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Recon Technology Reports Fiscal 2018 Third Quarter and First Nine Months Financial Results

BEIJING, May 15, 2018 /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 the third quarter and first nine months of fiscal year 2018, ended March 31, 2018.

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

  • Total revenues for the third quarter of FY2018 increased by 181.2% to ¥16.6 million ($2.6 million).
  • Gross profit for the third quarter of FY2018 was ¥1.7 million ($0.3 million) compared to ¥1.08 million in FY2017.
  • Gross profit margin for the third quarter of FY2018 was 10.3%, which decreased by 8.0 percentage points compared to the third quarter of FY2017, largely due to a higher proportion of equipment sold at a lower price during the test-run period.
  • Net loss attributable to Recon for the third quarter of FY2018 was ¥10.1 million ($1.6 million), or ¥0.70 ($0.11) per basic and diluted share, compared to net loss attributable to Recon of ¥7.2 million, or ¥0.81 per basic and diluted share, for the same period of fiscal 2017.
  • Non-GAAP net loss attributable to common shareholders excluding certain non-cash expenses was ¥5.1 million ($0.8 million), or ¥0.35 ($0.06) per basic and diluted share, for the third quarter of FY2018, compared to non-GAAP net income attributable to common shareholders of ¥2.3 million, ¥0.26 per basic and diluted share, for the same period of last fiscal year.

First Nine Months of Fiscal Year 2018 Financial Highlights (all comparable to the prior year period):

  • Total revenues for the first nine months of FY2018 increased by 58.7% to ¥69.8 million ($11.1 million).
  • Gross profit for the first nine months of FY2018 was ¥7.8 million ($1.2 million). Gross profit margin for the first nine months of FY2018 was 11.1%, which decreased by 20.0 percentage points compared to the first nine months of FY2017.
  • Net loss attributable to Recon for the first nine months of FY2018 was ¥27.1 million ($4.3 million), or ¥2.73 ($0.43) per basic and diluted share, compared to ¥17.0 million, or ¥2.43 per basic and diluted share, for the same period of last fiscal year.
  • Non-GAAP net loss attributable to common shareholders excluding certain non-cash expenses was ¥10.5 million ($1.7 million), or ¥1.06 ($0.17) per basic and diluted share, for the first nine months of FY2018, compared to non-GAAP net loss attributable to common shareholders of ¥3.2 million, or ¥0.46 per basic and diluted share, for the same period of last fiscal year.

Management Commentary

Mr. Shenping Yin, founder and CEO of Recon stated, "Our market expansion efforts proceeded quite well for the past quarter as we continued to extend our furnaces markets to the chemical industry and industrial automation products requirements to coal chemical industry, bringing us increased revenue. We expect this trend to remain stable and we remain confident of a 30% increase in revenue for the whole fiscal year 2018 as mentioned in our annual letter to shareholders. Furthermore, our construction of waste-water and waste oil sludge treatment facilities has also advanced as scheduled. We believe this will help improve our operations and profit in the coming year."

Recent Developments

On April 09, 2018, the Company announced procurement bidding results from Shenhua Group Corporation Limited ("Shenhua Group") through Shenhua Logistics Group Corporation Limited ("Shenhua Logistics"), during the first 3 months of FY2018, to provide specified equipment and maintenance services for contracts with amount above ¥6.8 million, or approximately $1.1 million. The Company expects bids of ¥20 million to be achieved for the whole year 2018. As of the date of this press release, ¥9.93 million ($1.58 million) has been securedShenhua Group is a state-owed enterprise, founded in October 1995 with the approval of the State Council, pursuant to PRC Corporate Laws. Shenhua Group is a diversified energy enterprise concentrating on coal production, sales, electricity and thermal generation, coal liquefaction, coal chemicals, and railway and port transportation.

On January 22, 2018, the Company and certain institutional investors entered into a securities purchase agreement in connection with an offering, pursuant to which the Company agreed to sell an aggregate of 3,592,500 ordinary shares. The purchase price was $1.66 per ordinary share. The aggregate proceeds, after deducting fees to the Placement Agent and other offering expenses of about $0.5 million, were approximately $5.5 million.  

On December 15, 2017, the Company signed a subscription agreement with Future Gas Station (Beijing) Technology, Ltd ("FGS"). Pursuant to this agreement, Recon holds 8% equity interest of FGS. As of the date of this press release, Recon has invested ¥4.0 million in FGS.

