Recon Technology, Ltd 10-Q

Item 5. Other Information. None. Item 6. Exhibits. The following exhibits are filed herewith: Exhibit Number Document 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) 19 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) 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) 20 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) 10.30 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Nanjing Recon Technology Co., Ltd. (1) 10.33 Employment Agreement between Recon Technology (Jining) Co., Ltd. and Mr. Yin Shenping (1) 10.34 Employment Agreement between Recon Technology (Jining) Co., Ltd. and Mr. Chen Guangqiang (1) 10.35 Employment Agreement between Recon Technology (Jining) Co., Ltd. and Mr. Li Hongqi (1) 10.36 Operating Agreement among Recon Technology (Jining) Co. Ltd., Nanjing Recon Technology Co., Ltd. and Mr. Yin Shenping, Mr. Chen Guangqiang and Mr. Li Hongqi (1) 10.37 Operating Agreement among Recon Technology (Jining) Co. Ltd., Jining ENI Energy Technology Co., Ltd., and Mr. Yin Shenping, Mr. Chen Guangqiang and Mr. Li Hongqi (1) 10.38 Operating Agreement among Recon Technology (Jining) Co. Ltd., Beijing BHD and Mr. Yin Shenping, Mr. Chen Guangqiang and Mr. Li Hongqi (1) 21.1 Subsidiaries of the Registrant (2) 99.1 Stock Option Plan (1) 99.2 Code of Business Conduct and Ethics (1) 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) 21 101.INS XBRL Instance Document (3) 101.SCH XBRL Taxonomy Extension Schema Document (3) 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (3) 101.LAB XBRL Taxonomy Extension Label Linkbase Document (3) 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (3) 101.DEF XBRL Taxonomy Extension Definition Linkbase Document (3) (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 Quarterly Report on Form 10-Q/A, filed on January 31, 2012. (3) Filed herewith. 22 SIGNATURES In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RECON TECHNOLOGY, LTD November 13, 2015 By: /s/ Liu Jia Liu Jia Chief Financial Officer (Principal Financial and Accounting Officer) 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 November 13, 2015 By: /s/ Yin Shen ping Yin Shen ping Chief Executive Officer RECON TECHNOLOGY, LTD PAGE INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Unaudited Condensed Consolidated Balance Sheets as of June 30, 2015 and September 30, 2015 F-2 Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2014 and 2015 F-3 Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2014 and 2015 F-4 Notes to Unaudited Condensed Consolidated Financial Statements F-5 F- 1 RECON TECHNOLOGY, LTD condensed CONSOLIDATED BALANCE SHEETS (UNAUDITED) As of Jun 30, As of September 30, As of September 30, 2015 2015 2015 RMB RMB U.S. Dollars ASSETS Current assets Cash and cash equivalents ¥ 12,344,929 ¥ 3,877,272 $ 610,229 Notes receivable 4,205,530 3,227,580 507,976 Trade accounts receivable, net 52,186,397 51,501,307 8,105,591 Trade accounts receivable- related parties, net 4,769,800 - - Inventories, net 10,845,007 11,876,883 1,869,257 Other receivables, net 18,064,568 19,137,645 3,012,000 Other receivables- related parties 91,021 - - Purchase advances, net 18,622,538 17,410,721 2,740,206 Purchase advances- related parties 394,034 - - Prepaid expenses 826,314 407,220 64,091 Prepaid expenses - related parties 420,000 210,000 33,051 Deferred tax asset 1,742,098 1,758,555 276,771 Total current assets 124,512,236 109,407,183 17,219,172 Property and equipment, net 2,666,953 2,877,450 452,871 Long-term trade accounts receivable, net 4,440,665 3,407,973 536,368 Long-term other receivable 2,729,033 2,056,776 323,708 Total Assets ¥ 134,348,887 ¥ 117,749,382 $ 18,532,119 LIABILITIES AND EQUITY Current liabilities Short-term bank loans ¥ 7,000,000 ¥ 7,000,000 $ 1,101,703 Trade accounts payable 13,627,088 13,409,825 2,110,520 Trade accounts payable- related parties 3,528,705 3,273,879 515,263 Other payables 2,103,057 1,794,205 282,383 Other payable- related parties 4,309,702 1,844,628 290,319 Deferred revenue 2,285,529 