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Recon Reports Second Quarter 2012 Financial Results

"In light of the challenges we have faced over the last year, we have learned how important improving internal management is, particularly to small companies like ours. To assist us in improving our internal management, we have retained consultants to help us enhance our financial management and we have also strengthened our internal control system for the benefit of all of our shareholders. We will also strengthen our information disclosure and improve the frequency and content of our communications with investors."

Second Quarter 20 12 Financial Results

Total revenues decreased by 4.16% for the second quarter of fiscal year 2012. The overall increase of hardware sales was mainly attributable to improved operations and recently developed products despite the deconsolidation of ENI, which caused a decrease of RMB5.72 million. During the six months ended December 31, 2011, total revenues decreased by 33.7% compared to the previous year period. Deconsolidation of ENI was responsible for a decrease of RMB18.68 million in hardware and hardware-related revenues, more than half of the total decrease in revenues.

Gross profit decreased by RMB2.58 million, or 22.03%, to RMB9.12 million ( $1.43 million) for the second quarter of fiscal year 2012. Gross profit as a percentage of revenue decreased from 36.33% for the three months ended December 31, 2010 to 29.55% for the same period of 2011, which was caused mainly by the lower margin of our new business of proprietary oil/water separator and horizontal well fracturing technology. Gross profit decreased by RMB7.82 million, or 40.27%, to RMB11.59 million ( $1.82 million) for the six months ended December 31, 2011. Gross profit as a percentage of revenue decreased from 35.95% for the six months ended December 31, 2010 to 32.39% for the same period of 2011.

General and administrative expenses decreased by RMB13.49 million, or 70.69% from RMB19.08 million in three months ended December 31, 2010 to RMB5.59 million( $879 thousand) in the same period of 2011, which was mainly attributable to the deconsolidation of ENI. General and administrative expenses decreased by RMB12.83 million, or 55.07% from RMB23.30 million in three months ended December 31, 2010 to RMB10.47 million( $1.65 million) in the same period of 2011, which was mainly attributable to the deconsolidation of ENI and increased professional and consulting fees.

Income from operations was RMB2.09 million ( $328 thousand) for the three months ended December 31, 2011, an increase of RMB12.75 million, or 119.60%, from a loss of RMB10.66 million for the same period of 2010. This increase in income from operations is attributed primarily to lower operating expenses. Loss from operations was RMB1.14 million( $179 thousand) for the six months ended December 31, 2011, an improvement of RMB7.83 million from a loss of RMB8.97 million for the same period of 2010. This decrease in losses from operations is attributed primarily to lower operating expenses.

Net income attributable to ordinary shareholders was RMB1.40 million ( $219 thousand) for the three months ended December 31, 2011, an increase of RMB22.07million or 106.75%, from a loss of RMB20.68million for same period of 2010. Net loss attributable to ordinary shareholders was RMB2.01 million ( $316 thousand) for the six months ended December 31, 2011, an improvement of RMB17.82 million or 89.87%, from a loss of RMB19.83 million for same period of 2010.

As of December 31, 2011, cash and cash equivalents was RMB1.09 million ( $171 thousand). Except for RMB6.98 million ( $1.1 million) of short-term borrowings, there were no other finance leases or hire purchase commitments, guarantees or other material contingent liabilities.

Net cash used in operating activities was RMB2,023,589 ($317,940) for the six months ended December 31, 2011, a decrease of RMB3.17 million from RMB5.19 million for the same period of 2010. The decrease in the use of cash in the current period was due to an increase in trade accounts receivable partially offset by an increase in trade accounts payable and reduction in inventories.

Net cash used in financing activities was RMB178 thousand ( $28 thousand) for the six months ended December 31, 2011, compared to net cash provided by financing activities amounting to RMB3.14 million for the same period of 2010. The decrease in net cash provided by financing activities was mainly due to the payment of bank loans and decrease in short-term borrowings.

Net cash used in investing activities was RMB96,231 ($15,119) for the six months ended December 31, 2011, a decrease of RMB2,184,923 from RMB2,281,154 for the same period of 2010. The decrease was mainly caused by a loss on cash due to the deconsolidation of ENI amounting to RMB2,256,305, while there was no such loss for the same period of 2011.

The current ratio decreased from 3.75 at June 30, 2011 to 2.94 at December 31, 2011. This was mainly caused by the increase in trade accounts payable and short-term borrowings.  

About Recon Technology, Ltd.

Recon Technology, Ltd. is a non-state-owned oil field service company in China. The company has been providing software, equipment and services designed to increase the efficiency and automation in oil and gas exploration, extraction, production and refinery for Chinese oil and gas fields for more than 10 years. More information may be found at http://www.recon.cn or e-mail: info@recon.cn.

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.

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