eFuture Announces Second Quarter 2011 Unaudited Financial Results

BEIJING, Aug. 22, 2011 (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 second quarter ended June 30, 2011.

Note: Beijing Wangku Hutong Information Technology Co., Ltd. ("Wangku") has been classified as a discontinued operation for the first half ended June 30, 2011, following eFuture's announcement on March 21, 2011, of the sale of its 51% stake in Wangku. The comparative figures for the second quarter and first half ended June 30,2010 have been retrospectively reclassified to exclude discontinued operations, in accordance with US GAAP.

Second Quarter 2011 Financial Highlights

• Total revenue decreased 21% year-over-year to RMB26.7 million (US$4.1 million).
• Gross profit decreased 44% year-over-year to RMB8.4 million (US$1.3 million).
• Adjusted EBITDA was minus RMB2.6 million (minus US$0.4 million), compared to RMB3.4 million in the second quarter 2010.
• Operating loss was RMB7.1 million (US$1.1 million), compared to an operating loss of RMB2.0 million in the second quarter 2010.
• Net loss was RMB5.5 million (US$0.8 million), compared to a net loss of RMB1.7 million in the second quarter 2010.   
• Adjusted net loss was RMB1.3 million (US$0.2 million), compared to adjusted net profit of RMB5.0 million in the second quarter 2010.
• Basic and diluted net loss per share was RMB1.33 (US$0.21), as compared to a basic and diluted net loss per share of RMB0.48 in the second quarter 2010. 
• Adjusted diluted net loss per share was RMB0.32 (US$0.05), as compared to diluted net profit per share of RMB1.39 in the second quarter 2010. 

Mr. Adam Yan, Chairman and Chief Executive Officer, said, "Revenue growth was in line with guidance as we returned to a steady and sustainable level of revenue generation following an exceptionally strong second quarter 2010. Our second quarter 2011 revenue partly reflects our increasing success at winning larger and longer software contracts. As our contracts have grown in size and scope, revenue recognition cycles have lengthened. Further, we generally see a progressive rise in demand throughout the year, as the first half of the year is typically slower than the second half. Our prime position in China's retail and consumer goods industry ecosystem enables us to benefit from key trends including the growth of fashion chain stores, online shopping and logistics. As we enter our seasonally stronger second half, we believe that our innovative and attractive software and services offerings and superior client service will continue to result in above-industry growth rates."

Mr. Sean Zheng, Chief Financial Officer, commented, "We remain focused on further enhancing our leading market share by expanding our customer base and deepening relationships with existing clients, and at the same time continue to execute on cost reduction initiatives in order to improve our bottom line. Margin expansion remains a key element of our strategy as we focus on maximizing the profitability of our higher-margin core software business at the same time as increasing professional service revenues. We expect our success in capitalizing on the continued growth in China's booming retail and consumer markets to result in third-quarter revenue in the range of RMB35 million to RMB45 million, representing year-over-year growth of 13% to 46%."

SECOND QUARTER 2011 FINANCIAL RESULTS

Revenue

Total revenue for the second quarter of 2011 decreased 21% to RMB26.7 million (US$4.1 million) from RMB33.9 million in the second quarter 2010.

Revenue Breakdown

Software license revenue for the second quarter 2011 decreased 59% year-over-year to RMB7.6 million (US$1.2 million), largely reflecting longer average periods between contract signing and revenue recognition due to the Company's increasing success at winning larger and longer contracts, a significant proportion of which had not reached the point of revenue recognition as at June 30, 2011. In addition, the more typical level of software revenue achieved in the second quarter 2011 contrasts with the exceptionally strong growth achieved in the second quarter 2010 as the Company capitalized on pent-up demand as China's retail and consumer goods industries emerged from the challenging market conditions of 2009.

Hardware revenue in the second quarter 2011 increased 2% year-over-year to RMB5.6 million (US$0.9 million) from RMB5.5 million in the second quarter 2010.

Service fee income for the second quarter 2011 increased 40% year-over-year to RMB13.5 million (US$2.1 million), compared to RMB9.7 million in the second quarter 2010, mainly due to continued strong growth from delivery services.

Cost of Revenue

Cost of revenue for the second quarter of 2011 decreased 3% to RMB18.3 million (US$2.8 million) from RMB18.8 million in the second quarter 2010.

Cost of Revenue Breakdown

Gross Profit and Gross Margin

Gross profit for the second quarter 2011 decreased 44% year-over-year to RMB8.4million (US$1.3 million) from RMB15.0 million in the second quarter 2010. Consolidated gross margin for the second quarter 2011 was 31%, compared to 44% in the second quarter 2010. The decrease was mainly due to lower software license sales as a proportion of total revenue.

Operating Expenses

Research and development expenses ("R&D") for the second quarter 2011 decreased 28% year-over-year to RMB1.0 million (US$0.2 million), compared to RMB1.4 million in the second quarter 2010. As a percentage of total revenue, R&D expenses remained constant, at 4%. The decrease in R&D expenses was due to the Company's focus during the quarter on projects at the capitalization stage, which resulted in development costs being capitalized rather than expensed.

