The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT
(UNAUDITED)
NOTE 1 – ORGANIZATION
China United Insurance Service,
Inc. (“China United”, “CUIS” or the “Company”) is a Delaware corporation organized on
June 4, 2010 by Yi Hsiao Mao, a Taiwanese citizen, as a listing vehicle for ZLI Holdings Limited (“CU Hong Kong”
or “ZLI Holdings”), which is currently quoted on the United States Over the Counter Bulletin Board.
The corporate structure as of March 31,
2017 was 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 months ended March 31, 2017 are not necessarily
indicative of the results that may be expected for the year ended December 31, 2017.
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, 2016, which were included in the Company’s 2016 Annual Report on Form 10-K.
The accompanying condensed consolidated balance sheet as of December 31, 2016, has been derived from the Company’s audited
consolidated financial statements as of that date.
Foreign Currency Transactions
The Company’s financial statements
are presented in U.S. dollars ($), which is the Company’s reporting and functional currency. The functional currencies of
the Company’s subsidiaries are NTD, RMB and HKD. The resulting translation adjustments are reported under other comprehensive
income in accordance with ASC 220. Gains and losses resulting from the translation of foreign currency transactions are reflected
in the consolidated statements of operations and other comprehensive income (loss). Monetary assets and liabilities denominated
in foreign currency are translated at the functional currency rate of exchange prevailing at the balance sheet date. Any differences
are taken to profit or loss as a gain or loss on foreign currency translation in the statements of operations.
In accordance with ASC 830, Foreign Currency
Matters, the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the
balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period.
Adjustments resulting from the translation from NTD, RMB and HKD into U.S. dollars are recorded in stockholders’ equity as
part of accumulated other comprehensive income. The exchange rates used for interim financial statements in accordance with ASC
830, Foreign Currency Matters, are as follows:
|
|
Average Rate for the three months ended March 31,
|
|
|
2017
|
|
2016
|
Taiwan dollar (NTD)
|
|
NTD
|
|
31.049410
|
|
|
NTD
|
|
33.063000
|
|
China yuan (RMB)
|
|
RMB
|
|
6.888178
|
|
|
RMB
|
|
6.539470
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
|
7.760185
|
|
|
HKD
|
|
7.773440
|
|
United States dollar ($)
|
|
$
|
|
1.000000
|
|
|
$
|
|
1.000000
|
|
|
|
Exchange Rate at
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Taiwan dollar (NTD)
|
|
NTD
|
|
30.351770
|
|
|
NTD
|
|
32.283100
|
|
China yuan (RMB)
|
|
RMB
|
|
6.890530
|
|
|
RMB
|
|
6.943700
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
|
7.770470
|
|
|
HKD
|
|
7.754340
|
|
United States dollar ($)
|
|
$
|
|
1.000000
|
|
|
$
|
|
1.000000
|
|
Fair Values of Financial Instruments
FASB 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.
The fair values of our cash and cash equivalents,
accounts receivable, other current assets, taxes payable and other current liabilities approximate fair value because of the short
maturity of these instruments.
The following table presents the fair value
and carrying value of the Company’s marketable securities, loan receivable, borrowings and convertible bonds as of March
31, 2017:
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
4,980,921
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,980,921
|
|
Loan receivable (Other current assets in Notes 5)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,581,456
|
|
|
|
1,581,456
|
|
Long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
-
|
|
|
|
-
|
|
|
|
1,266,315
|
|
|
|
1,266,315
|
|
Government bonds
|
|
|
100,946
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
614,807
|
|
|
$
|
614,807
|
|
Convertible bonds
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Long-term loans
|
|
|
-
|
|
|
|
-
|
|
|
|
256,874
|
|
|
|
256,874
|
|
The following table presents the fair value
and carrying value of the Company’s marketable securities, loan receivable, borrowings and convertible bonds as of December
31, 2016:
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
2,426,870
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,426,870
|
|
Loan receivable (Other current assets in Notes 5)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,486,846
|
|
|
|
1,486,846
|
|
Long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
-
|
|
|
|
-
|
|
|
|
1,190,558
|
|
|
|
1,190,558
|
|
Government bonds
|
|
|
94,506
|
|
|
|
-
|
|
|
|
-
|
|
|
|
94,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
400,001
|
|
|
$
|
400,001
|
|
Convertible bonds
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Long-term loans
|
|
|
-
|
|
|
|
-
|
|
|
|
254,907
|
|
|
|
254,907
|
|
Marketable securities – The fair
value of marketable securities is generally valued based on quoted market prices in active markets.
Loan receivable – The Company’s
loan receivable is determined based on 4.5% per annum interest rate on the recent lends to Rich Fountain Limited.
Equity investment – The fair value
of the Company’s equity investment is unobservable data point and include situations where there is little, if any, market
activity.
