The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
CHINA UNITED INSURANCE SERVICE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,314,522
|
|
|
$
|
2,020,799
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
147,101
|
|
|
|
132,820
|
|
Amortization of bond premium
|
|
|
11
|
|
|
|
62
|
|
Loss (gain) on valuation of financial assets
|
|
|
(69,553
|
)
|
|
|
614
|
|
Loss on disposal of fixed assets
|
|
|
-
|
|
|
|
12,802
|
|
Deferred income tax
|
|
|
(29,951
|
)
|
|
|
(36,796
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,372,362
|
|
|
|
8,540,379
|
|
Contract assets
|
|
|
(378,609
|
)
|
|
|
-
|
|
Other current assets
|
|
|
(677,593
|
)
|
|
|
(349,156
|
)
|
Other assets
|
|
|
(190,378
|
)
|
|
|
(1,078,254
|
)
|
Income tax payable
|
|
|
2,126,136
|
|
|
|
797,176
|
|
Commission payable
|
|
|
(2,308,224
|
)
|
|
|
(6,073,221
|
)
|
Other current liabilities
|
|
|
(1,981,048
|
)
|
|
|
(2,113,959
|
)
|
Long-term liabilities
|
|
|
(88,793
|
)
|
|
|
126,956
|
|
Net cash provided by operating activities
|
|
|
1,235,983
|
|
|
|
1,980,222
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of time deposits
|
|
|
(14,255,980
|
)
|
|
|
(5,911,165
|
)
|
Proceeds from maturities of time deposits
|
|
|
12,953,443
|
|
|
|
3,446,874
|
|
Purchases of structured deposits
|
|
|
(1,270,090
|
)
|
|
|
-
|
|
Proceeds from maturities of structured deposits
|
|
|
2,605,260
|
|
|
|
-
|
|
Proceeds from sale of marketable securities
|
|
|
-
|
|
|
|
2,484,686
|
|
Purchase of marketable securities
|
|
|
-
|
|
|
|
(4,831,010
|
)
|
Proceeds from repayment of loan made to RFL
|
|
|
1,529,920
|
|
|
|
-
|
|
Purchase of property, plant and equipment
|
|
|
(216,973
|
)
|
|
|
(142,288
|
)
|
Purchase of intangible assets
|
|
|
(19,729
|
)
|
|
|
(130,847
|
)
|
Net cash provided by (used in) investing activities
|
|
|
1,325,851
|
|
|
|
(5,083,750
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from short-term loans
|
|
|
5,400,000
|
|
|
|
-
|
|
Repayment of short-term loans
|
|
|
(5,350,000
|
)
|
|
|
-
|
|
Proceeds from related party borrowing
|
|
|
493,652
|
|
|
|
244,963
|
|
Repayment to related party borrowing
|
|
|
(510,999
|
)
|
|
|
(276
|
)
|
Net cash provided by financing activities
|
|
|
32,653
|
|
|
|
244,687
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
375,064
|
|
|
|
1,120,969
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
2,969,551
|
|
|
|
(1,737,872
|
)
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, beginning balance
|
|
|
15,473,949
|
|
|
|
20,387,637
|
|
Cash, cash equivalents and restricted cash, ending balance
|
|
$
|
18,443,500
|
|
|
$
|
18,649,765
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
20,316
|
|
|
$
|
3,000
|
|
Income tax paid
|
|
$
|
16,838
|
|
|
$
|
5,408
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF CASH FLOWS FOR NON-CASH TRANSACTION:
|
|
|
|
|
|
|
|
|
Debt forgiveness - related party
|
|
$
|
-
|
|
|
$
|
32,937
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
NOTE 1 – ORGANIZATION AND PRINCIPAL
ACTIVITIES
China United Insurance Service, Inc. (“China
United”, “CUIS”, or the “Company”) is a Delaware corporation, organized on June 4, 2010 by Yi-Hsiao
Mao, a Taiwan citizen, as a listing vehicle for both ZLI Holdings Limited (“CU Hong Kong”) and Action Holdings Financial
Limited (“AHFL,” a company incorporated in the British Virgin Islands). The Company’s common stock currently
trades over-the-counter under the ticker symbol “CUII” in the OTCQB marketplace.
The corporate structure as of March 31, 2018 is as follows:
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The unaudited consolidated financial statements
include the accounts of China United, its subsidiaries and variable interest entities as shown in the corporate 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 years to the current year’s presentation.
Basis of Presentation
The unaudited consolidated financial statements
presented herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, the financial
statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of
management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement of the financial
statements have been included. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2018.
These unaudited 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, 2017, which were included in the Company’s 2017 Annual Report on Form 10-K
(“2017 Form 10-K”). The accompanying consolidated balance sheet as of December 31, 2017, has been derived from the
Company’s audited consolidated financial statements as of that date.
Use of Estimates
The preparation of the Company’s
consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that
affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results may differ from those
estimates and assumptions.
Foreign Currency Transactions
The Company’s financial statements
are presented in U.S. dollars ($), which is the Company’s reporting and functional currency. The functional currencies of
the Company’s subsidiaries are NTD, RMB and HKD. The resulting translation adjustments are reported under other comprehensive
income in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 220 (“ASC 220”),
“Reporting Comprehensive Income”
. Gains and losses resulting from the
translation of foreign currency transactions are reflected in the consolidated statements of operations and other comprehensive
income (loss). Monetary assets and liabilities denominated in foreign currency are translated at the functional currency using
the rate of exchange prevailing at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign
currency translation in the consolidated statements of operations and other comprehensive income (loss).
The Company translates the assets and liabilities
into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash
flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from NTD, RMB and
HKD into U.S. dollars are recorded in stockholders’ equity as part of accumulated other comprehensive income. The exchange
rates used for financial statements are as follows:
|
|
Average
Rate for the Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
New Taiwan dollar (NTD)
|
|
NTD
|
29.276272
|
|
|
NTD
|
31.049410
|
|
China yuan (RMB)
|
|
RMB
|
6.356627
|
|
|
RMB
|
6.888178
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
7.827061
|
|
|
HKD
|
7.760185
|
|
United States dollar ($)
|
|
$
|
1.000000
|
|
|
$
|
1.000000
|
|
|
|
Exchange Rate at
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
New Taiwan dollar (NTD)
|
|
NTD
|
29.023000
|
|
|
NTD
|
29.65568
|
|
China yuan (RMB)
|
|
RMB
|
6.280150
|
|
|
RMB
|
6.50638
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
7.848210
|
|
|
HKD
|
7.81493
|
|
United States dollar ($)
|
|
$
|
1.000000
|
|
|
$
|
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 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 ASC Topic 260,
“Earnings Per Share.”
Potential common shares
consist primarily of convertible bonds calculated using the if-converted method. However, convertible bonds were excluded from
the calculation due to the antidilutive effect. The antidilutive common share equivalents excluded from the computation were 56,883
and 45,078 for the three months ended March 31, 2018 and 2017, respectively.
The calculation for basic and diluted EPS
is as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Amounts attributable to CUIS common shareholders:
|
|
$
|
334,303
|
|
|
$
|
1,292,462
|
|
Effect of dilution
|
|
|
-
|
|
|
|
-
|
|
Income attributable to CUIS common shareholders after dilution
|
|
$
|
334,303
|
|
|
$
|
1,292,462
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding
|
|
|
29,452,669
|
|
|
|
29,452,669
|
|
Effect of convertible bond
|
|
|
-
|
|
|
|
-
|
|
Diluted weighted-average number of common shares outstanding
|
|
|
29,452,669
|
|
|
|
29,452,669
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to CUIS common shareholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.011
|
|
|
$
|
0.044
|
|
Diluted
|
|
$
|
0.011
|
|
|
$
|
0.044
|
|
Fair Value of Financial Instruments
Fair value accounting establishes a framework
for measuring fair value and expands disclosure about fair value measurements. Fair value, which is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market 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 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 fair value.
