SOURCE: Pansoft Company Limited

November 13, 2009 16:30 ET

Pansoft Reports Third Quarter 2009 Financial Results

WESTPORT, CT--(Marketwire - November 13, 2009) - Pansoft Company Limited (NASDAQ: PSOF), a leading ERP software service provider for the oil and gas industry in China, today announced its unaudited financial results for the quarter ended September 30, 2009.

Third Quarter 2009 Highlights

--  Total revenue was $2,205,469, increased by 1.6% from $2,171,038 in the
    third quarter of 2008.
--  Gross profit was $1,177,122, a decrease of 20.3% compared to the result
    for the same period in 2008 and gross margin for 3Q09 was 53.4% compared to
    68.0% for the same period in 2008.
--  ** Non-GAAP income from operations was $835,762, a 34% decrease compared
    to the same period last year.
--  ** Non-GAAP net income was $839,182, a decrease of 21% compared to the
    result for the same period in 2008.
--  Net income was $688,055, a decrease of 35.2% compared to $1,061,869 for
    the same period in 2008.
    

** Non-GAAP measures are described below and reconciled to the corresponding GAAP measures in the section entitled "Reconciliation of Non-GAAP to GAAP Results."

Allen Zhang, CFO of Pansoft, commented on the financial results. He said, "I am pleased to see our nine months revenue grow at a brisk pace of 45% compared to the same period in prior year. We are well on track to deliver the 40% annual sales growth we projected at the beginning of this year. While the third quarter earnings were lower compared to prior year mainly due to the timing difference in revenue recognition, we are confident that our fourth quarter financial results should be improved significantly."

Financial Results

During the third quarter of 2009, large software system integration and development projects comprised a higher proportion of total revenue. The total revenue was $2,205,469 reflecting a 1.6% increase from $2,171,038 in the third quarter of 2008. The small revenue increase in this period compared to the same period in 2008 was due to the seasonality of the company's revenue pattern. A large proportion of the revenue is usually recognized in the last quarter of any given year. During the first nine months of 2009, total revenue was $5,145,375, a 45% increase from $3,548,302 in the first nine months of 2008. This significant increase was due to the following: a large sales contract with our major client in the first quarter of 2009 to provide equipment for system implementation; a new business contract signed by our new Hong Kong branch; the organic growth of our current running projects; and the natural extension of the large system projects completed in the past.

Pansoft's cost of revenue increased by $333,344, or 48%, to $1,028,347, for the three months ended September 30, 2009, from $695,003 for the same period in 2008. The cost of revenue for the nine months ended September 30, 2009 was $2,743,265, a 59% increase from $1,725,420 for the same period in 2008. The large increase in cost was primarily due to higher employees' compensation cost. We recruited a large number of professionals to meet the demands of the accelerated business growth. The employee headcount nearly doubled in the project implementation and development team.

For the three months ended September 30, 2009, our gross profit was $1,177,122, compared to $1,476,035 for the same period in 2008, a 20.3% decrease. For the three months ended September 30, 2009 our gross margin decreased to 53.4%, from 68.0% for the same period in 2008. This 14.6% decrease in the margin was mainly due to an increase in the costs associated with faster business growth in the third quarter of 2009. For the nine months ended September 30, 2009, our gross profit was $2,402,110, compared to $1,822,882 for the same period in 2008, reflecting a 31.8% increase. For the nine months ended September 30, 2009, our gross margin was 46.7%, a slight decrease from 51.4% for the same period in 2008.

For the three months ended September 30, 2009, our operating expenses increased to $492,487 from $205,107 for the same period in 2008, or a 140% increase. For the third quarter 2009, our general and administrative expenses decreased slightly to $116,968 from $130,828 in the third quarter of 2008, a 10.6% decrease. The increase in selling expenses (by 1012%, from period to period) was primarily due to the overhead allocation for the newly established sales and marketing department. Operating expenses also included an increase of 379% in the expenses for professional fees (for services relating to our NASDAQ listing and publicity in the U.S.), accounting for 26% of the total operating expenses. There was a 290% increase in the non-cash expense of stock options issued to our employees, accounting for 31% of our total operating expenses. These expenses contributed significantly to the total increase of our operating expenses during this period as compared to the same period in 2008 in which we did not incur such expenses.

