What changed in this filing

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Item 1. Business

2015-09-25 compared with 2014-09-29 · 437 added, 390 removed, 259 unchanged (76% of the section changed)

We are a provider of hardware, software,

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

We provide services

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

Recon Technology, Ltd.

(the “Company,”

“we”, “us”

or “our”) is a provider of hardware, software, and on-site services to companies

in the petroleum mining and extraction industry in China (“PRC”).

We provide services designed to automate and enhance

the extraction of petroleum.

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

(“BHD”)

and Nanjing Recon Technology Co., Ltd.

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

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

We refer to BHD and Nanjing Recon collectively as

the “Domestic Companies”

(“Nanjing Recon”).

We refer to BHD and Nanjing Recon collectively as the “Domestic

Companies”

in this report.

Through our contractual arrangements with

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

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

However, we do not engage in

the production of petroleum or petroleum products.

The Company serves as the center of

strategic management, financial control and human resources allocation for the Domestic Companies.

Through our contractual

relationships with the Domestic Companies, we provide equipment, tools and other hardware related to oilfield production and

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

However, we do

not engage in the production of petroleum or petroleum products.

We believe that one of the most important

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The Domestic Companies’

and our solutions allow

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

and our solutions

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

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

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

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

a net importer of petroleum in 1983, and, since then, oil production in China has been focused on meeting the country’s

domestic oil consumption requirements.

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

China National Petroleum Corporation (CNPC), China

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

Foreign companies have also recently

become involved in China’s petroleum industry;

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

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

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

the industry is relatively limited:

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

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

China National

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

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

however, according to Chinese law, China’s

national oil companies may take a majority (or minority) stake in any commercial discovery.

As a result, the number of major foreign

companies involved in the industry is relatively limited major foreign oil companies operating in China include::

Agip, Apache,

BP, ChevronTexaco, ConocoPhillips, Eni, ExxonMobil, Husky Energy, Kerr-McGee, Mitsubishi, Royal Dutch Shell, Saudi Aramco, and

In the past, China’s petroleum companies

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

For example, a

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

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

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

After the introduction of Baker CAC’s

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

mined for petroleum by leveraging the country’s abundance of inexpensive labor, rather than focusing on developing new technologies.

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

By contrast, when Baker CAC automated oil production products were employed in the mid-1990s to explore and automate

Cainan Oil Field, a desert oilfield in Xinjiang, annual capacity for the field reached 1,500,000 tons, with only 400 employees

needed to manage the oilfield.

After the introduction of Baker CAC’s products into China’s petroleum industry, Chinese

companies have also sought to provide automation solutions.

In the primary oil recovery stage, oil

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to make extraction more efficient.

Products and Services

We currently provide products and services

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Our products and services include:

Equipment for Oil and Gas Production and Transportation

High-Efficiency Heating Furnaces (as shown above).

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

To remove the impurities and to prevent solidification and blockage in transport pipes, companies employ heating furnaces.

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

Burner (as shown above).

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

The burner we provide has the following characteristics:

Equipment for Oil and Gas Production and

Transportation

High-Efficiency Heating Furnaces (as shown above by

process “6”).

Crude petroleum contains certain impurities that must be removed

before the petroleum can be sold, including water and natural gas.

To remove the impurities

and to prevent solidification and blockage in transport pipes, companies employ heating

BHD researched, developed and implemented a new oilfield furnace that is advanced,

highly automated, reliable, easily operable, safe and highly heat-efficient (90% efficiency).

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

serve as an agent for the Unigas Burner which is designed and manufactured by UNIGAS,

a European burning equipment production company.

The burner we provide has the following

characteristics:

high degree of automation;

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Packers of Fracturing.

This utility model is used concertedly with the security joint, hydraulic anchor, and slide bushing of sand spray in the well.

This utility model is used

concertedly with the security joint, hydraulic anchor, and slide bushing of sand spray

It is used for easy seat sealing and sand-uptake prevention.

