**U.
        S. SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
        DC 20549**
 
 **FORM
        10-Q**
 
 þ
              Quarterly
                  report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934
 For
        the
        quarterly period ended **June
        30, 2008**
 
  ̈
              Transition
                  report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934
 For
        the
        transition period from ___________ to ___________.
  Commission
        File Number 001-34168
  **Pansoft
        Company Limited**
 (Exact
        name of small business issuer as specified in its charter)
 
 **British
                  Virgin Islands**
              
              **Not
                  Applicable**(State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              (I.R.S.
                  employer
                identification
                  number)
 
 **3/F
        Qilu Software Park Building**
 **Jinan
        Hi-Tech Zone**
 **Jinan,
        Shandong,**
 **People’s
        Republic of China 250101**
 (Address
        of principal executive offices and zip code)
 **86-531-88871166**
 (Registrant’s
        telephone number, including area code)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports) and (2) has been subject to such filing requirements
        for
        the past 90 days.
 (1)
        Yes þ No o (2)
        Yes o No þ
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        definitions of “large accelerated filer,” “accelerated filer,” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 Large
                  accelerated filer
              o
              Accelerated
                  fileroNon-accelerated
                  filer
              o
              Smaller
                  reporting companyþ
 (Do
        not
        check if a smaller reporting company)
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes o No þ
 
 **APPLICABLE
        ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**
 **PROCEEDINGS
        DURING THE PRECEDING FIVE YEARS**
 Check
        whether the registrant filed all documents and reports required to be filed
        by
        Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities
        under a plan confirmed by a court. Yes o No o
 
 **APPLICABLE
        ONLY TO CORPORATE ISSUERS:**
 State
        the
        number of shares outstanding of each of the issuer’s classes of common stock, as
        of the latest practicable date.
 The
        Company is authorized to issue 30,000,000 common shares, par value $0.0059
        per
        share. As of the date of this report, the Company has issued 5,438,232 common
        shares.
  
 
 **PANSOFT
        COMPANY LIMITED**
 **FORM
        10-Q****SB**
 
 **INDEX**
 
 SPECIAL
                  NOTE REGARDING FORWARD-LOOKING STATEMENTS
              3PART
                  I.
              FINANCIAL
                  INFORMATION
              4Item
                  1.
              Financial
                  Statements.
              4Item
                  2.
              Management’s
                  Discussion and Analysis or Plan of Operation
              17Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              22Item
                  4/4T.
              Controls
                  and Procedures
              22PART
                  II.
              OTHER
                  INFORMATION
              22Item
                  1.
              Legal
                  Proceedings
              22Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              22Item
                  3.
              Defaults
                  Upon Senior Securities
              22Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              22Item
                  5.
              Other
                  Information
              23Item
                  6.
              Exhibits
              23
  2
  **SPECIAL
        NOTE REGARDING****FORWARD****-LOOKING
        STATEMENTS**
 
 This
        document contains certain statements of a forward-looking nature. Such
        forward-looking statements, including but not limited to projected growth,
        trends and strategies, future operating and financial results, financial
        expectations and current business indicators are based upon current information
        and expectations and are subject to change based on factors beyond the control
        of the Company. Forward-looking statements typically are identified by the
        use
        of terms such as “look,” “may,” “will,” “should,” “might,” “believe,” “plan,”
“expect,” “anticipate,” estimate” and similar words, although some
        forward-looking statements are expressed differently. The accuracy of such
        statements may be impacted by a number of business risks and uncertainties
        that
        could cause actual results to differ materially from those projected or
        anticipated, including but not limited to the following:
 
 ·
              its
                  dependence on a limited number of larger customers;·
              political
                  and economic factors in the Peoples’ Republic of China;·
              the
                  Company’s ability to expand and grow its lines of business;·
              unanticipated
                  changes in general market conditions or other factors, which may
                  result in
                  cancellations or reductions in need for the Company’s services;·
              a
                  weakening of economic conditions which would reduce demand for
                  services
                  provided by the Company and could adversely affect profitability;·
              the
                  acceptance in the marketplace of the Company’s new lines of services;·
              foreign
                  currency exchange rate fluctuations;·
              hurricanes
                  or other natural disasters;·
              the
                  Company’s ability to identify and successfully execute cost control
                  initiatives; or·
              other
                  risks outlined above and in the Company’s other filings made periodically
                  by the Company.
 
 Readers
        are cautioned not to place undue reliance on these forward-looking statements,
        which speak only as of the date hereof. The Company undertakes no obligation
        to
        update this forward-looking information. Nonetheless, the Company reserves
        the
        right to make such updates from time to time by press release, periodic report
        or other method of public disclosure without the need for specific reference
        to
        this Report. No such update shall be deemed to indicate that other statements
        not addressed by such update remain correct or create an obligation to provide
        any other updates.
  3
  **PART
        I.**  **FINANCIAL
        INFORMATION**
 
 Item
        1.  Financial
        Statements.
 
 **Pansoft
        Company Limited**
 
 **Interim
        Consolidated Balance Sheets**
 As
        at
        June 30, 2008 and December 31, 2007
  **June
                  30,****2008**
              
              December 31,**(Unaudited)**
              
              2007**Assets****Current
                  assets**Cash
                  and cash equivalents
              
              **$**
              **2,934,308**
              
              $
              3,365,613Accounts
                  receivable, net
              
              
              **1,335,589**
              
              
              1,180,854Prepayments,
                  deposits and other receivables
              
              
              **157,097**
              
              
              111,444Work
                  in progress
              
              
              **51,280**
              
              
              -Income
                  tax receivable
              
              
              **5,569**
              
              
              5,236**Total
                  current assets**
              
              
              **4,483,843**
              
              
              4,663,147Deferred
                  cost
              
              
              **105,525**
              
              
              63,709Property
                  and equipment, net*(note
                  3)*
              
              
              **663,152**
              
              
              221,191Deferred
                  software development cost (*note
                  4*)
              
              
              **109,344**
              
              
              137,088**Total
                  assets**
              
              **$**
              **5,361,864**
              
              $
              5,085,135**Liabilities****Current
                  liabilities**Accounts
                  payable and accrued liabilities
              
              **$**
              **194,632**
              
              $
              425,156Deferred
                  revenue
              
              
              **12,609**
              
              
              7,597Deferred
                  government grants (*note
                  5*)
              
              
              -
              
              
              34,272**Total
                  current liabilities**
              
              
              **207,241**
              
              
              467,025**Commitments*****(note
                  8)*****Shareholders’
                  equity**Common
                  Stock (30,000,000 common shares authorized; par value of $0.0059
                  per
                  share; 4,238,232 shares issued and outstanding (2007 - 4,238,232))*(Note
                  12)*Share
                  Capital
              
              
              **25,000**
              
              
              25,000Additional
                  paid-in capital
              
              
              **502,989**
              
              
              502,989Retained
                  earnings
              
              
              **3,792,650**
              
              
              3,550,165Statutory
                  reserves
              
              
              **223,855**
              
              
              223,855Accumulated
                  other comprehensive income
              
              
              **610,129**
              
              
              316,101**Total
                  shareholders’ equity**
              
              
              **5,154,623**
              
              
              4,618,110**Total
                  liabilities and shareholders’ equity**
              
              **$**
              **5,361,864**
              
              $
              5,085,135
 *The
        accompanying notes are an integral part of these interim consolidated financial
        statements*
  4
  **Pansoft
        Company Limited**
 
 **Interim
        Consolidated Statements of Operations and Comprehensive
        Income**
 For
        the
        three and six month periods ended June 30, 2008 and 2007
 
 For Three Months Ended June 30
              
              For Six Months Ended June 30**2008**
              
              2007
              
              **2008**
              
              2007**Sales**
              
              **$**
              **819,258**
              
              $
              948,372
              
              **$**
              **1,377,264**
              
              $
              1,584,710**Cost
                  of sales***(notes
                  3, 4 and 5)*
              
              
              **536,659**
              
              
              545,678
              
              
              **1,030,417**
              
              
              1,076,670**Gross
                  profit**
              
              
              **282,599**
              
              
              402,694
              
              
              **346,847**
              
              
              508,040**Expenses**General
                  and administrative expenses*(note
                  3 and 5)*
              
