omniture

eFuture Announces Second Quarter 2009 Unaudited Financial Results and First Quarter 2009 Unaudited Restated Financial Results



BEIJING, Nov. 20 /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 fiscal quarter ended June 30, 2009 (the "Second Quarter") and restatement of unaudited financial results for the fiscal quarter ended March 31, 2009 (the "First Quarter").

As noted in previous press releases, the Company reviewed its accounting for certain matters in the First Quarter and has determined that a restatement of unaudited financial information for the First Quarter is appropriate. The Company previously released unaudited financial information for the First Quarter in a press release dated June 9, 2009 (the "Press Release"). Investors should no longer rely upon the financial information contained in the Press Release. Investors should rely solely upon the unaudited financial information for the First Quarter contained herein.

Second Quarter Financial Highlights:

RMB Unaudited Unaudited

Quarter Ended Quarter Ended

June 30, 2008 June 30, 2009

Reported Adjusted Reported

Profit and Loss

(selected)

Total Revenue 24,160,436 24,160,436 22,205,838

Total Cost of 10,368,762 10,368,762 12,387,931

Revenue

Gross profit 13,791,673 13,791,673 9,817,907

Total Expenses 12,560,484 12,698,084 19,568,210

Income (loss)

from operations 1,231,189 1,093,589 (9,750,303)

Net Income 2,814,162 969,364 (11,383,275)

(loss)

Comprehensive 0 0 0

Income/Loss

Net Income per

share

- Basic 0.94 0.32 (3.39)

- Diluted 0.94 0.32 (3.39)

-- Total revenues decreased 8.09% year-over-year to RMB22.21 million

(US$3.25 million).

- Revenue from software license sales increased 21.81%

year-over-year to RMB10.61 million (US$1.55 million).

- Revenue from hardware sales was nil, compared to RMB2.92

million in the second quarter of 2008.

- Service fee income decreased 7.49% year-over-year to

RMB11.59 million (US$1.70 million).

-- Gross profit decreased 28.81% year-over-year to RMB9.82 million

(US$1.44 million). Gross margin decreased to 44.21% from 57.08%

in the second quarter of 2008.

-- Operating loss was RMB9.75 million (US$1.43 million), compared

to net income of RMB1.09 million in the second quarter of 2008.

-- Net loss was RMB11.38 million (US$1.67 million), compared to

net income of RMB0.97 million in the second quarter of 2008.

-- Diluted net loss per share was RMB3.39 (US$0.50), as compared

to net income per share of RMB0.32 for the second quarter of 2008.

-- Operating cash flow was -RMB14.42 million (-US$2.11 million).

-- Adjusted net loss (non-GAAP) was RMB6.71 million (US$0.98 million),

compared to an adjusted net income of RMB4.52 million in the second

quarter of 2008.

-- Non-GAAP adjusted diluted loss per share was RMB1.98 (US$0.29).

Mr. Adam Yan, Chairman and Chief Executive Officer of eFuture, said,

"Our results for the second quarter reflect the challenges we have faced from the market slow-down, especially in our logistics and department store and shopping mall business. However, these challenges were mitigated somewhat by healthy software license revenues driven by a rebound in demand in our Supermarket, Specialty Store and Key Accounts SBUs. We have continued to execute on our strategic, business and operational imperatives, which are to solidify our core enterprise software business, grow value-added services revenues, expand the scope and depth of our eService offering, including our B2B service and SaaS service for SCM and B2C eShopping platform and invest in building our presence in the second and third tier cities. We believe our business remains fundamentally sound, and we continue to be well positioned to capitalize on the growth opportunities in the software market for retail and consumer goods industries."

Second Quarter Unaudited Financial Results

Revenue

Revenue for the Second Quarter decreased 8.09% to RMB22.21 million (US$3.25 million) from RMB24.16 million in the second quarter 2008 mainly due to a slow-down in hardware sales.

Software license revenues increased by 21.08% year-over-year to RMB10.6 million, primarily attributable to the recovery from Supermarket, Specialty Store and Key Account SBUs.

Service fee income decreased by 7.49% year-over-year, and as a percentage of revenue continued to increase and accounted for 55.21% of total revenue in the Second Quarter, as compared to 51.87% in the same period last year.

