UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 
 FORM
10-Q
 
 
 (Mark
One)
 
 x    QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the
quarterly period ended    June 30,
2010
 
 oTRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the
transition period from ___ to _______
 
 Commission
file number      000-50760
  Sancon
Resources Recovery, Inc.
 (Exact
name of small business issuer as specified in its charter)
  Nevada
              
              58-2670972(State or
      other jurisdiction of incorporation or organization)
              
              (IRS Employee
      Identification No.)
 
 No 2
Yinqing Lu, Songjiang District,
 Shanghai,
China, 201615
 (Address
of principal executive offices)
 
 (+86) 21
67756099
 ­­­­­­­­­­­­­­­­­­­­­­­
(Issuer's telephone number)
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes
[X]     No [ ]
 
 APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
 DURING
THE PRECEDING FIVE YEARS
 
 Check
whether the registrant filed all documents and reports required by Section l2,
13 or 15(d) of the Exchange Act after the distribution of securities under a
plan confirmed by a court.   Yes [
]     No [ ]
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS
 
 State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:
 
 Common
Stock:  par value of $0.001; 22,964,996 shares issued and outstanding
on June 30, 2010.
 
 Transitional
Small Business Disclosure Format (Check one):  Yes [
]     No [X]
  
  
  Sancon
Resources Recovery, Inc.
 FORM
10-Q
 
 INDEX
 
 PAGEImportant
      NoticePART I.
              FINANCIAL INFORMATION
              4Item 1.
              Financial
Statements  (Unaudited)
              4Item 2.
              Management's Discussion and Analysis or Plan of
      Operation
              17Item 3.
              Controls and Procedures
              26PART II.
              OTHER INFORMATION
              26Item 1.
              Legal Proceedings
              26Item 2.
              Changes in Securities and Use
      of  Proceeds
              26Item 3.
              Default Upon Senior Securities
              26Item 4.
              Submission of Matters to a Vote of Security
      Holders
              26Item 5.
              Other Information
              26Item 6.
              Exhibits
              27Signatures
              28
  2
  CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
 
 Certain
statements in this report contain or may contain forward-looking statements that
are subject to known and unknown risks, uncertainties and other factors which
may cause actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These forward-looking statements were based on
various factors and were derived utilizing numerous assumptions and other
factors that could cause our actual results to differ materially from those in
the forward-looking statements. These factors include, but are not limited to,
the risk of doing business in the People' Republic of China, or PRC, our ability
to implement our strategic initiatives, our access to sufficient capital, the
effective integration of our subsidiaries in the PRC into a U.S. public company
structure, economic, political and market conditions and fluctuations,
government and industry regulation, Chinese and global competition, and other
factors. Most of these factors are difficult to predict accurately and are
generally beyond our control. You should consider the areas of risk described in
connection with any forward-looking statements that may be made herein. Readers
are cautioned not to place undue reliance on these forward-looking statements
and readers should carefully review this report in its entirety. Except for our
ongoing obligations to disclose material information under the Federal
securities laws, we undertake no obligation to release publicly any revisions to
any forward-looking statements, to report events or to report the occurrence of
unanticipated events. These forward-looking statements speak only as of the date
of this report and you should not rely on these statements without also
considering the risks and uncertainties associated with these statements and our
business.
  3
  PART I.   FINANCIAL INFORMATION
 
 ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)
  SANCON
RESOURCES RECOVERY, INC.
 CONSOLIDATED
BALANCE SHEETS
 (UNAUDITED)
  Assets
 As atJune 30, 2010
              
              
              December 31, 2009Current
      assetsCash
      and cash equivalents
              
              $
              4,823,713
              
              
              $
              3,703,716Trade
      receivables, net
              
              
              961,142
              
              
              
              988,673Inventory
              
              
              42,654
              
              
              
              16,013Deferred
      Tax Asset
              
              
              31,710
              
              
              
              33,057Other
      current assets
              
              
              231,944
              
              
              
              285,933Advance
      and prepayment
              
              
              132,677
              
              
              
              49,502Held
      to maturity securities
              
              
              128,500
              
              
              
              129,000Total
      current assets
              
              
              6,352.340
              
              
              
              5,205,894Property,
      plant & equipment, net
              
              
              1,190,846
              
              
              
              958,041Security
      deposit
              
              
              25,944
              
              
              
              9,824Held
      to maturity securities-non current
              
              
              129,489
              
              
              
              129,993Investment
              
              
              -
              
              
              
              42,678Goodwill
              
              
              27,688
              
              
              
              -Total
      Assets
              
              $
              7,726,307
              
              
              $
              6,346,430Liabilities and Stockholders'
      EquityLiabilitiesCurrent
      liabilitiesTrade
      payables
              
              $
              864,508
              
              
              $
              886,034Capital
      lease - current
              
              
              10,103
              
              
              
              15,925Tax
      payables
              
              
              75,732
              
              
              
              97,779Due
      to related parties
              
              
              551,510
              
              
              
              420,504Loan
      Payable-current
              
              
              27,322
              
              
              
              26,199Accrued
      expenses and other payables
              
              
              376,147
              
              
              
              371,593Total
      current liability
              
              
              1,905,322
              
              
              
              1,818,034Long
      term liabilityCapital
      lease
              
              
              20,911
              
              
              
              21,799Loan
      Payable
              
              
              42,427
              
              
              
              56,117Total
      liability
              
              
              1,968,660
              
              
              
              1,895,950Stockholders'
      EquityShare
      CapitalAuthorized: 500,000,000 common shares, par value $0.001 per
      shareIssued
      and Outstanding: 22,964,996 shares as of June 30, 2010 and December 31,
      2009
              
              
              22,965
              
              
              
              22,965Additional
      paid-in capital
              
              
              887,268
              
              
              
              860,449Deferred
      Compensation
              
              
              (117,000
              )
              
              
              (124,800
              )Other
      comprehensive income
              
              
              51,623
              
              
              
              71,641Retained
      Earnings
              
              
              4,566,214
              
              
              
              3,461,642Total
              
              
              5,411,069
              
              
              
              4,291,897Non-controlling
      interest
              
              
              346,577
              
              
              
              158,583Total
      stockholders' equity
              
              
              5,757,646
              
              
              
              4,450,480Total
      liabilities & stockholders' equity
              
              $
              7,726,307
              
              
              $
              6,346,430
  The
accompanying notes are an integral part of these unaudited consolidated
financial statements
 4
  SANCON
RESOURCES RECOVERY, INC. CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
 For
      the three months periods ended June 30,
              
              
              For
      the six months periods ended June 30,2010
              
              
              2009
              
              
              2010
              
              
              2009Net
      Sales
              
              $
              3,067,299
              
              
              $
              2,743,132
              
              
              $
              6,135,808
              
              
              $
              5,337,627Cost
      of sales
              
              
              1,575,990
              
              
              
              1,324,657
              
              
              
              3,144,096
              
              
              
              2,606,589Gross
      profit
              
              
              1,491,309
              
              
              
              1,418,475
              
              
              
              3,021,712
              
              
              
              2,731,038Operating
      ExpensesDepreciation
              
              
              64,990
              
              
              
              46,011
              
              
              
              121,644
              
              
              
              90,310Selling,
      General and Administrative
              
              
              923,966
              
              
              
              821,652
              
              
              
              1,799,625
              
              
              
              1,519,605Total
      operating expenses
              
              
              988,956
              
              
              
              867,663
              
              
              
              1,921,269
              
              
              
              1,609,915Operating
      Income
              
              
              502,353
              
              
              
              550,812
              
              
              
              1,100,443
              
              
              
              1,121,123Other
      Income (Expense)Other
      income /(Expense),net
              
              
              4,180
              
              
              
              10,977
              
              
              
              (9,014
              )
              
              
              37,651Investment
      loss prior to acquisition
              
              
              (2,370
              )
              
              
              -
              
              
              
              (3,139
              )
              
              
              -Gain
      on acquisition
              
              
              34,805
              
              
              
              -
              
              
              
              34,805
              
              
              
              -Interest
      income /(Expense),net
              
              
              2,063
              
              
              
              128
              
              
              
              2,489
              
              
              
              1,413Total
      other income (expense)
              
              
              38,678
              
              
              
              11,105
              
              
              
              25,141
              
              
              
              39,064Income
      from continued operations beforeincome
      taxes and discontinued Operation
              
              
              541,031
              
              
              
              561,917
              
              
              
              1,125,584
              
              
              
