Recon Technology Reports Financial Results for Fiscal Year 2017 Highlighted by 40% Revenue Increase Driven by Traditional and Oilfield Waste Water Treatment Business Growth
BEIJING, Sept. 28, 2017 /PRNewswire/ -- Recon Technology, Ltd. (NASDAQ:RCON), ("Recon" or the "Company"), a China's leading independent solutions integrator operating in oilfield service, electric power and coal chemical industries, today announced its financial results for fiscal year ended June 30, 2017.
Fiscal Year 2017 Financial Highlights (all comparisons to the prior fiscal year):
-- Revenues increased 40.5% to a record RMB60.1 million (approximately $8.9
million) for the year ended June 30, 2017, from RMB42.7 million.
-- During fiscal year 2017, the Company's oilfield waste water treatment
business continued to expand rapidly, with revenue of RMB11.0 million
(approximately $1.6 million) increasing 371.1% compared to RMB2.3
million.
-- Gross profit was approximately RMB16.0 million (approximately $2.4
million) for the year ended June 30, 2017, compared to approximately
RMB7.2 million.
-- Gross margins improved to 26.6% in fiscal year 2017 from 17.0%
-- Operating loss narrowed considerably to RMB30.6 million (approximately
$4.5 million) for fiscal year 2017, compared to operating loss of
RMB39.9 million.
-- Net loss attributable to Recon for fiscal year 2017 was RMB31.4 million
(approximately $4.6 million), or RMB4.90 ($0.72) per diluted share,
compared to net loss attributable to Recon of RMB40.9 million, or
RMB7.23 per diluted share, for fiscal year 2016.
Management Commentary
Mr. Shenping Yin, Chairman and CEO of Recon stated, "We were pleased to report progress across several facets of the Company over 2017, with revenues accelerating and margins expanding in the fourth quarter. As stated in our 2017 open letter to shareholders, we will continue to leverage Recon's ability to uniquely integrate equipment and automation with a strong client base, specifically a new client PetroChina Changqing Oilfield Company ("PCOC"). Further, our market for wastewater treatment continues to expand rapidly. This market is one that both serves to diversify Recon's revenue streams, while simultaneously addressing significant environmental concerns around industrial water in China. This has served as a primary revenue driver for the Company, and we believe will be integral in our success in fiscal 2018. We also continued to reinvest in our business with a robust R&D effort, and believe that our Company is recognized as a cutting-edge research entity within the energy industry in China. We anticipate revenues growing at minimum of 30% in the coming year, driven by the wastewater agreement signed in the second half of 2017 and others in our pipeline. Our financial position remains strong and we look forward to updating investors of our progress in the coming months."
Recent Developments
-- On September 25, 2017, the Company announced the signing of several
contracts totaling approximately RMB 6.1 million, or approximately USD
0.9 million, to develop four Internet of Things ("IoT") Oil and Gas
Production Projects (the "Projects") for three plants of PetroChina
Changqing Oilfield Company ("PCOC"), China's largest producing oilfield
company and a subsidiary of PetroChina ("CNPC", NYSE: PTR )
-- On June 12, 2017, two co-founders of the Company, Messrs. Shenping Yin
(Chairman and Chief Executive Officer) and Guangqiang Chen (Chief
Technology Officer and Director) released a Letter to Shareholders
updating current activities of the Company and future development of
China Oil and Gas Market. The full text of the letter can be read here:
http://www.recon.cn/investors_investorroom3.asp
-- One of the Company's VIE companies has invested RMB4.6 million to a
newly established company Gan Su BHD Environmental Technology Co., Ltd
("Gan Su BHD"). Based on its revised chapter dated August 11, 2017, this
VIE company owns an interest of 51% of Gan Su BHD. Gan Su BHD was
established on May 23, 2017, with registered capital of RMB 50 million.
It focuses on oilfield sewage treatment and oily sludge disposal
projects.
