What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2016-09-28 compared with 2015-09-25 · 683 added, 642 removed, 109 unchanged (92% of the section changed)

for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

of Equity Securities.

Market for Registrant’s Common Equity, Related

Stockholder Matters and Issuer Purchases of Equity Securities.

(a) Market for Our Ordinary Shares

We completed our initial public offering

on July 29, 2009.

The following table sets forth the quarterly high and low sale prices for our ordinary shares as reported

on the NASDAQ Capital Market.

Ended June 30, 2016

Quarter Ended September 30, 2015 (through September 23, 2015)

We completed our initial public offering on

July 29, 2009.

The following table sets forth the quarterly high and low sale prices for our ordinary shares as reported on

the NASDAQ Capital Market.

Year Ended June 30, 2016

8 unchanged sentences

Quarter Ended June 30, 2015

As of June 30, 2015, there were approximately

seven holders of record of our ordinary shares.

This excludes our ordinary shares owned by shareholders holding ordinary shares

under nominee security position listings.

On June 30, 2015, the last sales price of our ordinary shares as reported on the NASDAQ

Capital Market was $1.50 per ordinary share.

As of September 20, 2016, there were approximately seven holders of record of our ordinary shares.

This excludes

our ordinary shares owned by shareholders holding ordinary shares under nominee security position listings.

On September 20, 2016,

the last sales price of our ordinary shares as reported on the NASDAQ Capital Market was $1.11 per ordinary share.

Dividend Policy

We have never declared or paid any cash

dividends on our ordinary shares.

We anticipate that we will retain any earnings to support operations and to finance the growth

and development of our business.

We have never declared or paid any cash dividends

on our ordinary shares.

We anticipate that we will retain any earnings to support operations and to finance the growth and development

of our business.

Therefore, we do not expect to pay cash dividends in the foreseeable future.

Any future determination

relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors,

including future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors

may deem relevant.

Because we are a holding company with

no operations of our own and all of our operations are conducted through our Chinese subsidiary, our ability to pay dividends

and to finance any debt that we may incur is dependent upon dividends and other distributions paid.

In addition, Chinese legal

restrictions permit payment of dividends to us by our Chinese subsidiary only out of its accumulated net profit, if any, determined

in accordance with Chinese accounting standards and regulations.

Under Chinese law, our subsidiary is required to set aside a

portion (at least 10%) of its 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 subsidiaries’

Any future determination relating

to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including

future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem

Because we are a holding company with no operations

of our own and all of our operations are conducted through our Chinese subsidiary, our ability to pay dividends and to finance

any debt that we may incur is dependent upon dividends and other distributions paid.

In addition, Chinese legal restrictions permit

payment of dividends to us by our Chinese subsidiary only out of its accumulated net profit, if any, determined in accordance with

Chinese accounting standards and regulations.

Under Chinese law, our subsidiary is required to set aside a portion (at least 10%)

of its 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 subsidiaries’

registered capital.

These funds may be distributed

to shareholders at the time of its wind up.

See “Management’s Discussion and Analysis of Financial Condition and Results

of Operations—Holding Company Structure.”

Payments of dividends by our subsidiary

in China to the Company are also subject to restrictions including primarily the restriction that foreign invested enterprises

may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing

valid commercial documents.

These funds may be distributed to shareholders

at the time of its wind up.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Holding

Company Structure.”

Payments of dividends by our subsidiary in

China to the Company are also subject to restrictions including primarily the restriction that foreign invested enterprises may

only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid

commercial documents.

There are no such similar foreign exchange restrictions in the Cayman Islands.

(b) We are not required to provide any

disclosure under this item, as we have applied all of the net proceeds from our initial public offering, as disclosed in our annual

report on Form 10-K for the year ended June 30, 2011.

(b) We are not required to provide any disclosure

under this item, as we have applied all of the net proceeds from our initial public offering, as disclosed in our annual report

on Form 10-K for the year ended June 30, 2011.

While we have filed a shelf registration statement on Form S-3 (SEC no.

declared effective August 14, 2013), we have sold 546,500 shares under such registration statement.

Financial Data.

The Company is not required to provide

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

Management’s

Discussion and Analysis of Financial Condition and Results of Operation.

The following discussion and analysis

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

Selected Financial Data.

The Company is not required to provide the

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

Management’s Discussion and Analysis of Financial

Condition and Results of Operation.

The following discussion and analysis of

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

statements and the related notes included elsewhere in this report.

3 unchanged sentences

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 our Domestic Companies.

As the company contractually controls the Domestic Companies,

the Company serves as the center of strategic management, financial control and human resources allocation for the Domestic Companies.

Our business is mainly focused on the

upstream sectors of the oil and gas industry.

We derive our revenues from the sales and provision of (1) oilfield dedicated products

and accessories, and (2) stimulation technology and services.

Our products and services involve most of the key procedures of

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

Our VIEs provide the oil and gas industry

with equipment, production technologies, automation and services to enhance our customers’

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

We derive our revenues from the sales and provision of (1) oilfield automation products, (2) equipment for oil and gas production

and transportation, (3) waste water treatment products, and (4) engineering services.

Our products and services involve most of

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

technical services.

Nanjing Recon:

Nanjing Recon is a high-tech company that

specializes in automation services for oilfield companies.

It mainly focuses on providing

automation solutions to the oil exploration industry, including monitoring wells, automatic

metering to the joint station production, process monitor, and a variety of oilfield

equipment and control systems.

BHD is a high-tech company that specializes in transportation

equipment and stimulation productions and services.

Possessing proprietary patents and

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

with the major oilfields in China.

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

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.

proprietary patents and substantial industry experience, BHD has built up stable and strong working relationships with the major

oilfields in China.

Recent Developments

During this year, affected by decreased

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

period of last year.

On January 29, 2015, the shareholders of

the Company approved the Second Amended and Restated Memorandum of Association and Articles of Association which, among other

things, increases of the authorized ordinary shares from 25,000,000 to 100,000,000.

On May 13, 2015, the Company entered into

an Equity Distribution Agreement with Maxim Group LLC to create an at-the-market equity program (the “ATM Offering”)

under which it may sell up to $10,000,000 worth of its ordinary shares (the “Shares”) from time to time through Maxim

Group LLC, as sales agent.

As of September 16, 2015, 313,071 shares have been issued under this agreement, among which 15,874

shares are issued after June 30, 2015.

On September 22, 2015, the

Company entered into an amendment to the Letter Agreement (the “Agreement”) with Maxim Group LLC dated January

28, 2015, extending the term of the Agreement for an additional six months, or until February 29, 2016.

