CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
The
accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(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 both ZLI Holdings Limited (“ZLI Holdings”) and Action Holdings Financial
Limited (“AHFL”), which is currently quoted on the United States Over the Counter Bulletin Board.
The corporate structure as of September
30, 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.
All intercompany transactions and balances have been 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, 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 presentation of the financial
statements have been included. Operating results for the three and nine months ended September 30, 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.
Reclassifications
Certain reclassifications have been made
to the prior periods’ financial statements and notes to conform to the current period’s presentation. Such reclassifications
have no effect on net income as previously reported. Please see Note 23, Reclassifications.
Foreign Currency Translations
The Company’s financial statements
are presented in U.S. dollars ($), which is the Company’s reporting and functional currency. The functional currencies of
the Company’s subsidiaries are NTD, RMB and HKD. Gains and losses resulting from the translation of foreign currency transactions
are reflected in the consolidated statements of operations and other comprehensive income (loss). Monetary assets and liabilities
denominated in foreign currency are translated at the functional currency rate of exchange prevailing at the balance sheet date.
Any differences are taken as a gain or loss on foreign currency translation in the statements of operations.
In accordance with ASC 830, Foreign Currency
Matters, the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the
balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period.
Adjustments resulting from the translation from NTD, RMB and HKD into U.S. dollars are recorded in stockholders’ equity as
part of accumulated other comprehensive income. The exchange rates used for interim financial statements are as follows:
|
|
Average Exchange Rate for the Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
New Taiwan dollar (NTD)
|
|
NTD
|
30.505166
|
|
|
NTD
|
32.736000
|
|
China yuan (RMB)
|
|
RMB
|
6.805734
|
|
|
RMB
|
6.579240
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
7.787013
|
|
|
HKD
|
7.763280
|
|
United States dollar ($)
|
|
$
|
1.000000
|
|
|
$
|
1.000000
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate at
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
New Taiwan dollar (NTD)
|
|
NTD
|
30.324000
|
|
|
NTD
|
32.283100
|
|
China yuan (RMB)
|
|
RMB
|
6.654500
|
|
|
RMB
|
6.943700
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
7.811000
|
|
|
HKD
|
7.754340
|
|
United States dollar ($)
|
|
$
|
1.000000
|
|
|
$
|
1.000000
|
|
Fair Values of Financial Instruments
Accounting Standards Codification (ASC)
820, Fair Value Measurement, defines fair value as the price at which an asset could be exchanged or a liability transferred in
an orderly transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability.
Where available, fair value is based on observable market prices or derived from such prices. Where observable prices or inputs
are not available, valuation models are applied which may involve some level of management estimation and judgment, the degree
of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. See Note 24,
Fair Value Measurement.
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 September 30, 2017, approximately $1,467,000 of the Company’s cash and cash equivalents, time deposits,
registered capital deposit and restricted cash held by financial institutions was insured, and the remaining balance of approximately
$32,808,000 was not insured.
Three major insurance companies accounted
for more than 10% of the Company’s total revenue for the three months ended of September 30, 2017 and 2016. Revenue from
these insurance companies were set out as below:
|
|
Three months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
4,275,654
|
|
|
|
26
|
%
|
|
$
|
5,291,779
|
|
|
|
35
|
%
|
Taiwan Life Insurance Co., Ltd. (*)
|
|
|
1,911,978
|
|
|
|
12
|
%
|
|
|
1,493,069
|
|
|
|
10
|
%
|
TransGlobe Life Insurance Inc.
|
|
|
1,882,461
|
|
|
|
12
|
%
|
|
|
(**
|
)
|
|
|
(**
|
)
|
|
(*)
|
Taiwan Life Insurance Co., Ltd. was formerly known as CTBC Life Insurance Co., Ltd.
|
|
(**)
|
Revenue for the three months ended September 30, 2016 had not
exceeded 10% or more of the Company’s consolidated revenue of the Company.
|
For the nine months ended of September
30, 2017 and 2016, the Company’s revenue received from the following companies were set out as below:
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
13,019,656
|
|
|
|
26
|
%
|
|
$
|
13,969,672
|
|
|
|
32
|
%
|
Taiwan Life Insurance Co., Ltd. (*)
|
|
|
5,881,228
|
|
|
|
12
|
%
|
|
|
4,813,813
|
|
|
|
11
|
%
|
TransGlobe Life Insurance Inc.
|
|
|
5,127,561
|
|
|
|
10
|
%
|
|
|
(**
|
)
|
|
|
(**
|
)
|
Fubon Life Insurance Co., Ltd.
|
|
|
(***
|
)
|
|
|
(***
|
)
|
|
|
4,342,377
|
|
|
|
10
|
%
|
|
(*)
|
Taiwan Life Insurance Co., Ltd. was formerly known as CTBC Life Insurance Co., Ltd.
|
|
(**)
|
Revenue for the nine months ended September 30, 2016 had not exceeded 10% or more of the Company’s consolidated revenue of the Company.
|
|
(***)
|
Revenue for the nine months ended September 30, 2017 had not exceeded 10% or more of the Company’s consolidated revenue of the Company.
|
As of September 30, 2017 and December 31,
2016, the Company’s accounts receivable from the following companies were set out as below:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Amount
|
|
|
% of Total
Accounts
Receivable
|
|
|
Amount
|
|
|
% of Total
Accounts
Receivable
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
2,450,793
|
|
|
|
34
|
%
|
|
$
|
6,503,843
|
|
|
|
41
|
%
|
Taiwan Life Insurance Co., Ltd (*)
|
|
|
(**
|
)
|
|
|
(**
|
)
|
|
|
1,973,410
|
|
|
|
13
|
%
|
TransGlobe Life Insurance Inc.
|
|
|
801,832
|
|
|
|
11
|
%
|
|
|
(**
|
)
|
|
|
(**
|
)
|
Fubon Life Insurance Co., Ltd
|
|
|
(**
|
)
|
|
|
(**
|
)
|
|
|
1,660,685
|
|
|
|
11
|
%
|
|
(*)
|
Taiwan Life Insurance Co., Ltd. was formerly known as CTBC Life Insurance Co., Ltd.
|
|
(**)
|
Accounts receivable as of September 30, 2017 or December 31, 2016 had not exceeded 10% or more of the consolidated
accounts receivable.
|
With respect to accounts receivable, the
Company generally does not have any collateral and does not have any allowance for doubtful accounts.
The Company’s operations are in the
PRC, Taiwan and Hong Kong. Accordingly, the Company’s business, financial condition and results of operations may be influenced
by the political, economic, and legal environments in the PRC, Taiwan and Hong Kong, the foreign currency exchange and the state
of each regions. 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”) 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 ASU 2016-02,
Leases (Topic 842). The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (Statement
of Financial Accounting Standards No. 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 No. 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 ASU 2016-07,
“Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.”
