The accompanying notes are an
integral part of these consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION
China United Insurance Service, Inc. (“China
United” or “CUIS”) is a Delaware corporation organized on June 4, 2010 by Yi Hsiao Mao, a Taiwanese citizen,
as a listing vehicle for ZLI Holdings Limited (“ZLI Holdings”) to be quoted on the United States Over the Counter Bulletin
Board.
The corporate structure as of September
30, 2016 is as follows:
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The unaudited accompanying condensed consolidated
financial statements include the accounts of China United and its subsidiaries as shown in the organization structure in Note 1
above. All significant intercompany transactions and balances were eliminated in consolidation.
Basis of Presentation
The unaudited condensed consolidated financial
statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X.
Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements.
In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement
of the financial statements have been included. Operating results for the three and nine months ended September 30, 2016 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2016.
These unaudited condensed consolidated
financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements
and notes thereto for the year ended December 31, 2015, which were included in the Company’s 2015 Annual Report on Form 10-K.
The accompanying condensed consolidated balance sheet as of December 31, 2015, has been derived from the Company’s audited
consolidated financial statements as of that date.
Translation Adjustment
The Company’s financial statements
are presented in U.S. dollars ($), which is the Company’s reporting and functional currency. The functional currencies of
the Company’s subsidiaries are NTD, RMB and HKD. Transactions in foreign currencies are initially recorded at the functional
currency rate prevailing at the date of transaction. Any differences between the initially recorded amount and the settlement amount
are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. Monetary assets and
liabilities denominated in foreign currency are translated at the functional currency rate of exchange prevailing at the balance
sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of
operations.
In accordance with ASC 830, Foreign Currency
Matters, the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the
balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period.
Adjustments resulting from the translation from NTD, RMB and HKD into U.S. dollars are recorded in stockholders’ equity as
part of accumulated other comprehensive income. The exchange rates used for interim financial statements in accordance with ASC
830, Foreign Currency Matters, are as follows:
|
|
Average Rate for the nine months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Taiwan dollar (NTD)
|
|
NTD
|
32.37360
|
|
|
NTD
|
31.43410
|
|
China yuan (RMB)
|
|
RMB
|
6.57924
|
|
|
RMB
|
6.16060
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
7.76328
|
|
|
HKD
|
7.75280
|
|
United States dollar ($)
|
|
$
|
1.00000
|
|
|
$
|
1.00000
|
|
|
|
Exchange Rate at
|
|
|
|
September 30,2016
|
|
|
December 31, 2015
|
|
Taiwan dollar (NTD)
|
|
NTD
|
31.32190
|
|
|
NTD
|
32.8439
|
|
China yuan (RMB)
|
|
RMB
|
6.66938
|
|
|
RMB
|
6.4907
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
7.75476
|
|
|
HKD
|
7.75040
|
|
United States dollar ($)
|
|
$
|
1.00000
|
|
|
$
|
1.00000
|
|
Concentration of Risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist principally of cash and equivalents and accounts receivable.
As of September 30, 2016, approximately $1,600,000 of the Company’s cash and equivalents held by financial institutions was
insured, and the remaining balance of approximately $23,300,000 was not insured.
For the three months ended September 30,
2016 and 2015, the Company’s revenue from sale of insurance policies underwritten by these companies were:
|
|
Three months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
5,291,779
|
|
|
|
35
|
%
|
|
$
|
3,074,196
|
|
|
|
27
|
%
|
Taiwan Life Insurance Co., Ltd. (Formerly CTBC Life Insurance Co., Ltd)
|
|
|
1,493,069
|
|
|
|
10
|
%
|
|
|
1,688,274
|
|
|
|
15
|
%
|
Fubon Life Insurance Co., Ltd.
|
|
|
(*
|
)
|
|
|
(*
|
)
|
|
|
1,357,519
|
|
|
|
12
|
%
|
|
(*)
|
Revenue for the three months ended had not exceeded 10% or more of the consolidated revenue.
|
For the nine months ended September 30,
2016 and 2015, the Company’s revenue from sale of insurance policies underwritten by these companies were:
|
|
Nine months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
13,969,672
|
|
|
|
32
|
%
|
|
$
|
10,082,711
|
|
|
|
28
|
%
|
Taiwan Life Insurance Co., Ltd.(Formerly CTBC Life Insurance Co., Ltd)
|
|
|
4,813,813
|
|
|
|
11
|
%
|
|
|
4,106,414
|
|
|
|
12
|
%
|
Fubon Life Insurance Co., Ltd.
|
|
|
4,342,377
|
|
|
|
10
|
%
|
|
|
4,459,040
|
|
|
|
13
|
%
|
As of September 30, 2016 and December 31,
2015, the Company’s accounts receivable from these companies were:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Amount
|
|
|
% of Total
Accounts
Receivable
|
|
|
Amount
|
|
|
% of Total
Accounts
Receivable
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
2,219,059
|
|
|
|
38
|
%
|
|
$
|
3,689,404
|
|
|
|
43
|
%
|
Taiwan Life Insurance Co., Ltd.(Formerly CTBC Life Insurance Co., Ltd)
|
|
|
(**
|
)
|
|
|
(**
|
)
|
|
|
994,978
|
|
|
|
11
|
%
|
Fubon Life Insurance Co., Ltd
|
|
|
(**
|
)
|
|
|
(**
|
)
|
|
|
990,327
|
|
|
|
11
|
%
|
|
(**)
|
Accounts receivable for the year ended had not exceeded 10% or more of the consolidated accounts receivable.
|
With respect to accounts receivable, the
Company generally does not have any collateral and does not have an allowance for doubtful accounts.
The Company’s operations are in the
People’s Republic of China (PRC), Taiwan and Hong Kong. Accordingly, the Company’s business, financial condition and
results of operations may be influenced by the political, economic, foreign currency exchange and legal environments in the PRC,
Taiwan and Hong Kong, and by the state of each economy. The Company’s results may be adversely affected by changes in the
political and social conditions in the PRC, Taiwan and Hong Kong, and by changes in governmental policies with respect to laws
and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting
Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition
guidance. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective
Date. The amendment in this update defers the effective date of ASU 2014-09 for all entities by one year to annual periods beginning
after December 15, 2017. Early adoption is permitted as of the original effective date, interim and annual reporting periods after
December 15, 2016. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt
ASU 2014-09. The Company is still in the process of analyzing the effect of this new standard, including the transition method,
to determine the impact on the Company’s consolidated financial position, results of operations, cash flows, and related
disclosures.
In November 2015, the FASB issued Accounting
Standards Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes”. The new guidance requires that all
deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet.
This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods.
ASU 2015-17 will be effective for the Company, but will not cause a material impact on the Company’s financial condition
or the results of the Company’s operations.
In January 2016, the FASB issued Accounting
Standards Update No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities,” which amends the guidance in U.S. GAAP on the classification and measurement of financial
instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under
the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies
guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on
available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December
15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet
at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the
provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific
credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.
In February 2016, the FASB issued Accounting
Standards Update No. 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 supersedes the lease recognition requirements in
ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both
financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal
years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard
will have on its Consolidated Financial Statements.
