Pansoft Announces Second Fiscal Quarter 2010 Financial Results

JINAN, China, Feb. 9 /PRNewswire-Asia-FirstCall/ -- 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 financial results for the second fiscal quarter ended December 31, 2009.

    Highlights for the Second Quarter 2010
    -- Total revenues were $4.9 million, an increase of 47% compared to $3.3
       million for the quarter ended December 31, 2008
    -- Gross profit was $2.6 million, an increase of 56% compared to $1.7
       million for the quarter ended December 31, 2008
    -- Gross margin was 53%, compared to 50% in the for the quarter ended
       December 31, 2008
    -- Operating profit was $2.1 million, an increase of 93% compared to $1.1
       million for the quarter ended December 31, 2008
    -- Net income was $1.9 million, an increase of 94% compared to $1.0
       million for the quarter ended December 31, 2008
    -- Diluted earnings per share was $0.36, an increase of 64% compared to
       $0.22 for the quarter ended December 31, 2008
    -- Adjusted net income excluding share-based compensation expenses was
       $2.01 million, an increase of 80% compared to $1.16 million for the
       quarter ended December 31, 2008.
    -- Adjusted Diluted EPS excluding share-based compensation expenses was
       $0.42, an increase of 68% compared to $0.25 for the quarter ended
       December 31, 2008

On December 11, 2009, Pansoft's Board of Directors authorized a change in the Company's fiscal year end to June 30 from December 31 because the new fiscal year end is more consistent with the purchasing cycle of its major customers. As a result of this change, the quarter ended December 31, 2009 represents the second quarter of the fiscal year ending June 30, 2010.

To assist shareholders with understanding the change in fiscal year, the company is presenting pro-forma financial information for the twelve-month period ended December 31, 2009.

    Highlights for Twelve-Month Period ended December 31, 2009
    -- Total revenues were $10.0 million, an increase of 46% compared to $6.9
       million for the twelve months ended December 31, 2008, exceeding the
       company's previous guidance of a 40% increase
    -- Gross profit was $5.0 million, an increase of 43% compared to $3.5
       million for the twelve months ended December 31, 2008
    -- Gross margin was 50%, compared to 51% for the twelve months ended
       December 31, 2008
    -- Operating profit was $3.1 million, an increase of 22% compared to $2.6
       million for the twelve month ended December 31, 2008
    -- Net income was $3.0 million, an increase of 31% compared to $2.3
       million for the twelve months ended December 31, 2008
    -- Adjusted net income excluding share-based compensation expenses was
       $3.65 million, an increase of 46%, compared to $2.5 million for the
       twelve months ended December 31, 2008
    -- Diluted earnings per share was $0.55, an increase of 10% compared to
       $0.50 for the twelve months ended December 31, 2008
    -- Adjusted Diluted EPS excluding share-based compensation expenses was
       $0.67, an increase of 24% compared to $0.54 for the twelve-month
       period ended December 31, 2008

"Once again we delivered solid quarter and calendar year results driven by our focus on execution," said Guoqiang Lin, Pansoft's CEO. "We continued to see large orders from our long-term customers and their subsidiaries. Our centralized accounting system has been implemented at our two largest clients, PetroChina and Sinopec, and is also in the process of being integrated with other ERP systems within their operations, which should provide continued demand for our services. In addition, we have taken a number of initiatives to penetrate into new markets and win new clients and have achieved preliminary success, although yet to significantly impact our total revenue. We believe that our strategy to expand our business operations and diversify our customer base will position Pansoft well to achieve our long-term growth and profitability objectives."

"We enjoyed healthy top and bottom line growth in the second quarter of fiscal year 2010 and over the last twelve months. Adjusted EPS increased by 24% year-over-year driven by our exceptional financial and operational performance," added Allen Zhang, Pansoft's Chief Financial Officer. "Looking ahead, increasing investments in engineering capabilities, sales and marketing efforts, and system development efficiencies will continue to be key drivers for Pansoft."

Financial Results Highlights for the Three Months Ended December 31, 2009

Total revenue for the three months ended December 31, 2009 was $4.9 million, a 47% increase from $3.3 million in the three months ended December 31, 2008. The increase in revenue was due to the increased number and value of contracts for development and integration services.

Cost of sales was $2.3 million, an increase of 38% from $1.7 million in the three months ended December 31, 2008. Cost of sales increased at a slower pace than revenue as a result of cost control measures designed to contain expenses.

Gross profit in the quarter was $2.6 million, an increase of 56% from $1.7 million in three months ended December 31, 2008. Gross margin was 53%, compared to 50% in the three months ended December 31, 2008.

Operating expenses were $0.5 million, a decrease of 13% from $0.6 million in the three months ended December 31, 2008.

