What changed in this filing

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Item 1. Financial Statements

2016-02-16 compared with 2015-11-13 · 483 added, 324 removed, 390 unchanged (67% of the section changed)

Financial Statements.

Item 1 Financial Statements.

See the unaudited condensed consolidated

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

Management’s Discussion and Analysis of Financial

Item 2 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.

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.

discussion contains certain 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

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

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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”) and Beijing BHD Petroleum Technology Co, Ltd (“BHD”), hereafter referred to as our

domestic companies (the “Domestic Companies”), which are established as variable interest entities

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

As the Company contractually

controls the Domestic Companies, we are the center of strategic management, financial control and human

resources allocation.

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

Domestic Companies provide the oil and gas industry with equipment,

production technologies, automation and services.

Nanjing Recon:

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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.

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

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Recent Developments

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

On September 22,

2015, the Company entered into an amendment to the Company’s 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.

The amendment extends the term of the

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

As of February 16, 2016, no shares have been issued under

the amended Agreement.

On December 1,

2015, the Company entered into a share purchase agreement to acquire a 100% interest in Qinghai Huayou Downhole Technologies

( “QHHY”), a PRC corporation and oilfield service provider in Qinghai province.

This transaction is

subject to shareholders approval.

Products and Services

We currently provide products and services

to oil and gas field companies, which focus on the development and production of oil and natural gas.

to oil and gas field companies focused on the development and production of oil and natural gas.

Our products and services

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

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

easy to operate, safe and highly heat-efficient (90% efficiency).

Burner (as shown

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

The “resin sand”

goes through the borehole, piling

The resin sand goes through the borehole, piling

up and compacting at the borehole and oil vacancy layer.

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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.

Fracture Acidizing.

This is our proprietary

product that is used along with a perforating gun to effectively increase perforation depth by between 46% and 80%, shape stratum

fissures, improve stratum diversion capability and, as a result, improve our ability to locate oilfields and increase the output

of oil wells.

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

The treatment process of the acid is defined as fracture

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

Electronic Break-Down

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

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

The treatment process of the acid is

defined as fracture acidizing.

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

oil and gas wells in low permeability zones.

Electronic Break-Down Service.

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

tank composed of an oil pipe and a drive pipe.

This technique saves energy and is environmentally friendly.

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

It can increase the

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

Automation System and Services

Pumping Unit Controller.

This controller functions as a monitor to the pumping unit and also collects data for load, pressure, voltage, and startup and

shutdown control.

This controller

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

This monitor collects gas

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

Natural Gas Flow Computer

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

Natural Gas Flow Computer System.

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

Recon Supervisory

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This service includes engineering technique services such as oil and gas SCADA

system, video surveillance and control system and communication systems.

systems, video surveillance and control systems and communication systems.

Factors Affecting Our Business

Business Outlook

The oilfield engineering

and technical service industry is generally divided into five sections:

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

and logging, (4) production, and (5) oilfield construction.

Thus far our businesses have been involved in completion, production

and construction processes.

Our management still believes we need to expand our core business, move into new markets, and develop

new businesses quickly for the coming years.

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”

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

engineering and technical service industry is generally divided into five sections:

(1) exploration, (2) drilling and

completion, (3) testing and logging, (4) production and (5) oilfield construction.

Thus far our businesses have been involved

in the completion, production and construction processes.

Our management still believes we need to expand our core business,

move into new markets and develop new businesses quickly for the coming years.

Management anticipates there will be

opportunities 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 plan to focus on:

Measuring Equipment

and Service .

Digital oil field 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 long term.

Gathering and

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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 .

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

Recently, this market

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.

We expect demand for fracturing will increase in China and we are focused on the development and upgrade of

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

We are in the process of expanding our business through the acquisition of a down-hole service company.

We also have developed new products for oilfield wastewater treatment and achieved preliminary business on this segment.

Our management anticipates expanding the new business more rapidly in the coming year.

Growth Strategy

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rarely entered those areas directly.

Large domestic oil

companies have historically focused on their exploration and development businesses to earn higher margins and keep their competitive

With regard to private oilfield service companies, we estimate that approximately 90% specialize in the manufacture

of drilling and production equipment.

