What changed in this filing

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Item 9A. Controls and Procedures

2014-09-29 compared with 2013-09-27 · 1408 added, 669 removed, 449 unchanged (82% of the section changed)

1 unchanged sentence

Disclosure Controls and Procedures

As of June 30, 2013, our company carried out an evaluation, under the supervision of and with the participation of management, including our Company’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of our Company’s disclosure controls and procedures.

Included in this Annual Report on Form 10-K, the chief executive officer and chief financial officer concluded that our Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were ineffective in timely alerting them to information required to be included in the Company’s periodic U.S.

Securities and Exchange Commission (the “Commission”) filings.

As of June 30, 2014, our company carried

out an evaluation, under the supervision of and with the participation of management, including our Company’s chief executive

officer and chief financial officer, of the effectiveness of the design and operation of our Company’s disclosure controls

and procedures.

Included in this Annual Report on Form 10-K, the chief executive officer and chief financial officer concluded

that our Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange

Act of 1934) were ineffective.

Changes in Internal Control over Financial Reporting

Management continues to focus on internal control over financial reporting.

As of June 30, 2013, the Company has completed certain documentation of our internal controls and implemented the following remedial initiatives:

⋅ Improved the design and documentation related to multiple levels of review over financial statements included in our SEC filings;

⋅ Expanded the design and assessment test work over the monitoring function of entity level controls;

⋅ Enhanced documentation retention policies over test work related to our continuous management assessments of internal control effectiveness;

⋅ Expanded documentation practices and policies related to various key controls to provide support and audit trails for both internal management assessment as well as external auditor testing.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended.

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

GAAP, and that the Company’s receipts and expenditures are being made only in accordance with the authorization of its management and directors;

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

The Company’s management assessed the effectiveness of its internal control over financial reporting as of June 30, 2013.

In making this assessment, management used the 1992 framework set forth in the report entitled Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.

The COSO framework(old) summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.

Based on this assessment, the Company’s management believes that, as of June 30, 2013, its internal control over financing reporting is not effective based on those criteria.

The specific material weaknesses identified by the Company’s management as of June 30, 2013 are described as follows:

We did not have sufficient skilled accounting personnel who are either qualified as Certified Public Accountants in the U.S.

Management continues to focus on internal

control over financial reporting.

As of June 30, 2014, the Company has completed certain documentation of our internal controls

and implemented the following remedial initiatives:

the design and documentation related to multiple levels of review over financial statements included in our SEC filings;

the design and assessment test work over the monitoring function of entity level controls;

documentation retention policies over test work related to our continuous management assessments of internal control effectiveness;

documentation practices and policies related to various key controls to provide support and audit trails for both internal management

assessment as well as external auditor testing.

Management’s Annual Report on Internal Control over

Financial Reporting

The Company’s management is responsible

for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities

and Exchange Act of 1934, as amended.

The Company’s internal control over financial reporting is designed to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in

accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes

those policies and procedures that:

(1) pertain to the maintenance of records

that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

(2) provide reasonable assurance that

transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

GAAP, and that the

Company’s receipts and expenditures are being made only in accordance with the authorization of its management and directors;

(3) provide reasonable assurance regarding

prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a

material effect on the financial statements.

The Company’s management assessed

the effectiveness of its internal control over financial reporting as of June 30, 2014.

In making this assessment, management

used the 1992 framework set forth in the report entitled Internal Control—Integrated Framework issued by

the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.

The COSO framework(old) summarizes each of the components

of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control

activities, (iv) information and communication, and (v) monitoring.

Based on this assessment, the Company’s management

believes that, as of June 30, 2014, its internal control over financing reporting is not effective based on those criteria.

The specific material weaknesses identified

by the Company’s management as of June 30, 2014 are described as follows:

We did not have sufficient skilled accounting personnel who are either qualified as Certified Public Accountants

or who have received education from U.S.

institutions or other educational programs that would provide enough relevant education relating to U.S.

The Company’s CFO and Controller have limited experience with U.S.

institutions or other educational programs that would provide enough relevant

education relating to U.S.

The Company’s CFO have limited experience with U.S.

GAAP and are not U.S.

Certified Public Accountants.

Further, our operating subsidiaries are based in China, and in accordance with PRC laws and regulations, are required to comply with PRC GAAP, rather than U.S.

Thus, the accounting skills and understanding necessary to fulfill the requirements of U.S.

GAAP-based reporting, including the preparation of consolidated financial statements, are inadequate, and determined to be a material weakness.

We recently completed our designs of our internal controls and assessments for all of our financial reporting cycles during fiscal year 2013, and we are unable to declare effectiveness of our controls due to lack of sufficient time to obtain evidence of operating effectiveness as of June 30, 2013 due to lack of monitoring of our internal controls (lack of self-testing of internal controls).

Therefore, we determined that the lack of time to evaluate our design and operating effectiveness is a material weakness.

It should be noted, however, that (a) many actions had been undertaken to enhance the control environment during the year;

and (b) there are other remedial activities that are scheduled to be take place in fiscal 2014.

As a result, the Company has developed remedial actions to strengthen its accounting and financial reporting functions as well as the related disclosure controls and procedures.

Such plan will require the hiring of additional resources and the deployment of other corporate resources for the accounting department in relation to the financial reporting process.

Such additional resources will include the establishment of a work force dedicated to the task of correcting past financial irregularities and maintaining correct financial reporting on an on-going basis.

To strengthen the Company’s internal control over financial reporting, the Company engaged outside consultants that are skilled in SEC reporting and Section 404 compliance to assist in the implementation of the following remedial actions, which have been completed as of the date of this report:

• Development and formalization of key accounting and financial reporting policies and procedures;

• Identification and documentation of key controls by business process;

Certified Public

Further, our operating subsidiaries are based in China, and in accordance with PRC laws and regulations, are required

to comply with PRC GAAP, rather than U.S.

Thus, the accounting skills and understanding necessary to fulfill the requirements

GAAP-based reporting, including the preparation of consolidated financial statements, are inadequate, and determined to

be a material weakness.

We completed our designs of our internal controls

and assessments for all of our financial reporting cycles during fiscal year 2013, and we are unable to declare effectiveness of

our controls due to lack of sufficient time to obtain evidence of operating effectiveness as of June 30, 2014 due to lack of monitoring

of our internal controls (lack of self-testing of internal controls).

Therefore, we determined that the lack of time to evaluate

our design and operating effectiveness is a material weakness.

It should be noted, however, that (a) many actions had been undertaken

to enhance the control environment during the year;

and (b) there are other remedial activities that are scheduled to be take place

in fiscal 2015.

As a result, the Company has developed

remedial actions to strengthen its accounting and financial reporting functions as well as the related disclosure controls and

Such plan will require the hiring of additional resources and the deployment of other corporate resources for the accounting

department in relation to the financial reporting process.

Such additional resources will include the establishment of a work force

dedicated to the task of correcting past financial irregularities and maintaining correct financial reporting on an on-going basis.

To strengthen the Company’s internal control over financial reporting, the Company engaged outside consultants that are skilled

in SEC reporting and Section 404 compliance to assist in the implementation of the following remedial actions, which have been

completed as of the date of this report:

● Enhancement of existing disclosures policies and procedures;

• Formalization of periodic communication between management and the audit committee;

• Implementation of policies and procedures intended to enhance management monitoring and oversight by the Audit Committee.

In addition to the foregoing efforts, the Company expects to implement the following remedial actions during fiscal year 2014:

• Formalization of a periodic staff training program to enhance their awareness of the key internal control activities.

• Develop a comprehensive training and development plan, for our finance, accounting and internal audit personnel, including our Chief Financial Officer, Controller, and others, in the principles and rules of U.S.

● Formalization of periodic communication between management

and the audit committee;

● Implementation of policies and procedures intended

to enhance management monitoring and oversight by the Audit Committee.

● Formalization

of a periodic staff training program to enhance their awareness of the key internal control activities.

In addition to the foregoing efforts, the Company expects to implement the following remedial

actions during fiscal year 2015:

● Develop a comprehensive training and development plan,

for our finance, accounting and internal audit personnel, including our Chief Financial Officer, Controller, and others, in the

principles and rules of U.S.

GAAP, SEC reporting requirements and the application thereof.

• Hire a full-time employee who possesses the requisite U.S.

● Hire a full-time employee who possesses the requisite

GAAP experience and education

• Monitoring of internal controls by performing self-testing of various key controls.

Despite the material weaknesses and deficiencies reported above, our management believes that our consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

● Monitoring of internal controls by performing self-testing

of various key controls.

Despite the material weaknesses and deficiencies

reported above, our management believes that our consolidated financial statements included in this report fairly present in all

material respects our financial condition, results of operations and cash flows for the periods presented and that this report

does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,

in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this

This annual report does not include an

attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to

rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual

Other Information.

2 unchanged sentences

Executive Officers and Directors

The following table sets forth our executive officers and directors, their ages and the positions held by them:

The following table sets forth our executive

officers and directors, their ages and the positions held by them:

Position Held

3 unchanged sentences

Chief Technology Officer and Director

Independent Director

Independent Director (Nominating Committee Chair)

Independent Director (Audit Committee Chair)

Independent Director

Independent Director (Compensation Committee Chair)

Yin Shenping.

Yin is our Chief Executive Officer.

Yin founded Nanjing Recon, a Chinese company that provides services to automate and enhance the extraction of petroleum in China, and has been the Chief Executive Officer since that time.

been our Chief Executive Officer and director since our inception.

Yin founded Nanjing Recon, a Chinese company

that provides services to automate and enhance the extraction of petroleum in China, and has been the Chief Executive Officer since

Prior to founding Nanjing Recon, Mr.

Yin served as a sales manager for Fujian Haitian Network Company from 1992 through 1994.

Yin has founded and operated a number of companies:

Xiamen Hengda Haitian Computer Network Co., Ltd.

Yin served as a sales manager for Fujian Haitian Network Company from 1992

through 1994.

Yin has founded and operated a number of companies engaged in the IT industry:

Xiamen Hengda Haitian Computer

Network Co., Ltd.

(1994), Baotou Hengda Haitian Computer Network Co., Ltd.

(1997) and Beijing Jingke Haitian Electronic Technology Development Co., Ltd.

(1997) and Beijing Jingke Haitian Electronic Technology

Development Co., Ltd.

(1999), and Jingsu Huasheng Information Technology Co., Ltd.

Yin merged the former Nanjing Kingsley Software Engineering Co., Ltd.

into Nanjing Recon.

Yin received his bachelor’s degree in 1991 from Nanjing Agricultural University in information systems.

Yin has been chosen as a director because he is one of the founders of the Company and we believe his knowledge of the Company and years of experience in our industry give him the ability to guide the Company as a director.

Liu has served as our Chief Financial Officer since 2008.

Liu assisted Heilongjiang Province Jintian Group with financial due diligence, field surveys and data analysis.

Yin received his bachelor’s

degree in 1991 from Nanjing Agricultural University in information systems.

Yin has been chosen as a director because

he is one of the founders of the Company and we believe his knowledge of the Company and years of experience in our industry give

him the ability to guide the Company as a director.

Liu has served

as our Chief Financial Officer since 2008.

Liu assisted Heilongjiang Province Jintian Group with financial due

diligence, field surveys and data analysis.

While in college Ms.

Liu served internships in Xinghua Certified Public Accountants, Ltd., Beijing Zhongweihuahao Accountants Affairs Office, Tiantong Securities Co., Ltd.

and Industrial and Commercial Bank of China, which internships focused on auditing, accounting and data analysis.

Liu received her bachelor’s degree in 2006 from Beijing University of Chemical Technology, School of Economics and Management and her master’s degree in industrial economics in 2009 from Beijing Wuzi University.

Liu served internships in Xinghua Certified Public Accountants,

Ltd., Beijing Zhongweihuahao Accountants Affairs Office, Tiantong Securities Co., Ltd.

and Industrial and Commercial Bank of China,

which internships focused on auditing, accounting and data analysis.

Liu received her bachelor’s degree in 2006

from Beijing University of Chemical Technology, School of Economics and Management and her master’s degree in industrial

economics in 2009 from Beijing Wuzi University.

Chen Guangqiang.

Chen has served as our Chief Technology Officer since 2003.

Chen was a geological engineer for the Fourth Oil Extraction Plant of Huabei Oil Field from 1985 through 1993.

From 1993 through 1999, Mr.

Chen was a chief engineer for Xinda Company, CNPC Development Bureau.

has served as our Chief Technology Officer and director since our inception.

Chen founded BHD and has been the General

Manager since then.

From 1999 through 2003, Mr.

Chen served as the general manager of Beijing Adar.

Chen received his bachelor’s degree in 1985 from Southwest Petroleum Institute.

Chen has been chosen as a director because he is one of the founders of the Company and we believe we can benefit from his years of engineering experience and management experience in the oil extraction industry.

Wong joined our Board of Directors in 2008.

Wong joined the Vigers Group, a real estate company that provides services in valuation, corporate property services, investment advisory services, general practice surveying, building surveying, commercial, retail and industrial agency, and property and facilities management.

Wong became the Vice Chairman and CEO of the Vigers Group in 1993.

Wong established the ACN Group, a business consulting firm, where he has worked continuously and continues to serve as the Chairman and Managing Partner.

Wong received a bachelor’s degree in arts from the PLA Institute of International Relations in Nanjing in 1983.

Wong has been chosen as a director because we believe we can benefit from his leadership skills and management experience.

Hu joined our Board of Directors in 2008.

From 1993 through 1999,

Chen was a chief engineer for Xinda Company, CNPC Development Bureau.

Chen was a geological engineer for the

Fourth Oil Extraction Plant of Huabei Oil Field from 1985 through 1993.

Chen received his bachelor’s degree in 1985

from Southwest Petroleum Institute.

Chen has been chosen as a director because he is one of the founders of the Company

and we believe we can benefit from his years of engineering experience and management experience in the oil extraction industry.

our Board of Directors in 2008.

Wong joined the Vigers Group, a real estate company that provides services in

valuation, corporate property services, investment advisory services, general practice surveying, building surveying, commercial,

retail and industrial agency, and property and facilities management.

Wong became the Vice Chairman and CEO of the Vigers

Group in 1993.

Wong established the ACN Group, a business consulting firm, where he has worked continuously and

continues to serve as the Chairman and Managing Partner.

Wong received a bachelor’s degree in arts from the PLA

Institute of International Relations in Nanjing in 1983.

Wong has been chosen as a director because we believe we can

benefit from his leadership skills and management experience.

Hu joined our

Board of Directors in 2008.

From 1988 to 2003, Mr.

Hu served in a variety of positions at our No.

2 test-drill plant, including technician of installation, assets equipment work, electrical installation, control room production dispatcher, Deputy Chief Engineer of the Technology Battalion, and Deputy Director of Production.

From 2003 to 2005 he served as Head of the Integrated Battalion and he is currently the Head of the Transport Battalion, Senior Electric Engineer.

Hu graduated as an automated professional from the China University of Petroleum in 1988.

Hu has been chosen as a director because we believe his years of experience and knowledge gained while working at our No.

2 test-drill plant will prove beneficial to the guidance of the Company.

