Recon Technology, Ltd Reports Financial Results for the First Six Months of Fiscal Year 2022

About this update from Recon Technology, Ltd.

BEIJING , March 30, 2022 /PRNewswire/ -- Recon Technology, Ltd (Nasdaq: RCON) ("Recon" or the "Company"), today announced its financial results for the first six months of Fiscal Year 2022. First Six Months of Fiscal 2022 Financial: Total revenues for the six months ended December 31, 2021 increased by 116.2% to $8.6 million ( RMB54.4 million ), while revenue from our oily sludge and waste water segments increased by 605.9% or $2.7 million ( RMB16.9 million ). Gross profit for the six months ended December 31, 2021 was $2.3 million ( RMB14.5 million ). Our gross profit as a percentage of revenue remained at the same level of 26.7% for the six months ended December 31, 2021 compared with the same period in 2020. Net income attributable to Recon for the six months ended December 31, 2021 was $17.5 million ( RMB111.4 million ), RMB4.08 ( $0.64 ) per basic and RMB3.87 ( $0.61 ) per diluted share, compared to a net loss attributable to Recon of RMB8.9 million , or RMB1.22 per basic and diluted share, for the six months ended December 31, 2020 . Management Commentary Mr. Shenping Yin , co-founder and CEO of Recon stated, "We are very pleased to see the rapid recovery of our business. Our revenue for the period reached twice the level of the same period last year and even exceeded the total revenue for the entire fiscal year 2021. As the overall level of oil and gas prices continues to rise, we expect our upstream customers, mainly domestic oil and gas companies, to increase Capital Expenditures (also known as "CapEx") on oil and gas production, which brings more opportunities for the rapid development of the Company. More particularly, as the oil prices increase, we have observed China's oil companies' performances greatly improve and we expect the companies to increase their investments in drilling for new oil and gas wells and production activities as compared to prior years. As their vendor, we anticipate benefiting from these trends, especially with respect to our wastewater and sludge treatment business and specialized equipment for oil and gas fields clients with relatively high technology content. As oil and gas companies ramp up productions, we have also seen the number of orders and average order amount increased from late 2022 to date." Mr. Yin continued, "With rising oil prices and increased investments by domestic oil companies, the market demand will continue to increase, and competition is expected to become more intensive. In anticipation of increased competition, we will strengthen investments in the research and development of new products and continue to integrate automation technology into other business segments to improve the digital content and enhance the overall competitive advantage of our products. In addition, the Company's financing, which was completed in June 2021 , has greatly enhanced the Company's cash reserves and financial condition. We will use our enhanced cash reserves and financial condition to our advantage by expanding our business scope to further improve the Company's business structure, its long-term profitability, enhance our values, and safeguard the interests of our shareholders." First Six Months Fiscal 2022 Financial Results: Revenue Total revenues for the six months ended December 31, 2021 increased by RMB29.2 million ( $4.6 million ) or 116.2%, to RMB54.4 million ( $8.6 million ) compared to RMB25.2 million for the six months ended December 31, 2020 . The overall increase in revenue was mainly due to the increased revenue from automation product and software, oilfield environmental protection and platform outsourcing services segments, which was partially offset by the decreased revenue from equipment and accessories segment during the six months ended December 31, 2021 . Revenue from automation product and software increased by RMB11.2 million ( $1.8 million ), or 89.1%, to RMB23.9 million ( $3.8 million ) for the six months ended December 31, 2021 from RMB12.6 million for the six months ended December 