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, 20172022
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, 105405
(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,September 30, 2022, there are 29,452,669were 30,286,199 shares of common stock issued and outstanding, and 1,000,000 preferred shares issued and outstanding.
TABLE OF CONTENTS
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| UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | | 5 | |
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| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | 31 | |
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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” or the “VIE” 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
Table of ContentsPART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | |
| | September 30, | | December 31, | ||
(Amount in USD) |
| 2022 |
| 2021 | ||
ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 14,461,123 | | $ | 18,234,350 |
Time deposits | |
| 71,563,061 | |
| 64,299,176 |
Accounts receivable | |
| 14,499,574 | |
| 26,761,678 |
Contract assets | | | 5,518,599 | | | — |
Marketable securities | | | 753,345 | | | — |
Other current assets | |
| 873,505 | |
| 1,207,496 |
Total current assets | |
| 107,669,207 | |
| 110,502,700 |
| | | | | | |
Right-of-use assets under operating leases | | | 7,455,797 | | | 6,449,182 |
Property and equipment, net | |
| 1,563,003 | |
| 2,061,755 |
Intangible assets, net | |
| 294,088 | |
| 333,118 |
Long-term investments | |
| 2,301,718 | |
| 2,696,812 |
Restricted cash – noncurrent | |
| 14,939 | |
| 88,282 |
Deferred tax assets | | | 1,006,604 | | | 909,032 |
Other assets | |
| 4,164,320 | |
| 4,740,640 |
TOTAL ASSETS | | $ | 124,469,676 | | $ | 127,781,521 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
|
| |
|
|
Current liabilities | |
|
| |
|
|
Commission payable to sales professionals | | $ | 10,616,215 | | $ | 14,003,541 |
Short-term loans | | | 20,033,483 | | | 18,835,932 |
Contract liabilities - current | | | 87,097 | | | — |
Income tax payable - current | |
| 2,365,627 | |
| 3,893,047 |
Operating lease liabilities - current | | | 3,420,600 | | | 3,059,329 |
Due to related parties | |
| 6,593 | |
| 50,531 |
Other current liabilities | |
| 8,881,520 | |
| 13,997,603 |
Total current liabilities | |
| 45,411,135 | |
| 53,839,983 |
| | | | | | |
Contract liabilities - noncurrent | | | 1,348,875 | | | — |
Income tax payable - noncurrent | |
| 299,797 | |
| 539,636 |
Operating lease liabilities - noncurrent | | | 3,961,006 | | | 3,298,089 |
Net defined benefit liabilities - noncurrent | | | 339,163 | | | 389,198 |
Other liabilities | |
| 472,106 | |
| 541,754 |
TOTAL LIABILITIES | |
| 51,832,082 | |
| 58,608,660 |
| | | | | | |
COMMITMENTS AND CONTINGENCIES | |
| | |
| |
| | | | | | |
STOCKHOLDERS’ EQUITY | |
| | |
| |
Preferred stock, par value $0.00001, 10,000,000 authorized, 1,000,000 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | |
| 10 | |
| 10 |
Common stock, par value $0.00001, 100,000,000 authorized, 30,286,199 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | |
| 303 | |
| 303 |
Additional paid-in capital | |
| 9,296,953 | |
| 9,296,953 |
Statutory reserves | | | 11,091,633 | |
| 11,101,064 |
Retained earnings | |
| 25,162,731 | |
| 13,690,368 |
Accumulated other comprehensive (loss) income | |
| (4,327,301) | |
| 4,664,848 |
Total stockholders’ equity attributable to China United’s shareholders | |
| 41,224,329 | |
| 38,753,546 |
Noncontrolling interests | |
| 31,413,265 | |
| 30,419,315 |
TOTAL STOCKHOLDERS’ EQUITY | |
| 72,637,594 | |
| 69,172,861 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 124,469,676 | | $ | 127,781,521 |
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 unaudited condensed consolidated financial statements.
5
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE INCOME / (LOSS)
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 September 30, | | Nine Months Ended September 30, | ||||||||
(Amount in USD) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Revenue | | $ | 32,648,269 | | $ | 31,629,500 | | $ | 95,284,500 | | $ | 95,133,297 |
Cost of revenue | |
| 20,014,864 | |
| 17,066,959 | |
| 60,354,318 | |
| 59,576,604 |
| | | | | | | | | | | | |
Gross profit | |
| 12,633,405 | |
| 14,562,541 | |
| 34,930,182 | |
| 35,556,693 |
| | | | | | | | | | | | |
Operating expenses (income): | |
| | |
| | |
| | |
| |
Selling | |
| 872,974 | |
| 397,628 | |
| 1,990,805 | |
| 1,073,702 |
General and administrative | |
| 6,351,001 | |
| 7,189,914 | |
| 19,094,349 | |
| 19,470,001 |
Gain on disposal of nonfinancial assets in Jiangsu Law | | | (3,262,890) | | | — | | | (3,262,890) | | | — |
Total operating expense (income), net | |
| 3,961,085 | |
| 7,587,542 | |
| 17,822,264 | |
| 20,543,703 |
| | | | | | | | | | | | |
Income from operations | |
| 8,672,320 | |
| 6,974,999 | |
| 17,107,918 | |
| 15,012,990 |
| | | | | | | | | | | | |
Other income (expenses): | |
| | |
| | |
| | |
| |
Interest income | |
| 232,343 | |
| 116,277 | |
| 498,395 | |
| 330,054 |
Interest expenses | |
| (107,046) | |
| (47,701) | |
| (229,185) | |
| (136,807) |
Foreign currency exchange gain (loss), net | |
| 1,240,704 | |
| (31,341) | |
| 2,682,717 | |
| (130,527) |
Dividend income | | | 7,521 | | | 499 | | | 219,890 | | | 251,827 |
Other - net | |
| 4,574 | |
| 253,960 | |
| 127,855 | |
| 513,569 |
Total other income, net | |
| 1,378,096 | |
| 291,694 | |
| 3,299,672 | |
| 828,116 |
| | | | | | | | | | | | |
Income before income taxes | |
| 10,050,416 | |
| 7,266,693 | |
| 20,407,590 | |
| 15,841,106 |
Income tax expense | |
| (866,461) | |
| (1,908,078) | |
| (3,565,730) | |
| (4,308,482) |
| | | | | | | | | | | | |
Net income | |
| 9,183,955 | |
| 5,358,615 | |
| 16,841,860 | |
| 11,532,624 |
Less: net income attributable to noncontrolling interests | |
| (2,284,110) | |
| (2,338,903) | |
| (5,378,928) | |
| (4,911,643) |
Net income attributable to China United’s shareholders | |
| 6,899,845 | |
| 3,019,712 | |
| 11,462,932 | |
| 6,620,981 |
| | | | | | | | | | | | |
Other comprehensive items, net of tax: | |
| | |
| | |
| | |
| |
Foreign currency translation gain (loss) | |
| (6,711,878) | |
| 208,852 | |
| (13,377,127) | |
| 716,540 |
Other | |
| — | |
| (1) | |
| — | |
| 363 |
Total other comprehensive gain (loss) | | | (6,711,878) | | | 208,851 | | | (13,377,127) | | | 716,903 |
| | | | | | | | | | | | |
Comprehensive income | | | 2,472,077 | | | 5,567,466 | | | 3,464,733 | | | 12,249,527 |
Less: comprehensive income attributable to noncontrolling interests | | | (118,808) | | | (2,404,539) | | | (993,950) | | | (5,163,181) |
| | | | | | | | | | | | |
Comprehensive income attributable to China United’s shareholders | | $ | 2,353,269 | | $ | 3,162,927 | | $ | 2,470,783 | | $ | 7,086,346 |
| | | | | | | | | | | | |
Weighted average shares outstanding: | |
| | |
| | |
| | |
| |
Basic and diluted | |
| 30,286,199 | |
| 29,421,736 | |
| 30,286,199 | |
| 29,421,736 |
| | | | | | | | | | | | |
Earnings per share attributable to common stockholders of China United: | |
| | |
|
| |
| | |
| |
Basic and diluted | | $ | 0.220 | | $ | 0.099 | | $ | 0.366 | | $ | 0.218 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | |
| | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | | | | | ||
| | Common | | | | | Preferred | | | | | Paid-in | | Statutory | | Comprehensive | | Retained | | | | | Noncontrolling | | Total | |||||||
(Amount in USD) |
| Stock |
| Amount |
| Stock |
| Amount |
| Capital |
| Reserves |
| Income (loss) |
| Earnings |
| Total |
| Interests |
| Equity | ||||||||||
Balance June 30, 2022 |
| 30,286,199 | | $ | 303 | | | 1,000,000 | | $ | 10 | | $ | 9,296,953 | | $ | 11,091,448 | | $ | 219,275 | | $ | 18,263,071 | | $ | 38,871,060 | | $ | 31,294,457 | | $ | 70,165,517 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Appropriation of reserves | | — | | | — | | | — | | | — | | | — | | | 185 | | | — | | | (185) | | | — | | | — | | | — |
Foreign currency translation loss |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (4,546,576) | |
| — | |
| (4,546,576) | |
| (2,165,302) | |
| (6,711,878) |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Net income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 6,899,845 | |
| 6,899,845 | |
| 2,284,110 | |
| 9,183,955 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2022 |
| 30,286,199 | | $ | 303 | | | 1,000,000 | | $ | 10 | | $ | 9,296,953 | | $ | 11,091,633 | | $ | (4,327,301) | | $ | 25,162,731 | | $ | 41,224,329 | | $ | 31,413,265 | | $ | 72,637,594 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | |
| | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | | | | | ||
| | Common | | | | | Preferred | | | | | Paid-in | | Statutory | | Comprehensive | | Retained | | | | | Noncontrolling | | Total | |||||||
(Amount in USD) |
| Stock |
| Amount |
| Stock |
| Amount |
| Capital |
| Reserves |
| Income (loss) |
| Earnings |
| Total |
| Interests |
| Equity | ||||||||||
Balance December 31, 2021 |
| 30,286,199 | | $ | 303 | | | 1,000,000 | | $ | 10 | | $ | 9,296,953 | | $ | 11,101,064 | | $ | 4,664,848 | | $ | 13,690,368 | | $ | 38,753,546 | | $ | 30,419,315 | | $ | 69,172,861 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reversal of reserves | | — | | | — | | | — | | | — | | | — | | | (9,431) | | | — | | | 9,431 | | | — | | | — | | | — |
Foreign currency translation loss |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (8,992,149) | |
| — | |
| (8,992,149) | |
| (4,384,978) | |
| (13,377,127) |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Net income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 11,462,932 | |
| 11,462,932 | |
| 5,378,928 | |
| 16,841,860 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2022 |
| 30,286,199 | | $ | 303 | | | 1,000,000 | | $ | 10 | | $ | 9,296,953 | | $ | 11,091,633 | | $ | (4,327,301) | | $ | 25,162,731 | | $ | 41,224,329 | | $ | 31,413,265 | | $ | 72,637,594 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | |
| | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | | | | | ||
| | Common | | | | | Preferred | | | | | Paid-in | | Statutory | | Comprehensive | | Retained | | | | | Noncontrolling | | Total | |||||||
(Amount in USD) |
| Stock |
| Amount |
| Stock |
| Amount |
| Capital |
| Reserves |
| Income (loss) |
| Earnings |
| Total |
| Interests |
| Equity | ||||||||||
Balance June 30, 2021 |
| 29,421,736 | | $ | 294 | | | 1,000,000 | | $ | 10 | | $ | 8,190,449 | | $ | 10,731,421 | | $ | 4,211,579 | | $ | 11,431,159 | | $ | 34,564,912 | | $ | 27,354,383 | | $ | 61,919,295 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock-based compensation granted | | — | | | — | | | — | | | — | | | 1,106,513 | | | — | | | — | | | — | | | 1,106,513 | | | — | | | 1,106,513 |
Foreign currency translation gain |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 143,215 | |
| — | |
| 143,215 | |
| 65,637 | |
| 208,852 |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (1) | |
| (1) |
Net income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 3,019,712 | |
| 3,019,712 | |
| 2,338,903 | |
| 5,358,615 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2021 |
| 29,421,736 | | $ | 294 | | | 1,000,000 | | $ | 10 | | $ | 9,296,962 | | $ | 10,731,421 | | $ | 4,354,794 | | $ | 14,450,871 | | $ | 38,834,352 | | $ | 29,758,922 | | $ | 68,593,274 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | |
| | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | | | | | ||
| | Common | | | | | Preferred | | | | | Paid-in | | Statutory | | Comprehensive | | Retained | | | | | Noncontrolling | | Total | |||||||
(Amount in USD) |
| Stock |
| Amount |
| Stock |
| Amount |
| Capital |
| Reserves |
| Income (loss) |
| Earnings |
| Total |
| Interests |
| Equity | ||||||||||
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 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Appropriation of reserves | | — | | | — | | | — | | | — | | | — | | | 1,267,518 | | | — | | | (1,267,518) | | | — | | | — | | | — |
Common stock-based compensation granted | | — | | | — | | | — | | | — | | | 1,106,513 | | | — | | | — | | | — | | | 1,106,513 | | | — | | | 1,106,513 |
Foreign currency translation gain |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 465,125 | |
| — | |
| 465,125 | |
| 251,415 | |
| 716,540 |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 240 | | | — | | | 240 | | | 123 | | | 363 |
Net income |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 6,620,981 | |
| 6,620,981 | |
| 4,911,643 | |
| 11,532,624 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2021 |
| 29,421,736 | | $ | 294 | | | 1,000,000 | | $ | 10 | | $ | 9,296,962 | | $ | 10,731,421 | | $ | 4,354,794 | | $ | 14,450,871 | | $ | 38,834,352 | | $ | 29,758,922 | | $ | 68,593,274 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | |
(Amount in USD) | | Nine Months Ended September 30, | ||||
|
| 2022 |
| 2021 | ||
Cash flows from operating activities: | | | | | | |
Net income | | $ | 16,841,860 | | $ | 11,532,624 |
Adjustments to reconcile net income to net cash provided by operating activities | |
| | |
| |
Noncash stock-based compensation | | | — | | | 1,106,513 |
Depreciation and amortization | |
| 847,915 | |
| 880,555 |
Amortization of right-of-use assets | | | 2,772,819 | | | 2,724,822 |
Amortization of bond premium | |
| — | |
| 58 |
Gain on sales of financial assets | |
| — | | | (198,637) |
Loss on valuation of financial assets | |
| 310,244 | | | 224,609 |
Gain on disposal of nonfinancial assets in Jiangsu Law | | | (3,262,890) | | | — |
(Gain) loss on disposals of equipment | | | (3,637) | | | 72 |
Deferred income tax | |
| (369,595) | |
| 103,153 |
Unrealized foreign currency exchange gains | | | (762,517) | | | — |
Net changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable | |
| 9,595,151 | |
| 8,334,483 |
Contract assets | | | (5,991,389) | | | (2,844,090) |
Other current assets | |
| 95,716 | |
| 214,284 |
Other assets | |
| 202,577 | |
| (666,789) |
Commission payable to sales professionals | |
| (1,727,941) | |
| (3,259,115) |
Contract liabilities | | | 1,558,995 | | | — |
Income tax payable | |
| (1,455,124) | |
| (118,475) |
Other current liabilities | |
| (3,323,080) | |
| (5,368,199) |
Other liabilities | |
| — | |
| (558,400) |
Lease liabilities | | | (3,095,389) | | | (3,138,759) |
Net cash provided by operating activities | |
| 12,233,715 | |
| 8,968,709 |
| | | | | | |
Cash flows from investing activities: | |
| | |
| |
Purchases of time deposits | |
| (79,397,492) | |
| (61,420,198) |
Proceeds from maturities of time deposits | |
| 63,299,359 | |
| 56,760,207 |
Acquisition of equity investments under cost method using the measurement alternative | | | — | | | (46,372) |
Purchases of marketable securities | |
| (1,074,416) | |
| (1,158,903) |
Proceeds from sales of marketable securities | | | — | | | 2,246,589 |
Proceeds from sales of long-term investments - REITs | | | — | | | 142,007 |
Proceeds from disposal of nonfinancial assets in Jiangsu Law | |
| 3,262,890 | |
| — |
Purchase of equipment | |
| (503,313) | |
| (561,099) |
Purchase of intangible assets | | | (112,616) | | | (24,200) |
Proceeds from disposal of equipment | | | 25,806 | | | 143 |
Net cash used in investing activities | |
| (14,499,782) | |
| (4,061,826) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Proceeds from short-term loans | |
| 40,311,099 | |
| 10,029,560 |
Repayment of short-term loans | |
| (37,827,556) | |
| (6,100,000) |
Repayment of related party borrowings | |
| (37,667) | |
| (43,482) |
Net cash provided by financing activities | | | 2,445,876 | |
| 3,886,078 |
| |
| | | | |
Foreign currency translation | |
| (4,026,379) | |
| 337,555 |
Net (decrease) increase in cash, cash equivalents and restricted cash | |
| (3,846,570) | |
| 9,130,516 |
| | | | | | |
Cash, cash equivalents and restricted cash, beginning balance | |
| 18,322,632 | |
| 9,129,828 |
Cash, cash equivalents and restricted cash, ending balance | | $ | 14,476,062 | | $ | 18,260,344 |
| | | | | | |
SUPPLEMENTARY DISCLOSURE: | | | | | | |
Interest paid | | $ | 218,339 | | $ | 129,927 |
Income tax paid | | $ | 4,839,357 | | $ | 3,588,250 |
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | |
Lease liabilities arising from new right-of-use assets | | $ | 3,779,434 | | $ | 2,483,439 |
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 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amount in USD)
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
China United Insurance Service, Inc. (“China United,” “CUIS”United” or “CUII”), the subsidiaries and variable-interest entity and its subsidiaries (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 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 aggregating them into three geographic operating segments, Taiwan, the PRC, and Hong Kong. The Company’s common stock currently quotedtrades over the counter under the ticker symbol “CUII” on the United States Over the Counter Bulletin Board.