On July 23, 2016, our board of directors resolved

not to proceed with the Company’s plan to acquire Qinghai Huayou Downhole Technology Co., Ltd., a PR China limited liability

company (“QHHY”), and, as a result, terminated the share purchase agreement and related control agreements (together,

the “Agreements”) between the Company, its wholly owned subsidiary Recon Hengda Technology (Beijing) Co., Ltd., QHHY

and QHHY’s shareholders.

As previously reported on

our Form 8-K filed with the Securities and Exchange Commission on December 7, 2015, pursuant to the Agreements, Recon BJ was to

acquire QHHY, a China-based oil field service provider, in exchange for $3.60 million worth of the Company’s ordinary shares

and up to $4.8 million in cash, subject to QHHY achieving certain operating goals.

The Board of Directors determined that it would

terminate the Agreements following the completion of an audit of QHHY for the 2014 and 2015 fiscal years and a review of the first

two quarters of the 2016 fiscal year, after which time the Company determined that QHHY had not met its financial projections

for fiscal 2015 and was not expected to achieve its projections for fiscal 2016.

The parties attempted to renegotiate the terms

of the acquisition, but were unable to reach an agreement based on the decreased valuation of QHHY.

The Company faces no early

termination penalties as a result of terminating the Agreements.

QHHY was founded by the

Company’s Chief Technology Officer and director, Chen Guangqiang.

Chen sold his ownership interest in QHHY on December

The current shareholders of QHHY are not affiliated with the Company.

Products and Services

We currently provide products and services 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 include:

Equipment for Oil and Gas Production and

Transportation

High-Efficiency Heating

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.

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

Packers of Fracturing.

This utility model is used in concert with the security joint, hydraulic anchor, and slide brushing of sand spray in the well.

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 back flushing is sand-stick proof.

Production Packer.

varying withdrawal points, the production packer separates different oil layers and protects the oil pipe from sand and permeation,

promoting the recovery ratio.

Sand Prevention in Oil

and Water Well.

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

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.

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

High water cut affects the normal production of oilfields.

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 set by which the water locating and plugging

can be finished in one trip.

The 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.

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.

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 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.

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 monitor collects gas well

pressure data.

Wireless Dynamometer and

Wireless Pressure Gauge.

These products replace wired technology with cordless displacement sensor technology.

They are easy to

install and significantly reduce the work load associated with cable laying.

Electric Multi-way Valve

for Oilfield Metering Station Flow Control.

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

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.

EPC Service of Pipeline

SCADA System.

This service technique is used for pipeline monitoring and data acquisition after crude oil transmission.

EPC Service of Oil and

Gas Wells SCADA System.

This service technique is used for monitoring and data acquisition of oil wells and natural gas wells.

EPC Service of Oilfield

Video Surveillance and Control System.

This video surveillance technique is used for controlling the oil and gas wellhead area

and the measurement station area.

Technique Service for

“Digital oilfield”

Transformation.

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

video surveillance and control systems and communication systems.

Factors Affecting Our Business

Business Outlook

The oilfield engineering and technical

service industry is generally divided into five sections:

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

(4) production and (5) oilfield construction.

Our businesses have mainly focused on production processes.

As of this year, we

are also expanding our business to well completion and horizontal well down-hole service process.

We still believe that many existing

oil wells and oilfields are in need of renewal and improvement on their current equipment to maintain production.

We also believe

that as many new wells are developed, our gathering and transferring equipment will be able to service an industry need.

in the next year, we will focus on the following areas.

The oilfield engineering and technical service industry is generally divided into five sectors:

(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

In the next three years, we plan to focus on the following:

Measuring Equipment and Service .

“Digital oil field”

and the management of oil companies are highly regarded.

We believe our oilfield Supervisory Control

and Data Acquisition (“SCADA”) and related technical support services will address the needs of the oil well automation

system market.

Through early cooperation with CNPC in Turkmenistan, we have developed our experience in this market.

bidding has not yet commenced, we will continue pursuing overseas business projects in the coming second phase construction.

Digital oil field technology and the management of oil companies

are highly regarded in the industry.

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 more compared to

last year, especially in the Jilin Oilfield and Xinjiang Oilfield.

Fracturing business .

believe we cooperated well with Zhongyuan Oilfield in 2013 and expect to continue growing revenue from fracturing and related

stimulation services 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 .

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

Recently, this market has developed

After a year long test project for one of our client, we have developed experience with this technology and our products

and services have been accepted by our client.

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

Recent Industry Developments

Despite uncertainty in the energy industry

related to such matters as fluctuating prices and future opportunities for oil companies, our management believes there are still

many factors to support our long-term development:

(1) The opening of the Chinese oil industry

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

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) Speeding up the development of unconventional

hydrocarbon resources such as shale gas and coal bed methane will bring more requirements of related techniques and service.

is rich in unconventional hydrocarbon resources, but new exploration and development technology breakthroughs are urgently needed;

(3) Overseas assets of Chinese

oilfield companies have increased gradually, and we expect this increase will provide more opportunity for domestic

service companies to participate in foreign projects going forward.

Management is focused on these

factors and will seek to extend our business on the industrial chain, such as by providing more integrated services and

incremental measures and growing our business from a predominantly up-ground business to include some down-hole services as

are in the process of expanding our business through the acquisition of a downhole 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 local company in the

PRC, it is our basic strategy to focus on developing our onshore oilfield business, i.e.

the upstream segment of the

Due to the remote locations and difficult environment existing in China’s oil and gas fields, at present,

there are few foreign competitors.

Large domestic oil companies prefer to

focus on their exploration and development businesses to earn higher margins and maintain their competitive advantage.

to private oilfield service companies, 90% specialize in the manufacture of drilling and production equipment.

Thus, the market

for technical support and project service is still in its early stages.

Our management focuses on providing high quality products

and services at oilfields where we have a geographical advantage.

Such strategy allows us to avoid conflicts of interest with bigger

suppliers of drilling equipment and keep our leading position within the market segment.

Our mission is to increase the automation

and safety levels of industrial petroleum production in China, and improve its efficiency and effectiveness through advanced technologies.

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

As a smaller China-focused

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

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

of drilling and production equipment.

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

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

helps us to avoid conflicts of interest with bigger suppliers of drilling equipment while protecting our position within this market

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

Affected by the worldwide decrease in oil prices, CNPC and Sinopec, parent companies of our direct clients,

cut off their capital expenditure and production activities, resulting in a declining market and intensive competition.

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 above-ground business to include

some downhole services as well.

