eFuture Announces Third Quarter 2010 Unaudited Financial Results

BEIJING, Nov. 22, 2010 (GLOBE NEWSWIRE) -- eFuture Information Technology Inc. (Nasdaq:EFUT) (the "Company" or "eFuture"), a leading provider of software and services in China's rapidly growing retail and consumer goods industries, today announced its unaudited financial results for the third quarter ended September 30, 2010.

THIRD QUARTER 2010 FINANCIAL HIGHLIGHTS

• Total revenue increased 28.8% year-over-year to RMB32.5 million (US$4.9 million).

• Revenue from software license sales decreased 17.7% year-over-year to RMB11.4 million (US$1.7 million) compared to RMB13.8 million in the third quarter 2009.
• Revenue from hardware sales increased 1,127.6% year-over-year to RMB9.8 million (US$1.5 million), compared to RMB799,850 in the third quarter 2009.
• Service fee income increased 6.4% to RMB11.3 million (US$1.7 million), compared to RMB10.6 million in the third quarter 2009.

• Gross profit increased 29.0% year-over-year to RMB12.4 million (US$1.9 million). Gross margin was 38.3%, in line with the third quarter 2009.
• Adjusted EBITDA for the third quarter 2010 was negative RMB4.8 million (negative US$718,206), compared with negative RMB716,158 in the third quarter 2009.
• Operating loss was RMB10.2 million (US$1.5 million), compared with an operating loss of RMB5.9 million in the third quarter 2009.
• Net loss was RMB5.6 million (US$832,699), compared with a net loss of RMB4.2 million in the third quarter 2009.
• Adjusted net loss was RMB670,481 (US$100,215), compared with adjusted net income of RMB706,275 in the third quarter 2009.
• Basic and diluted net losses per share were RMB1.55 (US$0.23), as compared to basic and diluted net losses per share of RMB1.24 in the third quarter 2009.
• Adjusted basic and diluted net losses per share were RMB0.19 (US$0.03), as compared to basic and diluted net earnings per share of RMB0.21 in the third quarter 2009.

Mr. Adam Yan, Chairman, Chief Executive Officer ("CEO") and Acting Chief Financial Officer ("CFO"), said, "I'm pleased to report a third consecutive quarter of robust top-line growth, with revenue up 29% year-over-year, exceeding guidance. The sales organization restructuring we completed during the first quarter of 2010 positioned us to deepen revenue penetration among existing clients as they expand amid the market rebound, and to also win business from new clients. The enhanced efficiency of our sales organization allowed us to achieve a 91% increase in the value of executed software license and services contracts compared with the third quarter of 2009, while achieving stable selling and distribution expenses as a percentage of revenue.

Mr. Dehong Yang, President, added, "Our restructured sales organization and the investment we have made in extending penetration into tier-2 and tier-3 cities paid dividends during the third quarter 2010. Furthermore, a large proportion of the significant year-over-year rise in contracts signed was from tier-2 and tier-3 cities as we capitalized on the increasing penetration into these cities by top 100 retailers within our existing client base, as well as by signing new clients with local operations. To complement the great strides we have made on the sales front, we increased investment in research and development to further broaden our service offerings and generate new revenue streams, mitigate the impact of seasonality, and optimize our revenue mix."

Mr. Yan concluded, "As we move into our traditionally strong fourth quarter, we are well positioned to benefit from the continued positive outlook for China's retail and consumer goods industries, and we expect particularly robust demand for our grocery, logistics, support service and system integration solutions. We will continue to invest to enhance our client offerings, and ensure we have the structures and processes in place to best capture future growth opportunities from new and existing clients, while continuing to execute on cost management initiatives to achieve our financial objective of profitable growth over the long term. Our strategy remains to strengthen our higher margin core software business, increase our more stable recurring service fee revenues, extend penetration into tier-2 and tier-3 cities, and keep our focus on innovation."