31, 2020 . The increase was mainly caused by 1) the completion of previously delayed projects in the Ji Dong oilfield; 2) the recovery of Shenhua Group's requirement; and 3) the contributions from operation and maintenance services regarding metering instruments, which were new business resources developed by the Company from fiscal year 2021. Revenue from equipment and accessories decreased by RMB3.6 million ( $0.6 million ), or 36.6%, to RMB6.2 million ( $1.00 million ) for the six months ended December 31, 2021 from RMB9.8 million for the six months ended December 31, 2020 . Although oil prices rose from early 2021, our clients were prudent in budgeting expenditures, and they preferred continued maintenance of old equipment instead of replacing them with new ones. At the same time, there was usually several months' lag time from oil price increase to capital expenditure made. Thus, revenue from equipment and accessories decreased. Revenue from oilfield environmental protection projects increased by RMB16.9 million ( $2.7 million ), or 605.9%, to RMB19.7 million ( $3.1 million ) for the six months ended December 31, 2021 . This was mainly contributed to continuously increased reequipment of our wastewater treatment and oily sludge treatment. Revenue from platform outsourcing services increased by RMB4.6 million ( $0.7 million ) or 100.0%. The increase was mainly due to the acquisition of FGS. FGS was consolidated into our operations from January 2021 . Cost and Margin Total cost of revenues increased from RMB18.5 million for the six months ended December 31, 2020 to RMB39.9 million ( $6.3 million ) for the same period in 2021. This increase was mainly caused by the increased cost of revenue from automation product and software, oilfield environmental protection and platform outsourcing services segments. Gross profit increased by RMB7.8 million ( $1.2 million ), or 116.0%, to RMB14.5 million ( $2.3 million ) for the six months ended December 31, 2021 from RMB6.7 million from the six months ended December 31, 2020 . Our gross profit as a percentage of revenue remained at the same level of 26.7% for the six months ended December 31, 2021 from 26.7% for the same period in 2020. Operating Expenses Selling expenses increased by 71.9% or RMB2.0 million ( $0.3 million ), from RMB2.8 million in the six months ended December 31, 2020 to RMB4.7 million ( $0.7 million ) in the same period of 2021. An increase of RMB1.6 million ( $0.3 million ) was primarily due to the step acquisition of FGS. General and administrative expenses increased by RMB34.3 million ( $5.4 million ), or 263.7%, to RMB47.3 million ( $7.4 million ) for the six months ended December 31, 2021 from RMB13.0 million for the six months ended December 31, 2020 . The increase was primarily due to the increased share-based compensation and salary to our management and employees. Net recovery of provision for credit losses was RMB5.7 million ( $0.9 million ) for the six months ended December 31, 2021 , compared to net recovery of provision for credit losses of RMB3.7 million for the six months ended December 31, 2020 . Research and development expenses increased from approximately RMB3.8 million for the six months ended December 31, 2020 to RMB5.5 million ( $0.9 million ) for the same period of 2021. This increase was primarily due to more research and development expense spent on design of new automation platform systems and treatment of wastewater during the period as compared to the same period last year. Net Income/Loss Loss from operations was RMB37.3 million ( $5.9 million ) for the six months ended December 31, 2021 , compared to a loss from operations of RMB9.1 million for the six months ended December 31, 2020 . This RMB28.2 million ( $4.4 million ) increase in loss from operations was primarily due to the increase in operating expense partially offset by the increase in gross profit as discussed above. Net income was RMB111 .4 million ( $17 .5 million) for the six months ended December 31, 2021 , an increase of RMB121.4 million ( $19.1 million ) from net loss of RMB10.0 million for the six months ended December 31, 