              
              **66,893**
              
              
              52,792
              
              
              **80,262**
              
              
              73,953Selling
                  expenses
              
              
              **3,467**
              
              
              4,931
              
              
              **6,532**
              
              
              12,514Professional
                  fees
              
              
              **28,565**
              
              
              -
              
              
              **61,537**
              
              
              -**98,925**
              
              
              57,723
              
              
              **148,331**
              
              
              86,467**Income
                  from operations**
              
              
              **183,674**
              
              
              344,971
              
              
              **198,516**
              
              
              421,573**Other
                  Income (expense)**
              
              
              
              
              
              
              
              
              **-**Other
                  income
              
              
              **-**
              
              
              -
              
              
              **537**
              
              
              64Finance
                  costs
              
              
              **(205**
              **)**
              
              (125
              )
              
              **(419**
              **)**
              
              (191
              )Interest
                  income
              
              
              **28,352**
              
              
              1,989
              
              
              **42,477**
              
              
              5,110Gain
                  on disposition ofproperty
                  and equipment
              
              
              **-**
              
              
              1,214
              
              
              **1,374**
              
              
              1,420Loss
                  on equity investment
              
              
              **-**
              
              
              (8,560
              )
              
              **-**
              
              
              (9,543
              )**Net
                  income for the period**
              
              
              **211,821**
              
              
              339,489
              
              
              **242,485**
              
              
              418,433**Other
                  Comprehensive income**
              
              
              **109,511**
              
              
              33,611
              
              
              **294,028**
              
              
              54,859**Comprehensive
                  income**
              
              **$**
              **321,332**
              
              $
              373,100
              
              **$**
              **536,513**
              
              $
              473,292**Basic
                  & diluted income per share**
              
              **$**
              **0.05**
              
              $
              0.08
              
              **$**
              **0.06**
              
              $
              0.10**Basic
                  & diluted weighted average number of shares outstanding*****(note
                  12)***
              
              
              **4,238,232**
              
              
              4,238,232
              
              
              **4,238,232**
              
              
              4,238,232
 
 *The
        accompanying notes are an integral part of these interim consolidated financial
        statements*
  5
  **Pansoft
        Company Limited**
 
 **Interim
        Consolidated Statements of Shareholders’ Equity**
 For
        the
        three and six month periods ended June 30, 2008 and December 31,
        2007
 (Unaudited)
 -
 Accumulated OtherCommon Shares
              
              Additional
              
              Retained
              
              Statutory
              
              ComprehensiveNumber
              
              Amount
              
              paid-in capital
              
              Earnings
              
              Reserves
              
              Income
              
              TotalBalance at December 31, 2007
                  ( *notes 12**)*
              
              
              4,238,232
              
              $
              25,000
              
              $
              502,989
              
              $
              3,550,165
              
              $
              223,855
              
              $
              316,101
              
              $
              4,618,110Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              294,028
              
              
              294,028Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              242,485
              
              
              -
              
              
              -
              
              
              242,485Balance
                  at June 30, 2008
              
              
              4,238,232
              
              $
              25,000
              
              $
              502,989
              
              $
              3,792,650
              
              $
              223,855
              
              $
              610,129
              
              $
              5,154,623
 
 *The
        accompanying notes are an integral part of these interim consolidated financial
        statements.*
  6
  **Pansoft
        Company Limited**
 
 **Interim
        Consolidated Statements of Cash Flows**
 For
        the
        Six months Period Ended June 30, 2008 and 2007
 (Unaudited)
 
 **2008**
              
              2007**Cash
                  flows from operating activities**Net
                  income
              
              $
              **242,485**
              
              $
              418,433Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Government
                  grants amortization
              
              
              **(115,673**
              **)**
              
              (73,597
              )Amortization
              
              
              **140,245**
              
              
              247,708(Gain)
                  loss on disposal of capital assets
              
              
              **(190**
              **)**
              
              (1,420
              )Loss
                  on equity investment
              
              
              -
              
              
              9,543Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              **(86,124**
              **)**
              
              (214,136
              )Prepayments,
                  deposits and other receivables
              
              
              **(77,079**
              **)**
              
              (26,318
              )Working
                  in progress
              
              
              **(49,132**
              **)**
              
              -Accounts
                  payable and accrued liabilities
              
              
              **(248,996**
              **)**
              
              (53,385
              )Government
                  grants received, net
              
              
              **79,458**
              
              
              -Deferred
                  revenue
              
              
              **4,174**
              
              
              151,613Net
                  cash provided by (used in) operating activities
              
              
              **(110,832**
              **)**
              
              458,441**Cash
                  flows from investing activities**Purchase
                  of software development costs
              
              
              -
              
              
              (172,720
              )Purchase
                  of property and equipment
              
              
              **(531,058**
              **)**
              
              (32,726
              )Proceeds
                  from disposition of property and equipment
              
              
              **17,428**
              
              
              17,584Net
                  cash used in investing activities
              
              
              **(513,630**
              **)**
              
              (187,862
              )**Cash
                  flows from financing activities**Dividend
                  paid
              
              
              -
              
              
              (257,433
              )Net
                  cash used in financing activities
              
              
              -
              
              
              (257,433
              )**Effect
                  of exchange rate changes**
              
              
              **193,157**
              
              
              28,806**Decrease
                  (increase) in cash and cash equivalents**
              
              
              **(431,305**
              **)**
              
              41,952**Cash
                  and cash equivalents, beginning of year**
              
              
              **3,365,613**
              
              
              1,342,075**Cash
                  and cash equivalents, end of year**
              
              **$**
              **2,934,308**
              
              $
              1,384,027**Supplemental
                  cash flow information**Interest
                  received
              
              **$**
              **42,477**
              
              $
              5,110Interest
                  paid
              
              **$**
              **419**
              
              $
              191Taxes
                  paid
              
              
              -
              
              
              -
 
 *The
        accompanying notes are an integral part of these interim consolidated financial
        statements.*
  7
  **Pansoft
        Company Limited**
 
 **Notes
        to Consolidated Financial Statements**
 For
        the
        three and six month periods ended June 30, 2008 and 2007
  **1.**  **Nature
        of Operat** **ions
        and Basis of Presentation**
 
  Pansoft
        Company Limited (“ the
        Company”) was incorporated in June 2006 in the British Virgin Islands and
        acquired 100% of Pansoft Jinan Co. Ltd. (“Jinan”) at the same time. Jinan was
        incorporated in the Peoples’ Republic of China (“PRC”). Upon acquisition by the
        Company, Jinan became a Foreign Investment Enterprise. Jinan is engaged in
        the
        development and marketing of accounting and enterprise resource planning
        (“ERP”)
        software primarily to resource and utility companies across the
        PRC.
  Prior
        to
        the incorporation of the Company, Jinan was 100% owned by employees who
        ultimately became the controlling shareholders of the Company. As such, the
        opening retained earnings presented on the consolidated balance sheet and
        statements of shareholders” equity are presented using the continuity of
        interest method of accounting. Under this method, all activities of Jinan
        are
        included in the consolidated financial statements of the Company as if the
        Company, had been the parent company for all periods presented.
  The
        interim consolidated financial statements are unaudited but, in the opinion
        of
        management, reflect all adjustments necessary for a fair statement of the
        Company’s consolidated financial position, results of operations and cash flows
        for the periods presented. These adjustments consist of normal, recurring
        items.
        The results of operations for any interim period are not necessarily indicative
        of results for the full year. The interim consolidated financial statements
        and
        notes are presented as permitted by the requirements for Quarterly Reports
        on
        Form 10-QSB.
  The
        consolidated financial statements do not include certain footnote disclosures
        and financial information normally included in consolidated financial statements
        prepared in accordance with accounting principles generally accepted in the
        United States of America and, therefore, should be read in conjunction with
        the
        consolidated financial statements and notes included in the Company’s
        Registration Statement on Form S-1 for the year ended December 31,
        2007
  **2.**  **Significant
        Accounting** **Policies**
 
  **Cash
        and cash equivalents**
  Cash
        is
        comprised of cash on hand. Cash equivalents are short-term, highly liquid
        investments with original maturities of three months or less that are readily
        convertible to known amounts of cash and which are subject to insignificant
        risk
        of change in value.
  **Accounts
        receivable**
  Accounts
        receivable are stated at original invoice amount less allowance made for
        doubtful receivables based on a review of all outstanding amounts at the
        period
        end. An allowance for doubtful receivables is made when there is objective
        evidence that the Company will not be able to collect all amounts due according
        to original terms of receivables. Bad debts are written off when identified.
        Bad
        debt expense for the three months ended June 30, 2008 amounted to $Nil (2007
        -
        $Nil), for the six months ended June 30, 2008 bad debt expense amounted to
        $Nil
        (2007 - $Nil).
  **Work
        in progress**
  Work
        in
        progress is the deferred costs of sales relate d
        to
        contracts and such costs are stated at actual production costs incurred to
        date,
        which primarily includes labor which is directly related to the contract.
        Work
        in progress is amortized to cost of revenues at the time revenue is
        recognized.
 
