Recon Reports Fiscal Year 2014 First Quarter Financial Results

Revenues Increase by 27.2% and Gross Profit Increases by 116.4% Compared to 2013 First Quarter Results

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Nov 14, 2013, 06:30 ET

BEIJING, Nov. 14, 2013 /PRNewswire/ -- Recon Technology, Ltd (Nasdaq: RCON), an oilfield services provider that operates primarily in the People's Republic of China (the "Company"), today announced increased revenues and improved operations in its fiscal year 2014 first quarter ended September 30, 2013.

Q1 Fiscal Year 2014 Highlights

Total revenues increased by RMB 2.4 million or 27.2% in Q1FY2014 to RMB 11.51 million ($1.9 million), due to sales of furnaces and automation SCADA systems.
Gross profits increased 116.4% in Q1FY2014 to RMB 5.29 million ($0.9 million). Gross margin improved to 46% as compared to 27% for Q1FY2013.
Income (loss) before income taxes showed strong improvement from a loss of RMB 2.31 million to income of RMB 414 thousand ($67 thousand).
Comprehensive net income (loss) attributable to Recon in Q1FY 2014 was approximately RMB 46 thousand ($8 thousand), an improvement of 102% compared to net loss attributable to Recon of RMB 2.34 million ($382 thousand) for Q1FY 2013.
Diluted earnings per share attributable to Recon for Q1FY 2014 was RMB 0.01 ($0.002), compared to diluted losses per share attributable to Recon of RMB 0.59 in Q1FY 2013.
Adjust EBITDA in FY 2013 was RMB 1.48 million ($0.2 million), showing an improvement of 186.3% over Q1FY 2013.

Mr. Yin Shenping, CEO of Recon, noted, "As most of our major projects are still underway, our first quarter is usually a slower season. By contrast, this year business continued to flourish in the first quarter, especially our automation business and furnace business. Our focus on researching and developing our own products and growing our brand name have paid off. We expect this focus on self developed systems and other specialized oilfield products will continue to benefit our company in the future".

Mr. Yin continued, "As our traditional business improved, our new business, fracturing and shale gas automation systems sales also expanded. As our product lines continue to improve and become more integrated, our ability to provide a robust package of solutions to our customers will strengthen. We believe this focus on providing integrated services will provide us a competitive advantage and maximize our profit capability".

Q1 Fiscal Year 2014 Results

Total revenues increased by 27.2%, or approximately RMB2.4 million ($0.4 million), from RMB9.1 million for the three months ended September 30, 2012 to RMB11.5 million ($1.9 million) for the same period of 2013. This increased was mainly driven by automation business and sales of furnaces.

Gross profit increased to approximately RMB5.3 million ($0.9 million) for the three months ended September 30, 2013 from approximately RMB2.4 million for the same period in 2012. Our gross profit as a percentage of revenue increased to 46.0% for the three months ended September 30, 2013 from 27.0% for the same period in 2012.

Selling and distribution expenses increased by 6.7%, from approximately RMB1.3 million for the three months ended September 30, 2012 to approximately RMB1.4 million ($0.2 million) for the same period of 2013. This increase was primarily from increased service charges.

General and administrative expenses increased by 38.3%, or RMB0.8 million ($0.1 million), from approximately RMB2 million in the three months ended September 30, 2012 to approximately RMB2.7 million ($0.5 million) in the same period of 2013. General and administrative expenses were 21.9% of total revenues in 2012 and 23.8% of total revenues in 2013.

Research and development expenses decreased by 54.8%, from approximately RMB1.5 million for the three months ended September 30, 2012 to approximately RMB0.7 million ($0.1 million) for the same period of 2013. This decrease was primarily we devoted fewer resources to R&D for our furnaces and fracturing services in the 2013 period.

Income from operations was approximately RMB0.5 million ($0.1 million) for the three months ended September 30, 2013, compared to a loss from operations of RMB2.3 million for the same period of 2012. This increase in income from operations can be attributed primarily to the increased revenue, improved gross margins, decreased research and development expenses and decreased percentage of revenue for selling and distribution expenses.

Net income attributable to ordinary shareholders was RMB46,444 ($7,569) for the three months ended September 30, 2013, an increase of approximately RMB2.4 million ($0.4 million) from net loss attributable to ordinary shareholders of RMB2.3 million for the same period of 2012.

Adjusted EBITDA improved by approximately RMB3.2 million ($0.5 million) to approximately RMB1.5 million ($0.2 million) for the three months ended September 30, 2013 compared to approximately RMB1.7 million loss for the same period in 2012. This was due to improved operation. Compared to net income attributable to ordinary shareholders, we believe EBITDA more accurately reflects our operations.

As of September 30, 2013, we had cash and cash equivalents in the amount of approximately RMB6.7 million ($1.1 million). Except for approximately RMB0.8 million ($0.1 million) of short-term borrowings, RMB0.9 million ($0.1 million) in lease commitments and RMB17.56 million ($2.9 million) in commercial loans from local banks, we did not have any finance leases or purchase commitments, guarantees or other material contingent liabilities.

