ITEM 1. 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. (herein below referred to as “the Company” or “Sancon”).
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 owned 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 had 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, 2012.
Business of the Issuer
Overview of the Company and its Operations
During the period from June 2006 to October 2011, Sancon Resources Recovery, Inc. had been an industrial waste recycling company with operations based in Australia and China. Sancon's main operations and services included 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. Sancon exported about 4,000 tons of recycled industrial waste material annually to its processing partners and manufacturers in China. The waste management service was another important operation for the Company. Sancon provided full waste management solutions for manufacturing companies; aimed to recover recyclable materials instead of dumping them into land-fills. The major customers for Sancon were 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.
The business operation of the Company was carried out through its subsidiaries listed below. In 2011, the Company divested all its subsidiaries. The status of the subsidiaries as of the year end 2011 is given below.
On September 30, 2011, Sancon entered into a Stock Sale and Purchase Agreement to transfer its 70% controlling interest in Sancon Resources Recovery (Shanghai) Co., Ltd. and 100% interest of its associated company Crossover Solutions, Inc to Mr. Jack Chen, the Company’s Chief Executive Officer and Director.
Under the terms of the Agreement, the purchase price was to be settled upon closing of the transaction by returning to the Company a total of 10,100,000 common shares, representing 44% of the total issued and outstanding shares of Sancon. As of October 31, 2011, a total of 10,100,000 shares of Sancon had been received and subsequently cancelled by the Company.
Our Strategy
The waste recovery sector is a highly fragmented business with numerous 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. We originally believed that this presented opportunities for a professionally managed company such as Sancon. However, after operating in this business for several years, we discovered that competition is more severe than we had expected. This led us to divest all our operating subsidiaries in 2011.
We do not currently engage in any business activity. Our principal business objective will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings.
We may consider a business which has recently commenced operations, is a developing company in need of additional funds for expansion into new products or markets, is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties and is in need of additional capital. In the alternative, a business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital, but which desires to establish a public trading market for its shares, while avoiding, among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering.
Any target business that is selected may be a financially unstable company or an entity in its early stages of development or growth, including entities without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies.
Our management anticipates that it will likely be able to effect only one business combination, due primarily to our limited financing, and the dilution of interest for current stockholders, which is likely to occur as a result of our management's plan to offer a controlling interest to a target business in order to achieve a tax free reorganization.
Because of general economic conditions, rapid technological advances being made in some industries and shortages of available capital, our management believes that there are numerous firms seeking the perceived benefits of becoming a publicly traded corporation. Potentially available business combinations may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.
Evaluation of Business Combinations
Our management intends to concentrate on prospective business combinations that may be brought to its attention through their own efforts, through persons having pre-existing business or personal relationships with members of the Company's management and interested persons referred to the Company by persons having such pre-existing relationships with members of its management or other third parties.
While we have not established definitive criteria for acquisition candidates but intend to focus on Asian-based entities. In analyzing prospective business combinations, our management will also consider such matters as the following:
·Available technical, financial, and managerial resources,
·Working capital and other financial requirements,
·Prospects for the future,
·Nature of present and expected competition,
·The potential for further research, development, or exploration,
·The potential for growth or expansion,
·The potential for profit,
As a part of our investigation, our officers and/or directors will meet personally with management and key personnel, visit and inspect material facilities, check references of management and key personnel, and take other reasonable investigative measures, to the extent of our limited financial resources and management expertise.
Intellectual Property
None.
Employees
As of December 31, 2012, the Company had one employee, Angel Lai.
Factors That May Affect Future Results
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 would limit the Company's ability to: (i) acquire new business and (ii) fund its working capital needs. The Company's access to capital may have a material adverse effect on the Company's business, financial condition and/or results of operations.
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 future Company 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 operates. 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 future 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 1A.
