What changed in this filing

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Item 1. Financial Statements

2016-05-16 compared with 2016-02-16 · 638 added, 558 removed, 315 unchanged (79% of the section changed)

Item 1 Financial Statements.

Financial Statements.

See the unaudited condensed consolidated

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

Item 2 Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

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.

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.

Headquartered in Beijing, we

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

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

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 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 factors.

We are a company

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

Headquartered in Beijing, we provide products

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

Ltd (“Nanjing Recon”)

and Beijing BHD Petroleum Technology Co, Ltd (“BHD”), 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 serve as the center of

strategic management, financial control and human resources allocation.

Through Nanjing Recon

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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:

Our Domestic Companies

provide the oil and gas industry with equipment, production technologies, automation and services.

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

oilfield companies.

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

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

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

and services.

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

with the major oilfields in China.

It mainly focuses on providing automation solutions to the oil exploration

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

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

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

productions and services.

Possessing proprietary patents and substantial industry experience,

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

Recent Developments

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 February 16, 2016, no shares have been issued under

the amended Agreement.

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 August 15, 2016, when the Company’s Form S-3 will expire.

As of May 16, 2016, no shares have been issued

under the amended Agreement.

On December 1, 2015,

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.

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

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

This transaction is subject

to shareholder approval and on May 2, 2016, the Company amended its proxy statement on Schedule 14A (the “Proxy Statement”)

to disclose all necessary information related to obtaining shareholder approval of the transaction.

The Company will hold a shareholder

meeting to seek approval of the Company’s acquisition of QHHY after the Securities and Exchange Commission (“SEC”)

completes its review of the Proxy Statement.

Products and Services

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

Our products and services

described below correlate to the numbered stages of the oilfield production system graphical expression shown below.

Our products and services described

below correlate to the numbered stages of the oilfield production system graphical description shown below.

Our products and services include:

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Furnaces (as shown above) .

Crude petroleum contains certain impurities that must be removed before it can be sold, including

water and natural gas.

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

heating furnaces.

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

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

Burner (as shown

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

production company.

Crude petroleum contains certain impurities that must be removed before it can be sold,

including water and natural gas.

To remove the impurities and to prevent solidification and blockage in transport pipes, companies

employ heating furnaces.

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

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

shown above) .

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

equipment production company.

The burner we provide has the following characteristics:

high degree of automation, energy conservation, high

turn-down ratio, high security and environmental safety.

Oil and Gas Production Improvement Techniques

high degree of automation, energy conservation,

high turn-down ratio, high security and environmental safety.

Oil and Gas Production Improvement

Packers of Fracturing.

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

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

makes the deblocking processes easier to realize.

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

which makes the deblocking processes easier to realize.

The back flushing is sand-stick proof.

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Sand Prevention in

Oil and Water Well.

Oil and Water Wells.

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

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

The resin sand goes through the borehole, piling

up and compacting at the borehole and oil vacancy layer.

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

sand prevention.

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

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

The resin sand goes through the borehole, piling up and compacting

at the borehole and oil vacancy layer.

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

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

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

Water Locating and

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Fissure Shaper.

This is our proprietary

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

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

of oil wells.

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

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

and increase the output of oil wells.

Fracture Acidizing.

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

The treatment process of the acid is

defined as fracture acidizing.

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

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.

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 oil and gas wells in

low permeability zones.

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.

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 System.

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

Natural Gas Flow

Computer System.

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

Recon Supervisory

Control and Data Acquisition System (“SCADA”).

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

and the union station for supervision and data collection.

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

station and the union station for supervision and data collection.

EPC Service of Pipeline

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Business Outlook

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:

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 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

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

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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.

We believe our oilfield SCADA system and assorted products, production managing expert software, 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

Transferring Equipment .

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

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

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.

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

burners will grow as compared to last year, especially in the Qinghai Oilfield and Zhongyuan Oilfield.

New business .

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

As a smaller China-focused

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

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

rarely entered those areas directly.

Large domestic

oil 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

company, our basic strategy focuses on developing our onshore oilfield business in the upstream sector of the industry.

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

entered those areas directly.

Large domestic oil

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

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

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 capability.

Recent Industry Developments

Despite uncertainty

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

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

(1) The opening of the Chinese oil industry

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

service segment to allow competition based on efficiency and price.

