Recon Technology, Ltd Reports Financial Results for the First Six Months of Fiscal Year 2021

April 5, 2021

BEIJING, April 5, 2021 /PRNewswire/ — Recon Technology, Ltd (Nasdaq: RCON) ("Recon" or the "Company"), today announced its financial results for the first six months of Fiscal Year 2021.

First Six Months of Fiscal 2021 Financial:

Total revenues for the six months ended December 31, 2020 decreased by 17.2% to $3.9 million (RMB25.2 million), while revenue from oily sludge and waste water increased by 10,618.7% or $0.4 million (RMB2.8 million).
Gross profit for the six months ended December 31, 2020 was $1.0 million (RMB6.7 million). Gross profit margin for the six months ended December 31, 2020 was 26.7%, representing a decrease of 12.7 percentage points compared to the six months ended December 31, 2019.
Net loss attributable to Recon for the six months ended December 31, 2020 was $1.4 million (RMB8.9 million), or $0.19 (RMB1.22) per basic and diluted share, compared to RMB6.7 million, or RMB1.51 per basic and diluted share, for the six months ended December 31, 2019.

Management Commentary

Mr. Shenping Yin, co-founder and CEO of Recon stated, "During the six months period ended December 31, 2020, our management focused on fund reserve and cash management to prepare for a rapid development in the coming year. We believe oil companies in China will continue to increase their capital expenditures in 2021. We expect more orders to be released in year 2021 which might be a busy year of the overall oil industry. We expect our business will benefit from this trend and our numbers will be improved from the second half year of calendar 2021."

Mr. Yin continued, "Besides, the oil industry is experiencing digital transformation. We believe oil companies will continue to increase their usages of intelligent solutions to improve the operation efficiency. We have been devoting resources and participating testing projects with our clients to develop leading solutions. We will continue to enhance our competitive strength through up-gradation with big data and intelligent analysis. We have also seen the trend of digitalization and intelligence in downstream of the oil and gas industry, especially in the management and operation of gas stations in China. We have acquired 51% of Future Gas Station (Beijing) Technology, Ltd. by January 2021 and will continue to invest more in this segment."

First Six Months Fiscal 2021 Financial Results:

Revenue

Total revenues for the six months ended December 31, 2020 decreased by RMB5.2 million ($0.8 million) or 17.2%, to RMB25.2 million ($3.9 million) compared to RMB30.4 million for the six months ended December 31, 2019 mainly due to the decreased revenue from automation products during the six months ended December 31, 2020.

Revenue from automation product and software decreased by RMB10.0 million ($1.5 million), or 44.1%, to RMB12.6 million ($1.9 million) for the six months ended December 31, 2020 from RMB22.6 million for the six months ended December 31, 2019, as the Company's sales activities were not able to return to normal level which was affected by Covid-19. To make a breakthrough, the Company's management has been upgrading its automation solutions and introducing big data and intelligent technology to the Company's products and enhancing its capacity of downhole solutions to enhance its competitive strength.

Revenue from equipment and accessories increased by RMB1.9 million ($0.3 million), or 24.9%, to RMB9.8 million ($1.5 million) for the six months ended December 31, 2020 from RMB7.8 million for the six months ended December 31, 2019 as requirement from maintenance of heating furnaces continued to increase.

Revenue from oilfield environmental protection projects increased by RMB2.8 million ($0.4 million), or 10,618.7%, to RMB2.8 million ($0.4 million) for the six months ended December 31, 2020 as the Company stared to process oily sludge during the six months ended December 31, 2020 and revenue was recorded. As of December 31, 2020, the Company received 4,680 tons of oily sludge from several oil companies and processed 796 tons of them, which was reflected in its revenue for the six months ended December 31, 2020.

Cost and Margin

Total cost of revenues increased slightly from RMB18.4 million for the six months ended December 31, 2019 to RMB18.5 million ($2.8 million) for the same period in 2020. The increase was mainly caused by increased cost of revenue from equipment and accessories and oilfield environmental protection segments.

Gross profit decreased by RMB5.3 million ($0.8 million), or 43.9%, to RMB6.7 million ($1.0 million) for the six months ended December 31, 2020 from RMB12.0 million from the six months ended December 31, 2019. The gross profit as a percentage of revenue decreased to 26.7% for the six months ended December 31, 2020 from 39.4% for the same period in 2019.

Operating Expenses

Selling and distribution expenses maintained at the same level of RMB2.7 million ($0.4 million) compared to the six months ended December 31, 2019.

General and administrative expenses decreased by RMB0.4 million ($0.1 million), or 2.7%, to RMB13.0 million ($2.0 million) for the six months ended December 31, 2020 from RMB13.4 million for the six months ended December 31, 2019. The decrease in general and administrative expenses was mainly due to the decrease in stock-based compensation expense as well as social security expenses during the six months ended December 31, 2020.