ASU 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 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 ASU 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 No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” Public entities
should apply the amendments in ASU No. 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 of this accounting
standards update on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
“Classification of Certain Cash Receipts and Cash Payments (Topic 230) to Statement of Cash Flows.” ASU No. 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 No. 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 2016-18,
“Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU No. 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 No. 2016-18 is effective for annual periods beginning after December 15, 2017, and interim
periods within those annual periods. The adoption of ASU No. 2016-18 is not expected to have a material impact on the Company’s
consolidated financial statements.
In January 2017, the FASB issued ASU No.
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 No. 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 Company’s consolidated financial statements of the Company.
In July 2017, the FASB issued ASU No. 2017-11,
“Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815),”
which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are
features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis
of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial
instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the
entire instrument or conversion option. For public business entities, the amendments in Part I of this Update are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments
in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. The Company is currently evaluating the impact of adopting this guidance on its consolidated
financial statements.
In August 2017, the FASB issued ASU 2017-12,
“Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 refines
and expands hedge accounting for both financial and commodity risks. This ASU creates more transparency around how economic results
are presented, both on the face of the financial statements and in the footnotes. In addition, this ASU makes certain targeted
improvements to simplify the application of hedge accounting guidance. The Company is currently evaluating the impact of adopting
this guidance on its consolidated financial statements.
In September 2017, the FASB issued ASU 2017-13, “Revenue Recognition
(Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842),” which provides
additional implementation guidance on the previously issued ASU 2016-02 Leases (Topic 842). The revenue standard is effective
for annual periods beginning after December 15, 2017. ASU 2016-02 requires a lessee to recognize assets and liabilities on the
balance sheet for leases with lease terms greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2018, and early adoption is permitted. Based on a preliminary assessment, the
Company expects the adoption of this guidance to have a material impact on its assets and liabilities due to the recognition of
right-of-use assets and lease liabilities on its consolidated balance sheet at the beginning of the earliest period presented.
The Company is continuing its assessment, which may identify additional impacts this guidance will have on its consolidated financial
statements and disclosures.
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.
Going Concern Assessment
The Company has assessed its ability to
continue as a going concern for a period of one year from the date of the issuance of these financial statements. Substantial doubt
about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate,
indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year from the
financial statement issuance date. The Company determined that there are no conditions or events that raise substantial doubt about
its ability to continue as a going concern as of the date of the issuance of these financial statements.
NOTE 3 – CASH AND CASH EQUIVALENTS
AND TIME DEPOSITS
Cash and cash equivalents and time deposits
consisted of the following as of September 30, 2017 and December 31, 2016:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash in bank and on hand
|
|
$
|
11,663,265
|
|
|
$
|
17,713,744
|
|
Bank time deposits (*)
|
|
|
-
|
|
|
|
2,455,711
|
|
|
|
|
11,663,265
|
|
|
|
20,169,455
|
|
Bank time deposits (**)
|
|
|
21,475,432
|
|
|
|
5,352,347
|
|
Total cash and cash equivalents and time deposits
|
|
$
|
33,138,697
|
|
|
$
|
25,521,802
|
|
|
(*)
|
With original maturities less than three months
|
|
(**)
|
With original maturities over three months
|
The Company considers cash on hand, cash
in bank, and bank time deposits with maturities of three months or less to be cash and cash equivalents.
NOTE 4 – MARKETABLE SECURITIES
Marketable securities represent investment
in equity securities of listed stocks and funds, which are classified as follows:
|
|
September 30, 2017
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Losses
|
|
|
Total
Fair Value
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
|
|
$
|
33,117
|
|
|
$
|
(250
|
)
|
|
$
|
32,867
|
|
|
|
$
|
33,117
|
|
|
$
|
(250
|
)
|
|
$
|
32,867
|
|
|
|
December 31, 2016
|
|
|
|
Fair Value at
|
|
|
Gross
|
|
|
|
|
|
|
December 31,
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
2015
|
|
|
Gains
|
|
|
Fair Value
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
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 – STRUCTURED DEPOSIT
On July 7, 2017, the Company entered into
an agreement with Cathy United Bank to purchase a 185-days structured deposit in effective on July 7, 2017 and mature on January
8, 2018. Principal of the structured deposit is RMB 8,000,000 and the structured deposit with an embedded foreign exchange option
linked to US Dollar to China Yuan offshore exchange rate (“USDCNH”). Strike price of the structured deposit is set
as 7.3 USDCNH and the fixing date is on January 4, 2018. Yield rate will be at 4.1% per annum when the USDCNH is above or equal
strike price on the fixing date, or at 3.9% per annum when blow.
|
|
September 30, 2017
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Losses
|
|
|
Total
Fair Value
|
|
Structured deposit
|
|
$
|
1,278,551
|
|
|
$
|
(73,389
|
)
|
|
$
|
1,205,162
|
|
|
|
$
|
1,278,551
|
|
|
$
|
(73,389
|
)
|
|
$
|
1,205,162
|
|
NOTE 6 – OTHER CURRENT ASSETS
Other current assets consisted of the following
as of September 30, 2017 and December 31, 2016:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Loan receivable
|
|
$
|
1,477,060
|
|
|
$
|
1,486,846
|
|
Prepaid expenses
|
|
|
228,193
|
|
|
|
64,678
|
|
Prepaid rent and rent deposits
|
|
|
186,745
|
|
|
|
199,022
|
|
Other receivable
|
|
|
176,386
|
|
|
|
50,683
|
|
Refundable business tax
|
|
|
117,848
|
|
|
|
17,441
|
|
Deferred tax assets-current
|
|
|
58,041
|
|
|
|
59,233
|
|
Interest receivable
|
|
|
30,080
|
|
|
|
12,648
|
|
Total other current assets
|
|
$
|
2,274,353
|
|
|
$
|
1,890,551
|
|
On October 24, 2016, the Company entered
into a loan agreement 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 the loan to October 23, 2017. As of September 30, 2017, the outstanding balance of the loan receivable is
NTD44,790,360 ($1,477,060). On November 1 and November 2, 2017, the Company received the interest payment of this loan amount
of NTD 300,000 (approximately $9,800) and $23,832, respectively. The management has evaluated RFL's business operation and ability to repay the loan in the future and determine that RFL will
be able to repay the loan per newly negotiated terms and assessed that there is no impairment loss on the loan. Therefore,
the Company is willing to extend the payment period of RFL loan.
