What changed in this filing

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Item 9A. Controls and Procedures

2016-09-28 compared with 2015-09-25 · 1028 added, 1005 removed, 967 unchanged (68% of the section changed)

and Procedures.

Controls and Procedures.

Disclosure Controls and Procedures

36 unchanged sentences

material effect on the financial statements.

The Company’s management

assessed the effectiveness of its internal control over financial reporting as of June 30, 2015.

In making this

assessment, management used the 2013 framework set forth in the report entitled Internal Control—Integrated

Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.

The 2013 COSO

framework summarizes each of the components of a company’s internal control system, including (i) the control

environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and

(v) monitoring.

Based on this assessment, the Company’s management believes that, as of June 30, 2015, its

internal control over financing reporting was not effective based on those criteria.

The Company’s management assessed the effectiveness of its internal control over financial reporting

as of June 30, 2016.

In making this assessment, management used the 2013 framework set forth in the report entitled Internal

Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or

The COSO framework summarizes each of the components

of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control

activities, (iv) information and communication, and (v) monitoring.

Our management has implemented and tested our internal

control over financial reporting based on these criteria.

Based on the assessment and material weakness identified, the Company’s

management concluded that, as of June 30, 2016, its internal control over financing reporting was not effective.

The specific material weaknesses identified

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remedial actions as of the date of this report:

Development and formalization of

key accounting and financial reporting policies and procedures;

Development and formalization

of key accounting and financial reporting policies and procedures;

Identification and documentation

6 unchanged sentences

and procedures intended to enhance management monitoring and oversight by the Audit Committee.

In addition to the foregoing efforts, the

Company expects to implement the following remedial actions during fiscal year 2016:

In addition to the foregoing

efforts, the Company expects to implement the following remedial actions during fiscal year 2017:

Formalization of a periodic

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rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual

Executive Officers and Corporate Governance.

Other Information.

Other than as described in this section,

our corporate governance practices do not differ from those followed by domestic companies listed on the NASDAQ Capital Market.

NASDAQ Listing Rule 5635 generally provides that shareholder approval is required of U.S.

domestic companies listed on the NASDAQ

Capital Market prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended

or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors,

employees, or consultants.

Notwithstanding this general requirement, NASDAQ Listing Rule 5615(a)(3)(A) permits foreign private

issuers like the Company to follow their home country practice rather than these shareholder approval requirements.

Islands does not require shareholder approval prior to the foregoing sorts of transactions.

The Company, therefore, is not required

to obtain such shareholder approval prior to entering into such transaction.

The Board of Directors of the Company has elected

to follow home Cayman Islands country rule as to such transactions and will not be required to seek shareholder approval prior

to entering into such a transaction.

Directors, Executive Officers and Corporate Governance.

Regulation S-K Item 401:

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as a director of the Company because as one of the founders of the Company, we believe his knowledge of the Company and years

of experience in our industry give him the ability to guide the Company as a director in its development.

of experience in our industry give him the ability to guide the Company as a director.

served as our Chief Financial Officer since 2008.

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and management experience in the oil extraction industry.

joined our Board of Directors in 2008.

Wong joined our Board of Directors in 2008.

Prior to joining our Board, in 1990 Mr.

Wong joined the Vigers Group, a real estate

company that provides services in valuation, corporate property services, investment advisory services, general practice surveying,

building surveying, commercial, in both retail and industrial agency, and property and facilities management.

the Vice Chairman and CEO of the Vigers Group in 1993.

Wong established the ACN Group, a business consulting

firm, where he has worked continuously and continues to serve as the Chairman and Managing Partner.

Wong received a bachelor’s

degree in arts from the PLA Institute of International Relations in Nanjing in 1983.

Wong was appointed to the position

of director because we believe we can benefit from his leadership skills and management experience.

our Board of Directors in 2008.

Wong joined the Vigers

Group, a real estate company that provides services in valuation, corporate property services, investment advisory services,

general practice surveying, building surveying, commercial, in both retail and industrial agency, and property and facilities

Wong became the Vice Chairman and CEO of the Vigers Group in 1993.

Wong established the

ACN Group, a business consulting firm, where he has worked continuously and continues to serve as the Chairman and Managing

Wong received a bachelor’s degree in arts from the PLA Institute of International Relations in

Nanjing in 1983.

Wong was appointed to the position of director because we believe we can benefit from his

leadership skills and management experience.

Hu joined our

Board of Directors in 2008.

Prior to joining our Board, from 1988 to 2003, Mr.

Hu served in a variety of positions

at Sinopec No.

2 test-drill plant, including technician of installation, assets equipment work, electrical installation,

control room production dispatcher, Deputy Chief Engineer of the Technology Battalion, and Deputy Director of Production.

From 2003 to 2005 he served as Head of the Integrated Battalion and he is currently the Head of the Transport Battalion,

Senior Electric Engineer.

Hu graduated as an automated professional from the China University of Petroleum in 1988.

Hu was appointed to the position of a director because we believe his years of experience and knowledge gained while

working at our No.

2 test-drill plant will prove beneficial to the guidance of the Company.

Hu served in a variety of positions at No.

test-drill plant, including technician of installation, assets equipment work, electrical installation, control room production

dispatcher, Deputy Chief Engineer of the Technology Battalion, and Deputy Director of Production.

From 2003 to 2005 he served

as Head of the Integrated Battalion and he is currently the Head of the Transport Battalion, Senior Electric Engineer.

graduated as an automated professional from the China University of Petroleum in 1988.

Hu was appointed to the position

of a director because we believe his years of experience and knowledge gained while working at our No.

2 test-drill plant

will prove beneficial to the guidance of the Company.

Zhao Shudong .

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death, bankruptcy or mental incapacity of the employee.

The employment agreement for our Chief Financial Officer provides for

a one-year term, currently expiring on March 12, 2016.

Such employment agreement may be terminated if the employee gives

thirty days’

written notice of her intention to resign, or if the Board of Directors determines she can no longer perform

her duties as Chief Financial Officer and provides her with thirty days’

The employment agreement for our Chief Financial Officer provides for a

one-year term, currently expiring on March 12, 2017.

Such employment agreement may be terminated if the employee gives thirty

written notice of her intention to resign, or if the Board of Directors determines she can no longer perform her duties

as Chief Financial Officer and provides her with thirty days’

written notice of termination.

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Share Option Pool

connection with our initial public offering, we established a pool for share options for the Domestic Companies’

In connection with our initial public offering,

we established a pool for share options as our 2009 Stock Incentive Plan (“2009 Incentive Plan”) for the Domestic Companies’

and our employees.

This pool contains options to purchase up to 790,362 of our ordinary shares.

The options will vest at a rate of 20% per

year for five years and have an exercise price of the market price of our shares on the date the options are granted.

we issued 564,000 options out of our employee share option pool.

We initially granted 293,000 options in 2009.

We held a shareholder

meeting in December 2010 and announced the resignation of three directors, and as a result, 100,000 options were forfeited and

went back in the pool.

In 2012, we granted an additional 415,000 options and 44,000 options were forfeited and went back to the

In the three months ended June 30, 2014, and 148,400 vested options from 2012 grants were exercised.

granted options to purchase 400,000 ordinary shares to its employees and non-employee director on January 31, 2015 under the 2015

As of June 30, 2015, we have 815,600 options outstanding.

On July 11, 2015, the Company’s

board approved to reserve 800,000 shares and options under the 2015 option plan.

As of September 25, 2015, no option is granted.

The options will vest at a rate

of 20% per year for five years and have an exercise price of the market price of our shares on the date the options are granted.

To date, we issued 564,000 options and 226,362 shares out of this employee share option pool.

We initially granted 293,000 options

We held a shareholder meeting in December 2010 and announced the resignation of three directors, and as a result, 100,000

options were forfeited and went back in the pool.

In 2012, we granted an additional 415,000 options and 44,000 options were forfeited

and went back to the pool.

In the three months ended June 30, 2014, 148,400 vested options from 2012 grants were exercised.

of June 30, 2016, we have 415,600 options outstanding under the 2009 Incentive Plan.

On January 29, 2015, the Company held its

2014 annual general meeting of shareholders, during which the Company’s shareholders approved the Company’s 2015 Stock

Incentive Plan (“2015 Incentive Plan”).

Pursuant to the 2015 Incentive Plan, we were initially authorized to issue

up to an aggregate of Seven Hundred Thousand (700,000) ordinary Shares.

Additionally, commencing on the first business day in fiscal

year ending June 30, 2016 and on the first business day of each fiscal year thereafter while the 2015 Incentive Plan is in effect,

the maximum number of Ordinary Shares available for issuance under this 2015 Incentive Plan during that fiscal year shall be increased

such that, as of such first business day, the maximum aggregate number of Ordinary Shares available for issuance under this 2015

Incentive Plan during that fiscal year shall be equal to Fifteen Percent (15%) of the number of total issued and outstanding Ordinary

Shares of the Company as recorded by the Company’s transfer agent on the last business day of the prior fiscal year.

Company granted options to purchase 400,000 Ordinary Shares to its employees and non-employee director on January 31, 2015 under

the 2015 Incentive Plan.

As of June 30, 2016, we have 400,000 options outstanding under this 2015 Incentive Plan.

As of June 30,

2016, we have an aggregate of 815,600 options outstanding under our incentive plans.

Executive Stock Grants

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($688,782), based on the stock closing price of $2.99 at December 13, 2013.

These restricted shares will be vested over three

years with one third of the shares vesting every year from the grant date.

Of these 76,787 restricted shares vested and were issued

Yin Shenping and Mr.

Chen Guangqiang on March 24, 2015.

These restricted shares will be vested over three years

with one third of the shares vesting every year from the grant date.

Of these 76,787 restricted shares vested and were issued to

Chen on March 24, 2015, and 76,787 restricted shares were vested and issued to Mr.

Yin and Chen on July 13, 2016.

On January 31, 2015, the Company granted 150,000

restricted shares to Mr.

Yin Shenping and 150,000 restricted shares to Mr.

Chen Guangqiang at an aggregate value of ¥3,038,558($495,000),

based on the stock closing price of $1.65 at January 31, 2015.

These restricted shares will vest over three years with one third

of the shares vesting every year from the grant date.

Yin and 150,000 restricted shares to Mr.

Chen at an aggregate value of ¥3,038,558($495,000), based

on the stock closing price of $1.65 at January 31, 2015.

These restricted shares will vest over three years with one third of the

shares vesting every year from the grant date.

On July 11, 2015, the Company’s board

approved to reserve 800,000 shares and options under the 2015 Incentive Plan.

On October 18, 2015, 800,000 restricted shares were

granted to staff under this plan at an aggregate value of ¥4,677,608 ($704,000), based on the stock closing price of $0.88

at October 16, 2015.

These restricted shares will vest over three years with one third of the shares vesting every year from the

As of June 30, 2016, we have 1,076,788 non-vested restricted stocks outstanding.

On July 23, 2016, the Company’s

board approved the reservation of 876,000 shares and options.

On July 27, 2016, 876,000 restricted shares were granted to staff

pursuant to this authorization.

Board of Directors and Board Committees

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meeting of shareholders in 2014 and every three years thereafter.

Class II directors

face re-election at our annual general meeting of shareholders in 2015 and every three years thereafter.

Class III directors face

re-election at our annual general meeting of shareholders in 2016 and every three years thereafter.

Class II directors face re-election at our annual general meeting

of shareholders in 2015 and every three years thereafter.

Class III directors face re-election at our annual general meeting of

shareholders in 2016 and every three years thereafter.

If the number of directors changes, any

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This duty has four essential elements:

a duty to act in good faith in the

best interests of the Company;

a duty not to personally profit from

opportunities that arise from the office of director;

a duty to avoid conflicts of interest;

a duty to exercise powers for the

purpose for which such powers were intended.

a duty to act in good

faith in the best interests of the Company;

a duty not to personally

profit from opportunities that arise from the office of director;

a duty to avoid conflicts

a duty to exercise powers

for the purpose for which such powers were intended.

In general, Cayman Islands law imposes

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10-K for the year ended June 30, 2009 and is available on the Company’s website (www.recon.cn).

Compensation.

Executive Compensation.

The following table shows the annual compensation

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Summary Executive Compensation Table

Name and principal position

Restricted Stock

Yin Shenping,

principal position

Principal Executive Officer

$ 129,239 (1)(2)

$ 271,231 (1)(2)(4)

Chief Financial Officer

Chen Guangqiang,

28,160 (3)(4)

Chief Technology Officer

$ 169,105 (1)(2)

(1) On December 13, 2013, the Company granted 95,181 restricted

shares to Mr.

Yin Shenping and 135,181 restricted shares to Mr.

Chen Guangqiang at an aggregate value of ¥4,207,496 ($688,782),

$ 311,732 (1)(2)(4)

(1) On December 13, 2013, the

Company granted 95,181 restricted shares to Mr.

