item 14 principal accountant fees services audit fees aggregate fees billed professional services rendered kenne ruan cpa pc “kenne ruan” audit 2010 annual financial statements reviews financial statements included quarterly reports form 10q “form 10q” fiscal year 2010 100000 aggregate fees billed professional services rendered kenne ruan audit 2009 annual financial statements reviews financial statements included form 10q fiscal year 2009 100000 auditrelated fees billed kenne ruan last two fiscal years assurance related services reasonably related performance audit review company’s financial statements reported “audit fees” tax fees billed professional services rendered kenne ruan tax compliance services fiscal years 2010 2009 fees billed kenne ruan last two fiscal years products services provided kenne ruan outside fees disclosed “audit fees” preapproval policy procedures company’s board reviews approves audit permissible nonaudit services performed auditors well fees charged services reviewing nonaudit service fees appointment company’s auditors board considered whether provision services compatible maintaining auditors’ independence services provided fees charged auditors preapproved board item 15 item 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules financial statements december 31 1996 1995 1994 reports form 8k reports form 8k filed fiscal year ending december 31 1996 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inc date february 25 1997 skrista nielson krista nielson president ceo director pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated date february 25 1997 skrista nielson krista nielson president ceo director date february 25 1997 sdavid r yeaman david r yeaman secretarytreasurer cfo director smith company certified public accountants members crandall building suite 700 american institute 10 west 100 south certified public accountants salt lake city utah 84101 utah association telephone 801 5758297 certified public accountants facsimile 801 5758306 independent auditors report board directors inc development stage company audited accompanying balance sheets inc development stage company december 31 1996 1995 related statements operations changes stockholders equity cash flows years ended december 31 1996 1995 1994 period january 7 1986 date inception december 31 1996 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position inc development stage company december 31 1996 1995 results operations changes stockholders equity cash flows years ended december 31 1996 1995 1994 period january 7 1986 date inception december 31 1996 conformity generally accepted accounting principles ssmith company certified public accountants salt lake city utah february 28 1997 inc development stage company notes financial statements december 31 1996 note 1 summary significant accounting principles accounting methods company recognizes income expenses based accrual method accounting dividend policy company yet adopted policy regarding payment dividends organization costs company amortized organization costs five year period income taxes company records income tax effect transactions year transactions enter determination income regardless transactions recognized tax purposes tax credits recorded year realized since company yet realized income date report provision income taxes made february 1992 financial accounting standards board adopted statement financial accounting standards 109 accounting income taxes supersedes substantially existing authoritative literature accounting income taxes requires deferred tax balances adjusted reflect tax rates effect amounts expected become payable refundable statement applied companys financial statements fiscal year commencing january 1 1993 december 31 1996 deferred tax asset recorded due companys lack operations provide income use net operating loss carryover 2000 expires follows year ended expires amount december 31 1986 december 31 2001 1950 december 31 1987 december 31 2002 10 december 31 1988 december 31 2003 10 december 31 1989 december 31 2004 10 december 31 1990 december 31 2005 10 december 31 1991 december 31 2006 10 2000 note 2 development stage company incorporated laws state utah january 7 1986 development stage since incorporation december 30 1993 company dissolved utah corporation reincorporated nevada corporation note 3 capitalization date incorporation company sold 1000000 shares common stock capital general corporation 2000 cash average consideration 002 per share companys authorized stock includes 100000000 shares common stock 001 par value note 4 related party transactions company neither owns leases real property office services provided without charge capital general corporation costs immaterial financial statements accordingly reflected therein officers directors company involved business activities may future become involved business opportunities specific business opportunity becomes available persons may face conflict selecting company business interests company formulated policy resolution conflicts item 14 principal accounting fees services change auditor current principal independent auditor kenne ruan cpa pc “kenne ruan” engaged january 16 2008 dismissal prior principal independent auditor bdo mccabe lo limited certified public accountants “bdo” bdo performed audit fiscal year ended december 31 2006 reviewed company’s unaudited financial statements quarter ended september 30 2007 following services provided amounts billed audit fees aggregate fees billed professional services rendered kenne ruan cpa pc audit 2008 annual financial statements reviews financial statements included quarterly reports form 10q fiscal year 2008 100000 aggregate fees billed professional services rendered kenne ruan audit 2007 annual financial statements reviews financial statements included quarterly reports form 10qsb fiscal year 2007 82400 aggregate fees billed professional services rendered bdo reviews financial statements included quarterly reports form 10qsb fiscal year 2007 32400 auditrelated fees billed kenne ruan last two fiscal years assurance related services reasonably related performance audit review company’s financial statements reported “audit fees” fees billed bdo fiscal year 2007 assurance related services reasonably related performance review company’s financial statements reported “audit fees” tax fees billed professional services rendered kenne ruan tax compliance services fiscal years 2008 2007 fees billed professional services rendered bdo tax compliance services fiscal year 2007 fees billed kenne ruan last two fiscal years products services provided kenne ruan outside fees disclosed “audit fees” fees billed bdo fiscal year 2007 products services provided bdo outside bdo’s fee disclosed “audit fees” preapproval policy procedures company’s board directors reviews approves audit permissible nonaudit services performed auditors well fees charged services reviewing nonaudit service fees appointment company’s auditors board directors considered whether provision services compatible maintaining auditors’ independence services provided fees charged auditors preapproved board directors item 15 item 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules financial statements december 31 1997 1996 1995 reports form 8k reports form 8k filed fourth quarter 1997 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized inc date march 25 1998 skrista nielson krista nielson president ceo director pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated date march 25 1998 skrista nielson krista nielson president ceo director date march 25 1998 ssasha belliston sasha belliston secretarytreasurer cfo director smith company certified public accountants members crandall building suite 700 american institute 10 west 100 south certified public accountants salt lake city utah 84101 utah association telephone 801 5758297 certified public accountants facsimile 801 5758306 independent auditors report board directors inc development stage company audited accompanying balance sheets inc development stage company december 31 1997 1996 related statements operations changes stockholders equity cash flows years ended december 31 1997 1996 1995 period january 7 1986 date inception december 31 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position inc development stage company december 31 1997 1996 results operations changes stockholders equity cash flows years ended december 31 1997 1996 1995 period janaury 7 1986 date inception december 31 1997 conformity generally accepted accounting principles ssmith company certified public accountants salt lake city utah january 31 1998 inc development stage company notes financial statements december 31 1997 note 1 summary significant accounting principles accounting methods company recognizes income expenses based accrual method accounting dividend policy company yet adopted policy regarding payment dividends organization costs company amortized organization costs five year period income taxes company records income tax effect transactions year transactions enter determination income regardless transactions recognized tax purposes tax credits recorded year realized since company yet realized income date report provision income taxes made february 1992 financial accounting standards board adopted statement financial accounting standards 109 accounting income taxes supersedes substantially existing authoritative literature accounting income taxes requires deferred tax balances adjusted reflect tax rates effect amounts expected become payable refundable statement applied companys financial statements fiscal year commencing january 1 1993 december 31 1997 deferred tax asset recorded due companys lack operations provide income use net operating loss carryover 2000 expires follows year ended expires amount december 31 1986 december 31 2001 1950 december 31 1987 december 31 2002 10 december 31 1988 december 31 2003 10 december 31 1989 december 31 2004 10 december 31 1990 december 31 2005 10 december 31 1991 december 31 2006 10 2000 note 2 development stage company incorporated laws state utah january 7 1986 development stage since incorporation december 30 1993 company dissolved utah corporation reincorporated nevada corporation note 3 capitalization date incorporation company sold 1000000 shares common stock capital general corporation 2000 cash average consideration 002 per share companys authorized stock includes 100000000 shares common stock 001 par value note 4 related party transactions company neither owns leases real property office services provided without charge capital general corporation costs immaterial financial statements accordingly reflected therein officers directors company involved business activities may future become involved business opportunities specific business opportunity becomes available persons may face conflict selecting company business interests company formulated policy resolution conflicts item 14 principal accounting fees services audit fees aggregate fees billed professional services rendered kenne ruan cpa pc “kenne ruan” audit 2011 annual financial statements reviews financial statements included quarterly reports form 10q 2011 fiscal year 91737 aggregate fees billed professional services rendered kenne ruan audit 2010 annual financial statements reviews financial statements included form 10q 2010 fiscal year 100000 auditrelated fees billed kenne ruan last two fiscal years assurance related services reasonably related performance audit review financial statements reported “audit fees” tax fees billed professional services rendered kenne ruan tax compliance services last two fiscal years fees billed kenne ruan last two fiscal years products services provided kenne ruan preapproval policy procedures board reviews approves audit permissible nonaudit services performed auditors well fees charged services reviewing nonaudit service fees appointment auditors board considered whether provision services compatible maintaining auditors’ independence services provided fees charged auditors preapproved board part iv item 15 item 14 principal accounting fees services audit fees aggregate fees billed professional services rendered kenne ruan cpa pc “kenne ruan” audit 2012 annual financial statements reviews financial statements included quarterly reports form 10q 2012 fiscal year 91737 aggregate fees billed professional services rendered kenne ruan audit 2012 annual financial statements reviews financial statements included form 10q 2012 fiscal year 100000 auditrelated fees billed kenne ruan last two fiscal years assurance related services reasonably related performance audit review financial statements reported “audit fees” tax fees billed professional services rendered kenne ruan tax compliance services last two fiscal years fees billed kenne ruan last two fiscal years products services provided kenne ruan preapproval policy procedures board reviews approves audit permissible nonaudit services performed auditors well fees charged services reviewing nonaudit service fees appointment auditors board considered whether provision services compatible maintaining auditors’ independence services provided fees charged auditors preapproved board part iv item 15 item 14 principal accountant fees services audit fees aggregate fees billed professional services rendered kenne ruan cpa pc audit 2009 annual financial statements reviews financial statements included quarterly reports form 10q fiscal year 2009 100000 aggregate fees billed professional services rendered kenne ruan audit 2008 annual financial statements reviews financial statements included quarterly reports form 10q fiscal year 2008 100000 auditrelated fees billed kenne ruan last two fiscal years assurance related services reasonably related performance audit review company’s financial statements reported “audit fees” tax fees billed professional services rendered kenne ruan tax compliance services fiscal years 2009 2008 fees billed kenne ruan last two fiscal years products services provided kenne ruan outside fees disclosed “audit fees” preapproval policy procedures company’s board directors reviews approves audit permissible nonaudit services performed auditors well fees charged services reviewing nonaudit service fees appointment company’s auditors board directors considered whether provision services compatible maintaining auditors’ independence services provided fees charged auditors preapproved board directors item 15 item 7 management’s discussion analysis plan operation general statements contained herein historical facts forwardlooking statements term defined private securities litigation reform act 1995 although believe expectations reflected forward looking statements reasonable forward looking statements subject risks uncertainties could cause actual results differ projected caution investors forward looking statements made us guarantees future performance actual results may differ materially forwardlooking statements risks uncertainties include without limitation wellestablished competitors substantially greater financial resources longer operating histories regulatory delays denials ability compete startup company highly competitive market access sources capital following discussion analysis read conjunction financial statements notes thereto included elsewhere form 10k except historical information contained herein discussion form 10k contains certain forwardlooking statements involve risks uncertainties statements plans objectives expectations intentions cautionary statements made form 10k read applicable related forward looking statements wherever appear form 10k companys actual results could differ materially discussed undertake obligation update publicly forwardlooking statements reason even new information becomes available events occur future overview professional software development technology service company also leading provider industry ebusiness application solutions china main business providing application development maintenance services companies telecom logistics government industries inputting efforts develop new products services online trading platform saas platform foronline internet things “iot” application solutions mobile business application solutions anticipate making profits products services foreseeable future addition core business believe opportunities us expand new areas grow business internally acquisitions investments description investments business activities since 1999 please refer section titled “company history recent developments” item 1 description business part form 10k revenues business includes forlink brand forseries software system sales foross forrms formail copyright licensing forseries related system integration consists hardware sales related services rendered customers following table shows revenue breakdown business line indicated foregoing table sales forseries software percentage net sales increased 55 2009 92 2010 sales forseries related system integration percentage net sales decreased 45 2009 8 2010 main reason third last sale system integration project guangxi caexpo recognized 2009 decrease sales system integration also attributable decrease customer sales contracts due lower customer demand however company’s strategy increase software sales carry higher profit margins generally offer products services customers totalsolutions basis contracts undertake customers include revenue hardware software sales professional services sources revenue · hardware revenue revenues sales products mainly derived sales hardware normally hardware procure connection totalsolutions basis system integration contracts · service revenue service revenue consists revenue professional services provide customers network planning design systems integration software development modification installation related training services · software license revenue generate revenue form fees received customers issue licenses use software products agreed period time costs revenue costs revenue include hardware costs softwarerelated costs compensation travel expenses professionals involved relevant projects hardware costs consist primarily third party hardware costs recognize hardware costs full upon delivery hardware customers softwarerelated costs consist primarily packaging written manual expenses proprietary software products software license fees paid thirdparty software providers right sublicense products customers part solutions offerings costs associated designing modifying proprietary software classified research development expenses costs incurred operating expenses operating expenses comprised selling expenses research development expenses general administrative expenses selling expenses include compensation expenses employees sales marketing departments third party advertising expenses well sales commissions sales agency fees research development expenses relate development new software modification existing software expense costs incurred taxes according relevant prc tax rules regulations ftcl bfhx recognized new technology enterprises operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl received full exemption eit fiscal years 1999 2002 50 eit reduction rate 75 fiscal years 2003 2005 december 31 2008 ftcl entitled eit rate 25 pursuant approval document dated january 19 2004 issued state tax bureau bfhx received full exemption eit fiscal years 2004 2006 december 31 2008 bfhx entitled eit rate 75 hong kong profits tax calculated 165 estimated assessable profits fthk period eit rates ftcd nnbce 25 provision eit hong kong profits tax made ftcl bfhx ftcd ftgx nnbce fthk gained taxable income periods revenue sale hardware procured china together related system integration subject 17 value added tax “vat” however companies develop software registered generally entitled vat refund net amount vat payable exceeds 3 software sales excess portion vat refundable upon application tax authority policy effective 2011 changes chinese tax laws may adversely affect future operations foreign exchange functional currency united states dollars “usd” financial records maintained financial statements prepared usd functional currency fthk hong kong dollars “hkd” financial records maintained financial statements prepared hkd functional currency ftcl bfhx ftgx ftcd renminbi “rmb” financial records maintained financial statements prepared rmb foreign currency transactions year translated company’s denominated currency exchange rates ruling transaction dates gains losses resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements company’s operations based outside united states translated usd accordance asc 830 management determined functional currency company’s foreign operations applicable local currency translating functional currency financial statements usd yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component stockholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including usd based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively usd switch managed floating exchange rate based market supply demand reference basket currencies yet named people’s bank china likely increase volatility rmb compared usd exchange rate rmb usd changed rmb 828 811 late july 2005 following table shows exchange rates weighted average rates years ended december 31 2010 2009 critical accounting policies estimates prepare consolidated financial statements accordance generally accepted accounting principles united states america preparation financial statements requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amount revenues expenses reporting period ongoing basis evaluate estimates judgments including related revenues cost revenues customer contracts bad debts income taxes investment affiliate longlived assets goodwill base estimates judgments historical experience various factors believe reasonable actual results may differ estimates different assumptions conditions believe following critical accounting policies affect significant judgments estimates used preparation consolidated financial statements revenue recognition generally provide services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance evaluate revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically may required make judgments · whether fees associated products services fixed determinable · whether collection fees reasonably assured · whether professional services essential functionality related software product · whether ability make reasonably dependable estimates application percentageofcompletion method · whether verifiable objective evidence fair value products services company recognizes revenues accordance provisions asc 985 “software revenue recognition” asc 985 requires among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectability probable software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable revenue nonsoftware multipleelement arrangements recognized accordance asc 60525 “revenue arrangements multiple deliverables” asc 60525 company recognizes revenue multipledeliverables value customer standalone basis deliverables arrangement meet separation criteria asc 60525 treated one unit accounting purposes revenue recognition case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant asc 98560525 hardware transactions software incidental company apply separate accounting guidance hardware software elements company applies provisions asc 98560515 per asc 98560515 software considered essential functionality hardware considered “software related” excluded scope asc 98560515 sale computer hardware recognized revenue transfer risks rewards ownership generally coincides time goods delivered customers title passed remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer contract execution company determined setup activities constitute separate unit accounting accordingly related setup fees recognized protractedly term contract company considering applicability asc 98560555 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis company determines customer contractual right take possession company’s software time hosting period without significant penalty asc 985605 would apply contracts accordance asc 98560555 income taxes company accounts income taxes accordance asc 740 “accounting income taxes” asc 740 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized july 2006 fasb asc 7401025 “accounting uncertainty income taxesan interpretation fasb statement 109” interpretation provides guidance recognizing measuring uncertain tax positions defined asc 740 “accounting income taxes” asc 7401025 prescribes threshold condition tax position must meet benefit uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectability amounts due customers could material effect results operations period changes events occur attempts collect receivable failed receivable written allowance recent accounting pronouncements october 27 2010 fasb clarified disclosures proposed part project disclosures certain loss contingencies effective 2010 annual financial statements public calendaryearend entities originally proposed board discuss revised effective date redeliberations project october 19 2010 fasb iasb issued dp obtain feedback fasb’s iasb’s stakeholders 1 time effort would need adopt several new significant accounting reporting standards 2 dates new standards effective basis responses fasb iasb plan develop implementation plan whose main objective help stakeholders properly manage cost pace changes comments dp due january 31 2011 august 17 2010 fasb iasb issued ed lease accounting ed released fasb proposed asu creates new accounting model lessees lessors eliminates concept operating leases proposed asu finalized would converge fasb’s iasb’s accounting lease contracts significant areas january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires roll forward activities purchases sales issuance settlements assets liabilities measured using significant unobservable inputs level 3 fair value measurements guidance became effective us reporting period beginning january 1 2010 except disclosure roll forward activities level 3 fair value measurements become effective us reporting period beginning july 1 2011 requiring additional disclosures adoption new guidance material impact financial statements september 2009 fasb introduced new guidance addressing accounting revenue arrangements multiple elements certain revenue arrangements include software guidance allows companies allocate consideration multiple element arrangement way better reflects economics transaction eliminates residual method addition tangible products software components “essential functionality” tangible product scoped software revenue guidance new guidance became effective january 1 2011 expected material impact financial statements consolidated results operations year ended december 31 2010 compared year ended december 31 2009 following table sets forth results operations periods indicated net sales net sales decreased 20 6288964 2009 5027707 2010 sales forseries software increased 33 3473568 2009 4624918 2010 decrease net sales mainly attributable significant decrease system integration sales 2815396 2009 402789 2010 decrease 86 enter sales contracts significant system integration providers 2010 2009 company’s strategy focus sales forseries software sales carry higher profit margins cost sales cost sales decreased 21 2592005 2009 2038463 2010 decrease line decrease sales 2010 cost sales percentage net sales remained approximately 41 2009 2010 gross profit gross profit decreased 19 3696959 2009 2989244 2010 decrease attributable decrease overall net sales however gross profit margin remained approximately 59 2009 2010 operating expenses total operating expenses yearoveryear maintained comparable levels 3420687 2010 3440061 2009 situation principal result offset increase general administrative expenses decrease research development expenses selling expenses decreased 12 1199800 2009 1050740 2010 result dissolution one sales agency located hangzhou china september 28 2009 research development expenses decreased 28 1039742 2009 743845 2010 stemming decreased number employees research development department 61 2009 51 2010 started several new internal projects 2009 required additional research development projects finished integrated new products 2009 general administrative expenses increased 36 1199494 2009 1626102 2010 increase primarily due increase communication fees internet trusteeship management fee telecom providers increase rent forlink technologies co ltd “ftcl” beijing forlink hua xin technology co ltd “bfhx” pursuant prior lease agreements ftcl bfhx able obtain month rent free february 2009 current lease agreements ftcl bfhx free rent provision eliminated instead pay standard rent monthly basis pursuant terms lease agreements increase general administration expenses also due reclassification expenses chengdu office ftcl function ftcl’s chengdu office changed sales office management platform since january 2010 therefore expenses ftcl’s chengdu office including employee wages communication fees reclassified selling expenses 2009 general administrative expenses 2010 operating profit loss recorded operating loss 330428 2010 compared operating profit 625040 2009 decrease 153 decrease largely due decrease net sales 20 6288964 2009 5027707 2010 income increased 144 298254 2009 728107 2010 result increase vat refund income derived entirely vat refund associated software sales net profit loss recorded net loss 303632 2010 basic diluted loss 007 per share compared net profit 625040 2009 basic diluted profit 013 per share liquidity capital resources capital requirements primarily working capital requirements related costs hardware network solution projects costs associated expansion business order minimize working capital requirements generally obtain hardware vendors payment terms timed permit us receive payment customers hardware payments hardware vendors due however sometimes obtain less favorable payment terms customers thereby increasing working capital requirements historically financed working capital financing requirements careful management billing cycle limited extent bank loans net cash used operating activities 2045634 2010 compared 685985 2009 decrease net cash used mainly due decreased balance taxes payable 2010 cash flow investing activities 2974215 2010 compared 340862 2009 huge increase cash flow investing activities resulted increase funds received 3024255 transferring longterm investment guangxi caexpo decrease cash flow financing activities resulted decrease balance short term borrowings accounts receivable balance december 31 2010 3914923 compared 2434557 end 2009 increase mainly attributable one customer guangxi caexpo balance guangxi caexpo’s accounts receivable increased 3543155 december 31 2010 0 december 31 2009 inventory position end 2010 760655 compared 935566 beginning year end 2010 several inventory items process delivery two major customers ended year cash position 3580269 positive operating cash flow 1339406 primarily due disposal long term investments 2010 although revenues operating results period necessarily indicative future periods anticipate available funds cash flows generated operations sufficient meet anticipated needs working capital expenditures business expansion 2010 july 27 2010 signed bank loan finance contract standard chartered bank china ltd received recycle credit rmb 4990000 meet working capital bank loan contract accounts receivable finance contract applying bank loan limitation bank loan credits use accounts receivable customers loan mortgage end december 31 2010 balance bank loans zero may need apply bank loans future may need raise additional funds future order fund acquisitions develop new enhanced services products respond competitive pressures compete successfully larger projects involving higher levels hardware purchases business otherwise grows rapidly currently predict need raise additional funds expect raise funds new share issuances equity securities one public offerings private placements credit facilities extended lending institutions offbalance sheet arrangements december 31 2010 entered offbalance sheet arrangements individuals entities contractual obligations december 31 2010 commitments noncancelable operating leases requiring annual minimum rental payments follows item 7a item 7 managements discussion analysis financial condition results operation company operational history yet engage business kind risks inherent new inexperienced enterprises inherent companys business company made formal study economic potential business present company identified assets business opportunities acquisition february 1997 company liquidity presently available capital resources credit lines guarantees etc merger acquisition prove unsuccessful possible company may dissolved state nevada failing file reports point company would longer viable corporation nevada law would unable function legal entity management decide pursue acquisition activities management may abandon activities shares company would become worthless however companys officers directors major shareholder made oral undertaking make loans company amounts sufficient enable satisfy reporting requirements obligations incumbent public company commence limited basis process investigating possible merger acquisition candidates companys status publiclyheld corporation may enhance ability locate potential business ventures loans interest free intended repaid future date company shall received sufficient funds business acquisition loans intended provide payment filing fees professional fees printing copying fees miscellaneous fees based current economic regulatory conditions management believes possible probable company like company without assets liabilities negotiate merger acquisition viable private company opportunity arises principally high legal accounting fees length time associated registration process going public however conditions change possible would little economic value anyone taking control company item 8 item 7 management’s discussion analysis plan operation general statements contained herein historical facts forwardlooking statements term defined private securities litigation reform act 1995 although believe expectations reflected forward looking statements reasonable forward looking statements subject risks uncertainties could cause actual results differ projected caution investors forward looking statements made us guarantees future performance actual results may differ materially forwardlooking statements risks uncertainties include without limitation wellestablished competitors substantially greater financial resources longer operating histories regulatory delays denials ability compete startup company highly competitive market access sources capital following discussion analysis read conjunction financial statements notes thereto included elsewhere form 10k except historical information contained herein discussion form 10k contains certain forwardlooking statements involve risks uncertainties statements plans objectives expectations intentions cautionary statements made form 10k read applicable related forward looking statements wherever appear form 10k companys actual results could differ materially discussed undertake obligation update publicly forwardlooking statements reason even new information becomes available events occur future overview leading provider software solutions information technology services china focus providing enterprise application integration eai solutions large companies telecom finance logistics industries may 2004 launched foronline delivers enterprise applications services internet small mediumsized enterprises smes china since launch foronline quickly become important channel delivering distributing products services customers addition core business believe opportunities us expand new areas grow business internally acquisitions description acquisitions business activities since 1999 please refer section titled “company history recent developments” item 1 description business part annual report revenues business includes forlink brand forseries software system sales foross forrms formail copyright licensing forseries related system integration consists hardware sales related services rendered customers following table shows revenue breakdown business line indicated foregoing table sales forseries software percentage net sales increased 51 2007 95 2008 sales forseries related system integration percentage net sales decreased 49 2007 5 2008 changes mainly attributable strategy increasing software sales reducing low profit margin hardware projects generally offer products services customers totalsolutions basis contracts undertake customers include revenue hardware software sales professional services sources revenue · hardware revenue revenues sales products mainly derived sales hardware normally hardware procure connection totalsolutions basis system integration contracts · service revenue service revenue consists revenue professional services provide customers network planning design systems integration software development modification installation related training services · software license revenue generate revenue form fees received customers issue licenses use software products agreed period time costs revenue costs revenue include hardware costs softwarerelated costs compensation travel expenses professionals involved relevant projects hardware costs consist primarily third party hardware costs recognize hardware costs full upon delivery hardware customers softwarerelated costs consist primarily packaging written manual expenses proprietary software products software license fees paid thirdparty software providers right sublicense products customers part solutions offerings costs associated designing modifying proprietary software classified research development expenses costs incurred operating expenses operating expenses comprised selling expenses research development expenses general administrative expenses selling expenses include compensation expenses employees sales marketing departments third party advertising expenses well sales commissions sales agency fees research development expenses relate development new software modification existing software expense costs incurred taxes according relevant prc tax rules regulations ftcl bfhx recognized new technology enterprises operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl received full exemption eit fiscal years 1999 2002 50 eit reduction rate 75 fiscal years 2003 2005 december 31 2008 ftcl entitled eit rate 25 pursuant approval document dated january 19 2004 issued state tax bureau bfhx received full exemption eit fiscal years 2004 2006 december 31 2008 bfhx entitled eit rate 75 hong kong profits tax calculated 175 estimated assessable profits fthk period eit rates ftcd nnbce 25 provision eit hong kong profits tax made ftcl bfhx ftcd ftgx nnbce fthk gained taxable income periods revenue sale hardware procured china together related system integration subject 17 value added tax “vat” however companies develop software registered generally entitled vat refund net amount vat payable exceeds 3 software sales excess portion vat refundable upon application tax authority policy effective 2010 changes chinese tax laws may adversely affect future operations foreign exchange functional currency united states dollars usd financial records maintained financial statements prepared usd functional currency fthk hong kong dollars hkd financial