The utility model reduces desilting volume and prevents sand uptake which makes the deblocking processes easier to realize.

model reduces desilting volume and prevents sand uptake which makes the deblocking processes

easier to realize.

The back flushing is sand-stick proof.

Production Packer.

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

According to different withdraw points,

the production packer separates different oil layers, and protects the oil pipe from

sand and permeability, so as to promote the recovery ratio.

Sand Prevention in Oil and Water Well.

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

which is transported to the bottom

of the well via carrying fluid.

which is transported to the bottom of the well via carrying fluid.

The “resin sand”

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

and oil vacancy layer.

goes through the borehole, piling up and compacting at the borehole and oil vacancy layer.

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

This sand prevention

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

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

This sand prevention technique has been adapted to more than 100 wells, including heavy

oil wells, light oil wells, water wells and gas wells, with a 100% success rate and a

98% effective rate.

Water Locating and Plugging Technique.

High water cut affects the normal production of oilfields.

Previously, there was no sophisticated method for water locating and tubular column plugging in China.

The mechanical water locating and tubular column plugging technique we have developed resolves the problem of high water cut wells.

This technique conducts a self-sealing-test during multi-stage usage and is reliable to separate different production sets effectively.

The water location switch forms a complete set by which the water locating and plugging can be finished in one trip.

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

Previously, there were no sophisticated method for water locating

and tubular column plugging in China.

The mechanical water locating and tubular column plugging technique we have developed

resolves the problem of high water cut wells.

This technique conducts a self-sealing-test during multi-stage usage and is

reliable to separate different production sets effectively.

The water location switch forms a complete process by which

the water locating and plugging can be finished in one trip our tubular column is adaptable to several oil drilling methods

and is available for water locating and plugging in second and third class layers.

Fissure Shaper.

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

This is our proprietary product that

is used along with a perforating gun to effectively increase perforation depth by between

46% and 80%, shape stratum fissures, improve stratum diversion capability and, as a result,

improve our ability to locate oilfields and increase the output of oil wells.

Fracture Acidizing.

We inject acid to layers under pressure which can form or expand fissures.

The treatment process of the acid is defined as fracture acidizing.

The technique is mainly adapted to oil and gas wells that are blocked up relatively deeply, or the ones in the low permeable zones.

We inject acid to layers under pressure

which can form or expand fissures.

The treatment process of the acid is defined as fracture

The technique is mainly adapted to oil and gas wells that are blocked up relatively

deeply, or the ones in the low permeable zones.

Electronic Broken-down Service.

This service resolves block-up and freezing problems by generating heat from the electric resistivity of the drive pipe and utilizing a loop tank composed of an oil pipe and a drive pipe.

This technique saves energy and is environment friendly.

It can increase the production of oilfields that are in the middle and later periods.

service resolves block-up and freezing problems by generating heat from the electric resistivity of the drive pipe and utilizing

a loop tank composed of an oil pipe and a drive pipe.

This technique saves energy and is environmentally friendly.

increase the production of oilfields that are in the middle and later periods.

Automation System and Service

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Refers to process “1”

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

Functions as a monitor to the pumping unit, and also collects data for load, pressure,

voltage, startup and shutdown control.

RTU Used to Monitor Natural Gas Wells.

Collects gas well pressure data.

well pressure data.

Wireless Dynamometer and Wireless Pressure Gauge.

Refers to process “1”

These products replace wired technology with cordless displacement sensor technology.

They are easy to install and significantly reduce the working load associated with cable laying.

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

to process “1”

These products replace wired technology with cordless

displacement sensor technology.

They are easy to install and significantly reduce the

working load associated with cable laying.

Electric Multi-Way Valve for Oilfield Metering Station

Flow Control.

Refers to process “2”

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

It facilitates the electronic control of the connection of the oil lead pipeline with the separator.

This multi-way valve is used before

the test separator to replace the existing three valve manifolds.