2 test-drill plant,

including technician of installation, assets equipment work, electrical installation, control room production dispatcher, Deputy

Chief Engineer of the Technology Battalion, and Deputy Director of Production.

From 2003 to 2005 he served as Head of the Integrated

Battalion and he is currently the Head of the Transport Battalion, Senior Electric Engineer.

Hu graduated as an automated

professional from the China University of Petroleum in 1988.

Hu has been chosen as a director because we believe his years

of experience and knowledge gained while working at our No.

2 test-drill plant will prove beneficial to the guidance of the

Zhao Shudong .

Zhao joined our

Board of Directors in 2013.

Before retiring in 2006, Mr.

Zhao spent over 30 years working in the oilfield industry.

From 1970 to 1976, Mr.

Zhao worked as a technician in the Daqing oilfield.

From 1976 to 1982, Mr.

Zhao served as the vice director of the Hubei Oilfield Generalized Geologic Technical Research Institute.

Zhao then spent 11 years as a director and section chief at the Scientific and Technological Development Department of the Huabei Petroleum Administrative Bureau.

He was subsequently appointed Chief Geologist of the bureau, a position he held from 1993 to 1999.

Zhao served as the vice director of the Hubei

Oilfield Generalized Geologic Technical Research Institute.

Zhao then spent 11 years as a director and section chief at the

Scientific and Technological Development Department of the Huabei Petroleum Administrative Bureau.

He was subsequently appointed

Chief Geologist of the bureau, a position he held from 1993 to 1999.

From 1999 to 2006, Mr.

Zhao served as the General Manager of the Huabei Oilfield Company of CNPC.

Zhao served as the General Manager

of the Huabei Oilfield Company of CNPC.

Zhao studied at the Northeast Petroleum Institute from 1965 to 1970.

Zhao has been chosen as a director nominee because of his extensive experience in the oilfield industry.

Zhao has been

chosen as a director nominee because of his extensive experience in the oilfield industry.

Employment Agreements

We have employment agreements with each of our Chief Executive Officer, Chief Technology Officer and Chief Financial Officer.

With the exception of the employment agreement with our Chief Financial Officer, each of these employment agreements provides for an indefinite term.

Such employment agreements may be terminated (1) if the employee gives written notice of his or her intention to resign, (2) the employee is absent from three consecutive meetings of the Board of Directors, without special leave of absence from the other members of the Board of Directors, and the Board of Directors passes a resolution that such employee has vacated his office, or (3) the death, bankruptcy or mental incapacity of the employee.

The employment agreement for our Chief Financial Officer provides for a one-year term, currently expiring on March 12, 2014.

Such employment agreement may be terminated if the employee gives thirty days’ written notice of her intention to resign, or if the Board of Directors determines she can no longer perform her duties as Chief Financial Officer and provides her with thirty days’ written notice of termination.

Under Chinese law, we may only terminate employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date on which the employment agreement is scheduled to expire.

If we fail to provide this notice or if we wish to terminate an employment agreement in the absence of cause, then we are obligated to pay the employee one month’s salary for each year we have employed the employee.

We are, however, permitted to terminate an employee for cause without penalty to the Company, where the employee has committed a crime or the employee’s actions or inactions have resulted in a material adverse effect to us.

We have employment agreements with each

of our Chief Executive Officer, Chief Technology Officer and Chief Financial Officer.

With the exception of the employment agreement

with our Chief Financial Officer, each of these employment agreements provides for an indefinite term.

Such employment agreements

may be terminated (1) if the employee gives written notice of his or her intention to resign, (2) the employee is absent

from three consecutive meetings of the Board of Directors, without special leave of absence from the other members of the Board

of Directors, and the Board of Directors passes a resolution that such employee has vacated his office, or (3) the death,

bankruptcy or mental incapacity of the employee.

The employment agreement for our Chief Financial Officer provides for a one-year

term, currently expiring on March 12, 2015.

Such employment agreement may be terminated if the employee gives thirty days’

written notice of her intention to resign, or if the Board of Directors determines she can no longer perform her duties as Chief

Financial Officer and provides her with thirty days’

written notice of termination.

Under Chinese law, we may only terminate

employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date on which

the employment agreement is scheduled to expire.

If we fail to provide this notice or if we wish to terminate an employment agreement

in the absence of cause, then we are obligated to pay the employee one month’s salary for each year we have employed the

We are, however, permitted to terminate an employee for cause without penalty to the Company, where the employee has

committed a crime or the employee’s actions or inactions have resulted in a material adverse effect to us.

Share Option Pool

In connection with our initial public offering, we established a pool for share options for the Domestic Companies’ and our employees.

This pool contains options to purchase up to 790,362 of our ordinary shares.

The options will vest at a rate of 20% per year for five years and have an exercise price of the market price of our shares on the date the options are granted.

To date, we issued 608,000 options out of our employee share option pool.

In connection with our initial public offering,

we established a pool for share options for the Domestic Companies’

and our employees.

This pool contains options to purchase

up to 790,362 of our ordinary shares.

The options will vest at a rate of 20% per year for five years and have an exercise

price of the market price of our shares on the date the options are granted.

To date, we issued 564,000 options out of our employee

share option pool.

We initially granted 293,000 options in 2009.

We held a shareholder meeting in December 2010 and announced the resignation of three directors, and as a result, 100,000 options were forfeited and went back to the pool.

In 2012, we granted an additional 415,000 options.

Currently, we have 608,000 options outstanding.

We held a shareholder meeting in December 2010 and announced the

resignation of three directors, and as a result, 100,000 options were forfeited and went back to the pool.

In 2012, we granted

an additional 415,000 options and 44,000 options were forfeited and went back to the pool.

In the three months ended June 30, 2014,

148,400 vested options for 2012 grants were exercised.

As of June 30, 2014, we have 415,600 options outstanding.

Executive Stock Grants

On December 13, 2013, the Company granted

95,181 restricted shares to Mr.

Yin Shenping and 135,181 restricted shares to Mr.

Chen Guangqiang at an aggregate value of ¥4,207,496

($688,782), based on the stock closing price of $2.99 at December 13, 2013.

These restricted shares will be vested over three years

with one third of the shares vesting every year from the grant date.

As of June 30, 2014, we have 230,362 non-vested restricted

stocks outstanding.

Board of Directors and Board Committees

Our board of directors currently consists of five (5) members.

Our board of directors currently consists

of five (5) members.

There are no family relationships between any of our executive officers and directors.

The directors are divided into three classes, as nearly equal in number as the then total number of directors permits.

Class I directors shall face re-election at our annual general meeting of shareholders in 2014 and every three years thereafter.

Class II directors shall face re-election at our annual general meeting of shareholders in 2015 and every three years thereafter.

Class III directors shall face re-election at our annual general meeting of shareholders in 2016 and every three years thereafter.

If the number of directors changes, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly as possible.

Any additional directors of a class elected to fill a vacancy resulting from an increase in such class will hold office for a term that coincides with the remaining term of that class.

Decreases in the number of directors will not shorten the term of any incumbent director.

These board provisions could make it more difficult for third parties to gain control of the Company by making it difficult to replace members of our Board of Directors.

A director may vote in respect of any contract or transaction in which he is interested, provided, however, that the nature of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter.

A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof that a director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating to any particular transaction.

There are no membership qualifications for directors.

The directors are divided into three classes,

as nearly equal in number as the then total number of directors permits.

Class I directors shall face re-election at our annual

general meeting of shareholders during fiscal year ending June 30, 2016 and every three years thereafter.

Class II directors shall

face re-election at our annual general meeting of shareholders during fiscal year ending June 30, 2014 and every three years thereafter.

Class III directors shall face re-election at our annual general meeting of shareholders during fiscal year ending June 30, 2015

and every three years thereafter.

If the number of directors changes, any

increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly as

Any additional directors of a class elected to fill a vacancy resulting from an increase in such class will hold office

for a term that coincides with the remaining term of that class.

Decreases in the number of directors will not shorten the term

of any incumbent director.

These board provisions could make it more difficult for third parties to gain control of the Company

by making it difficult to replace members of our Board of Directors.

A director may vote in respect of any contract

or transaction in which he is interested, provided, however, that the nature of the interest of any director in any such contract

or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter.

A general notice or disclosure

to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof

that a director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such

firm or company shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating

to any particular transaction.

There are no membership qualifications

for directors.

Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting.

The Board of Directors maintains a majority of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Stock Market Rule 4200(a)(15).

The Board of Directors maintains a majority

of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Stock Market

Rule 4200(a)(15).

Wong, and Mr.

Hu are our independent directors.

Yin Shenping currently holds both the positions of Chief Executive Officer and Chairman of the Board.

Yin Shenping currently holds both

the positions of Chief Executive Officer and Chairman of the Board.

These two positions have not been consolidated into one position;

Yin simply holds both positions at this time.

We do not have a lead independent director because of the foregoing reason and also because we believe our independent directors are encouraged to freely voice their opinions on a relatively small company board.

We believe this leadership structure is appropriate because we are a smaller reporting company that recently became listed on a public exchange;

We do not have a lead independent director because of the foregoing reason

and also because we believe our independent directors are encouraged to freely voice their opinions on a relatively small company

We believe this leadership structure is appropriate because we are a smaller reporting company that recently became listed

on a public exchange;

as such we deem it appropriate to be able to benefit from the guidance of Mr.

Yin as both our principal executive officer and Chairman of the Board.

Our Board of Directors plays a significant role in our risk oversight.

Yin as both our principal

executive officer and Chairman of the Board.

Our Board of Directors plays a significant

role in our risk oversight.

The Board of Directors makes all relevant Company decisions.

As such, it is important for us to have our Chief Executive Officer serve on the Board as he plays a key role in the risk oversight of the Company.

As a smaller reporting company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.

Currently, three committees have been established under the board:

As such, it is important for us to have

our Chief Executive Officer serve on the Board as he plays a key role in the risk oversight of the Company.

As a smaller reporting

company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors

in risk oversight matters.

Currently, three committees have been established

under the board:

the audit committee, the compensation committee and the nominating committee.

All of these committees consist solely of independent directors.

The audit committee is responsible for overseeing the accounting and financial reporting processes of the Company and audits of the financial statements of the Company, including the appointment, compensation and oversight of the work of our independent auditors.

Wong qualifies as the audit committee financial expert and serves as the chair of the audit committee.

The compensation committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans).

All of these committees consist

solely of independent directors.

The audit committee is responsible for

overseeing the accounting and financial reporting processes of the Company and audits of the financial statements of the Company,

including the appointment, compensation and oversight of the work of our independent auditors.

Wong qualifies as the audit

committee financial expert and serves as the chair of the audit committee.

The compensation committee of the board

of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms

of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority

to interpret those plans).

Hu serves as the chair of the compensation committee.

The nominating committee of the board of directors is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues.

The nominating committee considers diversity of opinion and experience when nominating directors.

The nominating committee of the board of

directors is responsible for the assessment of the performance of the board, considering and making recommendations to the board

with respect to the nominations or elections of directors and other governance issues.

The nominating committee considers diversity

of opinion and experience when nominating directors.

Zhao serves as the chair of the nominating committee.

There are no other arrangements or understandings pursuant to which our directors are selected or nominated.

There are no other arrangements or understandings

pursuant to which our directors are selected or nominated.

Duties of Directors

Under Cayman Islands law, our directors have a fiduciary duty to the Company to act in good faith in their dealings with or on behalf of the Company and exercise their powers and fulfill the duties of their office honestly.

Under Cayman Islands law, our directors

have a fiduciary duty to the Company to act in good faith in their dealings with or on behalf of the Company and exercise their

powers and fulfill the duties of their office honestly.

This duty has four essential elements:

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a duty to exercise powers for the purpose for which such powers were intended.

In general, Cayman Islands law imposes various duties on directors of a company with respect to certain matters of management and administration of the Company.

In addition to the remedies available under general law, the Companies Law imposes fines on directors who fail to satisfy some of these requirements.

However, in many circumstances, an individual is only liable if he is knowingly guilty of the default or knowingly and willfully authorizes or permits the default.

In comparison, under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors.

In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders.

In addition, under Delaware law, a party challenging the propriety of a decision of the directors bears the burden of rebutting the applicability of the presumptions afforded to directors by the “business judgment rule.” If the presumption is not rebutted, the business judgment rule protects the directors and their decisions, and their business judgments will not be second guessed.

In general, Cayman Islands law imposes

various duties on directors of a company with respect to certain matters of management and administration of the Company.

to the remedies available under general law, the Companies Law imposes fines on directors who fail to satisfy some of these requirements.

However, in many circumstances, an individual is only liable if he is knowingly guilty of the default or knowingly and willfully

authorizes or permits the default.

In comparison, under Delaware law, the business and affairs of a corporation are managed by

or under the direction of its board of directors.

In exercising their powers, directors are charged with a fiduciary duty of care

to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders.

addition, under Delaware law, a party challenging the propriety of a decision of the directors bears the burden of rebutting the

applicability of the presumptions afforded to directors by the “business judgment rule.”

If the presumption is not

rebutted, the business judgment rule protects the directors and their decisions, and their business judgments will not be second

If the presumption is rebutted, the directors bear the burden of demonstrating the entire fairness of the relevant transaction.

Notwithstanding the foregoing, Delaware courts subject directors’ conduct to enhanced scrutiny in respect of defensive actions taken in response to a threat to corporate control and approval of a transaction resulting in a sale of control of the corporation.

Notwithstanding the foregoing, Delaware courts subject directors’

conduct to enhanced scrutiny in respect of defensive actions

taken in response to a threat to corporate control and approval of a transaction resulting in a sale of control of the corporation.

Limitation of Director and Officer Liability

Pursuant to our Memorandum and Articles of Association, every director or officer and the personal representatives of the same shall be indemnified and held harmless out of our assets and funds against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by him or her in or about the conduct of our business or affairs or in the execution or discharge of his or her duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning us or our affairs in any court whether in the Cayman Islands or elsewhere.

Pursuant to our Memorandum and Articles

of Association, every director or officer and the personal representatives of the same shall be indemnified and held harmless out

of our assets and funds against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or

sustained by him or her in or about the conduct of our business or affairs or in the execution or discharge of his or her duties,

powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses

or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning us or our affairs

in any court whether in the Cayman Islands or elsewhere.

No such director or officer will be liable for:

(a) the acts, receipts, neglects, defaults or omissions of any other such Director or officer or agent;

or (b) any loss on account of defect of title to any of our properties;

(a) the acts, receipts,

neglects, defaults or omissions of any other such Director or officer or agent;

or (b) any loss on account of defect of title

to any of our properties;

or (c) account of the insufficiency of any security in or upon which any of our money shall be invested;

or (d) any loss incurred through any bank, broker or other similar person;

or (e) any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgment or oversight on his or her part;

or (f) any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers authorities, or discretions of his or her office or in relation thereto, unless the same shall happen through his or her own dishonesty, gross negligence or willful default.

or (e) any loss occasioned by any negligence,

default, breach of duty, breach of trust, error of judgment or oversight on his or her part;

or (f) any loss, damage or misfortune

whatsoever which may happen in or arise from the execution or discharge of the duties, powers authorities, or discretions of his

or her office or in relation thereto, unless the same shall happen through his or her own dishonesty, gross negligence or willful

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities or commodities laws, any laws respecting financial institutions or insurance companies, any law or regulation prohibiting mail or wire fraud in connection with any business entity or been subject to any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization, except for matters that were dismissed without sanction or settlement.

