UNITED
  STATES





SECURITIES
  AND EXCHANGE COMMISSION





WASHINGTON,
  D.C. 20549





FORM
  20-F


(Mark
  One)





o
      REGISTRATION
          STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
    OF 1934





OR





x
      ANNUAL
          REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
          1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
    2011





OR





o
      TRANSITIONAL
          REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934





o
      SHELL
          COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934


Date
    of event requiring this shell company report __________





For
  the transition period from __________ to __________





Commission
  file number: 333-126007





EFUTURE
  INFORMATION TECHNOLOGY INC.


(Exact
  name of Registrant as specified in its charter)





Cayman
  Islands


(Jurisdiction
  of incorporation or organization)





eFuture
            Information Technology Inc.
        8F
          Topnew Tower
        15
          Guanghua Road
        Chaoyang
          District
        Beijing
          100026, People's Republic of China
        86-10-51650988
        (Address
          of principal executive offices)
      
      Troe
          Wen, Secretary of the Board
        Telephone:
          +(86 10) 5165-0988
        Email:
          wenj@e-future.com.cn
        Facsimile:
          +(86 10) 5293-7688
        8F
          Topnew Tower, 15 Guanghua Road
        Chaoyang
          District
        Beijing,
    100026, People's Republic of China





Securities
  registered or to be registered pursuant to Section 12(b) of the
  Act:


Title
          of each class
      
      Name
        of each exchange on which registeredOrdinary
          shares, par value $0.0756 per share
      
      NASDAQ
    Capital Market





Securities registered or to be
  registered pursuant to Section 12(g) of the
  Act:None.





Securities for which there is a
  reporting obligation pursuant to Section 15(d) of the
  Act:None.





**Indicate  the number of outstanding shares of each of the issuer's classes of capital or****common stock as of the close of the period covered by the annual report:**


As of December  31, 2011, there were 3,977,221 ordinary shares of the Registrant outstanding.




Indicate by check mark if the
  registrant is a well-known seasoned issuer, as defined in Rule 405 of the
  Securities Act.Yes o   No x





If this report is an annual or
  transition report, indicate by check mark if the registrant is not required to
  file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
  1934.Yes o   No x





Indicate by check mark whether the
  registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
  of the Securities Exchange Act of 1934 during the preceding 12 months (or for
  such shorter period that the registrant was required to file such reports), and
  (2) has been subject to such filing requirements for the past 90 days.Yes x   No o





Indicate by check mark whether the
  registrant has submitted electronically and posted on its corporate Web site, if
  any, every Interactive Data File required to be submitted and posted pursuant to
  Rule 405 of Regulation S-T ($232.405 of this chapter) during the preceding 12
  months (or for such shorter period that the registrant was required to submit
  and post such files).Yes x   No o





Indicate
  by check mark whether the registrant is a large accelerated filer, an
  accelerated filer, or a non-accelerated filer. See definition of "accelerated
  filer and large accelerated filer" in Rule 12b-2 of the Exchange Act). (Check
  one):





Large
          accelerated filer o
      
      Accelerated
          filer o
      
      Non-accelerated
    filer x





Indicate
  by check mark which basis of accounting the registrant has used to prepare the
  financial statements included in this filing:





US
          GAAP x
      
      International
          Financial Reporting Standards as issued by the International Accounting
          Standards Board o
      
      Other
    o





If this is an annual report, indicate
  by check mark whether the registrant is a shell company (as defined in Rule
  12b-2 of the Exchange Act).Yes o   No x










TABLE
  OF CONTENTS





Item
          1.
      Identity
          of Directors, Senior Management and Advisers
      
      1Item
          2.
      Offer
          Statistics and Expected Timetable
      
      1Item
          3.
      Key
          Information
      
      1Item
          4.
      Information
          on the Company
      
      13Item
          4A.
      Unresolved
          Staff Comments
      
      26Item
          5.
      Operating and Financial Review and Prospects
      
      27Item
          6.
      Directors, Senior Management and Employees
      
      43Item
          7.
      Major
          Shareholder and Related Party Transactions
      
      51Item
          8.
      Financial
          Information
      
      52Item
          9.
      The
          Offer and Listing
      
      52Item
          10.
      Additional
          Information
      
      53Item
          11.
      Quantitative
          and Qualitative Disclosures about Market Risk
      
      60Item
          12.
      Description
        of Securities Other than Equity Securities
      
      61Item
          13.
      Defaults,
          Dividend Arrearages and Delinquencies
      
      62Item
          14.
      Material
          Modifications to the Rights of Securities Holders and Use of
          Proceeds
      
      62Item
          15.
      Controls
          and Procedures
      
      62Item
          16.
      [Reserved]
      
      62Item
          16A.
      Audit
          Committee Financial Expert
      
      63Item
          16B.
      Code
          of Ethics
      
      63Item
          16C.
      Principal
          Accountant Fees and Services
      
      63Item
          16D.
      Exemptions
          from the Listing Standards for Audit Committees
      
      64Item
          16E.
      Purchases
          of Equity Securities by the Issuer and Affiliated
          Purchasers
      
      64Item
          16F.
      Change
          in Registrant's Certifying Accountant
      
      64Item
          16G.
      Corporate
          Governance
      
      64Item
          17.
      Financial
          Statements
      
      65Item
          18.
      Financial
          Statements
      
      65Item
          19.
      Exhibits
      
      65





*In this Annual Report  on Form 20-F, references to "U.S. dollars", "US$" and "$" are to United States  dollars, references to "RMB", "renminbi" or "yuan" are to the Chinese Yuan,  and, unless the context otherwise requires, references to "eFuture," "we," "us"  and "our" refer to eFuture Information Technology Inc., its consolidated subsidiaries  and effectively controlled variable interest entities as  defined in Part I of this Annual Report.*




i


**SPECIAL CAUTIONARY  NOTICE REGARDING FORWARD-LOOKING STATEMENTS**





Certain matters discussed in this report  may constitute forward-looking statements for purposes of the Securities Act of  1933, as amended (the "Securities Act"), and the Securities Exchange Act of  1934, as amended (the "Exchange Act"), and involve known and unknown risks,  uncertainties and other factors that may cause our actual results, performance  or achievements to be materially different from the future results, performance  or achievements expressed or implied by such forward-looking statements. The words  "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," and  similar expressions are intended to identify such forward-looking statements.  Our actual results may differ materially from the results anticipated in these  forward-looking statements due to a variety of factors, including, without  limitation, those discussed under "Item 3 - Key Information-Risk Factors,"  "Item 4 - Information on the Company," "Item 5 - Operating and Financial Review  and Prospects," and elsewhere in this report, as well as factors which may be  identified from time to time in our other filings with the Securities and  Exchange Commission (the "SEC") or in the documents where such forward-looking  statements appear. All written or oral forward-looking statements attributable  to us are expressly qualified in their entirety by these cautionary statements.


The forward-looking statements contained in  this report reflect our views and assumptions only as of the date this report  is signed. Except as required by law, we assume no responsibility for updating  any forward-looking statements.




ii


PART
  I





Unless  the context requires otherwise, references in this report to "eFuture," "the  Company," "we," "us," and "our" refer to eFuture Information Technology Inc.,  our wholly-owned subsidiary, eFuture (Beijing) Royalstone Information  Technology Inc. ("eFuture Royalstone" or "eFuture Beijing"), and the  effectively controlled three variable interest entities ("VIEs"), Beijing  Changshengtiandi Ecommerce Co., Ltd. ("Changshengtiandi"), acquired on January  18, 2011, Beijing Wangku Hutong Information Technology Co., Ltd. ("Wangku"),  acquired on May 14, 2008  and disposed on March 13, 2011, and  Beijing Fuji Biaoshang Information Technology Co., Ltd. ("Biaoshang" or "bFuture"),  acquired on November 6, 2007  and disposed on July 16, 2010.





Item
          1.
      Identity
          of Directors, Senior Management and
    Advisers





Not
  applicable.





Item
          2.
      Offer
    Statistics and Expected Timetable





Not
  applicable.





Item
          3.
      Key
    Information





A.
      Selected
    Consolidated Financial Data





The following table presents the  selected consolidated financial information for our company, which excludes the  operating results for each years and balances as of each years ended of  Biaoshang and Wangku because they are classified as discontinued operations.  The selected consolidated statements of income data for the three years ended  December 31, 2009, 2010 and 2011 and the consolidated balance sheet data  as of December 31, 2010 and 2011 have been derived from our audited  consolidated financial statements set forth in "Item 18 — Financial Statements".  The selected consolidated balance sheet data for the year ended  December 31, 2009 have been derived from our audited consolidated balance  sheet as of December 31, 2009, which is not included in this annual  report. The selected consolidated statements of income data for the years ended  December 31, 2007 and 2008 and the selected consolidated balance sheet  data as of December 31, 2007 and 2008 have been derived from our audited  consolidated financial statements for the years ended December 31, 2007 and  2008, which are not included in this annual report. Our historical results do  not necessarily indicate results expected for any future periods. The selected  consolidated financial data should be read in conjunction with, and are  qualified in their entirety by reference to, our audited consolidated financial  statements and related notes and "Item 5. Operating and Financial Review  and Prospects" below. Our audited consolidated financial statements are  prepared and presented in accordance with Generally Accepted Accounting  Principles in the United    States of America, or U.S. GAAP .


**RMB**
      
      **US$****For the Years Ended December 31,**
      
      **For the Year****Ended******
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      **December 31,****2007**
      
      **2008**
      
      **2009**
      
      **2010**
      
      **2011**
      
      **2011******Total  Revenues
      
      ¥
      84,920,993
      
      ¥
      129,546,655
      
      ¥
      108,835,887
      
      ¥
      151,902,684
      
      ¥
      174,448,480
      
      $
      27,717,072Income (Loss)    From Operations
      
      
      5,914,486
      
      
      (6,882,703)
      
      
      (24,432,621)
      
      
      (21,732,821)
      
      
      (19,545,493)
      
      
      (3,105,466)Net Loss
      
      
      (21,526,314)
      
      
      (4,478,112)
      
      
      (25,265,497)
      
      
      (17,323,421)
      
      
      (18,830,869)
      
      
      (2,991,924)Basic Loss Per    Share
      
      
      (8.01)
      
      
      (1.39)
      
      
      (7.51)
      
      
      (4.53)
      
      
      (4.56)
      
      
      (0.72)Diluted Loss Per    Share
      
      
      (8.01)
      
      
      (1.39)
      
      
      (7.51)
      
      
      (4.53)
      
      
      (4.56)
      
      
      (0.72)Net loss from    continuing operations
      
      
      (21,273,215)
      
      
      (854,598)
      
      
      (19,887,910)
      
      
      (17,386,892)
      
      
      (24,440,221)
      
      
      (3,883,160)Basic Loss Per    Share from continuing operations
      
      
      (7.92)
      
      
      (0.26)
      
      
      (5.91)
      
      
      (4.55)
      
      
      (5.92)
      
      
      (0.94)Diluted Loss Per    Share from continuing operations
      
      
      (7.92)
      
      
      (0.26)
      
      
      (5.91)
      
      
      (4.55)
      
      
      (5.92)
      
      
      (0.94)




1





**RMB**
      
      **US$****As of December 31,**
      
      **As of December****31,****2007**
      
      **2008**
      
      **2009**
      
      **2010**
      
      **2011**
      
      **2011******Total Assets
      
      ¥
      208,884,779
      
      ¥
      242,362,093
      
      ¥
      231,747,618
      
      ¥
      241,832,155
      
      ¥
      220,395,489
      
      $
      35,017,317Total Current Liabilities
      
      
      (55,822,620)
      
      
      (96,806,490)
      
      
      (109,412,183)
      
      
      (102,375,657)
      
      
      (93,973,063)
      
      
      (14,930,816)Long-term Liabilities
      
      
      (49,849,390)
      
      
      (10,595,717)
      
      
      (7,970,483)
      
      
      (3,134,677)
      
      
      (416,298)
      
      
      (66,143)Net Assets
      
      
      103,212,769
      
      
      134,959,886
      
      
      114,364,952
      
      
      136,321,821
      
      
      126,006,128
      
      
      20,020,358Ordinary Shares
      
      
      1,811,589
      
      
      2,039,196
      
      
      2,042,384
      
      
      2,161,766
      
      
      2,353,068
      
      
      373,865Number of Weighted-average Ordinary Shares
      
      
      2,687,380
      
      
      3,214,466
      
      
      3,362,986
      
      
      3,822,386
      
      
      4,130,221
      
      
      4,130,221





Exchange
  Rate Information





Our business is primarily conducted in China  and all of our revenues are denominated in RMB. However, periodic reports made  to shareholders will include current period amounts translated into U.S.  dollars using the then current exchange rates, for the convenience of the  readers. The conversion of RMB into U.S. dollars in this annual financial  report is based on the noon buying rate in The City of New York for cable  transfers of RMB as certified for customs purposes by the Federal Reserve Bank  of New York.  Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S.  dollars to RMB in this annual financial report were made at a rate of RMB6.2939  to US$1.00, the noon buying rate in effect as of December 31, 2011. We  make no representation that any RMB or U.S. dollar amounts could have been, or  could be, converted into U.S. dollars or RMB, as the case may be, at any  particular rate, or at all. The government of the People's Republic of China  (the "PRC") imposes control over its foreign currency reserves in part through  direct regulation of the conversion of RMB into foreign exchange and through  restrictions on foreign trade. The Company does not currently engage in  currency hedging transactions. The following table sets forth information  concerning exchange rates between the RMB and the U.S. dollar for the periods  indicated.





Noon Buying RatePeriod
      
      Period-End
      
      
      Average (1)
      
      
      Low
      
      
      High(RMB
          per U.S. dollar)2007
      
      
      7.2946
      
      
      
      7.6072
      
      
      
      7.2946
      
      
      
      7.81272008
      
      
      6.8225
      
      
      
      6.9477
      
      
      
      6.7800
      
      
      
      7.29462009
      
      
      6.8259
      
      
      
      6.8275
      
      
      
      6.8244
      
      
      
      6.82992010
      
      
      6.6000
      
      
      
      6.7696
      
      
      
      6.6000
      
      
      
      6.83302011
      
      
      6.2939
      
      
      
      6.4475
      
      
      
      6.2939
      
      
      
      6.6364December
      
      
      6.2939
      
      
      
      6.3482
      
      
      
      6.2939
      
      
      
      6.37332012January
      
      
      6.3080
      
      
      
      6.3172
      
      
      
      6.2940
      
      
      
      6.3330February
      
      
      6.2935
      
      
      
      6.2997
      
      
      
      6.2935
      
      
      
      6.3120March
      
      
      6.2975
      
      
      
      6.3125
      
      
      
      6.2975
      
      
      
      6.3315April (through April 20, 2012)
      
      
      6.3080
      
      
      
      6.3052
      
      
      
      6.2975
      
      
      
      6.3150





Source:
  Federal Reserve Statistical Release







(1)
      *Annual averages are calculated using the average of  month-end rates of the relevant years. Monthly averages are calculated using the average of  the daily rates during the relevant periods.*





B.
      Capitalization
    and Indebtedness





Not
  applicable.




2





C.
      Reasons
    for the Offer and Use of Proceeds





Not
  applicable.





D.
      **Risk Factors**


*You should carefully consider all of the  information in this Annual Report and, in particular, the risks outlined below.**Any of the following risks could  have a material adverse effect on our business, financial condition and results  of operations.*





***Our company's share price may be adversely  affected by negative investor perceptions of small Chinese companies.***


In the  last year, many smaller U.S.-listed companies that operate primarily in China have seen  the public value of their securities decrease significantly. One factor in such  decreases has been the widespread allegation of fraud and unreliable financial  reporting. Another factor has been a number of negative research reports  published about Chinese companies, sometimes by parties that sell the  securities short prior to publishing the research report in order to capitalize  on subsequent share price decreases. The SEC and other agencies and  self-regulatory organizations are looking into specific allegations of  wrongdoing and monitoring U.S.-listed Chinese companies in general.


As a  result of the actions by some Chinese companies and the media and governmental  attention focused on all Chinese companies, the share prices of nearly all  smaller Chinese companies like ours have been adversely affected, whether or  not warranted in any particular case. If investors continue to lose confidence  in smaller Chinese companies or if we are unable to differentiate our company  in investors' estimation from the problematic Chinese companies, then we expect  that our share price will continue to be harmed.





***A future issuance of  our securities or a breach of agreements to which we are subject could lead to  immediate and substantial dilution.***


In  connection with a financing we completed on March 13, 2007, we issued warrants  to three funds affiliated with two institutional investors. These convertible  notes and warrants contain certain anti-dilution language that could result in  substantial dilution to our existing shareholders in the event we were  determined to have violated them. This dilution would occur by repricing the  warrants and recalculating the number of shares underlying the warrants. Even  if an issuance did not trigger these anti-dilution provisions, an issuance of  ordinary shares could nevertheless be completed at a level lower than some  shareholder purchased their shares, leading to dilution of such shareholders.




3


**We have generated a  significant shareholders' deficit, and we cannot provide any assurance that our  business will be profitable in the future.**





Though  we achieved profitability from 2004 to 2006, we had an accumulated deficit of  RMB105,063,689  (US$16,692,938) as  of December 31, 2011. As of December 31, 2011,  our shareholders' equity was RMB126,006,128  (US$20,020,358).  While we have achieved profitability in previous years, there can be no  assurance that we will be able to continue our growth or profitability. Indeed,  we had a net loss of RMB18,830,869 (US$2,991,924) for the year ended December  31, 2011.


***Our customers are  Chinese companies engaged in******the******retail and consumer goods  industries, and, consequently, our financial performance is dependent upon the  economic conditions of these industries.***


We have derived most of our revenues to  date from software and services to the Chinese retail and consumer goods  industries for  manufacturers, distributors, logistics player and retailers, and our future growth is critically dependent on increased sales  to these particular industries. The success of our customers is intrinsically  linked to economic conditions in these industries, which in turn are subject to  intense competitive pressures and are affected by overall economic conditions.  We believe the license of our software solutions and the purchase of our  related services is discretionary and generally involves a significant  commitment of capital. As a result, although we believe our products can assist  China's retailers, distributors, wholesalers, and logistics companies in a  competitive environment, demand for our products and services could be  disproportionately affected by instability or downturns in the retailing,  distribution, wholesaling and logistics industries, which may cause customers  to exit the industry or delay, cancel or reduce any planned expenditures for  information management systems and software products. We have previously  experienced this effect in connection with the global financial crises and economic  downturn, placed upon China's retailing industry in  recent years. There can be no assurance that we will be able to continue our  historical revenue growth or sustain our profitability on a quarterly or annual  basis or that our results of operations will not be adversely affected by  continuing or future downturns in these industries. Any adverse change in the  Chinese retail and consumer goods industries could adversely affect the level  of software expenditure by the participants in these industries, which, in turn,  could result in a material reduction in our sales.





**Our recent service  fee revenue growth will require our officers to manage our business efficiently  while recruiting a significant number of new employees to assist in further  development and implementation of our software.**














4


**Our  operating results may seasonally fluctuate, which could cause our results to  fall short of expectations** **and may  adversely affect the trading price of our** **ordinary shares.**










**We are heavily  dependent upon the services of technical and managerial personnel who develop  and implement our** *one-stop**front-end supply chain  total solutions, and we may have to actively compete for their services.*










*We  may be subject to fines and legal sanctions if we or our employees who are PRC  citizens fail to comply with recent PRC regulations relating to employee stock  options granted by overseas listed companies to PRC citizens.*





In  March 2007, SAFE issued the Application Procedure for Foreign Exchange  Administration for Domestic Individuals Participating in Employee Stock Holding  Plans or Stock Option Plans of Overseas Listed Companies, also known as  "Circular 78." Under Circular 78, PRC individuals who participate in an  employee stock option holding plan or a stock option plan of an overseas listed  company are required, through a PRC domestic agent or PRC subsidiary of the  overseas listed company, to register with SAFE and complete certain other  procedures. We and our Chinese employees who have been granted restricted shares  or stock options pursuant to our stock incentive plans are subject to Circular  78 because we are an overseas listed company. However, in practice, significant  uncertainties exist with respect to the interpretation and implementation of  Circular 78. We intend to submit the application for registration of our  employee stock incentive plan as soon as possible. We or our Chinese employees  may not be able to comply with, qualify under, or obtain any registration  required by Circular 78. If we or our Chinese employees fail to comply with the  provisions of Circular 78, we or they may be subject to fines and legal  sanctions imposed by SAFE or other PRC governmental authorities, which could  result in a material and adverse effect to our business operations and employee  stock incentive plans.





*We depend upon contractual arrangements with our VIEs for our certain business and these arrangements may not be as effective in providing operational control over these businesses as direct ownership and may be difficult to enforce*.





Because PRC regulations restrict or prohibit our ability to provide internet content service directly in PRC, we are dependent on our VIEs in which we have no direct ownership interest, to operate those businesses through contractual arrangements. These contractual arrangements may not be as effective in providing operational control over these businesses as direct ownership. For example, the VIEs could fail to take actions required for our business despite their contractual obligation to do so. The VIEs are able to transact business with parties not affiliated with us. If these VIEs fail to perform their obligations under these arrangements, we may have to rely on legal remedies under PRC law. We cannot assure you that such remedies under PRC law would be effective or sufficient.





According to the PRC laws, a share pledge agreement is required to be registered with the Administration for Industry and Commerce. The share pledge agreements between eFuture Beijing, Changshengtiandi our VIE, and Changshengtiandi's shareholders is in the process of registering and may be deemed to be unenforceable under PRC laws.





*Our  business could suffer if our executives and directors compete against us and  our non-competition agreements with them cannot be enforced*.









5


*We  sell our services on a fixed-price, fixed-time basis, which exposes us to risks  associated with cost overruns and delays.*










**Competition within  the Chinese market for our software products is significant.**










**Our financial  performance is dependent upon the sale and implementation of front-end supply  chain total solutions and related services, a single, concentrated group of  products.**










**The market for front-end  supply chain total solutions is intensely competitive.**










**Our financial  performance is directly related to our ability to adapt to technological change  and evolving standards when developing and improving our front-end supply chain  total solutions.**









6


*Asset  impairment reviews may result in future write-downs.*










*The  financial soundness of our clients and vendors could affect our business and  results of operations.*










**We are substantially  dependent upon our key personnel, particularly Adam Yan, our Chairman and Chief  Executive Officer.**










**As a software-oriented  business, our ability to operate profitably is directly related to our ability  to develop and protect our proprietary technology.**














7





Third parties may initiate litigation  against us alleging infringement of their proprietary rights. In the event of a  successful claim of infringement and our failure or inability to develop  non-infringing technology or license the infringed or similar technology on a  timely basis, our business could be harmed. In addition, even if we are able to  license the infringed or similar technology, license fees could be substantial  and may adversely affect our results of operations.


In addition, we may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Such claims could be time consuming, result in costly litigation.





**Our front-end supply  chain total solutions may contain integration challenges, design defects or  software errors that could be difficult to detect and correct.**










We
  may not pay dividends.









8
 **A slowdown in the  Chinese economy may slow down our growth and profitability.**










**We do not have  business interruption, litigation or natural disaster insurance.**










**We may become a  passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.**










•
      75% or more of our gross  income in a taxable year is passive income; or


•
      the average percentage of  our assets by value in a taxable year which produce or are held for the  production of passive income (which includes cash) is at least 50%.










**Governmental control  of currency conversion may affect the value of our ordinary shares.**










**Fluctuation in the  value of the Renminbi may have a material adverse effect on the value of our ordinary shares.**





The value
    of the Renminbi against the U.S. dollar and other currencies may fluctuate and
    is affected by, among other things, changes in political and economic
    conditions. The Renminbi is permitted to fluctuate within a narrow and managed
    band against a basket of certain foreign currencies. There remains significant
    international pressure on the PRC government to adopt an even more flexible
    currency policy, which could result in a further and more significant
    appreciation of the Renminbi against the U.S. dollar. We rely entirely on
    dividends and other fees paid to us by our subsidiaries in China. Any
    significant revaluation of Renminbi may materially and adversely affect our cash
    flows, revenues, earnings and financial position, and the value of, and any
    dividends payable on, our ordinary shares in U.S. dollars. For example, an
    appreciation of Renminbi against the U.S. dollar would make any new Renminbi
    denominated investments or expenditures more costly to us, to the extent that we
    need to convert U.S. dollars into Renminbi for such purposes. An appreciation of
    Renminbi against the U.S. dollar would also result in foreign currency
    translation losses for financial reporting purposes when we translate our U.S.
    dollar denominated financial assets into Renminbi, as the Renminbi is our
    reporting currency. 
 9





Changes
  in China's political and economic policies could harm our business.





The  economy of China  has historically been a planned economy subject to governmental plans and  quotas and has, in certain aspects, been transitioning to a more  market-oriented economy. Although we believe that the economic reform and the  macroeconomic measures adopted by the Chinese government have had a positive  effect on the economic development of China, we cannot predict the future  direction of these economic reforms or the effects these measures may have on  our business, financial position or results of operations. **New labor laws in the  PRC may adversely affect our results of operations.**










**If PRC law were to  phase out the preferential tax benefits currently being extended to qualified  "High and New Technology Enterprises", we would have to pay more taxes, which  could have a material and adverse effect on our financial condition and results  of operations.**










10












**China** **'s legal system embodies uncertainties that could  adversely affect our ability to engage in the development and integration of  the front-end supply chain total solutions.**










**Shareholder rights  under Cayman Islands law may differ materially from shareholder rights in the United States,  which could adversely affect the ability of us and our shareholders to protect  our and their interests.**









11


**As we are a Cayman  Islands company and most of our assets are outside the United States, it will be extremely difficult to  acquire jurisdiction and enforce liabilities against us and our officers,  directors and assets based in China.**










**You may face  difficulties in protecting your interests, and your ability to protect your  rights through the U.S. federal courts may be limited, because we are  incorporated under Cayman Islands law, conduct most of our operations in China  and most of our officers and directors reside outside the United States.**




















**There can be no  guarantee that China  will comply with the membership requirements of the World Trade Organization.**









12
 *High  technology and emerging market shares have historically experienced extreme  volatility and may subject you to losses.*










*Our  auditor, like other independent registered public accounting firms operating in  China, is not permitted to be subject to inspection by Public Company  Accounting Oversight Board, and as such, investors may be deprived of the  benefits of such inspection.*










Item
          4.
      Information
    on the Company





A.
      **History and Development of  the Company**










We were established under the Cayman Islands Companies Law on November 2, 2000 to serve as a holding  company for our subsidiary, eFuture (Beijing) Royalstone Information Technology  Inc. ("eFuture Royalstone" or  "eFuture Beijing", formerly known as eFuture (Beijing) Tornado Information Technology Inc.).  eFuture Beijing is a PRC company established in January 2000 for the development of our intellectual property.  On October 31, 2006, we listed on the NASDAQ Capital Market under the symbol "EFUT," and we  changed our name from "e-Future Information Technology Inc." to "eFuture  Information Technology Inc." in December 2008.





*Acquisition and Disposition of Biaoshang and Wangku*















On  July 16, 2010 and March 13, 2011, the Company sold its equity interests in  Biaoshang and Wangku, respectively, for an aggregate sale price of RMB9.47  million pursuant to equity transfer agreements.





*Acquisition of the Assets of Guangzhou Royalstone*










*Acquisition of the Assets and Business of Proadvancer*











*VIE entity - Changshengtiandi*


13


B.
      Business
    Overview





General











Vision










Mission










Our
  Market










Our Clients





eFuture's clients include manufacturers, distributors,  resellers, logistics companies and retailers. The Company's client base  encompasses global corporations such as Procter & Gamble, Pepsi, L'Oreal,  Kimberly-Clark, Gucci and B&Q as well as leading Chinese companies. Its  domestic client base includes over 30 companies that were ranked among China's  top 100 retailers during 2011, such as Suning, Shanghai Bailian-Lianhua, China  Resources Vanguard and Beijing Wangfujing.




14








Growth
  Strategy





As a  leading provider of software solutions and services in the  retail and consumer goods industries in China, we focus on the following organic  and acquisitive growth strategies:




15


•
      Organic Growth- We plan  to drive the long-term organic growth and profitability of our core software  business and professional service by:





w
      Strengthening our core software core business  while increasing more stable recurring service and consulting service revenues;


w
      Pursuing profitable growth by  improving our delivery cost and operating expense structure and


w
      Investing in innovation, such as, mobile computing and social commerce to further broaden cloud service  offerings.





•
      **Mergers and Acquisitions ("M&A")** — We expect  to expand our business through our merger and acquisition strategy of targeted "fill-in"  acquisitions. We  plan to actively pursue various M&A opportunities that  complement organic growth by focusing on targets that will help us to:





w
      *Diversify our product offering and create additional  recurring revenue streams***—**We plan to seek out Independent Software  Vendors (ISV) with offerings complementary to our solutions, in industries such  as fashion, auto, consumer electronics, drugstores and  fast-moving consumer goods, and with products and services that  deliver a stable  and recurring revenue stream.


w
      *Broaden our regional coverage* — We are particularly interested in ISVs with extensive  coverage in South, East, and North China.


w
      *Penetrate the small and medium sized businesses (SMB)  market* - Companies with standardized,  scalable product offerings that facilitate penetration into SMBs in China's tier 2 and tier 3 cities.





Our Products and  Services





eFuture provides a one-stop, end-to-end integrated portfolio of software and services for the front-end supply chain from factory  to consumer. eFuture has three business lines: software, professional services  and cloud service.





•
      Software Solutions is eFuture's core business. The  Company's software solutions include the management of  merchandizing, distribution, warehousing, supply chains, customer relationships,  logistics and points of sale. They are highly scalable and can be deployed either individually or together with back-end systems. These solutions offer enhanced  decision making and responsiveness to consumer demands, along with  increased efficiency,  which all ultimately drive profit growth.





•
      Professional  Services is eFuture's fast growing business, and covers operations,  delivery, consulting, maintenance and support services via the Company's  nationwide service centers and their  team of dedicated professionals.





•
      Cloud  Service is eFuture's seed business, and consists of cloud services based on  cloud computing architecture, such as Salesforce Automation ("SFA").





By solidifying our core software business, growing  professional service revenues, and developing our cloud service offerings and  capabilities, we have established a diverse platform which we believe will  allow us to further expand our market share and generate consistent revenue in  the coming years.





*Software Solutions*














16


*Foundation Solutions* — are used to meet client needs for services such as  retail management, point of sale ("POS"), distribution management, logistics management, warehouse management, vendor payment and  control and loyalty card management. Our clients use several of our Foundation  Solutions, depending on the type of customer and their needs





*Collaborative Solutions* — are used to meet client needs for services such as  visual SCM and visual process management  systems. Depending on the type of customer and their specific needs, our  clients use a variety of our Collaborative Solutions.





*Intelligent Solutions*— are used to meet client needs for services such as  business intelligence, brand analysis, supplier relationship management and  customer relationship management systems.





*Professional Services*





Our software professional services business includes  recurring maintenance and support services on existing software installations,  delivery services, consulting services and outsourcing services.





*Maintenance and Support Service* — is provided following the installation of our software solutions,  as clients will typically require ongoing maintenance support and software upgrades to ensure the efficient operation of their system.  These services are designed to assist our customers with integration issues and  to answer questions that may arise.















*Delivery Service* — is provided to  customers to assist in planning and executing their projects throughout the  process. We typically provide the following services at  different stages in the management of a project, as illustrated below:







17











*Consulting Service* — is provided by our  consulting services group which consists  of business consultants, systems analysts and technical personnel with  extensive retail, manufacturing, and wholesale industry experience. The  consulting services group assists our customers in all phases of systems  implementation that exceed the limited services we provide under our  maintenance arrangements, including systems planning and design,  customer-specific configuration of application modules, and on-site implementation  or conversion from existing systems. We also offer a variety of  post-implementation consulting services designed to maximize our customers'  return on software investment, which include enhanced utilization reviews and  business process optimization.




18








*Outsourcing Service* — is flexible by design to meet our clients' changing  requirements, eFuture outsourcing services can manage all or parts of our  clients' non-core business processes or technology operations, from selective  outsourcing to full-scope system and network outsourcing and data center  management. eFuture teams manage and operate the client's internal business  processes. Leveraging technology with our industry and process expertise, we  provide design, development, implementation, operation, and continuous  improvement for both IT and business functions. Our call center, based in Wuhan  and also referred to as our help desk department, provides a single point of  contact to receive and manage all customers' requests (problem notification,  information request, service request) across the entire range of services  provided.





*Cloud Service (www.cloudsales.com.cn)*





Cloud service is eFuture's  seed business, and consists of cloud services based on cloud computing  architecture, such as Salesforce Automation ("SFA"). 
  
 Our  cloud service offering is built for the fast moving consumer goods (FMCG)  industry, designed to speed up and simplify all aspects of the sales process.  Through our user-friendly offering, clients can enjoy an increase in revenue by  engaging with real-time information on replenishment and promotions. The  software also allows sales teams to devote their energies to creating and  managing customer relationships, and provides the tools needed to enhance the  performance of travelling sales representatives.


Sales and
  Marketing





To provide an ideal opportunity with which to build  relations with local clients and raise our profile within the local community,  we opened offices in seven tier 2 cities in 2011, namely Qingdao, Xian, Fuzhou,  Hangzhou, Nanjing, Chongqing and Shenzhen. These offices provide a centralized  hub from which eFuture can extend its reach across a number of functions and  business units.







