ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
SANCON RESOURCES RECOVERY, INC.
CONDENSED BALANCE SHEETS
|
|
As at
|
|
|
September 30,
2016
(Unaudited)
|
|
December 31,
2015
(Audited)
|
|
|
|
|
|
Asset
|
|
|
|
|
|
|
|
|
Total current asset and total asset
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Liability
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
|
92,978
|
|
|
|
163,674
|
|
Accrued expenses and other payables
|
|
|
495
|
|
|
|
57,244
|
|
Total current liability and total liability
|
|
|
93,473
|
|
|
|
220,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficits
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
Authorized: 500,000,000 common shares, par value $0.001 per share
|
|
|
|
|
|
|
|
|
Issued and outstanding: 105,091,254 shares as of September 30, 2016 (December 31, 2015: 32,219,996 shares)
|
|
|
105,091
|
|
|
|
32,220
|
|
Additional paid-in capital
|
|
|
923,070
|
|
|
|
792,720
|
|
Share option reserves
|
|
|
89,015
|
|
|
|
89,015
|
|
Accumulated losses
|
|
|
(1,210,649
|
)
|
|
|
(1,134,873
|
)
|
Total stockholders’ deficits
|
|
|
(93,473
|
)
|
|
|
(220,918
|
)
|
|
|
|
|
|
|
|
|
|
Total liability& stockholders' deficits
|
|
$
|
–
|
|
|
$
|
–
|
|
The accompanying notes are an integral part
of these unaudited condensed financial statements
SANCON RESOURCES RECOVERY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For the three
months periods ended
September 30,
|
|
For the nine
months periods ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net Revenue
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative expenses
|
|
|
15,961
|
|
|
|
18,023
|
|
|
|
77,006
|
|
|
|
54,772
|
|
Total operating expenses
|
|
|
15,961
|
|
|
|
18,023
|
|
|
|
77,006
|
|
|
|
54,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(15,961
|
)
|
|
|
(18,023
|
)
|
|
|
(77,006
|
)
|
|
|
(54,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
–
|
|
|
|
–
|
|
|
|
1,230
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before tax
|
|
|
(15,961
|
)
|
|
|
(18,023
|
)
|
|
|
(75,776
|
)
|
|
|
(54,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,961
|
)
|
|
$
|
(18,023
|
)
|
|
$
|
(75,776
|
)
|
|
$
|
(54,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Basic weighted average shares outstanding
|
|
|
105,091,254
|
|
|
|
32,219,996
|
|
|
|
79,010,831
|
|
|
|
32,219,996
|
|
Diluted loss per share
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Diluted weighted average shares outstanding
|
|
|
105,604,479
|
|
|
|
34,172,253
|
|
|
|
79,081,376
|
|
|
|
33,817,362
|
|
The accompanying notes are an integral part
of these unaudited condensed financial statements
SANCON RESOURCES RECOVERY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
|
|
|
For the nine months periods ended
September 30,
|
|
|
2016
|
|
2015
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(75,776
|
)
|
|
$
|
(54,772
|
)
|
|
|
|
|
|
|
|
|
|
Change in current assets and liabilities
|
|
|
|
|
|
|
|
|
(Decrease) / Increase in accrued expenses and other payables
|
|
|
(56,749
|
)
|
|
|
16,593
|
|
Net cash flows used in operating activities
|
|
|
(132,525
|
)
|
|
|
(38,179
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Issuance of shares
|
|
|
203,221
|
|
|
|
–
|
|
Loans from related parties
|
|
|
–
|
|
|
|
38,179
|
|
Settlement of loans from related parties
|
|
|
(70,696
|
)
|
|
|
–
|
|
Net cash flows provided by financing activities
|
|
|
132,525
|
|
|
|
38,179
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash & Cash Equivalent
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Cash & Cash Equivalent at start of period
|
|
$
|
–
|
|
|
$
|
–
|
|
Cash & Cash Equivalent at end of period
|
|
$
|
–
|
|
|
$
|
–
|
|
The accompanying notes are an integral part
of these unaudited condensed financial statements
SANCON RESOURCES RECOVERY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the nine month periods ended September
30, 2016
(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. was dormant during the period.
Note 2. Basis of Presentation
Unaudited Interim Condensed Financial Statements
The accompanying unaudited condensed 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’s 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, 2015, included in our Annual Report on Form 10K, filed with the Securities and Exchange Commission.
