China United Insurance Service 10Q 2023 Q1 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2023

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

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 000-54884

CHINA UNITED INSURANCE SERVICE, INC.

(Exact name of registrant as specified in its charter)

Delaware	30-0826400
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

7F, No. 311 Section 3

Nan-King East Road

Taipei City, Taiwan, 105405

(Address of principal executive offices)

+8862-87126958

(Registrant’s Telephone Number, Including Area Code)

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

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

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

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

Yes ☐ No ☒

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

As of May 15, 2023, there were 30,286,199 shares of common stock issued and outstanding, and 1,000,000 preferred shares issued and outstanding.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described under Part 1 Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report, or that we filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

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OTHER PERTINENT INFORMATION

References in this quarterly report to “we,” “us,” “our” and the “Company” refer to China United Insurance Service, Inc., its subsidiaries and variable interest entities.

References to China or the PRC refer to the People’s Republic of China (excluding Taiwan). References to Taiwan refer to Republic of China.

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

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

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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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PART I. FINANCIAL INFORMATION

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31,		December 31,
(Amount in USD)	2023		2022
ASSETS
Current assets
Cash and cash equivalents	$	23,206,656	$	25,557,582
Time deposits		74,993,723		66,969,959
Accounts receivable		20,745,793		27,562,055
Contract assets		1,654,986		—
Marketable securities		945,889		816,749
Other current assets		1,179,003		1,146,749
Total current assets		122,726,050		122,053,094

Right-of-use assets under operating leases		6,928,598		7,162,373
Property and equipment, net		1,642,421		1,634,116
Intangible assets, net		324,270		333,966
Long-term investments		2,363,450		2,335,655
Restricted cash – noncurrent		10,903		7,679
Deferred tax assets		964,281		999,101
Other assets		4,370,243		4,366,812
TOTAL ASSETS	$	139,330,216	$	138,892,796

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Commission payable to sales professionals	$	12,523,502	$	16,221,438
Short-term loans		22,071,863		21,009,464
Contract liabilities - current		130,589		155,189
Income tax payable - current		4,119,583		2,920,542
Operating lease liabilities - current		3,396,741		3,556,295
Due to related parties		26,305		53,868
Other current liabilities		10,996,893		12,593,597
Total current liabilities		53,265,476		56,510,393

Contract liabilities - noncurrent		1,249,652		1,241,514
Income tax payable - noncurrent		299,797		299,797
Operating lease liabilities - noncurrent		3,439,892		3,514,245
Net defined benefit liabilities - noncurrent		305,857		305,545
Other liabilities		—		488,846
TOTAL LIABILITIES		58,560,674		62,360,340

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.00001, 10,000,000 authorized, 1,000,000 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		10		10
Common stock, par value $0.00001, 100,000,000 authorized, 30,286,199 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		303		303
Additional paid-in capital		9,296,953		9,296,953
Statutory reserves		12,514,095		12,514,095
Retained earnings		25,239,943		23,378,500
Accumulated other comprehensive (loss)		(1,402,593)		(1,843,804)
Total stockholders’ equity attributable to China United’s shareholders		45,648,711		43,346,057
Noncontrolling interests		35,120,831		33,186,399
TOTAL STOCKHOLDERS’ EQUITY		80,769,542		76,532,456
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	139,330,216	$	138,892,796

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

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CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

OTHER COMPREHENSIVE INCOME (LOSS)



	Three Months Ended March 31,
(Amount in USD)	2023		2022
Revenue	$	33,790,314	$	30,980,523
Cost of revenue		22,242,147		19,009,519

Gross profit		11,548,167		11,971,004

Operating expenses:
Selling		593,671		684,150
General and administrative		6,248,154		5,973,039
Total operating expense		6,841,825		6,657,189

Income from operations		4,706,342		5,313,815

Other income (expenses):
Interest income		208,811		104,977
Interest expenses		(188,417)		(52,335)
Foreign currency exchange (loss) gain, net		(137,488)		737,550
Other - net		236,900		162,048
Total other income, net		119,806		952,240

Income before income taxes		4,826,148		6,266,055
Income tax expense		(1,245,487)		(1,581,897)

Net income		3,580,661		4,684,158
Less: net income attributable to noncontrolling interests		(1,719,218)		(1,739,281)
Net income attributable to China United’s shareholders		1,861,443		2,944,877

Other comprehensive items, net of tax:
Foreign currency translation gain (loss)		656,425		(3,113,495)
Total other comprehensive gain (loss)		656,425		(3,113,495)

Comprehensive income		4,237,086		1,570,663
Less: comprehensive income attributable to noncontrolling interests		(1,934,432)		(697,445)

Comprehensive income attributable to China United’s shareholders	$	2,302,654	$	873,218

Weighted average shares outstanding:
Basic and diluted		30,286,199		30,286,199

Earnings per share attributable to China United’s shareholders:
Basic and diluted	$	0.059	$	0.094

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

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CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


												Accumulated
								Additional				Other
	Common			Preferred				Paid-in		Statutory		Comprehensive		Retained				Non-controlling		Total
(Amount in USD)	Stock	Amount		Stock		Amount		Capital		Reserves		Income (Loss)		Earnings		Total		Interests		Equity
Balance December 31, 2022	30,286,199	$	303		1,000,000	$	10	$	9,296,953	$	12,514,095	$	(1,843,804)	$	23,378,500	$	43,346,057	$	33,186,399	$	76,532,456

Foreign currency translation gain	—		—		—		—		—		—		441,211		—		441,211		215,214		656,425
Other comprehensive income	—		—		—		—		—		—		—		—		—		—		—
Net income	—		—		—		—		—		—		—		1,861,443		1,861,443		1,719,218		3,580,661

Balance March 31, 2023	30,286,199	$	303		1,000,000	$	10	$	9,296,953	$	12,514,095	$	(1,402,593)	$	25,239,943	$	45,648,711	$	35,120,831	$	80,769,542