Factors Affecting Our Results of Operations

Our operating results in any period are

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

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 enhance 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 oil and gas industry in China;

the ongoing development of the oilfield service market in

inflation and other factors.

Unfavorable changes in any of these general

conditions could negatively affect the number and size of the projects we undertake, the number of products we sell, the amount

of services we provide, the price of our products and services or otherwise affect our results of operations.

Our operating results in any period are

more directly affected by company-specific factors including:

revenue growth in relation to 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 customers both old

and new in the oil and gas industry in China;

our ability to effectively manage our operating costs and

our ability to effectively implement any targeted acquisitions

and/or strategic alliances so as to provide efficient access to the markets in the oil

and gas industry.

Our operating results

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

oil and gas prices;

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

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

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

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

the ongoing development of the oilfield service market in China;

inflation and other macroeconomic factors.

Unfavorable changes in

any of these general conditions could negatively affect the number and size of the projects we undertake, the number of products

we sell, the amount of services we provide, the price of our products and services, and otherwise affect our results of operations.

Our operating results

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 in China;

our ability to effectively manage our operating costs and expenses;

our ability to effectively implement any targeted acquisitions and/or strategic alliances so as to provide efficient access to markets and industries in the oil and gas industry in China.

Critical Accounting Policies and Estimates

Estimates and Assumptions

We prepare our consolidated financial

statements in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”),

which require us to make judgments, estimates and assumptions.

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, deferred taxes, allowance for doubtful accounts, the fair value of share-based

payments, warrants liability and useful lives of property and equipment.

We prepare our consolidated financial statements

in conformity with accounting principles generally accepted in the United States of 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

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

We recognize an entity as a variable interest

entity, or VIE, if it either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated

We recognize an entity

as a VIE if it either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated

financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest.

We consolidate

a VIE as its primary beneficiary when we have both the power to direct the activities that most significantly impact the entity’s

a VIE as our primary beneficiary when we have both the power to direct the activities that most significantly impact the entity’s

economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially

be significant to the VIE.

We will continue to make ongoing assessment of whether our VIEs still continue to be VIEs and whether

we continue to be the primary beneficiary.

Assets recognized as a result of consolidating

VIEs do not represent additional assets that could be used to satisfy claims against our general assets.

Conversely, liabilities

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

rather, they represent

claims against the specific assets of the consolidated VIEs.

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

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

Assets recognized as a

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

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

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

Revenue Recognition

We recognize revenue when the following

four criteria are met:

(1) persuasive evidence of an arrangement exists;

(2) delivery has occurred or services have

been provided;

(3) the sales price is fixed or determinable;

and (4) collectability is reasonably assured.

does not occur until products have been shipped or services have been provided to the client and the client has signed a completion

and acceptance report, risk of loss has transferred to the client, client acceptance provisions have lapsed, or the Company has

objective evidence that the criteria specified in client acceptance provisions have been satisfied.

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 sales is generally

recognized when the product is shipped to the customer and when there are no unfulfilled company obligations that affect the customer’s

final acceptance of the arrangement.

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.

Hardware and software

Revenue from hardware and software sales is

generally recognized when the product with the embedded software system is shipped to the customer and when there are no unfulfilled

company obligations that affect the customer’s final acceptance of the arrangement.

Revenue from software is recognized according

to project contracts.

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

this is short term.

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

The Company provides 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.

Usually this is short term.

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

The Company provides 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.

Deferred income represents unearned amounts

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Cost of Revenues

When the criteria for revenue recognition

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

Cost of revenues includes wages, materials, handling charges,

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

and inventory reserve.

When the criteria for revenue recognition have

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

Cost of revenues includes wages, materials, handling charges, the cost

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

inventory reserve.

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

It is possible that we could incur development

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

It is possible that we could incur development costs

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

Fair Values of Financial Instruments

The US GAAP accounting standards regarding

fair value of financial instruments and related fair value measurements define fair value, establish a three-level valuation hierarchy

that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair

The three levels of inputs are defined

Level 1 inputs to the valuation methodology

are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology

include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability,

either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology

are unobservable.

The carrying amounts reported in the consolidated

balance sheets for trade accounts receivable, other receivables, advances to suppliers, trade accounts payable, accrued liabilities,

advances from customers and notes payable approximate fair value because of the immediate or short-term maturity of these financial

Long-term receivables and borrowings approximate fair value because their interest rates charged approximate the

market rates for financial instruments with similar terms.

The fair value of the warrants liability was determined using the Black-Scholes

Model, as Level 2 inputs (See Note 13).

Any changes in the assumptions that are used in the Black-Scholes Model may increase or

decrease the warrants liability from quarter to quarter and any change in adjustment would be charged to operations .

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.

The US GAAP accounting

standards regarding fair value of financial instruments and related fair value measurements define fair value, establish a three-level

valuation hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs

when measuring fair value.

The three levels of inputs

are defined as follows:

Level 1 inputs to the valuation

methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation

methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the

asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation

methodology are unobservable.

The carrying amounts reported

in the consolidated balance sheets for trade accounts receivable, other receivables, advances to suppliers, trade accounts payable,

accrued liabilities, advances from customers and notes payable approximate fair value because of the immediate or short-term maturity

of these financial instruments.

Long-term receivables and borrowings approximate fair value because their interest rates charged

approximate the market rates for financial instruments with similar terms.

The fair value of the warrants liability was determined

using the Black-Scholes Model, as Level 2 inputs.

Any changes in the assumptions that are used in the Black-Scholes Model may increase

or decrease the warrants liability from quarter to quarter.

Any change in the estimate of the fair value of the warrants liability

would be charged to operations.

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.

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

Deferred Tax Estimates

As part of the process

of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the tax jurisdictions

in which we operate.

This process involves using an asset and liability approach whereby deferred tax assets and liabilities are

recorded for differences in the financial reporting bases and tax bases of our assets and liabilities.

Deferred tax accounting

requires that we evaluate net deferred tax assets by jurisdiction to determine if these assets will more likely than not be realized.

This analysis requires considerable judgment and is subject to change to reflect future events and changes in the tax laws.

an allowance is established against our deferred tax assets because they may not be fully realizable in the future, our net income

and earnings per share would decrease.

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

Valuation of Long-Lived Assets

review the carrying values of our long-lived assets for impairment whenever events or changes in circumstances indicate that they

may not be recoverable.

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

and its eventual disposition over the remaining life of the asset.

If projections indicate that the carrying value of the long-lived

asset will not be recovered, we reduce the carrying value of the long-lived asset by the estimated excess of the carrying value

over the projected discounted cash flows.