Revenue Breakdown

2008Q2 2009Q2

Restated

RMB '000 RMB '000 USD '000 Y-o-Y

Change

Software license

sales 8,712 10,611 1,554 21.80%

Hardware sales 2,916 -- -- --

Service fee income 12,533 11,595 1,698 (7.48%)

Total 24,160 22,206 3,251 (8.09%)

Cost of Revenues

The cost of revenue for the Second Quarter increased 19.47% to RMB12.39 million (US$1.81 million) from RMB10.37 million in the second quarter 2008.

Cost of Revenues Breakdown

2008Q2 2009Q2

Restated

RMB '000 RMB USD Y-o-Y

'000 '000 Change

Cost of software license

sales 2,040 3,526 516 72.84 %

Cost of hardware sales 2,549 -- -- --

Cost of service see 2,983 4,937 723 65.49 %

Amortization of acquired

technology 1,905 3,019 442 58.49 %

Amortization of software

costs 892 906 133 1.57 %

Total 10,369 12,388 1,814 19.47 %

The increase in cost of revenue was partially attributable to a one-time recognized cost from a few unprofitable projects and the amortization of acquired technology from Crownhead and Proadvancer.

Gross Profit

Second Quarter gross profit decreased 28.81% year-over-year to RMB9.82 million (US$1.44 million), from RMB13.79 million in the second quarter of 2008. Consolidated gross margin for the Second Quarter was 44.21% compared with 57.08% in the second quarter of 2008.

Operating Expenses

Research and development expenses for the Second Quarter decreased 58.81% year-over-year to RMB92,179 (US$13,496) compared with RMB223,792 in the second quarter of 2008. The year-over-year decrease was a result of cost reallocation to cost of revenue and to intangibles to be capitalised in future.

General and administrative expenses for the Second Quarter increased 22.35% year-over-year to RMB10.03 million (US$1.47 million), or 45.18% of total revenues, compared with RMB8.20 million, or 33.94% of total revenue in the second quarter of 2008 and RMB7.88 million, or 56.97% of total revenue in the First Quarter. The increase in general and administrative expenses as a percentage of revenues was primarily due to the RMB2.7 million bad debt provision from Wangku, our increased investment in the business expansion of bFuture.

Selling and distribution expenses for the Second Quarter increased 120.91% year-over-year to RMB9.44 million (US$1.38 million), or 42.53% of total revenues, compared with RMB4.27 million, or 17.69% of total revenue in second quarter 2008 and RMB5.58 million, or 40.33% of total revenue in the First Quarter. The significant increase was due to our continued investment in building our regional sales/marketing teams to enhance our presence in tier 2 and 3 cities.

Operating Income/Loss

Operating loss in the Second Quarter was RMB9.75 million (US$1.43 million), compared with an operating income of RMB1.09 million in the second quarter of 2008.

Net Income/Loss and EBITDA

As a result of the foregoing, Second Quarter net loss was RMB11.38 million (US$1.67 million) compared with a net income of RMB0.97 million in the second quarter of 2008.

Basic and diluted losses per share in the Second Quarter were both RMB3.39 (US$0.50), compared to basic and diluted net income per share of RMB0.32 in the second quarter of 2008. Adjusted net loss (non-GAAP) for the Second Quarter was RMB6.71 million (US$0.98 million), compared to an adjusted net income of RMB4.52 million in the second quarter of 2008.

Second quarter 2009 adjusted non-GAAP diluted loss per share was RMB1.98 (US$0.29).

EBITDA (non-GAAP) for the Second Quarter was -RMB4.79 million (-US$0.70 million), compared with RMB4.73 million in the second quarter of 2008.

Balance Sheet and Cash Flow

In the Second Quarter, net cash loss from operating activities was RMB14.42 million (US$2.11 million), while net cash used in investing activities was RMB7.20 million (US$1.05 million).

As of June 30, 2009, cash and cash equivalents decreased 7.82% from March 31, 2009 to RMB39.20 million (US$5.74 million), mainly due to normal seasonal patterns in which cash flow decreases in the first half while peaking in the second half of the fiscal year.

