ITEM 1 DESCRIPTION OF BUSINESS
Business Combination and Corporate Restructuring
Effective May 26, 2006, a business combination occurred between Sancon Recycling Pty Ltd. (“SRPL”) and MKA Capital Inc. (hereinafter referred to as "MKAC"). The combination was effected by MKAC exchange its seventy-five percent (75%) equity stake in MK Aviation, S.A. (hereinafter referred to as "MKA") for one hundred percent (100%) equity stake in SRPL held by Mr. Jack Chen, Mr. Yiu Lo Chung, and associated parties (“the Shareholders”). Meanwhile, the Shareholders exchanged their ownership of seventy-five percent (75%) equity stake in MK Aviation, S.A. with 14,897,215 shares of the Registrant's common stock from Mr. Kraselnick and associated parties. Subsequently MKAC was renamed Sancon Resources Recovery, Inc.
As a result of the merger, there was a change in control of the public entity MKAC. In accordance with SFAS No. 141, SRPL was the acquiring entity. While the transaction is accounted for using the purchase method of accounting, in substance the Agreement is a recapitalization of the Company's capital structure. For accounting purposes, SRPL accounted for the transaction as a reverse acquisition and SRPL is the surviving entity. SRPL did not recognize goodwill or any intangible assets in connection with the transaction.
Effective with the Agreement, the Shareholders will own 14,897,215 shares of MKAC voting common stock or 74.28% of the Registrant's 20,030,370 issued and outstanding voting common stock at the time.
All references to common stock, share and per share amounts have been retroactively restated to reflect the exchange of 100 shares of SRPL common stock for 14,897,215 shares of the MKAC's common stock outstanding immediately prior to the merger as if the exchange had taken place as of the beginning of the earliest period presented.
The accompanying financial statements present the historical financial condition, results of operations and cash flows of Sancon as of December 31, 2010.
Business of the Issuer
Overview of the Company and its Operations
Sancon Resources Recovery, Inc. is an industrial waste recycling company with operations based in Australia and China. Sancon's main operations and services include industrial waste management consulting, collection and reprocess of recyclable materials such as glass, plastic, cardboard, and paper sourced from suppliers such as Aperio Group and Astron. The recycled materials will then enter into manufacture cycles as raw materials. The use of recycled material is both environmentally friendly and is a key part of today's competitive manufacturing process to lower costs. As China gains global manufacturing dominance, Chinese manufacturers are increasingly turning to recycled materials to lower its costs, resulting tremendous demand for recycled materials import. Sancon currently exports more than 4,000 tons of recycled industrial waste material annually to its processing partners and manufacturers in China. The waste management service is another important operation for the Company. Sancon provides full waste management solutions for manufacturing companies; aim to recover recyclable materials instead of dumping them into land-fills. Our service also can clients protect its brand and sales. The major customers for Sancon are Chinese manufacturers and recycled material traders such as Pernod Ricard, Hang Mai and Yue Wu, which are located mainly in the Chinese provinces of Shanghai, Guangdong, Zhejiang and Fujian.
SANCON RESOURCES RECOVERY, INC.
The Sancon group comprises the following companies:
Registered Name
(business is conducted under the registered names)
Domicile
Owner
% held
Status
Sancon Recycling Pty Ltd. (“Sancon AU” hereinafter)
Australia
Sancon
Active
Sancon Resources Recovery (Shanghai) Co., Ltd. ("Sancon SH" hereinafter)
Shanghai
Sancon
Active
Crossover Solutions Inc. ("CS" hereinafter)
British Virgin Island
Sancon
Active
Sheng Rong Environment Protection Technology Co.,Ltd. (“Shanghai Sheng Rong” hereinafter)
Shanghai
Sancon SH
Active
Our Strategy
Chinese waste management market is much larger than expected. The household and commercial waste is dominated by Chinese state owned companies operating in various municipalities. The waste recovery (aka, resources recovery) sector however is a highly fragmented business with hundreds of thousands of privately run companies mainly focusing on the collection and reprocessing of waste material of high resale value such as paper, cardboard, glass, metal, plastics , etc. These waste materials are collected from production and commercial operations. Due to the highly fragmented nature, these companies are typically lacking in scale, collection coverage, equipments, customers, and expansion capital, and most of them are sole proprietor operated businesses. We believe these factors present enormous opportunities for a dynamic professionally managed company such as Sancon to acquire, consolidate and grow. We don't encounter competitions from large Fortune 500 companies since they are mainly focused on waste incineration, water and hazardous waste treatment market, and have limited market foot print. This leaves the niche recycling and resources recovery market to specialized recycling companies such as Sancon.
Our near-term growth strategy is to first expand our recycling and waste recovery operations in China by setting up extensive network of facilities and collection operations around China. Continuously strengthen our collection abilities and customer relationships in selected resources materials. We aim to increase our current processing capacity for recycled waste materials at our existing facilities in China. We are actively developing and reviewing new markets, customers as well as acquisition target companies in China. The well established trust on quality control with our customers, and our expansion plans laid the groundwork firmly for long-term growth.
The Trend in Chinese Market
The amount of materials recycled in China in 2007 was 142.3 million metric tons. This is expected to increase to 244.8 million metric tons in 2013. Moreover, there are $30-$35 billion waste materials can be recycled but without recycling in China. There are 5 million tons of used steel and iron, over 200,000 tons of non-ferrous metal, 14 million tons of waste paper and a great volume of waste plastic and waste glass that could be recycled and utilized within China each year.
The Chinese Government is emphasizing environmental policies & projects for all sectors and entities. On August 2008, China's top legislature passed a law to promote circular economy and will come into force on January 1, 2009. The aim of the law is to boost sustainable development through energy saving and reduction of pollutant discharges. At present China’s environmental industry is highly fragmented and at its infancy stage.
Promulgated on 25 February 2009 and effective as of January 1, 2011, the Chinese regulations on the administration of the recovery and disposal of waste electrical and electronic products (“WEEE Regulations”) are aiming at establishing a system for the disposal and recovery of waste electrical and electronic products, facilitating comprehensive utilization of resources and circular economy development, protecting the environment and safeguarding human health.