In March 2016, the FASB issued Accounting
Standards Update No. 2016-03, “Intangibles-Goodwill and Other (Topic 350); Business Combinations (Topic 805); Consolidation
(Topic 810); Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance”. The amendments in this ASU make
the guidance in ASUs 2014-02, 2014-03, 2014-07, and 2014-18 effective immediately by removing their effective dates. The amendments
also include transition provisions that provide that private companies are able to forgo a preferability assessment the first time
they elect the accounting alternatives within the scope of this ASU. Any subsequent change to an accounting policy election requires
justification that the change is preferable under Topic 250, Accounting Changes and Error Corrections. The amendments in this ASU
also extend the transition guidance in ASUs 2014-02, 2014-03, 2014-07, and 2014-18 indefinitely. While this ASU extends transition
guidance for Updates 2014-07 and 2014-18, there is no intention to change how transition is applied for those two ASUs. The Company
is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In March 2016, the FASB issued Accounting
Standards Update No. 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to
the Equity Method of Accounting.” ASU No. 2016-07 eliminates the requirement for an investment that qualifies for the use
of the equity method of accounting as a result of an increase in the level of ownership or degree of influence to adjust the investment,
results of operations and retained earnings retrospectively. ASU No. 2016-07 will be effective prospectively for the Company for
increases in the level of ownership interest or degree of influence that result in the adoption of the equity method that occur
during or after the quarter ending December 31, 2017, with early adoption permitted. The impact of this guidance for the Company
is dependent on any future increases in the level of ownership interest or degree of influence that result in the adoption of the
equity method.
In March 2016, the FASB issued Accounting
Standards Update No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting
Revenue Gross versus Net)”. ‘The amendments in this ASU are intended to improve the operability and understandability
of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and
adding additional illustrative examples to assist in the application of the guidance. The effective date and transition of these
amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic
606)”. Public entities should apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 15,
2017, including interim reporting periods therein. The Company is currently in the process of evaluating the impact of the adoption
on its consolidated financial statements.
In March 2016, the FASB issued Accounting
Standards Update No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting.” ASU No. 2016-09 impacts certain aspects of the accounting for share-based payment transactions, including income
tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows.
ASU No. 2016-09 will be effective for the Company for the quarter ending December 31, 2017, with early adoption permitted. The
Company is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In August 2016, the FASB issued Accounting
Standards Update No. 2016-15,“Classification of Certain Cash Receipts and Cash Payments (Topic 230) to Statement of Cash
Flows.” ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash
flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon
debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest
rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement
of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance
policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions,
and (viii) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for interim
and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The adoption of
this update is not expected to have a significant impact on our consolidated financial statements.
In October 2016, the FASB issued Accounting
Standards Update No. 2016-17, “Interests Held through Related Parties That Are under Common Control” (ASU 2016-17),
which amends the consolidation guidance in ASU 2015-02 regarding the treatment of indirect interests held through related parties
that are under common control. ASU 2016-17 is effective for annual reporting periods beginning after December 15, 2016 and interim
periods within those years, with early adoption permitted. The Company is currently assessing the impact of ASU 2016-17 and does
not anticipate a material impact on our financial position, results of operations or cash flows.
There were other updates recently issued.
The management does not believe that other than disclosed above, the recently issued, but not yet adopted, accounting pronouncements
will have a material impact on its financial position results of operations or cash flows.
NOTE 3 – CASH AND EQUIVALENTS
As of September 30, 2016 and December 31,
2015, our cash and equivalents primarily consisted of cash and certificates of deposits. The carrying amounts reported on the consolidated
balance sheets for cash and cash equivalents approximate fair value.
NOTE 4 – MARKETABLE SECURITIES
Marketable securities represent investment
in equity securities of listed stocks and funds, which are classified as Level 1 securities as follows:
|
|
September 30, 2016
|
|
|
|
Fair Value at
December 31,
2015
|
|
|
Gross
Unrealized
Gains (Losses)
|
|
|
Total
Fair Value
|
|
Level 1 securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
|
|
$
|
28,863
|
|
|
$
|
6,851
|
|
|
$
|
35,714
|
|
Funds
|
|
|
2,340,219
|
|
|
|
119,501
|
|
|
|
2,459,720
|
|
|
|
$
|
2,369,082
|
|
|
$
|
126,352
|
|
|
$
|
2,495,434
|
|
|
|
December 31, 2015
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
Cost
|
|
|
Gains (Losses)
|
|
|
Fair Value
|
|
Level 1 securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
|
|
$
|
28,278
|
|
|
$
|
585
|
|
|
$
|
28,863
|
|
Funds
|
|
|
2,408,728
|
|
|
|
(68,509
|
)
|
|
|
2,340,219
|
|
|
|
$
|
2,437,006
|
|
|
$
|
(67,924
|
)
|
|
$
|
2,369,082
|
|
NOTE 5 – OTHER CURRENT ASSETS
The Company’s other current assets
consisted of the following as of September 30, 2016 and December 31, 2015:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Prepaid expenses
|
|
$
|
173,253
|
|
|
$
|
603,557
|
|
Current assets associated with discontinued operations
|
|
|
-
|
|
|
|
224,140
|
|
Prepaid rent and rent deposit
|
|
|
146,672
|
|
|
|
133,179
|
|
Other receivable
|
|
|
231,959
|
|
|
|
86,539
|
|
Interest receivable
|
|
|
36,825
|
|
|
|
-
|
|
Deferred tax assets
|
|
|
64,129
|
|
|
|
-
|
|
Refundable business tax
|
|
|
10,532
|
|
|
|
7,600
|
|
Other
|
|
|
8,281
|
|
|
|
-
|
|
Total other current assets
|
|
$
|
671,651
|
|
|
$
|
1,055,015
|
|
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and equipment consisted
of the following, as of September 30, 2016 and December 31, 2015:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Office Equipment
|
|
$
|
1,069,534
|
|
|
$
|
1,080,621
|
|
Office Furniture
|
|
|
211,693
|
|
|
|
125,746
|
|
Leasehold improvements
|
|
|
565,543
|
|
|
|
511,874
|
|
Transportation equipment
|
|
|
137,230
|
|
|
|
84,398
|
|
Other equipment
|
|
|
91,683
|
|
|
|
97,996
|
|
Total
|
|
|
2,075,683
|
|
|
|
1,900,635
|
|
Less: accumulated depreciation
|
|
|
(1,101,748
|
)
|
|
|
(981,837
|
)
|
Total property, plant and equipment, net
|
|
$
|
973,935
|
|
|
$
|
918,798
|
|
Depreciation expense was $81,267 and $70,084
for the three months ended September 30, 2016 and 2015, respectively, and was $231,414 and $236,191 for the nine months ended September
30, 2016 and 2015, respectively.
NOTE 7 – INTANGIBLE ASSETS
As of September 30, 2016 and December 31,
2015, the Company’s intangible assets consisted the following:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Software
|
|
$
|
1,451,115
|
|
|
$
|
780,355
|
|
Less: accumulated amortization
|
|
|
(650,054
|
)
|
|
|
(311,576
|
)
|
Total intangible assets
|
|
$
|
801,061
|
|
|
$
|
468,779
|
|
Amortization expense was $71,328 and $34,108
for the three months ended September 30, 2016 and 2015, respectively, and was $223,969 and $91,948 for the nine months ended September
30, 2016 and 2015, respectively.
