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
      1934For
      the quarterly period ended March 31,
      2009





 ̈
            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 registrant as specified in its charter)





British
      Virgin Islands
              (State
      or other jurisdiction of
              incorporation
      or organization)
            Not
      Applicable
              (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  þ No  o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 (1)
Yes o    No 
o


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
      filer                                
      oNon-accelerated
      filer                                           
      o
            Smaller
      reporting company þ


(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




As
of May 14, 2009, the Company has 5,438,232 common shares, par value $0.0059 per
share, outstanding.







PANSOFT
COMPANY LIMITED


FORM 10-Q





INDEX







SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS
                3PART
      I.
                FINANCIAL
      INFORMATION
                4Item
      1.
                Financial
      Statements
                4Item
      2.
                Management’s
      Discussion and Analysis of
      Financial Condition and Results of Operations
                19Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                23Item
      4T.
                Controls
      and Procedures
                23PART
      II.
                OTHER
      INFORMATION
                24Item
      1.
                Legal
      Proceedings
                24Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                24Item
      3.
                Defaults
      Upon Senior Securities
                24Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                24Item
      5.
                Other
      Information
                24Item
      6.
                Exhibits
                24







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 earnings
and/or revenue 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 Pansoft Company Limited (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 People's 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;·
            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


Condensed
Consolidated Balance Sheets


AS OF
MARCH 31, 2009 AND DECEMBER 31, 2008





March
      31,2009
                                                                
                                                                
                                                                December31,
      2008(unaudited)
                                                                
                                                                
                                                                (audited)AssetsCurrent assetsCash and cash equivalents
                                                                
                                                                $
                                                                10,794,237
                                                                
                                                                
                                                                $
                                                                12,185,950Accounts receivable, net of allowance for doubtful accounts $160,154
      (2008: $152,070)
                                                                
                                                                
                                                                1,531,191
                                                                
                                                                
                                                                
                                                                1,136,159Unbilled revenues
                                                                
                                                                
                                                                2,742,505
                                                                
                                                                
                                                                
                                                                2,221,142Prepayments, deposits and other receivables
                                                                
                                                                
                                                                186,918
                                                                
                                                                
                                                                
                                                                107,785Inventory
                                                                
                                                                
                                                                156,004
                                                                
                                                                
                                                                
                                                                68,348Total
      current assets
                                                                
                                                                
                                                                15,410,855
                                                                
                                                                
                                                                
                                                                15,719,384Property and equipment, net
                                                                
                                                                
                                                                709,457
                                                                
                                                                
                                                                
                                                                650,708Deferred software development cost
                                                                
                                                                
                                                                54,857
                                                                
                                                                
                                                                
                                                                73,287Total
      assets
                                                                
                                                                $
                                                                16,175,169
                                                                
                                                                
                                                                $
                                                                16,443,379LiabilitiesCurrent
      liabilitiesAccounts payable and accrued liabilities
                                                                
                                                                $
                                                                411,677
                                                                
                                                                
                                                                $
                                                                905,748Deferred revenue
                                                                
                                                                
                                                                94,428
                                                                
                                                                
                                                                
                                                                181,192Income tax payable
                                                                
                                                                
                                                                5,200
                                                                
                                                                
                                                                
                                                                192,470Deferred income taxes
                                                                
                                                                
                                                                236,929
                                                                
                                                                
                                                                
                                                                172,505Total
      current liabilities
                                                                
                                                                
                                                                748,234
                                                                
                                                                
                                                                
                                                                1,451,915Long
      term liabilitiesDeferred income taxes
                                                                
                                                                
                                                                18,015
                                                                
                                                                
                                                                
                                                                18,531Total liabilities
                                                                
                                                                
                                                                766,249
                                                                
                                                                
                                                                
                                                                1,470,446Stockholders'
      equityCommon stock
      (30,000,000 common shares authorized; par
      value of $0.0059 per share; 5,438,232 shares issued and outstanding
      as of March 31, 2009)Share capital
                                                                
                                                                
                                                                32,080
                                                                
                                                                
                                                                
                                                                32,080Additional
      paid-in
      capital
                                                                
                                                                
                                                                8,393,975
                                                                
                                                                
                                                                
                                                                8,222,054Retained
      earnings
                                                                
                                                                
                                                                6,004,240
                                                                
                                                                
                                                                
                                                                5,711,114Statutory
      reserves
                                                                
                                                                
                                                                363,063
                                                                
                                                                
                                                                
                                                                363,063Accumulated
      other comprehensive income
                                                                
                                                                
                                                                615,562
                                                                
                                                                
                                                                
                                                                644,622Total
      stockholders' equity
                                                                
                                                                
                                                                15,408,920
                                                                
                                                                
                                                                
                                                                14,972,933Total
      liabilities and stockholders' equity
                                                                
                                                                $
                                                                16,175,169
                                                                
                                                                
                                                                $
                                                                16,443,379





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







4








Pansoft
Company Limited


Condensed
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)


FOR THE
THREE MONTHS ENDED MARCH 31, 2009 AND 2008




For
      the three months ended
                                                          March
      31,2009
                                                        
                                                        
                                                        2008(unaudited)
                                                        
                                                        
                                                        (unaudited)Sales
                                                        
                                                        $
                                                        1,422,086
                                                        
                                                        
                                                        $
                                                        558,006Cost
      of sales
                                                        
                                                        
                                                        768,042
                                                        
                                                        
                                                        
                                                        493,758Gross
      profit
                                                        
                                                        
                                                        654,044
                                                        
                                                        
                                                        
                                                        64,248ExpensesGeneral
      and administrative expenses
                                                        
                                                        
                                                        160,037
                                                        
                                                        
                                                        
                                                        13,369Selling expenses
                                                        
                                                        
                                                        62,097
                                                        
                                                        
                                                        
                                                        3,065Professional
      fees
                                                        
                                                        
                                                        83,561
                                                        
                                                        
                                                        
                                                        32,972Stock
      based compensation
                                                        
                                                        
                                                        171,921
                                                        
                                                        
                                                        
                                                        -Gain on disposition of property and equipment
                                                        
                                                        
                                                        (732)
                                                        
                                                        
                                                        
                                                        (1,374)476,884
                                                        
                                                        
                                                        
                                                        48,032Income
      from operations
                                                        
                                                        
                                                        177,160
                                                        
                                                        
                                                        
                                                        16,216Other
      income
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        537Government
      grant
                                                        
                                                        
                                                        146,325
                                                        
                                                        
                                                        
                                                        -Finance
      cost
                                                        
                                                        
                                                        (389)
                                                        
                                                        
                                                        
                                                        (214)Interest
      income
                                                        
                                                        
                                                        39,526
                                                        
                                                        
                                                        
                                                        14,125Income
      before provision for income taxes
                                                        
                                                        
                                                        362,622
                                                        
                                                        
                                                        
                                                        30,664Income
      taxes
                                                        
                                                        
                                                        69,496
                                                        
                                                        
                                                        
