What changed in this filing

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Item 1. Business

2014-09-29 compared with 2013-09-27 · 482 added, 202 removed, 167 unchanged (80% of the section changed)

We are a provider of hardware, software, and on-site services to companies in the petroleum mining and extraction industry in China (“PRC”).

We provide services designed to automate and enhance the extraction of petroleum.

To date, we control by contract the PRC companies of Beijing BHD Petroleum Technology Co., Ltd.

(“BHD”) and Nanjing Recon Technology Co., Ltd.

(“Nanjing Recon”).

We refer to BHD and Nanjing Recon collectively as the “Domestic Companies” in this report.

We are the center of strategic management, financial control and human resources allocation for the Domestic Companies.

Through our contractual relationships with the Domestic Companies, we provide equipment, tools and other hardware related to oilfield production and management, and develop and sell our own specialized industrial automation control and information solutions.

However, we do not engage in the production of petroleum or petroleum products.

We believe that one of the most important advancements in China’s petroleum industry has been the automation of significant segments of the exploration and extraction process.

The Domestic Companies’ and our automation products and services allow petroleum mining and extraction companies to reduce their labor requirements and improve the productivity of oilfields.

The Domestic Companies’ and our solutions allow our customers to locate productive oilfields more easily and accurately, improve control over the extraction process, increase oil yield efficiency in tertiary stage oil recovery, and improve the transportation of crude oil.

For the most recent few years, our capacity to provide integrated services has been a significant factor for long-term development.

We treat simulation measures around fracturing as our entry point for our integrated service model.

To date, we have formed new business modules through our own R&D, investment in service-team building and developed an integrated services solution for stimulation.

On June 27, 2013, we acquired a 32.22% equity interest in Avalon Oil and Gas Inc.

(“Avalon”), a U.S.

oil and natural gas company for approximately ¥1.5 million ($250,000).

This strategic investment marks an important step in expanding our business in the U.S.

We are a provider of hardware, software,

and on-site services to companies in the petroleum mining and extraction industry in China (“PRC”).

We provide services

designed to automate and enhance the extraction of petroleum through Beijing BHD Petroleum Technology Co., Ltd.

(“BHD”)

and Nanjing Recon Technology Co., Ltd.

(“Nanjing Recon”), which are controlled by our indirect wholly owned subsidiary

Recon Technology (Jining) Co., Ltd through certain contractual arrangements.

We refer to BHD and Nanjing Recon collectively as

the “Domestic Companies”

in this report.

Through our contractual arrangements with

the Domestic Companies, we provide equipment, tools, other hardware related to oilfield production and management, onsite services,

and develop and sell our own specialized industrial automation control and information solutions.

However, we do not engage in

the production of petroleum or petroleum products.

We believe that one of the most important

advancements in China’s petroleum industry has been the automation of significant segments of the exploration and extraction

The Domestic Companies’

and our automation products and services allow petroleum mining and extraction companies

to reduce their labor requirements and improve the productivity of oilfields.

The Domestic Companies’

and our solutions allow

our customers to locate productive oilfields more easily and accurately, improve control over the extraction process, increase

oil yield efficiency in tertiary stage oil recovery, and improve the transportation of crude oil.

For the most recent few years, our capacity

to provide integrated services has been a significant factor for long-term development.

We treat simulation measures around fracturing

as our entry point for our integrated service model.

To date, we have formed new business modules through our own R&D, investment

in service-team building and developed an integrated services solution for stimulation.

Market Background

China is the world’s second-largest consumer of petroleum products, third-largest importer of petroleum and sixth-largest producer of petroleum.

In the last twenty years, China’s demand for oil has more than tripled, while its production of oil has only modestly increased.

China became a net importer of petroleum in 1983, and, as a result, oil production in China has been aimed at meeting domestic requirements.

China is the world’s second-largest

consumer of petroleum products, third-largest importer of petroleum and sixth-largest producer of petroleum.

In the last twenty

years, China’s demand for oil has more than tripled, while its production of oil has only modestly increased.

a net importer of petroleum in 1983, and, as a result, oil production in China has been aimed at meeting domestic requirements.

The oil industry in China is dominated by three state-owned holding companies:

China National Petroleum Corporation (CNPC), China Petroleum and Chemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC).

Foreign companies have also recently become involved in China’s petroleum industry;

however, according to Chinese law, China’s national oil companies may take a majority (or minority) stake in any commercial discovery.

As a result, the number of major foreign companies involved in the industry is relatively limited:

and includes the following companies Agip, Apache, BP, ChevronTexaco, ConocoPhillips, Eni, ExxonMobil, Husky Energy, Kerr-McGee, Mitsubishi, Royal Dutch Shell, Saudi Aramco, and Total.

In the past, China’s petroleum companies mined for petroleum by leveraging its abundance of inexpensive labor, rather than focusing on new technologies.

For example, a typical, traditional oilfield with an annual capacity of 1,000,000 tons would require between 10,000 and 20,000 laborers.

By contrast, when Baker CAC products were employed to explore and automate Cainan Oil Field, a desert oilfield in Xinjiang, annual capacity for the field reached 1,500,000 tons, with only 400 employees needed to manage the oilfield.

After the introduction of Baker CAC’s products into China’s petroleum industry, Chinese companies have also sought to provide automation solutions.

In the primary oil recovery stage, oil pressure in an oil reservoir may be high enough to force oil to the surface.

Approximately 20% of oil may be harvested at this stage.

The secondary oil recovery stage accounts for another 5% to 15% of oil recovery and involves such efforts as pumps to extract petroleum and the injection of water, natural gas, carbon dioxide or other gasses into the oil reservoir to force oil to the surface.

Most oilfields in China have now entered into the tertiary stage of oil recovery, at which oil extraction becomes increasingly difficult and inefficient.

Tertiary recovery generally focuses on decreasing oil viscosity to make extraction easier and accounts for between 5% and 15% of oil recovery.

Our efforts in tertiary recovery focus on reducing water content in crude oil in order to make extraction more efficient.

