Exhibit 99.1
RECON TECHNOLOGY, LTD
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(UNAUDITED)
As of June, 30 | As of December, 31 | As of December, 31 | |||||||
| 2023 |
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| 2023 | ||||
RMB | RMB | US Dollars | |||||||
ASSETS | |||||||||
Current assets |
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Cash | ¥ | | ¥ | | $ | | |||
Restricted cash | | | | ||||||
Short-term investments | | | | ||||||
Notes receivable | | |
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Accounts receivable, net | | |
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Inventories, net | | |
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Other receivables, net | | |
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Loans to third parties | | | | ||||||
Purchase advances, net | | |
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Contract costs, net | | | | ||||||
Prepaid expenses | | |
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Operating lease right-of-use assets, net - current (including ¥nil and ¥ | | | |||||||
Total current assets | | |
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Property and equipment, net | | |
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Long-term other receivables, net | | — | — | ||||||
Long-term loan to third parties | — | | | ||||||
Operating lease right-of-use assets, net - non-current (including ¥ | | | | ||||||
Total Assets | ¥ | | ¥ | | $ | | |||
LIABILITIES AND EQUITY |
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Current liabilities |
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Short-term bank loans | ¥ | | ¥ | | $ | | |||
Accounts payable | | | | ||||||
Other payables | | | | ||||||
Other payable- related parties | | |
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Contract liabilities | | |
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Accrued payroll and employees’ welfare | | | | ||||||
Taxes payable | | |
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Short-term borrowings - related parties | | |
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Operating lease liabilities - current (including ¥ | | | | ||||||
Warrant liability - current | | | |||||||
Total Current Liabilities | | |
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Operating lease liabilities - non-current (including ¥ | | | | ||||||
Warrant liability - non-current | | | | ||||||
Total Liabilities | | |
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Commitments and Contingencies |
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Equity |
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Class A Ordinary Shares, $ | | |
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Class B Ordinary Shares, $ | | | | ||||||
Additional paid-in capital* | | |
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Statutory reserve | | |
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Accumulated deficit | ( | ( |
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Accumulated other comprehensive income | | |
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Total shareholders’ equity | | |
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Non-controlling interests | ( | ( |
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Total equity | | |
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Total Liabilities and Equity | ¥ | | ¥ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-1
RECON TECHNOLOGY, LTD
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the six months ended | |||||||||
December 31, | |||||||||
| 2022 |
| 2023 |
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| RMB |
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Revenue | |||||||||
Revenue | ¥ | ¥ | | $ | | ||||
Revenue |
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Cost of revenue | |||||||||
Cost of revenue | | | | ||||||
Cost of revenue |
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Gross profit |
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Selling and distribution expenses |
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General and administrative expenses |
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Allowance for (net recovery of) credit losses |
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Research and development expenses |
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Operating expenses |
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Loss from operations |
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Other income (expenses) |
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Subsidy income |
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Interest income |
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Interest expense |
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Loss in fair value changes of warrants liability |
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Foreign exchange transaction gain (loss) |
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Other income (expenses) |
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Other income, net |
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Loss before income tax |
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Income tax expenses |
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Net loss |
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Less: Net loss attributable to non-controlling interests |
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Net loss attributable to Recon Technology, Ltd |
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Comprehensive income (loss) |
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Net loss |
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Foreign currency translation adjustment |
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Comprehensive loss |
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Less: Comprehensive Income (loss) attributable to non- controlling interests |
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Comprehensive loss attributable to Recon Technology, Ltd |
| ¥ | ( |
| ¥ | ( | $ | ( | |
Loss per share - basic and diluted* | ¥ | ( | ¥ | ( | $ | ( | |||
Weighted - average shares -basic and diluted* | |
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-2
RECON TECHNOLOGY, LTD
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
Accumulated | ||||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||||
Paid-in | Statutory | Accumulated | Comprehensive | Shareholders' | Non-controlling | Total | Total | |||||||||||||||||||||||||||
Common Stock | Capital* | Reserve | deficit | income | Equity | Interest | Equity | Equity | ||||||||||||||||||||||||||
Number of | Number of | |||||||||||||||||||||||||||||||||
| Class A |
| Amount | Class B | Amount |
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Shares* | (RMB)* |
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Balance, June 30, 2022 |
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Restricted shares issued for services |
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Restricted shares issued for management |
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Net income (loss) for the period | — | — | — | — | — | — | ( | — | ( | | ( | ( | ||||||||||||||||||||||
Foreign currency translation adjustment |
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Balance, December 31, 2022 | | ¥ | | | ¥ | | ¥ | | ¥ | | ¥ | ( | ¥ | | ¥ | | ¥ | ( | ¥ | | $ | | ||||||||||||
Balance, June 30, 2023 |
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Restricted shares issued for services | — | — | — | — | | — | — | — | | — | | | ||||||||||||||||||||||
Proceeds from Pre-Funded warrants | | | — | — | ( | — | — | — | — | — | — | — | ||||||||||||||||||||||
Restricted shares issued for management | — | — | — | — | | — | — | — | | — | | | ||||||||||||||||||||||
Net loss for the period | — | — | — | — | — | — | ( | — | ( | ( | ( | ( | ||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | ( | ( | — | ( | ( | ||||||||||||||||||||||
Balance, December 31, 2023 | | ¥ | | | ¥ | | ¥ | | ¥ | | ¥ | ( | ¥ | | ¥ | | ¥ | ( | ¥ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-3
RECON TECHNOLOGY, LTD
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended December 31, | |||||||||
2022 | 2023 | 2023 | |||||||
| RMB |
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Cash flows from operating activities: |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Loss (gain) from disposal of equipment |
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Gain in fair value changes of warrants liability |
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Allowance for (net recovery of) credit losses |
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Allowance for slow moving inventories |
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Amortization of right of use assets |
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Restricted shares issued for management and employees |
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Restricted shares issued for services | | | | ||||||
Accrued interest income from loans to third parties | ( | ( | ( | ||||||
Accrued interest income from short-term investment |
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Changes in operating assets and liabilities: |
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Notes receivable |
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Accounts receivable |
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Inventories |
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Other receivables | ( |
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Purchase advances |
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Contract costs |
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Prepaid expense |
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Prepaid expense - related parties |
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Operating lease liabilities |
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Accounts payable |
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Other payables |
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Other payables-related parties |
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Contract liabilities |
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Accrued payroll and employees’ welfare |
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Taxes payable |
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Net cash used in operating activities |
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Cash flows from investing activities: | |||||||||
Purchases of property and equipment |
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Proceeds from disposal of equipment | |
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Purchase of land use right | ( | ( | |||||||
Repayments of loans to third parties |
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Payments made for loans to third parties |
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Payments for short-term investments |
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Redemption of short-term investments | | | |||||||
Net cash (used in) generated by investing activities |
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Cash flows from financing activities: | |||||||||
Proceeds from short-term bank loans | |
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Repayments of short-term bank loans |
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Proceeds from short-term borrowings-related parties | |||||||||
Repayments of short-term borrowings-related parties |
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Repayments of long-term borrowings-related party |
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Redemption of warrants |
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Net cash provided by (used in) financing activities |
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Effect of exchange rate fluctuation on cash and restricted cash |
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Net increase (decrease) in cash and restricted cash | ( |
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Cash and restricted cash at beginning of year |
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Cash and restricted cash at end of year |
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Supplemental cash flow information | |||||||||
Cash paid during the year for interest |
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Cash paid during the year for taxes |
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Reconciliation of cash and restricted cash, beginning of year | |||||||||
Cash | ¥ | | ¥ | | ¥ | | |||
Restricted cash | | | | ||||||
Cash and restricted cash, beginning of year | ¥ | | ¥ | | $ | | |||
Reconciliation of cash and restricted cash, end of year | |||||||||
Cash | ¥ | | ¥ | | ¥ | | |||
Restricted cash | | | | ||||||
Cash and restricted cash, end of year |
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Non-cash investing and financing activities |
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Right-of-use assets obtained in exchange for operating lease obligations |
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Reduction of right-of-use assets and operating lease obligations due to early termination of lease agreement |
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Inventories transferred to and used as fixed assets |
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-4
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Organization – Recon Technology, Ltd (the “Company”, “We” or “Our”) was incorporated under the laws of the Cayman Islands on August 21, 2007 as a limited liability company. By far, the Company provides specialized equipment, automation systems, tools, chemicals, outsourcing platform services and field services to energy industry companies mainly in the People’s Republic of China (the “PRC”).
VIEs:
The Company, along with its wholly-owned subsidiaries Recon Investment Ltd. (“Recon-IN”) and Recon Hengda Technology (Beijing) Co., Ltd. (“Recon-BJ”), conducts its business through the following PRC legal entities (“Domestic Companies”) that operate in the Chinese energy industry:
1. | Beijing BHD Petroleum Technology Co., Ltd. (“BHD”), |
2. | Nanjing Recon Technology Co., Ltd. (“Nanjing Recon”). |
The Company has signed Exclusive Technical Consulting Service Agreements with each of the Domestic Companies, and Equity Interest Pledge Agreements and Exclusive Equity Interest Purchase Agreements with their shareholders (collectively the “VIE Agreements”). Pursuant to these VIE Agreements, the Company has the ability to substantially influence each of the Domestic Companies’ daily operations and financial affairs, appoint their senior executives and approve all matters requiring shareholder approval. The VIE agreements are designed to render the Company as the primary beneficiary of and entitle the Company of rights to consolidate each Domestic Company for accounting purposes. We believe that the Domestic Companies should be treated as Variable Interest Entities (“VIEs”) under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 Consolidation and we are regarded as the primary beneficiary of the VIEs.
On February 21, 2019, the Company’s board of directors approved transferring the VIEs and VIE-controlled companies from Jining Recon Technology Ltd. (“Recon-JN”) to Recon-BJ. At the time, both Recon-JN and Recon-BJ were the Company’s wholly owned subsidiaries in China. On April 1, 2019, the Company completed the VIE transfer process and then completed the dissolution of Recon-JN on April 10, 2019, and subsequently completed the dissolution of Recon Technology Co., Limited (“Recon-HK”) on May 15, 2020. The Company does not expect any negative impact of this process on its operations.
On December 17, 2015, Huang Hua BHD Petroleum Equipment Manufacturing Co., Ltd (“HH BHD”), a fully owned subsidiary established by BHD was organized under the laws of the PRC, focusing on the design, assemble and manufacture of hearing equipment.
