Recon Technology, Ltd.
Annual Report 2022

Plain-text annual report

Table of Contents (Mark One) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR For the fiscal year ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report For the transition period from to Commission file number 001-34409 RECON TECHNOLOGY, LTD (Exact name of Registrant as specified in its charter) Cayman Islands (Jurisdiction of incorporation or organization) Room 601, No. 1 Shui’an South Street Chaoyang District, Beijing 100012 People’s Republic of China (Address of principal executive offices) Liu Jia, Chief Financial Officer Telephone: +86 (10) 8494 5799 liujia@recon.cn; Fax: +86 (10) 8494 5792 Room 601, No. 1 Shui’an South Street Chaoyang District, Beijing 100012 People’s Republic of China Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Class A Ordinary Shares, $0.0925 par value per share Name of each exchange on which registered NASDAQ Capital Market Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 26,868,391 Class A Ordinary Shares. Table of Contents Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes ☒ No ☐ Yes ☒ No ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Emerging growth company ☐ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐ † The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). ☐ Yes ☒ No (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No Table of Contents PART I ITEM 1. ITEM 2. ITEM 3. ITEM 4. ITEM 4A. ITEM 5. ITEM 6. ITEM 7. ITEM 8. ITEM 9. ITEM 10. ITEM 11. ITEM 12. PART II ITEM 13. ITEM 14. ITEM 15. ITEM 15T. ITEM 16. ITEM 16A. ITEM 16B. ITEM 16C. ITEM 16D. ITEM 16E. ITEM 16F. ITEM 16G. ITEM 16H. PART III ITEM 17. ITEM 18. ITEM 19. Table of Contents IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS OFFER STATISTICS AND EXPECTED TIMETABLE KEY INFORMATION INFORMATION ON THE COMPANY UNRESOLVED STAFF COMMENTS OPERATING AND FINANCIAL REVIEW AND PROSPECTS DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS FINANCIAL INFORMATION THE OFFER AND LISTING ADDITIONAL INFORMATION QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS CONTROLS AND PROCEDURES CONTROLS AND PROCEDURES [RESERVED] AUDIT COMMITTEE FINANCIAL EXPERT CODE OF ETHICS PRINCIPAL ACCOUNTANT FEES AND SERVICES EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT CORPORATE GOVERNANCE MINE SAFETY DISCLOSURE FINANCIAL STATEMENTS FINANCIAL STATEMENTS EXHIBITS 3 Page 5 5 5 5 32 56 57 72 80 83 83 84 91 92 92 92 92 92 95 95 95 95 95 96 96 96 96 97 97 97 97 98 Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements in this annual report with respect to the Company’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of the Company. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. The Company cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward- looking statements, including but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the Securities and Exchange Commission. Therefore, investors should not place undue reliance on such forward-looking statements. Actual results may differ significantly from those set forth in the forward-looking statements. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. 4 Table of Contents ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS PART I Not applicable for annual reports on Form 20-F. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable for annual reports on Form 20-F. ITEM 3. KEY INFORMATION A. Selected Financial Data The following table presents the selected consolidated financial information for our company. The selected consolidated statements of operations data for the three years ended June 30, 2020, 2021 and 2022 and the consolidated balance sheet data as of June 30, 2021 and 2022 have been derived from our audited consolidated financial statements set forth in “Item 18 – Financial Statements”. The selected consolidated balance sheet data for the year ended June 30, 2018 have been derived from our audited consolidated balance sheet as of June 30, 2018, which is not included in this annual report. Our historical results do not necessarily indicate results expected for any future periods. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” below. Our audited consolidated financial statements are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States of America, or U.S. GAAP. Following the one-for-five reverse stock split of our Class A Ordinary Shares effective on December 27, 2019, and following the dual class structure divided into Class A Ordinary Shares and Class B Ordinary Shares effective on April 5, 2021, all share and per share amounts disclosed throughout this annual report, in the table below and in our consolidated financial statements have been retroactively updated to reflect this change in capital structure, unless otherwise indicated. Please see “Item 4. Information on the Company—History and Development of the Company”. (All amounts in thousands of Renminbi, except Dividend per share in U.S. dollars and Shares outstanding) Statement of operations data: Revenues Loss from operations Net income (loss) attributable to Recon Technology, Ltd 2022 RMB¥ 83,777,571 (82,313,417) 95,586,795 2021 RMB¥ 47,938,575 (61,578,948) (22,832,734) For the years ended June 30, 2020 RMB¥ 65,760,651 (20,177,032) (19,246,701) 2019 RMB¥ 102,384,327 (24,243,574) (25,355,905) 2018 RMB¥ 84,712,046 (40,924,896) (44,072,321) Loss per share* -Basic -Diluted Weighted average number of Class A and Class B Ordinary Shares used in computation* -Basic -Diluted 3.19 3.19 (1.80) (1.80) (4.16) (4.16) (6.49) (6.49) (19.19) (19.19) 30,002,452 30,002,452 12,697,024 12,697,024 4,624,615 4,624,615 3,908,833 3,908,833 2,296,693 2,296,693 * Retrospectively restated for effect of the reverse stock split on December 27, 2019 5 Table of Contents Current assets Total assets Current liabilities Total liabilities Total shareholder’s equity Shares outstanding (A Shares)* Shares outstanding (B Shares)** Balance sheet data: 2022 RMB¥ 445,617,041 490,242,084 52,878,284 77,357,323 420,631,729 29,700,718 4,100,000 2021 RMB¥ 488,505,185 566,516,660 76,462,604 279,001,194 295,095,034 26,868,391 — 2020 RMB¥ 129,281,873 194,414,804 65,181,175 73,770,516 110,029,762 7,202,832 — 2019 RMB¥ 97,824,268 156,981,554 42,084,370 50,280,574 95,615,551 4,361,634 — 2018 RMB¥ 100,834,569 121,807,517 25,991,921 34,935,755 76,009,832 3,676,070 — * Retrospectively restated for effect of the reverse stock split on December 27, 2019 ** The dual class structure divided into Class A Ordinary Shares and Class B Ordinary Shares effective on April 5, 2021 B. Capitalization and Indebtedness Not applicable by 20-F as an annual report. C. Reasons for the Offer and Use of Proceeds Not applicable by 20-F as an annual report. D. Risk Factors Investing in our Class A Ordinary Shares involves a high degree of risk. Before deciding whether to invest in our Class A Ordinary Shares, you should consider carefully the risks and uncertainties described below. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. If any of these risks actually occurs, our business, business prospects, financial condition or results of operations could be seriously harmed. This could cause the trading price of our Class A Ordinary Shares to decline, resulting in a loss of all or part of your investment. Please also read carefully the section above entitled “Special Note Regarding Forward-Looking Statements.” Risks Related to Our Business Public health epidemics or outbreaks such as COVID-19 could adversely impact our business. Our business, financial condition and results of operations may be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, such as the COVID-19 outbreak and spread, which could significantly disrupt our operations. In December 2019, COVID-19 emerged in Wuhan, Hubei Province, China. The COVID-19 outbreak and spread has caused lockdowns, quarantines, travel restrictions, and closures of businesses and schools. In January 2020, the World Health Organization declared the COVID-19 outbreak a global health emergency as the coronavirus outbreak continued to spread beyond China. In compliance with the government health emergency rules in place, we temporarily closed our offices in varies provinces in China and ceased production operations since Chinese New Year. We gradually resumed operation and production since February 10, 2020. During February and March 2020, our project performance was delayed due to compliance with government controls. Although this did not reduce the demand for our services in the long run, it did result in a delay in the timeline for performance and a temporary drop in demand. We were also limited for international travel to process and continue some oversea projects. 6 Table of Contents In addition, COVID-19 has caused severe disruptions in transportation, limited access to our facilities, client work fields and limited support from workforce employed in our operations, and as a result, we experienced and may continue to experience the delays in provision of services to our customers and completion of contractual performance obligations, affecting our revenue recognition and collection schedule of account receivables. The extent to which the coronavirus impacts our results for fiscal year 2021 will depend on certain future developments, including the duration and spread of the outbreak, emerging information concerning the severity of the coronavirus and the actions taken by governments and private businesses to attempt to contain the coronavirus, all of which is uncertain at this point. We operate in a very competitive industry and may not be able to maintain our revenues and profitability. Since the 1990s, several international companies engaged in supplying integrated automation services for the petroleum extraction industry have been qualified in China. These competitors have significantly greater financial and marketing resources and name recognition than we have. In addition, at least five domestic private competitors also compete with us, and more competitors may enter the market as Chinese petroleum companies seek to reduce oil production costs and improve efficiencies. There can be no assurance that we will be able to compete effectively in our industry. In addition, our competitors may introduce new systems. If these new systems are more attractive to customers than the systems we currently use or may develop, our customers may switch to our competitors’ services, and we may lose market share. We believe that competition may become more intense as more integrated automation service providers, including Chinese/foreign joint ventures, are qualified to conduct business. We cannot assure you that we will be able to compete successfully against any new or existing competitors, or against any new systems our competitors may implement. Any of these competitive factors could have a material adverse effect on our revenues and profitability. We must continually research and develop new technologies and products to remain competitive. Because our industry is so competitive, we will need to continually research, develop and refine new technologies and offer new products to compete effectively. Many factors may limit our ability to develop and refine new products, including the availability of funds to dedicate to this portion of our business and access to new products and technologies that we can incorporate into our products, as well as marketplace resistance to new products and technologies. We believe that the Domestic Companies (defined in the following paragraph) and our products are able to compete in the marketplace based upon, among other things, our intellectual property. We cannot assure investors that applications of our and the Domestic Companies’ technologies or those of third parties, if developed, will not be rendered superfluous or obsolete by research efforts and technological advances by others in these fields. Our company and our subsidiaries, Recon Investment Ltd. (“Recon-IN”) and Recon Hengda Technology (Beijing) Co., Ltd. (“ReconBJ”) are contractually engaged with the following PRC VIE companies and their subsidiaries: Beijing BHD Petroleum Technology Co., Ltd. (“BHD”), Future Gas Station (Beijing) Technology, Ltd. (“FGS”), Nanjing Recon Technology Co., Ltd. (“Nanjing Recon”), Gan Su BHD Environmental Technology Co. Ltd. (“Gan Su BHD”), Huang Hua BHD Petroleum Equipment Manufacturing Co. Ltd. (“HH BHD”), and Qing Hai BHD New Energy Technology Co. Ltd. (“Qing Hai BHD”) (collectively, the “Domestic Companies”). As new technologies are developed, the Domestic Companies and we may need to adapt and change our products and services, our method of marketing or delivery or alter our current business in ways that may adversely affect revenue and our ability to achieve our proposed business goals. Accordingly, there is a risk that the Domestic Companies’ and our technology will not support a viable commercial enterprise. 7 Table of Contents Our financial performance is dependent upon the sale and implementation of petroleum mining and extraction software and hardware and related services, a single, concentrated group of products. We derive substantially all of our revenues from the license and implementation of software applications and hardware innovations for the Chinese petroleum industry. The life cycle of our products and services is difficult to estimate due in large measure to the potential effect of new software and hardware applications and enhancements, including those we introduce, and the maturation in both the Chinese petroleum and software/hardware industries. If we are unable to continually improve our software and hardware to address the changing needs of the Chinese petroleum industry, we may experience a significant decline in the demand for the Domestic Companies’ and our products and services. In such a scenario, our revenues may significantly decline. A failure by our third-party vendors to fulfill their obligations would negatively affect our ability to operate profitably. In the ordinary course of business, our third-party vendors have historically required advance payments before they deliver goods and services to us that enable our operations. These advance payments are often substantial, and we dedicate a material amount of our liquidity to advance these to such third-party vendors. There is no guarantee that the services we require will be delivered, whether due to supply chain disruptions or any other reason after we provide our advance payments, and many of our vendors lack sufficient insurance to protect us against such failures to deliver. Moreover, if a third-party vendor declares bankruptcy or we engage in litigation, we be unable to recover the advance fees in their entirety, if at all. As a technology-oriented business, our ability to operate profitably is directly related to our ability to develop and protect our proprietary technology. We rely on a combination of trademark, trade secret, nondisclosure, copyright and patent law to protect the Domestic Companies’ and our software and hardware, which may afford only limited protection. Although the Chinese government has issued Nanjing Recon over ten copyrights on software and Nanjing Recon and BHD over forty patents on products, we cannot guarantee that competitors will be unable to develop technologies that are similar or superior to the Domestic Companies’ and our technology. Despite our efforts to protect the Domestic Companies’ and our proprietary rights, unauthorized parties, including customers, may attempt to reverse engineer or copy aspects of the Domestic Companies’ and our products or to obtain and use information that the Domestic Companies and we regard as proprietary. Furthermore, our competitors may independently develop substantially equivalent or superior proprietary information and techniques, reverse engineer information and techniques, or otherwise gain access to our proprietary technology. In the future, we cannot guarantee that others will not use the Domestic Companies’ and our technology without proper authorization. In addition, under the Chinese intellectual property law, the 50- year protection period for software copyright and 10-year patent protection period are not subject to renewal upon expiration. The Domestic Companies and we develop our software products on third-party middleware software programs that are licensed by our customers from third parties, generally on a non-exclusive basis. The termination of any such licenses, or the failure of the third- party licensors to adequately maintain or update their products, could result in delay in our ability to develop, market or ship certain of our products while we seek to implement technology offered by alternative sources. While it may be necessary or desirable in the future to obtain other licenses, there can be no assurance that they will be able to do so on commercially reasonable terms or at all. In addition, the Domestic Companies and we may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity, scope or enforceability of our proprietary rights. Any such claims could be time consuming, result in costly litigation, cause product development or shipment delays or force the Domestic Companies or us to enter into royalty or license agreements rather than dispute the merits of such claims, thereby impairing our financial performance by requiring the Domestic Companies or us to pay additional royalties and/or license fees to third parties. There is always a risk that patents, if issued, may be subsequently invalidated, either in whole or in part and this could diminish or extinguish protection for any technology we may license. In addition, the laws of China may not protect proprietary rights to the same extent as U.S. law. Therefore, we may be unable to meaningfully protect our rights in trade secrets, technical know-how and other non-patented technology. Any failure to enforce or protect the Domestic Companies’ and our rights could cause us to lose the ability to exclude others from issuing technology to develop or sell competing products. 8 Table of Contents We may not be able to adequately protect our intellectual property, which could cause us to be less competitive and negatively impact our business. We rely on trademark, patent and trade secret law, as well as confidentiality agreements with certain of our employees to protect our proprietary rights. The product patents owned by the Company are employee service patents invented by the Company’s key employees. We generally require the Domestic Companies’ and our employees, consultants, advisors and collaborators to execute appropriate confidentiality agreements with, as applicable, the respective Domestic Companies and us. These agreements typically provide that all material and confidential information developed or made known to the individual during the course of the individual’s relationship with us is owned by the us and will be kept confidential and not disclosed to third parties except in specific circumstances. These agreements may be breached, and in some instances, we may not have an appropriate remedy available for breach of the agreements. We may be accused of infringing the intellectual property rights of others. In the future, the Domestic Companies and we may receive notices claiming that we are infringing the proprietary rights of third parties. We cannot guarantee that the Domestic Companies and we will not become the subject of infringement claims or legal proceedings by third parties with respect to the Domestic Companies’ and our current programs or future software developments. Our standard software license agreements contain an infringement indemnity clause under which we agree to indemnify and hold harmless our customers and business partners against liability and damages arising from claims of various copyright or other intellectual property infringement by our products. Neither the Domestic Companies nor we have been the subject of an intellectual property claim since our formation. Our software products may contain integration challenges, design defects or software errors that could be difficult to detect and correct. Despite extensive testing, we may, from time to time, discover defects or errors in the Domestic Companies’ and our software only after use by a customer. We may also experience delays in shipment of our software during the period required to correct such errors. In addition, we may, from time to time, experience difficulties relating to the integration of the Domestic Companies’ and our software products with other hardware or software in the customer’s environment that are unrelated to defects in such software products. Such defects, errors or difficulties may cause future delays in product introductions and shipments, result in increased costs and diversion of development resources, require design modifications or impair customer satisfaction with the Domestic Companies’ and our software. Since these software products are used by our customers to perform mission-critical functions related to petroleum mining and extraction, design defects, software errors, misuse of these products, incorrect data from external sources or other potential problems within or out of our control that may arise from the use of the Domestic Companies’ and our products could result in financial or other damages to our customers. We do not maintain product liability insurance. Although our license agreements with customers contain provisions designed to limit our exposure to potential claims as well as any liabilities arising from such claims, such provisions may not effectively protect us against such claims and the liability and costs associated therewith. To the extent we are found liable in a product liability case, we could be required to pay substantial amount of damages to an injured customer, thereby impairing our financial condition. We are dependent on the state of the PRC’s economy as the majority of our business is conducted in the PRC. Currently, the majority of our business operations are conducted in the PRC, and most of our customers are also located in the PRC. Accordingly, any significant slowdown in the PRC economy may cause our customers to reduce expenditures or delay the building of new facilities or projects. This may in turn lead to a decline in the demand for our products and services. That would have a material adverse effect on our business, financial condition and results of operations. Our future success depends on our ability to help our customers find, develop and acquire petroleum reserves. To remain competitive in our industry, our products must help our customers locate and develop or acquire new crude oil reserves to replace those depleted by production. Without successful exploration or acquisition activities, our customers’ reserves, production and revenues will decline rapidly. If the Domestic Companies’ and our technology is less well accepted for helping our customers locate additional reserves than our competitors’ technology, our customers may terminate their relationships with us, which could have a material adverse effect on our financial condition and future growth prospects. 9 Table of Contents Our customers are companies engaged in the petroleum industry and the greater energy industry, and, consequently, our financial performance is dependent upon the economic conditions of those industries. We have derived most of our revenues to date from providing integrated automation services to Chinese petroleum companies at oilfields within China and other energy industry companies in China. Our customers’ success is intrinsically linked to economic conditions in China and in the petroleum and energy industries in general and the volatility of prices of crude oil, refined oil products and coal chemical products in particular. Each of the petroleum industry and energy industry is subject to intense competitive pressures and is affected by overall economic conditions. Demand for our services could be harmed by volatility in those industries. There can be no assurance that we will be able to continue our historical revenue growth or sustain our profitability on a quarterly or annual basis or that our results of operations will not be adversely affected by continuing or future volatility in those industries. Our revenues are highly dependent on a very limited number of customers, which subjects our business to high seasonality. Our contracts with such customers may be terminated at any time, materially and adversely affecting our business. Historically, we derived the majority of our revenues from two customers, (i) China National Petroleum Corporation (“CNPC”) and (ii) China Petroleum and Chemical Corporation (“Sinopec”). Since the fiscal year ended June 30, 2017, Sinopec accounted for less than 10% of our revenues. From fiscal year 2022, as we developed new product lines, revenue from Sinopec increased and account for 28% of our revenues. We provide products and services to CNPC under a series of agreements, each of which is terminable without notice. We first began to provide services to CNPC in 2000. CNPC accounted for approximately 50%, 39% and 39% of our revenues in the fiscal years ended June 30, 2022, 2021 and 2020, respectively, and any termination of our business relationships with CNPC would materially harm our operations. In the fiscal year ended June 30, 2019, we had established a solid relationship with Shenhua Group Corporation Limited (“Shenhua Group”) and revenue from it in the fiscal year 2021 accounted for approximately 9% of our revenue. For fiscal year 2022, revenue from Shenhua accounted for 10% of our revenue as competition became fierce. Any termination of our business relationships with CNPC, Sinopec, Shenhua Group or any other major client would materially harm our operations. Because we derive such a high percentage of our revenues from CNPC and a few new clients, our revenue has been subject to high seasonality. We recognize revenue when it is realized and earned. Revenue is recognized based on the following five steps: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. Because these matters depend on reaching agreements with these clients, revenue recognition occurs, to a large extent, on their schedule. Accordingly, revenue recognized in the first quarter is usually the smallest in proportion to that for the whole year, due to our clients’ budgeting and planning schedules. If these clients were to change their budgeting or planning schedule our high and low quarters could also shift. This seasonality limits our ability to make accurate long-term predictions about our performance and makes it difficult to compare our revenues across quarters. Changes in environmental and regulatory factors may harm our business. The oil drilling industry in China to date has not been subject to the type and scope of regulation seen in Europe and the United States. However, the Chinese government may implement new legislation or regulations or may enforce existing laws more stringently. Either of these scenarios may have a significant impact on our customers’ mining and extraction operations and may require us or our customers to significantly change operations or to incur substantial costs. We believe that the Domestic Companies’ and our operations in China are in compliance with China’s applicable legal and regulatory requirements. However, there can be no assurance that China’s central or local governments will not impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures. 10 Table of Contents Petroleum reserve degradation and depletion may reduce our customers’ and our profitability. Our profitability depends substantially on our ability to help our customers exploit their oil reserves at competitive costs. Replacement reserves may not be available to our customers when required or, if available, may not be drilled at costs comparable to those characteristics of the depleting oilfield. The Domestic Companies’ and our technology may not enable our customers to accurately assess the geological characteristics of any new reserves, which may adversely affect their decision to use the Domestic Companies’ and our products in the future. We are heavily dependent upon the services of experienced personnel who possess skills that are valuable in our industry, and we may have to actively compete for their services. Our company is much smaller than our main foreign competitors, including Schlumberger Limited, Honeywell International, Emerson Process Management and Rockwell Automation, and we compete in large part on the basis of the quality of services we are able to provide our clients. As a result, we are heavily dependent upon our ability to attract, retain and motivate skilled personnel to serve our clients. Many of our personnel possess skills that would be valuable to all companies engaged in the integrated automation services industry. Consequently, we expect that we will have to actively compete for these employees. Some of our competitors may be able to pay our employees more than we are able to pay to retain them. Our ability to profitably operate is substantially dependent upon our ability to locate, hire, train and retain our personnel. There can be no assurance that we will be able to retain our current personnel, or that we will be able to attract or assimilate other personnel in the future. If we are unable to effectively obtain and maintain skilled personnel, the development and quality of our technological products and the effectiveness of installation and training could be materially impaired. We are substantially dependent upon our key personnel, particularly Mr. Yin Shenping, our Chief Executive Officer, Mr. Chen Guangqiang, our Chief Technology Officer and Ms. Liu Jia, our Chief Financial Officer. Our performance is substantially dependent on the performance of our executive officers and key employees. In particular, we rely on the services of: ● Mr. Yin Shenping, Chief Executive Officer; ● Mr. Chen Guangqiang, Chief Technology Officer; and ● Ms. Liu Jia, Chief Financial Officer. Each of these individuals would be difficult to replace. We do not have in place “key person” life insurance policies on any of our employees. The loss of the services of any of our executive officers or other key employees could substantially impair our ability to successfully development new systems and develop new programs and enhancements. In addition, we would need to spend considerable time and other resources to seek suitable replacements, which might detract from our efforts to develop our business. Our business is capital intensive and our growth strategy may require additional capital, which may not be available on favorable terms or at all. We may require additional cash resources due to changed business conditions, implementation of our growth strategy or potential investments or acquisitions we may pursue. To meet our capital needs, we may sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities or other securities convertible into such equity securities could result in dilution of your holdings. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects. 11 Table of Contents We do not intend to pay dividends in the foreseeable future and there are certain restrictions on the payment of dividend under PRC laws. We have not previously paid any cash dividends, and we do not anticipate paying any dividends on our Class A Ordinary Shares. As we intend to remain in a growth mode, we intend to reinvest any profits in the foreseeable future to grow the business. We cannot assure you that our operations will continue to result in sufficient revenues to enable us to operate at profitable levels or to generate positive cash flows. Furthermore, there is no assurance our board of directors will declare dividends even if we are profitable. Dividend policy is subject to the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements and other factors. If we determine to pay dividends on any of our Class A Ordinary Shares in the future, we will be dependent, in large part, on receipt of funds from the Domestic Companies. We are a holding company with no operations of our own and substantially all of our operations are conducted through Nanjing Recon and BHD, hereafter referred to as the Domestic Companies, which are established as variable interest entities (“VIEs”) under the laws of the PRC. Our ability to pay dividends is dependent upon dividends and other distributions from the Domestic Companies. Chinese legal restrictions permit payment of dividends to us by the Domestic Companies only out of their respective accumulated net profits, if any, determined in accordance with Chinese accounting standards and regulations. Under Chinese law, the Domestic Companies are required to set aside a portion (at least 10%) of their after-tax net income (after discharging all cumulated loss), if any, each year for compulsory statutory reserve until the amount of the reserve reaches 50% of the Domestic Companies’ registered capital. These funds may be distributed to shareholders at the time of each Domestic Company’s wind-up. Payments of dividends by Domestic Companies to us are also subject to restrictions including primarily the restriction that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents. There are no such similar foreign exchange restrictions in the Cayman Islands. Our certificates, permits, and license are subject to governmental control and renewal, and the failure to obtain renewal would cause all or part of our operations to be suspended and may have a material adverse effect on our financial condition. We are subject to various PRC laws and regulations pertaining to automation services for the petroleum extraction industry. We have obtained certain certificates, permits, and licenses required for the operation of an automation services provider for the petroleum extraction industry and the manufacturing and distribution of software and hardware products in the PRC. During the application or renewal process for our licenses and permits, we will be evaluated and re-evaluated by the appropriate governmental authorities and must comply with the prevailing standards and regulations, which may change from time to time. In the event that we are not able to obtain or renew the certificates, permits and licenses, all or part of our operations may be suspended by the government, which would have a material adverse effect on our business and financial condition. Furthermore, if escalating compliance costs associated with governmental standards and regulations restrict or prohibit any part of our operations, it may adversely affect our results of operations and profitability. 12 Table of Contents Risks Related to Our Corporate Structure Our contractual arrangements with the Domestic Companies and their respective shareholders may not be as effective in providing control over these entities as direct ownership. We are a holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, we conduct a substantial majority of our operations through our Wholly Foreign Owned Enterprise (“WFOE”) and the VIEs and their subsidiaries in China providing certain technical and consultation services. A WFOE is a limited liability company based in the People’s Republic of China but wholly owned by foreign investors. In our instance, Recon Hengda Technology (Beijing) Co., Ltd (“Recon-BJ”) is a WFOE wholly owned by Recon Investment Ltd. (“Recon-IN”), a Hong Kong limited company, which in turn is wholly owned by us. We consolidated the financial results of BHD and Nanjing Recon into our financial statements based on the VIE agreements entered into on April 1, 2019. Most, if not all, of our revenue derives from operations of the VIEs and their subsidiaries. Our Ordinary Shares offered in this offering are shares of our offshore holding company instead of shares of the VIEs or our PRC subsidiary. These Contractual Arrangements may not be as effective in providing us with control over the VIEs as direct ownership. For example, BHD could fail to take actions required for our business or fail to pay dividends to Recon-BJ despite its contractual obligation to do so. If the Domestic Companies fail to perform under their agreements with us, we may have to rely on legal remedies under PRC law, which may not be effective. In addition, these agreements have not been tested in a court of law. If we had direct ownership of the VIEs, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIEs, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current Contractual Arrangements, we rely on the performance by the VIEs and their shareholders of their obligations under the contracts to exercise control over the VIEs. We cannot assure you that any of the Domestic Companies’ shareholders would always act in our best interests. Such risks exist throughout the period in which we intend to operate our business through the Contractual Arrangements with the VIEs. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. Therefore, our Contractual Arrangements with the VIEs may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be. We have no equity ownership interest in the Domestic Companies and rely on contractual arrangements to control and operate such businesses. These contractual arrangements may not be as effective in providing control over the Domestic Companies as direct ownership. 13 Table of Contents We conduct our business through BHD, Nanjing Recon, FGS and their respective subsidiaries by means of Contractual Arrangements. If the PRC courts or administrative authorities determine that these contractual arrangements do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected. In addition, changes in such PRC laws and regulations may materially and adversely affect our business. There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including the laws, rules and regulations governing the validity and enforcement of the Contractual Arrangements between the Wholly Foreign Owned Enterprise (“WFOE”). A WFOE is a limited liability company based in the People’s Republic of China but wholly owned by foreign investors. In our instance, Recon Hengda Technology (Beijing) Co., Ltd (“Recon-BJ”) is a WFOE wholly owned by Recon Investment Ltd. (“Recon- IN”), a Hong Kong limited company, which in turn is wholly owned by us. Recon-BJ and Nanjing Recon, BHD and their respective subsidiaries. We have been advised by our PRC counsel, JingTian & GongCheng LLP, based on their understanding of the current PRC laws, rules and regulations, that (i) the structure for operating our business in China (including our corporate structure and Contractual Arrangements with the Recon-BJ, Nanjing Recon, BHD and their respective subsidiaries) will not result in any violation of PRC laws or regulations currently in effect; and (ii) the Contractual Arrangements among the Recon-BJ and Nanjing Recon, BHD and their respective subsidiaries governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations concerning foreign investment in the PRC, and their application to and effect on the legality, binding effect and enforceability of the contractual arrangements. In particular, we cannot rule out the possibility that PRC regulatory authorities, courts or arbitral tribunals may in the future adopt a different or contrary interpretation or take a view that is inconsistent with the opinion of our PRC legal counsel. Therefore, the Contractual Arrangements may be determined by PRC authorities to be inconsistent with the laws and regulations of the PRC, including those related to foreign investment in certain industries. Therefore, the relevant Chinese regulatory authorities could disallow this structure and hinder our ability to exert contractual control over the Domestic Companies, which would likely result in a material change in operations and/or value of the Company’s ordinary shares, including that it could cause the value of such securities to significantly decline or become worthless. If any of the Domestic Companies or their ownership structure or the Contractual Arrangements are determined to be in violation of any existing or future PRC laws, rules or regulations, or any of our PRC entities fail to obtain or maintain any of the required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including: ● revoking the business and operating licenses; ● discontinuing or restricting the operations; ● imposing conditions or requirements with which the PRC entities may not be able to comply; ● requiring us and our PRC entities to restructure the relevant ownership structure or operations, including termination of the contractual agreements with the VIE and deregistering the equity pledge of the VIE, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control the VIE; ● restricting or prohibiting our use of the proceeds from this offering to finance our business and operations in China, and taking other regulatory or enforcement actions that could be harmful to our business; or ● imposing fines or confiscating the income from our PRC subsidiaries or the VIE. The imposition of any of these penalties would severely disrupt our ability to conduct business and have a material adverse effect on our financial condition, results of operations and prospects. 14 Table of Contents Our majority stake in Future Gas Station (Beijing), which now consists of a large operating segment of our business, exposes us to risks related to consumer energy consumption and online payment technologies. As the energy consumption market opened to private and foreign companies, and as the online payment technology continually developed, we began investing in the downstream oil industry. Over the years, we developed a close relationship with Future Gas Station (Beijing) (also referred to as “FGS”) and as of this fiscal year, we now own 51% of the equity of FGS. As such, our majority stake in FGS presents both a substantial investment in the downstream of the oil industry and comprises a large part of our operations. Our business has historically relied primarily on our cooperation with large state-owned oil companies. FGS, by contrast, relies on individual purchasers of gas and other products at gas stations in China. While the gas stations themselves will decide to cooperate with FGS, we expect that they will listen to end user feedback in making such decisions. Accordingly, we believe FGS will be dependent on individual users’ purchasing decisions and experience with FGS’ services. If the energy consumption market slows, or the online payment technology matures and new, more well-capitalized competitors enter FGS’ industry, we may experience a substantial loss in our significant investment in FGS. Regulations relating to offshore investment activities by PRC residents may limit our ability to acquire PRC companies and could adversely affect our business. In July 2014, SAFE promulgated the Circular on Issues Concerning Foreign Exchange Administration Over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents Via Special Purpose Vehicles, or Circular 37, which replaced Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, or Circular 75. Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, referred to in Circular 37 as a “special purpose vehicle” for the purpose of holding domestic or offshore assets or interests. Circular 37 further requires amendment to a PRC resident’s registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. Under these regulations, PRC residents’ failure to comply with specified registration procedures may result in restrictions being imposed on the foreign exchange activities of the relevant PRC entity, including the payment of dividends and other distributions to its offshore parent, as well as restrictions on capital inflows from the offshore entity to the PRC entity, including restrictions on its ability to contribute additional capital to its PRC subsidiaries. Further, failure to comply with the SAFE registration requirements could result in penalties under PRC law for evasion of foreign exchange regulations. As Circular 37 is newly-issued, it is unclear how these regulations will be interpreted and implemented. In addition, different local SAFE branches may have different views and procedures as to the interpretation and implementation of the SAFE regulations, and it may be difficult for our ultimate shareholders or beneficial owners who are PRC residents to provide sufficient supporting documents required by the SAFE or to complete the required registration with the SAFE in a timely manner, or at all. Any failure by any of our shareholders who is a PRC resident, or is controlled by a PRC resident, to comply with relevant requirements under these regulations could subject us to fines or sanctions imposed by the PRC government, including restrictions on Recon-BJ’s ability to pay dividends or make distributions to us and on our ability to increase our investment in the Recon-BJ. Under Circular 37, if a non-listed special purpose vehicle uses its own equity or share option to grant equity incentive awards to directors, supervisors, members of senior management or employees directly employed by a domestic enterprise that is directly or indirectly controlled by such special purpose vehicle, or with which such employee has established an employment relationship, any of such directors, supervisors, members of senior management or employees who is a PRC resident should, prior to exercising their rights, file an application with the SAFE for foreign exchange registration with respect to such special purpose vehicle. However, in practice, different local SAFE branches may have different views and procedures as to the interpretation and implementation of the SAFE regulations and, since Circular 37 was the first regulation to regulate the foreign exchange registration of a non-listed special purpose vehicle’s equity incentive granted to PRC residents, there remains uncertainty with respect to its implementation. 15 Table of Contents Our contractual arrangements with the Domestic Companies may result in adverse tax consequences to us. As a result of our corporate structure and contractual arrangements between Recon-BJ and the Domestic Companies, we are effectively subject to several PRC taxes on both revenues generated by Recon-BJ’s operations in China and revenues derived from Recon-BJ’s contractual arrangements with the Domestic Companies. Moreover, we would be subject to adverse tax consequences if the PRC tax authorities were to determine that the contracts between Recon-BJ and the Domestic Companies were not on an arm’s length basis and therefore constitute a favorable transfer pricing. As a result, the PRC tax authorities could request that we adjust our taxable income upward for PRC tax purposes. If the PRC tax authorities took such action, such authorities would be able to establish in its sole discretion the amount of tax payable by Recon-BJ, so we cannot predict the effect of such action on our company other than the likely effect that our profits would decrease. Such a pricing adjustment could adversely affect us by: ● increasing our tax expenses, which could subject Recon-BJ to late payment fees and other penalties for under-payment of taxes; and/or ● resulting in Recon-BJ’s loss of preferential tax treatment. The shareholders of the VIEs may have actual or potential conflicts of interest with us, which may materially and adversely affect our business and financial condition. The shareholders of the VIEs may have actual or potential conflicts of interest with us. The shareholders may refuse to sign or breach, or cause the VIEs to breach, or refuse to renew, the existing contractual arrangements we have with them and the VIEs, which would have a material and adverse effect on our ability to effectively control the VIEs and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with the VIEs to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise the shareholder will act in the best interests of our company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between the shareholders and our company. If we cannot resolve any conflict of interest or dispute between us and the shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings. The principal shareholders of the Domestic Companies have potential conflicts of interest with us, which may adversely affect our business. Yin Shenping, our Chief Executive Officer, and Chen Guangqiang, our Chief Technology Officer, are significant shareholders in our company. They are also the principal shareholders of each of the Domestic Companies and collectively control the Domestic Companies. Conflicts of interests between their duties to our company and the respective Domestic Companies may arise. For example, Mr. Yin and Mr. Chen could cause a Domestic Company to fail to take actions that are in the best interests of our Company or to fail to pay dividends to Recon-BJ despite its contractual obligation to do so if making such payment would harm the Domestic Company. As Mr. Yin and Mr. Chen are also directors and executive officers of our company, they have duties of loyalty and care to us under Cayman Islands law when there are any potential conflicts of interests between our company and the Domestic Companies. Each of Mr. Yin and Mr. Chen has executed an irrevocable power of attorney to appoint the individual designated by us to be his attorney-in- fact to vote on his behalf on all matters related to the Domestic Companies requiring shareholder approval. We cannot assure you, however, that if conflicts of interest arise, they will act completely in our interests or that conflicts of interests will be resolved in our favor. In addition, Mr. Yin and Mr. Chen could violate their respective employment agreements with us or their legal duties by diverting business opportunities from us to others. If we cannot resolve any conflicts of interest between us and Mr. Yin and Mr. Chen, as applicable, we would have to rely on legal proceedings, which could result in the disruption of our business. 16 Table of Contents Any deterioration of the relationship between Recon-BJ and the Domestic Companies could materially and adversely affect the overall business operation of our company. Our relationship with the Domestic Companies is governed by their agreements with Recon-BJ, which are intended to provide us, through our indirect ownership of Recon-BJ, with effective control over the business operations of the Domestic Companies. However, these agreements may not be effective in providing control over the applications for and maintenance of the licenses required for our business operations. The Domestic Companies could violate these agreements, go bankrupt, suffer from difficulties in its business or otherwise become unable to perform its obligations under these agreements and, as a result, our operations, reputation, business and stock price could be severely harmed. If Recon-BJ exercises its purchase option of the Domestic Companies’ equity pursuant to the Exclusive Equity Interest Purchase Agreement, payment of the purchase price could materially and adversely affect our financial position. Under the Exclusive Equity Interest Purchase Agreement, Recon-BJ holds an option to purchase all or a portion of the equity of the Domestic Companies at a price, based on the capital paid in by the Domestic Company shareholders. If applicable PRC laws and regulations require an appraisal of the equity interest or provide other restriction on the purchase price, the purchase price shall be the lowest price permitted under the applicable PRC laws and regulations. As the Domestic Companies are already contractually controlled affiliates to our company, Recon-BJ’s purchase of the Domestic Companies’ equity would not bring immediate benefits to our company and the exercise of the option and payment of the purchase prices could adversely affect our financial position and available working capital. Our dual class structure may be dilutive to the voting power of Class A Ordinary Shareholders. On April 5, 2021, at the 2021 annual meeting, to implement a dual class structure, our shareholders approved (i) a special resolution that the authorized share capital of the Company be amended from US$1,850,000, divided into 20,000,000 Class B Ordinary Shares of a nominal or par value of US$0.0925 each, to US$15,725,000, divided into 150,000,000 Class A Ordinary Shares of a nominal or par value of US$0.0925 each and 20,000,000 Class B Ordinary Shares of a nominal or par value of US$0.0925 each, and (ii) a special resolution that the Third Amended and Restated Memorandum and Articles of Association of the Company to substitute the Second Amended and Restated Memorandum and Articles of Association. The dual class structure of our ordinary shares has the effect of concentrating voting control with holders of Class B Ordinary Shares. Our Class B Ordinary Shares have stronger voting power than our Class A Ordinary Shares and certain existing shareholders have substantial influence over our Company and their interests may not be aligned with the interests of our other shareholders. Our classified board structure may prevent a change in our control. Our board of directors is divided into three classes of directors. The current terms of the directors expire in 2021, 2022 and 2023. Directors of each class are chosen for three-year terms upon the expiration of their current terms, and each year one class of directors is elected by the shareholders. The staggered terms of our directors may reduce the possibility of a tender offer or an attempt at a change in control, even though a tender offer or change in control might be in the best interest of our shareholders. 17 Table of Contents Shareholder rights under Cayman Islands law may differ materially from shareholder rights in the United States, which could adversely affect the ability of us and our shareholders to protect our and their interests. Our corporate affairs are governed by our Memorandum and Articles of Association, by the Companies Law (2013 Revision) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders, and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority but are not binding on a court in the Cayman Islands. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate laws. Moreover, our company could be involved in a corporate combination in which dissenting shareholders would have no rights comparable to appraisal rights which would otherwise ordinarily be available to dissenting shareholders of United States corporations. However, Cayman Islands statutory law does provide a mechanism for a dissenting shareholder in a merger or consolidation to apply to the Grand Court for a determination of the fair value of the dissenter’s shares if it is not possible for the dissenter and the Company to agree a fair price within the time limits prescribed. Also, our Cayman Islands counsel is not aware of a significant number of reported derivative actions having been brought in Cayman Islands courts. Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings which are similar. Such actions are ordinarily available in respect of United States corporations in U.S. courts. Finally, Cayman Islands companies may not have standing to initiate shareholder derivative action before the federal courts of the United States. As a result, our public shareholders may face different considerations in protecting their interests in actions against the management, directors or our controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States, and our ability to protect our interests may be limited if we are harmed in a manner that would otherwise enable us to sue in a United States federal court. As we are a Cayman Islands company and most of our assets are outside the United States, it will be extremely difficult to acquire jurisdiction and enforce liabilities against us and our officers, directors and assets based in China. We are a Cayman Islands exempt company, and our corporate affairs are governed by our Memorandum and Articles of Association and by the Cayman Islands Companies Law (2013 Revision) and other applicable Cayman Islands laws. Certain of our directors and officers reside outside of the United States. In addition, the Company’s assets will be located outside the United States. As a result, it may be difficult or impossible to effect service of process within the United States upon our directors or officers and our subsidiaries, or enforce against any of them court judgments obtained in United States’ courts, including judgments relating to United States federal securities laws. In addition, there is uncertainty as to whether the courts of the Cayman Islands and of other offshore jurisdictions would recognize or enforce judgments of United States’ courts obtained against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof on the grounds that such provisions are penal in nature, or be competent to hear original actions brought in the Cayman Islands or other offshore jurisdictions predicated upon the securities laws of the United States or any state thereof. Our Cayman Islands’ counsel has advised us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, provided it is not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands’ judgment in respect of the same matters, and was not obtained in a manner which is contrary to the public policy of the Cayman Islands. A Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere. Furthermore, because the majority of our assets are located in China, it would also be extremely difficult to access those assets to satisfy an award entered against us in United States court. 18 Table of Contents Risks Related to Doing Business in China The recent state government interference into business activities on U.S. listed Chinese companies may negatively impact our existing and future operations in China. Recently, the Chinese government announced that it would step up supervision of Chinese firms listed offshore. Under the new measures, China will improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading, China will also check sources of funding for securities investment and control leverage ratios. The Cyberspace Administration of China (“CAC”) has also opened a cybersecurity probe into several U.S.-listed tech giants focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies collect, store, process and transfer data. If we are subject to such a probe or if we are required to comply with stepped-up supervisory requirements, valuable time from our management and money may be expended in complying and/or responding to the probe and requirements, thus diverting valuable resources and attention away from our operations. This may, in turn, negatively impact our operations. Because of the VIEs and their subsidiaries in China and given the Chinese government’s significant oversight and discretion over the conduct of our business operations there, the Chinese government may seek to affect our operations, including our ability to offer securities to investors, list our securities on a U.S. or other foreign exchange, conduct our business or accept foreign investment. The Chinese government may intervene or influence the Company’s current and future operations in China at any time, or may exert more control over offerings conducted overseas and/or foreign investment in issuers likes ourselves. If any or all of the foregoing were to occur, this could lead to a material change in the Company’s operations and/or the value of our ordinary shares and/or significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Our shares may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditors for three consecutive years beginning in 2021. The delisting of our shares, or the threat of their being delisted, may materially and adversely affect the value of your investment. The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit such shares from being traded on a national securities exchange or in the over-the-counter trading market in the U.S. On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. A company will be required to comply with these rules if the SEC identifies it as having a “non- inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above. Our current auditor, Friedman LLP, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards. We are not aware of any reasons to believe or conclude that Friedman LLP would not permit an inspection by PCAOB or that it may not be subject to such inspection. However, given the recent developments, we cannot assure you whether NASDAQ or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. In the event that there is a lack of inspection or if Friedman LLP is unable to permit an inspection by the PCAOB, however unlikely, our shares would be prohibited under the HFCA Act which may lead a securities exchange to determine to delist our shares. Such potential delisting would substantially impair your ability to sell or purchase our shares when you wish to do so, and such risk and uncertainty associated with a potential delisting due to a lack of inspection would have a negative impact on the price of our shares. 19 Table of Contents The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCA Act. However, some of the recommendations were more stringent than the HFCA Act. For example, if a company’s auditor was not subject to PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022. The SEC has announced that the SEC staff is preparing a consolidated proposal for the rules regarding the implementation of the HFCA Act and to address the recommendations in the PWG report. On June 22, 2021, the U.S. Senate passed a bill titled as the Accelerating Holding Foreign Companies Accountable Act, or AHFCA Act which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non- inspection years required for triggering the prohibitions under the Holding Foreign Companies Accountable Act from three years to two. Further, the PCAOB adopted a final rule on September 22, 2021 implementing the HFCA Act. Such final rule, however, remains subject to the SEC’s approval and it remains when the SEC will complete its rulemaking and when such rules will become effective and what, if any, of the PWG recommendations and or PCAOB’s rule will be adopted. On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable Act. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions. The PCAOB adopted a final rule on September 22, 2021 implementing the HFCA Act, subject to SEC approval. The final rules adopted by the SEC relating to the HFCA Act became effective on January 10, 2022. On August 26, 2022, the SEC announced that the PCAOB signed a Statement of Protocol with the CRSC and the Ministry of Finance of the PRC, which sets out specific arrangements on conducting inspections and investigations by both sides over relevant audit firms within the jurisdiction of both sides, including the audit firms based in mainland China and Hong Kong. This agreement marks an important step towards resolving the audit oversight issue that concern mutual interests, and sets forth arrangements for both sides to cooperate in conducting inspections and investigations of relevant audit firms, and specifies the purpose, scope and approach of cooperation, as well as the use of information and protection of specific types of data. The implications of this possible regulation in addition to the requirements of the HFCA Act and possibly, the AHFCA Act, if enacted, are uncertain. If the PCAOB, SEC, and CRSC are unable to agree on a framework under the Statement of Protocol, the lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in our Ordinary Shares to lose confidence in our audit procedures and reported financial information and the quality of our financial statements. Such uncertainty could cause the market price of our shares to be materially and adversely affected, and our securities could be delisted or prohibited from being traded on the national securities exchange earlier than would be required by the HFCA Act or the AHFCA Act. If our shares are unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase our shares when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of our shares. 20 Table of Contents Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our future business and operations. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies. While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our future business and operating results, lead to reduction in demand for our services and adversely affect our competitive position. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our future business and operating results. Adverse changes in China’s political, economic or social conditions or government policies could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially adversely affect our competitive position. We conduct substantially all of our operations and generate most of our revenues in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including: ● the higher level of government involvement; ● the early stage of development of the market-oriented sector of the economy; ● the relatively rapid growth rate; ● the higher level of control over foreign exchange; and ● the allocation policies of resources. While the PRC economy has grown significantly since the late 1970s, the growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on our business. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. The PRC economy has been transitioning from a planned economy to a more market-oriented economy. The PRC government continues to exercise significant control over economic growth in China through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways. 21 Table of Contents We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law. In connection with any future offering, we may be subjected to the U.S. Foreign Corrupt Practices Act (“FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We may also be subjected to Chinese anti- corruption laws, which strictly prohibit the payment of bribes to government officials. Going forward, we may have operations, agreements with third parties, and make sales in China, which may experience corruption. Our future activities in China may create the risk of unauthorized payments or offers of payments by one of the employees of our Company, because sometimes these employees are out of our control. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire. The PRC government may issue further restrictive measures in the future. We cannot assure you that the PRC’s government will not issue further restrictive measures in the future. The PRC government’s restrictive regulations and measures could increase our existing and future operating costs in adapting to these regulations and measures, limit our access to capital resources or even restrict our existing and future business operations, which could further adversely affect our business and prospects. We may be subject to a variety of laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have a material and adverse effect on our business, financial condition and results of operations. We may be subject relating various risks and costs associated with to the collection, use, sharing, retention, security, and transfer of confidential and private information, such as personal information and other data. This data is wide ranging and relates to our investors, employees, contractors and other counterparties and third parties. The relevant PRC laws apply not only to third-party transactions, but also to transfers of information between us, the Domestic Companies, our subsidiaries and other parties with which we have commercial relations. The PRC regulatory and enforcement regime with regard to privacy and data security is evolving. The PRC Cybersecurity Law which was promulgated on November 7, 2016 and became effective on June 1, 2017 provides that personal information and important data collected and generated by operators of critical information infrastructure in the course of their operations in the PRC should be stored in the PRC, and the law imposes heightened regulation and additional security obligations on operators of critical information infrastructure. According to the Cybersecurity Review Measures promulgated by the Cyberspace Administration of China and certain other PRC regulatory authorities in April 2020, which became effective in June 2020, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. If we provide or are deemed to provide such network products and services to critical information infrastructure operators, or we are deemed to be a critical information infrastructure operator, we would be required to follow cybersecurity review procedures. There can be no assurance that we would be able to complete the applicable cybersecurity review procedures in a timely manner, or at all, if we are required to follow such procedures. Any failure or delay in the completion of the cybersecurity review procedures may prevent us from using or providing certain network products and services, and may result in fines of up to ten times the purchase price of such network products and services being imposed upon us, if we are to be deemed a critical information infrastructure operator using network products or services without having completed the required cybersecurity review procedures. The PRC government is increasingly focused on data security, recently launching cybersecurity review against a number of mobile apps operated by several US-listed Chinese companies and prohibiting these apps from registering new users during the review period. On June 10, 2021, the Standing Committee of the National People’s Congress of China promulgated the Data Security Law which shall take effect in September 1, 2021. The Data Security Law provides for data security and privacy obligations of entities and individuals carrying out data activities, prohibits entities and individuals in China from providing any foreign judicial or law enforcement authority with any data stored in China without approval from the competent PRC authority, and sets forth the legal liabilities of entities and individuals found to be in violation of their data protection obligations, including rectification order, warning, fines of up to RMB10 million, suspension of relevant business, and revocation of business permits or licenses. 22 Table of Contents On August 20, 2021, the Standing Committee of the National People’s Congress adopted the Personal Information Security Law, which shall come into force as of November 1, 2021. The Personal Information Protection Law includes the basic rules for personal information processing, the rules for cross-border provision of personal information, the rights of individuals in personal information processing activities, the obligations of personal information processors, and the legal responsibilities for illegal collection, processing, and use of personal information. In addition, on July 10, 2021, the Cyberspace Administration of China issued the Measures for Cybersecurity Review (Revision Draft for Comments) for public comments, which proposes to authorize the relevant government authorities to conduct cybersecurity review on a range of activities that affect or may affect national security, including listings in foreign countries by companies that possess personal data of more than one million users. The PRC National Security Law covers various types of national security, including technology security and information security. We do not collect, process or use personal information of entities or individuals other than what is necessary for our business and do not disseminate such information. We do not operate mobile apps and we do not possess information on more than a million entities/individuals. Although we believe we currently are not required to obtain clearance from the Cyberspace Administration of China under the Measures for Cybersecurity Review (Revision Draft for Comments) or the Opinions on Strictly Cracking Down on Illegal Securities Activities, we face uncertainties as to the interpretation or implementation of such regulations or rules, and if required, whether such clearance can be timely obtained, or at all. Compliance with the PRC Cybersecurity Law, the PRC National Security Law, the Data Security Law, the Personal Information Protection Law, the Cybersecurity Review Measures, as well as additional laws and regulations that PRC regulatory bodies may enact in the future, including data security and personal information protection laws, may result in additional expenses to us and subject us to negative publicity, which could harm our reputation among users and negatively affect the trading price of our shares in the future. There are also uncertainties with respect to how the PRC Cybersecurity Law, the PRC National Security Law and the Data Security Law will be implemented and interpreted in practice. PRC regulators, including the Ministry of Public Security, the MIIT, the SAMR and the Cyberspace Administration of China, have been increasingly focused on regulation in the areas of data security and data protection, including for mobile apps, and are enhancing the protection of privacy and data security by rule-making and enforcement actions at central and local levels. We expect that these areas will receive greater and continued attention and scrutiny from regulators and the public going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to penalties, including fines, suspension of business, prohibition against new user registration (even for a short period of time) and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected. Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us. We conduct substantially all of our business through our operating subsidiary in the PRC, Recon-BJ, which is a wholly foreign owned enterprise in China. Recon-BJ is generally subject to laws and regulations applicable to foreign invested enterprises in China and intellectual property protections. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, a series of new PRC laws and regulations have significantly enhanced the protections afforded to intellectual property rights and various forms of foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. We do not have business interruption, litigation or natural disaster insurance. The insurance industry in China is still at an early stage of development. In particular PRC insurance companies offer limited business products. As a result, we do not have any business liability or disruption insurance coverage for our operations in China. Any business interruption, litigation or natural disaster may result in our business incurring substantial costs and the diversion of resources. 23 Table of Contents We may be subject to foreign exchange controls in the PRC. Our PRC subsidiary and affiliates are subject to PRC rules and regulations on currency conversion. In the PRC, the State Administration for Foreign Exchange (“SAFE”) regulates the conversion of the RMB into foreign currencies. Currently, foreign investment enterprises (“FIEs”) are required to apply to SAFE for “Foreign Exchange Registration Certificate for FIEs.” Recon-BJ is an FIE. With such registration certifications (which need to be renewed annually), FIEs are allowed to open foreign currency accounts including the “recurrent account” and the “capital account.” Currently, conversion within the scope of the “recurrent account” can be affected without requiring the approval of SAFE. However, conversion of currency in the “capital account” (e.g. for capital items such as direct investments, loans, securities, etc.) still requires the approval of SAFE. Accordingly, compliance with SAFE requirements may limit how we are able to use our funds, in ways that we would not be limited if we operated in countries other than China. Fluctuations in exchange rates could adversely affect the value of our securities. Changes in the value of the RMB against the U.S. dollar and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on the value of, and any dividends payable on our shares in U.S. dollar terms. For example, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market. Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. We do not plan to enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies. PRC regulations relating to the establishment of offshore special purpose vehicles by PRC residents, if applied to us, may subject our PRC resident shareholders to personal liability and limit our ability to acquire PRC companies or to inject capital into Recon-IN and Recon-BJ, limit Recon-IN’s and Recon-BJ’s ability to distribute profits to us or otherwise materially adversely affect us. On October 21, 2005, SAFE issued a public notice, the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, or the SAFE notice, which requires PRC residents, including both legal persons and natural persons, to register with the competent local SAFE branch before establishing or controlling any company outside of China, referred to as an “offshore special purpose company,” for the purpose of overseas equity financing involving onshore assets or equity interests held by them. In addition, any PRC resident that is the shareholder of an offshore special purpose company is required to amend its SAFE registration with the local SAFE branch with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China. Moreover, if the offshore special purpose company was established and owned the onshore assets or equity interests before November 1, 2005, a retroactive SAFE registration is required to have been completed before March 31, 2006. If any PRC shareholder of any offshore special purpose company fails to make the required SAFE registration and amendment, the PRC subsidiaries of that offshore special purpose company (Recon-IN and Recon-BJ for our company) may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the offshore special purpose company. Moreover, failure to comply with the SAFE registration and amendment requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. 24 Table of Contents Due to lack of official interpretation, some of the terms and provisions in the SAFE notice remain unclear and implementation by central SAFE and local SAFE branches of the SAFE notice has been inconsistent since its adoption. Because of uncertainty over how the SAFE notice will be interpreted and implemented, we cannot predict how it will affect our business operations or future strategies. For example, Recon-IN’s, Recon-BJ’s and any prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with the SAFE notice by our company’s PRC resident beneficial holders. In addition, such PRC residents may not always be able to complete the necessary registration procedures required by the SAFE notice. We also have little control over either our present or prospective direct or indirect shareholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident shareholders to comply with the SAFE notice, if SAFE requires it, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiary’s ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects. Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders. China passed the Enterprise Income Tax Law, or the EIT Law, and it is implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. On April 22, 2009, the State Administration of Taxation of China, or the SAT, issued the Circular Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the SAT Notice 82, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or enterprise group. Pursuant to the SAT Notice 82, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or enterprise group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. After SAT Notice 82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect on September 1, 2011, to provide more guidance on the implementation of SAT Notice 82 and clarify the reporting and filing obligations of such “non-domestically incorporated resident enterprise.” SAT Bulletin 45 provides procedures and administrative details for the determination of resident status and administration on post-determination matters. On January 29, 2014, the SAT issued Announcement of the State Administration of Taxation on Recognizing Resident Enterprises Based on the Criteria of de facto Management Bodies, to further clarify the reporting and filing procedure for offshore entities controlled by a Chinese enterprise or enterprise group and recognized as a resident enterprise. 25 Table of Contents The determining criteria set forth in SAT Notice 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals. If the PRC tax authorities determine that Recon or its subsidiaries is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, we do not have any non-China source income, as we complete our sales, including export sales, in China. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would be deemed as “qualified investment income between resident enterprises” and therefore qualify as “tax- exempt income” pursuant to the clause 26 of the EIT Law. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which the dividends we pay with respect to our ordinary shares, or the gain our non-PRC stockholders may realize from the transfer of our ordinary shares, may be treated as PRC-sourced income and may therefore be subject to a 10% PRC withholding tax. If we are required under the EIT Law and its implementing regulations to withhold PRC income tax on dividends payable to our non-PRC stockholders, or if non-PRC stockholders are required to pay PRC income tax on gains on the transfer of their shares of ordinary shares, our business could be negatively impacted and the value of your investment may be materially reduced. Further, if we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both China and such countries in which we have taxable income, and our PRC tax may not be creditable against such other taxes. PRC regulations and potential registration requirements relating to acquisitions of PRC companies by foreign entities may create regulatory uncertainties that could restrict or limit our ability to operate. On August 8, 2006, six PRC regulatory agencies, including the PRC Ministry of Commerce (“MOC”), the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission (“CSRC”) and SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and was amended on June 22, 2009. The M&A Rules significantly revised China’s regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic enterprises. These new rules signify greater PRC government attention to cross- border merger, acquisition and other investment activities, by confirming MOC as a key regulator for issues related to mergers and acquisitions in China and requiring MOC approval of a broad range of merger, acquisition and investment transactions. Further, the new rules establish reporting requirements for acquisition of control by foreigners of companies in key industries and reinforce the ability of the Chinese government to monitor and prohibit foreign control transactions in key industries. Among other things, the M&A Rules include new provisions that purport to require that an offshore SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings. However, the application of this PRC regulation remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement. If the PRC regulatory authorities take the view that the VIE Agreements constitute a reverse merger acquisition or round-trip investment in related party transactions without the approval of the national offices of MOC, they could invalidate the VIE Agreements. Additionally, the PRC regulatory authorities may take the view that any public offering plan will require the prior approval of CSRC. If we cannot obtain MOC or CSRC approval in case we are required to do so, our business and financial performance will be materially adversely affected. We may also face regulatory actions or other sanctions from the MOC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds of this or any other offering into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our Class A Ordinary Shares. Also, if the CSRC later requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our Class A Ordinary Shares. 26 Table of Contents The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which was available to the public on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. Moreover, the CAC issued the Measures of Cybersecurity Review (Revised Draft for Comments) on July 10, 2021, which requires certain operators who wish to list abroad to file a cybersecurity review with the Office of Cybersecurity Review, such as operators with personal information of more than one million users. The Cybersecurity Administration of China issued the New Measures for Cybersecurity Review (“New Measures”) on January 4, 2022. The New Measures amends the Measures for Cybersecurity Review (Draft Revision for Comments) released on July 10, 2021. The New Measures came into effect on February 15, 2022. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. As these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects at this time. We have not obtained the approval from either the CSRC or the Office of Cybersecurity Review for this offering, and as advised by our PRC counsel, we do not believe that such approval is necessary under these circumstances or for the time being. We cannot assure you, however, that the regulators will not take a contrary view or will not subsequently require us to undergo the approval procedures and subject us to penalties for non-compliance. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all. PRC registration requirements for stock option plans of overseas publicly-listed companies may restrict our ability to adopt equity compensation plans for our directors and employees or otherwise limit our PRC subsidiaries’ ability to distribute profits to us. In February 2012, SAFE promulgated the Notice on the Administration of Foreign Exchange Matters for Domestic Individuals Participating in the Stock Incentive Plans of Overseas Listed Companies, or the Stock Option Notice, which replaced the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plans or Stock Option Plans of Overseas Publicly-Listed Companies issued by SAFE on March 28, 2007. Under the Stock Option Notice and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must collectively retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly listed company or another qualified institution selected by such PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. Such participants must also collectively retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. We and our PRC employees who have been granted stock options are subject to these regulations. Failure of our PRC stock option holders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to compensate our employees and directors through equity compensation, limited our PRC subsidiaries’ ability to distribute dividends to us, or otherwise materially adversely affect our business. The Chinese government could change its policies toward private enterprise or even nationalize or expropriate private enterprises, which could result in the total loss of our investment in that country. Our business is subject to significant political and economic uncertainties and may be adversely affected by political, economic and social developments in China. Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time with little, if any, prior notice. Changes in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to shareholders, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business. Nationalization or expropriation could even result in the total loss of our investment in China and in the total loss of your investment in us. 27 Table of Contents We may be unable to establish and maintain an effective system of internal control over financial reporting, and as a result we may be unable to accurately report our financial results or prevent fraud. The PRC has historically lagged in western style management, governance and financial reporting concepts and practices, as well as in modern banking, and other control systems. Our current management has little experience with western style management, governance and financial reporting concepts and practices, and we may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, and especially given that we are a publicly listed company in the U.S. and subject to regulation as such, we may experience difficulty in establishing management, governance, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet western standards. We may have difficulty establishing adequate management, governance, legal and financial controls in the PRC. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002 and other applicable laws, rules and regulations. This may result in significant deficiencies or material weaknesses in our internal controls which could impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our business and the public announcement of such deficiencies could adversely impact our stock price. The recent joint statement by the SEC, proposed rule changes submitted by NASDAQ, and an act passed by the U.S. Senate and the U.S. House of Representatives, all call for additional and more stringent criteria to be applied to emerging market companies. These developments could add uncertainties to our future offerings, business operations share price and reputation. U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China, reiterating past SEC and PCAOB statements on matters including the difficulty associated with inspecting accounting firms and audit work papers in China and higher risks of fraud in emerging markets and the difficulty of bringing and enforcing SEC, Department of Justice and other U.S. regulatory actions, including in instances of fraud, in emerging markets generally. On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national exchange. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. The PCAOB adopted a final rule on September 22, 2021 implementing the HFCA Act. The final rules adopted by the SEC relating to the HFCA Act became effective on January 10, 2022. On May 21, 2021, NASDAQ filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in a “Restrictive Market”, (ii) prohibit Restrictive Market companies from directly listing on NASDAQ Capital Market, and only permit them to list on NASDAQ Global Select or NASDAQ Global Market in connection with a direct listing and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors. 28 Table of Contents On August 26, 2022, the SEC announced that the PCAOB signed a Statement of Protocol with the CRSC and the Ministry of Finance of the PRC, which sets out specific arrangements on conducting inspections and investigations by both sides over relevant audit firms within the jurisdiction of both sides, including the audit firms based in mainland China and Hong Kong. This agreement marks an important step towards resolving the audit oversight issue that concern mutual interests, and sets forth arrangements for both sides to cooperate in conducting inspections and investigations of relevant audit firms, and specifies the purpose, scope and approach of cooperation, as well as the use of information and protection of specific types of data. As a result of these scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our future offerings, business and our share price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our Company. This situation will be costly and time consuming and distract our management from developing our growth. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our shares. Risks Related to Our Ordinary Shares We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies. Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: ● the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; ● the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; ● the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and ● the selective disclosure rules by issuers of material nonpublic information under Regulation FD. We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the NASDAQ Capital Market. Press releases relating to financial results and material events are also furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC is less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer. As a Cayman Islands company listed on the NASDAQ Capital Market, we are subject to the NASDAQ Capital Market corporate governance listing standards. However, NASDAQ Capital Market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NASDAQ Capital Market corporate governance listing standards. To the extent that we choose to utilize the home country exemption for corporate governance matters, our shareholders may be afforded less protection than they otherwise would under the NASDAQ Capital Market corporate governance listing standards applicable to U.S. domestic issuers. We follow home country practice with respect to annual shareholders meetings. 29 Table of Contents You may experience future dilution as a result of future equity offerings. In order to raise additional capital, we may in the future offer additional Class A Ordinary Shares or other securities convertible into or exchangeable for our Class A Ordinary Shares at prices that may not be the same as the price per share you paid. We may sell shares or other securities in any other offering at a price per share that is less than the price per share paid by existing investors, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional Class A Ordinary Shares, or securities convertible or exchangeable into Class A Ordinary Shares, in future transactions may be higher or lower than the price per share paid by existing investors. We do not intend to pay dividends in the foreseeable future. We have never paid cash dividends on our Class A Ordinary Shares. We currently intend to retain our future earnings, if any, to finance the operation and growth of our business and currently do not plan to pay any cash dividends in the foreseeable future. Future sales of a significant number of our Class A Ordinary Shares in the public markets, or the perception that such sales could occur, could depress the market price of our Class A Ordinary Shares. Future sales of a substantial number of our Class A Ordinary Shares in the public markets, or the perception that such sales could occur, could depress the market price of our Class A Ordinary Shares and impair our ability to raise capital through the sale of additional equity securities. If any existing shareholder or shareholders sell a substantial amount of our Class A Ordinary Shares, the prevailing market price for our Class A Ordinary Shares could be adversely affected. In addition, if we pay for our future acquisitions in whole or in part with additionally issued Class A Ordinary Shares, your ownership interests in our company would be diluted and this, in turn, could have a material and adverse effect on the price of our Class A Ordinary Shares. If we fail to satisfy applicable listing standards, our ordinary shares may be delisted from the NASDAQ Capital Market. On June 1, 2022, we received a letter from the Listings Qualifications Department of The Nasdaq Capital Market (“Nasdaq”) notifying us that the minimum closing bid price per share for our Ordinary Shares was below $1.00 for a period of 30 consecutive business days and that the Registrant did not meet the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2). This current report is filed pursuant to Nasdaq Listing Rule 5810(b). The Nasdaq notification letter does not result in the immediate delisting of our Ordinary Shares, and the shares have continued to trade uninterrupted under the symbol “RCON.” Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we have a compliance period of one hundred eighty (180) calendar days, or until November 28, 2022 (the “Compliance Period”), to regain compliance with Nasdaq’s minimum bid price requirement. If at any time during the Compliance Period, the closing bid price per share of the our Ordinary Shares is at least $1.00 for a minimum of ten (10) consecutive business days, Nasdaq will provide us with a written confirmation of compliance and the matter will be closed. In the event the Registrant does not regain compliance by November 28, 2022, the Registrant may be eligible for an additional 180 calendar day grace period. To qualify, the Registrant will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, including by effecting a reverse stock split, if necessary. If the Registrant chooses to implement a reverse stock split, it must complete the split no later than ten (10) business days prior to the expiration of the second compliance period. We intend to regain compliance with Nasdaq’s minimum bid price requirement during the Compliance Period. There can be no assurances, however, that we will be successful in satisfying the Minimum-Bid Price Requirement or the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq. It is possible that we will fail to comply with the continued listing requirement of Nasdaq Marketplace Rule 5550(a)(2) again or any other listing requirements. If so, and Nasdaq may delist our shares if we cannot regain compliance timely. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities. If our common stock is delisted by the NASDAQ the price of our ordinary shares decline. 30 Table of Contents The market price for our securities may be volatile, which could result in substantial losses to investors. The market price for our Class A Ordinary Shares has been, and is likely to remain, volatile and subject to wide fluctuations in response to factors including the following: ● actual or anticipated fluctuations in our quarterly operating results; ● changes in the Chinese petroleum and energy industries; ● changes in the Chinese economy; ● announcements by our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; ● future sales of our Class A Ordinary Shares; ● period to period fluctuations in our financial results; ● low trading volume of our Class A Ordinary Shares; ● additions or departures of key personnel; or ● potential litigation. We expect that any other securities of our Company are likely to be similarly volatile. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. As a result, to the extent shareholders sell our securities in negative market fluctuation, they may not receive a price per share that is based solely upon our business performance. We cannot guarantee that shareholders will not lose some of their entire investment in our securities. NASDAQ may apply additional and more stringent criteria for our continued listing. NASDAQ Listing Rule 5101 provides NASDAQ with broad discretionary authority over the continued listing of securities in NASDAQ and NASDAQ may use such discretion to deny apply additional or more stringent criteria for the continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes continued listing of the securities on NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for continued listing on NASDAQ. In addition, NASDAQ has used its discretion to deny continued listing or to apply additional and more stringent criteria in the instances, including but not limited to where the company engaged an auditor that has not been subject to an inspection by PCAOB, an auditor that PCAOB cannot inspect, or an auditor that has not demonstrated sufficient resources, geographic reach, or experience to adequately perform the company’s audit. For the aforementioned concerns, we may be subject to the additional and more stringent criteria of NASDAQ for our continued listing. 31 Table of Contents ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company Recon Technology, Ltd (the “Company”) was incorporated under the laws of the Cayman Islands on August 21, 2007 by Mr. Yin Shenping, Mr. Chen Guangqiang and Mr. Li Hongqi (the “Founders”) as a company with limited liability. We provide oilfield specialized equipment, automation systems, tools, chemicals and field services to petroleum companies mainly in the PRC. The Company’s wholly owned subsidiary, Recon Technology Co., Limited (“Recon-HK”) was incorporated on September 6, 2007 in Hong Kong. On November 15, 2007, Recon-HK established one wholly owned subsidiary, Jining Recon Technology Ltd. (“Recon-JN”) under the laws of the PRC, and later dissolved on April 10, 2019 as part of our previously disclosed organizational restructuring. Recon-HK did not own any assets or conduct any operations and was dissolved on May 15, 2020. On November 19, 2010, the Company established another wholly owned subsidiary, Recon Investment Ltd. (“Recon-IN”) under the laws of HK. 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. Other than the equity interest in Recon-BJ, Recon-IN does not own any assets or conduct any operations. We conduct our business through the following PRC legal entities that are consolidated as variable interest entities (“VIEs”) and operate in the Chinese oilfield equipment & service industry and energy industry: 1. Beijing BHD Petroleum Technology Co., Ltd. (“BHD”), and 2. Nanjing Recon Technology Co., Ltd. (“Nanjing Recon”). 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 industries. On January 1, 2008, to protect our 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 entitled 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 absorbed 100% of the expected losses and received 90% of the expected net income 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, obligated Recon-JN to provide technical consulting services to BHD and Nanjing Recon in exchange for 90% of their annual net income as a service fee. On April 1, 2019, as part of our planned organizational restructuring, Recon-BJ entered into a series of VIE agreements with BHD and Nanjing Recon, respectively, under the same terms and conditions as that of the VIE agreements previously entered into by Recon-JN. As a result, the VIEs were effectively transferred from Recon-JN to Recon-BJ. Accordingly, Recon-BJ bears all the economic risk of losses and receives 90% of the expected profits of BHD and Nanjing Recon, and consequently becomes the primary beneficiary of the VIEs. As part of the plan of reorganization, Recon-JN was dissolved on April 10, 2019. As Recon-JN’s parent company, Recon- HK did not own any assets or conduct any operations, and therefore was dissolved on May 15, 2020. Based on the VIE agreements, we consolidated BHD and Nanjing Recon as VIEs as required by Accounting Standards Codification (“ASC”) Topic 810, Consolidation because we are the primary beneficiary of the VIEs. Management performed an ongoing reassessment of whether Recon-BJ is the primary beneficiary of BHD and Nanjing Recon. 32 Table of Contents 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, Messrs. Yin Shenping and Chen Guangqiang held an 86.24% ownership interest of BHD. From June 30, 2012 to June 30, 2019, Mr. Chen Guangqiang continued to devote his personal patent to BHD and increased his ownership interest of BHD. As of the date of this report, Messrs. Yin Shenping and Chen Guangqiang collectively hold a 91.62% ownership interest of BHD. BHD is 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 net income 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 of the PRC. 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, Messrs. 