												Accumulated
								Additional				Other
	Common			Preferred				Paid-in		Statutory		Comprehensive		Retained				Noncontrolling		Total
(Amount in USD)	Stock	Amount		Stock		Amount		Capital		Reserves		Income (Loss)		Earnings		Total		Interests		Equity
Balance December 31, 2021	30,286,199	$	303		1,000,000	$	10	$	9,296,953	$	11,101,064	$	4,664,848	$	13,690,368	$	38,753,546	$	30,419,315	$	69,172,861

Foreign currency translation loss	—		—		—		—		—		—		(2,071,659)		—		(2,071,659)		(1,041,836)		(3,113,495)
Other comprehensive income	—		—		—		—		—		—		—		—		—		—		—
Net income	—		—		—		—		—		—		—		2,944,877		2,944,877		1,739,281		4,684,158

Balance March 31, 2022	30,286,199	$	303		1,000,000	$	10	$	9,296,953	$	11,101,064	$	2,593,189	$	16,635,245	$	39,626,764	$	31,116,760	$	70,743,524

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

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CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amount in USD)	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	3,580,661	$	4,684,158
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		286,100		286,049
Amortization of right-of-use assets		944,658		951,111
(Gain) loss on valuation of financial assets		(136,759)		11,177
Loss on disposal of equipment		11,623		4,368
Deferred income tax		41,361		41,730
Unrealized foreign currency exchange losses (gains)		103,997		(228,109)
Net changes in operating assets and liabilities:
Accounts receivable		7,016,030		7,774,338
Contract assets		(1,659,795)		(468,333)
Other current assets		(23,084)		(107,500)
Other assets		20,049		112,257
Commission payable to sales professionals		(3,814,942)		(3,799,212)
Contract liabilities		(25,692)		—
Income tax payable		696,056		1,327,928
Other current liabilities		(1,658,158)		(1,758,352)
Other liabilities		(1,696)		—
Lease liabilities		(998,863)		(1,232,314)
Net cash provided by operating activities		4,381,546		7,599,296

Cash flows from investing activities:
Purchases of time deposits		(38,625,051)		(23,217,843)
Proceeds from maturities of time deposits		30,976,477		16,562,521
Purchases of marketable securities		—		(846,673)
Proceeds from receipts in advance of disposal of a subsidiary		—		2,316,652
Purchase of equipment		(262,677)		(69,500)
Purchase of intangible assets		(20,995)		(76,637)
Net cash used in investing activities		(7,932,246)		(5,331,480)

Cash flows from financing activities:
Proceeds from short-term loans		26,849,638		6,488,087
Repayment of short-term loans		(25,849,638)		(5,423,529)
Proceeds from related party borrowings		2,356		—
Repayment of related party borrowings		—		(9,789)
Net cash provided by financing activities		1,002,356		1,054,769

Foreign currency translation		200,642		(1,036,139)
Net (decrease) increase in cash, cash equivalents and restricted cash		(2,347,702)		2,286,446

Cash, cash equivalents and restricted cash, beginning balance		25,565,261		18,322,632
Cash, cash equivalents and restricted cash, ending balance	$	23,217,559	$	20,609,078

SUPPLEMENTARY DISCLOSURE:
Interest paid	$	181,410	$	52,490
Income tax paid	$	—	$	—
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Lease liabilities arising from new right-of-use assets	$	710,883	$	1,096,615

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

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CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amount in USD)

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

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

The corporate structure as of March 31, 2023 is as follows:

There are no changes in the Company’s organization structure as of and for the three months ended March 31, 2023. Please refer to the Company’s Note 1 in Item 8 of Part II, “Financial Statements and Supplementary Data,” in 2022 Annual Report on Form 10-K for more information.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of China United, the subsidiaries and variable interest entity and its subsidiaries as shown in the corporate structure in Note 1. All significant intercompany transactions and balances have been eliminated in consolidation. The Company consolidates variable interest entities where it has been determined that the Company is the primary beneficiary of those entities’ operations.

Basis of Presentation

The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement of the financial statements have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2022, which were included in the Company’s 2022 Annual Report on Form 10-K (“2022 Form 10-K”). The accompanying consolidated balance sheet as of December 31, 2022, has been derived from the Company’s audited consolidated financial statements as of that date.

Use of Estimates

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

Variable Interest Entities

The Company reviews the VIE’s status on an quarterly basis and determines if any events have occurred that could cause its primary beneficiary status to change, which include (a) the legal entity’s governing documents or contractual arrangements are changed in a manner that changes the characteristics or adequacy of the legal entity’s equity investment at risk; (b) the equity investment or some part thereof is returned to the equity investors, and other interests become exposed to expected losses of the legal entity; (c) the legal entity undertakes additional activities or acquires additional assets, beyond those anticipated at the later of the inception of the entity or the latest reconsideration event, that increase the entity’s expected losses; (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; and(e) changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance. For the three months ended March 31, 2023 and 2022, no event would change the Company’s primary beneficiary status.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable represents the Company’s unconditional right to the payments from insurance companies, and are recognized and carried at the original invoiced amount less an allowance for credit losses. The Company maintains an allowance for credit losses in accordance with ASC Topic 326, Credit Losses (“ASC 326”) and records the allowance for credit losses as an offset to accounts receivable and contract assets, and the estimated credit losses charged to the allowance is classified as “general and administrative” in the consolidated statements of operations. The adoption of ASC Topic 326 does not have an impact on its financial position, results of operations and cash flows. The balance of allowance of credit losses was nil as of March 31, 2023. The Company assesses collectability by reviewing accounts receivable and contract assets on a collective basis where similar characteristics exist, primarily based on similar risk characteristics on a group basis when the Company identifies specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status, the age of the accounts receivable balances and contract assets balances, credit quality of the Company’s customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers.

