Recon Technology Announces Second Quarter Fiscal 2011 Financial Results

BEIJING, Feb. 15, 2011 /PRNewswire-Asia-FirstCall/ -- Recon Technology, Ltd. (Nasdaq: RCON) ("Recon" or the "Company"), a leading Chinese non-state-owned oilfield services provider to oil and gas companies and their affiliates, today announced its financial results for the second fiscal quarter ended December 31, 2010. Summary financial data is provided below:

Second Quarter Fiscal 2011 Financial Highlights

  • Revenues for the second quarter of fiscal year 2011 decreased by 6.2% year-over-year to $7.1 million, down from $7.6 million in the second quarter of fiscal 2010
  • Net income attributable to Recon for the second quarter decreased 51.1% year-over-year to $0.93 million compared with $1.9 million for the second quarter of fiscal 2010
  • Gross margin for the second quarter was 42.2% based on gross profit of $3.0 million, compared with a 49.3% margin based on gross profit of $3.7 million in the same period last year
  • Operating income and operating margin for the second quarter were $1.4 million and 19.2%, respectively, compared to $2.6 million and 34.5%, respectively, in the second quarter of fiscal 2010
  • Earnings per diluted share were $0.23 for the quarter, down 50.0% from diluted EPS of $0.47 achieved in the same period a year ago

Six Months Financial Highlights

  • Revenues for the first half of fiscal year 2011 decreased by 5.2% year-over-year to $10.4 million, down from $11.0 million in the first half of fiscal 2010
  • Net income attributable to Recon for the first half of fiscal 2011 decreased 46.2% year-over-year to $1.06 million, compared with $1.96 million for the first half of fiscal 2010
  • Gross margin for the first half of fiscal 2011 was 40.1% based on gross profit of $4.2 million, compared with a 42.8% margin based on gross profit of $4.7 million in the same period last year
  • Operating income and operating margin for the six months ended December 31, 2010 were $1.6 million and 15.6%, respectively, compared to $2.8 million and 25.6%, respectively, for the same period in 2009
  • Earnings per diluted share were $0.27 for the six-month period, down 49.7% from diluted EPS of $0.53 achieved in the same period a year ago

Shenping Yin, Recon's Chief Executive Officer, stated, "Our second quarter was a challenging one for Recon, as we faced several unanticipated obstacles to our growth strategy. Due to delays in several of our clients' oilfield construction projects, we were unable to provide equipment to the clients on schedule, which prevented us from recognizing the corresponding revenues. Raw material costs and manufacturers' equipment prices have also risen recently, driving some of our customers to adjust their procurement policies and cut costs by purchasing hardware, especially some foreign-brand products, directly from the manufacturers instead of through Recon."

Mr. Yin continued, "We are currently working to adjust and streamline our business structure in order to develop our automation and services segment and maintain higher margins, which have historically been a key component of our competitive advantage. We still see strong potential in our industry as China's oil consumption grows and major domestic oil and gas companies upgrade their equipment, and we remain committed to growing our business in the niche domestic oilfield services market we serve."

Second Quarter Fiscal 2011 Results of Operations

Revenues

Revenues for the three months ended December 31, 2010 were $7.1 million as compared to $7.6 million for the three months ended December 31, 2009. The slight decrease of 6.2% was primarily due to some of Recon's clients shifting their equipment procurement policies to increase direct purchases from manufacturers rather than through third-party agents such as Recon. Additionally, a number of clients experienced temporary delays in their oilfield projects, which prevented Recon from providing equipment to them and recognizing the corresponding revenues.

Gross Profit

Gross profit for the second quarter of fiscal 2011 was $3.0 million as compared to $3.7 million for the second quarter of fiscal 2010.  The decrease of 19.6% was primarily due to raw material price increases and less preferential policies and higher prices from the Company's contracted manufacturers. Costs of sales for the three-month period were $4.1 million as compared to $3.8 million for the same period a year ago. The Company's gross margin was 42.2% and 49.3% for the three months ended December 31, 2010 and 2009, respectively.

Income from Operations

Operating income for the three months ended December 31, 2010 amounted to $1.4 million as compared to $2.6 million for the three months ended December 31, 2009. The decrease of 47.8% or $1.2 million was primarily attributable to advanced payments to equipment suppliers related to contracts that could not be finished on schedule due to clients' delays, increased expenses related to being a public company, and an increase in expenses related to Recon's secondary offering, which was withdrawn due to unfavorable market conditions. Operating expenses for the three-month period totaled $1.6 million as compared to $1.1 million for the same period a year ago.