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

to find and convert reserves into usable energy sources.

As the industry has permitted competition by private companies and oil

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

(2) 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.

Affected by the worldwide

decrease in oil prices, CNPC and Sinopec, mother companies of our direct clients, cut off their Capital Expenditure and production

activities, resulting in a declining market and intensive competition.

Management will closely monitor the situation and will seek to extend our business on the industrial chain, such as through providing

more integrated services and advanced products and through 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:

Oil and gas price;

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

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

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

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

oil and gas industry;

the ongoing development of the oilfield service market in China;

inflation and other macroeconomic factors.

Our operating results

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

and gas price;

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

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

such corporate performance;

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

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

those targeting the Chinese oil and gas industry;

ongoing development of the oilfield service market in China;

and other macroeconomic factors.

Unfavorable changes

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

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

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

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

our ability to effectively manage our operating costs and expenses;

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

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

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

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

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

ability to effectively manage our operating costs and expenses;

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

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

Critical Accounting Policies and Estimates

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

We continually evaluate these estimates and

assumptions based on the most recently available information, our own historical experience and various other assumptions that

we believe to be reasonable under the circumstances.

Since the use of estimates is an integral component of the financial reporting

process, actual results could differ from those estimates.

An accounting policy is considered critical if it requires an accounting

estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different

accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to

occur periodically, could materially impact the consolidated financial statements.

We believe that the following policies involve

a higher degree of judgment and complexity in their application and require us to make significant accounting estimates.

The following

descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial

statements and other disclosures included in this quarterly report.

Significant accounting estimates reflected in our Company’s

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

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

We continually evaluate these

estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions

that we believe to be reasonable under the circumstances.

Since the use of estimates is an integral component of the financial

reporting process, actual results could differ from those estimates.

An accounting policy is considered critical if it requires

an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made,

and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably

likely to occur periodically, could materially impact the consolidated financial statements.

We believe that the following policies

involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates.

The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated

financial statements and other disclosures included in this quarterly report.

Significant accounting estimates reflected in our

Company’s consolidated financial statements include revenue recognition, allowance for doubtful accounts, inventory valuation,

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

Consolidation of VIEs

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Assets recognized

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

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

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

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

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

Revenue Recognition

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 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.

We recognize revenue

when the following four criteria are met:

(1) persuasive evidence of an arrangement exists, (2) delivery has occurred

or services have been provided, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured.

Delivery does not occur until products have been shipped or services have been provided to the customers and the customers have

signed a completion and acceptance report, risk of loss has transferred to the 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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that affect the customer’s final acceptance of the arrangement.

The Company sells self-developed software.

For software sales, the Company recognizes revenues in accordance with the provisions of Accounting Standards Codification, Topic

985-605, “Software Revenue Recognition,”

The Company sells

self-developed software.

For software sales, the Company recognizes revenues in accordance with the provisions of Accounting Standards

Codification, Topic 985-605, “Software Revenue Recognition,”

and related interpretations.

Revenue from software is recognized according

to project contracts.

Revenue from software is

recognized according to project contracts.

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

is short term.

Usually this is short term.

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

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

Revenue is recognized when services

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

Revenue is recognized when

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

Deferred income represents

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when measuring fair value.

The three levels of

inputs are defined as follows:

The three levels

of inputs are defined as follows:

Level 1 inputs to the valuation

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

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.

Trade receivables

are carried at the 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.

Deferred Tax Estimates

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

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

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

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

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

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

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

Estimated cash flows from the use of

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

Estimated cash flows from the use

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

to change in the future.

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There were no impairments at June 30, 2015

and December 31, 2015.

and March 31, 2016.

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

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Recently enacted accounting pronouncements

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 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

2015-16, Business Combinations (Topic 805):

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

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

balance sheet.

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

the acquisition date for adjustments to provisional amounts.

This guidance is effective for fiscal years beginning after December

15, 2015, including interim periods within fiscal years.

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

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

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

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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.

(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;

(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

The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim

periods within those fiscal years.

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 February 2016, the FASB issued ASU

2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840).

requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged.

The amendments in

this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.

application is permitted for all entities.

ASU 2016-02 requires a modified retrospective approach for all leases existing at,

or entered into after, the date of initial application, with an option to elect to use certain transition relief.

is currently evaluating the impact of this new standard on its consolidated financial statements.