records maintained financial statements prepared hkd functional currency ftcl bfhx ftgx ftcd renminbi rmb financial records maintained financial statements prepared rmb foreign currency transactions year translated company’s denominated currency exchange rates ruling transaction dates gains losses resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements operations based outside united states translated usd accordance sfas 52 determined functional currency company’s foreign operations applicable local currency translating functional currency financial statements usd yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component shareholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including usd based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively usd switch managed floating exchange rate based market supply demand reference basket currencies yet named people’s bank china likely increase volatility rmb compared usd exchange rate rmb usd changed rmb 828 811 late july 2005 following table shows exchange rates weighted average rates ruling years ended december 31 2008 2007 critical accounting policies estimates prepare consolidated financial statements accordance generally accepted accounting principles united states america preparation financial statements requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amount revenues expenses reporting period ongoing basis evaluate estimates judgments including related revenues cost revenues customer contracts bad debts income taxes investment affiliate longlived assets goodwill base estimates judgments historical experience various factors believe reasonable actual results may differ estimates different assumptions conditions believe following critical accounting policies affect significant judgments estimates used preparation consolidated financial statements revenue recognition generally provide services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance evaluate revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically may required make judgments · whether fees associated products services fixed determinable · whether collection fees reasonably assured · whether professional services essential functionality related software product · whether ability make reasonably dependable estimates application percentageofcompletion method · whether verifiable objective evidence fair value products services recognize revenues accordance provisions statements position sop 972 “software revenue recognition” amended sop 989 “modification sop 972 software revenue recognition respect certain transactions” staff accounting bulletin sab 104 “revenue recognition” sop 972 sab 104 require among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectibility probable revenue provision system integration services related services recognized services rendered stages separate identifiable phases project completed accepted customers revenue software sales recognized related products delivered installed collection sales proceeds deemed probable persuasive evidence arrangement exists software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant paragraph 65 sop 972 hardware transactions software incidental apply separate accounting guidance hardware software elements apply provisions eitf 0305 “applicability aicpa statement position 972 software revenue recognition nonsoftware deliverables arrangement containing morethanincidental software” eitf 0305 per eitf 0305 software considered essential functionality hardware considered “software related” excluded scope sop 972 sale computer hardware recognized revenue transfer risks rewards ownership coincides time goods delivered customers title passed pursuant sab 104 revenues remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer contract execution company determined setup activities constitute separate unit accounting accordingly related setup fees recognized ratably term contract consider applicability eitf 003 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis determine customer contractual right take possession software time hosting period without significant penalty sop 972 apply contracts accordance eitf 003 accordingly contracts would accounted pursuant sab 104 income taxes account income taxes accordance sfas 109 “accounting income taxes” sfas 109 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectibility amounts due customers could material affect results operations period changes events occur attempts collect receivable failed receivable written allowance goodwill sfas 142 goodwill intangible assets requires goodwill tested impairment annual basis december 31 us annual tests event occurs circumstances change would likely reduce fair value reporting unit carrying value events circumstances could include significant change business climate legal factors operating performance indicators competition sale disposition significant portion company application goodwill impairment test requires judgment including determination fair value company fair value company estimated using discounted cash flow methodology requires significant judgments including estimation future cash flows dependent internal forecasts estimation longterm rate growth business useful life cash flows occur determination weighted average cost capital changes estimates assumptions could materially affect determination fair value andor goodwill impairment company recent accounting pronouncements september 2006 fasb issued fas 157 fair value measurements fas 157 fas 157 defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements provisions fas 157 effective fiscal year beginning november 15 2007 currently evaluating impact provisions fas 157 february 15 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” “sfas 159” sfas 159 permits entities elect measure many financial instruments certain items fair value changes fair value reported earnings sfas 159 effective beginning first fiscal year begins november 15 2007 earlier adoption permitted december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statementsan amendment arb 51” objective statement improve relevance comparability transparency financial information reporting entity provides consolidated financial statements establishing accounting reporting standards statement effective fiscal years interim periods within fiscal years beginning december 15 2008 january 1 2009 entities calendar yearends earlier adoption prohibited effective date statement related statement 141r december 21 2007 sec issued staff accounting bulletin “sab” 110 staff accounting bulletin sab expresses views staff regarding use simplified method discussed sab 107 sab 107 developing estimate expected term plain vanilla share options accordance statement financial accounting standards 123 revised 2004 sharebased payment particular staff indicated sab 107 accept companys election use simplified method regardless whether company sufficient information make refined estimates expected term time sab 107 issued staff believed detailed external information employee exercise behavior eg employee exercise patterns industry andor categories companies would time become readily available companies therefore staff stated sab 107 would expect company use simplified method share option grants december 31 2007 staff understands detailed information employee exercise behavior may widely available december 31 2007 accordingly staff continue accept certain circumstances use simplified method beyond december 31 2007 march 2008 fasb issued fas 161 “disclosures derivative instruments hedging activitiesan amendment fasb statement 13”3 use complexity derivative instruments hedging activities increased significantly past several years constituents expressed concerns existing disclosure requirements fasb statement 133 accounting derivative instruments hedging activities provide adequate information derivative hedging activities affect entity’s financial position financial performance cash flows accordingly statement requires enhanced disclosures entity’s derivative hedging activities thereby improves transparency financial reporting statement effective financial statements issued fiscal years interim periods beginning november 15 2008 early application encouraged statement encourages require comparative disclosures earlier periods initial adoption may 2008 fasb issued fas 162 “the hierarchy generally accepted accounting principles” statement identifies sources accounting principles framework selecting principles used preparation financial statements nongovernmental entities presented conformity generally accepted accounting principles gaap united states gaap hierarchy may 2008 fasb also issued fas 163 “accounting financial guarantee insurance contractsan interpretation fasb statement 60” diversity exists practice accounting financial guarantee insurance contracts insurance enterprises fasb statement 60 accounting reporting insurance enterprises diversity results inconsistencies recognition measurement claim liabilities differing views loss incurred fasb statement 5 accounting contingencies statement requires insurance enterprise recognize claim liability prior event default insured event evidence credit deterioration occurred insured financial obligation statement also clarifies statement 60 applies financial guarantee insurance contracts including recognition measurement used account premium revenue claim liabilities clarifications increase comparability financial reporting financial guarantee insurance contracts insurance enterprises statement requires expanded disclosures financial guarantee insurance contracts accounting disclosure requirements statement improve quality information provided users financial statements statement effective financial statements issued fiscal years beginning december 15 2008 interim periods within fiscal years except disclosures insurance enterprise’s riskmanagement activities statement requires disclosures riskmanagement activities insurance enterprise effective first period including interim periods beginning issuance statement except disclosures earlier application permitted company anticipate adoption statements material effect companys financial condition results operations consolidated results operations year ended december 31 2008 compared year ended december 31 2007 net sales net sales decreased 39 5568877 2008 9121248 2007 sales forseries software increased 13 5310378 2008 4684791 2007 decrease net sales mainly attributable drop system integration sales 4436457 2007 258499 2008 decrease 94 recent major system integration project guangxi caexpo completed 2007 however significant decrease system integration sales line strategy slow system integration activities lower profit margins compared software sales cost sales cost sales decreased 56 1836509 2008 4186187 2007 decrease line decrease sales 2008 cost sales percentage net sales decreased 4589 2007 3298 2008 largely due higher margins software sales gross profit gross profit decreased 24 3732368 2008 4935061 2007 line decrease sales gross profit margin 67 2008 compared 54 2007 significant drop system integration sales lower gross profit margin software sales operating expenses total operating expenses yearoveryear maintained comparable levels 3770403 2008 3907524 2007 situation resulted largely offset increase general administrative expenses versus decrease selling expenses selling expenses decreased 11 1377501 2008 1540494 2007 decrease comparable decrease net sales research development expenses decreased 7 639927 2008 690386 2007 result continuing cost control efforts rd department 2008 general administrative expenses increased 4 1752975 2008 1676644 2007 increase primarily due depreciation exchange rate us dollar chinese rmb operating profit loss recorded operating loss 38035 2008 compared operating profit 1027538 2007 decrease 104 decrease largely due decrease net sales 39 9121248 2007 5568877 2008 income decreased 49 72533 2008 143321 2007 result decrease vat refund income derived entirely vat refund associated software sales net lossprofit recorded net loss 1241843 2008 basic diluted loss 027 per share compared net income 1508388 2007 basic diluted profit 002 per share liquidity capital resources capital requirements primarily working capital requirements related costs hardware network solution projects costs associated expansion business order minimize working capital requirements generally obtain hardware vendors payment terms timed permit us receive payment customers hardware payments hardware vendors due however sometimes obtain less favorable payment terms customers thereby increasing working capital requirements historically financed working capital financing requirements careful management billing cycle limited extent bank loans cash flow operating activities 553209 2008 compared 1433398 2007 mainly due net loss 2008 cash flow investing activities financing activities 2008 357021 10000 respectively compared 139258 591766 2007 increase cash flow investing activities resulted increase dividends received companies invested 88063 2007 452607 2008 decrease cash flow financing activities resulted decrease issuance common stock 2002 stock plan related additional paidin capital 2008 accounts receivable balance december 31 2008 898005 compared 1618697 end 2007 decrease mainly attributable better collection two customers clce guangxi caexpo despite increase china mobile’s accounts receivable 80933 december 31 2007 232750 december 31 2008 balance clce’s accounts receivable decreased 50671 december 31 2008 515119 december 31 2007 balance guangxi caexpo’s accounts receivable decreased 0 december 31 2008 361203 december 31 2007 inventory position end 2008 1019713 compared 498356 beginning year end 2008 several inventory items process delivery two major customers caused 2008 yearend inventory larger usual ended year cash position 2543430 negative operating cash flow 553209 primarily due increase net assets although revenues operating results period necessarily indicative future periods anticipate available funds cash flows generated operations sufficient meet anticipated needs working capital expenditures business expansion 2008 may need raise additional funds future however order fund acquisitions develop new enhanced services products respond competitive pressures compete successfully larger projects involving higher levels hardware purchases business otherwise grows rapidly currently predict need raise additional funds expect raise funds new issuances shares equity securities one public offerings private placements credit facilities extended lending institutions offbalance sheet arrangements december 31 2008 entered offbalance sheet arrangements individuals entities contractual obligations december 31 2008 commitments noncancelable operating leases requiring annual minimum rental payments follows item 7a item 7 managements discussion analysis financial condition results operation company operational history yet engage business kind risks inherent new inexperienced enterprises inherent companys business company made formal study economic potential business present company identified assets business opportunities acquisition march 1998 company liquidity presently available capital resources credit lines guarantees etc merger acquisition prove unsuccessful possible company may dissolved state nevada failing file reports point company would longer viable corporation nevada law would unable function legal entity management decide pursue acquisition activities management may abandon activities shares company would become worthless however companys officers directors major shareholder made oral undertaking make loans company amounts sufficient enable satisfy reporting requirements obligations incumbent public company commence limited basis process investigating possible merger acquisition candidates companys status publiclyheld corporation may enhance ability locate potential business ventures loans interest free intended repaid future date company shall received sufficient funds business acquisition loans intended provide payment filing fees professional fees printing copying fees miscellaneous fees based current economic regulatory conditions management believes possible probable company like company without assets liabilities negotiate merger acquisition viable private company opportunity arises principally high legal accounting fees length time associated registration process going public however conditions change possible would little economic value anyone taking control company item 7a item 7 management’s discussion analysis financial condition results operations general following discussion analysis read conjunction financial statements notes thereto included elsewhere form 10k except historical information contained herein discussion form 10k contains certain forwardlooking statements involve risks uncertainties statements plans objectives expectations intentions cautionary statements made form 10k read applicable related forwardlooking statements wherever appear form 10k actual results could differ materially discussed except required law undertake obligation update forwardlooking statements reason please see “cautionary note regarding forwardlooking information” section information regarding forwardlooking statements overview professional software development technology service company also leading provider industry ebusiness application solutions china main business providing application development maintenance services companies telecom logistics government industries inputting efforts develop new products services online trading platform saas platform foronline internet things “iot” application solutions mobile business application solutions addition core business believe opportunities us expand new areas grow business internally acquisitions investments please see “business” section information operations recent developments business revenues business includes forlink branded forseries software system sales foross forrms formail copyright licensing forseries related system integration consists hardware sales related services rendered customers following table shows revenue breakdown business line indicated foregoing table sales forseries software percentage net sales increased 92 2010 96 2011 sales forseries related system integration percentage net sales decreased 8 2010 4 2011 decrease sales system integration attributable decrease customer sales contracts due lower customer demand strategy however increase software sales carry higher profit margins generally offer products services customers totalsolutions basis contracts undertake customers include revenue hardware software sales professional services sources revenue · hardware revenue revenues sales products mainly derived sales hardware normally hardware procure connection totalsolutions basis system integration contracts · service revenue service revenue consists revenue professional services provide customers network planning design systems integration software development modification installation related training services · software license revenue generate revenue form fees received customers issue licenses use software products agreed period time costs revenue costs revenue include hardware costs softwarerelated costs compensation travel expenses professionals involved relevant projects hardware costs consist primarily thirdparty hardware costs recognize hardware costs full upon delivery hardware customers softwarerelated costs consist primarily packaging written manual expenses proprietary software products software license fees paid thirdparty software providers right sublicense products customers part solutions offerings costs associated designing modifying proprietary software classified research development expenses costs incurred operating expenses operating expenses comprised selling expenses research development expenses general administrative expenses selling expenses include compensation expenses employees sales marketing departments third party advertising expenses sales commissions sales agency fees research development expenses relate development new software modification existing software expense costs incurred taxes according relevant prc tax rules regulations ftcl bfhx recognized new technology enterprises operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl received full exemption eit fiscal years 1999 2002 50 eit reduction rate 75 fiscal years 2003 2005 december 31 2011 ftcl entitled eit rate 15 pursuant approval document dated january 19 2004 issued state tax bureau bfhx received full exemption eit fiscal years 2004 2006 december 31 2011 bfhx entitled eit rate 25 hong kong profits tax calculated 165 estimated assessable profits fthk eit rates ftcd nnbce 25 provision eit hong kong profits tax made ftcl bfhx ftcd ftgx nnbce fthk taxable income relevant periods revenue sale hardware procured china together related system integration subject 17 value added tax “vat” companies develop software registered generally entitled vat refund net amount vat payable exceeds 3 software sales excess portion vat refundable upon application tax authority policy effective 2012 changes chinese tax laws may adversely affect future operations foreign exchange functional currency united states dollars “usd” financial records maintained financial statements prepared usd functional currency fthk hong kong dollars “hkd” financial records maintained financial statements prepared hkd functional currency ftcl bfhx ftgx ftcd renminbi “rmb” financial records maintained financial statements prepared rmb foreign currency transactions year translated company’s denominated currency exchange rates transaction dates gains losses resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements operations based outside united states translated usd accordance asc 830 management determined functional currency foreign operations applicable local currency translating functional currency financial statements usd yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component stockholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including usd based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively usd switch managed floating exchange rate based market supply demand reference basket currencies following table shows exchange rates weighted average rates years ended december 31 2011 2010 critical accounting policies estimates prepare consolidated financial statements accordance generally accepted accounting principles united states america preparation financial statements requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amount revenues expenses reporting period ongoing basis evaluate estimates judgments including related revenues cost revenues customer contracts bad debts income taxes investment affiliate longlived assets goodwill base estimates judgments historical experience various factors believe reasonable actual results may differ estimates different assumptions conditions significant accounting policies fully described note 2 consolidated financial statements believe following critical accounting policies affect significant judgments estimates used preparation consolidated financial statements revenue recognition generally provide services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance evaluate revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically may required make judgments · whether fees associated products services fixed determinable · whether collection fees reasonably assured · whether professional services essential functionality related software product · whether ability make reasonably dependable estimates application percentageofcompletion method · whether verifiable objective evidence fair value products services recognize revenues accordance provisions asc 985 “software revenue recognition” asc 985 requires among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectability probable software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable revenue nonsoftware multipleelement arrangements recognized accordance asc 60525 “revenue arrangements multiple deliverables” asc 60525 recognize revenue multipledeliverables value customer standalone basis deliverables arrangement meet separation criteria asc 60525 treated one unit accounting purposes revenue recognition case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant asc 98560525 hardware transactions software incidental apply separate accounting guidance hardware software elements apply provisions asc 98560515 per asc 98560515 software considered nonessential functionality hardware considered “software related” excluded scope asc 98560515 sale computer hardware recognized revenue transfer risks rewards ownership generally coincides time goods delivered customers title passed remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer time contract executed determined setup activities constitute separate unit accounting accordingly related setup fees recognized protractedly term contract considering applicability asc 98560555 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis determine customer contractual right take possession software time hosting period without significant penalty asc 985605 would apply contracts accordance asc 98560555 income taxes account income taxes accordance asc 740 “accounting income taxes” asc 740 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized july 2006 fasb asc 7401025 “accounting uncertainty income taxesan interpretation fasb statement 109” interpretation provides guidance recognizing measuring uncertain tax positions defined asc 740 “accounting income taxes” asc 7401025 prescribes threshold condition tax position must meet benefit uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectability amounts due customers could material effect results operations period changes events occur attempts collect receivable failed receivable written allowance recent accounting pronouncements may 2011 fasb issued authoritative pronouncement fair value measurement guidance result joint efforts fasb international accounting standards board develop single converged fair value framework guidance largely consistent existing fair value measurement principles gaap guidance expands existing disclosure requirements fair value measurements makes amendments mainly including ·highestandbestuse valuationpremise concepts nonfinancial assetsthe guidance indicates highestandbestuse valuationpremise concepts apply measuring fair value nonfinancial assets ·application financial assets financial liabilities offsetting positions market risks counterparty credit riskthe guidance permits exception fair value measurement principles financial assets financial liabilities derivatives offsetting positions market risks counterparty credit risk several criteria met criteria met entity measure fair value net risk position ·premiums discounts fair value measurethe guidance provides premiums discounts reflect size characteristic reporting entity’s holding specifically blockage factor adjusts quoted price asset liability market’s normal daily trading volume sufficient absorb quantity held entity rather characteristic asset liability example control premium measuring fair value controlling interest permitted fair value measurement ·fair value instrument classified reporting entity’s stockholders’ equitythe guidance prescribes model measuring fair value instrument classified stockholders’ equity model consistent guidance measuring fair value liabilities ·disclosures fair value measurementsthe guidance expands disclosure requirements particularly level 3 inputs required disclosures include ifor fair value measurements categorized level 3 fair value hierarchy 1 quantitative disclosure unobservable inputs assumptions used measurement 2 description valuation process place eg entity decides valuation policies procedures well changes analyses fair value measurements period 3 narrative description sensitivity fair value changes unobservable inputs interrelationships inputs iithe level fair value hierarchy items measured fair value statement financial position whose fair value must disclosed guidance applied prospectively effective interim annual periods beginning december 15 2011 public entities early application public entities permitted expect adoption guidance significant effect consolidated financial statements june 2011 fasb issued authoritative pronouncement require entity present total comprehensive income components net income components comprehensive income either single continuous statement comprehensive income two separate consecutive statements choices entity required present component net income along total net income component comprehensive income along total comprehensive income total amount comprehensive income guidance eliminates option present components comprehensive income part statement changes stockholders’ equity guidance change items must reported comprehensive income item comprehensive income must reclassified net income guidance applied retrospectively public entities guidance effective fiscal years interim periods within years beginning december 15 2011 early adoption permitted december 2011 fasb issued authoritative pronouncement related deferral effective date amendments presentation reclassifications items accumulated comprehensive income guidance allows fasb redeliberate whether present face financial statements effects reclassifications accumulated comprehensive income components net income comprehensive income periods presented fasb considering operational concerns presentation requirements reclassification adjustments needs financial statement users additional information reclassification adjustments entities continue report reclassifications accumulated comprehensive income consistent presentation requirements effect pronouncement updated issued june 2011 expect adoption guidance significant effect consolidated financial statements september 2011 fasb issued authoritative pronouncement related testing goodwill impairment guidance intended simplify entities public nonpublic test goodwill impairment guidance permits entity first assess qualitative factors determine whether “more likely not” fair value reporting unit less carrying amount basis determining whether necessary perform twostep goodwill impairment test guidance effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted including annual interim goodwill impairment tests performed date september 15 2011 public entity’s financial statements recent annual interim period yet issued expect adoption pronouncement significant effect consolidated financial statements december 2011 fasb issued authoritative pronouncement related disclosures offsetting assets liabilities guidance requires entity disclose information offsetting related arrangements enable users financial statements understand effect arrangements financial position entity required apply amendments annual reporting periods beginning january 1 2013 interim periods within annual periods entity provide disclosures required amendments retrospectively comparative periods presented process evaluating effect adoption guidance consolidated financial statements consolidated results operations year ended december 31 2011 compared year ended december 31 2010 following table sets forth results operations periods indicated net sales net sales decreased 32 5027707 2010 3408565 2011 sales forseries software decreased 29 4624918 2010 3287638 2011 decrease net sales mainly attributable significant decrease software sales 4624918 2010 3287638 2011 decrease 29 recognized significant sales guangxi caexpo 2010 comparable sales customer another customer 2011 cost sales cost sales decreased 19 2038463 2010 1658765 2011 decrease line decrease sales cost sales percentage net sales approximately 42 2010 2011 gross profit gross profit decreased 41 2989244 2010 1749800 2011 decrease attributable decrease net sales gross profit margin however remained approximately 58 2010 2011 operating expenses total operating expenses increased 3420687 2010 6790682 2011 increase mainly due significant increase general administrative expenses selling expenses increased 6 1050740 2010 1109193 2011 result increase marketing 2011 research development expenses decreased 2 743845 2010 723754 2011 general administrative expenses increased 205 1626102 2010 4957735 2011 increase primarily due provision bad debts 2011 operating profit loss recorded operating loss 5040882 2011 compared operating loss 431443 2010 increase 1068 increase largely due increase provision bad debts 3719713 2011 income decreased 96 728107 2010 25561 2011 result decrease vat refund income derived entirely vat refund associated software sales net profit loss recorded net loss 4944011 2011 basic diluted loss 106 per share compared net loss 330428 2010 basic diluted loss 007 per share liquidity capital resources capital requirements primarily working capital requirements related costs hardware network solution projects costs associated expansion business order minimize working capital requirements generally obtain hardware vendors payment terms timed permit us receive payment customers hardware payments hardware vendors due sometimes obtain less favorable payment terms customers thereby increasing working capital requirements historically financed working capital financing requirements careful management billing cycle limited extent bank loans net cash used operating activities 2331803 2011 compared 2037642 2010 increase net cash used net loss 4944011 2011 cash flow investing activities 50370 2011 compared 2974215 2010 significant decrease cash used investing activities transfer longterm investment 2011 2010 increase cash flow financing activities 10458 2010 313232 2011 due increase balance shortterm borrowings accounts receivable balance december 31 2011 203910 compared 3778529 end 2010 decrease mainly attributable one customer guangxi caexpo balance guangxi caexpo’s accounts receivable decreased 0 december 31 2011 1901562 rmb 12170000 december 31 2010 accounts receivable guangxi caexpo 2011 accounted provision bad debts inventory position end 2011 1157934 compared 633998 beginning year end 2011 several inventory items process delivery two major customers ended year cash position 1692449 negative operating cash flow 1887820 primarily due increase operating loss 2011 although revenues operating results period necessarily indicative future periods anticipate available funds cash flows generated operations sufficient meet anticipated needs working capital expenditures business expansion 2012 october 2011 signed bank loan finance contract china mingsheng bank ltd received credit rmb 2000000 meet working capital end december 31 2011 balance bank loans rmb 2000000 may need raise additional funds future order fund acquisitions develop new enhanced services products respond competitive pressures compete successfully larger projects involving higher levels hardware purchases business otherwise grows rapidly currently predict need raise additional funds expect raise funds new issuances equity securities one public offerings private placements credit facilities extended lending institutions offbalance sheet arrangements offbalance sheet arrangements reasonably likely current future effect financial condition changes financial condition revenues expenses results operations liquidity capital expenditures capital resources contractual obligations december 31 2011 commitments noncancelable operating leases requiring annual minimum rental payments follows item 7a item 7management’s discussion analysis financial condition results operations general following discussion analysis read conjunction financial statements notes thereto included elsewhere form 10k except historical information contained herein discussion form 10k contains certain forwardlooking statements involve risks uncertainties statements plans objectives expectations intentions cautionary statements made form 10k read applicable related forwardlooking statements wherever appear form 10k actual results could differ materially discussed except required law undertake obligation update forwardlooking statements reason please see “cautionary note regarding forwardlooking information” section information regarding forwardlooking statements overview professional software development technology service company also leading provider industry ebusiness application solutions china main business providing application development maintenance services companies telecom logistics government industries inputting efforts develop new products services online trading platform saas platform foronline internet things “iot” application solutions mobile business application solutions addition core business believe opportunities us expand new areas grow business internally acquisitions investments please see “business” section information operations recent developments business revenues business includes forlink branded forseries software system sales foross forrms formail copyright licensing forseries related system integration consists hardware sales related services rendered customers generally offer products services customers totalsolutions basis contracts undertake customers include revenue hardware software sales professional services sources revenue ·hardware revenue revenues sales products mainly derived sales hardware normally hardware procure connection totalsolutions basis system integration contracts ·service revenue service revenue consists revenue professional services provide customers network planning design systems integration software development modification installation related training services ·software license revenue generate revenue form fees received customers issue licenses use software products agreed period time costs revenue costs revenue include hardware costs softwarerelated costs compensation travel expenses professionals involved relevant projects hardware costs consist primarily thirdparty hardware costs recognize hardware costs full upon delivery hardware customers softwarerelated costs consist primarily packaging written manual expenses proprietary software products software license fees paid thirdparty software providers right sublicense products customers part solutions offerings costs associated designing modifying proprietary software classified research development expenses costs incurred operating expenses operating expenses comprised selling expenses research development expenses general administrative expenses selling expenses include compensation expenses employees sales marketing departments third party advertising expenses sales commissions sales agency fees research development expenses relate development new software modification existing software expense costs incurred taxes according relevant prc tax rules regulations ftcl bfhx recognized new technology enterprises operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl received full exemption eit fiscal years 1999 2002 50 eit reduction rate 75 fiscal years 2003 2005 december 31 2012 ftcl entitled eit rate 15 pursuant approval document dated january 19 2004 issued state tax bureau bfhx received full exemption eit fiscal years 2004 2006 december 31 2012 bfhx entitled eit rate 25 hong kong profits tax calculated 165 estimated assessable profits fthk eit rates ftcd nnbce 25 provision eit hong kong profits tax made ftcl bfhx ftcd ftgx nnbce fthk taxable income relevant periods revenue sale hardware procured china together related system integration subject 17 value