
      in
      the process of delivery to Beijing Mobile. This caused the 2005 year-end
      inventory to
      be larger
      than usual.





We
      ended
      the year with a cash position of $427,195. We had positive operating cash flow
      of $1,852,296, primarily due to net profit and an increase in customer
      deposits.





23




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 2006.
      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, 2006 , we have
      not entered into any off-balance sheet arrangements with any individuals or
      entities.





**Contractual
      Obligations**





As
      of
      December 31, 2006, we had commitments under non-cancelable operating leases
      requiring annual minimum rental payments as follows:


**Date**
              
              **Rent
                  Payment Due**January
                  1, 2007 to December 31, 2007
              
              $
              164,309January
                  1, 2008 to December 31, 2008
              
              $
              3,227





**Related
      Party Transactions**





The
      Company, from time to time, received from or made repayments to one
      major
      stockholder who is also a member of the management of the Company. The amounts
      due from/to stockholders do not bear any interest and do not have clearly
      defined terms of repayment.




As
      of
      December 31, 2006 and December 31, 2005, the amounts due to stockholders
      represented advances from stockholders.





Mr.
      Yi
      He, an officer and director of the Company, purchased the building located
      in
      Chengdu on behalf of the Company. By a stockholders' resolution passed on March
      8, 1999, it was ratified that the title to the building belonged to SLAIT.
      The
      building has been pledged as collateral for the mortgage loan granted to Mr.
      Yi
      He. The related mortgage still remains in the name of Mr. Yi He, however the
      Company has agreed to pay Mr. Yi He amounts equal to the required mortgage
      payments. In the last quarter of 2005, the mortgage loan was fully repaid and
      the title to the building was transferred to the Company.





To
      comply
      with PRC laws and regulations, Forlink conducts its Internet value-added
      services in PRC via Beijing Forlink Hua Xin Technology Co. Ltd. (“BFHX”). BFHX
      was established in PRC on September 19, 2003 as a limited liability company.
      The
      registered capital of BFHX is $120,733 (RMB1,000,000) and the fully paid up
      capital was $36,232 (RMB300,000) as of December 31, 2004. In accordance with
      a
      directors’ resolution of Forlink passed on September 15, 2003, Mr. Yi He and Mr.
      Xiaoxia Zhao were entrusted as nominee owners of BFHX to hold 70% and 30% of
      the
      fully paid up capital of BFHX, respectively, on behalf of Forlink and Forlink
      is
      the primary beneficiary. BFHX is considered a variable interest entity (“VIE”)
      and because Forlink is the primary beneficiary, Forlink’s consolidated financial
      statements include BFHX. Upon the request of Forlink, Mr. Yi He and Mr. Xiaoxia
      Zhao are required to transfer their ownership in BFHX to Forlink or to designees
      of Forlink at any time for the amount of the fully paid up capital of
      BFHX.





24




In
      accordance with a registered capital transfer agreement dated February 16,
      2004,
      and the owners’ resolutions of BFHX passed on February 16, 2004, Mr. Xiaoxia
      Zhao transferred the fully paid up capital of BFHX of $10,870 (RMB90,000) to
      Mr.
      Wei Li for $10,870. Mr. Yi He and Mr. Wei Li entered into agreements with
      Forlink on November 8, 2003 and March 18, 2004, respectively, under which
      agreements Mr. Yi He and Mr. Wei Li were entrusted as nominee owners of BFHX
      to
      hold 70% and 30%, respectively, of the fully paid up capital of BFHX on behalf
      of Forlink. Forlink is the primary beneficiary of such agreements. Upon the
      request of Forlink, Mr. Yi He and Mr. Wei Li are required to transfer their
      ownership in BFHX to Forlink or to designees of Forlink at any time for the
      amount of the fully paid up capital of BFHX.





The
      capital of BFHX was funded by FTCL and recorded as interest-free loans to Mr.
      Yi
      He and Mr. Wei Li. These loans were eliminated with capital of BFHX during
      consolidation. Mr. Yi He is an officer, director and a major stockholder of
      Forlink. Mr. Xiaoxia Zhao is a former director and a major stockholder of
      Forlink. Mr. Wei Li is the administration manager of FTCL.





In
      the
      opinion of the directors, except for the arrangements in connection with the
      purchase of the office in Chengdu, all the above transactions were negotiated
      at
      arm's length and entered into and executed under the normal course of business
      with no difference from those that would be negotiated with a clearly
      independent party. With respect to the purchase of the office in Chengdu, if
      Mr.
      Yi He would not have been able to obtain a mortgage for the property, the
      Company may not have been able to obtain one on its own and the financial
      resources may not have been available for the Company to purchase the property
      outright.





**Risk
      Factors Affecting Our Operating Results and Common Stock**





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 OU* *R
      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 reform
      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.





25




*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*





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.




26




**Item
      7.**  **Financial
      Statements.**





The
      information required by Item 7 and an index thereto commences on the next
      page.




27




**Forlink
        Software Corporation, Inc.**
 
 **Consolidated
        Financial Statements**
 **For
        the years ended**
 **December
        31, 2006 and 2005**
 
 28
  **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-29
 
 
  **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, 2006 and 2005, and the related consolidated
        statements of operations, stockholders’ equity and cash flows for the years
        ended December 31, 2006 and 2005. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with 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. The
        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
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Forlink
        Software Corporation, Inc. as of December 31, 2006 and 2005 and the results
        of
        its consolidated operations and cash flows for the years ended December 31,
        2006
        and 2005, in conformity with generally accepted accounting principles in
        the
        United States of America.
 
 As
        discussed in Note 2 to the consolidated financial statements, effective January
        1, 2006, the Company adopted Statement of Financial Accounting Standards
        No. 123
        (revised 2004), “Share-Based Payment”.
  BDO
        McCabe Lo Limited
 
 Hong
        Kong, March 31, 2007
 
 F-1
  **Forlink
        Software Corporation, Inc.**
 
 **Consolidated
        Balance Sheets**
 
 (Expressed
        in US Dollars)
  **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005****ASSETS****Current
                  assets**Cash
                  and cash equivalents
              
              $
              427,195
              
              $
              589,781Accounts
                  receivable (Note 3and 6)
              
              
              1,886,251
              
              
              861,000Other
                  receivables, deposits and prepayments (Note 4)
              
              
              242,888
              
              
              515,787Other
                  tax recoverable (Note 12)
              
              
              -
              
              
              32,350Inventories
                  (Note 5)
              
              
              34,182
              
              
              264,839Total
                  current assets
              
              
              2,590,516
              
              
              2,263,757Property,
                  plant and equipment (Note 7)
              
              
              728,710
              
              
              884,108Long
                  term investments (Note 8)
              
              
              4,322,289
              
              
              760,870Goodwill
                  (Note 9)
              
              
              1,684,023
              
              
              1,684,023**Total
                  assets**
              
              $
              9,325,538
              
              $
              5,592,758
  **LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  liabilities**Short
                  term borrowings (Note 13)
              
              $
              -
              
              $
              246,609Accounts
                  payable
              
              
              155,204
              
              
              762,593Amounts
                  due to stockholders (Note 6)
              
              
              819,491
              
              
              149,622Customer
                  deposits
              
              
              2,634,705
              
              
              580,482Other
                  payables and accrued expenses (Note 10)
              
              
              549,424
              
              
              287,246Income
                  tax payable (Note 11)
              
              
              -
              
              
              -Other
                  taxes payable (Note 12)
              
              
              187,436
              
              
              -Total
                  current liabilities
              
              $
              4,346,260
              
              $
              2,026,552**Commitments
                  and contingencies**(Note
                  14)**Stockholders’
                  equity**Common
                  stock, par value $0.001 per share;100,000,000
                  shares authorized; 98,224,707and85,224,707
                  shares issued and 89,924,707 and
                76,924,707
                  shares outstanding, respectively
              
              $
              98,225
              
              $
              85,225Treasury
                  stock
              
              
              (215,800
              )
              
              (215,800
              )Additional
                  paid-in capital
              
              
              9,908,715
              
              
              8,949,810Accumulated
                  losses
              
              
              (5,026,137
              )
              
