November 19, 2012 at 17:00 PM EST
eFuture Announces Third Quarter 2012 Unaudited Financial Results

BEIJING, Nov. 19, 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 third quarter ended September 30, 2012.

Third Quarter 2012 Financial Highlights

  • Total revenue decreased 10% year-over-year to RMB37.5 million (US$6.0 million).
  • Gross profit increased 5% year-over-year to RMB16.1 million (US$2.6 million).
  • Adjusted EBITDA was minus RMB1.0 million (US$0.2 million), compared to adjusted EBITDA of RMB1.1 million in the third quarter 2011.
  • Operating loss was RMB3.9 million (US$0.6 million), compared to an operating loss of RMB3.2 million in the third quarter 2011.
  • Net loss was RMB2.1 million (US$0.3 million), compared to a net loss of RMB2.5 million in the third quarter 2011.
  • Adjusted net income decreased 82% year-over-year to RMB0.3 million (US$47,415).
  • Basic and diluted loss per share was RMB0.52 (US$0.08), as compared to basic and diluted loss per share of RMB0.62 in the third quarter 2011.
  • Adjusted diluted earnings per share was RMB0.07 (US$0.01), as compared to adjusted diluted earnings per share of RMB0.39 in the third quarter 2011.

Mr. Adam Yan, Chairman and Chief Executive Officer of eFuture, commented on the results. "eFuture achieved the mid-range of the guidance we set last quarter and recorded a satisfactory gross margin. These performances for the third quarter 2012 were fully in-line with our expectations as we continued to execute on our strategic objectives to enhance profitability through product upgrades and revenue mix changes in a challenging macroeconomic environment.

"Following the trends we have seen in previous quarters, we continue to experience steady year over year order growth for our customized IT solutions services from grocery and department store clients in big cities as well as in tier two and three cities. However, we have also seen signs of a persistently soft China consumer market, leading to stagnant growth in the retail and consumer sector.

Mr. Yan concluded, "eFuture was named China's number one retail industry IT service provider measured by market share in the International Data Corporation's China Retail Industry IT Solution 2012-2016 Forecast and Analysis Report. We believe our leading market position and the combination of innovative products and customized services we now offer in the marketplace will equip eFuture with a sustainable model to outgrow the market, as we continue to gain market share and position ourselves for the eventual economic recovery."

Mr. Sean Zheng, Chief Financial Officer, added, "We have secured two important contracts for our customized IT solution services in the quarter and we expect to recognize revenue from these projects early next year. As such, we are expecting more evenly distributed revenue over the next four quarters of the next fiscal year.

"Looking ahead to 2013, we are optimistic that we will see continued momentum, along with a strengthened revenue stream throughout the year. Our new operational initiatives and strategic objectives should enable us to build on our relationships with existing customers and place us in a prime position to realize solid growth for the future."

THIRD QUARTER 2012 FINANCIAL RESULTS

Revenue

Total revenue for the third quarter 2012 decreased 10% to RMB37.5 million (US$6.0 million) from RMB41.9 million in the third quarter 2011.

Revenue Breakdown

  3Q11 3Q12
 RMB '000RMB '000USD '000Y-o-Y Change
Software license sales 13,544 13,264 2,111 (2%)
Hardware sales 3,010 5,867 933 95%
Service fee income 25,304 18,353 2,920 (27%)
Total41,85837,4845,964(10%)

Software license revenue for the third quarter 2012 decreased 2% year-over-year to RMB13.3 million (US$2.1 million) from RMB13.5 million in the third quarter 2011. The decrease was primarily attributable to the decline of third-party software license revenue.

Hardware revenue in the third quarter 2012 increased 95% year-over-year to RMB5.9 million (US$0.9 million) from RMB3.0 million in the third quarter 2011. The increase was due to the completion of some large contracts from the grocery and logistics industry in the third quarter 2012.

Service fee income for the third quarter 2012 decreased 27% year-over-year to RMB18.4 million (US$2.9 million) from RMB25.3 million in the third quarter 2011, which was primarily attributable to decreased customization service fee income in fast moving consumer goods ("FMCG") and grocery industries in the third quarter 2012, as a result of the completion of two large contracts in the same period last year.

Cost of Revenue

Cost of revenue for the third quarter 2012 decreased 19% to RMB21.4 million (US$3.4 million) from RMB26.5 million in the third quarter 2011.

