Sancon (SRRY) disappointing

Some highlights:

Revenue is generated by service charges and the sale of recyclable materials. Revenue for the three months period ended March 31, 2010 were $3,068,509, representing $474,014 or 18% increase compared to the revenue of $2,594,495 in the same period of 2009. Although suffering the globle economic crisis, our material recycling business is getting better.

The cost of revenue is the direct cost for sale of the recycling materials. For the three months period ended March 31, 2010, the cost of revenue was $1,538,106. It was $256,174 or 20% increase as compared to the cost of sales of $1,281,932 for the three months period ended March 31, 2009. The increase mainly contained $117,297 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 March 31, 2010 and 2009 was $275,761 and $143,190 respectively, an increase of $132,571 or 93%. The increase of cost of sales in our material recycling business was in line with the sales. For the three months period ended March 31, 2010 and 2009, cost of revenue was 50% and 49% of sales respectively.

The gross profit for the three months period ended March 31, 2010 was $1,530,403, representing $217,840 or 17% increase compared to $1,312,563 for the three months preiod ended March 31, 2009. The gross margin reduced from 51% to 50%.

Selling, general and administrative expenses increased to $875,659 for the three months period ended March 31, 2010, from $697,953 for the three months preiod ended March 31, 2009, an increase of $177,706 or 25%. Mainly by increased  SG&A expenses and consulting fees.

Net income for the three months period ended March 31, 2010 was $567,310, compared to $572,717 a decrease of $5,407 or 1%. The decrease is mainly due to the reduce of net income in the material recycling business of $14,836 or 70% although our investor relationship expenses and option expenses decreased $11,031, or 18%. Net profit margin for the three months preiod ended March 31, 2010 was 18% while it was 22% for the same period in 2009.

The company has accumulated profit of $4,028,952 as of March 31, 2010 compared to $3,461,642. The positive working capital was $4,000,881 and increased by $613,021. That is mainly due to the increase of $478,788 in cash and cash equivalents and $196,756 in the trade receivables. The strong sales for the three months period ended March 31, 2010 lead to the great increase in cash and trade receivable.

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. However the management observed increased competition in the material trading business has resulted in decrease margin in these businesses.

First quarter EPS was $ 0.02 slightly disappointing if you ask me. Also the fact that the company gives no clearance of their projects etc. gives me no positive sign. My projections of net income per share this year between $ 0.14 - $ 0.16 are farther away than ever.

POSITION: LONG (ENTRY: $ 0.42)