Anhou’s current registered address located at Room 1906-1910, No. 215 Jiangzhong Middle Road, Jianye District, Nanjing, Jiangsu Province, China, with 6,458 square feet (600 square meters) of office space. The lease agreement is between Qing Tian and Anhou. The term is from February 1, 2014 to January 31, 2019 with rent of first year being $120,578 (RMB750,000), second year being $125,592 (RMB795,000), third year being $135,482 (RMB842,700), the fourth year being $143,611 (RMB893,262), and the fifth year being $152,227 (RMB946,857).
Sichuan Kangzhuang’s office is located at A and B areas, 14th Floor Renbao Building, No.57 Dongyu Street, Jinjiang District, Chengdu City, Sichuan province, China, with 8,353 square feet (776 square meters) of office space. The lease was between People's Insurance Company of China, Sichuan Branch and Sichuan Kangzhuang. The lease term is from September 1, 2006 to August 31, 2011 for four years, with rent of approximately $4,862 (RMB31,040) per month, to be increased by 8% per annum commencing from September 1, 2008, payable every three months. Upon the expiration of the above lease, Sichuan Kangzhuang entered into a new lease with People's Insurance Company of China, Sichuan Branch, which is located at B area, 14th Floor Renbao Building, No.57 Dongyu Street, Chengdu City, Sichuan province, China, with 6,672 square feet (612 square meters) of office space. The lease term is from September 1, 2011 to August 31, 2014 for three years, with rent of $5,313 (RMB33,652 ) per month in the first year commencing from September 1, 2011, $5,844 (RMB37,017) per month in the second year commencing from September 1, 2012, $6,429 (RMB40,719) per month in the third year commencing from September 1, 2013, payable every three months. On August 8, 2014, the lease was renewed and the term was extended to August 31, 2017 for three (3) years, with rent of $6,643 (RMB41,606) per month payable every three months.
The following selected consolidated statement of operations data for the year ended December 31, 2014, the six months ended December 31, 2013, and the years ended June 30, 2013 and 2012 and the selected consolidated balance sheet data as of December 31, 2014 and 2013 are derived from our audited consolidated financial statements included elsewhere in this Form 10-K. The consolidated statement of operations data for the year ended June 30, 2011 is derived from our audited consolidated financial statements not included in this Form 10-K.
Jiangsu Law Insurance Broker Co., Ltd. (“Jiangsu Law”) was founded on September 19, 2005 in Jiangsu Province in the PRC and provides insurance brokerage services in the PRC. On August 12, 2010, at Jiangsu Law’s general meeting of shareholders, its shareholders voted to sell their shares to Anhou for RMB518,000 ($75,475) and Anhou increased Jiangsu Law’s paid-in capital to RMB10,000,000 ($1,355,000) from RMB5,180,000 ($625,113) on January 18, 2011 to meet the PRC paid-in capital requirements for insurance brokerage companies. On September 28, 2010, the equity transfer agreements were signed between Anhou and each shareholder of Jiangsu Law. On acquisition date, Jiangsu Law had net assets of RMB2,286,842 ($341,425). Based on the purchase price allocation, the fair value (“FV”) of the identifiable assets and liabilities assumed exceeded the FV of the consideration paid. As a result, the Company recorded a gain on acquisition of RMB1,768,842 ($267,156).
Due to PRC legal restrictions on foreign ownership and investment in insurance agency and brokerage businesses in China, especially those on qualifications and capital requirements of the investors, we operate our business primarily through our Consolidated Affiliated Entities (“CAE”) in China. On January 17, 2010, CU WFOE and Anhou and Anhou Original Shareholders entered into a series of agreements known as variable interest agreements (the “Old VIE Agreements”) pursuant to which CU WFOE has executed effective control over Anhou through these contractual arrangements. As a result of the capital increase and the share transfer described above, on October 24, 2013, CU WFOE, Anhou and Anhou Existing Shareholders entered into a series of variable interest agreements (the “VIE Agreements”), including Power of Attorneys, Exclusive Option Agreements, Share Pledge Agreements, in the same form as the previous Old VIE Agreements, other than the change of shareholder names and their respective shareholdings. The Old VIE Agreements were terminated by and among CU WFOE, Anhou and Anhou Original Shareholders on the same date. The Exclusive Business Cooperation Agreement executed by and between CU WFOE and Anhou on January 17, 2011 remains in full effect. We do not hold equity interests in our CAE. However, through the VIE Agreements with these CAE and their respective shareholders, we effectively control, and are able to derive substantially all of the economic benefits from, these CAE.
