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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

OR

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

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 000-54884

CHINA UNITED INSURANCE SERVICE, INC.

(Exact name of registrant as specified in its charter)

Delaware

30-0826400

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

7F, No. 311 Section 3

Nan-King East Road

Taipei City, Taiwan

(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 October 30, 2020, there were 29,421,736 shares of common stock issued and outstanding, and 1,000,000 preferred shares issued and outstanding.

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

   

5

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5

ITEM 2.

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

31

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

39

ITEM 4.

CONTROLS AND PROCEDURES

39

PART II.

OTHER INFORMATION

40

ITEM 1.

LEGAL PROCEEDINGS

40

ITEM 1A.

RISK FACTORS

40

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

40

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

40

ITEM 4.

MINE SAFETY DISCLOSURES

40

ITEM 5.

OTHER INFORMATION

40

ITEM 6.

EXHIBITS

41

SIGNATURES

42

2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

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

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

3

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 Hong Kong, Macao and 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” refers to the combined operations of Law Anhou Insurance Agency Co., Ltd. and its subsidiaries.

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

4

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

    

September 30, 2020

    

December 31, 2019

(Amount in USD)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

13,571,935

$

12,615,008

Time deposits

 

46,890,005

 

38,731,658

Accounts receivable

 

15,309,244

 

22,541,558

Contract assets

3,593,536

Marketable securities

1,214,712

290,153

Other current assets

 

1,751,824

 

1,810,962

Total current assets

 

82,331,256

 

75,989,339

Property and equipment, net

 

2,176,044

 

1,402,866

Right-of-use assets under operating leases

5,791,689

5,522,665

Intangible assets, net

 

387,986

 

518,264

Long-term investments

 

2,784,188

 

2,693,082

Restricted cash – noncurrent

 

63,779

 

43,492

Deferred tax assets

1,016,388

441,364

Other assets

 

3,776,728

 

2,631,350

TOTAL ASSETS

$

98,328,058

$

89,242,422

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current liabilities

 

  

 

  

Short-term loans

$

13,466,184

$

8,100,000

Commissions payable to sales professionals

10,466,205

12,545,730

Contract liabilities - current

1,609,155

1,781,975

Income tax payable - current

 

2,583,652

 

2,389,304

Operating lease liabilities - current

2,740,054

2,242,034

Due to related parties

 

190,933

 

462,859

Other current liabilities

 

7,306,157

 

9,875,209

Total current liabilities

 

38,362,340

 

37,397,111

Contract liabilities - noncurrent

271,375

1,049,258

Income tax payable - noncurrent

 

719,515

 

815,451

Operating lease liabilities - noncurrent

3,008,155

3,048,632

Other liabilities

 

1,365,689

 

1,180,478

TOTAL LIABILITIES

 

43,727,074

 

43,490,930

COMMITMENTS AND CONTINGENCIES

 

 

STOCKHOLDERS’ EQUITY

 

 

Preferred stock, par value $0.00001, 10,000,000 authorized, 1,000,000 issued and outstanding

 

10

 

10

Common stock, par value $0.00001, 100,000,000 authorized, 29,421,736 issued and outstanding

 

294

 

294

Additional paid-in capital

 

8,190,449

 

8,190,449

Statutory reserves

 

8,228,904

 

8,228,904

Retained earnings

 

12,191,120

 

9,402,294

Accumulated other comprehensive income

 

1,715,678

 

417,015

Total stockholders' equity attribute to the Company's shareholders

 

30,326,455

 

26,238,966

Noncontrolling interests

 

24,274,529

 

19,512,526

TOTAL STOCKHOLDERS' EQUITY

 

54,600,984

 

45,751,492

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

98,328,058

$

89,242,422

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

5

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

(Amount in USD)

 

Revenue

$

33,235,952

$

23,266,852

$

91,200,916

$

64,449,994

Cost of revenue

 

21,269,044

 

14,374,811

 

63,261,959

 

41,805,241

Gross profit

 

11,966,908

 

8,892,041

 

27,938,957

 

22,644,753

Operating expenses:

 

 

 

 

Selling

 

926,004

 

744,429

 

1,783,692

 

1,741,372

General and administrative

 

5,705,115

 

4,706,802

 

18,614,446

 

12,934,838

Total operating expense

 

6,631,119

 

5,451,231

 

20,398,138

 

14,676,210

Income from operations

 

5,335,789

 

3,440,810

 

7,540,819

 

7,968,543

Other income (expenses):

