What changed in this filing

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Item 1. Business

2016-09-28 compared with 2015-09-25 · 318 added, 369 removed, 327 unchanged (68% of the section changed)

13 unchanged sentences

in this report.

The Company serves as the center of

strategic management, financial control and human resources allocation for the Domestic Companies.

Through our contractual

relationships with the Domestic Companies, we provide equipment, tools and other hardware related to oilfield production and

management, and develop and sell our own specialized industrial automation control and information solutions.

However, we do

not engage in the production of petroleum or petroleum products.

The Company serves as the center of strategic

management, financial control and human resources allocation for the Domestic Companies.

Through our contractual relationships

with the Domestic Companies, we provide equipment, tools and other hardware related to oilfield production and management, and

develop and sell our own specialized industrial automation control and information solutions.

However, we do not engage in the

production of petroleum or petroleum products.

We believe that one of the most important

4 unchanged sentences

The Domestic Companies’

and our solutions

allow our customers to locate productive oilfields more easily and accurately, improve control over the extraction process, increase

and our solutions allow

our customers to locate productive oilfields more easily and accurately, improve control over the extraction process, increase

oil yield efficiency in tertiary stage oil recovery, and improve the transportation of crude oil.

6 unchanged sentences

Market Background

China is the world’s second-largest

consumer of petroleum products, third-largest importer of petroleum and sixth-largest producer of petroleum.

In the last twenty

years, China’s demand for oil has more than tripled, while its production of oil has only modestly increased.

a net importer of petroleum in 1983, and, since then, oil production in China has been focused on meeting the country’s

domestic oil consumption requirements.

The oil industry in China is dominated by three state-owned holding companies:

China National

Petroleum Corporation (CNPC), China Petroleum and Chemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC).

Foreign companies have also recently become involved in China’s petroleum industry;

however, according to Chinese law, China’s

national oil companies may take a majority (or minority) stake in any commercial discovery.

As a result, the number of major foreign

companies involved in the industry is relatively limited major foreign oil companies operating in China include::

Agip, Apache,

BP, ChevronTexaco, ConocoPhillips, Eni, ExxonMobil, Husky Energy, Kerr-McGee, Mitsubishi, Royal Dutch Shell, Saudi Aramco, and

China is the world’s second-largest consumer of petroleum products, third-largest importer of petroleum

and sixth-largest producer of petroleum.

In the last twenty years, China’s demand for oil has more than tripled, while its

production of oil has only modestly increased.

China became a net importer of petroleum in 1983, and, since then, oil production

in China has been focused on meeting the country’s domestic oil consumption requirements.

The oil industry in China is dominated

by three state-owned holding companies:

China National Petroleum Corporation (CNPC), China Petroleum and Chemical Corporation (Sinopec)

and China National Offshore Oil Corporation (CNOOC).

Foreign companies have also recently become involved in China’s petroleum

however, according to Chinese law, China’s national oil companies may take a majority (or minority) stake in any

commercial discovery.

As a result, the number of major foreign companies involved in the industry is relatively limited.

foreign oil companies operating in China include:

Agip, Apache, BP, ChevronTexaco, ConocoPhillips, Eni, ExxonMobil, Husky Energy,

Kerr-McGee, Mitsubishi, Royal Dutch Shell, Saudi Aramco, and Total.

In the past, China’s petroleum companies

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Our products and services include:

Equipment for Oil and Gas Production and

Transportation

High-Efficiency Heating Furnaces (as shown above by

process “6”).

Equipment for Oil and Gas Production and Transportation

High-Efficiency

Heating Furnaces (as shown above by process “6”).

Crude petroleum contains certain impurities that must be removed

before the petroleum can be sold, including water and natural gas.

To remove the impurities

and to prevent solidification and blockage in transport pipes, companies employ heating

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

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

Burner (as shown above by process “5”).

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;

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

(as shown above by process “5”).

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:

of automation;

energy conservation;

2 unchanged sentences

Oil and Gas Production Improvement Techniques

Packers of Fracturing.

This utility model is used

concertedly with the security joint, hydraulic anchor, and slide bushing of sand spray

of Fracturing.

This utility model is used concertedly with the security joint, hydraulic anchor, and slide bushing of sand

spray in the well.

