SOURCE: Pansoft Company Limited

March 24, 2011 07:14 ET

Pansoft Announces Unaudited Fiscal Second-Quarter 2011 Financial Results

Revenues Increase 47.0% Year-Over-Year

JINAN, CHINA--(Marketwire - March 24, 2011) - Pansoft Company Limited (NASDAQ: PSOF) ("Pansoft" or the "Company"), a leading ERP software service provider for the oil and gas industry in China, today announced unaudited financial results for the fiscal second quarter ended December 31, 2010.

Highlights for the Fiscal Second Quarter of 2011:

  • Revenues were $7.2 million, an increase of 47.0% compared to $4.9 million for the three months ended December 31, 2010
  • Gross profit was $3.1 million, an increase of 19.1% compared to $2.6 million in the year-ago period
  • Gross margin was 42.9%, compared to 53.0% in the year-ago period
  • Operating profit was $1.6 million, compared to $2.1 million in the year-ago period
  • Net income was $1.4 million, compared to $1.9 million in the year-ago period
  • Diluted earnings per share were $0.25, compared to $0.36 in the prior year period

Highlights for the Fiscal First Half of 2011:

  • Revenues were $10.7 million, an increase of 50.7% compared to $7.1 million for the six months ended December 31, 2010
  • Gross profit was $4.8 million, an increase of 27.3% compared to $3.8 million in the year-ago period
  • Gross margin was 44.9%, compared to 53.1% in the year-ago period
  • Operating profit was $2.7 million, compared to $2.8 million in the year-ago period
  • Net income was $2.4 million, compared to $2.6 million in the year-ago period
  • Diluted earnings per share were $0.45, compared to $0.48 in the year-ago period

Financial Results Highlights for the Three Months Ended December 31, 2010

Revenues for the three months ended December 31, 2010 were $7.2 million, compared to $4.9 million in the same period last year, an increase of 47.0%. The increase was due to the contribution from newly acquired businesses.

Cost of sales was $4.1 million, an increase of 78.5% from $2.3 million in the three months ended December 31, 2009. Cost of sales increased at a faster pace than revenues, largely due to: 1) higher headcount (approximately 600 employees at the end of calendar 2010 versus 200 at the end of calendar 2009) and therefore, higher compensation expense and; 2) start-up costs at Pansoft-Japan, the new outsourcing joint venture in Japan.

Gross profit was $3.1 million, an increase of 19.1% from $2.6 million in the three months ended December 31, 2009. Gross margin was 42.9%, compared to 53.0% in the three months ended December 31, 2009. The drop in the gross margin was mainly attributable to higher expenses, as stated above. Additionally, some newly acquired businesses' gross margins are lower than those of Pansoft's core business, in particular due to startup costs at Pansoft-Japan and lower-margin hardware sales at HongAo and ITLamp.

Operating expenses were $1.5 million, an increase of 181.8% from $0.5 million in the three months ended December 31, 2009. The increase in operating expense was mainly due to: 1) higher general and administrative expense related to maintaining three additional subsidiary offices and their management teams; and 2) the amortization of intangible assets from the HongAo and ITLamp acquisitions.

Operating profit was $1.6 million, compared to $2.1 million in the three months ended December 31, 2009. The operating margin was 22.7% compared to 42.5% in the three months ended December 31, 2009.

Net income was $1.4 million, compared to $1.9 million in the corresponding period in 2009, and was lower than the prior period mainly because of higher tax expense, start-up losses of approximately $538,000 at Pansoft-Japan, and higher amortization charges related to recent acquisitions.

Diluted earnings per share were $0.25, compared to $0.36 in the corresponding period in 2009.

Financial Results Highlights for the Six Months Ended December 31, 2010

Revenues for the six months ended December 31, 2010 were $10.7 million, compared to $7.1 million in the same period last year, an increase of 50.7%. The increase was due to the contribution from newly acquired businesses.

Cost of sales was $5.9 million, an increase of 77.2% from $3.3 million in the six months ended December 31, 2009. Cost of sales increased at a faster pace than revenues, largely due to higher compensation expense resulting from higher headcount and start-up costs at Pansoft-Japan.

