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Item 1. Financial Statements

2015-11-13 compared with 2015-05-15 · 369 added, 524 removed, 345 unchanged (72% of the section changed)

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financial statements following the signature page of this report, which are incorporated herein by reference.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations.

The following

discussion and analysis of our company’s financial condition and results of operations should be read in conjunction with

our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report.

This discussion

contains forward-looking statements that involve risks and uncertainties.

Actual results and the timing of selected events could

differ materially from those anticipated in these forward-looking statements as a result of various factors.

We are a company with

limited liability incorporated in 2007 under the laws of the Cayman Islands.

Headquartered in Beijing, we provide products and

services to oil and gas companies and their affiliates through Nanjing Recon Technology Co.

Ltd (“Nanjing Recon”) and

Beijing BHD Petroleum Technology Co, Ltd (“BHD”), our Domestic Companies.

As the Company contractually is controlling

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

Nanjing Recon and

BHD, our business is mainly focused on the upstream sectors of the oil and gas industry.

We derive our revenues from the sales

and provision of (1) hardware products, (2) software products, and (3) services.

Our products and services involve most of the

key procedures of the extraction and production of oil and gas, and include automation systems, equipment, tools and on-site technical

Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

The following discussion

and analysis of our company’s financial condition and results of operations should be read in conjunction with our unaudited

condensed consolidated financial statements and the related notes included elsewhere in this report.

This discussion contains forward-looking

statements that involve risks and uncertainties.

Actual results and the timing of selected events could differ materially from

those anticipated in these forward-looking statements as a result of various factors.

company with limited liability incorporated in 2007 under the laws of the Cayman Islands.

Headquartered in Beijing, we

provide products and services to oil and gas companies and their affiliates through Nanjing Recon Technology Co.

(“Nanjing Recon”) and Beijing BHD Petroleum Technology Co, Ltd (“BHD”), our Domestic Companies.

the Company contractually is controlling the Domestic Companies, we serve as the center of strategic management, financial

control and human resources allocation for the Domestic Companies.

Through Nanjing

Recon and BHD, our business is mainly focused on the upstream sectors of the oil and gas industry.

We derive our revenues

from the sales and provision of (1) hardware products, (2) software products, and (3) services.

Our products and services

involve most of the key procedures of the extraction and production of oil and gas, and include automation systems,

equipment, tools and on-site technical services.

Our Variable Interest

Entities (“VIEs”) provide the oil and gas industry with equipment, production technologies, automation and services.

Nanjing Recon:

Nanjing Recon is a high-tech company that specializes in automation services for

oilfield companies.

It mainly focuses on providing automation solutions to the oil exploration

industry, including monitoring wells, automatic metering to the joint station production,

process monitor, and a variety of oilfield equipment and control systems.

BHD is a high-tech company that specializes in transportation equipment and stimulation

productions and services.

Possessing proprietary patents and substantial industry experience,

BHD has built up stable and strong working relationships with the major oilfields in

It mainly focuses on providing automation solutions to the oil exploration industry, including monitoring wells,

automatic metering to the joint station production, process monitoring, and a variety of oilfield equipment and control systems.

BHD is a high-tech company that specializes in transportation equipment and stimulation productions

and services.

Possessing proprietary patents and substantial industry experience, BHD has built up stable and strong working relationships

with the major oilfields in China.

Recent Developments

During this nine-month period, affected by

decreased oil prices and CAPEX expenditures of our clients, our finished projects were maintained at a lower level compared to

the same period of last year.

Although management expects the volume of finished projects will recover and thus revenue increase

during the balance of fiscal year ending June 30, 2015.

During this period, we achieved some major accomplishment on our self-developed

down-hole equipment and oversea business development.

On January 29, 2015, the shareholders of the Company approved the Second Amended and Restated Memorandum

of Association and Articles of Association which, among other things, include the increase of the authorized ordinary shares from

25,000,000 to 100,000,000.

During this three-month period, we have been

affected by a decrease in oil prices and lowered CAPEX expenditures of our clients, so our business remained at a lower level as

compared to the circumstance with higher oil price .

On September 22, 2015, the Company entered into an amendment to the Letter Agreement (the “Agreement”)

with Maxim Group LLC dated January 28, 2015, pursuant to which Maxim would serve as the Company’s exclusive agent in connection

with a proposed at-the-market offering program by the Company of up to $10,000,000.

The , amendment extends the term of the Agreement

for an additional six months, or until February 29, 2016.

As of November

13, 2015, a total 313,071 shares have been issued under this Agreement.

Products and Services

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turn-down ratio, high security and environmental safety.

Oil and Gas Production Improvement

Oil and Gas Production Improvement Techniques

Packers of Fracturing.

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

The utility model reduces desilting volume and prevents sand-up,

which makes the deblocking processes easier to realize.

The utility model reduces desilting volume and prevents sand-up, which

makes the deblocking processes easier to realize.

The back flushing is sand-stick proof.

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The “resin sand”

goes through the borehole, pilling

goes through the borehole, piling

up and compacting at the borehole and oil vacancy layer.

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sand prevention.

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

wells, water wells and gas wells, with a 100% success rate and a 98% effective rate.

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

water wells and gas wells, with a 100% success rate and a 98% effective rate.

Water Locating and

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Fissure Shaper.

is our proprietary product that is used along with a perforating gun to effectively increase perforation depth by between 46%

and 80%, shape stratum fissures, improve stratum diversion capability and, as a result, improve our ability to locate oilfields

and increase the output of oil wells.

is our proprietary product that is used along with a perforating gun to effectively increase perforation depth by between 46% and

80%, shape stratum fissures, improve stratum diversion capability and, as a result, improve our ability to locate oilfields and

increase the output of oil wells.

Fracture Acidizing.

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

Natural Gas Flow

Computer System.

Natural Gas Flow Computer

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

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Control and Data Acquisition System (“SCADA”).

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

station, and the union station for supervision and data collection.

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

and the union station for supervision and data collection.

EPC Service of Pipeline

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new businesses quickly for the coming years.

Management anticipates opportunities both in new markets and our existing markets.

We also believe that many existing wells and oilfields need to improve or renew their equipment and service to maintain production

and techniques and services like ours will be needed as new oil and gas fields are developed.

In the next three years, we will

Measuring Equipment

and Service .

Management anticipates there will be opportunities in new markets and our existing

We also believe that many existing wells and oilfields need to improve or renew their equipment and service to maintain

production and techniques and services like ours will be needed as new oil and gas fields are developed.