Government bonds –The fair value
of government bonds is valued based on quoted market price in active markets.
Short-term loans – The Company’s
short-term loans have been determined based on 1.5% per annum interest rate in year 2015.
Due to related parties – The
Company’s due to related parties bore no interest and payable on demand.
Convertible bonds – The Company determined
the fair value of the convertible bonds is based on the average closing trading price for the 10 business days immediately prior
to the conversion date times 80%.
Long-term loans - The Company’s long-term
loans are determined based on 8% per annum interest rate in PRC.
Concentration of Risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts
receivable. As of March 31, 2017, approximately $1,510,000 of the Company’s cash and cash equivalents held by financial institutions
was insured, and the remaining balance of approximately $20,734,000 was not insured.
Two major insurance companies accounted for more than 10% of
the Company’s total revenue for the three
months ended of March 31, 2017 and 2016. Revenue and accounts receivable from these insurance companies are as follows:
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Amount
|
|
|
% of Total Revenue
|
|
|
Amount
|
|
|
% of Total Revenue
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
4,180,227
|
|
|
|
27
|
%
|
|
$
|
2,242,125
|
|
|
|
23
|
%
|
Taiwan Life Insurance Co., Ltd. (**)
|
|
|
2,087,357
|
|
|
|
14
|
%
|
|
|
(*
|
)
|
|
|
(*
|
)
|
Fubon Life Insurance Co., Ltd.
|
|
|
(*
|
)
|
|
|
(*
|
)
|
|
|
1,377,986
|
|
|
|
14
|
%
|
|
(*)
|
Revenue for the three months ended had not exceeded 10% or more of the consolidated revenue.
|
|
(**)
|
Taiwan Life Insurance Co., Ltd. was formerly known as CTBC Life Insurance Co., Ltd.
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Amount
|
|
|
% of Total Accounts Receivable
|
|
|
Amount
|
|
|
% of Total Accounts Receivable
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
2,551,926
|
|
|
|
32
|
%
|
|
$
|
6,503,843
|
|
|
|
41
|
%
|
Taiwan Life Insurance Co., Ltd (**)
|
|
|
1,266,033
|
|
|
|
16
|
%
|
|
|
1,973,410
|
|
|
|
13
|
%
|
Fubon Life Insurance Co., Ltd
|
|
|
(*
|
)
|
|
|
(*
|
)
|
|
|
1,660,685
|
|
|
|
11
|
%
|
|
(*)
|
The related revenue for the year ended had not exceeded
10% or more of the consolidated revenue.
|
|
(**)
|
Taiwan Life Insurance Co., Ltd. was formerly known as CTBC Life Insurance Co., Ltd.
|
With respect to accounts receivable, the
Company generally does not have any collateral and does not have any 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 January 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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. 2016-07, “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 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 the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU No.
2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash” ("ASU 2016-18"), which amends the current
accounting guidance. The amendments in this update require the amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, and
interim periods within those annual periods. The adoption of ASU 2016-18 is not expected to have a material impact on the Company’s
consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this update provide
guidance to assist entities with evaluating when a group of transferred assets and activities (collective referred to as a "set")
is a business. This new guidance provides for a "screen", which requires a determination that when substantially all
of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar
identifiable assets, the set is not a business. If the screen's threshold is not met, a set cannot be considered a business unless
it includes an input and a substantive process that together significantly contribute to the ability to create output, eliminating
the evaluation of whether a market participant could replace missing elements. This guidance is effective for public entities for
interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the
effect this guidance will have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04
“Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates
Step 2 from the goodwill impairment test. Instead, an entity should perform its annual or interim goodwill impairment test by comparing
the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
ASU 2017-04 is effective for annual or any interim goodwill tests in fiscal years beginning after December 15, 2019. The adoption
is not expected to have a material impact on the consolidated financial statements.
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 CASH EQUIVALENTS
As of March 31, 2017 and December 31,
2016, our cash and cash equivalents primarily consisted of petty cash, cash in banks, certificates of deposits
and re-purchase bonds. On March 24, 2017, the Company and China Bills Finance Corporation entered into a repurchase agreement
with amount of $5,370,362 (NTD 163,000,000) with 0.36% interest rate and was due in April 2017.