              (5,331,634
              )Accumulated
                  other comprehensive income
              
              
              214,275
              
              
              78,605Total
                  stockholders’ equity
              
              $
              4,979,278
              
              $
              3,566,206**Total
                  liabilities and stockholders’ equity**
              
              $
              9,325,538
              
              $
              5,592,758
 
 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, 2006**
              
              **Year
                  ended**
                **December
                  31, 2005****Net
                  sales**(Note 2 and 6)
              
              $
              6,917,640
              
              $
              5,912,323**Cost
                  of sales**
              
              
              (2,914,754
              )
              
              (3,772,620
              )**Gross
                  profit**
              
              
              4,002,886
              
              
              2,139,703**Selling
                  expenses**
              
              
              (818,146
              )
              
              (750,264
              )**Research
                  and development expenses**
              
              
              (1,730,760
              )
              
              (1,315,654
              )**General
                  and administrative expenses**
              
              
              (1,361,601
              )
              
              (1,645,324
              )**Operating
                  profit/(loss)**
              
              
              92,379
              
              
              (1,571,539
              )**Loss
                  from equity method investee**
              
              
              0
              
              
              (37,516
              )**Loss
                  on disposal of subsidiaries**(Note
                  1)
              
              
              (1,195
              )
              
              0**Interest
                  income**
              
              
              3,589
              
              
              3,098**Interest
                  expenses**
              
              
              0
              
              
              (3,231
              )**Other
                  income, net**(Note
                  12)
              
              
              210,724
              
              
              184,029**Profit/(loss)
                  before income tax**
              
              
              305,497
              
              
              (1,425,159
              )**Income
                  tax**(Note
                  11)
              
              
              0
              
              
              30,982**Net
                  profit/(loss)**
              
              $
              305,497
              
              $
              (1,394,177
              )**Earnings/(loss)
                  per share - basic and diluted**
              
              $
              0.00
              
              $
              (0.02
              )**Weighted
                  average common shares****outstanding
                  - basic and diluted**
              
              
              80,130,186
              
              
              76,897,785
  See
        accompanying notes to consolidated financial statements.
  F-3
  **Forlink
        Software Corporation, Inc.**
 
 **Consolidated
        Statement of Stockholders’ Equity**
 
 (Expressed
        in US Dollars)
 
 **Common
                  Stock****Number**
                **of
                  Share**
                **Issued**
              
              **Number
                  of**
                **Share**
                **Outstanding**
              
              **Number
                  of**
                **Treasury**
                **Stock**
              
              **Amount**
              
              **Treasury**
                **Stock**
              
              **Additional**
                **Paid-in**
                **Capital**
              
              **Accumulated**
                  **other
                    comprehensive income**
              
              **Retained**
                  **Profits/**
                  **(Accumulated**
                  **Losses)**
              
              **Total**
                  **Stockholders’**
                  **Equity**
              
              **Comprehensive
                  Income/**
                **(Losses)**Balance,
                  December 31, 2004
              
              
              85,088,207
              
              
              76,788,207
              
              
              8,300,000
              
              $
              85,088
              
              $
              (215,800
              )
              $
              8,936,297
              
              $
              -
              
              $
              (3,937,457
              )
              $
              4,868,128
              
              $Shares
                  issued under Plan 2002
              
              
              136,500
              
              
              136,500
              
              
              -
              
              
              137
              
              
              -
              
              
              13,513
              
              
              -
              
              
              -
              
              
              13,650
              
              
              -Net
                  loss for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,394,177
              )
              
              (1,394,177
              )
              
              (1,394,177
              )Translation
                  reserve
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              78,605
              
              
              -
              
              
              78,605
              
              
              78,605Comprehensive
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              (1,315,572
              )Balance,
                  December 31, 2005
              
              
              85,224,707
              
              
              76,924,707
              
              
              8,300,000
              
              $
              85,225
              
              $
              (215,800
              )
              $
              8,949,810
              
              $
              78,605
              
              $
              (5,331,634
              )
              $
              3,566,206Shares
                  issued
              
              
              13,000,000
              
              
              13,000,000
              
              
              -
              
              
              13,000
              
              
              -
              
              
              958,905
              
              
              -
              
              
              -
              
              
              971,905
              
              
              -Net
                  profit for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              305,497
              
              
              305,497
              
              
              305,497Translation
                  reserve
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              135,670
              
              
              -
              
              
              135,670
              
              
              135,670Comprehensive
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              441,167Balance,
                  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
  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,****2006**
              
              **2005****Cash
                  flows from operating activities**Net
                  income/(loss)
              
              $
              305,497
              
              $
              (1,394,177
              )Adjustments
                  to reconcile net income tonet
                  cash provided by/(used in) operating activitiesDepreciation
                  of property, plant and equipment
              
              
              205,000
              
              
              171,037Loss
                  on disposal of property, plant and equipment
              
              
              8,047
              
              
              -Loss
                  from equity method investee
              
              
              -
              
              
              37,516Loss
                  on disposal from subsidiaries
              
              
              1,195
              
              
              -Change
                  in:Accounts
                  receivable
              
              
              (962,900
              )
              
              (210,779
              )Other
                  receivables, deposits and prepayments
              
              
              285,975
              
              
              (62,378
              )Inventories
              
              
              231,879
              
              
              (234,763
              )Accounts
                  payable
              
              
              (639,597
              )
              
              483,062Customer
                  deposits
              
              
              1,960,011
              
              
              143,196Other
                  payables and accrued expenses
              
              
              244,105
              
              
              78,263Income
                  tax payable
              
              
              -
              
              
              (31,754
              )Other
                  taxes payable
              
              
              213,084
              
              
              (228,550
              )**Net
                  cash provided by/(used in) operating activities**
              
              
              1,852,296
              
              
              (1,249,327
              )**Cash
                  flows from investing activities**Acquisition
                  of property, plant and equipment
              
              
              (30,945
              )
              
              (380,777
              )Disposal
                  of subsidiary
              
              
              (1,195
              )
              
              -Cash
                  payment associated with long term investments
              
              
              (2,589,514
              )
              
              -**Net
                  cash used in investing activities**
              
              
              (2,621,654
              )
              
              (380,777
              )**Cash
                  flows from financing activities**(Repayment
                  to)/proceeds from short term borrowings
              
              
              (246,609
              )
              
              246,609Advances
                  from/(repayment to) stockholders
              
              
              660,230
              
              
              (435,324
              )Proceeds
                  from issuances of common stock under Plan 2002
              
              
              -
              
              
              13,650**Net
                  cash provided by/(used in) financing activities**
              
              
              413,621
              
              
              (175,065
              )**Effect
                  of exchange rate changes on****cash
                  and cash equivalents**
              
              
              193,151
              
              
              96,119**Net
                  decrease in cash and cash equivalents**
              
              
              (162,586
              )
              
              (1,709,050
              )**Cash
                  and cash equivalents at beginning of year**
              
              
              589,781
              
              
              2,298,831**Cash
                  and cash equivalents at end of year**
              
              $
              427,195
              
              $
              589,781
 
 **Supplemental
                  disclosure of cash flow information**Income
                  tax paid
              
              $
              -
              
              $
              772Interest
                  paid
              
              $
              -
              
              $
              3,231
 
 See
        accompanying notes to consolidated financial statements.
 
 F-5
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
 
 **NOTE
        1 -** **ORGANIZATION
        AND DESCRIPTION OF BUSINESS**
 
 Forlink
        Software Corporation, Inc. (“Forlink”) established on January 11, 2001 by the
        acquisition of Beijing Slait Science & Technology Development Limited Co.,
        (“Slait”) a limited liability company established in the People’s Republic of
        China (the “PRC”) on January 25, 1998.
 