Operating profit was $2.1 million, an increase of 93% from $1.1 million in the three months ended December 31, 2008. Operating margin was 42% compared to 32% in three months ended December 31, 2008.

Net income was $1.9 million, an increase of 94% from $1.0 million in the corresponding period in 2008. The significant increases in our operating and net profits were due to a substantial increase in revenues from our major contracts and reduction of operating expenses. Diluted earnings per share were $0.36, an increase of 64% from $0.22 in the corresponding period in 2008. Adjusted Diluted EPS excluding share-based compensation expenses was $0.42, an increase of 68% compared to $0.25 for three months ended December 31, 2008.

Financial Results Highlights for the Twelve Months ended December 31, 2009

Pansoft has changed its fiscal year end to June 30. A transition report on Form 20-F will be filed for the six-month transition period ended June 30, 2009. The results for the six-month period ended December 31, 2009 will be included in the annual report on Form 20-F for the fiscal year ending June 30, 2010. To further assist shareholders in understanding the transition to the new fiscal year, pro-forma operating results for the twelve months ended December 31, 2009 are provided below.

Total revenue for the twelve months ended December 31, 2009 was $10.0 million, an increase of 46% from $6.9 million in the twelve months ended December 31, 2008. The increase in revenue was mainly due to increase in number of contracts as well as size of contracts signed with our major long-term clients. This is consistent with Pansoft's strategy to become an important part of the clients' IT platform and solicit their IT expansion projects.

Cost of sales was $5.1 million, an increase of 49% from $3.4 million in the twelve months ended in 2008. Cost of sales increased at a faster rate than revenue growth due to a significant increase in the number of employees as a part of our corporate expansion strategy and technical team enhancement.

Gross profit was $5.0 million, an increase of 43% from $3.5 million in the twelve months ended in 2008. Gross margin was 50%, compared to 51% for the twelve months ended December 31, 2008.

Operating expenses were $1.9 million, an increase of 100% from $0.9 million in the twelve months ended in 2008. Operating expenses consist primarily of general and administrative expenses, selling expenses, professional fees and stock option expenses. The increase in operating expenses in 2009 was mainly due to the increase in stock-based compensation and public listing expenses, which accounted for 34% and 20% of total operating expenses, respectively.

Operating profit was $3.1 million, an increase of 22% from $2.6 million in the twelve months ended December 31, 2008. Operating margin was 31%, compared to 37% in the twelve months ended December 31, 2008.

Net income was $3.0 million, an increase of 31% from $2.3 million in the corresponding period in 2008. Adjusted net income, excluding stock-based compensation totaled $3.7 million, an increase of 46% compared to $2.5 million in the twelve months ended December 31, 2008. Diluted earnings per share were $0.55, an increase of 10% from $0.50 in the corresponding period in 2008. Adjusted diluted EPS excluding share-based compensation expenses was $0.67, an increase of 24% from $0.54 for the twelve months ended December 31, 2008.

As of December 31, 2009, Pansoft's cash and cash equivalents are $14.7 million, an increase of 21% compared to $12.2 million on December 31, 2008. The increase in cash and cash equivalents was primarily a result of increased collection of accounts receivable in the last calendar quarter of 2009. Cash flow from operating activities in 2009 was $2.8 million, an increase of 80% compared to $1.5 million from the twelve months ended December 31, 2008.

Business Outlook

Despite the worldwide financial crisis and economic recession in 2009, Pansoft has delivered strong performance, including a 46% increase in revenue in the twelve months ended December 31, 2009, exceeding its previous guidance of 40% revenue growth. In addition, Pansoft's net profit increased by 31% and adjusted net income increased by 46%.

The Company expects its customization, integration services and solutions will continue to win major contracts from large customers. Going forward the Company intends to expand its business by reorganizing its technical service and development force by establishing four new business departments with the objective to penetrate into new markets and industries. Pansoft's management believes that demand for its services will continue to grow as the Company leverages its advanced technology and application development expertise within the system integration services domain. Pansoft expects to achieve 40% organic growth in revenue year-over-year for the fiscal year ending in June 30, 2010.

"In addition, the Company has RMB 100 million, or approximately $14.7 million, in cash or cash equivalent on its balance sheet. This cash reserve allows the Company to focus aggressively on potential acquisition targets as part of its strategy to expand into additional industries," said Hugh Wang, Chairman of Board.

Adjusted Financial Measures

This release contains adjusted financial measures. These adjusted 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 adjusted 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 adjusted financial measures.

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

The Company's management uses adjusted 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 adjusted financial measures exclude certain special items, including stock-based compensation charge from its internal financial statements for purposes of its internal budgets. Adjusted 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 adjusted 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 believes excluding stock-based compensation from its adjusted 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 adjusted financial measures have limitations. They do not include all items of income and expense that affect the Company's operations. Specifically, these adjusted financial measures are not prepared in accordance with GAAP, may not be comparable to adjusted financial measures used by other companies and, with respect to the adjusted 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 also considering the Company's financial results as determined in accordance with GAAP.