Regulation S-K Item 405:

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under 17 CFR 240.16a-3(e) during its most recent fiscal year and Form 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and any written representation referred to in paragraph (b)(1) of this section, the Company is not aware of any director, officer, beneficial owner of more than ten percent of any class of equity securities of the Company registered pursuant to Section 12 that failed to file on a timely basis, as disclosed in the above Forms, reports required by Section 16(a) during the most recent fiscal year or prior years.

Regulation S-K Item 406:

The Company has adopted a Code of Ethics and has filed a copy of the Code of Ethics with the Commission.

Regulation S-K Item 407(c)(3):

Regulation S-K Item 407(d)(4) and (5):

The Board of Directors maintains a majority of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Stock Market Rule 4200(a)(15).

To the best of our knowledge, none of our

directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors,

or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree

or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities

laws, or a finding of any violation of federal or state securities or commodities laws, any laws respecting financial institutions

or insurance companies, any law or regulation prohibiting mail or wire fraud in connection with any business entity or been subject

to any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization,

except for matters that were dismissed without sanction or settlement.

Pursuant to Rule 3a12-3 of

Securities Exchange Act of 1934, as amended, directors, officers and beneficial owners of more than ten percent of the

Company’s equity services are exempted from Section 16 filings as the Company qualifies as a foreign private issuer.

The Company has adopted a Code of Ethics

and has filed a copy of the Code of Ethics with the Commission.

The Board of Directors maintains a majority

of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Stock Market

Rule 4200(a)(15).

The Company has an audit committee, consisting solely of independent directors of the Company, Mr.

Zhao Shudong, Mr.

Wong, and Mr.

Wong qualifies as the audit committee financial expert.

The Company’s audit committee charter has been filed as Exhibit 99.1 to the Company’s annual report on Form 10-K for the year ended June 30, 2009 and is available on the Company’s website (www.recon.cn).

Company’s audit committee charter has been filed as Exhibit 99.1 to the Company’s annual report on Form 10-K

for the year ended June 30, 2009 and is available on the Company’s website (www.recon.cn).

Executive Compensation.

The following table shows the annual compensation paid by us to Mr.

The following table shows the annual compensation

paid by us to Mr.

Yin Shenping, our Chief Executive Officer, for the years ended June 30, 2014 and 2013.

No other employee or officer received more than $100,000 in total compensation in 2013 or 2012.

No other employee

or officer received more than $100,000 in total compensation in 2014 or 2013.

Summary Executive Compensation Table

Name and principal position

Restricted Stock

Yin Shenping,

2 unchanged sentences

Chief Technology Officer

Yin Shenping has earned this salary and we have accrued for it;

however, we have not yet paid these amounts to Mr.

During fiscal 2013 and 2012, Mr.

Yin did not receive any salary payment.

On July 30, 2009, 60,000 share options were awarded to Yin Shenping, which options vest over a period of five years, 20% of which vest on July 30 each year beginning in 2010.

The grant date fair value of such options was $4.42 per share, and the total amount of option awards was recognized in the year of grant.

On March 26, 2012, 80,000 share options were awarded to Yin Shenping, which options vest over a period of five years, 20% of which vest on March 26 of each year beginning in 2013.

The grant date fair value of such options was $1.59 per share, and the total amount of option awards was recognized in the year of grant.

Chen Guangqiang has earned this salary and we have accrued for it;

however, we have not yet paid these amounts to Mr.

During fiscal 2013 and 2012, Mr.

Chen did not receive any salary payment but did receive the bonus payments for such years.

On July 30, 2009, 50,000 share options were awarded to Chen Guangqiang, which options vest over a period of five years, 20% of which vest on July 30 of each year beginning in 2010.

The grant date fair value of such options was $4.42 per share, and the total amount of option awards was recognized in the year of grant.

On March 26, 2012, 50,000 share options were awarded to Chen Guangqiang, which options vest over a period of five years, 20% of which vest on March 26 of each year beginning in 2013.

The grant date fair value of such options was $1.59 per share, and the total amount of option awards was recognized in the year of grant.

On December 13, 2013, the Company granted 95,181 restricted shares to Mr.

Yin Shenping and 135,181 restricted shares to Mr.

Guangqiang at an aggregate value of ¥4,207,496 ($688,782), based on the stock closing price of $2.99 at December 13, 2013.

These restricted shares will be vested over three years with one third of the shares vesting every year from the grant date.

Director Compensation

All directors hold office until the expiration of their respective terms and until their successors have been duly elected and qualified.

There are no family relationships among our directors or executive officers.

All directors hold office until the expiration

of their respective terms and until their successors have been duly elected and qualified.

There are no family relationships among

our directors or executive officers.

Officers are elected by and serve at the discretion of the Board of Directors.

Employee directors and non-voting observers do not receive any compensation for their services.

Non-employee directors are entitled to receive $2,000 per Board of Directors meeting attended.

In addition, non-employee directors are entitled to receive compensation for their actual travel expenses for each Board of Directors meeting attended.

Employee directors

and non-voting observers do not receive any compensation for their services.

Non-employee directors are entitled to receive $2,000

per Board of Directors meeting attended.

In addition, non-employee directors are entitled to receive compensation for their actual

travel expenses for each Board of Directors meeting attended.

Summary Director Compensation Table

Fees earned or

Compensation for our directors Yin Shenping and Chen Guangqiang, who also serve as executive officers, is fully disclosed in the executive compensation table.

3 unchanged sentences

Number of securities to

be issued upon exercise of outstanding options,

be issued upon exercise of

outstanding options,

warrants and rights (a)

8 unchanged sentences

column (a)) (c)

Equity compensation plans approved by security holders

List of Option Holders

The following is a list of individuals who hold options to purchase ordinary shares of our company as of the date of this filing.

All options with an exercise price of $6.00 per share were granted on July 29, 2009, while all options with an exercise price of $2.96 per share were granted on March 26, 2012.

All options vest over a period of 5 years, at a rate of 20% per year beginning on the first anniversary of grant, and are exercisable for ten years from the date of grant.

Exercise Price

Chen Guangqiang

Liu Jinachang

PRINCIPAL SHAREHOLDERS

The following table sets forth information with respect to beneficial ownership of our ordinary shares as of the date of this report, for each person known by us to beneficially own 5% or more of our ordinary shares, and all of our executive officers and directors individually and as a group.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities.

Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them.

Percentage of beneficial ownership is based on 4,029,011 Shares, which consists of 3,951,811 Shares outstanding as of September 28, 2012 and 115,800 shares subject to options that were exercisable within 60 days after September 28, 2012.

Such shares subject to options are deemed to be outstanding for the purposes of computing the percentage ownership of the individual holding such shares, but are not deemed outstanding for purposes of computing the percentage of any other person shown in the table.

Our major shareholders do not possess voting rights that differ from our other shareholders.

The address of each of the below shareholders is c/o Recon Technology Ltd, Room 1902, Building C, King Long International Mansion, 9 Fulin Road, Beijing 100107 China.

Equity compensation plans approved by

security holders

Security Ownership of Certain Beneficial

Owners and Management

The following table sets forth information

with respect to beneficial ownership of our ordinary shares as of the date of this report, for each person known by us to beneficially

own 5% or more of our ordinary shares, and all of our executive officers and directors individually and as a group.

ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities.

Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting

and investment power with respect to all ordinary shares shown as beneficially owned by them.

Percentage of beneficial ownership

is based on 4,919,711 Shares, which consists of 4,726,711 Shares outstanding as of September 23, 2014 and 193,000 shares subject

to options that were exercisable within 60 days after September 23, 2014.

Such shares subject to options are deemed to be outstanding

for the purposes of computing the percentage ownership of the individual holding such shares, but are not deemed outstanding for

purposes of computing the percentage of any other person shown in the table.

Our major shareholders do not possess voting rights

that differ from our other shareholders.

Unless otherwise noted, the address of each of the below shareholders is c/o Recon Technology

Ltd, Room 1902, Building C, King Long International Mansion, 9 Fulin Road, Beijing 100107 China.

Directors and Officers

Yin Shenping (1)

2 unchanged sentences

Zhao Shudong (6)

Directors and Officers as a Group (six persons)

Chen Yiquan (7)

Directors and Executive Officers as a Group (seven members)

Includes 64,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2013.

Does not include 76,000 options that were not exercisable within 60 days after September 25, 2013.

Includes 50,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2013.

Does not include 50,000 options that were not exercisable within 60 days after September 25, 2013.

Includes 12,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2013.

Does not include 3,000 options that were not exercisable within 60 days after September 25, 2013.

Includes 14,400 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2013.

Does not include 3,600 options that were not exercisable within 60 days after September 25, 2013.

Includes 3,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2013.

(1) Includes 60,000 options to purchase ordinary shares that are exercisable

within 60 days after September 28, 2014.

Does not include 48,000 options that were not exercisable within 60 days after September

Includes 458,525 Shares held by Chen Yiquan and 375,156 Shares held by Liu Hui.

(2) Includes 50,000 options to purchase ordinary shares that are exercisable

within 60 days after September 28, 2014 and 16,000 options granted to Chen Guangqiang’s wife that are exercisable within

60 days after September 28, 2014.

Does not include 30,000 options that are not exercisable within 60 days after September 28, 2014.

(3) Includes 50,000 options to purchase ordinary shares that are exercisable

within 60 days after September 28, 2014.

(4) Includes 15,000 options to purchase ordinary shares that were exercisable

within 60 days after September 28, 2014.

(5) Includes 18,000 options to purchase ordinary shares that were exercisable

within 60 days after September 28, 2014.

(6) [Includes 6,000 options to purchase ordinary shares that were exercisable

within 60 days after September 28, 2014.]

(7) Includes 458,525 Shares held by Chen Yiquan and 375,156 Shares held

According to a jointly filed Schedule 13D dated December 27, 2010 (Accession No.

0001144204-10-068264), Chen Yiquan and Liu Hui share beneficial ownership of and have joint voting and dispositive power over the aggregate 833,681 Shares.

0001144204-10-068264), Chen Yiquan

and Liu Hui share beneficial ownership of and have joint voting and dispositive power over the aggregate 833,681 Shares.

has not been able to get in touch with either Chen Yiquan or Liu Hui and therefore the information listed here in is solely based

on the Schedule 13D filed on December 27, 2010.

* Less than 1%.

1 unchanged sentence

Transactions with Related Persons

Because we do not have access certification to Jidong Oilfield, Nanjing Recon, one of our Domestic Companies, conducted transactions with Jidong Oilfield through Beijing Yabeinuoda Technology Development Co.

(“Yabeinuoda”), which has access certification to the oilfield and wherein Mr.

we do not have access certification to Jidong Oilfield, Nanjing Recon, one of our Domestic Companies, conducted transactions with

Jidong Oilfield through Beijing Yabeinuoda Technology Development Co.

(“Yabeinuoda”), which has access certification

to the oilfield and wherein Mr.

Yin is the legal representative.

Yin does not have any equity interest in this company currently.

In the year ended June 30, 2013, Nanjing Recon sold ¥8,815,773 ($1,424,610) of goods and services to Yabeinuoda.

During the same period, Nanjing Recon has accounts receivables from Yabeinuoda in the amount of ¥19,722,574 ($3,187,126) as of June 30, 2013, and ¥1,250,000 was received as of September 28, 2013.

Below is a summary of trade accounts receivable with related parties as of June 30, 2012 and 2013, respectively.

Yin does not have any equity interest in this company

In the year ended June 30, 2014, Nanjing Recon sold approximately

¥4.6 million ($0.8 million) of goods and services to Yabeinuoda.

During the same period, Nanjing Recon has accounts

receivables from Yabeinuoda in the amount of approximately ¥

23.5 million ($3.8 million)

as of June 30, 2014, and approximately ¥1.1 million was received as of September 28, 2014.

Below is a summary of trade accounts

receivable with related parties as of June 30, 2013 and 2014, respectively.

June 30, 2013

June 30, 2014

Related Party

Beijing Yabei Nuoda Science and Technology Co.

Beijing Langchen Construction Company

Xiamen Huangsheng Hitek Computer Network Co.

Xiamen Hengda Hitek Computer Network Co.

Allowance for doubtful accounts

Total - related-parties, net

Below is a summary of purchase advances to related parties as of June 30, 2012 and 2013, respectively

Related Party

Xiamen Huangsheng Hitek Computer Network Co.

In addition, included in the Company’s other receivables as of June 30, 2013 were amounts “due from ENI” after ENI ceased to be a VIE of the Company on December 16, 2010.

In January 2012, ENI agreed to repay the loan on a determined payment schedule, and interest is accrued during the period at an annual rate of 4%.

In accordance with the payment schedule, the principal plus accrued interest will be repaid over three years on a quarterly basis.

June 30, 2013

June 30, 2014

Non-current portion

Beijing Yabei Nuoda Science and Technology Co.

Allowance for doubtful accounts

Total - related-parties, net

Based on the repayment agreement signed on August 27, 2014,

the outstanding balance will be collected in four years with each installment of ¥4,015,644.

Below is a summary of purchase advances

to related parties as of June 30, 2013 and 2014, respectively

June 30, 2013

June 30, 2014

Related Party

Xiamen Huasheng Hitek Computer Network Co.

Current ending balance of the purchase advances to Xiamen Huasheng

Hitek is expect to be settled within one year,

addition, included in the Company’s other receivables as of June 30, 2014 were amounts “due from ENI”

ceased to be a VIE of the Company on December 16, 2010.

In January 2012, ENI agreed to repay the loan on a determined payment schedule,

and interest is accrued during the period at an annual rate of 4%.

In accordance with the payment schedule, the principal plus

accrued interest will be repaid over three years on a quarterly basis.

The first four payments are set at RMB 1.2 million each.

In March, June, September and December of 2012, the Company received an aggregate of RMB 4.8 million.

Starting March 2013, installment for each quarter would be ¥1,777,653.

Starting March 2013, installment

for each quarter would be ¥1,777,653.

The Company has received the payment on time in March and June 2013.

The payments required after 1 year are RMB 3,502,680 ($566,026).

Accordingly, the current and non-current portion of the amount due from ENI at June 30, 2013 is determined to be RMB 6,799,669 ($1,098,812) and RMB 3,502,680 ($566,026) , respectively.

The Company also had short-term borrowings from related parties.

Below is a summary of the Company’s short-term borrowings due to related parties as of June 30, 2012 and 2013, respectively.

Short-term borrowings due to related

30, 2013, ENI proposed to extend the payment period and resigned an agreement with the Company.

According to the new agreement,

the remaining balance of this loan would be repaid over four years with installments of ¥

699,147 each quarter including

The payments required after one year are RMB 5,353,104 ($869,688).

Accordingly, the current and non-current

portion of the amount due from ENI at June 30, 2014 is determined to be RMB 2,523,145 ($409,921) and RMB 5,353,104 ($869,688),

respectively.