In March 2016, the FASB issued Accounting

Standards Update No.

2016-06, Derivatives and Hedging (Topic 815):

Contingent Put and Call Options in Debt Instruments.

The amendments

apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined

to have a debt host) with embedded call (put) options.

The amendments clarify what steps are required when assessing whether the

economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks

of their debt hosts, which is one of the criteria for bifurcating an embedded derivative.

Consequently, when a call (put) option

is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call

(put) option is related to interest rates or credit risks.

Public business entities must apply the new requirements for fiscal

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

All other entities must apply the new requirements

for fiscal years beginning after December 15, 2017 and interim periods within fiscal years beginning after December 15, 2018.

All entities have the option of adopting the new requirements early, including adoption in an interim period.

If an entity early

adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of the fiscal year that

includes that interim period.

The Company does not expect any material impact of this new standard on its consolidated financial

In March 2016, the FASB issued Accounting

Standards Update No.

2016-07, Investments - Equity Method and Joint Ventures (Topic 323):

Simplifying the Transition to the Equity

Method of Accounting.

The amendments affect all entities that have an investment that becomes qualified for the equity method

of accounting as a result of an increase in the level of ownership interest or degree of influence.

The amendments eliminate the

requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership

interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively

on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held.

The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the

current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment

becomes qualified for equity method accounting.

Therefore, upon qualifying for the equity method of accounting, no retroactive

adjustment of the investment is required.

The amendments require that an entity that has an available-for-sale equity security

that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated

other comprehensive income at the date the investment becomes qualified for use of the equity method.

The amendments are effective

for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016.

The amendments

should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence

that result in the adoption of the equity method.

Earlier application is permitted.

The Company is currently evaluating the impact

of this new standard on its consolidated financial statements.

In April 2016, the FASB released ASU 2016-09,

Compensation - Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting .

The ASU includes

multiple provisions intended to simplify various aspects of the accounting for share-based payments.

While aimed at reducing the

cost and complexity of the accounting for share-based payments, the amendments are expected to significantly impact net income,

EPS, and the statement of cash flows.

Implementation and administration may present challenges for companies with significant

share-based payment activities.

The ASU is effective for public companies in annual periods beginning after December 15, 2016,

and interim periods within those years.

The Company is currently evaluating the impact of this new standard on its consolidated

financial statements.

In April 2016, FASB issued Accounting

Standards Update No.

2016-10, Revenue from Contracts with Customers (Topic 606):

Identifying Performance Obligations and Licensing .

The amendments clarify the following two aspects of Topic 606:

(a) identifying performance obligations;

licensing implementation guidance.

The amendments do not change the core principle of the guidance in Topic 606.

The effective

date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606.

Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim

reporting periods therein (i.e., January 1, 2018, for a calendar year entity).

Early application for public entities is permitted

only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting

The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

Results of Operations

The following consolidated results of operations

include the results of operations of the Company and its variable interest entities (“VIEs”), BHD and Nanjing Recon.

Our historical reporting results are not

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

Three Months Ended December 31, 2015 Compared to Three

Months Ended December 31, 2014

The following consolidated

results of operations include the results of operations of the Company and its variable interest entities (“VIEs”),

BHD and Nanjing Recon.

Our historical reporting

results are not necessarily indicative of the results to be expected for any future period.

Three Months Ended March 31, 2016 Compared to Three Months

Ended March 31, 2015

For the three months ended March 31, 2016,

oil price continued to be low, and our clients’

production activities and spending were kept at a minimum level.

operations and numbers still suffered from these adverse effects.

For the Three Months Ended

Hardware - non-related parties

Hardware - non-related

(12,728,641 )

Hardware - related parties

Software - non-related parties

Software - related parties

- related parties

Total revenues

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 an increase of sales of automation products.

(15,479,791 )

total revenues for the three months ended March 31,

2016 were approximately ¥4.5 million ($0.7 million), a decrease of approximately ¥15.5 million or 77.3% from ¥20.0

million for the three months ended March 31, 2015.

This was mainly caused by a decreased demand from our clients and intensely

competitive market conditions.

In more detail:

1) Hardware revenue.

