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HENGGUANG HOLDING CO, LTD

Date Filed : Jan 18, 2022

F-11formf-1.htm

As filed with the U.S. Securities and ExchangeCommission on January 18, 2022.

 

RegistrationNo. 333-      

 

 

 

UNITEDSTATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

 

FORMF-1

REGISTRATIONSTATEMENT

UNDER

THESECURITIES ACT OF 1933

 

HENGGUANGHOLDING CO., LIMITED

(Exactname of registrant as specified in its charter)

 

NotApplicable

(Translationof Registrant’s name into English)

 

Cayman Islands   6411   Not Applicable

(State or other jurisdiction

ofincorporation or organization)

 

(PrimaryStandard Industrial

Classification Code Number) 

 

(I.R.S. Employer

Identification Number)

 

1666Chenglong Road,

Section2, Building 2, 5th Floor

LongquanyiDistrict,

Chengdu,Sichuan Province,

China61000

c/oJiulin Zhang

+86(400) 028-1990

(Address,including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

SichenziaRoss Ference LLP

1185Avenue of the Americas, 31st Floor

NewYork, New York 10036

(212)930-9700

(Name,address, including zip code, and telephone number, including area code, of agent for service)

 

Copiesto:

 

Jay Kaplowitz, Esq.

Huan Lou, Esq.

Sichenzia Ross Ference LLP

1185 Avenue of the Americas, 31st Floor

New York, New York 10036

Telephone: (212) 930-9700

Fang Liu, Esq.

VCL Law LLP

1945 Old Gallows Road, Suite 630

Vienna, VA 22182

Telephone: (703) 919-7285

 

Approximatedate of commencement of proposed sale to the public: Promptly after the effective date of this registration statement.

 

Ifany of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under theSecurities Act of 1933 check the following box: [X]

 

Ifthis Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check thefollowing box and list the Securities Act registration statement number of the earlier effective registration statement for the sameoffering. [  ]

 

Ifthis Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering.[  ]

 

Ifthis Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering.[  ]

 

Indicateby check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

 

Emerginggrowth company [X]

 

Ifan emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registranthas elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuantto Section 7(a)(2)(B) of the Securities Act. [  ]

 

CALCULATIONOF REGISTRATION FEE

 

Title of Each Class

of Securities to Be

Registered

  Amount
to Be Registered
   Proposed
Maximum
Offering
Price per
Share
  

Proposed

Maximum Aggregate

Offering

Price(1)

  

Amount of Registration

Fee(2)

 
Class A Ordinary Shares, par value US$0.001 per share(3)                 $              $18,400,000   $1,705.68 
Underwriter’s warrants(3) (4)       $-   $-   $- 
Class A Ordinary Shares underlying Underwriter’s warrants (3) (5)       $   $

1,150,000

   $

106.60

 
Total       $   $

19,550,000

   $

1,812.28

 

 

(1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act, including the offering price attributable to additional [*] ordinary shares, par value US$0.001 per share (“Ordinary Shares”), that the underwriter has the option to purchase to cover over-allotments, if any.
(2) Calculated pursuant to Rule 457(o) under the Securities Act, based on an estimate of the proposed maximum aggregate offering price.
(3) In accordance with Rule 416(a), we are also registering an indeterminate number of additional Class A Ordinary Shares that shall be issuable pursuant to Rule 416 to prevent dilution resulting from share splits, share dividends or similar transactions.
(4) We have agreed to issue to the Underwriter warrants (the “Underwriter Warrants”) to purchase Class A Ordinary Shares (the “Underwriter Warrants”) in the aggregate amount equal to 5% of the Class A Ordinary Shares sold at closing of the offering, including any shares that may be sold as result of the Underwriter exercising its over-allotment option. The Underwriter Warrants will be exercisable from time to time from six months after the effective date of the registration statement and will expire after five years from the effective date of this registration statement, in whole or in part, but may not be transferred nor may the shares underlying the warrants be sold until 180 days from the effective date of the offering. The exercise price of the Underwriter Warrants is equal to 125% the public offering price per share sold in the offering.
(5) No fee required pursuant to Rule 457(g) under the Securities Act.

 

TheRegistrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until theRegistrant shall file a further amendment which specifically states that this registration statement shall thereafter become effectivein accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effectiveon such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 

 
 

 

Theinformation in this prospectus is not complete and may be changed. We may not sell these securities until the registration statementfiled with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is notsoliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION  
PRELIMINARY PROSPECTUS DATED January 18, 2022

 

[              ] Class A Ordinary Shares

 

HENGGUANGHOLDING CO., LIMITED

 

cc06ba430dfe5f0688d1aebf62c915e

 

Thisis an initial public offering of the Class A Ordinary Shares of Hengguang Holding Co., Limited (“Heng Guang Cayman”),a holding company incorporated in the Cayman Islands. Prior to this offering, there has been no public market for Heng Guang Cayman’sClass A ordinary shares, par value $0.001 per share (the “Class A Ordinary Share”). This offering is being madeon a firm commitment basis. We expect the initial public offering price will be in the range of $[     ] to$[      ] per share. We reserved the symbol “HGIA” for purposes of listing theClass A Ordinary Shares on the Nasdaq Stock Market (“NASDAQ”) and applied to list the Class A OrdinaryShares on the Nasdaq Capital Market. The initial public offering is contingent upon receiving authorization to list the ClassA Ordinary Shares on a national exchange. There is no guarantee or assurance that the Class A Ordinary Shares will be approvedfor listing on NASDAQ or any other national stock exchange.

 

There are 6,500,000 Class A Ordinary Shares and 3,500,000Class B ordinary shares (the “Class B Ordinary Shares”) issued and outstanding immediately prior to this offering.In respect of matters requiring the votes of shareholders, each Class A Ordinary Share is entitled to one vote, and each Class B OrdinaryShare is entitled to ten (10) votes and is convertible into one Class A Ordinary Share at any time requested by the holder thereof. ClassA Ordinary Shares are not convertible into Class B Ordinary Shares under any circumstances. The holder of our Class B Ordinary Shareswill be able to exercise approximately [*]% of the total outstanding voting power immediately following the completion of this offering,assuming the sale of [*] Class A Ordinary Shares, and excluding the effects of any exercise of the Underwriter Warrants and the over-allotmentoption.

 

Our officers and directors of Heng Guang Caymanown and will continue to own at least 50% of the voting power of our Company after the closing of this offering, therefore we area “controlled company” as defined under NASDAQ Listing Rules. However, even if we qualify as a “controlled company,”we do not intend to rely on the controlled company exemptions provided under NASDAQ Listing Rules.

 

Investingin our Class A Ordinary Shares involves a high degree of risk, including the risk of losing your entire investment. See “RiskFactors” starting on page 22 to read about factors you should consider before buying the Class A Ordinary Shares.

 

Heng Guang Cayman is not a Chinese operating companybut a holding company incorporated in the Cayman Islands. This is an offering of the ordinary shares of Heng Guang Cayman, theoffshore holding company. You are not investing in any of our Affiliated Entities. “Heng Guang Insurance” shall hereinafterrefer to Sichuan Heng Guang Insurance Agency Co., Ltd., a company organized under the laws of the PRC and our operating entity ultimatelycontrolled by Heng Guang Cayman. “Heng Guang BVI”shall hereinafter refer to Heng Guang Shun Da Co., Ltd., a company formed under the laws of British Virgin Islands and a wholly-ownedsubsidiary of Heng Guang Cayman. “Heng Guang Hong Kong” shall hereinafter refer to Heng Guang Holdings Co., Ltd., a companyformed under the laws of Hong Kong and a wholly-owned subsidiary of Heng Guang BVI. “WFOE” shall hereinafter refer to ChengduJiulin Kefu Technology Co., Ltd., a Chinese company and wholly-owned subsidiary of Heng Guang Hong Kong. “We,” the “Company”or the “Group” shall refer to the group of Heng Guang Insurance, Heng Guang Cayman, Heng Guang BVI, Heng Guang Hong Kong,WFOE, and the subsidiaries of Heng Guang Insurance. “Affiliated Entities” shall refer to Heng Guang BVI, Heng Guang HongKong, WFOE, and Heng Guang Insurance and its subsidiaries.

 

As a holding company with no material operationsof our own, Heng Guang Cayman conducts substantially all of its operations through Heng Guang Insurance and its subsidiaries,the operating entities established in the People’s Republic of China controlled by Heng Guang Cayman via a series ofvariable interest entity agreements. Neither we nor our subsidiaries own any share in Heng Guang Insurance or its subsidiaries,hereinafter referred to as the “VIEs.” Instead, the Company controls and receives the economic benefitsof its VIEs’ business operations through certain contractual arrangements. Heng Guang Cayman’s Class A OrdinaryShares offered in this prospectus are shares of the company incorporated in Cayman Islands, not the shares of its operatingentities. Because of the Group’s corporate structure, the Company or Group is subject to the risks due touncertainty of the interpretation and the application of the PRC laws and regulations. As of the date of this prospectus, there is nolaws, regulations or other rules require its China based operating entities to obtain permission or approvals from anyChinese authorities to list its or its affiliate’s securities on U.S. stock exchanges, and neither Heng Guang Caymannor Heng Guang Insurance has received or were denied such permission. However, there is no guarantee that Heng Guang Caymanor Heng Guang Insurance will receive or not be denied permission from Chinese authorities to list on U.S. exchanges in the future.For a description of our corporate structure and VIE contractual arrangements, see “Business - Corporate Historyand Structure.” See also “Risk Factors - Risks Related to Our Corporate Structure.” 

 

The Company is also subject to the legal andoperational risks associated with being based in and having the majority of the Company’s operations in China. These risks mayresult in material changes in operations, or a complete hindrance of Heng Guang Cayman’s ability to offer or continue to offerits securities to investors, and could cause the value of Heng Guang Cayman’s securities to significantly decline or become worthless.Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with littleadvance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companieslisted overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expandingthe efforts in anti-monopoly enforcement. On July 6, 2021, the General Office of the Communist Party of China Central Committee and theGeneral Office of the State Council jointly issued an announcement to crack down on illegal activities in the securities market and promotethe high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthencross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas,and to establish and improve the system of extraterritorial application of the PRC securities laws. On July 10, 2021, the PRC State InternetInformation Office issued the Measures of Cybersecurity Review, which requires cyberspace companies with personal information of morethan one (1) million users that want to list their securities on a non-Chinese stock exchange to file a cybersecurity review with theOffice of Cybersecurity Review of China. On December 28, 2021, a total of thirteen governmental departments of the PRC, including thePRC State Internet Information Office issued the Measures of Cybersecurity Review, which will become effective on February 15, 2022.Furthermore, the Chinese insurance sector is going through a series of reforms and new laws and guidelines have been recently promulgatedand released to regulate our industry, including the new upper limit expense rate of certain auto insurance products. As of the dateof this prospectus, the Measures of Cybersecurity Review have not impacted the Company’s ability to conduct its business, acceptforeign investments, or list on a U.S. or other foreign exchange; however, there are uncertainties in the interpretation and enforcementof these new laws and guidelines, which could materially and adversely impact the Company’s overall business and financial outlook.See “Risk Factors - Risks Relating to Doing Business in China.” Heng Guang Insurance, our PRC operating entity, receivessubstantially all of the Company’s revenue in RMB. Under our current corporate structure, to fund any cash and financing requirementswe may have, Heng Guang Cayman may rely on dividend payments from its subsidiaries. See “Prospectus Summary- Dividend Distribution.”Our independent registered public accounting firm is subject to laws in the United States pursuant to which the Public Company AccountingOversight Board (United States) (the “PCAOB”) conducts regular inspections to assess its compliance with the applicable professionalstandards. Our independent registered public accounting firm has been inspected by the PCAOB on a regular basis and as such, it is notaffected by the PCAOB report dated December 16, 2021.

 

Weare an “emerging growth company” as used in the Jumpstart Our Business Startups Act of 2012, and as such, we have electedto take advantage of certain reduced public company reporting requirements for this prospectus and future filings. See “RiskFactors” and “Prospectus Summary— Implications of Our Being an Emerging Growth Company”.

 

Neitherthe Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapprovedof these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

  

Per Class A Ordinary

Share

  

Total

 
Initial public offering price (1)  US $                  US $             
Underwriter’s discounts (2)  US $   US $ 
Proceeds to our company before expenses(3)  US $   US $ 

 

(1) Assumed an initial public offering price of $[             ] per share, the midpoint of the range set forth on the cover page of this registration statement
(2) See “Underwriting” in this prospectus for more information regarding our arrangements with the underwriter.
(3) The total estimated expenses related to this offering are set forth in the section entitled “Expenses Related to This Offering”.

 

Weexpect our total cash expenses for this offering (including cash expenses payable to our underwriter for its out-of-pocket expenses)to be approximately $[                ], exclusive of underwriting discounts and non-accountable expense allowance. In addition, we willpay additional items of value in connection with this offering that are viewed by the Financial Industry Regulatory Authority, or FINRA,as underwriting compensation. These payments will further reduce proceeds available to us before expenses. See “Underwriting.”

 

Thisoffering is being conducted on a firm commitment basis. The underwriter is obligated to take and pay for all of the Ordinary Shares ifany such shares are taken. We have granted the underwriter an option for a period of 45 days after the closing of this offering to purchaseup to 15% of the total number of our Ordinary Shares to be offered by us pursuant to this offering (excluding shares subject to thisoption), solely for the purpose of covering over-allotments, at the initial public offering price less the underwriting discount. Basedon an offering price between $[         ] and $[         ] per Class A Ordinary Share, (i) If the underwriter does not exercisethe option in full, the total underwriting discounts payable will be between $[         ] and $[         ] based on an offeringprice between $[         ] and $[          ] per Class A Ordinary Share, and the total gross proceeds to us, before underwritingdiscounts and non-accountable expense allowance, will be between $[          ] and $[         ]; (ii) if the underwriter exercisesthe option in full, the total underwriting discounts payable will be between $[         ] and $[         ], and the total proceedsto us, before underwriting discounts and non-accountable expense allowance, will be between $[           ] and $[         ]. If wecomplete this offering, net proceeds will be delivered to us on the closing date. We will not be able to use such proceeds in China,however, until we complete capital contribution procedures which require prior approval from each of the respective local counterpartsof China’s Ministry of Commerce, the State Administration for Industry and Commerce, and the State Administration of Foreign Exchange.See remittance procedures in the section titled “Use of Proceeds” beginning on page 42.

 

Theunderwriter expects to deliver the Class A Ordinary Shares against payment in New York, New York on [*], 2022.

 

Network1 Financial Securities, Inc.

 

 

 

Prospectusdated [*], 2022

 

 
 

 

Aboutthis Prospectus

 

Thisprospectus is part of a registration statement we filed with the SEC. We and the underwriter have not authorized anyone to provide anyinformation or to make any representations other than those contained in this prospectus or in any free writing prospectuses preparedby us or on our behalf or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliabilityof, any other information that others may give you. This prospectus is an offer to sell only the Ordinary Shares offered hereby, butonly under circumstances and in jurisdictions where it is lawful to do so. We are not making an offer to sell these securities in anyjurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to anyperson to whom it is not permitted to make such offer or sale. The information contained in this prospectus is current only as of thedate on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed sincethat date.

 

OtherPertinent Information

 

Unlessotherwise indicated or the context requires otherwise, references in this prospectus to:

 

  “Affiliated Entities” are to Heng Guang BVI, Heng Guang Hong Kong, WFOE, and Heng Guang Insurance and its subsidiaries;
  “China” or the “PRC” are to the People’s Republic of China, excluding Taiwan and the special administrative regions of Hong Kong and Macau for the purposes of this prospectus only;
  “Class A Ordinary Shares” are to our Class A ordinary shares, par value US$0.001 per share;
  “Class B Ordinary Shares” are to our Class B ordinary shares, par value US$0.001 per share;
  “Heng Guang Insurance” are to Sichuan Heng Guang Insurance Agency Co., Ltd., a company organized under the laws of the PRC and our operating entity ultimately controlled by Heng Guang Cayman;
  “Heng Guang Insurance Shareholders” or “HG Shareholders” are to Chunlin Mao, Haibo Bai, and Xuefeng Huang, collectively, who have constituted all of the shareholders of Heng Guang Insurance as of the date of this prospectus.
  “Heng Guang Cayman” or the “Company” are to the registrant Hengguang Holding Co., Limited., an exempted company incorporated under the laws of Cayman Islands;
  “Heng Guang BVI” are to Heng Guang Shun Da Co., Ltd., a company formed under the laws of British Virgin Islands and a wholly-owned subsidiary of Heng Guang Cayman;
  “Heng Guang Hong Kong” are to Heng Guang Holdings Co., Ltd., a company formed under the laws of Hong Kong and a wholly-owned subsidiary of Heng Guang BVI;
  “shares”, “Shares” or “Ordinary Shares” as of the date hereof refer to our Class A and Class B ordinary shares, par value US$0.001 per share;
  “VIEs” are to the variable interest entities including Heng Guang Insurance and its subsidiaries;
  “WFOE” are to Chengdu Jiulin Kefu Technology Co., Ltd., a Chinese company and wholly-owned subsidiary of Heng Guang Hong Kong;
  “we”, “us”, the “Company” or the “Group” are to Heng Guang Insurance, Heng Guang Cayman, Heng Guang BVI, Heng Guang Hong Kong, WFOE, and the subsidiaries of Heng Guang Insurance set forth in Exhibit 21.1, as a group.

 

Ourbusiness is conducted by Heng Guang Insurance, our VIE entity in the PRC, and its subsidiaries and branch offices, using Chinese dollars(the “RMB”), the legal currency of China. Our consolidated financial statements are presented in United States dollars.In this prospectus, we refer to assets, obligations, commitments and liabilities in our consolidated financial statements in United Statesdollars. These dollar references are based on the exchange rate of RMB to United States dollars, determined as of a specific date orfor a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms ofUnited States dollars which may result in an increase or decrease in the amount of our obligations and the value of our assets, includingaccounts receivable.

 

 
 

 

TABLEOF CONTENTS

 

  Page
PROSPECTUS SUMMARY 1
SUMMARY CONSOLIDATED FINANCIAL DATA 14
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 21
RISK FACTORS 22
USE OF PROCEEDS 42
DIVIDEND POLICY 43
CAPITALIZATION 43
DILUTION 44
ENFORCEABILITY OF CIVIL LIABILITIES 45
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 46
INDUSTRY 61
BUSINESS 64
REGULATIONS 80
MANAGEMENT 88
EXECUTIVE COMPENSATION 91
PRINCIPAL SHAREHOLDERS 92
RELATED PARTY TRANSACTIONS 93
DESCRIPTION OF SHARE CAPITAL 94
SHARES ELIGIBLE FOR FUTURE SALE 106
TAXATION 107
UNDERWRITING 112
EXPENSES RELATING TO THIS OFFERING 118
LEGAL MATTERS 118
EXPERTS 118
WHERE YOU CAN FIND MORE INFORMATION 118
INDEX TO FINANCIAL STATEMENTS F-1

 

Weare responsible for the information contained in this prospectus and any free writing prospectus we prepare or authorize. We have not,and the underwriter has not, authorized anyone to provide you with different information, and we and the underwriter take no responsibilityfor any other information others may give you. We are not, and the underwriter is not, making an offer to sell our Ordinary Shares inany jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus isaccurate as of any date other than the date on the front cover of this prospectus, regardless of the time of delivery of this prospectusor the sale of any Ordinary Shares.

 

Forinvestors outside the United States: Neither we nor the underwriter have done anything that would permit this offering or possessionor distribution of this prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Personsoutside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relatingto, the offering of the Ordinary Shares and the distribution of this prospectus outside the United States.

 

Weare incorporated under the laws of PRC as an exempted company with limited liability and a majority of our outstanding securities areowned by non-U.S. residents. Under the rules of the U.S. Securities and Exchange Commission, or the SEC, we currently qualify for treatmentas a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financialstatements with the Securities and Exchange Commission, or the SEC, as frequently or as promptly as domestic registrants whose securitiesare registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

 

Alldealers that buy, sell or trade our Ordinary Shares, whether or not participating in this offering, may be required to deliver a prospectus25 days after this registration agreement is declared effective. This delivery requirement is in addition to the obligation of dealersto deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 
 

 

PROSPECTUSSUMMARY

 

Thefollowing summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financialstatements included elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especiallythe risks of investing in our Ordinary Shares, discussed under “Risk Factors,” before deciding whether to buy our OrdinaryShares.

 

Overview

 

HengGuang Cayman is a holding company incorporated in the Cayman Islands, controlling the national insurance agency operations basedin China via variable interest contractual arrangements (the “VIE Arrangement”) with our operating entities,Heng Guang Insurance and its subsidiaries. As a holding company with no material operations of our own, we conduct substantially allof our operations through our operating entities established in the People’s Republic of China, including our variable interestentities, or VIEs, in China. Heng Guang Cayman receives the economic benefits and exercises control of Heng Guang Insurance’sbusiness operations through such VIE Arrangement, which will be described in details in the “Prospectus Summary- ContractualArrangements Between Heng Guang Insurance And WFOE.” Our Class A Ordinary Shares offered in this prospectus are sharesof Heng Guang Cayman, our holding company incorporated in Cayman Islands, not the shares of Heng Guang Insurance, our operatingentities.

 

Thefollowing diagram illustrates our current corporate structure and existing shareholders of each corporate entity listed herein as of the date of this prospectus:

 

 

 

Fora detailed description of our corporate structure and VIE contractual arrangements, see “Business - CorporateHistory and Structure” and “Principal Shareholders.” See also “Risk Factors - Risks Relatedto Our Corporate Structure.

 

HengGuang Insurance, controlled by Heng Guang Cayman through a set of variable interest entity agreements was established in 2004 and hasdeveloped a successful business strategy in the City of Guangan, Sichuan Province during its first ten years. In 2015, Heng GuangInsurance relocated its headquarters to Chengdu, the capital city of Sichuan and a business center in southwest China. In 2016, HengGuang Insurance was granted with its Chinese national insurance agency qualification and Internet insurance agency license, and formallyestablished its corporate strategy of expanding its digital insurance agency services. In 2019, Heng Guang Insurance acceleratedits digitalization process and began to develop a digital sales application platform- “Heng Kuai Bao (meaning fast insurance agency)”,aiming to enhance the insurance service efficiency, improve user experiences, and empower its agents with new technologies. In September2020, after the auto insurance reform in China, Heng Guang Insurance was a pioneer insurance intermediary in launching the autoinsurance one-click system in Heng Kuai Bao, which gained its popularity in the auto-insurance market. As of May 2021, Heng GuangInsurance grew from one branch office in Guangan City to forty-eight (48) locations sprawling in fifteen (15) provinces and municipalitiesin the Southwest and Northeast of the PRC.

 

HengGuang Insurance distributes a variety of insuranceproducts, which are categorized into two major groups: (1) property and casualty insurance, such as automobile insurance, commercialproperty insurance, casualty and accident insurance, construction and engineering insurance, and liability insurance; and (2) life andhealth insurance. As an insurance agency firm, Heng Guang Insurance has limited underwriting capacity and primarily providessales, distribution and ancillary services of insurance products underwritten by the insurance companies Heng Guang Insurancerepresents. Heng Guang Insurance derives its revenue primarily from commissions and fees paid by the partner insurance companies,typically calculated as a percentage of premiums paid by its customers to the insurance companies. As of the date of this report,Heng Guang Insurance has relationships with over 70 insurance companies in the PRC. Heng Guang Insurance helps consumersselect the right insurance products for purchase, but represent the partner insurance companies in the transactions. For the six monthsended June 30, 2021, 61.38% of our total revenue were attributed to our top five insurance company partners, each accounted for 24.83%,13.78%, 12.13%, 6.69% and 3.95%, respectively. For the six months ended June 30, 2020, 67.44% of our total revenues were attributed toour top five insurance company partners, each accounted for 33.99%, 18.44%, 7.90%, 3.99% and 3.12%, respectively. Pleasesee Section “Business-Customers” for details about our top insurance partners. We sell insurance products primarilythrough our sales force who are individual sales agents in our distribution and service network. As of the date of this prospectus, wehad 48 locations (branch offices) throughout China to sell the insurance products. A large component of our cost of revenues is commissionspaid to our individual sales agents. For the year ended December 31, 2020, 70.61% of Heng Guang Insurance’s totalrevenue were attributed to our top five insurance company partners, each accounted for 30.07%, 22.26%, 6.88%, 6.29% and 5.11%,respectively. For the year ended December 31, 2019, 66.88% of our total revenue were attributed to our top five insurancecompany partners, accounted for 23.37%, 22.64%, 7.23%, 7.13% and 6.51%, respectively. Heng Guang Insurance establishedeight (8) new branch offices in the years of 2020 and 2019 to further grow our sales and market share. Heng Guang Insurance has its Chinesenational insurance agency license granted by the China Bank and Insurance Regulatory Commission (the “CBIRC”), valid as ofJune 13, 2023 and subject to further extension. Each of Heng Guang Insurance’s current operating branch office has the valid insuranceagency license issued by the applicable Chinese governmental agencies.

 

TheChinese insurance industry has grown substantially in the past decade. Historically, insurance companies in the PRC relied primarilyon their exclusive individual sales agents and direct sales force to sell their products. However, in recent years, as a result of increasedcompetition and consumers’ demand for more options, insurance companies gradually expanded their distribution channels to includeinsurance intermediaries, such as commercial banks and insurance intermediaries. In addition, because of the increasingly high costsfor establishing and maintaining distribution networks of their own, more insurance companies choose to rely primarily on insurance intermediariesto distribute the insurance products and in return provide attractive monetary incentives to the insurance intermediaries.

 

HengGuang Insurance intends to grow its business by expanding itsdistribution network through opening additional brick and mortar offices and branches in China, expanding its online operations,and training and recruiting additional skilled professional sales agents in the life and health insurance sector. Heng Guang Insurancewill also continue to seek opportunities to offer innovative and premium services and products to its customers. In 2018,Heng Guang Insurance started the development of the mobile app Heng Kuai Bao, which provides sales support, training, agents’commission management and instant insurance quotes to our agents. Heng Guang Insurance plans to further develop and enhance itsmobile app and online platform to extend the digital services to its insurance purchasers, with the goal of allowing themto shop, compare and purchase insurance products, process insurance claims, and manage policies all through Heng Kuai Bao as the one-stopapplication. In addition, Heng Guang Insurance diversified its insurance products by tapping into the health and life insurancesector in 2019. Furthermore, Heng Guang Insurance is allocating additional human and financial resources to its claim adjustmentdepartment in anticipation of future surging demand of its claim adjustment services as it sees more and more insurancecompanies choose to outsource claim adjustment functions to insurance agencies to minimize the costs of claim and risk management.

 

1
 

 

Thefollowing table illustrates the breakdown of our net commission revenues by insurance products for the years ended December 31,2020 and 2019.

 

   Year ended December 31, 2020   Year ended December 31, 2019 
   Revenue   Percentage
of Total commission revenue
   Revenue   Percentage
of Total commission revenue
 
                 
Automobile insurance                    
Mandatory  $1,038,399    5.30%  $957,160    4.21%
Other   13,854,192    70.70%   18,712,485    82.35%
Commercial property insurance   90,770    0.46%   45,074    0.20%
Liability insurance   969,881    4.95%   453,538    2.00%
Casualty insurance   1,937,550    9.89%   1,749,342    7.70%
Construction and engineering insurance   691,709    3.53%   519,383    2.29%
Life and health insurance   901,389    4.60%   225,738    0.99%
Others   111,318    0.57%   60,448    0.27%
Total  $19,595,208    100.00%  $22,723,168    100.00%

 

The following table illustratesthe breakdown of our total commission revenue by insurance products for the six months ended June 30, 2021 and 2020.

 

   Six Months ended June 30, 2021   Six Months ended June 30, 2020 
   Revenue   Percentage of Total commission revenue   Revenue   Percentage of Total commission revenue 
Automobile Insurance                    
Mandatory  $376,628    4.69%  $692,589    7.29%
Other   4,750,559    59.12%   7,075,826    74.44%
Property Insurance   25,631    0.32%   40,496    0.43%
Liability Insurance   494,805    6.16%   403,311    4.24%
Casualty Insurance   1,480,429    18.42%   844,600    8.89%
Construction and Engineering Insurance   415,644    5.17%   294,400    3.10%
Life and Health Insurance   315,289    3.92%   122,987    1.29%
Other   176,908    2.20%   30,862    0.32%
Total commission revenue, net  $8,035,893    100.00%  $9,505,071    100.00%

 

ContractualArrangements Between Heng Guang Insurance And WFOE

 

HengGuang Cayman does not own any equity interest in Heng Guang Insurance, either directly or indirectly. Instead, Heng Guang Cayman exercisescontrol and obtains the economic benefits of Heng Guang Insurance’s business operation through a series of variable interest contractualarrangements. HG Shareholders (as defined below) and WFOE entered into a series of contractual arrangements, also known as VIE Agreements,on or about December 3, 2020. The VIE Agreements are designed to provide WFOE with the power, rights and obligations equivalent in allmaterial respects to those it would possess as the sole equity holder of Heng Guang Insurance, including absolute control rights andthe rights to the assets, property and revenue of Heng Guang Insurance.

 

Accordingto the Exclusive Business Cooperation and Service Agreement, Heng Guang Insurance is obligated to pay service fees to WFOE approximatelyequal to the net income of Heng Guang Insurance after deduction of the required PRC statutory reserve.

 

TheVIE Agreements include the following and are described in details below:

 

ExclusiveBusiness Management and Service Agreement

 

Pursuantto the Exclusive Business Management and Service Agreement between Heng Guang Insurance and WFOE dated December 3, 2020, WFOE providesHeng Guang Insurance with technical support, consulting services, intellectual services and other management services relating to itsday-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information.Additionally, Heng Guang Insurance granted a fully-paid exclusive license to WFOE to use all of the intellectual properties of Heng GuangInsurance and WFOE will be the owner of any and all intellectual property to be developed in the future either by Heng Guang Insuranceor WFOE from the date of this Exclusive Business Management and Service Agreement. For services rendered by WFOE to Heng Guang Insuranceunder this agreement, WFOE is entitled to collect a service fee calculated based on the time of services rendered multiplied by the correspondingrate, the plus amount of the services fees or ratio decided by the board of directors of WFOE based on the value of services renderedby WFOE and the actual income of Heng Guang Insurance from time to time, which is approximately equal to the net income of Heng GuangInsurance after deduction of the required PRC statutory reserve.

 

TheExclusive Business Management and Service Agreement shall remain in effect for ten (10) years with an automatic renewal of another ten(10) years, and can only be terminated earlier if one of the parties defaults or WFOE enters into a bankruptcy or liquidation process(either voluntary or involuntary). WFOE is entitled to terminate this agreement by providing a written 30-day notice to Heng Guang Insurance.

 

2
 

 

TheCEO of WFOE, Mr. Jiulin Zhang, who is also the CEO of Heng Guang Insurance, is currently managing Heng Guang Insurance pursuant to theterms of the Exclusive Business Management and Service Agreement. WFOE has absolute authority relating to the management of Heng GuangInsurance, including but not limited to decisions with regard to expenses, salary raises and bonuses, hiring, firing and other operationalfunctions. Upon establishment of the Company’s audit committee at the consummation of this offering, the Company’s auditcommittee will be required to review and approve in advance any related party transactions, including transactions involving WFOE orHeng Guang Insurance.

 

EquityPledge Agreement

 

Underthe Equity Pledge Agreement among WFOE, Heng Guang Insurance and each of the Heng Guang Insurance Shareholders, each Heng Guang InsuranceShareholder pledged all of his or her equity interests in Heng Guang Insurance to WFOE to guarantee the performance of Heng Guang Insurance’sobligations under the Exclusive Business Management and Service Agreement. Under the terms of the Equity Pledge Agreement, in the eventthat Heng Guang Insurance or any of Heng Guang Insurance Shareholders breaches its respective contractual obligations under the ExclusiveBusiness Management and Service Agreement, WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the rightto collect dividends distributed from the pledged equity interests. All of the Heng Guang Insurance Shareholders also agreed that uponoccurrence of any event of default, as set forth in the Equity Pledge Agreement, WFOE is entitled to dispose the pledged equity interestin accordance with applicable PRC laws. Each Heng Guang Insurance Shareholder further agreed not to dispose of the pledged equity interestsor take any actions that would prejudice WFOE’s interest.

 

TheEquity Pledge Agreement is effective until all payments due under the Exclusive Business Management and Service Agreement have been paidby Heng Guang Insurance. WFOE shall cancel or terminate the Equity Pledge Agreement upon Heng Guang Insurance’s full payment ofthe fees payable under the Exclusive Business Management and Service Agreement.

 

Thepurposes of the Equity Pledge Agreement are to (1) guarantee the performance of Heng Guang Insurance’s obligations under the ExclusiveBusiness Management and Service Agreement, (2) make sure any Heng Guang Insurance Shareholder does and will not transfer or assign thepledged equity interests, or create or allow any encumbrance that would prejudice WFOE’s interests without WFOE’s prior writtenconsent, and (3) provide WFOE de facto control over Heng Guang Insurance. In the event that Heng Guang Insurance breaches its contractualobligations under the Exclusive Business Management and Service Agreement, WFOE will be entitled to foreclose on and dispose all of HengGuang Insurance’s issued and outstanding equity interests, have the right to (1) exercise its option to purchase or designate thirdparties to purchase part or all of Heng Guang Insurance’s equity interests and (2) terminate the VIE Agreements after acquisitionof all equity interests in Heng Guang Insurance or form a new VIE structure with the third parties designated by WFOE.

 

ExclusiveOption Agreement

 

Underthe Exclusive Option Agreement dated December 3, 2020, each Heng Guang Insurance Shareholder irrevocably granted WFOE (or its designee)an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of its equityinterests in Heng Guang Insurance. The option price is equal to the lowest price legally permitted by applicable PRC laws and regulations.

 

TheExclusive Option Agreement shall remain effective for a term of ten (10) years from the date of the Agreement, may be extended for anotherten (10) years at the choice of the WFOE, and can only be terminated if one party defaults or by the WFOE unilaterally.

 

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ProxyAgreement

 

Underthe Proxy Agreement dated December 3, 2020, each Heng Guang Insurance Shareholder authorized WFOE to act on its behalf as its exclusiveagent and attorney with respect to all rights as shareholders of Heng Guang Insurance, including but not limited to: (a) attending shareholders’meetings; (b) exercising all of the shareholders’ rights that the shareholders are entitled to under PRC laws and the articlesof association of Heng Guang Insurance, including but not limited to voting, the sale or transfer or pledge or disposition of sharesof Heng Guang Insurance in part or in whole; and (c) designating and appointing on behalf of Heng Guang Insurance Shareholders the legalrepresentative, the executive directors, supervisors, the chief executive officer and other senior management members of Heng Guang Insurance.

 

TheProxy Agreement shall remain effective for a term of ten (10) years from the date of the Agreement, can be automatically renewed in anincrement of one (1) year each time after the end of the initial 10-year term unless terminated earlier by WFOE. The Proxy Agreementis irrevocable and continuously valid from the date of execution of the Proxy Agreement, so long as any of the Heng Guang Insurance Shareholdersis the shareholder of Heng Guang Insurance. The sale or transfer of one Heng Guang Insurance Shaholder’s equity interest in HengGuang Insurance shall not interfere with or affect the force and validity of the Proxy Agreement as to the remaining Heng Guang InsuranceShareholders.

 

TheExclusive Business Management and Service Agreement, together with the Equity Pledge Agreement, Share Disposal and Exclusive Option Agreement,and the Proxy Agreement, enable WFOE to exercise effective control over Heng Guang Insurance. As a result of these VIE agreements, HengGuang Cayman is currently the beneficiary of Heng Guang Insurance and its subsidiary, and the Company as a group of corporate entitiesaccordingly treats Heng Guang Insurance as its VIE under U.S. GAAP. We consolidate the financial results of Heng Guang Insurance andits subsidiary in our consolidated financial statements in accordance with U.S. GAAP.