For the nine months ended September 30, 2009, our G&A expenses increased to $366,210, from $211,091 for the same period in 2008, or a 73.5% increase. This increase was driven by the bonus payment in the first quarter to certain employees for their performance in 2008. Our selling expense increased significantly for the nine months ended September 30, 2009 compared to the same period in 2008 due to increased headcount in our new sales and marketing department. In addition, for the same reason stated above, the professional fee and stock option expense increased 238% and 1170%, respectively, from the same period in 2008.

Operating income was $684,635, for the three months ended September 30, 2009, a 46% decrease from $1,270,928 for the same period in 2008 mainly due to a large increase in stock option cost amortized and professional fees paid in the third quarter of 2009. For the nine months ended September 30, 2009, operating income was $1,026,958, or a 30.2% decrease from $1,470,818 for the same period in 2008.

The net income was $688,055 for the three months ended September 30, 2009, a decrease of $373,814, or 35.2%, from 1,061,869 for the same period in 2008. Comprehensive income for the three months ended September 30, 2009 was $698,524, a decrease of 37.7% from $1,120,720 for the same period in 2008. The decrease was due to a much smaller currency exchange gain in the period. For the nine months ended September 30, 2009, net income was $1,071,275, a decrease of $233,080, or 17.9% from $1,304,355 for the same period in 2008. In the same period, comprehensive income was $1,064,027, decreased by 35.8% from $1,657,234 for the same period in 2008 due to the unfavorable currency exchange rate.

Business Outlook

For the nine months ended September 30, 2009, our revenue was $5.1 million, a 45% increase compared to $3.5 million of revenue reported during the same period in 2008. We continue to reiterate our projection of 40% annual revenue growth made in the beginning of 2009 based on accomplishments achieved so far this year and the expectation that a large proportion of our revenue will be recognized in the last quarter in 2009. Achievement of this projection is dependent on successful conclusion of certain contracts that are awaiting final approval with major customers during the fourth quarter.

In the third quarter 2009, our net income decreased compared to that in the same period in 2008. This was due to increases in non-cash charges for option expense and professional service charges, which increased 290% and 379%, respectively and together they account for 57% of operating costs. Additionally, the small top line growth was mainly driven by a difference in the timing of revenue recognition. Costs for most on-going projects was front-loaded in the early quarters, while a large proportion of our revenue can only be recognized when the contracts are concluded which we expect will occur in the last quarter. We expect our profit margins to improve significantly once this fourth quarter revenue is recognized.

We believe that demand for our services will continue to grow as a result of our brand name and reputation for delivering high quality services at competitive prices in the ERP industry in China. We intend to continue delivering solid revenue and to ramp up our development capacity focusing on building a pipeline of new business by leveraging our significant technology and application know-how in providing customized and system integration services. Meanwhile, we will continue to maintain our corporate policy of controlling and reducing costs and expenses. With a strong cash reserve, we are seeking potential acquisition targets that will allow us to enter into new markets and further expand our revenue base and improve profit margin.

Non-GAAP Measures

This release contains non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of the Company's performance, should be considered in addition to, not as a substitute for, measures of the Company's financial performance prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP"). The Company's non-GAAP financial measures may be defined differently than similar terms used by other companies. Accordingly, care should be exercised in understanding how the Company defines its non-GAAP financial measures.

Reconciliations of the Company's non-GAAP measures to the nearest GAAP measures are set forth in the section below titled "Reconciliation of Non-GAAP to GAAP Results." These non-GAAP measures include non-GAAP gross profit, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP net income, non-GAAP diluted net income per share and non-GAAP gross margin.