added tax “vat” companies develop software registered generally entitled vat refund net amount vat payable exceeds 3 software sales excess portion vat refundable upon application tax authority policy effective 2013 changes chinese tax laws may adversely affect future operations foreign exchange functional currency united states dollars “usd” financial records maintained financial statements prepared usd functional currency fthk hong kong dollars “hkd” financial records maintained financial statements prepared hkd functional currency ftcl bfhx ftgx ftcd renminbi “rmb” financial records maintained financial statements prepared rmb foreign currency transactions year translated company’s denominated currency exchange rates transaction dates gains losses resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements operations based outside united states translated usd accordance asc 830 management determined functional currency foreign operations applicable local currency translating functional currency financial statements usd yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component stockholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including usd based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively usd switch managed floating exchange rate based market supply demand reference basket currencies following table shows exchange rates weighted average rates years ended december 31 2012 2011 critical accounting policies estimates prepare consolidated financial statements accordance generally accepted accounting principles united states america preparation financial statements requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amount revenues expenses reporting period ongoing basis evaluate estimates judgments including related revenues cost revenues customer contracts bad debts income taxes investment affiliate longlived assets goodwill base estimates judgments historical experience various factors believe reasonable actual results may differ estimates different assumptions conditions significant accounting policies fully described note 2 consolidated financial statements believe following critical accounting policies affect significant judgments estimates used preparation consolidated financial statements revenue recognition generally provide services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance evaluate revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically may required make judgments ·whether fees associated products services fixed determinable ·whether collection fees reasonably assured ·whether professional services essential functionality related software product ·whether ability make reasonably dependable estimates application percentageofcompletion method ·whether verifiable objective evidence fair value products services recognize revenues accordance provisions asc 985 “software revenue recognition” asc 985 requires among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectability probable software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable revenue nonsoftware multipleelement arrangements recognized accordance asc 60525 “revenue arrangements multiple deliverables” asc 60525 recognize revenue multipledeliverables value customer standalone basis deliverables arrangement meet separation criteria asc 60525 treated one unit accounting purposes revenue recognition case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant asc 98560525 hardware transactions software incidental apply separate accounting guidance hardware software elements apply provisions asc 98560515 per asc 98560515 software considered nonessential functionality hardware considered “software related” excluded scope asc 98560515 sale computer hardware recognized revenue transfer risks rewards ownership generally coincides time goods delivered customers title passed remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer time contract executed determined setup activities constitute separate unit accounting accordingly related setup fees recognized protractedly term contract considering applicability asc 98560555 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis determine customer contractual right take possession software time hosting period without significant penalty asc 985605 would apply contracts accordance asc 98560555 income taxes account income taxes accordance asc 740 “accounting income taxes” asc 740 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized july 2006 fasb asc 7401025 “accounting uncertainty income taxesan interpretation fasb statement 109” interpretation provides guidance recognizing measuring uncertain tax positions defined asc 740 “accounting income taxes” asc 7401025 prescribes threshold condition tax position must meet benefit uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectability amounts due customers could material effect results operations period changes events occur attempts collect receivable failed receivable written allowance recent accounting pronouncements may 2011 fasb issued asu 201104 provide consistent definition fair value “fv” ensure fv measurement disclosure requirements similar accounting principles generally accepted united states america “us gaap” ifrs asu 201104 changes certain fv measurement principles enhances disclosure requirements particularly level 3 fv measurements adoption asu 201104 significant impact company’s financial statements july 2012 fasb issued authoritative pronouncement related testing indefinitelived intangible assets goodwill impairment guidance entity testing indefinitelived intangible asset impairment option performing qualitative assessment calculating fair value asset entity determines basis qualitative factors fair value indefinitelived intangible asset likely ie likelihood 50 percent impaired entity would need calculate fair value asset guidance revise requirement test indefinitelived intangible assets annually impairment addition guidance amend requirement test assets impairment annual tests change events circumstances however revise examples events circumstances entity consider interim periods guidance effective annual interim impairment tests performed fiscal years beginning september 15 2012 early adoption permitted adoption guidance significant effect consolidated financial statements february 2013 fasb issued asu 201302 addresses reporting reclassifications accumulated comprehensive income asu clarifies fasb codification topic 220 comprehensive income requires entity report effect significant reclassifications accumulated comprehensive income net income line items affected amount required us gaap reclassified entirety net income reporting period amounts required reclassified entirety net income must crossreferenced disclosures provide additional detail amounts amendments effective reporting periods beginning december 15 2013 significant amounts company’s accumulated comprehensive income relate foreign exchange translations company expect significant impact standard foreseeable future accounting standards issued proposed fasb standardssetting bodies require adoption future date expected significant impact company’s consolidated financial statements upon adoption consolidated results operations year ended december 31 2012 compared year ended december 31 2011 following table sets forth results operations periods indicated net sales net sales decreased 14 3408565 2011 2929699 2012 sales forseries software decreased 29 3287638 2011 2341185 2012 decrease net sales mainly attributable significant decrease software sales 3287638 2011 2341185 2012 decrease 29 july 2012 china state council issued amendments current rules regulations applicable chinas electronic online trading markets amendments restricted bulkcommodities forwardtrade exchange markets directly led overall decrease demand electronic trading software following table shows revenue breakdown business line percentage net sales indicated foregoing table sales forseries software percentage net sales increased 96 2011 80 2012 sales forseries related system integration percentage net sales increased 4 2011 9 2012 increase sales system integration attributable increase customer sales contracts due customer demand consulting services percentage net sales increased 0 2011 11 2012 due experience bulk commodities electronic trading applications began providing consulting services potential customers 2012 strategy however increase software sales carry higher profit margins cost sales cost sales decreased 5 1658765 2011 1579517 2012 decrease line decrease sales cost sales percentage net sales 54 49 2012 2011 gross profit gross profit decreased 23 1749800 2011 1350182 2012 decrease attributable decrease net sales gross profit margin however 46 51 2012 2011 separately operating expenses total operating expenses increased 6790682 2011 3256992 2012 increase mainly due significant increase general administrative expenses selling expenses decreased 10 1109193 2011 1001135 2012 result slight decrease marketing 2012 research development expenses increased 29 723754 2011 935869 2012 increase due increase expenses company’s internal research projects general administrative expenses decreased 73 4957735 2011 1319988 2012 decrease primarily attributable 3650000 bad debt expense recorded 2011 without nonrecurring expense general administrative expense would increased 1 12253 1307735 1319988 operating profit loss recorded operating loss 1906810 2012 compared operating loss 5040882 2011 decrease 62 decrease operating loss largely due higher general administrative expense 2011 income decreased 96 25561 2011 7792 2012 result decrease vat refund income derived entirely vat refund associated software sales net profit loss recorded net loss 1948885 2012 basic diluted loss 042 per share compared net loss 4944011 2011 basic diluted loss 106 per share liquidity capital resources net cash used operating activities 1016637 2012 compared 2331803 2011 decrease net cash used due net loss 1948885 2012 cash flow investing activities 606002 2012 compared 50370 2011 significant decrease cash used investing activities february 2 2012 wuxi exchange increased registered capital rmb 50000000 since invested additional funds 365922 rmb 2300000 wuxi exchange holding remained 10 equity interest decrease cash flow financing activities 313232 2011 18139 2012 due increase balance shortterm borrowings 2012 accounts receivable balance december 31 2012 132892 compared 203910 end 2011 decrease 71018 due collection accounts receivable one major customers inventory position end 2012 1554868 compared 1157934 beginning year end 2012 several inventory items process delivery two major customers ended year cash position 103578 negative operating cash flow 1016637 primarily due operating loss 2012 although revenues operating results period necessarily indicative future periods anticipate available funds cash flows generated operations sufficient meet anticipated needs working capital expenditures business expansion 2013 june 2012 signed bank loan finance contract china mingsheng bank ltd received credit rmb 2000000 meet working capital end december 31 2012 balance bank loans rmb 2000000 may need raise additional funds future order fund acquisitions develop new enhanced services products respond competitive pressures compete successfully larger projects involving higher levels hardware purchases business otherwise grows rapidly currently predict need raise additional funds expect raise funds new issuances equity securities one public offerings private placements credit facilities extended lending institutions primary capital requirements relate capital expenditures associated hardware network solution projects additional costs incurred expand business order minimize working capital requirements generally negotiate payment terms hardware vendors allow us receive payments customers prior hardware vendor payables becoming due historically financed working capital financing requirements careful management billing cycle limited extent bank loans offbalance sheet arrangements offbalance sheet arrangements reasonably likely current future effect financial condition changes financial condition revenues expenses results operations liquidity capital expenditures capital resources contractual obligations december 31 2012 commitments noncancelable operating leases requiring annual minimum rental payments follows item 7a item 7 management’s discussion analysis plan operation general statements contained herein historical facts forwardlooking statements term defined private securities litigation reform act 1995 although believe expectations reflected forward looking statements reasonable forward looking statements subject risks uncertainties could cause actual results differ projected caution investors forward looking statements made us guarantees future performance actual results may differ materially forwardlooking statements risks uncertainties include without limitation wellestablished competitors substantially greater financial resources longer operating histories regulatory delays denials ability compete startup company highly competitive market access sources capital following discussion analysis read conjunction financial statements notes thereto included elsewhere annual report form 10k “form 10k” except historical information contained herein discussion form 10k contains certain forwardlooking statements involve risks uncertainties statements plans objectives expectations intentions cautionary statements made form 10k read applicable related forward looking statements wherever appear form 10k companys actual results could differ materially discussed undertake obligation update publicly forwardlooking statements reason even new information becomes available events occur future overview professional software development technology service company also leading provider industry ebusiness application solutions china main business providing application development maintenance services companies telecom logistics government industries inputting efforts develop new products services online trading platform saas platform foronline internet things “iot” application solutions mobile business application solutions anticipate making profits products services foreseeable future addition core business believe opportunities us expand new areas grow business internally acquisitions investments description investments business activities since 1999 please refer section titled “company history recent developments” item 1 description business part form 10k revenues business includes forlink brand forseries software system sales foross forrms formail copyright licensing forseries related system integration consists hardware sales related services rendered customers following table shows revenue breakdown business line indicated foregoing table sales forseries software percentage net sales decreased 95 2008 55 2009 sales forseries related system integration percentage net sales increased 5 2008 45 2009 main reason third last sale system integration project guangxi caexpo recognized 2009 however company’s strategy still increase software sales carry higher profit margins generally offer products services customers totalsolutions basis contracts undertake customers include revenue hardware software sales professional services sources revenue · hardware revenue revenues sales products mainly derived sales hardware normally hardware procure connection totalsolutions basis system integration contracts · service revenue service revenue consists revenue professional services provide customers network planning design systems integration software development modification installation related training services · software license revenue generate revenue form fees received customers issue licenses use software products agreed period time costs revenue costs revenue include hardware costs softwarerelated costs compensation travel expenses professionals involved relevant projects hardware costs consist primarily third party hardware costs recognize hardware costs full upon delivery hardware customers softwarerelated costs consist primarily packaging written manual expenses proprietary software products software license fees paid thirdparty software providers right sublicense products customers part solutions offerings costs associated designing modifying proprietary software classified research development expenses costs incurred operating expenses operating expenses comprised selling expenses research development expenses general administrative expenses selling expenses include compensation expenses employees sales marketing departments third party advertising expenses well sales commissions sales agency fees research development expenses relate development new software modification existing software expense costs incurred taxes according relevant prc tax rules regulations ftcl bfhx recognized new technology enterprises operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl received full exemption eit fiscal years 1999 2002 50 eit reduction rate 75 fiscal years 2003 2005 december 31 2008 ftcl entitled eit rate 25 pursuant approval document dated january 19 2004 issued state tax bureau bfhx received full exemption eit fiscal years 2004 2006 december 31 2008 bfhx entitled eit rate 75 hong kong profits tax calculated 175 estimated assessable profits fthk period eit rates ftcd nnbce 25 provision eit hong kong profits tax made ftcl bfhx ftcd ftgx nnbce fthk gained taxable income periods revenue sale hardware procured china together related system integration subject 17 value added tax “vat” however companies develop software registered generally entitled vat refund net amount vat payable exceeds 3 software sales excess portion vat refundable upon application tax authority policy effective 2011 changes chinese tax laws may adversely affect future operations foreign exchange functional currency united states dollars usd financial records maintained financial statements prepared usd functional currency fthk hong kong dollars hkd financial records maintained financial statements prepared hkd functional currency ftcl bfhx ftgx ftcd renminbi rmb financial records maintained financial statements prepared rmb foreign currency transactions year translated company’s denominated currency exchange rates ruling transaction dates gains losses resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements operations based outside united states translated usd accordance sfas 52 determined functional currency company’s foreign operations applicable local currency translating functional currency financial statements usd yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component shareholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including usd based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively usd switch managed floating exchange rate based market supply demand reference basket currencies yet named people’s bank china likely increase volatility rmb compared usd exchange rate rmb usd changed rmb 828 811 late july 2005 following table shows exchange rates weighted average rates years ended december 31 2009 2008 critical accounting policies estimates prepare consolidated financial statements accordance generally accepted accounting principles united states america preparation financial statements requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amount revenues expenses reporting period ongoing basis evaluate estimates judgments including related revenues cost revenues customer contracts bad debts income taxes investment affiliate longlived assets goodwill base estimates judgments historical experience various factors believe reasonable actual results may differ estimates different assumptions conditions believe following critical accounting policies affect significant judgments estimates used preparation consolidated financial statements revenue recognition generally provide services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance evaluate revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically may required make judgments · whether fees associated products services fixed determinable · whether collection fees reasonably assured · whether professional services essential functionality related software product · whether ability make reasonably dependable estimates application percentageofcompletion method · whether verifiable objective evidence fair value products services recognize revenues accordance provisions statements position sop 972 “software revenue recognition” amended sop 989 “modification sop 972 software revenue recognition respect certain transactions” staff accounting bulletin sab 104 “revenue recognition” sop 972 sab 104 require among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectability probable revenue provision system integration services related services recognized services rendered stages separate identifiable phases project completed accepted customers revenue software sales recognized related products delivered installed collection sales proceeds deemed probable persuasive evidence arrangement exists software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant paragraph 65 sop 972 hardware transactions software incidental apply separate accounting guidance hardware software elements apply provisions eitf 0305 “applicability aicpa statement position 972 software revenue recognition nonsoftware deliverables arrangement containing morethanincidental software” eitf 0305 per eitf 0305 software considered essential functionality hardware considered “software related” excluded scope sop 972 sale computer hardware recognized revenue transfer risks rewards ownership coincides time goods delivered customers title passed pursuant sab 104 revenues remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer contract execution company determined setup activities constitute separate unit accounting accordingly related setup fees recognized ratably term contract consider applicability eitf 003 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis determine customer contractual right take possession software time hosting period without significant penalty sop 972 apply contracts accordance eitf 003 accordingly contracts would accounted pursuant sab 104 income taxes account income taxes accordance sfas 109 “accounting income taxes” sfas 109 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectability amounts due customers could material effect results operations period changes events occur attempts collect receivable failed receivable written allowance goodwill sfas 142 goodwill intangible assets requires goodwill tested impairment annual basis december 31 us annual tests event occurs circumstances change would likely reduce fair value reporting unit carrying value events circumstances could include significant change business climate legal factors operating performance indicators competition sale disposition significant portion company application goodwill impairment test requires judgment including determination fair value company fair value company estimated using discounted cash flow methodology requires significant judgments including estimation future cash flows dependent internal forecasts estimation longterm rate growth business useful life cash flows occur determination weighted average cost capital changes estimates assumptions could materially affect determination fair value andor goodwill impairment company recent accounting pronouncements june 2009 fasb issued fas 168 “the fasb accounting standards codification tm hierarchy generally accepted accounting principlesa replacement fasb statement 162 codification” codification become source authoritative us generally accepted accounting principles gaap recognized fasb applied nongovernmental entities rules interpretive releases securities exchange commission sec authority federal securities laws also sources authoritative gaap sec registrants effective date statement codification supersede thenexisting nonsec accounting reporting standards nongrandfathered nonsec accounting literature included codification become nonauthoritative statement effective financial statements issued interim annual periods ending september 15 2009 june 2009 fasb issued fas 167 “amendments fasb interpretation 46r” statement amends certain guidance interpretation 46r determining whether entity variable interest entity statement effective beginning reporting entity’s first annual reporting period begins november 15 2009 may 2009 fasb issued fas 165 “subsequent events” objective statement establish general standards accounting disclosure events occur balance sheet date financial statements issued available issued company anticipate adoption statements material effect companys financial condition results operations september 2009 new guidance introduced revenue recognition arrangements multiple elements certain revenue arrangements include software new guidance allow companies allocate consideration multiple element arrangement way better reflects economics transaction guidance tangible products software components “essential functionality” tangible product scoped software revenue guidance new guidance also result disclosure requirements new guidance effective january 1 2011 early adoption permitted company currently evaluating impact adopting new guidance september 2006 fasb issued fas 157 fair value measurements fas 157 fas 157 defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements provisions fas 157 effective fiscal year beginning november 15 2007 currently evaluating impact provisions fas 157 consolidated results operations year ended december 31 2009 compared year ended december 31 2008 following table sets forth results operations periods indicated net sales net sales increased 13 5568877 2008 6288964 2009 sales forseries software decreased 35 5307669 2008 3473568 2009 increase net sales mainly attributable increase system integration sales 261208 2008 2815396 2009 increase 978 third last sale system integration project guangxi caexpo recognized 2009 however company’s strategy increase software sales carry higher profit margins cost sales cost sales increased 41 1836509 2008 2592005 2009 increase line increase sales 2009 cost sales percentage net sales increased 33 2008 41 2009 largely due increase lower margins hardware sales gross profit gross profit stayed approximately 3732368 2008 3696959 2009 however gross profit margin decreased 67 2008 59 2009 decrease gross profit margin attributable significant increase system integration sales lower gross profit margin compared software sales operating expenses total operating expenses yearoveryear maintained comparable levels 3440061 2009 3770403 2008 situation resulted largely offset decrease general administrative expenses increase research development expenses selling expenses decreased 13 1377501 2008 1199800 2009 result dissolution one sales agency located hangzhou china september 28 2009 research development expenses increased 62 639927 2008 1039742 2009 result continuing increased efforts research development department 2009 started several new internal projects 2009 required additional research development projects may integrated new products foreseeable future general administrative expenses decreased 32 1752975 2008 1199494 2009 decrease primarily due continuing cost control efforts administration department 2009 decreased number employees 208 2008 181 2009 operating profit loss recorded operating profit 257923 2009 compared operating loss 38035 2008 increase 932 increase largely due increase net sales 14 5568877 2008 6288964 2009 decrease operating expenses income increased 311 72533 2008 298254 2009 result increase vat refund income derived entirely vat refund associated software sales net profit loss recorded net profit 664032 2009 basic diluted profit 013 per share compared net loss 1289081 2008 basic diluted loss 028 per share liquidity capital resources capital requirements primarily working capital requirements related costs hardware network solution projects costs associated expansion business order minimize working capital requirements generally obtain hardware vendors payment terms timed permit us receive payment customers hardware payments hardware vendors due however sometimes obtain less favorable payment terms customers thereby increasing working capital requirements historically financed working capital financing requirements careful management billing cycle limited extent bank loans net cash used operating activities 685985 2009 compared 553209 2008 increase net cash used mainly due increased balance account receivables 2009 cash flow investing activities 340862 2009 compared 357021 2008 slight decrease cash flow investing activities resulted decrease dividends received companies invested 452607 2008 360033 2009 net cash generated financing activities 2009 compared 10000 generated 2008 decrease cash flow financing activities resulted decrease issuance common stock 2002 stock plan related additional paidin capital 2008 accounts receivable balance december 31 2009 2434557 compared 898005 end 2008 increase mainly attributable two customers china beijing mobile balance china’s accounts receivable increased 1826776 december 31 2009 267112 december 31 2008 balance beijing mobile’s accounts receivable increased 11600 december 31 2009 1696 december 31 2008 inventory position end 2009 935566 compared 1019713 beginning year end 2009 several inventory items process delivery two major customers ended year cash position 2240863 negative operating cash flow 302567 primarily due increased balance accounts receivable 2009 although revenues operating results period necessarily indicative future periods anticipate available funds cash flows generated operations sufficient meet anticipated needs working capital expenditures business expansion 2009 may need raise additional funds future however order fund acquisitions develop new enhanced services products respond competitive pressures compete successfully larger projects involving higher levels hardware purchases business otherwise grows rapidly currently predict need raise additional funds expect raise funds new issuances shares equity securities one public offerings private placements credit facilities extended lending institutions offbalance sheet arrangements december 31 2009 entered offbalance sheet arrangements individuals entities contractual obligations december 31 2009 commitments noncancelable operating leases requiring annual minimum rental payments follows item 7a item 7a quantitative qualitative disclosures market risk’ applicable item 8 item 7a quantitative qualitative disclosures market risk’ applicable item 8 item 7a quantitative qualitative disclosures market risk company market risk sensitive instruments market risk exposures item 8 item 7a quantitative qualitative disclosures market risk applicable item 8 item 7a quantitative qualitative disclosures market risk applicable item 8 item 7a quantitative qualitative disclosures market risk’ applicable item 8 item 8 financial statements information required item 8 index thereto commences next page forlink software corporation inc index consolidated financial statements report independent registered public accounting firm board directors stockholders forlink software corporation inc audited accompanying consolidated balance sheets forlink software corporation inc december 31 2010 2009 related consolidated statements income stockholders’ equity comprehensive income cash flows years ended forlink software corporation inc’s management responsible financial statements responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position forlink software corporation inc december 31 2010 2009 results operations cash flows years ended conformity accounting principles generally accepted united states america kenne ruan cpa pc woodbridge connecticut march 16 2011 forlink software corporation inc consolidated balance sheets expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements operations expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statement stockholders’ equity expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements cash flows decreaseincrease cash equivalents expressed us dollars see accompanying notes consolidated financial statements note 1 organization description business forlink software corporation inc company registrant forlink nevada corporation originally incorporated january 7 1986 inc laws state utah subsequently reorganized laws nevada december 30 1993 1996 1999 company continued unfunded venture search suitable business acquisition business combination november 3 1999 company entered plan reorganization beijing forlink software technology co ltd hereinafter bfstc limited liability company organized laws people’s republic china “prc” “china” terms bfstc gained control company pursuant plan reorganization company acquired 100 registered fully paidup capital bfstc exchange 20000000 shares companys authorized unissued common stock bfstc engaged provision computer software consultancy engineering services development sale computer software people’s republic china “prc” part computer consultancy engineering services bfstc also engaged sale computer hardware june 2001 bfstc changed name forlink technologies co ltd “ftcl” ftcl company’s major operating subsidiary china august 2001 company acquired beijing slait science technology development limited co “slait” pursuant plan reorganization dated january 11 2001 company issued 59430000 shares common stock slait’s original beneficial owners exchange 100 outstanding equity slait result share exchange former beneficial owners slait approximately 70 issued outstanding shares company slait became whollyowned subsidiary company also agreed transfer 1085000 renminbi “rmb” approximately us131039 former owners slait change control occurred one officers directors company resigned two former directors also former owners slait became officers directors company prior dissolution 2004 slait provided application system integration technology specializes large volume transaction processing software networks mobile phone billing band operation subsequent acquisition principal activities slait gradually shifted ftcl february 13 2004 slait officially dissolved accordance relevant prc regulations june 18 2003 forlink technologies hong kong limited “fthk” incorporated hong kong special administrative region limited liability company december 2003 fthk became wholly owned subsidiary forlink fthk investment holding company set take advantage favorable business environment hong kong facilitate company’s investment transactions fthk december 18 2003 company invested 760870 china logistics online co ltd china logistics privately held prc company providing logistic services china exchange 178 equity interest june 14 2004 forlink technologies chengdu limited ftcd established limited liability company chengdu prc subsequently became wholly owned subsidiary fthk september 2004 ftcd business providing software outsourcing services software development registered capital ftcd 5000000 fully paid capital 750000 december 31 2005 april 2006 fthk invested 130000 ftcd commenced operations late 2005 registered capital ftcd reduced 200000 december 2007 amount fully paid december 2007 compliance china’s foreign investment restrictions telecom valueadded services laws regulations company conducts telecom valueadded services application integration services government organizations china via beijing forlink hua xin technology co ltd bfhx established prc september 19 2003 limited liability company registered capital bfhx 120733 rmb 1000000 fully paid march 31 2005 mr yi mr wei li entrusted nominee owners bfhx hold 70 30 respectively fully paid capital bfhx behalf company primary beneficiary bfhx considered variable interest entity vie company primary beneficiary company’s consolidated financial statements include bfhx upon request company mr yi mr wei li required transfer ownership interests bfhx company designees time amount fully paid registered capital bfhx mr yi chief executive officer director major stockholder company mr wei li administration manager ftcl october 24 2005 company entered definitive agreement acquire 175 equity interest china liquid chemical exchange company limited “clce” prc limited liability company exchange deployment company’s foronline electronic trading system early 2007 clce increased share capital 1708526 rmb 13000000 company subscribe new shares company’s shareholding clce diluted december 31 2007 1346 clce commenced operations fully early 2007 october 3 2006 company entered transfer right invest project cooperation agreement “statelink agreement” statelink international group ltd british virgin islands company “statelink” pursuant company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” prc limited liability company businesses real estate development advertising computer distribution cash consideration 2557545 rmb 20000000 bfhx stock consideration 13000000 shares company’s restricted common stock october 26 2006 bfhx established forlink technologies guangxi limited “ftgx” prc limited liability company carry contract guangxi caexpo build “electronic trade logistics information platform call center” “project” time incorporation bfhx injected rmb 20000000 approximately us2557545 registered capital ftgx august 20 2010 company transferred ownership interests guangxi caexpo guangxi sanqi investment co ltd amount equivalent 2273 guangxi caexpo’s fully paid capital company received cash payment 3024355 rmb 20000000 october 12 2006 company invested 31969 rmb 250000 wuxi stainless steel exchange co ltd “wuxi exchange” prc limited liability company 125 equity interest january 14 2007 company entered agreement major shareholder wuxi exchange transfer 25 company’s interest wuxi exchange major shareholder cash payment rmb 500000 january 25 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent increase number authorized shares common stock 100000000 200000000 certificate amendment articles incorporation effect increase number company’s authorized common shares filed nevada’s secretary state april 4 2007 april 29 2007 company invested bfhx 138158 rmb 1050000 beijing guoxin forlink internet technologies limited “bgxf” privately held prc company operates finance study website 35 equity interest investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf commenced operations march 9 2008 october 14 2008 registered capital bgxf increased rmb 4285700 since company invest additional funds bgfx ratio holding diluted 245 equity interest july 12 2007 company invested ftgx 1063830 rmb 8000000 nanning bulk commodities exchange corporation limited “nnbce” privately held prc company 80 equity interest nnbce became subsidiary ftgx nnbce set april 29 2007 commenced operations march 28 2008 provides logistical ecommerce service september 5 2007 company invested 465425 rmb 3500000 nnbce guangxi bulk sugar ethanol exchange corporation limited “gbsee” prc limited liability company established september 12 2007 35 equity interest concurrently china logistics entrusted nominee owner gbsee hold 20 fully paid capital gbsee behalf nnbce primary beneficiary upon request nnbce china logistics required transfer ownership interests gbsee nnbce designees time amount 20 fully paid capital accordance financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities interpretation arb 51” “fin 46r” nnbce deemed hold primary beneficial interest 55 equity interest gbsee established provide logistical ecommerce service dissolved december 