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and equipment consisted
of the following as of September 30, 2017 and December 31, 2016:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Office equipment
|
|
$
|
1,234,505
|
|
|
$
|
1,070,061
|
|
Office furniture
|
|
|
101,123
|
|
|
|
168,658
|
|
Leasehold improvements
|
|
|
733,225
|
|
|
|
581,964
|
|
Transportation equipment
|
|
|
139,226
|
|
|
|
132,344
|
|
Other equipment
|
|
|
89,868
|
|
|
|
87,302
|
|
Total
|
|
|
2,297,947
|
|
|
|
2,040,329
|
|
Less: accumulated depreciation
|
|
|
(1,370,885
|
)
|
|
|
(1,113,424
|
)
|
Total property, plant and equipment, net
|
|
$
|
927,062
|
|
|
$
|
926,905
|
|
Depreciation expense was $78,972 and $81,267
for the three months ended September 30, 2017 and 2016, respectively. Depreciation expense was $235,093 and $231,414 for the nine
months ended September 30, 2017 and 2016, respectively.
NOTE 8 – INTANGIBLE ASSETS
As of September 30, 2017 and December 31,
2016, the Company’s intangible assets consisted of the following:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Software
|
|
$
|
1,686,544
|
|
|
$
|
1,500,339
|
|
Less: accumulated amortization
|
|
|
(938,934
|
)
|
|
|
(716,120
|
)
|
Total intangible assets
|
|
$
|
747,610
|
|
|
$
|
784,219
|
|
Estimated future intangible amortization
as of September 30, 2017 is as follows:
Periods ending September 30,
|
|
Amount
|
|
2018
|
|
$
|
238,905
|
|
2019
|
|
|
214,913
|
|
2020
|
|
|
184,439
|
|
2021
|
|
|
90,116
|
|
2022
|
|
|
18,140
|
|
Thereafter
|
|
|
1,097
|
|
Total
|
|
$
|
747,610
|
|
Amortization expense was $59,533 and $71,328
for the three months ended September 30, 2017 and 2016, respectively. Amortization expense was $175,500 and $223,969 for the nine
months ended September 30, 2017 and 2016, respectively.
NOTE 9 – LONG-TERM INVESTMENTS
As of September 30, 2017 and December 31,
2016, the Company’s long-term investments consisted of the following:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Equity investment
|
|
$
|
1,267,475
|
|
|
$
|
1,190,558
|
|
Government bonds
|
|
|
101,475
|
|
|
|
94,506
|
|
Total
|
|
$
|
1,368,950
|
|
|
$
|
1,285,064
|
|
As of September 30, 2017 and December 31,
2016, the Company had the following equity investment:
Type
|
|
Investee
|
|
Ownership
|
|
|
September 30,
2017
Amount
|
|
|
December 31,
2016
Amount
|
|
Cost Method
|
|
Genius Insurance Broker Co., Ltd.
|
|
|
15.64
|
%
|
|
$
|
1,267,475
|
|
|
$
|
1,190,558
|
|
According to Taiwan
Regulations Governing Deposit of Bond and Acquirement of Insurance by Insurance Agents, Insurance Brokers and Insurance Surveyors
(“RGDBAI”) Article 3 requirement, Law Insurance Broker Co., Ltd. (“Law Broker”) is required to maintain
a minimum of NTD3,000,000 ($98,932 and $92,928 as of September 30, 2017 and December 31, 2016, respectively) restricted balance
in a separate account. RGDBAI Article 4 is required to deposited a minimum amount in the form of cash or book entry to government
bond issued by the central government. Therefore, Law Broker used such amounts to purchase government bonds and has the right
to trade such bonds with other debt or equity instruments.
|
|
September 30, 2017
|
|
|
|
Fair Value at
|
|
|
Gross
|
|
|
Fair Value at
|
|
|
|
December 31,
|
|
|
Unrealized
|
|
|
September 30,
|
|
|
|
2016
|
|
|
Gains
|
|
|
2017
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
94,506
|
|
|
|
6,969
|
|
|
|
101,475
|
|
|
|
$
|
94,506
|
|
|
$
|
6,969
|
|
|
$
|
101,475
|
|
|
|
December 31, 2016
|
|
|
|
Fair Value at
|
|
|
Gross
|
|
|
Fair Value at
|
|
|
|
December 31,
|
|
|
Unrealized
|
|
|
December 31,
|
|
|
|
2015
|
|
|
Gains
|
|
|
2016
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
94,381
|
|
|
|
125
|
|
|
|
94,506
|
|
|
|
$
|
94,381
|
|
|
$
|
125
|
|
|
$
|
94,506
|
|
NOTE 10 – OTHER ASSETS
The Company’s other assets consisted
of the following as of September 30, 2017 and December 31, 2016:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Registered capital deposit
|
|
$
|
1,065,176
|
|
|
$
|
-
|
|
Rental deposits
|
|
|
480,589
|
|
|
|
445,283
|
|
Restricted cash
|
|
|
488,822
|
|
|
|
248,803
|
|
Prepayments
|
|
|
61,206
|
|
|
|
5,576
|
|
Deferred tax assets
|
|
|
52,171
|
|
|
|
25,364
|
|
Others
|
|
|
1,655
|
|
|
|
1,456
|
|
Total other assets
|
|
$
|
2,149,619
|
|
|
$
|
726,482
|
|
According to China
Insurance Regulatory Commission No. 82, issued on September 29, 2016, the Company should deposit all of its registered capital
in a custodian account and subject to limited usage, among which, no less than 10% of the registered capital should be invested
in significant deposit by agreement or term deposit. The Company should deposit this amount after six months of the issuance date.
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 is
not allowed to be withdrawn without the permission of the regulatory commission and the trust account for Law Broker’s general
manager’s bonus plans.
NOTE 11 – TAX PAYABLE
The Company’s tax payable consisted
of the following as of September 30, 2017 and December 31, 2016:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
PRC Tax
|
|
$
|
287,138
|
|
|
$
|
163,461
|
|
Hong Kong Tax
|
|
|
9,091
|
|
|
|
14,233
|
|
Taiwan Tax
|
|
|
2,060,397
|
|
|
|
2,072,175
|
|
Total tax payable
|
|
$
|
2,356,626
|
|
|
$
|
2,249,869
|
|
PRC tax represents income tax and other
taxes accrued according to PRC tax law by the Company’s subsidiaries and Consolidated Affiliated Entities (“CAE”)
in the PRC. Taiwan tax represents income tax accrued according to Taiwan tax law by the Company’s subsidiaries and branches
in Taiwan. Hong Kong tax represents income tax accrued according to Hong Kong tax law by the Company’s subsidiaries in Hong
Kong.
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 were no direct
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 bond holder 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 bonds, the bond holder may, in its sole discretion, choose to
collect the payment of full principal amount of the convertible bonds together with any interest accrued or convert the
convertible bonds into common shares of the Company at the conversion price. The conversion price shall be 80% of the average
closing trading price for the ten (10) business days immediately prior to the conversion date.