General and administrative expenses ("G&A") increased 35% year-over-year to RMB10.4 million (US$1.6 million), mainly attributable to increased headcount as a result of business expansion and higher salaries due to industry-wide wage inflation. As a percentage of total revenue, G&A expenses increased to 39%, compared to RMB7.7 million, or 23% in the second quarter of 2010, when revenues were exceptionally high as the Company benefited from China's retailers and consumer goods companies increasing their software and services spending in response to an improved economic climate.

Selling and distribution ("S&D") expenses for the second quarter 2011 decreased 49% year-over-year to RMB4.0 million (US$0.6 million), or 15% of total revenue, compared with RMB7.9 million, or 23% of total revenue in the second quarter 2010, due to the success of the Company's recent initiatives to increase the efficiency of its sales generation efforts.

Operating Loss

Operating loss in the second quarter 2011 was RMB7.1 million (US$1.1 million), compared to an operating loss of RMB2.0 million in the second quarter 2010.

Net Loss and Losses Per Share

Net loss for the second quarter 2011 was RMB5.5 million (US$0.8 million), compared to a net loss of RMB1.7 million in the second quarter 2010.

Adjusted net loss for the second quarter 2011 was RMB1.3 million (US$0.2 million), compared to adjusted net profit of RMB5.0 million in the second quarter 2010.

Basic and diluted losses per share in the second quarter 2011 were RMB1.33 (US$0.21), compared to basic and diluted losses per share of RMB0.48 in the year-earlier period. Adjusted diluted losses per share were RMB0.32 (US$0.05), compared to adjusted diluted earnings per share of RMB1.39 in the second quarter 2010.

EBITDA

Adjusted EBITDA for the second quarter 2011 was minus RMB2.6 million (minus US$0.4 million), compared to RMB3.4 million in the second quarter 2010.

Balance Sheet and Cash Flow

As of June 30, 2011, cash and cash equivalents amounted to RMB54.3 million (US$8.4 million), a decrease of RMB19.0 million compared to RMB73.3 million as of December 31, 2010. This was largely due to greater expenditure on inventory and work in process in response to increased demand during the second quarter, as well as payment during the first quarter 2011 of a higher total annual bonus for 2010 relating to stronger year-over-year revenue growth during 2010.

Total accounts receivable as of June 30, 2011 rose 9% to RMB15.9 million (US$2.5 million) from RMB14.6 million as of December 31, 2010 due to the higher proportion of service fee income within the revenue mix. According to contractual terms, the cash collection period for service fee contracts tends to be longer than for other business lines, therefore impacting accounts receivable.

Advances to suppliers increased 137% to RMB4.9 million (US$0.8 million) from RMB2.1 million as of December 31, 2010, due mainly to an increase in advance payments relating to the purchase of hardware as a result of the expansion of eFuture's one-stop solution service.

Inventory and work in process increased 145% to RMB38.3 million (US$5.9 million) from RMB15.6 million at the end of December 2010, as some large, on-going projects were incomplete as of June 30, 2011. The Company estimates that the majority of its inventory and work in process as of June 30, 2011 will be recognized as cost of revenue by the end of 2011, in line with the revenue recognition of the related projects.

Advances from customers increased 53% to RMB65.3 million (US$10.1 million) from RMB42.7 million as of December 31, 2010, attributable to the lengthening of revenue recognition cycles resulting from the growth in the size and scope of contracts signed. This resulted in an increased level of installment payments having been made before the associated contracts had reached the point of revenue recognition.

For the quarter ended June 30, 2011, net cash used in operating activities was RMB7.1 million (US$1.1 million), relating mainly to the RMB9.4 million (US$1.5 million) collection of advance payments from customers offsetting the RMB18.0 million (US$2.8 million) rise in inventory and work in process due to increased client demand. Net cash used in investing activities was RMB2.0 million (US$0.3 million), mainly reflecting cash paid for the purchase of property and equipment and expenditure on intangible assets, including capitalized projects.

THIRD QUARTER 2011 GUIDANCE

eFuture expects total revenue for the third quarter 2011 to be in the range of approximately RMB35 million (US$5.5 million) to RMB45 million (US$7.0 million). Adjusted EBITDA for the third quarter 2011 is expected to be in the range of approximately breakeven to RMB5 million (US$0.8 million).

CONFERENCE CALL INFORMATION

eFuture's senior management will host a conference call on Tuesday, August 23, 2011 at 8:00 am (US Eastern) / 5:00 am (US Pacific) / 8:00 pm (Beijing) to discuss the Company's second quarter 2011 financial results and recent business activity. The conference call may be accessed by dialing:

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, August 30, 2011:

Additionally, a live and archived webcast of the conference call will be available on the investor relations section of eFuture's website at http://www.e-future.com.cn.

CURRENCY CONVENIENCE TRANSLATION

For the convenience of readers, certain RMB amounts have been translated into US dollars at the rate of RMB6.4635 to US$1.00, the noon buying rate for US dollars in effect on June 30, 2011 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: (i) adjusted EBITDA excluding amortization of acquired software technology, amortization of intangibles, impairment of intangible assets, share-based compensation expenses and depreciation; (ii) adjusted net income excluding amortization of acquired software technology, amortization of intangibles, impairment of intangible assets, share-based compensation expenses and accretion on convertible notes; and (iii) 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, 2011 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 clients 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 will be 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 August 22, 2011, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.