Estimated future intangible amortization
as of September 30, 2016 is as follows:
Years ending September 30,
|
|
Amount
|
|
2017
|
|
$
|
216,421
|
|
2018
|
|
|
199,312
|
|
2019
|
|
|
176,084
|
|
2020
|
|
|
146,582
|
|
2021
|
|
|
55,231
|
|
Thereafter
|
|
|
7,431
|
|
Total
|
|
$
|
801,061
|
|
The Company reclassified amounts of $180,864
and $91,849 from property, plant and equipment and accumulated depreciation to intangible assets and accumulated amortization,
respectively, in January 2016.
NOTE 8 – ACQUISITION AND GOODWILL
(1) Acquisition of PFAL
On April 23, 2014, AHFL entered into a
capital increase agreement (“Agreement”) with Chun Kwok Wong (“Mr. Wong”), the owner of Prime Financial
Asia Ltd (PFAL) which is a re-insurance broker company resided in Hong Kong. Upon the Agreement, Mr. Wong would increase PFAL’s
capital contribution from HK$500,000 to HK$1,470,000, and AHFL would contribute HK$1,530,000, approximately $197,000, to PFAL’s
capital contribution. Upon the completion of capital increase by both parties, Mr. Wong and AHFL would own 49% and 51% of PFAL’s
equity interest, respectively. The transaction was completed on April 30, 2014.
The FV of the net identifiable assets of
PFAL at acquisition date was $324,871, and 51% of which was $165,684. The Company recorded $31,651 excess of purchase price over
the FV of assets acquired and liabilities assumed as goodwill. No intangible assets were identified as of the acquisition date.
As of September 30, 2016, there were no indications of the impairment of the goodwill.
(2) Acquisition of GHFL
On February 13, 2015, CUIS and AHFL entered
into an acquisition agreement with the selling shareholder (Mr. Chwan Hau Li, the director of the Company) of Genius Holdings Financial
Limited ( “GHFL”), a company with limited liability incorporated under the laws of British Virgin Islands, to issue
352,166 fully paid and non-assessable shares of AHFL Common Stock together with an granted option for 352,166 shares of common
stock of CUIS (“Option”), in exchange for 704,333 shares of common stock of GHFL, being all of the issued and outstanding
capital stock of GHFL. Subsequent to the acquisition, GHFL became a wholly-owned subsidiary of CUIS. GHFL holds 100% issued and
outstanding shares of Genius Investment Consultant Co., Ltd. (“Taiwan Genius”), a limited company incorporated under
the laws of Taiwan, which in turn holds 15.64% issued and outstanding shares of Genius Insurance Broker Co., Ltd. (“Genius
Broker”), a company limited by shares incorporated under the laws of Taiwan. Both GHFL and Taiwan Genius have no substantive
business operation other than the holding of shares of its subsidiary. Genius Broker is primarily engaged in broker business across
Taiwan. On February 13, 2015, the acquisition was completed; the selling shareholder transferred 100% shares in GHFL to AHFL. The
Option has been exercised by the selling shareholder on March 31, 2015.
The
total fair value of AHFL 352,166 shares ($1,771,395) and CUIS 352,166 option ($1,711,562) at acquisition date was $3,482,957.
The Company recorded $2,039,840 excess of purchase price as goodwill. As of September 30, 2016, there were no indications of the
impairment of the goodwill.
The acquisition was accounted for under
the purchase method of accounting. Accordingly, the results of GHFL have been included in the consolidated financial statements
since the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed based upon
their estimated fair values and the price were allocated as follows:
|
|
February 13, 2015
|
|
Current assets
|
|
$
|
321
|
|
Long-term investment
|
|
|
1,488,829
|
|
Goodwill
|
|
|
2,039,840
|
|
Current liabilities
|
|
|
(46,033
|
)
|
Total purchase price
|
|
$
|
3,482,957
|
|
No supplemental pro forma information is
presented for the acquisition due to the immaterial effect of the acquisition on the Company’s results of operations.
NOTE 9 – LONG-TERM INVESTMENT
The Company classifies its investments
as available-for-sale in accordance with ASC 320 “Debt and Equity Securities”, Investments – Debt and Equity
Securities, which are reported at fair value. Unrealized gains and losses as a result of changes in the fair value of the available-for-sale
investments are recorded as a separate component within accumulated other comprehensive income in the accompanying consolidated
balance sheets.
The Company uses the cost method of accounting
for investments in companies that do not have a readily determinable fair value in which it holds an interest of less than 20%
and over which it does not have the ability to exercise significant influence. Investments are considered to be impaired when a
decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary,
an impairment charge is recorded and a new cost basis in the investment is established.
As of September 30, 2016 and December 31,
2015, the Company’s long-term investment consisted the following:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Equity Investment
|
|
$
|
1,227,094
|
|
|
$
|
1,170,230
|
|
Government Bonds
|
|
|
98,968
|
|
|
|
94,381
|
|
Total
|
|
$
|
1,326,062
|
|
|
$
|
1,264,611
|
|
As of September 30, 2016 and December 31,
2015, the Company had the following long-term investment in equity:
Type
|
|
Investee
|
|
September 30, 2016
Investment
Ownership
|
|
|
Amount
|
|
Cost Method
|
|
Genius Insurance Broker Co., Ltd
|
|
|
15.64
|
%
|
|
$
|
1,227,094
|
|
Type
|
|
Investee
|
|
December 31, 2015
Investment
Ownership
|
|
|
Amount
|
|
Cost Method
|
|
Genius Insurance Broker Co., Ltd
|
|
|
15.64
|
%
|
|
$
|
1,170,230
|
|
According to Taiwan regulatory requirements,
Law Broker is required to maintain a minimum of NT$3,000,000 in a separate account. Law Broker chose to buy government bonds and
has the right to trade such bonds with other debt or equity instruments. The amount, however, was defined as restricted asset.
|
|
September 30, 2016
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Fair Value at
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
December 31, 2015
|
|
|
Gains (Losses)
|
|
|
Fair Value
|
|
Government bonds
|
|
|
94,381
|
|
|
|
4,587
|
|
|
|
98,968
|
|
|
|
$
|
94,381
|
|
|
$
|
4,587
|
|
|
$
|
98,968
|
|
|
|
December 31, 2015
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
Cost
|
|
|
Gains (Losses)
|
|
|
Fair Value
|
|
Government bonds
|
|
|
93,089
|
|
|
|
1,292
|
|
|
|
94,381
|
|
|
|
$
|
93,089
|
|
|
$
|
1,292
|
|
|
$
|
94,381
|
|
NOTE 10 – OTHER ASSETS
The Company’s other assets consisted
of the following as of September 30, 2016 and December 31, 2015:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Rental deposits
|
|
$
|
444,609
|
|
|
$
|
401,920
|
|
Restricted cash
|
|
|
258,765
|
|
|
|
231,100
|
|
Prepayments
|
|
|
53,904
|
|
|
|
156,772
|
|
Other
|
|
|
1,501
|
|
|
|
1,431
|
|
Total other assets
|
|
$
|
758,779
|
|
|
$
|
791,223
|
|
Rental deposits are long-term leasing deposits.
