SNAS rents its facilities from companies owned by the third parties. As of December 31, 2010, SNAS leased approximately 2,906 square meter of office space for its operations. Its current leased properties are:
SNAS’s current total rental payment for its facilities is approximately US$399,163 in the fiscal year 2010. We intend to renew both of these leases upon their expiration.
In terms of legal environment, the country has established the Assurance Law framework based on two basic legislations, known as the "Contract Law" and the "Civil Law", the whole framework is further pivoted on the "Assurance Law" as supplemented by the Judicial Interpretation to it. Recently, in addition to the already existing fundamental laws and regulations that govern the industry of assurance (e.g. the "Company Law"); the country has passed the first "Property Law".
As for the credit environment, the gradual establishment of social credit system in China has attracted the general public's attention. It is emphasized during the 16th National Congress of Communist Party of China that the country will start to straighten up and improve the order of the market economy, and will implement the construction work of social credit system as a strategic task. It is further clearly stated by the Third Plenary Sessions of the Sixteenth Central Committee that: “the whole society's credit awareness shall be enhanced, the social credit system shall be established with the morality as the prop, the property as the foundation and the law as the assurance. Within the scope of five years, the basic framework and operational mechanism for China's social credit system shall be completed."
In the field of construction projects, with 385.6 billion central government budget arranged and 200 billion local government bonds promised as stated in the plan of the state government, six key areas will be given priority for development, the prior two areas are the social welfare housing development, the construction projects for rural infrastructure and the construction projects for the improvement of rural citizen’s livelihood. Meanwhile, almost all local governments have identified their own significant construction projects, for instance, the city of Beijing plans to invest 161 billion RMB in year 2011 to develop 230 key projects, which represents a 15% growth comparing with last year. These important projects include the construction of Beijing’s new airport and connected highways, the establishment of the new airport surrounding economic zone in southern Beijing, the infrastructure construction projects for rail transit facilities and urban roads, the reconstruction of the old town and the urbanization of 50 major villages. Xinjiang province, however, will continue to invest in the fields of railway, highway, pipelines, and electric power facilities. The provincial government of Xinjiang has identified 252 important projects with 40 projects newly launched; the budget has been loaded with over 150 billion RMB. By the end of September 2010, the total turnover of China’s project contract undertaken abroad has exceeded 400 billion USD with the contract amount reaching 642.3 billion USD. From January 2010 to September 2010, completed turnover of China’s project undertaken abroad has increased by 16.6% and reached the amount of 59.3 billion USD, the total amount of newly signed contracts also reached 81.98 billion USD. As for the performance guarantee business, the letter of guarantee for foreign contract performance alone, calculated as of 10% of the total contract amount, will account for 6 billion USD.
As for the sector of railway material purchase, according to the announcement of the Ministry of Railways, China’s railway fixed assets investment will be around 850 billion
RMB with 700 billion RMB known as investment for infrastructure. Based on the national collection of completion indicators for major railway development projects as released by the Ministry of Railways on February 12th, last year’s railway related fixed assets investment has increased by 18.8% comparing with the figure of 702 billion RMB of year 2009. Meanwhile, last year’s railway infrastructure investment has also increased by 18.1% comparing with the figure of 600.4 billion RMB of year 2009. Drawing a comparison between the two types of investments in previous two years, it could be noted that the scale of infrastructure investment remains unchanged while the fixed assets investment has been expanded.
Other business sectors. The State Grid has revealed in its annual working conference that, in the next five years, four major areas that will be preferentially developed, are the extra-high voltage, the smart grid, the new round of rural grid construction and the internationalization. The Annual Working Plan of State Grid has mapped out that the investment for smart transformer substation will grow by 2000%, the investment for distribution automation will grow by 100%, and the intelligent ammeter will grow by 4%. Thus, it could be expected that demands for the letter of guarantee business for the State Grid’s purchase of power equipment and the grid construction projects will also experience a tide of considerable growth.
The Company will further extend its business scope, by strengthening the existing relationship with China Construction Bank and Shanghai Pudong Development Bank, to acquire more favorable treatments for the company’s existing business and broaden the business scope.