                                                        -Net
      income
                                                        
                                                        
                                                        293,126
                                                        
                                                        
                                                        
                                                        30,664Other
      comprehensive (loss)  income
                                                        
                                                        
                                                        (29,060)
                                                        
                                                        
                                                        
                                                        184,518Comprehensive
      income
                                                        
                                                        $
                                                        264,066
                                                        
                                                        
                                                        $
                                                        215,182Basic
      and diluted net income per share
                                                        
                                                        $
                                                        0.06
                                                        
                                                        
                                                        $
                                                        0.01Basic
      and diluted weighted average number of shares outstanding
                                                        
                                                        
                                                        4,910,363
                                                        
                                                        
                                                        
                                                        4,238,232





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






5








Pansoft
Company Limited


Condensed
Consolidated Statements of Shareholders' Equity


FOR THE
THREE MONTHS ENDED MARCH 31, 2009




Common
      Shares
                    
                    
                    Additional
                    
                    
                    Retained
                    
                    
                    Statutory
                    
                    
                    Accumulated OtherNumber
                    
                    
                    Amount
                    
                    
                    Paid
      In Capital
                    
                    
                    Earnings
                    
                    
                    Reserves
                    
                    
                    Comprehensive
      Income
                    
                    
                    TotalBalance
      at December 31, 2008
                    
                    
                    5,438,232
                    
                    
                    
                    32,080
                    
                    
                    
                    8,222,054
                    
                    
                    
                    5,711,114
                    
                    
                    
                    363,063
                    
                    
                    
                    644,622
                    
                    
                    
                    14,972,933Foreign
      currency translation adjustment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (29,060)
                    
                    
                    
                    (29,060)Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    293,126
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    293,126Stock
      option expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    171,921
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    171,921Balance
      atMarch
      31, 2009
                    
                    
                    5,438,232
                    
                    
                    $
                    32,080
                    
                    
                    $
                    8,393,975
                    
                    
                    $
                    6,004,240
                    
                    
                    $
                    363,063
                    
                    
                    $
                    615,562
                    
                    
                    $
                    15,408,920




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






6








Pansoft
Company Limited


Condensed
Consolidated Statements of Cash Flows


FOR THE
THREE MONTHS ENDED MARCH 31, 2009 AND 2008





For
      the three months ended March 31,2009
                                      
                                      
                                      2008Cash
      flows from operating activities
                                      
                                      (unaudited)
                                      
                                      
                                      (unaudited)Net
      income
                                      
                                      $
                                      293,126
                                      
                                      
                                      $
                                      30,664Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Deferred
      income taxes
                                      
                                      
                                      64,299
                                      
                                      
                                      
                                      -Amortization
      of government grants
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (55,696
                                      )Amortization
                                      
                                      
                                      68,316
                                      
                                      
                                      
                                      61,260Stock-based
      compensation
                                      
                                      
                                      171,921Gain
      on disposition of property and equipment
                                      
                                      
                                      (732
                                      )
                                      
                                      
                                      (1,374
                                      )Changes
      in operating assets and liabilities:Accounts
      receivable
                                      
                                      
                                      (397,150
                                      )
                                      
                                      
                                      258,227Unbilled
      revenues
                                      
                                      
                                      (525,856
                                      )
                                      
                                      
                                      -Prepayments,
      deposits and other receivables
                                      
                                      
                                      (79,357
                                      )
                                      
                                      
                                      (45,766
                                      )Inventory
                                      
                                      
                                      (87,730
                                      )
                                      
                                      
                                      -Work
      in progress
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (49,132
                                      )Accounts
      payable and accrued liabilities
                                      
                                      
                                      (492,532
                                      )
                                      
                                      
                                      (168,650
                                      )Government
      grants received, net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      65,372Deferred revenues
                                      
                                      
                                      (86,433
                                      )
                                      
                                      
                                      10,057Income
      tax payable
                                      
                                      
                                      (192,814
                                      )
                                      
                                      
                                      -Cash
      provided by operating activities
                                      
                                      
                                      (1,264,942
                                      )
                                      
                                      
                                      104,962Cash
      flows from investing activitiesPurchase
      of property and equipment
                                      
                                      
                                      (110,067
                                      )
                                      
                                      
                                      (503,866
                                      )Proceeds
      from disposition of property and equipment
                                      
                                      
                                      732
                                      
                                      
                                      
                                      17,356Cash
      used in by investing activities
                                      
                                      
                                      (109,335
                                      )
                                      
                                      
                                      (486,510
                                      )Effect
      of exchange rate changes on cash and cash equivalents
                                      
                                      
                                      (17,436
                                      )
                                      
                                      
                                      127,414Decrease in cash and cash
      equivalents
                                      
                                      
                                      (1,391,713
                                      )
                                      
                                      
                                      (254,134
                                      )Cash and cash equivalents,
      beginning of year
                                      
                                      
                                      12,185,950
                                      
                                      
                                      
                                      3,365,613Cash and cash equivalents, end
      of year
                                      
                                      $
                                      10,794,237
                                      
                                      
                                      $
                                      3,111,479Supplemental cash flow
      informationInterest
      received
                                      
                                      $
                                      87,619
                                      
                                      
                                      $
                                      14,125Interest
      paid
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      214Income
      tax paid
                                      
                                      $
                                      192,143
                                      
                                      
                                      $
                                      -




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






7







Notes
to Condensed Consolidated Financial Statements


1.
       Nature of Operations 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 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.




On
September 8, 2008, the Company completed an initial public offering of 1,200,000
common shares at $7.00 per share. Our shares started trading on NASDAQ Capital
Market the next day. Prior to the completion of IPO, the Company completed a
169.5253-for-1 stock split to be effected in the form of a stock dividend to
holders of our ordinary shares.





In
December 2008, the Company established its subsidiary, Pansoft (Hong Kong)
Limited ("Hong Kong") to serve the overseas customers.





The
interim consolidated financial statements do not include certain footnote
disclosures and financial information normally included in annual consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America (‘’GAAP’’) and, therefore, should be
read in conjunction with the consolidated financial statements and notes
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2008.





2.
Significant Accounting
Policies




Basis of
Consolidation




The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Jinan and Hong Kong. All
inter-company accounts and transactions have been eliminated upon
consolidation.




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 the original terms of the receivables.  Bad debts are
written off when identified. No bad debt expense was recorded for three months
ended March 31, 2009 and 2008.





Unbilled
Revenue




Unbilled
revenue represents the accumulated unbilled amount of revenue recognized, based
on the Company's revenue recognition policy.




Inventory




Inventory
comprises hardware equipment purchased for reselling and is recorded at lower of
cost and net realizable value.




Management
periodically compares cost of inventory with market and records a reserve for
obsolescence when necessary. The reserve for inventory obsolescence was $0 at
March 31, 2009 and December 31, 2008.




