Recon Technology, Ltd Reports Financial Results for the First Six Months of Fiscal Year 2023
BEIJING,March 24,2023 -- Recon Technology,Ltd (NASDAQ: RCON) ("Recon" or the "Company"),a China-based independent solutions integrator in the oilfield service and environmental protection,electric power and coal chemical industries,today announced its financial results for the first six months of fiscal year 2023.
First Six Months of Fiscal 2023 Financial Metrics:
Total revenue decreased by approximately RMB8.8 million ($1.3 million) or 16.3% to RMB45.6 million ($6.6 million) for the six months ended December 31,2022 from RMB54.4 million for the same period in 2021.
Gross profit decreased by approximately RMB1.4 million ($0.20 million) or 9.5% to RMB13.1 million ($1.9 million) for the six months ended December 31,2022,from RMB14.5 million for the same period in 2021.
Gross margin increased to 28.8% for the six months ended December 31,2022 from 26.7% for the same period in 2021.
Research and development expenses decreased from RMB5.5 million ($0.9 million) for the six months ended December 31,2021 to RMB5.1 million ($0.7 million) for the same period in 2022.
Net income decreased by RMB141.3 million ($20.5 million) to net loss of RMB29.9 million ($4.3 million) for the six months ended December 31,2022 from net income of RMB111.4 million ($17.5 million) for the same period in 2021.
FortheSix Months Ended
December31,
2022
2021
Increase/(Decrease)
Percentage
Change
(in RMB millions,except
earnings per share; differences
due to rounding)
Revenue
RMB
45.6
RMB
54.4
RMB
(8.8)
(16.3)
%
Gross profit
13.1
14.5
(1.4)
(9.5)
%
Gross margin
28.8
%
26.7
%
2.1%
/
Net income
(29.9)
111.4
(141.3)
(126.8)
%
Net earnings per share-
diluted
(0.88)
3.87
(4.75)
(122.7)
%
Management Commentary
Mr. Shenping Yin,Founder and CEO of Recon said: "Due to the COVID-19 pandemic restrictions in China in the second half of 2022,both our business activities and those of our customers were restricted by varying degrees. As a result,our revenue for the first six months ended December 31,2022 decreased by 16.3% compared to the same period of year 2021. Although we maintained a stable gross profit margin,we experienced operating losses and net losses. As China achieved major and decisive strides in the COVID 19 prevention and control efforts in early 2023,we believe our business is back to a favorable direction as we actively pursue business opportunities."
"Currently,as more markets in China's energy industry are opening up to non-state-owned companies,we are exploring opportunities in such other markets. We believe that our experience and deep understanding of the energy industry,especially in the fields of oil and gas,will always be the foundation for the company's long-term growth. In addition,to diversify our sources of revenue and reduce concentration risk,we will continue to leverage recent technological advancements,our knowledge of intelligent equipment and the "Internet of Things" (IoT),and opportunities arising from rising oil prices and climate deterioration caused in part by plastic pollution,to fully utilize our industry and technological knowledge and advantages and seek new opportunities in other industries. We expect to expand on more profitable business lines."
First Six Months Fiscal 2023 Financial Results:
Revenue
Total revenues for the six months ended December 31,2022 were approximately RMB45.6 million ($6.6 million),a decrease of approximately RMB8.8 million ($1.3 million) or 16.3% from RMB54.4 million for the same period in 2021. The overall decrease in revenue was mainly due to decrease revenue from automation product and software,oilfield environmental protection and platform outsourcing services segments,which was partially offset by the increased revenue from equipment and accessories segment during the six months ended December 31,2022.
Revenue from automation product and software decreased by RMB4.8 million ($0.7 million) or 20.1%. The decrease was mainly caused by decreased orders from Ji Dong oilfield as this client reduced their investment budget and oil and gas extraction activities.
Revenue from equipment and accessories increased by RMB3.5 million ($0.5 million) or 57.3% due to increased demand for equipment from Qing Hai oilfield companies as oil price increased and their production activities increased.
Revenue from oilfield environmental protection decreased by RMB6.9 million ($1.0 million) or 35.2%. This was mainly caused by less raw materials we could collect. As a result,our revenue decreased due to lower processing volume compared to the same period last year.
Revenue from platform outsourcing services decreased by RMB0.6 million ($0.1 million) or 13.9%. The decrease was mainly due to less overall economic activities and lower refueling volumes at gas stations.
Cost of revenue
Total cost of revenues decreased from RMB39.9 million for the six months ended December 31,2021 to RMB32.4 million ($4.7 million) for the same period in 2022. This decrease was mainly caused by the decreased cost of revenue from automation product and software,which was partially offset by the decreased cost of revenue from equipment and accessories segment during the six months ended December 31. 2022.