The Company's management uses non-GAAP financial measures to gain an understanding of the Company's comparative operating performance (when comparing such results with previous periods or forecasts) and future prospects. The Company's non-GAAP financial measures exclude certain special items, including stock-based compensation charge and amortization of intangible assets from its internal financial statements for purposes of its internal budgets. Non-GAAP financial measures are used by the Company's management in their financial and operating decision-making, because management believes they reflect the Company's ongoing business in a manner that allows meaningful period-to-period comparisons. The Company's management believes that these non-GAAP financial measures provide useful information to investors and others in the following ways: 1) in understanding and evaluating the Company's current operating performance and future prospects in the same manner as management does, if they so choose, and 2) in comparing in a consistent manner the Company's current financial results with the Company's past financial results. The Company's management further believes the non-GAAP financial measures provide useful information to both management and investors by excluding certain expenses, gains and losses (i) that are not expected to result in future cash payments or (ii) that are non-recurring in nature or may not be indicative of its core operating results and business outlook.

The Company's management believes excluding stock-based compensation from its non-GAAP financial measures is useful for itself and investors, as such expense will not result in future cash payment and is not an indicator used by management to measure the Company's core operating results and business outlook.

The Company's management believes excluding the non-cash amortization expense of intangible assets from its non-GAAP financial measures is useful for itself and investors because they enable a more meaningful comparison of the Company's cash performance between reporting periods. In addition, such charges will not result in cash settlement in the future.

The non-GAAP financial measures have limitations. They do not include all items of income and expense that affect the Company's operations. Specifically, these non-GAAP financial measures are not prepared in accordance with GAAP, may not be comparable to non-GAAP financial measures used by other companies and, with respect to the non-GAAP financial measures that exclude certain items under GAAP, do not reflect any benefit that such items may confer to the Company. Management compensates for these limitations by considering the Company's financial results as determined in accordance with GAAP.

                          Pansoft Company Limited
           Unaudited Condensed Consolidated Statements of Income
                        and Comprehensive Income


                              For The Three Months Ended September 30
                        --------------------------------------------------
                            2009         2008       Change          %
                        (Unaudited)  (Unaudited)      US $
                        -----------  -----------  -----------  -----------

Sales                   $ 2,205,469    2,171,038       34,431          1.6%
Cost of Sales             1,028,347      695,003      333,344         48.0%
                        -----------  -----------  -----------  -----------
Gross Profit              1,177,122    1,476,035     (298,913)      (20.3%)
Gross Margin                   53.4%        68.0%      (14.6%)

Operating expenses:
General and
 administrative
 expenses                   116,968      130,828      (13,860)      (10.6%)
Selling expenses             94,620        8,506       86,114       1012.4%
Professional fees           129,781       27,112      102,669        378.7%
Stock based
 compensation               151,127       38,815      112,312        289.4%
Gain on disposition of
 property and equipment          (9)        (154)         145       (94.2%)
                        -----------  -----------  -----------  -----------
Total operating
 expenses                   492,487      205,107      287,380        140.1%
                        -----------  -----------  -----------  -----------
Income from operations      684,635    1,270,928     (586,293)      (46.1%)

Other income                   (915)           -         (915)          NM
Government grant                 17            -           17           NM
Finance cost                     22         (455)         477     ( 104.8%)
Interest income              38,060       27,555       10,505         38.1%
                        -----------  -----------  -----------  -----------
Income before provision
 from income taxes          721,819    1,298,028     (576,209)      (44.4%)

Income taxes                 33,764      236,159     (202,395)      (85.7%)
Net income                  688,055    1,061,869     (373,814)      (35.2%)

Other comprehensive
 (loss) income               10,469       58,851      (48,382)      (82.2%)
                        ===========  ===========  ===========  ===========
Comprehensive income    $   698,524  $ 1,120,720     (422,196)      (37.7%)

Basic and diluted net
 income per share       $      0.13  $      0.23  ($     0.10)      (43.5%)
Basic and diluted
 weighted average
 number of shares
 outstanding              5,438,232    4,525,189



                              For The Nine Months Ended September 30
                        --------------------------------------------------
                            2009         2008       Change          %
                        (Unaudited)  (Unaudited)      US $
                        -----------  -----------  -----------  -----------

