The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011 (UNAUDITED)
NOTE 1 – ORGANIZATION AND PRINCIPAL
ACTIVITIES
China United Insurance Service, Inc. (“China
United” or the “Company”) is a Delaware corporation organized on June 4, 2010 by Mao Yi Hsiao, a Taiwanese citizen,
as a listing vehicle for ZLI Holdings Limited (“CU Hong Kong”) to be quoted on the United States Over the Counter Bulletin
Board (the “OTCBB”).
CU Hong Kong, a wholly owned Hong Kong-based
subsidiary of China United, was founded by China United, on July 12, 2010 under Hong Kong law. On October 20, 2010, CU Hong Kong
founded a wholly foreign owned enterprise, Zhengzhou Zhonglian Hengfu Business Consulting Co., Ltd. (“CU WFOE”) in
Henan province in the People’s Republic of China (“PRC”).
On January 16, 2011, the Company issued
20,000,000 shares of common stock, $0.00001 par value, to several non US persons for $300,000. The issuance was made pursuant to
an exemption from registration in Regulation S under the Securities Act of 1933, as amended. As a result of the issuance of 20,000,000
shares, the owners of Henan Anhou (accounting acquirer) owned 100% of the Company. Accordingly, this transaction was accounted
for as a recapitalization of Henan Anhou. The historical financial statements presented are those of the accounting acquirer for
all periods presented. On January 28, 2011, the Company increased the number of authorized shares from 30,000,000 to 100,000,000
and 10,000,000 shares of preferred stock.
Henan Law Anhou Insurance Agency Co., Ltd.
(“Henan Anhou”, formerly known as Zhengzhou Anhou Insurance Agency Co., Ltd.) was incorporated in the PRC on August
20, 2003. Henan Anhou provides insurance agency services in the PRC.
Sichuan Kangzhuang Insurance Agency Co.,
Ltd. (“Sichuan Kangzhuang”) was founded on July 10, 2006 in the Sichuan province in the PRC and provides insurance
agency services in the PRC. On August 23, 2010, at Sichuan Kangzhuang’s general meeting of shareholders, its shareholders
voted to sell their shares to Henan Anhou for RMB532,622 ($78,318). On September 6, 2010, the equity transfer agreements were signed
between Henan Anhou and each shareholder of Sichuan Kangzhuang. Sichuan Kangzhuang then had net liabilities of RMB219,123 ($32,134).
Goodwill of RMB751,745 ($110,452) was therefore recorded. Goodwill in the balance sheet differs from the acquisition date amount
due to changes in exchange rates.
Jiangsu Law Insurance Broker Co., Ltd.
(“Jiangsu Law”) was founded on May 18, 2005 in Jiangsu Province in the PRC. Jiangsu Law provides insurance brokerage
services in the PRC. On August 12, 2010, at Jiangsu Law’s general meeting of shareholders, its shareholders voted to sell their
shares to Henan Anhou for RMB518,000 ($75,475) and Henan Anhou increased Jiangsu Law’s paid-in capital to RMB10,000,000
($1,355,150) from RMB5,180,000 ($625,113), on January 18, 2011, to meet the PRC paid-in capital requirements for insurance brokerage
companies. On September 28, 2010, the equity transfer agreements were signed between Henan Anhou and each shareholder of Jiangsu
Law. The consideration is due upon request and had not been paid as at February 12, 2012. On acquisition date, Jiangsu Law had
net assets of RMB2,286,842 ($341,425). Based on the purchase price allocation, the fair value of the identifiable assets and liabilities
assumed exceeded the fair value of the consideration paid. As a result, the Company recorded a gain on acquisition of RMB1,768,842
($267,156).
On January 17, 2011, CU WFOE and Henan
Anhou and its shareholders entered into a series of agreements known as variable interest agreements (the “VIE Agreements”)
pursuant to which CU WFOE has effective control over Henan Anhou.
On July 2, 2012, the Board of Directors
and stockholders of the Company approved, in connection with a reclassification of 1,000,000 issued and outstanding shares of common
stock (the “Reclassified Shares”), par value $0.00001 per share held by Mao Yi Hsiao (“Mr. Mao”) into 1,000,000
shares of Series A Convertible Preferred Stock, par value $0.00001 per share (the “Series A Preferred Stock”) on a
share-for-share basis (the “Reclassification”), the issuance of 1,000,000 shares of Series A Preferred Stock to Mr.
Mao and cancellation of 1,000,000 common stock held and submitted by Mr. Mao pursuant to the Reclassification. All of the 1,000,000
shares of Series A Preferred Stock were reclassified from the 1,000,000 common stock held by Mr. Mao and no additional consideration
was paid by Mr. Mao in connection with the Reclassification. Each holder of common stock is entitled to one vote for each share
of common stock held of record by such holder as of the applicable record date on any matter submitted to a vote of the stockholders
of the Company; while each holder of Series A Preferred Stock is entitled to ten votes for each share of Series A Preferred Stock
held of record by such holder as of the applicable record date on any matter submitted to a vote of the stockholders of the Company.
On August 24, 2012, the Company acquired
all of the issued and outstanding shares (representing 100% of voting equity interest) of Action Holdings Financial Limited (“AHFL”),
an LLC incorporated under the laws of the British Virgin Islands on April 30, 2012, together with its subsidiaries in Taiwan. Pursuant
to the provisions of the Acquisition Agreement and for all of the issued and outstanding shares of AHFL, the Company will pay NT$15
million ($500,815) on or prior to March 31, 2013 and New Taiwan Dollar(“NT$”) NT$7.5 million ($250,095) subsequent
to March 31, 2013 in cash in two installments, subject to terms and conditions therein. In addition the Company agreed to (i) issue
8,000,000 shares of common stock of the Company to the shareholders of AHFL; (ii) issue 2,000,000 shares of common stock of the
Company to certain employees of Law Broker; and (iii) create an employee stock option pool, consisting of available options, exercisable
for up to 2,000,000 shares of common stock of the Company.