2020 . Net loss attributable to the Company for the six months ended December 31, 2020 was RMB8.9 million , or RMB1.22 per basic and diluted share, compared to a net income of RMB111.4 million ( $17 .5 million). or RMB4.08 ( $0.64 ) per basic and RMB3.87 ( $0.61 ) per diluted share for the six months ended December 31, 2021 . As of December 31, 2021 , the Company had cash of RMB332.9 million ( $52.3 million ), compared to RMB344.0 million as of June 30, 2021 . As of December 31, 2021 , the Company had working capital of RMB403.8 million ( $63.5 million ) while as of June 30, 2021 , the Company had working capital of RMB412.0 million . Net cash used in operating activities was RMB23.0 million ( $3.6 million ) for the six months ended December 31, 2021 , compared to net cash used in operating activities of approximately RMB16.7 million for the six months ended December 31, 2020 . Net cash provided by investing activities was RMB26.8 million ( $4.2 million ) for the six months ended December 31, 2021 , compared to net cash provided by investing activities RMB1.9 million for the six months ended December 31, 2020 . Net cash used in financing activities was RMB9.2 million ( $1.5 million ) for the six months ended December 31, 2021 , compared to net cash provided by financing activities of RMB56.2 million for the six months ended December 31, 2020 . 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 RMB6.3614 to $1.00 , the approximate exchange rate prevailing on December 31, 2021 . About Recon Technology, Ltd ("RCON") 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: http://www.recon.cn/ . Forward-Looking Statements Forward-Looking Statements in this press release, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," "continue," "likely," "will," "would" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, among others, whether we will establish successfully cooperation with major clients; changes in the competitive environment in our industry and the markets where we operate; our ability to access the capital markets; and other risks discussed in the Company's filings with the U.S. Securities and Exchange Commission (" SEC "), including our Annual Report on Form 20-F, which filings are available from the SEC . We caution you not to place undue reliance on any forward-looking statements, which are made as of the date of this press release. We undertake no obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. For more information, please contact: Ms. Liu Jia Chief Financial OfficerRecon Technology, LtdPhone: +86 (10) 8494-5799Email: [email protected] RECON TECHNOLOGY, LTD CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (UNAUDITED) As of June 30 As of December 31 As of December 31 2021 2021 2021 ASSETS RMB RMB U.S. Dollars Current assets Cash ¥ 343,998,570 ¥ 332,864,077 $ 52,325,453 Notes receivable 6,305,633 14,808,067 2,327,793 Trade accounts receivable, net 26,686,888 41,748,478 6,562,763 Inventories, net 3,644,522 4,958,889 779,526 Other receivables, net 6,939,676 8,596,816 1,351,399 Loans to third parties 50,476,782 25,464,035 4,002,887 Purchase advances, net 1,078,137 537,305 84,463 Contract costs, net 48,795,906 31,364,473 4,930,422 Prepaid expenses 146,071 29,917 4,702 Prepaid expenses- related parties 433,000 — — Total current assets 488,505,185 460,372,057 72,369,408 Property and equipment, net 27,138,768 26,118,829 4,105,819 Land use right, net 1,253,408 1,239,789 194,892 Intangible assets, net 6,650,000 6,300,000 990,345 Investment in unconsolidated entity 27,931,795 — — Long-term other receivables, net 114,679 324,515 51,013 Goodwill 6,996,895 6,996,895 1,099,895 Operating lease right-of-use assets (including ¥352,775 and ¥119,029 ( $18,423 ) from a related party as of June 30, 2021 and December 31, 2021 , respectively) 7,925,930 6,084,606 956,486 Total Assets ¥ 566,516,660 ¥ 507,436,691 $ 79,767,858 LIABILITIES AND EQUITY Current liabilities Short-term bank loans ¥ 15,000,000 ¥ 10,000,000 $ 1,571,977 Trade accounts payable 21,956,481 22,058,660 3,467,570 Other payables 9,862,762 2,299,233 361,435 Other payable- related parties 2,400,667 3,569,788 561,162 