To date,
  we have provided our products and services to businesses located throughout
  China via our extensive nationwide network:


•
            Headquartered
              in Beijing
 •
            R&D centers in Beijing, Guangzhou and Wuhan
 •
            Regional service centers in Beijing, Shanghai, Guangzhou, Wuhan, Qingdao, Xi'an, Fuzhou, Hangzhou, Nanjing, Chongqing and Shenzhen
 19
  
 
 
 As we grow our business and implement more sophisticated systems to directly drive top- and bottom-line expansion, we remain conscious of the benefits of capitalizing on our industry-wide reputation for thought leadership. In light of this, we began producing a Chinese-language publication called eFuture Business Review that we distribute to clients and industry experts. This publication contains articles and opinion pieces on the latest industry trends and issues such as mergers & acquisitions, retail business models, B2C, and logistics and supply chain management, creating a vehicle for communicating our industry leadership and keeping eFuture's expertise at the forefront of clients' minds.
 
 Another way in which we cement our position in the industry is by sharing our expertise at industry conferences. During the second quarter, we participated in leading industry conferences hosted by organizations such as the China Commerce Association for General Merchandise, the China General Chamber of Commerce and the China Chain Store & Franchise Association. At the IBM 2011 China Partner Conference, we were delighted to receive the "IBM 2010 Market Leadership Achievement" award. As well as giving us an opportunity to demonstrate our thought leadership, participation in these conferences also allows our executives to interact with other industry leaders and engage in stimulating discussions that are inevitably benefitial to eFuture. During the quarter, in addition to these industry conferences, we also engaged in our own regional marketing initiatives, which involved presenting our solutions to clients at local venues throughout China.
  20
 
 In the third quarter, eFuture holds an annual client conference at which we feature presentations by executives from companies such as Accenture, IBM, Taobao Mall and China Resources Vanguard. Industry and academic experts from China and abroad attend the conference, as well as representatives from leading media outlets and our key clients and partners. The conference provides an excellent platform for us to deepen client relationships by capitalizing on our industry-wide reputation for thought leadership. This reputation, combined with our cutting-edge technological solutions and services, continues to make us the partner of choice for retail and consumer goods companies as they expand their China operations.
 
 This year's conference, which was held in September, was themed around our vision for "creating a happy consumer world" for interconnected consumers, retailers, suppliers and workers. This vision positions eFuture as an increasingly integral part of front-end supply management in China, and ensures the company's long-term health and business expansion.
 
 We celebrated the launch of our cloud service offering at the 13th China Retail Industry Convention and China Chain Store Expo, which was held in November 2011 and attended by senior executives from China's Top 100 retailers, as well as industry experts and representatives from leading media outlets.
 **Delivery Team Upgrade**
 In 2011, we successfully completed our delivery team upgrade, which was a major initiative designed to enable us to take on more projects, as well as to manage our cost base more effectively.
 
 In order to deliver a more localized delivery service and also reduce the costs of providing this service, we established four regional delivery centers in North China, East China, Central China and South China. The opening of these centers brought us physically closer to our clients, and brought with it the added bonus of lower operating costs in some locations and the opportunity to develop even stronger ongoing relationships with our clients, something which often leads to repeat business and new customer leads. In addition, we have built a central kitchen with 7 vertical product lines to provide the centralized processing of clients' various demands. This removes the need to carry out a significant amount of customization work at the client's premises, as was the case in the past.
 
 To further improve customer experience and enhance the value of eFuture's products and services for clients, we established work processes during the fourth quarter to optimize workflow efficiencies between regional delivery teams and company-level technical support teams. We also honed the team's ability to plan, organize and manage resources by putting over 80 project managers through training courses. In addition, the on- and off-the-job training we have given to new joiners has resulted in them being able to quickly reach the required standards to carry out complex delivery work.
 
 As a complement to our delivery team upgrade initiative, we have also set up a maintenance hotline, staffed from a central call center in Wuhan, to take client calls from throughout China. This hotline is a cost-effective way of enhancing the level of client service we are able to provide, and increases our competitiveness within China's retail IT industry.
 
 With the completion of our delivery team upgrade, we are well placed to take on more projects and execute them with greater levels of efficiency and at lower cost than previously. We ultimately expect this upgrade to reduce inventory cycle time and to have a positive effect on margins.
 Collaborative Efforts and Recognition
 eFuture partners with leading global companies such as IBM and Oracle to co-develop software and implement partners' solutions locally.
 
 As of the date of this annual report, we have entered into the following agreements with large global corporations to generate business opportunities:
  21
 
 •
      In 2007, IBM awarded us its Solution Developer Partnership Award - Asia Pacific Region. We have partnered with IBM to provide customer management systems and integrated retail supply chain software systems throughout China.
 •
      In 2007, we entered into a Value Added Systems Integrator ("VASI") Agreement with JDA® Software Group, Inc. (NASDAQ: JDAS) pursuant to which we will aim to integrate people, processes and technology to provide local retailers with proven, robust solutions at an affordable price.
 •
      In 2007, we entered into an Independent Software Vendor Agreement with Motorola (China) Electronics Ltd., a subsidiary of Motorola, Inc. (NYSE: MOT) pursuant to which we will aim to integrate people, processes and technology to provide local retailers with proven, robust mobile solutions at an affordable price.
 •
      In 2007, we entered into an Independent Software Vendor Agreement with Samsung Network China, Inc. pursuant to which we will aim to integrate people, processes and technology to provide local retailers with proven, robust mobile point of sales solutions at an affordable price.
 •
      In 2008, we expanded our collaboration with IBM to launch a SaaS solution for the retail distribution industry in China. By combining IBM's integrated infrastructure and platforms with our expertise and best practices in front-end supply chain total solutions and service, we are confident that our partnership will allow us to offer first-rate solutions and services for upscale retailers in China's consumer goods and retail industry.
 •
      In 2009, through our collaboration with IBM, we launched China's first SaaS solution for the retail distribution industry. We successfully completed the deployment of the solution at select Beijing Wangfujing Department Store Group ("Wangfujing Group") stores in Beijing. Wangfujing Group is one of the largest retail groups in Beijing.
 •
      In 2009, we entered into a strategic relationship with JDA Software focused on collaborative growth. We believe this alliance will fuel delivery of our combined solution, which is designed to help retail and consumer goods companies in China optimize their operations and improve profitability.
 
 As of the date of this annual report, we have been granted the following awards:
 
 •
      In 2010, IBM awarded us with the title of Excellent Application Solution Provider in Asia Pacific Region.
 •
      At the IBM 2011 China Partner Conference, we received the "IBM 2010 Market Leadership Achievement" award.
 •
      In 2011, integrated IT service provider Digital China named eFuture "Best Solution Partner in the Distribution Industry".
 •
      In 2011, we were also recognized as "Best logistics service provider in the business services sector" at an event convened by the Chinese General Chamber of Commerce and the China Business Herald.
 
 Competitive Landscape
 
 The competitive landscape differs depending on the customer, so eFuture divides its customer pool into three tiers.
 
  
 Tier 2 - the top 100 retailers and leading regional retailers in China. Here, eFuture enjoys strong brand recognition and is competing with global and local competitors. Over 30 of China's top 100 retailers in 2010 are eFuture customers. eFuture's global best practice offering features competitive pricing and more flexible, localized solutions, which gives eFuture a clear competitive advantage when addressing Tier 2 customers.
  22
 
 Tier 3 - all retail and FMCG companies outside the Tier 2 market. In this space, eFuture is competing with 150+ companies that deliver solutions to small and medium-sized businesses located throughout China. Two years ago, eFuture started to conduct marketing activities in this space, which helped it acquire more market share.
 
 We encounter competitive products from a variety of vendors. We believe that while our markets are still subject to intense competition, the number of significant competitors for business in China is relatively limited. We believe our principal competitive advantages are:
 
 •
      a leading position in China's retail and consumer goods software and services market
 •
      strong brand recognition among international and local clients
 •
      strategic partnerships with leading global technology companies
 •
      one-stop, end-to-end integrated portfolio of products and services
 
 Research & Development
 
 We believe that innovation is key to our future growth, and we're investing in R&D to maintain the attractiveness and effectiveness of our software and service offerings. In particular, we've taken the decision to centralize our product development in one location to enjoy economies of scale and facilitate the transfer of knowledge within our R&D team. We continue to develop our cloud service seed business, and are in the process of building an experience and dedicated team to work on this potential new revenue stream, which will potentially lead towards more stable and balanced revenue streams throughout the year for our business as a whole.
 
 The official launch of our cloud service offering marked an important milestone in the development of our company, and allows us to offer an expanded portfolio of solutions to China's retail and fast moving consumer goods industries.
 
 SFA platform is a mobile-based cloud service offering, that is targeted at FMCG companies and can be accessed via both Android and iPhone. Sales reps can access real-time information on replenishment and promotions while they're out on the road, and can therefore work more effectively and focus on making sales. Our mobile cloud service platform will help even out our income stream, as it provides recurring revenue on a monthly basis.
 
 During 2012, we plan to innovate further within the cloud services space to explore its long-term revenue-generation potential, while simultaneously solidifying our leading position within China's retail and consumer goods industry. Our overall focus remains on driving top-line growth, as well as investing to capture long-term opportunities within the growing mobile internet and social commerce markets.
 
 Intellectual Property
 
 Our success and competitive position depend in part upon our ability to develop and maintain the proprietary aspect of our technology. The reverse engineering, unauthorized copying, or other misappropriation of our technology could enable third parties to benefit from our technology without paying for it. We rely on a combination of trademarks, trade secrets, copyright law and contractual restrictions to protect the proprietary aspects of our technology. We seek to protect the source code to our software, documentation and other written materials under trade secret and copyright laws. While we actively take steps to protect our proprietary rights, such steps may not be adequate to prevent the infringement or misappropriation of our intellectual property. This is particularly the case in China where the laws may not protect our proprietary rights as fully as in the United States.
 
 We license our software products under signed license agreements that impose restrictions on the licensee's ability to utilize the software and do not permit the re-sale, sublicense or other transfer of the software. Finally, we seek to avoid disclosure of our intellectual property by requiring employees and independent consultants to execute confidentiality agreements with us and by restricting access to our source code.
 
 Although we develop our own software products, each is based upon middleware developed by third parties, including IBM and Oracle. We integrate this technology, licensed by our customers from third parties in our software products. If our customers are unable to continue to license any of this third party software, or if the third party licensors do not adequately maintain or update their products, we would face delays in the release of our software until equivalent technology can be identified, licensed or developed, and integrated into our software products. These delays, if they occur, could harm our business, operating results and financial condition.
 
 23
 
 There has been a substantial amount of litigation in the software and internet industries regarding intellectual property rights. It is possible that in the future third parties may claim that our current or potential future software solutions infringe their intellectual property. We expect that software product developers and providers of e-commerce products will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. In addition, we may find it necessary to initiate claims or litigation against third parties for infringement of our proprietary rights or to protect our trade secrets. Although we may disclaim certain intellectual property representations to our customers, these disclaimers may not be sufficient to fully protect us against such claims. We may be more vulnerable to patent claims since we do not have any issued patents that we can assert defensively against a patent infringement claim. Any claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or license agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could have a material adverse effect on our business, operating results and financial condition.
 
 Our standard software license agreements contain an infringement indemnity clause under which we agree to indemnify and hold harmless our customers and business partners against liability and damages arising from claims of various copyright or other intellectual property infringement by our products. We have never lost an infringement claim and our costs to defend such lawsuits have been insignificant. Although it is possible that in the future third parties may claim that our current or potential future software solutions infringe on their intellectual property, we do not currently expect a significant impact on our business, operating results, or financial condition.
 
 Regulations
 
 Regulation of Software Products
 
 On October 27, 2000, the Ministry of Information Industry issued the Administrative Measures on Software Products (the "Software Measures") to strengthen the regulation of software products and to encourage the development of the Chinese software industry. Under the Software Measures, a software developer must have all software products imported into or sold in China tested by a testing organization approved by the Ministry of Information Industry. The software products must be registered with the Ministry of Information Industry or with its provincial branch. The sale of unregistered software products in China is forbidden. Software products can be registered for five years, and the registration is renewable upon expiration.
 
 Regulation of Intellectual Property Rights
 
 China has adopted legislation governing intellectual property rights, including trademarks and copyrights, and in 1998, China established the State Intellectual Property Office ("SIPO") to coordinate China's intellectual property enforcement efforts. SIPO is responsible for granting and enforcing patents, as well as coordinating intellectual property rights related to copyrights and trademarks. Protection of intellectual property in China follows a two-track system. The first track is administrative in nature, whereby a holder of intellectual property rights files a complaint at a local administrative office. Determining which intellectual property agency can be confusing, as jurisdiction of intellectual property matters is diffused throughout a number of government agencies and offices, each of which is typically responsible for the protection afforded by one statute or one specific area of intellectual property-related law. The second track is a judicial track, whereby complaints are filed through the Chinese court system. Since 1993, China has maintained various intellectual property tribunals. The total volume of intellectual property related litigation, however, remains small.
 
 *Copyright*— China adopted its first copyright law in 1990. The National People's Congress amended the Copyright Law in 2001 to widen the scope of works and rights that are eligible for copyright protection. The amended Copyright Law extends copyright protection to software products, among others. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. Unlike patent and trademark registration, copyrighted works do not require registration for protection. Protection is granted to individuals from countries belonging to the international copyright conventions or bilateral agreements of which China is a member.
 
 24
 
 *Trademark*— The Chinese Trademark Law, adopted in 1982 and revised in 1993 and 2001, protects registered trademarks. The Trademark Office under the Chinese State Administration for Industry and Commerce handles trademark registrations and grants a term of ten years to registered trademarks. Trademark license agreements must be filed with the Trademark Office for record. China has a "first-to-register" system that requires no evidence of prior use or ownership. We have registered a number of our product names with the Trademark Office.
 
 China is a signatory to the main international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the WTO in December 2001.
 
 Although there are differences in intellectual property rights between the United States and China, the most significant difference to our company is the inexperience of China in connection with the development and protection of intellectual property rights. Similar to the United States, China has chosen to protect software under copyright law rather than trade secret, patent or contract law. As such, we will attempt to protect our most significant asset (software) pursuant to Chinese laws that have only recently been adopted. Unlike the United States, which has lengthy case law related to the interpretation and applicability of intellectual property law, China is currently in the process of developing such interpretations.
 
 Seasonality
 
 Like many other Chinese companies operating in China, our businesses tends to be slower in the quarter that includes the month of March and tends to be to be stronger in the quarter that includes December due to Chinese New Year factor and the budgeting practice that is on calendar basis adopted by government agencies and most  Chinese private enterprises.
 
 C.
      Organizational structure
 
 The following is a list of our subsidiaries and consolidated affiliated entities established since our inception, all of which were organized in China:
 
 **Date    entity joined****Name**
      
      **the    Company**
      
      **Relationship**eFuture (Beijing) Royalstone Information Technology Inc.
      
      November    2000
      
      Wholly-owned    subsidiaryBeijing Changshengtiandi Ecommerce    Co., Ltd.
      
      January    2011
      
      Consolidated    affiliated entity
 
 Our principal executive offices and headquarters in Beijing moved to the central business district in May of 2009 located at 8/F Topnew Tower, 15 Guanghua Road, Chaoyang District, Beijing 100026, China. Our telephone number is +86 10 5293 7699, and our fax number is +86 10 5293 7688.
 
 D.
      Property, Plant and Equipment
 
 Facilities
 
 We currently operate twelve facilities throughout China. Our headquarters are located in Beijing.
  25
 
 **Office**
		   **Address**
		 
      **Rental Term**
      **Space**
 Beijing
		  8/F Topnew Tower
15 Guanghua Road Chaoyang District
Beijing 100026, PRC

     
      Expires April 25, 2015
      1,496.77 sq. meters
 
 Shanghai
		  Floor 19E, F, G, H, I
Shentong Information Plaza
55 West Road of Huaihai Street
Shanghai, Xu Jiahu District, PRC
      
      Expires March 19, 2013
      757.47 sq. meters
 
 Nanjing
		  Room 2410, No. 3 Building Jiaye International City
158 Lushan Road, Jianye District
Nanjing, Jiangsu Province, PRC
       
      Expires December 31, 2013
      327.57 sq. meters
 
 Shijiazhuang
		  R2108,Floor 21
Changan Plaza
289 East Road of Zhongshan Street
Shijiazhuang, Hebei Province, PRC
      
      Expires December 31, 2012
      647.68 sq. meters
 
 Guangzhou
		  Rear Building
Huicheng Plaza
130 Zhongshan Street
Guangzhou, Guangdong Province, PRC
       
      Expires March 31, 2014
      1,760 sq. meters
 
 Wuhan
		  Floor 36 and 40
No. 7  Zhongnan Road, Wuchang District
Wuhan, Hubei Province, PRC
       
      Expires May 19, 2015
      2293.73 sq. meters
 
 Qingdao
		  Floor 6 C, Block A No. 11 Building
Qingdao Software Park
No. 288 Ningxia Road, Shinan District
Qingdao, Shandong Province, PRC
      
      Expires December 31, 2012
      107.98 sq. meters
 
 Xi'an
		  Room 1235, Floor 12, Unit 1 Yu Long International
No. 183 Dong'er Road
Xi'an, Shanxi Province, PRC
       
      Expires April 5, 2013
      139.17 sq. meters
 
 Fuzhou
		  Room 06, Floor9 Rongcheng Commercial & Trade Center
No.129 Wuyi North Road, Gulou District
Fuzhou, Fujian Province, PRC
       
      Expires May 31, 2014
      100.84 sq. meters
 
 Hangzhou
		  Floor 20 Zhongdu Department Store Plaza, 87 Qingchun Road
Xiacheng District,
Hangzhou, Zhejiang Province, PRC
       
      Expires March 24, 2014
      170 sq. meters
 
 Chongqing
		  Room 02, Floor 32 Maoye East Times
Jianxin North Road, Jiangbei District
Chongqing, PRC
       
      Expires May 26, 2012
      181 sq. meters
 
 Shenzhen
		  Room G, H & L, Floor8, International Trade Business Building, Nanhu Road, Luohu District, Shenzhen
      
      Expires June 30, 2014
      492.43 sq. meters
 
 As of the date of this report, we do not have any material plans, agreements or obligations to construct, expand or improve any facilities.
 Item 4A.
      Unresolved Staff Comments
 Not applicable.
  26
 
 Item 5.
      Operating and Financial Review and Prospects
 The following discussion and analysis should be read  in conjunction with our audited historical consolidated financial statements,  together with the respective notes thereto, included elsewhere in this  prospectus. Our audited historical consolidated financial statements have been  prepared in accordance with US GAAP. This  report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and  Section 21E of the Securities Exchange Act of 1934. See  "Introduction — Forward-Looking Statements." In evaluating our business,  you should carefully consider the information provided under Item 3.D,  "Risk Factors." We caution you that our businesses and financial performance  are subject to substantial risks and uncertainties.
 
 A.
      Operating Results
 ***Overview*******
 eFuture is a leading provider of software and services to China's rapidly growing retail and consumer goods industries. eFuture offers one-stop, end-to-end integrated portfolio of software and services from factory to consumer on seven verticals: Fast Moving Consumer Goods (FMCG), Department Store, Shopping Mall, Grocery, Logistics, Specialty Store and Online Retailers. The Company's strong brand recognition and lasting relationships among local and international clients, along with key strategic partnerships with leading global technology companies ensures eFuture's ability to stay at the forefront of industry trends and cement its leading role in China's booming retail and consumer markets.
 
 **Summary of 2011 Operations**
 
 In 2011, we successfully completed our delivery team upgrade, a major initiative designed to enable us to take on more projects, as well as to manage our cost base more effectively.
 
 In order to deliver a more localized delivery service and also reduce the costs of providing this service, we established four regional delivery centers in North China, East China, Central China and South China. The opening of these centers brought us physically closer to our clients, and brought with it the added bonus of lower operating costs in some locations and the opportunity to develop even stronger ongoing relationships with our clients, something which often leads to repeat business and new customer leads. In addition, we have built a central kitchen with 7 vertical product lines to provide the centralized processing of clients' various demands. This removes the need to carry out a significant amount of customization work at the client's premises, as was the case in the past.
 
  27
 
 To further improve customer experience and enhance the value of eFuture's products and services for clients, we established work processes during the fourth quarter to optimize workflow efficiencies between regional delivery teams and company-level technical support teams. We also honed the team's ability to plan, organize and manage resources by putting over 80 project managers through training courses. In addition, the on- and off-the-job training we have given to new joiners has resulted in them being able to quickly reach the required standards to carry out complex delivery work.
 
 As a complement to our delivery team upgrade initiative, we have also set up a maintenance hotline, staffed from a central call center in Wuhan, to take client calls from throughout China. This hotline is a cost-effective way of enhancing the level of client service we are able to provide, and increases our competitiveness within China's retail IT industry.
 
 With the completion of our delivery team upgrade, we are well placed to take on more projects and execute them with greater levels of efficiency and at lower cost than previously. We ultimately expect this upgrade to reduce inventory cycle time and to have a positive effect on margins.
 On January 18, 2011, Changshengtiandi became our VIE through a series of contractual agreements. Changshengtiandi is engaged in social commerce service and it realized a net loss of RMB649,830 (US$103,248) for the period from January 18, 2011 to December 31, 2011.
 
 ***Results of  Operations*******
 
 The following table presents the results of our operations for the years indicated. Our historical reporting results are not necessarily indicative of the results to be expected for any future period.
  28
 
 Chinese Yuan (Renminbi)

U.S. DollarsFor the Years Ended December 31,

For theYear EndedDecember 31,2009


2010


2011

2011RevenuesSoftware revenue
¥
54,187,769

¥
63,887,988

¥
52,599,132
$
8,357,160Hardware revenue

21,518,084


35,805,127


38,838,235

6,170,774Service fee revenue

33,130,034


52,209,569


83,011,113

13,189,138Total Revenues

108,835,887


151,902,684


174,448,480

27,717,072Cost of revenuesCost of software revenue

(13,805,682)


(11,952,426)


(12,658,868)

(2,011,292)Cost of hardware revenue

(17,294,931)


(31,282,457)


(32,412,956)

(5,149,900)Cost of service fee revenue

(22,067,175)


(30,748,994)


(57,885,408)

(9,197,065)Amortization of acquired technology

(11,513,910)


(10,353,492)


(7,838,965)

(1,245,486)Amortization of software costs

(4,280,233)


(4,734,364)


(3,319,857)

(527,472)Impairment loss of intangible assets

-


(2,401,502)


(4,135,194)

(657,016)Total Cost of Revenues

(68,961,931)


(91,473,235)


(118,251,248)

(18,788,231)Gross Profit

39,873,956


60,429,449


56,197,232

8,928,841Operating ExpensesResearch and development expenses

(3,165,788)


(8,152,923)


(4,666,122)

(741,372)General and administrative expenses

(33,620,855)


(39,253,368)


(46,231,355)

(7,345,423)Selling and distribution expenses

(27,519,934)


(34,755,979)


(24,845,248)

(3,947,512)Total Operating Expenses

(64,306,577)


(82,162,270)


(75,742,725)

(12,034,307)Loss from operations

(24,432,621)


(21,732,821)


(19,545,493)

(3,105,466)Other income (expenses)Interest income

589,508


588,600


534,203

84,876Interest expenses

(450,817)


(636,050)


(550,338)

(87,440)Interest expenses - amortization of discount on convertible notes payable

(13,316)


(13,712)


(6,431,872)

(1,021,922)Interest expenses - amortization of deferred loan costs

(350,996)


(369,516)


(474,399)

(75,374)Finance cost - exchange warrants

-


(1,443,888)


-

-Loss on investments

-


(54,192)


(240,000)

(38,132)Gains on derivative liabilities

1,290,329


3,429,479


347,565

55,223Other income

-


-


873,697

138,816Foreign currency exchange loss

(133,087)


(530,939)


(36,864)

(5,857)Loss from continuing operations before income tax

(23,501,000)


(20,763,039)


(25,523,501)

(4,055,276)Less: Income tax benefit

(1,513,216)


(1,770,001)


(571,857)

(90,859)Loss from continuing operations

(21,987,784)


(18,993,038)


(24,951,644)

(3,964,417)Less: Net loss attributable to the non-controlling interest

(2,099,874)


(1,606,146)


(511,423)

(81,257)Net loss from continuing operations attributable to eFuture Information Technology Inc.

(19,887,910)


(17,386,892)


(24,440,221)

(3,883,160)Discontinued operationsGain (Loss) from discontinued operations (including gain on disposal of nil, ¥3,427,236 and ¥6,701,170($1,064,709), respectively)

(5,260,675)


63,471


5,609,352

891,236Less: Income tax expenses

116,912


-


-

-Gain (Loss) from discontinued operations

(5,377,587)


63,471


5,609,352

891,236Net loss
¥
(25,265,497)

¥
(17,323,421)

¥
(18,830,869)
$
(2,991,924)Earnings (Loss) per ordinary shareBasic
¥
(7.51)

¥
(4.53)

¥
(4.56)
$
(0.72)- Continuing operations

(5.91)


(4.55)


(5.92)

(0.94)- Discontinued operations

(1.60)


0.02


1.36

0.22Diluted
¥
(7.51)

¥
(4.53)

¥
(4.56)
$
(0.72)- Continuing operations

(5.91)


(4.55)


(5.92)

(0.94)- Discontinued operations

(1.60)


0.02


1.36

0.22Basic Weighted-average Shares Outstanding

3,362,986


3,822,386


4,130,221

4,130,221Fully-Diluted Weighted-average Shares Outstanding

3,396,881


3,831,803


4,130,221

4,130,221
  29
  The following table sets forth certain selected financial information expressed as a percentage of total revenues for the periods indicated and cost of revenues and product development expenses expressed as a percentage of the related revenues. In addition, the table sets forth a comparison of selected financial information, expressed as a percentage change in 2009, 2010 and 2011.
 
 RMBFY 2009
Percentage of FY 2009  Revenues
FY 2010
Percentage of FY 2010 Revenues
FY 2011
Percentage of FY 2011 Revenues

Change FY 2009 v FY 2010
%Change

Change FY 2010 v FY 2011
%ChangeRevenuesSoftware sales

54,187,769

49.8%

63,887,988

42.1%

52,599,132

30.2%

9,700,219

17.9%

(11,288,856)

-17.7%Hardware sales

21,518,084

19.8%

35,805,127

23.6%

38,838,235

22.3%

14,287,043

66.4%

3,033,108

8.5%Service fee income

33,130,034

30.4%

52,209,569

34.4%

83,011,113

47.5%

19,079,535

57.6%

30,801,544

59.0%Total Revenues

108,835,887

100.0%

151,902,684

100.0%

174,448,480

100.0%

43,066,797

39.6%

22,545,796

14.8%Cost of RevenuesCost of software

(13,805,682)

-12.7%

(11,952,426)

-7.9%

(12,658,868)

-7.3%

1,853,256

-13.4%

(706,442)

5.9%Cost of hardware

(17,294,931)

-15.9%

(31,282,457)

-20.6%

(32,412,956)

-18.6%

(13,987,526)

80.9%

(1,130,499)

3.6%Cost of service fee income

(22,067,175)

-20.3%

(30,748,994)

-20.2%

(57,885,408)

-33.1%

(8,681,819)

39.3%

(27,136,414)

88.3%Amortization of acquired technology

(11,513,910)

-10.6%

(10,353,492)

-6.8%

(7,838,965)

-4.5%

1,160,418

-10.1%

2,514,527

-24.3%Amortization of software costs

(4,280,233)

-3.9%

(4,734,364)

-3.1%

(3,319,857)

-1.9%

(454,131)

10.6%

1,414,507

-29.9%Impairment loss of intangible assets

-

0.0%

(2,401,502)

-1.6%

(4,135,194)

-2.4%

(2,401,502)

100.0%

(1,733,692)

72.2%Total Cost of Revenue

(68,961,931)

-63.4%

(91,473,235)

-60.2%

(118,251,248)

-67.8%

(22,511,304)

32.6%

(26,778,013)

29.3%Gross Profit

39,873,956

36.6%

60,429,449

39.8%

56,197,232

32.2%

20,555,493

51.6%

(4,232,217)

-7.0%Operating ExpensesResearch and development

(3,165,788)

-2.9%

(8,152,923)

-5.4%

(4,666,122)

-2.7%

(4,987,135)

157.5%

3,486,801

-42.8%General and administrative

(33,620,855)

-30.9%

(39,253,368)

-25.8%

(46,231,355)

-26.5%

(5,632,513)

16.8%

(6,977,987)

17.8%Selling and distribution expenses

(27,519,934)

-25.3%

(34,755,979)

-22.9%

(24,845,248)

-14.2%

(7,236,045)

26.3%

9,910,731

-28.5%Total Operating Expenses

(64,306,577)

-59.1%

(82,162,270)

-54.1%

(75,742,725)

-43.4%

(17,855,693)

27.8%

6,419,545

-7.8%Loss from operations

(24,432,621)

-22.4%

(21,732,821)

-14.3%

(19,545,493)

-11.2%

2,699,800

-11.0%

2,187,328

-10.1%
 
 The following table sets forth certain gross margin data expressed as a percentage of software sales revenue, hardware sales revenue and service  fee income , as appropriate:
  30
 
 **RMB****FY 2009******
      **Gross    Margin for FY 200****9**
      
      **FY 2010******
      **Gross    Margin for FY 2010******
      ****
      **FY 20****11**
      **Gross    Margin for FY 20****11****Revenues**
      ****
      ****
      ****
      
      ****
      ****
      ****
      ****
      ****Software sales
      
      54,187,769
      
      
      63,887,988
      
      
      52,599,132Hardware sales
      
      21,518,084
      
      
      35,805,127
      
      
      38,838,235Service  fee income
      
      33,130,034
      
      
      52,209,569
      
      
      83,011,113**Total Revenues**
      ****
      108,835,887
      ****
      
      151,902,684
      ****
      
      174,448,480
      ******Cost of Revenues**
      ****
      
      ****
      
      
      ****
      
      
      ****Cost of software
      
      (13,805,682)
      74.5%
      
      (11,952,426)
      81.3%
      
      (12,658,868)
      75.9%Cost of hardware
      
      (17,294,931)
      19.6%
      
      (31,282,457)
      12.6%
      
      (32,412,956)
      16.5%Cost of service fee income
      
      (22,067,175)
      33.4%
      
      (30,748,994)
      41.1%
      
      (57,885,408)
      30.3%Amortization of acquired    technology
      
      (11,513,910)
      
      
      (10,353,492)
      
      
      (7,838,965)Amortization of software    costs
      
      (4,280,233)
      
      
      (4,734,364)
      
      
      (3,319,857)Impairment loss of    intangible assets
      
      -
      
      
      (2,401,502)
      
      
      (4,135,194)**Total Cost of Revenue**
      ****
      (68,961,931)
      
      
      (91,473,235)
      
      
      (118,251,248)**Gross Profit**
      ****
      39,873,956
      36.6%
      
      60,429,449****
      39.8%
      
      56,197,232****
      32.2%
 
 Comparison of Years Ended December 31, 2010 and 2011
 
 Revenue
 
  
  
 •
      global economic conditions;
 •
      the level of acceptance of our products among our existing and potential customers;
 •
      our ability to attract and retain key customers and our sales force;
 •
      new product introductions by us and our competitors;
 •
      our ability to price our products at levels that provide favorable margins;
 •
      exchange rate fluctuations; and
 •
      the availability of credit for our customers.
 
 Total revenue. Total revenue is comprised  of software sales, hardware sales and service fee revenue. Total  revenue increased 14.8% from RMB151.9 million in 2010 to  RMB174.4 million (US$27.7  million) in 2011, which was primarily attributable to the upgrade of  our delivery team which enable us to take on more projects. As well, to further  improve customer experience and enhance the value to clients of eFuture's  products and services, we established work processes during the fourth quarter  to optimize workflow efficiencies between regional delivery teams and  company-level technical support teams. In addition, 2011 revenues benefited  from strong growth in the provision of consulting services to the logistics  industry and the increased demand from existing customers for customization,  maintenance and consulting services.
 
 Software sales. Our software sales decreased  17.7% from RMB63.9  million in 2010 to RMB52.6 million (US$8.4 million) in 2011, which was primarily attributable to lower sales to  the grocery industry as existing customers in this vertical delayed new store  openings.  In line with the decline of China's domestic economic development, which can be  inferred by the lower GDP growth rate among recent years, our existing  customers and the retail industry as a whole was in the process of  consolidation in 2011. It resulted in the delay of new store openings.
  31
 
 Hardware sales. Our hardware sales increased 8.5% from RMB35.8  million in 2010 to RMB38.8 million (US$6.2 million) in line with  the completion of several hardware contracts with large amount for the  logistics industry in 2011.
 
 In recent years, we decided to de-emphasize hardware sales in an increasingly competitive hardware sales market. As a relatively young company, we do not believe that it is strategically justifiable to leverage a low margin, high volume sales sector. Consequently, while we will continue to sell computer hardware in connection with our software sales, we have not emphasized and do not expect to emphasize hardware sales as part of our marketing and sales strategies. It resulted in the relatively low growth rate in this year.
 