Sancon’s Visions and Goals
The long-term objective of Sancon is to seek and develop further alternative resources recovery solutions, which will help to protect our environment and maximize sustainable usage of waste materials. At Sancon we believe reducing the environmental impact of manufactured products is through both professional production waste management services offered to manufacturers and commercial entities to increase recyclability of waste materials, and efficient redeployment of waste materials.
SANCON RESOURCES RECOVERY, INC.
Services Offered To Our Clients
Sancon strives to take an all-inclusive approach to provide eco-friendly solutions leading to the sustainable use of waste materials. Our services include collection from manufacturing and commercial sites; re-process waste materials to increase recyclability, end-of-life disassembly, redeployment of recyclable materials, and destruction of sensitive materials and products
Our distribution method and customers
As our ending customers are diversified with geographic areas, we distribute our products into certain wholesalers who have wide connection with different customers in certain geographic area. Due to the distribution method, we depend on these distributors which are located in China.
Our Suppliers
We collect recyclable raw materials from commercial and industrial suppliers whenever and wherever possible. As a result, our suppliers are quite diversified.
Competition
While the markets for recycled materials are competitive, and the Company faces competition from a number of sources, the Company's products and services are uniquely positioned to differentiate from others. Many of the Company's competitors have substantially greater resources than the Company. Those resources may include greater capital; longer established operations; larger processing capabilities; wider supplier relationships; and other resources. The Company can give no assurance competitive pressures will not materially and adversely affect the Company's business, financial condition, and results of operations.
But the management has identified several key points which will give Sancon the competitive edge in the market place:
1) Sancon offers growing selection of recovered materials to our customers.
2) Sancon has number of strategically located collection and recycling plants and depots around China and it will enable Sancon to meet the demand for nationwide environmental services.
3) Working closely with more processing partners in China will add value to our products.
4) Industry know-how and management team's ability to ensure all operating and environmental standards are achieved. Our team's experience in logistic management and waste management operations are key factors enabling the delivery of a high standard of service to Sancon’s clients.
Intellectual Property
None.
Employees
As of December 31, 2010, the Company employed 20 full time and part time people in Australia subsidiaries. Our subsidiary in China employed around 200 full time and part time people,. To make our work more efficient, we outsourced a few other functions, such as logistics and administration, to certain professional firms to enable our resource being focused on sales and processing functions.
Factors That May Affect Future Results
The business in which the Company is engaged is capital supportive. Accordingly, the Company's ability to execute its business strategy and to sustain its operations depends upon its ability to maintain or procure capital. There can be no absolute assurance the necessary amount of capital will continue to be available to the Company on favorable terms, or at all. The Company's inability to obtain sufficient capital or to renew its credit facilities would limit the Company's ability to: (i) add new equipment to its portfolio, (ii) fund its working capital needs, and (iii) finance possible future acquisitions. The Company's access to capital may have a material adverse effect on the Company's business, financial condition and/or results of operations.
SANCON RESOURCES RECOVERY, INC.
There can be no absolute assurance the Company will be able to effectively manage its existing or the possible future expansion of its operations, or the Company's systems, procedures or controls will be adequate to support the Company's operations. Consequently, the Company's business, financial condition and/or results of operations could be possibly and adversely affected.
The Company does not foresee changes in tax laws for the jurisdictions in which the Company and its subsidiaries operate. There can be no absolute assurance that changes will not occur, and therefore no absolute assurance such changes will not materially and adversely affect the Company's business, financial condition and results of operations.
As a public company, Sancon is subject to certain regulatory requirements including, but not limited to, compliance with Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX404"). Such compliance results in significant additional costs to the Company by increased audit and consulting fees, and the time required by management to address the regulations.
ITEM 2 DESCRIPTION OF PROPERTY
The Company leases office space in Australia and China. The lease for Australia and China expire in 2011. The Australian Office is located in 7-9 Graham Road Clayton South 3169 VIC Australia, Rental fee, without GST and outgoing is $132,216 per annum. The size of the whole building is 2,414 square meters. In China, the major office is located in No 2 Yinqing Lu, Songjiang District, Shanghai. The annual rental fee is $153,975 and the size of the whole building is 5,056 aquare meters. The Company also leases many warehouses in more than 40 cities in China. The total annual rental fee for these warehouses is $246,633 for the year 2010. We may need to lease more facilities for our future operation purpose.
ITEM 3 LEGAL PROCEEDINGS
The company involved in the following litigations:
Dragon Wings Communications Limited, a Hong Kong corporation and Wong Yee Tat, an individual are the first and second plaintiff. They filed a complaint on July 25, 2008 in the District Court of the Hong Kong special Administrative Region, Civil Action No. 3251, against the first defendant, Fintel Group Limited for breach of contract. The Company is the second defendant because plaintiff claimed Fintel Group Limited is a wholly owned subsidiary of the Company. Under the writ, the plaintiff claimed that pursuant to a written stock purchase agreement, the first defendant shall purchase the first plaintiff’s common stock by common shares of Financial Telecom Limited (USA) inc. (replaced by shares of MKA Capital Inc. from June 2006) or pay to the plaintiff cash of $94,172 in lieu of the shares. Pluses the interest and cost of litigation, the total amount claimed by plaintiff were $104,966. The court adjudged that the first defendant do pay the plaintiffs damages on September 08, 2008 and also adjudged that the second defendant do pay the plaintiffs damages on December 10, 2008. The Company denied all allegations in the complaint because Fintel Group Limited is no longer our subsidiary since November 27, 2006.
On November 19, 2010, an involuntary bankruptcy petition was filed against the company in the United States Bankruptcy Court for Nevada, Case No. 10-54572-gwz. The petitioner is Dragon Wings Communications Limited and the amount of the claim is $149,015. The Company has retained a Nevada law firm to oppose the involuntary petition and have the case dismissed.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during fiscal year 2010.
SANCON RESOURCES RECOVERY, INC.
-- PART II --
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market information
The Company’s stock is assigned the symbol SRRY and is quoted and traded on the OTCQB.
The range of low to high closing prices on the OTCQB is shown in the table below (rounded to the nearest cent). This information is taken from MSN Money and CSI. Readers should note OTCQB quotations are a reflection of inter-dealer prices, without retail mark-up, mark-down, or commissions, and may not represent actual transactions.