As of March 31, 2017 and December 31, 2016,
the Company’s cash and cash equivalents consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Petty cash, cash in banks and certificates of deposits
|
|
$
|
21,270,063
|
|
|
$
|
25,521,802
|
|
Cash equivalent – re-purchase bonds
|
|
|
5,370,362
|
|
|
|
-
|
|
Total cash and cash equivalents
|
|
$
|
26,640,425
|
|
|
$
|
25,521,802
|
|
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:
|
|
March 31, 2017
|
|
|
|
Cost or
Amortized
Cost
|
|
|
Gross
Unrealized
Gains (Losses)
|
|
|
Total
Fair Value
|
|
Level 1 securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
|
|
$
|
38,763
|
|
|
$
|
(171
|
)
|
|
$
|
38,592
|
|
Funds
|
|
|
4,942,051
|
|
|
|
278
|
|
|
|
4,942,329
|
|
|
|
$
|
4,980,814
|
|
|
$
|
107
|
|
|
$
|
4,980,921
|
|
|
|
December 31, 2016
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
Cost
|
|
|
Gains (Losses)
|
|
|
Fair Value
|
|
Level 1 securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
|
|
$
|
28,863
|
|
|
$
|
9,900
|
|
|
$
|
38,763
|
|
Funds
|
|
|
2,340,219
|
|
|
|
47,888
|
|
|
|
2,388,107
|
|
|
|
$
|
2,369,082
|
|
|
$
|
57,788
|
|
|
$
|
2,426,870
|
|
NOTE 5 – OTHER CURRENT ASSETS
The Company’s other current assets
consisted of the following as of March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Loan receivable
|
|
$
|
1,581,456
|
|
|
$
|
1,486,846
|
|
Prepaid expenses
|
|
|
246,491
|
|
|
|
64,678
|
|
Prepaid rent and rent deposit
|
|
|
326,226
|
|
|
|
199,022
|
|
Other receivable
|
|
|
85,067
|
|
|
|
50,683
|
|
Deferred tax assets-current
|
|
|
92,262
|
|
|
|
59,233
|
|
Interest receivable
|
|
|
31,001
|
|
|
|
12,648
|
|
Refundable business tax
|
|
|
15,040
|
|
|
|
17,441
|
|
Others
|
|
|
1,797
|
|
|
|
-
|
|
Total other current assets
|
|
$
|
2,379,340
|
|
|
$
|
1,890,551
|
|
On October 24, 2016, the Company entered
into a loan agreement (“Loan A”) 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 ($1,486,846) 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. On April 21, 2017, the Company
and RFL entered a supplemental agreement to extend this loan to October 23, 2017.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and equipment consisted
of the following, as of March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31,2016
|
|
Office equipment
|
|
$
|
1,154,687
|
|
|
$
|
1,070,061
|
|
Office furniture
|
|
|
172,450
|
|
|
|
168,658
|
|
Leasehold improvements
|
|
|
698,960
|
|
|
|
581,964
|
|
Transportation equipment
|
|
|
136,354
|
|
|
|
132,344
|
|
Other equipment
|
|
|
93,888
|
|
|
|
87,302
|
|
Total
|
|
|
2,256,339
|
|
|
|
2,040,329
|
|
Less: accumulated depreciation
|
|
|
(1,229,379
|
)
|
|
|
(1,113,424
|
)
|
Total property, plant and equipment, net
|
|
$
|
1,026,960
|
|
|
$
|
926,905
|
|
Depreciation expense was $75,596
and $71,489 for the three months ended March 31, 2017 and 2016, respectively.
NOTE 7 – INTANGIBLE ASSETS
As of March 31, 2017 and December 31, 2016,
the Company’s intangible assets consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Software
|
|
$
|
1,648,819
|
|
|
$
|
1,500,339
|
|
Less accumulated amortization
|
|
|
(820,227
|
)
|
|
|
(716,120
|
)
|
Total intangible assets
|
|
$
|
828,592
|
|
|
$
|
784,219
|
|
Estimated future intangible amortization
as of March 31, 2017 is as follows:
Periods
ending March 31,
|
|
Amount
|
|
2018
|
|
$
|
231,450
|
|
2019
|
|
|
223,955
|
|
2020
|
|
|
191,175
|
|
2021
|
|
|
147,143
|
|
2022
|
|
|
30,488
|
|
Thereafter
|
|
|
4,381
|
|
Total
|
|
$
|
828,592
|
|
Amortization expense was $57,224 and $83,610
for the three months ended March 31, 2017 and 2016, respectively.
NOTE 8 – LONG-TERM INVESTMENT
As of March 31, 2017 and December 31, 2016,
the Company’s long-term investment consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Equity Investment
|
|
$
|
1,266,315
|
|
|
$
|
1,190,558
|
|
Government Bonds
|
|
|
100,946
|
|
|
|
94,506
|
|
Total
|
|
$
|
1,367,261
|
|
|
$
|
1,285,064
|
|
As of March 31, 2017 and December 31, 2016,
the Company had the following long-term investment in equity:
Type
|
|
Investee
|
|
Investment
Ownership
|
|
|
March 31,
2017
Amount
|
|
|
December 31,
2016
Amount
|
|
Cost Method
|
|
Genius Insurance Broker Co., Ltd
|
|
|
15.64
|
%
|
|
$
|
1,266,315
|
|
|
$
|
1,190,558
|
|
According to Taiwan
regulatory requirements, Law Insurance Broker Co., Ltd. (“Law Broker”) is required to maintain a minimum of
NTD3,000,000 ($98,841) 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.
