Annual Statements Open main menu

China United Insurance Service, Inc. - Quarter Report: 2022 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

          QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

          TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 000-54884

CHINA UNITED INSURANCE SERVICE, INC.

(Exact name of registrant as specified in its charter)

Delaware

30-0826400

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

7F, No. 311 Section 3

Nan-King East Road

Taipei City, Taiwan, 105405

(Address of principal executive offices)

+8862-87126958

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.

Yes   No  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

   

Name of each exchange on which
registered

N/A

 

N/A

 

N/A

As of September 30, 2022, there were 30,286,199 shares of common stock issued and outstanding, and 1,000,000 preferred shares issued and outstanding.

Table of Contents

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

   

5

ITEM 1.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

31

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

38

ITEM 4.

CONTROLS AND PROCEDURES

38

PART II.

OTHER INFORMATION

40

ITEM 1.

LEGAL PROCEEDINGS

40

ITEM 1A.

RISK FACTORS

40

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

40

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

40

ITEM 4.

MINE SAFETY DISCLOSURES

40

ITEM 5.

OTHER INFORMATION

40

ITEM 6.

EXHIBITS

41

SIGNATURES

42

2

Table of Contents

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

Table of Contents

OTHER PERTINENT INFORMATION

References in this quarterly report to “we,” “us,” “our” and the “Company” 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 Taiwan). References to Taiwan refer to Republic of China.

Unless context indicates otherwise, reference to the “Company” in this quarterly report refers to China United Insurance Service, Inc. and its subsidiaries. Reference to “AHFL” refers to the combined operations of Action Holdings Financial Limited and its Taiwan Subsidiaries (as defined below). Reference to “Anhou” or the “VIE” refers to the combined operations of Law Anhou Insurance Agency Co., Ltd. and its subsidiaries.

Our business is conducted in Taiwan and China using New Taiwanese Dollars (“NT$” or “NTD”), the currency of Taiwan, Hong Kong Dollars (“HK$” or “HKD”), the currency of Hong Kong, and RMB, the currency of China, respectively, and our financial statements are presented in United States dollars (“USD”, “US$” or “$”). In this quarterly report, we refer to assets, obligations, commitments and liabilities in our financial statements in U.S. dollars. These dollar references are based on the exchange rate of NT$, HK$ and RMB to USD, determined as of a specific date. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of U.S. dollars which may result in an increase or decrease in the amount of our obligations (expressed in USD) and the value of our assets, including accounts receivable (expressed in USD).

4

Table of Contents

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 

December 31, 

(Amount in USD)

    

2022

    

2021

ASSETS

Current assets

Cash and cash equivalents

$

14,461,123

$

18,234,350

Time deposits

 

71,563,061

 

64,299,176

Accounts receivable

 

14,499,574

 

26,761,678

Contract assets

5,518,599

Marketable securities

753,345

Other current assets

 

873,505

 

1,207,496

Total current assets

 

107,669,207

 

110,502,700

Right-of-use assets under operating leases

7,455,797

6,449,182

Property and equipment, net

 

1,563,003

 

2,061,755

Intangible assets, net

 

294,088

 

333,118

Long-term investments

 

2,301,718

 

2,696,812

Restricted cash – noncurrent

 

14,939

 

88,282

Deferred tax assets

1,006,604

909,032

Other assets

 

4,164,320

 

4,740,640

TOTAL ASSETS

$

124,469,676

$

127,781,521

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities

 

  

 

  

Commission payable to sales professionals

$

10,616,215

$

14,003,541

Short-term loans

20,033,483

18,835,932

Contract liabilities - current

87,097

Income tax payable - current

 

2,365,627

 

3,893,047

Operating lease liabilities - current

3,420,600

3,059,329

Due to related parties

 

6,593

 

50,531

Other current liabilities

 

8,881,520

 

13,997,603

Total current liabilities

 

45,411,135

 

53,839,983

Contract liabilities - noncurrent

1,348,875

Income tax payable - noncurrent

 

299,797

 

539,636

Operating lease liabilities - noncurrent

3,961,006

3,298,089

Net defined benefit liabilities - noncurrent

339,163

389,198

Other liabilities

 

472,106

 

541,754

TOTAL LIABILITIES

 

51,832,082

 

58,608,660

COMMITMENTS AND CONTINGENCIES

 

 

STOCKHOLDERS’ EQUITY

 

 

Preferred stock, par value $0.00001, 10,000,000 authorized, 1,000,000 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

 

10

 

10

Common stock, par value $0.00001, 100,000,000 authorized, 30,286,199 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

 

303

 

303

Additional paid-in capital

 

9,296,953

 

9,296,953

Statutory reserves

11,091,633

 

11,101,064

Retained earnings

 

25,162,731

 

13,690,368

Accumulated other comprehensive (loss) income

 

(4,327,301)

 

4,664,848

Total stockholders’ equity attributable to China United’s shareholders

 

41,224,329

 

38,753,546

Noncontrolling interests

 

31,413,265

 

30,419,315

TOTAL STOCKHOLDERS’ EQUITY

 

72,637,594

 

69,172,861

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

124,469,676

$

127,781,521

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

Table of Contents

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, 

Nine Months Ended September 30, 

(Amount in USD)

    

2022

    

2021

    

2022

    

2021

Revenue

$

32,648,269

$

31,629,500

$

95,284,500

$

95,133,297

Cost of revenue

 

20,014,864

 

17,066,959

 

60,354,318

 

59,576,604

Gross profit

 

12,633,405

 

14,562,541

 

34,930,182

 

35,556,693

Operating expenses (income):

 

 

 

 

Selling

 

872,974

 

397,628

 

1,990,805

 

1,073,702

General and administrative

 

6,351,001

 

7,189,914

 

19,094,349

 

19,470,001

Gain on disposal of nonfinancial assets in Jiangsu Law

(3,262,890)

(3,262,890)

Total operating expense (income), net

 

3,961,085

 

7,587,542

 

17,822,264

 

20,543,703

Income from operations

 

8,672,320

 

6,974,999

 

17,107,918

 

15,012,990

Other income (expenses):

 

 

 

 

Interest income

 

232,343

 

116,277

 

498,395

 

330,054

Interest expenses

 

(107,046)

 

(47,701)

 

(229,185)

 

(136,807)

Foreign currency exchange gain (loss), net

 

1,240,704

 

(31,341)

 

2,682,717

 

(130,527)

Dividend income

7,521

499

219,890

251,827

Other - net

 

4,574

 

253,960

 

127,855

 

513,569

Total other income, net

 

1,378,096

 

291,694

 

3,299,672

 

828,116

Income before income taxes

 

10,050,416

 

7,266,693

 

20,407,590

 

15,841,106

Income tax expense

 

(866,461)

 

(1,908,078)

 

(3,565,730)

 

(4,308,482)

Net income

 

9,183,955

 

5,358,615

 

16,841,860

 

11,532,624

Less: net income attributable to noncontrolling interests

 

(2,284,110)

 

(2,338,903)

 

(5,378,928)

 

(4,911,643)

Net income attributable to China United’s shareholders

 

6,899,845

 

3,019,712

 

11,462,932

 

6,620,981

Other comprehensive items, net of tax:

 

 

 

 

Foreign currency translation gain (loss)

 

(6,711,878)

 

208,852

 

(13,377,127)

 

716,540

Other

 

 

(1)

 

 

363

Total other comprehensive gain (loss)

(6,711,878)

208,851

(13,377,127)

716,903

Comprehensive income

2,472,077

5,567,466

3,464,733

12,249,527

Less: comprehensive income attributable to noncontrolling interests

(118,808)

(2,404,539)

(993,950)

(5,163,181)

Comprehensive income attributable to China United’s shareholders

$

2,353,269

$

3,162,927

$

2,470,783

$

7,086,346

Weighted average shares outstanding:

 

 

 

 

Basic and diluted

 

30,286,199

 

29,421,736

 

30,286,199

 

29,421,736

Earnings per share attributable to common stockholders of China United:

 

 

  

 

 

Basic and diluted

$

0.220

$

0.099

$

0.366

$

0.218

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

Table of Contents

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Accumulated

Additional

Other

Common

Preferred

Paid-in

Statutory

Comprehensive

Retained

Noncontrolling

Total

(Amount in USD)

    

Stock

    

Amount

    

Stock

    

Amount

    

Capital

    

Reserves

    

Income (loss)

    

Earnings

    

Total

    

Interests

    

Equity

Balance June 30, 2022

 

30,286,199

$

303

1,000,000

$

10

$

9,296,953

$

11,091,448

$

219,275

$

18,263,071

$

38,871,060

$

31,294,457

$

70,165,517

Appropriation of reserves

185

(185)

Foreign currency translation loss

 

 

 

 

 

 

 

(4,546,576)

 

 

(4,546,576)

 

(2,165,302)

 

(6,711,878)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

6,899,845

 

6,899,845

 

2,284,110

 

9,183,955

Balance September 30, 2022

 

30,286,199

$

303

1,000,000

$

10

$

9,296,953

$

11,091,633

$

(4,327,301)

$

25,162,731

$

41,224,329

$

31,413,265

$

72,637,594

Accumulated

Additional

Other

Common

Preferred

Paid-in

Statutory

Comprehensive

Retained

Noncontrolling

Total

(Amount in USD)

    

Stock

    

Amount

    

Stock

    

Amount

    

Capital

    

Reserves

    

Income (loss)

    

Earnings

    

Total

    

Interests

    

Equity

Balance December 31, 2021

 

30,286,199

$

303

1,000,000

$

10

$

9,296,953

$

11,101,064

$

4,664,848

$

13,690,368

$

38,753,546

$

30,419,315

$

69,172,861

Reversal of reserves

(9,431)

9,431

Foreign currency translation loss

 

 

 

 

 

 

 

(8,992,149)

 

 

(8,992,149)

 

(4,384,978)

 

(13,377,127)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

11,462,932

 

11,462,932

 

5,378,928

 

16,841,860

Balance September 30, 2022

 

30,286,199

$

303

1,000,000

$

10

$

9,296,953

$

11,091,633

$

(4,327,301)

$

25,162,731

$

41,224,329

$

31,413,265

$

72,637,594

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

Table of Contents

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Accumulated

Additional

Other

Common

Preferred

Paid-in

Statutory

Comprehensive

Retained

Noncontrolling

Total

(Amount in USD)

    

Stock

    

Amount

    

Stock

    

Amount

    

Capital

    

Reserves

    

Income (loss)

    

Earnings

    

Total

    

Interests

    

Equity

Balance June 30, 2021

 

29,421,736

$

294

1,000,000

$

10

$

8,190,449

$

10,731,421

$

4,211,579

$

11,431,159

$

34,564,912

$

27,354,383

$

61,919,295

Common stock-based compensation granted

1,106,513

1,106,513

1,106,513

Foreign currency translation gain

 

 

 

 

 

 

 

143,215

 

 

143,215

 

65,637

 

208,852

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(1)

 

(1)

Net income

 

 

 

 

 

 

 

 

3,019,712

 

3,019,712

 

2,338,903

 

5,358,615

Balance September 30, 2021

 

29,421,736

$

294

1,000,000

$

10

$

9,296,962

$

10,731,421

$

4,354,794

$

14,450,871

$

38,834,352

$

29,758,922

$

68,593,274

Accumulated

Additional

Other

Common

Preferred

Paid-in

Statutory

Comprehensive

Retained

Noncontrolling

Total

(Amount in USD)

    

Stock

    

Amount

    

Stock

    

Amount

    

Capital

    

Reserves

    

Income (loss)

    

Earnings

    

Total

    

Interests

    

Equity

Balance December 31, 2020

 

29,421,736

$

294

1,000,000

$

10

$

8,190,449

$

9,463,903

$

3,889,429

$

9,097,408

$

30,641,493

$

24,595,741

$

55,237,234

Appropriation of reserves

1,267,518

(1,267,518)

Common stock-based compensation granted

1,106,513

1,106,513

1,106,513

Foreign currency translation gain

 

 

 

 

 

 

 

465,125

 

 

465,125

 

251,415

 

716,540

Other comprehensive income

 

 

 

 

 

 

