Recon Technology Announces Third Quarter Fiscal 2011 Financial Results

BEIJING, May 16, 2011 /PRNewswire-Asia/ -- 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 third fiscal quarter ended March 31, 2011. Summary financial data is provided below:

Third Quarter Fiscal 2011 Financial Highlights

  • Revenues for the third quarter of fiscal year 2011 decreased by 57.74% year-over-year to $1.7 million, down from $4.0 million in the third quarter of fiscal 2010
  • Gross margin for the third quarter was 17.9% based on gross profit of $302 thousand, compared with a 44.7% margin based on gross profit of $1.8 million in the same period last year
  • Operating expenses for the third quarter were $1.5 million, up 97.7% year-over-year from $741 thousand in the same period last year
  • Operating loss for the third quarter was $1.2 million, down 211.18% compared to operating income of $1.0 million in the third quarter of fiscal 2010
  • Net loss attributable to Recon for the third quarter decreased 263.21% year-over-year to $1.1 million compared with net income of $689 thousand for the third quarter of fiscal 2010
  • Loss per diluted share was $0.28 for the quarter, down 263.21% from diluted EPS of $0.17 achieved in the same period a year ago

Nine Months Fiscal 2011 Financial Highlights

  • Revenues for the first nine months of fiscal year 2011 decreased by 19.19% year-over-year to $12.2 million, down from $15.0 million in the first nine months of fiscal 2010
  • Gross margin for the first nine months of fiscal 2011 was 36.98% based on gross profit of $4.5 million, compared with a 43.33% margin based on gross profit of $6.5 million in the same period last year
  • Operating expenses for the first nine months of fiscal 2011 were $4.0 million, up 52.38% year-over-year from $2.6million in the same period last year
  • Operating income and operating margin for the nine months ended March 31, 2011 were $469 thousand and 3.86%, respectively, compared to $3.9 million and 25.7%, respectively, for the same period in 2010
  • Net income attributable to Recon for the first nine months of fiscal 2011 decreased 92.66% year-over-year to $196 thousand, compared with $2.7 million for the first nine months of fiscal 2010
  • Earnings per diluted share were $0.05 for the first nine-month period, down 92.66% from diluted EPS of $0.71 achieved in the same period a year ago

Third Quarter Fiscal 2011 Results of Operations

Revenues

Revenues for the three months ended March 31, 2011 were $1.7 million as compared to $4.00 million for the three months ended March 31, 2010. The decrease of 57.74% was primarily due to some of Recon's clients, especially those of Sinopec, shifting their equipment procurement policies to increase cooperation with strategic suppliers rather than with third-party agents such as Recon. Additionally, a number of clients experienced temporary delays in their oilfield projects, which prevented Recon from providing systems and services to them and recognizing the corresponding revenues.

Gross Profit

Gross profit for the third quarter of fiscal 2011 was $302 thousand as compared to $1.8 million for the third quarter of fiscal 2010.  The decrease of 83.11% was primarily due to the declining trading business. Costs of sales for the three-month period were $1.4 million as compared to $2.2 million for the same period a year ago. The Company's gross margin was 17.87% and 44.70% for the three months ended March 31, 2011 and 2010, respectively.

Income from Operations

Operating loss for the three months ended March 31, 2011 amounted to $1.2 million as compared to operating income of $1.0 million for the three months ended March 31, 2010. The decrease of 97.7% or $1.2 million was primarily attributable to the decline of the agency trading business, the uncertainty associated with the recovery of advance payments, and the increased expenses related to expanding sales channels. Operating expenses for the three-month period totaled $1.5 million as compared to $741 thousand for the same period a year ago.

Net Income

Net loss attributable to Recon for the fiscal 2011 third quarter was $1.1 million as compared to net income attributable to Recon of $689 thousand for the same period a year ago, due to the reasons set forth above. Loss per diluted share was $0.28 for the quarter, a decrease of 263.21% compared with diluted EPS of $0.17 for the same period a year ago.