ITEM 1A. RISK FACTORS
This information is not required of smaller reporting companies.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
The Company does not own or have any leased property as of December 31, 2012. The corporate office is provided to the Company by Fintel (USA) Limited free of charge. Mr. Tang, the CEO and President of the Company, is a principal owner of Fintel (USA).
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The company was involved in the following litigations:
Dragon Wings Communications Limited (“Dragon Wings”), 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 was the second defendant because plaintiff claimed that 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. Together with the accrued interest and cost of litigation, the total amount claimed by the plaintiffs was $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.
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 was Dragon Wings and the amount of the claim was $149,015 (“the Claim”). The Company retained a Nevada law firm to oppose the involuntary petition.
On December 5, 2012, a Settlement Agreement was signed between the Company and Dragon Wings in which:
(i)Dragon Wings agreed to completely release and to forever discharge Sancon of and from any and all past, present or future claims, demands, obligations, actions, rights, damages, costs, expenses and compensation which Dragon Wings had, or which accrued in connection to the Claim.
(ii)In consideration of the release set forth above, Sancon agreed to issue to Dragon Wings 6.0 million of its common shares without cost and option to subscribe to 6.0 million of its common shares at $0.01 per share within 5 years from the date of the Settlement Agreement.
Per the Settlement Agreement, the Company issued to Dragon Wings 6.0 million common shares on January 4, 2013. The Company has not received any notice from Dragon Wings on the exercise of the option to acquire new shares of the Company. The Company believes that it has fulfilled all the other terms and conditions as stipulated in the Settlement Agreement which is included in this report as Exhibit 10.12.
On January 11, 2013, the Bankruptcy Court for the District of Nevada entered an order dismissing this bankruptcy case against the Registrant. As a result, all pending hearings in the case, except any pending hearings on fee applications for Chapter 13 cases, were vacated and the notice of Dismissal dated January 11, 2013 issued by the United States Bankruptcy Court, District of Nevada is included in this report as Exhibit 10.13.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during fiscal year 2012.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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, 2012, the total number of holders of record as according to our transfer agent was approximately 449.
Dividends
We did not pay any cash dividends on our common stock for fiscal year ended on December 31, 2012.
Unregistered Sales of Equity Securities
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.
Cancellation of Securities
During the year ended December 31, 2012, the Company had not cancelled any common shares and the outstanding share issued is 12,864,996 (2011: 12,864,996).
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
This information is not required of smaller reporting companies.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 above. We encourage you to read those risk factors carefully along with the other information provided in this Report and in our other filings with the SEC before deciding to invest in our stock or to maintain or change your investment. We undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law.
You should read this MD&A in conjunction with the Consolidated Financial Statements and Related Notes in Item 8.
Overview
Sancon Resources Recovery, Inc. was an industrial waste recycling company with operations based in Australia and China. Sancon exported more than 4,000 tons of recycled industrial waste material annually to its processing partners and manufacturers in China. Sancon's main operations and services included industrial waste management consulting, collection and reprocess of recyclable materials such as glass, plastic, cardboard, and paper before its re-entry into manufacture cycles as raw materials. The use of recycled material is both environmentally friendly and is a key part of the competitive manufacturing process to lower costs. Chinese manufacturers are increasingly turning to recycled materials to lower costs. The major customers for Sancon were Chinese manufacturers and recycled material traders such as Pernod Ricard, Hing Yang Hong, which are located mainly in the Chinese provinces of Shanghai, Guangdong, Zhejiang and Fujian.
The business operation of the Company was carried out through its subsidiaries. In 2011, the Company divested all its subsidiaries. The Company currently has no active business activities.
Plan of Operation
The Company is actively looking for acquisition and merger opportunities in growth industries in Asia.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments: allowance for doubtful accounts; income taxes; stock-based compensation; asset impairment.
Revenue Recognition
In accordance with generally accepted accounting principles ("GAAP") in the United States, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collection of the resulting receivable is reasonably assured. Noted below are brief descriptions of the product or service revenues that the Company recognizes in the financial statements contained herein.