We currently provide products and services to oil and gas field companies, which focus on the development and production of oil and natural gas.

Our products and services described below correlate to the numbered stages of the oilfield production system graphical expression shown below.

China National Petroleum Corporation (CNPC), China

Petroleum and Chemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC).

Foreign companies have also recently

become involved in China’s petroleum industry;

however, according to Chinese law, China’s national oil companies may

take a majority (or minority) stake in any commercial discovery.

As a result, the number of major foreign companies involved in

the industry is relatively limited:

Agip, Apache, BP, ChevronTexaco, ConocoPhillips, Eni, ExxonMobil, Husky Energy, Kerr-McGee,

Mitsubishi, Royal Dutch Shell, Saudi Aramco, and Total.

In the past, China’s petroleum companies

mined for petroleum by leveraging its abundance of inexpensive labor, rather than focusing on new technologies.

For example, a

typical, traditional oilfield with an annual capacity of 1,000,000 tons would require between 10,000 and 20,000 laborers.

when Baker CAC products were employed to explore and automate Cainan Oil Field, a desert oilfield in Xinjiang, annual capacity

for the field reached 1,500,000 tons, with only 400 employees needed to manage the oilfield.

After the introduction of Baker CAC’s

products into China’s petroleum industry, Chinese companies have also sought to provide automation solutions.

In the primary oil recovery stage, oil

pressure in an oil reservoir may be high enough to force oil to the surface.

Approximately 20% of oil may be harvested at this

The secondary oil recovery stage accounts for another 5% to 15% of oil recovery and involves such efforts as pumps to extract

petroleum and the injection of water, natural gas, carbon dioxide or other gasses into the oil reservoir to force oil to the surface.

Most oilfields in China have now entered into the tertiary stage of oil recovery, at which oil extraction becomes increasingly

difficult and inefficient.

Tertiary recovery generally focuses on decreasing oil viscosity to make extraction easier and accounts

for between 5% and 15% of oil recovery.

Our efforts in tertiary recovery focus on reducing water content in crude oil in order

to make extraction more efficient.

We currently provide products and services

to oil and gas field companies, which focus on the development and production of oil and natural gas.

Our products and services

described below correlate to the numbered stages of the oilfield production system graphical expression shown below.

Our products and services include:

Equipment for Oil and Gas Production and Transportation

High-Efficiency Heating Furnaces (as shown above by process “6”).

High-Efficiency Heating Furnaces (as shown above).

Crude petroleum contains certain impurities that must be removed before the petroleum can be sold, including water and natural gas.

1 unchanged sentence

BHD researched, developed and implemented a new oilfield furnace that is advanced, highly automated, reliable, easily operable, safe and highly heat-efficient (90% efficiency).

Burner (as shown above by process “5”).

Burner (as shown above).

We serve as an agent for the Unigas Burner which is designed and manufactured by UNIGAS, a European burning equipment production company.

4 unchanged sentences

high security and environmental safety.

Oil and Gas Development Tools and Equipment

Oil and Gas Production Improvement Techniques

Packers of Fracturing.

5 unchanged sentences

According to different withdraw points, the production packer separates different oil layers, and protects the oil pipe from sand and permeability, so as to promote the recovery ratio.

Water Injection Packer.

The water injection packer injects water into different layers rather than injecting on a large scale;

this can reduce cost and promote effectiveness.

Oil and Gas Production Increasing Techniques

Fissure Shaper.

This is our proprietary product that is used along with a perforating gun to effectively increase perforation depth by between 46% and 80%, shape stratum fissures, improve stratum diversion capability and, as a result, improve our ability to locate oilfields and increase the output of oil wells.

Sand Prevention in Oil and Water Well.

This technique processes additives that are resistant to elevated temperatures into “resin sand” which will be transported to the bottom of the well via carrying fluid.

The “resin sand” goes through the borehole, piling up and compacting at the borehole and oil vacancy layer.

Then an artificial borehole wall is formed, functioning as a means of sand prevention.

This sand prevention technique has been adapted to more than 100 wells, including heavy oil wells, light oil wells, water wells and gas wells, with a 100% success rate and a 98% effective rate.

This technique

processes additives that are resistant to elevated temperatures into “resin sand”

which is transported to the bottom

of the well via carrying fluid.

The “resin sand”

goes through the borehole, piling up and compacting at the borehole

and oil vacancy layer.

An artificial borehole wall is then formed, functioning as a means of sand prevention.

This sand prevention

technique has been adapted to more than 100 wells, including heavy oil wells, light oil wells, water wells and gas wells, with

a 100% success rate and a 98% effective rate.

Water Locating and Plugging Technique.

5 unchanged sentences

The tubular column is adaptable to several oil drilling methods and is available for water locating and plugging in second and third class layers.

Fissure Shaper.

Fracture Acidizing.

8 unchanged sentences

Pumping Unit Controller.

Refers to process “1” above.

Refers to process “1”

Functions as a monitor to the pumping unit, and also collects data for load, pressure, voltage, startup and shutdown control.

2 unchanged sentences

Wireless Dynamometer and Wireless Pressure Gauge.

Refers to process “1” above.

Refers to process “1”

These products replace wired technology with cordless displacement sensor technology.

1 unchanged sentence

Electric Multi-Way Valve for Oilfield Metering Station Flow Control.

Refers to process “2” above.

Refers to process “2”

This multi-way valve is used before the test separator to replace the existing three valve manifolds.

10 unchanged sentences

A video surveillance technique for controlling the oil and gas wellhead area and the measurement station area.

Technique Service for “Digital Oilfield” Transformation.

Technique Service for “Digital Oilfield”

Transformation.

Includes engineering technique services such as oil and gas SCADA system, video surveillance and control system and communication systems.

ISO9000 Certification

We have received ISO9000 certifications for several of our processes.

The International Organization for Standardization consists of a worldwide federation of national standards bodies for approximately 130 countries, and the ISO9000 certification represents an international consensus of these standards bodies, with the aim of creating global standards of product and service quality.