 

Summaryof challenges and risks involved in the VIE Arrangements and enforcing the VIE Agreements

 

Becausewe do not hold equity interests in our VIEs, we are subject to risks due to the uncertainty of the interpretation and application ofthe PRC laws and regulations, including but not limited to regulatory review of oversea listing of PRC companies through a special purposevehicle, and the validity and enforcement of the contractual arrangement with our VIEs. We are also subject to the risks of the uncertaintythat the PRC government could disallow our VIE structure, which would likely result in a material change in our operations, or a completehindrance of our ability to offer or continue to offer our securities to investors, and the value of our Class A Ordinary Shares maydepreciate significantly. The VIE Arrangements are less effective than direct ownership due to the inherent risks of the VIE structureand that Heng Guang Cayman may have difficulty in enforcing any rights we may have under the VIE Agreements with the Heng Guang Insurance,its founders and shareholders in the PRC because all of our VIE Agreements are governed by the PRC laws and provide for the resolutionof disputes through arbitration in the PRC, where the legal environment is uncertain and not as developed as in the United States, andwhere the Chinese government has significant oversight and discretion over the conduct of Heng Guang Insurance’s business and mayintervene or influence Heng Guang Insurance’s operations at any time with little advance notice, which could result in a materialchange in our operations and/or the value of your Class A ordinary shares. Furthermore, these VIE Agreements may not be enforceable inChina if the PRC authorities or courts take a view that such VIE Agreements contravene with the PRC laws and regulations or are otherwisenot enforceable for public policy reasons. In the event we are unable to enforce these VIE Agreements, we may not be able to exert effectivecontrol over our VIE, Heng Guang Insurance, and Heng Guang Insurance’s ability to conduct its business may be materially and adverselyaffected. See “Risk Factors — Risks Related to Our Corporate Structure”, “Risk Factors — Risks Relatedto Doing Business in China” and “Risk Factors — Risks Relating to This Offering and The Trading Market” for moreinformation.

 

DividendDistribution

 

HengGuang Insurance, our PRC operating entity, receives substantially all of the Company’s revenue in RMB. Under our current corporatestructure, to fund any cash and financing requirements we may have, Heng Guang Cayman may rely on dividend payments from its subsidiaries.Our WFOE receives payments from Heng Guang Insurance, and then remits payments to Heng Guang Hong Kong in accordance with its registrationwith the Chinese authority under the “Notice of the State Administration of Foreign Exchange on Relevant Issues concerning ForeignExchange Administration for Domestic Residents to Engage in Financing and in Return Investment via Overseas Special Purpose Companies”and pursuant to the VIE Agreements. Then Heng Guang Hong Kong may make distribution of such payments directly to Heng Guang Cayman asdividends to the holding company.

 

4
 

 

Underthe existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-relatedforeign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange(the “SAFE”) by complying with certain procedural requirements. Therefore, Heng Guang Insurance is allowed to pay dividendsin foreign currencies to WFOE without prior approval from the SAFE, subject to the condition that the remittance of such dividends outsideof the PRC shall comply with certain procedures under the PRC foreign exchange regulations, such as the overseas investment registrationsby our HG Shareholders who are PRC residents. Approval from or registration with appropriate government authorities is, however, requiredwhere RMB is to be converted into a foreign currency and remitted out of China to pay capital expenses, such as the repayment of loansdenominated in foreign currencies. The PRC government may also, at its discretion, restrict access in the future to foreign currenciesfor Heng Guang Insurance’s accounts with little advance notice.

 

CurrentPRC regulations permit Heng Guang Insurance to pay dividends to Heng Guang Cayman only out of its accumulated profits, if any, determinedin accordance with Chinese accounting standards and regulations. In addition, in accordance with Article 167 of the PRC Company Law,each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutoryreserve until such reserve reaches 50% of its registered capital. Each such entity in China is also required to further set aside a portionof its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretionof Heng Guang Insurance’s board of directors. Although the statutory reserves can be used, among other ways, to increase the registeredcapital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributableas cash dividends except in the event of liquidation.

 

Asof the date of this prospectus, Heng Guang Insurance has not made any dividends or distributions to Heng Guang Cayman, and no dividendsor distributions have been made by Heng Guang Cayman. We intend to keep any future earnings to re-invest in and finance the expansionof our business in China, and we do not anticipate that any cash dividends will be paid in the foreseeable future. Under the Cayman Islandslaw, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstancesmay a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business.

 

Cashdividends, if any, on our Class A Ordinary Shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise fortax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subjectto PRC withholding tax at a rate of up to 10.0%.  Pursuant to the Arrangement between Mainland China and the Hong Kong Special AdministrativeRegion for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding taxrate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. The 5% withholding tax rate, however,does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong projectmust be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownershipin the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong projectmust obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the HongKong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtainthe tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under theDouble Taxation Arrangement with respect to any dividends paid by the WFOE to its immediate holding company, Heng Guang Hong Kong. Asof the date of this prospectus, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. HengGuang Hong Kong may apply for the tax resident certificate if and when the WFOE and Heng Guang Insurance intend to declare and pay dividendsto Heng Guang Hong Kong.

 

5
 

 

IndustryBackground

 

In recent years, the global insurance industrydeveloped rapidly, with premium rising from $4.7 trillion in 2016 to $6.1 trillion in 2020, according to China Insurance Yearbook.The average insurance density in China, calculated as the ratio of total insurance premiums divided by the entire Chinesepopulation, has risen from $387 in 1999 to approximately $687 in 2020, as indicated in China Insurance Yearbook. While thecompetition in the insurance industry worldwide has been intensive, the insurance companies in China have gained substantial marketshares and established its significant position in the global insurance market. In 2020, Brand Finance, a leading brand valuationand strategy consulting agency, announced the “Top 100 Most Valuable Insurance Brands in the World in 2020” whichassigned a total value of the top 100 insurance brands on the list US$463.2 billion. Among the companies on the top 100 list, 12brands from the Greater China region (including mainland, Hong Kong and Taiwan) were on the list, valued at approximately $151.5billion dollars, accounting for 32.7% of the total value of the 100 companies on such list. As per a report from Statista,insurance density is a used as an indicator for the development of insurance within a country and is calculated as ratio of totalinsurance premiums to whole population of a given country. Our reference to insurance density is in terms of reflecting to thenumber of insurance premiums sold in China in contrast to the number of people living in China.

 

Despite this substantial growth and scale, thedevelopment of China’s insurance market still lags behind certain developed countries, leaving Chinese insurance companies andinsurance intermediaries huge market potential. For instance, the statistics from the Chinese National Bureau of Statistics showed thatthe insurance depth (the original insurance premium income / total GDP in a country) in China was 4.45% compared to 7.3% of the worldwideaverage insurance depth in the year of 2020, reflecting Chinese insurance depth being 64% lower than the world average as of December2020. The low insurance depth rate relative to those of developed economies and world average rate in2020 suggest that China’s insurance market has significant growth potential. We believe that continued economic growth andthe aging of the Chinese population, among other factors, will drive the future growth of China’s insurance industry. In particular,we expect that changing demographics will generate substantial demand for life insurance products.

 

Within China’s insurance industry, independentinsurance agencies, serving insurance carriers, and insurance brokers, serving policy holders, are referred to as “professionalinsurance intermediaries,” to differentiate them from entities that distribute insurance products as an ancillary business, suchas commercial banks, postal offices and automobile dealerships. The professional insurance intermediary sector in China has also grownsignificantly in recent years. According to data released by the CIRC, total insurance premiums generated by independent insuranceinstitutions increased from RMB 147.2 billion in 2014 to RMB 482.8 billion in 2018, with a four-year compound growth rate of 34.5% andthe total premiums generated by independent insurance institutions in 2019 reached approximately RMB 540 billion, showing an annual increaseof 10.91% compared to the total premiums in 2018. We believe that the professional insurance intermediary sector will continue tooffer substantial growth opportunities for the following reasons:

 

  China’s insurance industry as a whole has significant growth potential due to its relatively low penetration rate compared to more developed countries;
     
  as competition among insurance companies intensifies, insurance companies will probably focus more on their core competencies and should increasingly outsource distribution of their products;
     
  as Chinese consumers become more sophisticated, they should increasingly seek a greater selection of insurance products and services from different insurance companies with the benefit of independent professional advice; and
     
  a favorable regulatory environment should benefit professional insurance intermediaries.

 

Despite rapid growth in recent years, we believe that the professionalinsurance intermediary sector in the PRC is still at the development stage. As of June 2020,there were 2,645 professional insurance intermediary firms in China, including 496professional insurance agencies, as reported by Jinri Toutiao, a Chinese news and information content platform and subsidiary ofByteDance, on January 29, 2021.

 

6
 

 

OurStrengths

 

Webelieve the following competitive strengths contribute to our success and differentiate us from our competitors:

 

  Value added one stop shop services;
     
  Innovative digital marketing, operation and management;
     
  National distribution network;
     
  Experienced management team; and
     
  Rigorous training and human capital development.

 

Summaryof Our Challenges and Risks

 

We are, and expect forthe foreseeable future to be, subject to all the risks and uncertainties, inherent to a development-stage business and in a heavily regulatedindustry in China. As a result, we must establish many functions necessary to operate our insurance intermediary business, including expandingour managerial and administrative structure, assessing and implementing our marketing program, conducting risk management and compliance,implementing financial systems and controls and personnel recruitment. Pleaseread the RiskFactors sectionfor the descriptions of the risks we face. These risks and challenges are, among other things:

 

Risks Related to Our Business and Industry

 

  We operate in an industry that is heavily regulated by relevant governmental agencies in China, and our business could be negatively impacted if we are unable to adapt our services to regulatory and policy changes in China.
     
  We may require additional capital to develop and expand our operations which may not be available to us when we require it.
     
  Our insurance products marketing and growth strategy may not be successful.
     
  Our business may be subject to significant fluctuations in operating results due to factors beyond our control, such as health epidemics, natural disasters or terrorist attacks.
     
  Competition in our industry is intense and, if we are unable to compete effectively, we may lose customers or insurance carrier partners and our financial results may be negatively affected.
     
  If our investments in our online platforms are not successful, our business and results of operations may be materially and adversely affected.
     
  A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business and our financial condition.
     
  We face risks related to health epidemics, such as the COVID-19 outbreak, and other outbreaks, which could disrupt our business operations and adversely affect our business, financial condition and results of operations.
     
  Increases in labor costs or commission costs for sales agents in the PRC may adversely affect our business and our profitability.

 

7
 

 

RisksRelated to Our Corporate Structure and Operation

 

We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.

 

If the PRC government deems that the VIE Agreements in relation to our VIE do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those Chinese operations, which are substantially all of our business operations.

 

We rely on contractual arrangements among WFOE and our VIE entity Heng Guang Insurance and HG Shareholders, which may not be as effective in providing operational control as direct ownership and whereby Heng Guang Cayman may have difficulty in enforcing its rights under the VIE Agreements.

 

The HG Shareholders may have potential conflicts of interest with Heng Guang Cayman which may adversely affect our consolidated business and financial condition.

 

We rely on the business licenses, insurance agency business permit and certification for the State Graded Protection of Information Security held by Heng Guang Insurance and any deterioration of the relationship between Heng Guang Insurance and Heng Guang Cayman could materially and adversely affect our overall business operations.

 

RisksRelated to Doing Business in China

 

U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China.

 

Adverse regulatory developments in China may subject us to additional regulatory review and expose us to government interference, and additional disclosure requirements and regulatory scrutiny to be adopted by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies like us with significant China-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements, and/or suspend or terminate our future securities offerings, making capital-raising more difficult.

 

The approval of the China Securities Regulatory Commission (the “CSRC”) and other compliance procedures may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.

 

8
 

 

Uncertainties with respect to the PRC legal system could adversely affect us, the rules and regulations in China can change quickly with little advance notice, and such uncertainties materially and adversely affect our business and impede our ability to continue our operations in China.

 

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities and we conduct offerings outside China. We are currently not required to obtain approval from Chinese authorities to list our Ordinary Shares on Nasdaq, however, if the Chinese authorities exert more stringent requirements on Heng Guang Insurance or our Cayman holding company regarding our offering, we may not be able to list or continue listing on Nasdaq, offer securities to investors, or such Chinese restrictions may significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to decline significantly or become worthless.

 

Governmental control of currency conversion may affect the value of your investment.

 

We are a holding company and we rely for funding on dividend payments from our subsidiaries and VIE, which are subject to restrictions under PRC laws.

 

If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations and our reputation and could result in a loss of your investment in our securities, especially if such matter cannot be addressed and resolved favorably.

 

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to penalties and limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us, or otherwise adversely affect us.

 

PRC regulation of loans and direct investments by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business in the PRC.

 

RisksRelated to an Investment in Our Ordinary Shares and This Offering

 

The recent joint statement by the SEC and The Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposedrule changes submitted by The Nasdaq Stock Market LLC (“NASDAQ”), and an act passed by the U.S. Senate all call for additionaland more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especiallythe non-U.S. auditors who are not inspected by the PCAOB. On September 22, 2021, the PCAOB adopted a final rule implementing the HoldingForeign Companies Accountable Act (the “HFCAA”), which became law in December 2020 and prohibits foreign companies from listingtheir securities on U.S. exchanges if the company has been unavailable for PCAOB inspection or investigation for three consecutive years.In June 2021, the Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”), which, if signedinto law, would reduce the time period for the delisting of foreign companies under the HFCAA to two consecutive years, instead of threeyears. Pursuant to the HFCAA and AHFCAA, our Class A Ordinary Shares may be prohibited to trade on a national exchange if the PCAOB isunable to inspect or fully investigate our auditor for two consecutive years beginning in 2022. These developments could add uncertaintiesto our offering.

 

Investors purchasing Class A Ordinary Shares in this offering will experience immediate dilution.

 

We have no plans to pay dividends on our Ordinary Shares.

 

There has been no public market for our Class A Ordinary Shares prior to this offering, and you may not be able to resell our Class A Ordinary Shares at or above the price you pay for them, or at all.

 

We are subject to liability risks stemming from our foreign status, which could make it more difficult for investors to sue or enforce judgments against us.

 

9
 

 

OurStrategy

 

Ourgoal is to become a leading independent insurance agency in China and further develop our distribution network. To achieve thisgoal, we intend to capitalize on the growth potential of China’s insurance industry and insurance intermediary sub-sector, leverageour competitive strengths and pursue the following strategies:

 

  expand into the fast-growing life insurance sector while continuing to grow our property and casualty business;
     
  further expand our distribution network through opening new brick and mortar branches;
     
  further expand our online distribution channels;
     
  grow our managed general agency model;
     
  consolidate insurance products offered by different insurance companies to build a comprehensive insurance AI system;
     
  seek strategic acquisition targets; and
     
  continue to strengthen our relationships with leading insurance companies.

 

CorporateInformation

 

Ourprincipal executive office is located at 1666 Chenglong Road, Section 2, Chengdu Economic and Technological Development Zone,Building 2, 5th Floor, Longquanyi District, Chengdu, Sichuan Province, China. Our telephone number at this addressis (400) 028-1990. Our registered office is at Ogier Global (Cayman) Limited, 89 Nexus Way, Camana Bay GrandCayman KY1-9009, Cayman Islands. Our legal name of Heng Guang Cayman is Hengguang Holding Co., Limited and we operate our businessunder the commercial name “Heng Guang Bao Dai” or “HG-Insurance Agency.”

 

Investorinquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our websiteaddress is http://qy.hgbaoxian.com. The information contained on our website is not part of this prospectus. Our agent for service ofprocess in the United States is Sichenzia Ross Ference LLP.

 

10
 

 

RecentRegulatory Development

 

Permissionsfrom the PRC Authorities to Issue Our Class A Ordinary Shares to Foreign Investors

 

Asof the date of this prospectus, we, our subsidiaries and VIE and VIE’s subsidiary, (1) are not required to obtain permissions fromany PRC authorities to offer to sell or issue our Class A Ordinary Shares to non-Chinese investors, (2) are not covered by the permissionrequirements from the China Securities Regulatory Commission (the “CSRC”), Cyberspace Administration of China (the “CAC”), the China Bank and Insurance Regulatory Commission(the “CBIRC”) or any other entity that is required to approve of Heng Guang Insurance’s operations, and (3) have notreceived nor been denied such permissions by any PRC authorities. Nevertheless, the General Office of the Central Committee of the CommunistParty of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal SecuritiesActivities According to Law,” or the July 6, 2021 Opinions, which were made available to the public on July 6, 2021. The July 6,2021 Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen thesupervision over overseas listings by Chinese companies. Given the current PRC regulatory environment, it is uncertain whether and whenwe, our subsidiaries or VIE, will be required to obtain any permission from the PRC government to list on a U.S. stock exchanges in thefuture, and even when we obtain such permission, whether it will be denied or rescinded.

 

TheHolding Foreign Companies Accountable Act

 

On May 20, 2020,the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlledby a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOBinspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securitiesare prohibited to trade on a national exchange. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which became law in December 2020 and prohibits foreigncompanies from listing their securities on U.S. exchanges if the company has been unavailable for PCAOB inspection or investigation forthree consecutive years. In June 2021, the Senate passed the AHFCAA, which, if signed into law, would reduce the time period for thedelisting of foreign companies under the HFCAA to two consecutive years, instead of three years

 

Ourauditor, an independent registered public accounting firm that issues the audit report incorporated by reference by this prospectus,as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws inthe United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professionalstandards. Our auditor is headquartered in the State of California, and has been inspected by the PCAOB on a regular basis. The recentdevelopments would add uncertainties to our offering and we cannot assure you whether Nasdaq would apply additional and more stringentcriteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy ofpersonnel and training, or sufficiency of resources, geographic reach, or experience as it relates to our audit.

 

Implicationsof Our Being an “Emerging Growth Company”

 

Asa company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company”as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An “emerging growth company” may take advantageof reduced reporting requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company,we:

 

  may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A;
     
  are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives, which is commonly referred to as “compensation discussion and analysis”;
     
  not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
     
  are not required to obtain a non-binding advisory vote from our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on frequency” and “say-on-golden-parachute” votes);
     
  are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
     
  are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act; and
     
  will not be required to conduct an evaluation of our internal control over financial reporting until our second annual report on Form 20-F following the effectiveness of our initial public offering.

 

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Weintend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for theadoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods maymake it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies thathave opted out of the phase-in periods under §107 of the JOBS Act.

 

Underthe JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after ourinitial sale of common equity pursuant to a prospectus declared effective under the Securities Act of 1933, as amended, herein referredto as the Securities Act, or such earlier time that we no longer meet the definition of an emerging growth company. The JOBS Act providesthat we would cease to be an “emerging growth company” if we have more than $1.07 billion in annual revenue, have more than$700 million in market value of our Ordinary Share held by non-affiliates, or issue more than $1 billion in principal amount of non-convertibledebt over a three-year period.

 

ForeignPrivate Issuer Status

 

Weare a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”). As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:

 

  we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company;
     
  for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
     
  we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
     
  we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
     
  we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and
     
  we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.

 

Controlled Company

 

Upon completion of this offering, our CEO andchairman of the board of directors, Jiulin Zhang, will beneficially own approximately [*] % of the aggregate voting power of our outstandingOrdinary Shares assuming no exercise of the over-allotment option, or [*]% assuming full exercise of the over-allotment option. As aresult, we will be deemed a “controlled company” for the purpose of the Nasdaq listing rules. As a controlled company, weare permitted to elect to rely on certain exemptions from the obligations to comply with certain corporate governance requirements, including:

 

  the requirement that our director nominees be selected or recommended solely by independent directors; and
     
  the requirement that we have a nominating and corporate governance committee and a compensation committee that are composed entirely of independent directors with a written charter addressing the purposes and responsibilities of the committees.

 

Although we do not intend to rely on the controlledcompany exemptions under the Nasdaq listing rules, we could elect to rely on these exemptions in the future, and if so, you would nothave the same protection afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

 

THEOFFERING

 

Class A Ordinary Shares offered by us   [              ] Ordinary Shares, or [         ] Ordinary Shares if the underwriter exercises the over- allotment option in full.
     
Price per Ordinary Share   We currently estimate that the initial public offering price will be between US$[      ] and US$[      ] per Ordinary Share.
     
Over-Allotment   We have granted to the underwriter the option, exercisable for 45 days from the date this registration statement is declared effective, to purchase up to an additional 15% of the total number of Class A Ordinary Shares to be offered  by the Company.
     
Authorized Capital   As of the date of this prospectus, our authorized share capital is US$50,000divided into 38,000,000 Class A Ordinary Shares of US$0.001 par value per share and 12,000,000 Class B Ordinary Shares of US$0.001 parvalue per share. See “Description of Share Capital.
     
Ordinary Shares outstanding prior to completion of this offering   As of the date of this prospectus, we have 6,500,000 Class A Ordinary Shares and 3,500,000 Class B Ordinary Shares outstanding, prior to completion of this offering.

 

12
 

 

Ordinary Shares outstanding immediately after completion of the Offering  

[*] Class A Ordinary Shares or [*] Class A Ordinary Shares if the underwriter exercises the over-allotment option in full; 3,500,000 Class B Ordinary Shares.

 

The numbers do not include any of the Class A Ordinary Shares underlying the Underwriter Warrants. Our authorized share capital as of this offering is US$50,000 divided into 38,000,000 Class A Ordinary Shares of US$0.001 par value per share and 12,000,000 Class B Ordinary Shares of US$0.001 par value per share. See “Description of Share Capital.

     
Voting Rights  

EachClass A Ordinary Share is entitled to one (1) vote per share and each Class B Ordinary Share is entitled to ten (10) votes pershare.

 

Holders of Class A and Class B ordinary shares will vote together asa single class, unless otherwise required by law or our amended and restated memorandum and articles of association. Our CEO, Mr. JiulinZhang, is the sole holder of our Class B Ordinary Shares and will hold [*]% to [*]% of the total outstanding voting power, dependingon whether the Underwriter exercises its over-allotment option in full or not, following the completion of this offering and will havethe ability to control the outcome of matters submitted to our shareholders for votes, including the election of our directors and theapproval of any change in control transaction. See thesections titled “Principal Shareholders” and “Description of Share Capital” for additional information.

     
Concentration of  Ownership   Upon completion of this offering, our executive officers and directors, and their affiliates, will beneficially own, in the aggregate, approximately [*]% of the total votes for our issued and outstanding Ordinary Shares, assuming the underwriter does not exercise its over-allotment option.
     
Lock-up period  

We, our directors and executive officers, and certain shareholders of the Ordinary Shares, have agreed with the underwriter not to sell, transfer or dispose of any Ordinary Shares for 180 days after the effective date of this registration statement, subject to certain exceptions. See “Shares Eligible for Future Sale” and “Underwriting.

     
Listing   We intend to apply to have our Ordinary Shares listed on Nasdaq Capital Market.
     
Nasdaq Capital Markets Symbol   We have reserved “HGIA” as our ticker symbol.
     
Transfer Agent   [                     ]
     
Use of proceeds   We intend to use the proceeds from this offering for working capital and general corporate purposes, including digital expansion of our operations, branding and marketing, and additional recruitment. See “Use of Proceeds” for more information.
     
Risk factors   Investing in our Class A Ordinary Shares involves a high degree of risk and purchasers of our Class A Ordinary Shares may lose part or all of their investment. See “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our Class A Ordinary Shares beginning on Page 22.

 

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SUMMARYCONSOLIDATED FINANCIAL DATA

 

Thefollowing historical statements of operations for the fiscal years ended December 31, 2020 and 2019, and six months ended June 30,2020 and June 30, 2021, and balance sheet data as of December 31, 2020 and 2019, and six months ended June 30, 2020 and June30, 2021, which have been derived from our audited financial statements for those periods. Our historical results are not necessarilyindicative of the results that may be expected in the future. You should read this data together with our consolidated financial statementsand related notes appearing elsewhere in this prospectus as well as “Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” appearing elsewhere in the prospectus.

 

SelectedBalance Sheet Information

 

   As of June 30, 2021   As of June 30, 2020 
Total current assets  $5,994,817   $6,298,492 
Total non-current assets   1,483,175    1,023,306 
Total Assets   7,477,992    7,321,798 
Total current liabilities   2,146,804    1,727,371 
Total Liabilities   2,220,892    1,780,287 
Total Shareholders’ Equity   5,257,100    5,541,510 

 

SelectedStatements of Operations Information

 

   SIX MONTHS ENDED JUNE 30, 
   2021   2020 
         
Revenues  $8,878,424   $11,101,665 
Gross profit   1,532,056    1,722,067 
Total operating expenses   2,380,421    1,641,845 
(Loss) income from operations   (848,365)   80,222 
Income (loss) before income tax   (647,023)   441,875 
Net income   (493,918)   329,300 

 

Selected Balance Sheet Information

 

   AS OF DECEMBER 31, 
   2020   2019 
Total current assets  $7,243,469   $4,933,424 
Total non-current assets   1,352,187    1,178,832 
Total Assets   8,595,656    6,112,256 
Total current liabilities   2,819,905    760,406 
Total Liabilities   2,903,897    822,952 
Total Shareholders’ Equity   5,691,759    5,289,304 

 

Selected Statements ofOperations Information

 

   YEARS ENDED DECEMBER 31, 
   2020   2019 
         
Revenues  $21,883,400   $23,479,380 
Gross profit   3,492,310    4,341,794 
Total operating expenses   3,915,151    1,876,095 
(Loss) income from operations   (422,841)   2,465,699 
Income before income tax   72,392    3,755,352 
Net income   45,718    2,812,730 

 

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Consolidated BalanceSheets Information

 

    As of December 31, 2020 (Restated)  
    Parent     Non-VIE subsidiaries     The VIE     Elimination     Consolidated Total  
ASSETS                                        
CURRENT ASSETS                                        
Cash & equivalents   $ -     $ -     $ 807,380      $ -     $ 807,380  
Accounts receivable                     129,061               129,061  
Prepaid expenses             3,410       129,507               132,917  
Other receivables             1,533       192,911       (8,736 )     185,708  
Prepaid commission cost                     1,002,497               1,002,497  
Due from related parties                     4,985,906               4,985,906  
Total current assets     -       4,943       7,247,262       (8,736 )     7,243,469  
NONCURRENT ASSETS                                        
Restricted cash                     766,284               766,284  
Right-of-use assets, net             48,145       90,259               138,404  
Deferred tax assets                     251,708               251,708  
Investment in non-VIE subsidiaries     5,691,759                       (5,691,759 )     -  
Equity in the VIE through the VIE Agreements             5,695,552               (5,695,552 )     -  
Property and equipment, net                     114,550               114,550  
Intangible assets, net                     81,241               81,241  
Total non-current assets     5,691,759       5,743,697       1,304,042       (11,387,311 )     1,352,187  
TOTAL ASSETS   5,691,759      $ 5,748,640     $ 8,551,304     (11,396,047 )   $ 8,595,656  
                                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                                        
CURRENT LIABILITIES                                        
Accounts payable    $      $ -     $ 820,135      $ -     $ 820,135  
Advance from customers                     48,347               48,347  
Accrued sales return liability                     1,207,828               1,207,828  
Taxes payable                     73,696               73,696  
Accrued liabilities and other payables             8,736       455,649       (8,736 )     455,649  
Operating lease liabilities             13,870       40,542               54,412  
Due to related parties                     159,838               159,838  
Total current liabilities     -       22,606       2,806,035       (8,736 )     2,819,905  
NONCURRENT LIABILITIES                                        
Operating lease liabilities             34,275       49,717               83,992  
Total non-current liabilities     -       34,275       49,717       -       83,992  
                                         
TOTAL LIABILITIES     -       56,881       2,855,752       (8,736 )     2,903,897  
                                         
COMMITMENTS AND CONTINGENCIES                                        
                                         
STOCKHOLDERS’ EQUITY                                        
Common stock     50,000                               50,000  
Additional paid in capital     7,136,489                               7,136,489  
Share capital             7,186,489       7,186,489       (14,372,978 )     -  
Accumulated deficit     (1,956,794 )     (1,956,794 )     (1,953,209 )     3,910,003       (1,956,794 )
Accumulated other comprehensive income     462,064       462,064       462,272       (924,336 )     462,064  
TOTAL STOCKHOLDERS’ EQUITY     5,691,759       5,691,759       5,695,552       (11,387,311 )     5,691,759  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 5,691,759     $ 5,748,640     $ 8,551,304     $ (11,396,047 )   $ 8,595,656  

 

 

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    As of December 31, 2019 (Restated)  
    Parent     Non-VIE subsidiaries     The VIE     Elimination     Consolidated Total  
ASSETS                                        
CURRENT ASSETS                                        
Cash & equivalents   $ -     $ -     $ 444,266     $ -     $ 444,266  
Accounts receivable                     127,891               127,891  
Prepaid expenses                     45,163               45,163  
Other receivables                     18,900               18,900  
Prepaid commission cost                     78,784               78,784  
Due from related parties                     4,218,420               4,218,420  
Total current assets     -       -       4,933,424       -       4,933,424  
NONCURRENT ASSETS                                        
Restricted cash                     718,205               718,205  
Right-of-use assets, net                     108,659               108,659  
Deferred tax assets                     262,368               262,368  
Investment in non-VIE subsidiaries     5,289,304                       (5,289,304 )     -  
Equity in the VIE through the VIE Agreements             5,289,304                (5,289,304 )     -  
Property and equipment, net                     40,079               40,079  
Intangible assets, net                     49,521               49,521  
Total non-current assets     5,289,304       5,289,304       1,178,832       (10,578,608 )     1,178,832  
TOTAL ASSETS   $ 5,289,304     $ 5,289,304     $ 6,112,256     $ (10,578,608 )   $ 6,112,256  
                                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                                        
CURRENT LIABILITIES                                        
Accounts payable   $ -     $ -     $ 239,132     $ -     $ 239,132  
Advance from customers                     737               737  
Accrued sales return liability                     97,265               97,265  
Taxes payable                     58,445               58,445  
Accrued liabilities and other payables                     175,999               175,999  
Operating lease liabilities                     46,114               46,114  
Due to related parties                     142,714               142,714  
Total current liabilities     -       -       760,406       -       760,406  
NONCURRENT LIABILITIES                                        
Operating lease liabilities                     62,546               62,546  
Total non-current liabilities     -       -       62,546       -       62,546  
                                         
TOTAL LIABILITIES     -       -       822,952       -       822,952  
                                         
COMMITMENTS AND CONTINGENCIES                                        
                                         
STOCKHOLDERS’ EQUITY                                        
Common stock     50,000                               50,000  
Additional paid in capital     7,136,489                               7,136,489  
Share capital             7,186,489       7,186,489       (14,372,978 )     -  
Accumulated deficit     (2,002,512 )     (2,002,512 )     (2,002,512 )     4,005,024       (2,002,512 )
Accumulated other comprehensive income     105,327       105,327       105,327       (210,654 )     105,327  
TOTAL STOCKHOLDERS’ EQUITY     5,289,304       5,289,304       5,289,304       (10,578,608 )     5,289,304  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 5,289,304     $ 5,289,304     $ 6,112,256     $ (10,578,608 )   $ 6,112,256  

 

 

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ConsolidatedStatements of Operations Information

 

    For the Year Ended December 31, 2020 (Restated)
   Parent   Non-VIE subsidiaries   The VIE   Elimination   Consolidated Total 
Revenues                         
Commission  $-   $-   $19,595,208   $-   $19,595,208 
Claim adjusting             2,288,192         2,288,192 
Total revenues, net   -    -    21,883,400    -    21,883,400 
Cost of revenues             18,391,090         18,391,090 
Gross profit   -    -    3,492,310    -    3,492,310 
                          
Operating expenses                         
Selling             2,446,244         2,446,244 
General and administrative        3,585    1,465,322         1,468,907 
Total operating expenses   -    3,585    3,911,566    -    3,915,151 
                          
(Loss) income from operations   -    (3,585)   (419,256)   -    (422,841)
                          
Non-operating income (expenses)                         
Interest income             69,481         69,481 
Other income             426,752         426,752 
Other expenses             (1,000)        (1,000)
Share of income from subsidiaries   45,718         -    (45,718)   - 
Share of income from VIE        49,303         (49,303)   - 
Non-operating income, net   45,718    49,303    495,233    (95,021)   495,233 
                          
Income before income tax   45,718    45,718    75,977    (95,021)   72,392 
Income tax expense             26,674         26,674 
Net income  $45,718   $45,718   $49,303   $(95,021)  $45,718 

 

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   For the Year Ended December 31, 2019 (Restated) 
   Parent   Non-VIE subsidiaries   The VIE   Elimination   Consolidated Total 
Revenues                         
Commission  $-        $22,723,168   $-   $22,723,168 
Claim adjusting             756,212         756,212 
Total revenues, net   -    -    23,479,380    -    23,479,380 
Cost of revenues             19,137,586         19,137,586 
Gross profit   -    -    4,341,794    -    4,341,794 
                          
Operating expenses                         
Selling             934,612         934,612 
General and administrative             941,483         941,483 
Total operating expenses   -    -    1,876,095    -    1,876,095 
                          
(Loss) income from operations   -    -    2,465,699    -    2,465,699 
                          
Non-operating income (expenses)                         
Interest income             1,055         1,055 
Other income             1,289,035         1,289,035 
Other expenses             (437)        (437)
Share of income from subsidiaries   2,812,730              (2,812,730)   - 
Share of income from VIE        2,812,730         (2,812,730)   - 
Non-operating income, net   2,812,730    2,812,730    1,289,653    (5,625,460)   1,289,653 
                          
Income before income tax   2,812,730    2,812,730    3,755,352    (5,625,460)   3,755,352 
Income tax expense             942,622         942,622 
Net income  $2,812,730   $2,812,730   $2,812,730   $(5,625,460)  $2,812,730 

 

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ConsolidatedCash Flows Information

 

    For the Year Ended December 31, 2020 (Restated)  
    Parent     Non-VIE subsidiaries     The VIE     Elimination     Consolidated Total  
CASH FLOWS FROM OPERATING ACTIVITIES:                                        
Net income   $ 45,718     $ 45,718     $ 49,303     $ (95,021 )   $ 45,718  
Adjustments to reconcile net income to net cash provided by operating activities:                                        
Depreciation and amortization             -       31,717       -       31,717  
Non-cash sales return allowance             -       1,240,855       -       1,240,855  
Non-cash cost of sales return allowance             -       (1,029,910 )     -       (1,029,910 )
Deferred tax             -       26,673       -       26,673  
Share of income from subsidiaries     (45,718 )                     45,718       -  
Share of income from VIE             (49,303 )             49,303       -  
Changes in assets / liabilities:                     -       -       -  
Accounts receivable             -       6,985       -       6,985  
Other receivables             (1,448 )     (163,258 )     8,256       (156,450 )
Prepaid commission cost             -       161,913       -       161,913  
Prepaid expenses             (3,223 )     (76,855 )     -       (80,078 )
Accounts payable             -       533,963       -       533,963  
Taxes payable             -       10,716       -       10,716  
Advance from customers             -       44,948       -       44,948  
Accrued sales return liability             -       (197,438 )     -       (197,438 )
Accrued liabilities and other payables             8,256       253,157       (8,256 )     253,157  
                                         
Net cash provided by operating activities     -       -       892,769       -       892,769  
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:                                        
Acquisition of fixed assets             -       (91,473 )     -       (91,473 )
Acquisition of intangible assets             -       (34,934 )     -       (34,934 )
Net cash used in investing activities     -       -       (126,407 )     -       (126,407 )
                                         
CASH FLOWS FROM FINANCING ACTIVITIES:                                        
Due (from) to related parties             -       (451,298 )     -       (451,298 )
Net cash used in financing activities     -       -       (451,298 )     -       (451,298 )
                                         
EFFECT OF EXCHANGE RATE CHANGE ON CASH     -       -       96,129       -       96,129  
                                         
NET INCREASE (DECREASE) IN CASH & EQUIVALENTS     -       -       411,193       -       411,193  
                                      -  
CASH & EQUIVALENTS & RESTRICTED CASH, BEGINNING OF YEAR     -       -       1,162,471       -       1,162,471  
                                         
CASH & EQUIVALENTS & RESTRICTED CASH, END OF YEAR   $ -     $ -     $ 1,573,664     $ -     $ 1,573,664  

 

 

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   For the Year Ended December 31, 2019 (Restated) 
   Parent   Non-VIE subsidiaries   The VIE   Elimination   Consolidated Total 
CASH FLOWS FROM OPERATING ACTIVITIES:                         
Net income  $2,812,730   $2,812,730   $2,812,730   $(5,625,460)  $2,812,730 
Adjustments to reconcile net income to net cash provided by operating activities:                         
Depreciation and amortization   -         20,824    -    20,824 
Non-cash sales return allowance   -         1,673,531    -    1,673,531 
Non-cash cost of sales return allowance   -         (1,355,560)   -    (1,355,560)
Deferred tax   -         942,622    -    942,622 
Share of income from subsidiaries   (2,812,730)             2,812,730    - 
Share of income from VIE        (2,812,730)        2,812,730    - 
Changes in assets / liabilities:                         
Accounts receivable   -         (54,623)   -    (54,623)
Other receivables   -         489,447    -    489,447 
Prepaid commission cost   -         2,365,068    -    2,365,068 
Prepaid expenses   -         (21,754)   -    (21,754)
Accounts payable   -         42,238    -    42,238 
Taxes payable   -         (121,567)   -    (121,567)
Advance from customers   -         (66,960)   -    (66,960)
Accrued sales return liability   -         (2,971,543)   -    (2,971,543)
Accrued liabilities and other payables   -         (163,554)   -    (163,554)
                          
Net cash provided by operating activities   -         3,590,899    -    3,590,899 
                          
CASH FLOWS FROM INVESTING ACTIVITIES:                         
Acquisition of fixed assets   -         (36,189)   -    (36,189)
Net cash used in investing activities   -         (36,189)   -    (36,189)
                          
CASH FLOWS FROM FINANCING ACTIVITIES:                         
Due (from) to related parties   -         (3,868,523)   -    (3,868,523)
Net cash used in financing activities   -         (3,868,523)   -    (3,868,523)
                          
EFFECT OF EXCHANGE RATE CHANGE ON CASH   -         (16,079)   -    (16,079)
                          
NET INCREASE (DECREASE) IN CASH & EQUIVALENTS   -         (329,892)   -    (329,892)
                        - 
CASH & EQUIVALENTS & RESTRICTED CASH, BEGINNING OF YEAR   -         1,492,363    -    1,492,363 
                          
CASH & EQUIVALENTS & RESTRICTED CASH, END OF YEAR  $-   $   $1,162,471   $-   $1,162,471 

 

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SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Thisprospectus contains “forward-looking statements,” all of which are subject to risks and uncertainties. Forward-looking statementsgive our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictlyto historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,”“believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,”“intends,” “plans,” “will,” “would,” “should,” “could,” “may”or other similar expressions in this prospectus. These statements are likely to address our growth strategy, financial results and productand development programs. You must carefully consider any such statements and should understand that many factors could cause actualresults to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of otherrisks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actualfuture results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statementsinclude, but are not limited to:

 

  future financial and operating results, including revenue, income, expenditures, cash balances and other financial items;
     
  our ability to execute our growth, and expansion, including our ability to meet our goals;
     
  current and future economic and political conditions;
     
  our ability to compete in an industry with low barriers to entry;
     
  the future growth of the Chinese insurance industry as a whole and the professional insurance intermediary sector in particular;
     
  our ability to continue to operate through our VIE structure;
     
  our capital requirements and our ability to raise any additional financing which we may require;
     
  negative impact on our business and financial results due to the COVID-19 pandemic;

 

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  our ability to attract clients, further enhance our brand recognition; and
     
  our ability to hire and retain qualified management personnel and key employees in order to enable us to develop our business;
     
  trends and competition in Chinese insurance industry; and
     
  other assumptions described in this prospectus underlying or relating to any forward-looking statements.

