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 financial statements and the related notes included elsewhere in this report and in our annual report on Form 10-K, as amended, for the year ended December 31, 2008 as filed with the Securities and Exchange Commission.

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 Third Quarter and First Nine Months of 2009

We generate revenue through software systems development, integration and provision of related support services. Our revenue during the fiscal quarter and nine month period ended September 30, 2009 reflect the seasonality nature of our business. Our revenue has been subject to high seasonality and the revenue recognized in the first nine months of the year is usually the smaller 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 and nine months ended September 30, 2009.

The accompanying unaudited 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 and nine months ended September 30, 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 September 30, 2009 included elsewhere in this Form-10Q.

Operating Results

The condensed and consolidated financial statements presented in this report set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of sales revenue, as well as key components of our revenue for the periods indicated in dollars. The financial data for the three and nine months ended September 30, 2009 reflect the operating results of the Company, in comparison with the financial data for the same period in 2008.

Summary of Gross Margin

                                           (Unaudited)                                                  (Unaudited)
     In USD                  For The Three Months Ended September 30                      For The Nine Months Ended September 30
                            2009            2008         Change            %            2009            2008          Change             %
             Sales   $ 2,205,469     $ 2,171,038     $   34,431          1.6 %   $ 5,145,375     $ 3,548,302     $ 1,597,073          45.0 %
     Cost of Sales   $ 1,028,347     $   695,003     $  333,344         48.0 %   $ 2,743,265     $ 1,725,420     $ 1,017,845          59.0 %
      Gross Profit   $ 1,177,122     $ 1,476,035     $ -298,913        -20.3 %   $ 2,402,110     $ 1,822,882     $   579,228          31.8 %
      Gross Margin          53.4 %          68.0 %        -14.6 %                       46.7 %          51.4 %          -4.7 %

Revenue

During the third quarter of 2009, large software system integration and development projects comprised a higher proportion of total revenue. The total value of our revenue was $2,205,469 reflecting a 1.6% slight increase from $2,171,038 in third quarter of 2008. The flat revenue increase in this period comparing to the same period in 2008 was due to the seasonality nature of our revenue pattern. The large proportion of revenue is usually recognized in the last quarter of a year. During the first nine months of 2009, revenue in total value was $5,145,375 reflecting a 45% increase from $3,548,302 in the first nine months of 2008. The significant increase in our sales was due to a large sales contract with our major client in the first quarter of 2009 to provide equipment for system implementation and new business contract signed by our new Hong Kong branch, in addition to the organic growth with our running projects as well as natural extension of the large system projects completed in the past.

Cost of sales

Our cost of revenue increased by $333,344, or 48%, to $1,028,347, for the three months ended September 30, 2009, from $695,003 for the same period in 2008. Our cost of revenue for the nine months ended September 30, 2009 was $2,743,265, reflecting a 59% increase from $1,725,420 for the same period in 2008. The large increase in cost as compared to the increase in revenue due to increase employees' compensation cost, which comprises a major part of our operating cost, as result of recruitment of a large number of employees (nearly doubled our project implementation and development team) to match the demand from the fast business growth.

Gross Profit

For the three months ended September 30, 2009, our gross profit was $1,177,122, compared to $1,476,035 for the same period in 2008, reflecting a 20.3% decrease. For the three months ended September 30, 2009 our gross profit as a percentage of revenue decreased to 53.4%, from 68% for the same period in 2008. This 14.6% decrease in gross profit margin was mainly due to increase in cost associated with faster business growth in the third quarter of 2009. For the nine months ended September 30, 2009, our gross profit was $2,402,110, compared to $1,822,882 for the same period in 2008, reflecting a 31.8% increase. For the nine months ended September 30, 2009, our gross profit as a percentage of revenue was 46.7%, slight decrease from 51.4% for the same period in 2008.

Summary of Operating Expenses

                                             (Unaudited)                                                   (Unaudited)
In USD                        For The Three Months Ended at September 30                    For The Nine Months Ended at September 30
Expenses                      2009           2008       Change $              %             2009          2008        Change $             %
General and
administrative
expenses                   116,968        130,828        (13,860 )        -10.6 %        366,210       211,091         155,119          73.5 %
Selling expenses            94,620          8,506         86,114         1012.4 %        216,414        15,037         201,377        1339.2 %
Professional fees          129,781         27,112        102,669          378.7 %        300,168        88,649         211,519         238.6 %
Stock based
compensation               151,127         38,815        112,312          289.4 %        493,101        38,815         454,286        1170.4 %
Gain on disposition
of property and
equipment                       (9 )         (154 )          145          -94.2 %           (741 )      (1,528 )           787           -51 %
                           492,487        205,107        287,380          140.1 %      1,375,152       352,064       1,023,088         290.6 %

Operating Expense

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

For the nine months ended September 30, 2009, our administrative expenses increased to $366,210, from $211,091 for the nine months ended September 30, 2008, or a 73.5% increase, from a period to a period due to the bonus payment in the first quarter to the employees for their performance in 2008. Our selling expense increased significantly for the nine months ended September 30, 2009 as compared to the same period in 2008 for the same reason stated above. Additionally, for the same reason stated above, the professional fee and stock option cost allocated increased significantly, 238% and 1170% respectively, in this period as new expense items as compared to the same period in 2008.