OTCQB.
The corporate structure as of September 30, 2017 was2022 is as follows:
On January 31, 2022, Genius Investment Consultant Co., Ltd. (“GIC”), a subsidiary entity of CUII entered into a stock transfer agreement with AIlife International Investment Co., Ltd. (“AIlife”), pursuant to which GIC sold and transferred to AIlife 100% of its equity ownership in Joint Insurance Broker Co., Ltd. (“JIB”), a former wholly-owned subsidiary of GIC, resulting in AIlife owning 100% equity interest in JIB. Such exchange of equity interests between CUII’s subsidiaries are under common control of the Company and therefore, they were accounted for at the carrying amount of the equity interests transferred and there was no impact on consolidated financial statements as of and for the three and nine months ended September 30, 2022, respectively.
10
On February 25, 2022, Law Anhou Insurance Agency Co., Ltd. (“Anhou”), a contractually controlled entity of CUII entered into a Share Purchase Agreement with Jiangsu Law Insurance Brokerage Co., Ltd. (“Jiangsu Law”) and third-party buyers, pursuant to which Anhou sold and transferred 100% of its equity ownership in Jiangsu Law, a wholly owned subsidiary of Anhou, for a total consideration of $3,262,890 (or RMB 21 million). On July 28, 2022, the Hsuchow Regulatory Bureau of the China Banking and Insurance Regulatory Commission (the “CBIRC Jiangsu Regulatory Bureau”) approved the change of shareholders of Jiangsu Law from Anhou to the aforementioned third-party buyers and accordingly, Anhou has transferred out the control over Jiangsu Law. Please refer to Note 3 for more information.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The unaudited accompanying condensed consolidated financial statements include the accounts of China United, the subsidiaries and variable interest entity and its subsidiaries 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 and the cash flow statements operating activities 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, 20172022 are not necessarily indicative of the results that may be expected for the year endedending December 31, 2017.
2022.
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, 2016,2021, which were included in the Company’s 20162021 Annual Report on Form 10-K.10-K (“2021 Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2016,2021, 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 unaudited 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 notes to conformfootnotes thereto. Actual results may differ from those estimates and assumptions.
Variable Interest Entities
Due to the legal restrictions on foreign ownership and investment in insurance agency and brokerage businesses in China, especially those on qualifications as well as capital requirement of the investors, China United, through its subsidiary, Zhengzhou Zhonglian Hengfu Business Consulting Co., Limited (“WFOE”), entered into Exclusive Business Cooperation Agreement (the “EBCA”), Power of Attorney, Option Agreement, and Share Pledge Agreement (collectively, the “First VIE Agreements”) on January 17, 2011 with Anhou and Anhou original shareholders so as to operate and conduct the insurance agency and brokerage business in the PRC.
Pursuant to the EBCA, (a) WFOE has the right to provide Anhou with complete technical support, business support and related consulting services during the term of the EBCA; (b) Anhou agrees to accept all the consultations and services provided by WFOE. Anhou further agrees that unless with WFOE’s prior written consent, during the term of the EBCA, Anhou shall not directly or indirectly accept the same or any similar consultations and/or services provided by any third party and shall not establish similar cooperation relationship with any third party regarding the matters contemplated by the EBCA; (c) within 90 days after the end of each fiscal year Anhou shall pay an amount to WFOE equal to the shortfall, if any, of the aggregate net income of Anhou for such fiscal; (d) WFOE retains all exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising out of or created during the performance of the EBCA; and (e) the shareholders of Anhou have pledged all of their equity interests in Anhou to WFOE to guarantee Anhou’s performance of its obligations under the EBCA. The term of the EBCA is 10 years and may be extended and determined by WFOE prior to the expiration thereof, and Anhou shall accept such extended term unconditionally.
11
On March 23, 2022, Anhou and WFOE entered into an amendment to the EBCA, pursuant to which the EBCA shall be automatic renewed for successive terms unless WFOE gives a 30-day notice to terminate such agreement, with each term being 10 years.
To extend the business within the PRC, Anhou intended to increase its registered capital to RMB50 million (approximately $8 million) to meet the requirement of the China Insurance Regulatory Commission (the “CIRC”) so that it can set up new branches in any province beyond its current period’s presentation. Such reclassificationsoperations in China. China United increased the investment in Anhou through various loan agreements with the shareholders of Anhou. The aggregate funding provided by WFOE was RMB 40 million. Due to the capital increase, a series of variable interest agreements (the “Second VIE Agreements”), which include Power of Attorneys, Exclusive Option Agreements, Share Pledge Agreements, were signed on October 24, 2013 and entered in the same form as the First VIE Agreements, other than the change of shareholder names and their respective shareholdings. The First VIE Agreements were terminated by and among WFOE, Anhou and Anhou original shareholders on the same date. The EBCA executed by and between WFOE and Anhou on January 17, 2011 remains in full effect.
As a result of the Second VIE Agreements, WFOE is considered the primary beneficiary of Anhou and has effective control over Anhou. Accordingly, the results of operations, assets and liabilities of Anhou and its subsidiaries (collectively, the “Consolidated Affiliated Entities” or the “CAE”) are consolidated from the earliest period presented. The Company reviews the VIE’s status on an annual basis and determines if any events have occurred that could cause its primary beneficiary status to change, which include (a) the legal entity’s governing documents or contractual arrangements are changed in a manner that changes the characteristics or adequacy of the legal entity’s equity investment at risk; (b) the equity investment or some part thereof is returned to the equity investors, and other interests become exposed to expected losses of the legal entity; (c) the legal entity undertakes additional activities or acquires additional assets, beyond those anticipated at the later of the inception of the entity or the latest reconsideration event, that increase the entity’s expected losses; and (d) the legal entity receives an additional equity investment that is at risk, or the legal entity curtails or modifies its activities in a way that decreases its expected losses. For the nine months ended September 30, 2022 and 2021, no event taken place that would change the Company’s primary beneficiary status.
Disposal of Subsidiary
A disposal of a subsidiary is categorized as a discontinued operation as provided by ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, if the disposal group is a component of an entity or group of components that meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale, and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.
The Company deconsolidates the accounts of a subsidiary as provided by ASC Topic 810, Consolidation, once the Company ceases to have a controlling interest in a subsidiary. The aggregate of the fair value of consideration received, the fair value of any retained noncontrolling investment and the carrying amount of the former subsidiary’s assets and liabilities are recognized as a gain or loss on disposition.
If the transaction involves the sale of an ownership interest in a subsidiary and if substantially all of the fair value of the assets in that subsidiary promised to the counterparty is concentrated in nonfinancial assets, the financial assets in that subsidiary are in substance nonfinancial assets (ISNFA) and are accounted for under ASC 610-20, where the gain or loss recognized upon the derecognition of a nonfinancial asset or an ISNFA is the difference between the amount of consideration measured and allocated to that distinct asset and the carrying amount of the distinct asset.
Marketable Securities
The Company invests part of its excessive cash in equity securities and money market funds. Marketable securities represent trading securities bought and held primarily for sale in the near-term to generate income on short-term price differences and are stated at fair value. Realized and unrealized gains and losses are recorded in other income (expense).
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable includes commission receivables stated at net incomerealizable values. The Company reviews its accounts receivable regularly to determine 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 necessity of making such allowance. No allowance was deemed necessary as previously reported. Please see Note 23, Reclassifications.of September 30, 2022 and December 31, 2021.
12
Foreign Currency Translations
Revenue Recognition
The Company’s revenue is derived from insurance agency and brokerage services with respect to life insurance and property and casualty insurance products. The Company, through its subsidiaries and variable interest entities, sells insurance products provided by insurance companies to individuals, and is compensated in the form of commissions from the respective insurance companies, according to the terms of each service agreement made by and between the Company and the insurance companies. The core revenue recognition principle under ASC 606, the Company considers the contracts with insurance companies contain one performance obligation and consideration should be recorded when performance obligation is satisfied at point in time. The sale of an insurance product by the Company is considered complete when initial insurance premium is paid by an individual and the insurance policy is approved by the respective insurance company. When a policy is effective, the insurance company is obligated to pay the agreed-upon commission to the Company under the terms of its service agreement with the Company and such commission is recognized as revenue.
For the first year commission (FYC), the Company recognizes the revenue when the individuals’ policies are effective. The Company makes the estimation amount to be entitled for annual performance and operating bonus which is based on the FYC. The Company makes an estimation on performance and operation bonus which are based on the accumulated FYC on quarterly basis, and make reconciliation between actual and estimation amount on annual basis. The estimated revenue for the three and nine months ended September 30, 2022 were approximately $2.6 million and $8.4 million, and for the three and nine months ended September 30, 2021, were approximately $1.2 million and $6.8 million, respectively.
Others includes the contingent commissions for subsequent years, the bonus based on persistency ratio bonus, and service allowances, are considered highly susceptible to factors outside the company’s influence and depend on the actions of third parties (i.e., the subsequent premiums paid by individual policyholders), and the uncertainty can be extended for many years. Considering the high uncertainties, the contingent commissions for subsequent years, the bonus based on persistency ratio, and service allowances will be recognized as revenue based on the actual amount received from the insurance companies after the uncertain event is resolved.
For property and casualty insurance products, the Company recognizes the revenue when the individuals’ policies are effective. The revenue from property and casualty insurance products was 5.7% and 6.7% of the Company’s total revenue for the three and nine months ended September 30, 2022, and was 9.0% and 7.4% of the Company’s total revenue for the three and nine months ended September 30, 2021, respectively.
The Company is obligated to pay commissions to its sales professionals when an insurance policy becomes effective. The Company recognizes commission revenue granted from insurance companies on a gross basis, and the commissions paid to its sales professionals are recognized as cost of revenue.
The Company enters into service agreements with insurance companies, which may give rise to contract assets and contract liabilities. When the timing of revenue recognition differs from the timing of payments made by insurance companies, the Company recognizes either contract assets (its performance precedes the billing date) or contract liabilities (customer payment is received in advance of performance).
Foreign Currency Transactions
China United’s financial statements are presented in U.S. dollars ($), 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. GainsHong Kong dollar (“HKD”). Each subsidiary maintains its financial records in its own functional currency. Transactions denominated in foreign currencies are measured at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured at the exchange rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical cost in foreign currency are remeasured using the exchange rates at the dates of the initial transactions. Exchange gains and losses resulting from the translation of foreign currency transactions are reflectedincluded in the consolidated statements of operations and other comprehensive income (loss). Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate
13
In accordance with ASC 830, Foreign Currency Matters, theThe 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. Cash flows were also translated at average translation rates for the period and, therefore, amounts reported on the statement of cash flows would not necessarily agree with changes in the corresponding balances on the unaudited condensed consolidated balance sheet. The exchange rates used for interimunaudited condensed 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 nine months ended | ||||||||||||
| | September 30, | ||||||||||||
|
| 2022 |
| 2021 | ||||||||||
| | (unaudited) | | (unaudited) | ||||||||||
Taiwan dollar (NTD) | | NTD | 29.26528 |
| NTD | 27.95566 | ||||||||
China yuan (RMB) | RMB | 6.805734 | RMB | 6.579240 | | RMB | 6.60012 |
| RMB | 6.46939 | ||||
Hong Kong dollar (HKD) | HKD | 7.787013 | HKD | 7.763280 | | HKD | 7.83293 |
| HKD | 7.76655 | ||||
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 | ||||||||||||
|
| September 30, 2022 |
| | ||||||||||
| | (unaudited) | | December 31, 2021 | ||||||||||
Taiwan dollar (NTD) | | NTD | 31.77251 |
| NTD | 27.68785 | ||||||||
China yuan (RMB) | RMB | 6.654500 | RMB | 6.943700 | | RMB | 7.10988 |
| RMB | 6.35877 | ||||
Hong Kong dollar (HKD) | HKD | 7.811000 | HKD | 7.754340 | | HKD | 7.84968 |
| HKD | 7.79713 | ||||
United States dollar ($) | $ | 1.000000 | $ | 1.000000 | | $ | 1.00000 | | $ | 1.00000 |
Earnings Per Share
Basic earnings 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 September 30, 2022 and 2021, the Company does not have any potentially dilutive instrument.
The following is a reconciliation of the income and share data used in the basic and diluted EPS computations for the three and nine months ended September 30, 2022 and 2021, respectively, under the two-class method.
| | | | | | | | | | | | |
|
| Three Months Ended September 30, | ||||||||||
| | 2022 | | 2021 | ||||||||
Numerator: |
| Common stock |
| Preferred stock |
| Common stock |
| Preferred stock | ||||
Allocation of net income attributable to the Company | | $ | 6,679,305 | | $ | 220,540 | | $ | 2,920,450 | | $ | 99,262 |
| | | | | | | | | | | | |
Denominator: | |
|
| |
|
| |
|
| |
|
|
Weighted average shares of the Company’s common/preferred stock outstanding - basic & diluted | |
| 30,286,199 | |
| 1,000,000 | |
| 29,421,736 | |
| 1,000,000 |
Basic and diluted earnings per share | | $ | 0.220 | | $ | 0.220 | | $ | 0.099 | | $ | 0.099 |
14
| | | | | | | | | | | | |
| | Nine Months Ended September 30, | ||||||||||
| | 2022 | | 2021 | ||||||||
Numerator: |
| Common stock |
| Preferred stock |
| Common stock |
| Preferred stock | ||||
Allocation of net income attributable to the Company | | $ | 11,096,543 | | $ | 366,389 | | $ | 6,403,341 | | $ | 217,640 |
| | | | | | | | | | | | |
Denominator: | |
|
| |
|
| |
|
| |
|
|
Weighted average shares of the Company’s common/preferred stock outstanding - basic & diluted | |
| 30,286,199 | |
| 1,000,000 | |
| 29,421,736 | |
| 1,000,000 |
Basic and diluted earnings per share | | $ | 0.366 | | $ | 0.366 | | $ | 0.218 | | $ | 0.218 |
The participating rights (liquidation and dividend rights) of the holders of the Company’s common stock and preferred stock are identical, except with respect to voting right. As a result, and in accordance with ASC Topic 260, the undistributed earnings for each year are allocated based on the contractual participation rights of the common stock and preferred stock as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis.
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 partiesmarket participants at the measurement date. This framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels 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 the principal or most advantageous marketactive markets, and inputs that are observable for the assetassets or liability. Where available,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 fair value.
In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on observablesignificant unobservable inputs are classified as Level 3.
The following table summarize financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | |
| | September 30, 2022 | ||||||||||
| | Fair Value | | Carrying | ||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Value | ||||
Assets | | | | | | | | | ||||
Marketable securities : | | | | | | | | | | | | |
Stock and mutual funds | | $ | 753,345 | | $ | — | | $ | — | | $ | 753,345 |
Long-term investments: | |
| | |
| | |
| | |
| |
REITs | |
| 1,049,832 | |
| — | |
| — | |
| 1,049,832 |
Total assets measured at fair value | | $ | 1,803,177 | | $ | — | | $ | — | | $ | 1,803,177 |
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
| | Fair Value | | Carrying | ||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Value | ||||
Assets | | | | | | | | | ||||
Long-term investments: | |
| | |
| | |
| | |
| |
REITs | | $ | 1,261,482 | | $ | — | | $ | — | | $ | 1,261,482 |
Total assets measured at fair value | | $ | 1,261,482 | | $ | — | | $ | — | | $ | 1,261,482 |
15
The carrying amounts of current financial assets and liabilities in the consolidated balance sheets for cash equivalents, time deposits, and restricted cash equivalents approximate fair value due to the short-term duration of those instruments, which are considered level 2 fair value measurement.
Marketable securities and long-term investments in REITs – The fair values of mutual funds and REITs were valued based on quoted market prices or derived from such prices. Where observable prices or inputs are not available, valuation models are applied which may involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. See Note 24, Fair Value Measurement.in active markets.
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 NTD 3,000,000 insured by Central Deposit Insurance Corporation (“CDIC”). In China, a depositor has up to RMB 500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”). In Hong Kong, a depositor has up to HKD 500,000 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”).
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, contract assets and accounts receivable. As of September 30, 2017,2022 and December 31, 2021, approximately $1,467,000$2,257,000 and $2,712,000 of the Company’s cash and cash equivalents, time deposits, and registered capital deposit and restricted cashdeposits held by financial institutions, was insured, and the remaining balance of approximately $32,808,000$86,840,000 and $83,446,000, was not insured.
