Recon Technology, Ltd 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures As of June 30, 2015, 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. Changes in Internal Control over Financial Reporting Management continues to focus on internal control over financial reporting. As of June 30, 2015, the Company has completed certain documentation of our internal controls and will be implementing 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; and · 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; and (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. 33 The Company’s management assessed the effectiveness of its internal control over financial reporting as of June 30, 2015. In making this assessment, management used the 2013 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 2013 COSO framework 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, 2015, its internal control over financing reporting was not effective based on those criteria. The specific material weaknesses identified by the Company’s management as of June 30, 2015 are described as follows: We did not have sufficient skilled accounting personnel who are either qualified as Certified Public Accountants in the U.S. or who have received education from U.S. institutions or other educational programs that would provide enough relevant education relating to U.S. GAAP. The Company’s CFO and Controller 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. GAAP. 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 2015, 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, 2015 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 2016. 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 needs to engage outside consultants that are skilled in SEC reporting and Section 404 compliance to assist in the implementation of the following remedial actions 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; • Enhancement of existing disclosures policies and procedures; • Formalization of periodic communication between management and the audit committee; and • 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 2016: • Formalization of a periodic staff training program to enhance their awareness of the key internal control activities. 34 • 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. 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. Item 9B. Other Information. None. 35 PART III Item 10. Directors, Executive Officers and Corporate Governance. Regulation S-K Item 401: Executive Officers and Directors The following table sets forth our executive officers and directors, their ages and the positions held by them: Name Age Position Held Mr. Yin Shenping 46 Chief Executive Officer and Director Ms. Liu Jia 32 Chief Financial Officer Mr. Chen Guangqiang 52 Chief Technology Officer and Director Mr. Zhao Shudong 69 Independent Director Mr. Nelson N.S. Wong 53 Independent Director (Audit Committee Chair) Mr. Hu Jijun 50 Independent Director Yin Shenping. Mr. Yin has been our Chief Executive Officer and a director since the Company’s inception. In 2003, Mr. 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. Prior to founding Nanjing Recon, Mr. Yin served as a sales manager for Fujian Haitian Network Company from 1992 through 1994. Mr. Yin has founded and operated a number of companies engaged in the IT industry including: 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. (1999), and Jingsu Huasheng Information Technology Co., Ltd. (2000). In 2000, Mr. Yin merged the former Nanjing Kingsley Software Engineering Co., Ltd. into Nanjing Recon. Mr. Yin received his bachelor’s degree in 1991 from Nanjing Agricultural University in information systems. Mr. Yin was chosen as a director of the Company because as one of the founders of the Company, 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 in its development. Liu Jia. Ms. Liu has served as our Chief Financial Officer since 2008. In 2008 Ms. Liu assisted Heilongjiang Province Jintian Group with financial due diligence, field surveys and data analysis. While in college Ms. Liu interned at Xinghua Certified Public Accountants, Ltd., Beijing Zhongweihuahao Accountants Affairs Office, Tiantong Securities Co., Ltd. and Industrial and Commercial Bank of China, focused on the areas of auditing, accounting and data analysis. Ms. 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. Mr. Chen has served as our Chief Technology Officer and director since our inception. Mr. 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. From 1999 through 2003, Mr. Chen served as the general manager of Beijing Adar. Mr. Chen received his bachelor’s degree in 1985 from Southwest Petroleum Institute. Mr. Chen was appointed to the position of director because he is one of the founders of the Company and we believe we can benefit from his many years of engineering experience and management experience in the oil extraction industry. Nelson N.S. Wong . Mr. Wong joined our Board of Directors in 2008. Prior to joining our Board, in1990 Mr. 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, in both retail and industrial agency, and property and facilities management. Mr. Wong became the Vice Chairman and CEO of the Vigers Group in 1993. In 1995 Mr. Wong established the ACN Group, a business consulting firm, where he has worked continuously and continues to serve as the Chairman and Managing Partner. Mr. Wong received a bachelor’s degree in arts from the PLA Institute of International Relations in Nanjing in 1983. Mr. Wong was appointed to the position of director because we believe we can benefit from his leadership skills and management experience. 36 Hu Jijun . Mr. Hu joined our Board of Directors in 2008. Prior to joining our Board, from 1988 to 2003, Mr. Hu served in a variety of positions at Sinopec 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. Mr. Hu graduated as an automated professional from the China University of Petroleum in 1988. Mr. Hu was appointed to the position of 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. Zhao Shudong . Mr. Zhao joined our Board of Directors in 2013. Mr. Zhao spent over 30 years working in the oilfield industry prior to retiring from full-time work in 2006. 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. Mr. 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. Mr. Zhao studied at the Northeast Petroleum Institute from 1965 to 1970. Mr. 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 having obtained 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, 2016. 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. 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 in 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, and 148,400 vested options from 2012 grants were exercised. The Company granted options to purchase 400,000 ordinary shares to its employees and non-employee director on January 31, 2015 under the 2015 option plan. As of June 30, 2015, we have 815,600 options outstanding. On July 11, 2015, the Company’s board approved to reserve 800,000 shares and options under the 2015 option plan. As of September 25, 2015, no option is granted. 37 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. Of these 76,787 restricted shares vested and were issued to Mr. Yin Shenping and Mr. Chen Guangqiang on March 24, 2015. On January 31, 2015, the Company granted 150,000 restricted shares to Mr. Yin Shenping and 150,000 restricted shares to Mr. Chen Guangqiang at an aggregate value of ¥3,038,558($495,000), based on the stock closing price of $1.65 at January 31, 2015. These restricted shares will vest over three years with one third of the shares vesting every year from the grant date. As of June 30, 2015, we have 453,575 non-vested restricted stocks outstanding. Board of Directors and Board Committees Our board of directors currently consists of five 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 faced re-election at our annual general meeting of shareholders in 2014 and every three years thereafter. Class II directors face re-election at our annual general meeting of shareholders in 2015 and every three years thereafter. Class III directors 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 the Board of Directors 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). Mr. Zhao, Mr. Wong, and Mr. Hu are our independent directors. Mr. 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; Mr. 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; 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. 38 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: 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. Mr. 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). Mr. 