In the next three years,

we plan to focus on:

Equipment and Service .

“Digital oil field”

and the management of oil companies are highly regarded.

We believe our oilfield

SCADA and related technical support services will address the needs of the oil well automation system market, for which we forecast

increasing demand in short term and strong needs in the long term.

technology and the management of oil companies are highly regarded in

the industry.

We believe our oilfield SCADA and related technical support services will address the needs of the oil well

automation system market, for which we believe there will be increasing demand over the short term and strong needs in the

Gathering and

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With more new wells developed, our management anticipates that demand for our furnaces and burners

will grow compared to last year, especially in the Jilin Oilfield and Xinjiiang oilfield.

We believe we cooperated well with Zhongyuan Oilfield in fiscal years 2013 and 2014 and expect to continue growing

revenue from fracturing and related stimulation services in the coming years.

will grow as compared to last year, especially in the Jilin Oilfield and Xinjiiang Oilfield.

We see great demand for fracturing in China and we are focused on the development and upgrade of current

down-hole tools which can be used in this sector.

New business .

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Recently, this market

has developed very rapidly.

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

and our customers have accepted our products and services.

We expect revenue from this business in the coming year.

has developed rapidly.

After a yearlong test project for our customers, we have developed experience with this technology and it

appears our customers have accepted our products and services.

We expect to generate revenue from this business in the coming year.

Growth Strategy

As a smaller China-focused

company, it is our basic strategy to focus on developing our onshore oilfield business, that is, the upstream of the industry.

Due to the remote location and difficult environments of China’s oil and gas fields, foreign competitors rarely enter those

company, it is our basic strategy to focus on developing our onshore oilfield business in the upstream sector of the industry.

Due to the remote location and difficult environments of China’s oil and gas fields, historically foreign competitors have

rarely entered those areas directly.

Large domestic oil

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Thus, the market for technical support and project service is still in its early stage.

Our management insists on providing high quality products and service in oilfields in which we have a geographical advantage.

This will allow us to avoid conflicts of interest with bigger suppliers of drilling equipment and protect our position within

management insists on providing high quality products and service in oilfields in which we have a geographical advantage.

will allow us to avoid conflicts of interest with bigger suppliers of drilling equipment and help us protect our position within

the market segment.

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Despite uncertainty

in the energy industry related to such matters as fluctuating prices and future opportunities for oil companies, our management

believes there are still many factors to support our long-term development:

in the energy sector related to such matters as fluctuating prices and future opportunities for oil companies, our management believes

there are still many factors to support our long-term development:

(1) The opening of the Chinese oil industry

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

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

service segment to allow competition based on efficiency and price.

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(2) As worldwide oil and gas prices decreased,

development transform and strict management haven been recent subject of domestic oil companies.

development transformed and strict management has been a frequent subject of domestic oil companies.

Technology reforms have been

their first choice to achieve their goals about quality and efficiency upgrade.

Furthermore, the construction of digital oilfield

have also been one of oil companies’

long term development strategies.

Even though total capital expenditure is expected

to be reduced, we believe investment in technology reform will maintain at a higher level.

We believe the Company will benefit

from this trend.

Management is focused on these factors and will seek to extend

our business on the industrial chain, such as providing more integrated services and incremental measures and growing our business

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

their first choice to achieve their goals about quality and efficiency upgrades.

Furthermore, the construction of digital oilfields

also is often a long-term development strategy for domestic oil companies.

Even though total capital expenditure is expected to

be reduced, we believe investment in technology reform will remain at a high level.

We believe the Company will benefit from this

Management is focused on these factors and will seek to extend our business on the industrial chain, such

as through providing more integrated services, incremental measures and growing our business from a predominantly up-ground business

to include some down-hole services as well.

Factors Affecting Our Results of Operations

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in any period are subject to general conditions typically affecting the Chinese oilfield service industry including:

and gas price;

amount of spending by our customers, primarily those in the oil and gas industry;

demand from large corporations for improved management and software designed to achieve

such corporate performance;

procurement processes of our customers, especially those in the oil and gas industry;

and related pricing pressure from other oilfield service solution providers, especially

those targeting the Chinese oil and gas industry;

ongoing development of the oilfield service market in China;

and other macroeconomic factors.

Oil and gas price;

the amount of spending by our customers, primarily those in the oil and gas industry;

growing demand from large corporations for improved management and software designed to achieve such corporate performance;

the procurement processes of our customers, especially those in the oil and gas industry;

competition and related pricing pressure from other oilfield service solution providers, especially those targeting the Chinese

oil and gas industry;

the ongoing development of the oilfield service market in China;

inflation and other macroeconomic factors.

Unfavorable changes

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in any period are more directly affected by company-specific factors including:

revenue growth, in terms of the proportion of our business dedicated to large companies

and our ability to successfully develop, introduce and market new solutions and services;

ability to increase our revenues from both old and new customers in the oil and gas industry

ability to effectively manage our operating costs and expenses;

ability to effectively implement any targeted acquisitions and/or strategic alliances

so as to provide efficient access to markets and industries in the oil and gas industry

our revenue growth, in terms of the proportion of our business dedicated to large companies and

our ability to successfully develop, introduce and market new solutions and services;

our ability to increase our revenues from both old and new customers in the oil and gas industry

our ability to effectively manage our operating costs and expenses;

our ability to effectively implement any targeted acquisitions and/or strategic alliances so as

to provide efficient access to markets and industries in the oil and gas industry in China.

Critical Accounting Policies and Estimates

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Significant accounting estimates reflected in our Company’s

consolidated financial statements include revenue recognition, allowance for doubtful accounts, inventory valuation, warrants

liability, fair value of share based payments, and useful lives of property and equipment.

consolidated financial statements include revenue recognition, allowance for doubtful accounts, inventory valuation, warrants liability,

fair value of share based payments, and useful lives of property and equipment.

Consolidation of VIEs

We recognize an entity

as a VIE if it 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.

We consolidate

a VIE as its primary beneficiary when we have 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.

We perform ongoing assessments to determine whether an entity should be considered a VIE and whether

an entity previous identified as a VIE continues to be a VIE and whether we continue to be the primary beneficiary.

We recognize an entity as a VIE if it 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.

We consolidate a VIE as our primary beneficiary

when we have 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.

We perform 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 we continue to be the primary beneficiary.

Assets recognized

as a result of consolidating VIEs do not represent additional assets that could be used to satisfy claims against our general

Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general

as a result of consolidating VIEs do not represent additional assets that could be used to satisfy claims against our general assets.

Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets;

rather, they represent claims against the specific assets of the consolidated VIEs.

Revenue Recognition

We recognize revenue

when the following four criteria are met:

(1) persuasive evidence of an arrangement exists, (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, customer- acceptance-provisions have

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

acceptance provisions have been

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

We recognize revenue when the following four criteria are met:

(1) persuasive evidence of an arrangement

exists, (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, customer acceptance

provisions have lapsed, or the Company has objective evidence that the criteria specified in customers’

acceptance provisions

have been satisfied.

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

have been resolved.

Revenue from hardware

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

this is short term.

is short term.

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

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services to improve software functions and system requirements on separated fixed-price contracts.

Revenue is recognized when

services are completed and acceptance is determined by a completion report signed by the customer.

Revenue is recognized when services

are completed and acceptance is determined by a completion report signed by the customer.

Deferred income represents

unearned amounts billed to customers related to sales contracts.

Cost of Revenues

When the criteria for revenue recognition

have been met, costs incurred are recognized as cost of revenue.

Cost of revenues includes wages, materials, handling charges,

the cost of purchased equipment and pipes, other expenses associated with manufactured products and services provided to customers,

and inventory reserve.

We expect cost of revenues to grow as our revenues grow.

It is possible that we could incur development

costs with little revenue recognition, but based upon our past history, we expect our revenues to grow.

Fair Values of Financial Instruments

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when measuring fair value.

The three levels

of inputs are defined as follows:

The three levels of

inputs are defined as follows:

Level 1 inputs to the valuation

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Black-Scholes Model may increase or decrease the warrants liability from quarter to quarter.

Any change in adjustment would be

charged to operations.

Long-term investment is measured at fair value on a non-recurring basis at March 31, 2015, since the Company

recorded an impairment loss during the year ended June 30, 2014.

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

Any change in the estimate of the

fair value of the warrants liability would be charged to operations.

Trade receivables

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current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.

Increase in our allowance for doubtful accounts would lower our net income and earnings per share.

Increases in our allowance for doubtful accounts would lower our net income and earnings per share.

Deferred Tax Estimates

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and earnings per share would decrease.

Valuation of Long-Lived Assets

We review the carrying

values of our long-lived assets for impairment whenever events or changes in circumstances indicate that they may not be recoverable.

When such an event occurs, we project undiscounted cash flows to be generated from the use of the asset and its eventual disposition

over the remaining life of the asset.

If projections indicate that the carrying value of the long-lived asset will not be recovered,

we reduce the carrying value of the long-lived asset by the estimated excess of the carrying value over the projected discounted

In the past, we have not had to make significant adjustments to the carrying values of our long-lived assets, and we

do not anticipate a need to do so in the future.

However, circumstances could cause us to have to reduce the value of our capitalized

assets more rapidly than we have in the past if our revenues were to significantly decline.

Estimated cash flows from the use of

the long-lived assets are highly uncertain and therefore the estimation of the need to impair these assets is reasonably likely

to change in the future.

Should the economy or acceptance of our assets change in the future, it is likely that our estimate of

the future cash flows from the use of these assets will change by a material amount.

There were no impairments at June 30, 2015

and September 30, 2015.

However, if impairment were required, our net income and earnings per share would decrease accordingly.

Share-Based Compensation

The Company accounts

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

Under the fair value recognition provisions

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

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

has elected to recognize compensation expenses mainly using the Black-Scholes valuation model estimated at the grant date based

on the award’s fair value.

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 mainly utilize the Black-Scholes valuation

model to estimate an award’s fair value.

Recently enacted accounting pronouncements

In January 2015,

the FASB issued ASU 2015-02, "Consolidation (Topic 810) –

Amendments to the Consolidation Analysis".

The ASU concludes

the FASB’s project to rescind the indefinite deferral of the VIE guidance in ASU 2009-17 (FAS 1672) for reporting entities

with variable interests in legal entities that have the attributes of an investment company that meet certain criteria (ASU 2010-103).

The ASU also makes changes to the VOE consolidation model.

The ASU does not change the general order in which the consolidation

models are applied.

A reporting entity that holds an economic interest in, or is otherwise involved with, another legal entity

(has a “variable interest”) should first determine if the VIE model applies, and if so, whether it holds a controlling

financial interest under that model.

If the entity being evaluated for consolidation is not a VIE, then the VOE model should be

applied to determine whether the entity should be consolidated by the reporting entity.

Since consolidation is only assessed for

legal entities, the determination of whether there is a legal entity is important.

It is often clear when the entity is incorporated,

but unincorporated structures can also be legal entities and judgment may be required to make that determination.

The amendments

in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years,

beginning after December 15, 2015.

For all other entities, the amendments in this Update are effective for fiscal years beginning

after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017.

Early adoption is permitted,

including adoption in an interim period.

Management is evaluating the impact, if any, of this ASU on the Company’s consolidated

financial statements.

In August 2015, the FASB issued Accounting

Standards Update No.

2015-14, Revenue from Contracts with Customers (Topic 606):

Deferral of the Effective Date, or ASU 2015-14.

This amendment defers the effective date of the previously issued Accounting Standards Update No.

2014-09, Revenue from Contracts

with Customers (Topic 606), or ASU 2014-09, until the interim and annual reporting periods beginning after December 15, 2017.

application is permitted for interim and annual reporting periods beginning after December 15, 2016.

The Company does not expect

this update will have a material impact on the presentation of the Company's condensed consolidated financial statements.

In August 2015, the FASB issued

Accounting Standards Update (ASU) No.

2015-15, Interest - Imputation of Interest (Subtopic 835-30):

Presentation and

Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs

Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.

This ASU adds SEC paragraphs pursuant to the SEC Staff

Announcement at the June 18, 2015, Emerging Issues Task Force meeting about the presentation and subsequent measurement of

debt issuance costs associated with line-of-credit arrangements.

Given the absence of authoritative guidance within ASU

2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring

and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the

term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit

The Company does not expect this update will have a material impact on the presentation of the Company's

condensed consolidated financial statements.

In September 2015, the FASB issued ASU

2015-16, Business Combinations (Topic 805):

Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the

requirement to retrospectively account for changes to provisional amounts initially recorded in a business acquisition opening

balance sheet.

Prior to the issuance of ASU 2015-16, an acquirer was required to restate prior period financial statements as

of the acquisition date for adjustments to provisional amounts.

This guidance is effective for fiscal years beginning after December

15, 2015, including interim periods within fiscal years.