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

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.

Our mission is to increase the automation and safety levels of industrial petroleum production in China and

improve the underdeveloped working process and management mode by using advanced technologies.

At the same time, we are always

looking to improve our business and to increase our earning capability.

Large domestic

oil companies have historically focused on their exploration and development businesses to earn higher margins and maintain

their competitive advantage.

With regard to private oilfield service companies, we estimate that approximately 90% specialize

in the manufacture of drilling and production equipment.

Thus, the market for technical support and project service is still

in its early stage.

Our management is focused on providing high quality products and service in oilfields in which we have a

geographical advantage.

This helps us to avoid conflicts of interest with bigger suppliers of drilling equipment while

protecting our position within this market segment.

Our mission is to increase the automation and safety levels of industrial

petroleum production in China and improve the underdeveloped working process and management mode used by many companies by

providing advanced technologies.

At the same time, we are always looking to improve our business and to increase our earning

Recent Industry Developments

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

(2) As worldwide oil and gas prices decreased,

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 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.

(2) As worldwide

oil and gas prices decreased, development transformed and strict management has been a frequent subject of domestic oil

Technology reforms have been their first choice to achieve their goals about quality and efficiency upgrades.

Furthermore, the construction of digital oilfields is a long-term development strategy for many domestic oil

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 trend.

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

Our operating results

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

Our operating results in any period are

subject to general conditions typically affecting the Chinese oilfield service industry including:

Oil and gas price;

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condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of

America (U.S.

GAAP), which require us to make judgments, estimates and assumptions.

America (“US GAAP”), which require us to make judgments, estimates and assumptions.

We continually evaluate these estimates and

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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 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.

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

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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

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.

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 customer,

customer acceptance provisions have lapsed, or the Company has objective evidence that the criteria specified in a

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

Trade receivables

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

Provisions are applied to trade

receivables where events or changes in circumstances indicate that the balance may not be collectible.

The identification of doubtful

accounts requires the use of judgment and estimates of management.

Our management must make estimates of the collectability of

our accounts receivable.

Management specifically analyzes accounts receivable, historical bad debts, customer creditworthiness,

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

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

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

are applied to trade receivables where events or changes in circumstances indicate that the balance may not be collectible.

The identification of doubtful accounts requires the use of judgment and estimates of management.

Our management must make

estimates of the collectability of our accounts receivable.

Management specifically analyzes accounts receivable, historical

bad debts, customer creditworthiness, current economic trends and changes in our customer payment terms when evaluating the

adequacy of the allowance for doubtful accounts.

Increases in our allowance for doubtful accounts would lower our net income

and earnings per share.

Deferred Tax Estimates

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There were no impairments at June 30, 2015

and September 30, 2015.

and December 31, 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.

The Company has elected mainly utilize the Black-Scholes valuation

model to estimate an 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.

has elected mainly utilize the Black-Scholes valuation model to estimate an award’s fair value.

Recently enacted 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.

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, the FASB issued Accounting Standards Update (ASU) No.

2015-15, Interest - Imputation of Interest (Subtopic

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.

Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements -

Amendments to SEC Paragraphs Pursuant to Staff Announcement at the June 18, 2015 EITF Meeting.

This ASU adds additional

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 presentation of the Company's condensed consolidated financial statements.

In September 2015, the FASB issued ASU

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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.

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

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

In November 2015, the FASB issued Accounting

Standards Update (ASU) No.

2015-17, Income Taxes (Topic 740):

Balance Sheet Classification of Deferred Taxes, which changes how

deferred taxes are classified on organizations’

balance sheets.

The ASU eliminates the current requirement for organizations

to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet.

Instead, organizations

will be required to classify all deferred tax assets and liabilities as noncurrent.

The amendments apply to all organizations that

present a classified balance sheet.

For public companies, the amendments are effective for financial statements issued for annual

periods beginning after December 15, 2016, and interim periods within those annual periods.

The Company does not expect

this update will have a material impact on the presentation of the Company's consolidated financial position, results of operations

and cash flows.

In January 2016, the FASB issued Accounting

Standards Update (ASU) No.

