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China United Insurance Service, Inc. - Quarter Report: 2013 September (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2013
 
OR
 
 
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
For the transition period from ______ to __________
 
COMMISSION FILE NUMBER: 000-54884
 
CHINA UNITED INSURANCE SERVICE, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
98-6088870
(State or other jurisdiction of incorporation or
organization)
 
(IRS Employer Identification No.)
 
7F, No. 311 Section 3
Nan-King East Road
Tapei City, Tawain
(Address of principal executive offices)
 
+ 8862-87126958
(Registrant’s Telephone Number, Including Area Code)
 
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
 
Large Accelerated Filer ¨
 
Non-Accelerated Filer ¨
Accelerated Filer  x
 
Smaller Reporting Company ¨
 
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ¨  No x
 
As of  November 4, 2013, there are 29,100,503 shares of common stock issued and outstanding, and 1,000,000 preferred shares issued and outstanding.
 
 
 
TABLE OF CONTENTS 
 
PART I.
FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
F-1
 
 
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
5
 
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
12
 
 
 
ITEM 4.
CONTROLS AND PROCEDURES
12
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
ITEM 1.
LEGAL PROCEEDINGS
12
 
 
 
ITEM 1A.
RISK FACTORS
12
 
 
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
12
 
 
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
13
 
 
 
ITEM 4.
MINE SAFETY DISCLOSURES
13
 
 
 
ITEM 5.
OTHER INFORMATION
13
 
 
 
ITEM 6.
EXHIBITS
13
 
 
 
SIGNATURES
 
14
 
 
2

 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described under Part 1 Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
 
Forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report, or that we filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect.
  
Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
 
 
3

 
OTHER PERTINENT INFORMATION
 
References in this report to “we,” “us,” “our” and the “Company” and words of like import refer to China United Insurance Service, Inc., its subsidiaries and variable interest entities.
 
References to China or the PRC refer to the People’s Republic of China (excluding Hong Kong, Macao and Taiwan). References to Taiwan refer to Taiwan, Republic of China.
 
Our business is conducted in Taiwan and China using NT$, the currency of Taiwan and RMB, the currency of China, respectively, and our financial statements are presented in United States dollars (“USD” or “$”).  In this report, we refer to assets, obligations, commitments and liabilities in our financial statements in USD.  These dollar references are based on the exchange rate of NT$ and RMB to USD, determined as of a specific date.   Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of USD which may result in an increase or decrease in the amount of our obligations (expressed in USD) and the value of our assets, including accounts receivable (expressed in USD).
 
 
4

 
PART I.  FINANCIAL INFORMATION
  
ITEM 1. FINANCIAL STATEMENTS
  
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
 
September 30, 2013
 
June 30, 2013
 
 
 
(Unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and equivalents
 
$
15,932,073
 
$
16,705,327
 
Marketable securities
 
 
129,537
 
 
130,387
 
Accounts receivable, net
 
 
2,502,858
 
 
4,138,340
 
Other current assets
 
 
1,514,784
 
 
435,043
 
Total current assets
 
 
20,079,252
 
 
21,409,097
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
 
 
1,369,289
 
 
1,161,803
 
Goodwill
 
 
122,275
 
 
121,667
 
Other assets
 
 
558,518
 
 
519,878
 
TOTAL ASSETS
 
$
22,129,334
 
$
23,212,445
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Taxes payable
 
$
301,452
 
$
893,713
 
Unearned revenue
 
 
8,477,163
 
 
-
 
Other current liabilities
 
 
3,131,862
 
 
4,341,916
 
Due to related parties
 
 
605,328
 
 
1,737,296
 
Total current liabilities
 
 
12,515,805
 
 
6,972,925
 
 
 
 
 
 
 
 
 
Long-term liability
 
 
750,910
 
 
750,910
 
TOTAL LIABILITIES
 
 
13,266,715
 
 
7,723,835
 
 
 
 
 
 
 
 
 
COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Preferred stock, par value $0.00001,
 
 
 
 
 
 
 
10,000,000 authorized, 1,000,000 issued and outstanding
 
 
10
 
 
10
 
Common stock, par value $0.00001,
 
 
 
 
 
 
 
100,000,000 authorized, 29,100,503 issued and outstanding
 
 
291
 
 
291
 
Additional paid-in capital
 
 
4,674,593
 
 
4,674,593
 
Statutory reserve
 
 
257,785
 
 
257,785
 
Accumulated other comprehensive loss
 
 
(25,388)
 
 
(41,671)
 
Loan to shareholders
 
 
(5,309,377)
 
 
-
 
Retained earnings
 
 
3,878,214
 
 
4,907,617
 
Stockholder’s equity attribute to parent’s shareholders
 
 
3,476,128
 
 
9,798,625
 
Noncontrolling interest
 
 
5,386,491
 
 
5,689,985
 
TOTAL STOCKHOLDERS’ EQUITY
 
 
8,862,619
 
 
15,488,610
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
22,129,334
 
$
23,212,445
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-1

 
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME / (LOSS)
(UNAUDITED)
 
 
 
Three Months Ended September 30,
 
 
 
2013
 
2012
 
Revenues
 
$
7,794,941
 
$
3,219,300
 
Cost of revenue
 
 
6,206,292
 
 
2,165,622
 
 
 
 
 
 
 
 
 
Gross profit
 
 
1,588,649
 
 
1,053,678
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Selling
 
 
857,548
 
 
-
 
General and administrative
 
 
2,346,327
 
 
1,030,271
 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
 
(1,615,226)
 
 
23,407
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 
 
 
 
 
 
Interest income
 
 
32,399
 
 
646
 
Bargain gain on purchase of subsidiaries
 
 
-
 
 
5,280,042
 
Other - net
 
 
116,764
 
 
43,324
 
Total other income (expenses)
 
 
149,163
 
 
5,324,012
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
 
(1,466,063)
 
 
5,347,419
 
Income tax expense
 
 
(55,630)
 
 
(10,819)
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
(1,410,433)
 
 
5,358,238
 
Net loss (income) attributable to the noncontrolling interests
 
 
381,029
 
 
(71,544)
 
Net income (loss) attributable to parent's shareholders
 
 
(1,029,404)
 
 
5,286,694
 
 
 
 
 
 
 
 
 
Other comprehensive items
 
 
 
 
 
 
 
Foreign currency translation gain attributable to parent's shareholders
 
 
16,283
 
 
232,814
 
Foreign currency translation gain attributable to noncontrolling interest
 
 
75,909
 
 
-
 
 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to parent's shareholders
 
$
(1,013,121)
 
$
5,519,508
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to noncontrolling interest
 
$
456,938
 
$
(71,544)
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
 
 
29,100,503
 
 
24,122,24
 
 
 
 
 
 
 
 
 
Income (loss) per share:
 
 
 
 
 
 
 
Basic and diluted
 
$
(0.03)
 
$
0.00
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-2

 
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
 
Three Months Ended September 30,
 
 
 
2013
 
2012
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income (loss)
 
$
(1,410,433)
 
$
5,358,238
 
Adjustments to reconcile net income to net cash
 
 
 
 
 
 
 
provided by (used in) operating activities:
 
 
 
 
 
 
 
Depreciation
 
 
60,961
 
 
40,244
 
Bargain gain on purchase of subsidiaries
 
 
-
 
 
(5,280,042)
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
 
 
1,635,482
 
 
(477,798)
 
Other current assets
 
 
(92,838)
 
 
129,275
 
Other assets
 
 
(621,868)
 
 
(5,702)
 
Taxes payable
 
 
(860,082)
 
 
(500,734)
 
Unearned revenue
 
 
8,477,163
 
 
-
 
Other current liabilities
 
 
(1,210,054)
 
 
(1,332,087)
 
Net cash provided by (used in) operating activities
 
 
5,978,330
 
 
(2,068,606)
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Cash acquired in acquisition
 
 
-
 
 
12,766,882
 
Purchase of marketable securities
 
 
-
 
 
(3,228)
 
Purchase of property, plant and equipment
 
 
(692,348)
 
 
(7,859)
 
Net cash provided by (used in) investing activities
 
 
(692,348)
 
 
12,755,795
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Loan to shareholders
 
 
(5,309,377)
 
 
-
 
Proceeds from (repayment to) related party
 
 
(1,135,448)
 
 
90,942
 
Net cash provided by (used in) financing activities
 
 
(6,444,825)
 
 
90,942
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
 
385,588
 
 
216,303
 
Net increase/(decrease) in cash and equivalents
 
 
(773,254)
 
 
10,994,434
 
Cash and equivalents, beginning balance
 
 
16,705,327
 
 
1,258,211
 
 
 
 
 
 
 
 
 
Cash and equivalents, ending balance
 
$
15,932,073
 
$
12,252,645
 
 
 
 
 
 
 
 
 
Supplementary disclosure of cash flow information:
 
 
 
 
 
 
 
Interest paid
 
$
-
 
$
-
 
Income tax paid
 
$
-
 
$
495,612
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3

 
CHINA UNITED INSURANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013 AND 2012 (UNAUDITED)
 
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 Mao Yi Hsiao, a Taiwanese citizen, as a listing vehicle for ZLI Holdings Limited (“CU Hong Kong”) to be quoted on the United States Over the Counter Bulletin Board (the “OTCBB”).
 