On November 20, 2017, the Company entered into a securities purchase agreement with Yongquan Bi ("Mr. Bi"), pursuant to which Mr. Bi agreed to purchase an aggregate of 3 million unregistered restricted shares for $4.8 million, a per-share purchase price of $1.60. On January 19, 2018, the Company issued 3 million shares to Xinhaixin International Holdings Limited, Mr. Bi's wholly owned company.

Results of Operations

The following unaudited condensed consolidated results of operations which include the Company's wholly owned subsidiaries, their variable interest entities ("VIEs") and VIEs' subsidiaries. The VIEs are Nanjing Recon Technology Co. Ltd ("Nanjing Recon") and Beijing BHD Petroleum Technology Co, Ltd ("BHD"). BHD owns 100% of the equity interest of Huang Hua BHD Petroleum Equipment Manufacturing Co. LTD ("HH BHD"), 51% of the equity interest of Gansu BHD Environmental Technology Ltd ("Gansu BHD") and 55% of the equity interest of Qing Hai BHD New Energy Technology Co., Ltd. ("Qinghai BHD"). 

By this current report on Form 6-K, Recon has provided selected results for the third quarter and first nine months of fiscal year 2018, with details on its first nine months financial results in this report. 

The translation has been made at the rate of $1.0: ¥6.28, the approximate exchange rate prevailing on March 31, 2018.

Selected Financial Highlights in RMB
(in 000s, except percentages, number of shares and per share data)




3 months ended
 March 31, 2017



3 months ended
 March 31, 2018



9 months ended
 March 31, 2017



9 months ended
 March 31, 2018


Sales



5,898




16,586




44,013




69,832


Cost of Revenues



4,816




14,878




30,322




62,077


Gross Profit



1,082




1,708




13,691




7,755


Gross Profit Margin



18.3

%



10.3

%



31.1

%



11.1

%


















Loss from Operations



(6,971)




(10,453)




(16,265)




(27,959)



















Net Loss Attributable to Recon Technology, Ltd



(7,187)




(10,133)




(16,999)




(27,119)


Non-U.S. GAAP Net Loss attributable to common
shareholders



(2,295)




(5,138)




(3,220)




(10,541)


Basic and Weighted Average Number of Diluted
Common Shares Outstanding



8,926,631




14,552,266




7,006,354




9,933,257


Basic and Diluted Loss per Share



(0.81)




(0.70)




(2.43)




(2.73)


Non-U.S. GAAP adjusted loss per basic and diluted
share



(0.26)




(0.35)




(0.46)




(1.06)


 

3 MONTHS ENDED MARCH 31, 2018 UNAUDITED FINANCIAL RESULTS

Revenue

Total revenues for the three months ended March 31, 2018 increased by 181.2% to ¥16.6 million ($2.6 million) compared to ¥5.9 million for the same period of last year, largely due to increased sales of customized equipment and pressure vessels to new clients of chemical industry.

Cost and Margin

The Company's gross profit increased by 57.9% to ¥1.7 million ($0.3 million) for the three months ended March 31, 2018 from ¥1.1 million for the same period of last year. Gross profit margin decreased to 10.3% from 18.3% for the same period of last year. The significant decrease in gross margin was primarily due to increased sales of furnaces which usually generates lower gross margin. The management believes that our gross margin will increase after the construction and test-run stage of our new plants and equipment, when our equipment is expected to be sold at the normal price.

Net Loss

Loss from operations was ¥10.5 million ($1.7 million) during the three months ended March 31, 2018, compared to ¥7.0 million for the same period of last year. The increase in net loss is largely due to an increase in selling and distribution expenses and general and administrative expenses, partly offset by an increase in gross profit and a decrease in research and development expenses.

Net loss attributable to Recon for the three months ended March 31, 2018 was ¥10.1 million ($1.6 million), or ¥0.70 ($0.11) per basic and diluted share based on 14.6 million basic and diluted shares outstanding, compared to ¥7.2 million, or ¥0.81 per basic and diluted share based on 8.9 million basic and diluted shares outstanding for the same period of last year.

Non-U.S. GAAP Net Loss

Non-U.S. GAAP net loss attributable to common shareholders excluding certain non-cash expenses such as restricted shares issued for consulting services and non-cash stock compensation expense was ¥5.1 million ($0.8 million), or ¥0.35 ($0.06) per basic and diluted share, for the three months ended March 31, 2018, compared to adjusted net loss attributable to common shareholders of ¥2.3 million, ¥0.26 per basic and diluted share, for the same period of last year. Please see the note about non-GAAP measures and the reconciliation table at the end of this press release.