Three major insurance companies accounted for more than 10% of the Company’s total revenue for the three months ended of September 30, 2017 and 2016. Revenue from these insurance companies were set out as below:
Three months ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Amount | % of Total Revenue | Amount | % of Total Revenue | |||||||||||||
Farglory Life Insurance Co., Ltd. | $ | 4,275,654 | 26 | % | $ | 5,291,779 | 35 | % | ||||||||
Taiwan Life Insurance Co., Ltd. (*) | 1,911,978 | 12 | % | 1,493,069 | 10 | % | ||||||||||
TransGlobe Life Insurance Inc. | 1,882,461 | 12 | % | (** | ) | (** | ) |
For the nine months ended of September 30, 2017 and 2016, the Company’s revenue received from the following companies were set out as below:
Nine months ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Amount | % of Total Revenue | Amount | % of Total Revenue | |||||||||||||
Farglory Life Insurance Co., Ltd. | $ | 13,019,656 | 26 | % | $ | 13,969,672 | 32 | % | ||||||||
Taiwan Life Insurance Co., Ltd. (*) | 5,881,228 | 12 | % | 4,813,813 | 11 | % | ||||||||||
TransGlobe Life Insurance Inc. | 5,127,561 | 10 | % | (** | ) | (** | ) | |||||||||
Fubon Life Insurance Co., Ltd. | (*** | ) | (*** | ) | 4,342,377 | 10 | % |
As of September 30, 2017 and December 31, 2016, the Company’s accounts receivable from the following companies were set out as below:
September 30, 2017 | December 31, 2016 | |||||||||||||||
Amount | % of Total Accounts Receivable | Amount | % of Total Accounts Receivable | |||||||||||||
Farglory Life Insurance Co., Ltd. | $ | 2,450,793 | 34 | % | $ | 6,503,843 | 41 | % | ||||||||
Taiwan Life Insurance Co., Ltd (*) | (** | ) | (** | ) | 1,973,410 | 13 | % | |||||||||
TransGlobe Life Insurance Inc. | 801,832 | 11 | % | (** | ) | (** | ) | |||||||||
Fubon Life Insurance Co., Ltd | (** | ) | (** | ) | 1,660,685 | 11 | % |
With respect to accounts receivable, the Company generally does not have anyrequire collateral and does not have anyan allowance for doubtful accounts.
For the three months ended September 30, 2022 and 2021, the Company’s revenues from sale of insurance policies underwritten by these companies were:
| | | | | | | | | | | |
| | Three Months Ended September 30, | | ||||||||
| | 2022 | | 2021 | | ||||||
| | (unaudited) | | (unaudited) | | ||||||
| | | | | % of Total | | | | | % of Total |
|
|
| Amount |
| Revenue |
| Amount |
| Revenue |
| ||
TransGlobe Life Insurance Inc. | | $ | 10,553,991 |
| 32 | % | $ | 8,043,483 | | 25 | % |
Taiwan Life Insurance Co., Ltd. | |
| 5,164,375 |
| 16 | % |
| 6,733,094 | | 21 | % |
Farglory Life Insurance Co., Ltd. | |
| 3,043,157 |
| 9 | % |
| 3,797,277 | | 12 | % |
For the nine months ended September 30, 2022 and 2021, the Company’s revenues from sale of insurance policies underwritten by these companies were:
| | | | | | | | | | | |
| | Nine Months Ended September 30, | | ||||||||
| | 2022 | | 2021 |
| ||||||
| | (unaudited) | | (unaudited) | | ||||||
| | | | | % of Total | | | | | % of Total |
|
|
| Amount |
| Revenue |
| Amount |
| Revenue |
| ||
TransGlobe Life Insurance Inc. | | $ | 27,702,126 |
| 29 | % | $ | 23,829,160 | | 25 | % |
Taiwan Life Insurance Co., Ltd. | | | 13,244,436 |
| 14 | % | | 19,888,398 | | 21 | % |
Farglory Life Insurance Co., Ltd. | |
| 10,884,853 |
| 11 | % |
| 12,279,101 | | 13 | % |
16
As of September 30, 2022 and December 31, 2021, the Company’s accounts receivable and contract assets from these companies were:
| | | | | | | | | | | |
| | September 30, 2022 | | | | | |
| |||
| | (unaudited) | | December 31, 2021 |
| ||||||
| | | | | % of Total | | | | | % of Total |
|
| | | | | Accounts | | | | | Accounts |
|
| | | | | Receivable | | | | | Receivable | |
|
| Amount |
| and contract assets |
| Amount |
| and contract assets | | ||
TransGlobe Life Insurance Inc. | | $ | 7,524,628 | | 38 | % | $ | 8,569,590 | | 32 | % |
Taiwan Life Insurance Co., Ltd. | | | 2,706,867 | | 14 | % | | 4,483,343 | | 17 | % |
Farglory Life Insurance Co., Ltd. | | | 1,593,213 | | 8 | % | | 2,729,673 | | 10 | % |
The Company’s operations are in Taiwan, the PRC, Taiwan and Hong Kong. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic, foreign currency exchange and legal environments in the PRC, Hong Kong and Taiwan, and Hong Kong, the foreign currency exchange andby the state of each regions.economy. The Company’s results of operations may be adversely affected by changes in the political and social conditions in the PRC, TaiwanHong Kong and Hong Kong,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.
Income Taxes
Recent Accounting Pronouncements
In January 2016,The Company records income tax expense using the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognitionasset-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 Measurement of Financial Assetsliabilities and Financial Liabilities,” which amends the guidance in U.S. GAAPtheir financial reporting amounts at each year-end based on the classificationenacted tax laws and measurement of financial instruments. Changesstatutory tax rates applicable to the current guidance primarilyperiods in which the differences are expected to 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 thetaxable income. Deferred tax assets are reduced by a valuation allowance assessment when recognizingif, based on available evidence, it is more likely than not that the deferred tax assets resulting from unrealized losses on available-for-sale debt securities.will not be realized.
When tax returns are filed, it is likely that 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 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 meansbenefit of a cumulative-effect adjustmenttax 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 balance sheet attaxing 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 beginningstatements 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 inoperations and other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.income (loss).
New Accounting Pronouncements and Other Guidance
New accounting pronouncements not yet adopted
Credit Losses
In FebruaryJune 2016, the FASB issued ASU 2016-02, Leases (Topic 842). TheNo. 2016-13, (FASB ASC Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance inand 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. 2016-02 supersedes2019-10 to postpone the lease recognition requirements in ASC Topic 840, Leases (Statementeffective date 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 effective2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to 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, 2017,2022, 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.fiscal years. The Company believes the adoption of ASU No. 2016-18 is2016-13 will 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 managementManagement does not believe that other than as disclosed above, theaccounting pronouncements 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 Assessment17
The Company has assessed its ability to continue as a going concern for a periodTable 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.Contents
NOTE 3 – DISPOSAL OF NONFINANCIAL ASSETS IN SUBSIDIARY, JIANGSU LAW
On February 25, 2022, Law Anhou Insurance Agency Co., Ltd. (“Anhou”), a contractually controlled entity of CUII entered into a Share Purchase Agreement with Jiangsu Law Insurance Brokerage Co., Ltd. (“Jiangsu Law”) and third-party buyers, pursuant to which Anhou shall sell and transfer 100% of its equity ownership in Jiangsu Law, a wholly owned subsidiary of Anhou, for a total consideration of $3,262,890 (or RMB 21 million) to the following buyers: Xuzhou Guosheng Furui Asset Management Co., Ltd., Jiangsu Zhongbozhixin Financial Service Outsourcing Co., Ltd., and Xuzhou Xinrui Service Outsourcing Co., Ltd. Jiangsu Law holds an insurance agency license. The Company evaluated that such disposal does not meet the criteria for discontinued operations because it does not represent a strategic shift that has a major effect on the Company’s operations and financial results.
The Share Purchase Agreement provided that the accounts receivables and unfulfilled contracts of Jiangsu Law are transferred to Anhou and all debts and liabilities of Jiangsu Law are assumed by Anhou. In addition, the Share Purchase Agreement also provides that Anhou and Jiangsu Law are responsible for the arrangement of employees of Jiangsu Law. As a result, Jiangsu Law shall retain its insurance agency license as the only asset transferred to the third-party buyers. Further, for the maintenance of insurance agency license, there is a new requirement effective February 2022 by the local authorities to make additional capital contribution to Jiangsu Law, which will be provided by the third-party buyers according to the Share Purchase Agreement. The cost to sell this insurance agency license was immaterial.
On July 28, 2022, the Hsuchow Regulatory Bureau of the China Banking and Insurance Regulatory Commission (the “CBIRC Hsuchow Regulatory Bureau”) approved the change of shareholders of Jiangsu Law from Anhou to the aforementioned third-party buyers and accordingly, Anhou lost control over Jiangsu Law that holds the insurance agency license under ASC 810. In the meantime, the Company recognized a gain of $3,262,890 from the disposal of the insurance agency license under ASC 610-20, which was included in income from operations during the third fiscal quarter of 2022.
NOTE 4 – CASH, AND CASH EQUIVALENTS AND TIME DEPOSITS
RESTRICTED CASH
Cash, and cash equivalents and time depositsrestricted cash consisted of the following as of September 30, 20172022 and December 31, 2016:2021:
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 |
| | | | | | |
| | September 30, 2022 | |
| | |
|
| (unaudited) |
| December 31, 2021 | ||
Cash and cash equivalents: | | | | | | |
Cash on hand and in banks | | $ | 14,461,123 | | $ | 18,234,350 |
Restricted cash – noncurrent | |
| 14,939 | |
| 88,282 |
Total cash, cash equivalents and restricted cash shown in the statements of cash flows | | $ | 14,476,062 | | $ | 18,322,632 |
Noncurrent restricted cash includes a mandatory deposit in the bank 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 such Agencies.
NOTE 5 – TIME DEPOSITS
| | | | | | |
| | September 30, 2022 | | | | |
|
| (unaudited) |
| December 31, 2021 | ||
| | | | | | |
Total time deposits | | $ | 71,563,061 | | $ | 71,161,391 |
Less: Time deposits – with original maturities less than three months | |
| — | |
| (6,862,215) |
Time deposits – original maturities over three months but less than one year | | $ | 71,563,061 | | $ | 64,299,176 |
Time Deposits Pledged as Collateral
The Company considers cash on hand, cash in bank,had a total of $23,308,984 (NTD 740.6 million) and bank$23,811,616 (NTD 659.3 million) restricted time deposits, with maturities of three months or less to be cash and cash equivalents.
NOTE 4 – MARKETABLE SECURITIES
Marketable securities represent investment in equity securities of listed stocks and funds, which are classified as follows:
September 30, 2017 | ||||||||||||
Cost | Gross Unrealized Losses | Total Fair Value | ||||||||||
Trading: | ||||||||||||
Funds | $ | 33,117 | $ | (250 | ) | $ | 32,867 | |||||
$ | 33,117 | $ | (250 | ) | $ | 32,867 |
December 31, 2016 | ||||||||||||
Fair Value at | Gross | |||||||||||
December 31, | Unrealized | Total | ||||||||||
2015 | Gains | Fair Value | ||||||||||
Trading: | ||||||||||||
Stocks | $ | 28,863 | $ | 9,900 | $ | 38,763 | ||||||
Funds | 2,340,219 | 47,888 | 2,388,107 | |||||||||
$ | 2,369,082 | $ | 57,788 | $ | 2,426,870 |
NOTE 5 – STRUCTURED DEPOSIT
On July 7, 2017, the Company entered into an agreement with Cathy United Bank to purchase a 185-days structured deposit in effective on July 7, 2017 and mature on January 8, 2018. Principal of the structured deposit is RMB 8,000,000 and the structured deposit with an embedded foreign exchange option linked to US Dollar to China Yuan offshore exchange rate (“USDCNH”). Strike price of the structured deposit is set as 7.3 USDCNH and the fixing date is on January 4, 2018. Yield rate will be at 4.1% per annum when the USDCNH is above or equal strike price on the fixing date, or at 3.9% per annum when blow.
September 30, 2017 | ||||||||||||
Cost | Gross Unrealized Losses | Total Fair Value | ||||||||||
Structured deposit | $ | 1,278,551 | $ | (73,389 | ) | $ | 1,205,162 | |||||
$ | 1,278,551 | $ | (73,389 | ) | $ | 1,205,162 |
NOTE 6 – OTHER CURRENT ASSETS
Other current assets consisted of the followingrespectively, as of September 30, 20172022 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, 2017.2021. As of September 30, 2017,2022 and December 31, 2021, time deposits of $31,474 (NTD 1 million) and $36,117 (NTD 1 million) were pledged as collateral for the outstanding balance of the loan receivable is NTD44,790,360 ($1,477,060). On November 1 and November 2, 2017,Company’s credit card, respectively. In addition, the Company received the interest paymenthad time deposits of this loan amount of NTD 300,000 (approximately $9,800)$23,277,510 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$23,775,499 pledged as collateral for short-term loans, respectively, as of September 30, 20172022 and December 31, 2016:2021. See Note 7.
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 |
18
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 96 – LONG-TERM INVESTMENTS
As of September 30, 20172022 and December 31, 2016,2021, the Company’s long-term investments consisted of the following:
| | | | | | |
| | September 30, 2022 | | | | |
|
| (unaudited) |
| December 31, 2021 | ||
Equity investments under cost method using the measurement alternative | | $ | 1,251,886 | | $ | 1,435,330 |
REITs |
| | 1,049,832 |
| | 1,261,482 |
Total long-term investments | | $ | 2,301,718 | | $ | 2,696,812 |
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 |
Equity Investments under cost method using the measurement alternative
As of September 30, 2017 and December 31, 2016,
| | | | | | | | | | |
|
| September 30, 2022 |
| | | | | |||
| | (unaudited) | | December 31, 2021 | ||||||
| | Investment | | | | | Investment | | | |
Investee | | Ownership | | | Amount | | Ownership | | | Amount |
Genius Insurance Broker Co., Ltd (“GIB”) | | 11.73 | % | $ | 1,209,691 | | 11.73 | % | $ | 1,388,151 |
Hainan Haoguan Yucheng Technology Service LLP (“HAINAN”) |
| 9.99 | % | | 42,195 |
| 9.99 | % | | 47,179 |
On February 13, 2015, the Company hadand AHFL, a wholly owned subsidiary of 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 |
AccordingCompany, entered into an acquisition agreement with Mr. Chwan Hau Li, the selling shareholder of GHFL. Subsequent to Taiwan Regulations Governing Depositthe acquisition, GHFL became a wholly-owned subsidiary of Bondthe Company which in turn holds approximately 15.64% issued and Acquirementoutstanding shares of Insurance by Insurance Agents, Insurance Brokers and Insurance Surveyors (“RGDBAI”) Article 3 requirement, LawGenius Insurance Broker Co., Ltd. (“LawGenius Broker”). Accordingly, the acquisition was accounted for as an asset acquisition of Genius Broker, which is requiredan equity investment under cost method using the measurement alternative acquired by the Company. Further, the equity interest of GIB owned by GIC reduced from 15.64% to maintain a minimum11.73% due to capital increase in 2020 where GIC didn’t subscribe the new shares during the capital increase.
A new investee in the investment ownership was due to the Company’s investment in HAINAN in 2021. HAINAN operates projects for insurance platforms which contain insurance product centralized procurement, share service platform of NTD3,000,000 ($98,932sub-hierarchy distribution channel, and $92,928IoT business requirement. The Company invested HAINAN for RMB 300,000, or 9.99%, to engage in the qualification of supplier membership and distributor membership.
The change in carrying value of equity investment resulted from the fluctuation of exchange rates.
REITs
REITs are valued based on quoted market prices in the active market of Taiwan. The fair value of REITs as of September 30, 20172022 and December 31, 2016, respectively) restricted balance2021 were $1,049,832 and $1,261,482, respectively.
Unrealized losses included in a separate account. RGDBAI Article 4 is requiredearnings for assets held at the end of the reporting periods were $25,662 and $11,135 for the three months ended September 30, 2022 and 2021, and were $53,713 and $93,259 for the nine months ended September 30, 2022 and 2021, respectively.
For the three and nine months ended September 30, 2022 and 2021, no other-than temporary impairment were recorded related to deposited a minimum amount in the form of cash or book entry to government bond issued by the central government. Therefore, Law Broker used such amounts to purchase government bonds and has the right to trade such bonds with other debt or equity instruments.long-term investments.