Cost of Revenue Breakdown

  3Q11 3Q12
RMB '000RMB '000USD '000Y-o-Y Change
Cost of software license sales 3,783 3,876 617 2%
Cost of hardware sales 2,133 4,816 766 126%
Cost of service fee 17,963 11,310 1,799 (37%)
Amortization of acquired technology 1,736 686 109 (61%)
Amortization of software costs 928 683 109 (26%)
Total26,54321,3713,400(19%)

Gross Profit and Gross Margin

Gross profit increased 5% year-over-year to RMB16.1 million (US$2.6 million) from RMB15.3 million in the third quarter 2011, and consolidated gross margin for the third quarter 2012 was 43%, compared with 37% in the third quarter 2011. The improvement in gross margin was mainly due to an increased margin on service fee income. The Company continued to improve the sales portfolio to focus on more profitable projects, which reflects a higher proportion of high-margin maintenance and consulting service fee income in the third quarter 2012.

Operating Expenses

Research and development ("R&D") expenses for the third quarter 2012 increased 76% year-over-year to RMB0.6 million (US$97,215), or 2% of total revenue, compared with RMB0.3 million, or 1% of total revenue in the third quarter 2011. The increase was primarily attributable to an increase of share-based compensation expenses, as a new grant under the share incentive plan started its vesting period in the second quarter 2012.

General and administrative expenses ("G&A") for the third quarter 2012 decreased 26% year-over-year to RMB8.0 million (US$1.3 million), representing 21% of total revenue, compared with RMB10.7 million, or 26% of total revenue in the third quarter 2011. The decrease was primarily attributable to better debt reserve in the third quarter 2012 compared with the same period in 2011. In addition, the interim bonus and share-based compensation for senior management also decreased in the third quarter 2012.

Selling and distribution ("S&D") expenses for the third quarter 2012 increased 55% year-over-year to RMB11.5 million (US$1.8 million), representing 31% of total revenue, compared with RMB7.4 million, or 18% of total revenue in the third quarter 2011. The increase was primarily attributable to the rise of sales commissions for the newly-signed contracts during the third quarter 2012. In the third quarter 2012, the amount of new contracts increased nearly 40% compared with the third quarter 2011. In addition, more expenditure on the business development was incurred for seed businesses in the third quarter 2012.

Operating Loss

Operating loss in the third quarter 2012 was RMB3.9 million (US$0.6 million), compared with an operating loss of RMB3.2 million in the third quarter 2011.

Net Loss/Adjusted Net Income and Loss Per Share/Adjusted Earnings Per Share

As a result of the aforementioned loss, third quarter 2012 net loss was RMB2.1 million (US$0.3 million), compared with a net loss of RMB2.5 million in the third quarter 2011. Adjusted net income for the third quarter 2012 was RMB0.3 million (US$47,415), compared with an adjusted net income of RMB1.6 million in the third quarter 2011.

Basic and diluted loss per share in the third quarter 2012 was RMB0.52 (US$0.08), compared to basic and diluted loss per share of RMB0.62 in the third quarter 2011. Adjusted diluted earnings per share was RMB0.07 (US$0.01), compared to an adjusted diluted earnings per share of RMB0.39 in the third quarter 2011.

EBITDA

Adjusted EBITDA for the third quarter 2012 was minus RMB1.0 million (US$0.2 million), compared to adjusted EBITDA of RMB1.1 million in the third quarter 2011.

Balance Sheet and Cash Flow

As of September 30, 2012, cash and cash equivalents amounted to RMB39.1 million (US$6.2 million), a decrease of RMB18.1 million from RMB57.2 million as of December 31, 2011. The decrease was primarily attributable to the expenditures on customization projects and capitalized R&D projects.

Total accounts receivable as of September 30, 2012 increased 14% to RMB22.6 million (US$3.6 million) from RMB19.9 million as of December 31, 2011. The increase was primarily attributable to the increase of revenue recognition from some large contracts in 2012; meanwhile the cash collection was partially impacted by the recent uncertain economic environment.

Inventory and work in process as of September 30, 2012 increased 26% to RMB35.1 million (US$5.6 million) from RMB28.0 million as of December 31, 2011. The increase was primarily attributable to an increase in the number of on-going projects which had not reached the point of revenue recognition, and also related to the amount of hardware to be delivered to customers.