During this quarter,

both furnaces and automation products sales decreased as a result of lower demand from

our clients as compared to the same period last year.

Hardware revenues for the quarter

of fiscal 2015 were mainly from projects we tracked a year earlier from our major clients,

CNPC and Sinopec, who were evaluating and adjusting their business plans, kept their

spending lower for 2015 .

As a result, there were fewer projects started, causing less revenue for the Company

for the third quarter of fiscal 2016.

As oil prices have rebounded a bit in the first

three months of 2016, our management expects this unfavorable trend will ease but expect

reduced revenue to continue for some period.

2) Software revenue.

Software used

in oilfield production management is highly recommended, but not essential.

sales and revenue related to software may fluctuate.

During the three-month period, there

were no software sales.

Cost and Margin

1 unchanged sentence

Total revenues

(15,479,791 )

Cost of revenues

(10,930,931 )

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 impact our cost.

Inventory reserve for changes in price

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

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

products and services.

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

Usually the prices

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

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

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

Inventory reserves for

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

Our cost of revenues

decreased from approximately ¥13.8 million in the three months ended March 31, 2015 to approximately ¥2.8 million ($0.4

million) for the same period in 2016, a decrease of approximately ¥11.0 million ($1.7 million), or 79.4%.

This decrease was

mainly caused by lower revenue during the three months ended March 31, 2016 compared to the same period of 2015.

Gross profit .

Our gross profit decreased to approximately ¥1.7 million ($0.3 million) for the three months ended March 31, 2016 from approximately

¥6.2 million for the same period in 2015 due to revenue decrease.

Our gross profit as a percentage of revenue increased to

37.5% for the three months ended March 31, 2016 from 31.2% for the same period in 2015.

This was mainly caused by deferred income

recognized as revenue in the 2016 period with little cost accrued.

Our software and hardware revenues are

detailed as below:

detailed below:

For the Three Months Ended

Total revenues-hardware and software- non related parties

Cost of revenues -hardware and software- non related parties

Total revenues-hardware

and software- non related parties

(13,819,736 )

Cost of revenues

-hardware and software- non related parties

(10,920,532 )

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.

and software to non-related parties decreased by approximately ¥13.8 million mainly due to the decrease of hardware products

sold in the three months ended March 31, 2016.

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

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.

¥2.9 million ($0.5 million) compared to the same period last year.

As a percentage of revenue, gross margin was 25.1% for

the three months ended March 31, 2015 and 37.5% for the three month period ended March 31, 2016.

This increase was mainly because

we had higher portions of consignment sales with lower margins in 2015 while there was no such business for 2016.

For the Three Months Ended

Total revenues-service

Cost of revenues-service

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.

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 companies, rather than obtaining the business in cooperation

with a local agency, which used to be our practice.

Operating Expenses

For the Three Months Ended

Selling and distribution expenses

Selling and distribution

General and administrative expenses

Research and development expenses

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

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 related expenses.

expenses decreased 26.2% or ¥0.3 million ($45.1 thousand), from approximately ¥1.1 million in the three months

ended March 31, 2015 to approximately ¥0.8 million ($0.1 million) in the same period of 2016.

This decrease was primarily

due to a decrease in traveling expense and payroll expense.

Selling expenses were 5.5% of total revenues in the three months ended

March 31, 2015 and 18.0% of total revenues in the same period of 2016.

General and administrative

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 debt allowance and other

miscellaneous expenses incurred in connection with general operations.

General and administrative expenses increased by 88.5%

or ¥3.7 million ($0.6 million), from approximately ¥4.2 million in the three months ended March 31, 2015 to

approximately ¥7.9 million ($1.2 million) in the same period of 2016.

General and administrative expenses were 20.9%

of total revenues in the three months ended March 31, 2015 and 174.0% of total revenues in the same period of 2016.

in general and administrative expenses was mainly due to an increase in share-based compensation and provisions accrued for doubtful

advanced purchases.

We made partial advanced payments for customized products for some projects in year 2014.

As these projects

were postponed and products design would need to be modified, management made provisions for these amounts based on best estimation.

Management is also negotiating with clients to minimize the loss.

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 ¥0.5 million for

the three months ended March 31, 2015 to approximately ¥1.2 million ($0.2 million) for the same period of 2016.

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.

was primarily due to more research and development expense on new generation automation platform system.