On August 17, 2012, AHFL purchased 13,593,015
shares of common stock of Law Enterprise Co., Ltd. (“Law Enterprise”), a company limited by shares incorporated under
the laws of Taiwan on January 30, 1996, from certain shareholders at $NT12.8 ($0.44) per share, which was 65.95% of ownership interest
in Law Enterprise. As of August 24, 2012, Law Enterprise held (i) 100% of Law Insurance Broker Co., Ltd. (“Law Broker”),
a company limited by shares incorporated in Taiwan on October 9, 1992; (ii) 97.84% of Law Risk Management & Consultant Co.,
Ltd. (“Law Management”), a company limited by shares incorporated in Taiwan on December 5, 1987; and (iii) 96% of Law
Insurance Agent Co., Ltd. (“Law Agent”), an LLC incorporated in Taiwan on June 3, 2000.
Law Enterprise is a holding company for
its operating subsidiaries in Taiwan. Law Broker primarily engages in insurance brokerage and insurance agency service business
across Taiwan, while Law Management and Law Agent are not in operation.
The corporate structure after the acquisition
is:
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of China United and its subsidiaries as shown in the organization structure in Note 1 above. The
results of operations of AHFL and subsidiaries are included since August 31, 2012 the date of acquisition for accounting convenience.
All significant intercompany transactions and balances were eliminated in consolidation.
Basis of Presentation
The Company’s financial statements
are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP").
The functional currency for our subsidiaries in Taiwan is $NT and for the VIEs in China is Renminbi (“RMB”).
Noncontrolling Interest
Noncontrolling interest consists of direct
and indirect equity interest in AHFL and subsidiaries arising from the acquisition of AHFL by CUIS.
The Company follows Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” which governs the accounting for
and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control
of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as a separate component
of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact
be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially
owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard
also required changes to certain presentation and disclosure requirements.
The net income (loss) attributed to the
NCI is separately designated in the accompanying statements of operations and other comprehensive income (loss). Losses attributable
to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the
NCI is attributed to those interests. The NCI shall continue to be attributed its share of losses even if that attribution results
in a deficit NCI balance.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements
and the amounts of revenues and expenses during the reporting periods.
Management makes these estimates using
the best information available when they are made; however, actual results could differ materially from those estimates.
Risks and Uncertainties
The Company is subject to risks from, among
other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements,
rapidly changing customer requirements, limited operating history, and foreign currency exchange rates.
Comprehensive Income
The Company follows FASB ASC Topic 220
(“ASC 220”), “Reporting Comprehensive Income”, which establishes standards for the reporting and display
of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements. ASC 220
defines comprehensive income as net income and all changes to stockholders' equity, except those due to investments by stockholders,
changes in paid-in capital and distributions to stockholders, including adjustments to minimum pension liabilities, accumulated
foreign currency translation, and unrealized gains or losses on marketable securities.
Foreign Currency Transactions
The consolidated financial statements were
translated into United States Dollars (“USD”) in accordance with FASB ASC Topic 830 "Foreign Currency Transaction".
According to the statement, all assets and liabilities were translated at the exchange rate on the balance sheet dates; stockholders’
equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate
for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC 220
“Comprehensive Income". Gains and losses resulting from the translation of foreign currency transactions are reflected
in the consolidated statements of income and other comprehensive income (loss).
Cash and Equivalents
For Statements of Cash Flows purposes,
the Company considers cash on hand, bank deposits, and other highly-liquid investments with maturities of three months or less
when purchased, such as commercial paper, to be cash and equivalents.
The Company maintains cash with banks in
the PRC and Taiwan. Cash accounts are not insured or otherwise protected. Should any bank holding cash become insolvent,
or if the Company is otherwise unable to withdraw funds, the Company would lose the cash with that bank; however, the Company has
not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
Marketable Securities
The Company invests part of
its excess cash in equity securities, money market funds and government bonds. Such investments are included in “Marketable
securities” in the accompanying consolidated balance sheets. Equity securities investments are classified as trading
securities and reported at fair value (“FV”) with changes in FV recorded in “Other Income”. Bonds are
classified as available-for-sale and reported at FV with unrealized gains and losses included in “Accumulated other
comprehensive income (loss).”
Accounts Receivable
The Company reviews its accounts receivable
regularly to determine if a bad debt allowance is necessary at each period-end. Management reviews the composition of accounts
receivable and analyzes the age of receivables outstanding, customer concentrations, customer credit worthiness, current economic
trends and changes in customer payment patterns to evaluate the necessity of making such allowance.
Property, Plant and Equipment
Property, plant and equipment are recorded
at cost. Gain or loss on disposal of property, plant or equipment is recorded in other income at disposal. Expenditures for
betterments, renewals and additions are capitalized. Repairs and maintenance expenses are expensed as incurred.
Depreciation for financial reporting purposes
is provided using the straight-line method over a useful life of three to ten years with salvage of 10% to 25%. Property, plant
and equipment mainly consist of office furniture, computers and leasehold improvements.
Impairment of Long-Lived Assets
In accordance with ASC Topic 360, “Property,
Plant and Equipment”, the Company reviews the carrying values of long-lived assets whenever facts and circumstances indicate
an asset may be impaired. Recoverability of assets to be held and used is measured by comparing the carrying amount of an
asset to future net undiscounted cash flows expected to be generated by it. If an asset is considered impaired, the impairment
recognized is measured by the amount by which the carrying amount of the asset exceeds its FV. Assets to be disposed of are
reported at the lower of the carrying amount or FV, less cost of disposal. No impairment was recognized for the six months ended
December 31, 2012 or 2011.