The Company also had short-term borrowings

from related parties.

Below is a summary of the Company’s short-term borrowings due to related parties as of June 30, 2013

and 2014, respectively.

June 30, 2013

June 30, 2014

Short-term borrowings due to related parties:

Due-on-demand borrowings from Founders, no interest

Due-on-demand borrowings from Founder's family member, no interest

Short-term borrowing from a Founder's family member, 6% annual interest, due and paid on March 20, 2013

Short-term borrowing from a Founder's family member, 6% annual interest, due and paid on October 21, 2012

Short-term borrowing from a Founder's family member, 6% annual interest, due and paid on March 27, 2013

Short-term borrowing from a Founder's family member, 6% annual interest, due on December 21, 2013

Short-term borrowing from a Founder's family member, 6% annual interest, matures on November 29, 2013

Short-term borrowings from Xiamen Huasheng Haitian Computer Network Co.

Short-term borrowing from a Founder, 6.6% annual interest,due on

December 25, 2014

Short-term borrowing from a Founder's family member, 6% annual

interest, matures and paid off by December 21, 2013

Short-term borrowing from a Founder's family member, 6% annual

interest, matures and paid off by November 29, 2013

Short-term borrowings from Xiamen Huasheng Haitian Computer

Ltd., no interest, due on November 14, 2014

Short-term borrowings from management, 6% annual interest, due on December 7, 2013

Short-term borrowings from management, 6% annual interest,

matures and paid off by December 7, 2013

Total short-term borrowings due to related parties

Other than as described herein, no transactions required to be disclosed under Item 404 of Regulation S-K have occurred since the beginning of the Company’s last fiscal year.

The Company also paid ¥366,000 and ¥230,000

($37,367) in advance for rental to Mr.

Chen and his family member as of June 30, 2013 and June 30, 2014.

Other than as described herein, no transactions

required to be disclosed under Item 404 of Regulation S-K have occurred since the beginning of the Company’s last fiscal

Director Independence

The Board of Directors maintains a majority of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Stock Market Rule 4200(a)(15).

The Board of Directors maintains a majority

of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Stock Market

Rule 4200(a)(15).

Zhao are our independent directors.

Principal Accountant Fees and Services.

Friedman LLP was appointed by the Company to serve as its independent registered public accounting firm for fiscal 2012 and 2013.

Fees Paid To Independent Registered Public Accounting Firm

During fiscal years 2012 and 2013, Friedman LLP’s audit fees were $142,000 and $180,000, respectively.

Friedman LLP was appointed by the Company

to serve as its independent registered public accounting firm for fiscal 2013 and 2014.

Fees Paid To Independent Registered Public Accounting

During fiscal years 2013 and 2014, Friedman

LLP’s audit fees were $180,000and $185,000, respectively.

Audit-Related Fees

The Company has not paid Friedman LLP for audit-related services in fiscal years 2013 and 2012.

The Company has not paid Friedman LLP for tax services in fiscal years 2012 and 2013.

The Company has not paid Friedman LLP for

audit-related services in fiscal years 2013 and 2014.

The Company has not paid Friedman LLP for

tax services in fiscal years 2013 and 2014.

All Other Fees

The Company has not paid Friedman LLP for any other services in fiscal years 2012 and 2013.

The Company has not paid Friedman LLP for

any other services in fiscal years 2013 and 2014.

Audit Committee Pre-Approval Policies

Before Friedman LLP was engaged by the Company to render audit or non-audit services, the engagement was approved by the Company’s audit committee.

All services rendered by Friedman LLP have been so approved.

Before Friedman LLP was engaged by the

Company to render audit or non-audit services, the engagement was approved by the Company’s audit committee.

rendered by Friedman LLP have been so approved.

Exhibits, Financial Statement Schedules.

The following documents are filed herewith:

Amended and Restated Articles of Association of the Registrant (1)

Amended and Restated Memorandum of Association of the Registrant (1)

following documents are filed herewith:

Amended and Restated Articles of

Association of the Registrant (1)

Amended and Restated Memorandum

of Association of the Registrant (1)

Specimen Share Certificate (1)

Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd.

Translation of Exclusive Technical

Consulting Service Agreement between Recon Technology (Jining) Co., Ltd.

and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Power of Attorney for rights of Chen Guangqiang in Beijing BHD Petroleum Technology Co., Ltd.

Translation of Power of Attorney for rights of Yin Shenping in Beijing BHD Petroleum Technology Co., Ltd.

Translation of Power of Attorney for rights of Li Hongqi in Beijing BHD Petroleum Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Chen Guangqiang and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Yin Shenping and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd.

Translation of Power of Attorney

for rights of Chen Guangqiang in Beijing BHD Petroleum Technology Co., Ltd.

Translation of Power of Attorney

for rights of Yin Shenping in Beijing BHD Petroleum Technology Co., Ltd.

Translation of Power of Attorney

for rights of Li Hongqi in Beijing BHD Petroleum Technology Co., Ltd.

Translation of Exclusive Equity

Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Chen Guangqiang and Beijing BHD Petroleum Technology

Translation of Exclusive Equity

Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Yin Shenping and Beijing BHD Petroleum Technology

Translation of Exclusive Equity

Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co.,

Translation of Equity

Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Beijing BHD Petroleum Technology

Translation of Equity Interest Pledge

Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Equity Interest Pledge

Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Exclusive Technical

Consulting Service Agreement between Recon Technology (Jining) Co., Ltd.

and Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney for rights of Chen Guangqiang in Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney for rights of Yin Shenping in Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney for rights of Li Hongqi in Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Chen Guangqiang and Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Yin Shenping and Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Translation of Power of Attorney

for rights of Chen Guangqiang in Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney

for rights of Yin Shenping in Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney

for rights of Li Hongqi in Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Equity

Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Chen Guangqiang and Jining ENI Energy Technology Co.,

Translation of Exclusive Equity

Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Yin Shenping and Jining ENI Energy Technology Co.,

Translation of Exclusive Equity

Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Li Hongqi and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd.

Translation of Equity Interest Pledge

Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge

Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge

Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Technical

Consulting Service Agreement between Recon Technology (Jining) Co., Ltd.

and Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney for rights of Chen Guangqiang in Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney for rights of Yin Shenping in Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney for rights of Li Hongqi in Nanjing Recon Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Translation of Power of Attorney

for rights of Chen Guangqiang in Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney

for rights of Yin Shenping in Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney

for rights of Li Hongqi in Nanjing Recon Technology Co., Ltd.

Translation of Exclusive Equity

Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Chen Guangqiang and Nanjing Recon Technology Co.,

Translation of Exclusive Equity

Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Yin Shenping and Nanjing Recon Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Li Hongqi and Nanjing Recon Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Nanjing Recon Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Nanjing Recon Technology Co., Ltd.

Translation of Exclusive

Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Li Hongqi and Nanjing Recon Technology Co.,

Translation of Equity Interest Pledge

Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd.

Translation of Equity Interest Pledge

Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Nanjing Recon Technology

Translation of Equity Interest Pledge

Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Nanjing Recon Technology

Code of Ethics of the Company.

List of subsidiaries of the Company.

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certifications pursuant to Rule

13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley

Certifications pursuant to Rule

13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley

Certifications pursuant to 18 U.S.C.

3 unchanged sentences

Audit Committee Charter (2)

99.2 Press release dated September 27, 2013 titled “Recon Reports Fiscal Year 2013 Financial Results”.

Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No.

Incorporated by reference to the Company’s Annual Report of Form 10-K for the fiscal year ended June 30, 2009, filed with the SEC on September 28, 2009.

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A, filed on January 31, 2012.

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document XBRL

XBRL Taxonomy Extension Presentation Linkbase Document

(Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement

or report for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section

18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No.

Incorporated by reference to the Company’s Annual Report of Form 10-K for the fiscal year ended June 30, 2009, filed with the SEC on September 28, 2009.

Filed herewith.

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the requirements of the

Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RECON TECHNOLOGY, LTD

2 unchanged sentences

(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons in the capacities and on the dates indicated:

/s/ Yin Shenping

Pursuant to the requirements of the Exchange

Act, this report has been signed by the following persons in the capacities and on the dates indicated:

Chief Executive Officer and Director

1 unchanged sentence

(Principal Executive Officer)

/s/ Chen Guangqiang

Chief Technology Officer and Director

1 unchanged sentence

Chen Guangqiang

/s/ Zhao Shudong

September 2 9,

/s/ Nelson N.S.

September 2 9,

RECON TECHNOLOGY, LTD

RECON TECHNOLOGY,

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Consolidated Balance Sheets as of June 30, 2013 and 2014

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended June 30, 2012 and 2013

Consolidated Statements of Changes in Equity for the years ended June 30, 2012 and 2013

Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2013 and 2014

Consolidated Statements of Equity for the years ended June 30, 2013 and 2014

Consolidated Statements of Cash Flows for the years ended June 30, 2013 and 2014

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

To the Board of Directors and Stockholders

Recon Technology, Ltd.

We have audited the accompanying consolidated balance sheets of Recon Technology, Ltd.

as of June 30, 2013 and 2012, and the related consolidated statements of operations and comprehensive income (loss), changes in equity and cash flows for the years then ended.

Recon Technology, Ltd.’s management is responsible for these consolidated financial statements.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.

We have audited the accompanying consolidated

balance sheets of Recon Technology, Ltd.

(the “Company”) as of June 30, 2014 and 2013, and the related consolidated

statements of operations and comprehensive income, equity, and cash flows for each of the two years in the period ended June 30,

Recon Technology, Ltd.’s management is responsible for these consolidated financial statements.

Our responsibility

is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with

the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform

the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate

in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control

over financial reporting.

Accordingly, we express no such opinion.

An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Recon Technology, Ltd.

as of June 30, 2013 and 2012, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made

by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable

basis for our opinion.

In our opinion, the consolidated financial

statements referred to above present fairly, in all material respects, the financial position of Recon Technology, Ltd.

30, 2014 and 2013, and the results of their operations and their cash flows for each of the two years in the period ended June

30, 2014 in conformity with accounting principles generally accepted in the United States of America.

/s/ Friedman LLP

18 unchanged sentences

Prepaid expenses

Prepaid expenses - related parties

Deferred tax asset

1 unchanged sentence

Property and equipment, net

Long-term trade accounts receivable - related parties, net

Long-term investment

14 unchanged sentences

Short-term borrowings- other

Deferred tax liability

Warrants liability

Total current liabilities

Long-term borrowings-related party

Total Liabilities

Commitments and Contingency

1 unchanged sentence

dollar par value, 25,000,000 shares authorized;

3,951,811 shares issued and outstanding as of June 30, 2012 and June 30, 2013)

3,951,811 and 4,717,336 shares issued and outstanding as of June 30, 2013

and June 30, 2014, respectively)

Additional paid-in capital

2 unchanged sentences

Accumulated other comprehensive loss

Total controlling shareholders’ equity

Total shareholders’

Non-controlling interest

2 unchanged sentences

RECON TECHNOLOGY, LTD

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

For the years ended

10 unchanged sentences

Operating expenses

Loss from operations

Income (loss) from operations

Other income (expenses)

2 unchanged sentences

Interest expense

Gain from foreign currency exchange

Other income (expense)

Income (loss) before income tax

Provision (benefit) for income tax

Net Income (loss)

Loss from investment

Change in fair value of warrants liability

Gain (loss) from foreign currency exchange

Other expense

Income before income tax

Provision for income tax

Net income attributable to non-controlling interest

Net Income (loss) attributable to Recon Technology, Ltd

Comprehensive income (loss)

Net income (loss)

Net Income attributable to Recon Technology, Ltd

Comprehensive income

Foreign currency translation adjustment

Comprehensive income (loss)

Comprehensive income

Comprehensive income attributable to non-controlling interest

Comprehensive income (loss) attributable to Recon Technology, Ltd

Earnings (loss) per common share - basic

Comprehensive income attributable to Recon Technology, Ltd

Earnings per common share - basic

Earnings per common share - diluted

4 unchanged sentences

CONSOLIDATED STATEMENTS OF EQUITY

Recon Technology, LTD

Ordinary Shares

Paid-in Capital

Additional Paid-in Capital

Statutory Reserves

Comprehensive

Retained Earnings

Accumulated Other Comprehensive loss

Shareholders'

Non-controlling

Non-controlling Interest

Number of Shares

Balance, July 1, 2012

1 unchanged sentence

Stock based payment

Net income (loss) for the year

Net income for the year

Appropriation of statutory reserves

1 unchanged sentence

Balance, June 30, 2013

Capital contribution in VIE

Stock issuance

Restricted shares issued for services

Stock options exercised

Stock based payment

Net income (loss) for the year

Net income for the year

Appropriation of statutory reserves

1 unchanged sentence

Balance, June 30, 2014

The accompanying notes are an integral part of these consolidated financial statements.

accompanying notes are an integral part of these consolidated financial statements.

RECON TECHNOLOGY, LTD

2 unchanged sentences

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash provided by

(used in) operating activities:

Loss from disposal of equipment

Provision/(recovery of) for doubtful accounts

Stock based compensation

Deferred tax (benifit)/provision

Share based compensation

Loss from investment

Deferred tax provision/(benefit)

Change in fair value of warrants liability

Restricked shares issued for services

Changes in operating assets and liabilities:

Notes receivable

Trade accounts receivable

Trade accounts receivable-related parties

Notes receivable

Other receivable, net

4 unchanged sentences

Prepaid expense

Prepaid expense - related party, net

Trade accounts payable

16 unchanged sentences

Repayments of short-term bank loans

Proceeds from short-term borrowings

(23,000,000 )

(23,500,000 )

Proceeds from short-term borrowing

Proceeds from borrowings-related parties

1 unchanged sentence

Repayment of short-term borrowings-related parties

Proceeds from sale of common stock, net of issuance costs

Proceeds from stock options exercised

Capital contribution in VIE

Net cash provided by (used in) financing activities

(13,796,718 )

Effect of exchange rate fluctuation on cash and cash equivalents

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

1 unchanged sentence

Supplemental cash flow information

Cash paid during the period for interest

Cash paid during the period for taxes

Interest paid

Income taxes paid

Non-cash investing and financing activities

Issurance of common stock to prepay professional services

The accompanying notes are an integral part of these consolidated financial statements.

RECON TECHNOLOGY, LTD

RECON TECHNOLOGY,

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND NATURE OF OPERATIONS

Organization Recon Technology, Ltd (the “Company”) was incorporated under the laws of the Cayman Islands on August 21, 2007 by Mr.

Organization –

Recon Technology, Ltd

(the “Company”) was incorporated under the laws of the Cayman Islands on August 21, 2007 by Mr.

Yin Shenping, Mr.

Chen Guangqiang and Mr.

Li Hongqi (the “Founders”) as a company with limited liability.

The Company provides oilfield specialized equipment, automation systems, tools, chemicals and field services to petroleum companies in the People’s Republic of China (the “PRC”).

Its wholly owned subsidiary, Recon Technology Co., Limited (“Recon-HK”) was incorporated on September 6, 2007 in Hong Kong.

Other than the equity interest in Recon-HK, the Company does not own any assets or conduct any operations.