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Revenue Recognition

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

For the first year commission (FYC), the Company recognizes the revenue when the individuals’ policies are effective. The Company makes the estimation amount to be entitled for annual performance and operating bonus which is based on the FYC. The Company makes an estimation on performance and operation bonus which are based on the accumulated FYC on quarterly basis, and make reconciliation between actual and estimation amount on annual basis. The estimated revenue for the three months ended March 31, 2023 and 2022 was approximately $2.9 million and $2.8 million, respectively.

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

For property and casualty insurance products, the Company recognizes the revenue when the individuals’ policies are effective. The revenue from property and casualty insurance products was 5.4% and 7.0% of the Company’s total revenue for the three months ended March 31, 2023 and 2022, respectively.

The Company is obligated to pay commissions to its sales professionals when an insurance policy becomes effective. Other than that, there are also bonuses rewarded to sales professionals based on their position and sales performance. The Company recognizes commission revenue granted from insurance companies on a gross basis, and the commissions and bonuses paid to its sales professionals are recognized as cost of revenue.

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

Contract assets represent unbilled amounts resulting from the insurance agency and brokerage services provided by the Company to the insurance companies when the Company has a conditional right to payment once the individuals’ insurance policies are effective. Contract assets are classified as current and the full balance is reclassified to accounts receivables when the right to payment becomes unconditional. The balance of contract assets was $1,654,986 and nil as of March 31, 2023 and December 31, 2022, respectively.

Contract liabilities represents the commissions received upfront from the insurance companies related to services that has not yet been recognized as revenue. The Company classifies contract liabilities as current/noncurrent based on the timing of when the Company expects to recognize revenue. Please refer to Note 10 for contract liabilities in AIATW.

The Company recognizes sales commissions for its sales professionals as they are incurred, since these commissions and bonuses are typically settled within one year or less. The Company records these costs as part of the cost of revenue in its consolidated statements of operations.

For the three months ended March 31, 2023 and 2022, the Company recorded revenue of $33,790,314 and $30,980,523, respectively. Disaggregation information of revenue is disclosed in Note 15.

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Foreign Currency Transactions

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

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


	Average Rate for the three months ended
	March 31,
	2023		2022
	(unaudited)		(unaudited)
Taiwan dollar (NTD)	NTD	30.39635	NTD	27.98355
China yuan (RMB)	RMB	6.84137	RMB	6.34536
Hong Kong dollar (HKD)	HKD	7.83756	HKD	7.80460
United States dollar ($)	$	1.00000	$	1.00000


	Exchange Rate at
	March 31, 2023
	(unaudited)		December 31, 2022
Taiwan dollar (NTD)	NTD	30.48468	NTD	30.68450
China yuan (RMB)	RMB	6.86668	RMB	6.89730
Hong Kong dollar (HKD)	HKD	7.84964	HKD	7.80776
United States dollar ($)	$	1.00000	$	1.00000

Earnings Per Share

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

As the holders of preferred stock of the Company are entitled to share equally with the holders of common stock, on a per share basis, in such dividends and other distributions of cash, property or shares of stock of the Company as may be declared by the board of directors, the preferred stock is treated as a participating security. When calculating the basic earnings per common share, the two-class method is used to allocate earnings to common stock and participating security as required by FASB ASC Topic 260, “Earnings Per Share.” As of March 31, 2023 and 2022, the Company does not have any potentially dilutive instrument.

The following is a reconciliation of the income and share data used in the basic and diluted EPS computations for the three months ended March 31, 2023 and 2022 under the two-class method.

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	Three Months Ended March 31,
	2023				2022
Numerator:	Common stock		Preferred stock		Common stock		Preferred stock
Allocation of net income attributable to the Company	$	1,801,946	$	59,497	$	2,850,750	$	94,127

Denominator:
Weighted average shares of the Company’s common/preferred stock outstanding - basic & diluted		30,286,199		1,000,000		30,286,199		1,000,000
Basic and diluted earnings per share	$	0.059	$	0.059	$	0.094	$	0.094

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

Fair Value of Financial Instruments

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

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

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

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

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

The following table summarize financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:


	March 31, 2023
	Fair Value						Carrying
	Level 1		Level 2		Level 3		Value
Assets
Marketable securities :
Equity securities	$	945,889	$	—	$	—	$	945,889
Long-term investments:
REITs		1,058,967		—		—		1,058,967
Total assets measured at fair value	$	2,004,856	$	—	$	—	$	2,004,856


	December 31, 2022
	Fair Value						Carrying
	Level 1		Level 2		Level 3		Value
Assets
Marketable securities:
Equity securities	$	816,749	$	—	$	—	$	816,749
Long-term investments:
REITs		1,039,576		—		—		1,039,576
Total assets measured at fair value	$	1,856,325	$	—	$	—	$	1,856,325

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

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

Concentration of Credit Risk

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

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, time deposits, restricted cash, register capital deposits, contract assets and accounts receivable. As of March 31, 2023 and December 31, 2022, approximately $2,724,643 and $2,356,000 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 $98,662,650 and $93,337,000, was not insured. With respect to accounts receivable, the Company generally does not require collateral and does not have collectability concern.

For the three months ended March 31, 2023 and 2022, the Company had three insurance companies individually exceeding 10% of total revenues, which represented 29%, 15% and 12% for the three months ended March 31, 2023, and 25%, 14% and 11% for the three months ended March 31, 2022, respectively.

As of March 31, 2023 and December 31, 2022, the Company had three insurance companies with accounts receivable and contract assets balances individually exceeding 10% of the total accounts receivable and contract assets balances, which represented accounting for 30%, 15% and 11% as of March 31, 2023, and 32%, 13% and 12% as of December 31, 2022, respectively.

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

New Accounting Pronouncements and Other Guidance

New accounting pronouncement adopted

Credit Losses

The Company adopted ASU No. 2016-13, (FASB ASC Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments on January 1, 2023, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASC Topic 326 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. There was no impact upon initial application of ASC Topic 326 on the Company’s financial position, results of operations or cash flows.

