Attached files

file filename
EX-32 - Jingwei International LTDv185308_ex32.htm
EX-31.1 - Jingwei International LTDv185308_ex31-1.htm
EX-31.2 - Jingwei International LTDv185308_ex31-2.htm
 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
   
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2010.
or
   
¨
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: 000-51725
 
JINGWEI INTERNATIONAL LIMITED
(Exact name of registrant as specified in its charter)
   
Nevada
20-1970137
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
 
Room 701-702, Building14, Keji C. Rd.,2nd, Software Park,
Nanshan District,
Shenzhen, PRC 518057
(Address of Principal Executive Offices including Zip Code)
 
+86 1085251198
(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 Exchange Act 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. Yes x         No ¨
 
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*  Yes  o No  o *The registrant has not yet been phased into the interactive data requirements.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange. (Check one):
 
Large Accelerated Filer ¨
Accelerated Filer ¨
Non-Accelerated Filer ¨
Smaller Reporting Company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨    No x
 
As of May 13, 2010, there were 17,049,000 shares of the issuer’s common stock, par value $0.001 per share, outstanding.

 
 

 

PART I. FINANCIAL INFORMATION
 
   
Item 1.
Consolidated Financial Statements
3
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
4
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
8
     
Item 4.
Controls and Procedures
9
     
PART II. OTHER INFORMATION
 
   
Item 1.
Legal Proceedings
10
     
Item 1A.
Risk Factors
10
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
10
     
Item 3.
Defaults Upon Senior Securities
10
     
Item 4.
Removed and reserved
10
     
Item 5.
Other Information
10
     
Item 6.
Exhibits
10

 
2

 
 
PART I.
FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Consolidated Balance Sheets
F-1-2
   
Consolidated Statements of Income and Comprehensive Income
F-3
   
Consolidated Statements of Cash Flows
F-4
   
Notes to Consolidated Financial Statements
F-5-13

 
3

 

Jingwei International Limited and Subsidiaries
Consolidated Balance Sheets
(Stated in US Dollars)

   
March 31, 2010
   
December 31, 2009
 
   
(Unaudited)
   
 
 
ASSETS
           
Current assets
           
Cash and cash equivalents
  $ 9,908,282     $ 10,238,930  
Inventories
    4,471,802       2,316,043  
Accounts receivable, less allowance for doubtful accounts of $972,500 and $1,266,293, respectively
    23,586,226       23,456,704  
Other receivables, prepayments and deposits, less allowance for doubtful accounts of $175,740 and $175,712, respectively
    1,914,575       3,219,008  
Deferred tax assets
    224,115       257,837  
Total current assets
    40,105,000       39,488,522  
                 
Non-current assets
               
Property and equipment, net
    1,445,278       1,385,438  
Intangible assets, net
    15,521,949       16,283,425  
Long-term investment
    1,737,833       1,737,553  
Total non-current assets
    18,705,060       19,406,416  
                 
Total assets
  $ 58, 810,060     $ 58,894,938  

See notes to consolidated financial statements.

 
F-1

 

Jingwei International Limited and Subsidiaries
Consolidated Balance Sheets (Continued)
(Stated in US Dollars)

   
March 31, 2010
   
December 31, 2009
 
   
(Unaudited)
   
 
 
             
LIABILITIES AND EQUITY
           
Current liabilities
           
Accounts payable
  $ 2,961,446     $ 4,152,787  
Accruals and other payables
    1,175,089       1,279,474  
Income tax payable
    1,770,229       1,718,786  
Loan from a stockholder
    369,462       369,462  
Total current liabilities
    6,276,226       7,520,509  
                 
Non-current liabilities
               
Other liabilities
    2,990,832       2,930,257  
                 
Total liabilities
    9,267,058       10,450,766  
                 
Equity
               
Common stock, $0.001 par value; 75,000,000 shares authorized, 17,049,000 shares issued and outstanding
    17,049       17,049  
Additional paid-in capital
    15,708,374       15,643,139  
Statutory and other reserves
    2,916,292       2,916,292  
Retained earnings
    20, 753,968       19,734,935  
Accumulated other comprehensive income
    2,667,909       2,654,550  
Total Company’s stockholders' equity
    42, 063,592       40,965,965  
Noncontrolling interest
    7,479,410       7,478,207  
Total equity
    49, 543,002       48,444,172  
                 
Total liabilities and equity
  $ 58, 810,060     $ 58,894,938  

See notes to consolidated financial statements.

 
F-2

 

Jingwei International Limited and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(Stated in US Dollars)

   
Three Months Ended March 31,
 
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
 
             
Sales
  $ 5,119,752     $ 3,943,718  
Cost of sales
    2,421,935       2,422,306  
Gross margin
    2,697,817       1,521,412  
                 
Operating expenses
               
Selling, general and administrative expenses
    1,013,875       403,377  
Research and development costs
    733,202       253,857  
      1,747,077       657,234  
                 
Income from operations
    950,740       864,178  
                 
Other income (expense)
               
Subsidy income
    309,249       121,216  
Interest income
    23,008       4,024  
Interest expense
    (1,728 )     -  
Other expense
    (46,105 )     (14,066 )
      284,424       111,174  
                 
Income before income taxes
    1,235,164       975,352  
                 
Income tax expense
    216,131       354,654  
Net income
    1,019,033       620,698  
Less: net income attributable to noncontrolling interest
    -       -  
Net income attributable to the Company’s stockholders
    1, 019,033       620,698  
Foreign currency translation adjustment
    13,359       43,520  
Comprehensive income
  $ 1, 032,392     $ 664,218  
Comprehensive income attributable to noncontrolling interest
    1,203       18,547  
Comprehensive income attributable to the Company’s stockholders
    1,031,189       645,671  
                 
Basic earnings per share
  $ 0.06     $ 0.04  
Diluted earnings per share
  $ 0.06     $ 0.04  
                 
Weighted average number of shares outstanding
               
Basic
    17,049,000       17,049,000  
Diluted
    17,218,712       17,049,000  

See notes to consolidated financial statements.