              1,160,187Discontinued
      OperationLoss
      from Discontinued Operation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (50
              )Loss
      on Disposal of a subsidiary
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,834
              )Loss
      on Discontinued Operations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,884
              )Income
      before income taxes and non-controlling interest
              
              
              541,030
              
              
              
              561,917
              
              
              
              1,125,584
              
              
              
              1,158,303Less:Income
      taxes
              
              
              2,310
              
              
              
              19,247
              
              
              
              11,385
              
              
              
              36,012Less:
      Net income attributed to non-controlling interest
              
              
              1,459
              
              
              
              7,945
              
              
              
              9,627
              
              
              
              14,849Net
      income
              
              
              537,262
              
              
              
              534,725
              
              
              
              1,104,572
              
              
              
              1,107,442Other
      comprehensive item:Foreign
      currency translation gain/(loss)
              
              
              (19,222
              )
              
              
              34,754
              
              
              
              (20,018
              )
              
              
              33,060Net
      comprehensive income
              
              $
              518,040
              
              
              $
              569,479
              
              
              $
              1,084,554
              
              
              $
              1,140,502Earnings
      per share:Basic  earnings
      per share-continued operations
              
              $
              0.02
              
              
              $
              0.02
              
              
              $
              0.05
              
              
              $
              0.05Basic
      earnings per share-discontinued operations
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Basic  earnings
      per share
              
              $
              0.02
              
              
              $
              0.02
              
              
              $
              0.05
              
              
              $
              0.05Basic  weighted
      average shares outstanding
              
              
              22,964,996
              
              
              
              22,918,329
              
              
              
              22,964,996
              
              
              
              22,766,663Diluted
      earnings per share-continued operations
              
              $
              0.02
              
              
              $
              0.02
              
              
              $
              0.05
              
              
              $
              0.05Diluted
      earnings per share-discontinued operations
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Diluted
      earnings per share
              
              $
              0.02
              
              
              $
              0.02
              
              
              $
              0.05
              
              
              $
              0.05Diluted
      weighted average shares outstanding
              
              
              23,039,996
              
              
              
              22,918,329
              
              
              
              23,083,417
              
              
              
              22,766,663The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements
 
  5
  SANCON
RESOURCES RECOVERY, INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
 For
      the six months periods ended June 30,2010
              
              
              2009Cash
      Flows from Operating ActivitiesNet
      Income
              
              $
              1,104,572
              
              
              $
              1,107,442Adjustments
      to reconcile net income to net cash flowsprovided
      by operating activities:Depreciation
              
              
              121,644
              
              
              
              90,310Investment
      loss prior to acquisition
              
              
              3,139
              
              
              
              -Gain
      on acqusition
              
              
              (34,805
              )
              
              
              -Shares issued in lieu of compensation & service
              
              
              -
              
              
              
              61,800Amortization of deferred compensation
              
              
              7,800
              
              
              
              -Options grant for compensation
              
              
              26,819
              
              
              
              -Non-controlling interest
              
              
              9,627
              
              
              
              14,849Changes in current assets and liabilities, net of business
      acquisition:Decrease (increase) in trade receivables
              
              
              27,531
              
              
              
              (590,328
              )Decrease
      (increase) in inventory
              
              
              (26,641
              )
              
              
              3,410Decrease
      (increase) in advance to suppliers
              
              
              (3,770
              )
              
              
              (47,147
              )Decrease (increase) in other current assets
              
              
              33,509
              
              
              
              (59,705
              )Increase (decrease) in tax payable
              
              
              (22,047
              )
              
              
              56,449Increase (decrease) in trade payable
              
              
              (49,520
              )
              
              
              196,530Increase (decrease) in other current liabilities
              
              
              4,554
              
              
              
              18,533Net
      cash provided by continued operations
              
              
              1,202,412
              
              
              
              852,143Net
      cash used in discontinued operations
              
              
              -
              
              
              
              -Net cash flows provided by operating activities
              
              
              1,202,412
              
              
              
              852,143Cash
      Flows from Investing ActivitiesPurchase
      of property and equipment
              
              
              (23,015
              )
              
              
              (207,475
              )Investment
      in Shengrong
              
              
              (147,300
              )
              
              
              (43,950
              )Net
      cash used in continued operations
              
              
              (170,315
              )
              
              
              (251,425
              )Net
      cash provided by discontinued operations
              
              
              -
              
              
              
              1,854Net cash flows used in Investing activities
              
              
              (170,315
              )
              
              
              (249,571
              )Cash
      Flows from Financing ActivitiesShareholders’
      loan
              
              
              77,978
              
              
              
              (88,616
              )Proceeds
      from (Payment of) mortgage loan
              
              
              (6,710
              )
              
              
              1,279Net cash flows provided by/(used in) financing activities
              
              
              71,268
              
              
              
              (87,337
              )Effect
      of exchange rate changes on cash
              
              
              16,632
              
              
              
              64,254Net
      Increase in Cash & Cash Equivalent
              
              
              1,119,997
              
              
              
              579,489Cash
      & Cash Equivalent at start of period
              
              
              3,703,716
              
              
              
              2,220,509Cash
      & Cash Equivalent at end of period
              
              $
              4,823,713
              
              
              $
              2,799,998Supplemental
      information for Cash ExpensesCash
      paid for Interest Expenses
              
              $
              4,322
              
              
              $
              1,559Cash
      paid for Income Taxes
              
              $
              11,385
              
              
              $
              8,337
  The
accompanying notes are an integral part of these unaudited consolidated
financial statements
 6
 
 Sancon
Resources Recovery, Inc.
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 For the
six month periods ended June 30, 2010
 (Unaudited)
 
 Note
1.  Nature of Operations
 
 Sancon
Resources Recovery, Inc. ("Sancon", or "the Company", or "we", or "us") is
registered in the State of 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.
 
 As of
June 30, 2010, the Sancon group comprises of the following
companies:
 
 Registered
      Name
                (business
      is conducted under the registered names)
              Domicile
              Owner
              %
      held
              StatusSancon
      Recycling Pty Ltd.
              Australia
              Sancon
              100
              ActiveSancon
      Resources Recovery (Shanghai) Co., Ltd. ("Sancon SH"
      hereinafter)
              Shanghai
              Sancon
              70
              ActiveCrossover
      Solutions Inc. ("CS" hereinafter)
              British
      Virgin Island
              Sancon
              100
              ActiveSheng
      Rong Environment Protection Technology Co.,Ltd. (“Shanghai Sheng Rong”
      hereinafter)
              Shanghai
              Sancon
      SH
              52
              Active
  On May
26, 2010, Sancon Shanghai ("Sancon SH" hereinafter), a 70% owned subsidiary
of the company, entered into an investment agreement with Shanghai Sheng Rong
Environmental Protection Technology Co.,Ltd("Shanghai Sheng Rong" hereinafter)
to invest additional RMB1, 000,000 or $146,289 in Shanghai Sheng Rong.
Previously Sancon SH has invested RMB 300,000 or $44,010 in return to hold
20% equity interest of Shanghai Sheng Rong.  Subsequently, Sancon SH holds
52% equity interest of Shanghai Sheng Rong. Shanghai Sheng Rong is an
environmental services company that operates waste management and recycling
services in China. Shanghai Sheng Rong was set up on June 19, 2009. See
Note 6.
  Note
2.  Basis of Presentation
 
 (a)
              Unaudited
      Interim Consolidated Financial
Statements
 
 The
accompanying unaudited consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States of
America.  However, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted or condensed, pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). In the
opinion of Sancon management, all adjustments of a normal recurring nature
necessary for a fair presentation have been included. The results for periods
are not necessarily indicative of results for the entire year. These financial
statements and accompanying notes should be read in conjunction with our annual
financial statements and the notes thereto for the year ended December 31, 2009,
included in our Annual Report on Form 10K, filed with the Securities and
Exchange Commission.
 
 (b)    
Principles of Consolidation
 
 The
accompanying unaudited 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%) ,CS and Shanghai Sheng Rong
(52% owned by Sancon SH) as of and for the period ended June 30, 2010. For the
same period in 2009, there were Sancon Recycling Pty Ltd., Sancon SH (70%) and
CS.  All material inter-company balances and transactions have been
eliminated in consolidation.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  This basis of
accounting contemplates the recovery of the Company's assets and the
satisfaction of liabilities in the normal course of business.
 
  7
 
 Note
3.  Summary of Significant Accounting Policies
 
 Use of
Estimates
 
 These
financial statements are prepared in accordance with accounting principles
accepted generally in the USA.  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.
 