The Company was organized into two businesses: 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.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts could be required. We initially record a provision for doubtful accounts based on our historical experience, and then adjust this provision at the end of each reporting period based on a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, we consider: (i) the aging of the accounts receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable; (iv) our historical provision for doubtful accounts; (v) the credit worthiness of the customer; and (vi) the economic conditions of the customer’s industry as well as general economic conditions, among other factors.
Income taxes
We account for income taxes in accordance with SFAS No. 109(ASC 740), Accounting for Income Taxes. SFAS 109 prescribes the use of the liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance, or increase or decrease this allowance in a period, we increase or decrease our income tax provision in our statement of operations. If any of our estimates of our prior period taxable income or loss prove to be incorrect, material differences could impact the amount and timing of income tax benefits or payments for any period. In addition, as a result of the significant change in the Company’s ownership, the Company's future use of its existing net operating losses may be limited.
The Company operated in several countries. As a result, we were subject to numerous domestic and foreign tax jurisdictions and tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions were taxed on various bases: income before taxes, deemed profits and withholding taxes based on revenue. The calculation of our tax liabilities involved consideration of uncertainties in the application and interpretation of complex tax regulations in a multitude of jurisdictions across our global operations.
We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. The tax liabilities are reflected net of realized tax loss carry forwards. We adjust these reserves upon specific events; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the contingency has been resolved and the liabilities are no longer necessary.
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.
Stock-Based Compensation
Effective January 1, 2006, the beginning of Sancon's first fiscal quarter of 2006, the Company adopted the fair value recognition provisions of SFAS 123R (ASC 718), using the modified-prospective transition method. Under this transition method, stock-based compensation expense was recognized in the consolidated financial statements for granted stock options, since the related purchase discounts exceeded the amount allowed under SFAS 123R(ASC 718) for non-compensatory treatment. Compensation expense recognized included: the estimated expense for stock options granted on and subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R (ASC 718); and the estimated expense for the portion vesting in the period for options granted prior to, but not vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123(ASC 718). Results for prior periods have not been restated, as provided for under the modified-prospective method.
On December 5, 2012, the Company entered into a settlement agreement with Dragon Wings for the settlement of the claim by Dragon Wings. In consideration of Sancon's agreement to make the payments in the form of common shares and share options listed in the settlement agreement. The Company would give the option to Dragon Wings to purchase 6,000,000 common shares; the option may be exercised by Dragon Wings in whole or in part, at any time within 5 years from the date of this settlement agreement with the exercise price at US$0.01 per share, with dilution protection and subject to share split adjustment.
For other items paid for by common stock, the value of the transaction is determined by the value of the goods or services received, measured at the time of the transaction. The corresponding stock value, used to determine the number of share to be issued, is the value of the average price for the 20 to 30 days prior to the transaction date.
Asset Impairment
We periodically evaluate the carrying value of other long-lived assets, including, but not limited to, property and equipment and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Significant estimates are utilized to calculate expected future cash flows utilized in impairment analyses. We also utilize judgment to determine other factors within fair value analyses, including the applicable discount rate.
Results of Operations
Two Years Ended December 31, 2012 and 2011
Revenue
The Company had no revenues in 2012 and 2011.
Cost of revenue
There was no cost of revenue in 2012 and 2011.
Gross profit
The Company had no gross profit in 2012 and 2011.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased to $137,430 for the year 2012, from $349,396 for the year 2011, a decrease of $211,966. This was because the Company disposed all of its subsidiaries in the fourth quarter of 2011 and it currently does not have any business operation.
Other Income (Expense)
For the year 2012, the Company recorded other income of $36,052 compared to $1,038,962 for the year 2011. The decrease in other income is $1,002,910 during the period. This was mainly because of the profit derived from the disposal of its subsidiaries in 2011.
Income Tax
No income tax was provided for the year 2012 and 2011.