 Management
        periodically evaluates the realizability of work in progress and records
        a
        reserve for obsolescence when necessary. The reserve for work in progress
        obsolescence was $Nil at June 30, 2008 and December 31, 2007.
  8
  **Property
        and equipment**
  Property
        and equipment are recorded at cost. Amortization is provided over the expected
        useful lives of the property and equipment with 5% residual value using the
        following methods and annual rates:
  Building
                  and improvements
              -
                  20
              years
                  straight-lineComputer
                  equipment
              -
                  5
              years
                  straight-lineVehicles
              -
                  5
              years
                  straight-lineOffice
                  furniture
              -
                  5
              years
                  straight-lineComputer
                  software
              -
                  3
              years
                  straight-line
  Maintenance
        and repairs expenditures, which do not
        improve or extend an assets’ productive life, are expensed.
  **Research
        and software development costs**
  Research
        costs are charged to expense as incurred. Software development costs incurred
        prior to the establishment of technological feasibility are expensed. Software
        development costs incurred between the establishment of technological
        feasibility and product release are capitalized, if material, and amortized
        over
        the estimated economic life of the product, which is generally three years.
        Research and development costs expensed for three months ended June 30, 2008
        amoun ted
        to
        $17,965 (2007 - $16,279) and for the six months ended June 30, 2008 amounted
        to
        $35,426 (2007 - $32,391). The research and software development costs were
        included in cost of sales. These amounts are the annual amortization expense
        associated with capitalized software development cost ( *note
        4* ).
  **Impairment
        of long-lived assets**
  Long-lived
        assets held for use are periodically reviewed for impairment when events
        or
        changes in circumstances indicate that their carrying value may not be
        recoverable. When the carrying value is not recoverable from future cash
        flows
        on an undiscounted basis and the ca rrying
        value exceeds the assets’ fair value, an impairment loss is recorded for the
        excess of carrying value over fair value.
  **Government
        grants**
  Research
        grants received from PRC government agencies or private enterprises are
        recognized as deferred grants and offset against the corresponding research
        expenses as and when they are incurred for the research projects for which
        these
        grants are received.
  **Income
        taxes**
  The
        Company uses the liability method of accounting for inc ome
        taxes. Under SFAS No. 109 “Accounting for Income Taxes”, income tax assets and
        liabilities are recognized for the future income tax consequences attributable
        to differences between the financial statement carrying amounts of existing
        assets and liabilities and their respective tax bases. Income tax assets
        and
        liabilities are measured using enacted rates expected to apply to income
        in the
        years in which those temporary differences are expected to be recovered or
        settled. The effect of a change in tax rates on income tax assets and
        liabilities is reflected in operations in the period in which the change
        occurs.
        Valuation allowances are established when necessary to reduce future tax
        assets
        to the amount expected to be realized.
  The
        Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
        Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
        Interpretation of FASB Statement No. 109,” (“FIN 48”), on January 1, 2007. The
        Company did not have any material unrecognized tax benefits and there was
        no
        effect on its financial condition or results of operations as a result of
        implementing FIN 48. The Company files income tax returns in the PRC
        jurisdictions. The Company does not believe there will be any material changes
        in its unrecognized tax positions over the next 12 months. As of the date
        of
        adoption of FIN 48, the Company did not have any accrued interest or penalties
        associated with any unrecognized tax benefits, nor was any interest expense
        recognized during the year. The Company’s effective tax rate differs from the
        federal statutory rate primarily due to non-deductible expenses, temporary
        differences, and preferential tax treatment.
  **Value
        added taxes**
  The
        Company calculates, collects from customers, and remits to governmental
        authorities value added taxes assessed by governmental authorities in connection
        with revenue-producing transactions with its customers. The Company reports
        these taxes on a net basis and does not include these tax amounts in revenue
        or
        cost of sales. The Company,
        as a consequence of being in the high-tech industry, sometimes receives special
        refunds of VAT remitted, this is included as a reduction of cost of sales.
  9
  **Revenue
        recognition**
  The
        Company enters into software development contracts that are fixed fee
        arrangements to render specific software consulting, development, modification,
        training, and implementation and maintenance services. The percentage of
        completion method is applied to these contracts that involve the provision
        of
        services relating to the development or implementation of complex software
        applications, because these services are essential to the functionality of
        other
        elements in the arrangement.
  Under
        this method, revenue is recognized using the percentage of completion basis
        and
        is calculated based on actual labor cost or labor hours incurred at specific
        milestones and compared to the estimated total labor cost or labor hours
        for the
        services under the arrangement, so long as persuasive evidence of an arrangement
        exists, certain milestones have been achieved or delivery has occurred, the
        fee
        is fixed or determinable, and collectability is reasonably assured. Management
        regularly reviews underlying estimates of total expected labor costs or hours.
        If the Company does not have a sufficient basis to measure progress towards
        completion, revenue is recognized when final acceptance is received by the
        Company from the customer. Amounts received in advance of revenue are reported
        as deferred revenue on the consolidated balance sheet. When it is probable
        that
        total contract costs will exceed total contract revenue, the resultant loss
        is
        recognized in full immediately, without reference to the percentage of
        completion. To date, the Company has not experienced material losses on
        contracts in process or completed contracts. Revisions to contract revenue,
        contract costs and profit estimates, which can be significant, are reflected
        in
        the accounting period in which the relevant facts become known.
  For
        the
        software development contracts, the Company sometimes provides its customers
        with a limited warranty of approximately one year following the
        customer ’s
        initial acceptance of the completed project. The last 5% of the contract
        price
        is considered the milestone for the warranty period on such contracts. For
        these
        contracts with warranty clauses, 5% of the contract amount is not recognized
        as
        revenue or invoiced until the warranty period expires.
  From
        time
        to time, the Company enters into general IT service arrangements with their
        customers, where the Company is obligated to perform professional services,
        such
        as unspecific upgrades and technical support. This revenue is recognized
        over
        the term of the contract on a straight-line basis. Some of these arrangements
        are entered into with customers who have engaged the Company to develop software
        systems. However, the general IT services are always arranged after the software
        development contracts are completed or may not be directly related to the
        system
        the Company developed for these customers under the software development
        contracts. There is no warranty provided for general IT service arrangements.
        Overall, the revenue from the general IT service agreements represented less
        than 5% of the Company’s revenue.
  **Foreign
        exchange**
  The
        Company's functional currency is the Chinese RMB and its reporting currency
        is
        the U.S. dollar. The financial statements of the Company’s foreign subsidiaries
        have been translated into U.S. dollars in accordance with SFAS No. 52, “Foreign
        Currency Translation”. All asset and liability accounts have been translated
        using the exchange rate in effect at the balance sheet date. Equity accounts
        have been translated at their historical exchange rates when the capital
        transaction occurred. Statements of operations amounts have been translated
        using the average exchange rate for the period. The resulting translation
        adjustments are reported under other comprehensive income in accordance with
        SFAS No. 130, “Reporting Comprehensive Income.” The following exchange rates
        were used:
 
 **June 30,**
                **2008**
              
              December 31,
                2007
              
              June 30,
                2007Period
                  end RMB U.S. Dollar exchange rate
              