CU Hong Kong, a wholly owned Hong Kong-based subsidiary of China United, was founded by China United, on July 12, 2010 under Hong Kong law. On October 20, 2010, CU Hong Kong founded a wholly foreign owned enterprise, Zhengzhou Zhonglian Hengfu Business Consulting Co., Ltd. (“CU WFOE”) in Henan province in the People’s Republic of China (“PRC”).
 
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. As a result of the issuance of the 20,000,000 shares, the owners of Henan Anhou (accounting acquirer) owned 100% of the Company. Accordingly, this transaction was accounted for as a recapitalization of Henan Anhou. The historical financial statements presented are those of the accounting acquirer for all periods presented. 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.
 
Henan Law Anhou Insurance Agency Co., Ltd. (“Henan Anhou”, formerly known as Zhengzhou Anhou Insurance Agency Co., Ltd.) was incorporated in the PRC on August 20, 2003. Henan Anhou provides insurance agency services in the PRC.
 
Sichuan Kangzhuang Insurance Agency Co., Ltd. (“Sichuan Kangzhuang”) was founded on July 10, 2006 in the Sichuan province in the PRC and provides insurance agency services in the PRC. On August 23, 2010, at Sichuan Kangzhuang’s general meeting of shareholders, its shareholders voted to sell their shares to Henan Anhou for RMB532,622 ($78,318). On September 6, 2010, the equity transfer agreements were signed between Henan Anhou and each shareholder of Sichuan Kangzhuang. Sichuan Kangzhuang then had net liabilities of RMB219,123 ($32,134). Goodwill of RMB751,745 ($110,452) was therefore recorded. Goodwill in the balance sheet differs from the acquisition date amount due to changes in exchange rates.
 
Jiangsu Law Insurance Broker Co., Ltd. (“Jiangsu Law”) was founded on May 18, 2005 in Jiangsu Province in the PRC. Jiangsu Law 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 Henan Anhou for RMB518,000 ($75,475) and Henan Anhou increased Jiangsu Law’s paid-in capital to RMB10,000,000 ($1,355,150) 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 Henan Anhou and each shareholder of Jiangsu Law. The consideration is due upon request and was not paid as of September 30, 2013. 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).
 
On January 17, 2011, CU WFOE and Henan Anhou and its shareholders entered into a series of agreements known as variable interest agreements (the “VIE Agreements”) pursuant to which CU WFOE has effective control over Henan Anhou.
 
On July 2, 2012, the Board of Directors and stockholders of the Company approved, in connection with a reclassification of 1,000,000 issued and outstanding shares of common stock (the “Reclassified Shares”), par value $0.00001 per share held by Mao Yi Hsiao (“Mr. Mao”) into 1,000,000 shares of Series A Convertible Preferred Stock, par value $0.00001 per share (the “Series A Preferred Stock”) on a share-for-share basis (the “Reclassification”), the issuance of 1,000,000 shares of Series A Preferred Stock to Mr. Mao and cancellation of 1,000,000 common stock held and submitted by Mr. Mao pursuant to the Reclassification. All 1,000,000 shares of Series A Preferred Stock were reclassified from the 1,000,000 shares of common stock held by Mr. Mao and no additional consideration was paid by Mr. Mao in connection with the Reclassification. Each holder of common stock is entitled to one vote for each share of common stock held of record by such holder as of the applicable record date on any matter submitted to a vote of the stockholders of the Company; while each holder of Series A Preferred Stock is entitled to ten votes for each share of Series A Preferred Stock held of record by such holder as of the applicable record date on any matter submitted to a vote of the stockholders of the Company.
 
On August 17, 2012, Action Holdings Financial Limited (“AHFL”), an LLC incorporated under the laws of the British Virgin Islands on April 30, 2012, purchased 13,593,015 shares of common stock of Law Enterprise Co., Ltd. (“Law Enterprise”), a company limited by shares incorporated under the laws of Taiwan on January 30, 1996, from certain shareholders at NT$12.8 ($0.44) per share, which was 65.95% ownership in Law Enterprise. As of August 24, 2012, Law Enterprise held (i) 100% of 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”), an LLC incorporated in Taiwan on June 3, 2000. 
On August 24, 2012, the Company acquired all of the issued and outstanding shares (100% of voting equity interest) of AHFL together with its subsidiaries in Taiwan. Pursuant to the provisions of the Acquisition Agreement 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.
 
 
F-4

 
On March 14, 2013, the Company and the selling shareholders of AHFL entered into an Amendment to the Acquisition Agreement (the “Amendment”), pursuant to which, (i) the cash payment deadline as set forth in the Acquisition Agreement was extended from March 31, 2013 to March 31, 2015 or at any other time or in any other manner otherwise agreed upon by and among the Company and the selling shareholders of AHFL; and (ii) in lieu of the 2,000,000 employee stock option pool described in the Acquisition Agreement, the Company agrees to use its best efforts, as soon as practically possible, to create an employee stock pool consisting of up to 4,000,000 shares of CUIS common stock, among which 2,000,000 shares shall be solely granted to employees of Law Broker, and the remaining 2,000,000 shares to be granted to employees of affiliated entities of the Company (including Law Broker employees).
 
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.
 
The corporate structure after the acquisition is:
 
 
 
F-5

 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of China United and its subsidiaries as shown in the organization structure in Note 1 above. The results of operations of AHFL and subsidiaries are included since August 31, 2012 the date of acquisition for accounting convenience. All significant intercompany transactions and balances were eliminated in consolidation.
 
Basis of Presentation
 
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).  The functional currency for our subsidiaries in Taiwan is New Taiwan Dollar (“NT$”) and for the VIEs in China is Renminbi (“RMB”).
 
Noncontrolling Interest
 
Noncontrolling interest consists of direct and indirect equity interest in AHFL and subsidiaries arising from the acquisition of AHFL by CUIS.
 
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 net income (loss) attributed to the NCI is separately designated in the accompanying statements of operations and other comprehensive income (loss). Losses attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the NCI is attributed to those interests. The NCI shall continue to be attributed its share of losses even if that attribution results in a deficit NCI balance.
 
Use of Estimates
 
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the amounts of revenues and expenses during the reporting periods.
 
Management makes these estimates using the best information available when they are made; however, actual results could differ materially from those estimates.
 
Risks and Uncertainties
 
The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, and foreign currency exchange rates.
 
Comprehensive Income
 
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.
 
Foreign Currency Transactions
 
The consolidated financial statements were translated into United States Dollars (“USD” or “$”) in accordance with FASB ASC Topic 830 “Foreign Currency Transaction.” According to the standard, all assets and liabilities were translated at the exchange rate on the balance sheet dates; stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC 220. Gains and losses resulting from the translation of foreign currency transactions are reflected in the consolidated statements of operations and other comprehensive income (loss).
 
Cash and Equivalents
 
For Statements of Cash Flows purposes, the Company considers cash on hand, bank deposits, and other highly-liquid investments with maturities of three months or less when purchased, such as commercial paper, to be cash and equivalents.
 
The Company maintains cash with banks in the PRC and Taiwan. Cash accounts 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.
 
 
F-6

 
Marketable Securities
 
The Company invests part of its excess cash in equity securities, money market funds and government bonds. Such investments are included in “Marketable securities” in the accompanying consolidated balance sheets. Held-to-maturity represents debt securities the Company has intends and has the ability to hold to maturity; Trading securities represent debt securities bought and held primarily for sale in the near-term to generate income on short-term price differences; Equity security investments are classified as trading securities and reported at FV with changes in FV recorded in “Other Income”. Available-for-sale represents debt securities not classified as held-to-maturity or trading securities; Bonds are classified as available-for-sale and reported at FV with unrealized gains and losses included in “Accumulated other comprehensive income (loss).”
 
Accounts Receivable, net
 
The Company reviews its accounts receivable regularly to determine if a bad debt allowance is necessary at each year-end. Management reviews the composition of accounts receivable and analyzes the age of receivables outstanding, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the necessity of making such allowance. No allowance was deemed necessary as of September 30, 2013 or June 30, 2013.
 
Property, Plant and Equipment, net
 
Property, plant and equipment are recorded at cost. Gain or loss on disposal of property, plant and equipment is recorded in other income at disposal. Expenditures for betterments, renewals and additions are capitalized. Repairs and maintenance expenses are expensed as incurred.
 
Depreciation for financial reporting purposes is provided using the straight-line method over a useful life of three to ten years with salvage value of 10% to 25%. Property, plant and equipment mainly consist of office furniture, computers and leasehold improvements.
 
Impairment of Long-Lived Assets
 
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 three months ended September 30, 2013 or 2012. 
 