New accounting pronouncements not yet adopted

During the first quarter of 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU 2023-01, “Leases,” which guides accounting for leasehold improvements associated with leases between entities under common control, and issued ASU 2023-02, “Investments—Equity Method and Joint Ventures,” which permits reporting entities to elect to account for their tax equity investments,

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regardless of the program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.

The Company does not believe that accounting pronouncements recently issued but not yet adopted will have an impact on its financial position, results of operations or cash flows.

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

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

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

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

The Company also recognized the severance payments of $627,407 under operating expenses in 2022 related to the disposal of Jiangsu Law.

NOTE 4 – CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash, cash equivalents and restricted cash consisted of the following as of March 31, 2023 and December 31, 2022:


	March 31, 2023
	(unaudited)		December 31, 2022
Cash and cash equivalents:
Cash on hand and in banks	$	23,206,656	$	25,557,582
Restricted cash – noncurrent		10,903		7,679
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	23,217,559	$	25,565,261

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

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NOTE 5 – TIME DEPOSITS


	March 31, 2023
	(unaudited)		December 31, 2022

Total time deposits	$	78,365,909	$	75,462,846
Less: time deposits – original maturities less than three months under cash and cash equivalents		(3,372,186)		(8,492,887)
Time deposits – original maturities over three months but less than one year	$	74,993,723	$	66,969,959

Time Deposits Pledged as Collateral

The Company had a total of $29,444,790 (NTD 897.6 million) and $28,555,418 (NTD 876.2 million) restricted time deposits, respectively, as of March 31, 2023 and December 31, 2022. As of March 31, 2023 and December 31, 2022, time deposits of $32,803 (NTD 1 million) and $32,590 (NTD 1 million) were pledged as collateral for the Company’s credit card, respectively. In addition, the Company had time deposits of $29,411,987 and $28,522,828 pledged as collateral for short-term loans, respectively, as of March 31, 2023 and December 31, 2022. See Note 6.

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NOTE 6 – SHORT-TERM LOANS

The Company’s short-term loans consisted of the following as of March 31, 2023 and December 31, 2022:


		March 31, 2023
		(unaudited)				December 31, 2022
		Debt		Collateral		Debt		Collateral
Line of Credit	Collateral	balance		value		balance		value
$4.0 million revolving line of credit with O-Bank; the loan bears interest at the TAIFX3 rate plus a margin of 0.45% and matures on December 6, 2023.	Time deposits	$	4,000,000	$	6,262,162	$	4,000,000	$	6,221,382
$6.6 million (NTD 200 million) revolving line of credit with E. Sun Bank (“E. Sun”); the loan bears interest at the TAIBOR rate plus a margin of 0.17% and matures on October 7, 2023.	Time deposits		3,539,484		3,608,947		3,258,974		3,585,445
$3.3 million (NTD 100 million) revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the FEIB’s adjustable rates for loans plus a margin of 0.6% and matures on January 16, 2024.	Time deposits		3,280,336		3,280,336		—		—
$3.0 million revolving line of credit with E. Sun Bank (“E. Sun”); the loan bears interest at the TAIFX3 rate plus a margin of 0.4% and matures on October 7, 2023.	Time deposits		3,000,000		3,459,593		2,490,000		2,724,462
$8.2 million (NTD 250 million) revolving line of credit with Cathay United Bank Company Limited (“CUB”); the loan bears interest at the 1-month TAIBOR rate plus a margin of 0.46% and matures on April 11, 2023.	Time deposits		2,762,043		6,301,526		6,260,490		6,260,490
$2.5 million revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the TAIFX3 rate plus a margin of 0.5% and matures on January 16, 2024.	Time deposits		2,500,000		2,558,663		—		—
$6.0 million revolving line of credit with Taishin International Bank (“TSIB”); the loan bears interest at the TSIB’s cost of funds plus a margin of 0.65% and matures on May 31, 2023.	Time deposits		2,340,000		2,300,000		2,200,000		2,300,000
$1.5 million revolving line of credit with CTBC Bank Co., Ltd. (“CTBC”); the loan bears interest at the CTBC’s cost of funds plus a negotiated margin on individual case basis and matured on February 29, 2024.	Time deposits		650,000		1,640,760		—		—
$3.3 million (NTD 100 million) revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the FEIB’s adjustable rates for loans plus a margin of 0.6% and matured on January 13, 2023.	Time deposits		—		—		—		3,258,974
$2.5 million revolving line of credit with Far Eastern International Bank (“FEIB”); the loan bears interest at the TAIFX3 rate plus a margin of 0.5% and matured on January 13, 2023.	Time deposits		—		—		2,150,000		2,542,000
$1.5 million revolving line of credit with CTBC Bank Co., Ltd. (“CTBC”); the loan bears interest at the CTBC's cost of funds plus a negotiated margin on individual case basis and matured on February 28, 2023.	Time deposits		—		—		650,000		1,630,075
$6.6 million (NTD 200 million) revolving line of credit with Taishin International Bank (“TSIB”); the loan bears interest at the TSIB's cost of funds plus a margin of 0.6% and matures on May 31, 2023.	Time deposits		—		—		—		—
$6.6 million (NTD 200 million) revolving line of credit with CTBC Bank Co., Ltd. (“CTBC”); the loan bears interest at the CTBC's cost of funds plus a negotiated margin on individual case basis and matured on February 29, 2024.	Time deposits		—		—		—		—
$3.1 million revolving line of credit with KGI Commercial Bank Co., Ltd. (“KGI”); the loan bears interest at the TAIFX Fixing rate plus a margin of 0.9% and matures on August 17, 2023.	Time deposits		—		—		—		—
$3 million revolving line of credit with Cathay United Bank Company Limited (“CUB”); the loan bears interest at the 1-month TAIBOR rate plus a margin of 0.6% and matures on April 11, 2023.	Time deposits		—		—		—		—
		$	22,071,863	$	29,411,987	$	21,009,464	$	28,522,828

Borrowings under the revolving credit agreements are generally due average 71 days or less for the three months ended March 31, 2023. Total interest expenses for short-term loans incurred were $188,417 and $52,335 for the three months ended March 31, 2023 and 2022, respectively.