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. Mr. 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. 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. This duty has four essential elements: • a duty to act in good faith in the best interests of the Company; • a duty not to personally profit from opportunities that arise from the office of director; • a duty to avoid conflicts of interest; and • 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. 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. 39 Limitation of Director and Officer Liability Pursuant to our Amended 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; 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. 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 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): None. 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). The Company has an audit committee, consisting solely of independent directors of the Company, Mr. Zhao Shudong, Mr. Nelson N.S. Wong, and Mr. Hu Jijun. 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). 40 Item 11. Executive Compensation. The following table shows the annual compensation paid by us to Mr. Yin Shenping, our Chief Executive Officer, for the years ended June 30, 2015 and 2014. No other employee or officer received more than $100,000 in total compensation in 2015 or 2014. Summary Executive Compensation Table Name and principal position Year Salary Bonus Option Awards Restricted Stock Awards Total Yin Shenping, Principal Executive Officer 2015 $ 126,347 $ 10,000 $ — $ 129,239 (1,2) $ 265,586 2014 $ 125,463 $ 10,455 $ $ 47,432 (1) $ 183,350 Liu Jia Chief Financial Officer 2015 $ 80,000 $ 7,390 $ — $ 7,332 (3) $ 94,722 2014 $ 80,000 $ 6,500 $ $ — $ 86,500 Chen Guangqiang, Chief Technology Officer 2015 $ 117,343 $ 10,000 $ — $ 169,105 (1,2) $ 296,448 2014 $ 113,593 $ 10,000 $ — $ 67,365 (1) $ 190,958 (1) 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. (2) On January 31, 2015, the Company granted 150,000 restricted shares to Mr. Yin Shenping and 150,000 restricted shares to Mr. Chen Guangqiang at an aggregate value of ¥3,038,558($495,000), based on the stock closing price of $1.65 at January 31, 2015. These restricted shares will vest over three years with one third of the shares vesting every year from the grant date. (3) On January 31, 2015, the Company granted 32,000 options to Ms. Liu Jia , which options vest over a period of three years, one third of which vest on January 31 of each year beginning in 2016. The grant date fair value of such options was $1.65. 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. 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. Summary Director Compensation Table Name(1) Fees earned or paid in cash Option Awards Total(2) Nelson N.S. Wong $ 8,000 $ 5,728 $ 13,728 Hu Jijun $ 8,000 $ 5,728 $ 13,728 Zhao Shudong $ 8,000 $ 4,124 $ 12,124 (1) Compensation for our directors Yin Shenping and Chen Guangqiang, who also serve as executive officers, is fully disclosed in the executive compensation table. (2) None of the directors received any ordinary share awards, nonqualified deferred compensation earnings or non-equity incentive plan compensation in fiscal year 2015. (3) On January 31, 2015, the Company granted 25,000 options to Mr. Nelson N.S. Wong , which options vest over a period of three years, one third of which vest on January 31 of each year beginning in 2016. The grant date fair value of such options was $1.65. (4) On January 31, 2015, the Company granted 25,000 options to Mr. Hu Jijun , which options vest over a period of three years, one third of which vest on January 31 of each year beginning in 2016. The grant date fair value of such options was $1.65. (5) On January 31, 2015, the Company granted 18,000 options to Zhao Shudong , which options vest over a period of three years, one third of which vest on January 31 of each year beginning in 2016. The grant date fair value of such options was $1.65. 41 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders 815,600 $ 3.04 800,000 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 5,695,146 Shares, which consists of 5,427,946 Shares outstanding as of September 25, 2015 and 267,200 shares subject to options that are exercisable within 60 days after September 25, 2015. 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 for 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. Amount of Beneficial Ownership Percentage Ownership Yin Shenping (1) 759,488 13.99 % Chen Guangqiang (2) 744,821 13.72 % Hu Jijun (3) 15,000 * % Nelson Wong (4) 18,000 * % Zhao Shudong (5) 9,000 * % Liu Jia (6) 50,000 * % Liu Hui (7) 833,681 15.36 % Chen Yiquan (7) 833,681 15.36 % Total 2,429,990 44.77 % Directors and Executive Officers as a Group (seven members) 1,596,309 29.41 % (1) Includes 76,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2015. Does not include 32,000 options that were not exercisable within 60 days after September 25, 2015. (2) Includes 60,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2014. Does not include 20,000 options that were not exercisable within 60 days after September 25, 2015. (3) Includes 15,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2015. (4) Includes 18,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2015. (5) Includes 9,000 options that were not exercisable within 60 days after September 25, 2015. (6) Includes 50,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2015. (7) Includes 458,525 Shares held by Chen Yiquan and 375,156 Shares held by Liu Hui. 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. * Less than 1%. 42 Item 13. Certain Relationships and Related Transactions, and Director Independence. 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 Yabei Nuoda Science and Technology Co. Ltd. (“Yabei Nuoda”), which has access certification to the oilfield and wherein one of the Founders, Mr. Yin Shenping, was the legal representative of before December 2013 and Chairman as of September 30, 2014. On October 30, 2014, Mr. Yin resigned from the chairman position and at that point Yabei Nuoda was no longer a related party of the Company after October 30, 2014. Mr. Yin does not have any equity interest in this company currently. Below is a summary of trade accounts receivable with related parties as of June 30, 2014 and 2015, respectively. June 30, 2014 June 30, 2015 June 30, 2015 Related Party RMB RMB U.S. Dollars Beijing Yabei Nuoda Science and Technology Co. Ltd. * ¥ 5,441,498 ¥ - $ - Beijing Langchen Construction Company 726,800 726,800 119,367 Xiamen Huangsheng Hitek Computer Network Co.Ltd. 100,000 980,000 160,951 Xiamen Henda Hitek Computer Network Co. Ltd. 1,211,000 3,063,000 503,055 Total - related-parties, net ¥ 7,479,298 ¥ 4,769,800 $ 783,373 Related Party June 30, 2014 June 30, 2015 June 30, 2014 Non-current portion RMB RMB U.S. Dollars Beijing Yabei Nuoda Science and Technology Co. Ltd. ¥ 16,062,574 ¥ 4,934,072 $ 810,352 Allowance for doubtful accounts (1,606,257 ) (493,407 ) (81,035 ) Total - related-parties, net ¥ 14,456,317 ¥ 4,440,665 $ 729,317 Below is a summary of purchase advances to related parties as of June 30, 2014 and 2015, respectively June 30, 2014 June 30, 2015 June 30, 2015 Related Party RMB RMB U.S. Dollars Xiamen Huangsheng Hitek Computer Network Co. Ltd. ¥ 394,034 ¥ 394,034 $ 64,715 Total ¥ 394,034 ¥ 394,034 $ 64,715 In addition, included in the Company’s other receivables as of June 30, 2015 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 was to be repaid over 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, installments for each quarter would be ¥1,777,653. The Company received the payments on time in March and June, 2013. On September 30, 2013, ENI proposed to extend the payment period and signed a new contract with the Company. According to the new arrangement, the remaining balance of this loan will be repaid over four years with quarterly installments of ¥699,147. The Company has continued to receive the payments under the agreement. 43 Accordingly, the current and non-current portion of the amount due from ENI at June 30, 2015 is RMB 2,624,071 ($430,967) and RMB 2,729,033 ($448,205), 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, 2014 and 2015, respectively. June 30, 2014 June 30, 2015 June 30, 2015 Short-term borrowings due to related parties: RMB RMB U.S. Dollars Short-term borrowing from a Founder, 6.6% annual interest, due on December 25, 2014 ¥ 5,007,728 ¥ - - Short-term borrowing from a Founder, 7.2% annual interest, due on October 20, 2015 6,013,200 987,584 Short-term borrowing from a Founder, 6.0% annual interest, due on October 2, 2015 3,403,431 558,966 Short-term borrowing from a Founder, 6.16% annual interest, due on October 12, 2015 1,600,274 262,822 Short-term borrowing from a Founder's family member, no interest, due on various dates. 