UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2021
OR
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER: 000-54884
CHINA UNITED INSURANCE SERVICE, INC.
(Exact name of registrant as specified in its charter)
Delaware | 30-0826400 |
(State or other jurisdiction of | (IRS Employer |
7F, No. 311 Section 3
Nan-King East Road
Taipei City, Taiwan
(Address of principal executive offices)
+8862-871269588862-87126958
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x☒ No ¨
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x☒ No ¨
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer |
Non-accelerated filer | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
☐
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes ¨☐ No x☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which | ||
N/A | N/A | N/A |
As of November 9, 2017,May 10, 2021, there are 29,452,669were 29,421,736 shares of common stock issued and outstanding, and 1,000,000 preferred shares issued and outstanding.
TABLE OF CONTENTS
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2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described under Part 1 Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report, or that we filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
3
OTHER PERTINENT INFORMATION
References in this quarterly report to “we,” “us,” “our,” the “Registrant”“our” and the “Company” and words of like import refer to China United Insurance Service, Inc., its subsidiaries and consolidated affiliated entities (“CAE”) unless otherwise indicated by the context.
variable interest entities.
References to China or the PRC refer to the People’s Republic of China (excluding Hong Kong, Macao and Taiwan). References to Taiwan refer to Taiwan, Republic of China.
Unless context indicates otherwise, reference to the “Company” in this quarterly report refers to China United Insurance Service, Inc. and its subsidiaries. Reference to “AHFL” refers to the combined operations of Action Holdings Financial Limited and its Taiwan Subsidiaries (as defined below). Reference to “Anhou” refers to the combined operations of Law Anhou Insurance Agency Co., Ltd. and its subsidiaries.
Our business is conducted in Taiwan Hong Kong and China using New Taiwanese Dollars (“NT$” or “NTD”), the currency of Taiwan, Hong Kong Dollars (“NTD”HK$” or “HKD”), the currency of Hong Kong, (“HKD”), and RMB, the currency of China, (“RMB”), respectively, and our financial statements are presented in United States dollars (“USD”, “US$” or “$”). In this quarterly report, we refer to assets, obligations, commitments and liabilities in our financial statements in USD.U.S. dollars. These dollar references are based on the exchange rate of NTD, HKDNT$, HK$ and RMB to USD, determined as of a specific date. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of USDU.S. dollars which may result in an increase or decrease in the amount of our obligations (expressed in USD) and the value of our assets, including accounts receivable (expressed in USD).
4
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | ||
(Amount in USD) | | (Unaudited) | | | | |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 17,436,654 | | $ | 9,063,338 |
Time deposits | |
| 53,749,018 | |
| 53,339,508 |
Accounts receivable | |
| 18,744,199 | |
| 25,346,250 |
Contract assets | | | 97,480 | | | — |
Marketable securities | | | 0 | | | 1,272,573 |
Other current assets | |
| 1,332,842 | |
| 1,491,168 |
Total current assets | |
| 91,360,193 | |
| 90,512,837 |
| | | | | | |
Right-of-use assets under operating leases | | | 6,282,892 | | | 6,524,555 |
Property and equipment, net | |
| 2,157,445 | |
| 2,373,245 |
Intangible assets, net | |
| 330,273 | |
| 381,747 |
Long-term investments | |
| 2,636,257 | |
| 2,835,095 |
Restricted cash – noncurrent | |
| 65,499 | |
| 66,490 |
Deferred tax assets | | | 866,702 | | | 1,021,890 |
Other assets | |
| 4,135,077 | |
| 4,012,370 |
TOTAL ASSETS | | $ | 107,834,338 | | $ | 107,728,229 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
|
| |
|
|
Current liabilities | |
|
| |
|
|
Commission payable to sales professionals | | $ | 9,801,187 | | $ | 12,088,291 |
Short-term loans | | | 16,235,471 | | | 14,159,108 |
Contract liabilities | | | 1,103,987 | | | 1,119,361 |
Income tax payable - current | |
| 4,266,279 | |
| 3,146,018 |
Operating lease liabilities - current | | | 3,018,303 | | | 3,043,056 |
Due to related parties | |
| 76,831 | |
| 94,047 |
Other current liabilities | |
| 10,476,912 | |
| 13,591,034 |
Total current liabilities | |
| 44,978,970 | |
| 47,240,915 |
| | | | | | |
Income tax payable - noncurrent | |
| 719,515 | |
| 719,515 |
Operating lease liabilities - noncurrent | | | 3,191,735 | | | 3,440,343 |
Other liabilities | |
| 861,037 | |
| 1,090,222 |
TOTAL LIABILITIES | |
| 49,751,257 | |
| 52,490,995 |
| | | | | | |
COMMITMENTS AND CONTINGENCIES | |
| | |
| |
| | | | | | |
STOCKHOLDERS’ EQUITY | |
| | |
| |
Preferred stock, par value $0.00001, 10,000,000 authorized, 1,000,000 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | |
| 10 | |
| 10 |
Common stock, par value $0.00001, 100,000,000 authorized, 29,421,736 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | |
| 294 | |
| 294 |
Additional paid-in capital | |
| 8,190,449 | |
| 8,190,449 |
Statutory reserves | |
| 9,463,903 | |
| 9,463,903 |
Retained earnings | |
| 11,507,794 | |
| 9,097,408 |
Accumulated other comprehensive income | |
| 3,061,569 | |
| 3,889,429 |
Total stockholders' equity attributable to China United's shareholders | |
| 32,224,019 | |
| 30,641,493 |
Noncontrolling interests | |
| 25,859,062 | |
| 24,595,741 |
TOTAL STOCKHOLDERS' EQUITY | |
| 58,083,081 | |
| 55,237,234 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 107,834,338 | | $ | 107,728,229 |
September 30, 2017 | December 31, 2016 | |||||||
(UNAUDITED) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 11,663,265 | $ | 20,169,455 | ||||
Time deposits | 21,475,432 | 5,352,347 | ||||||
Marketable securities | 32,867 | 2,426,870 | ||||||
Structured deposit | 1,205,162 | - | ||||||
Accounts receivable, net | 7,217,051 | 15,774,159 | ||||||
Other current assets | 2,274,353 | 1,890,551 | ||||||
Total current assets | 43,868,130 | 45,613,382 | ||||||
Property, plant and equipment, net | 927,062 | 926,905 | ||||||
Intangible assets | 747,610 | 784,219 | ||||||
Goodwill | 2,071,491 | 2,071,491 | ||||||
Long-term investments | 1,368,950 | 1,285,064 | ||||||
Other assets | 2,149,619 | 726,482 | ||||||
TOTAL ASSETS | $ | 51,132,862 | $ | 51,407,543 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Tax payable | $ | 2,356,626 | $ | 2,249,869 | ||||
Convertible bonds | 200,000 | - | ||||||
Due to related parties | 646,862 | 400,001 | ||||||
Other current liabilities | 10,420,828 | 18,639,909 | ||||||
Total current liabilities | 13,624,316 | 21,289,779 | ||||||
Convertible bonds - noncurrent | - | 200,000 | ||||||
Long-term loans | 265,985 | 254,907 | ||||||
Long-term liabilities | 4,898,335 | 5,315,327 | ||||||
TOTAL LIABILITIES | 18,788,636 | 27,060,013 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, par value $0.00001, 10,000,000 authorized, 1,000,000 issued and outstanding | 10 | 10 | ||||||
Common stock, par value $0.00001, 100,000,000 authorized, 29,452,669 issued and outstanding | 295 | 295 | ||||||
Additional paid-in capital | 8,190,449 | 8,157,512 | ||||||
Statutory reserves | 5,054,720 | 3,799,585 | ||||||
Retained earnings | 6,663,807 | 3,286,562 | ||||||
Accumulated other comprehensive gain/(loss) | 168,008 | (667,976 | ) | |||||
Stockholders’ equity attribute to parent’s shareholders | 20,077,289 | 14,575,988 | ||||||
Noncontrolling interests | 12,266,937 | 9,771,542 | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 32,344,226 | 24,347,530 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 51,132,862 | $ | 51,407,543 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME / (LOSS)
(UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 16,210,334 | $ | 14,951,345 | $ | 50,084,684 | $ | 43,289,113 | ||||||||
Cost of revenue | 9,071,624 | 9,335,735 | 29,746,059 | 27,986,021 | ||||||||||||
Gross profit | 7,138,710 | 5,615,610 | 20,338,625 | 15,303,092 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling | 783,120 | 630,255 | 1,481,423 | 2,094,965 | ||||||||||||
General and administrative | 3,708,037 | 3,359,674 | 10,714,341 | 9,336,015 | ||||||||||||
Total operating expenses | 4,491,157 | 3,989,929 | 12,195,764 | 11,430,980 | ||||||||||||
Income from operations | 2,647,553 | 1,625,681 | 8,142,861 | 3,872,112 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest income | 79,299 | 31,113 | 246,559 | 137,222 | ||||||||||||
Interest expenses | (8,293 | ) | (1,601 | ) | (24,562 | ) | (11,165 | ) | ||||||||
Dividend income | 1,391 | 3,633 | 331,140 | 272,522 | ||||||||||||
Other - net | 89,065 | 21,248 | 136,113 | (46,104 | ) | |||||||||||
Total other income (expenses) | 161,462 | 54,393 | 689,250 | 352,475 | ||||||||||||
Income before income tax | 2,809,015 | 1,680,074 | 8,832,111 | 4,224,587 | ||||||||||||
Income tax expense | 831,878 | 456,828 | 2,345,147 | 1,335,331 | ||||||||||||
Net income | 1,977,137 | 1,223,246 | 6,486,964 | 2,889,256 | ||||||||||||
Net income attributable to the noncontrolling interests | 669,490 | 465,501 | 1,854,584 | 1,301,226 | ||||||||||||
Net income attributable to parent’s shareholders | 1,307,647 | 757,745 | 4,632,380 | 1,588,030 | ||||||||||||
Other comprehensive items | ||||||||||||||||
Foreign currency translation gain | 48,149 | 260,981 | 793,090 | 378,217 | ||||||||||||
Other | 175 | - | 42,894 | (1,593 | ) | |||||||||||
Other comprehensive income attributable to parent’s shareholders | 48,324 | 260,981 | 835,984 | 376,624 | ||||||||||||
Other comprehensive items attributable to noncontrolling interests | 23,405 | 249,160 | 640,811 | 408,827 | ||||||||||||
Comprehensive income attributable to parent’s shareholders | $ | 1,355,971 | $ | 1,018,726 | $ | 5,468,364 | $ | 1,964,654 | ||||||||
Comprehensive income attributable to noncontrolling interests | $ | 692,895 | $ | 714,661 | $ | 2,495,395 | $ | 1,710,053 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 29,452,669 | 29,452,669 | 29,452,669 | 29,452,669 | ||||||||||||
Diluted | 30,521,407 | 30,478,667 | 30,521,407 | 30,462,097 | ||||||||||||
Net income per share attributable to parent’s shareholder: | ||||||||||||||||
Basic | $ | 0.044 | $ | 0.026 | $ | 0.157 | $ | 0.054 | ||||||||
Diluted | $ | 0.043 | $ | 0.025 | $ | 0.152 | $ | 0.052 |
| | | | | | | |
| | Three Months Ended March 31, | | ||||
(Amount in USD) |
| 2021 |
| 2020 | | ||
Revenue | | $ | 30,530,117 | | $ | 28,523,210 | |
Cost of revenue | |
| 18,973,432 | |
| 19,499,924 | |
| | | | | | | |
Gross profit | |
| 11,556,685 | |
| 9,023,286 | |
| | | | | | | |
Operating expenses: | |
| | |
| | |
Selling | |
| 579,777 | |
| 490,030 | |
General and administrative | |
| 6,090,254 | |
| 6,984,554 | |
Total operating expense | |
| 6,670,031 | |
| 7,474,584 | |
| | | | | | | |
Income from operations | |
| 4,886,654 | |
| 1,548,702 | |
| | | | | | | |
Other income (expenses): | |
| | |
| | |
Interest income | |
| 83,998 | |
| 110,891 | |
Interest expenses | |
| (42,470) | |
| (59,282) | |
Foreign currency exchange gain (loss), net | |
| 328,466 | |
| (55,937) | |
Other - net | |
| 178,940 | |
| (96,802) | |
Total other income (expenses), net | |
| 548,934 | |
| (101,130) | |
| | | | | | | |
Income before income taxes | |
| 5,435,588 | |
| 1,447,572 | |
Income tax expense | |
| (1,398,806) | |
| (1,111,287) | |
| | | | | | | |
Net income | |
| 4,036,782 | |
| 336,285 | |
Less: net income attributable to noncontrolling interests | |
| (1,626,396) | |
| (625,522) | |
Net income (loss) attributable to China United’s shareholders | |
| 2,410,386 | |
| (289,237) | |
| | | | | | | |
Other comprehensive items, net of tax: | |
| | |
| | |
Foreign currency translation loss | |
| (1,191,299) | |
| (567,633) | |
Other | |
| 364 | |
| (57) | |
Total other comprehensive loss | | | (1,190,935) | | | (567,690) | |
| | | | | | | |
Comprehensive income (loss) | | | 2,845,847 | | | (231,405) | |
Less: comprehensive income attributable to noncontrolling interests | | | (1,263,321) | | | (390,854) | |
| | | | | | | |
Comprehensive income (loss) attributable to China United’s shareholders | | $ | 1,582,526 | | $ | (622,259) | |
| | | | | | | |
Weighted average shares outstanding: | |
| | |
| | |
Basic and diluted | | | 29,421,736 | | | 29,421,736 | |
| | | | | | | |
Earnings (Loss) per share attributable to common stockholders of China United: | |
| | |
|
| |
Basic and diluted | | $ | 0.079 | | $ | (0.010) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 6,486,964 | $ | 2,889,256 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Depreciation and amortization | 410,593 | 455,383 | ||||||
Amortization of bond premium | 193 | - | ||||||
Gain on settlement of debt | - | (83,425 | ) | |||||
Gain on valuation of financial assets | 1,372,468 | (10,868 | ) | |||||
Loss on disposals of property, plant and equipment | 75,121 | 25,568 | ||||||
Deferred income tax | (20,030 | ) | (65,235 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 9,541,161 | 4,085,141 | ||||||