|
|
March
31, 2017
|
|
|
|
Fair Value at
|
|
|
Gross
|
|
|
Fair Value at
|
|
|
|
December 31,
|
|
|
Unrealized
|
|
|
March 31,
|
|
|
|
2016
|
|
|
Gains (Losses)
|
|
|
2017
|
|
Government bonds
|
|
|
94,506
|
|
|
|
6,440
|
|
|
|
100,946
|
|
|
|
$
|
94,506
|
|
|
$
|
6,440
|
|
|
$
|
100,946
|
|
|
|
December 31, 2016
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Fair Value at
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
December 31,
|
|
|
|
Cost
|
|
|
Gains (Losses)
|
|
|
2016
|
|
Government bonds
|
|
|
94,381
|
|
|
|
125
|
|
|
|
94,506
|
|
|
|
$
|
94,381
|
|
|
$
|
125
|
|
|
$
|
94,506
|
|
NOTE 9 – OTHER ASSETS
The Company’s other assets consisted
of the following as of March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Registered capital deposit
|
|
$
|
1,015,887
|
|
|
$
|
-
|
|
Rental deposit
|
|
|
483,830
|
|
|
|
445,283
|
|
Restricted cash
|
|
|
254,394
|
|
|
|
248,803
|
|
Prepayments
|
|
|
132,069
|
|
|
|
5,576
|
|
Others
|
|
|
37,013
|
|
|
|
26,820
|
|
Total other assets
|
|
$
|
1,923,193
|
|
|
$
|
726,482
|
|
Registered capital deposit is
the requirement by China Insurance Regulatory Commission that an intermediary company should hold all of its registered
capital in a custodian account and subject to limited usage, among which, no less than 10% of the registered capital shall
be invested in significant deposit by agreement or term deposit. Rental deposits include long-term leasing deposits.
Restricted cash is a deposit in the bank by the Company in conformity with Provisions of the Supervision and Administration
of Specialized Insurance Agencies, which cannot be withdrawn without the permission of the regulatory commission and the
trust account for Law Broker’s general manager’s Bonus Plans. Prepayments are prepaid recruitment fee
and prepaid long-term software-maintenance contract pending for final acceptance. Others are deferred tax assets-noncurrent and other. As of March 31, 2017 and December 31, 2016, the
Company had deferred tax assets-noncurrent amount of $35,360 and $25,364, respectively.
NOTE 10 – TAXES PAYABLE
The Company’s taxes payable consisted
of the following as of March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
PRC Tax
|
|
$
|
234,822
|
|
|
$
|
163,461
|
|
Hong Kong Tax
|
|
|
14,204
|
|
|
|
14,233
|
|
Taiwan Tax
|
|
|
2,947,793
|
|
|
|
2,072,175
|
|
Total tax payable
|
|
$
|
3,196,819
|
|
|
$
|
2,249,869
|
|
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 taxes will be settled within
the next twelve months according to the respective tax laws.
NOTE 11 – OTHER CURRENT LIABILITIES
Other current liabilities are as follows,
as of March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Commissions payable to sub-agents
|
|
$
|
5,551,226
|
|
|
$
|
11,869,181
|
|
Unearned revenue (AIATW and Farglory)
|
|
|
2,616,372
|
|
|
|
2,090,718
|
|
Due to previous shareholders of AHFL
|
|
|
-
|
|
|
|
480,559
|
|
Accrued business tax
|
|
|
221,036
|
|
|
|
469,259
|
|
Withholding employee personal tax
|
|
|
313,318
|
|
|
|
362,954
|
|
Accrued tax penalties
|
|
|
370,000
|
|
|
|
370,000
|
|
Accrued bonus
|
|
|
861,821
|
|
|
|
1,935,091
|
|
Salary payable to administrative staff
|
|
|
938,422
|
|
|
|
183,066
|
|
Accrued labor, health insurance and employee retirement plan
|
|
|
102,150
|
|
|
|
92,085
|
|
Accrued advertisement fee
|
|
|
-
|
|
|
|
32,525
|
|
Other accrued liabilities
|
|
|
419,043
|
|
|
|
754,471
|
|
Total other current liabilities
|
|
$
|
11,393,388
|
|
|
$
|
18,639,909
|
|
Commissions payable to sub-agents,
Accrued bonus, Salaries payable to administrative staff, and accrued advertisement expense are usually settled within 12
months. Unearned revenue is described in Note 14. Due to previous shareholders of Action Holdings Financial Limited (“AHFL”) is
the remaining balance payable of the acquisition cost. 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.
Accrued tax penalties are estimated potential penalty in the event of a tax audit. Other accrued liabilities are mainly for
operating expenses payable, such as training and travelling.