 As
        a
        result of the acquisition, the former owners of Slait hold a majority interest
        in the combined entity. Generally accepted accounting principles require,
        in
        certain circumstances, that a company whose stockholders retain the majority
        voting interest in the combined business be treated as the acquirer for
        financial reporting purposes. Accordingly, the acquisition has been accounted
        for as a “reverse acquisition” whereby Slait is deemed to have purchased
        Forlink. However, Forlink remains the legal entity and the Registrant for
        Securities and Exchange Commission reporting purposes. Subsequent to the
        reverse
        acquisition, the principal activities of Slait have been gradually shifted
        to
        Forlink Technologies Co., Ltd. (“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 as a limited liability company with an authorized share capital
        of
        $129,032 (HK$1,000,000) divided into 1,000,000 ordinary shares of $0.129
        (HK$1)
        each. At the time of incorporation, two ordinary shares of HK$1 each were
        issued
        to the subscribers. In December 2003, 999,998 ordinary shares were issued
        to
        Forlink. Since then, FTHK has become a wholly owned subsidiary of Forlink.
        The
        principal activities of FTHK is investment holding.
 
 To
        comply
        with PRC laws and regulations, Forlink conducts its internet value-added
        services in PRC via Beijing Forlink Hua Xin Technology Co. Ltd. (“BFHX”). BFHX
        was established in PRC on September 19, 2003 as a limited liability company.
        The
        registered capital of BFHX is $120,733 (RMB1,000,000) and has been fully
        paid up
        by March 31, 2005. In accordance with a directors’ resolution of Forlink passed
        on September 15, 2003, Mr. Yi He and Mr. Xiaoxia Zhao were entrusted as nominee
        owners of BFHX to hold 70% and 30%, respectively, of the fully paid up capital
        of BFHX on behalf of Forlink and Forlink is the primary beneficiary. BFHX
        is
        considered a Variable Interest Entity (“VIE”) and because Forlink is the primary
        beneficiary, Forlink’s consolidated financial statements include BFHX. Upon the
        request of Forlink, Mr. Yi He and Mr. Xiaoxia Zhao are required to transfer
        their ownership in BFHX to Forlink or to designees of Forlink at any time
        for
        the amount of the fully paid up capital of BFHX.
  F-6
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
 
 **NOTE
        1 -** **ORGANIZATION
        AND DESCRIPTION OF BUSINESS - C** **ontinued**
 
 In
        accordance with a registered capital transfer agreement dated and owners’
resolutions of BFHX passed on February 16, 2004, Mr. Xiaoxia Zhao transferred
        the fully paid up capital of BFHX of $10,870 (RMB90,000) to Mr. Wei Li for
        $10,870. Mr. Yi He and Mr. Wei Li entered into agreements with Forlink on
        November 8, 2003 and March 18, 2004, respectively. Pursuant to these agreements,
        Mr. Yi He and Mr. Wei Li were entrusted as nominee owners of BFHX to hold
        70%
        and 30% of the fully paid up capital of BFHX, respectively, on behalf of
        Forlink
        and Forlink is the primary beneficiary. Upon the request of Forlink, Mr.
        Yi He
        and Mr. Wei Li are required to transfer their ownership in BFHX to Forlink
        or to
        designees of Forlink at any time for the amount of the fully paid up capital
        of
        BFHX.
 
 The
        capital of BFHX was funded by FTCL and recorded as interest-free loans to
        Mr. Yi
        He and Mr. Wei Li. These loans were eliminated with capital of BFHX during
        consolidation. Mr. Yi He is a director and a major stockholder of Forlink.
        Mr.
        Xiaoxia Zhao is a former director and stockholder of Forlink. Mr. Wei Li
        is the
        administration manager of FTCL.
 
 On
        June
        14, 2004, Forlink Technologies (Chengdu) Limited (“FTCD”) was established as a
        limited liability company in Chengdu, PRC. In September 2004, FTHK invested
        $750,000 in FTCD, since then FTCD became a wholly owned subsidiary of FTHK.
        In
        April, 2006, FTHK further invested $130,000 in FTCD. The registered capital
        of
        FTCD is $5,000,000 and the fully paid up capital was $880,000 as of December
        31,
        2006. FTCD has commenced operations in late 2005.
 
 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, who hold 70%, 10% and 20% of fully paid up capital of BFKT,
        respectively. The registered capital of BFKT is $120,733 (RMB1,000,000) and
        was
        fully paid up on March 16, 2005. After being set up, BFKT acquired 90% and
        95%
        of shares of Qingdao Jiashi Technologies Limited (“QJT”) and Xiamen Kuanshi
        Technologies Limited (“XKT”), respectively, on March 28, 2005. Both QJT and XKT
        were originally established by Mr. Yi He and Mr. Wei Li on March 4, 2005
        and
        March 7, 2005, respectively. Pursuant to the agreement reached between BFHX
        and
        Mr. Wei Li, Mr. Wei Li was entrusted as nominee owner of QJT and XKT to hold
        10%
        and 5%, respectively, of the fully paid up capital of QCT and XKT on behalf
        of
        BFHX and BFHX is the primary beneficiary. XKT and QJT have not commenced
        operation since the dates of establishment and both companies were deregistered
        in late 2006. A loss on disposal of XKT and QJT of $1,195 was
        incurred.
 
 On
        October 24, 2005, Forlink entered into a definitive agreement to acquire
        17.5%
        equity interest from China Liquid Chemical Exchange Company Limited (“CLCE”), a
        limited liability company in PRC. Under the terms of the agreement, Forlink
        deployed the “For-online Electronic Trading System”, a proprietary, integrated
        software solution, to support the Exchange’s operations, including, but not
        limited to, online trading, online billing and payment, user authentication,
        customer care, in exchange for 17.5% equity interest. This investment has
        been
        recognized as corporate joint venture and is accounted for under the equity
        method of accounting, under SOP 78-9. CLCE has not commenced operation since
        its
        date of establishment. This investment will increase the Company return in
        this
        fast growing market.
 
 F-7
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
  **NOTE
        1 -** **ORGANIZATION
        AND DESCRIPTION OF BUSINESS - C** **ontinued**
  On
        October 26, 2006, BFHX established a wholly owned subsidiary of Forlink
        Technologies (Guangxi) Limited (“FTGX”) as a limited liability company in
        Guangxi, PRC. BFHX injected $2,557,545 (RMB20,000,000) registered capital
        to
        FTGX. FTGX is responsible to build an “Electronic Trade and Logistics
        Information Platform and Call Center” for the use of Guangxi Caexpo
        International Trade and Logistics Co., Ltd, an affiliate of BFHX. FTGX commenced
        business in late 2006.
 
 Forlink,
        its subsidiaries, the VIE and corporate joint venture are collectively referred
        to as “the Company” hereafter.
 
 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.
  **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES**
 
 **Basis
        of Accounting and Principles of Consolidation**
 
 The
        consolidated financial statements are prepared in accordance with generally
        accepted accounting principles in the United States of America and present
        the
        financial statements of Forlink and its subsidiaries, namely,
        FTCL, FTHK, BFHX, FTCD, BFKT, FTGX, QJT and XKT. All intercompany transactions
        and balances have been eliminated.
  Minority
        interest 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 group for the year are also
        separately presented in the income statement.
  **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* .
 
 F-8
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
  **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **Stock
        Based Compensation - Continued**
 
 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), 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.
 
 F-9
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
 
 **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **Stock
        Based Compensation - Continued**
 
 The
        Company did not adopt any new share-based compensation plans during the year.
        No
        stock plans were exercised for the year ended December 31, 2006.
 
 The
        Company applied the intrinsic-value method under APB Opinion 25 in accounting
        for options issued and fully vested prior to December 31, 2005, and has
        disclosed the effect on net loss and loss per share as the Company had applied
        the fair value recognition provisions of SFAS 123(R) to the Company’s Plan 2002.
        The table below illustrates the effects on the Company’s net loss and loss per
        share had compensation cost for the Company’s Plan 2002 been determined based on
        the fair value at the grant dates, as prescribed by SFAS 123(R).
 
