China United Insurance Service, Inc. 10-Q

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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

☐ 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

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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.

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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).

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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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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.

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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.

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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.

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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.

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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.

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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:

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.

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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.

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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.

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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).

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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

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	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

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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	%

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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.

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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.

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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.

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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.

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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		—

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.

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

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