16 2007 commenced operations nnbce received payments back investment gbsee 410397 rmb 3000000 december 2007 66211 rmb 484000 february 2008 2189 rmb 16000 september 2008 december 24 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent effect 1for20 reverse stock split certificate amendment articles incorporation effect reverse split filed nevada’s secretary state february 21 2008 march 20 2008 company invested 71124 rmb 500000 bfhx shandong longdong internet technologies limited “sdld” prc limited liability company established october 24 2007 5 equity interest sdld commenced operations december 2007 business providing primary products ecommerce services purpose investment gain cash dividends sdld february 8 2010 company transferred ownership interests ftcl bfhx amount ftcl’s 100 fully paid capital principal activities company development sale network software systems provision enterprise application system integration services prc company also engaged sale computer hardware set forth diagram illustrating corporate structure december 31 2010 note 2 basis presentation summary significant accounting policies basis accounting principles consolidation consolidated financial statements prepared accordance generally accepted accounting principles united states america include financial statements forlink subsidiaries vie namely ftcl fthk bfhx ftcd ftgx nnbce intercompany transactions balances eliminated noncontrolling interests balance sheet date portion net assets subsidiaries attributable equity interests owned forlink whether directly indirectly subsidiaries presented consolidated balance sheet separately liabilities shareholders’ equity noncontrolling interests results company years also separately presented income statement use estimates preparation financial statements accordance generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency translation transactions functional currency forlink us dollar “us” financial records maintained financial statements prepared us functional currency fthk hk dollar “hk” financial records maintained financial statements prepared hk functional currency ftcl bfhx ftcd ftgx nnbce renminbi “rmb” financial records maintained financial statements prepared rmb foreign currency transactions period translated company’s denominated currency exchange rates transaction dates gain loss resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements company’s operations based outside united states translated us accordance asc 830 management determined functional currency company’s foreign operations applicable local currency translating functional currency financial statements us yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component stockholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including us based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively us switch managed floating exchange rate based market supply demand reference basket currencies likely increase volatility rmb compared us exchange rate rmb us changed rmb828 rmb811 late july 2005 exchange rates used december 31 2010 2009 us1hk782rmb661 us1hk779rmb684 respectively weighted average rates ruling years ended december 31 2010 2009 us1hk780rmb669 us1hk778rmb684 respectively foreign currency risk rmb freely convertible currency state administration foreign exchange authority people’s bank china controls conversion rmb foreign currencies value rmb subject changes central government policies international economic political developments affecting supply demand china foreign exchange trading system market prc subsidiaries conduct business substantially prc financial performance position measured terms rmb devaluation rmb us would consequently adverse effect financial performance asset values company measured terms us prc subsidiaries’ products primarily procured sold delivered prc rmb thus revenues profits predominantly denominated rmb devalue us devaluation could material adverse effect company’s profits foreign currency equivalent profits repatriated prc entities company cash equivalents cash equivalents include cash hand highly liquid investments original maturity three months less allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectability amounts due customers could material effect results operations period changes events occur attempts collect receivable failed receivable written allowance inventories stated lower cost market inventory used system integration services cost calculated using specific identification method sale computer hardware cost calculated using firstin firstout method cost includes costs purchase cost conversion costs incurred bringing inventories present location condition market value determined reference sales proceeds items sold ordinary course business balance sheet date management estimates based prevailing market conditions property plant equipment depreciation property plant equipment stated cost depreciation computed using straightline method allocate cost depreciable assets estimated useful lives assets follows estimated useful life years building computer equipment office equipment motor vehicle major improvements property plant equipment capitalized expenditures repair maintenance minor renewals betterments charged directly statements operations incurred assets disposed related cost accumulated depreciation thereon removed accounts resulting gain loss included statement operations computer software development costs accordance asc 98520 “accounting cost computer software sold leased otherwise marketed” software development costs expensed incurred technological feasibility form working model established deferred software development costs amortized estimated economic life software product available general release customers current software products company determined technological feasibility reached point time available general distribution therefore costs capitalized long term investments company’s long term investments consist 1 equity investments accounted accordance equity method 2 cost investments accounted cost method equity method investment reported cost plus company’s proportionate share income loss changes stockholders’ equity investee since acquisition consolidated results operations include proportionate share income loss see note 8 fair values financial instruments carrying amounts financial instruments cash equivalents investments accounts receivable accounts payable approximate fair values december 31 2010 2009 relatively shortterm maturity instruments revenue recognition company generally provides services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance company evaluates revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically company may required make judgments · whether fees associated products services fixed determinable · whether collection fees reasonably assured · whether professional services essential functionality related software product · whether ability make reasonably dependable estimates application percentageofcompletion method · whether verifiable objective evidence fair value products services company recognizes revenues accordance provisions asc 985 “software revenue recognition” asc 985 requires among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectability probable software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable revenue nonsoftware multipleelement arrangements recognized accordance asc 60525 “revenue arrangements multiple deliverables” asc 60525 company recognizes revenue multipledeliverables value customer standalone basis deliverables arrangement meet separation criteria asc 60525 treated one unit accounting purposes revenue recognition case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant asc 98560525 hardware transactions software incidental company apply separate accounting guidance hardware software elements company applies provisions asc 98560515 per asc 98560515 software considered essential functionality hardware considered “software related” excluded scope asc 98560515 sale computer hardware recognized revenue transfer risks rewards ownership generally coincides time goods delivered customers title passed remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer contract execution company determined setup activities constitute separate unit accounting accordingly related setup fees recognized protractedly term contract company considering applicability asc 98560555 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis company determines customer contractual right take possession company’s software time hosting period without significant penalty asc 985605 would apply contracts accordance asc 98560555 stock based compensation effective january 1 2006 adopted “statement financial accounting standards asc 718 sharebased payment” using modified prospective application transition method adopted asc 718 accounted sharebased compensation accordance “accounting principles board opinion 25 accounting stock issued employees” asc 718 requires company record cost stock options equitybased compensation income statement based upon estimated fair value rewards company elected use modified prospective method adoption requires compensation expense recorded unvested stock options equitybased compensation beginning first quarter adoption accordingly prior periods restated reflect stock based compensation january 1 2006 company adopted asc 718 using modified prospective method adoption standard material impact company’s consolidated financial statements company’s outstanding stock options vested december 31 2005 unvested portion stock options considered immaterial asc 718 also requires company estimate forfeitures calculating expense relating sharebased compensation opposed recognizing forfeitures expense reduction incur adjustment apply estimated forfeitures previously sharebased compensation considered immaterial company classified cumulative effect change accounting principle january 1 2006 company unrecognized compensation cost remaining associated existing stock option grants also company made modifications outstanding stock option grants prior adoption asc 718 changes valuation methodologies assumptions compared used company prior january 1 2006 november 2005 fasb issued fsp 123r3 “transition election related accounting tax effects sharebased payment awards” company adopted alternative transition method provided fsp calculating tax effects sharebased compensation pursuant asc 718 fourth quarter fiscal 2006 alternative transition method includes simplified methods establish beginning balance additional paidin capital “apic” pool related tax effects employee sharebased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee sharebased compensation awards outstanding upon adoption asc 718 adoption material impact company’s results operations financial position february 2006 fasb issued fasb asc 7181035 “classification options similar instruments issued employee compensation allow cash settlement upon occurrence contingent event” position amended asc 718 incorporate cash settlement feature exercised upon occurrence contingent event outside employee’s control meet certain conditions asc 718 becomes probable event occur guidance fasb staff position required applied upon initial adoption asc 718 company option grants allow cash settlement company adopt new sharebased compensation plans 2010 200000 stock options issued company’s 2002 stock plan exercised year 2008 advertising costs advertising costs incurred promotion company’s products services expensed incurred advertising expenses insignificant 2010 2009 income taxes company accounts income taxes accordance asc 740 “accounting income taxes” asc 740 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized july 2006 fasb asc 7401025 “accounting uncertainty income taxesan interpretation fasb statement 109” interpretation provides guidance recognizing measuring uncertain tax positions defined asc 740 “accounting income taxes” asc 7401025 prescribes threshold condition tax position must meet benefit uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions earnings per common share company computes net earnings per share accordance asc 260 “earnings per share” sec staff accounting bulletin 98 “sab 98” provisions asc 260 sab 98 basic net earnings per share computed dividing net earnings available common shareholders period weighted average number shares common stock outstanding period calculation diluted net earnings per share gives effect common stock equivalents however potential common stock diluted eps computation excluded net loss periods effect antidilutive recent accounting pronouncements october 27 2010 fasb clarified disclosures proposed part project disclosures certain loss contingencies effective 2010 annual financial statements public calendaryearend entities originally proposed board discuss revised effective date redeliberations project october 19 2010 fasb iasb issued dp obtain feedback fasb’s iasb’s stakeholders 1 time effort would need adopt several new significant accounting reporting standards 2 dates new standards effective basis responses fasb iasb plan develop implementation plan whose main objective help stakeholders properly manage cost pace changes comments dp due january 31 2011 august 17 2010 fasb iasb issued ed lease accounting ed released fasb proposed asu creates new accounting model lessees lessors eliminates concept operating leases proposed asu finalized would converge fasb’s iasb’s accounting lease contracts significant areas january 2010 fasb issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires roll forward activities purchases sales issuance settlements assets liabilities measured using significant unobservable inputs level 3 fair value measurements guidance became effective us reporting period beginning january 1 2010 except disclosure roll forward activities level 3 fair value measurements become effective us reporting period beginning july 1 2011 requiring additional disclosures adoption new guidance material impact financial statements september 2009 fasb introduced new guidance addressing accounting revenue arrangements multiple elements certain revenue arrangements include software guidance allows companies allocate consideration multiple element arrangement way better reflects economics transaction eliminates residual method addition tangible products software components “essential functionality” tangible product scoped software revenue guidance new guidance became effective january 1 2011 expected material impact financial statements note 3 accounts receivable allowance doubtful accounts receivable customer obligations due normal trade terms company performs continuing credit evaluations customers’ financial conditions company generally require collateral senior management reviews accounts receivable time determine receivables potentially uncollectible company included accounts receivable balances determined uncollectible allowance doubtful accounts attempts collect receivable failed receivable written allowance based information available company 0 doubtful accounts december 31 2010 0 2009 required note 4 receivables deposits prepayments receivables include deposits operating leases advances employee traveling outlays note 5 inventories purchased identified system integration contracts workinprogress includes payroll operating expenses associated various contracts progress note 6 related party company expects transactions ordinary course business stockholders directors senior officers affiliates associates substantially terms prevailing comparable transactions others listed summary material relationships transactions company’s stockholders directors senior officers affiliates amounts due stockholders company time received made repayment one major stockholder also member management company amounts due stockholders bear interest clearly defined terms repayment december 31 2010 2009 amounts due stockholders represented advances stockholders amount 524668 415078 respectively related party transactions note 7 property plant equipment net building located chengdu prc purchased behalf company mr yi company director stockholder stockholders’ resolution passed march 8 1999 ratified title building belonged company 2005 title building transferred company note 8 long term investments december 2003 company invested 760870 privately held prc company china logistics online co ltd 178 equity interest company recorded investment cost ability exercise significant influence investee october 24 2005 company set china liquid chemical exchange company limited liability company prc shares risk rewards equity interest 1346 consideration made form companydeveloped “foronline electronic trading system” without cash outflow therefore company recorded contribution software lower carrying amount fair value accounted equity method sop 789 december 31 2010 2009 company’s share joint venture’s profit loss 7793 119746 respectively october 3 2006 company entered transfer right invest project cooperation agreement “statelink agreement” statelink international group ltd british virgin islands company “statelink” pursuant company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” prc limited liability company businesses real estate development advertising computer distribution cash consideration 2557545 rmb 20000000 bfhx stock consideration 13000000 shares company’s restricted common stock october 26 2006 bfhx established forlink technologies guangxi limited “ftgx” prc limited liability company carry contract guangxi caexpo build “electronic trade logistics information platform call center” “project” time incorporation bfhx injected rmb 20000000 approximately us2557545 registered capital ftgx august 20 2010 company transferred ownership interests guangxi caexpo guangxi sanqi investment co ltd amount equivalent 2273 guangxi caexpo’s fully paid capital company received cash payment 3024355 rmb 20000000 loss disposition 627561 october 12 2006 company entered definitive agreement acquire 125 registered capital wuxi stainless steel exchange co ltd “wuxi” private held prc company exchange 125 registered capital company deploy proprietary integrated software solution “software” estimated rmb 1000000 reference similar products sold third parties 2006 support wuxi’s operations plus rmb 250000 cash payment wuxi 2006 company contributed cash 31969 rmb 250000 software deployed wuxi december 2006 company recorded investment cost ability exercise significant influence wuxi january 14 2007 company entered share transfer agreement major shareholder wuxi transfer 25 interest wuxi held company major shareholder cash payment rmb 500000 transfer company continues hold 10 equity interest wuxi april 29 2007 company invested 138158 privately held prc company beijing guoxin forlink internet technologies limited “bgxf” 35 equity interest company’s investment made bfhx investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf march 9 2008 bgxf commenced operations september 17 2007 company invested 99734 privately held prc company ningbo bulk commodities exchange corporation limited “nbbce” 25 equity interest company’s investment made bfhx company recorded investment cost company ability exercise significant influence nbbce’s strategic business decisions dominated another major shareholder march 20 2008 forlink invested 71124 500000 rmb bfhx shandong longdong internet technologies limited “sdld” prc limited liability company established october 24 2007 5 equity interest sdld commenced operations december 2007 business providing primary products ecommerce services purpose investment gain cash dividends sdld october 8 2010 company invested 151213 rmb 1000000 bfhx shanghai shipping freight exchange co ltd “ssfe” prc limited liability company established october 8 2010 5 equity interest till march 25 2011 ssfe commenced operations company recorded investment cost ability exercise significant influence investee note 9 payables accrued expenses note 10 noncontrolling interest noncontrolling interest balance 99560 represents cash provided minority shareholders nnbce note 11 income tax according relevant prc tax rules regulations ftcl recognized new technology enterprise operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl fully exempted eit fiscal years 1999 2000 2001 2002 ftcl received 50 eit reduction rate 75 fiscal years 2003 2004 2005 december 31 2010 ftcl entitled eit rate 15 pursuant approval document dated january 19 2004 issued state tax bureau bfhx fully exempted eit fiscal years 2004 2005 2006 december 31 2010 bfhx entitled eit rate 25 hong kong profits tax calculated 165 estimated assessable profits fthk period eit rate ftcd ftgx nnbce 25 provision eit hong kong profits tax made ftcl ftcd ftgx nnbce fthk gained taxable income periods january 1 2007 company adopted fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 “fin 48” interpretation provides guidance recognizing measuring uncertain tax positions defined asc 740 accounting income taxes fin 48 prescribes threshold condition tax position must meet benefits uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions company classified interest penalties related tax uncertainties income tax expense company’s liability income taxes includes liability unrecognized tax benefits interest penalties relate tax years still subject review taxing authorities audit periods remain open review statute limitations passed completion review expiration statute limitations given audit period could result adjustment liability income taxes adjustment could material company’s results operations given quarterly annual period based part upon results operations given period september 30 2010 company liability uncertain tax positions adoption fin 48 material impact company’s results operations financial position liquidity march 16 2007 5th plenary session 10th national peoples congress passed corporate income tax law prc new corporate income tax law took effect january 1 2008 beginning date eit rate expected gradually increase standard rate 25 fiveyear transition period however new corporate income tax law specify existing preferential tax rate gradually increase standard rate 25 also new corporate income tax law certain high technology enterprises continue entitled reduced tax rate 15 however implementation rules regarding preferential tax policies eg details taxpayer qualify hightech enterprise new corporate income tax law yet made public consequently company able make estimate expected financial effect new corporate income tax law deferred tax assets liabilities enactment new corporate income tax law financial effect provision income tax year ended december 31 2010 amounts accrued balance sheet respect current tax payable reconciliation provision income taxes computed applying statutory tax rate mainland china income taxes actual provision income taxes follows note 12 taxes recoverablepayable taxes payable comprise mainly valuedadded tax “vat” business tax “bt” company subject output vat levied rate 17 operating revenue input vat paid purchases materials direct inputs used offset output vat levied operating revenue determine net vat payable recoverable bt charged rate 5 revenue services part prc government’s policy encouraging software development prc companies fulfill certain criteria set relevant authorities develop software products software products registered relevant authorities prc entitled refund vat equivalent excess 3 revenue paid month output vat exceeds input vat excluding export sales excess portion vat refundable recorded company accrual basis vat rebate included income 719678 298254 years ended december 31 2010 2009 respectively note 13 commitments contingencies operating lease commitment years ended december 31 2010 2009 company incurred lease expenses amounting 472277 361336 respectively december 31 2010 2009 company commitments noncancelable operating leases requiring annual minimum rentals follows note 14 stock plan august 16 2002 company established “forlink software corporation inc 2002 stock plan” “2002 plan” reserved 8000000 shares common stock issuance 2002 plan either directly stock awards underlying options board directors would determine terms conditions option granted 2002 plan terms conditions would writing may vary one eligible participant another august 15 2007 2002 plan expired pursuant terms following table summarizes activities stock options granted 2002 plan prior expiration september 7 2004 3315000 options granted company’s employees purchase company’s shares common stock 0001 par value exercise price 010 per share 3315000 options 800000 options 5year vesting period granted employee 2515000 options 3year vesting period granted selected employees 2515000 options 3year vesting period 2385000 options expire december 30 2006 “december 2006 options” remaining 130000 options expired june 30 2007 “june 2007 options” expiration date 800000 options 5year vesting period june 30 2009 “june 2009 options” september 7 2004 january 1 2005 january 1 2006 january 1 2007 854500 “december 2006 options” 904500 1156000 400000 “june 2009 options” 130000 “june 2007 options” 626000 “december 2006 options” 200000 “june 2009 options” options vested employees respectively market price stock september 7 2004 january 1 2005 010 per share december 2006 company extended expiration date december 2006 options one month end january 2007 additional compensation expense company considered amount immaterial january 29 2007 367000 options “december 2006 options” 400000 “june 2009 options” exercised july 6 2007 130000 options “june 2007 options” exercised following table summarizes cumulative activities december 31 2010 options issued 2002 plan different expiration dates weighted average fair value december 2006 options june 2007 options june 2009 options granted date grant 0042 0046 0058 per option respectively december 31 2010 future compensation expenses recognized aggregate intrinsic value options outstanding exercisable december 31 2010 december 31 2009 aggregate intrinsic value represents intrinsic value based options exercise price less market value company’s stock december 31 2010 december 31 2009 would received option holders option holders exercised options date company calculated fair value option award date grant using blackscholes option pricing model following assumptions used respective option note 15 concentration customers year following customers accounted 10 total sales less 10 note 16 gain loss per share company reported loss 007 per share year 2010 profit 013 per share year 2009 note 17 subsequent event none item 9 item 8 financial statements supplementary data see item 14 item 9 item 8 financial statements information required item 8 index thereto commences next page forlink software corporation inc index consolidated financial statements report independent registered public accounting firm board directors stockholders forlink software corporation inc audited accompanying consolidated balance sheets forlink software corporation inc december 31 2008 2007 related consolidated statements income stockholders’ equity comprehensive income cash flows years ended forlink software corporation inc’s management responsible financial statements responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position forlink software corporation inc december 31 2008 2007 results operations cash flows years ended conformity accounting principles generally accepted united states america kenne ruan cpa pc woodbridge connecticut march 16 forlink software corporation inc consolidated balance sheets expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements operations expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statement stockholders’ equity expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements cash flows decreaseincrease cash equivalents expressed us dollars see accompanying notes consolidated financial statements note 1 organization description business forlink software corporation inc company registrant forlink nevada corporation originally incorporated january 7 1986 inc laws state utah subsequently reorganized laws nevada december 30 1993 1996 1999 company continued unfunded venture search suitable business acquisition business combination november 3 1999 company entered plan reorganization beijing forlink software technology co ltd hereinafter bfstc limited liability company organized laws people’s republic china “prc” “china” terms bfstc gained control company pursuant plan reorganization company acquired 100 registered fully paidup capital bfstc exchange 20000000 shares companys authorized unissued common stock bfstc engaged provision computer software consultancy engineering services development sale computer software people’s republic china “prc” part computer consultancy engineering services bfstc also engaged sale computer hardware june 2001 bfstc changed name forlink technologies co ltd “ftcl” ftcl company’s major operating subsidiary china august 2001 company acquired beijing slait science technology development limited co “slait” pursuant plan reorganization dated january 11 2001 company issued 59430000 shares common stock slait’s original beneficial owners exchange 100 outstanding equity slait result share exchange former beneficial owners slait approximately 70 issued outstanding shares company slait became whollyowned subsidiary company also agreed transfer 1085000 renminbi “rmb” approximately us131039 former owners slait change control occurred one officers directors company resigned two former directors also former owners slait became officers directors company prior dissolution 2004 slait provided application system integration technology specializes large volume transaction processing software networks mobile phone billing band operation subsequent acquisition principal activities slait gradually shifted ftcl february 13 2004 slait officially dissolved accordance relevant prc regulations june 18 2003 forlink technologies hong kong limited “fthk” incorporated hong kong special administrative region limited liability company december 2003 fthk became wholly owned subsidiary forlink fthk investment holding company set take advantage favorable business environment hong kong facilitate company’s investment transactions fthk december 18 2003 company invested 760870 china logistics online co ltd china logistics privately held prc company providing logistic services china exchange 178 equity interest june 14 2004 forlink technologies chengdu limited ftcd established limited liability company chengdu prc subsequently became wholly owned subsidiary fthk september 2004 ftcd business providing software outsourcing services software development registered capital ftcd 5000000 fully paid capital 750000 december 31 2005 april 2006 fthk invested 130000 ftcd commenced operations late 2005 registered capital ftcd reduced 200000 december 2007 amount fully paid december 2007 compliance china’s foreign investment restrictions telecom valueadded services laws regulations company conducts telecom valueadded services application integration services government organizations china via beijing forlink hua xin technology co ltd bfhx established prc september 19 2003 limited liability company registered capital bfhx 120733 rmb 1000000 fully paid march 31 2005 mr yi mr wei li entrusted nominee owners bfhx hold 70 30 respectively fully paid capital bfhx behalf company primary beneficiary bfhx considered variable interest entity vie company primary beneficiary company’s consolidated financial statements include bfhx upon request company mr yi mr wei li required transfer ownership interests bfhx company designees time amount fully paid registered capital bfhx mr yi chief executive officer director major stockholder company mr wei li administration manager ftcl march 20 2005 beijing forlink kuanshi technologies limited “bfkt” established limited liability company bfhx two individuals mr jianqiu fang mr bizhao zhong bfhx mr fang mr zhong hold 70 10 20 fully paid capital bfkt respectively kfkt provide software operation support iptv internet protocol television operators company dissolved november 19 2007 recorded investment loss 3792 dissolution bfkt total investment loss bfkt establishment dissolution amount 16932 october 24 2005 company entered definitive agreement acquire 175 equity interest china liquid chemical exchange company limited “clce” prc limited liability company exchange deployment company’s foronline electronic trading system early 2007 clce increased share capital 1708526 rmb 13000000 company subscribed new shares company’s shareholding clce diluted december 31 2007 1346 clce commenced operations fully early 2007 october 3 2006 company entered transfer right invest project cooperation agreement “statelink agreement” statelink international group ltd british virgin islands company “statelink” pursuant company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” prc limited liability company businesses real estate development advertising computer distribution cash consideration 2557545 rmb 20000000 bfhx stock consideration 13000000 shares company’s restricted common stock october 26 2006 bfhx established forlink technologies guangxi limited “ftgx” prc limited liability company carry contract guangxi caexpo build “electronic trade logistics information platform call center” “project” time incorporation bfhx injected rmb 20000000 approximately us2557545 registered capital ftgx october 12 2006 company invested 31969 rmb 250000 wuxi stainless steel exchange co ltd “wuxi exchange” prc limited liability company 125 equity interest january 14 2007 company entered agreement major shareholder wuxi exchange transfer 25 company’s interest wuxi exchange major shareholder cash payment rmb 500000 january 25 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent increase number authorized shares common stock 100000000 200000000 certificate amendment articles incorporation effect increase number company’s authorized common shares filed nevada’s secretary state april 4 2007 april 29 2007 company invested bfhx 138158 rmb 1050000 beijing guoxin forlink internet technologies limited “bgxf” privately held prc company operates finance study website 35 equity interest investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf commenced operations march 9 2008 october 14 2008 registered capital bgxf increased rmb 4285700 since company invest additional funds bgfx ratio holding diluted 245 equity interest july 12 2007 company invested ftgx 1063830 rmb 8000000 nanning bulk commodities exchange corporation limited “nnbce” privately held prc company 80 equity interest nnbce became subsidiary ftgx nnbce set april 29 2007 commenced operations march 28 2008 provides logistical ecommerce service september 5 2007 company invested 465425 rmb 3500000 nnbce guangxi bulk sugar ethanol exchange corporation limited “gbsee” prc limited liability company established september 12 2007 35 equity interest concurrently china logistics entrusted nominee owner gbsee hold 20 fully paid capital gbsee behalf nnbce primary beneficiary upon request nnbce china logistics required transfer ownership interests gbsee nnbce designees time amount 20 fully paid capital accordance financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities interpretation arb 51” “fin 46r” nnbce deemed hold primary beneficial interest 55 equity interest gbsee established provide logistical ecommerce service dissolved december 16 2007 commenced operations nnbce received payments back investment gbsee 410397 rmb 3000000 december 2007 66211 rmb 484000 february 2008 2189 rmb 16000 september 2008 december 24 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent effect 1for20 reverse stock split certificate amendment articles incorporation effect reverse split filed nevada’s secretary state february 21 2008 march 20 2008 company invested 71124 rmb 500000 bfhx shandong longdong internet technologies limited “sdld” prc limited liability company established october 24 2007 5 equity interest sdld commenced operations december 2007 business providing primary products ecommerce services purpose investment gain cash dividends sdld principal activities company development sale network software systems provision enterprise application system integration services prc company also engaged sale computer hardware set forth diagram illustrating corporate structure december 31 2008 note 2 basis presentation summary significant accounting policies basis accounting principles consolidation consolidated financial statements prepared accordance generally accepted accounting principles united states america include financial statements forlink subsidiaries namely ftcl fthk bfhx ftcd ftgx nnbce intercompany transactions balances eliminated minority interests balance sheet date portion net assets subsidiaries attributable equity interests owned forlink whether directly indirectly subsidiaries presented consolidated balance sheet separately liabilities shareholders’ equity minority interests results company years also separately presented income statement use estimates preparation financial statements accordance generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency translation transactions functional currency forlink us financial records maintained financial statements prepared us functional currency fthk hk financial records maintained financial statements prepared hk functional currency ftcl bfhx ftcd ftgx nnbce renminbi rmb financial records maintained financial statements prepared rmb foreign currency transactions period translated company’s denominated currency exchange rates transaction dates gain loss resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements company’s operations based outside united states translated us accordance sfas 52 management determined functional currency company’s foreign operations applicable local currency translating functional currency financial statements us yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component stockholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including usd based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively usd switch managed floating exchange rate based market supply demand reference basket currencies likely increase volatility rmb compared usd exchange rate rmb usd changed rmb828 rmb811 late july 2005 exchange rates used december 31 2008 2007 us1hk778rmb683 us1hk784rmb732 respectively weighted average rates ruling years ended december 31 2008 2007 us1hk781rmb691 us1hk784rmb760 respectively foreign currency risk rmb freely convertible currency state administration foreign exchange authority people’s bank china controls conversion rmb foreign currencies value rmb subject changes central government policies international economic political developments affecting supply demand china foreign exchange trading system market prc subsidiaries conduct business substantially prc financial performance position measured terms rmb devaluation rmb usd would consequently adverse effect financial performance asset values company measured terms usd prc subsidiaries’ products primarily procured sold delivered prc rmb thus revenues profits predominantly denominated rmb devalue usd devaluation could material adverse effect company’s profits foreign currency equivalent profits repatriated prc entities company cash equivalents cash equivalents include cash hand highly liquid investments original maturity three months less allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectibility amounts due customers could material affect results operations period changes