Net Income

Net income attributable to Recon for the fiscal 2011 second quarter was $0.93 million as compared to $1.9 million for the same period a year ago, due to the reasons set forth above. Earnings per diluted share were $0.23 for the quarter, a decrease of 50.0% compared with diluted EPS of $0.47 for the same period a year ago.

First Half Fiscal 2011 Results of Operations

Revenues

Revenue for the six months ended December 31, 2010 was $10.4 million as compared to $11.0 million for the six months ended December 31, 2009. The decrease of 5.2% was primarily due to the same factors that affected revenues for the three months ended December 31, 2010.

Gross Profit

Gross profit for the first half of fiscal 2011 was $4.2 million as compared to $4.7 million for the six months ended December 31, 2009. The decrease of 11.4% was primarily due to the decrease in revenues and an increase in the price of both raw materials and equipment the Company purchases from manufacturers. Costs of sales for the six-month period were $6.2 million, down slightly from $6.3 million for the same period a year ago. The Company's gross margin was 40.1% and 42.8% for the six months ended December 31, 2010 and 2009, respectively.

Income from Operations

Operating income for the six months ended December 31, 2010 amounted to $1.6 million as compared to $2.8 million for the six months ended December 31, 2009. The decrease of 42.3% or $2.2 million was primarily due to the decrease in revenues and an increase in administrative expenses. General and administrative expenses for the six-month period increased 81.3% over the first half of fiscal 2010, driven by higher expenses related to being a public company and expenses related to the planned secondary offering, which was withdrawn due to unfavorable market conditions. The increase in general and administrative expenses was partially offset by a 15.4% decrease in selling and distribution expenses.

Net Income

Net income attributable to Recon for the six months ended December 31, 2010 was $1.06 million as compared to $1.96 million for the six months ended December 31, 2009, due to the reasons set forth above. Earnings per diluted share were $0.27 for the six-month period, compared with diluted EPS of $0.53 for the same period a year ago.

Liquidity and Capital Resources

As of December 31, 2010, the Company's current assets were $29.2 million and current liabilities were $10.2 million. Cash and cash equivalents totaled $1.8 million as of December 31, 2010. The Company has no long-term liabilities, and total shareholders' equity at December 31, 2010 was $19.4 million. The Company had cash used in operating activities of $474,462 during the six months ended December 31, 2010, compared to cash used in operating activities of $2.56 million for the six months ended December 31, 2009. The Company used $3,758 in cash for investing activities during the six months ended December 31, 2010, compared to $20,199 for the six months ended December 31, 2009. The Company generated $475,151 in cash from financing activities during the six months ended December 31, 2010, compared to $8.98 million for the six months ended December 31, 2009.

About Recon Technology, Ltd.

Recon Technology, Ltd. has been providing leading Chinese oil and gas companies with automation services that increase efficiency and profitability in exploring, extracting, producing, processing, refining and transporting petroleum products for over 10 years. The Company's proprietary computerized process control system manages oil production in real-time to increase extraction levels, reduce impurities in extracted petroleum and lower production costs. In addition, as one of only two acoustic system providers in the world, Recon's acoustic pipeline monitoring system is widely used to prevent gas leakage in the transport pipeline. Recon's technology is based on three software copyrights, eight product patents and four pending patents. Recon Technology is the first Chinese non-state-owned oil and gas service company to go public in the U.S.

More information may be found at http://www.recon.cn or via e-mail at info@recon.cn.

Forward-Looking Statements

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 field 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.

RECON TECHNOLOGY, LTD

CONSOLIDATED BALANCE SHEETS












June 30,



December 31,



December 31,


2010


2010


2010


RMB


RMB


U.S. Dollars




(Unaudited)


(Unaudited)

ASSETS


Current assets


Cash and cash equivalents (including balance from consolidated parent companies of RMB7,453,184 and RMB3,796,211 ($574,157)  as of June 30, 2010 and December 31, 2010, respectively)


12,142,957



12,087,113


$

1,828,112

Trade accounts receivable, net


89,425,990



104,434,261



15,795,133

Other receivables,  net


12,850,547



18,685,512



2,826,085

Purchase advances (including balance from consolidated parent companies of RMB255,323 and RMB171,907 ($26,000)  as of June 30, 2010 and December 31, 2010, respectively)