 

240

240

123

363

Net income

 

 

 

 

 

 

 

 

6,620,981

 

6,620,981

 

4,911,643

 

11,532,624

Balance September 30, 2021

 

29,421,736

$

294

1,000,000

$

10

$

9,296,962

$

10,731,421

$

4,354,794

$

14,450,871

$

38,834,352

$

29,758,922

$

68,593,274

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8

Table of Contents

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amount in USD)

Nine Months Ended September 30, 

    

2022

    

2021

Cash flows from operating activities:

Net income

$

16,841,860

$

11,532,624

Adjustments to reconcile net income to net cash provided by operating activities

 

 

Noncash stock-based compensation

1,106,513

Depreciation and amortization

 

847,915

 

880,555

Amortization of right-of-use assets

2,772,819

2,724,822

Amortization of bond premium

 

 

58

Gain on sales of financial assets

 

(198,637)

Loss on valuation of financial assets

 

310,244

224,609

Gain on disposal of nonfinancial assets in Jiangsu Law

(3,262,890)

(Gain) loss on disposals of equipment

(3,637)

72

Deferred income tax

 

(369,595)

 

103,153

Unrealized foreign currency exchange gains

(762,517)

Net changes in operating assets and liabilities:

 

 

Accounts receivable

 

9,595,151

 

8,334,483

Contract assets

(5,991,389)

(2,844,090)

Other current assets

 

95,716

 

214,284

Other assets

 

202,577

 

(666,789)

Commission payable to sales professionals

 

(1,727,941)

 

(3,259,115)

Contract liabilities

1,558,995

Income tax payable

 

(1,455,124)

 

(118,475)

Other current liabilities

 

(3,323,080)

 

(5,368,199)

Other liabilities

 

 

(558,400)

Lease liabilities

(3,095,389)

(3,138,759)

Net cash provided by operating activities

 

12,233,715

 

8,968,709

Cash flows from investing activities:

 

 

Purchases of time deposits

 

(79,397,492)

 

(61,420,198)

Proceeds from maturities of time deposits

 

63,299,359

 

56,760,207

Acquisition of equity investments under cost method using the measurement alternative

(46,372)

Purchases of marketable securities

 

(1,074,416)

 

(1,158,903)

Proceeds from sales of marketable securities

2,246,589

Proceeds from sales of long-term investments - REITs

142,007

Proceeds from disposal of nonfinancial assets in Jiangsu Law

 

3,262,890

 

Purchase of equipment

 

(503,313)

 

(561,099)

Purchase of intangible assets

(112,616)

(24,200)

Proceeds from disposal of equipment

25,806

143

Net cash used in investing activities

 

(14,499,782)

 

(4,061,826)

Cash flows from financing activities:

 

  

 

  

Proceeds from short-term loans

 

40,311,099

 

10,029,560

Repayment of short-term loans

 

(37,827,556)

 

(6,100,000)

Repayment of related party borrowings

 

(37,667)

 

(43,482)

Net cash provided by financing activities

2,445,876

 

3,886,078

 

Foreign currency translation

 

(4,026,379)

 

337,555

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(3,846,570)

 

9,130,516

Cash, cash equivalents and restricted cash, beginning balance

 

18,322,632

 

9,129,828

Cash, cash equivalents and restricted cash, ending balance

$

14,476,062

$

18,260,344

SUPPLEMENTARY DISCLOSURE:

Interest paid

$

218,339

$

129,927

Income tax paid

$

4,839,357

$

3,588,250

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Lease liabilities arising from new right-of-use assets

$

3,779,434

$

2,483,439

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

9

Table of Contents

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amount in USD)

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

China United Insurance Service, Inc. (“China United” or “CUII”), the subsidiaries and variable-interest entity and its subsidiaries (collectively referred to herein, as the “Company”) primarily engage in insurance brokerage and insurance agency services. The Company markets and sells to customers, two broad categories of insurance products: life insurance products and property and casualty insurance products, both focused on meeting the particular insurance needs of individuals. The insurance products are underwritten by some of the leading insurance companies in Taiwan and China. The Company manages its business through aggregating them into three geographic operating segments, Taiwan, the PRC, and Hong Kong. The Company’s common stock currently trades over the counter under the ticker symbol “CUII” on the OTCQB.

The corporate structure as of September 30, 2022 is as follows:

Graphic

On January 31, 2022, Genius Investment Consultant Co., Ltd. (“GIC”), a subsidiary entity of CUII entered into a stock transfer agreement with AIlife International Investment Co., Ltd. (“AIlife”), pursuant to which GIC sold and transferred to AIlife 100% of its equity ownership in Joint Insurance Broker Co., Ltd. (“JIB”), a former wholly-owned subsidiary of GIC, resulting in AIlife owning 100% equity interest in JIB. Such exchange of equity interests between CUII’s subsidiaries are under common control of the Company and therefore, they were accounted for at the carrying amount of the equity interests transferred and there was no impact on consolidated financial statements as of and for the three and nine months ended September 30, 2022, respectively.

10

Table of Contents

On February 25, 2022, Law Anhou Insurance Agency Co., Ltd. (“Anhou”), a contractually controlled entity of CUII entered into a Share Purchase Agreement with Jiangsu Law Insurance Brokerage Co., Ltd. (“Jiangsu Law”) and third-party buyers, pursuant to which Anhou sold and transferred 100% of its equity ownership in Jiangsu Law, a wholly owned subsidiary of Anhou, for a total consideration of $3,262,890 (or RMB 21 million). On July 28, 2022, the Hsuchow Regulatory Bureau of the China Banking and Insurance Regulatory Commission (the “CBIRC Jiangsu Regulatory Bureau”) approved the change of shareholders of Jiangsu Law from Anhou to the aforementioned third-party buyers and accordingly, Anhou has transferred out the control over Jiangsu Law. Please refer to Note 3 for more information.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of China United, the subsidiaries and variable interest entity and its subsidiaries as shown in the corporate structure in Note 1. All significant intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the consolidated financial statements for prior year to the current year’s presentation. Such reclassifications have no effect on net income and the cash flow statements operating activities as previously reported.

Basis of Presentation

The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement of the financial statements have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2021, which were included in the Company’s 2021 Annual Report on Form 10-K (“2021 Form 10-K”). The accompanying consolidated balance sheet as of December 31, 2021, has been derived from the Company’s audited consolidated financial statements as of that date.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results may differ from those estimates and assumptions.

Variable Interest Entities

Due to the legal restrictions on foreign ownership and investment in insurance agency and brokerage businesses in China, especially those on qualifications as well as capital requirement of the investors, China United, through its subsidiary, Zhengzhou Zhonglian Hengfu Business Consulting Co., Limited (“WFOE”), entered into Exclusive Business Cooperation Agreement (the “EBCA”), Power of Attorney, Option Agreement, and Share Pledge Agreement (collectively, the “First VIE Agreements”) on January 17, 2011 with Anhou and Anhou original shareholders so as to operate and conduct the insurance agency and brokerage business in the PRC.

Pursuant to the EBCA, (a) WFOE has the right to provide Anhou with complete technical support, business support and related consulting services during the term of the EBCA; (b) Anhou agrees to accept all the consultations and services provided by WFOE. Anhou further agrees that unless with WFOE’s prior written consent, during the term of the EBCA, Anhou shall not directly or indirectly accept the same or any similar consultations and/or services provided by any third party and shall not establish similar cooperation relationship with any third party regarding the matters contemplated by the EBCA; (c) within 90 days after the end of each fiscal year Anhou shall pay an amount to WFOE equal to the shortfall, if any, of the aggregate net income of Anhou for such fiscal; (d) WFOE retains all exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising out of or created during the performance of the EBCA; and (e) the shareholders of Anhou have pledged all of their equity interests in Anhou to WFOE to guarantee Anhou’s performance of its obligations under the EBCA. The term of the EBCA is 10 years and may be extended and determined by WFOE prior to the expiration thereof, and Anhou shall accept such extended term unconditionally.

11

Table of Contents

On March 23, 2022, Anhou and WFOE entered into an amendment to the EBCA, pursuant to which the EBCA shall be automatic renewed for successive terms unless WFOE gives a 30-day notice to terminate such agreement, with each term being 10 years.

To extend the business within the PRC, Anhou intended to increase its registered capital to RMB50 million (approximately $8 million) to meet the requirement of the China Insurance Regulatory Commission (the “CIRC”) so that it can set up new branches in any province beyond its current operations in China. China United increased the investment in Anhou through various loan agreements with the shareholders of Anhou. The aggregate funding provided by WFOE was RMB 40 million. Due to the capital increase, a series of variable interest agreements (the “Second VIE Agreements”), which include Power of Attorneys, Exclusive Option Agreements, Share Pledge Agreements, were signed on October 24, 2013 and entered in the same form as the First VIE Agreements, other than the change of shareholder names and their respective shareholdings. The First VIE Agreements were terminated by and among WFOE, Anhou and Anhou original shareholders on the same date. The EBCA executed by and between WFOE and Anhou on January 17, 2011 remains in full effect.

As a result of the Second VIE Agreements, WFOE is considered the primary beneficiary of Anhou and has effective control over Anhou. Accordingly, the results of operations, assets and liabilities of Anhou and its subsidiaries (collectively, the “Consolidated Affiliated Entities” or the “CAE”) are consolidated from the earliest period presented. The Company reviews the VIE’s status on an annual basis and determines if any events have occurred that could cause its primary beneficiary status to change, which include (a) the legal entity’s governing documents or contractual arrangements are changed in a manner that changes the characteristics or adequacy of the legal entity’s equity investment at risk; (b) the equity investment or some part thereof is returned to the equity investors, and other interests become exposed to expected losses of the legal entity; (c) the legal entity undertakes additional activities or acquires additional assets, beyond those anticipated at the later of the inception of the entity or the latest reconsideration event, that increase the entity’s expected losses; and (d) the legal entity receives an additional equity investment that is at risk, or the legal entity curtails or modifies its activities in a way that decreases its expected losses. For the nine months ended September 30, 2022 and 2021, no event taken place that would change the Company’s primary beneficiary status.

Disposal of Subsidiary

A disposal of a subsidiary is categorized as a discontinued operation as provided by ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, if the disposal group is a component of an entity or group of components that meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale, and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.

The Company deconsolidates the accounts of a subsidiary as provided by ASC Topic 810, Consolidation, once the Company ceases to have a controlling interest in a subsidiary. The aggregate of the fair value of consideration received, the fair value of any retained noncontrolling investment and the carrying amount of the former subsidiary’s assets and liabilities are recognized as a gain or loss on disposition.

If the transaction involves the sale of an ownership interest in a subsidiary and if substantially all of the fair value of the assets in that subsidiary promised to the counterparty is concentrated in nonfinancial assets, the financial assets in that subsidiary are in substance nonfinancial assets (ISNFA) and are accounted for under ASC 610-20, where the gain or loss recognized upon the derecognition of a nonfinancial asset or an ISNFA is the difference between the amount of consideration measured and allocated to that distinct asset and the carrying amount of the distinct asset.

Marketable Securities

The Company invests part of its excessive cash in equity securities and money market funds. Marketable securities represent trading securities bought and held primarily for sale in the near-term to generate income on short-term price differences and are stated at fair value. Realized and unrealized gains and losses are recorded in other income (expense).

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable includes commission receivables stated at net realizable values. The Company reviews its accounts receivable regularly to determine if a bad debt allowance is necessary at each quarter-end. Management reviews the composition of accounts receivable and analyzes the age of receivables outstanding, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the necessity of making such allowance. No allowance was deemed necessary as of September 30, 2022 and December 31, 2021.

12

Table of Contents

Revenue Recognition

The Company’s revenue is derived from insurance agency and brokerage services with respect to life insurance and property and casualty insurance products. The Company, through its subsidiaries and variable interest entities, sells insurance products provided by insurance companies to individuals, and is compensated in the form of commissions from the respective insurance companies, according to the terms of each service agreement made by and between the Company and the insurance companies. The core revenue recognition principle under ASC 606, the Company considers the contracts with insurance companies contain one performance obligation and consideration should be recorded when performance obligation is satisfied at point in time. The sale of an insurance product by the Company is considered complete when initial insurance premium is paid by an individual and the insurance policy is approved by the respective insurance company. When a policy is effective, the insurance company is obligated to pay the agreed-upon commission to the Company under the terms of its service agreement with the Company and such commission is recognized as revenue.