Yin and 135,181 restricted shares to Mr.

Chen at an aggregate value of ¥4,207,496

($688,782), based on the stock closing price of $2.99 at December 13, 2013.

These restricted shares will be vested over three years with one

third of the shares vesting every year from the grant date.

(2) On January 31, 2015, the Company granted 150,000 restricted

shares to Mr.

Yin Shenping and 150,000 restricted shares to Mr.

Chen Guangqiang at an aggregate value of ¥3,038,558($495,000),

These restricted shares will vest over three years

with one third of the shares vesting every year from the grant date.

(2) On January 31, 2015, the

Company granted 150,000 restricted shares to Mr.

Yin and 150,000 restricted shares to Mr.

Chen at an aggregate value of ¥3,038,558($495,000),

based on the stock closing price of $1.65 at January 31, 2015.

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of the shares vesting every year from the grant date.

On January 31, 2015, the Company granted 32,000 options to Ms.

Liu Jia , which

options vest over a period of three years, one third of which vest on January 31 of each year beginning in 2016.

The grant date

fair value of such options was $1.65.

(3) On January 31, 2015, the

Company granted 32,000 options to Ms.

Liu Jia, which options vest over a period of three years, one third of which vest on January

31 of each year beginning in 2016.

The grant date fair value of such options was $1.65.

(4) On October 18, 2015, the

Company granted 320,000 restricted shares to Mr.

Yin, 320,000 restricted shares to Mr.

Chen and 36,000 restricted shares to Ms.

Liu at an aggregate value of ¥3,952,579 ($594,880), based on the stock closing price of $0.88 at October 16, 2015.

These restricted

shares will vest over three years with one third of the shares vesting every year from the grant date.

Director Compensation

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Summary Director Compensation Table

Compensation for our directors Yin Shenping and Chen Guangqiang,

who also serve as executive officers, is fully disclosed in the executive compensation table.

Compensation for our directors Yin Shenping

and Chen Guangqiang, who also serve as executive officers, is fully disclosed in the executive compensation table.

None of the directors received any ordinary share awards, nonqualified

deferred compensation earnings or non-equity incentive plan compensation in fiscal year 2015.

January 31, 2015, the Company granted 25,000 options to Mr.

options vest over a period of three years, one third of which vest on January 31 of each year beginning in 2016.

date fair value of such options was $1.65.

October 18, 2015, the Company granted 30,000 restricted shares to Mr.

vests over a period of three years, one third of which vest on October 17 of each year beginning in 2016.

The grant date

fair value of such options was $0.88.

On January 31, 2015, the Company granted 25,000 options to Mr.

Wong , which options vest over a period of three years, one third of which vest on January 31 of each year beginning in 2016.

Hu Jijun , which options vest over a period of three years,

one third of which vest on January 31 of each year beginning in 2016.

The grant date fair value of such options was $1.65.

On October 18, 2015, the Company granted 30,000 restricted shares

Wong , which vests over a period of three

years, one third of which vest on October 17 of each year beginning in 2016.

The grant date fair value of such options was

On January 31, 2015, the Company granted 18,000 options to Mr.

Hu Jijun , which options vest over a period of three years, one third of which vest on January 31 of each year beginning in 2016.

Hu Jijun , which options vest over a period of three years,

one third of which vest on January 31 of each year beginning in 2016.

The grant date fair value of such options was $1.65.

On January 31, 2015, the Company granted 18,000 options to Zhao Shudong , which

options vest over a period of three years, one third of which vest on January 31 of each year beginning in 2016.

date fair value of such options was $1.65.

On October 18, 2015, the Company granted 30,000 restricted shares

Wong , which vests over a period of three

years, one third of which vest on October 17 of each year beginning in 2016.

The grant date fair value of such options was

Outstanding Equity Awards At Fiscal

Option Awards

Shares Awards

unexercisable

Number of shares

or units of stock that have not vested

Market value of

shares of units of stock that have not vested ($)

Equity incentive

number of unearned shares, units or other rights that have not vested (#)

Equity incentive

Market or payout of value of unearned shares, units or other rights that have not vested

Principal Executive Officer

Chen Guangqiang

Chief Technology Officer

Options granted on July 30, 2009, which vest at a rate of 20% per year on the anniversary of the grant date and which are exercisable for $6.00 per share.

Options granted on March 26, 2012, which vest at a rate of 20% per year on the anniversary of the grant date and which are exercisable for $2.96 per share.

Based on the share price of Oct.

Based on the share price of Jan 31, 2015.

Based on the share price of Oct.

Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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column (a)) (c)

Equity compensation

plans approved by

security holders

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders (3)

Options to purchase ordinary shares.

We have granted in aggregate options to acquire 1,108,000 shares, of which 292,400 have been exercised, forfeited or expired.

We have requested shareholder approval to issue options, shares or other securities as compensation for, in aggregate 3,175,155 ordinary shares.

We have, to date, issued 2,206,362 ordinary shares, of which 253,574 are outstanding and the remaining 1,952,788 have not yet vested.

We have also granted options to acquire 1,108,000 ordinary shares, of which 815,600 remain issued and outstanding.

The 153,193 shares listed here reflect 3,175,155 plan shares, minus 2,206,362 granted shares and minus 815,600 option shares.

NASDAQ Listing Rule 5615(a)(3)(A) permits the Company, like other foreign private issuers, to follow its home country practice rather than NASDAQ shareholder approval requirements;

thus, the Company, in accordance with Cayman Islands law, is not required to seek shareholder approval prior to making such issuances.

Restricted shares.

PRINCIPAL SHAREHOLDERS

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Zhao Shudong (5)

Directors and Executive Officers as a Group (seven members)

76,000 options to purchase ordinary shares that were exercisable within 60 days after September 25, 2015.

Does not include

32,000 options that were not exercisable within 60 days after September 25, 2015.

Includes 60,000

options to purchase ordinary shares that were exercisable within 60 days after September 25, 2014.

Does not include 20,000

options that were not exercisable within 60 days after September 25, 2015.

Includes 15,000

options to purchase ordinary shares that were exercisable within 60 days after September 25, 2015.

Includes 18,000

options to purchase ordinary shares that were exercisable within 60 days after September 25, 2015.

Includes 9,000

options that were not exercisable within 60 days after September 25, 2015.

Includes 50,000

options to purchase ordinary shares that were exercisable within 60 days after September 25, 2015.

Includes 458,525

Shares held by Chen Yiquan and 375,156 Shares held by Liu Hui.

According to a jointly filed Schedule 13D dated December 27,

2010 (Accession No.

0001144204-10-068264), Chen Yiquan and Liu Hui share beneficial ownership of and have joint voting and

dispositive power over the aggregate 833,681 Shares.

and Executive Officers as a Group (seven members)

Includes 92,000 options to purchase ordinary

shares that were exercisable and 106,667 restricted shares vested within 60 days after September 16, 2016.

Includes 70, 000 options to purchase ordinary shares that were

exercisable and 106,667 restricted shares vested within 60 days after September 16, 2016.

Includes 23,333 options to purchase ordinary shares and 10,000

restricted shares vested that were exercisable within 60 days after September 16, 2016

Includes 26,333 options to purchase ordinary shares and 10,000

restricted shares vested that were exercisable within 60 days after September 16, 2016

Include 24,000 options that were exercisable and 10,000 restricted

shares vested within 60 days after September 28, 2015 September 16, 2016.

Includes 60,667 options to purchase ordinary shares and 12,000

restricted shares vested that were exercisable within 60 days after September 16, 2016

Includes 458,525 Shares held by Chen Yiquan and 375,156 Shares

held by Liu Hui.

According to a jointly filed Schedule 13D dated December 27, 2010 (Accession No.

0001144204-10-068264), Chen

Yiquan and Liu Hui share beneficial ownership of and have joint voting and dispositive power over the aggregate 833,681 Shares.

Less than 1%.

Relationships and Related Transactions, and Director Independence.

Certain Relationships and Related Transactions, and Director

Independence.

Transactions with Related Persons

we do not have access certification to Jidong Oilfield, Nanjing Recon, one of our Domestic Companies, conducted

transactions with Jidong Oilfield through Beijing Yabei Nuoda Science and Technology Co.

(“Yabei Nuoda”), which has access certification to the oilfield and wherein one of the Founders, Mr.

Shenping, was the legal representative of before December 2013 and Chairman as of September 30, 2014.

Because we do not have access certification to Jidong Oilfield, Nanjing Recon, one of our Domestic Companies,

conducted transactions with Jidong Oilfield through Beijing Yabei Nuoda Science and Technology Co.

(“Yabei Nuoda”),

which has access certification to the oilfield and wherein one of the Founders, Mr.

Yin Shenping, was the legal representative

of Yabei Nuoda before December 2013 and Chairman as of September 30, 2014.

On October 30, 2014, Mr.

Yin resigned from the chairman position

and at that point Yabei Nuoda was no longer a related party of the Company after October 30, 2014.

Yin does not have any

equity interest in this company currently.

Below is a summary of

trade accounts receivable with related parties as of June 30, 2014 and 2015, respectively.

Yin resigned from the chairman

position and at that point Yabei Nuoda was no longer a related party of the Company after October 30, 2014.

Yin does not have

any equity interest in this company currently.

Below is a summary of trade accounts receivable with related parties as of June

30, 2015 and 2016, respectively.

June 30, 2015

June 30, 2016

Related Party

Beijing Yabei Nuoda Science and Technology Co.

Beijing Langchen Construction Company

Xiamen Huangsheng Hitek Computer Network Co.Ltd.

Xiamen Huangsheng Hitek Computer Network Co.

Xiamen Henda Hitek Computer Network Co.

Total - related-parties, net

Related Party

Non-current portion

Beijing Yabei Nuoda Science and Technology Co.

Allowance for doubtful accounts

Total - related-parties, net

Below is a summary of purchase advances

to related parties as of June 30, 2014 and 2015, respectively

Related Party

Sales to related parties consisted of the

following as of June 30, 2015 and 2016:

For the years ended June 30,

Xiamen Henda Hitek Computer Network Co.

Xiamen Huangsheng Hitek Computer Network Co.

addition, included in the Company’s other receivables as of June 30, 2015 were amounts “due from ENI”

ENI ceased to be a VIE of the Company on December 16, 2010.

In January 2012, ENI agreed to repay the loan on a determined payment

schedule, and interest is accrued during the period at an annual rate of 4%.

In accordance with the payment schedule, the principal

plus accrued interest was to be repaid over three years on a quarterly basis beginning March 2012 .

The first four payments are RMB 1.2 million each.

In March, June, September and December of 2012, the Company received

RMB 4.8 million.

Starting March 2013, installments for each quarter would be ¥1,777,653.

The Company received the payments

on time in March and June, 2013.

On September 30, 2013, ENI proposed to extend the payment period and signed a new contract with

According to the new arrangement, the remaining balance of this loan will be repaid over four years with quarterly

installments of ¥699,147.

The Company has continued to receive the payments under the agreement.

Accordingly, the current and

non-current portion of the amount due from ENI at June 30, 2015 is RMB 2,624,071 ($430,967) and RMB 2,729,033 ($448,205),

respectively.

The Company also had short-term borrowings

from related parties.

Below is a summary of the Company’s short-term borrowings due to related parties as of June 30, 2014

and 2015, respectively.

Revenues from related parties

Purchase from related parties consisted

of the following as of June 30, 2015 and 2016, respectively.

For the years ended June 30,

Huanghua Heng Da Xiang Tong Manufacture Ltd

Xiamen Huangsheng Hitek Computer Network Co.

Purchase from related parties

The Company also had short-term borrowings from related parties.

Below is a summary of the Company’s

short-term borrowings due to related parties as of June 30, 2015 and 2016, respectively.

Short-term borrowings

June 30, 2015

June 30, 2016

due to related parties:

Short-term borrowing from a Founder, 6.6% annual interest, due on December 25, 2014

Short-term borrowing from a Founder, 7.2% annual interest, due on October 20, 2015

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Ltd., no interest, due on November 14, 2015

Short-term borrowing from a Founder, 5.75% annual interest, due on September 25, 2016

Short-term borrowing from a Founder, 5.75% annual interest, due on October 10, 2016

Short-term borrowing from a Founder, 5.43% annual interest, due on November 4, 2016

Short-term borrowing from a Founder's family member, no interest, due on December 16, 2016

Short-term borrowing from a Founder's family member, no interest, due on December 28, 2016

Short-term borrowing from a Founder, 5.22% annual interest, due on March 10, 2017

Short-term borrowing from a Founder, 5.22% annual interest, due on May 6, 2017

Total short-term borrowings due to related parties

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Zhao are our independent directors.

Accountant Fees and Services.

Principal Accountant

Fees and Services.

