Recon Technology Reports Fiscal 2018 Second Quarter and First Six Months Financial Results

Highlighted by Sustained Growth of Revenue

BEIJING, Feb. 9, 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 reported its financial results for the second quarter and first half of fiscal year 2018, which ended December 31, 2017.

Second Quarter FY2018 Financial Highlights (all comparable to the prior year period):

    --  Total revenues for the second quarter of FY2018 increased by 35.5% to
        RMB41.1 million ($6.3 million)
    --  Gross profit for the second quarter of FY2018 was RMB4.0 million ($0.6
        million)
    --  Gross profit margin for the second quarter of FY2018 was 9.6%, which
        decreased by 28.4% compared to the second 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 second quarter of FY2018 was
        RMB10.2 million ($1.6 million), or RMB1.22 ($0.19) per basic and diluted
        share, compared to net loss attributable to Recon of RMB4.4 million, or
        RMB0.70 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 RMB3.1 million ($481,456), or RMB0.37 ($0.06) per
        basic and diluted share, for the second quarter of FY2018, compared to
        non-GAAP net income attributable to common shareholders of RMB3.3
        million, RMB0.53 per basic share, or RMB0.48 per diluted share, for the
        same period of last fiscal year.

First Half of FY2018 Financial Highlights (all comparable to the prior year period):

    --  Total revenues for the first six months of FY2018 increased by 39.7% to
        RMB53.2 million ($8.2 million)
    --  Gross profit for the first six months of FY2018 was RMB6.0 million ($0.9
        million). Gross profit margin for the first six months of FY2018 was
        11.4%, which decreased by 21.7% compared to the first six months of
        FY2017.
    --  Net loss attributable to Recon for the first six months of FY2018 was
        RMB17.0 million ($2.6 million), or RMB2.21 ($0.34) per basic and diluted
        share, compared to RMB9.8 million, or RMB1.62 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 RMB5.4 million ($0.8 million), or RMB0.70 ($0.11)
        per basic and diluted share, for the first six months of FY2018,
        compared to non-GAAP net loss attributable to common shareholders of
        RMB234,103, or RMB0.04 per basic and diluted share, for the same period
        of last fiscal year.

Management Commentary

Mr. Shenping Yin, Founder and CEO of Recon stated, "We're pleased to see continued growth of our business and revenue generated accordingly in this quarter. As oil prices rebounded and the oil industry recovered from setbacks, our management made prudent decision to invest in manufacturing equipment and constructing wastewater, and oil sludge treatment plants. Our gross margin decreased significantly primarily due to increased sales of equipment with lower margin during the construction and test-run stage of our new plants. After this stage terminates in approximately 6 months to one year, we expect that our gross margin will increase when we plan to produce and sell our equipment with higher margin. Therefore, we believe our operation and profitability will be gradually improved in the coming months. We're excited that many potential clients have shown strong interest in the furnaces we produce, and Qing Hai oilfield and Gan Su oilfield also express their urgent requirement of our wastewater and oily sewage capability. We also maintain constant fast expansion of business scope. Beyond the oilfield service industry, we expand our business to other domains, such as coal chemical and petroleum chemistry. We also invested in Future Gas Station (Beijing) Technology, Ltd. ("FGS"), a service company focusing on providing new technical application and data operation to gas stations of oil companies. With its DT Refuel mobile application, FGS provides solutions to gas stations to improve their operations and their customers' experience. Recon and FGS plan to jointly develop an integrated block chain-based mobile shopping system for use in gas stations. We believe all activities made during our second quarter of 2018 will bring long-term return benefit for Recon and all of its shareholders."

Mr. Yin continued, "Looking to the coming year and beyond, management will focus on the following aspects: 1) for market and business, we will continue improving operation quality and disperse risks by pursuing high-quality business and sophisticated products; 2) for technology and products, we will also enhance cooperation with regional leading manufacturing companies, positively introduces advanced overseas technique and continuously integrate and upgrade current industrial equipment and solutions to establish leading position in various fields, and to maximize the added value of products and service; and 3) for internal control: we will always seek to improve our cash flow management to meet development requirements and minimize company risks."

Recent Developments

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.

On December 15, 2017, the Company signed a subscription agreement with FGS. Pursuant to this agreement, Recon holds 8% equity interest of FGS. As of today, Recon has invested RMB 2 million in FGS as terms and conditions are achieved based on mutually-agreed payment schedule.

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 gross proceeds, before deducting fees to the Placement Agent and other estimated offering expenses payable by the Company, are approximately $6.0 million.

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 second quarter and first half of fiscal year 2018, with details on its first half financial results in this report.

The translation has been made at the rate of US$1.0: RMB6.51, the approximate exchange rate prevailing on December 31, 2017.


