EDGAR 10-K Filing

Company CIK: 1512927
Filing Year: 2021
Filename: 1512927_10-K_2021_0001104659-21-041492.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
Corporate History and Structure Overview
Our Company is a Delaware corporation organized on June 4, 2010 and has been quoted on various tiers of the OTC Markets since August 2012. We provide our customers brokerage and related services with respect to life insurance and property and casualty insurance products. We operate our Taiwan business primarily through Law Insurance Broker Co., Ltd. (“Law Broker”) and our PRC business primarily through Law Anhou Insurance Agency Co., Ltd. (“Anhou”).
Taiwan Segment- Law Broker and GHFL
The history of our Company dates back to October 9, 1992, when Law Broker was established.
Law Enterprise Co., Ltd. (“Law Enterprise”), a company limited by shares and incorporated under the laws of Taiwan, holds 100% interest in Law Broker, a company limited by shares and incorporated under the laws of Taiwan on October 9, 1992. Law Enterprise used to operate two other subsidiaries during the past three fiscal years, namely Law Risk Management & Consultant Co., Ltd. (“Law Management”), a company limited by shares and incorporated under the laws of Taiwan on December 5, 1987, and Law Insurance Agent Co., Ltd., a company limited by shares and incorporated under the laws of Taiwan on June 3, 2000 (“Law Agent”, collectively with “Law Enterprise”, “Law Broker” and “Law Management”, the “Taiwan Subsidiaries”, each a “Taiwan Subsidiary”). Law Management and Law Agent ceased operations, and they were dissolved on April 20, 2016 and April 12, 2016, respectively.
● Acquisition of AHFL
Action Holdings Financial Limited (“AHFL”) was incorporated in the British Virgin Islands with limited liability on April 30, 2012. AHFL holds a 65.95% interest in Law Enterprise and certain of our other subsidiaries as more fully described below.
On August 24, 2012, an acquisition agreement (the “AHFL Acquisition Agreement”) was entered into by and among our Company and the selling shareholders of AHFL named therein. Pursuant to the AHFL Acquisition Agreement, our Company acquired 100% interest in AHFL and its subsidiaries in Taiwan and our Company agreed to pay NT$15.0 million ($500,815) on or prior to March 31, 2013 and NT$7.5 million ($250,095) subsequent to March 31, 2013 in cash in two installments. In addition, our Company agreed to (i) issue 8,000,000 shares of common stock of our Company to the shareholders of AHFL; (ii) issue 2,000,000 shares of common stock of our Company to certain employees of Law Broker; and (iii) create an employee stock option pool, consisting of available options, exercisable for up to 2,000,000 shares of common stock of our Company. Upon closing of the transaction, we acquired 100% interest in AHFL and its subsidiaries in Taiwan.
On March 14, 2013, an Amendment to the AHFL Acquisition Agreement (the “First Amendment to AHFL Acquisition Agreement”) was entered into by and among our Company and the selling shareholders of AHFL named therein. Pursuant to the First Amendment to AHFL Acquisition Agreement, (i) the deadline for cash payment under the AHFL Acquisition Agreement was extended to March 31, 2015; and (ii) in lieu of the 2,000,000 employee stock option pool, our Company agreed to create an employee stock pool consisting of up to 4,000,000 shares of the common stock of our Company, among which 2,000,000 shares shall be solely granted to employees of Law Broker, and the remaining 2,000,000 shares shall be granted to employees of affiliated entities of our Company (including Law Broker employees).
On March 13, 2015, a second Amendment to the AHFL Acquisition Agreement (the “Second Amendment to AHFL Acquisition Agreement”) was entered into by and among our Company and the selling shareholders of AHFL named therein. Pursuant to the Second Amendment to AHFL Acquisition Agreement, the deadline for cash payment under the AHFL Acquisition Agreement was further extended to March 31, 2016.
On February 17, 2016, a third Amendment to the AHFL Acquisition Agreement (the “Third Amendment to AHFL Acquisition Agreement”) was entered into by and among our Company and the selling shareholders of AHFL named therein. Pursuant to the Third Amendment to AHFL Acquisition Agreement, on or prior to June 30, 2016, (i) our Company committed to complete a public offering in connection with the listing of our Company’s shares on a national stock market, where the Company aimed to raise net proceeds through such public offering of at least $10.0 million; (ii) our Company committed to distribute a cash payment in the amount of NT$22.5 million, on a pro rata basis, to the selling shareholders of AHFL and to issue 5,000,000 common shares to select employees of AHFL pursuant to its employee stock/option plan, and (iii) failure to timely complete either of the above-mentioned criteria would be deemed a material breach by the Company under Article 8 of the Acquisition Agreement, and the non-breaching parties would be entitled to terminate the Acquisition Agreement and unwind the Acquisition of AHFL by us and restore the status quo of our Company and the selling shareholders of AHFL as if the acquisition had never happened.
On August 8, 2016, a fourth Amendment to the AHFL Acquisition Agreement (the “Fourth Amendment to AHFL Acquisition Agreement”) was entered into by and among our Company and the selling shareholders of AHFL named therein. Pursuant to the Fourth Amendment to AHFL Acquisition Agreement, (i) the Third Amendment to AHFL Acquisition Agreement was terminated with immediate effect on August 8, 2016, and (ii) our Company agreed to pay to the selling shareholders of AHFL NT$15.0 million on or prior to March 31, 2017 and NT$4.8 million on July 21, 2016.
On March 12, 2017, a fifth Amendment to the Acquisition Agreement (the “Fifth Amendment to AHFL Acquisition Agreement”) was entered into by and among the Company and the selling shareholders of AHFL named therein. Pursuant to the Fifth Amendment to AHFL Acquisition Agreement, the Company agreed to distribute the cash payments in the aggregate amount of NT$15 million to the selling shareholders of AHFL named therein on or prior to March 31, 2019.
On March 27, 2019, a sixth Amendment to the Acquisition Agreement (the “Sixth Amendment to AHFL Acquisition Agreement”) was entered into by and among the Company and the selling shareholders of AHFL named therein. Pursuant to the Sixth Amendment to the AHFL Acquisition Agreement, the Company agreed to distribute cash payments in the aggregate amount of NT$15 million to the selling shareholders of AHFL named therein on or prior to March 31, 2021.
On March 19, 2021, a seventh Amendment to the Acquisition Agreement (the “Seventh Amendment to AHFL Acquisition Agreement”) was entered into by and among the Company and the selling shareholders of AHFL named therein. Pursuant to the Seventh Amendment to the AHFL Acquisition Agreement, the Company agreed to distribute cash payments in the aggregate amount of NT$15 million to the selling shareholders of AHFL named therein on or prior to March 31, 2023.
● Acquisition of GHFL
Genius Holdings Financial Limited (“GHFL”) is a wholly owned subsidiary of AHFL. On February 13, 2015, our Company, AHFL and Mr. Chwan Hau Li, the then sole shareholder of GHFL, entered into an acquisition agreement (the “GHFL Acquisition Agreement”). Pursuant to the GHFL Acquisition Agreement, our Company issued Mr. Chwan Hau Li 352,166 fully paid and non-assessable shares of AHFL common stock (the “AHFL Shares”) together with put options to sell 352,166 shares of common stock of our Company (the “Put Option”), in exchange for 704,333 shares of common stock of GHFL previously held by Mr. Chwan Hau Li, which constituted all of the then issued and outstanding capital stock of GHFL. The Put Option was exercisable within six months of the closing date of the acquisition. The holder of the Put Option would need to forfeit the AHFL Shares to exercise of the Put Option. Subsequent to the acquisition, GHFL became a wholly-owned subsidiary of our Company. GHFL holds 100% issued and outstanding shares of Genius Investment Co., Ltd. (“GIC”), a company limited by shares and incorporated under the laws of Taiwan, which in turn holds approximately 15.64% issued and outstanding shares of Genius Insurance Broker Co., Ltd. (“Genius Broker”), a company limited by shares and incorporated under the laws of Taiwan. Both GHFL and GIC have no substantive business operation other than the holding of shares of its subsidiary. Genius Broker is primarily engaged in broker business across Taiwan. On March 31, 2015, Mr. Chwan Hau Li exercised the Put Option, pursuant to which Mr. Chwan Hau Li transferred 352,166 shares of AHFL to our Company and received 352,166 shares of common stock of our Company in exchange. After the exercise of the Put Option, the Company became the sole shareholder of GHFL and AHFL.
On February 17, 2016, the Company, AHFL and Mr. Chwan Hau Li entered into an Amendment 2 to the GHFL Acquisition Agreement (the “Second Amendment to GHFL Acquisition Agreement”), pursuant to which the Company agreed to complete a public offering with net proceeds of at least $10 million and listing of our Company’s securities on a national stock market on or prior to February 28, 2016. However, as of the date of this annual report, our Company’s securities had not been listed on a national stock exchange.
On August 8, 2016, our Company, AHFL and Mr. Chwan Hau Li entered into an Amendment 3 to the GHFL Acquisition Agreement (the “Third Amendment to GHFL Acquisition Agreement”), pursuant to which, the Second Amendment to GHFL Acquisition Agreement was terminated.
In July of 2018, the Company acquired Joint Broker Co., Limited (“JIB”), a Taiwan Insurance brokerage company, previously known as Kao Te Insurance Broker (“KT Broker”), through GIC. On July 1, 2018, GIC entered into an acquisition agreement (“KT Broker Acquisition Agreement”) with the selling shareholder of KT Broker, Ms. Ma. Pursuant to the KT Broker Acquisition Agreement, GIC agreed to pay $29,545 (NT$ 900,000) in exchange for the insurance brokerage licenses issued to KT Broker by the Taiwanese government, along with right to the KT Broker’s company name and $13,131 (NT$ 400,000) of legal deposits, which were required by the Taiwanese insurance regulations. The Company has no intention of operating the KT Broker existing brokerage business nor retaining any of its sales personnel, therefore the Company recognized for accounting purposes only the acquisition of assets as part of this transaction. The Taiwanese laws do not allow a legal entity to transfer its brokerage license. In order to obtain the desired licenses that KT Broker had, we acquired KT Broker and renamed KT Broker as Joint Insurance Broker Co., Limited to serve as a holding entity for the brokerage licenses. The change of control due to KT Broker Acquisition Agreement and name change did not affect the effectiveness of the insurance brokerage license owned by JIB in Taiwan.
● Recent Development- Uniwill Insurance Broker Co., Ltd.
On November 15, 2019, the Company, through AIlife International Investment Co., Ltd. (“AIlife”), one of the Company’s wholly-owned subsidiaries, entered into a joint venture agreement (the “Joint Venture Agreement”) with Cyun-Jhan Enterprise Co., Ltd. (“Cyun-Jhan”) and Jian-Zao International Industrial Co., Ltd. to contribute funds, human resources, and technology into Uniwill Insurance Broker Co., Ltd. (“Uniwill”), a wholly owned subsidiary of the Company incorporated in Taiwan, according to the Joint Venture Agreement. Under the terms of the Joint Venture Agreement, a total of $13.3 million (NTD 400 million) will be injected to Uniwill if and when all of the conditions are met as set forth in the Joint Venture Agreement no later than December 31, 2021.
On March 3, 2021, the parties thereto entered into an amendment to the Joint Venture Agreement (the “Amendment to the Joint Venture Agreement”), pursuant to which AIlife shall fulfill the paid-up capital obligation in the aggregate amount of NT$400 million (the “Total Cash Contribution”) during a period of eight (8) years (the “Period”) from November 15, 2019, provided that the number of the registered sales agents of Uniwill exceeds 1,000 and the cumulative revenue of the JV reaches NT$8.7 billion (the “Revenue Threshold”) within the Period. Subject to the terms of the Amendment to the Joint Venture Agreement and Joint Venture Agreement, in the event that Uniwill fails to reach the Revenue Threshold within the Period, AIlife shall only be obligated to make cash contributions through the Period to the Joint Venture in the aggregate amount (the “Total Adjusted Cash Contribution”) calculated as follows:
The Total Adjusted Cash Contribution= (the actual cumulated revenue of Uniwill during the Period/ NT$8.7 billion)* NT$400 million.
For more information, please see the current reports on Form 8-K filed on November 21, 2019 and March 3, 2021.
PRC Segment- Anhou
On July 12, 2010, ZLI Holdings Limited (“CU Hong Kong”), a wholly owned subsidiary of our Company, was established under the laws of Hong Kong. On October 20, 2010, Zhengzhou Zhonglian Hengfu Consulting Co., Ltd., a wholly foreign owned enterprise (“CU WFOE”), a wholly owned subsidiary of CU Hong Kong, was established in Henan province of the PRC. On January 16, 2011, our Company issued 20,000,000 shares of common stock to several non-U.S. persons for their investment of $300,000 in CU WFOE. The issuance was made pursuant to an exemption from registration contained in Regulation S under the Securities Act of 1933, as amended.
Zhengzhou Anhou Insurance Agency Co., Ltd., the predecessor entity of Anhou, was founded in Henan province of the PRC on October 9, 2003. Due to PRC legal restrictions on foreign ownership and investment in an insurance agency businesses in China, Able Capital Holding Co., Ltd., a company established with limited liability in Hong Kong, delegated four PRC individuals, namely Yanyan Wang, Zhaohui Chen, Weizhe Hou and Yong Zhang, to invest in Anhou on its behalf.
On September 26, 2013, Yanyan Wang, Zhaohui Chen, Jing Yue, Weizhe Hou, Yong Zhang, Li Chen (“Anhou New Investors”) and Shuqin Zhu, Qun Wei, Qunlei Fang and Yanxia Chen (“Anhou Original Shareholders”) increased the registered capital of Anhou to RMB50 million, among which, (i) Yanyan Wang agreed to invest RMB10 million, accounting for 20% of registered capital in Anhou, (ii) Zhaohui Chen agreed to invest RMB10 million, accounting for 20% of registered capital in Anhou, (iii) Jing Yue agreed to invest RMB7.5 million, accounting for 15% of registered capital in Anhou, (iv) Weizhe Hou agreed to invest RMB5 million, accounting for 10% of registered capital in Anhou, (v) Yong Zhang agreed to invest RMB4.5 million, accounting for 9% of registered capital in Anhou, and (vi) Li Chen agreed to invest RMB3 million, accounting for 6% of registered capital in Anhou, respectively.
The registered capital increase of Anhou was in response to the promulgations of certain regulations by the China Insurance Regulatory Commission (“CIRC”). On April 27, 2013, CIRC issued the Decision on Revising the Provisions of the Supervision and Administration of Specialized Insurance Agencies (the “Decision on Revising the Agency Provisions”), pursuant to which, CIRC mandated any insurance agency established subsequent to the Decision on Revising the Agency Provisions to meet a minimum registered capital requirement of RMB50 million. On May 16, 2013, CIRC issued Notice for Further Clarification on Related Issues of Access to Professional Insurance Intermediary Market (the “2013 Notice”), pursuant to which, professional insurance agencies established prior to the issuance of the Decision on Revising the Agency Provisions, with registered capital less than RMB50 million, can continue operation of their existing business within the provinces where they have the registered office or branch office, but shall not set up any new branches in any province where they do not have the registered office or any branch office. To better implement the expansion strategies of our Company, Anhou increased its registered capital to RMB50 million to meet the requirement of CIRC so that it is able set up new branches in any province beyond its current operations in the PRC.
On October 24, 2013, Anhou Original Shareholders transferred their interests in Anhou to Changrong Hu, a PRC citizen (“Mr. Hu,” together with Anhou New Investors, “Anhou Existing Shareholders”), for an aggregate consideration of RMB10 million. Mr. Hu is currently the legal representative, General Manager and the sole director of Anhou.
On November 17, 2016, Li Chen transferred his interests in Anhou to Chunyan Lu for an aggregate consideration of RMB3 million.
On August 17, 2020, Jing Yue transferred her interests in Anhou to Chunyan Lu for an aggregate consideration of RMB7.5 million.
Sichuan Kangzhuang Insurance Agency Co., Ltd. (“Sichuan Kangzhuang”), a wholly owned subsidiary of Anhou, was established with limited liability on September 4, 2006 in Sichuan province of the PRC. On September 6, 2010, shareholders of Sichuan Kangzhuang transferred their interest in Sichuan Kangzhuang to Anhou for an aggregate consideration of RMB532,622. For the purpose of procuring certain economic benefits and enabling a centralized control over the business operations in Sichuan province, the Company commenced the dissolution process of Sichuan Kangzhuang, a wholly owned subsidiary of Anhou and set up a branch office of Anhou in Sichuan province. Accordingly, Sichuan Kangzhuang filed a dissolution application to the local Bureau of Administration and Commerce and made a public announcement published in local newspaper in October 2017. As Sichuan Kangzhuang ceased operations, it was dissolved on October 8, 2018.
Jiangsu Law Insurance Brokers Co., Ltd. (“Jiangsu Law”), a wholly owned subsidiary of Anhou, was established with limited liability on September 19, 2005 in Jiangsu province of the PRC. Jiangsu Law is licensed to provide insurance brokerage services in Jiangsu Province. On September 28, 2010, Anhou and the shareholders of Jiangsu Law entered into an equity transfer agreements. Pursuant to Provisions on the Supervision and Administration of Insurance Brokerage Institution, effective on October 1, 2009, if an insurance brokerage entity fails to bring its registered capital to no less than RMB10 million on or prior to October 1, 2012, the CIRC or its local agency, as applicable, may determine not to extend the insurance brokerage license. To meet such minimum registered capital requirement, on February 11, 2011, Anhou invested RMB4.82 million in Jiangsu Law to increase the registered capital to RMB10 million.
On August 24, 2020, the Company had liquidated the Guangdong branch in the PRC.
Our Consolidated Affiliated Entities
Due to PRC legal restrictions on foreign ownership and investment in insurance agency and brokerage businesses in China, especially those on qualifications as well as capital requirement of the investors, we operate our PRC business primarily through Anhou and Jiangsu Law (collectively, the “Consolidated Affiliated Entities”, each a “Consolidated Affiliated Entity”). We do not directly hold equity interests in our Consolidated Affiliated Entities. However, through the VIE Agreements (defined as below), we effectively control, and are able to derive substantial economic benefits from, these Consolidated Affiliated Entities. On March 12, 2019, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) passed the Foreign Investment Law, which replaced the three existing laws over foreign investment. From January 1, 2020, foreign individuals, enterprises and other organizations that directly or indirectly make investment activities in China are subject to the Foreign Investment Law. However, it remains unclear as to how these changes will affect entities currently operating in China, particularly foreign controlled variable interest entities.
Our Consolidated Affiliated Entities in China are variable interest entities through which all of our insurance services in China are operated. These VIE Agreements give us effective control over our Consolidated Affiliated Entities in China and allow us to consolidate the financial results of our Consolidated Affiliated Entities in our financial statements.
On January 17, 2011, CU WFOE, Anhou and Anhou Original Shareholders entered into a series of agreements (the “Old VIE Agreements”) pursuant to which CU WFOE exercises effective control over Anhou. As a result of the capital increase and the share transfer described above, on October 24, 2013, CU WFOE, Anhou and Anhou Existing Shareholders entered into a series of agreements (the “VIE Agreements”), including Power of Attorneys, Exclusive Option Agreements, Share Pledge Agreements, in the same form as the previous Old VIE Agreements, other than the change of shareholder names and their respective shareholdings. The Old VIE Agreements were terminated by and among CU WFOE, Anhou and Anhou Original Shareholders on the same date, except that the Exclusive Business Cooperation Agreement executed by and between CU WFOE and Anhou on January 17, 2011 remains in full effect. The VIE Agreements now in effect include:
1. An exclusive Business Cooperation Agreement, pursuant to which CU WFOE is appointed as the exclusive services provider to Anhou of complete technical support, business support and related consulting services in exchange for 90% of the net profits of Anhou. The Exclusive Business Cooperation Agreement was effective on January 17, 2011 with a term of ten years subject to renewal at the discretion of CU WFOE. CU WFOE may terminate the agreement at any time with 30 days’ written notice but Anhou may only terminate the agreement if CU WFOE commits gross negligence or a fraudulent act against Anhou;
2. a Power of Attorney, pursuant to which the shareholders of Anhou have vested their collective voting control in Anhou to CU WFOE;
3. an Option Agreement, pursuant to which the shareholders of Anhou granted to CU WFOE the irrevocable right and option to acquire all of their equity interests in Anhou. The Option Agreement was effective on October 24, 2013 with a term of ten years subject to renewal at CU WFOE’s election; and
4. a Share Pledge Agreement, pursuant to which the shareholders of Anhou have pledged all of their equity interests in Anhou to CU WFOE to guarantee Anhou’s performance of its obligations under the Exclusive Business Cooperation Agreement.
Hong Kong Segment Reinsurance Brokerage- PFAL
Prime Financial Asia Ltd. (“PFAL”) is a re-insurance broker company incorporated in Hong Kong and is a majority-owned subsidiary of the Company due to the fact that AHFL owns 51% of PFAL. On April 23, 2014, AHFL and Chun Kwok Wong (“Mr. Wong”) entered into a Capital Increase Agreement, pursuant to which Mr. Wong increased PFAL’s registered capital from HK$500,000 to HK$1,470,000 and AHFL contributed HK$1,530,000 to PFAL’s registered capital. Upon the completion of capital increase on April 30, 2014, Mr. Wong and AHFL owned 49% and 51% of PFAL’s equity interest, respectively.
On August 7, 2015, Max Key Investment Ltd. (“MKI”) was incorporated with limited liability in the British Virgin Islands. On August 15, 2015, Prime Management Consulting (Nanjing) Co., Ltd. (“PTC Nanjing”) was incorporated with limited liability in Nanjing province of the PRC. On September 3, 2015, Prime Asia Corporation Limited. (“PTC Taiwan”), a company limited by shares, was incorporated in Taiwan. Each of MKI, PTC Nanjing and PTC Taiwan is a wholly owned subsidiary of PFAL.
On July 2, 2020, the Company had liquidated a subsidiary in the PRC, Prime Management Consulting (Nanjing) Co., Limited and recognized a loss on disposal of such subsidiary in the amount of $5,645 for both the three-month and nine-month periods ended September 30, 2020.
Revenue Generation
As a holding company with no business other than holding equity interest of our operating subsidiary, CU WFOE in China and the Taiwan Segment, we rely principally on dividends to be paid by CU WFOE in China and the Taiwan Segment. CU WFOE, being the exclusive service provider to Anhou, relies on the service fees to which it is entitled from Anhou. Pursuant to the Exclusive Cooperation Agreement (the “Cooperation Agreement”) between CU WFOE and Anhou, CU WFOE has the right to collect 90% of the net profits of Anhou. Anhou has been paying service fees according to the Cooperation Agreement, but has not paid any dividend to CU WFOE to date. As of December 31, 2020, Anhou was operating at loss, but since Anhou remains a growing company that requires financial resources to support further expansion, the decision as to a dividend payment will be decided in the future depending on the financial circumstances, including maintaining prudent cash reserves. Our capability to receive dividends from CU WFOE, convert them into USD and make the repatriation out of China is subject to the applicable PRC restrictions on the payment of dividends by PRC companies, laws and regulations on foreign exchange and restrictions on foreign investment.
For the year ended December 31, 2019, 90.8%, 8.9% and 0.3% of our revenues in our consolidated financial statements were derived from our Taiwan Segment, PRC Segment, and Hong Kong Segment, respectively. For the year ended December 31, 2020, 94.6%, 5.2% and 0.2% of our revenues in our consolidated financial statements were derived from our Taiwan Segment, PRC Segment, and Hong Kong Segment, respectively. Revenues in our consolidated financial statements are composed of commissions earned from insurance companies according to the terms of each insurance company service agreement, as well as revenues earned in association with the Strategic Alliance Agreement with AIA International Limited Taiwan Branch.
Reclassification of Shares
On January 28, 2011, our Company increased the number of authorized shares from 30,000,000 shares of common stock to 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. On July 2, 2012, our board of directors and stockholders approved, in connection with a reclassification of 1,000,000 issued and outstanding shares of common stock (the “Reclassified Shares”), par value $0.00001 per share held by Mr. Yi Hsiao Mao (“Mr. Mao”) into 1,000,000 shares of Series A Convertible Preferred Stock, par value $0.00001 per share (the “Series A Preferred Stock”) on a share-for-share basis (the “Reclassification”), the issuance of 1,000,000 shares of Series A Preferred Stock to Mr. Mao and cancellation of 1,000,000 common stock held and submitted by Mr. Mao pursuant to the Reclassification. All of the 1,000,000 shares of Series A Preferred Stock are reclassified from the 1,000,000 common stock held by Mr. Mao and no additional consideration has been paid by Mr. Mao in connection with the Reclassification. Each holder of common stock shall be entitled to one vote for each share of common stock held of record by such holder as of the applicable record date on any matter that is submitted to a vote of the stockholders of our Company; while each holder of Series A Preferred Stock shall be entitled to ten votes for each share of Series A Preferred Stock held of record by such holder as of the applicable record date on any matter that is submitted to a vote of the stockholders of our Company.
2017 Long Term Incentive Plan
On May 12, 2017, the Company’s 2017 Long Term Incentive Plan (the “2017 Plan”) was approved by the shareholders at the 2017 Annual Meeting of Stockholders of China United Insurance Service, Inc. Up to 10,000,000 shares of our Common Stock may be granted under the 2017 Plan (the “Share Pool”), provided that 2,000,000 shares of the Share Pool is reserved for issuance to eligible participants providing services to AHFL and its subsidiaries. Eligibility to participate is open to officers, directors and employees of, and other individuals (including sales agents who are exclusive agents of the Company or its subsidiaries or derive more than 50% of their income from those entities) who provide bona fide services to or for, us or any of our subsidiaries. Given that metrics for evaluating performance goals are rather complex and exhaustive, and that the Company’s management and Board of Directors are still working to develop a series of reward policies that specify various performance target levels and the size of the award or payout of performance shares with respect to each different target level attained, no awards were granted under the 2017 Plan as of December 31, 2020.
The following flow chart illustrates our Company’s organizational structure as of March 19, 2021:
Products and Services
The Taiwan and PRC Segments market and sell 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 that the Taiwan and PRC Segments sell are underwritten by some of the leading insurance companies in Taiwan and China, respectively.
Through Anhou’s wholly-owned insurance brokerage firm, Jiangsu Law, Anhou also closely interacts with insurance companies and actively locates and introduces the right customers in Anhou’s database matching the insurance products offered by such insurance companies to them.
The Taiwan and PRC Segments are compensated primarily by commissions and fees paid by insurance companies, typically based on a percentage of the premium paid by the insured or a percentage of the amount recovered from insurance companies. Commission and fee rates generally depend on the type of insurance products and the particular insurance company that issues the particular insurance products.
Life Insurance Products
The Taiwan Segment
The life insurance products the Taiwan segment distributes can be broadly classified into the categories set forth below. Due to continuous product innovation by insurance companies, some of the insurance products Taiwan segment distributes combine features of one or more of the categories listed below. Total revenues from life insurance products contributed by Taiwan segment in the fiscal year of 2019 was approximately $81.54 million, accounted for approximately 93.96% of Taiwan segment’s total revenues. Total revenues from life insurance products generated by Taiwan segment in the fiscal year of 2020 was approximately $117.53 million, representing approximately 94.58% of our total revenues for the fiscal year ended December 31, 2020.
● Individual Whole Life Insurance. The individual whole life insurance products the Taiwan segment distributes provide insurance for the insured person’s entire life in exchange for the periodic payment of fixed premiums over a pre-determined period, generally ranging from six to 20 years, or until the insured reaches a certain age. The face amount of the policy or, for some policies, the face amount plus accumulated interest is paid upon the death of the insured.
● Individual Term Life Insurance. The individual term life insurance products the Taiwan segment distributes provide insurance for the insured for a specified time period or until the attainment of a certain age, in return for the periodic payment of fixed premiums over a pre-determined period, generally ranging from six to 20 years. Term life insurance policies generally expire without value if the insured survives the coverage period.
● Individual Health Insurance. The individual health insurance products the Taiwan segment distributes pay the insured amount of reasonable hospitalization cost, or certain death benefit in case of the death of the insured, due to illness, accident or childbirth. Individual health insurance policies expire when the premium is not paid or a certain age is attained.
● Accidental Injury Insurance. The accidental injury insurance products the Taiwan segment distributes provide benefits when the insured is dead or disabled because of accidental injury, which is unforeseen by the injured or against his will.
