TechWeb

eFuture Announces Fourth Quarter and Fiscal Year 2009 Unaudited Financial Results

Apr 29, 2010 (04:04 PM EDT)
URL: http://www.techweb.com/show-press-release/X804447/efuture-announces-fourth-quarter-and-fiscal-year-2009-unaudited-financial-results.html

BEIJING, April 29 /PRNewswire-Asia/ -- 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 fourth quarter and full year ended December 31, 2009.

    Fourth Quarter 2009 Financial Highlights:
    -- Total revenues decreased 17.8% year-over-year to RMB61.1 million
       (US$9.0 million).
       -- Revenue from software license sales decreased 25.6% year-over-year
          to RMB24.8 million (US$3.6 million).
       -- Revenue from hardware sales decreased 1.8% year-over-year to
          RMB19.3 million (US$2.8 million).
       -- Service fee income decreased 20.4% year-over-year to RMB17.0 million
          (US$2.5 million).
    -- Gross profit increased 6.3% year-over-year to RMB27.8 million
       (US$4.1 million). Gross margin increased to 45.5% from 35.2% in the
       fourth quarter of 2008.
    -- Operating loss improved to RMB2.3 million (US$343,321) from
       RMB3.7 million in the fourth quarter 2008.
    -- Net loss was RMB1.1 million (US$156,902), compared with a net loss of
       RMB5.8 million in the fourth quarter 2008.
    -- Diluted net loss per share was RMB0.32 (US$0.05), as compared to a net
       loss per share of RMB1.81 in the fourth quarter 2008.
    -- Adjusted net income (non-GAAP) was RMB7.2 million (US$1.0 million),
       compared to an adjusted net income of RMB168,705 in the fourth quarter
       2008.
    -- Non-GAAP adjusted diluted earnings per share was RMB2.06 (US$0.30),
       compared to RMB0.05 in the fourth quarter 2008.

    Full Year 2009 Financial Highlights:
    -- Total revenues decreased 12.5% year-over-year to RMB122.3 million
       (US$18.0 million).
       -- Revenue from software license sales decreased 18.2% year-over-year
          to RMB54.2 million (US$8.0 million).
       -- Revenue from hardware sales decreased 19.3% year-over-year to
          RMB22.0 million (US$3.2 million).
       -- Service fee income decreased 0.7% year-over-year to RMB47.0 million
          (US$6.8 million).
    -- Gross profit decreased 10.3% year-over-year to RMB51.8 million
       (US$7.6 million). Gross margin increased to 42.3% from 41.3% in 2008.
    -- Operating loss increased to RMB27.0 million (US$4.0 million) from
       RMB10.0 million in 2008.
    -- Net loss was RMB24.1 million (US$3.5 million), compared with a net loss
       of RMB4.5 million in 2008.
    -- Diluted net loss per share was RMB7.16 (US$1.05), as compared to a net
       loss per share of RMB1.39 in 2008.
    -- Operating cash flow was RMB10.2 million (US$1.5 million), compared to
       RMB31.0 million in 2008.
    -- Adjusted net loss (non-GAAP) was RMB1.6 million (US$239,365), compared
       to an adjusted net profit of RMB15.6 million 2008.
    -- Non-GAAP adjusted diluted loss per share was RMB0.47 (US$0.07),
       compared to non-GAAP diluted earnings per share of RMB4.99.

Mr. Adam Yan, Chairman and Chief Executive Officer of eFuture, said, "I am pleased to report that we saw a further rebound in two of our strategic business units (SBUs), Department Store & Shopping Mall and Logistics, with increased revenue from both existing and new customers in the fourth quarter of 2009. This underpinned the continued recovery of our business and allowed us to deliver full-year revenue within our guidance range. Despite the challenging market environment and uncertainty that characterized 2009, we never lost our focus on innovation, which we believe is the cornerstone of our growth going forward. In 2009, we significantly strengthened our market position through investment in new releases of core software solutions and sales-related activities to further strengthen penetration into tier-2 and tier-3 cities. Additionally, we continued to broaden our service offering in order to generate new revenue streams and mitigate the impact of seasonality. In terms of revenue mix, we continued to shift towards a higher margin structure, with service fee income increasing to 38.1% of total revenue in 2009 from 33.6% in 2008.

Mr. Yan concluded, "Looking forward, we believe we are well positioned to deliver consistent top-line growth as our customers and end markets continue to recover. As of December 31, 2009, eFuture's contracts backlog was approximately US$7.2 million, around 80% of which we expect to recognize in 2010. In addition, we secured a number of new customers during 2009, the majority of which have completed pilot projects and are preparing for nationwide rollout of our systems and services in 2010. For 2010, we will put in place a plan to improve our cost structure with a focus on further margin expansion. Building on the ongoing market rebound in 2010, we will drive growth by continuing to strengthen our software core business while expanding beyond the core to develop recurring maintenance service and e-service revenues."