For the first year commission (FYC), the Company recognizes the revenue when the individuals’ policies are effective. The Company makes the estimation amount to be entitled for annual performance and operating bonus which is based on the FYC. The Company makes an estimation on performance and operation bonus which are based on the accumulated FYC on quarterly basis, and make reconciliation between actual and estimation amount on annual basis. The estimated revenue for the three and nine months ended September 30, 2022 were approximately $2.6 million and $8.4 million, and for the three and nine months ended September 30, 2021, were approximately $1.2 million and $6.8 million, respectively.

Others includes the contingent commissions for subsequent years, the bonus based on persistency ratio bonus, and service allowances, are considered highly susceptible to factors outside the company’s influence and depend on the actions of third parties (i.e., the subsequent premiums paid by individual policyholders), and the uncertainty can be extended for many years. Considering the high uncertainties, the contingent commissions for subsequent years, the bonus based on persistency ratio, and service allowances will be recognized as revenue based on the actual amount received from the insurance companies after the uncertain event is resolved.

For property and casualty insurance products, the Company recognizes the revenue when the individuals’ policies are effective. The revenue from property and casualty insurance products was 5.7% and 6.7% of the Company’s total revenue for the three and nine months ended September 30, 2022, and was 9.0% and 7.4% of the Company’s total revenue for the three and nine months ended September 30, 2021, respectively.

The Company is obligated to pay commissions to its sales professionals when an insurance policy becomes effective. The Company recognizes commission revenue granted from insurance companies on a gross basis, and the commissions paid to its sales professionals are recognized as cost of revenue.

The Company enters into service agreements with insurance companies, which may give rise to contract assets and contract liabilities. When the timing of revenue recognition differs from the timing of payments made by insurance companies, the Company recognizes either contract assets (its performance precedes the billing date) or contract liabilities (customer payment is received in advance of performance).

Foreign Currency Transactions

China United’s financial statements are presented in U.S. dollars ($), which is the China United’s reporting and functional currency. The functional currencies of the China United’s subsidiaries are New Taiwan dollar (“NTD”), China yuan (“RMB”) and Hong Kong dollar (“HKD”). Each subsidiary maintains its financial records in its own functional currency. Transactions denominated in foreign currencies are measured at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured at the exchange rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical cost in foreign currency are remeasured using the exchange rates at the dates of the initial transactions. Exchange gains and losses are included in the consolidated statements of operations and other comprehensive income (loss).

13

Table of Contents

The Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from NTD, RMB and HKD into U.S. dollars are recorded in stockholders’ equity as part of accumulated other comprehensive income. Cash flows were also translated at average translation rates for the period and, therefore, amounts reported on the statement of cash flows would not necessarily agree with changes in the corresponding balances on the unaudited condensed consolidated balance sheet. The exchange rates used for unaudited condensed consolidated financial statements are as follows:

Average Rate for the nine months ended

September 30, 

    

2022

    

2021

(unaudited)

(unaudited)

Taiwan dollar (NTD)

NTD

29.26528

 

NTD

27.95566

China yuan (RMB)

RMB

6.60012

 

RMB

6.46939

Hong Kong dollar (HKD)

HKD

7.83293

 

HKD

7.76655

United States dollar ($)

$

1.00000

 

$

1.00000

Exchange Rate at

    

September 30, 2022

    

(unaudited)

December 31, 2021

Taiwan dollar (NTD)

NTD

31.77251

 

NTD

27.68785

China yuan (RMB)

RMB

7.10988

 

RMB

6.35877

Hong Kong dollar (HKD)

HKD

7.84968

 

HKD

7.79713

United States dollar ($)

$

1.00000

$

1.00000

Earnings Per Share

Basic earnings per common share (“EPS”) is computed by dividing net income attributable to the common shareholders of the Company by the weighted-average number of common shares outstanding. Diluted EPS is computed in the same manner as basic EPS, except the number of shares includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued.

As the holders of preferred stock of the Company are entitled to share equally with the holders of common stock, on a per share basis, in such dividends and other distributions of cash, property or shares of stock of the Company as may be declared by the board of directors, the preferred stock is treated as a participating security. When calculating the basic earnings per common share, the two-class method is used to allocate earnings to common stock and participating security as required by FASB ASC Topic 260, “Earnings Per Share.” As of September 30, 2022 and 2021, the Company does not have any potentially dilutive instrument.

The following is a reconciliation of the income and share data used in the basic and diluted EPS computations for the three and nine months ended September 30, 2022 and 2021, respectively, under the two-class method.

    

Three Months Ended September 30, 

2022

2021

Numerator:

 

Common stock

 

Preferred stock

 

Common stock

 

Preferred stock

Allocation of net income attributable to the Company

$

6,679,305

$

220,540

$

2,920,450

$

99,262

Denominator:

 

  

 

  

 

  

 

  

Weighted average shares of the Company’s common/preferred stock outstanding - basic & diluted

 

30,286,199

 

1,000,000

 

29,421,736

 

1,000,000

Basic and diluted earnings per share

$

0.220

$

0.220

$

0.099

$

0.099

14

Table of Contents

Nine Months Ended September 30, 

2022

2021

Numerator:

    

Common stock

    

Preferred stock

    

Common stock

    

Preferred stock

Allocation of net income attributable to the Company

$

11,096,543

$

366,389

$

6,403,341

$

217,640

Denominator:

 

  

 

  

 

  

 

  

Weighted average shares of the Company’s common/preferred stock outstanding - basic & diluted

 

30,286,199

 

1,000,000

 

29,421,736

 

1,000,000

Basic and diluted earnings per share

$

0.366

$

0.366

$

0.218

$

0.218

The participating rights (liquidation and dividend rights) of the holders of the Company’s common stock and preferred stock are identical, except with respect to voting right. As a result, and in accordance with ASC Topic 260, the undistributed earnings for each year are allocated based on the contractual participation rights of the common stock and preferred stock as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis.

Fair Value of Financial Instruments

Fair value accounting establishes a framework for measuring fair value and expands disclosure about fair value measurements. Fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

-

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

-Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments.

-Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

The following table summarize financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:

September 30, 2022

Fair Value

Carrying

    

Level 1

    

Level 2

    

Level 3

    

Value

Assets

Marketable securities :

Stock and mutual funds

$

753,345

$

$

$

753,345

Long-term investments:

 

 

 

 

REITs

 

1,049,832

 

 

 

1,049,832

Total assets measured at fair value

$

1,803,177

$

$

$

1,803,177

December 31, 2021

Fair Value

Carrying

    

Level 1

    

Level 2

    

Level 3

    

Value

Assets

Long-term investments:

 

 

 

 

REITs

$

1,261,482

$

$

$

1,261,482

Total assets measured at fair value

$

1,261,482

$

$

$

1,261,482

15

Table of Contents

The carrying amounts of current financial assets and liabilities in the consolidated balance sheets for cash equivalents, time deposits, and restricted cash equivalents approximate fair value due to the short-term duration of those instruments, which are considered level 2 fair value measurement.

Marketable securities and long-term investments in REITs – The fair values of mutual funds and REITs were valued based on quoted market prices in active markets.

Concentration of Risk

The Company maintains cash with banks in the USA, People’s Republic of China (“PRC”), Hong Kong, and Taiwan. Should any bank holding the Company’s cash become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose all or part of its cash deposit with that bank; however, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. In Taiwan, a depositor has up to NTD 3,000,000 insured by Central Deposit Insurance Corporation (“CDIC”). In China, a depositor has up to RMB 500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”). In Hong Kong, a depositor has up to HKD 500,000 insured by Hong Kong Deposit Protection Board (“DPB”). In the United States, the standard insurance amount is $250,000 per depositor in a bank insured by the Federal Deposit Insurance Corporation (“FDIC”).

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, time deposits, restricted cash, register capital deposit, contract assets and accounts receivable. As of September 30, 2022 and December 31, 2021, approximately $2,257,000 and $2,712,000 of the Company’s cash and cash equivalents, time deposits, and registered capital deposits held by financial institutions, was insured, and the remaining balance of approximately $86,840,000 and $83,446,000, was not insured. With respect to accounts receivable, the Company generally does not require collateral and does not have an allowance for doubtful accounts.

For the three months ended September 30, 2022 and 2021, the Company’s revenues from sale of insurance policies underwritten by these companies were:

Three Months Ended September 30, 

2022

2021

(unaudited)

(unaudited)

% of Total

% of Total

 

    

Amount

    

Revenue

    

Amount

    

Revenue

 

TransGlobe Life Insurance Inc.

$

10,553,991

 

32

%  

$

8,043,483

25

%

Taiwan Life Insurance Co., Ltd.

 

5,164,375

 

16

%  

 

6,733,094

21

%

Farglory Life Insurance Co., Ltd.

 

3,043,157

 

9

%  

 

3,797,277

12

%

For the nine months ended September 30, 2022 and 2021, the Company’s revenues from sale of insurance policies underwritten by these companies were:

Nine Months Ended September 30, 

2022

2021

 

(unaudited)

(unaudited)

% of Total

% of Total

 

    

Amount

    

Revenue

    

Amount

    

Revenue

 

TransGlobe Life Insurance Inc.

$

27,702,126

 

29

%  

$

23,829,160

25

%

Taiwan Life Insurance Co., Ltd.

13,244,436

 

14

%  

19,888,398

21

%

Farglory Life Insurance Co., Ltd.

 

10,884,853

 

11

%  

 

12,279,101

13

%

16

Table of Contents

As of September 30, 2022 and December 31, 2021, the Company’s accounts receivable and contract assets from these companies were:

September 30, 2022

 

(unaudited)

December 31, 2021

 

% of Total

% of Total

 

Accounts

Accounts

 

Receivable

Receivable

    

Amount

    

and contract assets

    

Amount

    

and contract assets

TransGlobe Life Insurance Inc.

$

7,524,628

38

%

$

8,569,590

32

%

Taiwan Life Insurance Co., Ltd.

2,706,867

14

%

4,483,343

17

%

Farglory Life Insurance Co., Ltd.

1,593,213

8

%

2,729,673

10

%

The Company’s operations are in Taiwan, the PRC, and Hong Kong. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic, foreign currency exchange and legal environments in the PRC, Hong Kong and Taiwan, and by the state of each economy. The Company’s results of operations may be adversely affected by changes in the political and social conditions in the PRC, Hong Kong and Taiwan, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.

Income Taxes

The Company records income tax expense using the asset-and-liability method of accounting for deferred income taxes. Under this method, deferred taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that the deferred tax assets will not be realized.

When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The 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).

New Accounting Pronouncements and Other Guidance

New accounting pronouncements not yet adopted

Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, (FASB ASC Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected loss” model, rather than the “incurred loss” model, which requires all expected losses to be determined based on historical experience, current conditions and reasonable and supportable forecasts. This guidance amends the accounting for credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity debt securities, loans and other instruments.

In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company believes the adoption of ASU No. 2016-13 will not have a material impact on the Company’s consolidated financial statements.

Management does not believe that other than as disclosed above, accounting pronouncements recently issued but not yet adopted will have a material impact on its financial position, results of operations or cash flows.

17

Table of Contents

NOTE 3 – DISPOSAL OF NONFINANCIAL ASSETS IN SUBSIDIARY, JIANGSU LAW

On February 25, 2022, Law Anhou Insurance Agency Co., Ltd. (“Anhou”), a contractually controlled entity of CUII entered into a Share Purchase Agreement with Jiangsu Law Insurance Brokerage Co., Ltd. (“Jiangsu Law”) and third-party buyers, pursuant to which Anhou shall sell and transfer 100% of its equity ownership in Jiangsu Law, a wholly owned subsidiary of Anhou, for a total consideration of $3,262,890 (or RMB 21 million) to the following buyers: Xuzhou Guosheng Furui Asset Management Co., Ltd., Jiangsu Zhongbozhixin Financial Service Outsourcing Co., Ltd., and Xuzhou Xinrui Service Outsourcing Co., Ltd. Jiangsu Law holds an insurance agency license. The Company evaluated that such disposal does not meet the criteria for discontinued operations because it does not represent a strategic shift that has a major effect on the Company’s operations and financial results.