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

Income (loss) from

and other income (expense)

Loss before income tax

(benefit) for income tax

income attributable to non-controlling interest

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

Loss from operations was approximately ¥8.2 million ($1.3 million) for the three months ended March 31, 2016, compared to

an income of ¥0.4 million for the same period of 2015.

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

in revenues and increased research and development expenses.

in revenues and increased general and administrative 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.

Interest and other income was approximately ¥31.6 thousand ($5.0 thousand) for the three months

ended March 31, 2016, compared to interest and other expense of ¥2.0 million for the same period of 2015.

The ¥2.0 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 .

($0.3 million) decrease in interest and other expense was primarily due to the decreased loss from warrants redemption, which

only accrued for the three months ended March 31, 2015.

Provision (benefit)

for income tax .

Benefit for income tax for the three months ended March 31, 2015 was approximately ¥0.2 million.

for income tax was ¥1.4 million ($0.2 million) for the three months ended March 31, 2016.

This increase in provision for income

tax was mainly due to decrease of deferred tax assets recorded and income tax payable true-up during the three months ended

March 31, 2016.

During this period, based on available evidence, management concluded that it was more likely than not that there

would be no sufficient deductible income in future years and revaluated the deferred tax assets and the adjustment was recorded

as part of the total income tax provision.

As a result of the factors described above, net loss was approximately ¥9.6 million ($1.5 million) for the three months ended

March 31, 2016, a decrease of approximately ¥8.2 million ($1.3 million) from net loss of ¥1.4 million for the same period

Net 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

¥9.6 million ($1.5 million) for the three months ended March 31, 2016.

Net loss attributable to ordinary shareholders increased

for approximately ¥8.1 million ($1.3 million) from net loss attributable to ordinary shareholders of approximately ¥1.5

million for same period of 2015.

Nine Months Ended March 31, 2015 Compared to Nine Months

Ended March 31, 2016

For the Nine Months Ended

Hardware - non-related

Hardware - related parties

Software - non-related parties

Software - related parties

- 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.

total revenues for the nine months ended March 31, 2016 were approximately ¥37.0 million ($5.7 million), a decrease of approximately

¥8.7 million or 19.0% from ¥45.7 million for the nine months ended March 31, 2015.

This was mainly caused by a decrease

of sales of furnaces and consignment stock goods.

Cost and Margin

For the Six Months Ended

For the Nine Months Ended

Total revenues

1 unchanged sentence

Cost of revenues .

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

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

and services.

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

7 unchanged sentences

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.

decreased from approximately ¥29.8 million in the nine months ended March 31, 2015 to approximately ¥29.1 million ($4.5

million) for the same period in 2016, a decrease of approximately ¥0.7 million ($0.1 million), or 2.3%.

This decrease was

mainly caused by lower revenue during the nine months ended March 31, 2016 compared to the same period of 2015.

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.

Our gross profit decreased to approximately ¥7.9 million ($1.2 million) for the nine months ended March 31, 2016 from

approximately ¥15.8 million for the same period in 2015.

Our gross profit as a percentage of revenue decreased to 21.3% for

the nine months ended March 31, 2016 from 34.7% for the same period in 2015.

This was mainly due to the decrease of (1) software

sales with higher margins as compared with hardware revenues and (2) lower margins related to our bundled product and service

agreements due to the fiercely competitive environment existing in the oil sector this year.

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

For the Nine 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

and software to non-related parties decreased by approximately ¥7.2 million mainly due to the decreased orders from our customers

as the Company is continually facing pressure from tough competition.

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

parties decreased ¥5.9 million ($0.9 million) compared to the same period of last year.

For the Nine Months Ended

Total revenues-hardware

and software-related parties

Cost of revenues

-hardware and software- related parties

After the Company

achieved business entrance certification and were able to 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.

of result, there was no revenue or cost of hardware and software from related parties during 2016, since we developed business

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

For the Nine 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

revenue for the nine months ended March 31, 2015 and 2016 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.

The cost of revenues-service increased, since labor costs were incurred for the nine months ended March

Operating Expenses

For the Six Months Ended

Selling and distribution expenses

For the Nine Months Ended

Selling and distribution

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

organization, sales commissions, costs of our marketing programs including traveling 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.

increased approximately ¥0.4 million for the nine months ended March 31, 2016 compared to the same period in 2015.