5,700,000 936,145 Short-term borrowings from Xiamen Huasheng Haitian Computer Network Co. Ltd., no interest, due on November 14, 2015 200,000 200,000 32,847 Total short-term borrowings due to related parties ¥ 5,207,728 ¥ 16,916,905 $ 2,778,364 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. 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). Mr. Wong, Mr. Hu and Mr. Zhao are our independent directors. Item 14. Principal Accountant Fees and Services. Friedman LLP was appointed by the Company to serve as its independent registered public accounting firm for fiscal 2014 and 2015. Fees Paid To Independent Registered Public Accounting Firm Audit Fees During fiscal years 2014 and 2015, Friedman LLP’s audit fees were $185,000 and $190,000, respectively. 44 Audit-Related Fees The Company has not paid Friedman LLP for audit-related services in fiscal years 2014 and 2015. Tax Fees The Company has not paid Friedman LLP for tax services in fiscal years 2014 and 2015. All Other Fees The Company has not paid Friedman LLP for any other services in fiscal years 2014 and 2015. 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. Item 15. Exhibits, Financial Statement Schedules. The following documents are filed herewith: Number Exhibit 3.1 Amended and Restated Articles of Association of the Registrant (1) 3.2 Amended and Restated Memorandum of Association of the Registrant (1) 4.1 Specimen Share Certificate (1) 10.1 Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd. and Beijing BHD Petroleum Technology Co., Ltd. (1) 10.2 Translation of Power of Attorney for rights of Chen Guangqiang in Beijing BHD Petroleum Technology Co., Ltd. (1) 10.3 Translation of Power of Attorney for rights of Yin Shenping in Beijing BHD Petroleum Technology Co., Ltd. (1) 10.4 Translation of Power of Attorney for rights of Li Hongqi in Beijing BHD Petroleum Technology Co., Ltd. (1) 10.5 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Chen Guangqiang and Beijing BHD Petroleum Technology Co., Ltd. (1) 10.6 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Yin Shenping and Beijing BHD Petroleum Technology Co., Ltd. (1) 10.7 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co., Ltd. (1) 10.8 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Beijing BHD Petroleum Technology Co., Ltd. (1) 10.9 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Beijing BHD Petroleum Technology Co., Ltd. (1) 45 10.10 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co., Ltd. (1) 10.11 Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd. and Jining ENI Energy Technology Co., Ltd. (1) 10.12 Translation of Power of Attorney for rights of Chen Guangqiang in Jining ENI Energy Technology Co., Ltd. (1) 10.13 Translation of Power of Attorney for rights of Yin Shenping in Jining ENI Energy Technology Co., Ltd. (1) 10.14 Translation of Power of Attorney for rights of Li Hongqi in Jining ENI Energy Technology Co., Ltd. (1) 10.15 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Chen Guangqiang and Jining ENI Energy Technology Co., Ltd. (1) 10.16 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Yin Shenping and Jining ENI Energy Technology Co., Ltd. (1) 10.17 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Li Hongqi and Jining ENI Energy Technology Co., Ltd. (1) 10.18 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Jining ENI Energy Technology Co., Ltd. (1) 10.19 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Jining ENI Energy Technology Co., Ltd. (1) 10.20 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Jining ENI Energy Technology Co., Ltd. (1) 10.21 Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd. and Nanjing Recon Technology Co., Ltd. (1) 10.22 Translation of Power of Attorney for rights of Chen Guangqiang in Nanjing Recon Technology Co., Ltd. (1) 10.23 Translation of Power of Attorney for rights of Yin Shenping in Nanjing Recon Technology Co., Ltd. (1) 10.24 Translation of Power of Attorney for rights of Li Hongqi in Nanjing Recon Technology Co., Ltd. (1) 10.25 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd. (1) 10.26 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Yin Shenping and Nanjing Recon Technology Co., Ltd. (1) 10.27 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Li Hongqi and Nanjing Recon Technology Co., Ltd. (1) 10.28 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd. (1) 10.29 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Nanjing Recon Technology Co., Ltd. (1) 46 10.30 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Nanjing Recon Technology Co., Ltd. (1) 10.31 Form of Warrant Exchange Agreement dated February 13, 2015 (incorporated by reference to Exhibit 10.36 of the Company’s Form 10-Q for the quarter ended December 31 2014, filed on February 13, 2015). 10.32 Form of Warrant Exchange Agreement dated February 15, 2015 (incorporated by reference to Exhibit 10.27 to the Company’s quarterly report on Form 10-Q for the period ended March 31, 2015). 10.33 Equity Distribution Agreement between Maxim Group LLC and Recon Technology, Ltd dated May 13, 2015 ( incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on May 14, 2015). 14.1 Code of Ethics of the Company. (2) 21.1 List of subsidiaries of the Company. (3) 31.1 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. (3) 31.2 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. (3) 32.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3) 32.2 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3) 99.1 Audit Committee Charter (2) 101. INS (3) XBRL Instance Document 101. SCH (3) XBRL Taxonomy Extension Schema Document 101. CAL (3) XBRL Taxonomy Extension Calculation Linkbase Document 101. DEF (3) XBRL Taxonomy Extension Definition Linkbase Document 101. LAB (3) XBRL Taxonomy Extension Label Linkbase Document 101. PRE (3) XBRL Taxonomy Extension Presentation Linkbase Document *XBRL (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. (1) Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 333-152964. (2) 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. (3) Filed herewith. 47 SIGNATURES 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 September 25, 2015 By: /s/ Liu Jia Liu Jia Chief Financial Officer (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: Signature Title Date /s/ Yin Shenping Chief Executive Officer and Director September 25, 2015 Yin Shenping (Principal Executive Officer) /s/ Chen Guangqiang Chief Technology Officer and Director September 25, 2015 Chen Guangqiang /s/ Zhao Shudong Director September 25, 2015 Zhao Shudong /s/ Nelson N.S. Wong Director September 25, 2015 Nelson N.S. Wong /s/ Hu Jijun Director September 25, 2015 Hu Jijun 48 RECON TECHNOLOGY, LTD INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of June 30, 2014 and 2015 F-3 Consolidated Statements of Operations and Comprehensive Income (loss) for the years ended June 30, 2014 and 2015 F-4 Consolidated Statements of Equity for the years ended June 30, 2014 and 2015 F-5 Consolidated Statements of Cash Flows for the years ended June 30, 2014 and 2015 F-6 Notes to the Consolidated Financial Statements F-7 F- 1 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. (the “Company”) as of June 30, 2015 and 2014, and the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows for each of the two years in the period ended June 30, 2015. 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. 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. Accordingly, we express no such opinion. 