Other current assets | (268,864 | ) | 450,406 | |||||
Other assets | (1,331,414 | ) | 66,823 | |||||
Tax payable | (35,858 | ) | (112,098 | ) | ||||
Other current liabilities | (9,339,583 | ) | (3,943,730 | ) | ||||
Long-term liabilities | (753,022 | ) | 623,579 | |||||
Net cash provided by operating activities | 6,137,729 | 4,380,800 | ||||||
Cash flows from investing activities: | ||||||||
Repayments to pervious shareholders | - | (150,959 | ) | |||||
Purchases of structured deposit | (1,292,441 | ) | - | |||||
Purchases of time deposits | (24,572,262 | ) | (7,095,147 | ) | ||||
Proceeds from maturities of time deposits | 8,888,669 | 8,025,394 | ||||||
Purchase of marketable securities | (6,231,364 | ) | - | |||||
Proceeds from disposals of marketable securities | 7,488,976 | - | ||||||
Purchase of property, plant and equipment | (257,944 | ) | (371,913 | ) | ||||
Purchase of intangible assets | (88,745 | ) | (437,294 | ) | ||||
Net cash used in investing activities | (16,065,111 | ) | (29,919 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from related party borrowings | 261,589 | 68,431 | ||||||
Repayment to related parties | (281 | ) | (623,507 | ) | ||||
Payment to noncontrolling interest as reduction of cash capital | - | (77,043 | ) | |||||
Proceeds from third party borrowings | - | 469,028 | ||||||
Repayment to loans | - | (224,447 | ) | |||||
Net cash provided by (used in) financing activities | 261,308 | (387,538 | ) | |||||
Foreign currency translation | 1,159,884 | 596,891 | ||||||
Net increase (decrease) in cash and cash equivalents | (8,506,190 | ) | 4,560,234 | |||||
Cash and cash equivalents, beginning balance | 20,169,455 | 13,083,357 | ||||||
Cash and cash equivalents, ending balance | $ | 11,663,265 | $ | 17,643,591 | ||||
SUPPLEMENTARY DISCLOSURE: | ||||||||
Interest paid | $ | 29,806 | $ | 2,324 | ||||
Income tax paid | $ | 2,298,197 | $ | 1,549,580 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW FOR NON-CASH TRANSACTION: | ||||||||
Debt forgiveness - related parties | $ | 32,937 | $ | - | ||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | |
| | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | | | | | ||
| | Common | | | | | Preferred | | | | | Paid-in | | Statutory | | Comprehensive | | Retained | | | | | Noncontrolling | | Total | |||||||
|
| Stock |
| Amount |
| Stock |
| Amount |
| Capital |
| Reserves |
| Income |
| Earnings |
| Total |
| Interests |
| Equity | ||||||||||
(Amount in USD) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance December 31, 2020 |
| 29,421,736 | | $ | 294 | | | 1,000,000 | | $ | 10 | | $ | 8,190,449 | | $ | 9,463,903 | | $ | 3,889,429 | | $ | 9,097,408 | | $ | 30,641,493 | | $ | 24,595,741 | | $ | 55,237,234 |
Foreign currency translation loss |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (828,100) | |
| — | |
| (828,100) | |
| (363,199) | |
| (1,191,299) |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 240 | |
| — | |
| 240 | |
| 124 | |
| 364 |
Net income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,410,386 | |
| 2,410,386 | |
| 1,626,396 | |
| 4,036,782 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance March 31, 2021 |
| 29,421,736 | | $ | 294 | | | 1,000,000 | | $ | 10 | | $ | 8,190,449 | | $ | 9,463,903 | | $ | 3,061,569 | | $ | 11,507,794 | | $ | 32,224,019 | | $ | 25,859,062 | | $ | 58,083,081 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | |
| | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | | | | | ||
| | Common | | | | | Preferred | | | | | Paid-in | | Statutory | | Comprehensive | | Retained | | | | | Noncontrolling | | Total | |||||||
|
| Stock |
| Amount |
| Stock |
| Amount |
| Capital |
| Reserves |
| Income |
| Earnings |
| Total |
| Interests |
| Equity | ||||||||||
(Amount in USD) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance December 31, 2019 |
| 29,421,736 | | $ | 294 | | | 1,000,000 | | $ | 10 | | $ | 8,190,449 | | $ | 8,228,904 | | $ | 417,015 | | $ | 9,402,294 | | $ | 26,238,966 | | $ | 19,512,526 | | $ | 45,751,492 |
Issuance of preferred stock1based compensation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 980,466 | | | 980,466 |
Foreign currency translation loss |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (332,984) | |
| — | |
| (332,984) | |
| (234,649) | |
| (567,633) |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (38) | |
| — | |
| (38) | |
| (19) | |
| (57) |
Net (loss) income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (289,237) | |
| (289,237) | |
| 625,522 | |
| 336,285 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance March 31, 2020 |
| 29,421,736 | | $ | 294 | | | 1,000,000 | | $ | 10 | | $ | 8,190,449 | | $ | 8,228,904 | | $ | 83,993 | | $ | 9,113,057 | | $ | 25,616,707 | | $ | 20,883,846 | | $ | 46,500,533 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | |
| | Three Months Ended March 31, | ||||
(Amount in USD) |
| 2021 |
| 2020 | ||
Cash flows from operating activities: | | | | | | |
Net income | | $ | 4,036,782 | | $ | 336,285 |
Adjustments to reconcile net income to net cash provided by operating activities | |
| | |
| |
Noncash stock-based compensation | | | 0 | | | 980,466 |
Depreciation and amortization | |
| 301,618 | |
| 201,522 |
Amortization of bond premium | |
| 58 | |
| 66 |
Gain on sales of financial assets | |
| (140,913) | | | 0 |
Loss on valuation of financial assets | | | 150,992 | | | 170,530 |
Loss on disposals of equipment | | | 77 | | | 7,346 |
Deferred income tax | |
| 80,710 | |
| (251,548) |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable | |
| 6,353,128 | |
| 7,596,492 |
Contract assets | | | (98,867) | | | (221,848) |
Other current assets | |
| 33,244 | |
| (235,848) |
Other assets | |
| (58,712) | |
| (156,709) |
Commission payable to sales professionals | |
| (2,154,109) | |
| (4,171,583) |
Income tax payable | |
| 1,171,156 | |
| 1,306,071 |
Other current liabilities | |
| (3,012,677) | |
| (2,005,065) |
Other liabilities | |
| (217,259) | |
| (215,366) |
Net cash provided by operating activities | |
| 6,445,228 | |
| 3,340,811 |
| | | | | | |
Cash flows from investing activities: | |
| | |
| |
Cash received from issuance of preferred stock | | | 0 | | | 319 |
Purchases of time deposits | |
| (23,561,920) | |
| (22,634,176) |
Proceeds from maturities of time deposits | |
| 22,403,564 | |
| 18,441,127 |
Purchases of marketable securities | |
| 0 | | | (940,268) |
Proceeds from sales of marketable securities | |
| 1,424,798 | | | 0 |
Proceeds from disposal of equipment | |
| 0 | | | 2,879 |
Purchase of equipment | |
| (57,520) | |
| (195,976) |
Purchase of intangible assets | | | (9,780) | | | (9,487) |
Net cash provided by (used in) investing activities | |
| 199,142 | |
| (5,335,582) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Proceeds from short-term loans | |
| 6,324,770 | |
| 22,800,000 |
Repayment of short-term loans | |
| (4,140,000) | |
| (21,300,000) |
Proceeds from related party borrowings | |
| (13,627) | |
| 79,759 |
Net cash provided by financing activities | | | 2,171,143 | |
| 1,579,759 |
| |
| | | | |
Foreign currency translation | |
| (443,188) | |
| (142,027) |
Net increase (decrease) in cash, cash equivalents and restricted cash | |
| 8,372,325 | |
| (557,039) |
| | | | | | |
Cash, cash equivalents and restricted cash, beginning balance | |
| 9,129,828 | |
| 12,658,500 |
Cash, cash equivalents and restricted cash, ending balance | | $ | 17,502,153 | | $ | 12,101,461 |
| | | | | | |
SUPPLEMENTARY DISCLOSURE: | | | | | | |
Interest paid | | $ | 40,886 | | $ | 58,926 |
Income tax paid | | $ | 0 | | $ | 0 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Unaudited)
(Amount in USD)
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
China United Insurance Service, Inc. (“China United,” “CUIS”United” or “CUII”), its subsidiaries and variable-interest entities (collectively referred to herein as the “Company”) is a Delaware corporation organizedprimarily engage in insurance brokerage and insurance agency services. The Company markets and sells to customers two broad categories of insurance products: life insurance products and property and casualty insurance products, both focused on June 4, 2010meeting the particular insurance needs of individuals. The insurance products the Company sells are underwritten by Yi Hsiao Mao, a Taiwanese citizen, as a listing vehicle for both ZLI Holdings Limited (“ZLI Holdings”)some of the leading insurance companies in Taiwan and Action Holdings Financial Limited (“AHFL”), which isChina. The Company manages its business through three geographic operating segments, Taiwan, the PRC, and Hong Kong. The Company’s common stock currently quotedtrades over the counter on the United States OverOTCQB under the Counter Bulletin Board.
ticker symbol “CUII.”
The corporate structure as of September 30, 2017 wasMarch 31, 2021 is as follows:
9
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 and variable interest entities as shown in the organizationcorporate structure in Note 1. All significant intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the consolidated financial statements for prior year to the current year’s presentation. Such reclassifications have no effect on net income as previously reported.
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 presentationstatement of the financial statements have been included. Operating results for the three and nine months ended September 30, 2017March 31, 2021 are not necessarily indicative of the results that may be expected for the year endedending December 31, 2017.
2021.
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, 2016,2020, which were included in the Company’s 20162020 Annual Report on Form 10-K.10-K (“2020 Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2016,2020, has been derived from the Company’s audited consolidated financial statements as of that date.
Use of Estimates
Reclassifications
Certain reclassifications have been madeThe preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the prior periods’amounts reported in the consolidated financial statements and notesfootnotes thereto. Actual results may differ from those estimates and assumptions.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable includes commission receivables stated at net realizable values. The Company reviews its accounts receivable regularly to conformdetermine if a bad debt allowance is necessary at each quarter-end. Management reviews the composition of accounts receivable and analyzes the age of receivables outstanding, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the current period’s presentation. Such reclassifications have no effect on net incomenecessity of making such allowance. No allowance was deemed necessary as previously reported. Please see Note 23, Reclassifications.of March 31, 2021 and December 31, 2020.
Foreign Currency TranslationsTransactions
The Company’sChina United’s financial statements are presented in U.S. dollars ($), which is the Company’sChina United’s reporting and functional currency. The functional currencies of the Company’sChina United’s subsidiaries are NTD, RMBNew Taiwan dollar (“NTD”), China yuan (“RMB”) and HKD.Hong Kong dollar (“HKD”). The resulting translation adjustments are reported under other comprehensive income. 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 using the 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 consolidated statements of operations. operations and other comprehensive income (loss).
10
In accordance with ASC 830, Foreign Currency Matters, theTable of Contents
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 interimcondensed consolidated 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 | |||||||||||
| | | | | | | | ||||||||
| | Average Rate for the three months ended | | ||||||||||||
| | March 31, | | ||||||||||||
|
| 2021 |
| 2020 |
| ||||||||||
Taiwan dollar (NTD) | | NTD | 28.06892 |
| NTD | 30.10404 | | ||||||||
China yuan (RMB) | RMB | 6.805734 | RMB | 6.579240 | | RMB | 6.48199 |
| RMB | 6.97985 | | ||||
Hong Kong dollar (HKD) | HKD | 7.787013 | HKD | 7.763280 | | HKD | 7.75690 |
| HKD | 7.77046 | | ||||
United States dollar ($) | $ | 1.000000 | $ | 1.000000 | | $ | 1.00000 |
| $ | 1.00000 | | ||||
Exchange Rate at | |||||||||||||||
September 30, 2017 | December 31, 2016 | ||||||||||||||
New Taiwan dollar (NTD) | NTD | 30.324000 | NTD | 32.283100 | |||||||||||
| | | | | | | | ||||||||
| | Exchange Rate at | | ||||||||||||
|
| March 31, 2021 |
| December 31, 2020 |
| ||||||||||
Taiwan dollar (NTD) | | NTD | 28.46825 |
| NTD | 28.07725 | | ||||||||
China yuan (RMB) | RMB | 6.654500 | RMB | 6.943700 | | RMB | 6.55363 |
| RMB | 6.52765 | | ||||
Hong Kong dollar (HKD) | HKD | 7.811000 | HKD | 7.754340 | | HKD | 7.77422 |
| HKD | 7.75249 | | ||||
United States dollar ($) | $ | 1.000000 | $ | 1.000000 | | $ | 1.00000 | | $ | 1.00000 | |
Earnings (Loss) Per Share
Basic earnings (loss) per common share (“EPS”) is computed by dividing net income attributable to the common shareholders of the Company by the weighted-average number of common shares outstanding. Diluted EPS is computed in the same manner as basic EPS, except the number of shares includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued.