 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.
 
 Revenue
Recognition
 
 The
Company's revenue recognition policies are in compliance with Staff Accounting
Bulletin (SAB) 104. 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.
 
 (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.
 (2) Waste
management Service refers the activities of providing waste management service
with operations located in China.
 
 Income
Taxes
 
 The
Company has adopted Financial Accounting Standard No. 109 (SFAS 109) (ASC 740)
which requires the recognition of 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
according to the principles of FAS 5, (ASC 450) Accounting for Contingencies.
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 to 2026. 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.
 
 A 100%
valuation allowance has been established as a reserve against the deferred tax
assets arising from the net operating losses and other net temporary differences
since it cannot, at this time, be considered more likely than not that their
benefit will be realized in the future.
 
 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
Stockholders’ Interest
 
 The
Company owns 70% interest in Sancon SH and Sancon SH owns 52% interest in
Shanghai Sheng Rong. As at June 30, 2010 and December 31, 2009 Non-controlling
interest amounted to $346,577 and $158,583 respectively.
  8
 
 Certain
amounts presented for prior periods that were previously designated as minority
interests have been reclassified to conform to the current year presentation.
Effective January 1, 2009, the Company adopted SFAS No. 160, (ASC 810)
“Non-controlling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51,” which established new standards governing the accounting for
and reporting of non-controlling interests (NCIs) in partially owned
consolidated subsidiaries and the loss of control of subsidiaries. Certain
provisions of this standard indicate, among other things, that NCIs (previously
referred to as minority interests) be treated as a separate component of equity,
not as a liability (as was previously the case); that increases and decreases in
the parent’s ownership interest that leave control intact be treated as equity
transactions, rather than as step acquisitions or dilution gains or losses; and
that losses of a partially owned consolidated subsidiary be allocated to the NCI
even when such allocation might result in a deficit balance. This standard also
required changes to certain presentation and disclosure requirements. The
provisions of the standard were applied to all NCIs prospectively, except for
the presentation and disclosure requirements, which were applied retrospectively
to all periods presented. As a result, upon adoption, the Company retroactively
reclassified the “Non-controlling stockholders’ interest” balance previously
included in the “Other liabilities” section of the consolidated balance sheet to
a new component of equity with respect to NCIs in consolidated subsidiaries. The
adoption also impacted certain captions previously used on the consolidated
statement of income, largely identifying net loss including NCI and net loss
attributable to the Company.
 
 Reclassifications
 
 Certain
reclassifications have been made in prior period's financial statements to
conform to classifications used in the current period.
 
 Recent
pronouncements
 
 In
January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify 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 EPS 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 adoption of this ASU did not have a material
impact on its consolidated financial statements.
 
 In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect 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 SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If
an entity has previously adopted SFAS No. 160 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 SFAS No. 160. The adoption of this ASU did not have a material
impact on the Company’s consolidated financial statements.
 
 In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The Company is currently evaluating the impact of this ASU, however, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.
 
 In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP. The amendment is effective for interim and annual reporting periods in
fiscal year ending after June 15, 2010. The Company does not expect the adoption
of this ASU to have a material impact on the Company’s consolidated financial
statements.
  9
 
 In March
2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This
update defers the effective date of the amendments to the consolidation
requirements made by FASB Statement 167 to a reporting entity’s interest in
certain types of entities. The deferral will mainly impact the evaluation of
reporting enterprises’ interests in mutual funds, private equity funds, hedge
funds, real estate investment entities that measure their investment at fair
value, real estate investment trusts, and venture capital funds. The ASU also
clarifies guidance in Statement 167 that addresses whether fee arrangements
represent a variable interest for all service providers and decision makers. The
ASU is effective for interim and annual reporting periods in fiscal year
beginning after November 15, 2009. The adoption of this ASU did
not have a material impact on the Company’s consolidated financial
statements.
  In March
2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit
Derivatives. Embedded credit-derivative features related only to the transfer of
credit risk in the form of subordination of one financial instrument to another
are not subject to potential bifurcation and separate accounting as clarified by
recently issued FASB guidance. Other embedded credit-derivative features are
required to be analyzed to determine whether they must be accounted for
separately. This update provides guidance on whether embedded credit-derivative
features in financial instruments issued by structures such as collateralized
debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and
separate accounting. The guidance is effective at the beginning of a company’s
first fiscal quarter beginning after June 15, 2010. The Company does not expect
the adoption of this ASU to have a material impact on the Company’s 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 June 30, 2010 and December 31, 2009. As of June 30, 2010 and
December 31, 2009, the investment in securities amounted to $257,989 and
$258,993.
 
 The held
to maturity securities of $128,500 will be matured on August 19, 2010 and
$129,489 will mature on August 22, 2011. So they are classified under current
assets and non current assets respectively in the accompanied financial
statements.
 
 Note
4.  Concentrations and commitments
 
 (a).
Concentrations
 
 The
Company has focused on business in overseas markets, which the Company believes
present opportunities. A business with a foreign lessee is subject to risks
related to the economy of the country or region in which such lessee is located,
which may be weaker than the U.S. economy. On the other hand, a foreign economy
may remain strong even though the U.S. economy does not. A foreign economic
downturn may impact a foreign lessee's ability to make business payments, even
though the U.S. and other economies remain stable. Furthermore, foreign lessees
are subject to risks related to currency conversion fluctuations.
 
 Foreign
laws, regulations and judicial procedures may be more or less protective of
lessor rights than those which apply 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
 
 Office
space:
 The
Company leases office space in Australia and China. The lease for Australia will
expire in October 2011 while leases for China expire on various dates between
April 2010 and November 2018. Based upon existing leases, without renewals, the
minimum lease payments up to expiry are as follows:
 
 2010
              
              $
              259,1072011
              
              
              262,1042012
              
              
              162,0672013
              
              
              163,208Thereafter
              
              
              856,353Total
              
              $
              1,702,839
 
 10
 
 The
following schedule shows the composition of toral rental expense for all
operaring leases except those with terms of a month or less that were not
renewed:
 
 Year Ending December 312010
              
              
              2009Minimum
      Rentals
              
              $
              259,107
              
              
              $
              458,729Contingent
      Rentals
              
              
              -
              
              
              
              -Less
      Sublease Rentals
              
              
              -
              
              
              
              -
  Equipment:
 In July
2005, the company purchased a vehicle under capital lease from Toyota Financial
Service. The annual interest rate is 7.99% with payment term of sixty (60)
months. The payment is to be made in 59 equal monthly installments of $357 each
and the final installment of $6,078. The balance as of June 30, 2010 amounted to
$5,912 which is current liability.
 
 In
October 2006, the company purchased a vehicle by mortgage loan from CBFC Limited
ABN.  The annual interest rate is 8.32% with payment term of sixty
(60) months. The payment is to be made in 59 equal monthly installments of $494
each and the final installment of $9,040. The balance as of June 30, 2010
amounted to $14,124 with $2,210 as current liability.
 
 In
September 2007, the company purchased a vehicle by mortgage loan from CBFC
Limited ABN.  The annual interest rate is 8.6% with payment term of
forty-eight (48) months. The payment is to be made in 47 equal monthly
installments of $433 each and the final installment of $7,108. The balance as of
June 30, 2010 amounted to $10,978 with $1,981 as current liability.
 
 The
Company pays approximately $1,284 per month under these leases, the last of
which will expire in September 2011.
 
 Total
minimum lease payments under the above leases are as follows:
 
 CapitalLeases2010
              
              
              11,2252011
              
              
              22,005$
              33,230Less:
      Amount representing interest
              
              
              (2,217)Present
      value of minimum lease payments
              
              
              31,013Less:
      Current portion
              
              
              (10,103)$
              20,911
 
 Legal
Proceeding:
 
 The
company 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.  Plus 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.  The Company accrued $104,966 of potential liability in the
accompanied financial statements based on the letter of claim received from the
plaintiff.
   11
 Note 5.
Discontinued operation
 
 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.
 