2,452,511 385,991 Advances from customers 529,700 370,984 58,388 Accrued payroll and employees' welfare 246,789 330,057 51,946 Accrued expenses 199,166 202,852 31,926 Taxes payable 1,153,216 2,660,650 418,749 Short-term borrowings - related parties 16,916,905 9,405,714 1,480,329 Deferred tax liability 180,186 180,186 28,359 Total current liabilities 52,080,043 42,925,491 6,755,876 Equity Common stock, ($ 0.0185 U.S. dollar par value, 100,000,000 shares authorized; 5,427,946 and 5,438,763 shares issued and outstanding as of June 30, 2015 and September 30, 2015, respectively) 697,217 699,013 110,015 Additional paid-in capital 92,541,687 93,802,706 14,763,245 Appropriated retained earnings 4,148,929 4,148,929 652,984 Unappropriated retained earnings (23,024,935 ) (31,873,541 ) (5,016,453 ) Accumulated other comprehensive loss (317,551 ) (193,333 ) (30,428 ) Total shareholders’ equity 74,045,347 66,583,774 10,479,363 Non-controlling interest 8,223,497 8,240,011 1,296,880 Total equity 82,268,844 74,823,389 11,776,243 Total Liabilities and Equity ¥ 134,348,887 ¥ 117,749,382 $ 18,532,119 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements F- 2 RECON TECHNOLOGY, LTD condensed Consolidated Statements of OPERATIONS and Comprehensive LOSS (UNAUDITED) For the three months ended September 30, 2014 2015 2015 RMB RMB USD Revenues Hardware and software ¥ 4,245,509 ¥ 3,480,752 $ 547,822 Service 58,491 113,208 17,817 Total revenues 4,304,000 3,593,960 565,639 Cost of revenues Hardware and software ¥ 3,688,686 ¥ 3,315,627 $ 521,834 Provision for slow moving inventories - (123,332 ) (19,411 ) Total cost of revenues 3,688,686 3,192,295 502,423 Gross profit 615,314 401,665 63,216 Selling and distribution expenses 700,790 1,112,670 175,119 General and administrative expenses 3,703,291 6,177,145 972,197 Research and development expenses 656,729 1,792,997 282,193 Operating expenses 5,060,810 9,082,812 1,429,509 Loss from operations (4,445,496 ) (8,681,147 ) (1,366,293 ) Other income (expenses) Subsidy income 214,703 49,000 7,712 Interest income 83,032 55,510 8,737 Interest expense (241,844 ) (277,824 ) (43,726 ) Change in fair value of warrants liability 274,399 - - Loss from foreign currency exchange (2,074 ) (938 ) (148 ) Other expense (14,020 ) (9,664 ) (1,521 ) Other income(expense) 314,196 (183,916 ) (28,946 ) Loss before income tax (4,131,300 ) (8,865,063 ) (1,395,239 ) Provision (benefit) for income tax 30,245 (16,457 ) (2,590 ) Net Loss (4,161,545 ) (8,848,606 ) (1,392,649 ) Less: Net loss attributable to non-controlling interest - - - Net loss attributable to Recon Technology, Ltd ¥ (4,161,545 ) ¥ (8,848,606 ) $ (1,392,649 ) Comprehensive loss Net loss (4,161,545 ) (8,848,606 ) (1,392,649 ) Foreign currency translation adjustment (802 ) 124,218 19,550 Comprehensive loss (4,162,347 ) (8,724,388 ) (1,373,099 ) Less: Comprehensive loss attributable to non-controlling interest (41 ) 16,620 2,616 Comprehensive loss attributable to Recon Technology, Ltd ¥ (4,162,306 ) ¥ (8,741,008 ) $ (1,375,715 ) Loss per common share - basic ¥ (0.87 ) ¥ (1.63 ) $ (0.26 ) Weighted - average shares -basic 4,757,112 5,438,763 5,438,763 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements F- 3 RECON TECHNOLOGY, LTD condensed Consolidated Statements of Cash Flows (UNAUDITED) For the three months ended September 2014 2015 2015 RMB RMB U.S. Dollars Cash flows from operating activities: Net loss ¥ (4,161,545 ) ¥ (8,848,606 ) $ (1,392,649 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 121,347 259,768 40,884 Provision for (recovery of) doubtful accounts (68,361 ) 2,109,926 332,073 Provision for slow moving inventories - (123,332 ) (19,411 ) Share based compensation 600,578 1,126,552 177,304 Deferred tax benefit (provision) (2,034 ) (16,458 ) (2,590 ) Change in fair value of warrants liability (274,399 ) - - Restricted shares issued for services 1,171,331 202,475 31,867 Changes in operating assets and liabilities: Notes receivable - 977,950 153,916 Trade accounts receivable 5,087,718 1,685,745 265,313 Trade