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
Recon Technology Q1 FY ’10 Revenue up 119% to $3.3M, Net Income $62K. Recon Receives RMB 1.1 Million Grant from Chinese Government.
ALERT: Financial results for the second fiscal quarter ended December 31, 2009 will be released February 11, 2010.

The company will host a conference call on Feb. 12 at 10:00 AM Eastern Time to review the financial results and respond to questions and comments.

To participate, call 1-877-941-4775 any time after 9:50 AM Eastern Time. The number for international calls is 1-480-629-9761. The conference ID number is 4221464.

An MP3 file will be available under "Additional Information" at the left column.

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 Q2 FY ’10 Earnings Release and Conference Call Scheduled
Recon Technology Receives RMB 1.1 Million Grant from Chinese Government
Recon Technology Q1 FY ’10 Revenue up 119% to $3.3M, Net Income $62K
Recon Technology Q1 FY ’10 Earnings Release and Conference Call Scheduled
Recon Technology Announces Engagement of Bernstein & Pinchuk LLP as Auditor

    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 Q1 FY ‘10 increased 119% to $3.3 million from $1.5 million in Q1 FY ‘09. This was attributed to Recon's reputation for operational suc- cess built over the past 10 years, its continued strong business relationship with customers, a focus on high-volume transactions and an improved account- ing infrastructure, which has shortened the time required to recognize revenues.

    Gross profit increased 337% to $937K for Q1 FY ‘10 from $214K in Q1 FY ‘09. Net income was $62K, compared to net loss of ($110K) in Q1 FY ‘09.

    Management believes Chinese oilfields are likely to need software solutions to the problems they face. As a result the company is increasing its focus on providing software services and expects that software services revenue will continue to grow as a percentage of the company's revenue stream.

    Management also believes the development and sale of software products can facilitate the development of future hardware sales. The Recon solutions are helping the Chinese oil compa- nies improve their integrated benefit by changing from manual to mechanized production methods.

    Management believes the larger Chinese oil companies are becoming more sophisticated in managing and implementing their information systems. This is creating an increased demand for customized software solutions.

    Recon raised its forecast for full fiscal year 2010 revenueto to a range of $15M to $16M, a 40% to 45% increase over FY 2009 revenue, and net income to a range of $2.8M to $2.9M, a 25% to 30% increase over FY 2009 net income.

    Use of IPO Proceeds


    Recon received proceeds of $10.2M from the 1.7M shares offered at its IPO.

    Description of Use
    % Net Proceeds
    Acquisition and Biz development
    48%
    General working capital
    25%
    Product R&D
    15%
    Sarbanes-Oxley compliance
    5%
    Fixed asset purchases
    5%
    Employee training
    2%
    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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