It facilitates the

electronic control of the connection of the oil lead pipeline with the separator.

Natural Gas Flow Computer System.

Flow computer system used in natural gas stations and gas distribution stations to measure flow.

Flow computer

system used in natural gas stations and gas distribution stations to measure flow.

Recon SCADA Oilfield Monitor and Data Acquisition System.

Recon SCADA is a system which applies to the oil well, measurement station, and the union station for supervision and data collection.

Recon SCADA is a system which applies to the oil well, measurement station, and the union

station for supervision and data collection.

EPC Service of Pipeline SCADA System.

A service technique for pipeline monitoring and data acquisition after crude oil transmission.

technique for pipeline monitoring and data acquisition after crude oil transmission.

EPC Service of Oil and Gas Wells SCADA System.

A service technique for monitoring and data acquisition of oil wells and natural gas wells.

EPC Service of Oilfield Video Surveillance and Control System.

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

technique for monitoring and data acquisition of oil wells and natural gas wells.

EPC Service of Oilfield Video Surveillance and Control

A video surveillance technique for controlling the oil and gas wellhead

area and the measurement station area.

Technique Service for “Digital Oilfield”

Transformation.

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

Includes engineering technique services such as oil and gas SCADA system,

video surveillance and control system and communication systems.

ISO9000 Certification

The International Organization for Standardization

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

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

We have received ISO9000 certification for the following processes:

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

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

We have received ISO9000 certifications

for several of our processes.

The International Organization for Standardization consists of a worldwide federation of national

standards bodies for approximately 130 countries, and the ISO9000 certification represents an international consensus of these

standards bodies, with the aim of creating global standards of product and service quality.

We have received ISO9000 certification

for the following:

Nanjing Recon has received certification for the development

and service of RSCADA .

BHD has received certification for high efficiency heating

furnaces, import burners, and manometer surrogate rendition and service.

We operate our business by cooperating

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

Most actual control of

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

on-shore petroleum mining and extraction.

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

producing oilfields, Daqing, Shengli and Xinjiang.

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

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

Most actual control

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

for on-shore petroleum mining and extraction.

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

highest producing oilfields, Daqing, Shengli and Xinjiang.

We have undertaken the automation projects at the following locations,

among others:

Jiangsu Oil Field

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Jianghan Oil Field

We provide products and services to Sinopec

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

We first began to provide services to Sinopec in 1998.

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

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

We provide products and services to

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

We first began to provide services to

Sinopec in 1998.

Sinopec accounted for approximately 19.63% and 6.82% of our revenues for the fiscal years ended June 30,

2014 and 2015, respectively, and any termination of our business relationships with Sinopec would materially harm our

Qinghai Oil Field

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We first began to provide services to CNPC in 2000.

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

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

Business Outlook

The oilfield engineering and technical

service industry is generally divided into five sections:

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

(4) production and (5) oilfield construction.

Our businesses have mainly focused on production processes.

As of this year, we are

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

We still believe that many existing

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

We also believe

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

Accordingly, in the next

year, we will focus on the following areas.

Measuring Equipment and Service .

“Digital oil field”

and the management of oil companies are highly regarded.

We believe our oilfield Supervisory Control

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

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

Through early cooperation with CNPC on Turkmenistan, we have

developed our experience in this market.

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

in the coming second phase construction.

Gathering and Transferring Equipment .

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

year, especially in the Jilin Oilfield and Xinjiang oilfield.

Fracturing business .

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

services in the coming year.

New business .

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

Recently, this market has developed

very rapidly.

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

and services have been accepted by our client.

We expect revenue from this business in the coming year.

CNPC accounted for approximately 42.79% and 43.09% of our revenues in the fiscal years ended June 30, 2014 and 2015, respectively,

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

Our Strengths

We believe our strengths are:

Safety of products.

The automation projects we have conducted have demonstrated that our products are reliable, safe and effective at automating the petroleum extraction process.