NOTE 12 – CONVERTIBLE BONDS
The Company intended to issue the
convertible bonds during the period commencing on June 23, 2016 and ended on September 30, 2016 with an aggregate principal
amount of up to $10,000,000. The convertible bonds were to be sold in units, with each unit being $100,000 in principal
amount. The Company had not made any offers or sales of the convertible bonds to U.S. persons and there was no directed
selling efforts in the United States. The bonds would 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 might 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 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 March 31, 2017 and December 31, 2016, the Company has an outstanding principal balance
of $200,000 of convertible bonds. Total interest expense was $3,000 for the three months ended March 31, 2017.
NOTE 13 – LONG-TERM LOANS
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Loan B, interest at 8%, maturity date May 15, 2019
|
|
$
|
145,126
|
|
|
$
|
144,015
|
|
Loan C, interest at 8%, maturity date July 20, 2019
|
|
|
111,748
|
|
|
|
110,892
|
|
Total long term loans
|
|
$
|
256,874
|
|
|
$
|
254,907
|
|
On May 15, 2016, the
Company’s contractually controlled PRC affiliate Law Anhou Insurance Agency Co., Ltd (“Anhou” or “Law
Anhou”) entered into a loan agreement (“Loan B”) with third party Guowei Hu. The long-term Loan Agreement
provided for a $145,126 loan to the Company. The long-term Loan B 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
C”) with third party Guowei Hu. The long-term Loan Agreement provided for a $111,748 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 July 20, 2019.
Total interest expense was $5,069 for the
three months ended March 31, 2017.
NOTE 14 – LONG-TERM LIABILITIES
Long-term liabilities are as follows as
of March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Unearned revenue – AIATW
|
|
$
|
4,772,217
|
|
|
$
|
4,742,272
|
|
Unearned revenue – Farglory
|
|
|
406,346
|
|
|
|
495,615
|
|
Due to pervious shareholders of AHFL
|
|
|
480,559
|
|
|
|
-
|
|
Other long-term liabilities
|
|
|
113,256
|
|
|
|
77,440
|
|
Long-term liabilities
|
|
$
|
5,772,378
|
|
|
$
|
5,315,327
|
|
Unearned revenue – AIATW
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. As of March 31, 2017 and December
31, 2016, the Company had long-term liabilities amount of $4,772,217 and $4,742,272, respectively, and current liabilities amounts
of $2,363,778 and $1,966,814, respectively, related to AIATW Alliance Agreement.
Unearned revenue – Farglory
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 March 31, 2017 and December 31, 2016, the Company had long-term liabilities amount of $406,346 and $495,615, respectively,
and current liabilities amounts of $252,594 and $123,904, respectively, related to this Service Agreement.
Due to previous shareholders of AHFL
Due to previous shareholders of AHFL is
the remaining balance payable of the acquisition cost. On March 12, 2017, the Company and the selling shareholders of AHFL entered
into a fifth amendment to the acquisition agreement (the “Fifth Amendment”), pursuant to which, the Company agreed
to distribute the cash payment in the amount of NTD15 million on or prior to March 31, 2019.
Other long-term liabilities
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
long-term liabilities representing the corresponding portion of such bonuses accrued. On March 13, 2017, Law Broker and Ms. Chao
entered into an engagement agreement, which is the amendment to Engagement Agreement dated May 10, 2016 to specify 1) Ms. Chao's
pension calculation assumption and start date, and 2) the non-competition provision start date. As of March 31, 2017 and December
31, 2016, the balance of such accrued long-term liabilities were $113,256 and $77,440, respectively.
NOTE 15 – PREFERRED STOCK
The Company is authorized to issue 10,000,000
shares of preferred stock, $.00001 par value. It currently has 1,000,000 shares of Series A Preferred Stock (“Series A Stock”)
outstanding as of December 31, 2014. 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 the Company’s 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 Company.
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 Company 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 Company, 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 Company 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 Company’s common stock. Each share
of Series A Stock is convertible into one share of common stock.
If the Company 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 the
Company’s 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 Company 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 its 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 its stockholders, and may adversely affect the voting and
other rights of the holders of its common stock.