Nine Months Fiscal 2011 Results of Operations

Revenues

Revenue for the first nine months ended March 31, 2011 was $12.2 million as compared to $15.0 million for the first nine months ended March 31, 2010. The decrease of 19.19% was primarily due to the same factors that affected revenues for the three months ended March 31, 2011.

Gross Profit

Gross profit for the nine months of fiscal 2011 was $4.5 million as compared to $6.5 million for the nine months ended March 31, 2010. The decrease of 31.04% was primarily due to the decrease in revenues. Costs of sales for the nine-month period were $7.7 million, down 10.13% from $8.5 million for the same period a year ago. The Company's gross margin was 36.98% and 43.33% for the nine months ended March 31, 2011 and 2010, respectively.

Income from Operations

Operating income for the nine months ended March 31, 2011 amounted to $469 thousand as compared to $3.9 million for the nine months ended March 31, 2010. The decrease of 887.9% or $3.4 million was primarily due to the decrease in revenues and an increase in administrative expenses. General and administrative expenses for the nine-month period ended March 31, 2011 increased 103.07% over the same nine-month period in fiscal 2010, driven by the increased allowance of advance payment related to the trading business 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 13.39% decrease in selling and distribution expenses.

Net Income

Net income attributable to Recon for the nine months ended March 31, 2011 was $196thousand as compared to $2.7 million for the nine months ended March 31, 2010, due to the reasons set forth above. Earnings per diluted share were $0.05 for the nine-month period, compared with diluted EPS of $0.71 for the same period a year ago.

Liquidity and Capital Resources

As of March 31, 2011, the Company's current assets were $26.7 million and current liabilities were $8.3 million. Cash and cash equivalents totaled $2.5 million as of March 31, 2011. The Company has no long-term liabilities, and total shareholders' equity at March 31, 2011 was $18.6 million. The Company had cash provided by operating activities of $728,614 during the nine months ended March 31, 2011, compared to cash used in operating activities of $6.3 million for the nine months ended March 31, 2010. The Company used $22,422 in cash for investing activities during the nine months ended March 31, 2011, compared to $56,444 for the nine months ended March 31, 2010. The Company used $2,755 in cash from financing activities during the nine months ended March 31, 2011, compared to $9.36 million for the nine months ended March 31, 2010.

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.

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




RECON TECHNOLOGY, LTD

CONSOLIDATED BALANCE SHEETS



June 30,


March 31,


March 31,


2010


2011


2011

ASSETS

RMB


RMB


U.S. Dollars

Current assets





(Unaudited)



(Unaudited)

Cash and cash equivalents

RMB

12,142,957


RMB

16,620,761


$

2,529,758

Trade accounts receivable, net


89,425,990



83,080,495



12,645,241

Other receivables,  net


12,850,547



17,794,691



2,708,435

Purchase advances


46,551,402



16,878,362



2,568,966

Prepaid expenses


766,638



1,228,887



187,042

Inventories


13,150,911



37,644,403



5,729,654

Deferred tax assets


275,960



2,061,711



313,802

Total current assets


175,164,405



175,309,310



26,682,898










Property and equipment, net


1,482,881



1,326,526



201,903

Total Assets

RMB

176,647,286


RMB

176,635,836


$

26,884,801










LIABILITIES AND EQUITY









Current liabilities









Trade accounts payable

RMB

16,536,796


RMB

14,859,767


$

2,261,727

Other payables


3,096,309



2,589,053



394,066

Deferred income


4,267,711



2,853,075



434,251

Advances from customers


439,761



-



-

Accrued payroll and employees' welfare


360,540



117,562



17,893

Accrued expenses


290,803



313,747



47,754

Taxes payable


20,203,104



21,369,588



3,252,551

Short-term bank loan


-



5,000,000



761,023

Short-term borrowings


5,024,881



3,913,820



595,702

Short-term borrowings- related parties


7,343,457



3,274,605



498,410

Total current liabilities


57,563,362



54,291,217



8,263,377

Total Liabilities


57,563,362



54,291,217



8,263,377










Commitments and Contingencies


















Equity









Ordinary shares ($ 0.0185 U.S. dollar par value, 25,000,000    









 shares authorized; 3,951,811 and respectively shares issued    


529,979



529,979



80,665

 and outstanding as of June 30, 2010 and March 31, 2011,









 respectively)