9 MONTHS ENDED MARCH 31, 2018 UNAUDITED FINANCIAL RESULTS

Revenue


For the Nine Months Ended


March 31,








Percentage



2017


2018


Increase


Change


Hardware and software

¥

43,940,560


¥

69,649,711


¥

25,709,151



58.5

%

Service


72,170



182,551



110,381



152.9

%

Total revenues

¥

44,012,730


¥

69,832,262


¥

25,819,532



58.7

%

 

Total revenues for the nine months ended March 31, 2018 were approximately ¥69.8 million ($11.1 million), representing an increase of approximately ¥25.8 million or 58.7% from ¥44.0 million for the nine months ended March 31, 2017. The overall increase in revenue was accomplished through Recon's expansion of new clients and development of new business. See below for more details:


For the Nine Months Ended


March 31,






Increase /


Percentage



2017


2018


(Decrease)


Change


Automation product and software

¥

18,901,400


¥

15,915,595


¥

(2,985,805)



(15.8)

%

Equipment and accessories


22,301,456



53,302,419



31,000,963



139.0

%

Waste water treatment products


2,737,704



431,697



(2,306,007)



(84.2)

%

Services


72,170



182,551



110,381



152.9

%

Total revenues

¥

44,012,730


¥

69,832,262


¥

25,819,532



58.7

%

 

(1)

Revenue from automation product and software decreased by ¥3.0 million or 15.8% from the same period of last
year. Affected by less expenditure on surface projects of our clients for the last two years, requirements of
automation related projects maintained at a lower level and fluctuated. Revenue from this product line may
fluctuate from time to time. Management is confident on further development on this business because it
believes oil companies will continue to invest in automation products. In addition, during this period,
management also expanded new market of automation business to coal chemical industry.

(2)

As shown above, the overall increase in revenue was primarily due to increased equipment business, including
furnaces and related accessories.

(3)

Revenue from waste water treatment products decreased by ¥2.3 million or 84.2% as most of Recon's
wastewater treatment projects were not finished thus less revenue was recorded in the nine months ended
March 31, 2018 as compared to the same period of last year.

(4)

Revenue from services for the nine months ended March 31, 2017 and 2018 consisted mainly of maintenance
services, which were provided upon request by customers. Revenue from services increased by ¥0.1 million or
152.9% from the same period of last year mainly because maintenance requests outpaced the purchase of new
equipment due to industry softness, and we believe the margin level is reasonable.

 

Cost and Margin



For the Nine Months Ended




March 31,










Increase /



Percentage




2017



2018



(Decrease)



Change


Total revenues


¥

44,012,730



¥

69,832,262



¥

25,819,532




58.7

%

Cost of revenues



30,322,003




62,077,072




31,755,069




104.7

%

Gross profit


¥

13,690,727



¥

7,755,190



¥

(5,935,537)




(43.4)%


Margin %



31.1

%



11.1

%



(20.0)

%



-


 

Cost of Revenues. Recon's cost of revenues increased from ¥30.3 million for the nine months ended March 31, 2017 to ¥62.1 million ($9.9 million) for the same period in 2018, representing an increase of ¥31.8 million ($5.1 million), or 104.7%. This increase was mainly caused by significant growth in revenue generated from equipment and accessories with lower gross profit margin.

Gross Profit. Recon's gross profit decreased to ¥7.8 million ($1.2 million) for the nine months ended March 31, 2018 from ¥13.7 million from the same period of last year. Recon's gross profit as a percentage of revenue decreased to 11.1% for the nine months ended March 31, 2018 from 31.1% from the same period of last year. This was mainly due to the increased equipment business with lower margin during this period, which led to the increase in cost of revenues in proportion to the increase in Recon's revenue.

Operating Expenses



For the Nine Months Ended




March 31,










Increase /



Percentage




2017



2018



(Decrease)



Change


Selling and distribution expenses


¥

3,311,070



¥

4,283,601



¥

972,531




29.4

%

  % of revenue



7.5

%



6.1

%



(1.40)%




-


General and administrative expenses



20,973,292




28,569,378




7,596,086




36.2

%

  % of revenue



47.7

%



40.9

%



(6.80)%




-


Provision for (reversal of) doubtful accounts



(876,530)




504,498




1,381,028




(157.6)%


  % of revenue



(2.0)%




0.7

%



2.70

%



-


Research and development expenses



6,547,582




2,356,406




(4,191,176)