|
The following fair value hierarchy tables
present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31,
2018 and December 31, 2017:
|
|
March 31, 2018
|
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities (included in other current assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund
|
|
|
33,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,000
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds (available-for-sale debt securities)
|
|
|
-
|
|
|
|
105,641
|
|
|
|
-
|
|
|
|
105,641
|
|
|
|
December 31, 2017
|
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities (included in other current assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund
|
|
|
33,381
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,381
|
|
Structured deposits
|
|
|
-
|
|
|
|
-
|
|
|
|
1,248,340
|
|
|
|
1,248,340
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds (available-for-sale debt securities)
|
|
|
-
|
|
|
|
103,723
|
|
|
|
-
|
|
|
|
103,723
|
|
The following table presents a reconciliation
from the opening balances to the closing balances for recurring fair value measurements categorized within level 3 of the fair
value hierarchy:
Opening balance as of January 1, 2018
|
|
$
|
1,248,340
|
|
Transfer into/ out of Level 3
|
|
|
-
|
|
Total gains (losses) for the period included in earnings
|
|
|
70,652
|
|
Total gains (losses) for the period included in other comprehensive income
|
|
|
-
|
|
Purchases
|
|
|
1,270,090
|
|
Settlements
|
|
|
(2,605,260
|
)
|
Foreign exchange gains (losses)
|
|
|
16,178
|
|
Ending balance as of March 31, 2018
|
|
$
|
-
|
|
Changes in unrealized losses for the period
included in earnings for assets held at the end of the reporting period are $69,748 for the three months ended March 31, 2018.
During the three months ended March 31,
2018, there were no assets or liabilities that were transferred between any of the levels.
Marketable securities – The fair
value of the mutual fund is valued based on quoted market prices in active markets.
Structured deposits – Structured
deposits are hybrid instruments containing embedded derivatives. The valuation of the hybrid instruments is predominantly driven
by the derivative features embedded within the instruments. The structured deposits as of December 31, 2017 are based on discounted
cash flow analyses that consider the embedded derivative and terms and payment structure of the deposits. The embedded derivative
features are valued using Black & Scholes option pricing model that used significant unobservable inputs, i.e., volatility
of options. The fair value is determined by using the counterparty’s pricing information.
The volatility mentioned above is a pricing
input for options. Generally, the higher the volatility of the underlying, the riskier the instrument. Given a long position in
an option, an increase in volatility, in isolation, would generally result in an increase in a fair value measurement.
Government bonds – The fair value
of government bonds is valued based on theoretical bond price in Taipei Exchange.
The carrying amounts of financial assets
and liabilities in the consolidated balance sheets for cash and cash equivalents, time deposits, accounts receivable, short-term
loans, due to related parties and accrued expense approximate fair value due to the short-term duration of those instruments.
The amortized cost of the investment in
government bonds is $104,242 and $102,029 as of March 31, 2018 and December 31, 2017, respectively. The government bonds will mature
on March 17, 2021.
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 cash become
insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash with that bank; however, the
Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in
bank accounts. In Taiwan, a depositor has up to NTD3,000,000 insured by Central Deposit Insurance Corporation (“CDIC”).
In China, a depositor has up to RMB500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”).
In Hong Kong, a depositor has up to HKD500,000 insured by Hong Kong Deposit Protection Board (“DPB”). In the United
States, the standard insurance amount is $250,000 per depositor in a bank insured by the Federal Deposit Insurance Corporation
(“FDIC”).
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 deposits and accounts receivable. As of March 31, 2018 and December 31, 2017, approximately $1,807,000
and $1,512,000 of the Company’s cash and cash equivalents, time deposits, restricted cash and register capital deposits held
by financial institutions, was insured, and the remaining balance of approximately $41,512,000 and $33,949,000, was not insured.
With respect to accounts receivable, the Company generally does not require collateral and does not have an allowance for doubtful
accounts.
For the three months ended March 31, 2018
and 2017, the Company’s revenues from sale of insurance policies underwritten by these companies were:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
|
Amount
|
|
|
% of Total
Revenue
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
4,946,056
|
|
|
|
28
|
%
|
|
$
|
4,180,227
|
|
|
|
27
|
%
|
Taiwan Life Insurance Co., Ltd.
|
|
|
2,797,736
|
|
|
|
16
|
%
|
|
|
2,087,357
|
|
|
|
14
|
%
|
TransGlobe Life Insurance Inc.
|
|
|
1,829,019
|
|
|
|
10
|
%
|
|
|
(*)
|
|
|
|
(*)
|
|
(*) Revenue for the three months ended
had not exceeded 10% or more of the consolidated revenue.
As of March 31, 2018 and December 31, 2017,
the Company’s accounts receivable from these companies were:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Amount
|
|
|
% of Total
Accounts
Receivable
|
|
|
Amount
|
|
|
% of Total
Accounts
Receivable
|
|
Farglory Life Insurance Co., Ltd.
|
|
$
|
3,848,619
|
|
|
|
38
|
%
|
|
$
|
3,430,661
|
|
|
|
26
|
%
|
Taiwan Life Insurance Co., Ltd
|
|
|
2,052,704
|
|
|
|
20
|
%
|
|
|
2,192,668
|
|
|
|
17
|
%
|
TransGlobe Life Insurance Inc.
|
|
|
924,442
|
|
|
|
9
|
%
|
|
|
1,811,401
|
|
|
|
14
|
%
|
The Company’s operations are in the
PRC, Hong Kong and Taiwan. Accordingly, the Company’s business, financial condition and results of operations may be influenced
by the political, economic, foreign currency exchange and legal environments in the PRC, Hong Kong and Taiwan, and by the state
of each economy. The Company’s results may be adversely affected by changes in the political and social conditions in the
PRC, Hong Kong and Taiwan, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures,
and rates and methods of taxation, among other things.
New Accounting Pronouncements and Other Guidance
New Accounting Pronouncements Effective January 1, 2018:
Revenue from Contracts with Customers
In May 2014, the FASB issued new accounting
guidance related to revenue from contracts with customers. The core principle of the guidance is that recognition of revenue occurs
when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. In addition, the new guidance requires that companies disclose
the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted
the new guidance effective January 1, 2018, using the modified retrospective method, which applies the new guidance beginning in
the year of adoption, with the cumulative effect of initially applying the guidance recognized as an adjustment to retained earnings
at January 1, 2018. The Company elected to apply the modified retrospective method to all contracts.
The Company’s revenue is
derived from insurance agency and brokerage services. The Company, through its subsidiaries, 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
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.
Upon adoption of the new revenue
guidance, the timing of revenue recognition remains unchanged. However, the new guidance includes requirements to estimate
variable or contingent consideration to be received and recognize variable consideration to the extent that a significant
reversal of revenue will not probably occur in subsequent periods. Under the legacy GAAP, the Company recognized certain contingent commissions when fixed or determinable
whereas the Company recognizes estimated contingent commissions when the policy has been submitted to insurance companies but yet
effective under the new revenue guidance. This results in the revenue recognition accelerated from historical
patterns and a shift in timing of quarterly revenue recognized. In addition, 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 a result, the Company recognizes contract assets to distinguish from accounts receivable.
Since the majority of the Company’s
fee arrangements involve contracts that cover a single year of services, the Company does not expect there will be a significant
change in the amount of revenue recognized in an annual period.
The cumulative effect of adopting the new
standard on January 1, 2018 is nil to the opening balance of retained earnings. The comparative information and prior periods were
not restated and will continue to be reported under the legacy accounting standards.
