SNAS rents its facilities from companies owned by the third parties. As of December 31, 2009, SNAS leased approximately 2,390 square meter of office space for its operations. Its current leased properties are:
Economic recovery would lead to an increase of industrial fixed assets investment, thus helping the professional industrial engineering sector back to the ascending track.
According to the Strategic Development Plan published by the Ministry of Railways, the newly established branches in He Bei and Shaanxi would explore more market opportunities by placing extra attention to the railway bidding market.
Based on the existing domestic banking guarantee service, the Company would cooperate with China Construction Bank to explore the oversea construction project guarantee market. Such an attempt is being performed in Southeastern Asia and Africa. This new business initiative would be promoted along with the rapid expansion of China’s construction industry into the global market.
Following the trends of governmental investment into the infrastructure, business teams shall be reorganized to perform specific business tracking.
To take a close look at the China Construction Bank’s business expansion in the international construction market; to provide its clients with advance payment guarantee and the contract performance guarantee service to redefine the Company’s business scope.
Credit evaluating system shall be established for the Company’s existing clients whereby the highest guarantee limit can be tailored for different clients of different client reference to prevent risks.
Irregular investigations shall be performed to evaluate different operational status, to collect any event of default among the peer industry and promptly send message to the Company group and therefore decline guarantee service to the clients concerned well in advance.
Regular experience exchange among cooperative partners shall be arranged regularly so that the Company’s risk control standard could be improved.
Depreciation - increase by $20,127 or 32 % from $63,380 in 2008 to $83,507 in 2009. The increase was primarily due to the addition of fixed assets during the year 2009.
Staff costs - increase by $14,846 or 1 % from $1,048,725 in 2008 to $1,063,571 in 2009. The increase was mainly due to increase in headcounts and pay rates during the year of 2009.
As of December 31, 2009, guarantee fee receivable was $790 as compared to $17,553 for the same period in 2009. The decrease was mainly due to the settlement from customers before year ended. As of December 31, 2009, customer collateral was $3,729,734, as compared to December 31, 2008 balances of $2,102,665. The increase was mainly due to the increase of the tender and surety guarantee business. As of December 31, 2009, deferred revenue was $364,636 as compared to $401,259 for the same period in 2008. The decrease was due to the increase of surety guarantee business with the associated cost also increased.
The Company maintained cash and cash equivalent $559,105 as of December 31, 2009. The Company has sufficient funds to satisfy its financial commitments and working capital requirements for the next twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our marketing and sales activities, the expansion of our operating capacity, and the continuing market acceptance of our services.
The aggregate loans and interest receivable as of December 31, 2009 amounted to $3,263,032 and $5,212, respectively.
For the year ended December 31, 2009, The Company had the total future lease commitments under non-cancellable operating leases are $305,754. The Company currently has working capital sufficient to fund these lease commitments.
As of December 31, 2009, The Company has contingent liabilities in respect of guarantees granted under the surety and tendering guarantee services business in the aggregate amount of $111,801,487. As of December 31, 2009, The Company has 822 surety and tendering guarantees outstanding. If all the Company’s customers fail to complete their performance obligation in a timely manner so that he Company is obligated to pay on its guarantees, the Company would have the maximum potential amount of future payments of approximately $111,801,487 (RMB764,409,125) in total. The Company 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.
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. 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 have no actual guarantee loss claims for the years ended December 31, 2009. For the years ended December, 2008, the Company experienced actual guarantee loss claims $22,378. At December 31, 2009, the Company has accrued $323,717 on the reserve for guarantee losses for any potential claims.
When reviewing our financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies, (iii) the sensitivity of reported results to changes in conditions and assumptions. We believe the following accounting policies involve the most significant judgment and estimates used in the preparation of our financial statements.
We have audited the accompanying consolidated balance sheets of Sino Assurance Inc. and its subsidiaries (“the Company”) as of December 31, 2009 and 2008 and the related consolidated statements of operations and comprehensive (loss) income, cash flows and changes in stockholders’ equity and for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
Weighted average shares outstanding during the year - basic and diluted
On August 27, 2008, the Company established a limited liability company namely Century Maker Limited in Hong Kong, for the purpose of holding 100% equity interest in Zhong Heng Jiang Investment Consulting (Shenzhen) Company Limited (“ZHJ”).