(64.0)%


  % of revenue



14.9

%



3.4

%



(11.50)%




-


Operating expenses


¥

29,955,414



¥

35,713,883



¥

5,758,469




19.2

%

 

Selling and Distribution Expenses. Selling and distribution expenses consist primarily of salaries and related expenditures of Recon's sales and marketing organization, sales commissions, costs of Recon's marketing programs including traveling expenses, advertising and trade shows, and rental expense, as well as shipping charges. Selling expenses increased by ¥1.0 million ($0.2 million) for the nine months ended March 31, 2018 from the same period of last year. This increase was primarily due to an increase in traveling expense and service and testing fees as we expanded our market to new basements of Changqing oilfield and new industries. Selling expenses were 6.1% of total revenues for the nine months ended March 31, 2018 and 7.5% of total revenues for the same period of last year. 

General and Administrative Expenses. General and administrative expenses consist primarily of costs in human resources, facilities costs, depreciation expenses, professional advisor fees, audit fees, stock-based compensation expense and other miscellaneous expenses incurred in connection with general operations. General and administrative expenses increased by 36.2% or ¥7.6 million ($1.2 million), from ¥21.0 million in the nine months ended March 31, 2017 to ¥28.6 million ($4.5 million) for the same period of 2018. The increase in general and administrative expenses was mainly due to an increase in performance-based compensation, consulting fees, rent expenses and investor relationship expenses. General and administrative expenses accounted 40.9% of total revenues in the nine months ended March 31, 2018 and 47.7% of total revenues for the same period of last year. In December 2016, the Company's board approved the grants of restricted stock to management plan based on performance targets for the coming three fiscal years from FY2017 to FY2019. During the nine months ended March 31, 2018, because of the grant of certain restricted stock to management as the target for the FY2018 achieved, compensation expenses increased ¥2.5 million. 

Provision for doubtful accounts. Provision for doubtful accounts is the estimated amount of bad debt that will arise as a result of lower collectability from accounts receivables, other receivables and purchase advances. We reversed provision for doubtful accounts of ¥0.9 million for the nine months ended March 31, 2017 and recorded a provision for doubtful accounts of ¥0.5 million ($0.1 million) for the same period in 2018. Management will continue to monitor accounts receivable to maintain the provision at a lower level.

Research and development ("R&D") expenses. Research and development expenses consist primarily of salaries and related expenditures for Recon's research and development projects. Research and development expenses decreased from ¥6.5 million for the nine months ended March 31, 2017 to ¥2.4 million ($0.4 million) for the same period of 2018. 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 Gansu BHD and Qinghai BHD.

Net Loss


For the Nine Months Ended



March 31,







Increase /


Percentage



2017


2018


(Decrease)


Change


Loss from operations

¥

(16,264,687)


¥

(27,958,693)


¥

(11,694,006)



71.9

%

Other expense, net


(185,591)



(280,752)



(95,161)



51.3

%














Loss before income taxes


(16,450,278)



(28,239,445)



(11,789,167)



71.7

%

Income tax expenses


264,344



11,018



(253,326)



(95.8)

%














Net loss


(16,714,622)



(28,250,463)



(11,535,841)



69.0

%














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


284,649



(1,131,067)



(1,415,716)



(497.4)%


Net loss attributable to Recon Technology, Ltd

¥

(16,999,271)


¥

(27,119,396)


¥

(10,120,125)



59.5

%

 

Loss from operations. Loss from operations was ¥28.0 million ($4.5 million) for the nine months ended March 31, 2018, compared to a loss of ¥16.3 million for the same period of last year. This ¥11.7 million ($1.9 million) increase in loss from operations was primary due to a decrease in gross profit, as well as an increase in general and administrative expenses and partly offset by a decrease in research and development expenses as discussed above.

Basic and diluted loss per share. Basic and diluted loss per share attributable to common shareholders was ¥2.73, as compared to ¥2.43 for the nine months ended March 31, 2017.

Non-U.S. GAAP Net Loss

Non-U.S. GAAP net loss attributable to common shareholders excluding certain non-cash expenses (non-GAAP) such as restricted shares issued for consulting services and non-cash stock compensation expense was ¥10.5 million ($1.7 million), or ¥1.06 ($0.17) per diluted share, for the nine months ended March 31, 2018, compared to non-U.S. GAAP net loss attributable to common shareholders of ¥3.2 million, or ¥0.46 per basic and diluted share, for the same period of last year. Please see the note about non-GAAP measures and the reconciliation table at the end of this press release.