The impact of adoption of the new revenue
standard on the Company’s consolidated income statement was as follows:
|
|
Three Months Ended
March 31, 2018
|
|
|
|
As Reported
|
|
|
Revenue
Standard
Impact
|
|
|
Legacy GAAP
|
|
Revenue
|
|
$
|
17,489,380
|
|
|
$
|
(378,609
|
)
|
|
$
|
17,110,771
|
|
Cost of revenue
|
|
|
9,621,703
|
|
|
|
-
|
|
|
|
9,621,703
|
|
Gross profit
|
|
|
7,867,677
|
|
|
|
(378,609
|
)
|
|
|
7,489,068
|
|
Income before income taxes
|
|
|
3,433,063
|
|
|
|
(378,609
|
)
|
|
|
3,054,454
|
|
Income tax expense
|
|
|
2,118,541
|
|
|
|
(73,406
|
)
|
|
|
2,045,135
|
|
Net income
|
|
|
1,314,522
|
|
|
|
(305,203
|
)
|
|
|
1,009,319
|
|
Net income attributable to noncontrolling interests
|
|
|
968,868
|
|
|
|
(99,979
|
)
|
|
|
868,889
|
|
Net income attributable to parent’s shareholders
|
|
$
|
345,654
|
|
|
$
|
(205,224
|
)
|
|
$
|
140,430
|
|
The impact of adoption of the new revenue
standard on the Company’s consolidated balance sheet was as follows:
|
|
March 31, 2018
|
|
|
|
As Reported
|
|
|
Revenue
Standard
Impact
|
|
|
Legacy GAAP
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract assets
|
|
$
|
381,953
|
|
|
$
|
(381,953
|
)
|
|
$
|
-
|
|
Total current assets
|
|
|
53,786,917
|
|
|
|
(381,953
|
)
|
|
|
53,404,964
|
|
TOTAL ASSETS
|
|
$
|
59,793,187
|
|
|
$
|
(381,953
|
)
|
|
$
|
59,411,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
22,831,615
|
|
|
|
(74,046
|
)
|
|
|
22,757,569
|
|
Total stockholders’ equity
|
|
|
36,961,572
|
|
|
|
(307,907
|
)
|
|
|
36,653,665
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
59,793,187
|
|
|
$
|
(381,953
|
)
|
|
$
|
59,411,234
|
|
The impact of adoption of the new revenue
standard on the Company’s consolidated statement of cash flows was as follows:
|
|
Three Months Ended
March 31, 2018
|
|
|
|
As Reported
|
|
|
Revenue
Standard
Impact
|
|
|
Legacy GAAP
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,314,522
|
|
|
$
|
(305,203
|
)
|
|
$
|
1,009,319
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract assets
|
|
|
(378,609
|
)
|
|
|
378,609
|
|
|
|
-
|
|
Income tax payable
|
|
|
2,126,136
|
|
|
|
(74,046
|
)
|
|
|
2,052,090
|
|
Net cash provided by operating activities
|
|
|
1,235,983
|
|
|
|
2,704
|
|
|
|
1,238,687
|
|
Foreign currency translation
|
|
|
375,064
|
|
|
|
(2,704
|
)
|
|
|
372,360
|
|
The adoption of the revenue recognition
standard did not have an impact on the Company’s financing or investing cash flows.
Restricted Cash
In November 2016, the FASB issued an Accounting
Standards Update (ASU) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance
requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted
this ASU in the first quarter of 2018 on a retrospective basis with the following impacts to the Company’s prior period consolidated
statement of cash flows:
|
|
Three Months Ended March 31, 2017
|
|
|
|
Previously
Reported*
|
|
|
Adjustments
|
|
|
As Revised
|
|
Operating activities
|
|
$
|
1,980,222
|
|
|
$
|
(218,183
|
)
|
|
$
|
1,762,039
|
|
Investing activities
|
|
|
(4,865,567
|
)
|
|
|
-
|
|
|
|
(4,865,567
|
)
|
Financing activities
|
|
|
244,687
|
|
|
|
-
|
|
|
|
244,687
|
|
Foreign currency translation
|
|
|
1,120,969
|
|
|
|
-
|
|
|
|
1,120,969
|
|
Net change in cash, cash equivalents, and restricted cash
|
|
$
|
(1,519,689
|
)
|
|
$
|
(218,183
|
)
|
|
$
|
(1,737,872
|
)
|
|
(*)
|
The reported amounts have
been revised to incorporate the effect of reclassification made to prior year consolidated financial statements. Refer to Note
27 of 2017 Form 10-K.
|
Financial Instruments – Recognition
and Measurement
On
January 1, 2018, the Company adopted, on a prospective basis, new accounting guidance that makes limited changes to the accounting
for financial instruments. The changes primarily relate to (i) the requirement to measure equity investments (except those
accounted for under the equity method of accounting, or those that result in consolidation of the investee) at fair value, with
changes in the fair value recognized in net income, (ii) an alternative approach for the measurement of equity investments
that do not have a readily determinable fair value, (iii) the elimination of the other-than-temporary impairment model and
its replacement with a requirement to perform a qualitative assessment to identify the impairment of equity investments, and a
requirement to recognize impairment losses in net income based on the difference between the fair value and the carrying value
of the equity investment, (iv) the elimination of the requirement to disclose the methods and significant assumptions used
to estimate the fair value of financial instruments measured at amortized cost, (v) the addition of a requirement to use the
exit price concept when measuring the fair value of financial instruments for disclosure purposes and (vi) the addition of
a requirement to present financial assets and financial liabilities separately in the notes to financial statements, grouped by
measurement category (e.g., fair value, amortized cost, lower of cost or market) and by form of financial asset (e.g., loans, equity
securities).
The
equity investment without readily determinable fair value held by the Company is the investment in common stocks of Genius Insurance
Broker Co., Ltd. The Company elects to measure the equity investment using measurement alternative and records the investment at
cost minus impairment, if any, plus or minus changes resulting from qualifying observable prices changes. Adjustments resulting
from impairments and observable prices changes are recorded in the income statement. Further, in accordance with the guidance,
recurring fair value disclosures are no longer provided for equity securities measured using the measurement alternative. In addition,
the existing impairment model has been replaced with a new one-step qualitative impairment model. No initial adoption adjustment
was recorded for these instruments since the guidance is required to be applied prospectively for securities measured using the
measurement alternative. For the three months ended March 31, 2018, there is no adjustment to the cost of the equity investment
in Genius Insurance Broker Co., Ltd. As of March 31, 2018 and December 31, 2017, the equity investment in Genius Insurance Broker
Co., Ltd. is classified under long-term investments and the carrying amount is $1,324,291 and $1,296,039, respectively.
Accounting Standards Issued but Not Yet Adopted
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842). The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840,
Leases
(Statement of Financial Accounting Standards No. 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising
from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU No. 2016-02
is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating
the effect this standard will have on its consolidated financial statements.
Credit Losses
In June 2016, the FASB issued ASC Update
No. 2016-13, (Topic 326),
Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments
.
This ASC update introduces new guidance for the accounting for credit losses on financial instruments within its scope. A new model,
referred to as the current expected credit losses model, requires an entity to determine credit-related impairment losses for financial
instruments held at amortized cost and to estimate these expected credit losses over the life of an exposure (or pool of exposures).
The estimate of expected credit losses should consider both historical and current information, reasonable and supportable forecasts,
as well as estimates of prepayments. The estimated credit losses and subsequent adjustment to such loss estimates, will be recorded
through an allowance account which is deducted from the amortized cost of the financial instrument, with the offset recorded in
current earnings. ASC No. 2016-13 also modifies the impairment model for available-for-sale debt securities. The new model will
require an estimate of expected credit losses only when the fair value is below the amortized cost of the asset, thus the length
of time the fair value of an available-for-sale debt security has been below the amortized cost will no longer affect the determination
of whether a credit loss exists. In addition, credit losses on available-for-sale debt securities will be limited to the difference
between the security’s amortized cost basis and its fair value. The updated guidance is effective for interim and annual
periods beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018. The Company
is evaluating the impact of the adoption of ASC Update No. 2016-13 on its financial position and results of operations.
There were other updates recently issued.
The management does not believe that other than disclosed above, the recently issued, but not yet adopted, accounting pronouncements
will have a material impact on its financial position results of operations or cash flows.
NOTE 3 – CASH, CASH EQUIVALENTS
AND RESTRICTED CASH
Cash, cash equivalents and restricted cash
consisted of the following as of March 31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash in banks and on hand
|
|
$
|
12,838,027
|
|
|
$
|
11,774,489
|
|
Cash equivalent – re-purchase bonds
|
|
|
-
|
|
|
|
2,697,628
|
|
Time deposits – with original maturities less than three months
|
|
|
5,446,241
|
|
|
|
1,001,832
|
|
|
|
|
18,284,268
|
|
|
|
15,473,949
|
|
Restricted cash – noncurrent (included in other assets)
|
|
|
159,232
|
|
|
|
-
|
|
Total cash, cash equivalents and restricted cash shown in the statements of cash flows
|
|
$
|
18,443,500
|
|
|
$
|
15,473,949
|
|
On December 22, 2017, the Company and China
Bills Finance Corporation entered into a repurchase agreement to purchase re-purchase bonds of $2,697,628 (NTD 80,000,000) and
with 0.38% interest rate per annum. The re-purchase bonds were due in January and February 2018.