 Guang
      Cheng Gain/Loss calculationNet
      assets of the Company as on January 1, 2009
              
              $
              3,174Gain/(Loss)
      from discontinued operations from January 1, 2009 through March 31,
      2009
              
              
              (50
              )Total
      book value as of March 31, 2009
              
              
              3,124Proceeds from
      disposal
              
              
              1,290Loss on
      Disposal
              
              $
              (1,834
              )Total
      Loss on Discontinued Operations
              
              $
              (1,884
              )
 
 Note
6   Equity investment and acquisition
 
 Investment
in Shanghai Sheng Rong
 
 On June,
2009, Sancon Shanghai, a 70% owned subsidiary of the company, entered into a
investment agreement with Shanghai Sheng Rong Environmental Protection
Technology Co.,Ltd. to invested RMB 300,000 or $44,010 in turn held 20% equity
interest of Shanghai Sheng Rong. Shanghai Sheng Rong is an environmental service
company that operates waste management and recycling in
China.  Shanghai Sheng Rong was set up on June 19, 2009. As per FASB
ASC 323-10-15-8) (formerly APB 18, par. 17), the company uses the equity method
for accounting the investment as of May 26, 2010. As of May 26, 2010, the
Company booked investment loss of $3,139.
 
 The
Company’s investment in equity as of May 26, 2010 and December 31, 2009 are
shown as follows:
 
 May
      26, 2010
              
              
              December
      31, 2009Investment
      in equity at beginning of year
              
              $
              42,678
              
              
              $
              -Investment
      during the period
              
              
              -
              
              
              
              44,010Net
      loss  from equity investment prior to
acquisition
              
              
              (3,139
              )
              
              
              (1,332
              )Total
      investment in equity at May 26, 2010
              
              $
              39,539
              
              
              $
              42,678
 
 The
Company’s loss  from equity investment for the periods ended May 26,
2010 and June 30, 2009 are shown as follows:
 
 1-1-2010
      to
                5-26-2010
              
              
              1-1-2009
      to
                6-30-2009Net
      loss of Shanghai Shengrong
              
              $
              (15,695
              )
              
              $
              -Percentage
      of ownership in Shanghai Shengrong
              
              
              20
              %
              
              
              -Loss
      from equity investment
              
              $
              (3,139
              )
              
              $
              -
  Acquisition
in Shanghai Sheng Rong
 
 On May
26,2010, Sancon SH,  a 70% owned subsidiary of the company, paid RMB
1,000,000 or approx.$146,600 and in turn increased the equity interest in
Shanghai Sheng Rong from 20% to 52%, After the acquisition,  the share
capital of Shanghai Sheng Rong increased to RMB 2,500,000 from RMB 1,500,000,
Therefore, Sancon SH became 52% shareholders of Shanghai Sheng Rong. The primary
reason for the acquisition is because Shanghai Sheng Rong located in an area in
China with a preferencial tax rate. After acquisition, Shanghai Sheng Rong
incurred net revenue of  $346,155 and net loss of $4,302 from May 27,
2010 to June 30,2010. The acquisition of 52% of net assets of Shanghai Sheng
Rong by the Sancon SH resulted in goodwill of $27,688(see the following
calculation).
  12
  A summary
of Shanghai Sheng Rong’s assets acquired, liabilities assumed and consideration
paid for them as of May 26, 2010 is as follows:
 
 Amount(Unaudited)Cash
              
              $
              157,863Advance
      to suppliers
              
              
              47,335Fixed
      assets,net
              
              
              324,103Assets,total
              
              
              529,301Current
      liabilities
              
              
              (157,702
              )Net
      assets acquired
              
              $
              371,59952%
      of net assets acquired
              
              
              193,232Fair
      value of 20% investment owned prior to acquisition
              
              
              74,320Consideration
      paid by cash
              
              
              146,600Goodwill
              
              $
              27,688
 
 The
following un-audited pro forma consolidated financial information for the six
month periods ended June 30, 2010 and 2009, as presented below, reflects the
results of operations of the Company assuming the acquisition of Shanghai Sheng
Rong occurred on January 1, 2010 and 2009 respectively. These pro forma results
have been prepared for information purposes only and do not purport to be
indicative of what operating results would have been had the acquisition
actually taken place on January 1, 2010 and 2009 respectively, and may not be
indicative of future operating results.
 
 For
      the six month periods ended June 30,2010
              
              
              2009Net
      revenue
              
              $
              6,135,808
              
              
              $
              5,337,627Cost
      of revenue
              
              
              (3,128,454
              )
              
              
              (2,606,589
              )Gross
      profit
              
              
              3,007,354
              
              
              
              2,731,038Operating
      expense
              
              
              (1,922,606
              )
              
              
              (1,609,915
              )Other
      income/(expense)
              
              
              (9,664
              )
              
              
              37,180Incom
      tax
              
              
              (11,385
              )
              
              
              (36,012
              )Net
      income attributed to non-controlling interest
              
              
              (7,366
              )
              
              
              (14,849
              )Net
      income
              
              $
              1,056,332
              
              
              $
              1,107,442
  13
 
 Note 7.
Property, plant & equipment
  Property,
plant, & 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.
 
 Below is
the table of Property, Plant and Equipment as at June 30, 2010:
 
 Items
              
              Plant
      and Machinery
              
              
              Vehicles
              
              
              Office
      Equipment
              
              
              TotalCost
              
              $
              1,131,064
              
              
              $
              600,520
              
              
              $
              37,384
              
              
              $
              1,768,968Accumulated
      Depreciation
              
              
              (341,300
              )
              
              
              (220,886
              )
              
              
              (15,936
              )
              
              
              (578,122
              )Net
      Carrying Value
              
              $
              789,764
              
              
              $
              379,634
              
              
              $
              21,448
              
              
              $
              1,190,846
 
 Included
in property and equipment is approximately $69,252 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 $44,585.
 
 Below is
the table of Property, Plant and Equipment for the fiscal year ended December
31, 2009:
 
 Items
              
              Plant
      and Machinery
              
              
              Vehicles
              
              
              Office
      Equipment
              
              
              TotalCost
              
              $
              815,309
              
              
              $
              582,924
              
              
              $
              35,545
              
              
              $
              1,433,778Accumulated
      Depreciation
              
              
              (300,610
              )
              
              
              (164,230
              )
              
              
              (10,897
              )
              
              
              (475,737
              )Net
      Carrying Value
              
              $
              514,699
              
              
              $
              418,694
              
              
              $
              24,648
              
              
              $
              958,041
 
 Included
in property and equipment 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 six months period ended June 30, 2010 and 2009
was $121,644 and $90,310 respectively.
 
 Note 8.
Short Term and Long Term Loan Payable
 
 On
November 19, 2009, Sancon SH, a 70% owned subsidiary of the Company, purchased a
vehicle with loan from Mercedes-Benz Auto Finance Limited. The total loan
principle amount is $84,382, unsecured, with annual interest rate of 7.6% and
payment term of thirty-six (36) months. The payment is to be made in thirty-six
(36) equal monthly installments of $2,629 each from December 2009 to November
2011. The Company classified the loan balance under current and noncurrent
liabilities respectively in the accompanied financial statements. As of June 30,
2010 and December 31, 2009, short term loan payable amounted to $27,322 and
$26,199 and long term loan payable amounted to $42,427 and $56,117
respectively.
 
 For the
six month periods ended June 30, 2010, Sancon SH accrued and paid interest
$2,926 for the loan.
 
 The
following is the future payment schedule of the long term loan:
 
 Loan
payable to Mercedes-Benz Auto Finance Limited, interest at 7.6% annually, equal
monthly installment payment of $2,629 each
 
 Amount2010
              
              $
              15,8422011
              
              
              31,6842012
              
              
              29,044Total
              
              $
              76,570
 
 Note
9.  Due to related parties
 
 The
amount due to related parties comprised of loan from Mr.Jack Chen, CEO, Mr.
David Chen, former CEO and major shareholder, and Jimmy Yiu, independent
director of the Company.
  14
  Included
in the amount due to related parties, there were loans due to Mr. David Chen of
$33,187 and loans due to Mr. Jimmy Yiu, independent director of the Company,
amounting of $5,021 and loans due to Mr. Jack Chen of $513,302 (net) without
interest, unsecured and due on demand.
 
 The
shareholder's loan of Mr. Jack Chen included amount due from him of $15,000 and
amount due to him of $528,302. We combined these two amounts and result in loans
due to Mr. Jack Chen of $513,302. The offsetting amounts due to and due from Mr.
Jack Chen are appropriate and comply with FASB Interpretation No. 39(ASC
210).
  Note
10.  Stockholders equity
 
 Common
Stock
 
 On
October 15, 2007, the Company entered into a ten years 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 six months periods
ended June 30, 2010 and 2009, the Company recorded $7,800 and $7,800 in
consulting expense respectively. The unamortized amount of $117,000 was included
under deferred compensation as at June 30, 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 June 30,
2010, the Company recorded $45,000 in due to related parties.
 