LIQUIDITY AND CAPITAL RESOURCES


Selected Balance Sheet Highlights in RMB

Conversion US$1.0: RMB6.28 at March 31, 2018



3/31/2018


6/30/2017


Percentage

Change


Cash and cash equivalent


52,415,897



3,809,279



1,276.01

%

Total Current Assets


120,424,984



68,387,075



76.09

%

Total Assets


135,712,689



71,155,045



90.73

%

Working Capital


93,554,270



38,941,318



140.24

%

Total Current Liabilities


26,870,714



29,445,757



(8.75)

%

Total Stockholders' Equity


88,687,587



33,244,445



166.77

%

Total Liabilities and Stockholders' Equity


135,712,689



71,155,045



90.73

%

 

Cash from Operating Activities. Net cash used in operating activities was ¥14.6 million ($2.3 million) for the nine months ended March 31, 2018. This represents an increase of ¥23.7 million ($3.8 million) compared to net cash provided by operating activities of ¥9.1 million for the nine months ended March 31, 2017. The increase in net cash used in operating activities for the nine months ended March 31, 2018 was primarily attributable to the net loss available to the Company of the amount of ¥28.3 million ($4.5 million), and reconciled by share based compensation of ¥5.1 million ($0.8 million), restricted shares issued for management of ¥8.0 million ($1.3 million) as well as restricted shares issued for services of ¥2.8 million ($0.5 million); and an increase in other receivables and purchase advances, partly offset by an decrease in trade accounts receivable.

Cash from Investing Activities. Net cash used in investing activities was ¥13.6 million ($2.2 million) for the nine months ended March 31, 2018, representing an increase in cash used in investing activities of ¥13.3 million ($2.1 million) compared to the same period in 2017. This increase was due to an increase in the Company's payments for a land use right of 50 years, payments for construction in progress and investment in unconsolidated entity.

Cash from Financing Activities. Net cash provided by financing activities amounted to ¥76.8 million ($12.2 million) for the nine months ended March 31, 2018, as compared to net cash used in financing activities of ¥6.2 million for the same period of last year. During the nine months ended March 31, 2018, we repaid ¥21.4 million ($3.4 million) in short-term borrowings to related parties and repaid ¥4.9 million ($0.8 million) in short-term borrowings to third-parties, and we received ¥20.2 million ($3.2 million) in short-term borrowings from related parties, received ¥4.6 million ($0.7 million) in short-term borrowings from one third-party and received ¥10.0 million ($1.6 million) in long-term borrowings from one related party. We also received ¥3.7 million ($0.6 million) capital contribution by non-controlling shareholders. Moreover, this increase in net cash provided by financing activities was due to net proceeds from issuance of common stock of ¥65.0 million ($10.3 million) for the nine months ended March 31, 2018.

STATEMENT REGARDING UNAUDITED FINANCIAL INFORMATION

The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company's year-end financial statements, which could result in significant differences from this unaudited financial information.

Use of Non-GAAP Financial Measures

To supplement Recon's unaudited condensed consolidated financial information presented in accordance with U.S. generally accepted accounting principles ("GAAP"), Recon uses the following non-GAAP financial measures: certain non-cash expenses such as restricted shares issued for consulting services and non-cash stock compensation expense, basic and diluted earnings (losses) per common share excludes non-cash expenses such as restricted shares issued for consulting services and non-cash stock compensation expense.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Recon believes these non-GAAP financial measures provide meaningful supplemental information about its performance by excluding non-cash items, which may not be indicative of its operating performance.

About Recon Technology, Ltd.

Recon Technology, Ltd. (NASDAQ: RCON) is China's first listed non-state-owned oil and gas field service company on NASDAQ. Recon supplies China's largest oil exploration companies, Sinopec (NYSE: 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.

Currency Conversion

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 ¥6.28 to $1.00, the noon buying rate as of March 31, 2018 as set forth in the H.10 statistical release of the Federal Reserve Board. Prior period numbers have been recast into the new reporting currency.