 
F-3

 

Jingwei International Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Stated in US Dollars)

   
Three Months Ended March 31,
 
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
 
             
Cash flows from operating activities
           
Net income
  $ 1,019,033     $ 620,698  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    856,078       527,181  
Share-based compensation expense
    65,235       39,303  
Change in operating assets and liabilities:
               
Accounts receivable, net
    (129,522 )     281,895  
Other receivables, prepayments and deposits, net
    1,304,404       353,547  
Inventories
    (2,155,758 )     390,073  
Deferred tax assets
    33,722       -  
Accounts payable
    (1,191,341 )     (830,274 )
Accruals and other payables
    (104,385 )     (410,779 )
Income tax payable
    51,443       179,347  
Net cash (used in) provided by operating activities
    (251,091 )     1,150,991  
                 
Cash flows from investing activities
               
Acquisition of property and equipment
    (152,828 )     (10,289 )
Acquisition of intangible assets
    -       (3,433 )
Long-term investment
    -       (49,520 )
Net cash used in investing activities
    (152,828 )     (63,242 )
                 
Cash flows from financing activities
               
Repayment of loan from a stockholder
    -       (71,579 )
Net cash used in financing activities
    -       (71,579 )
                 
Effect of foreign currency fluctuation on cash and cash equivalents
    73,271       6,883  
           
`
 
Net (decrease) increase in cash and cash equivalents
    (330,648 )     1,023,053  
                 
Cash and cash equivalents - beginning of period
    10,238,930       5,472,408  
                 
Cash and cash equivalents - end of period
  $ 9,908,282     $ 6,495,461  
                 
Cash paid during the year for:
               
Income tax paid
  $ 131,220     $ 175,317  
Interest paid
  $ -     $ -  

See notes to consolidated financial statements.

 
F-4

 
 
Jingwei International Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Stated in US Dollars)
(Unaudited)
 
Note 1  CORPORATE INFORMATION AND DESCRIPTION OF BUSINESS

Corporation Information

Jingwei International Limited (the “Company”) formerly known as Neoview Holdings Inc. (“Neoview”), was established in Nevada, US on November 17, 2004. In May 2006, Mr. George (Jianguo) Du, President and Chairman of the board of directors of the Company, established Jingwei International Investments Limited (“Jingwei BVI”), a company organized under the laws of the British Virgin Islands (“BVI”) and a wholly owned subsidiary of the Company. Jingwei BVI has one wholly owned subsidiary, Jingwei International Investment (HK) Ltd. (“Jingwei HK”), which was established on October 31, 2006 in HongKong. On February 8, 2007, a wholly owned subsidiary of Jingwei HK, Jingwei Hengtong Technology (ShenZhen) Co. Ltd (“Jingwei Hengtong”) was established in People’s Republic of China (“PRC). On the same day, Jingwei Hengtong and Shenzhen Jingwei Communication Co., Ltd. (“Jingwei Communication”), a PRC company, entered into a series of contractual agreements (“contractual agreements”) for a ten-year term with early termination in accordance with certain terms of the agreements. Jingwei Hengtong has agreed to exclusively provide to Jingwei Communication technology consulting services, and to pay all of the operating costs incurred by Jingwei Communication, in exchange for all of its income from the business operations. Jingwei Hengtong also agrees to guarantee Jingwei Communication’s performance of its obligations under contracts, agreements and transactions between Jingwei Communication and third party customers. In return, Jingwei Communication had pledged its accounts receivables and all of its assets to Jingwei Hengtong. The stockholders of Jingwei Communication have also entered into pledge agreements with Jingwei Hengtong, pursuant to which they agreed to pledge all their rights and interests, including voting rights, in favor of Jingwei Hengtong. Finally, Jingwei Hengtong has the option to acquire the equity interests of the Jingwei Communication for a purchase price equal to its original purchase price or such higher price as required under PRC laws at the time of such purchase. Upon the execution of these agreements, the Company became the primary beneficiary of Jingwei Communication which was treated as a variable interest entity (“VIE”) of the Company.

Jingwei Communication has three subsidiaries, New Yulong Information Technology Co. Ltd. (“Yulong IT”) of which Jingwei Communication owns 100%, New Yulong Software Technology Development Co. Ltd. (“Yulong Software”) of which Jingwei Communication owns 51.89% and Yulong IT owns the other 48.11%, and Jiangsu Liandong Communication Ltd. ("Jiangsu Liandong") of which Jingwei Communications owns 100% equity interest. On July 23, 2008, Yulong IT established a 100%-owned subsidiary, Beijing New Media Advertising Co. Ltd. (“Beijing New Media”). On April 29, 2009, Yulong IT established a wholly-owned subsidiary, Shenzhen Xinguochuang Information Technology Company Limited (“Xinguochuang”).