accounts receivable-related parties 508,979 4,569,800 719,224 Inventories (2,879,769 ) (908,544 ) (142,992 ) Other receivable, net (3,818,122 ) (419,821 ) (66,075 ) Other receivables related parties, net 1,414,433 91,021 14,325 Purchase advance, net (1,752,557 ) (847,071 ) (133,317 ) Purchase advance-related party, net (1,105,966 ) 394,034 62,015 Prepaid expense (1,754,029 ) 216,619 34,093 Prepaid expense - related party, net 230,000 210,000 33,051 Trade accounts payable (1,566,988 ) (217,263 ) (34,194 ) Trade accounts payable-related parties 389,143 (254,826 ) (40,106 ) Other payables (723,368 ) (308,852 ) (48,609 ) Other payables-related parties 135,312 (2,465,074 ) (387,968 ) Deferred income (283,306 ) 166,982 26,281 Advances from customers (519,350 ) (158,716 ) (24,980 ) Accrued payroll and employees' welfare 28,673 83,268 13,105 Accrued expenses 14,055 (7,505 ) (1,181 ) Taxes payable (759,764 ) 1,507,434 237,249 Net cash used in operating activities (9,967,989 ) (974,494 ) (153,372 ) Cash flows from investing activities: Purchase of property and equipment (96,008 ) (470,265 ) (74,013 ) Net cash used in investing activities (96,008 ) (470,265 ) (74,013 ) Cash flows from financing activities: Repayments of short-term bank loans (2,000,000 ) - - Proceeds from short-term borrowings-related parties - 1,800,000 283,295 Repayment of short-term borrowings-related parties - (9,100,000 ) (1,432,214 ) Proceeds from sale of common stock, net of issuance costs - 165,823 26,098 Net cash used in financing activities (2,000,000 ) (7,134,177 ) (1,122,821 ) Effect of exchange rate fluctuation on cash and cash equivalents (478 ) 111,279 17,514 Net decrease in cash and cash equivalents (12,064,475 ) (8,467,657 ) (1,332,692 ) Cash and cash equivalents at beginning of period 18,094,586 12,344,929 1,942,921 Cash and cash equivalents at end of period ¥ 6,030,111 ¥ 3,877,272 $ 610,229 Supplemental cash flow information Cash paid during the period for interest ¥ 230,035 ¥ 277,824 $ 43,726 Cash paid during the period for taxes ¥ 32,280 ¥ 72,217 $ 11,366 Non-cash investing and financing activities Cancelation of prior issuance of 40,625 shares of common stock for professional services ¥ 1,002,721 ¥ - $ - Non-cash transaction for AR and loan payable offset 200,000 31,477 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements F- 4 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED 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- 5 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED 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 an 80% ownership interest in Nanjing Recon. From December 16, 2010 to June 30, 2012, Messers. Yin Shenping and Chen Guangqiang held an 80% ownership interest in 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 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 unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information pursuant to the rules of the SEC and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, 2015. The results of operations for the interim periods presented may not be indicative of the operating results to be expected for the Company’s fiscal year ending June 30, 2016.. Principles of Consolidation – The unaudited condensed 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. F- 6 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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. 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 unaudited condensed consolidated financial statements have been expressed in Chinese Yuan. The unaudited condensed consolidated financial statements as of and for the three months ended September 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 ¥6.3538 = US$1.00, the approximate exchange rate prevailing on September 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 US GAAP accounting standards regarding fair value of financial instruments and related fair value measurements define fair value, establish a three-level valuation hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs are defined 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 measured at fair value which was determined to be zero during the three months ended September 30, 2015 using level 1 inputs. (See Note 8.) F- 7 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The fair value of the warrants liability was determined using the Black-Scholes Model, as Level 2 inputs (See Note 13). Cash and Cash Equivalents - Cash and cash equivalents are comprised of cash on hand, demand deposits and highly liquid short-term debt investments with stated original maturities of no more than six months. Since a majority of the company’s bank accounts are located in the PRC, those bank balances are uninsured. Trade Accounts and Other Receivables - Accounts receivable are carried at original invoiced amounts 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, 2015 and September 30, 2015. F- 8 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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. 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 systems 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. F- 9 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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). 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 three months ended September 30, 2014 and 2015. Recently Issued Accounting Pronouncements - 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. Earlier application is permitted for interim and annual reporting periods beginning after December 15, 2016. The Company is evaluating the effect of this standard the Company's consolidated financial position, results of operations and cash flows. In August 2015, the FASB has 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 arrangement. The Company does not expect this update will have a material impact on the Company's consolidated financial position, results of operations and cash flows. 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 Company's consolidated financial position, results of operations and cash flows. F- 10 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. TRADE ACCOUNTS RECEIVABLE, NET Accounts receivable consisted of the following: June 30, 2015 September 30, 2015 September 30, 2015 Third Party RMB RMB U.S. Dollars Trade accounts receivable ¥ 58,049,462 ¥ 54,318,512 $ 8,548,981 Allowance for doubtful accounts (5,863,065 ) (2,817,205 ) (443,390 ) Total - third- party, net ¥ 52,186,397 ¥ 51,501,307 $ 8,105,591 June 30, 2015 September 30, 2015 September 30, 2015 Related Party RMB R MB U.S. Dollars Beijing Langchen Construction Company 726,800 - - Xiamen Huangsheng Hitek Computer Network Co.Ltd. 980,000 - - Xiamen Henda Hitek Computer Network Co. Ltd. 3,063,000 - - Total - related-parties, net ¥ 4,769,800 ¥ - $ - June 30, 2015 September 30, 2015 September 30, 2015 Third Party – long-term RMB RMB U.S. Dollars Beijing Yabei Nuoda Science and Technology Co. Ltd. * ¥ 4,934,072 ¥ 3,786,637 $ 595,964 Allowance for doubtful accounts (493,407 ) (378,664 ) (59,596 ) Total - long-term trade accounts receivable, net ¥ 4,440,665 ¥ 3,407,973 $ 536,368 * The receivable from 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. F- 11 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. OTHER RECEIVABLES, NET Other receivables consisted of the following: Third Party June 30, 2015 September 30, 2015 September 30, 2015 Current Portion RMB RMB U.S. Dollars Due from ENI (A) ¥ 2,624,071 ¥ 3,375,349 $ 531,233 Loans to third parties (B) 11,154,344 10,743,344 1,690,853 Business advance to staff (C) 3,927,238 4,615,793 726,462 Deposits for projects 543,800 1,102,129 173,460 Others 637,348 142,263 22,390 Allowance for doubtful accounts (822,233 ) (841,233 ) (132,398 ) Total ¥ 18,064,568 ¥ 19,137,645 $ 3,012,000 Third Party June 30, 2015 September 30, 2015 September 30, 2015 Non-Current Portion RMB RMB U.S. Dollars Due from ENI (A) ¥ 2,729,033 ¥ 2,056,776 $ 323,708 Total ¥ 2,729,033 ¥ 2,056,776 $ 323,708 (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 ($110,036). The Company