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

model reduces desilting volume and prevents sand uptake which makes the deblocking processes

easier to realize.

The utility model reduces desilting volume and

prevents sand uptake which makes the deblocking processes easier to realize.

The back flushing is sand-stick proof.

Production Packer.

According to different withdraw points,

the production packer separates different oil layers, and protects the oil pipe from

sand and permeability, so as to promote the recovery ratio.

According to different withdraw points, the production packer separates different oil layers, and protects the oil pipe

from sand and permeability, so as to promote the recovery ratio.

Sand Prevention in Oil and Water Well.

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

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

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.

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 Plugging Technique.

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.

Locating and Plugging Technique.

High water cut affects the normal production of oilfields.

Previously, there were no sophisticated method for water locating

and tubular column plugging in China.

The mechanical water locating and tubular column plugging technique we have developed

resolves the problem of high water cut wells.

This technique conducts a self-sealing-test during multi-stage usage and is

reliable to separate different production sets effectively.

The water location switch forms a complete process by which

the water locating and plugging can be finished in one trip our tubular column is adaptable to several oil drilling methods

Previously, there was no sophisticated

method for water locating and tubular column plugging in China.

The mechanical water locating and tubular column plugging technique

we have developed resolves the problem of high water cut wells.

This technique conducts a self-sealing-test during multi-stage

usage and is reliable to separate different production sets effectively.

The water location switch forms a complete process by

which the water locating and plugging can be finished in one trip.

Our tubular column is adaptable to several oil drilling methods

and is available for water locating and plugging in second and third class layers.

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.

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

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

deeply, or the ones in the low permeable zones.

Electronic Broken-down Service.

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.

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

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

between 46% and 80%, shape stratum fissures, improve stratum diversion capability and, as a result, improve our ability to locate

oilfields and increase the output of oil wells.

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

The treatment process of the acid is defined

as fracture acidizing.

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

in the low permeable zones.

Broken-down Service.

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

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

Automation System and Service

Pumping Unit Controller.

Unit Controller.

Refers to process “1”

Functions as a monitor to the pumping unit, and also collects data for load, pressure,

voltage, startup and shutdown control.

RTU Used to Monitor Natural Gas Wells.

well pressure data.

Wireless Dynamometer and Wireless Pressure Gauge.

to process “1”

These products replace wired technology with cordless

displacement sensor technology.

They are easy to install and significantly reduce the

working load associated with cable laying.

Electric Multi-Way Valve for Oilfield Metering Station

Flow Control.

Functions as a monitor to the pumping unit, and also collects data for

load, pressure, voltage, startup and shutdown control.

Used to Monitor Natural Gas Wells.

Collects gas well pressure data.

Dynamometer and Wireless Pressure Gauge.

Refers to process “1”

This multi-way valve is used before

the test separator to replace the existing three valve manifolds.

It facilitates the

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

Natural Gas Flow Computer System.

Flow computer

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

Recon SCADA Oilfield Monitor and Data Acquisition System.

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 SCADA System.

technique for pipeline monitoring and data acquisition after crude oil transmission.

EPC Service of Oil and Gas Wells SCADA System.

technique for monitoring and data acquisition of oil wells and natural gas wells.

EPC Service of Oilfield Video Surveillance and Control

A video surveillance technique for controlling the oil and gas wellhead

area and the measurement station area.

Technique Service for “Digital Oilfield”

These products replace wired technology with

cordless displacement sensor technology.

They are easy to install and significantly reduce the working load associated with cable

Multi-Way Valve for Oilfield Metering Station Flow Control.

Refers to process “2”

This multi-way valve is used

before the test separator to replace the existing three valve manifolds.

It facilitates the electronic control of the connection

of the oil lead pipeline with the separator.

Gas Flow Computer System.

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

SCADA Oilfield Monitor and Data Acquisition System.

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

and the union station for supervision and data collection.

Service of Pipeline SCADA System.

A service technique for pipeline monitoring and data acquisition after crude oil transmission.

Service of Oil and Gas Wells SCADA System.

A service technique for monitoring and data acquisition of oil wells and natural gas

Service of Oilfield Video Surveillance and Control System.

A video surveillance technique for controlling the oil and gas

wellhead area and the measurement station area.

Service for “Digital Oilfield”

Transformation.