AHFL holds 65.95% of the issued and outstanding shares of Law Enterprise Co., Ltd. (“Law Enterprise”), a company limited by shares incorporated under the laws of Taiwan on January 30, 1996. Law Enterprise holds (i) 100% Law Insurance Broker Co., Ltd. (“Law Broker”), a company limited by shares incorporated in Taiwan on October 9, 1992; (ii) 97.84% of Law Risk Management & Consultant Co., Ltd. (“Law Management”), a company limited by shares incorporated in Taiwan on December 5, 1987; and (iii) 96% of Law Insurance Agent Co., Ltd. (“Law Agent” collectively with “Law Enterprise”, “Law Broker” and “Law Agent”, the “Taiwan Subsidiaries”, each a “Taiwan Subsidiary”), a LLC incorporated in Taiwan on June 3, 2000.
Pursuant to the provisions of the Acquisition Agreement between the Company and the selling shareholders of AHFL and for all of the issued and outstanding shares of AHFL, the Company was to pay NT$15 million ($500,815) on or prior to March 31, 2013 and NT$7.5 million ($250,095) subsequent to March 31, 2013 in cash in two installments, subject to terms and conditions therein. In addition the Company agreed to (i) issue 8,000,000 shares of common stock of the Company to the shareholders of AHFL; (ii) issue 2,000,000 shares of common stock of the Company to certain employees of Law Broker; and (iii) create an employee stock option pool, consisting of available options, exercisable for up to 2,000,000 shares of common stock of the Company.
Law Enterprise is a holding company for its operating subsidiaries in Taiwan. Law Broker primarily engages in insurance brokerage and insurance agency service business across Taiwan, while Law Management and Law Agent are not active. We operate our Taiwan business primarily through Law Broker.
On April 23, 2014, AHFL entered into a capital increase agreement (“Agreement”) with Wong Chun Kwok Johnny (“Mr Wong”), the owner of Prime Financial Asia Ltd (PFAL) which is a re-insurance broker company resided in Hong Kong. Upon the Agreement, Mr Wong would increase PFAL’s capital contribution from HK$500,000 to HK$1,470,000, and AHFL would contribute HK$1,530,000 to PFAL’s registered capital. Upon the completion of capital contribution by both parties, Mr. Wong and AHFL would own 49% and 51% of PFAL’s equity interest, respectively. The transaction was completed on April 30, 2014.
On February 13, 2015, the Company and AHFL entered into an acquisition agreement (the “Acquisition Agreement”) with Mr. Li Chwan Hau, the selling shareholder of Genius Holdings Financial Limited (the “Selling Shareholder”), a company with limited liability incorporated under the laws of British Virgin Islands (“GHFL”), to issue 352,166 fully paid and non-assessable shares of AHFL Common Stock (“AHFL Shares”) together with an granted put option for 352,166 shares of common stock of the Company (“Put Option”), in exchange for 704,333 shares of common stock of GHFL, being all of the issued and outstanding capital stock of GHFL. The Put Option may be exercised within six months of the closing date of the acquisition and the Selling Shareholder would exchange the AHFL Shares as consideration for the exercise of the Put Option. Subsequent to the acquisition, GHFL will become a wholly-owned subsidiary of the Company. GHFL holds 100% issued and outstanding shares of Genius Investment Consultant Co., Ltd. (“Taiwan Genius”), a limited company incorporated under the laws of Taiwan, which in turn holds approximately 15% issued and outstanding shares of Genius Insurance Broker Co., Ltd. (“Genius Broker”), a company limited by shares incorporated under the laws of Taiwan. Both GHFL and Taiwan Genius have no substantive business operation other than the holding of shares of its subsidiary. Genius Broker is primarily engaged in broker business across Taiwan. The acquisition price may be further adjusted on the fourth anniversary of the closing date of the acquisition and depending on the earnings per share of GHFL during the fiscal years of 2014 through 2017, subject to other terms and conditions therein. Mr. Li Chwan Hau is the sole shareholder of GHFL and a director and shareholder of the Company. On February 13, 2015, the acquisition was completed, the Selling Shareholder transferred 100% shares in GHFL to AHFL. The Put Option has not been exercised by the Selling Shareholder as of March 15, 2015.