● Investment-Oriented Insurance. The investment-oriented insurance products the Taiwan segment distributes are market linked insurance plans which also provide life coverage, combining advantages of investment and protection. The premium amount (after deduction of certain charges) is invested into different funds. The performance of the fund will depend on the market conditions. A growing upward trend in market will increase the fund value. Every investment-oriented insurance policy has market risk exposure depending on the fund invested and such investment risk is solely borne by the policyholder. Depending on the death benefit, investment-oriented insurance policies are categorized into two broad categories: (1) the death benefit is equal to the higher of insured amount or fund value; (2) the death benefit is equal to the insured amount plus fund value.
● Foreign Currency Insurance Commodities. The foreign currency insurance commodities the Taiwan segment distributes are life insurance policies in which policy benefits are paid in foreign currencies. The foreign currency policy provides insurance for the insured person’s life in exchange for the periodic payment of fixed premiums over a pre-determined period, generally ranging from six to 20 years, or until the insured reaches a certain age. The face amount of the policy or, for some policies, the face amount plus accumulated interest, is paid upon the death of the insured.
● Travel Accident Insurance. The travel accident insurance products the Taiwan segment distributes provide accident coverage for accidental death, bodily injury, and other travel injuries. The premium is based on the number of travel days and the insured amount.
The life insurance products the Taiwan segment distributed in the year ending December 31, 2020 were primarily underwritten by, in alphabetical order, AIA International Limited Taiwan Branch, Farglory Life Insurance Co., Ltd., Shin Kong Life Insurance Co., Ltd., Taiwan Life Insurance Co., Ltd. and TransGlobe Life Insurance Inc. Among them, Taiwan Life Insurance Co., Ltd., Farglory Life Insurance Co., Ltd., and TransGlobe Life Insurance Inc. accounted for 20.30%, 12.34%, and 23.43% of our total revenues in the fiscal year ending December 31, 2020, respectively.
Anhou
The life insurance products Anhou distributes can be broadly classified into the categories set forth below. Due to constant product innovation by insurance companies, some of the insurance products Anhou distributes combine features of one or more of the categories listed below. Anhou’s total revenues from life insurance products in the fiscal year of 2019 was approximately $8.03 million, accounting for approximately 94.25% of Anhou’s total revenues and the total revenues from life insurance products in the fiscal year of 2020 was $5.77 million, accounting for approximately 89.81% of Anhou’s total revenues for the year ending December 31, 2020.
● Individual Whole Life Insurance. The individual whole life insurance products Anhou distributes provide insurance for the insured person’s entire life in exchange for the periodic payment of fixed premiums over a pre-determined period, generally ranging from five to 20 years, or until the insured reaches a certain age. The face amount of the policy or, for some policies, the face amount plus accumulated interest is paid upon the death of the insured.
● Individual Term Life Insurance. The individual term life insurance products Anhou distributes provide insurance for the insured for a specified time period or until the attainment of a certain age, in return for the periodic payment of fixed premiums over a pre-determined period, generally ranging from five to 20 years. Term life insurance policies generally expire without value if the insured survives the coverage period.
● Individual Endowment Life Insurance. The individual endowment products Anhou distributes generally provide maturity benefits if the insured reaches a specified age, and provide to a beneficiary designated by the insured guaranteed benefits upon the death of the insured within the coverage period. In return, the insured makes periodic payment of premiums over a pre-determined period, generally ranging from five to 25 years.
● Individual Annuity Insurance. The individual annuity insurance products Anhou distributes provide annual benefit payments after the insured attains a certain age, or for a fixed time period, and provide a lump payment at the end of the coverage period. In addition, the beneficiary designated in the annuity contract will receive guaranteed benefits upon the death of the insured during the coverage period. In return, the purchaser of the annuity products makes periodic payment of premiums during a pre-determined accumulation period.
● Individual Health Insurance. The individual health insurance products Anhou distributes primarily consist of critical illness insurance
● products, which provide guaranteed benefits for specified critical illnesses during the coverage period. In return, the insured makes periodic payment of premiums over a pre-determined period.
The life insurance products Anhou distributed in the year ending December 31, 2020 were primarily underwritten by, in alphabetical order, Aegon THTF Life Insurance Co., Ltd., AVIVA Life Insurance Co., Ltd., Evergrande Life Assurance Co., Ltd., Funde Sino Life Insurance Co., Ltd., Huaxia Insurance Co., Ltd., and Tianan Life Insurance Co., Ltd. None of these insurance company partners accounted for more than 10% of our total revenues for the year ended December 31, 2020.
In addition to the periodic premium payment schedules described above, 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 payments of fixed premiums to the insurance company for a specified period of time. This means that once Anhou or the Taiwan Segment sells a life insurance policy with a periodic premium payment schedule, they 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 China and Taiwan, we have devoted significant resources on developing our capability to distribute individual life insurance products with periodic payment schedules since the inception of Anhou and the Taiwan Segment. We expect that sales of life insurance products will continue to be our primary source of revenue in the next several years.
Property and Casualty Insurance Products
The Taiwan Segment
The Taiwan Segment’s main property and casualty insurance products are automobile insurance, casualty insurance, and liability insurance. The Taiwan Segment commenced sale of automobile insurance, casualty insurance and liability insurance business in August 2003. Our total revenues from property and casualty insurance products in the fiscal year of 2019 year was approximately $5.25 million, accounted for approximately 6.04% of the Taiwan Segment’s total revenues and approximately $6.05 million, accounted for approximately 5.15% of Taiwan Segment’s total revenues in the year ending December 31, 2020, respectively.
The property and casualty insurance products the Taiwan Segment distributes can be further classified into the following categories:
● Automobile Insurance. The Taiwan Segment distributes both standard automobile insurance policies and supplemental policies, which we refer to as riders. The standard automobile insurance policies the Taiwan Segment sells generally have a term of one year and cover damages of the insured vehicle caused by collision and other traffic accidents, falling or flying objects, fire, explosion and natural disasters. The Taiwan Segment also sells standard third party liability insurance policies, which cover bodily injury and property damages caused by an accident involving an insured vehicle to a person not in the insured vehicle. The riders the Taiwan Segment distributes cover additional losses, such as liability to passengers, losses arising from vehicle theft and robbery, broken glass and vehicle body scratches.
● Casualty Insurance. The casualty insurance the Taiwan Segment distributes are primarily designed to insure any losses or damages to properties caused directly by accidents. The policy period is usually one year and the premium is generally calculated based on the insured amount.
● Liability Insurance. The liability insurance products the Taiwan Segment distributes are primarily designed to protect an individual or business from the risk that they may be sued and held legally liable for something, such as malpractice, third party injuries or negligence. The policy period is usually one year and the premium is generally calculated based on the insured amount.
The property and casualty insurance products the Taiwan Segment distributed in the year ending December 31, 2020 were primarily underwritten by, in alphabetical order, Fubon Insurance Co., Ltd., Hotai Insurance Co., Ltd., Shinkong Insurance Co., Taian Insurance Co., Ltd, and Mingtai Fire & Marine Insurance Co., Ltd. None of these insurance company partners accounted for more than 10% of our total revenues for the year ended December 31, 2020.
Anhou
Anhou’s main property and casualty insurance products are automobile insurance and commercial property insurance. Anhou commenced its sale of commercial property insurance in 2009 and developed its automobile insurance business in 2010. The total revenues from property and casualty insurance products generated by Anhou in the 2019 fiscal year was approximately $0.49 million, accounting for approximately 5.75% of Anhou’s total revenues, and approximately $0.65 million, accounted for approximately 10.19% of Anhou’s total revenues for the fiscal year ended December 31, 2020.
The property and casualty insurance products Anhou distributes can be further classified into the following categories:
● Automobile Insurance. Automobile insurance is the largest segment of property and casualty insurance in the PRC in terms of gross written premiums. Anhou distributes both standard automobile insurance policies and supplemental policies, which we refer to as riders. The standard automobile insurance policies Anhou sells generally have a term of one year and cover damages caused to the insured vehicle by collision and other traffic accidents, falling or flying objects, fire, explosion and natural disasters. Anhou also sells standard third party liability insurance policies, which cover bodily injury and property damage caused by an accident involving an insured vehicle to a person not in the insured vehicle. The riders Anhou distributes cover additional losses, such as liability to passengers, losses arising from vehicle theft and robbery, broken glass and vehicle body scratches.
● Commercial Property Insurance. The commercial property insurance products Anhou distributes include basic, comprehensive and all risk policies. Basic commercial property insurance policies generally cover damages to the insured property caused by fire, explosion and thunder and lightning. Comprehensive commercial property insurance policies generally cover damages to the insured property caused by fire, explosion and certain natural disasters. All risk commercial property insurance policies cover all causes of damage to the insured property not specifically excluded from the policies.
The property and casualty insurance products Anhou distributed in the fiscal year ending December 31, 2020 were primarily underwritten by, in alphabetical order, China Pacific (Group) Co., Ltd., China Life Property & Casualty Insurance Co. Ltd., PICC Property and Casualty Co., Ltd., Ping An Insurance (Group) Company of China, Ltd., and Tianan Property Insurance Co., Ltd. None of these insurance company partners accounted for more than 10% of our total revenues for the year ended December 31, 2020.
Strategic Alliance 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 agency companies or insurance brokerage companies affiliated with AHFL or CUII. The original term of the Alliance Agreement was from June 1, 2013 to May 31, 2018. Pursuant to the terms of the Alliance Agreement, AIATW was required to pay AHFL an execution fee of $8,326,700 (NT$ 250,000,000) to be recorded as revenue upon fulfilling sales target over the next five years. As of September 23, 2013, AHFL received $8,326,700 (NT$250,000,000) from AIATW under the Alliance Agreement. Pursuant to the Alliance Agreement, AHFL was entitled to the payment of the execution fee, subject to certain terms and conditions therein, including the satisfaction of the performance targets and the threshold 13-month persistency ratio, which is an indicator of how long customers stay with their policies.
On September 30, 2014, AHFL entered into an Amendment to the Alliance Agreement (the “First Amendment to the Alliance Agreement”) with AIATW. Pursuant to the First Amendment to the Alliance Agreement, the expiration date of the Alliance Agreement was extended from May 31, 2018 to December 31, 2020. In addition, both AHFL and AIATW agreed to adjust certain terms and conditions set forth in the Alliance Agreement, including the downward adjustment of the performance targets as well as the mechanism and formula calculating the execution fee to be refunded, if any.
On January 6, 2016, AHFL entered into an Amendment No. 2 to the Alliance Agreement (the “Second Amendment to the Alliance Agreement”) with AIATW to further revise certain provisions in the Alliance Agreement and the previous amendment entered into by and between AHFL and AIATW.
Pursuant to the Second Amendment to the Alliance Agreement, the expiration date of the Alliance Agreement was extended from May 31, 2018 to December 31, 2021, and the effect of the Alliance Agreement during the period from October 1, 2014 to December 31, 2015 was suspended. In addition, both AHFL and AIATW agree to adjust certain terms and conditions set forth in the Alliance Agreement, among which are to: (i) expand the scope of services to be provided by AHFL to AIATW to include, without limitation, assessment and advice on suitability of cooperative partners, advice on product strategies suitable for promotion channel development, advice on promotion/sales channel improvement, advice on promotion channel marketing and strategic planning, and promotion channel talent training; and (ii) remove certain provisions related to performance milestones and refund of execution fees. On March 15, 2016, AHFL unilaterally issued a confirmation letter to AIATW (the “2016 Letter”), where it emphasized its commitment to achieve certain sales targets within a specific time frame and covenanted to refund a certain portion of execution fees calculated based on the formula therein upon failure to achieve such sales target, as applicable.
On June 14, 2017, AHFL entered into an Amendment No. 3 to the Alliance Agreement (the “Third Amendment to the Alliance Agreement) with AIATW to further revise certain provisions in the Alliance Agreement and the previous amendments to the Alliance Agreement entered into by and between AHFL and AIATW.
Pursuant to the Third Amendment to the Alliance Agreement, except for the first contract year (April 15, 2013 to September 30, 2014), the sales targets for the remaining contract term under the Alliance Agreement shall be changed by reference to (i) the amount of the value of new business (“VONB”) and (ii) the 13-month persistency ratio as set forth therein, provided that to the extent any underlying insurance contract is revoked, invalid or terminated and premiums is refunded to such policyholder, the amount of the related VONB shall be correspondingly reduced. Both AHFL and AIATW agreed to calculate the business promotion fees (equivalent to the “execution fee” referred above) to be returned in case of failure to achieve the sales targets or the fees to be increased in case of exceeding the sales targets, as the case may be, based on two formulas specified in the Third Amendment to the Alliance Agreement. 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), subject to terms and conditions therein. The expanded scope of services to be provided by AHFL to AIATW as set forth in Section 4 of the Second Amendment to the Alliance Agreement is removed under the Third Amendment to the Alliance Agreement as well.
On June 14, 2017, with AIATW’s consent, the 2016 Letter was revoked in order to conform to the latest terms and conditions regarding the cooperation between AHFL and AIATW as set forth in the Third Amendment to the Alliance Agreement.
Online Business
In recent years, the online insurance business has experienced rapid growth. Many insurance companies, portal websites, and professional insurance intermediaries have begun launching its e-commerce platforms, providing real-time information to consumers and allowing consumers to directly complete transactions online. Law Broker began developing its online platform in 2016, and became the first brokerage company to receive formal approval from the Financial Supervisory Commission of Taiwan (“FSC”) to commence online business on May 9, 2016. The platform, SARAcares (website: https://www.saracares.com.tw), was launched on January 26, 2017. It offers a broad range of insurance products underwritten by multiple insurance companies, policy comparison features, and post-sale services that are backed by our online service staffs and nationwide sales network. As required by the relevant laws and regulations regarding e-commerce provided by the FSC, Law Broker has obtained the ISO 27001 certification of Information Security Management System (ISMS) and BS 10012 certification of Personal Information Management System since June 20, 2017. Our online business in Taiwan was still at a nascent stage with the majority of the sales still being completed by off-line agents as of the date of this annual report.
Unified Operating Platform
Law Broker has self-constructed a Unified Operating Platform, an information technology infrastructure that serves to enhance operational, sales processes, and administrative efficiency. Since Law Broker’s establishment in 1992, it has successfully implemented the following components of its operating platform across its branch offices in Taiwan through a hub center located in Taipei:
● A centralized client and insurance policy management and analysis system, which encompasses our life insurance unit and property and casualty insurance unit, that will better support business operations and facilitate risk control;
● A centralized client relations management system, that manages and analyzes client interactions to drive sales growth;
● An integrated administrative and information system, that increases the management efficiency among the subsidiaries, branches and sales departments;
● A centralized and computerized accounting and financial management system, that improves the efficiency of commission distribution and enforcement;
● A human resources management and performance tracking system; and
● An e-training system to provide online trainings to sales professionals.
The Unified Operating Platform has proved to be an efficient and streamlined operating system which has contributed to the successful expansion and growth of Law Broker into one of the leading insurance brokerage companies in Taiwan, with 37 sales and service outlets (including the headquarters) across Taiwan and 3,232 insurance sales professionals as of December 31, 2020. Law Broker, Uniwill Insurance Broker Co., Ltd. (“Uniwill Insurance Broker”) and Joint Insurance Broker Co., Ltd. (“Joint Insurance”) have a total of 51 sales and service outlets (including the headquarters) across Taiwan and 5,299 insurance sales professionals as of December 31, 2020.
In accordance with our growth strategy in China, Anhou has made significant efforts to adapt the Unified Operating Platform utilized by Law Broker to better meet the operational need in China. Since September 2010, Anhou has successfully implemented the tailored operating platform across the PRC subsidiaries through a hub center located in Nantong, Jiangsu province. We expect that this tailored operating platform will make selling easier for sales agents in China, facilitate standardized business and financial management, enhance risk control and increase operational efficiency for the PRC subsidiaries.
Anhou has tailored and refined the platform on the basis of Law Broker’s well-developed operating platform in Taiwan and believes that it is difficult for our competitors in China, particularly new market entrants, to reproduce a similar platform without substantial financial resources, time and operating experience.
Because the various systems, policies and procedures under both of operating platforms utilized by Law Broker and Anhou can be rolled out quickly as we enter new regions or make acquisitions, we believe we can expand our distribution network rapidly and efficiently while maintaining the quality of our services.
Distribution and Service Network and Marketing
The Taiwan Segment had a total of 51 sales and service outlets (including the headquarters) across Taiwan as of December 31, 2020, among which, 17 were located in the northern region, 25 in the central region, 7 in the southern region and 2 in the eastern region. As of December 31, 2020, Law Broker, Uniwill Insurance Broker and Joint Insurance together had 246 administrative staff members.
The Taiwan Segment markets and sells life insurance products, property and casualty insurance products directly to the targeted customers through the sales professionals, who are independent contractors, not its employees.
Since Anhou’s establishment in 2003, it has devoted substantial resources in building up its distribution and service network in the PRC. Anhou has targeted its distribution and service network in certain heavily populated provinces in China, such as Henan, Jiangsu, Sichuan, and Fujian. As of December 31, 2020, Anhou had one insurance agency and one insurance brokerage firm, with 1,553 sales professionals and 100 administrative staff members operating across 35 cities within these four provinces.
Anhou markets and sells life insurance products, property and casualty insurance products directly to the targeted customers through the sales agents, who are independent contractors, not its employees.
Customers
Due to its extensive line of insurance products underwritten by the insurance companies in Taiwan, the Taiwan Segment managed to offer a variety of insurance products to customers of different ages or professions. Despite relatively healthy government-sponsored retirement and medical programs, more and more Taiwanese, especially those with stable financial means and desire for high-end retirement life, have been focusing on endowment and medical commercial insurance products, while the investment insurance products have been playing a less significant role since the economic downturn.
In addition, from time to time, the Taiwan Segment has been, either voluntarily or upon request of insurance companies, advising insurance companies or providing feedback on particular types of insurance products before they are put on the market. This interaction with insurance companies has not only enhanced the close cooperation between the Taiwan Segment and the insurance companies, but also gives it an edge in understanding the in-depth features of such insurance products for marketing and distribution purposes.
The Taiwan Segment sells automobile insurance and casualty insurance primarily to individual customers and liability insurance to institutional customers.
Anhou sells automobile insurance and individual accident insurance primarily to individual customers and commercial property insurance to institutional customers.
The revenues of Anhou are primarily generated from the sale of life insurance products and we expect the continuous growth in this sector, as more and more customers in China realized the insufficiency of the mandatory social insurance coverage and the necessity to supplement it with commercial insurance.
Insurance Company Partners
We are selective in terms of choosing insurance companies as our partners. We take into consideration a variety of factors, such as the reputation and integrity of the insurance company, the quality and competitiveness of insurance products offered, the prudence and health of the financial standing of the insurance company as well as the complexity and efficiency of claim adjustment and settlement. Both the Taiwan Segment and Anhou have formed strategic relationships with numerous insurance companies in Taiwan and China, respectively.
In the fiscal year ended December 31, 2020, our major insurance carrier partners in Taiwan, after aggregating the business conducted between the Taiwan Segment and the various local branches of the insurance companies, included AIA International Limited Taiwan Branch, Farglory Life Insurance Co., Ltd., Shin Kong Life Insurance Co., Ltd., Taiwan Life Insurance Co., Ltd. and TransGlobe Life Insurance Inc., arranged in alphabetical order. Among them, Taiwan Life Insurance Co., Ltd., Farglory Life Insurance Co., Ltd., and TransGlobe Life Insurance Inc., accounted for approximately 20.30%, 12.34%, and 23.43% of the Company’s total revenues for the year ended December 31, 2020, respectively.
In the fiscal year ended December 31, 2020, Anhou’s major insurance carrier partners, after aggregating the business conducted between Anhou and the various local branches of the insurance companies, were Aegon THTF Life Insurance Co., Ltd., AVIVA Life Insurance Co., Ltd., Evergrande Life Insurance Company Limited, Funde Sino Life Insurance Co., Ltd., Huaxia Insurance Co., Ltd., and Tianan Life Insurance Co., Ltd., arranged in alphabetical order. None of these insurance company partners accounted for more than 10% of our total revenues for the year ended December 31, 2020.
Competition
A number of industry players are involved in the distribution of insurance products in Taiwan and PRC. We compete for customers on the basis of product offerings, customer services and reputation. Because we primarily distribute individual insurance products, our principal competitors include:
● Professional insurance intermediaries. Life insurance is our core business and has a strong regional feature. Through years of business development, we believe that we can compete effectively with other insurance intermediary companies as we have a longer operational history and over the years have assembled a strong and stable team of managers and sales professionals. With the implementation of our unified operating platform, we believe that we could strengthen our lead in our developed local regions and expand our operation to our newly selected areas. However, with increasing consolidation expected in the insurance intermediary sector in the coming years, we expect competition within this sector to intensify.
● Insurance companies. The distribution of individual life insurance products in Taiwan and China historically has been dominated by insurance companies, which usually use both in-house sales force and exclusive sales agents to distribute their own products. We believe that we can compete effectively with insurance companies because we focus only on distribution and offer our customers a broad range of insurance products underwritten by multiple insurance companies.
● Other business entities. In recent years, business entities that distribute insurance products as an ancillary business, primarily commercial banks and postal offices have been playing an increasingly important role in the distribution of insurance products, especially life insurance products. However, the insurance products distributed by these entities are usually confined to those related to their main lines of business, such as investment-related life insurance products. We believe that we can compete effectively with these business entities because we offer our customers a broader variety of products.
Law Broker is one of the leading insurance brokerage firms in Taiwan. The Taiwan Segment had a total of 51 sales and service outlets (including the headquarters) across Taiwan as of December 31, 2020, among which, 17 were located in the northern region, 25 in the central region, 7 in the southern region and 2 in the eastern region. As of December 31, 2020, Law Broker, Uniwill Insurance Broker and Joint Insurance together had 246 administrative staff members. Other than insurance companies and commercial banks, the Taiwan Segment’s primary competitors are Taiwan insurance brokerage companies of relatively large size, such as Everpro Insurance Brokers Co., Ltd.
During the past 17 years, Anhou has expanded its business across 37 cities within Henan, Sichuan, Jiangsu, and Fujian provinces with 1,553 sales professionals and 100 administrative staff members. Based on the insurance products Anhou is offering and the geographic areas of its branch offices, Anhou’s primary competitors are small-sized and middle-sized insurance agency companies. Anhou is relatively large in terms of the number of salesmen and the sales revenue comparing to those competing insurance agency companies.
Awards and Recognitions
Through years of operation, Law Broker has been recognized by various organizations and government entities for its best practices in the industry. Especially noteworthy is the “Taiwan Insurance Excellence Award”, the highest acclaim in the Taiwan insurance industry, co-sponsored by the Taiwan Insurance Institute, FSC and Taiwan Consumer Protection Committee.
Year of Award
Award/Recognition
Eighth Taiwan Insurance Excellence Award
Excellence in Talent Training Award-Gold Medal
Excellence in Corporate Social Responsibility Award-Gold Medal
Excellence in Digital Application Award-Silver Medal
Excellence in Customer Service-Silver Medal
Seventh Taiwan Insurance Excellence Award
Excellence in Talent Training Award-Gold Medal
Excellence in Corporate Social Responsibility Award-Silver Medal
Excellence in Digital Application Award-Silver Medal
Excellence in Customer Service-Silver Medal
Sixth Taiwan Insurance Excellence Award
Excellence in Talent Training Award-Silver Medal
Excellence in Customer Service-Silver Medal
Fifth Taiwan Insurance Excellence Award
Excellence in Digital Application Award-Gold Medal
Excellence in Talent Training Award-Silver Medal
Excellence in Customer Service-Silver Medal
Fourth Taiwan Insurance Excellence Award
Excellence in Talent Training Award
Excellence in Customer Service
Intellectual Property
To protect our intellectual property, we rely on a combination of trademark, copyright and trade secret laws as well as confidentiality agreements with our employees, sales agents, independent contractors and others.
Law Enterprise and Law Broker jointly own the following trademarks registered in Taiwan:
the Service Mark of Law Insurance Broker Co., Ltd. under the registration number 01462327, with a 10-year validity from June 16, 2011 to June 15, 2021;
the logo of Law Insurance Broker Co., Ltd. under the registration number 01604254, with a 10-year validity from October 16, 2013 to October 15, 2023;
the logo of Blue Magpie (藍鵲), under the registration number 01462329, with a 10-year validity from June 16, 2011 to June 15, 2021;
the logo of Law (錠嵂) under the registration number 01462328, with a 10-year validity from June 16, 2011 to June 15, 2021;
the logo of Law (錠嵂) under the registration number 01611772, with a 10-year validity from December 1, 2013 to November 30, 2023;
the logo of Bao Xian Tong and INS under the registration number 01580261 , with a 10-year validity from May 16, 2013 to May 15, 2023; and
the logo of Magpie Baby under the registration number 01518573 , with a 10-year validity from May 16, 2012 to May 15, 2022.
the logo of Magpie Baby 2.0 under the registration number 01763557, with a 10 year validity from April 1, 2016 to March 31, 2026; and
the logo of SARACARES under the registration number 01876419 , with a 10 year validity from October 16, 2017 to October 15, 2027
Law Broker has the following registered trademarks in Taiwan. All of the trademarks will be renewed for another 10-year before their respective expiry:
the logo of Blue Magpie Cycling Team Fleet, under the registration number 01340567, with a 10-year validity from December 1, 2018 to November 30, 2028;
the logo of Law Insurance Broker under the registration 01340565, with a 10-year validity from December 1, 2018 to November 30, 2028;
the logo of Law Blue Magpie under the registration number 01340566, with a 10-year validity from December 1, 2018 to November 30, 2028;
the logo of Symbiosis, Co-cultivation Co-Prosperity and Law Blue Magpie Picture under the registration number 01317020, with a 10-year validity from July 1, 2018 to June 30, 2028;
the logo of Education Training Blue Magpie under the registration number 01313467, with a 10-year validity from June 1, 2018 to May 31, 2028;
the logo of Cartoon Blue Magpie under the registration number 01313464, with a 10-year validity from June 1, 2018 to May 31, 2028;
the logo of Little Blue Magpie under the registration number 01313468, with a 10-year validity from June 1, 2018 to May 31, 2028;
the logo of Triumph Blue Magpie under the registration number 01313465, with a 10-year validity from June 1, 2018 to May 31, 2028;
the logo of Blue Magpie Fleet Picture under the registration number 01310350 , with a 10-year validity from May 1, 2018 to April 30, 2028; and
the logo of Fighting Blue Magpie under the registration number 01313466, with a 10-year validity from June 1, 2018 to May 31, 2028.
Jiangsu Law has one registered trademark in China, the logo of Jiangsu Law:
Employees
As of December 31, 2020, Law Broker, Uniwill Insurance Broker and Joint Insurance together had 246 administrative staff members and Anhou had 100 full-time employees. Our employees are not represented by any collective bargaining agreement. We believe that we have good relations with our employees and we have never experienced a work stoppage.
Segments
The Company currently operates as three reporting segments. Revenues, net income and total assets can be found in Item 8 of Part II, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Regulations
Taiwan Regulations of the Insurance Industry
The insurance industry in Taiwan is highly regulated. The FSC, is the regulatory authority responsible for the supervision of the insurance industry in Taiwan. Insurance activities undertaken within Taiwan are primarily governed by the Insurance Law and the related rules and regulations.
Taiwan Insurance Law
The current principal regulation governing insurance in Taiwan is the Insurance Law, most recently amended on June 10, 2020 by Legislative Yuan, which provided the basic framework for regulating the insurance industry.
The Taiwan Insurance Law defines several participants in the insurance industry, such as insurer, insurance agency, insurance brokerage and insurance adjustor. It established requirements for form of organization, and qualifications and procedures to establish an insurance organization as well as separation of property insurance and life insurance. The Taiwan Insurance Law distinguishes insurance between fire disaster, marine, land and air, liability, surety, and other casualty and property insurance on one hand, and life insurance, health insurance, casualty insurance and annuity on the other. Unless permitted by the FSC, insurance companies are not allowed to engage in both types of insurance businesses.
The insurers, insurance agencies, insurance brokerages and insurance adjustors must join the related industry associations, or they are prohibited from conducting business operation. An insurance agency company or broker company of certain sizes shall establish internal control and audit systems as well as business solicitation systems and procedures.
Taiwan FSC
The Taiwan FSC is in charge of the financial market and financial service industries, among the insurance industry and has the power to control the following items:
1.
Financial system and supervision policy.
2.
The preparation, amendment and abolishment of financial laws and regulations.
3.
Supervision and management of the financial institutions, including its establishment, revocation, abolishment, change, merger, dissolution, and business scope.
4.
Development, supervision and management of financial market.
5.
Inspection of financial institution.
6.
Inspection on public listing company related to their securities market-related matters.
7.
Foreign financial matters.
8.
Protection of financial customers.
9.
Dealing and penalizing the violation of related laws and regulations of finance.