Friedman LLP was appointed by the Company

1 unchanged sentence

Fees Paid To Independent Registered Public Accounting

During fiscal years 2014 and 2015,

Friedman LLP’s audit fees were $185,000 and $190,000, respectively.

During fiscal years 2015 and 2016, Friedman

LLP’s audit fees were $185,000 and $190,000, respectively.

Audit-Related Fees

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rendered by Friedman LLP have been so approved.

Financial Statement Schedules.

Exhibits, Financial Statement Schedules.

The following documents are filed herewith:

Amended and Restated Articles

of Association of the Registrant (1)

Amended and Restated Memorandum

of Association of the Registrant (1)

Second Amended and Restated

Articles of Association of the Registrant (1)

Second Amended and Restated

Memorandum of Association of the Registrant (1)

Specimen Share Certificate (2)

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Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement

between Recon Technology (Jining) Co., Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Exclusive Technical Consulting Service Agreement

between Recon Technology (Jining) Co., Ltd.

Translation of Equity Interest

Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co., Ltd.

Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd.

and Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney for rights of Chen Guangqiang

in Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney for rights of Yin Shenping in

Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney for rights of Li Hongqi in Jining

ENI Energy Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between

Recon Technology (Jining) Co.

Translation of Power of Attorney for rights of Chen Guangqiang in Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney for rights of Yin Shenping in Jining ENI Energy Technology Co., Ltd.

Translation of Power of Attorney for rights of Li Hongqi in Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Chen Guangqiang and Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between

Recon Technology (Jining) Co.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Yin Shenping and Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between

Recon Technology (Jining) Co.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Li Hongqi and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon

Technology (Jining) Co., Ltd., Chen Guangqiang and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon

Technology (Jining) Co., Ltd., Yin Shenping and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon

Technology (Jining) Co., Ltd., Li Hongqi and Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Technical Consulting Service Agreement

between Recon Technology (Jining) Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Jining ENI Energy Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Jining ENI Energy Technology Co., Ltd.

Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd.

and Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney for rights of Chen Guangqiang

in Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney for rights of Yin Shenping in

Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney for rights of Li Hongqi in Nanjing

Recon Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between

Recon Technology (Jining) Co.

Translation of Power of Attorney for rights of Chen Guangqiang in Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney for rights of Yin Shenping in Nanjing Recon Technology Co., Ltd.

Translation of Power of Attorney for rights of Li Hongqi in Nanjing Recon Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between

Recon Technology (Jining) Co.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Yin Shenping and Nanjing Recon Technology Co., Ltd.

Translation of Exclusive Equity Interest Purchase Agreement between

Recon Technology (Jining) Co.

Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co.

Ltd., Li Hongqi and Nanjing Recon Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon

Technology (Jining) Co., Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon

Technology (Jining) Co., Ltd., Yin Shenping and Nanjing Recon Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Nanjing Recon Technology Co., Ltd.

Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Nanjing Recon Technology Co., Ltd.

Form of Warrant Exchange Agreement dated February 13, 2015 (incorporated by reference to Exhibit 10.36

of the Company’s Form 10-Q for the quarter ended December 31 2014, filed on February 13, 2015).

Form of Warrant Exchange Agreement dated February 15, 2015 (incorporated by reference to Exhibit 10.27

to the Company’s quarterly report on Form 10-Q for the period ended March 31, 2015).

Equity Distribution Agreement between Maxim Group LLC and Recon Technology, Ltd dated May 13, 2015 ( incorporated

by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on May 14, 2015).

Code of Ethics of the Company.

6 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Audit Committee Charter (2)

2009 Stock Incentive Plan (1)

2015 Stock Incentive Plan (4)

Press release dated September 28, 2016 regarding earnings for year ended June 30, 2016 (4)

XBRL Instance Document (4)

4 unchanged sentences

XBRL Taxonomy Extension Presentation Linkbase Document (4)

*XBRL (Extensible Business Reporting Language) information

is furnished and not filed herewith, is not a part of a registration statement or report for purposes of sections 11 or 12 of

the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934,

as amended, and otherwise is not subject to liability under these sections.

Incorporated by reference to the Company’s Registration

Statement on Form S-1, Registration No.

Incorporated by reference to the Company’s Annual Report

of Form 10-K for the fiscal year ended June 30, 2009, filed with the SEC on September 28, 2009.

Incorporated by reference to the Company’s Registration Statement on Form S-3, Registration No.

Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No.

Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended

June 30, 2009, filed with the SEC on September 28, 2009.

Filed herewith.

21 unchanged sentences

Consolidated Balance Sheets as of June 30, 2015 and 2016

Consolidated Statements of Operations and Comprehensive Income (loss) for the years ended June 30, 2014

Consolidated Statements of Operations and Comprehensive Loss for the years ended June 30, 2015 and 2016

Consolidated Statements of Equity for the years ended June 30, 2015 and 2016

8 unchanged sentences

(the “Company”) as of June 30, 2016 and 2015, and the related consolidated

statements of operations and comprehensive income (loss), equity, and cash flows for each of the two years in the period ended

June 30, 2015.

statements of operations and comprehensive loss, equity, and cash flows for each of the two years in the period ended June 30,

Recon Technology, Ltd.’s management is responsible for these consolidated financial statements.

22 unchanged sentences

September 28, 2016

TECHNOLOGY, LTD

Balance Sheets

RECON TECHNOLOGY, LTD

CONSOLIDATED BALANCE SHEETS

As of June 30,

Current assets

Cash and cash equivalents

Notes receivable

Trade accounts receivable, net

Trade accounts receivable- related parties,

Trade accounts receivable- related parties, net

Inventories, net

5 unchanged sentences

Prepaid expenses - related parties

Deferred tax asset

Deferred tax assets

Total current assets

Property and equipment, net

Long-term trade accounts receivable,

Long-term trade accounts receivable

- related parties, net

Long-term other

LIABILITIES AND EQUITY

Long-term trade accounts receivable, net

Long-term other receivable

Current liabilities

9 unchanged sentences

Taxes payable

Short-term borrowings

Short-term borrowings - related parties

Deferred tax liability

Warrants liability

Total current

Total current liabilities

Common stock, ($ 0.0185 U.S.

par value, 25,000,000 and 100,000,000 shares authorized as of June 30, 2014 and June 30, 2015, respectively);

4,717,336 and

5,427,946 shares issued and outstanding as of June 30, 2014 and June 30, 2015, respectively)

dollar par value, 100,000,000 shares authorized;

5,427,946 and 5,804,005 shares issued and outstanding as of June 30, 2015 and 2016, respectively)

Additional paid-in capital

Appropriated retained earnings

Unappropriated retained earnings

Statutory reserve

Accumulated deficits

(23,024,935 )

Accumulated other

comprehensive loss

(63,907,512 )

Accumulated other comprehensive loss

Total shareholders’

Non-controlling interest

Total Liabilities

Total Liabilities and Equity

The accompanying notes are an integral

part of these consolidated financial statements.

TECHNOLOGY, LTD

Statements of operations and Comprehensive INCOME (LOSS)

RECON TECHNOLOGY, LTD

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

For the years ended

5 unchanged sentences

Hardware and software - related parties

Provision for slow moving inventories

Total cost of

Total cost of revenues

Selling and distribution expenses

General and administrative expenses

Provision for doubtful accounts

Research and development expenses

Operating expenses

lncome (loss)

from operations

Loss from operations

(35,516,233 )

(39,911,129 )

Other income (expenses)

2 unchanged sentences

Interest expense

Loss from investment

Change in fair value of warrants liability

Loss from foreign currency exchange

Income (loss) from foreign currency exchange

Loss from warrants redemption

Other expense

Income (loss) before income tax

Other income (expense)

Loss before income tax

(34,008,463 )

(40,336,732 )

Provision (benefit) for income tax

Net Income (loss)

(31,456,388 )

Net income attributable to non-controlling interest

Net Income (loss)

attributable to Recon Technology, Ltd

(40,882,577 )

Comprehensive loss

(31,456,388 )

Comprehensive income (loss)

Net income (loss)

(40,882,577 )

Foreign currency translation adjustment

Comprehensive income (loss)

Comprehensive loss

(31,494,664 )

Comprehensive income (loss) attributable to non-controlling interest

Comprehensive

income (loss) attributable to Recon Technology, Ltd

(40,784,066 )

Comprehensive loss attributable to non-controlling interest

Comprehensive loss attributable to Recon Technology, Ltd

(31,492,682 )

Earnings (loss)

per common share - basic

Earnings (loss)

per common share - diluted

(40,784,066 )

$ (6,138,176 )

Loss per common share - basic

Loss per common share - diluted

Weighted - average shares -basic

2 unchanged sentences

part of these consolidated financial statements.

TECHNOLOGY, LTD

Statements of equity

RECON TECHNOLOGY, LTD

CONSOLIDATED STATEMENTS OF EQUITY

Comprehensive

2 unchanged sentences

Balance, July

Capital contribution in VIE

Stock issuance

Restricted shares issued for services

Stock options exercised

Restricted shares issued to redeem warrants

Stock based payment

Net income (loss) for the year

Appropriation of statutory reserves

Foreign currency translation adjustment

Net loss for the year

(31,456,388 )

Foreign currency translation

Balance, June 30, 2015

Capital contribution in VIE

(23,024,935 )

Stock issuance

Restricted shares issued for services

Restricted shares issued to redeem warrants

Stock based payment

Net income (loss) for the year

Net loss for the year

(40,882,577 )

1 unchanged sentence

(40,882,577 )

Foreign currency translation adjustment

Foreign currency translation

Balance, June 30, 2016

(63,907,512 )

(82,268,844 )

The accompanying notes are an integral

part of these consolidated financial statements.

TECHNOLOGY, LTD

Statements of Cash flows

For the years ended

RECON TECHNOLOGY, LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 30,

Cash flows from operating activities:

Net income (loss)

(31,456,388 )

$ (5,166,272 )

Adjustments to reconcile net income

(loss) to net cash used in operating activities:

Loss (Gain) from disposal of equipment

Adjustments to reconcile net loss to net cash used in operating activities:

Gain from disposal of equipment

Provision for doubtful accounts

1 unchanged sentence

Share based compensation

Loss from investment

Deferred tax (benefit) provision

10 unchanged sentences

Purchase advance, net

Tax recoverable

Purchase advance-related parties, net

Prepaid expense

Prepaid expense - related party, net

Prepaid expense - related parties, net

Trade accounts payable

2 unchanged sentences

Other payables-related parties

Deferred income

Deferred revenue

Advances from customers

2 unchanged sentences

Taxes payable

Net cash used

in operating activities

(15,102,337 )

Net cash used in operating activities

Cash flows from investing activities:

1 unchanged sentence

Proceeds from disposal of equipment

Net cash used

in investing activities

Net cash used in investing activities

Cash flows from financing activities:

1 unchanged sentence

Repayments of short-term bank loans

(23,500,000 )

(10,000,000 )

Proceeds from short-term borrowings

Proceeds from short-term borrowings-related parties

Repayment of short-term borrowings

Repayment of short-term borrowings-related parties

Proceeds from sale of common stock, net of issuance costs

Proceeds from stock options exercised

Net cash provided

by financing activities

Effect of exchange

rate fluctuation on cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash

equivalents at beginning of year

Cash and cash

equivalents at end of year

Net cash provided by (used in) financing activities

Effect of exchange rate fluctuation on cash and cash equivalents

Net decrease in cash

Cash at beginning of the year

Cash at end of the year

Supplemental cash flow information

Cash paid during

the period for interest

Cash paid during

the period for taxes

Cash paid during the period for interest

Cash paid during the period for taxes

Non-cash investing and financing activities

Issuance of common stock to prepay professional services

Issuance of common stock to redeem warrants

The accompanying notes are an integral

part of these consolidated financial statements.

TECHNOLOGY, LTD

AR and short-term borrowings-related parties offset

Inventories used for fixed assets

The accompanying notes are an integral part

of these consolidated financial statements.

RECON TECHNOLOGY,

to the consolidated financial statements

AND NATURE OF OPERATIONS

ORGANIZATION AND NATURE OF OPERATIONS

Organization –

Recon Technology, Ltd (the

“Company”) was incorporated under the laws of the Cayman Islands on August 21, 2007 by Mr.

Yin Shenping, Mr.

Guangqiang and Mr.

Li Hongqi (the “Founders”) as a limited liability company.

The Company provides specialized

oilfield equipment, automation systems, tools, chemicals and field services to petroleum companies mainly in the People’s

Republic of China (the “PRC”).

Its wholly owned subsidiary, Recon Technology Co., Limited (“Recon-HK”)

was incorporated on September 6, 2007 in Hong Kong.

Other than the equity interest in Recon-HK, the Company does not own any assets

or conduct any operations.

On November 15, 2007, Recon-HK established one wholly owned subsidiary, Jining Recon Technology Ltd.