We have received ISO9000 certification for the following:

The International Organization for Standardization

consists of a worldwide federation of national standards bodies for approximately 130 countries, and the ISO9000 certification

represents an international consensus of these standards bodies, with the aim of creating global standards of product and service

We have received ISO9000 certification for the following processes:

Nanjing Recon has received certification for the development and service of RSCADA.

BHD has received certification for high efficiency heating furnaces, import burners, and manometer surrogate rendition and service.

We operate our business by cooperating with oil companies and their subsidiaries, petroleum administration bureau and local service companies.

Most actual control of our direct and indirect clients can be traced to Sinopec and CNPC, the two major Chinese state-owned companies responsible for on-shore petroleum mining and extraction.

We have conducted automation projects for plants in three of China’s four highest producing oilfields, Daqing, Shengli and Xinjiang.

We have undertaken the automation projects at the following locations, among others:

We operate our business by cooperating

with oil companies and their subsidiaries, petroleum administration bureau and local service companies.

Most actual control of

our direct and indirect clients can be traced to Sinopec and CNPC, the two major Chinese state-owned companies responsible for

on-shore petroleum mining and extraction.

We have conducted automation projects for plants in three of China’s four highest

producing oilfields, Daqing, Shengli and Xinjiang.

We have undertaken the automation projects at the following locations, among

Jiangsu Oil Field

5 unchanged sentences

Jianghan Oil Field

We provide products and services to Sinopec under a series of agreements, each of which is terminable without notice.

We provide products and services to Sinopec

under a series of agreements, each of which is terminable without notice.

We first began to provide services to Sinopec in 1998.

Sinopec accounted for approximately 45.99% and 24.07% of our revenues for the fiscal years ended June 30, 2013 and 2012, respectively, and any termination of our business relationships with Sinopec would materially harm our operations.

Sinopec accounted for approximately 19.63% and 45.99% of our revenues for the fiscal years ended June 30, 2014 and 2013, respectively,

and any termination of our business relationships with Sinopec would materially harm our operations.

Qinghai Oil Field

6 unchanged sentences

Jilin Oil Field

We provide products and services to CNPC under a series of agreements, each of which is terminable without notice.

We provide products and services to CNPC

under a series of agreements, each of which is terminable without notice.

We first began to provide services to CNPC in 2000.

CNPC accounted for approximately 27.88% and 16.49% of our revenues in the fiscal years ended June 30, 2013 and 2012, respectively, and any termination of our business relationships with CNPC would materially harm our operations.

accounted for approximately 42.79% and 27.88% of our revenues in the fiscal years ended June 30, 2014 and 2013, respectively, and

any termination of our business relationships with CNPC would materially harm our operations.

Business Outlook

The oilfield engineering and technical

service industry is generally divided into five sections:

(1) exploration, (2) drilling and completion, (3) testing and logging,

(4) production and (5) oilfield construction.

Our businesses have mainly focused on production processes.

As of this year, we are

also expanding our business to well completion and horizontal well down-hole service process.

We still believe that many existing

oil wells and oilfields are in need of renewal and improvement on their current equipment to maintain production.

We also believe

that as many new wells are developed, our gathering and transferring equipment will be in great need.

Accordingly, in the next

year, we will focus on the following areas.

Measuring Equipment and Service .

“Digital oil field”

and the management of oil companies are highly regarded.

We believe our oilfield Supervisory Control

and Data Acquisition (“SCADA”) and related technical support services will address the needs of the oil well automation

system market, for which we forecast strong needs in the short term.

Through early cooperation with CNPC on Turkmenistan, we have

developed our experience in this market.

Although bidding has not yet commenced, we will continue pursuing overseas business projects

in the coming second phase construction.

Gathering and Transferring Equipment .

With more new wells developed, our management anticipates that demand for our furnaces and burners will grow more compared to last

year, especially in the Jilin Oilfield and Xinjiang oilfield.

Fracturing business .

we cooperated well with Zhongyuan Oilfield in 2013 and expect to continue growing revenue from fracturing and related stimulation

services in the coming year.

New business .

development of down-hole tools has always been an important technique for oilfield companies.

Recently, this market has developed

very rapidly.

After a year long test project for our client, we have developed experience with this technology and our products

and services have been accepted by our client.

We expect revenue from this business in the coming year.

Our Strengths

We believe our strengths are:

Safety of products.

12 unchanged sentences

They will be able to draw on their knowledge of the industry and their relationships in the industry.

Ability to leverage China’s cost structure.

As a Chinese company, we believe we can operate our business more cost-effectively because all of our employees, operations and assets are located in China, resulting in lower labor, development, manufacturing and rent costs than we believe we would incur if we also maintained operations abroad.

2 unchanged sentences

Because we own our intellectual property, we are able to avoid licensing fees or contravening licensing agreements.

Recent Industry Developments

Despite uncertainty in the energy industry

related to such matters as fluctuating prices and future opportunities for oil companies, our management believes there are still

many factors to support our long-term development:

(1) The opening of the Chinese oil industry

to participation by non-state owned service providers and vendors played an increasingly important role in the high-end oilfield

service segment to allow competition based on efficiency and price.

As oil and gas fields are depleted, it becomes more challenging

to find and convert reserves into usable energy sources.

As the industry has permitted competition by private companies and oil

companies have formed separate service companies, high-tech service has gradually opened up to private companies.

(2) Speeding up the development of unconventional

hydrocarbon resources such as shale gas and coal bed methane will bring more requirements of related production-increasing technic

China is rich in unconventional hydrocarbon resources, but new exploration and development technology breakthroughs

are urgently needed;

(3) Overseas assets of Chinese oilfield

companies increased gradually, and they will provide more opportunity for domestic service companies to participate in foreign

Management is focused on these factors

and will seek to extend our business on the industrial chain, like providing more integrated services and incremental measures

and growing our business from a predominantly up-ground business to include some down-hole services as well.

Our Strategies

Our goal is to help our customers improve their efficiency and profitability by providing them with software and hardware solutions and services to improve their ability to locate productive oil reservoirs, manage the oil extraction process, reduce extraction costs, and enhance recovery from extraction activities.