Operational Highlights:

Management and Operational Enhancements

Since the start of 2010, eFuture's management team has been enhanced with the following appointments:

    -- Mr. Dehong Yang, President. Mr Yang was appointed to the newly created
       position of President, effective 1 January 2010. Mr. Yang has
       experience in senior roles within leading international IT companies
       such as Wincor Nixdorf and IBM.
    -- Mr. Jack Qiu, Vice President and General Manager of the Retail and
       Distribution Research Lab at Beijing eFuture, has been promoted to
       Chief Innovation Officer and Senior Vice President of eFuture
       Information Technology, Inc. Mr. Qiu replaces Mr. Hongjun Zhou. Mr. Qiu
       served since 2007 as Vice President and General Manager of Retail and
       Distribution Research Lab, Beijing eFuture. From 1998 to 2007, he
       served as Executive Vice President of Guangzhou Royalstone System
       Integration Co. Ltd.
    -- Mr. Johnson Li, Vice President of Beijing eFuture, has been promoted to
       Senior Vice President, eFuture Information Technology, Inc.,
       responsible for the management of sales and distribution at the
       Company's wholly-owned subsidiary, eFuture (Beijing) Royalstone
       Information Technology, Inc, and at two effectively controlled variable
       interest entities ("VIEs"), Beijing Wangku Hutong Information
       Technology Co., Ltd. ("Wangku") and Beijing Fuji Biaoshang Information
       Technology Co., Ltd. ("Biaoshang" or "bFuture"). Mr. Li, age 44, has
       served as Vice President at Beijing eFuture since 1997. Since 2008, he
       has also served as the General Manager of the Key Account SBU. From
       2006 to 2007, Mr. Li served as the Secretary of the Board of eFuture.
    -- eFuture's Chief Marketing Officer, Mr. James Mu, resigned due to
       personal reasons, effective January 2010. Pending the appointment of a
       replacement, eFuture's President, Mr. Yang, is leveraging his marketing
       experience with companies such as IBM to drive marketing initiatives.


    Fourth Quarter and Full Year 2009 Financial Results

Revenue

Revenue for the fourth quarter 2009 decreased 17.8% to RMB61.1 million (US$9.0 million) from RMB74.3 million in the fourth quarter 2008. Revenue during the quarter was primarily driven by eFuture's Department Store & Shopping Mall, Logistics, and Grocery, Hypermarket & Supermarket units.

    Total fiscal year 2009 revenue decreased 12.5% to RMB122.3 million
(US$18.0 million) from RMB139.9 million in 2008, due to weakness in the
Department Store & Shopping Mall, Logistics, and Grocery, Hypermarket &
Supermarket SBUs during the first three quarters of the year as a result of
the economic slowdown.


    Revenue Breakdown

                                 2008                      2009
                             Q4        FY                    Q4
                             RMB       RMB        RMB       USD       Y-o-Y
                            '000       '000      '000      '000       Change
    Software
     license sales         33,337      66,216   24,818     3,636      (25.6)%
    Hardware sales         19,680      26,656   19,323     2,831       (1.8)%
    Service fee
     income                21,315      46,992   16,965     2,485      (20.4)%
    Total                  74,331     139,864   61,106     8,952      (17.8)%

                                                       2009
                                                        FY
                                          RMB           USD           Y-o-Y
                                         '000           '000          change
    Software
     license sales                      54,188          7,939         (18.2)%
    Hardware sales                      21,518          3,152         (19.3)%
    Service fee
     income                             46,643          6,833          (0.7)%
    Total                              122,349         17,924         (12.5)%


Cost of Revenues

The cost of revenue for the fourth quarter of 2009 decreased 30.9% to RMB33.3 million (US$4.9 million) from RMB48.2 million in fourth quarter 2008. The decrease was primarily attributable to the decrease in sales volume and lower labor costs relating to software implementation and delivery.

The cost of revenue for the full year 2009 decreased 14.1% to RMB70.6 million (US$10.3 million) from RMB82.1 million in 2008. While primarily attributable to the decrease in sales volume, the decline in cost of revenue was also due to improved cost of software in 2009.