(“Recon-JN”) under the laws of the PRC.

Other than the equity interest in Recon-JN, Recon-HK does not own any assets

or conduct any operations.

On November 19, 2010 ,

Recon-CI established one wholly owned subsidiary, Recon Investment Ltd.

(“Recon-IN”) under the laws of HK.

the equity interest in Recon-IN, Recon-CI does not own any assets or conduct any operations.

On January 18, 2014, Recon-IN established

one wholly owned subsidiary, Recon Hengda Technology (Beijing) Co., Ltd.

(“Recon-BJ”) under the laws of the PRC.

than the equity interest in Recon-BJ, Recon-IN does not own any assets or conduct any operations.

The Company conducts its business through the following PRC

legal entities that are consolidated as variable interest entities

(“VIEs”) and operate in the Chinese oilfield equipment & service industry:

Beijing BHD Petroleum

Technology Co., Ltd.

(“BHD”), and

“Company”) was incorporated under the laws of the Cayman Islands on August 21, 2007 by Messrs.

Yin Shenping, Chen Guangqiang

and Li Hongqi (the “Founders”) as a limited liability company.

The Company provides specialized oilfield equipment,

automation systems, tools, chemicals and field services to petroleum companies mainly in the People’s Republic of China (the

“PRC”).

The Company, along with its wholly-owned

subsidiaries, Recon Technology Co., Limited (“Recon HK”), Jining Recon Technology Ltd.

(“Recon JN”),

Recon Investment Ltd.

(“Recon IN”) and Recon Hengda Technology (Beijing) Co., Ltd.

(“Recon BJ”),

conducts its business through the following PRC legal entities (“Domestic Companies”) that are consolidated as variable

interest entities (“VIEs”) and operate in the Chinese oilfield equipment & service industry:

Beijing BHD Petroleum Technology Co., Ltd.

(“BHD”),

Nanjing Recon Technology Co., Ltd.

(“Nanjing Recon”).

On January 29, 2015, the Company increased its authorized shares

from 25,000,000 to 100,000,000 ordinary shares.

Chinese laws and regulations currently do not prohibit or restrict

foreign ownership in petroleum businesses.

However, Chinese laws and regulations do prevent direct foreign investment in certain

However, on January 1, 2008, to protect the Company’s shareholders from possible future foreign ownership restrictions,

the Founders, who also held the controlling interest of BHD and Nanjing Recon, reorganized the corporate and shareholding structure

of these entities by entering into certain exclusive agreements with Recon-JN, which entitles Recon-JN to receive a majority of

the residual returns.

On May 29, 2009 Recon-JN and BHD and Nanjing Recon entered into an operating agreement to provide full guarantee

for the performance of such contracts, agreements or transactions entered into by BHD and Nanjing Recon.

As a result of the new

agreement, Recon-JN absorbs 100% of the expected losses and receives 90% of the expected gains of BHD and Nanjing Recon, which

resulted in Recon-JN being the primary beneficiary of these Companies.

Recon-JN also entered into Share Pledge Agreements with the

Founders, who pledged all their equity interest in these entities to Recon-JN.

The Share Pledge Agreements, which were entered

into by each Founder, pledged each of the Founders’

equity interest in BHD and Nanjing Recon as a guarantee for the service

payment under the Service Agreement.

The Service Agreement, entered into on January 1, 2008, between

Recon-JN and BHD and Nanjing Recon, states that Recon-JN will provide technical consulting services to BHD and Nanjing Recon in

exchange for 90% of their annual net profits as a service fee, which is to be paid quarterly.

In addition, Recon-HK entered into Option Agreements to allow

Recon-HK to acquire the Founders’

interest in these entities if or when permitted by the PRC laws.

Based on these exclusive agreements, the Company consolidated

BHD and Nanjing Recon as VIEs as required by Accounting Standards Codification (“ASC”) Topic 810, Consolidation

because the Company was the primary beneficiary of the VIEs.

Management makes ongoing reassessment of whether Recon-JN is

the primary beneficiary of BHD and Nanjing Recon.

RECON TECHNOLOGY,

to the consolidated financial statements

On August 28, 2000, a Founder of the Company purchased a controlling

interest in BHD which was organized under the laws of the PRC on June 29, 1999.

Through December 15, 2010, the Founders held a

67.5% ownership interest in BHD.

From December 16, 2010 to June 30, 2012, Messers.

Yin Shenping and Chen Guangqiang held an 86.24%

ownership interest of BHD.

BHD was combined with the Company through the date of the exclusive agreements, and has been consolidated

following January 1, 2008, the date of the agreements based on ASC Topic 810.

The Company allocates profits and losses 90% and

100%, respectively, based upon the control agreements.

Profits allocated to the minority interest are the remaining amount (10%).

On July 4, 2003, Nanjing Recon was organized under the laws

On August 27, 2007, the Founders of the Company purchased a majority ownership of Nanjing Recon from a related party

who was a majority owner of Nanjing Recon.

Through December 15, 2010, the Founders held 80% ownership interest in Nanjing Recon.

From December 16, 2010 to June 30, 2012, Messers.

Yin Shenping and Chen Guangqiang held 80% ownership interest of Nanjing Recon.

Nanjing Recon is combined with the Company through the date of the exclusive agreements, and is consolidated following January

1, 2008, the date of the agreements based on ASC Topic 810.

The Company allocates profits and losses 90% and 100%, respectively,

based upon the control agreements.

Profits allocated to the non-controlling interest are the remaining amount (10%).

The Company has signed Exclusive Technical Consulting

Service Agreements with each of the Domestic Companies, which are our VIEs and Equity Interest Pledge Agreements and

Exclusive Equity Interest Purchase Agreements with their shareholders.

Through these contractual arrangements, the Company

has the ability to substantially influence each of the Domestic Companies’

daily operations and financial affairs,

appoint their senior executives and approve all matters requiring shareholder approval.

As a result of these contractual

arrangements, which enable the Company to control the Domestic Companies, the Company is considered as the primary

beneficiary of each Domestic Company.

Thus, the Company is able to absorb 90% of net interest or 100% of net loss of

On December 17, 2015, Huang Hua BHD Petroleum Equipment Manufacturing Co.

LTD, a fully owned subsidiary

established by BHD was organized under the laws of the PRC.

Nature of Operations –

The Company engaged in (1)

(1) providing equipment, tools and other hardware related to oilfield production and management, including simple installations

in connection with some projects;

(2) service to improve production and efficiency of exploited oil wells, and (3) developing

and selling its own specialized industrial automation control and information solutions.

The products and services provided by

the Company include:

providing equipment, tools and other hardware related to oilfield production and management, including simple installations in

connection with some projects;

(2) service to improve production and efficiency of exploited oil wells, and (3) developing and

selling its own specialized industrial automation control and information solutions.

The products and services provided by the

Company include:

High-Efficiency Heating Furnaces - High-Efficiency Heating

1 unchanged sentence

Crude petroleum contains certain impurities including water and natural gas, which must be removed before the petroleum can be

Multi-Purpose Fissure Shaper - Multipurpose fissure

shapers improve the extractors’

ability to test for and extract petroleum which requires perforation into the earth before

any petroleum extractor can test for the presence of oil.

Horizontal Multistage Fracturing related Service -

The Company mainly uses the Baker Hughes FracPoint™

Multi-Purpose Fissure Shaper - Multipurpose fissure shapers

improve the extractors’

ability to test for and extract petroleum which requires perforation into the earth before any petroleum

extractor can test for the presence of oil.

Horizontal Multistage Fracturing Related Service - The

Company mainly uses the Baker Hughes FracPoint™

system and provides related service to oilfield companies.

Baker Hughes FracPoint™

system provided a completion method using packers to isolate sections of the wellbore (stages)

and frac sleeves to direct the frac treatment to the desired stage.

The use of this type of completion eliminated the need

for cementing the liner, coiled tubing operations, and wireline operations, while significantly reducing overall pumping

The Baker Hughes

FracPoint™

system provided a completion method using packers to isolate sections of the wellbore (stages) and frac sleeves

to direct the frac treatment to the desired stage.

The use of this type of completion eliminated the need for cementing the liner,

coiled tubing operations, and wireline operations, while significantly reducing overall pumping time.

Supervisory Control and Data Acquisition System (“SCADA”)

- SCADA is an industrial computerized process control system for monitoring, managing and controlling petroleum extraction.

SCADA integrates underground and aboveground activities of the petroleum extraction industry.

This system can help to manage the

oil extraction process in real-time to reduce the costs associated with extraction.

integrates underground and aboveground activities of the petroleum extraction industry.

This system can help to manage the oil

extraction process in real-time to reduce the costs associated with extraction.

As reflected in the Company’s consolidated financial statements,

the Company had recurring net losses for the years ended June 30, 2016 and 2015.

In assessing its liquidity, management monitors

and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources in the future and its operating

and capital expenditure commitments.

The Company plans to fund continuing operations through identifying new prospective joint

venture and strategic alliance opportunities for new revenue sources, financial supports by major shareholders and reducing costs

to improve profitability and replenish working capital.

Management believes that the foregoing measures collectively will provide

sufficient liquidity for the Company to meet its future liquidity and capital obligations.

RECON TECHNOLOGY,

to the consolidated financial statements

SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation - The accompanying consolidated

financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America

and have been consistently applied.

Basis of presentation - The

accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in

the United States of America (“US GAAP”) and have been consistently applied.

Principles of Consolidation - The consolidated

2 unchanged sentences

between the Company and its subsidiaries and VIEs have been eliminated upon consolidation.

Variable Interest Entities - A VIE is

an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated

Variable Interest Entities - A

VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated

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

5 unchanged sentences

The Company performs ongoing assessments to determine whether an entity should be

considered a VIE and whether an entity previously identified as a VIE continues to be a VIE and whether the Company continues

to be the primary beneficiary.

RECON TECHNOLOGY,

to the consolidated financial statements

Assets recognized as a result of consolidating VIEs do not

represent additional assets that could be used to satisfy claims against the Company’s general assets.

Conversely, liabilities

recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets;

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

Currency Translation - The Company’s functional

currency is the Chinese Yuan (“RMB”) and the accompanying consolidated financial statements have been expressed in

Chinese Yuan.

The consolidated financial statements as of and for the year ended June 30, 2015 have been translated into United

States dollars (“U.S.

considered a VIE and whether an entity previously identified as a VIE continues to be a VIE and whether the Company continues to

be the primary beneficiary.

Assets recognized as a result of consolidating VIEs do not represent

additional assets that could be used to satisfy claims against the Company’s general assets.

Conversely, liabilities recognized

as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets;

represent claims against the specific assets of the consolidated VIEs.

Currency Translation - The

Company’s functional currency is the Chinese Yuan (“RMB”) and the accompanying consolidated financial statements

have been expressed in Chinese Yuan.

The consolidated financial statements as of and for the year ended June 30, 2016 have been

translated into United States dollars (“U.S.

dollars”) solely for the convenience of the readers.

The translation has been made at the rate

of ¥6.0888 = US$1.00, the approximate exchange rate prevailing on June 30, 2015.

The translation has

been made at the rate of ¥6.6443 = US$1.00, the approximate exchange rate prevailing on June 30, 2016.

These translated U.S.

dollar amounts should

not be construed as representing Chinese Yuan amounts or that the Chinese Yuan amounts have been or could be converted into U.S.

Estimates and assumptions - The preparation of

the consolidated financial statements in conformity with U.S.

GAAP requires that management make estimates and assumptions that

affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the

financial statements and the reported amounts of revenues and expenses during the reporting periods.

dollar amounts should not be construed as representing Chinese Yuan amounts or that the Chinese Yuan amounts have been or could

be converted into U.S.

Estimates and assumptions - The

preparation of the consolidated financial statements in conformity with U.S.

GAAP requires that management make estimates and assumptions

that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of

the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Estimates are adjusted

5 unchanged sentences

component of the financial reporting process, actual results could differ from those estimates.

Fair Values of Financial Instruments - The U.S.

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.

Fair Values of Financial Instruments - The

US GAAP accounting standards regarding fair value of financial instruments and related fair value measurements define fair value,

establish a three-level valuation hierarchy that requires an entity to maximize the use of observable inputs and minimize the use

of unobservable inputs when measuring fair value.

The three levels of inputs are defined

6 unchanged sentences

the valuation methodology are unobservable.

RECON TECHNOLOGY,

to the consolidated financial statements

The carrying amounts reported in the consolidated balance sheets

2 unchanged sentences

of these financial instruments.

Long-term borrowings approximate fair value because the interest rate charged approximates the

Long-term other receivables approximate fair value because interest rate approximates the market rate.

investment is carried measured at fair value on a non-recurring basis at June 30, 2014, since the Company recorded an impairment

loss during 2014;

the fair value was determined to be zero using level 1 inputs.