The Share Purchase Agreement provided that the accounts receivables and unfulfilled contracts of Jiangsu Law are transferred to Anhou and all debts and liabilities of Jiangsu Law are assumed by Anhou. In addition, the Share Purchase Agreement also provides that Anhou and Jiangsu Law are responsible for the arrangement of employees of Jiangsu Law. As a result, Jiangsu Law shall retain its insurance agency license as the only asset transferred to the third-party buyers. Further, for the maintenance of insurance agency license, there is a new requirement effective February 2022 by the local authorities to make additional capital contribution to Jiangsu Law, which will be provided by the third-party buyers according to the Share Purchase Agreement. The cost to sell this insurance agency license was immaterial.

On July 28, 2022, the Hsuchow Regulatory Bureau of the China Banking and Insurance Regulatory Commission (the “CBIRC Hsuchow Regulatory Bureau”) approved the change of shareholders of Jiangsu Law from Anhou to the aforementioned third-party buyers and accordingly, Anhou lost control over Jiangsu Law that holds the insurance agency license under ASC 810. In the meantime, the Company recognized a gain of $3,262,890 from the disposal of the insurance agency license under ASC 610-20, which was included in income from operations during the third fiscal quarter of 2022.

NOTE 4 – CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash, cash equivalents and restricted cash consisted of the following as of September 30, 2022 and December 31, 2021:

September 30, 2022

    

    

(unaudited)

    

December 31, 2021

Cash and cash equivalents:

Cash on hand and in banks

$

14,461,123

$

18,234,350

Restricted cash – noncurrent

 

14,939

 

88,282

Total cash, cash equivalents and restricted cash shown in the statements of cash flows

$

14,476,062

$

18,322,632

Noncurrent restricted cash includes a mandatory deposit in the bank in conformity with Provisions of the Supervision and Administration of Specialized Insurance Agencies in PRC, which is not allowed to be withdrawn without the permission of such Agencies.

NOTE 5 – TIME DEPOSITS

September 30, 2022

    

(unaudited)

    

December 31, 2021

Total time deposits

$

71,563,061

$

71,161,391

Less: Time deposits – with original maturities less than three months

 

 

(6,862,215)

Time deposits – original maturities over three months but less than one year

$

71,563,061

$

64,299,176

Time Deposits Pledged as Collateral

The Company had a total of $23,308,984 (NTD 740.6 million) and $23,811,616 (NTD 659.3 million) restricted time deposits, respectively, as of September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, time deposits of $31,474 (NTD 1 million) and $36,117 (NTD 1 million) were pledged as collateral for the Company’s credit card, respectively. In addition, the Company had time deposits of $23,277,510 and $23,775,499 pledged as collateral for short-term loans, respectively, as of September 30, 2022 and December 31, 2021. See Note 7.

18

Table of Contents

NOTE 6 – LONG-TERM INVESTMENTS

As of September 30, 2022 and December 31, 2021, the Company’s long-term investments consisted of the following:

September 30, 2022

    

(unaudited)

    

December 31, 2021

Equity investments under cost method using the measurement alternative

$

1,251,886

$

1,435,330

REITs

 

1,049,832

 

1,261,482

Total long-term investments

$

2,301,718

$

2,696,812

Equity Investments under cost method using the measurement alternative

    

September 30, 2022

    

(unaudited)

December 31, 2021

Investment

Investment

Investee

Ownership

Amount

Ownership

Amount

Genius Insurance Broker Co., Ltd (“GIB”)

11.73

%  

$

1,209,691

11.73

%  

$

1,388,151

Hainan Haoguan Yucheng Technology Service LLP (“HAINAN”)

 

9.99

%  

42,195

 

9.99

%  

47,179

On February 13, 2015, the Company and AHFL, a wholly owned subsidiary of the Company, entered into an acquisition agreement with Mr. Chwan Hau Li, the selling shareholder of GHFL. Subsequent to the acquisition, GHFL became a wholly-owned subsidiary of the Company which in turn holds approximately 15.64% issued and outstanding shares of Genius Insurance Broker Co., Ltd. (“Genius Broker”). Accordingly, the acquisition was accounted for as an asset acquisition of Genius Broker, which is an equity investment under cost method using the measurement alternative acquired by the Company. Further, the equity interest of GIB owned by GIC reduced from 15.64% to 11.73% due to capital increase in 2020 where GIC didn’t subscribe the new shares during the capital increase.

A new investee in the investment ownership was due to the Company’s investment in HAINAN in 2021. HAINAN operates projects for insurance platforms which contain insurance product centralized procurement, share service platform of sub-hierarchy distribution channel, and IoT business requirement. The Company invested HAINAN for RMB 300,000, or 9.99%, to engage in the qualification of supplier membership and distributor membership.

The change in carrying value of equity investment resulted from the fluctuation of exchange rates.

REITs

REITs are valued based on quoted market prices in the active market of Taiwan. The fair value of REITs as of September 30, 2022 and December 31, 2021 were $1,049,832 and $1,261,482, respectively.

Unrealized losses included in earnings for assets held at the end of the reporting periods were $25,662 and $11,135 for the three months ended September 30, 2022 and 2021, and were $53,713 and $93,259 for the nine months ended September 30, 2022 and 2021, respectively.

For the three and nine months ended September 30, 2022 and 2021, no other-than temporary impairment were recorded related to the long-term investments.

19

Table of Contents

NOTE 7 – SHORT-TERM LOANS

The Company’s short-term loans consisted of the following as of September 30, 2022 and December 31, 2021:

September 30, 2022

(unaudited)

December 31, 2021

    

    

Debt

    

Collateral

    

Debt

    

Collateral

Line of Credit

Collateral

balance

value

balance

value

$7.9 million (NTD 250 million) revolving line of credit with Cathay United Bank Company Limited (“CUB”); the loan bears interest the 1-month TAIBOR rate plus a margin of 0.46% and matures on April 11, 2023.

 

Time deposits

$

6,046,108

$

6,046,108

$

9,011,172

$

9,047,289

$4.0 million revolving line of credit with O-Bank; the loan bears interest at the TAIFX3 rate plus a margin of 0.5% and matures on December 2, 2022.

 

Time deposits

 

4,000,000

 

4,721,063

 

4,000,000

 

4,984,135

$6.0 million revolving line of credit with Taishin International Bank (“TSIB”); the loan bears interest at the TSIB’s cost of funds plus a margin of 0.7% and matures on May 31, 2023.

 

Time deposits

 

2,200,000

 

3,065,801

2,200,000

 

3,065,801

$2.5 million revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the TAIFX3 rate plus a margin of 0.5% and matures on January 13, 2023.

 

Time deposits

 

1,650,000

 

2,045,794

 

1,850,000

 

2,961,588

$3.1 million (NTD 100 million) revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the FEIB’s adjustable rates for loans plus a margin of 0.6% and matures on January 13, 2023.

Time deposits

3,147,375

3,147,375

$1.5 million revolving line of credit with CTBC Bank Co., Ltd. (“CTBC”); the loan bears interest at the CTBC’s cost of funds plus a negotiated margin on individual case basis and matured on February 28, 2023.

Time deposits

500,000

1,573,687

$3.1 million revolving line of credit with KGI; the loan bears interest at the TAIFX Fixing rate plus a margin of 0.9% and matures on May 18, 2022.

 

Time deposits

 

 

 

1,540,000

 

2,481,926

$6.3 million (NTD 200 million) revolving line of credit with Taishin International Bank (“TSIB”); the loan bears interest at the TSIB’s cost of funds plus a margin of 0.625% and matures on May 31, 2023.

 

Time deposits

 

 

234,760

 

234,760

$3.0 million revolving line of credit with E. Sun Bank (“E. Sun”); the loan bears interest at the TAIFX3 rate plus a margin of 0.4% and matures on November 30, 2022.

Time deposits

2,490,000

2,677,682

1,000,000

$

20,033,483

$

23,277,510

$

18,835,932

$

23,775,499

Borrowings under the revolving credit agreements are generally due 90 days or less. Total interest expenses for short-term loans incurred were $107,046 and $47,701 for the three months ended September 30, 2022 and 2021, respectively, and were $229,185 and $136,807 for the nine months ended September 30, 2022 and 2021, respectively.

NOTE 8 – COMMISSIONS PAYABLE TO SALES PROFESSIONALS

Commissions payable to sales professionals consisted of the following as of September 30, 2022 and December 31, 2021:

September 30, 2022

    

(unaudited)

    

December 31, 2021

Taiwan

$

10,462,955

$

13,793,343

PRC

 

153,260

 

210,198

Total commissions payable to sales professionals

$

10,616,215

$

14,003,541

Commissions payable to sales professionals are usually settled within twelve months.

20

Table of Contents

NOTE 9 – OTHER CURRENT LIABILITIES

Other current liabilities were as follows, as of September 30, 2022 and December 31, 2021:

September 30, 2022

    

(unaudited)

    

December 31, 2021

Accrued bonus

$

4,947,981

$

6,645,496

Payroll payable and other benefits

1,198,804

2,188,074

Accrued business tax and tax withholdings

1,363,430

1,903,039

Execution fees payable – AIA(Note 11)

1,191,858

Other accrued liabilities

1,371,305

2,069,136

Total other current liabilities

$

8,881,520

$

13,997,603

Accrued Bonus

The Company’s foreign subsidiaries have various bonus plans, which provide cash awards to employees based upon their performance, and had accrued bonus of $2,820,152 and $4,059,901, respectively, related to cash awards to employees as of September 30, 2022 and December 31, 2021.

The Company has other compensation plans solely provided by Law Broker to its officers. The compensation plans eligible to Law Broker’s officers include a surplus bonus based on a percentage of income after tax and other performance bonuses such as retention and non-competition. For the three months ended September 30, 2022 and 2021, the bonus expenses to Law Broker’s officers under the compensation plans were $70,733 and $135,563, respectively, and for the nine months ended September 30, 2022 and 2021, the bonus expenses to Law Broker’s officers under the compensation plans were $171,328 and $380,579, respectively.

As of September 30, 2022 and December 31, 2021, the Company had accrued bonus of $2,127,829 and $2,585,595 payable within next 12 months, respectively, related to the compensation plans for Law Broker’s officers. See Note 16 for additional information of agreements with Law Broker’s officers.

NOTE 10 – OTHER LIABILITIES

The Company’s other liabilities consisted of the following as of September 30, 2022 and December 31, 2021: 

September 30, 2022

    

(unaudited)

    

December 31, 2021

Due to previous shareholders of AHFL

$

472,106

$

541,754

Total other liabilities

$

472,106

$

541,754

Due to Previous Shareholders of AHFL

Due to previous shareholders of AHFL is the entire remaining balance payable of the acquisition cost. In March 2021, the Company entered a seventh amendment with the selling shareholders in negotiation with the previous shareholders of AHFL to extend the repayment date to March 31, 2024. As of September 30, 2022 and December 31, 2021, the amount due to previous shareholders of AHFL were $472,106 and $541,754, respectively.

NOTE 11 – CONTRACTS WITH CUSTOMERS

Information about accounts receivable, contract assets and contract liabilities from contracts with customers is as follows:

September 30, 2022

    

(unaudited)

    

December 31, 2021

Accounts receivable

$

14,499,574

$

26,761,678

Contract assets

5,518,599

Contract liabilities – current

87,097

Contract liabilities – noncurrent

1,348,875

21

Table of Contents

Contract assets are the Company’s conditional rights to consideration for completed performance obligation and are in relation to the performance bonus to be rewarded based on the annual performance. The Company recognizes the contingent commission as a contract asset when the performance obligation is fulfilled, and the Company has not had the unconditional rights to the payment. As of September 30, 2022 and December 31, 2021, the Company had $5,518,599 and nil of contract assets, respectively.

Contract with AIATW

On June 10, 2013, AHFL entered into a Strategic Alliance Agreement (the “Alliance Agreement”) with AIA International Limited Taiwan Branch (“AIATW”), the purpose of which is to promote life insurance products provided by AIATW within Taiwan by insurance agencies or brokerage companies affiliated with AHFL or China United. Pursuant to the terms of the Alliance Agreement, AIATW paid AHFL an execution fee, which was recorded as revenue upon fulfilling certain criteria over the original term of the Alliance Agreement from June 1, 2013 to May 31, 2018. From 2014 to 2017, AHFL has entered into three amendments to the Alliance Agreement with AIATW to further revise certain terms and conditions in the Alliance Agreement, including the extension of the expiration date from May 31, 2018 to December 31, 2021. Pursuant to the Third Amendment to the Alliance Agreement (the “Amendment 3”), both AHFL and AIATW agreed to adjust certain terms and conditions set forth in this amendment, some of which included (i) except the first contract year (April 15th, 2013 to September 30th, 2014), the sales target of the alliance between the parties shall be changed to (a) value of new business (“VONB”) and (b) the 13-month persistency ratio; and (ii) AIATW will calculate and recognize the VONB and 13-month persistency ratio each contract year and inform the Company the result; and (iii) the Company agrees to return the basic business promotion fees to AIATW within thirty (30) days of receipt of the notice sent by AIATW if the Company fails to meet the targets set forth in the Amendment 3, AIATW reserves the right to offset such amount against the amount payable by it to the Company; and (iv) upon the termination of the Alliance Agreement and its amendments pursuant to the Section 8.2 of the Alliance Agreement, both parties agreed to calculate the amount to be returned or repaid, as applicable, based on the past and current contract years. The Company shall return the basic business execution fees at NTD 50 million for the first contract year, NTD 35 million for the second contract year, and NTD 33 million for each contract year thereafter within one month after the termination. Accordingly, for the last contract year of 2021, no revenue was recognized because the Company failed to meet the targets set forth in the Amendment 3 and therefore, the Company shall refund the basic business execution fees of NTD 33 million based on the calculation of VONB and 13-month persistency for the same contract period. On May 6, 2022, AIATW issued a formal letter to the Company and agreed to reduce the refund amount of $1,159,039 (NTD 33.0 million) to $807,127 (NTD 23.1 million), for which the Company has paid to AIATW on May 13, 2022. As of September 30, 2022 and December 31, 2021, the basic business execution fees of nil and $1,191,858 were payable and recorded under other current liabilities, respectively.

On March 15, 2022, AHFL entered into the Fourth Amendment to the Alliance Agreement (the “Amendment 4”), which, among other things, extended the expiration date of the Alliance Agreement to December 31, 2031. Pursuant to Amendment 4, the sales targets for the remaining contract term under the Alliance Agreement shall be changed by reference to (i) the amount of VONB and (ii) the 13-month persistency ratio as set forth therein, provided that to the extent any underlying insurance contract is revoked, invalidated or terminated and premiums are refunded to such policyholder, the amount of the related VONB shall be correspondingly reduced. Amendment 4 provides that AIATW shall pay the strategic alliance business promotion fee of NTD 50 million to AHFL; however, AHFL shall be required to return certain portions of or all of the business promotion fees within thirty (30) days of receipt of notice provided by AIATW if AFHL fails to meet certain goals set in Table 2 and Table 3 of Amendment 4. The primary factor under formula one focuses on the annual and/or accumulated achievement rate(s), while the primary factor under formula two focuses on the 13-month persistency ratio(s), among others.

22

Table of Contents

The following table presents the amounts recognized as revenue and refund for each contract year:

Contract

Revenue

Revenue VAT 

Refund 

Refund VAT 

Year

    

Period

    

Execution Fees

    

 Amount

    

Amount

    

Amount

    

Amount

First

01/01/2022 - 12/31/2022

NTD

5,000,000

NTD

2,659,505

(1)

NTD

132,975

NTD

2,102,400

(1)

NTD

105,120

Second

01/01/2023 - 12/31/2023

NTD

5,000,000

NTD

NTD

NTD

NTD

Third

01/01/2024 - 12/31/2024

NTD

5,000,000

NTD

NTD

NTD

NTD

Fourth

01/01/2025 - 12/31/2025

NTD

5,000,000

NTD

NTD

NTD

NTD

Fifth

01/01/2026 - 12/31/2026

NTD

5,000,000

NTD

NTD

NTD

NTD

Sixth

01/01/2027 - 12/31/2027

NTD

5,000,000

NTD

NTD

NTD

NTD

Seventh

01/01/2028 - 12/31/2028

NTD

5,000,000

NTD

NTD

NTD

NTD

Eighth

01/01/2029 - 12/31/2029

NTD

5,000,000

NTD

NTD

NTD

NTD

Ninth

01/01/2030 - 12/31/2030

NTD

5,000,000

NTD

NTD

NTD

NTD

Tenth

01/01/2031 - 12/31/2031

NTD

5,000,000

NTD

NTD

NTD

NTD

TOTAL

  

NTD

50,000,000

NTD

2,659,505

NTD

132,975

NTD

2,102,400

NTD

105,120

1)The Company estimated VONB and 13-month persistency ratio for the year ending December 31, 2022 and calculated the revenue amount to be $90,876 (NTD 2,659,505) for the year. The amount will be reassessed every quarter until receiving AIATW’s notice.

The Company recognized the revenue related to AIATW of $24,166 (NTD 731,957) and nil, net of VAT, for the three months ended September 30, 2022 and 2021, respectively, and $68,157 (NTD 1,994,629) and nil, net of VAT, for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022 and December 31, 2021, the Company had $1,348,875 and nil of non-current portion of contract liabilities, respectively, and current contract liabilities of $87,097 and nil, respectively, related to the Alliance Agreement.

NOTE 12 –LEASE

The Company has operating leases for its offices with lease terms ranging from one to five years. The Company recorded its operating lease cost of $1,047,058 and $3,169,875 for the three and nine months ended September 30, 2022, and $1,071,575 and $3,148,542 for the three and nine months ended September 30, 2021, respectively.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As of September 30, 2022 and December 31, 2021, operating lease right-of-use assets and lease liabilities were as follows:

    

September 30, 2022

    

    

(unaudited)

    

December 31, 2021

Right-of-use assets under operating leases

$

7,455,797

$

6,449,182

Operating lease liabilities – current

 

3,420,600

 

3,059,329

Operating lease liabilities – noncurrent

 

3,961,006

 

3,298,089

Lease term and discount rate

September 30, 2022

    

    

(unaudited)

    

December 31, 2021

Weighted average remaining lease term

 

 

Operating lease

 

2.62

years

2.31

years

Weighted average discount rate

 

 

 

Operating lease

 

2.61

%  

2.80

%  

Supplemental cash flow information related to leases

    

Nine Months Ended September 30, 

2022 (unaudited)

2021 (unaudited)

Cash paid for amounts included in the measurement of lease liabilities

 

Operating cash flows related to operating leases

$

3,095,389

$

3,138,759

Amortization of right-of-use assets under operating leases

2,772,819

2,724,822

23

Table of Contents

The minimum future lease payments as of September 30, 2022 are as follows:

    

Amount

2022 (remainder of year)

921,334

2023

 

3,301,449

2024

 

2,141,767

2025

 

770,530

2026

312,332

Thereafter

 

217,622

Total minimum lease payments

7,665,034

Less: Interest

 

(283,428)

Present value of future minimum lease payments

$

7,381,606

NOTE 13 – NONCONTROLLING INTERESTS

Noncontrolling interests consisted of the following as of September 30, 2022 and December 31, 2021:

% of Non-

Other

September 30, 

controlling

December 31, 

Net Income

Comprehensive

2022

Name of Entity

    

Interest

    

2021

    

(Loss)

    

Loss

    

(unaudited)

Law Enterprise

 

34.05

%  

$

(676,166)

$

(207,439)

$

(6,043)

(889,648)

Law Broker

 

34.05

%  

 

31,016,203

4,305,759

 

(4,224,770)

 

31,097,192

Uniwill

 

50.00

%

 

48,802

1,296,273

 

(152,940)

 

1,192,135

Rays

1.00

%

(6,461)

(214)

(6,675)

PFAL

 

49.00

%  

 

364,056

(14,739)

 

(1,225)

 

348,092

MKI

 

49.00

%  

 

(327,119)

(712)

 

 

(327,831)

Total

$

30,419,315

$

5,378,928

$

(4,384,978)

$

31,413,265

% of Non-

Other

Impact from

controlling

December 31, 

Net Income

Comprehensive

Liquidation of

December 31, 

Name of Entity

    

Interest

    

2020

    

(Loss)

    

Income (Loss)

    

PA Taiwan

    

2021

Law Enterprise

 

34.05

%  

$

(414,957)

$

(264,642)

$

3,433

$

$

(676,166)

Law Broker

 

34.05

%  

 

25,177,272

 

5,444,673

 

394,258

 

31,016,203

Uniwill

50.00

%

(421,035)

466,934

2,903

48,802

Rays

1.00

%

(5,772)

(689)

(6,461)

PFAL

 

49.00

%  

 

423,978

 

(63,441)

 

3,519

 

364,056

MKI

 

49.00

%  

 

(732)

 

(161,090)

 

(165,297)

 

(327,119)

PA Taiwan

 

49.00

%  

 

(163,013)

 

1,102

 

(3,386)

165,297

 

Total

$

24,595,741

$

5,422,847

$

400,727

$

$

30,419,315

24

Table of Contents

NOTE 14 – INCOME TAX

The following table reconciles the Company’s statutory tax rates to effective tax rates for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30, 

2022

2021

    

(unaudited)

    

(unaudited)

 

U.S. statutory rate

 

21

%  

21

%

Tax rate difference

 

(2)

%  

(1)

%

Change in valuation allowance for unrecognized tax losses

 

(3)

%  

2

%

Income tax on undistributed earnings

 

2

%  

4

%

Release of valuation allowance

(4)

%

%

Utilization of previously unrecognized tax losses

(1)

%

%

Non-deductible and non-taxable items

(6)

%  

%

Other

2

%  

%  

Effective tax rate

 

9

%  

26

%

Nine Months Ended September 30, 

2022

2021

    

(unaudited)

    

(unaudited)

 

U.S. statutory rate

 

21

%  

21

%

Tax rate difference

 

(2)

%  

(1)

%

Change in valuation allowance for unrecognized tax losses

 

2

%  

4

%

Income tax on undistributed earnings

3

%  

4

%  

Release of valuation allowance

 

(2)

%  

%

Utilization of previously unrecognized tax losses

(4)

%  

%  

Non-deductible and non-taxable items

 

%  

(1)

%

Other

(1)

%  

%  

Effective tax rate

 

17

%  

27

%

The Company’s income tax expense is mainly generated by its subsidiaries in Taiwan. The Company’s subsidiaries in Taiwan are governed by the Income Tax Law of Taiwan and subject to a statutory tax rate on income reported in the statutory financial statements at 20% and a tax on undistributed earnings at 5%. The Company had no plan to distribute earnings earned for the years ended December 2021 and 2020, and the tax on undistributed earnings on entities in Taiwan of 5% was estimated. As of September 30, 2022 and December 31, 2021, the Company had current tax payable of $2,125,788 and $3,703,412 for Taiwan income tax, respectively.

The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and then record a valuation allowance to reduce the carrying value of the deferred tax assets to an amount that is more likely than not to be realized. The Company considered cumulative losses arising from Uniwill’s startup costs at the initial stage along with compensation costs in connection with the issuance of preferred stock and maintained a full valuation allowance against Unwill’s deferred tax assets because insufficient evidence existed to support the realization of any future income tax benefits. Uniwill became profitable because of receiving more trailing commissions since the fiscal year 2021 and also obtained the insurance license to sell property and casualty insurance products in 2022. As a result, the Company expected future profitability and improved overall prospects of future business. Therefore, the Company released the valuation allowance of $354,828 (NTD 11,273,783) against Uniwill’s deferred tax assets in the third quarter of fiscal 2022.