10.
Collection of and analysis on relevant statistic data related to financial supervision, management and inspection.
11.
Other matters related to financial supervision, management and inspection.
Regulation of Insurance Brokers and Brokerage Companies
The current principal regulation governing insurance brokers and brokerage companies is the Regulations Governing Insurance Brokers last amended on March 3, 2021 by Insurance Bureau of FSC (the “Broker Rule”). An insurance broker stipulated under the Insurance Law refers to a person who negotiates to conclude an insurance contract on behalf of the insured and charges fees from the insured. Depending on their focused insurance areas, i.e. property or life insurance, insurance brokers can be divided into property insurance brokers and life insurance brokers. No matter what insurance industry an insurance broker is engaged in, it must have one of the following qualifications: (1) have passed the insurance brokerage examination for professional and technical staff; (2) have passed the insurance brokerage qualification test; or (3) have obtained the insurance brokerage practitioner certificate and practiced the same business.
There are special requirements for Taiwan insurance brokerage companies. Examples of such special requirements include that 1) the name of an brokerage company must contain the words “insurance broker”; and 2) when an brokerage company applies to operate brokerage business, the minimum registered capital must be at least NT$5 million ($157,953) fully paid in cash, according to which, insurance brokerage companies with business license obtained prior to the implementation of this latest Broker Rule shall adjust their registered capital within five years upon the its implementation.
The Practitioner Certificate
The insurance broker practitioner certificate is valid for five years, and must be renewed before expiration. In case a broker has the qualifications for both property insurance and life insurance, he may obtain both insurance brokerage practitioner certificates.
Education and Training
There are two types of education and training for an insurance broker, pre-vocational and on-the-job education and training. An insurance broker must attend pre-vocational education and training for at least 32 hours during the year prior to applying for practicing insurance broker business and on-the-job education and training for at least 16 hours with law courses for no less than 8 hours per year, commencing after one year from the issuance of this latest Broker Rule.
Management of Insurance Brokerages
The rules describing how to conduct brokerage business concentrate on the concept that the brokerages must take care of customers’ matters in good faith. To ensure that this concept is properly carried out, the rules require insurance brokerage companies must have legal compliance officers who have one of the following qualifications: (1) being qualified as insurance agents or brokers and have worked as actual signatories; (2) having five years working experience in the insurance industry, insurance agency or insurance brokerage; or (3) having graduated from college and university departments related to insurance or law with more than three years working experience in the insurance industry, insurance agency or insurance brokerage.
Regulation of Insurance Salespersons
The current principal regulation governing individual insurance salespersons is the Rules on the Administration of Insurance Salespersons latest amended on April 6, 2016 by Insurance Bureau of FSC (the “Salesperson Rule”). An insurance salesperson falling under the Insurance Law refers to a person who is engaged in attracting insurance business for insurance companies, insurance brokerage companies and insurance agency companies. A salesperson is not allowed to attract business for the company he belongs to unless he has completed the registration in accordance with the Salesperson Rules and has obtained the registration certificate. In order to obtain the registration certificate, an insurance salesperson must be at least 20 years old and has at least graduated from a senior high school or a senior vocational school or have an equivalent educational background. In addition, the salesperson must meet one of the following requirements: (1) having passed the salesperson qualification examination held by relevant associations; or (2) holding a valid the registration certificate. Once the salespersons has passed the qualification examination, the relevant association will notify the company where the salesperson works, then the company will issue a registration certificate for the salesperson and file such registration certificate with the relevant authorities. The registration certificate is valid for five years and must be renewed before expiration. The salesperson must present the registration certificate before they start to engage in the insurance business. Unless approved by the company, the salesperson may not work for any other insurance company, insurance brokerage company or insurance agency company. The company supervises the work of the salesperson and is joint and severally liable for any damages caused by its salesperson.
Education and Training
Salespersons must attend in education and training held by their companies every year, or the companies shall revoke the registration certificates of those who fail to attend such education and training.
The Salesperson Rule also stipulates the proper ways and manners to be followed by the salespersons in conducting their businesses and specifies the penalties in case of their violation of the Salesperson Rule.
Taiwan Regulations on Foreign Exchange
Foreign exchange regulation in Taiwan is primarily governed by the Ordinance of Foreign Exchange Administration, latest amended on April 29, 2009 (the “Foreign Exchange Ordinance”). Under the Foreign Exchange Ordinance, foreign exchange refers to foreign currency, bills and marketable securities. The authority managing the administration of foreign exchange is Ministry of Finance of Republic of China, while the authority managing the practical operation of foreign exchange business is Central Bank of Republic of China. The Foreign Exchange Ordinance also specifies the allocated power of Ministry of Finance and Central Bank, respectively. To the extent that any foreign exchange receipts, payments or transactions reach the threshold of NT$500,000 ($16,653) or equivalent in foreign currency, it must be reported to the Central Bank or its designated authorities. Upon incurrence of any of the following events, the State Council of Republic of China may determine and announce that for a period of time, to close the foreign exchange market, suspend or restrict all or partial foreign exchange payment, order a mandatory sale or deposit of all or partial foreign exchange into a designed bank, or dispose in any other manner as it deems necessary:
·
the disorder in domestic or international economy to the detriment of the stability of Taiwan’s economy; or
·
Taiwan suffers serious trade deficit.
Taiwan Regulation on Foreign Investment
The current principal regulation governing foreign investment is Statute For Investment By Foreign Nationals latest amended on November 19, 1997 (the “Investment Statute”). Under the Investment Statute, investment refers to any activities involving (1) holding share capital of a company incorporated in Taiwan; (2) establishing branches, wholly-owned or partnership enterprises in Taiwan; or (3) providing loans of longer than one-year terms to the above-mentioned investee enterprises. The authority in charge of foreign investment is Ministry of Economic Affairs of Republic of China. The industries in Taiwan are categorized into permitted, restricted and prohibited foreign investment areas. Investors may apply for settlement of exchange in accordance with the annual yield of their investment or the allocation of surplus.
Eminent Domain
When the investment made by an investor constitutes less than 45% of the total amount of capital of the investee enterprise, and the investee enterprise has been expropriated or acquired by the government for the purpose of national defense, reasonable government compensation shall be paid to the investors. However, if the capital contribution made by the investor constitutes at least 45% of the total amount of capital of the investee enterprise and continues remaining above 45% for two decades since its establishment, then the government may not exercise its eminent domain power over such investee enterprise.
Taiwan Regulations on Tax
The current principal regulations governing tax in Taiwan include the following:
● Income Tax Law, latest amended on February 7, 2018;
● The Implementation Rules of Income Tax Law, latest amended on June 29, 2018;
● Value-Added and Non-Value-Added Business Tax Law, latest amended on June 14, 2017; and
● The Enforcement Rules of Value-Added And Non-Value-Added Business Tax Law, latest amended on June 25, 2018.
Under the Income Tax Law, there are two kinds of income tax, comprehensive income tax for individuals and income tax for enterprises operating for profit, respectively.
Individuals who have income with a source within Taiwan must pay comprehensive income tax on their income sourced within Taiwan; while non-resident individuals having income with a source within Taiwan, except otherwise provided in the Income Tax Law, shall pay tax based on the amount attributable to the sources of their income.
The enterprise with head office located in Taiwan shall pay profit-seeking income tax on its global income both within and outside Taiwan; while the enterprises with head office outside Taiwan shall only pay profit-seeking income tax on its business income sourced from within Taiwan.
Rates of Income Tax
The individual comprehensive income tax exemption threshold is NT$120,000 per person per year. Any income beyond such exemption threshold is subject to a progressive tax rate ranging from 5% to 40%.
With respect to enterprises operating for profit, the exemption threshold is NT$120,000. Any income beyond such exemption threshold is subject to a 20% tax rate on its taxable income.
The rate of business tax respecting the sale of goods or services and import of goods in Taiwan, except as otherwise stipulated in the relevant tax law, is 5% (Value-Added or Non-Value-Added Business Tax).
PRC Regulations of the Insurance Industry
The insurance industry in the PRC is highly regulated. CIRC is the regulatory authority responsible for the supervision of the Chinese insurance industry. Insurance activities undertaken within the PRC are primarily governed by the Chinese Insurance Law and the related rules and regulations.
Initial Development of Regulatory Framework
The Chinese Insurance Law was enacted in 1995. This original insurance law, which we refer to as the 1995 Insurance Law, provided the initial framework for regulating the domestic insurance industry. Among the steps taken under the 1995 Insurance Law were the following:
(a) Licensing of insurance companies and insurance intermediaries, such as agencies and brokerages. The 1995 Insurance Law established requirements for minimum registered capital levels, form of organization, qualification of senior management and adequacy of the information systems for insurance companies, insurance agencies and brokerages.
(b) Separation of property and casualty insurance and life insurance. The 1995 Insurance Law distinguished insurance between property, casualty, liability and credit insurance businesses, on the one hand, and life, accident and health insurance businesses on the other, and prohibited insurance companies from engaging in both types of businesses.
(c) Regulation of market conduct by participants. The 1995 Insurance Law prohibited fraudulent and other unlawful conduct by insurance companies, agencies and brokerages.
(d) Substantive regulation of insurance products. The 1995 Insurance Law gave insurance regulators the authority to approve the policy terms and premium rates for certain insurance products.
(e) Financial condition and performance of insurance companies. The 1995 Insurance Law established reserve and solvency standards for insurance companies, imposed restrictions on investment powers and established mandatory reinsurance requirements, and put in place a reporting regime to facilitate monitoring by insurance regulators.
(f) Supervisory and enforcement powers of the principal regulatory authority. The principal regulatory authority, then the People’s Bank of China, was given broad powers under the 1995 Insurance Law to regulate the insurance industry in China.
Establishment of the CIRC and 2002 Amendments to the Insurance Law
China’s insurance regulatory regime was further strengthened with the establishment of the CIRC in 1998. The CIRC was given the mandate to implement reform in the insurance industry, minimize insolvency risk for Chinese insurers and promote the development of the insurance market.
The 1995 Insurance Law was amended in 2002 and the amended insurance law, which we refer to as the 2002 Insurance Law, became effective on January 1, 2003. The major amendments to the 1995 Insurance Law include:
(a) Authorizing the CIRC to be the insurance supervisory and regulatory body nationwide. The 2002 Insurance Law expressly grants the CIRC the authority to supervise and administer the insurance industry nationwide.
(b) Expanding the permitted scope of business of property and casualty insurers. Under the 2002 Insurance Law, property and casualty insurance companies may engage in the short-term health insurance and accident insurance businesses upon the CIRC’s approval.
(c) Providing additional guidelines for the relationship between insurance companies and insurance agents. The 2002 Insurance Law requires an insurance company to enter into an agent agreement with each insurance agent that will act as an agent for such insurance company. The agent agreement sets forth the rights and obligations of the parties to the agreement as well as other matters pursuant to law. An insurance company is responsible for the acts of its agents when the acts are within the scope authorized by the insurance company.
(d) Relaxing restrictions on the use of funds by insurance companies. Under the 2002 Insurance Law, an insurance company may use its funds to make equity investments in insurance-related enterprises, such as asset management companies.
(e) Allowing greater freedom for insurance companies to develop insurance products. The 2002 Insurance Law allowed insurance companies to set their own policy terms and premium rates, subject to the approval of, or a filing with, the CIRC.
2009 Amendments to the Insurance Law
The 2002 Insurance Law was amended again in 2009 and the amended insurance law, which we refer to as the 2009 Insurance Law, became effective on October 1, 2009. The major amendments to the 2002 Insurance Law include:
(a) Strengthening protection of the insured’s interests. The 2009 Insurance Law added a variety of clauses such as incontestable clause, abstained and estoppel clause, common disaster clause and amending immunity clause, claims-settlement prescription clause, reasons for claims rejection and contract modification clause.
(b) Strengthening supervision on the qualification of the shareholders of the insurance companies and setting forth specific qualification requirements for the major shareholders, directors, supervisors and senior managers of insurance companies.
(c) Expanding the business scope of insurers and further relaxing restriction on the use of fund by insurers.
(d) Strengthening supervision on solvency of insurers with stricter measures.
(e) Tightening regulations governing the administration of insurance intermediary companies, especially those relating to behaviors of insurance agents.
According to the 2009 Insurance Law, the minimum registered capital required to establish an insurance agency or insurance brokerage as a company must comply with the PRC Company Law. The registered capital or the capital contribution of insurance agencies or insurance brokerages must be paid-up capital in cash. The 2009 Insurance Law also sets forth some specific qualification requirements for insurance agency and brokerage practitioners. The senior managers of insurance agencies or insurance brokerages must meet specific qualification requirements, and their appointments are subject to approval of the CIRC. Personnel of an insurance agency or insurance brokerage engaging in the sales of insurance products must meet the qualification requirements set by the CIRC and obtain a qualification certificate issued by the CIRC. Under the 2009 Insurance Law, the parties to an insurance transaction may engage insurance adjusting firms or other independent appraisal firms that are established in accordance with applicable laws, or persons who possess the requisite professional expertise, to conduct assessment and adjustment of the insured subject matters. Additionally, the 2009 Insurance Law specifies additional legal obligations for insurance agencies and brokerages.
The 2009 Insurance Law was revised again on April 24, 2015, hereinafter the “2015 Insurance Law”, with an aim to further eliminate various administrative approvals as well as grant more market discretion to participants, among which, (i) the requirement of prior approval by CIRC to establish an insurance agency or an insurance brokerage; (ii) the requirement on personnel or senior managers of an insurance agency or an insurance brokerage to obtain certain relevant qualification certificate; or (iii) the requirement of prior approval for split, merger or change of organizational form of an insurance agency company or an insurance brokerage company.
The CIRC
The CIRC has extensive authority to supervise insurance companies and insurance intermediaries operating in the PRC, including the power to:
(a)
promulgate regulations applicable to the Chinese insurance industry;
(b)
investigate insurance companies and insurance intermediaries;
(c)
establish investment regulations;
(d)
approve policy terms and premium rates for certain insurance products;
(e)
set the standards for measuring the financial soundness of insurance companies and insurance intermediaries;
(f)
require insurance companies and insurance intermediaries to submit reports concerning their business operations and condition of assets; order the suspension of all or part of an insurance company or an insurance intermediary’s business;
(g)
approve the establishment, change and dissolution of an insurance company, an insurance intermediary or their branches;
(h)
review and approve the appointment of senior managers of an insurance company, an insurance intermediary or their branches; and
(i)
take enforcement actions against improper behaviors or misconducts of an insurance company or an insurance intermediary.
Regulations of Insurance Agencies
The principal regulation governing insurance agencies is the Provisions on the Supervision and Administration of Specialized Insurance Agencies (the “Agency Provisions”) promulgated by the CIRC on September 25, 2009 and effective on October 1, 2009, which replaced the Provisions on the Administration of Insurance Agencies issued by the CIRC on December 1, 2004 and effective on January 1, 2005. According to the Agency Provisions, the establishment of an insurance agency is subject to minimum registered capital requirement and other requirements and the approval of the CIRC. The term “insurance agency” refers to an entity that engages in insurance agency business within the authorization of, and collects commissions from, insurance companies, including the professional insurance agency companies and their branches. The insurance agency shall meet the qualification requirements specified by the CIRC, obtain the license to conduct an insurance agency business with the approval of the CIRC. An insurance agency may take any of the following forms: (i) a limited liability company; or (ii) a joint stock limited company. An insurance agency must have a registered capital of at least RMB2 million ($313,332). Where it is established as a nationwide company, its registered capital must be at least RMB10 million ($1,566,661). The registered capital must be paid up in cash. On April 27, 2013, CIRC issued the Decision on Revising the Agency Provisions (the “2013 Agency Provisions”), pursuant to which, CIRC has mandated any insurance agency established subsequent to the Decision on Revising the Agency Provisions to meet a minimum registered capital requirement of RMB50 million ($8.1 million). On October 19, 2015, CIRC issued the Decision on Revising Eight Regulations including Provisions on Insurance Companies Setting up Offshore Insurance Organizations, which made certain revisions to the 2013 Agency Provisions (the “2015 Agency Provisions”), among which, (i) eliminate the requirement of prior approval by CIRC to establish an insurance agency; (ii) eliminate the requirement on personnel or senior managers of an insurance agency to obtain certain relevant qualification certificate; or (iii) eliminate the requirement of prior approval by CIRC on split, merger or change of organizational form of an insurance agency company.
On May 16, 2013, CIRC issued the 2013 Notice, pursuant to which, professional insurance agency established prior to the issuance of the Decision on Revising the Agency Provisions, with registered capital less than RMB50 million ($8.1 million), can operate their existing business within the provinces where they have the registered office or branch office, but shall not set up any new branches in any province where they do not have the registered office or any branch office.
On April 20, 2012, Anhou obtained the nationwide license from CIRC, pursuant to which Anhou may set up its branch offices across the PRC to carry out the insurance agency business with no further approval requirement from CIRC other than filing with the local CIRC at the provincial level.
With the promulgation and implementation of the above-mentioned regulations, we expect a better regulated insurance agency market in China with orderly competition and pursuit for professional excellence, which will accentuate our competitive advantage due to our continuous commitment to quality service. On October 24, 2013, Anhou increased its registered capital to RMB50 million. We believe that we will be in a better position to obtain the full support expressly provided in the 2013 Notice from the local CIRC on our expansion strategy nationwide.
On September 17, 2015, CIRC issued Opinions on Deepening the Reformation of Insurance Intermediary Market (the “Reformation Opinions”), pursuant to which, CIRC will take further actions to simplify unnecessary administrative procedures, among which, the elimination of 8 administrative approvals, including the cancellation of previously required qualification certificate for insurance salesperson, the previously required approval for the split, merger, organizational change, set-up of branch office and exit of insurance agency and brokerage company. CIRC will also focus on (i) improving management over entry into and exit from insurance intermediary market and setting up a multilayered service system; (ii) encouraging and pushing forward reformation and innovation to improve intermediary service; (iii) strengthening self-management and supervision and promoting the improvement of industrial quality; (iv) placing stronger supervision and management and improving the comprehensive administrative efficiency; (v) focusing more on organizational construction and industrial self-control; and (vi) consummating information disclosure system and making better use of social supervision.
On September 29, 2016, CIRC circulated the Notice on Issuance of Business License to Insurance Intermediaries. In order to promote the sound and steady development of insurance intermediary market, CIRC instructed its local counterparts to focus on the followings factors while managing the business licenses of insurance intermediaries: (i) capital contributions to be self-owned, genuine and legal; (ii) registered capital to be deposited into an escrow account set up with qualified commercial bank; (iii) to maintain sufficient and valid professional liability insurance; (iv) reasonable and viable business model; (v) established corporate governance; and (vi) to undergo mandatorily required risk assessment.
An insurance agency may engage in the following insurance agency businesses:
(a)
selling insurance products on behalf of the insurer principal;
(b)
collecting insurance premiums on behalf of the insurer principal; and
(c)
conducting loss surveys and handling claims of insurance businesses on behalf of the insurer principal; and other business activities specified by the CIRC.
The name of an insurance agency must contain the words “insurance agency” or “insurance sales.” The license of a Chinese insurance agency company is valid for a period of three years and may be renewed with due application 30 days prior to its expiration. An insurance agency must report to the CIRC when it (i) changes its registered name or the name of its branches; (ii) changes its registered address or the operating address of its branches; (iii) the sponsors or major shareholders change their respective names; (iv) changes its major shareholders; (v) changes its registered capital; (vi) materially changes its equity structure; (vii)changes its organizational form; (viii) split, merger; (ix) amends its articles of association; or (x) sets up or closes its branches. The senior managers of an insurance agency including its branches must meet specific qualification requirements set forth in the Agency Provisions. The appointment of the senior managers of an insurance agency including its branches is subject to review and approval of the CIRC.
Regulation of Insurance Brokerages
The principal regulation governing insurance brokerages is the Provisions on the Supervision and Administration of Insurance Brokerage Institutions (the “Brokerage Provisions”) promulgated by the CIRC on September 25, 2009 and effective on October 1, 2009, which replaced the Provisions on the Administration of Insurance Brokerages issued by the CIRC on December 15, 2004 and effective on January 1, 2005. According to this Brokerage Provisions, the establishment of an insurance brokerage is subject to the approval of the CIRC. The term “insurance brokerage” refers to an entity provides brokerages service on the execution of the insurance contract between the insured and the insurance company based on the interests of the insured and collects commission as agreed, including the insurance brokerage companies and their branches. The insurance brokerage shall meet the qualification requirements specified by the CIRC and obtain the license to operate an insurance brokering business with the approval of the CIRC. Insurance brokering business includes both direct insurance brokering, which refers to brokering activities on behalf of insurance applicants or the insured in their dealings with the insurance companies, and reinsurance brokering, which refers to brokering activities on behalf of insurance companies in their dealings with reinsurance companies. An insurance brokerage may take any of the following forms: (i) a limited liability company; or (ii) a joint stock limited company. An insurance brokerage company must have a registered capital or capital contribution of at least RMB10 million ($1,566,661). The registered capital must be paid up in cash. On April 27, 2013, CIRC issued the Decision on Revising the Brokerage Provisions (the “2013 Brokerage Provisions”), pursuant to which, CIRC has mandated any insurance brokerage established subsequent to the 2013 Brokerage Provisions to meet a minimum registered capital requirement of RMB50 million ($8.1 million).On October 19, 2015, CIRC issued the Decision on Revising Eight Regulations including Provisions on Insurance Companies Setting up Offshore Insurance Organizations, which made certain revisions to the 2013 Agency Provisions (the “2015 Brokerage Provisions”), among which, (i) eliminate the requirement of prior approval by CIRC to establish an insurance brokerage company; (ii) eliminate the requirement on personnel or senior managers of an insurance brokerage company to obtain certain relevant qualification certificate; or (iii) eliminate the requirement of prior approval by CIRC on split, merger or change of organizational form of an insurance brokerage company.
On May 16, 2013, CIRC issued the 2013 Notice, pursuant to which, professional insurance brokerage established prior to the issuance of the Decision on Revising the Brokerage Provisions, with registered capital less than RMB50 million ($8.1 million), can operate their existing business within the provinces where they have the registered office or branch office, but shall not set up any new branches in any province where they do not have the registered office or any branch office.
On September 17, 2015, CIRC issued Opinions on Deepening the Reformation of Insurance Intermediary Market (the “Reformation Opinions”), pursuant to which, the following targets were erected for future reformation of insurance intermediary market: (i) improve management over entry into and exit from insurance intermediary market and set up a multilayered service system; (ii) encourage and push forward reformation and innovation and improve intermediary service; (iii) strengthen self-management and supervision and promote the improvement of industrial quality; (iv) place stronger supervision and management and improve the comprehensive administrative efficiency; (v) pay more attention to organizational construction and industrial self-control; and (vi) consummate information disclosure system and make better use of social supervision. The Reformation Opinions will be beneficial to both the improvement of reformation and development conducted by insurance intermediaries on their own and transformation and upgrading of the insurance intermediary market.
An insurance brokerage may conduct the following insurance brokerage businesses:
(a) making insurance proposals, selecting insurance companies and handling the insurance application procedures for the insurance applicants;
(b) assisting the insured or the beneficiary to claim compensation;
(c) reinsurance brokering business; and
(d) providing consulting services to clients with respect to disaster and damage prevention, risk assessment and risk management; and other business activities specified by the CIRC.
The name of an insurance brokerage must contain the words “insurance brokerage.” The license of an insurance brokerage company is valid for three years and may be renewed with due application 30 days prior to its expiration. An insurance brokerage must report to the CIRC when it (i) changes its registered name or the name of its branches; (ii) change its registered address or the operating address of its branches; (iii) the sponsors or the major shareholders change their respective name; (iv) changes its major shareholders; (v) changes its registered capital; (vi) materially changes its equity structure; (vii)changes its organizational form; (viii) split, merger; (ix) amends its articles of association; or (x) sets up or closes its branches. The senior managers of an insurance brokerage including its branches must meet specific qualification requirements set forth in the Brokerage Provisions. Appointment of the senior managers of an insurance brokerage including its branches is subject to review and approval by the CIRC.
On February 9, 2018, the CIRC issued the Provisions on the Regulation of Insurance Brokers (the “Provisions”), effective as of May 1, 2018. With a total of 109 articles in eight chapters, the Provisions highlight the improved market access and exit, the effective management of matters no longer requiring licensing, the promotion of specialized and well-regulated operations, and the increased protection of consumers’ rights and interests. In particular, the Provisions make adjustments to optimize licensing procedures for insurance brokerage and tighten examination of shareholders of insurance brokerage firms; also, the Provisions set forth explicit requirements in respect of the source of capital contributed by shareholders, custodian of the registered capital, corporate governance and internal control, and information system, and standardize the requirements on qualifications of senior executives in brokerage firms.
Regulation of Insurance Salespersons
The principal regulation governing individual insurance salespersons is the Measures on the Supervision of Insurance Salespersons issued by the CIRC on January 6, 2013 and effective on July 1, 2013, which replaced the Provisions on the Administration of Insurance Salespersons promulgated on April 6, 2006 and effective on July 1, 2006. Under this regulation, the term “insurance salesperson” refers to an individual who sells insurance products for an insurance company, including those who are engaged by insurance companies or by insurance agencies. To engage in insurance sales activities as an insurance salesperson, a person first must pass the qualification examination for the insurance agency practitioners organized by the CIRC to obtain a “Qualification Certificate of Insurance Agency Practitioners”. The person must have a junior high school education or above to be qualified for the examination. In addition to the qualification certificate, a person must be registered with the CIRC’s Insurance Intermediary Supervision Information System and obtain a “Practice Certificate of Insurance Salespersons” issued by the insurance company or insurance agency to which he or she belongs in order to conduct insurance sales activities. On August 3, 2015, CIRC issued the Notice on Relevant Issues to Management of Insurance Intermediary Practitioners (the “2015 Notice”), pursuant to which, the qualification certificate is no more a pre-requisite condition for insurance intermediary practitioners to practice, instead, the insurance intermediary companies where such practitioners work shall complete the practitioners registration for them and conduct professional training. CIRC branches shall not accept any application for qualification approval of insurance salesperson (including insurance agency practitioners) any more.
Regulations of Insurance Brokerage Practitioner and Insurance Adjustment Practitioners
The principal regulation governing insurance brokerage practitioners and insurance adjustment practitioners is the Measures on the Supervision of Insurance Brokerage Practitioners and Insurance Adjustment Practitioners issued by the CIRC on January 6, 2013 and effective on July 1, 2013. To engage in the insurance brokerage activities as an insurance brokerage practitioner, or in the insurance adjustment activities as an insurance adjustment practitioner, a person first must pass the qualification examination organized by the CIRC for the insurance brokerage practitioners or for the insurance adjustment practitioners to obtain a “Qualification Certificate of Insurance Brokerage Practitioners” or a “Qualification Certificate of Insurance Adjustment Practitioners”. The person must have a tertiary education or above to be qualified for the examination. In addition to the qualification certificate, a person also must be registered with the CIRC’s Insurance Intermediary Supervision Information System and obtain a “Practice Certificate of Insurance Brokerage Practitioners” or “Practice Certificate of Insurance Adjustment Practitioners” issued by the insurance brokerage firm or insurance claims adjusting company to which he or she belongs in order to conduct insurance brokerage or claims adjustment activities. An insurance brokerage practitioner is not allowed to conduct insurance brokerage activities on behalf of himself or herself. On August 3, 2015, CIRC issued the 2015 Notice, pursuant to which, the qualification certificate is no more a pre-requisite condition for insurance intermediary practitioners (including insurance adjustment practitioners) to practice, instead, the insurance intermediary companies where such practitioners work shall complete the practitioners registration for them and conduct professional training. CIRC branches shall not accept any application for qualification approval of insurance brokerage practitioners any more.
Content Related to Insurance Industry in the Legal Documents of China’s Accession to the WTO
According to the Circular of the CIRC on Distributing the Content Related to Insurance Industry in the Legal Documents of China’s Accession to the WTO, for the life insurance sector, within three years of China’s accession to the WTO on December 11, 2001, geographical restrictions were to be lifted, equity joint venture companies allowed to provide health insurance, group insurance, and pension/annuity services to Chinese citizens and foreign citizens, and no other restrictions allowed except those on the proportion of foreign investment (no more than 50%) and establishment conditions. For the non-life insurance sector, within three years of China’s accession, the geographical restrictions were to be lifted and no restrictions allowed other than establishment conditions. For the insurance brokerage sector, within five years of China’s accession, the establishment of wholly foreign-funded subsidiary companies was to be allowed, and no restrictions allowed other than establishment conditions and restrictions on business scope.