Our goal is to help our customers improve

their efficiency and profitability by providing them with software and hardware solutions and services to improve their ability

to locate productive oil reservoirs, manage the oil extraction process, reduce extraction costs, and enhance recovery from extraction

Key elements of our strategies include:

1 unchanged sentence

We believe that as the Chinese economy and oil industry continue to develop, Chinese petroleum extraction automation companies will compete with international businesses at an increasing rate.

Consequently, we believe we will have opportunities to take market share from foreign companies by developing positive business relationships in China’s petroleum mining and extraction industry.

We will also use strategic advertisements, predominantly in China’s northeast and northwest, where China’s major oilfields are located, to increase our brand awareness and market penetration.

Consequently, we believe we will have opportunities to take market share from foreign companies by developing positive business relationships in China’s petroleum mining and extraction industry.

We will also use strategic advertisements, predominantly in China’s northeast and northwest, where China’s major oilfields are located, to increase our brand awareness and market penetration.

We will continue to develop new technologies designed to improve petroleum mining and extraction efficiency and profitability for our customers.

Develop our own branded products and services and shift focus away from trading business.

Our management believes in the importance of our own branded products and our services, in light of their higher profit margins and their long-term significance in establishing the status of our Company in the oil and gas industry.

Moreover, the trading business relies on the major clients’ procurement policies toward agencies, any significant change of which could jeopardize our operating results.

Our management therefore believes that in the long run we will need to focus our growth strategy in developing professional services for the oil and gas industry in China.

Develop our own branded products and services

and shift focus away from trading business.

Our management believes in the importance of our own branded products and our services,

in light of their higher profit margins and their long-term significance in establishing the status of our Company in the oil

and gas industry.

Our aim is to become a more fully integrated customized supplier to our oil and gas customers, reducing their

costs and improving their production.

Moreover, the trading business relies on the major clients’

in procurement policies

toward agencies, any significant change of which could jeopardize our operating results.

Our management therefore believes that

in the long run we will need to focus our growth strategy in developing professional services for the oil and gas industry in

Focus on higher-profit subsection of market.

12 unchanged sentences

This strategic investment marks an important step in expanding our business in the U.S.

We face competition from a variety of foreign and domestic companies involved in the petroleum mining automation industry.

While we believe we effectively compete in our market, our competitors hold a substantial market share.

A few of our existing competitors, as well as a number of potential new competitors, have significantly greater financial, technical, marketing and other resources than we do, which could provide them with a significant competitive advantage over us.

We cannot guarantee that we will be able to compete successfully against our current or future competitors in our industry or that competition will not have a material adverse effect on our business, operating results and financial condition.

Our primary domestic competitors include the following:

We face competition from a variety of foreign

and domestic companies involved in the petroleum mining automation industry.

While we believe we effectively compete in our market,

our competitors hold a substantial market share.

A few of our existing competitors, as well

as a number of potential new competitors, have significantly greater financial, technical, marketing and other resources than we

do, which could provide them with a significant competitive advantage over us.

We cannot guarantee that we will be able to compete

successfully against our current or future competitors in our industry or that competition will not have a material adverse effect

on our business, operating results and financial condition.

Our primary domestic competitors include

the following:

Beijing Echo Technologies Development Co., Ltd.

(“BET”).

BET provides a combination of software and hardware products for industrial automatic control systems in the petroleum industry.

BET currently engages in research and development of software and hardware applied to industrial automatic control systems, manufacturing and installation of industrial automation instruments and integration of automatic control products.

Beijing Golden-Time Petroleum Measurement Technology Co., Ltd.

BGT develops analysis software used in oilfields but does not yet, to our knowledge, produce a substantial amount of hardware products.

Anton Oilfield Services Group (HKEx stock code:

1 unchanged sentence

Its services and solutions span across the drilling technology, well completion, down-hole operation, and oil production phases in the development cycle.

Its fast growth benefits from the accelerated development of natural gas in China and the Group’s increased presence in the overseas markets.

Research and Development

We focus our research and development efforts on improving our development efficiency and the quality of our products and services.

As of June 30, 2013, our research and development team consisted of 36 experienced engineers, developers and programmers.

In addition, some of our support employees regularly participate in our research and development programs.

In the fiscal years ended June 30, 2013 and 2012, we spent approximately ¥8.5 million ($1.4 million) and ¥6.5 million, respectively, on research and development activities.

These expenditures focused primarily on research into furnaces and improvement of services we provide.

We focus our research and development efforts

on improving our development efficiency and the quality of our products and services.

As of June 30, 2014, our research and

development team consisted of 42 experienced engineers, developers and programmers.

In addition, some of our support employees

regularly participate in our research and development programs.

In the fiscal years ended June 30,

2014 and 2013, we spent approximately ¥8.1 million ($1.3 million) and ¥8.5 million, respectively, on research and development

activities to develop new generation of our software and upgrade our own designed furnaces.

Intellectual Property

Our success and competitive position is dependent in part upon our ability to develop and maintain the proprietary aspect of our technology.

The reverse engineering, unauthorized copying, or other misappropriation of our technology could enable third parties to benefit from our technology without paying for it.

We rely on a combination of trademark, trade secret, copyright law and contractual restrictions to protect the proprietary aspects of the Domestic Companies’ and our technology.

We seek to protect the source code to the Domestic Companies’ and our software, documentation and other written materials under trade secret and copyright laws.

While we actively take steps to protect the Domestic Companies’ and our proprietary rights, such steps may not be adequate to prevent the infringement or misappropriation of the Domestic Companies’ and our intellectual property.

This is particularly the case in China where the laws may not protect our proprietary rights as fully as in the United States.

We license the Domestic Companies’ and our software products under signed license agreements that impose restrictions on the licensee’s ability to utilize the software and do not permit the re-sale, sublicense or other transfer of the software.

Finally, we seek to avoid disclosure of the Domestic Companies’ and our intellectual property by requiring employees and independent consultants to execute confidentiality agreements.

Although the Domestic Companies and we develop our software products, each is based upon middleware developed by third parties.

We integrate this technology, licensed by our customers from third parties in our software products.

If our customers are unable to continue to license any of this third party software, or if the third party licensors do not adequately maintain or update their products, we would face delays in the releases of our software until equivalent technology can be identified, licensed or developed, and integrated into our software products.

Our success and competitive position is

dependent in part upon our ability to develop and maintain the proprietary aspect of our technology.

The reverse engineering, unauthorized

copying, or other misappropriation of our technology could enable third parties to benefit from our technology without paying for

We rely on a combination of trademark, trade secret, copyright law and contractual restrictions to protect the proprietary

aspects of the Domestic Companies’

and our technology.

We seek to protect the source code to the Domestic Companies’

and our software, documentation and other written materials under trade secret and copyright laws.

While we actively take steps

to protect the Domestic Companies’

and our proprietary rights, such steps may not be adequate to prevent the infringement

or misappropriation of the Domestic Companies’

and our intellectual property.

This is particularly the case in China where

intellectual property may not be sufficiently protected.

We license the Domestic Companies’

and our software products under signed license agreements that impose restrictions on the licensee’s ability to utilize the

software and do not permit the re-sale, sublicense or other transfer of the software.

Finally, we seek to avoid disclosure of the

Domestic Companies’

and our intellectual property by requiring employees and independent consultants to execute confidentiality

Although the Domestic Companies and we

develop our software products, each is based upon middleware developed by third parties.

We integrate this technology, licensed

by our customers from third parties in our software products.

If our customers are unable to continue to license any of this third

party software, or if the third party licensors do not adequately maintain or update their products, we would face delays in the

releases of our software until equivalent technology can be identified, licensed or developed, and integrated into our software

These delays, if they occur, could harm our business, operating results and financial condition.

There has been a substantial amount of litigation in the software industry regarding intellectual property rights.

It is possible that in the future third parties may claim that our current or potential future software solutions infringe their intellectual property.

We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlap.

In addition, we may find it necessary to initiate claims or litigation against third parties for infringement of our proprietary rights or to protect our trade secrets.

Although the Domestic Companies and we may disclaim certain intellectual property representations to our customers, these disclaimers may not be sufficient to fully protect us against such claims.

Any claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require the Domestic Companies and us to enter into royalty or license agreements.

Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could have a material adverse effect on our business, operating results and financial condition.

Our standard software license agreements contain an infringement indemnity clause under which we agree to indemnify and hold harmless our customers and business partners against liability and damages arising from claims of various copyright or other intellectual property infringement by the Domestic Companies’ and our products.

There has been a substantial amount of

litigation in the software industry regarding intellectual property rights.

It is possible that in the future third parties may

claim that our current or potential future software solutions infringe their intellectual property.

We expect that software product

developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment

grows and the functionality of products in different industry segments overlap.

In addition, we may find it necessary to initiate

claims or litigation against third parties for infringement of our proprietary rights or to protect our trade secrets.

the Domestic Companies and we may disclaim certain intellectual property representations to our customers, these disclaimers may

not be sufficient to fully protect us against such claims.

Any claims, with or without merit, could be time consuming, result in

costly litigation, cause product shipment delays or require the Domestic Companies and us to enter into royalty or license agreements.

Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could have a material

adverse effect on our business, operating results and financial condition.

Our standard software license agreements

contain an infringement indemnity clause under which we agree to indemnify and hold harmless our customers and business partners

against liability and damages arising from claims of various copyright or other intellectual property infringement by the Domestic

Companies’

and our products.

We have never lost an infringement claim, and our costs to defend such lawsuits have been insignificant.

Although it is possible that in the future third parties may claim that our current or potential future software solutions or we infringe on their intellectual property, we do not currently expect a significant impact on our business, operating results, or financial condition.

We market our products under the following trademarks which are registered with the PRC Trademark Bureau under the State Administration for Industry and Commerce.

We currently own or have applied for the following trademarks:

Trademark of “Senior” valid from May 14, 2005 through May 13, 2015;

Trademark of “BHD” valid from November 7, 2003 through November 6, 2013;

Trademark of “Recon” of the 7 th classification valid from October 21, 2011 through October 20, 2021;

Trademark of “Recon” of the 9 th classification valid from April 21, 2011 through April 20, 2021;

Trademark of “Recon” of the 42 nd classification valid from September 7, 2011 through September 6, 2021.

We currently own or have applied for the following 22 patents registered with the State Intellectual Property Office which are applied on our automated services products for the petroleum extraction industry:

Patent of heavy oil tubing-casing used for extraction valid until June 17, 2015;

Although it is possible that in the future third parties may claim that our current or potential future software solutions or we

infringe on their intellectual property, we do not currently expect a significant impact on our business, operating results, or

financial condition.

We market our products under the following

trademarks which are registered with the PRC Trademark Bureau under the State Administration for Industry and Commerce.

own or have applied for the following trademarks:

Trademark of “Senior”

valid from May 14,

2005 through May 13, 2015;

Trademark of “BHD”

valid from November 7,

2003 through November 6, 2023;

Trademark of “Recon”

classification valid from October 21, 2011 through October 20, 2021;

Trademark of “Recon”

classification valid from April 21, 2011 through April 20, 2021;

Trademark of “Recon”

classification valid from September 7, 2011 through September 6, 2021.