 

Wedescribe material risks, uncertainties and assumptions that could affect our business, including our financial condition and resultsof operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptionsbased on information available to our management at the time the statements are made. We caution you that actual outcomes and resultsmay, and are likely to, differ materially from what is expressed, implied or forecast by our forward-looking statements. Accordingly,you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do nothave any intention or obligation to update publicly any forward-looking statements after the distribution of this prospectus, whetheras a result of new information, future events, changes in assumptions, or otherwise.

 

Youshould read thoroughly this prospectus and the documents that we refer to with the understanding that our actual future results may bematerially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.Other sections of this prospectus include additional factors which could adversely impact our business and financial performance.

 

Thisprospectus contains statistical data that we obtained from various government and private publications. We have not independently verifiedthe data in these reports. Statistical data in these publications also may include projections based on a number of assumptions. If anyone or more of the assumptions underlying the statistical data turns out to be incorrect, actual results may differ from the projectionsbased on these assumptions.

 

Youshould not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-lookingstatements except as required by applicable law.

 

RISKFACTORS

 

Youshould carefully consider the risks described below in conjunction with the other information and our consolidated financial statementsand related notes included elsewhere in this prospectus before making an investment decision. Our business, financial condition or resultsof operations could be materially and adversely affected by any of these risks. The trading price of our Class A Ordinary Shares coulddecline due to any of these risks, and as a result you may lose all or part of your investment. This prospectus also contains forward-lookingstatements relating to events subject to risks and uncertainties. Our actual results could differ materially from those anticipated inthese forward-looking statements due to the material risks that we face described below.

 

RisksRelated to Our Business and Our Industry

 

Ouroperating history and our experience in distributing insurance products, may not provide an adequate basis to judge our future prospectsand results of operations.

 

Ouroperating company in China, Heng Guang Insurance, was founded in 2004 under the former name Sichuan Sunshine Insurance Agency Co., Ltd.,by, among five founding members, Mr. Jiulin Zhang, our current Chief Executive Officer and Chairman of the Board of Directors. Originally,our insurance agent business focused on the distribution of automobile and liability insurance products in Southwest China andhas developed a recognizable regional brand in that sector. We attempted to expand our business into the life insurance sector some yearsago but did not continue such initiative due to various reasons. In January 2018, we resumed our efforts to grow the distribution ofinsurance products outside the auto insurance sector, such as life and health insurance, property, and casualty insurance products. Dueto our limited experience in distributing certain new insurance products in the life, health and property sectors, we cannot assure youthat we will be able to maintain our growth in the long-standing automobile insurance sector or generate substantial economic growthin the life, health and property insurance sectors in the future.

 

Unusualweather patterns, extreme weather conditions and natural disasters could adversely affect the operations of our system, in-person insuranceservices and results of our business operations.

 

Weare vulnerable to unusual weather patterns, extreme weather conditions and natural disasters. Catastrophes, such as wild fires, floods,typhoons, earthquakes, power outage, telecommunication failures, break-ins, wars, riots, terrorist attacks or similar events, may giverise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the lossor corruption of our data or malfunctions of our physical system, software or hardware as well as adversely affect our ability to provideinsurance services.

 

Dueto climate changes, extreme weather conditions occur more frequently than they do in the past decades. The in-person insurance servicesprovided by our insurance agents are susceptible to severe weather patterns. Individual customers tend not to interact with our insuranceagents in our branch offices under extreme weather conditions, such as heavy rains or snows , sand storms, and extremely high or lowtemperatures. As a result, the frequent occurrence of extreme weather conditions could impact our business operations and adversely affectthe results of our operations.

 

Inaddition, extreme weather patterns and natural disasters may cause our insurance partners to increase the premiums of certain insuranceproducts that cover the extreme weather and natural disaster risks. Therefore, we may encounter the risks that existing customers wouldopt for different insurance products of agreeable prices which we may not have available.

 

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Weare subject to all the risks and uncertainties in an industry which is still in development in China.

 

Weare, and expect for the foreseeable future to be, subject to all the risks and uncertainties, inherent to a development-stagebusiness and in a developing industry in China. As a result, we must establish many functions necessary to operate a business,including expanding our managerial and administrative structure, assessing and implementing our marketing program, implementingfinancial systems and controls. These risks and challenges are, among other things:

 

  we operate in the insurance industry that is heavily regulated by relevant governmental agencies in China, such as Sichuan Provincial Bureau of China Banking and Insurance Regulatory Commission;
     
  we may require additional capital to develop and expand our operations which may not be available to us when we require it;
     
  our marketing and growth strategy may not be successful;
     
  our business may be subject to significant fluctuations in operating results; and
     
  we may not be able to attract, retain and motivate qualified professionals.

 

We have been fined by the provincial insuranceregulatory authorities in the past and may be fined for non-compliance with Chinese insurance laws and regulations in the future.

 

The insurance agent industry is heavilyregulated in China. We have had over forty branch offices all over China for the past few years and from time to time a local branchoffice may be fined by the local or provincial authorities due to its failure to comply with the applicable laws and regulations. Forinstance, in 2016, the China Bank and Insurance Regulatory Commission (the “CBIRC”) fined Heng Guang Insurance approximately120,000 RMB (approximately $20,000 USD) for lack of supervision and proper management procedures relating to the conducts of its formerbranch manager in Nanchong City, Sichuan Province. In January 2021, our Zhejiang branch office was fined by CBIRC in the amount of RMB150,000 (approximately $23,000 USD) for its misuse of accounting records. The regulatory investigations and proceedings may divert themanagement’s attention from our daily operations and the regulatory penalties may adversely affect our reputation and employees’morale and confidence in our operations. Although we make our best efforts to improve the internal control over and supervision of thebusiness activities of our local branches, there is no guaranty that we will not be fined by the insurance authorities in the future.Any regulatory proceeding and penalty will likely negatively affect our business operations and financial performance.

 

Becausethe commission revenue we earn on the sale of insurance products is based on premiums and commissions and fee rates set by insurancecompanies, any decrease in these premiums, commission or fee rates may have an adverse effect on our results of operation.

 

Weare an insurance agency and derive revenue primarily from commissions paid by the insurance companies whose policies our customerspurchase. The commission and fee rates are set by insurance companies and are based on the premiums that the insurance companies charge.Commission and fee rates and premiums can change based on the prevailing economic, regulatory, taxation and competitive factors thataffect insurance companies. These factors, which are not within our control, include the capacity of insurance companies to place newbusiness, underwriting and non-underwriting profits of insurance companies, consumer demand for insurance products, the availabilityof comparable products from other insurance companies at a lower cost, the availability of alternative insurance products, such as governmentbenefits and self-insurance plans, to consumers and the tax deductibility of commissions. In addition, premium rates for certain insuranceproducts, such as the mandatory automobile liability insurance that each automobile owner in the PRC is legally required to purchase,are tightly regulated by the CBIRC.

 

Becausewe do not determine, and cannot predict, the timing or extent of premium or commission and fee rate changes, we cannot predict the effectany of these changes may have on our operations. Since China’s entry into the WTO in December 2001, intense competition among insuranceintermediary companies has led to a gradual decline in premium rate levels of some property and casualty insurance products. Althoughsuch decline may stimulate demand for insurance products and increase our total sales volume, it also reduces the commissions we earnedon each policy sold. Any decrease in premiums or commission and fee rates may significantly affect our profitability. In addition, ourbudget for future acquisitions, capital expenditures, dividend payments, loan repayments and other expenditures may be disrupted by unexpecteddecreases in revenue caused by decreases in premiums or commission and fee rates, thereby adversely affecting our operations.

 

Competitionin our industry is intense and, if we are unable to compete effectively, we may lose customers and our financial results may be negativelyaffected.

 

Theinsurance intermediary industry in China is highly competitive, and we expect competition to persist and intensify. We face competitionfrom insurance companies that use their in-house sales force and exclusive sales agents to distribute their products, from business entitiesthat distribute insurance products on an ancillary basis, such as commercial banks, postal offices and automobile dealerships, and fromother professional insurance intermediaries. We compete for customers on the basis of product offerings, customer services and reputation.Many of our competitors have greater financial and marketing resources than we do and may be able to offer products and services thatwe do not currently offer and may not offer in the future. If we are unable to compete effectively against those competitors, we maylose customers and our financial results may be negatively affected.

 

Quarterlyand annual variations in our commission and fee revenue may have unexpected impacts on our results of operations.

 

Ourincome is subject to both quarterly and annual fluctuations as a result of the seasonality of our business, the timing of policy renewalsand the net effect of new and lost business. These factors are not within our control. Specifically, consumer demand for insurance productscan influence the timing of renewals, new business and lost business, which generally includes policies that are not renewed, and cancellations.As a result, you may not be able to rely on quarterly or annual comparisons of our operating results as an indication of our future performance.

 

Ifour contracts with insurance companies are terminated or changed, our business and operating results could be adversely affected.

 

Weprimarily act as agents for our customers who seek insurance coverage from insurance companies. Our relationships with the insurancecompanies are governed by agreements between us and the insurance companies. Most of our contracts with insurance companies areentered into at a local level between their respective provincial, city and district branches and our local branches. Generally,each branch of these insurance companies has independent authority to enter into contracts with us, and the termination of a contractwith one branch has no effect on our contracts with the other branches. See “Business—Customers—Collaborationwith Insurance Companies.” These contracts establish, among other things, the scope of our authority, the pricing ofthe insurance products we distribute and our commission rates. These contracts typically have a term of one to three year andsome of them can be terminated by the insurance companies with little advance notice. Moreover, before or upon expiration of acontract, the contracting insurance company may agree to renew it only with changes in its terms, including the amount of commissionswe receive, which could result in a reduction in revenue from that contract.

 

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Ifour largest insurance company partners terminate or change the material terms of their contracts with us, it would be difficult for usto replace the lost commissions, which could adversely affect our business and operating results.

 

For the year ended December 31, 2020, our top fiveinsurance company partners, after aggregating the business conducted between their local branches and our branch offices, accounted for70.61% of our total revenue. In particular, PingAn Insurance accounted for 30.07% of our total revenue during the fiscal year of 2020. For the year ended December 31,2019, our top five insurance company partners, after similar aggregation, accounted for 66.88% of our total revenue. During thisperiod, Ping An Insurance accounted for 23.37% of our total revenue. The terminationor any changes in the material terms of those contracts with our top insurance company partners could adversely affect our business andoperating results.

 

For the six months ended June 30, 2021, our top five insurance company partners, after aggregatingthe business conducted between their local branches and our branch offices, accounted for 61.38% of our total revenue. In particular,Ping An Insurance accounted for 13.78% of our total revenue during the six months endedJune 2021. For the six months ended June 30, 2020, our top five insurance company partners, after similar aggregation, accounted for67.44% of our total revenue. During this period, Ping An Insurance accounted for 33.99%of our total revenue. The termination or any changesin the material terms of those contracts with our top insurance company partners could adversely affect our business and operating results.

 

Ourbusiness and prospects could be materially and adversely affected if we are not able to manage our growth successfully.

 

Asof the date of this prospectus, our distribution network has expanded from our Sichuan Province headquarter to having 48 branches, andwe plan to open more branches and further expand our mix of products and service offering. We anticipate significant growth in the future.Our expansion has placed, and will continue to place, substantial demands on our managerial, operational, technological and other resources.To manage and support our continued growth, we must continue to improve our operational, administrative, financial and technologicalsystems, procedures and controls, and expand, train and manage our growing employee and agent base. Furthermore, our management willbe required to maintain and expand our relationships with insurance companies, regulators and other third parties. We cannot assure youthat our current and planned personnel, systems, procedures and controls will be adequate to support our future operations. Any failureto effectively and efficiently manage our expansion could materially and adversely affect our ability to capitalize on new business opportunities,which in turn could have a material adverse effect on our results of operations.

 

Wemay not be successful in implementing important new strategic initiatives and technologies, which may have an adverse impact on our businessand financial results.

 

Thereis no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may resultin an adverse impact on our business and financial results. Our online insurance sales platform “Heng Kuai Bao,” which becameoperational in 2019, is designed to enhance our insurance service efficiency, improve users’ experiences, improve our results ofoperations and drive long-term shareholder value. However, Heng Kuai Bao is currently available to our sales agents and management onlywhile our technology development team and outside IT service provider are still developing Heng Kuai Bao’s functions for insurancepurchasers. We obtained the Internet Insurance Agency Filing in June 2020 to conduct online insurance business through our website andthe applications of Heng Kuai Bao and You Hui Bao, which is not being used. Our management team has limited experience with this onlinebusiness strategy and cannot assure you that this online insurance business will bring sustainable growth and economic benefits to theCompany and our shareholders.

 

Additionally,we have dipped our toes into life insurance business since 2018. We have been training our sales agents to be well versed in propertyand life insurance products since early 2020 and as of December 2020, we proudly announced that we had about 190 versatile agents withknowledge in both property and life insurance. However, we believe that it will take us substantial amount of time and capital to transformmost of our property insurance agents into property and life insurance agents. As such, we may not be able to expand our life insuranceagent business and realize the high profit margin associated therewith as we expected, and our business and financial resultsmay be adversely impacted due to the expenses incurred by training of our salespersons.

 

Ifour investments in our online platforms are not successful, our business and results of operations may be materially and adversely affected.

 

Wehave devoted significant resources to developing our insurance website and applications Heng Kuai Bao and You Hui Bao, which allow oursalespersons and management to streamline the insurance purchase process and are being developed to serve insurance purchasers in thefuture. In the next several years, we intend to continue to devote resources to maintaining and developing the technology and contentof our website and applications. However, our efforts to develop our online platforms may not be successful or yield the benefits thatwe anticipate. In addition, our online expansion may depend on a number of factors, many of which are beyond our control, including butnot limited to:

 

  the effectiveness of our marketing campaigns to build brand recognition among consumers and our ability to attract and retain customers to our brick mortar branches and online shopping site;
     
  the acceptance of third-party regarding e-commerce platforms as an effective channel to distribute insurance products;

 

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  public concerns over security of e-commerce transactions and confidentiality of information;
     
  increased competition from insurance companies and banks, which directly sell insurance products through their own websites, call centers, portal websites which provide insurance product information and links to insurance companies’ websites, and other professional insurance intermediary companies which may launch independent websites;
     
  further improvement in our information technology system; and
     
  further development and changes in applicable rules and regulations which may increase our operating costs and expenses, impede the execution of our business plan or change the competitive landscape.

 

OnJuly 22, 2015, the China Insurance Regulatory Commission, or CIRC, promulgated the Interim Measures for the Supervision of Internet InsuranceBusiness, or Interim Measures, which became effective on October 1, 2015, and set forth the qualifications and procedures for insuranceintermediaries to operate internet insurance businesses in China. On December 7, 2020, the CBIRC issued the Decree of the China Bankingand Insurance Regulatory Commission (No. 13, 2020) promulgating the Measures for The Supervision of Internet Insurance Business, whichwere implemented on February 1, 2021 and as a result superseded the Interim Measures for the Supervision of Internet Insurance Business.The Measures for The Supervision of Internet Insurance Business provide that the specialized insurance intermediaries shall comply withthe relevant provisions of the CBIRC on the classification and supervision thereof. As advised by our PRC counsel, we have obtained thenecessary approvals and licenses for our online and offline insurance operations. Because online insurance emerged recently in Chinaand is evolving rapidly, the CBIRC may promulgate and implement new rules and regulations to govern this sector from time to time. Itcan be costly to adjust our operations to comply with the constant changes and further development of regulations, to which our insurancebusiness is subject. Any failure to obtain new permits or make required adjustments in response to future regulatory changes may havea material adverse impact on our growth, business prospects and results of operations.

 

Anysignificant failure in our information technology systems could have a material adverse effect on our business and profitability.

 

Ourfinancial control, accounting, customer database, business website, proprietary insurance applications, customer services and other dataprocessing systems, together with the communication systems of our local branches and our main offices in the City of Chengdu, functionand operate based on our information technology network, which is critical to our insurance business. Cyber-attacks, software malfunction,computer virus attacks or unintended computer or internet errors may cause substantial delays or disruption to our daily operations andtherefore may negatively affect our customer experiences, business reputation, and even long-term business relationships and businessprospects if not resolved properly in a timely manner.

 

Ourfuture success depends on the continuing efforts of our senior management team and other key personnel, and our business may be harmedif we lose their services.

 

Ourfuture success depends heavily upon the continuing services of the members of our senior management team and other key personnel,in particular Jiulin Zhang the CEO, the founding member and executive director of the Company and Heng Guang Insurance.In addition, our dedicated and skilled professionals, such as sales, branding and technology development, play key roles inour operations. If one or more of our senior executives or other key personnel, including key training personnel, are unable orunwilling to continue in their present positions, we may not be able to replace them with suitable candidates or at all, and ourbusiness may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competitionfor senior management and key personnel is intense, the pool of qualified candidates is very small, and we may not be able toretain the services of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnelin the future. We do not have insurance coverage for the loss of our senior management team or other key personnel’s services.

 

Inaddition, if any of our senior management team or any of our other key personnel joins a competitor or forms a competing company, wemay lose customers, sensitive trade information and key professionals and staff members. As of the date of this prospectus, we did nothave any confidentiality or non-competition agreement or arrangement with any of our executive officers and key employees. See “ExecutiveCompensation—Agreements with Named Executive Officers” for more information. If any of our executive officers or keyemployees joins a competitor of ours, we will face the risks of expending time and resources to find a suitable replacement and losingclients that may be taken away by the departing officer or key employee.

 

Wedo not currently have business insurance to cover our main assets and business. Any uninsured occurrence of business disruption, litigationor natural disaster could expose us to significant costs, which could have an adverse effect on our results of operations.

 

Theinsurance industry in China is still at the development stage, and insurance companies in China currently offer limited business-relatedinsurance products. As such, we may not be able to insure against certain risks related to our assets or business operations despiteof our intention to do so. The costs of insuring such risks and the difficulties associated with acquiring such insurance on commerciallyreasonable terms may make it impractical for us to have such insurance for our assets and operations. As of the date of this prospectus,we did not have any business liability or disruption insurance to cover our operations. As a result, any business disruption, litigation,natural disaster, or significant damages to our facilities could disrupt our business operations, and require us to incur substantialcosts and divert significant resources to repair such uninsured damages. The uninsured damages could have an adverse effect on our resultsof operations and financial condition.

 

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Becauseour industry is heavily regulated, any material changes in the regulatory environment could change the competitive landscape of our industryor require us to change the way we do business. The administration, interpretation and enforcement of the laws and regulations currentlyapplicable to us could change rapidly. If we fail to comply with applicable laws and regulations, we may be subject to civil and criminalpenalties or lose our privilege to conduct insurance business, which could materially and adversely affect our business and results ofoperations.

 

Weoperate in a highly regulated industry. The laws and regulations applicable to us are constantly evolving and may change rapidly in thefuture. We could be required to spend significant time and resources on complying with material regulatory changes, which could disruptthe competitive landscape of our industry and cost us some or all of our competitive advantages or market shares. The attention of ourmanagement team could be diverted to these efforts to comply with an evolving regulatory or competitive environment. For example, thePRC Insurance Law and related regulations were materially amended in the following years: 2002, 2009, 2014 and 2015. The 2015 amendmentsinvolved a number of significant changes to the regulatory regime, including elimination of the requirement for any insurance agent,broker or claims adjusting practitioners to obtain a qualification certificate issued by the CIRC. The elimination of the certificaterequirement may result in an unbridled increase in competition for our business and in misconduct by sales or service persons, includingsales misrepresentation. In addition, the general increase in misconduct in the insurance agent industry could potentially harmthe reputation of the industry and have an adverse impact on our business.

 

OnMarch 13, 2018, CIRC and CBRC were combined to form the Chinese Banking and Insurance Regulatory Committee, or CBIRC. This new organizationstepped into the shoes of both CIRC and CBRC as the regulator of both Chinese insurance industry and banking industry. There is uncertaintyas to how the new authority, CBIRC will guide the insurance business in China. If we fail to adapt to any new rules and regulations promulgatedby the CBIRC in the future, such failure could substantially and adversely affect our business and results of operations.

 

Additionally,errors created by our products or services may be determined or alleged to be in violation of the applicable laws and regulations. Anyfailure of our products or services to comply with these laws and regulations could result in substantial civil or criminal liability,adversely affect demand for our services, invalidate all or portions of some of our customer contracts; require us to change or terminatesome portions of our business; tarnish our reputation; and therefore impose material and adverse effects on our business.

 

Althoughwe have not had any material violations to date, we cannot assure you that our operations will always comply with the interpretationand enforcement of the laws and regulations implemented by the CBIRC. Any determination by a provincial or national government agencythat our activities or those of our vendors or customers have violated any of these laws could subject us to substantial civil or criminalpenalties, require us to change or terminate certain aspects of our operations or business, or disqualify us from providing servicesto insurance companies or other customers; and, thus could have an adverse effect on our business.

 

Salesagent and employee misconduct is difficult to detect and deter and could harm our reputation or lead to regulatory sanctions or litigationcosts.

 

Agentor employee misconduct could result in violations of law by us, regulatory sanctions, litigation or serious reputational or financialharm. Misconduct could include:

 

  engaging in misrepresentation or fraudulent activities when marketing or selling insurance products to customers;
     
  hiding unauthorized or unsuccessful activities, resulting in unknown and unmanaged risks or losses; or
     
  otherwise not complying with laws and regulations or our control policies or procedures.

 

Forinstance, in October 2015, one of our branch office managers in Sichuan was found guilty and civilly liable for raising funds with theforged corporate seal of Heng Guang Insurance without any knowledge or involvement of the Company. After this incident, our managementadopted remediating procedures to supervise and monitor our employees and agents in the local branches. However, we cannot always deteragent or employee misconduct, and the precautions we take to prevent and detect these activities may not be effective in all cases. Wecannot assure you, therefore, that agent or employee misconduct will not lead to a material adverse effect on our business, reputation,results of operations or financial condition.

 

RisksRelated to Our Corporate Structure

 

Becausewe conduct our agent business through Heng Guang Insurance, a VIE entity, if we fail to comply with applicable law, we could besubject to severe penalties and our business could be materially and adversely affected.

 

Weoperate our insurance agent business through Heng Guang Insurance, a VIE entity, pursuant to a series of contractual arrangementsbetween WFOE and Heng Guang Insurance, as a result of which, under United States generally accepted accounting principles, the assetsand liabilities of Heng Guang Insurance are treated as our assets and liabilities and the results of operations of Heng Guang Insuranceare treated in all aspects as if they were the results of our operations. There are uncertainties regarding the interpretation and applicationof PRC laws, rules and regulations, including but not limited to the laws, rules and regulations governing the validity and enforcementof the contractual arrangements between WFOE and Heng Guang Insurance.

 

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IfHeng Guang and WFOE or their ownership structure or the contractual arrangements are determined to be in violation of any existing orfuture PRC laws, rules or regulations, or Heng Guang Insurance fails to obtain or maintain any of the required governmental permits orapprovals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:

 

  revoking or suspending the business and operating licenses of Heng Guang Insurance;
     
  discontinuing or restricting the operations of Heng Guang Insurance;
     
  imposing conditions or requirements with which we or Heng Guang Insurance may not be able to comply;
     
  requiring us, our WFOE, or Heng Guang Insurance to restructure the relevant ownership structure or operations which may significantly impair the rights of the holders of our Ordinary Shares;
     
  restricting or prohibiting our use of the proceeds from our initial public offering to finance our business and operations in China; and
     
  imposing fines to WFOE or Heng Guang Insurance.

 

Wecannot assure you that the PRC courts or regulatory authorities may not determine that our corporate structure and contractual arrangementsviolate PRC laws, rules or regulations. If the PRC courts or regulatory authorities determine that our contractual arrangements are inviolation of applicable PRC laws, rules or regulations, our contractual arrangements will become invalid or unenforceable, and Heng GuangInsurance will not be treated as a VIE entity and we will not be entitled to treat Heng Guang Insurance’s assets, liabilities andresults of operations as our assets, liabilities and results of operations, which could effectively eliminate the assets, liabilities,revenue and net income of Heng Guang Insurance from our balance sheet and statement of income. This would most likely require us to ceaseconducting our business and would result in the delisting of our Ordinary Shares from the stock market where the Ordinary Shares willbe traded and a significant impairment in the market value of our Ordinary Shares.

 

Werely on contractual arrangements with Heng Guang Insurance, a VIE entity, and its shareholders for our China operations,which may not be as effective in providing operational control as direct ownership.

 

Wehave relied and expect to continue to rely on contractual arrangements with Heng Guang Insurance and its shareholders tooperate our business in China. For a description of these contractual arrangements, see “Business—Corporate Historyand Structure.These contractual arrangements may not be as effective in providing us with control over HengGuang Insurance and its subsidiaries as direct ownership. We have no direct or indirect equity interests in Heng Guang Insuranceor any of its branches.

 

Ifwe had direct ownership of Heng Guang Insurance, we could effect changes, subject to any applicable fiduciary obligations, at the managementlevel. But under the current contractual arrangements, as a legal matter, if Heng Guang Insurance and its officers fail to perform theirobligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such VIE arrangementsand rely on legal remedies under the PRC law, including seeking specific performance or injunctive relief and claiming damages, whichmay not be effective. For example, if Heng Guang Insurance refused to transfer its net profits to our WFOE, a wholly-owned subsidiaryof the Company pursuant to the VIE agreements, or if Heng Guang Insurance were otherwise to act in bad faith toward us, then we may haveto take legal actions to compel them to fulfill their contractual obligations.

 

Investors in this offering are not buyingshares of Heng Guang Insurance, our operating company, but instead are buying class A ordinary shares of Heng Guang Cayman, a shell companythat maintains VIE Agreements with Heng Guang Insurance.

 

Investors in this offering are not buying sharesof Heng Guang Insurance, our operating company, but instead are buying class A ordinary shares of Heng Guang Cayman, a shell company thatmaintains a series of service and management agreements, or VIE Agreements, with the associated operating company, Heng Guang Insurance.Should any or part of the VIE agreements become invalid, illegal or unenforceable under the laws, regulations or policies of PRC, themarket price of our class A ordinary shares shall be likely to be adversely affected and the value of such shall decline greatly or evenbecome completely worthless. As a result, you may lose part or all of your investment in our class A ordinary shares.

 

Ifany of our affiliated entities becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoyassets held by such entity, which could materially and adversely affect our business, financial condition and results of operations.

 

Wecurrently conduct our operations in China through our VIE contractual arrangements. As part of these arrangements, substantially allof our assets that are significant to the operation of our business are held by Heng Guang Insurance. If Heng Guang Insurance becomesbankrupt and all or part of its assets become subject to the rights of third-party creditors, we may be unable to continue some or allof our business activities, which could materially and adversely affect our business, financial condition and results of operations.In addition, if any of our affiliated entities undergoes a voluntary or involuntary liquidation proceeding, its equity owners or third-partycreditors may claim rights relating to some or all of these assets, which would hinder our ability to operate our business and couldmaterially and adversely affect our business operations, financial performance and the market prices of our ordinary shares.

 

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OurShareholders are subject to greater uncertainties because we operate through a VIE structure due to restrictions on the directownership of our Chinese operating entities imposed by the CIRC even though the insurance agency industry falls within thepermitted category in accordance with the Catalogue and the Negative List.

 

Investmentin the PRC by foreign investors and foreign-invested enterprises must comply with the Catalogue for the Guidance of Foreign InvestmentIndustries (the “Catalogue”) (2019 Revision), which was last amended and issued by MOFCOM and NDRC on June 30, 2019 and becameeffective since July 30, 2019, and the Special Management Measures for Foreign Investment Access (2020 version), or the Negative List,which came into effect on July 23, 2020. The Catalogue and the Negative List contain specific provisions guiding market access for foreigncapital and stipulate in detail the industry sectors grouped under the categories of encouraged, restricted and prohibited industries.The VIE structure has been adopted by many PRC-based companies, to conduct business in the industries that are currently subject to foreigninvestment restrictions in China, or are on the Negative List, due to the applicable PRC laws under which direct foreign ownership ofthese companies are prohibited. Any industry not listed in the Negative List is a permitted industry unless otherwise prohibited or restrictedby other PRC laws or regulations. Currently, the insurance agent industry falls within the permitted category in accordance withthe Catalogue and the Negative List.

 

Due to the stringent and harsh approval conditionsof China Securities Regulatory Commission, if a Chinese operating entity wants to list its securities directly on a capital market overseas,many Chinese companies use the VIE structure to avoid the constraints of the China Securities Regulatory Commission. Even though theinsurance agency industry falls within the permitted category in accordance with the Catalogue and the Negative List, we haveopted for a VIE structure instead of direct ownership. As a result, our corporate structure and contractual arrangements may be subjectto greater scrutiny by various PRC government authorities, and therefore the PRC government scrutiny may subject our shareholdersto greater uncertainty with regard to their control over Heng Guang Insurance.

 

We believe that our corporate structure and contractual arrangements complywith the current applicable PRC laws and regulations. Our PRC legal counsel, based on its understanding of the relevant laws and regulations,is of the opinion that each of the contracts among our WFOE, our VIE and its shareholders, is valid, binding and enforceable in accordancewith its terms under the Chinese laws and regulations. However, as there are substantial uncertainty regarding the interpretation andapplication of PRC laws and regulations, there can be no assurance that the PRC government authorities, such as the Ministry of Commerce,or the MOFCOM, or other authorities would agree that our corporate structure or any of the above contractual arrangements comply withPRC regulatory requirements, existing policies or with requirements or policies that may be adopted in the future. PRC laws and regulationsgoverning the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion ininterpreting these laws and regulations.

 

Contractualarrangements in relation to our VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or our VIE oweadditional taxes, which could negatively affect our financial condition and the value of your investment.

 

Underapplicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by thePRC tax authorities within ten years from the taxable year when the transactions are conducted. We could face material and adverse taxconsequences if the PRC tax authorities determine that the contractual arrangements were not entered into at arm’s length in suchas to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and transfer pricing adjustmentsof the income of our subsidiaries and affiliates. A transfer pricing adjustment could, among other things, result in a decrease of expensedeductions recorded by our VIE for PRC tax purposes, which could in turn increase its tax liabilities without reducing our subsidiary’stax expenses. In addition, PRC tax authorities may impose late payment fees and other penalties on our VIE for the adjusted but unpaidtaxes according to the applicable regulations. Our financial position could be materially and adversely affected if our VIE’s taxliabilities increase or if Heng Guang Insurance is required to pay late payment fees and other penalties.

 

Anyfailure by our consolidated VIE or its shareholders to perform their obligations under our contractual arrangements with them would havea material adverse effect on our business.

 

We,through our WFOE in the PRC, have entered into a series of contractual arrangements with our consolidated VIE and its shareholders. Fora description of these contractual arrangements, see “Business—Corporate History and Structure.” If our consolidatedVIE or its shareholders fail to perform their respective obligations under these contractual arrangements, we may incur substantial costsand expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seekingspecific performance, injunctive relief, and damages, which we cannot assure you will be effective under PRC laws. For example, if theshareholders of our consolidated VIE refused to transfer its equity interests in the consolidated VIE to us or our designee when we exercisedthe purchase option pursuant to these contractual arrangements, then we might have had to take legal actions to compel the VIE and itsShareholders to perform their contractual obligations.

 

Allour 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 PRClegal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and formal guidelinesas to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC laws. There remain significantuncertainties regarding the ultimate outcome of such litigation should legal action be taken. In the event that we are unable to enforcethese 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 requireto operate our business in the PRC, and our ability to conduct our business may be negatively affected. See “Risk FactorsRisks Related to Doing Business in China – Uncertainties with respect to the PRC legal system could adversely affectus.”

 

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Theshareholders of our VIE may have actual or potential conflicts of interest with us, which may materially and adversely affect our businessand financial condition.