46,551,402



27,025,069



4,087,400

Prepaid expenses (including balance from consolidated parent companies of RMB237,879 and RMB140,038 ($21,180)  as of June 30, 2010 and December 31, 2010, respectively)


766,638



140,038



21,180

Inventories


13,150,911



30,833,264



4,663,369

Total current assets


174,888,445



193,205,257



29,221,280










Property and equipment, net (including balance from consolidated parent companies of RMB10,690 and RMB9,720 ($1,470) as of June 30, 2010 and December 31, 2010, respectively)


1,482,881



1,304,452



197,292

Deferred tax assets


275,960



789,450



119,400

Total Assets


176,647,286



195,299,159


$

29,537,971










LIABILITIES AND EQUITY









Current liabilities









Trade accounts payable


16,536,796



21,148,001


$

3,198,524

Other payables (including balance from consolidated parent companies of RMB194,361 and RMB456,221 ($69,001)  as of June 30, 2010 and December 31, 2010, respectively)


3,096,309



3,472,063



525,131

Deferred income


4,267,711



2,438,253



368,773

Advances from customers


439,761



120,650



18,248

Accrued payroll and employees' welfare


360,540



87,169



13,184

Accrued expenses


290,803



278,873



42,178

Taxes payable


20,203,104



24,105,472



3,645,826

Short-term bank loan


-



5,000,000



756,224

Short-term borrowings


5,024,881



4,568,540



690,968

Short-term borrowings- related parties


7,343,457



5,941,399



898,605

Total current liabilities


57,563,362



67,160,420



10,157,661

Total Liabilities


57,563,362



67,160,420



10,157,661










Commitments and Contingencies


















Equity









Ordinary shares, $ 0.0185 U.S. dollar par value, 25,000,000 shares authorized; 3,951,811 and 3,951,811 shares issued and outstanding at June 30 and December 31, 2010


529,979



529,979



80,157

Additional paid-in capital


69,257,098



70,141,123



10,608,476

Appropriated retained earnings


3,755,503



4,557,675



689,324

Unappropriated retained earnings


36,034,500



42,209,270



6,383,930

Accumulated other comprehensive loss


(76,997)



(114,368)



(17,298)

Total controlling shareholders' equity


109,500,083



117,323,680



17,744,589

Non-controlling interest, net of tax


9,583,841



9,770,056



1,477,670

Total equity


119,083,924



127,093,736



19,222,259

Total Liabilities and Equity


176,647,286



194,254,156


$

29,379,920










(Note: except for some items including balances from consolidated parent companies as indicated above, all of the assets represented assets of consolidated variable interest entities (VIEs) that can be used only to settle obligations of the consolidated VIEs, all of the liabilities represented liabilities of the consolidated VIEs for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary. For the summary information regarding VIEs, please refer to note 18)



RECON TECHNOLOGY, LTD

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



For the Six Months ended
December 31,


For the Three Months ended
December 31,


 2009


 2010


2009


2010


 RMB


RMB


RMB


RMB


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Revenues












Hardware


10,035,601



10,079,915



7,120,866



6,782,884

Service


902,298



319,294



452,578



319,294

Software


34,256



-



-



-

Total revenues


10,972,154



10,399,210



7,573,443



7,102,179













Cost of revenues


6,271,992



6,232,571



3,841,104



4,102,819

Gross margin


4,700,163



4,166,639



3,732,340



2,999,359













Selling and distribution expenses


910,962



770,791



584,392



498,074

General and administrative expenses


977,933



1,773,354



532,419



1,134,827

Operating expenses


1,888,895



2,544,145



1,116,811



1,632,901













Income from operations


2,811,267



1,622,493



2,615,529



1,366,458













Other income (expenses)












Subsidy income


175,147



68,290



171,165



-

Interest income


873



747



619



537

Interest expense


(5,322)



(11,086)



(2,661)



(5,543)

Interest expense - related parties


(6,371)



(38,340)



(2,794)



(26,726)

Other income


12,439



765



1,327



7,178

Other income (expenses)


176,766



20,376



167,656



(24,554)













Income before income taxes and non-controlling interest


2,988,034



1,642,869



2,783,186



1,341,904

Provision for income taxes


772,371



400,800



667,607



278,923

Net income before allocation to non-controlling interests


2,215,663



1,242,069



2,115,579



1,062,981

Less: Net income attributable to non-controlling interest


(252,721)



(186,843)



(216,828)



(135,370)