As the holders of preferred stock of the Company 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 of directors, the preferred stock is treated as a participating security. When calculating the basic earnings per common share, the two-class method is used to allocate earnings to common stock and participating security as required by FASB ASC Topic 260, “Earnings Per Share.” As of March 31, 2021 and 2020, the Company does not have any potentially dilutive instrument.
Fair ValuesValue of Financial Instruments
Accounting Standards Codification (ASC) 820, Fair Value Measurement, definesvalue accounting establishes a framework for measuring fair value and expands disclosure about fair value measurements. Fair value, which is defined as the price at whichthat would be received to sell an asset could be exchanged or paid to transfer a liability transferred in an orderly transaction between knowledgeable, willing parties inmarket participants at the principal or most advantageous market for the asset or liability. Where available,measurement date. This framework provides a fair value is based on observable market prices or derived from such prices. Where observable prices orhierarchy that prioritizes the inputs are not available,to 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 Companytechniques used 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 themeasure fair value into three months ended of September 30, 2017 and 2016. Revenue from these insurance companies were set outlevels 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 | % | (** | ) | (** | ) |
follows:
● |
● | ||
● | Level 3 inputs to the |
11
For the nine months endedTable of September 30, 2017Contents
The following table summarizes financial assets and 2016, the Company’s revenue received from the following companies were set outliabilities measured at fair value on a recurring basis 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 | % |
As of September 30, 2017March 31, 2021 and December 31, 2016, the Company’s accounts receivable from the following companies were set out as below:2020:
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 | % |
| | | | | | | | | | | | |
| | March 31, 2021 | ||||||||||
| | Fair Value | | Carrying | ||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Value | ||||
Assets | | | | | | | | | ||||
Total time deposits |
| $ | 53,749,018 | | $ | — | | $ | — | | $ | 53,749,018 |
Long-term investments: | |
| | |
| | |
| | |
| |
REITs | | | 1,286,159 | | | — | | | — | | | 1,286,159 |
Total assets measured at fair value | | $ | 55,035,177 | | $ | — | | $ | — | | $ | 55,035,177 |
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
| | Fair Value | | Carrying | ||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Value | ||||
Assets | | | | | | | | | ||||
Total cash equivalents and time deposits |
| $ | 53,339,508 | | $ | — | | $ | — | | $ | 53,339,508 |
Marketable securities : | | | | | | | | | | | | |
Stock Mutual funds | |
| 1,272,573 | |
| — | |
| — | |
| 1,272,573 |
Long-term investments: | |
| | |
| | |
| | |
| |
Government bonds held for available -for -sale | |
| — | |
| 107,096 | |
| — | |
| 107,096 |
REITs | | | 1,359,100 | | | — | | | — | | | 1,359,100 |
Total assets measured at fair value | | $ | 55,971,181 | | $ | 107,096 | | $ | — | | $ | 56,078,277 |
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,carrying amounts of current 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 concernsheets 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, consistedapproximate fair value due to the short-term duration 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 |
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
those instruments.
Marketable securities represent investmentand long-term investments in equity securitiesREITs – The fair values of listed stocksmutual funds and funds, which are classified as follows:REITs were valued based on quoted market prices in active markets.
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 5Government bonds – STRUCTURED DEPOSIT
On July 7, 2017, the Company entered into an agreement with Cathy United Bank to purchase a 185-days structured deposit in effectiveThe fair value of government bonds is valued based 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”). Striketheoretical bond 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 | December 31, 2016 | ||||||||||
Cost Method | Genius Insurance Broker Co., Ltd. | 15.64 | % | $ | 1,267,475 | $ | 1,190,558 |
Taipei Exchange.
According to Taiwan Regulations Governing Deposit of Bond and Acquirement of Insurance by Insurance Agents, Insurance Brokers and Insurance Surveyors (“RGDBAI”) Article 3 requirement,and 4, Law Insurance Broker Co., Ltd. (“Law Broker”) is required to maintain a minimum of NTD3,000,000NTD 3,000,000 ($98,932105,381 and $92,928$106,848 as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively) restricted balance in a separate account. RGDBAI Article 4 is required to deposited a minimum amount in the form of cashaccount or book entry to government bondbonds issued by the central government. Therefore, Law Broker used such amountsgovernment in order to purchasemaintain its insurance license. The government bonds matured on March 17, 2021 and the amortized cost of the bonds was NaN and $106,906 (NTD 3,001,620) as of March 31, 2021 and December 31, 2020, respectively. The Company will purchase a similar investment after the maturity of the bonds to maintain the insurance license.
Concentration of Risk
The Company maintains cash with banks in the USA, People’s Republic of China (“PRC”), Hong Kong, and Taiwan. Should any bank holding the Company’s cash become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose all or part of its cash deposit with that bank; however, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. In Taiwan, a depositor has up to NTD3,000,000 insured by Central Deposit Insurance Corporation (“CDIC”). In China, a depositor has up to RMB500,000 insured by the rightPeople’s Bank of China Financial Stability Bureau (“FSD”). In Hong Kong, a depositor has up to trade such bonds with other debt or equity instruments.HKD500,000 insured by Hong Kong Deposit Protection Board (“DPB”). In the United States, the standard insurance amount is $250,000 per depositor in a bank insured by the Federal Deposit Insurance Corporation (“FDIC”).
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 |
12
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, time deposits, restricted cash, register capital deposit and accounts receivable. As of March 31, 2021 and December 31, 2020, approximately $2,215,000 and $2,229,000 of the Company’s cash and cash equivalents, time deposits, and registered capital deposits held by financial institutions, was insured, and the remaining balance of approximately $71,987,000 and $63,222,000, was not insured. With respect to accounts receivable, the Company generally does not require collateral and does not have an allowance for doubtful accounts.
NOTE 10 – OTHER ASSETSFor the three months ended March 31, 2021 and 2020, the Company’s revenues from sale of insurance policies underwritten by these companies were:
| | | | | | | | | | | |
| | Three months ended March 31, | | ||||||||
| | 2021 | | 2020 |
| ||||||
| | | | | % of Total | | | | | % of Total |
|
|
| Amount |
| Revenue |
| Amount |
| Revenue |
| ||
Taiwan Life Insurance Co., Ltd. | | $ | 7,231,458 |
| 24 | % | $ | 5,592,675 | | 20 | % |
TransGlobe Life Insurance Inc. | | | 6,600,629 |
| 22 | % | | 4,995,954 | | 18 | % |
Farglory Life Insurance Co., Ltd. | |
| 4,519,841 |
| 15 | % |
| 3,379,091 | | 12 | % |
Shin Kong Life Insurance Co., Ltd. | |
| (*) |
| (*) | |
| 3,062,062 |
| 11 | % |
(*) The related revenues for the three months ended had not exceeded 10% or more of the consolidated revenues.
As of March 31, 2021 and December 31, 2020, the Company’s accounts receivable from these companies were:
| | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| ||||||
| | | | | % of Total | | | | | % of Total |
|
| | | | | Accounts | | | | | Accounts |
|
|
| Amount |
| Receivable |
| Amount |
| Receivable | | ||
Taiwan Life Insurance Co., Ltd | | $ | 5,103,386 |
| 27 | % | $ | 4,557,862 |
| 18 | % |
TransGlobe Life Insurance Inc. | |
| 4,118,134 |
| 22 | % |
| 7,761,664 |
| 31 | % |
Farglory Life Insurance Co., Ltd. | |
| 2,046,970 |
| 11 | % |
| 2,787,586 |
| 11 | % |
| | | | | | | | | | | |
The Company’s operations are in the PRC, Hong Kong and Taiwan. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic, foreign currency exchange and legal environments in the PRC, Hong Kong and Taiwan, and by the state of each economy. The Company’s results of operations may be adversely affected by changes in the political and social conditions in the PRC, Hong Kong and Taiwan, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.
Stock-Based Compensation
The Company accounts for equity-based compensation cost in accordance with ASC 718, Compensation-Stock Compensation after adoption of ASC 2018-07, which requires the measurement and recognition of compensation expense related to the fair value of equity-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based compensation payments granted to employees and nonemployees, net of estimated forfeitures, over the employees requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Compensation costs for awards granted to nonemployees under Uniwill for the three months ended March 31, 2021 and 2020 were NaN and $980,466, respectively.
Income Taxes
The Company records income tax expense using the asset-and-liability method of accounting for deferred income taxes. Under this method, deferred taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that the deferred tax assets will not be realized.
13
When tax returns are filed, it is likely some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of operations and other comprehensive income (loss).
New Accounting Pronouncements and Other Guidance
New Accounting Pronouncements Effective January 1, 2021:
Income Tax
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is intended to simplify various aspects related to accounting for income taxes. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The Company adopted this standard in the beginning of January 1, 2021, and the adoption did not have any significant impact on the Company’s condensed consolidated financial statements.
Equity Securities, Equity-method Investments and Certain Derivatives
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting and forward contracts and purchase options on certain types of securities. ASU 2020-01 is effective for the Company in the first quarter of 2021. The adoption did not have any significant impact on the Company’s condensed consolidated financial statements.
Accounting Standards Issued but Not Yet Adopted:
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, (FASB ASC Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected loss” model, rather than the “incurred loss” model, which requires all expected losses to be determined based on historical experience, current conditions and reasonable and supportable forecasts. This guidance amends the accounting for credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity debt securities, loans and other instruments.
In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company believes the adoption of ASU No. 2016-13 will not have a material impact on its financial position and results of operations.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions in which the reference LIBOR or another reference rate are expected to be discontinued as a result of the Reference Rate Reform. The standard is effective for all entities. The standard may be adopted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022. We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures.
14
Convertible Debt, and Derivatives and Hedging
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, to improve financial reporting associated with accounting for convertible instruments and contracts in an entity's own equity. ASU 2020-06 will be effective for the Company in the first quarter of 2022. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.
The management does not believe that other than disclosed above, accounting pronouncements the recently issued but not yet adopted will have a material impact on its financial position results of operations or cash flows.
NOTE 3 – CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash, cash equivalents and restricted cash consisted of the following as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
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 |
| | | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | | ||
Cash and cash equivalents: | | | | | | | |
Cash on hand and in banks | | $ | 17,436,654 | | $ | 9,063,338 | |
Time deposits - with original maturities less than three months (see Note 4) | |
| 0 | |
| — | |
| |
| 17,436,654 | |
| 9,063,338 | |
Restricted cash – noncurrent | |
| 65,499 | |
| 66,490 | |
Total cash, cash equivalents and restricted cash shown in the statements of cash flows | | $ | 17,502,153 | | $ | 9,129,828 | |
According to China Insurance Regulatory Commission No. 82, issued on September 29, 2016, the Company should deposit all of its registered capital inNoncurrent restricted cash includes 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 amandatory deposit in the bank by the Company in conformity with Provisions of the Supervision and Administration of Specialized Insurance Agencies in PRC, which is not allowed to be withdrawn without the permission of the regulatory commission, and thea trust account held for the bonus accrued for officers of Law Broker’s general manager’s bonus plans.Insurance Broker Co., Limited ("Law Broker').
NOTE 114 – TAX PAYABLETIME DEPOSITS
| | | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | | ||
| | | | | | | |
Total time deposits | | $ | 53,749,018 | | $ | 53,339,508 | |
Less: Time deposits – with original maturities less than three months (see Note 3) | |
| 0 | |
| — | |
Time deposits – original maturities over three months but less than one year | | $ | 53,749,018 | | $ | 53,339,508 | |
Time Deposits Pledged as Collateral
The Company had a total of $17,369,198 (NTD 494.4 million) and $15,930,161 (NTD 447.3 million) restricted time deposits, respectively, as of March 31, 2021 and December 31, 2020. As of March 31, 2021 and December 31, 2020, time deposits of $35,128 (NTD 1 million) and 35,616 (NTD 1 million) were pledged as collateral for the Company’s credit card, respectively. In addition, the Company had time deposits of $17,334,070 and $15,894,545 pledged as collateral for short-term loans, respectively, as of March 31, 2021 and December 31, 2020. See Note 5.
15
NOTE 5 – SHORT-TERM LOANS
The Company’s tax payableshort-term loans consisted of the following as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
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 |
| | | | | | | | | | | | | | |
| | | | March 31, 2021 | | December 31, 2020 | ||||||||
| | | | | | | | | | | | | | |
|
| |
| Debt |
| Collateral |
| Debt |
| Collateral | ||||
Line of Credit | | Collateral | | balance | | value | | balance | | value | ||||
$8.9 million (NTD 250 million) revolving line of credit with Cathay United Bank Company Limited (“CUB”); the loan bears interest at the higher of CUB's adjustable rates for loans plus a margin of 0.41% or the 1-month TAIBOR rate plus a margin of 0.8% and matures on May 4, 2021. The maturity date was extended to May 4, 2022. |
| Time deposits | | $ | 7,745,471 | | $ | 7,745,471 | | $ | 6,019,108 | | $ | 6,019,108 |
$4.0 million revolving line of credit with O-Bank; the loan bears interest at the TAIFX3 rate plus a margin of 0.5% and matures on December 29, 2021 |
| Time deposits | |
| 4,000,000 | |
| 4,847,506 | |
| 4,000,000 | |
| 4,915,011 |
$1.6 million revolving line of credit with KGI; the loan bears interest at the LIBOR rate plus a margin of 0.9% and matures on February 18, 2022 |
| Time deposits | |
| — | |
| — | | | 2,100,000 | |
| 2,443,003 |
$1.5 million revolving line of credit with CTBC Bank Co., Ltd. (“CTBC”); the loan bears interest at the CTBC’s cost of funds plus a negotiated margin on individual case basis and matures on August 28, 2021 |
| Time deposits | |
| 1,500,000 | |
| 1,500,000 | |
| 1,200,000 | |
| 1,384,833 |
$2.5 million revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the higher of LIBOR or TAIFX3 rate plus a margin of 0.7% and matures on December 17, 2021 |
| Time deposits | |
| 1,990,000 | |
| 2,241,093 | |
| 840,000 | |
| 1,132,590 |
$1.0 million revolving line of credit with E. Sun Bank (“E. Sun”); the loan bears interest at the higher of LIBOR or TAIFX3 rate plus a margin of 0.7% and matures on June 3, 2021 |
| Time deposits | |
| 1,000,000 | |
| 1,000,000 | |
| — | |
| — |
| | | | $ | 16,235,471 | | $ | 17,334,070 | | $ | 14,159,108 | | $ | 15,894,545 |
PRC tax represents income taxBorrowings under the revolving credit agreements are generally due 90 days or less. Total interest expenses incurred from the credit facilities were $42,470 and other taxes accrued according to PRC tax law by$59,282 for the Company’s subsidiariesthree months ended March 31, 2021 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.2020, respectively.