 

Theshareholders of our VIE may have actual or potential conflicts of interest with us. The shareholders of the VIE may refuse to sign orbreach, or cause our VIE to breach, or refuse to renew, the existing contractual arrangements we have with the VIE, which would havea material and adverse effect on our ability to effectively control our VIE and receive economic benefits from it. For example, the shareholdersmay cause our agreements with our VIE to be performed in a manner adverse to us by, among other things, failing to remit payments dueunder the contractual arrangements to us on a timely basis. We cannot assure you that if and when conflicts of interest arise any orall 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 our company. If wecannot 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.

 

PRCregulations of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversionmay delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaryand VIE, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

 

Anyfunds we transfer to WFOE or the VIE, either as a shareholder loan or as an increase in registered capital, are subject to approval byor registration with relevant governmental authorities in China. According to the relevant PRC regulations on foreign-invested enterprises,or FIEs, the combined amount of offshore capital contributions and loans cannot exceed the FIE’s approved total investment amount.Any capital contributions to our PRC subsidiary must be filed with MOFCOM or its local counterparts, and registered with a local bankauthorized by the State Administration of Foreign Exchange, or SAFE. In addition, (a) any loan provided by us to WFOE, which is a FIE,cannot exceed the difference between its total investment amount and registered capital, and must be registered with SAFE or its localcounterparts, and (b) any loan provided by us to our VIE, over a certain threshold, must be approved by the relevant government authoritiesand must be registered with SAFE or its local counterparts. Given that the registered capital and total investment amount of WFOE arecurrently the same, if we seek to make a capital contribution to WFOE we must first apply to increase both its registered capital andtotal investment amount, while if we seek to provide a loan to WFOE, we must first increase its total investment amount. Although wecurrently do not have any immediate plans to utilize the proceeds from this offering to make capital contribution to WFOE or provideany loan to WFOE or to our VIE, if we seek to do so in the future, we may not be able to obtain the required government approvals orcomplete the required registrations on a timely basis, if at all. If we fail to receive such approvals or complete such registrations,our ability to use the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could adverselyaffect our liquidity and our ability to fund and expand our business.

 

OnMarch 30, 2015, SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign Exchange Capital Settlementof Foreign-Invested Enterprises, or SAFE Circular 19. SAFE Circular 19 launched a nationwide reform of the administration of the settlementof the foreign exchange capitals of FIEs and allowed FIEs to settle their foreign exchange capital at their discretion, but continuedto prohibit FIEs from using funds denominated in RMB converted from any foreign currency for expenditures beyond their business scopes,providing entrusted loans or repaying loans between non-financial enterprises. Violations of SAFE Circular 19 could result in seriousmonetary or other penalties. SAFE Circular 19 and relevant foreign exchange regulatory rules may significantly limit our ability to useRMB denominated funds converted from the net proceeds of this offering to fund Heng Guang Insurance’s operations in China, to investin or acquire any other PRC companies through our PRC subsidiaries or affiliates or to establish new affiliates in the PRC, which mayadversely affect our business, financial condition and results of operations.

 

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As a “controlled company” underthe rules of the NASDAQ Market, we may choose to exempt our company from certain corporate governance requirements that could have anadverse effect on our public shareholders.

 

Our directors and officers beneficially own amajority of the voting power of our outstanding Ordinary Shares. Under the NASDAQ Listing Rules, a company of which more than 50% ofthe voting power is held by an individual, group or another company is a “controlled company” and may elect not tocomply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, asdefined in the NASDAQ Listing Rules, and the requirement that our compensation and nominating and corporate governance committees consistentirely of independent directors. Although we do not intend to rely on the “controlled company” exemption under the NASDAQListing Rules, we could elect to rely on this exemption in the future. If we elect to rely on the “controlled company” exemption,a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance andcompensation committees might not consist entirely of independent directors. Accordingly, during any time while we remain a controlledcompany relying on the exemption and during any transition period following a time when we are no longer a controlled company, you wouldnot have the same protections afforded to shareholders of companies that are subject to all of the NASDAQ Capital Market corporate governancerequirements. Our status as a controlled company could afford less protection to our public shareholders than a non-controlled companydue to the possibility of us opting for the “controlled company” exemption.

 

Wehave identified several significant deficiencies in our internal control over financial reporting. If we fail to maintain an effectivesystem of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

 

Wewill be subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, as required by Section404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’sinternal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness ofthe company’s internal controls over financial reporting. These requirements will first apply to our annual report on Form 20-Ffor the fiscal year ending on December 31, [*]. In addition, an independent registered public accounting firm must attest to and reporton management’s assessment of the effectiveness of the company’s internal controls over financial reporting when the Companyno longer qualifies as an emerging company. Our reporting obligations as a public company will place a significant strain on our management,operational and financial resources and systems for the foreseeable future.

 

Priorto this offering, we have been a private company with limited accounting personnel with U.S. GAAP experience and other resources withwhich to adequately address our internal control over our financial closing and reporting process and other procedures. During the courseof preparing our consolidated financial statements as of and for the years ended December 31, 2020 and 2019 and six monthsended June 30, 2021 and 2020 in connection with this offering, we identified a number of control deficiencies, which included significantdeficiencies, in our internal control over financial reporting. Many of the deficiencies noted below were communicated to us from ourindependent registered public accounting firm as observations which stemmed from their audit. However, as noted in their report, theiraudit included consideration of internal control over financial reporting as a basis for designing the audit procedures that are appropriatein the circumstances, but not for the purpose of expressing an opinion on the effectiveness of our internal control over financial reporting.The significant deficiencies identified include: (1) a lack of formal internal controls over financial closing and reporting processes;(2) a lack of a formal risk assessment process; (3) a lack of accounting personnel with knowledge of U.S. GAAP and SEC financial reportingrequirements; and (4) a lack of regular preparation of U.S. GAAP consolidated management accounts. It is important to note that we didnot undertake a comprehensive assessment of our internal controls for purposes of identifying and reporting control deficiencies as wewill be required to do so after we are a public company. Had we undertaken such an assessment, additional significant deficiencies and/ormaterial weaknesses may have been identified.

 

Weplan to take a number of measures to remediate the control deficiencies identified, including: (1) preparing a comprehensive accountingpolicies and procedures manual that covers U.S. GAAP and ensuring that accounting personnel are familiar with and follow the manual;(2) establishing a risk assessment process that complies with the framework set forth by the Committee of Sponsoring Organizations ofthe Treadway Commission, a private sector organization dedicated to improving the quality of financial reporting; (3) hiring additionalaccounting personnel with external reporting experience, including knowledge of the SEC reporting requirements and U.S. GAAP, and investorrelations personnel; and developing formal procedures to prepare U.S. GAAP consolidated financial information on a monthly basis.

 

Weplan to remediate these significant deficiencies in time to meet the deadline for compliance with the requirements of Section 404 ofthe Sarbanes-Oxley Act. If, however, we fail to timely achieve and maintain the adequacy of our internal controls, we may not be ableto conclude that we have effective internal controls over financial reporting. Moreover, effective internal controls over financial reportingare necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieveand maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliabilityof our financial statements, which in turn could harm our business and negatively impact the trading prices of our Ordinary Shares. Furthermore,we anticipate that we will incur considerable costs and devote significant management time and efforts and other resources to complywith Section 404 of the Sarbanes-Oxley Act.

 

RisksRelated to Doing Business in China

 

Changesin China’s economic, political, or social conditions or government policies could have a material adverse effect on our businessand operations.

 

Substantiallyall of our assets and operations are currently located in China. Accordingly, our business, financial condition, results of operations,and prospects may be influenced, to a significant degree, by political, economic, and social conditions in China generally. The Chineseeconomy differs from the economies of most developed countries in many respects, including the level of government involvement, levelof development, growth rate, control of foreign exchange, and allocation of resources. Although the Chinese government has implementedmeasures emphasizing the utilization of market forces for economic reform, including the reduction of state ownership of productive assetsand the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China isstill owned by the government. In addition, the Chinese government continues to play a significant role in regulating industries by imposingregulatory guidance or policies. The Chinese government also exercises significant control over China’s economic growth by allocatingresources, controlling payment of foreign currency-denominated obligations, setting monetary policies, and providing preferential treatmentto particular industries or companies.

 

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Whilethe Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among varioussectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government, or in the lawsand regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adverselyaffect our business and operating results, reduce demand for our services, and weaken our competitive position. The Chinese governmenthas implemented various measures to encourage economic growth and guided the allocation of various types of resources. Some of thesemeasures may benefit the overall Chinese economy, but others may have a negative effect on our operations. For example, our financialcondition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations.In the past, the Chinese government has implemented certain measures to control the pace of economic growth, such as interest rate adjustments.These measures may decrease the auto-mobile based transportation activities in China, which may adversely affect the overall auto insurancedemands and our business.

 

Furthermore, Heng Guang Cayman and our China basedoperating entities, as well as our investors, face uncertainty about future actions by the Chinese government that could significantlyaffect our financial performance and operations in China, including the enforceability of our VIE contractual arrangements. If futurelaws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing VIE contractualarrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. If thePRC government determines that any part of our VIE structure and VIE Agreements do not comply with PRC regulations, or if these regulationschange or are interpreted differently in the future, our ordinary shares may decline in value or become worthless if we are unable toassert our contractual control rights over the assets of Heng Guang Insurance that conducts all or substantially all of our operations.

 

As of the date of this prospectus, there is nolaws, regulations or other rules require our China based operating entities to obtain permission or approvals from Chinese authoritiesto list its affiliate’s securities on U.S. exchanges, and neither we nor our China based operating entities have received or weredenied such permission. However, there is no guarantee that we or Heng Guang Insurance will receive or not be denied permission fromChinese authorities to list on U.S. exchanges in the future.

 

Weface risks related to epidemics, such as the COVID-19 outbreak originated in Wuhan, China at the end of 2019, and other outbreaks, whichhave disrupted and could in the future disrupt our operations and adversely affect our business, financial condition andresults of operations.

 

Our business hadbeen materially and adversely affected by the COVID-19 outbreak originated in Wuhan, China at the end of 2019. In 2020, the PRC and localgovernments implemented a series of temporary restrictions during the outbreak of COVID-19, including temporary travel bans among cities,towns and even local municipalities. Such travel restrictions substantially and directly hindered our in-person sales activities andlimited our daily internal operations. Because our life insurance sales heavily relied on in-person services by our agents, COVID-19affected our income generated by the life insurance sector the most. In addition, the negative psychological impacts of COVID-19 broughthesitation and concerns of new and existing customers about going to our branch offices to explore our insurance products and services.Furthermore, we believed that the job losses or decline of job security due to COVID-19 may discourage certain people from purchasingautomobiles, which partially contributed to our decline in sales of auto insurance. As a result, our net income for the year ended December31, 2020 amounted to $45,718, reflecting a decrease of $2,767,012, or 98.4%, compared with the net income of $2,812,730 for the yearended December 31, 2019. As a result, our net loss for the six month ended June 30, 2021 amounted to $493,918, reflecting a decreaseof $823,218, compared with the net income of $329,300 for the six month ended June 30, 2020.

 

IfCOVID-19’s new variants, such as SARS-CoV2, become a larger threat to people in the PRC or other outbreaks affect the PRC, ourbusiness operations may be severely disrupted. In response to the COVID-19 outbreak, we have established and been operating through HengKuai Bao, the online platform, where customers and insurance agents can interact remotely and we communicate internally on a regularbasis. Furthermore, we have developed a few new ancillary services catering corporate clients, including without limitation the truckingservices, commercial passenger services, and online taxi booking. However, in general, our business operations depend on China’soverall economy and demand for insurance products, including auto insurance products, which could be negatively affected by reduced transportationduring the era of an epidemic. A prolonged epidemic of COVID-19 and its variants would likely have a material adverse effect on our businessoperations and financial performance despite of counter-COVID actions and efforts.

 

Asof the date of this prospectus, we think the COVID-19 outbreak is generally considered under control in China and we have beenable to resume our ordinary level of business activities since May 2020. In light of the current circumstances and based on informationcurrently available, we believe that the negative impacts of COVID-19 on our business temporary and mainly contained in the fiscal yearof 2020. However, it is almost impossible to predict whether and when we will experience another epidemic or the damages and impactscaused thereby. Should we encounter another epidemic in the PRC, such outbreak may severely disrupt or completely shut down our businessoperations and therefore our share may worth less or become utterly worthless.

 

Ourcurrent corporate structure and business operations may be affected by the newly enacted Foreign Investment Law.

 

OnMarch 15, 2019, the National People’s Congress approved the Foreign Investment Law, which became effective on January 1, 2020.The Foreign Investment Law does not explicitly classify whether variable interest entities that are controlled through contractual arrangementswould be deemed as foreign-invested enterprises if they are ultimately “controlled” by foreign investors. However, it hasa catch-all provision under definition of “foreign investment” that includes investments made by foreign investors in Chinathrough other means as provided by laws, administrative regulations or the State Council. Therefore, it still leaves space for interpretation,future laws, administrative regulations or provisions of the State Council to include contractual arrangements as a form of foreign investment.Therefore, there can be no assurance that our control over our VIE through contractual arrangements will not be deemed as a foreign investmentunder the Foreign Investment Law inEdgar the future.

 

TheForeign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operatein industries specified as either “restricted” or “prohibited” from foreign investment on a “negative list”.The Special Administrative Measures for Access to Foreign Investment (Negative List) (2020 Edition) (Order No. 32 of the National Developmentand Reform Commission and the Ministry of Commerce), came into effect on July 23, 2020, further shortened the “negative list”compared to the 2019 edition, increasing foreign investment openness to the services, manufacturing and agriculture industries.

 

TheForeign Investment Law provides that foreign-invested entities operating in “restricted” or “prohibited” industrieswill require market entry clearance and other approvals from relevant PRC government authorities. If our control over Heng Guang Insurancethrough contractual arrangements is deemed as foreign investment in the future, and any business of Heng Guang Insurance is “restricted”or “prohibited” from foreign investment under the “negative list” effective at the time, we may be deemed tobe in violation of the Foreign Investment Law, the contractual arrangements may be deemed invalid and illegal, and we may be requiredto unwind such contractual arrangements and restructure our business operations, any of which may have material adverse effects on ourbusiness operations.

 

Furthermore,if future laws, administrative regulations or provisions mandate further actions to be taken by companies with existing VIE contractualarrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failureto take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adverselyaffect our current corporate structure and business operations.

 

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Changesin the policies of the PRC government could have a significant impact upon our ability to operate profitably in the PRC.

 

Currently,we conduct all of our operations and all of our revenue is generated in the PRC. Accordingly, economic, political and legal developmentsin the PRC will significantly affect our business, financial condition, results of operations and prospects. Policies of the PRC governmentcan have significant effects on economic conditions in the PRC and the ability of businesses to operate profitably. Our ability to operateprofitably in the PRC may be adversely affected by changes in policies by the PRC government, including changes in laws, regulationsor their interpretation.

 

Becauseour business is dependent upon government policies that encourage a market-based economy, change in the political or economic climatein the PRC may impair our ability to operate profitably, if at all.

 

Althoughthe PRC government has been pursuing and implementing a number of economic reforms for more than two decades, the PRC government continuesto exercise significant control over economic growth in the PRC. Because we are a group of private companies, we rely upon the governmentalpolicies that encourage private ownership of businesses. Restrictions on private ownership of businesses would affect the stability ofour business operations in general. We cannot assure you that the PRC government will continue the policies in favor of a market-orientedeconomy or that existing policies favorable to us will not be significantly altered, especially in the event of a change of administration,social or political disruption.

 

PRClaws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulationsmay impair our ability to operate profitably. Changes and uncertainty in PRC laws and interpretation may materially and adverselyaffect our business performance and impede our operations in China.

 

Thereare substantial uncertainties regarding the interpretation and enforcement of PRC laws and regulations including, but not limited to,the laws and regulations governing our insurance agent business. The laws and regulations over Chinese insurance intermediariesare sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty.The effectiveness and interpretation of newly enacted laws or regulations and amendments to existing laws and regulations, may adverselyaffect our business operations. New laws and regulations may also have retroactive effects on our operations in certain circumstances.We cannot predict what effect the new PRC laws and regulations and new interpretation of existing PRC laws or regulations may have onour business. 

 

On July 6, 2021, the General Office of the CommunistParty of China Central Committee and the General Office of the State Council jointly issued an announcement to crack down on illegalactivities in the securities market and promote the high-quality development of the capital market, which, among other things, requiresthe relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervisionover China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securitieslaws. Since this announcement is relatively new, uncertainties still exist in relation to how soon legislative or administrative regulationmaking bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modifiedor promulgated, if any, and the potential impact such modified or new laws and regulations will have on companies like us. 

 

Becauseour business is conducted in Chinese dollars or RMB and the price of our Ordinary Shares is quoted in United States dollars, changesin currency conversion rates may affect the amount of proceeds we will receive after the currency exchange from U.S. dollars toRMB.

 

Ourbusiness is conducted in the PRC, our internal books and records are recorded in renminbi or “RMB”, which is the legal currencyof the PRC, and the audited consolidated financial statements that we file with the SEC and provide to our shareholders are presentedin United States dollars. Changes in the exchange rate between the RMB and U.S. dollars would affect the value of our assets and theresults of our operations denominated in United States dollars. The value of the RMB against the United States dollars and other currenciesmay fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changesin the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect our cashflows, revenue and financial condition presented in U.S. dollars. Further, we will need to convert the net proceeds denominated in U.S.dollars we receive in this offering into RMB in order to use the funds for our business in the PRC. Any decrease in the conversionrate from the United States dollars to the RMB would reduce the amount of net proceeds in RMB we would receive after the currencyconversion and therefore adversely affect our ability to implement our plan to use such proceeds from the offering.

 

Ifwe become subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significantresources to investigate and resolve such matters, which could harm our business operations, stock price and reputation.

 

U.S.public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negativepublicity by investors, financial commentators and U.S. regulatory agencies. Much of the scrutiny, criticism and negative publicity hascentered on financial and accounting irregularities, lack of effective internal controls over financial accounting, inadequate corporategovernance policies and, in many cases, allegations of fraudulent activities. As a result of the scrutiny, criticism and negative publicity,the publicly traded stocks of many U.S. listed Chinese companies have experienced and may experience in the future high volatility intrading prices and market value and, in some cases, may be subject to the delisting procedures from the national stock exchanges. Someof these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigationsinto the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our businessand stock prices when listed on a national stock exchange. If we become the subject of any unfavorable allegations, whether such allegationsare proven to be true or false, we will have to expend significant capital and time to investigate such allegations and defend our company.If such allegations are proven to have merits, we and our business operations could be severely affected and you could sustain a significantloss in your investment in our ordinary shares.

 

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Thedisclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of anyregulatory bodies in the PRC.

 

Weare regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulationspromulgated by the SEC under the Securities Act and the Securities Exchange Act. Our SEC reports and other disclosures and public pronouncementsare not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filingsare not subject to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capitalmarkets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understandingthat no local regulator has done any review of our SEC reports, filings or any of our other public pronouncements.

 

The newlyenacted “Holding Foreign Companies Accountable Act” and proposed “Accelerating Holding Foreign Companies AccountableAct” both call for additional and more stringent criteria to be applied to restrictive market companies upon assessing thequalification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertaintiesto our offering and if our auditors fail to permit the Public Company Accounting Oversight Board (“PCAOB”) to inspect theauditing firm, our class A ordinary shares may be subject to delisting.

 

OnApril 21, 2020, the SEC and the PCAOB released a joint statement highlighting the risks associated with investing in companies basedin or having substantial operations in certain “restrictive markets,” including China. The joint statement emphasized therisks associated with lack of access from the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in themarkets where the PCAOB has limited access to the local auditing firms and their work.

 

OnMay 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply a minimum offering size requirement for companies primarily operatingin a restrictive market, (ii) adopt a new requirement relating to the qualification of management or the board of directors of companiesin the restrictive markets, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualificationsof the company’s auditor.

 

OnDecember 18, 2020, the “Holding Foreign Companies Accountable Act” was signed by President Donald Trump and became law. Thislegislation requires certain issuers to establish that they are not owned or controlled by a foreign government. Specifically, an issuermust make this certification if the PCAOB is unable to audit specified reports because the issuer has retained a foreign public accountingfirm that is not subject to inspection by the PCAOB. Furthermore, if the PCAOB is unable to inspect the issuer’s public accountingfirm for three consecutive years, the issuer’s securities are banned from trading on a national stock exchange.

 

On September 22, 2021, the PCAOB adopted a finalrule implementing the HFCAA, which became law in December 2020. In June 2021, the Senate passed the AHFCAA, which, if signed into law,would reduce the time period for the delisting of foreign companies under the HFCAA to two consecutive years, instead of three years.

 

Thelimited PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors in China.As a result, investors may be deprived of the benefits of such PCAOB inspections and supervision. The inability of the PCAOB to conductinspections of auditors in China makes it more difficult to evaluate the effectiveness of these public accounting firms’ auditprocedures or quality control procedures, which could cause existing investors and potential investors in our Ordinary Shares to loseconfidence in our audit procedures and audited financial statements.

 

Ourauditor, KCCW Accountancy Corp., is an independent registered public accounting firm with the PCAOB and is subject to laws in the U.S.pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditorhas been inspected by the PCAOB on a regular basis. However, the above recent developments may have added uncertainties to our proposedoffering, to which Nasdaq may apply additional and more stringent criteria with respect to our auditor’s audit and quality controlprocedures, adequacy of personnel and training, sufficiency of resources, geographic reach, and experience as related to their audits.If independent registered public accounting firm fails to permit PCAOB to inspect its firm, our class A ordinary shares may be subjectto delisting by the stock exchange where such ordinary shares will be listed.

 

Wemust remit the offering proceeds to China before they may be used to benefit our business in China, and we cannot assure that we canfinish all necessary governmental registration processes in a timely manner.

 

Weplan to remit the proceeds of this offering back to China, and the process for sending funds of such scale to China may take severalmonths after the closing of this offering. The Company may make advances or additional capital contributions to Heng Guang Insurancewhile the remittance of the offering proceeds is in process. For example, loans by us or additional capital contribution to our subsidiariesin China, cannot exceed the PRC statutory limits, while the shareholder loan must be also registered with the SAFE. The statutory limitfor the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approvedby MOFCOM or its local counterpart and the amount of registered capital of such foreign-invested company. The PRC regulatory clearanceon the transfer of the offering proceeds to the PRC may delay our deployment of such capital and therefore may negatively affect ourbusiness growth strategy as planned.

 

Increasesin labor costs in the PRC may adversely affect our business and our profitability.

 

China’seconomy has experienced increases in labor costs in recent years, which is expected to continue to grow. The average wage level for ouremployees has also increased in recent years. We expect that our labor costs, including wages and employee benefits and additional personalprotective equipment during COVID-19, will continue to increase. Unless we are able to pass on these increased labor costs to our customersby increasing prices for our services or insurance products, our profitability and results of operations may be materially and adverselyaffected.

 

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Inaddition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and payingvarious statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemploymentinsurance and childbearing insurance to designated government agencies for the benefits of our employees. Pursuant to the PRC Labor ContractLaw that became effective in January 2008 and its rules and amendments promulgated thereunder, employers are subject to stricter requirementsin terms of labor contracts, minimum wages, payments of remuneration, terms of probation and unilateral termination of labor contracts.In the event that we decide to terminate some of our employees or otherwise alter our employment or labor practices, the PRC Labor ContractLaw and regulations may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affectour business and results of operations.

 

Asthe interpretation and implementation of the PRC Labor Contract Laws and regulations continue evolving, we cannot assure you that ouremployment practice does not and will not violate such rules and regulations in China, which may subject us to labor disputes or governmentinvestigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensationto our employees and our business, financial condition and results of operations could be materially and adversely affected.

 

Failureto make adequate contributions to various employee benefits plans as required by PRC regulations may subject us to penalties.

 

Companiesoperating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance,housing funds and other welfare payment obligations, and contribute to the plans in such amounts in relation to their employees’salaries, as specified by the local government where the business operations are. Such requirement to contribute to employee benefitplans has not been implemented consistently by the local governments in China given the different levels of economic development in differentlocations. If we fail to make contributions to certain employee benefit plans or fail to comply with applicable PRC labor laws or regulationsin the future, we may be subject to penalties and fines and/or catch-up contributions to certain employee benefit plans. A large lumpsum payment obligation due to certain labor law violations will likely negatively affect our financial condition and results of operations.

 

Anyfailure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRCplan participants or us to fines and other legal or administrative sanctions.

 

InFebruary 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participatingin Stock Incentive Plan of Overseas Publicly Listed Company (the “Stock Option Rules”), replacing earlier rules promulgatedin 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than oneyear who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required toregister with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas-listed company, and completecertain other procedures. In addition, an overseas-entrusted institution must be retained to handle matters in connection with the exerciseor sale of stock options and the purchase or sale of shares and interests. We have not adopted any stock incentive plan as of the dateof this prospectus. However, if we adopt an employee stock incentive plan in the future, we and our executive officers and other employeeswho are PRC citizens or reside in the PRC for a continuous period of not less than one year will be subject to these regulations whenour company becomes an overseas-listed company upon the completion of this offering. Failure to complete the SAFE registrations may subjectthem to fines and legal sanctions and additional restrictions on such shareholders’ ability to exercise their stock options orremit proceeds gained from the sale of their securities into the PRC. We also face regulatory uncertainties that could restrict our abilityto adopt incentive plans for our directors, executive officers and employees under PRC law.

 

Regulationand censorship of information disseminated over the internet in China may adversely affect our business and reputation and subject usto liability for information displayed on our website.

 

ThePRC government has adopted regulations governing internet access and the distribution of news and information over the internet. Underthese regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet contentthat, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious,fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide internet contentand other licenses, and the closure of the concerned websites. The website operator may also be held liable for such censored informationdisplayed on or linked to the websites. If our website is found to be in violation of any such requirements, we may be penalized by relevantauthorities, and our online insurance operations or reputation could be adversely affected.

 

Wemay be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies,and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our businessand results of operations.

 

ThePRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirementspertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and subject to frequentchanges, and their interpretation and enforcement involve significant uncertainties. As a result, under certain circumstances, it maybe difficult to determine what actions or omissions may be deemed to be in violation of applicable internet laws and regulations.

 

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Weonly have contractual control over our website, http://qy.hgbaoxian.com. We do not directly own the websites, including internet informationprovision services. This may disrupt our business, subject us to sanctions, compromise enforceability of related contractual arrangements,or have other harmful effects on us.

 

Theevolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May2011, the State Council announced the establishment of a new department, the State Internet Information Office (with the involvementof the State Council Information Office, the MITT, and the MPS). The primary role of this new agency is to facilitate the policy-makingand legislative development in this field, to direct and coordinate with the relevant departments in connection with online content administrationand to deal with cross-ministry regulatory matters in relation to the internet industry.

 

Theinterpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relatingto the internet industry have created substantial uncertainties regarding the legality of foreign investments in, and the businessesand activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits orlicenses required for conducting our online insurance business in China or will be able to maintain our existing licenses or obtain newones. If the PRC government considers that we were operating without the proper approvals, licenses or permits or promulgates new lawsand regulations that require additional approvals or licenses, it has the power, among other things, to levy fines, confiscate our income,revoke our business licenses, and discontinue our relevant business or impose restrictions on the affected portion of our business. Anyof these actions by the PRC government may have a material adverse effect on our online insurance business and results of operations.

 

Underthe PRC Enterprise Income Tax Law, or the EIT Law, we may be classified as a “resident enterprise” of China, which couldresult in unfavorable tax consequences to us and our non-PRC shareholders.

 

Under thePRC Enterprise Income Tax Law, or the “EIT Law,” that became effective in January 2008, an enterprise established outsidethe PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterpriseincome tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementationrules to the EIT Law, a “de facto management body” is defined as a body that has material and overall management and controlover the manufacturing and business operations, personnel and human resources, finances, and properties of an enterprise. In addition,a circular, known as SAT Circular 82, issued in April 2009 by the State Administration of Taxation, or the “SAT,” specifiesthat certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC residententerprises if the following are located or resident in the PRC: senior management personnel and departments that are responsible fordaily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, companyseal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having votingrights. Further to SAT Circular 82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to providemore guidance on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlledoffshore incorporated resident enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determinationof resident status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply tooffshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals,the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “defacto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whetherthey are controlled by PRC enterprises, PRC enterprise groups, or by PRC or foreign individuals.

 

Ifthe PRC tax authorities determine that the actual management organ of Heng Guang Insurance is within the territory of China, Heng GuangInsurance may be deemed to be a PRC resident enterprise for PRC enterprise income tax purposes and a number of unfavorable PRC tax consequencescould follow. First, we will be subject to the uniform 25% enterprise income tax on our world-wide income, which could materially reduceour net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Finally, dividends payable byus to our investors and gains on the sale of our shares may become subject to PRC withholding tax, at a rate of 10% in the case of non-PRCenterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if suchgains are deemed to be from PRC sources. It is unclear whether any of our non-PRC shareholders would be able to claim the benefits ofany tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Anysuch tax may reduce the returns on your investment in our shares. Although up to the date of this prospectus, Heng Guang Insurance hasnot been notified or informed by the PRC tax authorities that it has been deemed to be a resident enterprise for the purpose of the EITLaw, we cannot assure you that it will not be deemed to be a resident enterprise in the future.

 

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TheChinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently notrequired to obtain approval from any Chinese authority to list our ordinary shares on Nasdaq. However, if we were required to obtainany type of securities listing approval from the PRC government in the future and were denied such permission, we would not be able tocontinue listing on Nasdaq or offering securities to investors, and therefore our share price would significantly depreciate.

 

TheChinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy throughregulations and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including thoserelating to taxation, insurance commissions, property and other matters. The central or local governments of these jurisdictions mayimpose new and restrictive regulations or interpretations of existing regulations that would require additional expenditures and effortson our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, includingany decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or localvariations in the implementation of economic policies, could have a significant effect on economic conditions in China, and result ina material change in our operations and/or the value of our ordinary shares.

 

Forexample, the Chinese cybersecurity regulator announced on July 2, 2021, that it had begun an investigation of Didi Global Inc. (NYSE:DIDI) and two days later ordered that Didi Global Inc.’s application be removed from all the smartphone application stores in China.

 

Giventhe example of Didi Global Inc. and recent statements of by the Chinese government indicating an intent to exert more oversight and controloverseas offerings and foreign investments in Chinese companies, our insurance agency business may be subject to various government andregulatory interference once our ordinary shares are listed on Nasdaq and such regulatory actions could significantly limit or completelyhinder our ability to offer or continue to offer securities to non-Chinese investors and directly cause the value and trading pricesof our ordinary shares to significantly decline or become worthless.

 

Althoughwe are currently not required to obtain any permission from any PRC government to list our ordinary shares on Nasdaq, it will remainuncertain when and whether we will be required to obtain any permission from the PRC government to list our shares on Nasdaq in the future,and even when we obtain such permission in accordance with the new rules and regulations, it will be unclear whether such permissionwill be rescinded or revoked at some point in time.

 

Inlight of recent events indicating greater oversight by the CAC over data security, we may be subject to a variety of PRC laws and otherobligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have amaterial adverse effect on our business, our listing on the Nasdaq Capital Market, financial condition, results of operations, and theoffering.

 

Theregulatory requirements with respect to cybersecurity and data privacy are constantly evolving and can be subject to varying interpretations,and significant changes, resulting in uncertainties about the scope of our responsibilities in that regard. Failure to comply with thecybersecurity and data privacy requirements in a timely manner, or at all, may subject us to government enforcement actions and investigations,fines, penalties, suspension or disruption of our operations, among other things. The Cybersecurity Law, which was adopted by the NationalPeople’s Congress on November 7, 2016 and came into force on June 1, 2017, and the Cybersecurity Review Measures, orthe “Review Measures,” which were promulgated on April 13, 2020, provide that personal information and important datacollected and generated by a critical information infrastructure operator in the course of its operations in China must be stored inChina, and if a critical information infrastructure operator purchases internet products and services that affect or may affect nationalsecurity, it should be subject to cybersecurity review by the CAC. In addition, a cybersecurity review is required where critical informationinfrastructure operators, or the “CIIOs,” purchase network-related products and services, which products and services affector may affect national security. Due to the lack of further interpretations, the exact scope of what constitute a “CIIO”remains unclear. Further, the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws.

 

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On June 10, 2021, the Standing Committee of theNational People’s Congress promulgated the Data Security Law, which took effect on September 1, 2021. The Data Security Law requiresthat data shall not be collected by theft or other illegal means, and also provides for a data classification and hierarchical protectionsystem. The data classification and hierarchical protection system puts data into different groups according to its importance in economicand social development, and the damages it may cause to national security, public interests, or the legitimate rights and interests ofindividuals and organizations in case the data is falsified, damaged, disclosed, illegally obtained or illegally used. In addition, theOffice of the Central Cyberspace Affairs Commission and the Office of Cybersecurity Review under the CAC, published the Measures of CybersecurityReview (Revised Draft for Comments) on July 10, 2021, which provides that, aside from CIIOs, data processing operators engaging in dataprocessing activities that affect or may affect national security, must be subject to the cybersecurity review by the Cybersecurity ReviewOffice. On December 28, 2021, a total of thirteen governmental departments of the PRC, including the PRC State Internet Information Office,issued the Measures of Cybersecurity Review, which will become effective on February 15, 2022. According to the Measures of CybersecurityReview, a cybersecurity review is conducted by the CAC, to assess potential national security risks that may be brought about by anyprocurement, data processing, or overseas listing. The Measures of Cybersecurity Review further, if effective, would require that criticalinformation infrastructure operators and services and data processing operators that possess personal data of at least one (1) millionusers must apply for a review by the Cybersecurity Review Office of PRC, if they plan to conduct securities listings on foreign exchanges.In addition to the new Measures of Cybersecurity Review, it also remains uncertain whether any future regulatory changes would imposeadditional restrictions on companies like us.

 

Weare subject to PRC laws relating to the collection, use, sharing, retention, security, and transfer of confidential and private information.As of August 2021, Heng Guang Insurance’s online business platform collected, stored, used and processed all of the personal informationand important data procured and collected from its operation in the PRC domestically, with zero cross-border data transfer. On January21, 2021, Heng Guang Insurance received a level III data security certificate (the highest level in civilian system) from the ChineseMinistry of Public Security after completing the compliance test. As of the date of this prospectus, we have not received any noticefrom any authorities identifying us as a CIIO or requiring us to undertake a cybersecurity review by the CAC. Further, we have not beensubject to any penalties, fines, suspensions, investigations from any competent authorities for violation of the regulations or policiesthat have been issued by the CAC to date. If the Review Measures Draft is enacted as proposed, we believe we may not be subject to thecybersecurity review by the CAC for this offering, given that: (i) we presently maintain and process all of our personal informationdata in the PRC; and (ii) data processed in our business is less likely to have a bearing on national security, thus it may not be classifiedas core or important data by the authorities. Therefore, we believe that we have complied with the regulations and policies issued bythe CAC as of the date of this prospectus.

 

However,it remains uncertain as to how the Review Measures Draft will be interpreted or implemented and whether the PRC regulatory agencies,including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Review MeasuresDraft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we expect to take all reasonablemeasures and actions to comply therewith. However, we cannot assure you that PRC regulatory agencies, including the CAC, would take thesame view as we do, and we will not be subject to the cybersecurity review by the CAC or designated as a CIIO. We may experience disruptionsto our operations should we be required to have a cybersecurity review by the CAC. Any cybersecurity review could also result in uncertaintyto our Nasdaq listing, negative impacts on our share trading prices and diversion of our managerial and financial resources.

 

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RisksRelating to This Offering And The Trading Market

 

Therehas been no public market for our Class A Ordinary Shares prior to this offering, and you may not be able to resell ourClass A Ordinary Shares at or above the price you have paid, or at all.

 

Priorto this offering, there has not been a public market for our Ordinary Shares. We plan to apply for the listing of our Class A OrdinaryShares on the Nasdaq Capital Market. However, an active public market for our Class A Ordinary Shares may not develop or be sustainedafter the offering, in which case the market price and liquidity of our Class A Ordinary Shares will be materially and adversely affected.