The Company does not expect this update will have a material impact on

the presentation of the Company's condensed consolidated financial statements.

Results of Operations

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necessarily indicative of the results to be expected for any future period.

Three Months Ended March 31, 2015 Compared to Three Months

Ended March 31, 2014

three months ended March 31, 2015, we encountered a worldwide decline of oil and gas prices and decreased CAPEX expense of

our major clients.

As a result, our projects were slowed and/or cancelled.

Our operations and revenue were affected

For the Three

Three Months Ended September 30, 2015 Compared to Three

Months Ended September 30, 2014

During this three-month period ended September 30, 2015, our operations and revenue continued to be unfavorably

affected by industry conditions and thus remained at a lower level than the period ended September 30, 2014.

For the Three Months Ended

September 30,

Hardware - non-related parties

Hardware - related parties

Software - non-related parties

Software - related parties

Total revenues

total revenues increased by 9.8%, or approximately ¥1.8 million ($0.3 million), from approximately ¥18.2 million for the

three months ended March 31, 2014 to ¥20.0 million ($3.3 million) for the same period of 2015.

The changes in our revenues

for the three-month period was due to the following factors:

(1) Hardware business - non related parties.

During the three-month ended March 31, 2015, a slight decrease of ¥0.5 million ($0.1

million) in hardware revenue was mainly caused by lower sales of furnaces.

(2) Hardware –

related parties.

The majority of our

hardware revenue with related parties of this period was from increased requirement of system upgrading and remote guidance related

(3) Service business - non related parties.

Service revenue

for three months ended March 31, 2014 consisted mainly of minor maintenance services, which were provided upon request by customers.

(4) Software business.

The software sales to non-related

parties increased approximately ¥0.9 million ($0.1 million).

We record revenue as software sales when (1) the customer signs

a separate software contract with us, or (2) the customer accepts VAT invoices for software.

The amount of our revenues categorized

as software sales may fluctuate because certain software may be sold with hardware at times as a whole product and not separately

(5) Software business –

related parties.

The increase of software revenue was mainly due to increased

demand of our clients, which were also software companies.

total revenues for the three months ended September 30, 2015 were approximately ¥3.6 million ($0.6 million), a decrease of

approximately ¥0.71 million or 16.5% from ¥4.3 million for the three months ended September 30, 2014.

This was mainly caused

by a major decrease of sales of our automation software products.

Cost and Margin

For the Three

For the Three Months Ended

September 30,

Total revenues

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the prices of some imported accessories mandated by our customers can also impact our cost.

Inventory reserve for changes in price

level, impairment of inventory, slow moving or other causes will also affect our cost.

Our cost of revenues

increased from approximately ¥13.0 million in the three months ended March 31, 2014 to approximately ¥13.8 million ($2.3

million) for the same period of 2015, an increase of approximately ¥0.8 million ($0.1 million), or 6.0%.

This increase was

mainly caused by higher revenue during the three months ended March 31, 2015 compared to the same period of 2014.

decreased from approximately ¥3.7 million in the three months ended September 30, 2014 to approximately ¥3.2 million ($0.5

million) for the same period in 2015, a decrease of approximately ¥0.5 million ($0.08 million), or 13.5%.

This decrease was

mainly caused by lower revenue during the three months ended September 30, 2015 as compared to the same period of 2014.

As a percentage

of revenues, our cost of revenues decreased from 71.2% in 2014 to 68.8% in 2015, mainly due to some contracts with lower cost during

of revenues, our cost of revenues increased from 85.7% in 2014 to 88.8% in 2015, mainly due to the increased cost of some contracts

during period.

Gross profit .

Our gross profit increased to approximately ¥1.0 million ($0.2 million) for the three months ended March 31, 2015 from approximately

¥5.2 million for the same period in 2014 to approximately ¥6.5 million ($1.0 million) for the same period of 2015.

gross profit as a percentage of revenue increased to 31.2% for the three months ended March 31, 2015 from 28.8% for the same period

This was mainly because we seized some system updating service related contracts with higher margin.

In more detail:

Our gross profit decreased to approximately ¥0.4 million ($0.06 million) for the three months ended September 30, 2015 from

approximately ¥0.6 million for the same period in 2014.

Our gross profit as a percentage of revenue decreased to 11.2% for

the three months ended September 30, 2015 from 14.3% for the same period in 2014.

This was mainly due to the decrease of higher

margin software sales compared with hardware revenues during this period.

Our software and hardware revenues are detailed as below:

For the Three Months Ended

September 30,

Total revenues-hardware and software- non related parties

Cost of revenues -hardware and software- non related parties

The revenue increase from hardware and

software to non-related parties of ¥0.4 million was mainly due to the increase from the furnaces sales and automation business

in the three months ended March 31, 2015.

The gross profit from the hardware and software sales to non-related parties decreased

¥0.6 million ($0.1 million) compared to the same period of last year, because gross margin from burner business were lower

compared to same period last year.

For the Three Months Ended

Total revenues-hardware and software- related parties

Cost of revenues -hardware and software - related parties

Revenue from related parties increased

mainly due to increased sales of automation metering system increased during the three months ended March 31, 2015.

kind of business was minor because there were only some software upgrading and online debugging cost, which were much lower than

general hardware business sales.

Revenue from hardware and software to non-related parties decreased by approximately ¥0.8 million

mainly due to the decrease of automation software products sold in the three months ended September 30, 2015 as compared to the

three months ended September 30, 2014.

The gross profit from hardware and software sales to non-related parties decreased ¥0.3

million ($0.04 million) as compared to the same period during the prior year.

For the Three Months Ended

September 30,

Total revenues-service

Cost of revenues -service

revenue for three months ended March 31, 2014 consisted mainly of minor maintenance services, which were provided upon request

by customers.

revenue for the three months ended September 30, 2014 and 2015 consisted mainly of minor maintenance services, which were provided

upon request by customers.

Operating Expenses

For the Three Months Ended

September 30,

Selling and distribution expenses

3 unchanged sentences

Selling and distribution

Selling and distribution expenses consist primarily of salaries and related expenditures of our sales and marketing

organization, sales commissions, costs of our marketing programs including advertising and trade shows, and an allocation of our

facilities and depreciation expenses.

Selling expenses remained flat at approximately ¥1.1 million for each of the three months

ended March 31, 2014 and 2015.

Selling expenses were 6.0% of total revenues in the three months ended March 31, 2014 and 5.5% of

total revenues in the same period of 2015.