2016-01, Financial Instruments –

Overall (Subtopic 825-10):

Recognition and Measurement of Financial

Assets and Financial Liabilities.

The new guidance makes targeted improvements to existing U.S.

(1) requiring equity investments

to be measured at fair value with changes in fair value recognized in net income;

(2) requiring separate presentation of financial

assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes

to the financial statements;

(3) eliminating the requirement for public business entities to disclose the method(s) and significant

assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost

on the balance sheet;

and (4) requiring a reporting organization to present separately in other comprehensive income the portion

of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk.

The new guidance

is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal

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

financial position, results of operations and cash flows.

Results of Operations

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

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.

Three Months Ended December 31, 2015 Compared to Three

Months Ended December 31, 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 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.

total revenues for the three months ended December 31, 2015 were approximately ¥28.8 million ($4.4 million), an increase of

approximately ¥7.5 million or 35.2% from ¥21.3 million for the three months ended December 31, 2014.

This was mainly caused

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

by an increase of sales of automation products.

Cost and Margin

For the Three Months Ended

September 30,

Total revenues

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Cost of revenues .

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

and services.

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

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

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

Our cost of revenues

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 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 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:

of revenues increased from approximately ¥12.3 million in the three months ended December 31, 2014 to

approximately ¥23.1 million ($3.6 million) for the same period in 2015, an increase of approximately ¥10.7 million

($1.65 million), or 86.9%.

This increase was mainly caused by higher revenue during the three months ended December 31, 2015

compared to the same period of 2014.

As a percentage of revenues, our cost of revenues increased from 57.9% in 2014 to 80.0%

in 2015, due to the increase of sale of hardware products, the cost of which is higher than the software and service

revenues and the increase in the cost of goods sold.

Our gross profit decreased to approximately ¥5.8 million ($0.9 million) for the three months ended December

31, 2015 from approximately ¥9.0 million for the same period in 2014.

Our gross profit as a percentage of

revenue decreased to 20.0% for the three months ended December 31, 2015 from 42.1% for the same period in 2014.

mainly due to the decrease of software sales with higher margins compared with the hardware revenues.

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

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.

Revenue from hardware

and software to non-related parties increased by approximately ¥7.3 million mainly due to the increase of hardware products

sold in the three months ended December 31, 2015.

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

¥2.7 million ($0.4 million) compared to the same period of last year.

For the Three Months Ended

September 30,

Total revenues-hardware and software-related parties

Cost of revenues -hardware and software- related parties

Revenue from related parties decreased

as we developed business directly with oilfield, rather than cooperation with some local agency, which used to be our related parties.

For the Three Months Ended

Total revenues-service

Cost of revenues-service

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

revenue for the three months ended December 31, 2014 and 2015 consisted mainly of minor maintenance services, which were provided

upon request by customers.

The cost of services revenues increased, since the increase in the labor cost for the increased services

performed for the three months ended December 31, 2015.

Operating Expenses

For the Three Months Ended

September 30,

Selling and distribution expenses

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Operating expenses

and distribution expenses .

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 related expenses.

Selling expenses increased 20.5% or ¥0.3 million ($40.0

thousand), from approximately ¥1.3 million in the three months ended December 31, 2014 to

approximately ¥1.5 million ($0.2 million) in the same period of 2015.

This increase

was primarily due to an increase in travelling expense and rental expense.

Selling expenses were 5.9% of total revenues in

the three months ended December 31, 2014 and 5.2% 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, bad debts

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

General and administrative expenses

increased by 17.0% or ¥0.7 million ($0.1

million), from approximately ¥4.1 million in the three months ended December 31, 2014 to approximately ¥4.8 million ($0.7

million) in the same period of 2015.

General and administrative expenses were 19.2% of total revenues in the three months ended

December 31, 2014 and 16.6 %

of total revenues in the same period of 2015.

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

in share-based compensation and salaries.

Research and development (“R&D”)

Research and development expenses consist primarily of salaries and related expenditures of our research and development

Research and development expenses increased from approximately ¥1.2 million for the three months ended December 31,

2014 to approximately ¥2.7 million ($0.4 million) for the same period of 2015.