Holders of the Company’s Stock
The Company has issued common stock only. On December 31, 2010, the total number of holders of record as according to our transfer agent was approximately 570.
Dividends
We did not pay any cash dividends on our common stock for fiscal year ended on December 31, 2010.
Unregistered Sales of Equity Securities
SANCON RESOURCES RECOVERY, INC.
The number of shares issued was based on the average closing price of our common shares on the OTCQB during certain periods. The shares were exempt from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended, pursuant to Rule 903, as a sale by the issuer in an offshore transaction. No underwriting or other commissions were paid in connection with the issuance of these shares. No forms of conversion or exercise options are attached to the shares.
ITEM 6 MANAGEMENT’S DISCUSSION AND ANALYSIS or PLAN OF OPERATION
The following discussion contains forward-looking statements. Forward looking statements are identified by words and phrases such as “anticipate”, “intend”, “expect” and words and phrases of similar import. We caution investors that forward-looking statements are only predictions based on our current expectations about future events and are not guarantees of future performance. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements due to risks, uncertainties and assumptions that are difficult to predict, including those set forth in Item 1A
ITEM 7. FINANCIAL STATEMENTS
Financial statements are attached hereto following beginning on Page.
SANCON RESOURCES RECOVERY, INC.
ITEM 8
ITEM 8 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
We engaged Kabani & Company, Inc. ("Kabani"), as our new independent accountant on November 27, 2006. The decision to retain Kabani & Company, Inc. was recommended and approved by the Registrant's Board of Directors.
During the Registrant's two most recent fiscal years and any subsequent interim period prior to the engagement of Kabani, neither the Registrant nor anyone on the Registrant's behalf consulted with Kabani regarding either (i) The application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the small business issuer's financial statements and either written or oral advice was provided that was an important factor considered by the small business issuer in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) Any matter that was the subject of either a "disagreement" or a "reportable event."
ITEM 8A CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report (the "Evaluation Date"). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date, that our disclosure controls and procedures were not effective.
Managements' Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Internal control over financial reporting is a process designed by, or under the supervision of, our chief executive and chief financial officers and effected by our board of directors, management and other personnel, 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.
Management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2010 based on criteria established under the COSO framework, an integrated framework for evaluation of internal controls issued to identify the risks and control objectives related to the evaluation of the control environment by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation described above, management has concluded that our internal control over financial reporting was not effective as of December 31, 2010. We have limited resources and we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow we will hire skilled professionals that will enable us to implement adequate segregation of duties within the internal control framework.
Our management will also implement additional review procedures designed to ensure that the disclosure provided by the Company meets the current requirements of the applicable filing made under the Exchange Act and methodology to review the statements.
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 requirements by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
SANCON RESOURCES RECOVERY, INC.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the last fiscal quarter or the fourth fiscal quarter for the year ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 8B OTHER INFORMATION
Item a. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item b. Changes in Securities and Use of Proceeds.
None
Item c. Defaults Upon Senior Securities.
None.
Item d. Submission of Matters to a Vote of Security Holders.
Matters for a vote of security holders were submitted to security holders in the Company's Proxy Statement, filed upon December 6, 2005. The remainder of the information required by this item is incorporated by reference to the Company's Proxy Statement.
Item e. Other Information.
None.
SANCON RESOURCES RECOVERY, INC.
-- PART III --
ITEM 9.
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS:
COMPLIANCE WITH SECTION (16) OF THE EXCHANGE ACT
Identification and Backgrounds of Directors and Officers
Mr. Jack Chen, Chief Executive Officer & Director
Mr. Chen is currently the CEO of Sancon as well as as the Managing Director of Sancon Recycling Pty Ltd, the wholly owned subsidiary of Sancon Resources Recovery, Inc. and a successful Australia based resources recycling company with presence in Australia and China. With more than eight years of solid industrial experiences in resources recovery sector in Australia and Asia, Mr. Chen is an expert in the collection, processing, trading and reuse of industrial waste materials. Previously, he worked in a management position for a multinational German plastics and chemicals company and later built a successful plastics trading business between Hong Kong and China.
Ms. Maggie Zhang, Acting Chief Financial Officer
Ms. Maggie Zhang joined Sancon in 2008 as Finance Manager of the company. She received a Bachelor Degree of Finance from Nanjing Agriculture University in 2003 and a Master Degree of Accounting and Finance from University of Birmingham in 2005. She has over 5 years experience in financing and auditing.
Mr. David Chen, Non Executive Chairman of the Board
Mr. Chen served as the Non executive Chairman of the Board since June, 2006. Prior to that, Mr. Chen served as the CEO of MKA Capital, Inc. (formally Financial Telecom Limited (USA) Inc.) since its inception in 2004. He is the president and CEO of Shine Media Acquisition Corp. a blank check company listed on OTC Bulletin Board, since its inception in June 2005. He was the former CEO of Hartcourt Companies Inc from 2002 to 2004 (OTCBB: HRCT), a consolidator of IT distribution companies, and CEO of V2 Technology, a leading videoconferencing technology company. Previously, Mr. Chen was the Marketing Director of Time Warner's CNN Asia Pacific unit, Sales Director of Turner Broadcasting Systems Asia, and Managing Director of HelloAsia Inc. Mr. Chen holds a Bachelor of Economics degree from Monash University of Australia.
Mr. Cong Yuanli, Independent Director
Mr. Cong Yuanli is the Chairman of Landwood Enterprise Holdings Ltd, a China based diversified holding company with businesses in international trading, import/export, real estate investment and financing. Previously he was a director at Hong Kong Landtrade Group, a holding company in real estate investment, international trust financing, hotel investment, and international trading, where he was responsible for the international trading activities. Mr. Cong is an avid fine art, antique and furniture collector and is the owner of Beijing Landwood Gallery and Beijing Yuanhantang Antique Furniture Ltd. Mr. Cong holds Bachelor of Economics and Management degree from Beijing University of Finance and Economics of China.
SANCON RESOURCES RECOVERY, INC.