    Cost of Revenues Breakdown
                                   2008                  2009
                              Q4       FY                 Q4
                              RMB      RMB       RMB      USD        Y-o-Y
                             '000     '000      '000      '000       Change
    Cost of
     software
     license sales          13,731    22,929     4,589     672       (66.6)%
    Cost of
     hardware sales         16,209    21,989    15,275   2,238        (5.8)%
    Cost of
     service fee
     income                 13,073    20,248     9,079   1,330       (30.5)%
    Amortization
     of acquired
     technology              4,206    13,308     2,905     426       (30.9)%
    Amortization
     of software
     costs                     953     3,633     1,442     211        51.4 %

    Total                   48,172    82,106    33,291   4,877      (113.8)%


                                                      2009
                                                       FY
                                          RMB          USD           Y-o-Y
                                          '000         '000          change
    Cost of
     software
     license sales                       13,587        1,991          (40.7)%
    Cost of
     hardware sales                      17,295        2,534          (21.3)%
    Cost of
     service fee
     income                              23,419        3,431           15.7 %
    Amortization
     of acquired
     technology                          11,983        1,756          (10.0)%
    Amortization
     of software
     costs                                4,280          627           17.8 %
    Total                                70,564       10,339          (14.1%)

Gross Profit

Fourth quarter 2009 gross profit increased 6.3% year-over-year to RMB27.8 million (US$4.1 million), from RMB26.2 million in the fourth quarter of 2008. Full year 2009 gross profit decreased 10.3% year-over-year to RMB51.8 million (US$7.6 million), from RMB57.8 million in the fourth quarter 2008.

Consolidated gross margin for the fourth quarter of 2009 was 45.5% compared with 35.2% in the fourth quarter of 2008. Consolidated gross margin for the full year 2009 was 42.3% compared with 41.3% in 2008, primarily due to the slight improvement in software and hardware gross margins.

Operating Expenses

Research and development expenses for the fourth quarter 2009 decreased 67.7% year-over-year to RMB1.9 million (US$278,494), or 3.1% of total revenues, compared with RMB5.9 million, or 7.9% of total revenues in the fourth quarter 2008. Research and development expenses for the full year 2009 decreased 61.4% year-over-year to RMB2.5 million (US$368,291), or 2.1% of total revenues, compared with RMB6.5 million, or 4.7% of total revenues in 2008. The change was due to product launches following the successful completion of product development and pilot phases.

General and administrative expenses for the fourth quarter 2009 decreased 3.5% year-over-year to RMB16.9 million (US$2.5 million), or 27.7% of total revenues, compared with RMB17.6 million, or 23.6% of total revenue in the fourth quarter 2008. General and administrative expenses as a percentage of revenues decreased year-over-year as a result of provision for employees' social security having been made on a quarterly basis during 2009, in contrast to a yearly basis in the fourth quarter 2008 relating to the full year 2008. Additionally, the impairment of assets in the fourth quarter 2008 contrasted with no impairment in 2009.

General and administrative expenses for the full year 2009 increased 3.8% year-over-year to RMB42.0 million (US$6.2 million), or 34.3% of total revenue, compared with RMB40.5 million, or 28.9% of total revenue in 2008. The year-over-year increase in general and administrative expenses as a percentage of revenues was primarily due to the implementation of a share option scheme to offer enhanced incentives to senior and middle management, as well as to higher rental expenses incurred due to operational expansion.

Selling and distribution expenses for the fourth quarter 2009 increased 76.0% year-over-year to RMB11.3 million (US$1.7 million), or 18.5% of total revenues, compared with RMB6.4 million, or 8.7% of total revenue in the fourth quarter 2008. Selling and distribution expenses for the full year 2009 increased 64.8% year-over-year to RMB34.3 million (US$5.0 million), or 28.0% of total revenue, compared with RMB20.8 million, or 14.9% of total revenue in 2008. The increase in selling and distribution costs for the fourth quarter and full year 2009 was primarily due to higher salaries and continued investment in sales and marketing activities, such as client meetings and associated travel costs, and the redeployment of the sales force in order to continue penetration of tier-2 and tier-3 cities.

Operating Loss

Operating loss in the fourth quarter 2009 improved to RMB2.3 million (US$343,321), compared with an operating loss of RMB3.7 million in the fourth quarter 2008. The improvement was mainly attributable to the slight increase in software sales gross margin.

Operating loss in the full year 2009 was RMB27.0 million (US$4.0 million), compared with an operating loss of RMB10.0 million in 2008. The increase was mainly attributable to the combination of a decrease in sales volume during the market slowdown and an increase in selling and distribution expenses to capitalise on improving market conditions towards the end of 2009.

Net Profit/Loss and EBITDA

As a result of the foregoing, fourth quarter 2009 net loss was RMB1.1 million (US$156,902) compared with net losses of RMB5.8 million in the fourth quarter 2008 and RMB4.2 million in the third quarter 2009. Full year 2009 net loss was RMB24.1 million (US$3.5 million) compared with a net loss of RMB4.5 million in 2008.

Basic and diluted losses per share in the fourth quarter 2009 improved to RMB0.32 (US$0.05), compared to basic and diluted losses per share of RMB1.81 in the fourth quarter 2008 and RMB1.24 in the third quarter 2009. Basic and diluted losses per share in the full year 2009 were RMB7.16 (US$1.05), compared to basic and diluted losses per share of RMB1.39 in 2008.