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

                                                   3 months ended                                       3 months ended              6 months ended     6 months ended
                                                  December 31, 2016                                   December 31, 2017            December 31, 2016  December 31, 2017
                                                 -----------------                                    -----------------           -----------------  -----------------

    Sales                                                                     30,313                                       41,076                                  38,115      53,247

    Cost of Revenues                                                          18,796                                       37,122                                  25,506      47,199

    Gross Profit                                                              11,517                                        3,954                                  12,609       6,048

    Gross Profit Margin                                                        38.0%                                        9.6%                                  33.1%      11.4%


    Loss from Operations                                                     (3,810)                                    (10,638)                                (9,294)   (17,506)


    Net Loss Attributable to Recon Technology,                               (4,352)                                    (10,242)                                (9,813)   (16,987)
    Ltd

    Non U.S. GAAP Net Income (Loss) attributable                               3,260                                      (3,133)                                  (234)    (5,403)
       to common shareholders

    Basic and Weighted Average Number of                                   6,176,444                                    8,428,918                               6,067,089   7,673,960
       Diluted Common Shares Outstanding

    Basic and Diluted Loss per Share                                          (0.70)                                      (1.22)                                 (1.62)     (2.21)

    Non U.S. GAAP adjusted earnings (loss) per

    share

    Basic                                                                       0.53                                       (0.37)                                 (0.04)     (0.70)

    Diluted                                                                     0.48                                       (0.37)                                 (0.04)     (0.70)

3 MONTHS ENDED DECEMBER 31, 2017 UNAUDITED FINANCIAL RESULTS

Revenue

Total revenues for the three months ended December 31, 2017 increased by 35.5% to RMB 41.1 million ($6.3 million) compared to RMB 30.3 million in the past year period, 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 decreased by 65.7% to RMB 4.0 million (or $0.6 million) for the three months ended December 31, 2017 from RMB11.5 million in the prior year period. Gross profit margin decreased to 9.6% from 38.0% in the prior year period. 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 RMB 10.6 million ($1.6 million) during the three months ended December 31, 2017, compared to RMB3.8 million in the prior year period. The increase in net loss is largely due to a decrease in gross profit and an increase in general and administrative expenses, partly offset by a decrease in research and development expenses and selling and distribution expenses.

Net loss attributable to Recon for the three months ended December 31, 2017 was RMB10.2 million ($1.6 million), or RMB1.22 ($0.19) per basic and diluted share based on 8.4 million basic and diluted shares outstanding, compared to RMB4.4 million, or RMB0.70 per basic and diluted share based on 6.2 million basic and diluted shares outstanding in the prior year period.

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 RMB3.1 million ($481,456), or RMB0.37 ($0.06) per basic and diluted share, for the three months ended December 31, 2017, compared to adjusted net income attributable to common shareholders of RMB3.3 million, RMB0.53 per basic share, or RMB0.48 per diluted share, for the same period last fiscal year. Please see the note about non-GAAP measures and the reconciliation table at the end of this press release.

6 MONTHS ENDED DECEMBER 31, 2017 UNAUDITED FINANCIAL RESULTS

Revenue


                                              For the Six Months Ended

                                                    December 31,
                                                    ------------

                                                                                               Percentage

                              2016                      2017                      Increase          Change
                              ----                      ----                      --------          ------

    Hardware and software YEN      38,042,938                  YEN     53,064,176          YEN    15,021,238  39.5%

    Service                            72,170                             182,551                    110,381 152.9%
                                       ------                             -------                    -------

    Total revenues        YEN      38,115,108                  YEN     53,246,727          YEN    15,131,619  39.7%
                          ===      ==========                  ===     ==========          ===    ==========

Total revenues for the six months ended December 31, 2017 were approximately ¥53.2 million ($8.2 million), representing an increase of approximately ¥15.1 million or 39.7% from ¥38.1 million for the six months ended December 31, 2016. 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 Six Months Ended

                                                              December 31,
                                                              ------------

                                                                                              Increase /       Percentage

                                        2016                            2017                    (Decrease)         Change
                                        ----                            ----                     ---------         ------

    Automation product and software YEN      17,964,392                        YEN 13,602,598              YEN   (4,361,794) (24.3)%

    Equipment and accessories                17,340,842                            39,029,881                     21,689,039   125.1%

    Waste water treatment products            2,737,704                               431,697                    (2,306,007) (84.2)%

    Services                                     72,170                               182,551                        110,381   152.9%
                                                 ------                               -------                        -------

    Total revenue                   YEN      38,115,108                        YEN 53,246,727              YEN    15,131,619    39.7%
                                    ===      ==========                        === ==========              ===    ==========


         (1)        Revenue from automation product
                     and software decreased by YEN4.4
                     million or 24.3%. Affected by
                     less expenditure on surface
                     projects of our clients for the
                     last two years, requirement of
                     automation related projects
                     maintained at a lower level and
                     fluxed. 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 the increased
                     equipment, including furnaces
                     and related accessories.