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 |
19
NOTE 107 – OTHER ASSETS
SHORT-TERM LOANS
The Company’s other assetsshort-term loans consisted of the following as of September 30, 20172022 and December 31, 2016:2021:
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 |
| | | | | | | | | | | | | | |
| | | | September 30, 2022 | | | | | | | ||||
| | | | (unaudited) | | December 31, 2021 | ||||||||
|
| |
| Debt |
| Collateral |
| Debt |
| Collateral | ||||
Line of Credit | | Collateral | | balance | | value | | balance | | value | ||||
$7.9 million (NTD 250 million) revolving line of credit with Cathay United Bank Company Limited (“CUB”); the loan bears interest the 1-month TAIBOR rate plus a margin of 0.46% and matures on April 11, 2023. |
| Time deposits | | $ | 6,046,108 | | $ | 6,046,108 | | $ | 9,011,172 | | $ | 9,047,289 |
$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 2, 2022. |
| Time deposits | |
| 4,000,000 | |
| 4,721,063 | |
| 4,000,000 | |
| 4,984,135 |
$6.0 million revolving line of credit with Taishin International Bank (“TSIB”); the loan bears interest at the TSIB’s cost of funds plus a margin of 0.7% and matures on May 31, 2023. |
| Time deposits | |
| 2,200,000 | |
| 3,065,801 | | | 2,200,000 | |
| 3,065,801 |
$2.5 million revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the TAIFX3 rate plus a margin of 0.5% and matures on January 13, 2023. |
| Time deposits | |
| 1,650,000 | |
| 2,045,794 | |
| 1,850,000 | |
| 2,961,588 |
$3.1 million (NTD 100 million) revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the FEIB’s adjustable rates for loans plus a margin of 0.6% and matures on January 13, 2023. | | Time deposits | | | 3,147,375 | | | 3,147,375 | | | — | | | — |
$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 matured on February 28, 2023. | | Time deposits | | | 500,000 | | | 1,573,687 | | | — | | | — |
$3.1 million revolving line of credit with KGI; the loan bears interest at the TAIFX Fixing rate plus a margin of 0.9% and matures on May 18, 2022. |
| Time deposits | |
| — | |
| — | |
| 1,540,000 | |
| 2,481,926 |
$6.3 million (NTD 200 million) revolving line of credit with Taishin International Bank (“TSIB”); the loan bears interest at the TSIB’s cost of funds plus a margin of 0.625% and matures on May 31, 2023. |
| Time deposits | | | — | |
| — | |
| 234,760 | |
| 234,760 |
$3.0 million revolving line of credit with E. Sun Bank (“E. Sun”); the loan bears interest at the TAIFX3 rate plus a margin of 0.4% and matures on November 30, 2022. | | Time deposits | | | 2,490,000 | | | 2,677,682 | | | — | | | 1,000,000 |
| | | | $ | 20,033,483 | | $ | 23,277,510 | | $ | 18,835,932 | | $ | 23,775,499 |
According to China Insurance Regulatory Commission No. 82, issued onBorrowings under the revolving credit agreements are generally due 90 days or less. Total interest expenses for short-term loans incurred were $107,046 and $47,701 for the three months ended September 29, 2016,30, 2022 and 2021, respectively, and were $229,185 and $136,807 for the Company should deposit all of its registered capital in a custodian accountnine months ended September 30, 2022 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.2021, respectively.
Restricted cash is a deposit in the bank by the Company in conformity with Provisions of the Supervision and Administration of Specialized Insurance Agencies, which is not allowed to be withdrawn without the permission of the regulatory commission and the trust account for Law Broker’s general manager’s bonus plans.
NOTE 118 – TAXCOMMISSIONS PAYABLE TO SALES PROFESSIONALS
The Company’s taxCommissions payable to sales professionals consisted of the following as of September 30, 20172022 and December 31, 2016:2021:
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 |
| | | | | | |
| | September 30, 2022 | | | ||
|
| (unaudited) |
| December 31, 2021 | ||
Taiwan | | $ | 10,462,955 | | $ | 13,793,343 |
PRC | |
| 153,260 | |
| 210,198 |
Total commissions payable to sales professionals | | $ | 10,616,215 | | $ | 14,003,541 |
PRC tax represents income tax and other taxes accrued accordingCommissions payable to PRC tax law by the Company’s subsidiaries and Consolidated Affiliated Entities (“CAE”) in the PRC. Taiwan tax represents income tax accrued according to Taiwan tax law by the Company’s subsidiaries and branches in Taiwan. Hong Kong tax represents income tax accrued according to Hong Kong tax law by the Company’s subsidiaries in Hong Kong.sales professionals are usually settled within twelve months.
NOTE 12 – CONVERTIBLE BONDS
The Company intended to issue the convertible bonds during the period commencing on June 23, 2016 and ended on September 30, 2016 with an aggregate principal amount of up to $10,000,000. The convertible bonds were to be sold in units, with each unit being $100,000 in principal amount. The Company had not made any offers or sales of the convertible bonds to U.S. persons and there were no direct selling efforts in the United States. The bonds would not be convertible until two years from the issuance date and with an annual interest rate of 6% payable on a quarterly basis. The bond holder might cause the Company to redeem the convertible bonds before the end of the term, subject to certain penalties depending on the holding period of the convertible bonds when redeemed. Upon the expiration of the term of the convertible bonds, the bond holder may, in its sole discretion, choose to collect the payment of full principal amount of the convertible bonds together with any interest accrued or convert the convertible bonds into common shares of the Company at the conversion price. The conversion price shall be 80% of the average closing trading price for the ten (10) business days immediately prior to the conversion date.
On June 23, 2016, the Company issued two units of its convertible bonds with an aggregate principal amount of $200,000 to a non-US person and the value of the embedded derivatives liabilities is trivial. As of September 30, 2017 and December 31, 2016, the Company has an outstanding principal balance of $200,000 of convertible bonds. Total interest expense was $3,000 and $9,000 for the three and nine months ended September 30, 2017.
20
NOTE 139 – OTHER CURRENT LIABILITIES
Other current liabilities arewere as follows, as of September 30, 20172022 and December 31, 2016:2021:
| | | | | | |
| | September 30, 2022 | | | | |
|
| (unaudited) |
| December 31, 2021 | ||
Accrued bonus | | $ | 4,947,981 | | $ | 6,645,496 |
Payroll payable and other benefits | | | 1,198,804 | | | 2,188,074 |
Accrued business tax and tax withholdings | | | 1,363,430 | | | 1,903,039 |
Execution fees payable – AIA(Note 11) | | | — | | | 1,191,858 |
Other accrued liabilities | | | 1,371,305 | | | 2,069,136 |
Total other current liabilities | | $ | 8,881,520 | | $ | 13,997,603 |
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 |
Accrued Bonus
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 $2,820,152 and $4,059,901, respectively, related to cash awards to employees as of September 30, 2022 and December 31, 2021.
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 September 30, 2022 and 2021, the bonus expenses to Law Broker’s officers under the compensation plans were $70,733 and $135,563, respectively, and for the nine months ended September 30, 2022 and 2021, the bonus expenses to Law Broker’s officers under the compensation plans were $171,328 and $380,579, respectively.
As of September 30, 2022 and December 31, 2021, the Company had accrued bonus of $2,127,829 and $2,585,595 payable within next 12 months, respectively, related to administrative staff,the compensation plans for Law Broker’s officers. See Note 16 for additional information of agreements with Law Broker’s officers.
NOTE 10 – OTHER LIABILITIES
The Company’s other liabilities consisted of the following as of September 30, 2022 and accrued advertisement expense are usually settled within 12 months. Unearned revenue is described in Note 15. December 31, 2021:
| | | | | | |
| | September 30, 2022 | | | | |
|
| (unaudited) |
| December 31, 2021 | ||
Due to previous shareholders of AHFL | | $ | 472,106 | | $ | 541,754 |
Total other liabilities | | $ | 472,106 | | $ | 541,754 |
Due to Previous Shareholders of AHFL
Due to previous shareholders of Action Holdings Financial Limited (“AHFL”)AHFL is the entire remaining balance payable of the acquisition cost. Accrued business tax, withholding employee personal tax, accrued labor, health insurance and employee retirement plan will be paidIn March 2021, the Company entered a seventh amendment with the selling shareholders in negotiation with the previous shareholders of AHFL to extend 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 loanrepayment date to the Company. Loan B bears an interest rate of 8% per annum and interest is payable annually. The principal and the interest will be due on May 15, 2019.
On July 20, 2016, Anhou entered into a loan agreement (“Loan C”) with a third party. The long-term Loan Agreement provided for a $115,711 loan to the Company. Loan C bears an interest rate of 8% per annum and interest is payable annually. The principal and the interest will be due on July 20, 2019.
The total interest expense for both Loan B and Loan C was $5,293 and $15,562 for the three and nine months ended September 30, 2017.
NOTE 15 – LONG-TERM LIABILITIES
March 31, 2024. As of September 30, 20172022 and December 31, 2016, long-term2021, the amount due to previous shareholders of AHFL were $472,106 and $541,754, respectively.
NOTE 11 – 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 |
| | | | | | |
| | September 30, 2022 | | | | |
|
| (unaudited) |
| December 31, 2021 | ||
Accounts receivable | | $ | 14,499,574 | | $ | 26,761,678 |
Contract assets | | | 5,518,599 | | | — |
Contract liabilities – current | | | 87,097 | | | — |
Contract liabilities – noncurrent | | | 1,348,875 | | | — |
21
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 September 30, 2022 and December 31, 2021, the Company had $5,518,599 and nil of contract assets, respectively.
Unearned revenue –Contract with 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. The term of the Alliance Agreement is from April 15, 2013 to August 31, 2018.China United. Pursuant to the terms of the Alliance Agreement, AIATW paid AHFL an execution fee, of $8,326,700 (NTD250,000,000, including the tax of NTD11,904,762, the “Execution Fee”), which is to bewas recorded as revenue upon fulfilling sales targets and the 13-month persistency ratio, as defined,certain criteria over the next five years. The Execution Fee may be requiredoriginal term of the Alliance Agreement from June 1, 2013 to be recalculated if certain performance targets are not met by AHFL. On September 30,May 31, 2018. From 2014 to 2017, AHFL has entered into a Strategicthree amendments to the Alliance Supplemental Agreement (the “Supplemental Agreement”) with AIATW. In the Supplemental Agreement, the performance targets and the provision about refunding the Execution Fee on pro rata basis when the performance targets are not met were revised.
On January 6, 2016, AHFL entered into an Amendment 2 to Strategic Alliance Agreement (the “Amendment No. 2”) with AIATW to further revise certain provisionsterms and conditions in the Strategic Alliance Agreement, andincluding the previous amendment entered into by and between AHFL and AIATW. The purposeextension of the Strategic Alliance Agreement is to promote life insurance products provided by AIATW within the territory of Taiwan through insurance agency companies or insurance brokerage companies. To the extent permitted by applicable laws and regulations, AHFL shall assist and encourage any insurance agency company or insurance brokerage company duly approved by the competent government authorities of Taiwan (the “Appointed Broker/Agent”), to cooperate with AIATW for the promotion of life insurance products of AIATW. Pursuant to the Amendment No. 2, the expiration date of the Strategic Alliance Agreement has been extended from May 31, 2018 to December 31, 2021, and2021. Pursuant to the effect ofThird Amendment to the Strategic Alliance Agreement during the period from October 1, 2014 to December 31, 2015 has been suspended. In addition,(the “Amendment 3”), both AHFL and AIATW agreed to adjust certain terms and conditions set forth in the Strategic Alliance Agreement, among which: (i) expand the scope of services to be provided by AHFL to AIATW to include, without limitation, assessment and advice on suitability of cooperative partners, advice on product strategies suitable for promotion channel development, advice on promotion/sales channel improvement, advice on promotion channel marketing and strategic planning, and promotion channel talent training; and (ii) remove certain provisions related to performance milestones and refund of Execution Fees. On March 15, 2016, AHFL issued a promise letter (the “2016 Letter”) to AIATW that AHFL is required to (i) fulfill sales targets and (ii) the 13-month persistency ratio.
On June 14, 2017, with AIATW’s consent, the 2016 Letter has been revoked in order to conform with the latest terms and conditions regarding the cooperation between AHFL and AIATW as set forth in a third amendment (Amendment No. 3). Pursuant to the Amendment No. 3, both AHFL and AIATW agreed to adjust certain terms and conditions set forth this amendment, amongsome of which included (i) except the first contract year (April 15th, 2013 to September 30th, 2014), the sales target of the alliance between the parties shall be changed to (a) value of new business (“VONB”) and (b) the 13-month persistency ratio; and (ii) AIATW will calculate and recognize the VONB and 13-month persistency ratio each contract year and inform the Company the result; and (iii) the Company agrees to return the basic business promotion fees to AIATW within thirty (30) days of receipt of the notice sent by AIATW if the Company fails to meet the targets set forth in the Amendment No. 3, AIATW reserves the right to offset such amount against the amount payable by it to the Company; and (iv) upon the termination of the Alliance Agreement and its amendments pursuant to the Section 8.2 of the Alliance Agreement, both parties 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 330,000,00050 million for the first contract year, NTD 35 million for the second contract year, and NTD 33 million for each contract yearsyear thereafter within one month after the termination. Accordingly, for the last contract year of 2021, no revenue was recognized because the Company failed to meet the targets set forth in the Amendment 3 and therefore, the Company shall refund the basic business execution fees of NTD 33 million based on the calculation of VONB and 13-month persistency for the same contract period. On May 6, 2022, AIATW issued a formal letter to the Company and agreed to reduce the refund amount of $1,159,039 (NTD 33.0 million) to $807,127 (NTD 23.1 million), for which the Company has paid to AIATW on May 13, 2022. As of September 30, 2022 and December 31, 2021, the basic business execution fees of nil and $1,191,858 were payable and recorded under other current liabilities, respectively.
The Company recognizes AIATW’s revenue whenOn March 15, 2022, AHFL entered into the lifeFourth Amendment to the Alliance Agreement (the “Amendment 4”), which, among other things, extended the expiration date of the Alliance Agreement to December 31, 2031. Pursuant to Amendment 4, the sales targets for the remaining contract term under the Alliance Agreement shall be changed by reference to (i) the amount of VONB and (ii) the 13-month persistency ratio as set forth therein, provided that to the extent any underlying insurance productscontract is revoked, invalidated or terminated and premiums are refunded to such policyholder, the amount of the related VONB shall be correspondingly reduced. Amendment 4 provides that AIATW shall pay the strategic alliance business promotion fee of NTD 50 million to AHFL; however, AHFL shall be required to return certain portions of or all of the business promotion fees within thirty (30) days of receipt of notice provided by AIATW are met: (i) persuasive evidenceif AFHL fails to meet certain goals set in Table 2 and Table 3 of an agreement betweenAmendment 4. The primary factor under formula one focuses on the insurance company and insured exists, (ii) insurance brokerage services have been provided, (iii)annual and/or accumulated achievement rate(s), while the fee to be paid byprimary factor under formula two focuses on the related insurer to the Company for such services is fixed or determinable, and (iv) the collectability13-month persistency ratio(s), among others.
22
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 | | 01/01/2022 - 12/31/2022 | | NTD | 5,000,000 | | NTD | 2,659,505 | (1) | NTD | 132,975 | | NTD | 2,102,400 | (1) | NTD | 105,120 |
Second | | 01/01/2023 - 12/31/2023 | | NTD | 5,000,000 | | NTD | — | | NTD | — | | NTD | — | | NTD | — |
Third | | 01/01/2024 - 12/31/2024 | | NTD | 5,000,000 | | NTD | — | | NTD | — | | NTD | — | | NTD | — |
Fourth | | 01/01/2025 - 12/31/2025 | | NTD | 5,000,000 | | NTD | — | | NTD | — | | NTD | — | | NTD | — |
Fifth | | 01/01/2026 - 12/31/2026 | | NTD | 5,000,000 | | NTD | — | | NTD | — | | NTD | — | | NTD | — |
Sixth | | 01/01/2027 - 12/31/2027 | | NTD | 5,000,000 | | NTD | — | | NTD | — | | NTD | — | | NTD | — |
Seventh | | 01/01/2028 - 12/31/2028 | | NTD | 5,000,000 | | NTD | — | | NTD | — | | NTD | — | | NTD | — |
Eighth | | 01/01/2029 - 12/31/2029 | | NTD | 5,000,000 | | NTD | — | | NTD | — | | NTD | — | | NTD | — |
Ninth | | 01/01/2030 - 12/31/2030 | | NTD | 5,000,000 | | NTD | — | | NTD | — | | NTD | — | | NTD | — |
Tenth | | 01/01/2031 - 12/31/2031 | | NTD | 5,000,000 | | NTD | — | | NTD | — | | NTD | — | | NTD | — |
TOTAL | |
| | NTD | 50,000,000 | | NTD | 2,659,505 | | NTD | 132,975 | | NTD | 2,102,400 | | NTD | 105,120 |
Contract Year | Period | Execution Fees | Revenue Amount | Refund Amount | ||||||||||
First | 4/15/2013 ~ 9/30/2014 | NTD | 50,000,000 | NTD | 28,494,856 | (1) | NTD | 21,505,144 | (1) | |||||
Second | 1/1/2016 ~ 12/31/2016 | NTD | 35,000,000 | NTD | 13,497,750 | (2) | NTD | 21,502,250 | (2) | |||||
Third | 1/1/2017 ~ 12/31/2017 | NTD | 33,000,000 | NTD | 9,254,296 | (3) | NTD | - | ||||||
Fourth | 1/1/2018 ~ 12/31/2018 | NTD | 33,000,000 | NTD | - | NTD | - | |||||||
Fifth | 1/1/2019 ~ 12/31/2019 | NTD | 33,000,000 | NTD | - | NTD | - | |||||||
Sixth | 1/1/2020 ~ 12/31/2020 | NTD | 33,000,000 | NTD | - | NTD | - | |||||||
Seventh | 1/1/2021 ~ 12/31/2021 | NTD | 33,000,000 | NTD | - | NTD | - | |||||||
TOTAL | NTD | 250,000,000 | NTD | 51,246,902 | NTD | 43,007,394 |
1) | The
| |
The Company recognized the revenue related to AIATW of $1,679,942 (NTD51,246,902)$24,166 (NTD 731,957) and nil, net of VAT, for the three months ended September 30, 2022 and 2021, respectively, and $68,157 (NTD 1,994,629) and nil, net of VAT, for the nine months ended September 30, 20172022 and 2016 related to this agreement. 2021, respectively.