Restricted cash - noncurrent was a certificate
of 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.
NOTE 4 – TIME DEPOSITS AND STRUCTURED
DEPOSITS
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Time deposits – with original maturities less than three months
|
|
$
|
5,446,241
|
|
|
$
|
1,001,832
|
|
Time deposits – with original maturities over three months but less than one year
|
|
|
23,407,090
|
|
|
|
21,470,113
|
|
Total time deposits
|
|
$
|
28,853,331
|
|
|
$
|
22,471,945
|
|
|
|
|
|
|
|
|
|
|
Structured deposits
|
|
$
|
-
|
|
|
$
|
1,248,340
|
|
As of March 31, 2018 and December 31,
2017, the Company had time deposits of approximately $3,790,098 (NTD 110,000,000) and $1,686,017 (NTD 50,000,000) out of the
total $28,853,331 and $22,471,945 time deposits, respectively, pledged as collateral for short-term loans. See Note 5. The amount
was recorded in time deposits with original maturities over three months but less than one year.
On July 7, 2017, the Company entered into
an agreement with Cathay United Bank to purchase a 185-day structured deposit in effective on July 7, 2017 and mature on January
8, 2018, with principal approximately $1,229,563 (RMB8,000,000). The structured deposit has an embedded foreign exchange option
linked to US Dollar to China Yuan offshore exchange rate (“USDCNH”). Strike price of the structured deposit is set
at 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 below.
On February 9, 2018, the Company entered
into an agreement with CTBC Bank Co., Ltd. to purchase a one-month structured deposit in effective on February 13, 2018 and mature
on March 29, 2018, with principal approximately $1,273,855 (RMB8,000,000). The structured deposit has an embedded foreign exchange
forward linked to USDCNH.
As of March 31, 2018 and December 31, 2017,
the Company had structured deposits of nil and $1,248,340, respectively. The gain on valuation of structured deposits recognized
in other income was $70,652 and nil, respectively, for the three months ended March 31, 2018 and 2017.
NOTE 5 – SHORT-TERM LOANS
The Company’s short-term loans consisted
of the following as of March 31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Credit facility, O-Bank
|
|
$
|
1,400,000
|
|
|
$
|
1,400,000
|
|
Credit facility, FEIB
|
|
|
1,000,000
|
|
|
|
-
|
|
Credit facility, CTBC
|
|
|
-
|
|
|
|
950,000
|
|
Total short-term loans
|
|
$
|
2,400,000
|
|
|
$
|
2,350,000
|
|
The Company entered into three credit agreements with several
commercial banks as follows:
|
·
|
O-Bank Co., Ltd. (“O-Bank”):
The Company entered into a line of credit agreement with O-Bank for a $1,500,000 revolving credit facility from June 22, 2017
to June 21, 2018. The agreement was renewed on September 4, 2018, and matures on September 3, 2019, with the revolving credit
limit raised to $4,000,000. Borrowings under the agreement bear interest at the O-Bank’s cost of fund plus a margin
of 0.5%. On December 11, 2017, the Company draw down a borrowing of $600,000 with interest at a rate of 2.35% per annum. On December
26, 2017, the Company borrowed $800,000 with interest at a rate of 2.70% per annum. These amounts were paid off in March of 2018.
On March 12, 2018, the Company draw down another borrowing of $1,400,000 with interest at a rate of 2.53% per annum. The credit
facility is secured by a total amount of approximately $1,722,772 (NTD50,000,000) of time deposits.
|
|
·
|
Far Eastern International
Bank (“FEIB”): On September 21, 2017, the Company entered into a line of credit agreement with FEIB for a revolving
credit facility of $2,000,000 from September 21, 2017 to September 21, 2018. Borrowings under the agreement bear interest at the
higher of the LIBOR rate plus a margin of 1.3% or the TAIFX3 rate plus a margin of 1.25%. On January 25, 2018, the Company draw
down a borrowing of $1,500,000 and paid off on March 23, 2018. On the same date, the Company draw down another borrowing of $1,000,000
with interest at a rate of 3.37% per annum. The credit facility is secured by a total amount of approximately $2,067,326 (NTD60,000,000)
of time deposits.
|
|
·
|
CTBC Bank Co., Ltd.
(“CTBC”): On November 17, 2017, the Company entered into a line of credit agreement with CTBC, pursuant to which the
Company has a revolving credit facility of $1,000,000 from November 17, 2017 to July 31, 2018. The agreement was renewed on September
12, 2018, and matures on August 31, 2019, with the revolving credit limit raised to $1,500,000. Borrowings under the
agreement bear interest at the CTBC’s cost of fund plus a margin of 1%. On December 28, 2017, the Company draw down a borrowing
of $950,000 with interest at a rate of 3.30% per annum. Law Broker is the guarantor of the credit facility. On January 29, 2018,
the Company paid off the entire principal and interest of the borrowing.
|
Total interest expenses of short-term loans were $19,016 and
nil for the three months ended March 31, 2018 and 2017.
NOTE 6 – INCOME TAX PAYABLE
The Company’s income tax payable
consisted of the following as of March 31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Taiwan Tax
|
|
$
|
4,240,655
|
|
|
$
|
3,232,996
|
|
U.S.A Tax (Note13)
|
|
|
1,199,195
|
|
|
|
-
|
|
PRC Tax
|
|
|
176,231
|
|
|
|
270,267
|
|
Hong Kong Tax
|
|
|
-
|
|
|
|
5,527
|
|
Total income tax payable
|
|
$
|
5,616,081
|
|
|
$
|
3,508,790
|
|
|
|
|
|
|
|
|
|
|
Income tax payable-short term
|
|
$
|
4,512,822
|
|
|
$
|
3,508,790
|
|
Income tax payable-long term (Note 13)
|
|
$
|
1,103,259
|
|
|
$
|
-
|
|
NOTE 7 – COMMISSIONS PAYABLE TO
SALES PROFESSIONALS
Commissions payable to sales professionals
consisted of the following as of March 31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Taiwan
|
|
$
|
3,532,621
|
|
|
$
|
6,206,269
|
|
PRC
|
|
|
698,543
|
|
|
|
208,802
|
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
Total commissions payable to sales professionals
|
|
$
|
4,231,164
|
|
|
$
|
6,415,071
|
|
Commissions payable to sales professionals,
salary payable to administrative staff and accrued bonus are usually settled within 12 months. As of March 31, 2018 and December
31, 2017, the company had the commissions payable obligation to sale professionals amounted $4,231,164 and $6,415,071, respectively.
NOTE 8 – OTHER CURRENT LIABILITIES
Other current liabilities consisted of
the following as of March 31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Unearned revenue - current (Note 10)
|
|
|
1,264,038
|
|
|
|
1,237,684
|
|
Salary payable to administrative staff
|
|
|
1,167,879
|
|
|
|
1,194,725
|
|
Accrued bonus
|
|
|
1,161,775
|
|
|
|
1,730,278
|
|
Due to previous shareholders of AHFL
|
|
|
480,559
|
|
|
|
-
|
|
Accrued business tax
|
|
|
413,982
|
|
|
|
487,586
|
|
Withholding tax
|
|
|
230,951
|
|
|
|
347,824
|
|
Accrued labor, health insurance and employee retirement plan
|
|
|
120,819
|
|
|
|
114,556
|
|
Other accrued liabilities
|
|
|
1,343,193
|
|
|
|
1,051,112
|
|
Total other current liabilities
|
|
$
|
6,183,196
|
|
|
$
|
6,163,765
|
|
Due to previous shareholders of AHFL is
the remaining balance payable of the acquisition cost. The Company and the selling shareholders of AHFL entered into a third Amendment
to the Acquisition Agreement, pursuant to which, the Company committed to distribute the cash payment in the amount approximately
$676,466 (NTD 22.5 million) to the selling shareholders of AHFL on or prior to June 30, 2016. On July 21, 2016, the Company arranged
for the payment of $153,097 (NTD4,830,514) to the selling shareholders. On March 12, 2017, the Company and the selling shareholders
of AHFL entered into a fifth amendment to the acquisition agreement, pursuant to which, the Company agreed to make the cash payment
in the amount of $480,559 (NTD15 million) on or prior to March 31, 2019. As such, the amount was reclassified to other current
liabilities as of March 31, 2018.