 

 

 

 

Interest income

 

100,266

 

138,408

 

325,168

 

356,896

Interest expenses

 

(33,443)

 

(64,372)

 

(153,703)

 

(144,515)

Dividend income

 

2,368

 

(720)

 

321,603

 

309,903

Other - net

 

23,648

 

(180,560)

 

94,796

 

134,122

Total other income (expense), net

 

92,839

 

(107,244)

 

587,864

 

656,406

Income before income taxes

 

5,428,628

 

3,333,566

 

8,128,683

 

8,624,949

Income tax expense

 

(1,364,725)

 

(933,985)

 

(2,893,297)

 

(2,254,086)

Net income

 

4,063,903

 

2,399,581

 

5,235,386

 

6,370,863

Less: net income attributable to noncontrolling interests

 

(1,277,587)

 

(1,071,427)

 

(2,446,560)

 

(2,557,603)

Net income attributable to the Company's shareholders

 

2,786,316

 

1,328,154

 

2,788,826

 

3,813,260

Other comprehensive income (loss) items:

 

 

 

 

Foreign currency translation gain (loss)

 

1,106,349

 

(186,331)

 

2,066,175

 

(782,667)

Other

 

(201)

 

 

(317)

 

Total other comprehensive income (loss)

1,106,148

(186,331)

2,065,858

(782,667)

Comprehensive income

5,170,051

2,213,250

7,301,244

5,588,196

Less: comprehensive income attributable to noncontrolling interests

(1,709,453)

(1,044,640)

(3,213,755)

(2,311,894)

Comprehensive income attributable to the Company's shareholders

$

3,460,598

$

1,168,610

$

4,087,489

$

3,276,302

Weighted average shares outstanding

 

 

 

 

Basic and diluted

29,421,736

29,421,736

29,421,736

29,432,047

Earnings per share attributable to the Company's shareholders

 

 

  

 

 

Basic and diluted

$

0.092

$

0.044

$

0.092

$

0.125

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

6

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

Accumulated

Additional

Other

Common

Preferred

Paid-in

Statutory

Comprehensive

Retained

Noncontrolling

Total

    

Stock

    

Amount

    

Stock

    

Amount

    

Capital

    

Reserves

    

Income

    

Earnings

    

Total

    

Interests

    

Equity

(Amount in USD)

Balance June 30, 2020

 

29,421,736

$

294

1,000,000

$

10

$

8,190,449

$

8,228,904

$

1,041,396

$

9,404,804

$

26,865,857

$

22,565,076

$

49,430,933

Foreign currency translation gain

 

 

 

 

 

 

 

674,414

 

 

674,414

 

431,935

 

1,106,349

Other comprehensive loss

 

 

 

 

 

 

 

(132)

 

 

(132)

 

(69)

 

(201)

Net income

 

 

 

 

 

 

 

 

2,786,316

 

2,786,316

 

1,277,587

 

4,063,903

Balance September 30, 2020

 

29,421,736

$

294

1,000,000

$

10

$

8,190,449

$

8,228,904

$

1,715,678

$

12,191,120

$

30,326,455

$

24,274,529

$

54,600,984

Accumulated

Additional

Other

Common

Preferred

Paid-in

Statutory

Comprehensive

Retained

Noncontrolling

Total

    

Stock

    

Amount

    

Stock

    

Amount

    

Capital

    

Reserves

    

Income

    

Earnings

    

Total

    

Interests

    

Equity

(Amount in USD)

Balance December 31, 2019

 

29,421,736

$

294

1,000,000

$

10

$

8,190,449

$

8,228,904

$

417,015

$

9,402,294

$

26,238,966

$

19,512,526

$

45,751,492

Compensation cost in connection with issuance of preferred stock on the Company’s subsidiary, Uniwill, to nonemployees

1,547,229

1,547,229

Business acquisition

 

 

 

 

 

 

 

 

 

 

1,019

 

1,019

Foreign currency translation gain

 

 

 

 

 

 

 

1,298,872

 

 

1,298,872

 

767,303

 

2,066,175

Other comprehensive loss

 

 

 

 

 

 

 

(209)

 

 

(209)

 

(108)

 

(317)

Net income

 

 

 

 

 

 

 

 

2,788,826

 

2,788,826

 

2,446,560

 

5,235,386

Balance September 30, 2020

 