Summary of Other Income and Expenses

                                           (Unaudited)                                                (Unaudited)
                                     For Three Months Ended                                      For nine Months Ended
                                          September 30,                                              September 30,
                           2009            2008         Change            %            2009            2008         Change            %
Income from
operations              684,635       1,270,928       (586,293 )      -46.1 %     1,026,958       1,470,818       (443,860 )      -30.2 %
Other income
(expenses), net            (915 )             0           (915 )                     (4,687 )           537         (5,224 )     -972.8 %
Government grant             17               0             17                      160,998                        160,998
Finance cost                 22            (455 )          477       -104.8 %                          (873 )          873       -100.0 %
Interest income          38,060          27,555         10,505         38.1 %       101,648          70,032         31,616         45.1 %
Income before
provision from
income taxes            721,819       1,298,028       (576,209 )      -44.4 %     1,284,917       1,540,514       (255,597 )      -16.6 %
Provision for
current income
taxes                       397               0            397                       12,782                         12,782
Provision for
deferred income
taxes                    33,367         236,159       (202,792 )      -85.9 %       200,860         236,159        (35,299 )      -14.9 %
Net income              688,055       1,061,869       (373,814 )      -35.2 %     1,071,275       1,304,355       (233,080 )      -17.9 %
Other comprehensive
(loss) income            10,469          58,851        (48,382 )      -82.2 %        (7,248 )       352,879       (360,127 )     -102.1 %
Comprehensive
income                  698,524       1,120,720       (422,196 )      -37.7 %     1,064,027       1,657,234       (593,207 )      -35.8 %

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

Income before Provision of Income Tax

As a result of the factors described above, income before tax provision was $721,819 for the three months ended September 30, 2009, decreased by 44.4% from $1,298,028 for the same period in 2008. For the nine months ended September 30, 2009, income before tax provision was $1,284,917, decreased by 16.6% from $1,540,514 for the same period in 2008, mainly due to non-cash charge for stock options and professional fees.

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 September 30, 2009 was $397. The deferred income tax provision for the three months ended September 30, 2009 was $33,367 as result of temporary differences. No tax provision was required in the same period in 2008. For the nine months ended September 30, 2009, current income tax expense was $12,782 and deferred income tax for the future income expense was $200,860.

Net Income and Comprehensive Income

As a result of the factors described above, net income was $688,055 for the three months ended September 30, 2009, a decrease of $373,814, or 35.2%, from 1,061,869 for the same period in 2008. Comprehensive income for the three months ended September 30, 2009 was $698,524, a decrease of 37.7% from $1,120,720 for the same period in 2008. The decrease was due to a much smaller currency exchange gain of $10,469 that was included in other comprehensive income in this reporting period because of the relatively flat exchange rate between that US dollar and Chinese RMB. In contrast, there was a currency exchange gain of $58,851 in the same period in 2008. For the nine months ended September 30, 2009, net income of $1,071,275 decreased by $233,080, or 17.9% from $1,304,355 for the same period in 2008. In the same period, comprehensive income was $1,064,027, decreased by 35.8% from $1,657,234 for the same period in 2008 due to the unfavorable currency exchange rate.

Liquidity and Capital Resources

Cash Flows and Working Capital

As of September 30, 2009, we had cash and cash equivalents of $11,838,583

A large proportion of our cash and cash equivalents consist of proceeds from the IPO which was completed in September 2008. Such proceeds have been reserved for potential future strategic transactions, including potential mergers and acquisitions, and investment in developing new businesses or customer bases. 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 expansion strategies.

Comparison of Nine months Ended September 30, 2009 and 2008

Net cash used by operating activities totaled $137,858 for the nine months ended September 30, 2009, an decrease of $352,766 compared to cash used in operations of $490,624 for the nine months ended September 30, 2008. This decrease resulted primarily from the following changes in operating assets and liabilities:

??? $657,603 decrease in accounts receivable ??? $1,796,953 increase in unbilled revenues

??? $36,571 increase in prepayments, deposits and other receivables ??? $102,273 increase in inventories

??? $687,904 decrease in accounts payable and accrued liabilities ??? $57,426 increase in deferred revenue

Account receivable is the revenue recognized based on percentage completion of the projects and has been billed to the client. The decrease in accounts receivable was due to the fact that the contract payments from major customers have picked up during the first nine months in 2009.while we experienced rapid revenue growth. 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 fact that large proportion of the revenue recognized has yet been invoiced to our client.

The increase in prepayments, deposits and other receivables resulted from more deposit or prepayment to kick off projects from our clients.

The increase in inventories was resulted from the fact that the hardware equipment purchased for clients and has not been expensed to our cost of sales.

The decrease in accounts payable and accrued liabilities is the result of more payments made for these liabilities.

Deferred revenue represents advance payments not recognized as revenue. The increase was resulted from the increase of advanced payments for such projects.

Net cash used investing activities was $202,152 for the nine months ended September 30, 2009, compared to net cash used in investing activities of $566,956 for the nine months ended September 30, 2008. The cash used in investing activities for the nine months ended September 30, 2009 mainly occurred to acquire computer equipment for software development projects.

Cash flows from financing activities amounted to nil for the three months ended September 30, 2009.

The Company's working capital increased from $14,267,469 as of December 31, 2008 to $15,819,779 as of September 30, 2009.

Total current assets at September 30, 2009 amounted to $16,649,344, a decrease of $929,960 compared to $15,719,384 at December 31, 2008. The slight decrease was mainly due to decrease in the cash and equivalent account.

Current liabilities amounted to $829,565 on September 30, 2009 decreased by $622,350 compared to $1,451,915 at December 31, 2008. This decrease is mainly attributed to a decrease of 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 half year of 2009. In addition, the Company accrued $391,967 for both current and deferred income taxes.

The current ratio decreased from 21.64 at September 30, 2008 to 20.1 at September 30, 2009. The Company's management believes the 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 possibly increase as a result of new market opportunities 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.

Business Outlook

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

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

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