Gan Su BHD Environmental Technology Co., Ltd (“Gan Su BHD”) was established on May 23, 2017, with registered capital of ¥
Qing Hai BHD New Energy Technology Co., Ltd. (“Qinghai BHD”) was established on October 16, 2017, with registered capital of ¥
F-5
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As the energy consumption market opened to private and foreign companies, and online payment technology developed, the Domestic Companies began to invest in the downstream of the oil industry. On December 15, 2017, BHD and Nanjing Recon entered into a subscription agreement with Future Gas Station (Beijing) Technology, Ltd (“FGS”), pursuant to which the Domestic Companies acquired an
The VIE contractual arrangements
The Company’s main operating entities, the Domestic Companies, are controlled through contractual arrangements by the Company.
A VIE is an entity which has a total equity investment that is insufficient to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary of, and must consolidate, the VIE, because it met the condition under accounting principles generally accepted in the United States of America (“U.S. GAAP”) to consolidate the VIE.
The Company is deemed to have a controlling financial interest in and be the primary beneficiary of the Domestic Companies because it has both of the following characteristics:
● | The power to direct activities of the Domestic Companies that most significantly impact such entities’ economic performance, and |
● | The obligation to absorb losses of, and the right to receive benefits from, the Domestic Companies that could potentially be significant to such entities. |
Pursuant to these contractual arrangements, the Domestic Companies shall pay service fees equal to all of their net profit after tax payments to the Company. Accordingly,
Risks associated with the VIE structure
The Company believes that the contractual arrangements with the VIEs and the shareholders of the VIEs are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
● | revoke the business and operating licenses of the Company’s PRC subsidiary and the VIEs; |
● | discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and the VIEs; |
F-6
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
● | limit the Company’s business expansion in China by way of entering into contractual arrangements; |
● | impose fines or other requirements with which the Company’s PRC subsidiary and the VIEs may not be able to comply; |
● | require the Company or the Company’s PRC subsidiary and the VIEs to restructure the relevant ownership structure or operations; or |
● | restrict or prohibit the Company’s use of the proceeds from public offering to finance the Company’s business and operations in China. |
The Company’s ability to conduct its businesses may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Company may not be able to consolidate the VIEs in its consolidated financial statements as it may lose the ability to exercise its rights as the primary beneficiary over the VIEs and it may lose the ability to receive economic benefits from the VIEs. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary and the VIEs. There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to the VIEs and the VIEs’ subsidiaries. However, when the VIEs and the VIEs’ subsidiaries ever need financial support, the Company or its subsidiaries has, at its option and subject to statutory limits and restrictions, provided financial support to the VIEs and the VIEs’ subsidiaries through loans to the VIEs and the VIEs’ subsidiaries.
Non-VIE:
The Company, along with its wholly-owned subsidiaries, Recon Investment Ltd. (“Recon-IN”) and the following PRC legal entities that operate in the Chinese chemical recycling industry:
1. | Shandong Recon Renewable Resources Technology Co., Ltd. (“Shandong Recon”) |
2. | Guangxi Recon Renewable Resources Technology Co., Ltd. (“Guangxi Recon”) |
On October 10, 2023, Shandong Recon Renewable Resources Technology C0., Ltd (“Shandong Recon”), a fully owned subsidiary established by Recon-IN, with registered capital of $
Nature of Operations – The Company engages in (1) providing equipment, tools and other components and parts related to oilfield production and other energy industries companies, including simple installations in connection with some projects; (2) providing services to improve production and efficiency of exploited oil wells, (3) developing and selling its own specialized industrial automation control and information solutions, (4) designing, testing and implementing solution of sewage and oily sludge treatment, production and sales of related integrated equipment and project services, and (5) developing, upgrading and maintaining the online operation and cooperation platform of gas stations, marketing and promotion services, (6) Plastic chemical cycles business, etc.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP and are expressed in United States dollars (“US dollars”).
Principles of Consolidation – The consolidated financial statements include the accounts of the Company, all the subsidiaries, VIEs and subsidiaries of VIEs of the Company. All transactions and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation.
Variable Interest Entities - A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the
F-7
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
entity that could potentially be significant to the VIE. The Company performs ongoing assessments to determine whether an entity should be considered a VIE and whether an entity previously identified as a VIE continues to be a VIE and whether the Company continues to be the primary beneficiary.
Assets recognized as a result of consolidating VIEs do not represent additional assets that could be used to satisfy claims against the Company’s general assets. Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets; rather, they represent claims against the specific assets of the consolidated VIEs.
Currency Translation - The Company’s functional currency is US dollars and the consolidated financial statements have been expressed in Chinese Yuan (“RMB”) as RMB is the Company’s reporting currency. The consolidated financial statements as of and for the six months ended December 31, 2023 have been translated into US dollars solely for the convenience of the readers.
Estimates and Assumptions - The preparation of the consolidated financial statements in conformity with US GAAP, which requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s consolidated financial statements include allowance for credit losses related to accounts receivable, other receivables and purchase advances, allowance for inventory, the useful lives of property and equipment, valuation allowance for deferred tax assets, impairment assessment for long-lived assets, goodwill and investment in unconsolidated entity, the discount rate for lease and investment, valuation of the convertible notes, price purchase allocation for business combination and the fair value of share-based payments. The use of estimates is an integral component of the financial reporting process; actual results could differ from those estimates.
The key assumptions underlying the Company’s accounting for material arrangements and the reasonably likely material effects of resolving any uncertainties on the Company’s allowance for credit losses related to purchase advances. The production of the Company’s products requires custom-made equipment from its suppliers. To ensure that it can secure the required customized equipment, the Company often needs to make full prepayment for its intended purchases. As a standard practice in the petroleum extraction industry, the Company generally must submit a bid in order to secure the sales contract. The bidding process generally takes between one month to one year and the timing depends on the size of the overall project, which timing and size are generally controlled by its client. In order to secure timely purchase delivery and to meet its product delivery schedule, the Company normally prepays for the purchase advances if the Company believes that it is more than likely to win the bid for the sales contract which is accounted as pre-contract costs. After winning the bid and securing the sale contract, the Company normally needs to deliver its products approximately within one week to six months. Based on the Company’s historical experience, the Company generally is able to realize its purchase advances on the customized equipment that it orders. If it subsequently confirms that the Company is unable to secure the planned contracts with a customer after making the advance payments for these planned contracts, the Company evaluates the probable recoverability of the pre-contract cost and charges to expenses when the Company determines that the recovery of such pre-contract cost is improbable.
Fair Values of Financial Instruments - The U.S. GAAP accounting standards regarding fair value of financial instruments and related fair value measurements define fair value, establish a three-level valuation hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The three levels of inputs are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable.
Accounting guidance also describes three main approaches to measure the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future
F-8
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
The carrying amounts reported in the consolidated balance sheets for short-term investments, accounts receivable, notes receivable, other receivables, purchase advances, contract cost, accounts payable, other payable, accrued liabilities, contract liabilities, short-term bank loans and short-term borrowings – related parties approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts of the long-term borrowings due to related party approximate its fair value because the stated interest rates approximate rates currently offered by financial institutions for similar debt instruments of comparable credit risk and maturities.
Cash - Cash includes cash on hand consisting of coins, currency, undeposited checks, money orders and drafts, demand deposits in banks, certain short-term highly liquid investments and cash in transit.
Short-term investments - Short-term investments include wealth management products, which are certain deposits with fixed interest rates and the principal are guaranteed by the financial institutions. The carrying values of the Company’s short-term investments approximate fair value because of their short-term maturities within one year. The interest earned is recognized in the consolidated statements of operations and comprehensive income (loss) as interest income. As of June 30, 2023 and December 31, 2023, the Company had short-term investments balance of ¥
Accounts Receivables, Net, Other Receivables, Net and Loan to Third Parties - Accounts receivables are carried at original invoiced amount less a provision for any potential uncollectible amounts. In July 2020, the Company adopted ASU 2016-13, Topics 326-Credit Loss, Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology, as its accounting standard for its accounts receivable and other receivables. Other receivables and loan to third parties arise from transactions with non-trade customers.
The adoption of the credit loss accounting standard has no material impact on the Company’s consolidated financial statements as of July 1, 2020. Accounts receivable, other receivables and loan to third parties are recognized and carried at carrying amount less an allowance for credit loss, if any. The Company maintains an allowance for credit losses resulting from the inability of its trade and non-trade customers (“customers”) to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis. The Company has also included in calculation of allowance for credit losses. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company also considers external factors to the specific customer, including current conditions and forecasts of economic conditions. In the event the Company recovers amounts previously reserved for, the Company will reduce the specific allowance for credit losses. The net recovery of provision for credit loss for the six months ended December 31, 2023 decreased by approximately ¥
The Company evaluates the creditworthiness of all of its customers individually before accepting them and continuously monitors the recoverability of accounts receivable, other receivables and loan to third parties. If there are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular customer. At the same time, the Company may cease further sales or services to such customer. The following are some of the factors that the Company considers in determining whether to discontinue sales, record as contra revenue or allowance for credit losses:
● | the oil price and fluctuation of the overall oil industry; |
● | the customer fails to comply with its payment schedule; |
● | the customer is in serious financial difficulty; |
● | a significant dispute with the customer has occurred regarding job progress or other matters; |
● | the customer breaches any of the contractual obligations; |
● | the customer appears to be financially distressed due to economic or legal factors; |
F-9
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
● | the business between the customer and the Company is not active; and |
● | other objective evidence indicates non-collectability of the accounts receivable, other receivables and loan to third parties. |
The Company considers the following factors when determining whether to permit a longer payment period or provide other concessions to customers:
● | the customer’s past payment history; |
● | the customer’s general risk profile, including factors such as the customer’s size, age, and public or private status; |
● | macroeconomic conditions that may affect a customer’s ability to pay; and |
● | the relative importance of the customer relationship to the Company’s business. |
Notes Receivable - Notes receivable represent short-term notes receivable the Company receives from its customers as payment for amounts owed to the Company in normal course of business operation. The notes receivables are issued by reputable financial institutions that entitle the Company to receive the full-face amount from the financial institutions at maturity, which generally ranges from three to six months from the date of issuance.
Purchase Advances, Net - Purchase advances are the amounts prepaid to suppliers for business activities, such as standard raw materials, supplies and services. These types of prepayments will be expensed when those products or services have been rendered or consumed.
Inventories, Net - Inventories are stated at the lower of cost or net realizable value, on a first-in-first-out basis. The methods of determining inventory costs are used consistently from year to year. Market value of the inventories is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. The Company records write-downs of inventory that is obsolete or in excess of anticipated demand or market value based on consideration of product lifecycle stage, technology trends, product development plans and assumptions about future demand and market conditions. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Inventory write-downs are charged to cost of revenue and establish a new cost basis for the inventory.