Goodwill
Goodwill arose from the acquisition of
Sichuan Kangzhuang (Note 8). Goodwill is the excess of the cost of an acquisition over the FV of the net assets acquired. Goodwill
is tested for impairment annually or more frequently if events or changes in circumstances indicate it might be impaired, using
the prescribed two-step process under US GAAP. The first step screens for potential impairment of goodwill to determine if the
FV of the reporting unit is less than its carrying value, while the second step measures the amount of goodwill impairment, if
any, by comparing the implied FV of goodwill to its carrying value. As of December 31, 2012, there are no indications of any impairment.
Revenue Recognition
The Company’s revenue is from insurance
agency and brokerage services. The Company, through its subsidiaries, sells insurance products to customers, and obtains commissions
from the respective insurance companies according to the terms of each insurance company service agreement. The Company recognizes
revenue when the following have occurred: persuasive evidence of an agreement between the insurance company and insured exists,
services were provided, the fee for such services is fixed or determinable and collectability of the fee is reasonably assured.
Insurance agency services are considered complete, and revenue is recognized, when an insurance policy becomes effective. The customers
are entitled to a 10-day cancellation period from the date of issuance of the policies, in which customers can cancel the contract
without any fees. The Company is notified of such cancellations by the insurance carriers. For the six months ended December 31,
2012 and 2011, policy cancellations were $15,087 and nil, respectively. For the three months ended December 31, 2012 and 2011,
policy cancellations were $4,470 and nil, respectively.
The Company pays commissions to its sub-agents
when an insurance product is sold by the sub-agent. The Company recognizes commission revenue on a gross basis. The commissions
paid by the Company to its sub-agents are recorded as cost of revenue.
Income Taxes
The Company utilizes ASC Topic 740, “Income
Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events
included in the financial statements or tax returns. Under this method, deferred taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period
end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be
realized.
When tax returns are filed, it is likely
some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about
the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position
is recognized in the financial statements in the period during which, based on all available evidence, management believes it is
more-likely-than-not the position will be sustained upon examination, including the resolution of appeals or litigation processes,
if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement
with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount described
above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest
and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits
is classified as interest expense and penalties are classified in general and administrative expenses in the statements of income
and other comprehensive income (loss). As of December 31and June 30, 2012, the Company did not have any uncertain tax positions.
The Company was not subjected to income
tax examinations by taxing authorities during the current or past fiscal years. During the six months and three months ended
December 31, 2012 and 2011, the Company did not recognize any interest or penalties.
Fair Values of Financial Instruments
ASC Topic 820, “Fair Value Measurements
and Disclosures”, defines FV, establishes a three-level valuation hierarchy for disclosures of FV measurement and enhances
disclosure requirements for FV measures. The carrying amounts reported in the balance sheets for receivables and current liabilities
each qualify as financial instruments and are reasonable estimates of FV because of the short period of time between the origination
of such instruments and their expected realization and their current market rate of interest. The three levels are defined as follows:
• Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the
assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments.
• Level 3 inputs to the valuation
methodology are unobservable and significant to the FV.
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 December 31, 2012 and June 30, 2012 (audited), substantially all of the Company’s cash and equivalents and restricted
cash was held by major financial institutions in Taiwan, which management believes are of high credit quality. With respect to
accounts receivable, the Company generally does not require collateral and does not have an allowance for doubtful accounts.
The Company has two principal insurance
companies, Fubong Life Insurance Co., Ltd. (“Fubong”) and Far Glory Life Insurance (“Far Glory”), for which
it acts as an insurance agent. For the six months and three months ended December 31, 2012 and 2011, the Company’s revenues
from sale of insurance policies underwritten by these two companies was:
Six months ended
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
Fubong
|
|
$
|
4,839,358
|
|
|
$
|
-
|
|
Far Glory
|
|
|
4,984,226
|
|
|
|
-
|
|
Three months ended
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
Fubong
|
|
$
|
4,286,348
|
|
|
$
|
-
|
|
Far Glory
|
|
|
3,838,644
|
|
|
|
-
|
|
As of December 31, 2012 and June 30, 2012
(audited), the Company’s receivables from these two companies were:
|
|
December 31, 2012
|
|
|
June 30, 2012
|
|
Fubong
|
|
$
|
2,082,969
|
|
|
$
|
-
|
|
Far Glory
|
|
|
1,797,433
|
|
|
|
-
|
|
The Company's operations are in the PRC
and Taiwan. 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 and Taiwan, 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 and Taiwan, and by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.
Operating Leases
Leases, where substantially all the rewards
and risks of ownership of assets remain with the leasing company, that do not meet the capitalization criteria of ASC Topic 840
“Leases”, are accounted for as operating leases. Rentals under operating leases are expensed on the straight-line basis
over the lease term.
Segment Reporting
The Company follows ASC Topic 280, “Segment
Reporting”, for its segment reporting. For the six months ended December 31, 2012 and 2011, the Company’s
chief operating decision maker managed and reviewed its business as a single operating segment providing insurance brokerage and
agency services across the PRC and Taiwan (combined referred as “Greater China”). All revenues are derived from Greater
China and all long-lived assets are in Greater China.
Contingencies
Certain conditions may exist as of the
date the financial statements are issued, which could result in a loss to the Company but which will be resolved when one or more
future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment
inherently involves judgment. In assessing loss contingencies arising from legal proceedings pending against the Company or unasserted
claims that may rise from such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings
or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates
it is probable a material loss will be incurred and the amount of the liability can be reasonably estimated, then the estimated
liability is accrued in the Company’s financial statements. If the assessment indicates a potential material loss contingency
is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability,
together with an estimate of the range of possible loss if determinable and material would be disclosed.
Statement of Cash Flows
In accordance with ASC Topic 230, “Statement
of Cash Flows”, cash flows from the Company's operations are calculated based upon the local currencies and an average exchange
rate is used. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows may
not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Cash from operating,
investing and financing activities is net of the effect of acquisition described in Note 9.