Total accounts receivable as of June 30, 2009 decreased 41.38% to RMB12.51million (US$1.83 million) from RMB21.33 million as of March 31, 2009. This decrease was mainly attributable to improvement in collection and Wangku's increase in write off.

Inventories as of June 30, 2009 increased 11.37% quarter-over-quarter to RMB7.65 million (US$1.12 million) due to the increase in work-in process.

Restatement of First Quarter 2009 Unaudited Financial Results

RMB Unaudited Unaudited

Quarter Ended Quarter Ended

March 31, 2008 March 31, 2009

Reported Adjusted Reported Restated

Profit and Loss

(selected)

Total Revenue 14,014,472 14,014,472 13,977,378 13,824,292

Total Cost of 9,300,139 9,300,139 8,992,326 9,315,216

Revenue

Gross profit 4,714,333 4,714,333 4,985,052 4,509,077

Total Expenses 11,797,143 11,797,143 11,726,713 13,544,747

Income (loss)

from operations (7,082,810) (7,082,810) (6,741,662) (9,035,671)

Net Income

(loss) (9,225,286) (6,340,016) (4,968,403) (7,469,813)

Other

Comprehensive

Income/Loss 0 0 0 0

Net income

(loss) per share

Basic (3.14) (2.16) (1.96) (2.22)

Diluted (3.14) (2.16) (1.96) (2.22)

The effects of the restatement on some of the key items of our unaudited results of the First Quarter are as follows:

-- Total revenue slightly decreased by 1.10% to RMB13.82 million

-- Total cost of revenue has increased by 3.59% to RMB9.32 million

-- Gross profit decreased by 9.55% to RMB4.51 million

-- Total expenses have increased by 15.50% to RMB13.54 million

-- Income loss has increased by 34.03% to RMB9.04 million

-- Recognized gains on derivatives of RMB1.30 million

-- Foreign exchange loss reduced by 93.69% to RMB0.06 million

-- Net Income loss has increased by 13.07% to RMB7.47 million

-- Minority shareholder income was restated from RMB1.97 million

to RMB0 million

-- Net loss per common share, basic and diluted was restated from

RMB1.96 to RMB2.22

-- Non-GAAP adjusted diluted loss per share was RMB0.82 (US$0.12).

-- Operating cash flow was restated from -RMB15.10 million to

-RMB15.30 million

The comparison of the restated unaudited results of the First Quarter against similarly calculated financial information for the results of the first quarter of 2008, is as follows :

-- Total revenues decreased slightly more to 1.36% year-over-year

to RMB13.82 million (US$2.02 million).

- Revenue from software license sales decreased 34.58%

year-over-year to RMB4.95 million (US$0.72 million).

- Revenue from hardware sales decreased 0.99% year-over-year

to RMB1.40 million (US$0.20 million).

- Service fee income was restated from an increase of 51.3% to

48.40% year-over-year to RMB7.48 million (US$1.09 million).

-- Gross profit decreased 4.35% year-over-year to RMB4.51 million

(US$0.66 million). Gross margin decreased to 32.62% from 33.64%

in the first quarter of 2008.

-- Operating loss was RMB9.04 million (US$1.32 million), compared

to an operating loss of RMB7.08 million in the first quarter of 2008.

-- Net loss increased to RMB7.47 million (US$1.09 million), compared

to a net loss of RMB6.34 million in the first quarter of 2008.

-- Diluted net loss per share was RMB2.22 (US$0.33), as compared to

net loss per share of RMB2.16 for the first quarter of 2008.

-- Adjusted net loss (non-GAAP) was RMB2.80 million (US$0.41 million),

compared to an adjusted net loss of RMB0.77 million in the first

quarter of 2008.

Miss Yu Ping, Chief Financial Officer of eFuture, said, " I am very pleased to report that the accounting adjustment process has been completed with the restatement of first quarter 2009 financial results. The intent is to ensure adequate reserve of social security benefits for our employees and to enhance the accurate recognition of our revenue and cost base that will enable us to better reflect our expanding business and operational performance. We believe we are emerging from this process in a more sound position than when we started and are better positioned to ensure accurate and consistent financial reporting moving forward."