On November 15, 2007, Recon-HK established one wholly owned subsidiary, Jining Recon Technology Ltd.

(“Recon-JN”) under the laws of the PRC.

Other than the equity interest in Recon-JN, Recon-HK does not own any assets or conduct any operations.

The Company conducted its business through the following PRC legal entities that were consolidated as variable interest entities (“VIEs”) and operate in the Chinese oilfield equipment & service industry:

Li Hongqi (the “Founders”) as a company with limited liability.

The Company provides

oilfield specialized equipment, automation systems, tools, chemicals and field services to petroleum companies mainly in the

People’s Republic of China (the “PRC”).

Its wholly owned subsidiary, Recon Technology Co., Limited

(“Recon-HK”) was incorporated on September 6, 2007 in Hong Kong.

Other than the equity interest in Recon-HK, the

Company does not own any assets or conduct any operations.

On November 15, 2007, Recon-HK established a wholly owned

subsidiary, Jining Recon Technology Ltd.

(“Recon-JN”) under the laws of the PRC.

Other than the equity interest

in Recon-JN, Recon-HK does not own any assets or conduct any operations.

On November 19, 2011, the Company established one

wholly owned subsidiary, Recon Investment Ltd.

(“Recon-IN”) under the laws of HK.

Other than the equity interest

in Recon-IN, The Company does not own any assets or conduct any operations.

The Company conducts its business through the following PRC

legal entities that are consolidated as variable interest entities (“VIEs”) and operate in the Chinese oilfield equipment

& service industry:

Beijing BHD Petroleum Technology Co., Ltd.

(“BHD”), and

Nanjing Recon Technology Co., Ltd.

(“Nanjing Recon”).

Chinese laws and regulations currently do not prohibit or restrict foreign ownership in petroleum businesses.

However, Chinese laws and regulations do prevent direct foreign investment in certain industries.

On January 1, 2008, to protect the Company’s shareholders from possible future foreign ownership restrictions, the Founders, who also held the controlling interest of BHD and Nanjing Recon, reorganized the corporate and shareholding structure of these entities by entering into certain exclusive agreements with Recon-JN, which entitles Recon-JN to receive a majority of the residual returns.

On May 29, 2009 Recon-JN and BHD and Nanjing Recon entered into an operating agreement to provide full guarantee for the performance of such contracts, agreements or transactions entered into by BHD and Nanjing Recon.

As a result of the new agreement, Recon-JN absorbs 100 % of the expected losses and receives 90 % of the expected gains of BHD and Nanjing Recon, which resulted in Recon-JN being the primary beneficiary of these Companies.

Recon-JN also entered into Share Pledge Agreements with the Founders, who pledged all their equity interest in these entities to Recon-JN.

The Share Pledge Agreements, which were entered into by each Founder, pledged each of the Founders’ equity interest in BHD and Nanjing Recon as a guarantee for the service payment under the Service Agreement.

The Service Agreement, entered into on January 1, 2008, between Recon-JN and BHD and Nanjing Recon, states that Recon-JN will provide technical consulting services to BHD and Nanjing Recon in exchange for 90 % of their annual net profits as a service fee, which is to be paid quarterly.

In addition, Recon-HK entered into Option Agreements to allow Recon-HK to acquire the Founders’ interest in these entities if or when permitted by the PRC laws.

Based on these exclusive agreements, the Company consolidated BHD and Nanjing Recon as VIEs as required by Accounting Standards Codification (“ASC”) Topic 810, Consolidation because the Company was the primary beneficiary of the VIEs.

Management makes ongoing reassessment of whether Recon-JN is the primary beneficiary of BHD and Nanjing Recon.

On August 28, 2000, a Founder of the Company purchased a controlling interest in BHD which was organized under the laws of the PRC on June 29, 1999.

Through December 15, 2010, the Founders held 67.5 % ownership in BHD.

(“Nanjing Recon”).

Chinese laws and regulations currently do not prohibit or restrict

foreign ownership in petroleum businesses.

However, Chinese laws and regulations do prevent direct foreign investment in certain

On January 1, 2008, to protect the Company’s shareholders from possible future foreign ownership restrictions,

the Founders, who also held the controlling interest of BHD and Nanjing Recon, reorganized the corporate and shareholding structure

of these entities by entering into certain exclusive agreements with Recon-JN, which entitles Recon-JN to receive a majority of

the residual returns.

On May 29, 2009 Recon-JN and BHD and Nanjing Recon entered into an operating agreement to provide full guarantee

for the performance of such contracts, agreements or transactions entered into by BHD and Nanjing Recon.

As a result of the new

agreement, Recon-JN absorbs 100% of the expected losses and receives 90% of the expected gains of BHD and Nanjing Recon, which

resulted in Recon-JN being the primary beneficiary of these Companies.

Recon-JN also entered into Share Pledge Agreements with the Founders, who pledged all their equity interest

in these entities to Recon-JN.

The Share Pledge Agreements, which were entered into by each Founder, pledged each of the Founders’

equity interest in BHD and Nanjing Recon as a guarantee for the service payment under the Exclusive

Technical consulting Services Agreement (the “Services Agreement”).

The Service Agreement, entered into on January 1, 2008, between

Recon-JN and BHD and Nanjing Recon, states that Recon-JN will provide technical consulting services to BHD and Nanjing Recon in

exchange for 90% of their annual net profits as a service fee, which is to be paid quarterly.

In addition, Recon-HK entered into Option Agreements to allow

Recon-HK to acquire the Founders’

interest in these entities if or when permitted by the PRC laws.

Based on these exclusive agreements, the Company consolidated

BHD and Nanjing Recon as VIEs as required by Accounting Standards Codification (“ASC”) Topic 810, Consolidation

because the Company was the primary beneficiary of the VIEs.

Management makes ongoing reassessment of whether Recon-JN is the

primary beneficiary of BHD and Nanjing Recon.

On August 28, 2000, a Founder of the Company purchased a controlling

interest in BHD which was organized under the laws of the PRC on June 29, 1999.

Through December 15, 2010, the Founders held a

67.5% ownership interest in BHD.

From December 16, 2010 to June 30, 2012, Messers.

Yin Shenping and Chen Guangqiang held 86.24 % ownership interest of BHD.

BHD is combined with the Company through the date of the exclusive agreements, and is consolidated following January 1, 2008, the date of the agreements based on ASC Topic 810.

The Company allocates profits and losses 90 % and 100 %, respectively, based upon the control agreements.

Yin Shenping and Chen Guangqiang held an 86.24%

ownership interest of BHD.

BHD is combined with the Company through the date of the exclusive agreements, and has been consolidated

following January 1, 2008, the date of the agreements based on ASC Topic 810.

The Company allocates profits and losses 90% and

100%, respectively, based upon the control agreements.

Profits allocated to the minority interest are the remaining amount (10%).

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

On July 4, 2003, Nanjing Recon was organized under the laws of the PRC.

On August 27, 2007, the Founders of the Company purchased a majority ownership of Nanjing Recon from a related party who was a majority owner of Nanjing Recon.

On July 4, 2003, Nanjing Recon was organized under the laws

On August 27, 2007, the Founders of the Company purchased a majority ownership of Nanjing Recon from a related party

who was a majority owner of Nanjing Recon.

Through December 15, 2010, the Founders held 80% ownership interest in Nanjing Recon.

1 unchanged sentence

Yin Shenping and Chen Guangqiang held 80% ownership interest of Nanjing Recon.

Nanjing Recon is combined with the Company through the date of the exclusive agreements, and is consolidated following January 1, 2008, the date of the agreements based on ASC Topic 810.

The Company allocates profits and losses 90 % and 100 %, respectively, based upon the control agreements.

Nanjing Recon is combined with the Company through the date of the exclusive agreements, and is consolidated following January

1, 2008, the date of the agreements based on ASC Topic 810.

The Company allocates profits and losses 90% and 100%, respectively,

based upon the control agreements.

Profits allocated to the non-controlling interest are the remaining amount (10%).

Nature of Operations The Company engaged in (1) providing equipment, tools and other hardware related to oilfield production and management, including simple installations in connection with some projects;

(2) service to improve production and efficiency of exploited oil wells, and (3) developing and selling its own specialized industrial automation control and information solutions.

The products and services provided by the Company include:

High-Efficiency Heating Furnaces - High-Efficiency Heating Furnaces are designed to remove the impurities and to prevent solidification blockage in transport pipes carrying crude petroleum.

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

Multi-Purpose Fissure Shaper - Multipurpose fissure shapers improve the extractors’ ability to test for and extract petroleum which requires perforation into the earth before any petroleum extractor can test for the presence of oil.

Horizontal Multistage Fracturing related Service - The Company mainly uses Baker Hughes FracPoint system and provides related service to oilfield companies.

The Baker Hughes FracPoint system provided a completion method using packers to isolate sections of the wellbore (stages) and frac sleeves to direct the frac treatment to the desired stage.

The use of this type of completion eliminated the need for cementing the liner, coiled tubing operations, and wireline operations, while significantly reducing overall pumping time.

Supervisory Control and Data Acquisition System (“SCADA”) - SCADA is an industrial computerized process control system for monitoring, managing and controlling petroleum extraction.

SCADA integrates underground and aboveground activities of the petroleum extraction industry.

This system can help to manage the oil extraction process in real-time to reduce the costs associated with extraction.

Nature of Operations –

The Company engaged in (1)

providing equipment, tools and other hardware related to oilfield production and management, including simple installations in

connection with some projects;

(2) service to improve production and efficiency of exploited oil wells, and (3) developing and

selling its own specialized industrial automation control and information solutions.

The products and services provided by the

Company include:

High-Efficiency Heating Furnaces - High-Efficiency Heating

Furnaces are designed to remove the impurities and to prevent solidification blockage in transport pipes carrying crude petroleum.

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

Multi-Purpose Fissure Shaper - Multipurpose fissure shapers

improve the extractors’

ability to test for and extract petroleum which requires perforation into the earth before any petroleum

extractor can test for the presence of oil.

Horizontal Multistage Fracturing related Service - The

Company mainly uses Baker Hughes FracPoint™

system and provides related service to oilfield companies.

The Baker Hughes FracPoint™

system provided a completion method using packers to isolate sections of the wellbore (stages) and frac sleeves to direct the frac

treatment to the desired stage.

The use of this type of completion eliminated the need for cementing the liner, coiled tubing operations,

and wireline operations, while significantly reducing overall pumping time.

Supervisory Control and Data Acquisition System (“SCADA”)

- SCADA is an industrial computerized process control system for monitoring, managing and controlling petroleum extraction.

integrates underground and aboveground activities of the petroleum extraction industry.

This system can help to manage the oil

extraction process in real-time to reduce the costs associated with extraction.

SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation - The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and have been consistently applied.

Principles of Consolidation - The consolidated financial statements include the accounts of the Company, all the subsidiaries and 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 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.

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

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 the Chinese Yuan (“RMB”) and the accompanying consolidated financial statements have been expressed in Chinese Yuan.

The consolidated financial statements as of and for the year ended June 30, 2013 have been translated into United States dollars (“U.S.

dollars”) solely for the convenience of the readers.

The translation has been made at the rate of ¥6.1882 = US$1.00, the approximate exchange rate prevailing on June 30, 2013.

Basis of presentation - The accompanying consolidated

financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America

and have been consistently applied.

Principles of Consolidation - The consolidated

financial statements include the accounts of the Company, all the subsidiaries and 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 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

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;

represent claims against the specific assets of the consolidated VIEs.

Currency Translation - The Company’s functional

currency is the Chinese Yuan (“RMB”) and the accompanying consolidated financial statements have been expressed in

Chinese Yuan.

The consolidated financial statements as of and for the year ended June 30, 2014 have been translated into United

States dollars (“U.S.

dollars”) solely for the convenience of the readers.

The translation has been made at the rate

of ¥6.1552 = US$1.00, the approximate exchange rate prevailing on June 30, 2014.

These translated U.S.

dollar amounts should not be construed as representing Chinese Yuan amounts or that the Chinese Yuan amounts have been or could be converted into U.S.

Estimates and assumptions - The preparation of the consolidated financial statements in conformity with U.S.

GAAP 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 revenues 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 revenue recognition, allowance for doubtful accounts, the useful lives of property and equipment and the fair value of stock based payments.

Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

Fair Values of Financial Instruments - The carrying amounts reported in the consolidated balance sheets for trade accounts receivable, other receivables, purchase advances, trade accounts payable, accrued liabilities, advances from customers, short-term bank loan and short-term borrowings approximate fair value because of the immediate or short-term maturity of these financial instruments.

Long-term other receivables approximate fair value because the interest rate approximates the market rate.

Long-term investment is carried at less than fair value, with fair value determined using level 1 inputs.

Cash and Cash Equivalents - Cash and cash equivalents are comprised of cash on hand, demand deposits and highly liquid short-term debt investments with stated original maturities of no more than three months.

dollar amounts should

not be construed as representing Chinese Yuan amounts or that the Chinese Yuan amounts have been or could be converted into U.S.

Estimates and assumptions - The preparation of

the consolidated financial statements in conformity with U.S.

GAAP 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 revenues 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 revenue recognition, allowance for doubtful accounts, deferred taxes, warrants liability, the useful lives of property

and equipment and the fair value of share- based payments.

Since the use of estimates is an integral component of the financial

reporting process, actual results could differ from those estimates.

Fair Values of Financial Instruments - The US

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

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.

The carrying amounts reported in the consolidated balance sheets

for trade accounts receivable, other receivables, purchase advances, trade accounts payable, accrued liabilities, advances from

customers, short-term bank loan and short-term borrowings approximate fair value because of the immediate or short-term maturity

of these financial instruments.

Long-term borrowings approximate fair value because the interest rate charged approximates the

Long-term other receivables approximate fair value because interest rate approximates the market rate.

investment is measured at fair value on a non-recurring basis at June 30, 2014, since the Company recorded an impairment loss during

the fair value was determined to be zero using Level 2 inputs.

(See Note 8.)

The fair value of the warrants liability

was determined using the Black-Scholes Model, as Level 2 inputs (See Note 13).

Cash and Cash Equivalents - Cash and cash equivalents

are comprised of cash on hand, demand deposits and highly liquid short-term debt investments with stated original maturities of

no more than three months.

Since a majority of the bank accounts are located in the PRC, those bank balances are uninsured.

Trade Accounts and Other Receivables - Accounts receivable are carried at original invoiced amount less a provision for any potential uncollectible amounts.

Accounts are considered past due when the related receivables are more than a year old.

Provision is made against trade accounts and other receivables to the extent they are considered to be doubtful.

Trade Accounts and Other Receivables - Accounts

receivable are carried at original invoiced amount less a provision for any potential uncollectible amounts.

Accounts are considered

past due when the related receivables are more than a year old.

Provision is made against trade accounts and other receivables

to the extent they are considered to be doubtful.

Accounts are written off after extensive efforts at collection.

Other receivables arise from transactions with non-trade customers.

Purchase Advances - Purchase advances are the amounts prepaid to suppliers for purchases of inventory and are recognized as inventory when the final amount is paid to the suppliers and the inventory is delivered.

Inventories - Inventories are stated at the lower of cost or market value, on a weighted average basis for BHD.