According to the latest Catalogue of Industries for Guiding Foreign Investment (2015 Revision) issued by Ministry of Commerce on March 10, 2015 with effective date on April 10, 2015, both the insurance agency and insurance brokerage do not fall into the prohibited or restricted category any more. On January 12, 2017, the State Council issued the Notice on Certain Measures to Strengthen Opening up and Utilization of Foreign Investment, pursuant to which, restrictions on foreign investors entry into the industry of insurance institutions and insurance intermediaries within China will be further relaxed. However, as these regulations are still relatively new, local CIRC counterparts may have different interpretations. Based on the consultation by the Company with the relevant local counterparts of CIRC, they are of the view that the proportion of foreign investment in insurance intermediaries shall not exceed 24.9%.
PRC Regulations on Foreign Exchange
Foreign Currency Exchange
Foreign exchange regulation in China is primarily governed by the following rules:
● Foreign Currency Administration Rules (2008 Revision), as amended or revised, or the Exchange Rules; and
● Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), as amended or revised, or the Administration Rules.
Under the Exchange Rules, the Chinese dollars or RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of RMB for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of the SAFE or relevant authorities.
Under the Administration Rules, foreign-invested enterprises may only buy, sell or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of China are also subject to limitations, which include approvals by the Ministry of Commerce, the SAFE and the State Development and Reform Commission.
On June 9, 2016, SAFE issued the Notice on Reforming and Regulating Management Policies of Settlement of Foreign Exchange under Capital Accounts, pursuant to which, the domestic entity may, depending on its actual operation need, settle its revenue in foreign currency with the bank, provided such revenue falls into those under capital accounts with explicit policy on settlement by willingness; while for those revenue under capital accounts still subject to restrictive regulations, such applicable policies shall prevail.
On January 26, 2017, SAFE issued the Notice on Further Promoting the Reform of Foreign Exchange Management and Strengthening Verification on Authenticity and Legality, pursuant to which, banks are mandated to strengthen verification on authenticity and legality on foreign exchange conversion and remittance offshore.
PRC Regulations on Dividend Distribution
The principal regulations governing dividend distributions of wholly foreign-owned companies include:
● Wholly Foreign-Owned Enterprise Law (2016), as amended or revised; and
● Wholly Foreign-Owned Enterprise Law Implementing Rules (2016 Revision), as amended or revised.
Under these regulations, wholly foreign-owned companies in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards. In addition, these wholly foreign-owned companies are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds, until the accumulative amount of such fund reaches 50% of its registered capital. These reserve funds are not distributable as cash dividends. On March 12, 2019, MOFCOM passed the Foreign Investment Law, which replaced the three existing laws over foreign investment. From January 1, 2020, foreign individuals, enterprises and other organizations that directly or indirectly make investment activities in China are subject to the Foreign Investment Law. However, it remains unclear as to how these changes will affect entities currently operating in China, particularly foreign controlled variable interest entities.
PRC Regulations on Tax
PRC Enterprise Income Tax (“EIT”)
The PRC EIT is calculated based on the taxable income determined under the PRC accounting standards and regulations, as well as the EIT law. On March 16, 2007, the National People’s Congress of China enacted the EIT Law, a new EIT law which became effective on January 1, 2008. On December 6, 2007, the State Council promulgated the Implementation Rules which also became effective on January 1, 2008. On December 26, 2007, the State Council issued the Notice on Implementation of Enterprise Income Tax Transition Preferential Policy under the EIT Law, or the Transition Preferential Policy Circular, which became effective simultaneously with the EIT Law. The EIT Law imposes a uniform EIT rate of 25% on all domestic enterprises and foreign-invested enterprises unless they qualify under certain exceptions. Under the EIT Law, as further clarified by the Implementation Rules, the Transition Preferential Policy Circular and other related regulations, enterprises that were established and already enjoyed preferential tax treatments before March 16, 2007 will continue to enjoy them in the following manners: (i) in the case of preferential tax rates, for a five-year period starting from January 1, 2008, during which the tax rate will gradually increase to 25%; or (ii) in the case of preferential tax exemption or reduction for a specified term, until the expiration of such term. However, if such an enterprise has not enjoyed the preferential treatments yet because of its failure to make a profit, its term for preferential treatment will be deemed to start from 2008.
PRC Business Tax and Implementation of Value-Added Tax “VAT”
Taxpayers providing taxable services in China were required to pay a business tax at a normal tax rate of 5% of their revenues, unless otherwise provided. According to the Announcement on the VAT Reform Pilot Program of the Transportation and Selected Modern Service Sectors issued by the State Tax Bureau in July 2012, the transportation and some selected modern service sectors, including research and development and technical services, information technology services, cultural creative services, logistics support services, tangible personal property leasing services, and assurance and consulting service sectors, should pay value-added tax instead of business tax based on a predetermined timetable (hereinafter referred to as the “VAT Reform”), effective September 1, 2012 for entities in Beijing and October 1, 2012 for entities in Jiangsu. In March 2016, the PRC State Council further expanded the application of VAT to several other key sectors, including real estate, construction, financial services and lifestyle services, effective May 1, 2016.
As of December 31, 2020, all of our Consolidated Affiliated Entities have been requested to convert into the VAT system.
Dividend Withholding Tax
Under the PRC tax laws effective prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises are exempt from PRC withholding tax. Pursuant to the EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and distributed to us by our PRC subsidiaries are under a 5% withholding tax subject to PRC laws and regulations, provided that we are determined by the relevant PRC tax authorities to be a “non-resident enterprise” under the EIT Law.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together with all of the other information included in this Form 10-K. The statements contained in or incorporated herein that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.” If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of your investment.
Risks Relating to Our Business
We have been charged with fraud for manipulating the Company’s trading volume.
On December 20, 2018, the SEC filed a complaint (the “Complaint”) at U.S. District Court for the Southern District of New York (the “Court”) against Company and Cheng-Hsiung Huang (“Mr. Huang”), one of the Company’s former employees, alleging potential violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder based on the alleged manipulative trading scheme of the Company’s common stock, such as wash trades, from approximately December 2013 to March 2018. Neither the Company nor Mr. Huang realized any financial gain from the alleged scheme and both the Company and Mr. Huang substantially cooperated with the SEC’s investigation regarding the alleged manipulative trading scheme. On November 29, 2018, without admitting or denying the allegations in the Complaint, the Company agreed to the entry of a final judgment (the “Final Judgment”) that permanently enjoined it from violating Section 10(b), Rule 10b-5 and Section 17(a) of the Securities Act, ordered the Company to comply with its undertaking to retain an independent compliance monitor for a period of not less than one year to help the Company stay in compliance with the U.S. securities law. On December 6, 2018, without admitting or denying the allegations in the Complaint, Mr. Huang agreed to the entry of the Final Judgment that permanently enjoined him from violating Section 10(b), Rule 10b-5 and Section 17(a) of the Securities Act, ordered Mr. Huang to pay a civil penalty of $30,000 in installments. On January 18, 2019, the Court issued the Final Judgment on this case. Although the Company settled the SEC fraud charges with no economic loss, we suspect that our reputation may suffer as a result of the SEC investigation.
Our Company’s affiliates have significant control over matters requiring approval by shareholders.
The affiliates of the Company hold 100% of our Company’s outstanding preferred shares, approximately 31.4% of our Company’s outstanding common shares, and approximately 44.6% of the voting power of our Company as of the date of this annual report (calculated in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended). As a result, our Company’s affiliates, in view of their ownership percentage of our common stock and voting power, have significant control over matters requiring approval by our shareholders, including the selection of our board of directors, approval or rejection of mergers, sales or licenses of all or substantially all of our assets, or other business combination transactions. The interests of our Company’s affiliates may not always coincide with the interests of our other shareholders and as such our Company may take action in advancement of its affiliates’ interests to the detriment of our other shareholders, including you. Accordingly, you may not be able to influence any action we take or consider taking, even if it requires a shareholder vote.
An occurrence of the COVID-19 pandemic is likely to negatively affect our operations.
The occurrence of the COVID-19 pandemic, an uncontrollable event, had adversely affected our operations in mainland China and Hong Kong and may negatively affect our operations in Taiwan. A pandemic typically results in social distancing, travel bans and quarantine, and this has limited our business travel and regular business activities, such as access to our facilities, customers, management, support staff and professional advisors. These, in turn, will not only impact our operations, financial condition and demand for our services but our overall ability to react timely to mitigate the impact of this pandemic. Also it may substantially hamper our efforts to provide our investors with timely information and comply with our filing obligations with the Securities and Exchange Commission during and shortly after the pandemic.
We are subject to extensive regulations for our insurance brokerage business and operations.
We conduct our insurance brokerage business primarily in Taiwan, mainland China and Hong Kong and our business operations are subject to vigorous regulations in these jurisdictions. Our operating subsidiaries are licensed insurance brokers in Taiwan and mainland China and therefore need to comply with the relevant insurance laws and regulations in Taiwan and mainland China, respectively. Any failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of our licenses as insurance brokers in the jurisdiction where such failure occurs. Even if a sanction imposed against us or our personnel is small in monetary amount, the adverse publicity arising from the imposition of sanctions against us by regulators could harm our reputation and impede our ability to retain customers and develop new customer relationships, which may reduce our revenues.
From time to time, the regulatory landscape in the insurance industry in Taiwan and mainland China involves and changes. We face the risk of significant intervention by regulatory authorities, including increased registered capital requirements, extended training of the insurance agencies’ personnel, and adoption of costly or restrictive new regulations and judicial or administrative proceedings. If any restrictive or costly new regulations and rules become effective and applicable to our business, these regulations may materially limit our activities and operational profitability.
International operations expose us to currency exchange and repatriation risks, and we cannot predict the effect of future exchange rate fluctuations on its business and operating results.
We have our primary business operations in Taiwan, mainland China and Hong Kong. Substantial amounts of revenues are received and expenses are incurred in Taiwanese, Chinese and U.S. dollars. Thus, we have exposure to currency fluctuations. We cannot assure you that the effect of currency exchange fluctuations will not materially affect our revenues and net income in the future.
Because our primary business activities are conducted in Taiwan, mainland China and Hong Kong, we are subject to the risks of doing business internationally, including periodic foreign economic downturns and political instability, which may adversely affect our revenue and cost of doing business.
Our primary places of business are in Taiwan, mainland China and Hong Kong and we have almost all of our employees and management team in those jurisdictions. Foreign economic downturns may affect our results of operations in the future. Additionally, other facts relating to the operation of the Company’s business outside of the U.S. may have a material adverse effect on the Company’s business, financial condition and results of operations, including:
● international economic and political changes;
● the imposition of governmental controls or changes in government regulations, including tax laws, regulations and treaties;
● changes in, or impositions of, legislative or regulatory requirements regarding the display screen and power bank industries;
● compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act and export control laws;
● difficulties in achieving headcount reductions due to unionized labor and works councils;
● restrictions on transfers of funds and assets between jurisdictions;
● China- U.S. political instability;
● Mainland China and Taiwan political tension; and
● Outbreaks of diseases and the fears of a pandemic disease.
As we continue to operate our business internationally, our success will depend in part, on our ability to anticipate and effectively manage these risks. The impact of any one or more of these factors could materially adversely affect our business, financial condition and results of operations.
Risks Relating to Ownership of Our Shares
The value of your investment might not accurately reflect the actual market value of such investment as a result of deceitful historical practices relating to the appearance of greater market demand for our common stock than factually accurate.
On December 20, 2018, we agreed to settle certain fraud charges brought by the SEC relating to an alleged scheme to manipulate the appearance market demand for our common stock and as a result the historical market prices of our common stock might not be reflective of the actual value of our common stock at such time. Even though such alleged fraudulent activities and the SEC settlement did not result in a profit for the Company or any of its employees, these activities may have affected our common stock market prices and as such the value of your investment in our common stock might be less than otherwise presumed.
You may not be able to liquidate your investment since there is no assurance that an active public market will develop for our common stock or that our common stock will ever be approved for trading on a national stock exchange.
There is no active public trading market for our securities and any historic trading activity indicating that an established trading market might have existed cannot be relied upon. Our shares of common stock are currently quoted on the OTCQB and have not been listed on any national stock exchange. We cannot assure you that an active trading market for our common stock will develop or that if developed, will be sustained. In the absence of an active trading market of our common stock, you may not be able to liquidate your investment in our common stock at all or as soon as desired.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES.
Law Broker’s headquarters is located at 5th Floor, No. 311 3rd Section, Nanjing East Road, Taipei City, Taiwan, with approximately 753.29 square meters (equivalent to 8,105 square feet) of office space. Law Broker renewed the office lease with Pon-Chen Co., Ltd. for additional two years commencing from June 1, 2019 to May 31, 2021 and with a monthly rent of NT $373,251. Law Broker has also entered into 43 leases for each of its sales and service outlets and training centers (excluding headquarter), for an aggregate monthly fee (untaxed) of NT$5,335,737 (equivalent to approximately $181,230).
Anhou’s current registered address is located at Room 2008-2010, No. 215 Jiangzhong Middle Road, Jianye District, Nanjing, Jiangsu Province, China, with 553.26 square meters (equivalent to approximately 5,955 square feet) of office space. The lease agreement is by and among Zheng Yong Xiang, Zhang Guo Qiang and Anhou. The term is from November 3, 2018 to November 2, 2024. Anhou paid the rent of its office space in Nanjing in the total amount of RMB4,483,063 or approximately $687,000 during the fiscal year ended December 31, 2020.
Jiangsu Law’s office is located at No. 888 Jintong Road, Xingren County, Tongzhou District, Nantong City, Jiangsu province, China, with 21,527 square feet (2,000 square meters) of office space. The lease was between Xiangriya Industrial (Nantong) Co., Ltd., which is an affiliate of Yi-Hsiao Mao. The lease term is from January 1, 2021 to December 31, 2021, with rent of RMB10,917 ($1,680) per month.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS.
We are currently not aware of any such legal proceedings or claims that we believe will 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. 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.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock has been quoted on the various tiers of the OTC Market under the symbol “CUII” since August 2012. The latest available closing price of our common stock prior to February 22, 2021 was US$1.87.
The following table sets forth for the respective periods indicated the high and low closing prices for our common stock. Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.
Fiscal Year Ended
December 31, 2020
Low
High
First Quarter ended March 31, 2020
$
2.17
$
2.25
Second Quarter ended June 30, 2020
$
1.25
$
2.17
Third Quarter ended September 30, 2020
$
0.75
$
1.47
Fourth Quarter ended December 31, 2020
$
1.25
$
1.50
The above stock prices may not be reflective of the actual market value thereof on the dates listed due to our stock’s limited trading volume.
Shareholders
As of December 31, 2020, there were 722 record owners of our common stock and one record owner of our preferred stock.
Transfer Agent
Our transfer agent is Securities Transfer Corporation, at the address of 2901 N. Dallas Parkway, Suite 380, Plano, Texas 75093.
Dividends
We have never declared or paid any cash dividends or distributions on our common stock. We currently intend to retain our future earnings, if any, to support operations and to finance future growth and expansion and, therefore, do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
Pursuant to the provisions of the AHFL Acquisition Agreement dated August 24, 2012 and its amendments on March 14, 2013, March 13, 2015, February 17, 2016 and August 8, 2016, in lieu of the 2 million employee stock option pool (the “ESOP”) described in the AHFL Acquisition Agreement, our Company is committed to create an employee stock pool or similar plan consisting of up to 5 million shares of common stock to be granted to employees of affiliated entities of our Company (including Law Broker employees). Law Broker, being the only actively operating subsidiary in Taiwan, primarily engages in insurance brokerage and insurance agency service business across Taiwan. Upon satisfaction of respective performance criteria of Law Broker employees, the board of directors of Law Broker may submit its recommendation to our Company for its approval and issuance of such options under the ESOP. Details of terms and conditions on the said ESOP shall be set forth in separate ESOP documents duly approved by our Company.
On May 12, 2017, the Company’s 2017 Long Term Incentive Plan (the “2017 Plan”) was approved by the shareholders at the 2017 Annual Meeting of Stockholders of China United Insurance Service, Inc. Up to 10,000,000 shares of our Common Stock may be granted under the 2017 Plan (the “Share Pool”), provided that 2,000,000 shares of the Share Pool is reserved for issuance to eligible participants providing services to Action Holdings Financial Limited and its subsidiaries. Eligibility to participate is open to officers, directors and employees of, and other individuals (including sales agents who are exclusive agents of the Company or its subsidiaries or derive more than 50% of their income from those entities) who provide bona fide services to or for, us or any of our subsidiaries. Given that metrics for evaluating performance goals are rather complex and exhaustive, and that the Company’s management and Board of Directors are still working to develop a series of reward policies that specify various performance target levels and the size of the award or payout of performance shares with respect to each different target level attained, no awards were granted under the 2017 Plan as of December 31, 2020.
Options and Warrants
As of March 10, 2021, we had no outstanding options or warrants to purchase shares of our Common Stock.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECT FINANCIAL DATA
As a smaller reporting company, we are not required to make such disclosure under Item 6.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the accompanying notes thereto included in Item 8 of Part II, “Financial Statements and Supplementary Data” of this Form 10-K Report. Unless otherwise stated, references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in December and the associated quarters, months and periods of those fiscal years.
Overview
We are a Delaware corporation, incorporated on June 4, 2010 by Mr. Mao, as a holding company for both ZLI Holdings Limited (“CU Hong Kong”) and Action Holdings Financial Limited (“AHFL”, a company incorporated in the British Virgin Islands). Our common stock is quoted over the counter under the ticker symbol “CUII” on the OTCQB. The Company primarily engages in brokerage and insurance agency services by providing two broad categories of insurance products, life insurance products and property and casualty insurance products, and conducts its business primarily in three geographic operating segments, Taiwan, the PRC, and Hong Kong. The insurance products that the Company’s subsidiaries sell are underwritten by certain leading insurance companies in Taiwan, the PRC and regions and countries near the PRC.
We have three operating subsidiaries in our Taiwan segment and conduct brokerage and insurance agency services through the subsidiaries across Taiwan. Through our recent acquisitions and integrations, our Taiwan segment is able to achieve synergies among group companies and generate more commission revenues from marketing and selling insurance products. Revenues from the Taiwan segment continues to increase and contributed about 94.6% of the total revenue of the Company for the year ended December 31, 2020. As of December 31, 2020, we had 51 sales and service outlets (including the headquarters) with 5,299 sales professionals and 246 administrative staff in the Taiwan segment.
Through our Consolidated Affiliated Entities in the PRC segment, we had two insurance agencies, one brokerage and 37 service outlets with 1,553 full-time sales professionals and 100 administrative staff in the PRC segment as of December 31, 2020. Our PRC segment contributed 5.2% of total revenue of the Company for the year ended December 31, 2020.
Our Hong Kong segment mainly consists of one operating subsidiary, which acts as a broker for reinsurance products and earns commissions on sales of insurance products from other insurers. As of December 31, 2020, we had one sales and service outlet (including the headquarters) with no sales professionals and one administrative staff in Hong Kong segment.
Impact of COVID-19
The coronavirus pandemic (“COVID-19”) has resulted in global economic disruptions and numerous restrictions imposed by government authorities. We did not have any significant impact on the operations in the Taiwan segment due to the government’s responses and actions taken to COVID-19. However, our business in the PRC segment experienced certain negative impacts, such as limited access to our staff in the PRC in the beginning of the outbreak and restrictions on business travel within the PRC and between Taiwan and the PRC.
As COVID-19 and its duration remain uncertain, we have been monitoring and will continue to measure and modify our business to protect our customers, sales professionals and employees. 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
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the amounts of revenues and expenses during the period. We make these estimates using the best information available when they are made. However, actual results could differ materially from those estimates.
We believe critical accounting policies involve the most complex, difficult and subjective estimates and judgments are as follows:
● Revenue recognition including our identification of performance obligations and significant assumptions in estimating variable consideration;
● Recognition of stock-based compensations and the valuation of fair value to equity securities due to multi- performance targets with counter parties in the arrangement; and
● Complexity in estimates of income taxes due to applications of tax rules in different foreign jurisdictions.
For other significant accounting policies affecting our financial statements, see Note 1 to our 2020 consolidated financial statements.
Results of Operations
Overview of the years ended December 31, 2020 and 2019
The following table shows the results of operations for the years ended December 31, 2020 and 2019:
Year Ended December 31,
Change
Percent
Revenue
$
124,267,072
$
95,919,338
$
28,347,734
29.6
%
Cost of revenue
87,695,053
65,342,976
22,352,077
34.2
%
Gross profit
36,572,019
30,576,362
5,995,657
19.6
%
Gross profit margin
29.4
%
31.9
%
(2.5)
%
(7.8)
%
Operating expenses:
Selling
3,226,109
2,707,176
518,933
19.2
%
General and administrative
26,955,278
20,214,659
6,740,619
33.3
%
Total operating expenses
30,181,387
22,921,835
7,259,552
31.7
%
Income from operations
6,390,632
7,654,527
(1,263,895)
(16.5)
%
Other income (expenses):
Interest income
453,536
453,184
0.1
%
Interest expenses
(202,239)
(208,008)
5,769
(2.8)
%
Dividend income
390,030
367,557
22,473
6.1
%
Other - net
(590,319)
333,826
(924,145)
(276.8)
%
Total other income, net
51,008
946,559
(895,551)
(94.6)
%
Income before income tax
6,441,640
8,601,086
(2,159,446)
(25.1)
%
Income tax expense
(3,407,868)
(2,704,297)
(703,571)
26.0
%
Net income
3,033,772
5,896,789
(2,863,017)
(48.6)
%
Less: net income attributable to the noncontrolling interests
(2,103,659)
(2,837,941)
734,282
(25.9)
%
Net income attributable to China United's shareholders
$
930,113
$
3,058,848
$
(2,128,735)
(69.6)
%
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, the PRC and Hong Kong. We generate revenue primarily through our sales force, which consists of individual sales professionals in our distribution and service network.
The Company’s majority revenues are derived from the commissions from sales of life insurance products. Total commission revenue from sales of life insurance products accounted for 94.6% and 93.6% of total revenue for the years ended December 31, 2020 and 2019, respectively; whereas commission revenue from sales of property and casualty insurance products only contributed 5.4% and 6.1% of total revenue for the years ended December 31, 2020 and 2019, respectively.
Most of the individual life insurance products we distribute 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 and enables the Company 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 sustained growth of life insurance sale, we have placed significant resources to expand and sell the life insurance products with periodic payment schedules. We expect that sales of life insurance products will continuously be our primary source of revenue in the next several years.
Our total revenue of $124.2 million for the year ended December 31, 2020 increased by $28.3 million (or 29.6%) compared to the total revenue of $95.9 million for the year ended December 31, 2019. The increase was attributable primarily to the constant business growth in the Taiwan segment. For the years ended December 31, 2020 and 2019, the revenue generated respectively from Taiwan, PRC and Hong Kong segments was as follows:
Year Ended December 31,
Geographic Areas
Change
Percent
Revenue
Taiwan segment
$
117,524,429
$
87,117,945
$
30,406,484
34.9
%
Percentage of revenue
94.6
%
90.8
%
PRC segment
6,426,670
8,517,475
(2,090,805)
(24.5)
%
Percentage of revenue
5.2
%
8.9
%
Hong Kong segment
315,973
283,918
32,055
11.3
%
Percentage of revenue
0.2
%
0.3
%
Total revenue
$
124,267,072
$
95,919,338
$
28,347,734
29.6
%
Overall revenue from our Taiwan segment increased by $30.4 million, or 34.9%, from $87.1 million for the year ended December 31, 2019 to $117.5 million for the same period ended December 31, 2020. We continued to deliver solid financial results through our Taiwan segment due to the following reasons:
(i) Uniwill had contributed $20.0 million of the increased revenue during the year 2020 after stock compensation arrangements entered with two non-related entities. The positioning of Uniwill is to target those high-net-worth individual customers with strategies to sell investment-type insurance policies.
(ii) We discontinued certain long-term care and disability insurance products in the year of 2020. Prior to such discontinuation, many individual customers decided to lock in the long-term care and disability insurance policy that we had offered because the individual customers believed that these insurances products provided more favorable terms to them than the other ones available on the market. Such surge in the sales of those insurance policies in 2020 had boosted the total sales in our insurance policies.
(iii) We received more contingent commissions, which include trailing commissions, persistency rate linked bonuses and some other service allowance, for the year ended December 31, 2020 due to our continued growth in the sales of insurance products in the past recent years.
Overall revenue from our PRC segment decreased by $2.1 million, or 24.5% to $6.4 million for the year ended December 31, 2020 from $8.5 million for the same period ended December 31, 2019. Decrease in revenue for the PRC segment was due to the adverse impact on the outbreak of COVID-19. In addition, a new Chinese policy requesting sales agents to have audio and video recording during promotion of insurance, has increased difficulties for sales agents to expand the market and promote insurance products to individual customers.
The revenue in the Hong Kong segment primarily derived from reinsurance commission on sales of insurance products from other insurers to Taiwan Life Insurance Co., Ltd. (“Taiwan Life”) for risk management. Overall revenue from our Hong Kong segment for the year ended December 31, 2020 remained consistent with the same period in 2019.
Cost of revenue and gross profit
The cost of revenue mainly consists of commissions paid to our sales professionals. Our commission policy to our sales professionals designs to divide sales target into smaller and more attainable targets and provides more incentives to our sales professionals to improve the achievement rate, especially for the first-year commissions.
The cost of revenue for the year ended December 31, 2020 increased by $22.4 million or 34.2%, to $87.7 million compared to $65.3 million for the year ended December 31, 2019. This increase was primarily due to increases in the direct commission cost as a result of the growth of the first-year commissions earned from insurance companies. In addition, the growth in the revenue also resulted in increasing indirect commission cost due to the high achievement rate of the sales target.
Accordingly, the cost of revenue increased more than the proportional increase of revenue, causing a decrease in the gross profit margin by 2.5% from 31.9% for the year ended December 31, 2019 to 29.4% for the year ended December 31, 2020.
Selling expenses
Selling expenses were mainly incurred by Law Broker and Uniwill in connection with online marketing and advertising. Selling expenses increased 0.5 million or 19.2% from 2.7 million for the year ended December 31, 2019 to 3.2 million for the same period ended December 31, 2020. As a result, the Company incurred more expenses for Uniwill’s branding during the year 2020.
General and administrative expenses
G&A expenses are principally comprised of salaries and benefits for our administrative staff, office lease expenses, travel expenses, depreciation and amortization, entertainment expenses, and professional service fees.
For the year end December 31, 2020, G&A expenses were $27.0 million, reflecting an increase of $6.7 million or 33.3%, compared with $20.2 million for year ended December 31, 2019. During the year of 2020, the Company recognized costs of $1.4 million related to stock-based compensation arrangements. Moreover, our revenue growth led to increases in performance bonus to employees and sales taxes during the year of 2020. We also incurred more general expenses due to business expansions of Uniwill and penalties related to a tax matter in the Taiwan segment for the year ended December 31, 2020.
Other income (expenses)
Other income (expense) mainly consisted of interest income, interest expenses, gain or loss on valuation of financial assets, foreign currency exchange gain or loss. Net other income for the year ended December 31, 2020 was $0.1 million, reflecting a decrease of $1.0 million or 94.6%, compared with $0.9 million for the same period of 2019. The significant decreases in net other income was mainly associated with to foreign currency exchange losses recognized during the year of 2020 due to the continued appreciation of the New Taiwan Dollar against the US dollar.
Income tax
For the year ended December 31, 2020, income tax expense was $3.4 million, an increase of $0.7 million or 26.0%, compared with $2.7 million for the year ended December 31, 2019. The increase was mainly due to a supplementary tax payment of $0.3 million related to withholding tax matters and more taxes on undistributed earning accrued because of more revenues generated in the Taiwan segment during the year of 2020.
Liquidity and Capital Resources
Cash requirements
Our primary sources of liquidity are cash and cash equivalents, time deposits, marketable securities, and cash generated from operations. Cash available from operations, including our cash, time deposits, and borrowings under our revolving line of credit, will be sufficient for our working capital needs, including commissions payable to sales professionals, performance bonus payable to management,
payments of tax liabilities, marketing and adverting needs to promoting sales, as well as purchase of equipment. However, future business opportunities may cause a change in our estimate.
Cash flows
The following table represents a comparison of our cash flows for the years ended December 31, 2020 and 2019:
Year Ended December 31,
Change
Percent
Net cash provided by operating activities
$
3,293,760
$
5,411,847
$
(2,118,087)
(39.1)
%
Net cash used in investing activities
(13,829,956)
(13,137,888)
(692,068)
5.3
%
Net cash provided by (used in) financing activities
5,398,802
(354,454)
5,753,256
(1,623.1)
%
Operating activities
Net cash provided by operating activities for the year ended December 31, 2020 was $3.3 million in comparison with net cash of $5.4 million provided by operating activities for the year ended December 31, 2019. The decrease of $2.1 million or 39.1% was mainly due to more general operating expenditures paid during the year of 2020 as a result of the business expansion of Uniwill.