Net cash used in operating activities totaled approximately RMB8.0 million ($1.3 million) for the three months ended September 30, 2013. This was a decrease of approximately RMB8.2 million ($1.3 million) compared to net cash provided by operating activities of approximately RMB236 thousand for the quarter ended September 30, 2012. This increase was mainly because we purchased goods in preparation for coming projects.

Net cash used in investing activities was RMB6,720 ($1,095) for the three months ended September 30, 2013, a decrease of RMB374,686 ($61,060) from RMB381,406 for the same period of 2012. The decrease was due to a decrease in purchase of property and equipment.

Net cash provided by financing activities amounted to approximately RMB2.3 million ($0.4 million) for the three months ended September 30, 2013, compared to cash flows used in financing activities of approximately RMB1.1 million for the three months ended September 30, 2012. During the three-month period ended September 30, 2013, we repaid approximately RMB5.2 million ($0.9 million) of short term borrowings to related parties and received RMB7.56 million ($1.2 million) of loan proceeds from a commercial bank, which was guaranteed by one of our shareholders.

About Recon Technology, Ltd.

Recon Technology, Ltd. is a non-state-owned oil field service company in China. The company has been providing software, equipment and services designed to increase the efficiency and automation in oil and gas exploration, extraction, production and refinery for Chinese oil and gas fields for more than 10 years. More information may be found at http://www.recon.cn or via e-mail at [email protected] or [email protected].

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, 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.

Investor Contact:

Recon Technology, Ltd.
Tel: +86-10-8494-5799

RECON TECHNOLOGY, LTD
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	As of June 30,		As of September 30,		As of September 30,
	2013		2013		2013
ASSETS	RMB		RMB		U.S. Dollars
Current assets
Cash and cash equivalents	RMB	12,350,392	RMB	6,681,903	$	1,088,896
Notes receivable		2,578,855		-		-
Trade accounts receivable, net		38,648,780		35,887,868		5,848,359
Trade accounts receivable- related parties, net		18,744,364		18,575,786		3,027,147
Inventories, net		13,271,070		17,944,490		2,924,270
Other receivables, net		19,131,503		17,095,176		2,785,864
Other receivables- related parties		742,528		1,171,227		190,865
Purchase advances, net		18,412,507		20,511,358		3,342,572
Purchase advances- related parties		394,034		394,034		64,213
Tax recoverable		575,650		774,874		126,275
Prepaid expenses		2,853,956		3,078,229		501,633
Deferred tax asset		1,006,721		994,853		162,123
Total current assets		128,710,360		123,109,798		20,062,217

Property and equipment, net		1,709,846		1,566,198		255,231
Long-term investment		1,549,450		1,174,836		191,454
Long-term other receivable		3,502,680		7,254,709		1,182,242
Total Assets	RMB	135,472,336	RMB	133,105,541	$	21,691,144

LIABILITIES AND EQUITY
Current liabilities
Short-term bank loans	RMB	10,000,000	RMB	17,560,000	$	2,861,613
Trade accounts payable		7,384,165		8,474,376		1,381,001
Trade accounts payable- related parties		3,994,718		-		-
Other payables		1,964,691		951,117		154,996
Other payable- related parties		4,239,675		2,670,768		435,234
Deferred revenue		3,381,382		3,459,866		563,827
Advances from customers		470,700		435,315		70,940
Accrued payroll and employees' welfare		1,992,783		2,129,041		346,953
Accrued expenses		488,730		498,273		81,200
Taxes payable		6,754,428		6,765,824		1,102,572
Short-term borrowings- related parties		5,503,279		266,902		43,495
Short-term borrowings- other		570,375		530,375		86,431
Total current liabilities		46,744,926		43,741,857		7,128,262

Commitments and Contingency

Equity
Common stock, ($ 0.0185 U.S. dollar par value, 25,000,000 shares authorized; 3,951,811 shares issued and outstanding as of June 30, 2013 and September 30, 2013)		529,979		529,979		86,364
Additional paid-in capital		69,516,447		69,951,973		11,399,513
Appropriated retained earnings		3,023,231		3,310,881		539,548
Unappropriated retained earnings		8,749,963		8,508,756		1,386,604
Accumulated other comprehensive loss		(293,201)		(297,985)		(48,560)
Total controlling shareholders' equity		81,526,419		82,003,604		13,363,469
Non-controlling interest		7,200,991		7,360,080		1,199,413
Total equity		88,727,410		89,363,684		14,562,882
Total Liabilities and Equity	RMB	135,472,336	RMB	133,105,541	$	21,691,144


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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

	For the three months ended
	September 30,
		2012		2013	2013
		RMB		RMB	USD

Revenues
Hardware and software	RMB	8,438,964	RMB	11,097,092	$	1,808,404
Service		83,177		-		-
Hardware and software - related parties		532,051		415,618		67,730
Total revenues		9,054,192		11,512,710		1,876,134