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. as of June 30, 2015 and 2014, and the results of their operations and their cash flows for each of the two years in the period ended June 30, 2015 in conformity with accounting principles generally accepted in the United States of America. /s/ Friedman LLP New York, New York September 25, 2015 F- 2 RECON TECHNOLOGY, LTD Consolidated Balance Sheets As of June 30, As of June 30, As of June 30, 2014 2015 2015 RMB RMB U.S. Dollars ASSETS Current assets Cash and cash equivalents ¥ 18,094,586 ¥ 12,344,929 $ 2,027,481 Notes receivable - 4,205,530 690,699 Trade accounts receivable, net 43,553,737 52,186,397 8,570,884 Trade accounts receivable- related parties, net 7,479,298 4,769,800 783,373 Inventories, net 14,336,602 10,845,007 1,781,140 Other receivables, net 18,293,043 18,064,568 2,966,852 Other receivables- related parties 1,414,433 91,021 14,949 Purchase advances, net 25,759,065 18,622,538 3,058,490 Purchase advances- related parties 394,034 394,034 64,715 Prepaid expenses 2,634,664 826,314 135,711 Prepaid expenses - related parties 230,000 420,000 68,979 Deferred tax asset 1,209,961 1,742,098 286,115 Total current assets 133,399,423 124,512,236 20,449,388 Property and equipment, net 1,321,538 2,666,953 438,010 Long-term trade accounts receivable, net 4,440,665 729,317 Long-term trade accounts receivable - related parties, net 14,456,317 - - Long-term other receivable 5,353,104 2,729,033 448,205 Total Assets ¥ 154,530,382 ¥ 134,348,887 $ 22,064,920 LIABILITIES AND EQUITY Current liabilities Short-term bank loans ¥ 10,000,000 ¥ 7,000,000 $ 1,149,652 Trade accounts payable 11,413,505 13,627,088 2,238,058 Trade accounts payable- related parties - 3,528,705 579,540 Other payables 1,765,079 2,103,057 345,398 Other payable- related parties 3,306,024 4,309,702 707,808 Deferred revenue 4,419,824 2,285,529 375,366 Advances from customers 801,385 529,700 86,996 Accrued payroll and employees' welfare 417,624 246,789 40,532 Accrued expenses 203,051 199,166 32,715 Taxes payable 7,589,846 1,153,216 189,400 Short-term borrowings - related parties 5,207,728 16,916,905 2,778,364 Deferred tax liability 180,186 180,186 29,593 Warrants liability 5,021,621 - - Total current liabilities 50,325,873 52,080,043 8,553,422 Equity Common stock, ($ 0.0185 U.S. dollar par value, 25,000,000 and 100,000,000 shares authorized as of June 30, 2014 and June 30, 2015, respectively); 4,717,336 and 5,427,946 shares issued and outstanding as of June 30, 2014 and June 30, 2015, respectively) 616,865 697,217 114,508 Additional paid-in capital 83,061,058 92,541,687 15,198,674 Appropriated retained earnings 4,148,929 4,148,929 681,403 Unappropriated retained earnings 8,431,453 (23,024,935 ) (3,781,526 ) Accumulated other comprehensive loss (279,275 ) (317,551 ) (52,155 ) Total shareholders’ equity 95,979,030 74,045,347 12,160,904 Non-controlling interest 8,225,479 8,223,497 1,350,594 Total equity 104,204,509 82,268,844 13,511,498 Total Liabilities and Equity ¥ 154,530,382 ¥ 134,348,887 $ 22,064,920 The accompanying notes are an integral part of these consolidated financial statements. F- 3 RECON TECHNOLOGY, LTD Consolidated Statements of operations and Comprehensive INCOME (LOSS) For the years ended June 30, 2014 2015 2015 RMB RMB USD Revenues Hardware and software ¥ 86,229,283 ¥ 48,980,953 $ 8,044,435 Service 477,778 103,774 17,043 Hardware and software - related parties 6,740,047 2,428,173 398,793 Total revenues 93,447,108 51,512,900 8,460,271 Cost of revenues Hardware and software ¥ 57,333,670 ¥ 33,672,729 $ 5,530,273 Service 77,107 - - Hardware and software - related parties 3,619,470 27,161 4,461 Provision for slow moving inventories - 7,700,837 1,264,755 Total cost of revenues 61,030,247 41,400,727 6,799,489 Gross profit 32,416,861 10,112,173 1,660,782 Selling and distribution expenses 5,293,343 11,312,452 1,857,912 General and administrative expenses 16,198,947 30,147,141 4,951,245 Research and development expenses 8,094,333 4,168,813 684,669 Operating expenses 29,586,623 45,628,406 7,493,826 lncome (loss) from operations 2,830,238 (35,516,233 ) (5,833,044 ) Other income (expenses) Subsidy income 1,250,509 781,457 128,343 Interest income 384,182 293,499 48,203 Interest expense (952,574 ) (1,110,451 ) (182,376 ) Loss from investment (1,535,250 ) - - Change in fair value of warrants liability 60,647 4,034,272 662,573 Loss from foreign currency exchange (188,495 ) (19,190 ) (3,152 ) Loss from warrants redemption - (2,496,375 ) (409,995 ) Other expense 939,699 24,558 4,033 Income (loss) before income tax 2,788,956 (34,008,463 ) (5,585,415 ) Provision (benefit) for income tax 961,136 (2,552,075 ) (419,143 ) Net Income (loss) 1,827,820 (31,456,388 ) (5,166,272 ) Less: Net income attributable to non-controlling interest 1,020,632 - - Net Income (loss) attributable to Recon Technology, Ltd ¥ 807,188 ¥ (31,456,388 ) $ (5,166,272 ) Comprehensive income (loss) Net income (loss) 1,827,820 (31,456,388 ) (5,166,272 ) Foreign currency translation adjustment 17,783 (38,276 ) (6,286 ) Comprehensive income (loss) 1,845,603 (31,494,664 ) (5,172,558 ) Comprehensive income (loss) attributable to non-controlling interest 1,022,410 (1,982 ) (326 ) Comprehensive income (loss) attributable to Recon Technology, Ltd ¥ 823,193 ¥ (31,492,682 ) $ (5,172,232 ) Earnings (loss) per common share - basic ¥ 0.19 ¥ (6.45 ) $ (1.06 ) Earnings (loss) per common share - diluted ¥ 0.18 ¥ (6.45 ) $ (1.06 ) Weighted - average shares -basic 4,303,955 4,876,504 4,876,504 Weighted - average shares -diluted 4,368,162 4,876,504 4,876,504 The accompanying notes are an integral part of these consolidated financial statements. F- 4 RECON TECHNOLOGY, LTD Consolidated Statements of equity Ordinary Shares Additional Paid-in Capital Statutory Reserves Retained Earnings Accumulated Other Comprehensive loss Shareholders' Equity Non-controlling Interest Total Equity Total Equity Number of Shares Amount (RMB) (RMB) (RMB) (RMB) (RMB) (RMB) (RMB) (RMB) (USD) Balance, July 1, 2013 3,951,811 ¥ 529,979 ¥ 69,516,447 ¥ 3,023,231 ¥ 8,749,963 ¥ (293,201 ) ¥ 81,526,419 ¥ 7,200,991 ¥ 88,727,410 $ 14,572,231 Capital contribution in VIE - - - Stock issuance 546,500 61,937 7,025,668 7,087,605 7,087,605 1,164,040 Restricted shares issued for services 70,625 8,044 1,401,911 1,409,955 1,409,955 231,565 Stock options exercised 148,400 16,905 2,688,004 2,704,909 2,704,909 444,243 Stock based payment 2,429,028 2,429,028 2,429,028 398,934 Net income (loss) for the year 807,188 807,188 1,020,632 1,827,820 300,194 Appropriation of statutory reserves 1,125,698 (1,125,698 ) - - - Foreign currency translation adjustment 13,926 13,926 3,856 17,782 2,923 Balance, June 30, 2014 4,717,336 ¥ 616,865 ¥ 83,061,058 ¥ 4,148,929 ¥ 8,431,453 ¥ (279,275 ) ¥ 95,979,030 ¥ 8,225,479 ¥ 104,204,509 $ 17,114,130 Capital contribution in VIE Stock issuance 297,197 33,497 2,358,530 2,392,027 2,392,027 392,857 Restricted shares issued for services 140,162 15,876 567,223 583,099 583,099 95,766 Restricted shares issued to redeem warrants 273,251 30,979 3,431,459 3,462,438 3,462,438 568,657 Stock based payment 3,123,417 3,123,417 3,123,417 512,977 Net income (loss) for the year (31,456,388 ) (31,456,388 ) - (31,456,388 ) (5,166,271 ) Foreign currency translation adjustment (38,276 ) (38,276 ) (1,982 ) (40,258 ) (6,618 ) Balance, June 30, 2015 5,427,946 ¥ 697,217 ¥ 92,541,687 ¥ 4,148,929 ¥ (23,024,935 ) ¥ (317,551 ) ¥ 74,045,347 ¥ 8,223,497 ¥ (82,268,844 ) $ 13,511,498 The accompanying notes are an integral part of these consolidated financial statements. F- 5 RECON TECHNOLOGY, LTD Consolidated Statements of Cash flows For the years ended 2014 2015 2015 RMB RMB U.S. Dollars Cash flows from operating activities: Net income (loss) ¥ 1,827,820 ¥ (31,456,388 ) $ (5,166,272 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 595,647 526,046 86,396 Loss (Gain) from disposal of equipment 128,902 (193,657 ) (31,805 ) Provision for doubtful accounts 1,518,778 3,252,868 534,238 Provision for slow moving inventories - 7,700,836 1,264,754 Share based compensation 2,429,028 3,123,417 512,977 Loss from investment 1,535,250 - - Deferred tax benefit (provision) (23,054 ) (532,136 ) (87,396 ) Change in fair value of warrants liability (60,647 ) (4,034,272 ) (662,573 ) Restricted shares issued for services 407,593 1,585,462 260,390 Loss from warrants redemption - 2,496,375 409,995 Income tax benefit - (2,111,281 ) (346,748 ) Changes in operating assets and liabilities: Notes receivable 2,578,855 (4,205,530 ) (690,699 ) Trade accounts receivable (5,291,233 ) (3,245,218 ) (532,982 ) Trade accounts receivable-related parties (3,819,299 ) 4,315,755 708,803 Inventories (1,065,532 ) (4,209,241 ) (691,309 ) Other receivable, net (981,099 ) 2,481,328 407,522 Other receivables related parties, net (671,905 ) 1,323,412 217,352 Purchase advance, net (6,879,156 ) 3,271,935 537,369 Tax recoverable 575,650 - - Prepaid expense (146,708 ) 1,808,350 296,996 Prepaid expense - related party, net 136,000 (190,000 ) (31,205 ) Trade accounts payable 4,029,340 2,213,583 363,550 Trade accounts payable-related parties (3,994,718 ) 3,528,705 579,540 Other payables (199,612 ) 337,978 55,508 Other payables-related parties (933,651 ) 1,003,678 164,840 Deferred income 1,038,442 (2,134,295 ) (350,528 ) Advances from customers 330,685 (271,685 ) (44,620 ) Accrued payroll and employees' welfare (1,575,159 ) (170,835 ) (28,057 ) Accrued expenses (285,679 ) 5,291 869 Taxes payable 835,418 (1,322,818 ) (217,254 ) Net cash used in operating activities (7,960,044 ) (15,102,337 ) (2,480,349 ) Cash flows from investing activities: Purchase of property and equipment (477,957 ) (2,078,204 ) (341,316 ) Proceeds from disposal of equipment 141,716 400,400 65,760 Net cash used in investing activities (336,241 ) (1,677,804 ) (275,556 ) Cash flows from financing activities: Proceeds from short-term bank loans 23,500,000 7,000,000 1,149,652 Repayments of short-term bank loans (23,500,000 ) (10,000,000 ) (1,642,360 ) Proceeds from short-term borrowings-related parties 5,007,728 18,250,000 2,997,307 Repayment of short-term borrowings (570,375 ) - - Repayment of short-term borrowings-related parties (5,303,279 ) (6,550,000 ) (1,075,746 ) Proceeds from sale of common stock, net of issuance costs 12,132,882 2,392,027 392,857 Proceeds from stock options exercised 2,704,909 - - Net cash provided by financing activities 13,971,865 11,092,027 1,821,710 Effect of exchange rate fluctuation on cash and cash equivalents 68,614 (61,543 ) (10,106 ) Net decrease in cash and cash equivalents 5,744,194 (5,749,657 ) (944,301 ) Cash and cash equivalents at beginning of year 12,350,392 18,094,586 2,971,782 Cash and cash equivalents at end of year ¥ 18,094,586 ¥ 12,344,929 $ 2,027,481 Supplemental cash flow information Cash paid during the period for interest ¥ 939,416 ¥ 1,060,529 $ 174,177 Cash paid during the period for taxes ¥ 704,982 ¥ 881,794 $ 144,822 Non-cash investing and financing activities Issuance of common stock to prepay professional services ¥ 1,002,721 ¥ - $ - Issuance of common stock to redeem warrants - 3,462,438 568,657 The accompanying notes are an integral part of these consolidated financial statements. F- 6 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements NOTE 1. 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. Yin Shenping, Mr. Chen Guangqiang and Mr. Li Hongqi (the “Founders”) as a limited liability company. The Company provides specialized oilfield 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 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. On November 19, 2010 , Recon-CI established one wholly owned subsidiary, Recon Investment Ltd. (“Recon-IN”) under the laws of HK. Other than the equity interest in Recon-IN, Recon-CI does not own any assets or conduct any operations. On January 18, 2014, Recon-IN established one wholly owned subsidiary, Recon Hengda Technology (Beijing) Co., Ltd. (“Recon-BJ”) under the laws of the PRC. Other than the equity interest in Recon-BJ, Recon-IN 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: 1. Beijing BHD Petroleum Technology Co., Ltd. (“BHD”), and 2. Nanjing Recon Technology Co., Ltd. (“Nanjing Recon”). On January 29, 2015, the Company increased its authorized shares from 25,000,000 to 100,000,000 ordinary shares. 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. However, 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. F- 7 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements 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 an 86.24% ownership interest of BHD. BHD was 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%). 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. Through December 15, 2010, the Founders held 80% ownership interest in Nanjing Recon. From December 16, 2010 to June 30, 2012, Messers. 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. 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 the 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. NOTE 2. 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. F- 8 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, 2015 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 ¥6.0888 = US$1.00, the approximate exchange rate prevailing on June 30, 2015. 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. dollars. 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, allowance for inventory, deferred taxes, warrants liabilities, 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 U.S. GAAP accounting standards regarding fair value of financial instruments and related fair value measurements define fair value, establish a three-level valuation hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs are defined as follows: Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 inputs to the valuation methodology are unobservable. 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 market rate. Long-term other receivables approximate fair value because interest rate approximates the market rate. Long-term investment is carried measured at fair value on a non-recurring basis at June 30, 2014, since the Company recorded an impairment loss during 2014; the fair value was determined to be zero using level 1 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). F- 9 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements 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. 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. Allowance for inventory obsolescence is provided when the market value of certain inventory items are lower than the cost. 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. Items Useful life Motor vehicles 5-10 years Office equipment 2-5 years Leasehold improvement 5 years 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, 2014 and 2015. 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 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. F- 10 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements Hardware: 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. Software: 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. Usually this is short term. Revenue is not recognized until completion of the contracts and receipt of acceptance statements. Service: 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. 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. 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) by the weighted average number of ordinary shares outstanding. Diluted EPS are computed by dividing net income (loss) by the weighted-average number of ordinary shares and dilutive potential ordinary share equivalents outstanding. Potentially dilutive ordinary shares consist of ordinary shares issuable upon the conversion of ordinary 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. The effect from options, restricted shares and warrants would have been anti-dilutive due to the fact that we incurred a net loss during the year ended June 30, 2015. F- 11 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements Recently Issued Accounting Pronouncements - In June 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2015-10, “Technical Corrections and Improvements.” This ASU corrects for differences between original guidance and the Accounting Standards Codification (“ASC”) and makes minor improvements affecting several topics. We are currently in the process of evaluating this standard, but do not expect its adoption to have a material impact on our consolidated financial statements. The amendments in this Update will apply to all reporting entities within the scope of the affected accounting guidance. In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2015-11, “Inventory (Topic 330) - Simplifying the Measurement of Inventory.” The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this Update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). For public business entities, The amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We are currently in the process of evaluating this standard, but do not expect its adoption to have a material impact on our consolidated financial statements. NOTE 3. TRADE ACCOUNTS RECEIVABLE, NET Accounts receivable consisted of the following: June 30, 2014 June 30, 2015 June 30, 2015 Third Party RMB RMB U.S. Dollars Trade accounts receivable ¥ 48,284,531 ¥ 58,049,462 $ 9,533,810 Allowance for doubtful accounts (4,730,794 ) (5,863,065 ) (962,926 ) Total - third- party, net ¥ 43,553,737 ¥ 52,186,397 $ 8,570,884 F- 12 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements June 30, 2014 June 30, 2015 June 30, 2015 Related Party RMB R MB U.S. Dollars Beijing Yabei Nuoda Science and Technology Co. Ltd. * ¥ 5,441,498 ¥ - $ - Beijing Langchen Construction Company ** 726,800 726,800 119,367 Xiamen Huangsheng Hitek Computer Network Co.Ltd. *** 100,000 980,000 160,951 Xiamen Henda Hitek Computer Network Co. Ltd. *** 1,211,000 3,063,000 503,055 Total - related-parties, net ¥ 7,479,298 ¥ 4,769,800 $ 783,373 June 30, 2014 June 30, 2015 June 30, 2015 Related Party – long-term RMB RMB U.S. Dollars Beijing Yabei Nuoda Science and Technology Co. Ltd. * ¥ 16,062,574 ¥ - $ - Allowance for doubtful accounts (1,606,257 ) - - Total - long-term trade accounts receivable, net ¥ 14,456,317 ¥ - $ - June 30, 2014 June 30, 2015 June 30, 2015 Third Party – long-term RMB RMB U.S. Dollars Beijing Yabei Nuoda Science and Technology Co. Ltd. * ¥ - ¥ 4,934,072 $ 810,352 Allowance for doubtful accounts - (493,407 ) (81,035 ) Total - long-term trade