         (3)        Revenue from waste water
                     treatment products decreased by
                     YEN2.3 million or 84.2% as most
                     of Recon's wastewater treatment
                     projects were not finished thus
                     less revenue was recorded in the
                     six months ended December 31,
                     2017.

         (4)        Revenue from services for the six
                     months ended December 31, 2016
                     and 2017 consisted mainly of
                     maintenance services, which were
                     provided upon request by
                     customers. Revenue from services
                     increased by YEN0.1 million or
                     152.9% mainly because
                     maintenance requests outpaced
                     the purchase of new equipment
                     due to industry softness, and we
                     believe margin level is
                     reasonable.

Cost and Margin


                                         For the Six Months Ended

                                               December 31,
                                               ------------

                                                                               Increase /       Percentage

                         2016                            2017                    (Decrease)         Change
                         ----                            ----                     ---------         ------

    Total revenues   YEN      38,115,108                        YEN 53,246,727              YEN    15,131,619    39.7%

    Cost of revenues          25,505,506                            47,198,605                     21,693,099    85.1%
                              ----------                            ----------                     ----------

    Gross profit     YEN      12,609,602                        YEN  6,048,122              YEN   (6,561,480) (52.0)%

    Margin %                     33.1%                                11.4%                       (21.7)%       -

Cost of Revenues. Recon's cost of revenues increased from approximately ¥25.5 million for the six months ended December 31, 2016 to approximately ¥47.2 million ($7.3 million) for the same period in 2017, representing an increase of approximately ¥21.7 million ($3.3 million), or 85.1%. 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 approximately ¥6.0 million ($0.9 million) for the six months ended December 31, 2017 from approximately ¥12.6 million for the same period in 2016. Recon's gross profit as a percentage of revenue decreased to 11.4% for the six months ended December 31, 2017 from 33.1% for the same period in 2016. 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 Six Months Ended

                                                                            December 31,
                                                                            ------------

                                                                                                            Increase /       Percentage

                                                      2016                            2017                    (Decrease)         Change
                                                      ----                            ----                     ---------         ------

    Selling and distribution expenses             YEN       2,395,089                        YEN  2,981,637              YEN       586,548     24.5%

    % of revenue                                                 6.3%                                 5.6%                        (0.7)%        -

    General and administrative expenses                    15,244,707                            18,672,141                      3,427,434     22.5%

    % of revenue                                                40.0%                                35.1%                        (4.9)%        -

    Provision for (reversal of) doubtful accounts           (690,964)                               80,539                        771,503  (111.7)%

    % of revenue                                               (1.8)%                                 0.2%                          2.0%        -

    Research and development expenses                       4,954,802                             1,819,720                    (3,135,082)  (63.3)%

    % of revenue                                                13.0%                                 3.4%                        (9.6)%        -
                                                                 ----                                   ---                          -----

    Operating expenses                            YEN      21,903,634                        YEN 23,554,037              YEN     1,650,403      7.5%
                                                  ===      ==========                        === ==========              ===     =========

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 approximately ¥0.6 million (approximately $0.1 million) for the six months ended December 31, 2017 compared to the same period in 2016. This increase was primarily due to an increase in traveling expense and service fees, partly offset by a decrease in shipping charges, as we began working with qualified vendors located closer to our customers. Selling expenses were 5.6% of total revenues for the six months ended December 31, 2017 and 6.3% of total revenues in the same period of 2016.

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 22.5% or ¥3.4 million (approximately $0.5 million), from approximately ¥15.2 million in the six months ended December 31, 2016 to approximately ¥18.7 million (approximately $2.9 million) in the same period of 2017. 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 35.1% of total revenues in the six months ended December 31, 2017 and 40.0% of total revenues in the same period of 2016. 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 six months period ended December 31, 2017, because of the grant of certain restricted stock to management as the target for the FY2017 achieved, compensation expenses increased ¥1.3 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 ¥0.7 million for the six months ended December 31, 2016 and recorded a provision for doubtful accounts of ¥80,500 (approximately $12,377) for the same period in 2017. Management will continue to monitor and 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 approximately ¥5.0 million for the six months ended December 31, 2016 to approximately ¥1.8 million (approximately $0.3 million) for the same period of 2017. This decrease was primarily due to less research and development expense spent on design of chemical products used for waste water treatment and digital oilfield models and platform. The Company was focusing on transform of advanced R&D results into projects, which were undertaken by Gansu BHD and Qinghai BHD.