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 September 30, 2017 and December 31, 2016, the Company has an outstanding principal balance
of $200,000 of convertible bonds. Total interest expense was $3,000 and $9,000 for the three and nine months ended September 30,
2017.
NOTE 13 – OTHER CURRENT LIABILITIES
Other current liabilities are as follows,
as of September 30, 2017 and December 31, 2016:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Commissions payable to sales professionals
|
|
$
|
5,821,393
|
|
|
$
|
11,869,181
|
|
Unearned revenue (AIATW and Farglory)
|
|
|
1,340,884
|
|
|
|
2,090,718
|
|
Due to previous shareholders of AHFL
|
|
|
-
|
|
|
|
480,559
|
|
Accrued business tax
|
|
|
188,516
|
|
|
|
469,259
|
|
Deferred tax liabilities
|
|
|
125,059
|
|
|
|
-
|
|
Withholding employee personal tax
|
|
|
240,717
|
|
|
|
362,954
|
|
Accrued tax penalties
|
|
|
370,000
|
|
|
|
370,000
|
|
Accrued bonus
|
|
|
1,040,291
|
|
|
|
1,935,091
|
|
Salary payable to administrative staff
|
|
|
464,106
|
|
|
|
183,066
|
|
Accrued labor, health insurance and employee retirement plan
|
|
|
105,015
|
|
|
|
92,085
|
|
Accrued advertisement fee
|
|
|
-
|
|
|
|
32,525
|
|
Other accrued liabilities
|
|
|
724,847
|
|
|
|
754,471
|
|
Total other current liabilities
|
|
$
|
10,420,828
|
|
|
$
|
18,639,909
|
|
Commissions payable to sales professionals,
accrued bonus, salaries payable to administrative staff, and accrued advertisement expense are usually settled within 12 months.
Unearned revenue is described in Note 15. 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, accrued labor,
health insurance and employee retirement plan will be paid to the related government departments within one month. Accrued tax
penalties are estimated potential penalty in the event of a tax audit. Other accrued liabilities mainly consist of accrued interest,
accrued logo promotion product expense and operating expenses payable for training and travelling.
NOTE 14 – LONG-TERM LOANS
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Loan B, interest at 8%, maturity date May 15, 2019
|
|
$
|
150,274
|
|
|
$
|
144,015
|
|
Loan C, interest at 8%, maturity date July 20, 2019
|
|
|
115,711
|
|
|
|
110,892
|
|
Total long-term loans
|
|
$
|
265,985
|
|
|
$
|
254,907
|
|
On May 15, 2016, the Company’s contractually
controlled affiliate in PRC, Law Anhou Insurance Agency Co., Ltd (“Anhou” or “Law Anhou”), entered into
a loan agreement (“Loan B”) with a third party. The long-term Loan Agreement provided for a $150,274 loan to the Company.
Loan B bears an interest rate of 8% per annum and interest is payable annually. The principal and the interest will be due on May
15, 2019.
On July 20, 2016, Anhou entered into a
loan agreement (“Loan C”) with a third party. The long-term Loan Agreement provided for a $115,711 loan to the Company.
Loan C bears an interest rate of 8% per annum and interest is payable annually. The principal and the interest will be due on July
20, 2019.
The total interest expense for both Loan
B and Loan C was $5,293 and $15,562 for the three and nine months ended September 30, 2017.
NOTE 15 – LONG-TERM LIABILITIES
As of September 30, 2017 and December 31, 2016, long-term liabilities are as follows:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Unearned revenue – AIATW
|
|
$
|
4,242,585
|
|
|
$
|
4,742,272
|
|
Unearned revenue – Farglory
|
|
|
-
|
|
|
|
495,615
|
|
Due to pervious shareholders of AHFL
|
|
|
480,559
|
|
|
|
-
|
|
Other long-term liabilities
|
|
|
175,191
|
|
|
|
77,440
|
|
Long-term liabilities
|
|
$
|
4,898,335
|
|
|
$
|
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 an execution fee of $8,326,700 (NTD250,000,000, including the
tax of NTD11,904,762, the “Execution Fee”), 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 on pro rata basis 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 (the “2016 Letter”) to AIATW that AHFL is required to (i) fulfill sales targets and (ii) the 13-month persistency
ratio.
On June 14, 2017, with
AIATW’s consent, the 2016 Letter has been revoked in order to conform with the latest terms and conditions regarding
the cooperation between AHFL and AIATW as set forth in a third amendment (Amendment No. 3). Pursuant to the Amendment No. 3,
both AHFL and AIATW agreed to adjust certain terms and conditions set forth this amendment, among which (i) except the first
contract year (April 15th, 2013 to September 30th, 2014), the sales target of the alliance between the parties shall be
changed to (a) value of new business (“VONB”) and (b) the 13-month persistency ratio; and (ii) AIATW will
calculate and recognize the VONB and 13-month persistency ratio each contract year and inform the Company the result; and
(iii) the Company agrees to return the basic business promotion fees to AIATW within thirty (30) days of receipt of the
notice sent by AIATW if the Company fails to meet the targets set forth in Amendment No. 3, AIATW reserves the right to
offset such amount against the amount payable by it to the Company; and (iv) upon the termination of the Alliance Agreement
and its amendments pursuant to the Section 8.2 of the Alliance Agreement, both parties agree to calculate the amount to be
returned or repaid, as applicable, based on the past and current contract years. The Company shall return the basic business
promotion fees at NTD 330,000,000 for each contract years within one month after the termination.