NOTE 9 – LONG-TERM LOANS
The Company’s long-term loans consisted
of the following as of March 31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Loan A, interest at 8% per annum, maturity date May 15, 2019
|
|
$
|
135,347
|
|
|
$
|
130,641
|
|
Loan B, interest at 8% per annum, maturity date July 20, 2019
|
|
|
122,609
|
|
|
|
118,345
|
|
Total long-term loans
|
|
$
|
257,956
|
|
|
$
|
248,986
|
|
Law Anhou Insurance Agency Co., Limited
(“Anhou”) in Nanjing City, PRC is a variable interest entity (VIE) of which the Company is the primary beneficiary.
The Company contractually control Anhou through CU Hong Kong.
On May 15, 2016, Anhou entered into a loan
agreement (“Loan A”) with an individual third party. The long-term Loan Agreement provided for approximately $135,347
(RMB 850,000) and $130,641 (RMB 850,000), as of March 31, 2018 and December 31, 2017, respectively, loan to the Company. The long-term
Loan A bears an interest rate of 8% per annum and interest is payable annually. The principal and the accrued interest will be
due on May 15, 2019.
On July 20, 2016, Anhou entered into a
loan agreement (“Loan B”) with an individual third party. The long-term Loan Agreement provided for approximately $122,609
(RMB 770,000) and $118,345 (RMB 770,000), as of March 31, 2018 and December 31, 2017, respectively, loan to the Company. The long-term
Loan B bears an interest rate of 8% per annum and interest is payable annually. The principal and the accrued interest will be
due on July 20, 2019.
Total interest expenses for the long-term
loans were $3,838 and $5,069, respectively, for the three months ended March 31, 2018 and 2017.
NOTE 10 – LONG-TERM LIABILITIES
The Company’s long-term liabilities
consisted of the following as of March 31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Unearned revenue – AIATW
|
|
$
|
2,977,934
|
|
|
$
|
4,239,130
|
|
Due to previous shareholders of AHFL (Note 8)
|
|
|
-
|
|
|
|
480,559
|
|
Deferred tax liabilities
|
|
|
126,965
|
|
|
|
122,551
|
|
Total long-term liabilities
|
|
$
|
3,104,899
|
|
|
$
|
4,842,240
|
|
Unearned revenue – AIATW
On June 10, 2013, AHFL entered into a Strategic
Alliance Agreement (the “Alliance Agreement”) with AIA International Limited Taiwan Branch (“AIATW”), the
purpose to which is to promote life insurance products provided by AIATW within Taiwan by insurance agencies or brokerage companies
affiliated with AHFL or CUIS. The original term of the Alliance Agreement was from June 1, 2013 to May 31, 2018. Pursuant to the
terms of the Alliance Agreement, AIATW paid AHFL an execution fee approximately $8,326,700 (NTD250,000,000, including the tax of
NTD11,904,762, the “Execution Fee”), which is to be recorded as revenue upon fulfilling sales targets and the 13-month
persistency ratio, as defined, over the next five years. The Execution Fee may be required to be recalculated if certain performance
targets are not met by AHFL.
On September 30, 2014, AHFL entered into
a Strategic Alliance Supplemental Agreement (the “Supplemental Agreement”) with AIATW. In the Supplemental Agreement,
the performance targets and the provision about refunding the Execution Fee on a pro rata basis when the performance targets are
not met were revised.
On January 6, 2016, AHFL entered into an
Amendment 2 to Strategic Alliance Agreement (the “Amendment No. 2”) with AIATW to further revise certain provisions
in the Strategic Alliance Agreement and the previous amendment entered into by and between AHFL and AIATW. 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 was extended from May 31, 2018 to December 31, 2021, and the effect of the Strategic Alliance Agreement during the period
from October 1, 2014 to December 31, 2015 was suspended. In addition, both AHFL and AIATW agreed to adjust certain terms and conditions
set forth in the Strategic Alliance Agreement, among which: (i) expand the scope of services to be provided by AHFL to AIATW to
include, without limitation, assessment and advice on suitability of cooperative partners, advice on product strategies suitable
for promotion channel development, advice on promotion/sales channel improvement, advice on promotion channel marketing and strategic
planning, and promotion channel talent training; and (ii) remove certain provisions related to performance milestones and refund
of Execution Fees. On March 15, 2016, AHFL issued a promise letter (the “2016 Letter”) to AIATW that AHFL is required
to (i) fulfill sales targets and (ii) the 13-month persistency ratio.
On June 14, 2017, with AIATW’s consent,
the 2016 Letter was revoked in order to conform with the latest terms and conditions regarding the cooperation between AHFL and
AIATW as set forth in a third amendment (Amendment No. 3). Pursuant to the Amendment No. 3, both AHFL and AIATW agreed to adjust
certain terms and conditions set forth this amendment, among which (i) except the first contract year (April 15th, 2013 to September
30th, 2014), the sales target of the alliance between the parties shall be changed to (a) value of new business (“VONB”)
and (b) the 13-month persistency ratio; and (ii) AIATW will calculate and recognize the VONB and 13-month persistency ratio each
contract year and inform the Company the result; and (iii) the Company agrees to return the basic business promotion fees to AIATW
within thirty (30) days of receipt of the notice sent by AIATW if the Company fails to meet the targets set forth in Amendment
No. 3, AIATW reserves the right to offset such amount against the amount payable by it to the Company; and (iv) upon the termination
of the Alliance Agreement and its amendments pursuant to the Section 8.2 of the Alliance Agreement, both parties agreed to calculate
the amount to be returned or repaid, as applicable, based on the past and current contract years. The Company shall return the
basic business promotion fees at NTD 33,000,000 for each contract years within one month after the termination.
The following table presents the amounts
recognized as revenue and refund for each contract year:
Contract
Year
|
|
Period
|
|
Execution Fees
|
|
|
Revenue
Amount
|
|
|
Revenue VAT
Amount
|
|
|
Refund
Amount
|
|
|
Refund VAT
Amount
|
|
First
|
|
4/15/2013 ~ 9/30/2014
|
|
NTD
|
50,000,000
|
|
|
NTD
|
27,137,958
|
(1)
|
|
NTD
|
1,356,898
|
|
|
NTD
|
20,481,090
|
(1)
|
|
NTD
|
1,024,054
|
|
Second
|
|
1/1/2016 ~ 12/31/2016
|
|
NTD
|
35,000,000
|
|
|
NTD
|
12,855,000
|
(2)
|
|
NTD
|
642,750
|
|
|
NTD
|
20,478,333
|
(2)
|
|
NTD
|
1,023,917
|
|
Third
|
|
1/1/2017 ~ 12/31/2017
|
|
NTD
|
33,000,000
|
|
|
NTD
|
12,628,201
|
(3)
|
|
NTD
|
631,410
|
|
|
NTD
|
18,800,370
|
(3)
|
|
NTD
|
940,019
|
|
Fourth
|
|
1/1/2018 ~ 12/31/2018
|
|
NTD
|
33,000,000
|
|
|
NTD
|
9,838,513
|
(4)
|
|
NTD
|
491,926
|
|
|
NTD
|
21,590,059
|
(4)
|
|
NTD
|
1,079,502
|
|
Fifth
|
|
1/1/2019 ~ 12/31/2019
|
|
NTD
|
33,000,000
|
|
|
|
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
Sixth
|
|
1/1/2020 ~ 12/31/2020
|
|
NTD
|
33,000,000
|
|
|
|
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
Seventh
|
|
1/1/2021 ~ 12/31/2021
|
|
NTD
|
33,000,000
|
|
|
|
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
|
NTD
|
-
|
|
TOTAL
|
|
|
|
NTD
|
250,000,000
|
|
|
NTD
|
62,459,672
|
|
|
NTD
|
3,122,984
|
|
|
NTD
|
81,349,852
|
|
|
NTD
|
4,067,492
|
|
|
(1)
|
The revenue recognition for
the first contract year is based on the annual first year premium (“AFYP”) set in Alliance Agreement, which is different
from other contract years. From the second contract year to the seventh contract year, the revenue calculation is based on VONB.