events occur attempts collect receivable failed receivable written allowance inventories stated lower cost market inventory used system integration services cost calculated using specific identification method sale computer hardware cost calculated using firstin firstout method cost includes costs purchase cost conversion costs incurred bringing inventories present location condition market value determined reference sales proceeds items sold ordinary course business balance sheet date management estimates based prevailing market conditions property plant equipment depreciation property plant equipment stated cost depreciation computed using straightline method allocate cost depreciable assets estimated useful lives assets follows major improvements property plant equipment capitalized expenditures repair maintenance minor renewals betterments charged directly statements operations incurred assets disposed related cost accumulated depreciation thereon removed accounts resulting gain loss included statement operations computer software development costs accordance sfas 86 “accounting cost computer software sold leased otherwise marketed” software development costs expensed incurred technological feasibility form working model established deferred software development costs amortized estimated economic life software product available general release customers current software products company determined technological feasibility reached point time available general distribution therefore costs capitalized long term investments company’s long term investments consist 1 equity investments accounted accordance equity method 2 cost investments accounted cost method equity method investment reported cost plus company’s proportionate share income loss changes stockholders’ equity investee since acquisition consolidated results operations include proportionate share income loss see note 8 fair values financial instruments carrying amounts financial instruments cash equivalents investments accounts receivable accounts payable approximate fair values december 31 2008 2007 relatively shortterm maturity instruments goodwill sfas 142 goodwill intangible assets requires goodwill tested impairment annual basis december 31 us annual tests event occurs circumstances change would likely reduce fair value reporting unit carrying value events circumstances could include significant change business climate legal factors operating performance indicators competition sale disposition significant portion company application goodwill impairment test requires judgment including determination fair value company fair value company estimated using discounted cash flow methodology requires significant judgments including estimation future cash flows dependent internal forecasts estimation longterm rate growth business useful life cash flows occur determination weighted average cost capital changes estimates assumptions could materially affect determination fair value andor goodwill impairment company revenue recognition company generally provides services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance company evaluates revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically company may required make judgments · whether fees associated products services fixed determinable · whether collection fees reasonably assured · whether professional services essential functionality related software product · whether ability make reasonably dependable estimates application percentageofcompletion method · whether verifiable objective evidence fair value products services company recognizes revenues accordance provisions statements position sop 972 “software revenue recognition” amended sop 989 “modification sop 972 software revenue recognition respect certain transactions” staff accounting bulletin sab 104 “revenue recognition” sop 972 sab 104 require among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectibility probable software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable revenue nonsoftware multipleelement arrangements recognized accordance emerging issues task force 0021 “revenue arrangements multiple deliverables” “eitf 0021” eitf 0021 company recognizes revenue multipledeliverables value customer standalone basis deliverables arrangement meet separation criteria eitf 0021 treated one unit accounting purposes revenue recognition case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant paragraph 65 sop 972 hardware transactions software incidental company apply separate accounting guidance hardware software elements company applies provisions eitf 0305 “applicability aicpa statement position 972 software revenue recognition nonsoftware deliverables arrangement containing morethanincidental software” eitf 0305 per eitf 0305 software considered essential functionality hardware considered “software related” excluded scope sop 972 sale computer hardware recognized revenue transfer risks rewards ownership generally coincides time goods delivered customers title passed pursuant sab 104 remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer contract execution company determined setup activities constitute separate unit accounting accordingly related setup fees recognized ratably term contract company considering applicability eitf 003 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis company determines customer contractual right take possession company’s software time hosting period without significant penalty sop 972 would apply contracts accordance eitf 003 accordingly contracts would accounted pursuant sap 104 stock based compensation effective january 1 2006 adopted statement financial accounting standards 123r sharebased payment sfas 123r using modified prospective application transition method adopted sfas 123r accounted sharebased compensation accordance accounting principles board opinion 25 accounting stock issued employees sfas 123r requires company record cost stock options equitybased compensation income statement based upon estimated fair value rewards company elected use modified prospective method adoption requires compensation expense recorded unvested stock options equitybased compensation beginning first quarter adoption accordingly prior periods restated reflect stock based compensation january 1 2006 company adopted sfas 123r using modified prospective method adoption standard material impact company’s consolidated financial statements company’s outstanding stock options vested december 31 2005 unvested portion stock options considered immaterial sfas 123r also requires company estimate forfeitures calculating expense relating sharebased compensation opposed recognizing forfeitures expense reduction incur adjustment apply estimated forfeitures previously sharebased compensation considered immaterial company classified cumulative effect change accounting principle january 1 2006 company unrecognized compensation cost remaining associated existing stock option grants also company made modifications outstanding stock option grants prior adoption statement 123r changes valuation methodologies assumptions compared used company prior january 1 2006 november 2005 fasb issued fsp 123r3 “transition election related accounting tax effects sharebased payment awards” company adopted alternative transition method provided fsp calculating tax effects sharebased compensation pursuant fas 123r fourth quarter fiscal 2006 alternative transition method includes simplified methods establish beginning balance additional paidin capital “apic” pool related tax effects employee sharebased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee sharebased compensation awards outstanding upon adoption fas 123r adoption material impact company’s results operations financial position february 2006 fasb issued fasb staff position fas 123r4 “classification options similar instruments issued employee compensation allow cash settlement upon occurrence contingent event” position amended sfas 123r incorporate cash settlement feature exercised upon occurrence contingent event outside employee’s control meet certain conditions sfas 123r becomes probable event occur guidance fasb staff position required applied upon initial adoption statement 123r company option grants allow cash settlement company adopt new sharebased compensation plans 2008 200000 stock options issued company’s 2002 stock plan exercised year 2008 advertising costs advertising costs incurred promotion company’s products services expensed incurred advertising expenses insignificant 2008 2007 income taxes company accounts income taxes accordance sfas 109 “accounting income taxes” sfas 109 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized july 2006 fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 fin 48 interpretation provides guidance recognizing measuring uncertain tax positions defined sfas 109 accounting income taxes fin 48 prescribes threshold condition tax position must meet benefit uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions earnings per common share company computes net earnings per share accordance sfas 128 “earnings per share” sec staff accounting bulletin 98 “sab 98” provisions sfas 128 sab 98 basic net earnings per share computed dividing net earnings available common shareholders period weighted average number shares common stock outstanding period calculation diluted net earnings per share gives effect common stock equivalents however potential common stock diluted eps computation excluded net loss periods effect antidilutive recent accounting pronouncements september 2006 fasb issued fas 157 fair value measurements fas 157 fas 157 defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements provisions fas 157 effective fiscal year beginning november 15 2007 february 15 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” “sfas 159” sfas 159 permits entities elect measure many financial instruments certain items fair value changes fair value reported earnings sfas 159 effective beginning first fiscal year begins november 15 2007 earlier adoption permitted december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statementsan amendment arb 51” objective statement improve relevance comparability transparency financial information reporting entity provides consolidated financial statements establishing accounting reporting standards statement effective fiscal years interim periods within fiscal years beginning december 15 2008 january 1 2009 entities calendar yearends earlier adoption prohibited effective date statement related statement 141r december 21 2007 sec issued staff accounting bulletin “sab” 110 staff accounting bulletin sab expresses views staff regarding use simplified method discussed sab 107 sab 107 developing estimate expected term plain vanilla share options accordance statement financial accounting standards 123 revised 2004 sharebased payment particular staff indicated sab 107 accept companys election use simplified method regardless whether company sufficient information make refined estimates expected term time sab 107 issued staff believed detailed external information employee exercise behavior eg employee exercise patterns industry andor categories companies would time become readily available companies therefore staff stated sab 107 would expect company use simplified method share option grants december 31 2007 staff understands detailed information employee exercise behavior may widely available december 31 2007 accordingly staff continue accept certain circumstances use simplified method beyond december 31 2007 march 2008 fasb issued fas 161 “disclosures derivative instruments hedging activitiesan amendment fasb statement 133” use complexity derivative instruments hedging activities increased significantly past several years constituents expressed concerns existing disclosure requirements fasb statement 133 accounting derivative instruments hedging activities provide adequate information derivative hedging activities affect entity’s financial position financial performance cash flows accordingly statement requires enhanced disclosures entity’s derivative hedging activities thereby improves transparency financial reporting statement effective financial statements issued fiscal years interim periods beginning november 15 2008 early application encouraged statement encourages require comparative disclosures earlier periods initial adoption may 2008 fasb issued fas 162 “the hierarchy generally accepted accounting principles” statement identifies sources accounting principles framework selecting principles used preparation financial statements nongovernmental entities presented conformity generally accepted accounting principles gaap united states gaap hierarchy may 2008 fasb also issued fas 163 “accounting financial guarantee insurance contractsan interpretation fasb statement 60” diversity exists practice accounting financial guarantee insurance contracts insurance enterprises fasb statement 60 accounting reporting insurance enterprises diversity results inconsistencies recognition measurement claim liabilities differing views loss incurred fasb statement 5 accounting contingencies statement requires insurance enterprise recognize claim liability prior event default insured event evidence credit deterioration occurred insured financial obligation statement also clarifies statement 60 applies financial guarantee insurance contracts including recognition measurement used account premium revenue claim liabilities clarifications increase comparability financial reporting financial guarantee insurance contracts insurance enterprises statement requires expanded disclosures financial guarantee insurance contracts accounting disclosure requirements statement improve quality information provided users financial statements statement effective financial statements issued fiscal years beginning december 15 2008 interim periods within fiscal years except disclosures insurance enterprise’s riskmanagement activities statement requires disclosures riskmanagement activities insurance enterprise effective first period including interim periods beginning issuance statement except disclosures earlier application permitted company anticipate adoption statements material effect companys financial condition results operations note 3 accounts receivable allowance doubtful accounts receivable customer obligations due normal trade terms company performs continuing credit evaluations customers’ financial conditions company generally require collateral senior management reviews accounts receivable time determine receivables potentially uncollectible company included accounts receivable balances determined uncollectible allowance doubtful accounts attempts collect receivable failed receivable written allowance based information available company 54400 2007 48033 doubtful accounts december 31 2008 required note 4 receivables deposits prepayments note 5 inventories purchased identified system integration contracts workinprogress includes payroll operating expenses associated various contracts progress note 6 related party company expects transactions ordinary course business many stockholders directors senior officers affiliates associates substantially terms prevailing comparable transactions others listed summary material relationships transactions company’s stockholders directors senior officers affiliates amounts due stockholders company time received made repayment one major stockholder also member management company amounts due stockholders bear interest clearly defined terms repayment december 31 2008 2007 amounts due stockholders represented advances stockholders amount 378672 325251 respectively related party transactions note 7 property plant equipment net building located chengdu prc purchased behalf company mr yi one stockholders directors company stockholders’ resolution passed march 8 1999 ratified title building belonged company 2005 title building transferred ftcd note 8 long term investments december 2003 company invested 760870 privately held prc company china logistics online co ltd 178 equity interest company recorded investment cost ability exercise significant influence investee october 2004 company invested 36232 privately held prc company huntington network technologies beijing co ltd “hntb” 30 equity interest investment made company’s subsidiary bfhx investment hntb accounted equity method accounting due company’s significant influence operational financial policies hntb year ended december 31 2007 year ended december 31 2006 company receive distributions hntb’s net results investment impaired full 2005 37516 company deregistered october 24 2005 company set china liquid chemical exchange company limited liability company prc shares risk rewards equity interest 175 consideration made form companydeveloped “foronline electronic trading system” without cash outflow therefore company recorded contribution software lower carrying amount fair value accounted equity method sop 789 december 31 2008 2007 company’s share joint venture’s profit loss 205505 212385 respectively october 3 2006 company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” private held prc company statelink international group ltd company incorporated british virgin islands “statelink” consideration paid statelink acquisition included cash payment 2557545 rmb 20000000 bfhx 13000000 shares company’s restricted common stock acquisition cost common shares issued statelink based per share price 0075 average market price company’s common shares 10day period terms acquisition agreed overall acquisition cost acquisition 3529450 company recorded investment cost ability exercise significant influence guangxi caexpo fact guangxi caexpo’s strategic business decisions dominated major shareholders october 12 2006 company entered definitive agreement acquire 125 registered capital wuxi stainless steel exchange co ltd “wuxi” private held prc company exchange 125 registered capital company deploy proprietary integrated software solution “software” estimated rmb 1000000 reference similar products sold third parties 2006 support wuxi’s operations plus rmb 250000 cash payment wuxi 2006 company contributed cash 31969 rmb 250000 software deployed wuxi december 2006 company recorded investment cost ability exercise significant influence wuxi january 14 2007 company entered share transfer agreement major shareholder wuxi transfer 25 interest wuxi held company major shareholder cash payment rmb 500000 transfer company continues hold 10 equity interest wuxi april 29 2007 company invested 138158 privately held prc company beijing guoxin forlink internet technologies limited “bgxf” 35 equity interest company’s investment made bfhx investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf march 9 2008 bgxf commenced operations september 17 2007 company invested 99734 privately held prc company ningbo bulk commodities exchange corporation limited “nbbce” 25 equity interest company’s investment made bfhx company recorded investment cost company ability exercise significant influence nbbce’s strategic business decisions dominated another major shareholder march 20 2008 forlink invested 71124 500000 rmb bfhx shandong longdong internet technologies limited “sdld” prc limited liability company established october 24 2007 5 equity interest sdld commenced operations december 2007 business providing primary products ecommerce services purpose investment gain cash dividends sdld note 9 goodwill represents excess acquisition cost beijing slait science technology development limited co “slait” estimated fair value net assets acquired august 27 2001 described note 1 acquisition completed june 30 2001 amortization goodwill necessary accordance sfas 142 “goodwill intangible assets” however quarter ended june 30 2002 closing trading price company’s common stock fallen 005 per share indicated might potential impairment goodwill since january 1 2002 therefore company performed additional impairment test june 30 2002 result impairment test performed based fair value company determined trading price company’s common stock impairment 5308760 recorded quarter ended june 30 2002 closing trading price company’s common stock december 31 2002 fallen 004 per share total impairment 6966546 recorded year ended december 31 2002 since december 31 2003 company conducted annual impairment test december 31 year based results first step tests company believes impairment goodwill december 31 2004 2005 2006 2007 2008 especially last two quarters price company’s common stock impacted declines overall financial market fallen 120 per share september 30 2008 090 per share december 31 2008 goodwill determined difference fair value company’s common stock book value company’s net assets result annual impairment test 2008 indicated goodwill impaired declining prices fair value common stock much lower net assets book value company believed impairment temporary based result impairment testing balance 1684023 written year ended december 31 2008 note 10 payables accrued expenses note 11 minority interest minority interest balance 193295 represents cash provided minority shareholders nnbce note 12 income tax according relevant prc tax rules regulations ftcl recognized new technology enterprise operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl fully exempted eit fiscal years 1999 2000 2001 2002 ftcl received 50 eit reduction rate 75 fiscal years 2003 2004 2005 december 31 2008 ftcl entitled eit rate 15 pursuant approval document dated january 19 2004 issued state tax bureau bfhx fully exempted eit fiscal years 2004 2005 2006 december 31 2008 bfhx entitled eit rate 75 hong kong profits tax calculated 175 estimated assessable profits fthk period eit rate ftcd ftgx nnbce 25 provision eit hong kong profits tax made ftcl ftcd ftgx nnbce fthk gained taxable income periods january 1 2007 company adopted fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 fin 48 interpretation provides guidance recognizing measuring uncertain tax positions defined sfas 109 accounting income taxes fin 48 prescribes threshold condition tax position must meet benefits uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions company classified interest penalties related tax uncertainties income tax expense company’s liability income taxes includes liability unrecognized tax benefits interest penalties relate tax years still subject review taxing authorities audit periods remain open review statute limitations passed completion review expiration statute limitations given audit period could result adjustment liability income taxes adjustment could material company’s results operations given quarterly annual period based part upon results operations given period december 31 2007 company liability uncertain tax positions adoption fin 48 material impact company’s results operations financial position liquidity march 16 2007 5th plenary session 10th national peoples congress passed corporate income tax law prc new corporate income tax law took effect january 1 2008 beginning date eit rate expected gradually increase standard rate 25 fiveyear transition period however new corporate income tax law specify existing preferential tax rate gradually increase standard rate 25 also new corporate income tax law certain high technology enterprises continue entitled reduced tax rate 15 however implementation rules regarding preferential tax policies eg details taxpayer qualify hightech enterprise new corporate income tax law yet made public consequently company able make estimate expected financial effect new corporate income tax law deferred tax assets liabilities enactment new corporate income tax law financial effect provision income tax year ended december 31 2008 amounts accrued balance sheet respect current tax payable reconciliation provision income taxes computed applying statutory tax rate mainland china income taxes actual provision income taxes follows note 13 taxes recoverablepayable taxes payable comprise mainly valuedadded tax “vat” business tax “bt” company subject output vat levied rate 17 operating revenue input vat paid purchases materials direct inputs used offset output vat levied operating revenue determine net vat payable recoverable bt charged rate 5 revenue services part prc government’s policy encouraging software development prc companies fulfill certain criteria set relevant authorities develop software products software products registered relevant authorities prc entitled refund vat equivalent excess 3 revenue paid month output vat exceeds input vat excluding export sales excess portion vat refundable recorded company accrual basis vat rebate included income 65561 98692 years ended december 31 2008 2007 respectively note 14 commitments contingencies operating lease commitment years ended december 31 2008 2007 company incurred lease expenses amounting 361336 489583 respectively december 31 2008 2007 company commitments noncancelable operating leases requiring annual minimum rentals follows note 15 stock plan august 16 2002 company established “forlink software corporation inc 2002 stock plan” “2002 plan” reserved 8000000 shares common stock issuance 2002 plan either directly stock awards underlying options board directors would determine terms conditions option granted 2002 plan terms conditions would writing may vary one eligible participant another august 15 2007 2002 plan expired pursuant terms following table summarizes activities stock options granted 2002 plan prior expiration september 7 2004 3315000 options granted company’s employees purchase company’s shares common stock 0001 par value exercise price 010 per share 3315000 options 800000 options 5year vesting period granted employee 2515000 options 3year vesting period granted selected employees 2515000 options 3year vesting period 2385000 options expire december 30 2006 “december 2006 options” remaining 130000 options expired june 30 2007 “june 2007 options” expiration date 800000 options 5year vesting period june 30 2009 “june 2009 options” september 7 2004 january 1 2005 january 1 2006 january 1 2007 854500 “december 2006 options” 904500 1156000 400000 “june 2009 options” 130000 “ june 2007 options” 626000 “december 2006 options” 200000 “june 2009 options” options vested employees respectively market price stock september 7 2004 january 1 2005 010 per share december 2006 company extended expiration date december 2006 options one month end january 2007 additional compensation expense company considered amount immaterial january 29 2007 367000 options “december 2006 options” 400000 “june 2009 options” exercised july 6 2007 130000 options “june 2007 options” exercised following table summarizes cumulative activities december 31 2008 options issued 2002 plan different expiration dates weighted average fair value december 2006 options june 2007 options june 2009 options granted date grant 0042 0046 0058 per option respectively december 31 2008 future compensation expenses recognized aggregate intrinsic value options outstanding exercisable december 31 2008 december 31 2007 aggregate intrinsic value represents intrinsic value based options exercise price less market value company’s stock december 31 2008 december 31 2007 would received option holders option holders exercised options date company calculated fair value option award date grant using blackscholes option pricing model following assumptions used respective option note 16 concentration customers year following customers accounted 10 total sales less 10 note 17 gain loss per share company reported gain 002 per share year 2007 loss 027 per share year 2008 loss 027 per share calculated based number shares outstanding post 120 reverse stock split effected february 2008 reverse stock split happened loss per share would 001 item 9 item 8 financial statements supplementary data see item 14 item 9 item 8 financial statements supplementary data information required item 8 begins page following page index consolidated financial statements index consolidated financial statements report independent registered public accounting firm board directors stockholders forlink software corporation inc audited accompanying consolidated balance sheets forlink software corporation inc december 31 2011 2010 related consolidated statements income stockholders’ equity comprehensive income cash flows years ended forlink software corporation inc’s management responsible financial statements responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position forlink software corporation inc december 31 2011 2010 results operations cash flows years ended conformity accounting principles generally accepted united states america kenne ruan cpa pc woodbridge connecticut march 16 2012 forlink software corporation inc consolidated balance sheets expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements operations expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statement stockholders’ equity expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements cash flows decreaseincrease cash equivalents expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc notes consolidated financial statements note 1 organization description business forlink software corporation inc company registrant forlink nevada corporation originally incorporated january 7 1986 inc laws state utah subsequently reorganized laws nevada december 30 1993 1996 1999 company unfunded venture search suitable business acquisition business combination november 3 1999 company entered plan reorganization beijing forlink software technology co ltd hereinafter bfstc limited liability company organized laws people’s republic china “prc” “china” terms bfstc gained control company pursuant plan reorganization company acquired 100 registered fully paidup capital bfstc exchange 20000000 shares companys authorized unissued common stock bfstc engaged provision computer software consultancy engineering services development sale computer software people’s republic china “prc” part computer consultancy engineering services bfstc also engaged sale computer hardware june 2001 bfstc changed name forlink technologies co ltd “ftcl” ftcl company’s major operating subsidiary china august 2001 company acquired beijing slait science technology development limited co “slait” pursuant plan reorganization dated january 11 2001 company issued 59430000 shares common stock slait’s original beneficial owners exchange 100 outstanding equity slait result share exchange former beneficial owners slait approximately 70 issued outstanding shares company slait became wholly owned subsidiary company also agreed transfer 1085000 renminbi “rmb” approximately us131039 former owners slait change control occurred one officers directors company resigned two former directors also former owners slait became officers directors company prior dissolution 2004 slait provided application system integration technology specializes large volume transaction processing software networks mobile phone billing band operation subsequent acquisition principal activities slait gradually shifted ftcl february 13 2004 slait officially dissolved accordance relevant prc regulations june 18 2003 forlink technologies hong kong limited “fthk” incorporated hong kong special administrative region limited liability company december 2003 fthk became wholly owned subsidiary forlink fthk investment holding company set take advantage favorable business environment hong kong facilitate company’s investment transactions fthk december 18 2003 company invested 760870 china logistics online co ltd china logistics privately held prc company providing logistic services china exchange 178 equity interest june 14 2004 forlink technologies chengdu limited ftcd established limited liability company chengdu prc subsequently became wholly owned subsidiary fthk september 2004 ftcd business providing software outsourcing services software development registered capital ftcd 5000000 fully paid capital 750000 december 31 2005 april 2006 fthk invested 130000 ftcd commenced operations late 2005 registered capital ftcd reduced 200000 december 2007 amount fully paid december 2007 forlink software corporation inc notes consolidated financial statements note 1 organization description business continued compliance china’s foreign investment restrictions telecom valueadded services laws regulations company conducts telecom valueadded services application integration services government organizations china via beijing forlink hua xin technology co ltd bfhx established prc september 19 2003 limited liability company registered capital bfhx 120733 rmb 1000000 fully paid march 31 2005 mr yi mr wei li entrusted nominee owners bfhx hold 70 30 respectively fully paid capital bfhx behalf company primary beneficiary bfhx considered variable interest entity vie company primary beneficiary company’s consolidated financial statements include bfhx upon request company mr yi mr wei li required transfer ownership interests bfhx company designees time amount fully paid registered capital bfhx mr yi chief executive officer director major stockholder company mr wei li administration manager ftcl october 24 2005 company entered definitive agreement acquire 175 equity interest china liquid chemical exchange company limited “clce” prc limited liability company exchange deployment company’s foronline electronic trading system early 2007 clce increased share capital 1708526 rmb 13000000 company subscribe new shares company’s shareholding clce diluted december 31 2007 1346 clce commenced operations fully early 2007 december 31 2011 2010 company’s share joint venture’s profit loss 41931 7793 respectively china liquid chemical exchange company limited paused operations december 31 2011 value investment 0 end 2011 october 3 2006 company entered transfer right invest project cooperation agreement “statelink agreement” statelink international group ltd british virgin islands company “statelink” pursuant company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” prc limited liability company businesses real estate development advertising computer distribution cash consideration 2557545 rmb 20000000 bfhx stock consideration 13000000 shares company’s restricted common stock october 26 2006 bfhx established forlink technologies guangxi limited “ftgx” prc limited liability company carry contract guangxi caexpo build “electronic trade logistics information platform call center” “project” time incorporation bfhx injected rmb 20000000 approximately us2557545 registered capital ftgx august 20 2010 company transferred ownership interests guangxi caexpo guangxi sanqi investment co ltd amount equivalent 2273 guangxi caexpo’s fully paid capital company received cash payment 3024355 rmb 20000000 october 12 2006 company invested 31969 rmb 250000 wuxi stainless steel exchange co ltd “wuxi exchange” prc limited liability company 125 equity interest january 14 2007 company entered agreement major shareholder wuxi exchange transfer 25 company’s interest wuxi exchange major shareholder cash payment rmb 500000 transfer company continues hold 10 equity interest wuxi january 25 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent increase number authorized shares common stock 100000000 200000000 certificate amendment articles incorporation effect increase number company’s authorized common shares filed nevada’s secretary state april 4 2007 april 29 2007 company invested bfhx 138158 rmb 1050000 beijing guoxin forlink internet technologies limited “bgxf” privately held prc company operates finance study website 35 equity interest investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf commenced operations march 9 2008 october 14 2008 registered capital bgxf increased rmb 4285700 since company invest additional funds bgfx ratio holding diluted 245 equity interest march 15 2011 company transferred ownership interests bgxf beijing guo xin xinchuang investment co ltd amount bgxf’s 245 fully paid capital company received cash payment rmb 95741 forlink software corporation inc notes consolidated financial statements note 1 organization description business continued july 12 2007 company invested ftgx 1063830 rmb 8000000 nanning bulk commodities exchange corporation limited “nnbce” privately held prc company 80 equity interest nnbce became subsidiary ftgx nnbce set april 29 2007 commenced operations march 28 2008 provides logistical ecommerce service september 5 2007 company invested 465425 rmb 3500000 nnbce guangxi bulk sugar ethanol exchange corporation limited “gbsee” prc limited liability company established september 12 2007 35 equity interest concurrently china logistics entrusted nominee owner gbsee hold 20 fully paid capital gbsee behalf nnbce primary beneficiary upon request nnbce china logistics required transfer ownership interests gbsee nnbce designees time amount 20 fully paid capital accordance financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities interpretation arb 51” “fin 46r” nnbce deemed hold primary beneficial interest 55 equity interest gbsee established provide logistical ecommerce service dissolved december 16 2007 commenced operations nnbce received payments back investment gbsee 410397 rmb 3000000 december 2007 66211 rmb 484000 february 2008 2189 rmb 16000 september 2008 december 24 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent effect 1for20 reverse stock split certificate amendment articles incorporation effect reverse split filed nevada’s secretary state february 21 2008 march 20 2008 company invested 71124 rmb 500000 bfhx shandong longdong internet technologies limited “sdld” prc limited liability company established october 24 2007 5 equity interest sdld commenced operations december 2007 business providing primary products ecommerce services purpose investment gain cash dividends sdld february 8 2010 company transferred ownership interests ftcl bfhx amount ftcl’s 100 fully paid capital principal activities company development sale network software systems provision enterprise application system integration services prc company also engaged sale computer hardware set forth diagram illustrating corporate structure december 31 2011 forlink software corporation inc notes consolidated financial statements note 1 organization description business continued forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies basis accounting principles consolidation consolidated financial statements prepared accordance generally accepted accounting principles united states america include financial statements forlink subsidiaries vie namely ftcl fthk bfhx ftcd ftgx nnbce intercompany transactions balances eliminated noncontrolling interests balance sheet date portion net assets subsidiaries attributable equity interests owned forlink whether directly indirectly subsidiaries presented consolidated balance sheet separately liabilities shareholders’ equity noncontrolling interests results company years also separately presented income statement use estimates preparation financial statements accordance generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency translation transactions functional currency forlink us dollar “us” financial records maintained financial statements prepared us functional currency fthk hk dollar “hk” financial records maintained financial statements prepared hk functional currency ftcl bfhx ftcd ftgx nnbce renminbi “rmb” financial records maintained financial statements prepared rmb foreign currency transactions period translated company’s denominated currency exchange rates transaction dates gain loss resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements company’s operations based outside united states translated us accordance asc 830 management determined functional currency company’s foreign operations applicable local currency translating functional currency financial statements us yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component stockholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including us based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively us switch managed floating exchange rate based market supply demand reference basket currencies exchange rates used december 31 2011 2010 us1hk780rmb630 us1hk782rmb661 respectively weighted average rates ruling years ended december 31 2011 2010 us1hk780rmb640 us1hk780rmb669 respectively forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued foreign currency risk rmb freely convertible currency state administration foreign exchange authority people’s bank china controls conversion rmb foreign currencies value rmb subject changes central government policies international economic political developments affecting supply demand china foreign exchange trading system market prc subsidiaries conduct business substantially prc financial performance position measured terms rmb devaluation rmb us would consequently adverse effect financial performance asset values company measured terms us prc subsidiaries’ products primarily procured sold delivered prc rmb thus revenues profits predominantly denominated rmb devalue us devaluation could material adverse effect company’s profits foreign currency equivalent profits repatriated prc entities company cash equivalents cash equivalents include cash hand highly liquid investments original maturity three months less allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectability amounts due customers could material effect results operations period changes events occur attempts collect receivable failed receivable written allowance inventories stated lower cost market inventory used system integration services cost calculated using specific identification method sale computer hardware cost calculated using firstin firstout method cost includes costs purchase cost conversion costs incurred bringing inventories present location condition market value determined reference sales proceeds items sold ordinary course business balance sheet date management estimates based prevailing market conditions property plant equipment depreciation property plant equipment stated cost depreciation computed using straightline method allocate cost depreciable assets estimated useful lives assets follows estimated useful life years building computer equipment office equipment motor vehicle forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued major improvements property plant equipment capitalized expenditures repair maintenance minor renewals betterments charged directly statements operations incurred assets disposed related cost accumulated depreciation thereon removed accounts resulting gain loss included statement operations computer software development costs accordance asc 98520 “accounting cost computer software sold leased otherwise marketed” software development costs expensed incurred technological feasibility form working model established deferred software development costs amortized estimated economic life software product available general release customers current software products company determined technological feasibility reached point time available general distribution therefore costs capitalized long term investments company’s long term investments consist 1 equity investments accounted accordance equity method 2 cost investments accounted cost method equity method investment reported cost plus company’s proportionate share income loss changes stockholders’ equity investee since acquisition consolidated results operations include proportionate share income loss see note 8 fair values financial instruments carrying amounts financial instruments cash equivalents investments accounts receivable accounts payable approximate fair values december 31 2011 2010 relatively shortterm maturity instruments revenue recognition company generally provides services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance company evaluates revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically company may required make judgments ·whether fees associated products services fixed determinable ·whether collection fees reasonably assured ·whether professional services essential functionality related software product ·whether ability make reasonably dependable estimates application percentageofcompletion method ·whether verifiable objective evidence fair value products services company recognizes revenues accordance provisions asc 985 “software revenue recognition” asc 985 requires among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectability probable forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable revenue nonsoftware multipleelement arrangements recognized accordance asc 60525 “revenue arrangements multiple deliverables” asc 60525 company recognizes revenue multipledeliverables value customer standalone basis deliverables arrangement meet separation criteria asc 60525 treated one unit accounting purposes revenue recognition case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant asc 98560525 hardware transactions software incidental company apply separate accounting guidance hardware software elements company applies provisions asc 98560515 per asc 98560515 software considered nonessential functionality hardware considered “software related” excluded scope asc 98560515 sale computer hardware recognized revenue transfer risks rewards ownership generally coincides time goods delivered customers title passed remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer time contract executed company determined setup activities constitute separate unit accounting accordingly related setup fees recognized protractedly term contract company considering applicability asc 98560555 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis company determines customer contractual right take possession company’s software time hosting period without significant penalty asc 985605 would apply contracts accordance asc 98560555 stockbased compensation effective january 1 2006 adopted “statement financial accounting standards asc 718 sharebased payment” using modified prospective application transition method adopted asc 718 accounted stockbased compensation accordance “accounting principles board opinion 25 accounting stock issued employees” asc 718 requires company record cost stock options equitybased compensation income statement based upon estimated fair value rewards company elected use modified prospective method adoption requires compensation expense recorded unvested stock options equitybased compensation beginning first quarter adoption accordingly prior periods restated reflect stockbased compensation january 1 2006 company adopted asc 718 using modified prospective method adoption standard material impact company’s consolidated financial statements company’s outstanding stock options vested december 31 2005 unvested portion stock options considered immaterial forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued asc 718 also requires company estimate forfeitures calculating expense relating stockbased compensation opposed recognizing forfeitures expense reduction incur adjustment apply estimated forfeitures previously stockbased compensation considered immaterial company classified cumulative effect change accounting principle january 1 2006 company unrecognized compensation cost remaining associated existing stock option grants also company made modifications outstanding stock option grants prior adoption asc 718 changes valuation methodologies assumptions compared used company prior january 1 2006 november 2005 fasb issued fsp 123r3 “transition election related accounting tax effects sharebased payment awards” company adopted alternative transition method provided fsp calculating tax effects stockbased compensation pursuant asc 718 fourth quarter fiscal 2006 alternative transition method includes simplified methods establish beginning balance additional paidin capital “apic” pool related tax effects employee stockbased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee stockbased compensation awards outstanding upon adoption asc 718 adoption material impact company’s results operations financial position february 2006 fasb issued fasb asc 7181035 “classification options similar instruments issued employee compensation allow cash settlement upon occurrence contingent event” position amended asc 718 incorporate cash settlement feature exercised upon occurrence contingent event outside employee’s control meet certain conditions asc 718 becomes probable event occur guidance fasb staff position required applied upon initial adoption asc 718 company option grants allow cash settlement company adopt new stockbased compensation plans 2010 200000 stock options issued company’s 2002 stock plan exercised 2008 year advertising costs advertising costs incurred promotion company’s products services expensed incurred advertising expenses insignificant 2011 2010 income taxes company accounts income taxes accordance asc 740 “accounting income taxes” asc 740 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized july 2006 fasb asc 7401025 “accounting uncertainty income taxesan interpretation fasb statement 109” interpretation provides guidance recognizing measuring uncertain tax positions defined asc 740 “accounting income taxes” asc 7401025 prescribes threshold condition tax position must meet benefit uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued earnings per common share company computes net earnings per share accordance asc 260 “earnings per share” sec staff accounting bulletin 98 “sab 98” provisions asc 260 sab 98 basic net earnings per share computed dividing net earnings available common shareholders period weighted average number shares common stock outstanding period calculation diluted net earnings per share gives effect common stock equivalents however potential common stock diluted eps computation excluded net loss periods effect antidilutive recent accounting pronouncements may 2011 fasb issued authoritative pronouncement fair value measurement guidance result joint efforts fasb international accounting standards board develop single converged fair value framework guidance largely consistent existing fair value measurement principles gaap guidance expands existing disclosure requirements fair value measurements makes amendments mainly including ·highestandbestuse valuationpremise concepts nonfinancial assetsthe guidance indicates highestandbestuse valuationpremise concepts apply measuring fair value nonfinancial assets ·application financial assets financial liabilities offsetting positions market risks counterparty credit riskthe guidance permits exception fair value measurement principles financial assets financial liabilities derivatives offsetting positions market risks counterparty credit risk several criteria met criteria met entity measure fair value net risk position ·premiums discounts fair value measurethe guidance provides premiums discounts reflect size characteristic reporting entity’s holding specifically blockage factor adjusts quoted price asset liability market’s normal daily trading volume sufficient absorb quantity held entity rather characteristic asset liability example control premium measuring fair value controlling interest permitted fair value measurement ·fair value instrument classified reporting entity’s stockholders’ equitythe guidance prescribes model measuring fair value instrument classified stockholders’ equity model consistent guidance measuring fair value liabilities ·disclosures fair value measurementsthe guidance expands disclosure requirements particularly level 3 inputs required disclosures include ifor fair value measurements categorized level 3 fair value hierarchy 1 quantitative disclosure unobservable inputs assumptions used measurement 2 description valuation process place eg entity decides valuation policies procedures well changes analyses fair value measurements period 3 narrative description sensitivity fair value changes unobservable inputs interrelationships inputs iithe level fair value hierarchy items measured fair value statement financial position whose fair value must disclosed forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued guidance applied prospectively effective interim annual periods beginning december 15 2011 public entities early application public entities permitted expect adoption guidance significant effect consolidated financial statements june 2011 fasb issued authoritative pronouncement require entity present total comprehensive income components net income components comprehensive income either single continuous statement comprehensive income two separate consecutive statements choices entity required present component net income along total net income component comprehensive income along total comprehensive income total amount comprehensive income guidance eliminates option present components comprehensive income part statement changes stockholders’ equity guidance change items must reported comprehensive income item comprehensive income must reclassified net income guidance applied retrospectively public entities guidance effective fiscal years interim periods within years beginning december 15 2011 early adoption permitted december 2011 fasb issued authoritative pronouncement related deferral effective date amendments presentation reclassifications items accumulated comprehensive income guidance allows fasb redeliberate whether present face financial statements effects reclassifications accumulated comprehensive income components net income comprehensive income periods presented fasb considering operational concerns presentation requirements reclassification adjustments needs financial statement users additional information reclassification adjustments entities continue report reclassifications accumulated comprehensive income consistent presentation requirements effect pronouncement update issued june 2011 expect adoption guidance significant effect consolidated financial statements september 2011 fasb issued authoritative pronouncement related testing goodwill impairment guidance intended simplify entities public nonpublic test goodwill impairment guidance permits entity first assess qualitative factors determine whether “more likely not” fair value reporting unit less carrying amount basis determining whether necessary perform twostep goodwill impairment test guidance effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted including annual interim goodwill impairment tests performed date september 15 2011 public entity’s financial statements recent annual interim period yet issued expect adoption pronouncement significant effect consolidated financial statements december 2011 fasb issued authoritative pronouncement related disclosures offsetting assets liabilities guidance requires entity disclose information offsetting related arrangements enable users financial statements understand effect arrangements financial position entity required apply amendments annual reporting periods beginning january 1 2013 interim periods within annual periods entity provide disclosures required amendments retrospectively comparative periods presented process evaluating effect adoption guidance consolidated financial statements forlink software corporation inc notes consolidated financial statements note 3 accounts receivable allowance doubtful accounts receivable customer obligations due normal trade terms company performs continuing credit evaluations customers’ financial conditions company generally require collateral senior management reviews accounts receivable time determine receivables potentially uncollectible company included accounts receivable balances determined uncollectible allowance doubtful accounts attempts collect receivable failed receivable written allowance year ended december 31 2011 company’s management determined numerous failed attempts collect write bad debt two major accounts receivable note 4 receivables deposits prepayments receivables include deposits operating leases advances employee traveling outlays note 5 inventories purchased identified system integration contracts workinprogress includes payroll operating expenses associated various contracts progress note 6 related party company expects future transactions ordinary course business stockholders directors senior officers affiliates associates substantially terms prevailing comparable transactions others listed summary material relationships transactions company’s stockholders directors senior officers affiliates amounts due stockholders company time received made repayment one major stockholder also member management amounts due stockholders bear interest clearly defined terms repayment forlink software corporation inc notes consolidated financial statements note 6 related party continued december 31 2011 2010 amounts due stockholders represented advances stockholders amount 260470 524668 respectively related party transactions note 7 property plant equipment net building located chengdu prc purchased behalf company mr yi ceo director stockholder stockholders’ resolution passed march 8 1999 ratified title building belonged company 2005 title building transferred company note 8 long term investments december 2003 company invested 760870 privately held prc company china logistics online co ltd 178 equity interest company recorded investment cost ability exercise significant influence investee forlink software corporation inc notes consolidated financial statements note 8 long term investments continued october 24 2005 company set china liquid chemical exchange company limited liability company prc shares risk rewards equity interest 1346 consideration made form companydeveloped “foronline electronic trading system” without cash outflow therefore company recorded contribution software lower carrying amount fair value accounted equity method sop 789 december 31 2011 2010 company’s share joint venture’s profit loss 41931 7793 respectively china liquid chemical exchange company limited paused operations december 31 2011 value investment 0 end 2011 october 3 2006 company entered transfer right invest project cooperation agreement “statelink agreement” statelink international group ltd british virgin islands company “statelink” pursuant company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” prc limited liability company businesses real estate development advertising computer distribution cash consideration 2557545 rmb 20000000 bfhx stock consideration 13000000 shares company’s restricted common stock october 26 2006 bfhx established forlink technologies guangxi limited “ftgx” prc limited liability company carry contract guangxi caexpo build “electronic trade logistics information platform call center” “project” time incorporation bfhx injected rmb 20000000 approximately us2557545 registered capital ftgx august 20 2010 company transferred ownership interests guangxi caexpo guangxi sanqi investment co ltd amount equivalent 2273 guangxi caexpo’s fully paid capital company received cash payment 3024355 rmb 20000000 loss disposition 627561 october 12 2006 company entered definitive agreement acquire 125 registered capital wuxi stainless steel exchange co ltd “wuxi” private held prc company exchange 125 registered capital company deploy proprietary integrated software solution “software” estimated rmb 1000000 reference similar products sold third parties 2006 support wuxi’s operations plus rmb 250000 cash payment wuxi 2006 company contributed cash 31969 rmb 250000 software deployed wuxi december 2006 company recorded investment cost ability exercise significant influence wuxi january 14 2007 company entered share transfer agreement major shareholder wuxi transfer 25 interest wuxi held company major shareholder cash payment rmb 500000 transfer company continues hold 10 equity interest wuxi april 29 2007 company invested 138158 privately held prc company beijing guoxin forlink internet technologies limited “bgxf” 35 equity interest company’s investment made bfhx investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf march 15 2011 company transferred ownership interests bgxf beijing guo xin xinchuang investment co ltd amount bgxf’s 245 fully paid capital company received cash payment rmb 95741 march 9 2008 bgxf commenced operations september 17 2007 company invested 99734 privately held prc company ningbo bulk commodities exchange corporation limited “nbbce” 25 equity interest company’s investment made bfhx company recorded investment cost company ability exercise significant influence nbbce’s strategic business decisions dominated another major shareholder nbbce paused operations december 31 2011 value investment 0 end 2011 march 20 2008 forlink invested 71124 500000 rmb bfhx shandong longdong internet technologies limited “sdld” prc limited liability company established october 24 2007 5 equity interest sdld commenced operations december 2007 business providing primary products ecommerce services purpose investment gain cash dividends sdld october 8 2010 company invested 151213 rmb 1000000 bfhx shanghai shipping freight exchange co ltd “ssfe” prc limited liability company established october 8 2010 5 equity interest ssfe commenced operations march 25 2011 company recorded investment cost ability exercise significant influence investee forlink software corporation inc notes consolidated financial statements note 9 short term borrowings october 20 2011 company signed bank loan finance contract china mingsheng bank ltd company received credit 317496 rmb 2000000 meet working capital bank loan term 6 months annual rate 793 december 31 2011 balance loan 317496 rmb 2000000 note 10 payables accrued expenses note 11 noncontrolling interest noncontrolling interest balance 49125 represents cash provided minority shareholders nnbce note 12 income tax according relevant prc tax rules regulations ftcl recognized new technology enterprise operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl fully exempted eit fiscal years 1999 2002 ftcl received 50 eit reduction rate 75 fiscal years 2003 2005 december 31 2011 ftcl entitled eit rate 15 pursuant approval document dated january 19 2004 issued state tax bureau bfhx fully exempted eit fiscal years 2004 2005 2006 december 31 2011 bfhx entitled eit rate 25 hong kong profits tax calculated 165 estimated assessable profits fthk eit rate ftcd ftgx nnbce 25 provision eit hong kong profits tax made ftcl ftcd ftgx nnbce fthk taxable income relevant periods january 1 2007 company adopted fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 “fin 48” interpretation provides guidance recognizing measuring uncertain tax positions defined asc 740 accounting income taxes fin 48 prescribes threshold condition tax position must meet benefits uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions company classified interest penalties related tax uncertainties income tax expense company’s liability income taxes includes liability unrecognized tax benefits interest penalties relate tax years still subject review taxing authorities audit periods remain open review statute limitations passed completion review expiration statute limitations given audit period could result adjustment liability income taxes adjustment could material company’s results operations given quarterly annual period based part upon results operations given period december 31 2011 company liability uncertain tax positions adoption fin 48 material impact company’s results operations financial position liquidity forlink software corporation inc notes consolidated financial statements note 12 income tax continued march 16 2007 5th plenary session 10th national peoples congress passed corporate income tax law prc new corporate income tax law took effect january 1 2008 beginning date eit rate expected gradually increase standard rate 25 fiveyear transition period new corporate income tax law however specify existing preferential tax rate gradually increase standard rate 25 also new corporate income tax law certain high technology enterprises continue entitled reduced tax rate 15 implementation rules regarding preferential tax policies eg details taxpayer qualify hightech enterprise new corporate income tax law yet made public consequently company able make estimate expected financial effect new corporate income tax law deferred tax assets liabilities enactment new corporate income tax law financial effect provision income tax year ended december 31 2011 amounts accrued balance sheet respect current tax payable reconciliation provision income taxes computed applying statutory tax rate china income taxes actual provision income taxes follows note 13 taxes recoverablepayable taxes payable comprise mainly valuedadded tax “vat” business tax “bt” company subject output vat levied rate 17 operating revenue input vat paid purchases materials direct inputs used offset output vat levied operating revenue determine net vat payable recoverable bt charged rate 5 revenue services part prc government’s policy encouraging software development prc companies fulfill certain criteria set relevant authorities develop software products software products registered relevant authorities prc entitled refund vat equivalent excess 3 revenue paid month output vat exceeds input vat excluding export sales excess portion vat refundable recorded company accrual basis vat rebate included income 25561 728107 years ended december 31 2011 2010 respectively forlink software corporation inc notes consolidated financial statements note 14 commitments contingencies operating lease commitment years ended december 31 2011 2010 company incurred lease expenses amounting 528762 472277 respectively december 31 2011 2010 company commitments noncancelable operating leases requiring annual minimum rentals follows note 15 stock plan august 16 2002 company established “forlink software corporation inc 2002 stock plan” “2002 plan” reserved 8000000 shares common stock issuance 2002 plan either directly stock awards underlying options board directors would determine terms conditions option granted 2002 plan terms conditions would writing may vary one eligible participant another august 15 2007 2002 plan expired pursuant terms following table summarizes activities stock options granted 2002 plan prior expiration forlink software corporation inc notes consolidated financial statements note 15 stock plan continued september 7 2004 3315000 options granted company’s employees purchase company’s shares common stock 0001 par value exercise price 010 per share 3315000 options 800000 options 5year vesting period granted employee 2515000 options 3year vesting period granted selected employees 2515000 options 3year vesting period 2385000 options expire december 30 2006 “december 2006 options” remaining 130000 options expired june 30 2007 “june 2007 options” expiration date 800000 options 5year vesting period june 30 2009 “june 2009 options” september 7 2004 january 1 2005 january 1 2006 january 1 2007 854500 “december 2006 options” 904500 1156000 400000 “june 2009 options” 130000 “june 2007 options” 626000 “december 2006 options” 200000 “june 2009 options” options vested employees respectively market price stock september 7 2004 january 1 2005 010 per share december 2006 company extended expiration date december 2006 options one month end january 2007 additional compensation expense company considered amount immaterial january 29 2007 367000 options “december 2006 options” 400000 “june 2009 options” exercised july 6 2007 130000 options “june 2007 options” exercised following table summarizes cumulative activities december 31 2011 options issued 2002 plan different expiration dates weighted average fair value december 2006 options june 2007 options june 2009 options granted date grant 0042 0046 0058 per option respectively december 31 2011 future compensation expenses recognized aggregate intrinsic value options outstanding exercisable december 31 2011 december 31 2010 aggregate intrinsic value represents intrinsic value based options exercise price less market value company’s stock december 31 2011 december 31 2010 would received option holders option holders exercised options date company calculated fair value option award date grant using blackscholes option pricing model following assumptions used respective option forlink software corporation inc notes consolidated financial statements note 16 concentration customers periods presented following customers accounted 10 total sales less 10 note 17 gain loss per share company reported loss 106 per share 2011 year compared loss 007 per share 2010 year note 18 subsequent event none item 9 item 8 financial statements supplementary data information required item 8 begins page following page index consolidated financial statements index consolidated financial statements report independent registered public accounting firm board directors stockholders forlink software corporation inc audited accompanying consolidated balance sheets sunrise real estate group inc december 31 2012 2011 related consolidated statements operations stockholders deficit cash flows years ended financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness companys internal control financial reporting accordingly express opinion audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial positions forlink software corporation inc december 31 2012 2011 results consolidated operations cash flows years ended conformity accounting principles generally accepted united states america accompanying financial statements prepared assuming company continue going concern discussed note 2 financial statements company significant accumulated losses operations net capital deficiency raise substantial doubt ability continue going concern management’s plans regard matters also described note 2 financial statements include adjustments might result outcome uncertainty skenne ruan cpa pc woodbridge ct usa march 28 2013 forlink software corporation inc consolidated balance sheets expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements operations expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statement stockholders’ equity expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements cash flows decreaseincrease cash equivalents expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc notes consolidated financial statements note 1 organization description business forlink software corporation inc company registrant forlink “we” “us” nevada corporation originally incorporated january 7 1986 inc laws state utah subsequently reorganized laws nevada december 30 1993 1996 1999 company unfunded venture search suitable business acquisition business combination november 3 1999 company entered plan reorganization beijing forlink software technology co ltd hereinafter bfstc limited liability company organized laws people’s republic china “prc” “china” terms bfstc gained control company pursuant plan reorganization company acquired 100 registered fully paidup capital bfstc exchange 20000000 shares companys authorized unissued common stock bfstc engaged provision computer software consultancy engineering services development sale computer software people’s republic china “prc” part computer consultancy engineering services bfstc also engaged sale computer hardware june 2001 bfstc changed name forlink technologies co ltd “ftcl” ftcl company’s major operating subsidiary china august 2001 company acquired beijing slait science technology development limited co “slait” pursuant plan reorganization dated january 11 2001 company issued 59430000 shares common stock slait’s original beneficial owners exchange 100 outstanding equity slait result share exchange former beneficial owners slait approximately 70 issued outstanding shares company slait became wholly owned subsidiary company also agreed transfer 1085000 renminbi “rmb” approximately us131039 former owners slait change control occurred one officers directors company resigned two former directors also former owners slait became officers directors company prior dissolution 2004 slait provided application system integration technology specializes large volume transaction processing software networks mobile phone billing band operation subsequent acquisition principal activities slait gradually shifted ftcl february 13 2004 slait officially dissolved accordance relevant prc regulations june 18 2003 forlink technologies hong kong limited “fthk” incorporated hong kong special administrative region limited liability company december 2003 fthk became wholly owned subsidiary forlink fthk investment holding company set take advantage favorable business environment hong kong facilitate company’s investment transactions fthk december 18 2003 company invested 760870 china logistics online co ltd china logistics privately held prc company providing logistic services china exchange 178 equity interest june 14 2004 forlink technologies chengdu limited ftcd established limited liability company chengdu prc subsequently became wholly owned subsidiary fthk september 2004 ftcd business providing software outsourcing services software development registered capital ftcd 5000000 fully paid capital 750000 december 31 2005 april 2006 fthk invested 130000 ftcd commenced operations late 2005 registered capital ftcd reduced 200000 december 2007 amount fully paid december 2007 forlink software corporation inc notes consolidated financial statements note 1 organization description business continued compliance china’s foreign investment restrictions telecom valueadded services laws regulations company conducts telecom valueadded services application integration services government organizations china via beijing forlink hua xin technology co ltd bfhx established prc september 19 2003 limited liability company registered capital bfhx 120733 rmb 1000000 fully paid march 31 2005 mr yi mr wei li entrusted nominee owners bfhx hold 70 30 respectively fully paid capital bfhx behalf company primary beneficiary bfhx considered variable interest entity vie company primary beneficiary company’s consolidated financial statements include bfhx upon request company mr yi mr wei li required transfer ownership interests bfhx company designees time amount fully paid registered capital bfhx mr yi chief executive officer director major stockholder company mr wei li administration manager ftcl october 3 2006 company entered transfer right invest project cooperation agreement “statelink agreement” statelink international group ltd british virgin islands company “statelink” pursuant company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” prc limited liability company businesses real estate development advertising computer distribution cash consideration 2557545 rmb 20000000 bfhx stock consideration 13000000 shares company’s restricted common stock october 26 2006 bfhx established forlink technologies guangxi limited “ftgx” prc limited liability company carry contract guangxi caexpo build “electronic trade logistics information platform call center” “project” time incorporation bfhx injected rmb 20000000 approximately us2557545 registered capital ftgx august 20 2010 company transferred ownership interests guangxi caexpo guangxi sanqi investment co ltd amount equivalent 2273 guangxi caexpo’s fully paid capital company received cash payment 3024355 rmb 20000000 october 12 2006 company invested 31969 rmb 250000 wuxi stainless steel exchange co ltd “wuxi exchange” prc limited liability company 125 equity interest january 14 2007 company entered agreement major shareholder wuxi exchange transfer 25 company’s interest wuxi exchange major shareholder cash payment rmb 500000 transfer company continues hold 10 equity interest wuxi exchange january 25 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent increase number authorized shares common stock 100000000 200000000 certificate amendment articles incorporation effect increase number company’s authorized common shares filed nevada’s secretary state april 4 2007 april 29 2007 company invested bfhx 138158 rmb 1050000 beijing guoxin forlink internet technologies limited “bgxf” privately held prc company operates finance study website 35 equity interest investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf commenced operations march 9 2008 october 14 2008 registered capital bgxf increased rmb 4285700 since company invest additional funds bgfx ratio holding diluted 245 equity interest march 15 2011 company transferred ownership interests bgxf beijing guo xin xinchuang investment co ltd amount bgxf’s 245 fully paid capital company received cash payment amount 15232 rmb 95741 forlink software corporation inc notes consolidated financial statements note 1 organization description business continued july 12 2007 company invested ftgx 1063830 rmb 8000000 nanning bulk commodities exchange corporation limited “nnbce” privately held prc company 80 equity interest nnbce became subsidiary ftgx nnbce set april 29 2007 commenced operations march 28 2008 provides logistical ecommerce service february 2 2012 company acquired equity interests nnbce 203884 rmb 1285960 september 5 2007 company invested 465425 rmb 3500000 nnbce guangxi bulk sugar ethanol exchange corporation limited “gbsee” prc limited liability company established september 12 2007 35 equity interest concurrently china logistics entrusted nominee owner gbsee hold 20 fully paid capital gbsee behalf nnbce primary beneficiary upon request nnbce china logistics required transfer ownership interests gbsee nnbce designees time amount 20 fully paid capital accordance financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities interpretation arb 51” “fin 46r” nnbce deemed hold primary beneficial interest 55 equity interest gbsee established provide logistical ecommerce service dissolved december 16 2007 commenced operations nnbce received payments back investment gbsee 410397 rmb 3000000 december 2007 66211 rmb 484000 february 2008 2189 rmb 16000 september 2008 december 24 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent effect 1for20 reverse stock split certificate amendment articles incorporation effect reverse split filed nevada’s secretary state february 21 2008 february 8 2010 company transferred ownership interests ftcl bfhx amount ftcl’s 100 fully paid capital principal activities company development sale network software systems provision enterprise application system integration services prc company also engaged sale computer hardware set forth diagram illustrating corporate structure december 31 2012 forlink software corporation inc notes consolidated financial statements note 1 organization description business continued forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies basis accounting principles consolidation consolidated financial statements prepared accordance generally accepted accounting principles united states america include financial statements forlink subsidiaries vie namely ftcl fthk bfhx ftcd ftgx nnbce intercompany transactions balances eliminated noncontrolling interests balance sheet date portion net assets subsidiaries attributable equity interests owned forlink whether directly indirectly subsidiaries presented