Selling and distribution expenses consist primarily of salaries

and related expenditures of our sales and marketing organization, sales commissions, costs of our marketing programs including

travelling charges, advertising and trade shows, and an allocation of our facilities, depreciation expenses and rental expense,

as well as shipping charges and so on.

Selling expenses increased approximately ¥0.4 million for the three months ended September

30, 2015 as compared to the same period in 2014.

This increase was primarily due to an increase in shipping charges and rental

Selling expenses were 16.3% of total revenues for the three months ended September 30, 2014 and 31.0% of total revenues

in the same period of 2015.

This increase was mainly the result of our expansion into new markets.

and administrative expenses .

General and administrative expenses consist primarily of costs in human resources, facilities

costs, depreciation expenses, professional advisor fees, audit fees, option expenses stock based comprehensive expense and other

miscellaneous expenses incurred in connection with general operations.

General and administrative expenses increased by 5.0% or

¥0.2 million ($32,000), from approximately ¥4.0 million in the three months

ended March 31, 2014 to approximately ¥4.2 million ($0.7 million) in the same period

General and administrative expenses were 21.9% of total revenues in 2014 and 20.9% of total revenues in 2015.

in general and administrative expenses was mainly due to an increase in share-based compensation.

costs, depreciation expenses, professional advisor fees, audit fees, option expenses stock based comprehensive expense, bad debts

allowance and other miscellaneous expenses incurred in connection with general operations.

General and administrative expenses

increased by 66.8% or ¥2.5 million ($0.4

million), from approximately ¥3.7 million during the three months ended September 30, 2014 to approximately ¥6.2 million ($1.0million)

in the same period of 2015.

General and administrative expenses were 86.0% of total revenues in the three months ended September

30, 2014 and 171.9 % of total

revenues in the same period of 2015.

The increase in general and administrative expenses was mainly due to an increase in bad debts

allowance and share-based compensation, offset by a decrease in consulting fees.

Research and development

2 unchanged sentences

of our research and development projects.

Research and development expenses decreased from approximately ¥0.7 million for

the three months ended March 31, 2014 to approximately ¥0.5 million ($0.1 million) for the same period of 2015.

This decrease

was primarily due to less research and development expense on furnaces.

We will continue to strengthen R&D project management

and control spending.

Research and development expenses increased from approximately ¥0.7 million for the

three months ended September 30, 2014 to approximately ¥1.8 million ($0.3 million) for the same period of 2015.

This increase

was primarily due to more research and development expenditures related to on downhole service tools.

For the Three Months Ended

Income (loss) from operations

Interest and other expense

September 30,

Loss from operations

Interest and other income (expense)

Loss before income tax

2 unchanged sentences

Net loss attributable to Recon Technology, Ltd

Income (loss)

from operations .

Income from operations was approximately ¥0.4 million ($0.1 million) for the three months ended March

31, 2015, compared to a loss of ¥0.6 million for the same period of 2014.

This increase in income from operations can be attributed

primarily to the increased revenue and higher gross profit.

Loss from operations .

Loss from operations was approximately ¥8.7 million ($1.4 million) for the three months ended September 30, 2015, as compared

to a loss of ¥4.4 million for the same period of 2014.

This increase in loss from operations was primary due to a decrease

in revenues and increased bad debt allowances and share-based compensation.

Interest and other

Interest and other expense was approximately ¥2.0 million ($0.3 million) for the three months ended March 31,

2015, compared to interest and other expense of ¥1.1 million for the same period of 2014.

The ¥0.9 million ($0.1 million)

increase in interest and other expense was primarily due to a loss from warrant redemptions and an increase in interest expense .

income (expense).

Interest and other expense was approximately ¥0.2 million ($0.03 million) for the three months ended

September 30, 2015, as compared to interest and other income of ¥0.3 million for the same period of 2014.

The ¥0.5 million

($0.08 million) decrease in interest and other income was primarily due to the decreased subsidy income and the gain as a result

of a change in the fair value of warrants liability.

Provision (benefit)

for income tax .

Provision for income tax for the three months ended March 31, 2014 was approximately ¥0.2 million.

for income tax was ¥0.2 million ($30,000) for the three months ended March 31, 2015.

This decrease in provision for income

tax was mainly due to the pre-consolidation income from operations in subsidiaries in China on which we must pay income tax, decreased

for the three months ended March 31, 2015.

Provision for income tax for the three months ended

September 30, 2014 was approximately ¥0.03 million.

Benefit for income tax was ¥0.02 million ($2.6 thousand) for the three

months ended September 30, 2015.

This increase in benefit for income tax was mainly due to the increased deferred tax assets as

a result of an increase in bad debts allowances during the three months ended September 30, 2015.

a result of the factors described above, net loss was approximately ¥8.8 million ($1.4 million) for the three months ended

March 31, 2015, a decrease of approximately ¥0.4 million ($0.1 million) from net loss of ¥1.8 million for the same period

September 30, 2015, or an increase of approximately ¥4.7 million ($0.7 million) from net loss of ¥4.2 million for the same

period of 2014.

Net loss attributable

1 unchanged sentence

As a result of the factors described above, net loss attributable to ordinary shareholders was approximately

¥1.5 million ($0.2 million) for the three months ended March 31, 2015, a decrease of approximately ¥0.4 million ($0.1

¥8.8 million ($1.4 million) for the three months ended September 30, 2015, or an increase of approximately ¥4.7 million

($0.7 million) from net loss attributable to ordinary shareholders of approximately ¥4.2 million for same period of 2014.

Nine Months Ended March 31, 2015 Compared to Nine Months

Ended March 31, 2014

For the Nine Months Ended

Hardware - non-related parties

(27,651,775 )

Hardware - related parties

Software - non-related parties

Software - related parties

Total revenues

(30,359,644 )

total revenues decreased by 39.9%, or approximately ¥30.4 million ($5.0 million), from approximately ¥76.0 million for

the nine months ended March 31, 2014 to ¥45.7 million ($7.5 million) for the same period of 2015.

The change in our revenues

for the nine-month period was due to the following factors:

1) Hardware business - non related parties.

During the nine-months

ended March 31, 2015, the decrease in hardware revenue was mainly caused by lower sales

of furnaces and automation system.

2) Hardware –

related parties.

After we achieved

business entrance certification in the name of Recon and could cooperate with oilfield customers directly two years ago, we no

longer required the services of a related party with such certification and, accordingly, revenue from related-parties would decrease.