Cost of revenues
Hardware and software	RMB	5,766,562	RMB	6,118,674	$	997,111.35
Service		20,620		-		-
Hardware and software - related parties		821,585		102,936		16,775
Total cost of revenues		6,608,767		6,221,610		1,013,886
Gross profit		2,445,425		5,291,100		862,248


Selling and distribution expenses		1,268,798		1,353,922		220,638
General and administrative expenses		1,983,111		2,741,923		446,829
Research and development expenses		1,533,329		692,600		112,867
Operating expenses		4,785,238		4,788,445		780,334


Income (loss) from operations		(2,339,813)		502,655		81,914

Other income (expenses)
Subsidy income		-		333,712		54,382
Interest income		1,310		103,201		16,818
Interest expense		(329,756)		(221,259)		(36,057)
Loss from equity method investment		-		(374,614)		(61,048)
Gain from foreign currency exchange		266,460		94,300		15,367
Other income (expense)		95,139		(24,314)		(3,962)

Income (loss) before income tax		(2,306,660)		413,681		67,414
Provision for income tax		31,624		207,327		33,786
Net Income (loss)		(2,338,284)		206,354		33,628

Less: Net income attributable to non-controlling interest		5,882		159,910		26,059
Net Income (loss) attributable to Recon Technology, Ltd	RMB	(2,344,166)	RMB	46,444	$	7,569

Comprehensive income (loss)
Net income (loss)		(2,338,284)		206,354		33,628
Foreign currency translation adjustment		(15,962)		(5,604)		(913)
Comprehensive income (loss)		(2,354,246)		200,750		32,715
Less: Comprehensive income attributable to non-controlling interest		7,656		159,349		25,968
Comprehensive income (loss) attributable to Recon Technology, Ltd	RMB	(2,361,902)	RMB	41,401	$	6,747

Earnings (loss) per common share - basic	RMB	(0.59)	RMB	0.01	$	0.00
Earnings per common share - diluted	RMB	(0.59)	RMB	0.01	$	0.00
Weighted - average shares -basic		3,951,811		3,951,811		3,951,811
Weighted - average shares -diluted		3,951,811		3,951,811		3,951,811

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

RECON TECHNOLOGY, LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the three months ended September 30,
	2012		2013		2013
	RMB		RMB		U.S. Dollars

Cash flows from operating activities:
Net income (loss)	RMB	(2,338,284)	RMB	206,354	$	33,628
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		72,379		150,368		24,504
Provision/(recovery of) for doubtful accounts		(413,622)		84,728		13,807
Stock based compensation		454,805		414,954		67,622
Loss from investment		-		374,614		61,048
Deferred tax (benifit)/provision		31,624		11,868		1,934
Changes in operating assets and liabilities:
Trade accounts receivable		5,011,902		2,568,115		418,505
Trade accounts receivable-related parties		538,500		263,726		42,977
Inventories		183,484		(4,673,420)		(761,590)
Notes receivable		-		2,578,855		420,255
Other receivable, net		(1,139,779)		(1,703,837)		(277,662)
Other receivables related parties, net		(427,764)		(428,699)		(69,862)
Purchase advance, net		(606,488)		(2,097,795)		(341,861)
Purchase advance-related party, net		100,000		-		-
Tax recoverable		1,218,082		(199,225)		(32,466)
Prepaid expense		(388,071)		(224,273)		(36,548)
Trade accounts payable		(2,812,072)		1,090,211		177,663
Trade accounts payable-related parties		1,686,797		(3,994,718)		(650,987)
Other payables		(682,186)		(1,013,574)		(165,174)
Other payables-related parties		(176,073)		(1,568,907)		(255,672)
Deferred income		100,555		78,484		12,790
Advances from customers		950,869		(35,385)		(5,766)
Accrued payroll and employees' welfare		67,796		136,258		22,205
Accrued expenses		63,324		9,543		1,555
Taxes payable		(1,260,010)		11,396		1,857
Net cash provided by (used in) operating activities		235,768		(7,960,359)		(1,297,238)

Cash flows from investing activities:
Purchase of property and equipment		(381,406)		(6,720)		(1,095)
Net cash used in investing activities		(381,406)		(6,720)		(1,095)

Cash flows from financing activities:
Proceeds from short-term bank loans		-		7,560,000		1,231,993
Proceeds from borrowings-related parties		7,675		-		-
Repayment of short-term borrowings-related parties		(202,434)		(5,236,377)		(853,330)
Repayment of short-term borrowings		(949,183)		(40,000)		(6,518)
Net cash provided by (used in) financing activities		(1,143,942)		2,283,623		372,145

Effect of exchange rate fluctuation on cash and cash equivalents		10,624		14,967		2,438

Net decrease in cash and cash equivalents		(1,278,956)		(5,668,489)		(923,750)
Cash and cash equivalents at beginning of period		3,533,283		12,350,392		2,012,646
Cash and cash equivalents at end of period	RMB	2,254,327	RMB	6,681,903	$	1,088,896
				0		-

Supplemental cash flow information
Cash paid during the period for interest	RMB	407,215	RMB	212,187	$	34,578
Cash paid during the period for taxes	RMB	-	RMB	-	$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements