Recon Technology Reports Fiscal Year 2018 Financial Results

BEIJING,Sept. 28,2018 --Recon Technology,Ltd. (Nasdaq: RCON) ("Recon" or the "Company"),aChina-based independent solutions integrator in the oilfield service and environmental protection,electric power and coal chemical industries,today announced its financial results for the fiscal year ended June 30,2018.

Management Commentary

Mr.Shenping Yin,founder and CEO of Recon stated,"We are pleased to announce our financial results for fiscal year 2018. Our revenues increased to RMB 84.7 million from RMB 60.1 million over the same period last year. This was an improvement of 41.1% year over year,exceeding our expectations of a 30% increase as previously disclosed in our annual letter to shareholders. In addition to this top line growth,over the past fiscal year our management invested in manufacturing equipment,constructing wastewater and oil sludge treatment plants and Future Gas Station (Beijing) Technology,Ltd ("FGS"),as oil prices and the oil industry improved. FGS is a service company focusing on providing new technical application and data operation to gas stations of oil companies such as PetroChina Co.,Ltd. So far,we have secured a 43% interest in FGS and FGS' performance is exceeding our expectations. We expect to improve our margins as these investments bear fruition and we continue to see strong demand for energy services as the oil market strengthens."

Mr.Yin continued,"China's energy market is more and more diversified in terms of the structure and the market participants. As a non-state-owned company,Recon is getting more opportunities. In addition,we have expanded our automation business from the oil industry to the coal chemical and new energy industries by leveraging our knowledge and experience in automation,and our relationships with large energy companies. As of today,we have signed contracts amounted up to RMB22.48 million with Shenhua Group Corporation Limited ("Shenhua Group") and RMB14.20 million with Xinjiang East Hope New Energy Co.,Ltd. ("East Hope"). We have also integrated the new energy technology into our traditional furnaces and will vigorously explore the civilian market of furnaces. We believe all these efforts will bring Recon and our shareholders more value in the future."

Fiscal Year 2018 Financial Highlights (all comparable to the prior year period):

For the Fiscal Year Ended June 30,

(RMB millions,except per share data)

2018

2017

% Change

Revenue

84.7

60.1

41.1%

Automation product and software

19.0

22.4

-15.2%

Equipment and accessories

64.0

26.7

139.9%

Oilfield environmental protection

1.8

11.0

-84.0%

Gross profit

4.2

16.0

-74.0%

Gross margin

4.9%

26.6%

-21.7pp

Loss from operations

-40.9

-30.6

33.7%

Net loss attributable to Recon Technology,Ltd

-44.1

-31.4

40.2%

Loss per share

-3.84

-4.90

-21.6%

* Note: pp represents percentage points

Total revenues for fiscal year 2018 increased by 41.1% to RMB84.7 million ($12.8 million).

The revenue of equipment and accessories business was a record RMB64.0 million ($9.7 million) for fiscal year 2018 increasing 139.9% compared to RMB26.7 million during fiscal year 2017.

Gross profit for fiscal year 2018 was RMB4.2 million ($0.6 million). Gross profit margin for fiscal year 2018 was 4.9%,which decreased by 21.7 percentage points compared to fiscal year 2017.

Net loss attributable to Recon for fiscal year 2018 was RMB44.1 million ($6.7 million),or RMB3.84 ($0.58) per basic and diluted share,compared to RMB31.5 million,or RMB4.90 per basic and diluted share,for fiscal year 2017.

Fiscal Year 2018 Financial Results

Revenue

Total revenues for the fiscal year ended June 30,2018increased by RMB24.7 million,or 41.1%,to RMB84.7 million ($12.8 million) compared to RMB60.1 million for the fiscal year ended June 30,2017. The increase in revenues was accomplished through the addition of new clients and development of new business.

Revenue from automation product and software decreased by RMB3.4 million,or 15.2%,to RMB19.0 million ($2.9 million) for the fiscal year ended June 30,2018 from RMB22.4 million for the fiscal year ended June 30,2017,mainly affected by less expenditure on surface projects and postponed production activities by clients.