Adjusted net income (non-GAAP) for the fourth quarter improved to RMB7.2 million (US$1 million), compared to an adjusted net income of RMB168,705 in the fourth quarter 2008. Adjusted net loss (non-GAAP) for the full year 2009 was RMB1.6 million (US$239,365), compared to an adjusted net profit of RMB15.6 million in 2008.

Fourth quarter 2009 non-GAAP adjusted diluted earnings per share improved to RMB2.06 (US$0.30), compared to RMB0.05 in the fourth quarter 2008. Full year 2009 adjusted non-GAAP diluted loss per share was RMB0.47 (US$0.07), compared to non-GAAP diluted earnings per share of RMB4.99 in 2008.

EBITDA (non-GAAP) for the fourth quarter 2009 improved to RMB6.3 million (US$918,155), compared to RMB2.5 million in the fourth quarter 2008. EBITDA (non-GAAP) for the full year 2009 was minus RMB3.5 million (US$506,919), compared to RMB10.9 million in 2008.

Balance Sheet and Cash Flow

As of December 31, 2009, net cash outflow from operating activities was RMB10.2 million (US$1.5 million), while net cash used in investing activities was RMB12.0 million (US$1.8 million).

As of December 31, 2009, cash and cash equivalents were RMB59.1 million (US$8.7 million), which was a 2.8% decrease compared with RMB60.8 million at the end of 2008.

Total accounts receivable as of December 31, 2009 decreased 17.7% to RMB16.0 million (US$2.3 million) from RMB19.5 million as of December 31, 2008. This improvement was mainly attributable to enhanced management of accounts receivable collections.

Inventories as of December 31, 2009 increased to RMB5.8 million (US$0.8 million), compared with RMB2.9 million as of December 31, 2008, as some of eFuture's contracts were still classified as work-in-process. They will become costs when they reach the point of revenue recognition.

First Quarter 2010 Guidance

To better reflect the dynamics of eFuture's business, the Company has decided to provide quarterly guidance instead of annual guidance. eFuture expects total revenues for the first quarter of 2010 to be in the range of approximately US$1.8 million to US$2.2 million. Adjusted EBITDA (non-GAAP) for the first quarter of 2010 is expected to range between a loss of US$0.9 million and a loss of US$1.2 million.

Conference Call Information

eFuture's management will host a conference call on Friday, April 30, 2010 at 5:00 am (US Pacific) / 8:00 am (US Eastern) / 8:00 pm (Beijing) to discuss its 2009 fourth quarter and full year financial results and recent business activity. The conference call may be accessed by calling:

    United States Toll Free          +1-866-519-4004
    United States Toll               +1-718-354-1231
    United Kingdom Toll Free         0808-234-6646
    Hong Kong Toll Free              800-930-346
    China Local Dial-in              800-819-0121
    China (Mobile Callers)           400-620-8038
    International Dial-in            +65-6723-9381
    Passcode                         68422376 or "eFuture"

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 Friday, May 7, 2010:

    United States Toll Free          +1-866-214-5335
    United States Toll Dial-in       +1-718-354-1232
    United Kingdom Dial-in           0800-731-7846
    Hong Kong Dial-in                800-901-596
    China North Dial-in              10-800-714-0386
    China South Dial-in              10-800-140-0386
    International Dial-in            +61-2-8235-5000
    Passcode                         68422376

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/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 RMB6.8259 to US$1.00, the noon buying rate for US dollars in effect on December 31, 2009 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 SEC: 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. eFuture currently serves over 15 Fortune 500 companies, over 1,000 retailers and over 5,000 suppliers operating in China. eFuture is one of IBM's premier business partners in Asia Pacific and is a strategic partner with Oracle, Microsoft, JDA, Motorola and Samsung Network China. eFuture has more than 670 employees and 20 branch offices across China. 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, 2009 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 revenues 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 April 29, 2010, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.

    For further information, please contact:

    Investor Contact:
     Troe Wen, Company Secretary
     eFuture Information Technology Inc.
     Tel:   +86-10-5293-7699
     Email: ir@e-future.com.cn

    Investor Relations (US):
     Mahmoud Siddig
     Taylor Rafferty
     Tel:   +1-212-889-4350
     Email: eFuture@Taylor-Rafferty.com

    Investor Relations (HK):
     Ruby Yim
     Taylor Rafferty
     Tel:   +852-3196-3712
     Email: eFuture@Taylor-Rafferty.com

    Media Contact:
     Jason Marshall
     Taylor Rafferty
     Tel:   +1-212-889-4350
     Email: eFuture@Taylor-Rafferty.com



