eFuture Announces First Quarter 2012 Unaudited Financial Results

BEIJING, May 29, 2012 (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, 2012.

Note: Beijing Wangku Hutong Information Technology Co., Ltd. ("Wangku") has been reclassified as a discontinued business for the first quarter ended March 31, 2011, following eFuture's announcements on March 21, 2011 regarding the sale of its 51% stake in Wangku.

First Quarter 2012 Financial Highlights

• Total revenue increased 21% year-over-year to RMB23.3 million (US$3.7 million).
• Gross profit increased 97% year-over-year to RMB8.9 million (US$1.4 million).
• Adjusted EBITDA was minus RMB1.3 million (minus US$0.2 million), an improvement from an adjusted EBITDA of minus RMB5.7 million in the first quarter 2011.
• Operating loss was RMB5.3 million (US$0.8 million), an improvement from an operating loss of RMB10.9 million in the first quarter 2011.
• Net loss was RMB4.9 million (US$0.8 million), compared with a net loss of RMB2.9 million in the first quarter 2011.
• Adjusted net loss was RMB1.4 million (US$0.2 million), an improvement from adjusted net loss of RMB3.8 million in the first quarter 2011.
• Basic and diluted net loss per share was RMB1.19 (US$0.19), as compared to basic and diluted net loss per share of RMB0.70 in the first quarter 2011.
• Adjusted diluted net loss per share improved to RMB0.34 (US$0.05), as compared to adjusted diluted net loss per share of RMB0.92 in the first quarter 2011.

Mr. Adam Yan, Chairman and Chief Executive Officer ("CEO"), commented on the results. "In the first quarter of 2012, we successfully built on the groundwork we laid in 2011 to expand the reach of our existing servicing capabilities beyond software and hardware, and further benefited from the release of our cloud services offering as it begins to gain traction in the marketplace.

"Our successful efforts to secure new cloud service sales contracts with Chacha, Nestle Water, Binzhilang, Shandong Deyi and others, validate our long-term strategy to broaden our customer base and market reach. We have also seen an accelerating trend of interest from existing customers, which places us in a favorable position from which to leverage our strong product portfolio and service offerings.

"Our core business, software sales recorded a year-over-year revenue increase of 101%, primarily due to recognition of revenue from a prior backlog of software contracts concluded last year. We have identified increasing demand from tier two and three cities as a significant growth driver of this business, and although the market is very fragmented, market demand and interest for our products remain modestly strong.

Mr Yan concluded: "Lastly, eFuture recently celebrated its 15-year anniversary. Founded in 1997 as a boutique IT solution provider, eFuture is proud to have become a highly-regarded and award-winning software and services company in the retail and consumer goods market. I would like to take this opportunity to thank my colleagues, clients and partners for their dedication and extraordinary contributions to the company's success, and would also like to renew eFuture's commitment to focus on China's retail industry growth, remaining flexible and transformative in both our business model and our services paradigm in order to make a more meaningful contribution to the growth and success of our clients' businesses."

Mr. Sean Zheng, Chief Financial Officer ("CFO"), added: "Our improved financial performance is a reflection of the success of our solid execution in delivering a robust product mix, and demonstrates the scalability of our business model which comes from the delivery team restructuring in 2011, aimed at expanding team capacity and lowering operating costs.

"Our focus will continue to be on carefully managing our operating costs and maintaining an organization capable of supporting growth as we execute against our sales pipeline."

FIRST QUARTER 2012 FINANCIAL RESULTS

Revenue

Total revenue for the first quarter 2012 increased 21% to RMB23.3 million (US$3.7 million) from RMB19.2 million in the first quarter 2011.

Revenue Breakdown

Software license revenue for the first quarter 2012 increased 101% year-over-year to RMB8.4 million (US$1.3 million), which was primarily attributable to the completion of some large projects in department stores and logistics industries that came from a prior backlog of software contracts, and could be recognized in the first quarter 2012.

Hardware revenue in the first quarter 2012 decreased 53% year-over-year to RMB2.2 million (US$0.4 million) from RMB4.7 million in the first quarter 2011, which was primarily attributable to uncompleted contracts not reaching the point of revenue recognition as of March 31, 2012.

Service fee income for the first quarter 2012 increased 23% year-over-year to RMB12.6 million (US$2.0 million) from RMB10.3 million in the first quarter 2011, which was primarily attributable to strong growth of customization, maintenance and consulting services in the department store industry.

Cost of Revenue

Cost of revenue for the first quarter 2012 decreased 2% to RMB14.3 million (US$2.3 million) from RMB14.6 million in the first quarter 2011.