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 net income 90% and 100%, respectively, based upon the control agreements. Profits allocated to the non- controlling interest are the remaining amount (10%). On January 29, 2015, we increased our authorized shares from 25,000,000 to 100,000,000 Class A Ordinary Shares. BHD, one VIE, controls following subsidiaries: 1) On December 17, 2015, Huang Hua BHD Petroleum Equipment Manufacturing Co. LTD (“HH BHD”), a fully owned subsidiary established by BHD was organized under the laws of the PRC, focusing on the production of high efficiency heating furnaces. As of June 30, 2020, BHD had invested a total of ¥4.39 million to HH BHD. BHD owns an interest of 100% of HH BHD. 2) On May 23, 2017, Gan Su BHD Environmental Technology Co., Ltd (“Gan Su BHD”) was established by BHD and another investor under the laws of the PRC, with registered capital of ¥50 million. It is focusing on oilfield sewage treatment and oily sludge disposal projects. As of June 30, 2020, BHD had invested a total of ¥15.98 million Gan Su BHD. The paid in capital of Gan Su BHD contributed by all investors was ¥ 20.74 million ($2.93 million) as of June 30, 2020. Based on its revised chapter dated August 11, 2017, BHD owns an interest of 51% of Gan Su BHD. The paid in capital was ¥22,935,000 ($3,551,489) as of June 30, 2021. On April 26, 2021, the minority shareholder of Gan Su BHD transferred 15.4% of the equity interest hold to BHD. On May 19, 2021, the minority shareholder transferred 3.6% equity shares and BHD transferred 15.4% equity shares of Gan Su BHD to Nanjing Recon. Thus, by June 30, 2021, BHD owns an interest of 51% and Nanjing Recon owns an interest of 19% of Gan Su BHD. 3) On October 16, 2017, Qing Hai BHD New Energy Technology Co., Ltd. (“Qinghai BHD”) was established by BHD and a few other investors under the laws of the PRC, with registered capital of ¥50 million. It is focusing on design and production and sales of solar energy heating furnaces. As of June 30, 2020, BHD had invested a total of ¥4.2 million to Qinghai BHD. The paid in capital was ¥4.2 million ($0.59 million) as of June 30, 2020. BHD owns an interest of 55% of Qinghai BHD. The paid in capital was ¥4,200,000 ($650,371) as of June 30,2021. BHD owned an interest of 55% of Qinghai BHD previously; however, based on an agreement signed by the shareholders of Qinghai BHD dated October 23, 2018, each of the other two individual shareholders agreed to reduce 10% of their equity interests. As a result, Qinghai BHD returned ¥200,000 paid in capital back to one of the individual shareholders. After the new arrangement, BHD owns a total interest of 75% of Qinghai BHD. 33 Table of Contents As the energy consumption market opened to private and foreign companies, and online payment technology developed, we began to invest in the downstream of the oil industry. On December 15, 2017, we, through VIEs, BHD and Nanjing Recon, entered into a subscription agreement with Future Gas Station (Beijing) Technology, Ltd (“FGS”), pursuant to which we acquired an 8% equity interest in FGS. Established in January 2016, FGS is a service company focusing on providing new technical applications and data operations to gas stations and provides solutions to gas stations to improve their operations and their customers’ experience. On August 21, 2018, we entered into an investment agreement and a supplemental agreement (collectively, the “Investment Agreement”) with FGS and the other shareholders of FGS. Pursuant to the Investment Agreement, our ownership interest in FGS shall increase from 8% to 43%, in exchange for our investment in GFS for a total amount of RMB 10 million in cash and the issuance of 2,435,284 restricted Class A Ordinary Shares to the other shareholders of FGS with certain conditions. On September 24, 2019, the Company agreed to extend the agreement for six more months as negotiated with FGS to ensure the founding team can better meet its obligations under the agreement. On March 17, 2020, the Company, FGS and the other shareholders of FGS signed the third supplemental agreement to extend another 12 months to February 20, 2021 as the number of the gas stations was the only performance goal that was not achieved. As of June 30, 2020, we had invested an aggregate amount of RMB 35,579,586 ($5,032,666) in FGS and issued 487,057 restricted shares (reflecting the effect of one- for-five reverse stock split) in total to other shareholders of FGS, and our ownership interest in FGS has increased to 43%. On December 10, 2019, the Company’s board of directors approved to effect a one-for-five reverse stock split of its ordinary shares (the “Reverse Stock Split”) with the market effective date of December 27, 2019, such that the number of the Company’s ordinary shares is decreased from 100,000,000 to 20,000,000 and the par value of each ordinary share is increased from US$0.0185 to US$0.0925. As a result of the Reverse Stock Split, each five pre-split ordinary shares outstanding were automatically combined and converted to one issued and outstanding ordinary share without any action on the part of the shareholder. On November 25, 2020, the Company and certain accredited investors (the “Investors”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell to the Investors, and the Investors agreed to purchase from the Company, in an unregistered private transaction, notes (the “Notes”) with an aggregate principal amount of $6,485,000, convertible into ordinary shares, at a rate of $0.71 per share, upon the terms and subject to the limitations and conditions set forth in such Notes. The Company received gross proceeds of $6,485,000 through December 4, 2020 to December 30, 2020. Pursuant to the conversion notices to convert the Notes in full with the conversion date of January 25, 2021, the Company issued an aggregate of 9,225,338 ordinary shares to the Investors. On February 4, 2021, Nanjing Recon and BHD, entered into the fourth supplemental agreement to the investment agreement with FGS and FGS’ founding shareholders to acquire 8% equity ownership of FGS. As a result, Nanjing Recon and BHD collectively own 51% interest of FGS, with 25.5% ownership interests to each of Nanjing Recon and BHD. We began to consolidate the financial results of FGS beginning on February 2021, which is reflected in our financial results for the year ended June 30, 2021. Through the fourth supplemental agreement, the Nanjing Recon and BHD waived the requirement on FGS’ performances goal about the number of gas stations. Accordingly, Nanjing Recon and BHD agreed to pay for the balance of the investment and cancelled the related lock-up terms on the restricted shares, in exchange of additional 8% equity ownership of FGS. See “Our Corporate Structure” for more information illustrating the ownership interests between Nanjing Recon and BHD. On April 5, 2021, at the 2021 annual meeting, to implement a dual class structure, our shareholders approved (i) a special resolution that the authorized share capital of the Company be amended from US$1,850,000, divided into 20,000,000 ordinary shares of a nominal or par value of US$0.0925 each, to US$15,725,000, divided into 150,000,000 Class A ordinary shares of a nominal or par value of US$0.0925 each and 20,000,000 Class B ordinary shares of a nominal or par value of US$0.0925 each, and (ii) a special resolution that the Third Amended and Restated Memorandum and Articles of Association of the Company to substitute the Second Amended and Restated Memorandum and Articles of Association. On April 7, 2021, we filed the Third Amended and Restated Memorandum and Articles of Association with the Companies Register of the Cayman Islands. Our Class A ordinary shares began to trade on the NASDAQ Capital Market on April 12, 2021 under the same symbol, “RCON.” 34 Table of Contents On June 3, 2021, we entered into a share exchange agreement with Starry Blockchain Energy Pte. Ltd. (“Starry”) and its controlling shareholders (the “Starry Controlling Shareholders”) to acquire 30% of the equity interest in Starry. Under the Agreement, the acquired 30% of the equity interest in Starry was valued at $3,000,000. As consideration for the 30% equity interest, the Company issued 316,345 unregistered, restricted Class A Ordinary Shares, based on $9.48 per share, the average closing price in the 30 trading days prior to the signing of the Agreement, to the Starry Controlling Shareholders. The acquisition closed on June 11, 2021. On November 10, 2021, we agreed to terminate the share exchange agreement with Starry and the Starry Controlling Shareholders. Starry and the Starry Controlling Shareholders have refunded us the 316,345 unregistered, restricted Class A Ordinary Shares. Concurrently, we executed an exclusive technical consulting and service agreement with Starry to provide us with business consulting advice in exchange for 500,000 unregistered, restricted Class A Ordinary Shares, based on $2.13 per share, to Starry. The exclusive technical consulting and service agreement concluded on December 31, 2021. On December 5, 2021, our board of directors and its compensation committee approved issuances of a total of 2,500,000 Class B Ordinary Shares from such shares reserved under the Company’s 2021 Equity Incentive Plan to directors and officers Shenping Yin and Guangqiang Chen. The compensation committee recommended and the board approved the Class B Ordinary Shares grants to Shenping Yin and Guangqiang Chen, each of whom has received a one-time share grant of 1,250,000 Class B Ordinary Shares. On February 28, 2022, our board approved an additional grant of 1,600,000 Class B shares to Shenping Yin and Guangqiang Chen, each of whom has received a one-time share grant of 800,000 Class B Ordinary Shares. Exclusive Technical Consulting Service Agreement Pursuant to the exclusive technical consulting service agreement between Recon-BJ and each of BHD and Nanjing Recon, Recon-BJ has the exclusive right to provide each of BHD and Nanjing Recon with technical support services, consulting services and other services, including granting use rights of intellectual property rights, software services, network support, database support, hardware services, technical support, employee training, research and development of technology and market information, business management consulting, marketing and promotion services, customer management and services, lease hardware and device, and the others necessary for each of BHD and Nanjing Recon’s needs. In exchange, Recon-BJ is entitled to a service fee that equals to all of the consolidated profit after offsetting the previous year’s accumulated deficit, operating costs, expenses, taxes, and other contributions and reasonable operation profit of each of BHD and Nanjing Recon. In addition to the services fees, each of BHD and Nanjing Recon will reimburse all reasonable costs, reimbursed payments and out-of-pocket expenses, paid or incurred by Recon-BJ in connection with its performance. Under the exclusive technical consulting service agreement, without Recon-BJ’s prior written consent, each of BHD and Nanjing Recon agrees not to engage in any transaction which may materially affect its asset, business, employment, obligation, right or operation. The exclusive technical consulting service agreement remains effective, unless terminated pursuant to the exclusive technical consulting service agreement or upon the written notice of Recon-BJ. Exclusive Equity Interest Purchase Agreement Pursuant to the amended and restated exclusive equity interest purchase agreement, among Recon-BJ, each of BHD and Nanjing Recon and the shareholder who owned all the equity interests of each of BHD and Nanjing Recon, such shareholders grant Recon-BJ an exclusive right to purchase his equity interests in each of BHD and Nanjing Recon. The purchase price shall be the lowest price then permitted under applicable PRC laws. Recon-BJ or its designated person may exercise such right at any time to purchase all or part of the equity interests in each of BHD and Nanjing Recon until it has acquired all equity interests of each of BHD and Nanjing Recon, which is irrevocable during the term of the agreement. The amended and restated exclusive equity interest purchase agreement remains in effect until all equity interests held by the shareholders have been transferred or assigned to Recon-BJ and/or any other person designated by Recon-BJ. However, Recon-BJ has the right to terminate these agreements unconditionally upon giving prior written notice to each of BHD and Nanjing Recon at any time. 35 Table of Contents Equity Interest Pledge Agreement Pursuant to the amended and restated equity interest pledge agreement among the shareholders who owned all the equity interests of each of BHD and Nanjing Recon, such shareholders pledge all of the equity interests in each of BHD and Nanjing Recon to Recon-BJ as collateral to secure the obligations of each of BHD and Nanjing Recon under the exclusive technical consulting service agreement and the amended and restated exclusive equity interest purchase agreement. The shareholders of each of BHD and Nanjing Recon are prohibited or may not transfer the pledged equity interests without prior consent of Recon-BJ unless transferring the equity interests to Recon-BJ or its designated person in accordance with the amended and restated exclusive equity interest purchase agreement. The amended and restated equity interest pledge agreement shall come into force the date on which the pledged interests is recorded, under each of BHD and Nanjing Recon’s register of shareholders and is registered with competent administration for industry and commerce of each of BHD and Nanjing Recon until all of the liabilities and debts to Recon-BJ have been fulfilled completely by each of BHD and Nanjing Recon. Each of BHD and Nanjing Recon and the shareholders who owned all the equity interest of each of BHD and Nanjing Recon shall not terminate this agreement in any circumstance for any reason. Shareholders’ Power of Attorney Pursuant to the shareholders’ amended and restated power of attorney, the shareholders of each of BHD and Nanjing Recon gives Recon-BJ irrevocable proxies to act on their behaves on all matters pertaining to each of BHD and Nanjing Recon and to exercise all of their rights as shareholders of each of BHD and Nanjing Recon, including the right to execute and deliver shareholder resolutions, to dispose any or all equity interests, to nominate, elect, designate, or appoint officers and directors, to supervise company’s performance, to approve submission of any registration documents, to attend shareholders meetings, to exercise voting rights and all of the other rights, to take legal actions against the harmful actions by directors or officers, to approve the amendments to the articles of association of the company, and any other rights under the articles of association of the company. The amended and restated power of attorney shall remain in effect while the shareholders of each of BHD and Nanjing Recon hold the equity interests in each of BHD and Nanjing Recon. Based on the foregoing Contractual Arrangements, which grant Recon-BJ effective control of each of BHD and Nanjing Recon and enable Recon-BJ to receive all of their expected residual returns, we account for each of BHD and Nanjing Recon as a VIE. Accordingly, we consolidate the accounts of each of BHD and Nanjing Recon, in accordance with Regulation S-X-3A-02 promulgated by the SEC and Accounting Standards Codification (“ASC”) 810-10, Consolidation. Because we do not directly hold equity interest in the VIEs, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including limitation on foreign ownership of internet technology companies, regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations and the value of Class A Ordinary Shares may depreciate significantly or become worthless. Our Contractual Arrangements may be less effective in providing control over each of BHD and Nanjing Recon than direct ownership. See “Risk Factors – Risks related to our Corporate Structure – We depend upon the Contractual Arrangements in conducting our business in China, which may not be as effective as direct ownership in providing operational control.” for more details. We may also be subject to sanctions imposed by PRC regulatory agencies including the Chinese Securities Regulatory Commission, or CSRC, if we fail to comply with their rules and regulations. See “Risk Factors — The approval of the China Securities Regulatory Commission and other compliance procedures may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.” for more details. 36 Table of Contents We are subject to certain legal and operational risks associated with the VIEs’ operations in China. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in the VIEs’ operations, significant depreciation of the value of our Class A Ordinary Shares, or a complete hindrance of our ability to offer or continue to offer our securities to investors. See “Risk Factors - We conduct our business through BHD, Nanjing Recon and their respective subsidiaries by means of Contractual Arrangements. If the PRC courts or administrative authorities determine that these contractual arrangements do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.” Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange. Permission Required from the PRC Authorities for the VIEs’ Operation We are currently not required to obtain permission from any of the PRC authorities to operate and issue our Class A Ordinary Shares to foreign investors. In addition, we, our subsidiaries, or the VIEs are not required to obtain permission or approval from the PRC authorities including CSRC or Cyberspace Administration of China for the VIEs’ operation, nor have we, our subsidiaries, or the VIEs applied for or received any denial for the VIEs’ operation. However, recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the Opinions, which was made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity and data privacy protection requirements and similar matters. The Opinions and any related implementing rules to be enacted may subject us to compliance requirement in the future. Given the current regulatory environment in the PRC, we are still subject to the uncertainty of interpretation and enforcement of the rules and regulations in the PRC, which can change quickly with little advance notice, and any future actions of the PRC authorities. Transfer of Cash in the VIEs We are an exempted holding company incorporated in the Cayman Islands. If we determine to pay dividends on any of our Ordinary Shares in the future, as an exempted holding company, we will be dependent on receipt of funds from our Wholly Foreign Owned Enterprise (“WFOE”). A WFOE is a limited liability company based in the People’s Republic of China but wholly owned by foreign investors. In our instance, Recon Hengda Technology (Beijing) Co., Ltd (“Recon-BJ”) is a WFOE wholly owned by Recon Investment Ltd. (“Recon-IN”), a Hong Kong limited company, which in turn is wholly owned by us. Under the Exclusive Technical Consultation and Service Agreements signed between Recon-BJ and the VIEs, Recon-BJ is entitled to 90% of the expected profits of the VIEs in exchange for providing exclusive technical consulting services to the VIEs. Recon- BJ also bears all the economic risk of losses. Current PRC regulations permit our indirect PRC subsidiaries to pay dividends to its shareholders only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, according to the current effective laws in Cayman Islands and Hong Kong, the resident companies could pay dividends to their shareholders. And there are no foreign exchange restrictions on these two areas. Therefore, Recon-BJ can distribute the income obtained under the Contractual Arrangement to Recon-IN in the form of dividends, with Recon-IN in turn distributing such revenues to us in the form of dividends, with we in turn would distribute such revenues to U.S. investors in the form of dividends. 37 Table of Contents Each VIE has its own operating cash flow. Cashflow between our Company and the VIEs primarily consists of transfers from us to the VIEs for supplemental working capital, which is mainly used in purchase of materials and payment of operating expenses and investments. In addition, the VIEs occasionally make payments on our behalf when we experience a cash shortage. For the fiscal years ended June 30, 2022 and 2021, cash transferred from the Company to the VIEs was RMB25,248,928 and RMB55,059,125, respectively. Neither we nor the VIEs have present plans to distribute earnings or settle amounts owed under the Contractual Agreements. We currently plan to retain the cash in the VIEs for business growth and operation. No dividends or distributions have been declared to pay to us from our subsidiaries or the VIEs. No dividends or distributions were made to any U.S. investors. For a description of our corporate structure and VIE contractual arrangements, see “Corporate History and Structure.” See also “Risk Factors – Risks Related to Our Corporate Structure.” U.S. Dollar as the Functional Currency under FASB ASC 830-10-45-4 The functional currency of the Company, as a Cayman Islands holding entity, is the U.S. Dollar. Management has determined that the intercompany receivable is denominated in U.S. Dollars for several reasons: first, our functional currency (as the Cayman Islands holding entity) is the U.S. Dollar; and second, the inter-company receivable is ultimately paid in U.S. Dollars. Although transactions involving the Domestic Companies may involve the RMB from time to time, the transactions are ultimately denominated in U.S. Dollars to reflect our functional currency. For these reasons, because our functional currency is the U.S. Dollar, and because the inter-company receivables are ultimately paid in U.S. Dollars, we believe there are no exchange rate fluctuations as the parent company. Foreign Exchange Risk The Domestic Companies, and Recon-BJ classify the RMB as their functional currencies. Because our functional currency, as the Cayman Islands holding entity, is the U.S. Dollar, we are exposed to foreign exchange risks from fluctuations with the exchange rates among the U.S. Dollar and the RMB. Notwithstanding that Domestic Companies conduct operations and transactions in RMB, we ultimately believe that there should not be any U.S. Dollar/RMB exchange rate fluctuations because the inter-company receivable is denominated in U.S. Dollars. Thus, the transactions and operations reported by the Domestic Companies are ultimately paid in U.S. Dollars as the inter-company receivables, which reflect our functional currency in U.S. Dollars as the parent company. See “Risk Factors – Risks Related to Our Corporate Structure - There are possible economic risks posed by foreign exchange rate fluctuations between the U.S. Dollar and RMB.” Select Condensed Financial Statements on Consolidated VIEs The following table below provides a condensed consolidating schedule depicting the financial position, cash flows, and results of operations for the parent, the consolidated VIEs, and any eliminating adjustments separately as of the same dates and for the same periods for which audited consolidated financial statements are required. 38 Table of Contents SELECTED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS For the Year Ended June 30, 2022 Recon Technology, Ltd. (Cayman Islands) “Non-VIE Subsidiaries (Hong Kong and PRC)” VIEs and VIE’s subsidiaries (PRC) Eliminations Consolidated Total Revenues Cost of Revenues Gross Profit Opearating expenses Loss from operations Other income (expenses), net Loss from subsidiaries Loss from VIEs Income tax expenses (benefit) Net loss Non-controlling interest Net income(loss) Attributable to Recon Technology, Ltd ¥ — ¥ — — 64,842,004 (64,842,004) 178,590,691 — (18,161,892) ¥ — ¥ 95,586,795 — 95,586,795 — ¥ — — 1,170,913 (1,170,913) (108,074) — ¥ (16,882,905) (18,161,892) — (18,161,892) 83,777,571 ¥ 64,352,834 19,424,737 35,725,237 (16,300,500) (2,493,679) (613,874) (18,180,305) (1,297,400) (16,882,905) — ¥ 83,777,571 — 64,352,834 — ¥ 19,424,737 101,738,154 — (82,313,417) — 175,988,938 — (613,874) — — 18,161,892 — ¥ 16,882,905 94,289,395 35,044,797 (1,297,400) — 95,586,795 35,044,797 For the Year Ended June 30, 2021 Revenues Cost of Revenues Gross Profit Opearating expenses Loss from operations Other income (expenses), net Loss from subsidiaries Loss from VIEs Income tax expenses (benefit) Net loss Non-controlling interest Net income(loss) Attributable to Recon Technology, Ltd Recon Technology, Ltd. (Cayman Islands) ¥ 121,197 97,024 24,173 31,436,450 (31,412,277) 35,686,027 (27,106,484) “Non-VIE Subsidiaries (Hong Kong and PRC)” ¥ VIEs and VIE’s subsidiaries (PRC) Eliminations Consolidated Total — ¥ — — 652,686 (652,686) (80,682) — (26,373,116) 47,817,378 40,626,523 7,190,855 36,704,840 (29,513,985) (417,476) — — (524,251) (29,407,210) (3,034,094) (26,373,116) ¥ — ¥ 47,938,575 40,723,547 — 7,215,028 — 68,793,976 — (61,578,948) — 35,187,869 — — 27,106,484 — 26,373,116 (524,251) (25,866,828) (3,034,094) (22,832,734) 53,479,600 — 53,479,600 ¥ ¥ — ¥ (22,832,734) — (22,832,734) ¥ (27,106,484) — (27,106,484) 39 Table of Contents SELECTED CONDENSED CONSOLIDATING BALANCE SHEETS For the Year Ended June 30, 2022 Cash and cash equivalents Restricted cash Other current assets Intercompany receivables Total current assets Investments in subsidiaries and VIEs Benefits through VIEs and VIE’s subsidiaries Other non-current assets Total non-current assets Total Assets Intercompany payables Other liabilities and accrued liabilities Total Liabilities Class A common stock, $0.0925 U.S. dollar par value, 150,000,000 shares authorized; 7,202,832 shares and 26,868,391shares issued and outstanding as of June 30, 2020 and June 30, 2021, respectively Class B common stock, $0.0925 U.S. dollar par value, 20,000,000 shares authorized; no shares issued and outstanding as of June 30, 2020 and June 30, 2021, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income Total Shareholders’ Equity Non-controlling interests Total Liabilities and Equity Recon Technology, Ltd. (Cayman Islands) ¥ 296,838,959 Non-VIE Subsidiaries (Hong Kong and PRC) 2,102,232 ¥ 20,364,424 205,224,961 522,428,344 (77,566,835) 4,851 127,906,141 130,013,224 — Eliminations Consolidated Total VIEs and VIE’s subsidiaries (PRC) ¥ 18,033,666 723,560 107,549,349 ¥ — — (333,131,102) (333,131,102) 77,566,835 126,306,575 — — ¥ 316,974,857 723,560 127,918,624 — 445,617,041 — (73,117,024) — — 44,625,043 ¥ (77,566,835) ¥ (73,117,024) ¥ 44,625,043 170,931,618 194,373,010 52,673,600 247,046,610 56,896,200 138,758,092 453,943 139,212,035 444,861,509 — 24,229,780 24,229,780 73,117,024 — ¥ 150,683,859 (182,447,243) (333,131,102) ¥ (333,131,102) — 44,625,043 44,625,043 490,242,084 — 77,357,323 77,357,323 18,001,670 18,001,670 2,408,498 496,038,696 (107,124,596) 11,307,461 420,631,729 — 444,861,509 (78,616,347) (3,699,488) (82,315,835) — 56,896,200 4,749,000 (70,753,901) (2,363,123) (68,368,024) (7,746,968) 170,931,618 (4,749,000) 149,370,248 6,062,611 150,683,859 — (182,447,243) 2,408,498 496,038,696 (107,124,596) 11,307,461 420,631,729 (7,746,968) 490,242,084 40 Table of Contents Cash and cash equivalents Other current assets Intercompany receivables Total current assets Investments in subsidiaries and VIEs Benefits through VIEs and VIE’s subsidiaries Other non-current assets Total non-current assets Total Assets Intercompany payables Other liabilities and accrued liabilities Total Liabilities Class A common stock, $0.0925 U.S. dollar par value, 150,000,000 shares authorized; 7,202,832 shares and 26,868,391shares issued and outstanding as of June 30, 2020 and June 30, 2021, respectively Class B common stock, $0.0925 U.S. dollar par value, 20,000,000 shares authorized; no shares issued and outstanding as of June 30, 2020 and June 30, 2021, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income Total Shareholders’ Equity Non-controlling interests Total Liabilities and Equity For the Year Ended June 30, 2021 Recon Technology, Ltd. (Cayman Islands) ¥ 325,116,815 52,136,194 142,741,114 519,994,123 (49,551,884) Non-VIE Subsidiaries (Hong Kong and PRC) ¥ 14,588,375 11,850 94,478,086 109,078,311 — VIEs and VIE’s subsidiaries (PRC) Eliminations Consolidated Total ¥ 4,293,380 92,358,571 ¥ — ¥ 343,998,570 144,506,615 — — (237,219,200) — 488,505,185 (237,219,200) — 49,551,884 96,651,951 — — (44,310,498) — 27,931,795 ¥ (21,620,089) ¥ (44,310,498) ¥ 498,374,034 64,767,813 — 113,887,806 431,891 114,319,697 203,279,000 203,279,000 — 50,079,680 50,079,680 146,731,631 123,331,394 75,290,303 198,621,697 ¥ 44,310,498 — 93,862,382 (143,356,818) (237,219,200) ¥ (237,219,200) — 78,011,475 78,011,475 566,516,660 — 279,001,194 279,001,194 16,340,826 16,340,826 479,490,763 (202,711,391) 1,974,836 295,095,034 — 498,374,034 — (55,308,418) 5,756,534 (49,551,884) — 64,767,813 — 4,749,000 (53,632,577) 4,573,079 (44,310,498) (7,579,568) 146,731,631 — (4,749,000) 108,940,995 (10,329,613) 93,862,382 — (143,356,818) — 479,490,763 (202,711,391) 1,974,863 295,095,034 (7,579,568) 566,516,660 SELECTED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended June 30, 2022 Net cash used in operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Effect of exchange rate fluctuation on cash and cash equivalents Net change in cash Opening cash balance Restricted cash Ending cash balance Recon Technology, Ltd. (Cayman Islands) Subsidiaries (Hong Kong and PRC) ¥ (15,831,732) ¥ (1,249,935) ¥ (9,165,570) (29,342,206) (12,000,000) 56,169,749 1,306,892 (26,555,820) 93,321 VIE (PRC) Eliminations Consolidated Total 67,569,342 (67,569,342) — ¥ (26,247,237) (328,684) (9,999,380) 14,016,375 (28,277,856) 325,116,815 — ¥ 296,838,959 (1,494,983) (13,438,026) 14,588,376 — ¥ 1,150,350 (2,246,244) 15,415,729 4,293,379 723,560 ¥ 18,985,548 — 10,275,148 — (26,300,153) — 343,998,570 — 723,560 — ¥ 316,974,857 41 Table of Contents For the Year Ended June 30, 2021 Recon Technology, Ltd. (Cayman Islands) Subsidiaries (Hong Kong and PRC) VIE (PRC) Eliminations Consolidated Total Net cash provided by (used in) operating activities ¥ (6,116,629) ¥ (855,598) ¥ (27,078,241) — ¥ (34,050,468) Net cash used in investing activities (77,843,460) (9,000,000) 1,799,804 38,505,002 (46,538,654) Net cash used in financing activities Effect of exchange rate fluctuation on cash and cash 386,563,775 22,784,335 23,183,719 (38,505,002) 394,026,827 equivalents Net change in cash Opening cash balance Ending cash balance 274,149 (49,784) — — 224,365 302,877,835 22,238,981 12,878,953 1,709,425 (2,094,718) 6,388,098 — 313,662,070 — 30,336,504 ¥ 325,116,816 ¥ 14,588,378 ¥ 4,293,380 — ¥ 343,998,574 VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs and their subsidiaries with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The nature of any assets, operations and cash flows that exist or which occur outside of the VIEs are mainly about: ● The daily operations of us, as the parent company, to maintain the basic functions as a holding entity such as the purchase of materials and payment of operating expenses and investments, in order to realize the control of our subsidiaries and the VIEs to ensure that the overall company’s business objectives are fulfilled. The main resource to finance these activities are cash from securities offerings. ● There are some businesses or projects which are signed by us, as the parent company, and then subsequently outsourced from us to the VIEs, as practical, particularly overseas projects. Generally, we would bid for projects based in China or from other countries. If we win the bid, we sign the agreement and then assign and outsource the projects to the VIEs such as BHD and Nanjing to implement and complete the project. Our basic functions include but not limited to: 1) research and improve the Company's development strategy based on the Company's industry and market trends; 2) financing, funding, budgeting and complete oversight of the Company and the VIEs’ safety and efficiencies in the use of funds and assets; and 3) decision-making on major acquisitions. Our current business objective is to grow both in scale and revenue. Over the longer term, our objective is to improve our business structure and achieve net profits. B. Business Overview General We believe that one of the most important advancements in China’s petroleum industry has been the automation of significant segments of the exploration and extraction process. The Domestic Companies’ automation products and services allow petroleum mining and extraction companies to reduce their labor requirements and improve the productivity of oilfields. The Domestic Companies’ solutions allow our customers to locate productive oilfields more easily and accurately, improve control over the extraction process, increase oil yield efficiency in tertiary stage oil recovery, and improve the transportation of crude oil. For the most recent few years, the Domestic Companies’ capacity to provide integrated services has been a significant factor for long-term development. We treat simulation measures around fracturing as the Domestic Companies’ entry point for our integrated service model. To date, we have formed new business modules through R&D, investment in service-team building and developed an integrated services solution for stimulation. 42 Table of Contents Market Background China is our major market. China is the world’s second-largest consumer of petroleum products, largest importer of petroleum and fourth-largest producer of petroleum. In the last twenty years, China’s demand for oil has more than tripled, while its production of oil has only modestly increased. China became a net importer of petroleum in 1983, and, since then, oil production in China has been focused on meeting the country’s domestic oil consumption requirements. The oil industry in China is dominated by three state-owned holding companies: China National Petroleum Corporation (“CNPC”), China Petroleum and Chemical Corporation (“Sinopec”) and China National Offshore Oil Corporation (“CNOOC”). Foreign companies have also been deeply involved in China’s petroleum industry; however, according to Chinese law, China’s national oil companies still take a majority (or minority) stake in any commercial discovery. As a result, the number of major foreign companies involved in the industry is relatively limited in domestic China. In the past, China’s petroleum companies mined for petroleum by leveraging the country’s abundance of inexpensive labor, rather than focusing on developing new technologies. For example, a typical, traditional oilfield with an annual capacity of 1,000,000 tons would require between 10,000 and 20,000 laborers. By contrast, when Baker CAC automated oil production products were employed in the mid-1990s to explore and automate Cainan Oilfield, a desert oilfield in Xinjiang, annual capacity for the field reached 1,500,000 tons, with only 400 employees needed to manage the oilfield. After the introduction of Baker CAC’s products into China’s petroleum industry, Chinese companies have also sought to provide automation solutions. In the primary oil recovery stage, oil pressure in an oil reservoir may be high enough to force oil to the surface. Approximately 20% of oil may be harvested at this stage. The secondary oil recovery stage accounts for another 5% to 15% of oil recovery and involves such efforts as pumps to extract petroleum and the injection of water, natural gas, carbon dioxide or other gasses into the oil reservoir to force oil to the surface. Most oilfields in China have now entered into the tertiary stage of oil recovery, at which oil extraction becomes increasingly difficult and inefficient. Tertiary recovery generally focuses on decreasing oil viscosity to make extraction easier and accounts for between 5% and 15% of oil recovery. The Domestic Companies’ efforts in tertiary recovery focus on reducing water content in crude oil in order to make extraction more efficient and to improve the overall production of wells through advanced technologies and effective managing tools and approaches. For recent years, the oil industry is experiencing digital transformation. We believe oil companies will continue to increase their usages of intelligent solutions to improve the operation efficiency. Many oil companies have been raising the digitalization to a strategic level and take it as the core portion of the corporate strategy to optimize business execution and operational efficiency. Besides, we have also seen the trend of digitalization and intelligence in downstream of the oil and gas industry, especially in the management and operation of gas stations in China. The Domestic Companies have been devoting resources and participating in testing projects with their clients to develop leading solutions. We will continue to enhance the Domestic Companies’ competitive strength through up-gradation with big data and intelligent analysis. 43 Table of Contents Products and Services The Domestic Companies have historically provided products and services mainly to oil and gas field companies, which focus on the development and production of oil and natural gas. Our products and services described below correlate to the numbered stages of the oilfield production system graphical expression shown below. The following list shows Domestic Companies’ products and services. The first three items are covered by our (1) automation product and software segment and (2) equipment and accessories segment. The last item is covered by our oilfield environmental protection segment. Equipment for Oil and Gas Production and Transportation ● High-Efficiency Heating Furnaces (as shown above by process “3”). Crude petroleum contains certain impurities that must be removed before the petroleum can be sold, including water and natural gas. To remove the impurities and to prevent solidification and blockage in transport pipes, companies employ heating furnaces. BHD researched, developed and implemented a new oilfield furnace that is advanced, highly automated, reliable, easily operable, safe and highly heat-efficient (90% efficiency). ● Burner (as shown above by process “5”). We serve as an agent for the Unigas Burner which is designed and manufactured by UNIGAS, a European burning equipment production company. The burner we provide has the following characteristics: high degree of automation; energy conservation; high turn-down ratio; high security and environmental safety. Oil and Gas Production Improvement Techniques ● Packers of Fracturing. This utility model is used concertedly with the security joint, hydraulic anchor, and slide bushing of sand spray in the well. It is used for easy seat sealing and sand-uptake prevention. The utility model reduces desilting volume and prevents sand uptake which makes the deblocking processes easier to realize. The back flushing is sand-stick proof. 44 Table of Contents ● Production Packer. According to different withdraw points, the production packer separates different oil layers, and protects the oil pipe from sand and permeability, so as to promote the recovery ratio. ● Sand Prevention in Oil and Water Well. This technique processes additives that are resistant to elevated temperatures into “resin sand” which is transported to the bottom of the well via carrying fluid. The “resin sand” goes through the borehole, piling up and compacting at the borehole and oil vacancy layer. An artificial borehole wall is then formed, functioning as a means of sand prevention. This sand prevention technique has been adapted to more than 100 wells, including heavy oil wells, light oil wells, water wells and gas wells, with a 100% success rate and a 98% effective rate. ● Water Locating and Plugging Technique. High water cut affects the normal production of oilfields. Previously, there was no sophisticated method for water locating and tubular column plugging in China. The mechanical water locating and tubular column plugging technique we have developed resolves the problem of high water cut wells. This technique conducts a self-sealing-test during multi-stage usage and is reliable to separate different production sets effectively. The water location switch forms a complete process by which the water locating and plugging can be finished in one trip. Our tubular column is adaptable to several oil drilling methods and is available for water locating and plugging in second and third class layers. ● Fissure Shaper. This is our proprietary product that is used along with a perforating gun to effectively increase perforation depth by between 46% and 80%, shape stratum fissures, improve stratum diversion capability and, as a result, improve our ability to locate oilfields and increase the output of oil wells. ● Fracture Acidizing. We inject acid to layers under pressure which can form or expand fissures. The treatment process of the acid is defined as fracture acidizing. The technique is mainly adapted to oil and gas wells that are blocked up relatively deeply, or the ones in the low permeable zones. ● Electronic Broken-down Service. This service resolves block-up and freezing problems by generating heat from the electric resistivity of the drive pipe and utilizing a loop tank composed of an oil pipe and a drive pipe. This technique saves energy and is environmentally friendly. It can increase the production of oilfields that are in the middle and later periods. Automation System and Service ● Pumping Unit Controller. Refers to process “1” above. Functions as a monitor to the pumping unit, and also collects data for load, pressure, voltage, startup and shutdown control. ● RTU Used to Monitor Natural Gas Wells. Collects gas well pressure data. ● Wireless Dynamometer and Wireless Pressure Gauge. Refers to process “1” above. These products replace wired technology with cordless displacement sensor technology. They are easy to install and significantly reduce the working load associated with cable laying. ● Electric Multi-Way Valve for Oilfield Metering Station Flow Control. Refers to process “2” above. This multi-way valve is used before the test separator to replace the existing three valve manifolds. It facilitates the electronic control of the connection of the oil lead pipeline with the separator. ● Natural Gas Flow Computer System. Flow computer system used in natural gas stations and gas distribution stations to measure flow. ● Recon SCADA Oilfield Monitor and Data Acquisition System. Recon SCADA is a system which applies to the oil well, measurement station, and the union station for supervision and data collection. ● EPC Service of Pipeline SCADA System. A service technique for pipeline monitoring and data acquisition after crude oil transmission. 45 Table of Contents ● EPC Service of Oil and Gas Wells SCADA System. A service technique for monitoring and data acquisition of oil wells and natural gas wells. ● EPC Service of Oilfield Video Surveillance and Control System. A video surveillance technique for controlling the oil and gas wellhead area and the measurement station area. ● Technique Service for “Digital Oilfield” Transformation. Includes engineering technique services such as oil and gas SCADA system, video surveillance and control system and communication systems. Beginning in 2017, the Domestic Companies began to provide automation services to other companies in the broader energy industry in China and also to provide the following products and services beyond the oilfield production process: Waste Water and Oil Treatment Products and Services ● Oilfield sewage treatment. It is for oilfield waste water treatment solutions, related chemicals and onsite services customized to clients’ requirement. We have also developed our own designed equipment and aim to manufacture in the future. ● Oily sludge disposal (planned). This planned business line will provide engineering services of oily sludge disposal in Gan Su province. Waste Water and Oil Treatment Products and Services ● Oilfield sewage treatment. It is for oilfield waste water treatment solutions, related chemicals and onsite services customized to clients’ requirement. We have also developed our own designed equipment and aim to manufacture in the future. ● Oily sludge disposal (planned). This planned business line will provide engineering services of oily sludge disposal in Gan Su province. Platform Outsourcing Services: Intelligent marketing system and digitalization solution for gas stations ● Gas Station operation and management solution. To provide new technical applications and data operations solutions and related service to gas stations of oil companies. Tt can also help gas stations to export API ports to external parties for cooperation. ISO9000 Certification The Domestic Companies have received ISO9000 certifications for several of our processes. The International Organization for Standardization consists of a worldwide federation of national standards bodies for approximately 130 countries, and the ISO9000 certification represents an international consensus of these standards bodies, with the aim of creating global standards of product and service quality. We have received ISO9000 certifications for the following: ● Nanjing Recon has received certification for the development and service of RSCADA. ● BHD has received certification for high efficiency heating furnaces, import burners, and manometer surrogate rendition and service. Customers We operate our business by cooperating with oil companies and their subsidiaries, the petroleum administration bureau and local service companies. Historically, most actual control of our direct and indirect clients could be traced to Sinopec and CNPC, the two major Chinese state-owned companies responsible for on-shore petroleum mining and extraction. 46 Table of Contents Sinopec Currently, we undertake projects majorly at the following locations, among others: ● North China Oil and Gas Branch ● Southwest Branch Since the fiscal year ended June 30, 2017, Sinopec accounted for less than 10% of our revenues. From fiscal year 2021, we developed new products and service lines and regained revenue from Sinopec. Revenue from Sinopec accounted for 28% and 22% of our revenue in the fiscal years ended June 30, 2022 and 2021. CNPC Currently, we undertake projects majorly at the following locations, among others: ● Qinghai Oilfield ● Jidong Oilfield ● Yumen Oilfield ● Xinjiang Oilfield ● Huabei Oilfield ● Changqing Oilfield ● CNPC fuel selling companies We provide products and services to CNPC under a series of agreements, each of which is terminable without advance notice. We first began to provide services to CNPC in 2000. CNPC accounted for approximately 50%, 39% and 39% of our revenues in the fiscal years ended June 30, 2022, 2021 and 2020, respectively, and any termination of our business relationships with CNPC would materially harm our operations. Shenhua Group We began to provide equipment to Shenhua Group, which was merged into China Energy with another group company, in 2017. We signed a series of contracts with Shenhua Group and have established what we believe is a solid business relationship with Shenhua Group. Our Strengths ● Safety of products. The automation projects we have conducted have demonstrated that our products are reliable, safe and effective at automating the petroleum extraction process. ● Efficiency of technology. We believe our technology increases efficiency and profitability for petroleum companies by enabling them to monitor, manage and control petroleum extraction; increase the amount of petroleum extracted and reduce impurities in extracted petroleum. 47 Table of Contents ● Ability to leverage our knowledge of Chinese business culture. Many of our competitors are based outside of China. As the Domestic Companies are based in China, we are in a unique position to emphasize Chinese culture and business knowledge to obtain new customers and new agreements with existing customers. We believe that many Chinese businesses, including state-owned companies like Shenhua Group and CNPC, would prefer to hire a Chinese company to assist in their business operations if a Chinese company exists with the ability to fulfill their needs on a timely and cost-efficient basis. In addition, our knowledge of Chinese culture allows us to anticipate and adapt to Chinese oilfield management methods. We provide our software solutions in Mandarin for the benefit of our Chinese customers, and all of our customer support is available from Mandarin-fluent personnel. ● Experienced, successful executive management team. Our executive management team has significant experience and success in the petroleum automation industry. They will be able to draw on their knowledge of the industry and their relationships in the industry. ● Ability to leverage China’s cost structure. As a Chinese company, we believe we can operate our business more cost-effectively because all of our employees, operations and assets are located in China, resulting in lower labor, development, manufacturing and rent costs than we believe we would incur if we also maintained operations abroad. We expect these costs savings will be reflected in lower costs to our customers for comparable products. ● Ownership of our intellectual property. Because we own our intellectual property, we are able to avoid licensing fees or contravening licensing agreements. Our Strategies Our goal is to help our customers improve their efficiency and profitability by providing them with software and hardware solutions and services to improve their ability to locate productive oil reservoirs, manage the oil extraction process, reduce extraction costs, and enhance recovery from extraction activities. Key elements of our strategies include: ● Increase our market share in China. We believe that as the Chinese economy and oil industry continue to develop, Chinese petroleum extraction automation companies will compete with international businesses at an increasing rate. Consequently, we believe we will have opportunities to take market share from foreign companies by developing positive business relationships in China’s petroleum mining and extraction industry. We will also use strategic advertisements, predominantly in China’s northeast and northwest, where China’s major oilfields are located, to increase our brand awareness and market penetration. We aim to continue developing new technologies designed to improve petroleum mining and extraction efficiency and profitability for our customers. ● Develop our own branded products and services and shift our focus away from trading business. Our management believes in the importance of our own branded products and our services, in light of their higher profit margins and their long-term significance in establishing the status of our Company in the oil and gas industry. Moreover, the trading business relies on the major clients’ procurement policies toward agencies, any significant change of which could jeopardize our operating results. Our management therefore believes that in the long run we will need to focus our growth strategy in developing professional services for the oil and gas industry in China. ● Focus on higher-profit subsection of market. While we plan to continue to provide services to all of our clients, we believe that we may improve our profit margins by focusing a higher portion of our advertising and promotions at those sub-divisions of our industry that have traditionally held the highest profit margins. ● Offer services to foreign oilfields contracted by Chinese petroleum companies. As Sinopec and CNPC continue to invest in oilfields in other countries, we will focus on offering our services in these new locations based on our success in working with the companies in China. ● Seek opportunities with foreign companies in China. Even where oilfields in China are partially operated by foreign companies, a significant number of employees will be Chinese and will benefit from our Chinese-language services. We believe our hardware and software solutions would be beneficial to any petroleum company—foreign or domestic—doing business in China and plan to continue marketing to foreign companies entering the Chinese market. 48 Table of Contents ● Provide services that generate high customer satisfaction levels. Chinese companies in our market are strongly influenced by formal and informal referrals. We believe that we have the opportunity to expand market share by providing high levels of customer satisfaction with our current customers, thereby fostering strong customer referrals to support sales activities. Competition We face competition from a variety of foreign and domestic companies involved in the petroleum mining automation industry. While we believe we effectively compete in our market, our competitors hold a substantial market share. A few of our existing competitors, as well as a number of potential new competitors, have significantly greater financial, technical, marketing and other resources than we do, which could provide them with a significant competitive advantage over us. We cannot guarantee that we will be able to compete successfully against our current or future competitors in our industry or that competition will not have a material adverse effect on our business, operating results and financial condition. Research and Development We focus our research and development efforts on improving our development efficiency and the quality of our products and services. As of June 30, 2022, our research and development team consisted of 51 experienced engineers, developers and programmers. In addition, some of our support employees regularly participate in our research and development programs. In the fiscal years ended June 30, 2022, 2021 and 2020, we spent approximately RMB 9.0 million (approximately $1.3 million), RMB 5.8 million (approximately $0.9 million) and RMB 7.0 million (approximately $1.1 million) respectively, on research and development activities. Intellectual Property Our success and competitive position is dependent in part upon our ability to develop and maintain the proprietary aspect of our technology. The reverse engineering, unauthorized copying, or other misappropriation of our technology could enable third parties to benefit from our technology without paying for it. We rely on a combination of trademark, trade secret, copyright law and contractual restrictions to protect the proprietary aspects of the Domestic Companies’ and our technology. We seek to protect the source code to the Domestic Companies’ and our software, documentation and other written materials under trade secret and copyright laws. While we actively take steps to protect the Domestic Companies’ and our proprietary rights, such steps may not be adequate to prevent the infringement or misappropriation of the Domestic Companies’ and our intellectual property. This is particularly the case in China where the laws may not protect our proprietary rights as fully as in the United States. We license the Domestic Companies’ and our software products under signed license agreements that impose restrictions on the licensee’s ability to utilize the software and do not permit the re-sale, sublicense or other transfer of the software. Finally, we seek to avoid disclosure of the Domestic Companies’ and our intellectual property by requiring employees and independent consultants to execute confidentiality agreements. Although we develop our software products in conjunction with the Domestic Companies, each software product is based upon middleware developed by third parties. We integrate this technology, licensed by our customers from third parties in our software products. If our customers are unable to continue to license any of this third-party software, or if the third-party licensors do not adequately maintain or update their products, we would face delays in the releases of our software until equivalent technology can be identified, licensed or developed, and integrated into our software products. These delays, if they occur, could harm our business, operating results and financial condition. 49 Table of Contents There has been a substantial amount of litigation in the software industry regarding intellectual property rights. It is possible that in the future third parties may claim that our current or potential future software solutions infringe their intellectual property. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlap. In addition, we may find it necessary to initiate claims or litigation against third parties for infringement of our proprietary rights or to protect our trade secrets. Although, along with the Domestic Companies, we may disclaim certain intellectual property representations to our customers, these disclaimers may not be sufficient to fully protect us against such claims. Any claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require the Domestic Companies and us to enter into royalty or license agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could have a material adverse effect on our business, operating results and financial condition. Our standard software license agreements contain an infringement indemnity clause under which we agree to indemnify and hold harmless our customers and business partners against liability and damages arising from claims of various copyright or other intellectual property infringement by the Domestic Companies’ and our products. We have never lost an infringement claim, and our costs to defend such lawsuits have been insignificant. Although it is possible that in the future third parties may claim that our current or potential future software solutions or we infringe on their intellectual property, we do not currently expect a significant impact on our business, operating results, or financial condition. We market our products under the following trademarks which are registered with the PRC Trademark Bureau under the State Administration for Industry and Commerce. We currently own the following trademarks: 1. Trademark of “BHD” valid from November 7, 2003 through November 6, 2023; 2. Trademark of “Recon” of the 7th classification valid from October 20, 2021 through October 20, 2031; 3. Trademark of “Recon” of the 9th classification valid from April 20, 2021 through April 20, 2031; and 4. Trademark of “Recon” of the 42nd classification valid from September 6, 2021 through September 6, 2031. 