Workin progress




Work in
progress is the deferred costs of revenue relate to contracts and such costs are
stated at actual production costs incurred to date, which primarily includes
labor which is directly related ot the contract.  Work in progress is
amortized to cost of revenues at the time revenue is recognized.





Software
Development Cost Capitalization


The costs
for software system development under the projects for future sales to clients,
which mainly consists of payroll cost, are capitalized once the technical
feasibility is established after its designing stage is completed and the
economic feasibility is established based on the customer ordering orientation.
The cost capitalized is amortized over one year period when the sales occurred
once the sale contracts are signed.






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:




Computer
equipment                                      
-   5   years straight line


Vehicles                                                             -   5   years
straight line


Office
furniture                                                 -   5   years
straight line


Computer
software                                          -   3   years
straight line




Maintenance
and repairs expenditures, which do not improve or extend an assets' productive
life, are expensed as incurred.




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 March 31, 2009 and March 31, 2008 amounted to $18,290 and
$17,461, respectively and were included in cost of sales. These amounts are the
annual amortization expense associated with capitalized software development
cost.




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 carrying 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 income
taxes.  Under SFAS No. 109 "Accounting for Income Taxes" method,
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




Jinan
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 revenue. Jinan, 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 based
on the actual service hours and the hourly rate agreed by clients in advance.
Occasionally, such services were rendered to cover a specified period of time.
This revenue is recognized over the term of the contract on a straight-line
basis. Some of these arrangements are entered into agreements 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.







10








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:




March
      31, 2009
                    
                    
                    December
      31, 2008Period
      end RMB U.S. Dollar exchange rate
                    
                    
                    6.8359
                    
                    
                    
                    6.8225Average
      period RMB U.S. Dollar exchange rate
                    
                    
                    6.8341
                    
                    
                    
                    6.9477
  The
foreign currency translation adjustment of loss of $29,040 and profit of
$184,518 has been reported as other comprehensive income in the consolidated
statements of operations for three months ended March 31, 2009 and
2008.




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 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.




Stock-based
compensation




The
Company records stock-based compensation in accordance with SFAS 123(R),
"Share-Based Payments," which requires the measurement and recognition of
compensation expense based on estimated fair values for all share-based awards
made to employees and directors, including stock options.




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.




Earnings per share





In
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.







11







Fair value of financial
instruments




The
estimated fair value of financial instruments disclosed in the consolidated
financial statements has been determined by using available market information
and appropriate valuation methodologies. The carrying value of all current
assets and current liabilities approximates fair value because of their
short-term nature.





Effective
January 1, 2008, the Company adopted SFAS 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 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.




Level 2:  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.




Level 3:  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 follows:




Fair Value Measurements Using
                                
                                Assets/LiabilitiesLevel
      1
                                
                                
                                Level
      2
                                
                                
                                Level
      3
                                
                                At
      Fair ValueCash equivalents
                                
                                $
                                6,206,574
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                $
                                6,206,574




3.        Recent
Changes in Accounting Standards




In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), “Business Combinations” (“FAS141R”).FAS141R replaces Statement of
Financial Accounting Standards No. 141, “Business Combinations”
(“FAS 141”), although it retains the fundamental requirement in
FAS 141 that the acquisition method of accounting be used for all business
combinations.FAS141R
establishes principles and requirements for how the acquirer in a business
combination (a) recognizes and measures the assets acquired, liabilities
assumed and any noncontrolling interest in the acquiree, (b) recognizes and
measures the goodwill acquired in a business combination or a gain from a
bargain purchase and (c) determines what information to disclose regarding
the business combination.FAS141R applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the Company’s 2009 fiscal
year. Adoption of FAS 141R did not have a material impact on the Company’s
financial position, results of operations or cash flows.




In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”
(“FAS 160”). FAS 160 amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary, commonly
referred to as minority interest. Among other matters, FAS 160 requires
(a) the noncontrolling interest be reported within equity in the balance
sheet and (b) the amount of consolidated net income attributable to the
parent and to the noncontrolling interest to be clearly presented in the
statement of income. Further, paragraph 31 of ARB 51, as amended by FAS 160,
requires that the noncontrolling interest continue to be attributed its share of
losses even if that attribution results in a deficit noncontrolling interest
balance.  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
February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (FSP 157-2),
Effective Date of FASB Statement No. 157 . FSP 157-2 deferred the effective date
of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis, until fiscal years beginning after November 15, 2008. As a
result of FSP 157-2, the Company adopted SFAS 157 for the Company’s nonfinancial
assets and nonfinancial liabilities on January 1, 2009.  The adoption
of SFAS 157 for nonfinancial assets and nonfinancial liabilities did not have a
material impact on the Company’s financial position, results of operations or
cash flows.







12







In March
2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities,” which requires enhanced disclosures about an entity’s
derivative and hedging activities. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company adopted FAS No. 161 on January 1, 2009. Since FAS 161 only
provides for additional disclosure requirements, there was no impact on the
Company’s results of operations and financial position.





In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The
Hierarchy of Generally Accepted Accounting Principles (“FAS 162"). This Standard
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 generally
accepted accounting principles. FAS 162 directs the hierarchy to the entity,
rather than the independent auditors, as the entity is responsible for selecting
accounting principles for financial statements that are presented in conformity
with generally accepted accounting principles. The Standard is effective 60 days
following SEC approval of the Public Company Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles
from the auditing standards. FAS 162 did not have an impact on the Company’s
financial statements.





In
May 2008, the FASB issued SFAS No. 163, Accounting for Financial
Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60
(SFAS 163). This statement clarifies accounting for financial guarantee
insurance contracts by insurance enterprises under FASB Statement No. 60,
Accounting and Reporting by Insurance Enterprises. SFAS 163 is effective for
fiscal years, and interim periods within those years, beginning after
December 15, 2008. The Company adopted FAS No. 163 on January 1, 2009.
Because the Company does not issue financial guarantee insurance contracts, the
adoption of this standard did not have an effect on the Company’s financial
position or results of operations.





In April
2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the
Useful Life of Intangible Assets, which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No.
142,  Goodwill and Other Intangible Assets.  This Staff
Position is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited. Application of this FSP is not currently applicable to
the Company.





In May
2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for
Convertible Debt That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement)  ("FSP 14-1"). FSP 14-1 was effective for financial
statements issued for fiscal years beginning after December 15, 2008, i.e. the
Company’s fiscal 2009. The FSP includes guidance that convertible debt
instruments that may be settled in cash upon conversion should be separated
between the liability and equity components, with each component being accounted
for in a manner that will reflect the entity's nonconvertible debt borrowing
rate when interest costs are recognized in subsequent periods. However, because
the Company does not have convertible debt, the adoption of this standard did
not have an effect on the Company’s financial position or results of
operations.




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.