Family relationships
Family relationships among directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers are as follows: Mr. Jack Chen and Mr. David Chen are brothers.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) Beneficial Ownership Reporting Compliance, each person who was at any time during the fiscal year, a director, officer, beneficial owner of more than ten percent of any class of equity securities of the Company registered pursuant to section 12 (“reporting person”) is required to file Forms 3, 4, and 5 on a timely basis, during the most recent fiscal year or prior fiscal years. Due to lack of knowledge, the relevant beneficial owners did not file on time. They will file Form 3 and Form 5 shortly.
Code of Ethics
The Company has Standards of Ethical Conduct Policy (“Code of Ethics”) that applies to all employees and directors, including the Chairman, Chief Executive Officer, and Chief Financial Officer. The Code of Ethics is filed as Exhibit 14.1
to this 10-K report.
Audit committee financial expert
The Company’s board of directors has determined it does not have at least one audit committee financial expert serving on its audit committee, as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.
The reason for the lack of an audit committee financial expert is the Company’s inability to find a suitable person by the reporting date of this 10-K report. The Company continues its efforts to locate and appoint such a person.
ITEM 10
ITEM 10 EXECUTIVE COMPENSATION
Officers’ compensation
Our CEO was compensated approximately $105,510 and $44,000 by cash for the year ended December 31, 2010 and 2009 respectively.
For the year ended 2010 and 2009, Our CEO and Director Jack Chen also was compensated $90,000 that will be paid in stock.
For the year ended 2010, Our CEO and Director Jack Chen received 600,000 options as part of his compensation. There was no options issued in 2009
Directors’ compensation
For the year ended 2010, our Director Mr. David Chen was compensated $42,000 that will be paid in stock and 300,000 options. Mr. David Chen has not received any compensation in 2009.
Other Directors has not been compensated as of December 31, 2010.
SANCON RESOURCES RECOVERY, INC.
Securities authorized for issuance under Equity Compensation Plans
Equity compensation plan information as of December 31, 2010
ITEM 11
ITEM 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security ownership of certain beneficial owners
The following persons are known to be the beneficial owners of more than 5% of the Company’s voting securities, as of December 31, 2010:
Notes:
(1) Based on 22,964,996 issued and outstanding voting common stock as of December 31, 2010.
SANCON RESOURCES RECOVERY, INC.
Security ownership of management
The following persons are known to be the beneficial owners of the Company’s voting securities, as of December 31, 2010:
Notes:
(1) Based on 22,964,996 issued and outstanding voting common stock as of December 31, 2010.
ITEM 12
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is no any transaction as of December 31, 2010.
SANCON RESOURCES RECOVERY, INC.
ITEM 13
ITEM 13 EXHIBITS
The following list describes the exhibits filed as part of this Report on Form 10-K.
Exhibit Number
Note
Description of Document
3.1
(1)
Articles of Incorporation of Financial Telecom Limited (USA), Inc.
3.2
(1)
Amended and Restated Bylaws of Financial Telecom Limited (USA), Inc.
10.1
(1)
Agreement between Hong Kong Futures Exchange Limited and Financial Telecom Limited
10.2
(1)
Market Service Datafeed Agreement between Stock Exchange Information Services Limited and Financial Telecom Limited
10.3
(2)
Option agreement dated December 14, 2004 between Fintel Group Limited and shareholders of Shanghai Longterms Technology Limited.
10.4
(2)
Option agreement dated January 5, 2005 between Fintel Group Limited and shareholders of Beijing JCL Technology Commerce Limited.
10.5
(2)
Option agreement dated January 20, 2005 between Fintel Group Limited and shareholders of Shanghai Qianhou Computer Technology Limited.
10.6
(2)
Independent contractor agreement between Fintel Group Limited and Mr. Sam Chong Keen.
10.7
(2)
Independent contractor agreement between Fintel Group Limited and Info Media Company.
10.8
(2)
Independent contractor agreement between Fintel Group Limited and China Digital Distribution Limited.
10.9
(3)
Sales and purchase agreement dated March 25, 2005 between Fintel Group Limited and shareholders of Enjoy Media Holdings Limited
10.10
(4)
Sales and purchase agreement dated April 25, 2005 between Fintel Group Limited and shareholders of Beijing Genial Technology Co. Ltd.
10.11
(4)
Option agreement dated March 7, 2005 between Fintel Group Limited and shareholders of Beijing Sinoskyline technology Trading Co. Ltd.
14.1
(8)
Code of Ethics
16.1
(6)
Change in Certifying Accountants
17.1
(5)
Correspondence on departure of Directors
20.1
(7)
Proxy Statement dated December 6, 2005
21.1
(9)
Subsidiaries of the registrant
24.1
(9)
Power of Attorney
31.1
(9)
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
(9)
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
(9)
Certification of Officers, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
______________________
(1)
Incorporated herein by reference to the registrant’s initial Registration Statement on Form 10-SB (File No. 000-50760) filed on May 13, 2004.
(2)
Incorporated herein by reference to the registrant’s Annual Report on Form 10-KSB (File No. 000-50760) filed April 15, 2005.
(3)
Incorporated herein by reference to the registrant’s Quarterly Report of Form 10-QSB (File No. 000-50760) filed May 6, 2005.
(4)
Incorporated herein by reference to the registrant’s Quarterly Report of Form 10-QSB (File No. 000-50760) filed August 6, 2005.
(5)
Incorporated herein by reference to the registrant’s Current Report on Form 8K/A (File No. 000-50760) filed November 29, 2005.
(6)
Incorporated herein by reference to the registrant’s Current Report on Form 8K/A (File No. 000-50760) filed January 25, 2006.
(7)
Incorporated herein by reference to the registrant’s Proxy Statement (File No. 000-50760) filed December 6, 2005.
(8)
Incorporated herein by reference to the registrant’s Annual Report on Form 10-KSB (File No. 000-50760) filed April 26, 2006.
(9)
Filed herewith.
SANCON RESOURCES RECOVERY, INC.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
During the fiscal year ended December 31, 2010, our principal independent accountant was Kabani & Company, Inc, the services of which were provided in the following categories and amount:
Audit Fees
Kabani & Company, Inc is our independent accountant from November 27, 2006. The aggregate fees billed by Kabani & Company, Inc for professional services rendered for the audit of our financial statements for the year ended December 31, 2010 were approximately $102,500.