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:

In China:

Ms. Liu Jia
Chief Financial Officer
Recon Technology, Ltd.
Phone: +86 (10) 8494-5799
Email: [email protected]

In the United States:

Ms. Tina Xiao
President
Ascent Investor Relations LLC
Phone: +1-917-609-0333
Email: [email protected]

RECON TECHNOLOGY, LTD

CONDENSED BALANCE SHEETS

(UNAUDITED)



As of June 30,


As of March 31


As of March 31


2017


2018


2018

ASSETS

RMB


RMB


U.S. Dollars

Current assets









Cash and cash equivalent

¥

3,809,279


¥

52,415,897


$

8,345,583

Notes receivable


6,112,960



2,799,435



445,722

Trade accounts receivable, net


39,425,911



33,719,455



5,368,763

Inventories, net


2,627,974



5,157,202



821,122

Other receivables, net


4,106,510



8,331,295



1,326,497

Purchase advances, net


11,476,000



17,031,192



2,711,682

Prepaid expenses


828,441



970,508



154,523

Total current assets


68,387,075



120,424,984



19,173,892










Property and equipment, net


2,767,970



2,902,687



462,162

Construction in progress


-



5,610,165



893,242

Land use right, net


-



1,341,936



213,661

Investment in unconsolidated entity


-



4,037,736



642,882

Prepayments for construction in progress


-



1,395,181



222,139

Total Assets

¥

71,155,045


¥

135,712,689


$

21,607,978










LIABILITIES AND STOCKHOLDERS' EQUITY


















Current liabilities









Short-term bank loan

¥

-


¥

45,000


$

7,165

Trade accounts payable


8,352,870



8,311,141



1,323,288

Other payables


3,351,900



3,481,726



554,355

Other payable- related parties


3,314,019



3,173,006



505,201

Deferred revenue


1,259,725



1,000,140



159,241

Accrued payroll and employees' welfare


2,014,514



438,124



69,757

Taxes payable


684,721



696,997



110,975

Short-term borrowings


300,000



-



-

Short-term borrowings - related parties


10,168,008



9,019,086



1,436,006

Long-term borrowings - related party - current portion


-



705,494



112,328

Total Current Liabilities


29,445,757



26,870,714



4,278,316










Long-term borrowings - related party


-



9,120,612



1,452,171

Total Liabilities


29,445,757



35,991,326



5,730,487










Commitments and Contingencies


















Equity









Common stock, ($ 0.0185 U.S. dollar par value, 100,000,000 shares
authorized; 18,280,349 shares and 9,902,914 shares issued and outstanding as
of March 31, 2018 and June 30, 2017, respectively)


1,261,288



2,267,836



361,082

Additional paid-in capital


123,436,043



204,974,986



32,635,821

Statutory reserve


4,148,929



4,148,929



660,586

Accumulated deficit


(95,352,659)



(122,472,055)



(19,499,824)

Accumulated other comprehensive loss


(249,156)



(232,109)



(36,956)

Total stockholders' equity


33,244,445



88,687,587



14,120,709

Non-controlling interests


8,464,843



11,033,776



1,756,782

Total equity


41,709,288



99,721,363



15,877,491

Total Liabilities and Equity

¥

71,155,045


¥

135,712,689


$

21,607,978

The accompanying notes are an integral part of these consolidated financial statements

 

 

RECON TECHNOLOGY, LTD

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)



For the nine months ended


For the three months ended


March 31,


March 31,


2017


2018


2018


2017


2018


2018


RMB


RMB


USD


RMB


RMB


USD

Revenues


















Hardware and software

¥

43,940,560


¥

69,649,711


$

11,089,526


¥

5,897,622


¥

16,585,535


$

2,640,725

Service


72,170



182,551



29,066



-



-



-

Total revenues


44,012,730



69,832,262



11,118,592



5,897,622



16,585,535



2,640,725



















Cost of revenues


















Hardware and software


30,322,003



62,077,072



9,883,823



4,816,497



14,878,467



2,368,928

Total cost of revenues


30,322,003



62,077,072



9,883,823



4,816,497



14,878,467



2,368,928

Gross profit


13,690,727



7,755,190



1,234,769



1,081,125



1,707,068



271,797



















Selling and distribution expenses


3,311,070



4,283,601



682,029



915,981



1,301,964



207,297

General and administrative expenses


20,973,292



28,569,378



4,548,775



5,728,585



9,897,237



1,575,824

Provision for (net recovery of) doubtful
accounts


(876,530)



504,498



80,325



(185,566)



423,959



67,502

Research and development expenses


6,547,582



2,356,406



375,184



1,592,780



536,686



85,450

Operating expenses


29,955,414



35,713,883



5,686,313



8,051,780



12,159,846



1,936,073





































Loss from operations


(16,264,687)



(27,958,693)



(4,451,544)



(6,970,655)



(10,452,778)



(1,664,276)



















Other income (expenses)


