              
              **6.8591**
              
              
              7.2946
              
              
              7.6120Average
                  second quarter RMB U.S. Dollar exchange rate
              
              
              **6.9572**
              
              
              7.6072
              
              
              7.6784
  The
        foreign currency translation adjustment of $109,511 (2007 - $33,613) has
        been
        reported as other comprehensive income in the consolidated
        statements of operations for the
        three months ended June 30, 2008. For the six months ended June 30, 2008,
        the
        foreign currency translation adjustment of $294,028 **** (2007
        - $
        54,861) has been reported as other comprehensive income in the consolidated
        statements of operations .
  10
  Although
        the Chinese government regulations now allow convertibility of RMB for current
        account transactions, significant restrictions still remain. Hence, such
        translations should not be construed as representations that RMB could be
        converted into U.S. dollars at that rate or any other rate.
  Substantially
        all of
        the
        Company’s revenue and expenses are denominated in RMB. The Company’s RMB cash
        inflows are sufficient to service its RMB expenditures. For financial reporting
        purposes, the Company uses U.S. dollars. The value of the RMB against U.S.
        dollars and other currencies may fluctuate and is affected by, among other
        things, changes in China’s political and economic conditions. Any significant
        revaluation of RMB may materially affect the Company’s financial condition in
        terms of U.S. dollar reporting.
  **Use
        of estimates**
  The
        preparation of financial statements in accordance with U.S. GAAP requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the financial statements and the reported amounts of revenues
        and
        expenses during the reporting period. Actual results could differ from those
        estimates.
  **Comprehensive
        income**
  Comprehensive
        income is the sum of net income and other comprehensive income reported in
        the
        consolidated statements of operations and comprehensive income. Other
        comprehensive income or loss includes accumulated foreign currency translation
        gains and losses. The Company has reported the components of comprehensive
        income on its consolidated statements of shareholders ’
        equity.
  **Income
        per share**
  I n
        accordance with SFAS No. 128 “Computation of Earnings per Share,” basic earnings
        per share is computed by dividing net income attributable to common shareholders
        by the weighted average number of common shares outstanding during the period.
        Diluted earnings per share is calculated by dividing net income by the weighted
        average number of common shares and dilutive shares outstanding during the
        period using the treasury stock method.
  **Accounting
        Principles Recently Adopted**
  **Fair
        value of financial instruments**
  Effective
        January 1, 2008, th e
        Company
        adopted SFAS No. 157 “Fair Value Measurements” for financial assets and
        liabilities. This standard defines fair value, provides guidance for measuring
        fair value and requires certain disclosures. This standard does not require
        any
        new fair value measurements, but rather applies to all other accounting
        pronouncements that require or permit fair value measurements. This standard
        does not apply measurements related to share-based payments, nor does it
        apply
        to measurements related to inventory.
  SFAS
        No.157 discusses valuation techniques, such as the market approach (comparable
        market prices), the income approach (present value of future income or cash
        flows), and the cost approach (cost to replace the service capacity of an
        asset
        or replacement cost). The statement utilizes a fair value hierarchy that
        prioritizes the inputs to valuation techniques used to measure fair value
        into
        three broad levels. The following is a brief description of those three
        levels:
  Level
                1:
              Observable
                  inputs such as quoted prices (unadjusted) in active markets for
                  identical
                  assets or liabilities.
  Level2:
              Inputs
                  other than quoted prices that are observable for the asset or liability,
                  either directly or indirectly. These include quoted prices for
                  similar
                  assets or liabilities in active markets and quoted prices for identical
                  or
                  similar assets or liabilities in markets that are not active.
  Level3:
              Observable
                  inputs that reflect the reporting entity’s own assumptions.
  The
        financial assets and liabilities of the Company subject to fair value
        measurements and the necessary disclosures are as follow:
  **Fair Value Measurements Using**
              
              **Assets/Liabilities****Level 1**
              
              **Level 2**
              
              **Level 3**
              
              **At Fair Value**Cash
                  equivalents
              
              $
              947,646
              
              
              
              
              
              
              
              $
              947,646
  11
  SFAS
        No.159, “ The
        Fair
        Value Option for Financial Assets and Financials Liabilities - Including
        an
        Amendment of FASB Statement No.115” issued by FASB in February 2007,
        permits measurement of certain financial assets and financial liabilities
        at
        fair value. If the fair value option is elected, the unrealized gains and
        losses
        are reported in earnings at each reporting date. Generally, the fair value
        option may be elected on an instrument-by-instrument basis, as long as it
        is
        applied to the instrument in its entirety. The fair value option election
        is
        irrevocable, unless a new election date occurs. SFAS No. 159 requires
        prospective application and certain additional presentation and disclosure
        requirements. The adoption on January 1, 2008 of this statement did not have
        a
        material impact on the Company’s consolidated financial statements.
  **Recent
        accounting pronouncements**
  In
        December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
        No. 141(R)”) which revised SFAS No. 141, “Business Combinations”. SFAS No.
        141(R) establishes principles and requirements for how an acquirer recognizes
        and measures in its financial statements the identifiable assets acquired,
        the
        liabilities assumed, any non-controlling interest in the acquirer and the
        goodwill acquired. SFAS No. 141(R) also establishes disclosure requirements
        which will enable users to evaluate the nature and financial effects of the
        business combination. This standard is effective for fiscal years beginning
        after December 15, 2008. As the provisions of SFAS No. 141(R) are applied
        prospectively, the impact of this standard cannot be determined until the
        transactions occur.
  In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements”. SFAS No. 160 establishes accounting and
        reporting standards for ownership interests in subsidiaries held by parties
        other than the parent, the amount of consolidated net income attributable
        to the
        parent and to the noncontrolling interest, changes in a parent’s ownership
        interest and the valuation of retained noncontrolling equity investments
        when a
        subsidiary is deconsolidated. SFAS No. 160 also establishes reporting
        requirements that provide sufficient disclosures that clearly identify and
        distinguish between the interests of the parent and the interests of the
        noncontrolling owners. This standard is effective for fiscal years beginning
        after December 15, 2008. The impact of this standard cannot be determined
        until
        the transactions occur.
  In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
        and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 amends and expands the
        disclosure requirements of FASB Statement 133, “Accounting for Derivative
        Instruments and Hedging Activities” (“SFAS No. 133”) to require qualitative
        disclosures about objectives and strategies for using derivatives, quantitative
        disclosures about fair value amounts of and gains and losses on derivative
        instruments, and disclosures about credit risk-related contingent features
        in
        derivative agreements. The Statement is effective for financial statements
        issued for fiscal years and interim periods beginning after November 15,
        2008.
        Early application is encouraged. The Company is currently evaluating the
        impact
        of the adoption of SFAS No. 161.
  In
        May
        2008, the FASB
        issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”
SFAS No. 162 identifies the sources of accounting principles and the framework
        for selecting the principles to be used in the preparation of financial
        statements of nongovernmental entities that are presented in conformity with
        GAAP. SFAS No. 162 is effective 60 days following the Securities and Exchange
        Commission’s approval of the Public Company Accounting Oversight Board
        amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with
        Generally Accepted Accounting Principles.” The Company is currently evaluating
        the potential impact of the adoption of SFAS No. 162.
  In
        May
        2008, the FASB issued FASB FSP APB 14-1, “Accounting for Convertible Debt
        Instruments That May Be Settled in Cash upon Conversion (Including Partial
        Cash
        Settlement)”. FSP APB 14-1 requires the issuer of certain convertible debt
        instruments that may be settled in cash (or other assets) on conversion to
        separately account for the liability (debt) and equity (conversion option)
        components of the instrument in a manner that reflects the issuer’s
        non-convertible debt borrowing rate. Such separate accounting also requires
        accretion of the resulting discount on the liability component of the debt
        to
        result in interest expense equal to an issuer’s nonconvertible debt borrowing
        rate. In addition, the FSP provides for certain changes related to the
        measurement and accounting related to derecognition, modification or exchange.
        FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008
        on
        a retroactive basis. The impact of this standard cannot be determined until
        the
        transactions occur.
  12




**3.**  **Property
      and Equipment**




June 30, 2008Cost
            
            Accumulated
              Amortization
            
            Net Book
              ValueComputer
                Equipment
            
            $
            899,353
            
            $
            263,081
            
            $
            636,272Vehicles
            
            
            170,935
            
            
            145,967
            
            
            24,968Office
                Furniture
            
            
            8,310
            
            
            8,310
            
            
            -Software
            
            
            3,740
            
            
            1,828
            
            
            1,912$
            1,082,338
            
            $
            419,186
            
            $
            663,152




December 31,
              2007Cost
            
            Accumulated
              Amortization
            
            Net Book
              ValueBuilding and
                Improvements
            
            $
            17,033
            
            $
            1,136
            
            $
            15,897Computer
                Equipment
            
            
            327,787
            
            
            163,174
            
            
            164,613Vehicles
            
            
            160,730
            
            
            121,984
            
            
            38,746Office
                Furniture
            
            
            7,814
            
            
            7,814
            
            
            -Computer
                software
            
            
            3,122
            
            
            1,187
            
            
            1,935$
            516,486
            
            $
            295,295
            
            $
            221,191




Total
      amortization expense for the three months ended June 30, 2008 was $61,108 (2007
      - $20,931) with $41,648 (2007 - $5,553) included in cost of sales, $19,370
      (2007
      - $15,378) in general and administrative expenses and $Nil (2007 - $Nil) offset
      by government grants. Total amortization expense for the six months ended June
      30, 2008 was $104,817 (2007 - $40,801) with $81,794 (2007 - $20,496) included
      in
      cost of sales, $23,023 (2007 - $17,113) in general and administrative expense
      and $Nil (2007 - $3,192) offset by government grants.