NOTE 126 – CONVERTIBLE BONDSCOMMISSIONS PAYABLE TO SALES PROFESSIONALS
The Company intendedCommissions payable 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 professionals consisted 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 ratefollowing as 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, 2017March 31, 2021 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, 2017.2020:
| | | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | | ||
Taiwan | | $ | 9,483,511 | | $ | 11,814,222 | |
PRC | |
| 317,676 | |
| 274,069 | |
Hong Kong | |
| 0 | |
| 0 | |
Total commissions payable to sales professionals | | $ | 9,801,187 | | $ | 12,088,291 | |
Commissions payable to sales professionals are usually settled within twelve months.
NOTE 137 – OTHER CURRENT LIABILITIES
Other current liabilities arewere as follows, as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
| | | | | | |
| | March 31, 2021 |
| December 31, 2020 | ||
Accrued bonus | | $ | 5,432,444 | | $ | 7,854,488 |
Payroll payable and other benefits | | | 1,746,549 | | | 1,767,417 |
Accrued business tax and tax withholdings | | | 913,419 | | | 1,643,082 |
Accrued tax penalties | |
| 0 | |
| 170,016 |
Other accrued liabilities | | | 2,384,500 | | | 2,156,031 |
Total other current liabilities | | $ | 10,476,912 | | $ | 13,591,034 |
16
Accrued Bonus
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 payableThe Company’s foreign subsidiaries have various bonus plans, which provide cash awards to sales professionals,employees based upon their performance, and had accrued bonus salariesof $3,269,661 and $5,948,157, respectively, related to cash awards to employees as of March 31, 2021 and December 31, 2020. The Company has other compensation plans solely provided by Law Broker to its officers. The compensation plans eligible to Law Broker’s officers include a surplus bonus based on a percentage of income after tax and other performance bonuses, such as retention and non-competition. For the three months ended March 31, 2021 and 2020, the bonus expenses to Law Broker’s officers under the compensation plans were $91,896 and $249,939, respectively.
As of March 31, 2021 and December 31, 2020, the Company had accrued bonus of $2,162,783 and $1,906,331 payable within next 12 months, and noncurrent accrued bonus of NaN and $237,440, respectively, related to administrative staff,the compensation plans for Law Broker’s officers. See Note 14 for additional information of agreements with Law Broker’s officers.
NOTE 8 – OTHER LIABILITIES
The Company’s other liabilities consisted of the following as of March 31, 2021 and accrued advertisement expense are usually settled within 12 months. Unearned revenue is described in Note 15. December 31, 2020:
| | | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | | ||
Due to previous shareholders of AHFL | | $ | 526,903 | | $ | 534,240 | |
Net defined benefit liability | | | 334,134 | | | 318,542 | |
Accrued bonus - noncurrent (Note 7) | |
| 0 | |
| 237,440 | |
Total other liabilities | | $ | 861,037 | | $ | 1,090,222 | |
Due to Previous Shareholders of AHFL
Due to previous shareholders of AHFL is the entire remaining balance payable of the 2012 acquisition cost. On March 27, 2019, the Company and the selling 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 loansixth amendment to the Company. Loan B bears an interest rateacquisition agreement, pursuant to which, the Company would make the cash payment in the amount of 8% per annum and interest is payable annually. The principal andNTD15 million on or prior to March 31, 2021. In March 2021, the interest will be due on May 15, 2019.
On July 20, 2016, AnhouCompany entered into a loan agreement (“Loan C”)seventh amendment with athe selling shareholders of AHFL to extend the repayment date to March 31, 2024. The amount consisted of 68% and 32% of payables due to related parties and 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
parties, respectively. As of September 30, 2017March 31, 2021 and December 31, 2016, long-term2020, the amount due to previous shareholders of AHFL were $526,903 and $534,240, respectively. The change in amounts was due to foreign currency translation.
NOTE 9 – CONTRACTS WITH CUSTOMERS
Information about accounts receivable, contract assets, and contract liabilities arefrom contracts with customers is 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 |
| | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | ||
Accounts receivable | | $ | 18,744,199 | | $ | 25,346,250 |
Contract assets | | | 97,480 | | | 0 |
Contract liabilities | | | 1,103,987 | | | 1,119,361 |
Contract assets are the Company’s conditional rights to consideration for completed performance obligation and are in relation to the performance bonus to be rewarded based on the annual performance. The Company recognizes the contingent commission as a contract asset when the performance obligation is fulfilled, and the Company has not had the unconditional rights to the payment. As of March 31, 2021 and December 31, 2020, the Company had $97,480 and nil of contract assets, respectively.
17
Unearned revenueContract Liabilities – AIATW
On June 10, 2013, AHFL entered into a Strategic Alliance Agreement (the “Alliance Agreement”) with AIA International Limited Taiwan Branch (“AIATW”). The, the purpose of the Alliance Agreementwhich is to promote life insurance products provided by AIATW within Taiwan by insurance agencies or brokerage companies affiliated with AHFL or CUIS.China United. The original term of the Alliance Agreement iswas from April 15,June 1, 2013 to AugustMay 31, 2018. Pursuant to the terms of the Alliance Agreement, AIATW paid AHFL an execution fee of approximately $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“First Amendment to the Alliance Agreement”) with AIATW. In the SupplementalFirst Amendment to the Alliance Agreement, the performance targets and the provision about refunding the Execution Fee on a pro rata basis when the performance targets are not met were revised.
On January 6, 2016, AHFL entered into an Amendment No. 2 to Strategicthe Alliance Agreement (the “Amendment No. 2”“Second Amendment to the Alliance Agreement”) 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 Second Amendment No. 2,to the Alliance Agreement, the expiration date of the Strategic Alliance Agreement has beenwas 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 beenwas suspended. In addition, both AHFL and AIATW agreed to adjust certain terms and conditions set forth in the Strategic Alliance Agreement, among which:some of which are as follows: (i) expandexpanding 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) removeremoving 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 beenwas 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 (Amendmentan Amendment No. 3)3 to the Alliance Agreement (the “Third Amendment to the Alliance Agreement”). Pursuant to the Third Amendment No. 3,to the Alliance Agreement, both AHFL and AIATW agreed to adjust certain terms and conditions set forth this amendment, amongsome of which included (i) except the first contract year (April 15th,15th, 2013 to September 30th,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 the Third Amendment No. 3,to the Alliance Agreement, 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 agreeagreed 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 promotionexecution fees at NTD 330,000,000NTD50 million for the first contract year, NTD35 million for the second contract year, and NTD33 million for each contract yearsyear thereafter 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 refundedrefund for each contract year:
| | | | | | | | | | | | | | | | | |
Contract | | | | | | | Revenue | | Revenue VAT | | Refund | | Refund VAT | ||||
Year |
| Period |
| Execution Fees |
| Amount |
| Amount |
| Amount |
| Amount | |||||
First | | 04/15/2013 - 09/30/2014 | | NTD | 50,000,000 | | NTD | 27,137,958 | (1) | NTD | 1,356,898 | | NTD | 20,481,090 | (1) | NTD | 1,024,054 |
Second | | 01/01/2016 - 12/31/2016 | | NTD | 35,000,000 | | NTD | 12,855,000 | (2) | NTD | 642,750 | | NTD | 20,478,333 | (2) | NTD | 1,023,917 |
Third | | 01/01/2017 - 12/31/2017 | | NTD | 33,000,000 | | NTD | 12,628,201 | (3) | NTD | 631,410 | | NTD | 18,800,370 | (3) | NTD | 940,019 |
Fourth | | 01/01/2018 - 12/31/2018 | | NTD | 33,000,000 | | NTD | 11,228,600 | (4) | NTD | 561,429 | | NTD | 20,199,971 | (4) | NTD | 1,010,000 |
Fifth | | 01/01/2019 - 12/31/2019 | | NTD | 33,000,000 | | NTD | 9,481,371 | (5) | NTD | 474,069 | | NTD | 21,947,200 | (5) | NTD | 1,097,360 |
Sixth | | 01/01/2020 - 12/31/2020 | | NTD | 33,000,000 | | NTD | 12,223,829 | (6) | NTD | 611,191 | | NTD | 19,204,743 | (6) | NTD | 960,237 |
Seventh | | 01/01/2021 - 12/31/2021 | | NTD | 33,000,000 | | NTD | 0 | (7) | NTD | 0 | | NTD | 31,428,571 | (7) | NTD | 1,571,429 |
TOTAL | |
| | NTD | 250,000,000 | | NTD | 85,554,959 | | NTD | 4,277,747 | | NTD | 152,540,278 | | NTD | 7,627,016 |
18
1)
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 |
The revenue recognition for the first contract year is based on the annual first year premium (“AFYP”) set in Alliance Agreement, which is targets not met during the first contract |
2) | For the |
3) | For the |
4) | For the year ended December 31, 2018, the Company recognized the fourth contract year’s revenue amount of $372,650 (NTD11,228,600), net of VAT, and refund amount of $670,389 (NTD 20,199,971), net of VAT, for the same contract period based on the calculation of VONB and 13-month persistency. |
5) | For the year ended December 31, 2019, the Company recognized the fifth contract year's revenue amount of $314,953 (NTD9,481,371), net of VAT, and refund the amount of $729,045 (NTD 21,947,200), net of VAT, for the same contract period based on the calculation of VONB and 13-month persistency. |
6) | For the year ended December 31, 2020, the Company recognized the sixth contract year’s revenue amount of $415,186 (NTD 12,223,829), net of VAT, and refund the amount of $652,294 (NTD 19,204,743), net of VAT, for the same contract period based on the calculation of VONB and 13-month persistency. |
7) | The Company estimated VONB and 13-month persistency ratio for the year ending December 31, 2021 and calculated the revenue amount to be NaN for the year. The amount will be reassessed every quarter until receiving AIATW’s notice. |
The Company recognized revenue of $1,679,942 (NTD51,246,902)NaN and nil$102,166 (NTD3,075,599), net of VAT for the ninethree months ended September 30, 2017March 31, 2021 and 20162020 related to this agreement. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company had non-current portioncontract liabilities of unearned revenue of $4,242,585$1,103,987 and $4,742,272, respectively, and current portion of $681,340 and $1,966,814,$1,119,361, respectively, related to the Alliance Agreement.
Unearned revenue – Farglory
NOTE 10 –LEASE
On April 20, 2016,For the three months ended March 31, 2021 and 2020, the Company entered into a service agreement (“Service Agreement”) with Farglory Life Insurance Co., Ltd. (“Farglory”). The Company isrecorded its operating lease cost of $1,020,873 and $678,348, respectively.