Investing activities
Net cash used in investing activities was $13.8 million for the year ended December 31, 2020 in comparison with net cash of $13.1 million used in investing activities for the year ended December 31, 2019. The increase in the cash outflows of 0.7 million used in investing activities resulted from purchases of more equipment during the year of 2020.
Financing activities
Net cash provided by financing activities was $5.4 million for the year ended December 31, 2020 in comparison with net cash of $0.4 million used in financing activities for the year ended December 31, 2019. The cash inflows from the financing activities for the year ended December 31, 2020 was mainly due to the proceeds of $27.2 million but offset by the repayments of credit facilities of $21.5 million.
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2020.
Contractual Obligations
The following represents a summary of the Company’s contractual commitments and related scheduled maturities as of December 31, 2020:
Payments due by period
Less than
More than
Obligations
Total
1 year
1-3 years
3-5 years
5 years
Debt obligations (1)
$
14,159,108
$
14,159,108
$
-
$
-
$
-
Operating lease
6,759,612
3,193,794
2,930,087
635,731
-
Contractual obligations (2)
3,263,132
3,025,692
237,440
-
-
Capital commitment (3)
10,684,807
-
-
-
10,684,807
$
34,866,659
$
20,378,594
$
3,167,527
$
635,731
$
10,684,807
(1) Debt obligations include our revolving credit facilities from banks.
(2) Contractual obligations include operating lease obligations and other obligations related to compensation plans with Law Broker’s officers, amount due to previous shareholders of AHFL, and a Strategic Alliance Agreement with AIATW.
(3) Capital commitment related to the Joint Venture Agreement (the “JV Agreement”) with non-related parties with AIlife, see Note 12 to our 2020 consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. 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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of China United Insurance Services Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of China United Insurance Services Inc. and subsidiaries (the “Company”) as of December 31, 2020, and the related consolidated statements of operations and other comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Brokerage revenue recognition
Critical Audit Matter Description
As described in Note 1 to the consolidated financial statements, The Company’s revenue is derived from insurance agency and brokerage services. 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 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.
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 amount of revenue to be recognized when the insurance policy is effective includes first year commission and other contingent commission that a significant reversal of revenue would not occur in the subsequent periods. When other contingent commission that could not be determined if a significant reversal of revenue would occur, the Company recognizes the commission after receiving insurance companies' notice.
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.
Auditing the accounting for revenue recognition involved subjectivity and complexity in evaluating management's estimates. Specifically, the judgments necessary to determine the amount, timing and presentation of revenue and to estimate total costs and fees for the performance obligations that recognize the revenue. Auditing such estimates required extensive audit effort due to the volume and complexity of these contracts.
How the Critical Audit Matter Will Be Addressed in the Audit
Our audit procedures related to management’s conclusion on amount, timing and presentation of revenue recognition, as well as the estimates of total costs and fees for the performance obligations that recognize the revenue include the following, among others:
● We will obtain an understanding of controls over contract revenue, including management’s controls over the initial setup of new contract arrangements and the estimates of total costs and fees for performance obligations.
● We will submit and obtain the revenue and accounts receivable confirmations for a selection of insurance companies.
● For a selection of contracts, we will:
o Evaluate the terms and conditions of each contract and the appropriateness of the accounting treatment within the context of the five-step model prescribed by ASC 606, Revenue from Contracts with Customers, and evaluating whether management’s conclusions were appropriate.
oTest the accuracy and completeness of the costs incurred to date for the performance obligation.
oTest the mathematical accuracy of management’s calculation of revenue for the performance obligation.
● Evaluating the reasonableness of the estimated revenue during the year by comparing the estimated revenue from the sale of the effective insurance policies without the insurance companies' notice to the sales of the insurance policies confirmed by the insurance companies in the subsequent period. In cases where estimated revenue by the insurance company was significantly higher or lower than expected, we obtained further explanations and corroborating supporting documentation to evaluate the impact to the estimated revenue.
Recognition of stock-based compensations and the valuation of fair value to equity securities due to multi- performance targets with counter parties in the arrangement
Critical Audit Matter Description
The Company has preferred stock-based compensation issued to non-related entities for Uniwill. The Company accounts for equity-based compensation cost in accordance with ASC 718, Compensation-Stock Compensation after adoption of ASC 2018-07, which requires the measurement and recognition of compensation expense related to the fair value of equity-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based compensation payments granted to employees and nonemployees, net of estimated forfeitures, over the employees’ requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied towards modified, repurchased, or cancelled during the periods reported.
On November 15, 2019, AIlife entered into a Joint Venture Agreement (the “JV Agreement”) with two non-related entities (collectively, the “Labor Parties”) and agreed to invest funds, labor, and technology into Uniwill. Pursuant to the JV Agreement, the paid-in capital of Uniwill should increase to an aggregate amount of $13.3 million (NTD 400 million) by AIlife, provided that the Labor Parties fulfill their commitments no later than December 31, 2021. On August 15, 2019, AIlife increased and completed the capital injections in Uniwill to the amount of $3.3 million (NTD 100 million).
According to the term of the JV Agreement, the Labor Parties shall be entitled of 9,608 preferred stock if the following milestones are met:(a) the registered number of insurance business professional sales of Uniwill is more than 200, (b) the business performance shall reach FYB NTD 5 million or more, and (c) one of two employees of the Labor Parties designated by AIlife shall join Uniwill within 6 months after the paid-in capital of Uniwill increased to NTD 100 million (hereinafter refer to the “performance target”). The preferred stock shall provide for (a) the right to receive a distribution of 50% of the net-income of Uniwill, (b) the right to convert such preferred stock into common stock at 1 to 1000 after the date when the registered number of sales reaches 1,000 and FYC reaches NT$250 million, (c) the right to elect directors, (d) the voting rights owned by the Company and the Labor Parties should be 51:49 due to 1,000 voting right per preferred stock, and (e) the number of the preferred stock to the Labor Parties shall be issued along with the proportion when the paid-in capital of Uniwill increases to NTD 400 million once the registered number of sales reaches 1,000.
On February 10, 2020, the grant date, Uniwill issued a total of 9,608 preferred stock (the “initial preferred stock”) to the Labor Parties for cash and recognized compensation cost when the performance target was achieved. The Company determined that each of the preferred stock has a value of approximately $102 (NTD 3,070) using the Black-Scholes-Merton option pricing model. Compensation cost of $980,466 was recognized on the grant date when the performance target was achieved.
In December 2020, when the registered number of sales reaches 1,000, the Labor Parties are entitled of the incremental preferred stock of 28,823. Each incremental preferred stock (the “incremental preferred stock”) to be issued along with the proportion of the paid-in capital has a value of approximately $16 (NTD 437), and the compensation cost of $447,137 was recorded. For the year ended December 31, 2020, a total of the compensation cost related to the JV agreement was $1,427,603, which was considered as the Labor Parties’ contributions to Uniwill.
How the Critical Audit Matter Will Be Addressed in the Audit
Our audit procedures related to management’s conclusion on amount, timing and presentation of transactions with recognition of stock-based compensations and the valuation of fair value to equity securities due to multi-performance targets with counter parties in the arrangement, include the following, among others:
● We will obtain an understanding of Management’s process and evaluate the design of controls relating to the Company's methods, significant assumptions, and inputs used for valuing the Company’s equity securities.
● A high degree of subjective auditor judgment was involved in evaluating certain inputs to the model used to determine the fair value of the equity securities. We will assess methodologies and testing the significant assumptions and underlying data used by the Company.
● Consider management’s policy of reviewing valuation methodologies, inputs and assumptions utilized by third-party valuation services.
● We will use a valuation specialist to assist us in evaluating the Company’s models, valuation methodology, and significant assumptions used in the fair value estimates.
/s/ Macias Gini & O’Connell LLP
We have served as the Company's auditor since 2020
San Francisco, California
March 25, 2021
3230 Fallow Field Drive
Diamond Bar, CA 91765
Tel: +1 (909) 839-0188
Fax: +1 (909) 839-1128
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of:
China United Insurance Service, Inc.
Opinion on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of China United Insurance Service, Inc. and subsidiaries (the “Company”) as of December 31, 2019, the related consolidated statement of operations and comprehensive income (loss), stockholders’ equity, and cash flows for the year in the period ended December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries as of December 31, 2019, and the results of their operations and their cash flows for the year in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is a deficiency, or a 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 financial statements will not be prevented or detected on a timely basis. A material weakness regarding the Company has yet established effective entity-level controls at group level in application of Internal Control-Integrated Framework (2013), has been identified and described in management’s assessment. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Adoption of New Accounting Standards
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Simon & Edward, LLP
We have served as the Company's auditor since 2014.
Diamond bar, California
March 20, 2020
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Amount in USD)
ASSETS
Current assets
Cash and cash equivalents
$
9,063,338
$
12,615,008
Time deposits
53,339,508
38,731,658
Accounts receivable
25,346,250
22,541,558
Marketable securities
1,272,573
290,153
Other current assets
1,491,168
1,810,962
Total current assets
90,512,837
75,989,339
Right-of-use assets under operating leases
6,524,555
5,522,665
Property and equipment, net
2,373,245
1,402,866
Intangible assets, net
381,747
518,264
Long-term investments
2,835,095
2,693,082
Restricted cash - noncurrent
66,490
43,492
Deferred tax assets
1,021,890
441,364
Other assets
4,012,370
2,631,350
TOTAL ASSETS
$
107,728,229
$
89,242,422
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Commissions payable to sales professionals
$
12,088,291
$
12,545,730
Short-term loans
14,159,108
8,100,000
Contract liabilities - current
1,119,361
1,781,975
Income tax payable - current
3,146,018
2,389,304
Operating lease liabilities - current
3,043,056
2,242,034
Due to related parties
94,047
462,859
Other current liabilities
13,591,034
9,875,209
Total current liabilities
47,240,915
37,397,111
Contract liabilities - noncurrent
-
1,049,258
Income tax payable - noncurrent
719,515
815,451
Operating lease liabilities - noncurrent
3,440,343
3,048,632
Other liabilities
1,090,222
1,180,478
TOTAL LIABILITIES
52,490,995
43,490,930
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY
Preferred stock, $0.00001 par value , 10,000,000 authorized, 1,000,000 issued and outstanding as of December 31, 2020 and 2019, respectively
Common stock, $0.00001 par value , 100,000,000 authorized, 29,421,736 and 29,452,669 issued and outstanding as of December 31, 2020 and 2019, respectively
Additional paid-in capital
8,190,449
8,190,449
Statutory reserves
9,463,903
8,228,904
Retained earnings
9,097,408
9,402,294
Accumulated other comprehensive income
3,889,429
417,015
Total stockholders' equity attributable to China United's shareholders
30,641,493
26,238,966
Noncontrolling interests
24,595,741
19,512,526
TOTAL STOCKHOLDERS' EQUITY
55,237,234
45,751,492
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
107,728,229
$
89,242,422
The accompanying notes are an integral part of these consolidated financial statements
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
Years ended
December 31,
(Amount in USD)
Revenue
$
124,267,072
$
95,919,338
Cost of revenue
87,695,053
65,342,976
Gross profit
36,572,019
30,576,362
Operating expenses:
Selling
3,226,109
2,707,176
General and administrative
26,955,278
20,214,659
Total operating expenses
30,181,387
22,921,835
Income from operations
6,390,632
7,654,527
Other income (expenses):
Interest income
453,536
453,184
Interest expenses
(202,239)
(208,008)
Dividend income
390,030
367,557
Other - net
(590,319)
333,826
Total other income, net
51,008
946,559
Income before income tax
6,441,640
8,601,086
Income tax expense
(3,407,868)
(2,704,297)
Net income
3,033,772
5,896,789
Less: net income attributable to noncontrolling interests
(2,103,659)
(2,837,941)
Net income attributable to the Company's shareholders
930,113
3,058,848
Other comprehensive income (loss) items, net of tax:
Foreign currency translation gain
5,046,115
1,010,688
Other
(22,767)
(4,999)
Other comprehensive income
5,023,348
1,005,689
Comprehensive income
8,057,120
6,902,478
Less: comprehensive income attributable to noncontrolling interests
(3,654,593)
(3,255,297)
Comprehensive income attributable to China United’s shareholders
$
4,402,527
$
3,647,181
Weighted average shares outstanding:
Basic
29,421,736
29,429,448
Diluted
29,421,736
29,429,448
Earnings per share attributable to China United's shareholders:
Basic
$
0.031
$
0.101
Diluted
$
0.031
$
0.101
The accompanying notes are an integral part of these consolidated financial statements
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
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
Earnings
Total
Interests
Equity
Balance December 31, 2018
29,452,669
1,000,000
8,190,449
7,299,123
(171,318)
7,273,227
22,591,786
16,351,044
38,942,830
Appropriation of reserves
-
-
-
-
-
929,781
-
(929,781)
-
-
-
Dividends
-
-
-
-
-
-
-
-
-
(93,815)
(93,815)
Foreign currency translation gain
-
-
-
-
-
-
591,630
-
591,630
419,058
1,010,688
Other comprehensive loss
-
-
-
-
-
-
(3,297)
-
(3,297)
(1,702)
(4,999)
Retirement of common stock
(30,933)
(1)
-
-
-
-
-
-
(1)
-
(1)
Net income
-
-
-
-
-
-
-
3,058,848
3,058,848
2,837,941
5,896,789
Balance December 31, 2019
29,421,736
1,000,000
8,190,449
8,228,904
417,015
9,402,294
26,238,966
19,512,526
45,751,492
Appropriation of reserves
-
-
-
-
-
1,234,999
-
(1,234,999)
-
-
-
Issuance of preferred stock-based compensation
-
-
-
-
-
-
-
-
-
1,427,603
1,427,603
Business acquisition
-
-
-
-
-
-
-
-
-
1,019
1,019
Foreign currency translation gain
-
-
-
3,487,429
-
3,487,429
1,558,686
5,046,115
Other comprehensive loss
-
-
-
-
-
-
(15,015)
-
(15,015)
(7,752)
(22,767)
Net income
-
-
-
-
-
-
-
930,113
930,113
2,103,659
3,033,772
Balance December 31, 2020
29,421,736
$
1,000,000
$
$
8,190,449
$
9,463,903
$
3,889,429
$
9,097,408
$
30,641,493
$
24,595,741
$
55,237,234
The accompanying notes are an integral part of these consolidated financial statements
CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
December 31,
(Amount in USD)
Cash flows from operating activities:
Net income
$
3,033,772
$
5,896,789
Adjustment to reconcile net income to net cash provided by operating activities:
Noncash stock-based compensation
1,427,603
-
Depreciation and amortization
987,689
693,459
Net periodic pension cost
73,421
67,089
Amortization of bond premium
Gain on valuation of financial assets
(111,463)
(160,193)
Gain on sales of financial assets
(50,251)
(19,059)
Loss on disposal of property and equipment
8,967
9,676
Deferred income tax
(420,262)
(162,575)
Changes in operating assets and liabilities:
Accounts receivable
(1,253,807)
(6,710,665)
Other current assets
563,666
(902,894)
Other assets
(1,322,920)
(1,289,087)
Commissions payable to sales professionals
(1,234,427)
4,249,355
Contract liabilities
(1,812,922)
(306,961)
Income tax payable
517,202
565,522
Other current liabilities
3,140,436
3,023,931
Other liabilities
(253,218)
457,199
Net cash provided by operating activities
3,293,760
5,411,847
Cash flows from investing activities:
Cash received from issuance of preferred stock
-
Purchases of time deposits
(70,684,051)
(59,492,618)
Proceeds from maturities of time deposits
59,244,053
47,404,072
Purchases of marketable securities
(961,416)
(598,676)
Proceeds from sales of marketable securities
240,063
366,451
Purchase of property and equipment
(1,611,668)
(660,011)
Purchase of intangible assets
(94,214)
(192,719)
Proceeds from disposals of equipment
36,902
35,613
Net cash used in investing activities
(13,829,956)
(13,137,888)
Cash flows from financing activities:
Proceeds from short-term loans
27,280,129
31,818,847
Repayment of short-term loans
(21,500,000)
(32,153,385)
Proceeds from related party borrowings
-
73,899
Repayment to related party borrowings
(381,327)
-
Dividends paid to noncontrolling interests
-
(93,815)
Net cash provided by (used in) financing activities
5,398,802
(354,454)
Foreign currency translation
1,608,722
99,224
Net decrease in cash, cash equivalents and restricted cash
(3,528,672)
(7,981,271)
Cash, cash equivalents and restricted cash, beginning balance
12,658,500
20,639,771
Cash, cash equivalents and restricted cash, ending balance
$
9,129,828
$
12,658,500
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid
$
200,900
$
215,945
Income tax paid
$
3,298,391
$
2,064,231
Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities
$
4,010,991
$
3,808,361
Lease liabilities recorded upon adoption of ASC 842
$
-
$
3,680,135
Right-of-use assets under operating leases recorded upon adoption of ASC 842
$
-
$
4,013,206
The accompanying notes are an integral part of these consolidated financial statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
China United Insurance Service, Inc. (“China United” or “CUII”), its subsidiaries and variable-interest entities (collectively referred to herein as the “Company”) primarily engages in 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 coronavirus pandemic (“COVID-19”) has resulted in global economic disruptions. We had experienced some adverse impacts on our business in the PRC Segment, such as limited access to our staff in the PRC in the beginning of the outbreak and restrictions on business travel within the PRC and between Taiwan and the PRC. Even though the operations in the PRC segment fully resumed in the year 2020, the pandemic has created global economic uncertainties and led to negative impact on the financial markets. The extent of the COVID-19 impact to the Company will depend on numerous factors and developments related to COVID-19. Consequently, any potential impacts of COVID-19 remain highly uncertain and cannot be predicted with confidence.
Acquisitions
On May 27, 2020, the Company completed the acquisition of Rays Technology Corporation ("Rays") for its 90% equity interest. The consideration to acquire 27,000 shares of Ray was US$9,177 (NTD 270,000). The transaction is accounted for a business acquisition. However, the Company did not recognize any goodwill or gain on bargain purchase as a result of the net asset value acquired approximating to the consideration paid. In December 2020, the equity interest in Rays increased from 90% to 99% due to additional capital injections by the Company.
In May 2019, the Company entered into an agreement to make capital contributions of $485,909 (NTD15 million) to AIlife International Investment Co., Limited (“AIlife”). After the contributions, the Company owned 93.75% of AIlife and acquired the remaining 6.25% interest in July 2019. The business objective of AIlife is to obtain a non-exclusive license covering certain information technology systems and generate revenues from marketing and making the technologies available to insurance intermediary companies.
On June 4, 2019, AIlife entered into an acquisition agreement with the selling shareholder of Uniwill Insurance Broker Co., Ltd (“Uniwill”), Pursuant to the acquisition agreement, AIlife agreed to pay $14,535 (NTD 450,000) in exchange for the insurance brokerage licenses issued to Uniwill by the Taiwanese government, along with right to the Uniwill company name and $6,455 (NTD 200,000) of legal deposits. The Company has no intention of operating the Uniwill existing brokerage business nor retaining any of its sales personnel. Therefore, the transaction was accounted for an asset acquisition.
The corporate structure as of March 19, 2021 is as follows:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of China United, its subsidiaries and variable interest entities as shown in Note 1. All significant intercompany transactions and balances have been eliminated in the consolidation. The Company consolidates variable interest entities where it has been determined that the Company is the primary beneficiary of those entities’ operations. 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 as previously reported.
Use of Estimates
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The preparation of the Company’s 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) Anhou shall pay WFOE fees equal to 90% of the net income of Anhou, and the payment is quarterly; and (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. 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.
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. 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 determine 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 years ended December 31, 2020 and 2019, no event took place that would change the Company’s primary beneficiary status.
Noncontrolling Interests
Noncontrolling interests represent amounts related to majority-owned subsidiaries in which the Company has a controlling financial interest. The amount of noncontrolling interest is consisted of the amount of such interests at the date of the Company's original acquisition of an equity interest and the noncontrolling holders' percentage share of income or losses from the subsidiaries.
Foreign Currency
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”). The resulting translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translation of foreign currency transactions are reflected in the consolidated statements of operations and other comprehensive income (loss). Monetary assets and liabilities denominated in foreign currency are translated at the functional currency using the rate of exchange prevailing at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the consolidated statements of operations and other comprehensive income (loss).
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. The exchange rates used for financial statements are as follows:
Years Ended December 31,
Average rate:
Taiwan dollar (NTD)
NTD
29.44185
NTD
30.88782
China yuan (RMB)
RMB
6.90013
RMB
6.90721
Hong Kong dollar (HKD)
HKD
7.75576
HKD
7.83459
United States dollar ($)
$
1.00000
$
1.00000
December 31,
Exchange rate:
Taiwan dollar (NTD)
NTD
28.07725
NTD
29.95314
China yuan (RMB)
RMB
6.52765
RMB
6.96676
Hong Kong dollar (HKD)
HKD
7.75249
HKD
7.78722
United States dollar ($)
$
1.00000
$
1.00000
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks, bank deposits, and highly liquid investments with maturities of three months or less at the date of origination.
Restricted Cash
Restricted cash represent amounts held in banks by the Company in conformity with Provisions of the Supervision and Administration of Specialized Insurance Agencies by the CIRC and a trust account held for bonus accrued for officers.
Marketable Securities
The Company invests part of its excessive cash in equity securities and money market funds. Marketable securities represent 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 include 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 December 31, 2020 and 2019.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Expenditures for improvements are capitalized; repairs and maintenance are charged to expense as incurred. Upon sale of retirement, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is recorded in other income (expense).
Depreciation of office equipment, office furniture, transportation equipment and other equipment is computed using straight-line method based on estimated useful lives ranging from one to ten years with estimated salvage value. Leasehold improvements are depreciated or amortized over the shorter of the estimated useful life of the asset or the remaining expected lease term.
Goodwill and Intangible Assets
Goodwill represents the excess of acquisition cost over the fair value of the net assets in the acquisition of a business. Goodwill is not amortized but instead is evaluated for impairment annually or more frequently if events or changes in circumstances indicate it might be impaired, using two-step goodwill impairment test. The first step screens for potential impairment of goodwill to determine if the fair value of the reporting unit is less than its carrying value, while the second step measures the amount of goodwill impairment, if any, by comparing the implied fair value of goodwill to its carrying value. Intangible assets, which primarily consist of software, are stated at cost, less accumulated amortization, and amortized over estimated useful lives ranging from 3 to 5 years.
Impairment of Long-Lived Assets
The Company reviews the carrying values of the long-lived assets when circumstances warrant as to whether the carrying value has become impaired. The Company considers assets to be impaired if the carrying value of an asset exceeds the present value of future net undiscounted cash flows from its related operations. There was no impairment recognized for the years ended December 31, 2020 and 2019.
Long-Term Investments
Long-term investments include government bonds held as available-for-sale, investment in real estate investment trusts (“REITs”) measured at fair value through net income, and equity investments under cost method. Available-for-sale investments are carried at fair value and unrealized gains and losses as a result of changes in the fair value are recorded as a separate component within accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. The Company evaluates its available-for-sale debt securities to assess whether those with unrealized loss positions are other-than-temporarily impaired. Impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before the recovery of its cost basis. Realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in other income (expense) in the consolidated statements of comprehensive loss.
The Company measures equity investments in companies that do not have a readily determinable fair value in which it holds an interest of less than 20% using cost method, and no changes in fair value is recognized in net income (loss) for the equity investments accounted for the cost method. The Company's cost method investments are carried at cost and adjusted for other-than-temporary declines in fair value. The Company evaluates its investments for impairments annually and when factors indicate that a significant decrease in value has occurred. Factors considered in making such assessments may include near-term prospects of the investees and the investees' capital structure, as well as other economic variables which reflect assumptions market participants may use in pricing these assets. If an investment is deemed to have experienced an other-than-temporary decline below its cost basis, the Company reduces the carrying amount of the investment to its quoted or estimated fair value, as applicable, and establish a new cost basis for the investment.
Advertising Costs
The Company expenses all advertising costs, which include promotions and branding, as incurred. The Company incurred $237,418 and $238,648 in advertising and marketing costs during the years ended December 31, 2020 and 2019, respectively.
Revenue Recognition
The Company’s revenue is derived from insurance agency and brokerage services. 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 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.
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 amount of revenue to be recognized when the insurance policy is effective includes first year commission and other contingent commission that a significant reversal of revenue would not occur in the subsequent periods. When other contingent commission that could not be determined if a significant reversal of revenue would occur, the Company recognizes the commission after receiving insurance companies' notice.
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.
For the years ended December 31, 2020 and 2019, the Company recorded revenue of $124,267,072 and $95,919,338, respectively. Disaggregation information of revenue is disclosed in Note 22.
Stock-Based Compensation
We have preferred stock-based compensation issued to non-related entities for Uniwill. The Company accounts for equity-based compensation cost in accordance with ASC 718, Compensation-Stock Compensation after adoption of ASC 2018-07, which requires the measurement and recognition of compensation expense related to the fair value of equity-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based compensation payments granted to employees and nonemployees, net of estimated forfeitures, over the employees’ requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Please see Note 12 for additional information.
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. The Company has elected to recognize a tax on global intangible low-taxed income ("GILTI"), which was imposed by the 2017 Tax Cuts and Jobs Act (the "2017 Tax Act"), as tax expense in the period the tax is incurred.
When tax returns are filed, it is likely some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than-not the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in general and administrative expenses in the consolidated statements of operations and other comprehensive income (loss).
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 December 31, 2020 and 2019, the Company does not have any potentially dilutive instrument.
Concentration of Credit Risk
The Company maintains cash and cash equivalents with banks or high credit, quality financial institutions in the USA, PRC, Hong Kong, and Taiwan with balances in excess of the limits insured by various governments. In Taiwan, a depositor has up to NTD3,000,000 insured by Central Deposit Insurance Corporation (“CDIC”). In China, a depositor has up to RMB500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”). In Hong Kong, a depositor has up to HKD500,000 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 deposits and accounts receivable. As of December 31, 2020, and 2019, approximately $2,229,000 and $2,293,000 of the Company’s cash and cash equivalents, time deposits, restricted cash, and register capital deposits held by financial institutions, was insured, and the remaining balance of approximately $63,222,000 and $50,108,000, was not insured. With respect to accounts receivable, the Company generally does not require collateral and does not have collectability concern.
For the years ended December 31, 2020 and 2019, the Company earns commission revenues from an insurance company individually more than 10%of the total revenue of the Company were:
Years Ended December 31,
% of Total
% of Total
Amount
Revenue
Amount
Revenue
TransGlobe Life Insurance Inc.
$
29,120,466
%
$
13,391,873
%
Taiwan Life Insurance Co., Ltd.
25,227,920
%
18,562,429
%
Farglory Life Insurance Co., Ltd.
15,336,439
%
16,452,723
%
As of December 31, 2020, and 2019, the Company’s accounts receivable due from an insurance company individually accounted more than 10% of the total account receivable were:
December 31,
% of Total
% of Total
Accounts
Accounts
Amount
Receivable
Amount
Receivable
TransGlobe Life Insurance Inc.
$
7,761,664
%
$
4,239,621
%
Taiwan Life Insurance Co., Ltd.
4,557,862
%
4,012,914
%
Farglory Life Insurance Co., Ltd.
2,787,586
%
2,664,140
%
Shin Kong Life Insurance Co., Ltd.
(*)
(*)
3,586,795
%
AIA International Limited Taiwan Branch
(*)
(*)
2,447,051
%
(*)The related accounts receivable for the year ended had not exceeded 10% or more of the consolidated accounts receivable.
The Company derives its revenue from insurance agency and brokerage services provided and operates their business in the PRC, Hong Kong and Taiwan. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic, foreign currency exchange and legal environments in the PRC, Hong Kong and Taiwan, and by the state of each economy. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, 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.
Operating Leases
The Company determines if an arrangement is a lease at inception of the contract and whether a contract is or contains a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. If the contract provides us the right to substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset, we consider it to be, or contain, a lease. The Company records a right-of-use asset and a corresponding lease liability based on the present value of the minimum lease payments. The lease term used in the calculation of right-of-use assets and lease liabilities include renewal and termination options that are reasonably certain to be exercised. Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet and the related lease expense is recognized on a straight-line basis over the lease term. Our leases do not provide an implicit borrowing rate, and we estimate the Company’s incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which could result in a loss to the Company which will be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies arising from legal proceedings pending against the Company or unasserted claims that may rise from such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates it is probable a material loss will be incurred and the amount of the loss can be reasonably estimated, then the estimated loss is accrued in the Company’s financial statements. If the assessment indicates a material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Recent Accounting Pronouncements
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 its financial position and results of operations.