Net Loss


                                                                      For the Six Months Ended

                                                                            December 31,
                                                                            ------------

                                                                                                             Increase /       Percentage

                                                     2016                      2017                            (Decrease)         Change
                                                     ----                      ----                             ---------         ------

    Loss from operations                         YEN      (9,294,032)                YEN       (17,505,915)               YEN (8,211,883)     88.4%

    Other income, net                                       (162,538)                              (89,775)                        72,763    (44.8)%
                                                             --------                                -------                         ------


    Loss before income taxes                              (9,456,570)                          (17,595,690)                   (8,139,120)     86.1%

    Income tax expenses (benefits)                           (20,143)                                 9,282                         29,425   (146.1)%
                                                              -------                                  -----                         ------


    Net loss                                              (9,436,427)                          (17,604,972)                   (8,168,545)     86.6%


    Less: Net income (loss) attributable to non-              376,212                              (618,162)                     (994,374)  (264.3)%
       controlling interest


    Net loss attributable to Recon Technology,   YEN      (9,812,639)                YEN       (16,986,810)               YEN (7,174,171)     73.1%
    Ltd

Loss from operations. Loss from operations was ¥17.5 million (approximately $2.7 million) for the six months ended December 31, 2017, compared to a loss of ¥9.3 million for the same period of 2016. This ¥8.2 million (approximately $1.3 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 RMB2.21, as compared to RMB 1.62, for the six months ended December 31, 2016.

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 RMB5,402,955($830,281), or RMB0.70 ($0.11) per diluted share, for the six months ended December 31, 2017, compared to non U.S. GAAP net loss attributable to common shareholders of RMB234,103, or RMB 0.04 per basic and diluted share, for the same period last fiscal 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: RMB6.51 at December 31, 2017
                                               -----------------------------------------------

                                                                                                                      Percentage

                                                                        12/31/2017               6/30/2017              Change
                                                                        ----------               ---------              ------

    Cash                                                                               8,270,939            3,809,279            117.13%

    Total Current Assets                                                              86,931,130           68,387,075             27.12%

    Total Assets                                                                      98,422,335           71,155,045             38.32%

    Working Capital                                                                   52,116,241           38,941,318             33.83%

    Total Current Liabilities                                                         34,814,889           29,445,757             18.23%

    Total Stockholders' Equity                                                        44,767,252           33,244,445             34.66%

    Total Liabilities and Stockholders' Equity                                        98,422,335           71,155,045             38.32%

Cash from Operating Activities. Net cash used in operating activities was ¥12.7 million (approximately $2.0 million) for the six months ended December 31, 2017. This represents an increase of ¥18.7 million (approximately $2.9 million) compared to net cash provided by operating activities of ¥6.0 million for the six months ended December 31, 2016. The increase in net cash used in operating activities for the six months ended December 31, 2017 was primarily attributable to the net loss available to the Company in the amount of ¥17.6 million (approximately $2.7 million), share based compensation of ¥3.6 million (approximately $0.5 million), restricted shares issued for management of ¥6.1 million (approximately $0.9 million) and restricted shares issued for services of ¥1.9 million (approximately $0.3 million), and an increase in trade accounts receivable and purchase advance, partly offset by an increase in trade accounts payable.

Cash from Investing Activities. Net cash used in investing activities was ¥7.4 million (approximately $1.1 million) for the six months ended December 31, 2017, representing an increase in cash used in investing activities of ¥7.2 million ($1.1 million) compared to the same period in 2016. 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 ¥24.5 million (approximately $3.8 million) for the six months ended December 31, 2017, as compared to net cash used in financing activities of ¥2.5 million for the same period in 2016. During the six months ended December 31, 2017, we repaid ¥20.3 million (approximately $3.1 million) in short-term borrowings to related parties and repaid ¥3.0 million ($0.5 million) in short-term borrowings to one third-party, and we received ¥16.2 million (approximately $2.5 million) in short-term borrowings from related parties, received ¥4.6 million (approximately $0.7 million) in short-term borrowings from third-parties and received ¥10.0 million (approximately $1.5 million) in long-term borrowings from one related party. We also received ¥1.7 million (approximately $0.3 million) capital contribution by non-controlling shareholders. Moreover, this increase in net cash provided by financing activities was due to net proceeds from sale of common stock of ¥15.3 million (approximately $2.4 million) for the six months ended December 31, 2017.

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. (NASDAQ: RCON)

Recon Technology, Ltd. 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, RCON has taken leading positions on several segmented markets of the oil and gas filed service industry. RCON also has developed stable long-term cooperation relationship with its major clients, and its products and service are also well accepted by clients. For additional information please visit us at 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 RMB6.51 to US$ 1.00, the noon buying rate as of December 31, 2017 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.