WFOE and the Consolidated Affiliated Entities (“CAE”) in the PRC are governed by the Income Tax Law of PRC concerning private-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriate adjustments. As of September 30, 2022 and December 31, 2021, the Company had no current tax payable for PRC income tax.

The Company’s subsidiaries in Hong Kong are governed by the Inland Revenue Ordinance Tax Law and subject to two-tiered profits tax regime. The first HK$2 million assessable profits is taxed at 8.25% and any assessable profits over HK$2 million is taxed at 16.25%. As of September 30, 2022 and December 31, 2021, the Company had current tax payable of nil and $9,756 for Hong Kong income tax.

25

Table of Contents

The 2017 Tax Act was enacted into law on December 22, 2017 and imposed a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. Based on the Company’s total post-1986 earnings and profits (“E&P”) that it previously deferred from U.S. income taxes, we recorded the one-time transition tax $1,199,195 in eight annual installments for the transition tax on undistributed earnings of non-U.S. subsidiaries during the year ended December 31, 2018. As of September 30, 2022 and December 31, 2021, the Company had current tax payable of $239,839 and $179,879, and noncurrent tax payable of $299,797 and $539,636 for U.S. income tax.

NOTE 15 – RELATED PARTY TRANSACTIONS

The following summarized the Company’s loans payable related parties as of September 30, 2022 and December 31, 2021:

September 30, 2022

    

(unaudited)

    

December 31, 2021

Due to Ms. Lu (A shareholder of Anhou)

$

$

41,311

Others

 

6,593

 

9,220

Total

$

6,593

$

50,531

Amounts due to Ms. Lu were borrowings from Ms. Lu to support Anhou’s business operation. The amounts were non-interesting bearing and payable on demand.

With respect to due to bonus to officers, please refer to Note 9; and due to AHFL previous shareholders, please refer to Note 10.

There was no other material related party transactions other than those disclosed above.

NOTE 16– COMMITMENTS AND CONTINGENCIES

Operating Leases

See future minimum annual lease payments in Note 12.

Time Deposits Pledged as Collateral

See time deposits pledged as collateral in Notes 5 and 7.

Appointment agreement

On June 30, 2022, Law Broker entered into an appointment agreement with Shu-Fen, Lee (“Ms. Lee”), pursuant to which, she served and will continue serving as the president of Law Broker from December 21, 2021 to June 29, 2025. Ms. Lee’s primary responsibilities included 1) overall business planning, 2) implementation of resolution of the shareholders’ meeting or the board of directors, 3) the appointment and dismissal of the Law Broker’s employees and sales professionals, except for internal auditors, 4) financial management and application, 5) being the representative of Law Broker, and 6) other matters assigned by the board of directors. According to the appointment agreement, Ms. Lee’s compensation plan included: 1) base salary, 2) managerial allowance, 3) surplus bonus based on 1.25% of Law Broker’s income after tax, and 4) annual year-end bonus. For the three and nine months ended September 30, 2022 the Company has recorded the compensation expense of $70,618 and $177,209 under the appointment agreement, respectively. For the three and nine months ended September 30, 2021, the Company has recorded the compensation expense of $96,651 and $210,858 under the appointment agreement, respectively.

Engagement agreement

On December 23, 2021, Law Broker entered into a new engagement agreement with Hui-Hsien Chao (“Ms. Chao”), pursuant to which she served and will continue serving as the general manager of Law Broker from December 23, 2021 to December 22, 2024. Ms. Chao’s primary responsibilities are to assist Law Broker in operating and managing insurance agency business. According to the engagement agreement, Ms. Chao’s Bonus plans shall include: 1) execution, 2) long-term service fees and 3) non-competition. The payment of such bonuses will only occur upon satisfaction of certain conditions and subject to the terms in the engagement agreement. Ms. Chao has agreed to act as the general manager or equivalent position of Law Broker for a term of at least three years. For the three and nine months ended September 30, 2021, the Company has recorded the compensation expense of $38,912 and $169,721 under the engagement agreement, respectively.

26

Table of Contents

NOTE 17 –VARIABLE INTEREST ENTITIES

The carrying amounts of the assets, liabilities and the results of operations of the VIE and its subsidiaries (i.e., Zhengzhou Zhonglian Hengfu Business Consulting Co., Limited and its subsidiaries) included in the Company’s consolidated balance sheets and statements of comprehensive loss after the elimination of intercompany balances and transactions among VIE and its subsidiaries within the Company are as follows:

    

September 30, 2022

    

(Amount in USD)

  (unaudited)

December 31, 2021

ASSETS

 

  

 

  

Current assets

Cash and cash equivalents

$

2,479,178

$

1,001,974

Accounts receivable and notes receivable

 

311,096

 

455,884

Other current assets

 

157,577

 

120,113

Total current assets

 

2,947,851

 

1,577,971

Right-of-use assets under operating leases

 

1,081,330

 

1,528,856

Property and equipment, net

 

148,118

 

199,056

Prepaid expenses - intangible assets

 

17,050

 

9,377

Long-term investments

 

42,195

 

47,179

Restricted cash – noncurrent

 

317

 

72,870

Registered capital deposits

 

703,246

 

1,100,842

Deferred tax assets

 

 

74,709

Other assets

 

75,082

 

83,951

TOTAL ASSETS

$

5,015,189

$

4,694,811

LIABILITIES

 

 

Current liabilities

 

 

Commissions payable to sales professionals

$

153,260

$

210,198

Operating lease liabilities-current

432,707

500,720

Other current liabilities

 

386,958

 

617,018

Due to related parties - Ms. Lu (the shareholder of Anhou)

 

 

41,311

Total current liabilities

 

972,925

 

1,369,247

Operating lease liabilities - noncurrent

 

539,229

 

908,971

TOTAL LIABILITIES

$

1,512,154

$

2,278,218

Three Months Ended September 30, 

(Amount in USD)

    

2022

    

2021

Revenue

$

682,836

$

1,337,946

Net income (loss)

 

2,886,328

 

(70,710)

    

Nine Months Ended September 30, 

(Amount in USD)

2022

2021

Revenue

$

3,115,764

$

4,554,515

Net income (loss)

 

1,441,719

 

(373,756)

Nine Months Ended September 30, 

(Amount in USD)

    

2022

    

2021

Net cash used in operating activities

 

(1,510,463)

 

(550,258)

Net cash provided by (used in) investing activities

 

3,255,586

 

(115,645)

Net cash used in financing activities

 

(39,801)

 

(38,643)

27

Table of Contents

The VIE contributed $682,836 and $3,115,764 of the Company’s consolidated revenue for the three and nine months ended September 30, 2022, and contributed $1,337,946 and $4,554,515 of the Company’s consolidated revenue for the three and nine months ended September 30, 2021, respectively, after elimination of inter-company transactions.

As of September 30, 2022, there was no pledge or collateralization of the VIE’s assets that can only be used to settle obligations of the VIE, other than the share pledge agreements, restricted cash and registered capital deposits. Other than the amounts due to the Company and its non-VIE subsidiaries (which are eliminated upon consolidation), the creditors of the VIEs’ third-party liabilities did not have recourse to the general credit of the Company in normal course of business. The Company did not provide or intend to provide financial or other supports not previously contractually required to the VIEs during the years presented.

NOTE 18 – SEGMENT REPORTING

The Company organizes and manages its business as three operating segments by operating geographic areas. The business of WFOE, CU Hong Kong and the CAE in PRC was managed and reviewed as PRC segment. The business of AHFL and its subsidiaries in Taiwan was managed and reviewed as Taiwan segment. The business of PFAL was managed and reviewed as Hong Kong segment. PRC and Taiwan segments retain majority of reported consolidated amounts.

The geographical distributions of the Company’s financial information for the three and nine months ended September 30, 2022 and 2021 were as follows:

Three Months Ended September 30, 

(unaudited)

(unaudited)

    

2022

    

2021

Geographical Areas

Revenue

Taiwan

$

33,034,547

$

30,880,030

PRC

 

682,836

 

1,337,946

Hong Kong

 

257

 

342

Elimination adjustment

 

(1,069,371)

 

(588,818)

Total revenue

$

32,648,269

$

31,629,500

Income (loss) from operations

 

 

Taiwan

$

5,933,232

$

6,940,476

PRC

 

2,790,137

 

(87,442)

Hong Kong

 

(36,574)

 

(42,142)

Elimination adjustment

 

(14,475)

 

164,107

Total income from operations

$

8,672,320

$

6,974,999

Non-operating income (expense)

Taiwan

$

1,096,676

$

145,556

PRC

434,540

(7,097)

Hong Kong

1,732

2

Elimination adjustment

(154,852)

153,233

Total non-operating income

$

1,378,096

$

291,694

Net income (loss)

 

 

Taiwan

$

6,077,020

$

5,168,197

PRC

 

3,311,106

 

(87,708)

Hong Kong

 

(34,843)

 

(38,663)

Elimination adjustment

 

(169,328)

 

316,789

Total net income

$

9,183,955

$

5,358,615

28

Table of Contents

Nine Months Ended September 30, 

    

(unaudited)

    

(unaudited)

    

2022

    

2021

Geographical Areas

Revenue

Taiwan

$

95,103,196

$

92,002,783

PRC

 

3,115,764

 

4,554,515

Hong Kong

 

83,208

 

139,763

Elimination adjustment

 

(3,017,668)

 

(1,563,764)

Total revenue

$

95,284,500

$

95,133,297

Income (loss) from operations

 

 

Taiwan

$

15,012,498

$

14,800,973

PRC

 

1,684,570

 

(385,850)

Hong Kong

 

(36,520)

 

8,031

Elimination adjustment

 

447,370

 

589,836

Total income from operations

$

17,107,918

$

15,012,990

Non-operating income (expense)

Taiwan

$

2,912,665

$

1,098,589

PRC

 

901,271

 

(58,363)

Hong Kong

 

6,442

 

(114)

Elimination adjustment

 

(520,706)

 

(211,996)

Total non-operating income

$

3,299,672

$

828,116

Net income (loss)

 

 

Taiwan

$

14,598,295

$

11,590,188

PRC

 

2,346,980

 

(442,118)

Hong Kong

 

(30,079)

 

7,264

Elimination adjustment

 

(73,336)

 

377,290

Total net income

$

16,841,860

$

11,532,624

29

Table of Contents

The geographical distribution of the Company’s financial information as of September 30, 2022 and December 31, 2021 were as follows:

September 30, 2022

    

(unaudited)

    

December 31, 2021

Geographical Areas

Reportable assets

Taiwan

$

186,567,745

$

195,981,770

PRC

 

12,643,322

 

12,326,308

Hong Kong

 

699,080

 

756,692

Elimination adjustment

 

(75,440,471)

 

(81,283,249)

Total reportable assets

$

124,469,676

$

127,781,521

Long-lived assets

 

 

Taiwan

$

7,789,836

$

6,784,644

PRC

 

1,229,448

 

1,727,911

Hong Kong

 

2,422

 

1,287

Elimination adjustment

 

(2,906)

 

(2,905)

Total long-lived assets

$

9,018,800

$

8,510,937

Capital investments (CAPEX cash flows)

 

 

Taiwan

$

468,569

$

595,591

PRC

 

33,110

 

79,203

Hong Kong

 

1,634

 

154

Total capital investments

$

503,313

$

674,948

NOTE 19 –RISKS AND UNCERTAINTIES

There has continued to be widespread impact from the coronavirus disease (“COVID-19”) pandemic including potentially more contagious strains of COVID-19 such as the Delta and Omicron variants. It has created significant volatility and uncertainty and economic disruption. The extent to which the pandemic impacts the Company’s business and operations will depend on numerous evolving factors, many of which are not within the Company’s control and which the Company may not be able to accurately predict, including its duration and scope; the ultimate availability, administration and effectiveness of vaccines around the world; governmental actions that have been and continue to be taken in response to the pandemic, including vaccine coverage; the impact of the pandemic on economic activity and actions taken in response; the ability of the Company’s customers to pay their insurance premiums which could impact the Company’s commission and fee revenues for the services provided; and the long-term impact of employees working from home, including increased technology costs.