OPERATIONAL UPDATES

Share Purchase Agreement

On September 23, 2010, eFuture entered into a share purchase agreement to sell 337,685 ordinary shares to 13 shareholders for US$1,813,368 in cash. The largest purchaser in the sale will be eFuture Inc., which is a Cayman Islands holding company whose members include members of eFuture's management team. eFuture's Chairman, CEO and Acting Chief Financial Officer, Adam Yan, founded and exercises voting control over eFuture Inc. eFuture Inc. will purchase 152,604 shares. The remaining 185,081 shares will be sold to 12 individuals who include a board member (other than an independent director), management and key employees of eFuture. eFuture plans to close the transaction as soon as possible and the net proceeds from the sale of the ordinary shares will be used for general corporate purposes.

As well as providing additional capital to pursue growth opportunities in China's retail and consumer goods markets, the share purchase agreement enabled the participants to demonstrate their commitment to, and continued confidence in, eFuture's long-term prospects.

THIRD QUARTER 2010 FINANCIAL RESULTS

Revenue

Total revenue for the third quarter 2010 increased 28.8% to RMB32.5 million (US$4.9 million) from RMB25.2 million in the third quarter 2009.

Despite the fact that the value of software license contracts increased 63% year-over-year, software license revenue decreased 17.7% year-over-year to RMB11.4 million (US$1.7 million) as some software license contracts bundled with delivery service had not yet reached the point of revenue recognition.

Hardware revenue increased 1,127.6% year-over-year to RMB9.8 million (US$1.5 million), compared to RMB0.8 million in the third quarter 2009, when economic conditions were more challenging and before the restructuring of eFuture's sales organization. Although hardware is not an area of focus for eFuture as margins are not as high as for software license and service fee income, the Company needs to provide hardware as part of its total solution, as a complement to its other offerings.

Supported by a 123% increase in service contracts value compared with the third quarter of 2009, service fee income increased 6.4% year-over-year to RMB11.3 million (US$1.7 million), compared to RMB10.6 million in the third quarter 2009. The year-over-year rise in service fee income was largely attributable to the booking of revenue in the third quarter relating to the delivery of contracts signed during the first half of 2010.

Revenue Breakdown

Cost of Revenue

Cost of revenue for the third quarter 2010 increased 28.6% to RMB20.0 million (US$3.0 million) from RMB15.6 million in the third quarter 2009, in line with the rise in total revenue.

Cost of Revenue Breakdown

Gross Profit

Third quarter 2010 gross profit increased 29.0% year-over-year to RMB12.4 million (US$1.9 million), from RMB9.6 million in the third quarter 2009.

Consolidated gross margin for the third quarter 2010 was 38.3%, in line with the third quarter 2009.

Operating Expenses

Research and development ("R&D") expenses for the third quarter 2010 increased 241.5% year-over-year to RMB1.5 million (US$218,055), or 4.5% of total revenue, compared with RMB427,195, or 1.7% of total revenue in the third quarter 2009. The significant rise reflected the booking of expenses at an earlier stage of development compared to the previous year, as well as increased investment to broaden eFuture's service offerings in order to generate new revenue streams to position the Company to further capitalize on the continued strong market growth.

General and administrative expenses ("G&A") for the third quarter 2010 increased 54.8% year-over-year to RMB11.1 million (US$1.7 million), or 34.2% of total revenue, compared with RMB7.2 million, or 28.5% of total revenue in the third quarter 2009. The increase in G&A was mainly due to higher rental expenses incurred from the relocation of the Company's Wuhan office to larger premises as the Company accelerates its operational expansion in 2010.

Selling and distribution ("S&D") expenses for the third quarter 2010 increased 27.8% year-over-year to RMB10.1 million (US$1.5 million), in line with top-line growth. S&D expenses accounted for 31.2% of total revenue, compared with RMB7.9 million, or 31.4% of total revenue in the third quarter 2009. eFuture continued to reap the rewards of the sales organization restructuring it completed in the first quarter 2010, as S&D expenses as a percentage of total revenue were stable despite a 91% increase in the value of software license and service contracts during the third quarter 2010 compared with the third quarter 2009.

