SNAS’s current total rental payment for its facilities is approximately US$300,460 in the fiscal year 2009. We intend to renew both of these leases upon their expiration.
Based on the <<Global Construction Industry Forecast 2020>>, the construction industry will continue to boom in China, and China would surpass USA and become the world’s largest market leader in 2018. The forecast also indicated that the gross domestic product of the China’s construction market would near 2.4 trillion, attributable for 19.1% of the global construction market shares.
Since the recent drought hits hard the southwestern and northwestern part of China, the ongoing South North Water Transfer Project would be injected with abundant funds, approximately 10 times of the total investment in the past 7 years.
The Four Trillion Stimulus Plan is still driving the infrastructure construction sector towards a higher phase. It is assumed that in the first half of 2010, the amount of issued contract by rail sector is expected to reach its peak again and the growth rate of rail infrastructure investment would be at 20%. According to the State and local planning materials, the highway construction will continue to expand in 2010. The biggest growth would come from the Urban Rail Transit sector. Following the plan, the total length of Urban Rail Transit system would exceed two thousand kilometers at over RMB 800 billion investment before 2015.
accumulation of experience in the bank guarantee business of the Company’s branches, the further business development will come along with the growing brand popularity.
South North Water Transfer Project would bring more revenue opportunities to the Company’s northwestern branches.
To further strengthen the collaboration with China Construction Bank and Shanghai Pudong Development Bank, so that the existing business platform could be expanded, the credit facilities be increased and the steady and efficient business handling environments be ensured.
To conduct market surveys in more China regions, to penetrate the business into wider areas within China, and to establish more branch offices which can be conducive to business growth.
Summarizing past experience in undertaking the engineering guarantee business for the self-learning within the Company to strengthen each branch’s risk perceiving abilities.
Net income before tax: Net income before tax for the year ended December 31, 2009 was $2,602,750 compared to the net loss before tax $493,179 for the whole year of 2008. The increase was mainly due to increase in guarantee fee income by increasing bank referral business and employed more agents to promote guarantee business, and tightening of control of our selling, general and administrative expenses.
Operating expenses: Total operating expenses were $2,190,331 for year ended December 31, 2009, as compared to $2,389,789 for the same period in 2008. The decrease of $199,458 or 8% was mainly due to decrease in reserve of guarantee losses, rent, travel expenses and listing related fee which partially offset by increase in staff cost and depreciation during the year. The reasons for the changes in the major items are as follows:
Audit fee and other professional fee to fulfill the obligation as a listing company -decrease by $15,179 or 7 % from $219,597 in 2008 to $204,418 in 2009. The decrease was mainly due to the discount provided by the services provider.
For the year ended December 31, 2009, cash provided by operating activities totaled $2,658,199 compared to $40,631 for the fiscal year ended December 31, 2008. The receipt of funds was primarily due to net income for the year plus increase in income tax payable, accrued liabilities and other payable, decrease in guarantee fee receivable as well as increase in prepayment and other receivable and decrease in trade payable and deferred revenue.
For the year ended December 31, 2009, cash used in investing activities amounted to $2,189,731 compared to $2,122,287 for the fiscal year ended December 31, 2008. The use of funds was for the payment on loans receivable, as well as the change in restricted cash, net of customer collateral, which partially offset by the repayment from note receivable.
For the year ended December 31, 2009, the Group’s balance sheet reflects total current assets of $9,843,314 and total current liabilities $5,112,414. These items increase by $4,290,638 (or 77%) and $2,037,436 (or 66%) respectively as compared to the year ended December 31, 2008. The increase of total current assets was mainly due to increase of cash and cash equivalents, restricted cash, loans receivable, prepayment and other receivable partially offset by decrease in guarantee fee receivable, note receivable and income tax receivable. The increase in total current liabilities was mainly due to increase in customer collateral, income tax payable, deferred tax liabilities, accrued liabilities and other payable partially offset by decrease in trade payable and deferred revenue.
As of December 31, 2009, The Company owed $59,582 to Mr. Guokang Tu, a director. The loan was unsecured, interest-free with no fixed repayment term.
As of December 31, 2009, The Company had surety and tendering guarantees outstanding resulting in restricted cash with approximately $3,729,734 from customer collateral and $2,087,457 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.
On May 13, 2008, the Company advanced $1,899,030 (equivalent to RMB13,000,000) to a third party in a term of 10 months, receivable by March 12, 2009, with an interest rate of 3.12% per annum payable at due date. On March 13, 2009 and March 23, 2009, the Company agreed with the extension of the repayment terms, whereas $1,168,634 (equivalent to RMB8,000,000) will be repayable on June 12, 2009 and the remaining balance of $730,396 (equivalent to RMB5,000,000) will be repayable on June 23, 2009, subject to the same interest rate of 3.12%
per annum payable upon the maturity. The balance was fully received during the year ended December 31, 2009.