Company Contact

Liu Jia
Recon Technology, Ltd.
+86 (10) 84945799
info@recon.cn


                                                                        RECON TECHNOLOGY, LTD

                                                                      CONDENSED BALANCE SHEETS

                                                                             (UNAUDITED)


                                                                                               As of June 30,                As of December 31               As of December 31
                                                                                               --------------                -----------------               -----------------

                                                                                                         2017                              2017                             2017
                                                                                                         ----                              ----                             ----

    ASSETS                                                                                           RMB                            RMB                         U.S. Dollars
                                                                                                     ---                            ---                         ------------

    Current assets

    Cash                                                                                       YEN                 3,809,279                     YEN                  8,270,939                    $1,271,007

    Notes receivable                                                                                             6,112,960                                          5,794,010                       890,374

    Trade accounts receivable, net                                                                              39,425,911                                         43,608,209                     6,701,337

    Inventories, net                                                                                             2,627,974                                          3,455,731                       531,047

    Other receivables, net                                                                                       4,106,510                                          5,296,936                       813,988

    Purchase advances, net                                                                                      11,476,000                                         19,102,638                     2,935,530

    Prepaid expenses                                                                                               828,441                                          1,402,667                       215,551
                                                                                                                   -------                                          ---------                       -------

    Total current assets                                                                                        68,387,075                                         86,931,130                    13,358,834


    Property and equipment, net                                                                                  2,767,970                                          2,571,963                       395,237

    Construction in progress                                                                                -                                      5,610,165                         862,122

    Land use right, net                                                                                     -                                      1,309,077                         201,168

    Investment in unconsolidated entity                                                                     -                                      2,000,000                         307,343
                                                                                                          ---                                      ---------                         -------

    Total Assets                                                                               YEN                71,155,045                     YEN                 98,422,335                   $15,124,704
                                                                                               ===                ==========                     ===                 ==========                   ===========


    LIABILITIES AND STOCKHOLDERS' EQUITY


    Current liabilities

    Short-term bank loan                                                                       YEN                         -                    YEN                     45,000                        $6,915

    Trade accounts payable                                                                                       8,352,870                                         15,143,463                     2,327,118

    Other payables                                                                                               3,351,900                                          3,745,152                       575,523

    Other payable- related parties                                                                               3,314,019                                          4,172,214                       641,150

    Deferred revenue                                                                                             1,259,725                                          1,041,840                       160,101

    Accrued payroll and employees' welfare                                                                       2,014,514                                            368,627                        56,647

    Taxes payable                                                                                                  684,721                                          1,564,319                       240,391

    Short-term borrowings                                                                                          300,000                                          1,900,000                       291,976

    Short-term borrowings - related parties                                                                     10,168,008                                          6,113,352                       939,448

    Long-term borrowings - related party - current portion                                                  -                                        720,922                         110,785
                                                                                                          ---                                        -------                         -------

    Total Current Liabilities                                                                                   29,445,757                                         34,814,889                     5,350,054


    Long-term borrowings - related party                                                                    -                                      9,293,513                       1,428,148
                                                                                                          ---                                      ---------                       ---------

    Total Liabilities                                                                                           29,445,757                                         44,108,402                     6,778,202
                                                                                                                ----------                                         ----------                     ---------


    Commitments and Contingencies


    Equity

    Common stock, ($ 0.0185 U.S. dollar par value, 100,000,000 shares                                            1,261,288                                          1,481,965                       227,736
       authorized; 11,687,849 shares and 9,902,914 shares issued and
       outstanding as of December 31, 2017 and June 30, 2017,
       respectively)

    Stock subscription receivable                                                                           -                                   (15,562,334)                     (2,391,487)

    Additional paid-in capital                                                                                 123,436,043                                        167,215,049                    25,696,183

    Statutory reserve                                                                                            4,148,929                                          4,148,929                       637,572

    Accumulated deficit                                                                                       (95,352,659)                                     (112,339,469)                 (17,263,371)

    Accumulated other comprehensive loss                                                                         (249,156)                                         (176,888)                     (27,183)
                                                                                                                  --------                                           --------                       -------

    Total stockholders' equity                                                                                  33,244,445                                         44,767,252                     6,879,450

    Non-controlling interests                                                                                    8,464,843                                          9,546,681                     1,467,052
                                                                                                                 ---------                                          ---------                     ---------

    Total equity                                                                                                41,709,288                                         54,313,933                     8,346,502
                                                                                                                ----------                                         ----------                     ---------

    Total Liabilities and Equity                                                               YEN                71,155,045                     YEN                 98,422,335                   $15,124,704
                                                                                               ===                ==========                     ===                 ==========                   ===========


                                                                                                                             RECON TECHNOLOGY, LTD

                                                                                                           CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

                                                                                                                                  (UNAUDITED)


                                                           For the six months ended                  For the three months ended

                                                                 December 31,                               December 31,
                                                               ------------                           ------------

                                                      2016                                2017                     2017                      2016                                     2017                      2017
                                                      ----                                ----                     ----                      ----                                     ----                      ----

                                                    RMB                                RMB          USD                                 RMB                                       RMB           USD
                                                    ---                                ---          ---                                 ---                                       ---           ---


    Revenues

    Hardware and software                        YEN                        38,042,938          YEN         53,064,176                                                 $8,154,450           YEN         30,240,835       YEN       40,893,562        $6,284,174

    Service                                                                     72,170                         182,551                                                     28,053                           72,170                    182,551            28,053
                                                                                ------                         -------                                                     ------                           ------                    -------            ------