Notes on Restatement of First Quarter Unaudited Financial Results

The Company identified several errors in its consolidated financial statements for the First Quarter. As a result, certain amounts in the consolidated financial statements were corrected from the amounts previously reported.

The nature of these errors included a net understatement of revenue on certain software maintenance contracts, failure to apply step acquisition accounting, improper timing of recognition for contingent acquisition payments, improper calculation of deferred tax liabilities, understatement of payroll accruals, and improper recording of convertible notes.

The convertible notes, issued on March 13, 2007, contained a beneficial conversion feature and a make-whole provision that were originally recorded at their intrinsic values according to EITF 00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments." The Series A Warrants, Series B Warrants and Placement Agent Warrants issued in connection with these notes were recorded as equity instruments at their grant date fair value.

It was subsequently determined that the make-whole provision, beneficial conversion feature, and Series A and B warrants contained provisions that triggered derivative treatment under SFAS 133 "Accounting for Derivatives." Adjustments were subsequently made to record the make-whole provision, beneficial conversion feature, and optional early redemption right as a bundled derivative liability. The Series A Warrants, Series B Warrants and Placement Agent Warrants were considered separable instruments and recorded as a separate derivative liability. Changes in the fair values of these derivatives are recorded as gains and losses on derivatives in the consolidated statement of operations.

Currency Convenience Translation

For the convenience of readers, certain RMB amounts in the restatement of the First Quarter financial results have been translated into US dollars at the rate of RMB6.8329 to US$1.00, the noon buying rate for US dollars in effect on March 31, 2009 for cable transfers of RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

And certain RMB amounts in the Second Quarter financial results have been translated into US dollars at the rate of RMB6.8302 to US$1.00, the noon buying rate for US dollars in effect on June 30, 2009 for cable transfers of RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

Third Quarter 2009 Results and Conference Call

eFuture expects to release unaudited financial results for the third fiscal quarter of 2009 after the close of U.S. markets on Monday, December 7, 2009.

The earnings press release will be available on the investor relations page of its website at

http://www.e-future.com.cn/eng/newslist.asp?lm=36&lmname=LM2 .

Following the earnings announcement, eFuture's senior management will host a conference call on Tuesday, December 8, 2009 at 5:00 am (Pacific) / 8:00 am (Eastern) / 9:00 pm (China) to discuss its third quarter 2009 financial results and recent business activity. The conference call may be accessed by calling:

United States toll free 1-866-519-4004

China (Landline) 800-819-0121

China (Mobile) 400-620-8038

United Kingdom toll free 0808-234-6646

Hong Kong toll free 800-930-346

Conference ID 43021457

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 11:00 pm (Eastern), December 15, 2009:

United States toll free 1-866-214-5335

China North 10-800-7140386

China South 10-800-1400386

United Kingdom toll free 0800-731-7846

Hong Kong toll free 800-901-596

Conference ID 43021457

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 .

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 600 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 November 19, 2009, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.

For more 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

EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

March March March March

31, 2009 31, 2009 31, 2008 31, 2008

(Reported) (Restated) (Reported) (Restated)