Inventories are stated at the lower of cost or market value, on a first-in-first-out basis for Nanjing Recon.

The methods of determining inventory costs are used consistently from year to year.

Other receivables

arise from transactions with non-trade customers.

Purchase Advances - Purchase advances are the

amounts prepaid to suppliers for purchases of inventory and are recognized as inventory when the final amount is paid to the suppliers

and the inventory is delivered.

Inventories - Inventories are stated at the lower

of cost or market value, on a weighted average basis for BHD.

Inventories are stated at the lower of cost or market value, on a

first-in-first-out basis for Nanjing Recon and ENI.

The methods of determining inventory costs are used consistently from year

Allowance for inventory obsolescence is provided when the market value of certain inventory items are lower than the cost.

Tax Recoverable Tax recoverable represented amounts paid for value added tax (“VAT”) on purchases in the P.R.C.

amounting to ¥ 2,790,722 and ¥ 575,650 ($ 93,024 ) at June 30, 2012 and 2013.

These amounts can be used to offset VAT payable on sales made by the Company.

Property and Equipment - 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 two to ten years.

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

Tax Recoverable –

Tax recoverable represented

amounts paid for value added tax (“VAT”) on purchases in the PRC amounting to ¥575,650 at June 30, 2013.

can be used to offset VAT payable on sales made by the Company.

Property and Equipment - 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 two to ten years.

Leasehold improvements are amortized over the shorter of the lease

term or the estimated useful life of the assets

Motor vehicles

1 unchanged sentence

Leasehold improvement

Long-term investment Long-term investment in equity over which the Company has the ability to exercise significant influence but not control, and that, in general, are 20-50 percent owned are stated at cost plus equity in undistributed net income (loss) of the investee.

These investments are evaluated for impairment, in which an impairment loss would be recorded whenever a decline in the value of an equity investment below its carrying amount is determined to be “other than temporary.” In judging “other than temporary,” the Company would consider the length of time and extent to which the fair value of the investment has been less than the carrying amount of the investment, the near-term and longer-term operating and financial prospects of the investee, and the Company’s longer-term intent of retaining the investment in the investee.

Long-Lived Assets - The Company applies the ASC Topic 360 “Property, plant and equipment.” ASC Topic 360 requires that long-lived assets, such as property and equipment be 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.

There were no impairments at June 30, 2013.

Revenue Recognition - The Company recognizes revenue when the following four criteria are met:

(1) persuasive evidence of an arrangement, (2) delivery has occurred or services have been provided, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured.

Delivery does not occur until products have been shipped or services have been provided to the client and the client has signed a completion and acceptance report, risk of loss has transferred to the client, client acceptance provisions have lapsed, or the Company has objective evidence that the criteria specified in client acceptance provisions have been satisfied.

Long-term investment –

Long-term investment

in equity over which the Company has the ability to exercise significant influence but not control, and that, in general, are 20-50

percent owned, are stated at cost plus equity in undistributed net income (loss) of the investee.

These investments are evaluated

for impairment, in which an impairment loss would be recorded whenever a decline in the value of an equity investment below its

carrying amount is determined to be “other than temporary.”

In judging “other than temporary,”

would consider the length of time and extent to which the fair value of the investment has been less than the carrying amount of

the investment, the near-term and longer-term operating and financial prospects of the investee, and the Company’s longer-term

intent of retaining the investment in the investee.

Long-Lived Assets - The Company applies the ASC

Topic 360 “Property, plant and equipment.”

ASC Topic 360 requires that long-lived assets, such as property and equipment

be 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.

There were no impairments at June 30, 2013 and June 30, 2014.

Revenue Recognition - The Company recognizes revenue

when the following four criteria are met:

(1) persuasive evidence of an arrangement, (2) delivery has occurred or services

have been provided, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured.

does not occur until products have been shipped or services have been provided to the customers and the customers have signed a

completion and acceptance report, risk of loss has transferred to the customers, customers’

acceptance provisions have lapsed,

or the Company has objective evidence that the criteria specified in customers’

acceptance provisions have been satisfied.

The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.

Revenue from hardware sales is generally recognized when the product is shipped to the customer and when there are no unfulfilled company obligations that affect the customer’s final acceptance of the arrangement.

Revenue from hardware sales is generally recognized when the

product is shipped to the customer and when there are no unfulfilled company obligations that affect the customer’s final

acceptance of the arrangement.

The Company sells self-developed software.

For software sales, the Company recognizes revenues in accordance with ASC Topic 985 - 605 “Software Revenue Recognition”.

Revenue from software is recognized according to project contracts.

Contract costs are accumulated during the periods of installation and testing or commissioning.

For software sales,

the Company recognizes revenues in accordance with ASC Topic 985 - 605 “Software Revenue Recognition”.

software is recognized according to project contracts.

Contract costs are accumulated during the periods of installation and testing

or commissioning.

Usually this is short term.

Revenue is not recognized until completion of the contracts and receipt of acceptance statements.

The Company provides services to improve software function and system operation on separated fixed-price contracts.

Revenue is recognized on the completed contract method when acceptance is determined by a completion report signed by the customer.

Deferred revenue represents unearned amounts billed to customers related to sales contracts.

Subsidy Income - Grants are given by the government to support local software companies’ operation and research and development.

Grants related to research and development projects are recognized as subsidy income in the unaudited condensed consolidated statements of operations when received.

Grants in the form of value-added-tax refund for software products are recognized when received.

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

Share-Based Compensation - The Company accounts for share-based compensation in accordance with ASC Topic 718, Share-Based Payment .

Under the fair value recognition provisions of this topic, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense with graded vesting on a straightline basis over the requisite service period for the entire award.

The Company has elected to recognize compensation expenses using the Binomial Lattice valuation model estimated at the grant date based on the award’s fair value.

Income Taxes - Income taxes are provided based upon the liability method of accounting pursuant to ASC Topic 740, Accounting for 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.

Under ASC Topic 740, 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 likelihood of being realized upon ultimate settlement.

Revenue is not recognized until completion of the contracts and receipt of acceptance

The Company provides services to improve software function and

system operation on separated fixed-price contracts.

Revenue is recognized on the completed contract method when acceptance is

determined by a completion report signed by the customer.

Deferred revenue represents unearned amounts billed to customers

related to sales contracts.

Subsidy Income - Grants are given by the government

to support local software companies’

operation and research and development.

Grants related to research and development projects

are recognized as subsidy income in the unaudited condensed consolidated statements of operations when received.

Grants in the

form of value-added-tax refund for software products are recognized when received.

Share-Based Compensation - The Company accounts

for share-based compensation in accordance with ASC Topic 718, Share-Based Payment .

Under the fair value recognition provisions

of this topic, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized

as expense with graded vesting on a straight–line basis over the requisite service period for the entire award.

has elected to recognize compensation expenses using the Binomial Lattice valuation model estimated at the grant date based on

the award’s fair value.

Income Taxes - Income taxes are provided based

upon the liability method of accounting pursuant to ASC Topic 740, Accounting for 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.

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.

Under ASC Topic 740, 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 likelihood of being realized

upon ultimate settlement.

Income tax returns for the year prior to 2010 are no longer subject to examination by tax authorities.

Earnings (loss) per Share (“EPS”) - Basic EPS is computed by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding.

Diluted EPS are computed by dividing net income (loss) attributable to ordinary shareholders by the weighted-average number of ordinary shares and dilutive potential ordinary share equivalents outstanding.

Basic net income per share is computed by dividing net income available to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted income per share is computed by dividing net income by the weighted average number of shares of ordinary shares, ordinary shares equivalents and potentially dilutive securities outstanding during each period.

Potentially dilutive ordinary shares consist of ordinary shares issuable upon the conversion of ordinary stock options and warrants (using the treasury stock method).

However, the effect from options and warrants would have been anti-dilutive due to the fact that the weighted average exercise price per share of options and warrants is higher than the weighted average market price per ordinary share during the years ended June 30, 2012 and 2013.

New Accounting Pronouncements

Recently issued accounting pronouncements- In February 2013 the FASB issued an accounting standards update ("ASU") No.

2013-02 "Comprehensive Income (Topic 220):

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," requiring new disclosures for items reclassified out of accumulated other comprehensive income ("AOCI"), including (1) changes in AOCI balances by component and (2) significant items reclassified out of AOCI.

The guidance does not amend any existing requirements for reporting net income or OCI in the financial statements.

The standards update was effective for reporting periods beginning after December 15, 2012, to be applied prospectively.

The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

As this guidance only requires expanded disclosures, the adoption of this guidance is not expected to have a significant impact on the Company's consolidated financial statements.

In March 2013, the FASB issued an accounting standards update ( “ ASU ” ) No.

2013-05 “ Foreign Currency Matters (Topic 830):

Parent ’ s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, ’ requiring the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity.

The standards update is effective prospectively for fiscal years and interim reporting periods within those years beginning after December 15, 2013.

Early adoption is permitted.

The Company does not expect the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740):

Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force).

ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carrforward, a similar tax loss, or a tax credit carryforward exists.

The FASB ’ s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S.

This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date.

This amendment is effective for public entities for fiscal years beginning after December 15, 2013 and interim periods within those years.

The company does not expect the adoption of this standard to have a material impact on the Company ’ s unaudited condensed consolidated financial position and results of operations.

Earnings (loss) per Share (“EPS”)

- Basic EPS is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding.

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 stock options, restricted shares and warrants (using the treasury stock method).

For the year ended June 30, 2014, there were 64,207 restricted shares included in the weighted average dilutive shares calculation.

However, the effect from options and warrants would have been anti-dilutive due to the fact that the weighted average exercise

price per share of options and warrants is higher than the weighted average market price per ordinary share during the years ended

June 30, 2013 and 2014.

Reclassification –

Certain accounts

from prior period have been reclassified to confirm to the current period presentation.

Recently Issued Accounting Pronouncements - In

April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of

an Entity,”

(“ASU 2014-08”).

Under ASU 2014-08, only disposals representing a strategic shift in operations that

have a major effect on the Company’s operations and financial results should be presented as discontinued operations.

Additionally,

ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information

about the assets, liabilities, income, and expenses of discontinued operations.

The amendments in ASU 2014-08 are effective for

fiscal years, and interim periods within those years, beginning after December 15, 2014.

However, ASU 2014-08 should not be

applied to a component that is classified as held for sale before the effective date even if the component is disposed of after

the effective date.

Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been

reported in financial statements previously issued.

The effects of ASU 2014-08 will depend on any future disposals by the Company.

In May 2014, the FASB issued ASU 2014-09, “Revenue from

Contracts with Customers,”

(“ASU 2014-09”).

Previous revenue recognition guidance in U.S.

GAAP comprised broad

revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes

resulted in different accounting for economically similar transactions.

The core principle of the guidance is that an entity should

recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration

to which the entity expects to be entitled in exchange for those goods or services.

To achieve this core principal, five steps

are required to be applied.

In addition, ASU 2014-09 expands and enhances disclosure requirements which require disclosing sufficient

information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash

flows arising from contracts with customers.

This includes both qualitative and quantitative information.

The amendments in ASU

2014-09 are retrospectively effective for annual reporting periods beginning after December 15, 2016, including interim periods

within that reporting period.

Early application is not permitted.

Management is evaluating the effect, if any, the Company’s

financial positions and results of operations.

TRADE ACCOUNTS RECEIVABLE, NET

Accounts receivable consisted of the following:

June 30, 2013

June 30, 2014

Trade accounts receivable

1 unchanged sentence

Total - third- party, net

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

June 30, 2013

June 30, 2014

Related Party

Beijing Yabei Nuoda Science and Technology Co.

Beijing Langchen Construction Company

Xiamen Huangsheng Hitek Computer Network Co.

Xiamen Hengda Hitek Computer Network Co.

Allowance for doubtful accounts

Total - related-parties, net

Related Party

June 30, 2013

June 30, 2014

Non-current portion

Beijing Yabei Nuoda Science and Technology Co.

Allowance for doubtful accounts

Total - related-parties, net

One of the Founders, Mr.

Yin Shen ping, is the legal representative of Beijing Yabei Nuoda Science and Technology Co.

Ltd (“Yabei Nuoda”).

Yin Shen ping, was

the legal representative of Beijing Yabei Nuoda Science and Technology Co.

Ltd (“Yabei Nuoda”) before December 2013.

The founder does not have any equity interest in this company currently.

The receivable from Yabei Nuoda was generated primarily from the sale of automation system and services based on written contracts.

The receivable from Yabei Nuoda was generated primarily

from the sale of automation system and services based on written contracts.

Based on the repayment agreement signed on August

27, 2014, the outstanding balance will be collected in four years with each installment of ¥4,015,644.

OTHER RECEIVABLES, NET

Other receivables consisted of the following:

June 30, 2013

June 30, 2014

Current Portion

4 unchanged sentences

Allowance for doubtful accounts

June 30, 2013

June 30, 2014

Non-Current Portion

Due from ENI (A)

(A) After ENI ceased to be a VIE of the Company, ENI in January 2012 agreed to repay the loan on a payment schedule, with interest accrued during the period at an annual rate of 4 %.

In accordance with the payment schedule, the principal plus accrued interest is required to be repaid over approximately three years on a quarterly basis beginning March 2012.

(A) After ENI ceased to be a VIE of the Company, ENI in January 2012

agreed to repay the loan on a payment schedule, with interest accrued during the period at an annual rate of 4%.

In accordance

with the payment schedule, the principal plus accrued interest is required to be repaid over approximately three years on a quarterly

basis beginning March 2012.

The first four payments are RMB 1.2 million each.

In March, June, September and December of 2012, the Company received RMB 4.8 million.

Starting March 2013, the installment for each quarter would be ¥ 1,777,653 .

The Company received the payments on time in March and June, 2013.The payments after one year are RMB 3,502,680 .

(B) Loans to third-parties are mainly used for short-term funding to support cooperative companies.

In March, June, September and December of 2012, the

Company received RMB 4.8 million.

Starting March 2013, the installment for each quarter would be ¥1,777,653.

The Company received

the payments on time quarterly since March, 2013.The payments after one year are RMB5,353,104 ($ 869,688).

(B) Loans to third-parties

are mainly used for short-term funding to support cooperative companies.

These loans are due on demand bearing no interest.

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

(C) Business advance to staff represents advances for business travel and sundry expenses related to oilfield or on-site installation and inspection of products through customer approval and acceptance.

Other receivables - related parties represent loans to related parties for working capital advances to related entities.

Such advances are due-on-demand and non-interest bearing.

Below is a summary of other receivables - related parties which consisted of the following:

to staff represents advances for business travel and sundry expenses related to oilfield or on-site installation and inspection

of products through customer approval and acceptance.

Other receivables

- related parties represent loans to related parties for working capital advances to related entities.

Such advances are due-on-demand

and non-interest bearing.

Below is a summary of other receivables - related parties which

consisted of the following:

Related Party

June 30, 2013

June 30, 2014

Name of Related Party

Beijing Yabei Nuoda Science and Technology Co.

Other-travel advances (B)

(A) Non-interest bearing loan for working capital purpose.

(B) Other Travel advances were paid to the Company’s management.

These advances are short term and will be offset against travel and business expenses.