 On
January 01, 2010, the Company entered in a two years employment agreement with
Mr. David Chen, former CEO and major shareholder. In connection with this
agreement, Mr. David Chen will receive corporate salary of $42,000 per year that
paid in stock. As of the June 30, 2010, the Company recorded $21,000 in due to
related parties.
 
 Stock
Options
 
 Options
outstanding as of June 30, 2010 and related weighted average price and intrinsic
value are as follows:
 
 Exercise
                Prices
              
              Total
                Options
                Outstanding
              
              Weighted
                Average
                Remaining
                Life
                (Years)
              
              Total
                Weighted
                Average
                Exercise
                Price
              
              Options
                Exercisable
              
              Weighted
                Average
                Exercise
                Price
              
              Aggregate
                Intrinsic
                Value$0.33
              
              900,000
              
              4.50
              
              $0.33
              
              900,000
              
              $0.33
              
              $90,000
  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 to Mr. Jack
Chen.  These options expire and vest 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 to Mr. David Chen.  These options expire and vest in 5
years.
 
 The
Company valued the stock options by the Black-Scholes model with the following
assumptions:
 
 Expected
              
              Expected
              Dividend
              Risk Free
              Grant DateTerm
              
              Volatility
              Yield
              Interest Rate
              Fair
      ValueDirectors
              
              
              4.50
              
              127.83%
              0%
              1.75%
              $
              0.33
 
 
 The
following summary presents the options granted, exercised, expired and
outstanding at June 30, 2010:
 
 Options
                OutstandingOutstanding,
      December 31, 2009
              
              
              0Granted
              
              
              900,000Forfeited/Canceled
              
              
              -Exercised
              
              
              -Outstanding,
      June 30, 2010
              
              
              900,000
 
 15
 
 For the
six months ended June 30, 2010 and 2009, the Company recognized approximately
$26,819 and $0, respectively, as compensation expenses for its stock option
plan.
 
 Note 11.
Segmental information
 
 Statement
of Financial Accounting Standards No. 131 ("SFAS 131"),(ASC 250) "Disclosure
About Segments of an Enterprise and Related Information" requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company.
 
 During
the six months periods ended June 30, 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
quarter-end balance sheet information for the six months periods ended June 30,
2010 and 2009:
 
 
 For
      the six month periods ended June 30,2010
              
              
              2009Revenues
      from various areas:Material
      Recycling
              
              $
              1,346,260
              
              
              $
              918,401Waste
      Service
              
              
              4,789,548
              
              
              
              4,419,226Consolidated
              
              $
              6,135,808
              
              
              $
              5,337,627Net
      income (loss):Material
      Recycling
              
              $
              (51,088
              )
              
              $
              45,529Waste
      Service
              
              
              1,256,279
              
              
              
              1,170,597Un-allocted
              
              
              (100,619
              )
              
              
              (108,684
              )Consolidated
              
              $
              1,104,572
              
              
              $
              1,107,442Identifiable
      assets:
              
              December
      31, 2010
              
              
              December
      31, 2009Material
      Recycling
              
              $
              803,560
              
              
              $
              916,399Waste
      Service
              
              
              6,917,603
              
              
              
              5,424,918Un-allocted
              
              
              5,144
              
              
              
              5,113Consolidated
              
              $
              7,726,307
              
              
              $
              6,346,430Depreciation
      and amortization:Material
      Recycling
              
              $
              49,069
              
              
              $
              47,853Waste
      Service
              
              
              72,575
              
              
              
              42,457Consolidated
              
              $
              121,644
              
              
              $
              90,310Capital
      expenditures:Material
      Recycling
              
              $
              506
              
              
              $
              124,267Waste
      Service
              
              
              22,509
              
              
              
              83,208Consolidated
              
              $
              23,015
              
              
              $
              207,475
 
 16
 
 Note 12.
Major Customers and Vendors
 
 Pernod
Ricard and Hing Yang Hong, our two top customers, provided 36% and 11% of net
revenue for the six month periods ended June 30, 2010 respectively. Total
accounts receivable due from these customers was approximately $268,179 or 28%
of total accounts receivable as of June 30, 2010.
 
 Normally,
the payment terms of our accounts receivable is about one month and will not be
more than two months.
 
 Zhongshun,
Aperio Group and Astron ,our three major vendors, provided 65% of total
purchases for the six month periods ended June 30,2010.  Total
accounts payable due to these vendors was $471,356 or 55% of total accounts
payable as of June 30, 2010.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
 
 Item
2(a). Discussion for the Interim Operations and Financial Condition
 
 Introduction
 
 Management's
discussion and analysis of results of operations and financial condition
("MD&A") is provided as a supplement to the accompanying financial
statements and footnotes to help provide an understanding of our financial
condition, changes in financial condition and results of
operations.  The MD&A is organized as follows:
 
 ·
              Caution
      concerning forward-looking statements and risk factors. This section
      discusses how certain forward-looking statements made by us throughout the
      MD&A and in the financial statements are based on our present
      expectations about future events and are inherently susceptible to
      uncertainty and changes in
circumstances.
 ·
              Overview.
      This section provides a general description of our business, as well as
      recent developments that we believe are important in understanding the
      results of operations and to anticipate future trends in those
      operations.
 ·
              Results
      of operations. This section provides an analysis of our results of
      operations for the six months period ended June 30, 2010 compared to the
      same period in 2009. A brief description is provided of transactions and
      events, including any related party transactions that affect the
      comparability of the results being
analyzed.
 ·
              Liquidity
      and capital resources. This section provides an analysis of our financial
      condition and cash flows for the six months period ended June 30, 2010 and
      2009.
 ·
              Critical
      accounting policies. This section provides an analysis of the significant
      estimates and judgments that affect the reported amounts of assets,
      liabilities, revenues and expenses, and related disclosure of contingent
      assets and liabilities.
 
 Caution
Concerning Forward-looking Statements and Risk Factors
 
 We have
sought to identify what we believe to be the most significant risks to our
business, but we cannot predict whether, or to what extent, any of such risks
may be realized nor can we guarantee that we have identified all possible risks
that might arise. Investors should carefully consider all of such risk factors
before making an investment decision with respect to our Common
Stock.
 
 The
following discussion should be read in conjunction with our financial statements
and the notes thereto, and the other financial information appearing elsewhere
in this document. In addition to historical information, the following
discussion and other parts of this document contain certain forward-looking
information. When used in this discussion, the words "believes", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from projected results,
due to a number of factors beyond our control. We do not undertake to publicly
update or revise any of our forward-looking statements, even if experience or
future changes show that the indicated results or events will not be realized.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Readers are also urged to
carefully review and consider our discussions regarding the various factors,
which affect our business, included in this section and elsewhere in this
report.
 
 Factors
that might cause actual results, performance or achievements to differ
materially from those projected or implied in such forward-looking statements
include, among other things: (i) the impact of competitive products; (ii)
changes in law and regulations; (iii) limitations on future financing; (iv)
increases in the cost of borrowings and unavailability of debt or equity
capital; (v) our inability to gain and/or hold market share; (vi) managing and
maintaining growth; (vii) customer demands; (viii) market and industry
conditions, (ix) the success of product development and new product
introductions into the marketplace; (x) the departure of key members of
management; as well as other risks and uncertainties that are described from
time to time in our filings with the Securities and Exchange
Commission.
  17
 
 We
provide the following cautionary discussion of risks, uncertainties and possible
inaccurate assumptions relevant to our business and our products. These are
factors that we think could cause our actual results to differ materially from
expected results. Other factors besides those listed here could adversely affect
us.
 
 Potential
Fluctuations In Periodic Operating Results
 
 Our
periodic operating results may fluctuate significantly in the future as a result
of a variety of factors, most of which are outside our control, including: the
demand for our products; seasonal trends in purchasing, the amount and timing of
capital expenditures and other costs relating to the development of our
products; price competition or pricing changes in the industry; technical
difficulties or system downtime; general economic conditions, and economic
conditions specific to the industry. Our results may also be significantly
impacted by the impact of the accounting treatment of acquisitions, financing
transactions or other matters. Particularly at our early stage of development,
such accounting treatment can have a material impact on the results for any
period. Due to the foregoing factors, among others, it is likely that our
operating results will fall below our expectations or those of investors in some
future period.
  Dependence
Upon Management
 
 Our
future performance and success is dependant upon the efforts and abilities of
our Management. To a very significant degree, we are dependent upon the
continued services of Jack Chen, CEO & Director of the Company. If the
Company lost the services of Mr. Chen, or other key employees before we could
get qualified replacements that loss could materially adversely affect our
business. We do not maintain key man life insurance on any of our
Management.
 