    Total revenues                                                          38,115,108                      53,246,727                                                  8,182,503                       30,313,005                 41,076,113         6,312,227
                                                                            ----------                      ----------                                                  ---------                       ----------                 ----------         ---------


    Cost of revenues

    Hardware and software                                                   25,505,506                      47,198,605                                                  7,253,080                       18,795,728                 37,121,560         5,704,525
                                                                            ----------                      ----------                                                  ---------                       ----------                 ----------         ---------

    Total cost of revenues                                                  25,505,506                      47,198,605                                                  7,253,080                       18,795,728                 37,121,560         5,704,525
                                                                            ----------                      ----------                                                  ---------                       ----------                 ----------         ---------

    Gross profit                                                            12,609,602                       6,048,122                                                    929,423                       11,517,277                  3,954,553           607,702
                                                                            ----------                       ---------                                                    -------                       ----------                  ---------           -------


    Selling and distribution expenses                                        2,395,089                       2,981,637                                                    458,193                        1,344,948                  1,895,437           291,275

    General and administrative expenses                                     15,244,707                      18,672,141                                                  2,869,375                       10,345,379                 11,649,361         1,790,174

    Provision for (net recovery of) doubtful                                 (690,964)                         80,539                                                     12,377                        (698,990)                 (217,032)         (33,352)
    accounts

    Research and development expenses                                        4,954,802                       1,819,720                                                    279,639                        4,336,128                  1,264,938           194,385
                                                                             ---------                       ---------                                                    -------                        ---------                  ---------           -------

    Operating expenses                                                      21,903,634                      23,554,037                                                  3,619,584                       15,327,465                 14,592,704         2,242,482
                                                                            ----------                      ----------                                                  ---------                       ----------                 ----------         ---------



    Loss from operations                                                   (9,294,032)                   (17,505,915)                                               (2,690,161)                     (3,810,188)              (10,638,151)      (1,634,780)
                                                                            ----------                     -----------                                                 ----------                       ----------                -----------        ----------


    Other income (expenses)

    Subsidy income                                                               7,807                         212,005                                                     32,579                                -                         -                -

    Interest income                                                             48,978                           6,299                                                        968                           21,084                      4,295               660

    Interest expense                                                         (285,862)                      (284,060)                                                  (43,652)                       (153,372)                 (154,852)         (23,796)

    Income (loss) from foreign currency                                          3,015                         (2,671)                                                     (410)                           2,627                    (1,513)            (233)
    exchange

    Other income (expense)                                                      63,524                        (21,348)                                                   (3,281)                        (35,994)                  (11,791)          (1,812)
                                                                                ------                         -------                                                     ------                          -------                    -------            ------

    Other expense, net                                                       (162,538)                       (89,775)                                                  (13,796)                       (165,655)                 (163,861)         (25,181)
                                                                              --------                         -------                                                    -------                         --------                   --------           -------

    Loss before income tax                                                 (9,456,570)                   (17,595,690)                                               (2,703,957)                     (3,975,843)              (10,802,012)      (1,659,961)

    Income tax expenses (benefits)                                            (20,143)                          9,282                                                      1,426                                -                         -                -
                                                                               -------                           -----                                                      -----                              ---                       ---              ---

    Net loss                                                               (9,436,427)                   (17,604,972)                                               (2,705,383)                     (3,975,843)              (10,802,012)      (1,659,961)


    Less: Net income (loss) attributable to non-                               376,212                       (618,162)                                                  (94,994)                         376,212                  (560,053)         (86,064)
    controlling interests


    Net loss attributable to Recon Technology,   YEN                       (9,812,639)         YEN       (16,986,810)                                              $(2,610,389)          YEN        (4,352,055)      YEN     (10,241,959)     $(1,573,897)
    Ltd



    Comprehensive loss

    Net loss                                                               (9,436,427)                   (17,604,972)                                               (2,705,383)                     (3,975,843)              (10,802,012)      (1,659,961)

    Foreign currency translation adjustment                                   (74,152)                         72,268                                                     11,106                         (66,550)                    16,728             2,571
                                                                               -------                          ------                                                     ------                          -------                     ------             -----

    Comprehensive loss                                                     (9,510,579)                   (17,532,704)                                               (2,694,277)                     (4,042,393)              (10,785,284)      (1,657,390)

    Less: Comprehensive income (loss)                                          376,212                       (618,162)                                                  (94,994)                         376,212                  (560,053)         (86,064)
       attributable to non-controlling interests


    Comprehensive loss attributable to Recon     YEN                       (9,886,791)         YEN       (16,914,542)                                              $(2,599,283)          YEN        (4,418,605)      YEN     (10,225,231)     $(1,571,326)
    Technology, Ltd



    Loss per common share - basic and diluted    YEN                            (1.62)         YEN             (2.21)                                                   $(0.34)          YEN             (0.70)      YEN           (1.22)          $(0.19)
                                                 ===                             =====          ===              =====                                                     ======           ===              =====       ===            =====            ======