Contract liabilities 7,686,276 1,195,862 187,987 Accrued payroll and employees' welfare 1,954,484 1,832,255 288,023 Taxes payable 1,248,994 2,337,895 367,512 Short-term borrowings 530,000 260,000 40,871 Short-term borrowings - related parties 12,676,042 9,149,292 1,438,247 Long-term borrowings - related party - current portion 920,066 958,916 150,739 Operating lease liabilities - current (including ¥352,775 and ¥119,029 ( $18,423 ) from a related party as of June 30, 2021 and December 31, 2021 , respectively) 2,226,832 2,928,987 460,430 Total Current Liabilities 76,462,604 56,590,888 8,895,953 Operating lease liabilities - non-current 4,792,101 3,278,574 515,384 Long-term borrowings - related party 6,486,551 6,009,625 944,699 Deferred tax liability 624,088 728,402 114,503 Warrant liability 190,635,850 42,239,816 6,640,000 Total Liabilities 279,001,194 108,847,305 17,110,539 Commitments and Contingencies Equity Class A ordinary shares, $0.0925 U.S. dollar par value, 150,000,000 shares authorized; 26,868,391 shares and 27,180,718 shares issued and outstanding as of June 30, 2021 and December 31, 2021 , respectively 16,340,826 16,524,894 2,597,675 Class B ordinary shares, $0.0925 U.S. dollar par value, 20,000,000 shares authorized; nil shares and 2,500,000 shares issued and outstanding as of June 30, 2021 and December 31, 2021 , respectively — 1,474,543 231,795 Additional paid-in capital 479,490,763 482,163,636 75,794,994 Statutory reserve 4,148,929 4,148,929 652,202 Accumulated deficit (206,860,320) (95,502,810) (15,012,818) Accumulated other comprehensive income (loss) 1,974,836 (2,662,155) (418,485) Total shareholders' equity 295,095,034 406,147,037 63,845,363 Non-controlling interests (7,579,568) (7,557,651) (1,188,044) Total equity 287,515,466 398,589,386 62,657,319 Total Liabilities and Equity ¥ 566,516,660 ¥ 507,436,691 $ 79,767,858 The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements. RECON TECHNOLOGY, LTD CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) For the six months ended December 31 , 2020 2021 2021 RMB RMB USD Revenues Revenues - third party ¥ 25,083,622 ¥ 54,411,724 $ 8,553,395 Revenues - related party 85,657 - - Revenues 25,169,279 54,411,724 8,553,395 Cost of revenues Cost of revenues - third party 18,452,239 39,904,645 6,272,917 Cost of revenues 18,452,239 39,904,645 6,272,917 Gross profit 6,717,040 14,507,079 2,280,478 Selling and distribution expenses 2,750,389 4,727,496 743,151 General and administrative expenses 13,009,013 47,314,621 7,437,748 Net recovery of credit losses (3,697,024) (5,671,285) (891,513) Research and development expenses 3,756,839 5,477,213 861,005 Operating expenses 15,819,217 51,848,045 8,150,391 Loss from operations (9,102,177) (37,340,966) (5,869,913) Other income (expenses) Subsidy income 222,038 2,278 358 Interest income 20,168 2,590,649 407,244 Interest expense (1,000,182) (784,077) (123,255) Income (loss) from investment in unconsolidated entity (251,296) 15,411 2,423 Fair value changes of warrants liability - 147,168,952 23,134,614 Foreign exchange transaction loss (78,784) (151,986) (23,892) Other income (loss) 50,369 (13,630) (2,143) Other income (expense), net (1,037,687) 148,827,597 23,395,349 Income (loss) before income tax (10,139,864) 111,486,631 17,525,436 Income tax expenses (benefit) (98,338) 107,204 16,852 Net income (loss) (10,041,526) 111,379,427 17,508,584 Less: Net income (loss) attributable to non-controlling interests (1,105,874) 21,917 3,445 Net income (loss) attributable to Recon Technology, Ltd ¥ (8,935,652) ¥ 111,357,510 $ 17,505,139 Comprehensive income (loss) Net income (loss) (10,041,526) 111,379,427 17,508,584 Foreign currency translation adjustment (931,366) (4,636,991) (728,924) Comprehensive income (loss) (10,972,892) 106,742,436 16,779,660 Less: Comprehensive income (loss) attributable to non-controlling interests (1,105,874) 21,917 3,445 Comprehensive income (loss) attributable to Recon Technology, Ltd ¥ (9,867,018) ¥ 106,720,519 $ 16,776,215 Eearning (loss) per ordinary share -Basic ¥ (1.22) ¥ 4.08 $ 0.64 -Diluted ¥ (1.22) ¥ 3.87 $ 0.61 Weighted average shares -Basic 7,330,866 27,312,581 