 Limitation
of Liability and Indemnification of Officers and Directors
 
 Our
officers and directors are required to exercise good faith and high integrity in
our Management affairs. Our Articles of Incorporation provide, however, that our
officers and directors shall have no liability to our shareholders for losses
sustained or liabilities incurred which arise from any transaction in their
respective managerial capacities unless they violated their duty of loyalty, did
not act in good faith, engaged in intentional misconduct or knowingly violated
the law, approved an improper dividend or stock repurchase, or derived an
improper benefit from the transaction. Our Articles and By-Laws also provide for
the indemnification by us of the officers and directors against any losses or
liabilities they may incur as a result of the manner in which they operate our
business or conduct the internal affairs, provided that in connection with these
activities they act in good faith and in a manner that they reasonably believe
to be in, or not opposed to, the best interests of the Company, and their
conduct does not constitute gross negligence, misconduct or breach of fiduciary
obligations. To further implement the permitted indemnification, we have entered
into Indemnity Agreements with our officers and directors.
 
 Management
of Potential Growth
 
 We
anticipate rapid growth, which will place a significant strain on our
managerial, operational, and financial systems resources. To accommodate our
current size and manage growth, we must continue to implement and improve our
financial strength and our operational systems, and expand, train and manage our
sales and distribution base. There is no guarantee that we will be able to
effectively manage the expansion of our operations, or that our facilities,
systems, procedures or controls will be adequate to support our expanded
operations. Our inability to effectively manage our future growth would have a
material adverse effect on the Company.
 
 Limited
Market Due To Penny Stock
 
 The
Company's stock differs from many stocks, in that it is a "penny stock". The
Securities and Exchange Commission has adopted a number of rules to regulate
"penny stock". These rules include, but are not limited to, Rules 3a5l-l, 15g-1,
15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and Exchange
Act of 1934, as amended. Because our securities probably constitute "penny
stock" within the meaning of the rules, the rules would apply to us and our
securities. The rules may further affect the ability of owners of our stock to
sell their securities in any market that may develop for them. There may be a
limited market for penny stocks, due to the regulatory burdens on
broker-dealers. The market among dealers may not be active. Investors in penny
stock often are unable to sell stock back to the dealer that sold them the
stock. The mark-ups or commissions charged by the broker-dealers may be greater
than any profit a seller may make. Because of large dealer spreads, investors
may be unable to sell the stock immediately back to the dealer at the same price
the dealer sold the stock to the investor. In some cases, the stock may fall
quickly in value. Investors may be unable to reap any profit from any sale of
the stock, if they can sell it at all. Stockholders should be aware that,
according to the Securities and Exchange Commission Release No. 34- 29093, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. These patterns include: - Control of the market for the security by one
or a few broker-dealers that are often related to the promoter or issuer; -
Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; - "Boiler room" practices involving high
pressure sales tactics and unrealistic price projections by inexperienced sales
persons; - Excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and - The wholesale dumping of the same securities by
promoters and broker- dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with consequent
investor losses. Furthermore, the "penny stock" designation may adversely
affect the development of any public market for the Company's shares of common
stock or, if such a market develops, its continuation. Broker-dealers are
required to personally determine whether an investment in "penny stock" is
suitable for customers. Penny stocks are securities (i) with a price of less
than five dollars per share; (ii) that are not traded on a "recognized" national
exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of
an issuer with net tangible assets less than $2,000,000 (if the issuer has been
in continuous operation for at least three years) or $5,000,000 (if in
continuous operation for less than three years), or with average annual revenues
of less than $6,000,000 for the last three years. Section 15(g) of the Exchange
Act and Rule 15g-2 of the Commission require broker-dealers dealing in penny
stocks to provide potential investors with a document disclosing the risks of
penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor‘s
account. Potential investors in the Company‘s common stock are urged to obtain
and read such disclosure carefully before purchasing any shares that are deemed
to be "penny stock". Rule 15g-9 of the Commission requires broker-dealers in
penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stock to that investor. This procedure requires
the broker-dealer to (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for the Company's stockholders to
resell their shares to third parties or to otherwise dispose of
them.
  18
 
 Overview
of the Company and its Operations
 
 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. The recycled materials are
re-used by Sancon's manufacturing customers in China to make a wide variety of
new products including outdoor furniture, construction materials, building
materials, road surface, and various new products. Sancon's China operation is
licensed by the Chinese government for waste management services, and is
certified with ISO 9001 and ISO14001 standards. Sancon currently ships more than
4,000 tons of recycled industrial and commercial waste material annually to its
customers in China. Sancon's main operations and services include industrial
waste management consulting, collection and reprocess of recyclable materials
such as plastic, glass, cardboard, and paper before its re-entry into
manufacture cycles as raw materials.  Sancon also provides its full
waste management services to large consumer products maker such as Pernod
Ricard. 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 and current
economic crisis, Chinese manufacturers are increasingly turning to recycled
materials to lower its costs, resulting tremendous demand for recycled materials
import. The major customers for Sancon are Chinese manufacturers and recycled
material traders which are located mainly in the Chinese provinces of Shanghai,
Guangdong, Zhejiang and Fujian.
 
 The
Trend in Chinese Market
 
 According
to China National Resources Recycling Association, recyclable solid waste import
to China has experienced a dramatic increase in the last 2 decades. During early
1990’s, China imported 1-2 million tons of recyclable wastes per year. By 1999,
China imported 10 million tons of recyclable solid wastes per year. In 2006,
China imported 37 million tons of recyclable wastes. China’s total domestic
recycled volume is estimated to have reached over 1 billion tons
annually.
 
 The State
Development and Reform Commission of China promotes the recycling industry with
a four-pronged solution ranging from energy saving and clean production to
integrated use of resources and developing environmental protection industry, to
accelerate the development of the recycling economy.  The concept of
recycling economy is included in the 11th Five-year Plan.
 
 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.
 
 Due to
the serious environment pollution problems faced in China, the 11th Five-year
plan emphasis energy saving, emission reduction and environmental protection at
the highest level ever.  At the end of the 11th Five-year plan, the
annual production of the environmental industry will exceed 1.1 trillion RMB, of
which environmental equipment spending is 120 billion RMB, environmental
services is 100 billion RMB, resources recovery is 660 billion RMB, cleaning
products spending is 250 billion RMB.
 
 In the
past 30 years of development, environmental production value in China increased
from 0.5% of GDP to the current 1.6%. China will expedite the demonstration and
promotion of technologies for energy saving and emission reduction; actively
promote the development of the environmental services industry; and also
intensify the financial services for the environmental industry; and tax benefit
policies for the environmental industry.  During the 11th Five-year
period, investment for environmental protection will reach 1.4
trillion RMB. Central government financing is investing in environmental
industry at annual compound growth rate of 18%. Chinese government set out
policies supports 4 key areas: developing a resources recovery and recycling
economy; pollution reduction and ecological protection; environment testing
instruments; environmental services and the development of the environmental
industry.
  19
 
 Sancon is
uniquely position to benefits from these initiatives as an early mover in the
industry and one of the few foreign companies being awarded a waste management
license in China.  Sancon has for the past years developed one of the
largest collection and recovery network in China for commercial wastes and
expects to expand into other areas of environmental services.
 
 Sancon's
Visions and Goals
 
 The
long-term objective of Sancon is to seek and develop further alternative
resources recovery solutions, which will protect our environment and maximize
sustainable usage for industrial waste materials. At Sancon we believe reducing
the environmendal impact of manufactured products is through both professional
services offered to manufacturers and commercial entities to increase
recyclability of waste materials, and efficient redeployment of waste
materials.
  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.
 
 Competition
 
 The
markets for the Company's products and services are competitive, and the Company
faces competition from a number of sources. Many of the Company's competitors
have substantially greater resources than the Company. Those resources may
include greater name recognition; larger product lines; complementary lines of
business; and greater financial, marketing, information systems, 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 large selection of plastic and glass raw materials to our
      customers.
 2)
              With
      the expansion of our operations in Melbourne Australia, Sancon will be
      able to serve greater number of customers and sell direct to our customs
      in both Australia and China.
 3)
              Sancon
      has 6 strategically positioned recycling plants and about 40 depots in
      China and it will enable Sancon to meet the demand for nationwide
      environmental services.
 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.
 
