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eFuture Announces First Quarter 2011 Unaudited Financial Results

/ Source: GlobeNewswire

BEIJING, June 14, 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 first quarter ended March 31, 2011.

Note: Beijing Wangku Hutong Information Technology Co., Ltd. ("Wangku") has been classified as a discontinued operation for first quarter ended March 31, 2011, following eFuture's announcement on March 21, 2011, of the sale of its 51% stake in Wangku. The comparative figures for the quarter ended March 31,2010 have been retrospectively reclassified to exclude discontinued operations, in accordance with US GAAP.

First Quarter 2011 Financial Highlights

  • Total revenue increased 41% year-over-year to RMB19.2 million (US$2.9 million).
  • Gross profit increased 499% year-over-year to RMB4.5 million (US$0.7 million).
  • Adjusted EBITDA was minus RMB5.7 million (US$0.9 million), an improvement from minus RMB6.6 million in the first quarter 2010.
  • Operating loss was RMB10.9 million (US$1.7 million), an improvement from an operating loss of RMB12.5 million in the first quarter 2010.
  • Net loss was RMB2.9 million (US$0.4 million), an improvement from a net loss of RMB10.9 million in the first quarter 2010.        
  • Adjusted net loss was RMB3.8 million (US$0.6 million), compared with an adjusted net loss of RMB4.3 million in the first quarter 2010.
  • Basic and diluted net loss per share improved to RMB0.70 (US$0.10), as compared to basic and diluted net loss per share of RMB3.14 in the first quarter 2010. 
  • Adjusted diluted net loss per share improved to RMB0.92 (US$0.14), as compared to diluted net loss per share of RMB1.23 in the first quarter 2010. 

Mr. Adam Yan, Chairman and Chief Executive Officer, said, "I'm pleased to report an especially strong first quarter, with our enhanced product mix and optimized matrix sales network enabling us to surpass our guidance across the board. Our US$14 million contracts backlog at the end of 2010 and sustained robust growth from our fast moving consumer goods ("FMCG") and Grocery verticals resulted in a 41% year-over-year rise in revenue during the first quarter, which is our seasonally slowest quarter. Our sustained efforts to increase service revenue led to an 80% rise compared with the first quarter 2010."

"Since clients play a central role in our success, we continually improve the quality of our client team's service to further strengthen relationships with existing customers. Our integrated portfolio of end-to-end solutions for China's front-end supply chain positions us to take advantage of the wealth of opportunities within China's booming retail and consumer goods markets. We expect demand for our innovative and attractive software, professional services and cloud services to continue to outpace industry growth rates as we benefit from the uptrend in demand we experience over the course of a typical year."

Mr. Sean Zheng, Chief Financial Officer, commented, "In recent quarters, we have combined our initiatives to broaden our client base and capitalize on strong relationships with existing clients with measures to reduce the cost of generating sales, as evidenced by significant margin expansion this quarter. We seek to further enhance our margin profile over the course of this year by maintaining tight controls over our cost base and achieving an increased contribution from our high-margin core software business."

FIRST QUARTER 2011 FINANCIAL RESULTS

Revenue

Total revenue for the first quarter of 2011 increased 41% to RMB19.2 million (US$2.9 million) from RMB13.6 million in the first quarter of 2010.

Revenue Breakdown

Software license revenue for the first quarter of 2011 decreased 27% year-over-year to RMB4.2 million (US$0.6 million), which was mainly due to a significant number of software contracts not having reached the point of revenue recognition as at March 31, 2011.

Hardware revenue in the first quarter 2011 increased 116% year-over-year to RMB4.7 million (US$0.7 million) from RMB2.2 million in the first quarter of 2010, mainly due to the completion of a particularly large hardware sales contract.

Service fee income for the first quarter 2011 increased 80% year-over-year to RMB10.3 million (US$1.6 million), compared to RMB5.7 million in the first quarter of 2010, mainly due to strong growth from delivery services.

Cost of Revenue

Cost of revenue for the first quarter of 2011 increased 14% to RMB14.6 million (US$2.2 million) from RMB12.9 million in the first quarter of 2010.

Cost of Revenue Breakdown

Gross Profit and Gross Margin

Gross profit for the first quarter of 2011 increased 499% year-over-year to RMB4.5million (US$0.7 million) from RMB0.8 million in the first quarter of 2010. Consolidated gross margin for the first quarter of 2011 was 24%, compared with 6% in the first quarter of 2010, resulting largely from an increase in the proportion of revenue from higher-margin service fee income.

Operating Expenses

Research and development expenses for the first quarter of 2011 increased 212% year-over-year to RMB2.2 million (US$0.3 million), or 11% of total revenue, compared with RMB0.7 million, or 5% of total revenue in the first quarter of 2010. The rise was mainly due to efforts to further broaden eFuture's range of service offerings in order to generate new revenue streams and position the Company to further capitalize on the continued strong market growth.

General and administrative expenses ("G&A") increased 1% year-over-year to RMB7.8 million (US$1.2 million). As a percentage of total revenue, G&A expenses declined to 41% of total revenue, compared with RMB7.8 million, or 57% of total revenue in the first quarter of 2010.