As the Company is the primary beneficiary of Jingwei Communication, New Yulong IT, New Yulong Software, Xinguochuang, Jiangsu Liandong and Beijing New Media which are qualified as VIEs, the assets and liabilities and revenues and expenses of the VIEs have been included in the consolidated financial statements. The principal activities of the VIEs are in the provision of data mining and software development services. As of March 31, 2010 and for the year ended March 31, 2010, the VIEs had assets of $51.2 million, liabilities of $19.1 million, revenues of $3.7 million, and operating expenses of $1.6 million. The assets and liabilities include balances due from and due to the subsidiaries of the Company. These inter-company receivables and payables are eliminated upon consolidation of the VIEs with the Company and its subsidiaries. No assets were pledged or given as collateral against any borrowings.

 
F-5

 
 
Jingwei International Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Stated in US Dollars)
(Unaudited)
On May 16, 2007, Jingwei BVI entered into a share exchange agreement with Neoview, a public shell company ("Shellco"), Synergy Business Consulting LLC, a principal stockholder of Neoview, and the stockholder of Jingwei BVI. Pursuant to the share exchange agreement, Shellco acquired all of Jingwei BVI’s issued and outstanding shares from Jingwei BVI’s stockholders in exchange for the issuance to Jingwei BVI’s stockholders of 11,554,000 shares of Shellco common stock, constituting 86.4% of Shellco’s outstanding shares of common stock on a fully-diluted basis. As a result of this transaction, Jingwei BVI became a wholly-owned subsidiary of Shellco. Under accounting principles generally accepted in the United States (“US GAAP”), the share exchange is considered to be a capital transaction in substance, and accounted for as a change in capital structure resulting from a reverse acquisition. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Shellco, are those of the legal acquiree, Jingwei BVI, which is considered to be the accounting acquirer.

Immediately following the closing of the merger, Shellco consummated a private placement of 3,395,000 units, each consisting of one (1) share of common stock and 0.3 of a warrant to purchase one (1) share of common stock, for aggregate gross proceeds of $16,975,000 or $5.00 per unit. In conjunction with this offering, the Company paid a placement agent cash of $1,188,250, representing 7% of the aggregate gross proceeds of the offering, and issued the placement agent warrants to purchase 441,350 shares of its common stock, representing 10% of the total number of shares sold in the offering, and the warrants to purchase 1,018,500 shares of the Company’s common stock ("Warrant Shares").

Following the completion of the merger and the offering, the surviving Shellco changed its name from Neoview to Jingwei International Limited, and had 17,049,000 shares of common stock outstanding.

Description of Business

The Company, its subsidiaries and VIEs are collectively referred to as the “Group”.

The Group is one of the leading providers of data mining and interactive marketing and software services in PRC. The Group's services include market segmentation, customer trend and churn analysis, fraud detection and direct marketing services such as telemarketing, direct mailing and wireless value added services. The Group also operates a software services business, which provides a broad range of billing systems, provisioning solutions, decision support and customer relationship management systems for PRC’s leading mobile telecommunication carriers.

Note 2     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)
Basis of presentation and consolidation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the accounting policies described in the Group’s Form 10-K filed on March 31, 2010 (“2009 Form 10-K”), and requirements of Article 8 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the Group’s annual financial statements prepared in accordance with US generally accepted accounting principles (“US GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Group’s 2009 Form 10-K.

 
F-6

 
 
Jingwei International Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Stated in US Dollars)
(Unaudited)
 
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of consolidated financial position as of March 31, 2010, and consolidated results of operations, and cash flows for the three month periods ended March 31, 2010 and 2009, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
 
The Financial Accounting Standards Board (“FASB”) establishes the Accounting Standards Codification (“ASC”).

ASC 810 Consolidation addresses financial reporting for entities over which control is achieved through means other than voting rights. According to requirements, The Company evaluated its relationship with Jingwei Communication and concluded that Jingwei Communication is a VIE for accounting purpose, as a result of the contractual arrangements, which enable the Company to control and to be the primary beneficiary of Jingwei Communication. Accordingly, the Company adopted the provisions of ASC 810 Consolidation and consolidated Jingwei Communication. All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company used the purchase method to consolidate Jingwei Communication, with the current assets and liabilities recorded at fair value which approximated their historic book value on January 31, 2007, the effective date (“effective date”) of the contractual agreements. The fair value of the acquired net assets of Jingwei Communication was $6,566,914 on the effective date, after eliminated all the intercompany transaction and balances, and was recognized as noncontrolling interest on the consolidated balance sheet. The noncontrolling interest changes only for translation adjustments since 100% of all income and losses are allocated to the Company in accordance with the contractual agreements and there are no dividend distributions to noncontrolling interest. The noncontrolling interest was amounted to $7,479,410 and $7,478,207 as of March 31, 2010 and December 31, 2009, respectively.

b)
Use of estimates

In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the amounts of revenues and expenses during the period ended March 31, 2010 and 2009. Actual results could differ from those estimates.

c)
Fair value of financial instruments

The carrying values of the Group’s financial instruments, including cash and cash equivalents, accounts receivable, other receivables, prepayments and deposits, account payable, accruals and other payables, and loan from a stockholder approximate their fair values due to the short-term maturity of such instruments.

d)
Recently enacted accounting standards
 
In April 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-13, “Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades” a consensus of the FASB Emerging Issues Task Force. The update affects entities that issue employee share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades that differs from the functional currency of the employer entity or payroll currency of the employee. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier application is permitted. Management is currently evaluating the impact of adopting this update on the Company’s consolidated financial statements.