The Company recognizes AIATW’s revenue
when the life insurance products provided by AIATW are met: (i) persuasive evidence of an agreement between the insurance company
and insured exists, (ii) insurance brokerage services have been provided, (iii) the fee to be paid by the related insurer to the
Company for such services is fixed or determinable, and (iv) the collectability of the fee is reasonably assured. The purpose
of refund is primarily due to the portion of performance sales targets are not met in that contract year. The following table
presents the amounts recognized as revenue and the refunded for each contract year:
Contract Year
|
|
Period
|
|
Execution Fees
|
|
|
Revenue Amount
|
|
|
Refund Amount
|
|
First
|
|
4/15/2013 ~ 9/30/2014
|
|
NTD
|
50,000,000
|
|
|
NTD
|
28,494,856
|
(1)
|
|
NTD
|
21,505,144
|
(1)
|
Second
|
|
1/1/2016 ~ 12/31/2016
|
|
NTD
|
35,000,000
|
|
|
NTD
|
13,497,750
|
(2)
|
|
NTD
|
21,502,250
|
(2)
|
Third
|
|
1/1/2017 ~ 12/31/2017
|
|
NTD
|
33,000,000
|
|
|
NTD
|
9,254,296
|
(3)
|
|
NTD
|
-
|
|
Fourth
|
|
1/1/2018 ~ 12/31/2018
|
|
NTD
|
33,000,000
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
Fifth
|
|
1/1/2019 ~ 12/31/2019
|
|
NTD
|
33,000,000
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
Sixth
|
|
1/1/2020 ~ 12/31/2020
|
|
NTD
|
33,000,000
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
Seventh
|
|
1/1/2021 ~ 12/31/2021
|
|
NTD
|
33,000,000
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
TOTAL
|
|
|
|
NTD
|
250,000,000
|
|
|
NTD
|
51,246,902
|
|
|
NTD
|
43,007,394
|
|
|
(1)
|
The revenue recognition for the first contract
year is based on the annual first year premium (“AFYP”) set in Alliance Agreement, which is difference from other contract
years. From the second contract year to the seventh contract year, the revenue calculation is based on VONB. The Company recognized
the first contract year’s revenue amount of $934,099 (NTD28,494,856) and refunded the amount of nil for the first contract
year for the nine months ended September 30, 2017. On December 3, 2015 and February 23, 2016, the Company refunded the amounts
of $152,235 (NTD 5,000,000) and $502,532 (NTD 16,505,144) to AIATW, respectively, due to the portion of performance sales
targets not met during the first contract
year.
|
|
(2)
|
For the nine months ended September 30, 2017, the Company recognized the second contract year’s revenue amount of $442,474 (NTD13,497,750) and refunded the amount of $709,084 (NTD21,502,250) for the same contract period.
|
|
(3)
|
For the nine months ended September 30, 2017, the Company
recognized the third contract year’s revenue amount of $303,369 (NTD9,254,296) and refunded the amount nil for the
same contract period.
|
The Company recognized revenue of $1,679,942
(NTD51,246,902) and nil for the nine months ended September 30, 2017 and 2016 related to this agreement. As of September 30, 2017
and December 31, 2016, the Company had non-current portion of unearned revenue of $4,242,585 and $4,742,272, respectively, and
current portion of $681,340 and $1,966,814, respectively, related to the 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”). The
Company is 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. However, both parties are renegotiating the Service Agreement and plan to amend the cooperation
method. As of September 30, 2017 and December 31, 2016, the Company had long-term liabilities amount of nil and $495,615, respectively,
and current liabilities amounts of $659,544 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 $480,559 (NTD15 million) on or prior to March 31, 2019.
Other long-term liabilities
On May 10, 2016, Law Broker entered into
an engagement agreement (the “Engagement Agreement”) with Hui-Hsien Chao (“Ms. Chao”), pursuant to which
she acts as the general manager of Law Broker for 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. Law Broker expects that none of the above-mentioned bonuses are to be paid prior to May 2019, and therefore it has recorded
as 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 September 30, 2017
and December 31, 2016, the balance of such accrued long-term liabilities was $175,191 and $77,440, respectively.
NOTE 16 – PREFERRED STOCK
The Company is authorized to issue 10,000,000
shares of preferred stock, $.00001 par value and currently has 1,000,000 shares of Series A Preferred Stock (“Series A Stock”)
outstanding as of September 30, 2017. 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 (the “BOD”)
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 BOD 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 17 – 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, 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 18 – NON-CONTROLLING INTERESTS
Non-controlling interests consisted of
the following:
Name of Affiliate
|
|
% of
Non-controlling Interests
|
|
|
As of
December 31, 2016
|
|
|
Net Income
and Other Comprehensive Gain/(Loss) of Non-controlling Interests
|
|
|
As of
September 30, 2017
|
|
Law Enterprise Co., Ltd. (“Law Enterprise”)
|
|
|
34.05
|
%
|
|
$
|
17,386
|
|
|
$
|
446,585
|
|
|
$
|
463,971
|
|
Law Broker
|
|
|
34.05
|
%
|
|
|
9,621,159
|
|
|
|
2,148,249
|
|
|
|
11,769,408
|
|
Prime Financial Asia Ltd. (“PFAL”)
|
|
|
49.00
|
%
|
|
|
232,414
|
|
|
|
(34,973
|
)
|
|
|
197,441
|
|
Max Key Investments Ltd. (“MKI”)
|
|
|
49.00
|
%
|
|
|
(1,569
|
)
|
|
|
(548
|
)
|
|
|
(2,117
|
)
|
Prime Asia Corporation Limited. (“PA Taiwan”)
|
|
|
49.00
|
%
|
|
|
(95,448
|
)
|
|
|
(64,179
|
)
|
|
|
(159,627
|
)
|
Prime Management Consulting (Nanjing) Co., Ltd. (“PTC Nanjing”)
|
|
|
49.00
|
%
|
|
|
(2,400
|
)
|
|
|
261
|
|
|
|
(2,139
|
)
|
Total
|
|
|
|
|
|
$
|
9,771,542
|
|
|
$
|
2,495,395
|
|
|
$
|
12,266,937
|
|
Name of Affiliate
|
|
% of
Non-controlling Interests
|
|
|
As of
December 31, 2015
|
|
|
Net Income
and Other Comprehensive Gain/(Loss) of Non-controlling Interests
|
|
|
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 19 – INCOME TAX
Provision (benefit) for income tax
for the three months ended September 30, 2017 consisted of:
Three months ended
September 30, 2017
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
828,532
|
|
|
$
|
828,532
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
3,346
|
|
|
|
3,346
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
831,878
|
|
|
$
|
831,878
|
|
Provision (benefit) for income tax for
the three months ended September 30, 2016 consisted of:
Three months ended
September 30, 2016
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
500,787
|
|
|
$
|
500,787
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
(43,959
|
)
|
|
|
(43,959
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
456,828
|
|
|
$
|
456,828
|
|
Provision (benefit) for income tax for
the nine months ended September 30, 2017 consisted of:
Nine months ended
September 30, 2017
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,365,177
|
|
|
$
|
2,365,177
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,030
|
)
|
|
|
(20,030
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,345,147
|
|
|
$
|
2,345,147
|
|
Provision (benefit)
for income tax for the nine months ended September 30, 2016 consisted of:
Nine months ended
September 30, 2016
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,400,566
|
|
|
$
|
1,400,566
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
(65,235
|
)
|
|
|
(65,235
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,335,331
|
|
|
$
|
1,335,331
|
|
Significant components of the deferred
tax assets and liabilities for income tax as of September 30, 2017 and December 31, 2016 consisted of the following:
|
|
As of
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
1,101,734
|
|
|
$
|
993,050
|
|
Others
|
|
|
110,212
|
|
|
|
84,597
|
|
Total
|
|
$
|
1,211,946
|
|
|
$
|
1,077,647
|
|
Valuation allowance
|
|
|
(1,101,734
|
)
|
|
|
(993,050
|
)
|
Net deferred tax assets
|
|
$
|
110,212
|
|
|
$
|
84,597
|
|
Deferred tax assets - current
|
|
$
|
58,041
|
|
|
$
|
59,233
|
|
Deferred tax assets - noncurrent
|
|
$
|
52,171
|
|
|
$
|
25,364
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities - current
|
|
$
|
125,059
|
|
|
$
|
-
|
|
A 100% valuation allowance was provided
for the deferred tax assets related to the PRC segment and the Company as of September 30, 2017 and December 31, 2016. Net deferred
tax assets of $110,212 and $84,597, respectively, related to the Taiwan segment were included in other current assets and other
assets on the consolidated balance sheets as of September 30, 2017 and December 31, 2016. Deferred tax liabilities were the timing
differences of revenue and cost of sales recognized in the period ended September 30, 2017. Deferred tax liabilities of $125,059
and nil, respectively, related to the PRC segment were in other current liabilities on the consolidated balance sheets as of September
30, 2017 and December 31, 2016.