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NOTE 7 – COMMISSION PAYABLE TO SALES PROFESSIONALS

Commission payable to sales professionals consisted of the following as of March 31, 2023 and December 31, 2022:


	March 31, 2023
	(unaudited)		December 31, 2022
Taiwan	$	12,380,974	$	16,018,808
PRC		142,528		202,630
Total commission payable to sales professionals	$	12,523,502	$	16,221,438

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

NOTE 8 – OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following as of March 31, 2023 and December 31, 2022:


	March 31, 2023
	(unaudited)		December 31, 2022
Accrued bonus	$	4,991,754	$	6,230,168
Payroll payable and other benefits		1,994,541		2,143,247
Accrued business tax and tax withholdings		1,558,263		1,964,615
Other accrued expenses (Note 9)		2,452,335		2,255,567
Total other current liabilities	$	10,996,893	$	12,593,597

NOTE 9 – OTHER LIABILITIES

The Company’s other liabilities consisted of the following as of March 31, 2023 and December 31, 2022:


	March 31, 2023
	(unaudited)		December 31, 2022
Due to previous shareholders of AHFL	$	492,050	$	488,846
Less: other current liabilities (under other accrued expenses in Note 8)		(492,050)		—
Other liabilities - noncurrent	$	—	$	488,846

Due to Previous Shareholders of AHFL

Due to previous shareholders of AHFL is the entire remaining balance payable of the acquisition cost. In March 2021, the Company entered a seventh amendment with the selling shareholders in negotiation with the previous shareholders of AHFL to extend the repayment date to March 31, 2024. As of March 31, 2023 and December 31, 2022, the amount due to previous shareholders of AHFL were $492,050 and $488,846, respectively.

NOTE 10 – CONTRACTS WITH CUSTOMERS

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


	March 31, 2023
	(unaudited)		December 31, 2022
Accounts receivable	$	20,745,793	$	27,562,055
Contract assets		1,654,986		—
Contract liabilities – current		130,589		155,189
Contract liabilities – noncurrent		1,249,652		1,241,514

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Contract with AIATW

On June 10, 2013, AHFL entered into a Strategic Alliance Agreement (the “Alliance Agreement”) with AIA International Limited Taiwan Branch (“AIATW”), the purpose of which is to promote life insurance products provided by AIATW within Taiwan by insurance agencies or brokerage companies affiliated with AHFL or China United. Pursuant to the terms of the Alliance Agreement, AIATW paid AHFL an execution fee, which was recorded as revenue upon fulfilling certain criteria over the original term of the Alliance Agreement. On March 15, 2022, AHFL entered into the Fourth Amendment to the Alliance Agreement (the “Amendment 4”), which, among other things, extended the expiration date of the Alliance Agreement to December 31, 2031. Pursuant to Amendment 4, the sales targets for the remaining contract term under the Alliance Agreement shall be changed by reference to (i) the amount of VONB and (ii) the 13-month persistency ratio as set forth therein, provided that to the extent any underlying insurance contract is revoked, invalidated or terminated and premiums are refunded to such policyholder, the amount of the related VONB shall be correspondingly reduced. Amendment 4 provides that AIATW shall pay the strategic alliance business promotion fee of NTD 50 million to AHFL; however, AHFL shall be required to return certain portions of or all of the business promotion fees within thirty (30) days of receipt of notice provided by AIATW if AFHL fails to meet certain goals set in Table 2 and Table 3 of Amendment 4. The primary factor under formula one focuses on the annual and/or accumulated achievement rate(s), while the primary factor under formula two focuses on the 13-month persistency ratio(s), among others.

The Company recognized the revenue related to AIATW of $25,692 (NTD 780,952) and $22,135 (NTD 619,428), net of VAT, for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and December 31, 2022, the Company had $1,249,652 and $1,241,514 of non-current portion of contract liabilities, respectively, and current contract liabilities of $130,589 and $155,189, respectively, related to the Alliance Agreement.

NOTE 11 –LEASE

The Company has operating leases for its offices with lease terms ranging from one to five years. The Company recorded its operating lease cost of $1,089,887 and $1,370,536 for the three months ended March 31, 2023 and 2022, respectively.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As of March 31, 2023 and December 31, 2022, operating lease right-of-use assets and lease liabilities were as follows:


	March 31, 2023
	(unaudited)		December 31, 2022
Right-of-use assets under operating leases	$	6,928,598	$	7,162,373
Operating lease liabilities – current		3,396,741		3,556,295
Operating lease liabilities – noncurrent		3,439,892		3,514,245

Lease Term and Discount Rate


	March 31, 2023
	(unaudited)			December 31, 2022
Weighted average remaining lease term
Operating lease		2.53	years		2.54	years
Weighted average discount rate
Operating lease		2.61	%		2.59	%

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The minimum future lease payments as of March 31, 2023 are as follows:


		Amount
2023 (remainder of year)		$	2,828,110
2024			2,447,300
2025			1,085,521
2026			461,473
2027			268,704
Thereafter			—
Total minimum lease payments			7,091,108
Less: Interest	��		(254,475)
Present value of future minimum lease payments		$	6,836,633

NOTE 12 – INCOME TAX

The following table reconciles the Company’s statutory tax rates to effective tax rates for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022
	(unaudited)		(unaudited)
U.S. statutory rate	21	%	21	%
Tax rate difference	(1)	%	(2)	%
Change in valuation allowance for unrecognized tax losses	4	%	8	%
Income tax on undistributed earnings	4	%	4	%
Release of valuation allowance	(3)	%	—	%
Utilization of previously unrecognized tax losses	—	%	(2)	%
Non-deductible and non-taxable items	1	%	—	%
Other	—	%	(4)	%
Effective tax rate	26	%	25	%

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

When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of operations and other comprehensive income (loss).