 
F-7

 
 
Jingwei International Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Stated in US Dollars)
(Unaudited)
 
In February 2010, FASB issued ASU No. 2010-09 (“ASC Topic 855”) which removes the requirement for an SEC filer to disclose a date in both issued and revised financial statements. This amendment shall be applied prospectively for interim or annual financial periods ending after June 15, 2010. Management does not believe the adoption will have a material effect on the Group’s consolidated financial statements.

Since the filing of 2009 Form 10-K, the FASB issued ASU No. 2010-12 through No. 2010-18. These ASUs, except for No. 2010-13, entail technical corrections to existing guidance or affect guidance related to specialized industries or entities and therefore have minimal, if any, impact on the Group.

Note 3     ACCOUNTS RECEIVABLE

   
March 31,
2010
(Unaudited)
   
December 31,
2009
 
Accounts receivable
  $ 24,558,726     $ 24,722,997  
Less: allowance for doubtful debts
    972,500       1,266,293  
    $ 23,586,226     $ 23,456,704  

Note 4     INVENTORIES

At March 31, 2010 and December 31, 2009, inventories consist of:

   
March 31,
2010
(Unaudited)
   
December 31,
2009
 
Project costs
  $ 3,642,332     $ 2,271,943  
Others
    829,470       44,100  
    $ 4,471,802     $ 2,316,043  

Note 5     INTANGIBLE ASSETS, NET

The breakdown of the intangible asset balance as of March 31, 2010 and December 31, 2009 as well as related amortization period for each asset class is as follows:
  
Cost
 
March 31, 2010
(Unaudited)
   
December 31, 2009
 
Amortization Period
Database
  $ 14,494,371     $ 14,492,880  
8 years
Strategic alliance
    5,785,463       5,784,532  
5.5 years
Non-compete agreement
    316,409       316,358  
2 years
Software
    200,837       200,837  
8years
      20,797,080       20,794,607    
Less: accumulated amortization
    5,275,131       4,511,182    
    $ 15,521,949     $ 16,283,425    

 
F-8

 
 
Jingwei International Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Stated in US Dollars)
(Unaudited)
 
Intangible assets represent acquired databases, strategic alliance, non-compete agreement and software. Amortization expense for the three months ended March 31, 2010 and 2009 was $763,949 and $448,166, respectively.

Note 6     INCOME TAX EXPENSE

United States

Jingwei International Limited is subject to the United States of America Tax law at tax rate of 34%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the quarter ended March 31, 2010 and 2009, and believes that its earnings are permanently invested in PRC.

BVI

Jingwei BVI was incorporated in the BVI and, under the current laws of the BVI, it is not subject to income taxes.

Hong Kong

Jingwei HK was incorporated in Hong Kong and is subject to Hong Kong profits tax. The Company is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. The applicable statutory tax rate is 16.5%.

PRC

The applicable income tax rate for the Group’s PRC operating companies, Yulong IT, Yulong Software, Jingwei Hengtong, Jingwei Communication, Beijing New Media, Xinguochuang and Jiangsu Liandong, are described as follows: Yulong IT and Yulong Software are qualified as high-tech software enterprises and entitled to a preferential income tax rate of 15% and 22% respectively in 2010. Jingwei Hengtong, Jingwei Communication and Jiangsu Liandong were subject to 25% income tax rate in 2010. Beijing New Media as a small business taxpayer and taxed on a deemed basis, i.e. 2.5% of its reported total revenue, due to its small business status. In April 2010, State Tax Bureau approved Xinguochuang for its application for preferential enterprise income tax treatment, which exempted the entity from income tax for two years beginning with its first year of profitable operations, and entitled it to a 50% tax reduction to 12.5% for the subsequent three years and 25% thereafter.

During the three months ended March 31, 2010, the Group recognized an income tax expense of $0.22 million on pretax income of $1.24 million, representing an effective income tax rate of 17.5%, as compared to an income tax expense of $0.35 million on a pretax income of $0.98 million, representing an effective income tax rate of 36.4% for the same period in 2009. The much higher effective tax rate in the first quarter of 2009 was primarily the result of an adjustment in income tax expense to reflect the impact of a hike in enterprise income tax rate on the Group’s deferred tax liability.

 
F-9

 
 
Jingwei International Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Stated in US Dollars)
(Unaudited)
 
Note 7     SHARE-BASED COMPENSATION

On May 21, 2008, The Company adopted Jingwei International Limited 2008 Omnibus Securities and Incentive Plan (the “Plan”). The Plan provides for the granting of Distribution Equivalent Rights, Incentive Stock Options, Non-Qualified Stock Options, Performance Share Awards, Restricted Stock Awards, Stock Appreciation Rights, Tandem Stock Appreciation Rights, Unrestricted Stock Awards or any combination of the foregoing, as may be best suited to the circumstances of the particular employee, director or consultant as provided herein.