During the year ended December 31, 2014, 93.55% and 6.45% of our revenues in our consolidated financial statements were derived from our Taiwan Subsidiaries and CAE, respectively. During the six months ended December 31, 2013, 93.72% and 6.28% of our revenues in our consolidated financial statements were derived from our Taiwan Subsidiaries and CAE, respectively. For the year ended June 30, 2013, the first fiscal year after the acquisition of AHFL together with its Taiwan Subsidiaries, 92.66% and 7.34% of our revenues in our consolidated financial statements were derived from our Taiwan Subsidiaries and CAE, respectively. During the year ended June 30, 2012, 100% of our revenues in our consolidated financial statements were derived from our CAE.
The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” which governs the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements.
The Company utilizes ASC Topic 740 “Income Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
When tax returns are filed, it is likely some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of operations and other comprehensive income (loss). As of December 31, 2014 and 2013, the Company did not have any uncertain tax positions.
In accordance with ASC Topic 360, “Property, Plant and Equipment”, the Company reviews the carrying values of long-lived assets whenever facts and circumstances indicate that the assets may be impaired. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value (“FV”). Assets to be disposed of are reported at the lower of the carrying amount or FV, less costs of disposal. No impairment was recognized for the years ended December 31, 2014, June 30, 2013 and 2012, and the six months ended December 31, 2013.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, (“ASU 2-14-09”). ASU 2-14-09 amends revenue recognition principles and provides a single set of criteria for revenue recognition among all industries. This new standard provides a five step framework whereby revenue is recognized when promised goods or services are transferred to a customer at amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosure pertaining to revenue recognition in both interim and annual periods. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2016. We are currently evaluating the potential impact that ASU 2014-09 may have on our financial position and results of operations.
During the year ended December 31, 2014, 93.55% and 6.45% of our revenues in our consolidated financial statements were derived from our Taiwan Subsidiaries and CAE, respectively. During the year ended December 31, 2013, 93.98% and 6.02% of our revenues in our consolidated financial statements were derived from our Taiwan Subsidiaries and CAE, respectively.
Total revenues increased by $2,293,388, or 5%, from $45,156,574 for the year ended December 31, 2013 to $47,449,962 for the year ended December 31, 2014, which is mainly due to the increase of the revenue in Taiwan for following reasons,
b) The sales of the products of China Trust Life Insurance Co., Ltd. (“China Trust”) increased in 2014 because China Trust’s good reputation attracted more customers.
Selling expenses were mainly occurred in Law Broker, representing the expense for marketing promotion. The selling expense for the year ended December 31, 2014 increased by $1,297,278 or 47%, to $4,034,409 compared to $2,737,131 for the year ended December 31, 2013, which is mainly because the advertizing expense spent in publicity of the company’s brand increased by approximately $1 million.
In connection with the acquisition of China entities, the Company is required to comply with the information return reporting requirements such as Foreign Bank Accounts Reporting (FBAR), Information Return on Foreign-Owned U.S. Corporation or U.S. Corporation owning certain foreign corporation (Under Section 6038A and 6038C of Internal Revenue Code, etc.). The Company failed to comply with such requirements for the years of 2010, 2011 and 2012. The potential penalty is estimated to be $370,000 in the event of a tax audit which was accrued in the year ended December 31, 2013.
Overview of the six months ended December 31, 2013 Compared to six months ended December 31, 2012
The following table shows the results of operations for the six months ended December 31, 2013 and 2012:
The general and administrative (“G&A”) expenses principally comprise of salaries and benefits for our administrative staff, office rental expenses, travel expenses, depreciation and amortization, entertainment expenses, and office supply expenses for our administrative staff.
Net other expenses for the six months ended December 31, 2013 was $543,425, which was mainly due to $303,000 of loss from disposal of fixed assets and $370, 000 of estimated tax penalties for late filings of income tax return in the U.S.A. For the six months ended December 31, 2012, the Company had a net other income of $5,359,400 which is mainly due to the $5.2 million of bargain gain on purchase of subsidiaries.
According to tax regulations by PRC tax authorities effective January 1, 2008, commissions paid to sub-agents in excess of 5% of the commission revenue was not tax deductible. According to China State Administration of Taxation #15 Announcement in 2012, effective from 2011, such commissions can be fully deducted. Also, such tax payable over the past five years can be adjusted.