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

Estimated cash flows from the use of the long-lived assets are highly uncertain and therefore the estimation of the need to impair

these assets is reasonably likely to change in the future.

Should the economy or the acceptance of our software change in the

We review the carrying values of our long-lived assets for impairment whenever events or changes in circumstances

indicate that they may not be recoverable.

When such an event occurs, we project undiscounted cash flows to be generated from the

use of the asset and its eventual disposition over the remaining life of the asset.

If projections indicate that the carrying value

of the long-lived asset will not be recovered, we reduce the carrying value of the long-lived asset by the estimated excess of

the carrying value over the projected discounted cash flows.

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

Estimated cash flows from the use of the long-lived assets are highly uncertain and therefore the estimation of the need

to impair these assets is reasonably likely to change in the future.

Should the economy or acceptance of our assets change in the

future, it is likely that our estimate of the future cash flows from the use of these assets will change by a material amount.

There were no impairments at June 30, 2014 and June 30, 2015.

There were no impairments at June 30, 2015 and 2016.

However, if impairments were required, our net income and earnings per share

would decrease accordingly.

Share-Based Compensation

The Company accounts

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

Under the fair value recognition provisions

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

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

The Company has

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

the award’s fair value.

Recently enacted

accounting pronouncements

In June 2015, the Financial Accounting

Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2015-10, “Technical Corrections

and Improvements.”

This ASU corrects for differences between original guidance and the Accounting Standards Codification

(“ASC”) and makes minor improvements affecting several topics.

We are currently in the process of evaluating this

standard, but do not expect its adoption to have a material impact on our consolidated financial statements.

The amendments in

this Update will apply to all reporting entities within the scope of the affected accounting guidance.

In July 2015, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2015-11, “Inventory (Topic 330) - Simplifying

the Measurement of Inventory.”

The amendments in this Update do not apply to inventory that is measured using last-in, first-out

(LIFO) or the retail inventory method.

The amendments apply to all other inventory, which includes inventory that is measured

using first-in, first-out (FIFO) or average cost.

An entity should measure inventory within the scope of this Update at the lower

of cost and net realizable value.

Net realizable value is the estimated selling prices in the ordinary course of business, less

reasonably predictable costs of completion, disposal, and transportation.

The amendments in this Update more closely align the

measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS).

public business entities, The amendments in this Update are effective for fiscal years beginning after December 15, 2016, including

interim periods within those fiscal years.

We are currently in the process of evaluating this standard, but do not expect its

adoption to have a material impact on our consolidated financial statements.

The Company accounts for share-based compensation in accordance with Accounting

Standards Codification (ASC) Topic 718, Share-Based Payment.

Under the fair value recognition provisions of this topic, share-based

compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense with graded vesting

on a straight–line basis over the requisite service period for the entire award.

The Company has elected to mainly utilize

the Black-Scholes valuation model to estimate an award’s fair value.

Recently enacted accounting pronouncements

In April 2016, the FASB released Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation

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

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 period.

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

In May 2016, the FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging

Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements

at the March 3, 2016 EITF Meeting”, The amendments rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the

March 3, 2016 Emerging Issues Task Force (EITF) meeting.

Specifically, registrants should not rely on the following SEC Staff Observer

comments upon adoption of Topic 606:

(1) Revenue and Expense Recognition for Freight Services in Process, which is codified in

paragraph 605-20-S99-2;

(2) Accounting for Shipping and Handling Fees and Costs, which is codified in paragraph 605-45-S99-1;

Accounting for Consideration Given by a Vendor to a Customer (including Reseller of the Vendor's Products), which is codified in

paragraph 605-50-S99-1;

and (4) Accounting for Gas-Balancing Arrangements (i.e., use of the "entitlements method"), which

is codified in paragraph 932-10-S99-5, which is effective upon adoption of ASU 2014-09.

The Company is currently in the process

of evaluating the impact of the adoption on its consolidated financial statements.

In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts

with Customers (Topic 606):

Narrow-Scope Improvements and Practical Expedients".

The amendments, among other things:

the objective of the collectability criterion for applying paragraph 606-10-25-7;

(2) permit an entity to exclude amounts collected

from customers for all sales (and other similar) taxes from the transaction price;

(3) specify that the measurement date for noncash

consideration is contract inception;

(4) provide a practical expedient that permits an entity to reflect the aggregate effect of

all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied

performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied

performance obligations;

(5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially

all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that

retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the

accounting change for the period of adoption.

The effective date of these amendments is at the same date that Topic 606 is effective.

The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, “Financial

Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”

(“ASU 2016-13”)

which requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down.

This approach is an improvement to current GAAP because an entity will be able to record reversals of credit losses (in situations

in which the estimate of credit losses declines) in current period net income, which in turn should align the income statement

recognition of credit losses with the reporting period in which changes occur.

Current GAAP prohibits reflecting those improvements

in current period earnings.

ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, and requires

a modified retrospective approach to adoption.

Early adoption is permitted for interim and annual periods beginning after December

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

In August 2016, the FASB has issued ASU No.

2016-15, Statement

of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash

receipts and cash payments are presented and classified in the statement of cash flows.

The amendments provide guidance on the

following eight specific cash flow issues:

(1) Debt Prepayment or Debt Extinguishment Costs;

(2) Settlement of Zero-Coupon Debt

Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate

of the Borrowing;

(3) Contingent Consideration Payments Made after a Business Combination;

(4)Proceeds from the Settlement of Insurance

(5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned;

(6) Life Insurance Policies;

(7) Distributions Received from Equity Method Investees;

(8) Beneficial Interests in Securitization Transactions;

and Separately

Identifiable Cash Flows and Application of the Predominance Principle.

The amendments are effective for public business entities

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

For all other entities, the

amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning

after December 15, 2019.

Early adoption is permitted, including adoption in an interim period.

The amendments should be applied

using a retrospective transition method to each period presented.

If it is impracticable to apply the amendments retrospectively

for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable.

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

Results of Operations

The following consolidated results of

operations include the results of operations of the Company and its VIEs, BHD and Nanjing Recon.

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

Our historical reporting results are not

1 unchanged sentence

For the Years Ended

Hardware - non-related parties

(35,673,461 )

Hardware - related parties

Software - non-related parties

Software - related parties

Hardware and software- non-related parties

Hardware and software- related parties

Total revenues

Our total revenues for the year ended June 30, 2016 were approximately ¥42.7 million ($6.4 million), a

decrease of approximately ¥8.8 million or 17.1% from ¥51.5 million for the year ended June 30, 2015.