The Company will endeavor to create more products to further cultivate the letter of guarantee business for railway material purchase as well as touching the business of commercial letter of guarantee and the international letter of guarantee, for example: Letter of Guarantee of International Leasing, Performance Guarantee Letter for Commercial Property, Letter of Guarantee for International Projects, Letter of Guarantee for Temporary Custom Import Tax and the Letter of Guarantee for the Risk Security for foreign labor cooperation.
The Company will reinforce the communication with business partners by more actively participating in various activities organized by the industrial association, the construction bodies and the cooperating banks. Therefore, the Company will be able to acquire the most up-to-date information of the industry, to embrace the new operational theories to enable the Company to develop in the same pace of time.
Net revenue: Net revenue for the year ended December 31, 2010, was $12,152,741 as compared to $6,201,287 for the same period in 2009. The increase of $5,951,454 or approximately 96% was due to achieved significant year-over-year growth of our customer base in the tender and surety guarantee business and market share in China. The gross margin increased to 85% from
Provision of guarantee losses - increase by $575,610 or 552% from $104,273 in 2009 to $679,883 in 2010. The increase was mainly due to the increase in revenue.
Rent - increase by $98,703 or 33% from $300,460 in 2009 to $399,163 in 2010. The increase was mainly due to expansion of the business during the year 2010.
Depreciation - increase by $27,631 or 33 % from $83,507 in 2009 to $111,138 in 2010. The increase was primarily due to the addition of fixed assets during the year 2010.
For the year ended December 31, 2010, cash provided by operating activities totaled $8,043,993 compared to $2,658,199 for the fiscal year ended December 31, 2009. The receipt of funds was primarily due to net income for the year plus increase in income tax payable, deferred revenue, trade payable, accrued liabilities and other payable, and off-set by increase in guarantee fee receivable, prepayment and other receivable.
As of December 31, 2010, The Company had surety and tendering guarantees outstanding resulting in restricted cash with approximately $8,830,517 from customer collateral and $4,219,600 for escrow deposits at the bank. Restricted cash represents (i) fund received from customers for the purpose of trust deposits held at the banks by the Company to pledge against the surety and tendering guarantee under the contractual guarantee period and (ii) escrow deposits as security to the bank for the provision of banking surety guarantee service. Such restricted cash under item (i) is an asset of the Company and is recorded as customer collateral payable to the customers upon the expiry of the guarantee contracts.
In December 2010, the Company also provided a loan sum of $2,842,001 to Party B in a term of 12 months, receivable by December 30, 2011, with an interest rate of 2.52% per annum payable
Provision for guarantee losses reflects the Company’s best projection of defaults and the Company believes that it is more likely as a result of loss events that have occurred through December 31, 2010. However, the uncertainty in macroeconomic factors and the uncertainty of the effect of any current or future government actions to the global economic crisis make forecasting of default rates increasingly imprecise. The Company regularly reviews actual guarantee loss claims experience to determine if any necessary adjustments may be recognized to the reserve in the period in which those differences arise or are identified. The Company has no actual guarantee loss claims for during the year. At December 31, 2010, the Company has accrued $1,031,803 on the reserve for guarantee losses for any potential claims.
We did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Guarantee fee receivables are fees owed to the Company for its guarantee services but not yet received from its customers. In the guarantee transactions, the Company will place funds on deposit with the banks to guaranty the completeness of performance obligation by the Company’s customers. Fees received in advance under the guarantee transactions are recorded as deferred revenue and amortized as revenue over the term of the guarantee period on a straight-line basis.
the guarantee agreement with each customer. When any receivable balances are determined to be uncollectible, these balances are written off immediately.
In general, for consolidation purposes, assets and liabilities of its operating entity whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign entities are recorded as a separate component of accumulated other comprehensive income within the statements of changes in stockholders’ equity.
Common stock, $0.001 par value; 200,000,000 shares authorized; 60,200,000 and 60,000,000 shares issued and outstanding, respectively
The Company, through its subsidiaries and variable interest entity, is principally engaged in the provision of surety and tendering guarantees and financial service to corporations and individuals in the People’s Republic of China (the “PRC”).