Revenues increased by $34,688,470, or 1,100%, from $3,153,776 for the year ended June 30 2012 to $37,842,246 for the year ended June 30, 2013. The increase in revenues was mainly attributable to our new operations in Taiwan after August 24, 2012 that occurred as a result of our acquisition of AHFL.
The gross profit for the year ended June 30, 2013 increased by $12,742,335, or 1,613%, to $13,532,530 compared to $790,195 for the year ended June 30, 2012. The gross profit ratio increased to 36% for the year ended June 30, 2013 from 25% for the year ended June 30, 2012. The increase in profitability was mainly due to the higher margins of Law Broker.
According to tax regulations by PRC tax authorities effective January 1, 2008, commissions paid to sub-agents in excess of 5% of the commission revenue was not tax deductible. According to China State Administration of Taxation #15 Announcement in 2012, effective from 2011, such commissions can be fully deducted. Also, such tax payable over the past five years can be adjusted. Therefore, in the years ended June 30, 2013 and 2012, Anhou and Sichuan Kangzhuang reversed the tax payable of $274,489 and $283,880, respectively, which was accrued before 2011 tax year for such deductible commission and credited as income tax benefit.
Net cash provided by financing activities was $391,812 during the year ended December 31, 2014, which is mainly due to the loan borrowed from Lee Shu-Fen, the Series A Director of the Company, in the amount of $314,644 (NTD10 million) to AHFL. The term for the loan is from December 23, 2014 to December 22, 2015 with a fixed interest rate at 1.5%. In January 2015, the principal amount of this loan together with the accrued interests was fully repaid by AHFL.
The following table represents a comparison of the net cash provided by (used in) operating activities, net cash provided by (used in) investing activities, and net cash provided by (used in) financing activities for the six months ended December 31, 2013 and 2012 and for the years ended June 30, 2013 and 2012:
Net cash provided by operating activities during the six months ended December 31, 2013, was $7,816,783, including $7,930,190 advance payment received from AIA International Limited Taiwan Branch. Net cash used in operating activities during the six months ended December 31, 2012 was $222,457. The increase was mainly contributed by our Taiwan business.
Net cash provided by operating activities during the year ended June 30, 2013 was $1,598,575. Net cash used in operating activities during the year ended June 30, 2012 was $344,495. The increase was mainly contributed by our Taiwan business.
For the six months ended December 31, 2013, net cash used in financing activities was $1,614,159, which is mainly due to the $1,668,838 repayment to related parties. Net cash provided by financing activities was $325,427 in the six months ended December 31, 2012, which is the result of borrowings from the Company’s related parties.
For the year ended June 30, 2013, net cash provided in financing activities was $1,260,382 and net cash provided by financing activities was $304,872 in the year ended June 30, 2012. The increase was mainly due to the proceeds of borrowing from Mrs. Lee Shu Fen, director of CUIS, and Ms. Zhu Shuqin, a shareholder of Anhou.
Due to certain restrictions on direct foreign investment in insurance agency business under current PRC legal regime, Anhou has 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.
The related parties listed below loaned money to the Company for working capital. Due to related parties consisted of the following as of December 31, 2014 and 2013:
We have total contractual obligations over the next year of $1,719,838 and $3,067,876 over the next three years primarily consisting of various operating office lease agreements.
A summary of our fixed contractual obligations and commitments at December 31, 2014, is as follows:
In our opinion, the consolidated financial statements of China United Insurance Service, Inc referred to above present fairly, in all material respects, the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2013, in conformity with accounting principles generally accepted in the United States of America.
September 23, 2013, except for Note 1 for which the date is June 25, 2014
On January 16, 2011, the Company issued 20,000,000 shares of common stock, $0.00001 par value, to several non-US persons for $300,000. The issuance was made pursuant to an exemption from registration in Regulation S under the Securities Act of 1933, as amended. The consideration was paid to the account of CU Hong Kong by May 6, 2011. All $300,000 was contributed into the bank account of CU WFOE as registered capital. On January 28, 2011, the Company increased the number of authorized shares of common stock from 30,000,000 to 100,000,000 and authorized 10,000,000 shares of preferred stock.