Additional paid-in capital


69,257,098



70,394,755



10,714,412

Appropriated retained earnings


3,755,503



4,396,641



669,189

Unappropriated retained earnings


36,034,500



36,678,269



5,582,604

Accumulated other comprehensive loss


(76,997)



(128,472)



(19,554)

Total controlling shareholders’ equity


109,500,083



111,871,172



17,027,316

Non-controlling interest, net of tax


9,583,841



10,473,447



1,594,108

Total equity


119,083,924



122,344,619



18,621,424

Total Liabilities and Equity

RMB

176,647,286


RMB

176,635,836


$

26,884,801












RECON TECHNOLOGY, LTD

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME



For the Nine Months ended
March 31,


For the Three Months ended
March 31,


For the Nine
Months ended
March 31,



2010



2011


2010


2011


2011



RMB



RMB


RMB


RMB


U.S. Dollars



(Unaudited)



(Unaudited)



(Unaudited)



(Unaudited)



(Unaudited)

Revenues















Hardware

RMB

90,932,348


RMB

77,754,951


RMB

24,578,963


RMB

11,108,566


$

11,834,668

Service


7,675,214



2,111,111



1,709,402



-



321,321

Software


226,496



-



-



-



-

Total revenues


98,834,057



79,866,062



26,288,365



11,108,566



12,155,989
















Cost of revenues


56,007,688



50,332,089



14,538,530



9,123,575



7,660,780

Gross margin


42,826,369



29,533,973



11,749,835



1,984,991



4,495,209
















Selling and distribution expenses


7,557,188



6,545,509



1,534,090



1,449,192



996,257

General and administrative expenses


9,803,491



19,908,120



3,337,591



8,183,056



3,030,109

Operating expenses


17,360,679



26,453,629



4,871,681



9,632,248



4,026,366
















Income (Loss) from operations


25,465,690



3,080,344



6,878,153



(7,647,257)



468,843
















Other income (expenses)















Subsidy income


1,178,034



792,545



20,000



341,025



120,629

Interest income


5,693



5,974



-



1,035



909

Interest expense


(32,074)



(159,171)



(21,335)



(85,872)



(24,227)

Interest expense - related parties


(78,001)



(267,168)



(11,506)



(13,671)



(40,664)

Other income


471,914



289,605



389,668



284,546



44,079

Other income, net


1,545,566



661,785



376,827



527,063



100,726
















Income  (Loss)  before income taxes and non-controlling interest


27,011,256



3,742,129



7,254,979



(7,120,194)



569,569

Provision for income taxes


7,189,566



1,561,897



2,082,801



174,898



237,728

Net income (loss) before allocation to non-controlling interests


19,821,690



2,180,232



5,172,178



(7,295,092)



331,841

Less: Net income attributable to non-controlling interest


(2,318,767)



(895,325)



(647,827)



(89,198)



(136,273)

Net income (loss) attributable to ordinary shareholders

RMB

17,502,923


RMB

1,284,907


RMB

4,524,351


RMB

(7,384,290)


$

195,568
















Comprehensive income















Net income (loss) before allocation to non-controlling interests


19,821,690



2,180,232



5,172,178



(7,295,092)



331,841

Foreign currency translation adjustment


119,992



(57,194)



119,992



(15,671)



(8,705)

Comprehensive income (loss)


19,941,682



2,123,038



5,292,170



(7,310,763)



323,136

Comprehensive income attributable to non-controlling interests


(2,330,766)



(889,606)



(659,826)



(87,631)