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for the following:

Nanjing Recon has received certification for the development

and service of RSCADA .

BHD has received certification for high efficiency heating

furnaces, import burners, and manometer surrogate rendition and service.

Recon has received certification for the development and service of RSCADA.

has received certification for high efficiency heating furnaces, import burners, and manometer surrogate rendition and service.

We operate our business by cooperating

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Most actual control

of our direct and indirect clients can be traced to Sinopec and CNPC, the two major Chinese state-owned companies responsible

for on-shore petroleum mining and extraction.

We have conducted automation projects for plants in three of China’s four

highest producing oilfields, Daqing, Shengli and Xinjiang.

We have undertaken the automation projects at the following locations,

among others:

Jiangsu Oil Field

Shengli Oil Field

The Northwest Division

The Southwest Division

Zhongyuan Oil Field

Sichuan Oil Field

Jianghan Oil Field

We provide products and services to

Sinopec under a series of agreements, each of which is terminable without notice.

We first began to provide services to

Sinopec in 1998.

Sinopec accounted for approximately 19.63% and 6.82% of our revenues for the fiscal years ended June 30,

2014 and 2015, respectively, and any termination of our business relationships with Sinopec would materially harm our

Qinghai Oil Field

Tuha Oil Field

Daqing Oil Field

Jidong Oil Field

Sichuan Oil Field

Xinjiang Oil Field

Huabei Oil Field

Jilin Oil Field

of our direct and indirect clients can be traced to Sinopec and CNPC, the two major Chinese state-owned companies responsible for

on-shore petroleum mining and extraction.

We have conducted automation projects for plants in three of China’s four highest

producing oilfields, Daqing, Shengli and Xinjiang.

We have undertaken the automation projects at the following locations, among

Northwest Division

Southwest Division

We provide products and services to Sinopec

under a series of agreements, each of which is terminable without notice.

We first began to provide services to Sinopec in 1998.

Sinopec accounted for approximately 8.85% and 6.82% of our revenues for the fiscal years ended June 30, 2016 and 2015, respectively,

and any termination of our business relationships with Sinopec would materially harm our operations.

We provide products and services to CNPC

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We first began to provide services to CNPC in 2000.

CNPC accounted for approximately 42.79% and 43.09% of our revenues in the fiscal years ended June 30, 2014 and 2015, respectively,

and any termination of our business relationships with CNPC would materially harm our operations.

accounted for approximately 75.36% and 43.09% of our revenues in the fiscal years ended June 30, 2016 and 2015, respectively, and

any termination of our business relationships with CNPC would materially harm our operations.

Our Strengths

Safety of products.

The automation projects we have

conducted have demonstrated that our products are reliable, safe and effective at automating

the petroleum extraction process.

Efficiency of technology.

We believe our technology

increases efficiency and profitability for petroleum companies by enabling them to monitor,

The automation projects we have conducted have demonstrated that our products are reliable, safe and effective at

automating the petroleum extraction process.

of technology.

We believe our technology increases efficiency and profitability for petroleum companies by enabling them to monitor,

manage and control petroleum extraction;

increase the amount of petroleum extracted and

reduce impurities in extracted petroleum.

Ability to leverage

our knowledge of Chinese business culture.

increase the amount of petroleum extracted and reduce impurities in extracted petroleum.

Ability to leverage our

knowledge of Chinese business culture.

Many of our competitors are based outside of China.

As the Domestic Companies

are based in China, we are in a unique position to emphasize Chinese culture and business knowledge to obtain new customers

and new agreements with existing customers.

We believe that many Chinese businesses, including state-owned companies like

Sinopec and CNPC, would prefer to hire a Chinese company to assist in their business operations if a Chinese company exists

with the ability to fulfill their needs on a timely and cost-efficient basis.

In addition, our knowledge of Chinese culture

allows us to anticipate and adapt to Chinese oilfield management methods.

We provide our software solutions in Mandarin for

the benefit of our Chinese customers, and all of our customer support is available from Mandarin fluent personnel.

Experienced, successful executive management team.

executive management team has significant experience and success in the petroleum automation

They will be able to draw on their knowledge of the industry and their relationships

in the industry.