 Service  fee income. Service  fee income  increased 59.0% from RMB52.2 million in 2010 to RMB83.0 million (US$13.2 million) in 2011,  which was primarily attributable to the strong demand from existing customers for  customization, maintenance and consulting services in 2011. As mentioned above, it was resulted from the  consolidation of our existing customers in 2011, as they were more focused on  maintenance or customization services for existing systems than they were on expansion  and the opening of new stores. Service  fee income  revenues represented 34.4%  and 47.6% of our total revenues in 2010 and 2011, respectively.
 
 Cost of Revenues
 
  
 Because our cost of revenues will vary  according to the software developed, hardware and technical support services  provided, the mix of products and services provided is the most significant  factor in determining our cost of revenues as a percentage of revenues,  amortization of acquired technologies and software cost and impairment loss of  intangible assets subject to amortization also affect the cost of revenues.
 Cost of software sales. Cost of software sales consists of labor costs, materials, overhead expenses and other expenses associated with the development of our software. Cost of software sales increased 5.9% from RMB12.0 million in 2010 to RMB12.7 million (US$2.0 million) in 2011.
 
 As a percentage of software sales, cost of software sales was 18.7% for 2010 and 24.1% for 2011. The significant increase was primarily attributable to the increase in labor cost and third party purchase with lower margin space compared with self-developed software licenses.
 
 Cost of hardware sales. Cost of hardware sales consists primarily of fees for third party hardware products that are utilized in connection with our software products. Cost of hardware sales increased by 3.6% from RMB31.3 million in 2010 to RMB32.4 million (US$5.1 million) in 2011, which was primarily attributable to the increase in hardware sales.
 
  
 Cost of service fee income. Cost of service  fee income   includes labor costs, business taxes and  costs related to technical support services. Cost of services fee income increased  88.3% from RMB30.7 million in 2010 to RMB57.9 million (US$9.2  million) in 2011, which was primarily attributable to the increase  in service  fee income , but the increase of cost of service fee income
was not  as fast as the increase of service  fee income .
 
 As a percentage of service  fee income , Cost of service fee income
was 58.9% in 2010 and 69.7% in 2011. The 2011 increase was primarily attributable to higher labour costs resulting from wage inflation.
  32
 
 Amortization of acquired technology. The amortization of acquired software technology in 2010 and 2011 resulted from amortization of software technology acquired in a variety of acquisitions. The amortization of acquired technology expense decreased 24.3% from RMB10.4 million in 2010 to RMB7.8 million (US$1.2 million) in 2011, which was primarily attributable to the complete amortization of parts of our acquired technology in 2011.
 
 Amortization of software costs. Intangible assets include the cost of computer software we acquired and developed. These costs are amortized over the useful lives of the softwares. Costs are primarily consist of salary and employee benefits for those involved in the development of the software. Amortization expense decreased 29.9% from RMB4.7 million in 2010 to RMB3.3 million (US$0.5 million) in 2011.
 
 The decreases are due to part of the intangible assets capitalized in previous years have been fully-amortized at the  end of 2010. In addition, the fully impairment charge for part of the intangible assets which could not bring sufficient future cashflow also resulted in the decrease of amortization of software.
 
 Impairment loss of intangible assets. We performed an impairment test for our intangible assets on an annual basis and identified impairment on certain internally generated software as they were not expected to generate future revenue or be sellable to a third party, and did not fit our development strategy going forward. In addition, we also identified impairment on a trade name acquired during the business combination in 2007 as its appraised fair value did not exceed its carrying value. As a result, we recorded an intangible assets impairment loss of RMB4.1 million (US$0.7 million) for the year ended December 31, 2011.
 *Operating Expenses*
 Research and development expenses. Research and development expenses, which are  expensed as incurred, consist primarily of salaries and related costs of our R&D centre,  consultants and an allocation of our facilities and depreciation expenses. We  believe that our success depends on continued enhancement of our current  products and our ability to develop new technologically advanced products that  meet the increasingly sophisticated requirements of our customers. Total  research and development expenditure was RMB12.1 million and RMB15.2 million  (US$2.4 million) for the years ended December 31, 2010 and 2011, respectively.  The increase was primarily attributable to the increased compensation for  R&D personnel. As most of the R&D projects have entered into their  capitalization phase in 2011, the research and development expenses decreased 42.8% from RMB8.2 million in 2010 to  RMB4.7 million (US$0.7  million),  while the capitalized amounts increased from RMB3.9 million in 2010 to RMB10.5  million (US$1.7 million) in 2011. Research  and development expenses represented 5.4% of total  revenue for 2010 and 2.7% of total  revenue  for 2011.
 
 General and administrative expenses. General and administrative expenses consist primarily of costs from our finance,  human resources and  administration departments, third party  legal and other professional services fees and an allocation of our facilities  costs and depreciation expenses. General and administrative expenses increased 17.8% from RMB39.3 million in 2010 to  RMB46.2 million (US$7.3  million) in 2011, which was attributable to higher compensation  costs from RMB10.5 million in 2010 to RMB15.2 million (US$2.4 million) in 2011 due  to increased compensation, and increased spending on rent for new branch  offices from RMB5.9 million in 2010 to RMB8.0 million (US$1.3 million) in 2011 resulting  from the business expansion. General and administrative expenses were 25.8% and 26.5% of total revenues in 2010 and in 2011, respectively.
 
 Selling and distribution expenses. Selling and distribution expenses consist  primarily of salaries and related costs of our sales and marketing departments,  sales bonuses, costs of our marketing programs, public relations, advertising,  trade shows, collateral sales bonuses, and an allocation of our facilities.  Selling and distribution expenses decreased 28.5% from RMB34.8 million in 2010 to RMB24.8 million (US$3.9 million) in 2011, which  was primarily due to improved efficiency in generating sales and  decreased commission payments following the introduction of a better structured  incentive scheme in 2011. The new incentive  scheme introduced in 2011 had no longer linked the bonus of sales personnel only  to the cash collection, which was the former way in prior years, but also the  GP margin and contracts signed. Although we achieved revenues increase in 2011,  the cashflow provided by the operating activities decreased, which was a major  contribution of the decrease of commission payments. We believed the more  optimized incentive scheme will be a positive factor to our sales personnel and  will assure our revenue growth sustainable in the future. Selling and  distribution expenses were 22.9% of total revenues in 2010  and 14.2% of total revenues in 2011.
  33
 
 *Other Expenses*
 Interest income. Interest income represents  the interest accrued as a result of bank deposits. Our interest income  decreased 9.2% from RMB588,600 in  2010 to RMB534,203 (US$84,876) in  2011, which primarily contributed to the decrease of  cash and cash equivalents in 2011.
 
 Interest Expense. Our interest expense decreased from RMB636,050 in 2010 to RMB550,338 (US$87,440) in 2011, which was primarily due to the decrease in foreign exchange rate throughout 2011 as our convertible notes subject to interest expenses were dominated in U.S. dollar.
 
 Interest expenses - amortization of discount on convertible notes payable, Interest expenses - amortization of deferred loan costs. In the fourth quarter of 2011, we bought back the outstanding convertible notes, and all the unamortized discount on convertible notes and deferred loan costs were charged in the consolidated financial statements. The amortization of discount on convertible notes payable and amortization of deferred loan costs were RMB6.4 million (US$1.0 million) and RMB474,399 (US$75,374), respectively.
 
 Gain on Derivative. On March 13, 2007, the Company raised $10 million through the issuance of Convertible Notes. On conversion into shares or at every reporting period, the fair value of changes on the carrying amount is treated as a gain or loss in the current period operations.
 
 Our gain on derivatives decreased from RMB3.4 million in 2010 to RMB347,565 (US$55,223) in 2011, which  mainly contributed to the lower volatility of our share price throughout 2011.
 
 Other income. In 2011, we held the customers meeting and received sponsor fee as other income. In addition, some long-aging liabilities were extinguished and recorded as other income in the consolidated financial statements.
 
 Income tax benefit. Our income tax benefit  decreased from RMB1.8 million in 2010 to RMB0.6 million (US$90,859) in 2011,  which was primarily attributable to the recognition of withholding tax for the  profit appropriation from eFuture Beijing to eFuture Information Technology  Inc. of RMB1.0 million (US$161K) and the recognition of corporate income tax of  RMB1.1 million (US$176K) derived from taxable income of eFuture Beijing,  netting of the realization of the deferred tax liability resulting from the  amortization of the intangible assets acquired from the Group's acquisition of  Royalstone and Proadvancer and deferred tax liabilities of eFuture Beijing of  RMB2.7 million (US$428K).
 
 Gain from discontinued operations. Our gain from discontinued operations increased from RMB63,471 in 2010 to RMB5.6 million (US$0.9 million) in 2011, which was primarily attributable to a decrease in loss before income taxes generated by the discontinued operations of Biaoshang and Wangku from RMB3.3 million in 2010 to RMB1.1 million (US$0.2 million) in 2011, and the increase of gain on disposal of investments from RMB3.4 million in 2010 to RMB6.7 million (US$1.1 million) in 2011.
 
 *Comparison of Years Ended December 31, 2009 and 2010*
 *Revenue*
 Total revenue. Total revenue is comprised of software sales, hardware sales and service fee revenue. Total revenue increased 39.6% from RMB108.8 million in 2009 to RMB151.9 million in 2010, which was primarily attributable to the restructuring of our sales organization from a product driven model to a customer driven model by building seven verticals and three regional sales teams focused on North, South and East China, expansion of our client base, deepening of relationships with existing clients and the enhancement of our geographic footprint into tier 2 and tier 3 cities in China. In addition, 2010 revenues benefited from the increase in spending on IT software solutions and professional services as a result of the rebound of the prior year economic downturn.
 
 Software sales. Our software sales increased 17.9% from RMB54.2 million in 2009 to RMB63.9 million in 2010, which was primarily attributable to the increased revenue from new customers of about RMB7.5 million. Due to the global financial crisis in 2008 and 2009, some of our potential customers postponed their expansion plan then but restarted in 2010.
  34
 
 Hardware sales. Our hardware sales increased 66.4% from RMB21.5 million in 2009 to RMB35.8 million in line with the increased one-stop solution service business in 2010.
 
 In recent years, we decided to de-emphasize hardware sales in an increasingly competitive hardware sales market. As a relatively young company, we do not believe that it is strategically justifiable to leverage a low margin, high volume sales sector. Consequently, while we will continue to sell computer hardware in connection with our software sales, we have not emphasized and do not expect to emphasize hardware sales as part of our marketing and sales strategies. Nonetheless, there may be occasions where we may profitably include hardware in projects that we complete for clients that possess superior credit. As a result, the Company continues to provide hardware as part of its total solution and as a complement to its other offerings, which created a prominent increase in this year.
 
 Service  fee income. Service  fee income  increased 57.6% from RMB33.1 million in 2009 to RMB52.2 million in 2010, which was primarily attributable to the strong growth from delivery services in line with our business expansion and market penetration in 2010 . Service  fee income  revenues represented 30.4% and 34.4% of our total  revenues in 2009 and 2010, respectively.
 *Cost of Revenues*
 Cost of software sales. Cost of software sales consists of labor costs, materials, overhead expenses and other expenses associated with the development of our software. Cost of software sales decreased 13.4% from RMB13.8 million in 2009 to RMB12.0 million in 2010.
 
 As a percentage of software sales, cost of software sales was 25.5% for 2009 and 18.7% for 2010. The significant decrease was primarily attributable to the increase in software license sales which generate higher margins compared with other types of software sales.
 
 Cost of hardware sales. Cost of hardware sales consists primarily of fees for third party hardware products that are utilized in connection with our software products. Cost of hardware sales increased by 80.9% from RMB17.3 million in 2009 to RMB31.3 million in 2010, which was primarily attributable to the increase in hardware sales.
 
 As a percentage of hardware sales, cost of hardware sales was 80.4% in 2009 and 87.4% in 2010. The 2010 increase was primarily attributable to the diminished margin in hardware sales because the hardware we most sold in 2010, which was more popular in market, had lower margins than what we most sold in prior year. Gross margins were 19.6% and 12.6% in 2009 and 2010, respectively.
 
 Cost of service fee income. Cost of service fee income
includes labor costs, business taxes and costs related to technical support services. Cost of services fee income increased 39.3% from RMB22.1 million in 2009 to RMB30.7 million in 2010, which was primarily attributable to the increase in service  fee income , but its increase was not as fast as the increase of service  fee income .
 
 As a percentage of service  fee income , cost of service fee income
was 66.6% in 2009 and 58.9% in 2010. The 2010 decrease was primarily attributable to the improvement in efficiency.
 
 Amortization of acquired technology. The amortization of acquired software technology in 2009 and 2010 resulted from amortization of software technology acquired in a variety of acquisitions. The amortization of acquired technology expense decreased 10.1% from RMB11.5 million in 2009 to RMB10.4 million in 2010, which was primarily attributable to the complete amortization of parts of our acquired technology in 2010.
 
 Amortization of software costs. Intangible assets include the cost of computer software we acquired and developed. These costs are amortized over the useful lives of the softwares. Costs are primarily consist of salary and employee benefits for those involved in the development of the software. Amortization expense increased 10.6% from RMB4.3 million in 2009 to RMB4.7 million in 2010.
  35
 
 The increases are due to the increase of software products being amortized. Because we are continually developing our products, we expect amortization to increase in future years based upon our success in developing new products for our customers.
 
 Impairment loss of intangible assets subject to amortization. We performed impairment test for our intangible assets on an annual basis and identified impairment on certain internally generated software as they were not expected to generate future revenue, or be sellable to a third party, and did not fit our development strategy going forward. As a result, we recorded an intangible assets impairment loss of RMB2.4 million for the year ended December 31, 2010.
 
 *Operating Expenses*
 Research and development expenses. Research and development expenses, which are expensed as incurred, consist primarily of salaries and related costs of our R&D centre consultants and an allocation of our facilities and depreciation expenses. We believe that our success depends on continued enhancement of our current products and our ability to develop new technologically advanced products that meet the increasingly sophisticated requirements of our customers. Research and development expenses increased 157.5% from RMB3.2 million in 2009 to RMB8.2 million in 2010, which was primarily attributable to the increased costs incurred on research projects that are still in the preliminary project stage of software development. Research and development expenses represented 2.9% of total revenue for 2009 and 5.3% of total revenue for 2010.
 
 General and administrative expenses. General and administrative expenses consist primarily of costs from our finance, human resources and administration departments; third party legal and other professional services fees; and an allocation of our facilities costs and depreciation expenses. General and administrative expenses increased 16.8% from RMB33.6 million in 2009 to RMB39.3 million in 2010, which was attributable to the increase in bad debt provision for other receivables related to previously acquired companies of RMB3.6 million and the increase in salaries for employees in administrative departments of RMB1.9 million. General and administrative expenses were 30.9% of total revenues in 2009 and 25.8% of the total revenues in 2010.
 
 Selling and distribution expenses. Selling and distribution expenses consist primarily of salaries and related costs of our sales and marketing departments, sales bonuses, costs of our marketing programs, public relations, advertising, trade shows, collateral sales bonuses, and an allocation of our facilities. Selling and distribution expenses increased 26.3% from RMB27.5 million in 2009 to RMB34.8 million in 2010, which was primarily due to increased sales commissions as result of revenue growth. We anticipate that sales and marketing expenses will increase to support our intended expansion of our sales and marketing organization. Selling and distribution expenses were 25.3% of total revenues in 2009 and 22.9% of total revenues in 2010.
 
 *Other Expenses*
 Interest Income. Interest income represents the interest accrued as a result of bank deposits. Our interest income decreased 0.2% from RMB589,508 in 2009 to RMB588,600 in 2010.
 
 Interest Expense. Our interest expense increased from RMB450,817 in 2009 to RMB636,050 in 2010, which was primarily due to the increase in interest rate from 7% to 10% as stipulated by the terms of the convertible notes.
 
 Gain on Derivative. On March 13, 2007, the Company raised $10 million through the issuance of Convertible Notes. On conversion into shares or at every reporting period, the fair value of changes on the carrying amount is treated as a gain or loss in the current period operations.
 
 Our gain on derivatives increased from RMB1.3 million in 2009 to RMB3.4 million in 2010.
 
 Finance cost - exchange warrants. On November 29, 2010, we entered into two separate exchange agreements with Capital Ventures and Hudson Bay, whereby we exchanged the outstanding Series A Warrants held by each of Capital Ventures and Hudson Bay for a new Series A Warrants to purchase the same number of ordinary shares and under exactly the same terms prescribed by the Series A Warrants and an additional 20,000 ordinary shares of the Company, respectively. The fair value of the ordinary shares of RMB1.4 million was recorded as finance cost in the consolidated financial statements.
  36
 
 Income tax expenses (benefit). Our income tax benefit increased from RMB1,513,216 in 2009 to RMB1,770,001 in 2010, which was primarily attributable to the effects of the realization of the deferred tax liability resulting from the amortization of the intangible assets acquired from the Group's acquisition of Royalstone and Proadvancer and deferred tax liabilities of eFuture Beijing.
 
 Gain (Loss) from discontinued operations. Our loss from discontinued operations of RMB5,377,587 in 2009 became a gain from discontinued operations of RMB63,471 in 2010, which was primarily attributable to a decrease in loss before income taxes generated by the discontinued operations of Biaoshang and Wangku from approximately RMB5.3 million in 2009 to approximately RMB3.3 million in 2010 offset by the gain on disposal of Biaoshang of RMB3.4 million.
 
 Holding Company Structure
 
 We are a holding company with no operations of our own. All of our operations are conducted through eFuture Beijing, our Chinese subsidiary. As a result, our ability to pay dividends and to finance any debt that we may incur is dependent upon dividends and other distributions paid by eFuture Beijing. If eFuture Beijing incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends to us. In addition, Chinese legal restrictions permit payment of dividends to us by eFuture Beijing only out of its net income, if any, determined in accordance with Chinese accounting standards and regulations. Under Chinese law, eFuture Beijing may also be required to set aside a portion (at least 10%) of its after tax net income, if any, each year for certain reserve funds until the amount of the reserve reaches 50% of eFuture Beijing's registered capital. According to Chinese law, however, eFuture Beijing is required to withdraw reserve funds only in fiscal years following the elimination of its accumulated deficit in which it paid income tax. We do not believe that these fund reserves had or will have a material impact upon our liquidity. Although these statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings, the reserve funds are not distributable as cash dividends except in the event of a solvent liquidation of eFuture Beijing. This reserve fund is not distributable as a cash dividend.
 
 Critical Accounting Policies and Estimates
 
 We prepare our financial statements in conformity with US GAAP, which requires us to make estimates and assumptions that affect our reporting of, among other things, assets and liabilities, contingent assets and liabilities and net revenues and expenses. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and other factors that we believe to be relevant under the circumstances. Since our financial reporting process inherently relies on the use of estimates and assumptions, our actual results could differ from what we expect. This is especially true with some accounting policies that require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our audited consolidated financial statements because they involve the greatest reliance on our management's judgment.
 
 *Revenue Recognition*
 We generate revenue from the sale of software, related hardware, professional services including maintenance and support contracts, and professional consulting, training and contract development services. At this time, we generally license our products to customers on a perpetual basis and we recognize revenue upon delivery of the products. In addition, we will provide technical advisory services after the delivery of our products to help our customers exploit the full value and functionality of our products. We recognize revenue from the technical advisory services under these agreements as the services are performed. We recognize revenue from maintenance services over the period of the agreement.
 
 We recognize revenue when it is realized and earned. We consider revenue realized or realizable and earned when:
 
 •
      we have persuasive evidence of an arrangement;
 •
      delivery has occurred;
 •
      the sales price is fixed or determinable; and
 •
      collectability is reasonably assured.
  37
 
 We consider delivery to occur when (i) products have been shipped or services have been provided to the client, (ii) risk of loss has transferred to the client, (iii) we have obtained client acceptance, (iv) client acceptance provisions have lapsed, or (v) we have objective evidence that the criteria specified in client acceptance provisions have been satisfied. We consider the sales price to be fixed or determinable when all contingencies related to the sale have been resolved. We have not encountered significant difficulty in the past with our customers accepting our products and services. Our products and services have generally fulfilled our customers' needs.
 
 For software sales, the Company recognizes revenues in accordance with ASC 985-605, Software Revenue Recognition. We recognize revenue from perpetual (one-time charge) licensed software at the inception of the license term. We recognize revenue from term (monthly license charge) arrangements on a subscription basis over the term of the license. We include revenues from maintenance for the first year and initial training in the purchase price of the software. We provide initial training at the time of installation and recognize such income as part of the price of the software since it is minimal in value. We value maintenance based on a fee schedule we use for providing our regular level of maintenance. We include maintenance revenue in the income statement under services and recognize it over the term of the agreement. We allocate revenues applicable to multiple-element fee arrangements among elements such as software, hardware, and post-contact service using vendor-specific objective evidence of fair value. Such evidence consists primarily of pricing of multiple elements sold as separate elements in the contract.
 
 We generally recognize revenue from hardware sales when the product is shipped to the customer and when there are no unfulfilled company obligations that affect the customer's final acceptance of the arrangement.
 
 We provide professional services for system integration which involve the design and development of complex information technology systems to the customer's specifications. We provide these services on a fixed-price contract, and the contract terms generally are short. We recognize revenue when delivery and acceptance is determined by a completion report signed by our customer.
 
 *Allowance for Doubtful Accounts*
 Trade receivables, net are stated as the amount management expects to collect from outstanding balances. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. We maintain an allowance for potentially uncollectible trade receivables based on our assessment of the collectability of trade receivables. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, the customer's past payment history, its current credit-worthiness and current economic trends. Our allowance for doubtful accounts was RMB2.1 million in 2009, RMB3.0 million in 2010 and RMB4.1 million (US$0.7 million) in 2011.
 
 *Inventory and Work in Process*
  
  
 *Share-Based Compensation*
 We account for share-based compensation in accordance with ASC subtopic 718-10, or ASC 718-10, Compensation-Stock Compensation: Overall. Under the provisions of ASC 718-10, share-based compensation cost is estimated at the grant date based on the award's fair value as calculated by the Black-Scholes-Merton (BSM) option-pricing model and is recognized as expense over the requisite service period. The BSM model requires various highly judgmental assumptions including volatility and expected option life. Volatility is measured using historical daily price changes of each ordinary shares over the respective expected life of the option. Expected option life is the number of years that we estimate, based on the vesting and contractual terms and employee demographics. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change. If any of the assumptions used in the BSM model change significantly, share-based compensation expenses may differ materially in the future from that recorded in the current period.
  38
 
 *Property and Equipment*
 We depreciate property and equipment on a straight-line basis over their estimated useful lives, which range from five years for motor vehicles and four years for purchased software and communication and office equipment to shorter of three years or the lease term for leasehold improvements. These estimated lives have been reasonably accurate in the past and have been based on historical experience and the estimated useful lives of similar assets by other software companies. These estimates are reasonably likely to change in the future since they are based upon matters that are highly uncertain such as the general economy, potential changes in technology and estimated cash flows from the use of these assets.
 *Research and Development and Intangible Asset*
 We charge all of our development costs to research and development expenses until we have established technological feasibility. We acknowledge technological feasibility of our software when a detailed program design or working model is completed. Upon reaching technological feasibility, we capitalize additional software costs until the software is available for general release to customers. The subsequent expenditure in connection with major upgrade for the developed intangible assets is capitalized as incurred.
 
 We amortize the cost of intangible assets over the estimated useful lives, which is the shorter of four years or the estimated period of realization of revenue from the related software. The estimated lives of our software is based upon historical usefulness of similar software products and the rate of change in technology in general. Our estimate of the useful lives of our software has been reasonably accurate in the past, but it is reasonably likely to change in the future due to the highly uncertain nature of this estimate. Should economic conditions change or technological advances occur rapidly, our estimate of the useful lives of our software products could decline quickly, which would result in recognition of increased amortization.
 *Valuation of Long-Lived Assets*
 We evaluate long-lived assets, such as fixed assets and purchased or internally developed intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with ASC subtopic 360-10, Property, Plant and Equipment: Overall. When such events occur, we assess the recoverability of the asset group based on the undiscounted future cash flow the asset group is expected to generate and recognizes an impairment loss when estimated undiscounted future cash flow expected to result from the use of the asset group plus net proceeds expected from disposition of the asset group, if any, is less than the carrying value of the asset group. If we identify an impairment, we reduce the carrying amount of the asset group to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. We have made impairment loss of intangible assets of RMB2.4 million and RMB4.1 million (US$0.7 million) for the years ended December 31, 2010 and 2011, respectively. We use estimates and judgments in our impairment tests and if different estimates or judgments had been utilized, the timing or the amount of any impairment charges could be different. Asset groups to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. However, circumstances could cause us to have to reduce the value of our capitalized software more rapidly than we have in the past if our revenues were to significantly decline. Estimated cash flows from the use of the long-lived assets are highly uncertain and therefore the estimation of the need to impair these assets is reasonably likely to change in the future. Should the economy or acceptance of our software change in the future, it is likely that our estimate of the future cash flows from the use of these assets will change materially. The amount of possible change is discussed above under Property and Equipment and Intangible Assets.
  39
 
 *Goodwill*
 Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business combination. Under ASC 350-20, Intangibles — Goodwill and Other: Goodwill, goodwill is subject to an annual impairment test. If an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount, an interim impairment test is performed between annual tests. The impairment test includes a comparison of estimated discounted cash flows associated with the asset's carrying amount. If the fair value is less than the carrying amount of the asset, the second step of the impairment test shall be performed to measure the amount of impairment loss, if any. In the second step, the implied fair market value of goodwill is estimated and compared to the carrying amount. If the carrying amount of goodwill exceeds its implied fair market value, an impairment loss equal to this excess is recorded. The recorded loss cannot exceed the carrying amount of goodwill.
 
  *Fair Values of Financial Instruments*
 We record certain of our financial assets and liabilities at fair value on a recurring basis. Fair value reflects the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability.
 
 We apply a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:
 
 Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
 
 Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
  40
 
 Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
 
 The carrying amount of cash and cash equivalents, trade receivables, other receivables, other receivables due from previously consolidated entities, advances to suppliers, refundable value added tax, advances to employees, prepaid expenses, trade payables, taxes payable, other payables, accrued liabilities and advances from customers approximates fair value due to their immediate or short-term nature. The single compound embedded derivative within convertible notes we issued was recorded at fair value at the date of issuance, which was measured by using unobservable (Level 3) inputs.
 
 B.
      Liquidity and Capital Resources
 *Overview*
 We anticipate that our working capital will be sufficient to fund our cash needs and operations and to make payments on any existing liabilities for at least the next 12 months. We do not anticipate that we will need to use non-operational sources of cash, such as debt or equity financing, to meet our current cash needs. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash is insufficient to meet our requirements, we may seek to sell debt securities or borrow from banks.
 
 The following table sets forth a summary of our cash flows for the years indicated:
 
 **2010**
      
      
      **2011**(In millions of RMB)Cash and cash    equivalents
      
      
      73.3
      
      
      
      57.2Net cash provided by (used in) operating    activities
      
      
      20.7
      
      
      
      (6.5)Net cash used in    investing activities
      
      
      (17.9)
      
      
      
      (3.7)Net cash provided by (used in) financing    activities
      
      
      12.2
      
      
      
      (6.3)Change in cash and    cash equivalents of discontinued operations
      
      
      1.2
      
      
      
      (0.5)
 
 *Operating activities* used cash of RMB6.5 million (US$1.0 million) in 2011 compared to providing cash of RMB20.7 million in 2010. The principal sources of our cash flow from operations are net income adjusted for depreciation, software amortization, the gain on derivatives and loss on extinguishment of convertible notes and share-based compensation expenses for directors and employees. The increase in cash used by operating activities was primarily due to an increase in the trade receivables of RMB5.7 million (US$0.9 million) and in the inventory and work in progress of RMB3.3 million (US$0.5 million), and the decrease in cash advances from customers of RMB18.8 million (US$3.0 million).
 
 *Investing activities* used cash of RMB17.9 million in 2010 and RMB3.7 million (US$0.6 million) in 2011. In 2010, the primary decrease in use of cash in investing was attributable to the decrease of cash paid for acquisition of Proadvancer of RMB15 million.
 
 *Financing activities* provided cash of RMB12.2 million in 2010 and used cash of RMB6.3 million (US$1.0 million) in 2011. Financing activities in 2011 mainly included cash paid for the redemption of convertible notes of RMB6.3 million (US$1.0 million).
 
 *Indebtedness*
 On March 13, 2007, we closed a Securities Purchase Agreement with three funds affiliated with two institutional investors, pursuant to which we raised RMB69,079,430 (net of cash loan costs of RMB8,330,570) by issuing $10,000,000 senior convertible notes along with Series A warrants and Series B warrants.
  41
 
 The convertible notes were initially convertible into 400,160 of our ordinary shares at $24.99 per share. Pursuant to the Agreement, the conversion price reset to $19.00 on June 11, 2008 since the market price of the Company's ordinary shares was below $19.00 on that day.
 
 The Series A warrants are exercisable by the Holder within five years on any day on or after September 9, 2007 for an aggregate of 184,077 Shares, at an initial price of $28.25 per ordinary share, subject to adjustment. The Series B warrants to purchase an aggregate of 230,097 ordinary shares at an initial exercise price of $24.99 per Share expired on September 8, 2008. Likewise, the Placement Agent warrants to purchase 73,291 ordinary shares of the Company at an initial price of $24.99 per Share within five years on any day on or after September 9, 2007
 
 On October 3, 2007, one of the investors converted RMB37,529,400 ($5,000,000) of the convertible notes into 200,080 ordinary shares. In July and August of 2008, another investor converted RMB27,326,700 ($4,000,000) of the convertible notes into 210,526 ordinary shares.
 
 On November 25, 2011, we announced the purchase of senior convertible notes with a total aggregate outstanding principal amount equal to US$1 million. The purchase was made from our cash reserves. The notes were issued by the Company to certain institutional investors on March 13, 2007 and were due on March 12, 2012. We purchased the notes for the aggregate outstanding principal amount. The note holders agreed to waive all outstanding interest payments. The payment is not expected to have a material impact on the Company's business operations or growth plans.
 
 C.
      Research and Development
 
 Our success depends on continued enhancement of our current products and our ability to develop new technologically advanced products that meet the increasingly sophisticated requirements of our customers. Research and development expenses were RMB3.2 million, RMB8.2 million and RMB4.7 million (US$0.7 million) in 2009, 2010 and 2011, respectively. The information provided under Item 5.A, "Operating Results" details the Company's research and development activities.
 
 D.
      Trend Information
 
 *China Outlook*
 China's presence in the global consumer market has grown dramatically in recent years. China is already the biggest vehicle market and the second largest luxury market and is expected to become the world's largest consumer market within the next ten years. These statistics, combined with our attractive offerings, deep market knowledge and strong sales capabilities give us many reasons to be excited about our future. We are optimistic about the outlook for 2012.
 
 *Industry and Market Outlook*
 In the wake of benefiting from China's booming retail and consumer goods industries, we believe that our innovative and attractive software and services offerings will enable our ongoing growth to outpace that of the industry. Thanks to our efforts on the sales front, we have grown our project pipeline, and with it, our backlog. As of December 31, 2011 our contract backlog amounted to approximately RMB115.2 million (US$18.3 million).
 
 *Top Line Growth Drivers*
 •
      As of December 31, 2011, our uncompleted project base was RMB115.2 million (US$18.3 million), including RMB45.1 million (US$7.2 million) of software license income, RMB56.7 million (US$9.0 million) of service fee income and RMB13.4 million (US$2.1 million) of hardware income, of which we expect to recognize approximately 70% in 2012.
 •
      We anticipate strengthening our software core business while increasing more stable recurring service and consulting service revenues.
 •
      We anticipate pursuing profitable growth by improving our delivery cost and operating expense structure.
 •
      We seek to use innovation to further broaden cloud service offerings.
 •
      We continually extend penetration into China's tier 2 and tier 3 cities.
  42
 
 E.
      Off-Balance Sheet Arrangements
 
 We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
 
 F.
      Tabular Disclosure of Contractual Obligations
 
 The following table sets forth our contractual obligations as of December 31, 2011:
 
 **Payments Due By Period****Less than**
      
      **More than****Total**
      
      **1 Year**
      
      **1-3 Years**
      
      **3-5 Years**
      ****
      **5 Years**Operating    Lease Obligations
      
      ¥
      17,063,123
      
      ¥
      6,834,826
      
      ¥
      9,004,700
      
      ¥
      1,223,597
      
      ¥
      -Total
      
      ¥
      17,063,123
      
      ¥
      6,834,826
      
      ¥
      9,004,700
      
      ¥
      1,223,597
      
      ¥
      -
 
 Item 6.
      Directors, Senior Management and Employees
 
 A.
      Directors and Senior Management
 
 The following table sets forth our executive officers and directors, their ages and the positions held by them as of April 27, 2012. Mr. Johnson Li resigned on December 31, 2011, who is not included in this table.
 