Net loss/income
The net loss for the year 2012 was $101,378, compared to the net loss of $6,572,908 in 2011, a decrease of $6,471,530. This was because the Company disposed all of its subsidiaries in the fourth quarter of 2011 and it currently does not have any business operation.
Liquidity and Capital Resources
As shown in the accompanying financial statements, the Company had an accumulated loss of $911,010 as of December 31, 2012 compared to the accumulated loss of $809,632 for the year ended December 31, 2011. There was a working capital deficit of $123,830 on December 31, 2012 and it was $205,067 as of December 31, 2011. The decrease of $81,237 was mainly due to the decrease in cash used in operation.
Operating Activities
The net cash used in operating activities decreased by $5,963,053 for the year 2012 to $nil as compared to $5,963,053 for the year 2011, due to the fact that we had no operations in 2012.
Investing Activities
No net cash was provided by investing activities for the year 2012 and 2011. The Company did not purchase any property or equipment in 2012 and 2011.
Financing Activities
Net cash used in financing activities amounted to $nil for the year 2012 compared to $10,100 for the year 2011, a decrease of $10,100.
The Company financed its growth by utilizing cash reserves and loans from directors. Loans from directors were unsecured, and deferred payment term and without interest bearing. The Company’s primary use of funds was for investigating potential merger/acquisition candidates and for working capital.
Inflation
In the opinion of management, inflation has not had a material effect on the Company's financial condition or results of its operations
Trends and uncertainties
Management believes there are no known trends, events, or uncertainties that could, or reasonably be expected to, adversely affect the Company’s liquidity in the short and long terms, or its net sales, revenues, or income from continuing operations.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that are material to investors.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is not required of smaller reporting companies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements are attached hereto following Part IV, Item 15 beginning on Page of this Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We engaged Dominic K.F. Chan & Co. as our new independent accountant on August 20, 2012. The decision to engage Dominic K.F. Chan & Co. was recommended and approved by the Company’s Board of Directors.
ITEM 9A.
ITEM 9A. 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, 2012 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, 2012. 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.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Item a. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item b. Changes in Securities and Use of Proceeds
On September 30, 2011, Sancon entered into a Stock Sale and Purchase Agreement to transfer its 70% controlling interest in Sancon Resources Recovery (Shanghai) Co., Ltd. and 100% interest of its associated company Crossover Solutions, Inc to Mr. Jack Chen, the Company’s Chief Executive Officer and Director.
Under the terms of the Agreement, the purchase price was to be settled upon closing of the transaction by returning to the Company a total of 10,100,000 common shares, representing 44% of the total issued and outstanding shares of Sancon. As of October 31, 2011, a total of 10,100,000 shares of Sancon had been received and subsequently cancelled by the Company.
Item c. Defaults Upon Senior Securities
None.
Item d. Submission of Matters to a Vote of Security Holders
None.
Item e. Other Information
None.
PART III
ITEM 10.
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 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.
Mr. Stephen Tang, Chief Executive Officer, President & Director
Mr. Tang is the Chairman of Mega Pacific Capital, Inc. a finance and investment consulting firm since 2005. Mr. Tang was the director and Chairman of Financial Telecom (USA) Limited (later changed its name to MKA Capital, Inc. then Sancon Resources Recovery Inc). Mr. Tang is currently the Vice President of the Hong Kong Information Technology Federation and a director of Professional Commons, a think tank in Hong Kong. Mr. Tang is a graduate of Hong Kong Baptist University and received his MBA from the Asian Institute of Management in Manila, Philippines, in 1976.
Mr. Francis Bok, Chief Financial Officer & Director
Mr. Bok serves as the chief executive officer of Beyond IVR Limited, an information technology company based in Hong Kong. During 2004, Mr. Bok served as the assistant manager for Kactus Limited, a Hong Kong based mobile content and applications provider. From 2002 until 2004, Mr. Bok was a Manager at Continuous Technologies International Limited in Hong Kong. Mr. Bok received his Bachelor in Mathematics in 1993 from the University of Waterloo, Canada, a Master of Science in 1997 from the University of Hong Kong, and an MBA in 2000 from the City University of Hong Kong.