Provision for doubtful accounts was RMB25,537 ($3,665) for the six months ended December 31, 2019, compared to reversal of provision for doubtful accounts of RMB3.7 million for the six months ended December 31, 2020, mainly due to the collection of long outstanding receivables during the six months ended December 31, 2020.

Research and development expenses increased from approximately RMB2.9 million for the six months ended December 31, 2019 to RMB3.8 million ($0.6 million) for the same period of 2020. This increase was primarily due to more research and development expense spent on design of new automation platform systems and treatment of wastewater.

Net Loss

Loss from operations was RMB9.1 million ($1.4 million) for the six months ended December 31, 2020, compared to a loss of RMB7.0 million for the six months ended December 31, 2019. This RMB2.1 million ($0.3 million) increase in loss from operations was primary due to decreased revenue and increase in R&D expenses.

Net loss was RMB10.0 million ($1.5 million) for the six months ended December 31, 2020, an increase of RMB3.3 million ($0.5 million) from net loss of RMB7.0 million for the six months ended December 31, 2019. Net loss attributable to the Company for the six months ended December 31, 2019 was RMB6.7 million, or RMB1.51 per basic and diluted share, compared to RMB8.9 million ($1.4 million), or RMB1.22 ($0.19) per basic and diluted share for the six months ended December 31, 2020.

As of December 31, 2020, the Company had cash of RMB70.8 million ($10.8 million), compared to RMB30.3 million as of June 30, 2020. As of December 31, 2020, the Company had working capital of RMB67.0 million ($10.3 million) while as of June 30, 2020, the Company had working capital of RMB64.1 million.

Net cash used in operating activities was RMB16.7 million ($2.6 million) for the six months ended December 31, 2020, compared to net cash provided by operating activities of approximately RMB0.3 million for the six months ended December 31, 2019. Net cash provided by investing activities was RMB1.9 million ($0.3 million) for the six months ended December 31, 2020, compared to net cash provided by investing activities RMB3.7 million for the six months ended December 31, 2019. Net cash provided by financing activities was RMB56.2 million ($8.6 million) for the six months ended December 31, 2020, compared to net cash provided by financing activities of RMB1.9 million for the six months ended December 31, 2019.

Exchange Rate

The translation of RMB amounts into U.S. dollars are included solely for the convenience of readers and have been made at the rate of RMB6.5326 to $1.00, the approximate exchange rate prevailing on December 31, 2020.

About Recon Technology, Ltd

Recon Technology, Ltd (NASDAQ: RCON) is China's first NASDAQ-listed non-state owned oil and gas field service company. Recon supplies China's largest oil exploration companies, Sinopec (NYSE: SNP) and The China National Petroleum Corporation ("CNPC"), with advanced automated technologies, efficient gathering and transportation equipment and reservoir stimulation measure for increasing petroleum extraction levels, reducing impurities and lowering production costs. Through the years, RCON has taken leading positions on several segmented markets of the oil and gas filed service industry. RCON also has developed stable long-term cooperation relationship with its major clients, and its products and service are also well accepted by clients. For additional information please visit: www.recon.cn.

Safe Harbor Statement

This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, the effect of novel coronavirus and other health matters on target markets, and other risks contained in reports filed by the company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

For more information, please contact:

Ms. Liu Jia
Chief Financial Officer
Recon Technology, Ltd
Phone: +86 (10) 8494-5188
Email: [email protected]

RECON TECHNOLOGY, LTD
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(UNAUDITED)

	As of June 30		As of December 31			As of December 31
	2020		2020			2020
	RMB		RMB			U.S. Dollars
ASSETS
Current assets
Cash	¥	30,336,504		¥	70,807,497		$	10,839,024
Notes receivable		4,180,885			7,789,997			1,192,472
Trade accounts receivable, net		48,244,015			35,471,068			5,429,817
Trade accounts receivable- related party, net		3,068,920			–			–
Inventories, net		1,985,723			2,117,754			324,180
Other receivables, net		6,350,802			11,004,821			1,684,589
Loans to third parties		3,200,377			950,000			145,423
Purchase advances, net		178,767			82,437			12,619
Contract assets, net		31,537,586			45,621,966			6,983,690
Prepaid expenses		198,294			–			–
Total current assets		129,281,873			173,845,540			26,611,814

Property and equipment, net		29,756,879			29,078,178			4,451,210
Land use right, net		1,280,648			1,267,028			193,953
Investment in unconsolidated entity		31,541,850			31,290,554			4,789,875
Long-term other receivables, net		3,640			–			–
Operating lease right-of-use assets (including ¥803,503 and ¥508,888 ($88,921) from a related party as of June 30, 2020 and December 31, 2020, respectively)		2,549,914			2,070,548			316,954
Total Assets	¥	194,414,804		¥	237,551,848		$	36,363,806