The automation projects we have

conducted have demonstrated that our products are reliable, safe and effective at automating

the petroleum extraction process.

Efficiency of technology.

We believe our technology increases efficiency and profitability for petroleum companies by enabling them to monitor, manage and control petroleum extraction;

increase the amount of petroleum extracted and reduce impurities in extracted petroleum.

Ability to leverage our knowledge of Chinese business culture.

We believe our technology

increases efficiency and profitability for petroleum companies by enabling them to monitor,

manage and control petroleum extraction;

increase the amount of petroleum extracted and

reduce impurities in extracted petroleum.

Ability to leverage

our knowledge of Chinese business culture.

Many of our competitors are based outside of China.

As the Domestic Companies are based in China, we are in a unique position to emphasize Chinese culture and business knowledge to obtain new customers and new agreements with existing customers.

We believe that many Chinese businesses, including state-owned companies like Sinopec and CNPC, would prefer to hire a Chinese company to assist in their business operations if a Chinese company exists with the ability to fulfill their needs on a timely and cost-efficient basis.

In addition, our knowledge of Chinese culture allows us to anticipate and adapt to Chinese oilfield management methods.

We provide our software solutions in Mandarin for the benefit of our Chinese customers, and all of our customer support is available from fluent personnel.

As the Domestic Companies

are based in China, we are in a unique position to emphasize Chinese culture and business knowledge to obtain new customers

and new agreements with existing customers.

We believe that many Chinese businesses, including state-owned companies like

Sinopec and CNPC, would prefer to hire a Chinese company to assist in their business operations if a Chinese company exists

with the ability to fulfill their needs on a timely and cost-efficient basis.

In addition, our knowledge of Chinese culture

allows us to anticipate and adapt to Chinese oilfield management methods.

We provide our software solutions in Mandarin for

the benefit of our Chinese customers, and all of our customer support is available from Mandarin fluent personnel.

Experienced, successful executive management team.

Our executive management team has significant experience and success in the petroleum automation industry.

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

executive management team has significant experience and success in the petroleum automation

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

in the industry.

Ability to leverage China’s cost structure.

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

We expect these costs savings will be reflected in lower costs to our customers for comparable products.

a Chinese company, we believe we can operate our business more cost-effectively because

all of our employees, operations and assets are located in China, resulting in lower

labor, development, manufacturing and rent costs than we believe we would incur if we

also maintained operations abroad.

We expect these costs savings will be reflected in

lower costs to our customers for comparable products.

Ownership of our intellectual property.

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

Recent Industry Developments

Despite uncertainty in the energy industry

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

many factors to support our long-term development:

(1) The opening of the Chinese oil industry

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

service segment to allow competition based on efficiency and price.

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

to find and convert reserves into usable energy sources.

As the industry has permitted competition by private companies and oil

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

(2) Speeding up the development of unconventional

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

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

are urgently needed;

(3) Overseas assets of Chinese oilfield

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

Management is focused on these factors

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

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

Because we own

our intellectual property, we are able to avoid licensing fees or contravening licensing

Our Strategies

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Key elements of our strategies include:

Increase our market share in China.

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

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

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

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

Develop our own branded products and services

and shift focus away from trading business.

our market share in China.

We believe that as the Chinese economy and oil industry continue

to develop, Chinese petroleum extraction automation companies will compete with international

businesses at an increasing rate.

Consequently, we believe we will have opportunities

to take market share from foreign companies by developing positive business relationships

in China’s petroleum mining and extraction industry.

We will also use strategic

advertisements, predominantly in China’s northeast and northwest, where China’s

major oilfields are located, to increase our brand awareness and market penetration.

We aim to continue developing new technologies designed to improve petroleum mining and

extraction efficiency and profitability for our customers.

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

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

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

and gas industry.

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

costs and improving their production.

Moreover, the trading business relies on the major clients’

in procurement policies

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

Our management therefore believes that

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

Focus on higher-profit subsection of market.