For the quarter ended September 30, 2012, net cash provided by operating activities was RMB12.4 million (US$2.0 million). Net cash used in investing activities was RMB5.5 million (US$0.9 million).

Share Repurchase Program

On December 22, 2011, the Company announced a share repurchase program to repurchase up to US$2 million worth of its ordinary shares over the next 12 months. During the third quarter of 2012, eFuture repurchased approximately 16 thousand shares with an average price of US$3.75 per share.

FOURTH QUARTER 2012 GUIDANCE

eFuture expects total revenue for the fourth quarter 2012 to be in the range of RMB65 million (US$10.3 million) to RMB70 million (US$11.1 million). Adjusted EBITDA for the fourth quarter 2012 is expected to be in the range of RMB3 million (US$0.5 million) to RMB4.5 million (US$0.7 million). The year-over-year decrease in guidance for the fourth quarter is mainly due to the exceptionally strong results from Hardware revenue in the fourth quarter 2011.

CONFERENCE CALL INFORMATION

eFuture's management will host a conference call on Tuesday, November 20, 2012 at 5:00 am (US Pacific) / 8:00 am (US Eastern) / 9:00 pm (Beijing) to discuss the Company's 2012 third quarter and recent business activities. The conference call may be accessed by dialing:

To access the conference call, please dial:
Toll Free: 
U.S. 1-866-519-4004
Hong Kong 800-930-346
Toll:
International 65-6723-9381
China 400-620-8038 / 800-819-0121
Hong Kong 852-2475-0994
U.S.  1-718-354-1231
Passcode: 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: 
Toll Free: 
U.S. 1-866-214-5335
China North 1080-0714-0386
China South 1080-0140-0386
Hong Kong  800-901-596
International Toll: 61-2-8235-5000
Replay Passcode: 57311154
Available Time: 11:00 a.m. November 20, 2012 EST – 07:59 a.m. November 28, 2012 EST

The Company will also broadcast a live audio webcast of the conference call. The webcast will be available at http://ir.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 RMB6.2848 to US$1.00, the noon buying rate for US dollars in effect on September 30, 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 November 19, 2012, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.