Property and Equipment, Net - Property and equipment are stated at cost. Depreciation on motor vehicles and office equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from to
Items |
| Useful life |
Motor vehicles |
| |
Office equipment and fixtures |
| |
Production equipment, including: |
| |
Equipment | ||
Utilities and Facilities | ||
Leasehold improvement | Lesser of useful life and lease term |
Construction in progress includes property and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost less any recognized impairment loss. Construction in progress is classified to the appropriate category of property and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Goodwill - Goodwill represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation
F-10
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available). The Company evaluates qualitative factors and overall financial performance to determine whether it is necessary to perform the first step of the two-step goodwill test. This step is referred to as “Step 0.” Step 0 involves qualitative assessment, among other qualitative factors, weighing the relative impact of factors that are specific to the reporting unit as well as industry and macroeconomic factors. After assessing those various factors, if it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity will need to proceed to the first step of the goodwill impairment test. Step 1 of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value, which is based on future cash flows, exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, the Step 2 must be performed to measure the amount of the impairment loss, if any. The Company has adopted Accounting Standards Updates (“ASU”) 2017-04, simplifying the Test for Goodwill Impairment, which permits the Company to impair the difference between carrying amounts in excess of the fair value of the reporting unit as the reduction in goodwill. ASU 2017-04 eliminates the requirement in previous GAAP to perform Step 2 of the goodwill impairment test. The Company considers various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial performance of the Company’s reporting units, the Company’s share price and the excess amount or “cushion” between the Company reporting unit’s fair value and carrying value as indicated on the Company’s most recent quantitative assessment.
Intangible Assets, Net – Intangible assets is composed of customer relationship, which is measured at fair value on initial recognition. Identifiable intangible assets resulting from the acquisitions of subsidiaries accounted for using the purchase method of accounting are estimated by management based on the fair value of assets received. The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment. The Company typically amortizes its intangible assets with definite useful lives on a straight-line basis over the shorter of the contractual terms or the estimated useful lives.
Impairment of Long-Lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined based on the estimated discounted future cash flows expected to be generated by the asset. The Company considers the events or changes in circumstances that may indicate the impairment of the Company’s long-lived assets, such as a significant decrease occurs in the market price of a long-lived asset (or asset group); a significant adverse change in the extent or manner in which a long-lived asset (or asset group) is being used or in its physical condition; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (or asset group), including an adverse action or assessment by a regulator; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (or asset group); a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (or asset group); and a current expectation that, more likely than not, a long-lived asset (or asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company concluded that there was
Long-term Investments - ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The main provisions require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value through earnings, unless they qualify for a measurement alternative. The new guidance requires modified retrospective application to all outstanding instruments for fiscal years beginning after December 15, 2017, with a cumulative effect adjustment recorded to opening accumulated deficit as of the beginning of the first period in which the guidance becomes effective. However, changes to the accounting for equity securities without a readily determinable fair value would be applied prospectively. The Company adopted the new financial instruments accounting standard from July 1, 2018.
- | Equity Investments with Readily Determinable Fair Values - Equity investments with readily determinable fair values are measured and recorded at fair value using the market approach based on the quoted prices in active markets at the reporting date. The Company classifies the valuation techniques that use these inputs as Level 1 of fair value measurements. |
- | Equity Investments without Readily Determinable Fair Values - After the adoption of this new accounting standard, the Company elected to record equity investments without readily determinable fair values and not accounted for under the equity |
F-11
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
method at cost, less impairment, adjusted for subsequent observable price changes on a nonrecurring basis, and report changes in the carrying value of the equity investments in current earnings. Changes in the carrying value of the equity investments are required to be made whenever there are observable price changes in orderly transactions for the identical or similar investment of the same issuer. The implementation guidance notes that an entity should make a “reasonable effort” to identify price changes that are known or that can reasonably be known. |
- | Equity Investments Accounted for Using the Equity Method - The Company accounts for its equity investment over which it has significant influence but does not own a majority equity interest or otherwise control using the equity method. The Company adjusts the carrying amount of the investment and recognizes investment income or loss for share of the earnings or loss of the investee after the date of investment. The Company assesses its equity investment for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, operating performance of the entities, including current earnings trends and undiscounted cash flows, and other entity-specific information. The fair value determination, particularly for investment in privately held entities, requires judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investment and determination of whether any identified impairment is other-than-temporary. |
An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The Company recorded no impairment loss on its equity method investment during the six months ended December 31, 2022 and 2023. The Company recorded no investment income on its equity method investment in unconsolidated entities during the six months ended December 31, 2022 and 2023, respectively.
Business Combinations - The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations”. The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the acquiree, the difference is recognized directly in the consolidated statements of operation and comprehensive income (loss). During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operation and comprehensive income (loss).
In a business combination considered as a step acquisition, the Company remeasures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of operation and comprehensive income (loss).
Non-controlling Interests - For the Company’s majority-owned subsidiaries, VIEs and subsidiaries of VIEs, a non-controlling interest is recognized to reflect the portion of their equity which is not attributable, directly or indirectly, to the Company. Non-controlling interests are classified as a separate line item in the equity section of the Company’s consolidated balance sheets and have been separately disclosed in the Company’s consolidated statements of operation and comprehensive income (loss) to distinguish the interests from that of the Company.
Revenue Recognition - In accordance with ASC 606, “Revenue from Contracts with Customers”, revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. The core principle underlying the new revenue recognition Accounting Standards Update (“ASU”) is that the Company recognizes revenue to represent the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company identifies contractual performance obligations and determines whether revenue should be recognized at a point in time or over time, based on when goods or services are provided to a customer.
F-12
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Disaggregation of Revenue
Revenue are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The following items represent the Company’s revenue disaggregated by revenue source. In accordance with ASC 606-10-50-5, the Company selects categories to present disaggregated revenue that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors and delivery conditions of products and fulfillment of obligations.
The Company’s disaggregation of revenue for the six months ended December 31, 2022 and 2023 is disclosed in Note 24.
Automation Products and Software; Equipment, Accessories and Others
The Company generates revenue primarily through delivery of standard or customized products and equipment, including automation products, furnaces and related accessories. Revenue is recognized when products are delivered, and acceptance reports are signed off by customers.
The sale of automation products or specialized equipment when combined with services represent a single performance obligation for the development and construction of a single asset. The Company may also provide design or installation services to clients as there may be such obligation in contracts. The promises to transfer the goods and provision of services are not separately identifiable, which is evidenced by the fact that the Company provides significant services of integrating the goods and services into a single deliverable for which the customer has contracted. For such sales arrangements, the Company recognizes revenue using input method, based on the relationship between actual costs incurred compared to the total estimated costs for the contract. Such method is adopted because the Company believes it best depicts the transfer of goods and services to the customer.
Oilfield Environmental Protection Service
The Company provides wastewater treatment products and related service to oilfield and chemical industry companies and generates revenue from special equipment, self-developed chemical products and supporting service, transfer. Revenue is recognized when contract obligations have been performed. For such sales arrangements, the Company recognizes revenue when products are delivered, on-site assistance services rendered, and acceptance reports are signed off by customers. Such method is adopted because the Company believes it best depicts the transfer of services to the customer.
The Company provides oily sludge disposal and treatment services to oilfield companies and generates revenue from treatment services of oily sludge. Revenue is recognized when contract obligations have been performed. For such sales arrangements, the Company recognizes revenue using output method, based on the percentage-of-completion method. Such method is adopted because the Company believes it best depicts the transfer of services to the customer.
Platform Outsourcing Services
The Company provides online platform development, maintenance, and operation services to gas stations around different provinces in China to complete online transactions; and API (application programming interface) port export service and related maintain services to business cooperators of different industries that may have transactions in the refueling scenario during the service contract period. The Company considered these performance obligations to be indistinguishable contractual performance obligations. As the Company has no right to get the compensation for any performances completed while not accepted by its customers, the Company can only recognize revenue at a point in time, which is when the online transaction is completed. The Company’s services enable terminal users of different mobile apps run by its clients or cooperators to complete refueling in cash or online through different payment channels, when each transaction, including refueling and payment, is completed, the Company is entitled to charge with pre-settled rates of each transaction amount as service fee and recognize the underlying amount as revenue. Related fees are generally billed monthly, based on a per transaction basis.
F-13
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Arrangements with Multiple Performance Obligations
Contracts with customers may include multiple performance obligations. For such arrangements, the Company will allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost-plus margin.
Contract Balances
The Company’s contract balances include contract costs, net and contract liabilities from contracts with customers, and the following table provides information about contract balances:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
RMB | (Unaudited) | (Unaudited) | |||||||
Contract costs, net |
| ¥ | |
| ¥ | | $ | | |
Contract liabilities |
| ¥ | |
| ¥ | | $ | |
Contract Costs, Net - The Company recognizes an asset from the costs incurred to fulfill a contract when those costs meet all of the following criteria: (i) the costs relate directly to a contract or to an anticipated contract that the Company can specifically identify; (ii) the costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and (iii) the costs are expected to be recovered.
- | Pre-Contract Costs - Pre-contract costs are the amounts prepaid to suppliers for purchases of customized equipment in anticipation of obtaining planned contracts for the Company’s hardware and software revenue. If it subsequently confirms that the Company is unable to secure the planned contracts with a customer after making the advance payments for these planned contracts, the Company evaluates the probable recoverability of the pre-contract cost and charges to expenses when the Company determines that the recovery of such pre-contract cost is improbable. |
- | Executed Contract Costs - Direct costs, such as material, labor, depreciation and amortization and subcontracting costs and indirect costs allocable to contracts include the costs of contract supervision, tools and equipment, supplies, quality control and inspection, insurance, repairs and maintenance for quality assurance purposes before clients’ initial acceptance. Once products are delivered, installed and debugged for intended use and accepted by a client, which may last from weeks to months (this process is decided by the client’s individual project construction arrangement), the Company records revenue based on the contract or the final clients’ acceptance. Minor costs for repair during the maintenance period after initial acceptance are recorded as cost of goods sold as they are incurred. All other general and administrative costs and selling costs are charged to expenses as incurred. The Company generally ships its products approximately one week to six months after production begins and the timing depends on the size of the overall project. |
Contract Liabilities - Contract liabilities are recognized for contracts where payment has been received in advance of performance under the contract. The Company’s contract liabilities consist primarily of the Company’s unsatisfied performance obligations as of the balance sheet dates. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.