As of September 30, 20172022 and December 31, 2016,2021, the Company had $1,348,875 and nil of non-current portion of unearned revenue of $4,242,585 and $4,742,272,contract liabilities, respectively, and current portioncontract liabilities of $681,340$87,097 and $1,966,814,nil, respectively, related to the Alliance Agreement.
Unearned revenue – Farglory
NOTE 12 –LEASE
On April 20, 2016, the Company entered into a service agreement (“Service Agreement”) with Farglory Life Insurance Co., Ltd. (“Farglory”). The Company ishas operating leases for its offices with lease terms ranging from one to provide consulting servicesfive years. The Company recorded its operating lease cost of $1,047,058 and $3,169,875 for the three and nine months ended September 30, 2022, and $1,071,575 and $3,148,542 for the three and nine months ended September 30, 2021, respectively.
Operating lease right-of-use assets represent the Company’s right to Fargloryuse an underlying asset for NTD4,000,000 per yearthe lease term and lease liabilities represent the aggregate consulting services fee is NTD20,000,000Company’s obligation to make lease payments arising 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, 20172022 and December 31, 2016, the Company had long-term2021, operating lease right-of-use assets and lease liabilities amount of nilwere as follows:
| | | | | | |
|
| September 30, 2022 |
| | | |
|
| (unaudited) |
| December 31, 2021 | ||
Right-of-use assets under operating leases | | $ | 7,455,797 | | $ | 6,449,182 |
Operating lease liabilities – current | |
| 3,420,600 | |
| 3,059,329 |
Operating lease liabilities – noncurrent | |
| 3,961,006 | |
| 3,298,089 |
Lease term and $495,615, respectively, and current liabilities amounts of $659,544 and $123,904, respectively,discount rate
| | | | | | | |
| | September 30, 2022 |
| | | | |
|
| (unaudited) |
| December 31, 2021 | | ||
Weighted average remaining lease term | | | |
| | |
|
Operating lease | |
| 2.62 | years | | 2.31 | years |
Weighted average discount rate | |
| |
| | |
|
Operating lease | |
| 2.61 | % | | 2.80 | % |
Supplemental cash flow information related to this Service Agreement.leases
| | | | | | |
|
| Nine Months Ended September 30, | ||||
| | 2022 (unaudited) | | 2021 (unaudited) | ||
Cash paid for amounts included in the measurement of lease liabilities |
| | | | | |
Operating cash flows related to operating leases | | $ | 3,095,389 | | $ | 3,138,759 |
Amortization of right-of-use assets under operating leases | | | 2,772,819 | | | 2,724,822 |
Due to previous shareholders
23
Due to previous shareholders of AHFL is the remaining balance payable of the acquisition cost. On March 12, 2017, the Company and the selling shareholders of AHFL entered into a fifth amendment to the acquisition agreement (the “Fifth Amendment”), pursuant to which, the Company agreed to distribute the cash payment in the amount of $480,559 (NTD15 million) on or prior to March 31, 2019.
Other long-term liabilities
On May 10, 2016, Law Broker entered into an engagement agreement (the “Engagement Agreement”) with Hui-Hsien Chao (“Ms. Chao”), pursuant to which she acts as the general manager of Law Broker for a term from December 29, 2015 to December 28, 2018. Ms. Chao’s primary responsibilities are to assist Law Broker in operating and managing insurance agency business. According to the Engagement Agreement, Ms. Chao’s bonus plans include: 1) execution, 2) long-term service fees, 3) pension and 4) non-competition, and the payment of such bonuses will only occur upon satisfaction of certain condition and subject to the terms therein, among which, Ms. Chao acts as the general manager or equivalent position of Law Broker for at least 3 years.
On May 14, 2016, Law Broker and Ms. Chao entered into a supplementary agreement (“Supplementary Agreement”) to postpone her pension vesting date to December 29, 2016. Law Broker expects that none of the above-mentioned bonuses are to be paid prior to May 2019, and therefore it has recorded as long-term liabilities representing the corresponding portion of such bonuses accrued. On March 13, 2017, Law Broker and Ms. Chao entered into an engagement agreement, which is the amendment to Engagement Agreement dated May 10, 2016 to specify 1) Ms. Chao’s pension calculation assumption and start date, and 2) the non-competition provision start date. As of September 30, 2017 and December 31, 2016, the balance of such accrued long-term liabilities was $175,191 and $77,440, respectively.
NOTE 16 – PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock, $.00001 par value and currently has 1,000,000 shares of Series A Preferred Stock (“Series A Stock”) outstandingminimum future lease payments as of September 30, 2017. The Series A Stock has the following rights and preferences:2022 are as follows:
| | | |
|
| Amount | |
2022 (remainder of year) | | | 921,334 |
2023 | |
| 3,301,449 |
2024 | |
| 2,141,767 |
2025 | |
| 770,530 |
2026 | | | 312,332 |
Thereafter | |
| 217,622 |
Total minimum lease payments | | | 7,665,034 |
Less: Interest | |
| (283,428) |
Present value of future minimum lease payments | | $ | 7,381,606 |
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 1813 – NON-CONTROLLINGNONCONTROLLING INTERESTS
Non-controllingNoncontrolling interests consisted of the following:following as of September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | |
| | % of Non- | | | | | | | | Other | | September 30, | ||
| | controlling | | December 31, | | Net Income | | Comprehensive | | 2022 | ||||
Name of Entity |
| Interest |
| 2021 |
| (Loss) |
| Loss |
| (unaudited) | ||||
Law Enterprise |
| 34.05 | % | $ | (676,166) | | $ | (207,439) | | $ | (6,043) | | | (889,648) |
Law Broker |
| 34.05 | % |
| 31,016,203 | | | 4,305,759 | |
| (4,224,770) | |
| 31,097,192 |
Uniwill |
| 50.00 | % |
| 48,802 | | | 1,296,273 | |
| (152,940) | |
| 1,192,135 |
Rays | | 1.00 | % | | (6,461) | | | (214) | | | — | | | (6,675) |
PFAL |
| 49.00 | % |
| 364,056 | | | (14,739) | |
| (1,225) | |
| 348,092 |
MKI |
| 49.00 | % |
| (327,119) | | | (712) | |
| — | |
| (327,831) |
Total | | | | $ | 30,419,315 | | $ | 5,378,928 | | $ | (4,384,978) | | $ | 31,413,265 |
| | | | | | | | | | | | | | | | | |
| | % of Non- | | | | | | | | Other | | Impact from | | | | ||
| | controlling | | December 31, | | Net Income | | Comprehensive | | Liquidation of | | December 31, | |||||
Name of Entity |
| Interest |
| 2020 |
| (Loss) |
| Income (Loss) |
| PA Taiwan |
| 2021 | |||||
Law Enterprise |
| 34.05 | % | $ | (414,957) | | $ | (264,642) | | $ | 3,433 | | $ | — | | $ | (676,166) |
Law Broker |
| 34.05 | % |
| 25,177,272 | |
| 5,444,673 | |
| 394,258 | | | — | |
| 31,016,203 |
Uniwill | | 50.00 | % | | (421,035) | | | 466,934 | | | 2,903 | | | — | | | 48,802 |
Rays | | 1.00 | % | | (5,772) | | | (689) | | | — | | | — | | | (6,461) |
PFAL |
| 49.00 | % |
| 423,978 | |
| (63,441) | |
| 3,519 | | | — | |
| 364,056 |
MKI |
| 49.00 | % |
| (732) | |
| (161,090) | |
| — | | | (165,297) | |
| (327,119) |
PA Taiwan |
| 49.00 | % |
| (163,013) | |
| 1,102 | |
| (3,386) | | | 165,297 | |
| — |
Total | | | | $ | 24,595,741 | | $ | 5,422,847 | | $ | 400,727 | | $ | — | | $ | 30,419,315 |
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 |
24
Name of Affiliate | % of Non-controlling Interests | As of December 31, 2015 | Net Income and Other Comprehensive Gain/(Loss) of Non-controlling Interests | As of December 31, 2016 | ||||||||||||
Law Enterprise | 34.05 | % | $ | 199,699 | $ | (182,313 | ) | $ | 17,386 | |||||||
Law Broker | 34.05 | % | 7,197,128 | 2,424,031 | 9,621,159 | |||||||||||
PFAL | 49.00 | % | 206,098 | 26,316 | 232,414 | |||||||||||
MKI | 49.00 | % | (1,065 | ) | (504 | ) | (1,569 | ) | ||||||||
PA Taiwan | 49.00 | % | (26,292 | ) | (69,156 | ) | (95,448 | ) | ||||||||
PTC Nanjing | 49.00 | % | (837 | ) | (1,563 | ) | (2,400 | ) | ||||||||
Total | $ | 7,574,731 | $ | 2,196,811 | $ | 9,771,542 |
NOTE 1914 – 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:
Three months ended September 30, 2017 | Federal | State | Foreign | Total | ||||||||||||
Current | $ | - | $ | - | $ | 828,532 | $ | 828,532 | ||||||||
Deferred | - | - | 3,346 | 3,346 | ||||||||||||
Total | $ | - | $ | - | $ | 831,878 | $ | 831,878 |
Provision (benefit) for income tax for the three months ended September 30, 2016 consisted of:
Three months ended September 30, 2016 | Federal | State | Foreign | Total | ||||||||||||
Current | $ | - | $ | - | $ | 500,787 | $ | 500,787 | ||||||||
Deferred | - | - | (43,959 | ) | (43,959 | ) | ||||||||||
Total | $ | - | $ | - | $ | 456,828 | $ | 456,828 |
Provision (benefit) for income tax for theand nine months ended September 30, 2017 consisted of:2022 and 2021:
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 |
| | | | | |
| | Three Months Ended September 30, | | ||
| | 2022 | | 2021 | |
|
| (unaudited) |
| (unaudited) |
|
U.S. statutory rate |
| 21 | % | 21 | % |
Tax rate difference |
| (2) | % | (1) | % |
Change in valuation allowance for unrecognized tax losses |
| (3) | % | 2 | % |
Income tax on undistributed earnings |
| 2 | % | 4 | % |
Release of valuation allowance | | (4) | % | — | % |
Utilization of previously unrecognized tax losses | | (1) | % | — | % |
Non-deductible and non-taxable items | | (6) | % | — | % |
Other | | 2 | % | — | % |
Effective tax rate |
| 9 | % | 26 | % |
| | | | | |
| | Nine Months Ended September 30, | | ||
| | 2022 | | 2021 | |
|
| (unaudited) |
| (unaudited) |
|
U.S. statutory rate |
| 21 | % | 21 | % |
Tax rate difference |
| (2) | % | (1) | % |
Change in valuation allowance for unrecognized tax losses |
| 2 | % | 4 | % |
Income tax on undistributed earnings | | 3 | % | 4 | % |
Release of valuation allowance |
| (2) | % | — | % |
Utilization of previously unrecognized tax losses | | (4) | % | — | % |
Non-deductible and non-taxable items |
| — | % | (1) | % |
Other | | (1) | % | — | % |
Effective tax rate |
| 17 | % | 27 | % |
Provision (benefit) forThe Company’s income tax expense is mainly generated by its subsidiaries in Taiwan. The Company’s subsidiaries in Taiwan are governed by the Income Tax Law of Taiwan and subject to a statutory tax rate on income reported in the statutory financial statements at 20% and a tax on undistributed earnings at 5%. The Company had no plan to distribute earnings earned for the nine monthsyears ended December 2021 and 2020, and the tax on undistributed earnings on entities in Taiwan of 5% was estimated. As of September 30, 2016 consisted of:2022 and December 31, 2021, the Company had current tax payable of $2,125,788 and $3,703,412 for Taiwan income tax, respectively.
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 componentsThe Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and then record a valuation allowance to reduce the carrying value of the deferred tax assets to an amount that is more likely than not to be realized. The Company considered cumulative losses arising from Uniwill’s startup costs at the initial stage along with compensation costs in connection with the issuance of preferred stock and liabilities for income tax as of September 30, 2017 and December 31, 2016 consisted of the following:
As of | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Deferred tax assets | ||||||||
Net operating loss carry-forward | $ | 1,101,734 | $ | 993,050 | ||||
Others | 110,212 | 84,597 | ||||||
Total | $ | 1,211,946 | $ | 1,077,647 | ||||
Valuation allowance | (1,101,734 | ) | (993,050 | ) | ||||
Net deferred tax assets | $ | 110,212 | $ | 84,597 | ||||
Deferred tax assets - current | $ | 58,041 | $ | 59,233 | ||||
Deferred tax assets - noncurrent | $ | 52,171 | $ | 25,364 | ||||
Deferred tax liabilities - current | $ | 125,059 | $ | - |
A 100%maintained a full valuation allowance was provided for theagainst Unwill’s deferred tax assets relatedbecause insufficient evidence existed to support the PRC segmentrealization of any future income tax benefits. Uniwill became profitable because of receiving more trailing commissions since the fiscal year 2021 and also obtained the insurance license to sell property and casualty insurance products in 2022. As a result, the Company asexpected future profitability and improved overall prospects of September 30, 2017 and December 31, 2016. Netfuture business. Therefore, the Company released the valuation allowance of $354,828 (NTD 11,273,783) against Uniwill’s 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 liabilitiesthird quarter 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.fiscal 2022.
Zhengzhou Zhonglian Hengfu Business Consulting Co., Ltd. (“CU WFOE”)WFOE and the CAEConsolidated Affiliated Entities (“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, except for Jiangsu. For Jiangsu, according to the requirement of local tax authorities, the tax basis is deemed as 10% of total revenue, instead of net income.
The Company’s subsidiaries in Taiwan are governed by the Income Tax Law of Taiwan, and are generally subject to tax at 17% on income reported in the statutory financial statements after appropriate adjustments. InAs of September 30, 2022 and December 31, 2021, the meanwhile, Income Tax Law of Taiwan provides that a company is taxed at additional 10% on any undistributed earnings to its shareholders.
Company had no current tax payable for PRC income tax.
The Company’s subsidiaries in Hong Kong are governed by the Inland Revenue Ordinance Tax Law and subject to two-tiered profits tax regime. The first HK$2 million assessable profits is taxed at 8.25% and any assessable profits over HK$2 million is taxed at 16.25%. As of September 30, 2022 and December 31, 2021, the Company had current tax payable of nil and $9,756 for Hong Kong income tax.
25
The 2017 Tax Act was enacted into law on December 22, 2017 and imposed a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are generally subject to a profits tax at the rate of 16.5%U.S. tax. Based on the estimated assessable profits.
The following table reconcilesCompany’s total post-1986 earnings and profits (“E&P”) that it previously deferred from U.S. income taxes, we recorded the US statutory rates to the Company’s effectiveone-time transition tax rate$1,199,195 in eight annual installments for the three monthstransition tax on undistributed earnings of non-U.S. subsidiaries during the year ended December 31, 2018. As of September 30, 20172022 and 2016:December 31, 2021, the Company had current tax payable of $239,839 and $179,879, and noncurrent tax payable of $299,797 and $539,636 for U.S. income tax.
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
US statutory rate | 34 | % | 34 | % | ||||
Tax rate difference | (18 | )% | (18 | )% | ||||
Tax base difference | - | % | - | % | ||||
Loss in subsidiaries | 7 | % | 2 | % | ||||
Un-deductible and non-taxable items | 7 | % | 9 | % | ||||
Tax per financial statements | 30 | % | 27 | % |
The following table reconciles the US statutory rates to the Company’s effective tax rate for the nine months ended September 30, 2017 and 2016:
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
US statutory rate | 34 | % | 34 | % | ||||
Tax rate difference | (18 | )% | (20 | )% | ||||
Tax base difference | - | % | 1 | % | ||||
Loss in subsidiaries | 5 | % | 7 | % | ||||
Un-deductible and non-taxable items | 6 | % | 10 | % | ||||
Tax per financial statements | 27 | % | 32 | % |
Un-deductible and non-taxable items mainly represent un-deductible expenses according to local tax laws and the non-taxable tax income or expenses.
NOTE 2015 – RELATED PARTY TRANSACTIONS
Due toThe following summarized the Company’s loans payable 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, 20172022 and December 31, 2016:2021:
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 |
| | | | | | |
| | September 30, 2022 | | | | |
|
| (unaudited) |
| December 31, 2021 | ||
Due to Ms. Lu (A shareholder of Anhou) | | $ | — | | $ | 41,311 |
Others | |
| 6,593 | |
| 9,220 |
Total | | $ | 6,593 | | $ | 50,531 |
*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.