29,421,736

$

294

1,000,000

$

10

$

8,190,449

$

8,228,904

$

1,715,678

$

12,191,120

$

30,326,455

$

24,274,529

$

54,600,984

7

Accumulated

Additional

Other

Common

Preferred

Paid-in

Statutory

Comprehensive

Retained

Noncontrolling

Total

    

Stock

    

Amount

    

Stock

    

Amount

    

Capital

    

Reserves

    

Loss

    

Earnings

    

Total

    

Interests

    

Equity

(Amount in USD)

Balance June 30, 2019

 

29,421,736

$

294

1,000,000

$

10

$

8,190,449

$

8,058,094

$

(548,732)

$

8,999,362

$

24,699,477

$

17,648,448

$

42,347,925

Appropriation of reserves

(1,760)

1,760

Acquisition of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

(30,150)

 

(30,150)

Foreign currency translation loss

 

 

 

 

 

 

 

(159,544)

 

 

(159,544)

 

(26,787)

 

(186,331)

Net income

 

 

 

 

 

 

 

 

1,328,154

 

1,328,154

 

1,071,427

 

2,399,581

Balance September 30, 2019

 

29,421,736

$

294

1,000,000

$

10

$

8,190,449

$

8,056,334

$

(708,276)

$

10,329,276

$

25,868,087

$

18,662,938

$

44,531,025

Accumulated

Additional

Other

Common

Preferred

Paid-in

Statutory

Comprehensive

Retained

Noncontrolling

Total

    

Stock

    

Amount

    

Stock

    

Amount

    

Capital

    

Reserves

    

Loss

    

Earnings

    

Total

    

Interests

    

Equity

(Amount in USD)

Balance December 31, 2018

 

29,452,669

$

295

1,000,000

$

10

$

8,190,449

$

7,299,123

$

(171,318)

$

7,273,227

$

22,591,786

$

16,351,044

$

38,942,830

Appropriation of reserves

 

 

 

 

 

757,211

(757,211)

Foreign currency translation loss

 

 

 

 

 

 

 

(536,958)

 

 

(536,958)

 

(245,709)

 

(782,667)

Retirement of common stock

(30,933)

(1)

(1)

(1)

Net income

 

 

 

 

 

 

 

 

3,813,260

 

3,813,260

 

2,557,603

 

6,370,863

Balance September 30, 2019

 

29,421,736

$

294

1,000,000

$

10

$

8,190,449

$

8,056,334

$

(708,276)

$

10,329,276

$

25,868,087

$

18,662,938

$

44,531,025

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

8

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended

September 30, 

(Amount in USD)

    

2020

    

2019

Cash flows from operating activities:

Net income

$

5,235,386

$

6,370,863

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

 

 

Compensation cost in connection with issuance of preferred stock on the Company’s subsidiary, Uniwill, to nonemployees

1,547,229

Depreciation and amortization

 

694,862

 

498,178

Amortization of bond premium

 

202

 

Gain on sales of marketable securities

(104,208)

(18,970)

Gain on valuation of financial assets

(48,904)

(24,296)

Loss on disposal of equipment

45,306

20,733

Loss on disposal of a subsidiary

5,645

Deferred income tax

 

(98,596)

 

(66,746)

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

7,775,347

 

4,473,238

Contract assets

(3,494,823)

(3,304,938)

Other current assets

 

234,614

 

(265,401)

Other assets

 

(1,512,399)

 

(3,126,292)

Commissions payable to sales professionals

 

(2,439,637)

 

(735,625)

Contract liabilities

(1,019,695)

(335,879)

Income tax payable

 

33,874

 

169,161

Other current liabilities

 

(2,565,675)

 

22,573

Other liabilities

 

140,468

 

80,562

Net cash provided by operating activities

 

4,428,996

 

3,757,161

Cash flows from investing activities:

 

 

  

Cash received from issuance of preferred stock on the Company’s subsidiary, Uniwill, to nonemployees

371

Purchases of time deposits

 

(53,753,884)

 

(41,901,757)

Proceeds from maturities of time deposits

 

47,141,011

 

31,802,019

Purchases of marketable securities

 

(950,791)

 

(315,442)

Proceeds from sales of marketable securities

 

215,832

 

364,748

Purchase of equipment

(1,250,361)

(454,612)

Proceeds from disposal of equipment

3,008

22,557

Purchase of intangible assets

 

(51,797)

 

(71,568)

Net cash used in investing activities

 

(8,646,611)

 

(10,554,055)

Cash flows from financing activities:

 

  

 

  

Proceeds from short-term loans

 

38,774,384

 