We currently own or have applied for the

following 25 patents registered with the State Intellectual Property Office which are applied on our automated products and heating

related equipment for the petroleum industry:

of heavy oil tubing-casing used for extraction valid until June 17,

Patent of fracturing packer valid until August 5,

Patent of pressure phase transition furnace valid until August 5, 2018;

Patent of vacuum furnace phase transition heater valid until August 5, 2018;

5.Patent of high pressure natural gas water heater valid until June 30, 2019 ;

Patent of pressure phase transition furnace valid until

August 5, 2018;

Patent of vacuum furnace phase transition heater valid

until August 5, 2018;

Patent of high pressure natural gas water heater valid

until June 30, 2019;

Patent of negative pressure heater valid until June

1 unchanged sentence

Patent of tube heating furnace valid until June 30,

Patent of automatically adjusting negative pressure burner valid until August 5, 2019;

Patent of wireless data instrument diagram valid until December 10, 2018;

Patent of automatically adjusting negative pressure

burner valid until August 5, 2019;

Patent of wireless data instrument diagram valid until

December 10, 2018;

Patent of hot water furnace valid until April 8, 2021;

Patent of multifunctional heating furnace valid until April 8, 2021;

Patent of efficient gas-liquid separator valid until August 15, 2021;

Patent of efficient oil-gas-water separator valid until October 24, 2021;

Patent of room pressure pipeline heater valid until October 24, 2021;

Patent of multifunctional heating furnace valid until

April 8, 2021;

Patent of efficient gas-liquid separator valid until

August 15, 2021;

Patent of efficient oil-gas-water separator valid until

October 24, 2021;

Patent of room pressure pipeline heater valid until

October 24, 2021;

Patent of pneumatic control system valid until February

Patent of firebox indirect heating furnace valid until December 14, 2022;

Patent of firebox indirect heating furnace valid until

December 14, 2022;

Patent of cylindrical-tubular furnace valid until December

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Patent of vacuum furnace valid until December 14, 2022;

We have submitted one more patent application (fission phase change heating furnace).

We have registered the following software products with the State Intellectual Property Office:

Patent of wireless pressure sensor valid until November

Patent of wireless start-end module valid until November

We have submitted two more patent application (separated

phase change heating furnace and data-collection for pumping unit indicator diagrams base on acceleration).

We have registered the following software

products with the State Intellectual Property Office:

Recon automated monitoring system version 1 was published on July 30, 2011;

2 unchanged sentences

Recon flow control computer monitoring system software was registered and published on February 8, 2008;

Recon SCADA field monitoring and data acquisition system software version 2 was published on August 18, 2003, and version 3 was registered and published on April 5, 2008;

Recon wireless field monitoring and data acquisition system software version 2 was published on January 8, 2011, and version 1 was registered and published on September 15, 2010;

Recon SCADA field monitoring and data acquisition system software version 2 was published on August 18, 2003, and version

3 was registered and published on April 5, 2008;

Recon wireless field monitoring and data acquisition system software version 2 was published on January 8, 2011,

and version 1 was registered and published on September 15, 2010;

Recon RCNAMT version 1 was published on April 27, 2012;

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Environmental Matters

We have not incurred material expenses in connection with compliance with Chinese environmental laws and regulations.

We do not anticipate expending any material amounts for such compliance purposes for the remainder of our current or succeeding fiscal year.

China’s Intellectual Property Rights Enforcement System

In 1998, China established the State Intellectual Property Office (“SIPO”) to coordinate China’s intellectual property enforcement efforts.

SIPO is responsible for granting and enforcing patents, as well as coordinating intellectual property rights related to copyrights and trademarks.

We have not incurred material expenses

in connection with compliance with Chinese environmental laws and regulations.

We do not anticipate expending any material amounts

for such compliance purposes for the remainder of our current or succeeding fiscal year.

China’s Intellectual Property Rights Enforcement System

In 1998, China established the State Intellectual

Property Office (“SIPO”) to coordinate China’s intellectual property enforcement efforts.

SIPO is responsible

for granting and enforcing patents, as well as coordinating intellectual property rights related to copyrights and trademarks.

Protection of intellectual property in China follows a two-track system.

The first track is administrative in nature, whereby a holder of intellectual property rights files a complaint at a local administrative office.

Determining which intellectual property agency can be confusing, as jurisdiction of intellectual property matters is diffused throughout a number of government agencies and offices, with each typically responsible for the protection afforded by one statute or one specific area of intellectual property-related law.

The first track is administrative in nature, whereby a

holder of intellectual property rights files a complaint at a local administrative office.

Determining which intellectual property

agency can be confusing, as jurisdiction of intellectual property matters is diffused throughout a number of government agencies

and offices, with each typically responsible for the protection afforded by one statute or one specific area of intellectual property-related

The second track is a judicial track, whereby complaints are filed through the Chinese court system.

Since 1993, China has maintained various intellectual property tribunals.

The total volume of intellectual property related litigation, however, remains small.

Although there are differences in intellectual property rights between the United States and China, of most significance to the Company is the inexperience of China in connection with the development and protection of intellectual property rights.

Similar to the United States, China has chosen to protect software under copyright law rather than trade secrets, patent or contract law.

As such, we will attempt to protect our most significant intellectual property pursuant to Chinese laws that have only recently been adopted.

Unlike the United States, which has lengthy case law related to the interpretation and applicability of intellectual property law, China has a less developed body of relevant intellectual property case law.

Since 1993, China has

maintained various intellectual property tribunals.

The total volume of intellectual property related litigation, however, remains

Although there are differences in intellectual

property rights between the United States and China, of most significance to the Company is the inexperience of China in connection

with the development and protection of intellectual property rights.

Similar to the United States, China has chosen to protect

software under copyright law rather than trade secrets, patent or contract law.

As such, we will attempt to protect our most significant

intellectual property pursuant to Chinese laws that have only recently been adopted.

Unlike the United States, which has lengthy

case law related to the interpretation and applicability of intellectual property law, China has not developed a case law system.

Regulation on Software Products

On March 1, 2009, the Ministry of Industry and Information Technology of China issued the Administrative Measures on Software Products, or the Software Measures, which became effective as of April 10, 2009, to strengthen the regulation of software products and to encourage the development of the Chinese software industry.

Under the Software Measures, a software developer must have all software products imported into or sold in China tested by a testing organization supervised by the Ministry of Industry and Information Technology.

The software industry authorities in provinces, autonomous regions, municipalities and cities with independent planning are in charge of the registration, report and management of software products.

Software products can be registered for five years, and the registration is renewable upon expiration.