Fiscal Year 2017 Financial Results
2017 2016 %
(thousands) RMB RMB Change
Revenues 60,054 42,728 40.5%
Automation product and software 22,399 26,172 (14.4)%
Equipment and accessories 26,586 13,039 103.9%
Waste water treatment products 10,997 2,334 371.1%
Service 72 1,183 (93.9)%
Gross margin 26.6% 17.0% 9.6%
Net income (loss) attributable to RCON -31,445 -40,883 23.1%
Diluted earnings (loss) per share -4.90 -7.23 32.2%
Non GAAP Diluted earnings loss per share -1.26 -5.82 78.35%
Revenues
Total revenues for the year ended June 30, 2017 were RMB60.1 million (approximately $8.9 million), an increase of RMB17.3 million or 40.5% from RMB42.7 million for the year ended June 30, 2016.
The overall increase in revenue was primarily due to increased sales of equipment, primarily more furnaces provided to Recon's new client, PCOC, a major subsidiary of PetroChina and the largest producing oilfield of China.
The Company invested heavily in R&D of new products used for oilfield waste water treatment throughout 2016, and the outcome has been gradually reflected in its operating results. For the year ended June 30, 2017, this new business line continued to contribute revenue and margin, increasing from RMB2.3 million to RMB11.0 million this year. Management expects to win additional business in the coming months due to its technical advantage and long-term cooperation with oilfield companies.
In December 2016, the Company granted 3,010,000 ordinary shares of restricted stock to the management that are forfeited and cancelled automatically in the event that the Company fails to meet certain operating performance goals. As the total revenue of RMB 60.1 million for the year ended June 30, 2017 exceeds the highest performance goal of RMB 59.8 million this year, the Company had positive gross margin this year, and it is expected the management will be employed as of the time of the filing of the annual report, the Company expects the 800,000 restricted shares granted to the management will not be forfeited and cancelled.
Gross profit and gross margin
Gross profit increased to RMB16.0 million (approximately $2.4 million) for the year ended June 30, 2017 from RMB7.2 million for the same period in 2016. Gross margin was 26.6% for the year ended June 30, 2017, compared to 17.0% for the same period of 2016.
Operating income (loss) and operating (loss) margin
Selling and distribution expenses decreased RMB1.1 million to RMB4.5 million for the year ended June 30, 2017, compared to the same period in 2016. General and administrative expenses increased by 62.2% or RMB12.6 million (approximately $1.9 million), from RMB20.2 million in the year ended June 30, 2016 to RMB32.8 million (approximately $4.8 million) in the same period of 2017.
Research and development expenses increased from RMB6.9 million for the year ended June 30, 2016 to RMB7.6 million (approximately $1.1 million) for the same period of 2017.
Total operating expenses decreased by RMB0.6 million, or 1.2%, to RMB46.6 million for the twelve months ended June 30, 2017 from RMB47.2 million for the same period of last fiscal year.
Operating loss was RMB30.6 million (approximately $4.5 million) for the year ended June 30, 2017, compared to a loss of RMB39.9 million for the same period of 2016. Operating loss margin was 51.0% for the year ended June 30, 2017, compared to operating loss margin of 93.4% for the same period of last fiscal year.
Net income (loss)
Net loss was RMB31.2 million (approximately $4.6 million) for the year ended June 30, 2017, an improvement of RMB9.7 million (approximately $1.4 million) from net loss of RMB40.9 million for the same period of 2016.
Financial Position
As of June 30, 2017, Recon had cash in the amount of RMB3.8 million (approximately $0.6 million), compared to RMB1.8 million for the same period of 2016. Working capital as of June 30, 2017 was RMB38.9 million ($5.7 million) as compared to RMB44.5 million at June 30, 2016. Net cash provided by operating activities was RMB5.7 million (approximately $0.8 million) for the year ended June 30, 2017, compared to net cash used in operating activities ofRMB0.3 million for the year ended June 30, 2016. Net cash used in investing activities was RMB0.6 million (approximately $86,500) for the year ended June 30, 2017, which was an increase in cash used in investing activities of RMB0.5 million compared to the same period in 2016. Net cash used in financing activities amounted to RMB3.1 million (approximately $0.5 million) for the year ended June 30, 2017, as compared to net cash used in financing activities of RMB10.2 million for the same period in 2016.