Subsidy income


96,905



212,005



33,755



89,098



-



-

Interest income


65,776



40,890



6,510



16,798



34,591



5,508

Interest expense


(423,875)



(551,458)



(87,802)



(138,013)



(267,398)



(42,575)

Income (loss) from foreign currency exchange


22,603



(6,799)



(1,083)



19,588



(4,128)



(657)

Other income (expense)


53,000



24,610



3,918



(10,524)



45,958



7,317

Other expense, net


(185,591)



(280,752)



(44,702)



(23,053)



(190,977)



(30,407)

Loss before income tax


(16,450,278)



(28,239,445)



(4,496,246)



(6,993,708)



(10,643,755)



(1,694,683)

Income tax expenses


264,344



11,018



1,754



284,487



1,736



276

Net loss


(16,714,622)



(28,250,463)



(4,498,000)



(7,278,195)



(10,645,491)



(1,694,959)



















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


284,649



(1,131,067)



(180,087)



(91,563)



(512,905)



(81,664)

Net loss attributable to Recon Technology,
Ltd

¥

(16,999,271)


¥

(27,119,396)


$

(4,317,913)


¥

(7,186,632)


¥

(10,132,586)


$

(1,613,295)



















Comprehensive loss


















Net loss


(16,714,622)



(28,250,463)



(4,498,000)



(7,278,195)



(10,645,491)



(1,694,959)

Foreign currency translation adjustment


(108,008)



17,047



2,714



(33,856)



(55,221)



(8,792)

Comprehensive loss


(16,822,630)



(28,233,416)



(4,495,286)



(7,312,051)



(10,700,712)



(1,703,751)

Less: Comprehensive income (loss) attributable
to non-controlling interests


284,649



(1,131,067)



(180,087)



(91,563)



(512,905)



(81,664)

Comprehensive loss attributable to Recon
Technology, Ltd

¥

(17,107,279)


¥

(27,102,349)


$

(4,315,199)


¥

(7,220,488)


¥

(10,187,807)


$

(1,622,087)



















Loss per common share - basic and diluted

¥

(2.43)


¥

(2.73)


$

(0.43)


¥

(0.81)


¥

(0.70)


$

(0.11)

Weighted-average shares -basic and diluted


7,006,354



9,933,257



9,933,257



8,926,631



14,552,266



14,552,266

The accompanying notes are an integral part of these consolidated financial statements

 

 

RECON TECHNOLOGY, LTD

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)



For the nine months ended March 31,


2017


2018


2018


RMB


RMB


U.S. Dollars







Cash flows from operating activities:









Net loss

¥

(16,714,622)


¥

(28,250,463)


$

(4,498,000)

Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:









Depreciation and amortization


636,072



850,217



135,370

Gain from disposal of equipment


(35,919)



(78,285)



(12,464)

Provision for (net recovery of) doubtful accounts


(876,530)



504,498



80,325

Provision for slow moving inventories


-



88,214



14,045

Share based compensation


5,877,975



5,131,459



817,023

Restricted shares issued for management


5,483,059



8,024,231



1,277,606

Restricted shares issued for services


3,294,497



2,830,362



450,646

Changes in operating assets and liabilities:









Notes receivable


(2,241,179)



3,313,525



527,575

Trade accounts receivable, net


2,554,495



4,927,248



784,509

Inventories, net


3,314,798



(2,617,441)



(416,745)

Other receivable, net


9,652,913



(4,055,057)



(645,640)

Purchase advances, net


(5,458,035)



(5,368,312)



(854,735)

Prepaid expense


(62,074)



(142,067)



(22,620)

Trade accounts payable


3,485,149



(754,247)



(120,090)

Other payables


(842,523)



129,826



20,671

Other payables-related parties


(230,324)



(141,013)



(22,452)

Deferred revenue


40,389



(259,585)



(41,331)

Accrued payroll and employees' welfare


1,306,318



341,603



54,389

Taxes payable


(89,615)



935,921



149,016

Net cash provided by (used in) operating activities


9,094,844



(14,589,366)



(2,322,902)










Cash flows from investing activities:









Investment in unconsolidated entity


-



(4,037,736)



(642,882)

Purchases of property and equipment


(354,784)



(983,966)



(156,666)

Proceeds from disposal of equipment


51,900



32,000



5,095

Payments for land use right


-



(1,361,969)



(216,851)

Advance payments for construction in progress


-



(1,395,181)



(222,139)

Payments for construction in progress


-



(5,837,842)



(929,493)

Net cash used in investing activities


(302,884)