– FINANCIAL TABLES TO FOLLOW


EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES Exchange rate 6.2848
CONDENSED CONSOLIDATED INCOME STATEMENTS
Nine months endedThree months ended
Chinese Yuan (Renminbi)U.S. DollarsChinese Yuan (Renminbi)U.S. Dollars
September 30,September 30,September 30,September 30,September 30,September 30,
201120122012201120122012
(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Revenues
Software revenue 25,305,494 37,224,364 5,922,919 13,543,576 13,264,366 2,110,547
Hardware revenue 13,296,651 11,304,164 1,798,652 3,010,218 5,867,089 933,536
Service fee revenue 49,112,642 51,529,510 8,199,069 25,304,521 18,353,121 2,920,239
Total Revenues87,714,787100,058,03815,920,64041,858,31537,484,5765,964,322
Cost of revenues
Cost of software revenue 6,784,449 13,188,019 2,098,399 3,782,726 3,876,244 616,765
Cost of hardware revenue 11,183,763 9,662,676 1,537,468 2,132,978 4,815,972 766,289
Cost of service fee revenue 32,837,763 32,242,590 5,130,249 17,963,219 11,309,683 1,799,529
Amortization of acquired technology 6,096,678 4,042,853 643,275 1,736,300 685,832 109,126
Amortization of software costs 2,578,528 1,921,139 305,680 927,949 683,348 108,730
Total Cost of Revenues59,481,18161,057,2779,715,07126,543,17221,371,0793,400,439
Gross Profit28,233,60639,000,7616,205,56915,315,14316,113,4972,563,883
Operating Expenses
Research and development expenses 3,502,758 2,432,592 387,060 348,126 610,975 97,215
General and administrative expenses 28,958,159 23,236,929 3,697,322 10,736,293 7,971,294 1,268,345
Selling and distribution expenses 16,964,897 27,903,231 4,439,796 7,419,445 11,478,353 1,826,367
Total Operating Expenses49,425,81453,572,7528,524,17818,503,86420,060,6223,191,927
Loss from operations (21,192,208) (14,571,991) (2,318,609) (3,188,721) (3,947,125) (628,044)
Other income (expenses)
Interest income 153,705 354,349 56,382 25,259 60,581 9,639
Interest expenses (486,540) -- -- (159,648) -- --
Interest expenses - amortization of discount on convertible notes payable (345,826) -- -- (263,418) -- --
Interest expenses - amortization of deferred loan costs (271,665) -- -- (79,651) -- --
Gains on derivative liabilities 348,876 3,168 504 9,355 -- --
Other expenses 554,698 802,455 127,682 554,698 803,559 127,858
Foreign currency exchange loss 32,499 15,906 2,531 (21,464) 8,227 1,309
Loss from continuing operations before income tax (21,206,461) (13,396,113) (2,131,510) (3,123,590) (3,074,758) (489,238)
Less: Income tax benefit (4,169,382) (5,852,627) (931,235) (581,414) (937,151) (149,114)
Loss from continuing operations (17,037,079) (7,543,486) (1,200,275) (2,542,176) (2,137,607) (340,124)
Less: Net loss attributable to the non-controlling interest (511,423) -- -- -- -- --
Net loss from continuing operations attributable to eFuture Information Technology Inc. (16,525,656) (7,543,486) (1,200,275) (2,542,176) (2,137,607) (340,124)
Discontinued operations      
Gain from discontinued operations (including gain on disposal of ¥6,701,170 and nil, respectively) 5,609,352 -- -- -- -- --
Less: Income tax expenses -- -- -- -- -- --
Gain from discontinued operations 5,609,352 -- -- -- -- --
Net loss (10,916,304) (7,543,486) (1,200,275) (2,542,176) (2,137,607) (340,124)
Loss per share
Basic (2.64) (1.84) (0.29) (0.62) (0.52) (0.08)
- Continuing operations (4.00) (1.84) (0.29) (0.62) (0.52) (0.08)
- Discontinued operations 1.36 -- -- -- -- --
Diluted (2.64) (1.84) (0.29) (0.62) (0.52) (0.08)
- Continuing operations (4.00) (1.84) (0.29) (0.62) (0.52) (0.08)
- Discontinued operations 1.36 -- -- -- -- --
Basic Weighted-average Shares Outstanding 4,130,221 4,109,188 4,109,188 4,130,221 4,082,729 4,082,729
Fully-Diluted Weighted-average Shares Outstanding 4,132,035 4,109,188 4,109,188 4,130,221 4,153,046 4,153,046
EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES Exchange rate 6.2848
CONDENSED CONSOLIDATED BALANCE SHEETS
Chinese Yuan (Renminbi)U.S. Dollars
December 31,September 30,September 30,
201120122012
(Audited)(Unaudited)(Unaudited)
ASSETS
Current assets
Cash and cash equivalents 57,157,078 39,065,725 6,215,906
Trade receivables, net of allowance for doubtful accounts of ¥3,559,207 and ¥3,996,384($635,881), respectively 19,904,642 22,599,281 3,595,863
Refundable value added tax 6,950,923 1,902,669 302,741
Advances to employees 1,749,427 1,681,963 267,624