    - FINANCIAL TABLES TO FOLLOW-

               E-FUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                                                    U.S.
                                     Chinese Yuan (Renminbi)       Dollars
                                     December 31,   December 31, December 31,
                                       2008            2009           2009
                                     (Unaudited)    (Unaudited)   (Unaudited)
    ASSETS
    Current assets
    Cash and cash equivalents         60,787,734     59,114,876    8,660,378
    Trade receivables, less
     allowance for doubtful
     accounts of RMB4,743,679
     and RMB6,916,151($1,013,222),
     respectively                     19,468,029     16,029,386    2,348,318
    Refundable value added tax         2,755,702      2,600,299      380,946

    Deposits                                  --             --           --
    Advances to employees              3,205,953      1,612,691      236,261
    Advances to suppliers                198,752        297,604       43,599
    Other receivables                  2,229,535      2,437,431      357,086
    Prepaid expenses                     735,083      1,425,704      208,867
    Inventory and work in
     process                           2,879,250      5,761,384      844,047
    Total current assets              92,260,038     89,279,374   13,079,502

    Non-current assets
    Long-term investments                654,192        654,192       95,840

    Long term deferred expense                --         63,750        9,339
    Deferred loan costs                1,182,588        836,337      122,524
    Property and equipment,
     net of accumulated
     depreciation of
     RMB3,020,838  and
     RMB4,162,217($609,768),
     respectively                      3,605,458      5,208,594      763,064
    Intangible assets, net of
     accumulated amortization
     of RMB34,704,373 and
     RMB50,972,300($7,467,484),
     respectively                     49,875,082     42,833,223    6,275,103
    Goodwill                          91,284,735     91,284,735   13,373,289
    Total non-current assets         146,602,055    140,880,831   20,639,159

    Total assets                     238,862,093    230,160,205   33,718,661

    LIABILITIES AND
     SHAREHOLDERS' EQUITY
    Current liabilities

    Trade accounts payable             5,646,259      9,080,949    1,330,366

    Other payable                     11,097,702     14,670,879    2,149,296

    Accrued expenses                   6,873,703      9,989,371    1,463,451

    Accrued interest                          --             --           --

    Taxes payable                      7,933,734      6,989,700    1,023,997

    Advances from customers           22,839,530     26,394,886    3,866,873
    Royalstone acquisition
     obligation, net of current
     portion                           6,416,970      6,420,168      940,560
    Health field acquisition
     obligation                          594,000             --           --
    Proadvancer System
     acquisition obligation           29,958,518     29,973,448    4,391,135
    BFuture acquisition
     obligation                          392,877        392,877       57,557
    Deferred tax, current
     portion                           1,553,197      1,389,121      203,507

    Total current liabilities         93,306,490    105,301,397   15,426,742

    Long-term liabilities
    Royalstone acquisition
     obligation                               --             --           --
    3%-10% RMB6,825,900
     ($1,000,000) convertible
     note payable, net of
     RMB6,789,061
     ($994,603) of unamortized
     discount                             26,068         36,839        5,397
    Derivative liabilities             5,111,417      3,824,552      560,300
    Minority shareholder
     interests                           204,414       (509,179)     (74,595)
    Deferred tax                       5,458,232      4,067,470      595,888
    Total long-term
     liabilities                      10,800,131      7,419,682    1,086,990

    Shareholders' equity
    Ordinary shares, $0.0756
     U.S. dollars par value;
     6,613,756 shares
     authorized; 3,362,241
     shares and 3,368,424
     shares outstanding,
     respectively                      2,039,196      2,042,384      299,211
    Additional paid-in capital       173,054,651    179,821,900   26,344,057
    Statutory reserves                 3,084,020      3,084,020      451,812
    Accumulated deficit              (43,422,395)   (67,509,179)  (9,890,151)

    Total shareholders' equity       134,755,472    117,439,126   17,204,929

    Total liabilities and
     shareholders' equity            238,862,093    230,160,205   33,718,661




    E-FUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY
    CONDENSED CONSOLIDATED INCOME STATEMENTS

                                           Three Months Ended
                             December     September
                              31, 2008     31, 2009      December 31, 2009
                                RMB          RMB         RMB         US$
                            (Unaudited)  (Unaudited) (Unaudited) (Unaudited)
    Revenues
    Software sales           33,336,724   13,809,558  24,817,765   3,635,823
    Hardware sales           19,680,213      799,850  19,323,064   2,830,845
    Service fee income       21,314,538   10,603,170  16,964,910   2,485,373

    Total Revenues           74,331,475   25,212,578  61,105,739   8,952,041

    Cost of revenues
    Cost of software         13,730,797    4,379,759   4,589,125     672,311
    Cost of hardware         16,209,487      649,717  15,275,100   2,237,815
    Cost of service fee
     income                  13,072,938    6,449,959   9,079,225   1,330,114
    Amortization of
     acquired technology      4,206,263    3,063,315   2,904,831     425,560
    Amortization of
     software costs             952,676    1,027,965   1,442,273     211,294
    Total Cost of Revenue    48,172,160   15,570,716  33,290,555   4,877,094