has continued to receive 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 are non-interest bearing. F- 12 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Below is a summary of other receivables - related parties which consisted of the following: Related Party June 30, 2015 September 30, 2015 September 30, 2015 Name of Related Party RMB RMB U.S. Dollars Beijing Langchen Construction Company 91,021 - - Total ¥ 91,021 ¥ - $ - 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: June 30, 2015 September 30, 2015 September 30, 2015 Third Party RMB RMB U.S. Dollars Prepayment for inventory purchase ¥ 22,845,030 ¥ 23,692,101 $ 3,728,808 Allowance for doubtful accounts (4,222,492 ) (6,281,380 ) (988,602 ) Total ¥ 18,622,538 ¥ 17,410,721 $ 2,740,206 Below is a summary of purchase advances to related party. June 30, 2015 September 30, 2015 September 30, 2015 Related Party RMB RMB U.S. Dollars Xiamen Huangsheng Hitek Computer Network Co. Ltd. ¥ 394,034 ¥ - $ - Total ¥ 394,034 ¥ - $ - NOTE 6. INVENTORIES Inventories consisted of the following: June 30, 2015 September 30, 2015 September 30, 2015 RMB RMB U.S. Dollars Small component parts ¥ 55,332 ¥ 55,332 $ 8,708 Purchased goods and raw materials 244,667 264,518 41,631 Work in process and goods on site 3,552,771 4,090,799 643,835 Finished goods 14,693,073 10,312,793 1,623,091 Allowance for slow moving inventory (7,700,836 ) (2,846,559 ) (448,008 ) Total inventories, net ¥ 10,845,007 ¥ 11,876,883 $ 1,869,257 Provisions for slow moving inventory was ¥7,700,836 and ¥2,846,559 ($448,008) at June 30, 2015 and September 30, 2015, respectively. F- 13 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: June 30, 2015 September 30, 2015 September 30, 2015 RMB RMB U.S. Dollars Motor vehicles ¥ 3,790,474 ¥ 4,050,440 $ 637,483 Office equipment and fixtures 797,791 797,791 125,561 Leasehold improvement - 210,299 33,098 Total property and equipment 4,588,265 5,058,530 796,142 Less: Accumulated depreciation (1,921,312 ) (2,181,080 ) (343,271 ) Property and equipment, net ¥ 2,666,953 ¥ 2,877,450 $ 452,871 Depreciation expense was ¥121,347 and ¥ 259,768 ($40,884) for the three months ended September 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 shares are restricted 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, 2015 and September 30, 2015, Recon owned 16.92% and 16.00% 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 believes 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 and has written 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. Based on mutual agreements, BHD shall not enjoy voting right until the payment of investment is on position. As of November 13, 2015, no payment was made to HHBHD for this investment and BHD did not have control or significant influence over HHBHD. F- 14 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. OTHER PAYABLES Other payables consisted of the following: June 30, 2015 September 30, 2015 September 30, 2015 Third Party RMB RMB U.S. Dollars Consulting services ¥ 1,628,508 ¥ 644,692 $ 101,466 Distributors and employees 413,703 1,086,260 170,962 Others 60,846 63,253 9,955 Total ¥ 2,103,057 ¥ 1,794,205 $ 282,383 June 30, 2015 September 30, 2015 September 30, 2015 Related Party RMB RMB U.S. Dollars Due to related parties ¥ 2,499,347 ¥ - $ - Expenses paid by the major shareholders 1,558,738 1,592,981 250,713 Due to management staff on behalf of Recon 251,617 251,647 39,606 Total ¥ 4,309,702 ¥ 1,844,628 $ 290,319 NOTE 10. TAXES PAYABLE Taxes payable consisted of the following: June 30, 2015 September 30, 2015 September 30, 2015 RMB RMB U.S. Dollars VAT payable ¥ 23,885 ¥ 1,331,272 $ 209,524 Enterprise income tax payable 1,127,131 1,266,512 199,331 Other taxes payable 2,200 62,866 9,894 Total taxes payable ¥ 1,153,216 ¥ 2,660,650 $ 418,749 NOTE 11. SHORT-TERM BANK LOAN Short-term bank loans consisted of the following: June 30, 2015 September 30, 2015 September 30, 2015 RMB RMB U.S. Dollars Industrial and Commercial Bank, floating interest rate at 6.0%, due on June 19, 2016 7,000,000 