Restricted cash is a deposit in several banks by the Company. The majority of restricted cash is in conformity with Provisions
of the Supervision and Administration of Specialized Insurance Agencies, and cannot be withdrawn without the permission of the
regulatory commission. Prepayments are prepaid long-term software-maintenance contract pending for final acceptance, and will be
transferred to intangible assets upon acceptance.
NOTE 11 – TAXES PAYABLE
The Company’s taxes payable consisted
of the following as of September 30, 2016 and December 31, 2015:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
PRC Tax
|
|
$
|
126,536
|
|
|
$
|
99,505
|
|
Hong Kong Tax
|
|
|
3,586
|
|
|
|
-
|
|
Taiwan Tax
|
|
|
1,340,787
|
|
|
|
1,422,457
|
|
Total tax payable
|
|
$
|
1,470,909
|
|
|
$
|
1,521,962
|
|
PRC tax represents income tax and other
taxes accrued according to PRC tax law by our subsidiaries and Consolidated Affiliated Entities (“CAE”) in the PRC.
Taiwan tax represents income tax accrued according to Taiwan tax law by our subsidiaries and branches in Taiwan. Hong Kong tax
represents income tax accrued according to Hong Kong tax law by our subsidiaries in Hong Kong. Above tax will be settled within
the next twelve months according to the respective tax laws.
NOTE 12 – OTHER CURRENT LIABILITIES
Other current liabilities are as follows,
as of September 30, 2016 and December 31, 2015:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Commissions payable to sub-agents
|
|
$
|
4,010,802
|
|
|
$
|
6,644,989
|
|
Accrued bonus
|
|
|
443,348
|
|
|
|
1,050,411
|
|
Refund to AIATW
|
|
|
-
|
|
|
|
502,532
|
|
Accrued tax penalties
|
|
|
370,000
|
|
|
|
370,000
|
|
Accrued business tax
|
|
|
-
|
|
|
|
326,954
|
|
Withholding employee personal tax
|
|
|
385,432
|
|
|
|
295,989
|
|
Salary payable to administrative staff
|
|
|
410,101
|
|
|
|
229,624
|
|
Due to previous shareholders of AHFL
|
|
|
478,898
|
|
|
|
685,059
|
|
Accrued advertisement expense
|
|
|
404,826
|
|
|
|
151,535
|
|
Accrued labor, health insurance and employee retirement plan
|
|
|
21,523
|
|
|
|
84,138
|
|
Unearned revenue - current
|
|
|
127,706
|
|
|
|
-
|
|
Deferred tax liabilities
|
|
|
-
|
|
|
|
3,143
|
|
Other accrued liabilities
|
|
|
326,058
|
|
|
|
526,376
|
|
Total other current liabilities
|
|
$
|
6,978,694
|
|
|
$
|
10,870,750
|
|
Commissions payable to sub-agents, salaries
payable to administrative staff, accrued bonus, and accrued advertisement expense are usually settled within 12 months. Refund
to AIATW and unearned revenue - currentare described in Note 16. Accrued tax penalties are estimated potential penalty in the event
of a tax audit. Accrued business tax, withholding employee personal tax and accrued labor, health insurance and employee retirement
plan will be paid to the related government department within one month. The amount due to previous shareholders of AHFL is the
remaining balance payable of the acquisition cost. Other accrued liabilities are mainly for operating expenses payable, such as
training and travelling.
NOTE 13 – SHORT TERM LOANS
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Loan A, interest at 1.5%, maturity date December 31, 2016
|
|
$
|
-
|
|
|
$
|
70,000
|
|
Loan B, interest at 1.5%, maturity date December 31, 2016
|
|
|
-
|
|
|
|
152,235
|
|
Total short term loans
|
|
$
|
-
|
|
|
$
|
222,235
|
|
On October 12, 2015, the Company entered
into a loan agreement (“Loan A”) with Zhengxiong Huang. The Short-term Loan Agreement provided for a $70,000 loan to
the Company. The Short-term Loan bore an interest rate of 1.5% per annum and the principal and interest were due on December 31,
2015. On December 31, 2015, the Company extended this loan agreement to December 31, 2016 with the same conditions. The entire
amount of this Loan A and interest expense were paid off in May 2016.
On December 3, 2015, the Company entered
into a loan agreement (“Loan B”) with Yuzhen Chen. The Short-term Loan Agreement provided for a $152,235 (NTD 5,000,000)
loan to the Company. The Short-term Loan bore an interest rate of 1.5% per annum and the principal and interest were due on December
31, 2015. On December 31, 2015, the Company extended this loan agreement to December 31, 2016 with the same conditions. On January
13, 2016, the Company paid an amount of $46,582 (NTD 1,500,000) back. The entire amount of this Loan B and interest expense were
paid off in May 2016.
NOTE 14 – COVERTIBLE BONDS
Convertible debt is accounted for under
the guidelines established by ASC 470-20 “Debt with Conversion and Other Options.” ASC 470-20 governs the calculation
of an embedded beneficial conversion. The amount of the value of beneficial conversion feature may reduce the carrying value of
the instrument to zero, but no further. Many of the conversion features embedded in the Company’s notes are variable and
are adjusted based on a discount to market prices which could cause an unlimited number of common stock to be issued. In these
cases, the Company record the embedded conversion feature as a derivate instrument, at fair value. The embedded conversion features
are recorded as discounts when the notes become convertible. The excess of fair value of the embedded conversion feature over the
carrying value of the debt is recorded as an immediate charge to operations. Each reporting period, the Company will compute the
estimated fair value of derivatives and record changes to operations. The discounts relating to the initial recording of the derivatives
or beneficial conversion features will be amortized over the terms of the convertible bonds.
The Company intends to issue the convertible
bonds during the period commencing on June 23, 2016 and ending on September 30, 2016 with an aggregate principal amount of up to
$10,000,000. The convertible bonds shall be sold in units, with each unit being $100,000 in principal amount. The Company will
not make any offers or sales of the convertible bonds to U.S. persons and there will be no directed selling efforts in the United
States. The bonds will not be convertible until two years from the issuance date and with an annual interest rate of 6% payable
on a quarterly basis. The purchaser of the convertible bonds may cause the company to redeem the convertible bonds before the end
of the term, subject to certain penalties depending on the holding period of the convertible bonds when redeemed. Upon the expiration
of the term of the convertible bond, the bond holder may, in its sole discretion, choose to collect the payment of full principal
amount of the convertible bond together with any interest accrued or convert the convertible bond into common shares of the Company
at the conversion price. The conversion price shall be the product of (i) the average closing trading price for the 10 business
days immediately prior to the conversion date times (ii) 80%.
On June 23, 2016, the Company has issued
two units of its convertible bonds with an aggregate principal amount of $200,000 to a non-US person and the value of the embedded
derivatives liabilities is trivial. As of September 30, 2016, the Company has an outstanding principal balance of $200,000 of convertible
bonds. Total interest expense was $3,000 and $3,363, respectively, for the three and nine months ended September 30, 2016.