About Recon Technology, Ltd. ("Recon")
Recon Technology, Ltd. ("Recon") is China's first listed non-state owned oil and gas field service company on NASDAQ. Recon supplies China's largest oil exploration companies, such as PetroChina (NYSE: PTR) and Sinopec (NYSE: SNP), 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 segmented markets of the oil and gas filed service industry. Recon also has developed stable long-term cooperation relationship with its major clients, and its products and service are also well accepted by clients. The Company is also developing new markets of oilfield environmental protection, sewage treatment sector and power and coal chemical industry based on its advantage on technic and market resources. For additional information please visit: www.recon.cn .
Company Contact
Liu Jia, CFO
Recon Technology, Ltd.
+86 (10) 84945799
info@recon.cn
Investor Relations
The Equity Group Inc.
In China
Katherine Yao, Senior Associate
+86-10-6587-6435
kyao@equityny.com
In the U.S.
Adam Prior, Senior Vice President
+1 (212) 836-9606
aprior@equityny.com
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.
RECON TECHNOLOGY, LTD
CONSOLIDATED BALANCE SHEETS
As of June 30, As of June 30 As of June 30
-------------- ------------- -------------
2016 2017 2017
---- ---- ----
ASSETS RMB RMB U.S. Dollars
--- --- ------------
Current assets
Cash RMB 1,817,620 RMB 3,809,279 $562,054
Notes receivable 4,660,177 6,112,960 901,960
Trade accounts receivable, net 38,097,626 39,425,911 5,817,245
Inventories, net 6,313,070 2,627,974 387,754
Other receivables, net 22,000,112 4,106,510 605,911
Purchase advances, net 1,323,305 11,476,000 1,693,270
Prepaid expenses 110,310 828,441 122,235
Total current assets 74,322,220 68,387,075 10,090,429
Property and equipment, net 2,907,762 2,767,970 408,411
Long-term trade accounts receivable, net 2,220,332 - -
--------- --- ---
Total Assets RMB 79,450,314 RMB 71,155,045 $10,498,840
=== ========== === ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable RMB 7,540,430 RMB 8,352,870 $1,232,456
Other payables 4,144,326 3,651,900 538,834
Other payable- related parties 3,680,244 3,314,019 488,979
Deferred revenue 406,681 1,259,725 185,871
Accrued payroll and employees' welfare 381,109 2,014,514 297,239
Taxes payable 755,880 684,721 101,030
Short-term borrowings - related parties 12,941,848 10,168,008 1,500,277
Total current liabilities 29,850,518 29,445,757 4,344,686
---------- ---------- ---------
- - -
Commitments and Contingencies - - -
- - -
Equity
Common stock, ($ 0.0185 U.S. dollar par value,
100,000,000 shares authorized; 5,804,005 and
9,902,914 shares issued and outstanding as of
June 30, 2016 and 2017, respectively) 741,467 1,261,288 186,101
Additional paid-in capital 100,612,455 123,436,043 18,212,837
Statutory reserve 4,148,929 4,148,929 612,169
Accumulated deficit (63,907,512) (95,352,659) (14,069,168)
Accumulated other comprehensive loss (219,040) (249,156) (36,762)
Total shareholders' equity 41,376,299 33,244,445 4,905,177
Non-controlling interest 8,223,497 8,464,843 1,248,977
--------- --------- ---------
Total equity 49,599,796 41,709,288 6,154,154
---------- ---------- ---------
Total Liabilities and Equity RMB 79,450,314 RMB 71,155,045 $10,498,840
=== ========== === ========== ===========
The accompanying notes are an integral part of these consolidated financial statements
RECON TECHNOLOGY, LTD
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the years ended
June 30,
--------
2015 2016 2017 2017
---- ---- ---- ----
RMB RMB RMB USD
--- --- --- ---
Revenues
Hardware and software RMB 48,980,953 RMB 41,544,925 RMB 59,982,292 $8,850,314
Service 103,774 1,183,352 72,170 10,649