Gross profit was $4.8 million, an increase of 27.3% from $3.8 million in the six months ended December 31, 2009. Gross margin was 44.9%, compared to 53.1% in the six months ended December 31, 2009. The decline in the gross margin was mainly attributable to higher expenses, and lower margins at some subsidiaries.

Operating expenses were $2.1 million, an increase of 108.9% from $1.0 million in the six months ended December 31, 2009. The increase in operating expense was mainly due to higher general and administrative expense and amortization of intangible assets resulting from acquisitions.

Operating profit was $2.7 million, compared to $2.8 million in the six months ended December 31, 2009. The operating margin was 25.2% compared to 38.9% in the six months ended December 31, 2009.

Net income was $2.4 million, compared to $2.6 million in the corresponding period in 2009 and was lower than the prior period mainly because of higher tax expense, start-up losses at Pansoft-Japan and higher amortization charges related to recent acquisitions.

Diluted earnings per share were $0.45, compared to $0.48 in the corresponding period in 2009.

Update on Pansoft's Subsidiaries

Following the formation of the Pansoft-Japan joint venture, the Company is organized as follows. Pansoft-BVI has two subsidiaries: Pansoft-China (which includes the HongAo and ITLamp acquisitions) and Pansoft-Japan.

  • Pansoft-China represents the core business of the Company and contributed 63% of total revenue in the three months ended December 31, 2010. For three months ended December 31, 2010, Pansoft-China's revenues declined by 3%, compared to the same period in 2009, due to a slower pace of revenue recognition, owing to a slower pace of revenue recognized in the traditional peak season. This represents an improvement in Pansoft's seasonality pattern, in which the majority of revenue is typically realized in the fiscal second quarter of the year. HongAo, of which Pansoft acquired a 55.01% stake in October 2010, serves the thermal power industry as a technical service provider in Shandong province, and contributed 24% of total revenue in the three months ended December 31, 2010.  ITLamp, which was acquired in June 2010, operates as an oilfield software development and service provider, mainly serving the Tarim Oilfield in Xinjiang province. For the three-month period ended December 31, 2011, ITLamp contributed 9% of total revenues.
  • Pansoft-Japan is a joint venture established in August 2010 to provide outsourcing functions for Japanese clients, initially in the field of cell-phone software testing. The new testing operation was set up in Jinan, China with a front office in Osaka, Japan. Osaka is more than 600 km from the nuclear power plant damaged by the recent earthquake and was unaffected by this disaster. Our team members, including trainees dispatched from China, are all safe and are conducting business as usual. We do not foresee any immediate impact on our business in Japan from the earthquake and nuclear-plant catastrophe, however the longer-term impact cannot be presently determined. To date, there has also been no disruption of the order flow from the venture's key customer, though the impact on future orders cannot be determined. During the three-month period ended at December 31, 2011, Pansoft-Japan incurred start-up losses in line with budget expectations. This business is expected to break even in the fiscal fourth quarter of 2011 and to begin to generate a profit starting in the fiscal first quarter of 2012.

Financial Condition

As of December 31, 2010, Pansoft had $12.0 million in cash and equivalents, compared to $2.7 million as of June 30, 2010, increased mainly by strong cash flow from operations, as well as from the maturation of certain short-term investments. Cash and cash equivalents exclude $3.5 million in short-term investments, versus $7.4 million as of June 30, 2010. Total current assets were $25.8 million, as of December 31, 2010, versus $18.8 million as of June 30, 2010, owing to higher cash and equivalents and higher receivables, offset by $3 million in lower unbilled revenues. Current liabilities were $6.9 million as of December 31, 2010, up from $3.8 million, owing to a $1.5 million acquisition payable for the fair value of the shares expected to be issued as part of the ITLamp acquisition and a $0.75 million short-term bank loan for temporary cash needs, in addition to higher deferred revenues. Total stockholders' equity was $25.5 million as of December 31, 2010 versus $19.6 million as of June 30, 2010.

Recent Development

On March 1, 2011, Pansoft's Board of Directors extended the stock repurchase program announced in October 2010 for an additional indefinite period.