ASSETS

Current assets

Cash and cash RMB RMB RMB RMB

equivalents 42,460,982 42,524,982 59,283,677 59,283,677

Trade receivables,

less allowance for

doubtful accounts 23,184,359 21,333,449 13,845,503 13,845,503

Refundable value added

tax 1,677,975 1,578,129 2,351,243 2,351,243

Deposits -- -- 209,660 209,660

Advances to employees 3,957,154 4,778,897 2,815,950 2,815,950

Advances to suppliers 1,186,250 1,395,298 657,724 657,724

Notes receivable -

related party -- -- -- --

Other receivables 1,396,544 3,673,343 5,681,883 5,681,883

Prepaid expenses 993,138 455,515 880,875 880,875

Inventory 14,093,665 6,869,625 13,771,667 13,771,667

Total current assets 88,950,066 82,609,237 99,498,181 99,498,181

Non-current assets

Long-term investments 654,192 654,192 4,901,912 4,901,912

Long term deferred

expense -- 285,000 -- --

Deferred loan costs 673,888 1,097,696 4,539,826 7,252,043

Deferred assets 6,552,316 -- 171,583 171,583

Property and

equipment, net of

accumulated

depreciation 3,155,857 3,509,836 1,969,249 1,969,249

Intangible assets, net

of accumulated

amortization 57,915,045 48,988,255 42,288,011 42,288,011

Goodwill 69,595,844 91,284,735 46,814,929 46,814,929

Total non-current

assets 138,547,142 145,819,714 100,685,509 103,397,726

Total assets RMB RMB RMB RMB

227,497,208 228,428,951 200,183,690 202,895,907

LIABILITIES AND

SHAREHOLDERS’ EQUITY

Current liabilities

Trade accounts payable RMB RMB RMB RMB

4,667,102 2,290,929 4,052,516 4,052,516

Other payable 3,454,587 12,784,897 2,209,216 2,209,216

Accrued expenses 3,893,034 4,708,929 3,566,471 3,566,471

Accrued interest -- (27,332) 76,619 69,872

Taxes payable 6,000,035 5,782,023 5,101,258 5,101,258

Deferred Revenues 7,228,517 -- -- --

Deferred Tax 4,698,487 -- 4,826,454 4,826,454

Advances from

customers 23,014,933 26,400,130 15,564,504 15,564,504

Royalstone acquisition

obligation, current

portion 6,415,374 6,426,752 15,860,198 15,860,198

Health Field

acquisition

obligation 552,855 553,908 3,175,318 3,175,318

Proadvancer System

acquisition

obligation 14,555,799 30,004,186 -- --

BFuture acquisition

obligation -- 392,877 -- --

Make-whole obligation,

current portion -- -- 707,312 --

Convertible note

payable, current

portion 322,397 -- 2,785,890 --

Deferred tax, current

portion -- 1,164,898 -- --

Total current

liabilities 74,803,120 90,482,197 57,925,757 54,425,808

Long-term liabilities

Royalstone acquisition

obligation, net of

current portion -- -- 6,093,683 6,093,683

Make-whole obligation,

net of current

portion 719,094 -- 9,290,082 --

3% - 10% convertible

note payable, net of

unamortized discount 674,517 31,073 6,770,666 135,076

Derivative liabilities -- 3,828,952 -- (3,776,075)

Deferred tax -- 5,458,232 -- --

Minority shareholder

interests 1,972,733 -- (375,070) (375,070)

Total long-term

liabilities 3,366,345 9,318,257 21,779,360 2,077,613

Shareholders’ equity

Ordinary shares,

$0.0756 U.S. dollars

par value; 6,613,756

shares

authorized;3,362,241

shares outstanding 2,038,631 2,039,196 1,839,898 1,839,898

Additional paid-in

capital 224,849,534 173,819,877 169,131,602 197,548,234

Statutory reserves 3,084,020 3,084,020 3,084,020 3,084,020

Accumulated deficit (80,644,442) (50,314,596) (53,576,948) (56,079,667)

Total shareholders’

equity 149,327,743 128,628,497 120,478,573 146,392,486

Total liabilities and RMB RMB RMB RMB

shareholders’ equity 227,497,208 228,428,951 200,183,690 202,895,907

EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED INCOME STATEMENTS

March March 31, March March 31,

31, 2009 2009 31, 2008 2008

(Reported) (Restated) (Reported) (Restated)

Revenues

Software sales RMB RMB RMB RMB

4,956,292 4,949,335 7,565,110 7,565,110

Hardware sales 1,395,170 1,395,170 1,409,113 1,409,113

Service fee income 7,625,916 7,479,788 5,040,249 5,040,249

Total Revenues 13,977,378 13,824,292 14,014,472 14,014,472

Cost of Revenue

Cost of software 1,298,681 1,092,129 1,845,125 1,845,125

Cost of hardware 1,367,984 1,370,114 1,204,786 1,204,786

Cost of service fee income 2,311,579 2,952,121 1,493,129 1,493,129

Amortization of acquired

technology 3,110,375 2,996,500 3,860,243 3,860,243

Amortization of software

costs 903,707 904,352 896,856 896,856

Total Cost of Revenue 8,992,326 9,315,216 9,300,139 9,300,139

Gross Profit 4,985,052 4,509,077 4,714,333 4,714,333

Operating Expenses

Research and development 242,261 93,566 167,288 167,288

General and administrative 5,742,794 7,876,101 7,870,673 7,870,673

Selling and distribution

expenses 5,741,659 5,575,080 3,759,182 3,759,182

Total Operating Expenses 11,726,713 13,544,747 11,797,143 11,797,143

Profit from operations (6,741,662) (9,035,671) (7,082,810) (7,082,810)