(See Note 8.)

It was impracticable to estimate the fair value of long-term other receivables, because this is

due from the Company’s former VIE and there are no comparable markets for receivables with similar terms.

The fair value of the warrants liability

was determined using the Black-Scholes Model, as Level 2 inputs (See Note 13).

RECON TECHNOLOGY,

to the consolidated financial statements

Cash and Cash Equivalents - Cash and cash equivalents

are comprised of cash on hand, demand deposits and highly liquid short-term debt investments with stated original maturities of

no more than three months.

Since a majority of the bank accounts are located in the PRC, those bank balances are uninsured.

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

Trade Accounts and Other Receivables - Accounts

7 unchanged sentences

arise from transactions with non-trade customers.

Purchase Advances - Purchase advances are the

amounts prepaid to suppliers for purchases of inventory and are recognized as inventory when the final amount is paid to the suppliers

and the inventory is delivered.

Inventories - Inventories are stated at the lower

of cost or market value, on a weighted average basis for BHD.

Inventories are stated at the lower of cost or market value, on

a first-in-first-out basis for Nanjing Recon.

The methods of determining inventory costs are used consistently from year to year.

Allowance for inventory obsolescence is provided when the market value of certain inventory items are lower than the cost.

Property and Equipment - Property and equipment

are stated at cost.

Depreciation on motor vehicles and office equipment is computed using the straight-line method over the estimated

useful lives of the assets, which range from two to ten years.

Leasehold improvements are amortized over the shorter of the lease

term or the estimated useful life of the assets.

Purchase Advances - Purchase

advances are the amounts prepaid to suppliers for purchases of inventory and are recognized as inventory when the final amount

is paid to the suppliers and the inventory is delivered.

Inventories - Inventories

are stated at the lower of cost or market value, on a weighted average basis for BHD.

Inventories is stated at the lower of cost

or market value, on a first-in-first-out basis for Nanjing Recon.

The methods of determining inventory costs are used consistently

from year to year.

Allowance for inventory obsolescence is provided when the market value of certain inventory items are lower

than the cost.

Property and Equipment - Property

and equipment are stated at cost.

Depreciation on motor vehicles and office equipment is computed using the straight-line method

over the estimated useful lives of the assets, which range from two to ten years.

Leasehold improvements are amortized over the

shorter of the lease term or the estimated useful life of the assets.

Motor vehicles

1 unchanged sentence

Leasehold improvement

Production equipment

Long-term investment –

Long-term investment

in equity over which the Company has the ability to exercise significant influence but not control, and that, in general, are

20-50 percent owned, are stated at cost plus equity in undistributed net income (loss) of the investee.

investment in equity over which the Company has the ability to exercise significant influence but not control, and that, in general,

are 20-50 percent owned, are stated at cost plus equity in undistributed net income (loss) of the investee.

These investments are

5 unchanged sentences

longer-term intent of retaining the investment in the investee.

Long-Lived Assets - The Company applies the ASC

Topic 360 “Property, plant and equipment.”

ASC Topic 360 requires that long-lived assets, such as property and equipment

be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset

group may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount

of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of an asset

exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying

amount of the asset exceeds the fair value of the asset.

Fair value is determined based on the estimated discounted future cash

flows expected to be generated by the asset.

Long-Lived Assets - The

Company applies the ASC Topic 360 “Property, plant and equipment.”

ASC Topic 360 requires that long-lived assets, such

as property and equipment be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount

of an asset or asset group may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of

the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying

amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which

the carrying amount of the asset exceeds the fair value of the asset.

Fair value is determined based on the estimated discounted

future cash flows expected to be generated by the asset.

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

Revenue Recognition - The Company recognizes

revenue when the following four criteria are met:

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

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

RECON TECHNOLOGY,

to the consolidated financial statements

Revenue Recognition - The

Company recognizes revenue when the following four criteria are met:

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

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

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

2 unchanged sentences

have lapsed, or the Company has objective evidence that the criteria specified in customers’

acceptance provisions have

been satisfied.

The sales price is not considered to be fixed or determinable until all contingencies related to the sale have

been resolved.

RECON TECHNOLOGY,

to the consolidated financial statements

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 ASC Topic 985 - 605 “Software Revenue Recognition”.

software is recognized according to project contracts.

Contract costs are accumulated during the periods of installation and testing

or commissioning.

acceptance provisions have been

The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been

Hardware and software:

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.

from software is recognized according to project contracts.

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 function

and system operation on separated fixed-price contracts.

Revenue is recognized on the completed contract method when acceptance

is determined by a completion report signed by the customer.

Revenue is not recognized until completion

of the contracts and receipt of acceptance.

Company provides services to improve software function and system operation on separated fixed-price contracts.

Revenue is recognized

on the completed contract method when acceptance is determined by a completion report signed by the customer.

Deferred revenue represents unearned amounts billed to customers

related to sales contracts.

Subsidy Income - Grants are given by the government

to support local software companies’

Subsidy Income - Grants

are given by the government to support local software companies’

operation and research and development.

Grants related to research and development

projects are recognized as subsidy income in the unaudited condensed consolidated statements of operations when received.

in the form of value-added-tax refund for software products are recognized when received.

Share-Based Compensation - The Company accounts

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

Under the fair value recognition provisions

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

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

has elected to recognize compensation expenses using the Binomial Lattice valuation model estimated at the grant date based on

the award’s fair value.

Income Taxes - Income taxes are provided based

upon the liability method of accounting pursuant to ASC Topic 740, Accounting for Income Taxes .

Provisions for income taxes

are based on taxes payable or refundable for the current year and deferred taxes.

Deferred taxes are provided on differences between

the tax bases of assets and liabilities and their reported amounts in the financial statements, and tax carry forwards.

tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period

in which the deferred tax assets and liabilities are expected to be realized or settled.

As changes in tax laws or rates are enacted,

deferred tax assets and liabilities are adjusted through the provision for income taxes.

The Company has not been subject to any

income taxes in the United States or the Cayman Islands.

Grants related to

research and development projects are recognized as subsidy income in the consolidated statements of operations when received.

Grants in the form of value-added-tax refund for software products are recognized when received.

Share-Based Compensation - The

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

Under the fair value recognition

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

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

The Company has elected to recognize compensation expenses using the Binomial Lattice valuation model estimated at the grant date

based on the award’s fair value.

Income Taxes - Income

taxes are provided based upon the liability method of accounting pursuant to ASC Topic 740, Accounting for Income Taxes.

for income taxes are based on taxes payable or refundable for the current year and deferred taxes.

Deferred taxes are provided

on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, and tax

carry forwards.

Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates

applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

As changes in

tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

has not been subject to any income taxes in the United States or the Cayman Islands.

Under ASC Topic 740, the Company may recognize the tax benefit

4 unchanged sentences

upon ultimate settlement.

Income tax returns for the year prior to 2010 are no longer subject to examination by tax authorities.

Earnings (loss) per Share (“EPS”)

- Basic EPS is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding.

are computed by dividing net income (loss) by the weighted-average number of ordinary shares and dilutive potential ordinary share

equivalents outstanding.

Loss per Share - Basic

Earnings/Loss Per Share (“EPS”) is computed

by dividing net loss by the weighted average number of ordinary shares outstanding.

Diluted EPS are computed by dividing net loss

by the weighted-average number of ordinary shares and dilutive potential ordinary share equivalents outstanding.

Potentially dilutive ordinary shares consist of ordinary shares

issuable upon the conversion of ordinary stock options, restricted shares and warrants (using the treasury stock method).

For the year ended June 30, 2014, there were 64,207 restricted shares included in the weighted average dilutive shares calculation.

The effect from options, restricted shares and warrants would have been anti-dilutive due to the fact that we incurred a net loss

during the year ended June 30, 2015.

from options, restricted shares and warrants would have been anti-dilutive due to the fact that we incurred a net loss during the

year ended June 30, 2015 and 2016.

RECON TECHNOLOGY,

1 unchanged sentence

Recently Issued Accounting Pronouncements

In June 2015, the Financial Accounting Standards Board (“FASB”)

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

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).

For 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.

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

Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting.

The ASU includes multiple provisions intended

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

While aimed at reducing the cost and complexity of the

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

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

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

In April 2016, FASB issued Accounting Standards Update No.

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;

and (b) the licensing implementation guidance.

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 (Topic 815):

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;

3) 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;

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.

RECON TECHNOLOGY,

to the consolidated financial statements

In August 2016, the FASB has issued Accounting Standards Update

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 Claims;

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

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

TRADE ACCOUNTS RECEIVABLE, NET

6 unchanged sentences

Total - third- party, net

RECON TECHNOLOGY,

to the consolidated financial statements

June 30, 2015

June 30, 2016

Related Party

Beijing Yabei Nuoda Science and Technology Co.

Beijing Langchen Construction Company

Xiamen Huangsheng Hitek Computer Network Co.Ltd.

Xiamen Huangsheng Hitek Computer Network Co.

Xiamen Henda Hitek Computer Network Co.

3 unchanged sentences

June 30, 2016

Related Party –

Third Party –

Beijing Yabei Nuoda Science and Technology Co.

1 unchanged sentence

Total - long-term trade accounts receivable, net

RECON TECHNOLOGY,

to the consolidated financial statements

*The receivable from Yabei Nuoda was recognized primarily from

the sale of automation system and services based on written contracts.

Based on the repayment agreement signed on September 2,

2015, the outstanding balance was to be collected in two years beginning in 2017, with each installment of ¥2,467,036 ($371,299).

During the year ended June 30, 2016, the Company received the payment on time as scheduled.

** During the year ended June 30, 2016, the Company offset ¥980,000

($147,494) of accounts receivable and accounts payable pursuant to certain settlement agreements with Xiamen Huangsheng Hitek Computer

Ltd , a related party of the Company.

*** During the year ended June 30, 2016, the Company offset

¥2,699,347 ($406,263) of accounts receivable with ¥2,499,347 ($376,162) of accounts payable and ¥200,000 ($30,101)

pursuant to certain settlement agreements with Xiamen Henda Hitek Computer Network Co.

Ltd., a related party of the Company.

Provision for accounts receivables due from third party was ¥19,421

and ¥1,650,745 ($248,444) for the years ended June 30, 2015 and 2016, respectively.

Movement of allowance for doubtful accounts is as follows:

June 30, 2015

1 unchanged sentence

June 30, 2016

Third Party –

Beijing Yabei Nuoda Science and Technology Co.

Allowance for doubtful accounts

Total - long-term trade accounts receivable, net

The receivable from Beijing Yabei Nuoda Science and Technology Co.

(“Yabei Nuoda”) was recognized primarily

from the sale of automation system and services based on written contracts.

Based on the repayment agreement signed on

September 2, 2015, the outstanding balance will be collected in two years beginning 2017, with each installment

of ¥2,467,036.

of the Founders, Mr.

Yin Shenping, was the legal representative of Yabei Nuoda before December 2013 and Chairman as of September 30, 2014.

On October 30, 2014, Mr.

Yin resigned from the chairman

position and thus Yabei Nuoda is not a related party of the Company after October 30, 2014.

Yin no longer has any equity interest

in this company.

** This receivable was settled between August 10, 2015 and

September 1, 2015.

***On August 13, 2015, all of the outstanding balance was offset

against the related payable (See Note 9) and the remaining balance was repaid.

Beginning balance

Charge to expense

Ending balance

OTHER RECEIVABLES, NET

9 unchanged sentences

Allowance for doubtful accounts

RECON TECHNOLOGY,

to the consolidated financial statements

Provision for other receivables was ¥371,217 and ¥455,574

($68,566) for the years ended June 30, 2015 and 2016, respectively.

June 30, 2015

3 unchanged sentences

Due from ENI (A)

ENI ceased to be a VIE of the Company, ENI in January 2012 agreed to repay the loan on

a payment schedule, with interest accrued during the period at an annual rate of 4%.

In accordance with the payment schedule, the principal plus accrued interest is required

to be repaid over approximately three years on a quarterly basis beginning March 2012.

(A) After ENI ceased to be a VIE of the Company, ENI in January 2012

agreed to repay the loan on a payment schedule, with interest accrued during the period at an annual rate of 4%.

In accordance

with the payment schedule, the principal plus accrued interest is required to be repaid over approximately three years on a quarterly

basis beginning March 2012.

The first four payments are RMB 1.2 million each.

In March, June, September and December

of 2012, the Company received RMB 4.8 million.

Starting March 2013, installments for

each quarter would be ¥1,777,653.

The Company received the payments on time in March

and June, 2013.

On September 30, 2013, ENI proposed to extend the payment period and

signed a new contract with the Company.

According to the new arrangement, the remaining

part of this loan will be repaid over four years with quarterly installments of

¥699,147.