Conference Call Information

The Company will host a conference call at 8:30 a.m. ET on February 9, 2010 (9:30 p.m. Beijing Time) to review the Company's financial results and answer questions.

To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877-369-6556. International callers should dial +1 706-758-6238. The conference ID for the call is 54471389.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Tuesday, February 9, 2010 at 10:00 a.m. ET. To access the replay, dial 800-642-1687. International callers should dial +1 706-645-9291 and enter the conference ID 54471389.

A live and archived webcast of the call will be available on the Company's website at http://www.pansoft.com/ .

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.

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.



       Unaudited Consolidated Statements of Income and Comprehensive Income
                                   (In US Dollars)

                           (Unaudited)                    (Unaudited)
                      For Three Months Ended          For Six Months Ended
    In USD                  December 31,                   December 31,
                         2009           2008            2009          2008

    Sales             4,910,177      3,343,408       7,115,646     5,514,446
    Cost of sales     2,308,226      1,670,275       3,336,573     2,365,278
    Gross profit      2,601,951      1,673,133       3,779,073     3,149,168
    Gross Margin            53%            50%             53%           57%
    Expenses
    G/M expenses        119,431        355,625         236,399       486,452
    Selling
     expenses           160,297         21,010         254,917        29,516
    Professional
     fees                87,656         51,423         217,437        78,535
    Stock based
     compensation       151,127        164,197         302,254       203,012
    Gain on
     disposition
     of property
     & equipment           (955)           (30)           (964)         (184)
    Total Expenses      517,556        592,225       1,010,043       797,331

    Income from
     operations       2,084,395      1,080,908       2,769,030     2,351,837

    Other income
     (expenses) net      17,950         13,995          17,035        13,995
    Government grant         30             --              47            --
    Finance cost         (1,952)        (3,326)         (1,930)       (3,781)
    Interest
     income              48,502         56,262          86,562        83,817
    Income before
     provision from
     income taxes     2,148,925      1,147,839       2,870,744     2,445,868
    Provision for
     current
     income taxes        74,759        197,563          74,759       197,563
    Provision for
     deferred
     income taxes       139,356        (45,526)        173,120       190,633

    Net income        1,934,810        995,802       2,622,865     2,057,672
    Other
     comprehensive
     (loss) income         (720)       (24,358)          9,749        34,493
    Comprehensive
     income           1,934,090        971,444       2,632,614     2,092,165


                                                     For 12 Months Ended
    In USD                                              December 31,
                                                    2009             2008
                                                (Unaudited)        (Audited)
    Sales                                        10,055,552        6,891,710
    Cost of sales                                 5,051,491        3,395,695
    Gross profit                                  5,004,061        3,496,015
    Gross Margin                                        50%              51%
    Expenses
    G/M expenses                                    485,641          566,716
    Selling expenses                                376,711           36,047
    Professional fees                               387,824          140,072
    Stock based compensation                        644,228          203,012
    Gain on disposition of property &
     equipment                                       (1,696)          (1,558)
    Total Expenses                                1,892,708          944,289

    Income from operations                        3,111,353        2,551,726

    Other income (expenses) net                      13,263           14,532
    Government grant                                161,028               --
    Finance cost                                     (1,952)          (4,199)
    Interest income                                 150,150          126,294
    Income before provision from income
     taxes                                        3,433,842        2,688,353
    Provision for current income taxes               87,541          197,563
    Provision for deferred income taxes             340,216          190,633

    Net income                                    3,006,085        2,300,157
    Other comprehensive (loss) income                (7,968)         328,521
    Comprehensive income                          2,998,117        2,628,678



                   Consolidated Balance Sheet (In US Dollars)

                                          December 31,           December 31,
                                              2009                   2008
                                          (Unaudited)              (Audited)
    Assets
       Current assets
       Cash and cash equivalents          $14,708,248             12,185,950
       Account receivables, net             1,747,376              1,136,159
       Unbilled revenues                    3,393,563              2,221,142
       Prepayment, deposits and
        other receivables                     107,040                107,785
       Inventory                              117,967                 68,348
       Income tax receivable

    Total current assets                   20,074,194             15,719,384
    Non-current assets
       Property and equipment, net            689,462                650,708
       Deferred software
        development cost                           --                 73,287
    Total assets                          $20,763,656             16,443,379

    Liabilities
    Current liabilities
       Accounts payable and accrued
        liabilities                          $648,957                905,748
       Deferred revenue                       891,297                181,192
       Income tax payable                      76,794                192,470
       Deferred income taxes                  531,330                172,505