Ability to leverage China’s cost structure.

a Chinese company, we believe we can operate our business more cost-effectively because

all of our employees, operations and assets are located in China, resulting in lower

labor, development, manufacturing and rent costs than we believe we would incur if we

also maintained operations abroad.

We expect these costs savings will be reflected in

lower costs to our customers for comparable products.

Ownership of our intellectual property.

Because we own

our intellectual property, we are able to avoid licensing fees or contravening licensing

As the Domestic Companies are

based in China, we are in a unique position to emphasize Chinese culture and business knowledge to obtain new customers and new

agreements with existing customers.

We believe that many Chinese businesses, including state-owned companies like Sinopec and

CNPC, would prefer to hire a Chinese company to assist in their business operations if a Chinese company exists with the ability

to fulfill their needs on a timely and cost-efficient basis.

In addition, our knowledge of Chinese culture allows us to anticipate

and adapt to Chinese oilfield management methods.

We provide our software solutions in Mandarin for the benefit of our Chinese

customers, and all of our customer support is available from Mandarin-fluent personnel.

successful executive management team.

Our executive management team has significant experience and success in the petroleum automation

They will be able to draw on their knowledge of the industry and their relationships in the industry.

to leverage China’s cost structure.

As a Chinese company, we believe we can operate our business more cost-effectively because

all of our employees, operations and assets are located in China, resulting in lower labor, development, manufacturing and rent

costs than we believe we would incur if we also maintained operations abroad.

We expect these costs savings will be reflected

in lower costs to our customers for comparable products.

of our intellectual property.

Because we own our intellectual property, we are able to avoid licensing fees or contravening licensing

Our Strategies

4 unchanged sentences

our market share in China.

We believe that as the Chinese economy and oil industry continue

to develop, Chinese petroleum extraction automation companies will compete with international

businesses at an increasing rate.

We believe that as the Chinese economy and oil industry continue to develop, Chinese petroleum extraction

automation companies will compete with international businesses at an increasing rate.

Consequently, we believe we will have opportunities

to take market share from foreign companies by developing positive business relationships

in China’s petroleum mining and extraction industry.

We will also use strategic

advertisements, predominantly in China’s northeast and northwest, where China’s

major oilfields are located, to increase our brand awareness and market penetration.

We aim to continue developing new technologies designed to improve petroleum mining and

extraction efficiency and profitability for our customers.

to take market share from foreign companies by developing positive business relationships in China’s petroleum mining and

extraction industry.

We will also use strategic advertisements, predominantly in China’s northeast and northwest, where

China’s major oilfields are located, to increase our brand awareness and market penetration.

We aim to continue developing

new technologies designed to improve petroleum mining and extraction efficiency and profitability for our customers.

our own branded products and services and shift our focus away from trading business.

Our management believes in the importance of our own branded products and our services,

in light of their higher profit margins and their long-term significance in establishing

Our management believes in the importance

of our own branded products and our services, in light of their higher profit margins and their long-term significance in establishing

the status of our Company in the oil and gas industry.

Moreover, the trading business

relies on the major clients’

procurement policies toward agencies, any significant

change of which could jeopardize our operating results.

Moreover, the trading business relies on the major clients’

policies toward agencies, any significant change of which could jeopardize our operating results.

Our management therefore believes

that in the long run we will need to focus our growth strategy in developing professional

services for the oil and gas industry in China.

that in the long run we will need to focus our growth strategy in developing professional services for the oil and gas industry

on higher-profit subsection of market.

While we plan to continue to provide services

to all of our clients, we believe that we may improve our profit margins by focusing

a higher portion of our advertising and promotions at those sub-divisions of our industry

While we plan to continue to provide services to all of our clients, we believe that we

may improve our profit margins by focusing a higher portion of our advertising and promotions at those sub-divisions of our industry

that have traditionally held the highest profit margins.

services to foreign oilfields contracted by Chinese petroleum companies.

As Sinopec and

CNPC continue to invest in oilfields in other countries, we will focus on offering our

services in these new locations based on our success in working with the companies in

Seek opportunities

with foreign companies in China.

Even where oilfields in China are partially operated

by foreign companies, a significant number of employees will be Chinese and will benefit

from our Chinese-language services.

We believe our hardware and software solutions would

be beneficial to any petroleum company doing business in China and plan to continue markeingt

to foreign companies entering the Chinese market.