Performance Obligations - Performance obligations include delivery of products and provision of services. The Company recognizes revenue when performance obligations under the terms of a contract with its customer are satisfied. This occurs when the control of the goods and services have been transferred to the customer. Accordingly, revenue for sale of goods is generally recognized upon shipment or delivery depending on the shipping terms of the underlying contract, and revenue for provision of services is recognized upon the service rendered. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and providing services.
Amounts billed to customers for shipping and handling activities to fulfill the Company’s promise to transfer the goods are included in revenue, and costs incurred by the Company for the delivery of goods are classified as cost of sales in the consolidated statements of operations and comprehensive income (loss). Sales, value added, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company generally offers assurance-type warranties for its products. The specific terms and conditions of those warranties vary depending upon the product. The Company estimates the costs that may be incurred
F-14
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
under its warranties and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the warranty liability include historical product-failure experience and estimated repair costs for identified matters. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The amount accrued for expected returns and warranty claims was immaterial as of December 31, 2023. The amount of revenue recognized during the six months ended December 31, 2022 and 2023 that was previously included within contract liability balances was ¥
Practical Expedients Elected
Incremental Costs of Obtaining a Contract - The Company has elected the practical expedient permitted in ASC 340-40-25-4, which permits an entity to recognize incremental costs to obtain a contract as an expense when incurred if the amortization period will be less than one year and not significant.
Significant Financing Component - The Company has elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to not adjust the promised amount of consideration for the effects of a significant financing component if a contract has a duration of one year or less. As the Company’s contracts are majorly less than one year in length, consideration will not be adjusted. For the Company’s contracts include a standard payment term of 90 days to 180 days; consequently, there is no significant financing component within contracts. There are also some new contracts that will not be completed within one year from year 2023, the Company did calculation and the amount was not material as end of December 31, 2023.
Research and Development Expenses - Research and development expenses relating to improving development efficiency and the quality of the Company’s products and services, including the design of downhole automation platform systems and chemical products used for waste water treatment, are expensed as incurred.
Shipping and Handling Costs - Shipping and handling cost incurred to ship products to customers are included in selling and distribution expenses. Shipping and handling expenses were ¥
Leases - The Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces and land use rights, which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The ROU asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All ROU assets are reviewed for impairment annually. There was ¥
Income Taxes - Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes. Deferred taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, and tax carry forwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company has not been subject to any income taxes in the United States or the Cayman Islands.
The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent
F-15
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
likelihood of being realized upon ultimate settlement. The Company has no uncertain tax position as of December 31, 2023 and June 30, 2023.
As of December 31, 2023, the tax years ended December 31, 2018 through December 31, 2023 for the Company’s People’s Republic of China (“PRC”) subsidiaries remain open for statutory examination by PRC tax authorities.
Comprehensive Income (Loss) - Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). The foreign currency translation gain or loss resulting from the translation of the financial statements expressed in US$ to RMB is reported in other comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss).
Earnings (Loss) per Share - Earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of Ordinary Shares outstanding. Diluted EPS are computed by dividing net income (loss) by the weighted-average number of Ordinary Shares and dilutive potential Ordinary Share equivalents outstanding. Potentially dilutive Ordinary Shares consist of Ordinary Shares issuable upon the conversion of ordinary share options, restricted shares and warrants (using the treasury share method).
Given the fact that the “2024 Reverse Split” only affected the outstanding number of the Company’s Class A Ordinary Shares, the weighted average number of Class A Ordinary Shares outstanding had been retroactively restated for the -for-18 reverse stock split. While the Class B Ordinary Shares’ number and voting power were not subjected to the 2024 Reverse Split, according to the Company’s Fourth Amended and Restated M&A and Articles of Association, “each Class B Ordinary Share entitles its holder the right to convert it into one eighteenth () of a Class A Ordinary Share at any time. Correspondingly, each one eighteenth () of a share of Class B Ordinary Share has dividend rights equivalent to the one share of Class A Ordinary Share”. In addition, (a) since becoming public, the Company has never declared a dividend, and (b) if a dividend were declared, the Board of Directors would intend to make sure the dividends were properly allocated among the Class A Ordinary Shares and Class B Ordinary Shares to give effect to the 1/18 ratio. The Company believes that all of these treatments are designed to ensure that the dividend rights and the dividend rate are the same with that for Class A and Class B Ordinary Shares. To calculate EPS equally for all ordinary shares, the Company use the sum of the weighted average number of Class A Ordinary Shares outstanding and one-eighteenth of the weighted average number of Class B Ordinary Shares outstanding as the denominator.
The following table sets forth the computation of basic and diluted earnings (loss) per share for the six months ended December 31, 2022 and 2023:
| For the six months ended December 31, | ||||||||
| 2022 |
| 2023 |
| 2023 | ||||
RMB | RMB | US Dollars | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||
Numerator: |
|
|
|
|
|
| |||
Net loss attributable to Recon Technology, Ltd |
| ¥ | ( |
| ¥ | ( | $ | ( | |
Denominator: |
|
|
|
|
|
| |||
Weighted-average number of ordinary shares outstanding – basic* |
| |
| |
| | |||
Class A Ordinary Shares* | | | | ||||||
Class B Ordinary Shares (used for EPS calculation) ** | | | | ||||||
Potentially dilutive shares from outstanding options/warrants/convertible notes |
| — |
| — |
| — | |||
Weighted-average number of ordinary shares outstanding – diluted* |
| |
| |
| | |||
Earnings (loss) per share – basic* |
| ¥ | ( |
| ¥ | ( | $ | ( | |
Earnings (loss) per share – diluted* |
| ¥ | ( |
| ¥ | ( | $ | ( |
* | Retrospectively restated for the -for-18 reverse stock split on May 1, 2024. |
** | The weighted average number of Class B Ordinary Shares outstanding and number used for EPS calculation has been retrospectively adjusted and converted by a ratio of to reflect the actual dividend rate of Class B Ordinary Share after the 2024 Reverse Split. |
F-16
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Warrants - The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Class A Ordinary Shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations.
The estimated liabilities accrued by the company for potential future substantial transaction compensation under the Warrant Purchase Agreement are classified and displayed as "warrants liability" in the financial statements.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures.” This ASU expands required public entities’ segment disclosures, including disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2017-04 will have on its condensed consolidated financial statement presentation or disclosures.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This ASU requires additional quantitative and qualitative income tax disclosures to enable financial statements users better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2017-04 will have on its condensed consolidated financial statement presentation or disclosures.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.
F-17
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
Third Parties | RMB | (Unaudited) | (Unaudited) | ||||||
Trade accounts receivable |
| ¥ | |
| ¥ | | $ | | |
Allowance for credit losses |
| ( |
| ( |
| ( | |||
Total third-parties, net |
| ¥ | |
| ¥ | | $ | |
June 30, | December 31, | December 31, | |||||||
2023 | 2023 | 2023 | |||||||
|
| RMB |
| US Dollars | |||||
Third Parties- long-term | RMB | (Unaudited) | (Unaudited) | ||||||
Trade accounts receivable |
| ¥ | |
| ¥ | |
| $ | |
Allowance for credit losses |
| ( |
| ( |
| ( | |||
Total third-parties, net |
| ¥ | |
| ¥ | $ |
Net recovery of provision made for credit losses of accounts receivable due from third parties was ¥
As the date of this report, approximately
Movement of allowance for doubtful accounts is as follows:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
RMB | (Unaudited) | (Unaudited) | |||||||
Beginning balance |
| ¥ | |
| ¥ | | $ | | |
Charge to (reversal of) credit losses |
| ( |
| |
| | |||
Foreign currency translation adjustments | | ||||||||
Ending balance |
| ¥ | |
| ¥ | | $ | |
NOTE 4. NOTES RECEIVABLE
Notes receivable represented the non-interest-bearing commercial bills the Company received from the customers for the purpose of collection of sales amounts, which ranged from three to six months from the date of issuance. As of June 30, 2023 and December 31, 2023, notes receivable was ¥
F-18
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 5. OTHER RECEIVABLES, NET
Other receivables, net consisted of the following:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
Third Party |
| RMB |
| (Unaudited) |
| (Unaudited) | |||
Business advances to officers and staffs (A) |
| ¥ | |
| ¥ | |
| $ | |
Deposits for projects |
| |
| |
| | |||
VAT recoverable |
| |
| |
| | |||
Others |
| |
| |
| | |||
Allowance for credit losses | ( | ( | ( | ||||||
Subtotal | | | | ||||||
Less: Long term portion (B) |
| ( |
| — |
| — | |||
Other receivable - current portion |
| ¥ | | ¥ | | $ | |
(A) | Business advances to officers and staffs represent advances for business travel and sundry expenses related to oilfield or on-site installation and inspection of products through customer approval and acceptance. |
(B) | Long-term portion are mainly tender deposits for large-scale projects or rental contracts. These funds may not be collected back until projects are finished or contracts are completed. |
Provision for credit losses of other receivables was ¥
Movement of allowance for credit losses is as follows:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
RMB | (Unaudited) | (Unaudited) | |||||||
Beginning balance |
| ¥ | |
| ¥ | | $ | | |
Charge to (reversal of) allowance | | ( | ( | ||||||
Less: written off |
| — |
| — |
|
| — | ||
Ending balance |
| ¥ | |
| ¥ | | $ | |
NOTE 6. LOANS TO THIRD PARTIES
Loans to third parties consisted of the following:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
RMB | (Unaudited) | (Unaudited) | |||||||
Working fund to third party companies |
| ¥ | | ¥ | | $ | | ||
Less: Long term portion | — | ( | ( | ||||||
Loans to third parties |
| ¥ | | ¥ | | $ | |
Loans to third parties are mainly used for short-term funding to support the Company’s external business partners and at the same time the Company can earn interest income from these loans. Most of these loans bear interest and have terms of no more than one year, except one of the loans to third party has term of three years. The Company periodically reviewed the loans to third parties as to whether their carrying values remain realizable. The Company believes that the risk associated with the above loans are relatively low based on the evaluation of the creditworthiness of these third-party debtors and the relationships with them. As the date of this report,
F-19
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
approximately
NOTE 7. CONTRACT COSTS, NET
Contract costs, net consisted of the following:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
Third Party |
| RMB |
| (Unaudited) | (Unaudited) | ||||
Contract costs |
| ¥ | | ¥ | | $ | | ||
Allowance for credit losses |
|
| ( |
|
| ( |
| ( | |
Total contract costs, net |
| ¥ | | ¥ | | $ | |
As of December 31, 2023, total contracts costs, net amounted to ¥
Net recovery of provision for credit losses of contract costs was ¥
Movement of allowance for credit losses of contract costs is as follows:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
RMB |
| (Unaudited) | (Unaudited) | ||||||
Beginning balance |
| ¥ | |
| ¥ | | $ | | |
Reversal of allowance |
|
| ( | | | ||||
Charge to cost of sales | |
|
| |
| | |||
Ending balance |
| ¥ | |
| ¥ | | $ | |
NOTE 8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
RMB | (Unaudited) | (Unaudited) | |||||||
Motor vehicles |
| ¥ | |
| ¥ | | $ | | |
Office equipment and fixtures |
| |
| |
| | |||
Production equipment |
| |
| |
| | |||
Leasehold improvement | | | | ||||||
Total cost |
| |
| |
| | |||
Less: accumulated depreciation |
| ( |
| ( |
| ( | |||
Less: accumulated impairment |
| ( |
| ( | ( | ||||
Property and equipment, net |
| ¥ | |
| ¥ | | $ | |
Depreciation expenses were ¥
F-20
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Income from property and equipment disposal was ¥
NOTE 9. BUSINESS ACQUISITION AND INVESTMENT IN UNCONSOLIDATED ENTITY
(U)Step Acquisition of Future Gas Station (Beijing) Technology, Ltd (“FGS”)
On August 21, 2018, the Company entered into a definitive investment agreement and a supplemental agreement (collectively, the “Agreement”) with FGS and the other shareholders of FGS. Following full performance under the Agreement, Recon will own
On September 24, 2019, the Company signed an extension agreement with FGS and the other shareholders of FGS to postpone the Agreement to provide extra period for FGS to further fulfill the goals mentioned on the supplemental agreement. During the original contract period, FGS adjusted its operation model with an advanced improvement of its mobile applications and business model. Objected user and average Gross Merchandise Volume (“GMV”) of FGS’ mobile applications have been exceeded. FGS will need an extension to deploy its business in more provinces to complete a goal of
On March 17, 2020, the Company signed a new supplemental agreement with FGS and the other shareholders of FGS to extend another 12 months to February 2021 for FGS and its shareholders to fulfill the goals mentioned on the supplemental agreement.