On April 16, 2008 the Company granted total of 44 key employees of the Company, options to purchase a total of 260,400 shares of the Company’s common stock at a strike price equal to US$4.95 and vested equally in four years with 65,100 shares in each year. The contractual term is 10 years and it is non-transferable. Based on the Black-Scholes option pricing model, the options were valued at $2.278 per unit with an assumed 80.20% volatility, 6.25 years term for the options, a risk free rate of 3.27% and a dividend yield of 0%.  As of March 31, 2010, a total of 103,300 options have been forfeited.

On June 12, 2008 the Company granted to Strategic Growth International, Inc (“SGI”) options to purchase a total of 150,000 shares of the Company’s common stock at a premium strike price of US$7.00 per share as part of the compensation for investor relations service (the “service”). The contractual term is 5 years and it is non-transferable; however, hedging is not prohibited. The options were valued at $2.669 per unit using the Black-Scholes option-pricing model with an assumed 70.10% volatility, a five year term for the options, a risk free rate of 3.715% and a dividend yield of 0%. These options vest in 4 quarterly installments in equal amount of 25,000 beginning with the date of the grant and the balance of 50,000 vesting on June 5, 2009. The consulting expense for the service is recognized on a straight-line basis over the one year period of the related consulting contract. On October 5, 2008 the company terminated the service of SGI. Upon the termination of the service, pursuant to Section 4 of the option agreement, the Company rescinded 117,000 options granted to SGI pursuant to the terms of the Agreement. Correspondingly, pursuant to Section 5 of the option agreement and Section 6.3 of the Plan, the Option Agreement hereinafter represents the right to purchase 33,000 Shares on the terms and conditions contained therein.

On September 29, 2009 the Company granted to Rick Luk, the CEO of the Company, options to purchase a total of 200,000 shares of the Company’s common stock at a strike price equal to the greater of fair market value of the stock at grant date or US$1.64 to be vested quarterly over three years. The contractual term is 10 years. Based on the Black-Scholes option pricing model, the options were valued at $0.883 per unit.

On November 5, 2009 the Company decided to grant to ToneTat Investment Limited (“ToneTat”) options to purchase a total of 500,000 shares of the Company’s common stock at a premium strike price of $2.10 per share as part of the compensation for investor relations service. Among the total 500,000 options, 100,000 option were immediately vested and exercisable as of November 5, 2009; another 100,000 shares become vested and exercisable upon ToneTat’s satisfactory completion of six months of services for the Company pursuant to the terms of the Consulting Services Agreement entered into as of November 5, 2009; the remaining 300,000 shares become vested and exercisable solely if and when the common stock is successfully listed on NASDAQ by no later than November 5, 2010. The contractual term is 3 years and it is non-transferable. The options were valued at $0.76 per unit using the Black-Scholes option-pricing model.

 
F-10

 
 
Jingwei International Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Stated in US Dollars)
(Unaudited)
 
On February 23, 2010 the Company granted to Yong Xu, the CFO of the Company, options to purchase a total of 150,000 shares of the Company’s common stock at a strike price equal to the greater of fair market value of the stock at grant date or $2.05 to be vested over two years. The contractual term is 10 years. Based on the Black-Scholes option pricing model, the options were valued at $1.21 per unit.

The Company has accounted for share-based compensation expense, based on the grant date fair values of the awards. Estimates of fair value are not intended to predict actual future events or the value that ultimately will be 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 for accounting purposes.

For the three months ended March 31, 2010 and 2009, total share-based compensation expense recognized for options under the Plan was $65,235 and $39,303 respectively.

The following table summarizes all Company stock option and warrant transactions for the three months ended March 31, 2010:
  
   
Number of
options and 
warrants
   
Weight
average
exercise price
   
Weight average
remaining contractual
life (Years)
 
Outstanding, January 1, 2010
    2,053,250     $ 5.27       3.21  
Granted
    150,000     $ 2.05       9.92  
Forfeited
    (103,300 )   $ 4.95       8.08  
Outstanding, March 31, 2010
    2,099,950     $ 5.05       3.20  

Exercisable options and warrants as of March 31, 2010:

Range of exercise
prices
   
Number outstanding
currently exercisable as
of March 31, 2010
   
Weighted average
remaining
contractual life
(years)
   
Weighted average
exercise price of
options currently
exercisable
 
                     
  $1.64-$7.00       1,771,440       2.07     $ 5.52  

Note 8  BASIC AND DILUTED EARNINGS PER SHARE

Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares comprise shares issuable upon the exercise of share based awards, using the treasury stock method. The reconciliation of the numerators and denominators of the basic and diluted EPS computations for income from continuing operations is shown as follows:

 
F-11

 
 
Jingwei International Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Stated in US Dollars)
(Unaudited)
 
   
Three Months Ended March 31,
 
   
2010
(Unaudited)
   
2009
(Unaudited)
 
Numerator for basic and diluted earnings per share:
           
Net income
  $ 1,019,033     $ 620,698  
Denominator for basic earnings per share—weighted average shares outstanding
    17,049,000       17,049,000  
Dilutive effect of stock-based compensation plan
    169,712       -  
Denominator for diluted earnings per share
    17,218,712       17,049,000  
Basic earnings per share
  $ 0.06     $ 0.04  
Diluted earnings per share
  $ 0.06     $ 0.04  

Options and warrants to purchase 2,099,950 shares of common stock at an average price $5.05 per share were outstanding during the three months ended March 31, 2010, but options and warrants to acquire 1,649,950 shares of common stock were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares. These options and warrants were still outstanding as of March 31, 2010.