Revenue from equipment and accessories increased by RMB37.3 million,or 139.9%,to RMB64.0 million ($9.7 million) for the fiscal year ended June 30,2018 from RMB26.7 million for the fiscal year ended June 30,the significant increase was primarily due to increased equipment sales,including furnaces and related accessories in normal chemical and civil furnace markets.

Revenue from oilfield environmental protection decreased by RMB9.2 million,or 84.0%,to RMB1.8 million ($0.3 million) for the fiscal year ended June 30,2018 from RMB11.0 million for the fiscal year ended June 30,2017. The Company devoted resources on construction of oily sludge treatment processing projects this year and less waste-water projects were done during this period. The Company expects the oily sludge treatment processing projects to be operational by the end of the calendar year 2018 and to generate annual revenue of more than RMB50 million,assuming full capacity.

Cost and Margin

Total cost of revenues increased by RMB36.5 million,or 82.7%,to RMB80.6 million ($12.2 million) for the fiscal year ended June 30,2018from RMB44.1 million for the fiscal year ended June 30,2017. The increase was mainly caused by significant growth in revenue generated from equipment and accessories.

Cost of revenue from automation product and software increased by RMB4.6 million ($0.7 million),or 37.2%,to RMB17.0 million ($2.6 million) for the fiscal year ended June 30,2018from RMB12.3 million for the fiscal year ended June 30,2017. The increase in cost of revenue from automation product and software was primarily attributable to 1) a mass of business of Shenhua Group contracts with lower margin; and 2) some pre-contract costs devoted to Changqing Oilfield projects.

Cost of revenue from equipment and accessories increased by RMB40.1 million ($6.1 million),or 183.3%,to RMB62.0 million ($9.4 million) for the fiscal year ended June 30,2018from RMB21.9 million for the fiscal year ended June 30,2017. The increase in cost of revenue from equipment and accessories was primarily attributable to quickly increased sales of furnaces to general industry clients.

Cost of revenue from oilfield environmental protection decreased by RMB8.1 million ($1.2 million),or 85.9%,to RMB1.3 million ($0.2 million) for the fiscal year ended June 30,2018from RMB9.4 million for the fiscal year ended June 30,2017. The variance in cost of revenue was mainly due to less business of waste water treatment. The Company expects this part will increase in the coming year as our new subsidiary Gan Su BHD runs.

Gross profit decreased by RMB11.8 million,or 74.0%,to RMB4.2 million ($0.6 million) for the fiscal year ended June 30,2018from RMB16.0 million from the fiscal year ended June 30,2017. The decrease in gross profit was primarily due to the increase in revenue,offset by the increase in cost of revenue. Gross margin decreased by 21.7 percentage points to 4.9% for the fiscal year ended June 30,2018 from 26.6% from the fiscal year ended June 30,2017.

Operating Expenses

Selling and distribution expenses increased by RMB3.6 million,or 79.7%,to RMB8.0 million ($1.2 million) for the fiscal year ended June 30,2018from RMB4.5 million for the fiscal year ended June 30,2017. This increase was primarily due to an increase in traveling expense and service and testing fees as the Company expanded its market to new basements of Changqing Oilfield and new industries.

General and administrative expenses increased by RMB1.9 million,or 5.9%,to RMB34.7 million($5.2 million) for the fiscal year ended June 30,2018 from RMB32.8 millionfor the fiscal year ended June 30,2017. The increase in general and administrative expenses was mainly due to an increase in salaries and rent expenses,the increase was partially offset by the decrease in consulting fees.

Provision for doubtful accounts was RMB0.8 million ($0.1 million) for the fiscal year ended June 30,2018,compared to reversal of provision for doubtful accounts of RMB1.8 million for the fiscal year ended June 30,2017. Management plans to continue to monitor accounts receivable to maintain the provision at a lower level.