Interest income 180,273 180,273 112,611 112,611

Interest expense (110,484) (145,097) (314,520) (307,773)

Interest expense-

amortization of discount

on notes payable (199,648) (6,648) (488,504) (29,348)

Interest expense-

amortization of deferred

loan costs (55,387) (86,062) (242,378) (403,212)

Income on investments -- -- (558,389) (558,389)

Gain on derivative

liabilities -- 1,290,861 -- 3,776,075

Loss on extinguishment of

convertible notes -- -- -- --

Foreign currency exchange

gain/(loss) (883,409) (55,769) (805,787) (2,001,661)

Outside business receives 6,320 -- -- --

Outside business disburses -- -- -- --

Loss before taxation (7,803,997) (7,858,113) (9,379,777) (6,494,507)

Income tax -- 388,299 -- --

Minority interest in loss

of consolidated

subsidiary 1,197,422 -- 154,491 154,491

Net loss RMB RMB RMB RMB

(6,606,575) (7,469,813) (9,225,286) (6,340,016)

EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

June June June

30, 2009 30, 2008 30, 2008

(Reported) (Reported) (Restated)

ASSETS

Current assets

Cash and cash equivalents RMB RMB RMB

39,198,012 58,822,685 58,822,685

Trade receivables, less allowance

for doubtful accounts 12,506,545 22,261,041 22,261,041

Refundable value added tax 2,242,320 2,564,891 2,564,891

Deposits -- 209,660 209,660

Advances to employees 4,114,868 4,288,058 4,288,058

Advances to suppliers 1,082,244 817,830 817,830

Notes receivable - related party -- -- --

Other receivables 3,896,064 4,034,326 4,034,326

Prepaid expenses 2,147,132 1,098,565 1,098,565

Inventory 7,650,692 18,729,440 18,729,440

Total current assets 72,837,877 112,826,496 112,826,496

Non-current assets

Long-term investments 654,192 767,119 767,119

Long term deferred expense 817,382 -- --

Deferred loan costs 1,011,697 4,261,251 1,367,605

Deferred assets -- 171,083 171,083

Property and equipment, net of

accumulated depreciation 4,028,150 3,847,802 3,847,802

Intangible assets, net of

accumulated amortization 48,052,877 43,540,399 43,540,399

Goodwill 91,284,735 46,357,407 46,357,407

Total non-current assets 145,849,033 98,945,061 96,051,415

Total assets RMB RMB RMB

218,686,910 211,771,556 208,877,910

LIABILITIES AND SHAREHOLDERS’

EQUITY

Current liabilities

Trade accounts payable RMB RMB RMB

2,601,091 4,433,913 4,433,913

Other payable 13,724,591 8,833,770 8,833,770

Accrued expenses 5,520,983 3,348,548 3,348,548

Accrued interest (27,321) 74,874 68,145

Taxes payable 5,965,735 4,817,410 4,817,410

Deferred Revenues -- 3,206,685 3,206,685

Deferred Tax -- 4,716,502 4,716,502

Advances from customers 23,617,532 20,819,237 20,819,237

Royalstone acquisition obligation,

current portion 6,424,213 15,360,066 15,360,066

Health Field acquisition obligation 553,689 3,102,981 3,102,981

Proadvancer System acquisition

obligation 29,992,330 -- --

BFuture acquisition obligation 392,877 -- --

Make-whole obligation, current

portion -- 479,561 --

Convertible note payable, current

portion -- 2,890,708 --

Deferred tax, current portion 776,599 -- --

Total current liabilities 89,542,319 72,084,256 68,707,259

Long-term liabilities

Royalstone acquisition obligation,

net of current portion -- 6,093,683 6,093,683

Make-whole obligation, net of

current portion -- 9,290,082 --

3% - 10% convertible note payable,

net of unamortized discount 31,238 6,770,666 27,134

Derivative liabilities 5,502,956 -- (7,552,150)