Variable Interest Entities
The Company follows ASC Subtopic 810-10-05-8”,
"Consolidation of VIEs” which states that a VIE is a corporation, partnership, limited liability corporation, trust
or any other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to
carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are
unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation
to absorb losses or the right to receive returns generated by its operations.
Due to the PRC legal restrictions on foreign
ownership and investment in insurance agency and brokerage businesses in China, especially those on qualifications as well as capital
requirement of the investors, the Company operates its insurance agency and brokerage business primarily through Henan Anhou, a
VIE owned by four individual shareholders, and two subsidiaries of Henan Anhou.
On January 17, 2011, CU WFOE and Henan
Anhou and its shareholders entered into VIE Agreements which included:
|
¨
|
Exclusive
Business Cooperation Agreement (“EBCA”) through which: (1) CU WFOE has the right to provide Henan Anhou with complete
technical support, business support and related consulting services during the term of this Agreement; (2) Henan Anhou agrees
to accept all the consultations and services provided by CU WFOE. Henan Anhou further agrees that unless with CU WFOE's prior
written consent, during the term of this Agreement, Henan Anhou shall not directly or indirectly accept the same or any similar
consultations and/or services provided by any third party and shall not establish similar cooperation relationship with any third
party regarding the matters contemplated by this Agreement; (3) Henan Anhou shall pay CU WFOE fees equal to 90% of the net income
of Henan Anhou, and the payment is quarterly, and (4) CU WFOE retains all exclusive and proprietary rights and interests in all
rights, ownership, interests and intellectual properties arising out of or created during the performance of this Agreement.
|
The term of this Agreement is 10 years.
Subsequent to the execution of this Agreement, both CU WFOE and Henan Anhou shall review this Agreement on an annual basis to determine
whether to amend or supplement the provisions. The term of this Agreement may be extended if confirmed in writing by CU WFOE prior
to the expiration thereof. The extended term shall be determined by CU WFOE, and Henan Anhou shall accept such extended term unconditionally.
During the term of this Agreement, unless
CU WFOE commits gross negligence, or a fraudulent act, against Henan Anhou, Henan Anhou may not terminate this Agreement prior
to its expiration date. Nevertheless, CU WFOE shall have the right to terminate this Agreement upon giving 30 days prior written
notice to Henan Anhou at any time.
|
¨
|
Power of Attorney under which each shareholder of Henan Anhou executed an irrevocable power of attorney to authorize CU WFOE to act on behalf of the shareholder to exercise all of his/her rights as equity owner of Henan Anhou, including without limitation to: (1) attend shareholders' meetings of Henan Anhou; (2) exercise all the shareholder's rights and shareholder's voting rights that he/she is entitled to under the laws of the PRC and Henan Anhou's Articles of Association, including but not limited to the sale or transfer or pledge or disposition of the shareholder’s shareholding in part or in whole, and (3) designate and appoint on behalf of the shareholder the legal representative, the director, supervisor, the chief executive officer and other senior management members of Henan Anhou.
|
|
¨
|
Option Agreement under which the shareholders of Henan Anhou irrevocably granted CU WFOE or its designated person an exclusive and irrevocable right to acquire, at any time, the entire portion of Henan Anhou’s equity interest held by each shareholder of Henan Anhou, or any portion thereof, to the extent permitted by PRC law. The purchase price for the shareholders’ equity interests in Henan Anhou shall be the lower of (i) RMB 1 ($0.16) and (ii) the lowest price allowed by relevant laws and regulations. If appraisal is required by the laws of PRC when CU WFOE exercises the Equity Interest Purchase Option (as defined in the Option Agreement), the Parties shall negotiate in good faith and based on the appraisal result make necessary adjustment to the Equity Interest Purchase Price (as defined in the Option Agreement) so that it complies with any and all then applicable laws of the PRC. The term of this Agreement is 10 years, and may be renewed at CU WFOE's election.
|
|
¨
|
Share Pledge Agreement under which the owners of Henan Anhou pledged their equity interests in Henan Anhou to CU WFOE to guarantee Henan Anhou’s performance of its obligations under the EBCA. Pursuant to this agreement, if Henan Anhou fails to pay the exclusive consulting or service fees in accordance with the EBCA, CU WFOE shall have the right, but not the obligation, to dispose of the owners of Henan Anhou’s equity interests in Henan Anhou. This Agreement shall be continuously valid until all payments due under the EBCA have been repaid by Henan Anhou or its subsidiaries.
|
As a result of the agreements among CU
WFOE, the shareholders of Henan Anhou and Henan Anhou, CU WFOE is considered the primary beneficiary of Henan Anhou, CU WFOE has
effective control over Henan Anhou. Therefore, CU WFOE consolidates the results of operations of Henan Anhou and its subsidiaries.
Accordingly the results of operations, assets and liabilities of Henan Anhou and its subsidiaries are consolidated in the Company’s
financial statements from the earliest period presented. However, the VIE is monitored by the Company to determine if any events
have occurred that could cause its primary beneficiary status to change. These events include:
|
a.
|
The legal entity's governing documents or contractual arrangements are changed in a manner that changes the characteristics or adequacy of the legal entity's equity investment at risk.
|
|
b.
|
The equity investment or some part thereof is returned to the equity investors, and other interests become exposed to expected losses of the legal entity.
|
|
c.
|
The legal entity undertakes additional activities or acquires additional assets, beyond those anticipated at the later of the inception of the entity or the latest reconsideration event, that increase the entity's expected losses.
|
|
d.
|
The legal entity receives an additional equity investment that is at risk, or the legal entity curtails or modifies its activities in a way that decreases its expected losses.
|
Recent Accounting Pronouncements
In January 2011, the FASB issued ASU 2011-02
Receivables Topic 310 "A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring". The amendments
in ASU 2011-02 provide additional guidance to clarify when a loan modification or restructuring is considered a Troubled Debt Restructuring
(“TDR”) to address current diversity in practice and lead to more consistent application of US GAAP for debt restructurings.