Business Outlook

In future quarters and the next fiscal year, Pansoft expects to maintain sustainable organic growth, driven by strong demand for its services and solutions from its existing customer base, mainly PetroChina and Sinopec, which accounted for 73% of revenues during fiscal 2010. To expand its business, the Company will focus on more than 450 oil and gas subsidiaries, which are large-scale businesses that operate oilfields, refineries, oil and gas pipelines and retail gas stations. In last fiscal year, the Company generated revenue from just four subsidiaries, with over RMB 1 million per contract size. Therefore, the subsidiaries represent a large market opportunity for Pansoft to expand its client base, leveraging its branding and experience in developing software systems which are already operating at most of these subsidiaries. The Company is also entering into the coal mining industry to expand its client base.

The Company also expects to supplement its organic growth through acquisitions of targeted developer or service providers with rich experience operating in the oil/gas and coal mining industries to help achieve the objectives.

Additionally, with its rich industrial experience, and technical platforms and software packages accumulated in the past, Pansoft is developing a broader portfolio of solutions and, initially, expanding its solutions into the production arena. These solutions will be offered to existing and new customers, especially in focused industries.

For the fiscal year ending June 30, 2011, Pansoft expects to remain on track with steady growth and reaffirms its guidance of achieving 60% revenue growth, which excludes the impact from any future mergers or acquisitions. However, Pansoft expects its net income to grow at a slower pace, with a growth rate of less than 20%, versus 20% growth expected previously. The relatively slower pace of expected net-income growth is primarily due to the non-cash charge for intangible asset amortization from acquisitions in 2010, which we expect to reduce net income by approximately $1 million. "We expect Pansoft-Japan to break even in the fiscal fourth quarter of 2011 and to begin to generate a profit starting in the fiscal first quarter of 2012," said Hugh Wang, Pansoft's Chairman of the Board.

"We continue to look for potential acquisition targets on an opportunistic basis to accelerate our expansion throughout the rest of the fiscal year as a part of our total strategy to expand our business and market diversification. Our aim is to become the provider of choice for a variety of software solutions and services to a broad range of industries and clients, both domestic and international, in different technologies and markets. With more profit contributions from diversified business avenues in the future, we are expecting our total profits to increase at a faster pace while our net margins may not be as high as in the past because of a change in the mix of business," continued Mr. Wang.

Conference Call Information

The Company will host a conference call at 8:00 a.m. ET on Thursday, March 24, 2011 (8:00 p.m. Beijing Time) to discuss its fiscal second-quarter 2011 financial results and answer investors' questions.

To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1 (866) 759-2078. International callers should dial +1 (706) 643-0585. The conference ID for the call is 53628003.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Thursday, March 24, 2010 at 9:00 a.m. ET. To access the replay, dial +1 (800) 642-1687. International callers should dial +1 (706) 645-9291 and enter the conference ID 53628003.

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. For more information visit http://www.pansoft.com.

Forward-Looking Statements
This press release contains forward-looking statements concerning Pansoft Company Limited, including but are not limited to, statements regarding Pansoft's acquisition strategies, projected revenue growth, contracts with customers, timing of development projects, and efforts to achieve business 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, purchase cycle of major customers, 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.

- Financial Tables Follow -

Pansoft Company Limited  
Consolidated Statements of Operations and Comprehensive Income  
For the three-month periods ended December 31, 2010 and 2009  
(in U.S. Dollars)  
       
    For the three months ended  
    December 31,  
    2010     2009  
             
Sales   $ 7,217,736     $ 4,910,177  
Cost of sales     4,119,349       2,308,226  
Gross profit     3,098,387       2,601,951  
                 
Expenses                
  General and administrative expense     616,681       119,431  
  Amortization expense     330,533          
  Selling expense     328,078       160,297  
  Professional fees     123,229       87,656  
  Stock based compensation     59,505       151,127  
  (Gain) on disposition of property and equipment     366       (955 )
  Total Operating Expenses     1,458,393       517,556  
  Income from operations     1,639,994       2,084,395  
                 
  Other income (expenses), net     (1,777 )     17,950  
  Government grant     157,655       30  
  Finance costs     (15,922 )     (1,952 )
  Interest income     68,508       48,502  
  Income before provision from income taxes     1,848,458       2,148,925  
                 
  Provision for current income taxes     603,288       74,759  
  Provision for deferred income taxes     (192,910 )     139,356  
                 