Goodwill
 
Goodwill arose from the acquisition of Sichuan Kangzhuang (Note 8). Goodwill is the excess of the cost of an acquisition over the FV of the net assets acquired. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate it might be impaired, using the prescribed two-step process under US GAAP. The first step screens for potential impairment of goodwill to determine if the FV of the reporting unit is less than its carrying value, while the second step measures the amount of goodwill impairment, if any, by comparing the implied FV of goodwill to its carrying value. As of September 30, 2013, there were no indications of any impairment.
 
Revenue Recognition
 
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 three months ended September 30, 2013 and 2012, policy cancellations were $47,591 and $32,998, respectively.
 
The Company pays commissions to its sub-agents when an insurance product is sold by the sub-agent. The Company recognizes commission revenue on a gross basis. The commissions paid by the Company to its sub-agents are recorded as cost of revenue.
 
Income Taxes
 
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 included in the financial statements or tax returns. 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. 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 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 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 is classified as interest expense and penalties are classified in general and administrative expenses in the statements of income and other comprehensive income (loss). As of September 30 and June 30, 2013 the Company did not have any uncertain tax positions.
 
The Company was not subjected to income tax examinations by taxing authorities during the current or past fiscal years. During the three months ended September 30, 2013 and 2012 the Company did not recognize any interest or penalties.
 
 
F-7

 
Fair Values of Financial Instruments
 
FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines FV, establishes a three-level valuation hierarchy for disclosures of FV measurement and enhances disclosure requirements for FV measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are reasonable estimates of FV because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels are defined as follows:
 
• Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
 
• Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments.
 
• Level 3 inputs to the valuation methodology are unobservable and significant to the FV.
 
Concentration of Risk
 
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and equivalents and accounts receivable. As of September 30 and June 30, 2013, substantially all of the Company’s cash and equivalents were held by major financial institutions in Taiwan, which management believes are of high credit quality. With respect to accounts receivable, the Company generally does not require collateral and does not have an allowance for doubtful accounts.
 
The Company has two principal insurance companies, Fubong Life Insurance Co., Ltd. (“Fubong”) and Far Glory Life Insurance (“Far Glory”), for which it acts as an insurance agent. For the three months ended September 30, 2013 and 2012, the Company’s revenues from sale of insurance policies underwritten by these two companies was:
 
 
 
2013
 
 
2012
 
 
 
Amount
 
% of Total 
Revenue
 
 
Amount
 
% of Total 
Revenue
 
Fubong
 
$
1,423,452
 
18
%
 
$
553,010
 
17
%
Far Glory
 
 
2,014,871
 
26
%
 
 
1,145,581
 
36
%
 
As of September 30, 2013 and June 30, 2013 (audited), the Company’s accounts receivable from these two companies were:
 
 
 
September 30, 2013
 
 
June 30, 2013
 
 
 
Amount
 
% of Total 
Accounts 
Receivable
 
 
Amount
 
% of Total 
Accounts 
Receivable
 
Fubong
 
$
386,269
 
15
%
 
$
673,710
 
16
%
Far Glory
 
 
729,297
 
29
%
 
 
1,501,865
 
36
%
 
The Company's operations are in the PRC 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 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 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.
 
Operating Leases
 
Leases, where substantially all the rewards and risks of ownership of assets remain with the leasing company, that do not meet the capitalization criteria of FASB ASC Topic 840 “Leases,” are accounted for as operating leases. Rentals under operating leases are expensed on the straight-line basis over the lease term.
 
Segment Reporting
 
The Company follows FASB ASC Topic 280, “Segment Reporting,” for its segment reporting.  For the three months ended, September 30 2013 and 2012, the Company managed and reviewed its business as a single operating segment providing insurance brokerage and agency services across the PRC and Taiwan (combined referred as “Greater China”). All revenues are derived from Greater China and all long-lived assets are in Greater China.
 
Contingencies
 
Certain conditions may exist as of the date the financial statements are issued, which could result in a loss to the Company which will be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies arising from legal proceedings pending against the Company or unasserted claims that may rise from such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
 
If the assessment of a contingency indicates it is probable a material loss will be incurred and the amount of the loss can be reasonably estimated, then the estimated loss is accrued in the Company’s financial statements. If the assessment indicates a material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
 
 
F-8

 
Statement of Cash Flows
 
In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company's operations are calculated based upon the local currencies and an average exchange rate is used. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows may not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Cash from operating, investing and financing activities is net of the effect of acquisition described in Note 9.
 
Variable Interest Entities
 
The Company follows FASB ASC Subtopic 810-10-05-8, “Consolidation of VIEs,” states that a VIE is a corporation, partnership, limited liability corporation, trust or any other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations.
 
Due to the PRC 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 primarily through Henan Anhou, a VIE owned by four individual shareholders, and two subsidiaries of Henan Anhou.
 
On January 17, 2011, CU WFOE and Henan Anhou and its shareholders entered into VIE Agreements which included:
 
 
¨
Exclusive Business Cooperation Agreement (“EBCA” or the “Agreement”) through which: (1) CU WFOE has the right to provide Henan Anhou with complete technical support, business support and related consulting services during the term of this Agreement; (2) Henan Anhou agrees to accept all the consultations and services provided by CU WFOE. Henan Anhou further agrees that unless with CU WFOE's prior written consent, during the term of this Agreement, Henan Anhou shall not directly or indirectly accept the same or any similar consultations and/or services provided by any third party and shall not establish similar cooperation relationship with any third party regarding the matters contemplated by this Agreement; (3) Henan Anhou shall pay CU WFOE fees equal to 90% of the net income of Henan Anhou, and the payment is quarterly, and (4) CU WFOE retains all exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising out of or created during the performance of this Agreement.
 
The term of this Agreement is 10 years. Subsequent to the execution of this Agreement, both CU WFOE and Henan Anhou shall review this Agreement on an annual basis to determine whether to amend or supplement the provisions. The term of this Agreement may be extended if confirmed in writing by CU WFOE prior to the expiration thereof. The extended term shall be determined by CU WFOE, and Henan Anhou shall accept such extended term unconditionally.
 
During the term of this Agreement, unless CU WFOE commits gross negligence, or a fraudulent act, against Henan Anhou, Henan Anhou may not terminate this Agreement. Nevertheless, CU WFOE shall have the right to terminate this Agreement upon giving 30 days prior written notice to Henan Anhou at any time.
 
 
¨
Power of Attorney under which each shareholder of Henan Anhou executed an irrevocable power of attorney to authorize CU WFOE to act on behalf of the shareholder to exercise all of his/her rights as equity owner of Henan Anhou, including without limitation to: (1) attend shareholders' meetings of Henan 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 Henan 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 Henan Anhou.
 
 
 
 
¨
Option Agreement under which the shareholders of Henan Anhou irrevocably granted CU WFOE or its designated person an exclusive and irrevocable right to acquire, at any time, the entire portion of Henan Anhou’s equity interest held by each shareholder of Henan Anhou, or any portion thereof, to the extent permitted by PRC law. The purchase price for the shareholders’ equity interests in Henan Anhou shall be the lower of (i) RMB1 ($0.16) and (ii) the lowest price allowed by relevant laws and regulations.  If appraisal is required by the laws of PRC when CU WFOE exercises the Equity Interest Purchase Option (as defined in the Option Agreement), the Parties shall negotiate in good faith and based on the appraisal result make necessary adjustment to the Equity Interest Purchase Price (as defined in the Option Agreement) so that it complies with any and all then applicable laws of the PRC. The term of this Agreement is 10 years, and may be renewed at CU WFOE's election.
 
 
 
 
¨
Share Pledge Agreement under which the owners of Henan Anhou pledged their equity interests in Henan Anhou to CU WFOE to guarantee Henan Anhou’s performance of its obligations under the EBCA. Pursuant to this agreement, if Henan Anhou fails to pay the exclusive consulting or service fees in accordance with the EBCA, CU WFOE shall have the right, but not the obligation, to dispose of the owners of Henan Anhou’s equity interests in Henan Anhou. This Agreement shall be continuously valid until all payments due under the EBCA have been repaid by Henan Anhou or its subsidiaries.
 
As a result of the agreements among CU WFOE, the shareholders of Henan Anhou and Henan Anhou, CU WFOE is considered the primary beneficiary of Henan Anhou, CU WFOE has effective control over Henan Anhou; therefore, CU WFOE consolidates the results of operations of Henan Anhou and its subsidiaries. Accordingly the results of operations, assets and liabilities of Henan Anhou and its subsidiaries are consolidated in the Company’s financial statements from the earliest period presented. However, the VIE is monitored by the Company to determine if any events have occurred that could cause its primary beneficiary status to change. These events include:
 
 
a.
The legal entity's governing documents or contractual arrangements are changed in a manner that changes the characteristics or adequacy of the legal entity's equity investment at risk.
 
 
b.
The equity investment or some part thereof is returned to the equity investors, and other interests become exposed to expected losses of the legal entity.
 
 
c.
The legal entity undertakes additional activities or acquires additional assets, beyond those anticipated at the later of the inception of the entity or the latest reconsideration event, that increase the entity's expected losses.
 
 
d.
The legal entity receives an additional equity investment that is at risk, or the legal entity curtails or modifies its activities in a way that decreases its expected losses.
 