NOTE 15 – LONG-TERM LOAN
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Loan C, interest at 8%, maturity date May 15, 2019
|
|
$
|
149,939
|
|
|
$
|
-
|
|
Loan D, interest at 8%, maturity date July 20, 2019
|
|
|
115,453
|
|
|
|
-
|
|
Total long term loans
|
|
$
|
265,392
|
|
|
$
|
-
|
|
On May 15, 2016, the Company’s contractually
controlled PRC affiliate Law Anhou Insurance Agency Co., Ltd entered into a loan agreement (“Loan C”) with third party
Guowei Hu. The long-term Loan Agreement provided for a $149,939 loan to the Company. The long-term Loan C bears an interest rate
of 8% per annum and interest is payable annually. The principal and the last year’s interest will be due on May 15, 2019.
On July 20, 2016, the Company’s contractually
controlled PRC affiliate Law Anhou Insurance Agency Co., Ltd entered into a loan agreement (“Loan D”) with third party
Guowei Hu. The long-term Loan Agreement provided for a $115,453 loan to the Company. The long-term Loan D bears an interest rate
of 8% per annum and interest is payable annually. The principal and the last year’s interest will be due on July 20, 2019.
Total interest expense was $1,873 and $4,331,
respectively, for the three and nine months ended September 30, 2016.
NOTE 16 – LONG-TERM LIABILITIES
Long-term liabilities are as follows as
of September 30, 2016 and December 31, 2015:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Unearned revenue – AIATW
|
|
$
|
6,914,973
|
|
|
$
|
6,594,530
|
|
Unearned revenue – Farglory
|
|
|
510,825
|
|
|
|
-
|
|
Other long-term liabilities
|
|
|
133,692
|
|
|
|
-
|
|
Total other long-term liabilities
|
|
$
|
7,559,490
|
|
|
$
|
6,594,530
|
|
On June 10, 2013, AHFL entered into a Strategic
Alliance Agreement (the “Alliance Agreement”) with AIA International Limited Taiwan Branch (“AIATW”). The
purpose of the Alliance Agreement is to promote life insurance products provided by AIATW within Taiwan by insurance agencies or
brokerage companies affiliated with AHFL or CUIS. The term of the Alliance Agreement is from April 15, 2013 to August 31, 2018.
Pursuant to the terms of the Alliance Agreement, AIATW paid AHFL the Execution Fee of $8,326,700 (NTD250,000,000, including the
tax of NTD11,904,762), which is to be recorded as revenue upon fulfilling sales targets and the 13-month persistency ratio, as
defined, over the next five years. The Execution Fee may be required to be recalculated if certain performance targets are not
met by AHFL. On September 30, 2014, AHFL entered into a Strategic Alliance Supplemental Agreement (the “Supplemental Agreement”)
with AIATW. In the Supplemental Agreement, the performance targets and the provision about refunding the Execution Fee when the
performance targets are not met were revised. On January 6, 2016, AHFL entered into an Amendment 2 to Strategic Alliance Agreement
(the “Amendment No. 2”) with AIATW to further revise certain provisions in the Strategic Alliance Agreement and the
previous amendment entered into by and between AHFL and AIATW. The purpose of the Strategic Alliance Agreement is to promote life
insurance products provided by AIATW within the territory of Taiwan through insurance agency companies or insurance brokerage companies.
To the extent permitted by applicable laws and regulations, AHFL shall assist and encourage any insurance agency company or insurance
brokerage company duly approved by the competent government authorities of Taiwan (the “Appointed Broker/Agent”), to
cooperate with AIATW for the promotion of life insurance products of AIATW. Pursuant to the Amendment No. 2, the expiration date
of the Strategic Alliance Agreement has been extended from May 31, 2018 to December 31, 2021, and the effect of the Strategic Alliance
Agreement during the period from October 1, 2014 to December 31, 2015 has been suspended. In addition, both AHFL and AIATW agreed
to adjust certain terms and conditions set forth in the Strategic Alliance Agreement, among which: (i) expand the scope of services
to be provided by AHFL to AIATW to include, without limitation, assessment and advice on suitability of cooperative partners, advice
on product strategies suitable for promotion channel development, advice on promotion/sales channel improvement, advice on promotion
channel marketing and strategic planning, and promotion channel talent training; and (ii) remove certain provisions related to
performance milestones and refund of Execution Fees. On March 15, 2016, AHFL issued a promise letter to AIATW that AHFL is required
to (i) fulfill sales targets and (ii) the 13-month persistency ratio.
AHFL refunded the amounts of $152,235 (NTD
5,000,000) and $502,532 (NTD 16,505,144) to AIATW on December 3, 2015 and February 23, 2016, respectively, due to the portion of
performance sales targets are not met during the period from June 10, 2013 to September 30, 2014. AHFL did not book any short-term
unearned revenue since the Strategic Alliance Agreement will end on December 31, 2021 and the performance will calculate then to
determine how much revenue AHFL can book accordingly, and the Company booked the whole $6,914,973 as long-term liabilities.
On April 20, 2016, the Company entered
into a service agreement (“Service Agreement”) with Farglory Life Insurance Co., Ltd. (Farglory). AHFL is going to
provide consulting services to Farglory for NTD4,000,000 per year and the aggregate consulting services fee is NTD20,000,000 from
May 1, 2016 to April 30, 2021. The Company has not yet booked any revenue because the Company has not provided any service yet.
As of September 30, 2016, the Company had long-term liabilities and current liabilities amounts of $510,825 and $127,706, respectively,
related to this Service Agreement.
On May 10, 2016, Law Broker entered into an engagement agreement (“Engagement Agreement”) with
Hui-Hsien Chao (“Ms. Chao”), pursuant to which she acts as the general manager of Law Broker for and a term from December
29, 2015 to December 28, 2018. Ms. Chao’s primary responsibilities are to assist Law Broker in operating and managing insurance
agency business. According to the Engagement Agreement, Ms. Chao’s Bonus plans include: 1) execution, 2) long-term service
fees, 3) pension and 4) non-competition, and the payment of such bonuses will only occur upon satisfaction of certain condition
and subject to the terms therein, among which, Ms. Chao acts as the general manager or equivalent position of Law Broker for at
least 3 years.
On May 14, 2016, Law Broker and Ms.
Chao entered into a Supplementary Agreement (“Supplementary Agreement”) to postpone her pension vesting date to
December 29, 2016. Though Law Broker expects that none of the above-mentioned bonuses need to be paid prior to May 2019, it
has recorded a long-term liabilities representing the corresponding portion of such bonuses accrued. As of September 30,
2016, the balance of such accrued long-term liabilities is $133,693.
NOTE 17 – PREFERRED STOCK
The Company is authorized to issue 10,000,000
shares of preferred stock, $0.00001 par value. We currently have 1,000,000 shares of Series A Preferred Stock (“Series A
Stock”) outstanding as of September 30, 2016. The Series A Stock has the following rights and preferences:
Voting Rights. Except as otherwise provided
by law, the Series A Stock and the common stock vote together on all matters submitted to a vote of our shareholders. Each holder
of Series A Stock is entitled to ten votes for each share of Series A Stock held of record by such holder as of the applicable
record date on any matter that is submitted to a vote of the stockholders of the Registrant.
Series A Board Designee and Board Restriction.
In addition to the voting rights disclosed above, the holders of the Series A Stock shall be entitled to appoint one director (the
“Series A Director”). No Board resolution regarding certain material Company actions can be made without the affirmative
vote of the Series A Director.
Dividends. The holders of Series A Stock
are entitled to share equally with the holders of common stock, on a per share basis, in such dividends and other distributions
of cash, property or shares of stock of the Registrant as may be declared by the Board.