In evaluating whether a restructuring constitutes a TDR, a creditor must separately conclude that both of the following exist:
|
1.
|
The restructuring constitutes a concession.
|
|
2.
|
The debtor is experiencing financial difficulties.
|
The amendments to Topic 310 clarify the
guidance regarding the evaluation of both considerations above. Additionally, the amendments clarify that a creditor is precluded
from using the effective interest rate test in the debtor's guidance on restructuring of payables (paragraph 470-60-55-10) when
evaluating whether a restructuring constitutes a TDR. ASU No. 2011-02 is effective for fiscal years beginning on or after June
15, 2011. The adoption of ASU 2011-02 did not have a material effect on the Company’s consolidated financial statements.
In April, 2011, the FASB issued ASU 2011-03
Transfers and Servicing (Topic 860), “Reconsideration of Effective Control for Repurchase Agreements”. The amendments
in this ASU 2011-03 remove from the assessment of effective control:
|
1.
|
The criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on the substantially agreed terms, even in the event of default by the transferee; and
|
|
2.
|
The collateral maintenance implementation guidance related to that criterion.
|
Other criteria applicable to the assessment
of effective control are not changed by the amendments in Topic 860. The guidance in this Update is effective for the first interim
or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications
of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of this ASU did
not have a material effect on the Company’s consolidated financial statements.
In June 2011, the FASB issued ASU 2011-04
Fair Value Measurement (Topic 820), “Amendments to achieve Common Fair Value Measurement and Disclosure Requirements in US
GAAP and International Financial Reporting Standards (“IFRS”). The amendments in this Update change the wording
used to describe the requirements in US GAAP for measuring FV and for disclosing information about FV measurements. The amendments
include the following:
|
1.
|
Those that clarify the Board’s intent about the application of existing FV measurement and disclosure requirements.
|
|
2.
|
Those that change a particular principle or requirement for measuring FV or for disclosing information about fair value measurements.
|
In addition, to improve consistency in
application across jurisdictions some changes in wording are necessary to ensure that US GAAP and IFRS FV measurement and disclosure
requirements are described in the same way (for example, using the word shall rather than should to describe the requirements in
US GAAP).
The amendments in this Update are to be
applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December
15, 2011. Early application by public entities is not permitted. The adoption of this ASU did not have a material effect on the
Company’s consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05
Comprehensive Income (Topic 220), “Presentation of Comprehensive Income”. In this Update, an entity has the option
to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either
in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity
is required to present each component of net income along with total net income, each component of other comprehensive income along
with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of whether an entity chooses
to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required
to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive
income to net income in the statement(s) where the components of net income and the components of other comprehensive income are
presented.
The amendments in Topic 860 should be applied
retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011, and early adoption is permitted. The adoption of this ASU did not have a material impact on the Company's
consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02,
Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities
with an option to first assess qualitative factors to determine whether events or circumstances indicate it is more likely than
not the indefinite-lived intangible asset is impaired. If an entity concludes it is more than 50% likely that an indefinite-lived
intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required
to determine the FV of the indefinite-lived intangible asset to measure the amount of impairment, if any, as currently required
under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September
15, 2012. Early adoption is permitted. The adoption of this pronouncement will not have a material impact on our financial statements.
NOTE 3 – CASH AND EQUIVALENTS
As of December 31 and June 30,
2012 (audited) our cash and equivalents primarily consisted of cash and certificates of deposits with original maturities of
three months or less.
NOTE 4 - MARKETABLE SECURITIES
Marketable securities represent investment
in Eastspring Investment Well Pool Money Market Fund, equity securities of listed stocks and government bonds, which are classified
as Level 1 securities as follows:
|
|
December 31, 2012
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
Cost
|
|
|
Gains/(Losses)
|
|
|
Fair Value
|
|
Level 1 securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
25,363
|
|
|
$
|
(888
|
)
|
|
$
|
24,475
|
|
Money market fund
|
|
|
3,294,003
|
|
|
|
4,249
|
|
|
|
3,298,252
|
|
Government bonds
|
|
|
105,620
|
|
|
|
599
|
|
|
|
106,219
|
|
|
|
$
|
3,424,986
|
|
|
$
|
3,960
|
|
|
$
|
3,428,946
|
|
NOTE 5 – OTHER CURRENT ASSETS
The Company’s other current assets
consisted of the following, as of December 31 and June 30, 2012 (audited):
|
|
December 31, 2012
|
|
|
June 30, 2012
|
|
Prepaid rent
|
|
$
|
38,424
|
|
|
$
|
34,371
|
|
Deductible business tax credit
|
|
|
252,388
|
|
|
|
-
|
|
Other
|
|
|
105,911
|
|
|
|
14,269
|
|
Total other current assets
|
|
$
|
396,723
|
|
|
$
|
48,640
|
|
NOTE 6– PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted
of the following, as of December 31 and June 30, 2012 (audited):
|
|
December 31, 2012
|
|
|
June 30, 2012
|
|
Office Equipment
|
|
$
|
361,790
|
|
|
$
|
403,976
|
|
Office Furniture
|
|
|
2,061,419
|
|
|
|
57,018
|
|
Leasehold improvement
|
|
|
675,247
|
|
|
|
-
|
|
Transportation equipment
|
|
|
100,091
|
|
|
|
-
|
|
Other equipment
|
|
|
153,543
|
|
|
|
-
|
|
Total
|
|
|
3,352,090
|
|
|
|
460,994
|
|
Less: Accumulated Depreciation
|
|
|
(2,137,517
|
)
|
|
|
(346,049
|
)
|
Total property, plant and equipment, net
|
|
$
|
1,214,573
|
|
|
$
|
114,945
|
|
NOTE 7–OTHER ASSETS
The Company’s other assets mainly
consist of deposits and restricted cash of $38,356. Restricted cash is a deposit in bank by the Company in conformity with Provisions
on the Supervision and Administration of Specialized Insurance Agencies, and cannot be withdrawn without the permission of the
China Insurance Regulatory Commission. Deposits include long-term leasing deposits.