The Company reviews the VIE’s status on an annual basis. For the three months ended September 30, 2013, no event including a-d above took place that would change the Company’s primary beneficiary status.
 
Reclassifications
 
Certain prior period amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications had no effect on the net income (loss) or stockholders’ equity.
 
Recent Accounting Pronouncements
 
In April, 2011, the FASB issued ASU 2011-03 Transfers and Servicing (ASC Topic 860), “Reconsideration of Effective Control for Repurchase Agreements.” The amendments in this ASU 2011-03 remove from the assessment of effective control:
 
 
1.
The criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on the substantially agreed terms, even in the event of default by the transferee; and
 
 
2.
The collateral maintenance implementation guidance related to that criterion.
 
Other criteria applicable to the assessment of effective control are not changed by the amendments in ASC 860. The guidance in this Update is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of this ASU did not have a material affect on the Company’s consolidated financial statements.
 
In June 2011, the FASB issued ASU 2011-04 Fair Value Measurement (ASC Topic 820), “Amendments to achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and International Financial Reporting Standards,” (“IFRS”). The amendments in this Update change the wording used to describe the requirements in US GAAP for measuring FV and for disclosing information about FV measurements. The amendments include:
 
 
1.
Those that clarify the Board of Directors’ intent about the application of existing FV measurement and disclosure requirements.
 
 
2.
Those that change a particular principle or requirement for measuring FV or for disclosing information about FV measurements.
 
In addition, to improve consistency in application across jurisdictions some changes in wording are necessary to ensure that US GAAP and IFRS FV measurement and disclosure requirements are described in the same way (for example, using the word shall rather than should to describe the requirements in US GAAP).
 
The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The adoption of this ASU did not have a material affect on the Company’s consolidated financial statements. 
 
In June 2011, the FASB issued ASU 2011-05 Comprehensive Income (ASC Topic 220), “Presentation of Comprehensive Income.” In this Update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.
 
The amendments in ASC 860 should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and early adoption is permitted. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
 
 
F-9

 
In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (ASC Topic 350), “Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate it is more likely than not the indefinite-lived intangible asset is impaired. If an entity concludes it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the FV of the indefinite-lived intangible asset to measure the amount of impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement did not have a material impact on our financial statements.
 
In February 2013, the FASB issued guidance on disclosure requirements for items reclassified out of Accumulated Other Comprehensive Income (“AOCI”). This new guidance requires entities to present (either on the face of the income statements or in the notes) the effects on the line items of the income statement for amounts reclassified out of AOCI. The new guidance was effective for us beginning July 1, 2013. Other than requiring additional disclosures, the adoption of this guidance did not have a material impact on our financial statements.
 
In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning July 1, 2014. We do not anticipate a material impact on our financial statements upon adoption.
 
In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This standard provides guidance regarding when an unrecognized tax benefit should be classified as a reduction to a deferred tax asset or when it should be classified as a liability in the consolidated balance sheet. The new guidance will be effective for us beginning July 1, 2014. Early adoption and retrospective application is permitted. The Company is evaluating the potential impact of this adoption on our consolidated financial statements.

NOTE 3 – CASH AND EQUIVALENTS
 
As of September 30, 2013 and June 30, 2013 (audited) our cash and equivalents primarily consisted of cash and certificates of deposits with original maturities of three months or less.

NOTE 4 - MARKETABLE SECURITIES
 
Marketable securities represent investment in equity securities of listed stocks and government bonds, which are classified as Level 1 securities as follows:
 
 
 
September 30, 2013
 
 
 
Cost or
 
Gross
 
 
 
 
 
 
Amortized
 
Unrealized
 
Total
 
 
 
Cost
 
Gains (Losses)
 
Fair Value
 
Level 1 securities:
 
 
 
 
 
 
 
 
 
 
Equity securities
 
$
25,133
 
$
(537)
 
$
24,596
 
Government bonds
 
 
105,929
 
 
(988)
 
 
104,941
 
 
 
$
131,062
 
$
(1,525)
 
$
129,537
 
 
 
 
June 30, 2013 (audited)
 
 
 
Cost or
 
Gross
 
 
 
 
 
Amortized
 
Unrealized
 
Total
 
 
 
Cost
 
Gains (Losses)
 
Fair Value
 
Level 1 securities:
 
 
 
 
 
 
 
 
 
 
Equity securities
 
$
25,363
 
$
1,605
 
$
26,968
 
Government bonds
 
 
105,620
 
 
(2,201)
 
 
103,419
 
 
 
$
130,983
 
$
(596)
 
$
130,387
 
 
According to Taiwan regulatory requirements, Law Broker is required to maintain a minimum of NT$3,000,000 ($102,000) in a separate account. Law Broker chose to buy government bonds and has the right to trade such bonds with other debt or equity instruments. The amount, however, was defined as restricted asset.

NOTE 5 – OTHER CURRENT ASSETS
 
The Company’s other current assets consisted of the following, as of September 30, 2013 and June 30, 2013 (audited):
 
 
 
September 30, 2013
 
June 30, 2013
 
Prepaid rent
 
$
80,003
 
$
86,697
 
Refundable business tax
 
 
249,544
 
 
246,854
 
Prepaid business tax
 
 
403,674
 
 
-
 
Investment in certificate of deposit
 
 
583,229
 
 
-
 
Other
 
 
198,334
 
 
101,492
 
Total other current assets
 
$
1,514,784
 
$
435,043
 
 
 
F-10

 
Refundable business tax, similar to VAT in mainland China, represents business tax prepaid by Law Broker and Risk Management, expected to be refunded by Taiwan tax bureau. Prepaid business tax represents the business tax prepaid for receiving NT$250,000,000 ($8,500,000) in unearned revenue from an insurance company as described in Note 11. Other mainly represents advances to staff and other miscellaneous receivables.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET
 
Property, plant and equipment consisted of the following, as of September 30, 2013 and June 30, 2013 (audited): 
 
 
 
September 30, 2013
 
June 30, 2013
 
Office equipment
 
$
373,035
 
$
366,455
 
Office furniture
 
 
2,290,885
 
 
2,034,925
 
Leasehold improvements
 
 
755,244
 
 
709,228
 
Transportation equipment
 
 
16,265
 
 
16,185
 
Other equipment
 
 
158,237
 
 
169,196
 
Total
 
 
3,593,666
 
 
3,295,989
 
Less: accumulated depreciation
 
 
(2,224,377)
 
 
(2,134,186)
 
Total property, plant and equipment, net
 
$
1,369,289
 
$
1,161,803
 

NOTE 7 – OTHER ASSETS
 
The Company’s other assets consisted of the following, as of September 30, 2013 and June 30, 2013 (audited):
 
 
 
September 30, 2013
 
June 30, 2013
 
Restricted cash
 
$
81,328
 
$
87,606
 
Rental deposits
 
 
477,190
 
 
432,272
 
Total other assets
 
$
558,518
 
$
519,878
 
 
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.

NOTE 8 – GOODWILL
 
On September 6, 2010, Henan Anhou paid RMB532,622 ($78,318) to acquire 100% of Sichuan Kangzhuang from its previous shareholders. Sichuan Kangzhuang then had net liabilities of RMB219,123 ($32,134). Goodwill of RMB751,745 ($110,452) was therefore recorded. Goodwill in the balance sheet differs from the acquisition date amount due to changes in exchange rates. As of September 30, 2013, there are no indications of any impairment. No intangible assets were identified in the acquisition date. At the date of acquisition, Sichuan Kangzhuang had no unfulfilled customer contract or software. Sichuan Kangzhuang’s business process and accounting system are not unique and the management planned to use unified operating platform after the acquisition. Sichuan Kangzhuang’s business is mainly with retailing customers, and the management considered there is no customer relationship or customer list that will probably create future business opportunities for the Company.

NOTE 9 – RECENT ACQUISITION
 
On August 24, 2012, the Company acquired all of the issued and outstanding shares of AHFL for $2,750,910. NT$15 million ($500,815) and NT$7.5 million ($250,095) payable in cash in two installments, and 10 million shares of common stock at the then market price of $0.20 per share. The FV of the identifiable assets and liabilities of AHFL at acquisition date was $8,047,654. The Company recorded the $5,280,042 excess of purchase price over the FV of assets and liabilities acquired as bargain gain on purchase. We believe the gain on acquisition resulted from the sellers' strategic intent to enter the PRC market, which has a higher growth rate than Taiwan, and to become the shareholder of an OTCBB company. Results of operations for the three months ended September 30, 2012 included AHFL’s results from the acquisition date.