Cost of Revenue Breakdown

Gross Profit and Gross Margin

Gross profit increased 97% year-over-year to RMB8.9 million (US$1.4 million) from RMB4.5 million in the first quarter 2011. Consolidated gross margin for the first quarter 2012 was 38%, compared with 24% in the first quarter 2011, which was primarily attributable to the change of product mix, which was consistent with our business strategy.

Operating Expenses

Research and development ("R&D") expenses for the first quarter 2012 decreased 76% year-over-year to RMB0.5 million (US$82,404), or 2% of total revenue, compared with RMB2.2 million, or 11% of total revenue in the first quarter 2011. This was primarily attributable to our continued focus on projects at the capitalization stage, which resulted in development costs being capitalized rather than expensed.

General and administrative expenses ("G&A") for the first quarter 2012 decreased 16% year-over-year to RMB6.5 million (US$1.0 million), representing 28% of total revenue, compared with RMB7.8 million, or 41% of total revenue in the first quarter 2011, which was primarily attributable to the decrease of share-based compensation expenses as the vesting period of one of our stock option plans ended in January 2012, and the decrease of bad debt provision as a result of improving our trade receivable management.  

Selling and distribution ("S&D") expenses for the first quarter 2012 increased 30% year-over-year to RMB7.1 million (US$1.1 million), representing 31% of total revenue, compared with RMB5.5 million, or 29% of total revenue in the first quarter 2011. The increase was primarily attributable to expenditures on newly-opened branch offices and sales commissions.

Operating Loss

Operating loss in the first quarter 2012 was RMB5.3 million (US$0.8 million), compared with an operating loss of RMB10.9 million in the first quarter 2011.

Net Loss and Loss Per Share

As a result of the foregoing, first quarter 2012 net loss was RMB4.9 million (US$0.8 million), compared with a net loss of RMB2.9 million in the first quarter 2011. Adjusted net loss for the first quarter 2012 was RMB1.4 million (US$0.2 million), compared with an adjusted net loss of RMB3.8 million in the first quarter 2011.

Basic and diluted loss per share in the first quarter 2012 was RMB1.19 (US$0.19), compared to basic and diluted loss per share of RMB0.70 in the first quarter 2011. Adjusted diluted loss per share was RMB0.34 (US$0.05), compared to an adjusted diluted loss per share of RMB0.92 in the first quarter 2011.

EBITDA

Adjusted EBITDA for the first quarter 2012 was minus RMB1.3 million (US$0.2 million), compared to adjusted EBITDA of minus RMB5.7 million in the first quarter 2011.

Balance Sheet and Cash Flow

As of March 31, 2012, cash and cash equivalents amounted to RMB33.1 million (US$5.3 million), a decrease of RMB24.1 million from RMB57.2 million as of December 31, 2011. It was primarily attributable to the payment of annual bonuses for 2011 and expenditures on customer projects and capitalized R&D projects. In addition, it is typical in the first quarter that project expenditures exceed cash collection due to the Chinese Spring Festival.

Total accounts receivable as of March 31, 2012 decreased 20% to RMB15.9 million (US$2.5 million) from RMB19.9 million as of December 31, 2011, which was primarily attributable to the collection of trade receivables due from the projects completed in prior quarters.

Inventory and work in process as of March 31, 2012 increased 17% to RMB32.8 million (US$5.2 million) from RMB28.0 million as of December 31, 2011, which was primarily attributable to our continuous expenditure on customer projects due to the strong demand from customers.

For the quarter ended March 31, 2012, net cash used in operating activities was RMB19.5 million (US$3.1 million), which was primarily attributable to the payment of annual bonuses for 2011 and expenditures on customer projects. Net cash used in investing activities was RMB4.5 million (US$0.7 million), which was primarily attributable to capital expenditures and investment in capitalized R&D projects.

SECOND QUARTER 2012 GUIDANCE

eFuture expects total revenue for the second quarter 2012 to be in the range of approximately RMB24 million (US$3.8 million) to RMB28 million (US$4.4 million). Adjusted EBITDA for the second quarter 2012 is expected to be in the range of approximately loss RMB1million (US$0.2 million) to loss RMB3 million (US$0.5 million).

CONFERENCE CALL INFORMATION

eFuture's management will host a conference call on Wednesday, May 30, 2012 at 5:00 am (US Pacific) / 8:00 am (US Eastern) / 8:00 pm (Beijing) to discuss the Company's 2012 first quarter and recent business activities. 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:

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.media-server.com/m/acs/f67feb73e12a9223da953b86743780fe.

CURRENCY CONVENIENCE TRANSLATION

For the convenience of readers, certain RMB amounts have been translated into US dollars at the rate of RMB6.2975 to US$1.00, the noon buying rate for US dollars in effect on March 31, 2012 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, 2012 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 May 30, 2012, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.

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