5. Trademark of “DT” of the 9th, 35th, 37th, and 42nd classification valid from January 28, 2011 through January 27, 2028. We currently own over 50 patents registered with the PRC State Intellectual Property Office which cover our automated products and heating related equipment for the petroleum industry. Below is a list of our selected patents: 1. Patent of horizontal type furnace valid until December 24, 2030; 2. Patent of vertical type furnace valid until December 24, 2030; 3. Patent of vacuum furnace valid until December 24, 2030; 4. Patent of wireless pressure sensor valid until November 11, 2023; 5. Patent of wireless start-end module valid until November 11, 2023; 6. Patent of one-piece skid mount package of heating, separating, buffering and pressurizing valid until June 30, 2024; 7. Patent of oily sewage treatment equipment valid until July 8, 2025; 8. Patent of an oil-water well smart wireless pressure transmitter valid until November 17, 2026; 9. Patent of an oily sewage treatment bio-stimulants and Production Methods valid until July 11, 2027; 10. Patent of torch specialized for oilfield waste-gas burning valid until July 10, 2028; 50 Table of Contents 11. Wireless temperature transmitter valid until September 26, 2029; 12. Suspended sludge filtration and purification device for oily sewage valid until September 26, 2029; 13. A biological activator for oilfield re-injection water treatment and its preparation method valid until July 23, 2030; 14. A kind of air energy solar environmental protection and energy saving device valid until May 30, 2031; and 15. Solar-powered shaftless permanent magnet flexible control system, in application. We have registered over 40 software products with the PRC State Intellectual Property Office. Below is a list of our selected software products: 1. Recon automated monitoring system version II was published on August 18, 2013 and version I was published on July 30, 2011; 2. Recon SCADA field monitoring and data acquisition system software version 2.0 was published on August 18, 2003, and version 3.0 was registered and published on April 5, 2008; 3. Recon RCNAMT version 1 was published on April 27, 2012; 4. Recon Process Auto version 1 was published on August 25, 2012; 5. Recon Industrial Process Control system V2.0 was published on August 13, 2013, and V1.0 was published on December 25, 2012; 6. Recon Oil and Gas Processing SCADA System V1.0 was published on March 2, 2016; 7. Intelligent gas field management platform software V1.0 was published on July 14, 2020; 8. Gas well data acquisition and monitoring software V1.0 was published on July 14, 2020; 9. A software copyright registration certificate of Recon’s Video Intelligent Recognition Software was published on April 13, 2021; 10. Solar permanent magnet semi-direct drive intelligent control software was published on August 31, 2021; 11. An intelligent billing system that does not rely on physical cards to achieve self-service refueling for vehicle owners (Android) V2.0 was published on August 12, 2018; 12. An intelligent billing system that does not rely on physical cards to achieve self-service refueling for vehicle owners (ios) V2.0 was published on August 12, 2018; 13. Gas Station Operation Vehicle Marketing System V1.0 was published on August 15, 2018; 14. Gas station user attraction system V1.0 was published on November 26, 2018; 15. Gas Station Electronic Coupon Vending System V1.0 was published on September 5, 2019; 16. Gas Station Revenue Clearing and Settlement System V1.0 was published on October 20, 2019; 17. An intelligent settlement system that does not rely on physical cards to achieve self-service refueling for vehicle owners (WeChat mini program) V1.0 was published on December 12, 2019; 51 Table of Contents 18. An intelligent settlement system that does not rely on physical cards to achieve self-service refueling for vehicle owners (Alipay mini program) V1.0 was published on April 22, 2020; 19. Gas station abnormal transaction risk control system V1.0 was published on July 7, 2020; and 20. A software copyright registration certificate of Recon’s Intelligent monitoring and management system for oil production was published on April 13, 2021. Environmental Matters We have not incurred material expenses in connection with compliance with Chinese environmental laws and regulations. We do not anticipate expending any material amounts for such compliance purposes for the remainder of our current or succeeding fiscal year. China’s Intellectual Property Rights Enforcement System In 1998, China established the State Intellectual Property Office (“SIPO”) to coordinate China’s intellectual property enforcement efforts. SIPO is responsible for granting and enforcing patents, as well as coordinating intellectual property rights related to copyrights and trademarks. Protection of intellectual property in China follows a two-track system. The first track is administrative in nature, whereby a holder of intellectual property rights files a complaint at a local administrative office. Determining which intellectual property agency can be confusing, as jurisdiction of intellectual property matters is diffused throughout a number of government agencies and offices, with each typically responsible for the protection afforded by one statute or one specific area of intellectual property-related law. The second track is a judicial track, whereby complaints are filed through the Chinese court system. Since 1993, China has maintained various intellectual property tribunals. The total volume of intellectual property related litigation, however, remains small. Although there are differences in intellectual property rights between the United States and China, of most significance to the Company is the inexperience of China in connection with the development and protection of intellectual property rights. Similar to the United States, China has chosen to protect software under copyright law rather than trade secrets, patent or contract law. As such, we will attempt to protect our most significant intellectual property pursuant to Chinese laws that have only recently been adopted. Unlike the United States, which has lengthy case law related to the interpretation and applicability of intellectual property law, China has a less developed body of relevant intellectual property case law. REGULATIONS We are subject to a variety of PRC and foreign laws, rules and regulations across a number of aspects of our business. This section summarizes the principal PRC laws, rules and regulations relevant to our business and operations. Areas in which we are subject to laws, rules and regulations outside of the PRC include intellectual property, competition, taxation, anti-money laundering and anti- corruption. Regulation on Software Products On March 1, 2009, the Ministry of Industry and Information Technology of China issued the Administrative Measures on Software Products, or the Software Measures, which became effective as of April 10, 2009, to strengthen the regulation of software products and to encourage the development of the Chinese software industry. Under the Software Measures, a software developer must have all software products imported into or sold in China tested by a testing organization supervised by the Ministry of Industry and Information Technology. The software industry authorities in provinces, autonomous regions, municipalities and cities with independent planning are in charge of the registration, report and management of software products. Software products can be registered for five years, and the registration is renewable upon expiration. Although some of Nanjing Recon’s current software products were registered in 2008, there can be no guarantee that the registration will be renewed timely or that the Domestic Companies’ and our future products will be registered. 52 Table of Contents Regulation of Intellectual Property Rights China has adopted legislation governing intellectual property rights, including trademarks and copyrights. China is a signatory to the main international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the WTO in December 2001. Copyright. China adopted its first copyright law in 1990. The National People’s Congress amended the Copyright Law in 2001 to widen the scope of works and rights that are eligible for copyright protection. The amended Copyright Law extends copyright protection to software products, among others. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. Unlike patent and trademark registration, copyrighted works do not require registration for protection. Protection is granted to individuals from countries belonging to the copyright international conventions or bilateral agreements of which China is a member. Nanjing Recon has over ten copyrights for software programs. Trademark. The Chinese Trademark Law, adopted in 1982 and revised in 1993 and 2001, protects registered trademarks. The Trademark Office under the Chinese State Administration for Industry and Commerce handles trademark registrations and grants a term of ten years to registered trademarks. Trademark license agreements must be filed with the Trademark Office for record. China has a “first-to-register” system that requires no evidence of prior use or ownership. The Domestic Companies and we have registered a number of product names with the Trademark Office. Regulations on Foreign Exchange Foreign Currency Exchange. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries. SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises (2008), or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify the application of SAFE Circular 142. Under SAFE Circular 142 and Circular 45, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Since SAFE Circular 142 has been in place for more than five years, SAFE decided to further reform the foreign exchange administration system in order to satisfy and facilitate the business and capital operations of foreign invested enterprises, and issued the Circular on the Relevant Issues Concerning the Launch of Reforming Trial of the Administration Model of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises in Certain Areas on August 4, 2014. This circular suspends the application of SAFE Circular 142 in certain areas and allows a foreign-invested enterprise registered in such areas with a business scope including “investment” to use the RMB capital converted from foreign currency registered capital for equity investments within the PRC. SAFE promulgated Circular 59 in November 2010, which tightens the regulation over settlement of net proceeds from overseas offerings, such as our initial public offering, and requires, among other things, the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds to be settled in the manner described in the offering documents or otherwise approved by our board. Violations of these SAFE regulations may result in severe monetary or other penalties, including confiscation of earnings derived from such violation activities, a fine of up to 30% of the RMB funds converted from the foreign invested funds or in the case of a severe violation, a fine ranging from 30% to 100% of the RMB funds converted from the foreign-invested funds. 53 Table of Contents In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. Regulation of Dividend Distribution. The principal regulations governing the distribution of dividends by foreign holding companies include the Foreign Investment Enterprise Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2001). Under these regulations, foreign investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreign investment enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends. In July 2014, SAFE promulgated SAFE Circular 37, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. Regulations on Foreign Investment in Automation Service Industry and Oil Exploration and Extraction Industry in PRC. In accordance with the Catalogue of Industries for Guiding Foreign Investment (Revised 2007), the oil and gas automation service industries are in the catalogue of permitted industries, and thus there are no restrictions on foreign investment in the oil and gas automation industry. In addition, the following industries are encouraged for foreign investment in China: ● Manufacturing of equipment for oil exploration, drilling, collection and transportation: floating drilling systems and floating production systems with an operating water depth of more than 1,500 meters and the supporting subsea oil extraction, collection and transportation equipment ● Exploration and exploitation of oil and natural gas with venture capital (limited to equity joint ventures and cooperative joint ventures); ● Development and application of new technologies that increase the recovery ratio of crude oil (limited to equity joint ventures and cooperative joint ventures); ● Development and application of new oil exploration and exploitation technologies such as geophysical exploration, drilling, well logging, and downhole operation, etc. (limited to cooperative joint ventures); and ● Exploration and development of unconventional oil resources such as oil shale, oil sands, heavy oil, and excess oil (limited to cooperative joint ventures). 54 Table of Contents C. Organizational Structure Below is a chart representing our current corporate structure as of June 30, 2022: Our registered office in the Cayman Islands is at the offices of Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205, Cayman Islands. 55 Table of Contents D. Property, Plants and Equipment We currently operate in several facilities throughout China. Our headquarters are located in Beijing. Following is a list of our properties. The first five properties are rentals. Gan Su BHD has received a land usage rights certificate regarding the last property and has constructed a plant on that piece of land. Rental/Use Term February 16, 2021 to April 30, 2024 Space 1,564.00 square meters Usage Headquarter and office Productive Capacity N/A Extent of utilization 70% April 1, 2022 to March 31, 2024 564.64 square meters Office N/A 80% January 1, 2022 to December 31, 2022 420 square meters Warehouse N/A 50% July 1, 2020 to June 30, 2023 4,624 square meters Office and Plant N/A (Equipment Installation) 100% November 1, 2020 to October 31, 2021 87.5 square meters Office N/A 60% August 1, 2017 to July 31, 2067 26,235.59 square meters Plant 60,000 tons 80% No. Tenant/Transferee 1 Recon-BJ BHD FGS 2 3 4 5 6 Nanjing Recon BHD HH BHD Qing Hai BHD Gan Su BHD Address 601, 1 Shui’an South Street, Chaoyang District, Beijing, 100012, PRC Room 310&311, No. 2 Building, Chu Qiao Cheng, Andemen Street, Yu Hua District, Nanjing City, PRC West building, Zhengfu Street, Huo ying, Changping District, PRC No. 1767, Yin Bin South Street, Huang Hua Economic Development Zone, He Bei Province, PRC Room 2407,Jing Rui Xin Cheng, No. 39, Jinqiao Road,Qing Hai province, PRC North of Dongyun Road and West of Petroleum Management Bureau Wooden Furniture Factory, Old District, Yumen City, Gansu Province, PRC ITEM 4A. UNRESOLVED STAFF COMMENTS None. 56 Table of Contents ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion and analysis of our company’s financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors. Overview We are a company with limited liability incorporated in 2007 under the laws of the Cayman Islands. Headquartered in Beijing, we have been providing products and services to oil and gas companies and their affiliates through Nanjing Recon Technology Co. Ltd (“Nanjing Recon”) and Beijing BHD Petroleum Technology Co, Ltd (“BHD”) and their affiliates, hereafter referred to as the domestic companies (the “Domestic Companies”), which are established under the laws of the PRC. From 2017, we have been providing service to companies in other power energy industries such as the electronic power industry and the renewable energy industry. As the Company contractually controls the Domestic Companies, we serve as the center of strategic management, financial control and human resources allocation. To this end, our company and our subsidiaries, Recon Investment Ltd. (“Recon-IN”) and Recon Hengda Technology (Beijing) Co., Ltd. (“Recon-BJ”) are contractually engaged with the following PRC VIE companies and their subsidiaries: Beijing BHD Petroleum Technology Co., Ltd. (“BHD”), Future Gas Station (Beijing) Technology, Ltd. (“FGS”), Nanjing Recon Technology Co., Ltd. (“Nanjing Recon”), Gan Su BHD Environmental Technology Co. Ltd. (“Gan Su BHD”), Huang Hua BHD Petroleum Equipment Manufacturing Co. Ltd. (“HH BHD”), and Qing Hai BHD New Energy Technology Co. Ltd. (“Qing Hai BHD”) (collectively, the “Domestic Companies”), which provide services designed to automate and enhance the extraction of and facilitate the sale of petroleum products. Due to this contractual control and our obligation to bear the losses of the Domestic Companies, we consider them to be variable interest entities (“VIEs”) for accounting purposes and consolidate their results in our financial statements. Through Nanjing Recon and BHD, our business is mainly focused on the upstream sectors of the oil and gas industry. From 2018, our business has been expanding to the downstream of the energy industry– the civil and industrial heating furnaces market, electric and coal chemical industry and the energy service management industry. As we acquired major equity interest of FGS in year 2021, we also extend our business to fuel market. We derive our revenues from the sales and provision of (1) automation products and projects, (2) equipment and installment for heating furnaces and overall energy saving resolution, (3) chemical products and overall resolution for wastewater and oily sludge treatment, (4) downhole services, production enhancement, engineering and project services for aforementioned, and (5) platform development services for gas stations and other entities that will provide services under the scenario of refuel. ● Nanjing Recon: Nanjing Recon is a high-tech company that specializes in automation services for oilfield companies. It mainly focuses on providing automation solutions to the oil exploration industry, including monitoring wells, automatic metering to the joint station production, process monitor, and a variety of oilfield equipment and control systems. From 2018, Nanjing Recon also provides automation products and services to other segments of the energy industry, such as the new energy industry, electric power and coal chemical industries. ● BHD: BHD is a high-tech company that specializes in transportation equipment and stimulation productions and services. Possessing proprietary patents and substantial industry experience, BHD has also been expanding services to oilfield wastewater and oily sludge treatment, and extended its heating products and resolutions to the civil market by leveraging its advantage on furnace products. 57 Table of Contents Recent Industry Developments and Business Outlook International crude oil futures prices have been fluctuating. Crude oil prices increased in 2021 as increasing COVID-19 vaccination rates, loosening pandemic-related restrictions, and a growing economy resulted in global petroleum demand rising faster than petroleum supply. In early 2022, the Russian-Ukrainian conflict led oil price to surpassing the $100 per barrel barrier several times. And by June 2022, as oil markets have been selling off on tightening monetary conditions that sparked concerns over a global recession and weaker energy demand, while a surging dollar added to the bearish sentiment. Given that the Company currently has no direct operations or business outside China, the Company’s daily operations and current business segments will not be directly impacted. Generally, we expect the overall level of oil and gas prices to maintain above $80 in the coming 12 months, we expect our upstream customers, mainly domestic oil and gas companies, to continue to increase Capital Expenditures (also known as “CapEx”) to increase oil and gas production, which brings more opportunities for the rapid development of our Company. More particularly, as the oil prices increased, China oil companies’ performance were greatly improved and they will increase their investment in drilling for new oil and gas wells and production activities, compared to the prior years. As their vendor, we anticipate to benefit from these trends. With rising oil prices and increased investment by oil companies from year 2021, we expect market demand will be strong and stable and competition will also become more intensive. Our customers also include companies in the electronic power industry. As the price of electricity increases, our orders from the power industry will also increase. But higher electricity prices will also drive all companies that use more electricity to seek more clean energy to save money on electricity costs, and we are working on new products and solutions to address this challenge for our customers. Growth Strategy As a smaller China-focused company, our basic strategy focuses on developing our onshore oilfield business in the upstream sector of the industry. We continuously focus on providing high quality products and services in oilfields in which we have a geographical advantage. This helps us avoid conflicts of interest with bigger private companies while protecting our position within this market segment. Our mission is to increase the automation and safety levels of industrial petroleum production in China and to improve the underdeveloped working process and management mode used by many companies by providing advanced technologies. At the same time, we are always looking to improve our business and to increase our earning capability. Currently, as more markets of China’s energy industry are open to non-state-owned companies, we are also seeking for opportunities in other markets. We believe our experience and deep knowledge of the energy industry, especially in oil and gas, will always be the long-term foundation for the company's growth. By tapping into technological advances in recent years, such as solar energy and the Smart Industry and Industrial Internet, which is bringing about a fundamental change in the way factories and workplaces function by making them safer, more efficient, more flexible and more environmentally friendly. We expect to create more profitable business lines. Also, to diversify our revenue stream and lower the risk of concentration, we will continue to seek new opportunities in other industries by leveraging our knowledge of intelligent equipment and the “internet of things” (IoT), which is a crucial component of the Smart Industry and Industrial Internet. Trend Information Other than as disclosed elsewhere in this report, such as coronavirus outbreak, we are not aware of any trends, uncertainties, demands, commitments, or events since the beginning of our fiscal year 2022 which are reasonably likely to have a material effect on our net revenues, income from operations, profitability, liquidity or capital resources, or would cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition. Factors Affecting Our Results of Operations Our operating results in any period are subject to general conditions typically affecting the Chinese oilfield service industry which include but are not limited to: ● oil and gas prices; 58 Table of Contents ● the amount of spending by our customers, primarily those in the oil and gas industry; ● growing demand from large corporations for improved management and software designed to achieve such corporate performance; ● the procurement processes of our customers, especially those in the oil and gas industry; ● competition and related pricing pressure from other oilfield service solution providers, especially those targeting the Chinese oil and gas industry; ● the ongoing development of the oilfield service market in China; ● unpredictability of policies regarding the energy and internet sectors; and ● inflation and other macroeconomic factors. Unfavorable changes in any of these general conditions could negatively affect the number and size of the projects we undertake, the number of products we sell, the amount of services we provide, the price of our products and services, and otherwise affect our results of operations. Our operating results in any period are more directly affected by company-specific factors including: ● our revenue growth, in terms of the proportion of our business dedicated to large companies and our ability to successfully develop, introduce and market new solutions and services; ● our ability to increase our revenues from both old and new customers in the oil and gas industry in China; ● our ability to effectively manage our operating costs and expenses; and ● our ability to effectively implement any targeted acquisitions and/or strategic alliances so as to provide efficient access to markets and industries in the oil and gas industry in China. Major Critical Accounting Policies and Estimates Consolidation of VIEs 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. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. 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. 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; rather, they represent claims against the specific assets of the consolidated VIEs. 59 Table of Contents Estimates and Assumptions The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in United States of America (“US GAAP”), which 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 to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s consolidated financial statements include allowance for credit losses related to trade accounts receivable, other receivables and purchase advances, allowance for inventory, the useful lives of property and equipment, valuation allowance for deferred tax assets, impairment assessment for long-lived assets, the discount rate for lease, valuation of the convertible notes and the fair value of share- based payments. The use of estimates is an integral component of the financial reporting process; actual results could differ from those estimates. The key assumptions underlying the Company’s accounting for material arrangements and the reasonably likely material effects of resolving any uncertainties on the Company’s allowance for credit losses related to purchase advances. The production of the Company’s products requires custom-made equipment from its suppliers. To ensure that it can secure the required customized equipment, the Company often needs to make full prepayment for its intended purchases. As a standard practice in the petroleum extraction industry, the Company generally must submit a bid in order to secure the sales contract. The bidding process generally takes between one month to one year and the timing depends on the size of the overall project, which timing and size are generally controlled by its client. In order to secure timely purchase delivery and to meet its product delivery schedule, the Company normally prepays for the purchase advances if the Company believes that it is more than likely to win the bid for the sales contract which is accounted as pre-contract costs. After winning the bid and securing the sale contract, the Company normally needs to deliver its products approximately within one week to six months. Based on the Company’s historical experience, the Company generally is able to realize its purchase advances on the customized equipment that it orders. If it subsequently confirms that the Company is unable to secure the planned contracts with a customer after making the advance payments for these planned contracts, the Company evaluates the probable recoverability of the pre-contract cost and charges to expenses when the Company determines that the recovery of such pre-contract cost is improbable. 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 as follows: Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 inputs to the valuation methodology are unobservable. Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. The Company measures certain financial assets, including investments under the equity method on other-than-temporary basis, intangible assets and fixed assets at fair value when an impairment charge is recognized. 60 Table of Contents The carrying amounts reported in the consolidated balance sheets for trade accounts receivable, notes receivable, other receivables, purchase advances, contract cost, trade accounts payable, other payable, accrued liabilities, contract liabilities, short-term bank loan and short-term borrowings approximate fair value because of the immediate or short-term maturity of these financial instruments. Business Combinations The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations.” The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the acquiree, the difference is recognized directly in the consolidated statements of operation and comprehensive loss. During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operation and comprehensive loss. In a business combination considered as a step acquisition, the Company remeasures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of operation and comprehensive loss. Revenue Recognition In accordance with ASC 606, “Revenue from Contracts with Customers,” revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. The core principle underlying the new revenue recognition Accounting Standards Update (“ASU”) is that the Company recognizes revenue to represent the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company identifies contractual performance obligations and determines whether revenue should be recognized at a point in time or over time, based on when goods or services are provided to a customer. Disaggregation of Revenues Revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following items represent the Company’s revenues disaggregated by revenue source. In accordance with ASC 606-10-50-5, the Company selects categories to present disaggregated revenue that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors and delivery conditions of products and fulfillment of obligations. The Company’s disaggregation of revenues for the years ended June 30, 2020, 2021 and 2022 is disclosed in Note 27 to accompanying consolidated financial statements. Automation Products and Software; Equipment and Accessories The Company generates revenues primarily through delivery of standard or customized products and equipment, including automation products, furnaces and related accessories. Revenue is recognized when products are delivered, and acceptance reports are signed off by customers. 61 Table of Contents The sale of automation products or our specialized equipment when combined with services represent a single performance obligation for the development and construction of a single asset. The Company may also provide design or installation services to clients as there may be such obligation in contracts. The promises to transfer the goods and provision of services are not separately identifiable, which is evidenced by the fact that the Company provides significant services of integrating the goods and services into a single deliverable for which the customer has contracted. For such sales arrangements, the Company recognizes revenue using input method, based on the relationship between actual costs incurred compared to the total estimated costs for the contract. Such method is adopted because the Company believes it best depicts the transfer of goods and services to the customer. Oilfield Environmental Protection Service The Company provides wastewater treatment products and related services to oilfield and chemical industry companies and generate revenue from special equipment, self-developed chemical products and supporting service, transfer. Revenue is recognized when contract obligations have been performed. For such sales arrangements, the Company recognizes revenue when products are delivered, on-site assistance services rendered, and acceptance reports are signed off by customers. Such method is adopted because the Company believes it best depicts the transfer of services to the customer. The Company provides oily sludge disposal and treatment services to oilfield companies and generates revenue from treatment services of oily sludge Revenue is recognized when contract obligations have been performed. For such sales arrangements, the Company recognizes revenue using output method, based on the percentage-of-completion method. Such method is adopted because the Company believes it best depicts the transfer of services to the customer. Platform Outsourcing Services The Company provides Customized Software Services and supporting operation services to CNPC’s gas stations around different provinces to complete online transactions; Application Programming Interface (“API”) Port Export Service, and related maintain services to CNPC’s business cooperators during the service contract period. The Company considered these performance obligations to be indistinguishable contractual performance obligations. As the Company has no right to get the compensation for any performances completed while not accepted by its customers, the Company can only recognize revenue at a point in time, which is when the online transaction is completed. The Company’s services enable terminal users of different mobile apps run by its clients or cooperators to complete refueling in cash or online through different payment channels, when each transaction, including refueling and payment, is completed, the Company is entitled to charge with pre-settled rates of each transaction amount as service fee and recognize the underlying amount as revenue. Related fees are generally billed monthly, based on a per transaction basis. Arrangements with Multiple Performance Obligations Contracts with customers may include multiple performance obligations. For such arrangements, the Company will allocate revenues to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost-plus margin. Contract Balances Contract balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration occurs. Contract costs, net - The Company recognizes an asset from the costs incurred to fulfill a contract when those costs meet all of the following criteria: (i) the costs relate directly to a contract or to an anticipated contract that the Company can specifically identify; (ii) the costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and (iii) the costs are expected to be recovered. - Pre-Contract Costs - Pre-contract costs are the amounts prepaid to suppliers for purchases of customized equipment in anticipation of obtaining planned contracts for the Company’s hardware and software revenues. If it subsequently confirms that the Company is unable to secure the planned contracts with a customer after making the advance payments for these planned contracts, the Company evaluates the probable recoverability of the pre-contract cost and charges to expenses when the Company determines that the recovery of such pre-contract cost is improbable. 62 Table of Contents - Executed Contract Costs - Direct costs, such as material, labor, depreciation and amortization and subcontracting costs and indirect costs allocable to contracts include the costs of contract supervision, tools and equipment, supplies, quality control and inspection, insurance, repairs and maintenance for quality assurance purposes before clients’ initial acceptance. Once products are delivered, installed and debugged for intended use and accepted by a client, which may last from weeks to months (this process is decided by the client’s individual project construction arrangement), the Company records revenue based on the contract or the final clients’ acceptance. Minor costs for repair during the maintenance period after initial acceptance are recorded as cost of goods sold as they are incurred. All other general and administrative costs and selling costs are charged to expenses as incurred. The Company generally ships its products approximately one week to six months after production begins and the timing depends on the size of the overall project. Contract liabilities are recognized for contracts where payment has been received in advance of performance under the contract. The Company’s contract liabilities, which are reflected in its consolidated balance sheets as advance from customers, consist primarily of the Company’s unsatisfied performance obligations as of the balance sheet dates. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met. Performance Obligations Performance obligations include delivery of products and provision of services. The Company recognizes revenue when performance obligations under the terms of a contract with its customer are satisfied. This occurs when the control of the goods and services have been transferred to the customer. Accordingly, revenue for sale of goods is generally recognized upon shipment or delivery depending on the shipping terms of the underlying contract, and revenue for provision of services is recognized over the service period. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and providing services. Amounts billed to customers for shipping and handling activities to fulfill the Company’s promise to transfer the goods are included in revenues, and costs incurred by the Company for the delivery of goods are classified as cost of sales in the consolidated statements of operations and comprehensive income (loss). Sales, value added, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company generally offers assurance-type warranties for its products. The specific terms and conditions of those warranties vary depending upon the product. The Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the warranty liability include historical product-failure experience and estimated repair costs for identified matters. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The amount accrued for expected returns and warranty claims was immaterial as of June 30, 2022. The amount accrued for expected returns and warranty claims was immaterial as of June 30, 2022. The amount of revenue recognized during the years ended June 30, 2020, 2021 and 2022 that was previously included within contract liability balances was ¥nil, ¥1,899,561 and ¥7,390,276 ($1,103,401), respectively. Practical Expedients Elected Incremental Costs of Obtaining a Contract - The Company has elected the practical expedient permitted in ASC 340-40-25-4, which permits an entity to recognize incremental costs to obtain a contract as an expense when incurred if the amortization period will be less than one year and not significant. Significant Financing Component - The Company has elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to not adjust the promised amount of consideration for the effects of a significant financing component if a contract has a duration of one year or less. As the Company’s contracts are typically less than one year in length, consideration will not be adjusted. The Company’s contracts include a standard payment term of 90 days to 360 days; consequently, there is no significant financing component within contracts. 63 Table of Contents Trade Accounts, Net, Other Receivables, Net and Loan to Third Parties Accounts receivable are carried at original invoiced amount less a provision for any potential uncollectible amounts. In July 2020, the Company adopted ASU 2016-13, Topics 326-Credit Loss, Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology, as its accounting standard for its trade accounts receivable and other receivables. Other receivables and loan to third parties arise from transactions with non-trade customers. The adoption of the credit loss accounting standard has no material impact on the Company’s consolidated financial statements as of July 1, 2020. Accounts receivable, other receivables and loan to third parties are recognized and carried at carrying amount less an allowance for credit loss, if any. The Company maintains an allowance for credit losses resulting from the inability of its trade and non- trade customers (“customers”) to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis. The Company has also included in calculation of allowance for credit losses, the potential impact of the COVID-19 pandemic on our customers businesses and their ability to pay their accounts receivable, other receivables and loan to third parties. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company also considers external factors to the specific customer, including current conditions and forecasts of economic conditions, including the potential impact of the COVID-19 pandemic. In the event the Company recovers amounts previously reserved for, the Company will reduce the specific allowance for credit losses. The provision for credit loss for the year ended June 30, 2022 decreased by approximately ¥3.7 million ($0.6 million) from the year ended June 30, 2021. The Company evaluates the creditworthiness of all of its customers individually before accepting them and continuously monitors the recoverability of accounts receivable, other receivables and loan to third parties. If there are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular customer. At the same time, the Company may cease further sales or services to such customer. The following are some of the factors that the Company considers in determining whether to discontinue sales, record as contra revenue or allowance for credit losses: ● the oil price and fluctuation of the overall oil industry; ● the customer fails to comply with its payment schedule; ● the customer is in serious financial difficulty; ● a significant dispute with the customer has occurred regarding job progress or other matters; ● the customer breaches any of the contractual obligations; ● the customer appears to be financially distressed due to economic or legal factors; ● the business between the customer and the Company is not active; and ● other objective evidence indicates non-collectability of the accounts receivable, other receivables and loan to third parties. The Company considers the following factors when determining whether to permit a longer payment period or provide other concessions to customers: ● the customer’s past payment history; ● the customer’s general risk profile, including factors such as the customer’s size, age, and public or private status; ● macroeconomic conditions that may affect a customer’s ability to pay; and ● the relative importance of the customer relationship to the Company’s business. 64 Table of Contents Share-Based Compensation 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 valuation model estimated at the grant date based on the award’s fair value. Warrants The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Class A Ordinary Shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations. Results of Operations The following consolidated results of operations include the results of operations of the Company and the Domestic Companies. Our historical reporting results are not necessarily indicative of the results to be expected for any future period. Year Ended June 30, 2022 Compared to Year Ended June 30, 2021 During the fiscal year ended June 30, 2022, with rising oil prices and increased investment by oil companies, production activities of our customers ramped up, resulting in increased demands for our automation products and wastewater treatment solutions and services. The improvement in our operating activities brought a simultaneous increase in both revenue and the cost of revenue. At the same time, as our customers recovered, we were able to sign contracts with better priced terms and no need to continue with our low- price policy we adopted in the last two years, our gross profit and gross margin were also improved dramatically. Revenue Automation product and software Equipment and accessories Oilfield environmental protection Platform outsourcing services Total revenue For the Years Ended June 30, 2021 ¥ 18,535,166 15,791,623 11,043,979 2,567,807 ¥ 47,938,575 2022 ¥ 31,944,055 17,159,381 25,335,363 9,338,772 ¥ 83,777,571 Increase / (Decrease) ¥ 13,408,889 1,367,758 14,291,384 6,770,965 ¥ 35,838,996 Percentage Change 72.3 % 8.7 % 129.4 % 263.7 % 74.8 % 65 Table of Contents Our total revenues for the year ended June 30, 2022 were approximately ¥83.8 million ($12.5 million), an increase of approximately ¥35.9 million ($5.3 million) or 74.8% from ¥47.9 million for the same period in 2021. The overall increase in revenue was mainly due to increase from all our business lines benefited with the increase in oil and gas prices and electricity prices during the year ended June 30, 2022. Specifically, (1) Revenue from automation product and software increased by ¥13.4 million ($2.0 million) or 72.3%. The increase was mainly caused by 1) completion of prior delayed projects and also new needs in from Ji Dong oilfield as oil price increased; 2) recovery of Shenhua Group’s requirement; and 3) rising contribution from operation and maintenance services regarding metering instruments as Chinese companies placed increasing emphasis on safety in energy and chemical companies, a new business resources developed by the Company from year 2021. (2) Revenue from equipment and accessories increased by ¥1.4 million ($0.2 million) or 8.7% due to increased demand for equipment from oilfield companies to increase production due to rising oil prices. (3) Revenue from oilfield environmental protection increased by ¥14.3 million ($2.1 million) or 129.4%. This was mainly contributed to continuously increased reequipment of our wastewater treatment and oily sludge treatment. As oil prices rise and the increase of oilfield production, management believe revenue from this segment will maintain stable. (4) Revenue from platform outsourcing services increased by ¥6.8 million ($1.0 million) or 263.7%. The increase was mainly due to the acquisition of FGS, as 1) service rendered by FGS increased as more orders from gas stations were completed through FGS’s solution platform; and 2) there was only half-year’s number consolidated into our operations from January to June in 2021. Cost of revenue Automation product and software Equipment and accessories Oilfield environmental protection Platform outsourcing services Business and sales related tax Total cost of revenue For the Years Ended June 30, 2021 ¥ 19,887,241 11,184,323 7,786,205 1,458,977 406,801 ¥ 40,723,547 2022 ¥ 29,804,559 10,439,207 20,007,876 3,798,951 302,241 ¥ 64,352,834 Increase / (Decrease) ¥ 9,917,318 (745,116) 12,221,671 2,339,974 (104,560) ¥ 23,629,287 Percentage Change 49.9 % (6.7)% 157.0 % 160.4 % (25.7)% 58.0 % Our cost of revenues increased from ¥40.7 million for the year ended June 30, 2021 to ¥64.4 million ($9.6 million) for the same period in 2022. This increase was mainly caused by the increased cost of revenue from automation product and software, oilfield environmental protection and platform outsourcing services segments, which was partially offset by the decreased cost of revenue from equipment and accessories segment during the year ended June 30, 2022. For the years ended June 30, 2021 and 2022, cost of revenue from automation product and software was approximately ¥19.9 million and ¥29.8 million ($4.4 million), respectively, representing an increase of approximately ¥9.9 million ($1.5 million) or 49.9%. The increase in cost of revenue from automation product and software was primarily attributable to increased sales of automation products driven by increasing demands due to high oil prices. For the years ended June 30, 2021 and 2022, cost of revenue from equipment and accessories was approximately ¥11.2 million and ¥10.4 million ($1.6 million), respectively, representing a decrease of approximately ¥0.7 million ($0.1 million ) or 6.7%. The decrease in cost of revenue from equipment and accessories was primarily attributable to less ultra-deep electric submersible progressing cavity pumps sold during this year than the same period of last year. Our pumps related business were delayed affected by declaration extension and equipment and tools we needed to performance the business could not arrived in work field as scheduled. Besides, we also need to upgrade our service for such pumps until we could promote this business further vigorously. 66 Table of Contents For the years ended June 30, 2021 and 2022, cost of revenue from oilfield environmental protection was approximately ¥7.8 million and ¥20.0 million ($3.0 million), respectively, representing an increase of approximately ¥12.2 million ($1.8 million) or 157.0%. The increase in the cost of revenue, mainly drawn from wastewater and oily sludge treatments, was in line with increase in revenue related to our wastewater treatment and oily sludge treatment. For the years ended June 30, 2021 and 2022, cost of revenue from platform outsourcing services, mainly from the consolidation of FGS from fiscal year 2021, was approximately ¥1.5 million and ¥3.8 million ($0.6 million), respectively, representing an increase of approximately ¥2.3 million ($0.3 million) or 160.4%. The increase of cost of revenue was in line with increase in revenue. Gross Profit Automation product and software Equipment and accessories Oilfield environmental protection Platform outsourcing services Total gross profit and margin % 2021 Gross Profit ¥ (1,407,375) 4,526,652 2,998,412 1,097,339 ¥ 7,215,028 For the Years Ended June 30, 2022 Margin % Gross Profit Margin % Increase / (Decrease) (7.6)%¥ 2,120,041 28.7 % 6,679,766 27.1 % 5,112,917 42.7 5,512,013 15.1 %¥ 19,424,737 6.6 %¥ 3,527,416 38.9 % 2,153,114 20.2 % 2,114,505 59.0 % 4,414,674 23.2 %¥ 12,209,709 Percentage Change 250.6 % 47.6 % 70.5 % 402.3 % 169.2 % Our gross profit increased to ¥19.4 million ($2.9 million) for the year ended June 30, 2022 from ¥7.2 million for the same period in 2021. Our gross profit as a percentage of revenue increased to 23.2% for the year ended June 30, 2022 from 15.1% for the same period in 2021. For the year ended June 30, 2021, our negative gross profit from automation product and software was approximately ¥1.4 million, and for the year ended June 30, 2022, our generated gross profit of ¥2.1 million ($0.3 million), respectively, representing an increase in gross profit of approximately ¥3.5 million ($0.5 million) or 250.6%. In year 2021, we mainly carried out contracts that were signed during the Covid-19 and low oil price period, during which we used a low-margin strategy to maintain our cooperation business with clients. As oil price increase in 2022, our customers recovered and contract terms were improved and our margin increased and the margin percentage will also be higher. For the years ended June 30, 2021 and 2022, gross profit from equipment and accessories was approximately ¥4.5 million and ¥6.7 million ($1.0 million), respectively, representing an increase of approximately ¥2.2 million ($0.3 million) or 47.6%. This was mainly driven by high oil price and more demands for heating furnaces with higher margin rather than accessories with lower margin. For the years ended June 30, 2021 and 2022, gross profit from oilfield environmental protection was approximately ¥3.0 million and ¥5.1 million ($0.8 million), respectively, representing an increase of approximately ¥2.1 million ($0.3 million) or 70.5%. The increase in gross profit from oilfield environmental protection was primarily attributable to the increased production of oily sludge. For the years ended June 30, 2021 and 2022, gross profit from platform outsourcing services was approximately ¥1.1 million and ¥5.5 million ($0.8 million), respectively, representing an increase of approximately ¥4.4 million ($0.7 million) or 402.3 %, this was mainly because we only consolidate six-month result from January 2021 in fiscal year 2021 while we consolidated a complete twelve months’ result in fiscal year 2022. Besides, from the perspective of margin as a percentage of revenue, it was increased from 42.7% to 59.0% because our costs were primarily personnel expenses, which were relatively stable, while our revenues grew faster year-over-year resulting in higher gross margins. 67 Table of Contents Operating Expenses Selling and distribution expenses % of revenue General and administrative expenses % of revenue Provision for (net recovery of) credit losses % of revenue Research and development expenses % of revenue Impairment loss of property and equipment % of revenue Operating expenses For the Years Ended June 30, 2021 ¥ 8,038,965 2022 ¥ 10,150,802 Increase / (Decrease) ¥ 2,111,837 Percentage Change 26.3 % 16.8 % 12.1 % (4.7)% 45,949,157 83,281,958 37,332,801 81.2 % 95.9 % 99.4 % 3.5 % 8,191,247 (658,823) (8,850,070) (108.0)% 17.1 % (0.8)% (17.9)% 5,846,295 8,964,217 3,117,922 53.3 % 12.2 % 768,312 1.6 % ¥ 68,793,976 10.7 % — — ¥ 101,738,154 (1.5)% (768,312) (100.0)% (1.6)% ¥ 32,944,178 47.9 % Selling and Distribution Expenses. Selling and distribution expenses consist primarily of salaries and related expenditures of the Company’s sales and marketing departments, sales commissions, costs of marketing programs including traveling expenses, advertising and trade shows, and rental expense, as well as shipping charges. Selling expenses increased by 26.3% or ¥2.1 million ($0.3 million), from ¥8.0 million in the year ended June 30, 2021 to ¥10.1 million ($1.5 million) in the same period of 2022. An increase of ¥1.5 million ($0.2 million) was primarily due to the step acquisition of FGS. We consolidated the selling expenses of FGS and recorded amortization expenses of customer relationship recognized in relation to the step acquisition. Meanwhile, our salary expenses increased by ¥0.8 million ($0.1 million) due to increased headcount and salary increment as compared to the same period last year. The increase was partially offset by a decrease of meal and entertainment expense due to the resurgence of COVID-19 during the year ended June 30, 2022. Selling expenses were 12.1% of total revenues for the year ended June 30, 2022 and 16.8% of total revenues for the same period of 2021. General and Administrative Expenses. General and administrative expenses consist primarily of costs in human resources, facilities costs, depreciation expenses, professional advisor fees, audit fees, stock-based compensation expense and other miscellaneous expenses incurred in connection with general operations. General and administrative expenses increased by 81.2% or ¥37.3 million ($5.6 million), from ¥45.9 million in the year ended June 30, 2021 to ¥83.3 million ($12.4 million) in the same period of 2022. The increase was primarily due to the increased share-based compensation to our management and employees, the increased services fees in relation to the investing and financing activities carried out during the period. The increase was partially offset by the decreased cost in relation to the issuance of warrants during the year ended June 30, 2022. General and administrative expenses accounted for 99.4% of total revenues for the year ended June 30, 2022 and 95.9% of total revenues for the same period of 2021. Provision for (recovery of) credit losses. Provision for credit losses is the estimated amount of bad debt that will arise as a result of lower collectability from account receivables, other receivables, purchase advances and contract assets. We recorded an allowance for credit losses of ¥8.2 million for the year ended June 30, 2021 as compared to a net recovery of credit losses of ¥0.7 million ($0.1 million) for the same period in 2022. The net recovery of credit losses was mainly due to 1) we made specific reserve for some outstanding accounts receivable which we did not collect as we expected due to the unfavorable economy as a result of COVID-19 pandemic previously. However, due to the recovery of economy in China and the management’s great efforts in collection of receivables from our customers, some of accounts receivable we have provided credit losses for in the prior period were collected during the year ended June 30, 2022, causing a reversal of provision for credit losses of accounts receivables; and 2) as the progress of these contracts was delayed by the COVID-19 pandemic, we recorded allowance for credit losses of contract cost according to its general accounting policy. Since the pandemic is relatively under control now, some of our projects has resumed its progress and the contract costs were realized, hence, resulted in a decrease in allowance for credit losses of contract cost. Management plans to continue to monitor and maintain the provision at a lower risk level. 