Due to PRC legal restrictions on foreign ownership and investment in insurance agency and brokerage businesses in China, especially those on qualifications and capital requirements of the investors, we operate our business primarily through our Consolidated Affiliated Entities (“CAE”) in PRC. On January 17, 2011, CU WFOE and Anhou and Anhou Original Shareholders entered into a series of agreements known as variable interest agreements (the “Old VIE Agreements”) pursuant to which CU WFOE has executed effective control over Anhou through these contractual arrangements. As a result of the capital increase and the share transfer described above, on October 24, 2013, CU WFOE, Anhou and Anhou Existing Shareholders entered into a series of variable interest agreements (the “VIE Agreements”), including Power of Attorneys, Exclusive Option Agreements, Share Pledge Agreements, in the same form as the previous Old VIE Agreements, other than the change of shareholder names and their respective shareholdings. The Old VIE Agreements were terminated by and among CU WFOE, Anhou and Anhou Original Shareholders on the same date. The Exclusive Business Cooperation Agreement executed by and between CU WFOE and Anhou on January 17, 2011 remains in full effect. We do not hold equity interests in our CAE. However, through the VIE Agreements with these CAE and their respective shareholders, we effectively control, and are able to derive substantially all of the economic benefits from, these CAE, which allows us to consolidate the financial results of the CAE in our financial statements.
Mr. Mao has extensive experience in the insurance agency and brokerage industry and has acted as the chairman of the board of Law Broker. Under the leadership of Mr. Mao, Law Broker has grown into one of the top insurance brokerage firms in Taiwan, has sustained stable growth for the past decades and generated substantial shareholder value for its stockholders. The management of the Company wanted Mr. Mao to apply his years of experience in insurance industry into the Company’s expansion and to lead its growth. As a result the Company approached Mr. Mao to discuss the possibility of Mr. Mao to play more of a managerial role and commit more time on the strategy design and operation of the Company and its subsidiaries. To ensure the consistently implementation of strategies and policies of the Company, through mutual discussion and negotiations, both the Company and Mr. Mao (and subsequently a majority of the shareholders) agree to the reclassification, pursuant to which, 1,000,000 shares of Series A Convertible Preferred Stock (with 1 to 10 special voting power) were issued to Mr. Mao in replacement of the 1,000,000 shares of Common Stock previously held by Mr. Mao. In exchange for the reclassification, Mr. Mao agreed to be engaged by the Company as its Chief Executive Officer within 6 months after July 2, 2012 or according to a timetable otherwise agreed upon. On August 8, 2014, the Board of Directors appointed Mr. Mao as the Chief Executive Officer, effective immediately.
Law Enterprise is a holding company for its operating subsidiaries in Taiwan. Law Broker primarily engages in insurance brokerage and insurance agency service business across Taiwan, while Law Management and Law Agent are not in operation. We operate our Taiwan business primarily through Law Broker.
On April 23, 2014, AHFL entered into a capital increase agreement (“Agreement”) with Wong Chun Kwok Johnny (“Mr Wong”), the owner of Prime Financial Asia Ltd (PFAL) which is a re-insurance broker company resided in Hong Kong. Pursuant to the Agreement, Mr Wong would increase PFAL’s capital contribution from HK$500,000 to HK$1,470,000, and AHFL would contribute HK$1,530,000 to PFAL’s registered capital. Upon the completion of capital contribution by both parties, Mr. Wong and AHFL would own 49% and 51% of PFAL’s equity interest, respectively. The transaction was completed on April 30, 2014.
Management makes these estimates using the best information available when they are made; however, actual results could differ materially from those estimates.
The Company follows FASB ASC Topic 220 (“ASC 220”), “Reporting Comprehensive Income,” which establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements. ASC 220 defines comprehensive income as net income and all changes to stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders, including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities.
The Company maintains cash with banks in the PRC and Taiwan. Cash accounts with the bank institutions in the PRC are not insured or otherwise protected. 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 NT$3,000,000 insured in a bank. In Hong Kong, a depositor has up to HKD$500,000 insured in a bank. In the United States, the standard insurance amount is $250,000 per depositor in a bank under the FDIC’s general deposit insurance rules.
In accordance with ASC Topic 360, “Property, Plant and Equipment,” the Company reviews the carrying values of long-lived assets whenever facts and circumstances indicate an asset may be impaired. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future net undiscounted cash flows expected to be generated by it. If an asset is considered impaired, the impairment recognized is measured by the amount by which the carrying amount of the asset exceeds its FV. Assets to be disposed of are reported at the lower of the carrying amount or FV, less cost of disposal. No impairment was recognized for the years ended December 31, 2014, June 30, 2013 and 2012, and six months ended December 31, 2013.