Although some of Nanjing Recon’s current software products were registered in 2008, there can be no guarantee that the registration will be renewed in 2013 or that the Domestic Companies’ and our future products will be registered.

On March 1, 2009, the Ministry of

Industry and Information Technology of China issued the Administrative Measures on Software Products, or the Software Measures,

which became effective as of April 10, 2009, to strengthen the regulation of software products and to encourage the development

of the Chinese software industry.

Under the Software Measures, a software developer must have all software products imported into

or sold in China tested by a testing organization supervised by the Ministry of Industry and Information Technology.

industry authorities in provinces, autonomous regions, municipalities and cities with independent planning are in charge of the

registration, report and management of software products.

Software products can be registered for five years, and the registration

is renewable upon expiration.

Although some of Nanjing Recon’s current software products were registered in 2008, there can

be no guarantee that the registration will be renewed in 2013 or that the Domestic Companies’

and our future products will

be registered.

Regulation of Intellectual Property Rights

China has adopted legislation governing intellectual property rights, including trademarks and copyrights.

China is a signatory to the main international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the WTO in December 2001.

The Standing Committee of the National People’s Congress amended the Copyright Law in 2001 to widen the scope of works and rights that are eligible for copyright protection.

The amended Copyright Law extends copyright protection to software products, among others.

In addition, there is a voluntary registration system administered by the China Copyright Protection Center.

Unlike patent and trademark registration, copyrighted works do not require registration for protection.

Protection is granted to individuals from countries belonging to the copyright international conventions or bilateral agreements of which China is a member.

China has adopted legislation governing

intellectual property rights, including trademarks and copyrights.

China is a signatory to the main international conventions on

intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon

its accession to the WTO in December 2001.

scope of works and rights that are eligible for copyright protection.

The amended Copyright Law extends copyright protection

to software products, among others.

In addition, there is a voluntary registration system administered by the China Copyright

Protection Center.

China's new version of Copyright law is adopted by The National People's Congress in 2010 unlike patent

and trademark registration, copyrighted works do not require registration for protection.

Protection is granted to

individuals from countries belonging to the copyright international conventions or bilateral agreements of which China is a

Nanjing Recon has ten copyrights for software programs.

The Chinese Trademark Law, adopted in 1982 and revised in 1993, 2001 and 2013, protects registered trademarks.

The Trademark Office under the Chinese State Administration for Industry and Commerce handles trademark registrations and grants a term of ten years to registered trademarks.

Trademark Law, adopted in 1982 and revised in 1993, 2001, and 2013 protects registered trademarks.

The Trademark Office

under the Chinese State Administration for Industry and Commerce handles trademark registrations and grants a term of ten

years to registered trademarks.

Trademark license agreements must be filed with the Trademark Office for record.

China has a “first-to-register” system that requires no evidence of prior use or ownership.

The Domestic Companies and we have registered a number of product names with the Trademark Office.

“first-to-register”

system that requires no evidence of prior use or ownership.

The Domestic Companies and we

have registered a number of product names with the Trademark Office.

Regulations on Foreign Exchange

Foreign Currency Exchange .

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended, and the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996).

Under these regulations, Renminbi are freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account items, such as direct investment, loan, repatriation of investment and investment in securities outside China, unless the prior approval of SAFE or its local counterparts is obtained.

In addition, any loans to an operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered capital amount.

Furthermore, any foreign loan must be registered with SAFE or its local counterparts for the loan to be effective.

Any increase in the amount of the total investment and registered capital must be approved by the PRC Ministry of Commerce or its local counterpart.

We may not be able to obtain these government approvals or registrations on a timely basis, if at all, which could result in a delay in the process of making these loans.

The dividends paid by the subsidiary to its shareholder are deemed shareholder income and are taxable in China.

Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE.

Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities.

the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related

foreign exchange transactions, may be made in foreign currencies without prior approval from SAFE by complying with certain procedural

requirements.

By contrast, approval from or registration with appropriate government authorities is required where RMB is to be

converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated

loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency

loans to our PRC subsidiaries.

SAFE issued the Circular on the Relevant Operating Issues Concerning

the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises(2008),

or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB

by restricting how the converted RMB may be used.

In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify

the application of SAFE Circular 142.

Under SAFE Circular 142 and Circular 45, the RMB capital converted from foreign currency

registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable

government authority and may not be used for equity investments within the PRC.

In addition, SAFE strengthened its oversight of

the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises.

of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay

RMB loans if the proceeds of such loans have not been used.

Since SAFE Circular 142 has been in place for more than five

years, SAFE decided to further reform the foreign exchange administration system in order to satisfy and facilitate the business

and capital operations of foreign invested enterprises, and issued the Circular on the Relevant Issues Concerning the Launch of

Reforming Trial of the Administration Model of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises in Certain

Areas on August 4, 2014.

This circular suspends the application of SAFE Circular 142 in certain areas and allows a foreign-invested

enterprise registered in such areas with a business scope including “investment”

to use the RMB capital converted from

foreign currency registered capital for equity investments within the PRC.

SAFE promulgated Circular 59 in November 2010, which tightens

the regulation over settlement of net proceeds from overseas offerings, such as our initial public offering, and requires, among

other things, the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds

to be settled in the manner described in the offering documents or otherwise approved by our board.

Violations of these SAFE regulations

may result in severe monetary or other penalties, including confiscation of earnings derived from such violation activities, a

fine of up to 30% of the RMB funds converted from the foreign invested funds or in the case of a severe violation, a fine ranging

from 30% to 100% of the RMB funds converted from the foreign-invested funds.

In November 2012, SAFE promulgated the Circular of Further Improving

and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies

the current foreign exchange procedure.

Pursuant to this circular, the opening of various special purpose foreign exchange accounts,

such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB

proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise

to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same

entity may be opened in different provinces, which was not possible previously.

In addition, SAFE promulgated the Circular on Printing

and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the

Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment

by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating

to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

Regulation of Dividend Distribution .