This increase was primarily due to more research

and development expense on downhole service tools.

For the Three Months Ended

Income (loss) from operations

Interest and other income (expense)

Income (loss) before income tax

Provision (benefit) for income tax

Net income (loss)

Net income attributable to non-controlling interest

Net income (loss) attributable to Recon Technology, Ltd

Loss from operations .

Loss from operations was approximately ¥3.3 million ($0.5 million) for the three months ended December 31, 2015, compared to

an income of ¥2.4 million for the same period of 2014.

This decrease in income from operations was primary due to a decrease

in revenues and increased research and development expenses.

Interest and other

income (expense).

Interest and other expense was approximately ¥0.1 million ($14.8 thousand) for the three months ended

December 31, 2015, compared to interest and other income of ¥4.0 million for the same period of 2014.

The ¥4.1 million

($0.6 million) decrease in interest and other income was primarily due to the decreased gain of change in fair value of warrants

(benefit) for income tax .

Provision for income tax for the three months ended December 31, 2014 was approximately ¥0.6

Benefit for income tax was ¥0.9 million ($0.1 million) for the three months ended December 31, 2015.

This increase

in benefit for income tax was mainly due to deferred

tax assets recorded and income tax payable true up during the three months ended December 31, 2015.

As a result of the factors described above, net loss was approximately ¥2.5 million ($0.4 million) for the

three months ended December 31, 2015, a decrease of approximately ¥8.3 million ($1.3 million) from net income of ¥5.8

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

¥2.5 million ($0.4 million) for the three months ended December 31, 2015, .Net income attributable to ordinary shareholders

decreased for approximately ¥7.8 million ($1.2 million) from net income attributable to ordinary shareholders of approximately

¥5.3 million for same period of 2014.

Six Months Ended December 31, 2014 Compared to Six Months

Ended December 31, 2015

For the Six Months Ended

Hardware - non-related parties

Hardware - related parties

Software - non-related parties

Software - related parties

Total revenues

total revenues for the six months ended December 31, 2015 were approximately ¥32.4 million ($5.0 million), an increase of approximately

¥6.8 million or 26.5% from ¥25.6 million for the six months ended December 31, 2014.

This was mainly caused by an increase

of sale of hardware products.

Cost and Margin

For the Six Months Ended

Total revenues

Cost of revenues

Cost of revenues .

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

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 affect 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 ¥16.0 million in the six months ended December 31 2014 to approximately ¥26.3 million ($4.0

million) for the same period in 2015, an increase of approximately ¥10.2 million ($1.6 million), or 63.8%.

This increase was

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

As a percentage

of revenues, our cost of revenues increased from 62.6% in 2014 to 81.0% in 2015, mainly due to the increase of sale of hardware

products, the cost of which is higher than the software and service revenues.

Gross profit .

Our gross profit decreased to approximately ¥6.2 million ($0.9 million) for the six months ended December 31, 2015 from approximately

¥9.6 million for the same period in 2014.

Our gross profit as a percentage of revenue decreased to 19.0% for the six months

ended December 31, 2015 from 37.4% for the same period in 2014.

This was mainly due to the decrease of software sales with higher

margins compared with the hardware revenues.

In more detail:

For the Six Months Ended

Total revenues-hardware and software- non related parties

Cost of revenues -hardware and software- non related parties

Revenue from hardware

and software to non-related parties increased by approximately ¥6.6 million mainly due to the increase of hardware products

sold in the six months ended December 31, 2015.

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

¥3 million ($0.46 million) compared to the same period of last year.

For the Six Months Ended

Total revenues-hardware and software-related parties

Cost of revenues -hardware and software- 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 decreased.

As of result, there was no revenue or cost of hardware and software from related parties, since we developed business directly

with oilfield, rather than cooperation with some local agency, which used to be our related parties.

For the Six Months Ended

Total revenues-service

Cost of revenues -service

revenue for the six months ended December 31, 2014 and 2015 consisted mainly of minor maintenance services, which were provided

upon request by customers.

The cost of revenues-services increased, since we reclassify the human cost of services out from cost

of revenues-hardware and software for the six months ended December 31, 2015.