The overall decrease

in revenue was mainly caused by decreased revenue our hardware and software revenue, which includes revenue from automation products

and embedded software, equipment and accessories.

The decrease in hardware and software revenue was mainly caused by lowered requirements

of equipment or furnaces for the first half of fiscal year 2016.

Also, unfavorable industry trends caused by low oil prices led

to intense price competition;

thus, the unit price for furnaces also decreased compared to prior levels.

Revenue –

Hardware and software- non-related parties

For the year Ended

Automation product and software

Equipment and accessories

(12,507,597 )

Our total revenues for the year ended

June 30, 2015 were approximately ¥51.5 million ($8.5 million), a decrease of approximately ¥41.9 million or 44.9% from

¥93.4 million for the year ended June 30, 2014.

This was mainly caused by:

business - non - related parties.

During the year ended June 30, 2015, the decrease in

hardware revenue was mainly caused by lower sales of furnaces and automation system.

Hardware –

After we achieved business entrance certification in the name of Recon and could cooperate with oilfield customers

directly two years ago, we no longer required the services of a related party with such certification and, accordingly, revenue

from related-parties would decrease.

As long as the local agency still purchases automation products from Recon through our

related parties, we will continue to recognize revenue from related parties, but we anticipate that such hardware and software

related party revenue is likely to fluctuate from year to year.

Major part of related party hardware revenue of this period

was from increased requirement of system upgrading and remote guidance related service from some other related clients other

than those of same period last year.

Hardware revenue from related party decreased was mainly caused by reclassification.

Revenue from some agent company was not included in this column.

Waste water treatment products

Total revenue - Hardware and software- non-related parties

Revenue from automation products and embedded software increased slightly by ¥2.7 million ($0.4 million).

As shown above, the overall decrease in revenue was mainly affected by equipment sales decreases due to lowered requirements of equipment and furnaces and consignment-sales of accessories.

By far, oilfield companies prefer repairing rather than replacing equipment to save costs during periods of lower oil prices and less production activities.

Management expects requirements for such equipment may still maintain at current low levels and revenue from furnaces and other equipment are unlikely to rebound in the short term.

During fiscal year 2016, the Company expanded the new market of oilfield waste water treatment products.

Even though production activities for our clients decreased, requirements for oilfield production safety and environmental production increased.

Based on our long-term cooperation with clients and our reputation in oilfield operations, we developed our own chemical products and achieved major orders for this segment.

Service business.

revenue for the years ended June 30, 2014 and 2015 consisted mainly of minor maintenance services, which were provided upon

request by customers.

Decrease of service revenue was mainly caused by less production activities of our clients.

Software business - non –

Our software sales decreased approximately ¥1.6 million ($0.3 million), mainly caused by reclassification

of some company sales to non-related.

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

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

The amount of our revenues categorized as software sales may

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

Software business –

Service revenue for the years ended June 30, 2015 and 2016 consisted mainly of maintenance services, which were provided upon request by customers.

Increase of service revenue was mainly caused by increased needs for furnace maintenance, rather than the purchase of new equipment;

Hardware and software business –

related parties.

For the year ended June 30, 2015, we recorded software revenue of ¥1.1 million ($0.2 million) to a related party,

a decrease of ¥1.4 million ($0.2 million) from the same period of last year, which was caused by less requirement of our

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 a result, there was no revenue or cost of hardware and software from related parties during 2016, since we developed business directly with oilfields, rather than cooperation with local agencies, which were our related parties.

Cost and Margin

the Years Ended

For the Years Ended

Total revenues

(41,934,208 )

Cost of revenues

(19,629,520 )

(22,304,688 )

of Revenues .

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

maintenance of products and services.

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

the prices of electronic components do not fluctuate dramatically due to market competition and will not significantly affect

our cost of revenues.

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

Cost of Revenues .

Our cost of revenues

decreased from approximately ¥61.0 million in the year ended June 30, 2014 to approximately ¥41.4 million ($6.8 million)

for the same period in 2015, a decrease of approximately ¥19.6 million ($3.2 million), or 32.2%.

As a percentage of revenues,

our cost of revenues increased from 65.3% in 2014 to 80.4% in 2015.

This increase was mainly caused by an inventory allowance

amounted to ¥7.7 million ($1.3 million) during the year ended June 30, 2015.

Affected by unfavorable industrial surrounding,

we made provision for slow moving inventories and valued some specialized tools to its net realizable value.

Our gross profit decreased to approximately ¥10.1 million ($1.7 million) for the year ended June 30, 2015

from approximately ¥32 .4 million for the year ended June 30, 2014.

This was mainly due to decreased hardware and software

revenue during the year ended June 30, 2015 as compared to the same period last year and increased provision for slow moving inventory.

Our gross profit as a percentage of revenue decreased to 19.6 % for the year ended June 30, 2015 compared to 34.7% for the same

period in 2014 because an inventory allowance in the amount of approximately ¥7.7

million ($1.3 million) was provided for the year ended June 30, 2015.

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 subcontractors.

Usually the prices of electronic components do not fluctuate

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

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 affect our costs.

Inventory reserve for changes in price level, impairment of inventory,

slow moving inventory or other similar causes will also affect our cost.

Our cost of revenues decreased from approximately

¥41.4 million in the year ended June 30, 2015 to approximately ¥35.5 million ($5.3 million) for the same period in 2016,

a decrease of approximately ¥5.9 million ($0.9 million), or 14.3%.

This decrease was mainly caused by lower revenue during

the year ended June 30, 2016 compared to the same period of 2015.

Gross Profit .

Our gross profit decreased to approximately ¥7.3 million ($1.1 million) for the year ended June 30, 2016 from approximately

¥10.1 million for the same period in 2015.

Our gross profit as a percentage of revenue decreased to 17.0% for the year ended

June 30, 2016 from 19.6% for the same period in 2015.

This was mainly due to lower margin pricing decision under current market

pressure affected by low oil prices and decreased operation activities of clients.

In more detail:

For the Years

For the Years Ended

Total revenues- hardware and software- non related parties

(37,248,330 )

Cost of revenues- hardware and software- non related parties

(15,960,104 )

(21,288,226 )

Revenue from hardware and software to

non-related parties decreased by approximately ¥37.2 million was mainly due to the decrease from furnaces sales and automation

products in the year ended June 30, 2015.

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

¥21.3 million ($3.5 million) compared to the same period of last year.