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Short-term bank loans	¥	9,520,000		¥	12,020,000		$	1,839,990
Convertible notes payable		–			42,448,810			6,497,951
Trade accounts payable		23,034,347			19,273,046			2,950,267
Other payables		2,609,486			1,563,002			239,260
Other payable- related parties		4,498,318			1,655,668			253,445
Contract liabilities		3,486,033			6,686,592			1,023,566
Accrued payroll and employees' welfare		1,917,635			954,304			146,081
Investment payable		6,400,000			6,400,000			979,695
Taxes payable		1,108,288			1,381,912			211,539
Short-term borrowings		200,000			215,699			33,019
Short-term borrowings – related parties		10,230,746			12,009,174			1,838,333
Long-term borrowings – related party – current portion		847,346			882,900			135,152
Operating lease liabilities – current (including ¥450,728 and ¥461,859 ($70,700) from a related party as of June 30, 2020 and December 31, 2020, respectively)		1,328,976			1,333,113			204,069
Total Current Liabilities		65,181,175			106,824,220			16,352,367

Operating lease liabilities – non-current (including ¥352,775 and ¥119,029 ($18,221) from a related party as of June 30, 2020 and December 31, 2020, respectively)		1,210,088			729,909			111,733
Long-term borrowings – related party		7,379,253			6,942,795			1,062,785
Total Liabilities		73,770,516			114,496,924			17,526,885

Commitments and Contingencies

Equity
Common stock, ($ 0.0925 U.S. dollar par value, 20,000,000 shares authorized; 7,202,832 shares and 8,416,721 shares issued and outstanding as of June 30, 2020 and December 31, 2020, respectively)*		4,577,233			5,312,021			813,150
Additional paid-in capital		282,505,455			295,104,195			45,173,769
Statutory reserve		4,148,929			4,148,929			635,107
Accumulated deficit		(184,027,586)			(192,963,238)			(29,538,302)
Accumulated other comprehensive gain		2,825,731			1,894,365			289,984
Total stockholders' equity		110,029,762			113,496,272			17,373,708
Non-controlling interests		10,614,526			9,558,652			1,463,213
Total equity		120,644,288			123,054,924			18,836,921
Total Liabilities and Equity	¥	194,414,804		¥	237,551,848		$	36,363,806

* Retrospectively restated for effect of stock split on December 27, 2019.

RECON TECHNOLOGY, LTD
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)

	For the six months ended
	December 31,
	2019		2020			2020
	RMB		RMB			USD
Revenues
Revenues – third party	¥	30,405,153		¥	25,083,622		$	3,839,734
Revenues – related party		–			85,657			13,112
Revenues		30,405,153			25,169,279			3,852,847

Cost of revenues
Cost of revenues – third party		18,437,241			18,452,239			2,824,620
Cost of revenues		18,437,241			18,452,239			2,824,620

Gross profit		11,967,912			6,717,040			1,028,227

Selling and distribution expenses		2,660,873			2,750,389			421,022
General and administrative expenses		13,366,413			13,009,013			1,991,385
Provision for (net recovery of) doubtful accounts		25,537			(3,697,024)			(565,931)
Research and development expenses		2,895,286			3,756,839			575,087
Operating expenses		18,948,109			15,819,217			2,421,563

Loss from operations		(6,980,197)			(9,102,177)			(1,393,336)

Other income (expenses)
Subsidy income		854,389			222,038			33,989
Interest income		85,745			20,168			3,087
Interest expense		(761,322)			(1,000,182)			(153,105)
Income (loss) from investment in unconsolidated entity		141,288			(251,296)			(38,468)
Foreign exchange transaction gain (loss)		209			(78,784)			(12,060)
Other income (loss)		(60,760)			50,369			7,711
Other income (expense), net		259,549			(1,037,687)			(158,846)
Loss before income tax		(6,720,648)			(10,139,864)			(1,552,182)
Income tax expenses (benefit)		316,799			(98,338)			(15,053)
Net loss		(7,037,447)			(10,041,526)			(1,537,129)

Less: Net loss attributable to non-controlling interests		(336,250)			(1,105,874)			(169,284)
Net loss attributable to Recon Technology, Ltd	¥	(6,701,197)		¥	(8,935,652)		$	(1,367,845)

Comprehensive loss
Net loss		(7,037,447)			(10,041,526)			(1,537,129)
Foreign currency translation adjustment		9,610			(931,366)			(142,571)
Comprehensive loss		(7,027,837)			(10,972,892)			(1,679,700)
Less: Comprehensive loss attributable to non-controlling interests		(336,250)			(1,105,874)			(169,284)
Comprehensive loss attributable to Recon Technology, Ltd	¥	(6,691,587)		¥	(9,867,018)		$	(1,510,416)

Loss per common share – basic and diluted	¥	(1.51)		¥	(1.22)		$	(0.19)
Weighted – average shares -basic and diluted*		4,449,980			7,330,866			7,330,866

* Retrospectively restated for effect of stock split on December 27, 2019.