Beijing Langchen Construction Company

Other-travel advances

PURCHASE ADVANCES

The Company purchased products and services from a third-party and a related party during the normal course of business.

Purchase advances consisted of the following at June 30, 2012 and 2013:

The Company purchased products and services from a third-party

and a related party during the normal course of business.

Purchase advances consisted of the following:

June 30, 2013

June 30, 2014

Prepayment for inventory purchase

1 unchanged sentence

Below is a summary of purchase advances to related party.

June 30, 2013

June 30, 2014

Related Party

Xiamen Huangsheng Hitek Computer Network Co.

One of the Founders of the Company and his family member collectively own 57 % of Xiamen Huasheng Haitian Computer Network Co.

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

One of the Founders of the Company and his family member collectively own 57% of Xiamen Huasheng Haitian

Computer Network Co.

Current ending balance of the purchase advances

to Xiamen Huasheng Hitek is expect to be settled within one year.

Inventories consisted of the following:

June 30, 2013

June 30, 2014

Small component parts

Purchased goods and raw materials

Raw materials

Work in process

1 unchanged sentence

Total inventories

There was not inventory obsolesce reserve at June 30, 2012 and 2013.

was no inventory obsolescence reserve at June 30, 2013 and 2014.

PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

June 30, 2013

June 30, 2014

Motor vehicles

3 unchanged sentences

Property and equipment, net

Depreciation expense was ¥ 361,790 and ¥ 618,552 ($ 99,957 ) for the years ended June 30, 2012 and 2013, respectively.

Depreciation expense was ¥618,552 and ¥595,647 ($96,771)

for the years ended June 30, 2013 and 2014, respectively.

Long-term investment

On June 27, 2013, the Company purchased 2,800,000 restricted shares of Avalon Oil and Gas, Inc.

("Avalon") for $ 0.089 per share, or approximately ¥ 1.5 million ($ 250,000 ).

Since the restriction for the shares is for two years, the Company was able to acquire the shares at 50 % of the market value.

As a result, Recon owns 32.22 % of Avalon's outstanding shares.

The investment was accounted for using the equity method and no gain or loss from equity investment was recorded for the year ended June 30, 2013 due to immateriality.

On June 28, 2013, the Company purchased 2,800,000 restricted

shares of Avalon Oil and Gas, Inc.

("Avalon") for $0.089 per share, or approximately ¥1.5 million ($250,000).

the restriction for the shares is for two years, the Company was able to acquire the shares at 50% of the market value.

The investment

was accounted for using the equity method and no gain or loss from equity investment was recorded for the year ended June 30, 2013

due to immateriality.

As of June 30, 2013 and 2014, Recon owned 32.22% and 24.02% of Avalon’s outstanding shares, respectively.

Avalon is an independent US domestic oil and natural gas producer listed on the OTCBB under the ticker symbol AOGN.

Avalon is building a portfolio of oil and gas producing properties to generate asset growth.

For the year ended March 31, 2013, Avalon had revenue of approximately $ 0.3 million and net loss of $ 0.7 million.

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

Avalon is building

a portfolio of oil and gas producing properties to generate asset growth.

However, based on the available information and discussion

with the management team of Avalon, we believe Avalon’s operating loss would not be recovered in the foreseeable future,

therefore, the Company believes the investment is impaired and recorded an investment loss of ¥

( $250,000) for the year ended June 30, 2014.

OTHER PAYABLES

Other payables consisted of the following:

June 30, 2013

June 30, 2014

Consulting services

Due to ENI (A)

Expenses paid by third-parties

Distributors and employees

(A) A former VIE of the Company, which ceased to be a VIE on December

June 30, 2013

June 30, 2014

Related Party

3 unchanged sentences

Due to management staff on behalf of Recon

(1) Primarily includes an advance from Yabei Nuoda for RMB 60,000 and an advance from Xiamen Henda Haitek for RMB 2,799,347 to supplement the Company’s working capital.

The advance is payable on demand and non-interest bearing.

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

(1) Primarily includes an advance from Yabei Nuoda for RMB 61,301

and an advance from Xiamen Hengda Haitek for RMB 2,499,347 to supplement the Company’s working capital.

The advance is payable

on demand and non-interest bearing.

TAXES PAYABLE

Taxes payable consisted of the following:

Taxes payable

consisted of the following:

June 30, 2013

June 30, 2014

Business tax payable

4 unchanged sentences

Short-term bank loans consisted of the following:

CCB bank,6.44% annual interest, paid off on December 11, 2012

Beijing Bank,7.87 % annual interest, paid off on February 28, 2013

Beijing Bank, 7.11 % annual interest,paid off on March 8, 2013

Beijing Bank, 6.56 % annual interest, paid off on March 29, 2013

Beijing Bank, 6.56% annual interest, paid off on April 5, 2013

Beijing Bank, 6.560 % annual interest, paid off on May 7, 2013

June 30, 2013

June 30, 2014

Communication Bank, 6.6% annual interest, due on October 25, 2013

Communication Bank, 6.6% annual interest, due on November 15, 2013

Beijing Bank,5.75% annual interest, due on February 25, 2014

Beijing Bank, 5.75 % annual interest, due on February 27, 2014

Beijing Bank, 5.75 % annual interest, due on April 9, 2014

Beijing Bank, 5.75 % annual interest, due on April 16, 2014

Beijing Bank,5.75 % annual interest, due on March 11, 2014

Beijing Bank,5.75% annual interest, matured and paid off by February 25, 2014

Beijing Bank, 5.75 % annual interest, matured and paid off by February 27, 2014

Beijing Bank, 5.75 % annual interest, paid off on April 9, 2014

Beijing Bank, 5.75 % annual interest, paid off on April 16, 2014

Beijing Bank,5.75 % annual interest, matured and paid off by March 11, 2014

Industrial and commercial bank, floating interest rate at 5.6%, due on December 24, 2014

Industrial and commercial bank, floating interest rate at 6.0%, due on June 24, 2015

Total short-term bank loans

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

Interest expense for the short-term bank loan was ¥ 416,651 and ¥ 1,243,914 ($ 201,014 ) for the years ended June 30, 2012 and 2013.

expense for the short-term bank loan was ¥1,243,914 and ¥624,096 ($101,393) for the years ended June 30, 2013 and 2014.

SHORT-TERM BORROWINGS

Short-term borrowings are generally extended upon maturity and consisted of the following:

Short-term borrowings due to non-

related parties:

Short-term borrowing, 6% annual interest, due on November 9, 2013 (Originally due on November 9, 2012)

Short-term borrowing, 6% annual interest, paid in full in March 2013

Short-term borrowing with no interest, paid in full in August 2012

Short-term borrowings with no interest, beginning April 22,2013, due on April 21, 2014

Short-term borrowings are generally extended upon maturity and

consisted of the following:

June 30, 2013

June 30, 2014

Short-term borrowings due to non-related parties:

Short-term borrowing, 6% annual interest, matured and paid off by November 9, 2013

Short-term borrowings with no interest, beginning April 22, 2013, paid

off on January 31, 2014

Total short-term borrowings due to non-related parties

Interest expense for short-term borrowings due to non-related parties was ¥ 115,921 and ¥ 47,360 ($ 7,653 ) for the year ended June 30, 2012 and 2013, respectively.

Short-term borrowings due to related

Interest expense for short-term borrowings due to non-related

parties was ¥47,360 and ¥1,525 ($248) for the year ended June 30, 2013 and 2014, respectively.

June 30, 2013

June 30, 2014

Short-term borrowings due to related parties:

Due-on-demand borrowings from Founders, no interest

Due-on-demand borrowings from Founder's family member, no interest

Short-term borrowing from a Founder's family member, 6% annual interest, due and paid on March 20, 2013

Short-term borrowing from a Founder's family member, 6% annual interest, due and paid on October 21, 2012

Short-term borrowing from a Founder's family member, 6% annual interest, due and paid on March 27, 2013

Short-term borrowing from a Founder's family member, 6% annual interest, due on December 21, 2013

Short-term borrowing from a Founder's family member, 6% annual interest, matures on November 29, 2013

Short-term borrowings fromXiamen Huasheng Haitian Computer Network Co.

Short-term borrowing from a Founder's family member, 6% annual interest, matured and paid off by December 21, 2013

Short-term borrowing from a Founder, 6.6% annual interest, due on

November 25, 2014.

Short-term borrowing from a Founder's family member, 6% annual interest, matured and paid off by November 29, 2013

Short-term borrowings from Xiamen Huasheng Haitian Computer

Ltd., no interest, due on November 14, 2014

Short-term borrowings from management, 6% annual interest, due on December 7, 2013

Short-term borrowings from management, 6% annual interest, matured and

paid off by December 7, 2013

Total short-term borrowings due to related parties

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

Interest expense for short-term borrowings due to related parties was ¥ 163,519 and ¥ 217,884 ($ 35,210 ) for the years ended June 30, 2012 and 2013, respectively.

SHAREHOLDERS’ EQUITY

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 10 % of their profit after tax, as determined in accordance with PRC accounting standards and regulations, to the statutory reserves until such reserves reach 50 % of the registered capital or paid-in capital of the companies.

As of June 30, 2012 and 2013, the balance of total statutory reserves was ¥ 2,378,961 and ¥ 3,023,231 ($ 488,548 ), respectively.

Stock-Based Awards Plan - In June 2009, the Board of Directors and the shareholders of the Company adopted the 2009 Stock Incentive Plan (the “2009 Plan”).

The 2009 Plan provides for the grant of stock options and restricted ordinary shares to employees, non-employee directors and consultants of the Company.

Options granted under the 2009 Plan may be Incentive Stock Options or Non-statutory Stock Options.

Non-employee directors and Consultants are not eligible to receive the award of an Incentive Stock Option.

The Compensation Committee of the Board of Director is entitled to establish the term, vesting conditions and exercise price of the options as well as the vesting conditions and transferability of restricted shares.

Under the 2009 Plan, 790,362 unissued ordinary shares have been reserved for issuance.

The Company granted options to purchase 293,000 of ordinary shares to its employees and non-employee directors on July 29, 2009 and 170,000 warrants to the placement agent.

On December 31, 2010, the Company held the annual board meeting and accepted the resignation of certain directors.

Based on the Company’s stock incentive plan, no options may be exercised more than 3 months after termination of employment.

Since those directors left at the time of the annual meeting in December 2010, their options had expired as of February 29, 2011.

Thus, 100,000 options were forfeited and reallocated back into the Company’s option pool.

On March 26, 2012, the Company held the annual board meeting and determined to grant key employees stock options.

Under this plan, the Company granted key employees and a non-employee director options to purchase 415,000 of ordinary shares at an exercise price of $ 2.96 per share.

Interest expense for short-term borrowings due to related parties

was ¥217,884 and ¥326,953 ($53,118) for the years ended June 30, 2013 and 2014, respectively.

Note 13 –WARRANTS LIABILITY

In connection with the stock offering in November 2013, the

Company issued warrants to certain institutional investors and placement agent to purchase 218,600 ordinary shares (see details

According to ASC 815-40, if the strike price of the warrants

is denominated in a currency other than the Company’s functional currency, the warrants are not considered indexed to the

entity’s own stock.

The Company’s functional currency is RMB and the strike price of the warrants is denominated in

USD, as a result, the warrants are classified as liabilities with all future changes in the fair value of these warrants recognized

in earnings until such time as the warrants are exercised or expired.

These common stock purchase warrants do not trade in an active

securities market, and as such, their fair value is estimated by using the Cox-Ross-Rubinstein (CRR) Binomial Model using the following

Annual dividend yield

Exercised price

Underlying price at grant date

Expected life (years)

Risk-free interest rate

Expected volatility

Expected volatility is based on the historical volatility of

the Company’s common stock.

The Company has no reason to believe future volatility over the expected remaining life of these

warrants is likely to differ materially from historical volatility.

The expected life is based on the remaining term of the warrants.

The risk-free interest rate is based on U.S.

Treasury securities according to the remaining term of the warrants.

dividend yield was based on the Company’s current and expected dividend policy.

The following table sets forth by level within the fair value

hierarchy the warrants liability that was accounted at fair value on a recurring basis.

Fair Value Measurement at

Carrying Value at

June 30, 2014

Warrants liability

The following

is a reconciliation of the beginning and ending balance of the warrants liability measured at fair value on a recurring basis for

the year ended June 30, 2014:

Change of warrants liability

Beginning balance –

July 1 2012 and June 30, 2013

Initial measurement of warrants liability on November 29, 2013

Change of warrant liability from November 29, 2013 to June 30, 2014

Ending balance - June 30, 2014

SHAREHOLDERS’

Registered direct offering –

November 25, 2013, the Company entered into a securities purchase agreement (“Purchase Agreement”) with certain

institutional investors for the sale of 546,500 ordinary shares in a registered direct offering at the price of $4.81 per

ordinary share (amended to $4.30 per ordinary share on November 29, 2013).

The net cash proceeds received from the stock

offering, after deducting underwriter commission and other associated fees, were ¥12,132,882 (approximately $2.0

In addition, warrants to purchase 163,950 ordinary shares in the aggregate were issued to the investors.

warrants are exercisable immediately at an exercise price of $6.01 per ordinary share (amended to $5.38 per ordinary share

on November 29, 2013) and expire three years from the date of issuance.

The Company also issued warrants to purchase 54,650

ordinary shares to the placement agent (“Placement Agent Warrant”).

The Placement Agent Warrants are on

substantially the same terms as the warrants issued pursuant to the Purchase Agreement, except that these warrants are not

exercisable for a period of six months and will expire three years from the initial issuance date.

In addition to the above warrants issued to the placement agent,

the Company granted 170,000 shares of warrants on connection with its IPO offering, and none of these warrants was exercised during

the years ended June 30, 2013 and 2014.

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 10% of their profit after tax, as determined in accordance with PRC accounting

standards and regulations, to the statutory reserves until such reserves reach 50% of the registered capital or paid-in capital

of the companies.

As of June 30, 2013 and 2014, the balance of total statutory reserves was ¥3,023,231 and ¥4,148,929 ($674,053),

respectively.

1, 2014, shareholders of BHD and a representative of Recon-JN approved the resolution to increase the registered capital of BHD

from RMB 12 million to RMB 15 million.

BHD has provided the documents to the registration authority for approval.

in the registered capital will be paid for by Mr.

Chen Guangqiang, CTO of the Company, and the funds should be in place no

later than December 31, 2014.

STOCK-BASED COMPENSATION

Stock-based Payments

2009 Options Plan - The Company granted options to purchase 293,000 ordinary shares under the 2009 Plan to its employees and non-employee directors on July 29, 2009 .

The options have an excise price of $ 6.00 , equal to the IPO price of the Company’s ordinary shares, and will vest over a period of five years, with the first 20% vesting on July 29, 20 10 .

Stock-Based Awards Plan

2009 Options Plan -

The Company granted options to purchase 293,000 ordinary shares under the Stock Incentive 2009 Plan to its employees and

non-employee directors on July 29, 2009.

The options have an excise price of $6.00, equal to the IPO price of the

Company’s ordinary shares, and will vest over a period of five years, with 20% vesting on each anniversary to the grant

The options expire ten years after the date of grant, on July 29, 2019.