Operating lease right-of-use assets represent the Company's right to provide consulting servicesuse an underlying asset for the lease term and lease liabilities represent the Company's obligation to Farglory for NTD4,000,000 per year andmake lease payments arising from 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.lease. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company had long-termoperating lease right-of-use assets and lease liabilities amountwere as follows:
| | | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | | ||
Right-of-use assets under operating leases | | $ | 6,282,892 | | $ | 6,524,555 | |
Operating lease liabilities – current | |
| 3,018,303 | |
| 3,043,056 | |
Operating lease liabilities – noncurrent | |
| 3,191,735 | |
| 3,440,343 | |
Lease term and discount rate
| | | | | |
|
| March 31, 2021 |
| December 31, 2020 | |
Weighted average remaining lease term |
|
|
|
|
|
Operating lease |
| 2.48 | years | 2.64 | years |
Weighted average discount rate |
|
|
|
|
|
Operating lease |
| 3.64 | % | 3.15 | % |
19
Supplemental cash flow information related to this Service Agreement.leases
| | | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | | ||
Cash paid for amounts included in the measurement of lease liabilities |
| | | | | | |
Operating cash flows related to operating leases | | $ | 1,142,714 | | $ | 3,310,015 | |
Amortization of right-of-use assets under operating leases | | | 877,022 | | | 3,009,101 | |
Due to previous shareholdersThe minimum future lease payments as 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, 2019.2021 are as follows:
| | | |
|
| Amount | |
2021 (remainder of year) | | $ | 2,469,856 |
2022 | |
| 2,160,357 |
2023 | |
| 1,155,709 |
2024 | |
| 572,054 |
2025 | |
| 101,832 |
Thereafter | |
| — |
Total minimum lease payments | | | 6,459,808 |
Less: Interest | |
| (249,770) |
Present value of future minimum lease payments | | $ | 6,210,038 |
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 1611 – 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-CONTROLLINGNONCONTROLLING INTERESTS
Non-controllingNoncontrolling interests consisted of the following:following as of March 31, 2021 and December 31, 2020:
| | | | | | | | | | | | | | |
| | % of Non- | | | | | | | | Other | | | | |
| | Controlling | | December 31, | | Net Income | | Comprehensive | | March 31, | ||||
Name of Entity |
| Interests |
| 2020 |
| (Loss) |
| Loss |
| 2021 | ||||
Law Enterprise |
| 34.05 | % | $ | (414,957) | | $ | (72,946) | | $ | (6,187) | | $ | (494,090) |
Law Broker |
| 34.05 | % |
| 25,177,272 | |
| 1,404,896 | | | (353,398) | |
| 26,228,770 |
Uniwill |
| 50.00 | % |
| (421,035) | |
| 267,364 | | | (2,646) | |
| (156,317) |
Rays | | 1.00 | % | | (5,772) | | | (297) | | | 0 | | | (6,069) |
PFAL |
| 49.00 | % |
| 423,978 | |
| 27,593 | | | (767) | |
| 450,804 |
MKI |
| 49.00 | % |
| (732) | |
| — | | | 0 | |
| (732) |
PA Taiwan |
| 49.00 | % |
| (163,013) | |
| (214) | | | (77) | |
| (163,304) |
Total | | | | $ | 24,595,741 | | $ | 1,626,396 | | $ | (363,075) | | $ | 25,859,062 |
| | | | | | | | | | | | | | | | | |
| | % of Non- | | | | | | | | | | | Other | | | | |
| | controlling | | December 31, | | Contribution | | Net Income | | Comprehensive | | December 31, | |||||
Name of Entity |
| Interest |
| 2019 |
| /Acquisition |
| (Loss) |
| Income |
| 2020 | |||||
Law Enterprise |
| 34.05 | % | $ | (204,964) | | $ | 0 | | $ | (241,231) | | $ | 31,238 | | $ | (414,957) |
Law Broker |
| 34.05 | % |
| 19,536,104 | |
| 0 | |
| 4,193,314 | |
| 1,447,854 | |
| 25,177,272 |
Uniwill | | 50.00 | % | | 0 | | | 1,427,603 | | | (1,918,023) | | | 69,385 | | | (421,035) |
Rays | | 1.00 | % | | 0 | | | 1,019 | | | (6,791) | | | 0 | | | (5,772) |
PFAL |
| 49.00 | % |
| 351,278 | |
| 0 | |
| 71,713 | |
| 987 | |
| 423,978 |
MKI |
| 49.00 | % |
| 283 | |
| 0 | |
| (1,015) | |
| 0 | |
| (732) |
PA Taiwan |
| 49.00 | % |
| (167,531) | |
| 0 | |
| 4,227 | |
| 291 | |
| (163,013) |
PTC Nanjing |
| 49.00 | % |
| (2,644) | |
| 0 | |
| 1,465 | |
| 1,179 | |
| 0 |
Total | | | | $ | 19,512,526 | | $ | 1,428,622 | | $ | 2,103,659 | | $ | 1,550,934 | | $ | 24,595,741 |
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 |
20
NOTE 1912 – INCOME TAX
Provision (benefit) for incomeThe following table reconciles the Company’s statutory tax rates to effective tax rates for the three months ended September 30, 2017 consisted of:March 31, 2021 and 2020:
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 |
| | | | | |
| | Three Months Ended March 31, | | ||
| | 2021 | | 2020 | |
US statutory rate |
| 21 | % | 21 | % |
Tax rate difference |
| (2) | % | (2) | % |
Tax base difference | | 0 | % | 1 | % |
Income tax on undistributed earnings |
| 4 | % | 11 | % |
Change in valuation allowance |
| 4 | % | 25 | % |
Utilization of deferred tax assets not previously recognized | | (1) | % | 0 | % |
Provision for uncertain tax position |
| 0 | % | 19 | % |
Non-deductible and non-taxable items |
| 1 | % | 2 | % |
True up of prior year income tax |
| (1) | % | 0 | % |
Effective tax rate |
| 26 | % | 77 | % |
Provision (benefit) forThe Company’s income tax forexpense is mainly generated by its subsidiaries in Taiwan. The Company’s subsidiaries in Taiwan are subject to 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) forstatutory tax rate on income tax forreported in 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 componentsstatutory financial statements after appropriate adjustments at 20% and 5% of the deferred tax assets and liabilities for income tax ason any undistributed earnings according to the Income Tax Law of September 30, 2017Taiwan. As of March 31, 2021 and December 31, 2016 consisted2020, the Company had current tax payable of the following:$4,151,716 and $2,978,618 for Taiwan income tax, respectively.
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 segmentWFOE 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.Consolidated Affiliated Entities (“CU WFOE”CAE”) and the CAE in the PRC are governed by the Income Tax Law of the PRC concerning the privateprivate-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriated adjustments, exceptappropriate adjustments. WFOE and CAE had no income tax expenses for Jiangsu. For Jiangsu, accordingthe three months ended March 31, 2021 and the year ended December 31, 2020 due 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.
loss positions.
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 profitsprofit tax at the rate of 16.5%8.25% on the estimated assessable profits.
As of March 31, 2021 and December 31, 2020, the Company had current tax payable of $18,627 and $13,613 for Hong Kong income tax.
The following table reconciles the US statutory ratesCompany is subject to the Company’s effectivestatutory rate of 21% in the U.S. federal jurisdiction. The Company had no income tax rateexpense for the three months ended September 30, 2017March 31, 2021 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 rates2020 due to the loss positions and no GILTI tax obligation existed. The Company recognized a one-time transition tax of $1,199,195 in the year of 2018 based on the Company’s effectivetotal post-1986 earnings and profits (“E&P”) that it previously deferred from U.S. income tax. As of March 31, 2021 and December 31, 2020, the Company had current tax ratepayable of $95,936 and $153,787 and noncurrent tax payable of $719,515 and $719,515 for U.S. income tax.
As of March 31, 2020, the nineCompany recorded an uncertain tax positions approximately of $277,000 related to withholding tax matters in the Taiwan Segment. During the three months ended September 30, 2017March 31, 2020, the Company recognized interest 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-deductiblepenalties of approximately $178,000, in selling, general and non-taxable items mainly represent un-deductible expenses according to local tax laws and the non-taxable tax income oradministrative expenses.
NOTE 2013 – RELATED PARTY TRANSACTIONS
DueThe following summarized the Company’s loans payable 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, 2017March 31, 2021 and December 31, 2016:2020:
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 |
| | | | | | | |
| | March 31, 2021 | | December 31, 2020 | | ||
| | | | | | | |
Due to Ms. Lu (A shareholder of Anhou) | | $ | 70,600 | | $ | 78,541 | |
Others | |
| 6,231 | |
| 15,506 | |
Total | | $ | 76,831 | | $ | 94,047 | |
*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 loanAmounts due to related partiesMs. Lu were non-interestborrowings from Ms. Lu to support Anhou’s business operation. The amounts were non-interesting bearing and were payable on demand.
21
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 behalfTable 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.Contents
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 –14– COMMITMENTS AND CONTINGENCIES
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, totalSee future minimum annual lease payments in Note 10.
Time Deposits Pledged as Collateral
See time deposits pledged as collateral in Note 4 and 5.
Appointment agreement
On December 21, 2018, Law Broker entered into an appointment agreement with Shu-Fen, Lee (“Ms. Lee”), pursuant to which, she will have served as the president of Law Broker from December 21, 2018 to December 20, 2021. Ms. Lee’s primary responsibilities include 1) overall business planning, 2) implementation of resolution of the shareholders’ meeting or the board of directors, 3) the appointment and dismissal of the Law Broker’s employees and sales professionals, except for internal auditors, 4) financial management and application, 5) being the representative of Law Broker, 6) other matters assigned by the board of directors. According to the agreement, Ms. Lee’s compensation plan included: 1) base salary, 2) managerial allowance, 3) surplus bonus based on 1.25% of Law Broker’s income after tax, and 4) annual year-end bonus. For the three months ended March 31, 2021 and 2020, the Company has recorded the compensation expense of $62,208 and $50,436 under operating leases were as follows, by years:the appointment agreement, respectively.
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
agreement
On May 10, 2016, Law Broker entered into an engagement agreement with Hui-Hsien Chao ("Ms. Chao"), pursuant to which, she served as the Engagement Agreementgeneral manager of Law Broker from December 29, 2015 to December 28, 2018. The engagement agreement with Ms. Chao. Please referChao was renewed in 2019 and her service period has extended to Note 15 Other Long-term Liabilities.December 20, 2021. 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 plan included: 1) execution, 2) long-term service fees, 3) pension and 4) non-competition. The payment of such bonuses will only occur upon satisfaction of certain condition, subject to the terms and conditions in the engagement agreement. Ms. Chao has acted as the general manager or in the equivalent position of Law Broker for a term of at least three years. For the three months ended March 31, 2021 and 2020, the Company has recorded the compensation expense of $29,689 and $75,772 under the appointment agreement, respectively.
NOTE 2215 – FINANCIAL RISK MANAGEMENT AND FAIR VALUE
SEGMENT REPORTING
The Company has exposure to credit, liquidityorganizes and market risks which arise in the normal coursemanages its business as three operating segments by operating geographic areas. The business 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,WFOE, CU Hong Kong and the Company’s managementCAE in PRC was managed and reviewed as PRC segment. The business of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
The BOD has overall responsibility for the establishmentAHFL 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 NTDwas managed and the functional currency for the Company’s subsidiariesreviewed as Taiwan segment. The business of PFAL was managed and CAE inreviewed as Hong Kong segment. PRC is RMB. The financial statementsand Taiwan segments retain majority of the Company are in USD. The fluctuationreported consolidated amounts.
22
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 distributiondistributions of the Company’s financial information for the three months ended September 30, 2017March 31, 2021 and 20162020 were as follows:
| | | | | | |
| | For three months ended March 31, | ||||
|
| 2021 |
| 2020 | ||
Geographical Areas | | | | | | |
Revenue | | | | | | |
Taiwan | | $ | 28,851,500 | | $ | 27,342,936 |
PRC | |
| 1,951,469 | |
| 1,429,297 |
Hong Kong | |
| 110,985 | |
| 68,619 |
Elimination adjustment | |
| (383,837) | |
| (317,642) |
Total revenue | | $ | 30,530,117 | | $ | 28,523,210 |
| | | | | | |
Income (loss) from operations | |
| | |
| |
Taiwan | | $ | 4,690,729 | | $ | 1,503,282 |
PRC | |
| (3,918) | |
| (31,113) |
Hong Kong | |
| 61,493 | |
| 23,653 |
Elimination adjustment | |
| 138,350 | |
| 52,880 |
Total income from operations | | $ | 4,886,654 | | $ | 1,548,702 |
| | | | | | |
Net income (loss) | |
| | |
| |
Taiwan | | $ | 3,933,490 | | $ | 345,266 |
PRC | |
| 46,918 | |
| (39,957) |
Hong Kong | |
| 56,312 | |
| 21,772 |
Elimination adjustment | |
| 62 | |
| 9,204 |
Total net income(loss) | | $ | 4,036,782 | | $ | 336,285 |
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, 2017March 31, 2021 and December 31, 20162020 were as follows:
As of | ||||||||||||||
| | | | | | | ||||||||
|
| March 31, 2021 |
| December 31, 2020 | ||||||||||
Geographical Areas | September 30, 2017 | December 31, 2016 | | | | | | | ||||||
Capital expenditures | ||||||||||||||
Reportable assets | | | | | | | ||||||||
Taiwan | $ | (317,455 | ) | $ | (835,564 | ) | | $ | 174,507,496 | | $ | 171,037,252 | ||
PRC | (29,234 | ) | (148,936 | ) | |
| 12,930,173 | |
| 13,149,306 | ||||
Hong Kong | - | - | |
| 974,442 | |
| 915,628 | ||||||
Total capital expenditures | $ | (346,689 | ) | $ | (984,500 | ) | ||||||||
Elimination adjustment | |
| (80,577,773) | |
| (77,373,957) | ||||||||
Total reportable assets | | $ | 107,834,338 | | $ | 107,728,229 | ||||||||
| | | | | | | ||||||||
Long-lived assets | |
| | |
| | ||||||||
Taiwan | $ | 1,508,431 | $ | 1,453,772 | | $ | 1,990,118 | | $ | 2,198,739 | ||||
PRC | 165,811 | 256,704 | |
| 168,704 | |
| 175,748 | ||||||
Hong Kong | 430 | 648 | |
| 1,531 | |
| 1,664 | ||||||
Elimination adjustment | 3,746,163 | 2,071,491 | |
| (2,908) | |
| (2,906) | ||||||
Total long-lived assets | $ | 3,746,163 | $ | 3,782,615 | | $ | 2,157,445 | | $ | 2,373,245 | ||||
Reportable assets | ||||||||||||||
| | | | | | | ||||||||
Capital investment | |
| | |
| | ||||||||
Taiwan | $ | 89,208,044 | $ | 90,388,991 | | $ | 50,228 | | $ | 1,522,189 | ||||
PRC | 11,748,446 | 13,325,433 | |
| 7,292 | |
| 87,903 | ||||||
Hong Kong | 434,808 | 561,708 | |
| 0 | |
| 1,576 | ||||||
Elimination adjustment | (50,258,436 | ) | (52,868,589 | ) | ||||||||||
Total reportable assets | $ | 51,132,862 | $ | 51,407,543 | ||||||||||
Total capital investments | | $ | 57,520 | | $ | 1,611,668 |
23
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:
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 2716 – 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 determineddetermine that there were no subsequent events or transactions that require recognition or disclosures in the consolidated financial statements.statements except for the follows:
On April 29, 2021, Rays Technology Co., Ltd. (“Rays”), a majority-owned subsidiary of the Company, received a Decision Letter dated April 27, 2021 from the Financial Supervisory Commission (Taiwan) (the “FSC”) stating that Rays was fined NTD900,000 (equivalent to approximately $32,233 USD) by the FSC for violating Article 167-1 Section 3 of the Insurance Act of Taiwan (the “Act”). On May 11, 2021, the FSC verbally informed Law Broker that it could expect a Decision Letter from the FSC stating that Law Broker was fined NTD1.7 million (equivalent to approximately $60,565 USD) and one-month correction period for violating the relevant laws and regulations of the Act. The two subsidiaries are in the process of remediating the noncompliance issues.