In
September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures About
Credit Derivatives and Certain Guarantees. FSP FAS 133-1 and FIN 45-4 is
intended to improve disclosures about credit derivatives by requiring more
information about the potential adverse effects of changes in credit risk on the
financial position, financial performance and cash flows of the sellers of
credit derivatives. FSP FAS 133-1 and FIN 45-4 is effective for fiscal years
beginning after November 15, 2008.  The Company do not expect that the
adoption of FSP FAS 133-1 and FIN 45-4 will have a material impact on the
Company’s financial position, results of operations or cash flows.





In
September 2008, the FASB ratified EITF No. 08-5, Issuer’s Accounting for
Liabilities Measured at Fair Value With a Third-Party Credit Enhancement . EITF
08-5 provides guidance for measuring liabilities issued with an attached
third-party credit enhancement (such as a guarantee). It clarifies that the
issuer of a liability with a third-party credit enhancement should not include
the effect of the credit enhancement in the fair value measurement of the
liability.  EITF 08-5 is effective for reporting periods beginning
after December 15, 2008, with early adoption allowed. The Company adopted EITF
08-5 in the fourth quarter of fiscal 2008.  Adoption of EITF 08-5 did
not have an impact on our financial position, results of operations or cash
flows.








13





In
October 2008, the FASB issued FSP FAS 157-3, Determining Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. FSP FAS 157-3
provides guidance and illustrates key considerations for determining fair value
in markets that are not active. FSP FAS 157-3 is effective upon issuance and
must be applied to all periods for which financial statements have not been
issued. Adoption of FSP FAS 157-3 did not have an impact on the Company’s
financial position, results of operations or cash flows.





In
December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8, Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities . FSP 140-4 and FIN 46 (R)-8 amends SFAS 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities and FIN 46(R) Consolidation of Variable Interest Entities
(revised December 2003) — an interpretation of ARB No. 51 to require public
entities to provide additional disclosures about transfers of financial assets
and their involvement with variable interest entities. FSP 140-4 and FIN 46(R)-8
is effective for the first interim or annual reporting period ending after
December 15, 2008. Adoption of FSP 140-4 and FIN 46(R) did not have a material
impact on the Company’s financial position, results of operations or cash
flows.





In April
2009, the FASB issued FASB Staff Position (FSP) FAS 141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies , which amends the accounting in SFAS 141(R) for assets and
liabilities arising from contingencies in a business combination. The FSP is
effective January 1, 2009, and requires pre-acquisition contingencies to be
recognized at fair value, if fair value can be reasonably determined during the
measurement period. If fair value cannot be reasonably determined, the FSP
requires measurement based on the recognition and measurement criteria of SFAS
5, Accounting for Contingencies.  Adoption of FSP FAS 141(R)-1 did not
have an impact on the Company’s financial position, results of operations or
cash flows.





In April
2009, the FASB issued FSP SFAS No. 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.” Under FSP SFAS No.
157-4, transactions or quoted prices may not accurately reflect fair value if an
entity determines that there has been a significant decrease in the volume and
level of activity for the asset or the liability in relation to the normal
market activity for the asset or liability (or similar assets or liabilities).
In addition, if there is evidence that the transaction for the asset or
liability is not orderly, the entity shall place little, if any weight on that
transaction price as an indicator of fair value. FSP SFAS No. 157-4 is effective
for periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009 subject to the early adoption of FSP SFAS
No. 115-2 and SFAS No. 124-2. We did not elect to early adopt FSP SFAS No.
157-4; however, the Company do not expect the adoption to have a material impact
on our Consolidated Financial Statements.





In April
2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments” (“FSP SFAS No. 115-2”). FSP
SFAS No. 115-2 provides new guidance on the recognition and presentation of
other-than-temporary impairments (“OTTI”) for fixed maturity securities that are
classified as available-for-sale and held-to-maturity if management does not
intend to sell the impaired security and it is more likely than not it will not
be required to sell the impaired security before the recovery of its amortized
cost basis. If management concludes a security is other-than-temporarily
impaired, FSP SFAS No. 115-2 requires that the difference between the fair value
and the amortized cost of the security be presented as an OTTI realized loss
with an offset for any noncredit-related loss component of the OTTI realized
loss to be recognized in accumulated other comprehensive income. Accordingly,
only the credit loss component will have an impact on earnings for the reporting
period. FSP SFAS No. 115-2 also requires extensive new interim and annual
disclosures for both fixed maturity securities and equity securities to provide
further disaggregated information as well as information about how the credit
loss component of the OTTI realized loss was determined along with a roll
forward of such amount for each reporting period. FSP SFAS No. 115-2 is
effective for interim and annual periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009 subject to the early
adoption of FSP SFAS 157-4. We did not elect to early adopt FSP SFAS No. 115-2;
however, the Company do not expect the adoption to have a material impact on our
Consolidated Financial Statements.





In April
2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (“APB”)
No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP
SFAS No. 107-1”). FSP SFAS No. 107-1 amends SFAS No. 107, “Disclosures about
Fair Value of Financial Instruments,” to require fair value of financial
instrument disclosure in interim financial statements and amends APB No. 28,
“Interim Financial Reporting,” to require those disclosures in all interim
financial statements. The provisions of FSP SFAS No. 107-1 are effective for
interim periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. We did not elect to early adopt FSP SFAS
No. 107-1; however, the Company do not expect the adoption to have a material
impact on our Consolidated Financial Statements.





14




4.        Property
and Equipment


Accumulated
                        
                        
                        March
      31, 2009Cost
                        
                        
                        Amortization
                        
                        
                        Net
      Book ValueComputer equipment
                        
                        $
                        997,382
                        
                        
                        $
                        368,781
                        
                        
                        $
                        628,601Vehicles
                        
                        
                        192,437
                        
                        
                        
                        138,665
                        
                        
                        
                        53,772Office furniture
                        
                        
                        8,721
                        
                        
                        
                        8,398
                        
                        
                        
                        323Software
                        
                        
                        31,109
                        
                        
                        
                        4,348
                        
                        
                        
                        26,761Total
                        
                        $
                        1,229,649
                        
                        
                        $
                        520,192
                        
                        
                        $
                        709,457
   Accumulated
                        
                        
                        December
      31, 2008Cost
                        
                        
                        Amortization
                        
                        
                        Net
      Book ValueComputer
      equipment
                        
                        $
                        957,625
                        
                        
                        $
                        322,514
                        
                        
                        $
                        635,111Vehicles
                        
                        
                        171,852
                        
                        
                        
                        159,640
                        
                        
                        
                        12,212Office
      furniture
                        
                        
                        8,738
                        
                        
                        
                        8,395
                        
                        
                        
                        343Computer
      software
                        
                        
                        5,520
                        
                        
                        $
                        2,478
                        
                        
                        $
                        3,042Total
                        
                        $
                        1,143,735
                        
                        
                        $
                        493,027
                        
                        
                        $
                        650,708




Total
amortization expense for the three months ended March 31, 2008 was $61,260 with
$57,607 included in cost of sales and $3,653 in general and administrative
expenses.