 **Name**
      **Age**
      ****
      **Position******Adam Yan (1)(8)
      44
      
      Chairman and    Chief Executive OfficerDehong Yang (1)
      49
      
      PresidentSean Zheng (1)
      43
      
      Chief Financial    OfficerQicheng Yang (1)
      46
      
      Chief Technology    OfficerTony Zhao (1)
      47
      
      Senior Vice    PresidentHongjun Zou (1)
      44
      
      Senior Vice    PresidentPing Yu (1)(7)
      42
      
      DirectorDeliang Tong    (1)(8)
      47
      
      DirectorDong Cheng, Ph.D.    (1)(3)(4)(5)(9)
      44
      
      Independent    directorJohn Dai    (1)(4)(5)(8)
      49
      
      Independent    directorDennis O. Laing (3)(5)(6)(7)
      66
      
      Independent    directorBrian Lin    (1)(3)(4)(9)
      47
      
      Independent    directorWeiquan Ren    (1)(7)
      49
      
      DirectorMing Zhu (2)(9)
      53
      
      Independent director
  43
 
 (1)
      The    individual's business address is c/o eFuture Information Technology Inc., 8/F    Topnew Tower, 15 Guanghua Road,    Chaoyang District, Beijing 100026, China.(2)
      Mr.    Zhu's business address is c/o RMCC International, Inc. 6724 Patterson Avenue, Richmond,     Virginia 23226.(3)
      Member    of audit committee.(4)
      Member    of compensation committee.(5)
      Member    of corporate governance committee.(6)
      Mr.    Laing's business address is 4860      Cox Road, Suite 200, Glen Allen, Virginia 23060.(7)
      Class    II director whose term expires in 2013.(8)
      Class    III director whose term expires in 2014.(9)
      Class I    director whose term expires in 2012.
 
 *Adam Yan*. Mr. Yan is our Chairman, Chief Executive Officer and Co-founder. Mr. Yan co-founded eFuture in 1997, and is currently the Company's Chairman and Chief Executive Officer. He is also a standing director of the China Commerce Association for General Merchandise, the China Chain Store & Franchise Association and the China General Chamber of Commerce. Prior to founding eFuture, Mr. Yan was general manager of the Bangda Information Industry Center of Haikou Financial Bureau in Hainan Province from 1991 to 1997. From 1991 to 1994, he served as chief accounting software designer of Haikou Accounting Firm in Hainan Province. Mr. Yan holds a bachelor's degree in computer science and a master's degree in machine vision engineering from Chongqing University. He also studied accounting and finance at the Central University of Finance and Economics, Beijing. Mr. Yan has extensive executive experience in the software industry and provides the Company with valuable advice strategic direction and insights into industry trends.
 
 *Dehong Yang*. Dr. Yang joined eFuture as President in January 2010. He also serves as Vice Director of the IT Committee and permanent member of the China Chain Store & Franchise Association, Vice Director of the Chinese Electronic Commerce Association, and Vice Director of the Commercial Automation Committee of the China Electronic Chamber of Commerce. From 2002 to 2009, Dr. Yang served as General Manager of the Retail Division of Wincor Nixdorf Retail & Banking Systems Co., Ltd. From 1995 to 2000, he was a consultant to the distribution industry for IBM China Company Ltd. Mr. Yang holds a doctor's degree in management from China People's University in Beijing and a bachelor's degree in mathematics from North-East University in Shenyang, Liaoning. His extensive international business management experience and proven track record of successfully executing on strategic initiatives equip him to manage eFuture's day-to-day operations and lead the implementation of its growth strategy.
 
 *Sean Zheng*. Mr. Zheng has served as Chief Financial Officer since January 2011. He was most recently with New York Stock Exchange (NYSE) listed Advanced Micro Devices (AMD), where he served in financial controller roles in both China and the United States. Prior to joining AMD, Mr. Zheng was China Financial Controller at U.S.-headquartered Walbro Engine Management. He spent the earlier part of his career at NYSE-listed Motorola, where he worked for over 10 years in financial controller and financial management roles at the company's China operations. Mr. Zheng holds an MBA degree from Arizona State University and a bachelor's degree in economics from Tianjin University of Finance and Economics in China. Mr. Zheng's strong finance and accounting track record with leading U.S.-listed companies operating in the technology sector makes him ideally suited to lead eFuture's finance function.
 
 *Qicheng Yang*. Prior to co-founding eFuture in 1997, Mr. Yang served as Chief Technology Officer of Hainan Fujie Industrial Inc., an information technology company delivering software and system integration services in Hainan Province, from 1995 to 1997. From 1993 to 1995, he was a manager in the system network department of Hainan Zhouli Sci-Tech Industrial Inc. From 1990 to 1993, Mr. Yang taught computing at Huazhong University of Science and Technology. He holds a bachelor's and a master's degrees in automatic control from Huazhong University of Science and Technology. Mr. Yang's extensive technical background provides eFuture with the leadership and experience needed to further develop its leading edge software and services solutions.
 
 *Tony Zhao*. Dr. Zhao, serves as Senior Vice President, rejoined eFuture in December 2011 to focus on innovation, including the development of the Company's cloud services and social commerce business. He previously served as eFuture's Chief Strategy Officer and Vice President until April 2011 after initially joining eFuture in May 2007. Dr. Zhao served as chief editor of "E-commerce World", a leading magazine covering B2B and B2C in China, from 2000 to 2007. He has also served as an e-commerce expert to the National Development and Reform Commission and the Ministry of Commerce of the People's Republic of China. Dr. Zhao holds bachelor's and master's degrees in precision optoelectronic engineering and a doctorate degree, all from Chongqing University. Dr. Zhao's extensive experience, coupled with his technical background, make him ideally placed to develop eFuture's cloud services business, as well as to provide strategic guidance on how to capitalize on market opportunities and remain at the forefront of the industry.
  44
 
 *Hongjun Zou*. Currently Senior Vice President and Chief Innovation Officer, Mr. Zou co-founded eFuture in 1997 and previously served as Chief Operating Officer. From 1993 to 1997, Mr. Zou was General Manager and Chief Technology Officer of Hainan Fujie Industrial Company. He has a bachelor's degree in computer science from Chongqing University. Mr. Zou brings to eFuture a wealth of industry experience and the ability to broaden eFuture's solutions and service offerings.
 
 *Ping Yu*. Ms. Yu is Chief Financial Officer of Prudent Energy. Prior to joining Prudent, Ms. Yu was CFO of Lentuo International and led its successful NYSE IPO in 2010. She was previously CFO of NASDAQ-listed eFuture Information Technology Inc., and has also worked as an auditor and consultant with Golf & Wrobleski in New York, as well as gaining additional professional experience in the banking and real estate industries. Ms. Yu received her bachelor's degree in accounting from Hubei University and her master's degree in business administration from Rutgers University. She is a Certified Public Accountant in the United States. Ms. Yu's experience in both the U.S. and China, together with her in-depth knowledge of eFuture gained as its former Chief Financial Officer, make her ideally placed to advise on finance and strategy.
 
 *Deliang Tong*. Mr. Tong served as Chief Operating Officer of eFuture from July 2008 to September 2010, as well as President of wholly-owned subsidiary, eFuture (Beijing). He founded Guangzhou Royalstone System Integration Co. Ltd. in 1992, and served as its Chairman and Chief Executive Officer. Mr. Tong holds a bachelor's degree in electronics and a master's degree in software engineering, both from the University of Electronic Science and Technology of China. He served as department manager for Sichuan Xinchao Computing Group from 1989 to 1991, and as general manager for South China for Beijing Stone Group from 1991 to 1992. Mr. Tong's over 20 years of management experience and his extensive software and services industry background enable him to provide key insights into the development and management of an efficient and effective operational platform.
 
 *Dong Cheng*, Ph.D. Dr. Cheng has served as a director since 2005. He has been at the School of Business, Renmin University of China, since 1993, working as an Assistant Professor from 1993 to 1995, an Associate Professor from 1995 to 2002, and as a Full Professor since 2002. Dr. Cheng has written numerous articles on the development of Chinese business practices. He holds bachelor's and master's degrees in computer software from Xi'an Jiao Tong University. He also holds a doctorate degree in business administration from Renmin University, and was a doctorate candidate in Computer Science at Peking University. Dr. Cheng leverages his role as Professor at Renmin University's business school to provide insight into emerging trends within China's economic and business development.
 
 *John Dai*. Mr. Dai is an independent consultant on China strategy development, executive coaching, leadership development, sales management, large account management and business planning. He was previously Director of External Relations and International Cooperation at the China Association of Small and Medium Enterprises, an organization aimed at advancing the interests of China's small and medium enterprises internationally. From 2001 to 2002, Mr. Dai was Chief Executive Officer of Vanda Computer Systems, a Hong Kong based public company focused on systems integration and banking application services in China. Mr. Dai also has 12 years of experience in various executive positions at IBM, including General Manager of IBM's Greater China Distribution Industry Group. Mr. Dai holds a master's degree in civil engineering from Tsinghua University and a bachelor's degree in industrial and civil construction from Wuhan Industrial University. With over 20 years' experience in executive management positions within multinational companies and extensive knowledge of China's retail industry, Mr. Dai is ideally placed to advise on eFuture's strategic direction.
 
 *Dennis O. Laing*. Mr. Laing has practiced law in Richmond, Virginia for over 30 years. He specializes in corporate law with a special interest in the energy, healthcare and technology sectors. Mr. Laing holds a bachelor's degree in government from the University of Virginia and a master's degree in law from the University of Richmond. He also serves as a director of NASDAQ-listed Sino-Global Shipping America, Ltd. Mr. Laing draws on over three decades of corporate law practice to offer the Board expert legal advice and guidance on regulations and compliance.
 
 *Brian Lin*. Mr. Lin is Chief Executive Officer and a director of China Fire & Security Group, Inc., a leading total solution provider of industrial fire protection systems in China. From 2001 to 2005, he served as Chief Executive Officer of Beijing Linkhead Technologies. Prior to Linkhead, Mr. Lin held technical and managerial positions in various companies in the United States and Canada. Mr. Lin holds a bachelor's degree in electrical engineering from Huazhong University of Science and Technology and a master's degree in Electrical Engineering from University of Toronto. His successful corporate career in managing listed companies allows him to advise eFuture on the most effective and efficient ways to further create shareholder value.
  45
 
 *Weiquan Ren*. Mr. Ren has served as Chief Executive Officer of Shanghai Stock Exchange listed Shanshan Corporation since 2011, a senior partner at Cybernaut-Capital since 2006, and as Vice Dean at Zhejiang University Institute since 2007. He previously held senior management positions at Peking University, and worked at Founder Group Corp from 1993 to 2006. He was Chief Executive Officer of Hong Kong-listed Founder Electronics from 2001 to 2006, Vice President of Shanghai-listed Founder Technology Group Corp. from 1998 to 2001, and General Manager of the Eastern China Region of Founder Group in 1998 and general manager of the Hangzhou branch of Founder Group from 1998 to 2001. Before joining Founder, Mr. Ren spent seven years as a university professor. He holds a master's degree in engineering from the Department of Electric Machine Engineering of Zhejiang University and a bachelor's degree in engineering from the Department of Information Science and Electronic Engineering of Zhejiang University. Mr. Ren leverages his vast experience in the technology industry to provide the Board with key insights into the effective development and implementation of new, innovative platforms and services.
 
 *Ming Zhu*. Mr. Zhu has served as a director since 2005, and he has been an international business consultant with RMCC International, Inc., a Richmond, Virginia based import/export consulting firm, since 1994. Mr. Zhu holds a bachelor's degree in English from Beijing Second Foreign Languages Institute and a master's degree in tourism and business from Virginia Commonwealth University. Mr. Zhu draws on his extensive business and consulting background to offer advice on best practice and business development and expansion.
 
 There are no family relationships among any of the persons named above, and there are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any such person was selected as a director or member of senior management.
 
 B.
      Compensation
 
 For the fiscal year ended December 31, 2011, we paid an aggregate compensation of RMB4.6 million (US$730K) in cash to our executive officers. Our subsidiaries are required by law to make contributions equal to certain percentages of each employee's salary for his or her pension insurance, medical insurance, unemployment and other statutory benefits. Other than the above-mentioned pension insurance mandated by applicable PRC law, we have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. We made contributions of RMB7.6 million (US$1.2 million) to statutory staff social benefit for all the employees including our executive officers for the fiscal year ended December 31, 2011.
 
 *Executive and Director Compensation*
 
 The following table shows the  annual compensation paid by us to our executive officers and directors for the year ended December 31, 2011.
  46
 
 **Annual    Compensation for Year Ended December 31, 2011******
      ********
      ****
      ****
      ****
      ****
      ****
      **All Other**
      ******Name**
      ****
      **Salary**
      ****
      **Bonus**
      ****
      **Compensation**
      ****Adam Yan
      ****
      ¥
      455,689
      ****
      ¥
      123,368
      ****
      
      
      —Chairman, Chief Executive Officer and    Director
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Dehong Yang
      ****
      ¥
      911,731
      ****
      ¥
      416,318
      ****
      ****
      ****
      —
      ****President
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Deliang Tong
      ****
      ¥
      120,100
      ****
      ¥
      180,963
      ****
      ****
      ****
      —
      ****Ex-Chief Operating Officer and Director
      ****
      $****
      15,200
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Sean Zheng
      ****
      ¥
      593,655
      ****
      ¥****
      50,000
      ****
      ****
      ****
      —****
      ****Chief Financial Officer
      ****
      
      
      ****
      
      
      ****
      ****
      ****
      
      ****Qicheng Yang
      ****
      ¥
      420,623
      ****
      ¥
      66,756
      ****
      ****
      ****
      —
      ****Chief Technology Officer
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Hongjun Zou
      ****
      ¥
      362,765
      
      ¥
      36,000
      ****
      ****
      ****
      —
      ****Senior Vice President
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Johnson Li*
      ****
      ¥****
      426,082
      ****
      ¥****
      20,920
      ****
      ****
      ****
      —****
      ****Former Senior Vice President
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Ping Yu
      ****
      $
      15,200
      ****
      ¥
      —
      ****
      ****
      ****
      —
      ****Ex-Chief Financial Officer and Director
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Tony Zhao**
      ****
      ¥
      108,292
      ****
      ¥
      108,723
      ****
      ****
      ****
      —
      ****Vice President and Chief Strategy Officer
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Ming Zhu
      ****
      $
      9,600
      ****
      ****
      —
      ****
      ****
      
      —
      ****Director
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Dong Cheng, Ph.D.
      ****
      $
      9,700
      ****
      ****
      —
      ****
      ****
      ****
      —
      ****Director
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****John Dai
      ****
      $
      8,700
      ****
      ****
      —
      ****
      ****
      ****
      —
      ****Director
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Dennis O. Laing
      ****
      $
      7,800
      ****
      ****
      —
      ****
      ****
      ****
      —
      ****Director
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Brian Lin
      ****
      $
      9,600
      ****
      ****
      —
      ****
      ****
      ****
      —
      ****Director
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Weiquan Ren
      ****
      $
      8,700
      ****
      ****
      —
      ****
      ****
      ****
      —
      ****Director
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **** 
 * Mr. Johnson Li resigned on December 31, 2011.
 ** Dr. Tony Zhao resigned in April 2011 and rejoined eFuture in December 2011.
 
 *Incentive Compensation Plans*
 
 On April 18, 2001, the Company adopted the 2001 Option Plan (the "2001 Plan"), under which 59,063 stock options were granted to key employees, each with an exercise price of $4.71, a contractual life of 11 years and evenly vest over a five-year period.
 
 Under the 2001 Plan, the Company's board of directors may amend or terminate the Plan at any time if required under the Plan, subject to shareholders' approval.
 
 On January 31, 2007, the Company adopted the 2005 Option Plan Set One (the "2005 Plan I"), under which 65,875 stock options were granted to key employees (including directors and senior management who are key employees), each with an exercise price of $25.42, a contractual life of 10 years and evenly vest over a five-year period.
 
 On September 17, 2007, the Company adopted the 2005 Option Plan Set Two (the "2005 Plan II"), under which 65,800 stock options were granted to key employees, each with an exercise price of $11.71, a contractual life of 10 years and evenly vest over a five-year period.
 
 Under the 2005 Plan I and Plan II, the Company's board of directors may amend or terminate the Plan at any time if required under the Plan, subject to shareholders' approval.
  47
 
 On December 11, 2009, the Company adopted a share incentive plan (the "2009 Plan"), which provided for the granting of share incentives, including Incentive Stock Option (ISO) and restricted shares to our key employees. Under the 2009 Plan, 175,000 stock options were granted to our key employees with an exercise price of $6.55 and a contractual life of 10 years, 84,000 and 69,000 restricted shares are granted to members of the board of directors and senior management, receptively, with no cash consideration. Pursuant to the 2009 Plan, options and restricted shares evenly vest over a three-year period with the first 25% vested on the grant day.
 
 The 2009 Plan is administered by the Company's Nominee and Compensation Committee. The Nominee and Compensation Committee has the authority to determine the individuals who will receive grants, the type of grant, the number of shares subject to the grant, the terms of the grant, the time the grants will be made, the duration of any exercise or restriction period, and to deal with any other matters arising under the Plan. The Company's board of directors may amend or terminate the Plan at any time if required under the Plan, subject to shareholders' approval.
 
 On December 20, 2011, the Company's stockholders approved the Company's 2011 Share Incentive Plan (the "2011 Plan"), which provides for the granting of equity incentives, including stock options and restricted shares to our key employees. We have reserved a total of 393,745 ordinary shares for grant under the 2011 Plan in accordance with its terms. A description of the 2011 Plan is set forth in Proposal 2 of the Notice of Annual Meeting of Shareholders and Proxy Statement for the 2011 Annual General Meeting, filed as Exhibit 99.1 to the Company's report on Form 6-K filed on November 30, 2011, and is incorporated herein by reference.
 
 Summarized details of 2005 Plan  I, 2005 Plan II and 2009 Plan are as follows. No options or restricted shares  were granted as of December 31, 2011 under the 2011 Plan.
 
 **2005 Plan I**
      ****
      **2005 Plan II**
      ****
      **2009 Plan****Option**
      ****
      **Option**
      ****
      **Option**
      **Restricted shares**Total    Option/Restricted Shares Granted
      65,875
      
      65,800
      
      175,000
      153,000Grant Date
      31-Jan-07
      
      17-Sep-09
      
      11-Dec-09
      11-Dec-09Exercise Price
      $25.42
      
      $11.71
      
      $6.55
      N/AVesting Period
      5 years
      
      5 years
      
      3 years
      3 yearsVesting Terms
      20%
      
      20%
      
      25%(1)
      25%(1)Expired Period
      10 years
      
      10 years
      
      10 years
      N/AGrant date fair    value per option/restricted share
      $25.72
      
      $8.27
      
      $5.02
      $6.55
 
 (1)	Vesting occurs on the following schedule: (a) 25% on the grant date and (b) 25% on each anniversary of the grant date
 
 As of December 31, 2011, the total compensation cost related to stock options and restricted shares not yet recognized were RMB3.8 million (US$0.6 million) and RMB1.6 million (US$0.3 million), respectively, which are expected to be recognized over a weighted-average period of 1 year and 1 year, respectively.
 
 Total compensation cost for share-based payment arrangement recognized for the years ended December 31, 2009, 2010 and 2011 were RMB6.2 million, RMB5.5 million and RMB5.3 million (US$0.8 million), respectively.
 
 C.
      Board Practices
 
 See information provided in response to Item 6.A. above as to the current directors and the expiration of current director terms.
 
 Board of Directors and Board Committees
 
 Our board of directors consists of nine members. There are no family relationships between any of our executive officers and directors.
 
 The directors are divided into three classes, as nearly equal in number as the then total number of directors permits. Class I directors shall face re-election at our annual general meeting of shareholders in 2012 and every three years thereafter. Class II directors shall face re-election at our annual general meeting of shareholders in 2013 and every three years thereafter. Class III directors shall face re-election at our annual general meeting of shareholders in 2011 and every three years thereafter.
  48
 
 If the number of directors changes, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly as possible. Any additional directors of a class elected to fill a vacancy resulting from an increase in such class will hold office for a term that coincides with the remaining term of that class. Decreases in the number of directors will not shorten the term of any incumbent director. These board provisions could make it more difficult for third parties to gain control of our company by making it difficult to replace members of the Board of Directors.
 
 A director may vote in respect of any contract or transaction in which he is interested, provided, however that the nature of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter. A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof that a director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating to any particular transaction.
 
 There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. Our independent directors do not have any service contracts with our company that provide for benefits upon termination of service.
 
 Currently, three committees have been established under the board: the audit committee, the compensation committee and the corporate governance committee. The audit committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The audit committee consists of Dr. Cheng, Mr. Laing and Mr. Lin.
 
 The compensation committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all other forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans). The compensation committee consists of Dr. Cheng, Mr. Dai and Mr. Lin.
 
 The corporate governance committee of the board of directors is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues. The corporate governance committee consists of Dr. Cheng, Mr. Dai and Mr. Laing.
 
 There are no other arrangements or understandings pursuant to which our directors are selected or nominated.
 
 There are no family relationships among any of the persons named above, and there are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any such person was selected as a director or member of senior management.
 
 D.
      Employees
 
 As of December 31, 2011, we had 869 employees, all of whom were based in China. We believe that our relations with our employees are good. We have never had a work stoppage, and our employees are not subject to a collective bargaining agreement. As of December 31, 2011, 2010 and 2009, we had 869, 740 and 671 employees, respectively.
  49
 
  **December 31, 2009******
      ****
      ****
      **December 31, 2010**
      ****
      ****
      **December 31, 20****11**
      ****Total
      671
      
      
      
      740
      
      
      
      869General    & Administrative
      89
      
      
      
      88
      
      
      
      75Sales    & Marketing
      132
      
      
      
      75
      
      
      
      97Research    & Development
      150
      
      
      
      160
      
      
      
      105Software    Development & Services
      300
      
      
      
      417
      
      
      
      592
 
 E.
      Share Ownership
 
 The following table sets forth information with respect to beneficial ownership of our ordinary shares and options as of the date of this annual report, for all of our executive officers and directors individually. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them. The number of our ordinary shares outstanding used in calculating the percentage for each listed person includes our ordinary shares underlying options held by such persons, but excludes ordinary shares underlying options held by any other person. Percentage of beneficial ownership is based on 4,334,760 ordinary shares, which includes 3,977,221 ordinary shares currently outstanding and 357,539 restricted shares and options to purchase ordinary shares which have vested or will vest within 60 days. These shareholders do not possess voting rights that differ from our other shareholders.
 
 ****
      **Amount of Beneficial Ownership (1)**
      ****
      ****
      **Percentage Ownership (2)**
      ****Adam    Yan (3)
      
      
      546,729
      
      
      
      12.61
      %Dehong    Yang (4)
      
      
      25,000
      
      
      
      *Qicheng    Yang (5)
      
      
      50,023
      
      
      
      1.15
      %Hongjun    Zou (6)
      
      
      173,070
      
      
      
      3.99
      %Ping Yu    (7)
      
      
      17,500
      
      
      
      *Deliang    Tong (8)
      
      
      178,247
      
      
      
      4.11
      %Dong    Cheng, Ph.D.(9)
      
      
      25,500
      
      
      
      *John    Dai (10)
      
      
      13,500
      
      
      
      *Dennis    O. Laing (11)
      
      
      11,450
      
      
      
      *Brian    Lin (10)
      
      
      13,500
      
      
      
      *Ming    Zhu (11)
      
      
      11,250
      
      
      
      *Directors and executive officers as a group (12 people)(12)
      
      
      1,065,769
      
      
      
      24.59
      %
 
 * Less than 1%.
 
 (1)
      Beneficial    ownership is determined in accordance with the rules of the SEC and includes    voting or investment power with respect to the ordinary shares.(2)
      The    number of our ordinary shares outstanding used in calculating the percentage    for each listed person includes the ordinary shares underlying currently    exercisable options held by such person.(3)
      Includes 3,750 vested restricted shares, currently exercisable    options to purchase 6,947 ordinary shares and 152,604 ordinary shares through    eFuture Inc, whose beneficial owner is Adam Yan.(4)
      Includes 15,000 vested restricted shares.(5)
      Includes 6,000 vested restricted shares and currently    exercisable options to purchase 6,579 ordinary shares.(6)
      Includes 2,250 vested restricted shares and currently    exercisable options to purchase 6,777 ordinary shares.(7)
      Includes 7,500 vested restricted shares and currently    exercisable options to purchase 10,000 ordinary shares.(8)
      Includes 4,500 vested restricted shares.(9)
      Includes 13,500 vested restricted shares and currently    exercisable options to purchase 12,000 ordinary shares.(10)
      Includes 13,500 vested restricted shares.(11)
      Includes 11,250 vested restricted shares.(12)
      Includes 102,000 vested restricted shares and currently    exercisable options to purchase 42,303 ordinary shares. Mr. Johnson Li    resigned on December 31, 2011, which is not included in this table.
 
 Share Incentive Plan
  50
 
 As of December 31, 2011, we had four share incentive plans in effect. 62,499 shares were reserved under our 2001 Share Incentive Plan, 131,675 shares were reserved under our 2005 Share Incentive Plan, 332,000 shares were reserved under our 2009 Share Incentive Plan and 393,745 shares were reserved under our 2011 Share Incentive Plan. The following table displays the number of shares outstanding under each plan that have been granted and the number remaining under each plan as of the date of filing.
 
 ****
      **2001 Share Incentive Plan**
      **2005 Share Incentive Plan**
      **2009 Share Incentive Plan**
      **2011 Share Incentive Plan**Shares    Granted under Plan (1)
      52,525
      110,475
      303,250
      -Remaining    Shares Available under Plan (2)
      9,974
      21,200
      28,750
      393,745**Total**
      **62,499**
      **131,675**
      **332,000**
      **393,745**
 
 (1)	Includes only those shares (including those underlying warrants or options) that were granted and remain outstanding as of the date of filing. Does not include shares (including those underlying warrants or options) that were granted and subsequently reverted back to the incentive plan upon forfeiture or expiration.
 (2)	Includes shares (including those underlying warrants or options) that were granted and subsequently reverted back to the incentive plan upon forfeiture or expiration.
 
 Item 7.
      Major Shareholders and Related Party Transactions
 
 A.
      Major Shareholders
 
 The following table sets forth information with respect to beneficial ownership of our ordinary shares and options as of the date of this annual report, for all of our executive officers and directors individually. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them. The number of our ordinary shares outstanding used in calculating the percentage for each listed person includes our ordinary shares underlying options held by such persons, but excludes ordinary shares underlying options held by any other person. Percentage of beneficial ownership is based on 4,334,760 ordinary shares, which includes 3,977,221 ordinary shares currently outstanding and 357,539 restricted shares and options to purchase ordinary shares which have vested or will vest within 60 days. These shareholders do not possess voting rights that differ from our other shareholders.
 
 ****
      **Amount of Beneficial Ownership (1)**
      ****
      ****
      **Percentage Ownership (2)**
      ****Adam    Yan (3)
      
      
      546,729
      
      
      
      12.61 %Zhu-Xu    2006 Charitable Remainder Unitrust
      
      
      397,175
      
      
      
      9.16 %
 
 (1)
      Beneficial    ownership is determined in accordance with the rules of the SEC and includes    voting or investment power with respect to the ordinary shares.(2)
      The number    of our ordinary shares outstanding used in calculating the percentage for    each listed person includes the ordinary shares underlying options held by    such person.(3)
      Includes    3,750 vested restricted shares, currently exercisable options to purchase 6,947 ordinary shares and 152,604    ordinary shares held by eFuture Inc., whose beneficial owner is Adam Yan.
 
 B.
      Related Party Transactions
 
 On March 15, 2010, the Company acquired 15% of the equity interest of cFuture, and cFuture became a related party of the Company. For the period from March 15, 2010 to December 31, 2010, eService purchased from cFuture was RMB367,000, and the implementation service fee revenue derived from cFuture was RMB35,460. No such transaction occurred in 2011.
  51
 
 The senior Vice President of the Company, Hongjun Zou, is the Chief Executive Officer of cFuture. The Company paid his salary and statutory social welfare on behalf of cFuture of RMB137,939 and RMB150,000 for the years ended December 31, 2009 and 2010, respectively. No such transaction occurred in 2011.
 
 On September 23, 2010, the Company signed a Share Purchase Agreement ("September Agreement") to sell 337,685 ordinary shares to 13 purchasers. The price of the shares is equal to US$5.37 per share, the average closing price of the Company's ordinary shares for the 20 consecutive trading days ending on, and including, September 23, 2010. 152,604 of the shares was purchased by eFuture Inc., a Cayman Islands holding company controlled by the Company's chairman and Chief Executive Officer, Adam Yan. 78,212 and 36,320 of the shares were sold to a board member (other than independent directors) and executive management of the Company, respectively. The issuance or register of such shares was completed on January 6, 2011.
 
 In April 2011, the Company paid car rental fee of RMB135,000 (US$21,449) to Hongjun Zou, the senior Vice President of the Company. For the year ended December 31, 2011, half of this amount was amortized to the income statement prescribed by the contractual term.
 
 C.
      Interests of Experts and Counsel
 
 Not applicable.
 
 Item 8.
      Financial Information
 
 The consolidated financial statements of eFuture Information Technology Inc. are included at the end of this annual report, beginning with page F-1.
 
 Legal and Administrative Proceedings
 
 On October 12, 2011, the plaintiff, Microsoft Corporation, filed four software copyright infringement claims against eFuture Beijing at Wuhan Intermediate People's Court. Under these claims, the plaintiff demands eFuture Beijing's immediate cease of use of the infringing software products, a damage of total RMB2,000,000 (US$317,768) for the loss suffered by the plaintiff, the recovery for reasonable expenses incurred to the plaintiff and the litigation fees. eFuture Beijing disagrees that Wuhan Intermediate People's Court has the jurisdiction to hear these cases, and is currently in the process of requesting a review of jurisdiction from the Supreme People's Court.
 
 Other than as described above, we are not currently a party to any serious litigation or other legal proceedings brought against us. We are also not aware of any legal proceedings, investigation or claim, or other legal exposure that has a more than remote possibility of having a material adverse effect on our business, financial condition or results of operations. We may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time.
 
 Item9.
      The Offer and Listing
 
 A.
      Offer and Listing Details
 
 Our ordinary shares are listed on the NASDAQ Capital Market under the symbol "EFUT." The following table sets forth the high and low market prices for (i) the Company's most recent five fiscal years, (ii) the quarterly periods for the Company's last two fiscal years and the first two quarters of 2012, and (iii) the most recent four months on a monthly basis.
  52
 
 **Full Financial Years**
      ****
      **Low**
	  ****
      **High******January    1, 2011 — December 31, 2011
      
      $
      3.18
	  ****
      $
      6.05January    1, 2010 — December 31, 2010
      
      $
      4.35
	  ****
      $
      7.39January    1, 2009 — December 31, 2009
      
      $
      4.71
	  ****
      $
      13.84January    1, 2008 — December 31, 2008
      
      $
      2.51
	  ****
      $
      19.44January    1, 2007 — December 31, 2007
      
      $
      14.70
	  ****
      $
      37.26******Fiscal Quarters**
      ****
      ****
	  ****
      ********April    1, 2012 — April 20, 2012
      
      $
      4.00
	  ****
      $
      4.40January    1, 2012 — March 31, 2012
      
      $
      3.87
	  ****
      $
      4.85October    1, 2011 — December 31, 2011
      
      $
      3.18
	  ****
      $
      4.71July    1, 2011 — September 30, 2011
      
      $
      3.52
	  ****
      $
      6.00April    1, 2011 — June 30, 2011
      
      $
      3.31
	  ****
      $
      5.68January    1, 2011 — March 31, 2011
      
      $
      4.83
	  ****
      $
      6.05October    1, 2010 — December 31, 2010
      
      $
      5.20
	  ****
      $
      7.39July    1, 2010 — September 30, 2010
      
      $
      4.45
	  ****
      $
      6.05April    1, 2010 — June 30, 2010
      
      $
      4.35
	  ****
      $
      6.57January    1, 2010 — March 31, 2010
      
      $
      5.25
	  ****
      $
      6.92******Monthly**
      ****
      ****
	  ****
      ********April    2012 (through April 20, 2012)
      
      $
      4.00
	  ****
      $
      4.40March    2012
      
      $
      3.87
	  ****
      $
      4.16February    2012
      
      $
      3.91
	  ****
      $
      4.65January 2012
      
      $
      4.27
	  ****
      $
      4.85
 
 B.
      Plan of Distribution
 
 Not applicable.
 
 C.
      Markets
 
 Our ordinary shares are listed on the NASDAQ Capital Market under the symbol "EFUT."
 
 D.
      Selling Shareholders
 
 Not applicable.
 
 E.
      Dilution
 
 Not applicable.
 
 F.
      Expenses of the Issue
 
 Not applicable.
 
 Item10.
      Additional Information
 
 A.
      Share Capital
 
 Not applicable
 
 B.
      Memorandum and Articles of Association
 
 The information required by this item is incorporated by reference to the material headed "Description of Share Capital" in our Registration Statement on Form F-1, File No. 333-126007, as filed with the SEC.
 
 C.
      Material Contracts
 
 We have not entered into any material contracts other than in the ordinary course of business and other than those  described in Item 4, "Information on the Company"
 
  53
 
 D.
      Exchange Controls
 *Exchange Controls in China*
 The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended in 2007 and 2008, and the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996). Under these regulations, Renminbi are freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account items, such as direct investment, loan, repatriation of investment and investment in securities outside China, unless the prior approval of SAFE or its local counterparts is obtained. In addition, any loans to an operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered capital amount. Furthermore, any foreign loan must be registered with SAFE or its local counterparts for the loan to be effective. Any increase in the amount of the total investment and registered capital must be approved by the PRC Ministry of Commerce or its local counterpart. We may not be able to obtain these government approvals or registrations on a timely basis, if at all, which could result in a delay in the process of making these loans.
 