    Gross Profit             26,159,314    9,641,862  27,815,184   4,074,947

    Operating Expenses
    Research and
     development              5,890,351      427,195   1,900,974     278,494
    General and
     administrative          17,552,899    7,173,665  16,933,586   2,480,785
    Selling and
     distribution expenses    6,434,386    7,914,027  11,324,100   1,658,990
    Total Operating
     Expenses                29,877,636   15,514,887  30,158,661   4,418,269

    Profit/(loss) from
     operations              (3,718,322)  (5,873,024) (2,343,477)   (343,321)

    Interest income              84,193      153,454     (71,114)    (10,417)
    Interest expense           (401,547)    (176,753)     42,902       6,285
    Interest expenses-
     amortization of
     discount on notes
     payable                     (2,697)        (958)     (5,506)       (807)
    Interest expenses-
     amortization of
     deferred loan costs        (83,815)     (88,301)    (89,457)    (13,106)
    Income/(loss) on
     investments             (2,911,634)          --          --          --
    Gain on derivatives      16,564,984     (158,449)  1,831,621     268,334
    Loss on extinguishment
     of convertible notes            (5)          --          --          --
    Foreign currency
     exchange gain          (10,844,217)      31,006    (120,388)    (17,637)
    Profit/(loss) before
     tax                     (1,313,059)  (6,113,025)   (755,418)   (110,669)
    Income tax
     expense/(benefit)         (670,049)   1,574,525    (808,005)   (118,374)
    Minority interest in
     profit/(loss) of
     consolidated
     subsidiary              (3,830,025)     375,795     492,429   72,141.00
    Net Income/(loss)        (5,813,134)  (4,162,706) (1,070,995)   (156,902)
    Other comprehensive
     income/(loss)
     Foreign currency
     translation adjustment          --           --          --          --
    Comprehensive
     Income/(loss)           (5,813,134)  (4,162,706) (1,070,995)   (156,902)


    Earnings per
     share
    Basic                         (1.81)       (1.24)      (0.32)      (0.05)
    Diluted                       (1.81)       (1.24)      (0.32)      (0.05)



    E-FUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY
    CONDENSED CONSOLIDATED INCOME STATEMENTS

                                                                    U.S.
                                    Chinese Yuan (Renminbi)        Dollars
                                        2008          2009           2009
                                   (Unaudited)   (Unaudited)     (Unaudited)
    Revenues
    Software sales                   66,215,769    54,187,769      7,938,553
    Hardware sales                   26,655,967    21,518,084      3,152,417
    Service fee income               46,991,766    46,642,594      6,833,179
    Total Revenues                  139,863,502   122,348,447     17,924,149

    Cost of revenues
    Cost of software                 22,928,605    13,587,296      1,990,550
    Cost of hardware                 21,989,087    17,294,931      2,533,722
    Cost of service fee income
                                     20,247,922    23,418,659      3,430,853
    Amortization of acquired
     technology                      13,308,030    11,983,299      1,755,563
    Amortization of software
     costs                            3,632,744     4,280,232        627,058
    Total Cost of Revenue            82,106,388    70,564,417     10,337,745

    Gross Profit                     57,757,114    51,784,030      7,586,403

    Operating Expenses
    Research and development          6,512,776     2,513,915        368,291
    General and administrative       40,488,964    42,015,797      6,155,349
    Selling and distribution
     expenses                        20,792,618    34,256,793      5,018,648

    Total Operating Expenses         67,794,358    78,786,505     11,542,288

    Profit/(loss) from
     operations                     (10,037,244)  (27,002,475)    (3,955,885)

    Interest income                   1,424,029       425,103         62,278
    Interest expense                 (1,246,780)     (453,861)       (66,491)
    Interest expenses-
     amortization of discount on
     notes payable                      (33,212)      (13,316)        (1,951)
    Interest expenses-
     amortization of deferred
     loan costs                        (978,204)     (350,996)       (51,421)
    Income/(loss) on investments     (3,552,902)           --             --
    Gain on derivatives              33,122,465     1,290,327        189,034
    Loss on extinguishment of
     convertible notes              (22,529,233)           --             --
    Foreign currency exchange
     gain                               368,127      (133,091)       (19,498)
    Profit/(loss) before tax         (3,462,954)  (26,238,308)    (3,843,934)
    Income tax expense/(benefit)       (810,744)    1,437,926        210,658
    Minority interest in
     profit/(loss) of
     consolidated subsidiary           (204,414)      713,593     104,542.00
    Net Income/(loss)                (4,478,112)  (24,086,788)    (3,528,734)
    Other comprehensive
     income/(loss)
     Foreign currency
     translation adjustment                  --            --             --
    Comprehensive Income/(loss)      (4,478,112)  (24,086,788)    (3,528,734)