Hardware and software - related parties 2,428,173 - - -
--------- --- --- ---
Total revenues 51,512,900 42,728,277 60,054,462 8,860,963
---------- ---------- ---------- ---------
Cost of revenues
Hardware and software 41,373,566 34,732,965 44,090,960 6,505,568
Service - 748,429 - -
Hardware and software - related parties 27,161 - - -
Total cost of revenues 41,400,727 35,481,394 44,090,960 6,505,568
---------- ---------- ---------- ---------
Gross profit 10,112,173 7,246,883 15,963,502 2,355,395
---------- --------- ---------- ---------
Selling and distribution expenses 11,312,452 5,630,715 4,458,218 657,805
General and administrative expenses 26,894,273 20,195,701 32,751,142 4,832,391
Provision for doubtful accounts 3,252,868 14,475,074 1,766,286 260,613
Research and development expenses 4,168,813 6,856,522 7,599,340 1,121,273
Operating expenses 45,628,406 47,158,012 46,574,986 6,872,082
---------- ---------- ---------- ---------
Loss from operations (35,516,233) (39,911,129) (30,611,484) (4,516,687)
----------- ----------- ----------- ----------
Other income (expenses)
Subsidy income 781,457 289,087 132,791 19,593
Interest income 293,499 183,553 73,990 10,917
Interest expense (1,110,451) (903,368) (548,878) (80,986)
Change in fair value of warrants liability 4,034,272 - - -
Income (loss) from foreign currency exchange (19,190) 7,570 21,502 3,173
Loss from warrants redemption (2,496,375) - - -
Other income (expense) 24,558 (2,445) 36,178 5,338
------ ------ ------ -----
Other income (expense) 1,507,770 (425,603) (284,417) (41,965)
--------- -------- -------- -------
Loss before income tax (34,008,463) (40,336,732) (30,895,901) (4,558,652)
Income tax expenses (benefits) (2,552,075) 545,845 307,900 45,430
Net loss (31,456,388) (40,882,577) (31,203,801) (4,604,082)
Less: Net income attributable to non-controlling interest - - 241,346 35,610
Net loss attributable to Recon Technology, Ltd RMB (31,456,388) RMB (40,882,577) RMB (31,445,147) $(4,639,692)
=== =========== === =========== === =========== ===========
Comprehensive loss
Net loss (31,456,388) (40,882,577) (31,203,801) (4,604,082)
Foreign currency translation adjustment (38,276) 98,511 (30,116) (4,444)
------- ------ ------- ------
Comprehensive loss (31,494,664) (40,784,066) (31,233,917) (4,608,526)
Less: Comprehensive income (loss) attributable to non-
controlling interest (1,982) - 241,346 35,610
------ --- ------- ------
Comprehensive loss attributable to Recon Technology, Ltd RMB (31,492,682) RMB (40,784,066) RMB (31,475,263) $(4,644,136)
=== =========== === =========== === =========== ===========
Loss per common share - basic and diluted RMB (6.45) RMB (7.23) RMB (4.90) $(0.72)
=== ===== === ===== === ===== ======
Weighted - average shares -basic and diluted 4,876,504 5,653,149 6,417,305 6,417,305
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements
RECON TECHNOLOGY, LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30,
2015 2016 2017 2017
---- ---- ---- ----
RMB RMB RMB U.S. Dollars
--- --- --- ------------
Cash flows from operating activities:
Net loss RMB (31,456,388) RMB (40,882,577) RMB (31,203,801) $(4,604,082)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 526,046 955,083 856,735 126,410
Gain from disposal of equipment (193,657) (40,688) (35,919) (5,300)
Provision for doubtful accounts 3,252,868 14,475,074 1,766,286 260,613
Provision for slow moving inventories 7,700,836 2,428,288 - -
Share based compensation 1,294,629 2,096,162 2,039,446 300,918
Restricted shares issued for management 1,828,788 3,595,146 12,904,723 1,904,076
Deferred tax provision (benefit) (532,136) 1,742,098 - -