accounts receivable, net ¥ - ¥ 4,440,665 $ 729,317 * The receivable from Beijing Yabei Nuoda Science and Technology Co. Ltd. (“Yabei Nuoda”) was recognized primarily from the sale of automation system and services based on written contracts. Based on the repayment agreement signed on September 2, 2015, the outstanding balance will be collected in two years beginning 2017, with each installment of ¥2,467,036. * One of the Founders, Mr. Yin Shenping, was the legal representative of Yabei Nuoda before December 2013 and Chairman as of September 30, 2014. On October 30, 2014, Mr. Yin resigned from the chairman position and thus Yabei Nuoda is not a related party of the Company after October 30, 2014. Mr. Yin no longer has any equity interest in this company. ** This receivable was settled between August 10, 2015 and September 1, 2015. ***On August 13, 2015, all of the outstanding balance was offset against the related payable (See Note 9) and the remaining balance was repaid. NOTE 4. OTHER RECEIVABLES, NET Other receivables consisted of the following: Third Party June 30, 2014 June 30, 2015 June 30, 2015 Current Portion RMB RMB U.S. Dollars Due from ENI (A) ¥ 2,523,145 ¥ 2,624,071 $ 430,967 Loans to third parties (B) 8,979,408 11,154,344 1,831,945 Business advance to staff (C) 6,371,923 3,927,238 644,994 Deposits for projects 495,961 543,800 89,312 Others 373,622 637,348 104,674 Allowance for doubtful accounts (451,016 ) (822,233 ) (135,040 ) Total ¥ 18,293,043 ¥ 18,064,568 $ 2,966,852 F- 13 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements Third Party June 30, 2014 June 30, 2015 June 30, 2015 Non-Current Portion RMB RMB U.S. Dollars Due from ENI (A) ¥ 5,353,104 ¥ 2,729,033 $ 448,205 Total ¥ 5,353,104 ¥ 2,729,033 $ 448,205 (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, installments for each quarter would be ¥1,777,653. The Company received the payments on time in March and June, 2013. On September 30, 2013, ENI proposed to extend the payment period and signed a new contract with the Company. According to the new arrangement, the remaining part of this loan will be repaid over four years with quarterly installments of ¥699,147. The Company has continued to receive the payments under the agreement. (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. (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: Related Party June 30, 2014 June 30, 2015 June 30, 2015 Name of Related Party RMB RMB U.S. Dollars Beijing Yabei Nuoda Science and Technology Co. Ltd. * 500,000 - - Beijing Langchen Construction Company ** 913,780 91,021 14,949 Other - business advances 653 - - Total ¥ 1,414,433 ¥ 91,021 $ 14,949 * Not a related party after October 31, 2014. ** This was repaid on August 6, 2015. NOTE 5. 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: F- 14 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements June 30, 2014 June 30, 2015 June 30, 2015 Third Party RMB RMB U.S. Dollars Prepayment for inventory purchase ¥ 27,119,326 ¥ 22,845,030 $ 3,751,976 Allowance for doubtful accounts (1,360,261 ) (4,222,492 ) (693,486 ) Total ¥ 25,759,065 ¥ 18,622,538 $ 3,058,490 Below is a summary of purchase advances to related party. June 30, 2014 June 30, 2015 June 30, 2015 Related Party RMB RMB U.S. Dollars Xiamen Huangsheng Hitek Computer Network Co. Ltd. (A) ¥ 394,034 ¥ 394,034 $ 64,715 Total ¥ 394,034 ¥ 394,034 $ 64,715 One of the Founders of the Company and his family member collectively own 57% of Xiamen Huasheng Haitian Computer Network Co. Ltd. Between August 10, 2015 and September 1, 2015, materials purchased have been delivered to the Company and this balance was settled in full. NOTE 6. INVENTORIES Inventories consisted of the following: June 30, 2014 June 30, 2015 June 30, 2015 RMB RMB U.S. Dollars Small component parts ¥ 55,262 ¥ 55,332 $ 9,087 Purchased goods and raw materials 272,416 244,667 40,183 Work in process and goods on site 1,665,447 3,552,771 583,493 Finished goods 12,343,477 14,693,073 2,413,131 Allowance for slow moving inventory - (7,700,836 ) (1,264,754 ) Total inventories, net ¥ 14,336,602 ¥ 10,845,007 $ 1,781,140 Provisions for slow moving inventory was ¥0 and ¥7,700,836 ($1,264,754) at June 30, 2014 and 2015, respectively. NOTE 7. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: June 30, 2014 June 30, 2015 June 30, 2015 RMB RMB U.S. Dollars Motor vehicles ¥ 2,314,296 ¥ 3,790,474 $ 622,532 Office equipment and fixtures 709,165 797,791 131,026 Total property and equipment 3,023,461 4,588,265 753,558 Less: Accumulated depreciation (1,701,923 ) (1,921,312 ) (315,548 ) Property and equipment, net ¥ 1,321,538 ¥ 2,666,953 $ 438,010 F- 15 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements Depreciation expense was ¥595,647 and ¥526,046 ($86,396) for the years ended June 30, 2014 and 2015, respectively. NOTE 8. Long-term investment 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). Since 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, 2014 and 2015, Recon owned 24.02% and 16.92% 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 engages in the acquisition, exploration and development of oil and gas producing properties in the US. Based on the available information and discussion with the management team of Avalon, the Company believe Avalon’s operating loss would not be recovered in the foreseeable future, therefore, the Company considered the investment to be impaired and recorded an investment loss of ¥1,535,250 ($250,000) for the year ended June 30, 2014 to write its investment down to zero. On April 13, 2015, BHD reached an agreement to invest RMB 80 million in Huanghua Heng Da Xiang Tong Manufacture Ltd (“HHBHD”) for a 54.05% ownership interest. BHD’s board of Directors and shareholders approved the transaction to invest in HHBHD. The investment is to enhance cooperation with HHBHD and protect BHD’s design copyright. BHD does not have control or significant impact or voting rights over HHBHD. As of this report, no payment was made to HHBHD for this investment. NOTE 9. OTHER PAYABLES Other payables consisted of the following: June 30, 2014 June 30, 2015 June 30, 2015 Third Party RMB RMB U.S. Dollars Consulting services ¥ 777,863 ¥ 1,628,508 $ 267,460 Distributors and employees 973,707 413,703 67,945 Others 13,509 60,846 9,993 Total ¥ 1,765,079 ¥ 2,103,057 $ 345,398 June 30, 2014 June 30, 2015 June 30, 2015 Related Party RMB RMB U.S. Dollars Due to related parties (1) ¥ 2,560,648 ¥ 2,499,347 $ 410,483 Expenses paid by the major shareholders 439,071 1,558,738 256,001 Due to family member of one owner on behalf on Recon 50,000 - - Due to management staff on behalf of Recon 256,305 251,617 41,324 Total ¥ 3,306,024 ¥ 4,309,702 $ 707,808 (1) Includes an advance from Xiamen Henda Haitek for RMB 2,499,347 to supplement the Company’s working capital. The advance is payable on demand and non-interest bearing. This debt was off set with accounts receivable on September 3, 2015 (See Note 3). F- 16 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements NOTE 10. TAXES PAYABLE Taxes payable consisted of the following: June 30, 2014 June 30, 2015 June 30, 2015 RMB RMB U.S. Dollars VAT payable ¥ 3,412,759 ¥ 23,885 $ 3,923 Enterprise income tax payable 4,134,210 1,127,131 185,115 Other taxes payable 42,877 2,200 362 Total taxes payable ¥ 7,589,846 ¥ 1,153,216 $ 189,400 NOTE 11. SHORT-TERM BANK LOAN Short-term bank loans consisted of the following: June 30, 2014 June 30, 2015 June 30, 2015 RMB RMB U.S. Dollars Industrial and commercial bank, floating interest rate at 5.6%, paid off on December 24, 2014 ¥ 2,000,000 ¥ - - Industrial and commercial bank, floating interest rate at 6.0%, due on June 19, 2016 8,000,000 7,000,000 1,149,652 Total short-term bank loans ¥ 10,000,000 ¥ 7,000,000 $ 1,149,652 Interest expense for the short-term bank loan was ¥624,096 and ¥516,567 ($84,839) for the years ended June 30, 2014 and 2015, respectively. NOTE 12. SHORT-TERM BORROWINGS DUE TO RELATED PARTIES June 30, 2014 June 30, 2015 June 30, 2015 Short-term borrowings due to related parties: RMB RMB U.S. Dollars Short-term borrowing from a Founder, 6.6% annual interest, due on December 25, 2014 ¥ 5,007,728 ¥ - - Short-term borrowing from a Founder, 7.2% annual interest, due on October 20, 2015(B) - 6,013,200 987,584 Short-term borrowing from a Founder, 6.0% annual interest, due on October 2, 2015 - 3,403,431 558,966 Short-term borrowing from a Founder, 6.16% annual interest, due on October 12, 2015 - 1,600,274 262,823 Short-term borrowing from a Founder's family member, no interest, due on various dates.