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.
The following discussion of the results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements and notes thereto included in Item 1 of this part. This report, including the information incorporated by reference, contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The use of any of the words “believe,” “expect,” “anticipate,” “plan,” “estimate,” and similar expressions are intended to identify such statements. Forward-looking statements include statements concerning our possible or assumed future results. The actual results that we achieve may differ materially from those discussed in such forward-looking statements due to the risks and uncertainties described in the Risk Factors section of this report, in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in other sections of this report, as well as in our annual report on Form 10-K. We undertake no obligation to update any forward-looking statements.
Overview
The Company primarily provides two broad categories of insurance products, life insurance products and property and casualty insurance products, in Taiwan and PRC.People’s Republic of China (“PRC”). The Company also provides reinsurance brokerage services and insurance consulting services in Hong Kong and Taiwan. The revenue from ourpercentage of reinsurance brokerage services and insurance consulting services accounts foris less than 1% of our total revenue. The insurance products that the Company’s subsidiaries sell isare underwritten by some of leading insurance companies in Taiwan and PRC, respectively.
(1) | Life Insurance Products |
Total revenue from Taiwan life insurance products accounted for 74.01%were 88.1% and 80.25%89.7% of total revenue for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. Total revenue from PRC life insurance products were 15.67%6.0% and 12.43%4.8% of total revenue for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively.
In addition to the periodic premium payment schedules, most of the individual life insurance products we distribute also allow the insured to choose to make a single, lump-sum premium payment at the beginning of the policy term. If a periodic payment schedule is adopted by the insured, a life insurance policy can generate periodic payment of fixed premiums to the insurance company for a specified period of time. This means that once the Company sells a life insurance policy with a periodic premium payment schedule, they will be able to derive commission and fee income from that policy for an extended period of time, sometimes up to twenty-five (25)25 years. Because of this feature and the expected sustained growth of life insurance sales in China and Taiwan, we have focused significant resources ever since the incorporation of Anhou and Law Broker on developing our capability to distribute individual life insurance products with periodic payment schedules. We expect that sales of life insurance products will continuously be our primary source of revenue in the next several years.
(2) | Property and Casualty Insurance Products |
Taiwan subsidiaries commenced sale of automobile insurance, casualty insurance and liability insurance business in August 2003. Total revenue from Taiwan property and casualty insurance products were 5.66%5.2% and 5.34%4.7% of total revenue for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. Our CAE in PRC commenced its sales of commercial property insurance in 2009 and developed its automobile insurance business in 2010. Total revenue from PRC property and casualty insurance products were 0.93%0.4% and 1.63%0.2% of total revenue for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively.
As COVID-19 and its duration remain uncertain, we have been monitoring and will continue to measure and modify our business to protect our customers, sales professionals and employees. The extent of the COVID-19 impact to the Company will depend on numerous factors and developments. Consequently, any potential impacts of COVID-19 remain highly uncertain and cannot be predicted with confidence.
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We have had no changes to our Critical Accounting Policies as described in our most recent Form 10-K for the year ended December 31, 2020 and believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, stock-based compensations, and estimate of income taxes. Our significant accounting policies are described in Note 2 of “Summary of Significant Accounting Policies” included within our 2016 Annualthis Quarterly Report on Form 10-K10-Q filed with the Securities and Exchange Commission. Following is a discussion
25
Accrued Expenses
As partResults of the process of preparing our financial statements, we are requiredOperations- Three Months ended March 31, 2021 Compared to estimate accrued expenses. The estimation basis of the majority of the accrued expenses is dependent on our sales force’s achievement of the sales targets identified by our clients. Examples of estimated accrued expenses include brokerage commission bonus, such as bonus payable to our sales professionals, and incentive program rewards, such as the estimated expenditures to fund the reward programs. We develop estimates of liabilities using our judgment based upon the facts and circumstances known at the time.
Long-term investments
The Company classifies its investments as available-for-sale in accordance with ASC 320 “Debt and Equity Securities,” and Investments – Debt and Equity Securities are reported at fair value. Unrealized gains and losses as a result of changes in the fair value of the available-for-sale investments are recorded as a separate component within accumulated other comprehensive income in the accompanying consolidated balance sheets.
The Company uses the cost method of accounting for investments in companies that do not have a readily determinable fair value in which it holds an interest of less than 20% and over which it does not have the ability to exercise significant influence. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.
Recent Accounting Pronouncements
Refer to Note 2, Summary of Significant Accounting Policies, of our condensed consolidated financial statements for a discussion of recent accounting pronouncements and their effect, if any.
Overview of the three monthsThree Months ended September 30, 2017 and 2016
March 31, 2020
The following table shows the results of operations for the three months ended September 30, 2017March 31, 2021 and 2016:2020:
| | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | | | | ||||
| | 2021 | | 2020 | | | | | | | | ||
|
| | (Unaudited) |
| | (Unaudited) |
| Change |
| Percent |
|
| |
Revenue | | $ | 30,530,117 | | $ | 28,523,210 | | $ | 2,006,907 |
| 7.0 | % | |
Cost of revenue | |
| 18,973,432 | |
| 19,499,924 | |
| (526,492) |
| (2.7) | % | |
Gross profit | |
| 11,556,685 | |
| 9,023,286 | |
| 2,533,399 |
| 28.1 | % | |
Gross profit margin | |
| 37.9 | % |
| 31.6 | % |
| 6.3 | % | 19.9 | % | |
| | | | | | | | | | | | | |
Operating expenses: | |
| | |
| | |
| |
| | | |
Selling | |
| 579,777 | |
| 490,030 | |
| 89,747 |
| 18.3 | % | |
General and administrative | |
| 6,090,254 | |
| 6,984,554 | |
| (894,300) |
| (12.8) | % | |
Total operating expenses | |
| 6,670,031 | |
| 7,474,584 | |
| (804,553) |
| (10.8) | % | |
| | | | | | | | | | | | | |
Income from operations | |
| 4,886,654 | |
| 1,548,702 | |
| 3,337,952 |
| 215.5 | % | |
| | | | | | | | | | | | | |
Other income (expenses): | |
| | |
| | |
| |
| | | |
Interest income | |
| 83,998 | |
| 110,891 | |
| (26,893) |
| (24.3) | % | |
Interest expenses | |
| (42,470) | |
| (59,282) | |
| 16,812 |
| (28.4) | % | |
Foreign currency exchange gain (loss), net | |
| 328,466 | |
| (55,937) | |
| 384,403 |
| (687.2) | % | |
Other – net | |
| 178,940 | |
| (96,802) | |
| 275,742 |
| (284.9) | % | |
Total other income (expenses), net | |
| 548,934 | |
| (101,130) | |
| 650,064 |
| (642.8) | % | |
| | | | | | | | | | | | | |
Income before income taxes | |
| 5,435,588 | |
| 1,447,572 | |
| 3,988,016 |
| 275.5 | % | |
Income tax expense | |
| (1,398,806) | |
| (1,111,287) | |
| (287,519) |
| 25.9 | % | |
| | | | | | | | | | | | | |
Net income | |
| 4,036,782 | |
| 336,285 | |
| 3,700,497 |
| 1,100.4 | % | |
Net income attributable to the noncontrolling interests | |
| (1,626,396) | |
| (625,522) | |
| (1,000,874) |
| 160.0 | % | |
Net income (loss) attributable to China United’s shareholders | | $ | 2,410,386 | | $ | (289,237) | | $ | 2,699,623 |
| (933.4) | % | |
Three Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
(Unaudited) | (Unaudited) | Change | Percent | |||||||||||||
Revenue | $ | 16,210,334 | $ | 14,951,345 | $ | 1,258,989 | 8 | % | ||||||||
Cost of revenue | 9,071,624 | 9,335,735 | (264,111 | ) | -3 | % | ||||||||||
Gross profit | 7,138,710 | 5,615,610 | 1,523,100 | 30 | % | |||||||||||
Gross profit margin | 44 | % | 38 | % | 6 | % | 16 | % | ||||||||
Operating expenses: | ||||||||||||||||
Selling | 783,120 | 630,225 | 152,865 | 24 | % | |||||||||||
General and administrative | 3,708,037 | 3,359,674 | 348,363 | 10 | % | |||||||||||
Total operating expenses | 4,491,157 | 3,989,929 | 501,228 | 13 | % | |||||||||||
Income from operations | 2,647,553 | 1,625,681 | 1,021,872 | 63 | % | |||||||||||
Other income (expenses): | ||||||||||||||||
Interest income | 79,299 | 31,113 | 48,186 | 155 | % | |||||||||||
Interest expenses | (8,293 | ) | (1,601 | ) | (6,692 | ) | 418 | % | ||||||||
Dividend income | 1,391 | 3,633 | (2,242 | ) | -62 | % | ||||||||||
Other - net | 89,065 | 21,248 | 67,817 | 319 | % | |||||||||||
Total other income (expenses) | 161,462 | 54,393 | 107,069 | 197 | % | |||||||||||
Income before income tax | 2,809,015 | 1,680,074 | 1,128,941 | 67 | % | |||||||||||
Income tax expense | 831,878 | 456,828 | 375,050 | 82 | % | |||||||||||
Net income | 1,977,137 | 1,223,246 | 753,891 | 62 | % | |||||||||||
Net income attributable to the noncontrolling interests | 669,490 | 465,501 | 203,989 | 44 | % | |||||||||||
Net income attributable to parent’s shareholders | 1,307,647 | 757,745 | 549,902 | 73 | % |
Revenue
As a distributor of insurance products, we derive our revenue primarily from commissions and fees paid by insurance and reinsurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance and reinsurance companies in among Taiwan, PRCPeople’s Republic of China (“PRC”) and Hong Kong. We generate revenue primarily through our sales force, which consists of individual sales professionalsagents in our distribution and service network. For the three months ended September 30, 2017March 31, 2021 and 2016,2020, the revenuerevenues generated respectively from our operations in Taiwan, PRC and Hong Kong isare as follows:
| | | | | | | | | | | | |
Geographic Areas | | Three Months Ended March 31, | | |||||||||
|
| 2021 |
| 2020 |
| Change |
| Percent |
| |||
Revenue |
| |
|
| |
|
| |
|
|
| |
Taiwan segment | | $ | 28,467,663 | | $ | 27,025,294 | | $ | 1,442,369 |
| 5.3 | % |
Percentage of revenue | |
| 93.2 | % |
| 94.7 | % |
| |
| | |
PRC segment | |
| 1,951,469 | |
| 1,429,297 | |
| 522,172 |
| 36.5 | % |
Percentage of revenue | |
| 6.4 | % |
| 5.0 | % |
| |
| | |
Hong Kong segment | |
| 110,985 | |
| 68,619 | |
| 42,366 |
| 61.7 | % |
Percentage of revenue | |
| 0.4 | % |
| 0.3 | % |
| |
| | |
Total revenue | | $ | 30,530,117 | | $ | 28,523,210 | | $ | 2,006,907 |
| 7.0 | % |
26
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 |
During the three months ended September 30, 2017, 82.0%, 17.8% and 0.2%Table of Contents
Overall revenue from our revenue in our unaudited consolidated financial statements were derivedTaiwan segment increased by $1.4 million from Taiwan, PRC and Hong Kong, respectively. During the three months ended September 30, 2016, 85.0%, 14.6% and 0.4% of our revenue in our unaudited consolidated financial statements were derived from Taiwan, PRC and Hong Kong, respectively. The percentage of geographical revenue$27.0 million for the three months ended September 30, 2017 and 2016 were relatively consistent.
Total revenue increased by $1,258,989, or 8%, from $14,951,345March 31, 2020 to $28.5 million for the three months ended September 30, 2016March 31, 2021. Due to $16,210,334our continued growth in the sales of insurance products in the past years, we continue to receive more contingent commissions, which include trailing commissions, persistency rate linked bonuses and some other service allowance, for the three months ended September 30, 2017,March 31, 2021. However, the revenue growth was partially offset by decreases in the sales of long-term care and disability insurance products because of the discontinuations of these products in the year 2020.
Overall revenue from our PRC segment increased by $0.5 million to $2.0 million for the three months ended March 31, 2021 from $1.4 million for the three months ended March 31, 2020. Such increase in revenue of the PRC segment was mainly due to the increase of the revenue from Strategic Alliance Agreement with AIATW in Taiwan and annuity insurance in PRC. Increase of revenue in PRC is mainly due to public awareness of financial planning and investment for retirement as average life span and individual economy has significantly increased over the recent years. Moreover, in anticipation of the possible adjustmentadverse impact on the max premium payment andoutbreak of COVID-19 that restricted to a significant extent our sales agents’ in-person selling activities in the proposed change to the annuity insurance regulationfirst quarter of 2020. The operations in the PRC segment had been fully resumed in the consumers are willing to invest their moneysecond quarter of 2020.