While we plan to continue to provide services to all of our clients, we believe that we may improve our profit margins by focusing a higher portion of our advertising and promotions at those sub-divisions of our industry that have traditionally held the highest profit margins.

Offer services to foreign oilfields contracted by Chinese petroleum companies.

As Sinopec and CNPC continue to invest in oilfields in other countries, we will focus on offering our services in these new locations based on our success in working with the companies in China.

Seek opportunities with foreign companies in China.

Even where oilfields in China are partially operated by foreign companies, a significant number of employees will be Chinese and will benefit from our Chinese-language services.

We believe our hardware and software solutions would be beneficial to any petroleum company doing business in China and will continue to market to foreign companies entering the Chinese market.

Provide services that generate high customer satisfaction levels.

Chinese companies in our market are strongly influenced by formal and informal referrals.

We believe that we have the opportunity to expand market share by providing high levels of customer satisfaction with our current customers, thereby fostering strong customer referrals to support sales activities.

Expand business in the U.S.

In June 2013, we acquired a 32% interest in a U.S.

oil and natural gas company, Avalon Oil and Gas Inc.

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

We face competition from a variety of foreign

and domestic companies involved in the petroleum mining automation industry.

While we believe we effectively compete in our market,

our competitors hold a substantial market share.

A few of our existing competitors, as well

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

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

We cannot guarantee that we will be able to compete

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

on our business, operating results and financial condition.

in light of their higher profit margins and their long-term significance in establishing

the status of our Company in the oil and gas industry.

Moreover, the trading business

relies on the major clients’

procurement policies toward agencies, any significant

change of which could jeopardize our operating results.

Our management therefore believes

that in the long run we will need to focus our growth strategy in developing professional

services for the oil and gas industry in China.

on higher-profit subsection of market.

While we plan to continue to provide services

to all of our clients, we believe that we may improve our profit margins by focusing

a higher portion of our advertising and promotions at those sub-divisions of our industry

that have traditionally held the highest profit margins.

services to foreign oilfields contracted by Chinese petroleum companies.

As Sinopec and

CNPC continue to invest in oilfields in other countries, we will focus on offering our

services in these new locations based on our success in working with the companies in

Seek opportunities

with foreign companies in China.

Even where oilfields in China are partially operated

by foreign companies, a significant number of employees will be Chinese and will benefit

from our Chinese-language services.

We believe our hardware and software solutions would

be beneficial to any petroleum company doing business in China and plan to continue markeingt

to foreign companies entering the Chinese market.

services that generate high customer satisfaction levels.

Chinese companies in our market

are strongly influenced by formal and informal referrals.

We believe that we have the

opportunity to expand market share by providing high levels of customer satisfaction

with our current customers, thereby fostering strong customer referrals to support sales

We face competition from a variety of

foreign and domestic companies involved in the petroleum mining automation industry.

While we believe we effectively compete in

our market, our competitors hold a substantial market share.

A few of our existing competitors, as

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

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

We cannot guarantee that we will be able

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

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

Our primary domestic competitors include

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(“BET”).

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

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

Anton Oilfield Services Group (HKEx stock code:

3337) is a leading independent oilfield services provider offering one-stop oil and gas field technical development services to oil companies.

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

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

BET provides a combination of software and hardware products for

industrial automatic control systems in the petroleum industry.

BET currently engages

in research and development of software and hardware applied to industrial automatic

control systems, manufacturing and installation of industrial automation instruments

and integration of automatic control products.

Beijing Golden-Time Petroleum Measurement Technology

(“BGT”).

BGT develops analysis software used in oilfields but does

not yet, to our knowledge, produce a substantial amount of hardware products.

Anton Oilfield

Services Group (HKEx stock code:

3337) is a leading independent oilfield services provider

offering one-stop oil and gas field technical development services to oil companies.

Its services and solutions span across the drilling technology, well completion, down-hole

operation, and oil production phases in the development cycle.