For the three months ended March 31, 2023, the utilization of deferred tax assets of $114,656 (RMB 784,407) not previously recognized was from the Company’s VIE and its subsidiaries in China. The historical evidence of the past financial performance of VIE and its subsidiaries in China provides positive evidence that it may be able to realize their deferred tax assets in the future, indicating that they have not incurred consistent losses in the past, which is a positive indicator of their ability to generate future taxable income. Therefore, the Company has determined that a valuation allowance for deferred tax assets is not necessary at this time and released the related valuation allowance accordingly.

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As of March 31, 2023 and December 31, 2022, there was no balance related to uncertain tax position.

NOTE 13– COMMITMENTS AND CONTINGENCIES

Operating Leases

See future minimum annual lease payments in Note 11.

Time Deposits Pledged as Collateral

See time deposits pledged as collateral for short-term loans in Notes 5 and 6.

Appointment Agreement

On June 30, 2022, Law Broker entered into an appointment agreement with Shu-Fen, Lee (“Ms. Lee”), pursuant to which, she served and will continue serving as the president of Law Broker from December 21, 2021 to June 29, 2025. Ms. Lee’s primary responsibilities included 1) overall business planning, 2) implementation of resolution of the shareholders’ meeting or the board of directors, 3) the appointment and dismissal of the Law Broker’s employees and sales professionals, except for internal auditors, 4) financial management and application, 5) being the representative of Law Broker, and 6) other matters assigned by the board of directors. According to the appointment agreement, Ms. Lee’s compensation plan included: 1) base salary, 2) managerial allowance, 3) surplus bonus based on 1.25% of Law Broker’s income after tax, and 4) annual year-end bonus. For the three months ended March 31, 2023 and 2022 the Company has recorded the compensation expense of $65,739 and $72,905 under the appointment agreement, respectively.

Engagement Agreement

On December 23, 2021, Law Broker entered into a new engagement agreement with Hui-Hsien Chao (“Ms. Chao”), pursuant to which she served and will continue serving as the general manager of Law Broker from December 23, 2021 to December 22, 2024. Ms. Chao’s primary responsibilities are to assist Law Broker in operating and managing insurance agency business. According to the engagement agreement, Ms. Chao’s Bonus plans shall include: 1) execution, 2) long-term service fees and 3) non-competition. The payment of such bonuses will only occur upon satisfaction of certain conditions and subject to the terms in the engagement agreement. Ms. Chao has agreed to act as the general manager or equivalent position of Law Broker for a term of at least three years. For the three months ended March 31, 2023 and 2022, the Company did not record any performance bonus expense under the engagement agreement.

NOTE 14 –VARIABLE INTEREST ENTITIES

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


	March 31, 2023
(Amount in USD)	(unaudited)		December 31, 2022
Total current assets	$	2,488,966	$	2,801,091
Total assets		4,571,132		4,818,965
Total current liabilities		992,173		1,188,189
Total liabilities		1,308,739		1,531,793


	Three Months Ended March,
(Amount in USD)	2023		2022
Revenue	$	869,084	$	1,347,816
Net loss		(36,247)		(201,946)
Net cash used in operating activities		(352,230)		(472,033)
Net cash (used in) provided by investing activities		(1,177)		2,290,667
Net cash used in financing activities		—		(15,760)

The VIEs contributed $869,084 and $1,347,816 of the Company’s consolidated revenue for the three months ended March 31, 2023 and 2022, respectively, after elimination of inter-company transactions.

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As of March 31, 2023, there was no pledge or collateralization of the VIE’s assets that can only be used to settle obligations of the VIE, other than the share pledge agreements, restricted cash and registered capital deposits. Other than the amounts due to the Company and its non-VIE subsidiaries (which are eliminated upon consolidation), the creditors of the VIEs’ third-party liabilities did not have recourse to the general credit of the Company in normal course of business. The Company did not provide or intend to provide financial or other supports not previously contractually required to the VIEs during the years presented.

NOTE 15 – SEGMENT REPORTING

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

The geographical distributions of the Company’s financial information for the three months ended March 31, 2023 and 2022 were as follows:


	Three Months Ended March 31,
	2023		2022
	(unaudited)		(unaudited)
Geographical Areas
Revenue
Taiwan	$	33,812,883	$	30,505,357
PRC		869,084		1,347,816
Hong Kong		393		82,822
Elimination adjustment		(892,046)		(955,472)
Total revenue	$	33,790,314	$	30,980,523

Income (loss) from operations
Taiwan	$	5,044,199	$	5,213,523
PRC		(210,079)		(155,919)
Hong Kong		(39,184)		38,401
Elimination adjustment		(88,594)		217,810
Total income from operations	$	4,706,342	$	5,313,815

Non-operating income (expense)
Taiwan	$	314,633	$	860,527
PRC		(31,576)		256,585
Hong Kong		(411)		9,502
Elimination adjustment		(162,840)		(174,374)
Total non-operating income	$	119,806	$	952,240

Net income (loss)
Taiwan	$	3,950,574	$	4,570,169
PRC		(78,884)		25,798
Hong Kong		(39,596)		44,756
Elimination adjustment		(251,433)		43,435
Total net income	$	3,580,661	$	4,684,158

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The geographical distribution of the Company’s financial information as of March 31, 2023 and December 31, 2022 were as follows:



	March 31, 2023
	(unaudited)		December 31, 2022
Geographical Areas
Reportable assets
Taiwan	$	203,731,037	$	202,457,009
PRC		12,199,276		12,448,808
Hong Kong		477,739		695,662
Elimination adjustment		(77,077,836)		(76,708,683)
Total reportable assets	$	139,330,216	$	138,892,796

Long-lived assets
Taiwan	$	7,564,855	$	7,688,684
PRC		1,007,033		1,108,495
Hong Kong		2,038		2,217
Elimination adjustment		(2,907)		(2,907)
Total long-lived assets	$	8,571,019	$	8,796,489

NOTE 16 – SUBSEQUENT EVENTS

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

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

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

Overview

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

(1)

Life Insurance Products

Total revenue from Taiwan segment’s sales of life insurance products were 92.0% and 89.2% of the Company’s total revenue for the three months ended March 31, 2023 and 2022, respectively. Total revenue from PRC segment’s sales of life insurance products were 2.6% and 3.6% of the Company’s total revenue for the three months ended March 31, 2023 and 2022, respectively.