Gross profit
Total gross profit decreased to RMB13.1 million ($1.9 million) for the year ended December 31,2022 from RMB14.5 million for the same period in 2021. Gross profit margin increased slightly to 28.8% for the six months ended December 31,2022 from 26.7% for the same period in 2021.
For the six months ended December 31,2021 and 2022,gross profit from automation product and software was approximately RMB3.3 million and RMB4.1 million ($0.6 million),respectively,representing an increase in gross profit of approximately RMB0.8 million ($0.1 million) or 25.0%. In year 2021,we mainly carried out contracts that were signed during the Covid-19 and low oil price period,during which we used a low-margin strategy to maintain our cooperation business with clients. As oil price increase in 2022,customers recovered and contract terms were improved and margin increased and the margin percentage will also be higher.
For the six months ended December 31,gross profit from equipment and accessories was approximately RMB3.3 million and RMB3.5 million ($0.5 million),representing an increase of approximately RMB0.2 million ($30,017 ) or 6.3%. This was mainly driven by high oil price and more demands for heating furnaces with higher margin rather than accessories with lower margin.
For the six months ended December 31,gross profit from oilfield environmental protection was approximately RMB5.6 million and RMB2.8 million ($0.4 million),representing a decrease of approximately RMB2.8 million ($0.4 million) or 50.3%. The decrease in gross profit from oilfield environmental protection was primarily attributable to the decreased production of oily sludge.
For the six months ended December 31,gross profit from platform outsourcing services was approximately RMB2.3 million and RMB2.7 million ($0.4 million),representing an increase of approximately RMB0.4 million ($0.1 million) or 18.4 %,this was mainly because personnel expenses,which constitutes major part of our costs,reduced during the six months ended December 31,2022.
Operating expenses
Selling and distribution expenses decreased by 14.9% or RMB0.7 million ($0.1 million),from RMB4.7 million in the six months ended December 31,2021 to RMB4.0 million ($0.6 million) in the same period of 2022.
General and administrative expenses decreased by 44.6% or RMB21.1 million ($3.1 million),from RMB47.3 million in the six months ended December 31,2021 to RMB26.2 million ($3.8 million) in the same period of 2022.
The Company also recorded an allowance for credit losses of RMB5.7 million for the six months ended December 31,2021 as compared to a net recovery of credit losses of RMB7.1 million ($1.0 million) for the same period in 2022.
Research and development expenses remained relatively stable with a slight decrease from RMB5.5 million for the six months ended December 31,2021 to RMB5.1 million ($0.7 million) for the same period of 2022.
Loss from operations
Loss from operations was RMB15.1 million ($2.2 million) for the six months ended December 31,compared to a loss of RMB37.3 million for the same period of 2021. This RMB22.2 million ($3.2 million) decrease in loss from operations was primarily due to the decrease in operating expense as discussed above.
Change in fair value of warrant liability
Gain in fair value of warrants issued on June 14,2021 through six months ended December 31,2021 was RMB147.2 million,and the loss in fair value of warrants was RMB20.1 million ($2.9 million) for the six months ended December 31,2022.
Interest income
Interest income was RMB5.0 million ($0.7 million) for the six months ended December 31,compared to interest income of RMB1.8 million for the same period of 2021.
Net income (loss)
As a result of the factors described above,net loss was RMB29.9 million ($4.3 million) for the six months ended December 31,a decrease of RMB141.3 million ($20.5 million) from net income of RMB111.4 million for the same period of 2021.
Cash
As of December 31,we had cash in the amount of approximately RMB269.1 million ($39.0 million). As of June 30,we had cash in the amount of approximately RMB317.0 million ($47.3 million).
Recent Development
On March 17,2023,the Company announced that it closed its previously announced registered direct offering with certain accredited investors to purchase approximately $8 million worth of its Class A ordinary shares,and Class A ordinary shares warrants in a concurrent private placement,for proceeds of approximately $8 million. In addition,ordinary share purchase warrants to purchase an aggregate of 7,950,769 ordinary shares previously issued by the Company to certain institutional investors on June 16,2021 had the exercise price reduce to $0.80 in connection with this offering. Company management and its board of directors believe that the capital raise was in company's best interests to obtain additional funding for its new business segment in the plastics recycling business while confronting near-term market volatility and the recently announced tighter rules and regulations in terms of follow-on offerings from oversea-listed Chinese companies promulgated from the China Securities Regulatory Commission. The Company intends to use the net proceeds for its midterm and long-term operations,including for the Company's research and development needs for current and future products,expansion of its marketing efforts,and possible acquisition of complementary assets or businesses.