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.
Income Taxes
The Company recognizes deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statement or tax returns.
Under this method, deferred tax assets and liabilities 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.
SANCON RESOURCES RECOVERY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
Note 3. Summary of Significant Accounting Policies
(continued)
Income Taxes (continued)
We regularly assess our position with regard
to individual tax exposures and record liabilities for our uncertain tax positions and related interest and penalties. These accruals
reflect management's view of the likely outcomes of current and future audits. The future resolution of these uncertain tax positions
may be different from the amounts currently accrued and therefore could impact future tax period expense.
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.
Recent pronouncements
The Company has considered all new accounting
pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations,
financial condition, or cash flows, based on current information.
Note 4. Going Concern
The accompanying financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation
of the Company as a going concern. However, after the disposal of its operating subsidiaries in the 4
th
quarter of 2011
and became dormant afterwards, the Company has the stockholders’ deficits of $93,473 and $220,918 as of September 30, 2016
and December 31, 2015 respectively. These factors raise substantial doubt about the ability of the Company to continue as a going
concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans,
additional sales of its common stock or through a possible business combination. There is no assurance that the Company will be
successful in raising this additional capital or in achieving profitable operations. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Note 5. Related Party Transactions
As of September 30, 2016, the Company owed
$92,978 to shareholders.
As of December 31, 2015, the Company owed $141,931,
$1,230 and $20,513 to directors, shareholder and related companies respectively.
On May 4, 2016, (i) 42,582,858 shares of our
common stock, valued at $138,000 were issued in lieu of cash compensation for director and secretarial services from March 13,
2014 through June 30, 2016; and (ii) 9,288,400 shares of our common stock, valued at $23,221 were issued in lieu of cash compensation
for accounting services from December 22, 2013 through June 30, 2016.
SANCON RESOURCES RECOVERY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
Note 6. Stockholders’ equity
Common stock
Please refer to Note 5 – Related Party Transactions for the
details of changes in share capital in the nine months ended September 30, 2016.
Stock options
On December 5, 2012, the Company entered into
a settlement agreement with Dragon Wings for the settlement of the claim by Dragon Wings. In consideration of Sancon's agreement
to make the payments in the form of common shares and share options listed in the settlement agreement. The Company would give
the option to Dragon Wings to purchase 6,000,000 common shares; the option may be exercised by Dragon Wings in whole or in part,
at any time within 5 years from the date of this settlement agreement with the exercise price at US$0.01 per share, with dilution
protection and subject to share split adjustment.
|
|
As at
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
Loan settled by share option
|
|
$
|
149,015
|
|
|
$
|
149,015
|
|
Par value of the common shares
|
|
|
60,000
|
|
|
|
60,000
|
|
Fair value of share option
|
|
$
|
89,015
|
|
|
$
|
89,015
|
|
Note 7. Income Taxes
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.
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 three month and nine month periods ended September 30, 2016 compared to the same period in 2015. 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 three month and nine month periods ended September 30, 2016 and 2015.
|
|
•
|
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.
|
Forward-looking Statements
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.
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.
Overview of the Company and its Operations
The Company sold all its business in the 4
th
quarter of 2011. It has no business operation as of the date of this report.
Sancon's Visions and Goals
After the disposal of all its business in 2011,
the directors are now looking for viable business that it can acquire in Asia.
Employees
As of September 30, 2016, the Company had no
employees.
Factors That May Affect Future Results
The Company's ability to execute its business
strategy and to sustain its operations depends upon its ability to maintain or procure capital. There can be no absolute assurance
the necessary amount of capital will continue to be available to the Company on favorable terms, or at all. The Company's inability
to obtain sufficient capital would limit the Company's ability to: (i) acquire new business and (ii) fund its working capital needs.
The Company's access to capital may have a material adverse effect on the Company's business, financial condition and/or results
of operations.
There can be no absolute assurance the Company
will be able to effectively manage its existing or the possible future expansion of its operations, or the Company's systems, procedures
or controls will be adequate to support the Company's operations. Consequently, the Company's business, financial condition and/or
results of operations could be possibly and adversely affected.
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.
Results of Operations - Comparison between
the three month and nine month periods ended September 30, 2016 and the same period in 2015.
Revenue
The Company had no revenues for the three month
and nine month periods ended September 30, 2016 and the same period in 2015.