Zhengzhou Zhonglian Hengfu Business Consulting
Co., Ltd. (“CU WFOE”) and the CAE 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. For Jiangsu, according to the requirement of local tax authorities, the tax basis is deemed as
10% of total revenue, instead of net income.
The Company’s subsidiaries in Taiwan
are governed by the Income Tax Law of Taiwan, and are generally subject to tax at 17% on income reported in the statutory financial
statements after appropriate adjustments. In the meanwhile, Income Tax Law of Taiwan provides that a company is taxed at additional
10% on any undistributed earnings to its shareholders.
The Company’s subsidiaries in Hong
Kong are governed by the Inland Revenue Ordinance Tax Law of Hong Kong, and are generally subject to a profits tax at the rate
of 16.5% on the estimated assessable profits.
The following table reconciles the US statutory
rates to the Company’s effective tax rate for the three months ended September 30, 2017 and 2016:
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
US statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Tax rate difference
|
|
|
(18
|
)%
|
|
|
(18
|
)%
|
Tax base difference
|
|
|
-
|
%
|
|
|
-
|
%
|
Loss in subsidiaries
|
|
|
7
|
%
|
|
|
2
|
%
|
Un-deductible and non-taxable items
|
|
|
7
|
%
|
|
|
9
|
%
|
Tax per financial statements
|
|
|
30
|
%
|
|
|
27
|
%
|
The following table reconciles the US statutory
rates to the Company’s effective tax rate for the nine months ended September 30, 2017 and 2016:
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
US statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Tax rate difference
|
|
|
(18
|
)%
|
|
|
(20
|
)%
|
Tax base difference
|
|
|
-
|
%
|
|
|
1
|
%
|
Loss in subsidiaries
|
|
|
5
|
%
|
|
|
7
|
%
|
Un-deductible and non-taxable items
|
|
|
6
|
%
|
|
|
10
|
%
|
Tax per financial statements
|
|
|
27
|
%
|
|
|
32
|
%
|
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 20 – 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 September 30, 2017 and December
31, 2016:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Due to Mr. Mao (CEO of the Company)
|
|
$
|
401,775
|
|
|
$
|
361,379
|
|
Due to Ms. Lu (Shareholder of Law Anhou)
|
|
|
225,411
|
|
|
|
-
|
|
Due to Xude Investment (Owned by Mr. ChwanHau Li)
|
|
|
-
|
|
|
|
32,374
|
|
Due to Mr. Zhu (Legal Representative of Jiangsu)
|
|
|
2,081
|
|
|
|
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*
|
|
|
17,313
|
|
|
|
3,724
|
|
Total
|
|
$
|
646,862
|
|
|
$
|
400,001
|
|
*25% of I Health Management Corp’s
shares are owned by Multiple Capital Enterprise. 24% of Multiple Capital Enterprise’s shares are owned by the Company’s
management level
The loan due to related parties were non-interest
bearing and were payable on demand.
Debt Forgiveness – Related Parties
In 2015, Xude Investment assisted the
Company to set up Genius Holdings Financial Limited (BVI Company) and Genius Investment Consultant Co., Ltd. (Taiwan Company)
and paid set up fee on behalf of the Company with the amount of $23,544 and NTD285,083 ($9,393). Xude Investment was owned by
Mr. ChwanHau Li, who is one of the Directors of the Company. In March 2017, Xude Investment agreed to forgive the Company’s
debt above in whole. As of September 30, 2017, the Company has debt forgiveness from related parties amount of $32,937.
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 $590 (NTD18,000). On June 30,
2017, this lease agreement was extended automatically to June 30, 2018. For the three and nine months ended September 30, 2017,
rent income were $141 and $421, 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 $590 (NTD18,000). On June
30, 2017, this lease agreement was extended automatically to June 30, 2018. For the three and nine months ended September 30, 2017,
rent income were $141 and $421, 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
$42,000 (NTD1,275,000). For the nine months ended September 30, 2017, The Company had cost of revenue related to I Health amount
of $13,269.
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 general and administrative expense related to this advisory agreement amount of $13,619and
$42,998, respectively, for the three and nine months ended September 30, 2017.
Consulting Agreement
On November 1, 2016, the Company entered
into a consulting agreement with Apex Biz Solution Limited. (“Apex,” was formerly known as Prime Technology Corp.),
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 Apex from November 1, 2016 to December 31, 2021. As of and for the nine months ended September
30, 2017, the Company had account receivable and revenue amount of $17,274 and $33,874, respectively.
NOTE 21 – COMMITMENTS
Operating Leases
The Company has operating leases for its
offices. Rental expenses for the three months ended September 30, 2017 and 2016 were $595,277 and $526,390, respectively. Rental
expenses for the nine months ended September 30, 2017 and 2016 were $1,832,335 and $1,557,725, respectively. As of September 30,
2017, total future minimum annual lease payments under operating leases were as follows, by years:
Twelve months ending September 30, 2018
|
|
$
|
2,049,071
|
|
Twelve months ending September 30, 2019
|
|
|
1,166,015
|
|
Twelve months ending September 30, 2020
|
|
|
245,873
|
|
Twelve months ending September 30, 2021
|
|
|
55,088
|
|
Twelve months ending September 30, 2022
|
|
|
17,687
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
3,533,734
|
|
Engagement Agreement with Ms. Chao
On May 10, 2016, Law Broker entered into
the Engagement Agreement with Ms. Chao. Please refer to Note 15 Other Long-term Liabilities.