5.      
Software Development Cost


March
      31, 2008
                      
                      
                      December31,
      2008Software
      development cost
                      
                      $
                      219,430
                      
                      
                      $
                      219,861Less:
      accumulated amortization
                      
                      
                      164,573
                      
                      
                      
                      146,574$
                      54,857
                      
                      
                      $
                      73,287
  Amortization
expense for the three months ended March 31, 2009 and 2008 was $18,290 and
$17,461, respectively.  The amortization expense was included in cost
of sales.





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 funds
accumulated by Jinan as of March 31, 2009 and December 31, 2008 were $363,063,
no additional reserves have been taken during the first quarter of fiscal
2009.








15




7.       
Income Taxes





The
Company files income tax returns 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,
Pansoft's operating subsidiary Jinan was subject to the enterprise income tax at
the reduced applicable rate of 7.5%, as Jinan was classified as a "software
enterprise" and "high-technology enterprise" business. The Company was able to
enjoy a further reduction to 0% due to being a foreign investment enterprise
("FIE").





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 FIEs but provides grandfathering of the preferential
tax treatment currently enjoyed by the FIE's.  Under the new law, both
domestic companies and FIE's are subject to a unified income tax rate of
25%.  Jinan is currently applying for the re-approval for the special
enterprise status in order to enjoy the preferential rate. Before it can obtain
its re-approval of the status, it is subject to the new unified income tax
rate.  Jinan'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.





The
benefit of the tax holiday for the three months ended March 31, 2009 and 2008
was $66,818 and $Nil. The benefit of the tax holiday on earnings per share for
the three months ended March 31, 2009 and 2008 was $0.01 and $Nil.





A
reconciliation of consolidated corporate income taxes at the statutory rate of
25% (2008: 12.5%) and the Company's effective income tax expense for the three
months ended March 31, 2009 and 2008 are shown as follows:




For
      the three months ended March
      31,2009
                              
                              
                              2008Income
      before provision for income taxes
                              
                              $
                              362,622
                              
                              
                              $
                              30,664Income
      tax at statutory rate
                              
                              
                              90,656
                              
                              
                              
                              3,833Stock-based
      compensation
                              
                              
                              42,980
                              
                              
                              
                              -Foreign
      profit not recognized in PRC
                              
                              
                              -
                              
                              
                              
                              -Temporary
      difference and other
                              
                              
                              2,678
                              
                              
                              
                              (3,833)Effect
      of 50% tax reduction
                              
                              
                              (66,818)
                              
                              
                              
                              -Income
      tax provision
                              
                              $
                              69,496
                              
                              
                              $
                              -Current
      income taxes
                              
                              $
                              5,197
                              
                              
                              $
                              -Deferred
      income taxes
                              
                              
                              64,299
                              
                              
                              
                              -Total
      income tax provisions
                              
                              $
                              69,496
                              
                              
                              $
                              -




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




March
      31, 2009Current
            
            
            Non-current
            
            
            TotalTiming difference on revenue recognition
            
            $
            (580,342
            )
            
            $
            -
            
            
            $
            (580,324
            )Write off of accounts receivable
            
            
            57,604
            
            
            
            -
            
            
            
            57,604Plant, equipment and capitalized software cost
            
            
            -
            
            
            
            (36,030
            )
            
            
            (36,030
            )Other temporary differences
            
            
            48,862
            
            
            
            -
            
            
            
            48,862(437,858
            )
            
            
            (36,030
            )
            
            
            (509,888
            )Effect of 50% tax reduction
            
            
            236,929
            
            
            
            18,015
            
            
            
            254,944Net deferred income tax liabilities
            
            $
            (236,929
            )
            
            $
            (18,015
            )
            
            $
            (254,944
            )






December
      31, 2008Current
                                                        
                                                        
                                                        Non-current
                                                        
                                                        
                                                        TotalTiming difference on revenue recognition
                                                        
                                                        $
                                                        (572,125
                                                        )
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        (572,125
                                                        )Write off of accounts receivable
                                                        
                                                        
                                                        57,717
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        57,717Plant, equipment and capitalized software cost
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (37,063
                                                        )
                                                        
                                                        
                                                        (37,063
                                                        )Other temporary differences
                                                        
                                                        
                                                        169,399
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        169,399(345,009
                                                        )
                                                        
                                                        
                                                        (37,063
                                                        )
                                                        
                                                        
                                                        (382,072
                                                        )Effect of 50% tax reduction
                                                        
                                                        
                                                        172,504
                                                        
                                                        
                                                        
                                                        18,532
                                                        
                                                        
                                                        
                                                        191,036Net deferred income tax liabilities
                                                        
                                                        $
                                                        (172,505
                                                        )
                                                        
                                                        $
                                                        (18,531
                                                        )
                                                        
                                                        $
                                                        (191,036
                                                        )




16








8.
Shareholders'
Equity




Common stock





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.





On
September 8, 2008, the Company completed an initial public offering ("IPO") on
NASDAQ. Pursuant to the IPO, the Company issued 1,200,000 shares of common stock
for gross proceeds of $ 8,400,000 and issued 120,000 underwriter warrants. Each
warrant entitles the holder to purchase one common share for a price of $ 8.40
per share for a period of four years following the closing of the IPO. The unit
price for each Underwriter warrant is $ 0.001. The Company received proceeds of
$ 120 from the issuance of underwriter warrants which is included in additional
paid-in capital. The costs of the offering totaled to $ 876,987 and are included
in additional paid-in capital.




Warrants




The
following table shows the number of warrants with other information as of March
31, 2009:


Outstanding Warrants
                            Exercisable WarrantsWeighted Average Exercise
    Price
                            Number
                            Weighted Average Remaining Contractual
      Life
                            Weighted Average
      Exercise Price
                            Exercise Number$
      8.4
                            120,000
                            3.5
      years
                            $
      8.4
                            -




No
movement for outstanding warrants for the three months ended March 31,
2009.




Stock options





The
Company has established 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 common shares. It provides additional compensation incentives for
high levels of performance and productivity by management, other key employees
of the Company and directors.




In
September 2008, the Company granted 321,000 options to its directors, management
and key employees at an exercise price of $7.00, vesting at a rate of 20% per
year for five years. The fair value of these stock options was determined to be
$4.39 per stock option. In December 2008, the Company granted 46,000 options to
its directors, financial advisor and Interim CFO at an exercise price of $2.74.
The vesting rate is 33% per year for two years and 34% for one year for the
options granted to the directors and advisor and at the rate of 20% per year for
five years for the options granted to Interim CFO. The fair value of these stock
options was determined to be $1.39 and 1.72 per stock option,
respectively.





The
Company estimates the fair value of stock options using the Black-Scholes
valuation model, consistent with the provisions of SFAS No. 123(R), "Share-Based
Payment" (SFAS No. 123(R)) and SAB No. 107. Key inputs and assumptions used to
estimate the fair value of stock options include the grant price of the award,
the expected option term, volatility of the Company's stock and the risk-free
rate. Estimates of fair value are not intended to predict actual future events
or the value ultimately realized by employees who receive equity awards, and
subsequent events are not indicative of the reasonableness of the original
estimates of fair value made by the Company.