The Company’s revenue is from insurance agency and brokerage services. The Company, through its subsidiaries, sells insurance products to customers, and obtains commissions from the respective insurance companies according to the terms of each insurance company service agreement. The Company recognizes revenue when the following have occurred: persuasive evidence of an agreement between the insurance company and insured exists, services were provided, the fee for such services is fixed or determinable and collectability of the fee is reasonably assured. Insurance agency services are considered complete, and revenue is recognized, when an insurance policy becomes effective. The customers are entitled to a 10-day cancellation period from the date of issuance of the policies, in which customers can cancel the contract without any fees. The Company is notified of such cancellations by the insurance carriers. For the six months ended December 31, 2013 and for the fiscal years ended December 31, 2014 and June 30, 2013 and 2012, policy cancellations were $22,553, $84,476, $12,809 and nil, respectively.
The Company was not subjected to income tax examinations by taxing authorities during the current or past fiscal years. In connection with the acquisition of China entities, the Company is required to comply with the information return reporting requirements such as Foreign Bank Accounts Reporting (FBAR), Information Return on Foreign-Owned U.S. Corporation or U.S. Corporation owning certain foreign corporation (Under Section 6038A and 6038C of Internal Revenue Code, etc.). The Company failed to comply with such requirements for the years of 2010, 2011 and 2012. The potential penalty is estimated to be $370,000 in the event of a tax audit, which has been accrued in the six months ended December 31, 2013, and it has not been paid during the year ended December 31, 2014.
c. An entity incurs a conditional obligation to issue its equity shares by issuing a similar contract that requires net share settlement.
Before acquired AHFL and its Taiwan subsidiaries on August 24, 2012, the company has two principle insurance companies for which it acts as insurance agent. After acquired AHFL and its Taiwan subsidiaries, the Company has several principal insurance companies, for which it acts as an insurance agent. For the six months ended December 31, 2013 and for the years ended December 31, 2014 and June 30, 2013 and 2012, the Company’s revenues from sale of insurance policies underwritten by these companies were:
As of December 31, 2014 and 2013, and June 30, 2013 and 2012, the Company’s accounts receivable from these companies were:
c. Its assets are 10 percent or more of the combined assets of all operating segments.
As a result of the capital increase and the share transfer described in Note1, on October 24, 2013, CU WFOE, Anhou and Anhou Existing Shareholders (as defined in Note1) entered into a series of variable interest agreements (the “VIE Agreements”), including Power of Attorneys, Exclusive Option Agreements, Share Pledge Agreements, in the same form as the previous Old VIE Agreements, other than the change of shareholder names and their respective shareholdings. The Old VIE Agreements were terminated by and among CU WFOE, Anhou and Anhou Original Shareholders on the same date. The EBCA executed by and between CU WFOE and Anhou on January 17, 2011 remains in full effect.
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.
Refundable business tax, similar to VAT in mainland China, represents business tax prepaid by Risk Management and AHFL, expected to be refunded by Taiwan tax bureau. Investment in current deposit is a semiannual investment product that Anhou purchased in November 2013. Others mainly represent advances to staff and other miscellaneous receivables.
Property, plant and equipment consisted of the following, as of December 31, 2014 and 2013:
As of December 31, 2014 and 2013, the Company’s intangible assets consisted the following:
Estimated future intangible amortization as of December 31, 2014 is as follows:
The Company’s other assets consisted of the following as of December 31, 2014 and 2013:
Restricted cash is a deposit in bank by the Company in conformity with Provisions of the Supervision and Administration of Specialized Insurance Agencies, and cannot be withdrawn without the permission of the regulatory commission. Deposits include long-term leasing deposits.
The FV of the net identifiable assets of PFAL at acquisition date was $324,871, and 51% of which was $165,684. The Company recorded $31,651 excess of purchase price over the FV of assets acquired and liabilities assumed acquired as goodwill. No intangible assets were identified as of the acquisition date. As of December 31, 2014, there were no any indications of the impairment of the goodwill.