Audit Related Fees
Other than the fees described under the caption "Audit Fees" above, Kabani & Company, Inc did not bill any fees for services rendered to us during fiscal year 2010 for assurance and related services in connection with the audit or review of our financial statements.
Tax Fees
There were no fees billed by Kabani & Company, Inc for professional services rendered during the fiscal year ended December 31, 2010 for tax compliance, tax advice, and tax planning.
All Other Fees
There were no fees billed by Kabani & Company, Inc for other professional services rendered during the fiscal year ended December 31, 2010.
SANCON RESOURCES RECOVERY, INC.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Sancon Resources Recovery, Inc.
Date: March 31, 2011
By: /s/ Jack Chen
Jack Chen
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Sancon Resources Recovery, Inc.
Date: March 31, 2011
By: /s/ David Chen
David Chen
Chairman
Date: March 31, 2011
By: /s/ Jimmy Yiu
Jimmy Yiu
Independent Director
Date: March 31, 2011
By: /s/ Cong Yuanli
Cong Yuanl
Independent Director
Date: March 31, 2011
By: /s/ Jack Chen
Jack. Chen
Director
FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SANCON RESOURCES RECOVERY, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Sancon Resources Recovery, Inc.
We have audited the accompanying consolidated balance sheets of Sancon Resources Recovery, Inc. and its subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sancon Resources Recovery, Inc. and its subsidiaries as of December 31, 2010 and 2009, and the results of its consolidated statements of operations, stockholders' equity, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Los Angeles, California
Date: March 31, 2011
The accompanying notes are an integral part of these audited consolidated financial statements
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS
Sancon Resources Recovery, Inc. ("Sancon", or "the Company", or "we", or "us") is registered in Nevada. Sancon Resources Recovery, Inc. is an environmental service and waste management company that operates recycling facilities in China and Australia. Sancon specializes in the collection and recovery of industrial and commercial solid wastes such as plastic, paper, cardboard, and glass.
On March 31, 2009, the company sold 100% equity interest of Guang Cheng Int'l Trading Ltd. (“Guang Cheng”) for $1,290 plus the assumption of certain liabilities, which resulted in a loss of $1,884 on disposal of the entity.
NOTE 2 PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include all of the accounts of the Company and all of the subsidiaries under its control, which include Sancon Recycling Pty Ltd., Sancon SH (70%), Shanghai Sheng Rong(52% owned by Sancon SH) and CS as of and for the year ended December 31, 2010. While the historical results for the year ended December 31, 2009 included Sancon Recycling Pty Ltd., Sancon SH (70%) and CS. All material inter-company balances and transactions have been eliminated in consolidation.
NOTE 3 SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
These financial statements are prepared in accordance with accounting principles accepted generally in the United States. These principles require management to use its best judgment in determining estimates and assumptions that: affect the reported amounts of assets and liabilities; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for such items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the relevant accounting rules, typically in the period when new information becomes available to management. Actual results in the future could differ from the estimates made in the prior and current periods.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and cash in bank accounts mainly used for the business operations with maturities of less than 90 days.
ALLOWANCE FOR BAD DEBTS
The Company presents accounts receivable at the net of allowances for doubtful accounts. The allowances are calculated based on detailed review of certain individual customer accounts and an estimation of the overall economic conditions affecting the Company's customer base. The Company reviews a customer's credit history before extending credit. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. No provision for doubtful accounts has been made in these financial statements, as the accounts are considered collectible in full. As at December 31, 2010 and 2009, there was no allowance for bad debt.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HELD TO MATURITY SECURITIES
Company classifies investment in marketable securities as `Held to Maturity' in accordance with SFAS 115(ASC 320). Non temporary decline in the fair value of securities is charged to earnings while unrealized gains or losses are not recognized as at December 31, 2010 and 2009. As of December 31, 2010 and 2009, the investment in securities amounted to $129,489 and $258,993.
The held to maturity securities of $129,489 will mature on August 22, 2011. So they are classified under current assets in the accompanied financial statements.
PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation.
For our subsidiary in Australia we use declining balance method of depreciation by multiplying annual rates as follows:
For our subsidiary of Sancon Shanghai and Shanghai Sheng Rong we use straight line method over the following estimated useful lives:
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews its portfolio of assets for impairment in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets (“SFAS 144”) (ASC 360)." Such review necessitates estimates of current market values; re-lease rents, residual values and component values. The estimates are based on currently available market data and are subject to fluctuation from time to time. The Company initiates its review periodically, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Recoverability of an asset is measured by comparison of its carrying amount to the expected future undiscounted cash flows (without interest charges) that the asset is expected to generate. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value. Significant management judgment is required in the forecasting of future operating results which are used in the preparation of projected undiscounted cash flows and, should different conditions prevail, material write downs may occur. There was no impairment in Company’s long lived assets as at December 31, 2010 and 2009.
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
The reporting currency used in the preparation of these consolidated financial statements is U.S. dollars. Local currencies are the functional currencies for the Companies subsidiaries. For the purpose of consolidation: assets and liabilities of subsidiaries with functional currencies other than U.S. dollars are translated into U.S. dollars at the applicable rates of exchange in effect at the balance sheet date; and income and expense items are translated into U.S. dollars at the average applicable rates during the year, while equity is accounted for using historical rates.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Translation gains and losses resulting from fluctuations in exchange rates are recorded as a separate component of other comprehensive income within stockholders' equity as cumulative translation adjustments. Gains and losses resulting from foreign currency transactions are included in results of operations. Foreign currency translation adjustments for the years ended December 31, 2010 and 2009 amounted to $15,964 and $8,787.
REVENUE RECOGNITION
The Company’s revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104(ASC 605). Sales revenue is recognized when the significant risks and rewards of the ownership of goods have been transferred to the buyers. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due, the possible return of goods, or when the amount of revenue and the costs incurred or to be incurred in respect of the transaction cannot be measured reliably.