Income Tax
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is intended to simplify various aspects related to accounting for income taxes. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The standard will be adopted upon the effective date for us beginning January 1, 2021. We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions in which the reference LIBOR or another reference rate are expected to be discontinued as a result of the Reference Rate Reform. The standard is effective for all entities. The standard may be adopted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022. We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures.
Equity Securities, Equity-method Investments and Certain Derivatives
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting and forward contracts and purchase options on certain types of securities. ASU 2020-01 will be effective for the Company in the first quarter of 2021. While the Company is currently assessing the impact of the new guidance, it is not expected to have a material impact on our consolidated financial statements.
Convertible Debt, and Derivatives and Hedging
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, to improve financial reporting associated with accounting for convertible instruments and contracts in an entity's own equity. ASU 2020-06 will be effective for the Company in the first quarter of 2022. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.
The management does not believe that other than disclosed above, accounting pronouncements the recently issued but not yet adopted will have a material impact on its financial position, results of operations or cash flows.
NOTE 2 - CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash, cash equivalents and restricted cash consisted of the following as of December 31, 2020 and 2019:
December 31,
Cash and cash equivalents:
Cash on hand and in banks
$
9,063,338
$
11,151,816
Time deposits - with original maturities less than three months (see Note 3)
-
1,463,192
9,063,338
12,615,008
Restricted cash - noncurrent
66,490
43,492
Total cash, cash equivalents and restricted cash shown in the statements of cash flows
$
9,129,828
$
12,658,500
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 the regulatory commission, and a trust account held for the bonus accrued for officers of Law Insurance Broker Co., Limited ("Law Broker').
NOTE 3 - TIME DEPOSITS
Time deposits are short-term bank deposits with maturities of more than three months but less than one year at the date of origination and consisted of the following:
December 31,
Total time deposits
$
53,339,508
$
40,194,850
Less: time deposits - original maturities less than three months (see Note 2)
-
(1,463,192)
Time deposits - original maturities over three months but less than one year
$
53,339,508
$
38,731,658
The deposits are presented at their cost, including accrued interest. The deposits bear annual interest rates ranging from 0.05% to 2.60% and from 0.24% to 3.53% during 2020 and 2019, respectively.
The Company had a total of $15,930,161 (NTD 447.3 million) and $11,920,632 (NTD 357.0 million) restricted time deposits, respectively, as of December 31, 2020 and 2019. During 2020, time deposits of $35,616 (NTD 1 million) was pledged as collateral for the Company’s credit card. In addition, the Company had time deposits of $15,894,545 and $11,920,632 pledged as collateral for short-term loans, respectively, as of December 31, 2020 and 2019. See Note 9.
NOTE 4 - MARKETABLE SECURITIES
Marketable securities, consisted of stock mutual funds, were $1,272,573 and $290,153 as of December 31, 2020 and 2019, respectively. Realized and unrealized gains (losses) for the years ended December 31, 2020 and 2019 are summarized below:
Years Ended December 31,
Net unrealized gains (losses) on marketable securities held
$
124,825
$
(389)
Net realized gains for marketable securities sold
50,401
19,059
Total net gains recognized in other income
$
175,226
$
18,670
For the years ended December 31, 2020 and 2019, the Company purchased marketable securities of $961,416 and 598,676, respectively.
NOTE 5 - PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following, as of December 31, 2020 and 2019:
December 31,
Office equipment
$
2,002,634
$
1,442,134
Office furniture
102,557
117,767
Leasehold improvements
2,194,531
1,197,886
Transportation equipment
233,731
224,669
Other equipment
800,246
580,445
Total
5,333,699
3,562,901
Less: accumulated depreciation
(2,960,454)
(2,160,035)
Total property and equipment, net
$
2,373,245
$
1,402,866
Depreciation expense was $730,263 and $452,266 for the years ended December 31, 2020 and 2019, respectively.
NOTE 6 - INTANGIBLE ASSETS, NET
As of December 31, 2020 and 2019, the Company’s intangible assets consisted the following:
December 31,
Software
$
2,264,482
$
2,030,057
Less: accumulated amortization
(1,882,735)
(1,511,793)
Total intangible assets, net
$
381,747
$
518,264
Estimated future assets amortization as of December 31, 2020 is as follows:
Years ending December 31,
Amount
$
174,148
100,419
68,988
26,698
11,494
Thereafter
-
Total
$
381,747
Amortization expense was $257,426 and $241,193 for the years ended December 31, 2020 and 2019, respectively.
NOTE 7 - LONG-TERM INVESTMENTS
As of December 31, 2020 and 2019, the Company’s long-term investments consisted the following:
December 31,
Equity investments under cost method
$
1,368,899
$
1,283,168
Government bonds held for available-for-sale
107,096
101,203
REITs
1,359,100
1,308,711
Total long-term investments
$
2,835,095
$
2,693,082
Equity Investments under Cost Method
December 31, 2020
December 31, 2019
Investment
Investment
Investee
Ownership
Amount
Ownership
Amount
Genius Insurance Broker Co., Ltd (“GIB”)
11.73
%
$
1,368,899
15.64
%
$
1,283,168
A decrease in the investment ownership was due to capital injections by other investors of GIB. The Company did not participate in the capital injections and hence the percentage of the investment ownership was diluted from 15.64% to 11.73%. The change does not have an effect on the classification and measurement of the investment in GIB.
The change in carrying value of equity investment between the two years resulted from the fluctuation of exchange rates. The Company received $325,197 and $311,350 dividend income distributed from the investee for the years ended December 31, 2020 and 2019, respectively.
Government Bonds Held for Available-for-Sale
According to Taiwan Regulations Governing Deposit of Bond and Acquirement of Insurance by Insurance Agents, Insurance Brokers and Insurance Surveyors (“RGDBAI”) Article 3 and 4, Law Broker is required to maintain a minimum of NTD 3,000,000 ($106,848 and $100,156 as of December 31, 2020 and 2019, respectively) restricted balance in a separate account or government bonds issued by the central government in order to maintain its insurance license. The government bonds are valued based on theoretical bond price in Taipei Exchange.
Gross
Gross
Amortized
unrealized
unrealized
Fair
cost
gains
losses
value
December 31, 2020:
Government bonds
$
106,906
$
$
-
$
107,096
Total
$
106,906
$
$
-
$
107,096
December 31, 2019:
Government bonds
$
100,479
$
$
-
$
101,203
Total
$
100,479
$
$
-
$
101,203
REITs
REITs are valued based on quoted market prices in the active market of Taiwan. The fair value of REITs as of December 31, 2020 and 2019 were $1,359,100 and $1,308,711, respectively. Unrealized gains included in earnings for assets held at the end of the reporting periods were $50,389 and $188,472 for the years ended December 31, 2020 and 2019, respectively.
During the years ended December 31, 2020 and 2019, no other-than temporary impairment were recorded related to the long-term investments.
NOTE 8 - COMMISSIONS PAYABLE TO SALES PROFESSIONALS
Commissions payable to professionals consisted of the following as of December 31, 2020 and 2019:
December 31,
Taiwan
$
11,814,222
$
12,123,149
PRC
274,069
422,581
Hong Kong
-
-
Total commissions payable to sales professionals
$
12,088,291
$
12,545,730
Commissions payable to sales professionals are usually settled within twelve months.
NOTE 9 - SHORT-TERM LOANS
The Company’s short-term loans consisted of the following as of December 31, 2020 and 2019:
December 31, 2020
December 31, 2019
Debt
Collateral
Debt
Collateral
Line of Credit
Collateral
balance
value
balance
value
$8.9 million (NTD 250 million) revolving line of credit with Cathay United Bank Company Limited (“CUB”); the loan bears interest at the higher of CUB's adjustable rates for loans plus a margin of 0.41% or the 1-month TAIBOR rate plus a margin of 0.8% and matures on May 4, 2021
Time deposits
$
6,019,108
$
6,019,108
$
-
$
-
$4.0 million revolving line of credit with O-Bank Co., Ltd. (“O-Bank”); the loan bears interest at the TAIFX3 rate plus a margin of 0.5% and matures on October 22, 2020
Time deposits
-
-
2,600,000
3,038,079
$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 January 22, 2021
Time deposits
4,000,000
4,915,011
-
-
$1.6 million revolving line of credit with KGI Commercial Bank Co., Ltd. (“KGI”); the loan bears interest at the LIBOR rate plus a margin of 0.9% and matures on October 2, 2020
Time deposits
-
-
1,500,000
2,295,061
$1.6 million revolving line of credit with KGI; the loan bears interest at the LIBOR rate plus a margin of 0.9% and matures on October 2, 2020
Time deposits
-
-
-
1,786,660
$1.6 million revolving line of credit with KGI; the loan bears interest at the LIBOR rate plus a margin of 0.9% and matures on January 19, 2021
Time deposits
2,100,000
2,443,003
-
-
$1.5 million revolving line of credit with CTBC; the loan bears interest at the CTBC’s cost of funds plus a margin of 1% and matures on August 31, 2020
Time deposits
-
-
1,500,000
1,736,045
$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 matures on August 28, 2021
Time deposits
1,200,000
1,384,833
-
-
$2.5 million revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the higher of LIBOR or TAIFX3 rate plus a margin of 0.85% and matures on January 8, 2021
Time deposits
840,000
1,132,590
2,500,000
3,064,787
$
14,159,108
$
15,894,545
$
8,100,000
$
11,920,632
Borrowings under the revolving credit agreements are generally due 90 days or less. Total interest expenses incurred from the credit facilities were $200,900 and $199,979 for the years ended December 31, 2020 and 2019, respectively.
NOTE 10 - OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following as of December 31, 2020 and 2019:
December 31,
Accrued bonus
$
7,854,488
$
4,961,323
Payroll payable and other benefits
1,767,417
1,317,367
Accrued business tax and tax withholdings
1,643,082
1,262,570
Accrued tax penalties
170,016
-
Other accrued expenses
2,156,031
2,333,949
Total other current liabilities
$
13,591,034
$
9,875,209
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 $5,948,157 and $4,057,515, respectively, related to cash awards to employees as of December 31, 2020 and 2019. 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 years ended December 31, 2020 and 2019, the bonus expenses to Law Broker’s officers under the compensation plans were $919,053 and $824,213, respectively. As of December 31, 2020 and 2019, the Company had accrued bonus of $1,906,331 and $903,808 payable within next 12 months, and noncurrent accrued bonus of $237,440 and $471,466, respectively, related to the compensation plans for Law Broker’s officers. See Note 20 for additional information of agreements with Law Broker’s officers.
NOTE 11 - OTHER LIABILITIES
The Company’s other liabilities consisted of the following as of December 31, 2020 and 2019:
December 31,
Due to previous shareholders of AHFL
$
534,240
$
500,782
Accrued bonus - noncurrent (Note 10)
237,440
471,466
Net defined benefit liability
318,542
208,230
Total other liabilities
$
1,090,222
$
1,180,478
Due to Previous Shareholders of AHFL
Due to previous shareholders of AHFL is the entire remaining balance payable of the 2012 acquisition cost. On March 27, 2019, the Company and the selling shareholders of Action Holdings Financial Limited (“AHFL”) entered into a sixth amendment to the acquisition agreement, pursuant to which, the Company will make the cash payment in the amount of NTD15 million on or prior to March 31, 2021. In March 2021, the Company entered a seventh amendment with the selling shareholders is in negotiation with the previous shareholders of AHFL to extend the repayment date to March 31, 2024. The amount consisted of 68% and 32% of payables due to related parties and third parties, respectively. As of December 31, 2020 and 2019, the amount due to previous shareholders of AHFL were $534,240 and $500,782, respectively.
Defined Benefit Pension Plan
One of the subsidiaries, Law Broker, has a defined benefit retirement plan for eligible employees and the benefits are based on years of service and average service. The plan was underfunded by $318,542 and $208,230 as of December 31, 2020 and 2019, respectively.
NOTE 12 - STOCK-BASED COMPENSATION TO NONEMPLOYEES
On November 15, 2019, AIlife entered into a Joint Venture Agreement (the “JV Agreement”) with two non-related entities (collectively, the “Labor Parties”) and agreed to invest funds, labor, and technology into Uniwill. Pursuant to the JV Agreement, the paid-in capital of Uniwill should increase to an aggregate amount of $13.3 million (NTD 400 million) by AIlife, provided that the Labor Parties fulfill their commitments no later than December 31, 2021. On August 15, 2019, AIlife increased and completed the capital injections in Uniwill to the amount of $3.3 million (NTD 100 million).
According to the term of the JV Agreement, the Labor Parties shall be entitled of 9,608 preferred stock if the following milestones are met: (a) the registered number of insurance business professional sales of Uniwill is more than 200, (b) the business performance shall reach FYB NTD 5 million or more, and (c) one of two employees of the Labor Parties designated by AIlife shall join Uniwill within 6 months after the paid-in capital of Uniwill increased to NTD100 million (hereinafter refer to the “performance target”). The preferred stock shall provide for (a) the right to receive a distribution of 50% of the net-income of Uniwill, (b) the right to convert such preferred stock into common stock at 1 to 1000 after the date when the registered number of sales reaches 1,000 and FYC reaches NT$250 million, (c) the right to elect directors, (d) the voting rights owned by the Company and the Labor Parties should be 51:49 due to 1,000 voting right per preferred stock, and (e) the number of the preferred stock to the Labor Parties shall be issued along with the proportion when the paid-in capital of Uniwill increases to NTD 400 million once the registered number of sales reaches 1,000.
On February 10, 2020, the grant date, Uniwill issued a total of 9,608 preferred stock (the “initial preferred stock”) to the Labor Parties for cash and recognized compensation cost when the performance target was achieved. During the fourth quarter of 2020, the Company and the Labor Parties conducted a business projection review and discovered that the sales professional retention rate was not considered in the initial business projection plan. As a result, the fair value of the preferred stock was reevaluated and updated to include the consideration of the sales professional retention rate. The Company determined that each of the initial preferred stock has a value of approximately $102 (NTD 3,070) using the Black-Scholes-Merton option pricing model and restated its interim consolidated financial statements previously filed during the year 2020 (see Note 25). Compensation cost of $980,466 was recognized for the initial preferred stock issued.
On March 3, 2021, the Labor Parties and AIlife entered to an amendment to the JV agreement (the “Amendment”) and agreed that the final paid-up capital of Uniwil will be NTD 400 million and the paid-up capital of initial stage is NTD100 million. AIlife is obligated to fulfill its NTD 400 million paid-in capital within eight years after the registered number of sales exceeds 1,000 and the cumulative revenue of Uniwill reaches NTD 8.7 billion. If the cumulative revenue of NTD 8.7 cannot be met, AIlife shall contribute the same percentage of such NTD 400 million obligation in accordance with the actual cumulative revenue to NTD 8.7 billion.
Each incremental preferred stock (the “incremental preferred stock”) to be issued along with the proportion of the paid-in capital has a value of approximately $16 (NTD 437). Compensation cost of $447,137 was recorded in December 2020 since the Labor Parties are entitled of the incremental preferred stock of 28,823 due to the registered number of sales reached 1,000. For the year ended December 31, 2020, a total of the compensation cost related to the JV agreement was $1,427,603, which was considered as the Labor Parties’ contributions to Uniwill (see Note 15).
The assumptions used and the calculated fair value of the preferred stock on the grant date were as follows:
Initial preferred stock
Incremental preferred stock
Risk-free interest rate
1.37
%
1.50
%
Expected equity volatility
30.0
%
30.0
%
Expected revenue volatility
17.5
%
17.5
%
Discount rate
18.0
%
18.0
%
Expected term in years
1.9
7.8
Strike price
(a) Sales professionals: 1,000 (b) Revenue: NTD 250 million
(a) Sales professionals: 1,000
(b) Cumulative revenue: NTD 8.7 billion
NOTE 13 - PREFERRED STOCK
The Company had 1,000,000 shares of Series A Preferred Stock (“Series A Stock”) issued and outstanding as of December 31, 2020 and 2019. The Series A Stock has the following rights and preferences:
Voting Rights. Except as otherwise provided by law, the Series A Stock and the common stock vote together on all matters submitted to a vote of the Company’s shareholders. Each holder of Series A Stock is entitled to ten votes for each share of Series A Stock held of record by such holder as of the applicable record date on any matter that is submitted to a vote of the stockholders of the Registrant.
Series A Board Designee and Board Restriction. In addition to the voting rights disclosed above, the holders of the Series A Stock shall be entitled to appoint one director (the “Series A Director”). No Board resolution regarding certain material Company actions can be made without the affirmative vote of the Series A Director.
Dividends. The holders of Series A Stock 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 Registrant as may be declared by the Board.
Liquidation. In the event of a voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Registrant, the holders of common stock and the holders of Series A Stock shall be entitled to share equally on a per share basis, in all assets of the Registrant of whatever kind available for distribution.
Conversion Rights. The holders of the Series A Stock have the right to convert their shares thereof at any time into shares of the Registrant’s common stock. Each share of Series A Stock is convertible into one share of common stock. If the Registrant in any manner subdivides or combines the outstanding shares of common stock, the outstanding shares of the Series A Stock will be subdivided or combined in the same manner.
Business Combinations. In any merger, consolidation, reorganization or other business combination, the consideration received per share by the holders the common stock and the holders of the Series A Stock in such merger, consolidation, reorganization or other business combination shall be identical; provided however, that if such consideration consists, in whole or in part, of certain equity interests, the rights and limitations of such equity interests may differ from the extent that the rights and limitations of the common stock and the Series A Stock differ.
Fully Paid and Nonassessable. All of the Company’s outstanding shares of preferred stock are fully paid and nonassessable.
Additional preferred stock may be authorized and issued in the future in connection with acquisitions, financings, or other matters, as the Board of Directors deems appropriate. In the event that the Registrant issues any shares of preferred stock, a certificate of designation containing the rights, privileges and limitations of this series of preferred stock will be filed with the Secretary of State of the State of Delaware. The effect of this preferred stock designation power is that its Board of Directors alone, subject to Federal securities laws, applicable blue sky laws, and Delaware law, may be able to authorize the issuance of preferred stock which could have the effect of delaying, deferring, or preventing a change in control without further action by its stockholders, and may adversely affect the voting and other rights of the holders of its common stock.
NOTE 14 - STATUTORY RESERVES
According to Taiwan accounting rules and corporation regulations, the Company’s subsidiaries in Taiwan must appropriate 10% of net income to statutory reserves until the accumulated reserve reaches registered capital. The reserve can be converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, with a limitation that the reserve left is not less than 25% of the registered capital after converting to share capital. As of December 31, 2020 and 2019, the Company had statutory reserves in responding to the regulation requirements in Taiwan in the amount of $9,463,903 and $8,228,904, respectively.
Pursuant to the PRC regulations, the Company’s CAE are required to transfer 10% of net profits, as determined under the PRC accounting regulations, to a Statutory Common Reserve Fund (“Reserve Fund”). Appropriation to the Reserve Fund may cease when the fund equals 50% of a company’s registered capital or when a company has accumulated losses. The transfer to this reserve must be made before distribution of dividends to shareholders. The Company’s CAE did not appropriate such reserve due to as the accumulated deficit as of December 31, 2020 and 2019.
NOTE 15 - NONCONTROLLING INTERESTS
Noncontrolling interests consisted of the following as of December 31, 2020 and 2019:
% of Non-
Other
controlling
December 31,
Contribution
Net Income
Comprehensive
December 31,
Name of Entity
Interest
/Acquisition
(Loss)
Income
Law Enterprise
34.05
%
$
(204,964)
$
-
$
(241,231)
$
31,238
$
(414,957)
Law Broker
34.05
%
19,536,104
-
4,193,314
1,447,854
25,177,272
Uniwill
50.00
%
-
1,427,603
(1,918,023)
69,385
(421,035)
Rays
1.00
%
-
1,019
(6,791)
-
(5,772)
PFAL
49.00
%
351,278
-
71,713
423,978
MKI
49.00
%
-
(1,015)
-
(732)
PA Taiwan
49.00
%
(167,531)
-
4,227
(163,013)
PTC Nanjing
49.00
%
(2,644)
-
1,465
1,179
-
Total
$
19,512,526
$
1,428,622
$
2,103,659
$
1,550,934
$
24,595,741
% of Non-
Other
Controlling
December 31,
Net Income
Comprehensive
December 31,
Name of Entity
Interests
(Loss)
Income (Loss)
Dividends
Law Enterprise
34.05
%
$
(72,557)
$
(147,948)
$
15,541
$
-
$
(204,964)
Law Broker
34.05
%
16,149,662
2,985,723
400,719
-
19,536,104
PFAL
49.00
%
436,742
7,086
1,265
(93,815)
351,278
MKI
49.00
%
(2,630)
2,913
-
-
PA Taiwan
49.00
%
(157,762)
(9,694)
(75)
-
(167,531)
PTC Nanjing
49.00
%
(2,411)
(139)
(94)
-
(2,644)
Total
$
16,351,044
$
2,837,941
$
417,356
$
(93,815)
$
19,512,526
NOTE 16 - CONTRACTS WITH CUSTOMERS
Information about accounts receivable, contract assets, and contract liabilities from contracts with customers is as follows:
December 31,
Accounts receivable
$
25,346,250
$
22,541,558
Contract liabilities - current
1,119,361
1,781,975
Contract liabilities - noncurrent
-
1,049,258
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 December 31, 2020 and 2019, the Company had nil of contract assets.
Contract Liabilities - 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. The original term of the Alliance Agreement was from June 1, 2013 to May 31, 2018. Pursuant to the terms of the Alliance Agreement, AIATW paid AHFL an execution fee of approximately $8,326,700 (NTD250,000,000, including the tax of NTD11,904,762, the “Execution Fee”), which is to be recorded as revenue upon fulfilling sales targets and the 13-month persistency ratio, as defined, over the next five years. The Execution Fee may be required to be recalculated if certain performance targets are not met by AHFL.
On September 30, 2014, AHFL entered into a Strategic Alliance Supplemental Agreement (the “First Amendment to the Alliance Agreement”) with AIATW. In the First Amendment to the Alliance Agreement, the performance targets and the provision about refunding the Execution Fee on a pro rata basis when the performance targets are not met were revised.
On January 6, 2016, AHFL entered into an Amendment No. 2 to the Alliance Agreement (the “Second Amendment to the Alliance Agreement”) with AIATW to further revise certain provisions in the Strategic Alliance Agreement and the previous amendment entered into by and between AHFL and AIATW. To the extent permitted by applicable laws and regulations, AHFL shall assist and encourage any insurance agency company or insurance brokerage company duly approved by the competent government authorities of Taiwan (the “Appointed Broker/Agent”), to cooperate with AIATW for the promotion of life insurance products of AIATW. Pursuant to the Second Amendment to the Alliance Agreement, the expiration date of the Strategic Alliance Agreement was extended from May 31, 2018 to December 31, 2021, and the effect of the Alliance Agreement during the period from October 1, 2014 to December 31, 2015 was suspended. In addition, both AHFL and AIATW agreed to adjust certain terms and conditions set forth in the Alliance Agreement, some of which are as follows: (i) expanding the scope of services to be provided by AHFL to AIATW to include, without limitation, assessment and advice on suitability of cooperative partners, advice on product strategies suitable for promotion channel development, advice on promotion/sales channel improvement, advice on promotion channel marketing and strategic planning, and promotion channel talent training; and (ii) removing certain provisions related to performance milestones and refund of Execution Fees. On March 15, 2016, AHFL issued a promise letter (the “2016 Letter”) to AIATW that AHFL is required to (i) fulfill sales targets and (ii) the 13-month persistency ratio.
On June 14, 2017, with AIATW’s consent, the 2016 Letter was revoked in order to conform with the latest terms and conditions regarding the cooperation between AHFL and AIATW as set forth in an Amendment No. 3 to the Alliance Agreement (the “Third Amendment to the Alliance Agreement”). Pursuant to the Third Amendment to the Alliance Agreement, both AHFL and AIATW agreed to adjust certain terms and conditions set forth 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 Third Amendment to the Alliance Agreement, 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 NTD50 million for the first contract year, NTD35 million for the second contract year, and NTD33 million for each contract year thereafter within one month after the termination.
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
04/15/2013 - 09/30/2014
NTD
50,000,000
NTD
27,137,958
(1)
NTD
1,356,898
NTD
20,481,090
(1)
NTD
1,024,054
Second
01/01/2016 - 12/31/2016
NTD
35,000,000
NTD
12,855,000
(2)
NTD
642,750
NTD
20,478,333
(2)
NTD
1,023,917
Third
01/01/2017 - 12/31/2017
NTD
33,000,000
NTD
12,628,201
(3)
NTD
631,410
NTD
18,800,370
(3)
NTD
940,019
Fourth
01/01/2018 - 12/31/2018
NTD
33,000,000
NTD
11,228,600
(4)
NTD
561,429
NTD
20,199,971
(4)
NTD
1,010,000
Fifth
01/01/2019 - 12/31/2019
NTD
33,000,000
NTD
9,481,371
(5)
NTD
474,069
NTD
21,947,200
(5)
NTD
1,097,360
Sixth
01/01/2020 - 12/31/2020
NTD
33,000,000
NTD
12,223,829
(6)
NTD
611,191
NTD
19,204,743
(6)
NTD
960,237
Seventh
01/01/2021 - 12/31/2021
NTD
33,000,000
NTD
-
NTD
-
NTD
-
NTD
-
TOTAL
NTD
250,000,000
NTD
85,554,959
NTD
4,277,747
NTD
121,111,707
NTD
6,055,587
1) The revenue recognition for the first contract year is based on the annual first year premium (“AFYP”) set in Alliance Agreement, which is different from other contract years. From the second contract year to the seventh contract year, the revenue calculation is based on VONB. The Company recognized the first contract year’s revenue amount of $892,742 (NTD 27,137,958), net of Value-Added Tax (“VAT”) in 2017 due to uncertainty resolved after Amendment 3 went effective. Besides, on December 3, 2015 and February 23, 2016, the Company refunded the amounts of $160,573 (NTD4,761,905), net of VAT, and $530,056 (NTD15,719,185), net of VAT, to AIATW, respectively, due to the portion of performance sales targets not met during the first contract year based on original agreement and earlier amendments.
2) For the year ended December 31, 2016, the Company recognized the second contract year’s revenue amount of $422,883 (NTD 12,855,000), net of VAT, and refunded the amount of $690,537 (NTD 20,478,333), net of VAT, due to uncertainty resolved after Amendment 3 went effective.
3) For the year ended December 31, 2017, the Company recognized the third contract year’s revenue amount of $415,423 (NTD12,628,201), net of VAT, and refund amount of $633,955 (NTD18,800,370), net of VAT, for the same contract period based on the calculation of VONB and 13-month persistency.
4) For the year ended December 31, 2018, the Company recognized the fourth contract year’s revenue amount of $372,650 (NTD11,228,600), net of VAT, and refund amount of $670,389 (NTD 20,199,971), net of VAT, for the same contract period based on the calculation of VONB and 13-month persistency.
5) For the year ended December 31, 2019, the Company recognized the fifth contract year’s revenue amount of $306,961 (NTD9,481,371), net of VAT, and refund the amount of $710,545 (NTD 21,947,200), net of VAT, for the same contract period based on the calculation of VONB and 13-month persistency.
6) For the year ended December 31, 2020, the Company estimated to recognize the sixth contract year’s revenue amount of $380,864 (NTD11,213,344), net of VAT, and refund the amount of $686,615 (NTD 20,215,227), net of VAT, for the same contract period based on the calculation of VONB and 13-month persistency.
The revenue recorded and refund amounts were trued up to $415,186 (NTD 12,223,829) , net of VAT, and $652,294 (NTD 19,204,743) , net of VAT, respectively, for the year ended December 31, 2020 based on notice received from AIATW.
The Company recognized revenue of $415,186 (NTD12,223,829) and $306,961 (NTD 9,481,371), net of VAT, for the years ended December 31, 2020 and 2019 related to this agreement.
As of December 31, 2020 and 2019, the Company had non-current portion of contract liabilities of nil and $1,049,258, respectively, and current contract liabilities of $1,119,361 and 1,781,975, respectively, related to the Alliance Agreement.