RECON TECHNOLOGY, LTD
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)

	For the six months ended December 31,
	2019		2020			2020
	RMB		RMB			U.S. Dollars
Cash flows from operating activities:
Net loss	¥	(7,037,447)		¥	(10,041,526)		$	(1,537,129)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		411,592			1,369,590			209,653
Loss from disposal of equipment		3,189			1,095			168
Provision for (net recovery of) doubtful accounts		25,537			(3,697,024)			(565,931)
Provision for slow moving inventories		25,312			423,714			64,861
Amortization of right of use assets		718,000			542,896			83,105
Restricted shares issued for management and employees		4,057,093			3,403,513			521,001
Loss (income) from investment in unconsolidated entity		(141,288)			251,296			38,468
Interest expenses related to convertible notes		–			84,607			12,951
Restricted shares issued for services		33,927			–			–
Changes in operating assets and liabilities:
Notes receivable		(986,826)			(3,609,112)			(552,473)
Trade accounts receivable		5,412,201			15,866,295			2,428,770
Trade accounts receivable-related party		–			3,409,912			521,980
Inventories		(551,200)			(765,595)			(117,195)
Other receivable		1,364,500			(4,262,681)			(652,520)
Other receivables-related parties		–			(23,800)			(3,643)
Purchase advance		1,108,902			96,330			14,746
Contract assets		(9,951,981)			(14,262,839)			(2,183,318)
Prepaid expense		116,917			(19,306)			(2,955)
Prepaid expense – related parties		217,600			217,600			33,310
Operating lease liabilities		(610,000)			(539,572)			(82,596)
Trade accounts payable		362,758			(3,761,301)			(575,770)
Other payables		(160,316)			(850,478)			(130,189)
Other payables-related parties		1,790,155			(2,842,651)			(435,145)
Advance from customers		1,904,753			3,200,559			489,933
Accrued payroll and employees' welfare		1,501,406			(963,905)			(147,552)
Accrued expenses		–			(198,483)			(30,383)
Taxes payable		650,855			273,624			41,886
Net cash provided by (used in) operating activities		265,639			(16,697,242)			(2,555,967)

Cash flows from investing activities:
Purchases of property and equipment		(12,967)			(375,569)			(57,491)
Proceeds from disposal of equipment		900			–			–
Repayments from loans to third parties		4,960,000			3,200,377			489,905
Payments made for loans to third parties		–			(950,000)			(145,423)
Payments and prepayments for construction in progress		(1,297,663)			–			–
Net cash provided by investing activities		3,650,270			1,874,808			286,991

Cash flows from financing activities:
Proceeds from short-term bank loans		–			3,520,000			538,832
Repayments of short-term bank loans		–			(1,020,000)			(156,139)
Proceeds from short-term borrowings		–			2,460,000			376,570
Repayments of short-term borrowings		(1,081,096)			(2,460,000)			(376,570)
Proceeds from short-term borrowings-related parties		13,115,000			10,100,000			1,546,081
Repayments of short-term borrowings-related parties		(10,195,000)			(8,320,000)			(1,273,604)
Repayments of long-term borrowings-related party		(365,530)			(399,422)			(61,142)
Proceeds from sale of common stock, net of issuance costs		–			9,930,015			1,520,060
Proceeds from issuance of convertible notes		–			42,364,203			6,485,000
Capital contribution by non-controlling shareholders		405,000			50,000			7,654
Net cash provided by financing activities		1,878,374			56,224,796			8,606,742

Effect of exchange rate fluctuation on cash		9,611			(931,369)			(142,574)

Net increase in cash		5,803,894			40,470,993			6,195,192
Cash at beginning of period		4,521,325			30,336,504			4,643,832
Cash at end of period	¥	10,325,219		¥	70,807,497		$	10,839,024

Supplemental cash flow information
Cash paid during the period for interest	¥	718,201		¥	849,409		$	130,025
Cash received during the period for taxes	¥	(2,002)		¥	(98,338)		$	(15,053)

Non-cash investing and financing activities
Right-of-use assets obtained in exchange for operating lease obligations	¥	1,228,963		¥	63,530		$	9,725
Inventories used as fixed assets	¥	–		¥	302,795		$	46,351
Payable for construction in progress	¥	236,302		¥	–		$	–
Receivable for disposal of property and equipment	¥	5,000		¥	–		$	–

Recon Technology, Ltd Reports Financial Results for the First Six Months of Fiscal Year 2021

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