The Company recognized the first contract year’s revenue amount of $892,742 (NTD27,137,958), net of Value-Added Tax (“VAT”)
in 2017 due to uncertainty resolved after Amendment 3 went effective. Besides, on December 3, 2015 and February 23, 2016, the
Company refunded the amounts of $160,573 (NTD4,761,905), net of VAT, and $530,056 (NTD15,719,185), net of VAT, to AIATW, respectively,
due to the portion of performance sales targets not met during the first contract year based on original agreement and earlier
amendments.
|
|
(2)
|
For the year ended December
31, 2017, the Company recognized the second contract year’s revenue amount of $422,883 (NTD12,855,000), net of VAT, and
refunded the amount of $690,537 (NTD20,478,333), net of VAT, due to uncertainty resolved after Amendment 3 went effective.
|
|
(3)
|
For the year ended December
31, 2017, the Company recognized the third contract year’s revenue amount of $415,423 (NTD12,628,201), net of VAT, and estimated
refund amount of $633,955 (NTD18,800,370), net of VAT, for the same contract period based on the calculation of VONB and 13-month
persistency. The revenue recorded and refund amounts were trued up to $412,230 (NTD12,068,571) and $661,286 (NTD19,360,000), respectively,
in the three months ended March 31, 2018 based on notice received from AIATW.
|
|
(4)
|
The Company estimates VONB
and 13-month persistency ratio for the year ending December 31, 2018 and calculated the revenue amount to be $336,058 (NTD9,838,513)
for the year. The amounts will be reassessed every quarter until receiving AIATW’s notice.
|
The Company recognized revenue of $69,678
(NTD2,039,907), net of VAT, and nil for the three months ended March 31, 2018 and 2017 related to this agreement. As of March 31,
2018 and December 31, 2017, the Company had non-current portion of unearned revenue of $2,977,934 and $4,239,130, respectively,
and amounts in other current liabilities of $1,264,038 and $633,955, respectively, related to the Alliance Agreement.
Unearned revenue – Farglory
On April 20, 2016, the Company entered
into a service agreement (“Service Agreement”) with Farglory. The Company was to provide consulting services to Farglory
for NTD4,000,000 per year and the aggregate consulting services fee was NTD20,000,000 from May 1, 2016 to April 30, 2021. On January
2, 2018, both parties reached the final agreement and the Company received termination notice from Farglory. Pursuant to the termination
notice, the Company should refund approximately $603,729 (NTD17,904,000) to Farglory which was paid off in January 2018.
NOTE 11 – REVENUE
The Company’s revenue is
derived from insurance agency and brokerage services. The Company, through its subsidiaries, 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
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.
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 amount of revenue to be recognized when the insurance policy is effective includes
first year commission and other contingent commission that a significant reversal of revenue would not occur in the subsequent
periods. When other contingent commission that could not be determined if a significant reversal of revenue would occur, the Company
recognizes the commission after receiving insurance companies’ notice. The revenue by segment is disaggregated as below:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Geographical Areas
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
14,740,772
|
|
|
$
|
12,421,081
|
|
PRC
|
|
|
2,708,621
|
|
|
|
2,891,932
|
|
Hong Kong
|
|
|
39,987
|
|
|
|
42,515
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total revenue
|
|
$
|
17,489,380
|
|
|
$
|
15,355,528
|
|
The prior year information in the above
table has not been adjusted under the modified retrospective method of adoption of the new revenue recognition guidance.
Contract Assets and Unearned Revenue
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Contract assets – current
|
|
$
|
381,953
|
|
|
$
|
-
|
|
Unearned revenue – current (Note 8)
|
|
|
1,264,038
|
|
|
|
1,237,684
|
|
Unearned revenue – noncurrent (Note 10)
|
|
|
2,977,934
|
|
|
|
4,239,130
|
|
Contract assets are the Company’s
conditional rights to consideration for completed performance obligation. 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.
Unearned revenue relates to advances received
prior to performance under the contract. The related contracts are the Alliance Agreement with AIATW and the Service Agreement
with Farglory which are disclosed in Note 10 to the consolidated financial statements.
NOTE 12 – NON-CONTROLLING INTERESTS
Non-controlling interests consisted of
the following as of March 31, 2018 and December 31, 2017:
Name of Controlled Entity
|
|
% of Non-
controlling
Interests
|
|
|
As of
December 31,
2017
|
|
|
Net Income (Loss) of
Non-Controlling
Interests
|
|
|
Other
Comprehensive
Income (Loss) of
Non-Controlling
Interests
|
|
|
As of
March 31,
2018
|
|
Law Enterprise
|
|
|
34.05
|
%
|
|
$
|
(243,240
|
)
|
|
$
|
(56,749
|
)
|
|
$
|
13,134
|
|
|
$
|
(286,855
|
)
|
Law Broker
|
|
|
34.05
|
%
|
|
|
13,900,341
|
|
|
|
1,041,347
|
|
|
|
294,663
|
|
|
|
15,236,351
|
|
PFAL
|
|
|
49.00
|
%
|
|
|
228,079
|
|
|
|
(5,414
|
)
|
|
|
(496
|
)
|
|
|
222,169
|
|
MKI
|
|
|
49.00
|
%
|
|
|
(2,117
|
)
|
|
|
(515
|
)
|
|
|
-
|
|
|
|
(2,632
|
)
|
PA Taiwan
|
|
|
49.00
|
%
|
|
|
(145,442
|
)
|
|
|
(9,776
|
)
|
|
|
424
|
|
|
|
(154,794
|
)
|
PTC Nanjing
|
|
|
49.00
|
%
|
|
|
(1,965
|
)
|
|
|
(25
|
)
|
|
|
282
|
|
|
|
(1,708
|
)
|
Total
|
|
|
|
|
|
$
|
13,735,656
|
|
|
$
|
968,868
|
|
|
$
|
308,007
|
|
|
$
|
15,012,531
|
|
Name of Controlled Entity
|
|
% of Non-
controlling
Interests
|
|
|
As of
December 31,
2016
|
|
|
Net Income (Loss) of
Non-Controlling
Interests
|
|
|
Other
Comprehensive
Income (Loss) of
Non-Controlling
Interests
|
|
|
As of
December 31,
2017
|
|
Law Enterprise
|
|
|
34.05
|
%
|
|
$
|
17,386
|
|
|
$
|
(307,217
|
)
|
|
$
|
46,591
|
|
|
$
|
(243,240
|
)
|
Law Broker
|
|
|
34.05
|
%
|
|
|
9,621,159
|
|
|
|
3,387,038
|
|
|
|
892,144
|
|
|
|
13,900,341
|
|
PFAL
|
|
|
49.00
|
%
|
|
|
232,414
|
|
|
|
(3,817
|
)
|
|
|
(518
|
)
|
|
|
228,079
|
|
MKI
|
|
|
49.00
|
%
|
|
|
(1,569
|
)
|
|
|
(548
|
)
|
|
|
-
|
|
|
|
(2,117
|
)
|
PA Taiwan
|
|
|
49.00
|
%
|
|
|
(95,448
|
)
|
|
|
(52,169
|
)
|
|
|
2,175
|
|
|
|
(145,442
|
)
|
PTC Nanjing
|
|
|
49.00
|
%
|
|
|
(2,400
|
)
|
|
|
(60
|
)
|
|
|
495
|
|
|
|
(1,965
|
)
|
Total
|
|
|
|
|
|
$
|
9,771,542
|
|
|
$
|
3,023,227
|
|
|
$
|
940,887
|
|
|
$
|
13,735,656
|
|
NOTE 13 – INCOME TAX
The following table reconciles the Company’s
statutory tax rates to effective tax rates for the three months ended March 31, 2018 and 2017:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
US statutory rate
|
|
|
21
|
%
|
|
|
34
|
%
|
Tax rate difference
|
|
|
(1
|
)%
|
|
|
(18
|
)%
|
Tax base difference
|
|
|
1
|
%
|
|
|
1
|
%
|
Income tax on undistributed earnings
|
|
|
4
|
%
|
|
|
8
|
%
|
Loss in subsidiaries
|
|
|
1
|
%
|
|
|
2
|
%
|
Un-deductible and non-taxable items
|
|
|
-
|
%
|
|
|
-
|
%
|
U.S. one-tine transition tax
|
|
|
35
|
%
|
|
|
-
|
%
|
Others
|
|
|
1
|
%
|
|
|
-
|
%
|
Effective tax rate
|
|
|
62
|
%
|
|
|
27
|
%
|
The Company’s income tax expense
is mainly contributed by its subsidiaries in Taiwan and PRC.