 **Year
                  ended**
                **December
                  31, 2005**Net
                  profit/(loss), as reported
              
              $
              (1,394,177
              )Deduct:
                  Stock-based compensation expensedetermined
                  under fair value based method
              
              
              (32,350
              )Pro
                  forma net profit/(loss)
              
              $
              (1,426,527
              )Earnings
                  per share:Basic
                  - Reported
              
              
              (0.02
              )-
                  Pro forma
              
              
              (0.02
              )Diluted
                  - Reported
              
              
              (0.02
              )-
                  Pro forma
              
              
              (0.02
              )
  **Recent
        Accounting Pronouncements**
 
 In
        February 2006, the FASB issued FAS 155, *Accounting
        for Certain Hybrid Financial Instruments* (FAS155), an amendment of FAS 140 and FAS 133. FAS155 permits the Company
        to
        elect to measure any hybrid financial instrument at fair value (with changes
        in
        fair value recognized in earnings) if the hybrid instrument contains an embedded
        derivative that would otherwise be required to be bifurcated and accounted
        for
        separately under FAS 133. The election to measure the hybrid instrument at
        fair
        value is made on an instrument-by-instrument basis and is irreversible. The
        Statement will be effective for all instruments acquired, issued, or subject
        to
        a re-measurement event occurring after the beginning of the Company's fiscal
        year that begins after September 15, 2006, with earlier adoption permitted
        as of
        the beginning of the Company's 2006 fiscal year, provided that financial
        statements for any interim period of that fiscal year have not yet been issued.
        The Company does not expect the adoption of FAS155 to have a material impact
        on
        its financial position or results of operations.
  F-10
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
  **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **Recent
        Accounting Pronouncements - Continued**
 
 In
        March
        2006, the FASB issued FAS 156 *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (FAS
        156), an amendment to portions of FAS 133, FAS 140 and FTB 87-3. FAS 156
        requires that all separately recognized servicing assets and servicing
        liabilities be initially measured at fair value, if practicable. It also
        permits, but does not require, the subsequent measurement of servicing assets
        and servicing liabilities at fair value. Derivative instruments used to mitigate
        the risks inherent in servicing assets and servicing liabilities must be
        accounted for at fair value. Under FAS 156 an election can also be made for
        subsequent fair value measurement of servicing assets and servicing liabilities
        by class, thus simplifying the accounting and provide for income statement
        recognition of potential offsetting changes in the fair value of servicing
        assets, servicing liabilities and related derivative instruments. The Statement
        will be effect beginning the first fiscal year that begins after September
        15,
        2006. The Company does not expect the adoption of FAS 156 to have a material
        impact on its financial position or results of operations.
  In
        June 2006, the EITF reached consensus on and ratified EITF Issue 06-03, *How
        Taxes Collected from Customers and Remitted to Governmental Authorities Should
        Be Presented in the Income Statement* (EITF
        06-03). The scope of this Issue includes any tax assessed by a governmental
        authority that is directly imposed on a revenue-producing transaction between
        a
        seller and a customer and may include, but is not limited to, sales, use,
        value
        added, and some excise taxes. The Task Force concluded that the presentation
        of
        taxes within the scope of the Issue on either a gross (included in revenues
        and
        costs) or a net (excluded from revenues) basis is an accounting policy decision
        that should be disclosed pursuant to Opinion 22. In addition, for any such
        taxes
        that are reported on a gross basis, a company should disclose the amounts
        of
        those taxes in interim and annual financial statements for each period for
        which
        an income statement is presented if those amounts are significant. The
        disclosure of those taxes can be done on an aggregate basis. The consensus
        in
        this Issue should be applied to financial reports for interim and annual
        reporting periods beginning after December 15, 2006. The Company believes
        the adoption of EITF 06-03 will not have a material impact on its method
        for
        recording and reporting these type taxes in its consolidated financial
        statements, as the Company’s policy is to exclude all such taxes from
        revenue.
 
 In
        July
        2006, the FASB issued 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. FIN 48 is effective for
        fiscal
        years beginning after December 15, 2006. The Company does not expect that
        this Interpretation will have a material impact on its financial position,
        results of operations or cash flows.
 
 F-11
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
  **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **Recent
        Accounting Pronouncements - Continued**
 
 In
        September 2006, the Securities and Exchange Commission issued Staff
        Accounting Bulletin (SAB) 108, *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements.* SAB
        108
        provides guidance on how prior year misstatements should be taken into
        consideration when quantifying misstatements in current year financial
        statements for purposes of determining whether the current year’s financial
        statements are materially misstated. SAB 108 is effective for fiscal years
        ending on or after November 15, 2006. The Company adopted the provision of
        SAB 108 in fiscal year 2006, which had no impact on the Company’s financial
        statements.
 
 In
        September 2006, the FASB issued FAS 157, *Fair
        Value Measurements* (FAS
        157 ).FAS
        157defines
        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
        157are
        effective for the fiscal year beginning after November 15, 2007. The Company
        is
        currently evaluating the impact of the provisions of FAS
        157.
 
 In
        September 2006, the FASB issued FAS 158, *Employers’
        Accounting for Defined Benefit Pension and Other Postretirement
        Plans* (FAS
        158). FAS 158 requires employers to fully recognize the obligations associated
        with single-employer defined benefit pension, retiree healthcare and other
        postretirement plans in their financial statements. The requirement by FAS
        158
        to recognize the funded status of a benefit plan and the disclosure requirements
        of FAS 158 are effective as of the end of the fiscal year ending after
        December 15, 2006 for entities with publicly traded equity securities. The
        requirement to measure plan assets and benefit obligations as of the date
        of the
        employer’s fiscal year-end statement of financial position is effective for
        fiscal years ending after December 15, 2008. The adoption of FAS 158 did
        not have any effect on the Company’s financial position at December 31,
        2006.
 
 The
        Company does not believe that any other recently issued, but not yet effective
        accounting standards will have a material effect on the Company’s consolidated
        financial position, results of operations or cash flows.
  F-12
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
 
 **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **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 Slait, FTCL, BFHX and FTCD is
        Renminbi (RMB) and their financial records are maintained, and their 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.
        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 year-end 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$, 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 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 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 has 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 RMB8.28
        to RMB8.11 in late July 2005.
 
 Exchange
        rates between US$, HK$ and RMB has a little fluctuation during the years
        presented. The rates ruling of 2006 and 2005 are US$1: HK$7.75: RMB7.82 and
        US$1: HK$7.75: RMB8.11, respectively. The weighted average rates ruling for
        year
        ended December 31, 2006 and December 31, 2005 are US$1: HK$7.75 and RMB7.98
        and
        US$1: HK$7.75: RMB8.195 respectively.
  F-13
  **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
  **NOTE
          2 -** **SUMMARY
          OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **Revenue
        Recognition**
 
 The
        Company generally provides 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. 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.
 
 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, and the revenues are recognized
        as
        services are performed pursuant to paragraph 65 of SOP 97-2.
  F-14
 **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
 
 **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **Revenue
        Recognition - Continued**
 
 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.
 
 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.
 
 The
        Company 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 the Company determine 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 does
        not
        apply to these contracts in accordance with EITF 00-3. Accordingly, these
        contracts would be accounted for pursuant to SAB 104.
 
 F-15
 **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
 **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **Cash
        and Cash Equivalents**
 
 Cash
        and
        cash equivalents include all highly liquid investments with an original maturity
        of three months or less.
 
 **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.
  F-16
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
  **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **Long-lived
        Assets**
 
 Long-lived
        assets are reviewed for impairment whenever events or changes in circumstances
        indicate that the carrying amount of the assets might not be recoverable.
        The
        Company does not perform a periodic assessment of assets for impairment in
        the
        absence of such information or indicators. Conditions that would necessitate
        an
        impairment assessment include a significant decline in the observable market
        value of an asset, a significant change in the extent or manner in which
        an
        asset is used, or a significant adverse change that would indicate that the
        carrying amount of an asset or group of assets is not recoverable. For
        long-lived assets to be held and used, the Company measures fair value based
        on
        quoted market prices or based on discounted estimates of future cash
        flows.
 
 **Advertising
        costs**
 
 All
        advertising costs incurred in the promotion of the Company’s products and
        services are expensed as incurred. Advertising expenses were $321 and $48,920
        for 2006 and 2005 respectively.
 
 **Long
        term investments**
 
 The
        Company’s long term investments consist of (1) Equity Investments which are
        accounted for in accordance with the equity method (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.
 