As Sinopec and CNPC continue to invest in oilfields in

other countries, we will focus on offering our services in these new locations based on our success in working with the companies

opportunities with foreign companies in China.

Even where oilfields in China are partially operated by foreign companies, a significant

number of employees will be Chinese and will benefit from our Chinese-language services.

We believe our hardware and software

solutions would be beneficial to any petroleum company doing business in China and plan to continue marketing to foreign companies

entering the Chinese market.

services that generate high customer satisfaction levels.

Chinese companies in our market

are strongly influenced by formal and informal referrals.

We believe that we have the

opportunity to expand market share by providing high levels of customer satisfaction

with our current customers, thereby fostering strong customer referrals to support sales

We face competition from a variety of

foreign and domestic companies involved in the petroleum mining automation industry.

While we believe we effectively compete in

our market, our competitors hold a substantial market share.

A few of our existing competitors, as

well as a number of potential new competitors, have significantly greater financial, technical, marketing and other resources

than we do, which could provide them with a significant competitive advantage over us.

We cannot guarantee that we will be able

to compete successfully against our current or future competitors in our industry or that competition will not have a material

adverse effect on our business, operating results and financial condition.

Chinese companies in our market are strongly influenced by formal and

informal referrals.

We believe that we have the opportunity to expand market share by providing high levels of customer satisfaction

with our current customers, thereby fostering strong customer referrals to support sales activities.

We face competition from a variety of foreign

and domestic companies involved in the petroleum mining automation industry.

While we believe we effectively compete in our market,

our competitors hold a substantial market share.

A few of our existing competitors, as well

as a number of potential new competitors, have significantly greater financial, technical, marketing and other resources than we

do, which could provide them with a significant competitive advantage over us.

We cannot guarantee that we will be able to compete

successfully against our current or future competitors in our industry or that competition will not have a material adverse effect

on our business, operating results and financial condition.

Our primary domestic competitors include

the following:

Beijing Echo Technologies Development Co., Ltd.

Echo Technologies Development Co., Ltd.

(“BET”).

BET provides a combination of software and hardware products for

industrial automatic control systems in the petroleum industry.

BET currently engages

in research and development of software and hardware applied to industrial automatic

control systems, manufacturing and installation of industrial automation instruments

BET provides a combination of software and hardware products

for industrial automatic control systems in the petroleum industry.

BET currently engages in research and development of software

and hardware applied to industrial automatic control systems, manufacturing and installation of industrial automation instruments

and integration of automatic control products.

Beijing Golden-Time Petroleum Measurement Technology

Golden-Time Petroleum Measurement Technology Co., Ltd.

(“BGT”).

BGT develops analysis software used in oilfields but does

not yet, to our knowledge, produce a substantial amount of hardware products.

Anton Oilfield

Services Group (HKEx stock code:

3337) is a leading independent oilfield services provider

offering one-stop oil and gas field technical development services to oil companies.

Its services and solutions span across the drilling technology, well completion, down-hole

BGT develops analysis software used in oilfields but

does not yet, to our knowledge, produce a substantial amount of hardware products.

Anton Oilfield Services

Group (HKEx stock code:

3337) is a leading independent oilfield services provider offering one-stop oil and gas field technical

development services to oil companies.

Its services and solutions span across the drilling technology, well completion, downhole

operation, and oil production phases in the development cycle.

Its fast growth benefits

from the accelerated development of natural gas in China and the Group’s increased

presence in the overseas markets.

Its fast growth benefits from the accelerated development of natural

gas in China and the Group’s increased presence in the overseas markets.

Research and Development

We focus our research and development

efforts on improving our development efficiency and the quality of our products and services.

As of June 30, 2015, our research

and development team consisted of 41 experienced engineers, developers and programmers.

In addition, some of our support employees regularly participate in our research and development programs.

We focus our research and development efforts

on improving our development efficiency and the quality of our products and services.

As of June 30, 2016, our research and

development team consisted of 38 experienced engineers, developers and programmers.

In addition, some of our support employees

regularly participate in our research and development programs.