On March 2,the Company announced that it has formulated preliminary plans to expand into the plastics chemical recycling business. Recon also attended the 27thChina Plastics Recycling Conference and Exhibitionheld onFebruary 28atDongguan City of Guangdong Provinceto explore cutting-edge technologies that work to achieve circular economy goals in eliminating waste and pollution,keeping products and materials in continuous use,and regenerating natural systems..
On February 27,the Company announced that the mainlandChinavariable interest entity's subsidiary,Nanjing Recon Technology Co.,had achieved preliminary progress on the research and development of a new energy-efficient electric pump that is being conducted at some oilfield sites inChina.
About Recon Technology,Ltd ("RCON")
Recon Technology,Ltd (NASDAQ: RCON) is the People's Republic of 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 within several segmented markets of the oil and gas filed service industry. RCON also has developed stable long-term cooperation relationship with its major clients. For additional information please visit: http://www.recon.cn/.
Forward-Looking Statements
Recon includes "forward-looking statements" within the meaning of the federal securities laws throughout this press release. A reader can identify forward-looking statements because they are not limited to historical fact or they use words such as "scheduled," "may," "will," "could," "should," "would," "expect," "believe," "anticipate," "project," "plan," "estimate," "forecast," "goal," "objective," "committed," "intend," "continue," or "will likely result," and similar expressions that concern Recon's strategy,plans,intentions or beliefs about future occurrences or results. Forward-looking statements are subject to risks,uncertainties and other factors that may change at any time and may cause actual results to differ materially from those that Recon expected. Many of these statements are derived from Recon's operating budgets and forecasts,which are based on many detailed assumptions that Recon believes are reasonable,or are based on various assumptions about certain plans,activities or events which we expect will or may occur in the future. However,it is very difficult to predict the effect of known factors,and Recon cannot anticipate all factors that could affect actual results that may be important to an investor. All forward-looking information should be evaluated in the context of these risks,uncertainties and other factors,including those factors disclosed under "Risk Factors" in Recon's most recent Annual Report on Form 20-F and any subsequent half-year financial filings on Form 6-K filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by the cautionary statements that Recon makes from time to time in its SEC filings and public communications. Recon cannot assure the reader that it will realize the results or developments Recon anticipates,or,even if substantially realized,that they will result in the consequences or affect Recon or its operations in the way Recon expects. Forward-looking statements speak only as of the date made. Recon undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances arising after the date on which they were made,except as otherwise required by law. As a result of these risks and uncertainties,readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by,or on behalf of,Recon.
For more information,please contact:
Company
Ms. Liu Jia
Chief Financial Officer
Recon Technology,Ltd
Phone: +86 (10) 8494-5799
Email: info@recon.cn
Investor Relations
Janice Wang
Managing Partner
Phone: +86 13811768559 (China)
+1 628 283 9214
Email: services@wealthfsllc.com
RECON TECHNOLOGY,LTD
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(UNAUDITED)
AsofJune30
Asof December 31
AsofDecember 31
2022
2022
2022
ASSETS
RMB
RMB
U.S.Dollars
Current assets
Cash
¥
316,974,857
¥
269,111,420
$
39,011,267
Restricted cash
723,560
730,060
105,832
Notes receivable
10,828,308
8,471,941
1,228,120
Trade accounts
receivable,net
22,577,980
38,972,445
5,649,572
Inventories,net
3,894,369
4,941,662
716,359
Other receivables,net
5,501,833
2,767,204
401,143
Loans to third parties
50,383,822
95,089,205
13,784,440
Purchase advances,net
178,208
554,700
80,411
Contract costs,net
33,858,820
27,747,782
4,022,409
Prepaid expenses
420,284
409,939
59,426
Prepaid expenses -
related parties
275,000
—
—
Total current assets
445,617,041
448,796,358
65,058,979
Property and
equipment,net
25,474,162
26,104,639
3,213
Construction in
progress
239,739
267,571
38,788
Intangible assets,000
5,600,000
811,794
Long-term other
receivables,net
1,564,381
620,000
89,877
Long-term loan to a
third party
—
3,067,000
444,602
Goodwill
4,730,002
4,002
685,676
Operating lease right-
of-use assets
(including ¥765,241
and ¥553,226
($80,197) from a
related party as of
June 30,2022 and
December 31,
respectively)
6,666,759
5,038,871
730,451
Total Assets
¥
490,242,084
¥
494,224,441
$
71,644,380
LIABILITIES AND
EQUITY
Current liabilities
Short-term bank loans
¥
10,000,000
¥
10,000
$
1,449,633
Trade accounts payable
16,739,989
16,987,376
2,462,542
Other payables
3,533,918
2,125,082
308,059
Other payable- related
parties
2,240,135
2,268
358,243
Contract liabilities
2,001,277
55,400
8,031
Accrued payroll and
employees' welfare
2,250,547
2,278,254
330,263
Taxes payable
2,210,958
2,884,924
418,208
Short-term borrowings
- related parties
9,009,156
10,005,069
1,450,367
Long-term borrowings
- related party -
current portion
999,530
1,041,981
151,049
Operating lease
liabilities - current
(including ¥429,265
and ¥439,865
($63,764) from a
related party as of
June 30,
respectively)
3,892,774
3,705,420
537,150
Total Current
Liabilities
52,878,284
51,554,774
7,473,545
Operating lease
liabilities - non-
current (including
¥335,976 and
¥113,361 ($16,433)
from a related party as
of June 30,
respectively)
2,184,635
752,821
109,131
Long-term bank loan
—
1,000
144,963
Long-term borrowings
- related party
5,511,076
4,989,930
723,356
Contract liabilities -
non-current
106,000
106,000
15,366
Warrant liability
16,677,328
37,043,871
5,370,000
Total Liabilities
77,357,323
95,447,396
13,836,361
Commitments and
Contingencies
Equity
Class A ordinary shares,
$0.0925 U.S. dollar
par value,
150,000 shares
authorized;
29,700,718 shares and
29,718 shares
issued and
outstanding as of June
30,
respectively
18,670
18,670
2,609,581
Class B ordinary
shares,$0.0925 U.S.