Change in fair value of warrants liability (4,034,272) - - -
Restricted shares issued for services 1,585,462 2,287,415 8,399,240 1,239,298
Loss from warrants redemption 2,496,375 - - -
Income tax benefit (2,111,281) (1,196,253) - -
Changes in operating assets and liabilities:
Notes receivable (4,205,530) (454,647) (1,452,783) (214,356)
Trade accounts receivable, net (3,245,218) 14,658,360 (245,190) (36,177)
Trade accounts receivable-related parties, net 4,315,755 1,090,453 - -
Inventories, net (4,209,241) 1,191,811 3,597,832 530,856
Other receivable, net 2,481,328 (1,775,659) 17,632,104 2,601,595
Other receivables-related parties, net 1,323,412 91,021 - -
Purchase advance, net 3,271,935 4,930,479 (10,534,132) (1,554,298)
Purchase advance-related parties, net - 1,374,034 - -
Prepaid expense 1,808,350 716,004 (718,130) (105,959)
Prepaid expense - related parties, net (190,000) 420,000 - -
Trade accounts payable 2,213,583 (9,615,363) 812,440 119,875
Trade accounts payable-related parties 3,528,705 - - -
Other payables 71,584 712,525 (189,302) (27,931)
Other payables-related parties 1,003,678 1,869,889 (366,225) (54,036)
Deferred revenue (2,134,295) (1,878,848) 853,044 125,866
Accrued payroll and employees' welfare (170,835) 134,320 1,633,405 241,007
Taxes payable (1,322,818) 790,199 (78,700) (11,612)
Net cash provided by (used in) operating activities (15,102,337) (285,674) 5,671,073 836,763
----------- -------- --------- -------
Cash flows from investing activities:
Purchases of property and equipment (2,078,204) (181,075) (638,119) (94,154)
Proceeds from disposal of equipment 400,400 60,000 51,900 7,658
Net cash used in investing activities (1,677,804) (121,075) (586,219) (86,496)
---------- -------- -------- -------
Cash flows from financing activities:
Proceeds from short-term bank loans 7,000,000 500,000 - -
Repayments of short-term bank loans (10,000,000) (7,500,000) - -
Proceeds from short-term borrowings - 530,000 1,100,000 162,304
Repayment of short-term borrowings - - (1,330,000) (196,240)
Proceeds from short-term borrowings-related parties 18,250,000 12,895,400 13,103,718 1,933,438
Repayment of short-term borrowings-related parties (6,550,000) (16,780,765) (15,950,682) (2,353,504)
Proceeds from sale of common stock, net of issuance costs 2,392,027 171,919 - -
Net cash (used in) provided by financing activities 11,092,027 (10,183,446) (3,076,964) (454,002)
---------- ----------- ---------- --------
Effect of exchange rate fluctuation on cash and cash equivalents (61,543) 62,886 (16,231) (2,399)
------- ------ ------- ------
Net increase (decrease) in cash (5,749,657) (10,527,309) 1,991,659 293,866
Cash at beginning of year 18,094,586 12,344,929 1,817,620 268,188
---------- ---------- --------- -------
Cas at end of year RMB 12,344,929 RMB 1,817,620 RMB 3,809,279 $562,054
=== ========== === ========= === ========= ========
Supplemental cash flow information
Cash paid during the year for interest RMB 1,060,529 RMB 903,368 RMB 571,037 $84,256
=== ========= === ======= === ======= =======
Cash paid during the year for taxes RMB 881,794 RMB 142,477 RMB 284,487 $41,976
=== ======= === ======= === ======= =======
Non-cash investing and financing activities
Issuance of common stock to redeem warrants RMB 3,462,438 RMB - RMB - $ -
AR and short-term borrowings-related parties offset RMB - RMB 200,000 RMB - $ -
Inventories used for fixed assets - 1,025,410 - -
Non-cash payment for property and equipment purchase RMB - RMB - RMB 87,265 $12,876
Issuance of unvested common stock to senior managers RMB - RMB - RMB 55,685 $8,216
The accompanying notes are an integral part of these consolidated financial statements
SOURCE Recon Technology, Ltd.