Selling and distribution ("S&D") expenses for the first quarter of 2011 increased 14% year-over-year to RMB5.5 million (US$0.8 million), mainly due to increased sales headcount compared with the same period of the previous year. However, S&D expenses for the quarter were lower, at 29% of total revenue, compared with RMB4.8 million, or 35% of total revenue in the first quarter of 2010, reflecting improved efficiency in generating sales.

Operating Loss

Operating loss in the first quarter of 2011 was RMB10.9 million (US$1.7 million), an improvement from an operating loss of RMB12.5 million in the first quarter of 2010.

Net Loss and Loss Per Share

On March 13, 2011, the Company disposed of its 51% stake in Wangku for cash consideration of RMB6.0 million. As a result, net loss for the first quarter of 2011 was RMB2.9 million (US$0.4 million), an improvement compared with a net loss of RMB10.9 million in the first quarter of 2010.

Adjusted net loss for the first quarter of 2011 was RMB3.8 million (US$0.6 million), an improvement compared to an adjusted net loss of RMB4.3 million in the first quarter of 2010.

Basic and diluted loss per share in the first quarter of 2011 was RMB0.70 (US$0.10), an improvement compared to basic and diluted loss per share of RMB3.14 in the first quarter of 2010. Adjusted diluted loss per share was RMB0.92 (US$0.14), compared to adjusted diluted losses per share of RMB1.23 in the first quarter of 2010.

EBITDA

Adjusted EBITDA for the first quarter of 2011 was minus RMB5.7 million (US$0.9 million), an improvement compared to minus RMB6.6 million in the first quarter of 2010.

Balance Sheet and Cash Flow

As of March 31, 2011, cash and cash equivalents amounted to RMB63.2 million (US$9.7 million), a decrease of RMB10.0 million compared to RMB73.3 million as of December 31, 2010. This resulted largely from the payment of a higher annual bonus for 2010 and a rise in inventory and work in process due to increased client demand.

Total accounts receivable as of March 31, 2011 increased 36% to RMB19.9 million (US$3.0 million) from RMB14.6 million as of December 31, 2010, which was in line with the increase of revenues.

Advances to suppliers increased 200% to RMB6.2 million (US$0.9 million) from RMB2.1 million as of December 31, 2010, due mainly to increased advance payments relating to the purchase of hardware as a result of expansion of eFuture's one-stop solution service.

Inventory and work in process increased 37% to RMB21.4 million (US$3.3 million) from RMB15.6 million as at the end of December 2010, largely reflecting a rise in new client projects during the first quarter of 2011 that had not been completed as of March 31, 2011.

Advances from clients increased 31% to RMB55.9 million (US$8.5 million) from RMB42.7 million as of December 31, 2010, in line with the increase in inventory and work in process due to a rise in incomplete client projects for which payment had already been made.

For the quarter ended March 31, 2011, net cash used in operating activities was RMB15.8 million (US$2.4 million), relating mainly to the payment of the 2010 annual bonus and the increase in inventory and work in process due to increased client demand. Net cash provided by investing activities was RMB5.2 million (US$0.8 million), mainly reflecting cash received from the sale of eFuture's stake in Wangku.

RECENT DEVELOPMENTS

Management changes

Dr. Tony Zhao resigned from the position of Chief Strategy Officer ("CSO") and Vice President, effective April 30, 2011, to pursue other opportunities. Mr. Sean Zheng is therefore combining his role as CFO with responsibility for strategy development and acquisition planning and execution.

SECOND QUARTER 2011 GUIDANCE

eFuture expects total revenue for the second quarter 2011 to be in the range of approximately RMB20 million (US$3.1 million) to RMB30 million (US$3.7 million). Adjusted EBITDA for the second quarter 2011 is expected to be in the range of approximately minus RMB8 million (US$1.2 million) to RMB1 million (US$0.2 million).

CONFERENCE CALL INFORMATION

eFuture's management will host a conference call on Wednesday, June 15, 2011 at 5:00 am (US Pacific) / 8:00 am (US Eastern) / 8:00 pm (Beijing) to discuss the Company's 2011 first quarter 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 Wednesday, June 22, 2011:

Additionally, a live and archived webcast of the conference call will be available on the investor relations section of eFuture's website at

CURRENCY CONVENIENCE TRANSLATION

For the convenience of readers, certain RMB amounts have been translated into US dollars at the rate of RMB6.5483 to US$1.00, the noon buying rate for US dollars in effect on March 31, 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 .

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 June 14, 2011, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.

CONTACT: Investor Contact: Troe Wen, Company Secretary eFuture Information Technology Inc. +86 10 5293 7699 ir@e-future.com.cn Investor Relations (HK): Mahmoud Siddig Taylor Rafferty +852 3196 3712 eFuture@Taylor-Rafferty.com Investor Relations (US): Kelly Gawlik Taylor Rafferty +1 212 889 4350 eFuture@Taylor-Rafferty.com