(3) Capital commitment related to the Joint Venture Agreement (the “JV Agreement”) with Cyun-Jhan Enterprise Co., Ltd. and Jian-Zao International Industrial Co., Ltd. through AIlife International Investment Co., Limited (“AIlife”, formerly known as “Ilife”).
We have audited the accompanying consolidated balance sheets of China United Insurance Service, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
The Company records income tax expense using the asset-and-liability method of accounting for deferred income taxes. Under this method, deferred taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that the deferred tax assets will not be realized. The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) introduced a new tax on global intangible low-taxed income (“GILTI”) effective as of January 1, 2018. The Company has elected to recognize the tax on GILTI as tax expense in the period the tax is incurred.
Due to the legal restrictions on foreign ownership and investment in insurance agency and brokerage businesses in China, especially those on qualifications as well as capital requirement of the investors, the Company operates its insurance agency and brokerage business in PRC primarily through Anhou, a VIE with its two subsidiaries in the PRC.
· Power of Attorney under which each shareholder of Anhou executed an irrevocable power of attorney to authorize WFOE to act on behalf of the shareholder to exercise all of his/her rights as equity owner of Anhou, including without limitation to: (1) attend shareholders’ meetings of Anhou; (2) exercise all the shareholder’s rights and shareholder’s voting rights that he/she is entitled to under the laws of the PRC and Anhou’s Articles of Association, including but not limited to the sale or transfer or pledge or disposition of the shareholder’s shareholding in part or in whole, and (3) designate and appoint on behalf of the shareholder the legal representative, the director, supervisor, the chief executive officer and other senior management members of Anhou.
The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The adoption of FASB ASC Topic 842 resulted in the recognition of operating lease right-of-use assets of $4.0 million and corresponding operating lease liabilities of $3.7 million as of January 1, 2019 on the consolidated balance sheet. See Note 16 for details.
Cash, cash equivalents and restricted cash and cash equivalents consisted of the following as of December 31, 2019 and 2018:
CUII has a revolving credit facility in amount of $4,000,000 with O-Bank, which matures on October 22, 2020. Borrowings under the revolving credit facility bear interest at the TAIFX3 rate plus a margin of 0.5%. As of December 31, 2019 and 2018, the outstanding balance of the revolving credit facility were $2,600,000 with a weighted average interest rate of 2.83% and $3,600,000 with a weighted average interest rate of 3.63%, respectively. The borrowing is secured by a total amount of $3,038,079 (NTD 91 million) of time deposits.
CUII was approved for a line of credit agreement with KGI, which matures on October 2, 2020, pursuant to which CUII has a revolving credit facility of $1,600,000. Borrowings under the agreement bear interest at the LIBOR rate plus a margin of 0.9%. As of December 31, 2019 and 2018, the Company had the outstanding borrowing of $1,500,000 with a weighted interest rate of 3.06% and $1,600,000 with an interest rate of 3.41%, respectively. The borrowing is secured by a total amount of $2,295,061 (RMB 7.6 million and NTD 36 million) of time deposits.
On May 15, 2016, Anhou entered into a loan agreement (“Loan A”) with an individual third party with an interest rate of 8% per annum and interest is payable annually. The outstanding balance of Loan A was $123,611 (RMB 850,000) as of December 31, 2018 and the Company paid off the total outstanding loan balance and accrued interest in May 2019.
5) For the year ended December 31, 2019, the Company estimated to recognize the fifth contract year’s revenue amount of $313,868 (NTD9,694,701), net of VAT, and refund the amount of $703,638 (NTD 21,733,861), 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 $322,310 (NTD 9,555,440) and $746,073 (NTD 23,044,560), respectively, for the year ended December 31, 2019 based on notice received from AIATW.
The Company recognized revenue of $306,961 (NTD 9,481,371) and $372,650 (NTD 11,228,600), net of VAT, for the years ended December 31, 2019 and 2018 related to this agreement. As of December 31, 2019 and 2018, the Company had non-current portion of unearned revenue of $1,049,258 and $2,056,513, respectively, and amounts in current liabilities of $1,781,975 and $1,028,256, respectively, related to the Alliance Agreement.