Operating Loss

Operating loss in the third quarter 2010 was RMB10.2 million (US$1.5 million), compared with an operating loss of RMB5.9 million in the third quarter 2009.

Net Loss and Losses Per Share

As a result of the foregoing, third quarter 2010 net loss was RMB5.6 million (US$832,699), compared with a net loss of RMB4.2 million in the third quarter 2009.

Adjusted net loss for the third quarter was RMB670,481 (US$100,215), compared to an adjusted net income of RMB706,275 in the third quarter 2009.

Basic and diluted losses per share in the third quarter 2010 were RMB1.55 (US$0.23), compared to basic and diluted losses per share of RMB1.24 in the third quarter 2009.

Third quarter 2010 adjusted basic and diluted losses per share were RMB0.19 (US$0.03), compared to adjusted basic and diluted earnings per share of RMB0.21 in the third quarter 2009.

EBITDA

Adjusted EBITDA for the third quarter of 2010 was negative RMB4.8 million (negative US$718,206), compared to negative RMB716,158 in the third quarter 2009.

Balance Sheet and Cashflow

As of September 30, 2010, cash and cash equivalents were RMB51.1 million (US$7.6 million), a 13.6% decrease compared with RMB59.1 million at the end of December 2009. This decrease was mainly due to the final cash payment for Proadavancer, the logistics solutions and service provider that eFuture acquired in 2008. The decrease was partially offset by payments received relating to revenue not recognized during the quarter and by cash received from subscribers for our ordinary shares during the third quarter 2010.

Total accounts receivable as of September 30, 2010 increased 3.3% to RMB15.5 million (US$2.3 million) from RMB15.0 million as of December 31, 2009.

Inventories as of September 30, 2010 rose to RMB18.5 million (US$2.8 million), an increase of 233.8% compared with RMB5.5 million as of December 31, 2009. The higher level of inventories reflects the increase in the value of contracts signed amid business expansion, as the inventories figure relates largely to contracts classified as work in process, which do not become costs until they reach the point of revenue recognition.

For the nine months ended September 30, 2010, net cash used in operating activities was RMB1.8 million (US$271,175), while net cash used in investing activities was RMB18.1 million (US$2.7 million), this was primarily attributable to the final cash payment for Proadvancer. Net cash provided by financing activities was RMB12.2 million (US$1.8 million), which was mainly due to cash received from subscribers for our ordinary shares in the third quarter 2010.

FOURTH QUARTER AND FULL YEAR 2010 GUIDANCE

eFuture expects total revenue for the fourth quarter 2010 to be in the range of approximately US$6.4 million to US8.6$ million. Adjusted EBITDA for the fourth quarter 2010 is expected to be in the range of approximately US$0.6 million to US$1.6 million. eFuture expects total revenue for the full year 2010 to be in the range of approximately US$19.1 million to US$21.3 million. Adjusted EBITDA for the full year 2010 is expected to be in the range of approximately minus US$1.5 million to US$0.1 million.

CONFERENCE CALL INFORMATION

eFuture's management will host a conference call on Tuesday, November 23, 2010 at 5:00 am (US Pacific) / 8:00 am (US Eastern) / 9:00 pm (Beijing) to discuss its third quarter 2010 financial results and recent business activity. The conference call may be accessed by calling:

Please dial in 10 minutes before the call is scheduled to begin.

A replay of the conference call may be accessed by phone at the following numbers until Tuesday, November 30, 2010:

Additionally, a live and archived webcast of the conference call will be available on the investor relations section of eFuture's website at www.e-future.com.cn/ENG/newshow.asp?id=513.