27,312,581 -Diluted 7,330,866 28,776,992 28,776,992 The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements. RECON TECHNOLOGY, LTD CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED) For the six months ended December 31 , 2020 2021 2021 RMB RMB U.S. Dollars Cash flows from operating activities: Net income (loss) ¥ (10,041,526) ¥ 111,379,427 $ 17,508,584 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,369,590 1,682,450 264,477 Loss from disposal of equipment 1,095 35,279 5,546 Changes in warrants liabilities — (147,168,952) (23,134,614) Net recovery of credit losses (3,697,024) (5,671,285) (891,513) Provision for slow moving inventories 423,714 38,856 6,108 Amortization of right of use assets 542,896 1,556,830 244,730 Restricted shares issued for management and employees 3,403,513 27,375,871 4,303,423 Loss (income) from investment in unconsolidated entity 251,296 (15,411) (2,423) Deferred tax expense — 104,315 16,398 Interest expenses related to convertible notes 84,607 — — Interest income from loans to third parties — (2,101,366) (330,330) Restricted shares issued for services — 4,631,063 727,992 Changes in operating assets and liabilities: Notes receivable (3,609,112) (8,502,433) (1,336,563) Trade accounts receivable 15,866,295 (12,364,696) (1,943,701) Trade accounts receivable-related party 3,409,912 — — Inventories (765,595) (1,314,367) (206,615) Other receivable (4,262,681) (1,495,225) (235,046) Other receivables-related parties (23,800) (23,800) (3,741) Purchase advance 96,330 543,832 85,489 Contract costs (14,262,839) 20,068,844 3,154,775 Prepaid expense (19,306) 116,153 18,259 Prepaid expense - related parties 217,600 433,000 68,067 Operating lease liabilities (539,572) (526,878) (82,824) Trade accounts payable (3,761,301) 102,178 16,062 Other payables (1,048,961) (7,569,400) (1,189,891) Other payables-related parties (2,842,651) 1,169,121 183,783 Contract liabilities 3,200,559 (6,490,414) (1,020,278) Accrued payroll and employees' welfare (963,905) (122,226) (19,213) Taxes payable 273,624 1,088,901 171,173 Net cash used in operating activities (16,697,242) (23,040,333) (3,621,886) Cash flows from investing activities: Purchases of property and equipment (375,569) (337,171) (53,002) Repayments of third parties loans 3,200,377 113,146,100 17,786,302 Payments made for loans to third parties (950,000) (86,031,987) (13,524,027) Net cash provided by investing activities 1,874,808 26,776,942 4,209,273 Cash flows from financing activities: Proceeds from short-term bank loans 3,520,000 — — Repayments of short-term bank loans (1,020,000) (5,000,000) (785,988) Proceeds from short-term borrowings 2,460,000 260,000 40,871 Repayments of short-term borrowings (2,460,000) (530,000) (83,315) Proceeds from short-term borrowings-related parties 10,100,000 5,000,000 785,988 Repayments of short-term borrowings-related parties (8,320,000) (8,522,500) (1,339,717) Repayments of long-term borrowings-related party (399,422) (436,457) (68,610) Proceeds from sale of ordinary shares, net of issuance costs 9,930,015 — — Proceeds from issuance of convertible notes 42,364,203 — — Capital contribution by non-controlling shareholders 50,000 — — Net cash provided by (used in) financing activities 56,224,796 (9,228,957) (1,450,771) Effect of exchange rate fluctuation on cash (931,369) (5,642,145) (886,932) Net increase (decrease) in cash 40,470,993 (11,134,493) (1,750,316) Cash at beginning of period 30,336,504 343,998,570 54,075,769 Cash at end of period ¥ 70,807,497 ¥ 332,864,077 $ 52,325,453 Supplemental cash flow information Cash paid during the period for interest ¥ 849,409 ¥ 732,842 $ 115,201 Cash received during the period for taxes ¥ (98,338) ¥ 2,889 $ 454 Non-cash investing and financing activities Cancellation of ordinary shares issued ¥ — ¥ 27,675,450 $ 4,350,516 Right-of-use assets obtained in exchange for operating lease obligations ¥ 63,530 ¥ — $ — Inventories used as fixed assets ¥ 302,795 ¥ — $ — Receivable for disposal of property and equipment ¥ — ¥ 3,000 $ 472 The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements. 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