NOTE 10 – TAXES PAYABLE
 
The Company’s taxes payable consisted of the following, as of September 30, 2013 and June 30, 2013 (audited):
 
 
 
September 30, 2013
 
June 30, 2013
 
PRC tax
 
$
83,848
 
$
146,610
 
Taiwan tax
 
 
217,604
 
 
747,103
 
Total taxes payable
 
$
301,452
 
$
893,713
 
 
PRC tax represents income tax and other taxes accrued according to PRC tax law by our subsidiaries and affiliates in the PRC. Taiwan tax represents income tax and other taxes accrued according to Taiwan tax law by our subsidiaries and branches in Taiwan. Both will be settled within the next twelve months according to the respective tax laws.

NOTE 11 – UNEARNED REVENUE
 
Unearned revenue represents NT$250,000,000 ($8,477,163) received, as Execution Fee, from an insurance company in August 2013. On June 10, 2013, AHFL entered into a Strategic Alliance Agreement (the “Alliance Agreement”) with AIA International Limited Taiwan Branch (“AIATW”). The purpose of the Alliance Agreement is to promote life insurance products provided by AIATW within Taiwan by insurance agencies or brokerage companies affiliated with AHFL or CUIS. The term of the Alliance Agreement is from June 1, 2013 to May 31, 2018. Pursuance to the terms of the Alliance Agreement, AIATW paid AHFL the Execution Fee 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. For the three months ended September 30, 2013 no income was recorded under the Alliance Agreement as performance targets were not met.
 
 
F-11

 
NOTE 12 – OTHER CURRENT LIABILITIES
 
Other current liabilities are as follows, as of September 30, 2013 and June 30, 2013 (audited):
 
 
 
September 30, 2013
 
June 30,2013
 
Commissions payable to sub agents
 
$
1,470,334
 
$
2,441,741
 
Salary payable to administrative staff
 
 
225,914
 
 
221,851
 
Due to previous shareholders of Sichuan Kangzhuang and Jiangsu Law
 
 
84,255
 
 
83,836
 
Withholding employee personal tax
 
 
257,482
 
 
184,317
 
Accrued expenses
 
 
844,836
 
 
1,156,064
 
Other
 
 
249,041
 
 
254,107
 
Total other current liabilities
 
$
3,131,862
 
$
4,341,916
 
 
Commissions due to sub-agents and salaries payable to administrative staff are usually settled within 12 months. The amount due to previous shareholders of AHFL is the remaining balance of the acquisition cost described in Note 1. Due to previous shareholders of Jiangsu Law is the remaining balance of the acquisition cost. The acquisition agreement between the parties has not specified the exact time for payment of the acquisition price or imposed any interest for late payment. Others are mainly for operating expenses payable within the credit terms provided by suppliers. Withholding employee personal tax will be paid to local tax bureau within one month. Other mainly represents short term payable for expenses such as training and travelling.

NOTE 13 – EQUITY
 
Statutory reserve
 
According to Taiwan accounting rules and corporation regulations, the company’s subsidiaries in Taiwan must appropriate 10% of net income to statutory reserve until the accumulated reserve plus common shares hits registered capital. The reserve can be converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, with a limitation that the reserve left is not less than 25% of the registered capital after converting to share capital.
 
Pursuant to the PRC regulations, the Company’s Consolidated Affiliated Entities (“CAEs”) are required to transfer 10% of their net profit, as determined under the PRC accounting regulations, to a Statutory Common Reserve Fund (“Reserve Fund”). Appropriation to the Reserve Fund may cease when the fund equals 50% of a company’s registered capital or when a company has accumulated losses. The transfer to this reserve must be made before distribution of dividends to shareholders. The Company’s CAEs did not appropriate such reserve as they have accumulated losses.

NOTE 14 – INCOME TAX
 
CU WFOE and the VIEs 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 Law, according to the requirement of local tax authorities, the tax basis is deemed as 10% of total revenue, instead of net income. The tax rate of Jiangsu Law is also 25%.
 
According to Chinese tax regulations by the Chinese tax authorities effective January 1, 2008, commissions paid to sub-agents in excess of 5% of the commission revenue were 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 three years can be reversed. Therefore, for the three months ended September 30, 2013, we reversed the tax payable of $57,359 accrued at September 30, 2010 for such originally non-deductible commission and credited as income tax benefit.
 
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.
 
The balance of income tax payable as of September 30, 2013 mainly is the income tax accrued for the un-deductible commission paid to sub-agents before 2011 and is due upon written request of the local tax bureau.
 
The following table reconciles the US statutory rates to the Company’s effective tax rate for the three months ended September 30, 2013 and 2012:
 
 
 
2013
 
 
2012
 
US statutory rate
 
 
(34)
%
 
 
34
%
Tax rate difference
 
 
14
%
 
 
(1)
%
Increase in valuation allowance
 
 
16
%
 
 
-
%
Non-taxable gain on bargain purchase of subsidiary
 
 
-
%
 
 
(34)
%
Other
 
 
-
%
 
 
1
%
Tax per financial statements
 
 
(4)
%
 
 
-
%
 
 
F-12

 
Un-deductible and non-taxable items mainly represent un-deductible expenses according to PRC tax laws and the non-taxable tax income or loss.

NOTE 15 - RELATED PARTY TRANSACTIONS
 
Due to related parties
 
The related parties listed below loaned money to the Company for working capital. Due to related parties consisted of the following as of September 30, 2013 and June 30, 2013 (audited): 
 
 
 
September 30, 2013
 
June 30, 2013
 
Due to Mr. Mao (Principal Shareholder of the Company)
 
$
100,961
 
$
71,487
 
Due to Ms. Zhu (Shareholder of Henan Anhou)
 
 
502,115
 
 
1,099,331
 
Due to Mr. Zhu (Legal Representative of Jiangsu Law)
 
 
2,252
 
 
-
 
Due to Mrs. Li (Director of CUIS)
 
 
-
 
 
566,478
 
Total
 
$
605,328
 
$
1,737,296
 

NOTE 16 – COMMITMENTS
 
Operating Leases
 
The Company has operating leases for its offices. Rental expenses for the three months ended September 30, 2013 and 2012 were $183,116 and $399,163, respectively. At September 30, 2013, total future minimum lease payments under operating leases were as follows, by years: 
 
Twelve months ended September 30, 2014
 
$
483,375
 
Twelve months ended September 30, 2015
 
 
132,084
 
Twelve months ended September 30, 2016
 
 
9,875
 
Total
 
$
625,334
 

NOTE 17 – FINANCIAL RISK MANAGEMENT AND FAIR VALUES
 
The Company has exposure to credit, liquidity and market risks which arise in the normal course of its business. This note presents information about the Company's exposure to each of these risks, the Company's objectives, policies and processes for measuring and managing risk, and the Company's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
 
The Board of Directors (“BOD”) has overall responsibility for the establishment and oversight of the Company's risk management framework. The Company's risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
 
The Company's BOD oversees how management monitors compliance with the Company's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. 
 
(a)
Credit risk
 
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.
 
(b)
Liquidity risk
 
The BOD of the Company is responsible for the overall cash management and raising borrowings to cover expected cash demands. The Company regularly monitors its liquidity requirements, to ensure it maintains sufficient reserves of cash and readily realizable marketable securities and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.
 
(c)
Currency risk
 
The functional currency for the subsidiaries in Taiwan is NT$ and the functional currency for the subsidiaries and VIEs in PRC is RMB. The financial statements of the Company are in USD. The fluctuation of NT$ and RMB will affect our operating results expressed in USD. The Company reviews its foreign currency exposures. The management does not consider its present foreign exchange risk to be significant.
 
 
F-13

 
NOTE 18 – GEOGRAPHICAL SALES
 
The geographical distribution of China United’s revenue for the three months ended September 30, 2013 and 2012 is as follows:
 
Geographical Areas
 
2013
 
2012
 
PRC
 
$
550,015
 
$
743,921
 
Taiwan
 
 
7,244,926
 
 
2,475,379
 
 
 
$
7,794,941
 
$
3,219,300
 
 
 
F-14

 
NOTE 19 – CONDENSED FINANCIAL INFORMATION OF US PARENT
 
China United is a holding company and owns no operating assets and has no significant operations independent of its subsidiaries. Set forth below are condensed financial statements for China United on a stand-alone, unconsolidated basis as of September 30, 2013 and June 30, 2013, and for the three months ended September 30, 2013 and 2012. 
 