Revenue from hardware and software to non-related parties decreased by approximately ¥7.4 million ($1.1

million) mainly due to the decreased orders of furnaces as the Company is continually facing pressure from tough competition.

gross profit from hardware and software sales to non-related parties decreased ¥0.8 million ($0.1 million) compared to the

same period of last year.

For the Years Ended

1 unchanged sentence

Cost of revenues- hardware and software- related parties

Cost of revenue from hardware and software-related

parties decreased as revenue decreased, while gross margin increased mainly due to most of the revenues to related parties having

resulted from automation upgrades and maintaining service sales with higher gross profit.

After the Company achieved business entrance certification and was 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.

As of result, there was no revenue or cost of hardware and software from related parties during

2016, since we developed business directly with oilfields, rather than cooperation with local agencies, which were our related

For the Years Ended

1 unchanged sentence

Cost of revenues - service

Service revenue for years ended June 30,

2014 and 2015 consisted mainly of minor maintenance services, which were provided upon request by customers.

Service revenue for the year ended June 30, 2015 and 2016 consisted mainly of maintenance services, which

were provided upon request by customers.

Our clients required more maintenance services for this year as maintenance requests outpaced

the purchase of new equipment due to industry softness, and we believe margin level is reasonable.

Operating Expenses

the Years Ended

For the Years Ended

Selling and distribution expenses

General and administrative expenses

Provision for doubtful accounts

Research and development expenses

Operating expenses

and Distribution Expenses .

Selling and distribution expenses consisted primarily of salaries and related expenditures

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

and an allocation of our facilities and depreciation expenses.

Selling expenses increased ¥6.0 million to ¥11.3 million

($1.9 million) for the year ended June 30, 2015 from ¥5.3 million for the year ended June 30, 2014.

This increase was primarily

due to an increase in traveling expenses and service fees, offset by a decrease in shipping charge.

Selling expenses were 5.7%

of total revenues in the year ended June 30, 2014 and 22.0% of total revenues in the same period of 2015.

Selling 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 traveling charges, advertising and trade shows, and an allocation

of our facilities, depreciation expenses and rental expense, as well as shipping charges.

Selling expenses decreased approximately

¥5.7 million for the year ended June 30, 2016 compared to the same period in 2015.

This decrease was primarily due to a decrease

in service fees and meal and entertainment fees.

Selling expenses were 22.0% of total revenues in the year ended June 30, 2015

and 13.2% of total revenues in the same period of 2016.

and Administrative Expenses .

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

costs, depreciation expenses, professional advisor fees, audit fees, option expenses and other expenses incurred in connection

with general operations.

General and administrative expenses increased by 86.1%, or ¥13.9million ($2.3 million), from approximately

¥16.2 million in the year ended June 30, 2014 to approximately ¥30.1 million ($5.0 million) in the same period in 2015.

General and administrative expenses were 17.3% of total revenues in 2014 and 58.5% of total revenues in 2015.

The increase in

general and administrative expenses was mainly due to an increase in consulting fees related to investor relationship services,

salary and compensation, allowance for doubtful accounts.

We recorded a provision of ¥13.9 million ($2.3 million) for unrecoverable

accounts, which arose as a result of an unfavorable industry environment and our client’s postponed production plan.

and development (“R&D”) expenses .

R&D expenses consist primarily of salaries and related expenditures

on our R&D projects.

R&D expenses decreased by 48.5%, from approximately ¥8.1 million for the year ended June 30,

2014 to approximately ¥4.2 million ($0.7 million) for the same period of 2015.

This decrease was primarily due to lower research

We enhanced our cost/expense control during this fiscal year and may continue to be strict on our R&D project

selection and implementation.

the Years Ended

Income (loss) from operations

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

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

miscellaneous expenses incurred in connection with general operations.

General and administrative expenses decreased by 24.9%

or ¥6.7 million ($1.0 million), from approximately ¥26.9 million in the year ended June 30, 2015 to approximately

¥20.2 million ($3.0 million) in the same period of 2016.

General and administrative expenses were 47.3% of total revenues

in the year ended June 30, 2016 and 52.2% of total revenues in the same period of 2015.

The decrease in general and administrative

expenses was mainly due to a decrease in consulting fee.

Provision for doubtful accounts .

Provision for doubtful accounts is the estimated amount of bad debt that will arise from accounts receivables, other receivables

and purchase advances.

We recorded a provision for doubtful accounts of ¥3.3 million for the year ended June 30, 2015 and

¥14.5 million ($2.1 million) for the same period in 2016.

The increase in provision of doubtful accounts was mainly caused

by provision for purchase advances.

During the last few years, we made various down payments for some customized products with

a non-refundable requirement.

As those projects were canceled or postponed due to unfavorable industry conditions, management

recorded a provision for these down payments while still trying to minimize the potential losses.

Research and development (“R&D”)

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

Research and development expenses increased from approximately ¥4.2 million for the year ended June 30, 2015 to

approximately ¥6.9 million ($1.0 million) for the same period of 2016.

This increase was primarily due to more research and

development expense spent on design of downhole automation platform systems and chemical products used for waste water treatment.

For the Years Ended

Loss from operations

(35,516,233 )

(39,911,129 )

Interest and other expense

Income (loss) before income taxes

Interest and other income (expense)

Loss before income taxes

(34,008,463 )

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Provision (benefit) for income taxes

Net income (loss)

(31,456,388 )

(40,882,577 )

Net income attributable

to non-controlling interest

income (loss) attributable to Recon Technology, Ltd

Net income attributable to non-controlling interest

Net loss attributable to Recon Technology, Ltd

(31,456,388 )

(40,882,577 )

Income (loss) from operations .

Loss from operations was approximately ¥35.5 million ($5.8 million) for the year ended June 30, 2015, as compared to

income of ¥2.8 million for the same period in 2014.

This decrease in income from operations can be attributed primarily to

the decreased revenue and increases in provision of inventory allowance, selling, general and administrative expenses.

Loss from operations .

Loss from operations was approximately ¥39.9 million ($6.0 million) for the year ended June 30, 2016, compared to a

loss of ¥35.5 million for the same period of 2015.

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

gross profit and an increase in R&D expenses and general and administrative expenses, partially offset by a decrease in selling

and distribution expenses.

Interest and other income (expense).

Interest and other income was approximately ¥1.5 million ($0.2 million) for the year ended June 30, 2015, as compared

to interest and other expense of ¥41,282 for the same period in 2014.

The ¥1.5 million ($0.2 million) increase in interest

and other income was primarily due to a loss from warrants redemption and decreases in subsidy income, offset by a

decrease in loss from investment and change in warrant liability.

(benefit) for income tax .