NOTE 16 – 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
Consolidated Affiliated Entities (“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 17 – NON-CONTROLLING INTERESTS
Non-controlling interests consisted of
the following:
Name of Affiliate
|
|
% of Non-
controlling
Interest
|
|
|
As of
December 31,
2016
|
|
|
Adjustments/
Net Income of
Non-controlling
Interest
|
|
|
As of
March 31,
2017
|
|
Law Enterprise Co., Ltd. (“Law
Enterprise”)
|
|
|
34.05
|
%
|
|
$
|
17,386
|
|
|
$
|
560,694
|
|
|
$
|
578,080
|
|
Law Broker
|
|
|
34.05
|
%
|
|
|
9,621,159
|
|
|
|
802,452
|
|
|
|
10,423,611
|
|
Prime Financial Asia Ltd. (“PFAL”)
|
|
|
49.00
|
%
|
|
|
232,414
|
|
|
|
(10,313
|
)
|
|
|
222,101
|
|
Max Key Investments Ltd. (“MKI”)
|
|
|
49.00
|
%
|
|
|
(1,569
|
)
|
|
|
(10
|
)
|
|
|
(1,579
|
)
|
Prime Asia Corporation Limited. (“PA Taiwan”)
|
|
|
49.00
|
%
|
|
|
(95,448
|
)
|
|
|
(32,767
|
)
|
|
|
(128,215
|
)
|
Prime Management Consulting
(Nanjing) Co., Ltd. (“PTC Nanjing”)
|
|
|
49.00
|
%
|
|
|
(2,400
|
)
|
|
|
34
|
|
|
|
(2,366
|
)
|
Total
|
|
|
|
|
|
$
|
9,771,542
|
|
|
$
|
1,320,090
|
|
|
$
|
11,091,632
|
|
Name of Affiliate
|
|
% of Non-
controlling
Interest
|
|
|
As of
December 31,
2015
|
|
|
Adjustments/
Net Income of
Non-controlling
Interest
|
|
|
As of
December 31,
2016
|
|
Law Enterprise
|
|
|
34.05
|
%
|
|
$
|
199,699
|
|
|
$
|
(182,313
|
)
|
|
$
|
17,386
|
|
Law Broker
|
|
|
34.05
|
%
|
|
|
7,197,128
|
|
|
|
2,424,031
|
|
|
|
9,621,159
|
|
PFAL
|
|
|
49.00
|
%
|
|
|
206,098
|
|
|
|
26,316
|
|
|
|
232,414
|
|
MKI
|
|
|
49.00
|
%
|
|
|
(1,065
|
)
|
|
|
(504
|
)
|
|
|
(1,569
|
)
|
PA Taiwan
|
|
|
49.00
|
%
|
|
|
(26,292
|
)
|
|
|
(69,156
|
)
|
|
|
(95,448
|
)
|
PTC Nanjing
|
|
|
49.00
|
%
|
|
|
(837
|
)
|
|
|
(1,563
|
)
|
|
|
(2,400
|
)
|
Total
|
|
|
|
|
|
$
|
7,574,731
|
|
|
$
|
2,196,811
|
|
|
$
|
9,771,542
|
|
NOTE 18 – INCOME TAX
Provision (benefit) for income taxes for
the three months ended March 31, 2017 consists of:
Three months ended
March 31, 2017
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
794,075
|
|
|
$
|
794,075
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,796
|
)
|
|
|
(36,796
|
)
|
Change in valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
757,279
|
|
|
$
|
757,279
|
|
Provision (benefit) for income taxes for
the three months ended March 31, 2016 consists of:
Three months ended
March 31, 2016
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,397
|
|
|
$
|
6,397
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,198
|
)
|
|
|
(3,198
|
)
|
Change in valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,199
|
|
|
$
|
3,199
|
|
Significant components of the deferred
tax assets and liabilities for federal income taxes as of March 31, 2017 and December 31, 2016 consisted of the following:
|
|
As of
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
1,013,532
|
|
|
$
|
993,050
|
|
Others
|
|
|
127,622
|
|
|
|
84,597
|
|
Total
|
|
$
|
1,141,154
|
|
|
$
|
1,077,647
|
|
Valuation allowance
|
|
|
(1,013,532
|
)
|
|
|
(993,050
|
)
|
Net deferred tax assets
|
|
$
|
127,622
|
|
|
$
|
84,597
|
|
Deferred tax assets - current
|
|
$
|
92,262
|
|
|
$
|
59,233
|
|
Deferred tax assets - noncurrent
|
|
$
|
35,360
|
|
|
$
|
25,364
|
|
A 100% valuation allowance was provided
for the deferred tax assets related to the PRC segment and US holding company as of March 31, 2017 and December 31, 2016. Net deferred
tax assets of $127,622 and $84,597, respectively, related to the Taiwan segment was included in both other current assets and other
assets on the consolidated balance sheets as of March 31, 2017 and December 31, 2016.
Zhengzhou Zhongliay Hengfu Business
Consulting Co., Ltd. (“CU WFOE”) and the VIEs in the PRC are governed by the Income Tax Law of the PRC concerning the
private enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements
after appropriated adjustments, except for Jiangsu and Sichuan. For Jiangsu, according to the requirement of local tax
authorities, the tax basis is deemed as 10% of total revenue, instead of net income. Sichuan is subject to tax at 25% on
income reported in the statutory financial statements after appropriate adjustments.