As of December 31, 2020, the Company owned
On February 8, 2021, and pursuant to FGS’ shareholder meeting resolution dated January 13, 2021 (“Acquisition Date”),
The Company retained independent appraisers to advise management in the determination of the fair value of customers relationship and goodwill. The values assigned in these financial statements represent management’s best estimate of fair values as of the Acquisition Date. The carrying value of other assets and liabilities other than customer relationship and goodwill, are approximate at their fair value as of the Acquisition Date.
F-21
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The fair values of the identifiable assets and liabilities as at the date of the acquisitions are summarized in the following table:
| RMB |
| US Dollars | |||
Cash |
| ¥ | | $ | | |
Accounts receivable, net |
| |
| | ||
Other receivables, net |
| |
| | ||
Contract costs, net |
| |
| | ||
Prepaid expenses |
| |
| | ||
Property and equipment, net |
| |
| | ||
Intercompany receivables* |
| |
| | ||
Intangible assets- customer relationship |
| |
| | ||
Goodwill |
| |
| | ||
Accounts payable |
| ( |
| ( | ||
Other payables |
| ( |
| ( | ||
Other payable- related parties |
| ( |
| ( | ||
Deferred revenue |
| ( |
| ( | ||
Accrued payroll and employees’ welfare |
| ( |
| ( | ||
Taxes payable |
| ( |
| ( | ||
Deferred tax liability |
| ( |
| ( | ||
Total |
| ¥ | | $ | | |
Cash considerations |
| — |
| — | ||
Deemed equity consideration to acquire |
| |
| | ||
Fair value of previously held equity interest |
| |
| | ||
Non-controlling interest |
| |
| | ||
Capital contribution receivable due from non-controlling Interest |
| ( |
| ( | ||
Total |
| ¥ | | $ | |
*Intercompany receivables from Nanjing Recon and BHD are eliminated upon consolidation.
The noncontrolling interest has been recognized at fair value net with subscription receivable on the acquisition date.
Goodwill and intangible assets
The excess of purchase price over the fair value of assets acquired and liabilities assumed of the business acquired was recorded as goodwill. The goodwill is not expected to be deductible for tax purposes. In conjunction with the preparation of our consolidated financial statement for the six months ended December 31, 2022 and 2023, the management performed evaluation on the impairment of goodwill and concluded that there was
The identifiable goodwill acquired and the carrying value as of December 31, 2023 is as follows:
| Fair Value | |||||
RMB |
| US Dollars | ||||
(Unaudited) | (Unaudited) | |||||
Goodwill |
| ¥ | | $ | | |
Less: impairment |
| ( |
| ( | ||
The carrying value of goodwill as of December 31, 2023 |
| ¥ | $ |
F-22
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The fair value of identified intangible assets, which is customer relationship, and its estimated useful lives as of December 31, 2023 is as follows:
|
|
|
| Average | ||||
Useful Life | ||||||||
Fair Value | (in Years) | |||||||
RMB | US Dollars | |||||||
(Unaudited) | (Unaudited) | |||||||
Intangible assets - customer relationship |
| ¥ | | $ | |
| ||
Less: accumulated amortization |
| ( |
| ( |
|
| ||
Less: impairment | ( | ( | ||||||
Intangible assets - customer relationship, net |
| ¥ | | $ | |
|
|
The amortization expense of customer relationship was ¥
Impairment loss for intangible assets - customer relationship was all ¥
NOTE 10. LEASES
The Company leases office spaces and land use rights under non-cancelable operating leases, with terms ranging from to
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The table below presents the operating lease related assets and liabilities recorded on the balance sheets:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
RMB | (Unaudited) | (Unaudited) | |||||||
Rights of use lease assets - current |
| ¥ | — | ¥ | |
| $ | | |
Less: impairment | — | ( | ( | ||||||
Rights of use lease assets, net - current | — | | | ||||||
|
|
|
| ||||||
Rights of use lease assets - non - current |
|
| |
| |
| | ||
Less: impairment |
|
| ( |
| — |
| — | ||
Rights of use lease assets, net - non - current |
| | | | |||||
Operating lease liabilities – current |
| ¥ | |
| ¥ | | $ | | |
Operating lease liabilities – non-current |
| |
| |
| | |||
Total operating lease liabilities |
| ¥ | |
| ¥ | | $ | |
F-23
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2023:
| June 30, |
| December 31, | ||
2023 | 2023 | ||||
RMB | |||||
RMB | (Unaudited) | ||||
Remaining lease term and discount rate: |
|
| |||
Weighted average remaining lease term (years) |
| ||||
Weighted average discount rate |
| | % | | % |
Operating lease costs and short-term lease costs for the six months ended December 31, 2022 were ¥
Operating lease costs and short-term lease costs for the six months ended December 31, 2023 were ¥
Impairment loss for the ROU was all ¥
The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2023:
| RMB |
| US Dollars | |||
Twelve months ending June 30, | (Unaudited) | (Unaudited) | ||||
2024 | ¥ | | $ | | ||
2025 |
|
| |
| | |
Total lease payments |
|
| |
| | |
Less: imputed interest |
|
| ( |
| ( | |
Present value of lease liabilities |
|
| |
| | |
Less: operating lease liabilities – current |
|
| |
| | |
Operating lease liabilities – non-current |
| ¥ | | $ | |
NOTE 11. OTHER PAYABLES
Other payables consisted of the following:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
Third Parties | RMB | (Unaudited) | (Unaudited) | ||||||
Professional service fees | ¥ | ¥ | $ | | |||||
Distributors and employees |
| |
| |
| | |||
Accrued expenses |
| |
| |
| | |||
Others |
| |
| |
| | |||
Total |
| ¥ | |
| ¥ | | $ | |
| June 30, |
| December 31, |
| December 31, | ||||
2022 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
Related Parties | RMB | (Unaudited) | (Unaudited) | ||||||
Expenses paid by the major shareholders | ¥ | ¥ | $ | | |||||
Due to family members of the owners of BHD and FGS |
| |
| |
| | |||
Due to management staff for costs incurred on behalf of the Company |
| |
| — |
| — | |||
Total |
| ¥ | |
| ¥ | | $ | |
F-24
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 12. TAXES PAYABLE
Taxes payable consisted of the following:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
RMB | (Unaudited) | (Unaudited) | |||||||
VAT payable |
| ¥ | |
| ¥ | | $ | | |
Income tax payable |
| |
| |
| | |||
Other taxes payable |
| |
| |
| | |||
Total taxes payable |
| ¥ | |
| ¥ | | $ | |
NOTE 13. BANK LOANS
Short-term bank loans consisted of the following:
June 30, | December 31, | December 31, | |||||||
2023 | 2023 | 2023 | |||||||
|
| RMB |
| US Dollars | |||||
RMB | (Unaudited) | (Unaudited) | |||||||
Bank of Kunlun (1) | ¥ | | ¥ | | $ | | |||
Industry and Commercial Bank of China (“ICBC”) (2) | | | | ||||||
China Construction Bank (3) | | | | ||||||
Total short-term bank loans | ¥ | | ¥ | | $ | |
(1) | On August 31, 2022, the Company entered into a loan agreement with Bank of Kunlun to borrow up to ¥ |
(2) | On June 6, 2023, the Company entered into a revolving loan facility with ICBC to borrow up to ¥ |
(3) | On August 31, 2022, the Company entered into a revolving loan facility with China Construction Bank to borrow up to ¥ |
Interest expense for the short-term bank loan was ¥
F-25
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 14. SHORT-TERM BORROWINGS DUE TO RELATED PARTIES
Short-term borrowings due to related parties consisted of the following:
| June 30, |
| December 31, |
| December 31, | ||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
Short-term borrowings due to related parties: | RMB | (Unaudited) | (Unaudited) | ||||||
Short-term borrowing from a Founder, |
| ¥ | |
| ¥ | — | $ | — | |
Short-term borrowing from a Founder, | | | | ||||||
Short-term borrowing from a Founder, | | | | ||||||
Short-term borrowing from a Founder, | — | | | ||||||
Total short-term borrowings due to related parties |
| ¥ | |
| ¥ | | $ | |
*On May 29, 2024, the Company entered into a
Interest expense for short-term borrowings due to related parties were ¥
NOTE 15. CLASS A ORDINARY SHARES
Share offering
On April 5, 2021, the Company held its annual general meeting of shareholders (the “Annual Meeting”) for the fiscal year ended June 30, 2020. At the Annual Meeting, the Company’s shareholders approved a special resolution that the authorized share capital of the Company be amended from US$
On June 14, 2021, the Company and certain institutional investors (the “Purchasers”) entered into that certain securities purchase agreement (the “Purchase Agreement”), pursuant to which the Company agreed to sell to such Purchasers an aggregate of
On March 15, 2023, the Company and certain institutional investors (the “Purchasers”) entered into that certain securities purchase agreement (the “Purchase Agreement”), pursuant to which the Company agreed to sell to such Purchasers an aggregate of
F-26
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Class A Ordinary Shares in a registered direct offering, and warrants to purchase up to
On October 16, 2023,
The following table summarizes the Company’s Pre-Funded Warrants activities and status of Pre-Funded Warrants as of December 31, 2023:
|
| Weighted |
| Average | |||
Average | Remaining | ||||||
Pre-Funded | Exercise Price | Period | |||||
Pre-Funded Warrants | Warrants* | Per Share* | (Years) | ||||
Outstanding as of June 30, 2022 |
| — | $ | — |
| — | |
Issued |
| |
| |
| ||
Forfeited |
| — |
| — |
| — | |
Exercised |
| — | — |
| — | ||
Expired |
| — |
| — |
| — | |
Outstanding as of June 30, 2023 |
| | $ | |
| ||
Issued |
| — |
| — |
| — | |
Forfeited |
| — |
| — |
| — | |
Exercised |
| ( |
| |
| — | |
Expired |
| — |
| — |
| — | |
Outstanding as of December 31, 2023 |
| — | $ | — |
| — |
* Retrospectively restated for the -for-18 reverse stock split on May 1, 2024.