 **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
        will
        not be realized.
 
 **Net
        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.
 
 F-17
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)   NOTE 2 - SUMMARY
          OF IMPORTANT ACCOUNTING POLICIES - Continued
 
 **Use
        of Estimates**
 
 The
        preparation of financial statements in accordance with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect reported amounts of assets and liabilities and disclosure of contingent
        assets and liabilities at the date of the financial statements and the reported
        amounts of revenues and expenses during the reporting period. Actual results
        could differ from those estimates.
 
 **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, 2006 and 2005 because of the relatively short-term
        maturity of these instruments.
  **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.
 
 **Comprehensive
        Income**
 
 Accumulated
        other comprehensive income (loss) is defined to include all changes in equity
        except those resulting from investments by owners and distributions to owners.
        During the years presented, the Company’s comprehensive income (loss) comprised
        of foreign currency translation adjustments and is included in the consolidated
        statements of shareholders’ equity.
 
 F-18
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
  **NOTE
        2 -** **SUMMARY
        OF IMPORTANT ACCOUNTING POLICIES - C** **ontinued**
 
 **Allowance
        for Doubtful Accounts**
 
 The
        Company records an allowance for doubtful accounts based on specifically
        identified amounts that the Company believes to be uncollectible. The Company
        has a limited number of customers with individually large amounts due at
        any
        given balance sheet date. Any unanticipated change in one of those customer’s
        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.
 
 **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 condition 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 include 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, $48,033 (2005: $46,316) for doubtful accounts as
        of
        December 31, 2006 is required.
 
 **NOTE
        4 - OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS**
 
 **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Other
                  receivables
              
              $
              98,807
              
              $
              44,484Deposits
              
              
              137,779
              
              
              424,017Prepayments
              
              
              6,302
              
              
              47,286$
              242,888
              
              $
              515,787
 
 F-19
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
  **NOTE
        5 - INVENTORIES**
 
 **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Computer
                  hardware and software
              
              $
              34,182
              
              $
              264,839
 
 All
        the
        inventories were purchased for identified system integration
        contracts.
 
 **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 these
        prevailing for comparable transactions with others. Listed below is a summary
        of
        material relationship or transactions with the Company’s stockholders,
        directors, senior officers and other affiliates:
 
 **Amounts
        due to stockholders**
 
 The
        Company, from time to time, received from or made repayment to two major
        stockholders who also is the management of the Company. The amounts due to
        stockholders do not bear any interest and do not have clearly defined term
        of
        repayment.
 
 As
        of
        December 31, 2006 and December 31, 2005, the amounts due to stockholders
        represented advances from stockholders.
 
 **Related
        Party Transactions**
 
 During
        the year, net sales derived from All China Logistics Online Co., Ltd., an
        affiliate of the Company, (See Note 8) was $721,087 (2005: $815,493). As
        of
        December 31, 2006 and 2005, accounts receivable from the affiliate was $842,062
        and $343,160, respectively.
 
 During
        the year, net sales derived from Guangxi Caexpo International Trade and
        Logistics Co, Ltd, an affiliate of the Company (See Note 8) was $466,165
        (2005:
        Nil). As of December 31, 2006, deposit received from the affiliate was
        $1,847,486.
 
 F-20
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
  **NOTE
        7 - PROPERTY, PLANT AND EQUIPMENT, NET**
 
 **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Building
              
              $
              186,817
              
              $
              180,137Computer
                  and office equipment
              
              
              1,052,659
              
              
              1,015,006Motor
                  vehicles
              
              
              181,622
              
              
              194,3061,421,098
              
              
              1,389,449Less:
                  Accumulated depreciation
              
              
              (692,388
              )
              
              (505,341
              )$
              728,710
              
              $
              884,108
 
 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. The building was pledged as collateral
        for the mortgage loan granted to Mr. Yi He. The related mortgage was in the
        name
        of Mr. Yi He, however, the Company agreed to pay Mr. Yi He amounts equal
        to the
        required mortgage payments. In 2005, the mortgage loan was fully repaid and
        the
        title to the building was transferred to the Company.
 
 **NOTE
        8 - LONG TERM INVESTMENTS**
 
 **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Equity
                  investments
              
              $
              -
              
              $
              -Cost
                  investments
              
              
              4,322,289
              
              
              760,870$
              4,322,289
              
              $
              760,870
  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 records the
        investment at cost because it does not have the ability to exercise significant
        influence over the investee.
 
 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 through 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,
        2006, there is no share of HNTB’s net results, as the investment was impaired in
        full in 2005 of $37,516.
 
 F-21
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
  **NOTE
          8 - LONG TERM INVESTMENTS**
 
 On
        October 24, 2005, the Company set up a corporate joint venture, named 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 internally 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. Up to December 31, 2006, the cumulative share
        of
        loss was $1,816 (2005: loss of $14,478), which has not been recorded in the
        accompanying statements of operations as the carrying amount of investment
        cost
        is zero.
 
 On
        October 3, 2006, the Company acquired 22.73% registered capital in Guangxi
        Caexpo International Trade and Logistics Co., Ltd. (“Guangxi Caexpo”), a
        privately held PRC company, from Statelink International Group, Ltd., a company
        incorporated in the British Virgin Islands (“Statelink”). The consideration was
        settled in the form of cash payment of $2,557,545 (RMB20,000,000) by BFHX
        and
        issue of 13,000,000 shares of the Company’s restricted common stock to
        Statelink. The acquisition cost in share issued is based upon a value of
        $0.075
        per share, the average market price over a 10 days’ period before and after the
        terms of the acquisition are agreed to. The overall acquisition cost to acquire
        Guangxi Caexpo is $3,529,450. The Company records the investment at cost
        because
        it does not have the ability to exercise significant influence over the
        investee, in fact, Guangxi Caexpo’s strategic and business decisions are
        dominated by other related major shareholders.
 
 On
        October 12, 2006, the Company entered into a definitive agreement to acquire
        12.5% registered capital in Wuxi Stainless Steel Exchange Co., Ltd. (“Wuxi”), a
        privately held PRC company. In exchange for the 12.5% registered capital,
        the
        Company will deploy a proprietary, integrated software solution (“software”),
        estimated at RMB1,000,000, by reference to the similar products sold to third
        parties in 2006, to support the Exchange’s operations, plus RMB 250,000 cash
        payment to Wuxi. Up to December 31, 2006, the Company contributed cash of
        $31,969 (RMB250,000), but the software has not yet deployed to Wuxi. The
        Company
        records the investment at cost because it does not have the ability to exercise
        significant influence over the investee. On 14 January, 2007, the Company
        entered into a Share Transfer Agreement with a major shareholder of Wuxi
        for
        transfer of 2.5% interest in Wuxi to the major shareholder at cash payment
        of
        RMB 500,000. After the transfer of share, the Company retains 10% equity
        interest in Wuxi.
 
 F-22
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
  **NOTE
          9 - GOODWILL**
 
 Goodwill
        represents the excess of acquisition of Beijing Slait Science & Technology
        Development Limited Co. (“Slait”) cost 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, 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. Because 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.
 
 Since
        December 31, 2003, the Company completed the annual impairment test at December
        31 of each year. Based on the result of the first step of the test, the Company
        believes that there was no further impairment of goodwill as of December
        31,
        2003, 2004, 2005 and 2006.
 
 **NOTE
        10 - OTHER PAYABLES AND ACCRUED EXPENSES**
 
 **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Other
                  payables
              
              $
              352,796
              
              $
              58,907Accrued
                  salaries & wages
              
              
              152,632
              
              
              171,508Other
                  accrued expenses
              
              
              43,996
              
              
              56,830$
              549,424
              
              $
              287,245
 
 F-23
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
  **NOTE
        11 - INCOME TAX**
 
 According
        to the relevant PRC tax rules and regulations, FTCL and BFHX, which are
        recognized as New Technology Enterprises operating within a New and High
        Technology Development Zone, are enterprises 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, which is recognized
        as a New Technology Enterprise, was an enterprise eligible for full exemption
        from EIT for the fiscal years 1999, 2000, 2001 and 2002. The Company also
        became
        eligible to 50% EIT reduction at the rate of 7.5% for the fiscal years 2003,
        2004 and 2005.
 