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 March 31, 2017 and 2016:
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
US statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Tax rate difference
|
|
|
(18
|
)%
|
|
|
(8
|
)%
|
Tax base difference
|
|
|
1
|
%
|
|
|
(4
|
)%
|
Loss in subsidiaries
|
|
|
4
|
%
|
|
|
(28
|
)%
|
Un-deductible and non-taxable items
|
|
|
6
|
%
|
|
|
6
|
%
|
Tax per financial statements
|
|
|
27
|
%
|
|
|
0
|
%
|
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 19 – 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 March 31, 2017 and December 31,
2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Due to Mr. Mao (CEO of the Company)
|
|
$
|
380,863
|
|
|
$
|
361,379
|
|
Due to Ms. Lu (Shareholder of Law Anhou)
|
|
|
217,690
|
|
|
|
-
|
|
Due to Xude Investment (Owned by Mr. ChwanHau Li)
|
|
|
-
|
|
|
|
32,374
|
|
Due to Mr. Zhu (Legal Representative of Jiangsu)
|
|
|
2,009
|
|
|
|
1,994
|
|
Due to Yuli Broker (Owned by Ms. Lee)
|
|
|
141
|
|
|
|
265
|
|
Due to Yuli Investment (Owned by Ms. Lee)
|
|
|
141
|
|
|
|
265
|
|
Due to I Health Management Corp*
|
|
|
13,963
|
|
|
|
3,724
|
|
Total
|
|
$
|
614,807
|
|
|
$
|
400,001
|
|
*25% of I Health Management
Corp’s shares are owned by Multiple Capital Enterprise.
The loan due to related parties bore
no interest and were payable on demand.
Lease Agreements
On July 1, 2016, the Company entered into
a lease agreement with Yuli Broker to lease its Nan-King East Road office space in Taipei City. The lease term was for one year
commencing on July 1, 2016 and ending on June 30, 2017, with an annual base rent approximately of $580 (NTD18,000). For the year
ended and as of March 31, 2017, rent income and advance amount were $138 and $141, respectively.
On July 1, 2016, the Company entered into
a lease agreement with Yuli Investment to lease its Nan-King East Road office space in Taipei City. The lease term was for one
year commencing on July 1, 2016 and ending on June 30, 2017, with an annual base rent approximately of $580 (NTD18,000). For the
three months ended and as of March 31, 2017, rent income and advance amount were $138 and $141, respectively.
Advisory Agreements
On May 2, 2016, the Company entered into
an advisory agreement with I Health. Pursuant to the Advisory Agreement, I Health provided 10,000 Taiwan citizen’s health
information to the Company for its new insurance product during May 2, 2016 to May 1, 2017. The total advisory fee was approximately
$40,000 (NTD1,250,000). The Company had cost of revenue and due to I Health amount of $9,777 and $13,963, respectively, for the
three months ended and as of March 31, 2017.
On December 7, 2016, the Company entered
into an advisory agreement with Fuchang Li (“Mr. Li”, the director of the Company). Pursuant to this Advisory Agreement,
Mr. Li provided investment consulting to the Company from December 7, 2016 to December 6, 2017. The total advisory fee was approximately
$58,000 (NTD1,800,000). The Company had prepaid expenses and general and administrative expense amount of $9,346 and $14,019, respectively,
as of and for the three months ended March 31, 2017.
Consulting Agreement
On November 1, 2016, the Company entered into a consulting agreement
with Prime Technology Corp. (“Prime Tech”), which has one of the same directors as Prime Financial Asia Ltd. Pursuant
to this consulting agreement, the Company provided administrative operation consulting service to Prime Tech from November 1, 2016
to December 31, 2021. As of and for the three months ended March 31, 2017, the Company had account receivable and revenue amount
of $10,825 and $10,582, respectively.
NOTE 20 – COMMITMENTS
Operating Leases
The Company has operating leases for its
offices. Rental expenses for the three months ended March 31, 2017 and 2016 were $571,023and $507,460, respectively. At March 31,
2017, total future minimum annual lease payments under operating leases were as follows, by years:
Twelve months ending March 31, 2018
|
|
$
|
2,127,670
|
|
Twelve months ending March 31, 2019
|
|
|
1,227,502
|
|
Twelve months ending March 31, 2020
|
|
|
307,901
|
|
Twelve months ending March 31, 2021
|
|
|
40,487
|
|
Twelve months ending March 31, 2022
|
|
|
22,756
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
3,726,316
|
|
Engagement Agreement with Ms. Chao
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
long-term liabilities representing the corresponding portion of such bonuses accrued. On March 13, 2017, Law Broker and Ms. Chao
entered into an engagement agreement, which is the amendment to Engagement Agreement dated May 10, 2016 to specify 1) Ms. Chao's
pension calculation assumption and start date, and 2) the non-competition provision start date. As of March 31, 2017 and December
31, 2016, the balance of such accrued long-term liabilities were $113,256 and $77,440, respectively.