The Company’s subsidiaries in Taiwan are governed by the Income Tax Law of Taiwan, and are generally subject to tax at 17% on income reported in the statutory financial statements after appropriate adjustments. In the meanwhile, Income Tax Law of Taiwan provides that a company is taxed at additional 10% on any undistributed earnings to its shareholders. In June 2014, Law Enterprises decided not to distribute its earnings accumulated as of December 31, 2013. Accordingly, NT$18,903,349, approximately $626,406, of additional tax was accrued. In December 31, 2014, Law Enterprises decided not to distribute its earnings in 2014. Accordingly, additional NT$9,200,945, approximately $303,589, of income tax was accrued as of December 31, 2014, which is stated as “income tax on undistributed earnings” on the income tax rate reconciliation tables below.
The following table reconciles the US statutory rates to the Company’s effective tax rate for the six months ended December 31, 2013 and the years ended December 31, 2014 and June 30, 2013 and 2012:
The related parties listed below loaned money to the Company for working capital. Due to related parties consisted of the following as of December 31, 2013 and 2014:
The combined Revenue, Net Loss and EPS of Law Management and Law Agent for the six months ended December 31, 2013 and the years ended December 31, 2014 and June 30, 2013 are as follows:
The Company's BOD oversees how management monitors compliance with the Company's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.
The Company's credit risk arises principally from accounts and other receivables, pledged deposits and cash and equivalents. Management has a credit policy in place and monitors exposures to these credit risks on an ongoing basis. The carrying amounts of trade and other receivables, pledged deposits and cash and cash equivalents represent the Company's maximum exposure to credit risks. Accounts receivable are due within 30 days from the date of billing.
On June 9, 2013, AHFL entered into a Loan Agreement with ZLI Holdings, whereby AHFL agreed to provide a loan to ZLI Holdings of RMB40 million ($6,389,925). The term for such loan is 10 years which may be extended upon the agreement of the parties. The loan was remitted to ZLI Holdings on August 30, 2013. In August 2013, ZLI Holdings entered into three loan agreements (“Investor Loan Agreements”) with the following independent third parties, collectively, the Investor Borrowers:
On October 20, 2013, the investor borrowers increased Anhou’s registered capital by RMB 40 million ($6,389,925).
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.
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.
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.
On February 13, 2015, CUIS and AHFL entered into an acquisition agreement (the “Acquisition Agreement”) with Mr. LI CHWAN HAU, the selling shareholder of Genius Holdings Financial Limited (the “Selling Shareholder”), a company with limited liability incorporated under the laws of British Virgin Islands (“GHFL”), to issue 352,166 fully paid and non-assessable shares of AHFL Common Stock (“AHFL Shares”) together with an granted put option for 352,166 shares of common stock of CUIS (“Put Option”), in exchange for 704,333 shares of common stock of GHFL, being all of the issued and outstanding capital stock of GHFL. The Put Option may be exercised within six months of the closing date of the acquisition and the Selling Shareholder would exchange the AHFL Shares as consideration for the exercise of the Put Option. Subsequent to the acquisition, GHFL will become a wholly-owned subsidiary of CUIS. GHFL holds 100% issued and outstanding shares of Genius Investment Consultant Co., Ltd. (“Taiwan Genius”), a limited company incorporated under the laws of Taiwan, which in turn holds approximately 15% issued and outstanding shares of Genius Insurance Broker Co., Ltd. (“Genius Broker”), a company limited by shares incorporated under the laws of Taiwan. Both GHFL and Taiwan Genius have no substantive business operation other than the holding of shares of its subsidiary. Genius Broker is primarily engaged in broker business across Taiwan. On February 13, 2015, the acquisition was completed, the Selling Shareholder transferred 100% shares in GHFL to AHFL. The Put Option has not been exercised by the Selling Shareholder as of March 15, 2015.
In January 2015, the principal amount of loans previously disclosed together with the accrued interests under the loan agreements entered into by and between AHFL with Ms. Lee Shu-Fen on December 23, 2014 was fully repaid by AHFL.
As stated in Note 19, in the fourth quarter of 2014, the shareholders of the Law Management and Law Agent made the resolution to dissolve Law Management and Law Agent, respectively, because those companies have not been in operation. The dissolution of Law Agent was approved by the Taiwan (R.O.C) Government on January 13, 2015. Abide by the law in Taiwan, the liquidator was appointed by the shareholders of the Law Management and Law Agent and the liquidator shall complete the liquidation process no later than six months from the appointment date. Both Law Management and Law Agent are under the process of liquidation as of now.
The Company has evaluated all other subsequent events through the date these consolidated financial statements were issued, and determine that there were no other subsequent events or transactions, except as stated above, that require recognition or disclosures in the consolidated financial statements.