This increase

was primarily due to an increase in shipping charges, service fees and rental fees.

Selling expenses were 6.7% 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 .

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 40.7% or ¥3.2 million ($0.5

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

revenues in the same period of 2015.

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

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

Research and development (“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

in the nine months ended March 31, 2015 and 9.3% of total revenues in the same period of 2016.

General and administrative

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 57.4%

or ¥6.9 million ($1.0 million), from approximately ¥12.0 million in the nine months ended March 31, 2015 to

approximately ¥18.9 million ($2.9 million) in the same period of 2016.

General and administrative expenses were 51.0%

of total revenues in the nine months ended March 31, 2016 and 26.3% of total revenues in the same period of 2015.

in general and administrative expenses was mainly due to an increase in provisions for purchase advances 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

for our research and development projects.

Research and development expenses increased from approximately ¥2.4 million for

the nine months ended March 31, 2015 to approximately ¥5.8 million ($0.9 million) for the same period of 2016.

This increase

was primarily due to more research and development expense spent on design of downhole service tools and automation platform systems.

For the Nine Months Ended

Loss from operations

(20,201,921 )

Interest and other income (expense)

(18,547,126 )

and other income (expense)

Income (loss) before income tax

1 unchanged sentence

(21,101,035 )

Provision (benefit) for income tax

Net income (loss)

for income tax

(20,995,182 )

(21,177,802 )

Net income attributable to non-controlling interest

Net income (loss) attributable to Recon Technology, Ltd

income attributable to non-controlling interest

attributable to Recon Technology, Ltd

(20,995,182 )

(20,631,731 )

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 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.

Loss from operations .

Loss from operations was approximately ¥20.2 million ($3.1 million) for the nine months ended March 31, 2016, compared to

a loss of ¥1.7 million for the same period of 2015.

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 and allowance accrued for doubtful accounts.

Interest and other

income (expense) .

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

March 31, 2016, compared to interest and other income of ¥2.3 million for the same period of 2015.

The ¥2.6 million ($0.4

million) decrease in interest and other income was primarily due to gain from change in fair value of warrants liability while

there was no such gain for the current period.

Provision for

Provision for income tax for the nine months ended March 31, 2015 was approximately ¥0.5 million.

for income tax was ¥0.5 million ($0.1 million) for the nine months ended March 31, 2016.

This slight increase in provision

for income tax was mainly due to deferred tax assets changes, offset by prior period income tax payable true-up during the nine

months ended March 31, 2016.

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.

As a result of the factors described above, net loss was approximately ¥21.0 million ($3.3 million) for the nine months ended

March 31, 2016, a decrease of approximately ¥21.2 million ($3.3 million) from net income of ¥0.2 million for the same

period of 2015.

Net loss attributable

to Recon Technology, Ltd .

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

¥21.0 million ($3.3 million) for the nine months ended March 31, 2016, a change of approximately ¥20.6 million ($3.2 million)

from net loss attributable to ordinary shareholders of approximately ¥0.4 million for same period of 2015.

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 Six Months Ended

Reconciliation of Adjusted EBITDA

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.

the Nine Months Ended

Reconciliation

of Adjusted EBITDA to Net Loss

Net income (loss)

(11,367,782 )

$ (1,751,395 )

(12,966,286 )

Provision for income taxes (benefit)

Interest expense and foreign currency adjustment

Interest expense and foreign currency

Change in fair value of warrants liability

Restricted shares issued for consulting services

Restricted shares issued for consulting

from warrant redemptions

Stock compensation expense

Depreciation and amortization

Adjusted EBITDA

$ (1,251,875 )

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 EBITDA decreased

by approximately ¥16.0 million ($2.5 million) to a loss of approximately ¥13.0 million ($2.0 million) for the nine months

ended March 31, 2016, compared to approximately ¥2.9 million income for the same period in 2015.

This was 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 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

For the Nine Months Ended

Reconciliation of Net Loss

attributable to Recon Technology, Ltd

to Adjusted Net Loss attributable

to Recon Technology, Ltd

loss attributable to Recon Technology, Ltd

(20,995,182 )

$ (3,255,395 )

Noncash items (A) :

Change in fair value of warrants liability

Restricted shares issued for consulting services

Stock compensation expense

Adjusted net loss attributable to Recon Technology, Ltd

in fair value of warrants liability

shares issued for consulting services

warrants redemption

compensation expense

net loss attributable to Recon Technology, Ltd

(14,989,418 )

$ (2,324,175 )

Reconciliation of U.S.