68 Table of Contents Research and development (“R&D”) expenses. R&D expenses consist primarily of salaries and related expenditures for research and development projects. R&D expenses increased from ¥5.8 million for the year ended June 30, 2021 to ¥9.0 million ($1.3 million) for the same period of 2022. This increase was primarily due to more research and development expense spent on design of new automation platform systems and treatment of wastewater during the period as compared to the same period last year. R&D expenses accounted for 10.7% of total revenues in the year ended June 30, 2022 and 12.2% of total revenues for the same period of 2021. Net Income (Loss) For the Years Ended June 30, Loss from operations Gain on equity method investment Change in fair value of warrant liability Impairment loss on goodwill Interest income Other loss, net Income (loss) before income taxes Benefit for income taxes Net income (loss) Less: Net loss attributable to non-controlling interest Net income (loss) attributable to Recon Technology, Ltd Increase / (Decrease) 2021 2022 ¥ (61,578,948) ¥ (82,313,417) ¥ 20,734,469 (979,254) 139,119,783 2,266,893 4,449,350 478,083 120,066,600 89,623 120,156,223 (1,736,694) ¥ 118,419,529 — 174,485,575 (2,266,893) 5,367,979 (1,597,723) 93,675,521 (613,874) 94,289,395 (1,297,400) ¥ (22,832,734) ¥ 95,586,795 979,254 35,365,792 — 918,629 (2,075,806) (26,391,079) (524,251) (25,866,828) (3,034,094) Percentage Change 33.7 % (100.0)% 393.4 % 100.0 % 484.3 % (23.0)% (455.0)% 17.1 % (464.5)% (57.2)% (518.6)% Loss from operations. Loss from operations was ¥82.3 million ($12.3 million) for the year ended June 30, 2022, compared to a loss of ¥61.6 million for the same period of 2021. This ¥20.7 million ($3.1 million) increase in loss from operations was primarily due to the increase in operating expense partially offset by the increase in gross profit as discussed above. Gain on equity method investment. The Company recorded a gain from remeasurement previously held investment in FGS prior to the consolidation of FGS’ controlling interest as a result of step acquisition for an amount of ¥979,254 for the year ended June 30, 2021. Change in fair value of warrant liability. The Company classified the warrants issued in connection with common share offering as liabilities at their fair value and adjusted the warrant instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. Change in fair value of warrants issued on June 14, 2021 through year ended June 30, 2021 was ¥35.4 million, and the change in fair value of warrants was ¥174.5 million ($26.1 million) for the year ended June 30, 2022. Impairment loss on goodwill. The Company recognized the excess of purchase price over the fair value of assets acquired and liabilities assumed of the business acquired was recorded as goodwill as a result of the step acquisition of FGS. In conjunction with the preparation of our consolidated financial statement for year ended June 30, 2022, the management performed evaluation on the impairment of goodwill and recorded an impairment loss on goodwill of ¥2,266,893 ($338,457) for the year ended June 30, 2022. Interest income. Interest income was ¥5.4 million ($0.8 million) for the year ended June 30, 2022, compared to interest income of ¥0.9 million for the same period of 2021. This ¥4.5 million ($0.7 million) increase in interest income was primarily due to the interest- bearing loans to third parties during the year ended June 30, 2022 Other loss, net. Other net loss was ¥1.6 million ($0.2 million) for the year ended June 30, 2022, compared to other net loss of ¥2.1 million for the same period of 2021. The ¥0.5 million ($0.1 million) decrease in other net loss was primarily due to a decrease in interest expenses of ¥0.7 million ($0.1 million) due to the decreased short-term borrowing from banks and related parties during the year ended June 30, 2022. 69 Table of Contents Net income (loss). As a result of the factors described above, net income was ¥94.3 million ($14.1 million) for the year ended June 30, 2022, an increase of ¥120.2 million ($17.9 million) from net loss of ¥25.9 million for the same period of 2021. Liquidity and Capital Resources As of June 30, 2022, we had cash in the amount of approximately ¥317.0 million ($47.3 million). As of June 30, 2021, we had cash in the amount of approximately ¥344.0 million. Indebtedness. As of June 30, 2022, we had ¥16.7 million ($2.5 million) of warrant liabilities, ¥10.0 million ($1.5 million) of short-term bank loans, ¥9.0 million ($1.3 million) of short-term borrowings from related parties, ¥6.5 million ($1.0 million) of long-term borrowings from a related party, ¥3.5 million ($0.5 million) of short-term lease payable and ¥1.9 million ($0.3 million) of long-term lease payable due to third parties, ¥0.4 million ($0.06 million) of short-term lease payable and ¥0.3 million ($0.05 million) of long-term lease payable due to a related party, ¥27.7 million ($4.1 million) of contractual purchase commitments, and a liability of severance payments of ¥7.1 million ($1.1 million) which is very unlikely to be incurred in the foreseeable future. Other than indebtedness listed above, we did not have any other finance leases, guarantees or other material contingent liabilities. Holding Company Structure. We are a holding company with no operations of our own. All of our operations are conducted through the Domestic Companies. As a result, our ability to pay dividends and to finance any debt that we may incur is dependent upon the receipt of dividends and other distributions from the Domestic Companies. In addition, Chinese legal restrictions permit payment of dividends to us by the Domestic Companies only out of their respective accumulated net profits, if any, determined in accordance with Chinese accounting standards and regulations. Under Chinese law, the Domestic Companies are required to set aside a portion (at least 10%) of their after-tax net income (after discharging all cumulated loss), if any, each year for compulsory statutory reserve until the amount of the reserve reaches 50% of the Domestic Companies’ registered capital. These funds may be distributed to shareholders at the time of each Domestic Company’s wind-up. Off-Balance Sheet Arrangements. We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us. Capital Resources. To date we have financed our operations primarily through cash flows from operations, short-term bank loans, short-term and long-term borrowings due to related parties, warrant liabilities and convertible notes. As of June 30, 2022, we had total assets of ¥490.2 million ($73.2 million), which includes cash of ¥317.0 million ($47.3 million), net accounts receivable of ¥22.6 million ($3.4 million), loans to third parties of ¥50.4 million ($7.5 million) and net contract costs of ¥33.9 million ($5.1 million) and working capital of ¥392.7 million ($58.6 million). Shareholders’ equity amounted to ¥420.6 million ($62.8 million). Cash from Operating Activities. Net cash used in operating activities was ¥26.2 million ($3.9 million) for the year ended June 30, 2022. This was a decrease of approximately ¥7.9 million ($1.2 million) compared to net cash used in operating activities of approximately ¥34.1 million for the same period in 2021. The net cash used in operating activities for the year ended June 30, 2022 was primarily attributable to the net income attributable to the Company in the amount of ¥94.3 million ($14.1 million) due to the reasons discussed above, reconciled by gain arise from fair value changes of warrants liabilities of ¥174.5 million ($26.1 million) and restricted shares issued for management resulting in expenses of ¥39.3 million ($5.9 million), and a decrease in contract cost of ¥15.4 million ($2.3 million). Cash from Investing Activities. Net cash used in investing activities was approximately ¥328,684 ($49,073) for the year ended June 30, 2022. This was a decrease of approximately ¥46.2 million ($6.9 million) compared to net cash used in investing activities of approximately ¥46.5 million for the same period in 2021, which was due to the increased repayments from loans to third parties, which partially offset by the increased loans made to third parties. 70 Table of Contents Cash from Financing Activities. Net cash used in financing activities amounted to ¥10.0 million ($1.5 million) for the year ended June 30, 2022, as compared to net cash provided by financing activities of ¥394.0 million for the same period in 2021. The decrease in net cash provided by financing activities was mainly due to the decrease in proceeds from sales of common stock and issuance of convertible notes during the year ended June 30, 2022. During the year ended June 30, 2022, we repaid ¥14.8 million ($2.2 million) in short-term borrowings to related parties and repaid ¥15.0 million ($2.2 million) in short-term bank loans, we also received ¥11.1 million ($1.7 million) in short-term borrowings from related parties and ¥10.0 million ($1.5 million) in short-term bank loans. Working Capital. Total working capital as of June 30, 2022 amounted to ¥392.7 million ($58.6 million), compared to ¥412.0 million as of June 30, 2021. Total current assets as of June 30, 2022 amounted to ¥445.6 million ($66.5 million), a decrease of ¥42.9 million ($6.4 million) compared to approximately ¥488.5 million at June 30, 2021. The decrease in total current assets at June 30, 2022 compared to June 30, 2021 was mainly due to a decrease in cash, trade account receivable and contract assets, partially offset by an increase in notes receivable. For the year end June 30, 2022, the Company had approximately ¥26.2 million ($4.0 million) cash out flow from the operating activities, and as of June 30, 2022, our total future minimum purchase commitment under the non-cancellable purchase contracts were amounted to ¥27.7 million ($4.1 million). However, as of June 30, 2022, the Company had cash in the amount of approximately ¥317.0 million ($47.3 million) for the next operating cycle ending June 30, 2023. Hence, based on the historical trends and the cash used in the operating activities, management believes that the Company will have sufficient working capital for its operations at least 12 months from the issuance date of this report. Current liabilities. Current liabilities amounted to ¥52.9 million ($7.9 million) at June 30, 2022, in comparison to ¥76.5 million at June 30, 2021. This decrease of current liabilities was attributable mainly to a decrease in short-term bank loans, trade accounts payable, other payables and contract liabilities. Capital Needs. With the uncertainty of the current market, our management believes it is necessary to enhance collection of outstanding accounts receivable and other receivables, and to be cautious on operational decisions and project selection. Our management believes that our current operations can satisfy our daily working capital needs. We may also raise capital through public offerings or private placements of our securities to finance our development of our business and to consummate any merger and acquisition, if necessary. Tabular Disclosure of Contractual Obligations Below is a table setting forth all our contractual obligations as of June 30, 2022, which consists of our short-term loan agreements, operating lease obligations, loans from third parties, warrant liabilities and due to related party: Payment Due by Period Contractual Obligations Short-term debt obligations Operating lease obligations Due to related parties Purchase obligation Long-term debt obligations Warrant liabilities Total Total ¥ 19,009,156 6,844,795 2,240,135 27,717,803 6,510,606 16,677,328 ¥ 78,999,823 Less than 1 year ¥ 19,009,156 4,622,291 2,240,135 26,967,803 999,530 — ¥ 53,838,915 71 3 – 5 years More than 5 years 1 – 3 years ¥ 2,222,504 — 600,000 2,230,676 — ¥ — ¥ — — 150,000 2,663,518 — 16,677,328 ¥ 19,490,846 — — — — 616,882 — ¥ 616,882 ¥ 5,053,180 Table of Contents ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management Executive Officers and Directors The following table sets forth our executive officers and directors, their ages and the positions held by them: Name Mr. Yin Shenping Ms. Liu Jia Mr. Chen Guangqiang Mr. Bi Yongquan Mr. Zhao Shudong Mr. Nelson N.S. Wong Mr. Hu Jijun Dr. Duan Yonggang Age 52 39 59 44 76 60 57 58 Position Held Chief Executive Officer and Director Chief Financial Officer and Director Chief Technology Officer and Director Director and Chairman Independent Director Independent Director (Audit Committee Chair) Independent Director Independent Director Yin Shenping. Mr. Yin has been our Chief Executive Officer and a director since the Company’s inception. In 2003, Mr. Yin founded Nanjing Recon, a Chinese company that provides services to automate and enhance the extraction of petroleum in China, and has been the Chief Executive Officer since that time. Prior to founding Nanjing Recon, Mr. Yin served as a sales manager for Fujian Haitian Network Company from 1992 through 1994. Mr. Yin has founded and operated a number of companies engaged in the IT industry including: Xiamen Hengda Haitian Computer Network Co., Ltd. (1994), Baotou Hengda Haitian Computer Network Co., Ltd. (1997), Beijing Jingke Haitian Electronic Technology Development Co., Ltd. (1999), and Jingsu Huasheng Information Technology Co., Ltd. (2000). In 2000, Mr. Yin merged the former Nanjing Kingsley Software Engineering Co., Ltd. into Nanjing Recon. Mr. Yin received his bachelor’s degree in 1991 from Nanjing Agricultural University in information systems. Mr. Yin was chosen 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. Liu Jia. Ms. Liu has served as our Chief Financial Officer since 2008 and as our director since 2022. Ms. Liu received her bachelor’s degree in 2006 from Beijing University of Chemical Technology, School of Economics and Management and her master’s degree in industrial economics in 2009 from Beijing Wuzi University. Ms. Liu is a certified U.S. CPA. Chen Guangqiang. Mr. Chen has served as our Chief Technology Officer and director since our inception. Mr. Chen was a geological engineer for the Fourth Oil Extraction Plant of Huabei Oilfield from 1985 through 1993. From 1993 through 1999, Mr. Chen was a chief engineer for Xinda Company, CNPC Development Bureau. From 1999 through 2003, Mr. Chen served as the general manager of Beijing Adar. Mr. Chen received his bachelor’s degree in 1985 from Southwest Petroleum Institute. Mr. Chen was appointed to the position of director because he is one of the founders of the Company and we believe we can benefit from his many years of engineering experience and management experience in the oil extraction industry. Nelson N.S. Wong. Mr. 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. Mr. Wong became the Vice Chairman and CEO of the Vigers Group in 1993. In 1995 Mr. Wong established the ACN Group, a business consulting firm, where he has worked continuously and continues to serve as the Chairman and Managing Partner. Mr. Wong received a bachelor’s degree in arts from the PLA Institute of International Relations in Nanjing in 1983. Mr. Wong was appointed to the position of director because we believe we can benefit from his leadership skills and management experience. 72 Table of Contents Hu Jijun. Mr. 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 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. Mr. Hu graduated as an automated professional from the China University of Petroleum in 1988. Mr. 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. Mr. Zhao joined our board of directors in 2013. Mr. Zhao spent over 30 years working in the oilfield industry prior to retiring from full-time work in 2006. From 1970 to 1976, Mr. Zhao worked as a technician in the Daqing oilfield. From 1976 to 1982, Mr. Zhao served as the vice director of the Hubei Oilfield Generalized Geologic Technical Research Institute. Mr. Zhao then spent 11 years as a director and section chief at the Scientific and Technological Development Department of the Huabei Petroleum Administrative Bureau. He was subsequently appointed Chief Geologist of the bureau, a position he held from 1993 to 1999. From 1999 to 2006, Mr. Zhao served as the General Manager of the Huabei Oilfield Company of CNPC. Mr. Zhao studied at the Northeast Petroleum Institute from 1965 to 1970. Mr. Zhao was elected as a director because of his extensive experience in the oilfield industry. Duan Yonggang. Dr. Duan has served as our director since March 2020. Dr. Duan has been teaching and researching in the oil- gas field development engineering area for a long time. From November 2004, Dr. Duan has been a professor at Southwest Petroleum University in Sichuan, China. He is the director of the oil well technology center of petroleum engineering school of Southwest Petroleum University. In addition, Dr. Duan is also a researcher and Ph.D. supervisor. He has published over 60 articles on top academic journals and participated in writing six books. He was named an expert with outstanding contributions and an oil-gas safety expert in Sichuan Province, China. Dr. Duan received his bachelor’s degree in oil production in 1984, and his master degree in oil-gas field development engineering in 1988, both from Southwest Colleague. Dr. Duan received his Ph.D. degree in oil-gas field development engineering in 2009 from Southwest Petroleum University. Dr. Duan was chosen as a director because he is an expert in the oilfield area. Employment Agreements We have employment agreements with each of our Chief Executive Officer, Chief Technology Officer and Chief Financial Officer. With the exception of the employment agreement with our Chief Financial Officer, each of these employment agreements provides for an indefinite term. Such employment agreements may be terminated (1) if the employee gives written notice of his or her intention to resign, (2) the employee is absent from three consecutive meetings of the board of directors, without special leave of absence from the other members of the board of directors, and the board of directors passes a resolution that such employee has vacated his office, or (3) the death, bankruptcy or mental incapacity of the employee. The employment agreement for our Chief Financial Officer provides for a one-year term, which expired on March 12, 2017, and the parties have continued to operate under the terms of this agreement since its expiration. Such employment agreement may be terminated if Ms. Liu 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’ written notice of termination. Under Chinese law, we may only terminate employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date on which the employment agreement is scheduled to expire. If we fail to provide this notice or if we wish to terminate an employment agreement in the absence of cause, then we are obligated to pay the employee one month’s salary for each year we have employed the employee. We are, however, permitted to terminate an employee for cause without penalty to our company, where the employee has committed a crime or the employee’s actions or inactions have resulted in a material adverse effect to us. B. Compensation The following table shows the annual compensation paid by us to Yin Shenping, our Chief Executive Officer, Liu Jia, our Chief Financial Officer, and Chen Guangqiang, our Chief Technology Officer, for the years ended June 30, 2022, 2021 and 2020. No other employee or officer received more than $100,000 in total compensation in 2022, 2021 and 2020. 73 Table of Contents Name and principal position Yin Shenping, Principal Executive Officer Liu Jia Principal Financial Officer Chen Guangqiang, Chief Technology Officer Director Compensation Summary Executive Compensation Table Year Salary Bonus Awards Awards Total Option Restricted Stock 2022 2021 2020 $ 360,000 $ 120,000 $ 120,000 $ 100,000 $ $ 50,000 $ — $ $ 29,125 $ — $ — $ 2,934,500 0 0 $ 3,394,500 $ 170,000 $ 149,125 2022 $ 112,000 $ 50,000 $ — $ 156,000 $ 318,000 2021 2020 2022 2021 2020 $ 80,000 $ 80,000 $ 31,250 $ — $ $ 21,844 $ — $ 0 0 (1)$ 111,250 $ 101,844 $ 395,833 $ 157,164 $ 141,844 $ 100,000 $ $ 50,000 $ — $ $ 29,125 $ — $ — $ 2,934,000 0 0 $ 3,430,333 $ 207,164 $ 170,969 All directors hold office until the expiration of their respective terms and until their successors have been duly elected and qualified. There are no family relationships among our directors or executive officers. Officers are elected by and serve at the discretion of the board of directors. Employee directors and non-voting observers do not receive any compensation for their services. We pay $8,000 to each independent director annually for their service as directors. In addition, non-employee directors are entitled to receive compensation for their actual travel expenses for each board of directors meeting attended. Summary Director Compensation Table Name(1) Nelson N.S. Wong(4) Hu Jijun(4) Zhao Shudong Duan Yonggang(3) Fees earned or paid in cash $ $ $ $ 8,000 $ 8,000 $ 8,000 $ 8,000 $ Option Awards Restricted Stock Awards Total(2) 0 0 0 0 93,600 $ 101,600 93,600 $ 101,600 93,600 $ 101,600 93,600 $ 101,600 (1) Compensation for our directors Yin Shenping, Chen Guangqiang and Liu Jia, who also serve as executive officers, is fully disclosed in the executive compensation table. 74 Table of Contents The following table summarizes, as of June 30, 2022, the outstanding options, unvested restricted share units and shares that we granted to our current directors and executive officers, reflecting the one-for-five Reverse Stock Split. Name Yin Shenping Liu Jia Chen Guangqiang Nelson N.S. Wong Hu Jijun Zhao Shudong Duan Yonggang Total C. Board Practices Class A Ordinary Shares underlying options awarded/Restricted Share Units/Shares Exercise price (US$/share) Date of grant — 6,400 150,000 — 5,000 90,000 5,000 90,000 3,600 90,000 90,000 530,000 — 8.25 — — 8.25 — 8.25 — 8.25 — — — 1/31/2015 02/28/2022 — 1/31/2015 02/28/2022 1/31/2015 02/28/2022 1/31/2015 02/28/2022 02/28/2022 Date of expiration — 1/31/2025 02/27/2025 — 1/31/2025 02/27/2025 1/31/2025 02/27/2025 1/31/2025 02/27/2025 02/27/2025 Board of directors and Board Committees Our board of directors currently consists of seven members. There are no family relationships between any of our executive officers and directors. The directors are divided into three classes, as nearly equal in number as the then total number of directors permits. Class I directors faced re-election at our annual general meeting of shareholders in 2020 and every three years thereafter. Class II directors faced re-election at our annual general meeting of shareholders in 2021 and every three years thereafter. Class III directors faced re-election at our annual general meeting of shareholders in 2022 and every three years thereafter. If the number of directors changes, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly as possible. Any additional directors of a class elected to fill a vacancy resulting from an increase in such class will hold office for a term that coincides with the remaining term of that class. Decreases in the number of directors will not shorten the term of any incumbent director. These board provisions could make it more difficult for third parties to gain control of the Company by making it difficult to replace members of our board of directors. A director may vote in respect of any contract or transaction in which he is interested, provided, however, that the nature of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to the board of directors consideration and any vote on that matter. A general notice or disclosure to the directors, or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof that a director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating to any particular transaction. There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. The board of directors maintains a majority of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Stock Market Rule 4200(a)(15). Mr. Zhao, Mr. Wong, Mr. Hu and Dr. Duan are our independent directors. We do not have a lead independent director because of the foregoing reason because we believe our independent directors are encouraged to freely voice their opinions on a relatively small company board. 75 Table of Contents Our board of directors plays a significant role in our risk oversight. The board of directors makes all relevant Company decisions. As such, it is important for us to have our Chief Executive Officer serve on the Board as he plays a key role in the risk oversight of the Company. As a smaller reporting company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters. Currently, three committees have been established under the board: the audit committee, the compensation committee and the nominating committee. All of these committees consist solely of independent directors. The audit committee is responsible for overseeing the accounting and financial reporting processes of the Company and audits of the financial statements of the Company, including the appointment, compensation and oversight of the work of our independent auditors. Mr. Wong qualifies as the audit committee financial expert and serves as the chair of the audit committee. The compensation committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and also administers our incentive compensation plans and equity- based plans (but our board retains the authority to interpret those plans). Mr. Hu serves as the chair of the compensation committee. The nominating committee of the board of directors is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors. Mr. Zhao serves as the chair of the nominating committee. There are no other arrangements or understandings pursuant to which our directors are selected or nominated. Duties of Directors Under Cayman Islands law, our directors have a fiduciary duty to the Company to act in good faith in their dealings with or on behalf of the Company and exercise their powers and fulfill the duties of their office honestly. 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; and ● a duty to exercise powers for the purpose for which such powers were intended. In general, Cayman Islands law imposes various duties on directors of a company with respect to certain matters of management and administration of the Company. In addition to the remedies available under general law, the Companies Law imposes fines on directors who fail to satisfy some of these requirements. However, in many circumstances, an individual is only liable if he is knowingly guilty of the default or knowingly and willfully authorizes or permits the default. In comparison, under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders. In addition, under Delaware law, a party challenging the propriety of a decision of the directors bears the burden of rebutting the applicability of the presumptions afforded to directors by the “business judgment rule.” If the presumption is not rebutted, the business judgment rule protects the directors and their decisions, and their business judgments will not be second guessed. If the presumption is rebutted, the directors bear the burden of demonstrating the entire fairness of the relevant transaction. Notwithstanding the foregoing, Delaware courts subject directors’ conduct to enhanced scrutiny in respect of defensive actions taken in response to a threat to corporate control and approval of a transaction resulting in a sale of control of the corporation. 76 Table of Contents Limitation of Director and Officer Liability Pursuant to our Memorandum and Articles of Association, every director or officer and the personal representatives of the same shall be indemnified and held harmless out of our assets and funds against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by him or her in or about the conduct of our business or affairs or in the execution or discharge of his or her duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning us or our affairs in any court whether in the Cayman Islands or elsewhere. No such director or officer will be liable for: (a) the acts, receipts, neglects, defaults or omissions of any other such Director or officer or agent; or (b) any loss on account of defect of title to any of our properties; or (c) account of the insufficiency of any security in or upon which any of our money shall be invested; or (d) any loss incurred through any bank, broker or other similar person; or (e) any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgment or oversight on his or her part; or (f) any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers authorities, or discretions of his or her office or in relation thereto, unless the same shall happen through his or her own dishonesty, gross negligence or willful default. Involvement in Certain Legal Proceedings To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities or commodities laws, any laws respecting financial institutions or insurance companies, any law or regulation prohibiting mail or wire fraud in connection with any business entity or been subject to any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization, except for matters that were dismissed without sanction or settlement. D. Employees As of June 30, 2021, we employed a total of 184 full-time in the following functions: Department Senior Management Human Resource & Administration Finance Research & Development & Technology Procurement and production Sales & Marketing Total June 30, 2022 Number of Employees June 30, 2021 June 30, 2020 27 25 13 53 26 44 188 21 17 14 48 45 39 184 10 22 18 32 25 27 134 Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages. We are required under PRC law to make contributions to employee benefit plans at specified percentages of our after-tax profit. In addition, we are required by PRC law to cover employees in China with various types of social insurance. In fiscal year 2022, we contributed approximately $427,614 to the employee benefit plans and social insurance. In fiscal year 2021, we contributed approximately $215,642 to the employee benefit plans and social insurance. In fiscal year 2020, we contributed approximately $127,930 to the employee benefit plans and social insurance. The effect on our liquidity by the payments for these contributions is immaterial. We believe that we are in material compliance with the relevant PRC employment laws. E. Share Ownership For information regarding the share ownership of our directors and senior management, see “Item 7. Major Shareholders and Related Party Transactions — A. Major Shareholders.” 77 Table of Contents Share Option Pool Share and Share Options 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 initially contained options to purchase up to 158,073 (790,362 before the one-for-five Reverse Stock Split) of our Class A 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. To date, we issued 112,800 (564,000 before the one-for-five Reverse Stock Split) options and 45,273 (226,362 before the one-for-five Reverse Stock Split) shares out of this employee share option pool. We initially granted 58,600 (293,000 before the one-for-five Reverse Stock Split) options in 2009. We held a shareholder meeting in December 2010 and announced the resignation of three directors, and as a result, 20,000 (100,000 before the one-for-five Reverse Stock Split) options were forfeited and went back in the pool. In 2012, we granted an additional 83,000 (415,000 before the one-for-five Reverse Stock Split) options and 8,800 (44,000 before the one-for-five Reverse Stock Split) options were forfeited and went back to the pool. In the three months ended June 30, 2014, 29,680 (148,400 before the one-for-five Reverse Stock Split) vested options from 2012 grants were exercised. During the year ended June 30, 2020, 53,600 options were forfeited and as of June 30, 2020, we have 29,520 options outstanding under the 2009 Incentive Plan, reflecting the one-for-five Reverse Stock Split. 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 140,000 (700,000 before the one-for-five Reverse Stock Split) Class A 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 Class A 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 Class A 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 Class A Ordinary Shares of the Company as recorded by the Company’s transfer agent on the last business day of the prior fiscal year. The Company granted options to purchase 80,000 (400,000 before the one- for-five Reverse Stock Split) Class A Ordinary Shares to its employees and non-employee director on January 31, 2015 under the 2015 Incentive Plan. As of June 30, 2020, we have 80,000 options outstanding under this 2015 Incentive Plan, reflecting the one-for-five Reverse Stock Split. As of June 30, 2020, we have an aggregate of 109,520 options outstanding under our incentive plans, reflecting the one-for-five Reverse Stock Split. On April 5, 2021, the Company held its 2020 annual general meeting of shareholders, during which the Company’s shareholders approved the Company’s 2021 Equity Incentive Plan (“2021 Incentive Plan”). Executive Stock Grants On December 13, 2013, the Company granted 19,036 (95,181 before the one-for-five Reverse Stock Split) restricted shares to Mr. Yin Shenping and 27,036 (135,181 before the one-for-five Reverse Stock Split) restricted shares to Mr. Chen Guangqiang at an aggregate value of ¥4,207,496 ($688,782), based on the stock closing price of $14.95 (adjusted reflecting the one-for-five Reverse Stock Split) 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. On January 31, 2015, the Company granted 30,000 restricted shares to Mr. Yin and 30,000 restricted shares to Mr. Chen at an aggregate value of ¥3,038,558($495,000), based on the stock closing price of $8.25 (adjusted reflecting the one-for-five Reverse Stock Split) at January 31, 2015. These restricted shares were vested 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 160,000 (800,000 before the one-for-five Reverse Stock Split) shares and options under the 2015 Incentive Plan. On October 18, 2015, 160,000 (800,000 before the one-for-five Reverse Stock Split) 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 $4.40 (adjusted reflecting the one-for-five Reverse Stock Split) at October 16, 2015. These restricted shares were vested over three years with one-third of the shares vesting every year from the grant date. 78 Table of Contents On July 23, 2016, the Company’s board approved the reservation of 175,200 (876,000 before the one-for-five Reverse Stock Split) shares and options. On July 27, 2016, 175,200 (876,000 before the one-for-five Reverse Stock Split) restricted shares were granted to staff pursuant to this authorization. These restricted shares were vested over three years with one-third of the shares vesting every year from the grant date. On December 9, 2016, the Company’s board approved management’s new plan based on future performance for the three fiscal years from 2017 to 2019. The Company also agreed on front-issuing of shares based on the optimism situation, thus non-vested 602,000 (3,010,000 before the one-for-five Reverse Stock Split) shares were issued to management on January 23, 2017. The fair value of the restricted shares was $4,063,500 based on the closing stock price $6.75 (adjusted reflecting the one-for-five Reverse Stock Split) at December 9, 2016. Prior to the filing of the annual report for the years ending June 30, 2018, 2019 and 2020, certain number of shares granted under this plan may not be sold, transferred, hypothecated, voted or otherwise used for any purpose, and any shares that are not earned as stated above will be automatically cancelled without payment by the transfer agent of the Company. On October 13, 2017, the Company’s board approved a grant of 180,000 (900,000 before the one-for-five Reverse Stock Split) restricted shares to its employees as compensation cost for awards. The fair value of the restricted shares was $919,800 based on the closing stock price $5.11 (adjusted reflecting the one-for-five Reverse Stock Split) at October 13, 2017. These restricted shares will vest over three years with one-third of the shares vesting every year from the grant date. On August 27, 2018, the Company’s board approved a grant of 391,200 (1,956,000 before the one-for-five Reverse Stock Split) restricted stock to certain employees and directors under the Company’s 2015 Incentive Plan according to a vesting schedule as a reward and compensation to encourage as an incentive for their future dedication to the Company. Fair value of these restricted stocks are $2,523,240 based on the closing price of the resolution of the board on August 27, 2018, with a vesting period of three years from the date of the grant. On February 28, 2022, the Company’s board granted 1,642,331 Class A shares pursuant to its 2015 Equity Incentive Plan to the employees of the Company, at a fair value of $1,708,024, with a vesting period of three years from the date of the grant. As of June 30, 2022, we have 1,642,331 non-vested restricted stocks outstanding. 79 Table of Contents ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders The following table sets forth information with respect to beneficial ownership of our Class A and Class B Ordinary Shares as of the date of this report, for each person known by us to beneficially own 5% or more of our Class A Ordinary Shares, and all of our executive officers and directors individually and as a group. It reflects the one-for-five Reverse Stock Split we effected on December 27, 2019 and the two classes of shares approved by our shareholders on April 5, 2021: Class A Ordinary Shares, with one vote per share, and Class B Ordinary Shares, with fifteen votes per share. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Class A and Class B Ordinary Shares shown as beneficially owned by them. Percentage of beneficial ownership is based on shares, which consists of 33,880,718 shares outstanding as of October 9, 2022, and 80,000 shares subject to options that are exercisable and 0 restricted shares issued and to be vested within 60 days after October 9, 2022. Name of Beneficial Owner Directors and Executive Officers: Yin Shenping(4) Chen Guangqiang(5) Hu Jijun(6) Wong Nelson(7) Zhao Shudong(8) Liu Jia(9) Duan Yonggang(10) Directors and Executive Officers as a Group (eight members) 5% or Greater Shareholders Sabby Master Volatility Fund(11) * Less than 1%. Shares Beneficially Owned (1) Percentage of Ordinary Shares Amount of Beneficial Ownership Beneficially Owned(2) Percentage of Voting Power (3) 2,680,304 2,682,243 21,001 5,500 8,634 91,234 — 5,488,916 2,693,705 7.91 % 7.92 % 34.38 % 34.38 % * % * % * % * % — % 68.87 % (1) Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the Common Shares. All shares represent Class A and Class B Ordinary Shares. (2) The percentage of shares beneficially owned is based on 33,880,718 ordinary shares outstanding as of October 9, 2022. (3) Class A Ordinary Shares have one vote per share. Class B Ordinary Shares have fifteen votes per share. (4) Mr. Yin holds 630,304 Class A Ordinary Shares and 2,050,000 Class B Ordinary Shares (based solely on a Schedule 13D filed with the SEC on April 4, 2022). Due to his ownership of 50% of the outstanding Class B Ordinary Shares (which have 15 votes per share rather than one vote like Class A Ordinary Shares), Mr. Yin has substantial control over Recon. The address is: Recon Technology Ltd, Room 601, No. 1 Shui’an South Street, Chaoyang District, Beijing 100012, People’s Republic of China. (5) Mr. Chen holds 632,243 Class A Ordinary Shares and 2,050,000 Class B Ordinary Shares (based solely on a Schedule 13D filed with the SEC on April 4, 2022). Due to his ownership of 50% of the outstanding Class B Ordinary Shares (which have 15 votes per share rather than one vote like Class A Ordinary Shares), Mr. Chen has substantial control over Recon. The address is Recon Technology Ltd, Room 601, No. 1 Shui’an South Street, Chaoyang District, Beijing 100012, People’s Republic of China.. (6) The address is Recon Technology Ltd, Room 601, No. 1 Shui’an South Street, Chaoyang District, Beijing 100012, People’s Republic of China. 80 Table of Contents (7) The address is Recon Technology Ltd, Room 601, No. 1 Shui’an South Street, Chaoyang District, Beijing 100012, People’s Republic of China. (8) The address is Recon Technology Ltd, Room 601, No. 1 Shui’an South Street, Chaoyang District, Beijing 100012, People’s Republic of China. (9) The address is Recon Technology Ltd, Room 601, No. 1 Shui’an South Street, Chaoyang District, Beijing 100012, People’s Republic of China. (10) The address is Recon Technology Ltd, Room 601, No. 1 Shui’an South Street, Chaoyang District, Beijing 100012, People’s Republic of China. (11) Based solely on a Schedule 13G filed with the SEC on October 7, 2021 and as amended on January 4, 2022 by entities affiliated with Sabby. Represents 2,693,705 Class A Ordinary Shares directly owned by Sabby Volatility Warrant Master Fund, Ltd. Sabby Management, LLC indirectly owns 2,693,705 Class A Ordinary Shares because it serves as the investment manager of Sabby Volatility Warrant Master Fund, Ltd. Voting and dispositive decisions with respect to the Class A Ordinary Shares held by Sabby Volatility Warrant Master Fund, Ltd. are made by the manager of Sabby Management, LLC: Hal Mintz. The address for Sabby Volatility Warrant Master Fund, Ltd. is c/o Ogier Fiduciary Services (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman KY1-9007, Cayman Islands. The address for Sabby Management, LLC is 10 Mountainview Road, Suite 205, Upper Saddle River, New Jersey 07458. B. Related party transactions Transactions with Related Persons Sales to related party consisted of the following: Urumqi Yikeli Automatic Control Equipment Co., Ltd. Total revenues from related parties Other payables consisted of the following: For the years ended June 30, 2020 RMB ¥ ¥ — ¥ — ¥ 2021 RMB 85,657 85,657 ¥ ¥ 2022 RMB 2022 U.S. Dollars — — — $ — $ Related Parties Expenses paid by the major shareholders Due to family members of the owners of BHD and FGS Due to management staff for costs incurred on behalf of the Company Total June 30, 2021 RMB ¥ 1,594,543 545,159 260,965 ¥ 2,400,667 June 30, 2022 RMB ¥ 1,396,419 590,159 253,557 ¥ 2,240,135 June 30, 2022 U.S. Dollars $ 208,492 88,113 37,857 $ 334,462 81 Table of Contents 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, 2021 and 2022, respectively. Short-term borrowings due to related parties: Short-term borrowing from a founder , 4.35% annual interest, due on December 21, 2021* Short-term borrowing from a founder, 4.35% annual interest, due on March 25, 2022* Short-term borrowing from a founder's family member, 0% annual interest, due on December 31, 2021* Short-term borrowing from a founder's family member, 0% annual interest, due on March 24, 2022* Short-term borrowing from a founder, 4.35% annual interest, due on November 17, 2022 Short-term borrowing from a founder, 4.35% annual interest, due on December 26, 2022 Total short-term borrowings due to related parties June 30, 2021 RMB ¥ 5,006,042 4,000,000 June 30, 2022 RMB ¥ — $ — June 30, 2022 U.S. Dollars — — 670,000 — — 3,000,000 — — 4,006,767 — 5,002,389 9,009,156 12,676,042 — 598,228 746,879 1,345,107 The Company also had long-term borrowings from a related party. Below is a summary of the Company’s long-term borrowings due to a related party as of June 30, 2021 and 2022, respectively. Long-term borrowings due to related party: Long-term borrowing from a Founder, monthly payments of ¥126,135 inclusive of interest at 8.90%, ten years loan, due in November 2027. Less: current portion Total long-term borrowings due to related party June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ¥ 7,406,617 (920,066) ¥ 6,486,551 ¥ 6,510,606 (999,530) ¥ 5,511,076 $ 972,062 (149,234) $ 822,828 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 ¥110,834 ($16,547) with annual rental expense at ¥1.3 million ($0.20 million). The details of leases from related parties are as below: Lessee Nanjing Recon BHD BHD BHD Lessor Yin Shenping Chen Guangqiang Mr Chen’s family member Mr Chen’s family member Rent Period April 1, 2022 - March 31, 2024 ¥ Jan 1, 2022- Dec 31, 2022 Jan 1, 2022- Dec 31, 2022 Jan 1, 2022-Dec 31 ,2022 Monthly Rent RMB Monthly Rent USD $ 40,000 22,500 31,667 16,667 5,972 3,359 4,730 2,488 Expenses paid by the owner on behalf of Recon – Shareholders and founders of the VIEs paid certain operating expenses for the Company. As of June 30, 2021 and 2022, ¥2,400,667 and ¥2,240,135($334,462) was due to them, respectively. Guarantee/collateral related parties – The Company’s founders provide guarantee and collateral for the Company’s short-term bank loans. (see Note 14) Other than as described herein, no transactions required to be disclosed under Item 404 of Regulation S-K have occurred since the beginning of the Company’s last fiscal year. Director Independence The board of directors maintains a majority of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Stock Market Rule 4200(a)(15). Mr. Wong, Mr. Hu, Mr. Zhao and Dr. Duan are our independent directors. 82 Table of Contents C. Interests of experts and counsel Not applicable for annual reports on Form 20-F. ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information Please refer to Item 18. Legal and Administrative Proceedings We are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened material legal or administrative proceedings against us. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business. Dividend Policy We have never declared or paid any cash dividends on our Class A Ordinary Shares. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the board of directors may deem relevant. Because we are a holding company with no operations of our own and all of our operations are conducted through our Chinese subsidiary, our ability to pay dividends and to finance any debt that we may incur is dependent upon dividends and other distributions paid. In addition, Chinese legal restrictions permit payment of dividends to us by our Chinese subsidiary only out of its accumulated net profit, if any, determined in accordance with Chinese accounting standards and regulations. Under Chinese law, our subsidiary is required to set aside a portion (at least 10%) of its after-tax net income (after discharging all cumulated loss), if any, each year for compulsory statutory reserve until the amount of the reserve reaches 50% of our subsidiaries’ registered capital. These funds may be distributed to shareholders at the time of its wind-up. See “Holding Company Structure.” Payments of dividends by our subsidiary in China to the Company are also subject to restrictions including primarily the restriction that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents. There are no such similar foreign exchange restrictions in the Cayman Islands. B. Significant Changes We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report. ITEM 9. THE OFFER AND LISTING A. Offer and listing details We completed our initial public offering on July 29, 2009. Our Class A Ordinary Shares trade under the trading symbol “RCON” on the NASDAQ Capital Market. As of October 28, 2022, there were approximately 99 holders of record of our Class A Ordinary Shares. This excludes our Class A Ordinary Shares owned by shareholders holding Class A Ordinary Shares under nominee security position listings. On October 27, 2022, the last sales price of our Class A Ordinary Shares as reported on the NASDAQ Capital Market was $1.03 per Class A Ordinary Share. 83 Table of Contents B. Plan of distribution Not applicable for annual reports on Form 20-F. C. Markets Our Class A Ordinary Shares are listed on the Nasdaq Capital Market under the symbol “RCON.” D. Selling shareholders Not applicable for annual reports on Form 20-F. E. Dilution Not applicable for annual reports on Form 20-F. F. Expenses of the issue Not applicable for annual reports on Form 20-F. ITEM 10. ADDITIONAL INFORMATION A. Share capital Not applicable for annual reports on Form 20-F. B. Memorandum and articles of association The information required by this item is incorporated by reference to the material headed “Description of Share Capital” in our Registration Statement on Form S-3, File no. 333- 213702, filed with the SEC on September 29, 2016. C. Material contracts We have not entered into any material contracts other than in the ordinary course of business and otherwise described elsewhere in this annual report. D. Exchange controls Foreign Currency Exchange The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service- related foreign exchange transactions, may be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency- denominated loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries. 84 Table of Contents In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify the application of SAFE Circular 142. Under SAFE Circular 142 and Circular 45, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. We typically do not need to use our offshore foreign currency to fund our PRC operations. In the event we need to do so, we will apply to obtain the relevant approvals of SAFE and other PRC government authorities as necessary. SAFE Circular 75 Under the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, issued by SAFE on October 21, 2005 and its implementation rules, a PRC resident (whether a natural or legal person) is required to complete an initial registration with its local SAFE branch before incorporating or acquiring control of an offshore special purpose vehicle, or SPV, with assets or equity interests in a PRC company, for the purpose of offshore equity financing. The PRC resident is also required to amend the registration or make a filing upon (1) the injection of any assets or equity interests in an onshore company or undertaking of offshore financing, or (2) the occurrence of a material change that may affect the capital structure of a SPV. SAFE also subsequently issued various guidance and rules regarding the implementation of SAFE Circular 75, which imposed obligations on PRC subsidiaries of offshore companies to coordinate with and supervise any PRC-resident beneficial owners of offshore entities in relation to the SAFE registration process. Regulation of Dividend Distribution The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Equity Joint Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of such reserves reaches 50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. 85 Table of Contents E. Taxation The following sets forth the material Cayman Islands, Chinese and U.S. federal income tax consequences related to an investment in our Class A Ordinary Shares. It is directed to U.S. Holders (as defined below) of our Class A Ordinary Shares and is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This description does not deal with all possible tax consequences relating to an investment in our Class A Ordinary Shares, such as the tax consequences under state, local and other tax laws. The following brief description applies only to U.S. Holders (defined below) that hold Class A Ordinary Shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the tax laws of the United States in effect as of the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below. The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of shares and you are, for U.S. federal income tax purposes, ● an individual who is a citizen or resident of the United States; ● a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; ● an estate whose income is subject to U.S. federal income taxation regardless of its source; or ● a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. WE URGE POTENTIAL PURCHASERS OF OUR SHARES TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR SHARES. People’s Republic of China Enterprise Taxation The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends, if any, we are ultimately able to pay to our shareholders. See “Dividend Policy.” We are a holding company incorporated in the Cayman Islands and we gain substantial income by way of dividends paid to us from our PRC subsidiaries. The EIT Law and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate or a tax exemption. Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that actually, comprehensively manage and control the production and operation, staff, accounting, property and other aspects of an enterprise, the only official guidance for this definition currently available is set forth in SAT Notice 82, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although Recon does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese- controlled offshore incorporated enterprise within the meaning of SAT Notice 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in SAT Notice 82 to evaluate the tax residence status of Recon and its subsidiaries organized outside the PRC. 86 Table of Contents According to SAT Notice 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal and salary and wages) are decided or need to be decided by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China. We believe that we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, as a holding company, the key assets and records of the Company, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that Recon and its offshore subsidiaries should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in SAT Notice 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status. The implementation rules of the EIT Law provide that, (i) if the enterprise that distributes dividends is domiciled in the PRC or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or gains are treated as China-sourced income. It is not clear how “domicile” may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for PRC tax purposes, any dividends we pay to our overseas shareholders which are non-resident enterprises as well as gains realized by such shareholders from the transfer of our shares may be regarded as China-sourced income and as a result become subject to PRC withholding tax at a rate of up to 10%. See “Risk Factors — Risks Related to Doing Business in China — Under the Enterprise Income Tax Law, we may be classified as a ‘Resident Enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.” Any gain or loss recognized by you generally will be treated as United States source gain or loss. However, if we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax were imposed on any gain, and if you are eligible for the benefits of the tax treaty between the United States and PRC, you may elect to treat such gain as PRC source gain under such treaty and, accordingly, you may be able to credit the PRC tax against your United States federal income tax liability. Cayman Islands Taxation The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to our company levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not a party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands. The following does not address the tax consequences to any particular investor or to persons in special tax situations such as: United States Federal Income Taxation ● banks; ● financial institutions; ● insurance companies; 87 Table of Contents ● regulated investment companies; ● real estate investment trusts; ● broker-dealers; ● traders that elect to mark-to-market; ● U.S. expatriates; ● tax-exempt entities; ● persons liable for alternative minimum tax; ● persons holding our Class A Ordinary Shares as part of a straddle, hedging, conversion or integrated transaction; ● persons that actually or constructively own 10% or more of our voting shares; ● persons who acquired our Class A Ordinary Shares pursuant to the exercise of any employee share option or otherwise as consideration; or ● persons holding our Class A Ordinary Shares through partnerships or other pass-through entities. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. Federal tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our Class A Ordinary Shares. Taxation of Dividends and Other Distributions on our Class A Ordinary Shares Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the Class A Ordinary Shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the Class A Ordinary Shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority, Class A Ordinary Shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the Nasdaq Capital Market. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our Class A Ordinary Shares, including the effects of any change in law after the date of this annual report. Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our Class A Ordinary Shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.” 88 Table of Contents To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your Class A Ordinary Shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. Taxation of Dispositions of Class A Ordinary Shares Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the Class A Ordinary Shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the Class A Ordinary Shares for more than one year, you will generally be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes. Passive Foreign Investment Company A non-U.S. corporation is considered a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year if either: ● at least 75% of its gross income is passive income; or ● at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. Based on the market price of our Class A Ordinary Shares, the value of our assets and the composition of our assets and income, we believe that we were not a PFIC for our taxable year ended December 31, 2019, 2018 or 2017. However, given the factual nature of the analyses and the lack of guidance, no assurance can be given. We do not expect to be a PFIC for our taxable year ending December 31, 2018. However, because PFIC status is a factual determination for each taxable year which cannot be made until the close of the taxable year, our actual PFIC status will not be determinable until the close of the taxable year and, accordingly, there is no guarantee that we will not be a PFIC for the current taxable year or any future taxable year. We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change from year to year. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Class A Ordinary Shares, our PFIC status will depend in large part on the market price of our Class A Ordinary Shares. Accordingly, fluctuations in the market price of the Class A Ordinary Shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects including the composition of our income and assets in a given year. If we are a PFIC for any year during which you hold Class A Ordinary Shares, we will continue to be treated as a PFIC for all succeeding years during which you hold Class A Ordinary Shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the Class A Ordinary Shares. If we are a PFIC for any taxable year during which you hold Class A Ordinary Shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the Class A Ordinary Shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the Class A Ordinary Shares will be treated as an excess distribution. Under these special tax rules: ● the excess distribution or gain will be allocated ratably over your holding period for the Class A Ordinary Shares; 89 Table of Contents ● the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and ● the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Class A Ordinary Shares cannot be treated as capital, even if you hold the Class A Ordinary Shares as capital assets. A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for the Class A Ordinary Shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the Class A Ordinary Shares as of the close of your taxable year over your adjusted basis in such Class A Ordinary Shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the Class A Ordinary Shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the Class A Ordinary Shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Class A Ordinary Shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the Class A Ordinary Shares, as well as to any loss realized on the actual sale or disposition of the Class A Ordinary Shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such Class A Ordinary Shares. Your basis in the Class A Ordinary Shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark- to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “— Taxation of Dividends and Other Distributions on our Class A Ordinary Shares” generally would not apply. The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the Nasdaq Capital Market. If the Class A Ordinary Shares are regularly traded on the Nasdaq Capital Market and if you are a holder of Class A Ordinary Shares, the mark-to-market election would be available to you were we to be or become a PFIC. Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold Class A Ordinary Shares in any year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 regarding distributions received on the Class A Ordinary Shares and any gain realized on the disposition of the Class A Ordinary Shares. You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our Class A Ordinary Shares and the elections discussed above. Information Reporting and Backup Withholding Dividend payments with respect to our Class A Ordinary Shares and proceeds from the sale, exchange or redemption of our Class A Ordinary Shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules. 90 Table of Contents Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. Under the Hiring Incentives to Restore Employment Act of 2010, certain United States Holders are required to report information relating to ordinary shares, subject to certain exceptions (including an exception for ordinary shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold ordinary shares. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules. F. Dividends and paying agents Not applicable for annual reports on Form 20-F. G. Statement by experts Not applicable for annual reports on Form 20-F. H. Documents on display We are subject to the information requirements of the Exchange Act. In accordance with these requirements, the Company files reports and other information with the SEC. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC. I. Subsidiary Information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our exposure to interest rate risk primarily relates to excess cash invested in short-term instruments with original maturities of less than a year and long-term held-to-maturity securities with maturities of greater than a year. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if we have to sell securities that have declined in market value due to changes in interest rates. We have not been, and do not expect to be, exposed to material interest rate risks, and therefore have not used any derivative financial instruments to manage our interest risk exposure. In fiscal years 2022, 2021 and 2020, we had RMB 17.53 million (approximately $2.54 million),, RMB 21.04 million (approximately $2.98 million), and RMB 20.49 million (approximately $2.98 million) of weighted outstanding bank loans, with weighted average effective interest rate of 4.75%, 6.17%, and 7.07% respectively. As of June 30, 2022, if interest rates increased/decreased by 1%, with all other variables having remained constant, and assuming the amount of bank borrowings outstanding at the end of the year was outstanding for the entire year, profit attributable to equity owners of our company would have been RMB 83,270 (approximately $12,068) lower/higher, respectively, mainly as a result of higher/lower interest expense from our short-term borrowings. 91 Table of Contents Foreign Exchange Risk Our functional currency is the RMB, and our financial statements are presented in the RMB. Therefore, the change in the value of RMB relative to the U.S. dollar will not affect our financial results reported in the RMB. However, any significant revaluation of RMB against U.S. dollar may materially the value of, and any dividends payable on, our Class A Ordinary Shares in U.S. dollars in the future. See “Risk Factors — Risks Related to Doing Business in China — Fluctuations in exchange rates could adversely affect the value of our securities.” Commodity Risk As a provider of hardware, software, and on-site services, our Company is exposed to the risk of an increase in the price of raw materials. We historically have been able to pass on price increases to customers by virtue of pricing terms that vary with changes in steel prices, but we have not entered into any contract to hedge any specific commodity risk. Moreover, our Company does not purchase or trade on commodity instruments or positions; instead, it purchases commodities for use. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES With the exception of Items 12.D.3 and 12.D.4, this Item 12 is not applicable for annual reports on Form 20-F. As to Items 12.D.3 and 12.D.4, this Item 12 is not applicable, as the Company does not have any American Depositary Shares. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES PART II We do not have any material defaults in the payment of principal, interest, or any installments under a sinking or purchase fund. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS Material Modifications to the Rights of Security Holders Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” from our annual report on Form 10-K filed on September 28, 2016 is incorporated herein by reference. Use of Proceeds Not applicable. ITEM 15. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. As of June 30, 2022, our company carried out an evaluation, under the supervision of and with the participation of management, including our Company’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of our Company’s disclosure controls and procedures. Included in this Annual Report on Form 20-F, the chief executive officer and chief financial officer concluded that our Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were ineffective in timely alerting them to information required to be included in the Company’s U.S. Securities and Exchange Commission (the “Commission”) filings. 92 Table of Contents (b) Management’s annual report on internal control over financial reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the Company’s receipts and expenditures are being made only in accordance with the authorization of its management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. The Company’s management assessed the effectiveness of its internal control over financial reporting as of June 30, 2022. 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 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, 2022, its internal control over financing reporting was not effective. The specific material weaknesses identified by the Company’s management as of June 30, 2022 are described as follows: We did not have sufficient skilled accounting personnel who are either qualified as Certified Public Accountants in the U.S. or who have received education from U.S. institutions or other educational programs that would provide enough relevant education relating to U.S. GAAP. While our CFO is a U.S. Certified Public Accountant, our controller is not, and they have limited experience with U.S. GAAP. Further, our operating subsidiaries are based in China, and in accordance with PRC laws and regulations, are required to comply with PRC GAAP, rather than U.S. GAAP. Thus, the accounting skills and understanding necessary to fulfill the requirements of U.S. GAAP-based reporting, including the preparation of consolidated financial statements, are inadequate, and determined to be a material weakness. In addition, we have also identified several material weaknesses in information technology general control (“ITGC”) in the areas of: (1) IT related risk analysis and vulnerability assessment, cybersecurity training; (2) third-party vendor management; (3) system change management and system development management; (4) backup management, disaster recovery and off-site back management; (5) system security & assess (SSA) related risk; (6) segregation of duties and audit logging; and (7) system firewalls set up. While we have developed the scope of our internal audit function, it has not yet been fully implemented as we have not been able to hire sufficient qualified resources to do so. And due to limited availability of qualified resources, we may not be able to make sufficient hiring within a short period of time. We have reassessed all of our financial reporting cycles and we are unable to declare effectiveness of our controls as of June 30, 2022 due to sufficient monitoring of our internal controls (lack of self-testing of internal controls) and lack of enough training and adjustment of our internal procedures to provide enough supporting documents as required. Therefore, we determined that the lack of time to evaluate our design and operating effectiveness are material weaknesses. It should be noted, however, that (a) many actions had been undertaken to enhance the control environment during the year; and (b) there are other remedial activities that are scheduled to take place in fiscal year 2023. We have significantly reduced deficiencies of our internal control during this fiscal year, and management will continue to resolve internal control weaknesses and ensure effective internal controls are in place. 93 Table of Contents As a result, the Company has developed remedial actions and enhanced schedules to strengthen its accounting and financial reporting functions as well as the internal audit function. Such plan will require the hiring of additional resources and the deployment of other corporate resources for the accounting department in relation to the financial reporting process and internal audit department. Such additional resources will include the establishment of a work force dedicated to the task of correcting past financial irregularities and maintaining correct financial reporting on an on-going basis. To strengthen the Company’s internal control over financial reporting, the Company needs to engage outside consultants that are skilled in SEC reporting and Section 404 compliance to assist in the implementation of the following remedial actions as of the date of this report: ● Continuous assessment of our internal procedure of operation as we develop new business and new subsidiaries; ● Development and formalization of key accounting and financial reporting policies and procedures; ● Identification and documentation of key controls by business process; ● Enhancement of existing disclosures policies and procedures; ● Formalization of periodic communication between management and the audit committee; and ● Implementation of policies 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 2022: ● Formalization of a periodic staff training program to enhance their awareness of the key internal control activities. ● Develop a comprehensive training and development plan, for our finance, accounting and internal audit personnel, including our Chief Financial Officer, Controller, and others, in the principles and rules of U.S. GAAP, SEC reporting requirements and the application thereof. ● Continue to improve the Company's self-developed system. ● Hire a full-time employee who possesses the requisite U.S. GAAP experience and education. ● Monitoring of internal controls by performing self-testing of various key controls. ● To hire third party/professional firm to establish the basic of the Company’s IT strategy and IT control system. Despite the material weaknesses reported above, our management believes that our consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report. (c) Attestation report of the registered public accounting firm. Not applicable. 94 Table of Contents (d) Changes in internal control over financial reporting. Management continues to focus on internal control over financial reporting. As of June 30, 2022, the Company has completed certain documentation of our internal controls and will be implementing the following remedial initiatives: ● To engage a professional organization to assist the company revamp our internal controls and implementation of our internal control over financial report in the coming year; ● Design and implement an ongoing company-wide training program regarding our internal controls, with particular emphasis on our finance and accounting staff to better cooperating with other operation department to improve the accuracy and reporting efficiency of financial statements under the trend of operation and finance integration; ● Implement a control process over business acquisition and use or disposition of our assets that could have a material effect on the financial statements; ● Developing enhanced risk assessment procedures and controls related to changes in IT systems; and developing a training program for internal control staff to address ITGC principals and requirements, with a focus on issues related to user access and change-management over IT systems impacting financial reporting ● Developing a training program for management and related staff to address ITGC principals and requirements, with a focus on issues related to user access and change-management over IT systems impacting financial reporting. ITEM 15T. CONTROLS AND PROCEDURES Not applicable. ITEM 16. [RESERVED] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Company’s board of directors has determined that Mr. Nelson Wong qualifies as an “audit committee financial expert” in accordance with applicable Nasdaq Capital Market standards. The Company’s board of directors has also determined that Mr. Wong and the other members of the Audit Committee are all “independent” in accordance with the applicable Nasdaq Capital Market standards. ITEM 16B. CODE OF ETHICS The Company has adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers, employees and advisors. The Code of Ethics is attached it as an exhibit to this annual report. We have also posted a copy of our code of business conduct and ethics on our website at www.recon.cn. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Friedman LLP was appointed by the Company to serve as its independent registered public accounting firm for fiscal years 2021 and 2022. Fees Paid To Independent Registered Public Accounting Firm Audit Fees During fiscal years 2021 and 2022, Friedman LLP’s audit fees were $225,000 and $260,000, respectively. 95 Table of Contents Audit-Related Fees The Company paid $25,000 and $25,000 to Friedman LLP for audit-related services in fiscal years 2021 and 2022, respectively. Tax Fees The Company has not incurred any tax fees from Friedman LLP for tax services in fiscal years 2022 and 2021. All Other Fees The Company has not incurred any other fees from Friedman LLP other fees in fiscal years 2021 and 2022. Audit Committee Pre-Approval Policies Before Friedman LLP was engaged by the Company to render audit or non-audit services, the engagement was approved by the Company’s audit committee. All services rendered by Friedman LLP have been so approved. Percentage of Hours The percentage of hours expended on the principal accountants’ engagement to audit our consolidated financial statements for fiscal year 2022 that were attributed to work performed by persons other than Friedman LLP’s full-time permanent employees was less than 20%. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Neither the Company nor any affiliated purchaser has purchased any shares or other units of any class of the Company’s equity securities registered by the Company pursuant to Section 12 of the Securities Exchange Act during the fiscal year ended June 30, 2021. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable. ITEM 16G. CORPORATE GOVERNANCE We are incorporated in the Cayman Islands and our corporate governance practices are governed by applicable Cayman Islands law. In addition, because our Class A Ordinary Shares are listed on The Nasdaq Capital Market, we are subject to Nasdaq’s corporate governance requirements. As noted above in the risk factor titled “We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.”, The Nasdaq Capital Market allows foreign private issuers like our Company to opt to follow rules that apply in the issuer’s home country instead of a given Nasdaq rule. NASDAQ Listing Rule 5615(a)(3) permits a foreign private issuer like us to follow home country practices in lieu of certain requirements of Listing Rule 5600, provided that such foreign private issuer discloses in its annual report filed with the SEC each requirement of Rule 5600 that it does not follow and describes the home country practice followed in lieu of such requirement. 96 Table of Contents NASDAQ Rule 5635 requires shareholder approval for the issuance of securities: (i) in connection with the acquisition of stock or assets of another Company; (ii) when it would result in a change of control; (iii) 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; or (iv) in connection with a transaction other than a public offering involving the sale, issuance or potential issuance of common stock at a price less than market value. Our Cayman Islands counsel, Campbells, has provided a letter to NASDAQ certifying that under Cayman Islands law and our Memorandum and Articles of Association , we are not prohibited from issuing shares without first obtaining shareholder approval where such issuance of securities otherwise requires shareholder approval under NASDAQ Rule 5635. Accordingly, we intend to comply with the requirements of Cayman Islands law in determining whether shareholder approval is required. ITEM 16H. MINE SAFETY DISCLOSURE Not applicable. ITEM 17. FINANCIAL STATEMENTS See Item 18. ITEM 18. FINANCIAL STATEMENTS PART III Our consolidated financial statements are included at the end of this annual report, beginning with page F-1. 97 Table of Contents ITEM 19. EXHIBITS Exhibit No. 1.1.1 Second Amended and Restated Articles of Association of the Registrant Description of Exhibit 1.1.2 1.1.3 1.1.4 2.1 2.2 2.3 2.4 2.5 2.6 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 Second Amended and Restated Memorandum of Association of the Registrant Third Amended and Restated Articles of Association of the Registrant Third Amended and Restated Memorandum of Association of the Registrant Specimen Share Certificate Form of Amended and Restated Warrant Form of Convertible Note Form of Pre-Funded Warrant Form of Warrant Specimen Share Certificate 2009 Stock Incentive Plan 2015 Stock Incentive Plan Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd. and Beijing BHD Petroleum Technology Co., Ltd. Included By Reference By Reference By Reference By Reference By Reference By Reference By reference By Reference By reference By Reference Form Filing Date S-3 S-3 6-K 6-K 6-K 6-K 6-K 6-K 6-K 6-K 2016-09-19 2016-09-19 2021-04-06 2021-04-06 2020-01-17 2020-06-30 2020-11-25 2021-06-16 2021-06-16 2021-04-12 By Reference S-1/A 2009-06-10 By Reference 10-K 2016-09-28 By Reference S-1/A 2008-08-12 Translation of Power of Attorney for rights of Chen Guangqiang in Beijing BHD Petroleum Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Power of Attorney for rights of Yin Shenping in Beijing BHD Petroleum Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Power of Attorney for rights of Li Hongqi in Beijing BHD Petroleum Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Chen Guangqiang and Beijing BHD Petroleum Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Yin Shenping and Beijing BHD Petroleum Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Beijing BHD Petroleum Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Beijing BHD Petroleum Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Beijing BHD Petroleum Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Exclusive Technical Consulting Service Agreement between Recon Technology (Jining) Co., Ltd. and Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Power of Attorney for rights of Chen Guangqiang in Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Power of Attorney for rights of Yin Shenping in Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Power of Attorney for rights of Li Hongqi in Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 98 Table of Contents 4.17 4.18 4.19 4.20 4.21 4.22 4.23 4.24 4.25 4.26 4.27 4.28 4.29 4.30 4.31 4.32 4.33 4.34 4.35 4.36 4.37 4.38 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Yin Shenping and Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Exclusive Equity Interest Purchase Agreement between Recon Technology (Jining) Co. Ltd., Li Hongqi and Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Chen Guangqiang and Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Yin Shenping and Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of Equity Interest Pledge Agreement between Recon Technology (Jining) Co., Ltd., Li Hongqi and Nanjing Recon Technology Co., Ltd. By Reference S-1/A 2008-08-12 Translation of the Investment Agreement between Recon Technology, Ltd., Future Gas Station (Beijing) Technology, Ltd. and six individuals By Reference 6-KA 2018-08-28 Translation of the Supplemental Agreement between Recon Technology, Ltd., Future Gas Station (Beijing) Technology, Ltd. and six individuals By Reference 6-KA 2018-08-28 Translation of Exclusive Technical Consulting Service Agreement dated April 1, 2019 between Recon Hengda Technology (Beijing) Co., Ltd. and Beijing BHD Petroleum Technology Co., Ltd. By Reference 6-K 2019-04-24 Translation of Amended and Restated Exclusive Equity Interest Purchase Agreement dated April 1, 2019 among Recon Hengda Technology (Beijing) Co., Ltd., Beijing BHD Petroleum Technology Co., Ltd. and Fan Zhang, Shenping Yin, Donglin Li, Zhiqiang Feng and Guangqiang Chen By Reference 6-K 2019-04-24 Translation of Amended and Restated Equity Interest Pledge Agreement dated April 1, 2019 between Recon Hengda Technology (Beijing) Co., Ltd. and Fan Zhang, Shenping Yin, Donglin Li, Zhiqiang Feng and Guangqiang Chen about Beijing BHD Petroleum Technology Co., Ltd. By Reference 6-K 2019-04-24 Translation of Exclusive Technical Consulting Service Agreement dated April 1, 2019 between Recon Hengda Technology (Beijing) Co., Ltd. and Nanjing Recon Technology Co., Ltd. By Reference 6-K 2019-04-24 Translation of Amended and Restated Exclusive Equity Interest Purchase Agreement dated April 1, 2019 among Recon Hengda Technology (Beijing) Co., Ltd., Nanjing Recon Technology Co., Ltd. and Shenping Yin, Guangqiang Chen and Degui Zhai By Reference 6-K 2019-04-24 Translation of Amended and Restated Equity Interest Pledge Agreement dated April 1, 2019 between Recon Hengda Technology (Beijing) Co., Ltd. and Shenping Yin, Guangqiang Chen and Degui Zhai about Nanjing Recon Technology Co., Ltd. By Reference 6-K 2019-04-24 Translation of Financial Support Commitment Letter from Two Major Shareholders dated August 31, 2019 By Reference 20-F 2019-10-01 Translation of Supplemental Agreement to the Investment Agreement with respect to Future Gas Station (Beijing) Technology Co., Ltd. dated September 24, 2019 By Reference 20-F 2019-10-01 Translation of Supplemental Agreement to the Investment Agreement with respect to Future Gas Station (Beijing) Technology Co., Ltd. dated March 17, 2020 By Reference 6-K 2020-03-18 Placement Agency Agreement, dated May 7, 2020, between the Company and Maxim Group LLC By Reference Form of Securities Purchase Agreement, dated May 21, 2020, between the Company and the Purchasers By Reference Form of Securities Purchase Agreement, dated June 26, 2020, between the Company and the Purchasers By Reference Securities Purchase Agreement dated November 25, 2020 Translation of Supplemental Agreement to the Investment Agreement with respect to Future Gas Station (Beijing) Technology Co., Ltd. dated February 4, 2021 By reference By reference 6-K 6-K 6-K 6-K 6-K 2020-05-26 2020-05-26 2020-06-30 2020-11-27 2021-02-08 99 Table of Contents 4.39 4.40 4.41 4.42 8.1 11.1 12.1 12.2 13.1 13.2 15.1 99.1 99.3 99.3 Share Acquisition Agreement, dated June 3, 2021 By reference Placement Agency Agreement, dated June 14, 2021, between the Company and Maxim Group LLC By reference Form of Securities Purchase Agreement dated June 14, 2021, between the Company and the Purchasers By reference 2021 Equity Incentive Plan List of subsidiaries of the Company Code of Ethics of the Company 6-K 6-K 6-K 6-K 2021-06-04 2021-06-16 2021-06-16 2021-04-06 By Reference Herewith By Reference 10-K 2009-09-28 Certification of Chief Executive Officer Required by Rule 13a-14(a) Certification of Chief Financial Officer Required by Rule 13a-14(a) Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code Consent of Friedman LLP RECON ISSUES SHAREHOLDER UPDATE Recon Technology reports financial results for FY2021 Recon Technology, Ltd Reports Financial Results for the First Six Months of Fiscal Year 2022 Herewith Herewith Herewith Herewith Herewith By Reference By Reference By Reference 6-K 6-K 6-K 2022-07-21 2021-04-05 2022-03-31 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) 100 Table of Contents The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. SIGNATURES Date: October 28, 2022 Recon Technology, Ltd. By: /s/ Yin Shenping Name: Yin Shenping Title: Chief Executive Officer 101 Table of Contents RECON TECHNOLOGY, LTD INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 711) Consolidated Balance Sheets as of June 30, 2021 and 2022 Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended June 30, 2020, 2021 and 2022 Consolidated Statements of Changes in Shareholders’ Equity for the years ended June 30, 2020, 2021 and 2022 Consolidated Statements of Cash Flows for the years ended June 30, 2020, 2021 and 2022 Notes to the Consolidated Financial Statements PAGE F-1 F-3 F-4 F-5 F-6 F-7 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Director and Stockholders of Recon Technology, Ltd Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Recon Technology, Ltd and Subsidiaries (collectively, the “Company”) as of June 30, 2021 and 2022, and the related consolidated statements of operations and comprehensive (loss) income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F-1 Table of Contents Assessment of impairment for goodwill Description of Critical Audit Matter As described in Note 3, the goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. Management performed evaluation with the assistance of an independent valuation firm on the impairment of goodwill and recorded an impairment loss on goodwill of ¥2,266,893 ($338,457) for the year ended June 30, 2022. We identified the assessment of impairment for goodwill as a critical audit matter because there is a high degree of subjective auditor judgement in assessing the assumptions used to determine the free cash flow projection used to develop the fair value of the underlying assets. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included the following. We read the accounting memo prepared by the Company. We evaluated management’s application of the relevant accounting standards. We also engaged a specialist to assist us in the evaluation of the Company’s valuation methodology and tested the significant assumptions used by the Company to develop forecasted results and discounted cash flows. /s/ Friedman LLP Friedman LLP We have served as the Company’s auditor since 2011. New York, New York October 28, 2022 F-2 Table of Contents ASSETS Current assets Cash Restricted cash Notes receivable Trade accounts receivable, net Inventories, net Other receivables, net Loans to third parties Purchase advances, net Contract costs, net Prepaid expenses Prepaid expenses- related parties Total current assets RECON TECHNOLOGY, LTD CONSOLIDATED BALANCE SHEETS As of June 30 2021 RMB As of June 30 2022 RMB As of June 30 2022 U.S. Dollars Property and equipment, net Construction in progress Land use right, net Intangible assets, net Investment in unconsolidated entity Long-term other receivables, net Goodwill Operating lease right-of-use assets (including ¥352,775 and ¥765,241 ($114,254) from a related party as of June 30, 2021 and 2022, respectively) Total Assets LIABILITIES AND EQUITY Current liabilities Short-term bank loans Trade accounts payable Other payable Other payable- related parties Contract liabilities Accrued payroll and employees’ welfare Taxes payable Short-term borrowings Short-term borrowings - related parties Long-term borrowings - related party - current portion Operating lease liabilities - current (including ¥352,775 and ¥429,265 ($64,091) from a related party as of June 30, 2021 and 2022, respectively) Total Current Liabilities Operating lease liabilities - non-current (including ¥nil and ¥335,976 ($50,163) from a related party as of June 30, 2021 and 2022, respectively) Long-term borrowings - related party Contract liabilities - non-current Deferred tax liability Warrant liability Total Liabilities Commitments and Contingencies Equity Class A ordinary shares, $0.0925 U.S. dollar par value, 150,000,000 shares authorized; 26,868,391 shares and 29,700,718 shares issued and outstanding as of June 30, 2021 and 2022, respectively Class B ordinary shares, $0.0925 U.S. dollar par value, 20,000,000 shares authorized; nil shares and 4,100,000 shares issued and outstanding as of June 30, 2021 and 2022, respectively Additional paid-in capital Statutory reserve Accumulated deficit Accumulated other comprehensive income Total shareholders’ equity Non-controlling interests Total equity Total Liabilities and Equity ¥ ¥ ¥ ¥ 343,998,570 — 6,305,633 26,686,888 3,644,522 6,939,676 50,476,782 1,078,137 48,795,906 146,071 433,000 488,505,185 27,138,768 — 1,253,408 6,650,000 27,931,795 114,679 6,996,895 7,925,930 566,516,660 15,000,000 21,956,481 9,862,762 2,400,667 7,686,276 1,954,484 1,248,994 530,000 12,676,042 920,066 2,226,832 76,462,604 4,792,101 6,486,551 — 624,088 190,635,850 279,001,194 16,340,826 — 479,490,763 4,148,929 (206,860,320) 1,974,836 295,095,034 (7,579,568) 287,515,466 566,516,660 ¥ ¥ ¥ ¥ 316,974,857 723,560 10,828,308 22,577,980 3,894,369 5,501,833 50,383,822 178,208 33,858,820 420,284 275,000 445,617,041 25,474,162 239,739 1,226,169 5,950,000 — 1,564,381 4,730,002 5,440,590 490,242,084 10,000,000 16,739,989 3,533,918 2,240,135 2,001,277 2,250,547 2,210,958 — 9,009,156 999,530 3,892,774 52,878,284 2,184,635 5,511,076 106,000 — 16,677,328 77,357,323 18,001,670 2,408,498 496,038,696 4,148,929 (111,273,525) 11,307,461 420,631,729 (7,746,968) 412,884,761 490,442,084 $ $ $ $ 47,325,771 108,031 1,616,715 3,370,994 581,447 821,448 7,522,532 26,607 5,055,274 62,750 41,059 66,532,628 3,803,407 35,794 183,073 888,362 — 233,569 706,211 812,305 73,195,349 1,493,045 2,499,356 527,630 334,462 298,800 336,017 330,106 — 1,345,107 149,234 581,209 7,894,966 326,176 822,828 15,826 — 2,490,000 11,549,796 2,687,730 359,600 74,060,807 619,454 (16,613,637) 1,688,255 62,802,209 (1,156,656) 61,645,553 73,195,349 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents RECON TECHNOLOGY, LTD CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME Revenues Revenues - third party Revenues - related party Revenues Cost of revenues Cost of revenues - third party Cost of revenues Gross profit Selling and distribution expenses General and administrative expenses Provision for (net recovery of) credit losses Impairment loss of property and equipment Research and development expenses Operating expenses Loss from operations Other income (expenses) Subsidy income Interest income Interest expense Income (loss) from investment in unconsolidated entity Fair value changes of warrants liability Remeasurement gain of previously held equity interests in connection with step acquisition Foreign exchange transaction loss Impairment loss on goodwill Other income Other income, net Income (loss) before income tax Income tax expenses (benefit) Net income (loss) Less: Net loss attributable to non-controlling interests Net income (loss) attributable to Recon Technology, Ltd Comprehensive income (loss) Net income (loss) Foreign currency translation adjustment Comprehensive income (loss) Less: Comprehensive loss attributable to non- controlling interests Comprehensive income (loss) attributable to Recon Technology, Ltd Earning (loss) per ordinary share -Basic -Diluted Weighted average shares -Basic -Diluted For the years ended June 30, 2020 RMB 2021 RMB 2022 RMB 2022 USD ¥ ¥ 65,760,651 — 65,760,651 47,852,918 85,657 47,938,575 ¥ $ 83,777,571 — 83,777,571 12,508,368 — 12,508,368 46,154,255 46,154,255 40,723,547 40,723,547 64,352,834 64,352,834 9,608,167 9,608,167 19,606,396 7,215,028 19,424,737 2,900,201 4,417,413 26,120,099 2,203,531 — 7,042,385 39,783,428 8,038,965 45,949,157 8,191,247 768,312 5,846,295 68,793,976 10,150,802 83,281,958 (658,823) — 8,964,217 101,738,154 1,515,560 12,434,371 (98,365) — 1,338,398 15,189,964 (20,177,032) (61,578,948) (82,313,417) (12,289,763) 1,210,318 54,746 (1,451,890) 462,879 — — (17,720) — 78,417 336,750 (19,840,282) 282,322 (20,122,604) 355,667 918,629 (2,210,005) (266,707) 35,365,792 979,254 (146,898) — 192,137 35,187,869 (26,391,079) (524,251) (25,866,828) 11,993 5,567,979 (1,522,526) 15,411 174,485,575 — (118,456) (2,266,893) 15,855 175,988,938 93,675,521 (613,874) 94,289,395 1,791 801,463 (227,320) 2,301 26,051,481 — (17,686) (338,457) 2,367 26,275,940 13,986,177 (91,654) 14,077,831 (875,903) (19,246,701) ¥ (3,034,094) (22,832,734) ¥ (1,297,400) 95,586,795 $ (193,708) 14,271,539 (20,122,604) (84,205) (20,206,809) (875,903) (19,330,906) (4.16) (4.16) (25,866,828) (850,895) (26,717,723) (3,034,094) (23,683,629) (1.80) (1.80) ¥ ¥ ¥ ¥ ¥ ¥ 94,289,395 9,332,625 103,622,020 (1,297,400) 104,919,420 3.19 3.19 14,077,831 1,393,403 15,471,234 (193,708) 15,664,942 0.48 0.48 $ $ $ ¥ ¥ ¥ ¥ 4,624,615 4,624,615 12,697,024 12,697,024 30,002,452 30,002,452 30,002,452 30,002,452 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents RECON TECHNOLOGY, LTD CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Common Share Number of Class A Shares* Amount (RMB) Number of Class B Shares* Amount (RMB) Additional Paid-in Capital Statutory Reserve Accumulated deficit Accumulated Other Comprehensive income Shareholders’ Non-controlling Equity Interest Total Equity Total Equity (RMB) (RMB) (RMB) (RMB) (RMB) (RMB) (RMB) (USD) Balance, June 30, 2019 4,361,634 ¥ 2,712,773 — ¥ — ¥ 250,624,798 ¥ 4,148,929 ¥ (164,780,885) ¥ 2,909,936 ¥ 95,615,551 ¥ 11,085,429 ¥ 106,700,980 $ 15,930,932 Capital contribution in non-controlling interests Share issuance Restricted shares issued for services Restricted shares issued for management Net loss for the year Foreign currency translation adjustment Balance, June 30, 2020 Capital contribution in non-controlling interests Step acquisition of FGS Capital contribution receivable due from non-controlling Interest Share issuance Share issuance for warrants exercised Proceeds from Pre-founded warrants Issuance of common share in exchange of shares of Starry, net of issuance costs Share issuance for convertible notes redemption Restricted shares issued for management Net loss for the year Foreign currency translation adjustment Balance, June 30, 2021 Capital contribution in non-controlling interests Restricted shares issued for services Share issuance for Pre-founded warrants Cancellation of ordinary shares issued to Starry Lab Restricted shares issued for management Net income (loss) for the year Foreign currency translation adjustment Balance, June 30, 2022 — — 2,591,112 1,701,005 — 250,086 — — — 163,455 — — 7,202,832 ¥ 4,577,233 — — — — — 6,014,102 2,591,112 1,330,000 — 3,579,783 1,563,589 791,658 316,345 187,133 9,225,338 188,662 — — 5,528,591 112,839 — — 26,868,391 ¥ 16,340,826 — 1,550,000 1,470,000 — 911,760 859,413 (316,345) 128,672 — — (187,133) 76,804 — — 29,700,718 ¥ 18,001,670 — — — — — — — ¥ — — — — — — — — — — — — ¥ — — — — 24,065,350 — — — — — — — ¥ 282,505,455 ¥ 4,148,929 ¥ (184,027,586) ¥ — — — — (19,246,701) — 33,927 7,781,380 — — — — — — — — — — — — — (84,205) — 25,766,355 33,927 7,944,835 (19,246,701) (84,205) 2,825,731 ¥ 110,029,762 ¥ 405,000 405,000 25,766,355 33,927 7,944,835 (20,122,604) (84,205) 10,614,526 ¥ 120,644,288 — — — (875,903) — 60,468 3,847,033 5,065 1,186,200 (3,004,395) (12,572) $ 18,012,731 — — — — — — — — — 77,511,358 19,566,446 29,484,911 — 27,488,317 36,907,078 6,027,198 — — — — — — — ¥ 479,490,763 — — — — — — — — — — — ¥ 4,148,929 — — — — — — — — — — — — — — — 50,000 34,790,000 50,000 34,790,000 7,465 5,194,303 — 81,091,141 21,130,035 30,276,569 (50,000,000) — — — (50,000,000) 81,091,141 21,130,035 30,276,569 (7,465,225) 12,107,272 3,154,809 4,520,428 — 27,675,450 — 27,675,450 4,132,069 — — (22,832,734) — ¥ (206,860,320) ¥ — — — (850,895) 1,974,836 42,435,669 6,140,037 (22,832,734) (850,895) ¥ 295,095,034 ¥ — — (3,034,094) — (7,579,568) 42,435,669 6,140,037 (25,866,828) (850,895) ¥ 287,515,466 6,335,836 916,735 (3,862,028) (127,042) $ 42,927,353 — — — — 8,024,159 (766,092) — — — — — — — — — — 8,935,919 93,321 1,130,000 — — 1,130,000 8,935,919 93,321 168,714 1,334,173 13,933 — 4,100,000 — — (27,488,317) 36,778,183 — — 4,100,000 ¥ 2,408,498 ¥ 496,038,696 ¥ 4,148,929 ¥ (111,273,525) ¥ — — 95,586,795 — — 2,408,498 — — — — — — — — — 9,332,625 11,307,461 ¥ 420,631,729 ¥ (27,675,450) 39,263,485 95,586,795 9,332,625 — — (1,297,400) — (27,675,450) 39,263,485 94,289,395 9,332,625 (7,746,968) ¥ 412,884,761 (4,132,069) 5,862,215 14,077,831 1,393,403 $ 61,645,553 *Retrospectively restated for effect of share split on December 27, 2019 and change in class of shares on April 5, 2021. The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents RECON TECHNOLOGY, LTD CONSOLIDATED STATEMENTS OF CASH FLOWS 2020 RMB 2021 RMB 2022 RMB 2022 U.S. Dollars For the years ended June 30, Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization Loss (gain) from disposal of equipment Changes in warrants liability Amortization of offering cost of warrants Provision of (net recovery of) credit losses Provision for slow moving inventories Impairment of property and equipment Impairment loss on goodwill Amortization of right of use assets Restricted shares issued for management and employees Remeasurement gain of previously held equity interests in connection with step acquisition Loss (income) from investment in unconsolidated entity Deferred tax benefit Interest expenses related to convertible notes Accrued interest income from loans to third parties Restricted shares issued for services Changes in operating assets and liabilities: Notes receivable Trade accounts receivable Trade accounts receivable-related party Inventories Other receivables Purchase advances Contract costs Prepaid expense Prepaid expense - related parties Operating lease liabilities Trade accounts payable Other payables Other payables-related parties Contract liabilities Accrued payroll and employees’ welfare Taxes payable Net cash used in operating activities Cash flows from investing activities: Purchases of property and equipment Proceeds from disposal of equipment Repayments of third parties loans Payments made for loans to third parties Payments and prepayments for construction in progress Step acquisition of FGS, net of cash Net cash used in investing activities Cash flows from financing activities: Proceeds from short-term bank loans Repayments of short-term bank loans Proceeds from short-term borrowings Repayments of short-term borrowings Proceeds from short-term borrowings-related parties Repayments of short-term borrowings-related parties Repayments of long-term borrowings-related party Proceeds from warrants issued with common stock Proceeds from sale of ordinary shares, net of issuance costs Proceeds from sale of prefunded warrants, net of issuance costs Proceeds from share issuance for warrants exercised Proceeds from issuance of convertible notes Capital contribution by non-controlling shareholders Net cash provided by (used in) financing activities Effect of exchange rate fluctuation on cash Net increase (decrease) in cash and restricted cash Cash and restricted cash at beginning of year Cash and restricted cash at end of year Supplemental cash flow information Cash paid during the year for interest Cash paid (received) during the year for taxes Reconciliation of cash and restricted cash, beginning of year Cash Restricted cash Cash and restricted cash, beginning of year Reconciliation of cash and restricted cash, end of year Cash Restricted cash Cash and restricted cash, end of year Non-cash investing and financing activities Issuance of common stock in exchange of shares of FGS, net of issuance costs Cancellation of common stock issued prior years in exchange of shares of FGS , net of issuance costs Issuance of common stock in exchange of shares of Starry, net of issuance costs Cancellation of ordinary shares issued to Starry Conversion of convertible notes to 9,225,338 shares of ordinary shares Right-of-use assets obtained in exchange for operating lease obligations Inventories transferred to and used as fixed assets Payable for construction in progress Receivable for disposal of property and equipment Payable for issuance cost of common share Capital contribution receivable due from non-controlling Interest Other payable due to non-controlling interest converted into capital contribution ¥ (20,122,604) ¥ (25,866,828) ¥ 94,289,395 $ 1,609,700 (89,156) — — 2,203,531 56,817 — — 1,408,551 7,944,835 — (462,879) — — — 33,927 (1,107,205) 18,428,088 — (1,124,935) (287,242) 1,210,309 (26,938,013) (5,457) 217,600 (1,419,402) 8,205,660 (14,175) 2,207,445 3,366,033 533,109 (1,085,213) (5,230,676) (85,974) 900 11,239,623 (9,480,000) (3,782,912) - (2,108,363) 9,520,000 (2,500,000) 200,000 (1,000,000) 17,415,000 (16,195,000) (747,630) — 26,141,051 — — — 405,000 33,238,421 (84,203) 25,815,179 4,521,325 30,336,504 1,400,462 282,322 4,521,325 — 4,521,325 30,336,504 — 30,336,504 — — — — — 1,228,963 409,735 732,513 110,000 374,696 — — ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ 3,150,789 19,590 (35,365,792) 12,584,024 8,191,247 654,673 768,312 — 1,866,803 6,140,037 (979,254) 266,707 (425,913) 430,416 — — (2,124,748) 18,326,410 3,409,912 (2,502,263) (338,468) (899,371) (21,944,876) 143,354 (433,000) (2,762,949) (2,109,944) 5,685,188 (2,577,610) 4,160,456 (1,593,822) 76,452 (34,050,468) (522,416) — 5,150,377 (51,638,458) — 471,843 (46,538,654) 16,020,000 (10,540,000) 3,660,000 (3,360,000) 18,400,000 (15,950,000) (816,952) 212,051,414 81,091,141 30,276,569 21,130,035 42,014,616 50,000 394,026,823 224,365 313,662,066 30,336,504 343,998,570 1,682,863 (98,338) 30,336,504 — 30,336,504 343,998,570 — 343,998,570 1,689,807 (1,689,807) 27,675,450 — 42,435,669 7,242,819 302,795 — — — 50,000,000 — ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ 3,339,868 48,628 (174,485,575) — (658,823) 266,285 — 2,266,893 3,138,518 39,263,485 — (15,411) (624,087) — (270,563) 8,935,919 (4,522,674) 3,811,866 — (689,291) 285,786 865,430 15,422,513 (274,215) 158,000 (1,594,702) (5,523,938) (6,329,042) 969,468 (5,578,999) 296,065 961,964 (26,247,237) (692,206) — 171,435,032 (171,071,510) — — (328,684) 10,000,000 (15,000,000) — (530,000) 11,100,000 (14,770,000) (892,701) — — 93,321 — — — (9,999,380) 10,275,148 (26,300,153) 343,998,570 317,698,417 1,427,174 10,214 343,998,570 — 343,998,570 316,974,857 723,560 317,698,417 — — — (27,675,450) — 937,672 — — 3,000 — — 1,130,000 $ $ $ ¥ $ ¥ $ $ $ $ $ $ $ $ $ $ $ $ $ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ 14,077,831 498,657 7,260 (26,051,481) — (98,365) 39,758 — 338,457 468,595 5,862,215 — (2,301) (93,179) — (40,396) 1,334,173 (675,256) 569,129 — (102,914) 42,669 129,213 2,302,651 (40,942) 23,590 (238,096) (824,749) (944,953) 144,746 (832,970) 44,204 143,626 (3,918,828) (103,349) — 25,596,021 (25,541,745) — — (49,073) 1,493,045 (2,239,567) — (79,131) 1,657,280 (2,205,227) (133,284) — — 13,933 — — — (1,492,951) 1,534,121 (3,926,731) 51,360,533 47,433,802 213,084 1,525 51,360,533 — 51,360,533 47,325,771 108,031 47,433,802 — — — (4,132,069) — 139,999 — — 448 — — 168,714 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Organization – Recon Technology, Ltd (the “Company”) was incorporated under the laws of the Cayman Islands on August 21, 2007 as a limited liability company. By far, the Company provides specialized equipment, automation systems, tools, chemicals, outsourcing platform services and field services to energy industry companies mainly in the People’s Republic of China (the “PRC”). The Company, along with its wholly-owned subsidiaries, 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 energy industry: 1. Beijing BHD Petroleum Technology Co., Ltd. (“BHD”), 2. Nanjing Recon Technology Co., Ltd. (“Nanjing Recon”). The Company has signed Exclusive Technical Consulting Service Agreements with each of the Domestic Companies, which are its 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 those VIEs. On February 21, 2019, the Company’s board of directors approved transferring the VIEs and VIE-controlled companies from Jining Recon Technology Ltd. (“Recon-JN”) to Recon-BJ. At the time, both Recon-JN and Recon-BJ were the Company’s wholly owned subsidiaries in China. On April 1, 2019, the Company completed the VIE transfer process and then completed the dissolution of Recon- JN on April 10, 2019, and subsequently completed the dissolution of Recon Technology Co., Limited (“Recon HK”) on May 15, 2020. The Company does not expect any negative impact of this process on its operations. 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, focusing on the design, assemble and manufacture of hearing equipment. Gan Su BHD Environmental Technology Co., Ltd (“Gan Su BHD”) was established on May 23, 2017, with registered capital of ¥50 million. The paid in capital was ¥27,495,000 ($4,105,127) as of June 30,2022. BHD owned an equity interest of 49% of Gan Su BHD, and the remaining 51% equity interests was owned by an individual shareholder upon incorporation of Gan Su BHD. On September 25, 2017, the individual shareholder became the minority shareholder by transferring 2.0% equity shares to BHD. On April 26, 2021, the minority shareholder of Gan Su BHD transferred 15.4% of her equity interest to BHD. On May 19, 2021, the minority shareholder transferred 3.6% of her equity interest and BHD transferred 15.4% of its equity interest of Gan Su BHD to Nanjing Recon. There was no consideration paid for the transfers, and after the transfers, BHD owns equity an interest of 51% and Nanjing Recon owns an equity interest of 19% of Gan Su BHD, which is focusing on oilfield sewage treatment and oily sludge disposal projects. Qing Hai BHD New Energy Technology Co., Ltd. (“Qinghai BHD”) was established on October 16, 2017, with registered capital of ¥50 million. The paid in capital was ¥4,200,000 ($627,079) as of June 30, 2022. BHD owned an equity interest of 55% of Qinghai BHD previously; however, based on an agreement signed by the shareholders of Qinghai BHD dated October 23, 2018, each of the other two individual shareholders agreed to reduce 10% of their equity interests. As a result, Qinghai BHD returned ¥200,000 paid in capital back to one of the individual shareholders. After the new arrangement, BHD owns a total interest of 75% of Qinghai BHD. The remaining paid in capital should be contributed by BHD and the other individual shareholder is ¥33,300,000 ($4,971,840) and ¥12,500,000 ($1,866,306) respectively. Based on its charter dated September 29, 2017, the remaining capital will be injected before September 29, 2036. F-7 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As the energy consumption market opened to private and foreign companies, and online payment technology developed, the Domestic Companies began to invest in the downstream of the oil industry. On December 15, 2017, BHD and Nanjing Recon entered into a subscription agreement with Future Gas Station (Beijing) Technology, Ltd (“FGS”), pursuant to which the Domestic Companies acquired an 8% equity interest in FGS. Established in January 2016, FGS is a service company focusing on providing new technical applications and data operations to gas stations and provides solutions to gas stations to improve their operations and their customers’ experience. On August 21, 2018, the Domestic Companies entered into an investment agreement and a supplemental agreement (collectively, the “Investment Agreement”) with FGS and the other shareholders of FGS. Pursuant to the Investment Agreement, our VIEs’ ownership interest in FGS shall increase from 8% to 43%, in exchange for their investment in FGS for a total amount of ¥10 million in cash and the issuance of 487,057 restricted Class A Ordinary Shares to the other shareholders of FGS with certain conditions. As of June 30, 2019, the Domestic Companies invested an aggregate amount of ¥35,116,707 in FGS and issued 487,057 restricted shares in total to other shareholders of FGS, and the Domestic Companies’ ownership interest in FGS has increased to 43%. On February 4, 2021, Nanjing Recon and BHD, entered into the fourth supplemental agreement to the investment agreement with FGS and FGS’ founding shareholders to acquire 8% equity ownership of FGS. The transaction has been closed. As a result, the Domestic Companies collectively own 51% interest of FGS and began to consolidate the financial results of FGS since January 2021. Through the fourth supplemental agreement, the Domestic Companies waived the requirement on FGS’ performance goal about the number of gas stations. Accordingly, the Domestic Companies agreed to pay for the balance of the investment and cancelled the related lock-up terms on the restricted shares, in exchange of the additional 8% equity ownership of FGS. Nature of Operations – The Company engages in (1) providing equipment, tools and other components and parts related to oilfield production and other energy industries companies, including simple installations in connection with some projects; (2) services to improve production and efficiency of exploited oil wells, (3) developing and selling its own specialized industrial automation control and information solutions, (4) design, test and implement solution of sewage and oily sludge treatment, production and sales of related integrated equipment and project services , and (5) development, upgrading and maintenance of the online operation and cooperation platform of gas stations, marketing and promotion services, etc. Impact of COVID-19 - In January 2020, the World Health Organization declared the COVID-19 outbreak a global health emergency as the coronavirus outbreak continued to spread beyond China. In compliance with the government health emergency rules in place, the Company temporarily closed offices in varies provinces in China and ceased production operations since Chinese New Year. The Company gradually resumed operation and production since March 2020. For fiscal year 2022, either the Company or its clients’ operations occasionally affected by regional outbreaks, causing some of its business is still not return to prior level. In short term, the Company’s business was affected negatively, and collection of receivables were also affected. However, at this stage, the Company doesn’t expect a significant impact on the Company’s operations and financial results in a long run. NOTE 2. LIQUIDITY As disclosed in the Company’s consolidated financial statements, the Company had a net income for the year ended June 30, 2022. The net income of the Company was mainly due to the change in fair value of its warrant liability. The Company had a net loss from operations for the years ended June 30, 2021 and 2020, and as of June 30, 2022, the total future minimum purchase commitment under the non-cancellable purchase contracts were amounted to ¥27.7 million ($4.1 million). In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand and its ability to generate sufficient revenue sources in the future to support its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. Direct offering and debt financing in the forms of loans payable and loans from related parties have been utilized to finance the working capital requirements of the Company. On September 1, 2021, two major shareholders also renewed a 3- year commitment letter for financial support and whenever the Company has liquidity difficulty, they will provide working capital to support daily operation of the Company. Despite those negative financial trends, as of June 30, 2022, the Company had positive working capital of ¥392.7 million ($58.6 million) due to the following measurements the management has taken to enhance the Company’s liquidity: 1) The Company financed through direct offering of its ordinary shares and prefunded warrants. On June 14, 2021, the Company and certain institutional investors entered into certain securities purchase agreement to sell to an aggregate of 6,014,102 Class A Ordinary Shares and 2,800,000 pre-funded warrants to purchase Class A Ordinary Shares in a registered F-8 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS direct offering and warrants to purchase up to 8,814,102 Class A Ordinary Shares in a concurrent private placement, for gross proceeds of approximately $55.0 million before deducting the placement agent’s fees and other estimated offering expenses. 2) The Company financed through borrowing from shareholders and senior management. As of June 30, 2022, the Company had short-term borrowings due to related parties amounted to ¥9.0 million ($1.3 million), and long-term borrowings due to a related party amounted to ¥6.5 million ($1.0 million). 3) The Company also financed from commercial banks. As of June 30, 2022, the Company had ¥10.0 million ($1.5 million) in bank loans outstanding. The management expects that the Company will be able to renew its existing bank loan upon its maturity based on past experience and its good credit history. 4) For the year end June 30, 2022, the Company had approximately ¥26.2 million ($4.0 million) cash out flow from the operating activities, however, as of June 30, 2022, the Company had cash in the amount of approximately ¥317.0 million ($47.3 million) for the next operating cycle ending June 30, 2023. Management believes that the foregoing measures collectively will provide sufficient liquidity for the Company to meet its future liquidity needs 12 months from this report issuance date. NOTE 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The accompanying consolidated financial statements have been prepared in conformity with Generally Accepted Accounting Principles of the United States of America (“U.S. GAAP”) and have been consistently applied. Principles of Consolidation - The consolidated financial statements include the accounts of the Company, all the subsidiaries, VIEs and subsidiaries of VIEs of the Company. All transactions and balances 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 financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. 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. 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; rather, they represent claims against the specific assets of the consolidated VIEs. Currency Translation - The Company’s functional currency is the United States dollars (“U.S. dollars”) and the consolidated financial statements have been expressed in Chinese Yuan (“RMB”) as RMB is the Company’s reporting currency. The consolidated financial statements as of and for the year ended June 30, 2022 have been translated into U.S. dollars solely for the convenience of the readers. The translation has been made at the rate of ¥6.6977 = US$1.00, the approximate exchange rate prevailing on June 30, 2022. 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. dollars. F-9 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Estimates and Assumptions - The preparation of the consolidated financial statements in conformity with US GAAP, which 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 to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s consolidated financial statements include allowance for credit losses related to trade accounts receivable, other receivables and purchase advances, allowance for inventory, the useful lives of property and equipment, valuation allowance for deferred tax assets, impairment assessment for long-lived assets, goodwill and investment in unconsolidated entity, the discount rate for lease and investment, valuation of the convertible notes, price purchase allocation for business combination and the fair value of share-based payments. The use of estimates is an integral component of the financial reporting process; actual results could differ from those estimates. The key assumptions underlying the Company’s accounting for material arrangements and the reasonably likely material effects of resolving any uncertainties on the Company’s allowance for credit losses related to purchase advances. The production of the Company’s products requires custom-made equipment from its suppliers. To ensure that it can secure the required customized equipment, the Company often needs to make full prepayment for its intended purchases. As a standard practice in the petroleum extraction industry, the Company generally must submit a bid in order to secure the sales contract. The bidding process generally takes between one month to one year and the timing depends on the size of the overall project, which timing and size are generally controlled by its client. In order to secure timely purchase delivery and to meet its product delivery schedule, the Company normally prepays for the purchase advances if the Company believes that it is more than likely to win the bid for the sales contract which is accounted as pre-contract costs. After winning the bid and securing the sale contract, the Company normally needs to deliver its products approximately within one week to six months. Based on the Company’s historical experience, the Company generally is able to realize its purchase advances on the customized equipment that it orders. If it subsequently confirms that the Company is unable to secure the planned contracts with a customer after making the advance payments for these planned contracts, the Company evaluates the probable recoverability of the pre- contract cost and charges to expenses when the Company determines that the recovery of such pre-contract cost is improbable. 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 as follows: Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 inputs to the valuation methodology are unobservable. Accounting guidance also describes three main approaches to measure the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. The Company measures certain financial assets, including investments under the equity method on other-than-temporary basis, intangible assets and fixed assets at fair value when an impairment charge is recognized. The carrying amounts reported in the consolidated balance sheets for trade accounts receivable, notes receivable, other receivables, purchase advances, contract cost, trade accounts payable, other payable, accrued liabilities, contract liabilities, short-term bank loan and short-term borrowings approximate fair value because of the immediate or short-term maturity of these financial instruments. Cash - Cash includes cash on hand consisting of coins, currency, undeposited checks, money orders and drafts, demand deposits in banks, certain short-term highly liquid investments and cash in transit. F-10 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Restricted cash - Restricted cash represents funds set aside and placed with the bank and serves as the security deposit which is not available to fund general liquidity needs of the Company. Trade Accounts, Net, Other Receivables, Net and Loan to Third Parties - Accounts receivable are carried at original invoiced amount less a provision for any potential uncollectible amounts. In July 2020, the Company adopted ASU 2016-13, Topics 326-Credit Loss, Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology, as its accounting standard for its trade accounts receivable and other receivables. Other receivables and loan to third parties arise from transactions with non-trade customers. The adoption of the credit loss accounting standard has no material impact on the Company’s consolidated financial statements as of July 1, 2020. Accounts receivable, other receivables and loan to third parties are recognized and carried at carrying amount less an allowance for credit loss, if any. The Company maintains an allowance for credit losses resulting from the inability of its trade and non-trade customers (“customers”) to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis. The Company has also included in calculation of allowance for credit losses, the potential impact of the COVID-19 pandemic on our customers businesses and their ability to pay their accounts receivable, other receivables and loan to third parties. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company also considers external factors to the specific customer, including current conditions and forecasts of economic conditions, including the potential impact of the COVID-19 pandemic. In the event the Company recovers amounts previously reserved for, the Company will reduce the specific allowance for credit losses. The provision for credit loss for the year ended June 30, 2022 decreased by approximately ¥3.7 million ($0.6 million) from the year ended June 30, 2021. The Company evaluates the creditworthiness of all of its customers individually before accepting them and continuously monitors the recoverability of accounts receivable, other receivables and loan to third parties. If there are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular customer. At the same time, the Company may cease further sales or services to such customer. The following are some of the factors that the Company considers in determining whether to discontinue sales, record as contra revenue or allowance for credit losses: ● the oil price and fluctuation of the overall oil industry; ● the customer fails to comply with its payment schedule; ● the customer is in serious financial difficulty; ● a significant dispute with the customer has occurred regarding job progress or other matters; ● the customer breaches any of the contractual obligations; ● the customer appears to be financially distressed due to economic or legal factors; ● the business between the customer and the Company is not active; and ● other objective evidence indicates non-collectability of the accounts receivable, other receivables and loan to third parties. The Company considers the following factors when determining whether to permit a longer payment period or provide other concessions to customers: ● the customer’s past payment history; ● the customer’s general risk profile, including factors such as the customer’s size, age, and public or private status; ● macroeconomic conditions that may affect a customer’s ability to pay; and F-11 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ● the relative importance of the customer relationship to the Company’s business. Notes Receivable - Notes receivable represent short-term notes receivable issued by reputable financial institutions that entitle the Company to receive the full-face amount from the financial institutions at maturity, which generally range from three to six months from the date of issuance. Purchase Advances, Net - Purchase advances are the amounts prepaid to suppliers for business activities, such as standard raw materials, supplies and services. These types of prepayments will be expensed when those products or services have been rendered or consumed. Inventories, Net - Inventories are stated at the lower of cost or net realizable value, on a first-in-first-out basis. The methods of determining inventory costs are used consistently from year to year. Allowance for inventory obsolescence is provided when the net realizable value of certain inventory items is lower than the cost. Property and Equipment, Net - 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. Items Motor vehicles Office equipment Production equipment Useful life 5-10 years 2-5 years 10-20 years Land Use Rights, Net - According to the Chinese laws and regulations regarding land use rights, land in urban districts is owned by the State, while land in the rural areas and suburban areas, except otherwise provided for by the State, is collectively owned by individuals designated as resident farmers by the State. In accordance with the legal principle that land ownership is separate from the right to the use of the land, the government grants individuals and companies the rights to use parcels of land for a specified period of time. Land use rights which are usually prepaid, are stated at cost less accumulated amortization. Amortization is provided over the life of the land use rights, using the straight-line method. The estimated useful life is 50 years, based on the term of the land use rights. Goodwill - Goodwill represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available). Step 1 of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value, which is based on future cash flows, exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, the Step 2 must be performed to measure the amount of the impairment loss, if any. The Company has adopted Accounting Standards Updates (“ASU”) 2017-04, simplifying the Test for Goodwill Impairment, which permits the Company to impair the difference between carrying amounts in excess of the fair value of the reporting unit as the reduction in goodwill. ASU 2017-04 eliminates the requirement in previous GAAP to perform Step 2 of the goodwill impairment test. Impairment for goodwill was ¥nil, ¥nil and ¥2,266,893 ($338,457) for the years ended June 30, 2020, 2021 and 2022, respectively. Intangible Assets, Net – Intangible assets is composed of customer relationship, which is measured at fair value on initial recognition. Identifiable intangible assets resulting from the acquisitions of subsidiaries accounted for using the purchase method of accounting are estimated by management based on the fair value of assets received. The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment. The Company typically amortizes its intangible assets with definite useful lives on a straight-line basis over the shorter of the contractual terms or the estimated useful lives. F-12 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Impairment of Long-Lived Assets - Long-lived assets are 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. Impairment for the long-lived assets was ¥nil, ¥768,312 and ¥nil for the years ended June 30, 2020, 2021 and 2022, respectively. Long-term Investments - ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The main provisions require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value through earnings, unless they qualify for a measurement alternative. The new guidance requires modified retrospective application to all outstanding instruments for fiscal years beginning after December 15, 2017, with a cumulative effect adjustment recorded to opening accumulated deficit as of the beginning of the first period in which the guidance becomes effective. However, changes to the accounting for equity securities without a readily determinable fair value would be applied prospectively. The Company adopted the new financial instruments accounting standard from July 1, 2018. - Equity Investments with Readily Determinable Fair Values - Equity investments with readily determinable fair values are measured and recorded at fair value using the market approach based on the quoted prices in active markets at the reporting date. The Company classifies the valuation techniques that use these inputs as Level 1 of fair value measurements. - Equity Investments without Readily Determinable Fair Values - After the adoption of this new accounting standard, the Company elected to record equity investments without readily determinable fair values and not accounted for under the equity method at cost, less impairment, adjusted for subsequent observable price changes on a nonrecurring basis, and report changes in the carrying value of the equity investments in current earnings. Changes in the carrying value of the equity investments are required to be made whenever there are observable price changes in orderly transactions for the identical or similar investment of the same issuer. The implementation guidance notes that an entity should make a “reasonable effort” to identify price changes that are known or that can reasonably be known. - Equity Investments Accounted for Using the Equity Method - The Company accounts for its equity investment over which it has significant influence but does not own a majority equity interest or otherwise control using the equity method. The Company adjusts the carrying amount of the investment and recognizes investment income or loss for share of the earnings or loss of the investee after the date of investment. The Company assesses its equity investment for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, operating performance of the entities, including current earnings trends and undiscounted cash flows, and other entity-specific information. The fair value determination, particularly for investment in privately held entities, requires judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investment and determination of whether any identified impairment is other-than-temporary. An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The Company recorded no impairment loss on its equity method investment during the years ended June 30, 2020, 2021 and 2022. The Company recorded a ¥462,879 investment income, ¥266,707 investment loss and ¥15,411 ($2,301) investment income on its equity method investment in unconsolidated entity during the years ended June 30, 2020, 2021 and 2022, respectively. F-13 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Business Combinations - The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations”. The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the acquiree, the difference is recognized directly in the consolidated statements of operation and comprehensive income (loss). During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operation and comprehensive income (loss). In a business combination considered as a step acquisition, the Company remeasures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of operation and comprehensive income (loss). Noncontrolling Interests - For the Company’s majority-owned subsidiaries, VIEs and subsidiaries of VIEs, a noncontrolling interest is recognized to reflect the portion of their equity which is not attributable, directly or indirectly, to the Company. Noncontrolling interests are classified as a separate line item in the equity section of the Company’s consolidated balance sheets and have been separately disclosed in the Company’s consolidated statements of operation and comprehensive income (loss) to distinguish the interests from that of the Company. Revenue Recognition – In accordance with ASC 606, “Revenue from Contracts with Customers”, revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. The core principle underlying the new revenue recognition Accounting Standards Update (“ASU”) is that the Company recognizes revenue to represent the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company identifies contractual performance obligations and determines whether revenue should be recognized at a point in time or over time, based on when goods or services are provided to a customer. Disaggregation of Revenues Revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following items represent the Company’s revenues disaggregated by revenue source. In accordance with ASC 606-10-50-5, the Company selects categories to present disaggregated revenue that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors and delivery conditions of products and fulfillment of obligations. The Company’s disaggregation of revenues for the years ended June 30, 2020, 2021 and 2022 is disclosed in Note 27. Automation Products and Software; Equipment and Accessories The Company generates revenues primarily through delivery of standard or customized products and equipment, including automation products, furnaces and related accessories. Revenue is recognized when products are delivered, and acceptance reports are signed off by customers. F-14 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The sale of automation products or specialized equipment when combined with services represent a single performance obligation for the development and construction of a single asset. The Company may also provide design or installation services to clients as there may be such obligation in contracts. The promises to transfer the goods and provision of services are not separately identifiable, which is evidenced by the fact that the Company provides significant services of integrating the goods and services into a single deliverable for which the customer has contracted. For such sales arrangements, the Company recognizes revenue using input method, based on the relationship between actual costs incurred compared to the total estimated costs for the contract. Such method is adopted because the Company believes it best depicts the transfer of goods and services to the customer. Oilfield Environmental Protection Service The Company provides wastewater treatment products and related service to oilfield and chemical industry companies and generates revenue from special equipment, self-developed chemical products and supporting service, transfer. Revenue is recognized when contract obligations have been performed. For such sales arrangements, the Company recognizes revenue when products are delivered, on-site assistance services rendered, and acceptance reports are signed off by customers. Such method is adopted because the Company believes it best depicts the transfer of services to the customer. The Company provides oily sludge disposal and treatment services to oilfield companies and generates revenue from treatment services of oily sludge. Revenue is recognized when contract obligations have been performed. For such sales arrangements, the Company recognizes revenue using output method, based on the percentage-of-completion method. Such method is adopted because the Company believes it best depicts the transfer of services to the customer. Platform Outsourcing Services The Company provides online platform development, maintenance, and operation services to gas stations around different provinces in China to complete online transactions; and API (application programming interface) port export service and related maintain services to business cooperators of different industries that may have transactions in the refueling scenario during the service contract period. The Company considered these performance obligations to be indistinguishable contractual performance obligations. As the Company has no right to get the compensation for any performances completed while not accepted by its customers, the Company can only recognize revenue at a point in time, which is when the online transaction is completed. The Company’s services enable terminal users of different mobile apps run by its clients or cooperators to complete refueling in cash or online through different payment channels, when each transaction, including refueling and payment, is completed, the Company is entitled to charge with pre-settled rates of each transaction amount as service fee and recognize the underlying amount as revenue. Related fees are generally billed monthly, based on a per transaction basis. Arrangements with Multiple Performance Obligations Contracts with customers may include multiple performance obligations. For such arrangements, the Company will allocate revenues to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost-plus margin. Contract Balances The Company’s contract balances include contract costs and contract liabilities from contracts with customers, and the following table provides information about contract balances: Contract costs Contract liabilities June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ¥ 48,795,906 ¥ 33,858,820 ¥ 7,686,276 ¥ 2,107,277 $ $ 5,055,274 314,626 F-15 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Contract Costs, Net - The Company recognizes an asset from the costs incurred to fulfill a contract when those costs meet all of the following criteria: (i) the costs relate directly to a contract or to an anticipated contract that the Company can specifically identify; (ii) the costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and (iii) the costs are expected to be recovered. - Pre-Contract Costs - Pre-contract costs are the amounts prepaid to suppliers for purchases of customized equipment in anticipation of obtaining planned contracts for the Company’s hardware and software revenues. If it subsequently confirms that the Company is unable to secure the planned contracts with a customer after making the advance payments for these planned contracts, the Company evaluates the probable recoverability of the pre-contract cost and charges to expenses when the Company determines that the recovery of such pre-contract cost is improbable. - Executed Contract Costs - Direct costs, such as material, labor, depreciation and amortization and subcontracting costs and indirect costs allocable to contracts include the costs of contract supervision, tools and equipment, supplies, quality control and inspection, insurance, repairs and maintenance for quality assurance purposes before clients’ initial acceptance. Once products are delivered, installed and debugged for intended use and accepted by a client, which may last from weeks to months (this process is decided by the client’s individual project construction arrangement), the Company records revenue based on the contract or the final clients’ acceptance. Minor costs for repair during the maintenance period after initial acceptance are recorded as cost of goods sold as they are incurred. All other general and administrative costs and selling costs are charged to expenses as incurred. The Company generally ships its products approximately one week to six months after production begins and the timing depends on the size of the overall project. Contract Liabilities - Contract liabilities are recognized for contracts where payment has been received in advance of performance under the contract. The Company’s contract liabilities consist primarily of the Company’s unsatisfied performance obligations as of the balance sheet dates. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met. Performance Obligations - Performance obligations include delivery of products and provision of services. The Company recognizes revenue when performance obligations under the terms of a contract with its customer are satisfied. This occurs when the control of the goods and services have been transferred to the customer. Accordingly, revenue for sale of goods is generally recognized upon shipment or delivery depending on the shipping terms of the underlying contract, and revenue for provision of services is recognized upon the service rendered. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and providing services. Amounts billed to customers for shipping and handling activities to fulfill the Company’s promise to transfer the goods are included in revenues, and costs incurred by the Company for the delivery of goods are classified as cost of sales in the consolidated statements of operations and comprehensive income (loss). Sales, value added, and other taxes the Company collects concurrent with revenue- producing activities are excluded from revenue. The Company generally offers assurance-type warranties for its products. The specific terms and conditions of those warranties vary depending upon the product. The Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the warranty liability include historical product-failure experience and estimated repair costs for identified matters. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The amount accrued for expected returns and warranty claims was immaterial as of June 30, 2022. The amount of revenue recognized during the years ended June 30, 2020, 2021 and 2022 that was previously included within contract liability balances was ¥nil, ¥1,899,561 and ¥7,390,276 ($1,103,401), respectively. Practical Expedients Elected Incremental Costs of Obtaining a Contract - The Company has elected the practical expedient permitted in ASC 340-40-25-4, which permits an entity to recognize incremental costs to obtain a contract as an expense when incurred if the amortization period will be less than one year and not significant. F-16 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Significant Financing Component - The Company has elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to not adjust the promised amount of consideration for the effects of a significant financing component if a contract has a duration of one year or less. As the Company’s contracts are majorly less than one year in length, consideration will not be adjusted. For the Company’s contracts include a standard payment term of 90 days to 180 days; consequently, there is no significant financing component within contracts. There are also some new contracts that will not be completed within one year from year 2021, the Company did calculation and the amount was not material as end of this fiscal year. Share-Based Compensation - 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 valuation model estimated at the grant date based on the award’s fair value. Research and Development Expenses - Research and development expenses relating to improving development efficiency and the quality of the Company’s products and services, including the design of downhole automation platform systems and chemical products used for waste water treatment, are expensed as incurred. Shipping and Handling Costs - Shipping and handling cost incurred to ship products to customers are included in selling and distribution expenses. Shipping and handling expenses were ¥257,573, ¥444,824 and ¥537,371 ($80,232) for the years ended June 30, 2020, 2021 and 2022, respectively. Leases - The Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces, which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The ROU asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All ROU assets are reviewed for impairment annually. There was no impairment for ROU lease assets as of June 30, 2021 and 2022. 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. 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. The Company has not been subject to any income taxes in the United States or the Cayman Islands. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company has no uncertain tax position as of June 30, 2021 and 2022. As of June 30, 2022, the tax years ended December 31, 2017 through December 31, 2021 for the Company’s People’s Republic of China (“PRC”) subsidiaries remain open for statutory examination by PRC tax authorities. F-17 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Comprehensive Income (Loss) - Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). The foreign currency translation gain or loss resulting from the translation of the financial statements expressed in US$ to RMB is reported in other comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss). Earnings (Loss) per Share - Earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of Ordinary Shares outstanding. Diluted EPS are computed by dividing net income (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 share options, restricted shares and warrants (using the treasury share method). The following table sets forth the computation of basic and diluted earnings per share for the years ended June 30, 2020, 2021 and 2022: Numerator: Net income (loss) attributable to Recon Technology, Ltd Denominator: Weighted-average number of ordinary shares outstanding – basic Outstanding options/warrants/convertible notes Potentially dilutive shares from outstanding options/warrants/convertible notes For the years ended June 30, 2020 RMB 2021 RMB 2022 RMB 2022 U.S. Dollars ¥ (19,246,701) ¥ (22,832,734) ¥ 95,586,795 $ 14,271,539 4,624,615 426,854 12,697,024 10,522,294 30,002,452 10,536,433 30,002,452 10,536,433 Weighted-average number of ordinary shares outstanding – diluted 4,624,615 12,697,024 30,002,452 — — — — 30,002,452 Earnings (loss) per share – basic Earnings (loss) per share – diluted ¥ ¥ (4.16) ¥ (4.16) ¥ (1.80) ¥ (1.80) ¥ 3.19 3.19 $ $ 0.48 0.48 Warrants - The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Class A Ordinary Shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations. Convertible Notes Payable - In accordance with ASC 470 Debt with conversion and other options, the Company allocated the proceeds from the convertible notes between debt and equity elements, the company measured the debt component at its fair value, and allocated the remaining proceeds to the equity component in additional paid in capital, as the fair value of equity component is immaterial, the Company allocated the entire proceeds to the debt component. Upon issuance of the shares to settle the obligation, equity is increased by the amount of the liability and no gain or loss is recognized for the difference between the average and the ending market price. F-18 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Recently Issued Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The Board is issuing this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The objective of the Simplification Initiative is to identify, evaluate, and improve areas of U.S. GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The specific areas of potential simplification in this Update were submitted by stakeholders as part of the Simplification Initiative. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this guidance on July 1, 2021 and the adoption of this ASU did not have a material impact on its consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on the Company’s consolidated financial statements. The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows. NOTE 4. TRADE ACCOUNTS RECEIVABLE, NET Accounts receivable, net consisted of the following: Third Parties Trade accounts receivable Allowance for credit losses Total third-parties, net Third Parties- long-term Trade accounts receivable Allowance for credit losses Total third-parties, net June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ¥ ¥ 31,669,331 ¥ (4,982,443) 26,686,888 ¥ 27,206,752 (4,628,772) 22,577,980 $ $ 4,062,089 (691,095) 3,370,994 June 30, 2021 RMB ¥ 4,332,984 (4,332,984) ¥ June 30, 2022 RMB ¥ 4,983,698 (4,983,698) June 30, 2022 U.S. Dollars $ 744,089 (744,089) — — ¥ — $ Provision for credit losses of accounts receivable due from third parties was ¥2,204,170, ¥3,730,606 and ¥153,329 ($22,893) for the years ended June 30, 2020, 2021 and 2022, respectively. The decrease in allowance for credit losses of accounts receivable due from third parties was mainly resulted by the management’s efforts in collection receivables from our customers, and as the date of this report, approximately 68.2%, or ¥15.4 million ($2.3 million) of net outstanding balance as of June 30, 2022 has been collected as of the date of the report. F-19 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Provision for credit losses made for accounts receivable due from related-party was ¥340,992 for the year ended June 30, 2020, while net recovery of provision for credit losses made for accounts receivable due from related-party was ¥340,992 for the year ended June 30, 2021. No provision made for credit losses of accounts receivable due from related party for the year ended June 30, 2022. Movement of allowance for doubtful accounts is as follows: Beginning balance Charge to credit losses Less: write-off Foreign currency translation adjustments Ending balance NOTE 5. NOTES RECEIVABLE June 30, 2021 RMB 5,849,504 ¥ 3,730,606 (254,853) (9,830) 9,315,427 ¥ June 30, 2022 RMB 9,315,427 153,329 $ — 143,714 9,612,470 $ June 30, 2022 U.S. Dollars 1,390,834 22,893 — 21,457 1,435,184 ¥ ¥ Notes receivable represented the non-interest-bearing commercial bills the Company received from the customers for the purpose of collection of sales amounts, which ranged from three to six months from the date of issuance. As of June 30, 2021 and 2022, notes receivable was ¥6,305,633 and ¥10,828,308 ($1,616,715), respectively. As of June 30, 2021 and 2022, no notes were guaranteed or collateralized. As of the date of this report, 81.4%, or ¥8.8 million ($1.3 million) have been subsequently collected, and the remaining balance is expected to be collected by December 2022. NOTE 6. OTHER RECEIVABLES, NET Other receivables, net consisted of the following: Third Party Business advances to officers and staffs (A) Deposits for projects VAT recoverable Others Less: Long term portion (B) Allowance for credit losses Other receivable - current portion June 30, 2021 RMB ¥ 957,277 ¥ 1,982,987 3,562,295 1,469,949 7,972,508 (114,679) (918,153) 6,939,676 ¥ ¥ June 30, 2022 RMB 1,441,807 $ 3,259,236 437,095 2,547,520 7,685,658 (1,564,381) (619,444) 5,501,833 $ June 30, 2022 U.S. Dollars 215,268 486,619 65,260 380,356 1,147,503 (233,569) (92,486) 821,448 (A) Business advances to officers and staffs represent advances for business travel and sundry expenses related to oilfield or on-site installation and inspection of products through customer approval and acceptance. (B) Long-term portion are mainly tender deposits for large-scale projects or rental contracts. These funds may not be collected back until projects are finished or contracts are completed. Provision for credit losses of other receivables was ¥67,312 for the year ended June 30, 2020. Net recovery of credit losses of other receivables was ¥187,161 and ¥294,644 ($43,992) for the years ended June 30, 2021 and 2022, respectively. F-20 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Movement of allowance for credit losses is as follows: Beginning balance Balance acquired from FGS Reversal of credit losses Less: write-off Ending balance NOTE 7. LOANS TO THIRD PARTIES June 30, 2021 RMB 1,529,036 ¥ 151,689 (187,161) (575,411) 918,153 ¥ June 30, 2022 RMB June 30, 2022 U.S. Dollars 918,153 — (294,644) (4,065) 619,444 $ $ 137,085 — (43,992) (607) 92,486 ¥ ¥ Working fund to third party companies Allowance for credit losses Total loans to third parties ¥ ¥ ¥ — ¥ 50,476,782 50,383,822 June 30, 2021 RMB June 30, 2022 RMB 50,476,782 50,383,822 June 30, 2022 U.S. Dollars 7,522,532 — 7,522,532 $ — $ Loans to third parties are mainly used for short-term funding to support the Company’s external business partners. These loans bear interest or no interest and have terms of no more than one year. The Company periodically reviewed the loans to third parties as to whether their carrying values remain realizable. The Company believes that the risk associated with the above loans are relatively low based on the evaluation of the creditworthiness of these third-party debtors and the relationships with them. As the date of the report, approximately ¥4.5 million (approximately $0.7 million) was collected by the Company and the remaining part was expected to be paid in full by end of June 2023. NOTE 8. CONTRACT COSTS, NET Contract costs, net consisted of the following: Third Party Contract costs Allowance for credit losses Total contract costs, net June 30, 2021 RMB ¥ 53,344,816 (4,548,910) ¥ 48,795,906 June 30, 2022 RMB ¥ 37,922,302 (4,063,482) ¥ 33,858,820 June 30, 2022 U.S. Dollars $ $ 5,661,970 (606,696) 5,055,274 As of June 30, 2022, total contracts costs, net amounted to ¥33,858,820 ($5,055,274), of which 13.3%, or ¥4.5 million ($0.7 million) have been subsequently realized as of the date of the report, and the remaining balance is expected to be utilized by March 2023. Net recovery of provision for credit losses of contract cost was ¥22,451 for the year ended June 30, 2020. Provision for credit losses of contract was ¥4,647,802 for the year ended June 30, 2021. Net recovery of provision for credit losses of contract cost was ¥552,008 ($82,417) for the years ended June 30, 2022. As the progress of these contracts was delayed by the COVID-19 pandemic, the Company records allowance for credit losses of contract cost according to its general accounting policy. Since the pandemic is relatively under control now, some of our projects has resumed its progress and the contract costs were realized, hence, resulted in a decrease in allowance for credit losses of contract cost. The Company will continue making great efforts to prevent any unrealizable of contract costs from third parties. F-21 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Movement of allowance for credit losses of contract costs is as follows: Beginning balance Provision for (reversal of) credit losses Charge to cost of sales Less: write-off Ending balance NOTE 9. PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following: Motor vehicles Office equipment and fixtures Production equipment Total property and equipment Less: accumulated depreciation Less: Impairment for property and equipment Property and equipment, net Construction in progress ¥ June 30, 2022 RMB June 30, 2021 RMB 139,762 ¥ 4,548,910 (552,008) 66,580 — ¥ 4,548,910 ¥ 4,063,482 — (238,654) 4,647,802 June 30, 2022 U.S. Dollars $ $ 679,172 (82,417) 9,941 — 606,696 June 30, 2021 RMB 5,097,921 ¥ 1,385,084 30,559,275 37,042,280 (9,135,200) (768,312) 27,138,768 ¥ — ¥ June 30, 2022 RMB 5,312,274 1,442,395 31,102,055 37,856,724 (11,614,250) (768,312) 25,474,162 239,739 June 30, 2022 U.S. Dollars 793,146 215,356 4,643,677 5,652,179 (1,734,060) (114,712) 3,803,407 35,794 $ $ $ ¥ ¥ ¥ Depreciation expenses were ¥1,582,461, ¥2,773,122 and ¥2,611,854 ($389,961) for the years ended June 30, 2020, 2021 and 2022, respectively. Impairment loss for the property and equipment was ¥nil, ¥768,312 and ¥nil for the years ended June 30, 2020, 2021 and 2022. As one of the Company’s properties and equipment were not able to generate enough future cashflow. Thus the Company decided to record full impairment of those properties and equipment during the year ended June 30, 2021. Gain from property and equipment disposal was ¥89,156 for the year ended June 30, 2020. Loss from property and equipment disposal was ¥19,590 and ¥48,628 ($7,260) for the years ended June 30, 2021 and 2022, respectively. NOTE 10 . BUSINESS ACQUISITION AND INVESTMENT IN UNCONSOLIDATED ENTITY (a) Step Acquisition of Future Gas Station (Beijing) Technology, Ltd (“FGS”) On August 21, 2018, the Company entered into a definitive investment agreement and a supplemental agreement (collectively, the “Agreement”) with FGS and the other shareholders of FGS. Following full performance under the Agreement, Recon will own 43% of FGS. As consideration for increasing its affiliates’ interest in FGS from 8% to 43%, the Company will (1) pay a total of RMB 10 million in cash to FGS and (2) issue 487,057 restricted Class A Ordinary Shares of the Company (the “Restricted Shares”) to the other shareholders of FGS within 30 days after FGS finalizes recording the Company’s corresponding interest at the local governmental agency. If FGS does not reach certain performance goals, the Company has the right to cancel all of the Restricted Shares and without further payment. The Restricted Shares are also subject to lock-up period requirements that vary for each of FGS shareholders, from one year to three years following issuance of the Restricted Shares. FGS has finalized recording Recon’s corresponding interest at the local governmental agency, and Recon has issued 487,057 Restricted Shares in total to the other shareholders of FGS in August 2018. F-22 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On September 24, 2019, the Company signed an extension agreement with FGS and the other shareholders of FGS to postpone the Agreement to provide extra period for FGS to further fulfill the goals mentioned on the supplemental agreement. During the original contract period, FGS adjusted its operation model with an advanced improvement of its mobile applications and business model. Objected user and average Gross Merchandise Volume (“GMV”) of FGS’ mobile applications have been exceeded. FGS will need an extension to deploy its business in more provinces to complete a goal of 200 more gas stations. On March 17, 2020, the Company signed a new supplemental agreement with FGS and the other shareholders of FGS to extend another 12 months to February 2021 for FGS and its shareholders to fulfill the goals mentioned on the supplemental agreement. As of December 31, 2020, the Company owned 43% of the equity interests of FGS. The investments are accounted for using the equity method because the Company has significant influence, but no control of FGS. The Company recorded a ¥462,879 investment income and ¥251,296 investment loss for the years ended June 30, 2020 and 2021, respectively, which was included in “Income (loss) from investment in unconsolidated entity” in the consolidated statements of operations and comprehensive income (loss). On February 8, 2021, and pursuant to FGS’ shareholder meeting resolution dated January 13, 2021 (“Acquisition Date”), two of the Company’s subsidiaries entered into the fourth supplemental agreement to the investment agreement with FGS and FGS’ founding shareholders to acquire 8% equity ownership of FGS, as an exchange for waiver of the requirement on FGS’ performances goal about the number of gas stations and cancellation of the related lock-up terms on the 487,057 Restricted Shares of the Company (reflecting the effect of one-for-five reverse share split) issued per the agreement signed on August 21, 2018. FGS failed to complete one of the three goals set up in the investment agreement. As a consequence, the Company shall cancel one third of the 487,057 Restricted Shares, which shall be 162,352 Restricted Shares. According to this new arrangement, the Company waived the goals and cancellation of the shares as a deemed consideration of the 8% equity. Based on the share price $1.61 on January 13, 2021, the fair value of the waived performance goal equals to ¥1,689,807 ($261,667). As a result, the Company owns 51% interest of FGS and this transaction was considered as a step acquisition under ASC 805 “Business Combinations”. A step acquisition gain of ¥979,254 arising from revaluation of previously held equity interest was recognized during the year ended June 30, 2021. The Company retained independent appraisers to advise management in the determination of the fair value of customers relationship and goodwill. The values assigned in these financial statements represent management’s best estimate of fair values as of the Acquisition Date. The carrying value of other assets and liabilities other than customer relationship and goodwill, are approximate at their fair value as of the Acquisition Date. F-23 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The fair values of the identifiable assets and liabilities as at the date of the acquisitions are summarized in the following table: Cash Trade accounts receivable, net Other receivables, net Contract costs, net Prepaid expenses Property and equipment, net Intercompany receivables* Intangible assets- customer relationship Goodwill Trade accounts payable Other payables Other payable- related parties Deferred revenue Accrued payroll and employees’ welfare Taxes payable Deferred tax liability Total Cash considerations Deemed equity consideration to acquire 8% equity interest in FGS Fair value of previously held equity interest Non-controlling interest Capital contribution receivable due from non-controlling Interest Total ¥ RMB 471,843 831,049 144,285 75,250 91,132 118,130 6,850,000 7,000,000 6,996,895 (1,032,078) (1,273,182) (479,959) (39,786) (1,629,519) (64,253) (1,050,000) ¥ 17,009,807 $ U.S. Dollars 70,448 124,079 21,542 11,235 13,606 17,637 1,022,736 1,045,131 1,044,668 (154,094) (190,092) (71,660) (5,940) (243,295) (9,593) (156,768) $ 2,539,640 — 1,689,807 30,530,000 34,790,000 (50,000,000) ¥ 17,009,807 — 252,296 4,558,266 5,194,303 (7,465,225) $ 2,539,640 *Intercompany receivables from Nanjing Recon and BHD are eliminated upon consolidation. The noncontrolling interest has been recognized at fair value net with subscription receivable on the acquisition date. Goodwill and intangible assets The excess of purchase price over the fair value of assets acquired and liabilities assumed of the business acquired was recorded as goodwill. The goodwill is not expected to be deductible for tax purposes. In conjunction with the preparation of our consolidated financial statement for year ended June 30, 2022, the management performed evaluation on the impairment of goodwill and recorded an impairment loss on goodwill of ¥2,266,893 ($338,457) for the year ended June 30, 2022. The identifiable goodwill acquired and the carrying value as of June 30, 2022 is as follows: Goodwill Less: impairment The carrying value of goodwill as of June 30,2022 Fair Value RMB ¥ 6,996,895 (2,266,893) 4,730,002 $ U.S. Dollars 1,044,668 (338,457) 706,211 F-24 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The fair value of identified intangible assets, which is customer relationship, and its estimated useful lives is as follows: Fair Value Average Useful Life (in Years) Intangible assets - customer relationship Less: accumulated amortization Total intangible assets, net as of June 30,2022 RMB ¥ 7,000,000 (1,050,000) ¥ 5,950,000 U.S. Dollars $ 1,045,132 (156,770) 888,362 $ 10 The amortization expense of customer relationship was ¥nil, ¥350,000 and ¥700,000 ($104,513) for the years ended June 30, 2020, 2021 and 2022, respectively. (b) Investment in Starry Blockchain Energy Pte. Ltd. (“Starry”) On June 3, 2021, Company entered into a share exchange agreement (the “Agreement”) with Starry, an innovative blockchain and sustainable energy technological company, and the controlling shareholders of Starry (the “Starry Controlling Shareholders”) to acquire 30% of the equity interest in Starry. Pursuant to the terms of the Agreement, the signing parties agreed that the value of 30% of the equity interest in Starry is $3,000,000. As consideration to acquire Starry’s 30% equity interest, the Company issued 316,345 unregistered, restricted Class A Ordinary Shares, based on $9.48 per share, the average closing price in the 30 trading days prior to signing this Agreement, to the Starry Controlling Shareholders. Fair value of the shares issued on the investment date, which was June 3, 2021, was ¥27,675,450, or $4,327,600, based on the closing price of $13.80 per share. On November 10, 2021, this investment agreement was terminated based on a mutual decision and the 316,345 unregistered, restricted Class A Ordinary Shares was subsequently cancelled on December 10, 2021. The Company recorded an investment loss of ¥15,411 and an investment income of ¥15,411 ($2,301) during the years ended June 30, 2021 and 2022, respectively. On November 10, 2021, the Company signed a service agreement with Starry, and as the service consideration, the Company issued 500,000 restricted Class A Ordinary Shares to Starry (See Note 20). NOTE 11. LEASES Effective July 1, 2019, the Company adopted the new lease accounting standard. Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities of ¥1,228,963 ($183,490) and ¥1,228,963 ($183,490), respectively, as of July 1, 2019 with no impact on accumulated deficit. Financial position for reporting periods beginning on or after July 1, 2019, are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance. The Company leases office spaces and factories under non-cancelable operating leases, with terms ranging from one to three years. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right of use assets and lease liabilities. Lease expense for lease payment is recognized on a straight-line basis over the lease term. Leases with initial term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. F-25 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The table below presents the operating lease related assets and liabilities recorded on the balance sheets: Rights of use lease assets, net Operating lease liabilities – current Operating lease liabilities – non-current Total operating lease liabilities June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ¥ 7,925,930 ¥ 5,440,590 $ 812,305 2,226,832 4,792,101 3,892,774 2,184,635 ¥ 7,018,933 ¥ 6,077,409 $ 581,209 326,176 907,385 The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of June 30, 2022: Remaining lease term and discount rate: Weighted average remaining lease term (years) Weighted average discount rate June 30, 2021 June 30, 2022 2.59 5.0 % 1.73 5.0 % Operating lease costs and short-term lease costs for the year ended June 30, 2020 were ¥1,348,742 and ¥1,142,417, respectively. Operating lease costs and short-term lease costs for the year ended June 30, 2021 were ¥2,034,105 and ¥1,291,685, respectively. Operating lease costs and short-term lease costs for the year ended June 30, 2022 were ¥3,443,813 ($514,177) and ¥967,247 ($144,414), respectively. The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2022: Twelve months ending June 30, 2023 2024 Total lease payments Less: imputed interest Present value of lease liabilities Less: operating lease liabilities – current Operating lease liabilities – non-current ¥ ¥ RMB 4,073,072 2,222,504 6,295,576 (218,167) 6,077,409 3,892,774 2,184,635 $ $ U.S. Dollars 608,128 331,830 939,958 (32,573) 907,385 581,209 326,176 F-26 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. OTHER PAYABLES Other payables consisted of the following: Third Parties Professional service fees Distributors and employees Accrued expenses Others Total Related Parties Expenses paid by the major shareholders Due to family members of the owners of BHD and FGS Due to management staff for costs incurred on behalf of the Company Total NOTE 13. TAXES PAYABLE Taxes payable consisted of the following: VAT payable Income tax payable Other taxes payable Total taxes payable NOTE 14. SHORT-TERM BANK LOANS Short-term bank loans consisted of the following: Bank of Nanjing (1) Beijing Rural Commercial Bank (2) China Construction Bank (3) Total short-term bank loans June 30, 2021 RMB 7,940,481 ¥ 1,488,329 206,051 227,901 9,862,762 ¥ June 30, 2021 RMB 1,594,543 ¥ 545,159 260,965 2,400,667 ¥ June 30, 2022 RMB 2,061,016 1,009,307 206,045 257,550 3,533,918 June 30, 2022 RMB 1,396,419 590,159 253,557 2,240,135 ¥ ¥ ¥ ¥ June 30, 2021 RMB ¥ ¥ 643,896 ¥ 440,030 165,068 1,248,994 ¥ June 30, 2022 RMB 1,741,972 440,030 28,956 2,210,958 June 30, 2022 U.S. Dollars 307,720 150,694 30,763 38,453 527,630 June 30, 2022 U.S. Dollars 208,492 88,113 37,857 334,462 June 30, 2022 U.S. Dollars 260,085 65,698 4,323 330,106 $ $ $ $ $ $ June 30, 2021 RMB 4,000,000 10,000,000 1,000,000 15,000,000 ¥ ¥ June 30, 2022 RMB ¥ ¥ — $ 10,000,000 — 10,000,000 $ June 30, 2022 U.S. Dollars — 1,493,045 — 1,493,045 (1) On June 23, 2020, the Company entered into another loan agreement with Bank of Nanjing to borrow ¥1,500,000 as working capital for one year. The Company made the withdraw in an amount of ¥1,500,000 on July 1, 2020, which will be due on July 1, 2021. The loan was repaid in full upon maturity. On June 21, 2021, the Company entered into another loan agreement with Bank of Nanjing to borrow ¥2,500,000 as working capital for one year, with maturity date of June 17, 2022. The loan was repaid in full by December 31, 2021. All these loans bear a fixed interest rate of 4.35% per annum and are guaranteed by one of the founders of the Company. F-27 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (2) On April 15, 2020, the Company entered into a loan agreement with Beijing Rural Commercial Bank to borrow ¥ 10,000,000 as working capital for one year. The Company made the first withdraw in an amount of ¥5,600,000 on April 23, 2021, which will be due on April 20, 2022. The Company made second withdraw in an amount of ¥ 4,400,000 on May 18, 2021, which will be due on May 11, 2022. These two loans were repaid in full upon maturity. On April 13, 2022, the Company entered into a loan agreement with Beijing Rural Commercial Bank to borrow ¥ 5,600,000 ($836,105) as working capital for one year, which will be due on April 12, 2023. On April 13, 2022, the Company entered into a loan agreement with Beijing Rural Commercial Bank to borrow ¥ 4,400,000 ($656,940) as working capital for one year, which will be due on May 12, 2023. All these loan bears a fixed interest rate of 4.6% per annum. These loans are guaranteed by one of the founders of the Company and he also pledged self-owned housing property with carrying value of approximately RMB 17.6 million (approximately $2.6 million) as collateral for these loans. (3) On July 10, 2020, the Company entered into a loan agreement with China Construction Bank to borrow ¥1,000,000 as working capital for one year, with maturity date of July 10, 2021. The loan bears a fixed interest rate of 4.0525% per annum. The loan was repaid in full upon maturity. Interest expense for the short-term bank loan was ¥203,049, ¥602,124 and ¥486,757 ($72,675) for the years ended June 30, 2020, 2021 and 2022, respectively. NOTE 15. SHORT-TERM BORROWINGS Short-term borrowings due to third parties consisted of the following: Short-term borrowings due to third parties: Short-term borrowing, 15% annual interest, due on September 23, 2021* Short-term borrowing, interest-free, due on May 12, 2022* Short-term borrowing, interest-free, due on June 21, 2022* Total short-term borrowings due to third parties * The Company repaid the loans in full. June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ¥ ¥ 230,000 200,000 100,000 530,000 ¥ ¥ — $ — — — $ — — — — Interest expense for short-term borrowings due to a third party were ¥nil, ¥ 30,000 and ¥nil for the years ended June 30, 2020, 2021 and 2022, respectively. F-28 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Short-term borrowings due to related parties consisted of the following: Short-term borrowings due to related parties: Short-term borrowing from a founder, 4.35% annual interest, due on December June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars 21, 2021* ¥ 5,006,042 ¥ — $ Short-term borrowing from a founder, 4.35% annual interest, due on March 25, 2022* Short-term borrowing from a founder’s family member, 0% annual interest, due on December 31, 2021* Short-term borrowing from a founder’s family member, 0% annual interest, due on March 24, 2022* Short-term borrowing from a founder, 4.35% annual interest, due on November 17, 2022 Short-term borrowing from a founder, 4.35% annual interest, due on December 26, 2022 4,000,000 670,000 3,000,000 — — Total short-term borrowings due to related parties ¥ 12,676,042 ¥ — — — — — — — 4,006,767 598,228 5,002,389 9,009,156 $ 746,879 1,345,107 * The Company repaid the loans in full on maturity date. No short-term borrowings due to related parties were guaranteed or collateralized at June 30, 2021 and 2022. Interest expense for short-term borrowings due to related parties were ¥ 506,358, ¥ 433,281 and ¥ 397,468 ($59,344) for the years ended June 30, 2020, 2021 and 2022, respectively. NOTE 16. LONG-TERM BORROWINGS DUE TO RELATED PARTY Long-term borrowings due to related party consisted of the following: Long-term borrowings due to related party: Long-term borrowing from a founder, monthly payments of ¥126,135 inclusive of interest at 8.90%, ten years loan, due in November 2027. Less: current portion Total long-term borrowings due to related party June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ¥ ¥ 7,406,617 ¥ (920,066) 6,486,551 ¥ 6,510,606 $ (999,530) 5,511,076 $ 972,062 (149,234) 822,828 No short-term borrowings due to related parties were guaranteed or collateralized at June 30, 2021 and 2022. Interest expense for short-term borrowings due to related parties were ¥ 763,220, ¥693,641 and ¥617,611 ($92,212) for the years ended June 30, 2020, 2021 and 2022, respectively. The future maturities of long-term borrowings due to related party at June 30, 2022 are as follows: Twelve months ending June 30, 2023 2024 2025 2026 2027 Thereafter Total RMB 999,530 1,065,921 1,164,755 1,272,753 1,390,765 616,882 6,510,606 $ $ U.S. Dollars 149,234 159,147 173,903 190,028 207,647 92,103 972,062 ¥ ¥ F-29 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. CLASS A ORDINARY SHARES Share offering On August 21, 2018, the Company entered into a definitive investment agreement and a supplemental agreement (collectively, the “Agreement”) with FGS and the other shareholders of FGS. Following full performance under the Agreement, Recon will own 43% of FGS. As consideration for increasing its affiliates’ interest in FGS from 8% to 43%, the Company will (1) pay a total of RMB 10 million in cash to FGS and (2) issue 487,057 restricted Class A Ordinary Shares of the Company (the “Restricted Shares”) to the other shareholders of FGS within 30 days after FGS finalizes recording the Company’s corresponding interest at the local governmental agency. If FGS does not reach certain performance goals, the Company has the right to cancel without further payment part or all of the Restricted Shares. The Restricted Shares are also subject to lock-up period requirements that vary for each FGS shareholder, from two and a half years to four and a half years following issuance of the Restricted Shares under the supplemental agreement dated March 17, 2020. FGS has finalized recording Recon’s corresponding interest at the local governmental agency, and Recon issued 487,057 Restricted Shares in total to the other shareholders of FGS at a price of $6.4375 per restricted share on September 21, 2018. On December 10, 2019, the Company’s Board approved to effect a one-for-five reverse share split of its Class A Ordinary Shares (the “Reverse Share Split”) with the market effective date of December 27, 2019, such that the number of the Company’s Class A Ordinary Shares is decreased from 100,000,000 to 20,000,000 and the par value of each Class A Ordinary Share is increased from US$0.0185 to US$0.0925 (¥0.62). As a result of the Reverse Share Split, each five pre-split Class A Ordinary Shares outstanding were automatically combined and converted to one issued and outstanding Class A Ordinary Share without any action on the part of the shareholder. No fractional Class A Ordinary Shares were issued to any shareholders in connection with the reverse share split. Each shareholder was entitled to receive one Class A Ordinary Share in lieu of the fractional share that would have resulted from the reverse share split. As of December 26, 2019 (immediately prior to the effective date), there were 23,049,639 Class A Ordinary Shares outstanding, and the number of Class A Ordinary Shares outstanding after the Reverse Share Split is 4,611,720, taking into account of the effect of rounding fractional shares into whole shares. In addition, all options and any other securities of the Company outstanding immediately prior to the Reverse Share Split (to the extent they don’t provide otherwise) will be appropriately adjusted by dividing the number of Class A Ordinary Shares into which the options and other securities are exercisable by 5 and multiplying the exercise price thereof by 5, as a result of the Reverse Share Split. On May 21, 2020 and June 26, 2020, the Company and certain institutional investors (the “Purchasers”) entered into certain securities purchase agreements, pursuant to which the Company sold to such Purchasers an aggregate of 911,112 and 1,680,000 Class A Ordinary Shares, respectively, par value $0.0925 per share in a registered direct offering and warrants to purchase up to 911,112 and 1,680,000 Class A Ordinary Shares in a concurrent private placement, respectively, for gross proceeds of approximately $2.1 million and $2.1 million, respectively, before deducting the placement agent’s fees and other estimated offering expenses of approximately $0.3 million and $0.2 million, respectively. The net proceeds from these purchase agreements were approximately $1.7 million and $1.9 million, respectively. On April 5, 2021, the Company held its annual general meeting of shareholders (the “Annual Meeting”) for the fiscal year ended June 30, 2020. At the Annual Meeting, the Company’s shareholders approved a special resolution that the authorized share capital of the Company be amended from US$1,850,000 divided into 20,000,000 Class B Ordinary Shares of a nominal or par value of US$0.0925 each, to US$15,725,000 divided into 150,000,000 Class A Ordinary Shares of a nominal or par value of US$0.0925 (¥0.62) each, and 20,000,000 Class B Ordinary Shares of a nominal or par value of US$0.0925 (¥0.62) each. The change from Ordinary Shares to Class A Ordinary Shares is reflected with the NASDAQ Capital Market and in the marketplace at the open of business on April 12, 2021, whereupon the Class A Ordinary Shares began trading. The Company’s Class A Ordinary Shares will continue to trade on the NASDAQ Capital Market under the symbol “RCON” and under the CUSIP Number of G7415M124. Holders of Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Members. Each Class A Ordinary Share shall be entitled to one (1) vote on all matters subject to vote at general meetings of the Company, and each Class B Ordinary Share shall be entitled to fifteen (15) votes on all matters subject to vote at general meetings of the Company. F-30 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On June 14, 2021, the Company and certain institutional investors (the “Purchasers”) entered into that certain securities purchase agreement (the “Purchase Agreement”), pursuant to which the Company agreed to sell to such Purchasers an aggregate of 6,014,102 Class A Ordinary Shares, par value $0.0925 per share and 2,800,000 pre-funded warrants (the “Pre-Funded Warrants”) to purchase Class A Ordinary Shares in a registered direct offering, and warrants to purchase up to 8,814,102 Class A Ordinary Shares (the “Warrants”) in a concurrent private placement, for gross proceeds of approximately $55.0 million (the “Offering”) before deducting the placement agent’s fees and other offering expenses in an aggregate amount of ¥30,408,264, or $4.7 million. The following table summarizes the Company’s Pre-Funded Warrants activities and status of Pre-Funded Warrants at June 30, 2022: Pre-Funded Warrants Outstanding as of June 30, 2020 Issued Forfeited Exercised Expired Outstanding as of June 30, 2021 Issued Forfeited Exercised Expired Outstanding as of June 30, 2022 Appropriated Retained Earnings Pre-Funded Warrants Weighted Average Exercise Price Per Share Average Remaining Period (Years) — $ 2,800,000 — (1,330,000) 1,470,000 — $ — — $ — — $ (1,470,000) — 0.01 — 0.01 — 0.01 — — 0.01 — — — — — — — 5.46 — — — — — According to the Memorandum and Articles of Association, the Company is required to transfer a certain portion of its net profit, 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 standards and regulations, to the statutory reserves until such reserves reach 50% of the registered capital or paid-in capital of the companies. As of June 30, 2021 and 2022, the balance of total statutory reserves was ¥4,148,929 and ¥4,148,929 ($619,454), respectively. NOTE 18. ORDINARY SHARES PURCHASE WARRANTS ISSUED TO INVESTORS In May and June 2020, the Company consummated two offerings. In connection with the offering, the Company issued to the investors warrants to purchase an aggregate of 911,112 Class A ordinary shares at an exercise price of $2.25 per Class A ordinary share, which was amended to $1.25 per Class A ordinary share on the second offering on June 30, 2020. These warrants are exercisable at any time, and from time to time, in whole or in part, commencing on May 26, 2020 and expire on November 25, 2025. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $1,689,389. Variables used in the option-pricing model include (1) risk-free interest rate at the date of grant (0.40%), (2) expected warrant life of 5.5 years, (3) expected volatility of 99.50%, and (4) expected dividend yield of 0. As of June 30, 2021, all warrants were exercised and all the underlying shares were issued. In June 2020, the Company issued to the investors warrants to purchase an aggregate of 1,680,000 Class A ordinary shares at an exercise price of $1.25 per Class A ordinary share. These warrants are exercisable at any time, and from time to time, in whole or in part, commencing on June 30, 2020 and expire on December 30, 2025. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $1,639,333. Variables used in the option-pricing model include (1) risk-free interest rate at the date of grant (0.35%), (2) expected warrant life of 5.5 years, (3) expected volatility of 104.26%, and (4) expected dividend yield of 0. As of June 30, 2021, all warrants were exercised. F-31 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In June 2021, the Company issued to some institutional investors warrants to purchase an aggregate of up to 8,814,102 Class A Ordinary Shares. The warrants are subject to deemed-liquidation redemption features and are therefore classified as a liability in accordance with FASB ASC 480. Warrant liability is classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. The Company established the initial fair value of the warrants at $34,860,000. As of June 30, 2021, the fair value of the warrant liability was $29,520,000. During the period from June 14, 2021 (date of initial measurement) through June 30, 2021, there was change in fair value of warrant liability in an aggregate amount of $5,340,000 recorded as a part of offset to the Company’s net loss for the year. As of June 30, 2022, the fair value of the warrant liability was $2,490,000 (¥16,677,328). During the year ended June 30, 2022, there was change in fair value of warrant liability in an aggregate amount of $27,030,000 recorded as a part of offset to the Company’s net loss from operations for the year ended June 30, 2022. The key inputs into the Black-Scholes model were as follows at their measurement dates: Input Share price Risk-free interest rate Volatility Exercise price Warrant life June 30, 2022 June 30, 2021 0.66 $ 3.00 % 109 % 6.24 4.46 years 4.33 0.95 % 111 % 6.24 5.46 years June 14, 2021 (Initial measurement) 5.01 0.90 % 111 % 6.24 5.50 years The following table presents information about the Company’s warrants that were measured at fair value on a recurring basis as of June 30, 2021 and 2022, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. Description Liabilities: Warrant liability Description Liabilities: Warrant liability June 30, 2021 Quoted Prices In Significant Other Significant Other Active Markets Observable Inputs Unobservable Inputs (Level 1) (Level 2) (Level 3) $ 29,520,000 $ — $ — $ 29,520,000 June 30, 2022 Quoted Prices In Significant Other Significant Other Active Markets Observable Inputs Unobservable Inputs (Level 2) (Level 3) (Level 1) $ 2,490,000 $ — $ — $ 2,490,000 F-32 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the Company’s Warrants activities and status of Warrants at June 30, 2022: Warrants Outstanding as of June 30, 2020 Issued Forfeited Exercised Expired Outstanding as of June 30, 2021 Issued Forfeited Exercised Expired Outstanding as of June 30, 2022 Weighted Average Exercise Price Per Share Warrants Average 2,591,112 8,814,102 $ — (2,591,112) 8,814,102 — $ — — — — $ 8,814,102 1.25 6.24 — 1.25 — 6.24 — — — — 6.24 Remaining Period (Years) 5.50 5.46 4.46 NOTE 19. CONVERTIBLE NOTES PAYABLE On November 25, 2020, the Company and certain accredited investors (the “Investors”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company sold to the Investors, and the Investors purchased from the Company, in an unregistered private transaction, convertible promissory notes (the “Convertible Notes”) with an aggregate principal amount of $6,485,000, convertible into Class A Ordinary Shares, $0.0925 par value per share of the Company at a rate of $0.71 per Class A Ordinary Share, upon the terms and subject to the limitations and conditions set forth in such Convertible Notes. The Convertible Notes bears interest at a rate of 12% per year and will have a term of six (6) months. The Company will repay the Convertible Notes principal and interest in six (6) equal monthly payments, subject to earlier conversion or repayment. The Holders have the right to convert the Convertible Notes, and the Company has the right to repay the Convertible Notes without penalty, in whole or in part during the term of the Notes. In the event of such early conversion or repayment, the Company has the right to make such payment in shares, cash, or combination of shares and cash, and the amount payable will equal the amount of accrued and outstanding principal and interest on such repaid amount, and the Company will not have any make-whole obligations. Assuming payment of principal and interest entirely in Class A Ordinary Shares and no early conversion or repayment, the Company would issue up to an aggregate of Class A 9,466,137 Ordinary Shares in connection with the Convertible Notes. On January 28, 2021, the Company received the conversion notices from the Investors, and Class A Ordinary Shares totaling 9,225,338 were issued by the Company to the Investors equaling principal and interests amounted to $6,549,990, after the issuance, all the outstanding principle and interests have been converted. F-33 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 20. SHARE-BASED COMPENSATION Share-Based Awards Plan The following is a summary of the share options activity: Share Options Outstanding as of June 30, 2020 Granted Forfeited Exercised Expired Outstanding as of June 30, 2021 Granted Forfeited Exercised Expired Outstanding as of June 30, 2022 Weighted Average Exercise Price Per Share 10.02 — — — — 10.02 — 14.80 — — 8.25 Shares 109,520 $ — — — — 109,520 $ — (29,520) — — 80,000 $ The following is a summary of the status of options outstanding and exercisable at June 30, 2022: Outstanding Options Exercisable Options Average Exercise Price $ 8.25 Number 80,000 80,000 Average Remaining Contractual life (Years) Average Exercise Price 2.59 $ 8.25 Number 80,000 Average Remaining Contractual life (Years) 2.59 The Share-based compensation expense recorded for share options granted were all ¥Nil for the years ended June 30, 2020, 2021 and 2022, respectively. No unrecognized share-based compensation for share options as of June 30, 2022. Restricted Shares to Senior Management As of June 30, 2022, the Company has granted restricted Class A Ordinary Shares to senior management and employees as follows: On October 13, 2017, the Company granted 180,000 restricted shares to its employees as compensation cost for awards. The fair value of the restricted shares was $919,800 based on the closing share price $5.11 at October 13, 2017. These restricted shares will vest over three years with one-third of the shares vesting every year from the grant date. All granted shares under this plan are fully vested on October 13, 2020. On August 21, 2018, the Company granted 391,200 restricted shares to its employees as compensation cost for awards. The fair value of the restricted shares was $2,523,240 based on the closing share price $6.45 at August 21, 2018. These restricted shares will vest over three years with one-third of the shares vesting every year from the grant date. All granted shares under this plan are fully vested on September 03, 2021. On February 28, 2022, the Company granted 1,642,331 Class A shares to its employees as compensation cost for awards. The fair value of the restricted shares was $1,708,024 based on the closing share price $1.04 at February 28, 2022. These restricted shares will vest over three years with one-third of the shares vesting every year from the grant date. No shares under this plan are vested as the date of this report. F-34 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 250,086, 188,662 and 128,672 restricted Class A restricted shares were issued and outstanding for the years ended June 30, 2020, 2021 and 2022, respectively, for all the plans mentioned above. As of June 30, 2022, the Company has granted restricted Class B Ordinary Shares to senior management as follows: On December 5, 2021, the Company granted 2,500,000 restricted shares to its management as compensation cost for awards. The fair value of the restricted shares was $4,175,000 based on the fair value of the share price $1.67 at December 5, 2021. These restricted shares vested immediately on the grant date. All granted shares under this plan are issued and outstanding on December 5, 2021. On February 28, 2022, the Company granted 1,600,000 restricted shares to its management as compensation cost for awards. The fair value of the restricted shares was $1,694,000 based on the fair value of share price $1.06 at February 28, 2022. These restricted shares vested immediately on the grant date. All granted shares under this plan are issued and outstanding on February 28, 2022. Nil, nil and 4,100,000 restricted Class B restricted shares were issued and outstanding for the years ended June 30, 2020, 2021 and 2022, respectively, for all the plans mentioned above. The share-based compensation expense recorded for restricted shares issued for management was ¥7,944,835, ¥6,140,037 and ¥39,263,485 ($5,862,215) for the years ended June 30, 2020, 2021 and 2022, respectively. The total unrecognized share-based compensation expense of restricted shares issued for management and employees as of June 30, 2022 was approximately ¥10.2 million ($1.5 million), which is expected to be recognized over a weighted average period of approximately 2.67 years. Restricted Shares for service As of June 30, 2022, the Company has granted restricted Class A Ordinary Shares to consultant as follows: On November 10, 2021, the Company signed a service agreement with Starry. As the service consideration, the Company should issue 500,000 restricted Class A Ordinary Shares which vested in equal monthly amounts through the end of December 31, 2021. Half of the restricted Class A Ordinary Shares was valued based on the closing share price of $1.60 on December 10, 2021 and the other half was valued based on the closing share price of $1.31 on December 31, 2021. As of June 30, 2022, all granted shares under this plan are fully vested and issued. On January 5, 2022, the Company signed a consulting agreement with Lintec Information Ltd (the “Consultant”). As the service consideration, the Company issued 1,050,000 restricted Class A Ordinary Shares with a value of $1,354,500 based on the closing share price of $1.29 on January 5, 2022 to the Consultant on January 5, 2022 as payment for being the Company’s investment and financial advisor for a period of one year. The vesting period of these shares was one year from the date of contract. All of the restricted shares were issued under this plan on January 5, 2022 and half of the granted shares under this plan was vested as of June 30, 2022. Nil, nil and 1,550,000 restricted Class A restricted shares were issued and outstanding for the years ended June 30, 2020, 2021 and 2022, respectively, for all the plans mentioned above. The Share-based compensation expense recorded for restricted shares issued for service was ¥33,927, ¥nil and ¥8,935,920 ($1,334,173) for the years ended June 30, 2020, 2021 and 2022, respectively. The total unrecognized share-based compensation expense of restricted shares issued for service as of June 30, 2022 was approximately ¥4.5 million ($0.7 million), which is expected to be recognized over a weighted average period of approximately 0.52 year. F-35 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Following is a summary of the restricted shares granted: Restricted share grants Non-vested as of June 30, 2020 Granted Vested Non-vested as of June 30, 2021 Granted Vested Non-vested as of June 30, 2022 Shares 320,800 — (190,400) 130,400 7,292,331 (5,255,400) 2,167,331 The following is a summary of the status of restricted share at June 30, 2022: $ $ Fair Value per Share 1.04 1.29 NOTE 21. INCOME TAX Outstanding Restricted Shares Number 1,642,331 525,000 2,167,331 Average Remaining Amortization Period (Years) 2.67 0.52 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 and is subject to a reduced income tax rate of 15% through November 30, 2019. Nanjing Recon reapplied for a high-technology company certificate, and the new certificate was approved as November 22, 2019 and will expire on November 22, 2022. 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 25, 2018. BHD reapplied for a high- technology company certificate, and the new certificate was approved as October 31, 2018 and expired on October 31, 2021. BHD reapplied for a high-technology company certificate, and the new certificate was approved as December 17, 2021 and will expire on December 17, 2024. Income (loss) before provision for income taxes consisted of: For the years ended June 30, Outside China areas China Total 2020 RMB ¥ (10,160,525) ¥ 2021 RMB 4,011,449 ¥ 113,741,972 (20,066,451) ¥ (19,840,282) ¥ (26,391,079) ¥ 93,675,521 (30,402,528) (9,679,757) 2022 RMB 2022 U.S. Dollars $ 16,982,188 (2,996,011) $ 13,986,177 F-36 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets and (liabilities) net is composed of the following: Deferred tax assets: Allowance for credit losses Impairment for inventory Net operating loss carryforwards Subtotal Less: Valuation allowance Total deferred tax assets Deferred tax liabilities: Accelerated amortization of intangible assets Gain on the previously held equity method investment Recognition of customer relationship arising from business combinations Total deferred tax liabilities Deferred tax liabilities, net June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ¥ 2,137,968 ¥ 160,791 15,741,037 18,039,796 (17,427,464) 612,332 1,781,573 59,913 16,511,047 18,352,533 (17,193,874) 1,158,659 $ 265,997 8,945 2,465,175 2,740,117 (2,567,124) 172,993 (92,032) (146,888) (997,500) (1,236,420) (119,271) (146,888) (892,500) (1,158,659) ¥ (624,088) ¥ — $ (17,808) (21,931) (133,254) (172,993) — The Company’s subsidiaries, VIEs and VIEs’ subsidiaries incurred a cumulative net operating loss (“NOL”) which may reduce future corporate taxable income. As of June 30, 2021, the cumulative NOL was approximately ¥91.4 million. During the year ended June 30, 2022, NOL amounted to approximately ¥28.1 million ($4.2 million) was expired, and the Company’s subsidiaries, VIEs and VIEs’ subsidiaries incurred an additional NOL carryforwards of approximately ¥31.9 million ($4.8 million) and utilized NOL of approximately ¥0.6 million ($0.1 million), resulting in a cumulative NOL carryforwards of approximately ¥94.6 million ($14.1 million) as of June 30, 2022. The tax benefit in relation to the utilization of the NOL by one of the VIEs was ¥158,062 ($23,599) during the year ended June 30, 2022. The NOL will expire over the next five years as follows: Twelve months ending June 30, 2023 2024 2025 2026 2027 Total RMB ¥ 13,146,922 10,484,902 19,617,124 32,533,742 18,769,899 ¥ 94,552,589 U.S. Dollars $ 1,962,895 1,565,443 2,928,925 4,857,434 2,802,430 $ 14,117,127 Following is a reconciliation of income tax expense (benefit) at the effective rate to income tax at the calculated statutory rates: For the years ended June 30, Income tax (benefits) expenses calculated at PRC statutory rates Nondeductible expenses and others Effect of tax rate differential Benefit of revenue exempted from enterprise income tax Change in valuation allowances Tax refund Income tax expenses (benefit) 2022 RMB 2020 RMB 2021 RMB ¥ (4,960,454) ¥ (6,597,770) ¥ 23,418,880 263,655 (24,061,020) (1,799) (233,590) 232,213 2,008,824 (266,548) 3,268,287 — 282,322 ¥ 338,058 626,245 (57,250) 5,264,804 (98,338) (524,251) ¥ — $ (613,874) $ ¥ F-37 2022 U.S. Dollars 3,496,544 39,365 (3,592,418) (269) (34,876) — (91,654) 　 　 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Company’s income tax expense (benefit) is comprised of the following: Current income tax provision (benefit) Deferred income tax benefit Income tax expenses (benefit) NOTE 22. NON-CONTROLLING INTEREST Non-controlling interest consisted of the following: For the years ended June 30, 2020 RMB 282,322 ¥ — 282,322 ¥ 2021 RMB (98,338) ¥ (425,913) (524,251) ¥ 2022 RMB 2022 U.S. Dollars 10,214 (624,088) (613,874) $ $ 1,525 (93,179) (91,654) ¥ ¥ BHD RMB ¥ 1,651,000 ¥ Nanjing Recon RMB 200,000 ¥ 4,805,000 Gan Su BHD RMB As of June 30, 2021 Qinghai BHD RMB FGS RMB ¥ — ¥ — ¥ Total RMB 6,656,000 Total U.S. Dollars $ 1,046,308 Paid-in capital Capital contribution receivable due from non-controlling Interest Unappropriated retained earnings (deficit) Accumulated other comprehensive loss Valuation increase shared by minority shareholders Total non-controlling interests Paid-in capital Capital contribution receivable due from non-controlling Interest Unappropriated retained earnings (deficit) Accumulated other comprehensive loss Valuation increase shared by minority shareholders Total non-controlling interests — — — — (50,000,000) (50,000,000) (7,859,883) 3,477,493 3,616,002 (4,106,883) (1,442,443) (539,034) 1,005,135 158,005 (18,850) (11,853) — — — — — — (30,703) (4,826) — 34,790,000 34,790,000 5,468,906 ¥ 5,109,643 ¥ 3,804,149 ¥ 698,117 ¥ (1,442,443) (15,749,034) ¥ (7,579,568) $ (1,191,490) BHD RMB ¥ 1,651,000 ¥ Nanjing Recon RMB 200,000 ¥ 4,805,000 Gan Su BHD RMB As of June 30, 2022 Qinghai BHD RMB FGS RMB ¥ — ¥ — ¥ Total RMB 6,656,000 Total U.S. Dollars 993,771 $ — — — — (48,870,000) (48,870,000) (7,296,511) 3,477,493 3,616,001 (4,972,129) (1,520,225) (893,405) (292,265) (43,635) (18,850) (11,853) — — — — — — (30,703) (4,584) — 34,790,000 34,790,000 5,194,303 ¥ 5,109,643 ¥ 3,804,148 ¥ (167,129) ¥ (1,520,225) (14,973,405) ¥ (7,746,968) $ (1,156,656) The Company had capital contribution receivable due from non-controlling interest of FGS amounted to ¥50,000,000 as of June 30, 2021. The Company received capital contribution from a non-controlling shareholder of FGS amounted to ¥1,130,000 ($168,714) during the year ended June 30, 2022, and the capital contribution receivable due from non-controlling Interest of FGS amounted to ¥48,870,000 ($7,296,511) as of June 30, 2022. The Company received capital contribution from non-controlling shareholders of Gan Su BHD amounted to ¥405,000, ¥50,000 and ¥nil during the years ended June 30, 2020, 2021 and 2022, respectively. F-38 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 23. CONCENTRATIONS Credit risk As of June 30, 2021 and 2022, approximately ¥18.8 million and ¥20.3 million ($3.0 million) of the Company’s cash was on deposit at financial institutions in the PRC, respectively. Per PRC regulations, the maximum insured bank deposit amount is RMB500,000 for each financial institution. The Company’s total unprotected cash held in banks amounted to approximately ¥16.3 million and ¥17.8 million ($2.7 million) as of June 30, 2021 and 2022, respectively. As of June 30, 2021 and 2022, approximately ¥325.1 million and ¥297.2 million ($44.4 million) of the Company’s cash was on deposit at financial institutions in the Hong Kong, respectively. Per Hong Kong regulations, the maximum insured bank deposit amount is HKD 500,000 for each financial institution. The Company’s total unprotected cash held in banks amounted to approximately ¥324.7 million and ¥296.8 million ($44.3 million) as of June 30, 2021 and 2022, respectively. Customer concentration risk For the year ended June 30, 2020, CNPC represented 39% and another two customers represented 31% and 17% of the Company’s revenue, respectively. At June 30, 2020, CNPC accounted for 36% and another two customers accounted for 11% and 10% of the Company’s trade accounts receivable, net, respectively. For the year ended June 30, 2021, CNPC represented 39%, SINOPEC represented 22% of the Company’s revenue, respectively. At June 30, 2021, CNPC accounted for 29%, SINOPEC represented 13% and another two customers accounted for 19% and 14% of the Company’s trade accounts receivable, net, respectively. For the year ended June 30, 2022, CNPC represented 50%, SINOPEC represented 28%, and another customer represented 10% of the Company’s total revenue, respectively. At June 30, 2022, CNPC accounted for 49%, SINOPEC represented 22% and another customer accounted for 14% of the Company’s trade accounts receivable, net, respectively. NOTE 24. COMMITMENTS AND CONTINGENCY (a) Contingency Severance payments 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, 2022, the Company estimated its severance payments of approximately ¥7.1 million ($1.1 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. F-39 Table of Contents Legal contingencies RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On December 1, 2021, Henan Puxinfangfu Construction Engineering Co., Ltd. (“the Plaintiff”) submitted a Civil Complaint to the People’s Court of Suzhou District, Jiuquan City, Gansu Province (the “Court”) against Gan Su BHD. The complaint requested that Gan Su BHD shall make the compensation to the Plaintiff for the outstanding trade payable plus the interest, and the litigation fee in this case shall be borne by Gan Su BHD. The Plaintiff also applied for property preservation before litigation to preserve the bank account of the Company. On December 1, 2021, the Court issued a judgement and approximately ¥0.7 million ($0.1 million) of Gan Su BHD’s bank balance was became restricted for one year. On April 7, 2022 and June 9, 2022, the Court issued first and second judgement which stated that the case to transfer to Yumen People's Court for jurisdiction. As of June 30, 2022, Gan Su BHD recorded ¥1.82 million ($271,734) trade account payable due to the Plaintiff, and the compensation claimed by the Plaintiff was approximately ¥2.0 million (approximately $0.3 million). As the date of this report, the outcome of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise, and Gan Su BHD will vigorously defend itself and seek for less settlement payment in the next trail of this litigation (b) Purchase commitment The total future minimum purchase commitment under the non-cancellable purchase contracts as of June 30, 2022 are payable as follows: Twelve months ending June 30, 2023 2024 2025 2026 Thereafter Total minimum payments required (c) Office Leases Commitment - short term Minimum purchase commitment $ ¥ 26,967,803 300,000 300,000 150,000 ¥ 27,717,803 — $ 4,026,414 44,791 44,791 22,396 — 4,138,392 The Company entered into several non-cancellable operating lease agreements for office spaces and factories. Future payments under such leases were included in lease liabilities as disclosed in Note 11, other than those within under lease agreements within one year which are disclosed as follows as of June 30, 2022: Twelve months ending June 30, 2023 Total RMB 549,219 549,219 ¥ ¥ U.S. Dollars $ $ 82,001 82,001 NOTE 25. RELATED PARTY TRANSACTIONS AND BALANCES Sales to a related party – sales to a related party consisted of the following: Urumqi Yikeli Automatic Control Equipment Co., Ltd. * Total revenue from a related party For the years ended June 30, 2020 RMB 2021 RMB 2022 RMB 2022 U.S. Dollars ¥ ¥ — ¥ — ¥ 85,657 85,657 ¥ ¥ — $ — $ — — * The noncontrolling shareholder of Gan Su BHD owns 10% interests in Urumqi Yikeli Automatic Control Equipment Co., Ltd. F-40 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Prepaid expenses - related parties – prepaid expenses - related parties consisted of the following: Founders Founders' family member Total prepaid expenses - related parties ¥ June 30, 2021 June 30, 2022 June 30, 2022 U.S. Dollars 41,059 — 41,059 RMB 363,000 ¥ 70,000 433,000 ¥ $ — $ RMB 275,000 275,000 ¥ 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 ¥110,834 ($16,547) with annual rental expense at ¥1.3 million ($0.20 million). The details of leases from related parties are as below: Lessee Nanjing Recon BHD BHD BHD Lessor One of the founders One of the founders One of the founders Founders’ family member Rent Period April 1, 2022 - March 31, 2024 ¥ January 1, 2022- Dec 31, 2022 January 1, 2022 - Dec 31, 2022 January 1, 2022 - Dec 31, 2022 RMB USD $ 40,000 31,667 22,500 16,667 5,972 4,728 3,359 2,488 Monthly Rent Monthly Rent As of June 30, 2021, the operating lease ROU assets and corresponding operating lease liabilities of leases from related parties was ¥352,775 and ¥352,775, respectively. As of June 30, 2022, the operating lease ROU assets and corresponding operating lease liabilities of leases from related parties was ¥765,241 ($114,254) and ¥765,241 ($114,254), respectively. Guarantee/collateral related parties - The Company’s founders provide guarantee and collateral for the Company’s short-term bank loans (see Note 14). NOTE 26. VARIABLE INTEREST ENTITIES VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs and their subsidiaries with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. F-41 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summary information regarding consolidated VIEs and their subsidiaries is as follows: June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ASSETS Current Assets Cash Restricted cash Notes receivable Trade accounts receivable, net Inventories, net Other receivables, net Loans to third parties Purchase advances, net Contract costs, net Prepaid expenses Prepaid expenses- related parties Total current assets Property and equipment, net Land use right, net Customer relationship Long-term other receivables, net Goodwill Right of use assets Total Assets LIABILITIES Short-term bank loan Trade accounts payable Other payables Other payable- related parties Advance from customers Accrued payroll and employees’ welfare Intercompany payables* Taxes payable Short-term borrowings Short-term borrowings - related parties Long-term borrowings - related party - current portion Operating lease liabilities - current Total current liabilities Operating lease liabilities - non-current Long-term borrowings - related party Deferred tax liability Total Liabilities *Intercompany payables are eliminated upon consolidation. ¥ — 6,305,633 24,762,732 3,644,522 5,988,641 1,350,000 1,078,137 48,795,906 - 4,293,380 ¥ 18,033,666 723,560 10,828,308 22,577,980 3,894,369 5,500,981 30,270,563 178,208 33,858,820 165,120 275,000 126,306,575 433,000 96,651,951 27,138,768 1,253,408 6,650,000 114,679 6,996,895 7,925,930 25,474,162 1,226,169 5,950,000 1,564,381 4,730,002 5,440,590 ¥ 146,731,631 ¥ 170,931,618 18,182,770 2,096,830 1,253,797 7,686,276 1,565,898 123,331,367 1,249,052 530,000 12,676,042 ¥ 15,000,000 ¥ 10,000,000 12,826,108 1,469,761 1,061,081 2,107,277 1,213,040 194,373,010 2,211,190 — 9,009,156 999,530 3,892,774 239,162,927 920,066 2,226,832 186,718,930 $ 2,584,476 108,031 1,616,715 3,370,994 581,447 821,321 4,519,531 26,607 5,055,274 24,653 41,059 18,750,108 3,803,407 183,073 888,362 233,569 706,211 812,305 $ 25,412,829 $ 1,493,045 1,914,996 219,442 158,424 314,626 181,112 29,020,764 330,141 — 1,345,107 149,234 581,209 35,708,100 4,792,101 6,486,551 624,088 2,184,635 5,511,076 187,972 ¥ 198,621,670 ¥ 247,046,610 326,176 822,828 28,065 $ 36,885,169 F-42 　 　 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The financial performance of VIEs reported in the consolidated statement of operations and comprehensive loss for the year ended June 30, 2020 includes revenues of ¥45,681,441, operating expenses of ¥25,769,990, and net loss of ¥10,089,768. The financial performance of VIEs reported in the consolidated statement of operations and comprehensive loss for the year ended June 30, 2021 includes revenues of ¥47,817,378, operating expenses of ¥36,704,840, and net loss of ¥29,407,210. The financial performance of VIEs and their subsidiaries reported in the consolidated statement of operations and comprehensive income for the year ended June 30, 2022 includes revenues of ¥83,777,571 ($12,508,368), operating expenses of ¥35,725,237 ($5,333,938), and net loss of ¥18,180,305 ($2,714,401). NOTE 27. SEGMENT REPORTING ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different products. Based on management’s assessment, the Company has determined that it has four operating segments: automation product and software, equipment and accessories, oilfield environmental protection and platform outsourcing services. The following tables present summary information by segment for the years ended June 30, 2020, 2021 and 2022, respectively: Automation product and software Equipment and accessories Oilfield environmental protection Platform outsourcing services Total revenue Revenue Cost of revenue and related tax Gross profit Depreciation and amortization Total capital expenditures Timing of revenue recognition Goods transferred at a point in time Services rendered over time Total revenue ¥ 2020 RMB 51,413,830 14,222,623 124,198 — ¥ ¥ 65,760,651 ¥ ¥ For the year ended June 30, 2022 2021 RMB RMB 31,944,055 18,535,166 17,159,381 15,791,623 25,335,363 11,043,979 9,338,772 2,567,807 83,777,571 47,938,575 ¥ 2022 U.S. Dollars 4,769,390 2,561,973 3,782,684 1,394,321 12,508,368 $ $ Equipment and accessories RMB ¥ 31,944,055 ¥ 17,159,381 ¥ 25,335,363 ¥ For the year ended June 30, 2022 Oilfield environmental protection RMB Automation product and software RMB 29,824,014 2,120,041 ¥ 421,619 ¥ 14,823 ¥ 10,479,615 6,679,766 ¥ 814,960 ¥ 21,456 ¥ 20,222,446 5,112,917 ¥ 2,045,601 ¥ 768,795 ¥ ¥ ¥ ¥ Total RMB Platform outsourcing services RMB 9,338,772 ¥ 83,777,571 3,826,759 64,352,834 5,512,013 ¥ 19,424,737 3,339,868 999,652 57,688 ¥ 194,578 ¥ ¥ 31,944,055 ¥ 17,159,381 ¥ 15,779,825 ¥ 9,555,538 ¥ 31,944,055 ¥ 17,159,381 ¥ 25,335,363 ¥ 9,338,772 ¥ 74,222,033 9,555,538 9,338,772 ¥ 83,777,571 — F-43 　 　 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Equipment and accessories RMB ¥ 18,535,166 ¥ 15,791,623 ¥ 11,043,979 ¥ For the year ended June 30, 2021 Oilfield environmental protection RMB Automation product and software RMB 19,942,541 ¥ (1,407,375) ¥ 277,496 ¥ ¥ 26,761 ¥ ¥ 11,264,971 4,526,652 ¥ 851,612 ¥ 136,224 ¥ 8,045,567 2,998,412 ¥ 2,000,952 ¥ 315,944 ¥ Total RMB Platform outsourcing services RMB 2,567,807 ¥ 47,938,575 1,470,468 40,723,547 7,215,028 1,097,339 ¥ 3,150,789 20,729 ¥ 522,416 43,487 ¥ ¥ 18,535,166 — ¥ 15,791,623 — ¥ 9,654,418 1,389,561 ¥ ¥ 18,535,166 ¥ 15,791,623 ¥ 11,043,979 ¥ 2,567,807 — ¥ 46,549,014 1,389,561 2,567,807 ¥ 47,938,575 ¥ 51,413,830 ¥ 14,222,623 ¥ Automation product and software RMB 38,257,914 ¥ 13,155,916 ¥ 98,756 ¥ ¥ 85,975 ¥ ¥ Platform outsourcing services RMB Equipment and accessories RMB For the year ended June 30, 2020 Oilfield environmental protection RMB 124,198 ¥ 212,679 (88,481) ¥ 827,422 ¥ 3,782,911 ¥ 7,683,662 6,538,961 ¥ 683,522 ¥ — ¥ ¥ 10,871,301 40,542,529 ¥ 14,222,623 — ¥ ¥ 51,413,830 ¥ 14,222,623 ¥ — ¥ 124,198 124,198 ¥ Total RMB — ¥ 65,760,651 — 46,154,255 — ¥ 19,606,396 1,609,700 — ¥ 3,868,886 — ¥ — ¥ 25,093,924 — 40,666,727 — ¥ 65,760,651 June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ¥ ¥ 156,435,379 160,299,200 139,326,144 110,455,937 566,516,660 ¥ ¥ 147,377,607 149,876,933 107,755,500 85,232,044 490,242,084 $ $ 22,004,142 22,377,300 16,088,380 12,725,527 73,195,349 Revenue Cost of revenue and related tax Gross profit Depreciation and amortization Total capital expenditures Timing of revenue recognition Goods transferred at a point in time Services rendered over time Total revenue Revenue Cost of revenue and related tax Gross profit Depreciation and amortization Total capital expenditures Timing of revenue recognition Goods transferred at a point in time Services rendered over time Total revenue Total assets: Automation product and software Equipment and accessories Oilfield environmental protection Platform outsourcing services Total Assets NOTE 28. SUBSEQUENT EVENTS These consolidated financial statements were approved by management and available for issuance on October 28, 2022, and the Company has evaluated subsequent events through this date. No subsequent events required adjustments to or disclosure in these consolidated financial statements. F-44 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 29. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY Pursuant to the requirements of Rules 12-04(a), 5-04(c), and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirements and concluded that it was applicable to the Company as the restricted net assets of the Company’s PRC subsidiary and VIEs exceeded 25% of the consolidated net assets of the Company. Therefore, the condensed financial statements for the parent company are included herein. For purposes of the above test, restricted net assets of consolidated subsidiaries and VIEs shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries and VIEs in the form of loans, advances, or cash dividends without the consent of a third party. The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries and VIEs. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries and VIEs” and the respective profit or loss as “Equity in earnings of subsidiaries and VIEs” on the condensed statements of income. The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The Company did not pay any dividend for the periods presented. As of June 30, 2021 and 2022, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statements, if any. F-45 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RECON TECHNOLOGY, LTD PARENT COMPANY BALANCE SHEETS (UNAUDITED) ASSETS Cash Due from intercompanies Other current assets Total Current Assets Non-current assets Investment in subsidiaries and VIEs Investment in unconsolidated entity June 30, 2021 RMB June 30, 2022 RMB June 30, 2022 U.S. Dollars ¥ 325,116,815 142,741,114 52,136,194 519,994,123 ¥ 296,838,959 205,224,961 20,364,424 522,428,344 $ 44,319,391 30,641,009 3,040,500 78,000,900 (49,551,884) 27,931,795 (77,566,835) — (11,581,077) — Total assets ¥ 498,374,034 ¥ 444,861,509 ¥ 66,419,823 LIABILITIES AND SHAREHOLDERS’ EQUITY Other current liabilities Total current Liabilities Warrant liability LIABILITIES COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY Class A ordinary shares, $0.0925 U.S. dollar par value, 150,000,000 shares authorized; 26,868,391 shares and 27,180,718 shares issued and outstanding as of June 30, 2021 and 2022, respectively Class B ordinary shares, $0.0925 U.S. dollar par value, 20,000,000 shares authorized; nil shares and 2,500,000 shares issued and outstanding as of June 30, 2021 and 2022, respectively Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Total shareholders’ equity 12,643,150 12,643,150 7,552,452 7,552,452 190,635,850 203,279,000 16,677,328 24,229,780 1,127,615 1,127,615 2,490,000 3,617,615 16,340,826 18,001,670 2,687,730 479,490,763 (202,711,391) 1,974,836 295,095,034 — 2,408,498 496,038,696 (107,124,596) 11,307,461 420,631,729 359,600 74,060,807 (15,994,184) 1,688,255 62,802,208 Total liabilities and shareholders’ equity ¥ 498,374,034 ¥ 444,861,509 $ 66,419,823 * Due from subsidiaries, VIEs and VIEs’ subsidiaries are eliminated upon consolidation. F-46 　 　 　 　 　 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RECON TECHNOLOGY, LTD PARENT COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Revenues Cost of revenues Gross profit General and administrative expenses Provision for credit losses Loss from operations Fair value changes of warrants liability Other income (loss) 2020 RMB ¥ 20,079,210 16,063,368 ¥ For the years ended June 30, 2021 RMB 121,197 97,024 ¥ 2022 RMB 2022 U.S. Dollars — — — $ — 4,015,842 24,173 — — 13,337,810 — (9,321,968) 29,502,464 1,933,986 (31,412,277) 62,918,622 1,923,382 (64,842,004) 9,394,033 287,170 (9,681,203) — (1,298,039) 35,365,792 320,235 174,485,575 4,105,116 26,051,481 612,913 Equity in loss of subsidiaries, VIEs and VIEs’ subsidiaries (8,626,694) (27,106,484) (18,161,892) (2,711,652) Net income (loss) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS Foreign currency translation adjustment Comprehensive income (loss) attributable to the company F-47 ¥ (19,246,701) ¥ (22,832,734) ¥ 95,586,795 $ 14,271,539 (84,205) 9,332,625 ¥ (19,330,906) ¥ (23,683,629) ¥ 104,919,420 (850,895) 1,393,403 $ 15,664,942 Table of Contents RECON TECHNOLOGY, LTD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RECON TECHNOLOGY, LTD PARENT COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) Adjustments to reconcile net cash flows from operating activities: Changes in warrants liabilities Amortization of offering cost of warrants Provision for doubtful accounts Restricted shares issued for management and employees Loss (income) from investment in unconsolidated entity Restricted shares issued for services Equity in earnings of subsidiaries and VIEs Other current assets Other current liabilities For the years ended June 30, 2020 RMB 2021 RMB 2022 RMB 2022 U.S. Dollars ¥ (19,246,701) ¥ (22,832,734) ¥ 95,586,795 $ 14,271,539 — — — 7,944,835 — 33,927 8,626,694 (3,370,538) 5,583,322 (35,365,792) 12,584,024 1,933,986 6,140,037 15,411 — 27,106,484 (474,891) 4,776,846 (174,485,575) — 1,923,382 39,263,485 (15,411) 8,935,919 18,161,892 (111,521) (5,090,698) (26,051,481) — 287,170 5,862,215 (2,301) 1,334,173 2,711,652 (16,651) (760,064) Net cash used in operating activities (428,461) (6,116,629) (15,831,732) (2,363,748) Cash flows from investing activities: Repayments from loans to third parties Payments made for loans to third parties Due from intercompany, VIEs and VIEs’ subsidiaries — — (4,484,382) 1,950,000 (50,288,458) (29,505,002) 166,405,032 (137,391,510) (55,569,342) 24,845,019 (20,513,170) (8,296,753) Net cash used in investing activities (4,484,382) (77,843,460) (26,555,820) (3,964,904) Cash flows from financing activities: Proceeds from warrants issued with common share Proceeds from sale of common share, net of issuance costs Proceeds from sale of prefunded warrants, net of issuance costs Proceeds from share issuance for warrants exercised Proceeds from issuance of convertible notes Net cash provided by financing activities Effect of exchange rate fluctuation on cash Net increase (decrease) in cash CASH, beginning of year CASH, end of year — 26,141,051 — — — 212,051,414 81,091,141 30,276,569 21,130,035 42,014,616 26,141,051 386,563,775 — — 93,321 — — 93,321 — — 13,933 — — 13,933 (97,823) 274,149 14,016,375 2,092,708 21,130,385 302,877,835 (28,277,856) (4,222,011) 1,108,595 22,238,980 325,116,815 48,541,402 ¥ 22,238,980 ¥ 325,116,815 ¥ 296,838,959 $ 44,319,391 Non-cash investing and financing activities Issuance of common share in exchange of shares of Starry, net of issuance costs Cancellation of ordinary shares issued to Starry Conversion of convertible notes to 9,225,338 shares of ordinary shares Payable for issuance cost of common share ¥ ¥ ¥ ¥ — ¥ ¥ — ¥ ¥ 374,696 F-48 27,675,450 42,435,669 ¥ ¥ ¥ — ¥ (27,675,450) — $ $ — $ — $ — (4,132,069) — — 　 　 　 　 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Securities and Exchange Commission Release 34-46427 Exhibit 12.1 I, Shenping Yin, certify that: (1) I have reviewed this Form 20-F of Recon Technology, Ltd.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and (5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: October 28, 2022 /s/ Shenping Yin Shenping Yin Chief Executive Officer (Principal Executive Officer) Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Securities and Exchange Commission Release 34-46427 Exhibit 12.2 I, Jia Liu, certify that: (1) I have reviewed this Form 20-F of Recon Technology, Ltd.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and (5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: October 28, 2022 /s/ Jia Liu Jia Liu Chief Financial Officer (Principal Financial Officer) CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 13.1 In connection with the Annual Report of Recon Technology, Ltd. (the “Registrant”) on Form 20-F for the year ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: October 28, 2022 /s/ Shenping Yin Shenping Yin Chief Executive Officer (Principal Executive Officer) CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 13.2 In connection with the Annual Report of Recon Technology, Ltd. (the “Registrant”) on Form 20-F for the year ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: October 28, 2022 /s/ Jia Liu Jia Liu Chief Financial Officer (Principal Accounting Officer) Exhibit 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form F-3 (File No.: 333-257806) of our report dated October 28, 2022 relating to the consolidated financial statements of Recon Technology, Ltd and subsidiaries as of June 30, 2021 and 2022 and for each of the years in the three-year period ended June 30, 2022, which is included in this annual report on Form 20-F. /s/ Friedman LLP New York, New York October 28, 2022 

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