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Here’s the entire text of the Q&A from Ninetowns’ (ticker: NINE) Q3 2005 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Question-and-Answer Session

Operator

Ladies and Gentlemen, at this time if you would like to ask a question, please key “*”, “1” on your telephone. If your question has been answered or you wish to withdraw your registration please key “*”, followed by “2”. Please hold, while we compile a list of questions.

And your first question comes from the line of Mr. Ho Joon Lee, of JP Morgan.

Ho Joon Lee

Hello. Thank you very much, for your break in the third quarter results. I have a couple of questions. The number one question is, going forth into the fourth quarter and into first quarter, your revenue projection seems to be pretty good. Does that mean you think that you’re not likely to see any fall in the subscriber numbers because of this free software? And number two question I have is, you’re going to charge, did you say $550 for initialization fee for iDeclare. So is that, so if you’re an existing user of iDeclare, does that mean you have to pay $550 again? That’s the question. And third question is, how much, out of the free software users, what kind of a conversion rate for the premium service you think you’re going to achieve? And fourth question is, really, I don’t really see the difference between your previous model and your new pricing system except that the name has been changed. So could you explain to me a little bit more how your old license plus maintenance fee model differs from your new initialization and maintenance model?

Eric Ho

Ho Joon, thank you for your questions. I think the first one is for actually the fourth quarter of this year. I think on a revenue and net income basis, as I mentioned, we are reiterating our prior guidance. I think we do expect that the fourth quarter is going to be pretty much along with what we forecasted before. So, for the whole year we hope that on a revenue line that we will be in a range of $26 to $30 million, around that range. And also our EPS’s or ADS’s will be between $0.44 to $0.50. I think the second question is for iProcess and for iDeclare. As you mentioned that a iDeclare user would have to pay again $550, I think, what that is, is we mentioned the client, or the customer who needs to pay that down to $50 to initialize is for the free software user of iDeclare. So when the free software are launched, people who adopt this iDeclare free software, when they wish to upgrade to our premium services, they would need to pay this $550. And the third question is regarding this conversion rate. I think this is a good question. This question would have to be answered sometime later, because as I mentioned, we are in a process of launching our free software along with government. So really we don’t have any data to support what the conversion rate is going to be. So I think for this question it is something that will be paid much attention, as well. But I don’t have the answer for that at this point. The fourth question is the differences between a license and the services model of our business. The major difference is that previously when we go to customer or go to our clients, the very important image is that we are going to sell them a license, a software license. But now this software becomes free from the government, so we are not going to provide this software again. However, in our mind, we have always been reminded that the importance of Ninetowns services is our service package. So, in the future, we will pay a lot more focus or attention into the services that we provided to the customers. As I mentioned before, in the international trade arena, there are so many different sectors and very complicated. So a lot of information needs to be upgraded or updated on a very short term basis. So those are the services we will be focusing on in the future. So the difference is the license versus the services that we provide.

Ho Joon Lee

So, with your new system, what happens if you don’t pay your annual maintenance fee? Do you get cut off?

Eric Ho

Yes. This is, as you can see during the third quarter, our maintenance contract has actually keep the momentum that we sold more than 13,000 maintenance contracts in the third quarter. In the future, yes, it most likely will be the case that if someone who does not pay the maintenance, they will not get our services.

Ho Joon Lee

Can I just clarify just once more that your initialization fee will be $550 and your maintenance fee $108? On top of that you’ll be charging $2.50 iDeclare per filing?

Eric Ho

No, no. That $2.50 is for a certain region. The users who do not pay for the software, they will be charged on a per transaction basis. It’s not additional.

Ho Joon Lee

Okay. This is Guangdong area, though.

Eric Ho

Yes, yes. It’s in Guangdong and Dongguan area.

Ho Joon Lee

Has the price gone up for that? Or was it previous price?

Eric Ho

Yes. The price will be the same. It’s very difficult to add increased price for the customer.

Ho Joon Lee

Okay.

Eric Ho

We would wish to, though.

Ho Joon Lee

Okay.

Operator

Once again ladies and gentlemen please key “*”, “1” at this time. And your next question comes from the line of Mr. David Riedel of Riedel Research.

David Riedel

Hi, good morning, gentlemen.

Eric Ho

Good morning.

David Riedel

A quick question on the application filing, the $2.50, do you expect that model to expand to other provinces? And secondly, in the Guangdong area, is that an alternative to paying the $550 to upgrade to your premium service or is that in addition, in that area?