Research and development expenses decreased by RMB4.4 million,or 57.7%,to RMB3.2 million ($0.5 million) for the fiscal year ended June 30,2018 from RMB7.6 millionfor the fiscal year ended June 30,2017. This decrease was primarily due to less research and development expense spent on design of chemical products used for waste water treatment and digital oilfield models and platform. The Company was focusing on the transformation of advanced R&D results into projects,which were undertaken by Gan Su BHD and Qing Hai BHD.

Net Loss

Loss from operations was RMB40.9 million ($6.2 million) for the fiscal year ended June 30,compared to a loss of RMB30.6 million for the fiscal year ended June 30,2017. This RMB10.3 million ($1.6 million) increase in loss from operations was primary due to a decrease in gross profit,as well as an increase in selling and distribution expenses and general and administrative expenses and partly offset by a decrease in research and development expenses.

Other expense,net was RMB4.4 million ($0.7 million) for the fiscal year ended June 30,compared to other expense,net of RMB0.3 million for the fiscal year ended June 30,2017. The RMB4.1 million ($0.6 million) increase in other expense,net was primarily due to the increased loss from investment in unconsolidated entity of RMB4.0 million ($0.6 million).

Provision for income tax was RMB16,230 (approximately $2,500) for the fiscal year ended June 30,compared to RMB0.3 million for the fiscal year ended June 30,2017. The decrease in the Company's provision for income taxes was primarily due to the decreased taxable income of Nanjing Recon for the fiscal year ended June 30,2018.

Net loss was RMB45.4 million ($6.9 million) for the fiscal year ended June 30,compared to RMB31.2 million for the fiscal year ended June 30,2017. Net loss attributable to Recon for the fiscal year ended June 30,2018was RMB44.1 million ($6.7 million),or RMB3.84($0.58)per basic and diluted share,compared to RMB31.4 million,or RMB4.90 per basic and diluted share for the fiscal year ended June 30,2017.

Financial Condition

As of June 30,the Company had cash of RMB45.3 million ($6.8 million),compare to RMB3.8 million as of June 30,2017. As of June 30,the Company had working capital of RMB74.8 million ($11.3 million),compare to RMB38.9 million as of June 30,2017.

Net cash used in operating activities was RMB21.1 million ($3.2 million) for the fiscal year ended June 30,compared to net cash provided by operating activities of RMB5.7 million for the fiscal year ended June 30,2017. Net cash used in investing activities was RMB16.0 million ($2.4 million) for the fiscal year ended June 30,compare to RMB0.6 million for the fiscal year ended June 30,2017. Net cash provided by financing activities was RMB76.9 million ($11.6 million) for the fiscal year ended June 30,compared to net cash used in financing activities of RMB3.1 million for the fiscal year ended June 30,2017.

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. 6198 to$1.00,the approximate exchange rate prevailing on June 30,2018.

Recent Developments

On August 27,the Company signed a contract with East Hope,a polysilicon producer in China. Pursuant to the signed contract,Recon has agreed to sell to East Hope a distributed control system known as "DCS" for data collection and equipment control and a safety instrumented system known as "SIS" for safety protection control. Recon is obligated to deliver the equipment before December 15,2018 and install the equipment before December 31,2018. As consideration,East Hope is obligated to pay Recon RMB 14.2 million (approximately USD $2.1 million).

On August 21,the Company entered into a definitive investment agreement and a supplemental agreement (collectively,the "Agreement") with FGS and the other shareholders of FGS. Following full performance under the Agreement,Recon will own 43% of FGS. As consideration for increasing its affiliates' interest in FGS from 8% to 43%,Recon will (1) pay a total of RMB 10 million in cash to FGS in five installments and (2) issue 2,435,284 restricted ordinary shares of Recon (the "Restricted Shares") to the other shareholders of FGS within 30 days after FGS finalizes recording Recon's corresponding interest at the local governmental agency. If FGS does not reach certain performance goals,Recon has the right to cancel without further payment part or all of the Restricted Shares. The Restricted Shares are also subject to lock-up period requirements that vary for each FGS shareholder,from one year to three years following issuance of the Restricted Shares.