With respect to due to bonus to officers, please refer to Note 9; and due to AHFL previous shareholders, please refer to Note 10.
There was no other material related party transactions other than those disclosed above.
Debt Forgiveness – Related Parties
NOTE 16– COMMITMENTS AND CONTINGENCIES
In 2015, Xude Investment assisted the Company to set up Genius Holdings Financial Limited (BVI Company)Operating Leases
See future minimum annual lease payments in Note 12.
Time Deposits Pledged as Collateral
See time deposits pledged as collateral in Notes 5 and Genius Investment Consultant Co., Ltd. (Taiwan Company) and paid set up fee on behalf of the Company with the amount of $23,544 and NTD285,083 ($9,393). Xude Investment was owned by Mr. ChwanHau Li, who is one of the Directors of the Company. In March 2017, Xude Investment agreed to forgive the Company’s debt above in whole. As of September 30, 2017, the Company has debt forgiveness from related parties amount of $32,937.7.
Appointment agreement
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 lease2022, Law Broker entered into an appointment agreement was extended automaticallywith Shu-Fen, Lee (“Ms. Lee”), pursuant to which, she served and will continue serving as the president of Law Broker from December 21, 2021 to June 30, 2018.29, 2025. Ms. Lee’s primary responsibilities included 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, and 6) other matters assigned by the board of directors. According to the appointment 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 and nine months ended September 30, 2017, rent income were $141 and $421, respectively.
On July 1, 2016,2022 the Company entered into a leasehas recorded the compensation expense of $70,618 and $177,209 under the appointment 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.respectively. For the three and nine months ended September 30, 2017, rent income were $1412021, the Company has recorded the compensation expense of $96,651 and $421,$210,858 under the appointment agreement, respectively.
Advisory Agreements
Engagement agreement
On May 2, 2016, the CompanyDecember 23, 2021, Law Broker entered into an advisorya new engagement agreement with I Health. PursuantHui-Hsien Chao (“Ms. Chao”), pursuant to which she served and will continue serving as the general manager of Law Broker from December 23, 2021 to December 22, 2024. Ms. Chao’s primary responsibilities are to assist Law Broker in operating and managing insurance agency business. According to the Advisory Agreement, I Health provided 10,000 Taiwan citizen’s health informationengagement agreement, Ms. Chao’s Bonus plans shall include: 1) execution, 2) long-term service fees and 3) non-competition. The payment of such bonuses will only occur upon satisfaction of certain conditions and subject to the Companyterms in the engagement agreement. Ms. Chao has agreed to act as the general manager or equivalent position of Law Broker for its new insurance product during May 2, 2016 to May 1, 2017. The total advisory fee was approximately $42,000 (NTD1,275,000).a term of at least three years. For the three and nine months ended September 30, 2017, The Company had cost of revenue related to I Health amount of $13,269.
On December 7, 2016,2021, the Company entered into an advisoryhas recorded the compensation expense of $38,912 and $169,721 under the engagement agreement, with Fuchang Li (“Mr. Li,” the Directorrespectively.
26
NOTE 17 –VARIABLE INTEREST ENTITIES
The carrying amounts of the Company). Pursuant to this Advisory Agreement, Mr. Li provided investment consulting toassets, liabilities and the results of operations of the VIE and its subsidiaries (i.e., Zhengzhou Zhonglian Hengfu Business Consulting Co., Limited and its subsidiaries) included in the Company’s consolidated balance sheets and statements of comprehensive loss after the elimination of intercompany balances and transactions among VIE and its subsidiaries within the Company from December 7, 2016 to December 6, 2017. are as follows:
| | | | | | |
|
| September 30, 2022 |
| | | |
(Amount in USD) | | (unaudited) | | December 31, 2021 | ||
ASSETS |
| |
|
| |
|
Current assets | | | | | | |
Cash and cash equivalents | | $ | 2,479,178 | | $ | 1,001,974 |
Accounts receivable and notes receivable | |
| 311,096 | |
| 455,884 |
Other current assets | |
| 157,577 | |
| 120,113 |
Total current assets | |
| 2,947,851 | |
| 1,577,971 |
| | | | | | |
Right-of-use assets under operating leases | |
| 1,081,330 | |
| 1,528,856 |
Property and equipment, net | |
| 148,118 | |
| 199,056 |
Prepaid expenses - intangible assets | |
| 17,050 | |
| 9,377 |
Long-term investments | |
| 42,195 | |
| 47,179 |
Restricted cash – noncurrent | |
| 317 | |
| 72,870 |
Registered capital deposits | |
| 703,246 | |
| 1,100,842 |
Deferred tax assets | |
| — | |
| 74,709 |
Other assets | |
| 75,082 | |
| 83,951 |
TOTAL ASSETS | | $ | 5,015,189 | | $ | 4,694,811 |
| | | | | | |
LIABILITIES | |
| | |
| |
Current liabilities | |
| | |
| |
Commissions payable to sales professionals | | $ | 153,260 | | $ | 210,198 |
Operating lease liabilities-current | | | 432,707 | | | 500,720 |
Other current liabilities | |
| 386,958 | |
| 617,018 |
Due to related parties - Ms. Lu (the shareholder of Anhou) | |
| — | |
| 41,311 |
Total current liabilities | |
| 972,925 | |
| 1,369,247 |
| | | | | | |
Operating lease liabilities - noncurrent | |
| 539,229 | |
| 908,971 |
TOTAL LIABILITIES | | $ | 1,512,154 | | $ | 2,278,218 |
| | | | | | |
| | Three Months Ended September 30, | ||||
(Amount in USD) |
| 2022 |
| 2021 | ||
Revenue | | $ | 682,836 | | $ | 1,337,946 |
Net income (loss) |
| | 2,886,328 | |
| (70,710) |
| | | | | | |
|
| Nine Months Ended September 30, | ||||
(Amount in USD) | | 2022 | | 2021 | ||
Revenue | | $ | 3,115,764 | | $ | 4,554,515 |
Net income (loss) | |
| 1,441,719 | |
| (373,756) |
| | | | |
| | Nine Months Ended September 30, | ||
(Amount in USD) |
| 2022 |
| 2021 |
Net cash used in operating activities |
| (1,510,463) |
| (550,258) |
Net cash provided by (used in) investing activities |
| 3,255,586 |
| (115,645) |
Net cash used in financing activities |
| (39,801) |
| (38,643) |
27
The total advisory fee was approximately $58,000 (NTD1,800,000). The Company had generalVIE contributed $682,836 and administrative expense related to this advisory agreement amount$3,115,764 of $13,619and $42,998, respectively,the Company’s consolidated revenue 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 one2022, and contributed $1,337,946 and $4,554,515 of the same directors as Prime Financial Asia Ltd. Pursuant to this consulting agreement,Company’s consolidated revenue for the Company provided administrative operation consulting service to Apex from November 1, 2016 to December 31, 2021. As ofthree and for the nine months ended September 30, 2017, the Company had account receivable and revenue amount2021, respectively, after elimination of $17,274 and $33,874, respectively.inter-company transactions.
NOTE 21 – COMMITMENTS
Operating Leases
The Company has operating leases for its offices. Rental expenses for the three months ended September 30, 2017 and 2016 were $595,277 and $526,390, respectively. Rental expenses for the nine months ended September 30, 2017 and 2016 were $1,832,335 and $1,557,725, respectively. As of September 30, 2017, total future minimum annual lease payments under operating leases were as follows, by years:2022, there was no pledge or collateralization of the VIE’s assets that can only be used to settle obligations of the VIE, other than the share pledge agreements, restricted cash and registered capital deposits. Other than the amounts due to the Company and its non-VIE subsidiaries (which are eliminated upon consolidation), the creditors of the VIEs’ third-party liabilities did not have recourse to the general credit of the Company in normal course of business. The Company did not provide or intend to provide financial or other supports not previously contractually required to the VIEs during the years presented.
Twelve months ending September 30, 2018 | $ | 2,049,071 | ||
Twelve months ending September 30, 2019 | 1,166,015 | |||
Twelve months ending September 30, 2020 | 245,873 | |||
Twelve months ending September 30, 2021 | 55,088 | |||
Twelve months ending September 30, 2022 | 17,687 | |||
Thereafter | - | |||
Total | $ | 3,533,734 |
Engagement Agreement with Ms. Chao
On May 10, 2016, Law Broker entered into the Engagement Agreement with Ms. Chao. Please refer to Note 15 Other Long-term Liabilities.
NOTE 2218 – 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 fluctuation of NTD and RMB exchange rates will affect the Company’s operating results expressed in USD. The Company reviews its foreign currency exposures, and the management does not consider its present foreign exchange risk to be significant.
NOTE 23 – RECLASSIFICATIONS
The effects of the reclassifications for the prior year is reflected below.
Consolidated Balance Sheet | December 31, 2016 | |||
Original: | ||||
Cash and cash equivalents | $ | 25,521,802 | ||
Revised: | ||||
Cash and cash equivalents | $ | 20,169,455 | ||
Time deposits | 5,352,347 |
Unaudited Condensed Consolidated Statements of Cash Flow | Nine Months Ended September 30, 2016 | |||
Original: | ||||
Net cash used in investing activities | $ | (960,166 | ) | |
Foreign currency translation | 942,171 | |||
Net increase (decrease) in cash and cash equivalents | 3,975,267 | |||
Cash and cash equivalents, beginning balance | 20,831,824 | |||
Cash and cash equivalents, ending balance | 24,807,091 | |||
Revised: | ||||
Cash flows from investing activities: | ||||
Purchases of time deposits | $ | (7,095,147 | ) | |
Proceeds from maturities of time deposits | 8,025,394 | |||
Net cash used in investing activities | (29,919 | ) | ||
Foreign currency translation | 596,891 | |||
Net increase (decrease) in cash and cash equivalents | 4,560,234 | |||
Cash and cash equivalents, beginning balance | 13,083,357 | |||
Cash and cash equivalents, ending balance | 17,643,591 |
NOTE 24 – FAIR VALUE MEASUREMENT
FASB ASC 820, “Fair Value Measurements and Disclosures,” defines Fair Value (“FV”), establishes a three-level valuation hierarchy for disclosures of FV measurement and enhances disclosure requirements for FV measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are reasonable estimates of FV because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels are defined as follows:
• Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments.
• Level 3 inputs to the valuation methodology are unobservable and significant to the FV.
The following table presents the fair value and carrying value of the Company’s financial assets and liabilities as of September 30, 2017:
Fair Value | Carrying | |||||||||||||||
Level 1 | Level 2 | Level 3 | Value | |||||||||||||
Assets | ||||||||||||||||
Bank time deposits | $ | - | $ | 21,475,432 | $ | - | $ | 21,475,432 | ||||||||
Marketable securities: | ||||||||||||||||
Funds | 32,867 | - | - | 32,867 | ||||||||||||
Structured deposit | - | 1,205,162 | - | 1,205,162 | ||||||||||||
Loan receivable (Other current assets in Notes 6) | - | - | 1,477,060 | 1,477,060 | ||||||||||||
Long-term investment: | ||||||||||||||||
Equity investment | - | - | 1,288,279 | 1,267,475 | ||||||||||||
Government bonds | - | 101,475 | - | 101,475 | ||||||||||||
Liabilities | ||||||||||||||||
Due to related parties | $ | - | $ | - | $ | 646,862 | $ | 646,862 | ||||||||
Convertible bonds | - | - | 200,000 | 200,000 | ||||||||||||
Long-term loans | - | - | 265,985 | 265,985 |
The following table presents the fair value and carrying value of the Company’s financial assets and liabilities as of December 31, 2016:
Fair Value | Carrying | |||||||||||||||
Level 1 | Level 2 | Level 3 | Value | |||||||||||||
Assets | ||||||||||||||||
Bank time deposits | $ | - | $ | 7,808,058 | $ | - | $ | 7,808,058 | ||||||||
Marketable securities: | ||||||||||||||||
Stocks | 38,763 | - | - | 38,763 | ||||||||||||
Funds | 2,388,107 | - | - | 2,388,107 | ||||||||||||
Loan receivable (Other current assets in Notes 6) | - | - | 1,486,846 | 1,486,846 | ||||||||||||
Long-term investment: | ||||||||||||||||
Equity investment | - | - | 1,288,279 | 1,190,558 | ||||||||||||
Government bonds | - | 94,506 | - | 94,506 | ||||||||||||
Liabilities | ||||||||||||||||
Due to related parties | $ | - | $ | - | $ | 400,001 | $ | 400,001 | ||||||||
Convertible bonds | - | - | 200,000 | 200,000 | ||||||||||||
Long-term loans | - | - | 254,907 | 254,907 |
Bank time deposits – The carrying amount approximates its fair value due to short-term in nature of the bank time deposits.
Marketable securities – The fair value of stocks and funds is generally valued based on quoted market prices in active markets.
Structured deposit – The fair value of the structured deposit is determined based on present value of the structured deposit, using annum yield of 3.9% or 4.1%, depending on the strike price. The strike price is at 7.3 USDCNH.
Loan receivable – The Company’s loan receivable is determined based on 4.5% per annum interest rate on the recent lending to Rich Fountain Limited.
Equity investment – The fair value of the Company’s equity investment was arrived at using the “Income Approach.” The calculation assumptions were: (i) 2% for long-term stable growth rate, (ii) 14.79%~15% for cash discount rate (rate for weighted average cost of capital), and (iii) 25% for liquidity discount rate. The Company evaluated overall economic condition and unnoted any significant change. The related equity investment does not have any negative news. Therefore, the fair value of the Company’s equity investment as of September 30, 2017 is same as December 31, 2016.
Government bonds – The fair value of government bonds is valued based on theoretical bond price in Taipei Exchange (formerly the Gre Tai Securities Market).
Due to related parties – The Company’s due to related parties bears no interest and payable on demand.
Convertible bonds – The Company determined the fair value of the convertible bonds is 80% of the average closing trading price for the ten (10) business days immediately prior to the conversion date.
Long-term loans - The fair value of the Company’s long-term loans were determined by discounted cash flows.
NOTE 25 – GEOGRAPHICAL DATA
consolidated amounts.