21,539,897

Repayment of short-term loans

 

(33,560,000)

 

(19,542,276)

Proceeds from related party borrowing

 

(275,573)

 

116,581

Net cash provided by financing activities

4,938,811

 

2,114,202

 

Foreign currency translation

 

256,018

 

(366,421)

Net decrease in cash, cash equivalents and restricted cash

 

977,214

 

(5,049,113)

Cash, cash equivalents and restricted cash, beginning balance

 

12,658,500

 

20,639,771

Cash, cash equivalents and restricted cash, ending balance

$

13,635,714

$

15,590,658

SUPPLEMENTARY DISCLOSURE:

Interest paid

$

160,978

$

151,011

Income tax paid

$

3,298,391

$

2,023,938

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

9

CHINA UNITED INSURANCE SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amount in USD)

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

China United Insurance Service, Inc. (“China United”, “CUII”, or the “Company”) is a Delaware corporation, organized on June 4, 2010 by Yi-Hsiao Mao, a Taiwan citizen, as a listing vehicle for both ZLI Holdings Limited (“CU Hong Kong”) and Action Holdings Financial Limited (“AHFL,” a company incorporated in the British Virgin Islands). The Company primarily engages in brokerage and insurance agency services by providing two broad categories of insurance products, life insurance products and property and casualty insurance products, and manages its business through aggregating them into three geographic operating segments, Taiwan, PRC, and Hong Kong. The Company’s common stock currently trades over the counter under the ticker symbol “CUII” on the OTC Pink market.

In May 2019, AHFL entered into an agreement to make capital contributions of $485,909 (NTD15,000,000) to AIlife International Investment Co., Limited (“AIlife”, formerly known as “Ilife”). After the transaction, the Company owned 93.75% of AIlife. In July 2019, AHFL acquired the remaining 6.25% shares of AIlife, which became the Company's wholly owned subsidiary. The business objective of AIlife is to obtain a non-exclusive license covering certain information technology systems from Law Broker and generate revenues from marketing and making the technologies available to insurance intermediary companies.

O June 4, 2019, AIlife entered into an acquisition agreement with the selling shareholder of Uniwill Insurance Broker Co., Ltd (“Uniwill”). Pursuant to the acquisition agreement, AIlife agreed to pay $14,535 (NTD 450,000) in exchange for the insurance brokerage licenses issued to Uniwill by the Taiwanese government, along with right to the Uniwill company name and $6,455 (NTD 200,000) of legal deposits. The Company has no intention of operating the Uniwill existing brokerage business nor retaining any of its sales personnel. Therefore, the acquisition is accounted as an assets purchase.

On November 15, 2019, AIlife, Cyun-Jhan Enterprise Co., Ltd. (“Cyun-Jhan”), and Jian-Zao International Industrial Co., Ltd. (“Jian-Zao” and, collectively with AIlife and Cyun-Jhan, the “Parties”) entered into a Joint Venture Agreement (the “JV Agreement”). Under the terms of the JV Agreement, the Parties agreed to invest funds, labor and technology into Uniwill. Under the terms of the JV Agreement, the paid-in capital of Uniwill should increase to an aggregate amount of $13.3 million (NTD 400 million) by AIlife, provided that the other two parties achieve performance goals no later than December 31, 2021. On August 15, 2019, AIlife increased and completed the capital injections in Uniwill to the amount of $3.3 million.

Uniwill issued a total of 9,608 preferred shares to Cyun-Jhan and Jian-Zao for cash and recognized compensation cost of $1,547,229 after the performance goals of the first stage were achieved on February 10, 2020 (the "Grant Date"). The holders of 9,608 shares of preferred stocks participate in daily operating and entitle to have the rights of share 50% of earnings of Uniwill. Each share of the preferred stock issued has 1,000 voting rights in shareholder's meeting. In addition, the holders of the preferred stocks are eligible to convert the preferred stocks to common stocks of Uniwill at a ratio of 1 preferred share to 1,000 common shares upon the achievement of the performance goals of stage two set forth in the JV Agreement. As of September 30, 2020, the performance goals of the second stage was not fulfilled.

On May 27, 2020, the Company completed the acquisition of Rays Technology Corporation ("Rays") for its 90% equity interest. The consideration to acquire 27,000 shares of Ray was US$9,177 (NTD 270,000). The acquisition is accounted as a business purchase. The Company did not recognize any goodwill or gain on bargain purchase as a result of the net asset value acquired approximating to the consideration paid.

On July 2, 2020, the Company had liquidated a subsidiary in the PRC, Prime Management Consulting (Nanjing) Co., Limited and recognized a loss on disposal of a subsidiary of $5,645 for the three and nine months ended September 30, 2020.

10

In January 2020, the World Health Organization declared an outbreak of the coronavirus (COVID-19) to be a Public Health Emergency of International Concern, subsequently declared COVID-19 a global pandemic, and recommended containment and mitigation measures worldwide on March 11, 2020. We had experienced some adverse impacts on our business in the PRC Segment, such as limited access to our staff in the PRC in the beginning of the outbreak and restrictions on business travel within the PRC and between Taiwan and the PRC. Even though the operations in the PRC segment fully resumed in the second quarter of 2020, the pandemic has created global economic uncertainties and led to negative impact on the financial markets. The extent of the COVID-19 impact to the Company will depend on numerous factors and developments related to COVID-19. Consequently, any potential impacts of COVID-19 remain highly uncertain and cannot be predicted with confidence.

The corporate structure as of September 30, 2020 is as follows:

GRAPHIC

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

11

Basis of Presentation

The condensed consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement of the financial statements have been included. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

These 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, 2019, which were included in the Company’s 2019 Annual Report on Form 10-K (“2019 Form 10-K”). The accompanying consolidated balance sheet as of December 31, 2019, has been derived from the Company’s audited consolidated financial statements as of that date.

Use of Estimates

The preparation of the Company’s 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.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable includes commission receivables stated at net realizable values. The Company reviews its accounts receivable regularly to determine if a bad debt allowance is necessary at each quarter-end. Management reviews the composition of accounts receivable and analyzes the age of receivables outstanding, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the necessity of making such allowance. No allowance was deemed necessary as of September 30, 2020 and December 31, 2019.

Foreign Currency Transactions

The Company’s financial statements are presented in U.S. dollars ($), which is the Company’s reporting and functional currency. The functional currencies of the Company’s subsidiaries are NTD, RMB and HKD. The resulting translation adjustments are reported under other comprehensive income in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 220 (“ASC 220”), “Reporting Comprehensive Income”. Gains and losses resulting from the translation of foreign currency transactions are reflected in the consolidated statements of operations and other comprehensive income (loss). Monetary assets and liabilities denominated in foreign currency are translated at the functional currency using the rate of exchange prevailing at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the consolidated statements of operations and other comprehensive income (loss).

The Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from NTD, RMB and HKD into U.S. dollars are recorded in stockholders’ equity as part of accumulated other comprehensive income. The exchange rates used for condensed consolidated financial statements are as follows:

Average Rate for the Nine Months Ended

September 30, 

    

2020

    

2019

New Taiwan dollar (NTD)

NTD

29.770854

 

NTD

31.032055

China yuan (RMB)

RMB

6.994085

 

RMB

6.861782

Hong Kong dollar (HKD)

HKD

7.757236

 

HKD

7.837965

United States dollar ($)

$

1.000000

 

$

1.000000

12

Exchange Rate at

    

September 30, 2020

    

December 31, 2019

New Taiwan dollar (NTD)

NTD

28.953074

 

NTD

29.953143

China yuan (RMB)

RMB

6.801266

 

RMB

6.966764

Hong Kong dollar (HKD)

HKD

7.749884

 

HKD

7.787223

United States dollar ($)

$

1.000000

$

1.000000

Earnings Per Share

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

As the holders of preferred stock of the Company are entitled to share equally with the holders of common stock, on a per share basis, in such dividends and other distributions of cash, property or shares of stock of the Company as may be declared by the board of directors, the preferred stock is treated as a participating security. When calculating the basic earnings per common share, the two-class method is used to allocate earnings to common stock and participating security as required by FASB ASC Topic 260, “Earnings Per Share”. As of September 30, 2020 and 2019, the Company did not have any potentially dilutive instrument.

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.

13

The following fair value hierarchy tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019:

September 30, 2020

Fair Value

Carrying

    

Level 1

    

Level 2

    

Level 3

    

Value

Assets

Total time deposits

    

$

46,890,005

$

$

$

46,890,005

Marketable securities :

Mutual funds

 

1,214,712

 

 

 

1,214,712

Long-term investments:

 

 

 

 

Government bonds held for available-for-sale

 

 

104,165

 

 

104,165

REITs

1,352,533

1,352,533

Total assets measured at fair value

$

49,457,250

$

104,165

$

$

49,561,415

December 31, 2019