    Weighted - average shares -basic and                                     6,067,089                       7,673,960                                                  7,673,960                        6,176,444                  8,428,918         8,428,918
    diluted


                                                                                        RECON TECHNOLOGY, LTD

                                                                                  CONDENSED STATEMENTS OF CASH FLOWS

                                                                                             (UNAUDITED)


                                                                                                                  For the six months ended December 31,
                                                                                                                  -------------------------------------

                                                                                                        2016                                               2017                              2017
                                                                                                        ----                                               ----                              ----

                                                                                                      RMB                                               RMB                        U.S. Dollars
                                                                                                      ---                                               ---                        ------------


    Cash flows from operating activities:

    Net loss                                                                                       YEN                              (9,436,427)                 YEN  (17,604,972)                 $(2,705,383)

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

    Depreciation and amortization                                                                                                       418,051                            481,782                        74,036

    Gain from disposal of equipment                                                                                                    (35,919)                          (21,470)                      (3,299)

    Provision for (net recovery of) doubtful accounts                                                                                 (690,964)                            80,539                        12,377

    Reversal of slow moving inventories                                                                                                       -                          (68,384)                     (10,509)

    Share based compensation                                                                                                          4,072,141                          3,550,685                       545,639

    Restricted shares issued for management                                                                                           4,742,008                          6,083,148                       934,806

    Restricted shares issued for services                                                                                               764,387                          1,937,867                       297,795

    Changes in operating assets and liabilities:

    Notes receivable                                                                                                                  (508,240)                           318,950                        49,014

    Trade accounts receivable, net                                                                                                 (14,337,641)                       (4,506,281)                    (692,487)

    Inventories, net                                                                                                                  3,328,445                          (759,373)                    (116,694)

    Other receivable, net                                                                                                            10,556,718                        (1,102,598)                    (169,438)

    Purchase advance, net                                                                                                           (2,474,456)                       (7,471,023)                  (1,148,083)

    Prepaid expense                                                                                                                      56,393                          (574,226)                     (88,242)

    Trade accounts payable                                                                                                            6,900,082                          4,078,075                       626,684

    Other payables                                                                                                                    (131,501)                           393,252                        60,432

    Other payables-related parties                                                                                                       83,581                            858,195                       131,880

    Deferred revenue                                                                                                                    (1,311)                         (217,885)                     (33,483)

    Accrued payroll and employees' welfare                                                                                              721,266                           (11,224)                      (1,725)

    Taxes payable                                                                                                                     1,927,929                          1,819,793                       279,650
                                                                                                                                      ---------                          ---------                       -------

    Net cash provided by (used in) operating activities                                                                               5,954,542                       (12,735,150)                  (1,957,030)
                                                                                                                                      ---------                        -----------                    ----------


    Cash flows from investing activities:

    Investment in unconsolidated entity                                                                                                       -                       (2,000,000)                    (307,343)

    Purchases of property and equipment                                                                                               (217,884)                         (278,432)                     (42,787)

    Proceeds from disposal of equipment                                                                                                  51,900                             32,000                         4,917

    Payments for land use right                                                                                                               -                       (1,322,300)                    (203,200)

    Payments for construction in progress                                                                                                     -                       (3,837,842)                    (589,767)
                                                                                                                                            ---                        ----------                      --------

    Net cash used in investing activities                                                                                             (165,984)                       (7,406,574)                  (1,138,180)
                                                                                                                                       --------                         ----------                    ----------


    Cash flows from financing activities:

    Proceeds from short-term bank loans                                                                                                       -                            45,000                         6,915

    Proceeds from short-term borrowings                                                                                                       -                         4,600,000                       706,889

    Repayment of short-term borrowings                                                                                                (530,000)                       (3,000,000)                    (461,014)

    Proceeds from short-term borrowings-related parties                                                                               7,758,318                         16,188,318                     2,487,683

    Repayments of short-term borrowings-related parties                                                                             (9,716,301)                      (20,256,326)                  (3,112,819)

    Proceeds from long-term borrowings-related party                                                                                          -                        10,000,000                     1,536,715

    Repayments of long-term borrowings-related party                                                                                          -                          (51,969)                      (7,986)

    Proceeds from sale of common stock, net of issuance costs                                                                                 -                        15,310,741                     2,352,824

    Capital contribution by noncontrolling shareholders                                                                                       -                         1,700,000                       261,241
                                                                                                                                            ---                         ---------                       -------

    Net cash provided by (used in) financing activities                                                                             (2,487,983)                        24,535,764                     3,770,448
                                                                                                                                     ----------                         ----------                     ---------


    Effect of exchange rate fluctuation on cash                                                                                        (60,267)                            67,620                        10,391
                                                                                                                                        -------                             ------                        ------