The principal regulations governing the distribution of dividends by foreign holding companies include the Foreign Investment Enterprise Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2001).

Under these regulations, foreign investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations.

In addition, foreign investment enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises.

The principal regulations governing the distribution of dividends by foreign holding companies include the Foreign Investment Enterprise

Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2014).

Under these regulations, foreign investment

enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting

standards and regulations.

In addition, foreign investment enterprises in China are required to allocate at least 10% of their

respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered

capital of the enterprises.

These reserves are not distributable as cash dividends.

On October 21, 2005, SAFE issued Notice 75, which became effective as of November 1, 2005.

According to Notice 75, prior registration with the local SAFE branch is required for PRC residents to establish or to control an offshore company for the purposes of financing that offshore company with assets or equity interests in an onshore enterprise located in the PRC.

An amendment to registration or filing with the local SAFE branch by such PRC resident is also required for the injection of equity interests or assets of an onshore enterprise in the offshore company or overseas funds raised by such offshore company, or any other material change involving a change in the capital of the offshore company.

Moreover, Notice 75 applies retroactively.

As a result, PRC residents who have established or acquired control of offshore companies that have made onshore investments in the PRC in the past are required to complete the relevant registration procedures with the local SAFE branch.

Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent or affiliate and capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.

PRC residents who control the Company are required to register with SAFE in connection with their investments in us.

Such individuals completed this registration in 2007, and 2008, as amended.

If we use our equity interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be subject to the registration procedures described in Notice 75.

Regulations on Foreign Investment in Automation Service Industry and Oil Exploration and Extraction Industry in PRC.

In accordance with the Catalogue of Industries for Guiding Foreign Investment (Revised 2007), the oil and gas automation service industries are in the catalogue of permitted industries, and thus there are no restrictions on foreign investment in such industry.

In addition the following industries are encouraged for foreign investment in China:

Manufacturing of equipment for oil prospecting, well drilling, and centralized transportation:

floating well drilling system and floating production system operating at a water depth over 500m, seabed oil extraction & centralized transportation equipment operating at a water depth over 600m, deep-water oil driller with winch power over 3000KW, top driving power over 850KW and drilling pump power over, land-based oil driller & desert-based oil driller for drilling wells deeper than 9000m, 80 ton or bigger reciprocating piston compressor for use in oil refineries with a capacity of 10 million tons/year, CNC oil well measuring instrument, and oil drilling mud-hole equipment.

SAFE Circular 37, on July 4, 2014, which replaced the former

circular commonly known as “SAFE Circular 75”

promulgated by SAFE on October 21, 2005.

SAFE Circular 37 requires PRC

residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore

entity, for the purpose of overseas investment and financing, with such PRC residents’

legally owned assets or equity interests

in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.”

SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special

purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division

or other material event.

In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the

required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions

to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle

may be restricted in its ability to contribute additional capital into its PRC subsidiary.

Furthermore, failure to comply with

the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange

Regulations on Foreign Investment

in Automation Service Industry and Oil Exploration and Extraction Industry in PRC.

In accordance with the Catalogue

of Industries for Guiding Foreign Investment (Revised 2011), the oil and gas automation service industries are in the catalogue

of permitted industries, and thus there are no restrictions on foreign investment in such industry.

In addition the following industries

are encouraged for foreign investment in China:

Manufacturing of equipment for oil exploration, drilling, collection and transportation:

floating drilling

systems and floating production systems with an operating water depth of more than 1,500 meters and the supporting subsea oil extraction,

collection and transportation equipment

Exploration and exploitation of oil and natural gas with venture capital (limited to equity joint ventures and cooperative joint ventures);

1 unchanged sentence

Development and application of new oil exploration and exploitation technologies such as geophysical exploration, drilling, well logging, and downhole operation, etc.

(limited to cooperative joint ventures);

Exploration and development of unconventional oil resources such as oil shale, oil sands, heavy oil, and excess oil (limited to cooperative joint ventures).

As of June 30, 2013, we had 82 employees, all of whom were based in China.

Of the total, 11 were in management, 36 were in technical support and research and development, 13 were engaged in sales and marketing, 10 were in financial affairs, and 12 were in administration and procurement.

(limited to equity joint ventures and cooperative joint ventures);

Exploration and development of unconventional oil resources such as oil shale, oil sands, heavy oil, and excess oil (limited to equity joint ventures and cooperative joint ventures).

As of June 30, 2014, we had approximately

89 employees, all of whom were based in China.

We believe that our relations with our employees are good.

We have never had a work stoppage, and our employees are not subject to a collective bargaining agreement.

We do not have any business interruption, litigation or natural disaster insurance coverage for our operations in China.

Insurance companies in China offer limited business insurance products.

While business interruption insurance is available to a limited extent in China, we have determined that the risks of interruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance.

We have never had a work

stoppage, and our employees are not subject to a collective bargaining agreement.

We do not have any business interruption,

litigation or natural disaster insurance coverage for our operations in China.

Insurance companies in China offer limited business

insurance products.

While business interruption insurance is available to a limited extent in China, we have determined that the

risks of interruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable

terms make it impractical for us to have such insurance.

Therefore, we are subject to business and product liability exposure.

Business or product liability claims or potential regulatory actions could materially and adversely affect our business and financial condition.

We do, however, pay certain required insurance amounts in connection with our employees’ wages.

The amount and types of insurance we must provide under Chinese and local requirements vary by the location of each of the Domestic Companies.

The following table summarizes the types of insurance paid for each of the Domestic Companies:

Business or product liability claims or potential regulatory actions could materially and adversely affect our business and financial

We do, however, pay certain required insurance

amounts in connection with our employees’

The amount and types of insurance we must provide under Chinese and local

requirements vary by the location of each of the Domestic Companies.

The following table summarizes the types of insurance paid

for each of the Domestic Companies:

Nanjing Recon

7 unchanged sentences

Risk Factors.

The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.

Unresolved Staff Comments.

The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.

The Company is not required to provide

the information required by this Item because the Company is a smaller reporting company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business