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.
Committees of our Board of Directors
Audit Committee
We do not have a formal standing audit committee. Rather, audit committee functions are performed by our entire Board of Directors. These functions include: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and (5) funding for the outside auditory and outside advisors engagement by the audit committee.
Audit Committee Financial Expert
None of our directors or officers has the qualifications or experience to be considered a financial expert. We believe that the cost related to retaining a financial expert at this time is prohibitive. However, we do intend to appoint an audit committee financial expert in the foreseeable future.
Director Independence
None of the members of our Board of Directors may be deemed to be independent under the standards for independence contained in the NASDAQ Marketplace Rules, Rule 4350(d) and Rule 4200(a)(15).
Compensation Committee
Compensation committee functions are performed by our entire Board of Directors. Our Board of Directors does not have a charter or other formal policies regarding compensation.
Nominating and Corporate Governance Committee
Nominating and Corporate Governance committee functions are performed by our entire Board of Directors. Our Board of Directors does not have a charter or other formal policies regarding director nominations or corporate governance.
Stockholder Communications
Any stockholder may communicate directly to our Board of Directors by sending a letter to our company’s address of record.
·encourage their commitment;
·motivate superior performance;
·facilitate attainment of ownership interests in our company;
·align personal interests with those of our stockholders; and
·enable them to share in the long-term growth and success of our company.
ITEM 11.
ITEM 11.	EXECUTIVE COMPENSATION
Officers’ compensation
On May 21, 2012, Stephen Tang and Francis Bok were appointed CEO and CFO, respectively. Messrs. Tang and Bok will each receive a salary of $24,000 per year to be paid in shares of the Company’s common stock. As of the date this report the shares have not been issued and it has been recorded by the Company’s auditors as a subscription liability in the amount of $29,420.
Directors’ compensation
The Directors have not been compensated as of December 31, 2012.
Employment Agreement
The Company does not currently pay any compensation to its officers or directors and it has no employment agreements with any of its officers or directors.
Stock option plan
We do not have a stock option plan and we have not issued any warrants, options or other rights to acquire our securities.
Employee Pension, Profit Sharing or other Retirement Plans
We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.
Securities authorized for issuance under Equity Compensation Plans
None
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security ownership of certain beneficial owners
The following table sets forth as of January 31, 2013, certain information with respect to the Company’s equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than five percent (5%) of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
* Less than 1%
(1) Unless otherwise indicated, based on 24,864,996 shares of common stock issued and outstanding. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for the purposes of computing the percentage of any other person.
(2) Unless indicated otherwise, the address of the shareholder is c/o Sancon Resources Recovery, Inc., 602 Nan Fung Tower, Suite 6/F, 88 Connaught Road Central, Central District, Hong Kong.
(3) On January 11, 2013, as part of a settlement agreement, the Company issued 6,000,000 shares of its common stock to Dragon Wings. In addition and in accordance with the settlement agreement, the Company issued options to Dragon Wings to purchase 6,000,000 shares of its common stock for $0.01 per share. The options may be exercised at any time within five years from the settlement date. The beneficial amount of 12,000,000 shares includes the unexercised options of 6,000,000 shares owned by Dragon Wings.
We are not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the issuer, other than as set forth above. There are no classes of stock other than common stock issued or outstanding.
There are no current arrangements which will result in a change in control.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Our directors have advanced funds on an interest-free basis, with no maturity date, from appointment for working. Amount advanced totaled $40,563 in 2012, Mr. Tang and Mr. Bok advanced amount for cash, director fee, professional service fees and transfer agent fees.
As of the date of this Annual Report, we have no standing committees and our entire board of directors serves as our audit and compensation committees. We have determined that none of our directors are independent based on an analysis of the standards for independence set forth in Section 121A of the American Stock Exchange Company Guide. If we undertake to qualify our common stock for quotation in the over-the-counter market, we may need to ensure we meet any eligibility requirements with respect to independent directors.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
The Company’s Board of Directors pre-approved all audit and non-audit services provided to us and during the periods listed below. The Company’s Board approves discrete projects on a case-by-case basis that may have a material effect on our operations and also considers whether proposed services are compatible with the independence of the public accountants.
The following table presents fees for professional services rendered by our auditors for the periods ended December 31, 2012 and 2011:
PART IV
ITEM 15.
ITEM 15. 	EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)The following Exhibits are filed as part of this report.
* Filed herewith.
(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 on Form 10-QSB (File No. 000-50760) filed May 6, 2005.
(4) Incorporated herein by reference to the registrant’s Quarterly Report on 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.
SANCON RESOURCES RECOVERY, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Directors and Stockholders of
Sancon Resources Recovery, Inc.
We have audited the accompanying consolidated balance sheet of Sancon Resources Recovery, Inc. (the Company”) and its subsidiaries as of December 31, 2012 and the related consolidated statement of income, stockholders’ equity and cash flows for the year ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
Except for the effects of any adjustments that might have been determined to be necessary had we been able to obtain sufficient evidence concerning the corresponding figures as explained in the following paragraph, we conducted our audit 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 consolidated financial statements are free of material misstatement. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. 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 audit provides a reasonable basis for our opinion.
As previously explained in our report dated September 12, 2012 on the group’s financial statements for the year ended December 31, 2011, the group had disposed of a number of subsidiaries during the year and a gain on disposal of these subsidiaries amounted to approximately $1,038,962 was recognized in the consolidated statement of income for the year ended December 31, 2011. Due to lack of certain books and records of the Company’s ex-subsidiaries, we were unable to obtain sufficient appropriate audit evidence to satisfy ourselves as to the accuracy of the balance sheets at the disposal date and of the results from 1 January 2011 to date of disposal of the subsidiaries being disposed of, and whether the amount of gain on disposal of subsidiaries had been accurately recorded in the consolidation income statement. Any adjustment to the figures might have consequential effect on the opening balance of retained earnings of the group as at January 1, 2012, the results for the year ended December 31, 2011 and the related disclosures thereof in the financial statements.
In our opinion, except for the effect of such adjustment, if any, described in the "Basis for Qualified Opinions on Prior year audit scope limitation affecting opening balances" paragraphs above, the consolidated financial statements referred to above present fairly, in all material respects, the respective financial position of Sancon Resources Recovery, Inc as of December 31, 2012, and the results of their operations and their cash flows for the year ended December 31, 2012, in conformity with the accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the financial statements, the Company has the accumulated deficits as of December 31, 2012 and 2011, and no source of revenue, which raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Dominic. K.F. Chan & Co.
Dominic. K.F. Chan & Co.,
Certified Public Accountants
Hong Kong, China
April 27, 2016
SANCON RESOURCES RECOVERY, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2012 AND 2011
(United States dollars, except number of shares, per share data and unless otherwise stated)
The accompanying notes are an integral part of these audited consolidated financial statements
SANCON RESOURCES RECOVERY, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED 31 DECEMBER, 2012 AND 2011
(United States dollars, except number of shares, per share data and unless otherwise stated)
The accompanying notes are an integral part of these audited consolidated financial statements
SANCON RESOURCES RECOVERY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(United States dollars, except number of shares, per share data and unless otherwise stated)
The accompanying notes are an integral part of these audited consolidated financial statements
SANCON RESOURCES RECOVERY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER, 2012 AND 2011
(United States dollars, except number of shares, per share data and unless otherwise stated)
The accompanying notes are an integral part of these audited consolidated financial statements
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States dollars, except number of shares, per share data and unless otherwise stated)
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. had been an environmental service and waste management company that operated recycling facilities in China and Australia. Sancon specialized in the collection and recovery of industrial and commercial solid wastes such as plastic, paper, cardboard, and glass.