CHINA UNITED INSURANCE SERVICE, INC.
BALANCE SHEETS
SEPTEMBER 30, 2013 AND JUNE 30, 2013 (AUDITED)
 
 
 
September 30, 2013
 
June 30, 2013
 
ASSETS
 
 
 
 
 
 
 
Advance to ZLI
 
$
319,339
 
$
-
 
Investment in subsidiaries
 
 
9,924,424
 
 
11,117,884
 
TOTAL ASSETS
 
$
10,243,763
 
$
11,117,884
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Other current liabilities
 
$
770,249
 
$
752,781
 
Due to related party
 
 
688,009
 
 
556,478
 
TOTAL LIABILITIES
 
 
1,458,258
 
 
1,319,259
 
 
 
 
 
 
 
 
 
STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Preferred stock, par value, $0.00001, 100,000,000 authorized, 1,000,000 issued and outstanding
 
 
10
 
 
10
 
Common stock, par value $0.00001, 100,000,000 authorized, 29,100,503 and 20,000,000 issued and outstanding
 
 
291
 
 
291
 
Additional paid-in capital
 
 
4,674,593
 
 
4,674,593
 
Reserves
 
 
257,785
 
 
257,785
 
Accumulated other comprehensive (loss)
 
 
(25,388)
 
 
(41,671)
 
Retained earnings
 
 
3,878,214
 
 
4,907,617
 
TOTAL STOCKHOLDERS’ EQUITY
 
 
8,785,505
 
 
9,798,625
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
10,243,763
 
$
11,117,884
 
 
CHINA UNITED INSURANCE SERVICE, INC.
STATEMENTS OF OPERATIONS
 
 
 
Three Months Ended September 30,
 
 
 
2013
 
2012
 
Revenues
 
$
-
 
$
-
 
Cost of revenue
 
 
-
 
 
-
 
Gross profit
 
 
-
 
 
-
 
Operating expenses:
 
 
 
 
 
 
 
General and administrative
 
 
120,948
 
 
200,000
 
Loss from operations
 
 
(120,948)
 
 
(200,000)
 
Other expenses
 
 
 
 
 
 
 
Equity income from subsidiaries
 
 
(1,193,460)
 
 
206,652
 
Bargain gain on purchase of subsidiaries
 
 
-
 
 
5,280,042
 
Income (loss) before income taxes
 
 
(1,314,408)
 
 
5,286,694
 
Income tax expense
 
 
-
 
 
-
 
Net income (loss)
 
$
(1,314,408)
 
$
5,286,694
 

NOTE 20 – LOAN TO SHAREHOLDERS
 
Henan Anhou Registered Capital Increase
 
On April 27, 2013, China Insurance Regulatory Commission mandated any insurance agency have a minimum registered capital requirement of RMB50 million ($8,150,000). At the time, Anhou, a professional insurance agency with a PRC nationwide license, had a registered capital of RMB10 million ($1,630,000). To better implement its expansion strategies, Anhou intends to increase its registered capital to RMB50 million so that it can set up new branches in any province beyond its current operations in Mainland China.
 
 
F-15

 
Due to certain restriction on direct foreign investment in insurance agency business under current PRC legal requirements, Anhou sought investments from certain Investor Borrowers who in turn needed funds through individual loans.
 
On June 9, 2013, AHFL entered into a Loan Agreement with ZLI Holdings, whereby AHFL agreed to provide a loan to ZLI Holdings of RMB40 million ($6,532,716). 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:
 
1.
Able Capital Holding Co., Ltd., a limited liability company established and registered in Hong Kong (RMB29,500,000 ($4,817,896))
2.
Mr. Chen Li, PRC citizen (RMB3,000,000 ($489,949))
3.
Ms. Yue Jing, PRC citizen (RMB7,500,000 ($1,224,871))
 
The term for the above loans is 10 years which may be extended upon the agreement of the parties. Pursuant to the Investor Loan Agreements, each of the Investor Borrowers entered into a binding VIE agreement with Anhou, the WFOE and certain existing shareholders of Anhou. The proceeds received from the said loans by the Investor Borrowers were solely used to increase the registered capital of Anhou. As of September 30, 2013, the loan was offset against equity in a manner similar to subscription receivables.

NOTE 21- SUBSEQUENT EVENTS
 
On October 24, 2013, Anhou completed the registration with local Administration Industry and Commerce (“AIC”) on the above-mentioned capital increase. The new business license was issued to Anhou on October 25, 2013.
 
On October 24, 2013, Zhengzhou Zhonglian Hengfu Business Consulting Co., Ltd. (the “WFOE”), Anhou and Anhou Existing Shareholders entered into a series of variable interest agreements (the “New VIE Agreements”), including Power of Attorneys, Exclusive Option Agreements, Share Pledge Agreements, in the form substantially the same as the previous VIE agreements entered into among the WFOE, Anhou and Anhou Original Shareholders (the “Old VIE Agreements”). The Old VIE Agreements were terminated by and among the WFOE, Anhou and Anhou Original Shareholders on the same date. The Exclusive Business Cooperation Agreement executed by and between the WFOE and Anhou on January 17, 2011 is in full effect.
 
 
F-16

 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read this Management’s Discussion and Analysis in conjunction with the Consolidated Financial Statements and Related Notes.
 
Overview
 
China United Insurance Service, Inc. (“China United”, ”CUIS” or the “Company”) is a Delaware corporation organized on June 4, 2010 by Mao Yi Hsiao, a Taiwanese citizen, as a listing vehicle for ZLI Holdings Limited (“CU Hong Kong”) to be quoted on the Over the Counter Bulletin Board (the “OTCBB”). CU Hong Kong, a wholly owned Hong Kong-based subsidiary of China United, was founded by China United on July 12, 2010 under Hong Kong laws. On October 20, 2010, CU Hong Kong founded a wholly foreign owned enterprise, Zhengzhou Zhonglian Hengfu Business Consulting Co., Ltd. (“CU WFOE”) in Henan province in the People’s Republic of China (“the PRC”).
 
On January 16, 2011, China United issued 20,000,000 shares of common stock, $0.00001 par value per share, to several non US persons for $300,000 in cash invested in the Company’s subsidiaries. The issuance was made pursuant to an exemption from registration contained in Regulation S under the Securities Act of 1933, as amended. The consideration was paid as of June 30, 2012. On January 28, 2011, the Company increased the number of authorized shares from 30,000,000 shares of common stock to 100,000,000 shares of common and 10,000,000 shares of preferred stock.
 
Henan Law Anhou Insurance Agency Co., Ltd. (“Henan Anhou”, formerly known as Zhengzhou Anhou Insurance Agency Co., Ltd.) was incorporated in the PRC on August 20, 2003. Henan Anhou provides insurance agency services in the PRC. On August 16, 2010, Ms. Zhu Shuqin contributed RMB8,000,000 ($1,175,440) in cash to Henan Anhou and controlled 80% of Henan Anhou shares.
 
Sichuan Kangzhuang Insurance Agency Co., Ltd. (“Sichuan Kangzhuang”) was founded on July 10, 2006 in Sichuan province in the PRC and provides insurance agency services in the PRC. On August 23, 2010, at Sichuan Kangzhuang’s general meeting of shareholders, its shareholders voted to sell their shares to Henan Anhou for RMB532,622 ($78,318). On September 6, 2010, the equity transfer agreements were signed between Henan Anhou and each shareholder of Sichuan Kangzhuang.
 
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 Henan Anhou for RMB518,000 ($75,475) and Henan 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 Henan Anhou and each shareholder of Jiangsu Law.
 
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. We do not hold equity interests in our CAE. However, through the variable interest entities (“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.
 
Our CAE in China are VIE through which all of our insurance services are operated. It is through the VIE Agreements that we have effective control of the CAE, which allows us to consolidate the financial results of the CAE in our financial statements. If Henan Anhou and its shareholders fail to perform their obligations under the VIE Agreements, we could be limited in our ability to enforce the VIE Agreements that give us effective control. Furthermore, if we are unable to maintain effective control of our CAE, we would not be able to continue to consolidate the CAE’s financial results with our financial results. During the three months ended September 30, 2013, 92.94% and 7.06% of our revenues in our consolidated financial statements were derived from our Taiwan Subsidiaries and CAE, respectively. For more information see “Risk Factors-Risks Related to Our Corporate Structure.”
 
On January 17, 2011, CU WFOE and Henan Anhou and its shareholders entered into a series of VIE Agreements pursuant to which CU WFOE has executed effective control over Henan Anhou through these contractual arrangements.
 
On August 24, 2012, the Company acquired all of the issued and outstanding shares of Action Holdings Financial Limited (“AHFL”), a limited liability company (“LLC”) incorporated under the laws of British Virgin Islands on April 30, 2012, together with its subsidiaries in Taiwan. Subsequent to the acquisition, AHFL became a 100% owned subsidiary of the Company.
 
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.
 
Law Enterprise is a holding company of 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.
 
Below is a diagram of our corporate structure as of September 30, 2013.
 
 
5

 
 
 
6

 
Due to recent stock transfers, the ownership of Henan Anhou has changed since the end of our fiscal quarter.  For a full description of the changes please see the disclosures contained under the heading “OTHER INFORMATION” contained in Part II, Item 5 of this Quarterly Report on Form 10-Q.
 
As of September 30, 2013, through our CAE, we had two insurance agencies, one brokerage and 37 service outlets with 888 full-time sales professionals, 37 part-time sales professionals and 67 administrative staff in Henan, Sichuan and Jiangsu provinces in China. In addition, through Law Insurance Broker Co., Ltd., we had 22 sales and service outlets (including the headquarters) with 1,476 full-time sales professionals, 345 part-time sales professionals and 151 administrative staff in Taiwan.
 
Critical Accounting Policies
 
The preparation of financial statements in conformity with Accounting Principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the amounts of revenues and expenses during the period. Management makes these estimates using the best information available when they are made. However, actual results could differ materially from those estimates. While there are a number of significant accounting policies affecting the Company’s financial statements; the Company believes the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments The Company has not made any material changes in the methodology used in these accounting polices during the past two years.
 