As long as the local agency still purchases automation products from Recon through our related parties, we will continue to recognize

revenue from related parties, but we anticipate that such hardware and software related party revenue is likely to fluctuate from

year to year.

Major part of related party hardware revenue of this period was from increased requirement of system upgrading and

remote guidance related service from some other related clients other than those of same period last year.

3) Service business - non related parties.

Service revenue for nine

months ended March 31, 2015 consisted mainly of minor maintenance services, which were

provided upon request by customers.

4) Software business.

The software sales to non-related parties decreased

approximately ¥2.6 million ($0.4 million), mainly caused by reclassification of some

company sales to non-related.

5) Software business –

During the nine months ended March 31, 2014 and 2015, we recorded software revenue

of ¥1.4 million and ¥1.1 million ($0.2 million) to a related party, respectively.

We record revenue as software sales if (1) the customer signs a separate software contract

with us, or (2) the customer accepts VAT invoices for software.

The amount of our revenues

categorized as software sales may fluctuate because certain software may be sold with

hardware at times as a whole product and not separately priced.

Cost and Margin

For the Nine Months Ended

Total revenues

(30,359,644 )

Cost of revenues

(19,141,260 )

(11,218,384 )

Cost of revenues .

Our cost of revenues includes raw materials and costs related to design, implementation, delivery and maintenance of products

and services.

All materials and components we need can be purchased or manufactured by subcontracts.

Usually the prices of electronic

components do not fluctuate dramatically due to market competition and will not significantly affect our cost of revenues.

specialized equipment and incentive chemical products may be directly influenced by metal and oil price fluctuations.

Additionally,

the prices of some imported accessories mandated by our customers can also impact our cost.

Our cost of revenues

decreased from approximately ¥49.0 million for the nine months ended March 31, 2014 to approximately ¥29.8 million ($4.9

million) for the same period of 2015, a decrease of approximately ¥19.1 million ($3.1 million), or 39.1%.

This decrease was

mainly caused by lower revenue during the nine months ended March 31, 2015 compared to the same period of 2014.

As a percentage

of revenues, our cost of revenues changed slightly from 64.4% in 2014 to 65.3% in 2015.

Our gross profit decreased to approximately ¥15.8 million ($2.6 million) for the nine months ended March 31,

2015 from approximately ¥27.1 million for the same period in 2014.

Our gross profit as a percentage of revenue decreased

to 34.7% for the nine months ended March 31, 2015 from 35.6% for the same period in 2014.

This was mainly due to decreased

hardware revenue during the nine months ended March 31, 2015 as compared to the same period last year and also had higher

software revenue with higher gross margins during the nine months ended March 31, 2014.

In more detail:

For the Nine Months Ended

Total revenues-hardware and software- non related parties

(30,217,670 )

Cost of revenues -hardware and software- non related parties

(18,665,175 )

(11,552,495 )

The revenue from hardware and software

to non-related parties decreased by approximately ¥30.2 million was mainly due to the decrease from the furnaces sales and

automation business in the nine months ended March 31, 2015.

The gross profit from the hardware and software sales to non-related

parties decreased by approximately ¥11.6 million ($1.9 million) compared to the same period of last year.

For the Nine Months Ended

Total revenues-hardware and software - related parties

Cost of revenues -hardware and software - related parties

Cost of revenue from hardware and software-related

parties decreased as revenue increased.

Gross profit increased mainly due to most of the revenues to related parties were automation

upgrad and maintaining service sales with higher gross profit.

For the Nine Months Ended

Total revenues-service

Cost of revenues -service

revenue for nine months ended March 31, 2014 and 2015 consisted mainly of minor maintenance services, which were provided upon

request by customers.

Operating Expenses

For the Nine Months Ended

Selling and distribution expenses

General and administrative expenses

Research and development expenses

Operating expenses

Selling and distribution

Selling and distribution expenses consist primarily of salaries and related expenditures of our sales and marketing

organization, sales commissions, costs of our marketing programs including advertising and trade shows, and an allocation of our

facilities and depreciation expenses.

Selling expenses decreased by 34.8%, from approximately ¥4.7 million for the nine months

ended March 31, 2014 to approximately ¥3.1 million ($0.5 million) for the same period of 2015.

This decrease was primarily

from decreased shipping fees, service fees and traveling expenses.

Selling expenses were 6.2% of total revenues in the nine months

ended March 31, 2014 and 6.7% of total revenues in the same period of 2015.

and administrative expenses .

General and administrative expenses consist primarily of costs in human resources,

facilities costs, depreciation expenses, professional advisor fees, audit fees, option expenses stock based comprehensive

expense and other miscellaneous expenses incurred in connection with general operations.

General and administrative expenses

increased by 14.7%, or approximately ¥1.5 million ($0.3 million), from

approximately ¥10.5 million in the nine months ended March 31, 2014 to approximately ¥12.0

million ($2.0 million) in the same period of 2015.

General and administrative

expenses were 13.7% of total revenues in 2014 and 26.3% of total revenues in 2015.

The increase in general and administrative

expenses was mainly due to an increase in consulting fees, salaries, and share-based compensation.

Research and development

(“R&D”) expenses .

Research and development expenses consist primarily of salaries and related expenditures

of our research and development projects.

Research and development expenses decreased by 40.0%, from approximately ¥4.1 million

for the nine months ended March 31, 2014 to approximately ¥2.4 million ($0.4 million) for the same period of 2015.

This decrease

was primarily due to lower research activities on our furnaces products.

We enhanced our cost/expense control this year and may

continue to be strict on our R&D project selection and implementation.

For the Nine Months Ended

Income (loss) from operations

Interest and other income (expense)

Income before income taxes

Provision for income taxes

Net income attributable to non-controlling interest

Net income (loss) attributable to Recon Technology, Ltd

Income (loss)

from operations .

Loss from operations was approximately ¥1.7 million ($0.3 million) for the nine months ended March 31,

2015, compared to income of ¥7.8 million for the same period of 2014.

This decrease in income from operations can be attributed

primarily to the decreased revenue and increases in general and administrative expenses.

other income (expense).

Interest and other income was approximately ¥2.3 million ($0.4 million) for the nine months

ended March 31, 2015, compared to interest and other expense of ¥1.2 million for the same period of 2014.

million ($0.6 million) increase in interest and other income was primarily due to changes in the fair value of our warrant

liability and a decrease in loss from an investment, offset by a decrease in subsidy income and loss on warrants

Provision for

Provision for income tax for the nine months ended March 31, 2014 was approximately ¥1.6 million and ¥0.5

million ($0.1 million) for the nine months ended March 31, 2015.