Its fast growth benefits

from the accelerated development of natural gas in China and the Group’s increased

presence in the overseas markets.

Research and Development

We focus our research and development efforts

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

As of June 30, 2014, our research and

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

In addition, some of our support employees

regularly participate in our research and development programs.

We focus our research and development

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

As of June 30, 2015, our research

and development team consisted of 41 experienced engineers, developers and programmers.

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

In the fiscal years ended June 30,

2015 and 2014, we spent approximately ¥4.2 million ($0.7 million) and ¥8.1 million, respectively, on research and development

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

Intellectual Property

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

The reverse engineering, unauthorized

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

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

aspects of the Domestic Companies’

The reverse engineering,

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

paying for it.

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

proprietary aspects of the Domestic Companies’

and our technology.

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This is particularly the case in China where

intellectual property may not be sufficiently protected.

the laws may not protect our proprietary rights as fully as in the United States.

We license the Domestic Companies’

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

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

Finally, we seek to avoid disclosure of the

Domestic Companies’

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

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

Finally, we seek to avoid disclosure

of the Domestic Companies’

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

Although the Domestic Companies and we

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

We integrate this technology, licensed

by our customers from third parties in our software products.

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

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

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

Although we develop our software products,

in conjunction with the Domestic Companies, each software product is based upon middleware developed by third parties.

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

If our customers are unable to continue

to license any of this third party software, or if the third party licensors do not adequately maintain or update their products,

we would face delays in the releases of our software until equivalent technology can be identified, licensed or developed, and

integrated into our software products.

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

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

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

not be sufficient to fully protect us against such claims.

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

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

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

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

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

may not be sufficient to fully protect us against such claims.

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

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

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

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

Our standard software license agreements

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

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

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

financial condition.

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

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

or financial condition.

We market our products under the following

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own or have applied for the following trademarks:

Trademark of “Senior”

valid from May 14,

2005 through May 13, 2015;

Trademark of “BHD”

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related equipment for the petroleum industry:

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

Patent of fracturing packer valid until August 5,

Patent of pressure phase transition furnace valid until

August 5, 2018;

Patent of vacuum furnace phase transition heater valid

until August 5, 2018;

Patent of high pressure natural gas water heater valid

until June 30, 2019;

Patent of negative pressure heater valid until June

Patent of pressure phase transition furnace

valid until August 5, 2018;

Patent of vacuum furnace phase transition heater

valid until August 5, 2018;

Patent of high pressure natural gas water

heater valid until June 30, 2019;

Patent of negative pressure heater valid until

June 30, 2019;

Patent of water jacket furnace valid until June

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burner valid until August 5, 2019;

Patent of wireless data instrument diagram valid until

December 10, 2018;

Patent of wireless data instrument diagram valid

until December 10, 2018;

Patent of hot water furnace valid until April

Patent of multifunctional heating furnace valid until

April 8, 2021;

Patent of efficient gas-liquid separator valid until

August 15, 2021;

Patent of efficient oil-gas-water separator valid until

October 24, 2021;

Patent of room pressure pipeline heater valid until

October 24, 2021;

Patent of pneumatic control system valid until February

Patent of firebox indirect heating furnace valid until

Patent of multifunctional heating furnace valid

until April 8, 2021;

Patent of efficient gas-liquid separator valid

until August 15, 2021;

Patent of efficient oil-gas-water separator

valid until October 24, 2021;

Patent of room pressure pipeline heater valid

until October 24, 2021;

Patent of pneumatic control system valid until

February 9, 2022;

Patent of firebox indirect heating furnace

valid until December 14, 2022;

Patent of cylindrical-tubular furnace valid

until December 14, 2022;

Patent of horizontal type furnace valid until

December 14, 2022;

Patent of cylindrical-tubular furnace valid until December

Patent of horizontal type furnace valid until December

Patent of vertical type furnace valid until December

Patent of vertical type furnace valid until

December 13, 2022;

Patent of vacuum furnace valid until December

Patent of wireless pressure sensor valid until November

Patent of wireless start-end module valid until November

We have submitted two more patent application (separated

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

Patent of wireless pressure sensor valid until

November 11, 2023;

Patent of wireless start-end module valid until

November 11, 2023;

Four more patent applications

have been submitted and are pending approval.