On April 1, 2011, the Company approved an infusion of equity into Sancon Resources Recovery (Shanghai) Co., Ltd. (“Sancon SH”) for a total of $2,000,000, of which Sancon invested $1,400,000 to Sancon SH and the minority shareholder invested $600,000.
On September 15, 2011, one of the subsidiaries, Sancon Recycling Pty. Limited, applied for liquidation.
On October 31, 2011, the Company disposed of its subsidiaries Crossover Solution Inc. (“CS”) and Sancon SH at a consideration of $404,000.
After disposal of all its subsidiaries in the 4th quarter of 2011, the company currently does not have any business operation.
NOTE 2 PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include all of the accounts of the Company and all of the ex-subsidiaries under its control, which were disposed on October 31, 2011, include Sancon Recycling Pty Ltd., Sancon SH (70%), Shanghai Sheng Rong (52% owned by Sancon SH) and CS as of and for the period ended October 31, 2011. 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, 2012 and 2011, there was no allowance for bad debt.
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
(United States dollars, except number of shares, per share data and unless otherwise stated)
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 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.
On October 31, 2011, the Company disposed of its operating subsidiaries and became dormant afterwards.
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.
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.
STOCK BASED COMPENSATION
For the year 2012, the Company issued 6,000,000 shares of stock options to a shareholder for settlement of payable and capitalized $89,015 in share option reserves. As of December 31, 2011, 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.
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.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States dollars, except number of shares, per share data and unless otherwise stated)
RECENT PRONOUNCEMENTS
The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.
NOTE 4 LEGAL PROCEEDINGS
The Company is involved in the following litigation:
Dragon Wings Communications Limited (Dragon Wings), 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. On December 5, 2012, the Company entered into a settlement agreement with Dragon Wings for the settlement of the claim by Dragon Wings. In consideration of Sancon's agreement to make the payments in the form of common shares and share options listed in the settlement agreement, Dragon Wings agreed to completely release and to forever discharge the Company of and from any and all past, present or future claims, demands, obligations, actions, rights, damages, costs, expenses and compensation which Dragon Wings had, or which may hereafter accrue in connection to the Claim. The Company would issue to Dragon Wings 6,000,000 common shares without payment by or costs to Dragon Wings, and give the option to Dragon Wings to purchase 6,000,000 common shares under the terms and conditions mentioned in note 8. On January 11, 2013, the Bankruptcy Court for the District of Nevada entered an order dismissing this bankruptcy case against the Registrant. As a result, all pending hearings in the case, except any pending hearings on fee applications for Chapter 13 cases, were vacated.
NOTE 5 GOING CONCERN
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, after the disposal of its operating subsidiaries on October 31, 2011 and became dormant afterwards, the Company has the stockholders’ deficits of $123,830 and $205,067 for the year ended December 31, 2012 and 2011 respectively. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans, additional sales of its common stock or through a possible business combination. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States dollars, except number of shares, per share data and unless otherwise stated)
NOTE 6 RELATED PARTY TRANSACTIONS
Net amounts due from / (to) related parties are as follows:
NOTE 7 SEGMENT REPORTING
On October 31, 2011, the Company disposed of its operating subsidiaries and became dormant afterwards. During the years ended December 31, 2011, the Company was 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 year ended December 31, 2011:
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States dollars, except number of shares, per share data and unless otherwise stated)
NOTE 8 STOCKHOLDER’S EQUITY
Share based compensation
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. As of December 31, 2012, the vesting period of unamortized amount of $93,600 included under deferred compensation was accelerated upon the termination of service agreement. For the year ended December 31, 2012 and 2011, the Company recorded $93,600 and $15,600 in consulting expense respectively. The unamortized amount of $nil and $93,600 were included under deferred compensation as at December 31, 2012 and 2011.