 Pursuant
        to an approval document dated January 19,2004 issued by State Tax Bureau,
        BFHX,
        which is recognized as a New Technology Enterprise, is an enterprise eligible
        for full exemption from EIT for fiscal years 2004, 2005 and 2006.
 
 Hong
        Kong
        profits tax is calculated at 17.5% on the estimate assessable profits of
        FTHK
        for the year. No provision for EIT and Hong Kong profits tax were made for
        FTCL,
        BFHX, FTCD, FTGX and FTHK as they have not gained taxable income for the
        year.
 
 The
        EIT
        rates for FTCD, BFKT, QJT and XKT are ranging from 15% to 33%. No provision
        for
        EIT was made for BFKT, QJT and XKT f or
        the
        fiscal year 2006 as
        they
        have not commenced operations during the year and QJT and XKT have de-registered
        during the year.
  Income
        tax for the year ended December 31, 2005 represents current PRC income tax
        and
        Hong Kong profit tax which is calculated at the respective statutory
        income.
 
 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:
 
 **Years
                  Ended December 31,****2006**
              
              **2005**Provision
                  for income taxes at statutory tax rate of 15%
              
              $
              45,825
              
              $
              (213,774
              )Tax
                  holidays and concessions
              
              
              (88,754
              )
              
              36,535Effect
                  of different tax rate of a subsidiary operating in Hong
                  Kong
              
              
              (1,917
              )
              
              (4,678
              )Permanent
                  difference
              
              
              (11,397
              )
              
              38,403Increase
                  in valuation allowances
              
              
              55,961
              
              
              88,723Others
              
              
              282
              
              
              23,809Effective
                  tax
              
              $
              -
              
              $
              (30,982
              )
 
 F-24
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
  **NOTE
        11 - INCOME TAX - Continued**
 
 The
        components of deferred tax assets are as follows:
 
 **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Net
                  operating loss carried forwards
              
              $
              146,192
              
              $
              90,231Less:
                  Valuation allowances
              
              
              (146,192
              )
              
              (90,231
              )$
              -
              
              $
              -
 
 The
        provision for income tax consisted of:
  **Years
                  Ended December 31,****2006**
              
              **2005**Current
                  PRC corporate income tax
              
              $
              -
              
              $
              772Current
                  Hong Kong profit tax
              
              
              -
              
              
              (31,754
              )Deferred
                  tax
              
              
              -
              
              
              -Income
                  tax (recoverable)
              
              $
              -
              
              $
              (30,982
              )
 
 **NOTE
        12 - OTHER TAXES RECOVERABLE / (PAYABLE)**
 
 Other
        taxes payable comprise mainly Valued-Added Tax (“VAT”) and Business Tax (“BT”).
        The Company is subject to output VAT levied at the rate of 17% of its operating
        revenue. The input VAT paid on purchases of materials and other direct inputs
        can be used to offset the output VAT levied on operating revenue to determine
        the net VAT payable or recoverable. BT is charged at a rate of 5% on the
        revenue
        from 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 $210,329 and $155,407 in 2006 and 2005
        respectively.
 
 **NOTE
        13 - SHORT TERM BORROWINGS**
 
 In
        2005,
        the short term bank loan was a 6-month loan that bears interest at a rate
        of
        0.4875% per month, and the maturity date of the loan was March 29, 2006.
        The
        bank loan was guaranteed by an unrelated third party. It was fully repaid
        on
        February 16, 2006.
 
 F-25
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
  **NOTE
          14 - COMMITMENTS AND CONTINGENCIES**
 
 **Operating
        Lease Commitment**
 
 During
        the years ended December 31, 2006 and 2005, the Company incurred lease expenses
        amounting to $545,850 and $547,974 respectively. As of December 31, 2006
        and
        2005, the Company had commitments under non-cancellable operating leases,
        requiring annual minimum rentals as follows:
  **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**January
                  1, 2006 to December 31, 2006
              
              
              -
              
              
              451,181January
                  1, 2007 to December 31, 2007
              
              
              164,309
              
              
              109,628January
                  1, 2008 to December 31, 2008
              
              
              3,227
              
              
              -$
              167,536
              
              $
              560,809
  **NOTE
        15 - STOCK PLAN**
 
 On
        June
        1, 2000, the Company adopted a plan of stock-based compensation incentives
        for
        selected eligible participants who are the staff and consultants of Forlink.
        This plan is known as the “Forlink Software Corporation, Inc. Stock Plan” (“the
        Plan”). The total number of shares of common stock reserved for issuance by
        Forlink either directly as stock awards or underlying options granted under
        this
        Plan shall not be more than 1,600,000. Under the terms of this Plan, options
        can
        be issued to purchase shares of Forlink’s common stock. The Board of Directors
        shall determine the terms and conditions of each option granted to eligible
        participants, which terms shall be set forth in writing. The terms and
        conditions so set by the Board of Directors may vary from one eligible
        participant to another.
 
 The
        following table summarizes the activity on stock options under the
        Plan:
 
 **Number
                  of shares**
              
              **Weighted
                  average exercise price**Outstanding
                  at December 31, 2002
              
              
              1,337,000
              
              $
              1.00Granted
              
              
              1,968,000
              
              $
              2.28Exercised
              
              
              0
              
              
              0Forfeited
                  or Cancelled
              
              
              631,000
              
              $
              5.00Outstanding
                  at December 31, 2003, 2004, 2005 and 2006
              
              
              1,337,000
              
              $
              1.00
 
 All
        outstanding options at December 31, 2006 and December 31, 2005 are
        exercisable.
  F-26
  **Forlink
        Software Corporation, Inc.**
 
 **Notes
        to Consolidated Financial Statements**
 
 (Expressed
        in US Dollars)
  **NOTE
        15 - STOCK PLAN - Continued**
 
 On
        September 21, 2000, Forlink re-priced 337,000 stock options and reduced the
        exercise price to $1 per share, the then-current market price of the stock.
        Since September 21, 2000, the market price of the Forlink’s stock decreased to a
        level lower than the exercise price. The Plan is no longer active.
 
 On
        August
        16, 2002, the Company established a plan of stock-based compensation incentives
        for selected eligible participants of the Company and its affiliated
        corporations. This plan is known as the “Forlink Software Corporation, Inc. 2002
        Stock Plan” (the “Plan 2002”). The total number of shares of common stock
        reserved for issuance by Forlink either directly as stock awards or underlying
        options granted under the Plan 2002 shall not be more than 8,000,000. Under
        the
        terms of the Plan 2002, options can be issued to purchase shares of Forlink’s
        common stock. The Board of Directors shall determine the terms and conditions
        of
        each option granted to eligible participants, which terms shall be set forth
        in
        writing. The terms and conditions so set by the Board of Directors may vary
        from
        one eligible participant to another.
 
 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 were
        granted
        to an employee with 5 years vesting period, 2,515,000 options were granted
        to
        employees with 3 years vesting period. The expiration date for 2,385,000
        options
        is December 30, 2006 (the “December 2006 Options”). The expiration date for
        130,000 options is June 30, 2007 (the “June 2007 Options”). The expiration date
        for 800,000 options is June 30, 2009 (the “June 2009 Options”). On September 7,
        2004, January 1, 2005 and January 1, 2006, 854,500, 904,500 and 1,156,000
        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 December 2006 Options by one
        month
        to end of January 2007, no additional compensation expense as the Company
        considered the amount was immaterial. On January 29, 2007, 367,000 options
        of
        the “December 2006 Options” were exercised.
  F-27
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
  **NOTE
          15 - STOCK PLAN - Continued**
 
 The
        following table summarizes the activity on stock options under the Plan
        2002:
 
 **Number
                  of shares**
              
              **Weighted
                  average exercise price**Granted
                  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
              
              $
              0.10Fully
                  vested and exercisable at December 31, 2006
              
              
              897,000
              
              $
              0.10
 
 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.
 