Provision for income tax for the year ended June 30, 2014 was approximately ¥1.0 million

and benefit from income tax was ¥2.6 million ($0.42 million) for the year ended June 30, 2015.

This increase of benefit from

income tax was mainly due to an over-accrual in income tax in prior years.

Net income (loss) .

of the factors described above, net loss was approximately ¥31.5 million ($5.2 million) for the year ended June 30, 2015,

a decrease of approximately ¥33.3 million ($5.5 million) from net income of ¥1.8 million for the same period in 2014.

Net income (loss) attributable to ordinary

shareholders .

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

¥31.5 million ($5.2 million) for the year ended June 30, 2015, a decrease of approximately ¥32.3 million ($5.3 million)

from net income attributable to ordinary shareholders of approximately ¥0.8 million for same period of 2014.

Adjusted EBITDA

We define adjusted EBITDA as net income (loss) adjusted for income tax expense, interest expense, one-time

write down expenses change in fair value of warrant liability, loss from investment, non-cash stock compensation

expense, depreciation and amortization.

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

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

such as interest expense, depreciation and amortization, which can vary substantially from company to company depending upon accounting

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

and (2) it helps investors

more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital

structure and asset base from our operating results.

For the Years Ended

Reconciliation of Adjusted EBITDA to

Net Income (loss)

Net income (loss)

(31,456,388 )

$ (5,166,270 )

(33,284,208 )

Provision for income taxes

Interest expense and foreign currency adjustment

Change in fair value of warrants liability

Write down of accounts receivable

Provision for slow moving inventories

Loss from investment

Restricted shares issued for consulting services

Loss from warrants redemption

Stock compensation expense

Depreciation and amortization

Adjusted EBITDA

(10,797,197 )

$ (1,773,291 )

(19,634,093 )

Adjusted EBITDA decreased by approximately

¥19.6 million ($3.2 million) to an approximate loss of ¥10.8 million ($1.8 million) for the year ended June 30, 2015 as

compared to approximately ¥8.8 million income for the same period in 2014.

This was mainly due to decreased revenue,

and increases in selling, general and administrative expenses.

Adjusted Net Income (Loss) and Adjusted

Earnings (Loss) Per Share

For the Years Ended

Reconciliation of Net Income (loss)

attributable to Recon Technology, Ltd

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

Net income (loss) attributable to Recon Technology, Ltd

(31,456,388 )

$ (5,166,271 )

Special items (A) :

Change in fair value of warrants liability

Loss from investment

Restricted shares issued for consulting services

Write down of accounts receivable

Provision for slow moving inventories

Loss from warrants redemption

Stock compensation expense

Adjusted net income (loss) attributable to Recon Technology, Ltd

$ (1,626,070 )

Reconciliation of U.S.

GAAP Earnings

(Loss) Per Share

GAAP Adjusted Earnings (Loss) Per Share

GAAP earnings (loss) per share

Impact of special items on earnings per share

GAAP adjusted earnings (loss) per share

Weighted - average shares -diluted

items are certain non-cash expenses and one-time expenses that are included in our U.S.

GAAP reported results.

There was no income

tax benefit associated with the special items.

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

of Recon's current financial performance.

Liquidity and Capital Resources

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 June 30, 2015, we had cash and cash equivalents in the

Interest and other expense was approximately ¥0.4 million ($0.06

million) for the year ended June 30, 2016, compared to interest and other income of ¥1.5 million for the same period of 2015.

The ¥1.9 million ($0.3 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 (benefit) for income tax .

Benefit for income tax for the year ended June 30, 2015 was approximately ¥2.6 million.

Provision for income tax was ¥0.5

million ($0.1 million) for the year ended June 30, 2016.

This increase in provision for income tax was mainly due to the allowance

recorded for deferred tax assets and income tax payable true-up during the year ended June 30, 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 reevaluated the deferred tax assets and the adjustment was recorded as part of the total income tax provision.

a result of the factors described above, net loss was approximately ¥40.9 million ($6.2 million) for the year ended June 30,

2016, an increase of approximately ¥9.4 million ($1.4 million) from net loss of ¥31.5 million for the same period of 2015.

Net loss attributable to ordinary shareholders .

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

ordinary shareholders was approximately ¥40.9 million ($6.2 million) for the year ended June 30, 2016, an increase of approximately

¥9.4 million ($1.4 million) from net loss attributable to ordinary shareholders of approximately ¥31.5 million for same

period of 2015.

Liquidity and

Capital Resources

As of June 30, 2016, we had cash in the

amount of approximately ¥1.8 million ($0.3 million).

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

Indebtedness .

As of June 30, 2016,

we had approximately ¥16.9 million ($2.8 million) in short-term borrowings from related parties, and ¥7.0 million ($1.1

million) in commercial loans from one local bank.

Other than these amounts, we did not have any financing leases or purchase commitments,

guarantees or other material contingent liabilities.

except for approximately ¥12.9 million ($1.9 million) of short-term borrowings from related parties, and ¥0.5 million

($0.08 million) of short-term borrowings from third parties, we did not have any finance leases or purchase commitments, guarantees

or other material contingent liabilities.

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 Companies.

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 Companies.

In addition, Chinese legal restrictions permit payment

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

Sheet Arrangements .

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 as shareholders’

Off-Balance Sheet Arrangements .

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 as shareholders’

equity, or that are not reflected in our financial statements.

Furthermore, we do not have

any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market

risk support to such entity.

Moreover, we do not have any variable interest in an unconsolidated entity that provides financing,

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

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

borrowings and stock offerings.

As of June 30, 2015, we had total assets of approximately ¥134.3 million ($22.1 million),

which includes cash of approximately ¥12.3 million ($2.0 million), net accounts receivable from third parties of approximately

¥52.2 million ($8.6 million), and net accounts receivable from related parties of approximately ¥4.8 million ($0.8 million).

Working capital amounted to approximately ¥72.4 million ($11.9 million), and shareholders’

equity amounted to approximately

¥74.0 million ($12.2 million).

Cash from Operating

Net cash used in operating activities was approximately ¥15.1 million ($2.5 million) for the year ended June

This was an increase of approximately ¥7.1 million ($1.2 million) compared to net cash used in operating activities

of approximately ¥8.0 million for the year ended June 30, 2014.

In more detail:

The increase in net

cash used in operating activities for the year ended June 30, 2015, is primarily attributable to the decrease in net income offset

by a ¥1.1 million change in accounts receivable, ¥4.2 million change in notes receivable, ¥3.8 million change other

receivable, a ¥3.3 million change in purchase advance, a ¥1.6 million change in prepaid expense, a ¥5.7 million change

in accounts payable, and a ¥1.3 million change in tax payable.