Liquidation. In the event of a voluntary
or involuntary liquidation, dissolution, distribution of assets or winding up of the Registrant, the holders of common stock and
the holders of Series A Stock shall be entitled to share equally on a per share basis, in all assets of the Registrant of whatever
kind available for distribution.
Conversion Rights. The holders of the Series
A Stock have the right to convert their shares thereof at any time into shares of the Registrant’s common stock. Each share
of Series A Stock is convertible into one share of common stock.
If the Registrant in any manner subdivides
or combines the outstanding shares of common stock, the outstanding shares of the Series A Stock will be subdivided or combined
in the same manner.
Business Combinations. In any merger, consolidation,
reorganization or other business combination, the consideration received per share by the holders the common stock and the holders
of the Series A Stock in such merger, consolidation, reorganization or other business combination shall be identical; provided
however, that if such consideration consists, in whole or in part, of certain equity interests, the rights and limitations of such
equity interests may differ to the extent that the rights and limitations of the common stock and the Series A Stock differ.
Fully Paid and Nonassessable. All of our
outstanding shares of preferred stock are fully paid and nonassessable.
The fair value of the 1,000,000 preferred
shares was $225,000 at the time of the preferred share issuance. The Fair value of the common shares was $200,000 at the time of
the preferred share issuance based on its market price at the date of the transaction. Therefore, the incremental value of the
preferred shares was $25,000. This amount may be deemed compensation.
From the qualitative aspect, the Company
notes the following regarding this deemed compensation:
Does not violate any debt or other contract
covenants;
Does not change any earnings or EPS trends;
Does not affect any previous earnings or
EPS guidance;
Does not affect any segment or class of revenue;
Does not affect any regulatory compliance
matters;
Does not affect cash compensation of management;
Does not involve concealment of an unlawful
act.
Additional preferred stock may be authorized
and issued in the future in connection with acquisitions, financings, or other matters, as the Board of Directors deems appropriate.
In the event that the Registrant issues any shares of preferred stock, a certificate of designation containing the rights, privileges
and limitations of this series of preferred stock will be filed with the Secretary of State of the State of Delaware. The
effect of this preferred stock designation power is that our Board of Directors alone, subject to Federal securities laws, applicable
blue sky laws, and Delaware law, may be able to authorize the issuance of preferred stock which could have the effect of delaying,
deferring, or preventing a change in control without further action by our stockholders, and may adversely affect the voting and
other rights of the holders of our common stock.
NOTE 18 – STATUTORY RESERVES
According to Taiwan accounting rules and
corporation regulations, the company’s subsidiaries in Taiwan must appropriate 10% of net income to statutory reserves until
the accumulated reserve hits registered capital. The reserve can be converted into share capital by issuing new shares to existing
shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, with a limitation
that the reserve left is not less than 25% of the registered capital after converting to share capital.
Pursuant to the PRC regulations, the Company’s
CAE are required to transfer 10% of their net profit, as determined under the PRC accounting regulations, to a Statutory Common
Reserve Fund (“Reserve Fund”). Appropriation to the Reserve Fund may cease when the fund equals 50% of a company’s
registered capital or when a company has accumulated losses. The transfer to this reserve must be made before distribution of dividends
to shareholders. The Company’s CAE did not appropriate such reserve as they have accumulated losses.
NOTE 19 – NON-CONTROLLING INTERESTS
Non-controlling interests consisted of
the following:
Name of
Affiliate
|
|
% of
Non-controlling
Interest
|
|
|
As of
December
31,
2015
|
|
|
Acquisition
and
Increase
Investment
(Fair
Value)
|
|
|
Adjustments /
Net Income of
Non-controlling
Interest
|
|
|
Reduction
of
Cash
Capital
|
|
|
As of
September
30,
2016
|
|
Law Enterprise
|
|
|
34.05
|
%
|
|
$
|
199,699
|
|
|
$
|
-
|
|
|
$
|
262,401
|
|
|
$
|
(78,104
|
)
|
|
$
|
383,996
|
|
Law Broker
|
|
|
34.05
|
%
|
|
|
7,197,128
|
|
|
|
-
|
|
|
|
1,510,774
|
|
|
|
-
|
|
|
|
8,707,902
|
|
PFAL
|
|
|
49.00
|
%
|
|
|
206,098
|
|
|
|
-
|
|
|
|
(6,792
|
)
|
|
|
-
|
|
|
|
199,306
|
|
MKI
|
|
|
49.00
|
%
|
|
|
(1,065
|
)
|
|
|
-
|
|
|
|
(504
|
)
|
|
|
-
|
|
|
|
(1,569
|
)
|
PATaiwan
|
|
|
49.00
|
%
|
|
|
(26,292
|
)
|
|
|
-
|
|
|
|
(54,569
|
)
|
|
|
-
|
|
|
|
(80,861
|
)
|
PMC Nanjing
|
|
|
49.00
|
%
|
|
|
(837
|
)
|
|
|
-
|
|
|
|
(1,257
|
)
|
|
|
-
|
|
|
|
(2,094
|
)
|
Total
|
|
|
|
|
|
$
|
7,574,731
|
|
|
$
|
-
|
|
|
$
|
1,710,053
|
|
|
$
|
(78,104
|
)
|
|
$
|
9,206,680
|
|
Name of
Affiliate
|
|
% of
Non-controlling
Interest
|
|
|
As of
December
31,
2014
|
|
|
Acquisition
and
Increase
Investment
(Fair
Value)
|
|
|
Adjustment /
Net Income of
Non-controlling
Interest
|
|
|
Discontinued
|
|
|
As of
December
31,
2015
|
|
Law Enterprise
|
|
|
34.05
|
%
|
|
$
|
882,327
|
|
|
$
|
-
|
|
|
$
|
(682,628
|
)
|
|
$
|
-
|
|
|
$
|
199,699
|
|
Law Broker
|
|
|
34.05
|
%
|
|
|
5,471,140
|
|
|
|
-
|
|
|
|
1,725,988
|
|
|
|
-
|
|
|
|
7,197,128
|
|
Law Agent
|
|
|
36.69
|
%
|
|
|
24,689
|
|
|
|
-
|
|
|
|
(1,033
|
)
|
|
|
(23,656
|
)
|
|
|
-
|
|
Risk Management
|
|
|
35.47
|
%
|
|
|
(91,809
|
)
|
|
|
-
|
|
|
|
22,309
|
|
|
|
69,500
|
|
|
|
-
|
|
PFAL
|
|
|
49.00
|
%
|
|
|
97,080
|
|
|
|
-
|
|
|
|
109,018
|
|
|
|
-
|
|
|
|
206,098
|
|
MKI
|
|
|
49.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,065
|
)
|
|
|
-
|
|
|
|
(1,065
|
)
|
PATaiwan
|
|
|
49.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,292
|
)
|
|
|
-
|
|
|
|
(26,292
|
)
|
PMC Nanjing
|
|
|
49.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
(837
|
)
|
|
|
-
|
|
|
|
(837
|
)
|
Total
|
|
|
|
|
|
$
|
6,383,427
|
|
|
$
|
-
|
|
|
$
|
1,145,460
|
|
|
$
|
45,844
|
|
|
$
|
7,574,731
|
|
NOTE 20 – INCOME TAX
CU WFOE and the VIEs in the PRC are governed
by the Income Tax Law of the PRC concerning the private-run enterprises, which are generally subject to tax at 25% on income reported
in the statutory financial statements after appropriated adjustments. Except for Jiangsu, according to the requirement of local
tax authorities, the tax basis is deemed as 10% of total revenue, instead of net income. The tax rate of Jiangsu is also 25%.