 Employees
 
 As of
June 30, 2010, the Company employed 15 people in Australia subsidiaries. Our
joint venture in China employed 20 people full time, and all other personnel of
the China joint venture are employed as sub contractors.  To make our
work more efficient, we outsourced a few other functions, such as logistics,
bookkeeping 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.
 
 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.
  20
 
 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. The SEC has recently delayed the
implementation date of SOX404 for non-accelerated filers until the fiscal year
ended December 31, 2009. However, should the Company successfully fulfill its
plans to procure financing and expand its operations; the Company may come under
the accelerated filer definition, and be required to comply with SOX404 before
June 15, 2010.  In any case, such cocts will likely affect adversely
the Company's business, financial condition and results of
operations.
  Results
of Operations - Comparison between the three and six months ended June 30, 2010
and the same periods in 2009.
 
 Revenue
 
 Revenue
are generated by service charges and the sale of recyclable materials. Revenue
for the three months period ended June 30, 2009 were $3,067,299, representing
$324,167 or 12% increase compared to the sales of $2,743,132 in the same period
of 2009. The revenues in the waste service business increased from $2,207,113
for the three months period ended June 30, 2009 to $2,383,387 for the three
months period ended June 30, 2010, an increase of $176,274 or 8%.  The
revenue in the material recycling business also increased $147,893 or 28% from
$536,019 for the three months period ended June 30, 2009 to $683,912 for the
three months period ended June 30, 2010.  The increase in revenue in
waste service is partially because of acquisition of Shanghai Sheng Rong in May
2010. Although suffering the globle economic crisis, our material recycling
business is getting better.
 
 Revenue
is generated by service charges and the sale of recyclable materials. Revenue
for the six months period ended June 30, 2010 were $6,135,808, representing
$798,181 or 15% increase compared to the revenue of $5,337,627 in the same
period of 2009. The revenues in the waste service business increased from
$4,419,226 for the six months period ended June 30, 2009 to $4,789,548 for the
six months period ended June 30, 2010, an increase of $370,322 or
8%.  The revenue in the material recycling business also increased
$427,859 or 47% from $918,401 for the six months period ended June 30, 2009 to
$1,346,260 for the six months period endedJune 30, 2010.  The increase
in revenue in waste service is partially because of acquisition of Shanghai
Sheng Rong in May 2010. Although suffering the globle economic crisis, our
material recycling business is getting better.
 
 Cost of
Revenue
 
 The cost
of revenue is the direct cost for sale of the recycling materials. For the three
months period ended June 30, 2010, the cost of revenue was $1,575,990. It was
$251,333 or 19% increase as compared to the cost of sales of $1,324,657 for the
three months period ended June 30, 2009. Among which, the cost of revenue in the
waste service business increased $127,105 or 11% from $1,121,990 for the three
months period ended June 30, 2009 to $1,249,095 for the three months period
ended June 30, 2010. The increase mainly contained $128,106 of labor service fee
for sub contractors. This cost was related to our chinese market expandant. Cost
of revenue in the material recycling business for the three months period ended
June 30, 2009 and 2010 was $202,667 and $326,895 respectively, an inecrease of
$124,228 or 61%. The increase of cost of sales in our material recycling
business was in line with the sales.
 
 For the
three months period ended June 30, 2010 and 2009, cost of revenue was 51% and
48% of sales respectively.
 
 The cost
of revenue is the direct cost for sale of the recycling materials. For the six
months period ended June 30, 2010, the cost of revenue was $3,114,096. It was
$507,507 or 19% increase as compared to the cost of sales of $2,606,589 for the
six months period ended June 30, 2009.  Among which,the cost of revenue in the
waste service business increased $250,708 or 11% from $2,260,732 for the six
months period ended June 30, 2009 to $2,511,440 for the six months period ended
June 30, 2010.  The increase mainly contained $245,475 of labor
service fee for sub contractors. This cost was related to our Chinese market
expandant.  Cost of revenue in the material recycling business for the
six months period ended June 30, 2010 and 2009 was $602,656 and $345,857
respectively, an increase of $256,799 or 74%.  The increase of cost of
sales in our material recycling business was in line with the
sales.
 
 For the
six months period ended June 30, 2010 and 2009, cost of revenue was 51% and 49%
of sales respectively.
 
 Gross
profit
 
 The gross
profit for the three months period ended June 30, 2010 was $1,491,309,
representing $72,834 or 5% increase compared to $1,418,475 for the three months
period ended June 30, 2009. The gross margin reduced from 52% for the three
months period ended June 30, 2009 to 49% for the three months period ended June
30, 2010. Gross profit in the waste service business increased $49,169 or 5%
from $1,085,123 for the three months preiod ended June 30, 2009 to $1,134,292
for the same periods in 2010. Gross profit in the material recycling business
increased $23,665 or 7% from $333,352 for the three months preiod ended June 30,
2009 to $357,017 for the same period in 2010. The increase in revenue becomes
the main reason for the growth in gross profit.
  
  21
  
 Selling,
general and administrative expenses
 
 Selling,
general and administrative expenses increased to $923,966 for the three months
period ended June 30, 2010, from $821,652 for the three months period ended June
30, 2009, an increase of $102,314 or 12%. The SG&A expenses in the waste
service business was $492,202 for the three months period ended June 30, 2009,
this number decreased to $488,445 for the three months period ended June 30,
2010. It decreased $3,757 or 1%. The SG&A expenses in the material recycling
business increased $101,221 or 36% from $285,050 for the three months period
ended June 30, 2009 to $386,271 for the three months period ended June 30, 2010.
The increase was mainly contained $19,269 of wages and $30,765 of freight
outwards. The SG&A expenses also included investor relationship expenses and
option expenses which increased $4,850 or 11% from $44,400 for the three months
period ended June 30, 2009 to $49,250 for the three months period ended June 30,
2010.
 
 The
SG&A expenses was 30% of the revenue for the three months period ended June
30, 2010 and 2009.
  Selling,
general and administrative expenses increased to $1,799,625 for the six months
preiod ended June 30, 2010, from $1,519,605 for the six months preiod ended June
30, 2009, an increase of $280,020 or 18%.  The SG&A expenses in
the waste service business was $914,355 for the six months preiod ended June 30,
2009, this number increased to $966,618 for the six months preiod ended June 30,
2010.  It increased $52,263 or 6%. The increase was mainly contained
$14,420 of consulting fee which is for developing new market and customer and
$30,000 of director’s compensation. The SG&A expenses in the material
recycling business increased $233,938 or 47% from $498,450 for the six months
preiod ended June 30, 2009 to $732,388 for the six months preiod ended June 30,
2010. The increase was mainly contained $44,126 of wages, $53,136 of freight
outwards and $23,555 of consulting fee. The SG&A expenses also included
investor relationship expenses and option expenses which decreased $6,181 or 6%
from $100,619 for the six months period ended June 30, 2010 to $106,800 for the
six months period ended June 30, 2009.
 
 The
SG&A expenses was 28% of the revenue for the six months preiod ended June
30, 2009 while it was 29% for the six months preiod ended June 30,
2010.
 
 Depreciation
Expense
 
 Depreciation
expense increased to $64,990 for the three months preiod ended June 30, 2010
from $46,011 for the three months preiod ended June 30, 2009.  It
increased $18,979 or 41%. The depreciation expense in the waste service business
increased $21,568 or 104% to $42,246 for the three months preiod ended June 30,
2010 from $20,678 for the three months preiod ended June 30, 2009. For the three
months preiod ended June 30, 2010 and 2009, depreciation expense was 2% of the
revenue respectively.
 
 Depreciation
expense increased to $121,644 for the six months preiod ended June 30, 2010 from
$90,310 for the six months preiod ended June 30, 2009.  It increased
$31,334 or 35%. The increases were mainly due to the acquisition of Shanghai
Sheng Rong in May 2010 and the purchase of plant and machinery. The depreciation
expense in the waste service business increased $30,118 or 71% to $72,575 for
the six months preiod ended June 30, 2010 from $42,457 for the six months preiod
ended June 30, 2009. For the six months preiod ended June 30, 2010 and 2009,
depreciation expense was 2% of the revenue respectively.
 
 Other
Income (Expense)
 
 For the
three months preiod ended June 30, 2010, the Company booked other income of
$38,678 compared to $11,105 for the three months preiod ended June 30,
2009.  The increase in other income is $27,573 or 248%. That is mainly
because of the gain on acquisition.
 