Advances to suppliers 331,040 4,688 746
Other receivables due from previously consolidated entities 1,067,000 555,000 88,308
Other receivables 2,021,053 6,523,509 1,037,983
Prepaid expenses 1,465,219 1,811,684 288,264
Inventory and work in process, net of inventory provision of ¥4,507,846 and ¥3,140,328($499,670), respectively 28,001,490 35,146,226 5,592,258
Total current assets 118,647,872 109,290,745 17,389,693
Non-current assets
Long-term investments, net of impairment of ¥240,000 and ¥240,000($38,187), respectively -- -- --
Property and equipment, net of accumulated depreciation of ¥5,748,528 and ¥7,240,973($1,152,141), respectively 3,930,974 4,693,350 746,778
Intangible assets, net of accumulated amortization of ¥65,846,644 and ¥71,381,635($11,357,821), respectively 17,190,976 21,978,170 3,497,036
Goodwill 80,625,667 80,625,667 12,828,677
Deferred tax assets -- 4,890,972 778,222
Total non-current assets 101,747,617 112,188,159 17,850,713
Total assets 220,395,489 221,478,904 35,240,406
LIABILITIES AND EQUITY
Current liabilities
Trade payables 12,500,602 13,430,724 2,137,017
Other payables 12,525,300 10,847,875 1,726,049
Accrued expenses 14,464,113 8,601,310 1,368,589
Taxes payable 4,205,734 1,159,692 184,523
Advances from customers 49,653,714 64,457,695 10,415,241
Deferred tax liabilities, current portion 623,600 75,075 11,945
Total current liabilities 93,973,063 99,572,371 15,843,364
Long-term liabilities
Derivative liabilities 3,168 -- --
Deferred tax liabilities 413,130 -- --
Total long-term liabilities 416,298 -- --
Equity
Ordinary shares, $0.0756 U.S. dollars par value; 6,613,756 shares authorized; 3,937,221 shares and 3,883,076 shares issued and outstanding, respectively 2,353,068 2,327,207 370,291
Additional paid-in capital 225,411,222 228,880,974 36,418,179
Statutory reserves 3,305,527 3,305,527 525,956
Accumulated deficits (105,063,689) (112,607,175) (17,917,384)
Total equity 126,006,128 121,906,533 19,397,042
Total liabilities and equity 220,395,489 221,478,904 35,240,406
EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES Exchange rate 6.2848
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months endedThree months ended
Chinese Yuan (Renminbi)U.S. DollarsChinese Yuan (Renminbi)U.S. Dollars
September 30,September 30,September 30,September 30,September 30,September 30,
201120122012201120122012
(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Cash flows from operating activities:
Net loss (10,916,304) (7,543,486) (1,200,275) (2,542,176) (2,137,607) (340,124)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation of property and equipment 1,410,508 1,492,445 237,469 406,585 501,814 79,846
Amortization of intangible assets 8,723,303 5,963,992 948,955 2,664,248 1,369,180 217,856
Amortization of discount on convertible notes payable 345,826 -- -- 263,418 -- --
Amortization of deferred loan costs 271,665 -- -- 79,651 -- --
Gains on extinguishment of debt (382,889) -- -- (382,889) -- --
Gains on derivative liabilities (348,876) (3,168) (504) (9,335) -- --
Investment income (6,701,170) -- -- -- -- --
Loss on disposal of property and equipment 72,844 -- -- 52,400 -- --
Allowance for doubtful accounts 2,638,516 2,300,859 366,099 1,550,631 663,829 105,625
Provision (Reversal) for loss in inventory and work in process 1,041,943 1,410,854 224,487 (85,909) -- --
Compensation expenses 4,008,380 4,798,568 763,520 1,235,739 1,066,424 169,683
Deferred income taxes (4,169,381) (5,852,628) (931,235) (581,414) (937,152) (149,114)
Foreign exchange gain (235,644) (15,405) (2,451) (9,640) (8,083) (1,286)
Non-controlling interest (511,423) -- -- -- -- --
Changes in assets and liabilities:
Trade receivables (6,008,807) (4,995,498) (794,854) (3,646,831) (943,505) (150,125)
Refundable value added tax (1,421,511) 5,048,254 803,248 (1,360,298) 596,027 94,836
Advances to employees 64,431 67,464 10,734 47,275 4,313 686
Advances to suppliers 2,009,294 57,340 9,124 4,826,730 -- --
Other receivables 823,165 (3,990,456) (634,938) 1,566,827 667,012 106,131
Prepaid expenses (685,046) (346,465) (55,127) 266,120 981,058 156,100
Inventory and work in process (33,476,906) (8,555,589) (1,361,314) (9,677,303) (3,228,678) (513,728)
Trade payables 9,085,873 930,122 147,995 3,243,626 1,565,713 249,127
Other payables (2,268,859) (1,677,425) (266,902) (772,495) (733,900) (116,774)