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

The Company recognizes compensation cost for awards with graded vesting on a straight-line basis over the requisite service period for the entire award.

The grant date fair value of the options was ¥ 30.17 ($ 4.42 ) per share.As of June 30, 2013, 100,000 options were forfeited and reallocated to the incentive pool;

options to purchase 193,000 of ordinary shares were outstanding, of which 154,400 shares are vested under the 2009 Plan and no options have been exercised.

Placement Agent Warrants - In connection with its IPO in 2009, the Company sold the placement agent warrants to purchase 170,000 ordinary shares at $ 7.20 per share for a nominal amount.

These warrants are exercisable for a period of five years.

The Company had 170,000 of agent warrants outstanding as of June 30, 2013 and no warrants were exercised during this year.

2012 Option Plan The Company granted options to purchase 415,000 ordinary shares to its employees and a non-employee director on March 26, 2012 .

The options have an excise price of $ 2.96 , equal to the share price of the Company’s ordinary shares at March 26, 2012, and will vest over a period of five years, with the first 20% vesting on March 26, 2013.

The options expire ten years after the date of grant, on March 26, 2012.

The fair value was estimated on March 26, 2012 using the Binomial Lattice valuation model, with the following weighted-average assumptions:

The fair value was estimated on July 29, 2009

using the Binomial Lattice valuation model, with the following weighted-average assumptions:

Stock price at grant date

2 unchanged sentences

Dividend yield

Expected volatility

Expected life (in years)

* Volatility is projected using the performance of PHLX Oil Service Sector index over past five years.

** The life of options represents the period the option is expected to be outstanding.

*** The risk-free interest rate is based on the U.S.

government bond, with a maturity that approximates the life of the option.

**** Forfeiture rate is the estimated percentage of options forfeited by employees by leaving or being terminated before vesting.

The Company recognizes compensation cost for awards with graded vesting on a straight-line basis over the requisite service period for the entire award.

The grant date fair value of the options was ¥ 10.06 ($ 1.59 ) per share.

Compensation expense was ¥ 1,239,788 and ¥ 1,852,656 ($ 299,385 ) for the years ended June 30, 2012 and 2013, respectively.

As of June 30, 2013, 83,000 options are vested under the 2012 Plan and no options have been exercised.

The following is a summary of the stock option activity:

Stock Options

Weighted Average Exercise Price

Outstanding as of July 1, 2011

Outstanding as of June 30, 2012

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

Life of option (years)**

Forfeiture rate****

* Volatility is projected using the performance

of PHLX Oil Service Sector index.

** The life of options represents the period

the option is expected to be outstanding.

*** The risk-free interest rate is based

on the Chinese international bond denominated in U.S.

dollar, with a maturity that approximates the life of the option.

**** Forfeiture rate is the estimated percentage

of options forfeited by employees by leaving or being terminated before vesting.

The Company recognizes compensation cost

for awards with graded vesting on a straight-line basis over the requisite service period for the entire award.

The grant date

fair value of the options was ¥30.17 ($4.42) per share.

Options Plan –

Company granted options to purchase 415,000 ordinary shares to its employees and non-employee director on March 26, 2012.

options have an excise price of $2.96, which was equal to the share price of the Company’s ordinary shares at March 26,

2012, and will vest over a period of five years, with 20% vesting each anniversary of the grant date.

The options will expire

ten years after the date of grant, on March 26, 2022.

The Company recognizes compensation cost for awards with graded

vesting on a straight-line basis over the requisite service period for the entire award.

The grant date fair value of the options

was ¥10.06 ($1.49) per share.

The following is a summary of the stock options activity:

Stock Options

Weighted Average Exercise Price Per

Outstanding as of July 1, 2012

Weighted Average Exercise Price Per Share

Outstanding as of July 1, 2012 and June 30, 2013

Exercised (1)

Outstanding as of June 30, 2014

The following is a summary of the status of options outstanding and exercisable at June 30, 2013:

(1) On April 22, 2014, the Chief Executive Office and Chief Technology

Officer of the Company exercised their stock options to purchased 52,000 shares of the Company’s common stock for RMB 948,559

The transaction was completed on May 13, 2014.

On June 30, 2014, other employees exercised their stock options to purchased

96,400 shares of the Company’s common stock for RMB 1,756,349 ($285,344).

following is a summary of the status of options outstanding and exercisable at June 30, 2014:

Outstanding Options

Exercisable Options

Average Exercise

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 25 %.

The Company reapplied for high-technology enterprise approval and has passed all relevant reviews.

Thus, for the calendar years 2012 and 2013, Nanjing Recon is subject to an income tax rate of 15 %.

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 an income tax rate of 15 % through November 2015.

Average Exercise Price

Average Remaining Contractual life

Average Exercise Price

Average Remaining Contractual life

For the year ended June 30, 2014, the Company has granted restricted

shares of common stock to senior management and consultants as follows:

On September 30 2013, the Company granted 30,000 restricted

shares to a consulting firm for consulting services.

The total value amounted to ¥407,972 ($66,420), based on the stock closing

price of $2.21 at September 30, 2013.

On May 7, 2014, the Company granted 40,625 restricted shares

to a consulting firm for consulting services.

The total value amounted to ¥1,002,362 ($162,906), based on the stock closing

price of $4.01 at May 7, 2014.

On December 13, 2013, the Company granted

95,181 restricted shares to Mr.

Yin Shenping and 135,181 restricted shares to Mr.

Chen Guangqiang at an aggregate value of ¥4,207,496

($688,782), based on the stock closing price of $2.99 at December 13, 2013.

These restricted shares will vest over three years

with one third of the shares vesting every year from the grant date.

Share-based compensation expense recorded for restricted shares

granted to the Company’s officers were ¥771,549 ($125,639) for the year ended June 30, 2014.

Total unrecognized share-based

compensation expense for these shares as of June 30, 2014 was approximately ¥3.5 million ($0.6 million), which are expected

to be recognized over a weighted average period of approximately 2.46 years.

The Share-based compensation expense recorded

for stock options granted were ¥1,852,656 and ¥1,657,479 ($269,904) for the years ended June 30, 2013 and 2014, respectively.

The total unrecognized share-based compensation expense for stock options as of June 30, 2014 was approximately ¥2.3 million

($0.4 million), which is expected to be recognized over a weighted average period of approximately 2.64 years.

Following is a summary of the restricted

stock grants:

Restricted stock grants

Nonvested as of June 30, 2013

Nonvested as of June 30, 2014

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 25%.

The Company reapplied for high-technology enterprise approval

and has passed all relevant reviews.

Thus, for the calendar years 2013 and 2014, Nanjing Recon is subject to an income tax rate

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 an income tax rate of 15% through

November 2015.

Deferred tax asset is comprised of the following:

Allowance for doubtful accounts

June 30, 2013

June 30, 2014

Allowance for doubtful receivables

Total deferred income tax assets

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

Following is a reconciliation of income tax at the effective rate to income tax at the calculated statutory rates:

For the year ended June

Deferred tax liability is comprised of the following:

June 30, 2013

June 30, 2014

Temporary difference - accounts payable

Total deferred income tax liability

Following is a reconciliation of income tax at the effective

rate to income tax at the calculated statutory rates:

For the year ended

2 unchanged sentences

June 30, 2014

For the year ended

June 30, 2014

Income tax calculated at statutory rates

5 unchanged sentences

Provision for income tax

The Company’s tax provision is comprised of the following:

For the years ended June 30,

Current income tax provision

Deferred income taxes (benefit)/provision

Deferred income taxes provision (benefit)

Provision for income tax

NON-CONTROLLING INTEREST

Non-controlling interest consisted of the following:

Non-controlling

interest consisted of the following:

As of June 30, 2013

3 unchanged sentences

Total non-controlling interest

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

As of June 30, 2014

4 unchanged sentences

CONCENTRATIONS

For the years ended June 30, 2012 and 2013, the two largest customers, China National Petroleum Corporation (“CNPC”) and China Petroleum & Chemical Corporation Limited (“SINOPEC”), represented approximately 16.49 %, 24.07 % and 27.88 %, 45.99 % of the Company’s revenue, respectively.

For the year ended June 30, 2012, the top three suppliers, Emerson Process, Ltd, Baker Hughes and Hebei Huanghua Xiangtong Technical Co.

Ltd, accounted for 61.42 % of its total purchases.

For the year ended June 30, 2013, one supplier, Hebei Huanghua Xiangtong Technical Co.

Ltd, accounted for 21.17 % of the company’s total purchases.

For the year ended June 30, 2013, the two largest customers,

China National Petroleum Corporation (“CNPC”) and China Petroleum & Chemical Corporation Limited (“SINOPEC”),

represented approximately 27.88%, and 45.99%.

For the year ended June 30, 2014, the three largest customers, China National Petroleum

Corporation (“CNPC”), China Petroleum & Chemical Corporation Limited (“SINOPEC”), and Wuhan Xin Tian

Network System Integration Co., Ltd., represented approximately 42.79%,19.63%, and 13.36% of the Company’s revenue.

For the year ended June 30, 2013, one supplier, Hebei Huanghua

Xiangtong Technical Co.

Ltd, accounted for 21.17% of the company’s total purchases.

For the year ended June 30, 2014,

two major suppliers accounted for 32.46% of the company’s total purchases.

COMMITMENTS AND CONTINGENCY

(a) Office Leases

The Company leases three offices in Beijing (two for BHD;

The Company leases three

offices in Beijing (two for BHD;

one for Recon-JN) and one office in Nanjing for Nanjing Recon.

Future payments under such leases are as follows as of June 30, 2013:

Future payments under such leases

are as follows as of June 30, 2014:

Twelve months ended June 30,

1 unchanged sentence

(b) Contingency

The Labor Contract Law of the PRC requires employers to assure the liability of severance payments if employees are terminated and have been working for the employers for at least two years prior to January 1, 2008.

The employers will be liable for one month of severance pay for each year of the service provided by the employees.

As of June 30, 2013, the Company estimated its severance payments of approximately ¥ 1 million ($ 0.2 million) which has not been reflected in its consolidated financial statements, because management cannot predict what the actual payment, if any will be in the future.

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

RELATED PARTY TRANSACTIONS AND BALANCES

Sales to related parties sales to related parties consisted of the following:

The Labor Contract Law of the PRC requires employers to assure

the liability of severance payments if employees are terminated and have been working for the employers for at least two years

prior to January 1, 2008.

The employers will be liable for one month of severance pay for each year of the service provided by

the employees.

As of June 30, 2014, the Company estimated its severance payments of approximately ¥1.3 million ($0.2 million)

which has not been reflected in its consolidated financial statements, because management cannot predict what the actual payment,

if any will be in the future.

RELATED PARTY TRANSACTIONS

Sales to related parties –

to related parties consisted of the following:

For the years ended June 30,

Beijing Yabei Nuoda Science and Technology Co.

Xiamen Henda Haitian computer network Inc

Beijing Langchen Construction Company

Xiamen Hengda Haitian computer network Inc

Xiamen Huangsheng Hitek Computer Network Co.

Revenues from related parties

Purchases from related parties purchases from related parties consisted of the following:

Purchases from related parties –

from related parties consisted of the following:

For the years ended June 30,

4 unchanged sentences

Purchase from related parties

Leases from related parties - The Company entered into 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 lease the property for one or two years at a monthly rent of ¥ 84,333 with annual rental expense at ¥ 1,012,000 ($ 163,537 ).

Short-term borrowings from related parties - The Company borrowed ¥ 4,123,306 and ¥ 5,503,279 ($ 889,318 ) from the Founders, their family members and senior officers as of June 30, 2012 and 2013, respectively.

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 ¥95,000 with annual rental expense at approximately

¥1.1 million ($0.2 million).

The two-year lease agreements between Nanjing Recon and Mr.

Yin and his family member started

from July 10, 2014, the one-year lease agreements between BHD and Mr.

Chen Guangqiang and his family member started from January

1, 2014 and the annual lease between the Company and Mr.

Chen Guangqiang’s family member started from July 1, 2013.

Short-term borrowings from related parties - The

Company borrowed ¥5,503,279 and ¥5,207,728 ($846,070) from the Founders, their family members and senior officers as of

June 30, 2013 and 2014, respectively.

For the specific terms and interest rates of the borrowings, see Note 12.

Trade accounts payable to related parties - The Company owed ¥ 3,994,718 ($ 645,538 ) to one related party.

As of June 30, 2013, BHD held 6.8 % equity interest of this company.

Expenses paid by the owner on behalf of Recon - One owner of Nanjing Recon, Mr.

Yin, paid ¥ 292,419 ($ 47,254 ) on behalf of Recon for operating purposes as of June 30, 2012 and 2013.

Trade accounts payable to related parties - The

Company owed ¥3,994,718 and ¥0 to one related party as of June 30, 2013 and June 30, 2014.

Prepaid expenses - related parties - The Company

paid ¥366,000 and ¥230,000 ($37,367) in advance for rental to Mr.

Chen and his family member as of June 30, 2013 and June

Expenses paid by the owner on behalf of Recon - One

owner of Nanjing Recon, Mr.

Yin and the major owner of BHD, Mr.

Chen paid certain operating expense for the Company.

30, 2013 and June 30, 2014, ¥467,499 and ¥284,370($46,200) was due to them, respectively.

Variable Interest Entities

The Company reports its VIEs’ portion of consolidated net income and stockholders’ equity as non-controlling interests in the consolidated financial statements.

RECON TECHNOLOGY, LTD

NOtes to the consolidated financial statements

Summary information regarding consolidated VIEs is as follows:

June 30, 2013

June 30, 2014

Current Assets

10 unchanged sentences

Total Liabilities

The financial performance of VIEs reported in the consolidated statement of operations and comprehensive income for the year ended June 30, 2013 includes revenues of ¥ 76,585,729 ($ 12,376,091 ), operating expenses of ¥ 19,259,234 ($ 3,112,251 ), other expenses of ¥ 132,040 ($ 21,337 ) and net profit of ¥ 6,442,702 ($ 1,041,127 ).

The financial performance of VIEs reported in the consolidated

statement of operations and comprehensive income for the year ended June 30, 2014 includes revenues of ¥93,447,108 ($15,181,815),

operating expenses of ¥21,211,185 ($3,446,059), other income of ¥1,087,482 ($176,677) and net profit of ¥11,332,021

($1,841,048).

EARNINGS PER SHARE

computation of basic and diluted earnings per common share is as follows:

For the years ended June 30,

Weighted average number of common shares outstanding used in computing basic earnings per share

Earnings per share

Weighted average number of common shares outstanding used in computing basic earnings per share

Assumed exercise of stock options, stock awards and warrants

Weighted average number of common shares outstanding

Earnings per share

Note 23 SUBSEQUENT EVENTS

On July 19, 2014, the Company

granted 50,000 restricted shares to a non-affiliate as compensation for certain consulting service.

The fair value of the restricted

shares was $190,000.

On July 19, 2014, the Company decided

to cancel 40,625 restricted shares, which was issued to Expert Asia Investment Ltd.

on May 8, 2014, as the services were not

provided pursuant to the agreement it had with the 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 9A. Controls and Procedures