Note 9     SEGMENT INFORMATION

The Company has two reportable segments based on the type of services provided, data mining services, and software and system services. Information for the segments for the three months ended March 31, 2010 and 2009 in accordance with ASC 280 Segment Reporting is shown as follows.
  
   
Three Months Ended March 31,
 
   
2010
   
2009
 
   
Data mining
Services
   
Software
Services
   
Total
(Unaudited)
   
Data mining
Services
   
Software
Services
   
Total
(Unaudited)
 
Net revenue
  $ 3,070,132     $ 2,049,620     $ 5,119,752     $ 2,189,696     $ 1,754,022     $ 3,943,718  
Gross margin
    1,328,624       1,369,193       2,697,817       988,257       533,155       1,521,412  
Net income
    519,088       499,945       1,019,033       403,184       217,514       620,698  
Segment assets
    41,341,516       17,468,544       58,810,060       34,599,731       11,815,819       46,415,550  
Depreciation and amortization
    820,603       35,475       856,078       491,757       35,424       527,181  
Expenditure for segment assets
  $ 152,828     $ -     $ 152,828     $ 13,720     $ -     $ 13,720  

There is no inter-segment revenue. Segment assets include property and equipment and intangible assets.

 
F-12

 
 
Jingwei International Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Stated in US Dollars)
(Unaudited)
 
Note 10   COMMITMENT AND CONTINGENCY

Lease Commitment

Future minimum lease payments under non-cancellable operating leases as of March 31, 2010 are as follows:

Within 1 year
  $ 162,478  
Within 1-2 years
    144,714  
Within 2-3 years
    131,759  
Thereafter
    10,980  
    $ 449,931  

Other contractual obligations

On February 29, 2008, New Yulong IT engaged the Research Institute of Tsinghua University (“Research Institute”) to conduct a multi-year research and development joint project for a total consideration of RMB7.0 million ($1,023,811). However, due to key personnel changes at the Research Institute, there had been little to no progress in 2009 and the project had been on hold and the agreement was effectively cancelled in accordance with the default clause in the agreement. As of March 31, 2010, RMB500,000 ($73,129) has been paid, and there is no further payment obligation to the Research Institute in accordance with the default clause for project termination in the original agreement.

Legal matter

On September 5, 2008, Beijing New Media provided a short-term loan of RMB2.0 million ($292,255) at zero interest rate to Shanghai Jujun Infotech Limited (“Jujun”), with its majority shareholder and Chairman Jerry Yu providing personal guarantee, for its general business development. In 2009, Jujun paid back only RMB300,000 ($43,988) but defaulted on the rest. On November 10, 2009, the Company submitted the dispute over RMB1.7 million ($249,267) to Shenzhen Arbitration Commission for arbitration against Jujun and Jerry Yu. For the above legal matter, no contingent reserve has been recorded in the balance sheets as such potential losses are not deemed estimable.

NOTE 11  SUBSEQUENT EVENTS

As of May 17, 2010, the Company did not have significant subsequent event.

 
F-13

 

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

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial conditions of Jingwei International Limited (the “Company”). Throughout this document, references to “we,” “our,” “the Group” or “Jingwei” refer to Jingwei International Limited and its subsidiaries and VIEs. MD&A should be read in conjunction with our interim consolidated financial statements and the accompanying notes, and the other financial information included in this report.
 
NOTE REGARDING FORWARD-LOOKING STATEMENTS

This filing contains forward-looking statements. The words “anticipated,” “believe,” “expect, “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission (“SEC”) from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.
 
Business Overview

Jingwei has evolved from the conventional data mining and customer relationship marketing services business to become a leading provider of data mining and interactive marketing and software services in the People’s Republic of China (the “PRC” or “China”). With a customer database of about 400 million Chinese consumers, we enable leading multinational and Chinese companies to reach their target audience. Currently, we operate two business segments in China: data mining and software services.

In the data mining segment, we offer a rich portfolio of business intelligence and interactive marketing services powered by our proprietary consumer database and the software tools we developed over the years. Our services include market segmentation, customer trend and churn analysis, fraud detection and a range of interactive marketing and advertising services such as telemarketing, direct mailing, mobile advertising, mobile value-added services (“MVAS”) and mobile application solutions. In the Software Services segment, we provide a broad range of billing systems, provisioning solutions, decision support and customer relationship management systems for China’s leading telecommunication carriers. The software services business complements and strengthens sales opportunities for our high margin data mining and interactive marketing services platform, which not only allows us to enhance our customer database, it also provides useful tools to allow us to leverage the telecom resources to provide comprehensive multi-media marketing and advertising delivery channels to reach the target consumers for our corporate customers.

We have been investing heavily in research and development in data mining tools to enable the Group to cross reference different sources for its vast data. We continue to expand our product offerings as well as create innovative data mining software tools to enhance our service offerings to support database marketing and interactive marketing for our clients. In addition, to capitalize on the burgeoning growth of mobile applications and consumers spending, we are developing smart interactive mobile value-added services as well as enhancing our interactive marketing platform to support mobile internet marketing and application solutions for our clients to provide high value services to business enterprises and the consumers.

 
4

 
 
The primary geographic focus of our operations is in China including Hong Kong Special Administrative Region (“Hong Kong” or “HK”), where we derive all of our sales. We conduct our business operations through Jingwei Hengtong Technology (ShenZhen) Co. Ltd (“Jingwei Hengtong”), a wholly-owned subsidiary company that became the primary beneficiary of Shenzhen Jingwei Communication Co., Ltd. (“Jingwei Communication”) via various contractual agreements. Jingwei Communication has three subsidiaries: New Yulong Information Technology Co. Ltd (“Yulong IT”), New Yulong Software Technology Development Co. Ltd (“Yulong Software”) and Jiangsu Liandong Communication Ltd. ("Jiangsu Liandong"). In addition, Yulong IT wholly owns two subsidiaries: Beijing New Media Advertising Co. Ltd. (“Beijing New Media”) and Shenzhen Xinguochuang Information Technology Company Limited (“Xinguochuang”).

We believe our future growth is in the broad adoption of our data mining and interactive marketing service as well as mobile Internet solutions across various business segments by leveraging our resourceful consumer database to provide target marketing for domestic and multinational companies who want to carve out a burgeoning consumer market in China. In order to cement our leadership position in data mining and interactive marketing, we will need to continuously refresh, update and increase the number of profiles of our consumer database, enhance our data mining and interactive marketing infrastructure including the addition of new hardware and software capabilities as well as expanding our web-enabled call center operations to multiple cities.
 
Business Outlook and Other Recent Developments
 
Riding on the momentum established in the last two quarters, the Company delivered strong performance in the first quarter of 2010 in both sales and earnings compared to the same period last year.  In data mining, the strategic business partnering agreement with Shenzhen Newway Digital S&T Co., Ltd. in 2009 has helped the Group expand its product offering into 3G related value-added services (“VAS”) and there was strong demand in the last quarter for its bundled mobile VAS solutions.
 
In software services, we have seen increasing demand for our software services in the telecom sector as operators are expanding their deployment of internet protocol TV (“IPTV”) and digital TV (“DTV”) network nationwide. In addition, there is also demand for new management support systems to support the infrastructure and network buildup. We expect this trend to continue to contribute to the sales and earnings growth of the software service through 2010.
 
In the quarter, the Group has finalized an agreement with our strategic partner to design and develop an “APP Store” application for a major telecom operator for pilot trial in March in Sichuan province. This pilot system was deployed in March and is now in acceptance and trial stage. In April 2010, the Group also successfully worked with a second major telecom carrier on an APP store application. We are now in the final stage of our negotiation for a pending contract and we expect we will be able to launch a second system for pilot trial in Shanghai in the second half of 2010.
 
In the data mining segment, the Group successfully opened a call center in Jiangsu Province in the first quarter of 2010.  This is deployed as an outsourced “e-Contact” center with integrated telemarketing and customer support capabilities to support the business promotion and customer care programs for the telecom operators nationwide. We expect to see more significant sales contributions from this business area in the second half of 2010. To support the growth of our business in interactive marketing, we plan to make major capital investment in capbability enhancement and building up more call centers across the country in 2010.

 
5

 
 
RESULTS OF OPERATIONS
 
Sales
  
 
Three Months Ended March 31
       
 
2010
 
2009
   
% Change
 
 
(In thousands, except percentages)
       
   
(Unaudited)
   
% of sales
   
(Unaudited)
   
% of sales
       
Sales:
                             
Data mining
  3,070       60 %   $ 2,190       56 %     40 %
Software Services
    2,050       40 %     1,754       44 %     17 %
Total Sales
  5,120       100 %   $ 3,944       100 %     30 %

Total sales were $5.1 million for the three months ended March 31, 2010, compared to $3.9 million for the three months ended March 31, 2009. The year-on-year increase in total sales for the first quarter of 2010 was $1.2 million. The increase was mainly attributable to data mining sales.
 
Data mining. Data mining sales increased 40% for the three months ended March 31, 2010, as the demand for the Group’s data mining service including bundled mobile VAS solutions continued to grow.
 
Software Services.  Software services sales increased 17% for the three months ended March 31, 2010. The increase was mainly due to an increase in demand for the Company’s software services to support the expanding deployment of IPTV and DTV by major telecommunication operators in China.
 
Cost of Sales  
  
 
Three Months Ended March 31
       
 
2010
(Unaudited)
 
2009
(Unaudited)
   
% Change
 
 
(In thousands, except percentages)
     
Cost of sales:
                 
Data mining
  1,742     $ 1,201       45 %
Software Services
    680       1,221       -44 %
Total Cost of Sales
  2,422     $ 2,422       0 %

Total cost of sales was $2.4 million for the three months ended March 31, 2010, staying the same as $2.4 million for the same period in 2009..
 
Data mining. Cost of data mining increased 45% for the three months ended March 31, 2010 and is in line with the increase in sales.
 
Software Services.  Cost of software services decreased 44% for the three months ended March 31, 2010. The decrease was attributed to an improvement in product mix, as the software products delivered this quarter required fewer developers to complete the project.