Accounts receivable increased due to our operating seasonality

and postpone payment by our clients.

We will enhance our collection and expect to collect funds on these accounts by the year

from Investing Activities .

Net cash used in investing activities was approximately ¥1.7 million ($0.3 million) for the

year ended June 30, 2015, an increase of ¥1.4 million ($0.2 million) from ¥0.3 million for the same period of 2014.

¥1.7 million net increase in the purchase of property and equipment, which was offset by the proceeds from disposal of equipment.

from Financing Activities .

Net cash provided by financing activities amounted to approximately ¥11.1 million ($1.8

million) for the year ended June 30, 2015, as compared to cash flows provided by financing activities of approximately ¥14.0

million for the same period in 2014.

During the year ended June 30, 2015, we repaid ¥3.0 million ($0.5 million) in short term

bank loans and received ¥11.7 million ($1.9 million) of net proceeds from a related party.

In June 2015, we had stock offerings

to issued 297,197 shares of common stocks through an at-the-market offering, and received net proceeds of ¥2.3 million ($0.4

Furthermore, we do not have any retained or contingent interest

in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.

we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support

to us or engages in leasing, hedging or research and development services with us.

Capital Resources .

To date we have

financed our operations primarily through cash flows from operations and financing activities.

As of June 30, 2016, we had total

assets of approximately ¥79.5 million ($12.0 million), which includes cash of approximately ¥1.8 million ($0.3 million),

net accounts receivable due from third parties of approximately ¥38.1 million ($5.7 million), working capital amounted to

approximately ¥44.5 million ($6.7 million), and shareholders’

equity amounted to approximately ¥41.4 million ($6.2

Cash from Operating Activities .

cash used in operating activities was approximately ¥0.3 million ($0.04 million) for the year ended June 30, 2016.

a decrease of approximately ¥14.8 million ($2.2 million) compared to net cash used in operating activities of approximately

¥15.1 million for the year ended June 30, 2015.

The decrease in net cash used in operating activities for the year ended June

30, 2016 was primarily attributable to the ¥14.7 million ($2.2 million) change in trade accounts receivable due from third

parties and ¥9.6 million ($1.4 million) change in trade accounts payable due from third parties.

Cash from Investing Activities .

cash used in investing activities was approximately ¥0.1 million ($18.2 thousand) for the year ended June 30, 2016, which was

a decrease of approximately ¥1.6 million compared to the same period in 2015, which decrease is due to the decrease in purchase

of property and equipment.

Cash from Financing Activities .

cash used in financing activities amounted to ¥10.2 million ($1.5 million) for the year ended June 30, 2016, as compared to

net cash provided by financing activities of $11.1 million for the same period in 2015.

During the year ended June 30, 2016, we

repaid ¥16.8 million ($2.5 million) in short-term borrowings to two related parties and repaid ¥7.5 million ($1.1 million)

in short-term bank loans, and we received ¥12.9 million ($1.9 million) from two related parties, received ¥0.5 million

($0.1 million) in short-term bank loans and received ¥0.5 million ($0.1 million) in short-term borrowings from one third-party.

Working Capital .

Total working

capital as of June 30, 2015 amounted to approximately ¥72.4 million ($11.9 million), as compared to approximately ¥83.1

million as of June 30, 2014.

Total current assets as of June 30, 2015 amounted to approximately ¥124.5 million ($20.5 million),

a decrease of approximately ¥8.9 million ($1.5 million) as compared to approximately ¥133.4 million at June 30, 2014.

The decrease in total current assets at June 30, 2015 compared to June 30, 2014 was mainly due to a decrease in cash and cash

equivalents and purchase advances, offset by an increase in accounts receivable.

liabilities amounted to approximately ¥52.1 million ($8.6 million) at June 30, 2015, in comparison to approximately ¥50.3

million at June 30, 2014, an increase of approximately ¥1.8 million ($0.3 million).

This increase of liabilities was

attributable mainly to an increase in accounts payable and short-term borrowings from related parties, and offset by a decrease

in short-term bank loans and taxes payable.

Recently Enacted

Accounting Standards

In June 2015, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2015-10, “Technical Corrections and Improvements.”

This ASU corrects for differences between original guidance and the Accounting Standards Codification (“ASC”) and

makes minor improvements affecting several topics.

We are currently in the process of evaluating this standard, but do not expect

its adoption to have a material impact on our consolidated financial statements.

The amendments in this Update will apply to all

reporting entities within the scope of the affected accounting guidance.

In July 2015, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2015-11, “Inventory (Topic 330) - Simplifying

the Measurement of Inventory.”

The amendments in this Update do not apply to inventory that is measured using last-in, first-out

(LIFO) or the retail inventory method.

The amendments apply to all other inventory, which includes inventory that is measured

using first-in, first-out (FIFO) or average cost.

An entity should measure inventory within the scope of this Update at the lower

of cost and net realizable value.

Net realizable value is the estimated selling prices in the ordinary course of business, less

reasonably predictable costs of completion, disposal, and transportation.

The amendments in this Update more closely align the

measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS).

public business entities, The amendments in this Update are effective for fiscal years beginning after December 15, 2016, including

interim periods within those fiscal years.

We are currently in the process of evaluating this standard, but do not expect its

adoption to have a material impact on our consolidated financial statements.

and Qualitative Disclosures about Market Risk.

capital as of June 30, 2016 amounted to approximately ¥44.5 million ($6.7 million), compared to approximately ¥72.4 million

as of June 30, 2015.

Total current assets as of June 30, 2016 amounted to approximately ¥74.3 million ($11.2 million), a decrease

of approximately ¥50.2 million ($7.6 million) compared to approximately ¥124.5 million at June 30, 2015.

The decrease in

total current assets at June 30, 2016 compared to June 30, 2015 was mainly due to decreases in cash and purchase advances.

Current liabilities amounted to approximately

¥29.9 million ($4.5 million) at June 30, 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, short-term bank loans and trade

accounts payable.

Capital Needs .

the uncertainty of the current market, our management believes it is necessary to enhance collection of outstanding 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 offerings or private placements

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

Quantitative and Qualitative Disclosures about Market Risk.

The Company is not required to provide

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

Financial Statements and Supplementary Data.

The Company’s financial statements

and the related notes, together with the report of Friedman LLP for the years ended June 30, 2016 and 2015 are set forth following

the signature pages of this report.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure.

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 5. Market for Registrant’s Common Equity