The Company’s subsidiaries in Taiwan
are governed by the Income Tax Law of Taiwan which was amended in February 2018. The major change is to increase the statutory
tax rate on income reported in the statutory financial statements after appropriate adjustments from 17% to 20% starting from the
beginning of 2018. In the meanwhile, Income Tax Law of Taiwan provides that a company is taxed at additional 10% on any undistributed
earnings which was reduced to 5% by the amended Income Tax Law of Taiwan. The Company has recorded the income tax expense of remeasuring
the Company’s deferred tax assets and liabilities as a result of increase in tax rate as shown in the others of effective
tax rate reconciliation table above in the three months ended March 31, 2018.
CU WFOE and the VIE in the PRC are governed
by the Income Tax Law of the PRC concerning the private-run enterprises, which are generally subject to tax at 25% on income reported
in the statutory financial statements after appropriated adjustments, except for Jiangsu. For Jiangsu, according to the requirement
of local tax authorities, the tax basis is deemed as 10% of total revenue, instead of net income.
As of December 31, 2017, Anhou and its
branches elected to file joint tax returns under PRC tax jurisdiction. Due to the adoption of this filing method, operating loss
in the branches from the year 2016 and prior years can no longer deduct earnings beginning in the year 2017. However, any loss
incurred in any of the branches in the joint tax return will be consolidated and any further loss in the joint tax return can be
carried over to the five years from the year 2017.
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 profit tax at the rate of
16.5% on the estimated assessable profits.
The 2017 Tax Cuts and Jobs Act (the “2017
Tax Act”) was enacted into law on December 22, 2017. The 2017 Tax Act significantly revised the U.S. corporate income tax
by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory
one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are
subject to U.S. tax. The Company has determined the implication of the tax rate reduction which does not have any impact on the
consolidated financial statements. One-time transition tax is based on the Company’s total post-1986 earnings and profits
(“E&P”) that it previously deferred from U.S. income taxes. The Company completed its calculation and recorded
$1,199,195 of the transition tax on undistributed earnings of non-U.S. subsidiaries during the three months ended March 31, 2018.
The Company recorded $95,936 and $1,103,259 of income tax payable as current liabilities and long-term liabilities based on the
statutory due date as of March 31, 2018.
In addition, the 2017 Tax Act also creates
a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (“CFCs”) must be included
currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s net CFC tested
income over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate
of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it
is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested
income. The FASB Staff Q&A, Topic 740 No. 5,
Accounting for Global Intangible Low-Taxed Income
, states that an entity
can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI
in future years or provide for the tax expense related to GILTI in the year that tax is incurred. The Company has elected to recognize
the tax on GILTI as a period expense in the period the tax is incurred. For the three months ended March 31, 2018, no GILTI tax
obligation existed and the GILTI tax expense was nil.
NOTE 14 – RELATED PARTY TRANSACTIONS
Due to related parties
The following summarized the Company’s
payable to related parties as of March 31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Due to Mr. Mao (Principal shareholder of the Company)*
|
|
$
|
420,682
|
|
|
$
|
409,054
|
|
Due to Ms. Lu (Shareholder of Anhou)*
|
|
|
167,193
|
|
|
|
161,380
|
|
Due to I Health Management Corp**
|
|
|
-
|
|
|
|
17,703
|
|
Accrued bonus for Ms. Chao***
|
|
|
247,648
|
|
|
|
210,752
|
|
Others
|
|
|
2,796
|
|
|
|
2,128
|
|
Total
|
|
$
|
838,319
|
|
|
$
|
801,017
|
|
* Amounts due to Mr. Mao and Ms.
Lu are loan payable on demand and bear no interest.
**25% of I Health Management Corp’s
shares are owned by Multiple Capital Enterprise, and 24% of Multiple Capital Enterprise’s shares are owned by members of
the Company’s management level.
***On May 10, 2016, Law Broker entered
into an engagement agreement (“Engagement Agreement”) with Hui-Hsien Chao (“Ms. Chao”), pursuant to which,
she acts as the general manager of Law Broker for and a term from December 29, 2015 to December 28, 2018. Ms. Chao’s primary
responsibilities are to assist Law Broker in operating and managing insurance agency business. According to the Engagement Agreement,
Ms. Chao’s Bonus plans include: 1) execution, 2) long-term service fees, 3) pension and 4) non-competition. The payment of
such bonuses will only occur upon satisfaction of certain condition and subject to the terms in the Engagement Agreement. Ms. Chao
acts as the general manager or equivalent position of Law Broker for a term of at least three years. On March 13, 2017, Law Broker
and Ms. Chao entered into an amendment to the Engagement above-mentioned Agreement to specify 1) Ms. Chao’s pension calculation
assumption and start date, and 2) the non-competition provision start date. As of March 31, 2018 and December 31, 2017, the Company
had current liabilities amounted $247,648 and $210,752, respectively, related to accrued bonus for Ms. Chao.
Lease Agreements
On February 1, 2018, Prime Asia Corporation,
Limited, the Company’s majority owned subsidiary entered into a lease agreement with Apex Biz Solution Limited (“Apex,”
was formerly known as Prime Technology Corp.) Apex is a related party of the Company because it is affiliated to the Company’s
management. The lease is to lease the office space in Taipei City to Apex. The lease term is for 10 months commencing on February
1, 2018, with a monthly base rent of approximately $683 (NTD20,000). The Company recorded rent income of $1,366 for the three months
ended March 31, 2018.
On July 1, 2016, the Company entered into
lease agreements with Yuli Broker and Yuli Investment separately, to lease their Nan-King East Road office space in Taipei City.
The lease terms were both 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, these lease agreements were extended automatically to June 30, 2018. The Company recorded
rent income of $292 and $276, respectively, for the three months ended March 31, 2018 and 2017.
Yuli Broker and Yuli Investment are owned
by Ms. Lee who is the Director of Law Broker. The Company plans to invest in Yuli Broker and the application of the investment
was approved by Investment Commission of the Ministry of Economic Affairs in Taiwan in January 2018. As of March 31, 2018, the
Company has not commenced the investment.
Advisory Agreements
On May 2, 2016, the Company entered into
an advisory agreement with I Health who is contracted to provide 10,000 Taiwan citizen’s health information to the Company.
The total advisory fee was approximately $42,000 (NTD1,275,000). For the three months ended March 31, 2017, the Company had cost
of revenue related to I Health amounted $9,777. The Company had due to I Health $17,703 as of December 31, 2017.
On December 7, 2016, the Company entered
into an advisory agreement with Mr. Fu Chang 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. On December 7, 2017, both parties agreed to extend
this advisory agreement from December 7, 2017 to December 6, 2018. The total advisory fee was approximately $59,000 (NTD1,800,000).
For the three months ended March 31, 2018 and 2017, the Company recognized nil general and administrative expense related to this
advisory agreement.
Consulting Agreement
On November 1, 2016, the Company entered
into a consulting agreement with Apex. According to the Agreement, the Company would provide administrative operational consulting
services to Apex from November 1, 2016 through December 31, 2021. As of March 31, 2018 and December 31, 2017, the Company had accounts
receivable amounted $17,745 and $17,231, respectively. The Company also had revenue amounted $16,753 and $10,582 for the three
months ended March 31, 2018 and 2017, respectively.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has operating leases for its
offices. Rental expenses for the three months ended March 31, 2018 and 2017 were $663,415 and $571,023, respectively. At March
31, 2018, total future minimum annual lease payments under operating leases were as follows, by 12-month trailing period:
Twelve months ending March 31, 2019
|
|
$
|
2,250,405
|
|
Twelve months ending March 31, 2020
|
|
|
897,366
|
|
Twelve months ending March 31, 2021
|
|
|
178,703
|
|
Twelve months ending March 31, 2022
|
|
|
43,468
|
|
Twelve months ending March 31, 2023
|
|
|
10,062
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
3,380,004
|
|
Legal Proceedings
On December 20, 2018, the Company and one of the Company’s
former employees, agreed to settle fraud charges brought by the SEC relating to a scheme to manipulate the Company's trading volume
for the purpose of obtaining a listing on Nasdaq. Neither the Company nor the former employee realized financial gain from the
scheme. Both the Company and the former employee agreed to the entry of a final judgment that enjoins them from violating the charged
provisions of the federal securities laws, orders the Company to comply with its undertaking to retain an independent compliance
monitor for a period of not less than one year. The SEC did not seek a monetary penalty against the Company and there is no financial
impact to the Company. For further information, please see the Company’s current report, as amended, filed on Form 8-K/A
on January 22, 2019 (the “Amended Current Report”). The Amended Current Report and exhibits thereto are incorporated
by reference into this Quarterly Report.