The geographical distributiondistributions of the Company’s financial information for the three months ended September 30, 2017 and 2016 were as follows:
For three months ended September 30, | ||||||||
Geographical Areas | 2017 | 2016 | ||||||
Revenue | ||||||||
Taiwan | $ | 13,290,282 | $ | 12,714,857 | ||||
PRC | 2,885,940 | 2,182,967 | ||||||
Hong Kong | 33,633 | 71,079 | ||||||
Elimination adjustment | 479 | (17,558 | ) | |||||
Total revenue | $ | 16,210,334 | $ | 14,951,345 | ||||
Income (loss) from operations | ||||||||
Taiwan | $ | 2,348,757 | $ | 1,661,872 | ||||
PRC | 284,662 | (75,861 | ) | |||||
Hong Kong | (21,353 | ) | 1,822 | |||||
Elimination adjustment | 35,487 | 37,848 | ||||||
Total income (loss) from operations | $ | 2,647,553 | $ | 1,625,681 | ||||
Depreciation and amortization expenses | ||||||||
Taiwan | $ | 117,019 | $ | 130,343 | ||||
PRC | 21,415 | 22,180 | ||||||
Hong Kong | 71 | 72 | ||||||
Elimination adjustment | - | - | ||||||
Total depreciation and amortization expenses | $ | 138,505 | $ | 152,595 | ||||
Interest income | ||||||||
Taiwan | $ | 101,919 | $ | 38,959 | ||||
PRC | 45 | (2,254 | ) | |||||
Hong Kong | - | (1 | ) | |||||
Elimination adjustment | (22,665 | ) | (5,591 | ) | ||||
Total interest income | $ | 79,299 | $ | 31,113 | ||||
Interest expenses | ||||||||
Taiwan | $ | 25,665 | $ | 8,965 | ||||
PRC | 5,293 | (1,773 | ) | |||||
Hong Kong | - | - | ||||||
Elimination adjustment | (22,665 | ) | (5,591 | ) | ||||
Total interest expenses | $ | 8,293 | $ | 1,601 | ||||
Income tax expense | ||||||||
Taiwan | $ | 707,676 | $ | 456,849 | ||||
PRC | 129,257 | (21 | ) | |||||
Hong Kong | (5,055 | ) | - | |||||
Elimination adjustment | - | - | ||||||
Total income tax expense | $ | 831,878 | $ | 456,828 | ||||
Net income (loss) | ||||||||
Taiwan | $ | 1,877,187 | $ | 1,298,707 | ||||
PRC | 115,800 | (88,813 | ) | |||||
Hong Kong | (17,621 | ) | 10,781 | |||||
Elimination adjustment | 1,771 | 2,571 | ||||||
Total net income (loss) | $ | 1,977,137 | $ | 1,223,246 |
The geographical distribution of the Company’s financial information for the nine months ended September 30, 20172022 and 20162021 were as follows:
| | | | | | |
| | Three Months Ended September 30, | ||||
| | (unaudited) | | (unaudited) | ||
|
| 2022 |
| 2021 | ||
Geographical Areas | | | | | | |
Revenue | | | | | | |
Taiwan | | $ | 33,034,547 | | $ | 30,880,030 |
PRC | |
| 682,836 | |
| 1,337,946 |
Hong Kong | |
| 257 | |
| 342 |
Elimination adjustment | |
| (1,069,371) | |
| (588,818) |
Total revenue | | $ | 32,648,269 | | $ | 31,629,500 |
| | | | | | |
Income (loss) from operations | |
| | |
| |
Taiwan | | $ | 5,933,232 | | $ | 6,940,476 |
PRC | |
| 2,790,137 | |
| (87,442) |
Hong Kong | |
| (36,574) | |
| (42,142) |
Elimination adjustment | |
| (14,475) | |
| 164,107 |
Total income from operations | | $ | 8,672,320 | | $ | 6,974,999 |
| | | | | | |
Non-operating income (expense) | | | | | | |
Taiwan | | $ | 1,096,676 | | $ | 145,556 |
PRC | | | 434,540 | | | (7,097) |
Hong Kong | | | 1,732 | | | 2 |
Elimination adjustment | | | (154,852) | | | 153,233 |
Total non-operating income | | $ | 1,378,096 | | $ | 291,694 |
| | | | | | |
Net income (loss) | |
| | |
| |
Taiwan | | $ | 6,077,020 | | $ | 5,168,197 |
PRC | |
| 3,311,106 | |
| (87,708) |
Hong Kong | |
| (34,843) | |
| (38,663) |
Elimination adjustment | |
| (169,328) | |
| 316,789 |
Total net income | | $ | 9,183,955 | | $ | 5,358,615 |
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 |
28
| | | | | | |
| | Nine Months Ended September 30, | ||||
|
| (unaudited) |
| (unaudited) | ||
|
| 2022 |
| 2021 | ||
Geographical Areas | | | | | | |
Revenue | | | | | | |
Taiwan | | $ | 95,103,196 | | $ | 92,002,783 |
PRC | |
| 3,115,764 | |
| 4,554,515 |
Hong Kong | |
| 83,208 | |
| 139,763 |
Elimination adjustment | |
| (3,017,668) | |
| (1,563,764) |
Total revenue | | $ | 95,284,500 | | $ | 95,133,297 |
| | | | | | |
Income (loss) from operations | |
| | |
| |
Taiwan | | $ | 15,012,498 | | $ | 14,800,973 |
PRC | |
| 1,684,570 | |
| (385,850) |
Hong Kong | |
| (36,520) | |
| 8,031 |
Elimination adjustment | |
| 447,370 | |
| 589,836 |
Total income from operations | | $ | 17,107,918 | | $ | 15,012,990 |
| | | | | | |
Non-operating income (expense) | | | | | | |
Taiwan | | $ | 2,912,665 | | $ | 1,098,589 |
PRC | |
| 901,271 | |
| (58,363) |
Hong Kong | |
| 6,442 | |
| (114) |
Elimination adjustment | |
| (520,706) | |
| (211,996) |
Total non-operating income | | $ | 3,299,672 | | $ | 828,116 |
| | | | | | |
Net income (loss) | |
| | |
| |
Taiwan | | $ | 14,598,295 | | $ | 11,590,188 |
PRC | |
| 2,346,980 | |
| (442,118) |
Hong Kong | |
| (30,079) | |
| 7,264 |
Elimination adjustment | |
| (73,336) | |
| 377,290 |
Total net income | | $ | 16,841,860 | | $ | 11,532,624 |
29
The geographical distribution of the Company’s financial information as of September 30, 20172022 and December 31, 20162021 were as follows:
As of | ||||||||||||||
| | | | | | | ||||||||
| | | | | ||||||||||
| | September 30, 2022 | | | | |||||||||
|
| (unaudited) |
| December 31, 2021 | ||||||||||
Geographical Areas | September 30, 2017 | December 31, 2016 | | | | | | | ||||||
Capital expenditures | ||||||||||||||
Reportable assets | | | | | | | ||||||||
Taiwan | $ | (317,455 | ) | $ | (835,564 | ) | | $ | 186,567,745 | | $ | 195,981,770 | ||
PRC | (29,234 | ) | (148,936 | ) | |
| 12,643,322 | |
| 12,326,308 | ||||
Hong Kong | - | - | �� |
| 699,080 | |
| 756,692 | ||||||
Total capital expenditures | $ | (346,689 | ) | $ | (984,500 | ) | ||||||||
Elimination adjustment | |
| (75,440,471) | |
| (81,283,249) | ||||||||
Total reportable assets | | $ | 124,469,676 | | $ | 127,781,521 | ||||||||
| | | | | | | ||||||||
Long-lived assets | |
| | |
| | ||||||||
Taiwan | $ | 1,508,431 | $ | 1,453,772 | | $ | 7,789,836 | | $ | 6,784,644 | ||||
PRC | 165,811 | 256,704 | |
| 1,229,448 | |
| 1,727,911 | ||||||
Hong Kong | 430 | 648 | |
| 2,422 | |
| 1,287 | ||||||
Elimination adjustment | 3,746,163 | 2,071,491 | |
| (2,906) | |
| (2,905) | ||||||
Total long-lived assets | $ | 3,746,163 | $ | 3,782,615 | | $ | 9,018,800 | | $ | 8,510,937 | ||||
Reportable assets | ||||||||||||||
| | | | | | | ||||||||
Capital investments (CAPEX cash flows) | |
| | |
| | ||||||||
Taiwan | $ | 89,208,044 | $ | 90,388,991 | | $ | 468,569 | | $ | 595,591 | ||||
PRC | 11,748,446 | 13,325,433 | |
| 33,110 | |
| 79,203 | ||||||
Hong Kong | 434,808 | 561,708 | |
| 1,634 | |
| 154 | ||||||
Elimination adjustment | (50,258,436 | ) | (52,868,589 | ) | ||||||||||
Total reportable assets | $ | 51,132,862 | $ | 51,407,543 | ||||||||||
Total capital investments | | $ | 503,313 | | $ | 674,948 |
NOTE 26 – LOAN TO SHAREHOLDERS19 –RISKS AND UNCERTAINTIES
Anhou Registered Capital Increase
There has continued to be widespread impact from the coronavirus disease (“COVID-19”) pandemic including potentially more contagious strains of COVID-19 such as the Delta and Omicron variants. It has created significant volatility and uncertainty and economic disruption. The extent to which the pandemic impacts the Company’s business and operations will depend on numerous evolving factors, many of which are not within the Company’s control and which the Company may not be able to accurately predict, including its duration and scope; the ultimate availability, administration and effectiveness of vaccines around the world; governmental actions that have been and continue to be taken in response to the pandemic, including vaccine coverage; the impact of the pandemic on economic activity and actions taken in response; the ability of the Company’s customers to pay their insurance premiums which could impact the Company’s commission and fee revenues for the services provided; and the long-term impact of employees working from home, including increased technology costs.
On April 27, 2013, China Insurance Regulatory Commission mandated any insurance agency haveAugust 2, 2022, U.S. House Speaker Nancy Pelosi (“Pelosi”) visited Taiwan, which marked the first time that 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 intendsU.S. House speaker has visited Taiwan in 25 years. China’s military announced it was conducting military exercises in response 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).Pelosi’s visit, including joint air and sea drills and live-fire exercises near Taiwan. The term for such loan is 10 years which may be extended upon the agreementgovernment 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”) withP.R.C. asserts sovereignty over Taiwan, and does not recognize the following independent third parties, collectively, the Investor Borrowers:
The term for the above loans is 10 years which may be extended upon the agreementlegitimacy of the parties. PursuantR.O.C. government. Therefore, relations between the R.O.C. and the P.R.C. and other factors affecting the political or economic conditions in Taiwan could have an adverse effect on the Company’s financial condition and results of operations, all of which are not within the Company’s control and the Company may not be able 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).accurately predict at this time.
NOTE 2720 – 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.
30
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 unaudited 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. 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 the leading insurance companies in Taiwan and PRC, respectively.
(1) | Life Insurance Products |
Total revenue from Taiwan segment’s sales of life insurance products were 92.2% and 87.7% of the Company’s total revenue for the three months ended September 30, 2022 and 2021, respectively. Total revenue from PRC segment’s sales of life insurance products were 2.1% and 3.3% of the Company’s total revenue for the three months ended September 30, 2022 and 2021, respectively.
Total revenue from Taiwan segment’s sales of life insurance products accounted for 74.01%were 90.3% and 80.25%88.1% of the Company’s total revenue for the nine months ended September 30, 20172022 and 2016,2021, respectively. Total revenue from PRC segment’s sales of life insurance products were 15.67%2.9% and 12.43%4.3% of the Company’s total revenue for the nine months ended September 30, 20172022 and 2016,2021, 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, theyit 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 sustainedsustainable growth of life insurance sales in Chinathe PRC and Taiwan, we have focusedinvested 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 becontinue being 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 segment’s sales of property and casualty insurance products were 5.66%5.7% and 5.34%8.1% of the Company’s total revenue for the three months ended September 30, 2022 and 2021, respectively. Total revenue from PRC segment’s sales of property and casualty insurance products were nil and 0.9% of the Company’s total revenue for the three months ended September 30, 2022 and 2021, respectively.
Total revenue from Taiwan segment’s sales of property and casualty insurance products were 6.3% and 7.0% of the Company’s total revenue for the nine months ended September 30, 20172022 and 2016,2021, 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 segment’s sales of property and casualty insurance products were 0.93%0.4% and 1.63%0.5% of the Company’s total revenue for the nine months ended September 30, 20172022 and 2016,2021, respectively.
31
As the impacts of COVID-19 and its duration remain uncertain, we have been monitoring and will continue to measure and modify our business attempting to keep our customers, sales professionals and employees healthy and safe. 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. Except for the accounting policy for disposal of subsidiary as described in Note 2 to this Form 10-Q for the quarter ended September 30, 2022, 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, 2021 and believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition and estimate of income taxes. Our significant accounting policies are described in Note 21 of “Summary of Significant Accounting Policies” included within our 20162021 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Following is a discussion
Results of the accounting policies that we believe involve the most difficult, subjective or complex judgments and estimates.
Accrued Expenses
As part of the process of preparing our financial statements, we are required 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 monthsOperations- Three Months ended September 30, 2017 and 2016
2022 Compared to Three Months ended September 30, 2021
The following table shows the results of operations for the three months ended September 30, 20172022 and 2016:2021:
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 | % |
32
| | | | | | | | | | | | |
| | Three Months Ended September 30, |
| |||||||||
| | 2022 | | 2021 | | | | | |
| ||
|
| (Unaudited) |
| (Unaudited) |
| Change |
| Percent |
| |||
Revenue | | $ | 32,648,269 | | $ | 31,629,500 | | $ | 1,018,769 |
| 3.2 | % |
Cost of revenue | |
| 20,014,864 | |
| 17,066,959 | |
| 2,947,905 |
| 17.3 | % |
Gross profit | |
| 12,633,405 | |
| 14,562,541 | |
| (1,929,136) |
| (13.2) | % |
Gross profit margin | |
| 38.7 | % |
| 46.0 | % |
| (7.3) | % | (15.9) | % |
| | | | | | | | | | | | |
Operating expenses (income): | |
| | |
| | |
| |
| | |
Selling | |
| 872,974 | |
| 397,628 | |
| 475,346 |
| 119.5 | % |
General and administrative | |
| 6,351,001 | |
| 7,189,914 | |
| (838,913) |
| (11.7) | % |
Gain on disposal of nonfinancial assets in Jiangsu Law | | | (3,262,890) | | | — | | | (3,262,890) | | — | % |
Total operating expenses (income), net | |
| 3,961,085 | |
| 7,587,542 | |
| (3,626,457) |
| (47.8) | % |
| | | | | | | | | | | | |
Income from operations | |
| 8,672,320 | |
| 6,974,999 | |
| 1,697,321 |
| 24.3 | % |
| | | | | | | | | | | | |
Other income (expenses): | |
| | |
| | |
| |
| | |
Interest income | |
| 232,343 | |
| 116,277 | |
| 116,066 |
| 99.8 | % |
Interest expenses | |
| (107,046) | |
| (47,701) | |
| (59,345) |
| 124.4 | % |
Foreign currency exchange gain (loss), net | |
| 1,240,704 | |
| (31,341) | |
| 1,272,045 |
| (4,058.7) | % |
Dividend income | | | 7,521 | | | 499 | | | 7,022 | | 1,407.2 | % |
Other - net | |
| 4,574 | |
| 253,960 | |
| (249,386) |
| (98.2) | % |
Total other income, net | |
| 1,378,096 | |
| 291,694 | |
| 1,086,402 |
| 372.4 | % |
| | | | | | | | | | | | |
Income before income taxes | |
| 10,050,416 | |
| 7,266,693 | |
| 2,783,723 |
| 38.3 | % |
Income tax expense | |
| (866,461) | |
| (1,908,078) | |
| 1,041,617 |
| (54.6) | % |
| | | | | | | | | | | | |
Net income | |
| 9,183,955 | |
| 5,358,615 | |
| 3,825,340 |
| 71.4 | % |
Net income attributable to noncontrolling interests | |
| (2,284,110) | |
| (2,338,903) | |
| 54,793 |
| (2.3) | % |
Net income attributable to China United’s shareholders | | | 6,899,845 | | | 3,019,712 | | | 3,880,133 |
| 128.5 | % |
| | | | | | | | | | | | |
Other comprehensive items, net of tax: | | | (6,711,878) | | | 208,851 | | | (6,920,729) | | (3,313.7) | % |
| | | | | | | | | | | | |
Comprehensive income | | | 2,472,077 | | | 5,567,466 | | | (3,095,389) | | (55.6) | % |
Comprehensive income attributable to noncontrolling interests | | | (118,808) | | | (2,404,539) | | | 2,285,731 | | (95.1) | % |
Comprehensive income attributable to China United’s shareholders | | $ | 2,353,269 | | $ | 3,162,927 | | $ | (809,658) | | (25.6) | % |
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 professionalsagents in our distribution and service network. For the three months ended September 30, 20172022 and 2016,2021, the revenuerevenues generated respectively from Taiwan, PRC and Hong Kong iswere as follows:
| | | | | | | | | | | | |
Geographic Areas | | Three Months Ended September 30, |
| |||||||||
|
| 2022 |
| 2021 |
| Change |
| Percent |
| |||
Revenue |
| |
|
| |
|
| |
|
|
| |
Taiwan segment | | $ | 31,965,176 | | $ | 30,291,212 | | $ | 1,673,964 |
| 5.5 | % |
Percentage of revenue | |
| 97.9 | % |
| 95.8 | % |
| |
| | |
PRC segment | |
| 682,836 | |
| 1,337,946 | |
| (655,110) |
| (49.0) | % |
Percentage of revenue | |
| 2.1 | % |
| 4.2 | % |
| |
| | |
Hong Kong segment | |
| 257 | |
| 342 | |
| (85) |
| (24.9) | % |
Percentage of revenue | |
| — | % |
| — | % |
| |
| | |
Total revenue | | $ | 32,648,269 | | $ | 31,629,500 | | $ | 1,018,769 |
| 3.2 | % |
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 |
33
During the three months ended September 30, 2017, 82.0%, 17.8% and 0.2%Table of Contents
Revenue from our revenue in our unaudited consolidated financial statements were derivedTaiwan segment increased by $1.7 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$30.3 million for the three months ended September 30, 2017 and 2016 were relatively consistent.
Total revenue increased by $1,258,989, or 8%, from $14,951,3452021 to $32.0 million for the three months ended September 30, 20162022. The revenue in local currency was increased due to $16,210,334the performance and operation bonus resulting from the sales of insurance products increase from Uniwill and Law Broker but partially offset by the foreign exchange fluctuation from the substantial depreciation of the New Taiwan Dollar against the U.S. dollar.
Revenue from our PRC segment decreased by $0.6 million from $1.3 million for the three months ended September 30, 2017, was mainly due2021 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$0.7 million for retirement as average life span and individual economy has significantly increased over the recent years. Moreover, in anticipation of the possible adjustment on the max premium payment and the proposed change to the annuity insurance regulation in the PRC, the consumers are willing to invest their money in insurance products during the three months ended September 30, 2022. The overall insurance industry environment was declining during 2022 in PRC and customers in PRC were less willing to buy those insurance products in 2022, which resulted in the decrease of this yearrevenue in the PRC segment.
Revenue from the Hong Kong Segment was primarily derived from reinsurance commission on sales of insurance products from other insurers to Taiwan Life Insurance Co., Ltd. (“Taiwan Life”) for risk management. Revenue decrease from our Hong Kong segment for the three months ended September 30, 2022 continued compared to that of the same periodthree months ended September 30, 2021 due to the termination of last year.
certain of our reinsurance agreements and the discontinuation of travel insurance.
Cost of revenue and gross profit
The cost of revenue decreasedmainly consists of commissions paid to our sales professionals. The cost of revenue increased by $264,111, or 3%,$2.9 million from $9,335,735$17.1 million for the three months ended September 30, 20162021 to $9,071,624$20.0 million for the three months ended September 30, 2017.2022. The increase in the cost of revenue was mainly resulted from the revenue increase of both Uniwill and Law Broker. In addition, the bonuses paid to agents also increased due to the outstanding sales performance from senior agents with higher commission rates.
