Sancon Resources Recovery (SRRY) Q2 results

Revenue are generated by service charges and the sale of recyclable materials. Revenue for the three months period ended June 30, 2010 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.

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 increase 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 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.

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.

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.

For the three months period 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 period 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.

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 period ended June 30, 2010 was 18% while it was 19% for the same period in 2009.

etc. etc. xxx

Conclusion: Diluted earnings per share were $ 0.02 in Q2. $ 0.05 for the first six months. Not impressive. That's why the stock price is going sideways already for months. I am lowering even my EPS expectations to $ 0.10 for 2010, this will even be a challenge. Guys where is the growth????

POSITION: LONG