On January 01, 2008, the Company entered in a four years employment agreement with Mr. Jack Chen, former CEO (resigned on May 21, 2012). 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, 2012 and 2011, the Company recorded $nil and $150,000 in due to related parties. This is a stock subscription liability. Mr. Jack Chen resigned as director and the agreement was terminated on May 21, 2012.
On January 01, 2010, the Company entered in a two year employment agreement with Mr. David Chen, former CEO (resigned on May 21, 2012) and major shareholder, which prescribes the issuance of stock in lieu of salary. As of the December 31, 2012 and 2011, the Company recorded $nil and $42,000 in due to related parties. This is a stock subscription liability. Mr. David Chen resigned as director and the agreement was terminated on May 21, 2012.
On May 21, 2012, Mr. Stephen Tang was elected to be the director and CEO of the Company and Mr. Francis Bok was elected to be the director and CFO of the Company. Mr. Stephen Tang and Mr. Francis Bok will receive corporate salary of $24,000 per year each that paid in stock. As of the December 31, 2012, the Company recorded $29,420 in due to related parties. This is a stock subscription liability.
On May 21, 2012, the Company prescribes the issuance of stock in lieu of salary for 12,000 per year with an employee. As of the December 31, 2012, the Company recorded $7,355 in other payables. This is a stock subscription liability.
Ordinary share
During the year ended December 31, 2011, the Company had cancelled 10,100,000 ordinary shares and the outstanding share issued is 12,864,996 (2010: 22,964,996).
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States dollars, except number of shares, per share data and unless otherwise stated)
NOTE 8 STOCKHOLDER’S EQUITY (CONTINUED)
Stock Options
The following summary presents the options granted, exercised, expired and outstanding at December 31, 2012 and 2011:
The stock option plan on January 1, 2010 for the granting of up to 900,000 options to former directors with an exercise price of $0.33 per share was cancelled in 2011.
On December 5, 2012, the Company entered into a settlement agreement with Dragon Wings for the settlement of the claim by Dragon Wings. In consideration of Sancon's agreement to make the payments in the form of common shares and share options listed in the settlement agreement. The Company would give the option to Dragon Wings to purchase 6,000,000 common shares. The option may be exercised by Dragon Wings in whole or in part, at any time within 5 years from the date of this settlement agreement with the exercise price at US$0.01 per share, with dilution protection and subject to share split adjustment.
SANCON RESOURCES RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States dollars, except number of shares, per share data and unless otherwise stated)
NOTE 9 INCOME TAXES
The Company is registered in the State of Nevada. Before the disposal of its operating subsidiaries on October 31, 2011, the Company had operations in primarily four tax jurisdictions - the Australia, 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, 2012 and December 31, 2011. No valuation allowance is recorded against the deferred tax asset as at December 31, 2012 and 2011 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, 2012, the Company in the United States of America had approximately $7,748,930 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, 2012 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.
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, 2012 and 2011.
As of December 31, 2012, 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.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the April 27, 2016.
SANCON RESOURCES RECOVERY, INC.
By: /s/ Stephen Tang
Stephen Tang
President and Director
(Chief Executive Officer)
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title Date
/s/ Stephen Tang
President; Director
April 27, 2016
Stephen Tang
(Chief Executive Officer)
/s/ Francis Bok
Director
April 27, 2016
Francis Bok
(Chief Financial Officer)
INDEX TO EXHIBITS
* Filed herewith
(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 on Form 10-QSB (File No. 000-50760) filed May 6, 2005.
(4) Incorporated herein by reference to the registrant’s Quarterly Report on Form 10-QSB (File No. 000-50760) filed August 6, 2005.
(5) Incorporated herein by reference to the registrant’s Current Report on Form 8-K/A (File No. 000-50760) filed November 29, 2005.
(6) Incorporated herein by reference to the registrant’s Current Report on Form 8-K/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.