Sales                   $ 5,145,375    3,548,302    1,597,073         45.0%
Cost of Sales             2,743,265    1,725,420    1,017,845         59.0%
                        -----------  -----------  -----------  -----------
Gross Profit              2,402,110    1,822,882      579,228         31.8%
Gross Margin                   46.7%        51.4%       (4.7%)

Operating expenses:
General and
 administrative
 expenses                   366,210      211,091      155,119         73.5%
Selling expenses            216,414       15,037      201,377       1339.2%
Professional fees           300,168       88,649      211,519        238.6%
Stock based
 compensation               493,101       38,815      454,286       1170.4%
Gain on disposition of
 property and equipment        (741)      (1,528)         787       (51.5%)
                        -----------  -----------  -----------  -----------
Total operating
 expenses                 1,375,152      352,064    1,023,088        290.6%
                        -----------  -----------  -----------  -----------
Income from operations    1,026,958    1,470,818     (443,860)      (30.2%)

Other income                 (4,687)         537       (5,224)     (972.8%)
Government grant            160,998            -      160,998           NM
Finance cost                      -         (873)         873      (100.0%)
Interest income             101,648       70,032       31,616         45.1%
                        -----------  -----------  -----------  -----------
Income before provision
 from income taxes        1,284,917    1,540,514     (255,597)      (16.6%)

Income taxes                213,642      236,159      (22,517)       (9.5%)
Net income                1,071,275    1,304,355     (233,080)      (17.9%)

Other comprehensive
 (loss) income               (7,248)     352,879     (360,127)     (102.1%)
                        ===========  ===========  ===========  ===========
Comprehensive income    $ 1,064,027    1,657,234     (593,207)      (35.8%)

Basic and diluted net
 income per share       $      0.20         0.30  ($     0.10)      (33.3%)
Basic and diluted
 weighted average
 number of shares
 outstanding              5,438,232    4,334,582










                          Pansoft Company Limited
                RECONCILIATION OF NON-GAAP TO GAAP RESULTS

                                  For Three Months Ended September 30, 2009
                                  ----------------------------------------
                                     Actual                   Non US GAAP
                                    Results      Adjustment     Results
                                  (Unaudited)
                                  ------------                ------------

Sales                             $  2,205,469                $  2,205,469
Cost of sales                        1,028,347                   1,028,347
                                  ------------                ------------
Gross profit                         1,177,122                   1,177,122

Operating expenses:
General and administrative
 expenses                              116,968                     116,968
Selling expenses                        94,620                      94,620
Professional fees                      129,781                     129,781
Stock based compensation               151,127  (a) (151,127)            -
Gain on disposition of property
 and equipment                              (9)                         (9)
                                  ------------                ------------
                                       492,487                     341,360
                                  ------------                ------------
Income from operations                 684,635                     835,762

Other income                              (915)                       (915)
Government grant                            17                          17
Finance cost                                22                          22
Interest income                         38,060                      38,060
                                  ------------                ------------
Income before provision from
 income taxes                          721,819       151,127       872,946

Income taxes                            33,764                      33,764
                                  ============                ============
Net income                             688,055                     839,182

Other comprehensive (loss) income       10,469                      10,469
                                  ============                ============
Comprehensive income              $    698,524                $    849,651


(a) To adjust stock-based compensation charges

No Adjustment made for the same period in 2008 as there was no stock-based
 compensation occurred.