NOTE 8 – GOODWILL
On September 6, 2010, Henan Anhou paid
RMB532,622 ($78,318) to acquire 100% of Sichuan Kangzhuang from its previous shareholders. Sichuan Kangzhuang then had net liabilities
of RMB219,123 ($32,134). Goodwill of RMB751,745 ($110,452) was therefore recorded. Goodwill in the balance sheet differs from the
acquisition date amount due to changes in exchange rates. As of December 31, 2012, there are no indications of any impairment.
No intangible assets are identified in the acquisition date. At the date of acquisition, Sichuan Kangzhuang has no unfulfilled
customer contract or software. Sichuan Kangzhuang’s business process and accounting system are not unique and the management
planned to use unified operating platform after the acquisition. Sichuan Kangzhuang’s business is mainly with retailing customers,
and the management considered there is no customer relationship or customer list that will probably create future business opportunities
for the Company.
On September 28, 2010, Henan Anhou acquired
100% of Jiangsu Law for RMB518,000 ($75,475). Jiangsu Law then had net assets of RMB2,286,842 ($341,425). Based on the purchase
price allocation, the FV of the identifiable assets and liabilities assumed exceeded the FV of the consideration paid. As a result,
the Company recorded a gain on acquisition of RMB1,768,842 ($267,156). We believe the gain on acquisition resulted from the sellers’
intent to exit the insurance business. To comply with the PRC requirements for the insurance brokerage companies, Henan Anhou contributed
cash to increase the paid-in capital of Jiangsu Law to RMB10,000,000 ($1,355,150) from RMB5,180,000 ($625,113) on January
18, 2011.
NOTE 9 – ACQUISITION DURING THE
PERIOD
On August 24, 2012, the Company acquired
all of the issued and outstanding shares of AHFL for $2,750,910. NT$15 million ($500,815) and NT$7.5 million ($250,095) payable
in cash in two installments, and issue 10 million shares of common stock at the then market price of $0.20 per share. The FV of
the identifiable assets and liabilities of AHFL at acquisition date was $8,047,654. The company recorded the $5,280,043 excess
of purchase price over the FV of assets and liabilities acquired as bargain gain on purchase. We believe the gain on acquisition
resulted from the sellers' strategic intent to enter the PRC market, which has a higher growth rate than Taiwan, and to become
the shareholder of an OTCBB company.
We use August 31, 2012 as the closest available
date to value the FV of the identifiable assets and liabilities of AHFL at acquisition date. The consolidated statement of income
and other comprehensive income for the six months ended December 31, 2012 contains AHFL’s statement of income and other comprehensive
income for the four months ended December 31, 2012. The consolidated statement of income and other comprehensive income for the
three months ended December 31, 2012 contains AHFL’s statement of income and other comprehensive income for the three months
ended December 31, 2012.The consolidated balance sheets as of December 31, 2012 contains AHFL’s balance sheets as of December
31, 2012.
A summary of AHFL’s assets and liabilities
acquired as of the dates of acquisition is presented below:
|
|
August 31, 2012
|
|
|
|
(Unaudited)
|
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and equivalents
|
|
$
|
12,766,882
|
|
Marketable securities
|
|
|
127,834
|
|
Accounts receivable, net
|
|
|
2,180,392
|
|
Other current assets
|
|
|
490,046
|
|
Total current assets
|
|
|
15,565,154
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
976,446
|
|
Other assets
|
|
|
380,771
|
|
TOTAL ASSETS
|
|
$
|
16,922,371
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Current liabilities
|
|
|
|
|
Taxes payable
|
|
$
|
(611,250
|
)
|
Due to related party
|
|
|
(31,582
|
)
|
Other current liabilities
|
|
|
(4,076,879
|
)
|
TOTAL CURRENT LIABILITIES
|
|
|
(4,719,711
|
)
|
BARGAIN GAIN
|
|
$
|
(5,280,042
|
)
|
NON CONTROLLING INEREST
|
|
$
|
(4,171,708
|
)
|
PURCHASE CONSIDERATION
|
|
$
|
2,750,910
|
|
NOTE 10 –OTHER CURRENT LIABILITIES
Other current liabilities are as follows,
as of December 31 and June 30, 2012 (audited):
|
|
December 31, 2012
|
|
|
June 30, 2012
|
|
Commissions payable
|
|
$
|
3,367,892
|
|
|
$
|
16,604
|
|
Due to previous shareholders of AHFL
|
|
|
750,910
|
|
|
|
-
|
|
Due to previous shareholders of Jiangsu Law
|
|
|
82,412
|
|
|
|
81,899
|
|
Other
|
|
|
2,821,808
|
|
|
|
188,406
|
|
Total other current liabilities
|
|
$
|
7,023,022
|
|
|
$
|
286,909
|
|
Commissions due to sub-agents and salaries
payable to administrative staff are usually settled within 12 months. Due to previous shareholders of AHFL is the balance described
in Note 9. Due to previous shareholders of Jiangsu Law is the remaining balance of the acquisition cost. The acquisition agreement
between the parties has not specified the exact time for payment of the acquisition price or imposed any interest for late payment.
Others are mainly for operating expenses payable within the credit terms provided by suppliers.
NOTE 11– INCOME TAX
CU WFOE, the Company’s subsidiary,
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
Law, 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 Law is also 25%.
According to tax regulations by the Chinese
tax authorities effective January 1, 2008, commissions paid to sub-agents in excess of 5% of the commission revenue were not tax
deductible. Therefore, as of June 30, 2012, Henan Anhou and Sichuan Kangzhuang accrued income tax payable of $400,229 for non-deductible
commissions occurred before June 30, 2012.