The Company now is organized into two business segments while it was three in the last year: material recycling and waste management service. Their revenue recognition is as follows:
(1) Material Recycling refers to the activities of collecting and processing of waste materials, then selling them to customers in China. The plant is located in Australia. The revenue is recognized when delivery of the material is occurred and invoice issued.
(2) Waste management Service refers the activities of providing waste management service with operations located in Shanghai China. The revenue is recognized when service is completed and invoice is issued.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
The Company operates in several countries. As a result, we are subject to numerous domestic and foreign tax jurisdictions and tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions are taxed on various bases: income before taxes, deemed profits and withholding taxes based on revenue. The calculation of our tax liabilities involves consideration of uncertainties in the application and interpretation of complex tax regulations in a multitude of jurisdictions across our global operations.
We regularly assess our position with regard to individual tax exposures and record liabilities for our uncertain tax positions and related interest and penalties. These accruals reflect management's view of the likely outcomes of current and future audits. The future resolution of these uncertain tax positions may be different from the amounts currently accrued and therefore could impact future tax period expense.
The Company has U.S. federal net operating loss carry forwards that if unused could expire in varying amounts in the years through 2020. However, as a result of the acquisition, the amount of net operating loss carry forward available to be utilized in reduction of future taxable income was reduced pursuant to the change in control provisions of Section 382 of the Internal Revenue Code.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that we provide during any given year.
NON-CONTROLLING INTEREST
Sancon Resources Recovery (Shanghai) Co., Ltd. holds a 52% ownership interest in Shanghai Sheng Rong. As of December 31, 2010, the non-controlling interest amounted to $356,706 compared to $158,583 as of December 31, 2009.
STOCK BASED COMPENSATION
As of December 31, 2010, the Company issued 900,000 shares of stock options to directors and accrued $218,751 of related expenses. For the year 2009, the Company did not issue any stock options.
BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated using net earnings (the numerator) divided by the weighted-average number of shares outstanding (the denominator) during the reporting period. Diluted EPS includes the effect from potentially dilutive securities. Diluted EPS is equal to basic EPS for all periods presented, as the Company has no potentially dilutive securities.
STATEMENT OF CASH FLOWS
Cash flows from the Company's operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
SEGMENT REPORTING
The Company discloses segment information utilizing the "management approach" model including information related to products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions how to allocate resources and assess performance.
RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial statements to conform to classifications used in the current year.
RECENT PRONOUNCEMENTS
In September 2009, the FASB issued new accounting guidance related to the revenue recognition of multiple element arrangements. The new guidance states that if vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. The accounting guidance will be applied prospectively and became effective during the first quarter of 2011. Early adoption was allowed. The Company adopted this guidance beginning January 1, 2011 and does not expect this accounting guidance to materially impact its financial statements.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, which clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The Company’s adoption of this ASU did not have a material impact on its consolidated financial statements.
In January 2010, the FASB issued ASU No. 2010-02, Accounting and Reporting for Decreases in Ownership of a Subsidiary - a Scope Clarification, which affects accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. This ASU also affects accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts ASU 810-10, Consolidations. If an entity has previously adopted ASU 810-10 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted ASU 810-10. The Company’s adoption of this ASU did not have a material impact on its consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update ("ASU") 2010-06 Fair Value Measurement and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This guidance provides for the following new required disclosures related to fair value measurements: 1) the amounts of and reasons for significant transfers in and out of level one and level two inputs and 2) separate presentation of purchases, sales, issuances, and settlements on a gross basis rather than as one net number for level three reconciliations. The guidance also clarifies the existing disclosures as follows: 1) provide fair value measurement disclosures for each class of assets and liabilities and 2) provide disclosures about the valuation techniques and inputs used for both recurring and nonrecurring level two or level three inputs. The Company has adopted this standard, but it did not have a material effect on the Company's consolidated balance sheet or required financial statement disclosures.
In April 2010, the FASB issued ASU 2010-13, Compensation -Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial porting of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company’s adoption of this ASU did not have a material impact on its consolidated financial statements.
In September 2010, the FASB issued Accounting Standard Update 2010-25, Plan Accounting-Defined Contribution Pension Plans (Topic 962): Reporting Loans to Participants by Defined Contribution Pension Plans. This ASU clarifies how loans to participants should be classified and measured by defined contribution plans and how International Financial Reporting Standards compare to these provisions.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amendments in this update are effective for fiscal years ending after December 15 2010. The Company’s adoption of this ASU did not have a material impact on its consolidated financial statements.
In December 2010, the FASB issued Accounting Standard Update 2010-28, Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modified Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. For public entities, the amendments in the ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company`s adoption of this ASU is not expected to have a material impact on its consolidated financial statements.
In December 2010, the FASB issued Accounting Standard Update 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU specifies that, if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 is effective prospectively for business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company`s adoption of this ASU is not expected to have a material impact on its consolidated financial statements.
NOTE 4 CONCENTRATIONS AND COMMITMENTS
(A) CONCENTRATIONS
The Company has focused on business in overseas markets, which the Company believes present opportunities. Business with foreign customers is subject to risks related to the economy of the country or region in which such customers are located, which may be weaker than the U.S. economy. On the other hand, foreign economy may remain strong even though the U.S. economy does not. Foreign economic downturn may impact foreign customer’s ability to make payments. Furthermore, foreign customers are subject to risks related to currency conversion fluctuations.
Foreign laws, regulations and judicial procedures may be more or less protective for the local company’s rights than those in the United States. The Company could experience collection or repossession problems related to the enforcement of its business agreements under foreign local laws and the remedies in foreign jurisdictions. The protections potentially offered by Section 1110 of the Bankruptcy Code do not apply to non-U.S. carriers, and applicable local law may not offer similar protections.