 For the
three months preiod ended June 30, 2010, other income was 1% of the revenue
while it was 0.4% for the three months preiod ended June 30, 2009.
 
 
 For the
six months preiod ended June 30, 2010, the Company booked other income of
$25,141 compared to $39,064 for the six months preiod ended June 30,
2009.  The decrease in other income is $13,923 or
36%.
  22
  For the
six months preiod ended June 30, 2010, other income was 0.4% of the revenue
while it was 1% for the six months preiod ended June 30, 2009.
 
 Non-Controlling
interest in subsidiary
 
 On August
15, 2007, the Company completed the acquisition of 70% of the equity interest in
Sancon Resources Recovery (Shanghai) Co., Ltd by exercising its option to
convert $200,000 of convertible promissory note.  On May 26, 2010,
Sancon SH completed the acquisition of 52% of the equity interest in Shanghai
Sheng Rong. Noncontrolling interest was $1,459 for the three months preiod ended
June 30, 2010 while it was $7,945 for the same periods in 2009. Noncontrolling
interest was $9,627 for the six months preiod ended June 30, 2010 while it was
$14,849 for the same periods in 2009.
 
 For the
three months preiods ended June 30, 2010 and 2009, noncontrolling interest was
0.05% and 0.29% of the revenue respectively
 
 For the
six months preiods ended June 30, 2010 and 2009, noncontrolling interest was
0.2% and 0.3% of the revenue respectively.
 
 Discontinued
Operation
 
 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.
 
 There was
no discontinued operation for the six months period ended June 30, 2010. During
the same period in 2009, loss on discontinued operation was $1,884.
 
 Income
Tax
 
 The
income tax decreased to $2,310 for the three months preiod ended June 30, 2010
from $19,247 for the three months preiod ended June 30, 2009, a decrease of
$16,937 or 88%.  That is because the profit in the material recycling
business decreased.  For the three months preiod ended June 30, 2010
and 2009, income tax was 0.1% and 0.7% of the revenue respectively.
 
 The
income tax decreased to $11,385 for the six months preiod ended June 30, 2010
from $36,012 for the six months preiod ended June 30, 2009, a decrease of
$24,627 or 68%.  That is because the profit in the material recycling
business decreased.  For the six months preiod ended June 30, 2010 and
2009, income tax was 0.2% and 0.7% of the revenue respectively.
 
 Net
income
 
 Net
income for the three months preiod ended June 30, 2010 was $537,262, compared to
$534,725 for the three months preiod ended June 30, 2009, an increase of $2,537
or 0.5%. Net profit margin for the three months preiod ended June 30, 2010 was
18% while it was 19% for the same period in 2009.
 
 Net
income for the six months preiod ended June 30, 2010 was $1,104,572, compared to
$1,107,442 for the six months preiod ended June 30, 2009, a decrease of $2,870
or 0.3%. Net profit margin for the six months preiod ended June 30, 2010 was 18%
while it was 21% for the same period in 2009.
 
 Liquidity
and Capital Resources
 
 As shown
in the accompanying financial statements, the Company has accumulated profit of
$4,566,214 as of June 30, 2010 compared to $3,461,642 as of December 31, 2009.
In addition, we have positive working capital $4,463,537 as of June 30, 2010 and
it was $3,387,860 as of December 31, 2009.  It increased $1,075,677.
That is mainly due to the increase of $1,119,997 in cash and cash equivalents.
The strong sales for the six months period ended June 30, 2010 lead to the great
increase in cash and cash equivalents.
 
 Operating
Activities
 
 The net
cash provided by operating activities for the six months preiod ended June 30,
2010 amounted to $1,202,412 compared to $852,143 for the six months preiod ended
June 30, 2009, and increase $350,269 or 41%. The increase mainly included trade
receivables of $617,859. The increases were offset by trade payable of $246,050.
The payment terms of our accounts receivable is about one month and will not be
more than two months.
 
 Investing
Activities
 
 Net cash
used in investing activities amounted to $170,315 for the six months preiod
ended June 30, 2010 compared to $249,571 for the six months preiod ended June
30, 2009, a decrease of $79,256 or 32%.  It’s mainly due to the
decrease on purchase of property and equipment.  For the six months
period ended June 30, 2009, the cash used in purchase of property and equipment
was $207,475, however, this number decreased to $23,015 for the same period in
2010.
  23
  Financing
Activities
 
 Net cash
provided by financing activities amounted to $71,268 for the six months preiod
ended June 30, 2010. For the six months preiod ended June 30, 2009, net cash
used in financing activities was $87,337, an increase of $158,605 or 182%. The
increase mainly included shareholder’s loan of $77,978.
 
 The
Company has financed its growth by utilizing cash reserves and loan from
directors.  Loan from directors usually was unsecured, and no payment
term and without interest bearing. The Company's primary use of funds is for the
purchase of equipment for operation and the purchase of inventory.
 
 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.
 
 The
Company's operations are not affected by seasonal factors.
 
 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.
 
 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 (ASC 740)  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.
   24
  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
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
  During
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123(ASC 718)". This
statement amends SFAS No. 123(ASC 718), "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
SFAS No. 123(ASC 718) to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in APB Opinion No. 25 and related
interpretations. Accordingly, compensation expense for stock options is measured
as the excess, if any, of the fair market value of the Company's stock at the
date of the grant over the exercise price of the related option. The Company has
adopted the annual disclosure provisions of SFAS No. 148 in its financial
reports for the year ended December 31, 2005 and has adopted the interim
disclosure provisions in its financial reports for the subsequent
periods.
 
 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; 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.
 
 As of
June 30, 2010, the Company issued 900,000 shares of stock options to directors
and accrued $26,819 expenses.
 
 As of
June 30, 2009, the Company did not issue or make provision through the issuance
of stock options to employees and directors.
 
 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 anticipaded 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.
 
 
  25
  Item
2(b).  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 3.  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.
 
 During
the six months ended June 30, 2010, there were no changes in our internal
accounting controls or in other factors that materially affected our internal
controls over financial reporting.
 
 PART II.  OTHER INFORMATION
 Item 1.  Unregistered Sales of Equity Securities and Use of
Proceeds.
 
 None
 
 Item 2   Changes in Securities and Use of
Proceeds
 
 None
 
 Item 3.  Defaults Upon Senior Securities.
 
 None.
 
 Item 4.  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 5.  Other Information.
 
 None.
  26
  Item 6.  Exhibits
 
 The
following list describes the exhibits filed as part of this Report on Form
10-Q.
 
 Exhibit
      Number
              Note
              Description
      of Document3.1
              (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 Long terms 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
              (9)
              Code
      of Ethics.16.1
              (7)
              Change
      in Certifying Accountants.16.2
              (10)
              Incorporated
      herein by reference to registrant's Current Report on Form 8K/A (File No.
      000-50760) filed July 7, 2006.17.1
              (6)
              Correspondence
      on departure of Directors.20.1
              (8)
              Proxy
      Statement dated December 6, 2005.21.1
              (5)
              Subsidiaries
      of the registrant.24.1
              (5)
              Power
      of Attorney.31.1
              (5)
              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
              (5)
              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
              (5)
              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)
              Filed
      herewith.
 (6)
              Incorporated
      herein by reference to the registrant's Current Report on Form 8K/A (File
      No. 000-50760) filed November 29,
2005.
 (7)  Incorporated
herein by reference to the registrant's Current Report on Form 8K/A (File No.
000-50760) filed January 25, 2006.
 (8)  Incorporated
herein by reference to the registrant's Proxy Statement (File No. 000-50760)
filed December 6, 2005.
 (9)  Incorporated
herein by reference to the registrant's Annual Report on Form 10-KSB (File No.
000-50760) filed April 26, 2006.
 (10)
Incorporated herein by reference to the registrant's Current Report on Form 8K/A
(File No. 000-50760) filed July 7, 2006.
  27
  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:
      August 16, 2010By:/s/ Jack ChenJack
      ChenChief
      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:
      August 16, 2010By:/s/ David ChenDavid ChenChairman
  Date:
      August 16, 2010By:/s/ Jimmy YiuJimmy
      YiuIndependent
      Director
 
 Date:
      August 16, 2010By:/s/ Cong YuanliCong
      YuanliIndependent
      Director
  Date:
      August 16, 2010By:/s/ Jack ChenJack
      ChenDirector
   28