Operating Expenses

For the Six 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

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.

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 ¥0.7 million for the six months ended December 31, 2015 compared to the same period in 2014.

increase was primarily due to an increase in traveling expense and maintenances.

Selling expenses were 7.6% of total revenues

in the six months ended December 31, 2014 and 8.1% of total revenues in the same period of 2015.

and administrative expenses .

4 unchanged sentences

increased by 40.7% or ¥3.2 million ($0.5

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

million), from approximately ¥7.8 million in the six months ended December 31, 2014 to approximately ¥11.0 million ($1.7

million) in the same period of 2015.

General and administrative expenses were 30.4% of total revenues in the six months ended December

31, 2014 and 33.8 % of total

2 unchanged sentences

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

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 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

September 30,

Research and development (“R&D”)

Research and development expenses consist primarily of salaries and related expenditures of our research and development

Research and development expenses increased from approximately ¥1.9 million for the six months ended December 31,

2014 to approximately ¥4.5 million ($0.7 million) for the same period of 2015.

This increase was primarily due to more research

and development expense on downhole service tools.

For the Six Months Ended

Loss from operations

(11,955,822 )

Interest and other income (expense)

Loss before income tax

Income (loss) before income tax

(12,235,955 )

(14,483,391 )

Provision (benefit) for income tax

Net income (loss)

(11,367,782 )

(12,966,286 )

Net income attributable to non-controlling interest

Net loss attributable to Recon Technology, Ltd

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

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.

Net income (loss) attributable to Recon Technology, Ltd

(11,367,782 )

(12,531,613 )

Loss from operations was approximately ¥12.0 million ($1.8 million) for the six months ended December 31,

2015, compared to a loss of ¥2.1 million for the same period of 2014.

This increase in loss from operations was

primary due to a decrease in gross profit, an increase in R&D expenses and increase in stock based compensation.

other income (expense).

Interest and other expense was approximately ¥0.3 million ($0.04 million) for the six months

ended December 31, 2015, compared to interest and other income of ¥4.3 million for the same period of 2014.

million ($0.7 million) decrease in interest and other income was primarily due to the decreased gain of change in fair value

of warrants liability while there was no such gain for the current period.

Provision (benefit)

for income tax .

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

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

to Recon Technology, Ltd .

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

¥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.

Provision for income tax for the six months ended December 31, 2014 was approximately ¥0.7 million.

for income tax was ¥0.9 million ($0.1 million) for the six months ended December 31, 2015.

This increase in benefit for income

tax was mainly due to the increased deferred tax assets, because of increase in allowances for doubtful accounts during the six

months ended December 31, 2015.

Net income (loss) .

As a result of the factors described

above, net loss was approximately ¥11.4 million ($1.8 million) for the six months ended December 31, 2015, a decrease of approximately

¥13.0 million ($2.0 million) from net income of ¥1.6 million for the same period of 2014.

loss attributable to Recon Technology, Ltd .

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

ordinary shareholders was approximately ¥11.4 million ($1.8 million) for the six months ended December 31, 2015, a change of approximately ¥12.5 million ($1.9 million) from net income attributable to ordinary shareholders of

approximately ¥1.2 million for same period of 2014.

Adjusted EBITDA

2 unchanged sentences

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

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 Six Months Ended

Reconciliation of Adjusted EBITDA

Net income (loss)

(11,367,782 )

$ (1,751,395 )

(12,966,286 )

Provision for income taxes (benefit)

6 unchanged sentences

$ (1,251,875 )

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 EBITDA

decreased by approximately ¥9.3 million ($1.4 million) to loss of approximately ¥8.1 million ($1.3 million) for the

six months ended December 31, 2015 compared to approximately ¥1.2 million income for the same period in 2014.

mainly due to decreased gross profit, increased research and development expenses and increased 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

For the Six Months Ended

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

(11,367,782 )

$ (1,751,395 )

Noncash items (A) :

6 unchanged sentences

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

Adjusted Earnings Per Share

GAAP Adjusted Earnings Per Share

GAAP earnings (loss) per share

11 unchanged sentences

maturities of no more than six months.

