Recon Technology, Ltd Reports Financial Year Results for Fiscal Year 2022

BEIJING, Oct. 28, 2022 /PRNewswire/ — 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 fiscal year 2022.

Fiscal Year Ended June 30, 2022 Financial Highlight:

• Total revenue increased by approximately RMB35.9 million ($5.3 million) or 74.8% to RMB83.8 million ($12.5 million) for the year ended June 30, 2022 from RMB47.9 million for the same period in 2021.
• Gross profit increased to RMB19.4 million ($2.9 million) for the year ended June 30, 2022, from RMB7.2 million for the same period in 2021.
• Gross margin increased to 23.2% for the year ended June 30, 2022 from 15.1% for the same period in 2021.
• Research and development expenses increased from RMB5.8 million for the year ended June 30, 2021 to RMB9 million for the same period in 2022.
• Net income increased by RMB120.2 million ($17.9 million) to RMB94.3 million ($14.1 million) for the year ended June 30, 2022 from net loss of RMB 25.9 million for the same period in 2021.

Management Commentary

Mr. Shenping Yin, Founder and CEO of Recon said: “Recon delivered record performance during the fiscal year ended June 30, 2022 thanks to rising oil prices and increased investment by oil companies. Production activities of our customers ramped up, resulting in increased demands for our automation products and wastewater treatment solutions and services. The improvement in our operating activities brought a simultaneous increase in both revenue and the cost of revenue. At the same time, as our customers recovered, we were able to sign contracts with better priced terms and no need to continue with our low-price policy we adopted in the last two years, our gross profit and gross margin were also improved dramatically.”

“As a result of Recon’s organic operational and financial performance, commitment to disciplined spending and confidence in free cash flow sustainability, our revenue, gross profit grew by 74.8% and 169.4% respectively for the year ended June 30, 2022 from same period last year. Our net income also increased to RMB94.3 million from a net loss of RMB25.9 million. We are continuing to see strong growth potential in our business and we will keep this good momentum to create sustainable values for our stakeholders.”

Fiscal 2022 Financial Results:

Revenue

Total revenues for the year ended June 30, 2022 were approximately RMB83.8 million ($12.5 million), an increase of approximately RMB35.9 million ($5.3 million) or 74.8% from RMB47.9 million for the same period in 2021. The overall increase in revenue was mainly due to increase from all our business lines benefited with the increase in oil and gas prices and electricity prices during the year ended June 30, 2022. Specifically,

• Revenue from automation product and software increased by RMB13.4 million ($2.0 million) or 72.3%. The increase was mainly caused by 1) completion of prior delayed projects and also new needs in from Ji Dong oilfield as oil price increased; 2) recovery of Shenhua Group’s requirement; and 3) rising contribution from operation and maintenance services regarding metering instruments as Chinese companies placed increasing emphasis on safety in energy and chemical companies, a new business resources developed by the Company from year 2021.
• Revenue from equipment and accessories increased by RMB1.4 million ($0.2 million) or 8.7% due to increased demand for equipment from oilfield companies to increase production due to rising oil prices.
• Revenue from oilfield environmental protection increased by RMB14.3 million ($2.1 million) or 129.4%. This was mainly contributed to continuously increased reequipment of our wastewater treatment and oily sludge treatment. As oil prices rise and the increase of oilfield production, management believe revenue from this segment will maintain stable.
• Revenue from platform outsourcing services increased by RMB6.8 million ($1.0 million) or 263.7%.

Cost of revenue

Cost of revenues increased from RMB40.7 million for the year ended June 30, 2021 to RMB64.4 million ($9.6 million) for the same period in 2022. This increase was mainly caused by the increased cost of revenue from automation product and software, oilfield environmental protection and platform outsourcing services segments, which was partially offset by the decreased cost of revenue from equipment and accessories segment during the year ended June 30, 2022.

Gross profit

Gross profit increased to RMB19.4 million ($2.9 million) for the year ended June 30, 2022 from RMB7.2 million for the same period in 2021. Gross profit as a percentage of revenue increased to 23.2% for the year ended June 30, 2022 from 15.1% for the same period in 2021.

• For the year ended June 30, 2021, negative gross profit from automation product and software was approximately RMB1.4 million, and for the year ended June 30, 2022, the Company generated gross profit of RMB2.1 million ($0.3 million), representing an increase in gross profit of approximately RMB3.5 million ($0.5 million) or 250.6%. 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 years ended June 30, 2021 and 2022, gross profit from equipment and accessories was approximately RMB4.5 million and RMB6.7 million ($1.0 million), respectively, representing an increase of approximately RMB2.2 million ($0.3 million) or 47.6%. 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 years ended June 30, 2021 and 2022, gross profit from oilfield environmental protection was approximately RMB3.0 million and RMB5.1 million ($0.8million), respectively, representing an increase of approximately RMB2.1 million ($0.3 million) or 70.5%. The increase in gross profit from oilfield environmental protection was primarily attributable to the increased production of oily sludge.
• For the years ended June 30, 2021 and 2022, gross profit from platform outsourcing services was approximately RMB1.1 million and RMB5.5 million ($0.8 million), respectively, representing an increase of approximately RMB4.4 million ($0.7 million) or 402.3 %, this was mainly because we only consolidate six-month result from January 2021 in fiscal year 2021 while we consolidated a complete twelve months’ result in fiscal year 2022. Besides, from the perspective of margin as a percentage of revenue, it was increased from 42.7% to 59.0% because our costs were primarily personnel expenses, which were relatively stable, while our revenues grew faster year-over-year resulting in higher gross margins.