NOTE 22 – 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 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 receivables, loan and other receivables, pledged deposits and cash and equivalents. Management has a
credit policy in place and monitors exposures to these credit risk on an ongoing basis. The carrying amounts of account receivables,
loan and other receivables, pledged deposits and cash and cash equivalents represent the Company’s maximum exposure to credit
risk. Accounts receivable are due within thirty (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
Company’s subsidiaries in Taiwan is NTD and the functional currency for the Company’s subsidiaries and CAE in PRC
is RMB. The financial statements of the Company are in USD. The fluctuation of NTD and RMB exchange rates will affect the
Company’s operating results expressed in USD. The Company reviews its foreign currency exposures, and the management
does not consider its present foreign exchange risk to be significant.
NOTE 23 – RECLASSIFICATIONS
The effects of the reclassifications for
the prior year is reflected below.
Consolidated Balance Sheet
|
|
December 31, 2016
|
|
Original:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,521,802
|
|
|
|
|
|
|
Revised:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,169,455
|
|
Time deposits
|
|
|
5,352,347
|
|
Unaudited Condensed Consolidated Statements of Cash Flow
|
|
Nine Months Ended
September 30, 2016
|
|
Original:
|
|
|
|
|
Net cash used in investing activities
|
|
$
|
(960,166
|
)
|
|
|
|
|
|
Foreign currency translation
|
|
|
942,171
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,975,267
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
20,831,824
|
|
Cash and cash equivalents, ending balance
|
|
|
24,807,091
|
|
|
|
|
|
|
Revised:
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Purchases of time deposits
|
|
$
|
(7,095,147
|
)
|
Proceeds from maturities of time deposits
|
|
|
8,025,394
|
|
Net cash used in investing activities
|
|
|
(29,919
|
)
|
|
|
|
|
|
Foreign currency translation
|
|
|
596,891
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
4,560,234
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
13,083,357
|
|
Cash and cash equivalents, ending balance
|
|
|
17,643,591
|
|
NOTE 24 – FAIR VALUE MEASUREMENT
FASB ASC 820,
“Fair Value
Measurements and Disclosures,”
defines Fair Value (“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 following table presents the fair value
and carrying value of the Company’s financial assets and liabilities as of September 30, 2017:
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank time deposits
|
|
$
|
-
|
|
|
$
|
21,475,432
|
|
|
$
|
-
|
|
|
$
|
21,475,432
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
|
|
|
32,867
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,867
|
|
Structured deposit
|
|
|
-
|
|
|
|
1,205,162
|
|
|
|
-
|
|
|
|
1,205,162
|
|
Loan receivable (Other current assets in Notes 6)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,477,060
|
|
|
|
1,477,060
|
|
Long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
-
|
|
|
|
-
|
|
|
|
1,288,279
|
|
|
|
1,267,475
|
|
Government bonds
|
|
|
-
|
|
|
|
101,475
|
|
|
|
-
|
|
|
|
101,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
646,862
|
|
|
$
|
646,862
|
|
Convertible bonds
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Long-term loans
|
|
|
-
|
|
|
|
-
|
|
|
|
265,985
|
|
|
|
265,985
|
|
The following table presents the fair value
and carrying value of the Company’s financial assets and liabilities as of December 31, 2016:
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank time deposits
|
|
$
|
-
|
|
|
$
|
7,808,058
|
|
|
$
|
-
|
|
|
$
|
7,808,058
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
|
|
|
38,763
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,763
|
|
Funds
|
|
|
2,388,107
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,388,107
|
|
Loan receivable (Other current assets in Notes 6)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,486,846
|
|
|
|
1,486,846
|
|
Long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
-
|
|
|
|
-
|
|
|
|
1,288,279
|
|
|
|
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
|
|
Bank time deposits – The carrying
amount approximates its fair value due to short-term in nature of the bank time deposits.
Marketable securities – The fair value
of stocks and funds is generally valued based on quoted market prices in active markets.
Structured deposit – The fair value
of the structured deposit is determined based on present value of the structured deposit, using annum yield of 3.9% or 4.1%, depending
on the strike price. The strike price is at 7.3 USDCNH.
Loan receivable – The Company’s
loan receivable is determined based on 4.5% per annum interest rate on the recent lending to Rich Fountain Limited.
Equity investment – The fair value of
the Company’s equity investment was arrived at using the “Income Approach.” The calculation assumptions were:
(i) 2% for long-term stable growth rate, (ii) 14.79%~15% for cash discount rate (rate for weighted average cost of capital), and
(iii) 25% for liquidity discount rate. The Company evaluated overall economic condition and unnoted any significant change. The
related equity investment does not have any negative news. Therefore, the fair value of the Company’s equity investment as of September
30, 2017 is same as December 31, 2016.
Government bonds – The fair value
of government bonds is valued based on theoretical bond price in Taipei Exchange (formerly the Gre Tai Securities Market).
Due to related parties – The Company’s
due to related parties bears no interest and payable on demand.
Convertible bonds – The Company determined the fair value of the convertible bonds is 80% of the average closing trading price
for the ten (10) business days immediately prior to the conversion date.
Long-term loans - The fair value of the
Company’s long-term loans were determined by discounted cash flows.