We have registered the following software

products with the State Intellectual Property Office:

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

Recon automated maintenance and production-management system version 1 was published on July 10, 2011;

Recon SCADA field monitoring and data acquisition system software version 4 was published on January 28, 2011;

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

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

3 was registered and published on April 5, 2008;

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

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

Recon automated monitoring system version 1 was published on

July 30, 2011;

Recon automated maintenance and production-management system

version 1 was published on July 10, 2011;

Recon SCADA field monitoring and data acquisition system software

version 4 was published on January 28, 2011;

Recon flow control computer monitoring system software was

registered and published on February 8, 2008;

Recon SCADA field monitoring and data acquisition system software

version 2 was published on August 18, 2003, and version 3 was registered and published

on April 5, 2008;

Recon wireless field monitoring and data acquisition system

software version 2 was published on January 8, 2011, and version 1 was registered and

published on September 15, 2010;

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

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

The first track is administrative in nature, whereby a

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

The first track is administrative in nature, whereby

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

Determining which intellectual property

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Unlike the United States, which has lengthy

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

case law related to the interpretation and applicability of intellectual property law, China has a less developed body of relevant

intellectual property case law.

Regulation on Software Products

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is renewable upon expiration.

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

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

and our future products will

be registered.

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

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

and our future products

will be registered.

Regulation of Intellectual Property Rights

1 unchanged sentence

intellectual property rights, including trademarks and copyrights.

China is a signatory to the main international conventions on

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

its accession to the WTO in December 2001.

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

The amended Copyright Law extends copyright protection

to software products, among others.

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

Protection Center.

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

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

Protection is granted to

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

China is a signatory to the main international conventions

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

upon its accession to the WTO in December 2001.

China adopted

The National People’s Congress amended the Copyright Law in 2001 to widen the scope of

works and rights that are eligible for copyright protection.

The amended Copyright Law extends copyright protection to software

products, among others.

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

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

Protection is granted

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

Nanjing Recon has ten copyrights for software programs.

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

The Trademark Office

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

years to registered trademarks.

The Chinese Trademark

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

The Trademark Office under the Chinese State

Administration for Industry and Commerce handles trademark registrations and grants a term of ten years to registered trademarks.

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

“first-to-register”

system that requires no evidence of prior use or ownership.

The Domestic Companies and we

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

China has a “first-to-register”

that requires no evidence of prior use or ownership.

The Domestic Companies and we have registered a number of product names with

the Trademark Office.

Regulations on Foreign Exchange

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loans to our PRC subsidiaries.

SAFE issued the Circular on the Relevant Operating Issues Concerning

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

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

by restricting how the converted RMB may be used.

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

the application of SAFE Circular 142.

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

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

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

In addition, SAFE strengthened its oversight of

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

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

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

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

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

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

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

Areas on August 4, 2014.

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

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

to use the RMB capital converted from

foreign currency registered capital for equity investments within the PRC.

SAFE promulgated Circular 59 in November 2010, which tightens

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

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

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

Violations of these SAFE regulations

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

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

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

In November 2012, SAFE promulgated the Circular of Further Improving

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

the current foreign exchange procedure.

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

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

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

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

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

In addition, SAFE promulgated the Circular on Printing

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

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

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

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

SAFE issued the Circular on the Relevant

Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of

Foreign-Invested Enterprises(2008), or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign

currency-registered capital into RMB by restricting how the converted RMB may be used.

In addition, SAFE promulgated Circular

45 on November 9, 2011 in order to clarify the application of SAFE Circular 142.