The revenue in the Hong Kong Segment was primarily derived from reinsurance commission on sales of insurance products duringfrom other insurers to Taiwan Life Insurance Co., Ltd. (“Taiwan Life”) for risk management. Overall revenue from our Hong Kong segment for the three months ended September 30 of this year compared toMarch 31, 2021 remained consistent with the same period of last year.
in 2020.
Cost of revenue and gross profit
The cost of revenue decreased by $264,111, or 3%, from $9,335,735mainly consists of commissions paid to our sales professionals. The cost of revenue for the three months ended September 30, 2016March 31, 2021 decreased by $0.5 million, to $9,071,624$19.0 million compared to $19.5 million for the three months ended September 30, 2017. The increaseMarch 31, 2020. Decreases in gross profit was primarilythe cost of revenue were due to fewer insurance policies sold during the first quarter of 2021 compared to the same period of 2020, which result in a decrease in the direct cost, such as the bonuses and awardscommission costs paid to sales professionals.professionals for the first-year commissions.
TheConsequently, the gross profit margin increased from 31.6% for the three months ended September 30, 2017 increased by $1,523,100 or 30%,March 31, 2020 to $7,138,710 compared to $5,615,61037.9% for the three months ended September 30, 2016. The gross profit ratio increased to 44%March 31, 2021.
Selling expenses
Selling expenses were mainly incurred by Law Broker and Uniwill in connection with online marketing and advertising. Overall selling expenses for the three months ended September 30, 2017 from 38% forMarch 31, 2021 remained consistent with the three months ended September 30, 2016. The increasesame period in gross profit was primary due to the increase in business promotion revenue from AIATW and decrease in indirect cost.
Selling expenses
Selling expenses were mainly occurred in Law Broker, representing the expense for marketing promotion and selling related expenses. The selling expense for the three months ended September 30, 2017 increased by $152,865 or 24%, to $783,120 compared to $630,255 for the three months ended September 30, 2016. The increase was mainly due to increased sales conference fee.
2020.
General and administrative expenses
The generalGeneral and administrative (“G&A”) expenses are principally comprisecomprised of salaries and benefits for our administrative staff, office rental expenses, travel expenses, depreciation and amortization, entertainment expenses, and professional service fees to the auditor and attorney.
fees.
For the three months ended September 30, 2017,March 31, 2021, our G&A expenses were $3,708,037, increased by $348,363, or 10%,$6.1 million, reflecting a decrease of $0.9 million, compared with $3,359,674$7.0 million for the three months ended September 30, 2016, which was mainly dueMarch 31, 2020. Our G&A expenses decreased for the three months ended March 31, 2021 because the Company recognized costs of $1.0 million related to stock-based compensation arrangements during the increased numberfirst quarter of branches, personnel costs in China and the increased personnel costs in Taiwan.
2020.
Other income (expenses)
Other income (expense) mainly consisted of interest income, interest expenses, gain or loss on valuation of financial assets, and foreign currency exchange gain or loss. Net other income for the three months ended September 30, 2017 and 2016 were $161,462 and $54,393, respectively. Other income (expense) mainly consistsMarch 31, 2021 was $0.5 million, reflecting an increase of interest income, interest expenses,$0.7 million, compared with net other income, dividend income and loss on disposalexpense of property, plant and equipment. Compared with$0.1 million for the three months ended September 30, 2016, netMarch 31, 2020. The increases in other income increasedfor the three months ended March 31, 2021 was due to foreign currency exchange gain recognized because of the fluctuationdepreciation of exchange rate and interest income.
the New Taiwan Dollar against the US dollar during the first quarter of 2021.
Income tax expense
For the three months ended September 30, 2017,March 31, 2021, income tax expense was $1.4 million, reflecting an increase of 25.9%, compared with the income tax expense was $831,878, increased by $375,050, or 82%, compared with $456,828of $1.1 million for the three months ended September 30, 2016.March 31, 2020. The increase was mainly due to the increased income before income tax for the three months ended September 30, 2017 compared to that for the three months ended September 30, 2016.
The Company’s subsidiaries in Taiwan are governed by the Income Tax Lawmore taxes on undistributed earning accrued because of Taiwan, and are generally subject to tax at 17% on income reportedmore revenues generated in the statutory financial statements after appropriate adjustments. In addition,Taiwan segment during the Income Tax Lawfirst quarter of Taiwan provides that a company is taxed an additional 10% on any undistributed earnings to its shareholders.2021.
27
CU WFOE and the CAE in the PRC are governed by the Income Tax LawTable 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.Contents
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.
Overview of the nine months ended September 30, 2017 and 2016
The following table shows the results of operations for the nine months ended September 30, 2017 and 2016:
Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
(Unaudited) | (Unaudited) | Change | Percent | |||||||||||||
Revenue | $ | 50,084,684 | $ | 43,289,113 | $ | 6,795,571 | 16 | % | ||||||||
Cost of revenue | 29,746,059 | 27,986,021 | 1,760,038 | 6 | % | |||||||||||
Gross profit | 20,338,625 | 15,303,092 | 5,035,533 | 33 | % | |||||||||||
Gross profit margin | 41 | % | 35 | % | 6 | % | 17 | % | ||||||||
Operating expenses: | ||||||||||||||||
Selling | 1,481,423 | 2,094,965 | (613,542 | ) | -29 | % | ||||||||||
General and administrative | 10,714,341 | 9,336,015 | 1,378,326 | 15 | % | |||||||||||
Total operating expenses | 12,195,764 | 11,430,980 | 764,784 | 7 | % | |||||||||||
Income from operations | 8,142,861 | 3,872,112 | 4,270,749 | 110 | % | |||||||||||
Other income (expenses): | ||||||||||||||||
Interest income | 246,559 | 137,222 | 109,337 | 80 | % | |||||||||||
Interest expenses | (24,562 | ) | (11,165 | ) | (13,397 | ) | 120 | % | ||||||||
Dividend income | 331,140 | 272,522 | 58,618 | 22 | % | |||||||||||
Other - net | 136,113 | (46,104 | ) | 182,217 | -395 | % | ||||||||||
Total other income (expenses) | 689,250 | 352,475 | 336,775 | 96 | % | |||||||||||
Income before income tax | 8,832,111 | 4,224,587 | 4,607,524 | 109 | % | |||||||||||
Income tax expense | 2,345,147 | 1,335,331 | 1,009,816 | 76 | % | |||||||||||
Net income | 6,486,964 | 2,889,256 | 3,597,708 | 125 | % | |||||||||||
Net income attributable to the noncontrolling interests | 1,854,584 | 1,301,226 | 553,358 | 43 | % | |||||||||||
Net income attributable to parent’s shareholders | 4,632,380 | 1,588,030 | 3,044,350 | 192 | % |
Revenue
As a distributor of insurance products, we derive our revenue primarily from commissions and fees paid by insurance and reinsurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance and reinsurance companies in Taiwan, PRC and Hong Kong. We generate revenue primarily through our sales force, which consists of individual sales professionals in our distribution and service network. For the nine months ended September 30, 2017 and 2016, the revenue generated respectively from Taiwan, PRC and Hong Kong is as follows:
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 |
During the nine months ended September 30, 2017, 83.2%, 16.6% and 0.2% of our revenue in our unaudited consolidated financial statements were derived from Taiwan, PRC and Hong Kong, respectively. During the nine months ended September 30, 2016, 85.7%, 14.1% and 0.3% of our revenue in our unaudited consolidated financial statements were derived from Taiwan, PRC and Hong Kong, respectively. The percentage of geographical revenue for the nine months ended September 30, 2017 and 2016 were relatively consistent.
Total revenue increased by $6,795,571, or 16%, from $43,289,113 for the nine months ended September 30, 2016 to $50,084,684 for the nine months ended September 30, 2017, which was mainly due to the increase of the revenue in Taiwan and PRC for the following reasons:
|
Cost of revenue and gross profit
The cost of revenue mainly consists of commissions paid to our sales professionals. The cost of revenue for the nine months ended September 30, 2017 increased by $1,760,038 or 6%, to $29,746,059 compared to $27,986,021 for the nine months ended September 30, 2016. The cost of revenue increased was mainly due to the increase of direct commission cost.
The gross profit for the nine months ended September 30, 2017 increased by $5,035,533 or 33%, to $20,338,625 compared to $15,303,092 for the nine months ended September 30, 2016. The gross profit ratio increased to 41% for the nine months ended September 30, 2017 from 35% for the nine months ended September 30, 2016. The increase in gross profit was primarily due to an increase in business promotion revenue from AIATW, and the cost of revenue increased accordingly.
Selling expenses
Selling expenses were mainly occurred in Law Broker, representing the expense for marketing promotion and selling related expense. The selling expense for the nine months ended September 30, 2017 decreased by $613,542 or 29%, to $1,481,423 compared to $2,094,965 for the nine months ended September 30, 2016. The decrease was mainly due to decreased advertising expense. The Company is already well known by the public in both Taiwan and China. In that case, we decided to reduce our advertising expenses for market promotion.
General and administrative expenses
The G&A expenses principally comprise salaries and benefits for our administrative staff, office rental expenses, travel expenses, depreciation and amortization, entertainment expenses, and professional service fees to the auditor and attorney.
For the nine months ended September 30, 2017, G&A expenses were $10,714,341, increased by $1,378,326, or 15%, compared with $9,336,015 for the nine months ended September 30, 2016, which was mainly due to the increased number of branches, personnel costs China and the increased personnel costs, rent and pension in Taiwan.
Other income (expenses)
Net other income for the nine months ended September 30, 2017 was $689,250 and the net other income for the nine months ended September 30, 2016 was $352,475. Other income (expense) mainly consists of interest income, interest expenses, other income, dividend income and loss on disposal of property, plant and equipment. Compared with the nine months ended September 30, 2016, net other income increased due to the fluctuation of the exchange rate and interest income.
Income tax expense
For the nine months ended September 30, 2017, the income tax expense was $2,345,147, increased by $1,009,816, or 76%, compared with $1,335,331 for the nine months ended September 30, 2016. The increase was mainly due to the increased income before income tax for the nine months ended September 30, 2017 compared to that for the nine months ended September 30, 2016.
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 addition, the Income Tax Law of Taiwan provides that a company is taxed an additional 10% on any undistributed earnings to its shareholders.
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 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.
Liquidity and Capital Resources
The following table represents a comparison of the net cash provided by operating activities, net cash used inprovided by (used in) investing activities and net cash provided by (used in) financing activities for the nine monthsthree-month periods ended September 30, 2017March 31, 2021 and 2016:2020:
| | | | | | | | | | | | |
|
| Three Months Ended March 31, | | | | | |
| ||||
|
| 2021 |
| 2020 |
| Change |
| Percent |
| |||
Net cash provided by operating activities | | $ | 6,445,228 | | $ | 3,340,811 | | $ | 3,104,417 |
| 92.9 | % |
Net cash provided by (used in) investing activities | |
| 199,142 | |
| (5,335,582) | |
| 5,534,724 |
| (103.7) | % |
Net cash provided by financing activities | |
| 2,171,143 | |
| 1,579,759 | |
| 591,384 |
| 37.4 | % |
Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | Change | Percent | |||||||||||||
Net cash provided by operating activities | $ | 6,137,729 | $ | 4,380,800 | 1,756,929 | 40 | % | |||||||||
Net cash used in investing activities | (16,065,111 | ) | (29,919 | ) | (16,035,192 | ) | 53595 | % | ||||||||
Net cash provided by (used in) financing activities | 261,308 | (387,538 | ) | 648,846 | -167 | % |
Operating activities
Net cash provided by operating activities during the ninethree months ended September 30, 2017March 31, 2021 was $6,137,729, significantly increased$6.4 million, an increase of 92.9% in comparison with $4,380,800$3.3 million net cash provided by operating activities during ninethe three months ended September 30, 2016.March 31, 2020. The increase was mainly due to a strong business performance for the increasethree months ended March 31, 2021 compared with that of the same period in net income.
2020.
Investing activities
Net cash used inprovided by investing activities was $16,065,111$0.2 million during the ninethree months ended September 30, 2017, which is mainly due to net cash outflows from purchase of structured deposit, time deposits and marketable securities duringMarch 31, 2021 as compared with the period. The net cash used in investing activities was $29,919of $5.3 million for the ninethree months ended September 30, 2016, which is mainly due toMarch 31, 2020. Increases in the net cash outflowsinflows for the investing activities resulted from purchasesales of time deposits, property, plant and equipment and intangible assetsstock mutual funds during the period, which outweighed the maturitiesfirst quarter of time deposits.
2021.
Financing activities
Net cash provided by financing activities was $261,308$2.2 million during the nine months ended September 30, 2017, which is the result of proceeds from the Company’s related party borrowings. The net cash used in financing activities was $387,538 for the nine months ended September 30, 2016, which is the result of repayment for the borrowings from the Company’s related parties and third parties.
Related Party Loan and Loans to Unrelated Third Parties
Anhou Registered Capital Increase
On April 27, 2013, the China Insurance Regulatory Commission (“CIRC”) issued the Decision on Revising the Provisions of the Supervision and Administration of Specialized Insurance Agencies (the “Decision on Revising the Agency Provisions”), pursuant to which, CIRC mandated any insurance agency established subsequent to the Decision on Revising the Agency Provisions to meet a minimum registered capital requirement of RMB50 million (approximately $8 million). On May 16, 2013, CIRC issued Notice for Further Clarification on Related Issues of Access to Professional Insurance Intermediary Market (the “Notice”), pursuant to which, professional insurance agencies established prior to the issuance of the Decision on Revising the Agency Provisions, with registered capital less than RMB50 million (approximately $8 million) can continue to operate its existing business within the provinces where they have a registered office or branch office, but shall not set up any new branches in any provinces where it has no registered office or a branch office.