The Company’s subsidiaries in Taiwan
are governed by the Income Tax Law of Taiwan, and are generally subject to tax at 17% on income reported in the statutory financial
statements after appropriate adjustments. In the meanwhile, Income Tax Law of Taiwan provides that a company is taxed at additional
10% on any undistributed earnings to its shareholders.
The Company’s subsidiaries in Hong
Kong are governed by the Inland Revenue Ordinance Tax Law of Hong Kong, and are generally subject to a profits tax at the rate of 16.5% on the estimated assessable profits.
The following table reconciles the US statutory
rates to the Company’s effective tax rate for the three months ended September 30, 2016 and 2015:
|
|
Three Months Ended
|
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
US statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Tax rate difference
|
|
|
(18
|
)%
|
|
|
(95
|
)%
|
Tax base difference
|
|
|
-
|
%
|
|
|
92
|
%
|
Loss in subsidiaries
|
|
|
2
|
%
|
|
|
285
|
%
|
Un-deductible and non-taxable items
|
|
|
9
|
%
|
|
|
(9
|
)%
|
Tax per financial statements
|
|
|
27
|
%
|
|
|
307
|
%
|
The following table reconciles the US statutory
rates to the Company’s effective tax rate for the nine months ended September 30, 2016 and 2015:
|
|
Nine Months Ended
|
|
|
|
September 30, 2016
|
|
|
September
30, 2015
|
|
US statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Tax rate difference
|
|
|
(20
|
)%
|
|
|
(29
|
)%
|
Tax base difference
|
|
|
1
|
%
|
|
|
16
|
%
|
Loss in subsidiaries
|
|
|
7
|
%
|
|
|
30
|
%
|
Un-deductible and non-taxable items
|
|
|
10
|
%
|
|
|
3
|
%
|
Tax per financial statements
|
|
|
32
|
%
|
|
|
54
|
%
|
Un-deductible and non-taxable items mainly
represent un-deductible expenses according to local tax laws and the non-taxable tax income or expenses.
NOTE 21 – RELATED PARTY TRANSACTIONS
On February 13, 2015, CUIS and AHFL entered
into an acquisition agreement with Mr. ChwanHau Li (the director of the Company), the selling shareholder of Genius Holdings Financial
Limited. (Please see detail in Note 8 (2)).
Due to related parties
The related parties listed below loaned
money to the Company for working capital. Due to related parties consisted of the following as of September 30, 2016 and December
31, 2015:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Due to Mr. Mao (CEO of the Company)
|
|
$
|
357,898
|
|
|
$
|
297,414
|
|
Due to Xude Investment (Owned by Mr. ChwanHau Li)
|
|
|
32,645
|
|
|
|
32,223
|
|
Due to Mr. Zhu (Legal Representative of Jiangsu)
|
|
|
2,076
|
|
|
|
2,133
|
|
Due to Ms. Lee (Director of CUIS)
|
|
|
-
|
|
|
|
826
|
|
Due to Yuli Broker (Owned by Ms. Lee – Director of CUIS)
|
|
|
410
|
|
|
|
-
|
|
Due to Yuli Investment (Owned by Ms. Lee – Director of CUIS)
|
|
|
410
|
|
|
|
-
|
|
Due to Multiple Capital Enterprise
|
|
|
-
|
|
|
|
608,941
|
|
Due to other shareholders
|
|
|
-
|
|
|
|
4,395
|
|
Total
|
|
$
|
393,439
|
|
|
$
|
945,932
|
|
On December 25, 2015, the Company entered
into a loan agreement (the “Short-term Loan Agreement”) with Multiple Capital Enterprise Co., Ltd. The Short-term Loan
Agreement provided for a $608,941 (NTD20,000,000) loan to the Company. The Short-term Loan bore an interest rate of 1.5% per annum
and the principal and interest were due on June 30, 2016. Majority of Multiple Capital Enterprise shareholders are the Company’s
management level. The entire loan and interest amount of $598,905 (NTD20,014,795) have been paid off on January 12, 2016.
Except for the aforementioned loan,
the loan due to related parties bore no interest and were payable on demand.
NOTE 22 – COMMITMENTS
Operating Leases
The Company has operating leases for its
offices. Rental expenses for the three months ended September 30, 2016 and 2015 were $526,390 and $506,921 respectively. Rental
expenses for the nine months ended September 30, 2016 and 2015 were $1,557,725 and $1,389,274 respectively. On September 30, 2016,
total future minimum annual lease payments under operating leases were as follows, by years:
Twelve months ended September 30,
2017
|
|
$
|
1,917,054
|
|
2018
|
|
|
1,249,745
|
|
2019
|
|
|
562,588
|
|
2020
|
|
|
53,003
|
|
2021
|
|
|
5,928
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
3,788,318
|
|
NOTE 23 – DISCONTINUED OPERATION
In the fourth quarter of 2014, the shareholders
of the Risk Management and Law Agent made the resolution to dissolve Risk Management and Law Agent, respectively, because those
companies have not been in operation. The dissolution of Risk Management and Law Agent was approved by the Taiwan (R.O.C) Government
on November 26, 2014 and on January 13, 2015, respectively. Abiding by the law in Taiwan, the liquidator was appointed by the shareholders
of the Risk Management and Law Agent and the liquidator shall complete the liquidation process no later than six months from the
appointment date. Both Risk Management and Law Agent completed the process of liquidation in April 2016.
Risk Management and Law Agent were acquired
by the Company together with their parent Company, Law Enterprise, on August 24, 2012. The Total Assets and Total Liabilities of
Risk Management as of September 30, 2016 and December 31, 2015 are as follows:
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
Total Assets (including cash)
|
|
|
-
|
|
|
|
224,140
|
|
Total Liabilities
|
|
|
-
|
|
|
|
4,834
|
|
The combined Revenue, Net Loss and EPS
of Risk Management and Law Agent for the nine months ended September 30, 2016 and 2015 are as follows:
|
|
Nine Months Ended
September 30, 2016
|
|
|
Nine Months Ended
September 30, 2015
|
|
Revenue
|
|
|
-
|
|
|
|
-
|
|
Net Income (Loss)
|
|
|
-
|
|
|
|
(1,058
|
)
|
EPS
|
|
|
-
|
|
|
|
-
|
|
NOTE 24 – FINANCIAL RISK MANAGEMENT
AND FAIR VALUE
The Company has exposure to credit, liquidity
and market risks which arise in the normal course of its business. This note presents information about the Company’s exposure
to each of these risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s
management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
The Board of Directors (“BOD”)
has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s
risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the Company’s activities. The Company, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and
obligations.
The Company’s BOD oversees how management
monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management
framework in relation to the risks faced by the Company.
The Company’s credit risk arises
principally from accounts and other receivables, pledged deposits and cash and equivalents. Management has a credit policy in place
and monitors exposures to these credit risks on an ongoing basis. The carrying amounts of trade and other receivables, pledged
deposits and cash and cash equivalents represent the Company’s maximum exposure to credit risks. Accounts receivable are
due within 30 days from the date of billing.