Eric Ho

Yes, David, thank you for your question. The first one is we actually wish we can expand the model to other area and region for that per transaction business model, but it’s very difficult. We have tried, because several large volume users, they will calculate their costs, so they will end up paying more. So for some historical reasons, the user in Guangdong and Dongguan areas, they are used to be charging that way. So far the charging method is being confined in that region. In Guangdong area, if the customer chooses to use other business model instead of being charged on a per transaction basis, I believe that they do have the choices.

David Riedel

I see. And a second question. Do you expect the government to mandate use of this software package at some point? Has that been discussed?

Eric Ho

I’m sorry. Use, what software? Do you mean the free software?

David Riedel

The e-filing. Correct.

Eric Ho

Oh. As I mentioned, we already have become the winner of this open bid of this software, so this software actually belongs to the government, this free software with basic functionality. So government will actually push our asset enterprise to use this software. They will mandate the software and we are trying to help government to make this e-government initiative become more prevalent.

David Riedel

Just to be clear, they will encourage the use, but not require the use?

Eric Ho

Well, I think this is a very subtle question and in terms of a require or recommend or mandate, let me ask our CEO. Maybe he can better understand, answer your questions. It is something that I need our CEO to help.

Shuang Wang

Response in Chinese

Eric Ho

I will do a little translation now. What Mr. Wang said is that the government will not enforce or will not force the enterprise to use the software, but they will definitely encourage the enterprise to use it. The way to encourage is not just by talking. The government will actually promulgate a lot of convenient rules for the enterprise who are using the e-filing. For example, for the enterprises who are using the e-filings, the merchandise or the product being sampled or being inspected, the probability will be lowered. So that will actually benefit enterprises who are using the e-filing software’s and that will reduce their time to the market that will reduce their costs. So the benefits, it’s very clear. By using all these regulations, the enterprise will be greatly encouraged to use this free software. So I think in summary, the government will not enforce the enterprise to use it, but that the government will definitely encourage the enterprise to use it and use some methods as well.

Shuang Wang

Response in Chinese

Eric Ho

I think Mr. Wang believes that the government uses free software policy is try to encourage, induce enterprise to use these better methods to do their filings in the government process. I think the intention is very good.

David Riedel

Thank you very much.

Eric Ho

Sure.

Operator

Once again, ladies and gentlemen, to ask a question, it is “*”, “1”.

And your next question comes from Mr. Berman of Morgan Stanley. Mr. Berman, your line is open; please go ahead with your question.

Berman

Hi, how are you?

Eric Ho

Hi.

Berman

I was wondering what your plans were for your cash. You have a very healthy cash balance and I was wondering if you foresaw any opportunities to possibly make an investment or possibly develop software for countries outside of your own?

Eric Ho

Yes, we do have more than $110 million on hand right now. As we always said that when we develop business, we would need to use a certain portion of cash for daily operations and we also would use for the R&D purpose, sales and marketing purpose. As I mentioned, we have more than 700 people of staff currently at this moment. And also, the other usage, a big chunk of the usage is we are constantly looking for M&A possibilities. Those businesses will actually benefit our core business. You mentioned that if we will be looking into any opportunities in the international arena. I think this is something in consideration, but we don’t have anything concrete yet. I don’t think we will rule out any possibilities, but at this moment we don’t have anything concrete.

Berman

And you mentioned looking at some M&A opportunities. Do you have anything there that you were considering or looking at right now?

Eric Ho

Yes. As we mentioned it before, our goal is to become an international trade service providers in China, along with this service line helping importers and exporters in China to facilitate their CIQ requirements reporting is just one of the functions. We are looking to other areas like customs and we are looking to other like foreign exchange administration reporting or filings. And we’re also looking to other international trade related services which will reduce time and costs for the importers and exporters. Those are the areas that we are looking at. And those are the areas that will help us to become a more effective international trade services provider.

Berman

Thank you.

Eric Ho

Yeah, I’m sorry, go ahead.

Berman

That was all, thank you.

Operator

Ladies and gentlemen, that conclude today’s question and answer session. I now turn it back to Mr. Shuang Wang for closing remarks.

Shuang Wang

Thank you operator and thank you again to everyone on today’s call. I just want to assure everyone we are working hard to meet the challenges during the transition period. Please feel free to call our investor relations agency in New York or you can contact us directly.

Lisa Zheng

Thank you, that’s it from us.

Shuang Wang

Thank you.

Operator

Ladies and gentlemen, this concludes today’s conference call. We thank you for your participation. You may now disconnect. Have a good day.

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