This decrease of provision for income tax was mainly due to the

pre-consolidation income from operations in subsidiaries in China on which we must pay income tax, decreased for the nine months

ended March 31, 2015.

As a result of the factors described above, net income was approximately ¥0.2 million ($30,000) for the nine months ended

March 31, 2015, a decrease of approximately ¥4.8 million ($0.8 million) from net income of approximately ¥5.0 million

for the same period of 2014.

Net income (loss)

attributable to Recon Technology, Ltd .

As a result of the factors described above, net loss attributable to ordinary shareholders

was approximately ¥0.4 million ($0.1 million) for the nine months ended March 31, 2015, a decrease of approximately ¥4.3

million ($0.7 million) from net income attributable to ordinary shareholders of approximately ¥3.9 million for same period

Adjusted EBITDA

Adjusted EBITDA.

define adjusted EBITDA as net income (loss) adjusted for income tax expense, interest expense, loss from investment, non-cash

stock compensation expense, depreciation and amortization.

We think it is useful to an equity investor in evaluating our operating

performance because:

(1) it is widely used by investors in our industry to measure a company’s operating performance without

regard to items such as interest expense, depreciation and amortization, which can vary substantially from company to company

depending upon accounting methods and book value of assets, capital structure and the method by which the assets were acquired;

and (2) it helps investors more meaningfully evaluate and compare the results of our operations from period to period by removing

the impact of our capital structure and asset base from our operating results.

For the Nine Months Ended

Reconciliation of Adjusted EBITDA to Net Income

Provision for income taxes

define adjusted EBITDA as net loss adjusted for income tax expense (benefit), interest expense, change in fair value of warrants

liability, non-cash stock compensation expense, depreciation and amortization.

We think it is useful to an equity investor in

evaluating our operating performance because:

(1) it is widely used by investors in our industry to measure a company’s

operating performance without regard to items such as interest expense, depreciation and amortization, which can vary substantially

from company to company depending upon accounting methods and book value of assets, capital structure and the method by which

the assets were acquired;

and (2) it helps investors more meaningfully evaluate and compare the results of our operations from

period to period by removing the impact of our capital structure and asset base from our operating results.

For the Three Months Ended

September 30,

Reconciliation of Adjusted EBITDA to Net Loss

$ (1,392,648 )

Provision for income taxes (benefit)

Interest expense and foreign currency adjustment

Change in fair value of warrants liability

Loss from investment

Restricted shares issued for consulting services

Loss from warrant redemptions

Stock compensation expense

1 unchanged sentence

Adjusted EBITDA

Adjusted EBITDA decreased

by approximately ¥8.8 million ($1.4 million) to income of approximately ¥2.9 million ($0.5 million) for the nine months

ended March 31, 2015 compared to income of approximately ¥11.7 million income for the same period in 2014.

This was mainly

due to decreased revenue, non-operation income related to warrant and warrant redemptions and increased share-based expenses.

Adjusted Net Income and Adjusted Earnings (Loss) Per Share

For the Nine Months Ended

Reconciliation of Net Income (loss) attributable to Recon Technology, Ltd to Adjusted Net Income (loss) attributable to Recon Technology, Ltd

Net income (loss) attributable to Recon Technology, Ltd

$ (1,101,311 )

Adjusted EBITDA decreased by approximately ¥

million ($0.7 million) representing a loss of approximately ¥7.0 million ($1.1 million) for the three months ended September

30, 2015 as compared to an approximately ¥2.3 million loss for the same period in 2014.

This was mainly due to decreased revenues

and increased research and development expenses as well as bad debt allowances.

Adjusted Net Income and Adjusted Loss Per Share

For the Three Months Ended

September 30,

Reconciliation of Net Loss attributable to Recon Technology, Ltd to Adjusted

Net Loss attributable to Recon Technology, Ltd

Net loss attributable to Recon Technology, Ltd

$ (1,392,648 )

Noncash items (A) :

Change in fair value of warrants liability

Loss from investment

Restricted shares issued for consulting services

Loss from warrants redemption

Stock compensation expense

Adjusted net income attributable to Recon Technology, Ltd

Adjusted net loss attributable to Recon Technology, Ltd

$ (1,183,477 )

Reconciliation of U.S.

GAAP Earnings (Loss) Per Share to Non U.S.

GAAP Adjusted Earnings Per Share

Adjusted Earnings Per Share

GAAP earnings (loss) per share

2 unchanged sentences

Weighted - average shares -diluted

(A) Noncash items are certain non-cash expenses that are included

(A) Noncash items are certain non-cash expenses

that are included in our U.S.

GAAP reported results.

There was no income tax benefit associated with the special items.

The non-GAAP financial measures

are provided to enhance investors' overall understanding of Recon's current financial performance.

The non-GAAP financial measures are provided to enhance investors' overall

understanding of Recon's current financial performance.

Liquidity and Capital Resources

2 unchanged sentences

maturities of no more than six months.

As of March 31, 2015, we had cash and cash equivalents in the amount of approximately ¥4.7

million ($0.8 million).

As of June 30, 2014, we had cash and cash equivalents in the amount of approximately ¥18.1 million

($2.9 million).

As of September 30, 2015, we had cash and cash equivalents in the amount of approximately

¥3.9 million ($0.6 million).

As of June 30, 2015, we had cash and cash equivalents in the amount of approximately ¥12.3

Indebtedness .

As of March 31, 2015, except for approximately ¥10.2 million ($1.7 million) of short-term borrowings from related parties,

As of September 30, 2015, except for approximately ¥9.4 million ($1.5 million) of short-term borrowings from related parties,

and ¥7.0 million ($1.1 million) in commercial loans from local banks, we did not have any finance leases or purchase commitments,

9 unchanged sentences

Under Chinese law, our Domestic Companies are required to set aside a portion (at least 10%)

10%) of their after-tax net income (after discharging all cumulated loss), if any, each year for compulsory statutory reserve

until the amount of the reserve reaches 50% of our Domestic Companies’

of their after-tax net income (after discharging all cumulated loss), if any, each year for compulsory statutory reserve until

the amount of the reserve reaches 50% of our Domestic Companies’

registered capital.

These funds may be distributed

to shareholders at the time of each Domestic Company’s wind up.

These funds may be distributed to shareholders

at the time of each Domestic Company’s wind up.

Off-Balance Sheet

Arrangements .

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations

of any third parties.

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of

any third parties.