consolidated balance sheet separately liabilities shareholders’ equity noncontrolling interests results company years also separately presented income statement use estimates preparation financial statements accordance generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency translation transactions functional currency forlink us dollar “us” financial records maintained financial statements prepared us functional currency fthk hk dollar “hk” financial records maintained financial statements prepared hk functional currency ftcl bfhx ftcd ftgx nnbce renminbi “rmb” financial records maintained financial statements prepared rmb foreign currency transactions period translated company’s denominated currency exchange rates transaction dates gain loss resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements company’s operations based outside united states translated us accordance asc 830 management determined functional currency company’s foreign operations applicable local currency translating functional currency financial statements us yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component stockholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including us based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively us switch managed floating exchange rate based market supply demand reference basket currencies exchange rates used december 31 2012 2011 us1hk775rmb630 us1hk777rmb635 respectively weighted average rates ruling years ended december 31 2012 2011 us1hk775rmb631 us1hk780rmb640 respectively forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued foreign currency risk rmb freely convertible currency state administration foreign exchange authority people’s bank china controls conversion rmb foreign currencies value rmb subject changes central government policies international economic political developments affecting supply demand china foreign exchange trading system market prc subsidiaries conduct business substantially prc financial performance position measured terms rmb devaluation rmb us would consequently adverse effect financial performance asset values company measured terms us prc subsidiaries’ products primarily procured sold delivered prc rmb thus revenues profits predominantly denominated rmb devalue us devaluation could material adverse effect company’s profits foreign currency equivalent profits repatriated prc entities company cash equivalents cash equivalents include cash hand highly liquid investments original maturity three months less allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectability amounts due customers could material effect results operations period changes events occur attempts collect receivable failed receivable written allowance inventories stated lower cost market inventory used system integration services cost calculated using specific identification method sale computer hardware cost calculated using firstin firstout method cost includes costs purchase cost conversion costs incurred bringing inventories present location condition market value determined reference sales proceeds items sold ordinary course business balance sheet date management estimates based prevailing market conditions property plant equipment depreciation property plant equipment stated cost depreciation computed using straightline method allocate cost depreciable assets estimated useful lives assets follows forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued major improvements property plant equipment capitalized expenditures repair maintenance minor renewals betterments charged directly statements operations incurred assets disposed related cost accumulated depreciation thereon removed accounts resulting gain loss included statement operations computer software development costs accordance asc 98520 “accounting cost computer software sold leased otherwise marketed” software development costs expensed incurred technological feasibility form working model established deferred software development costs amortized estimated economic life software product available general release customers current software products company determined technological feasibility reached point time available general distribution therefore costs capitalized long term investments company’s long term investments consist 1 equity investments accounted accordance equity method 2 cost investments accounted cost method equity method investment reported cost plus company’s proportionate share income loss changes stockholders’ equity investee since acquisition consolidated results operations include proportionate share income loss see note 8 fair values financial instruments carrying amounts financial instruments cash equivalents investments accounts receivable accounts payable approximate fair values december 31 2012 2011 relatively shortterm maturity instruments revenue recognition company generally provides services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance company evaluates revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically company may required make judgments ·whether fees associated products services fixed determinable ·whether collection fees reasonably assured ·whether professional services essential functionality related software product ·whether ability make reasonably dependable estimates application percentageofcompletion method ·whether verifiable objective evidence fair value products services company recognizes revenues accordance provisions asc 985 “software revenue recognition” asc 985 requires among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectability probable forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable revenue nonsoftware multipleelement arrangements recognized accordance asc 60525 “revenue arrangements multiple deliverables” asc 60525 company recognizes revenue multipledeliverables value customer standalone basis deliverables arrangement meet separation criteria asc 60525 treated one unit accounting purposes revenue recognition case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant asc 98560525 hardware transactions software incidental company apply separate accounting guidance hardware software elements company applies provisions asc 98560515 per asc 98560515 software considered nonessential functionality hardware considered “software related” excluded scope asc 98560515 sale computer hardware recognized revenue transfer risks rewards ownership generally coincides time goods delivered customers title passed remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer time contract executed company determined setup activities constitute separate unit accounting accordingly related setup fees recognized protractedly term contract company considering applicability asc 98560555 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis company determines customer contractual right take possession company’s software time hosting period without significant penalty asc 985605 would apply contracts accordance asc 98560555 stockbased compensation effective january 1 2006 adopted “statement financial accounting standards asc 718 sharebased payment” using modified prospective application transition method adopted asc 718 accounted stockbased compensation accordance “accounting principles board opinion 25 accounting stock issued employees” asc 718 requires company record cost stock options equitybased compensation income statement based upon estimated fair value rewards company elected use modified prospective method adoption requires compensation expense recorded unvested stock options equitybased compensation beginning first quarter adoption accordingly prior periods restated reflect stockbased compensation january 1 2006 company adopted asc 718 using modified prospective method adoption standard material impact company’s consolidated financial statements company’s outstanding stock options vested december 31 2005 unvested portion stock options considered immaterial forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued asc 718 also requires company estimate forfeitures calculating expense relating stockbased compensation opposed recognizing forfeitures expense reduction incur adjustment apply estimated forfeitures previously stockbased compensation considered immaterial company classified cumulative effect change accounting principle january 1 2006 company unrecognized compensation cost remaining associated existing stock option grants also company made modifications outstanding stock option grants prior adoption asc 718 changes valuation methodologies assumptions compared used company prior january 1 2006 november 2005 fasb issued fsp 123r3 “transition election related accounting tax effects sharebased payment awards” company adopted alternative transition method provided fsp calculating tax effects stockbased compensation pursuant asc 718 fourth quarter fiscal 2006 alternative transition method includes simplified methods establish beginning balance additional paidin capital “apic” pool related tax effects employee stockbased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee stockbased compensation awards outstanding upon adoption asc 718 adoption material impact company’s results operations financial position february 2006 fasb issued fasb asc 7181035 “classification options similar instruments issued employee compensation allow cash settlement upon occurrence contingent event” position amended asc 718 incorporate cash settlement feature exercised upon occurrence contingent event outside employee’s control meet certain conditions asc 718 becomes probable event occur guidance fasb staff position required applied upon initial adoption asc 718 company option grants allow cash settlement company adopt new stockbased compensation plans 2010 200000 stock options issued company’s 2002 stock plan exercised 2008 year advertising costs advertising costs incurred promotion company’s products services expensed incurred advertising expenses insignificant 2012 2011 income taxes company accounts income taxes accordance asc 740 “accounting income taxes” asc 740 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized july 2006 fasb asc 7401025 “accounting uncertainty income taxesan interpretation fasb statement 109” interpretation provides guidance recognizing measuring uncertain tax positions defined asc 740 “accounting income taxes” asc 7401025 prescribes threshold condition tax position must meet benefit uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued earnings per common share company computes net earnings per share accordance asc 260 “earnings per share” sec staff accounting bulletin 98 “sab 98” provisions asc 260 sab 98 basic net earnings per share computed dividing net earnings available common shareholders period weighted average number shares common stock outstanding period calculation diluted net earnings per share gives effect common stock equivalents however potential common stock diluted eps computation excluded net loss periods effect antidilutive recent accounting pronouncements may 2011 fasb issued asu 201104 provide consistent definition fair value “fv” ensure fv measurement disclosure requirements similar accounting principles generally accepted united states america “us gaap” ifrs asu 201104 changes certain fv measurement principles enhances disclosure requirements particularly level 3 fv measurements adoption asu 201104 significant impact company’s financial statements july 2012 fasb issued authoritative pronouncement related testing indefinitelived intangible assets goodwill impairment guidance entity testing indefinitelived intangible asset impairment option performing qualitative assessment calculating fair value asset entity determines basis qualitative factors fair value indefinitelived intangible asset likely ie likelihood 50 percent impaired entity would need calculate fair value asset guidance revise requirement test indefinitelived intangible assets annually impairment addition guidance amend requirement test assets impairment annual tests change events circumstances however revise examples events circumstances entity consider interim periods guidance effective annual interim impairment tests performed fiscal years beginning september 15 2012 early adoption permitted adoption guidance significant effect consolidated financial statements february 2013 fasb issued asu 201302 addresses reporting reclassifications accumulated comprehensive income asu clarifies fasb codification topic 220 comprehensive income requires entity report effect significant reclassifications accumulated comprehensive income net income line items affected amount required us gaap reclassified entirety net income reporting period amounts required reclassified entirety net income must crossreferenced disclosures provide additional detail amounts amendments effective reporting periods beginning december 15 2013 significant amounts company’s accumulated comprehensive income relate foreign exchange translations company expect significant impact standard foreseeable future accounting standards issued proposed fasb standardssetting bodies require adoption future date expected significant impact company’s consolidated financial statements upon adoption forlink software corporation inc notes consolidated financial statements note 2 basis presentation summary significant accounting policies continued going concern company’s financial statements prepared according accounting principles generally accepted united states america applicable going concern contemplates realization assets liquidation liabilities normal course business company accumulated losses 11437544 december 31 2012 company’s net working capital deficiency significant accumulated losses raise substantial doubt ability continue going concern however management believes company able generate sufficient cash flow meet obligations timely basis ultimately attain successful operations respect agency sales property management operations accordingly accompanying financial statements include adjustments may necessary company unable continue going concern forlink software corporation inc notes consolidated financial statements note 3 accounts receivable allowance doubtful accounts receivable customer obligations due normal trade terms company performs continuing credit evaluations customers’ financial conditions company generally require collateral senior management reviews accounts receivable time determine receivables potentially uncollectible company included accounts receivable balances determined uncollectible allowance doubtful accounts attempts collect receivable failed receivable written allowance year ended december 31 2012 balances accounts receivable 132892 203910 respectively december 31 2012 2011 note 4 receivables deposits prepayments receivables include deposits operating leases advances employee traveling outlays note 5 inventories purchased identified system integration contracts workinprogress includes payroll operating expenses associated various contracts progress note 6 related party company expects future transactions ordinary course business stockholders directors senior officers affiliates associates substantially terms prevailing comparable transactions others listed summary material relationships transactions company’s stockholders directors senior officers affiliates amounts due related party company time received made repayment one major stockholder also member management amounts due stockholders bear interest clearly defined terms repayment forlink software corporation inc notes consolidated financial statements note 6 related party continued december 31 2012 2011 amounts due stockholders represented advances stockholders amount 369166 260470 respectively related party transactions note 7 property plant equipment net building located chengdu prc purchased behalf company mr yi ceo director stockholder stockholders’ resolution passed march 8 1999 ratified title building belonged company 2005 title building transferred company note 8 long term investments december 2003 company invested 760870 privately held prc company china logistics online co ltd 178 equity interest company recorded investment cost ability exercise significant influence investee forlink software corporation inc notes consolidated financial statements note 8 long term investments continued october 24 2005 company set china liquid chemical exchange company limited liability company prc shares risk rewards equity interest 1346 consideration made form companydeveloped “foronline electronic trading system” without cash outflow therefore company recorded contribution software lower carrying amount fair value accounted equity method sop 789 december 31 2012 2011 company’s share joint venture’s profit loss 0 41931 respectively china liquid chemical exchange company limited paused operations december 31 2011 value investment 0 end 2012 october 3 2006 company entered transfer right invest project cooperation agreement “statelink agreement” statelink international group ltd british virgin islands company “statelink” pursuant company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” prc limited liability company businesses real estate development advertising computer distribution cash consideration 2557545 rmb 20000000 bfhx stock consideration 13000000 shares company’s restricted common stock october 26 2006 bfhx established forlink technologies guangxi limited “ftgx” prc limited liability company carry contract guangxi caexpo build “electronic trade logistics information platform call center” “project” time incorporation bfhx injected rmb 20000000 approximately us2557545 registered capital ftgx august 20 2010 company transferred ownership interests guangxi caexpo guangxi sanqi investment co ltd amount equivalent 2273 guangxi caexpo’s fully paid capital company received cash payment 3024355 rmb 20000000 loss disposition 627561 october 12 2006 company entered definitive agreement acquire 125 registered capital wuxi stainless steel exchange co ltd “wuxi” private held prc company exchange 125 registered capital company deploy proprietary integrated software solution “software” estimated rmb 1000000 reference similar products sold third parties 2006 support wuxi’s operations plus rmb 250000 cash payment wuxi 2006 company contributed cash 31969 rmb 250000 software deployed wuxi december 2006 company recorded investment cost ability exercise significant influence wuxi january 14 2007 company entered share transfer agreement major shareholder wuxi transfer 25 interest wuxi held company major shareholder cash payment rmb 500000 transfer company continues hold 10 equity interest wuxi april 29 2007 company invested 138158 privately held prc company beijing guoxin forlink internet technologies limited “bgxf” 35 equity interest company’s investment made bfhx investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf march 15 2011 company transferred ownership interests bgxf beijing guo xin xinchuang investment co ltd amount bgxf’s 245 fully paid capital company got cash payment rmb 95741 september 17 2007 company invested 99734 privately held prc company ningbo bulk commodities exchange corporation limited “nbbce” 25 equity interest company’s investment made bfhx company recorded investment cost company ability exercise significant influence nbbce’s strategic business decisions dominated another major shareholder nbbce paused operations december 31 2011 value investment 0 end 2012 march 20 2008 forlink invested 71124 500000 rmb bfhx shandong longdong internet technologies limited “sdld” prc limited liability company established october 24 2007 5 equity interest sdld commenced operations december 2007 business providing primary products ecommerce services companys share joint ventures loss 79374 2012 value investment 0 end 2012 october 8 2010 company invested 151213 rmb 1000000 bfhx shanghai shipping freight exchange co ltd “ssfe” prc limited liability company established october 8 2010 5 equity interest ssfe commenced operations march 25 2011 company recorded investment cost ability exercise significant influence investee note 9 shortterm borrowings june 4 2012 signed bank loan finance contract china mingsheng bank ltd received credit 317496 rmb 2000000 meet working capital bank loan period 12 months annual rate 8528 end december 31 2012 balance bank loans 317496 rmb 2000000 note 10 payables accrued expenses note 11 income tax according relevant prc tax rules regulations ftcl recognized new technology enterprise operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl fully exempted eit fiscal years 1999 2002 ftcl received 50 eit reduction rate 75 fiscal years 2003 2005 december 31 2012 ftcl entitled eit rate 15 pursuant approval document dated january 19 2004 issued state tax bureau bfhx fully exempted eit fiscal years 2004 2005 2006 december 31 2012 bfhx entitled eit rate 25 hong kong profits tax calculated 165 estimated assessable profits fthk eit rate ftcd ftgx nnbce 25 provision eit hong kong profits tax made ftcl ftcd ftgx nnbce fthk taxable income relevant periods january 1 2007 company adopted fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 “fin 48” interpretation provides guidance recognizing measuring uncertain tax positions defined asc 740 accounting income taxes fin 48 prescribes threshold condition tax position must meet benefits uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions company classified interest penalties related tax uncertainties income tax expense company’s liability income taxes includes liability unrecognized tax benefits interest penalties relate tax years still subject review taxing authorities audit periods remain open review statute limitations passed completion review expiration statute limitations given audit period could result adjustment liability income taxes adjustment could material company’s results operations given quarterly annual period based part upon results operations given period december 31 2012 company liability uncertain tax positions adoption fin 48 material impact company’s results operations financial position liquidity forlink software corporation inc notes consolidated financial statements note 11 income tax continued march 16 2007 5th plenary session 10th national peoples congress passed corporate income tax law prc new corporate income tax law took effect january 1 2008 beginning date eit rate expected gradually increase standard rate 25 fiveyear transition period new corporate income tax law however specify existing preferential tax rate gradually increase standard rate 25 also new corporate income tax law certain high technology enterprises continue entitled reduced tax rate 15 implementation rules regarding preferential tax policies eg details taxpayer qualify hightech enterprise new corporate income tax law yet made public consequently company able make estimate expected financial effect new corporate income tax law deferred tax assets liabilities enactment new corporate income tax law financial effect provision income tax year ended december 31 2012 amounts accrued balance sheet respect current tax payable reconciliation provision income taxes computed applying statutory tax rate china income taxes actual provision income taxes follows note 12 taxes recoverablepayable taxes payable comprise mainly valuedadded tax “vat” business tax “bt” company subject output vat levied rate 17 operating revenue input vat paid purchases materials direct inputs used offset output vat levied operating revenue determine net vat payable recoverable bt charged rate 5 revenue services part prc government’s policy encouraging software development prc companies fulfill certain criteria set relevant authorities develop software products software products registered relevant authorities prc entitled refund vat equivalent excess 3 revenue paid month output vat exceeds input vat excluding export sales excess portion vat refundable recorded company accrual basis vat rebate included income 71498 25561 years ended december 31 2012 2011 respectively forlink software corporation inc notes consolidated financial statements note 13 commitments contingencies operating lease commitment years ended december 31 2012 2011 company incurred lease expenses amounting 532021 528762 respectively december 31 2012 2011 company commitments noncancelable operating leases requiring annual minimum rentals follows note 14 concentration customers periods presented following customers accounted 10 total sales less 10 note 15 gain loss per share company reported loss 042 per share 2012 year compared loss 106 per share 2011 year note 16 subsequent event february 28 2013 company received 1787699 rmb 11261250 one major customers former debt written bad debt 2011 item 9 item 8 financial statements information required item 8 index thereto commences next page forlink software corporation inc index consolidated financial statements report independent registered public accounting firm board directors stockholders forlink software corporation inc audited accompanying consolidated balance sheets forlink software corporation inc december 31 2009 2008 related consolidated statements income stockholders’ equity comprehensive income cash flows years ended forlink software corporation inc’s management responsible financial statements responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position forlink software corporation inc december 31 2009 2008 results operations cash flows years ended conformity accounting principles generally accepted united states america discussed note 2 consolidated financial statements company changed accounting method one long term investments kenne ruan cpa pc woodbridge connecticut march 16 forlink software corporation inc consolidated balance sheets expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements operations expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statement stockholders’ equity expressed us dollars see accompanying notes consolidated financial statements forlink software corporation inc consolidated statements cash flows decreaseincrease cash equivalents expressed us dollars see accompanying notes consolidated financial statements note 1 organization description business forlink software corporation inc company registrant forlink nevada corporation originally incorporated january 7 1986 inc laws state utah subsequently reorganized laws nevada december 30 1993 1996 1999 company continued unfunded venture search suitable business acquisition business combination november 3 1999 company entered plan reorganization beijing forlink software technology co ltd hereinafter bfstc limited liability company organized laws people’s republic china “prc” “china” terms bfstc gained control company pursuant plan reorganization company acquired 100 registered fully paidup capital bfstc exchange 20000000 shares companys authorized unissued common stock bfstc engaged provision computer software consultancy engineering services development sale computer software people’s republic china “prc” part computer consultancy engineering services bfstc also engaged sale computer hardware june 2001 bfstc changed name forlink technologies co ltd “ftcl” ftcl company’s major operating subsidiary china august 2001 company acquired beijing slait science technology development limited co “slait” pursuant plan reorganization dated january 11 2001 company issued 59430000 shares common stock slait’s original beneficial owners exchange 100 outstanding equity slait result share exchange former beneficial owners slait approximately 70 issued outstanding shares company slait became whollyowned subsidiary company also agreed transfer 1085000 renminbi “rmb” approximately us131039 former owners slait change control occurred one officers directors company resigned two former directors also former owners slait became officers directors company prior dissolution 2004 slait provided application system integration technology specializes large volume transaction processing software networks mobile phone billing band operation subsequent acquisition principal activities slait gradually shifted ftcl february 13 2004 slait officially dissolved accordance relevant prc regulations june 18 2003 forlink technologies hong kong limited “fthk” incorporated hong kong special administrative region limited liability company december 2003 fthk became wholly owned subsidiary forlink fthk investment holding company set take advantage favorable business environment hong kong facilitate company’s investment transactions fthk december 18 2003 company invested 760870 china logistics online co ltd china logistics privately held prc company providing logistic services china exchange 178 equity interest june 14 2004 forlink technologies chengdu limited ftcd established limited liability company chengdu prc subsequently became wholly owned subsidiary fthk september 2004 ftcd business providing software outsourcing services software development registered capital ftcd 5000000 fully paid capital 750000 december 31 2005 april 2006 fthk invested 130000 ftcd commenced operations late 2005 registered capital ftcd reduced 200000 december 2007 amount fully paid december 2007 compliance china’s foreign investment restrictions telecom valueadded services laws regulations company conducts telecom valueadded services application integration services government organizations china via beijing forlink hua xin technology co ltd bfhx established prc september 19 2003 limited liability company registered capital bfhx 120733 rmb 1000000 fully paid march 31 2005 mr yi mr wei li entrusted nominee owners bfhx hold 70 30 respectively fully paid capital bfhx behalf company primary beneficiary bfhx considered variable interest entity vie company primary beneficiary company’s consolidated financial statements include bfhx upon request company mr yi mr wei li required transfer ownership interests bfhx company designees time amount fully paid registered capital bfhx mr yi chief executive officer director major stockholder company mr wei li administration manager ftcl october 24 2005 company entered definitive agreement acquire 175 equity interest china liquid chemical exchange company limited “clce” prc limited liability company exchange deployment company’s foronline electronic trading system early 2007 clce increased share capital 1708526 rmb 13000000 company subscribed new shares company’s shareholding clce diluted december 31 2007 1346 clce commenced operations fully early 2007 october 3 2006 company entered transfer right invest project cooperation agreement “statelink agreement” statelink international group ltd british virgin islands company “statelink” pursuant company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” prc limited liability company businesses real estate development advertising computer distribution cash consideration 2557545 rmb 20000000 bfhx stock consideration 13000000 shares company’s restricted common stock october 26 2006 bfhx established forlink technologies guangxi limited “ftgx” prc limited liability company carry contract guangxi caexpo build “electronic trade logistics information platform call center” “project” time incorporation bfhx injected rmb 20000000 approximately us2557545 registered capital ftgx october 12 2006 company invested 31969 rmb 250000 wuxi stainless steel exchange co ltd “wuxi exchange” prc limited liability company 125 equity interest january 14 2007 company entered agreement major shareholder wuxi exchange transfer 25 company’s interest wuxi exchange major shareholder cash payment rmb 500000 january 25 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent increase number authorized shares common stock 100000000 200000000 certificate amendment articles incorporation effect increase number company’s authorized common shares filed nevada’s secretary state april 4 2007 april 29 2007 company invested bfhx 138158 rmb 1050000 beijing guoxin forlink internet technologies limited “bgxf” privately held prc company operates finance study website 35 equity interest investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf commenced operations march 9 2008 october 14 2008 registered capital bgxf increased rmb 4285700 since company invest additional funds bgfx ratio holding diluted 245 equity interest july 12 2007 company invested ftgx 1063830 rmb 8000000 nanning bulk commodities exchange corporation limited “nnbce” privately held prc company 80 equity interest nnbce became subsidiary ftgx nnbce set april 29 2007 commenced operations march 28 2008 provides logistical ecommerce service september 5 2007 company invested 465425 rmb 3500000 nnbce guangxi bulk sugar ethanol exchange corporation limited “gbsee” prc limited liability company established september 12 2007 35 equity interest concurrently china logistics entrusted nominee owner gbsee hold 20 fully paid capital gbsee behalf nnbce primary beneficiary upon request nnbce china logistics required transfer ownership interests gbsee nnbce designees time amount 20 fully paid capital accordance financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities interpretation arb 51” “fin 46r” nnbce deemed hold primary beneficial interest 55 equity interest gbsee established provide logistical ecommerce service dissolved december 16 2007 commenced operations nnbce received payments back investment gbsee 410397 rmb 3000000 december 2007 66211 rmb 484000 february 2008 2189 rmb 16000 september 2008 december 24 2007 board directors majority holders company’s common stock jointly approved amendment company’s articles incorporation written consent effect 1for20 reverse stock split certificate amendment articles incorporation effect reverse split filed nevada’s secretary state february 21 2008 march 20 2008 company invested 71124 rmb 500000 bfhx shandong longdong internet technologies limited “sdld” prc limited liability company established october 24 2007 5 equity interest sdld commenced operations december 2007 business providing primary products ecommerce services purpose investment gain cash dividends sdld february 8 2010 company transferred ownership interests ftcl bfhx amount ftcl’s 100 fully paid capital principal activities company development sale network software systems provision enterprise application system integration services prc company also engaged sale computer hardware set forth diagram illustrating corporate structure december 31 2009 note 2 basis presentation summary significant accounting policies basis accounting principles consolidation consolidated financial statements prepared accordance generally accepted accounting principles united states america include financial statements forlink subsidiaries namely ftcl fthk bfhx ftcd ftgx nnbce intercompany transactions balances eliminated minority interests balance sheet date portion net assets subsidiaries attributable equity interests owned forlink whether directly indirectly subsidiaries presented consolidated balance sheet separately liabilities shareholders’ equity minority interests results company years also separately presented income statement use estimates preparation financial statements accordance generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency translation transactions functional currency forlink us dollars us financial records maintained financial statements prepared us functional currency fthk hong kong dollars hk financial records maintained financial statements prepared hk functional currency ftcl bfhx ftcd ftgx nnbce renminbi rmb financial records maintained financial statements prepared rmb foreign currency transactions period translated company’s denominated currency exchange rates transaction dates gain loss resulting foreign currency transactions included consolidated statement operations assets liabilities denominated foreign currencies balance sheet date translated company’s denominated currency yearend exchange rates exchange differences dealt consolidated statements operations financial statements company’s operations based outside united states translated us accordance sfas 52 management determined functional currency company’s foreign operations applicable local currency translating functional currency financial statements us yearend exchange rates applied consolidated balance sheets average period rates applied consolidated statements operations translation gains losses recorded translation reserve component stockholders’ equity value rmb subject changes china’s central government policies international economic political developments affecting supply demand china foreign exchange trading system market since 1994 conversion rmb foreign currencies including us based rates set people’s bank china set daily based previous day’s interbank foreign exchange market rates current exchange rates world financial markets since 1994 official exchange rate generally stable july 2005 chinese government announced longer peg currency exclusively us switch managed floating exchange rate based market supply demand reference basket currencies likely increase volatility rmb compared us exchange rate rmb us changed rmb828 rmb811 late july 2005 exchange rates used december 31 2009 2008 us1hk779rmb684 us1hk778rmb683 respectively weighted average rates ruling years ended december 31 2009 2008 us1hk778rmb684 us1hk781rmb691 respectively foreign currency risk rmb freely convertible currency state administration foreign exchange authority people’s bank china controls conversion rmb foreign currencies value rmb subject changes central government policies international economic political developments affecting supply demand china foreign exchange trading system market prc subsidiaries conduct business substantially prc financial performance position measured terms rmb devaluation rmb us would consequently adverse effect financial performance asset values company measured terms us prc subsidiaries’ products primarily procured sold delivered prc rmb thus revenues profits predominantly denominated rmb devalue us devaluation could material adverse effect company’s profits foreign currency equivalent profits repatriated prc entities company cash equivalents cash equivalents include cash hand highly liquid investments original maturity three months less allowance doubtful accounts record allowance doubtful accounts based specifically identified amounts company believes uncollectible limited number customers individually large amounts due given balance sheet date unanticipated change one customers’ credit worthiness matters affecting collectability amounts due customers could material effect results operations period changes events occur attempts collect receivable failed receivable written allowance inventories stated lower cost market inventory used system integration services cost calculated using specific identification method sale computer hardware cost calculated using firstin firstout method cost includes costs purchase cost conversion costs incurred bringing inventories present location condition market value determined reference sales proceeds items sold ordinary course business balance sheet date management estimates based prevailing market conditions property plant equipment depreciation property plant equipment stated cost depreciation computed using straightline method allocate cost depreciable assets estimated useful lives assets follows major improvements property plant equipment capitalized expenditures repair maintenance minor renewals betterments charged directly statements operations incurred assets disposed related cost accumulated depreciation thereon removed accounts resulting gain loss included statement operations