**4.**  **Software
      Development Cost**





**June 30,**
            
            December 31,**2008**
            
            2007Software
                development cost
            
            **$**
            **218,688**
            
            $
            205,632Less:
                accumulated amortization
            
            
            **109,344**
            
            
            68,544**$**
            **109,344**
            
            $
            137,088




Amortization
      expense for the three months ended June 30, 2008 was $17,965 (2007 - $190,795)
      and for the six months ended June 30, 2008 was $35, 428 (2007 - $206,907).
      The
      amortization expense was included in cost of sales.


In
        June
        2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
        in Share-Based Payment Transactions Are Participating Securities”. FSP EITF
        03-6-1 addresses whether instruments granted in share-based payment transactions
        are participating securities prior to vesting and, therefore, need to be
        included in the earnings allocation in computing income per share under the
        two-class method pursuant to SFAS No. 128, “Earnings per Share”. This guidance
        establishes that unvested share-based payment awards that contain nonforfeitable
        rights to dividends or dividend equivalents (whether paid or unpaid) are
        participating securities and shall be included in the computation of earnings
        per share pursuant to the two-class method. FSP EITF 03-6-1 is effective
        for
        financial statements issued for fiscal years beginning after December 15,
        2008.
        Furthermore, all prior period earnings per share data presented shall be
        adjusted retrospectively to conform to the provisions of FSP EITF 03-6-1.
        The
        impact of this standard cannot be determined until the transactions
        occur.




13




**5.**  **Deferred
      Government Grants**




Pursuant
      to several research projects approved by the PRC government, the Company
      received grants from the government to cover research costs associated with
      these research projects. The grants were amortized against the corresponding
      research and development expenses as and when they are incurred for the research
      projects for which these grants are received. The amortization of the grants
      recorded as a reduction of cost of sales and administrative expense for the
      three months ended June 30, 2008 was $59,977 (2007 **-** $18,060)
      and for the **** six
      months ended June 30, 2008 was $115,673 (2007 - $73,597).




**6.**  **Statutory
      Reserves**




In
      accordance with the laws and regulations of the PRC, all wholly-owned foreign
      invested enterprises have to set aside a portion of their net income each year
      as statutory reserves. The proportion of allocation for reserve funds is no
      less
      than 10 percent of the profit after tax until the accumulated amount of
      allocation for statutory surplus reserve funds reaches 50 percent of the
      registered capital. Statutory reserves represent restricted retained earnings.
      Statutory reserves are to be utilized to offset prior years’ losses, or to
      increase its share capital. When a limited liability company converts its
      statutory reserves to capital in accordance with a shareholders’ resolution, the
      Company will either distribute new shares in proportion to the number of shares
      held by each shareholder, or increase the par value of each share. Except for
      the reduction of losses incurred, any other usage should not result in this
      reserve balance falling below 25% of the registered capital. The fund
      accumulated by the Company as at December 31, 2007 was $223,855 (RMB 1,825,360).
      No additional reserves have been taken during the first two quarters of fiscal
      2008.




**7.**  **Income
      Taxes**




The
      Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized.




The
      Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109”, (“FIN
      48”), on January 1, 2007. The Company did not have any material unrecognized tax
      benefits and there was no effect on its financial condition or results of
      operations as a result of implementing FIN 48.




The
      Company files income tax returns with national and local governments in the
      PRC.
      The Company does not believe there will be any material changes in its
      unrecognized tax positions over the next 12 months.




In
      2007,
      the Company’s operating subsidiary Jinan was subject to the enterprise income
      tax at the reduced applicable rate of 7.5%, as it was classified as a “software
      enterprise” and “high-technology enterprise”.




On
      March
      16, 2007, The National People’s Congress of China passed The Law of the People’s
      Republic of China on Enterprise Income Tax” (“the Enterprise Income Tax Law”).
      The Enterprise Income Tax Law became effective on January 1, 2008. This new
      law
      eliminated the existing preferential tax treatment that is available to the
      foreign investment enterprises (“FIE”s) but provides grandfathering of the
      preferential tax treatment currently enjoyed by the FIE's. Under the new law,
      both domestic companies and FIEs are subject to a unified income tax rate of
      25%. The Company is currently applying for the re-approval for the special
      enterprise status in order to enjoy the preferential rate.




Before
      the Company can obtain its re-approval of the status, it is subject to the
      new
      unified income tax rate. The Company’s two-year tax holiday ended in December
      2007 and is currently eligible for the 50% exemption from tax for the years
      ending December 31, 2008 through December 31, 2010 under the grandfathering
      provisions in the Enterprise Income Tax Law.





14




The
      benefit of the tax holiday for the six months ended June 30, 2008 and 2007
      was
      $NIL as a result of a loss report for Chinese tax purposes and therefore, the
      benefit of the tax holiday on earnings per share for the six months ended March
      31, 2008 and 2007 was $Nil.




A
      reconciliation of consolidated corporate income taxes at statutory rate of
      12.5%
      (2007 - 7.5%) and the Company's effective income tax expense for three months
      ended June 30, 2008 and 2007 is as follows:




**2008**
            
            2007Income
                before provision for income taxes
            
            **$**
            **242,485**
            
            $
            418,433Income
                tax at statutory rate
            
            
            **30,311**
            
            
            31,282Temporary
                differences and other
            
            
            **(30,311**
            **)**
            
            (31,382
            )Provision
                for current income taxes
            
            
            **-**
            
            
            -Provision
                for future income tax
            
            
            **-**
            
            
            -




The
      significant components of future tax assets (liabilities) are as
      follows:




**June 30,**
            
            December 31,**2008**
            
            2007Timing
                difference on revenue recognition between percentage completion and
                completed contract method for income taxes
            
            **$**
            **(27,370**
            **)**
            $
            (84,106
            )Write
                off of accounts receivable
            
            
            **33,595**
            
            
            41,666Plant,
                equipment and capitalized software cost
            
            
            **(17,693**
            **)**
            
            (24,786
            )Other
                temporary differences
            
            
            **(5,462**
            **)**
            
            49,457Effect
                of tax exemption
            
            
            **16,930**
            
            
            17,769Net
                future income tax liabilities
            
            **$**
            **-**
            
            $
            -




**8.**  **Commitments
      and Contingencies**




On
      March
      31, 2008, the Company was committed to annual operating lease payments for
      rental office and employee residence of **$** 24,824.
      These leases are renewed on an annual basis.




**9.**  **Financial
      Instruments**




**Concentrations
      of credit risk**




Accounts
      receivable potentially subject the Company to concentrations of credit risk.
      Management is of the opinion that any risk of accounting loss is significantly
      reduced due to the financial strength of the Company’s major customers. The
      Company performs ongoing credit evaluations of its customers’ financial
      condition and evaluates management performance based on proceeds collected
      from
      projects. Consequently, exposure to credit risk is limited
      accordingly.




**Currency
      risk**




The
      Company is exposed to currency risk as the Company's business is carried out
      in
      RMB and the Company maintains RMB denominated bank accounts but uses U.S.
      dollars as its reporting currency. Unfavorable changes in the exchange rate
      between RMB and U.S. dollars may result in a material effect on accumulated
      other comprehensive income recorded as a charge in shareholders' equity. The
      Company does not use derivative instruments to reduce its exposure to foreign
      currency risk.