Under SAFE Circular 142 and Circular 45, the

RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes

within the business scope approved by the applicable government authority and may not be used for equity investments within the

In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered

capital of foreign-invested enterprises.

The use of such RMB capital may not be changed without SAFE’s approval, and such

RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used.

Since SAFE Circular 142 has been in place

for more than five years, SAFE decided to further reform the foreign exchange administration system in order to satisfy and facilitate

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

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

in Certain Areas on August 4, 2014.

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

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

to use the RMB capital

converted from foreign currency registered capital for equity investments within the PRC.

SAFE promulgated Circular 59 in November

2010, which tightens the regulation over settlement of net proceeds from overseas offerings, such as our initial public offering,

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

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

of these SAFE regulations may result in severe monetary or other penalties, including confiscation of earnings derived from such

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

violation, a fine ranging from 30% to 100% of the RMB funds converted from the foreign-invested funds.

In November 2012, SAFE promulgated the

Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially

amends and simplifies the current foreign exchange procedure.

Pursuant to this circular, the opening of various special purpose

foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts,

the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by

a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple

capital accounts for the same entity may be opened in different provinces, which was not possible previously.

In addition, SAFE

promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment

by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches

over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign

exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its

Regulation of Dividend Distribution .

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

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

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

Enterprise Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2001).

Under these regulations, foreign investment

5 unchanged sentences

These reserves are not distributable as cash dividends.

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

circular commonly known as “SAFE Circular 75”

SAFE Circular 37, on July 4, 2014, which

replaced the former circular commonly known as “SAFE Circular 75”

promulgated by SAFE on October 21, 2005.

SAFE Circular 37 requires PRC

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

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

legally owned assets or equity interests

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

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

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

or other material event.

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

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

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

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

Furthermore, failure to comply with

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

SAFE Circular

37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control

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

legally owned assets

or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special

purpose vehicle.”

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

with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer

or exchange, merger, division or other material event.

In the event that a PRC shareholder holding interests in a special purpose

vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited

from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities,

and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary.

failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for

evasion of foreign exchange controls.

Regulations on Foreign Investment

2 unchanged sentences

of Industries for Guiding Foreign Investment (Revised 2007), the oil and gas automation service industries are in the catalogue

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

In addition the following industries

are encouraged for foreign investment in China:

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

of permitted industries, and thus there are no restrictions on foreign investment in the oil and gas automation industry.

the following industries are encouraged for foreign investment in China:

Manufacturing

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

floating drilling

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

collection and transportation equipment

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

Development and application of new technologies that increase the recovery ratio of crude oil (limited to equity joint ventures and cooperative joint ventures);

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

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

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

As of June 30, 2014, we had approximately

systems and floating production systems with an operating water depth of more than 1,500

meters and the supporting subsea oil extraction, collection and transportation equipment

Exploration and exploitation of oil and natural gas with

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

Development and application of new technologies that increase

the recovery ratio of crude oil (limited to equity joint ventures and cooperative joint

Development and application of new oil exploration and

exploitation technologies such as geophysical exploration, drilling, well logging, and

downhole operation, etc.

(limited to cooperative joint ventures);

Exploration and development of unconventional oil resources

such as oil shale, oil sands, heavy oil, and excess oil (limited to cooperative joint

As of June 30, 2015, we had 80

employees, all of whom were based in China.

Of the total, 12 were in management, 38 were in technical support and research

and development, 13 were engaged in sales and marketing, 11 were in financial affairs, and six were in administration and

We believe that our relations with our employees are good.

We have never had a work

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

We have never had a work stoppage, and our employees

are not subject to a collective bargaining agreement.

We do not have any business interruption,

21 unchanged sentences

Occupational Injury Insurance

Risk Factors.

The Company is not required to provide

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

Staff Comments.

The Company is not required to provide

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

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

What changed 10-K

Item 1. Business