7,000,000 1,101,703 Total short-term bank loans ¥ 7,000,000 ¥ 7,000,000 $ 1,101,703 F- 15 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Interest expense for the short-term bank loan was ¥157,511 and ¥108,407 ($17,062) for the three months ended September 30, 2014 and 2015, respectively. NOTE 12. SHORT-TERM BORROWINGS DUE TO RELATED PARTIES Short-term borrowings due to related June 30, 2015 September 30, 2015 September 30, 2015 parties: RMB RMB U.S. Dollars Short-term borrowing from a Founder, 7.2% annual interest, due on October 20, 2015(A) 6,013,200 1,800,000 283,295 Short-term borrowing from a Founder, 6.0% annual interest, due on October 2, 2015 (B) 3,403,431 914 144 Short-term borrowing from a Founder, 5.13% annual interest, due on October 12, 2015.(C) 1,600,274 1,604,800 252,573 Short-term borrowing from a Founder's family member, no interest, due on various dates 5,700,000 4,200,000 661,022 Short-term borrowing from a Founder, 7.2% annual interest, due on September 25, 2016 - 1,800,000 283,295 Short-term borrowings from Xiamen Huasheng Haitian Computer Network Co. Ltd., no interest, due on November 14, 2015 200,000 - - Total short-term borrowings due to related parties ¥ 16,916,905 ¥ 9,405,714 $ 1,480,329 (A) On October 20, 2015, ¥ 1,800,000 ( $283,295 ) was paid back. (B) On September 30, 2015, the principle of ¥3,400,000 ( $535,113 ) was paid back, and the interest was paid as scheduled on October 2, 2015. (C) On October 12, 2015, the Company repaid ¥1,600,000 ($251,818) of short-term borrowing with an interest of ¥5,749 ($905). Interest expense for short-term borrowings due to related parties was ¥84,333 and ¥171,448 ($26,984) for the three months ended September 30, 2014 and 2015, respectively. NOTE 13. 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 are 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, 2015 and September 30, 2015. F- 16 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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. The net cash proceeds received from the stock offering, after deducting ¥1,294,922 ($212,673) in underwriter commission and other associated fees, were ¥2,392,027 (approximately $0.6 million). During the three months ended September 30, 2015, the Company sold 15,874 ordinary shares under the same purchase agreement. The net cash proceeds received from the stock offering were ¥165,823 (approximately $26,098). 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, 2015 and September 30, 2015, the balance of total statutory reserves was ¥4,148,929 and ¥4,148,929 ($681,403), respectively. NOTE 14. 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. F- 17 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Company recognizes compensation cost for awards with graded vesting on a straight-line basis over the requisite service period for the entire award. The grant date fair value of the options was ¥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 directors 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 and will be subject to the terms and conditions of the Plan. 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. The following is a summary of the stock options activity: Stock Options Shares Weighted Average Exercise Price Per Share Outstanding as of June 30, 2015 815,600 $ 3.04 Granted - - Forfeited - - Exercised - - Outstanding as of September 30, 2015 815,600 $ 3.04 The following is a summary of the status of options outstanding and exercisable at September 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 3.83 $ 6.00 193,000 3.83 $ 2.96 222,600 6.49 $ 2.96 74,200 6.49 $ 1.65 400,000 9.35 - - - 815,600 Restricted Shares As of September 30, 2015, the Company had granted restricted shares of common stock, which are still vesting, 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 services. 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. F- 18 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On July 19, 2014, the Company decided to cancel 40,625 restricted shares, which had been issued to Expert Asia Investment Ltd. on May 8, 2014, as the services had not been 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 vested on December 13, 2014. 