 The dividends paid by the subsidiary to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities.
 *Dividend Distribution*
 The principal regulations governing the distribution of dividends by foreign holding companies include the Foreign Investment Enterprise Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2001).
 
 Under these regulations, foreign investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreign investment enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends.
 *Notice 75*
 On October 21, 2005, SAFE issued Notice 75, which became effective as of November 1, 2005. According to Notice 75, prior registration with the local SAFE branch is required for PRC residents to establish or to control an offshore company for the purposes of financing that offshore company with assets or equity interests in an onshore enterprise located in the PRC. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required for the injection of equity interests or assets of an onshore enterprise in the offshore company or overseas funds raised by such offshore company, or any other material change involving a change in the capital of the offshore company.
 
 Moreover, Notice 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore companies that have made onshore investments in the PRC in the past are required to complete the relevant registration procedures with the local SAFE branch by March 31, 2006. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent or affiliate and capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.
  54
 
 PRC residents who control our company are required to register with SAFE in connection with their investments in us. Such individuals completed this registration in 2007. If we use our equity interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be subject to the registration procedures described in Notice 75.
 *New M&A Regulations and Overseas Listings*
 
 On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006. This New M&A Rule, among other things, includes provisions that purport to require that an offshore special purpose vehicle formed for purposes of overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain the approval of CSRC prior to the listing and trading of such special purpose vehicle's securities on an overseas stock exchange.
 
 On September 21, 2006, CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process. The application of this new PRC regulation remains unclear with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirement.
 
 E.
      Taxation
 *Cayman Islands Taxation*
 The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to our company levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.
 
 Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Council:
 
 •
      that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations; and
 •
      that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on the shares, debentures or other of our obligations.
 
 The undertaking for us is for a period of twenty years from December 19, 2000.
 *United States Federal Income Taxation*
 The following is a summary of material United States federal income tax consequences under present law relating to the purchase, ownership, and disposition of our ordinary shares. This description does not provide a complete analysis of all potential tax consequences. The information provided below is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations, proposed Treasury Regulations, Internal Revenue Service, or the IRS, published rulings and court decisions, all as of the date hereof. These authorities may change, possibly on a retroactive basis, or the IRS might interpret the existing authorities differently. In either case, the tax consequences of purchasing, owning or disposing of ordinary shares could differ from those described below. We do not intend to obtain a ruling from the IRS with respect to the tax consequences of acquiring or holding the ordinary shares.
  55
 
 This description is general in nature and does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular investor in light of the investor's particular circumstances, or to certain types of investors subject to special treatment under U.S. federal income tax laws, such as:
 
 •
      banks or financial institutions;
 •
      life insurance companies;
 •
      tax-exempt organizations;
 •
      dealers in securities or foreign currencies;
 •
      traders in securities that elect to apply a mark-to-market method of accounting;
 •
      persons holding ordinary shares as part of a position in a "straddle" or as part of a "hedging," "conversion" or "integrated" transaction for U.S. federal income tax purposes;
 •
      persons subject to the alternative minimum tax provisions of the Code; and
 •
      persons that have a "functional currency" other than the U.S. dollar.
 
 This description generally applies to purchasers of our ordinary shares as capital assets. This description does not consider the effect of any foreign, state, local or other tax laws that may be applicable to particular investors.
 
 Investors considering the purchase of ordinary shares should consult their own tax advisors regarding the application of the U.S. federal income tax laws to their particular situations and the consequences of U.S. federal estate or gift tax laws, foreign, state, or local laws, and tax treaties.
 *U.S. Holders*
 As used herein, the term "U.S. Holder" means a beneficial owner of ordinary shares that is:
 
 •
      a citizen or resident of the U.S. or someone treated as a U.S. citizen or resident for U.S. federal income tax purposes;
 •
      a corporation or other entity taxable as a corporation for U.S. federal income tax purposes organized in or under the laws of the U.S. or any political subdivision thereof;
 •
      an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
 •
      a trust, if such trust validly elects to be treated as a U.S. person for U.S. federal income tax purposes, or if (a) a court within the U.S. can exercise primary supervision over its administration and (b) one or more U.S. persons have the authority to control all of the substantial decisions of such trust.
 
 If a partnership (including for this purpose any entity treated as a partnership for U.S. tax purposes) is a beneficial owner of the ordinary shares, the U.S. tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A holder of the ordinary shares that is a partnership and partners in such partnership should consult their individual tax advisors about the U.S. federal income tax consequences of holding and disposing of the ordinary shares.
 
 If you are not a U.S. Holder, this subsection does not apply to you and you should refer to "Non-U.S. Holders" below.
 *Taxation of Dividends and Other Distributions on Ordinary shares*
  56
 
 Subject to the passive foreign investment company rules discussed below, all distributions to a U.S. Holder with respect to the ordinary shares, other than certain pro rata distributions of our shares, will be includible in a U.S. Holder's gross income as ordinary dividend income when received, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits. For this purpose, earnings and profits will be computed under U.S. federal income tax principles. The dividends will not be eligible for the dividends-received deduction allowed to corporations. To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of the tax basis in the ordinary shares, and to the extent the amount of the distribution exceeds the U.S. Holder's tax basis, the excess will be taxed as capital gain. Any gain recognized by a non-corporate U.S. Holder on the sale or exchange of ordinary shares generally will be subject to a maximum tax rate of 15%, which maximum tax rate will increase under current law to 20% for dispositions occurring during taxable years beginning on or after January 1, 2009.
 
 Dividends paid in Renminbi will be included in your income as a U.S. dollar amount based on the exchange rate in effect on the date that the U.S. Holder receives the dividend, regardless of whether the payment is in fact converted into U.S. dollars. If the U.S. Holder does not receive U.S. dollars on the date the dividend is distributed, the U.S. Holder will be required to include either gain or loss in income when the U.S. Holder later exchanges the Renminbi for U.S. dollars. The gain or loss will be equal to the difference between the U.S. dollar value of the amount that the U.S. Holder includes in income when the dividend is received and the amount that the U.S. Holder receives on the exchange of the Renminbi for U.S. dollars. The gain or loss generally will be ordinary income or loss from United States sources. If we distribute as a dividend non-cash property, the U.S. Holder will generally include in income an amount equal to the U.S. dollar equivalent of the fair market value of the property on the date that it is distributed.
 
 Dividends will constitute foreign source income for foreign tax credit limitation purposes. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to the ordinary shares will be "passive income" or, in the case of certain U.S. Holders, "financial services income." In particular circumstances, a U.S. Holder that:
 
 •
      has held the ordinary shares for less than a specified minimum period during which it is not protected from risk of loss,
 •
      is obligated to make payments related to the dividends, or
 •
      holds the ordinary shares in arrangements in which the U.S. Holder's expected economic profit, after non-U.S. taxes, is insubstantial will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on the ordinary shares.
 
 Distributions to a U.S. Holder of shares or rights to subscribe for shares that are received as part of a pro rata distribution to all our shareholders should not be subject to U.S. federal income tax. The basis of the new shares or rights so received will be determined by allocating the U.S. Holder's tax basis in the ordinary shares between the ordinary shares and the new shares or rights received, based on their relative fair market values on the date of distribution. However, the basis of the new shares or rights will be zero if:
 
 •
      the fair market value of the new shares or rights is less than 15.0% of the fair market value of the old ordinary shares at the time of distribution; and
 •
      the U.S. Holder does not make an election to determine the basis of the new shares by allocation as described above.
 
 The U.S. Holder's holding period in the new shares or rights will generally include the holding period of the old ordinary shares on which the distribution was made.
 *Taxation of Disposition of Ordinary shares*
 Subject to the passive foreign investment company rules discussed below, a U.S. Holder will recognize taxable gain or loss on any sale or exchange of ordinary shares equal to the difference between the amount realized (in U.S. dollars) for the ordinary shares and the U.S. Holder's tax basis (in U.S. dollars) in the ordinary shares. The gain or loss will be capital gain or loss. Any gain or loss that you recognize will generally be treated as United States source income or loss, except that losses will be treated as foreign source losses to the extent you received dividends that were includible in the financial services income basket during the 24-month period prior to the sale. If the ordinary shares are not stock in a passive foreign investment company with respect to a U.S. Holder in either the taxable year of the distribution or the preceding taxable year, the distribution otherwise constitutes qualified dividend income for United States federal income tax purposes, certain holding period and other requirements are met, and the distribution is received in a taxable year beginning prior to January 1, 2009, the distribution will be taxable to a non-corporate U.S. Holder at a maximum rate of 15%.
  57
 
 *Passive Foreign Investment Company*
 We believe that we are not a passive foreign investment company for U.S. federal income tax purposes, but we cannot be certain whether we will be treated as a passive foreign investment company for any future taxable year. If we are a passive foreign investment company in any year in which a U.S. Holder holds ordinary shares, the U.S. Holder generally will be subject to increased U.S. tax liabilities and reporting requirements on receipt of certain dividends or on a disposition of ordinary shares, in that year and all subsequent years although a shareholder election to terminate such deemed passive foreign investment company status may be made in certain circumstances. U.S. Holders should consult their own tax advisors regarding our status as a passive foreign investment company, the consequences of an investment in a passive foreign investment company, and the consequences of making a shareholder election to terminate deemed passive foreign investment company status if we no longer meet the income or asset test for passive foreign investment company status in a subsequent taxable year.
 
 A company is considered a passive foreign investment company for any taxable year if either:
 
 •
      at least 75.0% of its gross income is passive income, or
 •
      at least 50.0% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.
 
 We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25.0% (by value) of the stock of such corporation.
 
 Our belief that we are not a passive foreign investment company is based on our estimate of the fair market value of our intangible assets, including goodwill, not reflected in our financial statements under US GAAP. In the future, in calculating the value of these intangible assets, we will value our total assets, in part, based on our total market value determined using the average of the quarterly selling prices of the ordinary shares for the relevant year. We believe this valuation approach is reasonable. However, it is possible that the IRS will challenge the valuation of our intangible assets, which may result in our classification as a passive foreign investment company. In addition, if our actual acquisitions and capital expenditures do not match our projections, the likelihood that we are or will be classified as a passive foreign investment company may also increase.
 
 A separate determination must be made each year as to whether we are a passive foreign investment company. As a result, our passive foreign investment company status may change.
 
 If we are a passive foreign investment company for any taxable year during which a U.S. Holder holds ordinary shares, the U.S. Holder will be subject to special tax rules with respect to:
 
 •
      Any "excess distribution" that the U.S. Holder receives on ordinary shares, and
 •
      Any gain the U.S. Holder realizes from a sale or other disposition (including a pledge) of the ordinary shares, unless the U.S. Holder makes a "mark-to-market" election as discussed below.
 
 Distributions the U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions the U.S. Holder received during the shorter of the three preceding taxable years or the U.S. Holder's holding period for the ordinary shares will be treated as an excess distribution. Under these special tax rules:
 
 •
      the excess distribution or gain will be allocated ratably over your holding period for the ordinary shares,
 •
      the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a passive foreign investment company, will be treated as ordinary income, and
 •
      the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
  58
 
 The tax liability for amounts allocated to years prior to the year of disposition or "excess distribution" cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of the ordinary shares cannot be treated as capital, even if the U.S. Holder holds the ordinary shares as capital assets.
 
 A U.S. shareholder of a passive foreign investment company may avoid taxation under the excess distribution rules discussed above by making a "qualified electing fund" election to include the U.S. Holder's share of our income on a current basis. However, a U.S. Holder may make a qualified electing fund election only if the passive foreign investment company agrees to furnish the shareholder annually with certain tax information, and we do not presently intend to prepare or provide such information.
 
 Alternatively, a U.S. Holder of "marketable stock" in a passive foreign investment company may make a mark-to-market election for stock of a passive foreign investment company to elect out of the excess distribution rules discussed above. If a U.S. Holder makes a mark-to-market election for the ordinary shares, the U.S. Holder will include in income each year an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of your taxable year over the U.S. Holder's adjusted basis in such ordinary shares. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year only to the extent of any net mark-to-market gains on the ordinary shares included in the U.S. Holder's income for prior taxable years. Amounts included in a U.S. Holder's income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary shares. A U.S. Holder's basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. The tax rules that apply to distributions by corporations which are not passive foreign investment companies would apply to distributions by us.
 
 The mark-to-market election is available only for stock which is regularly traded on a national securities exchange that is registered with the SEC or on NASDAQ, or an exchange or market that the U.S. Secretary of the Treasury determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. The mark-to-market election would be available to a U.S. Holder unless our ordinary shares are delisted from The NASDAQ Capital Market and do not subsequently become regularly traded on another qualified exchange or market.
 
 A U.S. Holder who holds our ordinary shares in any year in which we are a passive foreign investment company would be required to file IRS Form 8621 regarding distributions received on our ordinary shares and any gain realized on the disposition of our ordinary shares.
 
 *Non-U.S. Holders*
 A Non-U.S. Holder generally will not be subject to U.S. federal income tax on dividends paid by us with respect to our ordinary shares unless the income is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States.
 
 A Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our ordinary shares unless such gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States or the Non-U.S. Holder is a natural person who is present in the United States for 183 days or more and certain other conditions exist.
 
 Dividends and gains that are effectively connected with a Non-U.S. Holder's conduct of a trade or business in the United States generally will be subject to tax in the same manner as they would be if the Non-U.S. Holder were a U.S. Holder, except that the passive foreign investment company rules will not apply. Effectively connected dividends and gains received by a corporate Non-U.S. Holder may also be subject to an additional branch profits tax at a 30.0% rate or a lower tax treaty rate.
  59
 
 *Information Reporting and Backup Withholding*
 In general, information reporting requirements will apply to dividends in respect of our ordinary shares or the proceeds received on the sale, exchange or redemption of our ordinary shares paid within the United States (and, in certain cases, outside the United States) to U.S. Holders other than certain exempt recipients, such as corporations, and backup withholding tax may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number or to report interest and dividends required to be shown on its U.S. federal income tax returns. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as credit against the U.S. Holder's U.S. federal income tax liability provided that the appropriate returns are filed.
 
 A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status to the payer, under penalties of perjury, on IRS Form W-8BEN.
 
 F.
      Dividends and Paying Agents
 
 Not applicable.
 
 G.
      Statement by Experts
 
 Not applicable.
 
 H.
      Documents on Display
 
 We have filed this Annual Report on Form 20-F with the SEC under the Exchange Act.  Statements made in this Annual Report as to the contents of any document referred to are not necessarily complete.  With respect to each such document filed as an exhibit to this Annual Report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.
 
 We are subject to the information requirements of the Exchange Act. In accordance with these requirements, the Company files reports and other information with the SEC. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at *http://www.sec.gov* that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.
 
 As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
 
 I.
      Subsidiary Information
 
 Not applicable.
 
 Item11.
      Quantitative and Qualitative Disclosures about Market Risk
 
 *Interest Rate Risk*
 
 Our exposure to market risk for changes in interest rates relates primarily to the interest income generated by our cash deposits in banks and interest expense arising from our short-term bank borrowings that we incur in our ordinary course of business. We have not used derivative financial instruments in our investment portfolio. Interest-earning instruments and floating rate debt carry a degree of interest rate risk. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. Our future interest income may fluctuate in line with changes in interest rates. However, the risk associated with fluctuating interest rates is principally confined to our cash deposits in banks, and, therefore, our exposure to interest rate risk is minimal and immaterial.
  60
 
 *Foreign Exchange Risk*
 Virtually all of our revenues and costs are denominated in Renminbi and substantially all of our assets and liabilities are denominated in Renminbi. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be impacted by fluctuations in the exchange rate between U.S. dollars and Renminbi. We have not hedged exposures denominated in foreign currencies using any derivative financial instruments. Any significant revaluation of RMB against the U.S. dollar may materially affect our revenues, earnings and financial position in U.S. dollars. The RMB appreciated by 4.49% against the U.S. dollar in 2011 and the exchange rate between the RMB and the U.S. dollar was relatively stable in 2010 and 2009. If the Renminbi continuously appreciates against the U.S. dollar, the value of our Renminbi revenues and assets as expressed in U.S. dollars in our financial statements will be subject to change. See "Risk Factors — Fluctuation of the Renminbi could materially affect our financial condition and results of operations."
 *Inflation*
 Inflation in China has not had a material impact on our results of operations in recent years. According to the National Bureau of Statistics of China, the change in the Consumer Price Index in China was negative 0.7%, 3.3% and 5.4% in 2009, 2010 and 2011, respectively. The Chinese government may introduce measures in the future intended to reduce the inflation rate in China.  We cannot assure you that these measures will not have a significant impact on our business.  Any such measures may not be successful or immediately effective in reducing or slowing the increase in China's inflation rate.  Sustained or increased inflation in China may have an impact on China's economy and our customers, which may adversely affect our business and financial results.
 *Taxation*
 The Company is incorporated in the Cayman Islands and conducts its primary business operations through the subsidiary and VIEs in the PRC. Under the current laws of the Cayman Islands and BVI, the Company is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands and BVI withholding tax will be imposed.
 
 According to the PRC Corporate Income Tax Law, or the CIT Law, which became effective on January 1, 2008, as further clarified by subsequent tax regulations implementing the CIT Law, foreign-invested enterprises and domestic enterprises are subject to corporate income tax, at a uniform rate of 25%. The CIT rate of enterprises established before March 16, 2007 that were eligible for preferential tax rates according to then effective tax laws and regulations will gradually transition to the uniform 25% CIT rate by January 1, 2013. In addition, certain enterprises may still benefit from a preferential tax rate of 15% under the CIT Law if they qualify as "high and new technology enterprises strongly supported by the state," subject to certain general factors described in the CIT Law and the related regulations.
 
 In December 2008, our subsidiary eFuture Beijing was designated as "High and New Technology Enterprises" under the CIT Law, which entitles it to a preferential enterprise income tax rate of 15% from 2008 to 2013. Biaoshang and Wangku were subject to a 25% tax rate in 2009 and 2010, respectively.
 
 The CIT Law treats enterprises established outside of China with "effective management and control" located in China as PRC resident enterprises for tax purposes. The term "effective management and control" is generally defined as exercising overall management and control over the business, personnel, accounting, properties, etc. of an enterprise. The Company, if considered a PRC resident enterprise for tax purposes, would be subject to the PRC CIT at the rate of 25% on its worldwide income for the period after January 1, 2008. As of December 31, 2011, the Company has not accrued for PRC tax on such basis. The Company will continue to monitor its tax status.
 
 Item12.
      Description of Securities Other than Equity Securities
  61
 
 Not applicable.
 
 PART II
 
 Item13.
      Defaults, Dividend Arrearages and Delinquencies
 
 None
 
 Item14.
      Material Modifications to the Rights of Securities Holders and Use of Proceeds
 
 None
 
 Item15.
      Controls and Procedures
 
 *Evaluation of Disclosure Controls and Procedures*
 Because of their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of the effectiveness of such disclosure controls and procedures and internal control over financial reporting to future periods are subject to the risk that such procedures and controls may become inadequate because of changes in conditions, or that the degree of compliance with such policies and procedures may deteriorate.
 
 As required by Rule 13a-15 (b) under the Securities Exchange Act, our management has carried out an evaluation under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the period covered by this report.
 
 Based upon that evaluation, our management has concluded that as of December 31, 2011, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
 
 *Management's Annual Report on Internal Control over Financial Reporting*
 Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
 
 Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, management used the framework set forth in the report entitled "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring. Based on that evaluation, management concluded that these controls were effective at December 31, 2011.
 
 *Changes in Internal Controls over Financial Reporting*
 There were no changes in our internal controls over financial reporting during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
 
 Item16.
      [Reserved]
  62
 
 Item16A.
      Audit Committee Financial Expert
 
 The Company's Board of Directors has determined that Mr. Brian Lin qualifies as an "audit committee financial expert" in accordance with applicable NASDAQ Capital Market standards. Mr. Lin is not deemed to be an "expert" for any purpose, including for purposes of section 11 of the Securities Act of 1933, as a result of being designated as an audit committee financial expert, and this designation does not impose on Mr. Lin any duties, obligations or liability that are greater than those imposed on him as a member of the Audit Committee and Board of Directors in the absence of that designation.
 
 The Company's Board of Directors has also determined that Mr. Lin and the other members of the Audit Committee are all "independent" in accordance with the applicable NASDAQ Capital Market standards.
 
 Item16B.
      Code of Ethics
 
 The Company has adopted a Code of Business Conduct and Ethics that applies to the Company's employees, including its principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions. A copy of the Code of Business Conduct and Ethics was filed as an exhibit to our 2006 Annual Report. In addition, the Company has posted this information on its website at *www.e-future.com.cn.* The Company will provide any person a copy of its Code of Business Conduct and Ethics, without charge, upon request. Such request should be addressed to:
 
 eFuture Information Technology Inc.
 8F Topnew Tower
 15 Guanghua Road
 Chaoyang District
 Beijing 100026, People's Republic of China
 Attention: Secretary
 
 Item16C.
      Principal Accountant Fees and Services
 
 *Audit Fees*
 For the year ended December 31, 2010, we incurred in the aggregate amounts of $169,000 and $9,000 for the annual audit of our financial statements and the quarterly review of our financial information, which was billed or expected to be billed by Grant Thornton China and JBPB & Co., respectively. For the year ended December 31, 2011, we incurred in the aggregate amounts of RMB1,050,000 (US$166,828) for the annual audit of our financial statements, which was billed by Grant Thornton China.
 *Audit Related Fees*
 There were no audit related fees incurred for fiscal years 2010 and 2011.
 *Tax and All Other Fees*
 We did not pay JBPB & Co. and Grant Thornton China any fees for tax or other services for fiscal years 2010 and 2011, respectively.
 *Audit Committee Pre-Approval Policies and Procedures*
 Our Audit Committee has the sole authority to approve all audit engagement fees and terms, and the Audit Committee, or as member of the Audit Committee, must pre-approve any audit and non-audit service provided to the Company by the Company's independent auditor. Our Audit Committee approved all of the services provided by Grant Thornton China and JBPB & Co. for fiscal year 2011 and 2010, respectively.
  63
 
 Item 16D.
      Exemptions from the Listing Standards for Audit Committees
 
 Not applicable.
 
 Item 16E.
      Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
 Not applicable.
 
 Item 16F.
      Change in Registrant's Certifying Accountant.
 
 None
 
 Item 16G.
      Corporate Governance.
 
 Our corporate governance practices do not differ from those followed by domestic companies listed on the NASDAQ Capital Market.
  64
 
 PART III
 Item 17.
      Financial Statements
 
 We have elected to provide financial statements pursuant to Item 18.
 
 Item 18.
      Financial Statements
 
 The consolidated financial statements of eFuture Information Technology Inc. are included at the end of this annual report, beginning with page F-1.
 
 Item 19.
      Exhibits
 
 1.1	Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Registration Statement on Form F-1 (File No. 333-126007) filed with the SEC on June 21, 2005)
 1.2	Written resolutions of the Registrant amending the terms of its Memorandum of Association dated June 16, 2005 (incorporated by reference to Exhibit 3.3 of the Registrant's Registration Statement on Form F-1 (File No. 333-126007) filed with the SEC on October 18, 2005)
 2.1	Specimen Certificate for Ordinary shares (incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on Form F-1 (File No. 333-126007) filed with the SEC on August 22, 2005)
 4.1	Securities Purchase Agreement dated as of March 13, 2007 by and among the Company, Capital Ventures International ("CVI"), Hudson Bay Fund, LP ("HBF") and Hudson Bay Overseas Fund, Ltd. ("HBOF") (incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 6-K filed with the SEC on March 15, 2007)
 4.2	Registration Rights Agreement, dated March 13, 2007 by and among the Company, CVI, HBF and HBOF (incorporated by reference to Exhibit 99.5 of the Registrant's Current Report on Form 6-K filed with the SEC on March 15, 2007)
 4.3	Form of Senior Convertible Note issued pursuant to the Securities Purchase Agreement dated as of March 13, 2007 (incorporated by reference to Exhibit 99.3 of the Registrant's Current Report on Form 6-K filed with the SEC on March 15, 2007)
 4.4	Form of Series A Warrant issued pursuant to the Securities Purchase Agreement dated as of March 13, 2007 (incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 6-K filed with the SEC on March 15, 2007)
 4.5	Form of Series B Warrant issued pursuant to the Securities Purchase Agreement dated as of March 13, 2007 (incorporated by reference to Exhibit 99.3 of the Registrant's Current Report on Form 6-K filed with the SEC on March 15, 2007)
 4.6	Acquisition of Beijing Wangku Hutong Information Technology Co., Ltd. (incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 6-K filed with the SEC on May 21, 2007)
 4.7	Acquisition of Crownhead Holdings Ltd. And Royalstone System Integrated Co., Ltd (incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 6-K filed with the SEC on August 15, 2007)
 4.8*	English translation of Equity Transfer Agreement dated as of July 16, 2010 between Tingchao Zhao (the nominee of the Registrant) and Boyong Jiang
 4.9*	English translation of Equity Transfer Agreement dated as of March 13, 2011 between Xuejun Zhang (the nominee of the Registrant) and Haibo Wang
 4.10*	Loan Agreement dated as of January 18, 2011 between eFuture Beijing and Xuejun Zhang, one of the shareholders of Changshengtiandi
 4.11*	Loan Agreement dated as of January 18, 2011 between eFuture Beijing and Hongjun Zou, one of the shareholders of Changshengtiandi
 4.12*	Share Pledge Agreement dated as of January 18, 2011 between eFuture Beijing and Xuejun Zhang, one of the shareholders of Changshengtiandi
 4.13*	Share Pledge Agreement dated as of January 18, 2011 between eFuture Beijing and Hongjun Zou, one of the shareholders of Changshengtiandi
 4.14*	Exclusive Option Agreement dated as of January 18, 2011 between eFuture Beijing, Changshengtiandi and Xuejun Zhang, one of the shareholders of Changshengtiandi
 4.15*	Exclusive Option Agreement dated as of January 18, 2011 between eFuture Beijing, Changshengtiandi and Hongjun Zou, one of the shareholders of Changshengtiandi
  65
 
 4.16*	Exclusive Business Cooperation Agreement dated as of January 18, 2011 between eFuture Beijing and Changshengtiandi
 4.17*	Supplemental Agreement to Exclusive Business Cooperation Agreement dated as of April 23, 2012 between eFuture Beijing and Changshengtiandi
 4.18*	Power of Attorney dated as of January 18, 2011 issued by Xuejun Zhang, one of the shareholders of Changshengtiandi
 4.19*	Power of Attorney dated as of January 18, 2011 issued by Hongjun Zou, one of the shareholders of Changshengtiandi
 8.1*	Subsidiaries of the Registrant
 11.1	Code of Business Conduct and Ethics (incorporated by reference to Exhibit 11.1 of the Registrant's Annual Report on Form 6-K filed with the SEC on June 28, 2007)
 12.1*	Section 302 Certification of Adam Yan
 12.2*	Section 302 Certification of Sean Zheng
 13.1*	Section 906 Certification of Adam Yan
 13.2*	Section 906 Certification of Sean Zheng
 
 *	Filed herewith.
  66
 
 SIGNATURES
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the undersigned certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 20-F to be signed on its behalf by the undersigned, thereunto duly authorized, in the People's Republic of China, on the 30th day of April, 2012.
 
 **EFUTURE INFORMATION TECHNOLOGY    INC.**By:
      /s/    Adam YanName:
      Adam    YanTitle:
      Chairman    and Chief Executive Officer
        (Principal Executive Officer)Date: April 30, 2012By:
      /s/ Sean ZhengName:
      Sean ZhengTitle:
      Chief Financial Officer
        (Principal Financial Officer)Date: April 30, 2012
  67
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 INDEX TO FINANCIAL STATEMENTS
  **Page**Reports of Independent Registered    Public Accounting Firms
      F-2Consolidated Balance Sheets as    of December 31, 2010 and 2011
      F-4Consolidated Statements of    Operations for the Years Ended December 31, 2009, 2010 and 2011
      F-6Consolidated Statements of    Stockholders' Equity for the Years Ended December 31, 2009, 2010 and 2011
      F-7Consolidated Statements of Cash    Flows for the Years Ended December 31, 2009, 2010 and 2011
      F-8Notes to Consolidated Financial    Statements
      F-10
 F-1
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board of Directors and Shareholders of
 
 eFuture Information Technology Inc.
 
 We have audited the accompanying consolidated balance sheets of eFuture Information Technology Inc. (a Cayman Islands corporation) and subsidiaries (the "Company") as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years ended December 31, 2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of eFuture Information Technology Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and cash flows for each of the two years ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
 
 We also have audited the adjustments to the 2009 consolidated financial statements to retrospectively apply changes in presentation of prior period amounts in relation to discontinued operations, as described in Note 3 to the consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied.  We were not engaged to audit, review, or apply any procedures to the 2009 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2009 consolidated financial statements taken as a whole.
 
 /s/ GRANT THORNTON
 
 Beijing, The People's Republic of China 
April 27, 2012
  F-2
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board of Directors and Shareholders of
 
 eFuture Information Technology Inc.
 