Net income attributable to ordinary shareholders


1,962,942



1,055,226



1,898,751



927,611













Comprehensive income












Net income before allocation to non-controlling interests


2,215,663



1,242,069



2,115,579



1,062,981

Foreign currency translation adjustment


(8,400)



(6,280)



(569)



10,059

Comprehensive income


2,207,263



1,235,789



2,115,009



1,073,041

Comprehensive income attributable to non-controlling interests


(252,721)



(186,215)



(216,828)



(136,376)

Comprehensive income attributable to ordinary shareholders


1,954,542



1,049,574



1,898,181



936,665

Earnings per ordinary share - basic












Net income attributable to ordinary shareholders


0.54



0.27



0.48



0.23

Earnings per ordinary share - diluted












Net income attributable to ordinary shareholders


0.53



0.27



0.47



0.23

Weighted - average shares -basic


3,656,277



3,951,811



3,951,811



3,951,811

Weighted - average shares -diluted


3,698,981



3,951,811



4,046,573



3,951,811















RECON TECHNOLOGY, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Six Months ended
December 31,


2009


2010


2010


RMB


RMB


U.S. Dollars



(Unaudited)



(Unaudited)


(Unaudited)

Cash flows from operating activities:









Net income before allocation to non-controlling interests


2,215,663



1,242,069


$

187,856

Adjustments to reconcile net income before non-controlling interests to net cash used in operating activities:









Depreciation


170,864



203,278



30,745

Stock based payment


736,688



870,084



131,596

Provision for doubtful debts


-



2,644,369



399,947

Movement of deferred taxation


3,923,533



(513,490)



(77,663)

Changes in operating assets and liabilities:








-

Trade accounts receivable, net


(29,594,234)



(15,008,271)



(2,269,922)

Trade accounts receivable-related parties, net


(11,590,498)



-



-

Other receivable, net


(1,484,297)



(8,471,365)



(1,281,249)

Other receivables related parties, net


(500,000)



-



-

Purchase advance, net


(783,333)



19,526,333



2,953,255

Prepaid expense


(7,160,434)



626,600



94,770

Inventories


(399,430)



(17,682,353)



(2,674,363)

Trade accounts payable


(2,241,257)



4,611,205



697,421

Trade accounts payable-related parties


12,119,119



-



-

Other payables


(103,868)



375,754



56,831

Other payables-related parties


(326,557)



-



-

Deferred income


-



(1,829,458)



(276,696)

Advances from customers


2,678,536



(319,111)



(48,264)

Accrued payroll and employees' welfare


(885,846)



(273,371)



(41,346)

Accrued expenses


-



(11,930)



(1,804)

Interest payable


3,707,849



-



-

Taxes payable


171,407



3,902,368



590,213

Net cash used in operating activities


(29,346,096)



(10,107,289)



(1,528,674)










Cash flows from investing activities:









Purchases of property and equipment


(133,554)



(24,849)



(3,758)

Net cash used in investing activities


(133,554)



(24,849)



(3,758)










Cash flows from financing activities:









Proceeds from stock issuance


60,209,057



-



-

Proceeds from short-term bank loan


-



5,000,000



756,224

Proceeds from (Repayment to) short-term borrowings


1,806,464



(456,341)



(69,019)

Repayment to short-term borrowings-related party


(2,633,759)



(1,402,058)



(212,054)

Net cash provided by financing activities


59,381,762



3,141,601



475,151










Effect of exchange rate fluctuation on cash and cash equivalents


(76,116)



(35,551)



(5,377)










Net increase (decrease) in cash and cash equivalent


29,825,996



(7,026,088)


$

(1,062,659)

Cash and cash equivalents at beginning of year


2,727,735



12,142,957


$

1,836,558

Cash and cash equivalents at end of year


32,553,731



5,116,869


$

773,900



















Supplemental cash flow information









Cash paid during the year for interest


-



36,000


$

5,445

Cash paid during the year for taxes


248,176



2,337,279


$

353,501













This information is intended to be reviewed in conjunction with the Company's filings with the Securities and Exchange Commission, which includes the accompanying notes.

Contact:      


At the Company:

Recon Technology, Ltd
Tel:   +86-10-8494-5799
Email: info@recon.cn


Investor Relations:

Dave Gentry, U.S.
RedChip Companies, Inc.
Tel: +1-800-733-2447, Ext. 104
Email: info@redchip.com


Jing Zhang, China

RedChip Beijing Representative Office

Tel: +86 10-8591-0635

Web: http://www.RedChip.com



SOURCE Recon Technology, Ltd.



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