In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified

6 unchanged sentences

market risk or credit support to us or engages in leasing, hedging or research and development services with us.

To date we have financed our operations primarily through cash flows from operations, bank loans and

short-term borrowings and loans from related parties including our Chief Technology Officer.

As of March 31, 2015, we had total

assets of approximately ¥161.0 million ($26.4 million), which includes cash of approximately ¥4.7 million ($0.8

million), net accounts receivable from third parties of approximately ¥56.4 million ($9.2 million), and net accounts

receivable from related parties of approximately ¥4.9 million ($0.8 million).

Working capital amounted to approximately

¥90.0 million ($14.7 million), and shareholders’

equity amounted to approximately ¥100.5 million ($16.4

Capital Resources .

To date we have financed our operations primarily through cash flows from operations, bank loans and short-term borrowings and

loans from related parties.

As of September 30, 2015, we had total assets of approximately ¥117.7 million ($18.5 million),

which includes cash of approximately ¥3.9 million ($0.6 million), net accounts receivable due from third parties of approximately

¥51.5 million ($8.1 million), Working capital amounted to approximately ¥66.5 million ($10.5 million), and shareholders’

equity amounted to approximately ¥66.6 million ($10.5 million).

Cash from Operating

Net cash used in operating activities was approximately ¥16.2 million ($2.7 million) for the nine months ended

March 31, 2015.

This was an increase of approximately ¥0.9 million ($0.2 million) compared to net cash used in operating activities

of approximately ¥15.3 million for the nine months ended March 31, 2014.

Net cash used in operating activities was approximately ¥1.0 million ($0.15 million) for the three months ended

September 30, 2015.

This was an decrease of approximately ¥9.0 million ($1.4 million) compared to net cash used in operating

activities of approximately ¥10.0 million for the three months ended September 30, 2014.

In more detail:

Net cash used in operating

activities totaled approximately ¥16.2 million for the nine months ended March 31, 2015, and was primarily attributable to

net income adjusted to reconcile to net cash used in operating activities of ¥0.2 million, which primarily included ¥2.0

million of share based compensation, an adjustment for a ¥4.1 million change in fair value of a warrant liability and a ¥1.9

million loss from warrant redemptions.

Net cash used in changes in operating assets and liabilities resulted in a net cash used

of ¥17.9 million, which was mainly due to a ¥10.4 million change in accounts receivable, a ¥4.8 million change in inventory,

a ¥5.6 million change in other receivable, a ¥1.6 million change in prepaid expense, and a ¥1.6 million change in deferred

income, offset by a ¥1.8 million change in purchase advance and a ¥6.0 million change in trade payable and other payable.

Our net cash used in operating activities were primarily for purchases of inventories for projects in the upcoming quarters.

The decrease in net

cash used in operating activities for the three months ended September 30, 2015, is primarily attributable to the decrease in net

income and other payables to related parties offset by a ¥4.6 million ($0.7 million) change in accounts receivable due from

related parties, ¥1.7 million ($0.3 million) change in accounts receivable due from third parties, and ¥1.5 million ($0.2

million) change in taxes payable.

The reason of the decrease in accounts receivable is due to more timely payment from our customers.

Cash from Investing

Net cash used in investing activities was approximately ¥0.2 million ($26,000) for the nine months ended March

31, 2015, which remained flat as compared to the same period of 2014.

A ¥0.3 million increase in the purchase of property and

equipment was offset by the proceeds from disposal of equipment.

Net cash used in investing activities was approximately ¥0.5 million ($0.1million) for the three months ended

September 30, 2015, representing an increase of approximately ¥0.4 million ($0.1 million) as compared to the same period in

This was due to an increase in the Company’s purchase of additional property and equipment.

Cash from Financing

Net cash provided by financing activities amounted to ¥3.0 million ($0.5 million) for the nine months ended

March 31, 2015, as compared to cash flows provided by financing activities of approximately ¥11.9 million for the same period

During the nine-month period ended March 31, 2015, we repaid ¥2.0 million ($0.3 million) in short term bank loans

and received ¥5.0 million ($0.9 million) of net proceeds from a related party.

Net cash used in financing activities amounted to ¥7.1 million ($1.1 million) for the three months ended September

30, 2015, as compared to cash flows used in financing activities of 2.0 million for the same period in 2014.

During the three-month

period ended September 30, 2015, we repaid ¥9.1 million ($1.4 million) in short-term borrowings to two related parties and

received ¥1.8 million ($0.3 million) in loans from one related party.

Working Capital .

Total working capital as of March 31, 2015 amounted to approximately ¥90.0 million ($14.7 million), compared to approximately

Total working capital as of September 30, 2015 amounted to approximately ¥66.5 million ($10.5 million), compared to approximately

¥72.4 million as of June 30, 2015.

Total current assets as of March 31, 2015 amounted to approximately ¥141.8 million ($23.2

million), an increase of approximately ¥8.4 million ($1.5 million) compared to approximately ¥133.4 million at June 30,

The increase in total current assets at March 31, 2015 compared to June 30, 2014 was mainly due to an increase in trade accounts

receivable, inventory and other receivables.

Total current assets as of September 30, 2015 amounted to approximately ¥109.4 million

($17.2 million), a decrease of approximately ¥15.1 million ($2.4 million) compared to approximately ¥124.5 million at June

The decrease in total current assets at September 30, 2015 compared to June 30, 2015 was mainly due to a decrease in

cash and cash equivalents and related party trade accounts.

Current liabilities

amounted to approximately ¥51.7 million ($8.5 million) at March 31, 2015, in comparison to approximately ¥50.3 million

amounted to approximately ¥42.9 million ($6.8 million) at September 30, 2015, in comparison to approximately ¥52.1 million

at June 30, 2015.

This decrease of liabilities was attributable mainly to a decrease in warrant liability and short-term bank loans,

offset by an increase in trade accounts payable and short-term borrowings –

related party.

This decrease of liabilities was attributable mainly to a decrease in short-term borrowings - related parties

and other payable-related parties, offset by an increase in taxes payable.

Capital Needs.

Our management believes that our current operations can satisfy our daily working capital needs.

We may also raise

capital through public offering or private placement to finance further expansion of our business and to consummate any

possible merge and acquisition, if necessary.

Quantitative and Qualitative Disclosures about Market Risk.

We may also raise capital through

public offering or private placement to finance the development of our business and to consummate a merger and acquisition, if

Quantitative and Qualitative Disclosures about Market

Not applicable.

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

What changed 10-Q

Item 1. Financial Statements