 We have audited, before the effects of the retrospective adjustments for the discontinued operations described in Note 3 to the consolidated financial statements, the accompanying consolidated statements of operations, stockholders' equity, and cash flows of eFuture Information Technology, Inc. (a Cayman Islands corporation) and subsidiaries (the "Company") for the year ended December 31, 2009 (the 2009 consolidated financial statements before the effects of the retrospective adjustments described in Note 3 to the consolidated financial statements are not presented herein). The 2009 consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the 2009 consolidated financial statements, before the effects of the retrospective adjustments for the discontinued operations described in Note 3 to the consolidated financial statements, present fairly, in all material respects, the results of operations and cash flows of eFuture Information Technology Inc. and subsidiaries for the year ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
 
 We were not engaged to audit, review, or apply any procedures to the retrospective adjustments for the discontinued operations described in Note 3 to the consolidated financial statements and accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
 
 /s/ JBPB & Co. (formerly known as GRANT THORNTON)
 
 Hong KongJune 29, 2010
  F-3
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2010 AND 2011
  ****
      ****
      **Chinese    Yuan (Renminbi)**
      
      **U.S. Dollars******
      ****
      ****
      **December    31,**
      ****
      **December    31,******
      **Note******
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      ****
      **2011****ASSETS**
      
      
      ****
      ****
      
      ****
      ****
      ****
      ****
      ******Current assets**Cash and cash equivalents
      
      
      
      ¥
      73,250,856
      
      ¥
      57,157,078
      $
      9,081,345Trade    receivables, net of allowance for doubtful accounts of ¥2,987,733 and ¥3,559,207($565,501),    respectively
      4
      
      
      14,577,251
      
      
      19,904,642
      
      3,162,529Refundable value added tax
      
      
      
      
      2,655,666
      
      
      6,950,923
      
      1,104,390Advances to employees
      
      
      
      
      2,469,570
      
      
      1,749,427
      
      277,956Advances to suppliers
      
      
      
      
      2,050,911
      
      
      331,040
      
      52,597Other    receivables due from previously consolidated entities
      3
      
      
      3,095,000
      
      
      1,067,000
      
      169,529Other receivables
      
      
      
      
      2,361,686
      
      
      2,021,053
      
      321,113Prepaid expenses
      
      
      
      
      670,619
      
      
      1,465,219
      
      232,800Inventory and    work in process, net of inventory provision of ¥3,138,266 and ¥4,507,846($716,225),    respectively
      5
      
      
      15,625,686
      
      
      28,001,490
      
      4,448,989Current assets of discontinued operations
      
      3
      
      
      1,593,013
      
      
      -
      
      -**Total current    assets**
      
      
      
      
      118,350,258
      
      
      118,647,872
      
      18,851,248**Non-current    assets**Long-term    investments, net of impairment of nil and ¥240,000($38,132), respectively
      
      
      
      
      240,000
      
      
      -
      
      -Deferred loan costs
      
      
      
      
      471,808
      
      
      -
      
      -Property and    equipment, net of accumulated depreciation of ¥4,641,786 and ¥5,748,528($913,349),    respectively
      6
      
      
      4,617,831
      
      
      3,930,974
      
      624,570Intangible    assets, net of accumulated amortization of ¥54,687,822 and ¥65,846,644($10,461,978),    respectively
      7
      
      
      24,264,471
      
      
      17,190,976
      
      2,731,371Goodwill
      
      7
      
      
      80,625,667
      
      
      80,625,667
      
      12,810,128Non-current assets of discontinued operations
      
      3
      
      
      13,262,120
      
      
      -
      
      -**Total    non-current assets**
      
      
      
      
      123,481,897
      
      
      101,747,617
      
      16,166,069**Total assets**
      
      
      
      ¥
      241,832,155
      
      ¥
      220,395,489
      $
      35,017,317
 
 See the accompanying notes to consolidated financial statements.
  F-4
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2010 AND 2011 (CONTINUED)
 
 ****
      ****
      ****
      **Chinese Yuan (Renminbi)**
      
      **U.S. Dollars******
      ****
      ****
      **December 31,**
      ****
      **December********31,******
      **Note******
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      ****
      **2011****LIABILITIES AND EQUITY**
      
      
      ****
      ****
      
      ****
      ****
      ****
      ****
      ******Current    liabilities**Trade payables
      
      
      
      ¥
      6,763,668
      
      ¥
      12,500,602
      $
      1,986,146Other payables
      8
      
      
      11,236,527
      
      
      12,525,300
      
      1,990,070Accrued expenses
      
      9
      
      
      16,000,966
      
      
      14,464,113
      
      2,298,116Taxes payable
      
      
      
      
      6,508,039
      
      
      4,205,734
      
      668,224Advances from customers
      
      
      
      
      42,688,878
      
      
      49,653,714
      
      7,889,180Deferred tax liabilities, current portion
      15
      
      
      995,104
      
      
      623,600
      
      99,080Liabilities of discontinued operations
      
      3
      
      
      18,182,475
      
      
      -
      
      -**Total current    liabilities**
      
      
      
      
      102,375,657
      
      
      93,973,063
      
      14,930,816**Long-term    liabilities**10% ¥6,600,000    and nil convertible notes payable, net of ¥6,552,850 and nil of unamortized    discount, respectively
      16
      
      
      47,150
      
      
      -
      
      -Derivative liabilities
      
      16
      
      
      354,420
      
      
      3,168
      
      503Deferred tax liabilities
      
      15
      
      
      2,733,107
      
      
      413,130
      
      65,640**Total long-term    liabilities**
      
      
      
      
      3,134,677
      
      
      416,298
      
      66,143******Commitments and contingencies**
      
      18******Equity**Ordinary shares,    $0.0756 U.S. dollars par value; 6,613,756 shares authorized; 3,599,536 shares    and 3,977,221 shares issued and outstanding, respectively
      10
      
      
      2,161,766
      
      
      2,353,068
      
      373,865Additional paid-in capital
      
      10
      
      
      220,293,916
      
      
      225,411,222
      
      35,814,236Statutory reserves
      
      
      
      
      3,084,020
      
      
      3,305,527
      
      525,195Accumulated deficits
      
      
      
      
      (86,011,313)
      
      
      (105,063,689)
      
      (16,692,938)**Total eFuture Information Technology Inc.    Shareholders' Equity**
      
      
      
      139,528,389
      
      
      126,006,128
      
      20,020,358Non-controlling interest
      
      12
      
      
      (3,206,568)
      
      
      -
      
      -**Total****equity**
      
      
      
      
      136,321,821
      
      
      126,006,128
      
      20,020,358**Total liabilities and    equity**
      
      
      
      ¥
      241,832,155
      
      ¥
      220,395,489
      $
      35,017,317
 
 See the accompanying notes to consolidated financial statements.
  F-5
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011
 
 Chinese Yuan (Renminbi)

U.S. DollarsFor theYear EndedFor the Years Ended December 31,

December 31,Note

2009


2010


2011

2011RevenuesSoftware revenue

¥
54,187,769

¥
63,887,988

¥
52,599,132
$
8,357,160Hardware revenue


21,518,084


35,805,127


38,838,235

6,170,774Service fee revenue


33,130,034


52,209,569


83,011,113

13,189,138Total Revenues


108,835,887


151,902,684


174,448,480

27,717,072Cost of revenuesCost of software revenue


(13,805,682)


(11,952,426)


(12,658,868)

(2,011,292)Cost of hardware revenue


(17,294,931)


(31,282,457)


(32,412,956)

(5,149,900)Cost of service fee revenue


(22,067,175)


(30,748,994)


(57,885,408)

(9,197,065)Amortization of acquired technology


(11,513,910)


(10,353,492)


(7,838,965)

(1,245,486)Amortization of software costs


(4,280,233)


(4,734,364)


(3,319,857)

(527,472)Impairment loss of intangible assets
7

-


(2,401,502)


(4,135,194)

(657,016)Total Cost of Revenues


(68,961,931)


(91,473,235)


(118,251,248)

(18,788,231)Gross Profit


39,873,956


60,429,449


56,197,232

8,928,841Operating ExpensesResearch and development expenses


(3,165,788)


(8,152,923)


(4,666,122)

(741,372)General and administrative expenses


(33,620,855)


(39,253,368)


(46,231,355)

(7,345,423)Selling and distribution expenses


(27,519,934)


(34,755,979)


(24,845,248)

(3,947,512)Total Operating Expenses


(64,306,577)


(82,162,270)


(75,742,725)

(12,034,307)Loss from operations


(24,432,621)


(21,732,821)


(19,545,493)

(3,105,466)Other income (expenses)Interest income


589,508


588,600


534,203

84,876Interest expenses


(450,817)


(636,050)


(550,338)

(87,440)Interest expenses - amortization of discount on convertible notes payable


(13,316)


(13,712)


(6,431,872)

(1,021,922)Interest expenses - amortization of deferred loan costs


(350,996)


(369,516)


(474,399)

(75,374)Finance cost - exchange warrants
10

-


(1,443,888)


-

-Loss on investments


-


(54,192)


(240,000)

(38,132)Gains on derivative liabilities
16

1,290,329


3,429,479


347,565

55,223Other income


-


-


873,697

138,816Foreign currency exchange loss


(133,087)


(530,939)


(36,864)

(5,857)Loss from continuing operations before income tax


(23,501,000)


(20,763,039)


(25,523,501)

(4,055,276)Less: Income tax benefit
15

(1,513,216)


(1,770,001)


(571,857)

(90,859)Loss from continuing operations


(21,987,784)


(18,993,038)


(24,951,644)

(3,964,417)Less: Net loss attributable to the non-controlling interest
12

(2,099,874)


(1,606,146)


(511,423)

(81,257)Net loss from continuing operations attributable to eFuture Information Technology Inc.


(19,887,910)


(17,386,892)


(24,440,221)

(3,883,160)Discontinued operationsGain (Loss) from discontinued operations (including gain on disposal of nil, ¥3,427,236 and ¥6,701,170($1,064,709), respectively)
3

(5,260,675)


63,471


5,609,352

891,236Less: Income tax expenses


116,912


-


-

-Gain (Loss) from discontinued operations


(5,377,587)


63,471


5,609,352

891,236Net loss

¥
(25,265,497)

¥
(17,323,421)

¥
(18,830,869)
$
(2,991,924)Earnings (Loss) per ordinary share
17Basic

¥
(7.51)

¥
(4.53)

¥
(4.56)
$
(0.72)- Continuing operations


(5.91)


(4.55)


(5.92)

(0.94)- Discontinued operations


(1.60)


0.02


1.36

0.22Diluted

¥
(7.51)

¥
(4.53)

¥
(4.56)
$
(0.72)- Continuing operations


(5.91)


(4.55)


(5.92)

(0.94)- Discontinued operations


(1.60)


0.02


1.36

0.22Basic Weighted-average Shares Outstanding

3,362,986


3,822,386


4,130,221

4,130,221Fully-Diluted Weighted-average Shares Outstanding

3,396,881


3,831,803


4,130,221

4,130,221
 
 See the accompanying notes to consolidated financial statements.
  F-6
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011
 
 **Chinese Yuan    (Renminbi)****Ordinary Shares**
      ****
      **Additional**
      ****
      ****
      ****
      ****
      ****
      **Non-**
      ****
      ******Shares**
      ****
      **Amount**
      ****
      **Paid-inCapital**
      ****
      **StatutoryReserves******
      ****
      **Accumulated****D****eficits**
      ****
      **controllingInterest**
      ****
      **Total**Balance as of January 1, 2009
      3,362,241
      ¥
      2,039,196
      ¥
      173,054,651
      ¥
      3,084,020
      ¥
      (43,422,395)
      ¥
      204,414
      ¥
      134,959,886Issuance of ordinary shares in Health Field acquisition
      6,183
      
      3,188
      
      591,195
      
      -
      
      -
      
      -
      
      594,383Compensation expenses for options granted to employees
      -
      
      -
      
      4,464,698
      
      -
      
      -
      
      -
      
      4,464,698Compensation expenses for restricted shares awarded to
      directors and senior    managements
      -
      
      -
      
      1,711,356
      
      -
      
      -
      
      -
      
      1,711,356Net loss
      -
      
      -
      
      -
      
      -
      
      (25,265,497)
      
      (2,099,874)
      
      (27,365,371)Balance as of December 31, 2009
      3,368,424
      ¥
      2,042,384
      ¥
      179,821,900
      ¥
      3,084,020
      ¥
      (68,687,892)
      ¥
      (1,895,460)
      ¥
      114,364,952Issuance of ordinary shares in Royalstone acquisition
      60,405
      
      31,202
      
      6,395,268
      
      -
      
      -
      
      -
      
      6,426,470Issuance of ordinary shares in Proadvancer acquisition
      169,584
      
      87,600
      
      14,912,400
      
      -
      
      -
      
      -
      
      15,000,000Issuance of ordinary shares to certain managements
      -
      
      -
      
      12,158,096
      
      -
      
      -
      
      -
      
      12,158,096Issuance of ordinary shares to warrants holders
      -
      
      -
      
      1,443,888
      
      -
      
      -
      
      -
      
      1,443,888Exercise of options by employees
      1,123
      
      580
      
      35,489
      
      -
      
      -
      
      -
      
      36,069Compensation expenses for options granted to employees
      -
      
      -
      
      3,930,160
      
      -
      
      -
      
      -
      
      3,930,160Compensation expenses for restricted shares awarded to
      directors and senior    managements
      -
      
      -
      
      1,596,715
      
      -
      
      -
      
      -
      
      1,596,715Disposal of Biaoshang
      -
      
      -
      
      -
      
      -
      
      -
      
      295,038
      
      295,038Net loss
      -
      
      -
      
      -
      
      -
      
      (17,323,421)
      
      (1,606,146)
      
      (18,929,567)Balance as of December 31, 2010
      3,599,536
      ¥
      2,161,766
      ¥
      220,293,916
      ¥
      3,084,020
      ¥
      (86,011,313)
      ¥
      (3,206,568)
      ¥
      136,321,821Issuance of ordinary shares to certain managements
      337,685
      
      171,042
      
      (171,042)
      
      -
      
      -
      
      -
      
      -Issuance of ordinary shares to warrants holders
      40,000
      
      20,260
      
      (20,260)
      
      -
      
      -
      
      -
      
      -Compensation expenses for options granted to employees
      -
      
      -
      
      3,937,919
      
      -
      
      -
      
      -
      
      3,937,919Compensation expenses for restricted shares awarded to
      directors and senior    managements
      -
      
      -
      
      1,370,689
      
      -
      
      -
      
      -
      
      1,370,689Disposal of Wangku
      -
      
      -
      
      -
      
      -
      
      -
      
      3,717,991
      
      3,717,991Appropriation to statutory reserves of eFuture Beijing
      -
      
      -
      
      -
      
      221,507
      
      (221,507)
      
      -
      
      -Net loss
      -
      
      -
      
      -
      
      -
      
      (18,830,869)
      
      (511,423)
      
      (19,342,292)Balance as of December 31, 2011
      3,977,221
      ¥
      2,353,068
      ¥
      225,411,222
      ¥
      3,305,527
      ¥
      (105,063,689)
      ¥
      -
      ¥
      126,006,128
 
 **U.S. Dollars****OrdinaryShares******
      ****
      **Additional**
      ****
      ****
      ****
      ****
      ****
      **Non-**
      ****
      ******Shares**
      ****
      **Amount**
      ****
      **Paid-inCapital**
      ****
      **StatutoryReserves******
      ****
      **Accumulated****D****eficits**
      ****
      **controllingInterest**
      ****
      **Total**Balance as of January 1, 2011
      3,599,536
      $
      343,470
      $
      35,001,178
      $
      490,001
      $
      (13,665,820)
      $
      (509,473)
      $
      21,659,356Issuance of ordinary shares to certain managements
      337,685
      
      27,176
      
      (27,176)
      
      -
      
      -
      
      -
      
      -Issuance of ordinary shares to warrants holders
      40,000
      
      3,219
      
      (3,219)
      
      -
      
      -
      
      -
      
      -Compensation expenses for options granted to employees
      -
      
      -
      
      625,672
      
      -
      
      -
      
      -
      
      625,672Compensation expenses for restricted shares awarded to
      directors and senior    managements
      -
      
      -
      
      217,781
      
      -
      
      -
      
      -
      
      217,781Disposal of Wangku
      -
      
      -
      
      -
      
      -
      
      -
      
      590,729
      
      590,729Appropriation to statutory reserves of eFuture Beijing
      -
      
      -
      
      -
      
      35,194
      
      (35,194)
      
      -
      
      -Net loss
      -
      
      -
      
      -
      
      -
      
      (2,991,924)
      
      (81,256)
      
      (3,073,180)Balance as of December 31, 2011
      3,977,221
      $
      373,865
      $
      35,814,236
      $
      525,195
      $
      (16,692,938)
      $
      -
      $
      20,020,358
 
 See the accompanying notes to consolidated financial statements.
  F-7
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011
 
 **Chinese    Yuan (Renminbi)**
      
      **U.S. Dollars******
      ****
      ****
      **For the**********
      ****
      ****
      **Year    Ended**********
      **For    the Years Ended December 31,**
      ****
      **December    31,******
      **2009**
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      ****
      **2011****Cash flows from operating    activities:**
      
      
      ****
      ****
      
      ****
      ****
      ****
      ****
      ****Net loss
      ¥
      (25,265,497)
      
      ¥
      (17,323,421)
      
      ¥
      (18,830,869)
      $
      (2,991,924)Adjustments to    reconcile net loss to net cash flows provided by (used in) operating    activities:Depreciation of property and equipment
      
      1,371,421
      
      
      2,009,702
      
      
      1,996,264
      
      317,174Amortization of intangible assets
      
      16,263,531
      
      
      15,408,168
      
      
      11,206,919
      
      1,780,600Impairment of goodwill
      
      762,000
      
      
      -
      
      
      -
      
      -Impairment of intangible assets
      
      -
      
      
      2,401,502
      
      
      4,135,194
      
      657,016Amortization of    discount on convertible notes payable
      
      13,316
      
      
      13,712
      
      
      6,431,872
      
      1,021,922Amortization of deferred loan costs
      
      350,996
      
      
      369,516
      
      
      474,399
      
      75,374Gain on extinguishment of debt
      
      -
      
      
      -
      
      
      (382,889)
      
      (60,835)Gains on derivative liabilities
      
      (1,290,329)
      
      
      (3,429,479)
      
      
      (347,565)
      
      (55,223)Finance cost - exchange warrants
      
      -
      
      
      1,443,888
      
      
      -
      
      -Investment income
      
      -
      
      
      (3,373,044)
      
      
      (6,461,170)
      
      (1,026,577)Loss on disposal of property and equipment
      
      49,900
      
      
      48,832
      
      
      88,148
      
      14,005Allowance for doubtful accounts
      
      4,044,232
      
      
      5,482,636
      
      
      2,832,646
      
      450,062Provision for    loss in inventory and work in process
      
      1,103,382
      
      
      3,138,266
      
      
      4,184,469
      
      664,845Compensation    expenses for options granted to employees
      
      4,464,698
      
      
      3,930,160
      
      
      3,937,919
      
      625,672Compensation    expenses for restricted shares awarded to directors and senior management
      
      1,711,356
      
      
      1,596,715
      
      
      1,370,689
      
      217,781Deferred income taxes
      
      (1,513,216)
      
      
      (1,770,001)
      
      
      (2,691,481)
      
      (427,633)Foreign exchange gain (loss)
      
      (134,451)
      
      
      295,552
      
      
      (141,638)
      
      (22,504)Non-controlling interest
      
      (2,099,874)
      
      
      (1,606,146)
      
      
      (511,423)
      
      (81,257)Changes in assets and liabilities:Trade receivables
      
      2,898,851
      
      
      (3,357,770)
      
      
      (9,051,744)
      
      (1,438,178)Refundable value added tax
      
      155,403
      
      
      (55,367)
      
      
      (4,295,257)
      
      (682,448)Advances to employees
      
      1,593,262
      
      
      (1,886,714)
      
      
      720,142
      
      114,419Advances to suppliers
      
      (98,852)
      
      
      (1,939,238)
      
      
      1,703,355
      
      270,636Other receivables
      
      (3,077,188)
      
      
      (321,291)
      
      
      3,163,605
      
      502,646Prepaid expenses
      
      (744,422)
      
      
      757,414
      
      
      (794,600)
      
      (126,249)Inventory and work in process
      
      (3,771,348)
      
      
      (13,226,638)
      
      
      (16,554,487)
      
      (2,630,243)Trade payables
      
      3,434,690
      
      
      (2,108,399)
      
      
      6,036,907
      
      959,168Other payables
      
      4,770,671
      
      
      2,533,262
      
      
      1,533,607
      
      243,666Accrued expenses
      
      3,184,765
      
      
      6,094,865
      
      
      (1,392,446)
      
      (221,237)Taxes payable
      
      (948,478)
      
      
      (677,294)
      
      
      (2,345,297)
      
      (372,630)Advances from customers
      
      3,346,161
      
      
      26,218,042
      
      
      7,465,494
      
      1,186,148**Net cash provided by (used    in) operating activities**
      ¥
      10,574,980
      
      ¥
      20,667,430
      
      ¥
      (6,519,237)
      $
      (1,035,804)******Cash flows from investing    activities:**Purchases of property and equipment
      ****
      (3,024,457)
      
      
      (2,835,284)
      
      
      (1,425,678)
      
      (226,517)Payments for intangible assets
      
      (9,226,066)
      
      
      (2,455,360)
      
      
      (8,220,522)
      
      (1,306,109)Long-term investment
      
      -
      
      
      (240,000)
      
      
      -
      
      -Acquisition of Proadvancer
      
      -
      
      
      (15,000,000)
      
      
      -
      
      -Cash received    from disposal of property and equipment
      
      -
      
      
      -
      
      
      3,000
      
      477Disposal of investments
      
      -
      
      
      2,633,092
      
      
      5,895,999
      
      936,780**Net cash used in investing    activities**
      ¥
      (12,250,523)
      
      ¥
      (17,897,552)
      
      ¥
      (3,747,201)
      $
      (595,369)
 
 See the accompanying notes to consolidated financial statements.
  F-8
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011 (CONTINUED)
 
 **Chinese    Yuan (Renminbi)**
      
      **U.S. Dollars******
      ****
      ****
      **For the**********
      ****
      ****
      **Year    Ended**********
      **For    the Years Ended December 31,**
      ****
      **December    31,******
      **2009**
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      ****
      **2011****Cash flows from financing    activities:**
      
      
      ****
      ****
      
      ****
      ****
      ****
      ****
      ****Issuance of    ordinary shares for cash, net of offering costs paid
      ¥
      -
      
      ¥
      12,158,095
      
      ¥
      -
      $
      -Proceeds from exercise of options
      
      -
      
      
      36,068
      
      
      -
      
      -Cash paid for the redemption of convertible notes
      
      -
      
      
      -
      
      
      (6,329,300)
      
      (1,005,624)**Net cash provided by (used    in) financing activities**
      ¥
      -
      
      ¥
      12,194,163
      
      ¥
      (6,329,300)
      $
      (1,005,624)**Effect of exchange rate    changes on cash and cash equivalents**
      
      2,685
      
      
      (311,739)
      
      
      (14,362)
      
      (2,282)**Net increase (decrease) in    cash and cash equivalents**
      
      (1,672,858)
      
      
      14,652,302
      
      
      (16,610,100)
      
      (2,639,079)**Cash and cash equivalents    at beginning of year**
      
      60,787,734
      
      
      59,114,876
      
      
      73,767,178
      
      11,720,424**Cash and cash equivalents    at end of year**
      ¥
      59,114,876
      
      ¥
      73,767,178
      
      ¥
      57,157,078
      $
      9,081,345**Supplemental cash flow    information**Interest paid
      ¥
      450,826
      
      ¥
      660,000
      
      ¥
      482,048
      $
      76,590Income tax paid
      ¥
      -
      
      ¥
      230,961
      
      ¥
      3,758,088
      $
      597,100**Non-cash Investing and    Financing Activities**Issuance of ordinary shares in Health Field acquisition
      ¥
      594,383
      
      ¥
      -
      
      ¥
      -
      $
      -Issuance of ordinary shares in Royalstone acquisition
      ¥
      -
      
      ¥
      6,426,470
      
      ¥
      -
      $
      -Issuance of ordinary shares in Proadvancer acquisition
      ¥
      -
      
      ¥
      15,000,000
      
      ¥
      -
      $
      -
 
 See the accompanying notes to consolidated financial statements.
  F-9
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
 
 *Organization*
 
 eFuture Information Technology Inc. (the "Company") is a Cayman Islands Corporation. Its wholly owned subsidiary eFuture (Beijing) Tornado Information Technology Inc. is located in Beijing, the People's Republic of China (the "PRC"). In August 2007, eFuture (Beijing) Tornado Information Technology Inc. was renamed as eFuture (Beijing) Royalstone Information Technology Inc. ("eFuture Beijing"). The Company is a holding company with no operations of its own. All of its operations are conducted through eFuture Beijing.
 
 On November 6, 2007, the Company acquired 51% majority equity interests in Beijing Fuji Biaoshang Information Technology Co., Ltd. ("Biaoshang") through certain nominee pursuant to an equity transfer agreement between the certain nominee and the original shareholders. On May 14, 2008, the Company acquired 51% majority equity interests in Beijing Wangku Hutong Information Technology Co., Ltd. ("Wangku") through certain nominee pursuant to an equity transfer agreement between the certain nominee and the original shareholders. Biaoshang and Wangku were treated as variable interest entities ("VIEs") before disposal (see note 13).
 
 On July 16, 2010 and March 13, 2011, the Company disposed all its equity interest in Biaoshang and Wangku, respectively. For the years ended December 31, 2009, 2010 and 2011, the operating results of Biaoshang and Wangku were reported as discontinued operations in the consolidated statements of operations (see note 3).
 
 The Company acquired control over a 100% equity interests in Beijing Changshengtiandi Ecommerce Co., Ltd. ("Changshengtiandi") through certain nominees on January 18, 2011. Changshengtiandi was treated as a variable interest entity ("VIE") for the period from January 18, 2011 to December 31, 2011 (see note 13).
 
 The Company, its subsidiary and VIEs are collectively referred to as the "Group".
 
 *Nature of Operations*
 
 The Group is mainly engaged in developing and selling Enterprise Resource Planning (ERP) software and providing ONE-STOP solutions for distribution, retail and logistics businesses focused on the supply chain front market for manufacturers, retailers, distributors and third party logistics, and in providing the related system integration service and technical training services. Systems integration services involve system design and system implementation through the application of the software as well as ongoing technical supporting services. Revenues are generated solely from sales to customers in China.
  F-10
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
 
 *Basis of Presentation*
 
 The accompanying consolidated financial   statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). Significant accounting policies followed by the Group in the preparation of its accompanying consolidated financial statements are summarized below.
 
 *Principles of Consolidation*
 
 The consolidated financial statements include the financial statements of the Company, its subsidiary and VIEs for which the Company is the primary beneficiary. All significant transactions and balances among the Company, its subsidiary and VIEs have been eliminated upon consolidation.
 
 A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to appoint or remove the majority of the members of the board of directors; to cast majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
 
 The Company applies guidance that requires certain VIEs to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.
 
 *Accounting Estimates*
 
 The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including trade receivables, inventory and work in process, property and equipment, intangible assets, goodwill and derivative liabilities, and the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could materially differ from these estimates.
 
 *Foreign Currency Translation*
 
 The Group's reporting and functional currency is the Renminbi ("RMB"), the official currency in the PRC. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates quoted by the People's Bank of China (the "PBOC") prevailing at the dates of the transactions. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates quoted by the PBOC at the applicable balance sheet dates. All such exchange gains or losses are included in foreign currency exchange gain (loss) in the consolidated statements of operations. Non-monetary assets denominated in foreign currencies have been remeasured at historical rates.
  F-11
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 *Convenience Translation*
 
 The consolidated financial statements as of and for the year ended December 31, 2011 have been translated into
U.S. dollars ("US$" or "$") solely for the convenience of the reader. Translations of amounts from RMB into US$ have been calculated at the exchange rate of RMB6.2939 per US$1.00, as published on the website of the Federal Reserve Bank of New York as at December 31, 2011. These translated U.S. dollar amounts should not be construed as representing Chinese Yuan amounts or that the Chinese Yuan amounts have been or could be converted, realized or settled into U.S. dollars at that rate on December 31, 2011, or at any other rate.
 
 *Fair Values of Financial Instruments*
 
 The Group records certain of its financial assets and liabilities at fair value on a recurring basis. Fair value reflects the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability.
 
 The Group applies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:
 
 Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
 
 Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
 
 Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
 
 The carrying amount of cash and cash equivalents, trade receivables, other receivables, other receivables due from previously consolidated entities, advances to suppliers, refundable value added tax, advances to employees, prepaid expenses, trade payables, taxes payable, other payables, accrued liabilities and advances from customers approximates fair value due to their immediate or short-term nature. The single compound embedded derivative within convertible notes we issued was recorded at fair value at the date of issuance, which was measured by using unobservable (Level 3) inputs.
 
 *Cash and Cash Equivalents*
  F-12
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 Cash and cash equivalents are comprised of cash on hand and demand deposits with original maturities of no more than three months. As of December 31, 2011 and 2010, RMB57.2 million (US$9.1 million) and RMB73.3 million of the Group's cash and cash equivalents were not maintained in US banks or financial institutions, which are not protected by FDIC insurance or other insurance.
 
 *Trade and Other receivables, net*
 
 Trade receivables, net are stated at the amount management expects to collect from outstanding balances. An estimate for doubtful accounts is made when the collection is doubtful and a loss is probable and estimable. The Group maintains an allowance for potentially uncollectible trade receivables based on its assessment of the collectability of trade receivables. In evaluating the collectability of individual receivable balances, the Group considers many factors, including the age of the balance, the customer's past payment history, its current credit-worthiness and current economic trends.
 
 As of December 31, 2011, no customer individually accounted for more than 10% of total trade receivables.
 
 Other receivables consist of miscellaneous items arising from transactions with non-trade customers.
 
 The Group writes off receivables when they are deemed uncollectible, and payments subsequently received on the receivables for which doubtful accounts was specifically provided are recognized as other income in the consolidated financial statements.
 
 *Inventory and Work in Process*
 
 Inventory is comprised of purchased hardware and software available for resale and other consumable materials. Labor and overhead costs are allocated to each contract based on actual labor hours incurred. Work in process consists of labor and overhead costs and outsourced service fees incurred on services contracts that have not been completed. Inventory and work in process are stated at the lower of cost or net realizable value.
 
 Provisions are made for excess, slow moving and obsolete purchased hardware and software held for resale, as well as for inventories and work in process with carrying values in excess of net realizable value. The Group uses the future selling price less the estimated taxes and future expenditure as the estimates of net realizable value on contract basis.
 
 *Deferred Offering Costs*
 
 The Group capitalizes direct and incremental costs associated with the acquisition of equity financing, which will be netted against the actual equity proceeds. If the equity offering is abandoned, the deferred offering costs will be charged to expense.
 
 *Long-term Investments*
 
 The Group accounts for an equity investment over which it has significant influence but does not own a majority equity interest or otherwise control using the equity method. For equity investments over which the Group does not have significant influence, cost method accounting is used.
  F-13
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 On March 15, 2010, the Company acquired 15% of the equity interest of cFuture with total cash consideration of RMB240,000. The Company is required to perform an impairment assessment of its investments whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. As of December 31, 2011, the Company determined that such events and changes occurred and were other-than-temporary. Thus, impairment of RMB240,000 was made to write down the asset to its fair value and take the corresponding charge to the consolidated statements of operations.
 
 *Property and Equipment*
 
 Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:
 
 Motor    vehicles
      
      5 YearsLeasehold improvements
      
      shorter of 3 Years or Lease TermOffice equipment
      
      4 YearsCommunication    equipment
      
      4 YearsSoftware
      
      4 Years
 
 The cost of maintenance and repairs is charged to expense as incurred and major improvements are capitalized. Gains or losses on sales or retirements are included in the operation results in the year of disposition.
 
 *Intangible Assets - Computer Software Costs and Research and Development*
 
 The Group charges all development costs to research and development expenses which include salaries, contractor fees, utilities, administrative expenses and other allocated expenses until technological feasibility has been established. Technological feasibility is established when a detail program design or working model is completed. After reaching technological feasibility, additional software costs are capitalized until the software is available for general release to customers. The capitalized software development expenditures is subject to amortization on a straight-line basis over its estimated useful lives, which is the shorter of four years or the estimated period of realization of revenue from the related software. The subsequent expenditure in connection with major upgrade for the developed intangible assets is capitalized as incurred.
 
 *Business Combination and Goodwill*
 
 The Group accounts for business combination using the purchase method of accounting. This method requires that the acquisition cost to be allocated to the assets, including separately identifiable intangible assets, and the liabilities that the Group acquires based on their estimated fair values. The Group makes estimates and judgments in determining the fair value of the acquired assets and liabilities based on its experience with similar assets and liabilities in similar industries. If different judgments or assumptions were used, the amounts assigned to the individual acquired assets or liabilities could be materially different.
  F-14
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities of the acquired business. In a business acquisition, any acquired intangible assets that do not meet separate recognition criteria are recognized as goodwill.
 
 No amortization is recorded for goodwill. The Group tests goodwill on an annual basis or more frequently if an event occurs or circumstances change that could more likely than not reduce the fair value of the goodwill below its carrying amount. The impairment of goodwill is determined by estimating the fair value based upon the present value of future cash flows. In estimating the future cash flows, the Group takes into consideration the overall and industry economic conditions and trends, market risk of the Group and historical information.
 
 *Impairment of Long-lived Assets*
 
 Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amount of an asset may not be recoverable. The Group may recognize impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to these assets. If impairment exists, the impairment amount is recognized for the difference between the fair value of the asset and its carrying value.
 
 *Revenue Recognition*
 
 The Group recognizes revenue when (1) it has persuasive evidence of an arrangement, (2) delivery has occurred, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured. Delivery does not occur until products have been shipped or services have been rendered to the client and the client has signed a completion and acceptance report, risk of loss has transferred to the client, client acceptance provisions have lapsed, or the Group has objective evidence that the criteria specified in client acceptance provisions have been satisfied. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.
 
 The Group's policy requires the customers to make payments before delivery has occurred or service has rendered. Such unearned amounts billed to customers are recorded as advances from customers in the Group's consolidated financial statements, until the above criteria have been met.
 
 Revenue from software and hardware sales represents the invoiced value of products sold, net of a value-added tax ("VAT"). All of the Group's software and hardware that are sold in the PRC are subject to a Chinese VAT at a rate of 17% of the gross sales price or at a rate approved by the Chinese local government. This VAT may be offset by VAT paid by the Group on externally purchased software and hardware from suppliers. The VAT amounts paid and available for offset are maintained in current liabilities.
 
 In respect of revenues on self-developed software sales, a VAT refund at a rate of 14% of the gross sales price is approved by the Chinese local government. The VAT subjected to the refund is recorded as refundable value added tax in the Group's consolidated financial statements.
  F-15
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 The Group provides the following products and services: self-developed software, purchased software, purchased hardware, system design and integration, and professional services, including post contract maintenance and technical support.
 
 Software
 
 The Group sells self-developed software and software purchased from other vendors.
 
 For software sales, the Group recognizes revenues in accordance with ASC 985-605, Software Revenue Recognition. Revenue from perpetual (one-time charge) licensed software is recognized at the inception of the license term. Revenue from term (monthly license charge) arrangements is recognized on a subscription basis over the period that the customer is using the license. The Group does not provide any rights of return or warranties on its software.
 
 Revenues applicable to multiple-element fee arrangements are bifurcated among the elements such as software, hardware and post-contract service using vendor-specific objective evidence of fair value. Such evidence consists of pricing of multiple elements when those same elements are sold as separate products or arrangements. Software maintenance for the first year and initial training are included in the purchase price of the software. Initial training is provided at the time of installation and is recognized as income as part of the price of the software since it is minimal in value. Maintenance is valued based on the fee schedule used by the Group for providing the regular level of maintenance service as sold to customers when renewing their maintenance contracts on a stand alone basis.
 
 Software revenues include VAT refund received from the Chinese local government on the sales of certain software. Such refund is granted to the Group as part of the PRC government's policy to encourage software development in the PRC, and is recorded as a component of revenue when the relevant compliance requirements are met, there are no further obligations, and are not subject to future returns or reimbursements.
 
 Hardware
 
 Revenue from hardware sales is recognized when the product is shipped to the customer and there are no unfulfilled obligations that affect the customer's final acceptance of the arrangement. If hardware deliverable is one of the elements in a multiple-elements arrangement, the Group recognizes revenues in accordance with ASC subtopic 605-25 ("ASC 605-25"),  Revenue recognition: Multiple-Element Arrangements. Because generally the hardware is a standalone sale and the software components are not essential to the functionality of hardware. Revenue of hardware is carved out from the total consideration based on best estimated selling price which is cost plus a reasonable margin. The software components is within the scope of ASC985-605, which should applied the same method as software deliverables. By the adoption of ASU 2009-13 and ASU 2009-14 in 2011, there was no material impact on the consolidated financial statements.
 
 Services
 
 Professional service
 
 The Group provides system integration which involves the design and development of complex IT systems to the customer's specifications. These services are provided on a fixed-price contract and the contract terms are generally short-term. Revenue is recognized on the completed contract method when delivery and acceptance is determined by a completion report signed by the customer.
  F-16
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 The Group offers telephone and minimal on-site support to its customers. Revenue from maintenance services and technical support is recognized over the period of the agreement.
 
 For those contracts containing multiple-delivery elements of software, customization, training and 1 year maintenance service, residual method under ASC 985-605 is adopted. Vendor-specific objective evidence is only established for maintenance service by the renewal contract quoted at certain percentage of original contract price. There was no vendor-specific objective evidence established for other deliverables. If contract only contains a completion date, then upon the date obtained the "Final Acceptance Report" from customer, part of contract amount is recognised as revenue on completion method; the remaining part will be recognised evenly over the free maintenance service period.
 
 *Cost of Revenues*
 
 Costs associated with contracts are deferred and recognized as inventory and work in process until the services are rendered, the products and software are installed and delivered to and accepted by the customer. When the criteria for revenue recognition have been met, costs incurred are recognized as cost of revenues. Cost of revenues include labor costs, materials, overhead expenses, business taxes related to certain services revenues and other expenses associated with the development of IT systems to customers' specifications, the cost of purchased hardware and software, and costs related to technical support services. Amortization of capitalized software costs and costs of acquired technology are included in the cost of revenues.
 
 *Advertising Costs*
 
 Advertising costs are expensed when incurred. Total advertising expense were RMB133,247, RMB136,500, and RMB283,710 (US$45,077) for the years ended December 31, 2009, 2010 and 2011, respectively.
 
 *Income Taxes*
 
 The Group recognizes deferred income taxes under the asset and liability method. Deferred income taxes are recognized for differences between the financial statement carrying amounts and tax bases of assets and liabilities at enacted tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is recorded against deferred tax assets if management does not believe the Group has met the "more likely than not" standard imposed by ASC subtopic 740-10.
 
 The Group adopted the provisions of ASC subtopic 740-10 ("ASC 740-10"), Income Taxes: Overall, on January 1, 2008. ASC 740-10 clarified the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. The Group did not incur a cumulative effect adjustment upon adoption of ASC 740-10 nor did the standard have a material impact on the Group's financial statements for the years ended December 31, 2009, 2010 and 2011.
  F-17
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 In general, the PRC tax authorities have up to five years to conduct examinations of the Group's tax filings. Accordingly, the PRC subsidiaries' tax years 2007-2011 remain open to examination by the respective taxing jurisdictions.
 
 *Statutory Reserves*
 
 eFuture Beijing, as a wholly foreign owned enterprise incorporated in the PRC, is required on an annual basis to make appropriations of net profits, after the recovery of accumulated deficit, to a general reserve fund and a staff bonus and welfare fund. These reserve funds are set at certain percentage of after-tax profit determined in accordance with PRC accounting standards and regulations (the "PRC GAAP"). The percentage of the appropriation for general reserve fund is at least 10%, and the percentage of the appropriation for staff bonus and welfare fund is at the discretion of its boards of directors.
 
 Wangku, Biaoshang and Changshengtiandi, as domestic enterprises incorporated in the PRC, are required on an annual basis to make an appropriation of net profits, after the recovery of accumulated deficit, to a statutory reserve fund. The statutory reserve fund is set at the percentage of not lower than 10% of the after-tax profit determined in accordance with the PRC GAAP.
 
 Once the level of the general reserve fund and the statutory reserve fund reach 50% of the registered capital of the underlying entities, further appropriations to these funds are discretionary. The Group's statutory reserves can only be used for specific purposes of enterprises expansion and staff bonus and welfare, and are not distributable to the shareholders except in the event of liquidation. Appropriations to these funds are accounted for as transfers from retained earnings to the statutory reserves.
 
 For the years ended December 31, 2009 and 2010, respectively, no appropriation was made to the above statutory reserves. For the year ended December 31, 2011, RMB221,507 was made to statutory reserves of eFuture Beijing. As of December 31, 2010 and 2011, the amount comprising the general reserve fund of RMB3,084,020 and RMB3,305,527, respectively.
 
 *Dividends*
 
 Dividends are recorded when declared. No dividends were declared for the years ended December 31, 2009, 2010 and 2011, respectively.
 
 PRC regulations currently permit payment of dividends only out of accumulated profits as determined in accordance with PRC GAAP. The Company's PRC subsidiaries can only distribute dividends after they have met the PRC requirements for appropriation to statutory reserves (see note 2, Statutory Reserves).
 
 *Convertible Debt and Embedded Derivatives*
 
 The Group applies ASC subtopic 470-20 ("ASC 470-20"), Debt with Conversion Options — Recognition. The Group identifies any embedded derivative instruments that may be contained within its convertible debt instruments in accordance with the provisions of ASC subtopic 815-10 ("ASC 815-10"), Derivatives and Hedging — Overall and records the fair value of such derivatives separately from the value of the host instrument. Changes in the fair value of the derivative instruments are recorded in the consolidated statements of operations for each reporting period. The fair value of the embedded derivative is bifurcated from the host contract at inception and is recorded as a discount to the face value of the convertible debt. The discount is amortized as additional finance cost over the period of the debt. Refer to note 16 for more detail.
  F-18
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 *Net Earnings (Loss) per share of Ordinary shares*
 
 Basic earnings (loss) per share is computed by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive potential ordinary equivalents shares outstanding during the period. Potential ordinary shares equivalents consist of shares issuable upon the conversion of preferred stock, convertible notes, the exercise of stock options and warrants and restricted shares subject to cancellation.
 
 *Share-Based Compensation*
 
 The Company accounts for share-based compensation in accordance with ASC subtopic 718-10 ("ASC 718-10"), Compensation-Stock Compensation: Overall. Under the provisions of ASC 718-10, share-based compensation cost is estimated at the grant date based on the award's fair value as calculated by the Black-Scholes-Merton (BSM) option-pricing model and is recognized as expense net of a forfeiture rate over the requisite service period. The BSM model requires various highly judgmental assumptions including volatility and expected option life. Volatility is measured using historical daily price changes of ordinary shares over the respective expected life of the option. Expected option life is the number of years that the Company estimates, based on the vesting and contractual terms and employee demographics. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change. If any of the assumptions used in the BSM model change significantly, share-based compensation expenses may differ materially in the future from that recorded in the current period.
 
 *Recently Enacted Accounting Standards*
 
 In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income: Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance should be applied retrospectively. For public entities, the guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This guidance allows the FASB to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before update the pronouncement issued in June 2011. The Company does not expect the adoption of this guidance to have a significant effect on its consolidated financial statements.
  F-19
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other: Testing Goodwill for Impairment. The guidance is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. The guidance permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if a public entity's financial statements for the most recent annual or interim period have not yet been issued. The Group is now assessing the impact on its financial condition or results of operations for adoption of this accounting pronouncement.
 
 In December 2011, the FASB has issued ASU No. 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities. The guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company is in the process of evaluating the effect of adoption of this guidance on its consolidated financial statements.
 
 NOTE 3. Disposition and Discontinued Operations
 
 On July 16, 2010, the Company sold its 51% ownership stake in Biaoshang to Mr. Peter Jiang, Biaoshang's founder and Chief Executive Officer, for cash consideration of RMB3,468,000. The Company will not have any continuing involvement in the operations of Biaoshang.
 
 On March 13, 2011, the Company sold its 51% ownership stake in Wangku to Mr. Wang Haibo, Wangku's founder and Chief Executive Officer, for cash consideration of RMB6,000,000 (US$953,304). The Company will not have any continuing involvement in the operations of Wangku.
 
 After disposal of Biaoshang and Wangku, they were no longer related parties of the Company.
  F-20
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 The financial results of the discontinued operations for the years ended December 31, 2009, 2010 and 2011 were as follows:
 
 **Chinese    Yuan (Renminbi)**
      
      **U.S. Dollars******
      ****
      ****
      **For the**********
      ****
      ****
      **Year    Ended**********
      **For    the Years Ended December 31,**
      ****
      **December    31,******
      **2009**
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      ****
      **2011****Revenues**
      
      
      ****
      ****
      
      ****
      ****
      ****
      ****
      ****Service fee revenue
      ¥
      13,431,755
      
      ¥
      9,235,836
      
      ¥
      1,740,799
      $
      276,585**Total Revenues**
      
      13,431,755
      
      
      9,235,836
      
      
      1,740,799
      
      276,585**Cost of revenues**Cost of service    fee revenue
      
      (1,412,821)
      
      
      (1,026,319)
      
      
      (192,320)
      
      (30,557)Amortization of    acquired technology
      
      (469,389)
      
      
      (320,312)
      
      
      (48,097)
      
      (7,641)**Total Cost of Revenues**
      
      (1,882,210)
      
      
      (1,346,631)
      
      
      (240,417)
      
      (38,198)******Gross Profit**
      
      11,549,545
      
      
      7,889,205
      
      
      1,500,382
      
      238,387******Operating Expenses**General and administrative expenses
      
      (9,116,300)
      
      
      (7,513,153)
      
      
      (1,560,645)
      
      (247,962)Selling and    distribution expenses
      
      (6,764,473)
      
      
      (3,699,450)
      
      
      (1,025,957)
      
      (163,008)Impairment loss    of goodwill
      
      (762,000)
      
      
      -
      
      
      -
      
      -**Total Operating Expenses**
      
      (16,642,773)
      
      
      (11,212,603)
      
      
      (2,586,602)
      
      (410,970)******Loss from operations**
      
      (5,093,228)
      
      
      (3,323,398)
      
      
      (1,086,220)
      
      (172,583)******Other income (expenses)**Interest income
      
      4,805
      
      
      1,683
      
      
      2
      
      -Interest    expenses
      
      (172,252)
      
      
      (276,447)
      
      
      (5,600)
      
      (890)Gain on    extinguishment of debt
      
      -
      
      
      234,397
      
      
      -
      
      -Income on    investments
      
      -
      
      
      3,427,236
      
      
      6,701,170
      
      1,064,709**Gain (****L****oss) before income tax**
      
      (5,260,675)
      
      
      63,471
      
      
      5,609,352
      
      891,236Less: Income tax expenses****
      
      116,912
      
      
      -
      
      
      -
      
      -**Gain (****L****oss) from discontinu****ed****operations**
      ¥
      (5,377,587)
      
      ¥
      63,471
      
      ¥
      5,609,352
      $
      891,236
 
 The assets and liabilities of the discontinued operations as of December 31, 2010 and 2011 were as follow:
  F-21
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
  ****
      ****
      **Chinese    Yuan (Renminbi)**
      
      **U.S. Dollars******
      ****
      ****
      **December    31,**
      ****
      **December    31,******
      ****
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      ****
      **2011****Current****assets of discontinued operations**Cash and cash equivalents
      
      
      
      ¥
      516,322
      
      ¥
      -
      $
      -Trade    receivables, net of allowance for doubtful accounts of ¥5,074,647 and nil,    respectively
      
      
      
      750,334
      
      
      -
      
      -Other current assets
      
      
      
      
      326,357
      
      
      -
      
      -**Total    current assets of discontinued operations**
      
      
      
      ¥
      1,593,013
      
      ¥
      -
      $
      -**Non-current    assets of discontinued operations**Property and    equipment, net of accumulated depreciation of ¥1,312,801 and nil, respectively
      
      
      ¥
      891,334
      
      ¥
      -
      $
      -Intangible    assets, net of accumulated amortization of ¥596,405 and nil, respectively
      
      
      
      2,866,595
      
      
      -
      
      -Goodwill
      
      
      
      
      9,504,191
      
      
      -
      
      -**Total non-current assets of    discontinued operations**
      
      
      
      ¥
      13,262,120
      
      ¥
      -
      $
      -******Liabilities of discontinued    operations**Trade and other payables
      
      
      
      ¥
      7,566,523
      
      ¥
      -
      $
      -Other payables due to eFuture Beijing
      
      
      
      
      3,095,000
      
      
      -
      
      -Advances from customers
      
      
      
      
      7,382,624
      
      
      -
      
      -Other current liabilities
      
      
      
      
      138,328
      
      
      -
      
      -**Total liabilities of    discontinued operations**
      
      
      
      ¥
      18,182,475
      
      ¥
      -
      $
      -
 
 The other payables due to eFuture Beijing were entrusted loans from eFuture Beijing to Biaoshang and Wangku, which was previously eliminated when the Biaoshang and Wangku had not been treated as discontinued operations. They were also presented as other receivables due from previously consolidated entities in the consolidated balance sheets.
 
 As of December 31, 2011, the Company made a bad debt provision of RMB1,200,000 for other receivables due from previously consolidated entities, as certain circumstance indicated that the collectability of it could not be reasonably assured.
 
 NOTE 4. TRADE RECEIVABLES
 
 The trade receivables amount included in the consolidated balance sheets as of December 31, 2010 and 2011 were as follows:
  F-22
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
  **Chinese Yuan (Renminbi)**
      
      **U.S. Dollars****December 31,**
      ****
      **December 31,******
      **2010**
      ****
      ****
      **2011**
      
      **2011**Trade    receivables
      
      ¥
      17,564,984
      
      ¥
      23,463,849
      
      $
      3,728,030Less :    Allowance for doubtful accounts
      
      
      (2,987,733)
      
      
      (3,559,207)
      
      
      (565,501)Trade    receivables, net
      
      ¥
      14,577,251
      
      ¥
      19,904,642
      
      $
      3,162,529
 
 The movement of the allowance for doubtful accounts during the years was as follows:
 
  **Chinese Yuan (Renminbi)**
      
      **U.S. Dollars****December 31,**
      ****
      **December 31,******
      **2010**
      ****
      ****
      **2011**
      
      **2011**Balance at the beginning    of the year
      
      ¥
      2,088,870
      
      ¥
      2,987,733
      
      $
      474,703Provision for the year
      
      
      2,416,346
      
      
      4,118,618
      
      
      654,382Write-offs
      
      
      (1,517,483)
      
      
      (3,547,144)
      
      
      (563,584)Balance at the end of the year
      
      ¥
      2,987,733
      
      ¥
      3,559,207
      
      $
      565,501
 
 NOTE 5. INVENTORY AND WORK IN PROCESS
 
 The inventory amounts included in the consolidated balance sheets as of December 31, 2010 and 2011 comprised of:
 
  **Chinese Yuan (Renminbi)**
      
      **U.S. Dollars****December 31,**
      ****
      **December 31,******
      **2010**
      ****
      ****
      **2011**
      
      **2011**Work in process
      
      ¥
      15,665,108
      
      ¥
      23,687,248
      
      $
      3,763,525Purchased hardware and software held for    resale
      
      
      3,098,844
      
      
      8,822,088
      
      
      1,401,689Less: Inventory provision
      
      
      (3,138,266)
      
      
      (4,507,846)
      
      
      (716,225)Total inventories, net
      
      ¥
      15,625,686
      
      ¥
      28,001,490
      
      $
      4,448,989
 The movement of inventory provision related to loss making contracts during the years was as follows:
 
  **Chinese Yuan (Renminbi)**
      
      **U.S. Dollars****December 31,**
      ****
      **December 31,******
      **2010**
      ****
      ****
      **2011**
      
      **2011**Balance at    the beginning of the year
      
      ¥
      1,103,382
      
      ¥
      3,138,266
      
      $
      498,620Add:    Current year additions
      
      
      3,138,266
      
      
      4,184,469
      
      
      664,845Less:    Current year reversal
      
      
      (1,103,382)
      
      
      (2,814,889)
      
      
      (447,240)Balance at    the end of the year
      
      ¥
      3,138,266
      
      ¥
      4,507,846
      
      $
      716,225
  F-23
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 NOTE 6. PROPERTY AND EQUIPMENT, NET
 
 Property and equipment included in the consolidated balance sheets as of December 31, 2010 and 2011 comprised of:
 
  **Chinese Yuan (Renminbi)**
      
      **U.S. Dollars****December 31,**
      ****
      **December 31,******
      **2010**
      ****
      ****
      **2011**
      
      **2011**Motor    vehicles
      
      ¥
      1,303,570
      
      ¥
      1,243,443
      
      $
      197,563Leasehold    improvements
      
      
      2,316,999
      
      
      2,477,265
      
      
      393,598Office    equipment
      
      
      4,929,463
      
      
      4,994,735
      
      
      793,585Communication    equipment
      
      
      61,963
      
      
      61,871
      
      
      9,830Software
      
      
      647,622
      
      
      902,188
      
      
      143,343Total
      
      
      9,259,617
      
      
      9,679,502
      
      
      1,537,919Less:    Accumulated depreciation
      
      
      (4,641,786)
      
      
      (5,748,528)
      
      
      (913,349)Property    and equipment, net
      
      ¥
      4,617,831
      
      ¥
      3,930,974
      
      $
      624,570
 
 Depreciation expense was RMB1.0 million, RMB1.7 million and RMB2.0 million (US$0.3 million) for the years ended December 31, 2009, 2010, and 2011, respectively.
 
 NOTE 7. GOODWILL AND INTANGIBLE ASSETS, NET
 
 The carrying amount of goodwill included in the consolidated balance sheets as of December 31, 2010 and 2011 were RMB80,625,667 (US$12,810,128). The balance represents the goodwill arising from the Group's acquisition of Royalstone, Health Field and Proadvancer.
 
 The Group completed its annual impairment test of goodwill using a discounted cash flow method and determined that the carrying value of the reporting unit exceeded its fair value. The value of the reporting unit implied by the test was based on management's assessment of the Group's business strategy and the related expected future cash flows based on working capital requirements. The Group has not recognized any impairment loss on goodwill.
 
 The Group completed its annual impairment test of goodwill as of December 31, 2009 arising from its acquisition of 51% equity interest in Wangku using the same method mentioned above and determined that the carrying value of the reporting unit exceeded the fair value of the reporting unit. The value of the reporting unit implied by the test was based on management's current assessment of the time frame for recovery of the retail and consumer goods industries and the related expected future cash flows based on working capital requirements. In addition, the lack of success in implementing new sales capabilities and practices at Wangku to convert more prospects into actual deals due to general economic conditions and competition from existing competitors also attributed to reductions in expected future cash flows. The Group recorded a goodwill impairment loss of RMB762,000, nil and nil for the years ended December 31, 2009, 2010 and 2011, respectively.
  F-24
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 Intangible assets included in the consolidated balance sheets as of December 31, 2011 and 2010 comprised of:
 
  ****
      ****
      ****
      **Weighted    Average Amortization Period**
      ****
      **Gross    Carrying Amount**
      ****
      **Accumulated    Amortization**
      ****
      ****
      ****
      **Net    Book Value**Customer relationship
      
      
      4.48 years
      
      ¥
      36,270,003
      
      ¥
      32,970,671
      
      
      ¥
      3,299,332
      
      $
      524,211Software
      
      
      5 years
      
      
      6,588,516
      
      
      5,327,401
      
      
      
      1,261,115
      
      
      200,371Internally generated software
      
      
      4 years
      
      
      39,803,101
      
      
      27,548,572
      
      
      
      12,254,529
      
      
      1,947,049Trademark
      
      
      Indefinite
      
      
      376,000
      
      
      -
      
      
      
      376,000
      
      
      59,740Balance at December 31, 2011
      
      
      
      ¥
      83,037,620
      
      ¥
      65,846,644
      
      
      ¥
      17,190,976
      
      $
      2,731,371
 
  ****
      ****
      **Weighted Average Amortization Period**
      ****
      **Gross Carrying Amount**
      ****
      **Accumulated Amortization**
      ****
      ****
      **Net Book Value**Customer    relationship
      
      4.48 years
      
      ¥
      36,270,003
      
      ¥
      26,426,893
      
      ¥
      9,843,110Software
      
      5 years
      
      
      6,573,943
      
      
      4,019,688
      
      
      2,554,255Internally    generated software
      
      4 years
      
      
      33,658,347
      
      
      24,241,241
      
      
      9,417,106Trademark
      
      Indefinite
      
      
      2,450,000
      
      
      -
      
      
      2,450,000Balance    at of December 31, 2010
      
      
      
      
      ¥
      78,952,293
      
      ¥
      54,687,822
      
      ¥
      24,264,471
 
 Amortization expense for the years ended December 31, 2009, 2010 and 2011 was RMB15.8 million, RMB15.1 million and RMB11.2 million (US$1.8 million), respectively. Unamortized capitalized software costs as of December 31, 2010 and 2011 was RMB3.7 million and RMB8.1 million (US$1.3 million), respectively.
 
 The  Group determined the fair value of intangible assets based on the expected  future cash flows generated by them. The Group recorded an impairment loss of  RMB2.4 million and RMB2.06 million (US$0.33 million) for the years ended  December 31, 2010 and 2011, respectively for certain internally  generated software which had or were not expected to generate future revenue,  or be sellable to a third party, and did not fit the Company's development  strategy going forward. In addition, the Group recorded an impairment loss of  nil and RMB2.07 million (US$0.33 million) for the years ended December 31, 2010  and 2011, respectively for a trade name acquired during the business  combination in 2007 which was not expected to generate sufficient future  cashflow as the market is inclined to pursue more advanced technical platform  than that under this trade name.
  F-25
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 Estimated aggregate amortization related to the existing intangible assets with definite lives for the each of succeeding five years is as follows:
 
 **Chinese Yuan**
      ****
      ******(Renminbi)**
      
      
      **U.S. Dollars**For the years ending December 31,2012
      
      ¥
      6,514,204
      
      $
      1,035,0032013
      
      
      3,297,631
      
      
      523,9412014
      
      
      2,839,931
      
      
      451,2202015
      
      
      2,495,640
      
      
      396,5172016
      
      
      1,496,324
      
      
      237,742Thereafter
      
      
      171,246
      
      
      27,207
 
 NOTE 8. OTHER PAYABLES
 
 Other payables included in the consolidated balance as of December 31, 2010 and 2011 comprised of:
 
 **Chinese Yuan (Renminbi)**
      
      **U.S. Dollars****December 31,**
      ****
      **December 31,******
      **2010**
      ****
      ****
      **2011**
      
      **2011**Social welfare accrual
      
      ¥
      7,653,491
      
      ¥
      9,469,618
      
      $
      1,504,571Expenses payable to employees
      
      
      1,558,915
      
      
      1,463,057
      
      
      232,456Individual income tax payable
      
      
      1,426,367
      
      
      1,411,652
      
      
      224,289Miscellaneous payable
      
      
      597,754
      
      
      180,973
      
      
      28,754Total other payables
      
      ¥
      11,236,527
      
      ¥
      12,525,300
      
      $
      1,990,070
 
 NOTE 9. ACCRUED EXPENSES
 
 Accrued expenses included in the consolidated balance sheets as of December 31, 2010 and 2011 comprised of:
 
 **Chinese Yuan (Renminbi)**
      
      **U.S. Dollars****December 31,**
      ****
      **December 31,******
      **2010**
      ****
      ****
      **2011**
      
      **2011**Accrued payroll
      
      ¥
      13,414,129
      
      ¥
      11,327,859
      
      $
      1,799,815Accrued rental fee
      
      
      -
      
      
      1,069,196
      
      
      169,878Accrued audit fee
      
      
      1,016,400
      
      
      905,175
      
      
      143,818Other accruals
      
      
      1,570,437
      
      
      1,161,883
      
      
      184,605Total accrued expenses
      
      ¥
      16,000,966
      
      ¥
      14,464,113
      
      $
      2,298,116
  F-26
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 NOTE 10. STOCKHOLDERS' EQUITY
 
 *Preferred stock*
 
 The Company's Articles of Association allows for the issuance of convertible preferred stock in the amount of 10,000,000 shares at a par value of $0.0756 per share with the rights as described in those articles. Holders of the preferred stock have the same voting rights as holders of ordinary stock. All other material rights are to be determined by special resolution of the Company. No shares of convertible preferred stock have been issued as of December 31, 2010 and 2011.
 
 *Ordinary shares*
 
 During October 2006 the Company closed its initial public offering of 1,133,500 ordinary shares at RMB47.27 per share under the terms of the offering and realized gross proceeds of RMB53,581,679 before cash offering costs of RMB8,738,655. In addition, the Company issued the placement agents warrants to purchase 113,350 ordinary shares at RMB56.19 per share for a period of five years. The Company accounted for the warrants as an additional offering cost. On December 21, 2007, warrants to purchase 20,000 ordinary shares were exercised. The Company received RMB1,060,992 proceeds and recorded RMB1,049,852 additional paid-in capital. On October 3, 2007, $5,000,000 of convertible notes was converted into 200,080 ordinary shares at a conversion price of $24.99 per share; the Company recorded RMB47,305,512 additional paid-in capital for this conversion. In connection with the Royalstone acquisition, the Company issued 71,122 ordinary shares on December 31, 2007 as part of the satisfaction of the purchase obligation.
 
 On January 3, January 7, March 19 and May 5 of 2008, warrants to purchase 20,000, 16,675, 16,675 and, 17,500 ordinary shares were exercised by the placement agents of the initial public offering, respectively. The Company received RMB3,657,908 proceeds and recorded RMB3,619,526 additional paid-in capital. In July and August of 2008, US$4,000,000 of convertible notes was converted into 210,526 ordinary shares at a conversion price of $19 per share; the Company recorded RMB14,834,371 additional paid-in capital for this conversion. In connection with the Royalstone acquisition, the Company issued 66,035 ordinary shares on September 1, 2008 as part of the satisfaction of the purchase obligation, and finally, the Company issued 83,944 and 6,184 ordinary shares on September 1, 2008 and November 25, 2008 to the Proadvancer and Healthfield acquisition, respectively.
 
 On November 18, 2009, in connection with the Healthfield acquisition, the Company issued 6,183 ordinary shares as the final satisfaction of the purchase obligation.
 
 On December 11, 2009, the Company adopted a share incentive plan (the "2009 Plan"), which reserved 332,000 ordinary shares for issuance. Under 2009 Plan, 84,000 and 69,000 restricted shares are granted to members of the board of directors and senior management, respectively. The Company recorded RMB1,711,356 additional paid-in capital for this award. Restricted shares vested over a three year period with the first 25% vested on the grant day. No restricted shares were issued or registered as of December 31, 2011.
  F-27
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 On February 11 and February 12, 2010, in connection with Royalstone acquisition and Proadvancer acquisition, the Company issued 169,584 and 60,405 ordinary shares as the final satisfaction of the purchase obligations, respectively.
 
 On March 29 and April 15, 2010, options to purchase 793 and 330 ordinary shares were exercised by two employees, respectively.
 
 On September 23, 2010, the Company signed a Share Purchase Agreement ("September Agreement") to sell 337,685 ordinary shares to 13 purchasers including board members, management and key employees of the Company for total cash consideration of RMB12.2 million (US$1.8 million). The price of the shares is equal to US$5.37 per share, the average closing price of the Company's ordinary shares for the 20 consecutive trading days ending on, and including, September 23, 2010. 152,604 of the shares was purchased by eFuture Inc., a Cayman Islands holding company controlled by the Company's chairman and Chief Executive Officer, Adam Yan. The remaining 185,081 shares were sold to 12 individuals including a board member (other than independent directors), management and key employees of the Company. The net proceeds from the sale of ordinary shares is used for general corporate purposes. The shares are restricted within 180-day lockup periods. The issuance or register of such shares was completed on January 6, 2011.
 
 Subsequent to the issuance in September Agreement, the Company was contacted by both Capital Ventures International ("Capital Ventures") and Hudson Bay Master Fund Ltd. ("Hudson Bay"), each of which holds Series A Warrants in connection with a financing transaction completed on March 13, 2007. Each of Capital Ventures and Hudson Bay claimed that the September Agreement constituted a dilutive issuance under their outstanding Series A Warrants. While the Company disagreed at the time with this analysis, it recognized that an adverse judicial determination could result in substantial dilution to existing shareholders if the anti-dilution features of the warrants were triggered. Specifically, the investors currently hold 184,077 warrants in the aggregate, exercisable at $28.25 per warrant. If a court determined that the anti-dilution provision was triggered, then these warrants would be exchanged for 968,376 warrants at an exercise price of $5.37 per share.
 
 In order to settle the disagreement with the warrant holders, the Company agreed with each of Capital Ventures and Hudson Bay to exchange the existing Series A Warrants for an equal number of new Series A Warrants and an additional 20,000 ordinary shares. On November 29, 2010, the Company entered into two separate exchange agreements (the "November Agreements") with Capital Ventures and Hudson Bay, whereby the Company exchanged the outstanding Series A Warrants held by each of Capital Ventures and Hudson Bay for a new Series A Warrants to purchase the same number of ordinary shares and under exactly the same terms prescribed by the Series A Warrants and an additional 20,000 ordinary shares of the Company which were restricted and could not be offered for sale, sold, transferred or assigned prior to May 28, 2011, respectively. The issuance or register of such shares was completed on January 6, 2011.
  F-28
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 The fair value of the ordinary shares of RMB1.4 million was recorded as additional paid-in capital and finance cost in the consolidated financial statements for the year ended December 31, 2010.
 
 NOTE 11. SHARE-BASED AWARDS PLAN
 
 On April 18, 2001, the Company adopted the 2001 Option Plan (the "2001 Plan"), under which 59,063 stock options were granted to key employees, each with an exercise price of $4.71, a contractual life of 11 years and evenly vest over a five-year period.
 
 Under the 2001 Plan, the Company's board of directors may amend or terminate the Plan at any time if required under the Plan, subject to shareholders' approval.
 
 On January 31, 2007, the Company adopted the 2005 Option Plan Set One (the "2005 Plan I"), under which 65,875 stock options were granted to key employees (including directors and senior management who are key employees), each with an exercise price of $25.42, a contractual life of 10 years and evenly vest over a five-year period.
 
 On September 17, 2007, the Company adopted the 2005 Option Plan Set Two (the "2005 Plan II"), under which 65,800 stock options were granted to key employees, each with an exercise price of $11.71, a contractual life of 10 years and evenly vest over a five-year period.
 
 Under the 2005 Plan I and Plan II, the Company's board of directors may amend or terminate the Plan at any time if required under the Plan, subject to shareholders' approval.
 
 On December 11, 2009, the Company adopted a share incentive plan (the "2009 Plan"), which provided for the granting of share incentives, including Incentive Stock Option (ISO) and restricted shares to the key employees. Under the 2009 Plan, 175,000 stock options were granted to the key employees with an exercise price of $6.55 and a contractual life of 10 years, 84,000 and 69,000 restricted shares are granted to members of the board of directors and senior management, receptively, with no cash consideration. Pursuant to the 2009 Plan, options and restricted shares evenly vest over a three-year period with the first 25% vested on the grant day.
 
 The 2009 Plan is administered by the Company's Nominee and Compensation Committee. The Nominee and Compensation Committee has the authority to determine the individuals who will receive grants, the type of grant, the number of shares subject to the grant, the terms of the grant, the time the grants will be made, the duration of any exercise or restriction period, and to deal with any other matters arising under the Plan. The Company's board of directors may amend or terminate the Plan at any time if required under the Plan, subject to shareholders' approval.
 
 On December 20, 2011, the Company's stockholders approved the Company's 2011 Share Incentive Plan (the "2011 Plan"), which provides for the granting of equity incentives, including stock options and restricted shares to the key employees. Under the 2011 Plan, 393,745 ordinary shares were reserved for grant in accordance with its terms. No options or restricted shares were granted as of December 31, 2011 under the 2011 Plan.
  F-29
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
 
 **2005 Plan I**
      
      
      **2005 Plan II**
      
      
      **2009 Plan**Grant    date
      
      
      January 31, 2007
      
      
      September 17, 2007
      
      
      December 11, 2009Expected    life
      
      
      6.5 years
      
      
      6.5 years
      
      
      5.25 yearsRisk-free    interest rate
      
      
      4.82%
      
      
      4.32%
      
      
      2.94%Expected    volatility
      
      
      75%
      
      
      75%
      
      
      100%Expected    dividend yield
      
      
      0%
      
      
      0%
      
      
      0%Forfeiture    rate
      
      
      3%
      
      
      3%
      
      
      3%
 
 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The Company recognized share-based compensation expense of 2005 Plan using a straight line basis over the requisite service period, whereas, the Company recognized share-based compensation expense of 2009 Plan using a graded vesting attribution method.
 
 A summary of option activity as of December 31, 2011, and changes during the year then ended is presented below:
 
 **Number**
      ****
      **Weighted-Average    Exercise Price**
      ****
      **Aggregate Intrinsic****Value******
      ****
      **Weighted-Average    Remaining Contractual Term (years)**Outstanding as of January 1, 2011
      
      330,000
      
      $
      10.48Add:  Granted
      
      -
      
      
      -Less:  Exercised
      
      -
      ****
      
      -Expired
      
      10,504
      ****
      $
      8.95Forfeited
      
      10,030
      ****
      $
      8.24Outstanding as of December 31, 2011
      
      309,466
      
      $
      10.91
      
      $
      -
      
      5.77Exercisable as of December 31, 2011
      
      250,896
      ****
      $
      10.78
      
      $
      -
      
      5.48
  F-30
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 For the year ended December 31, 2011, the number and weighted-average grant-date fair value for the Company's non-vested stock options were as follows:
 
 **Number**
      ****
      **Weighted-Average****Grant-date Fair Value******Non-vested on January 1, 2011
      
      127,390
      
      $
      9.79Add:  Granted
      
      -
      
      
      -Less:  Vested
      
      58,790
      ****
      $
      10.11Forfeited
      
      10,030
      ****
      $
      6.09Non-vested on December 31, 2011
      
      58,570
      
      $
      10.12
 
 For the year ended December 31, 2011, the number and weighted-average grant-date fair value for the Company's non-vested restricted shares were as follows:
 
 **Number**
      ****
      **Weighted-Average****Grant-date Fair Value******Non-vested on January 1, 2011
      
      73,500
      
      $
      6.55Add:  Granted
      
      -
      
      
      -Less:  Vested
      
      34,750
      ****
      $
      6.55Forfeited
      
      4,000
      ****
      $
      6.55Non-vested on December 31, 2011
      
      34,750
      
      $
      6.55
 
 The weighted-average grant-date fair value of stock options and restricted shares granted for the year ended December 31, 2009 was US$5.02 and US$6.55, respectively. No stock options or restricted shares were granted in 2010 or 2011.
 
 The total intrinsic value of stock options exercised for the year ended December 31, 2010 was US$1,887. No stock options were exercised in 2009 or 2011.
 
 The total fair value of stock options vested for the years ended December 31, 2009, 2010 and 2011 were RMB4.4 million, RMB4.25 million and RMB3.74 million (US$0.6 million), respectively.
 
 The total fair value of restricted shares vested for the years ended December 31, 2009, 2010 and 2011 were RMB1.7 million, RMB1.6 million and RMB1.4 million (US$0.2 million), respectively.
 
 Total compensation cost for share-based payment arrangement recognized for the years ended December 31, 2009, 2010 and 2011 were RMB6.2 million, RMB5.5 million and RMB5.3 million (US$0.8 million), respectively.
  F-31
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 As of December 31, 2011, the total compensation cost related to stock options and restricted shares not yet recognized were RMB3.8 million (US$0.6 million) and RMB1.6 million (US$0.3 million), respectively, which are expected to be recognized over a weighted-average period of 1 year and 1 year, respectively.
 
 The Company received cash proceeds of RMB36,068 (US$5,465) from exercise of stock options for the year ended December 31, 2010. No stock options were exercised in 2009  or   2011.
 
 NOTE 12. NON-CONTROLLING INTEREST
 
 On January 1, 2009, the Group adopted FASB Accounting Standards Codification ("ASC") 810-10-65, "Consolidations -Overall -Transition and Open Effective Date Information". This accounting standard defines a non-controlling interest in a subsidiary as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent and requires a non-controlling interest to be presented as a separate component of equity in the consolidated balance sheet. This standard also modifies the presentation of net income by requiring earnings and other comprehensive income to be attributed to controlling and non-controlling interest.
 
 Previously, non-controlling interest's share of loss is only limited to the capital contribution in the entity and any excess loss is absorbed in the consolidation of majority shareholder. As a result of the adoption of this standard, Biaoshang and Wangku were in net deficit positions that the previous non-controlling interest should share their loss with effective from 2009.
 
 NOTE 13. VARIABLE INTEREST ENTITIES AND OTHER LONG-TERM INVESTMENT
 
 *(a) Variable interest entities*
 
 ASC 810, Consolidation, requires a variable interest entity to be consolidated by a company if that company is the primary beneficiary of that variable interest entity.
 
 To satisfy PRC laws and regulations, the Group conducts its internet information and certain other businesses in the PRC via its variable interest entities. These variable interest entities are directly owned by certain employees of the Company. Capital for the variable interest entities is funded by the Company through loans provided to those employees, and is initially recorded as loans to related parties. These loans are eliminated for accounting purposes with the capital of variable interest entities during consolidation.
 
 Under contractual agreements with the Company, employees who are shareholders of the variable interest entities are required to transfer their ownership in these entities to the Company, if permitted by PRC laws and regulations, or, if not so permitted, to designees of the Company at any time to repay the loans outstanding. All voting rights of the variable interest entities are assigned to the Company, and the Company has the right to designate all directors and senior management personnel of the variable interest entities. Employees who are shareholders of the variable interest entities have pledged their shares in the variable interest entities as collateral for the loans. As of December 31, 2010 and 2011, the aggregate amount of these loans was RMB9,762,679 and RMB1,500,000, respectively.
  F-32
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 As of December 31, 2010, the Company effectively controlled merely one variable interest entity, Wangku, which has been included in discontinued operations and details were disclosed in note 3. As of December 31, 2011, the Company effectively controlled one variable interest entity, Changshengtiandi, which has been included in the consolidated financial statements.
 
 Wangku
 
 Wangku Hutong Information Technology, Co. Ltd., ("Wangku") is a web enabler of China Yellow Pages and a B2B e-Business service provider. In May 2007, the Company purchased 20% of Wangku's equity interest at a price of RMB3,000,000 through Xuejun Zhang, an employee of the Company.
 
 The following table summarizes the allocation of the purchase price for the proportionate share of Wangku's net assets acquired at fair value:
 
 Purchase PriceCash to acquire 20% of Wangku
      ¥
      3,000,000Less:  Fair value of identifiable assets acquired:Current    assets
      ¥
      846,792Fixed    assets
      
      203,136¥
      1,049,928Plus:  Fair value of liabilities assumed:Current    assets
      ¥
      445,796¥
      445,796Excess of cost over fair value    of net assets acquired — intangible assets and goodwill
      ¥
      2,395,868
 
 The excess cost over the fair value of the net assets acquired has been allocated RMB1,200,000 to distributor network, the only identifiable intangible asset, as of the date of the acquisition. The remaining amount of RMB1,195,868 was recorded as goodwill.
 
 Goodwill and the intangible asset are not deductible for tax purposes. The intangible asset, except for goodwill, is being amortized over its estimated useful life as described above from the date of acquisition and was recorded against the equity in earnings.
 
 Prior to purchase accounting adjustments, Wangku generated net loss of RMB14,489,530 for the period from January 1 to May 13, 2008 and the 20% equity ownership accounted for investment loss of RMB2,929,636 by equity method.
  F-33
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 On May 14, 2008, the Company gained effective control over an additional 31% of Wangku for RMB6,762,679 in cash. The acquisition of Wangku has been accounted for as a step acquisition business combination in fiscal year 2008. The Company has allocated the investment basis to the pro rata share of Wangku's assets and liabilities at each significant acquisition date based on the estimated fair values of such assets and liabilities on such dates, and the excess of the investment basis over the adjusted estimated fair values of such identifiable net assets has been allocated to goodwill. For financial reporting purposes, the Company has accounted for Wangku using the equity method through May 13, 2008, and as a consolidated subsidiary thereafter.
 
 The following table summarizes the allocation of the 31% purchase price for the proportionate share of Wangku's net assets acquired at fair value at the date of acquisition:
 
 Purchase PriceCash to acquire an additional    31% of Wangku
      ¥
      6,762,679Less:  Fair value of identifiable assets acquired:Current    assets
      ¥
      1,321,761Fixed    assets
      
      372,403¥
      1,694,164Plus:  Fair value of liabilities assumed:Current    liabilities
      ¥
      3,465,288Non-current    liabilities
      
      2,799,519¥
      6,264,807Excess of cost over fair value    of net assets acquired — intangible assets and goodwill
      ¥
      11,333,322
 
 The excess cost over the fair value of the net assets acquired of RMB2,263,000 has been allocated to distributor network, the only identifiable intangible asset, as of the date of the acquisition, and the remaining amount of RMB9,070,322 was recorded as goodwill.
 
 Wangku realized a net loss of RMB2.6 million, RMB4.0 million and RMB1.1 million (US$0.2 million) for the years ended December 31, 2009 and 2010, and the period from January 1 to March 13, 2011, the date of disposal Wangku's equity interests, respectively.
 
 Biaoshang
 
 Biaoshang was incorporated in the PRC in 2000 and engages in B2B business to connect retailers to their suppliers, enabling them to share information and manage work processes in China. On November 6, 2007, the Company effectively controlled 51% of the interest in Biaoshang through Tingchao Zhao, an employee of the Company. Before the transaction, Peter Jiang held 100% equity interest in Biaoshang. Then Peter Jiang sold 51% of the equity interest to Tingchao Zhao, while Peter Jiang held the remaining 49%.
  F-34
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 Biaoshang realized a net loss of RMB1.6 million and RMB0.7 million (US$0.1 million) for the year ended December 31, 2009 and the period from January 1 to July 15, 2010, respectively.
 
 Pursuant to the equity interest transfer agreement between Peter Jiang and Tingchao Zhao, the Company is subject to pay a contingent payment of RMB392,877 since the audited net income for the six month period ended June 30, 2008 was more than RMB300,000. This was considered additional purchase consideration and recorded as an increase to goodwill. However, based on the agreement entered into between the Company and Peter Jiang, the CEO of Biaoshang on September 25, 2010, the contingent payment was mutually forgiven. The gains on the extinguishment of the debt were recorded as income on investments for discontinued operations.
 
 Changshengtiandi
 
 Changshengtiandi was incorporated in the PRC in 2011 and is an e-Commerce  service provider. On January 18, 2011, the Company entered into a loan agreement with Zou Hongjun, an employee of the Company, pursuant to which the Company provided RMB1,350,000 (US$214,493) to him for obtaining 90% of equity interests in Changshengtiandi. On January 18, 2011, the Company entered into a loan agreement with Zhang Xuejun, an employee of the Company, pursuant to which the Company provided RMB150,000 (US$23,833) to him for obtaining 10% of equity interests in Changshengtiandi. On January 18, 2011, the Company entered into share pledge agreements with Zou Hongjun and Zhang Xuejun, respectively, pursuant to which the two employees of the Company pledged all their equity interests in Changshengtiandi to the Company, and the Company effectively controlled 100% of the interest in Changshengtiandi through Zou Hongjun and Zhang Xuejun.
 
 Changshengtiandi realized a net loss of RMB649,830 (US$103,248) for the period from January 18, 2011 to December 31, 2011.
 
 *(b) Other long-term investment*
 
 Other long-term investment includes the investment in which the Group does not have the ability to exercise significant influence (generally, when the Group has an investment of less than 20% ownership) and for which there is not a readily determinable fair value, is accounted for using the cost method. Dividends and other distributions of earnings from investee, if any, are included in income when declared.
 
 On March 15, 2010, the Company purchased 15% interest of Fuji Saiwei (Beijing) Technology Co., Ltd., ("cFuture"). The Company recorded an investment on cFuture of RMB240,000 by applying the cost method of accounting. cFuture was incorporated in PRC in 2009 and engages in e-Retail business to render e-service to the retailers.
 
 The Company is required to perform an impairment assessment of its investments whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. As of December 31, 2011, the Company determined that such events and changes occurred and were other-than-temporary. Thus, impairment of RMB240,000 was made to write down the asset to its fair value and take the corresponding charge to the consolidated statements of operations.
  F-35
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 On September 21, 2010, eFuture Beijing sold the 15% equity interest of Beijing Kubang Fuji New Media Technology Company Limited to a third party with a cash consideration of RMB600,000. The Company recorded an investment loss of RMB54,192 (US$8,211) in the consolidated financial statements.
 
 For the years ended December 31, 2009 and 2010, no impairment loss was recorded in the consolidated financial statements.
 
 NOTE 14. RELATED PARTY TRANSACTIONS
 
 For the period from March 15, 2010 to December 31, 2010, eService purchased from cFuture was RMB367,000, and the implementation service fee revenue derived from cFuture was RMB35,460. No such transaction occurred in 2011.
 
 The senior Vice President of the Company, Hongjun Zou, is the Chief Executive Officer of cFuture. The Company paid his salary and statutory social welfare on behalf of cFuture of RMB137,939 and RMB150,000 for the years ended December 31, 2009 and 2010, respectively. No such transaction occurred in 2011.
 
 In March 2010, the Company acquired 15% equity interests in aggregate of cFuture from Peter Jiang (the CEO of Biaoshang), Chuangyeqiankun (Beijing) Investments Limited and Weiquan Ren (the director of the Company) with total cash consideration of RMB240,000.
 
 On September 23, 2010, the Company signed a Share Purchase Agreement ("September Agreement") to sell 337,685 ordinary shares to 13 purchasers. The price of the shares is equal to US$5.37 per share, the average closing price of the Company's ordinary shares for the 20 consecutive trading days ending on, and including, September 23, 2010. 152,604 of the shares was purchased by eFuture Inc., a Cayman Islands holding company controlled by the Company's chairman and Chief Executive Officer, Adam Yan. 78,212 and 36,320 of the shares were sold to a board member (other than independent directors) and executive management of the Company, respectively. The issuance or register of such shares was completed on January 6, 2011.
 
 In April 2011, the Company paid car rental fee of RMB135,000 (US$21,449) to Hongjun Zou, the senior Vice President of the Company. For the year ended December 31, 2011, half of this amount was amortized to the income statement prescribed by the contractual term.
 
 NOTE 15. INCOME TAXES
 
 The Company is incorporated in the Cayman Islands and conducts its primary business operations through the subsidiary and VIEs in the PRC. Under the current laws of the Cayman Islands and BVI, the Company is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands and BVI withholding tax will be imposed.
  F-36
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 According to the PRC Corporate Income Tax Law, or the CIT Law, which became effective on January 1, 2008, as further clarified by subsequent tax regulations implementing the CIT Law, foreign-invested enterprises and domestic enterprises are subject to corporate income tax, at a uniform rate of 25%. The CIT rate of enterprises established before March 16, 2007 that were eligible for preferential tax rates according to then effective tax laws and regulations will gradually transition to the uniform 25% CIT rate by January 1, 2013. In addition, certain enterprises may still benefit from a preferential tax rate of 15% under the CIT Law if they qualify as "high and new technology enterprises strongly supported by the state," subject to certain general factors described in the CIT Law and the related regulations.
 
 In December 2008, the Company's subsidiary eFuture Beijing was designated as "High and New Technology Enterprises" under the CIT Law, which entitles it to a preferential CIT rate of 15% from 2008 to 2013. Biaoshang and Wangku were subject to a 25% tax rate in 2009, 2010 and 2011, respectively.
 
 The CIT Law treats enterprises established outside of China with "effective management and control" located in China as PRC resident enterprises for tax purposes. The term "effective management and control" is generally defined as exercising overall management and control over the business, personnel, accounting, properties, etc. of an enterprise. The Company, if considered a PRC resident enterprise for tax purposes, would be subject to the PRC CIT at the rate of 25% on its worldwide income for the period after January 1, 2008. As of December 31, 2011, the Company has not accrued for PRC tax on such basis. The Company will continue to monitor its tax status.
 
 Profit (loss) before tax for the years ended December 31, 2009, 2010 and 2011 was taxed in the following jurisdictions:
 
 **Chinese Yuan (Renminbi)**
      ****
      **U.S. Dollars******
      
      
      
      
      
      
      
      ****
      **For the
        Year Ended******
      **For the Years Ended December 31,**
      ****
      **December 31,****
      **
      **2009**
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      
      **2011**PRC
      ¥
      2,604,125
      
      ¥
      (431,337)
      
      ¥
      813,814
      $
      129,302Cayman Islands
      
      (26,105,125)
      
      
      (20,331,702)
      
      
      (26,337,315)
      
      (4,184,578)Loss    before income tax
      ¥
      (23,501,000)
      
      ¥
      (20,763,039)
      
      ¥
      (25,523,501)
      $
      (4,055,276)
 
   F-37
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND

SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 **Chinese Yuan (Renminbi)**
      ****
      ****
      **U.S. Dollars******
      
      
      
      
      
      
      
      **For the
        Year Ended******
      **For the Years Ended December 31,**
      
      **December 31,****
      **
      **2009**
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      
      **2011**Current tax before tax loss    carry forwards (set-off)
      ¥
      307,601
      
      ¥
      55,598
      
      ¥
      1,957,167
      $
      310,962Tax loss carry forwards    (set-off)
      
      (307,601)
      
      
      (55,598)
      
      
      162,457
      
      25,812Current income taxes
      
      -
      
      
      -
      
      
      2,119,624
      
      336,774Deferred    income taxes
      
      (1,513,216)
      
      
      (1,770,001)
      
      
      (2,691,481)
      
      (427,633)Total income tax benefit
      ¥
      (1,513,216)
      
      ¥
      (1,770,001)
      
      ¥
      (571,857)
      $
      (90,859)
 
  
 **Chinese Yuan (Renminbi)**
      ****
      <****
          **U.S. Dollars******
      
      
      
      
      
      
      
      **For the
      Year Ended******
		  **For the Years Ended December 31,**
 
      **December 31,****
      **
      **2009**
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      
      **2011**Income tax computed at statutory    tax rate
      ¥
      (5,875,250)
      
      ¥
      (5,190,760)
      
      ¥
      (6,380,875)
      $
      (1,013,819)Difference in tax rate of the    Company outside the PRC
      
      6,526,281
      
      
      5,082,926
      
      
      6,584,329
      
      1,046,145Effect of tax holiday for a    subsidiary
      
      (260,413)
      
      
      43,134
      
      
      (146,364)
      
      (23,255)Non-deductible expenses
      
      914,169
      
      
      1,278,601
      
      
      887,675
      
      141,037Non-taxable income
      
      (997,186)
      
      
      (1,158,303)
      
      
      -
      
      -Tax loss carry forward (set-off)
      
      (307,601)
      
      
      (55,598)
      
      
      162,457
      
      25,812Withholding income tax for the    dividends paid to Cayman Islands company
      
      -
      
      
      -
      
      
      1,012,402
      
      160,854Deferred tax benefit
      
      (1,513,216)
      
      
      (1,770,001)
      
      
      (2,691,481)
      
      (427,633)Total income tax benefit
      ¥
      (1,513,216)
      
      ¥
      (1,770,001)
      
      ¥
      (571,857)
      $
      (90,859)
 
 The components of the deferred tax assets and liabilities were as follows:
  F-38
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
  ****
      ****
      ****
      **Chinese Yuan (Renminbi)**
      ****
      **U.S. Dollars******
      
      ****
      ****
      **December 31,**
      ****
      **December 31,****
      ****
      ****
      ****
      **2010**
      ****
      ****
      **2011**
      
      **2011****Deferred    Tax Assets:**
      
      
      
      
      
      ****Net    operating loss carry forwards
      
      
      
      ¥****
      -
      
      ¥
      162,457
      $
      25,812Allowance    for doubtful accounts and write offs
      
      
      
      
      797,772
      
      
      513,230
      
      81,544Inventory    provision
      
      
      
      ****
      470,740
      ****
      
      676,177
      
      107,434Trade    receivables
      
      
      
      ****
      2,229,072
      ****
      
      1,210,198
      
      192,281Accruals    and others
      
      
      
      ****
      2,505,581
      ****
      
      4,566,423
      
      725,531Valuation    allowance
      
      
      
      ****
      -
      ****
      
      (162,457)
      
      (25,812)**Total    deferred tax assets**
      
      
      
      ¥
      6,003,165
      ****
      ¥
      6,966,028
      $
      1,106,790**Deferred    Tax Liabilities:**
      
      
      
      ****
      
      ****
      
      
      
      ****Inventory    and work in process
      
      
      
      ¥
      (652,605)
      ****
      ¥
      (3,095,419)
      $
      (491,813)Advance    from customers
      
      
      
      ****
      (7,240,596)
      ****
      
      (4,114,852)
      
      (653,784)Intangible    assets
      
      
      
      ****
      (1,838,175)
      ****
      
      (792,487)
      
      (125,913)**Total    deferred tax liabilities**
      
      
      
      ¥
      (9,731,376)
      ****
      ¥
      (8,002,758)
      $
      (1,271,510)****
      
      ****
      
      
      
      ******Net    deferred tax liabilities**
      
      
      
      ¥
      (3,728,211)
      ****
      ¥
      (1,036,730)
      $
      (164,720)
 
 The Group recorded a valuation allowance against the 2011 operating loss carry forwards of Changshengtiandi as of December 31, 2011, as the Group believes it is more likely than not that such deferred tax assets will not be realized. As of December 31, 2010, the Group had no operating loss carry forwards unused.
 
 The Group has evaluated its income tax uncertainty under ASC 740-10. ASC 740-10 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. The Group has elected to classify interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the consolidated statements of operations. As of and for the years ended December 31, 2010 and 2011, no unrecognized tax benefits or interest and penalties associated with uncertainty in income taxes have been recognized.
 
 NOTE 16. CONVERTIBLE NOTES AND WARRANTS - DERIVATIVE FINANCIAL INSTRUMENTS
 
 On March 13, 2007, the Company closed a Securities Purchase Agreement (the "Agreement") with three funds affiliated with two institutional investors, pursuant to which the Company raised RMB77,410,000 by issuing $10,000,000 of senior convertible notes along with Series A warrants and Series B warrants.
 
 In connection with the issuance, the Company incurred RMB17,627,511 of loan costs including RMB8,330,570 in cash and RMB9,296,941 of warrants issued to the placement agent. Proceeds, net of cash loan costs, were RMB69,079,430. The Company is amortizing the loan costs over the period the convertible notes are outstanding, using the effective interest method.
  F-39
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 The convertible notes were due on March 12, 2012 and bear interest per annum as below, payable quarterly:
 
 **Period**
      
      **Interest Rate**March 13, 2007-March 12, 2008
      
      
      3
      %March 13, 2008-March 12, 2009
      
      
      5
      %March 13, 2009-March 12, 2010
      
      
      7
      %March 13, 2010-March 12, 2012
      
      
      10
      %
 
 The convertible notes were initially convertible into 400,160 ordinary shares of the Company at $24.99 per share. Pursuant to the Agreement, the conversion price was reset to $19.00 per share on June 11, 2008 since the market price of the Company's ordinary shares was below $19.00 at that day. The maximum number of Ordinary shares into which the Convertible Notes were convertible, based on a conversion Floor Price of $19.00 per share, was 526,316 Shares. If the Company fails to convert timely, the Company shall pay damages to the Holder for each Trading Day of such Conversion Failure in an amount equal to 1.5% of the product of the sum of the number of Ordinary shares not issued to the Holder on or prior to the Share Delivery Date and to which the Holder is entitled, and the Closing Sale Price of the Ordinary shares on the Share Delivery Date.
 
 The Agreement contains an optional redemption right whereby if the market price of the ordinary shares for any thirty consecutive trading days following the optional redemption eligibility date exceeds 150% of the conversion price $24.99 on the issuance date (subject to appropriate adjustments for share splits, share dividends, share combinations and other similar transactions after the subscription date) and there has been no equity conditions failure, the Company has the right to redeem all or any portion of the remaining unconverted notes.
 
 The Agreement also contains a Make-Whole provision which guarantees the payment of the present value of the interest that, but for the applicable conversion or redemption, would have been paid to the holder through the maturity date minus the amount of interest already paid to the holder through the conversion date or optional redemption date.
 
 The Series A warrants are exercisable by the holder within five years on any day on or after September 9, 2007 for an aggregate of 184,077 Shares, at an initial price of $28.25 per ordinary share, subject to adjustment. Series B warrants have expired since they had a one year life and were exercisable on any day on or after September 9, 2007 to purchase an aggregate of 230,097 ordinary shares, with an initial exercise price of $24.99 per Share. Warrants were also issued to the Placement Agent to purchase 73,291 ordinary shares of the Company, exercisable by the Holder within five years on any day on or after September 9, 2007 at an initial price of $24.99. The Series A Warrants, Series B Warrants and Placement Agent Warrants contain a cashless exercise option that if at any time following one calendar year from the Date of Issuance a Registration Statement is not available for the resale of such Unavailable Warrant Shares, the Holder may exercise this Warrant in whole or in part and elect instead to receive upon such exercise the "Net Number" of ordinary shares determined according to the defined formula.
  F-40
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 On June 12, 2007, the Securities and Exchange Commission declared the Company's registration statement effective. The Company did not receive any of the proceeds of the sale of the shares by the Selling Shareholders; however, the Company could receive up to $12,781,841 from the exercise by the Selling Shareholders and Placement Agent of all of the Series A, Series B and Placement Agent warrants at their current prices of $28.25, $24.99 and $24.99, respectively.
 
 The Company identified the following instruments and derivatives requiring valuation and accounting under the relevant guidance applicable to financial derivatives:
 
 •
      Conversion price reset feature
 •
      Company's optional early redemption right
 •
      Make-whole provision
 •
      Warrants with exercise price reset feature
 
 The Company identified the conversion price reset feature, the optional early redemption right and the make-whole provision within the Convertible Notes to represent embedded derivatives. These embedded derivatives were bifurcated from the host debt contracts and accounted for as derivative liabilities in accordance with ASC 815. The conversion price reset feature, the optional early redemption right and the make-whole provision within the Convertible Notes were bundled together as a single hybrid compound instrument in accordance with ASC 815 Derivatives and Hedging.
 
 The Company identified the ordinary share warrants to be derivatives. The warrants contain an exercise price reset provision and are classified as a derivative liability.
 
 The single compound embedded derivative within convertible notes was recorded at fair value at the date of issuance (March 13, 2007). The Company utilized a third party valuation firm to determine the fair value of the single compound embedded derivatives by using the Monte Carlo method when the conversion price was adjustable, and by the binomial tree model when the conversion price effectively became fixed, subsequent to the price reset on June 11, 2008. The valuation methodology uses unobservable (Level 3) inputs in calculating fair value.
 
 The derivative was not intended to hedge any specific risk exposures, such as fluctuating interest rates, exchange rates, commodity prices, etc. Therefore, the derivative constituted neither a cash flow hedge, nor a fair value hedge. The volume of derivative activity relates solely to the embedded derivative instrument itself, and changes in fair value thereon.
 
 The effect of the derivative instrument on the consolidated statements of operations for the year ended December 31, 2011 was as follows:
  F-41
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND

SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
  **Location of Gain (Loss)    Recognized**
      ****
      ****
      **Amount of Gain (Loss) Recognized    in Income**
      **Statement for the Year ended December 31, 2011****in Income Statement**
      
      
      **Chinese Yuan********(Renminbi)**Derivatives not designated as hedging instruments under ASC    815-10:Embedded Derivative
      
      
      Gain on derivatives
      
      ¥
      347,565Total
      
      
      
      
      ¥
      347,565
 
 The fair value of these derivatives was determined to be RMB87,775,199 and was recorded as a derivative liability at inception. The debt discount amount of RMB77,255,180 is being accreted through charges to the statement of operations using the effective interest method over the period of the note obligations. At December 31, 2010 and 2011, the fair value of the derivatives recognized in the balance sheets was RMB354,420 and RMB3,168 (US$503), respectively. The gain on derivatives recognized in the consolidated statements of operations for the years ended December 31, 2009, 2010 and 2011 were RMB1,290,329, RMB3,429,479 and RMB347,565 (US$55,223), respectively.
 
 The table below sets forth a summary of changes in the fair value of the Company's level 3 derivative for the 12 months ended December 31, 2011.
 
 **Chinese Yuan****(Renminbi)**Balance    as of December 31, 2010
      ¥
      354,420Change in Fair Value of    Derivative Liability
      
      (347,565)Foreign Currency Translation Difference
      
      (3,687)Balance    as of December 31, 2011
      ¥
      3,168
 
 The fair value of Series A warrants and Series B warrants at the issuance date was RMB38,619,849 and the fair value of Placement Agent warrants was RMB9,296,941, computed using Black-Scholes pricing model based upon the following assumptions: future estimated volatility of 100%, risk-free interest rate of 4.41% and 4.9%, estimated life of 5.5 years, and 0% dividend yield.
 
 On November 29, 2010, the Company entered into two separate exchange agreements (the "November Agreements") with Capital Ventures and Hudson Bay to settle a disagreement, whereby the Company exchanged the outstanding Series A Warrants held by each of Capital Ventures and Hudson Bay for a new Series A Warrants to purchase the same number of ordinary shares and under exactly the same terms prescribed by the Series A Warrants and an additional 20,000 ordinary shares of the Company which were restricted and could not be offered for sale, sold, transferred or assigned prior to May 28, 2011, respectively. The issuance or register of such shares was completed on January 6, 2011.
  F-42
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 In the fourth quarter of 2011, the Company bought back the outstanding convertible notes, and all the unamortized discount on convertible notes and deferred loan costs were charged in the consolidated financial statements. The amortization of discount on convertible notes payable and amortization of deferred loan costs were RMB6.4 million (US$1.0 million) and RMB474,399(US$75,374), respectively.
 
 NOTE 17. EARNINGS (LOSS) PER SHARE
 
 The following shares were excluded from the calculation of diluted net income (loss) per share as they were anti-dilutive shares as of December 31, 2009, 2010 and 2011:
 
 ****
      ****
      **Years ended    December 31,******
      ****
      **2009**
      ****
      **2010**
      ****
      **2011**Stock    options and warrants
      
      
      123,087
      
      
      567,487
      
      
      592,312Contingent    issuable shares in acquisition obligation
      
      
      143,991
      
      
      -
      
      
      -Issuable    shares from Convertible notes
      
      
      52,631
      
      
      52,631
      
      
      -Total    anti-dilutive shares
      
      
      319,709
      
      
      620,118
      
      
      592,312
 
 The following table is a reconciliation of the numerators and denominators used in the calculation of basic and diluted earnings (loss) per share and the weighted-average ordinary shares outstanding for the years ended December 31, 2009, 2010 and 2011:
  F-43
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
  **Chinese Yuan (Renminbi)**
      
      **U.S. Dollars****For the Years Ended December 31,**
      
      **For the****Year Ended****December 31,****2009**
      
      **2010**
      
      **2011**
      
      **2011**Net loss
      
      ¥
      (25,265,497)
      
      ¥
      (17,323,421)
      
      ¥
      (18,830,869)
      
      $
      (2,991,924)Net loss from continuing    operations
      
      
      (19,887,910)
      
      
      (17,386,892)
      
      
      (24,440,221)
      
      
      (3,883,160)Gain (Loss) from    discontinued operations
      
      
      (5,377,587)
      
      
      63,471
      
      
      5,609,352
      
      
      891,236Basic    weighted-average ordinary shares outstanding
      
      
      3,362,986
      
      
      3,822,386
      
      
      4,130,221
      
      
      4,130,221Effect of    dilutive securities:Stock options and    warrants
      
      
      33,895
      
      
      9,417
      
      
      -
      
      
      -Contingent    issuable shares in acquisition obligation
      
      
      -
      
      
      -
      
      
      -
      
      
      -Diluted    weighted-average ordinary shares outstanding
      
      
      3,396,881
      
      
      3,831,803
      
      
      4,130,221
      
      
      4,130,221Basic earnings    (loss) per share
      
      ¥
      (7.51)
      
      ¥
      (4.53)
      
      ¥
      (4.56)
      
      $
      (0.72)- Continuing operations
      
      ******
      (5.91)
      
      
      (4.55)
      
      
      (5.92)
      
      
      (0.94)- Discontinued operations
      
      
      (1.60)
      
      
      0.02
      
      
      1.36
      
      
      0.22Diluted earnings    (loss) per share
      
      ¥
      (7.51)
      
      ¥
      (4.53)
      
      ¥
      (4.56)
      
      $
      (0.72)- Continuing operations
      
      
      (5.91)
      
      
      (4.55)
      
      
      (5.92)
      
      
      (0.94)- Discontinued operations
      
      
      (1.60)
      
      
      0.02
      
      
      1.36
      
      
      0.22
 
 NOTE 18. COMMITMENTS AND CONTINGENCIES
 
 Operating Lease Agreements — Operating lease commitments include the commitments under the lease agreements for the Group's office premises. The Group leases twelve office facilities throughout China under non-cancelable operating leases with various expiration dates. The amounts of commitments for non-cancelable operating leases in effect at December 31, 2011, were as follows:
  F-44
 
 EFUTURE INFORMATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
  **Chinese Yuan****(Renminbi)**
      
      **U.S. Dollars**2012
      
      ¥
      6,834,826
      
      $
      1,085,9442013
      
      
      5,173,468
      
      
      821,9812014
      
      
      3,831,232
      
      
      608,7212015
      
      
      1,223,597
      
      
      194,4102016
      
      
      -
      
      
      -Total
      
      ¥
      17,063,123
      
      $
      2,711,056
 
 The Group incurred rental expense, of RMB5,477,804, RMB6,028,173 and RMB7,899,217 (US$1,255,059) for the years ended December 31, 2009, 2010 and 2011, respectively. All leases agreements have different lease periods, ranging from 1 year to 4 years.
 
 Software Infringement Indemnity —
  Standard software license agreements contain an infringement indemnity clause under which the company agrees to indemnify and hold harmless customers and business partners against liability and damages arising from claims of various copyright or other intellectual property infringements by their software products. The terms constitute a form of guarantee that is subject to the provision.
 
 We estimate the fair value of our indemnification obligations as insignificant, based on our historical experience concerning product and patent infringement claims. Accordingly, we have no liabilities recorded for indemnification under these agreements as of December 31, 2010 and 2011.
 
 Litigation —
  In August 2002, the Group was sued for the termination of contracts between the Group and another party. The other party sued for costs and losses in the amount of RMB665,500 (US$82,464). The case was resolved on September 26, 2008 and the Group is liable to pay RMB403,300. The Group recorded this amount in other payables as of December 31, 2010. It was paid in 2011.
 
 The Group from time to time is involved in disputes and litigation arising out of the normal course of business. On October 12, 2011, the plaintiff, Microsoft Corporation, filed four software copyright infringement claims against eFuture Beijing at Wuhan Intermediate People's Court. Under these claims, the plaintiff demands eFuture Beijing's immediate cease of use of the infringing software products, a damage of total RMB2,000,000 (US$317,768) for the loss suffered by the plaintiff, the recovery for reasonable expenses incurred to the plaintiff and the litigation fees. eFuture Beijing disagrees that Wuhan Intermediate People's Court has the jurisdiction to hear these cases, and is currently in the process of requesting a review of jurisdiction from the Supreme People's Court. The Group evaluated that the compensation appealed by the plaintiff was not sufficiently supported by a reasonable basis. Thus the Group did not have any base for estimates of potential losses.
 
 The Group was not aware of any potential unasserted claims that would have a material effect on the Company's financial condition or results of operations.
  F-45