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. 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 of $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 services. 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 ¥247,141 and ¥509,528 ($80,193) for the three months ended September 30, 2014 and 2015, respectively. The total unrecognized share-based compensation expense for stock options as of September 30, 2015 was approximately ¥4.3 million ($0.67 million), which is expected to be recognized over a weighted average period of approximately 2.14 years. The Share-based compensation expense recorded for restricted shares granted were ¥353,437 and ¥617,024 ($97,111) for the three months ended September 30, 2014 and 2015, respectively. The total unrecognized share-based compensation expense for restricted shares granted as of September 30, 2015 was approximately ¥4.2 million ($0.66 million), which is expected to be recognized over a weighted average period of approximately 1.87 years. The following is a summary of the restricted stock grants: Restricted stock grants Shares Non-vested as of June 30, 2015 453,575 Granted - Non-vested adjustment - Cancelled - Vested - Non-vested as of September 30, 2015 453,575 F- 19 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 15. 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, 2015 September 30, 2015 September 30, 2015 RMB RMB U.S. Dollars Allowance for doubtful receivables ¥ 1,072,279 ¥ 1,547,772 $ 243,598 Net operating loss carry forward 669,819 210,783 33,173 Total deferred income tax assets ¥ 1,742,098 ¥ 1,758,555 $ 276,771 Deferred tax liability is comprised of the following: June 30, 2015 September 30, 2015 September 30, 2015 RMB RMB U.S. Dollars Income tax cost due to unpayable accounts ¥ 180,186 ¥ 180,186 $ 28,359 Total deferred income tax liability ¥ 180,186 ¥ 180,186 $ 28,359 The Company’s tax provision is comprised of the following: For the three months ended September 30, 2014 2015 2015 RMB RMB U.S. Dollars Current income taxes ¥ 32,279 ¥ - $ - Deferred income taxes provision (benefit) (2,034 ) (16,457 ) (2,590 ) Provision for income tax ¥ 30,245 ¥ (16,457 ) (2,590 ) F- 20 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. NON-CONTROLLING INTEREST Non-controlling interest consisted of the following: 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 noncom-trolling interest ¥ 4,784,837 ¥ 3,438,660 ¥ 8,223,497 $ 1,350,594 As of September 30, 2015 Nanjing BHD Recon Total Total RMB RMB RMB U.S. Dollars Paid-in capital ¥ 1,651,000 ¥ 200,000 ¥ 1,851,000 $ 291,322 Unappropriated retained earnings 3,152,687 3,250,513 6,403,200 1,007,775 Accumulated other comprehensive loss (6,934 ) (7,149 ) (14,083 ) (2,217 ) Total non-controlling interest ¥ 4,796,753 ¥ 3,443,364 ¥ 8,240,117 $ 1,296,880 NOTE 17. CONCENTRATIONS For the three months ended September 30, 2014 and 2015, our two largest customers, China National Petroleum Corporation (“CNPC”) and China Petroleum & Chemical Corporation Limited (“SINOPEC”), represented approximately 46.65%, 1.64% , and 57.58%, 23.63% of the Company’s revenue, respectively. For the three months ended September 30, 2014, two major suppliers accounted for 25% of the company’s total purchases. For the three months ended September 30, 2015, four major suppliers accounted for 60% of the company’s total purchases. NOTE 18. 