 There
        was
        no aggregate intrinsic value of options outstanding and exercisable as of
        December 31, 2006 and 2005. The aggregate intrinsic value represents the
        intrinsic value, based on options with an exercise price less than $0.09,
        the
        market value of the Company’s stock on December 31, 2006, which would have been
        received by the option holders had those option holders exercised those options
        at of that date.
 
 At
        December 31, 2006, future compensation expense related to the unvested portion
        of stock options outstanding totaled $12,294. The compensation expense on
        the
        unvested portion of stock options is expected to be recognized over a weighted
        average period of 1 year.
 
 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 period.
 
 **December
                  2006**
              
              **June
                  2007**
              
              **June
                  2009****Options**
              
              **Options**
              
              **2005**Risk-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
              %
  F-28
 **Forlink
          Software Corporation, Inc.**
 
 **Notes
          to Consolidated Financial Statements**
 
 (Expressed
          in US Dollars)
  **NOTE
          16 - SUBSEQUENT EVENTS**
 
 On
        14
        January, 2007, the Company entered into a Share Transfer Agreement (the
“Agreement”) with WUXI PO XIN STAINLESS CO., LTD (“Wuxi Po Xin”) for transfer of
        2.5% interest in Wuxi to Wuxi Po Xin at cash payment of RMB500,000. After
        the
        transfer of share, the Company retains 10% equity interest in
        Wuxi.
 
 **NOTE
        17 - CONCENTRATION OF CUSTOMERS**
 
 During
        the year, the following customers accounted for more than 10% of total
        sales:
 
 **Nine
                  Months Ended**
                **September
                  30,****2006**
              
              **2005**Net
                  sales derived from-
                  Customer A
              
              
              4,244,266
              
              
              4,122,370-
                  Customer B
              
              
              721,087
              
              
              815,493%
                  to total net sales-
                  Customer A
              
              
              61
              %
              
              70
              %-
                  Customer B
              
              
              10
              %
              
              14
              %Account
                  receivable from - Customer A
              
              
              736,654
              
              
              303,489-
                  Customer B
              
              
              842,062
              
              
              343,160%
                  to total accounts receivable - Customer A
              
              
              39
              %
              
              35
              %-
                  Customer B
              
              
              45
              %
              
              40
              %
 
 *
        less
        than 10%
  F-29


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





None.




**Item
      8A.**  **Controls
      and Procedures.**





Based
      on
      their most recent evaluation, which was completed as of the end of the period
      covered by this annual report on Form 10-KSB, the Company's Chief Executive
      Officer and Chief Financial Officer believe the Company's disclosure controls
      and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) are
      effective to ensure that information required to be disclosed by the Company
      in
      this report is accumulated and communicated to the Company's management,
      including its principal executive officer and principal financial officer,
      as
      appropriate, to allow timely decisions regarding required disclosure.





During
      the last fiscal quarter to which this report relates, there were no changes
      in
      the Company's internal controls or other factors that could significantly affect
      these controls subsequent to the date of their evaluation and there were no
      corrective actions with regard to deficiencies and material weaknesses.





**Item
      8B. Other Information.**





None.




29


**PART
      III**





**Item
      9.**  **Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(A) of the Exchange Act.**







As
      of
      December 31, 2006 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
            
            Director
                SinceYi
                He
            
            40
            
            Chief
                Executive Officer, Chairman and Director
            
            August
                2001Hongkeung
                Lam
            
            54
            
            Chief
                Financial Officer, Chief Accounting Officer, Secretary and
                Director
            
            August
                2001Guoliang
                Tian
            
            67
            
            Director
            
            May
                2003Yu
                Fang
            
            61
            
            Director
            
            May
                2003Zhenying
                Sun
            
            50
            
            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. From January 1998 to August
      of
      2001, Mr. He was the Founder, Chairman and President of Beijing SLAIT Science
      & Technology Development Limited Co. From March 1993 to January 1998, Mr. He
      was the President of Beijing Sunny Computer System Engineering Co. Mr. He has
      a
      Master Degree in Computer Science from Peking University.





Hongkeung
      Lam, has been 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
      experience and interest 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 experience
      and interest 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.





30




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.





**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.





**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 its review of copies of such reports received or written
      representations from certain reporting persons, the Company believes that,
      during the year ended December 31, 2006, all Section 16(a) filing requirements
      applicable to its officers, directors and ten percent shareholders were in
      compliance with SEC regulations.




31




**Item
      10.**  **Executive
      Compensation.**





The
      following summary compensation table sets forth the aggregate compensation
      awarded to, earned by, or paid to the chief executive officer, and other
      executive officers whose annual compensation exceeded $100,000, for the fiscal
      year ended December 31, 2006 and 2005:


SUMMARY
        COMPENSATION TABLE
 NonqualifiedNon-Equity
                
                DeferredName
                    and
                
                
                
                
                
                
                
                Stock
                
                Option
                
                Incentive
                    Plan
                
                Compensation
                
                All
                    OtherPrincipal
                
                
                
                
                
                
                
                Awards
                
                Awards
                
                Compensation
                
                Earnings
                
                CompensationPosition
                
                Year
                
                Salary
                
                Bonus
                
                ($)
                
                ($)
                
                ($)
                
                ($)
                
                ($)
                
                TotalYi
                    He, Chief Executive
                
                
                2006
                
                
                18,566
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                18,566Officer
                      andDirector1
                
                
                2005
                
                
                37,285
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                37,285





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





**Outstanding
      Equity Awards at Fiscal Year-End Table**




OUTSTANDING
        EQUITY AWARDS AT FISCAL YEAR-END
 **OPTION
                    AWARD**
                
                **STOCK
                      AWARD**Name
                
                Number
                    of Securities Underlying Unexercised Options (Exercisable)
                    (#)
                
                Number
                    of Securities Underlying Unexercised Options (Unexercisable)
                    (#)
                
                Equity
                    Incentive Plan Awards: Number of Securities Underlying Unexercised
                    Unearned Options (#)
                
                Option
                    Exercise Price ($)
                
                Option
                    Exercise Date
                
                Number
                    of Shares or Units of Stock That Have Not Vested (#)
                
                Market
                    Value of Shares or Units of Stock That Have Not Vested ($)
                
                Equity
                    Incentive Plan Awards Number of Unearned Shares, Units or Other
                    Rights
                    That Have Not Vested (#)
                
                Equity
                    Incentive Plan Awards: Market or Payout Value of Unearned Shares,
                    Units or
                    Other Rights That Have Not VestedYi
                    He
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-
                
                
                -0-




**Employment
      Contracts**





There
      are
      no formal employment agreements with any of the Company’s executive
      officers.





**Compensation
      of Directors**





The
      Company paid no compensation to its Directors for any services provided as
      a
      Director during the year ended December 31, 2006. 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
      2006, none of the Directors received reimbursement payments from the Company.





32




**Employee
      Benefit and Consulting Services Compensation Plans**





As
      of
      December 31, 2006, the Company had two Employee Benefit and Consulting Services
      Compensation Plans in effect:





1.
      On
      June 1, 2000, the Company adopted an employee benefit and consulting services
      compensation plan entitled the Forlink Software Corporation, Inc. Stock Plan.
      The plan covers up to 1,600,000 shares of common stock. **** The
      plan
      has not previously been approved by security holders.





2.
      On
      August 16, 2002, the Company adopted an employee benefit and consulting services
      compensation plan entitled the Forlink Software Corporation, Inc. 2002 Stock
      Plan. The plan covers up to 8,000,000 shares of common stock. The plan has
      not
      previously been approved by security holders.





Under
      each plan, the Company may issue common stock and/or options to purchase common
      stock to certain officers, directors and employees and consultants of the
      Company and its subsidiaries. The purpose of each plan is to promote the best
      interests of the Company and its shareholders by providing a means of non-cash
      remuneration to eligible participants who contribute to operating progress
      and
      earning power of the Company. Each plan is administered by the Company’s Board
      of Directors or a committee thereof which has the discretion to determine from
      time to time the eligible participants to receive an award; the number of shares
      of stock issuable directly or to be granted pursuant to option; the price at
      which the option may be exercised or the price per share in cash or cancellation
      of fees or other payment which the Company or its subsidiaries is liable if
      a
      direct issue of stock and all other terms on which each option shall be granted.