The Company has continued to receive the payments under the agreement.

to third-parties are mainly used for short-term funding to support cooperative companies.

In March, June, September and December of 2012, the

Company received RMB 4.8 million.

Starting March 2013, installments for each quarter would be ¥1,777,653.

The Company received

the payments on time in March and June, 2013.

On September 30, 2013, ENI proposed to extend the payment period and signed a new

contract with the Company.

According to the new arrangement, the remaining part of this loan will be repaid over four years with

quarterly installments of ¥699,147, which is due by June 30, 2017.

The Company has continued to receive the payments under

the agreement.

RECON TECHNOLOGY,

to the consolidated financial statements

(B) Loans to third-parties are mainly used for short-term funding to

support the Company’s external business partners.

These loans are due on demand bearing no interest.

advance to staff represents advances for business travel and sundry expenses related

to oilfield or on-site installation and inspection of products through customer approval

and acceptance.

and sundry expenses related to oilfield or on-site installation and inspection of products through customer approval and acceptance.

Other receivables

- related parties represent loans to related parties for working capital advances to related entities.

Such advances are due-on-demand

and non-interest bearing.

Below is a summary of other receivables - related parties which

consisted of the following:

Related Party

- related parties represent loans to related parties for working capital advances.

Such advances are due-on-demand and non-interest

Balances have been fully collected as of June 30, 2016.

Movement of allowance for doubtful accounts is as follows:

June 30, 2015

1 unchanged sentence

June 30, 2016

Name of Related Party

Beijing Yabei Nuoda Science and Technology Co.

Beijing Langchen Construction Company **

Other - business advances

a related party after October 31, 2014.

was repaid on August 6, 2015.

Beginning balance

Charge to expense

Ending balance

PURCHASE ADVANCES

The Company purchased products and services from a third-party

and a related party during the normal course of business.

The Company purchased products and services from a third party and

a related party during the normal course of business.

Purchase advances consisted of the following:

RECON TECHNOLOGY,

to the consolidated financial statements

June 30, 2015

3 unchanged sentences

Allowance for doubtful accounts

Below is a summary of purchase advances to related party.

(16,591,247 )

Provision for purchase advances were ¥2,862,231 and ¥12,368,755

($1,861,550) for the years ended June 30, 2015 and 2016, respectively.

The Company recorded allowance for these down payments and

will continue to try to collect or get inventories delivered.

These payments were advanced for certain customized equipment of

the planned projects.

As those projects were delayed or canceled or there is rare chance to be profitable, the Company decided

to suspend those projects and recorded allowances related to advanced payments for those projects as the Company may not be able

to receive those funds back.

Management is still making efforts to collect partially or negotiate with venders for some other alternative

solutions to minimize the Company’s loss.

Purchases from related parties consisted of the following:

June 30, 2015

3 unchanged sentences

Xiamen Huangsheng Hitek Computer Network Co.

Total - related-parties, net

One of the Founders of the Company and his family member collectively

2 unchanged sentences

have been delivered to the Company and this balance was settled in full.

RECON TECHNOLOGY,

to the consolidated financial statements

Movement of allowance for doubtful accounts is as follows:

June 30, 2015

June 30, 2016

Beginning balance

Charge to expense

Ending balance

Inventories consisted of the following:

June 30, 2015

June 30, 2016

Small component parts

4 unchanged sentences

Total inventories, net

for slow moving inventory was ¥0 and ¥7,700,836 ($1,264,754) at June 30, 2014 and 2015, respectively.

for slow moving inventory were ¥7,700,836 and ¥2,428,290 ($365,468) for the years ended June 30, 2015 and 2016, respectively.

Movement of provisions for slow moving inventory is as follows:

June 30, 2015

June 30, 2016

Beginning balance

Charge to cost of sales

Ending balance

PROPERTY AND EQUIPMENT, NET

5 unchanged sentences

Office equipment and fixtures

Production equipment

Total property and equipment

1 unchanged sentence

Property and equipment, net

RECON TECHNOLOGY,

to the consolidated financial statements

Depreciation expense was ¥526,046 and ¥955,083 ($143,744)

for the years ended June 30, 2015 and 2016, respectively.

RECON TECHNOLOGY,

to the consolidated financial statements

LONG-TERM INVESTMENT

On June 28, 2013, the Company purchased 2,800,000 restricted

shares of Avalon Oil and Gas, Inc.

("Avalon") for $0.089 per share, or approximately ¥1.5 million ($250,000).

the restriction for the shares is for two years, the Company was able to acquire the shares at 50% of the market value.

The investment

was accounted for using the equity method and no gain or loss from equity investment was recorded for the year ended June 30,

2013 due to immateriality.

As of June 30, 2014 and 2015, Recon owned 24.02% and 16.92% of Avalon’s outstanding shares, respectively.

Avalon is an independent US domestic oil and natural gas producer listed on the OTCBB under the ticker symbol AOGN.

Avalon engages

in the acquisition, exploration and development of oil and gas producing properties in the US.

Based on the available information

and discussion with the management team of Avalon, the Company believe Avalon’s operating loss would not be recovered in

the foreseeable future, therefore, the Company considered the investment to be impaired and recorded an investment loss of ¥1,535,250

($250,000) for the year ended June 30, 2014 to write its investment down to zero.

On April 13, 2015, BHD reached an agreement to invest RMB 80

million in Huanghua Heng Da Xiang Tong Manufacture Ltd (“HHBHD”) for a 54.05% ownership interest.

BHD’s board

of Directors and shareholders approved the transaction to invest in HHBHD.

The investment is to enhance cooperation with HHBHD

On April 13, 2015, BHD reached an agreement to invest RMB 80 million

in Huanghua Bai Heng Da Xiang Tong Manufacture Ltd (“HHBHDXT”) for a 54.05% ownership interest.

BHD’s board of

Directors and shareholders approved the transaction to invest in HHBHDXT.

The investment is to enhance cooperation with HHBHDXT

and protect BHD’s design copyright.

BHD does not have control or significant impact or voting rights over HHBHD.

report, no payment was made to HHBHD for this investment.

Based on mutual agreements, BHD shall not enjoy voting right until the payment of investment

is on position.

On March 18, 2016, BHD decided to terminate this investment transaction with HHBHDXT, and was no longer a shareholder

The Company didn’t make any payment as of the termination and termination of this transaction subjects

to no payment or penalty.

OTHER PAYABLES

Other payables consisted of the following:

June 30, 2015

June 30, 2016

Consulting services

Distributors and employees

Funds collected on behalf of others

June 30, 2015

June 30, 2016

Related Party

1 unchanged sentence

Expenses paid by the major shareholders

Due to family member of one owner on behalf on Recon

Due to management staff on behalf of Recon

an advance from Xiamen Henda Haitek for RMB 2,499,347 to supplement the Company’s

working capital.

The advance is payable on demand and non-interest bearing.

was off set with accounts receivable on September 3, 2015 (See Note 3).

RECON TECHNOLOGY,

to the consolidated financial statements

Due to family member of one owner

Due to management staff for costs incurred on behalf of Recon

(1) Includes an advance from

Xiamen Henda Hitek Computer Network Co.

for RMB 2,499,347 to supplement the Company’s working capital.

is payable on demand and non-interest bearing.

This debt was off set with accounts receivable on September 3, 2015 (See Note 3).

TAXES PAYABLE

1 unchanged sentence

consisted of the following:

June 30, 2015

June 30, 2016

Enterprise income tax payable

1 unchanged sentence

Total taxes payable

SHORT-TERM BANK LOAN

RECON TECHNOLOGY,

to the consolidated financial statements

SHORT-TERM BANK LOANS

Short-term bank loans consisted of the following:

Industrial and commercial bank, floating interest rate at 5.6%, paid off on December

Industrial and commercial bank, floating interest rate at 6.0%, due

on June 19, 2016

June 30, 2015

June 30, 2016

Industrial and Commercial Bank, floating interest rate at 6.12 %, due on June 19, 2016

Total short-term bank loans

expense for the short-term bank loan was ¥624,096 and ¥516,567 ($84,839) for the years ended June 30, 2014 and

2015, respectively.

SHORT-TERM BORROWINGS DUE

TO RELATED PARTIES

expense for the short-term bank loan was ¥516,567 and ¥415,676 ($62,561) for the years ended June 30, 2015 and 2016, respectively.

The loan was repaid in full during the year ended June 30, 2016.

SHORT-TERM BORROWINGS

Short-term borrowings consisted of the following:

June 30, 2015

June 30, 2016

Short-term borrowings

due to third parties:

Short-term borrowing from a third party, without interest, due on August 15, 2016

Total short-term borrowings due to third parties

The Company repaid the short-term borrowing in full on August 8,

June 30, 2015

June 30, 2016

Short-term borrowings

due to related parties:

Short-term borrowing from a Founder, 6.6% annual interest, due on December 25, 2014

Short-term borrowing from a Founder, 7.2% annual interest, due on October 20, 2015(B)

Short-term borrowing from a Founder, 7.2% annual interest, due on October 20, 2015

Short-term borrowing from a Founder, 6.06% annual interest, due on October 2, 2015

Short-term borrowing from a Founder's family member, no interest, due on various dates.(A)

Short-term borrowing from a Founder, 5.13% annual interest, due on October 12, 2015

Short-term borrowing from a Founder's family member, no interest, due on various dates

Short-term borrowings from Xiamen Huasheng Haitian Computer Network Co.

Ltd., no interest, due on November 14, 2015 (C)

Ltd., no interest, due on November 14, 2015

Short-term borrowing from a Founder, 5.75% annual interest, due on September 25, 2016*

Short-term borrowing from a Founder, 5.75% annual interest, due on October 10, 2016 **

Short-term borrowing from a Founder, 5.43% annual interest, due on November 4, 2016 ***

Short-term borrowing from a Founder's family member, no interest, due on December 16, 2016

Short-term borrowing from a Founder's family member, no interest, due on December 28, 2016

Short-term borrowing from a Founder, 5.22% annual interest, due on March 10, 2017

Short-term borrowing from a Founder, 5.22% annual interest, due on May 6, 2017

Total short-term borrowings due to related parties

* As of September 23, ¥1,800,000 was paid back with an accumulated interest of ¥17,537 ($2,639).

** As of September 23, 2016, the Company repaid ¥1,680,000 ($252,847) with an interest of ¥20,202 ($3,040).

*** As of September 23, 2016, the Company repaid ¥

540,000 ($81,272) of short-term borrowing with an interest of ¥8,428($1,268).

RECON TECHNOLOGY,

to the consolidated financial statements

August 20, 2015, ¥

1,500,000 ( $246,354 )

was paid back to the Founder’s family member.

August 19, 2015, the Company repaid ¥1,800,000 ($295,625) of short-term borrowing

with an interest of ¥37,200 ($6,110).

August 31, 2015, this obligation was satisfied.

Interest expense for short-term borrowings due to related parties

was ¥593,884 and ¥487,692 ($73,400) for the years ended June 30, 2015 and 2016, respectively.

Note 13 –WARRANTS LIABILITY

In connection with the stock offering in November 2013, the

Company issued warrants to certain institutional investors and placement agent to purchase 218,600 ordinary shares (see details

On February 13, 2015, the Company redeemed 163,950 warrants

by issuing 204,938 ordinary shares (1.25 shares of ordinary shares to exchange one warrant) to institutional investors.

15, 2015, the Company redeemed the remaining 54,650 warrants by issuing 68,313 ordinary shares (1.25 shares of ordinary shares

to exchange one warrant) to institutional investors.

As a result, the Company recorded a loss on warrant redemption of ¥2,496,375

($409,995) for the year ended June 30, 2015.

According to ASC 815-40, if the strike price of the warrants

is denominated in a currency other than the Company’s functional currency, the warrants are not considered indexed to the

entity’s own stock.

The Company’s functional currency is RMB and the strike price of the warrants is denominated in

USD, as a result, the warrants are classified as liabilities with all future changes in the fair value of these warrants recognized

in earnings until such time as the warrants are exercised or expired.

These common stock purchase warrants do not trade in an active

securities market, and as such, their fair value is estimated by using the Cox-Ross-Rubinstein (CRR) Binomial Model using the

following assumptions:

Annual dividend yield

Exercised price

Underlying price at grant date

Expected life (years)

Risk-free interest rate

Expected volatility

Expected volatility is based on the historical volatility of

the Company’s common stock.

The Company has no reason to believe future volatility over the expected remaining life of these

warrants is likely to differ materially from historical volatility.

The expected life is based on the remaining term of the warrants.

The risk-free interest rate is based on U.S.

Treasury securities according to the remaining term of the warrants.

dividend yield was based on the Company’s current and expected dividend policy.

RECON TECHNOLOGY,

to the consolidated financial statements

The following table sets forth by level within the fair value

hierarchy the warrants liability that was accounted at fair value on a recurring basis.