In the fiscal years ended June 30,

2015 and 2014, we spent approximately ¥4.2 million ($0.7 million) and ¥8.1 million, respectively, on research and development

2015 and 2016, we spent approximately ¥4.2 million and ¥6.9 million ($1.0 million), respectively, on research and development

Intellectual Property

1 unchanged sentence

dependent in part upon our ability to develop and maintain the proprietary aspect of our technology.

The reverse engineering,

unauthorized copying, or other misappropriation of our technology could enable third parties to benefit from our technology without

paying for it.

We rely on a combination of trademark, trade secret, copyright law and contractual restrictions to protect the

proprietary aspects of the Domestic Companies’

The reverse engineering, unauthorized

copying, or other misappropriation of our technology could enable third parties to benefit from our technology without paying for

We rely on a combination of trademark, trade secret, copyright law and contractual restrictions to protect the proprietary

aspects of the Domestic Companies’

and our technology.

9 unchanged sentences

We license the Domestic Companies’

and our software products under signed license agreements that impose restrictions on the licensee’s ability to utilize

the software and do not permit the re-sale, sublicense or other transfer of the software.

Finally, we seek to avoid disclosure

of the Domestic Companies’

and our software products under signed license agreements that impose restrictions on the licensee’s ability to utilize the

software and do not permit the re-sale, sublicense or other transfer of the software.

Finally, we seek to avoid disclosure of the

Domestic Companies’

and our intellectual property by requiring employees and independent consultants to execute confidentiality

Although we develop our software products,

in conjunction with the Domestic Companies, each software product is based upon middleware developed by third parties.

Although we develop our software products in conjunction with the Domestic Companies, each software product is based upon middleware developed by third parties.

this technology, licensed by our customers from third parties in our software products.

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Any claims, with or without merit, could be time consuming, result

in costly litigation, cause product shipment delays or require the Domestic Companies and us to enter into royalty or license

Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could

have a material adverse effect on our business, operating results and financial condition.

in costly litigation, cause product shipment delays or require the Domestic Companies and us to enter into royalty or license agreements.

Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could have a material

adverse effect on our business, operating results and financial condition.

Our standard software license agreements

4 unchanged sentences

We have never lost an infringement claim, and our costs to defend such lawsuits have been insignificant.

Although it is possible that in the future third parties may claim that our current or potential future software solutions or

we infringe on their intellectual property, we do not currently expect a significant impact on our business, operating results,

or financial condition.

Although it is possible that in the future third parties may claim that our current or potential future software solutions or we

infringe on their intellectual property, we do not currently expect a significant impact on our business, operating results, or

financial condition.

We market our products under the following

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classification valid from September 7, 2011 through September 6, 2021.

We currently own or have applied for the

following 25 patents registered with the State Intellectual Property Office which are applied on our automated products and heating

related equipment for the petroleum industry:

We currently own or have applied for the following 27 patents registered with the State Intellectual Property

Office which cover our automated products and heating related equipment for the petroleum industry:

Patent of fracturing packer valid until August 5,

Patent of pressure phase transition furnace

valid until August 5, 2018;

Patent of pressure phase transition furnace valid

until August 5, 2018;

Patent of vacuum furnace phase transition heater

21 unchanged sentences

February 9, 2022;

Patent of firebox indirect heating furnace

valid until December 14, 2022;

Patent of firebox indirect heating furnace valid

until December 14, 2022;

Patent of cylindrical-tubular furnace valid

9 unchanged sentences

November 11, 2023;

Four more patent applications

have been submitted and are pending approval.

Six more patent applications related to technology for wastewater treatment and furnaces have been submitted

and are pending approval.

We have registered the following software

products with the State Intellectual Property Office:

Recon automated monitoring system version 1 was published on

July 30, 2011;

Recon automated maintenance and production-management system

version 1 was published on July 10, 2011;

Recon SCADA field monitoring and data acquisition system software

version 4 was published on January 28, 2011;

Recon flow control computer monitoring system software was

registered and published on February 8, 2008;

Recon SCADA field monitoring and data acquisition system software

version 2 was published on August 18, 2003, and version 3 was registered and published

on April 5, 2008;

Recon wireless field monitoring and data acquisition system

software version 2 was published on January 8, 2011, and version 1 was registered and

published on September 15, 2010;

Recon automated monitoring system version 1 was published

on July 30, 2011;

Recon automated maintenance and production-management system version 1 was published on July 10, 2011;

Recon SCADA field monitoring and data acquisition system software version 4 was published on January 28, 2011;

Recon flow control computer monitoring system software was registered and published on February 8, 2008;

Recon SCADA field monitoring and data acquisition

system software version 2 was published on August 18, 2003, and version 3 was registered and published on April 5, 2008;

Recon wireless field monitoring and data acquisition system software version 2 was published on January 8, 2011, and

version 1 was registered and published on September 15, 2010;

Recon RCNAMT version 1 was published on April 27,

11 unchanged sentences

Protection of intellectual property in China follows a two-track system.