NOTE 25 – GEOGRAPHICAL DATA
The geographical distribution of the Company’s
financial information for the three months ended September 30, 2017 and 2016 were as follows:
|
|
For three months ended September 30,
|
|
Geographical Areas
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
13,290,282
|
|
|
$
|
12,714,857
|
|
PRC
|
|
|
2,885,940
|
|
|
|
2,182,967
|
|
Hong Kong
|
|
|
33,633
|
|
|
|
71,079
|
|
Elimination adjustment
|
|
|
479
|
|
|
|
(17,558
|
)
|
Total revenue
|
|
$
|
16,210,334
|
|
|
$
|
14,951,345
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
2,348,757
|
|
|
$
|
1,661,872
|
|
PRC
|
|
|
284,662
|
|
|
|
(75,861
|
)
|
Hong Kong
|
|
|
(21,353
|
)
|
|
|
1,822
|
|
Elimination adjustment
|
|
|
35,487
|
|
|
|
37,848
|
|
Total income (loss) from operations
|
|
$
|
2,647,553
|
|
|
$
|
1,625,681
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
117,019
|
|
|
$
|
130,343
|
|
PRC
|
|
|
21,415
|
|
|
|
22,180
|
|
Hong Kong
|
|
|
71
|
|
|
|
72
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total depreciation and amortization expenses
|
|
$
|
138,505
|
|
|
$
|
152,595
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
101,919
|
|
|
$
|
38,959
|
|
PRC
|
|
|
45
|
|
|
|
(2,254
|
)
|
Hong Kong
|
|
|
-
|
|
|
|
(1
|
)
|
Elimination adjustment
|
|
|
(22,665
|
)
|
|
|
(5,591
|
)
|
Total interest income
|
|
$
|
79,299
|
|
|
$
|
31,113
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
25,665
|
|
|
$
|
8,965
|
|
PRC
|
|
|
5,293
|
|
|
|
(1,773
|
)
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
Elimination adjustment
|
|
|
(22,665
|
)
|
|
|
(5,591
|
)
|
Total interest expenses
|
|
$
|
8,293
|
|
|
$
|
1,601
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
707,676
|
|
|
$
|
456,849
|
|
PRC
|
|
|
129,257
|
|
|
|
(21
|
)
|
Hong Kong
|
|
|
(5,055
|
)
|
|
|
-
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total income tax expense
|
|
$
|
831,878
|
|
|
$
|
456,828
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
1,877,187
|
|
|
$
|
1,298,707
|
|
PRC
|
|
|
115,800
|
|
|
|
(88,813
|
)
|
Hong Kong
|
|
|
(17,621
|
)
|
|
|
10,781
|
|
Elimination adjustment
|
|
|
1,771
|
|
|
|
2,571
|
|
Total net income (loss)
|
|
$
|
1,977,137
|
|
|
$
|
1,223,246
|
|
The geographical distribution of the Company’s
financial information for the nine months ended September 30, 2017 and 2016 were as follows:
|
|
For nine months ended September 30,
|
|
Geographical Areas
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
41,667,540
|
|
|
$
|
37,093,407
|
|
PRC
|
|
|
8,321,471
|
|
|
|
6,086,426
|
|
Hong Kong
|
|
|
106,147
|
|
|
|
148,664
|
|
Elimination adjustment
|
|
|
(10,474
|
)
|
|
|
(39,384
|
)
|
Total revenue
|
|
$
|
50,084,684
|
|
|
$
|
43,289,113
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
7,652,886
|
|
|
$
|
4,549,826
|
|
PRC
|
|
|
447,690
|
|
|
|
(765,421
|
)
|
Hong Kong
|
|
|
(59,649
|
)
|
|
|
(12,491
|
)
|
Elimination adjustment
|
|
|
101,934
|
|
|
|
100,198
|
|
Total income (loss) from operations
|
|
$
|
8,142,861
|
|
|
$
|
3,872,112
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
343,413
|
|
|
$
|
392,943
|
|
PRC
|
|
|
66,965
|
|
|
|
62,224
|
|
Hong Kong
|
|
|
215
|
|
|
|
216
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total depreciation and amortization expenses
|
|
$
|
410,593
|
|
|
$
|
455,383
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
302,630
|
|
|
$
|
150,772
|
|
PRC
|
|
|
2,314
|
|
|
|
1,408
|
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
Elimination adjustment
|
|
|
(58,385
|
)
|
|
|
(14,958
|
)
|
Total interest income
|
|
$
|
246,559
|
|
|
$
|
137,222
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
67,385
|
|
|
$
|
19,920
|
|
PRC
|
|
|
15,562
|
|
|
|
6,203
|
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
Elimination adjustment
|
|
|
(58,385
|
)
|
|
|
(14,958
|
)
|
Total interest expenses
|
|
$
|
24,562
|
|
|
$
|
11,165
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
2,133,024
|
|
|
$
|
1,332,238
|
|
PRC
|
|
|
217,178
|
|
|
|
3,093
|
|
Hong Kong
|
|
|
(5,055
|
)
|
|
|
-
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total income tax expense
|
|
$
|
2,345,147
|
|
|
$
|
1,335,331
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
6,382,356
|
|
|
$
|
3,678,408
|
|
PRC
|
|
|
170,408
|
|
|
|
(781,726
|
)
|
Hong Kong
|
|
|
(70,562
|
)
|
|
|
(13,882
|
)
|
Elimination adjustment
|
|
|
4,762
|
|
|
|
6,456
|
|
Total net income (loss)
|
|
$
|
6,486,964
|
|
|
$
|
2,889,256
|
|
The geographical distribution of the Company’s
financial information as of September 30, 2017 and December 31, 2016 were as follows:
|
|
As of
|
|
Geographical Areas
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
(317,455
|
)
|
|
$
|
(835,564
|
)
|
PRC
|
|
|
(29,234
|
)
|
|
|
(148,936
|
)
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
Total capital expenditures
|
|
$
|
(346,689
|
)
|
|
$
|
(984,500
|
)
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
1,508,431
|
|
|
$
|
1,453,772
|
|
PRC
|
|
|
165,811
|
|
|
|
256,704
|
|
Hong Kong
|
|
|
430
|
|
|
|
648
|
|
Elimination adjustment
|
|
|
3,746,163
|
|
|
|
2,071,491
|
|
Total long-lived assets
|
|
$
|
3,746,163
|
|
|
$
|
3,782,615
|
|
|
|
|
|
|
|
|
|
|
Reportable assets
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
89,208,044
|
|
|
$
|
90,388,991
|
|
PRC
|
|
|
11,748,446
|
|
|
|
13,325,433
|
|
Hong Kong
|
|
|
434,808
|
|
|
|
561,708
|
|
Elimination adjustment
|
|
|
(50,258,436
|
)
|
|
|
(52,868,589
|
)
|
Total reportable assets
|
|
$
|
51,132,862
|
|
|
$
|
51,407,543
|
|
NOTE 26 – LOAN TO SHAREHOLDERS
Anhou Registered Capital Increase
On April 27, 2013, China Insurance Regulatory
Commission mandated any insurance agency have a minimum registered capital requirement of RMB50 million (
approximately
$ 8 million
). At the time, Anhou, a professional insurance agency with a PRC nationwide license, had a registered capital
of RMB10 million (
approximately $ 1.6 million
). To better implement its expansion
strategies, Anhou intends to increase its registered capital to RMB50 million so that it can set up new branches in any province
beyond its current operations in 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 variable interest entity (“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. On October 20, 2013, the Investor Borrowers increased Anhou’s registered capital by RMB 40
million ($6,389,925).
NOTE 27 – SUBSEQUENT EVENTS
The
Company does not receive the full remaining principle repayment of loan receivable from RFL. On November 1 and November 2,
2017, the Company received the interest payment of this loan amount of NTD 300,000 (approximately $9,800) and $23,832,
respectively. The management has evaluated RFL's business operation and ability to repay the loan in the future and determine
that RFL will be able to repay the loan per newly negotiated terms and assessed that there is no impairment loss on the loan.
Therefore, the Company is willing to extend the payment period of RFL loan.
The Company has evaluated all other subsequent
events through the date these consolidated financial statements were issued, and determined that there were no subsequent events
or transactions that require recognition or disclosures in the consolidated financial statements.