(B) COMMITMENTS & CONTINGENCY
OFFICE SPACE LEASES
The Company leases office space in Australia and China. The lease for Australia will expire in October 2011 while leases for China will expire on various dates between January 2011 and July 2013. Based upon existing leases, without renewals, the minimum lease payments up for the next three years after December 31, 2010 to expiry are as follows:
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following schedule shows the composition of total rental expense for all operating leases except those with terms of a month or less that were not renewed:
EQUIPMENT LEASES:
Total minimum lease payments under the above leases for the next years after December 31, 2010 are as follows:
LEGAL PROCEEDINGS:
The company is involved in the following litigation:
Dragon Wings Communications Limited, a Hong Kong corporation and Wong Yee Tat, an individual are the first and second plaintiff. They filed a complaint on July 25, 2008 in the District Court of the Hong Kong special Administrative Region, Civil Action No. 3251, against the first defendant, Fintel Group Limited for breach of contract. The Company is the second defendant because plaintiff claimed Fintel Group Limited is a wholly owned subsidiary of the Company. Under the writ, the plaintiff claimed that pursuant to a written stock purchase agreement, the first defendant shall purchase the first plaintiff’s common stock by common shares of Financial Telecom Limited (USA) inc. (replaced by shares of MKA Capital Inc. from June 2006) or pay to the plaintiff cash of $94,172 in lieu of the shares. Pluses the interest and cost of litigation, the total amount claimed by plaintiff were $104,966. The court adjudged that the first defendant do pay the plaintiffs damages on September 08, 2008 and also adjudged that the second defendant do pay the plaintiffs damages on December 10, 2008. The Company has denied all allegations in the complaint because Fintel Group Limited was not a subsidiary at the time.
On November 19, 2010, an involuntary bankruptcy petition was filed against the company in the United States Bankruptcy Court for Nevada, Case No. 10-54572-gwz. The petitioner is Dragon Wings Communications Limited and the amount of the claim is $149,015. The Company has retained a Nevada law firm to oppose the involuntary petition and have the case dismissed. The Company accrued $149,015 of potential liability in the accompanied financial statements based on the amount of the claim.
NOTE 5 EQUITY INVESTMENTS
INVESTMENT IN SHANGHAI SHENG RONG
On May 26, 2010, the Company’s subsidiary Sancon Shanghai entered into an investment agreement with Shanghai Sheng Rong to invest an additional RMB1,000,000 or $146,289 in Shanghai Sheng Rong. Previously, Sancon SH had invested $44,010 (RMB300,000) in return for a 20% equity interest. After the completion of this current transaction, Sancon SH now holds 52% of the equity interest in Shanghai Sheng Rong. Shanghai Sheng Rong was formed on June 19, 2009 as an environmental services company that operates waste management and recycling services in China. This investment is accounted for using the equity method, and is herein consolidated for financial reporting purposes.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2010 and December 31, 2009 Non-controlling interest amounted to $356,706 and $158,583 respectively.
NOTE 6 PROPERTIES AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation and any impairment in value. The carrying values are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Impairment losses are recognized in the income statement.
As of December 31, 2010, the property and equipment of the Company consisted of the following:
Included in property and equipment at December 31, 2010 is approximately $58,132 of assets, which are leased under non-cancelable leases and accounted for as capital leases, which expire through September 2011. The accumulated depreciation included in the property and equipment for these leases is approximately $56,321.
As of December 31, 2009, the property and equipment of the Company consisted of the following:
Included in property and equipment at December 31, 2009 is approximately $72,195 of assets, which are leased under non-cancelable leases and accounted for as capital leases, which expire through September 2011. The accumulated depreciation included in the property and equipment for these leases is approximately $40,451.
Depreciation and amortization expense for the years ended December 31, 2010 was $245,759, among which $190,621 was booked as SG&A expenses and $55,138 was booked in cost of good sales. For the year end December 31, 2009, Depreciation and amortization expense was $190,724.
NOTE 7 SHORT-TERM AND LONG-TERM LOANS PAYABLE
On November 19, 2009, Sancon SH purchased a vehicle with a total loan principle amount of $87,288, unsecured, with an annual interest rate of 7.6%. The payment is to be made in thirty-six (36) equal monthly installments of $2,719 expiring in November 2011. The Company classified the loan balance under current and noncurrent liabilities respectively in the accompanied financial statements. As of December 31, 2010 and December 31, 2009, short term loan payable amounted to $29,224 and $26,199 and long term loan payable amounted to $28,805 and $56,117 respectively.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2010, Sancon SH accrued and paid interest $5,401 for the loan.
The future payment schedule for this term loan is as follows:
NOTE 8 RELATED PARTY TRANSACTIONS
Net amounts due to related parties are as follows:
NOTE 9 SEGMENT REPORTING
During the years ended December 31, 2010 and 2009, the Company is organized into two business segments: (1) material recycling, (2) waste service. The following table presents a summary of operating information and certain year-end balance sheet information for the years ended December 31, 2010 and 2009:
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 STOCKHOLDER’S EQUITY
On October 15, 2007, the Company entered into a ten year service agreement with Lyons Capital LLC. In connection with this agreement, Lyons Capital LLC will receive 300,000 shares of Restricted, RULE 144 Stock, for services rendered or to be rendered in the future. The Company issued shares on March 10, 2008 and recorded at the fair market value of $156,000. This amount will be amortized over a period of ten years from January 01, 2008. For the year ended December 31, 2010, the Company recorded $15,600 in consulting expense. The unamortized amount of $109,200 is included under deferred compensation as at December 31, 2010.
On January 01, 2008, the Company entered in a four years employment agreement with Mr. Jack Chen, current CEO. In connection with this agreement, Mr. Jack Chen will receive corporate salary of $90,000 per year that paid in stock. On August 01, 2008 and April 13, 2009, the Company issued 250,000 shares and 350,000 shares of Restricted, RULE 144 Stock to Mr. Jack Chen. The shares recorded at the fair market value of $37,500 and $52,500 respectively. As of the December 31, 2010, the Company recorded $180,000 in due to related parties. This is a stock subscription liability.
On January 01, 2010, the Company entered in a two year employment agreement with Mr. David Chen, former CEO and major shareholder, which prescribes the issuance of stock in lieu of salary. As of the December 31, 2010, the Company recorded $42,000 in due to related parties. This is a stock subscription liability.
Stock Options
Options outstanding as of December 31, 2010 and related weighted average price and intrinsic value are as follows:
On January 01, 2010, the Company entered in an option agreement with Mr. Jack Chen, current CEO. In connection with this agreement, the Company granted a total of 600,000 options with an exercise price of $0.33 per share. These options expire in 5 years.