Deferred tax 5,458,232 -- --

Minority shareholder interests 359,045 (3,496,172) (3,496,172)

Total long-term liabilities 11,351,471 18,658,259 (4,927,505)

Shareholders’ equity

Ordinary shares, $0.0756 U.S.

dollars par value; 6,613,756

shares authorized;3,362,241 shares

outstanding 2,039,196 1,849,061 1,849,061

Additional paid-in capital 174,572,189 170,675,900 199,092,532

Statutory reserves 3,084,020 3,084,020 3,084,020

Accumulated deficit (61,902,285) (54,579,940) (58,927,456)

Total shareholders’ equity 117,793,120 121,029,041 145,098,157

Total liabilities and shareholders’

equity RMB RMB RMB

218,686,910 211,771,556 208,877,910

EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED INCOME STATEMENTS

June 30,

June 30, 2009 2008 June 30, 2008

(Reported) (Reported) (Restated)

Revenues

Software sales RMB RMB RMB

10,611,112 8,711,537 8,711,537

Hardware sales -- 2,915,871 2,915,871

Service fee income 11,594,726 12,533,027 12,533,027

Total Revenues 22,205,838 24,160,436 24,160,436

Cost of Revenue

Cost of software 3,526,283 2,039,796 2,039,796

Cost of hardware -- 2,549,247 2,549,247

Cost of service fee income 4,937,353 2,983,426 2,983,426

Amortization of acquired technology 3,018,653 1,904,687 1,904,687

Amortization of software costs 905,642 891,606 891,606

Total Cost of Revenue 12,387,931 10,368,762 10,368,762

Gross Profit 9,817,907 13,791,673 13,791,673

Operating Expenses

Research and development 92,179 223,792 223,792

General and administrative 10,032,444 8,061,899 8,199,499

Selling and distribution expenses 9,443,587 4,274,793 4,274,793

Total Operating Expenses 19,568,210 12,560,484 12,698,084

Profit from operations (9,750,303) 1,231,189 1,093,589

Interest income 162,491 873,560 873,560

Interest expense (174,914) (504,649) (504,668)

Interest expense- amortization of

discount on notes payable (204) (857,519) (598)

Interest expense- amortization of

deferred loan costs (87,176) (278,575) (408,432)

Income on investments -- 47,802 47,802

Gain on derivative liabilities (1,673,706) -- 3,776,075

Loss on extinguishment of

convertible notes -- -- (22,529,228)

Foreign currency exchange

gain/(loss) 12,059 711,914 16,893,223

Outside business receives -- 23,400 --

Outside business disburses -- (161,000) --

Loss before taxation (11,511,752) 1,086,122 (758,676)

Income tax 283,108 (140,695) (140,695)

Minority interest in loss of

consolidated subsidiary (154,631) 1,868,735 1,868,735

Net loss RMB RMB RMB

(11,383,275) 2,814,162 969,364

EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY

NON-GAAP MEASURES OF PERFORMANCE

March 31,2009 June 30,2009

RMB RMB US$

(Unaudited) (Unaudited) (Unaudited)

NON-GAAP OPERATING INCOME

(LOSS) AND ADJUSTED EBITDA

Operating income (loss) (GAAP

Basis) (9,035,671) (9,750,303) (1,426,964)

Adjustments for non-GAAP

measures of performance:

Add back amortization of

acquired software technology 2,996,500 3,018,653 441,782

Add back amortization of

intangibles 904,352 905,642 132,541

Add back share-based

compensation expenses 765,226 752,311 110,101

Adjusted non-GAAP operating

income (4,369,593) (5,073,697) (742,540)

Add back depreciation 145,241 286,790 41,972

Adjusted EBITDA (Earnings before

interest, taxes, depreciation

and amortization) (4,224,353) (4,786,907) (700,567)