According to China State Administration
of Taxation #15 Announcement in 2012, effective from 2011, such commissions can be fully deducted. Also, such tax payable over
three years can be reversed. Therefore we reversed the tax payable of $114,125 accrued before December 31, 2009 for such originally
non-deductible commission and credited as income tax benefit.
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.
The balance of income tax payable as of December 31, 2012 mainly
is the income tax accrued for the un-deductible commission paid to sub-agents before 2011 and is due upon written request of the
local tax bureau.
The following table reconciles the US statutory rates to the
Company’s effective tax rate for the six months ended December 31, 2012 and 2011:
|
|
2012
|
|
|
2011
|
|
US statutory rate
|
|
|
34
|
%
|
|
|
(34
|
)%
|
Tax rate difference
|
|
|
(4
|
)%
|
|
|
(7
|
)%
|
Tax basis difference
|
|
|
-
|
|
|
|
(7
|
)%
|
Tax un-deductible cost
|
|
|
(2
|
)%
|
|
|
206
|
%
|
Gain on bargain purchase of subsidiary
|
|
|
(26
|
)%
|
|
|
-
|
|
Tax per financial statements
|
|
|
2
|
%
|
|
|
158
|
%
|
The following table reconciles the US statutory
rates to the Company’s effective tax rate for the three months ended December 31, 2012 and 2011:
|
|
2012
|
|
|
2011
|
|
US statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Tax rate difference
|
|
|
(14
|
)%
|
|
|
1
|
%
|
Tax basis difference
|
|
|
(2
|
)%
|
|
|
30
|
%
|
Tax un-deductible cost
|
|
|
(7
|
)%
|
|
|
49
|
%
|
Tax per financial statements
|
|
|
11
|
%
|
|
|
114
|
%
|
NOTE 12 - RELATED PARTY TRANSACTIONS
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 December 31 and June 30, 2012
(audited):
|
|
December 31, 2012
|
|
|
June 30, 2012
|
|
Due to Mr. Mao (Principal Shareholder of the Company)
|
|
$
|
233,453
|
|
|
$
|
1,871
|
|
Due to Ms. Zhu (Shareholder of Henan Anhou)
|
|
|
766,685
|
|
|
|
441,272
|
|
Due to Mr. Zhu (Legal Representative of Jiangsu Law)
|
|
|
2,203
|
|
|
|
2,189
|
|
Total
|
|
$
|
1,002,341
|
|
|
$
|
445,332
|
|
During the six months and three months
ended December 31, 2012 and 2011, Mr. Mao paid $233,453 and nil in expenses on behalf of the Company, for professional services
fees related to the acquisition of AHFL. During the six months and three months ended December 31, 2012 and 2011, Ms. Zhu lent
$325,413 and $234,466 to Henan Anhou to fund its operation. The amounts are interest-free, unsecured and payable on demand.
NOTE 13 – COMMITMENTS
Operating Leases
The Company has operating leases for its
offices. Rental expenses for the six months ended December 31, 2012 and 2011 are $810,775 and $320,584, respectively. Rental expenses
for the three months ended December 31, 2012 and 2011 are $411,612 and $241,827, respectively. At December 31, 2012, total future
minimum lease payments under operating leases were as follows, by years:
12 months ending December 31, 2013
|
|
$
|
919,211
|
|
12 months ending December 31, 2014
|
|
|
292,279
|
|
12 months ending December 31, 2015
|
|
|
53,222
|
|
Total
|
|
$
|
1,264,712
|
|
NOTE 14 – FINANCIAL RISK
MANAGEMENT AND FAIR VALUES
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 Company's 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 $NT 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 $NT 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 15– GEOGRAPHICAL SALES
The geographical distribution of China
United’s revenue for the six months ended December 31, 2012 and 2011 is as follows:
Geographical Areas
|
|
2012
|
|
|
2011
|
|
PRC
|
|
$
|
1,579,198
|
|
|
$
|
1,696,897
|
|
Taiwan
|
|
|
14,426,881
|
|
|
|
-
|
|
|
|
$
|
16,006,079
|
|
|
$
|
1,696,897
|
|
The geographical distribution of China
United’s revenue for the three months ended December 31, 2012 and 2011 is as follows:
Geographical Areas
|
|
2012
|
|
|
2011
|
|
PRC
|
|
$
|
835,277
|
|
|
$
|
1,036,635
|
|
Taiwan
|
|
|
11,951,502
|
|
|
|
-
|
|
|
|
$
|
12,786,779
|
|
|
$
|
1,036,635
|
|
NOTE 16– CONDENSED FINANCIAL INFORMATION
OF US PARENT
China United is a holding company and owns
no operating assets and has no significant operations independent of its subsidiaries. Set forth below are condensed financial
statements for China United on a stand-alone, unconsolidated basis as of December 31 and June 30, 2012, and for the six months
ended December 31, 2012 and 2011.
CHINA UNITED INSURANCE SERVICE, INC.
BALANCE SHEETS
DECEMBER 31, 2012 AND JUNE 30, 2012
|
|
December 31, 2012
|
|
|
June 30, 2012
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
$
|
9,899,040
|
|
|
$
|
641,254
|
|
TOTAL ASSETS
|
|
$
|
9,899,040
|
|
|
$
|
641,254
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
752,781
|
|
|
$
|
-
|
|
Due to related party
|
|
|
200,000
|
|
|
|
583
|
|
TOTAL LIABILITIES
|
|
$
|
952,781
|
|
|
$
|
583
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value, $0.00001, 100,000,000 authorized, 1,000,000 issued and outstanding as of December 31, 2012, none issued and outstanding as of June 30, 2012
|
|
|
10
|
|
|
|
-
|
|
Common stock, par value $0.00001, 100,000,000 authorized, 29,100,503 and 20,000,000 issued and outstanding at December 31, 2012 and June 30, 2012, respectively
|
|
|
291
|
|
|
|
200
|
|
Additional paid-in capital
|
|
|
4,674,593
|
|
|
|
2,614,691
|
|
Accumulated other comprehensive income / (loss)
|
|
|
14,014
|
|
|
|
(55,248
|
)
|
Accumulated deficit
|
|
|
4,257,351
|
|
|
|
(1,918,972
|
)
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
8,946,259
|
|
|
|
640,671
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
9,899,040
|
|
|
$
|
641,254
|
|
CHINA UNITED INSURANCE SERVICE, INC.