dollar par value,
20,000 shares
authorized; 4,100,000
shares and 4,000
shares issued and
outstanding as of June
30,
respectively
2,408,498
2,498
349,144
Additional paid-in
capital
496,696
502,139,970
72,791,843
Statutory reserve
4,148,929
4,929
601,442
Accumulated deficit
(111,273,525)
(141,149,943)
(20,461,555)
Accumulated other
comprehensive
income
11,307,461
20,971,162
3,040,048
Total shareholders'
equity
420,631,729
406,520,286
58,930,503
Non-controlling
interests
(7,746,968)
(7,743,241)
(1,122,484)
Total equity
412,761
398,777,045
57,808,019
Total Liabilities and
Equity
¥
490,380
RECON TECHNOLOGY,LTD
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the six months ended
December 31,
2021
2022
2022
RMB
RMB
USD
Revenues
Revenues - third parties
¥
54,411,724
¥
45,559,591
$
6,604,466
Revenues
54,724
45,591
6,466
Cost of revenues
Cost of revenues - third parties
39,904,645
32,427,772
4,835
Cost of revenues
39,645
32,772
4,835
Gross profit
14,507,079
13,131,819
1,903,631
Selling and distribution expenses
4,727,496
4,021,899
583,028
General and administrative expenses
47,314,621
26,212,540
3,799,855
Net recovery of credit losses
(5,671,285)
(7,141,708)
(1,035,285)
Research and development expenses
5,477,213
5,109,302
740,661
Operating expenses
51,848,045
28,202,033
4,088,259
Loss from operations
(37,340,966)
(15,070,214)
(2,628)
Other income (expenses)
Subsidy income
2,278
85,602
12,409
Interest income
2,590,649
5,187,649
752,018
Interest expense
(784,077)
(169,091)
(24,512)
Income from investment in unconsolidated
entity
15,411
—
—
Gain (loss) in fair value changes of warrants
liability
147,168,952
(20,097,665)
(2,913,423)
Foreign exchange transaction gain (loss)
(151,986)
42,455
6,154
Other income (expenses)
(13,630)
157,753
22,868
Other income (expenses),net
148,827,597
(14,793,297)
(2,144,486)
Income (loss) before income tax
111,486,631
(29,863,511)
(4,329,114)
Income tax expenses
107,204
9,180
1,331
Net income (loss)
111,379,427
(29,872,691)
(4,330,445)
Less: Net income attributable to non-
controlling interests
21,917
3,727
540
Net income (loss) attributable to Recon
Technology,Ltd
¥
111,510
¥
(29,876,418)
$
(4,985)
Comprehensive income (loss)
Net income (loss)
111,427
(29,691)
(4,445)
Foreign currency translation adjustment
(4,636,991)
9,663,701
1,400,882
Comprehensive income (loss)
106,742,436
(20,208,990)
(2,929,563)
Less: Comprehensive income attributable to
non-controlling interests
21,727
540
Comprehensive income (loss) attributable to
Recon Technology,Ltd
¥
106,720,519
¥
(20,717)
$
(2,103)
Earning (loss) per ordinary share
-Basic
¥
4.08
¥
(0.88)
$
(0.13)
-Diluted
¥
3.87
¥
(0.88)
$
(0.13)
Weighted average shares
-Basic
27,312,581
33,800,718
33,718
-Diluted
28,776,992
33,718