Prior to the capital increase, Anhou, a professional insurance agency with a PRC nationwide license, used to have a registered capital of RMB10 million (approximately $1.6 million). The branch offices of Anhou currently were all in Henan province. To better implement its expansion strategies, Anhou intended to increase its registered capital to RMB50 million (approximately $8 million) to meet the requirement of CIRC so that it can set up new branches in any province beyond its current operations in the PRC.
On June 9, 2013, AHFL entered into a Loan Agreement (the “Company Loan Agreement”) with ZLI Holdings, its wholly-owned Hong Kong subsidiary.
Under the Company Loan Agreement, AHFL agreed to provide a loan to ZLI Holdings with the principal amount equal to the US Dollar equivalent of RMB40,000,000 ($6,389,925). The term for such was ten years which could be extended upon the agreement of the parties. The amount of such loan was remitted to the account of ZLI Holdings on August 30, 2013.
In August 2013, ZLI Holdings entered into the Investor Loan Agreements with the following unrelated parties: Able Capital Holding Co., Ltd., a limited liability company established and registered in Hong Kong, Mr. Chen Li and Ms. Yue Jing, both PRC citizens (collectively, the “Investor Borrowers”).
Due to certain restrictions on direct foreign investment in insurance agency business under current PRC legal regime, Anhou had sought certain investments made by the Investor Borrowers and they may need funds through individual loans. Upon the completion of the contemplated increase of registered capital of Anhou, each Investor Borrower shall, or cause their designated persons to, enter into the Variable Interest Entities Agreement with CU WFOE, Anhou and other parties so as to consolidate any additional VIE interest generated from the said registered capital increase into the Company.
On November 17, 2016, Li Chen transferred his interests in Anhou to Chunyan Lu for an aggregate consideration of RMB3 million.
Under the Investor Loan Agreements, the Investor Borrowers loaned cash from ZLI Holdings for their investment in Anhou and ZLI Holdings agreed to provide certain loans to each of the Investor Borrowers with an aggregate principal amount equal to the US Dollar equivalent of RMB40,000,000 ($6,389,925). The term for such loans was ten years which could be extended upon the agreement of the parties. Pursuant to the Investor Loan Agreements, each of the Investor Borrowers covenants to enter into certain Variable Interest Entities Agreements with Anhou, CU WFOE and certain existing shareholders of Anhou. The proceeds received from the said loans by the Investor Borrowers shall be solely used to increase the registered capital of Anhou, and ZLI Holdings may determine the repayment methods including transferring of the Investor Borrowers’ corresponding registered capital in Anhou or through other manner as full payment of the loans subject to terms and conditions therein in the event that the Investor Borrowers fail to repay the loan in currency to ZLI Holdings.
The specific amounts loaned to the Investor Borrowers were as follows:
Able Capital Holding Co., Ltd.: RMB29,500,000 ($4,712,570)
Ms. Lu: RMB3,000,000 ($479,244)
Ms. Yue: RMB7,500,000 ($1,198,111)
On October 20, 2013, the Investor Borrowers, through certain nominees, increased Anhou’s registered capital by RMB 40 million ($6,389,925).
Loan Receivable
On October 24, 2016, our Company entered into a loan agreement with a third party, RFL, which was incorporated under the laws of Samoa. We 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.
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 bore no interest and were payable on demand.
Convertible bonds
On June 23, 2016, the Company has issued two units of its convertible bonds with an aggregate principal amount of $200,000 to a non-US person and the value of the embedded derivatives liabilities is trivial. As of September 30, 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.
Long-term loan
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.
Contractual Obligations
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 forMarch 31, 2021, which increased by $0.6 million from $1.6 million during the nine months ended September 30, 2017 and 2016 were $1,832,335 and $1,557,725, respectively. Assame period of September 30, 2017, total future minimum annual lease payments2020. The increase was mainly due to increases in the net proceeds from additional borrowings under operating leases werethe revolving credit agreements during the first quarter of 2021.
Contractual Obligations
There have been no significant changes to the Company’s contractual obligations 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 | $ | 3,553,734 |
AHFL Acquisition Agreement
The Company conducts all of its Taiwanese operations indirectly through its subsidiary AHFL anddisclosed in the revenue from such Taiwanese operations represented approximately 90% of our total revenue in our consolidated financial statementsCompany’s Annual Report on Form 10-K for the year ended December 31, 2015 and the quarter ended June 30, 2016, and such operations were also the source of all of our profits in 2015. On February 17, 2016, the Company and the selling shareholders of AHFL entered into a third Amendment to the AHFL Acquisition Agreement (the “Third Amendment”), pursuant to which, on or prior to June 30, 2016, (i) the Company is committed to complete the listing of the Company’s shares in a major capital market, where the net proceeds raised through such public offering financing shall be at least US$10,000,000; (ii) the Company is committed to distribute the cash payment in the amount of NTD22.5 million (US$312,617), on a pro rata basis, to the selling shareholders of AHFL and issue 5 million common shares to its selected employees pursuant to its employee stock/option plan, or any alternative plan mutually accepted by the Company and such selling shareholders; and (iii) failure to timely complete either of the above-mentioned criteria shall be deemed as a material breach of the Company under Article 8 of the Acquisition Agreement, whereby the non-breaching party shall be entitled to terminate the Acquisition Agreement and unwind the Acquisition of AHFL by CUIS and restore the status quo of the Company and the selling shareholders (the “Selling Shareholders”) as if the said acquisition had never happened.2020.
On August 8, 2016, the Company and the selling shareholders of AHFL entered into a fourth Amendment to the Acquisition Agreement (the “Fourth Amendment”), pursuant to which: (A) the Third Amendment is terminated with immediate effect on August 8, 2016, and (B) Sections 2.2(iii) and (iv) of the Acquisition Agreement are amended and restated so that the Company is now obligated to: (iii) pay NTD15 million (USD475,406) to the Selling Shareholders in the amounts set forth opposite each Selling Shareholder’s name on Schedule I on or prior to March 31, 2017 or at any other time or in any other manner otherwise agreed upon by and among the parties; and (iv) pay NTD4,830,514 (USD153,097) to the Selling Shareholders in the amounts set forth opposite each Selling Shareholder’s name on Schedule I on July 21, 2016. Unless amended by the Fourth Amendment, any other provision of the Acquisition Agreement shall remain unchanged. On July 21, 2016, the Company arranged for the payment of NTD4,830,514 (USD153,097) to the Selling Shareholders. As a result, the former shareholders of AHFL no longer have the right to unwind the acquisition of AHFL by the Company. 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, on or prior to March 31, 2019, the Company agreed to distribute the cash payment in the amount of NTD15 million.
Engagement Agreement with Ms. Chao
On May 10, 2016, Law Broker entered into the Engagement Agreement with 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. 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 September 30, 2017 and December 31, 2016, the balance of such accrued long-term liabilities was $175,191 and $77,440, respectively.
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 $13,619 and $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.
Off Balance Sheet Arrangements
We have not participated in any transactions with unconsolidated entities, such as special purpose entities, which would have been established for the purpose of facilitatingThe Company had no off-balance sheet arrangements.arrangements as of March 31, 2021.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarilyAs a result of fluctuations in interest rates and foreign currency exchange rates.
Interest Rate Sensitivity
As of September 30, 2017, we had cash of USD approximately $10,000, cash of RMB8,227,876 (equivalent to approximately $1,236,000), cash of HKD417,620(equivalent to approximately $53,000), and cash of NTD314,260,180 (equivalent to approximately $10,363,000). We hold our cash for working capital purposes. Declines in interest rates would reduce future interest income. For the nine months ended September 30, 2017, the effect of a hypothetical 10% increase or decrease in overall interest rates would not have had a material impact on our interest income.
Foreign Currency Risk
The functional currency for the subsidiaries in Taiwan is NTD, the functional currency for the subsidiaries in Hong Kong is HKD and the functional currency for the subsidiaries and CAE in PRC is RMB. The financial statementssmaller reporting company as defined by Rule 12b-2 of the CompanyExchange Act, we are in USD. The fluctuation of NTD and RMB will affect our operating results expressed in USD. The Company reviews its foreign currency exposures. To date, we have not entered into any hedging arrangements with respectrequired to foreign currency risk or other derivative financial instruments. The management does not consider its present foreign exchange risk to be significant.provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by SECWe maintain disclosure controls and procedures, as such term is defined under Rule 13a-15(b)13a-15(e) promulgated under the Securities Exchange ActAct. In designing and evaluating the disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of 1934, as amended (the “Exchange Act”),achieving the Company carried out an evaluation, underdesired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit of possible controls and procedures.
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Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officerour principal executive officer and Chief Financial Officer,principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of the Company’sour disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2017.the end of the period covered by this report. Based on thatthis evaluation, our management, including the Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer have concluded that as of September 30, 2017, our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2021. This conclusion was based on the material weaknesses in our internal control over financial reporting described in Part II, Item 9A, “Controls and Procedures” of our auunal report on Form 10-K for the year ended December 31, 2020. The material weaknesses have not been remediated as of March 31, 2021. We continue working the remediation of the material weakness, we may determine to ensuretake additional measures to address our control deficiencies. The material weakness will continue to exist until the information requiredremediation steps identified in our 2020 Form 10-K are fully implemented and concluded to be disclosed by an issuer in the reports it filesoperating effectively.
A material weakness is a deficiency, or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms relating to us, and was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectivenesscombination of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Changesdeficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. If not remediated, the material weaknesses in our internal control over financial reporting described in the Form 10-K for the year of 2020 could result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.
Changes in Internal Control over Financial Reporting
During the nine monthsfiscal quarter ended September 30, 2017,March 31, 2021, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal quarter covered by this report that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
During the three months ended March 31, 2021, we were not aware of any such legal proceedings or claims that we believed would have a material adverse effect on our business, financial condition or operating results. From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigationLitigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We
On April 29, 2021, Rays Technology Co., Ltd. (“Rays”), a majority-owned subsidiary of the Company, received a Decision Letter dated April 27, 2021 from the Financial Supervisory Commission (Taiwan) (the “FSC”) stating that Rays was fined NTD900,000 (equivalent to approximately $32,233 USD) by the FSC for violating Article 167-1 Section 3 of the Insurance Act of Taiwan (the “Act”). The FSC found that from 2019 to 2021 Rays used its website “Triple-I” and its point system thereon to facilitate certain insurance sales and charged the points from certain participating insurance salespersons on the Triple-I point system once clients purchased insurance products from those insurance salespersons. The FSC found that Rays’ operations through the Triple-I website constituted insurance brokerage services but Rays did not have the proper insurance brokerage license while operating the Triple-I website.
On May 11, 2021, the FSC verbally informed Law Broker that it could expect a Decision Letter from the FSC stating that Law Broker was fined NTD1.7 million (equivalent to approximately $60,565 USD) and one-month correction period for violating the relevant laws and regulations of the Act. The FSC found that from 2011 to 2020 Law Broker charged advertising fees and business promotion fees pursuant to certain contracts and agreements with some of its strategic insurance companies and such charges exceeded the scope of remuneration for insurance-related services allowed for Law Broker. The FSC found that such business practices of Law Broker’s did not comply with Article 9 of the Act and Section 11 of Article 49 of the Regulations Governing Insurance Brokers.
29
The Company’s two subsidiaries, Rays and Law Broker, are currently not awarein the process of any such legal proceedings or claims that we believeadjusting their business models to regain compliance with the relevant laws and regulations and will have a material adverse effect on our business, financial condition or operating results.pay the respective fines within the prescribed periods.
As a smaller reporting company, we are not required to make disclosure under this item.
There have been no material changes from the risk factors disclosed in our annual report on Form 10-K for the fiscal year period ended December 31, 2016.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable during this reporting period.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable during this reporting period.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.INFORMATION
Not applicable during this reporting period.
Resignation of Officers
On August 30, October 2 and November 3, 2017, Mr. Te Yun Chiang, Mr. Wen Yuan Hsu and Mr. Tung-Chi Hsieh resigned as Chief Technology Officer, Chief Marketing Officer and Chief Operating Officer of the Company, respectively.
Though Mr. Chiang, Mr. Hsu and Mr. Hsieh held the titles of Chief Operating Officer, Chief Marketing Officer and Chief Technology Officer of the Company, respectively, before their resignations, they had not performed executive functions in the Company’s overall operations that may have been indicated by their respective titles. Their resignations will avoid ambiguity with respect to their duties and roles in the Company’s overall operations. There is no disagreement between the Company on the one hand, and Mr. Chiang, Mr. Hsieh and Mr. Hsu on the other hand, relating to the Company’s operations, policies and practices.
Subsequent to the resignations, Mr. Chiang will continue serving as the Manager of Jiangsu Law Insurance Brokers Co., Ltd. (“Jiangsu Law”), Mr. Hsieh will continue serving as the Division Chief of Management of Jiangsu Law, and Mr. Hsu will continue serving as the General Manager of Sichuan Kangzhuang Insurance Agency Co., Ltd., all of which are the Company’s CAEs in the PRC. In view of the continuous expansion of these CAEs, Mr. Chiang, Mr. Hsieh and Mr. Hsu and the Company have agreed they should dedicate substantially all of their time and efforts to serve their managerial functions in such CAEs.
Exhibit | ||
Number | Description of Exhibit | |
31.1 | ||
31.2 | ||
32.1* | ||
32.2* |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
| China United Insurance Service, Inc. | ||
| | | |
Date: | | By: | /s/ |
| | Name: | Yi-Hsiao Mao |
| | Its: | Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
Date: | | By: | /s/ |
| | Name: | Mei-Kuan Yeh |
| | Its: | Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |
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