Company Address:
Recon Technology Ltd.
# 1902, Buiding C
King-Long Intl Mansion

Beijing,
100107
China
 Phone:
011-86-10-84945799/84945793
 Fax:
011-86-10-84945792
 Website:
www.recon.cn
 Ticker:
RCON
 Exchange:
Nasdaq
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# 1902, Buiding C • King-Long Intl Mansion • Beijing • 100107 • China • www.recon.cn
Investor Contact: Frank N. Hawkins, Jr. or Julie Marshall · Hawk Associates Inc. · (305) 451-1888 · www.hawkassociates.com
Revenue and Profit Growth Continue at Strong Double Digit Rate. Q3'10 Revenue Up 111%, Net Income Up 50%. 9-Month Revenue Up 59% to $14.5M, Net Income Up 42% to $2.5M.
For over 10 years, Recon Technology has provided oilfield services and products to automate and enhance the extraction of petroleum in China, including well service, drilling service, production and field service. Recon's specialized proprietary software and hardware manage the oil extraction process in real-time thereby reducing extraction costs.

One of the most important advancements in China’s petroleum industry has been the automation of significant segments of the exploration and extraction processes. Recon's technology increases efficiency and profitability for petroleum companies by enabling them to monitor, manage and control petroleum extraction, increase the amount of petroleum extracted and reduce impurities in extracted petroleum.

China is the world’s second-largest consumer of petroleum products, third-largest importer of petroleum and sixth-largest producer of petroleum. In the last 20 years, China’s demand for oil has more than tripled, while domestic production levels have increased only modestly. China has been a net importer of petroleum since 1983 creating a strong national goal of meeting as much of the country's domestic oil demand as possible.

China's oil and gas industry is dominated by three state-owned holding companies. Two of them, CNPC (SEHK: 0135) and Sinopec (NYSE: SNP) are Recon's primary customers. Recon has provided services to Sinopec since 1998 and CNPC since 2000. Recon has conducted automation projects for about 80% of CNPC and Sinopec's oil and gas fields, covering three of China’s four highest producing oil fields in Daqing, Shengli and Xinjiang.

Recon's technology is based on three software copyrights, eight product patents and four pending patents. Recon's R&D team consists of 27 experienced engineers, developers and programmers. Recon places a high priority on exploration, design and innovation. Recon also cooperates with the Oilfield Service and Geology Research Laboratory of Nanjing University.

Recon is the first Chinese non-stateowned Oil and Gas service company to be listed on Nasdaq. Recon has 96 employees, 90% of whom are college graduates.


Differentiators

Products and Services


Recon’s supervisory control and data acquisition system (“RSCADA”) –
This industrial computerized process control system monitors, manages and controls petroleum extraction at underground, ground and above-ground levels. RSCADA uses 2.4G wireless frequency to connect the elevated central control room, the ground-level relay station and the underground bottom intelligent terminal. RSCADA has received grants and awards from the State Ministry of Science and Technology and the city of Nanjing.

Water System –
As China’s oil extraction has grown, most of China's oil fields are in the third stage of oil extraction characterized by decreased oil output and increased water content. Recon's technology reduces the amount of water in extracted petroleum.

Oil Field Furnaces –
Crude petroleum contains impurities including water and natural gas that must be removed before the petroleum can be sold. Recon's heating furnaces remove the impurities and prevent solidification and blockage in transport pipes. Recon's highly automated furnaces operate with 90% heating efficiency.

Proprietary Multipurpose Fissure Shaper –
Before any petroleum extractor can test for the presence of oil, it must first drill a hole for testing. The depth of the hole is extremely important in the testing process. This process improves the ability to locate productive oil fields and increase output of oil wells. Recon's fissure shaper, used with a perforating gun, increases the perforation depth by 46-80% by shaping stratum fissures and improving the stratum diversion capability.

Acoustic Pipeline Monitoring System –
Recon is one of the few acoustic system providers in the world. Recon's system is widely used by Sinopec to prevent oil/gas leakage in transport pipes. Recon is also cooperating with Sinopec to implement solutions in imports instrumentation, the introduction of equipment and oilfield chemical additives.

Recent News
Recon Technology Files Application to Withdraw Registration Statement
Recon Technology Receives New Oil Field Market Access Certificate
Recon Technology Announces New Orders from Sinopec Northwest
Recon Technology Revenue and Profit Growth Continue at Double Digit Rate. Q3'10 Revenue Up 111%, Net Income Up 50%
Recon Technology Announces New Order for Oil Field Burner Management Systems

    Risk Factors
  • Limited history as a public company
  • Limited acquisition of new crude oil reserves by customers
  • Volatility of the petroleum industry
  • China’s competitive environment

The Outlook Recon's growth is driven by a number of factors:

  • 79% of net growth in world oil demand for the next two decades will come from China and Asia.
  • The automation of China's petroleum industry is still in initial stages.
  • China's oil reserves and production yield are negatively correlated. U.S. proved crude oil reserves are 2.45 times China's, however, U.S. production yield is 3.3 times China's.
  • There is a growing need for high-tech and precise instruments in the oilfield service market, because of the surging oil demand and declining oil resources.
  • Industry trends favor integrated service providers.
  • China is currently diversifying its energy sources with liquefied natural gas, which also employs Recon's automation system.
  • Compared with foreign competitors, Recon is able to leverage its knowledge of Chinese business culture.

    • In the short-term, Recon continues its R&D on improved automated systems to maximize extraction at a lower cost. Recon continues to extend its mar- ket share by acquiring new projects in CNPC and Sinopec's overseas subsidiaries and other Chinese petroleum companies.

    For the longer term, Recon expects to become a leading non-government-owned service provider to the oilfield exploitation industry in China, Russia, Southeast Asia and other low technology oil producing countries.

    Revenue for Q3 FY ‘10 increased 111% to $3.85 million from $1.82 million in Q3 FY ‘09. This was attributed to Recon's rapid development of its core business and expansion into a new market.

    Gross profit increased 96.5% to $1.7M for Q3 FY ‘10 from $0.87M in Q3 FY ‘09. Net income was $0.66M or diluted EPS $0.17, an increase of 50% over the same period in Q3 FY ‘09.

    Revenue for the first nine months FY '10 increased 59% to $14.5M from $9.1M for the nine months ended March 31, 2009. Gross profit increased 74% to $6.3 million vs. $3.6 million for the same period in 2009. Net income increased 42.5% to $2.56 million or diluted EPS $0.68, compared to $0.80 per diluted share for the first nine months of FY ‘09, reflecting an increase in shares issued associated with the company’s 2009 IPO.

    Cash balance on March 31, 2010 was approximately $3.3 million.

    Management said it believes Recon is well-positioned to leverage the company's industry expertise and established business relationships to identify and capitalize on growth opportunities. In addition, Recon management said it was pleased to see the new 36 Guidelines issued on May 13th by Chinese State Council to expand market access for private investment in the monopolized sectors including upstream oil and gas exploration.

    Management
    CEO and Director-
    Mr. Shenping Yin

    CFO-
    Ms. Jia Liu

    CTO and Director-
    Mr. Guangqiang Chen

    CMO and Director-
    Mr. Hongqi Li

    Independent Director-
    Mr. Nelson N.S. Wong

    Independent Director-
    Mr. Jijun Hu

    Independent Director-
    Ms. Xiaorong Liao

    Independent Director-
    Mr. Dennis O. Laing

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