 

Theinitial public offering price for our Class A Ordinary Shares may not be indicative of prices that will prevail in the trading marketand such market prices may be volatile.

 

Theinitial public offering price for our Class A Ordinary Shares will be determined by negotiations between us and the underwriter, anddoes not bear any relationship to our earnings, book value or any other indicia of value. We cannot assure you that the market priceof our Class A Ordinary Shares will not decline significantly below the initial public offering price. The financial markets in the UnitedStates and other countries have experienced significant price and volume fluctuations in the last few years. Volatility in the priceof our Class A Ordinary Shares may be caused by factors outside of our control and may be unrelated or disproportionate to changes inour results of operations.

 

Youwill experience immediate and substantial dilution in the net tangible book value of Class A Ordinary Shares purchased.

 

Theinitial public offering price of our Class A Ordinary Shares is substantially higher than the net tangible book value per Class A OrdinaryShare. Consequently, when you purchase our Class A Ordinary Shares in the offering and upon completion of the offering, you will incurimmediate dilution. See “Dilution” on page 44. In addition, you may experience further dilution to the extent thatadditional Ordinary Shares are issued upon exercise of outstanding warrants or options we may grant from time to time.

 

Substantialfuture sales of our Class A Ordinary Shares or the anticipation of future sales of our Class A Ordinary Shares in the public market couldcause the price of our Class A Ordinary Shares to decline.

 

Salesof substantial amounts of our Class A Ordinary Shares in the public market after this offering, or the perception that these sales couldoccur, could cause the market price of our Class A Ordinary Shares to decline. As of the date of this prospectus, there are 6,500,000Class A Ordinary Shares and 3,500,000 Class B Ordinary Shares issued and outstanding. [*] Class A Ordinary Shares are expected to beoutstanding immediately after the consummation of this offering, assuming the underwriter does not exercise its over-allotment, and [*]Class A Ordinary Shares are expected to be outstanding immediately after the consummation of this offering, assuming the underwriterexercises its over-allotment option in full. Sales of these shares into the market could cause the market price of our Class A OrdinaryShares to decline.

 

Wedo not intend to pay dividends on our Class A Ordinary Shares in the foreseeable future.

 

Wecurrently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declareor pay any cash dividends in the foreseeable future. As a result, you may only receive return on your investments in our Class A OrdinaryShares if the market price of our Class A Ordinary Shares exceeds the price you pay.

 

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Ifsecurities or industry analysts do not publish research or reports about our business, or if they publish negative reports regardingour Class A Ordinary Shares or business operations, the price and/or trading volume of our Class A Ordinary Shares could decline.

 

Thetrading market for our Class A Ordinary Shares may be affected in part by the research reports that industry or securities analysts publishabout our stock or our business. We do not have any control over these analysts or their reports. If one or more of the analysts whocover us downgrade our Class A Ordinary Shares or share negative information about us, the price of our Class A Ordinary Shares wouldlikely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on our Class A OrdinaryShares, our visibility in the financial markets may decline, which could lead to the decreases of the trading price and trading volumeof our Ordinary Shares.

 

Themarket price of our Class A Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not beable to resell your shares at or above the initial public offering price.

 

Theinitial public offering price for our Class A Ordinary Shares will be determined through negotiations between the underwriter and usand may deviate substantially from the market price of our Ordinary Shares following our initial public offering. If you purchase ourClass A Ordinary Shares in our initial public offering, you may not be able to resell those shares at or above the initial public offeringprice. We cannot assure you that the initial public offering price of our Class A Ordinary Shares, or the market price following ourinitial public offering, will equal or exceed the prices in the private offering transactions of our Class A Ordinary Share prior toour initial public offering. The market price of our Class A Ordinary Shares may fluctuate significantly in response to numerous factors,many of which are beyond our control, including:

 

  actual or anticipated fluctuations in our revenue and other operating results;
     
  the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
     
  actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
     
  announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
     
  price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
     
  lawsuits threatened or filed against us; and
     
  other events or factors, including wars, incidents of terrorism, epidemics, earthquakes or other Acts of God.

 

Inaddition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the marketprices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionateto the financial performance of those companies. In the past, shareholders have filed securities class actions following periods of marketvolatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and theattention of management from our business, and adversely affect our business.

 

Becausewe are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, whichcould affect investor confidence in us and our Class A Ordinary Shares.

 

Weare an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions fromdisclosure and other requirements applicable to other public companies that are not emerging growth companies including, most significantly,not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for so long as we arean emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may nothave access to certain information they may deem important. See “Prospectus Summary -Implications of Our Being an Emerging GrowthCompany.”

 

Ourmanagement has broad discretion to determine how to use the funds raised in the offering and may use them in ways that may not enhanceour results of operations or the price of our Class A Ordinary Shares.

 

Weanticipate that we will use the net proceeds from this offering for working capital and other corporate purposes as set forth in the“Use of Proceeds” on page 42. Our management will have significant discretion as to the use of the net proceeds fromthis offering and could spend the proceeds in ways that may not improve our results of operations or enhance the market price of ourClass A Ordinary Shares in the near future.

 

39
 

 

Wewill incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growthcompany.”

 

Uponconsummation of this offering, we will incur significant legal, accounting, and other expenses as a public company that we did not incuras a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the applicable stock exchange,impose various requirements on the corporate governance practices of public companies.

 

Compliancewith these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consumingand costlier. We expect to incur additional costs in obtaining director and officer liability insurance. In addition, we incur additionalcosts associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serveon our board of directors or as executive officers.

 

Weare an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlierof (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have totalannual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the marketvalue of our Class A Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior March 31, and (2) the date onwhich we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company maytake advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. Theseprovisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’sinternal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as thosestandards apply to private companies.

 

Afterwe are no longer an “emerging growth company,” or until five years following the completion of our initial public offering,whichever is earlier, we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliancewith the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we will be requiredto increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures.

 

Weare currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate withany degree of certainty the amount of additional costs we may incur or the timing of such costs.

 

Ifwe cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the SecuritiesExchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting and other expenses thatwe would not incur as a foreign private issuer.

 

Weexpect to qualify as a foreign private issuer upon the completion of this offering. As a foreign private issuer, we will be exempt fromthe rules under the Securities Exchange Act prescribing the proxy statements, and our officers, directors and principal shareholderswill be exempt from the reporting and short-swing profit recovery provisions under Section 16 of the Securities Exchange Act. In addition,we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as United Statesdomestic issuers, and we will not be required to disclose in our periodic reports all of the information that United States domesticissuers are required to disclose. While we currently expect to qualify as a foreign private issuer immediately following the completionof this offering, we may cease to qualify as a foreign private issuer in the future due to changes to our operations and other factors.Should we cease being a foreign private issuer, we will incur additional significant legal, accounting and related expenses, which mayadversely affect our results of operations in the future.

 

Asa foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer,and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, which may limit the information publiclyavailable to our investors and afford them less protection than if we were an U.S issuer.

 

Nasdaqlisting rules require listed companies to have, among other things, a majority of its board members independent. As a foreign privateissuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose tocomply with the above requirement within one year of listing on the Nasdaq. The corporate governance practice in our home country, theCayman Islands, does not require a majority of our board to consist of independent directors. Thus, although a director must act in thebest interests of the Company, it is possible that fewer board members will be exercising independent judgment and the level of boardoversight on the management of our company may decrease as a result. In addition, Nasdaq listing rules also require U.S. domestic issuersto have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an auditcommittee with a minimum of three members. We, as a foreign private issuer, are not subject to those requirements although we intendto comply with the requirements on the three committees upon listing of our Class A Ordinary Shares. Nasdaq listing rules may requireshareholder approval for certain corporate matters, such as approval on the equity incentive plans, material revisions to those plans,certain ordinary share issuances. We intend to comply with the requirements of Nasdaq listing rules in determining whether shareholderapproval is required. We may, however, consider following home country practice in the future in lieu of the requirements under Nasdaqlisting rules with respect to certain corporate governance standards which may afford less protection to investors.

 

40
 

 

Asa foreign private issuer we are not required to comply with all of the periodic disclosure and current reporting requirements of theSecurities Exchange Act and therefore there may be less publicly available information about us available to the public shareholdersthan if we were a U.S. domestic issuer. We are exempt from:

 

the rules requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;
   
the sections of the Securities Exchange Act regulating the solicitation of proxies in respect of a security registered under the Securities Exchange Act;
   
the sections of the Securities Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and
   
the selective disclosure rules by issuers of material non-public information under Regulation FD.

 

Weare required to file an annual report on Form 20-F within four months from the end of each fiscal year. However, the information we arerequired to file with the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domesticissuers. As a result, you may not be afforded the same level of protections or information that would be made available to you if wewere a U.S. domestic issuer.

 

Ifwe are classified as a passive foreign investment company, United States taxpayers who own our Ordinary Shares may have adverse UnitedStates federal income tax consequences.

 

Anon-U.S. corporation, such as us, will be classified as a passive foreign investment company, which is known as a PFIC, for any taxableyear if, for such year, either

 

  At least 75% of our gross income for the year is passive income; or
     
  The average percentage of our assets (determined at the end of each quarter) during the taxable year which produce passive income or are held for the production of passive income is at least 50%.

 

Passiveincome generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct ofa trade or business) and gains from the disposition of passive assets.

 

Ifwe are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer whoholds our Class A Ordinary Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subjectto additional reporting requirements.

 

Dependingon the amount of cash we raise in this offering, together with any other assets held for the production of passive income, it is possiblethat, for our 2021 taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income. Wewill make this determination following the end of any particular tax year. Although the laws in this regard are unclear, because we controlHeng Guang Insurance’s management decisions, and also because we are entitled to the economic benefits associated with Heng GuangInsurance, we are treating Heng Guang Insurance as our wholly-owned subsidiary for U.S. federal income tax purposes. For purposes ofthe PFIC analysis, in general, according to Internal Revenue Code Section 1297(c), a non-U.S. corporation is deemed to own its pro ratashare of the gross income and assets of any entity in which it is considered to own at least 25% of the stock by value. Although we donot technically own any stock in Heng Guang Insurance, the control of Heng Guang Insurance’s management decisions, the entitlementto economic benefits associated with Heng Guang Insurance, and the inclusion of Heng Guang Insurance as part of the consolidated group(in accordance with Accounting Standards Codification (ASC) Topic 810, “Consolidation,”) is akin to holding a stock interestin Heng Guang Insurance, and therefore we consider our interest in Heng Guang Insurance as a deemed stock interest. As a result, theincome and assets of Heng Guang Insurance should be included in the determination of whether or not we are a PFIC in any taxable year.Should the IRS challenge our position and consider that we are as owning Heng Guang Insurance for United States federal income tax purposes,we would likely be treated as a PFIC.

 

Fora more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were determined tobe a PFIC, see “Taxation — United States Federal Income Taxation — Passive Foreign Investment Company.”

 

Thelaws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporationsincorporated in the United States.

 

Weare an exempted company incorporated under the laws of the Cayman Islands with limited liability. Our corporate affairs are governedby our memorandum and articles of association, by the Companies Act (2021 Revision) of the Cayman Islands and by the common law of theCayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilitiesof our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common lawin the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English commonlaw. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as the Cayman Islands)are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court and the Court of Appealare generally of persuasive authority but are not binding in the courts of the Cayman Islands. Decisions of courts in other Commonwealthjurisdictions are similarly of persuasive but not binding authority. The rights of our shareholders and the fiduciary responsibilitiesof our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in theUnited States. In particular, the Cayman Islands has a less developed body of securities laws relative to the United States. In particular,the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have morefully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies maynot have the standing to initiate a shareholder derivative action in a federal court of the United States.

 

41
 

 

Shareholdersof Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtaincopies of the register of members of these companies. Our directors have discretion under our articles of association to determine whetheror not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them availableto our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for ashareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

 

Asa result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions takenby our management, members of the board of directors or controlling shareholders than they would as public shareholders of a companyincorporated in the United States.

 

Youmay be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.

 

CaymanIslands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with anyright to put any proposal before a general meeting. These rights, however, may be provided in a company’s articles of association.Our articles of association allow our shareholders holding shares representing in aggregate not less than 10% of our voting share capitalin issue, to requisition a general meeting of our shareholders, in which case our directors are obliged to call such meeting. Advancenotice of at least 21 clear days is required for the convening of our annual general shareholders’ meeting and at least 14 cleardays’ notice any other general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at leastone shareholder present or by proxy, representing not less than one-third of the total issued shares carrying the right to vote at ageneral meeting of the Company. For these purposes, “clear days” means that period excluding (a) the day when the noticeis given or deemed to be given and (b) the day for which it is given or on which it is to take effect.

 

Ourpre-IPO shareholders will be able to sell their shares after completion of this offering subject to restrictions under the lock-up requirementand Rule 144.

 

Ourpre-IPO shareholders who purchased our Class A Ordinary Shares in pre-IPO private offerings may be able to sell their Class A OrdinaryShares under Rule 144 after completion of this offering. Because these shareholders have paid a lower price per share than the initialpublic offering price, when they are able to sell their pre-IPO shares under Rule 144, they may be more willing to accept a lower salesprice than the IPO price. This fact could impact the trading price of our Class A Ordinary Shares following completion of the offering,to the detriment of investors in this offering. We issued a total of 6,500,000 Class A Ordinary Shares to our pre- IPO shareholders.Under rule 144, before our pre-IPO shareholders can sell their shares, in addition to meeting other requirements, they must meet theapplicable holding periods, as well as the respective lock-up periods required as part of our underwriting agreement with our underwriter.We do not expect any of the Class A Ordinary Shares to be sold pursuant to Rule 144 during the pendency of this offering.

 

USEOF PROCEEDS

 

Weestimate that we will receive net proceeds from the sale of ordinary shares of approximately $[*] million (or approximately $[*] millionif the underwriter’s over-allotment option is exercised in full), based upon an assumed initial public offering price of $[*] pershare, the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, and after deductingestimated underwriting discounts, the non-accountable expense allowance, and estimated offering expenses payable by us.

 

Weplan to use the net proceeds we receive from this offering, assuming the underwriter does not exercise its over-allotment option, forthe following purposes:

 

Purposes  Percentage   Amount of Net Proceeds 
Research, development and operational investment on our new online insurance platform “Heng Kuai Bao”   30%               
Marketing and branding (including online and offline advertisement and public relations activities)   15%     
Recruitment and training (with a focus on developing and upgrading the life insurance department and grow a skilled sales team for our life insurance products)   15%     
Strategic business expansion and acquisitions into life insurance sector   30%     
General working capital   10%     

 

42
 

 

Theforegoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceedsof this offering. With respect to the use of proceeds on potential business acquisitions, as of the date of this prospectus,we are at the pre-term-sheet negotiation stage with three companies, all of which are based in Chengdu City, Sichuan Province, China.The three potential acquisition target companies are in the life insurance agency business, insurance brokerage business, and insuranceadjustment business, respectively. As of the date hereof, we have not formed any concrete plan to proceed with any business combinationwith any target company and may not continue the negotiation with any target company at all.

 

Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering.If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described inthis prospectus. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, weintend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.

 

DIVIDENDPOLICY

 

Weintend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will bepaid in the foreseeable future.

 

UnderCayman Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or from the share premium account,provided that in no circumstances may a dividend be paid out of the share premium account if this would result in the company being unableto pay its debts as they fall due in the ordinary course of business immediately following the date on which the dividend is proposedto be paid.

 

Ifwe determine to pay dividends on any of our Class A Ordinary Shares in the future, as a holding company, we will be dependent on receiptof funds from our Hong Kong subsidiary Heng Guang Hong Kong.

 

CurrentPRC regulations permit our indirect PRC subsidiaries to pay dividends to WFOE only out of their accumulated profits, if any, determinedin accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set asideat least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registeredcapital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employeewelfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutoryreserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earningsof the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.

 

Thevalue of the Renminbi fluctuates and is affected by, among other things, changes in Chinese political and economic conditions. The PRCgovernment also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore,we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the paymentof dividends from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debts in the future, the debtinstruments may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all ofthe revenue from our operations through the current contractual arrangements, we may be unable to pay dividends on our Class A OrdinaryShares.

 

Cashdividends, if any, on our Class A Ordinary Shares, will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise fortax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subjectto PRC withholding tax at a rate of up to 10.0%. See “Taxation — People’s Republic of China Enterprise Taxation.”

 

Inorder for us to pay dividends to our shareholders, we will rely on payments made from Heng Guang Insurance to WFOE, pursuant to contractualarrangements between them, and the distribution of such payments to Heng Guang Hong Kong as dividends from WFOE. Certain payments fromHeng Guang Insurance to WFOE are subject to PRC taxes, including business taxes and VAT.

 

CAPITALIZATION

 

Thefollowing table sets forth our cash and cash equivalents and our capitalization as of June 30, 2021:

 

  on an actual basis; and
     
  on a pro forma basis to give effect to the sale of [*] Class A Ordinary Shares by us in this offering at the assumed initial public offering price of $[*] per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and to reflect the application of the proceeds after deducting the underwriting discounts and offering expenses payable by us.

 

43
 

 

Youshould read this capitalization table together with our consolidated financial statements and the related notes appearing elsewhere inthis prospectus, “Use of Proceeds” and the “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” section and other financial information included elsewhere in this prospectus.

 

   June 30, 2021 
   Actual  

As adjusted (without over-

allotment)(1)  

  

As adjusted

(with over-allotment exercised

in full)(1)  

 
    $    $    $ 
Cash  $3,866,645                                      
Shareholders’ Equity:             
Ordinary Shares, $0.001 par value, 50,000,000 Ordinary Shares authorized and issued and outstanding, actual; [*] Ordinary Shares, including [*] Class A Ordinary Shares and 3,500,000 Class B Ordinary Shares, issued and outstanding, as adjusted  $50,000         
Class A ordinary shares       $     
Class B ordinary shares             
Additional paid-in capital  $7,136,489         
Accumulated deficit  $(2,450,712)        
Accumulated other comprehensive income  $521,323         
Total Shareholders’ Equity  $5,257,100         

 

(1) Reflects the sale of Class A Ordinary Shares in this offering at an assumed initial public offering price of $[*] per share, and after deducting the estimated underwriting discounts and offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. Additional paid-in capital reflects the net proceeds we expect to receive, after deducting the underwriting discounts, and estimated offering expenses payable by us. We estimate that such net proceeds will be approximately $[*].

 

A$1.00 increase (decrease) in the assumed initial public offering price of $[*] per Class A Ordinary Share would increase (decrease) eachof additional paid-in capital, total shareholders’ equity and total capitalization by $[*] million, assuming the number of ClassA Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimatedunderwriting discounts, and estimated expenses payable by us.

 

OnJuly 8, 2021, the sole shareholder of the Company approved a subdivision and re-designation of the share capital of the Company fromUS$50,000 divided into 50,000 ordinary shares of US$1.00 par value per share into US$50,000 divided into 38,000,000 Class A OrdinaryShares of US$0.001 par value per share and 12,000,000 Class B Ordinary Shares of US$0.001 par value per share and amended the memorandumof association of the Company in order to reflect the amended share capital.

 

DILUTION

 

Ifyou invest in our Class A Ordinary Shares, your interest will be diluted for each Class A Ordinary Share you purchase to the extent ofthe difference between the initial public offering price per Class A Ordinary Share and our net tangible book value per Class A OrdinaryShare after this offering. Dilution results from the fact that the initial public offering price per Class A Ordinary Share is substantiallyin excess of the net tangible book value per Class A Ordinary Share attributable to the existing shareholders for our presently outstandingClass A Ordinary Shares.

 

Ournet tangible book value as of June 30, 2021, was $5.18 million. Net tangible book value represents the amount of our totalconsolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting the net tangiblebook value per Class A Ordinary Share (as adjusted for the offering) from the initial public offering price per Class A Ordinary Shareand after deducting the estimated underwriting discounts, and the estimated offering expenses payable by us.

 

Aftergiving effect to our sale of [*] Class A Ordinary Shares offered in this offering based on the initial public offering price of $[*]per Class A Ordinary Share after deduction of the estimated underwriting discounts and the estimated offering expenses payable by us,our as adjusted net tangible book value as of June [*], 2021, would be $[*], or $[*] per outstanding Class A Ordinary Share. Thisrepresents an immediate increase in net tangible book value of $[*] per Class A Ordinary Share to the existing shareholders, and an immediatedilution in net tangible book value of $[*] per Class A Ordinary Share to investors purchasing Class A Ordinary Shares in this offering.The as adjusted information discussed above is illustrative only.

 

Thefollowing table illustrates such dilution:

 

  

Without

Over-Allotment

  

With

Over-Allotment Exercised in Full

 
Assumed Initial public offering price per Class A Ordinary Share  $                 $               
Net tangible book value per Ordinary Share as of June 30, 2021  $   $ 
As adjusted net tangible book value per Ordinary Share attributable to payments by new investors  $   $ 
Pro forma net tangible book value per Ordinary Share immediately after this offering  $   $ 
Amount of dilution in net tangible book value per Ordinary Share to new investors in the offering  $   $ 

 

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Thefollowing charts illustrate our pro forma proportionate ownership as of June 30, 2021, upon completion of this offering by existingshareholders and investors in this Offering, compared to the relative amounts paid by each group. The charts reflect payment by existingshareholders as of the date the consideration was received and by investors in this Offering at the assumed Offering Price without deductionof commissions or expenses. The chart further assumes no changes in net tangible book value other than those resulting from the offeringand the over-allotment option is not exercised.

 

   

Class A

Ordinary Shares

purchased

    Total consideration    

Averageprice per Class A Ordinary

 
    Number     Percent     Amount     Percent     Share  
       
Existing shareholders                           %   $                        %   $          
New investors               %   $           %   $    
Total               %   $           %   $    

 

ENFORCEABILITYOF CIVIL LIABILITIES

 

Weare incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We are incorporated under the lawsof the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability,an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availabilityof professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the UnitedStates and may provide significantly less protection for investors than the United States.

 

Substantiallyall of our assets are located in the PRC. In addition, all but one of our directors and officers are nationals or residents of the PRCand all or substantially all of the PRC officers’ and directors’ assets are located outside the United States. As a result,it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce againstus or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securitieslaws of the United States or any state in the United States.

 

Wehave appointed Sichenzia Ross Ference LLP as our agent to receive service of process with respect to any action brought against us inthe United States District Court for the Southern District of New York under the federal securities laws of the United States or of anystate in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York underthe securities laws of the State of New York.

 

Ogier,our counsel with respect to the laws of Cayman Islands, and Shanghai Novicentro Law Firm, our counsel with respect to the PRClaws, have advised us that there is uncertainty as to whether the courts of the Cayman Islands or the PRC would (i) recognize or enforcejudgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions ofthe securities laws of the United States or any state in the United States or (ii) entertain original actions brought in the Cayman Islandsor the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the UnitedStates.

 

Ogierhas further advised us that there is currently no statutory enforcement or treaty between the United States and the Cayman Islands providingfor enforcement of judgments. A judgment obtained in the United States, however, may be recognized and enforced in the courts of theCayman Islands at common law, without any re-examination on the merits of the underlying dispute, by an action commenced on the foreignjudgment debt in the Grand Court of the Cayman Islands, provided such judgment: (i) is given by a foreign court of competent jurisdiction;(ii) is final; (iii) is not in respect of taxes, a fine or a penalty; and (iv) was not obtained in a manner and is not of a kind theenforcement of which is contrary to natural justice or public policy of the Cayman Islands. Furthermore, it is uncertain that CaymanIslands courts would enforce: (1) judgments of U.S. courts obtained in actions against us or other persons that are predicated upon thecivil liability provisions of the U.S. federal securities laws; or (2) original actions brought against us or other persons predicatedupon the Securities Act. Ogier has informed us that there is uncertainty with regard to Cayman Islands law relating to whether a judgmentobtained from the U.S. courts under civil liability provisions of the securities laws will be determined by the courts of the CaymanIslands as penal or punitive in nature.

 

ShanghaiNovicentro Law Firm has further advised us that the recognition and enforcement of foreign judgments are provided for under thePRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC CivilProcedures based on either the treaties between China and the country where the judgment is made or the reciprocity between two jurisdictions.Shanghai Novicentro Law Firm has advised us further that there are no treaties between China and the United States for the mutualrecognition and enforcement of court judgments, thus making the recognition and enforcement of a U.S. court judgment in China difficult.

 

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MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL

CONDITIONAND RESULTS OF OPERATIONS

 

Youshould read the following discussion and analysis of our financial condition and results of operations for the twelve months ended December31, 2020 and 2019 and six months ended June 30, 2021 and 2020, and the related notes included elsewhere in this prospectus. Thisdiscussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual resultsmay differ materially from those anticipated in these forward-looking statements as a result of various factors, including those setforth under “Risk Factors” or in other parts of this prospectus.

 

Comparisonof Years Ended December 31, 2020 and 2019

 

Overview

 

We are an insurance agencycompany operating in China. We derive our revenue primarily from commissions and fees paid by insurance companies, typically calculatedas a percentage of premiums paid by customers to the insurance companies that we represent. As of the date of this prospectus, we haverelationships with over 70 insurance companies in the PRC, and are able to offer a variety of insurance products to our customers, suchas automobile insurance, casualty and accident insurance, construction and engineering insurance, liability insurance, property insurance,health insurance and life insurance. We help consumers select the right insurance to purchase, but represent the insurance companiesin the transactions. For the year ended December 31, 2020, 70.61% of our total revenue were attributed to our top five insurance companypartners, each accounted for 30.07%, 22.26%, 6.88%, 6.29% and 5.11%, respectively. For the year ended December 31, 2019, 66.88% of ourtotal revenue were attributed to our top five insurance company partners, each accounted for 23.37%, 22.64%, 7.23%, 7.13% and6.51%, respectively. Please see Section “Business-Customers” for detailsabout our top insurance partners. We sell insurance products primarily through our sales force who are individual sales agents in ourdistribution and service network. As of the date of this prospectus, we had 47 locations (branch offices) throughout China to sell theinsurance products. A large component of our cost of revenues is commissions paid to our individual sales agents.

 

We also generate our revenue fromperforming insurance claim adjustment services for insurance companies, primarily through providing the initial on-site accident andproperty damage inspection and investigation for auto insurance claims.

 

TheChinese insurance industry has grown substantially in the past decade. Historically, insurance companies in the PRC relied primarilyon their exclusive individual sales agents and direct sales force to sell their insurance products. However, in recent years, as a resultof increased competition and consumers’ demand for more insurance choices, insurance companies gradually expanded their distributionchannels to include insurance intermediaries, such as commercial banks, insurance agencies and insurance brokerage. In addition, becauseof the increasingly high cost associated with establishing and maintaining distribution networks of their own, more insurance companieschose to rely primarily on insurance intermediaries to distribute the insurance products and provided attractive monetary incentivesto the insurance intermediaries. We intend to grow our company by expanding our distribution network through opening more branch officesin China, training and recruiting more skilled professional sales agents to our sales force, and growing our health and life insurancebusiness line, which was launched in 2018. We will also continue to seek opportunities to offer innovative and premium servicesand products to our customers. Furthermore, we expect that more and more insurance companies may choose to outsource claim adjustingfunctions to outside professional inspectors to reduce the insurance companies’ claim adjustment and management risk related costs.We intend to expand our insurance claim adjustment team to meet the outsourcing needs of some insurance companies. In addition, in 2018,we started the development of a mobile app “Heng Kuai Bao”, which provided sales support, training, commission managementand instant insurance quotes to our agents. We plan to further develop and enhance Heng Kuai Bao and build our online platform to extendthe digital services to our customers allowing them to shop insurance products online, file insurance claims online, and manage policiesonline.

 

InDecember 2019, a novel strain of coronavirus (COVID-19) was reported and the World Health Organization declared the outbreak to constitutea “Public Health Emergency of International Concern.” The Chinese government implemented various precautionary measures tocontain the spread of the COVID-19, such as quarantines, travel and gathering restrictions, and transportation suspensions. The Company’sbusiness relied heavily on its individual sales agents and claim adjustors to interact with the general public or policy holders in person.Due to the COVID-19 related restrictions, our operations were substantially disrupted and therefore the results of operations were adverselyaffected and we had to delay some of our business expansion and development plans.

 

FactorsAffecting Our Results of Operations 

 

Asan insurance intermediary in China, our financial condition and results of operations are affected by a variety of factors, includingthose described below and in the section titled “Risk Factors” on page 22 in this prospectus.

 

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Key Financial PerformanceIndicators

 

Our key financial performanceindicators consist of the number of insured customers, the insurance premium and coverage they purchase for our insurance agency andclaim adjustment services, the commission we charge insurance carriers and our ability to collect the commission revenue on a timelymanner, and our ability to control costs and improve our operating efficiency over time, which significantly impact our net revenue,and operating expenses, as discussed in greater detail under “Results of Operations” below.

 

RevenueCategories

 

TheCompany’s revenue derived mostly from 1) agency commission revenue, and 2) auto insurance claim adjustment services. We had agencycommission revenue in the amounts of $19,595,208 and $22,723,168, respectively, during the years ended December 31, 2020and 2019. We generated claim adjusting revenue in the respective amounts of $2,288,192 and $756,212 during the years ended December31, 2020 and 2019, respectively.

 

Thefollowing table illustrates the breakdown of our total commission revenue by insurance products for the years ended December 31, 2020and 2019.

 

 

    Year ended December 31, 2020     Year ended December 31, 2019  
    Revenue    

Percentage

of Total commission revenue

    Revenue    

Percentage

of Total commission revenue

 
                         
Automobile insurance                                
Mandatory   $ 1,038,399       5.30 %   $ 957,160       4.21 %
Other     13,854,192       70.70 %     18,712,485       82.35 %
Commercial property Insurance     90,770       0.46 %     45,074       0.20 %
Liability insurance     969,881       4.95 %     453,538       2.00 %
Casualty insurance     1,937,550       9.89 %      1,749,342       7.70 %
Construction and engineering insurance      691,709       3.53 %      519,383       2.29 %
Life and health insurance     901,389       4.60 %      225,738       0.99 %
Others     111,318       0.57 %      60,448       0.27 %
Total   $ 19,595,208       100.00 %   $ 22,723,168       100.00 %

 

CriticalAccounting Policies and Estimates

 

Ourdiscussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, whichhave been prepared in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”). Thepreparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate ourestimates, including those related to the allowance for doubtful accounts, allowance for sales return, the useful life of propertyand equipment, and assumptions used in assessing the impairment of long-term assets.

 

Webase our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparentfrom other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues,expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believethe following critical accounting policies affect our significant judgments and estimates used in the preparation of the consolidatedfinancial statements.

 

RevenueRecognition

 

OnJanuary 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modifiedretrospective transition method. The impact of adopting the new revenue standard was not material to the Company’s consolidatedfinancial statements and there was no adjustment to beginning accumulated deficit on January 1, 2018. The core principle of this newrevenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amountthat reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following fivesteps are applied to achieve that core principle:

 

  Step 1: Identify the contract with the customer

 

  Step 2: Identify the performance obligations in the contract

 

  Step 3: Determine the transaction price

 

  Step 4: Allocate the transaction price to the performance obligations in the contract

 

  Step 5: Recognize revenue when the company satisfies a performance obligation

 

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The Company’s revenuefrom contracts with insurance companies is derived principally from the provision of agency and claims adjusting services. Accordingto ASC 606, revenue is recognized at a point in time upon the effective date of the insurance policy and receipt of the premium,as no performance obligation exists after the insurance policy was signed and premium was collected from the insured. If thereare other services within the contract, the Company estimates the stand-alone selling price for each separate performance obligation,and the corresponding apportioned revenue is recognized over the period of time in which the customer receives the service, and as theperformance obligations are fulfilled and the Company is entitled to that portion of revenue. In situations where multiple performanceobligations exist within a contract, the use of estimates is required to allocate the transaction price on a relative stand-alone sellingprice basis to each separate performance obligation.

 

The Company disaggregates its revenue from different types of service contractswith customers by principal service categories, as the management believes it best depicts the nature, amount, timing and uncertaintyof its revenue and cash flows. The following is a description of the accounting policy for the principal revenue streams of the Company.

 

Insuranceagency services revenue

 

The Company,through its VIE, sells insurance products provided by insurance carriers to the insureds as an insurance agent, and is compensated inthe form of commissions from the respective insurance carriers, according to the terms of each service agreement made by and betweenthe Company and the insurance carriers. The amount of revenue to be recognized is determined by the service contracts betweenthe Company and the insurance carriers, typically a percentage of insurance premium. The performanceobligation is considered met and revenue is recognized when the services are rendered and completed, at the time an insurance policybecomes effective, that is, when the signed insurance policy is in place and the premium is collected from the insured. The Company hasmet all the criteria of revenue recognition when the premiums are collected by the respective insurance carriers and not before, becausecollectability is not ensured until receipt of the premium. Accordingly, the Company does not accrue any commission revenue prior tothe receipt of the related premiums by the insurance carriers.

 

Management estimates and recognizes allowancefor cancellation for commission revenue based on its historical experience. Any subsequent commission adjustments in connectionwith policy cancellations, are recognized upon notification from the insurance carriers.

 

The Company reduces commission revenue and costof revenue by an estimate of future customer cancellations, which is calculated based on historical experience, and records an allowancefor sales cancellation and an estimated allowance for cost of sales cancellation. The allowance for sales cancellation is classifiedas accrued sales return liability on the Consolidated Balance Sheets, totalling $1,207,828 and $97,265 as of December 31, 2020 and 2019,respectively. The allowance for cost of sales cancellation is classified as prepaid commission cost on the Consolidated Balance Sheets,totalling $1,002,497 and $78,784 as of December 31, 2020 and 2019, respectively, for the recoverable commission cost estimated to bereturned by the insurance agents.

 

Management’s estimated commission and fee adjustments in connection with the cancellationof policies were 5.96% and 6.86%, respectively, of the total commission revenues during years ended December 31, 2020 and 2019.

 

The Companyrecorded net insurance agency commission revenue, in the amount of $19,595,208 and $22,723,168 for the year ended December31, 2020 and 2019, respectively.

 

Insuranceclaims adjusting services revenue

 

The Company also performs insurance claims adjustmentservice for insurance carriers, primarily providing the initial on-site accident and propertydamage inspection and investigation for auto insurance claims. For insurance claims adjusting services,performance obligation is considered met and revenue is recognized when the services are rendered and completed, at the time the accidentor property damage reports are received by insurance carriers. The Company does not accrue any service fee before the receipt of an insurancecompany’s acknowledgement of receiving the reports.

 

The Companyrecorded net insurance claims adjusting services revenue in the amount of $2,288,192 and $756,212 for the year ended December31, 2020 and 2019, respectively.

 

IncomeTaxes

 

TheCompany accounts for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method,deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets andliabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. Deferred incometaxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidatedfinancial statements, net operating loss carry forwards and credits. The Company records a valuation allowance to offset deferred taxassets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assetswill not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includesthe enactment date.

 

TheCompany recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that theposition will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognitionthreshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greaterthan 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s liability associated withunrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developmentsand new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Company’seffective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as consideredappropriate by management. As of December 31, 2020 and 2019, the Company had no significant uncertain tax positions that qualify foreither recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to significant uncertainincome tax positions in other expense if any. There were no such interest and penalties as of December 31, 2020 and 2019. As of December31, 2020, income tax returns for the tax years ended December 31, 2015 through December 31, 2019 remain open for statutory examinationby PRC tax authorities.

 

Commitmentsand Contingencies

 

Inthe normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business,that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurredand the amount of the assessment can be reasonably estimated.

 

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RecentAccounting Pronouncements

 

Fordetails of applicable new accounting standards, please, refer to Recent Accounting Pronouncements in Note 3 of our audited consolidatedfinancial statements in this prospectus, which is a part of the registration statement.