NOTE 16 – SEGMENT REPORTING
The Company managed and reviewed its business
as three operating segments. The business of CU WFOE, CU Hong Kong and the Company’s Consolidated Affiliated Entities (“CAE”)
in PRC was managed and reviewed as the PRC segment. The business of AHFL and its subsidiaries in Taiwan was managed and reviewed
as Taiwan segment. The business of PFAL was managed and reviewed as Hong Kong segment. The PRC and Taiwan segments are substantially
all of the reported consolidated amounts.
The geographical distributions of the Company’s
financial information for the three months ended March 31, 2018 and 2017 were as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Geographical Areas
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
14,740,772
|
|
|
$
|
12,421,081
|
|
PRC
|
|
|
2,708,621
|
|
|
|
2,891,932
|
|
Hong Kong
|
|
|
39,987
|
|
|
|
42,515
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total revenue
|
|
$
|
17,489,380
|
|
|
$
|
15,355,528
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
3,179,722
|
|
|
$
|
2,556,181
|
|
PRC
|
|
|
73,190
|
|
|
|
249,588
|
|
Hong Kong
|
|
|
(10,084
|
)
|
|
|
(5,925
|
)
|
Elimination adjustment
|
|
|
35,230
|
|
|
|
33,220
|
|
Total income from operations
|
|
$
|
3,278,058
|
|
|
$
|
2,833,064
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
1,255,468
|
|
|
$
|
1,856,865
|
|
PRC
|
|
|
68,468
|
|
|
|
182,958
|
|
Hong Kong
|
|
|
(11,049
|
)
|
|
|
(20,585
|
)
|
Elimination adjustment
|
|
|
1,635
|
|
|
|
1,561
|
|
Total net income
|
|
$
|
1,314,522
|
|
|
$
|
2,020,799
|
|
The geographical distribution of the Company’s financial
information as of March 31, 2018 and December 31, 2017 were as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Geographical Areas
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
984,624
|
|
|
$
|
836,347
|
|
PRC
|
|
|
119,688
|
|
|
|
109,597
|
|
Hong Kong
|
|
|
1,197
|
|
|
|
358
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total long-lived assets
|
|
$
|
1,105,509
|
|
|
$
|
946,302
|
|
|
|
|
|
|
|
|
|
|
Reportable assets
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
96,744,042
|
|
|
$
|
96,399,321
|
|
PRC
|
|
|
12,849,011
|
|
|
|
11,140,124
|
|
Hong Kong
|
|
|
490,095
|
|
|
|
643,881
|
|
Elimination adjustment
|
|
|
(50,289,961
|
)
|
|
|
(48,910,083
|
)
|
Total reportable assets
|
|
$
|
59,793,187
|
|
|
$
|
59,273,243
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
(198,306
|
)
|
|
$
|
348,028
|
|
PRC
|
|
|
(17,669
|
)
|
|
|
34,445
|
|
Hong Kong
|
|
|
(998
|
)
|
|
|
-
|
|
Elimination adjustment
|
|
|
-
|
|
|
|
-
|
|
Total capital investment
|
|
$
|
(216,973
|
)
|
|
$
|
382,473
|
|
NOTE 17 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events
through the date these consolidated financial statements were issued and determine that there were no subsequent events or transactions
that require recognition or disclosures in the consolidated financial statements except for the followings:
In May and June of 2018, the Company entered
into agreements with CTBC to purchase dual currency investment structured products which are embedded a foreign exchange option
linked to USDCNH. The settlement amount on the maturity date is referring to the USDCNH on a valuation date which is compared with
a pre-determined USDCNH (i.e., strike price). The Company might receive the original investment amount in original currency back
or might receive investment amount exchanged into another currency at the strike price back depending on the appreciation or depreciation
between US dollar and offshore China Yuan. The Company bears the risk of exchange losses of the investment amount. In addition,
the Company will receive interest income at the maturities and the coupon rate ranges from 4.03% to 4.62% per annum.
In June 2018, the shareholders of Law Enterprise
Co., Limited (Law Enterprise), the Company’s majority owned subsidiary and is incorporated in Taiwan approved to distribute
accumulated earnings to shareholders including Action Holdings Financial Limited (AHFL), the Company’s wholly owned subsidiary.
Under the Income Tax Law of Taiwan, the distributed earning is not subject to the undistributed earning tax and the foreign shareholders
of a Taiwan company will bear 21% of withholding tax after deducting certain tax credits as allowed by the Income Tax Law of Taiwan
for the dividend received. As a result of the earning distribution of Law Enterprise, Law Enterprise reversed $921,196 of the undistributed
earning tax liability accrued in prior years and AHFL accrued $880,726 of the withholding tax liability that cannot be deducted
in its tax jurisdiction.
On June 22, 2018, the bondholder of the
convertible bonds did not exercise the conversion option and the convertible bonds of $200,000 were paid off.
In July of 2018 the Company acquired Joint
Broker Co., Limited (“JIB”), previously known as Kao Te Insurance Broker (KT Broker), through Genius Investment Co.,
Limited (“GIC”). On July 1, 2018, GIC entered into an acquisition agreement (“KT Broker Acquisition Agreement”)
with the selling shareholder of KT Broker, Ms. Ma Xiu Lan. Pursuant to the KT Broker Acquisition Agreement, GIC agreed to pay $29,545
(NTD 900,000) in exchange for the insurance brokerage licenses issued to KT Broker by the Taiwanese government, along with right
to the KT Broker company name and $13,131 (NTD 400,000) of legal deposits. The Company has no intention of operating the KT Broker
existing brokerage business nor retain any of its sales personnel, therefore the Company recognized only the acquisition of assets
as part of this transaction. Under Taiwanese law, the brokerage license is undetachable from the KT Broker legal entity and the
entity itself cannot be dissolved, so the Company renamed KT Broker to Joint Insurance Broker Co., Limited (“JIB”)
to serve as a holding entity for the brokerage licenses.
On September 4, 2018, the Company renewed the revolving line
of credit agreement with O-Bank (O-Bank Co., Ltd.) and the revolving credit limit raised from $1,500,000 to $4,000,000. Borrowings
under the agreement bear interest according to two business day before borrowing, with TAIFX3’s daily interest rate plus
0.5%.
On September 12, 2018, the Company renewed the revolving line
of credit agreement with CTBC (CTBC Bank Co., Ltd.) and the revolving credit limit raised from $1,000,000 to $1,500,000. Borrowings
under the agreement bear interest negotiated case-by-case.
On September 19, 2018, the Company entered into a line of credit
agreement with KGI (KGI Commercial Bank Co., Ltd.) for a revolving credit facility of $1,600,000. Borrowing under the agreement
bear interest according to one business day before borrowing, with Reuters provide LIBOR’s three months Fixing Rate, every
three months is interest rate period plus 0.9% annual interest rate, plus tax and renew when it’s due. KGI has the right
to negotiate case-by-case basis based on Bank’s funding status.
On October 26, 2018, the Company renewed the revolving line
of credit agreement with FEIB (Far Eastern International Bank Co., Ltd.) and the revolving credit limit raised from $2,000,000
to $2,500,000. Borrowing under the agreement bear interest with respect to US Dollars, interest rate shall be at the higher of
LIBOR or TAIFX3 for a period equal to the term of the utilization or the next longer tenor for which rates are quoted, plus 0.85%,
with margin to be adjusted every three months and may be negotiated on a case-by-case basis based on the Bank’s funding status.