15




In
      addition, the RMB is not a freely convertible currency. The Company’s
      subsidiaries are allowed to pay outstanding current account obligations in
      foreign currency but must present the proper documentation to a designated
      foreign exchange bank. There is no certainty that all future local currency
      can
      be repatriated.




**10.**  **Economic
      Dependence**




For
      three
      months ended June 30, 2008, two customers individually comprised 12% and 16%
      of
      revenue, compared with 21% and 42% respectively in 2007. The subsidiaries of
      the
      Company’s three major customers accounted for 48% of revenue (2007 -
      46%).




For
      six
      months ended June 30, 2008, two customers individually comprised 12% and 27%
      of
      revenue, compared with 13% and 39% respectively in 2007. The subsidiaries of
      the
      Company’s three major customers accounted for 40% of revenue (2007 -
      33%).




There
      were three customers that individually comprise 11%, 14% and 22% of account
      receivable on June 30, 2008. Three customers individually made up 20%, 16%
      and
      16% of account receivable at December 31, 2007.




**11.**  **Segmented
      Information**




The
      Company has one operating segment, being the development and implementation
      of
      accounting and ERP applications. All of Company's assets and operations are
      located in the PRC and Hong Kong.





**12.**  **Subsequent
      events**





1.
            On
                July 21, 2008, The Company’s Board of Directors approved a
                169.529280-for-1 stock split of the Company’s common stock, whereby each
                share held by holders of record as of July 21, 2008 was subdivided
                into
                169.529280 shares. The effects of this common stock split have been
                retroactively applied to the accompanying consolidated financial
                statement
                and notes thereto.





2.
            The
                Company completed an initial public offering on September 8, 2008
                (the
                “Offering”). The Company issued 1.2 million common shares with price of $7
                per share through the offering In connection with the Offering, the
                Company sells to Anderson & Strudwick, Incorporated (the “placement
                agent”) warrants to purchase 120,000 common shares (the ”placement agent
                warrants”), such amount representing 10% of the aggregate number of common
                shares sold by the Company pursuant to the Offering. The price to
                be paid
                by the placement agent for the placement agent warrants is $0.001
                per
                warrant. The exercise price of the placement agent warrants is $8.40
                per
                common share, representing 120% of the price of the common shares
                offered
                hereby. The warrants have a life of four years.




3.
            The
                Company has authorized the establishment of a pool for stock options
                effective on August 12, 2008 for its directors and employees (the
“Pool”).
                The Pool contains 604,248 options to purchase the common shares.
                It
                provides additional compensation incentives for high levels of performance
                and productivity by management, other key employees of the Company
                and
                directors. The options will vest at a rate of 20% per year for five
                years
                and have a per share exercise price equal to the fair market value
                of one
                of common shares on the date of grant. For those granted on the date
                of
                the closing of the Offering, the exercise price will be $7.00 per
                share.
                The options have a life of five years. Effective on September 8,
                2008, the
                Company granted 321,000 options to its directors, management and
                key
                employees at exercise price of $7.00, vesting at a rate of 20% per
                year
                for five years.





16





Item
      2.  Management’s
      Discussion and Analysis or Plan of Operation




*The
      following discussion and analysis of the Company’s financial condition and
      results of operations should be read in conjunction with the Company’s unaudited
      interim consolidated financial statements and the related notes included
      elsewhere in this report. This discussion contains forward-looking statements
      that involve risks and uncertainties. Actual results and the timing of selected
      events could differ materially from those anticipated in these forward-looking
      statements as a result of various factors.*




**Overview**




We
      are a
      leading developer of enterprise resource planning (“ERP”) software and
      professional services for participants in China’s oil and gas industry. We have
      developed specific ERP software systems for PetroChina Company Limited and
      China
      National Petroleum Corporation, its state-owned parent company (together,
“PetroChina”) and China Petrochemical Corporation/China Petroleum and Chemical
      Corporation and Sinopec Group, its state-owned parent company (together,
“Sinopec”). We are developing an ERP software development platform and tend to
      serve for small-to-medium sized businesses (“SMEs”) in China. In this platform,
      we combine solutions developed for our most sophisticated clients with network
      applications and developed “PanSchema”, through an Internet-based,
      software-as-a-service model designed to customize cost-effective software
      solutions for Chinese SMEs, though yet to be our significant revenue
      source.




The
      accompanying unaudited consolidated interim financial statements reflect all
      normal recurring adjustments which, in the opinion of management, are necessary
      for a fair statement of the results for the interim periods presented. Results
      for the three and six months ended June 30, 2008 are not necessarily indicative
      of the results expected for the full fiscal year or for any future period.
      These
      financial statements have been prepared in accordance with generally accepted
      accounting principles in the United States for interim financial information
      and
      with the instructions to Form 10-Q and Article 10 of Regulation S-X.
      Accordingly, they do not include all of the information and footnotes required
      by generally accepted accounting principles for complete financial statements.
      These financial statements should be read in conjunction with the consolidated
      financial statements and related notes for the year ended December 31,
      2007.




**Overview
      of Business Operations in the Second Quarter and First Six Months of 2008**




We
      generate revenue through software systems development, integration and the
      provision of related support services. Our revenue during the fiscal quarter
      and
      half year ended June 30, 2008, reflects the seasonal nature of our business.
      Our
      revenue has been subject to high seasonality and the revenue recognized in
      the
      first six months of the year is usually smaller in proportion to that for the
      whole year, the same is true this year due to our clients’ budgeting and
      planning schedule. Nevertheless, we continued to experience steady demand for
      our services and also continued to generate revenue through the provision of
      our
      services to our petro industrial client base during the three and six month
      periods ended June 30, 2008.




**Operating
      Results**




The
      consolidated financial statements presented herein set forth key components
      of
      our results of operations for the periods indicated, both in dollars and as
      a
      percentage of sales revenue and key components of our revenue for the periods
      indicated in dollars. The financial data for the three months and six months
      ended June 30, 2008 reflect the operating results of the Company, in comparison
      with the financial data for the same period in 2007.





17




***Summary
      of Gross Margin***




For
                the three months ended June 30
            
            For
                the six months ended June 302008
            
            2007
            
            Change
            
            %
            
            2008
            
            2007
            
            Change
            
            %(Unaudited)
            
            (Unaudited)
            
            US$
            
            
            
            (Unaudited)
            
            (Unaudited)
            
            US$Sales
            
            $
            819,258
            
            $
            942,372
            
            $
            (129,114
            )
            
            (14
            )%
            $
            1,377,264
            
            $
            1,584,710
            
            $
            (207,446
            )
            
            (13
            )%Cost
                of Sales
            
            $
            536,659
            
            $
            545,678
            
            $
            (9,019
            )
            
            (2
            )%
            $
            1,030,417
            
            $
            1,076,670
            
            $
            (46,253
            )
            
            (4
            )%Gross
                Margin
            
            $
            282,599
            
            $
            402,694
            
            $
            (120,095
            )
            
            (30
            )%
            $
            346,847
            
            $
            508,040
            
            $
            (161,193
            )
            
            (32
            )%GM
                Ratio
            
            
            34
            %
            
            42
            %
            
            
            
            
            
            
            
            25
            %
            
            32
            %




During
      the second quarter of 2008, revenue from large-scale software systems
      integration projects comprised a higher proportion of total revenue. The total
      value of our revenue was $819,258, which was a 14% drop from
      $948,372 **** in
      the
      second quarter of 2007. During the first six months of 2008, revenue in total
      valued $1,377,264, a 13% drop from $1,584,710 in the first six months of 2007.
      Due to the high seasonality of our business, it is not unusual to see slower
      growth of our revenue in the first two quarters, however, our revenue picked
      up
      in the second quarter of 2008.




*Cost
      of sales*




Our
      cost
      of sales decreased $9,019, or 2%, to $536,659, for the three months ended June
      30, 2008, from $545,678 for the same period in 2007. Our cost of sales for
      the
      six months ended June 30, 2008 was $1,030,417, a 4% drop from $1,076,670 for
      the
      same period in 2007, indicating that our cost was under control before
      substantial business expansion, and that total employee salary is the major
      part
      of our operating cost.