On August 2, 2022, U.S. House Speaker Nancy Pelosi (“Pelosi”) visited Taiwan, which marked the first time that a U.S. House speaker has visited Taiwan in 25 years. China’s military announced it was conducting military exercises in response to Pelosi’s visit, including joint air and sea drills and live-fire exercises near Taiwan. The government of the P.R.C. asserts sovereignty over Taiwan, and does not recognize the legitimacy of the R.O.C. government. Therefore, relations between the R.O.C. and the P.R.C. and other factors affecting the political or economic conditions in Taiwan could have an adverse effect on the Company’s financial condition and results of operations, all of which are not within the Company’s control and the Company may not be able to accurately predict at this time.

NOTE 20 – SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the date these consolidated financial statements were issued and determine that there were no subsequent events or transactions that require recognition or disclosures in the consolidated financial statements.

30

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.

The following discussion of the results of operations and financial condition should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Item 1 of this part. This report, including the information incorporated by reference, contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The use of any of the words “believe,” “expect,” “anticipate,” “plan,” “estimate,” and similar expressions are intended to identify such statements. Forward-looking statements include statements concerning our possible or assumed future results. The actual results that we achieve may differ materially from those discussed in such forward-looking statements due to the risks and uncertainties described in the Risk Factors section of this report, in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in other sections of this report, as well as in our annual report on Form 10-K. We undertake no obligation to update any forward-looking statements.

Overview

The Company primarily provides two broad categories of insurance products, life insurance products and property and casualty insurance products, in Taiwan and PRC. The Company also provides reinsurance brokerage services and insurance consulting services in Hong Kong and Taiwan. The percentage of reinsurance brokerage services and insurance consulting services is less than 1% of our total revenue. The insurance products that the Company’s subsidiaries sell are underwritten by some of the leading insurance companies in Taiwan and PRC, respectively.

(1)

Life Insurance Products

Total revenue from Taiwan segment’s sales of life insurance products were 92.2% and 87.7% of the Company’s total revenue for the three months ended September 30, 2022 and 2021, respectively. Total revenue from PRC segment’s sales of life insurance products were 2.1% and 3.3% of the Company’s total revenue for the three months ended September 30, 2022 and 2021, respectively.

Total revenue from Taiwan segment’s sales of life insurance products were 90.3% and 88.1% of the Company’s total revenue for the nine months ended September 30, 2022 and 2021, respectively. Total revenue from PRC segment’s sales of life insurance products were 2.9% and 4.3% of the Company’s total revenue for the nine months ended September 30, 2022 and 2021, respectively.

In addition to the periodic premium payment schedules, most of the individual life insurance products we distribute also allow the insured to choose to make a single, lump-sum premium payment at the beginning of the policy term. If a periodic payment schedule is adopted by the insured, a life insurance policy can generate periodic payment of fixed premiums to the insurance company for a specified period of time. This means that once the Company sells a life insurance policy with a periodic premium payment schedule, it will be able to derive commission and fee income from that policy for an extended period of time, sometimes up to 25 years. Because of this feature and the expected sustainable growth of life insurance sales in the PRC and Taiwan, we have invested significant resources ever since the incorporation of Anhou and Law Broker on developing our capability to distribute individual life insurance products with periodic payment schedules. We expect that sales of life insurance products will continue being our primary source of revenue in the next several years.

(2)

Property and Casualty Insurance Products

Total revenue from Taiwan segment’s sales of property and casualty insurance products were 5.7% and 8.1% of the Company’s total revenue for the three months ended September 30, 2022 and 2021, respectively. Total revenue from PRC segment’s sales of property and casualty insurance products were nil and 0.9% of the Company’s total revenue for the three months ended September 30, 2022 and 2021, respectively.

Total revenue from Taiwan segment’s sales of property and casualty insurance products were 6.3% and 7.0% of the Company’s total revenue for the nine months ended September 30, 2022 and 2021, respectively. Total revenue from PRC segment’s sales of property and casualty insurance products were 0.4% and 0.5% of the Company’s total revenue for the nine months ended September 30, 2022 and 2021, respectively.

31

Table of Contents

As the impacts of COVID-19 and its duration remain uncertain, we have been monitoring and will continue to measure and modify our business attempting to keep our customers, sales professionals and employees healthy and safe. The extent of the COVID-19 impact to the Company will depend on numerous factors and developments. Consequently, any potential impacts of COVID-19 remain highly uncertain and cannot be predicted with confidence.

Critical Accounting Policies and Estimates

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Except for the accounting policy for disposal of subsidiary as described in Note 2 to this Form 10-Q for the quarter ended September 30, 2022, we have had no changes to our Critical Accounting Policies as described in our most recent Form 10-K for the year ended December 31, 2021 and believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition and estimate of income taxes. Our significant accounting policies are described in Note 1 of “Summary of Significant Accounting Policies” included within our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Results of Operations- Three Months ended September 30, 2022 Compared to Three Months ended September 30, 2021

The following table shows the results of operations for the three months ended September 30, 2022 and 2021:

32

Table of Contents

Three Months Ended September 30,

 

2022

2021

 

    

(Unaudited)

    

(Unaudited)

    

Change

    

Percent

 

Revenue

$

32,648,269

$

31,629,500

$

1,018,769

 

3.2

%

Cost of revenue

 

20,014,864

 

17,066,959

 

2,947,905

 

17.3

%

Gross profit

 

12,633,405

 

14,562,541

 

(1,929,136)

 

(13.2)

%

Gross profit margin

 

38.7

%  

 

46.0

%  

 

(7.3)

%  

(15.9)

%

Operating expenses (income):

 

 

 

 

Selling

 

872,974

 

397,628

 

475,346

 

119.5

%

General and administrative

 

6,351,001

 

7,189,914

 

(838,913)

 

(11.7)

%

Gain on disposal of nonfinancial assets in Jiangsu Law

(3,262,890)

(3,262,890)

%

Total operating expenses (income), net

 

3,961,085

 

7,587,542

 

(3,626,457)

 

(47.8)

%

Income from operations

 

8,672,320

 

6,974,999

 

1,697,321

 

24.3

%

Other income (expenses):

 

 

 

 

Interest income

 

232,343

 

116,277

 

116,066

 

99.8

%

Interest expenses

 

(107,046)

 

(47,701)

 

(59,345)

 

124.4

%

Foreign currency exchange gain (loss), net

 

1,240,704

 

(31,341)

 

1,272,045

 

(4,058.7)

%

Dividend income

7,521

499

7,022

1,407.2

%

Other - net

 

4,574

 

253,960

 

(249,386)

 

(98.2)

%

Total other income, net

 

1,378,096

 

291,694

 

1,086,402

 

372.4

%

Income before income taxes

 

10,050,416

 

7,266,693

 

2,783,723

 

38.3

%

Income tax expense

 

(866,461)

 

(1,908,078)

 

1,041,617

 

(54.6)

%

Net income

 

9,183,955

 

5,358,615

 

3,825,340

 

71.4

%

Net income attributable to noncontrolling interests

 

(2,284,110)

 

(2,338,903)

 

54,793

 

(2.3)

%

Net income attributable to China United’s shareholders

6,899,845

3,019,712

3,880,133

 

128.5

%

Other comprehensive items, net of tax:

(6,711,878)

208,851

(6,920,729)

(3,313.7)

%

Comprehensive income

2,472,077

5,567,466

(3,095,389)

(55.6)

%

Comprehensive income attributable to noncontrolling interests

(118,808)

(2,404,539)

2,285,731

(95.1)

%

Comprehensive income attributable to China United’s shareholders

$

2,353,269

$

3,162,927

$

(809,658)

(25.6)

%

Revenue

As a distributor of insurance products, we derive our revenue primarily from commissions and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance companies in Taiwan, PRC and Hong Kong. We generate revenue primarily through our sales force, which consists of individual sales agents in our distribution and service network. For the three months ended September 30, 2022 and 2021, the revenues generated from Taiwan, PRC and Hong Kong were as follows:

Geographic Areas

Three Months Ended September 30,

 

    

2022

    

2021

    

Change

    

Percent

 

Revenue

 

  

 

  

 

  

 

  

Taiwan segment

$

31,965,176

$

30,291,212

$

1,673,964

 

5.5

%

Percentage of revenue

 

97.9

%  

 

95.8

%  

 

 

PRC segment

 

682,836

 

1,337,946

 

(655,110)

 

(49.0)

%

Percentage of revenue

 

2.1

%  

 

4.2

%  

 

 

Hong Kong segment

 

257

 

342

 

(85)

 

(24.9)

%

Percentage of revenue

 

%  

 

%  

 

 

Total revenue

$

32,648,269

$

31,629,500

$

1,018,769

 

3.2

%

33

Table of Contents

Revenue from our Taiwan segment increased by $1.7 million from $30.3 million for the three months ended September 30, 2021 to $32.0 million for the three months ended September 30, 2022. The revenue in local currency was increased due to the performance and operation bonus resulting from the sales of insurance products increase from Uniwill and Law Broker but partially offset by the foreign exchange fluctuation from the substantial depreciation of the New Taiwan Dollar against the U.S. dollar.

Revenue from our PRC segment decreased by $0.6 million from $1.3 million for the three months ended September 30, 2021 to $0.7 million for the three months ended September 30, 2022. The overall insurance industry environment was declining during 2022 in PRC and customers in PRC were less willing to buy those insurance products in 2022, which resulted in the decrease of revenue in the PRC segment.

Revenue from the Hong Kong Segment was primarily derived from reinsurance commission on sales of insurance products from other insurers to Taiwan Life Insurance Co., Ltd. (“Taiwan Life”) for risk management. Revenue decrease from our Hong Kong segment for the three months ended September 30, 2022 continued compared to that of the three months ended September 30, 2021 due to the termination of certain of our reinsurance agreements and the discontinuation of travel insurance.

Cost of revenue and gross profit

The cost of revenue mainly consists of commissions paid to our sales professionals. The cost of revenue increased by $2.9 million from $17.1 million for the three months ended September 30, 2021 to $20.0 million for the three months ended September 30, 2022. The increase in the cost of revenue was mainly resulted from the revenue increase of both Uniwill and Law Broker. In addition, the bonuses paid to agents also increased due to the outstanding sales performance from senior agents with higher commission rates.

Consequently, the gross profit margin decreased from 46.0% for the three months ended September 30, 2021 to 38.7% for the three months ended September 30, 2022.

Selling expenses

Selling expenses were mainly incurred by Law Broker and Uniwill in connection with costs related to marketing and advertising. For the three months ended September 30, 2022, selling expenses were $0.9 million, reflecting an increase of $0.5 million, compared with $0.4 million of selling expenses for the three months ended September 30, 2021. The increase in the selling expenses was caused by the marketing activities during the three months ended September 30, 2022. For the same period in 2021, the adverse impact from the outbreak of COVID-19 in Taiwan had substantially restricted our marketing activities in Taiwan, leading to less selling expenses in such period.

General and administrative expenses

General and administrative (“G&A”) expenses are principally comprised of salaries and benefits for our administrative staff, office rental expenses, travel expenses, depreciation and amortization, entertainment expenses, and professional service fees. For the three months ended September 30, 2022, G&A expenses were $6.4 million, reflecting a decrease of $0.8 million, compared with $7.2 million of G&A expenses for the three months ended September 30, 2021. The decrease in the general and administrative expenses was attributed to the recognition of compensation costs for the issuance of shares of common stock during the three months ended September 30, 2021.

Gain on disposal of nonfinancial assets in Jiangsu Law

For the three months ended September 30, 2022, other operating income were $3.3 million generated from the disposal of nonfinancial assets in one of the subsidiaries, Jiangsu Law.

Other income (expenses), net

Other income mainly consisted of interest income, interest expenses, gain or loss on valuation of financial assets and foreign currency exchange gain or loss. Other income were $1.4 million, reflecting an increase of $1.1 million, compared with the other income of $0.3 million for the three months ended September 30, 2021. The increase in other income was mainly due to the foreign currency exchange gain recognized from foreign currency time deposits assets and intercompany receivable and payable because of the substantial depreciation of the New Taiwan Dollar against the U.S. dollar and Chinese Yuan during the third quarter of 2022.

