| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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. 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 $30,980,523, respectively. Disaggregation information of revenue is disclosed in Note 15. Foreign Currency Transactions China United’s financial statements are presented in U.S. dollars ($), 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. 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. - 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 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, 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. |