The first track is administrative in nature, whereby

a holder of intellectual property rights files a complaint at a local administrative office.

The first track is administrative in nature, whereby a

holder of intellectual property rights files a complaint at a local administrative office.

Determining which intellectual property

26 unchanged sentences

is renewable upon expiration.

Although some of Nanjing Recon’s current software products were registered in 2008, there

can be no guarantee that the registration will be renewed in 2013 or that the Domestic Companies’

and our future products

will be registered.

Although some of Nanjing Recon’s current software products were registered in 2008, there can

be no guarantee that the registration will be renewed in 2013 or that the Domestic Companies’

and our future products will

be registered.

Regulation of Intellectual Property Rights

1 unchanged sentence

intellectual property rights, including trademarks and copyrights.

China is a signatory to the main international conventions

on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights

upon its accession to the WTO in December 2001.

China is a signatory to the main international conventions on

intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon

its accession to the WTO in December 2001.

China adopted

The National People’s Congress amended the Copyright Law in 2001 to widen the scope of

works and rights that are eligible for copyright protection.

The amended Copyright Law extends copyright protection to software

products, among others.

The National People’s Congress amended the Copyright Law in 2001 to widen the scope of works

and rights that are eligible for copyright protection.

The amended Copyright Law extends copyright protection to software products,

among others.

In addition, there is a voluntary registration system administered by the China Copyright Protection Center.

Unlike patent and trademark registration, copyrighted works do not require registration for protection.

Protection is granted

to individuals from countries belonging to the copyright international conventions or bilateral agreements of which China is a

Nanjing Recon has ten copyrights for software programs.

patent and trademark registration, copyrighted works do not require registration for protection.

Protection is granted to individuals

from countries belonging to the copyright international conventions or bilateral agreements of which China is a member.

Recon has ten copyrights for software programs.

The Chinese Trademark

22 unchanged sentences

on November 9, 2011 in order to clarify the application of SAFE Circular 142.

Under SAFE Circular 142 and Circular 45, the

RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes

within the business scope approved by the applicable government authority and may not be used for equity investments within the

In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered

capital of foreign-invested enterprises.

The use of such RMB capital may not be changed without SAFE’s approval, and such

RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used.

Under SAFE Circular 142 and Circular 45, the RMB

capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within

the business scope approved by the applicable government authority and may not be used for equity investments within the PRC.

addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital

of foreign-invested enterprises.

The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital

may not in any case be used to repay RMB loans if the proceeds of such loans have not been used.

Since SAFE Circular 142 has been in place

3 unchanged sentences

in Certain Areas on August 4, 2014.

This circular suspends the application of SAFE Circular 142 in certain areas and allows a

foreign-invested enterprise registered in such areas with a business scope including “investment”

to use the RMB capital

converted from foreign currency registered capital for equity investments within the PRC.

This circular suspends the application of SAFE Circular 142 in certain areas and allows a foreign-invested

enterprise registered in such areas with a business scope including “investment”

to use the RMB capital converted from

foreign currency registered capital for equity investments within the PRC.

SAFE promulgated Circular 59 in November

5 unchanged sentences

violation, a fine ranging from 30% to 100% of the RMB funds converted from the foreign-invested funds.

In November 2012, SAFE promulgated the

Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially

amends and simplifies the current foreign exchange procedure.

Pursuant to this circular, the opening of various special purpose

foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts,

the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by

a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple

capital accounts for the same entity may be opened in different provinces, which was not possible previously.

In addition, SAFE

promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment

by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches

over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign

exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its

In November 2012, SAFE promulgated the Circular

of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends

and simplifies the current foreign exchange procedure.