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

(2)

Property and Casualty Insurance Products

Total revenue from Taiwan segment’s sales of property and casualty insurance products were 5.4% and 6.3% of the Company’s total revenue for the three months ended March 31, 2023 and 2022, respectively. Total revenue from PRC segment’s sales of property and casualty insurance products was nil and 0.7% of the Company’s total revenue for the three months ended March 31, 2023 and 2022, respectively.

The Company continues to diligently monitor and manage through the impact of the ongoing COVID-19 pandemic on all aspects of our business, attempting to keep our customers, sales professionals and employees healthy and safe. Although the extent of the COVID-19 impact to the Company will depend on numerous factors and developments, we do not expect the COVID-19 pandemic to materially impact our business and financial conditions in 2023 based on current trends.

Critical Accounting Policies and Estimates

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We have had no changes to our Critical Accounting Policies as described in our most recent Form 10-K for the year ended December 31, 2022 and believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition and estimate of income taxes. Our significant accounting policies are described

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in Note 2 of “Summary of Significant Accounting Policies” included within our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Results of Operations - Three Months ended March 31, 2023 Compared to Three Months ended March 31, 2022

The following table shows the results of operations for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023			2022
	(Unaudited)			(Unaudited)			Change			Percent
Revenue	$	33,790,314		$	30,980,523		$	2,809,791		9.1	%
Cost of revenue		22,242,147			19,009,519			3,232,628		17.0	%
Gross profit		11,548,167			11,971,004			(422,837)		(3.5)	%
Gross profit margin		34.2	%		38.6	%		(4.4)	%	(11.4)	%

Operating expenses:
Selling		593,671			684,150			(90,479)		(13.2)	%
General and administrative		6,248,154			5,973,039			275,115		4.6	%
Total operating expenses		6,841,825			6,657,189			184,636		2.8	%

Income from operations		4,706,342			5,313,815			(607,473)		(11.4)	%

Other income (expenses):
Interest income		208,811			104,977			103,834		98.9	%
Interest expenses		(188,417)			(52,335)			(136,082)		260.0	%
Foreign currency exchange (loss) gain, net		(137,488)			737,550			(875,038)		(118.6)	%
Other - net		236,900			162,048			74,852		46.2	%
Total other income, net		119,806			952,240			(832,434)		(87.4)	%

Income before income taxes		4,826,148			6,266,055			(1,439,907)		(23.0)	%
Income tax expense		(1,245,487)			(1,581,897)			336,410		(21.3)	%

Net income		3,580,661			4,684,158			(1,103,497)		(23.6)	%
Net income attributable to noncontrolling interests		(1,719,218)			(1,739,281)			20,063		(1.2)	%
Net income attributable to China United’s shareholders		1,861,443			2,944,877			(1,083,434)		(36.8)	%

Other comprehensive items, net of tax:		656,425			(3,113,495)			3,769,920		(121.1)	%

Comprehensive income		4,237,086			1,570,663			2,666,423		169.8	%
Comprehensive income attributable to noncontrolling interests		(1,934,432)			(697,445)			(1,236,987)		177.4	%
Comprehensive income attributable to China United’s shareholders	$	2,302,654		$	873,218		$	1,429,436		163.7	%

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Revenue

As a distributor of insurance products, we derive our revenue primarily from commissions and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance companies in Taiwan, PRC and Hong Kong. We generate revenue primarily through our sales force, which consists of individual sales professional in our distribution and service network. For the three months ended March 31, 2023 and 2022, the revenues generated from Taiwan, PRC and Hong Kong were as follows:


Geographic Areas	Three Months Ended March 31,
	2023			2022			Change		Percent
Revenue
Taiwan segment	$	32,920,838		$	29,549,885		$	3,370,953	11.4	%
Percentage of revenue		97.4	%		95.4	%
PRC segment		869,083			1,347,816			(478,733)	(35.5)	%
Percentage of revenue		2.6	%		4.3	%
Hong Kong segment		393			82,822			(82,429)	(99.5)	%
Percentage of revenue		—	%		0.3	%
Total revenue	$	33,790,314		$	30,980,523		$	2,809,791	9.1	%

Revenue from our Taiwan segment increased by $3.4 million from $29.5 million for the three months ended March 31, 2022 to $32.9 million for the three months ended March 31, 2023. The revenue in local currency was increased due to the increased performance and operation bonus resulting from the increased sales of insurance products from Uniwill and Law Broker, which was benefited from the popularity of interest linked insurance policies, and the revenue was partially offset by the decrease in revenue from continuance bonus in Uniwill.

Revenue from our PRC segment decreased by $0.4 million from $1.3 million for the three months ended March 31, 2022 to $0.9 million for the three months ended March 31, 2023. The decrease in revenue from our PRC segment was mainly due to the disposal of Jiangsu Law, which had contributed substantial revenue in the PRC segment for the three months ended March 31, 2022, and due to the decrease of trailing commissions for subsequent years resulting from the overall declining market in PRC segment.

Revenue from the Hong Kong Segment was primarily derived from reinsurance commission on sales of insurance products from other insurers to Taiwan Life Insurance Co., Ltd. (“Taiwan Life”) for risk management. The decrease in revenue from our Hong Kong segment for the three months ended March 31, 2023 compared to that of the three months ended March 31, 2022 was due to the termination of certain of our reinsurance agreements and the discontinuation of travel insurance.