  Net income     1,438,080       1,934,810  
                   
  Less: Net Income attributable to non-controlling interests     52,579       --  
                   
  Net Income attributable to Pansoft common shareholders     1,385,501       --  
  Other comprehensive (loss) income     188,640       (720 )
  Other comprehensive income     1,574,140       1,934,090  
                 
  Basic net income per share     0.25       0.36  
  Diluted net income per share     0.25       0.36  
                 
  Basic weighted average number of shares outstanding     5,438,232       5,438,232  
  Diluted weighted average number of shares outstanding     5,467,087       5,434,852  
                   
   
   
Pansoft Company Limited  
Consolidated Statements of Operations and Comprehensive Income  
For the six-month periods ended December 31, 2010 and 2009  
(in U.S. Dollars)  
       
    For the six months ended  
    December 31,  
    2010     2009  
             
Sales   $ 10,724,068     $ 7,115,646  
Cost of sales     5,912,196       3,336,573  
                 
Gross profit     4,811,872       3,779,073  
                 
Expenses                
General and administrative expense     1,002,880       236,399  
Amortization expense     359,814       --  
Selling expense     403,549       254,917  
Professional fees     188,527       217,437  
Stock based compensation     154,354       302,254  
                 
(Gain) on disposition of property and equipment     366       (964 )
Total Operating Expenses     2,109,490       1,010,043  
                 
Income from operations     2,702,382       2,769,030  
                 
Other income (expenses), net     (3,712 )     17,035  
                 
Government Subsidy     201,755       47  
Finance costs     (22,710 )     (1,930 )
Interest income     141,341       86,562  
                 
Income before provision from income taxes     3,019,056       2,870,744  
                 
Provision for current income taxes     603,288       74,759  
Provision for deferred income taxes     (15,409 )     173,120  
                 
Net income     2,431,177       2,622,865  
                 
Less: Net Income attributable to non-controlling interests     52,579          
                 
Net Income attributable to Pansoft Common Shareholders     2,378,598       2,622,865  
                 
Other comprehensive (loss) income     389,533       9,749  
                 
                 
Other comprehensive income     2,768,131       2,632,614  
                 
Basic net income per share     0.45       0.48  
Diluted net income per share     0.45       0.48  
                 
Basic weighted average number of shares outstanding     5,438,232       5,438,232  
                 
Diluted weighted average number of shares outstanding     5,434,852       5,434,852  
 
 
Pansoft Company Limited
Consolidated Balance Sheets
(in U.S. Dollars)
           
    Dec. 31,     June 30,
    2010     2010
Assets              
  Current assets              
  Cash and cash equivalents   $ 12,002,219     $ 2,705,957
  Accounts receivable, net     5,128,387       1,391,960
  Unbilled revenues, net     3,875,936       6,887,471
  Prepayment, deposits and other receivables     697,856       386,420
  Deferred and prepaid expenses     118,901        
  Inventory     442,870       61,984
  Short term investments - Available for sale     3,510,653       7,399,608
Total current assets     2,776,822       18,833,400
Non-current assets              
  Property and equipment, net     1,932,620       760,258
  Deposit for acquisitions     29,273       1,340,029
  Deferred software development cost     693,856        
  Intangible assets     2,798,185       1,729,553
  Goodwill     1,156,552       719,617
Total assets   $ 32,387,308     $ 23,382,857
Liabilities              
Current liabilities              
  Accounts payable and accrued liabilities   $ 802,675     $ 224,041
  Accruals and other current liabilities     1,245,392       2,542,929
  Acquisition payable     1,463,522       --
  Short-term borrowing     754,979       --
  Deferred revenue     1,563,105       244,110
  Income tax payable     562,382       325,079
  Deferred income taxes     464,059       486,925
Total current liabilities     6,856,114       3,823,054
               
Total liabilities     6,856,114       3,823,054
Shareholders' 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 June 30, 2009)              
  Share capital     32,080       32,080
  Treasury stock, at cost     (218,280 )      
  Additional paid-in capital     9,165,514       9,011,160
  Retained earnings     10,616,513       8,895,307
  Statutory reserves     2,122,460       897,040
  Non-controlling interests     2,699,159        
  Accumulated other comprehensive income     1,113,747       724,216
               
Total stockholder's equity     25,531,193       19,559,803
               
Total liabilities and stockholders equity   $ 32,387,308     $ 23,382,857

Contact Information