33




**Item
      11.**  **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 commonstock
      as
      ofMarch
      15,
      2007,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.





**Name
                and Address of**
              **Beneficial
                Owner**
            
            **Amount
                and Nature of Beneficial Ownership****3**
            
            **Percentage
                Owned**
              **Beneficially****5**Yi
                He1
            
            
            25,800,000
            
            
            28.7
            %Hongkeung
                Lam1
            
            
            10,500,000
            
            
            11.7
            %Guoliang
                Tian1
            
            
            -0-
            
            
            —Yu
                Fang1
            
            
            -0-
            
            
            —Zhenying
                Sun1
            
            
            13,000,0004
            
            
            14.4
            %Jing
                Zeng2
            
            
            5,760,000
            
            
            6.4
            %Statelink
                International Group, Ltd.2
            
            
            13,000,0004
            
            
            14.4
            %All
                officers and directors of the Company as a group (five
                persons)
            
            
            55,060,000
            
            
            61.2
            %





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 Fang Yuan Mansion, No. 56 Zhongguancun
      South Road Yi, Haidian District, Beijing, China.





2 A
      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 Fang Yuan
      Mansion, No. 56 Zhongguancun South Road Yi, Haidian District, Beijing,
      China.





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




34




4 These
      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.





5 Based
      upon 89,924,707 shares of Common Stock outstanding as of March 14, 2007.





**Equity
      Compensation Plan Information**





The
      following information concerning the Company’s equity compensation plan is as of
      the end of the year ended December 31, 2006:





Plan
                category
            
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights(a)
            
            Weighted-average
                exercise price of options, warrants and rights
              (b)
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))
              (c)Equity
                compensation plans approved by security holders
            
            
            N/A
            
            
            N/A
            
            
            N/AEquity
                compensation plans not approved by security holders
            
            
            1,297,000
            
            $
            0.10
            
            
            4,685,000Total
            
            
            1,297,000
            
            $
            0.10
            
            
            4,685,000




As
      of
      December 31, 2006, the Company had two Employee Benefit and Consulting Services
      Compensation Plans in effect:





1.
      On
      June 1, 2000, the Company adopted an employee benefit and consulting services
      compensation plan entitled the Forlink Software Corporation, Inc. Stock Plan.
      The plan covers up to 1,600,000 shares of common stock. The plan has not
      previously been approved by security holders.





2.
      On
      August 16, 2002, the Company adopted an employee benefit and consulting services
      compensation plan entitled the Forlink Software Corporation, Inc. 2002 Stock
      Plan. The plan covers up to 8,000,000 shares of common stock. The plan has
      not
      previously been approved by security holders.





Under
      each plan, the Company may issue common stock and/or options to purchase common
      stock to certain officers, directors and employees and consultants of the
      Company and its subsidiaries. The purpose of each plan is to promote the best
      interests of the Company and its shareholders by providing a means of non-cash
      remuneration to eligible participants who contribute to operating progress
      and
      earning power of the Company. Each plan is administered by the Company’s Board
      of Directors or a committee thereof which has the discretion to determine from
      time to time the eligible participants to receive an award; the number of shares
      of stock issuable directly or to be granted pursuant to option; the price at
      which the option may be exercised or the price per share in cash or cancellation
      of fees or other payment which the Company or its subsidiaries is liable if
      a
      direct issue of stock and all other terms on which each option shall be
      granted.





35





**Item
      12.**  **Certain
      Relationships and Related Transactions, and Director
      Independence.**





**Transactions
      with Related Person**




The
      Company, from time to time, received from or made repayments to one
      major
      stockholder who is also a member of the management of the Company. The amounts
      due from/to stockholders do not bear any interest and do not have clearly
      defined terms of repayment. As
      of
      December 31, 2006 and December 31, 2005, the amounts due to stockholders
      represented advances from stockholders.





In
      March
      8, 1999, Mr. Yi He, the Chief Executive Officer and a Director of the Company,
      purchased the building located in Chengdu on behalf of the Company. By a
      stockholders' resolution passed on March 8, 1999, it was ratified that the
      title
      to the building belonged to Beijing Slate Science & Technology Development
      Limited Co. The building was pledged as collateral for the mortgage loan granted
      to Mr. Yi He. The related mortgage remained in the name of Mr. Yi He, but the
      Company agreed to pay Mr. Yi He amounts equal to the required mortgage payments. In
      the
      last quarter of 2005, the mortgage loan was fully repaid and the title to the
      building was transferred to the Company.





As
      a
      result of the entry of a Transfer of Right to Invest and Project Cooperation
      Agreement with the Company on October 3, 2006, Statelink International Group,
      Ltd. acquired 13,000,000 shares of the Company’s restricted common stock, or
      13.2% of the Company’s issued and outstanding common stock as of December 31,
      2006.





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
      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
      and Yu Fang. 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
      13.**  **Exhibits.**




ExhibitNumber
            
            Description3.1
            
            Articles
                of Incorporation, as amended and currently in effect. (Incorporated
                by
                reference to Exhibit No. 3.1 of the Form 10-QSB for the quarter ended
                March 31, 2000, and filed on May 13,
                2000.)




36




3.2
            
            Bylaws
                dated May 11, 2000. (Incorporated by reference to Exhibit No. 3.2
                of the
                Form 10-QSB for the quarter ended March 31, 2000, and filed on May
                13,
                2000.)10.1
            
            Forlink
                Software Corporation, Inc. Stock Plan dated June 1, 2000. (Incorporated
                by
                reference to Exhibit 10.1 of the Company’s Registration Statement on Form
                S-8 (file no. 333-41700) filed July 19, 2000.)10.2
            
            Forlink
                Software Corporation, Inc. 2002 Stock Plan dated August 16, 2002.
                (Incorporated by reference to Exhibit 10.2 of the Company’s Registration
                Statement on Form S-8 (file no. 333-100645) filed October 21,
                2002.)10.3
            
            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.)21.1
            
            List
                of Subsidiaries.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.)




**Item
      14.**  **Principal
      Accountant Fees and Services.**





The
      Company’s Board of Directors reviews and approves audit and permissible
      non-audit services performed by BDO McCabe Lo Limited (“BDO”), as well as the
      fees charged by BDO for such services. In its review of non-audit service fees
      and its appointment of BDO as the Company’s independent accountants, the Board
      of Directors considered whether the provision of such services is compatible
      with maintaining BDO’s independence. All of the services provided and fees
      charged by BDO in 2006 and 2005 were pre-approved by the Board of
      Directors.




**Audit
      Fees**





The
      aggregate fees billed for professional services rendered by BDO for the audit
      of
      our annual financial statements and the reviews of the financial statements
      included in our quarterly reports on Form 10-QSB for fiscal years 2006 and
      2005 were $68,360 and $69,680, respectively.





**Audit-Related
      Fees**





There
      were no other fees billed by BDO 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.





37




**Tax
      Fees**





There
      were no aggregate fees billed for professional services rendered by BDO for
      tax
      compliance services in fiscal years 2006 and 2005.





**All
      Other Fees**





There
      were no other fees billed by BDO during the last two fiscal years for products
      and services provided by BDO.





***[SIGNATURES
      PAGE FOLLOWS]***




38


**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:
              April 2, 2007
            By:
            /s/
              Yi
              HeYi
                He
              Chief
                Executive Officer


Date:
              April 2, 2007
            By:
            /s/
              Hongkeung LamHongkeung
                Lam
              Chief
                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.


By:
            /s/
              Yi
              HeYi
                He, DirectorDate:
                April 2, 2007


By:
            /s/
              Hongkeung LamHongkeung
                Lam, DirectorDate:
                April 2, 2007


By:
            /s/
              Guoliang TianGuoliang
                Tian, DirectorDate:
                April 2, 2007


By:
              /s/
                Yu
                FangYu
                  Fang, DirectorDate:
                  April 2, 2007
 By:
                /s/
                  Zhenying SunZhenying
                    Sun, DirectorDate:
                      April 2, 2007
 39