(A) - 5,700,000 936,145 Short-term borrowings from Xiamen Huasheng Haitian Computer Network Co. Ltd., no interest, due on November 14, 2015 (C) 200,000 200,000 32,847 Total short-term borrowings due to related parties ¥ 5,207,728 ¥ 16,916,905 $ 2,778,365 F- 17 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements (A) On August 20, 2015, ¥ 1,500,000 ( $246,354 ) was paid back to the Founder’s family member. (B) On August 19, 2015, the Company repaid ¥1,800,000 ($295,625) of short-term borrowing with an interest of ¥37,200 ($6,110). (C) On August 31, 2015, this obligation was satisfied. Interest expense for short-term borrowings due to related parties was ¥326,953 and ¥593,884 ($97,537) for the years ended June 30, 2014 and 2015, 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 in Note 14). On February 13, 2015, the Company redeemed 163,950 warrants by issuing 204,938 ordinary shares (1.25 shares of ordinary shares to exchange one warrant) to institutional investors. On April 15, 2015, the Company redeemed the remaining 54,650 warrants by issuing 68,313 ordinary shares (1.25 shares of ordinary shares to exchange one warrant) to institutional investors. As a result, the Company recorded a loss on warrant redemption of ¥2,496,375 ($409,995) for the year ended June 30, 2015. 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 assumptions: June 30, June 30, 2015 2014 Annual dividend yield - - Exercised price - 5.38 Underlying price at grant date - 3.86 Expected life (years) - 2.42 Risk-free interest rate - 0.88 % Expected volatility - 220 % 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. The expected dividend yield was based on the Company’s current and expected dividend policy. F- 18 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements 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 Carrying Value at June 30, 2014 June 30, 2014 June 30, 2014 Level 1 Level 2 Level 3 RMB USD Warrants liability ¥ - ¥ 5,021,621 ¥ - ¥ 5,021,621 824,731 The following is a reconciliation of the beginning and ending balance of the warrant liability measured at fair value on a recurring basis for the year ended June 30, 2015: Change of warrants liability RMB USD Beginning balance - June 30, 2014 ¥ 5,021,621 $ 815,834 Warrant redemption (987,349 ) (153,261 ) Change of warrant liability (4,034,272 ) (662,573 ) Ending balance -June 30, 2015 ¥ - $ - NOTE 14. SHAREHOLDERS’ EQUITY Stock offering – On 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 million). In addition, warrants to purchase 163,950 ordinary shares in the aggregate were issued to the investors. The warrants were exercisable 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, 2014 and 2015. In June 2015, the Company entered into a securities purchase agreement with certain institutional investors for the sale of 297,197 ordinary shares in a registered direct offering (4,000 shares at an average of $1.64 on June 9, 2015; 288,105 shares at an average of $2.12 on June 10, 2015; 5,092 shares at an average of $2.00 on June 11, 2015). The net cash proceeds received from the stock offering, after deducting ¥1,294,922 ($212,673) underwriter commission and other associated fees, were ¥2,392,027 (approximately $0.6 million). 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, 2014 and 2015, the balance of total statutory reserves was ¥4,148,929 and ¥4,148,929 ($681,403), respectively. F- 19 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements NOTE 15. STOCK-BASED COMPENSATION 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 the first 20% vesting on July 29, 2010. The options expire ten years after the date of grant, on July 29, 2019. 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 $ 6.00 Exercise price (per share) $ 6.00 Risk free rate of interest*** 4.6118 % Dividend yield 0.0 % Life of option (years)** 10 Volatility* 78 % Forfeiture rate**** 0 % * 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. 2012 Options Plan – The Company granted options to purchase 415,000 ordinary shares to its employees and non-employee director on March 26, 2012. The 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 the first 20% vesting on March 26, 2013. The options 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. 2015 Options Plan – The Company granted options to purchase 400,000 ordinary shares to its employees and non-employee director on January 31, 2015. The options have an excise price of $1.65, which was equal to the share price of the Company’s ordinary shares at January 31, 2015, and will vest equally over a period of three years, with the one third vesting on January 31, 2016. The options expire ten years after the date of grant, on January 31, 2025. 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 ¥10.13 ($1.65) per share. F- 20 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements The following is a summary of the stock options activity: Stock Options Shares Weighted Average Exercise Price Per Share Outstanding as of June 30, 2014 415,600 $ 4.37 Granted 400,000 1.65 Forfeited - - Exercised - - Outstanding as of June 30, 2015 815,600 $ 3.04 The following is a summary of the status of options outstanding and exercisable at June 30, 2015: Outstanding Options Exercisable Options Average Exercise Price Number Average Remaining Contractual life (Years) Average Exercise Price Number Average Remaining Contractual life (Years) $ 6.00 193,000 4.08 $ 6.00 193,000 4.08 $ 2.96 222,600 6.74 $ 2.96 74,200 6.74 $ 1.65 400,000 9.60 - - - 815,600 Restricted Shares For the year ended June 30, 2015, the Company has granted restricted shares of common stock to senior management and consultants as follows: 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 based on the closing stock price $3.8 at July 18, 2014. On January 29, 2015, 10,000 of those restricted shares were canceled based on the agreement with the consultant. 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. 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. The first one third was vested on December 13, 2014 and are now non-restricted. On January 31, 2015, the Company granted 150,000 restricted shares to Mr. Yin Shenping and 150,000 restricted shares to Mr. Chen Guangqiang at an aggregate value of ¥3,038,558($495,000), based on the stock closing price of $1.65 at January 31, 2015. These restricted shares will vest over three years with one third of the shares vesting every year from the grant date. F- 21 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements On February 2, 2015, the Company issued 24,000 restricted shares to Maxim Group LLC (“Maxim”) for certain consulting service. The fair value of the restricted shares was $43,440 based on the closing stock price $1.81 at February 2, 2015. On April 8, 2015, the Company granted 40,000 restricted shares to a non-affiliate as compensation for certain consulting service. The fair value of the restricted shares was $62,400 based on the closing stock price $1.56 at April 8, 2015. The Share-based compensation expense recorded for stock options granted were ¥1,657,479 and ¥1,294,629 ($211,204) for the years ended June 30, 2014 and 2015, respectively. The total unrecognized share-based compensation expense for stock options as of June 30, 2015 was approximately ¥5.0 million ($0.8 million), which is expected to be recognized over a weighted average period of approximately 2.33 years. The Share-based compensation expense recorded for restricted shares granted were ¥771,549 and ¥1,828,790 ($298,344) for the years ended June 30, 2014 and 2015, respectively. The total unrecognized share-based compensation expense for restricted shares granted as of June 30, 2015 was approximately ¥4.6 million ($0.8 million), which is expected to be recognized over a weighted average period of approximately 2.09 years. Following is a summary of the restricted stock grants: Restricted stock grants Shares Non-vested as of June 30, 2014 230,362 Granted 414,000 Non-vested adjustment 40,625 Cancelled (50,625 ) Vested (180,787 ) Non-vested as of June 30, 2015 453,575 NOTE 16. INCOME TAX The Company is not subject to any income taxes in the United States or the Cayman Islands and had minimal operations in jurisdictions other than the PRC. BHD and Nanjing Recon are subject to PRC’s income taxes as PRC domestic companies. The Company follows Implementing Rules for the Enterprise Income Tax Law (“Implementing Rules”), which took effect on January 1, 2008 and unified the income tax rate for domestic-invested and foreign-invested enterprises at 25%. The Company reapplied for high-technology enterprise approval and has passed all relevant reviews. Thus, for the calendar years 2014 and 2015, 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. Deferred tax asset is comprised of the following: June 30, 2014 June 30, 2015 June 30, 2015 RMB RMB U.S. Dollars Allowance for doubtful