    Total current liabilities               2,148,378              1,451,915
    Long-term liabilities
       Deferred income taxes                       --                 18,531

    Total liabilities                       2,148,378              1,470,446

    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 September 30, 2009)
       Share capital                           32,080                 32,080
       Additional paid-in capital           8,866,282              8,222,054
       Retained earnings                    8,270,822              5,711,114
       Statutory reserves                          --                363,063
       Accumulated other
        comprehensive income                  636,654                644,622
    Total stockholders' equity             18,615,278             14,972,933

    Total liabilities and
     stockholders equity                  $20,763,656             16,443,379



               RECONCILIATION OF ADJUSTED FINANCIALS TO GAAP RESULTS
                                 (In US Dollars)

                                   For 12 Months Ended December 31,

                           Actual   Adjust-    Adjusted   Adjust-    Adjusted
                          Results    ment       Results    ment       Results
                            2009                 2009                  2008

    Sales                10,055,552           10,055,552             6,891,710
    Cost of sales         5,051,491            5,051,491             3,395,695

    Gross profit          5,004,061            5,004,061             3,496,015
                                50%                  50%                   51%
    Expenses
      General and
       administrative
       expenses             485,641              485,641               566,716
      Selling
       expenses             376,711              376,711                36,047
      Professional
       fees                 387,824              387,824               140,072
      Stock based
       compensation         644,228  (644228)         --  (203,012)         --
                                        (a)                  (a)
      Gain on
       disposition of
       property and
       equipment             (1,696)              (1,696)               (1,558)
                          1,892,708            1,248,480               741,277

      Income from
       operations         3,111,353            3,755,581             2,754,738

      Other income
       (expenses), net       13,263               13,263                14,532
      Government grant      161,028              161,028                    --
      Finance cost           (1,952)              (1,952)               (4,199)
      Interest income       150,150              150,150               126,294

      Income before
       provision from
       income taxes       3,433,842            4,078,070             2,891,365

      Provision for
       current income
       taxes                 87,541               87,541               197,563
      Provision for
       deferred income
       taxes                340,216              340,216               190,633

      Net income          3,006,085            3,650,313             2,503,169

      Other
       comprehensive
       (loss) income         (7,968)              (7,968)              328,521

      Comprehensive
       income             2,998,117            3,642,345             2,831,690

      Basic and diluted
       net income per
       share                   0.55                 0.67                  0.54

      Basic and diluted
       weighted average
       number of shares
       outstanding        5,438,232            5,438,232             4,613,027

    (a) To adjust stock-based compensation charges



                                    For Three Months Ended December 31,

                            Actual   Adjust-   Adjusted    Adjust-    Actual
                           Results    ment      Results     ment     Results
                            2009                 2009                 2008

    Sales                 4,910,177            4,910,177            3,343,408
      Cost of
       sales              2,308,226            2,308,226            1,670,275

      Gross profit        2,601,951            2,601,951            1,673,133
                                53%                  53%                  50%
    Expenses
        General
         and
         admini-
         strative
         expenses           119,431              119,431              355,625
        Selling
         expenses           160,297              160,297               21,010
        Profess-
         ional fees          87,656               87,656               51,423
        Stock based
         compen-
         sation             151,127  (151,127)        --   (164,197)       --
                                        (b)                   (b)
        Gain on
         disposition of
         property and
         equipment             (955)                (955)                 (30)
                            517,556              366,429              428,028

        Income from
         operations       2,084,395            2,235,522            1,245,105

        Other income
        (expenses), net      17,950               17,950               13,995
        Government grant         30                   30                   --
        Finance cost         (1,952)              (1,952)              (3,326)
        Interest income      48,502               48,502               56,262

        Income before
         provision from
         income taxes     2,148,925            2,300,052            1,312,036

        Provision for
         current income
         taxes               74,759               74,759              197,563
        Provision for
         deferred
         income taxes       139,356              139,356              (45,526)

        Net income        1,934,810            2,085,937            1,159,999

        Other
         comprehensive
         (loss) income         (720)                (720)             (24,358)

        Comprehensive
         income           1,934,090            2,085,217            1,135,641

        Basic and
         diluted net
         income per
         share                 0.36                 0.42                 0.25

        Basic and
         diluted
         weighted
         average
         number of
         shares
         outstanding      5,438,232            5,438,232            4,613,027

    (a) To adjust stock-based compensation charges


    For more information, please contact:

    Pansoft Company Limited
     Allen Zhang, Chief Financial Officer
     Phone: +86-531-8887-1159
     Email: allen.zhang@pansoft.com

    CCG Investor Relations Inc.
     Mr. Crocker Coulson, President
     Phone: +1-646-213-1915 (New York)
     Email: crocker.coulson@ccgir.com
     Web:   http://www.ccgirasia.com

SOURCE Pansoft Company Limited



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