computer software development costs accordance sfas 86 “accounting cost computer software sold leased otherwise marketed” software development costs expensed incurred technological feasibility form working model established deferred software development costs amortized estimated economic life software product available general release customers current software products company determined technological feasibility reached point time available general distribution therefore costs capitalized long term investments company’s long term investments consist 1 equity investments accounted accordance equity method 2 cost investments accounted cost method equity method investment reported cost plus company’s proportionate share income loss changes stockholders’ equity investee since acquisition consolidated results operations include proportionate share income loss see note 8 correction prior year error company made correction calculation investment guangxi caexpo international trade logistics co ltd guangxi caexpo changed accounting method cost method equity method company 2273 ownership guangxi caexpo cost method used record investment company believed significant influence operations guangxi caexpo company subsequently studied apb 18 equity method accounting investments common stock fin 35 criteria applying equity method accounting investments common stock believes equity method appropriate record investment guangxi caexpo impact change illustrated follows fair values financial instruments carrying amounts financial instruments cash equivalents investments accounts receivable accounts payable approximate fair values december 31 2009 2008 relatively shortterm maturity instruments goodwill sfas 142 goodwill intangible assets requires goodwill tested impairment annual basis december 31 us annual tests event occurs circumstances change would likely reduce fair value reporting unit carrying value events circumstances could include significant change business climate legal factors operating performance indicators competition sale disposition significant portion company application goodwill impairment test requires judgment including determination fair value company fair value company estimated using discounted cash flow methodology requires significant judgments including estimation future cash flows dependent internal forecasts estimation longterm rate growth business useful life cash flows occur determination weighted average cost capital changes estimates assumptions could materially affect determination fair value andor goodwill impairment company revenue recognition company generally provides services multiple element arrangements include software license fees hardware software sales provision system integration services including consulting implementation software maintenance company evaluates revenue recognition contractbycontract basis terms arrangement vary evaluation contractual arrangements often requires judgments estimates affect timing revenue recognized statements operations specifically company may required make judgments · whether fees associated products services fixed determinable · whether collection fees reasonably assured · whether professional services essential functionality related software product · whether ability make reasonably dependable estimates application percentageofcompletion method · whether verifiable objective evidence fair value products services company recognizes revenues accordance provisions statements position sop 972 “software revenue recognition” amended sop 989 “modification sop 972 software revenue recognition respect certain transactions” staff accounting bulletin sab 104 “revenue recognition” sop 972 sab 104 require among matters signed contract evidencing arrangement exists delivery occurred fee fixed determinable collectability probable software license revenue recognized accounting periods contained terms relevant agreements commencing upon delivery software provided 1 evidence arrangement 2 fee fixed determinable 3 collection fee considered probable revenue nonsoftware multipleelement arrangements recognized accordance emerging issues task force 0021 “revenue arrangements multiple deliverables” “eitf 0021” eitf 0021 company recognizes revenue multipledeliverables value customer standalone basis deliverables arrangement meet separation criteria eitf 0021 treated one unit accounting purposes revenue recognition case maintenance revenues vendorspecific objective evidence vsoe fair value based substantive renewal prices revenues recognized ratably maintenance period case consulting implementation services revenues vsoe based prices standalone sale transactions revenues recognized services performed pursuant paragraph 65 sop 972 hardware transactions software incidental company apply separate accounting guidance hardware software elements company applies provisions eitf 0305 “applicability aicpa statement position 972 software revenue recognition nonsoftware deliverables arrangement containing morethanincidental software” eitf 0305 per eitf 0305 software considered essential functionality hardware considered “software related” excluded scope sop 972 sale computer hardware recognized revenue transfer risks rewards ownership generally coincides time goods delivered customers title passed pursuant sab 104 remote hosting services vsoe based upon consistent pricing charged customers based volumes performance requirements standalone basis substantive renewal terms recognized ratably contract term services performed remote hosting arrangements generally require company perform onetime setup activities include onetime setup fee onetime setup fee generally paid customer contract execution company determined setup activities constitute separate unit accounting accordingly related setup fees recognized ratably term contract company considering applicability eitf 003 “application aicpa statement sop 972 arrangements include right use software stored another entity’s hardware” hosting services arrangements contractbycontract basis company determines customer contractual right take possession company’s software time hosting period without significant penalty sop 972 would apply contracts accordance eitf 003 accordingly contracts would accounted pursuant sap 104 stock based compensation effective january 1 2006 adopted statement financial accounting standards 123r sharebased payment sfas 123r using modified prospective application transition method adopted sfas 123r accounted sharebased compensation accordance accounting principles board opinion 25 accounting stock issued employees sfas 123r requires company record cost stock options equitybased compensation income statement based upon estimated fair value rewards company elected use modified prospective method adoption requires compensation expense recorded unvested stock options equitybased compensation beginning first quarter adoption accordingly prior periods restated reflect stock based compensation january 1 2006 company adopted sfas 123r using modified prospective method adoption standard material impact company’s consolidated financial statements company’s outstanding stock options vested december 31 2005 unvested portion stock options considered immaterial sfas 123r also requires company estimate forfeitures calculating expense relating sharebased compensation opposed recognizing forfeitures expense reduction incur adjustment apply estimated forfeitures previously sharebased compensation considered immaterial company classified cumulative effect change accounting principle january 1 2006 company unrecognized compensation cost remaining associated existing stock option grants also company made modifications outstanding stock option grants prior adoption statement 123r changes valuation methodologies assumptions compared used company prior january 1 2006 november 2005 fasb issued fsp 123r3 “transition election related accounting tax effects sharebased payment awards” company adopted alternative transition method provided fsp calculating tax effects sharebased compensation pursuant fas 123r fourth quarter fiscal 2006 alternative transition method includes simplified methods establish beginning balance additional paidin capital “apic” pool related tax effects employee sharebased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee sharebased compensation awards outstanding upon adoption fas 123r adoption material impact company’s results operations financial position february 2006 fasb issued fasb staff position fas 123r4 “classification options similar instruments issued employee compensation allow cash settlement upon occurrence contingent event” position amended sfas 123r incorporate cash settlement feature exercised upon occurrence contingent event outside employee’s control meet certain conditions sfas 123r becomes probable event occur guidance fasb staff position required applied upon initial adoption statement 123r company option grants allow cash settlement company adopt new sharebased compensation plans 2008 200000 stock options issued company’s 2002 stock plan exercised year 2008 advertising costs advertising costs incurred promotion company’s products services expensed incurred advertising expenses insignificant 2009 2008 income taxes company accounts income taxes accordance sfas 109 “accounting income taxes” sfas 109 deferred tax liabilities assets end period determined using tax rate expected effect taxes actually paid recovered valuation allowances established likely deferred tax assets realized july 2006 fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 fin 48 interpretation provides guidance recognizing measuring uncertain tax positions defined sfas 109 accounting income taxes fin 48 prescribes threshold condition tax position must meet benefit uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions earnings per common share company computes net earnings per share accordance sfas 128 “earnings per share” sec staff accounting bulletin 98 “sab 98” provisions sfas 128 sab 98 basic net earnings per share computed dividing net earnings available common shareholders period weighted average number shares common stock outstanding period calculation diluted net earnings per share gives effect common stock equivalents however potential common stock diluted eps computation excluded net loss periods effect antidilutive recent accounting pronouncements june 2009 fasb issued fas 168 “the fasb accounting standards codificationtm hierarchy generally accepted accounting principlesa replacement fasb statement 162 codification” codification become source authoritative us generally accepted accounting principles gaap recognized fasb applied nongovernmental entities rules interpretive releases securities exchange commission sec authority federal securities laws also sources authoritative gaap sec registrants effective date statement codification supersede thenexisting nonsec accounting reporting standards nongrandfathered nonsec accounting literature included codification become nonauthoritative statement effective financial statements issued interim annual periods ending september 15 2009 june 2009 fasb issued fas 167 “amendments fasb interpretation 46r” statement amends certain guidance interpretation 46r determining whether entity variable interest entity statement effective beginning reporting entity’s first annual reporting period begins november 15 2009 may 2009 fasb issued fas 165 “subsequent events” objective statement establish general standards accounting disclosure events occur balance sheet date financial statements issued available issued company anticipate adoption statements material effect companys financial condition results operations september 2009 new guidance introduced revenue recognition arrangements multiple elements certain revenue arrangements include software new guidance allow companies allocate consideration multiple element arrangement way better reflects economics transaction guidance tangible products software components “essential functionality” tangible product scoped software revenue guidance new guidance also result disclosure requirements new guidance effective january 1 2011 early adoption permitted company currently evaluating impact adopting new guidance note 3 accounts receivable allowance doubtful accounts receivable customer obligations due normal trade terms company performs continuing credit evaluations customers’ financial conditions company generally require collateral senior management reviews accounts receivable time determine receivables potentially uncollectible company included accounts receivable balances determined uncollectible allowance doubtful accounts attempts collect receivable failed receivable written allowance based information available company 0 doubtful accounts december 31 2009 54400 2008 required note 4 receivables deposits prepayments receivables include deposits operating leases advances employee traveling outlays note 5 inventories purchased identified system integration contracts workinprogress includes payroll operating expenses associated various contracts progress note 6 related party company expects transactions ordinary course business stockholders directors senior officers affiliates associates substantially terms prevailing comparable transactions others listed summary material relationships transactions company’s stockholders directors senior officers affiliates amounts due stockholders company time received made repayment one major stockholder also member management company amounts due stockholders bear interest clearly defined terms repayment december 31 2009 2008 amounts due stockholders represented advances stockholders amount 415078 378672 respectively related party transactions note 7 property plant equipment net building located chengdu prc purchased behalf company mr yi company director stockholder stockholders’ resolution passed march 8 1999 ratified title building belonged company 2005 title building transferred company note 8 long term investments december 2003 company invested 760870 privately held prc company china logistics online co ltd 178 equity interest company recorded investment cost ability exercise significant influence investee october 24 2005 company set china liquid chemical exchange company limited liability company prc shares risk rewards equity interest 1346 consideration made form companydeveloped “foronline electronic trading system” without cash outflow therefore company recorded contribution software lower carrying amount fair value accounted equity method sop 789 december 31 2009 2008 company’s share joint venture’s profit loss 119746 205505 respectively october 3 2006 company acquired 2273 registered capital guangxi caexpo international trade logistics co ltd “guangxi caexpo” private held prc company statelink international group ltd company incorporated british virgin islands “statelink” consideration paid statelink acquisition included cash payment 2557545 rmb 20000000 bfhx 13000000 shares company’s restricted common stock acquisition cost common shares issued statelink based per share price 0075 average market price company’s common shares 10day period terms acquisition agreed overall acquisition cost 3529450 study apb 18 equity method accounting investments common stock fin 35 criteria applying equity method accounting investments common stock company changed accounting treatment acquisition cost method equity method see note 2 impact change october 12 2006 company entered definitive agreement acquire 125 registered capital wuxi stainless steel exchange co ltd “wuxi” private held prc company exchange 125 registered capital company deploy proprietary integrated software solution “software” estimated rmb 1000000 reference similar products sold third parties 2006 support wuxi’s operations plus rmb 250000 cash payment wuxi 2006 company contributed cash 31969 rmb 250000 software deployed wuxi december 2006 company recorded investment cost ability exercise significant influence wuxi january 14 2007 company entered share transfer agreement major shareholder wuxi transfer 25 interest wuxi held company major shareholder cash payment rmb 500000 transfer company continues hold 10 equity interest wuxi april 29 2007 company invested 138158 privately held prc company beijing guoxin forlink internet technologies limited “bgxf” 35 equity interest company’s investment made bfhx investment bgxf accounted equity method accounting due company’s significant influence operational financial policies bgxf march 9 2008 bgxf commenced operations september 17 2007 company invested 99734 privately held prc company ningbo bulk commodities exchange corporation limited “nbbce” 25 equity interest company’s investment made bfhx company recorded investment cost company ability exercise significant influence nbbce’s strategic business decisions dominated another major shareholder march 20 2008 forlink invested 71124 500000 rmb bfhx shandong longdong internet technologies limited “sdld” prc limited liability company established october 24 2007 5 equity interest sdld commenced operations december 2007 business providing primary products ecommerce services purpose investment gain cash dividends sdld note 9 goodwill represents excess acquisition cost beijing slait science technology development limited co “slait” estimated fair value net assets acquired august 27 2001 described note 1 acquisition completed june 30 2001 amortization goodwill necessary accordance sfas 142 “goodwill intangible assets” however quarter ended june 30 2002 closing trading price company’s common stock fallen 005 per share indicated might potential impairment goodwill since january 1 2002 therefore company performed additional impairment test june 30 2002 result impairment test performed based fair value company determined trading price company’s common stock impairment 5308760 recorded quarter ended june 30 2002 closing trading price company’s common stock december 31 2002 fallen 004 per share total impairment 6966546 recorded year ended december 31 2002 since december 31 2003 company conducted annual impairment test december 31 year based results first step tests company believes impairment goodwill december 31 2004 2005 2006 2007 2008 especially last two quarters price company’s common stock impacted declines overall financial market fallen 120 per share september 30 2008 090 per share december 31 2008 goodwill determined difference fair value company’s common stock book value company’s net assets result annual impairment test 2008 indicated goodwill impaired declining prices fair value common stock much lower net assets book value company believed impairment temporary based result impairment testing balance 1684023 written year ended december 31 2008 balance zero year ended december 31 2009 note 10 payables accrued expenses note 11 noncontrolling interest noncontrolling interest balance 151785 represents cash provided minority shareholders nnbce note 12 income tax according relevant prc tax rules regulations ftcl recognized new technology enterprise operating within new high technology development zone entitled enterprise income tax “eit” rate 15 pursuant approval documents dated september 23 1999 august 2 2000 issued beijing tax bureau state tax bureau respectively ftcl fully exempted eit fiscal years 1999 2000 2001 2002 ftcl received 50 eit reduction rate 75 fiscal years 2003 2004 2005 december 31 2009 ftcl entitled eit rate 15 pursuant approval document dated january 19 2004 issued state tax bureau bfhx fully exempted eit fiscal years 2004 2005 2006 december 31 2009 bfhx entitled eit rate 25 hong kong profits tax calculated 175 estimated assessable profits fthk period eit rate ftcd ftgx nnbce 25 provision eit hong kong profits tax made ftcl ftcd ftgx nnbce fthk gained taxable income periods january 1 2007 company adopted fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 fin 48 interpretation provides guidance recognizing measuring uncertain tax positions defined sfas 109 accounting income taxes fin 48 prescribes threshold condition tax position must meet benefits uncertain tax position recognized financial statements guidance also provided regarding derecognition classification disclosure uncertain tax positions company classified interest penalties related tax uncertainties income tax expense company’s liability income taxes includes liability unrecognized tax benefits interest penalties relate tax years still subject review taxing authorities audit periods remain open review statute limitations passed completion review expiration statute limitations given audit period could result adjustment liability income taxes adjustment could material company’s results operations given quarterly annual period based part upon results operations given period december 31 2007 company liability uncertain tax positions adoption fin 48 material impact company’s results operations financial position liquidity march 16 2007 5th plenary session 10th national peoples congress passed corporate income tax law prc new corporate income tax law took effect january 1 2008 beginning date eit rate expected gradually increase standard rate 25 fiveyear transition period however new corporate income tax law specify existing preferential tax rate gradually increase standard rate 25 also new corporate income tax law certain high technology enterprises continue entitled reduced tax rate 15 however implementation rules regarding preferential tax policies eg details taxpayer qualify hightech enterprise new corporate income tax law yet made public consequently company able make estimate expected financial effect new corporate income tax law deferred tax assets liabilities enactment new corporate income tax law financial effect provision income tax year ended december 31 2009 amounts accrued balance sheet respect current tax payable reconciliation provision income taxes computed applying statutory tax rate mainland china income taxes actual provision income taxes follows note 13 taxes recoverablepayable taxes payable comprise mainly valuedadded tax “vat” business tax “bt” company subject output vat levied rate 17 operating revenue input vat paid purchases materials direct inputs used offset output vat levied operating revenue determine net vat payable recoverable bt charged rate 5 revenue services part prc government’s policy encouraging software development prc companies fulfill certain criteria set relevant authorities develop software products software products registered relevant authorities prc entitled refund vat equivalent excess 3 revenue paid month output vat exceeds input vat excluding export sales excess portion vat refundable recorded company accrual basis vat rebate included income 298254 72533 years ended december 31 2009 2008 respectively note 14 commitments contingencies operating lease commitment years ended december 31 2009 2008 company incurred lease expenses amounting 361336 489583 respectively december 31 2009 2008 company commitments noncancelable operating leases requiring annual minimum rentals follows note 15 stock plan august 16 2002 company established “forlink software corporation inc 2002 stock plan” “2002 plan” reserved 8000000 shares common stock issuance 2002 plan either directly stock awards underlying options board directors would determine terms conditions option granted 2002 plan terms conditions would writing may vary one eligible participant another august 15 2007 2002 plan expired pursuant terms following table summarizes activities stock options granted 2002 plan prior expiration september 7 2004 3315000 options granted company’s employees purchase company’s shares common stock 0001 par value exercise price 010 per share 3315000 options 800000 options 5year vesting period granted employee 2515000 options 3year vesting period granted selected employees 2515000 options 3year vesting period 2385000 options expire december 30 2006 “december 2006 options” remaining 130000 options expired june 30 2007 “june 2007 options” expiration date 800000 options 5year vesting period june 30 2009 “june 2009 options” september 7 2004 january 1 2005 january 1 2006 january 1 2007 854500 “december 2006 options” 904500 1156000 400000 “june 2009 options” 130000 “june 2007 options” 626000 “december 2006 options” 200000 “june 2009 options” options vested employees respectively market price stock september 7 2004 january 1 2005 010 per share december 2006 company extended expiration date december 2006 options one month end january 2007 additional compensation expense company considered amount immaterial january 29 2007 367000 options “december 2006 options” 400000 “june 2009 options” exercised july 6 2007 130000 options “june 2007 options” exercised following table summarizes cumulative activities december 31 2009 options issued 2002 plan different expiration dates weighted average fair value december 2006 options june 2007 options june 2009 options granted date grant 0042 0046 0058 per option respectively december 31 2009 future compensation expenses recognized aggregate intrinsic value options outstanding exercisable december 31 2009 december 31 2008 aggregate intrinsic value represents intrinsic value based options exercise price less market value company’s stock december 31 2009 december 31 2008 would received option holders option holders exercised options date company calculated fair value option award date grant using blackscholes option pricing model following assumptions used respective option note 16 concentration customers year following customers accounted 10 total sales less 10 note 17 gain loss per share company reported profit 013 per share year 2009 loss 028 per share year 2008 note 18 subsequent event company transferred ownership interests ftcl bfhx amount ftcl’s 100 fully paid capital february 8 2010 item 9 item 15 exhibits 1 financial statements following consolidated financial statements company included part ii item 8 form 10k report kenne ruan cpa pc independent auditors consolidated balance sheets december 31 2010 2009 consolidated statements operations comprehensive income years ended december 31 2010 2009 consolidated statements stockholders’ equity years ended december 31 2010 2009 consolidated statements cash flows years ended december 31 2010 2009 notes consolidated financial statements 2 financial statement schedules omitted required information present amounts sufficient require submission schedule information required given consolidated financial statements notes thereto 3 exhibits exhibit number description 23 plan organization incorporated reference exhibit 23 form 8k filed august 31 2001 31 articles incorporation amended incorporated reference exhibit 31 form 10qsb quarter ended march 31 2000 filed may 15 2000 32 bylaws incorporated reference exhibit 32 form 10qsb quarter ended march 31 2000 filed may 15 2000 33 text amendment bylaws forlink software corporation inc incorporated reference exhibit 33 company’s form 8k filed january 18 2007 32 certificate amendment increase number authorized shares common stock filed nevada secretary state april 4 2007 incorporated reference exhibit 32 form 10k year ended december 31 2008 filed march 30 2009 33 certificate amendment effect 1for20 reverse stock split filed nevada secretary state february 21 2008 incorporated reference exhibit 33 form 10k year ended december 31 2008 filed march 30 2009 101 forlink software corporation inc stock plan incorporated reference exhibit 101 form s8 filed july 19 2000 102 2002 stock plan incorporated reference exhibit 102 form s8 filed october 21 2002 103 transfer “right invest” project cooperation agreement dated october 3 2006 company statelink international group ltd incorporated reference exhibit 101 company’s form 8k filed october 10 2006 104 lease agreement incorporated reference exhibit 103 form 10q quarter ended june 30 2010 filed august 5 2010 105 lease agreement incorporated reference exhibit 104 form 10q quarter ended june 30 2010 filed august 5 2010 141 code ethics incorporated reference exhibit 14 form 10k year ended december 31 2008 filed march 30 2009 211 list subsidiaries incorporated reference exhibit 211 form 10ksb year ended december 31 2003 filed march 30 2004 212 updated list subsidiaries incorporated reference exhibit 211 form 10ksb year ended december 31 2006 filed april 6 2007 311 section 302 certification corporation’s chief executive officer filed herewith 312 section 302 certification corporation’s chief financial officer filed herewith 321 section 906 certification corporation’s chief executive officer filed herewith 322 section 906 certification corporation’s chief financial officer filed herewith 991 press release dated may 15 2003 incorporated reference exhibit 991 form 8k filed may 22 2003 signatures accordance section 13 15d exchange act registrant caused form 10k signed behalf undersigned thereunto duly authorized accordance exchange act report signed following persons behalf registrant capacities dates indicated date march 28 2011 yi director date march 28 2011 hongkeung lam hongkeung lam director date march 28 2011 guoliang tian guoliang tian director date march 28 2011 yu fang yu fang director date march 28 2011 zhenying sun zhenying sun director item 15 exhibits 1 financial statements following consolidated financial statements company included part ii item 8 report kenne ruan cpa pc independent auditors consolidated balance sheets december 31 2008 2007 consolidated statements operations comprehensive income years ended december 31 2008 2007 consolidated statements stockholders’ equity years ended december 31 2008 consolidated statements cash flows years ended december 31 2008 notes consolidated financial statements 2 financial statement schedules omitted required information present amounts sufficient require submission schedule information required given consolidated financial statements notes thereto 3 exhibits exhibit number description 31 articles incorporation amended incorporated reference exhibit 31 form 10qsb quarter ended march 31 2000 filed may 13 2000 32 certificate amendment increase number authorized shares common stock filed nevada secretary state april 4 2007 filed herewith 33 certificate amendment effect 1for20 reverse stock split filed nevada secretary state february 21 2008 filed herewith 34 bylaws dated may 11 2000 incorporated reference exhibit 32 form 10qsb quarter ended march 31 2000 filed may 13 2000 35 text amendment bylaws forlink software corporation inc incorporated reference exhibit 33 company’s form 8k filed january 18 2007 transfer “right invest” project cooperation agreement dated october 3 2006 company statelink international group ltd incorporated reference exhibit 101 company’s current report form 8k file 00018731 filed october 10 2006 code ethics filed herewith list subsidiaries filed herewith 311 section 302 certification corporation’s chief executive officer filed herewith 312 section 302 certification corporation’s chief financial officer filed herewith 321 section 906 certification corporation’s chief executive officer filed herewith 322 section 906 certification corporation’s chief financial officer filed herewith signatures accordance section 13 15d exchange act registrant caused report signed behalf undersigned thereunto duly authorized accordance exchange act report signed following persons behalf registrant capacities dates indicated date march 30 2009 yi director date march 30 2009 hongkeung lam hongkeung lam director date march 30 2009 guoliang tian guoliang tian director date march 30 2009 yu fang yu fang director date march 30 2009 zhenying sun zhenying sun director item 15 exhibits financial statement schedules financial statements schedules consolidated financial statements years ended december 31 2011 2010 begin page annual report required file financial statement schedules exhibits exhibit number description 31 articles incorporation amended incorporated reference exhibit 31 form 10qsb quarter ended march 31 2000 filed may 15 2000 32 bylaws incorporated reference exhibit 32 form 10qsb quarter ended march 31 2000 filed may 15 2000 33 text amendment bylaws forlink software corporation inc incorporated reference exhibit 33 company’s form 8k filed january 18 2007 32 certificate amendment increase number authorized shares common stock filed nevada secretary state april 4 2007 incorporated reference exhibit 32 form 10k year ended december 31 2008 filed march 30 2009 33 certificate amendment effect 1for20 reverse stock split filed nevada secretary state february 21 2008 incorporated reference exhibit 33 form 10k year ended december 31 2008 filed march 30 2009 141 code ethics incorporated reference exhibit 14 form 10k year ended december 31 2008 filed march 30 2009 211 list subsidiaries incorporated reference exhibit 211 form 10ksb year ended december 31 2006 filed april 2 2007 311 section 302 certification corporation’s chief executive officer filed herewith 312 section 302 certification corporation’s chief financial officer filed herewith 321 section 906 certification corporation’s chief executive officer filed herewith 322 section 906 certification corporation’s chief financial officer filed herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date march 28 2012 hongkeung lam hongkeung lam chief financial accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated date march 28 2012 yi chief executive officer principal executive officer director date march 28 2012 hongkeung lam hongkeung lam chief financial chief accounting officer principal financial accounting officer director date march 28 2012 guoliang tian guoliang tian director date march 28 2012 yu fang yu fang director item 15 exhibits financial statement schedules financial statements schedules consolidated financial statements years ended december 31 2012 2011 begin page annual report required file financial statement schedules exhibits exhibit number description 31 articles incorporation amended incorporated reference exhibit 31 form 10qsb quarter ended march 31 2000 filed may 15 2000 32 bylaws incorporated reference exhibit 32 form 10qsb quarter ended march 31 2000 filed may 15 2000 33 text amendment bylaws forlink software corporation inc incorporated reference exhibit 33 company’s form 8k filed january 18 2007 32 certificate amendment increase number authorized shares common stock filed nevada secretary state april 4 2007 incorporated reference exhibit 32 form 10k year ended december 31 2008 filed march 30 2009 33 certificate amendment effect 1for20 reverse stock split filed nevada secretary state february 21 2008 incorporated reference exhibit 33 form 10k year ended december 31 2008 filed march 30 2009 101 loan agreement company china mingsheng bank corp ltd dated june 4 2012 incorporated reference exhibit 101 form 10q quarter ended june 30 2012 filed august 14 2012 141 code ethics incorporated reference exhibit 14 form 10k year ended december 31 2008 filed march 30 2009 211 list subsidiaries incorporated reference exhibit 211 form 10ksb year ended december 31 2006 filed april 2 2007 241 power attorney see signature page 311 section 302 certification corporation’s chief executive officer filed herewith 312 section 302 certification corporation’s chief financial officer filed herewith 321 section 906 certification corporation’s chief executive officer filed herewith 322 section 906 certification corporation’s chief financial officer filed herewith 101ins xbrl instance document 101sch xbrl taxonomy extension schema 101cal xbrl taxonomy extension calculation 101def xbrl taxonomy extension definition linkbase 101lab xbrl taxonomy extension label linkbase 101pre xbrl taxonomy extension presentation linkbase accordance rule 406t regulation st information exhibits shall deemed “filed” purposes section 18 exchange act otherwise subject liability section shall incorporated reference registration statement document filed securities act 1933 except expressly set forth specific reference filing signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized forlink software corporation inc registrant date april 11 2013 yi chief executive officer principal executive officer date april 11 2013 hongkeung lam hongkeung lam chief financial accounting officer principal financial accounting officer power attorney know persons presents person whose signature appears hereby constitutes appoints yi hongkeung lam true lawful attorneyinfact agent full power substitution power act alone sign execute behalf undersigned amendments report form 10k perform acts necessary order file exhibits thereto documents connection therewith securities exchange commission granting unto said attorneyinfact agent full power authority perform every act thing requested necessary done connection therewith fully intents purposes might could person hereby ratifying confirming said attorneyinfact agent substitutes shall cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated date april 11 yi chief executive officer principal executive officer director date april 11 2013 hongkeung lam hongkeung lam chief financial chief accounting officer principal financial accounting officer director date april 11 2013 guoliang tian guoliang tian director date april 11 2013 yu fang yu fang director item 15 exhibits 1 financial statements following consolidated financial statements company included part ii item 8 report kenne ruan cpa pc independent auditors consolidated balance sheets december 31 2009 2008 consolidated statements operations comprehensive income years ended december 31 2009 2008 consolidated statements stockholders’ equity years ended december 31 2009 consolidated statements cash flows years ended december 31 2009 notes consolidated financial statements 2 financial statement schedules omitted required information present amounts sufficient require submission schedule information required given consolidated financial statements notes thereto 3 exhibits exhibit number description 31 articles incorporation amended incorporated reference exhibit 31 form 10qsb quarter ended march 31 2000 filed may 13 2000 32 certificate amendment increase number authorized shares common stock filed nevada secretary state april 4 2007 filed herewith 33 certificate amendment effect 1for20 reverse stock split filed nevada secretary state february 21 2008 filed herewith 34 bylaws dated may 11 2000 incorporated reference exhibit 32 form 10qsb quarter ended march 31 2000 filed may 13 2000 35 text amendment bylaws forlink software corporation inc incorporated reference exhibit 33 company’s form 8k filed january 18 2007 transfer “right invest” project cooperation agreement dated october 3 2006 company statelink international group ltd incorporated reference exhibit 101 company’s current report form 8k file 00018731 filed october 10 2006 code ethics filed herewith list subsidiaries filed herewith 311 section 302 certification corporation’s chief executive officer filed herewith 312 section 302 certification corporation’s chief financial officer filed herewith 321 section 906 certification corporation’s chief executive officer filed herewith 322 section 906 certification corporation’s chief financial officer filed herewith signatures accordance section 13 15d exchange act registrant caused report signed behalf undersigned thereunto duly authorized accordance exchange act report signed following persons behalf registrant capacities dates indicated date march 26 2010 yi director date march 26 2010 hongkeung lam hongkeung lam director date march 26 2010 guoliang tian guoliang tian director date march 26 2010 yu fang yu fang director date march 26 2010 zhenying sun zhenying sun director