On January 01, 2010, the Company entered in an option agreement with Mr. David Chen, former CEO and major shareholder. In connection with this agreement, the Company granted a total of 300,000 options with an exercise price of $0.33 per share. These options expire in 5 years.
The Company valued the stock options by the Black-Scholes model with the following assumptions:
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summary presents the options granted, exercised, expired and outstanding at December 31, 2010:
For the year ended December 31, 2010 and 2009, the Company recognized approximately $218,751 and $0, respectively, as compensation expenses for its stock option plan.
NOTE 11 INCOME TAXES
The Company is registered in the State of Nevada and has operations in primarily five tax jurisdictions - the Australia, Hong Kong, China, British Virgin Island and the United States. For certain operations in the United States of America, the Company has incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses from its US public shell as of December 31, 2010 and December 31, 2009. The Company has deferred tax asset from its Australian operations amounted to $37,617 and $33,057 respectively as of December 31, 2010 and 2009. No valuation allowance is recorded against the deferred tax asset as at December 31, 2010 and 2009 under this entity.
The components of income before income taxes and non-controlling interest are as follows:
United States of America
As of December 31, 2010, the Company in the United States of America had approximately $5,386,746 in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carry forwards in certain situations when changes occur in the stock ownership of a company. In the event the Company has a change in ownership, utilization of carry forwards could be restricted. The deferred tax assets for the United States entity at December 31, 2010 consists mainly of net operating loss carry forwards and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the significant components of the net deferred tax assets for operation in the United States of America as of December 31, 2010 and 2009.
Australia
As of December 31, 2010 and 2009 the Company’s Australian subsidiary had accumulated loss of $174,316 and $2,000. Pursuant to Australian income tax laws, the Company has made income tax provision of $10,623 and $6,430 for the years ended December 31, 2010 and 2009 respectively.
The following table sets forth the significant components of the net deferred tax assets for operation in the Australia as of December 31, 2010 and 2009.
China
As of December 31, 2010 and 2009, the Company’s China subsidiary had accumulated profit of $573,142 and $324,513 respectively. The Company has net income before income tax and non-controlling interest of $200,397 during the years ended December 31, 2010. Pursuant to Chinese income tax laws, the Company has made income tax provision of $114,215 and $34,349 for the years ended December 31, 2010 and 2009.
British Virgin Island
The Company’s British Virgin Island subsidiary had net profit of $2,499,097 and $2,168,413 for the years ended December 31, 2010 and 2009. There is no income tax levied in British Virgin Island.
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2010, the Company does not have any unrecognized tax benefits and no corresponding interest or penalties. The Company's policy is to record interest and penalties as income tax expense.
NOTE 12 DISCONTINUED OPERATIONS
DISPOSAL OF GUANG CHENG
On March 31, 2009, the company sold 100% equity interest of Guang Cheng Int'l Trading Ltd. (“Guang Cheng”) for $1,290 plus the assumption of certain liabilities, resulting in total loss of $1,884 on discontinued operations.
Following is the Gain/Loss Calculation for disposal of Guang Cheng Int'l Trading Ltd.
NOTE 13 MAJOR CUSTOMERS AND VENDORS
Our two top customers provided approximately 67% of net sales for the year ended December 31, 2010. Total accounts receivable due from these customers was approximately 58% of total accounts receivable as of December 31, 2010.
Our three major vendors provided approximately 48% of total purchases for the year ended December 31, 2010. Total accounts payable due to these vendors was approximately 20% of total accounts payable as of December 31, 2010.
NOTE 14 NON-CONTROLLING INTEREST
The Company owned 70% interest in Sancon SH and Sancon SH owned 52% interest in Shanghai Sheng Rong. As at December 31, 2010 and 2009 non-controlling interest amounted to $356,706 and $158,583 respectively.
NOTE 15. HELD TO MATURITY SECURITIES
As of December 31, 2010 and December 31, 2009, the investment in securities amounted to $129,489 and $258,993.
The held to maturity securities of $129,489 will mature on August 22, 2011. So it is classified under current assets in the accompanied financial statements.
NOTE 16. SUBSEQUENT EVENTS
None
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Registered Name
(business is conducted under the registered names)
Domicile
Owner
% held
Status
Sancon Recycling Pty Ltd.
Australia
Sancon
Active
Sancon Resources Recovery (Shanghai) Co., Ltd. ("Sancon SH" hereinafter)
Shanghai
Sancon
Active
Crossover Solutions Inc. ("CS" hereinafter)
British Virgin Island
Sancon
Active
Sheng Rong Environment Protection Technology Co.,Ltd. (“Shanghai Sheng Rong” hereinafter)
Shanghai
Sancon SH
Active
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jack Chen and Maggie Zhang, jointly and severally, as his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Form 10-K has been signed by the following persons in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Jack Chen
Chief Executive Officer and Director
March 31, 2011
Jack Chen
/s/ Maggie Zhang
Acting Chief Financial Officer
March 31, 2011
Maggie Zhang
EXHIBIT 31.1
302 CERTIFICATION
I, Mr. Jack Chen, certify that:
1. I have reviewed this 10-K report of Sancon Resources Recovery, Inc.;
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: March 31, 2011
By: /S/ Jack Chen
Jack Chen
Chief Executive Officer
EXHIBIT 31.2
302 CERTIFICATION
I, Ms. Maggie Zhang, certify that:
1. I have reviewed this 10-K report of Sancon Resources Recovery, Inc.;
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: March 31, 2011
By: /S/ Maggie Zhang
Maggie Zhang
Acting Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18,
UNITED STATES CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officers of Sancon Resources Recovery, Inc., a Nevada corporation (the "Company"), do hereby certify with respect to the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2010 as filed with the Securities and Exchange Commission (the "10-K Report") that:
(1)
the 10-K Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the 10-K Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Sancon Resources Recovery, Inc.
Date: March 31, 2011
By: /s/ Jack Chen
Jack Chen
Chief Executive Officer
Date: March 31, 2011
By: /S/ Maggie Zhang
Maggie Zhang
Acting Chief Financial Officer