 

RESULTSOF OPERATIONS

 

Thisinformation should be read together with our audited consolidated financial statements and related notes included elsewhere in this prospectus.The results of operations in any period are not necessarily indicative of our future trends.

 

Resultsof Operations for the Years Ended December 31, 2020 and 2019

 

Thefollowing table sets forth a summary of our consolidated results of operations for the years ended December 31, 2020 and 2019. Certaincolumns may not add up due to rounding. The results of operations in any period are not necessarily indicative of our future trends.

 

 

    Years ended December 31,     Changes in  
    2020     2019     Amount     Percentage  
Net revenues:                                
Commission   $ 19,595,208     $ 22,723,168     $ (3,127,960 )     (13.8 )%
Claims Adjusting     2,288,192       756,212       1,531,980       202.6 %
Total net revenues     21,883,400       23,479,380       (1,595,980 )     (6.8 )%
                                 
Cost of revenue     18,391,090       19,137,586       (746,496 )     (3.9 )%
                                 
Gross profit     3,492,310       4,341,794       (849,484 )     (19.6 )%
                                 
Operating expense                                
Selling expenses     2,446,244       934,612       1,511,632       161.7 %
General and administrative expense     1,468,907       941,483       527,424       56.0 %
Total operating expenses     3,915,151       1,876,095       2,039,056       108.7 %
                                 
(Loss) income from operations     (422,841 )     2,465,699       (2,888,540 )     (117.1 )%
                                 
Non-operating income, net     495,233       1,289,653       (794,420 )     (61.6 )%
                                 
Total income before income taxes     72,392       3,755,352       (3,682,960 )     (98.1 )%
                                 
Income tax expense     26,674       942,622       (915,948 )     (97.2 )%
                                 
Net income   $ 45,718     $ 2,812,730     $ (2,767,012 )     (98.4 )%

 

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Revenues

 

Thecommissions and fees we receive from the distribution of insurance products are based on a percentage of the premiums paid by the insured.Commission and fee rates generally depend on the type of insurance products, the particular insurance company we represent and the regionin which the insurance products are sold. We typically receive payments of the commissions and fees from insurance companies on a monthlybasis. The fees we receive for our automobile insurance claim adjusting services are generally fixed depending on the distance of theaccident site on a per claim basis, and are typically paid to us on a monthly basis. 

 

Revenuesfor the year ended December 31, 2020 totalled $21,883,400, reflecting a decrease of $1,595,980, or 6.8%,compared with that of $23,479,380 for the year ended December 31, 2019. Our revenues primarily consisted of two parts, agencycommission revenue and auto insurance claim adjustment services during the fiscal years ended December 31, 2020 and 2019. We generated$19,595,208 and $22,723,168 in agency commission revenue during the year ended December 31, 2020, and 2019, respectively,representing a decrease of $3,127,960, or 13.8%. Our revenue from auto insurance claim adjusting services was $2,288,192and $756,212 for the years ended December 31, 2020 and 2019, respectively, showing an increase of $1,531,980, or 202.6%.The decrease of revenue from agency commission was mainly due to the following reasons: 1) a significant decrease in commissions fromautomobile insurance products caused by restrictive government regulations on the automobile insurance which counted for more than 70%of our commission revenue in the years of 2020 and 2019, respectively; 2) opening less new branches in the year of 2020 than that in2019 as we opened four new branch offices in 2020 compared with six new branches in 2019 due to Covid-19; 3) the slow-downof the business for some sales branches due to Covid-19; 4) temporary impact to our commission revenue resulted from streamliningour sales team through restructure and integrating our distribution network and sales force for seeking and maintaining higher qualityand license-regulated sales personnel to be prepared and in conformity with the Company’s long-term growing needs. However,we optimized the structure of commissions and market development fees and increased commission payout ratio, which resulted in an increaseof commission revenue generated from liability and casualty insurances by $704,551, or 32.0% in the year of 2020 compared with thatof 2019. With respect to claim adjustment services, our revenue from such services grew by $1,531,980 or 202.6% to $2,288,192 duringthe year ended December 31, 2020, as compared to $756,212 in claim adjustment service revenue in the same period of 2019.

 

Webegan distributing life and health insurance products in 2019. Our commission revenue from life insurance products was $720,194and $225,397 for the years ended December 31, 2020 and 2019, respectively. We will emphasize on sales of life insurance productsfor the coming years, and expect our life insurance business to grow rapidly and bring in significant revenue. We believe a numberof social factors may drive the growth of life and health insurance market in the PRC, such as stronger demand from the aged Chinesepopulation for traditional life and health insurance products and the Chinese consumers’ increasing awareness of the benefitsof life and health insurance.

 

Costof Revenues

 

Costof revenues mainly consisted of commission fee paid to our outside licensed sales agents and the provision of auto claims adjustingservices. We relied mainly on individual sales agents for the distribution of insurance products. Regarding our claim adjusting services,we relied mainly on our own adjustors, including our internal trained staffs or sales agents. We paid our adjustors at a percentage ofadjusting revenue we receive, on a case-by-case basis. Cost of revenues for the year ended December 31, 2020 totalled $18,391,090,reflecting a decrease of $746,496 or 3.9%, compared with that of $19,137,586 for the year ended December 31, 2019. The decrease was mainlydue to the decrease in revenues. However, our cost of revenues as a percentage to the revenues was 84.0% and 81.5% for theyears ending December 31, 2020 and 2019, respectively. The increase in cost of revenues as a percentage to the revenues was due to highermonetary incentive paid to our sales agents to retain and attract our skilled and qualified sales agents after our restructuring of ourdistribution channels and sales teams in 2019. We anticipate that our operating costs will increase as we grow our business.

 

GrossProfit

 

Ourgross profit for the years ended December 31, 2020 and 2019 was $3,492,310 and $4,341,794, respectively, reflecting a decreaseof $849,484 or 19.6%. Our profit margin was 16.0% for the year ended December 31, 2020, compared to that of 18.5%for the year ended December 31, 2019. The decrease in gross profit and profit margin was mainly due to increased commission costpaid to our sales agents.

 

SellingExpenses

 

The following table summarizesselling expenses:

 

   

For the Year Ended

December 31,

    Change in     Change in  
    2020     2019     Amount     %  
Marketing and advertising   $ 2,361,722     $ 760,903     $ 1,600,819       210.4 %
Organizational costs     -       173,709       (173,709 )     -100.0 %
Other     40,908       -       40,908       100.0 %
Salaries     43,614       -       43,614       100.0 %
    $ 2,446,244     $ 934,612     $ 1,511,632       161.7 %

 

Selling expenses mainlyconsisted of marketing and promotional expenses paid to independent unlicensed insurance sales force, corporate marketing expenses,setup expenses for our sales locations and branches, and salaries for employees who process insurance agreements related services.Our selling expenses amounted to $2,446,244 for the year ended December 31, 2020, as compared to that of $934,612 for the year endedDecember 31, 2019, showing an increase of $1,511,632, or 161.7%. The significant increase in the selling expenses was mainly attributableto the increased marketing expenses for our independent unlicensed insurance sales force in 2020 and increased expenses associatedwith increased marketing activities, offset by the decrease in organizational costs.

 

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Generaland Administrative Expenses

 

Thefollowing table summarizes general and administrative expenses:

 

   For the Year Ended December 31,   Change in   Change in 
   2020   2019   Amount   % 
Salaries and employee welfare  $554,298   $569,731   $(15,433)   -3%
Professional and consulting   503,830    73,194    430,636    588%
Auto and travel   64,970    35,072    29,898    85%
Lease   75,942    71,337    4,605    6%
Meals and entertainment   74,982    13,409    61,573    459%
Office expense   101,330    103,948    (2,618)   -3%
Depreciation and amortization   31,717    21,511    10,206    47%
Other   61,838    53,281    8,557    16%
Total  $1,468,907   $941,483   $527,424    56%

 

General andadministrative expenses mainly consisted of salaries and employees welfare expenses for administrative personnel, professionaland consulting expenses in relating to public offering and the development of our mobile and online programs, office lease and utilities,business travel and meeting expenses. Our general and administrative expenses were $1,468,907 for the year ended December 31, 2020, ascompared to $941,483 for the year ended December 31, 2019, reflecting an increase of $527,424 or 56.0%. The increase was mainly due tothe increase in professional and consulting service fees of $430,636 for the public offering, the increase in meals and entertainmentexpenses of $61,573, and the increase in auto and travel expense of $29,898.

 

Non-operatingIncome, net

 

Ournon-operating income mainly included government grant and interest income. For the year ended December 31, 2020, our non-operating incomemainly consisted of government grant of $418,315, interest income of $69,481 and other income of $8,437. For the year ended December31, 2019, other income mainly consisted of government grant of $1,281,625, interest income of $1,055 and other income $7,410. Governmentgrant mainly represented governmental subsidies for supporting the Company’s business and investment in the local countiesin Sichuan and Shandong Province.

 

IncomeTaxes

 

TheCompany is subject to statutory income tax at a rate of 25% in the PRC. The Company recorded income tax expense of $26,674 and $942,622for the year ended December 31, 2020 and 2019, respectively.

 

NetIncome

 

Our net income was $45,718for the year ended December 31, 2020, as compared to net income of $2,812,730 for the year ended December 31, 2019, reflectinga decline of $2,767,012, or 98.4%%, which was attributed to the increase in selling expenses and general and administrative expensesand decrease in government grants as described above, and the decrease in revenue in the year of 2020.

 

Liquidityand Capital Resources

 

Liquidityis the ability of a company generates funds to support its current and future operations, satisfies its obligations and otherwise operateson an ongoing basis. At December 31, 2020 and 2019, we had cash and equivalents in the amounts of $807,380 and $444,266, respectively.These funds are kept in certain financial institutions located in China.

 

Asof December 31, 2020, our working capital was $4.42 million, the ratio of current assets to current liabilities was 2.57:1.As of December 31, 2019, our working capital was $4.17 million, the ratio of current assets to current liabilities was 6.49:1.

 

CashFlows for the Year Ended December 31, 2020 Compared to that of the Year Ended December 31, 2019

 

Thefollowing summarizes the key components of our cash flows for the years ended December 31, 2020 and 2019:

 

   Years ended December 31, 
   2020   2019 
Net cash provided by operating activities  $892,769   $3,590,899 
Net cash used in investing activities   (126,407)   (36,189)
Net cash used in financing activities   (451,298)   (3,868,523)
Effect of exchange rate on cash, cash equivalents and restricted cash   96,129    (16,079)
Net increase (decrease) in cash, cash equivalents and restricted cash  $411,193   $(329,892)

 

Netcash flow provided by operating activities

 

Ournet cash flow provided by operating activities for the year ended December 31, 2020 was $892,769, compared to that of $3,590,899 forthe year ended December 31, 2019, reflecting a decrease of $2,698,130. The decrease of net cash flow from operating activities duringthe year of 2020 was principally attributable to the decrease in net income of $2,767,012, increase in payments on other receivableby $645,897, less cash inflow from prepaid commission cost by $2,203,155, but partially offset by the increase in cash flows fromless payment made for accrued sales return liability by $2,774,105, less payments made on accounts payable by $491,725, less paymentsmade on accrued liabilities and other payables by $416,711, less payments for taxes payable by $132,283, and increase in advance fromcustomers by $111,908, and increase in accounts receivable collection by $61,608.

 

Netcash flow used in investing activities

 

Netcash flow used in investing activities for the year ended December 31, 2020 was $126,407, compared to that of $36,189 for the yearended December 31, 2019, showing an increase of $90,218. Net cash used in investing activities in 2020 mainly consisted of purchase ofproperty and equipment of $91,473 and acquisition of intangible assets of $34,934. Net cash used in investing activities in 2019 mainlyconstituted of purchase of property and equipment of $36,189.

 

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Netcash flow used in financing activities

 

Ournet cash flow used in financing activities was $451,298 for the year ended December 31, 2020, compared to that of $3,868,523 for theyear ended December 31, 2019, reflecting a decrease of $3,417,225. The decrease of net cash flow used in financing activities for 2020was principally attributable to decrease in due from related parties by $3,417,225.

 

Webelieve that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipatedcash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months. We expect to requirecash to fund our ongoing business needs, particularly the further expansion of our distribution and service network, and developmentof online platforms and mobile app. The following trends are reasonably likely to result in a material decrease in our liquidity overthe near to long term:

 

  An increase in working capital requirements to support and finance our current business;

 

  The use of capital for mergers, acquisitions, and the development of business opportunities;

 

  Addition of personnel and expansion of facilities as the business grows; and

 

  The cost of being a public company.

 

ContractualObligations and Off-Balance Sheet Arrangements

 

ContractualObligations

 

Wehave certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellationprovisions, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timingand amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presentedin the tables, in order to assist the review of this information within the context of our consolidated financial position, results ofoperations, and cash flows. The following tables summarize our contractual obligations as of December 31, 2020, and the effect theseobligations are expected to have on our liquidity and cash flows in the future periods.

 

       Payments Due by Period 
Contractual Obligation:  Total  

Less than

1 year

   1-3 years   3-5 years   5+ years   
Office leases commitment  $148,053   $59,748   $79,549   $8,756   $   - 
Total  $148,053   $59,748   $79,549   $8,756   $- 

 

Off-balanceSheet Arrangements

 

Asof December 31, 2020, we did not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations.In the ordinary course of business, we enter into operating lease commitments, and other contractual obligations. These transactionsare recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

 

ForeignCurrency Exchange Rate Risk

 

Ouroperations are in China. A majority of our future revenues are likely to continue to be denominated in Renminbi. Under existing PRC foreignexchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interestpayments and trade and service related foreign exchange transactions. Thus, our revenue and operating results may be impacted by exchangerate fluctuations between Chinese and U.S. dollars. For the years ended December 31, 2020 and 2019, we had unrealized foreign currencytranslation income (loss) of $356,737 and $(53,054), respectively, because of changes in the exchange rate.

 

Inflation

 

Theeffect of inflation on our revenue and operating results was not significant.

 

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Comparisonof Six Months Ended June 30, 2021 and 2020

 

For the six monthsended June 30, 2021, 61.38% of our total revenue were attributed to our top five insurance company partners, each accounted for 24.83%,13.78%, 12.13%, 6.69% and 3.95%, respectively. For the six months ended June 30, 2020, 67.44% of our total revenues were attributed toour top five insurance company partners, each accounted for 33.99%, 18.44%, 7.90%, 3.99% and 3.12%, respectively. Pleasesee Section “Business-Customers” for details about our top insurance partners.

 

FactorsAffecting Our Results of Operations

 

Asan insurance intermediary in China, our financial condition and results of operations are affected by a variety of factors, includingthose described below and in the section titled “Risk Factors” on page 22 in this prospectus.

 

RevenueCategories

 

TheCompany’s revenue derived mostly from 1) agency commission revenue, and 2) auto insurance claim adjustment services. We had agencycommission revenue in the amounts of $8,035,893 and $9,505,071, respectively, during the six months ended June 30, 2021 and 2020. Wegenerated claim adjusting revenue in the respective amounts of $842,531 and $1,596,594 during the six months ended June 30, 2021 and2020, respectively.

 

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Thefollowing table illustrates the breakdown of our total commission revenue, net by insurance products for the six months ended June 30,2021 and 2020.

 

   Six Months ended June 30, 2021   Six Months ended June 30, 2020 
   Revenue   Percentage of Total commission revenue   Revenue   Percentage of Total commission revenue 
Automobile Insurance                    
Mandatory  $376,628    4.69%  $692,589    7.29%
Other   4,750,559    59.12%   7,075,826    74.44%
Property Insurance   25,631    0.32%   40,496    0.43%
Liability Insurance   494,805    6.16%   403,311    4.24%
Casualty Insurance   1,480,429    18.42%   844,600    8.89%
Construction and Engineering Insurance   415,644    5.17%   294,400    3.10%
Life and Health Insurance   315,289    3.92%   122,987    1.29%
Other   176,908    2.20%   30,862    0.32%
Total commission revenue, net  $8,035,893    100.00%  $9,505,071    100.00%

 

CriticalAccounting Policies and Estimates

 

Ourdiscussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, whichhave been prepared in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”). Thepreparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate ourestimates, including those related to the allowance for doubtful accounts, allowance for salesreturns and cost of sales returns, the useful life of property and equipment, and assumptions used in assessing the impairmentof long-term assets.

 

Webase our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparentfrom other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues,expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believethe following critical accounting policies affect our significant judgments and estimates used in the preparation of the consolidatedfinancial statements.

 

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Insuranceagency services revenue

 

TheCompany, through its VIE, sells insurance products provided by insurance carriers to the insureds as an insurance agent, and is compensatedin the form of commissions from the respective insurance carriers, according to the terms of each service agreement made by and betweenthe Company and the insurance carriers. The amountof revenue to be recognized is determined by the service contracts between the Company and the insurance carriers, typically a percentageof insurance premium. The performance obligation is considered met and revenue is recognized whenthe services are rendered and completed, at the time an insurance policy becomes effective, that is, when the signed insurance policyis in place and the premium is collected from the insured. The Company has met all the criteria of revenue recognition when the premiumsare collected by the respective insurance carriers and not before, because collectability is not ensured until receipt of the premium.Accordingly, the Company does not accrue any commission revenue prior to the receipt of the related premiums by the insurance carriers.

 

Managementestimates and recognizes allowance for cancellation for commission revenue based on its historical experience. Any subsequent commissionadjustments in connection with policy cancellations, are recognized upon notification from the insurance carriers.

 

TheCompany reduces commission revenue and cost of revenue by an estimate of future customer cancellations, which is calculated based onhistorical experience, and records an allowance for sales cancellation and an estimated allowance for cost of sales cancellation. Theallowance for sales cancellation is classified as accrued sales return liability on the Consolidated Balance Sheets, totaling $1,196,227and $1,207,828 as of June 30, 2021 and December 31, 2020, respectively. The allowance for cost of sales cancellation is classified asprepaid commission cost on the Consolidated Balance Sheets, totaling $986,605 and $1,002,497 as of June 30, 2021 and December 31, 2020,respectively, for the recoverable commission cost estimated to be returned by the insurance agents.

 

Management’sestimated commission and fee adjustments in connection with the cancellation of policies were 5.85% and 6.23%, respectively, of the totalcommission revenues during six months ended June 30, 2021 and 2020.

 

TheCompany recorded net insurance agency commission revenue, in the amount of $8,035,893 and $9,505,071 for the six months ended June 30,2021 and 2020, respectively.

 

Insuranceclaims adjusting services revenue

 

TheCompany also performs insurance claims adjustment service for insurance carriers, primarilyproviding the initial on-site accident and property damage inspection and investigation for auto insurance claims. Forinsurance claims adjusting services, performance obligation is considered met and revenue is recognized when the services are renderedand completed, at the time the accident or property damage reports are received by insurance carriers. The Company does not accrue anyservice fee before the receipt of an insurance company’s acknowledgement of receiving the reports.

 

TheCompany recorded net insurance claims adjusting services revenue in the amount of $842,531 and $1,596,594 for the six months ended June30, 2021 and 2020, respectively.

 

IncomeTaxes

 

TheCompany accounts for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method,deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets andliabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. Deferred incometaxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidatedfinancial statements, net operating loss carry forwards and credits. The Company records a valuation allowance to offset deferred taxassets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assetswill not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includesthe enactment date.

 

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TheCompany recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that theposition will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognitionthreshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greaterthan 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s liability associated withunrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developmentsand new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Company’seffective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as consideredappropriate by management. As of June 30, 2021 and December 31, 2020, the Company had no significant uncertain tax positions that qualifyfor either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to significantuncertain income tax positions in other expense if any. There were no such interest and penalties for the six months ended June 30, 2021and 2020. As of June 30, 2021 and December 31, 2020, income tax returns for the tax years ended December 31, 2016 through December 31,2020 remain open for statutory examination by PRC tax authorities.

 

Commitmentsand Contingencies

 

Inthe normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business,that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurredand the amount of the assessment can be reasonably estimated.

 

OnJune 7, 2021, Heng Guang Insurance received a demand letter from Grandway Law Offices on behalf of its client Chengdu Yaoran EnterpriseManagement Consulting Co., Ltd. (“Yaoran Consulting”), claiming Yaoran Consulting’s alleged 5% ownership interest inthe Company due to the services provided by Yaoran Consulting based on an IPO service agreement between Yaoran Consulting and Heng GuangInsurance. The Company believes that Yaoran Consulting’s claim is baseless and plans to defend itself and the integrity of theownership interest of the Company should the threatened demand letter develop into a legal action. As of the date of this prospectus, we have not received any document regarding the legal action.

 

RESULTSOF OPERATIONS

 

Thisinformation should be read together with our audited consolidated financial statements and related notes included elsewhere in this prospectus.The results of operations in any period are not necessarily indicative of our future trends.

 

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Resultsof Operations for the Six Months Ended June 30, 2021 and 2020

 

Thefollowing table sets forth a summary of our consolidated results of operations for the six months ended June 30, 2021 and 2020. Certaincolumns may not add up due to rounding. The results of operations in any period are not necessarily indicative of our future trends.

 

   Six Months ended June 30,   Changes in 
   2021   2020   Amount   Percentage 
Net revenues:                    
Commission  $8,035,893   $9,505,071   $(1,469,178)   (15.5)%
Claims Adjusting   842,531    1,596,594    (754,063)   (47.2)%
Total net revenues   8,878,424    11,101,665    (2,223,241)   (20.0)%
                     
Cost of revenue   7,346,368    9,379,598    (2,033,230)   (21.7)%
                     
Gross profit   1,532,056    1,722,067    (190,011)   (11.0)%
                     
Operating expense                    
Selling expenses   1,008,568    971,408    37,160    3.8%
General and administrative expense   1,371,853    670,437    701,416    104.6%
Total operating expenses   2,380,421    1,641,845    738,576    45.0%
                     
(Loss) income from operations   (848,365)   80,222    (928,587)   (1,157.5)%
                     
Non-operating income, net   201,342    361,653    (160,311)   (44.3)%
                     
(Loss) income before income taxes   (647,023)   441,875    (1,088,898)   (246.4)%
                     
Income tax (benefit) expense   (153,105)   112,575    (265,680)   (236.0)%
                     
Net (loss) income  $(493,918)  $329,300   $(823,218)   (250.0)%

 

Revenues

 

Thecommissions and fees we receive from the distribution of insurance products are based on a percentage of the premiums paid by the insured.Commission and fee rates generally depend on the type of insurance products, the particular insurance company we represent and the regionin which the insurance products are sold. We typically receive payments of the commissions and fees from insurance companies on a monthlybasis. The fees we receive for our automobile insurance claim adjusting services are generally fixed depending on the distance of theaccident site on a per claim basis, and are typically paid to us on a monthly basis.

 

Revenuesfor the six months ended June 30, 2021 totalled $8,878,424, reflecting a decrease of $2,223,241, or 20.0%, compared with that of $11,101,665for the six months ended June 30, 2020. Our revenues primarily consisted of two parts, agency commission revenue and auto insurance claimadjustment services during the six months ended June 30, 2021 and 2020. We generated $8,035,893 and $9,505,071 in agency commission revenueduring the six months ended June 30, 2021 and 2020, respectively, representing a decrease of $1,469,178, or 15.5%. Our revenue from autoinsurance claim adjusting services was $842,531 and $1,596,594 for the six months ended June 30, 2021 and 2020, respectively, showinga decrease of $754,063, or 47.2%. The decrease ofrevenue from agency commission was mainly due to the following reasons: 1) a significant decrease in commissions from automobile insuranceproducts caused by restrictive government regulations on the automobile insurance (Comprehensive reform of Auto Insurance) implementedstarted in September 2020, which counted for more than 70% and 60% of our commission revenue in the six months of 2021 and 2020, respectively;2) opening less new branches in the six months ended June 30, 2021 than that in the comparable period of 2020 due to continuous impactof Convid-19; and 3) the continuous slow-down of business of some local branches due to restrictions and concerns about in-person meetingsto avoid being contracted by Covid-19  . However,we optimized the structure of commissions and market development fees and increased commission pay-out ratio, which resulted in an increaseof commission revenue generated from liability and casualty insurances by $727,323, or 58.3% in the six months of 2021 compared withthat of 2020.

 

Webegan distributing life and health insurance products in 2019. Our net commission revenue from life and health insurance productswas $315,289 and $122,987 for the six months ended June 30, 2021 and 2020, respectively. We will emphasize on sales of lifeinsurance products for the coming years, and expect our life insurance business to grow rapidly and bring in significant revenue.From the beginning of 2021, we have started organizing training sessions for our insurance agents about various life and healthinsurance products and held a number of extensive life and health insurance training sessions in the fourth quarter of 2021. Webelieve a number of social factors may drive the growth of life and health insurance market in the PRC, such as stronger demand fromthe aged Chinese population for traditional life and health insurance products and the Chinese consumers’ increasing awarenessof the benefits of life and health insurance.

 

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Costof Revenues

 

Costof revenues mainly consisted of commission fee paid to our outside licensed sales agents and the provision of auto claims adjustingservices. We relied mainly on individual sales agents for the distribution of insurance products. Regarding our claim adjustingservices, we relied mainly on our own adjustors, including our internal trained staff or sales agents. We paid our adjustors at apercentage of adjusting revenue we receive, on a case-by-case basis. Cost of revenues for the six months ended June 30, 2021 totalled$7,346,368, reflecting a decrease of $2,033,230 or 21.7 %, compared with that of $9,379,598 for the six months ended June 30, 2020.The decrease was mainly due to decrease in revenue in the six months ended June 30, 2021 compared to the six months ended June 30,2020. However, our cost of revenues as a percentage to the revenues was 82.7% and 84.5% for the six months ending June 30, 2021 and2020, respectively. The slight decrease in cost of revenues as a percentage to the revenues was due to commission adjustment tocertain sales agents for slightly lower commission percentage to them as a result of their support to our company for going throughthe COVID-19 pandemic.

 

GrossProfit

 

Ourgross profit for the six months ended June 30, 2021 and 2020 was $1,532,056 and $1,722,067, respectively, reflecting a decrease of $190,011or 11.0%. Our profit margin was 17.3% for the six months ended June 30, 2021, compared to that of 15.5% for the six months ended June30, 2020. The increase in gross profit margin was mainly due to decreased commission cost paid to our sales agents.

 

SellingExpenses

 

Thefollowing table summarizes selling expenses:

 

    For the six months ended     Change in  
    June 30, 2021     June 30, 2020     Amount     Percentage  
Marketing and advertising   $ 941,411     $ 948,941     $ (7,530 )     -0.8 %
Salaries     66,954       8,904       58,050       652.0 %
Other     203       13,563       (13,360 )     -98.5 %
Total   $ 1,008,568     $ 971,408     $ 37,160       3.8 %

 

The increase in theselling expenses was mainly attributable to the increase in salaries for employees who process insurance agreements related services,partly offset by the decrease in marketing and promotional expenses paid to independent unlicensed insurance sales force.

 

Generaland Administrative Expenses

 

Thefollowing table summarizes general and administrative expenses:

 

   For the six months ended   Change in 
   June 30, 2021   June 30, 2020   Amount   Percentage 
Professional and consulting  $750,505   $217,826   $532,679    244.5%
Salaries and employee benefits   344,440    268,922    75,518    28.1%
Auto and travel   45,509    24,470    21,039    86.0%
Depreciation and amortization   20,264    11,681    8,583    73.5%
Lease and management fees   52,439    44,237    8,202    18.5%
Meals and entertainment   56,404    19,636    36,768    187.2%
Office expense   31,578    49,767    (18,189)   -36.5%
Other   70,714    33,898    36,816    108.6%
   $1,371,853   $670,437   $701,416    104.6%

 

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Theincrease in general and administrative expenses was primarily due to the increase in professional and consulting expenses for the sixmonths ended June 30, 2021, compared to the same period in 2020, as a result of the Company’s initial public offering, and theincrease in salaries and employee benefits expenses for administrative employees.

 

Non-operatingIncome, net

 

Ournon-operating income mainly included government grant, gain on disposal of fix assets and interest income. For the six months ended June30, 2021, our non-operating income mainly consisted of government grant of $111,343, interest income of $1,254, gain on disposal of fixassets of $15,559, employee loan forgiveness of $90,852 and other income of $5,523, offset with other expense of $23,188. For the sixmonths ended June 30, 2020, other income mainly consisted of government grant of $293,066, interest income of $66,932 and other income$1,841. Government grant mainly represented governmental subsidies for supportingthe Company’s business and investment in the local cities.

 

IncomeTaxes

 

TheCompany is subject to statutory income tax at a rate of 25% in the PRC. The Company record income tax benefit of $153,105 and incometax expense of $112,575 for the six months ended June 30, 2021 and 2020.

 

NetIncome (loss)

 

Ournet loss was $493,918 for the six months ended June 30, 2021, as compared to net income of $329,300 for the six months ended June 30,2020, reflecting a decline of $823,218, or 250.0%, which was attributed to the increase in selling, general and administrative expensesand decrease in revenue and non-operating income described above.

 

Liquidityand Capital Resources

 

Liquidityindicates a company’s ability to generate funds to support its current and future operations, satisfy its obligations and otherwiseoperate on an ongoing basis. At June 30, 2021 and December 31, 2020, we had cash and equivalents in the amounts of $3,866,645 and $807,380,respectively. These funds are kept in certain financial institutions located in China.

 

Asof June 30, 2021, our working capital was $3.85 million, the ratio of current assets to current liabilities was 2.79:1. As of December31, 2020, our working capital was $4.42 million, the ratio of current assets to current liabilities was 2.57:1.

 

CashFlows for the Six Months Ended June 30, 2021 Compared to that of the Six Months Ended June 30, 2020

 

Thefollowing summarizes the key components of our cash flows for the six months ended June 30, 2021 and 2020:

 

   Six Months ended June 30, 
   2021   2020 
Net cash (used in) provided by operating activities  $(1,317,750)  $560,024 
Net cash provided by investing activities   26,165    - 
Net cash provided by (used in) financing activities   4,335,895    (440,107)
Effect of exchange rate on cash, cash equivalents and restricted cash   23,072    (16,908)
Net increase in cash, cash equivalents and restricted cash  $3,067,382   $103,009 

 

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Netcash flow provided by (used in) operating activities

 

Ournet cash flow used in operating activities for the six months ended June 30, 2021 was $1,317,750, compared to net cash provided by operatingactivities of $560,024 for the six months ended June 30, 2020, reflecting a decrease of cash inflow of $1,877,774. The decrease of netcash flow from operating activities during the six months ended June 30, 2021 was principally attributable to the decrease in net incomeof $823,218 and non-cash adjustments of sales return allowance, cost of sales return allowance, and deferred tax, totaling $279,192,to increase the cash outflow, and increased cash outflow on accounts payable of $776,865, accrued sales return liability of $472,456,accrued liabilities and other payable by $169,139, but partly offset with increased cash inflow on prepaid commission cost by $395,260,other receivables by $244,527 and prepaid expenses by $107,809.

 

Netcash flow provided by investing activities

 

Netcash flow provided by investing activities for the six months ended June 30, 2021 was $26,165, compared to that of $0 for the six monthsended June 30, 2020, showing an increase of $26,165. Net cash provided by investing activities in 2021 mainly consisted of proceeds fromsales of property and equipment of $35,192 which was partly offset by purchase of property and equipment of $9,027.

 

Netcash flow provided by (used in) financing activities

 

Ournet cash flow provided by financing activities was $4,335,895 for the six months ended June 30, 2021, compared to net cash used in financingactivities of $440,107 for the six months ended June 30, 2020, reflecting an increase of $4,776,002. The increase of net cash flow providedby financing activities during the six months ended June 30, 2021 compared to the same period of 2020 was principally attributable torepayment from related parties of $4,776,002.

 

Webelieve that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipatedcash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months. We expect to requirecash to fund our ongoing business needs, particularly the further expansion of our distribution and service network, and developmentof online platforms and mobile app. The following trends are reasonably likely to result in a material decrease in our liquidity overthe near to long term:

 

  An increase in working capital requirements to support and finance our current business;

 

  The use of capital for mergers, acquisitions, and the development of business opportunities;

 

  Addition of personnel and expansion of facilities as the business grows; and

 

  The cost of being a public company.

 

Off-balanceSheet Arrangements

 

Asof June 30, 2021, we did not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations.In the ordinary course of business, we enter into operating lease commitments, and other contractual obligations. These transactionsare recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

 

ForeignCurrency Exchange Rate Risk

 

Ouroperations are in China. A majority of our future revenues are likely to continue to be denominated in Renminbi. Under existing PRC foreignexchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interestpayments and trade and service related foreign exchange transactions. Thus, our revenue and operating results may be impacted by exchangerate fluctuations between Chinese and U.S. dollars. For the six months ended June 30, 2021 and 2020, we had unrealized foreign currencytranslation income (loss) of $59,259 and $(77,093), respectively, because of changes in the exchange rate.

 

Inflation

 

Theeffect of inflation on our revenue and operating results was not significant.

 

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INDUSTRY

 

FactorsDriving the Growth of the Chinese Insurance Industry

 

Webelieve that certain macroeconomic factors, such as the governmental policy that allows an open market and China’s rapid economicgrowth, have been and will continue to be the key driving forces behind the growth of the Chinese insurance industry since 1978 whenthe PRC started the economic reform and opened up the country to the outside world. The rapid economic growth of China has created substantialgross domestic product (“GDP”) growth in China. The National Bureau of Statistics of China had published data showing thatthe insurance premium growth rates in China were related to the GDP growth rates in the country to some extent.

 

 

Source:the National Bureau of Statistics of China and CBIRC

 

Increasein Household Income and Disposable Income Per Capita

 

Thecontinuous improvement of PRC residents’ income is the core factor driving the growth of the insurance industry in China. Alongwith the steady development of economy in China, the income and per capita disposable income of urban PRC residents have increased continuously.The growth of household wealth has stimulated demand for insurance products.

 

FavorableRegulatory Environment

 

Atthe 19th National Congress Conference in October 2017, General Secretary of the Chinese Communist Party Jinping Xi declared that Chinahas entered into a new era with prosperity and insurance would provide necessary protection against losses and uncertainties. The FifthNational Financial Work Conference, held on July 14, 2017, specifically confirmed the needs to promote the insurance industry for riskmanagement. In addition, the State Council’s National Notice No.29, dated August 10, 2014, confirmed its goal to build an insuranceindustry that was compatible with China’s economic and social needs, reaching the national target of 5% in insurance penetration,or total premium as a percentage of GDP, and RMB 3,500 (approximately US$569) per person in insurance density, or per capita premium,by 2020. The 13th Five-Year-Plan of the CIRC also confirmed its commitment to continuously promote and support of various developmentplans of the insurance industry. The September 2020 Insurance Guideline issued by CBIRC encouraged the insurance related enterprises,among other things, i) exploring the development of innovative products, such as motor vehicle mileage insurance for renewable energyvehicles and qualified traditional vehicles, ii) releasing the floating range of independent pricing coefficients; iii) prioritizingthe development customized insurance products. We believe that the launch of the September 2020 Insurance Guideline will bring the autoinsurance into a new era featuring personalized insurance pricing and innovative products.

 

TheChinese Insurance Industry

 

TremendousGrowth of the Insurance Premium Revenue

 

Accordingto the chart below prepared by China Insurance Yearbook, CBIRC and China Business Industry Research Institute, the total insurance premiumgenerated by the entire Chinese insurance industry was less than RMB500 billion (approximately US$77.70 billion) from 1980 to 2004. In2004, the Chinese insurance market welcomed its rapid growth era and the insurance premium revenue had increased steadily year by yearfrom 2004 to 2019. By 2019, the Chinese insurance industry achieved the total premium revenue of RMB4.264 trillion (approximately US$662billion). According to a report from Statista, a German market and consumer data company, the total premium revenue of Chinese insurancecompanies had grown from RMB1.1 trillion to RMB4.5 trillion from 2009 to 2020, almost quadrupled in the 12-year period.