The fair
value of each stock option grant was estimated at the date of grant using a
Black-Scholes option pricing model. The following table summarized the options
granted in 2008.





The
assumptions used in the stock option valuation are as follow:




Grant
      Date
                September
      8, 2008
                December
      13, 2008
                December
      13, 2008Option
      Granted
                321,000
                31,000
                15,000Exercise
      Price
                $7.00
                $2.74
                $2.74Expected
      Life
                5
                3
                5Volatility
                75%
                75%
                75%Risk
      free rate
                2.98%
                1.05%
                1.55%Dividend
      yield
                0%
                0%
                0%Option
      value
                $4.39
                $1.39
                $1.72









17








A total
of $171,921 and $Nil was included in the stock option expense for the three
months ended March 31, 2009 and 2008, respectively. As of March 31, 2009 and
December 31, 2008, there was approximately $1,104,107 and $1,276,028,
respectively of unrecognized compensation costs related to the non-vested
share-based arrangements granted under the Company's stock option plan. Those
costs are expected to be recognized over a weighted-average period of
approximately 4.36 years and 4.61 years as of March 31, 2009 and December 31,
2008, respectively.




The
following table shows the number of stock options with other information as of
March 31, 2009:


Outstanding Stock Options
                        Exercisable OptionsWeighted Average Exercise
    Price
                        Number
                        Weighted Average Remaining Contractual
      Life
                        Weighted Average
      Exercise Price
                        Exercise Number$
      7.00
                        321,000
                        4.5
      years
                        $
      7.00
                        -$
      2.74
                        46,000
                        3.36
      years
                        $
      2.74
                        -$
      6.47
                        367,000
                        4.36
      years
                        $
      6.47
                        -




No
movement for outstanding stock options for the three months ended March 31,
2009.




9.      
Commitments




The
Company was obligated under operating leases requiring minimum rentals as of
March 31, 2009 as follows:




(Unaudited)Payable
      within:-
      Remainder of 2009
                                
                                
                                $
                                17,628-
      2010
                                
                                
                                
                                -Total
      minimum lease payments
                                
                                
                                $
                                17,628




10.     
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.




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.




11.      Economic
Dependence




For the
three months ended March 31, 2009, two major customers individually
comprised 32% and 45% of revenue, respectively, compared with three major
customers individually comprised 12%, 17% and 42% respectively for the three
months ended March 31, 2008. The subsidiaries of the Company's two and three
major customers accounted for 8% and 27% of revenue for the three months ended
March 31, 2009 and 2008, respectively.




There
were two customers that individually comprise 28% and 10% of account
receivable as of March 31, 2009. Three customers individually made up 31%, 24%
and 15% of account receivable of December 31, 2008.





12.      Segmented
Information




The
Company applies the provisions of Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information". The Company views its operations and manages its business as
one segment: the design, development,
implementation and servicing of ERP systems. Factors used to identify the
Company's single operating segment include the organizational structure of the
Company and the financial information available for evaluation by the chief
operating decision-maker in making decisions about how to allocate resources and
assess performance.  The Company operates predominantly in one
geographical area, the PRC.






18







Item 2. Management’s
Discussion and Analysis of
Financial Condition and Results of Operations




This report contains
"Forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which provides a "Safe harbor" for these types of
statements. To the extent statements in this report involve, without limitation,
our expectations for growth, estimates and outlook of future revenue, expenses,
profit, cash flow, balance sheet items or any other guidance on future periods,
these statements are forward-looking statements. Forward-looking statements are
not guarantees of performance. They involve known and unknown risks,
uncertainties and assumptions that may cause actual results, levels of activity,
performance or achievements to differ materially from any results, level of
activity, performance or achievements expressed or implied by any
forward-looking statement. We assume no obligation to update any forward-looking
statements.  The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the Company's audited consolidated financial statements and the related notes
included elsewhere in this report.




Overview




We are a
leading developer and provider of integrated ERP software solutions, development
on demand and services in China. Our clientele base includes sophisticated
Chinese businesses, especially those operating in China's gas and oil industry.
Our solutions and services are designed to (i) enable centralized financial and
accounting activity management for large corporations with operations spreading
throughout China and internationally; (ii) improve decision efficiency, budget
control and cash flow management; and (iii) prevent fraud. While our solutions
initially centered upon accounting matters, we have expanded our solutions to
address other business operational needs such as planning, statistics, process
control, business intelligence, equipment management and other business needs.
Our solutions enable our customers to implement company-wide solutions by
integrating business activities ranging from a company's headquarters down to
its various subsidiaries and other operational units. Our major clients,
PetroChina (PetroChina Company Limited and China National Petroleum Corporation,
its state-owned parent company) and Sinopec (China Petrochemical
Corporation/China Petroleum and Chemical Corporation and Sinopec Group, its
state-owned parent company) are large oil and refinery firms formed following
the Chinese government's decision to decentralize the oil and gas industry
within China. Each company is ranked in the Fortune 500.




Overview
of Business Operations in the First Fiscal Quarter of 2009




We
generate revenue through software systems development, integration and provision
of related support services. Our revenue during the fiscal quarter ended March
31, 2009, reflect the seasonality nature of our business. Our revenue has been
subject to high seasonality and the revenue recognized in the first quarter is
usually the smallest in proportion of that for the whole year in most cases, so
does in this year, due to our clients’ budgeting and planning schedule.
Nevertheless, we continued to experience steady demand for our services from and
also to generate revenue through the provision of our services to our oil
industrial client base during the three months ended March 31,
2009.





The
accompanying audited consolidated financial statements reflect all normal
recurring adjustments which, in the opinion of management, are necessary for a
fair statement of the results for the three month period ended March 31, 2009.
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.  These financial
statements should be read in conjunction with the related notes for the period
ended March 31, 2009 included elsewhere in this Form 10-Q.




Operating
Results




The
condensed and consolidated financial statements presented in hereinbefore 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 ended March 31, 2009 reflect the operating results of the Company, in
comparison with the financial data for the same period in 2008.




Summary of Gross
Margin




3
      Months Ended at March 312009
              2008
              Change
      $
              Change
      %Sales
              1,422,086
              558,006
              864,080
              155%Cost
      of sales
              768,042
              493,758
              274,284
              56%Gross
      profit
              654,044
              64,248
              589,796
              918%GM
      Ratio
              46%
              12%
              
              299%





Revenue





During
the first quarter of 2009, revenue from large-scale software systems integration
projects comprised a higher proportion of total revenue. The total value of our
revenue is $1,422,086, 155% increase from $558,006 in first quarter of
2008.  Our revenue from large-scale software systems integration
projects continued to comprise a higher proportion of total revenue The
significant increase in our sales comparing to that in the same period in 2008
due to a large sales contract  for the equipment in association with
the system implementation signed with our major client and new business contract
signed by our new Hong Kong branch, in addition to the natural growth with our
running projects as well as natural extension of the large system projects
completed in the past.