Pursuant to this circular, the opening of various special purpose foreign

exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment

of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested

enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for

the same entity may be opened in different provinces, which was not possible previously.

In addition, SAFE promulgated the Circular

on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors

and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment

by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating

to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

Regulation of Dividend Distribution .

The principal regulations governing the distribution of dividends by foreign holding companies include the Foreign Investment

Enterprise Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2001).

The principal regulations governing the distribution of dividends by foreign holding companies include the Foreign Investment Enterprise

Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2001).

Under these regulations, foreign investment

5 unchanged sentences

These reserves are not distributable as cash dividends.

SAFE Circular 37, on July 4, 2014, which

replaced the former circular commonly known as “SAFE Circular 75”

In July 2014, SAFE promulgated SAFE Circular 37, which replaced the former circular commonly known as “SAFE

Circular 75”

promulgated by SAFE on October 21, 2005.

SAFE Circular

37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control

of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’

legally owned assets

or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special

purpose vehicle.”

SAFE Circular 37 further requires amendment to the registration in the event of any significant changes

with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer

or exchange, merger, division or other material event.

In the event that a PRC shareholder holding interests in a special purpose

vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited

from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities,

and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary.

failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for

evasion of foreign exchange controls.

SAFE Circular 37 requires PRC residents to register with local branches

of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment

and financing, with such PRC residents’

legally owned assets or equity interests in domestic enterprises or offshore assets

or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.”

SAFE Circular 37 further requires amendment

to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease

of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event.

In the event that

a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries

of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out

subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute

additional capital into its PRC subsidiary.

Furthermore, failure to comply with the various SAFE registration requirements described

above could result in liability under PRC law for evasion of foreign exchange controls.

Regulations on Foreign Investment

4 unchanged sentences

the following industries are encouraged for foreign investment in China:

Manufacturing

of equipment for oil exploration, drilling, collection and transportation:

floating drilling

systems and floating production systems with an operating water depth of more than 1,500

meters and the supporting subsea oil extraction, collection and transportation equipment

Exploration and exploitation of oil and natural gas with

venture capital (limited to equity joint ventures and cooperative joint ventures);

Development and application of new technologies that increase

the recovery ratio of crude oil (limited to equity joint ventures and cooperative joint

Development and application of new oil exploration and

exploitation technologies such as geophysical exploration, drilling, well logging, and

downhole operation, etc.

Manufacturing of equipment for oil exploration, drilling,

collection and transportation:

floating drilling systems and floating production systems with an operating water depth of more

than 1,500 meters and the supporting subsea oil extraction, collection and transportation equipment

and exploitation of oil and natural gas with venture capital (limited to equity joint ventures and cooperative joint ventures);

and application of new technologies that increase the recovery ratio of crude oil (limited to equity joint ventures and cooperative

joint ventures);

and application of new oil exploration and exploitation technologies such as geophysical exploration, drilling, well logging,

and downhole operation, etc.

(limited to cooperative joint ventures);

Exploration and development of unconventional oil resources

such as oil shale, oil sands, heavy oil, and excess oil (limited to cooperative joint

As of June 30, 2015, we had 80

employees, all of whom were based in China.

Of the total, 12 were in management, 38 were in technical support and research

and development, 13 were engaged in sales and marketing, 11 were in financial affairs, and six were in administration and

We believe that our relations with our employees are good.

We have never had a work stoppage, and our employees

are not subject to a collective bargaining agreement.

and development of unconventional oil resources such as oil shale, oil sands, heavy oil, and excess oil (limited to cooperative

joint ventures).

As of June 30, 2016, we had 83 employees,

all of whom were based in China.

Of the total, 12 were in management, 37 were in technical support and research and development,

17 were engaged in sales and marketing, 11 were in financial affairs, and 6 were in administration and procurement.

that our relations with our employees are good.

We have never had a work stoppage, and our employees are not subject to a collective

bargaining agreement.

We do not have any business interruption,

21 unchanged sentences

Occupational Injury Insurance

Risk Factors.

The Company is not required to provide

the information required by this Item because the Company is a smaller reporting company.

Staff Comments.

Unresolved Staff Comments.

The Company is not required to provide

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-K

Item 1. Business