Operating expenses

Selling expenses increased by 26.3% or RMB2.1 million ($0.3 million), from RMB8.0 million in the year ended June 30, 2021 to RMB10.1 million ($1.5 million) in the same period of 2022.

General and administrative expenses increased by 81.2% or RMB37.3 million ($5.6 million), from RMB45.9 million in the year ended June 30, 2021 to RMB83.3 million ($12.4 million) in the same period of 2022.

The Company also recorded an allowance for credit losses of RMB8.2 million for the year ended June 30, 2021 as compared to a net recovery of credit losses of RMB0.7 million ($0.1 million) for the same period in 2022.

Research and development expenses increased from RMB5.8 million for the year ended June 30, 2021 to RMB9.0 million ($1.3 million) for the same period of 2022.

Loss from operations

Loss from operations was RMB82.3 million ($12.3 million) for the year ended June 30, 2022, compared to a loss of RMB61.6 million for the same period of 2021. This RMB20.7 million ($3.1 million) increase in loss from operations was primarily due to the increase in operating expense partially offset by the increase in gross profit as discussed above.

Gain on equity method investment

The Company recorded a gain from remeasurement previously held investment in Future Gas Station (Beijing) Technology, Ltd (“FGS”), a subsidiary of two mainland China variable interest entities with contractual ties to the Company’s subsidiary, Recon Hengda Technology (Beijing) Co., Ltd., prior to the consolidation of FGS’ controlling interest as a result of step acquisition for an amount of RMB979,254 for the year ended June 30, 2021.

Change in fair value of warrant liability

Change in fair value of warrants issued on June 14, 2021 through year ended June 30, 2021 was RMB35.4 million, and the change in fair value of warrants was RMB174.5 million ($26.1 million) for the year ended June 30, 2022.

Impairment loss on goodwill

The Company recognized the excess of purchase price over the fair value of assets acquired and liabilities assumed of the business acquired was recorded as goodwill as a result of the step acquisition of FGS. In conjunction with the preparation of consolidated financial statement for year ended June 30, 2022, the Company performed evaluation on the impairment of goodwill and recorded an impairment loss on goodwill of RMB2.3 million ($338,457) for the year ended June 30, 2022.

Interest income

Interest income was RMB5.4 million ($0.8 million) for the year ended June 30, 2022, compared to interest income of RMB0.9 million for the same period of 2021.

Other loss, net

Other net loss was RMB1.6 million ($0.2 million) for the year ended June 30, 2022, compared to other net loss of RMB2.1 million for the same period of 2021.

Net income (loss)

As a result of the factors described above, net income was RMB94.3 million ($14.1 million) for the year ended June 30, 2022, an increase of RMB120.2 million ($17.9 million) from net loss of RMB25.9 million for the same period of 2021.

Cash

As of June 30, 2022, we had cash in the amount of approximately RMB317.0 million ($47.3 million). As of June 30, 2021, we had cash in the amount of approximately RMB344.0 million.

Recent development

On Oct. 25, 2022, the Company announced that Nanjing Recon Technology Co. has entered into a 2-year outsourced service agreement with a domestic customer to provide maintenance and overhaul services in an amount totaling approximately RMB3.2 million. Nanjing Recon Technology Co. is a variable interest entity of Hengda Technology (Beijing) Co., Ltd., a mainland China subsidiary of Recon.

On Sep. 12, 2022, the Company announced that FGS is expanding on its previous cooperation agreement with its latest packing cooperation memorandum with Hui Tong Tian Xia Petrochemical (Dalian) Co. Ltd (“Huitong Dalian”), to jointly launch a new generation of industry solutions to serve the national commercial logistics fleet more efficiently and to explore low carbon sustainability with logistics companies by bringing carbon neutral solutions. Huitong Dalian is a leading Chinese company focused on fleet fuel management and is an affiliate of Beijing Hui Tong Tian Xia IOT Technology CO. Ltd (“G7”).

On May 11, 2022, the Company announced that the mainland China variable interest entity with whom its subsidiary, Recon Hengda Technology (Beijing) Co., Ltd. has entered into a 3-year service agreement with one domestic oilfield client to provide a complete-set of solutions for oily wastewater treatments. According to the actual production capacity of the client and the settlement terms set in the agreement, the contract amount is expected to be RMB3.5 million per year.

On Apr. 13, 2022, the Company announced that FGS has entered into a strategic business cooperation agreement with the Kunming Branch of China Minsheng Bank Corp., Ltd.

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
Wealth Financial Services LLC
Phone: +86 13811768559
      +1 628 283 9214
Email: services@wealthfsllc.com

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