On July 19,the Company completed the first stage of its construction of a comprehensive disposal treatment project (the "Project") in Yumen city,Gansu province through its 51% subsidiary,Gansu BHD Environmental Technology Co.,Ltd ("Gansu BHD"),which focuses on oilfield sewage treatment and oily sludge disposal projects. The Project,which will have an annual processing capacity of 60,000 tons of oily waste,is the only such treatment facility located in Yumen city.

On June 11,FGS,of which Recon indirectly holds a minority stake,has recently entered into a strategic cooperation agreement with JD Finance,to establish an information communication mechanism and long term cooperation relationship. JD Finance is the financial technology arm of JD.com,China's largest online direct sales company. This cooperation will allow customers to refuel their vehicles though the JD Finance App,which will be supported by the FGS platform and linked to the FGS database.

About Recon Technology,Ltd.

Recon Technology,Ltd.(RCON)isChina'sfirst listed non-state-owned oil and gas field service company on NASDAQ. Recon suppliesChina'slargest oil exploration companies,Sinopec (SNP) and 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,Recon has taken leading positions on several market segments of the oil and gas field service industry. Recon also has developed stable long-term cooperation relationship with its major clients,and its products and service are well accepted by clients. For additional information please visit:www.recon.cn.

Safe Harbor

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.

For more information,please contact:

InChina:

Ms.Liu Jia

Chief Financial Officer

Recon Technology,Ltd.

Phone: +86 (10) 8494-5799

Email:info@recon.cn

Inthe United States:

Ms.Tina Xiao

President

Ascent Investor Relations LLC

Phone: +1-917-609-0333

Email:tina.xiao@ascent-ir.com

RECON TECHNOLOGY,LTD

CONSOLIDATED BALANCE SHEETS

As of June 30,

As of June 30

As of June 30

2017

2018

2018

RMB

RMB

U.S. Dollars

ASSETS

Current assets

Cash

¥

3,809,279

¥

45,340,578

$

6,849,237

Notes receivable

6,112,960

3,995,962

603,638

Trade accounts receivable,net

39,425,911

24,254,007

3,663,858

Inventories,net

2,627,974

6,758,841

1,021,004

Other receivables,net

4,106,510

7,320,953

1,105,918

Purchase advances,net

11,476,000

12,654,546

1,911,621

Prepaid expenses

828,441

509,682

76,994

Total current assets

68,387,075

100,834,569

15,232,270

Property and equipment,767,970

3,171,109

479,034

Construction in progress

-

11,779,784

1,477

Land use right,net

-

1,335,126

201,687

Long-term trade accounts receivable,net

-

4,212,829

636,398

Prepayments for construction in progress

-

474,100

71,618

Total Assets

¥

71,155,045

¥

121,807,517

$

18,400,484

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Trade accounts payable

¥

8,352,870

¥

8,754,347

$

1,322,449

Other payables

3,351,900

3,170,670

478,969

Other payable- related parties

3,314,019

3,211,457

485,129

Deferred revenue

1,259,725

85,140

12,861

Accrued payroll and employees' welfare

2,014,514

600,434

90,703

Taxes payable

684,721

431,913

65,246

Short-term borrowings

300,000

-

-

Short-term borrowings - related parties

10,168,008

9,018,065

1,362,287

Long-term borrowings - related party - current portion

-

719,895

108,749

Total Current Liabilities

29,445,757

25,991,921

3,926,393

Long-term borrowings - related party

-

8,943,834

1,073

Total Liabilities

29,757

34,935,755

5,277,466

Commitments and Contingencies

Equity

Ordinary shares,($ 0.0185 U.S. dollar par value,100,000,000

shares authorized; 18,380,349 shares and 9,902,914 shares issued

and outstanding as of June 30,2018 and June 30,

respectively)

1,261,288

2,279,510

344,347

Additional paid-in capital

123,436,043

207,490,280

31,343,890

Statutory reserve

4,148,929

4,929

626,745

Accumulated deficit

(95,659)

(139,424,980)

(21,061,812)

Accumulated other comprehensive gain (loss)

(249,156)