CURRENCY CONVENIENCE TRANSLATION

For the convenience of readers, certain RMB amounts have been translated into US dollars at the rate of RMB6.6905 to US$1.00, the noon buying rate for US dollars in effect on September 30, 2010 for cable transfers of RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

USE OF NON-GAAP FINANCIAL MEASURES

To supplement eFuture's unaudited consolidated financial results presented in accordance with U.S. GAAP, eFuture uses the following non-GAAP measures defined as non-GAAP financial measures by the U.S. Securities and Exchange Commission: adjusted EBITDA excluding amortization of acquired software technology, amortization of intangibles, share-based compensation expenses, depreciation; adjusted net income excluding amortization of acquired software technology, amortization of intangibles, share-based compensation expenses and accretion on convertible notes; adjusted basic and diluted earnings per share excluding amortization of acquired software technology, amortization of intangibles, share-based compensation expenses and accretion on convertible notes.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP.

eFuture believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding expenses that may not be indicative of its operating performance from a cash perspective or be indicative of its operating performance. eFuture believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company's performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to eFuture's historical performance and liquidity. eFuture computes its non-GAAP financial measures using the same consistent method from quarter to quarter. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision-making. The accompanying paragraphs have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

eFuture's management also believes that EBITDA, defined as earnings before interest, income tax expense, depreciation and amortization is a useful financial metric to assess its operating and financial performance before the impact of investing and financing transactions and income taxes. In addition, eFuture's management believes that EBITDA is widely used by other companies in the software industry and may be used by investors as a measure of its financial performance. Given the significant investments that eFuture has made in property, equipment, depreciation and amortization expense comprises a meaningful portion of the Company's cost structure. eFuture's management believes that EBITDA will provide investors with a useful tool for comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures. The presentation of EBITDA should not be construed as an indication that the Company's future results will be unaffected by other charges and gains eFuture considers to be outside the ordinary course of its business.

The use of EBITDA and adjusted EBITDA has certain limitations. Depreciation and amortization expense for various long-term assets, income tax expense, interest expense and interest income have been and will be incurred and are not reflected in the presentation of EBITDA. Further, share-based compensation expenses have been and will be incurred and are not reflected in the presentation of adjusted EBITDA. Each of these items should also be considered in the overall evaluation of eFuture's financial results. The term EBITDA or adjusted EBITDA is not defined under U.S. GAAP, and EBITDA or adjusted EBITDA is not a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. When assessing eFuture's operating and financial performance, you should not consider this data in isolation or as a substitute for its net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, the Company's EBITDA and adjusted EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as eFuture does.

STATEMENT REGARDING UNAUDITED FINANCIAL INFORMATION

The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company's year-end financial statements, which could result in significant differences from this unaudited financial information.

ABOUT EFUTURE INFORMATION TECHNOLOGY INC.

eFuture Information Technology Inc. (Nasdaq:EFUT) is a leading provider of software and services in China's rapidly growing retail and consumer goods industries. eFuture provides integrated software and services to manufacturers, distributors, wholesalers, logistics companies and retailers in China's front-end supply chain (from factory to consumer) market, especially in the retail and fast moving consumer goods industries. For more information about eFuture, please visit http://www.e-future.com.cn.

SAFE HARBOR

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, 2010 financial outlook and quotations from management in this announcement, as well as strategic and operational plans, contain forward-looking statements. eFuture may also make written or oral forward-looking statements in periodic reports to the Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to second parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: eFuture's anticipated growth strategies; eFuture's future business development, results of operations and financial condition; expected changes in the Company's revenue and certain cost or expense items; eFuture's ability to attract customers and leverage its brand; trends and competition in the software industry; the Company's ability to control expenses and maintain profit margins; the Company's ability to hire, train and retain qualified managerial and other employees; the Company's ability to develop new software and pilot new business models at desirable locations in a timely and cost-effective manner; the performance of third parties under contracts with the Company; the expected growth of the Chinese economy software market in retail and consumer goods industries; and Chinese governmental policies relating to private managers and operators of software and applicable tax rates.

Further information regarding these and other risks is included in eFuture's annual report on Form 20-F and other documents filed with the SEC. All information provided in this press release and in the attachments is as of November 22, 2010, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.