receivables ¥ 1,209,961 ¥ 1,072,279 $ 176,107 Net operating loss carry forward - 669,819 110,008 Total deferred income tax assets ¥ 1,209,961 ¥ 1,742,098 $ 286,115 F- 22 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements Deferred tax liability is comprised of the following: June 30, 2013 June 30, 2015 June 30, 2015 RMB RMB U.S. Dollars Income tax cost due to unpayable accounts ¥ 180,186 ¥ 180,186 $ 29,593 Total deferred income tax liability ¥ 180,186 ¥ 180,186 $ 29,593 Following is a reconciliation of income tax at the effective rate to income tax at the calculated statutory rates: For the year ended June 30, 2014 For the year ended June 30, 2015 For the year ended June 30, 2015 RMB RMB U.S. Dollars Income tax calculated at statutory rates ¥ 3,073,289 ¥ (6,108,744 ) $ (1,003,276 ) Nondeductible expenses (non-taxable income) 115,054 5,335,231 876,237 Benefit of favorable rate for high-technology companies (1,229,316 ) 385,650 63,338 Benefit of revenue exempted from enterprise income tax (794,651 ) (190,614 ) (31,306 ) Deferred income tax (benefit) (203,240 ) 137,683 22,612 Over-accrued tax of prior year - (2,111,281 ) (346,748 ) Provision (benefit) for income tax ¥ 961,136 ¥ (2,552,075 ) $ (419,143 ) The Company’s tax provision is comprised of the following: For the years ended June 30, 2014 2015 2015 RMB RMB U.S. Dollars Current income taxes ¥ 1,164,376 ¥ (2,019,938 ) $ (331,746 ) Deferred income taxes provision (benefit) (203,240 ) (532,137 ) (87,397 ) Provision for income tax ¥ 961,136 ¥ (2,552,075 ) $ (419,143 ) F- 23 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements NOTE 17. NON-CONTROLLING INTEREST Non-controlling interest consisted of the following: As of June 30, 2014 Nanjing BHD Recon Total Total RMB RMB RMB U.S. Dollars Paid-in capital ¥ 1,651,000 ¥ 200,000 ¥ 1,851,000 $ 300,721 Unappropriated retained earnings 3,152,687 3,250,513 6,403,200 1,040,291 Accumulated other comprehensive loss (16,868 ) (11,853 ) (28,721 ) (4,664 ) Total non-controlling interest ¥ 4,786,819 ¥ 3,438,660 ¥ 8,225,479 $ 1,336,348 As of June 30, 2015 Nanjing BHD Recon Total Total RMB RMB RMB U.S. Dollars Paid-in capital ¥ 1,651,000 ¥ 200,000 ¥ 1,851,000 $ 304,001 Unappropriated retained earnings 3,152,687 3,250,513 6,403,200 1,051,636 Accumulated other comprehensive loss (18,850 ) (11,853 ) (30,703 ) (5,043 ) Total non-controlling interest ¥ 4,784,837 ¥ 3,438,660 ¥ 8,223,497 $ 1,350,594 NOTE 18. CONCENTRATIONS For the years ended June 30, 2014 and 2015, the two largest customers, China National Petroleum Corporation (“CNPC”) and China Petroleum & Chemical Corporation Limited (“SINOPEC”), represented approximately 42.79%, 43.09% and 19.63%, 6.82% of the Company’s revenue, respectively. For the year ended June 30, 2014, two major suppliers accounted for 32.46% of the company’s total purchases. For the year ended June 30, 2015, one major supplier accounted for 18% of the company’s total purchases. NOTE 19. COMMITMENTS AND CONTINGENCY (a) Office Leases 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, 2015: Twelve months ending June 30, Office lease payment RMB U.S. Dollars 2016 ¥ 973,333 $ 159,856 Total ¥ 973,333 $ 159,856 F- 24 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements (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, 2015, the Company estimated its severance payments of approximately ¥1.5 million ($0.3 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. NOTE 20. RELATED PARTY TRANSACTIONS AND BALANCES Sales to related parties – sales to related parties consisted of the following: For the years ended June 30, 2014 2015 2015 RMB RMB U.S. Dollars Beijing Yabei Nuoda Science and Technology Co. Ltd. * ¥ 4,680,389 ¥ - $ - Beijing Langchen Construction Company 640,000 - - Xiamen Henda Haitian computer network Inc 1,334,188 1,676,036 275,266 Xiamen Huangsheng Hitek Computer Network Co. Ltd. 85,470 752,137 123,527 Revenues from related parties ¥ 6,740,047 ¥ 2,428,173 $ 398,793 * Not a related party after October 31, 2014, (See Note 3). Purchases from related parties – purchases from related parties consisted of the following: For the years ended June 30, 2014 2015 2015 RMB RMB U.S. Dollars Huanghua Heng Da Xiang Tong Manufacture Ltd ¥ - ¥ 862,782 $ 141,700 Xiamen Huangsheng Hitek Computer Network Co. Ltd. - 797,587 130,992 Purchase from related parties ¥ - ¥ 1,660,369 $ 272,692 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, 2015 and the annual lease between the Company and Mr. Chen Guangqiang’s family member started from July 1, 2014. Short-term borrowings from related parties - The Company borrowed ¥5,207,728 and ¥16,916,905 ($2,778,364) from the Founders, their family members and senior officers as of June 30, 2014 and 2015, respectively. For the specific terms and interest rates of the borrowings, see Note 12. F- 25 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements 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. As of June 30, 2014 and June 30, 2015, ¥284,370 and ¥1,558,738 ($256,001) was due to them, respectively. NOTE 21. 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. Summary information regarding consolidated VIEs is as follows: June 30, 2014 June 30, 2015 June 30, 2015 RMB RMB U.S. Dollars ASSETS Current Assets Cash and cash equivalents ¥ 14,021,653 ¥ 7,096,901 $ 1,165,566 Notes receivable - 4,205,530 690,699 Trade accounts receivable, net 51,033,035 56,956,197 9,354,257 Purchase advances 24,600,379 19,016,573 3,123,205 Other assets 34,097,774 28,792,279 4,728,728 Total current assets ¥ 123,752,841 ¥ 116,067,480 $ 19,062,455 Non-current assets 15,758,115 7,088,383 1,164,167 Total Assets ¥ 139,510,956 ¥ 123,155,863 $ 20,226,622 LIABILITIES Trade accounts payable ¥ 11,413,505 ¥ 17,155,793 $ 2,817,598 Taxes payable 7,589,846 1,153,216 189,400 Other liabilities 21,878,699 31,386,734 5,154,831 Total current liabilities 40,882,050 49,695,743 8,161,829 Total Liabilities ¥ 40,882,050 ¥ 49,695,743 $ 8,161,829 The financial performance of VIEs reported in the consolidated statement of operations and comprehensive income for the year ended June 30, 2015 includes revenues of ¥51,512,900 ($8,460,271), operating expenses of ¥34,257,359 ($5,626,291), and net loss of ¥21,882,903 ($3,593,960). F- 26 RECON TECHNOLOGY, LTD NOtes to the consolidated financial statements NOTE 22. EARNINGS PER SHARE The computation of basic and diluted earnings per common share is as follows: For the years ended June 30, 2014 2015 2015 RMB RMB U.S. Dollars BASIC Weighted average number of common shares outstanding used in computing basic earnings (loss) per share 4,303,955 4,876,504 4,876,504 Net income (loss) attributable to common stockholders ¥ 807,188 ¥ (31,456,388 ) $ (5,166,272 ) Earnings (loss) per share attributable to common stockholders ¥ 0.19 ¥ (6.45 ) $ (1.06 ) DILUTED Weighted average number of common shares outstanding used in computing basic earnings (loss) per share 4,303,955 4,876,504 4,876,504 Add: Assumed exercise of stock options, stock awards and warrants 64,207 - - Weighted average number of common shares outstanding 4,368,162 4,876,504 4,876,504 Net income (loss) attributable to common stockholders ¥ 807,188 ¥ (31,456,388 ) $ (5,166,272 ) Earnings (loss) per share attributable to common stockholders ¥ 0.18 ¥ (6.45 ) $ (1.06 ) NOTE 23. SUBSEQUENT EVENTS On May 13, 2015, the Company entered into an Equity Distribution Agreement with Maxim Group LLC to create an at-the-market equity program (the “ATM Offering”) under which it may sell up to $10,000,000 worth of its ordinary shares (the “Shares”) from time to time through Maxim Group LLC, as sales agent. Shares will be issued pursuant to a base prospectus dated August 6, 2013 included in a previously filed and effective Registration Statement on Form S-3. Through September 16, 2015, 313,071 shares are issued under this agreement, among which 15,874 shares were issued after June 30, 2015. On July 11, 2015, the Company’s board approved to reserve 800,000 shares under the 2015 incentive plan. As of September 25, 2015, no option is granted. On July 29, 2015, the Company entered into an acquisition memorandum of understanding with a Qinghai oilfield service company. Negotiations are still on going and no official document is signed as of the date of this report. On August 19, 2015, the Company repaid ¥ 1,800,000 ($295,625) of short-term borrowing with an interest of ¥37,200 ($6,110) . On August 20, 2015, the Company repaid ¥ 1,500,000 ($246,354) of short-term borrowing. On September 22, 2015, the Company entered into an amendment to the Letter Agreement (the “Agreement”) with Maxim dated January 28, 2015, extending the term of the Agreement for an additional six months, or until February 29, 2016. F- 27