Cost of revenue and gross profit

The cost of revenue mainly consists of commissions paid to our sales professionals. The cost of revenue increased by $3.2 million from $19.0 million for the three months ended March 31, 2022 to $22.2 million for the three months ended March 31, 2023. The increase in the cost of revenue was mainly resulted from the revenue increase of both Uniwill and Law Broker. In addition, the bonuses paid to sales agents also increased due to relatively more outstanding sales performance from senior sales agents with higher commission rates.

Consequently, the gross profit margin decreased from 38.6% for the three months ended March 31, 2022 to 34.2% for the three months ended March 31, 2023.

Selling expenses

Selling expenses were mainly incurred by Law Broker and Uniwill in connection with costs related to marketing and advertising. For the three months ended March 31, 2023, selling expenses were $0.6 million, which was not significantly different from those of the same period of 2022.

General and administrative expenses

General and administrative (“G&A”) expenses are principally comprised of salaries and benefits for our administrative staff, office rental expenses, travel expenses, depreciation and amortization, entertainment expenses, and professional service fees. For the three months ended March 31, 2023, G&A expenses were $6.2 million, reflecting an increase of $0.2 million, compared with $6.0 million of

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G&A expenses for the three months ended March 31, 2022. The increase in the general and administrative expenses was attributed to the recognition of office rental expenses arising from the growing operation of Uniwill.

Other income (expenses), net

Other income mainly consisted of interest income, interest expenses, gain or loss on valuation of financial assets and foreign currency exchange gain or loss. Other income were $0.1 million, reflecting a decrease of $0.9 million, compared with the other income of $1.0 million for the three months ended March 31, 2022. The net decrease in other income was mainly due to the foreign currency exchange gain recognized from foreign currency time deposits assets and intercompany transactions that will be paid back in currency other than the functional currency because of the substantial depreciation of the New Taiwan Dollar against the U.S. dollar and Chinese Yuan during the first quarter of 2022 compared that of the same period in 2023.

Income tax expense

For the three months ended March 31, 2023, income tax expense was $1.2 million, reflecting a decrease of $0.4 million or 21.3%, compared with the income tax expense of $1.6 million for the three months ended March 31, 2022. The slight decrease in income tax expense was mainly due to the foreign currency exchange rates fluctuations and release of valuation allowance.

Other comprehensive items

Other comprehensive items mainly consisted of foreign currency translation gain or loss. The foreign currency translation gain was $0.7 million, reflecting a increase of $3.8 million, compared with foreign currency translation loss of $3.1 million for the three months ended March 31, 2022. The increase in foreign currency translation gain was mainly due to a larger foreign currency translation loss resulted from the substantial depreciation of the New Taiwan Dollar against the U.S. dollar for net assets of Taiwan segment for the three months ended March 31, 2022 compared with that of the same period in 2023.

Liquidity and Capital Resources

The following table presents a comparison of the net cash provided by operating activities, net cash used in investing activities and net cash provided by financing activities for the three-month periods ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022		Change		Percent
Net cash provided by operating activities	$	4,381,546	$	7,599,296	$	(3,217,750)	(42.3)	%
Net cash used in investing activities		(7,932,246)		(5,331,480)		(2,600,766)	48.8	%
Net cash provided by financing activities		1,002,356		1,054,769		(52,413)	(5.0)	%

Operating activities

Net cash provided by operating activities during the three months ended March 31, 2023 was $4.4 million, reflecting a decrease of $3.2 million or 42.3% in comparison with that of $7.6 million during the three months ended March 31, 2022. The decrease in cash inflows was mainly due to lower net income, the increase of accounts receivable and contract assets, offset by the decrease of income tax payable balance for the three months ended March 31, 2023 compared with that of the same period in 2022.

Investing activities

Net cash used in investing activities during the three months ended March 31, 2023 was $7.9 million, reflecting an increase of $2.6 million or 48.8% in comparison with that of $5.3 million for the three months ended March 31, 2022. Increases in the cash used in the investing activities mainly resulted from the increase of the purchases of time deposits during three months ended March 31, 2023. The cash outflow was offset by proceeds from receipts in advance of disposal of a subsidiary for the same period in 2022.

Financing activities

Net cash provided by financing activities was $1.0 million during the three months ended March 31, 2023, which decreased by $0.1 million from that of $1.1 million during the same period of 2022. Net cash provided by financing activities during the three months ended March 31, 2023 remained consistent with that of the same period in 2022.

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Contractual Obligations

There have been no significant changes to the Company’s contractual obligations as disclosed in the Company’s 2022 Annual Report on Form 10-K.

Off Balance Sheet Arrangements

The Company had no off-balance sheet arrangements as of March 31, 2023.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2023. This conclusion was based on the material weaknesses in our internal control over financial reporting described in Part II, Item 9A, “Controls and Procedures” of our annual report on Form 10-K for the year ended December 31, 2022. The material weaknesses have not been remediated as of March 31, 2023. We continue to work on the remediation of the material weakness, we may determine to take additional measures to address our control deficiencies. The material weakness will continue to exist until the remediation steps identified in our 2022 Form 10-K are fully implemented and concluded to be operating effectively.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. If not remediated, the material weaknesses in our internal control over financial reporting described in the Form 10-K for the year of 2022 could result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended March 31, 2023, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

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PART II. OTHER INFORMATION

ITEM 1. 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.

ITEM 1A. RISK FACTORS.

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

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

Not applicable during this reporting period.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable during this reporting period.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable during this reporting period.

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ITEM 6. EXHIBITS


Exhibit
Number		Description of Exhibit
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1*		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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

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SIGNATURES

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

	China United Insurance Service, Inc.

Date: May 15, 2023	By:	/s/ Yi-Hsiao Mao
	Name:	Yi-Hsiao Mao
	Its:	Chief Executive Officer
		(Principal Executive Officer)

Date: May 15, 2023	By:	/s/ Mei-Kuan Yeh
	Name:	Mei-Kuan Yeh
	Its:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

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China United Insurance Service (CUII) 10-Q2023 Q1 Quarterly report

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