The Company mainly maintains restricted cash in depository accounts with financial institutions in the PRC, which are generally insured by the People’s Bank of China.
guarantee services, the borrower pays the Company a certain percentage of the surety amount as an upfront guarantee fee. Maturities of surety and tendering guarantees will generally range from 2 days to 2 years, and are secured by bank deposits made by the Company. If a customer fails to fulfill its obligations to a lender, the bank will take possession of the Company’s deposit.
Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.
In connection with the nature of its guarantor business, the Company regularly reviews actual guarantee loss claims experience to determine if any necessary adjustments may be recognized to the reserve in the period in which those differences arise or are identified. Provision for guarantee losses reflects the Company’s best projection of defaults and the Company believes that it is more likely as a result of loss events that have occurred through December 31, 2010.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and discloses in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the years ended December 31, 2010 and 2009, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2010, the Company did not have any significant unrecognized uncertain tax positions.
The Company conducts major businesses in the PRC and is subject to tax in its own jurisdiction. As a result of its business activities, the Company files separate tax returns that are subject to examination by the foreign tax authorities. For the year ended December 31, 2010, the Company filed and cleared a 2009 tax return with its local tax authority in the PRC.
For non-employee stock based compensation, the Company adopts ASC Topic 505-50, “Equity-Based Payments to Non-Employees”, stock based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with ASC 718.
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates in one reportable operating segment in the PRC.
Level 3 : Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-14 to amend ASC 605 “Revenue Recognition”. The amendments in this update change the accounting model for revenue arrangements that include both tangible products and software elements. The amendments in ASU 2009-14 will be effective for the fiscal years beginning January 1, 2011. The Company believes that ASU 2009-13 will not have a material impact on its consolidated financial statements.
Due from Party A, in a term of 12 months, repayable on December 30, 2010, with an interest rate of 2.52% per annum payable at its due date
Due from Party B, in a term of 12 months, repayable on December 30, 2011, with an interest rate of 2.52% per annum payable at its due date
For the years ended December 31, 2010 and 2009, the local (United States) and foreign components of income from operations before income taxes were comprised of the following:
The effective tax rate in the years presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company has operations in various countries: United States, BVI, Hong Kong and the PRC that are subject to taxes in the jurisdictions in which they operate, as follows:
SNAS is registered in the State of Delaware and is subject to United States of America tax law.
CML is subject to Hong Kong Profits Tax, which is charged at the statutory income rate of 16.5% on its assessable income. For the years ended December 31, 2010 and 2009, CML does not have operations in Hong Kong.
The Company generated substantially its net income from its subsidiary, ZHJ and its VIE, CCG in the PRC. ZHJ and CCG are subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China with a unified statutory income tax rate of 25%.
The following table sets forth the significant components of the aggregate deferred tax (assets) and liabilities of the Company as of December 31, 2010 and 2009:
Basic net income per share is computed using the weighted average number of the common share outstanding during the year. The dilutive effect of potential common shares outstanding is included in diluted net income per share. The following table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2010 and 2009:
Under the PRC Law, full-time employees of the Company’s subsidiary and VIE in the PRC, are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a China government-mandated multi-employer defined contribution plan. It is required to accrue for these benefits based on certain percentages of the employees’ salaries. The total contributions made for such employee benefits were $100,785 and $82,988 for the years ended December 31, 2010 and 2009, respectively.
Under the PRC Law, the Company’s subsidiary and VIE in the PRC are required to make appropriation to the statutory reserve based on after-tax net earnings and determined in accordance with generally accepted accounting principles of the People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after-tax net income until the reserve is equal to 50% of the registered capital. The statutory reserve is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation.
For the years ended December 31, 2010 and 2009, there was no single customer who accounted for 10% or more of the Company’s revenues.
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company has a significant concentration risk related to its guarantees on potential loss if the customers fail to the completion of their performance obligation in a timely manner under the surety guarantees. To reduce these potential losses, the Company holds collateral in the form of cash equivalents, which are reflected in customer collateral on the balance sheets as they are held in restricted cash in the Company’s name.
The Company is committed under various non-cancelable operating leases with fixed monthly rentals, due through September 2015. Total rent expenses for the years ended December 31, 2010 and 2009 was $399,163 and $300,460, respectively.
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after December 31, 2010 up through the date the Company issued the audited consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.