(135,403)

Comprehensive income attributable to ordinary shareholders

RMB

17,610,916


RMB

1,233,432


RMB

4,632,344


RMB

(7,398,394)


$

187,733

Earnings (Loss) per ordinary  share - basic















Net income (loss) attributable to ordinary shareholders

RMB

4.66


RMB

0.33


RMB

1.14


RMB

(1.87)


$

0.05

Earnings (loss) per ordinary share - diluted















Net income (loss) attributable to ordinary shareholders

RMB

4.65


RMB

0.33


RMB

1.13


RMB

(1.87)


$

0.05

Weighted - average ordinary shares -basic


3,753,350



3,951,811



3,951,811



3,951,811



3,951,811

Weighted - average ordinary shares -diluted


3,763,408



3,951,811



4,002,298



3,951,811



3,951,811


















RECON TECHNOLOGY, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Nine Months ended March 31,


2010


2011


2011


RMB


RMB


U.S. Dollars



(Unaudited)



(Unaudited)



(Unaudited)

Cash flows from operating activities:


-



-



-

Net income before allocation to non-controlling interests 

RMB

19,821,690


RMB

2,180,232


$

331,841

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









Depreciation


263,036



303,804



46,240

Stock based payment


1,178,701



1,138,264



173,249

Provision for doubtful debts


-



7,937,870



1,208,181

Movement of deferred taxation


1,329,433



(1,785,751)



(271,800)

Changes in operating assets and liabilities:









Trade accounts receivable, net


(43,645,506)



6,345,495



965,814

Trade accounts receivable-related parties


7,458,302



-



-

Other receivable, net


(4,517,417)



(11,774,622)



(1,792,153)

Other receivables related parties


507,541



-



-

Purchase advance


(33,963,030)



30,275,498



4,608,075

Prepaid expense


(778,507)



(462,249)



(70,356)

Inventories


(2,442,053)



(24,493,492)



(3,728,024)

Deferred tax assets


-



(1,785,751)



(271,800)

Trade accounts payable


1,981,145



(1,677,029)



(255,252)

Trade accounts payable-related parties


(189,744)



-



-

Other payables


840,619



(507,256)



(77,207)

Other payables-related parties


73,579



-



-

Deferred income


1,822,916



(1,414,636)



(215,314)

Advances from customers


(884,565)



(439,761)



(66,934)

Accrued payroll and employees' welfare


(96,439)



(242,978)



(36,982)

Accrued expenses


31,677



22,944



3,492

Taxes payable


9,701,746



1,166,484



177,544

Net cash provided by (used in) operating activities


(41,506,877)



4,787,066



728,614










Cash flows from investing activities:









Purchases of property and equipment


(371,162)



(147,449)



(22,442)

Proceeds from sale of property and equipment


320



-



-

Net cash used in investing activities


(370,842)



(147,449)



(22,442)










Cash flows from financing activities:









Proceeds from stock issuance


60,209,057



-



-

Proceeds from short-term bank loan


-



5,000,000



761,023

Proceeds from (Repayment to) short-term borrowings


459,089



(1,111,061)



(169,109)

Repayment to (Repayment to) short-term borrowings-related party


803,280



(4,068,852)



(619,298)

Net cash provided by (used in ) financing activities


61,471,426



(179,913)



(27,384)










Effect of exchange rate fluctuation on cash and cash equivalents


(28,514)



18,100



2,755










Net increase in cash and cash equivalents

RMB

19,565,192


RMB

4,477,804


$

681,543

Cash and cash equivalents at beginning of period


2,727,735



12,142,957



1,848,215

Cash and cash equivalents at end of period

RMB

22,292,927


RMB

16,620,761


$

2,529,758



















Supplemental cash flow information









Cash paid during the period for interest

RMB

-


RMB

48,000


$

7,306

Cash paid during the period for taxes

RMB

98,834


RMB

2,344,515


$

356,846












SOURCE Recon Technology, Ltd.



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