Fair Value Measurement

Carrying Value

Warrants liability

following is a reconciliation of the beginning and ending balance of the warrant liability measured at fair value on a recurring

basis for the year ended June 30, 2015:

of warrants liability

Beginning balance - June 30, 2014

Warrant redemption

Change of warrant liability

Ending balance -June 30, 2015

SHAREHOLDERS’

Stock offering –

On November 25, 2013,

the Company entered into a securities purchase agreement (“Purchase Agreement”) with certain institutional investors

for the sale of 546,500 ordinary shares in a registered direct offering at the price of $4.81 per ordinary share (amended to $4.30

per ordinary share on November 29, 2013).

The net cash proceeds received from the stock offering, after deducting underwriter

commission and other associated fees, were ¥12,132,882 (approximately $2.0 million).

In addition, warrants to purchase 163,950

ordinary shares in the aggregate were issued to the investors.

The warrants were exercisable at an exercise price of $6.01 per

ordinary share (amended to $5.38 per ordinary share on November 29, 2013) and expire three years from the date of issuance.

Company also issued warrants to purchase 54,650 ordinary shares to the placement agent (“Placement Agent Warrant”).

The Placement Agent Warrants are on substantially the same terms as the warrants issued pursuant to the Purchase Agreement, except

that these warrants are not exercisable for a period of six months and will expire three years from the initial issuance date.

In addition to the above warrants issued to the placement agent,

the Company granted 170,000 shares of warrants on connection with its IPO offering, and none of these warrants was exercised during

the years ended June 30, 2014 and 2015.

In June 2015, the Company entered into a securities purchase

agreement with certain institutional investors for the sale of 297,197 ordinary shares in a registered direct offering (4,000

shares at an average of $1.64 on June 9, 2015;

Stock offering

In June 2015, the Company entered into a securities purchase agreement

with certain institutional investors for the sale of 297,197 ordinary shares in a registered direct offering (4,000 shares at an

average of $1.64 on June 9, 2015;

288,105 shares at an average of $2.12 on June 10, 2015;

5,092 shares at an average

of $2.00 on June 11, 2015).

The net cash proceeds received from the stock offering, after deducting ¥1,294,922 ($212,673)

underwriter commission and other associated fees, were ¥2,392,027 (approximately $0.6 million).

5,092 shares at an average of $2.00 on

June 11, 2015).

The net cash proceeds received from the stock offering, after deducting ¥1,294,922 ($212,673) underwriter commission

and other associated fees, were ¥2,392,027 (approximately $0.6 million).

During the year ended June 30, 2016, the Company

offered 15,874 ordinary shares under the same purchase agreement from June 2015.

The net cash proceeds received from the stock

offering were ¥158,268 ($23,820 ).

Appropriated Retained Earnings

1 unchanged sentence

as determined under PRC accounting regulations, from current net income to the statutory reserve fund.

In accordance with the

PRC Company Law, companies are required to transfer 10% of their profit after tax, as determined in accordance with PRC accounting

In accordance with the PRC

Company Law, companies are required to transfer 10% of their profit after tax, as determined in accordance with PRC accounting

standards and regulations, to the statutory reserves until such reserves reach 50% of the registered capital or paid-in capital

2 unchanged sentences

respectively.

RECON TECHNOLOGY,

to the consolidated financial statements

STOCK-BASED COMPENSATION

Stock-Based Awards Plan

2009 Options Plan - The Company

granted options to purchase 293,000 ordinary shares under the Stock Incentive 2009 Plan to its employees and non-employee directors

on July 29, 2009.

The options have an excise price of $6.00, equal to the IPO price of the Company’s ordinary shares, and

will vest over a period of five years, with the first 20% vesting on July 29, 2010.

The options expire ten years after the date

of grant, on July 29, 2019.

The fair value was estimated on July 29, 2009 using the Binomial Lattice valuation model, with the

following weighted-average assumptions:

Stock price at grant date

Exercise price (per share)

Risk free rate of interest***

Dividend yield

Life of option (years)**

Forfeiture rate****

* Volatility is projected using the performance

of PHLX Oil Service Sector index.

** The life of options represents the

period the option is expected to be outstanding.

*** The risk-free interest rate is based

on the Chinese international bond denominated in U.S.

dollar, with a maturity that approximates the life of the option.

**** Forfeiture rate is the estimated

percentage of options forfeited by employees by leaving or being terminated before vesting.

The Company recognizes compensation cost

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

The grant date

fair value of the options was ¥30.17 ($4.42) per share.

Options Plan –

The Company granted options to purchase 415,000 ordinary shares

to its employees and non-employee director on March 26, 2012.

The options have an excise price of $2.96, which was equal to the

share price of the Company’s ordinary shares at March 26, 2012, and will vest over a period of five years, with the first

20% vesting on March 26, 2013.

The options expire ten years after the date of grant, on March 26, 2022.

The Company recognizes compensation cost

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

The grant date

fair value of the options was ¥10.06 ($1.49) per share.

2015 Options Plan –

2009 Incentive Plan –

The Company granted

options to purchase 415,000 ordinary shares to its employees and non-employee director on March 26, 2012.

The options have an excise

price of $2.96, which was equal to the share price of the Company’s ordinary shares at March 26, 2012, and will vest over

a period of five years, with the first 20% vesting on March 26, 2013.

The options expire ten years after the date of grant, on

March 26, 2022.

The Company recognizes compensation cost for awards with graded vesting on a straight-line basis over the requisite

service period for the entire award.

The grant date fair value of the options was ¥10.06 ($1.49) per share.

2015 Incentive Plan –

The Company granted options

2 unchanged sentences

price of $1.65, which was equal to the share price of the Company’s ordinary shares at January 31, 2015, and will vest equally

over a period of three years, with the one third vesting on January 31, 2016.

over a period of three years, with one third vesting on January 31, 2016.

The options expire ten years after the date of grant,

on January 31, 2025.

The Company recognizes compensation cost for awards with graded

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

The grant date fair value of the options

was ¥10.13 ($1.65) per share.

RECON TECHNOLOGY,

to the consolidated financial statements

The following is a summary of the stock options activity:

Stock price at grant date

Exercise price (per share)

Risk free rate of interest***

Dividend yield

Life of option (years)**

* Volatility is projected using the performance

of the Company’s common share performances.

** The life of options represents the average

period the option is expected to be outstanding.

*** The risk-free interest rate is based on

the Chinese international bond denominated in U.S.

dollar, with a maturity that approximates the life of the option.

The Company recognizes compensation cost for

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

The grant date fair

value of the options was ¥10.13 ($1.65) per share.

The following is a summary of the stock options

Stock Options

Weighted Average Exercise Price Per

Weighted Average

Exercise Price Per

Outstanding as of June 30, 2014

Outstanding as of June 30, 2015

following is a summary of the status of options outstanding and exercisable at June 30, 2015:

Outstanding as of June 30, 2016

The following

is a summary of the status of options outstanding and exercisable at June 30, 2016:

Outstanding Options

2 unchanged sentences

Average Exercise

Restricted Shares

For the year ended June 30, 2015, the Company has granted restricted

shares of common stock to senior management and consultants as follows:

On July 19, 2014, the Company granted 50,000 restricted

shares to a non-affiliate as compensation for certain consulting service.

The fair value of the restricted shares was

$190,000 based on the closing stock price $3.8 at July 18, 2014.

On January 29, 2015, 10,000 of those restricted shares were

canceled based on the agreement with the consultant.

On July 19, 2014, the Company decided to cancel 40,625 restricted

shares, which was issued to Expert Asia Investment Ltd.

on May 8, 2014, as the services were not provided pursuant to the agreement

it had with the Company.

On December 13, 2013, the Company granted 95,181 restricted

shares to Mr.

The Share-based compensation expense recorded

for stock options granted were ¥1,294,629 and ¥2,096,162 ($315,481) for the years ended June 30, 2015 and 2016, respectively.

The total unrecognized share-based compensation expense for stock options as of June 30, 2016 was approximately ¥2.8 million

($0.43 million), which is expected to be recognized over a weighted average period of approximately 1.43 years.

Restricted Shares to senior management

As of June 30, 2016, the Company has granted

restricted shares of common stock to senior management as follows:

RECON TECHNOLOGY,

to the consolidated financial statements

On December 13, 2013, the Company granted 95,181 restricted shares

Yin Shenping and 135,181 restricted shares to Mr.

Chen Guangqiang at an aggregate value of ¥4,207,496 ($688,782),

based on the stock closing price of $2.99 at December 13, 2013.

These restricted shares will vest over three years with one third

of the shares vesting every year from the grant date.

The first one third was vested on December 13, 2014 and are now non-restricted.

On January 31, 2015, the Company granted 150,000 restricted

shares to Mr.

Chen Guangqiang at an aggregate value of ¥4,207,496 ($688,782), based

on the stock closing price of $2.99 at December 13, 2013.

These restricted shares will vest over three years with one third of

the shares vesting every year from the grant date.

The two thirds were vested through June 30, 2016 and now non-restricted.

On January 31, 2015, the Company granted 150,000

restricted shares to Mr.

Yin Shenping and 150,000 restricted shares to Mr.

3 unchanged sentences

of the shares vesting every year from the grant date.

RECON TECHNOLOGY,

to the consolidated financial statements

On February 2, 2015, the Company issued 24,000

restricted shares to Maxim Group LLC (“Maxim”) for certain consulting service.

The fair value of the restricted

shares was $43,440 based on the closing stock price $1.81 at February 2, 2015.

On April 8, 2015, the Company granted 40,000

restricted shares to a non-affiliate as compensation for certain consulting service.

The fair value of the restricted shares was

$62,400 based on the closing stock price $1.56 at April 8, 2015.

The Share-based compensation expense recorded

for stock options granted were ¥1,657,479 and ¥1,294,629 ($211,204) for the years ended June 30, 2014 and 2015, respectively.

The total unrecognized share-based compensation expense for stock options as of June 30, 2015 was approximately ¥5.0 million

($0.8 million), which is expected to be recognized over a weighted average period of approximately 2.33 years.

On October 18, 2015, the Company agreed to

issue a total of 800,000 restricted shares to its employees and non-employee director as compensation cost for awards.

value of the restricted shares was $704,000 based on the closing stock price $0.88 at October 18, 2015.

The Share-based compensation expense recorded

2 unchanged sentences

million ($0.90 million), which is expected to be recognized over a weighted average period of approximately 1.88 years.

Following is a summary of the restricted

stock grants:

Restricted Shares for service

For the year ended June 30, 2016, the Company has granted restricted

shares of common stock to consultants as follows:

On July 19, 2014, the Company granted 50,000 restricted shares to

a non-affiliate as compensation for certain consulting service.

The fair value of the restricted shares was $190,000 based on the

closing stock price $3.8 at July 18, 2014.

On January 29, 2015, 10,000 of those restricted shares were canceled based on the agreement

with the consultant.

On July 19, 2014, the Company decided to cancel 40,625 restricted

shares, which was issued to Expert Asia Investment Ltd.

on May 8, 2014, as the services were not provided pursuant to the agreement

it had with the Company.

On February 2, 2015, the Company issued 24,000 restricted shares

to Maxim Group LLC (“Maxim”) for certain consulting service.

The fair value of the restricted shares was $43,440 based

on the closing stock price $1.81 at February 2, 2015.

On April 8, 2015, the Company granted 40,000 restricted shares to

a non-affiliate as compensation for certain consulting service.

The fair value of the restricted shares was $62,400 based on the

closing stock price $1.56 at April 8, 2015.

On November 16, 2015, the Company agreed to issue a total of 100,000

restricted shares to two investor relations firms in exchange for services.

The fair value of the restricted shares was $108,400

based on the closing stock price of $1.08 on November 16, 2015.

On November 19, 2015, the Company issued 260,185 restricted shares

to Bei Jing Tian Hong Tong Xin Technology Co.

(“BJTH”) for certain mold and software platform development services.

The fair value of the restricted shares was $247,176 based on the closing stock price of $0.95 on November 19, 2015.

Following is a summary of the restricted stock

Restricted stock grants

Non-vested as of June 30, 2014

Non-vested adjustment

Non-vested as of June 30, 2015

The Company is not subject to any income taxes in the United

States or the Cayman Islands and had minimal operations in jurisdictions other than the PRC.

BHD and Nanjing Recon are subject

to PRC’s income taxes as PRC domestic companies.

The Company follows Implementing Rules for the Enterprise Income Tax Law

(“Implementing Rules”), which took effect on January 1, 2008 and unified the income tax rate for domestic-invested

and foreign-invested enterprises at 25%.

The Company reapplied for high-technology enterprise approval

and has passed all relevant reviews.