Principles of consolidation
 
The accompanying consolidated financial statements include the accounts of China United and its subsidiaries. The results of operations of AHFL and subsidiaries are included since August 31, 2012 the date of acquisition for accounting convenience. All significant intercompany transactions and balances were eliminated in consolidation. 
 
Accounts receivable
 
The Company reviews its accounts receivable on a regular basis to determine if a bad debt allowance is necessary. Management reviews the composition of accounts receivable and analyzes the age of receivable outstanding, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the necessity of making such allowance. No allowance was deemed necessary as of September 30, 2013 or June 30, 2013.
 
Revenue recognition
 
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 the issuance of the policies, in which the customers can cancel the contract without any fees. For the three months ended September 30, 2013 and 2012, policy cancellations were $47,591 and $32,998, respectively.
 
The Company pays commissions to its sub-agents when an insurance product is sold by the sub-agent. The Company recognizes commission revenue on a gross basis. The commissions paid by the Company to its sub-agents are recorded as costs of revenue.
 
 
7

 
Income taxes
 
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 September 30, 2013 and June 30, 2013, the Company did not have any uncertain tax positions. 
 
The Company was not subjected to income tax examinations by taxing authorities during the current and past fiscal years.  During the three months ended September 30, 2013 and 2012, the Company did not recognize any interest or penalties.
 
Impairment of Long-Lived Assets
 
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.
 
Goodwill
 
Goodwill arose from the acquisition of Sichuan Kangzhuang. Goodwill is the excess of the cost of an acquisition over the FV of the net assets acquired. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, using the prescribed two-step process under US GAAP. The first step screens for potential impairment of goodwill to determine if the FV of the reporting unit is less than its carrying value, while the second step measures the amount of goodwill impairment, if any, by comparing the implied FV of goodwill to its carrying value.
 
Results of Operations for the Three Months Ended September 30, 2013 and 2012
 
Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012
 
Our results of operations for the three months ended September 30, 2013 contains the results for three months ended September 30, 2013 of AHFL. The majority of AHFL’s result is generated by Law Broker, its subsidiary in Taiwan. Acquisition of AHFL enabled us to expand our business to Taiwan. Our results of operations for the three months ended September 30, 2012 contains the results for one month for the period ended September 30, 2012 of AHFL.
 
 
8

 
Revenues
 
Revenues increased by $4,575,641, or 142%, from $3,219,300 for the three months ended September 30 2012 to $7,794,941 for the three months ended September 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.
 
As a distributor of insurance products, we derive our revenue primarily from commissions and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance companies. We generate revenue primarily through our sales force, which consists of individual sales agents in our distribution and service network. The acquisition of AHFL enabled us to reach the untapped market in Taiwan. For the three months ended September 30, 2013, our business in Taiwan generated $7,244,926 of revenue, which accounts for 93% of our total revenue.
 
Cost of revenue and gross profit     
 
The cost of revenue for the three months ended September 30, 2013 increased by $4,040,670 or 187%, to $6,206,292 compared to $2,165,622 for the three months ended September 30, 2012. Over 90% of the cost of revenue is commissions paid to our sales agents. Therefore the cost of revenue increased as our sales increased. For the three months ended September 30, 2013, $5,850,622 of our cost of revenue belonged to the Taiwan business we acquired.
 
Gross profit for the three months ended September 30, 2013 increased by $534,971, or 51%, to $1,588,649 compared to $1,053,678 for the three months ended September 30, 2012. The gross profit ratio decreased to 20% for the three months ended September 30, 2013 from 33% for the three months ended September 30, 2012. The decrease was mainly because Law Broker increased the portion of commission paid to sub-agent by paying a special bonus.
 
Selling expenses
 
Selling expenses were mainly comprised of marketing promotion for Law Broker. For the three months ended September 30, 2012, such expenses were included in general and administrative expenses.
 
General and administrative expenses
 
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.
 
For the three months ended September 30, 2013, G&A expenses were $2,346,327, increased by $1,316,056, or 128%, compared to $1,030,271 for the three months ended September 30, 2012. The increase in expenses is due to the overall growth of our business and expansion to Taiwan. For the three months ended September 30, 2013, $1,894,786 of our G&A expenses belonged to the Taiwan business we acquired.
 
Other income 
 
Other income for the three months ended September 30, 2013 was mainly rental income of sub-leased spare offices and garage.
 
 
9

 
Income tax
 
CU WFOE, the Company’s subsidiary, and the VIEs 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 Law, according to the requirement of local tax authorities, the tax basis is deemed as 10% of total revenue, instead of net income. The tax rate of Jiangsu Law is also 25%.
 
According to tax regulations by Chinese tax authorities effective January 1, 2008, commissions paid to sub-agents in excess of 5% of the commission revenue were 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, during the three months ended September 30 2013, we reversed the tax payable of $57,359 accrued before for such deductible commissions and credited as income tax benefit.
 
The Company’s subsidiaries in Taiwan are governed by the Income Tax Law of Taiwan, and are generally subject to tax at 17% of income reported in the statutory financial statements after appropriate adjustments.
 
Liquidity and Capital Resources
 
Net cash provided by operating activities during the three months ended September 30, 2013 was $5,978,330, including $8,477,163 advance payment received from AIATW. Net cash used in operating activities during the three months ended September 30, 2012 was $2,068,606. The increase was mainly contributed by our Taiwan business.
 
Net cash used in investing activities was $692,348 during the three months ended September 30, 2013. The net cash provided by investing activities was $12,755,795 for the three months ended September 30 2012, which was the combined effect of cash acquired in acquisition of AHFL and the purchase of marketable securities.
 
For the three months ended September 30, 2013, net cash used in financing activities was $6,444,825, including the $5,309,377 loans to unrelated third parties. Net cash provided by financing activities was $90,942 in the three months ended September 30, 2012. 
 
Intercompany Loan and Loans to Unrelated Third Parties
 
On June 9, 2013, AHFL entered into a Loan Agreement (the “Company Loan Agreement”) with CU Hong Kong.
 
Under the Company Loan Agreement, AHFL agreed to provide a loan to the CU Hong Kong with the principal amount equal to the US Dollar equivalent of RMB40,000,000 ($6,532,716). The term for such was 10 years which could be extended upon the agreement of the parties. The amount of such loan was remitted to the account of CU Hong Kong on August 30, 2013.
 
In August 2013, the CU Hong Kong entered into several Loan Agreements (collectively, the “Investor Loan Agreements”) with the following unrelated parties: Able Capital Holding Co., Ltd., a limited liability company established and registered in Hong Kong, Mr. Chen Li and Ms. Yue Jing, both PRC citizens (collectively, the “Investor Borrowers”).
 
Under the Investor Loan Agreements, the Investor Borrowers loaned cash from CU Hong Kong for their investment in Anhou and CU Hong Kong agreed to provide certain loans to each of the Investor Borrowers with an aggregate principal amount equal to the US Dollar equivalent of RMB40,000,000 ($6,532,716). The term for such loans was ten 10 years which could be extended upon the agreement of the parties. Pursuant to the Investor Loan Agreements, each of the Investor Borrowers covenants to enter into certain Variable Interest Entities Agreements with Anhou, CU WFOE and certain existing shareholders of Anhou. The proceeds received from the said loans by the Investor Borrowers shall be solely used to increase the registered capital of Anhou, and CU Hong Kong may determine the repayment methods including transferring of the Investor Borrowers’ corresponding registered capital in Anhou or through other manner as full payment of the loans subject to terms and conditions therein in the event that the Investor Borrowers fails to repay the loan in currency to CU Hong Kong.
 
 
10

 
The specific amounts loaned to the Investor Borrowers were as follows:
 
Able Capital Holding Co., Ltd.: RMB29,500,000 ($4,817,896)
Mr. Chen: RMB3,000,000 ($489,949)
Ms. Yue: RMB7,500,000 ($1,224,871)
 
Recent development of relevant laws and background of the loans
 
On April 27, 2013, the China Insurance Regulatory Commission (“CIRC”) issued the Decision on Revising the Provisions of the Supervision and Administration of Specialized Insurance Agencies (the “Decision on Revising the Agency Provisions”), pursuant to which, CIRC mandated any insurance agency established subsequent to the Decision on Revising the Agency Provisions to meet a minimum registered capital requirement of RMB50 million ($8,165,895). On May 16, 2013, CIRC issued Notice for Further Clarification on Related Issues of Access to Professional Insurance Intermediary Market (the “Notice”), pursuant to which, professional insurance agencies established prior to the issuance of the Decision on Revising the Agency Provisions, with registered capital less than RMB50 million ($8,165,895), can continue to operate its existing business within the provinces where they have a registered office or branch office, but shall not set up any new branches in any provinces where it has no registered office or a branch office.
 