Appropriated Retained Earnings
According to the Memorandum and Articles of Association, the Company is required to transfer a certain portion of its net profit, as determined under PRC accounting regulations, from current net income to the statutory reserve fund. In accordance with the PRC Company Law, companies are required to transfer
NOTE 16. ORDINARY SHARES PURCHASE WARRANTS ISSUED TO INVESTORS
In May and June 2020, the Company consummated
In June 2020, the Company issued to the investors warrants to purchase an aggregate of
F-27
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
warrant life of
In June 2021, the Company issued to some institutional investors warrants to purchase an aggregate of up to
On December 14, 2023, the Company entered into a Warrant Purchase Agreement with certain accredited investors pursuant to which the Company agreed to buy back an aggregate of
The key inputs into the Black-Scholes model were as follows at their measurement dates:
December 31, | June 30, |
| |||||||
Input |
| 2023 |
| 2023 | |||||
Number of warrants* | | | | ||||||
Share price* | $ | | $ | |
| | |||
Risk-free interest rate |
| | % |
| | % | | % | |
Volatility |
| | % |
| | % | | % | |
Exercise price* | $ | | $ | |
| | |||
Warrant life |
|
|
* Retrospectively restated for the -for-18 reverse stock split on May 1, 2024.
On March 15, 2023, the Company issued to some institutional investors warrants to purchase an aggregate of up to
On December 14,2023, the Company entered into a Warrant Purchase Agreement with certain accredited investors pursuant to which the Company agreed to buy back an aggregate of
F-28
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The key inputs into the Black-Scholes model were as follows at their measurement dates:
| December 31, |
| June 30, |
| |||
Input | 2023 | 2023 |
| ||||
Number of warrants* |
| — |
| | |||
Share price* | $ | — | $ | | |||
Risk-free interest rate |
| — | % |
| | % | |
Volatility |
| — | % |
| | % | |
Exercise price* | $ | — | $ | | |||
Warrant life |
| — |
|
* Retrospectively restated for the -for-18 reverse stock split on May 1, 2024.
The following table presents information about the Company’s warrants that were measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2023, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
|
| Quoted Prices In |
| Significant Other |
| Significant Other | ||||||
June 30, | Active Markets | Observable Inputs | Unobservable Inputs | |||||||||
Description | 2023 | (Level 1) | (Level 2) | (Level 3) | ||||||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Warrant liability - non-current | $ | | $ | — | $ | — | $ | |
Quoted Prices In |
| Significant Other |
| Significant Other | ||||||||
December 31, | Active Markets | Observable Inputs | Unobservable Inputs | |||||||||
Description |
| 2023 |
| (Level 1) | (Level 2) | (Level 3) | ||||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Warrant liability - non-current | $ | | $ | — | $ | — | $ | |
The following table summarizes the Company’s Warrants activities and status of Warrants as of December 31, 2023:
|
| Weighted |
| Average | |||
Average | Remaining | ||||||
Exercise Price | Period | ||||||
Warrants | Warrants* | Per Share* | (Years) | ||||
Outstanding as of June 30, 2022 |
| | $ | |
| ||
Issued |
| |
| |
| ||
Forfeited |
| — |
| — |
| — | |
Exercised |
| — |
| — |
| — | |
Expired |
| — |
| — |
| — | |
Outstanding as of June 30, 2023 |
| | $ | |
| ||
Issued |
| — |
| — |
| — | |
Redeemed | ( | | — | ||||
Forfeited |
| — |
| — |
| — | |
Exercised |
| — |
| — |
| — | |
Expired |
| — |
| — |
| — | |
Outstanding as of December 31, 2023 |
| | $ | |
|
* Retrospectively restated for the
-for-18 reverse stock split on May 1, 2024.
| December 31, | ||
Description | 2023 | ||
Warrant liability -current * |
| $ | |
F-29
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
* On December 14, 2023, company bought back an aggregate of
NOTE 17. SHARE-BASED COMPENSATION
Share-Based Awards Plan
The following is a summary of the share options activity:
|
| Weighted | |||
Average | |||||
Exercise Price | |||||
Share Options | Shares* | Per Share* | |||
Outstanding as of June 30, 2022 |
| | $ | | |
Granted |
| |
| | |
Forfeited |
| |
| | |
Exercised |
| |
| | |
Expired | |
| | ||
Outstanding as of June 30, 2023 |
| | $ | | |
Granted |
| |
| | |
Forfeited |
| |
| | |
Exercised |
| |
| | |
Expired | | | |||
Outstanding as of December 31, 2023 |
| | $ | |
*Retrospectively restated for the -for-18 reverse stock split on May 1, 2024.
The following is a summary of the status of options outstanding and exercisable as of December 31, 2023:
Outstanding Options | Exercisable Options | |||||||||||
|
| Average |
|
|
| Average | ||||||
Remaining | Remaining | |||||||||||
Average Exercise |
| Contractual | Average Exercise |
| Contractual | |||||||
Price* | Number* |
| life (Years) | Price* | Number* |
| life (Years) | |||||
$ | |
| |
| $ | |
| |
| |||
| |
|
|
|
|
| |
|
|
*Retrospectively restated for the -for-18 reverse stock split on May 1, 2024.
The Share-based compensation expense recorded for stock options granted were all ¥
F-30
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Restricted Shares to Senior Management
As of December 31, 2023, the Company has granted restricted Class A Ordinary Shares to senior management and employees as follows:
On August 21, 2018, the Company granted
On February 28, 2022, the Company granted
On March 15, 2023, the Company issued
As of December 31, 2023, the Company has granted restricted Class B Ordinary Shares to senior management as follows:
On December 5, 2021, the Company granted
On February 28, 2022, the Company granted
On March 9, 2023, the Company granted
The share-based compensation expense recorded for restricted shares issued for management was ¥
Restricted Shares for services
As of December 31, 2023, the Company has granted restricted Class A Ordinary Shares to consultant as follows:
On November 10, 2021, the Company signed a service agreement with Starry. As the service consideration, the Company should issue
F-31
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
($
On January 5, 2022, the Company signed a consulting agreement with Lintec Information Ltd (the “Consultant”). As the service consideration, the Company issued
On March 15, 2023, the Company signed a consulting agreement with some business consultants (the “Consultants”). As the service consideration, the Company issued
¥
The share-based compensation expense recorded for restricted shares issued for service was ¥
Following is a summary of the restricted shares granted:
Restricted share grants |
| Shares* |
Non-vested as of June 30, 2022 |
| |
Granted |
| |
Vested |
| ( |
Non-vested as of June 30, 2023 |
| |
Granted |
| |
Vested |
| ( |
Non-vested as of December 31, 2023 |
| |
*Retrospectively restated for the -for-18 reverse stock split on May 1, 2024.