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 September 30, 2015: Twelve months ending September 30, Office lease payment RMB U.S. Dollars 2016 ¥ 610,833 $ 96,137 Total ¥ 610,833 $ 96,137 F- 21 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED 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 September 30, 2015, the Company estimated its severance payments of approximately ¥1.6 million ($0.26 million) which has not been reflected in its unaudited condensed consolidated financial statements, because management cannot predict what the actual payment, if any, will be in the future. NOTE 19. RELATED PARTY TRANSACTIONS AND BALANCES Purchases from related parties – purchases from related parties consisted of the following: For the three months ended September 30, 2014 2015 2015 RMB RMB U.S. Dollars Huanghua Xiang Tong Manufacture ¥ - ¥ 300,393 $ 47,278 Xiamen Huangsheng Hitek Computer Network Co. Ltd. 797,585 576,098 90,670 Purchase from related parties ¥ 797,585 ¥ 876,491 $ 137,948 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, 2015. Short-term borrowings from related parties - The Company borrowed ¥16,916,905 and ¥9,405,714 ($1,480,329) from the Founders and their family members as of June 30, 2015 and September 30, 2015, respectively. For the specific terms and interest rates of the borrowings, see Note 12. 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, 2015 and September 30, 2015, ¥1,558,738 and ¥1,592,981 ($250,713) was due to them, respectively. F- 22 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 20. Variable Interest Entities The Company reports its VIEs’ portion of unaudited condensed consolidated net income and stockholders’ equity as non-controlling interests in the unaudited condensed consolidated financial statements. Summary information regarding consolidated VIEs is as follows: June 30, 2015 September 30, 2015 September 30, 2015 RMB RMB U.S. Dollars ASSETS Current Assets Cash and cash equivalents ¥ 7,096,901 ¥ 663,329 $ 104,399 Notes receivable 4,205,530 3,227,580 507,976 Trade accounts receivable, net 56,956,197 51,501,307 8,105,591 Purchase advances 19,016,573 17,410,721 2,740,206 Other assets 28,792,279 29,673,763 4,670,239 Total current assets ¥ 116,067,480 ¥ 102,476,700 $ 16,128,411 　 　 Non-current assets 7,088,383 6,267,272 986,382 Total Assets ¥ 123,155,863 ¥ 108,743,972 $ 17,114,793 　 　 LIABILITIES 　 　 Trade accounts payable ¥ 17,155,793 ¥ 16,683,704 $ 2,625,784 Taxes payable 1,153,216 2,660,650 418,749 Other liabilities 31,386,734 22,084,898 3,475,857 Total current liabilities 49,695,743 41,429,252 6,520,390 Total Liabilities ¥ 49,695,743 ¥ 41,429,252 $ 6,520,390 The financial performance of VIEs reported in the unaudited condensed consolidated statement of operations and comprehensive income for the three months ended September 30, 2015 includes revenues of ¥3,593,960 ($565,639), operating expenses of ¥4,362,377 ($686,578), and net loss of ¥6,242,390 ($982,466). F- 23 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 21. EARNINGS PER SHARE The computation of basic and diluted earnings per common share is as follows: For the three months ended September 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 4,757,112 5,438,763 5,438,763 Net income (loss) attributable to common stockholders ¥ (4,161,545 ) ¥ (8,848,606 ) $ (1,392,649 ) Earnings (loss) per share attributable to common stockholders ¥ (0.87 ) ¥ (1.63 ) $ (0.26 ) DILUTED Weighted average number of common shares outstanding used in computing basic earnings (loss) per share 4,757,112 5,438,763 5,438,763 Add: Assumed exercise of stock options, stock awards and warrants - - - Weighted average number of common shares outstanding 4,757,112 5,438,763 5,438,763 Net income (loss) attributable to common stockholders ¥ (4,161,545 ) ¥ (8,848,606 ) $ (1,392,649 ) Earnings (loss) per share attributable to common stockholders ¥ (0.87 ) ¥ (1.63 ) $ (0.26 ) F- 24 RECON TECHNOLOGY, LTD NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 22. SUBSEQUENT EVENTS On October 10, 2015, the Company borrowed ¥2,400,000 ($377,727) of short-term borrowing with an annual interest rate of 5.75% . On October 12, 2015, the Company repaid ¥1,600,000 ($251,818) of short-term borrowing with an interest of ¥5,749 ($905). On October 20, 2015, the Company repaid ¥1,800,000 ($283,295) of short-term borrowing with an interest of ¥ 10,800 ($1,700). On October 18, 2015, the Company’s board approved an incentive plan under its 2015 incentive option pool to grant 800,000 restricted shares to management. F- 25