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

As of December 31, 2015, we had cash and cash equivalents in the amount of approximately

¥3.1 million ($0.5 million).

1 unchanged sentence

Indebtedness .

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

As of December 31, 2015, except for approximately ¥7.2 million ($1.1 million) of short-term borrowings from related parties,

and ¥6.5 million ($1.0 million) in commercial loans from local banks, we did not have any finance leases or purchase commitments,

guarantees or other material contingent liabilities.

Holding Company

We are a holding company with no operations of our own.

All of our operations are conducted through our Domestic

As a result, our ability to pay dividends and to finance any debt that we may incur is dependent upon the receipt of

dividends and other distributions from the Domestic Companies.

In addition, Chinese legal restrictions permit payment of dividends

to us by our Domestic Companies only out of their respective accumulated net profits, if any, determined in accordance with Chinese

accounting standards and regulations.

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

Holding Company Structure .

We are a holding company with

no operations of our own.

All of our operations are conducted through our Domestic Companies.

As a result, our ability to pay dividends

and to finance any debt that we may incur is dependent upon the receipt of dividends and other distributions from the Domestic

In addition, Chinese legal restrictions permit payment of dividends to us by our Domestic Companies only out of their

respective accumulated net profits, if any, determined in accordance with Chinese accounting standards and regulations.

Under Chinese

law, our Domestic Companies are required to set aside a portion (at least 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’

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

Off-Balance Sheet

13 unchanged sentences

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

As of December 31, 2015, we had total assets of approximately ¥123.5 million ($19.0 million), which

includes cash of approximately ¥3.1 million ($0.5 million), net accounts receivable due from third parties of approximately

¥67.0 million ($10.3 million), working capital amounted to approximately ¥68.6 million ($10.6 million), and shareholders’

1 unchanged sentence

Cash from Operating

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:

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.

Net cash provided by operating activities was approximately ¥1.0 million ($0.2 million) for the six months

ended December 31, 2015.

This was an increase of approximately ¥16.4 million ($2.5 million) compared to net cash used in operating

activities of approximately ¥15.4 million for the six months ended December 31, 2014.

The increase in net cash provided by

operating activities for the six months ended December 31, 2015, was primarily attributable to the ¥11.0 million ($1.6 million)

change in accounts payable and ¥8.0 million ($1.2 million) change in inventories.

We purchased a larger number of inventory

to implement our Jidong Oil Field project in prior period, which have been used in this period.

Cash from Investing

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.

Net cash used in investing activities was approximately ¥0.5 million ($76.8 thousand) for the six months ended

December 31, 2015, increased approximately ¥0.3 million compared to the same period in 2014, which is due to the decrease in

proceeds from disposal of equipment.

Cash from Financing

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.

Net cash used in financing activities amounted to ¥9.9 million ($1.5 million) for the six months ended December

31, 2015, as compared to net cash provided by financing activities of 2.4 million for the same period in 2014.

During the six months

ended December 31, 2015, we repaid ¥15.5 million ($2.4 million) short-term borrowings to two related parties and repaid ¥0.5

million ($0.1 million) short-term bank loans, but we received ¥6.0 million ($0.9 million) from one related party.

Working Capital .

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

Total working capital as of December 31, 2015 amounted to approximately ¥68.6 million ($10.6 million), compared to approximately

¥72.4 million as of June 30, 2015.

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

Total current assets as of December 31, 2015 amounted to approximately ¥116.1 million

($17.9 million), a decrease of approximately ¥8.4 million ($1.3 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.

The decrease in total current assets at December 31, 2015 compared to June 30, 2015 was mainly due to decreases in cash

and cash equivalents and purchase advances.

Current liabilities

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

amounted to approximately ¥47.5 million ($7.3 million) at December 31, 2015, in comparison to approximately ¥52.1 million

at June 30, 2015.

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.

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 trade accounts 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 the development of our business and to consummate a merger and acquisition, if

Quantitative and Qualitative Disclosures about Market

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 our development of our business and to consummate any merger and acquisition, if necessary.

Quantitative and Qualitative Disclosures about Market Risk.

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