*Gross
      Profit*




For
      the
      three months ended June 30, 2008, our gross margin ratio decreased by 30% to
      $282,599 from $402,694 for the same period in 2007. For the three months ended
      June 30, 2008, our gross margin ratio decreased to 34%, from 42% for the same
      period in 2007. This 30% decrease in gross margin was mainly due to slower
      revenue growth in the second quarter of 2008. For the six months ended June
      30,
      2008, our gross profit decreased by 32% to $346,847 from $508,040 for the same
      period in 2007. For the six months ended June 30, 2008, our gross margin ratio
      decreased to 25%, from 32% for the same period in 2007. This 32% decrease in
      gross margin was mainly due to slower revenue growth in the first two quarters
      of 2008.




***Summary
      of Expenses***


For
                  Three Months Ended June 30
              
              For
                  Six Months Ended June 302008
              
              2007
              
              Change
              
              %
              
              2008
              
              2007
              
              Change
              
              %(Unaudited)
              
              (Unaudited)
              
              US
                  $
              
              
              
              (Unaudited)
              
              (Unaudited)
              
              US
                  $G/A
                  expense
              
              $
              66,893
              
              $
              52,792
              
              $
              14,101
              
              
              27
              %
              $
              80,262
              
              $
              73,953
              
              $
              6,309
              
              
              9
              %Selling
                  expenses
              
              $
              3,467
              
              $
              4,931
              
              $
              (1,464
              )
              
              (30
              )%
              $
              6,532
              
              $
              12,514
              
              $
              (5,982
              )
              
              (48
              )%Professional
                  fees
              
              $
              28,565
              
              
              -
              
              $
              28,565
              
              
              100
              %
              $
              61,537
              
              
              -
              
              $
              61,537
              
              
              100
              %Total
              
              $
              98,925
              
              $
              57,723
              
              $
              41,202
              
              
              71
              %
              $
              148,331
              
              $
              86,467
              
              $
              61,864
              
              
              72
              %




18





*Administrative
      Expenses*




Administrative
      expenses consist primarily of compensation and benefits to our general
      management, finance and administrative staff, professional advisor fees, audit
      fees and other expenses incurred in connection with general operations. For
      the
      three months ended June 30, 2008, our administrative expenses increased to
      $66,893, from $52,792 for the three months ended June 30, 2007, or a 27%
      increase. The increase in administrative expenses was mainly attributable to
      an
      increase in salary expense from new hires and a higher amortization expense
      as
      new computer equipment was purchased during the first quarter of 2008. In
      addition, to support the China
      Earthquake relief
      efforts, the Company donated RMB100,000 for Sichuan earthquake during the second
      quarter of 2008.




For
      the
      six months ended June 30, 2008, our administrative expenses increased to
      $80,262, from $73,953 for the six months ended June 30, 2007, or a 9% increase
      for the same reason stated above. In addition, As a percentage of revenue,
      administrative expenses increased to 5.8% for the six months ended June 30,
      2008, from 4.7% for the same period in 2007, which shows the tendency that
      the
      share of administrative expense is getting smaller when our revenue is picking
      up.




*Selling
      Expenses and Professional Fees*




Our
      selling expense decreased slightly for both the three months ended June 30,
      2008
      and for the six months ended June 30, 2008. As a percentage of revenue, our
      selling expense for the three and six months ended June 30, 2008 and 2007
      remained stable mainly due to management’s implementation of more stringent cost
      controls. Selling expense has been insignificant due to lack of participation
      in
      industrial conventions as well as limited advertising since we have been
      focusing on large corporate clients on which general advertising efforts would
      not be effective.




Our
      professional fees incurred in 2008 was a new expense item compared to 2007
      due
      to more professional accounting service charges.




***Summary
      of Other Income and Expenses***





For
                Three Months Ended June 30
            
            For
                Six Months Ended June 302008
            
            2007
            
            Change
            
            %
            
            2008
            
            2007
            
            Change
            
            %(Unaudited)
            
            (Unaudited)
            
            US
                $
            
            
            
            (Unaudited)
            
            (Unaudited)
            
            US
                $Income
                from operations
            
            $
            183,674
            
            $
            344,971
            
            $
            (161,297
            )
            
            (47
            )%
            $
            198,516
            
            $
            421,573
            
            $
            (223,057
            )
            
            (53
            )%Other
                Income (expense)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            (100
            )%
            $
            537
            
            $
            64
            
            $
            473
            
            
            739
            %Finance
                cost
            
            $
            (205
            )
            $
            (125
            )
            $
            (80
            )
            
            64
            %
            $
            (419
            )
            $
            (191
            )
            $
            (228
            )
            
            119
            %Interest
                income
            
            $
            28,352
            
            $
            1,989
            
            $
            26,363
            
            
            (1325
            )%
            $
            42,477
            
            $
            5,110
            
            $
            37,367
            
            
            731
            %Gain
                    on disposition of property and equipment
            
            
            -
            
            $
            1,214
            
            $
            (1,214
            )
            
            (100
            )%
            $
            1,374
            
            $
            1,420
            
            $
            (46
            )
            
            (3
            )%Loss
                on equity investment
            
            
            -
            
            $
            (8,560
            )
            $
            8,560
            
            
            (100
            )%
            
            -
            
            $
            (9,543
            )
            
            9,543
            
            
            (100
            )%Net
                income for the period
            
            $
            211,821
            
            $
            339,489
            
            $
            (127,668
            )
            
            (38
            )%
            $
            242,485
            
            $
            418,433
            
            $
            (175,948
            )
            
            (42
            )%Other
                Comprehensive income
            
            $
            109,511
            
            $
            33,611
            
            $
            75,900
            
            
            (226
            )%
            $
            294,028
            
            $
            54,859
            
            $
            239,170
            
            
            436
            %Comprehensive
                income
            
            $
            321,332
            
            $
            373,100
            
            $
            (51,768
            )
            
            (14
            )%
            $
            536,513
            
            $
            473,292
            
            $
            63,221
            
            
            13
            %




*Income
      from Operations*




Income
      from operations was $183,674 **,** for the
      three months ended June 30, 2008, a 47% drop from $ 344,971 for the
      same period in 2007. Income from operations was $198,516 for the
      six months ended June 30, 2008, a 53% drop from $421,573 for
      the
      same period in 2007 because of lower revenue in the first six months of 2008
      and
      higher salary paid to developers.





19




*Income
      Tax Expense*




Pansoft
      Jinan is a Foreign Investment Enterprise or FIE engaged in the advanced
      technology industry which entitles it to a two-year exemption from income tax
      followed by a 50% tax exemption for the next three years. Income tax expense
      for
      the three and six month periods ended June 30, 2008 was Nil due to a loss
      reported for PRC tax purposes. For the same period in 2007, income tax expense
      was Nil because we were granted the FIE tax exemption by PRC tax
      authorities.




*Interest
      Income*




Interest
      income was $28,352 **,** for the
      three months ended June 30, 2008 and **$** 42,477 **,** for
      the
      six months ended June 30, 2008. This is a significant increase from the second
      quarter of 2007 and increased 731% from **$** 5,110
      for the six
      months ended June 30, 2007. The increase in interest income was mainly due
      to
      improved cash fund management and investment committed to selected bank
      certificate programs with relatively higher returns with zero or little risk
      of
      principal.




*Net
      Income*




As
      a
      result of the factors described above, net income was $211,821 for
      the
      three months ended June 30, 2008, a decrease of $127,668 from
      $ 339,489 for the
      same period in 2007, or a decrease of 38 %,
      compared to 61% in the first quarter of 2008. For the six months ended June
      30,
      2008, net income was $242,485 decreased
      by $175,948 or 42%
      from $418,433 for the
      same period in 2007.




**Liquidity
      and Capital Resources**




***Cash
      Flows and Working Capital***




As
      of
      June 30, 2008, we had cash and cash equivalents of $2,934,308 ****




We
      believe that our currently available working capital should be adequate to
      sustain our operations at our current levels through at least the next twelve
      months.