NOTE 21 – 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 22 – GEOGRAPHICAL DATA
The geographical distribution of the Company’s
financial information for the three months ended March 31, 2017 and 2016 were as follows:
|
|
For three months ended March 31,
|
|
Geographical Areas
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
12,421,081
|
|
|
$
|
7,933,828
|
|
PRC
|
|
|
2,891,932
|
|
|
|
1,585,767
|
|
Hong Kong
|
|
|
42,515
|
|
|
|
42,701
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total revenue
|
|
$
|
15,355,528
|
|
|
$
|
9,562,296
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
2,556,181
|
|
|
$
|
(322,014
|
)
|
PRC
|
|
|
249,588
|
|
|
|
(398,510
|
)
|
Hong Kong
|
|
|
(5,925
|
)
|
|
|
(2,524
|
)
|
Elimination adjustment
|
|
|
33,220
|
|
|
|
31,112
|
|
Total income (loss) from operations
|
|
$
|
2,833,064
|
|
|
$
|
(691,936
|
)
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
110,254
|
|
|
$
|
136,913
|
|
PRC
|
|
|
22,494
|
|
|
|
18,114
|
|
Hong Kong
|
|
|
72
|
|
|
|
72
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total depreciation and amortization expenses
|
|
$
|
132,820
|
|
|
$
|
155,099
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
86,776
|
|
|
$
|
54,090
|
|
PRC
|
|
|
1,727
|
|
|
|
1,621
|
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
Elimination adjustment
|
|
|
(16,453
|
)
|
|
|
(3,955
|
)
|
Total interest income
|
|
$
|
72,050
|
|
|
$
|
51,756
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
19,453
|
|
|
$
|
5,142
|
|
PRC
|
|
|
5,069
|
|
|
|
-
|
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
Elimination adjustment
|
|
|
(16,453
|
)
|
|
|
(3,955
|
)
|
Total interest expenses
|
|
$
|
8,069
|
|
|
$
|
1,187
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
694,303
|
|
|
$
|
87
|
|
PRC
|
|
|
62,976
|
|
|
|
3,112
|
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total income tax expenses
|
|
$
|
757,279
|
|
|
$
|
3,199
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
1,856,865
|
|
|
$
|
(265,208
|
)
|
PRC
|
|
|
182,958
|
|
|
|
(402,792
|
)
|
Hong Kong
|
|
|
(20,585
|
)
|
|
|
(7,297
|
)
|
Elimination adjustment
|
|
|
1,561
|
|
|
|
1,381
|
|
Total net income (loss)
|
|
$
|
2,020,799
|
|
|
$
|
(673,916
|
)
|
The geographical distribution of the Company’s
financial information as of March 31, 2017 and December 31, 2016 were as follows:
|
|
As of
|
|
Geographical Areas
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
(265,209
|
)
|
|
$
|
(835,564
|
)
|
PRC
|
|
|
(7,926
|
)
|
|
|
(148,936
|
)
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
Total capital expenditures
|
|
$
|
(273,135
|
)
|
|
$
|
(984,500
|
)
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
24,561,486
|
|
|
$
|
26,947,718
|
|
PRC
|
|
|
8,769,738
|
|
|
|
8,803,587
|
|
Hong Kong
|
|
|
575
|
|
|
|
270,648
|
|
Elimination adjustment
|
|
|
(26,114,302
|
)
|
|
|
(30,227,792
|
)
|
Total long-lived assets
|
|
$
|
7,217,497
|
|
|
$
|
5,794,161
|
|
|
|
|
|
|
|
|
|
|
Reportable assets
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
85,962,252
|
|
|
$
|
90,388,991
|
|
PRC
|
|
|
11,173,256
|
|
|
|
13,325,433
|
|
Hong Kong
|
|
|
511,794
|
|
|
|
561,708
|
|
Elimination adjustment
|
|
|
(48,420,160
|
)
|
|
|
(52,868,589
|
)
|
Total reportable assets
|
|
$
|
49,227,142
|
|
|
$
|
51,407,543
|
|
NOTE 23 – 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 the PRC.
Due to certain restriction on direct foreign
investment in insurance agency business under current PRC legal requirements, Anhou sought investments from certain Investor Borrowers,
as defined below in Item 2 of this part, 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.
|
Ms. Chunyan Lu, 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, CU 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 24 – SUBSEQUENT EVENTS
On April 21, 2017, the Company and Rich
Fountain Limited entered into a supplemental agreement to extend Loan A to October 23, 2017, which is described in Note 5.
The Company has evaluated all other subsequent
events through the date these consolidated financial statements were issued, and determined that there were no other subsequent
events or transactions that require recognition or disclosures in the consolidated financial statements.