The following is a summary of the status of restricted share at December 31, 2023:
Outstanding Restricted Shares | |||||
Average | |||||
Remaining | |||||
Fair Value per | Amortization | ||||
Share* |
| Number* |
| Period (Years) | |
$ | |
| |
| |
| |
*Retrospectively restated for the
-for-18 reverse stock split on May 1, 2024.NOTE 18. INCOME TAX
The Company is not subject to any income taxes in the United States or the Cayman Islands and had minimal operations in jurisdictions other than the PRC. BHD and Nanjing Recon are subject to PRC’s income taxes as PRC domestic companies. The Company follows Implementing Rules for the Enterprise Income Tax Law (“Implementing Rules”), which took effect on January 1, 2008 and unified the income tax rate for domestic-invested and foreign-invested enterprises at
F-32
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nanjing Recon was approved as a government-certified high-technology company and is subject to a reduced income tax rate of
As approved by the domestic tax authority in the PRC, BHD was recognized as a government-certified high-technology company on November 25, 2009 and is subject to a reduced income tax rate of
Income (loss) before provision for income taxes consisted of:
|
| For the six months ended December 31, | |||||||
2022 |
| 2023 |
| 2023 | |||||
| RMB | RMB | US Dollars | ||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||
Outside China areas |
| ¥ | ( |
| ¥ | ( | $ | ( | |
China |
| |
| ( |
| ( | |||
Total |
| ¥ | ( |
| ¥ | ( | $ |
Deferred tax assets, net is composed of the following:
|
| June 30, |
| December 31, |
| December 31, | |||
2023 | 2023 | 2023 | |||||||
| RMB | US Dollars | |||||||
RMB | (Unaudited) | (Unaudited) | |||||||
Deferred tax assets: | |||||||||
Allowance for credit losses |
| ¥ | |
| ¥ | | $ | | |
Impairment for inventory |
| |
| | | ||||
Net operating loss carryforwards |
| |
| | | ||||
Subtotal | | | | ||||||
Less: Valuation allowance | ( | ( | ( | ||||||
Total deferred tax assets, net | ¥ | | ¥ | | $ | | |||
Deferred tax liabilities: | |||||||||
Accelerated amortization of intangible assets | ( | ( | ( | ||||||
Gain on the previously held equity method investment | ( | ( | ( | ||||||
Recognition of customer relationship arising from business combinations | | | | ||||||
Total deferred tax liabilities |
| ( |
| ( | ( | ||||
Deferred tax assets, net |
| ¥ | |
| ¥ | | $ | |
The Company’s subsidiaries, VIEs and VIEs’ subsidiaries incurred a cumulative net operating loss (“NOL”) which may reduce future corporate taxable income. As of June 30, 2023, the cumulative NOL was approximately ¥
F-33
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The NOL will expire over the next five years as follows:
| RMB |
| US Dollars | |||
Twelve months ending December 31, | (Unaudited) | (Unaudited) | ||||
2024 |
| ¥ | | $ | | |
2025 |
| |
| | ||
2026 |
| |
| | ||
2027 |
| |
| | ||
2028 |
| |
| | ||
Total |
| ¥ | | $ | |
The Company’s income tax expense (benefit) is comprised of the following:
For the six months ended December 31, | |||||||||
| 2022 |
| 2023 |
| 2023 | ||||
| RMB |
| RMB |
| US Dollars | ||||
| (Unaudited) |
| (Unaudited) | (Unaudited) | |||||
Current income tax provision |
| ¥ | |
| ¥ | | $ | | |
Deferred income tax provision |
| |
| |
| — | |||
Expense for income tax |
| ¥ | |
| ¥ | | $ | |
NOTE 19. NON-CONTROLLING INTEREST
Non-controlling interest consisted of the following:
As of June 30, 2023 | |||||||||||||||||||||
|
| Nanjing |
| Gan Su |
| Qinghai |
|
|
| ||||||||||||
BHD | Recon | BHD | BHD | FGS |
| Total | Total | ||||||||||||||
RMB | RMB | RMB | RMB | RMB |
| RMB | US Dollars | ||||||||||||||
Paid-in capital |
| ¥ | |
| ¥ | |
| ¥ | | ¥ | — | ¥ | — | ¥ | | $ | | ||||
Capital contribution receivable due from non-controlling Interest | — | — | — | — | ( | ( | ( | ||||||||||||||
Unappropriated retained earnings (deficit) | | | ( | ( | ( | ( | ( | ||||||||||||||
Accumulated other comprehensive loss |
| ( |
| ( |
| — | — | — | ( |
| ( | ||||||||||
Valuation increase shared by minority shareholders |
| — |
| — |
| — | — | | |
| | ||||||||||
Total non-controlling interests |
| ¥ | |
| ¥ | |
| ¥ | ( | ¥ | ( | ( | ¥ | ( | $ | ( |
F-34
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As of December 31, 2023 | |||||||||||||||||||||
|
| Nanjing |
| Gan Su |
| Qinghai |
|
|
| ||||||||||||
BHD | Recon | BHD | BHD | FGS | Total | Total | |||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | US Dollars | |||||||||||||||
Paid-in capital |
| ¥ | |
| ¥ | |
| ¥ | | ¥ | ¥ | — | ¥ | | $ | | |||||
Capital contribution receivable due from non-controlling Interest | — | — | ( | ( | ( | ||||||||||||||||
Unappropriated retained earnings (deficit) | | | ( | ( | ( | ( | ( | ||||||||||||||
Accumulated other comprehensive loss |
| ( |
| ( |
| — | ( |
| ( | ||||||||||||
Valuation increase shared by minority shareholders |
| — |
| — |
| | |
| | ||||||||||||
Total non-controlling interests |
| ¥ | |
| ¥ | |
| ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ( | $ | ( |
NOTE 20. CONCENTRATIONS
Credit risk
As of June 30, 2023 and December 31, 2023, approximately ¥
Customer concentration risk
For the six months ended December 31, 2022, CNPC represented
For the six months ended December 31, 2023, CNPC represented
NOTE 21. COMMITMENTS AND CONTINGENCY
(a) Contingency
Severance payments
The Labor Contract Law of the PRC requires employers to assure the liability of severance payments if employment contracts are terminated. The employers will be liable for one month of severance pay for each year of the service provided by the employees. As of December 31, 2023, the Company estimated its severance payments of approximately ¥
F-35
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Legal contingencies
On December 1, 2021, Henan Puxinfangfu Construction Engineering Co., Ltd. (“the Plaintiff”) submitted a Civil Complaint to the People’s Court of Suzhou District, Jiuquan City, Gansu Province (the “Court”) against Gan Su BHD. The complaint requested that Gan Su BHD shall make the compensation to the Plaintiff for the outstanding trade payable plus the interest, and the litigation fee in this case shall be borne by Gan Su BHD. The Plaintiff also applied for property preservation before litigation to preserve the bank account of the Company. On December 1, 2021, the Court issued a judgement and approximately ¥
On April 30, 2023, Jiuquan Third Construction and Installation Engineering Company (“the Plaintiff”) submitted a Civil Complaint to the People’s Court of Yumen, Jiuquan City, Gansu Province against Gan Su BHD. The complaint requested that Gan Su BHD shall make the compensation to the Plaintiff for the outstanding trade payable plus the interest, and the litigation fee in this case shall be borne by Gan Su BHD. On August 25, 2023, the Company entered into a Settlement Agreement with the Plaintiff, pursuant to which the Company needs to pay the Plaintiff a total sum of ¥
(b) Purchase commitment
The total future minimum purchase commitment under the non-cancellable purchase contracts as of December 31, 2023 are payable as follows:
RMB | US Dollars | |||||
Twelve months ending December 31, |
| (Unaudited) |
| (Unaudited) | ||
2024 | ¥ | | $ | | ||
2025 | | | ||||
Total minimum payments required |
| ¥ | | $ | |
(c) Office Leases Commitment - short term
The Company entered into several non-cancellable operating lease agreements for office spaces. Future payments under such leases were included in lease liabilities as disclosed in Note 10, other than those within under lease agreements within one year which are disclosed as follows as of December 31, 2023:
| RMB |
| US Dollars | |||
Twelve months ending December 31, | (Unaudited) | (Unaudited) | ||||
2024 |
| ¥ | | $ | | |
Total |
| ¥ | | $ | |
F-36
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 22. RELATED PARTY TRANSACTIONS AND BALANCES
Leases from related parties - The Company has various agreements for the lease of office space owned by the founders and their family members. The terms of the agreement state that the Company will continue to lease the property at a monthly rent of ¥
The details of leases from related parties are as below:
|
|
| Monthly Rent |
| Monthly Rent | |||||
Lessee |
| Lessor |
| Rent Period |
| RMB |
| US Dollars | ||
Nanjing Recon |
| One of the founders |
|
| ¥ | | $ | | ||
BHD |
| One of the founders |
|
| |
| | |||
BHD |
| One of the founders |
|
| |
| |
As of June 30, 2023, the operating lease ROU assets and corresponding operating lease liabilities of leases from related parties was ¥
As of December 31, 2023, the operating lease ROU assets and corresponding operating lease liabilities of leases from related parties was ¥
Guarantee/collateral related parties – The Company’s founders provide guarantee and collateral for the Company’s short-term bank loans (see Note 13).
NOTE 23. VARIABLE INTEREST ENTITIES
VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs and their subsidiaries with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
F-37
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Summary information regarding consolidated VIEs and their subsidiaries is as follows:
June 30, 2023 | December 31, 2023 | December 31, 2023 | |||||||
| RMB |
| RMB |
| US Dollars | ||||
ASSETS |
|
|
|
| |||||
Current Assets |
|
|
|
| |||||
Cash |
| ¥ | | ¥ | | $ | | ||
Restricted cash | | | | ||||||
Short-term investments | | | |||||||
Notes receivable |
| | |
| | ||||
Accounts receivable, net |
| | |
| | ||||
Inventories, net | | | | ||||||
Other receivables, net | | | | ||||||
Loans to third parties | | | | ||||||
Purchase advances, net | | | | ||||||
Contract costs, net | | | | ||||||
Prepaid expenses | | | | ||||||
Operating lease right-of-use assets, net - current | | | | ||||||
Total current assets |
| | | | |||||
Property and equipment, net | | | | ||||||
Long-term other receivables, net | | | | ||||||
Long-term loan to third parties | | | | ||||||
Operating lease right-of-use assets, net - non-current | | | | ||||||
Total Assets |
| ¥ | | ¥ | | $ | | ||
| |||||||||
LIABILITIES |
|
|
| ||||||
Short-term bank loans |
| ¥ | | ¥ | | $ | | ||
Accounts payable | | | | ||||||
Other payables | | | | ||||||
Other payable- related parties | | | | ||||||
Contract liabilities | | | | ||||||
Accrued payroll and employees’ welfare | | | | ||||||
Intercompany payables* | | | | ||||||
Taxes payable | | | | ||||||
Short-term borrowings - related parties |
| |
| |
| | |||
Operating lease liabilities - current |
| |
| |
| | |||
Total current liabilities | | | | ||||||
Operating lease liabilities - non-current | |||||||||
Total Liabilities | ¥ | ¥ | $ |
*Intercompany payables are eliminated upon consolidation.