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

GAAP Adjusted Earnings Per Share

GAAP earnings (loss) per share

Impact of noncash items on earnings per share

Earnings (Loss) Per Share

GAAP Adjusted

Earnings Per Share

earnings (loss) per share

of noncash items on earnings per share

GAAP adjusted earnings per share

Weighted - average shares -diluted

(A) Noncash items are certain non-cash expenses

that are included in our U.S.

Weighted - average shares

(A) Noncash items are certain non-cash

expenses that are included in our U.S.

GAAP reported results.

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

understanding of Recon's current financial performance.

The non-GAAP financial measures are provided to enhance investors’

overall understanding of Recon's current financial performance.

Liquidity and Capital Resources

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

maturities of no more than six months.

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

¥3.1 million ($0.5 million).

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

As of March 31, 2016,

we had cash in the amount of approximately ¥2.6 million ($0.4 million).

As of June 30, 2015, we had cash in the amount of

approximately ¥12.3 million.

Indebtedness .

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

As of March 31, 2016, except for approximately ¥8.6 million ($1.3 million) of short-term borrowings from related parties,

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

guarantees or other material contingent liabilities.

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’

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’

registered capital.

These funds may be distributed to shareholders at the time of each Domestic Company’s

These funds may be distributed

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

Off-Balance Sheet

Arrangements .

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

any third parties.

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

of any third parties.

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

9 unchanged sentences

loans from related parties.

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

As of March 31, 2016, we had total assets of approximately ¥102.4 million ($15.9 million), which

includes cash of approximately ¥2.6 million ($0.4 million), net accounts receivable due from third parties of approximately

2 unchanged sentences

Cash from Operating

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.

Net cash used in operating activities was approximately ¥1.3 million ($0.2 million) for the nine months

ended March 31, 2016.

This was a decrease of approximately ¥14.9 million ($2.2 million) compared to net cash used in operating

activities of approximately ¥16.2 million for the nine months ended March 31, 2015.

The decrease in net cash used in operating

activities for the nine months ended March 31, 2016, was primarily attributable to the ¥5.7 million ($0.9 million) change

in trade accounts receivable due from third parties, ¥4.6 million ($0.7 million), change in trade accounts receivable due

from related parties and ¥4.4 million ($0.7 million) change in change in purchase advance.

Cash from Investing

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.

Net cash used in investing activities was approximately ¥0.4 million ($68.6 thousand) for the nine months

ended March 31, 2016, increased approximately ¥0.3 million compared to the same period in 2015, which is due to the decrease

in proceeds from disposal of equipment.

Cash from Financing

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

Net cash used in financing activities amounted to ¥8.1 million ($1.2 million) for the nine months ended March

31, 2016, as compared to net cash provided by financing activities of $3.0 million for the same period in 2015.

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.

During the nine

months ended March 31, 2016, we repaid ¥16.7 million ($2.6 million) short-term borrowings to two related parties and repaid

¥0.5 million ($0.1 million) short-term bank loans, and we received ¥8.5 million ($1.3 million) from one related party

and received ¥0.5 million ($0.1 million) short-term bank loans.

Working Capital .

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

Total working capital as of March 31, 2016 amounted to approximately ¥64.3 million ($10.0 million), compared to approximately

¥72.4 million as of June 30, 2015.

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

Total current assets as of March 31, 2016 amounted to approximately ¥98.8 million ($15.3

million), a decrease of approximately ¥25.7 million ($4.0 million) compared to approximately ¥124.5 million at June 30,

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.

The decrease in total current assets at March 31, 2016 compared to June 30, 2015 was mainly due to decreases in cash and

purchase advances.

Current liabilities

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

amounted to approximately ¥34.5 million ($5.4 million) at March 31, 2016, 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 trade accounts payable.

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

other payable-related parties and other payable-third parties.

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

the uncertainty of the current market, our management believes it is necessary to enhance collection of outstanding balance of

accounts receivable and other receivables, and to be cautious on operational decisions and project selection.

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.

1 unchanged sentence

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