(13,584,694)



(2,162,936)










Proceeds from short-term bank loans


-



45,000



7,165

Proceeds from short-term borrowings


-



4,600,000



732,405

Repayments of short-term borrowings


(530,000)



(4,900,000)



(780,171)

Proceeds from short-term borrowings-related parties


7,758,318



20,188,318



3,214,355

Repayments of short-term borrowings-related parties


(13,409,163)



(21,369,678)



(3,402,449)

Proceeds from long-term borrowings-related party


-



10,000,000



1,592,186

Repayments of long-term borrowings-related party


-



(504,541)



(80,332)

Proceeds from sale of common stock, net of issuance costs


-



65,004,531



10,349,928

Capital contribution by noncontrolling shareholders


-



3,700,000



589,109

Net cash provided by (used in) financing activities


(6,180,845)



76,763,630



12,222,196










Effect of exchange rate fluctuation on cash


(94,125)



17,048



2,714










Net increase in cash


2,516,990



48,606,618



7,739,072

Cash at beginning of period


1,817,620



3,809,279



606,508

Cash at end of period

¥

4,334,610


¥

52,415,897


$

8,345,580



















Supplemental cash flow information









Cash paid during the period for interest

¥

454,414


¥

520,358


$

82,851

Cash paid during the period for taxes

¥

284,487


¥

11,034


$

1,757










Non-cash investing and financing activities









Issuance of common stock to prepay professional services

¥

3,294,497


¥

2,830,362


$

450,646

Issuance of common stock to settle salary payable

¥

-


¥

1,554,908


$

247,570

Payable for Construction in Progress

¥

-


¥

712,518


$

113,446

 

 

Reconciliation of Non-GAAP Financial Measures



For the three months ended


March 31,


2017


2018


2018


RMB


RMB


USD

Reconciliation of Net loss attributable to common shareholders to Adjusted
Net loss attributable to common shareholders









Net loss attributable to common shareholders

¥

(7,186,632)


¥

(10,132,586)


$

(1,613,295)










Special items (A):









Restricted shares issued for services


2,530,110



892,495



142,102

Provision for (net recovery of) doubtful accounts


(185,566)



423,959



67,502

Provision for slow moving inventories


-



156,598



24,933

Stock compensation expense


1,805,834



1,580,774



251,689

Restricted shares issued for management


741,051



1,941,083



309,056

Adjusted net loss attributable to common shareholders

¥

(2,295,203)


¥

(5,137,677)


$

(818,013)










Reconciliation of U.S. GAAP Loss Per Share to Non U.S. GAAP Adjusted
Loss Per Share









U.S. GAAP loss per share









Basic and diluted

¥

(0.81)


¥

(0.70)


$

(0.11)

Impact of special items on earnings per share









Basic and diluted


0.55



0.35



0.05

Non U.S. GAAP adjusted loss per share









Basic and diluted

¥

(0.26)


¥

(0.35)


$

(0.06)

Weighted-average shares - basic and diluted


8,926,631



14,552,266



14,552,266






For the nine months ended


March 31,


2017


2018


2018


RMB


RMB


USD

Reconciliation of Net loss attributable to common shareholders to Adjusted
Net loss attributable to common shareholders









Net loss attributable to common shareholders

¥

(16,999,271)


¥

(27,119,396)


$

(4,317,913)










Special items (A):









Restricted shares issued for services


3,294,497



2,830,362



450,646

Provision for (net recovery of) doubtful accounts


(876,530)



504,498



80,325

Provision for slow moving inventories


-



88,214



14,045

Stock compensation expense


5,877,975



5,131,459



817,023

Restricted shares issued for management


5,483,059



8,024,231



1,277,606

Adjusted net loss attributable to common shareholders

¥

(3,220,270)


¥

(10,540,632)


$

(1,678,268)










Reconciliation of U.S. GAAP Loss Per Share to Non U.S. GAAP Adjusted
Loss Per Share









U.S. GAAP loss per share









Basic and diluted

¥

(2.43)


¥

(2.73)


$

(0.43)

Impact of special items on earnings per share









Basic and diluted


1.97



1.67



0.26

Non U.S. GAAP adjusted loss per share









Basic and diluted

¥

(0.46)


¥

(1.06)


$

(0.17)

Weighted-average shares - basic and diluted


7,006,354



9,933,257



9,933,257


(A): Please refer to Use of Non-GAAP Financial Measures for more explanation.

 

SOURCE Recon Technology, Ltd.


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