On October 31, 2009, the Company provided a loan sum of $877,552 (equivalent to RMB6,000,000) to Party A in a term of 12 months, receivable by October 30, 2010, with an interest rate of 2.52% per annum payable at its due date. The Company further provided installments loan on November 30 and December 31, 2009 under the same terms with the aggregate amount of $1,311,941 (equivalent to RMB8,970,000).
In December 2009, the Company also provided a loan sum of $1,073,539 (equivalent to RMB7,340,000) to Party B in a term of 12 months, receivable by December 31, 2010, with an interest rate of 2.52% per annum payable at its due date.
The Company follows ASC Topic 605-20-25-8, “Fees for Guaranteeing a Loan” and recognizes the guarantee fee income over the term of the contract on a straight line basis, net of business taxes, the price to the client is fixed or determinable, and collectibility of the resulting receivable is reasonably assured.
For the periods reported, the Company did not have any interest and penalties associated with tax positions. As of year ended date, the Company did not have any significant unrecognized uncertain tax positions.
The reporting currency of the Company is the United States Dollars ("US$") and the accompanying consolidated financial statements have been expressed in US$. In addition, the Company’s operating subsidiaries and VIE in the PRC maintains the books and records in their local currency, Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment in which its operation is conducted.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of the Company’s internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008 and the results of operations and cash flows for the years ended December 31, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.
Common stock, $0.001 par value; 200,000,000 shares authorized; 60,000,000 and 60,000,000 shares issued and outstanding as of December 31, 2009 and 2008
On September 23, 2008, the Company entered into a Share Exchange Agreement (the “Agreement”) with Linking Target Limited (“LTL”), which was registered as a BVI Business Company with limited liability in the British Virgin Islands (“BVI”) under the BVI Business Companies Act, 2004, on January 23, 2008. Pursuant to the Agreement, SNAS issued 48,399,997 shares of common stock of the Company in exchange for 100% of its issued and outstanding of LTL, thus causing LTL to become a direct wholly-owned subsidiary of SNAS.
Through the contractual arrangement described above, CCG is a variable interest entity (“VIE”), as defined in the Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (revised), "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51" ("FIN 46R"), through designated equity owners who are PRC citizens and legally owned the VIE.
SNAS and its subsidiaries including its variable interest entity are hereinafter collectively referred to as (“the Company”).
In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.
The Company has adopted the Accounting Standards Codification ("ASC") ASC Topic 810-10-25 “Variable Interest Entities” (“ASC 810-10-25”). ASC 810-10-25 requires a variable interest entity or VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIEs or is entitled to receive a majority of the VIE’s residual returns.
The Company assesses the terms of its interest in the entity to determine if the Company is the primary beneficiary as prescribed by ASC 810-10-25. Variable interests are the ownership, contractual, or other pecuniary interests in an entity that change with changes in the fair value of the entity's net assets excluding variable interests. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests. It is concluded that the Company demonstrates its ability to control CCG as the primary beneficiary and CCG is a VIE of the Company, in accordance with ASC 810-10-5-8. Accordingly, the Company has consolidated CCG’s results of operations, assets and liabilities in the accompanying consolidated financial statements of the Company.
Loans receivable that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, are reported at their outstanding principal amount adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans.
The Company maintains and safeguards cash deposits received from certain customers as security in order to ensure the satisfaction of their performance obligations arising from the surety or tendering guarantees. The cash collateral assets are restricted under the caption of “Restricted cash” and are separately presented on the balance sheet.
Advertising costs are expensed as incurred under ASC Topic 720-35, “Advertising Costs”. The Company incurred $21,149 and $0 for the years ended December 31, 2009 and 2008, respectively.
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. Reserve 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, 2009.
The Company adopts the ASC Topic 740, “Income Taxes” regarding accounting for uncertainty in income taxes which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the
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.
The Company calculates net income (loss) per share in accordance with ASC Topic 260, “Earnings per Share.” Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution of securities by including common stock equivalents, such as stock options, stock warrants and convertible preferred stock, in the weighted average number of common shares outstanding for a period, if dilutive.
Contributions to retirement schemes (which are defined contribution plans) are charged to general and administrative expenses in the consolidated statements of operation and comprehensive income as and when the related employee service is provided.
ASC Topic 820, “Fair Value Measurements and Disclosures” ("ASC 820"), establishes a new framework for measuring fair value and expands related disclosures. Broadly, ASC 820 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820 establishes a three-level valuation hierarchy based upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.
The carrying value of the Company’s financial instruments include guarantee fee receivable, prepayments and other receivable, loans receivable, accounts payable, customer collateral, deferred revenue, amount due to a related party and income tax payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.
The Company adopted ASC Topic 810-10, “Consolidation” (formerly SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51”) effective January 2, 2009. Topic 810-10 changes the manner of presentation and related disclosures for the noncontrolling interest in a subsidiary (formerly referred to as a minority interest) and for the deconsolidation of a subsidiary. The adoption of these sections did not have a material impact on the Company’s consolidated financial statements.
ASC Topic 815-10, “Derivatives and Hedging” (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”) was adopted by the Company effective January 2, 2009. The guidance under ASC Topic 815-10 changes the manner of presentation and related disclosures of the fair values of derivative instruments and their gains and losses.