The financial performance of VIEs and their subsidiaries reported in the unaudited condensed consolidated interim statement of operations and comprehensive income for the six months ended December 31, 2022 includes revenues of ¥
F-38
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 24. SEGMENT REPORTING
ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different products. Based on management’s assessment, the Company has determined that it has
The following tables present summary information by segment for the six months ended December 31, 2022 and 2023, respectively:
For the six months ended December 31, | |||||||||
2022 | 2023 | 2023 | |||||||
| RMB |
| RMB |
| US Dollars | ||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||
Automation product and software |
| ¥ | |
| ¥ | | $ | | |
Equipment, accessories and others |
| |
| |
| | |||
Oilfield environmental protection | | | | ||||||
Platform Outsourcing Services |
| |
| |
| | |||
Total revenue |
| ¥ | |
| ¥ | | $ |
For the six months ended December 31, 2023 | |||||||||||||||
| Automation |
| Equipment, |
| Oilfield |
| Platform |
| |||||||
product and | accessories | environmental | outsourcing | ||||||||||||
software | and others | protection | services | Total | |||||||||||
RMB | RMB | RMB | RMB | RMB | |||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||
Revenue |
| ¥ | |
| ¥ | |
| ¥ | | ¥ | |
| ¥ | | |
Cost of revenue and related tax |
| |
| |
| | |
| | ||||||
Gross profit |
| ¥ | |
| ¥ | |
| ¥ | | ¥ | |
| ¥ | | |
Depreciation and amortization |
| ¥ | |
| ¥ | |
| ¥ | | ¥ | — |
| ¥ | ||
Total capital expenditures |
| ¥ | |
| ¥ | |
| ¥ | — | ¥ | — |
| ¥ | | |
Timing of revenue recognition | |||||||||||||||
Goods transferred at a point in time | ¥ | | ¥ | | ¥ | | ¥ | | ¥ | | |||||
Services rendered over time | |
| — |
| — | |
| | |||||||
Total revenue | ¥ | | ¥ | | ¥ | | ¥ | | ¥ | |
F-39
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended December 31, 2022 | |||||||||||||||
|
| Automation |
| Equipment, |
| Oilfield |
| Platform |
| ||||||
product and | accessories | environmental | outsourcing | ||||||||||||
software | and others | protection | services | Total | |||||||||||
| RMB | RMB | RMB | RMB | RMB | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||
Revenue |
| ¥ | |
| ¥ | |
| ¥ | | ¥ | |
| ¥ | | |
Cost of revenue and related tax |
| |
| |
| | |
| | ||||||
Gross profit |
| ¥ | |
| ¥ | |
| ¥ | | ¥ | |
| ¥ | | |
Depreciation and amortization |
| ¥ | |
| ¥ | |
| ¥ | | ¥ | |
| ¥ | | |
Total capital expenditures |
| ¥ | |
| ¥ | |
| ¥ | — | ¥ | |
| ¥ | | |
Timing of revenue recognition | |||||||||||||||
Goods transferred at a point in time | ¥ | | ¥ | | ¥ | | ¥ | | ¥ | | |||||
Services rendered over time | — |
| — |
| | — |
| | |||||||
Total revenue | ¥ | | ¥ | | ¥ | | ¥ | | ¥ | |
|
| June 30, |
| December 31, |
| December 31, | |||
2023 | 2023 | 2023 | |||||||
| RMB | US Dollars | |||||||
RMB | (Unaudited) | (Unaudited) | |||||||
Total assets: |
|
|
|
|
|
| |||
Automation product and software |
| ¥ | |
| ¥ | | $ | | |
Equipment, accessories and others |
| |
| |
| | |||
Oilfield environmental protection | | | | ||||||
Platform outsourcing services |
| |
| |
| | |||
Total assets |
| ¥ | |
| ¥ | | $ | |
NOTE 25. SUBSEQUENT EVENTS
These consolidated financial statements were approved by management and available for issuance on June 28, 2024, and the Company has evaluated subsequent events through this date.
On January 31, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”), pursuant to which the Company agreed to sell securities to various purchasers (the “Purchasers”) in a private placement transaction (the “Private Placement”). Pursuant to the Securities Purchase Agreement, the Company agreed to transfer, assign, set over and deliver to the Purchasers and the Purchasers agree, severally and not jointly, to acquire from the Company in the aggregate
On February 22, 2024, Guangxi Recon Renewable Resources Technology Co., Ltd. (“Guangxi Recon”), a fully owned subsidiary established by Recon-IN, with registered capital of $
On February 26, 2024, the Company granted
On March 29, 2024, the Company’s shareholders approved the reverse shares split of the Company’s Class A Ordinary Shares at the ratio of one-for- with the market effective date of May 1, 2024 (the “2024 Reverse Split”). In connection with the reverse stock split, on March 29, 2024 the Company’s shareholder approved and authorized the Company’s registered office service agent to filed the Fourth Amended and Restated Memorandum and Articles of Association with local registry, and change its authorized share capital from: US$
F-40
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
US$
On March 29, 2024, the company signed an office lease agreement with a lease term from May 1, 2024, to April 30, 2027, and an annual rent of
On April 24, 2024, Bank of Kunlun Co., Ltd. Tuha Branch (the “Plaintiff”) submitted a civil complaint to the People's Court of Yizhou District, Hami City, Xinjiang Uygur Autonomous Region (the “Court"). The complaint requested: (1) Gan Su BHD to repay the principal and interest of the loan to the Plaintiff, (2) Gan Su BHD to pay the overdue interest to the Plaintiff; (3) Gan Su BHD to pay the attorney's fees to the Plaintiff; (4) Wang Ping, Beijing BHD, and Nanjing Recon to bear joint and several liabilities for the first four claims of the Plaintiff, (5) all costs of the case, including the acceptance fee, mailing fee, preservation fee, and preservation insurance fee, to be borne by the defendants. The Plaintiff also applied for pre-litigation property preservation. On April 24, 2024, the Court issued a ruling to seize and freeze the bank deposits of the respondents Gan Su BHD, Wang Ping, Beijing BHD, and Nanjing Recon, amounting to ¥
NOTE 26. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Pursuant to the requirements of Rules 12-04(a), 5-04(c), and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirements and concluded that it was applicable to the Company as the restricted net assets of the Company’s PRC subsidiary and VIEs exceeded
For purposes of the above test, restricted net assets of consolidated subsidiaries and VIEs shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries and VIEs in the form of loans, advances, or cash dividends without the consent of a third party.
The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries and VIEs. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries and VIEs” and the respective profit or loss as “Equity in earnings of subsidiaries and VIEs” on the condensed statements of income.
The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and
F-41
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
The Company did not pay any dividend for the periods presented. As of June 30, 2023 and December 31, 2023, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statements, if any.
RECON TECHNOLOGY, LTD
PARENT COMPANY BALANCE SHEETS (UNAUDITED)
June 30, |
| December 31, |
| December 31, | |||||
2023 | 2023 | 2023 | |||||||
RMB | US Dollars | ||||||||
| RMB |
| (Unaudited) |
| (Unaudited) | ||||
ASSETS |
|
|
|
|
|
| |||
Cash |
| ¥ | |
| ¥ | | $ | | |
Short-term investments | — | | | ||||||
Due from intercompany* |
| |
| |
| | |||
Other current assets |
| |
| |
| | |||
Total Current Assets |
| |
| |
| | |||
Investment in subsidiaries and VIEs |
| ( |
| ( |
| ( | |||
Total Assets |
| ¥ | | ¥ | | $ | | ||
| |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
| |||||||
Other current liabilities |
| | | | |||||
Warrant liability - current | | | |||||||
Total Current Liabilities | | | | ||||||
Warrant liability - non-current |
| | | | |||||
Total Liabilities |
| ¥ | | ¥ | | $ | | ||
COMMITMENTS AND CONTINGENCIES |
|
|
|
| |||||
SHAREHOLDERS’ EQUITY |
|
|
|
| |||||
Class A ordinary shares, $ |
| |
| |
| | |||
Class B ordinary shares, $ |
| |
| |
| | |||
Additional paid-in capital** |
| |
| |
| | |||
Accumulated deficit |
| ( |
| ( |
| ( | |||
Accumulated other comprehensive income |
| |
| |
| | |||
Total Shareholders’ Equity |
| |
| |
| | |||
Total Liabilities and Shareholders’ Equity |
| ¥ | | ¥ | | $ | |
* | Due from intercompany are eliminated upon consolidation. |
** | Retrospectively restated for the -for-18 reverse stock split on May 1, 2024 and change in capital structure on March 29, 2024. |
F-42
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
RECON TECHNOLOGY, LTD
PARENT COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
| For the six months ended December 31, | ||||||||
2022 | 2023 | 2023 | |||||||
RMB | RMB | U.S. Dollars | |||||||
| (Unaudited) |
| (Unaudited) |
| (Unaudited) | ||||
Revenues |
| ¥ | — |
| ¥ | — | $ | — | |
Cost of revenues |
| — |
| — |
| — | |||
Gross profit |
| — |
| — |
| — | |||
General and administrative expenses |
| |
| |
| | |||
Provision for credit losses |
| — |
| — |
| — | |||
Loss from operations |
| ¥ | ( |
| ¥ | ( | $ | ( | |
Gain (loss) in fair value changes of warrants liability |
| ( |
| ( |
| ( | |||
Other income (expenses) |
| |
| ( |
| ( | |||
Equity in earnings of subsidiaries, VIEs and VIEs’ subsidiaries |
| |
| ( |
| ( | |||
Net loss |
| ¥ | ( |
| ¥ | ( | $ | ( | |
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS |
|
|
|
| |||||
Foreign currency translation adjustments related to investments in subsidiaries, VIEs and VIEs’ subsidiaries |
| |
| ( |
| ( | |||
Comprehensive loss attributable to the company |
| ¥ | ( |
| ¥ | ( | $ | ( |
F-43
RECON TECHNOLOGY, LTD
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
RECON TECHNOLOGY, LTD
PARENT COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the six months ended December 31, | ||||||||
2022 | 2023 | 2023 | |||||||
RMB | RMB | U.S. Dollars | |||||||
| (Unaudited) |
| (Unaudited) |
| (Unaudited) | ||||
Cash flows from operating activities: |
|
|
|
|
|
| |||
Net loss |
| ¥ | ( |
| ¥ | ( | $ | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
| |||||
Loss (gain) in fair value changes of warrants liability |
| |
| |
| | |||
Restricted shares issued for management and employees |
| |
| |
| | |||
Accrued interest income from loans to third parties | — | ( | ( | ||||||
Accrued interest income from short-term investment |
| — |
| ( |
| ( | |||
Restricted shares issued for services |
| |
| |
| | |||
Equity in earnings of subsidiaries and VIEs |
| ( |
| |
| | |||
Other current assets |
| ( |
| |
| | |||
Other current liabilities |
| ( |
| ( |
| ( | |||
Net cash used in operating activities |
| ( |
| ( |
| ( | |||
Cash flows from investing activities: |
|
|
|
| |||||
Repayments from loans to third parties | | | | ||||||
Payments made for loans to third parties |
| ( |
| — |
| — | |||
Payments for short-term investments |
| — |
| ( |
| ( | |||
Due from intercompany, VIEs and VIEs’ subsidiaries |
| ( |
| ( |
| ( | |||
Net cash used in investing activities |
| ( |
| ( |
| ( | |||
Net cash used in financing activity: | |||||||||
Redemption of warrants | — | ( | ( | ||||||
Net cash provided by financing activity | — | ( | ( | ||||||
Effect of exchange rate fluctuation on cash |
| |
| ( |
| ( | |||
Net decrease in cash |
| ( |
| ( |
| ( | |||
CASH, beginning of period |
| |
| |
| | |||
CASH, end of period |
| ¥ | |
| ¥ | | $ | |
F-44