1,516,093

229,024

Total stockholders' equity

33,244,445

76,009,832

11,482,194

Non-controlling interests

8,464,843

10,861,930

1,640,824

Total equity

41,709,288

86,871,762

13,123,018

Total Liabilities and Equity

¥

71,517

$

18,484

RECON TECHNOLOGY,LTD

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the years ended

June 30,

2016

2017

2018

2018

RMB

RMB

RMB

USD

Revenues

42,728,277

60,054,462

84,712,046

12,796,768

Cost of revenues and related tax

35,481,394

44,090,960

80,561,861

12,169,833

Gross profit

7,246,883

15,963,502

4,150,185

626,935

Selling and distribution expenses

5,630,715

4,458,218

8,013,353

1,210,513

General and administrative expenses

20,195,701

32,751,142

34,687,317

5,239,934

Provision for (net recovery of) doubtful accounts

14,475,074

1,766,286

(841,242)

(127,080)

Research and development expenses

6,856,522

7,599,340

3,215,653

485,763

Operating expenses

47,158,012

46,574,986

45,075,081

6,130

Loss from operations

(39,129)

(30,611,484)

(40,924,896)

(6,182,195)

Other income (expenses)

Subsidy income

289,087

132,791

371,650

56,142

Interest income

183,553

73,990

68,028

10,276

Interest expense

(903,368)

(548,878)

(897,521)

(135,581)

Loss from investment in unconsolidated entity

-

-

(4,037,736)

(609,948)

Foreign exchange transaction gain (loss)

7,570

21,502

(4,068)

(615)

Other income (expense)

(2,445)

36,178

65,539

9,900

Other expense,net

(425,603)

(284,417)

(4,434,108)

(669,826)

Loss before income tax

(40,336,732)

(30,895,901)

(45,359,004)

(6,852,021)

Income tax expenses

545,845

307,900

16,230

2,452

Net loss

(40,882,577)

(31,203,801)

(45,375,234)

(6,854,473)

Less: Net income (loss) attributable to non-controlling

interests

-

241,346

(1,302,913)

(196,821)

Net loss attributable to Recon Technology,Ltd

¥

(40,577)

¥

(31,147)

¥

(44,072,321)

$

(6,657,652)

Comprehensive loss

Net loss

(40,577)

(31,801)

(45,234)

(6,473)

Foreign currency translation adjustment

98,511

(30,116)

1,765,249

266,662

Comprehensive loss

(40,784,066)

(31,233,917)

(43,609,985)

(6,587,811)

Less: Comprehensive income (loss) attributable to non-

controlling interests

-

241,821)

Comprehensive loss attributable to Recon Technology,066)

¥

(31,263)

¥

(42,307,072)

$

(6,390,990)

Loss per orindary share - basic and diluted

¥

(7.23)

¥

(4.90)

¥

(3.84)

$

(0.58)

Weighted - average shares -basic and diluted

5,653,149

6,417,305

11,483,464

11,464

RECON TECHNOLOGY,LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 30,

2016

2017

2018

2018

RMB

RMB

RMB

U.S. Dollars

Cash flows from operating activities:

Net loss

¥

(40,577)

¥

(31,801)

¥

(45,234)

$

(6,473)

Adjustments to reconcile net loss to net cash provided

by (used in) operating activities:

Depreciation and amortization

955,083

856,735

1,119,049

169,046

Gain from disposal of equipment

(40,688)

(35,919)

(78,285)

(11,826)

Provision for (net recovery of) doubtful accounts

14,243)

(127,080)

Provision for slow moving inventories

2,428,288

-

65,245

9,856

Share based compensation

2,096,162

2,039,446

840,286

126,935

Restricted shares issued for management

3,595,146

12,904,723

14,621,838

2,208,804

Loss from investment in unconsolidated entity

-

-

4,736

609,948

Deferred tax provision

1,742,098

-

-

-

Restricted shares issued for services

2,287,415

8,399,240

3,050,896

460,874

Income tax benefit

(1,196,253)

-

-

-

Changes in operating assets and liabilities:

Notes receivable

(454,647)

(1,452,783)