STATEMENTS OF OPERATIONS
|
|
Six Months Ended
December 31, 2012
|
|
|
Six Months Ended
December 31, 2011
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of service
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
200,000
|
|
|
|
-
|
|
Loss from operations
|
|
|
(200,000
|
)
|
|
|
-
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Equity in earnings / (loss) of subsidiaries
|
|
|
932,732
|
|
|
|
(297,126
|
)
|
Bargain gain on purchase of subsidiaries
|
|
|
5,280,042
|
|
|
|
-
|
|
Income (loss) before income taxes
|
|
|
6,012,774
|
|
|
|
(297,126
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
$
|
6,012,774
|
|
|
$
|
(297,126
|
)
|
NOTE 17– PRO FORMA CONSOLIDATED
STATEMENT OF INCOME (UNAUDITED)
The basis of pro forma consolidated statements
of income of the Company is as if the Acquisition Agreement were signed on July 1, 2010 and 2011, and AHFL’s acquisition
of Law Enterprise happened on the same date. The pro forma consolidated statements of income were derived from the statement of
income for the six months ended December 31, 2012 and 2011 of AHFL and CUIS. The Company recorded the excess of purchase price
over the fair value of assets and liabilities acquired as bargain gain on purchase in the pro forma consolidated statements of
income.
CHINA UNITED INSURANCE
SERVICE, INC. AND SUBSIDIARIES
PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
|
|
Six Months Ended December 31, 2012
|
|
|
|
CUIS
|
|
|
AHFL
|
|
|
Pro Forma
Adjustment
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,579,198
|
|
|
$
|
20,787,741
|
|
|
$
|
-
|
|
|
$
|
22,366,939
|
|
Cost of revenue
|
|
|
827,853
|
|
|
|
13,548,695
|
|
|
|
-
|
|
|
|
14,376,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
751,345
|
|
|
|
7,239,046
|
|
|
|
-
|
|
|
|
7,990,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
790,807
|
|
|
|
4,658,306
|
|
|
|
-
|
|
|
|
5,449,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(39,462
|
)
|
|
|
2,580,740
|
|
|
|
-
|
|
|
|
2,541,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,704
|
|
|
|
34,123
|
|
|
|
-
|
|
|
|
35,827
|
|
Bargain gain on purchase of subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
5,280,042
|
|
|
|
5,280,042
|
|
Other – net
|
|
|
264
|
|
|
|
246,480
|
|
|
|
-
|
|
|
|
246,744
|
|
|
|
|
1,968
|
|
|
|
280,603
|
|
|
|
5,280,042
|
|
|
|
5,562,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(37,494
|
)
|
|
|
2,861,343
|
|
|
|
5,280,042
|
|
|
|
8,103,891
|
|
Income tax expense (benefit)
|
|
|
(103,204
|
)
|
|
|
437,232
|
|
|
|
-
|
|
|
|
334,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
65,710
|
|
|
|
2,424,111
|
|
|
|
5,280,042
|
|
|
|
7,769,863
|
|
Net income attributable to noncontrolling interest
|
|
|
-
|
|
|
|
(820,205
|
)
|
|
|
-
|
|
|
|
(820,205
|
)
|
Net income attributable to CUIS’s shareholders
|
|
|
65,710
|
|
|
|
1,603,906
|
|
|
|
5,280,042
|
|
|
|
6,949,658
|
|
Other comprehensive income
|
|
|
13,972
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
79,682
|
|
|
$
|
1,603,906
|
|
|
$
|
5,280,042
|
|
|
$
|
6,963,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,100,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.26
|
|
CHINA UNITED INSURANCE
SERVICE, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS
OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
|
|
Six Months Ended December 31, 2011
|
|
|
|
CUIS
|
|
|
AHFL
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,696,897
|
|
|
$
|
21,951,392
|
|
|
$
|
23,648,289
|
|
Cost of revenue
|
|
|
1,184,021
|
|
|
|
15,835,178
|
|
|
|
17,019,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
512,876
|
|
|
|
6,116,214
|
|
|
|
6,629,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
635,594
|
|
|
|
4,295,302
|
|
|
|
4,930,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(122,718
|
)
|
|
|
1,820,912
|
|
|
|
1,698,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,389
|
|
|
|
401,851
|
|
|
|
404,240
|
|
Other – net
|
|
|
347
|
|
|
|
1,218,216
|
|
|
|
1,218,563
|
|
|
|
|
2,736
|
|
|
|
1,620,067
|
|
|
|
1,622,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(119,982
|
)
|
|
|
3,440,979
|
|
|
|
3,320,997
|
|
Income tax expense
|
|
|
189,055
|
|
|
|
485,519
|
|
|
|
674,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(309,037
|
)
|
|
|
2,955,460
|
|
|
|
2,646,423
|
|
Net income (loss) attributable to noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) attributable to CUIS’s shareholders
|
|
|
(309,037
|
)
|
|
|
2,955,460
|
|
|
|
2,646,423
|
|
Other comprehensive income
|
|
|
13,972
|
|
|
|
-
|
|
|
|
13,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(295,065
|
)
|
|
$
|
2,955,460
|
|
|
$
|
2,660,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
29,100,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
$
|
0.09
|
|