NOTE 17 - LEASE
The Company adopted ASC 842 as of January 1, 2019 using a modified retrospective transition with no adjustment to its comparative periods in the year of transition. The Company elected the practical expedients, which allow the Company not to reassess prior conclusions with respect to lease identification, lease classification and initial direct costs under ASC 842. The Company did not elect the hindsight practical expedient to determine the lease term or in assessing the likelihood that a lease purchase option will be exercised. The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets of $4.0 million and corresponding operating lease liabilities of $3.7 million as of January 1, 2019 on the consolidated balance sheet.
The Company has operating leases for its offices with lease terms ranging from one to six years. The Company recorded operating lease cost of $3,455,588 and $2,202,195 for the years ended December 31, 2020 and 2019.
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 December 31, 2020 and 2019, operating lease right-of-use assets and lease liabilities were as follows:
December 31,
Right-of-use assets under operating leases
$
6,524,555
$
5,522,665
Operating lease liabilities - current
3,043,056
2,242,034
Operating lease liabilities - noncurrent
3,440,343
3,048,632
Lease Term and Discount Rate
December 31,
Weighted average remaining lease term
Operating lease
2.64
years
2.91
years
Weighted average discount rate
Operating lease
3.15
%
2.85
%
Supplemental Cash Flow Information Related to Leases
Years Ended December 31,
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows related to operating leases
$
3,310,015
$
2,655,644
Amortization of right-of-use assets under operating leases
$
3,009,101
$
2,298,902
The minimum future lease payments as of December 31, 2020 are as follows:
Amount
$
3,193,794
1,956,905
973,182
543,751
91,980
Thereafter
-
Total minimum lease payments
6,759,612
Less: Interest
(276,213)
Present value of future minimum lease payments
$
6,483,399
NOTE 18 - INCOME TAX
Provision (benefit) for income taxes for the years ended December 31, 2020 and 2019 consisted of:
Years Ended December 31,
Current income provision
U.S. Federal
$
-
$
-
U.S. State
-
-
Foreign
3,936,977
2,866,872
$
3,936,977
$
2,866,872
Deferred income benefit
U.S. Federal
$
-
$
-
U.S. State
-
-
Foreign
(529,109)
(162,575)
$
(529,109)
$
(162,575)
Income tax provision
$
3,407,868
$
2,704,297
Significant components of the deferred tax assets and liabilities for income taxes as of December 31, 2020 and 2019 consisted of the following:
December 31,
Deferred tax assets
Net operating loss carryforwards
$
2,159,332
$
1,151,941
Unrealized foreign currency exchange loss
255,905
134,474
Accrued bonus to Law Broker’s officer
386,693
241,930
Preferred stock-based compensation cost
299,887
-
Others
79,030
64,960
Total
$
3,180,847
$
1,593,305
Valuation allowance
(2,158,957)
(1,151,941)
Net deferred tax assets - noncurrent
$
1,021,890
$
441,364
Deferred tax liabilities - noncurrent
$
-
$
-
Management determined that it was unlikely that the Company’s deferred tax assets from the net operating loss in the PRC and China United would be realized and provided a full valuation allowance against the deferred tax assets. In the PRC, the net operating losses generated in a tax year can be carryforward for ten years. The 2017 Tax Act allows the net operating losses generated after December 31, 2017 to be carryforward indefinitely, whereas the operating losses generated in tax years prior to December 31, 2017 can only be carryforward for twenty years.
The following table reconciles the Company’s statutory tax rates to effective tax rates for the years ended December 31, 2020 and 2019:
Years Ended December 31,
US statutory rate
%
%
Tax rate difference
(1)
%
(1)
%
Tax base difference
-
%
%
Income tax on undistributed earnings
%
%
Change in valuation allowance
%
%
Non-deductible and non-taxable items
%
(1)
%
True up of prior year income tax
(2)
%
-
%
Withholding tax
%
-
%
Effective tax rate
%
%
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 2020 and 2019, and the tax on undistributed earnings of 5% was estimated. During the year 2020, the Company received an assessment letter from National Taxation Bureau of Taiwan, which requires the Company to remit a supplementary tax payment of $281,605 related to a withholding tax matters, and the amount was fully paid in September 2020. The Company recognized interest and penalties of approximately $145,000, in general and administrative expenses for the year ended December 31, 2020. As of December 31, 2020 and 2019, the Company had current tax payable of $2,978,617 and $2,230,793 for Taiwan income tax, respectively.
WFOE and the Consolidated Affiliated Entities in the PRC are governed by the Income Tax Law of the PRC concerning private-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriate adjustments. WFOE and the CAE had no income tax expenses for the years ended December 31, 2020 and 2019 due to the loss positions.
The Company’s subsidiaries in Hong Kong are governed by the Inland Revenue Ordinance Tax Law of Hong Kong and are generally subject to a profit tax at the rate of 8.25% on the estimated assessable profits. As of December 31, 2020 and 2019, the Company had current tax payable of $13,613 and $56,993 for Hong Kong income tax.
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. The one-time transition tax, based on the Company’s total post-1986 earnings and profits (“E&P”) that it previously deferred from U.S. income taxes, was recorded at $1,199,195 for the transition tax on undistributed earnings of non-U.S. subsidiaries during the year ended December 31, 2018. As of December 31, 2020, and 2019, the Company had current tax payable of $153,787 and $101,518 and noncurrent tax payable of $719,515 and 815,451 for U.S. income tax.
The 2017 Tax Act also creates a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s net CFC tested income over the net deemed tangible income return, which is currently defined as the excess of (a) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (b) the amount of certain interest expense taken into account in the determination of net CFC-tested income. For the year ended December 31, 2020 and 2019, the Company did not have any GILTI tax obligation.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), P.L. 116-136, was passed into law, amending portions of certain relevant US tax laws. The CARES Act includes a number of federal income tax law changes, including, but not limited to: (a) permitting net operating loss carrybacks to offset 100% of taxable income for taxable years beginning before 2021, (b) accelerating alternative minimum tax credit refunds, (c) temporarily increasing the allowable business interest deduction from 30% to 50% of adjusted taxable income, and (d) providing a technical correction for depreciation related to qualified improvement property. The Company does not believe that the CARES Act will have a material impact on the Company's consolidated financial statements.
The Company files income tax returns in the U.S. federal and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, Taiwan, and the PRC income tax examinations by tax authorities for years before 2017, 2015, and 2010, respectively. For the year ended December 31, 2020 and 2019, the Company did not have any unrecognized tax benefits. It is difficult to predict the final timing and resolution of any particular uncertain tax position. Based on the Company’s assessment of many factors, including past experience and complex judgments about future events, the Company did not anticipate significant changes in its uncertain tax positions over the next 12 months.
NOTE 19 - RELATED PARTY TRANSACTIONS
Due to Related Parties
Due to related parties consisted of the following as of December 31, 2020 and 2019:
December 31,
Due to Mr. Mao (CEO and Principal shareholder of the Company)
$
-
$
373,183
Due to Ms. Lu (A shareholder of Anhou)
78,541
85,074
Others
15,506
4,602
Total
$
94,047
$
462,859
Due to Mr. Mao
Amounts due to Mr. Mao were associated with funding provided by Mr. Mao for the formation of our subsidiaries in China in 2011. The Company has paid off all the amount due to Mr. Mao in 2020. As of December 31, 2019, the amount of $373,183 were non-interesting bearing and payable on demand.
Due to Ms. Lu
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.
NOTE 20 - COMMITMENTS AND CONTINGENCIES
Operating Leases
See future minimum annual lease payments in Note 17.
Time Deposits Pledged as Collateral
See time deposits pledged as collateral for short-term loans in Note 9.
Legal Proceedings
On December 20, 2018, the Company and one of the Company’s former employees, agreed to settle fraud charges brought by the SEC relating to a scheme to manipulate the Company's trading volume for the purpose of obtaining a listing on NASDAQ Stock Market. Neither the Company nor the former employee realized financial gain from the scheme. Both the Company and the former employee agreed to the entry of a final judgment entered on January 18, 2019 that enjoins them from violating the charged provisions of the federal securities laws, orders the Company to comply with its undertaking to retain an independent compliance monitor for a period of not less than one year. The SEC did not seek a monetary penalty against the Company and there is no financial impact to the Company.
On April 10, 2020, the Company submitted a written certification (the "Certification") to the SEC of its compliance with the undertaking indicated by the Final Judgment entered into on January 18, 2019 in front of the United States District Court for the Southern District of New York (SEC v. China United Ins. Serv., Inc., No. 18 Civ. 12055, Consent of Defendant China United Insurance Service, Inc. (ECF No. 3-1) (S.D.N.Y Dec. 20, 2018)) requiring the Company to retain an independent compliance monitor ("Independent Monitor") for a period of not less than one year. The Independent Monitor was mandated to review and evaluate the Company's commitment to and implementation of a revised compliance program and to submit a final report to the SEC with respect to these matters. The Company reviewed the Independent Monitor's final report submitted to the SEC on December 23, 2019 and confirmed in its Certification that, to the best knowledge of the Company, the factual content of the final report was true and accurate as of the date of such report.
Appointment Agreement
On December 21, 2018, Law Broker entered into an appointment agreement with Shu-Fen, Lee (“Ms. Lee”), pursuant to which, she serves as the president of Law Broker from December 21, 2018 to December 20, 2021. Ms. Lee’s primary responsibilities include 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, 6) other matters assigned by the board of directors. According to the agreement, Ms. Lee’s compensation plan include: 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 year ended December 31, 2020 and 2019, the Company has recorded the compensation expense of $200,558 and $160,613 under the appointment agreement, respectively.
Engagement Agreement
On May 10, 2016, Law Broker entered into an engagement agreement with Hui-Hsien Chao (“Ms. Chao”), pursuant to which, she serves as the general manager of Law Broker from December 29, 2015 to December 28, 2018. The engagement agreement with Ms. Chao was renewed in 2019 and her service period has extended to December 20, 2021. 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 include: 1) execution, 2) long-term service fees, 3) pension and 4) non-competition. The payment of such bonuses will only occur upon satisfaction of certain condition and subject to the terms in the engagement agreement. Ms. Chao acts as the general manager or equivalent position of Law Broker for a term of at least three years. For the year ended December 31, 2020 and 2019, the Company has recorded the performance bonus expense of $718,495 and $663,601 under the engagement agreement, respectively.
NOTE 21 - FAIR VALUE MEASUREMENTS
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 December 31, 2020 and 2019:
December 31, 2020
Fair Value
Level 1
Level 2
Level 3
Carrying Value
Assets
Total cash equivalents, time deposits, and restricted cash equivalents
$
53,339,508
$
-
$
-
$
53,339,508
Marketable securities:
Stock mutual funds
1,272,573
-
-
1,272,573
Long-term investments:
Government bonds held for available-for-sale
-
107,096
-
107,096
REITs
1,359,100
-
-
1,359,100
Total assets measured at fair value
$
55,971,181
$
107,096
$
-
$
56,078,277
December 31, 2019
Fair Value
Level 1
Level 2
Level 3
Carrying Value
Assets
Total cash equivalents, time deposits, and restricted cash equivalents
$
40,194,850
$
-
$
-
$
40,194,850
Marketable securities:
Stock mutual funds
290,153
-
-
290,153
Long-term investments:
Government bonds held for available-for-sale
-
101,203
-
101,203
REITs
1,308,711
-
-
1,308,711
Total assets measured at fair value
$
41,793,714
$
101,203
$
-
$
41,894,917
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.
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.
Government bonds - The fair value of government bonds is valued based on theoretical bond price in the Taipei Exchange.
NOTE 22 - SEGMENT REPORTING
The Company manages its business as three operating segments by operating geographic areas. The business of WFOE 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 years ended December 31, 2020 and 2019 were as follows:
Years Ended December 31,
Geographic Areas
Revenue
Taiwan
$
119,143,726
$
87,415,243
PRC
6,426,670
8,517,475
Hong Kong
315,973
283,918
Elimination adjustment
(1,619,297)
(297,298)
Total revenue
$
124,267,072
$
95,919,338
Income (loss) from operations
Taiwan
$
5,124,493
$
7,278,045
PRC
(145,748)
181,330
Hong Kong
129,063
28,633
Elimination adjustment
1,282,824
166,519
Total income from operations
$
6,390,632
$
7,654,527
Net income
Taiwan
$
3,321,374
$
5,692,137
PRC
(516,589)
176,112
Hong Kong
146,353
14,461
Elimination adjustment
82,634
14,079
Total net income
$
3,033,772
$
5,896,789
The geographical distribution of the Company’s financial information as of December 31, 2020 and 2019 were as follows:
December 31,
Geographical Areas
Long-lived assets
Taiwan
$
2,198,739
$
1,280,728
PRC
175,748
124,443
Hong Kong
1,664
Elimination adjustment
(2,906)
(2,907)
Total long-lived assets
$
2,373,245
$
1,402,866
Reportable assets
Taiwan
$
171,037,252
$
144,663,045
PRC
13,149,306
12,349,634
Hong Kong
915,628
800,746
Elimination adjustment
(77,373,957)
(68,571,003)
Total reportable assets
$
107,728,229
$
89,242,422
Capital investment
Taiwan
$
1,522,189
$
602,442
PRC
87,903
57,569
Hong Kong
1,576
-
Elimination adjustment
-
-
Total capital investments
$
1,611,668
$
660,011
NOTE 23- CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The condensed parent company only financial information for the Company is presented below:
Condensed Balance Sheets
December 31,
(Amount in USD)
ASSETS
Current assets
Cash
$
54,422
$
637,676
Other current assets
93,296
27,630
Due from related parties
4,630,558
4,724,108
Total current assets
4,778,276
5,389,414
Investment in subsidiaries
9,803,635
9,803,635
TOTAL ASSETS
$
14,581,911
$
15,193,049
LIABILITIES AND EQUITY
Current liabilities
Short-term loans
$
8,140,000
$
8,100,000
Income tax payable - current
153,787
101,517
Other current liabilities
273,785
160,710
Due to related parties
4,596,474
3,008,867
Total current liabilities
13,164,046
11,371,094
Income tax payable - noncurrent
719,515
815,451
Other liabilities
534,240
500,782
TOTAL LIABILITIES
14,417,801
12,687,327
STOCKHOLDERS EQUITY
Preferred stock, $0.00001 par value, 10,000,000 authorized, 1,000,000 issued and outstanding as of December 31, 2020 and 2019, respectively
Common stock, $0.00001 par value, 100,000,000 authorized, 29,421,736 and 29,452,669 issued and outstanding as of December 31, 2020 and 2019, respectively
Additional paid-in capital
5,784,160
5,784,160
Accumulated deficit
(5,620,354)
(3,278,742)
TOTAL STOCKHOLDERS' EQUITY
164,110
2,505,722
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
14,581,911
$
15,193,049
Condensed Statements of Operations
Years End December 31,
(Amount in USD)
General and administrative expenses
$
2,086,678
$
1,972,534
Other expense, net
254,934
131,352
Net loss before income tax
2,341,612
2,103,886
Income tax expense
-
-
Net loss
$
2,341,612
$
2,103,886
Condensed Statements of Cash Flows
Years End December 31,
(Amount in USD)
Cash flows from operating activities:
Net loss
$
(2,341,612)
$
(2,103,886)
Changes in operating assets and liabilities:
Other current assets
(65,666)
(26,830)
Income tax payable
(43,666)
(214,339)
Other current liabilities
113,075
83,160
Other liabilities
33,458
20,223
Net cash used in operating activities
(2,304,411)
(2,241,672)
Cash flows from financing activities:
Proceeds from short-term loans
21,540,000
17,250,000
Repayment of from short-term loans
(21,500,000)
(17,350,000)
Net proceeds to related parties
1,681,157
2,914,828
Net cash provided by financing activities
1,721,157
2,814,828
Net (decrease) increase in cash and cash equivalents
(583,254)
573,156
Cash and cash equivalents at beginning of year
637,676
64,520
Cash and cash equivalents at end of year
$
54,422
$
637,676
NOTE 24 - SUBSEQUENT EVENTS
The Company has evaluated all other 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.
NOTE 25 - RESTATEMENT OF PRIOR ISSUED FINANCIAL STATEMENTS
As a result of an internal review of Uniwill business projection, the Company and the Labor Parties discovered that the previous business projection did not include a consideration of the retention rate of the sale professionals. In the previous business projection, the Company and the Labor Parties had assumed all the new sales professionals joined through the efforts of the Labor Parties would continue to retain with Uniwill. However, the Company noticed that the actual retention rate of the new sales professionals was about 54% as of December 31, 2020, compared the rate with industry averages, and determined that the previous business projection did not reflect the actual conditions. The Company and the Labor Parties then included the retention rate in the business projection and determined that compensation cost recognized in the interim periods ended March 31, June 30, and September 30, 2020 were overstated. Following the Company’s determination that it would restate its interim consolidated financial statements filed during 2020, the Company also determined that it would correct and establish a valuation allowance against deferred tax assets related to losses carried forward according to the new business projection of Uniwill.
The effect of the restatement on results of operations for the periods ended March 31, June 30, and September 30, 2020 were as follows:
Three Months
Six Months
Nine Months
Ended
Ended
Ended
March 31,
June 30,
September 30,
General and administrative:
As previously reported
$
7,558,908
$
12,909,331
$
18,614,446
As restated
$
6,984,554
$
12,332,824
$
18,033,664
Income tax expense:
As previously reported
$
883,633
$
1,528,572
$
2,893,297
As restated
$
1,111,287
$
1,527,079
$
3,167,104
Net (loss) income:
As previously reported
$
(10,415)
$
1,171,483
$
5,235,386
As restated
$
336,285
$
1,749,483
$
5,542,361
Less: net income attributable to the noncontrolling interests:
As previously reported
$
526,187
$
1,168,973
$
2,446,560
As restated
$
625,522
$
1,287,926
$
2,600,048
Net loss attributable to China United's shareholders:
As previously reported
$
(536,602)
$
2,510
$
2,788,826
As restated
$
(289,237)
$
461,557
$
2,942,313
Other comprehensive items:
As previously reported
$
(561,180)
$
959,710
$
2,065,858
As restated
$
(567,690)
$
949,995
$
2,044,105
Comprehensive income
As previously reported
$
(571,595)
$
2,131,193
$
7,301,244
As restated
$
(231,405)
$
2,699,478
$
7,586,466
Less: comprehensive (income) attributable to noncontrolling interests
As previously reported
$
(291,361)
$
(1,504,302)
$
(3,213,755)
As restated
$
(390,854)
$
(1,623,414)
$
(3,367,402)
Comprehensive income attributable to the China United's stockholders
As previously reported
$
(862,956)
$
626,891
$
4,087,489
As restated
$
(622,259)
$
1,076,064
$
4,219,064
The effect of the restatement on results of financial position as of the periods ended March 31, June 30, and September 30, 2020 were as follows:
March 31,
June 30,
September 30,
Deferred tax assets included in other assets:
As previously reported
$
913,994
$
721,004
$
1,016,388
As restated
$
687,421
$
722,526
$
734,847
Retained earnings:
As previously reported
$
8,865,692
$
9,404,804
$
12,191,120
As restated
$
9,113,057
$
9,863,851
$
12,344,607
Accumulated other comprehensive income:
As previously reported
$
90,661
$
1,041,396
$
1,715,678
As restated
$
83,993
$
1,031,522
$
1,693,766
Noncontrolling interests:
As previously reported
$
21,351,116
$
22,565,076
$
24,274,529
As restated
$
20,883,846
$
22,117,425
$
23,861,413
Total stockholders’ equity:
As previously reported
$
46,727,126
$
49,430,933
$
54,600,984
As restated
$
46,500,553
$
49,432,455
$
54,319,443

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2020, to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2020, our disclosure controls and procedures were not effective at the reasonable assurance level.
Management’s annual report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The internal controls for our Company are provided by executive management's review and approval of all transactions. Our internal control over financial reporting also includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our management; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). In connection with management’s assessment of our internal control over financial reporting, management has identified control deficiencies that constituted material weaknesses in our internal control over financial reporting as of December 31, 2020, as described below.
● We have yet established effective entity-level controls at group level in application of Internal Control-Integrated Framework (2013).
The material weakness described above could result in material misstatements of the annual or interim consolidated financial statements that would not be prevented or detected.
This annual report does not include an attestation report of our Company's registered public accounting firm regarding internal control over financial reporting.
Management’s Remediation Plan Concerning Internal Control Over Financial Reporting
During the year 2020, we established an independent team to assess and monitor the quality of the Company’s internal control in accordance with Internal Control-Integrated Framework (2013). However, we have not completed all of the corrective procedures and related evaluation that we deem it necessary and continue taking the following actions to remediate the material weakness:
(1) we are committed to continuously reiterating the importance of the effectiveness of internal controls through trainings and raise the top management’s awareness and ability to exercise meaningful oversight and management; and
(2) we are committed to input more resources to efficiently perform the internal control over financial reporting and continue improving our policies and procedures so as to strengthen our internal control system.
As we continue working the remediation of the material weakness, we may determine to take additional measures to address our control deficiencies. Until the remediation steps set forth above, including the efforts to implement the necessary control activities we identify, are fully implemented and concluded to be operating effectively, the material weaknesses described above will continue to exist.
As neither an accelerated filer nor a large accelerated filer, we are not required to file a report on and attestation to the management’s assessment of the effectiveness of its internal control over financial reporting by the Company’s certified public accounting firm that prepared this audit report.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Our Board of Directors
We have a Board of Directors that currently consists of seven Directors, of which six were elected by the holders of Common Stock and Series A Preferred Stock voting together as a single class (each, a “Common Stock Director” and collectively, the “Common Stock Directors”), and one was appointed by the holder of Series A Preferred Stock (the “Series A Director”, together with the Common Stock Directors, each a “Director” and collectively, the “Directors”). None of our Directors is a director or executive officer of any company that files reports with the Securities and Exchange Committee (the “SEC”).
The following sets forth the biographical information of the Directors as of December 31, 2020:
Name
Age
Position with the Company
Series A Director
Yi Hsiao Mao
Director and Chief Executive Officer
Common Stock Directors
Fu Chang Li
Director
Chwan Hau Li
Director
Chih Yuan Lu
Independent Director
Shu Yuan Sun
Independent Director
Chun Hui Yang
Independent Director
Tse Hsun Niu
Independent Director
Series A Director
Yi Hsiao Mao, Series A Director and Chief Executive Officer
Mr. Mao previously served as a Common Stock Director of the Company from June 2010 to December 2016. In December 2016, Mr. Mao was elected as a Series A Director and has since served in such capacity. Mr. Mao has been our Company’s Chief Executive Officer since August 2014 and oversees the strategic and operational initiatives of the Company. With over 30 years of insurance brokerage experience, he is the founder of Law Broker, a premier insurance brokerage company in Taiwan. In addition, Mr. Mao has served as the supervisor for our Company’s consolidated entity in China, Jiangsu Law since March 2005. He is also a director of Law Enterprise Co., Ltd. (“Law Enterprise”) in Taiwan. Mr. Mao is a well-seasoned executive with extensive experience and profound knowledge in both the insurance industry and our Company’s operations in the Greater China region.
Mr. Mao received his Bachelor’s degree from Taiwan Soochow University School of Law.
Common Stock Directors
Fu Chang Li, Director
Mr. Li has served as a Director of our Company since January 2011. As one of the pioneering insurance agents in Taiwan, Mr. Li has over 30 years of insurance experience, including 17 years in the insurance brokerage industry. From 1980 to 1992, he served as the head of sales division at Guohua Life Insurance. From 1992 to 1993, Mr. Li assumed the role of general manager for Gongxin Insurance Brokers Co., Ltd. or KHIB. Mr. Li was the president of Time Insurance Brokers Co., Ltd. from 1993 to 2003. After serving as the Consultant of Law Anhou Insurance Agency Co., Limited (formerly known as Henan Law Anhou Insurance Agency Co., Ltd.) (“Law Anhou”), an affiliated entity of our Company in China, from October 2003 to October 2009, he served as the Chairman of Law Anhou from October 2009 to May 2012. He is currently the Deputy General Manager of Law Anhou.
Mr. Li received his Bachelor’s degree in Mass Communications from Fu Jen Catholic University in Taiwan.
Chwan Hau Li, Director
Mr. Li has served as a Director of our Company since January 2011. Mr. Li has over 20 years of insurance experience, and has held various managerial positions throughout his career. From 1987 to 2000, he served as a business development manager at Taiwan Life Insurance. In April 2000, he founded Genius Insurance Brokers Co., Ltd., and has served as its chairman. Mr. Li is also the chairman of Genius Financial Consultants Co., Ltd. He is the former chairman of Insurance Brokerage Association of Taiwan.
Mr. Li received his B.B.A degree from Tamkang University in Taiwan and M.S. degree in Actuarial Science from University of Iowa in the United States.
Chih Yuan Lu, Independent Director
Mr. Lu has served as an independent director of our Company since May 2017. He specializes in developing and implementing financial controls and processes, in addition to productivity improvement and change management. Prior to joining Transcend Information Inc. in 2003, Mr. Lu had served as a Public Auditor at PricewaterhouseCoopers Taiwan from 1997 to 1999. From 2003 to 2005, he was promoted from a specialist to the manager of the Finance and Shipping Departments at Transcend Information Inc. From 2005 to 2009, he joined Transcend Information BV, Rotterdam, where he served as the financial controller, supervising the HR/ACC/CS/Logistic (Cash & Inventory) departments with over 50 employees. From 2009 to 2010, Mr. Lu became the administration director at the headquarters of Transcend Information Inc. in Taipei, overseeing the HR, LIPO (Legal), and Quality Assurance Departments. From 2010 to February, 2017, he served as the Chief Financial Officer and Spokesperson at Transcend Information Inc., in which he was responsible for all administrative, financial, and risk management operations of that company, supervising a 60-member team across 12 worldwide offices. Mr. Lu currently serves as the Chief Financial Officer of EIKEI (Taiwan) Co., Ltd., a position he assumed in August 2017.
Mr. Lu received his B.B.A degree in Accounting from Tung-Hai University in Taiwan and M.B.A degree from University of Massachusetts, Dartmouth MA, U.S.A.
Shu-Yuan Sun, Independent Director
Ms. Sun has a profound experience in finance filed, she has been a bookkeeper since 1988 and has over 30 years of tax experience in Taiwan. She is the founder of Ci-Fong Accounting & Tax Service Firm. Ms. Sun was elected by National Taxation Bureau of Taipei Ministry of Finance as an outstanding bookkeeper in 2014 and 2019, respectively. Since 2014, Ms. Sun has also worked as a consultant for Ci-Fong Accounting Firm, providing consulting service for tax and related matters to its clients. In addition, she is currently the supervisor of the Taipei Certified Public Bookkeepers Association and has been the Chief Financial Officer of Chinese Standard Cursive Script Association since 2018.
Ms. Sun received her Associate degree in Business Administration at Chihlee University of Technology, and Master’s degree in Accounting and Taxation from National Taipei University of Business in Taiwan. Ms. Sun was elected by the Company’s shareholders to the Board of the Company on December 30, 2020.
Chun Hui Yang, Independent Director
Ms. Yang has served as an independent director since May 2017. She is an expert in financial, managerial, and accounting analysis. Ms. Yang is skilled in the production and presentation of consolidated financial statements and in the preparation of payroll, sales, and property tax returns. From September 2012 to September 2015, she served as an auditor at PricewaterhouseCoopers, where she performed external audits on the financial statements and examined company accounts and financial control systems. Since October 2015, she has served as an accountant at CI-FONG Accounting Firm, where she is responsible for providing business clients with tax filing & planning, auditing, and management consulting services.
Ms. Yang received both her Bachelor’s degree in Accounting and her Master’s degree in Accounting from National Chengchi University in Taiwan.
Tse Hsun Niu, Independent Director
Dr. Niu has served as an independent director since May 2017. He is an expert in advertising, political communications, public relations, and electoral strategies. In August 2002, he joined the Department of Advertising at Chinese Culture University in Taiwan, where he served as an assistant professor from August 2002 to July 2007; an associate professor from August 2007 to January 2015, and professor since February 2015. Prior to joining academia, he was the Associate Section Assistant at the Ministry of Foreign Affairs, R.O.C. from December 1998 to January 2002. Over the course of 25 years of research and studies, he has authored over 13 books, 16 research journals, 22 dissertations, and over 60 news articles related to advertising, strategy and government public relations.
Dr. Niu received his Bachelor’s degree in Diplomacy, Master’s degree in Diplomacy, and Doctoral degree in Political Science from National ChengChi University in Taiwan.
Our Executive Officers
Name
Age
Principal Position
Yi Hsiao Mao1
Chief Executive Officer
Yung Chi Chuang
Former Chief Financial Officer
Mei-Kuan (Joyce) Yeh
Chief Financial Officer
1 See the sections entitled “Our Board of Directors” above, for a description of the business experience and educational background of Mr. Mao.