                          Pansoft Company Limited
                RECONCILIATION OF NON-GAAP TO GAAP RESULTS

                                  For Nine Months Ended September 30, 2009
                                  ----------------------------------------
                                     Actual                   Non US GAAP
                                    Results      Adjustment     Results
                                  (Unaudited)
                                  ------------                ------------

Sales                             $  5,145,375                $  5,145,375
Cost of Sales                        2,743,265                   2,743,265
                                  ------------                ------------
Gross Profit                         2,402,110                   2,402,110

Operating expenses:
General and administrative
 expenses                              366,210                     366,210
Selling expenses                       216,414                     216,414
Professional fees                      300,168                     300,168
Stock based compensation               493,101  (a) (493,101)            -
Gain on disposition of property
 and equipment                            (741)                       (741)
                                  ------------                ------------
                                     1,375,152                $    882,051
                                  ------------                ------------
Income from operations               1,026,958                $  1,520,059

Other income                            (4,687)                     (4,687)
Government grant                       160,998                     160,998
Finance cost                                 -                           -
Interest income                        101,648                     101,648
                                  ------------                ------------
Income before provision from
 income taxes                        1,284,917       493,101  $  1,778,018

Income taxes                           213,642                     213,642
Net income                           1,071,275                $  1,564,376

Other comprehensive (loss) income       (7,248)                     (7,248)
                                  ============                ============
Comprehensive income              $  1,064,027                $  1,557,128


(a) To adjust stock-based compensation charges

No Adjustment made for the same period in 2008 as there was no stock-based
 compensation occurred.







                          Pansoft Company Limited
                  Condensed Consolidated Balance Sheets


                                                            As of
                                                  -------------------------
                                                 September 30, December 31,
                                                      2009         2008
                                                  (Unaudited)   (Audited)
                                                  ------------ ------------
Assets
   Current assets
      Cash and cash equivalents                   $ 11,838,583 $ 12,185,950
      Accounts receivable, net of allowance for
       doubtful accounts $132,209
       (2008: $152,070)                                477,327    1,136,159
      Unbilled revenue                               4,018,440    2,221,142
      Prepayments, deposits and other receivables      144,321      107,785
      Inventories                                      170,673       68,348
                                                  ------------ ------------
   Total current assets                             16,649,344   15,719,384

   Property and equipment, net                         711,632      650,708
   Deferred software development cost                   18,311       73,287
                                                  ------------ ------------
Total assets                                        17,379,287   16,443,379
                                                  ============ ============

Liabilities
   Current liabilities
      Accounts payable and accrued liabilities         216,700      905,748
      Deferred revenue                                 238,567      181,192
      Income tax payable                                 1,992      192,470
      Deferred income taxes                            372,306      172,505
                                                  ------------ ------------
   Total current liabilities                           829,565    1,451,915
                                                  ------------ ------------

   Deferred income taxes                                19,661       18,531
                                                  ------------ ------------
Total liabilities                                      849,226    1,470,446
                                                  ============ ============

Stockholders' equity
   Common stock (30,000,000 common shares
    authorized; par value of $0.0059 per share;
    5,438,232 shares issued and outstanding
    as of September 30, 2009)                           32,080       32,080
   Additional paid-in capital                        8,715,155    8,222,054
   Retained earnings                                 6,782,389    5,711,114
   Statutory reserves                                  363,063      363,063
   Accumulated other comprehensive income              637,374      644,622
                                                  ------------ ------------
Total stockholders' equity                          16,530,061   14,972,933
                                                  ------------ ------------

Total liabilities and stockholders' equity        $ 17,379,287 $ 16,443,379
                                                  ============ ============

The accompanying notes are an integral part of these condensed consolidated financial statements

Forward-Looking Statements

This press release contains forward-looking statements concerning Pansoft Company Limited, which include but are not limited to, statements regarding Pansoft's acquisition strategies, timing of development projects and efforts to achieve business growth, improvement on profit margin and anticipated revenue growth. The actual results may differ materially depending on a number of risk factors including but not limited to, the following: general economic and business conditions, development, shipment and market acceptance of products, additional competition from existing and new competitors, changes in technology or product techniques, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risk factors detailed in the Company's reports filed with the Securities and Exchange Commission. Pansoft Company Limited undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.

About Pansoft Company Limited

Pansoft is a leading enterprise resource planning ("ERP") software and professional services provider for the oil and gas industry in China. Its ERP software offers comprehensive solutions in various business operations including accounting, order processing, delivery, invoicing, inventory control and customer relationship management.

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