Consequently, the gross profit was primarily due a decrease in direct cost, such as the bonuses and awards to sales professionals.
The gross profitmargin decreased from 46.0% for the three months ended September 30, 2017 increased by $1,523,100 or 30%,2021 to $7,138,710 compared to $5,615,61038.7% for the three months ended September 30, 2016. The gross profit ratio increased2022.
Selling expenses
Selling expenses were mainly incurred by Law Broker and Uniwill in connection with costs related to 44%marketing and advertising. For the three months ended September 30, 2022, selling expenses were $0.9 million, reflecting an increase of $0.5 million, compared with $0.4 million of selling expenses for the three months ended September 30, 2017 from 38% for2021. The increase in the selling expenses was caused by the marketing activities during the three months ended September 30, 2016. The increase2022. For the same period in gross profit was primary due2021, the adverse impact from the outbreak of COVID-19 in Taiwan had substantially restricted our marketing activities in Taiwan, leading to the increaseless selling expenses 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.
such period.
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 feesfees. For the three months ended September 30, 2022, G&A expenses were $6.4 million, reflecting a decrease of $0.8 million, compared with $7.2 million of G&A expenses for the three months ended September 30, 2021. The decrease in the general and administrative expenses was attributed to the auditor and attorney.recognition of compensation costs for the issuance of shares of common stock during the three months ended September 30, 2021.
Gain on disposal of nonfinancial assets in Jiangsu Law
For the three months ended September 30, 2017, G&A2022, other operating income were $3.3 million generated from the disposal of nonfinancial assets in one of the subsidiaries, Jiangsu Law.
Other income (expenses), net
Other income mainly consisted of interest income, interest expenses, gain or loss on valuation of financial assets and foreign currency exchange gain or loss. Other income were $3,708,037, increased by $348,363, or 10%,$1.4 million, reflecting an increase of $1.1 million, compared with $3,359,674the other income of $0.3 million for the three months ended September 30, 2016, which2021. The increase in other income was mainly due to the increased numberforeign currency exchange gain recognized from foreign currency time deposits assets and intercompany receivable and payable because of branches, personnel costs in Chinathe substantial depreciation of the New Taiwan Dollar against the U.S. dollar and Chinese Yuan during the increased personnel costs in Taiwan.
Other income (expenses)
Net other income for the three months ended September 30, 2017 and 2016 were $161,462 and $54,393, respectively. Other income (expense) mainly consiststhird quarter of interest income, interest expenses, other income, dividend income and loss on disposal2022.
34
Income tax expense
For the three months ended September 30, 2017,2022, income tax expense was $0.9 million, reflecting a decrease of $1.0 million or 54.6%, compared with the income tax expense was $831,878, increased by $375,050, or 82%, compared with $456,828of $1.9 million for the three months ended September 30, 2016.2021. The increasedecrease in income tax expense was mainly due to the increased income before income taxreversal of valuation allowance, with respect to reason of reversal of valuation allowance, please refer to Note14.
Other comprehensive items
Other comprehensive items mainly consisted of foreign currency translation gain or loss. The foreign currency translation loss was $6.7 million, reflecting a decrease of $6.9 million, compared with foreign currency translation gain of $0.2 million for the three months ended September 30, 2017 compared2021. The decrease was mainly due to thata larger foreign currency translation loss resulted from the substantial depreciation of the New Taiwan Dollar against the U .S. dollar for the three months ended September 30, 2016.2022.
The Company’s subsidiaries in Taiwan are governed by the Income Tax LawResults 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.
Overview of the nine monthsOperations- Nine Months ended September 30 2017 and 2016
, 2022 Compared to Nine Months ended September 30, 2021
The following table shows the results of operations for the nine months ended September 30, 20172022 and 2016:2021:
| | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| |||||||||
| | 2022 | | 2021 | | | | | |
| ||
|
| (Unaudited) |
| (Unaudited) |
| Change |
| Percent |
| |||
Revenue |
| $ | 95,284,500 |
| $ | 95,133,297 |
| $ | 151,203 |
| 0.2 | % |
Cost of revenue | |
| 60,354,318 | |
| 59,576,604 | |
| 777,714 |
| 1.3 | % |
Gross profit | |
| 34,930,182 | |
| 35,556,693 | |
| (626,511) |
| (1.8) | % |
Gross profit margin | |
| 36.7 | % |
| 37.4 | % |
| (0.7) | % | (1.9) | % |
| | | | | | | | | | | | |
Operating expenses (income): | |
| | |
| | |
| |
| | |
Selling | |
| 1,990,805 | |
| 1,073,702 | |
| 917,103 |
| 85.4 | % |
General and administrative | |
| 19,094,349 | |
| 19,470,001 | |
| (375,652) |
| (1.9) | % |
Gain on disposal of nonfinancial assets in Jiangsu Law | | | (3,262,890) | | | — | | | (3,262,890) | | — | % |
Total operating expenses (income), net | |
| 17,822,264 | |
| 20,543,703 | |
| (2,721,439) |
| (13.2) | % |
| | | | | | | | | | | | |
Income from operations | |
| 17,107,918 | |
| 15,012,990 | |
| 2,094,928 |
| 14.0 | % |
| | | | | | | | | | | | |
Other income (expenses): | |
| | |
| | |
| |
| | |
Interest income | |
| 498,395 | |
| 330,054 | |
| 168,341 |
| 51.0 | % |
Interest expenses | |
| (229,185) | |
| (136,807) | |
| (92,378) |
| 67.5 | % |
Foreign currency exchange gain (loss), net | |
| 2,682,717 | |
| (130,527) | |
| 2,813,244 |
| (2,155.3) | % |
Dividend income | |
| 219,890 | |
| 251,827 | |
| (31,937) |
| (12.7) | % |
Other - net | |
| 127,855 | |
| 513,569 | |
| (385,714) |
| (75.1) | % |
Total other income, net | |
| 3,299,672 | |
| 828,116 | |
| 2,471,556 |
| 298.5 | % |
| | | | | | | | | | | | |
Income before income taxes | |
| 20,407,590 | |
| 15,841,106 | |
| 4,566,484 |
| 28.8 | % |
Income tax expense | |
| (3,565,730) | |
| (4,308,482) | |
| 742,752 |
| (17.2) | % |
| | | | | | | | | | | | |
Net income | |
| 16,841,860 | |
| 11,532,624 | |
| 5,309,236 |
| 46.0 | % |
Net income attributable to noncontrolling interests | |
| (5,378,928) | |
| (4,911,643) | |
| (467,285) |
| 9.5 | % |
Net income attributable to China United’s shareholders | | | 11,462,932 | | | 6,620,981 | | | 4,841,951 |
| 73.1 | % |
| | | | | | | | | | | | |
Other comprehensive items, net of tax: | | | (13,377,127) | | | 716,903 | | | (14,094,030) | | (1,966.0) | % |
| | | | | | | | | | | | |
Comprehensive income | | | 3,464,733 | | | 12,249,527 | | | (8,784,794) | | (71.7) | % |
Comprehensive income attributable to noncontrolling interests | | | (993,950) | | | (5,163,181) | | | 4,169,231 | | (80.7) | % |
Comprehensive income attributable to China United’s shareholders | | $ | 2,470,783 | | $ | 7,086,346 | | $ | (4,615,563) | | (65.1) | % |
35
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 professionalsagents in our distribution and service network. For the nine months ended September 30, 20172022 and 2016,2021, the revenuerevenues generated respectively from Taiwan, PRC and Hong Kong iswere as follows:
| | | | | | | | | | | | |
Geographic Areas | | Nine Months Ended September 30, |
| |||||||||
|
|
| 2022 |
|
| 2021 |
|
| Change |
| Percent | |
Revenue | |
|
| |
|
| |
|
|
|
| |
Taiwan segment |
| $ | 92,085,528 |
| $ | 90,439,019 |
| $ | 1,646,509 |
| 1.8 | % |
Percentage of revenue | | | 96.6 | % | | 95.1 | % | | |
| | |
PRC segment | | | 3,115,764 | | | 4,554,515 | | | (1,438,751) |
| (31.6) | % |
Percentage of revenue | | | 3.3 | % | | 4.8 | % | | |
| | |
Hong Kong segment | | | 83,208 | | | 139,763 | | | (56,555) |
| (40.5) | % |
Percentage of revenue | | | 0.1 | % | | 0.1 | % | | |
| | |
Total revenue |
| $ | 95,284,500 |
| $ | 95,133,297 |
| $ | 151,203 |
| 0.2 | % |
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% ofRevenue from our revenue in our unaudited consolidated financial statements were derivedTaiwan segment increased by $1.7 million 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$90.4 million for the nine months ended September 30, 2017 and 2016 were relatively consistent.
Total revenue increased by $6,795,571, or 16%, from $43,289,1132021 to $92.1 million for the nine months ended September 30, 20162022. The revenue in local currency was increased due to $50,084,684the performance and operation bonus resulting from the sales of insurance products increase from Uniwill but partially offset by the foreign exchange fluctuation from the substantial depreciation of the New Taiwan Dollar against the U.S. dollar.
Revenue from our PRC segment decreased by $1.4 million from $4.5 million for the nine months ended September 30, 2017,2021 to $3.1 million for the nine months ended September 30, 2022. The overall insurance industry environment in PRC was declining during 2022 and customers in PRC were less willing to buy those insurance products in 2022, which resulted in the decrease of revenue in the PRC segment.
Revenue from the Hong Kong Segment was mainlyprimarily derived from reinsurance commission on sales of insurance products from other insurers to Taiwan Life for risk management. Decrease in revenue from our Hong Kong segment for the nine months ended September 30, 2022 continued compared to that of the nine months ended September 30, 2021 due to the increasetermination of certain reinsurance agreements and the revenue in Taiwan and PRC for the following reasons:discontinuation of travel insurance.
|
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 $27,986,0212022 remained consistent with the same period in 2021.
Consequently, the gross profit margin slightly decreased from 37.4% for the nine months ended September 30, 2016. The cost of revenue increased was mainly due2021 to the increase of direct commission cost.
The gross profit36.7% for the nine months ended September 30, 2017 increased2022.
Selling expenses
Selling expenses were mainly incurred by $5,035,533 or 33%, to $20,338,625Law Broker and Uniwill in connection with marketing and advertising. For the nine months ended September 30, 2022, selling expenses were $2.0 million, reflecting an increase of $ 0.9 million, compared to $15,303,092with that of $1.1 million of selling expenses for the nine months ended September 30, 2016.2021. The gross profit ratio increased to 41% forincrease in the selling expenses was caused by the increase of marketing activities during the nine months ended September 30, 20172022. For the same period in 2021, the adverse impact from 35% forthe outbreak of COVID-19 in Taiwan had substantially restricted our marketing activities in Taiwan, resulting in less selling expenses during 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 cost2021.
36
Table of revenue increased accordingly.Contents
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 General and administrative (“G&A&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 feesfees. The decrease in the general and administrative expenses was mainly attributed to the auditor and attorney.recognition of compensation costs for the issuance of shares of common stock for the nine months ended September 30, 2021 but partially offset by the recognition of severance pay arising from the disposal of the subsidiary Jiangsu Law in June, 2022.
Gain on disposal of nonfinancial assets in Jiangsu Law
For the nine months ended September 30, 2017, G&A2022, other operating income were $3.3 million generated from the disposal of nonfinancial assets in the subsidiary, Jiangsu Law.
Other income (expenses), net
Other income mainly consisted of interest income, interest expenses, were $10,714,341, increased by $1,378,326,gain or 15%,loss on valuation of financial assets and foreign currency exchange gain or loss. Other income during the nine months ended September 30, 2022 was $3.3 million, reflecting an increase of $2.5 million, compared with $9,336,015that of $0.8 million for the nine months ended September 30, 2016, which2021. The increase in other income was mainly due to the increased numberforeign currency exchange gain recognized from foreign currency time deposits assets because of branches, personnel costs Chinathe substantial depreciation of the New Taiwan Dollar against the U.S. dollar and the increased personnel costs, rent and pension in Taiwan.
Other income (expenses)
Net other income forduring 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.
2022.
Income tax expense
For the nine months ended September 30, 2017, the2022, income tax expense was $2,345,147, increased by $1,009,816,$3.6 million, reflecting a decrease of $0.7 million or 76%17.2%, compared with $1,335,331that of $4.3 million for the nine months ended September 30, 2016.2021. The increasedecrease in tax expenses was mainly due to the increased income before income taxreversal of valuation allowance, with respect to reason of reversal of valuation allowance, please refer to Note14.
Other comprehensive items
Other comprehensive items mainly consisted of foreign currency translation gain or loss. Foreign currency translation loss were $13.4 million, reflecting a decrease of $14.1 million, compared with foreign currency translation gain of $0.7 million for the nine months ended September 30, 2017 compared2021. The decrease was mainly due to thata larger foreign currency translation loss resulted from the substantial depreciation of the New Taiwan Dollar against the U.S. dollar for the nine months ended September 30, 2016.2022.
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 representspresents a comparison of the net cash provided by operating activities, net cash used in investing activities and net cash provided by (used in) financing activities for the nine monthsnine-month periods ended September 30, 20172022 and 2016:2021:
| | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| |||||||||
|
| 2022 |
| 2021 |
| Change |
| Percent |
| |||
Net cash provided by operating activities | | $ | 12,233,715 | | $ | 8,968,709 | | $ | 3,265,006 |
| 36.4 | % |
Net cash used in investing activities | |
| (14,499,782) | |
| (4,061,826) | |
| (10,437,956) |
| 257.0 | % |
Net cash provided by financing activities | |
| 2,445,876 | |
| 3,886,078 | |
| (1,440,202) |
| (37.1) | % |
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 nine months ended September 30, 20172022 was $6,137,729, significantly increased$12.2 million, reflecting an increase of $3.3 million or 36.4% in comparison with $4,380,800 net cash provided by operating activitiesthat of $8.9 million during the nine months ended September 30, 2016.2021. The increase in cash inflows was mainly due to higher net income and the increasecollection form accounts receivable for the nine months ended September 30, 2022 compared with that of the same period in net income.2021.
37
Investing activities
Net cash used in investing activities was $16,065,111 during the nine months ended September 30, 2017, which is mainly due to net cash outflows from purchase2022 was $14.5 million, reflecting an increase of structured deposit, time deposits and marketable securities during the period. The net cash used$10.4 million or 257.0% in investing activities was $29,919comparison with that of $4.1 million for the nine months ended September 30, 2016, which is2021. Increases in the cash used in the investing activities mainly due toresulted from the net cash outflows from purchaseincrease of the purchases of time deposits property, plantduring nine months ended September 30, 2022. However, the cash outflow was offset by proceeds from disposal of nonfinancial assets in subsidiary and equipment and intangible assets during the period, which outweighed theproceeds from maturities of time deposits.
Financing activities
Net cash provided by financing activities was $261,308$2.4 million during the nine months ended September 30, 2017,2022, which isdecreased by $1.4 million from that of $3.8 million during the resultsame period of 2021. The decrease was mainly due to the decrease in net proceeds from additional borrowings under the Company’srevolving credit agreements and partially offset by the decrease of repayment of related party borrowings. The net cash used in financing activities was $387,538 forborrowings during the nine months ended September 30, 2016, which is the result of repayment for the borrowings from2022.
Contractual Obligations
There have been no significant changes to 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 operationscontractual obligations as disclosed in the PRC.Company’s 2021 Annual Report on Form 10-K.
Off Balance Sheet Arrangements
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 ishad 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 followingoff-balance sheet arrangements as of September 30, 2017 and December 31, 2016:2022.
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 for the nine months ended September 30, 2017 and 2016 were $1,832,335 and $1,557,725, respectively. As of September 30, 2017, total future minimum annual lease payments under operating leases were as follows, by years:
Twelve months ending September 30, 2018 | $ | 2,049,071 | ||
Twelve months ending September 30, 2019 | 1,166,015 | |||
Twelve months ending September 30, 2020 | 245,873 | |||
Twelve months ending September 30, 2021 | 55,088 | |||
Twelve months ending September 30, 2022 | 17,687 | |||
Thereafter | - | |||
Total | $ | 3,553,734 |
AHFL Acquisition Agreement
The Company conducts all of its Taiwanese operations indirectly through its subsidiary AHFL and the revenue from such Taiwanese operations represented approximately 90% of our total revenue in our consolidated financial statements 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.
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 facilitating off-balance sheet arrangements.
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.
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 September 30, 2022. 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 annual report on Form 10-K for the year ended December 31, 2021. The material weaknesses have not been remediated as of September 30, 2022. We continue to ensurework on the information requiredremediation of the material weakness, we may determine to take additional measures to address our control deficiencies. The material weakness will continue to exist until the remediation steps identified in our 2021 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 2021 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.
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Changes in Internal Control over Financial Reporting
During the nine monthsfiscal quarter ended September 30, 2017,2022, 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.
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During the three months ended September 30, 2022, we were not aware of any 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, litigationbusiness, such as labor and employment disputes. Litigation 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 are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
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.
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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: November | | By: | /s/ |
| | Name: | Yi-Hsiao Mao |
| | Its: | Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
Date: November | | By: | /s/ |
| | Name: | Mei-Kuan Yeh |
| | Its: | Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |
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