    Earnings per ordinary share
    Basic                                 (1.39)        (7.16)         (1.05)
    Diluted                               (1.39)        (7.16)         (1.05)




    E-FUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY
    NON-GAAP MEASURES OF PERFORMANCE
                                              Three Months Ended
                                     December
                                     31, 2008         December 31, 2009
                                       RMB             RMB          US$
                                   (Unaudited)     (Unaudited)  (Unaudited)
    NON-GAAP OPERATING INCOME
    (LOSS) AND ADJUSTED EBITDA

    Operating income (loss)
    (GAAP Basis)                     (3,718,322)     (2,343,477)    (343,321)

    Adjustments for non-GAAP
     measures of performance:
    Add back amortization of
     acquired software technology     4,206,263       2,904,831      425,560
    Add back amortization of
     intangibles                        952,676       1,442,273      211,294
    Add back share-based
     compensation expenses              820,203       3,881,775      568,683
    Adjusted non-GAAP operating
     income                           2,260,820       5,885,403      862,216
    Add back depreciation               224,379         381,834       55,939

    Adjusted EBITDA (Earnings
     before interest, taxes,
     depreciation and
     amortization)                    2,485,199       6,267,237      918,155


    NON-GAAP OPERATING INCOME
    (LOSS) AND ADJUSTED EBITDA,
     as a percentage of revenue

    Operating income (loss)
    (GAAP BASIS)                            -5 %            -4 %         -4 %

    Adjustments for non-GAAP
     measures of performance:
    Amortization of acquired
     software technology                     6 %             5 %          5 %
    Amortization of intangibles              1 %             2 %          2 %
    Share-based compensation
     expenses                                1 %             6 %          6 %
    Adjusted non-GAAP operating
     income                                  3 %            10 %         10 %
    Depreciation                           0.3 %           0.6 %        0.6 %

    Adjusted EBITDA (Earnings
     before interest, taxes,
     depreciation and
     amortization)                           3 %            10 %         10 %

    NON-GAAP EARNINGS PER SHARE
    Net Income(Loss)                 (5,813,134)     (1,070,995)    (156,902)
    Amortization of acquired
     software technology              4,206,263       2,904,831      425,560
    Amortization of intangibles         952,676       1,442,273      211,294
    Accretion on convertible
     notes                                2,697           5,506          807
    Share-based compensation
     expenses                           820,203       3,881,775      568,683
    Adjusted Net income                 168,705       7,163,391    1,049,442

    Adjusted non-GAAP diluted
     earnings per share                    0.05            2.06         0.30
    Shares used to compute non-
     GAAP diluted earnings per
     share                         3,394,099.19       3,480,225    3,480,225





    E-FUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY
    NON-GAAP MEASURES OF PERFORMANCE

                                                   Year Ended
                                     December
                                      31,2008          December 31,2009
                                        RMB            RMB           US$
                                    (Unaudited)    (Unaudited)   (Unaudited)
    NON-GAAP OPERATING INCOME
    (LOSS) AND ADJUSTED EBITDA

    Operating income (loss) (GAAP
     Basis)                         (10,037,244)    (27,002,475)  (3,955,885)

    Adjustments for non-GAAP
     measures of performance:
    Add back amortization of
     acquired software technology    13,308,030      11,983,299    1,755,563
    Add back amortization of
     intangibles                      3,632,744       4,280,232      627,058
    Add back share-based
     compensation expenses            3,109,903       6,176,054      904,797
    Adjusted non-GAAP operating
     income                          10,013,433      (4,562,889)    (668,467)
    Add back depreciation               891,183       1,102,709      161,548

    Adjusted EBITDA (Earnings
     before interest, taxes,
     depreciation and
     amortization)                   10,904,616      (3,460,180)    (506,919)

    NON-GAAP OPERATING INCOME
    (LOSS) AND ADJUSTED EBITDA,
     as a percentage of revenue

    Operating income (loss) (GAAP
    BASIS)                                  -7 %           -22 %        -22 %

    Adjustments for non-GAAP
     measures of performance:
    Amortization of acquired
     software technology                    10 %            10 %         10 %
    Amortization of intangibles              3 %             3 %          3 %
    Share-based compensation
     expenses                                2 %             5 %          5 %
    Adjusted non-GAAP operating
     income                                  7 %            -4 %         -4 %
    Depreciation                           0.6 %           0.9 %        0.9 %

    Adjusted EBITDA (Earnings
     before interest, taxes,
     depreciation and
     amortization)                           8 %            -3 %         -3 %