Thus, for the calendar years 2014 and 2015, Nanjing Recon is subject to an income tax rate

As approved by the domestic tax authority in the PRC, BHD was

recognized as a government-certified high technology company on November 25, 2009 and is subject to an income tax rate of 15%

through November 2015.

Non-vested as of June 30, 2016

Among the vested shares for the year ended June 30, 2016, 176,787 shares were not issued until July 23, 2016.

RECON TECHNOLOGY,

to the consolidated financial statements

The Company is not subject to any income taxes in the United States

or the Cayman Islands and had minimal operations in jurisdictions other than the PRC.

BHD and Nanjing Recon are subject to PRC’s

income taxes as PRC domestic companies.

The Company follows Implementing Rules for the Enterprise Income Tax Law (“Implementing

Rules”), which took effect on January 1, 2008 and unified the income tax rate for domestic-invested and foreign-invested

enterprises at 25%.

Nanjing Recon was approved as a government-certified high –technology

company on December 11, 2013 and is subject to a reduced income tax rate of 15% through December 11, 2016.

Nanjing Recon reapplied

for high-technology enterprise approval and has passed all relevant reviews.

Thus, for the calendar years 2014 and 2015, Nanjing

Recon is subject to an income tax rate of 15%.

As approved by the domestic tax authority in the PRC, BHD was recognized

as a government-certified high technology company on November 25, 2009 and is subject to a reduced income tax rate of 15% through

November 2015.

BHD reapplied for high-technology enterprise approval and successfully got the approval on November 25, 2015.

the valid date of BHD’s high-technology enterprise certificate is extended to November 25, 2018.

Loss before provision for income taxes consisted of:

June 30, 2015

June 30, 2016

Cayman Island and other areas

(14,257,066 )

$ (2,145,749 )

(25,135,874 )

(26,079,666 )

(34,008,463 )

(40,336,732 )

$ (6,070,850 )

Deferred tax asset is comprised of the following:

June 30, 2015

June 30, 2016

Allowance for doubtful receivables

Net operating loss carry forward

Valuation allowance

Total deferred income tax assets

RECON TECHNOLOGY,

to the consolidated financial statements

Deferred tax liability is comprised of the following:

June 30, 2015

June 30, 2016

Income tax cost due to unpayable accounts

Total deferred income tax liability

Following is a reconciliation of income tax at the effective

rate to income tax at the calculated statutory rates:

RECON TECHNOLOGY,

to the consolidated financial statements

Following is a reconciliation of income tax at the effective rate

to income tax at the calculated statutory rates:

For the year ended

June 30, 2015

For the year ended

the year ended

June 30, 2016

For the year ended

the year ended

June 30, 2016

Income tax calculated at statutory rates

$ (1,003,276 )

Nondeductible expenses (non-taxable income)

1 unchanged sentence

Benefit of revenue exempted from enterprise income tax

Deferred income tax (benefit)

Over-accrued tax of prior year

Deferred income tax

Over-accrued tax of prior year and others

Provision (benefit) for income tax

The Company’s tax provision is comprised of the following:

the years ended June 30,

Current income taxes

Deferred income taxes provision

Provision for income tax

RECON TECHNOLOGY,

to the consolidated financial statements

For the years ended June 30,

Current income tax provision

Adjust over accrued tax of prior years

Deferred income taxes provision (benefit)

Provision (benefit) for income tax

NON-CONTROLLING INTEREST

1 unchanged sentence

interest consisted of the following:

of June 30, 2014

As of June 30, 2015

Paid-in capital

2 unchanged sentences

Total non-controlling interest

of June 30, 2015

As of June 30, 2016

Paid-in capital

2 unchanged sentences

Total non-controlling interest

RECON TECHNOLOGY,

to the consolidated financial statements

CONCENTRATIONS

For the years ended June 30, 2014 and 2015, the two largest

customers, China National Petroleum Corporation (“CNPC”) and China Petroleum & Chemical Corporation Limited (“SINOPEC”),

For the years ended June 30, 2015 and 2016, the two largest customers,

China National Petroleum Corporation (“CNPC”) and China Petroleum & Chemical Corporation Limited (“SINOPEC”),

represented approximately 43.09%, 6.82% and 75.36%, 8.85% of the Company’s revenue, respectively.

For the year ended June 30, 2014, two major suppliers accounted

for 32.46% of the company’s total purchases.

For the year ended June 30, 2015, one major supplier accounted for 18% of the

company’s total purchases.

For the year ended June 30, 2015, one major supplier accounted for

18% of the company’s total purchases.

For the year ended June 30, 2016, two major suppliers accounted for 49% of the company’s

total purchases.

COMMITMENTS AND CONTINGENCY

(a) Office Leases

The Company leases three

offices in Beijing (two for BHD;

The Company leases three offices

in Beijing (two for BHD;

one for Recon-JN) and one office in Nanjing for Nanjing Recon.

Future payments under such leases

are as follows as of June 30, 2015:

months ending June 30,

Future payments under such leases are as

follows as of June 30, 2016:

Twelve months ending June 30,

lease payment

RECON TECHNOLOGY,

to the consolidated financial statements

(b) Contingency

The Labor Contract Law of the PRC requires employers to assure

the liability of severance payments if employees are terminated and have been working for the employers for at least two years

prior to January 1, 2008.

The employers will be liable for one month of severance pay for each year of the service provided by

the employees.

As of June 30, 2015, the Company estimated its severance payments of approximately ¥1.5 million ($0.3 million)

which has not been reflected in its consolidated financial statements, because management cannot predict what the actual payment,

if any will be in the future.

RELATED PARTY TRANSACTIONS

The Labor Contract Law of the PRC requires employers to assure the

liability of severance payments if employees are terminated and have been working for the employers for at least two years prior

to January 1, 2008.

The employers will be liable for one month of severance pay for each year of the service provided by the employees.

As of June 30, 2016, the Company estimated its severance payments of approximately ¥1.6 million ($0.24 million) which has not

been reflected in its consolidated financial statements, because management cannot predict what the actual payment, if any will

be in the future.

RELATED PARTY TRANSACTIONS AND

Sales to related parties –

to related parties consisted of the following:

the years ended June 30,

Beijing Yabei Nuoda Science and Technology Co.

Beijing Langchen Construction Company

Xiamen Henda Haitian computer network Inc

sales to related

parties consisted of the following:

For the years ended June 30,

Xiamen Henda Hitek Computer Network Co.

Xiamen Huangsheng Hitek Computer Network Co.

Revenues from related parties

* Not a related party after October 31, 2014, (See Note 3).

RECON TECHNOLOGY,

to the consolidated financial statements

Purchases from related parties –

from related parties consisted of the following:

the years ended June 30,

For the years ended June 30,

Huanghua Heng Da Xiang Tong Manufacture Ltd

1 unchanged sentence

Purchase from related parties

Account payable due to related parties -

The Company purchased automation products and heating furnaces from Xiamen Huangsheng Hitek Computer Network Co.

(Huangsheng Hitek) and Huanghua Xiang Tong, the ending balance of accounts payable due to Huangsheng Hitek as of June 30,

2015 and 2016 were both nil.

On March 18, 2016, the Company terminated its equity investment in Huanghua Xiang Tong and

therefore has no related-party relationship with this entity after March 18, 2016.

Leases from related parties - The Company has

various agreements for the lease of office space owned by the Founders and their family members.

The terms of the agreement

state that the Company will continue to lease the property at a monthly rent of ¥95,000 with annual rental expense at approximately

¥1.1 million ($0.2 million).

The two-year lease agreements between Nanjing Recon and Mr.

Yin and his family member started

from July 10, 2014, the one-year lease agreements between BHD and Mr.

Chen Guangqiang and his family member started from January

1, 2015 and the annual lease between the Company and Mr.

Chen Guangqiang’s family member started from July 1, 2014.

Short-term borrowings from related parties -

The Company borrowed ¥5,207,728 and ¥16,916,905 ($2,778,364) from the Founders, their family members and senior officers

as of June 30, 2014 and 2015, respectively.

The terms of the agreement state

that the Company will continue to lease the property at a monthly rent of ¥140 thousand with annual rental expense at ¥1.68

million ($0.25 million).

The one-year lease agreements between Nanjing Recon and Mr.

Yin and his family member started from April

The one-year lease agreements between BHD and Mr.

Chen Guangqiang and his family member started from January 1, 2016 and

the annual lease between Recon BJ and Mr.

Yin started from July 1, 2016.

Short-term borrowings from related parties - The Company

borrowed ¥16,916,905 and ¥12,941,848 ($1,947,803) from the Founders and their family members as of June 30, 2015 and 2016,

respectively.

For the specific terms and interest rates of the borrowings, see Note 13.

RECON TECHNOLOGY,

to the consolidated financial statements

Expenses paid by the owner on behalf of Recon - One

1 unchanged sentence

Yin and the major owner of BHD, Mr.

Chen paid certain operating expense for the Company.

30, 2014 and June 30, 2015, ¥284,370 and ¥1,558,738 ($256,001) was due to them, respectively.

Chen paid certain operating expenses for the Company.

30, 2015 and 2016, ¥1,558,738 and ¥3,144,263 ($473,225) was due to them, respectively.

Variable Interest Entities

The Company reports its VIEs’

portion of consolidated

net income and stockholders’

equity as non-controlling interests in the consolidated financial statements.

reports its VIEs’

portion of consolidated net income and stockholders’

equity as non-controlling interests in the consolidated

financial statements.

Summary information regarding consolidated VIEs is as follows:

June 30, 2015

June 30, 2016

Current Assets

10 unchanged sentences

Total Liabilities

The financial performance of VIEs reported in the consolidated

statement of operations and comprehensive income for the year ended June 30, 2015 includes revenues of ¥51,512,900 ($8,460,271),

operating expenses of ¥34,257,359 ($5,626,291), and net loss of ¥21,882,903 ($3,593,960).

RECON TECHNOLOGY,

to the consolidated financial statements

EARNINGS PER SHARE

The computation of basic and diluted

earnings per common share is as follows:

the years ended June 30,

Weighted average number of common shares

outstanding used in computing basic earnings (loss) per share

Net income (loss) attributable to common stockholders

(31,456,388 )

$ (5,166,272 )

Earnings (loss) per share attributable to common stockholders

Weighted average number of common shares outstanding

used in computing basic earnings (loss) per share

Assumed exercise

of stock options, stock awards and warrants

Weighted average number of common shares outstanding

Net income (loss) attributable to common stockholders

(31,456,388 )

$ (5,166,272 )

Earnings (loss) per share attributable to common stockholders

The financial performance of VIEs reported in the consolidated statement

of operations and comprehensive income for the year ended June 30, 2016 includes revenues of ¥42,728,277 ($6,430,788), operating

expenses of ¥31,590,843 ($4,754,557), and net loss of ¥25,481,256 ($3,835,038).

SUBSEQUENT EVENTS

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

Shares will be issued pursuant to a base prospectus dated August 6, 2013 included in a previously filed and effective Registration

Statement on Form S-3.

Through September 16, 2015, 313,071 shares are issued under this agreement, among which 15,874 shares were

issued after June 30, 2015.

On July 11, 2015, the Company’s board approved to reserve

800,000 shares under the 2015 incentive plan.

As of September 25, 2015, no option is granted.

On July 29, 2015, the Company entered into an acquisition memorandum

of understanding with a Qinghai oilfield service company.

Negotiations are still on going and no official document is signed as

of the date of this report.

August 19, 2015, the Company repaid ¥

1,800,000 ($295,625)

of short-term borrowing with an interest of ¥37,200 ($6,110) .

August 20, 2015, the Company repaid ¥

1,500,000 ($246,354)

of short-term borrowing.

On September 22, 2015, the Company entered into an

amendment to the Letter Agreement (the “Agreement”) with Maxim dated January 28, 2015, extending the term of the

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

On July 23, 2016, the Board of the Company approved the termination

of the acquisition of Qinghai Huayou Downhole Technology Co., Ltd.(“QHHY”), and, as a result, terminated the share

purchase agreement and related control agreements.

On July 27, 2016, the Board of the Company approved the grant

of 876,000 restricted shares valued at $963,600 to management with a vesting period of 3 years.

On July 27, 2016, the Company approved the hiring of an independent

company strategy consulting firm, by issuing 250,000 restricted shares as compensation with a value of $275,000.

On July 26, 2016, the Company borrowed ¥500,000 ($75,252) from

one of the shareholder’s family member bearing no interest, due by December 31, 2016 to supplement the Company’s working

On September 6, 2016, the Company borrowed ¥50,000 ($7,525)

from one of the shareholder’s family member bearing no interest, due by December 6, 2016 to supplement the Company’s

working capital.

On September 9, 2016, the Company borrowed ¥968,318 ($145,736) from one of the shareholder’s

family member bearing no interest, due by December 9, 2016 to supplement the Company’s working capital.

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 9A. Controls and Procedures