34

Table of Contents

Income tax expense

For the three months ended September 30, 2022, income tax expense was $0.9 million, reflecting a decrease of $1.0 million or 54.6%, compared with the income tax expense of $1.9 million for the three months ended September 30, 2021. The decrease in income tax expense was mainly due to the reversal of valuation allowance, with respect to reason of reversal of valuation allowance, please refer to Note14.

Other comprehensive items

Other comprehensive items mainly consisted of foreign currency translation gain or loss. The foreign currency translation loss was $6.7 million, reflecting a decrease of $6.9 million, compared with foreign currency translation gain of $0.2 million for the three months ended September 30, 2021. The decrease was mainly due to a larger foreign currency translation loss resulted from the substantial depreciation of the New Taiwan Dollar against the U .S. dollar for the three months ended September 30, 2022.

Results of Operations- Nine Months ended September 30, 2022 Compared to Nine Months ended September 30, 2021

The following table shows the results of operations for the nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

 

2022

2021

 

    

(Unaudited)

    

(Unaudited)

    

Change

    

Percent

 

Revenue

    

$

95,284,500

    

$

95,133,297

    

$

151,203

    

0.2

%

Cost of revenue

 

60,354,318

 

59,576,604

 

777,714

 

1.3

%

Gross profit

 

34,930,182

 

35,556,693

 

(626,511)

 

(1.8)

%

Gross profit margin

 

36.7

%  

 

37.4

%  

 

(0.7)

%  

(1.9)

%

Operating expenses (income):

 

 

 

 

Selling

 

1,990,805

 

1,073,702

 

917,103

 

85.4

%

General and administrative

 

19,094,349

 

19,470,001

 

(375,652)

 

(1.9)

%

Gain on disposal of nonfinancial assets in Jiangsu Law

(3,262,890)

(3,262,890)

%

Total operating expenses (income), net

 

17,822,264

 

20,543,703

 

(2,721,439)

 

(13.2)

%

Income from operations

 

17,107,918

 

15,012,990

 

2,094,928

 

14.0

%

Other income (expenses):

 

 

 

 

Interest income

 

498,395

 

330,054

 

168,341

 

51.0

%

Interest expenses

 

(229,185)

 

(136,807)

 

(92,378)

 

67.5

%

Foreign currency exchange gain (loss), net

 

2,682,717

 

(130,527)

 

2,813,244

 

(2,155.3)

%

Dividend income

 

219,890

 

251,827

 

(31,937)

 

(12.7)

%

Other - net

 

127,855

 

513,569

 

(385,714)

 

(75.1)

%

Total other income, net

 

3,299,672

 

828,116

 

2,471,556

 

298.5

%

Income before income taxes

 

20,407,590

 

15,841,106

 

4,566,484

 

28.8

%

Income tax expense

 

(3,565,730)

 

(4,308,482)

 

742,752

 

(17.2)

%

Net income

 

16,841,860

 

11,532,624

 

5,309,236

 

46.0

%

Net income attributable to noncontrolling interests

 

(5,378,928)

 

(4,911,643)

 

(467,285)

 

9.5

%

Net income attributable to China United’s shareholders

11,462,932

6,620,981

4,841,951

 

73.1

%

Other comprehensive items, net of tax:

(13,377,127)

716,903

(14,094,030)

(1,966.0)

%

Comprehensive income

3,464,733

12,249,527

(8,784,794)

(71.7)

%

Comprehensive income attributable to noncontrolling interests

(993,950)

(5,163,181)

4,169,231

(80.7)

%

Comprehensive income attributable to China United’s shareholders

$

2,470,783

$

7,086,346

$

(4,615,563)

(65.1)

%

35

Table of Contents

Revenue

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 in Taiwan, PRC and Hong Kong. We generate revenue primarily through our sales force, which consists of individual sales agents in our distribution and service network. For the nine months ended September 30, 2022 and 2021, the revenues generated from Taiwan, PRC and Hong Kong were as follows:

Geographic Areas

Nine Months Ended September 30,

 

    

 

2022

    

 

2021

    

 

Change

    

Percent

Revenue

 

  

 

  

 

  

 

  

Taiwan segment

 

$

92,085,528

 

$

90,439,019

 

$

1,646,509

 

1.8

%

Percentage of revenue

96.6

%  

95.1

%  

 

PRC segment

3,115,764

4,554,515

(1,438,751)

 

(31.6)

%

Percentage of revenue

3.3

%  

4.8

%  

 

Hong Kong segment

83,208

139,763

(56,555)

 

(40.5)

%

Percentage of revenue

0.1

%  

0.1

%  

 

Total revenue

 

$

95,284,500

 

$

95,133,297

 

$

151,203

 

0.2

%

Revenue from our Taiwan segment increased by $1.7 million from $90.4 million for the nine months ended September 30, 2021 to $92.1 million for the nine months ended September 30, 2022. The revenue in local currency was increased due to the performance and operation bonus resulting from the sales of insurance products increase from Uniwill but partially offset by the foreign exchange fluctuation from the substantial depreciation of the New Taiwan Dollar against the U.S. dollar.

Revenue from our PRC segment decreased by $1.4 million from $4.5 million for the nine months ended September 30, 2021 to $3.1 million for the nine months ended September 30, 2022. The overall insurance industry environment in PRC was declining during 2022 and customers in PRC were less willing to buy those insurance products in 2022, which resulted in the decrease of revenue in the PRC segment.

Revenue from the Hong Kong Segment was primarily derived from reinsurance commission on sales of insurance products from other insurers to Taiwan Life for risk management. Decrease in revenue from our Hong Kong segment for the nine months ended September 30, 2022 continued compared to that of the nine months ended September 30, 2021 due to the termination of certain reinsurance agreements and the discontinuation of travel insurance.

Cost of revenue and gross profit

The cost of revenue mainly consists of commissions paid to our sales professionals. The cost of revenue for the nine months ended September 30, 2022 remained consistent with the same period in 2021.

Consequently, the gross profit margin slightly decreased from 37.4% for the nine months ended September 30, 2021 to 36.7% for the nine months ended September 30, 2022.

Selling expenses

Selling expenses were mainly incurred by Law Broker and Uniwill in connection with marketing and advertising. For the nine months ended September 30, 2022, selling expenses were $2.0 million, reflecting an increase of $ 0.9 million, compared with that of $1.1 million of selling expenses for the nine months ended September 30, 2021. The increase in the selling expenses was caused by the increase of marketing activities during the nine months ended September 30, 2022. For the same period in 2021, the adverse impact from the outbreak of COVID-19 in Taiwan had substantially restricted our marketing activities in Taiwan, resulting in less selling expenses during the nine months ended September 30, 2021.

36

Table of Contents

General and administrative expenses

General and administrative (“G&A”) expenses are principally comprised of salaries and benefits for our administrative staff, office rental expenses, travel expenses, depreciation and amortization, entertainment expenses, and professional service fees. The decrease in the general and administrative expenses was mainly attributed to the recognition of compensation costs for the issuance of shares of common stock for the nine months ended September 30, 2021 but partially offset by the recognition of severance pay arising from the disposal of the subsidiary Jiangsu Law in June, 2022.

Gain on disposal of nonfinancial assets in Jiangsu Law

For the nine months ended September 30, 2022, other operating income were $3.3 million generated from the disposal of nonfinancial assets in the subsidiary, Jiangsu Law.

Other income (expenses), net

Other income mainly consisted of interest income, interest expenses, gain or loss on valuation of financial assets and foreign currency exchange gain or loss. Other income during the nine months ended September 30, 2022 was $3.3 million, reflecting an increase of $2.5 million, compared with that of $0.8 million for the nine months ended September 30, 2021. The increase in other income was mainly due to the foreign currency exchange gain recognized from foreign currency time deposits assets because of the substantial depreciation of the New Taiwan Dollar against the U.S. dollar and during the nine months ended September 30, 2022.

Income tax expense

For the nine months ended September 30, 2022, income tax expense was $3.6 million, reflecting a decrease of $0.7 million or 17.2%, compared with that of $4.3 million for the nine months ended September 30, 2021. The decrease in tax expenses was mainly due to the reversal of valuation allowance, with respect to reason of reversal of valuation allowance, please refer to Note14.

Other comprehensive items

Other comprehensive items mainly consisted of foreign currency translation gain or loss. Foreign currency translation loss were $13.4 million, reflecting a decrease of $14.1 million, compared with foreign currency translation gain of $0.7 million for the nine months ended September 30, 2021. The decrease was mainly due to a larger foreign currency translation loss resulted from the substantial depreciation of the New Taiwan Dollar against the U.S. dollar for the nine months ended September 30, 2022.

Liquidity and Capital Resources

The following table presents a comparison of the net cash provided by operating activities, net cash used in investing activities and net cash provided by financing activities for the nine-month periods ended September 30, 2022 and 2021:

Nine Months Ended September 30,

 

    

2022

    

2021

    

Change

    

Percent

 

Net cash provided by operating activities

$

12,233,715

$

8,968,709

$

3,265,006

 

36.4

%

Net cash used in investing activities

 

(14,499,782)

 

(4,061,826)

 

(10,437,956)

 

257.0

%

Net cash provided by financing activities

 

2,445,876

 

3,886,078

 

(1,440,202)

 

(37.1)

%

Operating activities

Net cash provided by operating activities during the nine months ended September 30, 2022 was $12.2 million, reflecting an increase of $3.3 million or 36.4% in comparison with that of $8.9 million during the nine months ended September 30, 2021. The increase in cash inflows was mainly due to higher net income and the collection form accounts receivable for the nine months ended September 30, 2022 compared with that of the same period in 2021.

37

Table of Contents

Investing activities

Net cash used in investing activities during the nine months ended September 30, 2022 was $14.5 million, reflecting an increase of $10.4 million or 257.0% in comparison with that of $4.1 million for the nine months ended September 30, 2021. Increases in the cash used in the investing activities mainly resulted from the increase of the purchases of time deposits during nine months ended September 30, 2022. However, the cash outflow was offset by proceeds from disposal of nonfinancial assets in subsidiary and proceeds from maturities of time deposits.

Financing activities

Net cash provided by financing activities was $2.4 million during the nine months ended September 30, 2022, which decreased by $1.4 million from that of $3.8 million during the same period of 2021. The decrease was mainly due to the decrease in net proceeds from additional borrowings under the revolving credit agreements and partially offset by the decrease of repayment of related party borrowings during the nine months ended September 30, 2022.

Contractual Obligations

There have been no significant changes to the Company’s contractual obligations as disclosed in the Company’s 2021 Annual Report on Form 10-K.

Off Balance Sheet Arrangements

The Company had no off-balance sheet arrangements as of September 30, 2022.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit of possible controls and procedures.

Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of September 30, 2022. This conclusion was based on the material weaknesses in our internal control over financial reporting described in Part II, Item 9A, “Controls and Procedures” of our annual report on Form 10-K for the year ended December 31, 2021. The material weaknesses have not been remediated as of September 30, 2022. We continue to work on the remediation of the material weakness, we may determine to take additional measures to address our control deficiencies. The material weakness will continue to exist until the remediation steps identified in our 2021 Form 10-K are fully implemented and concluded to be operating effectively.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. If not remediated, the material weaknesses in our internal control over financial reporting described in the Form 10-K for the year of 2021 could result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

38

Table of Contents

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended September 30, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

39

Table of Contents

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

During the three months ended September 30, 2022, we were not aware of any legal proceedings or claims that we believed would have a material adverse effect on our business, financial condition or operating results. From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business, such as labor and employment disputes. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

ITEM 1A. RISK FACTORS.

As a smaller reporting company, we are not required to make disclosure under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not applicable during this reporting period.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable during this reporting period.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable during this reporting period.

40

Table of Contents

ITEM 6. 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

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

41

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    

China United Insurance Service, Inc.

Date: November 14, 2022

By:

/s/ Yi-Hsiao Mao

Name:

Yi-Hsiao Mao

Its:

Chief Executive Officer

(Principal Executive Officer)

Date: November 14, 2022

By:

/s/ Mei-Kuan Yeh

Name:

Mei-Kuan Yeh

Its:

Chief Financial Officer

(Principal Financial and Accounting Officer)

42