The BOD of the Company is responsible for
the overall cash management and raising borrowings to cover expected cash demands. The Company regularly monitors its liquidity
requirements, to ensure it maintains sufficient reserves of cash and readily realizable marketable securities and adequate committed
lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.
The functional currency for the subsidiaries
in Taiwan is NTD and the functional currency for the subsidiaries and VIEs in PRC is RMB. The financial statements of the Company
are in USD. The fluctuation of NTD and RMB will affect our operating results expressed in USD. The Company reviews its foreign
currency exposures. The management does not consider its present foreign exchange risk to be significant.
NOTE 25 – GEOGRAPHICAL DATA
The geographical distribution of the Company’s
financial information for the three months and nine months ended September 30, 2016 and 2015 were as follows:
|
|
Three months ended
|
|
Geographical Areas
|
|
September 30, 2016 September 30, 2015
|
|
Revenue
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
12,714,857
|
|
|
$
|
10,016,890
|
|
PRC
|
|
|
2,182,967
|
|
|
|
1,297,559
|
|
Hong Kong
|
|
|
71,079
|
|
|
|
128,076
|
|
Elimination adjustment
|
|
|
(17,558
|
)
|
|
|
-
|
|
Total Revenue
|
|
$
|
14,951,345
|
|
|
$
|
11,442,525
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
1,661,872
|
|
|
$
|
508,935
|
|
PRC
|
|
|
(75,861
|
)
|
|
|
(441,798
|
)
|
Hong Kong
|
|
|
1,822
|
|
|
|
59,270
|
|
Elimination adjustment
|
|
|
37,848
|
|
|
|
5,257
|
|
Total Income (loss) from operations
|
|
$
|
1,625,681
|
|
|
$
|
131,664
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
1,755,555
|
|
|
$
|
436,070
|
|
PRC
|
|
|
(88,833
|
)
|
|
|
(434,933
|
)
|
Hong Kong
|
|
|
10,782
|
|
|
|
65,659
|
|
Elimination adjustment
|
|
|
2,570
|
|
|
|
6,999
|
|
Total Income (loss) before income tax
|
|
$
|
1,680,074
|
|
|
$
|
73,795
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
1,298,708
|
|
|
$
|
226,464
|
|
PRC
|
|
|
(88,813
|
)
|
|
|
(439,959
|
)
|
Hong Kong
|
|
|
10,781
|
|
|
|
65,659
|
|
Elimination adjustment
|
|
|
2,570
|
|
|
|
(4,766
|
)
|
Total net income (loss)
|
|
$
|
1,223,246
|
|
|
$
|
(152,602
|
)
|
|
|
Nine months ended
|
|
Geographical Areas
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Revenue
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
37,093,407
|
|
|
$
|
31,202,308
|
|
PRC
|
|
|
6,086,426
|
|
|
|
4,194,921
|
|
Hong Kong
|
|
|
148,664
|
|
|
|
158,928
|
|
Elimination adjustment
|
|
|
(39,384
|
)
|
|
|
-
|
|
Total Revenue
|
|
$
|
43,289,113
|
|
|
$
|
35,556,157
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
4,549,826
|
|
|
$
|
2,455,985
|
|
PRC
|
|
|
(765,421
|
)
|
|
|
(1,188,929
|
)
|
Hong Kong
|
|
|
(12,491
|
)
|
|
|
(7,078
|
)
|
Elimination adjustment
|
|
|
100,198
|
|
|
|
13,564
|
|
Total Income (loss) from operations
|
|
$
|
3,872,112
|
|
|
$
|
1,273,542
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
5,010,644
|
|
|
$
|
2,713,581
|
|
PRC
|
|
|
(778,632
|
)
|
|
|
(1,175,364
|
)
|
Hong Kong
|
|
|
(13,881
|
)
|
|
|
13,669
|
|
Elimination adjustment
|
|
|
6,456
|
|
|
|
3,133
|
|
Total Income (loss) before income tax
|
|
$
|
4,224,587
|
|
|
$
|
1,555,019
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
3,678,408
|
|
|
$
|
1,875,013
|
|
PRC
|
|
|
(781,726
|
)
|
|
|
(1,182,352
|
)
|
Hong Kong
|
|
|
(13,882
|
)
|
|
|
13,669
|
|
Elimination adjustment
|
|
|
6,456
|
|
|
|
3,133
|
|
Total net income (loss)
|
|
$
|
2,889,256
|
|
|
$
|
709,463
|
|
NOTE 26 – LOAN TO SHAREHOLDERS
Anhou Registered Capital Increase
On April 27, 2013, China Insurance Regulatory
Commission mandated any insurance agency have a minimum registered capital requirement of RMB50 million (
approximately
$8 million
). At the time, Anhou, a professional insurance agency with a PRC nationwide license, had a registered capital
of RMB10 million (
approximately $1.6 million
). To better implement its expansion strategies,
Anhou intends to increase its registered capital to RMB50 million so that it can set up new branches in any province beyond its
current operations in Mainland China.
Due to certain restriction on direct foreign
investment in insurance agency business under current PRC legal requirements, Anhou sought investments from certain Investor Borrowers
who in turn needed funds through individual loans.
On June 9, 2013, AHFL entered into a Loan
Agreement with ZLI Holdings, whereby AHFL agreed to provide a loan to ZLI Holdings of RMB40 million ($6,389,925). The term for
such loan is 10 years which may be extended upon the agreement of the parties. The loan was remitted to ZLI Holdings on August
30, 2013. In August 2013, ZLI Holdings entered into three loan agreements (“Investor Loan Agreements”) with the following
independent third parties, collectively, the Investor Borrowers:
1.
|
Able Capital Holding Co., Ltd., a limited liability company established and registered in Hong Kong (RMB29,500,000 ($4,712,570))
|
2.
|
Mr. Li Chen, PRC citizen (RMB3,000,000 ($479,244))
|
3.
|
Ms. Jing Yue, PRC citizen (RMB7,500,000 ($1,198,111))
|
The term for the above loans is 10 years
which may be extended upon the agreement of the parties. Pursuant to the Investor Loan Agreements, each of the Investor Borrowers
entered into a binding VIE agreement with Anhou, the WFOE and certain existing shareholders of Anhou. The proceeds received from
the said loans by the Investor Borrowers were solely used to increase the registered capital of Anhou. As of December 31, 2014
and 2013, the loan was offset against equity.
On October 20, 2013, the Investor Borrowers
increased Anhou’s registered capital by RMB 40 million ($6,389,925).
NOTE 27 – SUBSEQUENT EVENTS
On October 24, 2016, the Company entered
into a loan agreement (“Loan E”) with third party, Rich Fountain Limited (“RFL”), which was incorporated
under the laws of Samoa. The Company provided a short-term loan amount of NTD 48,000,000 (approximately $1,500,000) to RFL. The
short-term loan bears an interest rate of 4.5% per annum and the principal and interest are due on April 23, 2017.
The Company has evaluated all other subsequent
events through the date these consolidated financial statements were issued, and determine that there were no other subsequent
events or transactions that require recognition or disclosures in the consolidated financial statements.