The Company, through its subsidiaries and variable interest entity, is principally engaged in the provision of surety and tendering guarantees service to corporations and individuals in the PRC.
Upon completion of the stock exchange and business restructuring transactions, LTL became a wholly-owned subsidiary of SNAS. The stock exchange transaction has been accounted for as a reverse acquisition and recapitalization of SNAS whereby LTL is deemed to be the accounting acquirer (legal acquiree) and SNAS to be the accounting acquiree (legal acquirer). The accompanying consolidated financial statements are in substance those of LTL, with the assets and liabilities, and revenues and expenses, of SNAS being included effective from the date of stock exchange transaction. SNAS is deemed to be a continuation of the business of LTL.
On August 1, 2008, LTL entered into an Exclusive Cooperation Agreement (“the Agreement”) with China Construction Guaranty Company Limited (“CCG”), together with a Plan of Reorganization. CCG is a limited liability company registered in Shenzhen City, the PRC on May 21, 2004. Its principal activity is engaged in the provision of surety and tendering guarantees to corporations and individuals in the PRC.
Interest is accrued and credited to income based on the principal amount outstanding. The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to
meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed.
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:
In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured.
The Company provides guarantees service to corporations and individuals in issuing and obtaining surety or tendering guarantees for their business operations and/or personal use. In exchange for the Company’s 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.
For the years ended December 31, 2009 and 2008, the Company has recognized $104,273 and $215,448 on the reserve for guarantee losses for any potential claims, respectively.
financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penalties and interest, accounting in interim periods and disclosure.
For the years ended December 31, 2009 and 2008, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2009, the Company did not have any significant unrecognized uncertain tax positions.
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying consolidated statements of changes in stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
In general, for consolidation purposes, assets and liabilities of its operating entity whose functional currency is not US$ 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.
For financial assets and liabilities, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
In September 2009, Accounting Standards Codification (“ASC”) became the source of authoritative U.S. GAAP recognized by the Financial Accounting Standards Board (“FASB”) for nongovernmental entities, except for certain FASB Statements not yet incorporated into ASC. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative U.S. GAAP for registrants. The discussion below includes the applicable ASC reference.
In April 2009, the FASB issued FSP SFAS No. 107-1, “Disclosures about Fair Value of Financial Instruments” (“ASC 825-10”). ASC 825-10 requires fair value of financial instruments disclosure for interim reporting periods of publicly traded companies as well as in annual financial statements. 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 August 2009, the FASB issued an update of ASC Topic 820, “Measuring Liabilities at Fair Value ”. The new guidance provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using prescribed techniques. The Company adopted the new guidance in the third quarter of 2009 and it did not materially affect the Company’s financial position and results of operations.
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.
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.
During the year ended December 31, 2009, the Company provided the following loans:
The effective tax rate in the periods 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:
The reconciliation of income tax rate to the effective income tax rate for the years ended December 31, 2009 and 2008 is as follows:
The following table sets forth the significant components of the aggregate deferred tax assets and liabilities of the Company as of December 31, 2009 and 2008:
Basic net income (loss) per share is computed using the weighted average number of the ordinary shares outstanding during the year. Diluted net income (loss) per share is computed using the weighted average number of ordinary shares and ordinary share equivalents outstanding during the year.
For the years ended December 31, 2009 and 2008, the Company made an appropriation of $54,084 and $62,037 to the statutory reserve, respectively.
For the years ended December 31, 2009 and 2008, there was no customer who accounts for 10% or more of the Company’s revenues.
For the years ended December 31, 2009 and 2008, there was no vendor who accounts for 10% or more of the Company’s purchases.
As of December 31, 2009, the Company has 822 surety and tendering guarantees outstanding. If the Company’s customers fail to complete their performance obligation in a timely manner so that the Company is obligated to pay on its guarantees, the Company would have the maximum potential amount of future payments of approximately $111,801,487 (RMB764,409,125) in total.
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. 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. For the years ended December 31, 2009 and 2008, the Company experienced actual guarantee loss claims of $0 and $22,378, respectively. At December 31, 2009, the Company has accrued $323,717 on the reserve for guarantee losses for any potential claims.