19




Cost of
sales





Our cost
of sales increased by $274,284, or 56% to
$3,395,695 for the three month ended March 31, 2009, from $493,758 in the same
three month period ended in 2008. Our costs increased in a slower pace with
our revenue as a result of cost control measures to contain total employee
salaries, which is the major part of our cost of sales. The increase in the cost
of sales, was largely due to our total pay-roll cost has increased in this
period as the Company recruited a large number of  new employees to
work for the increasing orders and contracts from the clients.





Gross
Profit





For the
three months ended March 31, 2009, our gross profit increased to $654,044 from
$64,248 for the same period in 2008, $589,796, or 918% increase. For the three
months ended March 31, 2009, our gross profit as a percentage of revenue
increased to 46%, from 12% for the same period in 2008. The significant increase
in gross profit margin was due to exceptional increase in revenue in first
quarter of 2009 and the relatively slower pace of increase in cost of
sales.  It also indicates that high seasonality pattern of our revenue
is improving.




Summary of Operating
Expenses




3
      Months Ended at March 312009
                            
                            
                            2008
                            
                            
                            Change
      $
                            
                            
                            Change
      %General
      and administrative expenses
                            
                            
                            160,037
                            
                            
                            
                            13,369
                            
                            
                            
                            146,668
                            
                            
                            
                            1097
                            %Selling
      expenses
                            
                            
                            62,097
                            
                            
                            
                            3,065
                            
                            
                            
                            59,032
                            
                            
                            
                            1926
                            %Professional
      fees
                            
                            
                            83,561
                            
                            
                            
                            32,972
                            
                            
                            
                            50,589
                            
                            
                            
                            153
                            %Stock
      option expense
                            
                            
                            171,921
                            
                            
                            
                            
                            
                            
                            
                            171,921
                            
                            
                            
                            100
                            %Gain
      on disposition of property and equipment
                            
                            
                            (732
                            )
                            
                            
                            (1,374
                            )
                            
                            
                            642
                            
                            
                            
                            46.72
                            %Total
      admin expenses
                            
                            
                            476,884
                            
                            
                            
                            48,032
                            
                            
                            
                            428,852
                            
                            
                            
                            893
                            %








Operating
Expenses




Operating
expenses consist primarily of general and administrative expenses, selling
expenses, professional fees and stock option expense and other expenses incurred
in connection with general operations. Administrative expenses consist primarily
of compensation and benefits to our general management, finance and
administrative staff. Professional fee covers expenses for legal counsel and
other advisor fees, audit fees and service charges associated with corporate
publicity and investor relations. For the three months ended March 31, 2009, our
operating expenses increased to $476,884 from $48,032 for the three month period
ended at March 31, 2008, a 893% increase. For the three months ended March 31,
2009, our general and administrative expenses increased to $160,037, from
$13,369 for the three months ended March 31, 2008, or 1097% increase. The
increase in administrative expenses was mainly attributable to the increases in
our administrative business trips including the international trips for investor
relations. The increase in selling expenses (by 1926%, from the period to
period) was due to the overhead allocation of the newly established sales and
marketing department. It also
included a large increase  in the expenses for professional fee for
the services relating to our NASDAQ listing and publicity. In addition, stock
options issued to our employees became a large proportion in this category and
accounted for 36% of our total operating expenses, which contributed
significantly to the total increase of our expenses during this
period.




Summary of Other Income and
Expenses




3
      Months Ended at March 31Items
                      
                      2009
                      
                      
                      2008
                      
                      
                      Change
      $
                      
                      
                      Change
      %Income
      from operations
                      
                      
                      177,160
                      
                      
                      
                      16,216
                      
                      
                      
                      160,944
                      
                      
                      
                      993
                      %Other
      Income (expense)
                        Other
      income
                      
                      
                      -
                      
                      
                      
                      537
                      
                      
                      
                      (537)Government
      Grand
                      
                      
                      146,325
                      
                      
                      
                      -
                      
                      
                      
                      146,325
                      
                      
                      
                      100
                      %Finance
      cost
                      
                      
                      (389)
                      
                      
                      
                      (214)
                      
                      
                      
                      (175)
                      
                      
                      
                      (82)
                      %Interest
      income
                      
                      
                      39,526
                      
                      
                      
                      14,125
                      
                      
                      
                      25,401
                      
                      
                      
                      180
                      %Income
      before provision for income taxes
                      
                      
                      362,622
                      
                      
                      
                      30,664
                      
                      
                      
                      331,958
                      
                      
                      
                      1083
                      %Income
      tax
                      
                      
                      69,496
                      
                      
                      
                      -
                      
                      
                      
                      69,496
                      
                      
                      
                      100%Net
      income for the year
                      
                      
                      293,126
                      
                      
                      
                      30,664
                      
                      
                      
                      262,462
                      
                      
                      
                      856
                      %Other
      comprehensive income
                      
                      
                      (29,060
                      )
                      
                      
                      184,518
                      
                      
                      
                      (213,578)
                      
                      
                      
                      (116)
                      %Comprehensive
      income
                      
                      
                      264,066
                      
                      
                      
                      215,182
                      
                      
                      
                      48,882
                      
                      
                      
                      23
                      %








20




Income from
Operations




Income
from operations was $177,160, for the three months ended
March 31, 2009, a 993% increase from $16,216 for the same period in 2008 because
of a large revenue growth in first quarter of 2009.




Other Income and
Expenses




In the
Other Income and Expenses, other income was $ 146,324, increased substantially
by 27148%, comparing to $537 for the three months ended March 31, 2008, due to
receiving a large cash award from the local government for our successful IPO
and international market listing.. Interest income was $39,526 for the three
months ended March 31, 2009 and $14,125 for the three months ended March 31,
2008, a 180% increase. The increase in interest income was mainly due to large
cash fund available from the proceeds of our IPO in September 2008 to be
invested and investment in selected bank certificate programs with relatively
higher returns and little risk for the principal




Income Before Provision of
Income Tax





As a
result of the factors described above, income before tax provision was $362,622
for the three months ended March 31, 2009, an increase of $331,958, or 1083%,
from $30,664 for the same period in 2008. The substantial increase in income
before tax provision was resulted from the revenue increase following our
expansion strategy unfolding.




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
before 2008 and then started to pay income tax at the rate of 12.5%, 50% cut
from the regular income tax rate, due to its FIE tax deduction status granted by
PRC tax authorities.  Current income tax expense for the three months
ended March 31, 2009 was $5,197. Income tax provision for the future income
expense for the three months ended March 31, 2009 was $64,299 driven by
temporary differences between PRC GAAP and the US GAAP.




Net Income and Comprehensive
Income




As a
result of the factors described above, net income was $293,126 for the three
months ended March 31, 2009, substantially increased by $262,462, or 856%, from
$30,664 for the same period in 2008. However comprehensive income for the three
months ended March 31, 2009 was $264,066, increased by 23% from $215,182 for the
same period in 2008 due to a loss of $29,060 in other comprehensive income in
this reporting period resulted from the unfavorable exchange rate move that US
dollar had been in uptrend against Chinese currency - RMB, in contrast, there
was a large gain of $184,518 in the same period in 2008.




Liquidity
and Capital Resources





Cash Flows and Working
Capital




As of
March 31, 2009, we had cash and cash equivalents of $ 10,794,237.




Our cash
and cash equivalents substantively increased due to the proceeds from the IPO
which was completed in September 2008. Management believes that the Company's
current available working capital should be adequate to sustain its operations
at current levels through at least the next twelve months and will provide the
Company with the funds necessary to execute its business strategy.




Comparison of Three Months
Ended March 31, 2009 and 2008





Net cash
used in operating activities totaled $1,259,074 for the three months ended March
31, 2009, an decrease of $1,364,036 compared to cash used in operations of
$104,962 for the three months ended March 31, 2008.  This decrease
resulted primarily from the following changes in operating assets and
liabilities:




·
              $397,150
      increase in accounts receivable
 ·
              $525,856
      increase in unbilled revenues
 ·
              $79,357
      increase in prepayments, deposits and other
  receivables
 ·
              87,730
      increase in inventory
 ·
              $492,532
      decrease in accounts payable and accrued
  liabilities
 ·
              $86,433
      decrease in deferred revenue


21




Account
receivable is the revenue recognized based on percentage completion of the
project contracted and has been billed to the client. The increase in accounts
receivable was due to the fact that while we experienced rapid revenue growth,
the contract payments from major customers have not picked up to the same level
during the first quarter of 2009..





Unbilled
revenue represents accumulated unbilled amount of revenue recognized, based on
the Company's revenue recognition policy. The increase in unbilled revenue was
due to the timing difference between revenue recognition process and invoicing
process which needs to be coordinated with our clients' payment approval
process.





The
increase in prepayments, deposits and other receivables resulted from resulted
from increases in business travel advance and bidding deposits..





The increase
ininventorywasresulted
fromhardware equipment purchased and resold to clients, yet the payment
collected.  The
decrease in accounts payable and accrued liabilities is the result of paying off
the bonuses for
employees due to last year’s
performance and income tax.


Deferred
revenue was the revenue was earned and recognized for projects for which the
advanced payment was received as deposit. The decrease was resulted from the
reduction of number of such projects requiring advanced
payments.





Net cash
used in investing activities was $109,335 for the three months ended March 31,
2009, compared to net cash used in investing activities of $486,510 for the
three months ended March 31, 2008.  The cash used in investing
activities for the three months ended March 31, 2009 mainly occurred to acquire
computer equipment for software development projects.
  Cash
flows from financing activities amounted to nil for the three months ended March
31, 2009.
  The
Company’s working capital increased from $ $14,662,621 as of December 31, 2008
to $14,267,469 as of March 31, 2009.
  Total
current assets at March 31, 2009 amounted to $15,410,855, a decrease of $308,529
compared to $ 15,719,384 at December 31, 2008. The decrease was mainly due to
decrease in the cash and equivalent account.
  Current
liabilities amounted to $748,234 on March 31, 2009 decreased by $703,661, 48%
compared to $1,451,915 at December 31, 2008. This decrease has been attributed
to a decrease of $494,071 in accounts payable and accrued liabilities in this
period. Accounts payable and accrued liabilities mainly consisted of payables
for management bonus, salary accruals and audit fees.  The Company
paid out most of fiscal 2008 outstanding account payable balance and employee
bonus accrual during first quarter of 2009. In addition, the Company accrued
$242,129 for both payable and future payable income taxes due to the timing
difference of recognizing revenue.
  The
current ratio increased from 10.8 at December 31, 2008 to 20.6 at March 31,
2009.  The change in the Company’s current ratio was primarily due to
the decrease of current liabilities.  Management believes this changed
current ratio indicates strong operating liquidity and expansion investment
funds available for Company use.


Seasonality
of Our Sales





Historically,
the Company's operating results and operating cash flows were subject to
seasonal variations. The Company's revenues recognized in the first two quarters
are usually lower in proportion of that for the whole year. This is due to the
fact that the Company generates revenue primarily through software systems
development, integration and provision of related support services provided to
large oil businesses in China. It is common for our large clients to sign large
contracts in later quarters, especially fourth quarter of a year. We expect this
pattern to continue and may be even more drastic, as a result of new market
opportunity and new client development.




Inflation




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




Off-Balance
Sheet Arrangements




We did
not have any off-balance arrangements.




Markets
and Outlook




Looking
forward, the management believes that demand for its services will continue to
grow as the Company ramps up its development capacity and expansion strategy. As
a result of the Company's brand name and reputation in the ERP industry for
delivering high quality services at competitive prices in China, the management
believes that it will continue to deliver solid revenue and earnings growth in
rest of 2009.






22




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 accordingly limited.




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.




Market
risk




Our
market risks at March 31, 2009 have not changed materially from those discussed
in Item 7A of our Form 10-K for the year ended December 31, 2008 on file with
the Securities and Exchange Commission.




Item
4T. Controls
and Procedures




Disclosure
Controls and Procedures




As
of March 31, 2009, 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
have been no changes in our internal controls over financial reporting or in
other factors during the first quarter of 2009 that have materially affected, or
are reasonably likely to materially affect our internal controls over financial
reporting.






23







PART
II.                      OTHER
INFORMATION





Item
1.                      Legal
Proceedings




None.




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




We received
net proceeds of $8,392,920 from our IPO in September 2008.  As of March 31,
2009, such proceeds were maintained in our cash account and invested in low-risk
certificate of bank deposits issued by banks in China. Given the current
world-wide financial crisis and economic recession, we have taken a strong
precautionary position in our capital spending and investment decisions and
therefore have not used our proceeds from the IPO.  When the timing and the
specific opportunity become feasible and available in the future, we intend to
use such proceeds to invest in new projects or acquire new businesses, or
otherwise use it for general corporate purposes.




Item
3.                      Defaults
Upon Senior Securities




None.




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




None.




Item
5.                      Other
Information




None.




Item
6.                      Exhibits




The
following exhibits are filed herewith:







Number
                                                                                                                
                                                                                                                Exhibit10.1
                                                                                                                
                                                                                                                Translation
      of Pansoft of Software Development and Service Agreement between Pansoft
      (Jinan) Co., Ltd and Petro-CyberWorks Information Technology Co.,
      Ltd.21.1
                                                                                                                
                                                                                                                List
      of subsidiaries of the Company.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.






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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 LIMITEDMay
      14, 2009
            By:
            /s/
      Allen ZhangAllen
      ZhangInterim
      Chief Financial Officer(Principal
      Financial and Accounting Officer)







25