*Comparison
      of six months ended June 30, 2008 and 2007*





Net
      cash
      used in operating activities totaled -$110,832 for the six months ended June
      30,
      2008, a decrease of $569,273 compared to cash provided by operations of $458,441
      for the six months ended June 30, 2007. This decrease resulted primarily from
      the following changes in operating assets and liabilities:





·
            $86,124
                increase in accounts receivables


·
            $77,079
                increase in prepayments, deposits and other
                receivables


·
            $49,132
                increase in work in progress


·
            $248,996
                decrease in accounts payable and accrued liabilities


·
            $4,174
                increase in deferred revenue





The
      increase in accounts receivable was due to the fact that project payments from
      our major customers slowed down during the first half year of 2008. The increase
      in prepayments, deposits and other receivables resulted from increases in travel
      advances as a result of more business trips for business development and project
      execution during the first six months of 2008. The increase in work in progress
      resulted from substantial software development work on a project for a major
      customer for which the contract had not yet been signed. The decrease in
      accounts payable and accrued liabilities is the result of a reduction in
      employer bonuses because revenue targets were not achieved. In addition, the
      fiscal 2007 employee bonus accrual and management bonus accrual was paid out
      during the first half of fiscal 2008. The increase in deferred revenue was
      the
      result of payments from customers for which revenue was not earned or
      recognized.





20





Net
      cash
      used for investing activities was $513,630 for the six months ended June 30,
      2008, compared to net cash used for investing activities of $187,862 for the
      six
      months ended June 30, 2007. The cash used for investing activities for the
      six
      months ended June 30, 2008 consisted of computer equipment related to software
      development. The cash used for investing activities during the three months
      ended June 30, 2007 consisted of the purchase of software, development costs
      and
      computer equipment.





Cash
      flows from financing activities amounted to Nil for the six months ended June
      30, 2008, compared with net cash used for financing activities of $257,433
      for
      the six months ended June 30, 2007. The cash used for financing activities
      during the six months ended June 30, 2007 was for the payment of
      dividends.




The
      Company’s working capital decreased from $4,196,122 as of December 31, 2007 to
      $4,276,602 as of June 30, 2008.




Total
      current assets at June 30, 2008 amounted to $4,483,843, a decrease of
      approximately $179,304 compared to $4,663,147 at December 31, 2007. The decrease
      was due to the fact that projects for major customers were seasonally slow
      during the first quarter of 2008 and the Company invested in property and
      equipment.





Current
      liabilities amounted to $207,241 on June 30, 2008, in comparison to $467,025
      at
      December 31, 2007. This decrease has been attributed to a decrease of $230,524
      in accounts payable and accrued liabilities. Accounts payable and accrued
      liabilities mainly consisted of payables for management bonus, salary accruals
      and audit fees. The Company paid out most of fiscal 2007 outstanding account
      payable balance and employee bonus accrual during the first six months of 2008.




The
      current ratio increased from 10.0 at December 31, 2007 to 21.6 at June 30,
      2008.
      The change in the Company’s current ratio was primarily due to the decrease of
      current liabilities. This change in current ratio indicates strong operating
      liquidity for the Company.





**Seasonality
      of our Sales**




Our
      operating results and operating cash flows historically have been subject to
      seasonal variations. We expect this pattern to remain and may even be more
      drastic, as a result of new market opportunities or new client
      development.




**Inflation**




Inflation
      does not materially affect our business or the results of our operations.




**Off-Balance
      Sheet Arrangements**




We
      do not
      have any off-balance arrangements





21




Item
      3.   Quantitative
      and Qualitative Disclosures About Market Risk




**Concentrations
      of credit risk**




Accounts
      receivable potentially subject the Company to concentrations of credit risk.
      Management is of the opinion that any risk of accounting loss is significantly
      reduced due to the financial strength of the Company’s major customers. The
      Company performs ongoing credit evaluations of its customers’ financial
      condition and evaluates management performance based on proceeds collected
      from
      projects. Consequently, exposure to credit risk is limited
      accordingly.




**Currency
      risk**




The
      Company is exposed to currency risk as the Company's business is carried out
      in
      RMB and the Company maintains RMB denominated bank accounts but uses U.S.
      dollars as its reporting currency. Unfavorable changes in the exchange rate
      between RMB and U.S. dollars may result in a material effect on accumulated
      other comprehensive income recorded as a charge in shareholders' equity. The
      Company does not use derivative instruments to reduce its exposure to foreign
      currency risk.




In
      addition, the RMB is not a freely convertible currency. The Company’s
      subsidiaries are allowed to pay outstanding current account obligations in
      foreign currency but must present the proper documentation to a designated
      foreign exchange bank. There is no certainty that all future local currency
      can
      be repatriated.




Item
      4/4T.  Controls
      and Procedures





**Disclosure
      Controls and Procedures**





As
      of
      June 30, 2008, the Company carried out an evaluation, under the supervision
      and
      with the participation of management, including the Company’s principal
      executive officer and principal financial officer, of the effectiveness of
      the
      design and operation of the Company’s disclosure controls and procedures. Based
      on the foregoing, the principal executive officer and the principal financial
      officer concluded that the Company’s disclosure controls and procedures (as
      defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
      of
      1934) were effective.





**Changes
      in internal control over financial reporting**





There
      were no changes in the Company’s internal control over financial reporting (as
      defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the
      quarter ended June 30, 2008 that have materially affected, or are reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.





**PART
      II.**  **OTHER
      INFORMATION**





Item
      1.  Legal
      Proceedings




None.





Item
      2.  Unregistered
      Sales of Equity Securities and Use of Proceeds




None.





Item
      3.  Defaults
      Upon Senior Securities




None.





Item
      4.  Submission
      of Matters to a Vote of Security Holders




None.





22




Item
      5.  Other
      Information




None.





Item
      6.  Exhibits




The
      following exhibits are filed herewith:





Number
            
            Exhibit3.1
            
            Memorandum
                of Association of Pansoft Company Limited*3.2
            
            Articles
                of Association of Pansoft Company Limited*4.1
            
            Specimen
                Certificate for Common Shares*10.1
            
            Form
                of Technology Development (Commission) Contract for Pansoft (Jinan)
                Co.,
                Ltd.*10.2
            
            Form
                of Product Purchase and Sales Contract for Pansoft (Jinan) Co.,
                Ltd.*10.3
            
            Form
                of Labor Contract for Pansoft (Jinan) Co., Ltd.*10.4
            
            Form
                of Confidentiality Agreement for Pansoft (Jinan) Co.,
                Ltd.*10.5
            
            Form
                of Co-operation for Pansoft (Jinan) Co. Ltd.*10.6
            
            Translation
                of Trust Agreement for Hugh Wang’s beneficial ownership of Timesway shares
                on behalf of PJCL employees*10.7
            
            Translation
                of Acquisition Agreement with PJCL*10.8
            
            Translation
                of Trust Agreement between Hugh Wang and Conrad Tsang*10.9
            
            Translation
                of Technology Development (Commission) Contract with Xinjiang Sales
                Branch
                of China National Petroleum Corporation, Ltd.*10.10
            
            Translation
                of PetroChina International Co. LTD (CHINAOIL) SAP System Optimization
                Project Contract*10.11
            
            Translation
                of Technology Service Contract between Shengli Oil Field Administration
                and Pansoft (Jinan) Company, Ltd. (Contract for the Maintenance of
                Financial Information System)*10.12
            
            Translation
                of Technology Service Contract between Shengli Oil Field Branch of
                Sinopec
                and Pansoft (Jinan) Company, Ltd.*10.13
            
            Translation
                of China National Petroleum Budget Management Information Project
                between
                Financial Management Company of China National Petroleum Corporation
                and
                Pansoft (Jinan) Company, Ltd.*10.14
            
            Translation
                of Technology Service Contract between Shengli Oil Field Administration
                and Pansoft (Jinan) Company Ltd.*31.1
            
            Certifications
                pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                Act
                of 1934, as amended, as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.**31.2
            
            Certifications
                pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                Act
                of 1934, as amended, as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.**32.1
            
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.**32.2
            
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.**


*
              Incorporated
                  by reference to the Company’s Registration Statement on Form S-1,
                  Registration
                  No. 333-150922.


**
            Filed
                herewith.





23





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.




**PANSOFT
                COMPANY LIMITED**September
                25, 2008
            By:
            /s/
                Allen ZhangAllen
                ZhangVice
                President of Finance(Principal
                Financial and Accounting Officer)




24