 

 

Source:https://www.statista.com/statistics/1143012/china-total-premium-revenue-of-insurance-companies/

 

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Withrespect to the Chinese automobile insurance, the total premium revenue of that insurance sector exceeded RMB800 billion (approximatelyUS$124.32 billion) in 2019, demonstrating an increase of approximately RMB200 billion or 32% from that of 2015. On September 1, 2021,the Chinese auto insurance sector will face a wave of regulatory reform launched by the CBIRC primarily to separate the functions ofinsurance underwriting, sales and adjustment services in China. The auto insurance sector is experiencing the following regulatorychanges:

 

The auto insurance industry shall be guided to set the upper limit of the additional expense rate of commercial auto insurance products in accordance with actual market operations and reduce the excessively high handling fee level in some sales areas.
Guiding the insurance industry to lower the upper limit of the additional expense rate for commercial automobile insurance products from 35% to 25%, it has a certain degree of detrimental impact on the automobile insurance agency service revenue.
The guidance to match with the international insurance market expense ratio, which is current about 30%, to make the Chinese insurance agents will competitive internationally.
Insurance companies actuarially have lowered their expense ratios, which have resulted in the auto insurance agency income (primarily commission) being adjusted accordingly. Therefore the insurance agents’ operating income will decrease assuming the same number of customers and collection of premium.

 

Webelieve this reform will present our auto insurance agency business challenges and opportunities in the next few years.

 

 

 

Source:China Insurance Yearbook, China Banking and Insurance Regulatory Commission, China Business Industry Research Institute and public datacompilation

 

Inrecent years, the Chinese insurance industry has been experiencing accelerating growth. Insurance density, or per capita premium, andinsurance penetration, or total premium as a percentage of GDP, are used to measure the level of insurance development for a countryor a region. According to a report from Statista, insurance density is a used as an indicator for the development of insurance withina country and is calculated as ratio of total insurance premiums to whole population of a given country. For example, the Chinese insurancedensity in a given year shall equal to the result of the total insurance premiums sold in China divided by the entire Chinese population.From the development trend in recent years, the insurance penetration in China has not only increased year by year, but the annualgrowth rate of penetration is also accelerating, based on “The Analysis Report on Financial Inclusion Indicators in China in 2018”dated October 2019 by People’s Bank of China Financial Consumption Rights Protection Bureau. In 2011, the insurance penetrationrate in China was 3.04%, compared to that of 4.3% in 2019, with an average annual increase of 0.16%. Additionally, China’s insurancedensity has also increased from approximately US$163 per capita in 2011 to approximately US$441 per capita in 2019, according to theChinese National Statistics Bureau and Insurance Yearbook.

 

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However,compared with other developed nations and regions, China’s insurance density and penetration rate were relatively low. Accordingto Swiss Re Institute, in 2020, the United States had an insurance density of US$7,270, and an insurance penetration rate of 12% whileChina had an insurance density of US$448.76 and an insurance penetration rate of 4.5% for the same period based on “InsuranceBrokers & Adjusters Industry in China - Market Research Report” dated September 10, 2020. Based on the insurance densitygap and insurance penetration rate gap between China and U.S., an example of developed economy, we believe that there is still greatgrowth potential for the insurance industry in China. The following chart illustrates the top ten insurance density countries in theworld in 2020, China not on the list.

 

Topten insurance density in 2020

 

 

Source:Swiss Re sigma 2020

 

InsuranceCompanies

 

Accordingto data from the CBIRC, during the year of 2020, a handful insurance companies dominated the overall Chinese insurance industry, whichhad a market of RMB 4.53 trillion (approximately $700 billion USD) in insurance premium. In 2020, the top five insurance companies basedon premium revenues were China Life Insurance, Ping An Life Insurance, People’s Insurance of China, Ping An Property Insurance,and China Pacific Life Insurance, each accounting for 13.54%,10.52%,9.55%,6.32%, and 4.61% of the gross Chineseinsurance industry premium revenue for the year of 2020. The following four insurance companies were the top four auto insurance companiesin China as of June 2020 based on their auto insurance premium revenues: People’s Insurance Company of China, China Ping An PropertyInsurance Co., Ltd., China Pacific Insurance (Group) Co., Ltd., and China Life Insurance Company Limited. However, a large number ofsmall and medium-sized insurance companies, both domestic and foreign-invested, are entering the Chinese insurance market, followingthe changes in regulatory policies in the past few years regarding Internet-based insurance and foreign investments in the PRC insuranceindustry.

 

InsuranceIntermediaries in the PRC

 

Overview

 

Establishedinsurance companies in the PRC have relied primarily on individual sales agents and direct sales force to sell their insurance products.The individual sales agents are not employees but independent contractors of the insurance companies. As a result of increased competitionin recent years, many insurance companies have gradually expanded their distribution channels to include (1) insurance agencies, suchas commercial banks and postal offices, and (2) professional insurance intermediaries, such as insurance brokers. Moreover, some newlyestablished insurance companies have chosen to focus primarily on product development and rely primarily on insurance agencies and brokersto distribute their products. In 2010, the Chinese Banking Regulatory Commission promulgated a number of policies to support the developmentof professional insurance intermediaries. Accordingly, we believe the separation of insurance production/underwriting and sales is amajor trend in China’s insurance industry.

 

Accordingto the CIRC’s classification, there are three types of insurance intermediaries in the PRC:

 

  professional insurance intermediaries, including independent insurance agencies, brokers and insurance adjustment companies;
     
  ancillary-business insurance agencies, which refer to entities that distribute insurance products as an ancillary business, such as commercial banks, postal offices, automobile dealerships, airlines and railroad companies; and
     
  insurance salespersons, which refer to individual independent sales agents who have agency contracts with insurance companies to sell insurance products on behalf of the contracted insurance companies.

 

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Amongthe three types of professional insurance intermediaries, insurance agencies are entities that have obtained an insurance agency businesspermit from the CIRC and engage in the sale of insurance products for, and within the authorization of, insurance companies. Insurancebrokers are entities that have obtained an insurance broker licenses from the CIRC and generally act on behalf the insurance applicantsseeking insurance coverage from insurance companies. Some insurance brokers also engage in reinsurance brokerage and act on behalf ofinsurance companies in their dealings with reinsurance companies. Insurance adjustment firms are entities that have been approved bythe CIRC to engage in insurance adjusting activities, such as the assessment, survey, authentication and loss estimation. As of June2020, there were 2,645 professional insurance intermediary firms in China, including 496 professional insurance agencies, as reportedby Jinri Toutiao, a Chinese news and information content platform and subsidiary of ByteDance, on January 29, 2021. At the end of 2020,the Chinese insurance intermediary market grew to a market of over RMB 3 trillion in commission revenue with more than 3 million professionalinsurance agents, as reported by Jinri Toutiao.

 

Theprofessional insurance intermediaries in China are still at their early stage of development in terms of capital, revenue, technologyand service capabilities. We believe professional insurance intermediaries have potential to grow as their market share was still smallcompared to the market shares of independent insurance salespersons and other channels as of 2019 as illustrated in the chart below.

 

 

 

Source:website of CBIRC

 

Inthe past few years, most small and medium-sized insurance companies did not have their distribution network and relied mostly on certainbanks to distribute their life insurance products, called “bancassurance, which is an arrangement between a bank and an insurancecompany allowing the insurance company to sell its products to the bank’s client base. In 2016, the CIRC started the transformationof the life insurance industry in order to curb the practice of distributing wealth management products through bancassurance. This regulatorychange brought great opportunities to independent insurance intermediaries, to which the small and medium-sized insurance companies turnedseeking new distribution channels for their life insurance products. That transformation presented us one of the reasons for our effortsto expand into the distribution of life insurance products.

 

Webelieve that there are substantial further growth opportunities in the professional insurance intermediary sector for the following reasons:

 

  1. Chinese insurance industry has significant growth potential due to China’s continued economic growth and increase of individual’s wealth and disposable income.
     
  2. Increased supply of innovative and personalized insurance products in China drive the need for Chinese consumers to seek professional advice from professional insurance intermediaries.
     
  3. Competition among insurance companies will force expansion of distribution channels. As the number of PRC insurance companies has increased, competition has intensified among insurance companies. We believe that insurance companies will have increasing needs to partner with professional insurance intermediaries to distribute their products. Moreover, competition may also inspire some insurance companies to focus on their core competencies, such as product development, underwriting and investment management, and outsource all or part of their distribution functions to professional insurance intermediaries.

 

BUSINESS

 

Weare an insurance agency company operating in China. The Company was established in 2004 and has developed a successful business strategyin the City of Guangan, Sichuan Province during its first ten years. In 2015, the Company relocated its headquarters to Chengdu, thecapital city of Sichuan Province and one the most robust business centers in southwest China. In 2016, the Company obtained its Chinesenational insurance agency qualification and Internet insurance agency license, and formally established its corporate strategy of expandingboth of its digital and offline insurance intermediary services on a nationwide scale. In 2019, the Company accelerated its digitalizationprocess and launched its digital sales application- “Heng Kuai Bao” (meaning fast insurance service), aiming to enhance theinsurance service efficiency, improve user experiences, and empower its agents with new technologies. In September 2020, after the autoinsurance reform in China, the Company was a pioneer insurance intermediary in launching the auto insurance one-click system in HengKuai Bao, which gained its popularity in the auto-insurance market. As of December, 2021, we grew from one branch office in GuanganCity to forty-eight (48) locations sprawling in fifteen (15) provinces and municipalities in the Southwest and Northeast of the PRC.

 

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Wedistribute a variety of insurance products, which are categorized into two major groups: (1) property and casualty insurance, such asautomobile insurance, commercial property insurance, casualty and accident insurance, construction and engineering insurance, and liabilityinsurance; and (2) life and health insurance. As an insurance agency firm, we have limited underwriting capacity and primarilyprovide sales, distribution and ancillary services of insurance products underwritten by the insurance companies we represent. We deriveour revenue primarily from commissions and fees paid by the partner insurance companies, typically calculated as a percentage of premiumspaid by our customers to the insurance companies. As of the date of this report, we have relationships with over 70 insurance companiesin the PRC. We help consumers select the right insurance products for purchase, but represent the partner insurance companies in thetransactions. For the six months ended June 30, 2021, 61.38% of our total revenue were attributed to our top five insurancecompany partners, each accounted for 24.83%, 13.78%, 12.13%, 6.69% and 3.95%, respectively. For the six months ended June30, 2020, 67.44% of our total revenues were attributed to our top five insurance company partners, each accounted for33.99%, 18.44%, 7.90%, 3.99% and 3.12%, respectively. For the year ended December 31, 2020, 70.61% of our totalrevenue were attributed to our top five insurance company partners, each accounted for 30.07%, 22.26%, 6.88%, 6.29% and 5.11%, respectively. Forthe year ended December 31, 2019, 66.88% of our total revenue were attributed to our top five insurance company partners, accounted for23.37%, 22.64%, 7.23%, 7.13% and 6.51%, respectively. We sell insurance products through oursales force who are individual sales agents in our distribution and service network. As of December 2021, we had 48 locations(sales offices) throughout China. A large component of our cost of revenues is commissions paid to our individual sales agents. We establishedeight (8) new branch offices in the years of 2020 and 2019 to further grow our sales and market share.

 

Inaddition to commission revenue, we also derive our revenue from performing insurance claim adjustment services for insurance companies,with the focus on the initial on-site accident and property damage inspection and investigation for auto insurance claims.

 

TheChinese insurance industry has grown substantially in the past decade. Historically, insurance companies in the PRC relied primarilyon their exclusive individual sales agents and direct sales force to sell their products. However, in recent years, as a result of increasedcompetition and consumers’ demand for more options, insurance companies gradually expanded their distribution channels to includeinsurance intermediaries, such as commercial banks and insurance intermediaries. In addition, because of the increasingly high costsfor establishing and maintaining distribution networks of their own, more insurance companies choose to rely primarily on insurance intermediariesto distribute the insurance products and in return provide attractive monetary incentives to the insurance intermediaries.

 

Weintend to grow our Company by expanding our distribution network through opening additional brick and mortar offices and branches inChina, expanding our online operations, and training and recruiting additional skilled professional sales agents in the life and healthinsurance sector. We will also continue to seek opportunities to offer innovative and premium services and products to our customers.In 2018, we started the development of mobile app Heng Kuai Bao, which provides sales support, training, agents’ commission managementand instant insurance quotes to our agents. We plan to further develop and enhance our mobile app and online platform to extend the digitalservices to our insurance purchasers, with the goal of allowing them to shop, compare and purchase insurance products, process insuranceclaims, and manage policies all through Heng Kuai Bao as the one-stop application. In addition, we diversified our insurance productsby tapping into the health and life insurance sector in 2019. Furthermore, we are allocating additional human and financial resourcesto our claim adjustment department in anticipation of future surging demand of our claim adjustment services as we see more and moreinsurance companies choose to outsource claim adjustment functions to insurance agencies to minimize the costs of claim and risk management.

 

The following table illustratesthe breakdown of our total commission revenue by insurance products for the six months ended June 30, 2021 and 2020.

 

   Six Months ended June 30, 2021   Six Months ended June 30, 2020 
   Revenue   Percentage of Total commission revenue   Revenue   Percentage of Total commission revenue 
Automobile Insurance                    
Mandatory  $376,628    4.69%  $692,589    7.29%
Other   4,750,559    59.12%   7,075,826    74.44%
Property Insurance   25,631    0.32%   40,496    0.43%
Liability Insurance   494,805    6.16%   403,311    4.24%
Casualty Insurance   1,480,429    18.42%   844,600    8.89%
Construction and Engineering Insurance   415,644    5.17%   294,400    3.10%
Life and Health Insurance   315,289    3.92%   122,987    1.29%
Other   176,908    2.20%   30,862    0.32%
Total commission revenue, net  $8,035,893    100.00%  $9,505,071    100.00%

 

Thefollowing table illustrates the breakdown of our total commission revenue by insurance products for the years ended December 31, 2020and 2019.

 

   Year ended December 31, 2020   Year ended December 31, 2019 
   Revenue   Percentage
of Total commission revenue
   Revenue   Percentage
of Total commission revenue
 
                 
Automobile insurance                    
Mandatory  $1,038,399    5.30%  $957,160    4.21%
Other   13,854,192    70.70%   18,712,485    82.35%
Commercial property Insurance   90,770    0.46%   45,074    0.20%
Liability insurance   969,881    4.95%   453,538    2.00%
Casualty insurance   1,937,550    9.89%   1,749,342    7.70%
Construction and engineering insurance   691,709    3.53%   519,383    2.29%
Life and health insurance   901,389    4.60%   225,738    0.99%
Others   111,318    0.57%   60,448    0.27%
Total  $19,595,208    100.00%  $22,723,168    100.00%

 

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CorporateHistory and Structure

 

OnJune 25, 2004, our variable interest entity, Heng Guang Insurance was formed as a limited company pursuant to PRC law. We control andoperate our insurance agent services through Heng Guang Insurance pursuant to the contractual arrangements which are describedunder “Business — Contractual Arrangements between WFOE and Heng Guang Insurance” in China.

 

TheCompany commenced its operation originally under the name of Sichuan Sunshine Insurance Agency Co., Ltd. in 2004. On February 9, 2004,the CBIRC approved the establishment of Sichuan Sunshine Insurance Agency Co., Ltd. on its Agency Letter (2004) No. 307, Approval onthe Establishment of Sichuan Sunshine Insurance Agency Co., Ltd. On April 9, 2004, the Company obtained pre-approval of the investmentfrom five of its investors with the initial registered capital of RMB 600,000 (approximately $94,000 USD). Pursuant to our registrationwith CBIRC, we were then permitted to conduct agency business of promoting insurance products, collecting insurance premiums, damageand loss investigations and claim adjustments, and other related insurance businesses in the Province of Sichuan only. On June 23, 2004,we obtained the Insurance Agency Legal Person License issued by the CBIRC. In July 2004, the Administration for Market Regulation ofSichuan Province approved our name change request from Sichuan Sunshine Insurance Agency Co., Ltd. to Sichuan Hengguang Insurance AgencyCo., Ltd. and we have conducted our insurance business under the new name ever since.

 

From2006 to 2011, our registered capital increased several times and reached the amount of RMB 10,000,000 (approximately $1.56 USD). Aftera number of private offerings of Heng Guang Insurance, our current principal shareholders are Jiulin Zhang, Xuefeng Huang and Haibo Bai,among other shareholders.

 

InNovember 2015, we expanded our business area to mainland China (excluding Hong Kong, Macau and Taiwan) as the CBIRC approved us to expandour business territory. In 2016, Heng Guang Insurance was granted with its Chinese national insurance agency qualification and Internetinsurance agency license.

 

Thefollowing chart illustrates our corporate structure, as of the date of this prospectus.

 

 

 

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ControlledCompany

 

Weare a controlled company as defined under NASDAQ Listing Rules, and as long as our officers and directors, either individually or inthe aggregate, own at least 50% of the outstanding voting power of our Company, we will remain a controlled company. However, evenif we qualify as a controlled company, we do not intend to rely on the controlled company exemptions provided under NASDAQ Listing Rules.To that extent, upon the closing of this public offering, we will have set up the Audit Committee, the Compensation Committee, and theNominating and Corporate Governance Committee, all of which shall consist solely of independent directors.

 

Forso long as we are a controlled company under that definition, we are permitted, however, to elect to rely, and may rely, oncertain exemptions from corporate governance rules, including:

 

  an exemption from the rule that a majority of our board of directors must be independent directors;
  an exemption from the rule that the compensation of our chief executive officer must be determined or recommended solely by independent directors; and
  an exemption from the rule that our director nominees must be selected or recommended solely by independent directors.

 

Althoughwe do not intend to rely on the controlled company exemption under the NASDAQ Listing Rules, we could elect to rely on this exemptionin the future. If we elect to rely on the controlled company exemption, a majority of the members of our board of directors might notbe independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independentdirectors. When and if we choose to rely on the exemptions for a controlled company, you will not have the same protection afforded toshareholders of companies that are subject to these corporate governance requirements. (See “Risk Factors – Risks Relatedto Our Corporate Structure – As a “controlled company” under the rules of the NASDAQ Market, we may chooseto exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders.”)

 

ContractualArrangements Between Heng Guang Insurance And WFOE

 

Neitherwe nor our subsidiaries own any equity interest in Heng Guang Insurance. Instead, we control and receive the economic benefits of HengGuang Insurance’s business operation through a series of contractual arrangements. Heng Guang Insurance, all of its shareholders(collectively, the “HG Shareholders”), and WFOE entered into a series of contractual arrangements, also known as VIE Agreements,on or about December 3, 2020. The VIE Agreements are designed to provide WFOE with the power, rights and obligations equivalent in allmaterial respects to those it would possess as the sole equity holder of Heng Guang Insurance, including absolute control rights andthe rights to the assets, property and revenue of Heng Guang Insurance.

 

Accordingto the Exclusive Business Cooperation and Service Agreement, Heng Guang Insurance is obligated to pay service fees to WFOE approximatelyequal to the net income of Heng Guang Insurance after deduction of the required PRC statutory reserve.

 

Eachof the VIE Agreements is described in detail below:

 

ExclusiveBusiness Management and Service Agreement

 

Pursuantto the Exclusive Business Management and Service Agreement between Heng Guang Insurance and WFOE dated December 3, 2020, WFOE providesHeng Guang Insurance with technical support, consulting services, intellectual services and other management services relating to itsday-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information.Additionally, Heng Guang Insurance granted a fully-paid exclusive license to WFOE to use all of the intellectual properties of Heng GuangInsurance and WFOE will be the owner of any and all intellectual property to be developed in the future either by Heng Guang Insuranceor WFOE from the date of this Exclusive Business Management and Service Agreement. For services rendered by WFOE to Heng Guang Insuranceunder this agreement, WFOE is entitled to collect a service fee calculated based on the time of services rendered multiplied by the correspondingrate, the plus amount of the services fees or ratio decided by the board of directors of WFOE based on the value of services renderedby WFOE and the actual income of Heng Guang Insurance from time to time, which is approximately equal to the net income of Heng GuangInsurance after deduction of the required PRC statutory reserve.

 

TheExclusive Business Management and Service Agreement shall remain in effect for ten (10) years with an automatic renewal of another ten(10) years, and can only be terminated earlier if one of the parties defaults or WFOE enters into a bankruptcy or liquidation process(either voluntary or involuntary). WFOE is entitled to terminate this agreement by providing a written 30-day notice to Heng Guang Insurance.

 

TheCEO of WFOE, Mr. Jiulin Zhang, who is also the CEO of Heng Guang Insurance, is currently managing Heng Guang Insurance pursuant to theterms of the Exclusive Business Management and Service Agreement. WFOE has absolute authority relating to the management of Heng GuangInsurance, including but not limited to decisions with regard to expenses, salary raises and bonuses, hiring, firing and other operationalfunctions. Upon establishment of the Company’s audit committee at the consummation of this offering, the Company’s auditcommittee will be required to review and approve in advance any related party transactions, including transactions involving WFOE orHeng Guang Insurance.

 

EquityPledge Agreement

 

Underthe Equity Pledge Agreement among WFOE, Heng Guang Insurance and each of the Heng Guang Insurance Shareholders, each Heng Guang InsuranceShareholder pledged all of his or her equity interests in Heng Guang Insurance to WFOE to guarantee the performance of Heng Guang Insurance’sobligations under the Exclusive Business Management and Service Agreement. Under the terms of the Equity Pledge Agreement, in the eventthat Heng Guang Insurance or any of Heng Guang Insurance Shareholders breaches its respective contractual obligations under the ExclusiveBusiness Management and Service Agreement, WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the rightto collect dividends distributed from the pledged equity interests. All of the Heng Guang Insurance Shareholders also agreed that uponoccurrence of any event of default, as set forth in the Equity Pledge Agreement, WFOE is entitled to dispose the pledged equity interestin accordance with applicable PRC laws. Each Heng Guang Insurance Shareholder further agreed not to dispose of the pledged equity interestsor take any actions that would prejudice WFOE’s interest.

 

TheEquity Pledge Agreement is effective until all payments due under the Exclusive Business Management and Service Agreement have been paidby Heng Guang Insurance. WFOE shall cancel or terminate the Equity Pledge Agreement upon Heng Guang Insurance’s full payment ofthe fees payable under the Exclusive Business Management and Service Agreement.

 

Thepurposes of the Equity Pledge Agreement are to (1) guarantee the performance of Heng Guang Insurance’s obligations under the ExclusiveBusiness Management and Service Agreement, (2) make sure any Heng Guang Insurance Shareholder does and will not transfer or assign thepledged equity interests, or create or allow any encumbrance that would prejudice WFOE’s interests without WFOE’s prior writtenconsent, and (3) provide WFOE de facto control over Heng Guang Insurance. In the event that Heng Guang Insurance breaches its contractualobligations under the Exclusive Business Management and Service Agreement, WFOE will be entitled to foreclose on and dispose all of HengGuang Insurance’s issued and outstanding equity interests, have the right to (1) exercise its option to purchase or designate thirdparties to purchase part or all of Heng Guang Insurance’s equity interests and (2) terminate the VIE Agreements after acquisitionof all equity interests in Heng Guang Insurance or form a new VIE structure with the third parties designated by WFOE.

 

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ExclusiveOption Agreement

 

Underthe Exclusive Option Agreement dated December 3, 2020, each Heng Guang Insurance Shareholder irrevocably granted WFOE (or its designee)an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of its equityinterests in Heng Guang Insurance. The option price is equal to the lowest price legally permitted by applicable PRC laws and regulations.

 

TheExclusive Option Agreement shall remain effective for a term of ten (10) years from the date of the Agreement, may be extended for anotherten (10) years at the choice of the WFOE, and can only be terminated if one party defaults or by the WFOE unilaterally.

 

ProxyAgreement

 

Underthe Proxy Agreement dated December 3, 2020, each Heng Guang Insurance Shareholder authorized WFOE to act on its behalf as its exclusiveagent and attorney with respect to all rights as shareholders of Heng Guang Insurance, including but not limited to: (a) attending shareholders’meetings; (b) exercising all of the shareholders’ rights that the shareholders are entitled to under PRC laws and the articlesof association of Heng Guang Insurance, including but not limited to voting, the sale or transfer or pledge or disposition of sharesof Heng Guang Insurance in part or in whole; and (c) designating and appointing on behalf of Heng Guang Insurance Shareholders the legalrepresentative, the executive directors, supervisors, the chief executive officer and other senior management members of Heng Guang Insurance.

 

TheProxy Agreement shall remain effective for a term of ten (10) years from the date of the Agreement, can be automatically renewed in anincrement of one (1) year each time after the end of the initial 10-year term unless terminated earlier by WFOE. The Proxy Agreementis irrevocable and continuously valid from the date of execution of the Proxy Agreement, so long as any of the Heng Guang Insurance Shareholdersis the shareholder of Heng Guang Insurance. The sale or transfer of one Heng Guang Insurance Shaholder’s equity interest in HengGuang Insurance shall not interfere with or affect the force and validity of the Proxy Agreement as to the remaining Heng Guang InsuranceShareholders.

 

TheExclusive Business Management and Service Agreement, together with the Equity Pledge Agreement, Share Disposal and Exclusive Option Agreement,and the Proxy Agreement, enable WFOE to exercise effective control over Heng Guang Insurance.

 

OurStrengths

 

Webelieve that the following competitive strengths contribute to our success and differentiate us from our competitors:

 

  Value Added One Stop Shop Services. We endeavor to provide superior and value added customer services to our existing and potential customers and believe our services play a key role to distinguish us from our competitors. Our auto insurance department offers one-stop shop services to our consumers, including collecting and providing real-time price quotes on auto insurance products and auto parts, recommendation to auto repair and maintenance shops and coordination with roadside assistance companies and car owners. Our health and life insurance department provides information relating to health and life insurance products, over 500,000 registered doctors and more than 2,000 top hospitals in over 100 cities in China, and offers access to 24/7 online doctor consulting services to consumers who have purchased insurance products from us.
     
  Digital Marketing, Operation and Management. Through Heng Kuai Bao App, our sales agents are able to obtain quotes of insurance products, which meet the customers’ requirements the best, at anytime from anywhere for approximately just 30 seconds, largely reducing the insurance information processing time. In addition, our staff members and management team may use Heng Kuai Bao App to develop new sales agents, organize current insurance agents and manage our agents’ performance in digital and efficient manner.
     
  National Distribution Network. We have a proven track record of expanding our insurance agency business. We grew from one location in the city of Guang An, Sichuan Province, to 48 locations in 15 cities, distributing both property and casualty insurance products and life and health insurance products from more than 70 insurance companies in China. We believe our ability to offer a dynamic mix of products and services on a national scale makes us an attractive distributor for our insurance company partners and go-to insurance agency to our customers.
     
  Experienced Management Team. Our CEO, Jiulin Zhang, has more than 20 years of experience in insurance and institutional management of large national insurance companies. Our CFO, Yao-te Wang has broad experience working with public companies for many years. In addition, other core members of our management team have decades of experience in the insurance industry and are familiar with the insurance intermediary industry in China and the related regulatory environment. Our CEO, Mr. Jiulin Zhang has led us to our current position.
     
  Rigorous Training and Human Capital Development. Given the rapid renovation of insurance products and technologies adopted by insurance agencies, we appreciate our rigorous in-house training programs, which cover both insurance products, sales skills, and functions of Heng Kuai Bao and other digital sales or marketing tools. In 2020, we cultivated over 190 versatile agents who managed both property and life insurance sectors. As we continue one of the focuses on our life and health insurance business, we have targeted to train more than 80% of our insurance agents to become versatile agents of both property and life insurance within the next three years starting from 2021. Our training programs also emphasize our corporate culture of customer first and high ethical standards. We believe our rigorous human resource training programs would bring us a competitive edge among the professional insurance intermediaries and help us grow our sales and improve our service quality.

 

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OurStrategy

 

Ourgoal is to become one of the leading independent insurance agencies in China and further develop our distribution networks, both onlineand offline, of property and life insurance on a national level. To achieve this goal, we intend to capitalize on the growth potentialand regulatory reform of China’s insurance intermediary sector, gain the edge of digitalization in this industry, leverage ourcompetitive strengths to pursue the following strategies:

 

FurtherExpand Into The Fast-Growing Life Insurance Sector While Continuing to Grow Our Property And Casualty Business. According tothe CIRC, the life insurance sector has grown at a faster pace than the rest of China’s insurance industry in recent years. Inaddition, life insurance products that require periodic premium payments can generate sustainable revenue over an extended period oftime, such as a period of 20 to 30 years. In order to take advantage of the significant growth potential of China’s life issuancemarket and capture recurring income, we are devoting significant resources to growing this business line. As of 2020, we cultivated atotal of 191 versatile agents who were well versed in both property and life insurance products. We have planned to train more insuranceagents to achieve the target of more than 80% of our sales agents being versatile insurance agents in both property and life insurancewithin the next three years.

 

FurtherExpand Our Distribution Network Through Opening New Brick and Mortar Branches. We believe we need to expand our distributionnetwork to reach the untapped customer bases and grow our business. In the year of 2021, we have begun growing our distribution networkby diving into the Southwest of China to further solidify our insurance agency base in that region. We believe that face-to-face interactionsbetween customers and our agents will continue to play a key role in our business despite of the rise of digital marketing and salesof our insurance products.

 

FurtherExpand Our Online Distribution Channels. In China, insurance products traditionally have been sold through face-to-face salesefforts by salespersons, but the recent advancement in technology has opened up new opportunities to distribute insurance products online,digitally shortening the distance between customers and sales agents. According to Tencent’s 2018 Internet Insurance Annual Report,there were about 802 million Internet users in China, 222 million, or 27.7%, of which had purchased insurance on the Internet. Continuingour digitalization initiative started in 2016, we will further develop and improve our insurance application “Heng Kuai Bao”to make it faster, smarter and more supportive to the needs of our salespersons and individual customers.

 

Growour Managed General Agency Model. We have been facilitating the separation of insurance production and insurance sales by takingactive roles in marketing, premium collection, underwriting, and claims settlement in the southwest region of China as one of the leadinginsurance agencies. Our business model is based on the Managed General Agency (or “MGA”) model, including insurance marketing,product pricing, customized claim settling, certain aspects of underwriting and risk management. As a general national insurance agency,we manage hundreds of small and mid-sized local insurance intermediaries, supplying insurance products and pricing information to thelocal insurance agencies, coordinating ancillary insurance services, and acting as an interface between the insurance carriers and localagencies.

 

ConsolidateInsurance Products offered by Different Insurance Companies to Build a Comprehensive Insurance AI System. Since 2017, we havestarted providing on our digital platform information about a variety of insurance products and quotes for a large number of notableinsurance carriers, regardless whether we had or have any business relationship with as long as such carriers publish their insuranceinformation on our platform. With the information collected on our platform, we plan to build a comprehensive insurance database withthe goal to establish and improve our artificial intelligent (or “AI”) insurance system to identify potential customers andrecommend insurance products to our customers in a more efficient and targeted way.

 

SeekStrategic Acquisition Targets.

 

Whilegrowing our business organically and recruiting and training more insurance agents, we constantly seek opportunities to acquire insuranceagencies that would expand geographic footprint, add value to our life and health insurance business line, enhance our management efficiency,or strengthen our technology.

 

Continueto Strengthen Our Relationships With Leading Insurance Companies. We currently establish and maintain most of our businessrelationships with insurance companies at a local level with local branches of these insurance companies. As of May, 2021, we had relationshipswith over 70 insurance carriers covering over 1,000 insurance products. As we further expand our distribution network online and offline,we believe that we may establish new business relationships with additional local branches of existing and prospective insurance carrierpartners. In addition, we hope to obtain more favorable commission rates and exclusive rights to distribute high-margin products forinsurance carriers.

 

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BusinessModel

 

ManagedGeneral Agency

 

Webelieve the Chinese insurance industry is experiencing the separation of insurance production and insurance marketing and sales functions.To embrace and adjust to this industrial trend, we have taken a proactive approach expending our services from marketing and distributing(the agency function) to co-underwriting, pricing, premium collection, inspection, and claims settlement. We call this integratedoperating model the Managed General Agency (or “MGA”). We leverage our insurance data and years of experience in the insuranceservice business to cooperate with local insurance agencies. As an MGA, we manage hundreds of small and mid-sized local insurance intermediaries,providing insurance products and pricing information to the local insurance agencies, training the local agents, and handling the insuranceclaims distributed by the local agencies. In effect, we act as an interface between the insurance carriers and local agencies.

 

 

OurProducts and Services

 

Weoffer two broad categories of insurance products: (1) property and casualty insurance products, and (2) life and health insurance products,both of which focused on meeting the insurance needs of institutional and individual customers. The insurance products we offer onlineand at the local branches were underwritten by over 70 insurer partners. We offered approximately 1,036 insurance products in the yearended December 31, 2020, including 108 auto insurance products, 532 life and health insurance products and 396 insurance products ofother categories. For the years ended December 31, 2020 and 2019, auto insurance, including motor vehicle insurance and compulsory trafficinsurance for motor vehicles, accounted for approximately 77% and 86% of our total revenue, respectively. For the six months endedJune 30, 2021, we offered approximately 554 insurance products, including 161 auto insurance products, 46 life and health insuranceproducts and 347 insurance products of other categories. For the six months ended June 30, 2021 and 2020, auto insurance, including motorvehicle insurance and compulsory traffic insurance for motor vehicles, accounted for approximately 63.81% and 81.73% of our total revenue,respectively.

 

Belowtable sets forth the categories of insurance products we offered and the contribution of each category in 2020 and 2019:

 

   Year ended December 31, 2020   Year ended December 31, 2019 
   Revenue   Percentage
of Total commission revenue
   Revenue   Percentage
of Total commission
revenue
 
                 
Automobile insurance                    
Mandatory  $1,038,399    5.30%  $957,160    4.21%
Other   13,854,192    70.70%   18,712,485    82.35%
Commercial property Insurance   90,770    0.46%   45,074    0.20%
Liability insurance   969,881    4.95%   453,538    2.00%
Casualty insurance   1,937,550    9.89%   1,749,342    7.70%
Construction and engineering insurance   691,709    3.53%   519,383    2.29%
Life and health insurance   901,389    4.60%   225,738    0.99%
Others   111,318    0.57%   60,448    0.27%
Total  $19,595,208    100.00%  $22,723,168    100.00%

 

Belowtable sets forth the categories of insurance products we offered and the contribution of each category in the six months ended June 30,2021

 

   Six Months ended June 30, 2021   Six Months ended June 30, 2020 
   Revenue   Percentage of Total commission revenue   Revenue   Percentage of Total commission revenue 
Automobile Insurance                    
Mandatory  $376,628    4.69%  $692,589    7.29%
Other   4,750,559    59.12%   7,075,826    74.44%
Property Insurance   25,631    0.32%   40,496    0.43%
Liability Insurance   494,805    6.16%   403,311    4.24%
Casualty Insurance   1,480,429    18.42%   844,600    8.89%
Construction and Engineering Insurance   415,644    5.17%   294,400    3.10%
Life and Health Insurance   315,289    3.92%   122,987    1.29%
Other   176,908    2.20%   30,862    0.32%
Total commission revenue, net  $8,035,893    100.00%  $9,505,071    100.00%

 

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Propertyand Casualty Insurance Products

 

Ourmain property and casualty insurance product is automobile insurance, which accounted for more than 75% of our business during the sixmonths ended on June 30, 2021 and 2020, and the fiscal years of 2020 and 2019. In addition, we also offer and distribute engineeringinsurance, guarantee insurance, credit insurance, family property insurance, cargo transportation insurance, corporate property insurance,accidental injury insurance, liability insurance, and other property and casualty insurance products. Commissions from property and casualtyinsurance products accounted for approximately 95%, and 98.7% of our total commission and fee revenue for the fiscal years ended on December31, 2020 and 2019, respectively, and 94% and 98.4% for the six months ended on June 30, 2021 and 2020, respectively. Below isa list of major property and casualty insurance products we have distributed in recent years.