As of the date hereof, Anhou, a professional insurance agency with a PRC nationwide license, has a registered capital of RMB10 million ($1,633,179). The registered office and branch offices of Anhou currently are all in Henan province. To better implement its expansion strategies, Anhou intends to increase its registered capital to RMB50 million ($8,165,895) to meet the requirement of CIRC so that it can set up new branches in any province beyond its current operations in Mainland China.
 
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 Borrowers 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.
 
Registered Capital Increase
 
On September 26, 2013, several new PRC individual investors, namely Wang Yanyan, Chen Zhaohui, Yue Jing, Hou Weizhe, Zhang Yong, Chen Li (“Anhou New Investors”) and the original shareholders of Henan Law Anhou Insurance Agency Co., Ltd. (“Anhou”), namely, Zhu Shuqin, Wei Qun, Fang Qunlei and Chen Yanxia (“Anhou Original Shareholders”) entered into a shareholders resolution of Anhou (the “Capital Increase Resolution”), pursuant to which, Anhou Original Shareholders and Anhou New Investors agreed to increase the registered capital of Anhou to RMB50 million ($8,165,895), among which, Wang Yanyan would invest RMB10 million ($1,633,179), accounting for 20%, Chen Zhaohui would invest RMB10 million ($1,633,179), accounting for 20%, Yue Jing would invest RMB7.5 million ($1,224,871), accounting for 15%, Hou Weizhe will invest RMB5 million ($816,589), accounting for 10%, Zhang Yong will invest RMB4.5 million ($734,930), accounting for 9%, and Chen Li will invest RMB3 million ($489,949), accounting for 6%, of the registered capital of Anhou.
 
Due to PRC legal restrictions on foreign ownership and investment in the insurance agency businesses in China, particularly those based on qualifications as well as capital requirements of the investors, Able Capital Holding Co., Ltd., a limited liability company established and registered in Hong Kong, delegated four PRC individuals, namely Wang Yanyan, Chen Zhaohui, Hou Weizhe and Zhang Yong, to invest in Anhou on its behalf.
 
On October 24, 2013, Anhou completed the registration with local Administration Industry and Commerce (“AIC”) on the above-mentioned capital increase. The new business license was issued to Anhou on October 25, 2013.
 
On a going forward basis, the Company’s primary requirements for cash over the next 12 months consist of:
 
providing insurance agency services to its existing clients in its existing branches;
developing new clients;
promoting sales activities;
opening more branches in China; and
expanding business scale in China, through mergers & acquisitions.
  
Due to related parties
 
The related parties listed below loaned money to the Company for working capital. Due to related parties consisted of the following as of September 30, 2013 and June 30, 2013 (audited):
 
 
September 30, 2013
 
June 30, 2013
 
Due to Mr. Mao (Principal Shareholder of the Company)
$
100,961
 
$
71,487
 
Due to Ms. Zhu (Shareholder of Henan Anhou)
 
502,115
 
 
1,099,331
 
Due to Mr. Zhu (Legal Representative of Jiangsu Law)
 
2,252
 
 
-
 
Due to Mrs. Li (Director of CUIS)
 
-
 
 
566,478
 
Total
$
605,328
 
$
1,737,296
 
 
 
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Off Balance Sheet Arrangements
 
As of September 30, 2013, the Company had no off balance sheet arrangements.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
 
Not Applicable
 
ITEM 4. INTERNAL CONTROLS OVER FINANCIAL REPORTING.
 
Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, Lo Chung Mei, our Chief Executive Officer, and Chuang Yung Chi, our Chief Financial Officer, concluded that as of September 30, 2013, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.
 
Changes in internal control over financial reporting
 
During the three months ended September 30, 2013, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

PART II.  OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
None.
 
ITEM 1A. RISK FACTORS.
 
There have been no material changes from the risk factors disclosed in our annual report on Form 10-K for the fiscal year ended June 30, 2013.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
None.
 
 
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
 
None.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
None.
  
ITEM 5. OTHER INFORMATION.
 
Registered Capital Increase
 
On September 26, 2013, several new PRC individual investors, namely Wang Yanyan, Chen Zhaohui, Yue Jing, Hou Weizhe, Zhang Yong, Chen Li (“Anhou New Investors”) and the original shareholders of Henan Law Anhou Insurance Agency Co., Ltd. (“Anhou”), namely, Zhu Shuqin, Wei Qun, Fang Qunlei and Chen Yanxia (“Anhou Original Shareholders”) entered into a shareholders resolution of Anhou (the “Capital Increase Resolution”), pursuant to which, Anhou Original Shareholders and Anhou New Investors agreed to increase the registered capital of Anhou to RMB50 million ($8,165,895), among which, Wang Yanyan would invest RMB10 million ($1,633,179), accounting for 20%, Chen Zhaohui would invest RMB10 million ($1,633,179), accounting for 20%, Yue Jing would invest RMB7.5 million ($1,224,871), accounting for 15%, Hou Weizhe will invest RMB5 million ($816,589), accounting for 10%, Zhang Yong will invest RMB4.5 million ($734,930), accounting for 9%, and Chen Li will invest RMB3 million ($489,949), accounting for 6%, of the registered capital of Anhou.
 
Due to PRC legal restrictions on foreign ownership and investment in the insurance agency businesses in China, particularly those based on qualifications as well as capital requirements of the investors, Able Capital Holding Co., Ltd., a limited liability company established and registered in Hong Kong, delegated four PRC individuals, namely Wang Yanyan, Chen Zhaohui, Hou Weizhe and Zhang Yong, to invest in Anhou on its behalf.
 
On October 24, 2013, Anhou completed the registration with local Administration Industry and Commerce (“AIC”) on the above-mentioned capital increase. The new business license was issued to Anhou on October 25, 2013.
 
The registered capital increase of Anhou is in response to the recent promulgations of certain regulations by China Insurance Regulatory Commission (“CIRC”). On April 27, 2013, CIRC issued the Decision on Revising the Provisions of the Supervision and Administration of Specialized Insurance Agencies (the “Decision on Revising the Agency Provisions”), pursuant to which, CIRC has mandated any insurance agency established subsequent to the Decision on Revising the Agency Provisions to meet a minimum registered capital requirement of RMB50 million ($8,165,890). On May 16, 2013, CIRC issued Notice for Further Clarification on Related Issues of Access to Professional Insurance Intermediary Market (the “Notice”), pursuant to which, professional insurance agencies established prior to the issuance of the Decision on Revising the Agency Provisions, with registered capital less than RMB50 million ($8,165,890), can continuous operation of their existing business within the provinces where they have the registered office or branch office, but shall not set up any new branches in any province where they do not have the registered office or any branch office.
 
Prior to the capital increase, Anhou, a professional insurance agency with a PRC nationwide license, has a registered capital in the amount of RMB10 million ($1,633,178). The registered office and branch offices of Anhou currently are all in Henan province. To better implement its expansion strategies, Anhou increased its registered capital to RMB50 million ($8,165,890) to meet the requirement of CIRC so that it can set up new branches in any province beyond its current operations in Mainland China.
 
Share Transfer
 
On October 24, 2013, Anhou Original Shareholders entered into share transfer agreements (the “Share Transfer Agreements”) with Hu Changrong, a PRC citizen (“Mr. Hu” together with Anhou New Investors, “Anhou Existing Shareholders”), respectively. Under the Share Transfer Agreements, Anhou Original Shareholders transferred all of their equity interests in Anhou to Mr. Hu for an aggregate transfer price of RMB10 million ($1,633,178). Mr. Hu is currently the legal representative and general manager of Anhou.
 
On October 24, 2013, Anhou completed the share transfer registration with the local AIC.
 
New VIE Agreements
 
As a result of the capital increase and the share transfer described above, on October 24, 2013, Zhengzhou Zhonglian Hengfu Business Consulting Co., Ltd. (the “WFOE”), Anhou and Anhou Existing Shareholders entered into a series of variable interest agreements (the “New VIE Agreements”), including Power of Attorneys, Exclusive Option Agreements, Share Pledge Agreements, in the form substantially the same as the previous VIE agreements entered into among the WFOE, Anhou and Anhou Original Shareholders (the “Old VIE Agreements”). The Old VIE Agreements were terminated by and among the WFOE, Anhou and Anhou Original Shareholders on the same date. The Exclusive Business Cooperation Agreement executed by and between the WFOE and Anhou on January 17, 2011 is in full effect.
 
CIRC Approval and Share Pledge Registration
 
Anhou is in the process to obtain the approvals from the local Insurance Regulatory Bureau of CIRC with respect to the share transfer and capital increase of Anhou,  and the local AIC with respect to the registration of the new share pledge agreements.
 
ITEM 6. EXHIBITS
 
(a)           Exhibits:
 
Exhibit
 
 
Number
 
Description of Exhibit
 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1*
 
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
 
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 *The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
 
 
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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: November 12, 2013
By:
/s/ Lo Chung Mei
 
Name:
Lo Chung Mei
 
Its:
Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
Date: November 12, 2013
By:
/s/ Chuang Yung Chi
 
Name:
Chuang Yung Chi
 
Its:
Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
 
 
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