Accrued expenses (5,401,833) (5,862,803) (932,854) 416,885 745,474 118,615
Taxes payable (7,334,790) (3,046,042) (484,668) (848,576) (281,831) (44,843)
Advances from customers 26,500,299 15,803,981 2,514,634 3,358,299 12,510,960 1,990,670
Net cash provided by (used in) operating activities (22,867,392) (4,015,086) (638,857) 61,548 12,401,048 1,973,181
Cash flows from investing activities:
Purchases of property and equipment (1,314,446) (1,985,809) (315,970) (1,059,594) (361,195) (57,471)
Payments for intangible assets (4,561,032) (10,751,186) (1,710,665) (2,141,717) (3,805,291) (605,475)
Cash paid for share repurchase -- (1,354,677) (215,548) -- (1,354,677) (215,548)
Cash received from disposal of property and equipment 3,000 -- -- 3,000 -- --
Disposal of investments 5,895,999 -- -- -- -- --
Net cash provided by (used in) investing activities 23,521 (14,091,672) (2,242,183) (3,198,311) (5,521,163) (878,494)
Cash flows from financing activities:
Net cash provided by financing activities -- -- -- -- -- --
Effect of exchange rate changes on cash and cash equivalents 105,449 15,045 2,452 (98,985) 8,083 1,286
Net increase (decrease) in cash and cash equivalents (22,738,422) (18,091,353) (2,878,588) (3,235,721) 6,887,968 1,095,973
Change in cash and cash equivalents included in the current assets of discontinued operations 516,322 -- -- -- -- --
Cash and cash equivalents at beginning of period 73,250,856 57,157,078 9,094,494 54,264,477 32,177,757 5,119,933
Cash and cash equivalents at end of period 51,028,756 39,065,725 6,215,906 51,028,756 39,065,725 6,215,906
Supplemental cash flow information
Interest paid 323,175 -- -- -- -- --
EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES Exchange rate 6.2848
NON-GAAP MEASURES OF PERFORMANCE 
Nine months endedThree months ended
Chinese Yuan (Renminbi)U.S. DollarsChinese Yuan (Renminbi)U.S. Dollars
September 30,September 30,September 30,September 30,September 30,September 30,
201120122012201120122012
(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)
NON-GAAP OPERATING INCOME (LOSS) AND ADJUSTED EBITDA   
Operating loss (GAAP Basis) (21,192,208) (14,571,991) (2,318,609) (3,188,721) (3,947,125) (628,044)
Adjustments for non-GAAP measures of performance:
Add back amortization of acquired software technology 6,096,678 4,042,853 643,275 1,736,300 685,832 109,126
Add back amortization of intangibles 2,578,528 1,921,139 305,680 927,949 683,348 108,730
Add back share-based compensation expenses 4,008,449 4,798,568 763,520 1,235,739 1,066,424 169,683
Adjusted non-GAAP operating income/(loss) (8,508,553) (3,809,431) (606,134) 711,267 (1,511,521) (240,505)
Add back depreciation 1,362,168 1,492,445 237,469 406,585 501,814 79,846
Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) (7,146,385) (2,316,986) (368,665) 1,117,852 (1,009,707) (160,659)
NON-GAAP OPERATING INCOME (LOSS) AND ADJUSTED EBITDA, as a percentage of revenue
Operating loss (GAAP BASIS) -24% -15% -15% -8% -11% -11%
Adjustments for non-GAAP measures of performance:
Amortization of acquired software technology 7% 4% 4% 4% 2% 2%
Amortization of intangibles 3% 2% 2% 2% 2% 2%
Share-based compensation expenses 5% 5% 5% 3% 3% 3%
Adjusted non-GAAP operating loss -10% -4% -4% 2% -4% -4%
Depreciation 2% 1% 1% 1% 1% 1%
Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) -8% -2% -2% 3% -3% -3%
NON-GAAP EARNINGS PER SHARE
Net loss from continuing operations (16,525,656) (7,543,486) (1,200,275) (2,542,176) (2,137,607) (340,124)
Amortization of acquired software technology 6,096,678 4,042,853 643,275 1,736,300 685,832 109,126
Amortization of intangibles 2,578,528 1,921,139 305,680 927,949 683,348 108,730
Share-based compensation expenses 4,008,449 4,798,568 763,520 1,235,739 1,066,424 169,683
Accretion on convertible notes 345,826 -- -- 263,418 -- --
Adjusted Net Income/(Loss) (3,496,175) 3,219,074 512,200 1,621,230 297,997 47,415
Adjusted non-GAAP diluted earnings/(loss) per share (0.85) 0.78 0.12 0.39 0.07 0.01
Shares used to compute non-GAAP diluted earnings per share 4,130,221 4,109,188 4,109,188 4,130,221 4,153,046 4,153,046
CONTACT: Investor Contact:
         Troe Wen, Company Secretary
         eFuture Information Technology Inc.
         +86 10 5293 7699
         ir@e-future.com.cn
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