 
6

 
 
Gross Profit Margin
  
   
Three Months Ended March 31
       
   
2010
   
2009
   
% Change
 
Gross Profit Margin:
                 
Data mining
    43 %     45 %     -2 %
Software Services
    67 %     30 %     37 %
Total Sales
    53 %     39 %     14 %

Overall gross margin increased by 14% year over year for the three months ended March 31, 2010, which was primarily due to a change in mix resulting from a 37% increase in software services offset by a 2% decrease in data mining.

Data mining. The gross margin of data mining decreased by 2% year over year for the three months ended March 31, 2010, due to unfavorable product mix and pricing pressure from competition.
 
Software Services.  The gross margin of software services sales increased 37% for the three months ended March 31, 2010. The increase was mainly due to an improvement in product mix, as the software products delivered this quarter required fewer developers to complete the project.
 
Operating Expenses
  
 
Three Months Ended March 31
       
 
2010
 
2009
       
 
(In thousands, except percentages)
       
   
(Unaudited)
   
% of
total
sales
   
(Unaudited)
   
% of
total
sales
   
% of Changes
 
                               
Selling, General and Administrative Expenses
  1,014       20 %   $ 403       10 %     151 %
Research and Development Costs
    733       14 %     254       6 %     189 %
Total Expenses
  1,747       34 %   $ 657       16 %     166 %
 
Selling, General and Administrative Expenses.  Selling, general and administrative expenses consist primarily of compensation and incentive expenses, entertaining and marketing expenses, fees for professional services, traveling and transportation expenses, and office expenses. The increase can be attributed to an annual bonus distributed in the current period and increased shared-based compensation and office expenses, while the board did not approve a 2008 annual bonus plan in the same period of 2009.
 
Research and Development Costs.  Research and development costs consist primarily of personnel-related expenses and amortization of acquired intangibles for the development of software and maintenance of our database. The increase of research and development costs in the current period was mainly attributed to the increased research and development efforts on APP Store projects, and the amortization of acquired intangibles used in research and development activities.

 
7

 
 
LIQUIDITY AND CAPITAL RESOURCES
  
   
March 31, 2010
(Unaudited)
 
December 31, 2009
 
   
(In thousands)
 
Cash and cash equivalents
  $ 9,908     $ 10,239  
Working capital
    33,829       31,968  
Stockholder’s equity
  $ 49,543     $ 48,444  
 
As of March 31, 2010, we had $9.9 million in cash and cash equivalents. We believe that our ability to generate strong cash flow from our operating activities, along with our available cash will be sufficient to fund our operating activities, capital expenditures and other obligations through 2010.

The following tables set forth the movements of our cash and cash equivalents for the periods presented:
  
   
Three Months Ended March 31
 
   
2010
(Unaudited)
   
2009
(Unaudited)
 
   
(In thousands)
 
Net cash (used in) provided by operating activities
  $ (251 )   $ 1,151  
Net cash used in investing activities
    (153 )     (63 )
Net cash used in financing activities
    -       (72 )
Effect of foreign currency translation on cash and cash equivalents
    73       7  
Net (decrease) increase in cash and cash equivalents
    (331 )     1,023  
Cash and cash equivalents - beginning of period
    10,239       5,472  
Cash and cash equivalents - end of period
  $ 9,908     $ 6,495  
 
Operating activities
Net cash used in operating activities for the three months ended March 31, 2010 was $0.25 million. This was primarily attributable to the net income of $1.02 million, adjusted by non-cash items of share-based compensation expense of $65,235, and depreciation and amortization of $0.86 million, offset by a net decrease in cash from working capital items of $2.2 million.
 
Investing activities
 
Net cash used in investing activities for the three months ended March 31, 2010 was $152,828, which was attributable to acquisition of properties and equipment.
 
Financing activities
 
No cash has been used in or provided by financing activities for the three months ended March 31, 2010.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
None.
 
Item 3.     Quantitative and Qualitative Disclosures About Market Risk
 
Not applicable.

 
8

 
 
Item 4.     Controls and Procedures

Disclosure Controls and Procedures  

Under the supervision and with the participation of our management, including our chief executive officer and the chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Securities Act”) as of March 31, 2010, the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the material information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to us and our consolidated subsidiaries, and communicated to our management (including our principal executive officer and principal financial officer), as appropriate to allow timely decisions regarding required disclosure.

Changes in internal controls over financial reporting

There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Securities Act) during the three months ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 
9

 
 
PART II.
OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
 
There have been no material developments in the legal proceedings reported in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 31, 2010.
 
Item 1A.  Risk Factors
 
We are not required to respond to this item because we are a smaller reporting company.
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Not applicable.
 
 
Item 3.
Defaults Upon Senior Securities
 
Not applicable.
 
 
Item 4.
Removed and reserved
 
 
Item 5.
Other Information
 
None.
 
 
Item 6.
Exhibits
 
The following exhibits are furnished as part of the Quarterly Report on Form 10-Q:
 
Exhibit
Description
 
31.1
Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2
Certification of the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32
Certifications of the Chief Executive Officer (Principal Executive Officer) and the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
10

 
 
SIGNATURES
 
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: May 17, 2010
  JINGWEI INTERNATIONAL LIMITED
     
 
By: 
/s/ Rick Luk
   
Name: Rick Luk
   
Title: Chief Executive Officer
   
(Principal Executive Officer)
     
 
By:
/s/ Yong Xu
   
Name: Yong Xu
   
Title: Chief Financial Officer
   
(Principal Accounting and Financial Officer)

 
11