Mei-Kuan (Joyce) Yeh, Chief Financial Officer
On August 10, 2020, the Company and Ms. Mei-Kuan (Joyce) Yeh entered into an engagement agreement (the “CFO Engagement Agreement”), pursuant to which Ms. Yeh was appointed as the new Chief Financial Officer of the Company, effective immediately. Ms. Yeh, 51 years old, has extensive experience in accounting management and corporate finance. From November 2019 till August 2020, Ms. Yeh worked at the Finance System & Project Department of Standard Chartered Bank (Taiwan). Previously from April 2015 to June 2019, Ms. Yeh served as the Head of Finance at Schroder Investment Management (Taiwan) Ltd. Ms. Yeh earned a bachelor degree in International Trade from National Taipei College of Business in 1989 and was awarded a bachelor degree in Accounting from Fu-Jen University in 1991. Ms. Yeh is a certified public accountant in both Taiwan and the United States.
In accordance with the CFO Engagement Agreement, Ms. Joyce Yeh is performing her duties customarily associated with the CFO position, including without limitation preparing the Company’s financial statements and overseeing the internal accounting procedures. Pursuant to the CFO Engagement Agreement, the Company shall pay Ms. Yeh a monthly salary of 170,000 NTD, or 2,040,000 NTD (equivalent to approximately $69,416) annually, and make contributions to Ms. Yeh’s accounts at Taiwan Mandatory Provident Fund and Taiwan National Insurance as required by the laws and regulations in Taiwan. In addition, Ms. Joyce Yeh is entitled to Company’s profit sharing/ bonus scheme, when applicable, depending on the Company’s profits and Ms. Yeh’s performance, and vacation days per the Company’s policy as set forth in the CFO Engagement Agreement. The CFO Engagement Agreement may be terminated at any time by either Party with advance notice. The CFO Engagement Agreement contains the 12-month non-solicitation and 12-month non-competition provisions. A copy of the CFO Engagement Agreement was filed as Exhibit 10.1 to a current report on Form 8-K with the Securities and Exchange Commission on August 10, 2020.
Yung Chi Chuang, Former Chief Financial Officer
Ms. Chuang had served as the Chief Financial Officer of our Company since July 2012, in which she was responsible for leading and directing our Company’s corporate development, financial planning, treasury, and investor relations functions. She joined Law Broker in December 1996, and is currently the supervisor of the financial department of Law Broker. Prior to joining Law Broker, Ms. Chuang was an executive secretary at Pacific Realtor, Inc.
Ms. Chuang graduated from Ming Chuan University in Taiwan where she received her bachelor’s degree in Risk Management and Insurance.
Ms. Chuang resigned as the CFO of the Company on August 10, 2020.
Family Relationships
There are no family relationships by and between or among the members of the Board or other executives.
Governance of Our Company
We seek to maintain high standards of business conduct and corporate governance, which we believe are fundamental to the overall success of our business, serving our stockholders well and maintaining our integrity in the marketplace. Our corporate governance guidelines and code of business conduct, together with our Amended and Restated Certificate of Incorporation, as amended, and our Amended and Restated Bylaws and the charters for each of our Board committees, form the basis for our corporate governance framework. We also are subject to the Sarbanes-Oxley Act, the rules and regulations of the SEC. Our Board has established three standing committees to assist it in fulfilling its responsibilities to the Company and its stockholders: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee.
Corporate Governance Guidelines: Our corporate governance guidelines are designed to help ensure effective corporate governance of our Company. Our corporate governance guidelines cover topics including, but not limited to, director qualification criteria, director responsibilities, director compensation, director orientation and continuing education, communications from stockholders to our Board, succession planning and the annual evaluations of our Board and its committees. Our corporate governance guidelines are reviewed by the Nominating and Corporate Governance Committee and amended by our Board when appropriate.
Our Board of Directors: Our Board consisted of seven members as of the date of this annual report. The number of directors on our Board can be determined from time to time by action of our Board.
Our Board considers that a director is independent when the director is not an officer or employee of the Company or its subsidiaries, does not have any relationship which would, or could reasonably appear to, materially interfere with the independent judgment of such director, and the director otherwise meets the independence requirements under the listing standards of the NASDAQ Stock Market and the rules and regulations of the SEC.
Our Board believes its members collectively have the experience, qualifications, attributes and skills to effectively oversee the management of our Company, including a high degree of personal and professional integrity, an ability to exercise sound business judgment on a broad range of issues, sufficient experience and background to have an appreciation of the issues facing our Company, a willingness to devote the necessary time to their Board and committee duties, a commitment to representing the best interests of the Company and our stockholders and a dedication to enhancing stockholder value.
Board Attendance
The Board of Directors held 7 meetings during the fiscal year ended December 31, 2020. Mr. Yi Hsiao Mao, Mr. Fu Chang Li, Mr. Chwan Hau Li, Mr. Chi Yuan Lu, Ms. Lo Tien Hsin, Ms. Chun Hui Yang and Mr. Tse Hsun Niu attended all of regularly-scheduled and special meetings of the Board of Directors and the committees on which each of them served. Ms. Shu- Yuan Sun was elected to the Company’s Board by its shareholders on December 30, 2020 and did not attend any meetings of the Board in the year of 2020.
Board Committees
The Board of Directors has established three standing committees: (i) Audit Committee, (ii) Compensation Committee, and (iii) Nominating and Corporate Governance Committee.
Audit Committee
The Audit Committee consisted of Mr. Chih Yuan Lu, Ms. Chun Hui Yang and Ms. Lo Tien Hsin from January 1, 2020 till December 30, 2020. All members of the Audit Committee satisfy the independence requirements set forth under the applicable rules of the NASDAQ Stock Market. Mr. Chi Yuan Lu qualifies as the audit committee’s financial expert as defined under applicable SEC rules. The Board of Directors was satisfied that the current members of the Audit Committee are competent in financial matters and have recent and relevant experience. The Audit Committee currently operates under a written charter, which has been approved and adopted by the Board of Directors.
The primary purpose of the Audit Committee is to oversee and monitor (i) our financial statement and other financial information provided to shareholders; (ii) compliance with legal, regulatory and public disclosure requirements; (iii) the independent auditors; (iv) our internal control system; (v) treasury and finance matters; (vi) enterprise risk management, privacy and data security; (vii) the general auditing, accounting, and financial reporting process, as well as to prepare the committee report required by the rules of SEC.
The primary duties and responsibilities of the Audit Committee include retaining our independent auditor, reviewing its independence, reviewing and approving the planned scope of its audit engagements, reviewing and approving any fee arrangements with our independent auditor, overseeing its audit work, reviewing and pre-approving any non-audit services that may be performed by the independent auditor, reviewing our annual audited financial statements, reviewing the internal audit work, reviewing the adequacy of our internal control over accounting and financial reporting, reviewing and discussing with management and independent auditor regarding the accounting policies, government correspondence and other matters in relation to independent and internal audit, reviewing and discussing with the management the treasury, finance, and statutory reorganization matters and reviewing and discussing with management the business and financial risk, privacy and data security matters.
During the fiscal year ended December 31, 2020, the Audit Committee met in person or by telephone, or acted by unanimous written consent, six times.
Compensation Committee
The Compensation Committee comprised of Mr. Chih Yuan Lu, Ms. Chun Hui Yang and Ms. Lo Tien Hsin from January 1, 2020 till December 30, 2020. All members of the Compensation Committee satisfy the independence requirements set forth under the applicable rules of the NASDAQ Stock Market and qualify as non-employee directors within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee operates under a written charter, which has been approved and adopted by the Board of Directors.
The primary purpose of the Compensation Committee is to (i) review and approve the compensation of the Company’s executive officers; and (ii) act as the administering committee for equity compensation plans as designated by the Board; and (iii) perform other duties and responsibilities set forth in its charter.
The primary duties and responsibilities of the Compensation Committee include reviewing and approving the benefit policies and salary and bonus earned by the Chief Executive Officer and other executive officers, employees and sales agents, reviewing and approving the compensation arrangements for newly-hired executive officers, reviewing the performance of the Chief Executive Officer and others executive officers and the employment or post-employment agreement applicable to executive officers; reviewing with management the employee and sales agent benefit policies and programs, recommending to the Board the establishment or modification of equity compensation plans and acting as the administering committee of any employee and sales agent bonus and other incentive plans, equity compensation plans and equity arrangements.
During the fiscal year ended December 31, 2020, the Compensation Committee met in person or by telephone, or acted by unanimous written consent, twice.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee comprised of Mr. Chih Yuan Lu and Mr. Tse Hsun Niu from January 1, 2020 till December 30, 2020. Each member of the Nominating and Corporate Governance Committee satisfies the independence requirements set forth under the applicable rules of the NASDAQ Stock Market. The Nominating and Corporate Governance Committee operates under a written charter, which has been approved and adopted by the Board of Director.
The primary purpose of the Nominating and Corporate Governance Committee is to (i) consider and report periodically to the Board on matters relating to the identification, selection and qualification of Board members and candidates nominated to the Board; and (ii) advise and make recommendations to the Board with respect to corporate governance matters. The primary duties and responsibilities of the Nominating and Corporate Governance Committee are to (i) screen and recommend the selection of nominees to the Board to fill vacancies and newly created directorships; (ii) develop a pool of potential director candidates; (iii) consider and oversee the performance evaluation process of the directors, including incumbent members and their re-election; (iv) consider shareholder nominees for election to the Board; (v) consider and recommend applicable corporate governance principles and compliance mechanisms, including reviewing and monitoring the compliance with the Corporate Code of Business Conduct and Ethics.
While we do not have a formal diversity policy, our Board of Directors believes that our Board should have diversity of knowledge base, professional experience and skills, and takes age, gender and ethnic background into account when considering director nominees.
Pursuant to the terms of its charter, the Nominating and Corporate Governance Committee will consider qualified director candidates suggested by our shareholders.
In addition, shareholders may submit nominations for election of directors in accordance with the requirements of the proxy rules established by the SEC and our bylaws. According to our bylaws, shareholders shall have the right to nominate one director candidate on the basis of each integral 10% of all outstanding common shares of our Company.
During the fiscal year ended December 31, 2020, the Nominating and Corporate Governance Committee did not have any meeting in person or by telephone, or acted by unanimous written consent.
Risk Management
We had identified one material weakness in our internal control over financial reporting. This material weakness is that we have not established an effective mechanism to implement and monitor entity-level controls at group level in the application of the COSO 2013 Internal Control Framework.
The existence of this material weakness could adversely affect us, our reputation or investor perceptions of us. We have and will continue to take additional measures to remediate the underlying causes of the material weakness noted above. We are committed to remediating the control deficiencies that constitute the material weakness described previously by implementing changes to our internal control over financial reporting. Our Chief Financial Officer is responsible for implementing changes and improvements in the internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weakness.
Our Board is responsible for reviewing and assessing business enterprise risk and other major risks facing the Company, and evaluating management’s approach to addressing such risks. Periodically, our Board reviews key risks our Company is facing, plans for addressing these risks and the Company’s risk management practices overall. In connection with these reviews, our Board members rely on information from external sources as well as on their individual experiences identifying and managing business enterprise risk for other entities both within and outside of our industry. Our senior management team is responsible for day-to-day risk management and regularly reports on risks to our full Board. Our legal and finance staffs serve as the primary monitoring and evaluation function for company-wide policies and procedures, and manage the day-to-day oversight of the risk management strategy for our business. This oversight includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, compliance and reporting levels.
We believe the division of risk management responsibilities described above is an effective approach for identifying, addressing and remediating the risks facing our Company, and that the leadership structure of our Board is effective in implementing this approach.
Insider Transactions Policies and Procedures
We currently have an insider transaction policy in place. A copy of the Policy on Insider Trading and Disclosure was filed as Exhibit 14.4 to a current report on Form 8-K dated March 18, 2019.
Communications with Directors
Shareholders may communicate with any and all Directors by transmitting correspondence by mail addressed as follows: c/o Corporate Secretary, 7F, No. 311 Section 3, Nan-King East Road, Taipei City, Taiwan.
Director Attendance at Annual Meetings
Attendance by Directors at annual meetings of the shareholders of the Company benefits the Company by giving Directors an opportunity to meet, talk with, and hear the concerns of shareholders who attend those meetings, and by giving those shareholders access to the Company’s Directors that they may not have at any other time during the year. The Company has no specific policy regarding director attendance at its Annual Meeting of Shareholders.
Generally, however, Directors are strongly encouraged to attend each annual meeting of the Company’s shareholders.
Corporate Code of Business Conduct and Ethics
The Board has adopted a Corporate Code of Business Conduct and Ethics that applies to all of our employees, officers and directors. Any waiver of our Corporate Code of Business Conduct and Ethics granted to any of our directors or executive officers, along with reasons for granting such waiver, will be published promptly on our website. A copy of the Code of Business Conduct and Ethics was filed as Exhibit 14.1 to a current report on Form 8-K dated March 18, 2019.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
Executive Summary
Our Chief Executive Officer, Mr. Yi Hsiao Mao, and former Chief Financial Officer, Ms. Yung Chi Chuang, have not received any form of compensation from the corporate group level since they assumed the roles of the Company’s executive officers; rather, they have been compensated on the subsidiary level for managerial services rendered to the Company’s subsidiaries in Taiwan, Law Broker and Law Enterprise, whereby Mr. Mao has served as the consultant of Law Broker and the president of Law Enterprise, and Ms. Chuang has served as the supervisor of the financial department of Law Broker.
Nevertheless, the Company is fully aware of the importance of maintaining effective Committee operations. Our Compensation Committee is thus planning to design and implement a compensation program that includes performance goals and objectives for executive officers, as well as guidelines in evaluating the performance of the executive officers in light of such performance goals and objectives.
Detailed Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) describes the material elements of compensation paid to the named executive officers (the “NEOs”) during the year of 2020. Following this discussion is a summary compensation table containing specific data about the compensation earned by or granted to the following NEOs in 2020:
Name
Principal Position
Yi Hsiao Mao
Director and Chief Executive Officer
Yung Chi Chuang
Former Chief Financial Officer
Mei-Kuan (Joyce) Yeh
Chief Financial Officer
Elements of Executive Compensation for Fiscal Year 2020
Mr. Yi Hsiao Mao and Ms. Yung Chi Chuang have been paid through our subsidiaries for their managerial services rendered to us. Mr. Mao has served as the consultant of Law Broker and the president of Law Enterprise, and Ms. Chuang has served as the supervisor of the financial department of Law Broker. Both Law Broker and Law Enterprises are our Company’s subsidiaries in Taiwan. Other than the compensation received from our Company’s subsidiaries, as of December 31, 2020, both of them had not received bonus, stock awards, non-equity incentive plan compensation, nonqualified deferred compensation earnings, or any other form of compensation since being named the executive officers of our Company. Ms. Mei-Kuan (Joyce) Yeh received her compensation as the CFO of the Company and she did not hold any position in any of the Company’s subsidiaries during the fiscal year ended December 31, 2020.
Summary Compensation Table
The following table sets forth information concerning the compensation earned during the fiscal years ended December 31, 2020 and 2019 by our named executive officers.
Non-
Equity
Nonqualified
Incentive
Deferred
All
Name and
Stock
Option
Plan
Compensation
Other
principal
Fiscal
Salary
Bonus
Awards
Awards
Compensation
Earnings
Compensation
position
Year
($)
($)
($)
($)
($)
($)
($)
Total ($)
Yi Hsiao Mao
Director and
361,076
(1)
-
-
-
-
-
-
361,076
Chief Executive Officer
281,017
-
-
-
-
-
-
281,017
Yung Chi Chuang
71,609
(2)
-
-
-
-
-
-
71,609
Former Chief Financial Officer
42,088
-
-
-
-
-
-
42,088
Mei-Kuan (Joyce) Yeh
22,459
(3)
-
-
-
-
-
-
22,459
Chief Financial Officer
(1) The salary consists of $14,265, which was paid to Mr. Mao for his service as the president of Law Enterprise, and the remaining amount of $74,700, which was paid to Mr. Mao for his service as the president of the Company, and the remaining amount of $272,111 which was paid to Mr. Mao for his service as the consultant of Law Broker for the provision of consultation, training and promotion to Law Broker in the fiscal year ended December 31, 2020.
(2) The salary in the amount of $71,609 was paid to Ms. Chuang for her service as the supervisor of the financial department of Law Broker.
(3) The salary in the amount of $22,459 was paid to Ms. Yeh for her service as the supervisor of the financial department of the Company.
The above table identifies the amounts of compensation received by the named officers directly from us and our subsidiaries. Ms. Yeh was appointed to the CFO position on August 10, 2020.
Outstanding Equity Awards At Fiscal Year End
We currently do not have any outstanding equity awards as of the date of this report.
On May 12, 2017, our 2017 Long Term Incentive Plan was approved by the shareholders at the 2017 Annual Meeting of Shareholders of China United Insurance Service, Inc. Up to 10,000,000 shares of our Common Stock may be granted under the 2017 Plan, provided that 2,000,000 shares of the Share Pool is reserved for issuance to eligible participants providing services to Action Holdings Financial Limited and its subsidiaries. Eligibility to participate is open to officers, directors and employees of, and other individuals (including sales agents who are exclusive agents of the Company or its subsidiaries or derive more than 50% of their income from those entities) who provide bona fide services to or for, us or any of our subsidiaries. Given that metrics for evaluating performance goals are rather complex and exhaustive, and that the our management and Board of Directors are still working to develop a series of reward policies that specify various performance target levels and the size of the award or pay-out of performance shares with respect to each different target level attained, no awards were granted under the 2017 Plan as of December 31, 2020.
Potential Payments Upon Termination or Change in Control
None.
Compensation of Directors
Our directors do not currently receive any compensation for their services as directors of our Company. Set forth below is the compensation paid to each of our directors during the fiscal year ended December 31, 2020 for compensation not related to their role as Directors. Total compensation for Mr. Mao for services as our Chief Executive Officer is presented in “Summary Compensation Table” in this section.
Fees
Earned or
Paid
All Other
in Cash
Compensation
Name
($)(1)
($)
Total ($)
Fu Chang Li
-
61,137
(2)
61,137
Chwan Hau Li
-
-
-
Chih Yuan Lu
3,397
-
3,397
Lo Tien Hsin(3)
2,717
-
2,717
Chun Hui Yang
3,397
-
3,397
Tse Hsun Niu
3,397
-
3,397
Shu Yuan Sun(4)
-
-
-
Yi Hsiao Mao
-
-
-
(1)
Travel stipends to Independent Directors for attending in-person Board and Committee meetings for the fiscal year ended December 31, 2020.
(2)
The compensation paid to Fu Chang Li since he has worked as a consultant of the Company in the fiscal year ended December 31, 2020.
(3)
Lo Tien Hsin was not reelected to the Board at the Company’s annual shareholder meeting of 2020 and therefore ceased to be a member of the Board of the Company on December 30, 2020.
(4)
Ms. Sun was elected to the Board of Directors of the Company on December 30, 2020.
Directors’ Compensation
The Company has not paid, and does not intend to pay, any cash or non-cash equity compensation to our Directors for their Board services, and does not currently intend to adopt any policies with respect thereto. As such, the Company does not offer additional retainers for Committee membership. However, for in-person Board and Committee meetings, each Independent Director in attendance shall receive certain travel stipends in the amount of approximately NTD 20,000 for each attendance of a Board or Committee meeting.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information, as of March 19, 2021, concerning, except as indicated by the footnotes below:
● Each person whom we know beneficially owns more than 5% of our common stock or Series A Preferred Stock.
● Each of our Directors.
● Each of our named executive officers (see the section titled “Executive Compensation”).
● All of our Directors and executive officers as a group.
Unless otherwise noted below, the address of each of the persons set forth below is in care of China United Insurance Service, Inc., 7F, No. 311 Section 3, Nan-King East Road, Taipei City, Taiwan.
We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
Applicable percentage ownership is based on 29,421,736 shares of common stock and 1,000,000 shares of Series A Preferred Stock outstanding at March 19, 2021. Beneficial ownership representing less than 1% is denoted with an asterisk (*).
The information provided in the table is based on our records, information filed with the SEC, and information provided to us, except where otherwise noted.
Common
Preferred
Total
Stock
Beneficially
Stock
Voting
Common
Percentage
Series A
Percentage
Power
Name
Shares
(%)
Shares
(%)
(%) (1)
Executive Officers and Directors
Yi Hsiao Mao
4,640,234
(2)
15.8
1,000,000
37.1
Fu Chang Li
800,000
2.7
-
-
2.0
Chwan Hau Li
1,352,166
4.6
-
-
3.4
Chih Yuan Lu
-
-
-
-
-
Shu Yuan Sun
-
-
-
-
-
Chun Hui Yang
-
-
-
-
-
Tse Hsun Niu
-
-
-
-
-
Mei Kuan Yeh
-
-
-
-
-
All executive officers and Directors as a group (eight persons)
6,792,400
23.1
1,000,000
42.5
Other 5% Beneficial Owners
Pi Hui Chang
2,520,000
8.6
-
-
6.4
(1) Percentage of total voting power represents voting power with respect to all shares of our outstanding securities, including common stock and Series A Preferred Stock, voting together as a single class. Each holder of common stock is entitled to one vote per share of common stock and each holder of Series A Preferred Stock is entitled to ten votes per share of Series A Preferred Stock on all matters submitted to our shareholders for a vote.
(2) Includes 200,000 shares of common stock held by Shu Fen Lee, Yi Hsiao Mao’s spouse, 200,000 shares of common stock held by Li Chieh Mao, Yi Hsiao Mao’s daughter, 969,322 shares of common stock held by U-Li Investment Consulting Enterprise Co., Ltd. and 100,000 shares of common stock held by U-Link International Co., Ltd. Yi Hsiao Mao and Shu Fen Lee hold 34% and 66% shares of U-Li Investment Consulting Enterprise Co., Ltd., respectively. U-Link International Co., Ltd. is solely owned by Shu Fen Lee.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Consultant Agreements with Mr. Yi Hsiao Mao and Mr. Li Fu Chang
The Director and CEO of our Company, Mr. Yi Hsiao Mao, has worked as a consultant of Law Broker. The primary service of Mr. Mao under the consultant agreement is to provide consultation, training and promotion service to Law Broker. The compensation paid to Mr. Mao for his service as a consultant of Law Broker in the fiscal year ended December 31, 2020 is $286,377.
The Director of our Company, Mr. Fu Chang Li, has worked as a consultant of the Company since December 7, 2014. The primary service of Mr. Li under the consultant agreement is to (i) provide business plan requested by the Company; (ii) provide assessment of potential investors, including but not limited to valuation, credit assessment and eligibility assessment; (iii) assist the Company to negotiate with potential investors about transactional framework, as well as specific transactional conditions and seek to promote cooperation between the Company and potential investors to reach an agreement; (iv) assist the Company and investors to reach formal investment contract and related legal documents; (v) assist the Company to facilitate the work of any project (including, but not limited to, the execution of letter of intent, formal agreement and other relevant legal documents) until the Company and/or a third party designated by the Company complete the project with the potential investors; and (vi) assist Anhou’s development strategy and monitor its operations. The compensation paid to Mr. Fu Chang Li for his service as a consultant of the Company in the fiscal year ended December 31, 2020 is approximately $61,137.
Due to related parties
Due to related parties consisted of the following as of December 31, 2020 and 2019:
December 31,
Due to Mr. Mao (CEO and Principal shareholder of the Company)
$
-
$
373,183
Due to Ms. Lu (A shareholder of Anhou)
78,541
85,074
Others
15,506
4,602
Total
$
94,047
$
462,859
Due to Mr. Mao
Amounts due to Mr. Mao were associated with funding provided by Mr. Mao for the formation of our subsidiaries in China in 2011. The Company has paid off all the amount due to Mr. Mao in 2020. As of December 31, 2019, the amount of $373,183 were non-interesting bearing and payable on demand.
Due to Ms. Lu
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.
Related Party Transaction Policy
The Company is currently working to improve its policies and procedures for approval of transactions between the Company and its Directors, Director Nominees, Executive Officers, greater than 5% beneficial owners and each of their respective immediate family members, where the amount involved in the transaction exceeds or is expected to exceed $120,000 in a single calendar year and the party to the transaction has or will have a direct or indirect interest.
When a potential related person transaction is identified, management presents it to the Audit Committee to determine whether to approve or ratify. In the course of its review and approval or ratification of a related person transaction, the Audit Committee may consider the following factors:
● The related person’s interest in the related person transaction;
● The approximate dollar value of the amount involved in the related person transaction;
● The approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss;
● Whether the transaction was undertaken in the ordinary course of our business;
● Whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unaffiliated third party;
● The purpose of, and the potential benefits to us of, the transaction; and
● Any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.
The Audit Committee may approve or ratify the transaction only if the Committee determines that, under all of the circumstances, the transaction is in or is not inconsistent with the best interests of the Company. In addition, the Audit Committee may impose any conditions on the related party transaction that it deems appropriate.
On March 15, 2019, the Company adopted its Conflict of Interest Policy to protect the interest of the Company and its shareholders. A copy of the Conflict of Interest Policy was filed with the SEC as Exhibit 14.3 to a current report on Form 8-K on March 18, 2019.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth the aggregate fees billed to the Company for the fiscal years ended December 31, 2020 and 2019 by Simon & Edward, LLP:
Fiscal Year 2020
Fiscal Year 2019
Audit fees(1)
$
210,000
$
546,000
Audit-related fees(2)
40,614
15,718
Tax fees
-
All other fees
10,919
Total
$
250,614
$
572,637
(1) Audit fees consisted of fees billed for professional services rendered for the audit of our consolidated financial statements and internal control over financial reporting and review of our quarterly interim consolidated financial statements.
(2) Audit-related fees consisted of fees billed for services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit fees.”
The following table sets forth the aggregate fees billed to the Company for the fiscal years ended December 31, 2020 and 2019 by Macias Gini O’Connell LLP:
Fiscal Year 2020
Fiscal Year 2019
Audit fees(1)
$
340,000
-
Audit-related fees
-
-
Tax fees
-
-
All other fees
-
-
Total
$
340,000
$
-
(1)
Audit fees consisted of fees billed for professional services rendered for the audit of our consolidated financial statements and internal control over financial reporting and review of our quarterly interim consolidated financial statements.
Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our auditors must be approved in advance by our Audit Committee to assure that such services do not impair the auditors’ independence from us. In accordance with its policies and procedures, the Audit Committee has approved the audit service performed by Simon & Edward, LLP and Macias Gini O’Connell LLP for our consolidated financial statements as of December 31, 2020 and 2019.
Policy on Audit Committee Pre-Approval of Audit and Permitted Non-Audit Services of Independent Auditors
The Audit Committee has determined that all services provided by Simon & Edward, LLP and Macias Gini O’Connell LLP to date were compatible with maintaining the independence of such audit firm. The charter of the Audit Committee requires advance approval of all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by our independent registered public accounting firms, subject to any exception permitted by law or regulation.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) Index of Financial Statements:
(1) The financial statements required by Item 15(a) are filed in Item 8 of Part II, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
(2) Schedules required by Item 15(a) are omitted because they are not required, are not applicable or the information is included in the consolidated financial statements or notes thereto.
(b) Index of Exhibits:
Exhibit
Number
Description of Exhibit
3.1
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on July 3, 2012).
3.2
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Form 8-K filed with the SEC on July 3, 2012).
4.1
Certificate of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 4.1 to the Form 8-K filed with the SEC on July 3, 2012).
4.2
Description of Securities (incorporated by reference to Exhibit 4.2 to the annual report on Form 10-K filed with the SEC on March 20, 2020).
10.1
Fourth Amendment to Acquisition Agreement, dated August 8, 2016, by and among China United Insurance Service, Inc. and the selling shareholders of Action Holdings Financial Limited named therein (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on August 9, 2016).
10.2
Sixth Amendment to Acquisition Agreement, dated March 27, 2019, among China United Insurance Service, Inc. and the selling shareholders of Action Holdings Financial Limited named therein (incorporated by reference to Exhibit 10.81 to the Form 10-K filed on April 1, 2019).
10.3
A translation copy of the Amendment to the JV Agreement dated March 3, 2021 by and among AIlife International Investment Co., Ltd. (formerly known as “Ilife International Investment Co., Ltd.”), Cyun-Jhan Enterprise Co., Ltd. and Jian-Zao International Industrial Co., Ltd. (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on March 9, 2021)
10.4
The CFO Engagement Agreement by and between the Company and Mei-Kuan (Joyce) Yeh, dated August 10, 2020 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on August 12, 2020)
Subsidiaries of the registrant (incorporated by reference to Exhibit 21 to the annual report on Form 10-K filed with the SEC on March 20, 2020)
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
*Filed herewith.