2,116,998

319,798

Trade accounts receivable,net

14,658,360

(245,190)

11,972,175

1,808,540

Trade accounts receivable-related parties,net

1,453

-

-

-

Inventories,191,811

3,597,832

(4,110)

(633,873)

Other receivable,net

(1,775,659)

17,632,104

(3,241,846)

(489,720)

Other receivables-related parties,net

91,021

-

-

-

Purchase advance,930,479

(10,534,132)

(1,102)

(187,483)

Purchase advance-related parties,374,034

-

-

-

Prepaid expense

716,004

(718,130)

318,759

48,152

Prepaid expense - related parties,net

420,000

-

-

-

Trade accounts payable

(9,615,363)

812,440

(2,706,304)

(408,820)

Other payables

712,525

(189,302)

(151,751)

(22,924)

Other payables-related parties

1,869,889

(366,225)

(102,563)

(15,493)

Deferred revenue

(1,878,848)

853,044

(1,174,585)

(177,435)

Accrued payroll and employees' welfare

134,320

1,633,405

140,828

21,274

Taxes payable

790,199

(78,700)

(269,358)

(40,690)

Net cash provided by (used in) operating activities

(285,674)

5,671,073

(21,094,571)

(3,186,590)

Cash flows from investing activities:

Investment in unconsolidated entity

-

-

(4,948)

Purchases of property and equipment

(181,075)

(638,119)

(1,503,410)

(227,108)

Proceeds from disposal of equipment

60,000

51,900

32,000

4,834

Payments for land use right

-

-

(1,361,969)

(205,742)

Payments and prepayments for construction in progress

-

-

(9,157,103)

(1,383,290)

Net cash used in investing activities

(121,075)

(586,219)

(16,028,218)

(2,421,254)

Cash flows from financing activities:

Proceeds from short-term bank loans

500,000

-

45,000

6,798

Repayments of short-term bank loans

(7,500,000)

-

(45,000)

(6,798)

Proceeds from short-term borrowings

530,000

1,600,000

694,885

Repayments of short-term borrowings

-

(1,330,000)

(4,900,000)

(740,204)

Proceeds from short-term borrowings-related parties

12,400

13,103,718

20,188,318

3,049,687

Repayments of short-term borrowings-related parties

(16,780,765)

(15,950,682)

(21,332,036)

(3,222,459)

Proceeds from long-term borrowings-related party

-

-

10,510,620

Repayments of long-term borrowings-related party

-

-

(371,975)

(56,191)

Proceeds from sale of ordinary shares,net of issuance

costs

171,919

-

65,004,531

9,819,712

Capital contribution by noncontrolling shareholders

-

-

3,700,000

558,929

Net cash provided by (used in) financing activities

(10,183,446)

(3,076,964)

76,888,838

11,614,979

Effect of exchange rate fluctuation on cash

62,886

(16,231)

1,250

266,662

Net increase (decrease) in cash

(10,527,309)

1,659

41,531,299

6,273,797

Cash at beginning of year

12,344,929

1,817,620

3,279

575,437

Cash at end of year

¥

1,620

¥

3,279

¥

45,578

$

6,234

Supplemental cash flow information

Cash paid during the year for interest

¥

903,368

¥

571,037

¥

868,042

$

131,128

Cash paid (received) during the year for taxes

¥

142,477

¥

284,487

¥

(22,671)

$

(3,425)

Non-cash investing and financing activities

Shares issued to settle salary payable

¥

-

¥

-

¥

1,554,908

$

234,887

AR and short-term borrowings-related parties offset

¥

200,000

¥

-

¥

-

$

-

Inventories used for fixed assets

¥

1,025,410

¥

-

¥

-

$

-

Payable for Construction in Progress

¥

-

¥

-

¥

3,781

$

467,806

Non-cash payment for property and equipment purchase

¥

-

¥

87,265

¥

-

$

-

Issuance of unvested ordinary shares to senior managers

¥

-

¥

55,685

¥

-

$

-

Receivable for disposal of property and equipment

¥

-

¥

-

¥

81,900

$

12,372

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