NON-GAAP OPERATING INCOME

(LOSS) AND ADJUSTED EBITDA, as

a percentage of revenue

Operating income (loss) (GAAP

BASIS) -65% -44% -44%

Adjustments for non-GAAP

measures of performance:

Amortization of acquired

software technology 22% 14% 14%

Amortization of intangibles 7% 4% 4%

Share-based compensation

expenses 6% 3% 3%

Adjusted non-GAAP operating

income -32% -23% -23%

Depreciation 1.1% 1.3% 1.3%

Adjusted EBITDA (Earnings before

interest, taxes, depreciation

and amortization) -31% -22% -22%

NON-GAAP EARNINGS PER SHARE

Net Income(Loss) (7,469,813) (11,383,275) (1,665,951)

Amortization of acquired

software technology 2,996,500 3,018,653 441,782

Amortization of intangibles 904,352 905,642 132,541

Accretion on convertible notes 6,648 204 30

Share-based compensation

expenses 765,226 752,311 110,101

Adjusted Net income (2,797,088) (6,706,465) (981,497)

Adjusted non-GAAP diluted

earnings per share (0.82) (1.98) (0.29)

Shares used to compute non-GAAP

diluted earnings per share 3,394,099 3,384,625 3,384,625

EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Chinese Yuan (Renminbi) U.S. Dollars

December 31, June 30, June 30,

2008 2009 2009

(Unaudited) (Unaudited) (Unaudited)

Cash flows from operating

activities:

Net income (loss) (4,478,112) (18,853,088) (2,760,254)

Adjustments to reconcile net income

(loss) to net cash provided by

(used in) operating activities:

Depreciation 891,183 432,031 63,253

Amortization of intangible assets 16,940,774 7,802,991 1,142,425

Impairment of intangible assets 2,143,290 -- --

Amortization of discount on notes

payable 33,212 6,852 1,003

Amortization of deferred loan costs 978,204 173,237 25,363

Gain on derivatives (33,122,465) 382,845 56,052

Loss on extinguishment of

convertible notes 22,529,233 -- --

Investment (income)/loss 3,552,902 -- --

Loss on disposition of property and

equipment 385,995 -- --

Provision for doubtful debt 2,340,706 (601,051) (87,999)

Provision for loss in inventory and

work in process 1,449,542 -- --

Compensation expense for options

issued to employees 3,109,903 1,517,537 222,181

Deferred taxes 481,774 (776,598) (113,701)

Foreign exchange loss (2,222,996) -- --

Minority interest 204,414 154,631 22,639

Change in assets and liabilities:

Accounts receivable (2,526,441) 7,562,535 1,107,220

Refundable value added tax 935,333 513,382 75,163

Deposits 156,695 -- --

Advances to employees 370,994 (1,138,969) (166,755)

Advances to suppliers 991,888 (883,492) (129,351)

Other receivables 136,565 (4,798,228) (702,502)

Prepaid expenses 305,014 (1,497,998) (219,320)

Inventories 1,421,159 (4,725,723) (691,886)

Trade payables 1,230,861 (3,086,149) (451,839)

Other payables 7,269,063 6,781,730 992,904

Accrued expenses 2,360,449 (1,351,672) (197,896)

Accrued interest (278,420) (27,321) (4,000)

Taxes payable (1,084,826) (2,781,130) (407,181)

Advances from customers 4,542,952 778,002 113,906

Net cash provided by operating

activities 31,048,845 (14,415,643) (2,110,574)

Cash flows from investing

activities:

Purchases of property and equipment (1,618,331) (861,635) (126,151)

Payments for intangible assets (2,930,247) (6,338,725) (928,044)

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) (7,200,360) (1,054,195)

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) 26,281 3,848

Net increase (decrease) in cash (6,439,614) (21,589,722) (3,160,921)

Cash and cash equivalents at

beginning of period 67,227,348 60,787,734 8,899,847

Cash and cash equivalents at end of

period 60,787,734 39,198,012 5,738,926

Supplemental cash flow information

Interest paid 1,525,200 210,130.87 30,765.00

Source: eFuture Information Technology Inc.
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