General and administrative expenses
General and administrative expenses decreased
to $15,961 for the three month and increased to $77,006 for the nine month periods ended September 30, 2016 respectively, from
$18,023 and $54,772 for the three month and nine month periods ended September 30, 2015 respectively, a decrease of $2,062 and
an increase of $22,234 respectively. Of these amounts, $nil and $30,000 related to the value of cash compensation to our directors
and secretary for the three and nine months, respectively, ended September 30, 2016, $15,000 and $45,000 related to the value of
cash compensation to our directors and secretary for the three and nine months, respectively, ended September 30, 2015. In addition,
a substantial portion of our expenses for the three and nine months, respectively, ended September 30, 2016 related to accounting
and staff service fees, audit fees, legal and professional service fees, and for the three and nine months ended September 30,
2015 related to accounting service fees and transfer agent fees.
Other Income
The other income for the three month and nine
month periods ended September 30, 2016 was $nil and $1,230 respectively, compared to the other income of $nil for the three month
and nine month periods ended September 30, 2015, an increase of $nil and $1,230 respectively.
Income Tax
There were no income taxes for the three month and nine month periods
ended September 30, 2016 and the same period in 2015.
Net loss
The net loss for the three month and nine month
periods ended September 30, 2016 was $15,961 and $75,776 respectively, compared to the net loss of $18,023 and $54,772 respectively
for the three month and nine month periods ended September 30, 2015 respectively, a decrease of $2,062 and an increase of $21,004
respectively.
Liquidity and Capital Resources
Working Capital
|
|
As of
|
|
As of
|
|
|
September 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Current Assets
|
|
$
|
–
|
|
|
$
|
–
|
|
Current Liabilities
|
|
$
|
93,473
|
|
|
$
|
220,918
|
|
Working Capital
|
|
$
|
(93,473
|
)
|
|
$
|
(220,918
|
)
|
As shown in the accompanying financial statements,
the Company has accumulated loss of $1,210,649 as of September 30, 2016 compared to $1,134,873 as of December 31, 2015. There was
a working capital deficit of $93,473 on September 30, 2016 and it was $220,918 as of December 31, 2015. It has decreased by $127,445.
The decrease is due to the settlement of liability due to related parties by issuance of common shares.
Operating Activities
The net cash used in operating activities for
the nine months period ended September 30, 2016 was $132,525 compared to $38,179 for the nine months period ended September 30,
2015. The increase is attributed to increase in net loss and settlement of accrued expenses and other payables.
Financing Activities
The net cash provided by financing activities
for the nine months period ended September 30, 2016 was $132,525 compared to $38,179 for the nine months period ended September
30, 2015. The Company financed its growth by utilizing cash reserves, loans from directors and issuance of common shares. Loans
from directors were unsecured, and deferred payment term and without interest bearing. The Company’s primary use of funds
was for operation expense and working capital.
Critical Accounting Policies and Estimates
The preparation of our 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 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.
Stock-Based Compensation
Effective January 1, 2006, the beginning of
Sancon's first fiscal quarter of 2006, the Company adopted the fair value recognition provisions of SFAS 123R (ASC 718), using
the modified-prospective transition method. Under this transition method, stock-based compensation expense was recognized in the
consolidated financial statements for granted stock options, since the related purchase discounts exceeded the amount allowed under
SFAS 123R(ASC 718) for non-compensatory treatment. Compensation expense recognized included: the estimated expense for stock options
granted on and subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of
SFAS 123R(ASC 718); and the estimated expense for the portion vesting in the period for options granted prior to, but not vested
as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123(ASC
718). Results for prior periods have not been restated, as provided for under the modified-prospective method.
On December 5, 2012, the Company entered into
a settlement agreement with Dragon Wings for the settlement of the claim by Dragon Wings. In consideration of Sancon's agreement
to make the payments in the form of common shares and share options listed in the settlement agreement. The Company would give
the option to Dragon Wings to purchase 6,000,000 common shares; the option may be exercised by Dragon Wings in whole or in part,
at any time within 5 years from the date of this settlement agreement with the exercise price at US$0.01 per share, with dilution
protection and subject to share split adjustment.
For other items paid for by common stock, the
value of the transaction is determined by the value of the goods or services received, measured at the time of the transaction.
The corresponding stock value, used to determine the number of share to be issued, is the value of the average price for the 20
to 30 days prior to the transaction date.
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.