    Net increase in cash                                                                                                              3,240,308                          4,461,660                       685,629

    Cash at beginning of period                                                                                                       1,817,620                          3,809,279                       585,377
                                                                                                                                      ---------                          ---------                       -------

    Cash at end of period                                                                          YEN                                5,057,928                  YEN     8,270,939                    $1,271,006
                                                                                                   ===                                =========                  ===     =========                    ==========


    Supplemental cash flow information

    Cash paid during the period for interest                                                       YEN                                  306,530                  YEN       294,998                       $45,333
                                                                                                   ===                                  =======                  ===       =======                       =======

    Cash paid during the period for taxes                                                          YEN                                 (20,143)                 YEN         9,282                        $1,426
                                                                                                   ===                                  =======                  ===         =====                        ======


    Non-cash investing and financing activities

    Issuance of common stock to prepay professional services                                       YEN                                  764,387                  YEN     1,937,867                      $297,795

    Non-cash transaction for accumulated salary - to equity  exchange                              YEN                                        -                 YEN     1,554,908                      $238,945

    Payable for Construction in Progress                                                           YEN                                        -                 YEN     2,712,518                      $416,837


                                                                   Reconciliation of Non-GAAP Financial Measures


                                                                                                For the three months ended

                                                                                                       December 31,
                                                                                                       ------------

                                                                                 2016                                         2017                        2017

                                                                               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                            YEN                            (4,352,055)             YEN  (10,241,959)           $(1,573,897)

    Special items (A):

    Restricted shares issued for services                                                                      764,387                        892,495                 137,151

    Reversal of doubtful accounts                                                                                    -                     (217,032)               (33,352)

    Reversal of slow moving inventories                                                                              -                     (232,689)               (35,758)

    Stock compensation expense                                                                               6,847,479                      1,981,513                 304,502

    Restricted shares issued for management                                                                          -                     4,684,656                 719,898
                                                                                                                   ---                     ---------                 -------

    Adjusted net income (loss) attributable to common shareholders          YEN                              3,259,811              YEN   (3,133,016)             $(481,456)
                                                                            ===                              =========              ===    ==========               =========


    Reconciliation of U.S. GAAP Earnings (Loss) Per Share

    to Non U.S. GAAP Adjusted Earnings (Loss) Per Share

    U.S. GAAP loss per share

    Basic and diluted                                                       YEN                                 (0.70)             YEN        (1.22)                $(0.19)
                                                                            ===                                  =====              ===         =====                  ======

    Impact of special items on earnings per share

    Basic                                                                                                         1.23                           0.85                    0.13
                                                                                                                  ====                           ====                    ====

    Diluted                                                                                                       1.19                           0.84                    0.13
                                                                                                                  ====                           ====                    ====

    Non U.S. GAAP adjusted earnings (loss) per share

    Basic                                                                   YEN                                   0.53              YEN        (0.37)                $(0.06)
                                                                            ===                                   ====              ===         =====                  ======

    Diluted                                                                                                       0.48                         (0.37)                 (0.06)
                                                                                                                  ====                          =====                   =====

    Weighted - average shares -basic                                                                         6,176,444                      8,428,918               8,428,918
                                                                                                             =========                      =========               =========

    Weighted - average shares -diluted                                                                       6,766,481                      8,428,918               8,428,918
                                                                                                             =========                      =========               =========


                                                                                               For the six months ended

                                                                                                     December 31,
                                                                                                     ------------

                                                                                 2016                                         2017                        2017

                                                                               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                            YEN                            (9,812,639)             YEN  (16,986,810)           $(2,610,389)

    Special items (A):

    Restricted shares issued for services                                                                      764,387                      1,937,867                 297,795

    Provision for doubtful accounts                                                                                  -                        80,539                  12,377

    Provision for slow moving inventories                                                                            -                      (68,384)               (10,509)

    Stock compensation expense                                                                               8,814,149                      3,550,685                 545,639

    Restricted shares issued for management                                                                          -                     6,083,148                 934,806
                                                                                                                   ---                     ---------                 -------

    Adjusted net loss attributable to common shareholders                   YEN                              (234,103)             YEN   (5,402,955)             $(830,281)
                                                                            ===                               ========              ===    ==========               =========


    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                                                       YEN                                 (1.62)             YEN        (2.21)                $(0.34)
                                                                            ===                                  =====              ===         =====                  ======

    Impact of special items on earnings per share

    Basic and diluted                                                                                             1.58                           1.51                    0.23
                                                                                                                  ====                           ====                    ====

    Non U.S. GAAP adjusted loss per share

    Basic and diluted                                                       YEN                                 (0.04)             YEN        (0.70)                $(0.11)
                                                                            ===                                  =====              ===         =====                  ======

    Weighted - average shares - basic and diluted                                                            6,067,089                      7,673,960               7,673,960
                                                                                                             =========                      =========               =========


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

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SOURCE Recon Technology, Ltd.