In April 2009, the FASB issued an update to ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10) (formerly FASB Staff Position No. SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). The standard provides additional guidance on estimating fair value in accordance with ASC 820-10 when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate if a transaction is not orderly. The Company adopted this pronouncement effective April 1, 2009 with no impact on its consolidated financial statements.
In April 2009, the FASB issued FSP APB No. 28-1, “Interim Financial Reporting” (“ASC 825-10”). ASC 825-10 requires the fair value of financial instruments disclosure in summarized financial information at interim reporting periods. ASC 825-10 is effective for interim periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. There was no material impact to the Company’s consolidated financial statements as a result of the adoption of ASC 825-10.
In June 2009, the FASB finalized SFAS No. 167, “Amending FASB interpretation No. 46(R)”, which was included in ASC Topic 810-10-05 “Variable Interest Entities”. The provisions of ASC Topic 810-10-05 amend the definition of the primary beneficiary of a variable interest entity and will require the Company to make an assessment each reporting period of its variable interests. The provisions of this pronouncement are effective January 1, 2010. The Company is evaluating the impact of the statement on its consolidated financial statements.
In July 2009, the FASB issued SFAS No. 168, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 168 codified all previously issued accounting pronouncements, eliminating the prior hierarchy of accounting literature, in a single source for authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168, now ASC Topic 105-10 “Generally Accepted Accounting Principles”, is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did not have an effect on the Company’s consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force)” which amends ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.” ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. The Company is currently evaluating the application date and the impact of this standard on its consolidated financial statements.
Depreciation expense for the years ended December 31, 2009 and 2008 was $83,507 and $63,380, respectively.
On May 13, 2008, the Company advanced $1,899,030 (equivalent to RMB13,000,000) to a third party in a term of 10 months, receivable by March 12, 2009, with an interest rate of 3.12% per annum payable at due date. On March 13, 2009 and March 23, 2009, the Company agreed with the extension of the repayment terms, whereas $1,168,634 (equivalent to RMB8,000,000) will be repayable on June 12, 2009 and the remaining balance of $730,396 (equivalent to RMB5,000,000) will be repayable on June 23, 2009, subject to the same interest rate of 3.12% per annum payable upon the maturity. The balance was fully received during the year ended December 31, 2009.
On October 31, 2009, the Company provided a loan sum of $877,552 (equivalent to RMB6,000,000) to Party A, in a term of 12 months, receivable on October 30, 2010, with an interest rate of 2.52% per annum payable at its due date. The Company further provided installments of loan on November 30 and December 31, 2009 under the same terms with the aggregate amount of $1,311,941 (equivalent to RMB8,970,000).
In December 2009, the Company also provided a loan sum of $1,073,539 (equivalent to RMB7,340,000) to Party B, in a term of 12 months, receivable on December 31, 2010, with an interest rate of 2.52% per annum payable at its due date.
As of December 31, 2009 and 2008, amount due to a related party represented temporary advances made by Mr. Guokang Tu, chief executive officer of the Company, which were unsecured, interest-free with no fixed repayment term. Imputed interest is considered insignificant.
For the years ended December 31, 2009 and 2008, the local (United States) and foreign components of income (loss) from operations before income taxes were comprised of the following:
SNAS is registered in the State of Delaware and is subject to United States of America tax law. No provision for income taxes have been made as SNAS has generated no taxable income during the 2009 and 2008 fiscal years.
The Company generated substantially its net income from its operating VIE in the PRC. [WFOE] and CCG are subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China (“CIT Law”), at a unified income tax rate of 25%, with effect from January 1, 2008.
CCG is registered and operates in Shenzhen City, the PRC and is recognized as “Enterprise Located in Special Economic Zone”. As a result, the Company is entitled to Corporate Income Taxes (“CIT”) at a preferential tax rate of 15%. Under a transitional policy under the CIT Law, CCG will continue to enjoy the unexpired tax holiday in a special economic zone in Shenzhen City and its applicable tax rate will be increased progressively to 25% over a 5-years’ period.
The following table sets forth the computation of basic and diluted net income (loss) per share for the years ended December 31, 2009 and 2008:
- Net income (loss) in computing basic net income per share
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. WFOE and CCG are required to accrue for these benefits based on certain percentages of the employees’ salaries. The total contributions made for such employee benefits were $82,988 and $90,134 for the years ended December 31, 2009 and 2008, respectively.
The Company also has significant concentration risk related to its guarantees on potential loss if the customers fail to the completion of their performance obligation in a timely manner under the surety guarantees. To reduce these potential losses, the Company holds collateral in the form of cash equivalents, which are reflected in customer collateral on the balance sheets as they are held in restricted cash in the Company’s name.
The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates against US$, the value of RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
The Company was committed under various non-cancelable operating leases with fixed monthly rentals, due through December 2012. Total rent expenses for the years ended December 31, 2009 and 2008 was $300,460 and $380,642, respectively.
As of December 31, 2009, future minimum rental payments due under these non-cancelable operating leases are as follows: