China United Insurance Service (CUII) Risk Analysis
Risk Overview Q4, 2022
Source: the company's latest filing for the period ended Dec 31, 2022, filed Mar 30, 2023
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1The market price of our common stock may be highly volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be volatile. This volatility may prevent you from being able to sell your shares at or above the price you paid for your shares. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include: - whether we achieve our anticipated corporate objectives;- actual or anticipated fluctuations in our quarterly or annual operating results;- changes in financial or operational estimates or projections;- termination of the lock-up agreement or other restrictions on the ability of our stockholders and other security holders to sell shares;- changes in the economic performance or market valuations of companies similar to ours; and - general economic or political conditions in the United States or elsewhere. In addition, the stock market in general, and the stock of companies that are competitive to us in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
- Accounting & Financial Operations - Risk 2We identified material weaknesses in our internal control over financial reporting, and if we are unable to achieve and maintain effective internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.
A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Our management identified certain material weaknesses as discussed in Item 9A of this report. These material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. We have taken several actions towards remediating these material weaknesses as discussed in Item 9A of this report. Although we have taken steps to address the material weaknesses, we are still in the process of completing the remediation and the steps we are taking may not be sufficient to remediate our material weaknesses or prevent future material weaknesses or significant deficiencies from occurring. We can give no assurance that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our consolidated financial statements that could result in a restatement of our consolidated financial statements and cause us to fail to meet our reporting obligations.
Risk Highlights Q4, 2022
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 19
- Share Price & Shareholder Rights - Risk 1AddedThe market price of our common stock may be highly volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be volatile. This volatility may prevent you from being able to sell your shares at or above the price you paid for your shares. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include: - whether we achieve our anticipated corporate objectives;- actual or anticipated fluctuations in our quarterly or annual operating results;- changes in financial or operational estimates or projections;- termination of the lock-up agreement or other restrictions on the ability of our stockholders and other security holders to sell shares;- changes in the economic performance or market valuations of companies similar to ours; and - general economic or political conditions in the United States or elsewhere. In addition, the stock market in general, and the stock of companies that are competitive to us in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
- Share Price & Shareholder Rights - Risk 2We have been charged with fraud for manipulating the Company's trading volume.
On December 20, 2018, the SEC filed a complaint (the "Complaint") at U.S. District Court for the Southern District of New York (the "Court") against Company and Cheng-Hsiung Huang ("Mr. Huang"), one of the Company's former employees, alleging potential violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder based on the alleged manipulative trading scheme of the Company's common stock, such as wash trades, from approximately December 2013 to March 2018. Neither the Company nor Mr. Huang realized any financial gain from the alleged scheme and both the Company and Mr. Huang substantially cooperated with the SEC's investigation regarding the alleged manipulative trading scheme. On November 29, 2018, without admitting or denying the allegations in the Complaint, the Company agreed to the entry of a final judgment (the "Final Judgment") that permanently enjoined it from violating Section 10(b), Rule 10b-5 and Section 17(a) of the Securities Act, ordered the Company to comply with its undertaking to retain an independent compliance monitor for a period of not less than one year to help the Company stay in compliance with the U.S. securities law. On December 6, 2018, without admitting or denying the allegations in the Complaint, Mr. Huang agreed to the entry of the Final Judgment that permanently enjoined him from violating Section 10(b), Rule 10b-5 and Section 17(a) of the Securities Act, ordered Mr. Huang to pay a civil penalty of $30,000 in installments. On January 18, 2019, the Court issued the Final Judgment on this case. Although the Company settled the SEC fraud charges with no economic loss, we suspect that our reputation may suffer as a result of the SEC investigation.
- Share Price & Shareholder Rights - Risk 3Our Company's affiliates have significant control over matters requiring approval by shareholders.
The affiliates of the Company hold 100% of our Company's outstanding preferred shares, and approximately 25.28% of ours Company's outstanding common shares, total approximately 43.83% of the voting power of our Company as of the date of this annual report (calculated in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended). As a result, our Company's affiliates, in view of their ownership percentage of our common stock and voting power, have significant control over matters requiring approval by our shareholders, including the selection of our board of directors, approval or rejection of mergers, sales or licenses of all or substantially all of our assets, or other business combination transactions. The interests of our Company's affiliates may not always coincide with the interests of our other shareholders and as such our Company may take action in advancement of its affiliates' interests to the detriment of our other shareholders, including you. Accordingly, you may not be able to influence any action we take or consider taking, even if it requires a shareholder vote.
- Share Price & Shareholder Rights - Risk 4You may not be able to liquidate your investment since there is no assurance that an active public market will develop for our common stock or that our common stock will ever be approved for trading on a national stock exchange.
There is no active public trading market for our securities and any historic trading activity indicating that an established trading market might have existed cannot be relied upon. Our shares of common stock are currently quoted on the OTCQB and have not been listed on any national stock exchange. We cannot assure you that an active trading market for our common stock will develop or that if developed, will be sustained. In the absence of an active trading market of our common stock, you may not be able to liquidate your investment in our common stock at all or as soon as desired.
- Share Price & Shareholder Rights - Risk 5Any failure by our consolidated VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.
We, through CU WFOE in the PRC, have entered into a series of contractual arrangements with our consolidated VIE and its shareholders. For a description of these contractual arrangements, see "Business-Corporate History and Structure Overview- PRC Segment." If our consolidated VIE or its shareholders fail to perform their respective obligations under these contractual arrangements, we may incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance, injunctive relief, and damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of our consolidated VIE refused to transfer its equity interests in the consolidated VIE to CU WFOE or our designee when we exercised the purchase option pursuant to these contractual arrangements, then we might have had to take legal actions to compel the VIE and its Shareholders to perform their contractual obligations. All the VIE contractual arrangements are governed by PRC laws and provide for the resolution of disputes through litigation in China. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the U.S. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and formal guidelines as to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC laws. Our VIE Agreements have not been tested in a court of law in China. There remain significant uncertainties regarding the ultimate outcome of such litigation should legal action be taken. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our consolidated VIE and relevant permits and licenses held by it which we require to operate our business in the PRC, and our ability to conduct our business in China may be negatively affected.
- Share Price & Shareholder Rights - Risk 6The shareholders of our VIE may have actual or potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
The shareholders of our VIE may have actual or potential conflicts of interest with us. The shareholders of the VIE may refuse to sign or breach, or cause our VIE to breach, or refuse to renew, the existing contractual arrangements we have with the VIE, which would have a material and adverse effect on our ability to effectively control our VIE and receive economic benefits from it. For example, the shareholders may cause the VIE Agreements to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that if and when conflicts of interest arise any or all of these shareholders of the VIE will act in the best interests of our company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between the shareholders of the VIE and CU WFOE or the Company. If we cannot resolve any conflict of interest or dispute between us and the shareholders of the VIE, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of the disputes.
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