    NON-GAAP EARNINGS PER SHARE
    Net Income(Loss)                 (4,478,112)    (24,086,788)  (3,528,734)
    Amortization of acquired
     software technology             13,308,030      11,983,299    1,755,563
    Amortization of intangibles       3,632,744       4,280,232      627,058
    Accretion on convertible
     notes                               33,212          13,316        1,951
    Share-based compensation
     expenses                         3,109,903       6,176,054      904,797
    Adjusted Net income              15,605,777      (1,633,887)    (239,365)

    Adjusted non-GAAP diluted
     earnings per share                    4.99           (0.47)       (0.07)
    Shares used to compute non-
     GAAP diluted earnings per
     share                            3,124,463       3,478,013    3,478,013




    E-FUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                    U.S.
                                      Chinese Yuan (Renminbi)      Dollars
                                                                  December
                                    December 31,   December 31,      31,
                                        2008           2009         2009
                                    (Unaudited)    (Unaudited)   (Unaudited)
    Cash flows from operating
     activities:
    Net income (loss)                 (4,478,112)   (24,086,788)  (3,528,734)
    Adjustments to reconcile net
     income (loss) to net cash
     provided by (used in)
     operating activities:
    Depreciation                         891,183      1,102,709      161,548
    Amortization of intangible
     assets                           16,940,774     16,112,838    2,360,544
    Impairment of intangible
     assets                            2,143,290             --           --
    Amortization of discount on
     notes payable                        33,212         13,316        1,951
    Amortization of deferred
     loan costs                          978,204        350,996       51,421
    Gain on derivatives              (33,122,465)    (1,290,656)    (189,082)
    Loss on extinguishment of
     convertible notes                22,529,233             --           --

    Investment (income)/loss           3,552,902             --           --
    Loss on disposition of
     property and equipment              385,995         14,456     2,118.00
    Provision for doubtful debt        2,340,706      1,392,612      204,019
    Provision for loss in
     inventory and work in
     process                           1,449,542   1,103,381.85   161,646.00
    Compensation expense for
     options issued to employees       3,109,903      6,176,054      904,797
    Deferred taxes                       481,774     (1,554,838)    (227,785)
    Foreign exchange loss             (2,222,996)            --           --
    Minority interest                    204,414       (713,593)    (104,542)
    Change in assets and
     liabilities:
    Accounts receivable               (2,526,441)     3,883,719      568,968
    Refundable value added tax           935,333        155,403       22,767
    Deposits                             156,695             --           --
    Advances to employees                370,994      1,500,531      219,829
    Advances to suppliers                991,888       (198,692)     (29,109)
    Other receivables                    136,565      1,920,407      281,341
    Prepaid expenses                     305,014       (754,238)    (110,497)
    Inventories                        1,421,159     (3,745,144)    (548,667)
    Trade payables                     1,230,861      3,393,734      497,185
    Other payables                     7,269,063      2,346,510      343,766
    Accrued expenses                   2,360,449      3,116,989      456,642
    Accrued interest                    (278,420)       (27,304)      (4,000)
    Taxes payable                     (1,084,826)    (1,757,166)    (257,426)
    Advances from customers            4,542,952      1,741,712      255,162
    Net cash provided by
     operating activities             31,048,845     10,196,948    1,493,861

    Cash flows from investing
     activities:
    Purchases of property and
     equipment                        (1,618,331)    (2,185,887)    (320,234)
    Payments for intangible
     assets                           (2,930,247)    (9,826,100)  (1,439,532)

    Long-term investments                     --             --           --

    Acquisition of business          (28,278,247)            --           --

    Loan to Guarantor                         --             --           --
    Amounts due from a related
     party                                    --             --           --
    Net cash used in investing
     activities                      (32,826,825)   (12,011,987)  (1,759,766)

    Cash flows from financing
     activities:
    Issuance of ordinary shares
     for cash,  net of
     offering costs paid                      --             --           --
    Proceeds from exercise of
     warrants                          3,657,908             --           --
    Issuance of convertible
     notes                                    --             --           --
    Payment of make-whole
     obligation                       (8,054,079)            --           --
    Repayment of short-term
     loans                                    --             --           --
    Net cash provided by (used
     in) financing activities         (4,396,171)            --           --
    Effect of exchange rate
     changes on cash                    (265,463)    142,180.54       20,830
    Net increase (decrease) in
     cash                             (6,439,614)    (1,672,858)    (245,075)
    Cash and cash equivalents at
     beginning of period              67,227,348     60,787,734    8,905,453
    Cash and cash equivalents at
     end of period                    60,787,734     59,114,876    8,660,378
    Supplemental cash flow
     information

    Interest paid                      1,525,200     450,826.20    66,046.00


SOURCE eFuture Information Technology Inc.