 

(a)Automobile Insurance

 

Autoinsurance is our core business strength. We distribute all types of motor vehicle insurance products in China, including the mandatoryauto insurance and commercial auto insurance products. Mandatory automobile insurance is required by law in China while commercial autoinsurance are optional in China. In general, mandatory automobile insurance ensure the risks of damages and casualties caused by trafficaccidents, including third parties’ casualties related to the insured, third parties’ automobile damages caused by the accidentinvolving the insured vehicle. Optional or commercial automobile insurance usually cover the damages to the insured vehicles, additionalthird-party liability insurance, the casualties of the individuals on the insured vehicles, and a variety of add-on insurance coverages,such as scratch damages, loss of use during the auto repair, cargo damages on the insured vehicle and even mental damages. The salesof mandatory auto insurance contributed approximately 5.3% and 4.2% to our total commission revenue during the years endedDecember 31, 2020 and 2019, respectively, and 4.7% and 7.3% for the six months ended on June 30, 2021 and 2020, respectively,while the distribution of commercial or supplemental automobile insurance counted for approximately 70.70% and 82.35% ofour total commission revenue during the years ended December 31, 2020 and 2019, respectively, and 59.1% and 74.4% for the six monthsended on June 30, 2021 and 2020, respectively.

 

(b)Property and Casualty Insurance

 

Wemarket and distribute a large collection of property and casualty insurance policies, such as the basic and comprehensive commercialproperty insurance policies, travel insurance, and cargo insurance. Basic commercial property insurance policies generally cover damagesto the insured property caused by fire, explosion and thunder and lightning while the comprehensive commercial property insurance policieswould cover damages to the insured property caused by certain natural disasters as set forth therein in addition to what the basic commercialproperty insurance covers. The travel insurance products we provide cover risks relating to international travel, domestic travel, andoutdoor sports and most of which are customized scenario-based products. The cargo insurance productswe offer include, among others, logistics liability insurance, international freight forwarder liability insurance, and internationalcargo bill of lading liability insurance. The sales of property and casualty insurance products contributed approximately 10.35%and 7.90% to our total commission revenue during the years ended December 31, 2020 and 2019, respectively, and 18.7% and9.3% for the six months ended on June 30, 2021 and 2020, respectively.

 

(c)Liability Insurance

 

Theliability insurance products we distribute are primarily product liability and employer’s liability insurance products. These productsgenerally cover losses to third parties due to the misconduct or negligence of the insured party but exclude losses due to fraud or thewillful misconduct of the insured party. The sales of liability insurance products counted for approximately 4.95% and 2.00%of our total commission revenue during the years ended December 31, 2020 and 2019, respectively, and 6.1% and 4.2% for the sixmonths ended on June 30, 2021 and 2020, respectively.

 

(d)Construction and Engineering Insurance

 

Wealso market and distribute construction and engineering insurance policies, including, among others, comprehensive construction insurance,comprehensive installation insurance, construction employer’s liability insurance, construction group casualty insurance, and constructionperformance guarantee. The sales of construction and engineering insurance products counted for approximately 3.53% and 2.29%of our total commission revenue during the years ended December 31, 2020 and 2019, respectively, and 5.1% and 3.1% for the sixmonths ended on June 30, 2021 and 2020, respectively.

 

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Lifeand Health Insurance Products

 

Lifeinsurance is a major component of China’s insurance market. According to the CBIRC, life insurance accounted for 53.4% of the insurancemarket in terms of premium income in 2019. We began offering life and health insurance products in 2019 with a focus on life insuranceproducts with periodic payment schedules. As of June 2021, we established business relationships with over 226 insurersto distribute and sell about 14 life and health insurance products. Our sales and distribution of life and health insurance countedfor approximately 4.60% and 0.99% of our total annual commission revenue during the years ended December 31, 2020 and 2019,respectively, and 3.92% and 1.29% for the six months ended on June 30, 2021 and 2020, respectively. The life and health insuranceproducts we distribute can be broadly classified into three categories, as set forth below:

 

(a)Long-term Health Insurance Products

 

Thelong-term health insurance products offered by us, primarily consisting of critical illness insurance products, typically offer a lump-sumpayment to the insured if the insured is diagnosed with one of a major life-threatening illness or condition as defined in the insurancepolicy. The amounts of claims for long-term health insurance products in China are typically specified in the insurance policies, ratherthan determined based on the actual medical expenses. The long-term health insurance products typically address the insured’s needsfor both medical treatment and after-care services. Some of the popular health insurance products we offer are China Anxin No Worriesmedical insurance policy, Fuxing Alliance Super Insurance medical insurance, and Fuxing Alliance Lexiang Lifetime medical insurance.

 

(b)Short-term Health Insurance Products

 

Short-termhealth insurance products we offer provide illness and disease insurance protections and medical benefits during a period that is usuallyshorter than one year from the effective date of the policy. Popular short-term health insurance products we distribute are mainly underwrittenor carried by Fuxing Health Insurance, China Pacific Insurance (Group) and Sunshine Insurance Group Co., Ltd.

 

(c)Life Insurance Products

 

Inaddition, we offer term life insurance products and whole life insurance products. The term life insurance products we offer providelife insurance for the insured for a specified time period or until the attainment of a certain age, in return for the periodic paymentof fixed premiums over a pre-determined period, generally ranging from five to twenty years. Popular term life insurance products availablefrom us include Zhi Xiang life annuity, Zhong Hua Happiness life annuity, Evergrande Heng Jia Happiness Annuity, primarily underwrittenby Hengqin Life Insurance Co., Ltd., China United Insurance Group Company Ltd., and Evergrande Life Insurance Co. Ltd.

 

Thewhole life insurance products we offer provide life insurance for the insured’s entire life in exchange for the periodic paymentsof fixed premiums over a pre-determined period, generally ranging from five to twenty years, or until the insured reaches a certain age.The face value of the whole life policy is paid upon the death of the insured. Popular term life insurance products available from usinclude Sunshine Life Zhi’Ai Bei Zhi life insurance, Zhong Hua Ying life insurance, and Evergrande Wan Nian Hong Life Annuity underwrittenby Sunshine Insurance Group Co., Ltd., China United Insurance Group Company Ltd., and Evergrande Life Insurance Co. Ltd.

 

Dueto China’s aging population, high national savings rate, sustained economic development, rising household income, and enhancedrisk management awareness, we expect that China’s life insurance sector will experience exponential growth in the next ten years,and plan to allocate greater resources to develop our life insurance business. At the same time, we plan to maintain and grow our marketshare in the auto insurance business.

 

FutureCustomized Heng Guang Insurance Products

 

Weare continuously building up our insurance database through the collaboration with a great many insurance carriers with the goal to establishan AI-based insurance agency with distinguish capacity to analyze insurance customers’ life styles or operational activities andtheir respective insurance and risk management needs. We hope that our future AI operational system can use customers’ data, suchas locations (on the provincial and local level), biographic information, and insurance purchase histories, to classify customers andeven specify each individual or enterprise customer’s needs, which will then set the foundation for us to design customized HengGuang insurance products. Currently, our business development team and IT staff are working seamlessly to create insurance products designedexclusively for us, which feature superior automobile insurance, comprehensive casualty insurance (family version), liability insurance(family version), liability insurance (micro company version) and location-based life and medical insurance.

 

ClaimAdjustment and Ancillary Services

 

Asa general insurance agency, we provide insurance related services and benefits to our customers with the goal of serving the one-stopcenter for our insurance customers. For most of insurance products that we distribute, we also evaluate damages, adjust claims and processclaims on behalf of insurance companies. The insured can contact our insurance agents directly upon the occurrence of an insurable eventand our agents will answer the request in real time. Our slogan for our insurance claim processing service is “One-Stop Claim DataCollection and Worry-Free Claim Settlement.”

 

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Inthe case of a non-fatal auto accident, the insured first would contact our insurance agent, then the agent would arrive at the site ofthe accident to inspect and evaluate the damages, determine the damages with the insurer’s remote participation, send the insuredvehicle to our own auto repair store or designated repair store, and then contact the owner of the vehicle for pick-up once the agentnotifies the owner that the car is fully repaired. In the case of health and medical insurance claim, we have the capacity to collectand process medical insurance claims across the country as long as we have at least one local branch in the province where the medicalservices are rendered. Another highlight of our value-added benefits is that we provide our customers the VIP or fast path to medicalservices at hospitals and clinics that are within Heng Guang’s medical network, which covered more than 100 cities across the countryand over 2,000 top-notch hospitals and clinics as of December 2020.

 

Onlineand Offline Distribution and Marketing

 

Wehave built a national distribution network that, as of May, 2021, consisted of 3,900 sales professionals (including our online agents),and 48 branches all over China, including twenty in Sichuan Province, six in Zhejiang, one in Gansu, one in Guizhou, four in Hebei, onein Henan, two in Hunan, and one in Jilin, one in Jiangsu, one in Jiangxi, one in Liaoning, one in Shandong, one in Shanxi, two in Yunnan,and one in Chongqing.

 

Weutilize three main approaches to market and distribute our products and services: brick and mortar branches, online platform (includingour website and applications) and word-of-mouth referrals.

 

Brick and Mortar Branches

 

Themain function of our local branches is to distribute insurance products in local markets, relying on the sales professionals in the 48branches. To expand our distributing network, in October 2011, we increased our registered capital to 50,000,000 RMB, meeting the regulatoryrequirements for setting up local branches across the country. Since then, we expanded the footprints from Southwest to North and EastChina. Below is a map showing the concentration of our insurance agents in China.

 

 

 

*Notethe information in this map is dated as of September 30, 2020

 

Wealso intend to recruit more sales professionals with life insurance sales experience, who will help us develop local networks of ourlife insurance business. However, as there are uncertainties relating to establishing insurance agency branches in the PRC, wecannot guarantee that any of our planned new branches will be opened on time or at all. See “Risk Factor - We may not be successfulin implementing important new strategic initiatives, which may have an adverse impact on our business and financial results.

 

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Online Platform- Heng Kuai Bao and Our Website

 

Wealso operate an independent online insurance product and service online platform in China. On our website, we provide insurance clientswith a one-stop insurance experience. We distribute through our platform various insurance products underwritten by our insurer partners,some of which are products we designed and developed together with our insurer partners, and we do not assume underwriting risks ourselves.We offer easy interpretation and presentation of insurance policy terms to help insurance clients make informed decisions when purchasinginsurance products. We provide services to insurance clients at various stages of the insurance transactions, settlement and ancillaryconsulting services to improve client experience and increase client stickiness. Our annual repurchase rate during the year of 2020 wasover 70%. Our digital sales channel have connected insurer partners efficiently with a massive base of insurance customers and greatlyenhanced our insurance sales. Among our 3,900 sales agents, approximately 58% sales resulted from online promotion and distribution,either through our website or Heng Kuai Bao, our mobile app.

 

In2016, the Company established its corporate strategy of expanding its digital insurance agency. In 2019, the Company acceleratedits digitalization process and began to develop a “Heng Kuai Bao (meaning fast insurance agency),” aimed at enhancingthe insurance service efficiency, improving user experiences, and empowering its agents with new technologies. Our digital sales applicationHeng Kuai Bao provides one-click quotations within 30 seconds, and reduces approximately 90% of regular processing time while increasingthe online sign-up rate by approximately 30%. Our staff and sales team have access to Heng Kuai Bao 24/7 from anywhere. We have beengrowing our online sales force exponentially by having recruited 838 online agents in year 2020, resulting in approximately over 1,000online agents as of the end of 2020.

 

 

InSeptember 2020, after the auto insurance reform in China, Heng Kuai Bao gained its popularity in the auto-insurance market. Our agents’own private traffic won repurchase and cross-selling opportunities through quality service and outstanding user experience through HengKuai Bao. In addition, our insurance agents may organize their networks and manage customers on Heng Kuai Bao 24/7 at their fingertips.As of May 31, 2021, we had over 3,000 registered users on Heng Kuai Bao (including our insurance agents), and generated premium incomein the amount of approximately US$3.5 million on Heng Guai Bao, accumulatively.

 

Word-of-Mouth Referrals

 

Webelieve in high quality services provided by our insurance agents and supported by our online platform that have satisfied hundreds ofthousands of customers. We rely on happy existing clients to spread words about our insurance products and services to potential customers.This “word-of-mouth” referral system has been the secret weapon to our seventeen-year success mainly because customers’opinions carry more weight to new customers than our own marketing and promotional activities and materials. We let our services andinsurance products speak for themselves to create a self-propelling marketing ecosystem: premium services happy customers existing customersreferring to more customers higher sales and bigger market share.

 

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Thisripple effect of the word-of-mouth system is illustrated below:

 

 

 

Avast majority of our customers are satisfied with our insurance products and services and therefore our repurchase rates have been constantlyabove 60% in the past few years. The annual repurchase rates of our insurance products were approximately 64%, 67% and 70% during theyears of 2017, 2018 and 2019, respectively.

 

Customers

 

CollaborationWith Insurance Companies

 

Asof May 2021, we established cooperation relationships with over 70 insurance companies in the PRC, on behalf of which we were authorizedto market and distribute certain insurance products to our customers pursuant to the terms and conditions of the respective cooperatingagreements. These cooperating agreements established, among other things, the scope of our authority, the pricing of the insurance productswe distribute and our commission rates. These contracts typically have a term of one to three years. In the Chinese insurance market,local branches of insurance companies generally have the authority to enter into contracts in their own names with insurance intermediaries.We entered into and maintained cooperating relationships with insurance companies at the local level and might have entered into differentcontracts with different local branches of the same insurance company that were located within their respective regions. Below listedare some of our insurer partners.

 

 

 

Forthe year ended December 31, 2020 and 2019 our top five insurance company partners are Ping An Insurance, The People’s InsuranceCompany of China, Alltrust Property Insurance Company, Xin An Auto Insurance Co., Ltd. and China Pacific Insurance (Group).

 

Forthe year ended December 31, 2020 and 2019, 30.07% and 23.37%, respectively, of our total revenue was attributed to Ping An Insurance.Our various agreements entered through 2020 with Ping An Insurance generally had a term of one year, and authorized us to distributevarious auto insurance, property insurance, family health insurance, construction insurance and ancillary claim settlement services,in the Provinces of Sichuan and Hebei and the city of Shanghai. Commission rates for motor vehicle insurance products ranged from 0%to 25%, and property insurance from 0%-65%.

 

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Forthe year ended December 31, 2020 and 2019, 22.26% and 22.64%, respectively, of our total revenue was attributed to The People’sInsurance Company of China. Our various agreements entered through 2020 with The People’s Insurance Company of China generallyhad terms of one to three years, and authorized us to distribute various auto, property, liability, credibility, transportation and healthinsurance products, in Sichuan Province, Yunan Province and Hebei Province. Commission rates with The People’s Insurance Companyof China for the insurance products ranged from 0%-40% pursuant to our cooperating agreements therewith.

 

Forthe year ended December 31, 2020 and 2019, 6.88% and 7.23%, respectively, of our total revenue was attributed to Alltrust PropertyInsurance Company. Our various cooperating agreements entered through 2020 with Alltrust Property Insurance Company generallyhad a term of one year, and authorized us to distribute both mandatory and commercial auto insurance products and other insurance productsto be specified, in Hebei Province and Sichuan Province. Commission rates for motor vehicle insurance products ranged from 0%- 50% withAlltrust Property Insurance Company.

 

Forthe year ended December 31, 2020 and 2019, 6.29% and 7.13%, respectively of our total revenue was attributed to Xin An Auto InsuranceCo., Ltd. (“Xin An Auto”). Our cooperating agreement entered in April 2020 with Xin An Auto authorized us to distribute auto,property, health, and cargo insurance products in Sichuan Province on a long term basis. Our commission rates for insurance policiesunderwritten by Xin An Auto are negotiated on a per policy basis.

 

Forthe year ended December 31, 2020 and 2019, 5.11% and 6.51%, respectively, of our total revenue was attributed to China PacificInsurance (Group). Our cooperating agreement with China Pacific Insurance (Group) entered in the year of 2020 and 2019, generallyhad a term of two months to three years, and authorized us to distribute a large variety of life and health insurance products in theCity of Chongqing, auto insurance in Jilin Province, enterprise property insurance products in Zhejiang Province (excluding the Cityof Ningbo), and auto insurance, certain liability insurance, health insurance, engineering insurance products in the Province of Sichuan.Commission rates for the life and health insurance products ranged from 0.5% to 18% (excluding the management fees) on different paymentschedules, 0-25% for auto insurance products, and for other insurance products were to be negotiated on a per policy basis with ChinaPacific Insurance (Group).

 

   Commissions Revenue During the Fiscal Year of   Percentage of
Total
Revenue
 
   2020   2019   2020   2019 
1 Ping An Insurance  $6,580,576   $5,485,970    30.07%   23.37%
2 The People’s Insurance Company of China  $4,872,225   $5,316,161    22.26%   22.64%
3 Alltrust Property Insurance Company  $1,505,361   $1,697,927    6.88%   7.23%
4 Xin An Auto Insurance Co., Ltd.  $1,375,831   $1,674,472    6.29%   7.13%
5 China Pacific Insurance (Group)  $1,118,022   $1,528,676    5.11%   6.51%
Total  $15,452,015   $15,703,206    70.61%   66.88%

 

*Basedon the U.S. and Chinese currency exchange rate of $1 RMB= 0.1448 USD.

 

Forthe six months ended on June 30, 2021 and 2020, our top five insurance company partners (ranked by our commission revenue) are asfollows: The People’s Insurance Company of China, Ping An Insurance, China Pacific Insurance (Group), Allianz China General Insurance Companyor Xin An Auto Insurance Co., Ltd., and Alltrust Property Insurance Company. 

 

Forthe six months ended on June 30, 2021 and 2020, 24.83% and 18.44% respectively of our total revenue was attributed to The People’sInsurance Company of China.

 

Forthe six months ended on June 30, 2021 and 2020, 13.78% and 33.99% respectively, of our total revenue was attributed to Ping An Insurance. 

 

Forthe six months ended on June 30, 2021 and 2020, 12.13% and 3.99% of our total revenue was attributed to China Pacific Insurance (Group).

 

Forthe six months ended on June 30, 2021 and 2020, 3.95% and 7.90% of our total revenue was attributed to Alltrust Property Insurance Company.

 

For the six months ended on June 30, 2021 and 2020, Allianz China General Insurance Company contributed 6.69% of our total revenue andXin An Auto Insurance Co., Ltd. contributed 3.12% of our total revenue, respectively. 

 

   Commissions Revenue For the Six Months Ended June 30,   Percentage of Total Revenue 
   2021   2021 
1 The People’s Insurance Company of China  $2,204,477    24.83%
2 Ping An Insurance  $1,223,129    13.78%
3 China Pacific Insurance (Group)  $1,077,374    12.13%
4 Allianz China General Insurance Company  $594,270    6.69%
5 Alltrust Property Insurance Company  $350,519    3.95%
Total  $5,449,769    61.38%

 

   Commissions Revenue For the Six Months Ended June 30,   Percentage of Total Revenue 
   2020   2020 
         
1 Ping An Insurance  $3,773,313    33.99%
2 The People’s Insurance Company of China  $2,047,241    18.44%
3 Alltrust Property Insurance Company  $877,432    7.90%
4 China Pacific Insurance (Group)  $443,266    3.99%
5 Xin An Auto Insurance Co., Ltd.  $345,987    3.12%
Total  $7,487,240    67.44%

 

*Basedon the U.S. and Chinese currency exchange rate of $1 RMB= 0.1533 USD.

 

EmployeesAnd Sales Agents

 

Afterour acquisition of Heng Yun Da Technology (Chengdu) Co., Ltd. (“Heng Yun Da”), we had 99 employees as of December31, 2021, including the new information technology department. The following table sets forth the number of our employees by functionas of December 31, 2021:

 

    Number of
Employees
    Percentage (%)  
Senior Management     3       3 %
Branch managers     42       42 %
General and administrative staff     20       20 %
Financial and accounting staff     12       12 %
Business development and sales staff     16       16 %
Information technology development     6       6 %
Total     99       100.00 %

 

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Inaddition to our full-time employees, we had approximately 3,953 sales agents and independent contracting agents (including onlineagents) as of December 31, 2021. As required by laws and regulations in China, we participate in various employee social securityplans that are organized by municipal and provincial governments including, among other things, pension, medical insurance, unemploymentinsurance, maternity insurance, on-the-job injury insurance and housing fund plans through a PRC government-mandated benefit contributionplan. We are required under the PRC laws to make contributions to employee benefit plans at certain specified percentages of the salaries,bonuses and certain allowances of our employees, up to a maximum amount specified by the local governments from time to time. We believeHeng Guang Insurance is currently in compliance with the Chinese social security mandates.

 

Wetypically enter into standard employment agreements with our senior management and core personnel. These contracts include a standardnon-compete covenant that prohibits the employee from competing with us, directly or indirectly, during his or her employment and fortwo years after termination of his or her employment.

 

Ingeneral, we maintain a good working relationship with our employees and we have not experienced any material labor disputes. From timeto time, we may be involved in some labor disputes with our current or former sales agents regarding commission payments, generally inamounts that are not material to our business operations. We usually try to resolve any labor or employment dispute at the local arbitrationcenters in a rapid and cost-effective manner. We value our employees and insurance agents the most and are constantly encouraging innovation,efficiency, and teamwork at our Heng Guang family.

 

Competition

 

Generally,three types of insurance players are involved in the distribution of insurance products in the PRC: professional insurance intermediaries,insurance companies, and companies with ancillary insurance sales functions, such as banks, postal offices and internet companies. Theinsurance distribution market is highly diverse and the professional levels vary tremendously.

 

Wecompete primarily on the basis of:

 

    our unparalleled operating history and large insurance client base with high repurchase rates;

 

    our expertise in understanding customers’ demand for auto insurance products and our capability of selecting and mobilizing suitable products to meet their fast-changing demands;

 

    our capability of designing and developing customized insurance products;

 

    our robust client acquisition channels and efficient client conversion capabilities;

 

    our ability to provide best-in-class insurance client service and experience; and

 

    our well-established business relationships with insurer partners continuously reinforced by our risk management.

 

Asinternet-based insurance companies took off in the last few years, certain professional insurance intermediaries expanded their businessonline and the online insurance sales market also became more and more competitive, joined by gigantic information technology companies,such as Alibaba Group, Tencent Holdings, Baidu, Inc. and JD.com, Inc.

 

Wedeem the following insurance intermediaries as our principal and direct competitors: HJXYBX.com, Hua Kang Insurance Agency, and Da TongInsurance Sales Company.

 

Seasonality

 

Ourincome is subject to both quarterly and annual fluctuations as a result of the seasonality of our business, the timing of policy renewalsand the net effect of new and lost business as follows:

 

For auto insurance, we believe there is no substantial seasonality with respect the sales of auto mobile insurance products.
   
For property and casualty insurance, property and casualty insurance companies, under pressure to meet their annual sales targets, would increase their sales efforts during the fourth quarter of a year by, for example, offering more incentives for insurance intermediaries to increase sales. As a result, income derived from property and casualty insurance products in the fourth quarter of a year is generally the highest among all four quarters. Business activities, including buying and selling insurance, usually slow down during the Chinese New Year festivities, which occur during the first quarter of each year. As a result, income derived from property and casualty insurance products for the first quarter of a year has generally been the lowest among all four quarters.
   
For life insurance, much of the sales activities of life insurance companies occur during the first quarter of a year while business activities slow down in the fourth quarter of a year as life insurance companies focus on the preparation for the jumpstart sales season by launching new products, making marketing plans and organizing training. During the first quarter of a year (the key sales season for life insurance), life insurance companies will offer incentives that are more attractive to insurance intermediaries and sales agents to boost sales. Accordingly, income derived from life insurance business is generally the highest in the first quarter of a year and the lowest in the fourth quarter of a year.

 

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Digitalizationand Technologies

 

Webelieve technology has played and will continue to play an evolutionary role in our industry. We are devoted to build a high-tech operationalsystem and professional team and integrating new technologies into every aspect of our business, including the organizational structure,management, resource allocation and service innovation. Our proprietary technology platform supports our rapidly growing processing capacityrequirements, provides us with detailed and accurate information collected through our operation, and harnesses insightful data analyticsto grow our AI database. From our client interface to management support systems, our technology platform facilitates smooth executionand seamless data flow. On January 21, 2021, Heng Guang Insurance was granted Level III (the highest safety level in the civiliansystem) under the PRC Administrative Measures for the Graded Protection of Information Security.

 

Ourtechnology team works seamlessly with our operational teams in various regions. Our proprietary algorithms are embedded in all criticaloperational areas, including but not limited to insurance product recommendation, intelligent underwriting, pricing range suggestion,commission management, policy management and claim settlement services. Our engineers and outside IT support teams have thorough understandingof the computational needs from our different functions, and are therefore capable of providing technological support to our operationsand customers’ needs.

 

CertainDigital Back Office Functions

 

 

 

DataAnalytics

 

Since2017, we have collaborated with over seven well-known property and life insurance carriers to construct and develop the datacenter. Usersof our online platform, regardless our customers or not, provide us with information when they use our platform, browse information,compare quotes, place orders for insurance products and use various services and functions of our platform. Our datacenter stores andprocesses a massive amount of multi-dimensional user data, including time and location, user behavior, income and health condition, whichserve as the foundation of our artificial intelligent boosted operational system.

 

OurAI algorithms enable us to analyze client behaviors, personal, family and corporate insurance needs, and their feedbacks to the productsand services we provide, which forms the basis for our service improvement and cross sales. Based on our analysis, we label complex insurancepolicy terms and restrictive factors to establish an insurance product library, which helps us efficiently analyze insurance products,optimize the matching of the insurance products and customers, and therefore enhance our operational efficiency and customer satisfaction.Meanwhile, the AI integrated platform has enhanced our pricing, co-underwriting and claim adjustment capabilities, which in turn reinforcesour managed general agency’s position.

 

TechnologyInfrastructure

 

Ouronline platform provides 24-7 access that supports our agents and customers non-stop. Our technology infrastructure delivers the stabilityneeded to support the high volume of insurance transactions, the scalability to support increased traffic over time and the flexibilityto quickly launch new insurance products.

 

Wekeep developing and updating our technology infrastructure to achieve more cost-efficiency and higher stabilization. We use cloud servicesfrom reliable technology companies to minimize the hardware costs and sustain high quality performance in periods of high network traffic.We have strategically selected our data center locations in China.

 

ServiceAgreement and Acquisition of Heng Yun Da

 

Inthe past few years, we primarily relied on third parties to develop and maintain our IT operating system, including Heng Kuai Bao. OnSeptember 1, 2017, Heng Guang Insurance, our operating company, entered into a system development agreement (the “System DevelopmentAgreement”) with Heng Yun Da, a technology development company, pursuant to which Heng Yun Da has provided various technology developmentand maintenance services in accordance with Heng Guang Insurance’s requests and business needs. Heng Yun Da’s services rangedfrom development and maintenance of Heng Kuai Bao, company’s website improvements and maintenance, onsite and remote communicationsand repairs, establishing and keeping connections among different operating platforms, and training of Heng Guang Insurance’s personnelto use the systems and applications developed by Heng Yun Da. Heng Guang Insurance paid Heng Yun Da a total of RMB 450,000 (equivalentto approximately $69,700 USD) for its services under this System Development Agreement, which expired in 2018. In accordance with theSystem Development Agreement, we, through Heng Guang Insurance, own and shall own any and all of the intellectual property rights developedby Heng Yun Da per our request, except for any patents applied by Heng Yun Da as a result of its services provided thereunder.

 

In2021, we made a strategic decision to acquire all or substantially all of the assets of Heng Yun Da, primarily due to our constant needof information technology services and our successful business relationship with Heng Yun Da. On June 25, 2021, Heng Yun Da entered intoan asset purchase agreement (the “Asset Purchase Agreement”) with Heng Guang Insurance, pursuant to which Heng Yun Da transferredand sold substantially all of its assets to Heng Guang Insurance for a total consideration (the “Purchase Price”) of RMB2,000,000 (approximately $309,550), including without limitation the information technologies relating to Heng Guang Insurance’sinterface with its insurance carriers, the relevant licenses and the employment relationships with Heng Yun Da’s engineers. Inaccordance with the Asset Purchase Agreement, Heng Guang Insurance shall pay the Purchase Price to Heng Yun Da on or prior to November30, 2021. On July 28, 2021, three shareholders of Heng Yun Da, Haibo Bai, Chunling Mao and Jiulin Zhang, entered into three stock transferagreements (the “Stock Transfer Agreements”), pursuant to which agreements the three shareholders transferred to Heng GuangInsurance a total of 49% of Heng Yun Da’s issued and outstanding equity interest for nominal amounts of cash as consideration.Prior to the Stock Transfer Agreements and the Asset Purchase Agreement, Chunling Mao, Haibo Bai and Jiulin Zhang each held 10%, 20%and 19% the outstanding equity interest in Heng Yun Da, respectively. Upon the consummation of the Stock Transfer Agreements and theAsset Purchase Agreement, Heng Guang Insurance owns 49% of the outstanding equity interest in Heng Yun Da and continues to develop andmaintain the technologies supporting Heng Guang Insurance’s interface platform with its insurance carriers. As a result of theStock Transfer Agreements and the Asset Purchase Agreement, Heng Guang Insurance shall own the intellectual properties developed therefrom.

 

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IntellectualProperty

 

Ourbrand, trade names, trademarks, copyrights, trade secrets and other intellectual property rights distinguish our business platform, servicesand products from those of our competitors and contribute to our competitive advantage in the professional insurance intermediary sector.To protect our intellectual property, we primarily rely on a combination of trademark, copyright and trade secret laws. As of the dateof this prospectus, we did not have confidentiality agreements with our employees, sales agents, and others and we intend to enter intocertain employment agreements with confidentiality and/or non-competition provisions with certain senior management officers in the future.

 

OurRegistered Trademark

 

 

Aboveis the registered trademark of Heng Kuai Bao in Chinese characters under the registration number 35725594, for the purposes of retaildisplay, computer application, the global positioning system, computer software design, internet and tele-communication, with a 10-yearvalidity from October 7, 2019 to October 6, 2029 (except for the purposes of retail display, from September 28, 2019 to September 27,2029) in the PRC.

 

OurCopyrights

 

Wecompleted registration of two computer software copyrights for our applications in China in July 2019, which are Heng Kuai Bao insurancesoftware v.2.3.0 (registration number 2019SR0686309) and You Hui Bao insurance software v1.0 (registration number 2019SR0763476). OurHeng Kuai Bao application operates on the Heng Kuai Bao insurance software v.2.3.0, which our information development team and contractingservice provider are continuously maintaining and improving to expand its functions and quality. You Hui Bao application ran on You HuiBao insurance software v1.0, which for strategic reasons, we have decided not to continue for the time being.

 

OurDomain

 

Ourwebsite is http://qy.hgbaoxian.com. We registered our domain name “hgbaoxian.cn” which was certified or recognizedas a Chinese Top Level Domain Name by China Internet Network Information Center on March 17, 2020. Such certification has been extendeduntil January 3, 2023.

 

Facilities

 

Ourheadquarter is located at No. 1666, Section 2, Chenglong Road, Chengdu Economic and Technological Development Zone (Longquanyi District),Sichuan Province. As of December 31, 2020, we signed a total of 36 written leases, which included one lease for the Company’s headquartersand 35 leases for its branches. On March 14, 2019, Heng Guang Insurance and the Science and Technology Industry Incubation Co., Ltd.of Chengdu Economic and Technological Development Zone (“Incubation Co.”) signed the Site Lease Contract for its headquarteroffice spaces of 300 square meters (approximately 3,229 square feet) in the National Science and Technology Industry Incubation Parkof Chengdu Economic and Technological Development Zone. The initial term of the lease for our headquarters was from March 25, 2019 toMarch 24, 2021 with an extension to March 24, 2024. In addition, our branch offices have entered into various leases in the followingprovinces: Yunnan, Jiangxi, Liaoning, Shanxi, and the City of Chongqing. During the years ended December 31, 2020 and 2019, our totalexpenses for all of the operating leases amounted to approximately $38,940 and $35,838, respectively, and $33,783 and $26,331 forsix months ended on June 30, 2021 and 2020, respectively.

 

Certainleases for a few branches of the Company are in the process of relocation, or in situations where formal leases were not available, suchas office space sharing or leasing from properties owned by affiliates. We believe such leasing situations are of limited quantitiesand spaces and therefore have no significant adverse impact on the daily business activities and operations of the Company. Webelieve that our existing facilities are generally adequate to meet our current needs, but we expect to seek additional space as neededto accommodate future growth.

 

LegalProceedings

 

Fromtime to time, we are involved in litigation or other legal proceedings incidental to our business. However, we do not believe that ourbusiness or operations would be materially and adversely affected by any pending or threatened litigation or other pending or threatenedlegal proceedings.

 

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OnJune 7, 2021, Heng Guang Insurance received a demand letter from Grandway Law Offices on behalf of its client Chengdu Yaoran EnterpriseManagement Consulting Co., Ltd. (“Yaoran Consulting”), claiming Yaoran Consulting’s alleged 5% ownership interest inthe Company due to the services provided by Yaoran Consulting based on an IPO service agreement between Yaoran Consulting and Heng GuangInsurance. We together with Heng Guang Insurance believe that Yaoran Consulting’s claim is baseless and plan to defend ourselvesand the integrity of the ownership interest of the Company should the threatened demand letter develop into a legal action. As ofthe date of this prospectus, we have not received any documents regarding the legal action.

 

REGULATIONS

 

Thissection sets forth a summary of the principal PRC laws and regulations relevant to our business and operations in China.

 

Regulationsof the Insurance Industry

 

Theinsurance industry in the PRC is heavily regulated. Between 1998 and March 2018, the CIRC was the regulatory authority responsible forthe supervision of the Chinese insurance industry. In March 2018, the CBIRC, formed as the result of the combination of the CIRC andCBRC, replaced the CIRC as the regulatory authority for the Chinese insurance industry. Insurance activities undertaken within the PRCare primarily governed by the Insurance Law and the related rules and regulations.

 

InitialDevelopment of Regulatory Framework

 

TheChinese Insurance Law of 1995 (the “1995 Insurance Law”) provided the initial framework regulating the Chinese insuranceindustry. The 1995 Insurance Law covered various areas of the insurance business, including without limitation:

 

  Licensing of insurance companies and insurance intermediaries, such as agencies and brokers. The 1995 Insurance Law established the requirements for minimum registered capital, form of organization, qualification of senior management and adequacy of the information systems for insurance companies and insurance agencies and brokers.
     
  Separation of property and casualty insurance businesses and life insurance businesses. The 1995 Insurance Law classified insurance between property, casualty, liability and credit insurance businesses, on the one hand, and life, accident and health insurance businesses on the other, and prohibited insurance companies from engaging in both types of businesses.
     
  Regulation of market conduct by participants. The 1995 Insurance Law prohibited fraudulent and other unlawful conduct by insurance companies, agencies and brokers.
     
  Substantive regulation of insurance products. The 1995 Insurance Law gave insurance regulators the authority to approve the basic policy terms and premium rates for major insurance products.
     
  Financial condition and performance of insurance companies. The 1995 Insurance Law established the reserve and solvency standards for insurance companies, imposed restrictions on investment, established the mandatory reinsurance requirements, and put in place a reporting system for insurance companies.
     
  The principal regulatory authority, then the PBOC, had broad power under the 1995 Insurance Law to regulate the insurance industry.

 

Establishmentof The CIRC and 2002 Amendments to The Insurance Law

 

In1998, the CIRC was established and given the mandate to reform the insurance industry with the goals of minimizing insolvency risks ofthe Chinese insurers and promoting the overall Chinese insurance market.

 

The1995 Insurance Law was amended in 2002 (the “2002 Insurance Law”) and became effective on January 1, 2003. The major amendmentsto the 1995 Insurance Law included:

 

  Authorizing the CIRC to be the national insurance supervisory and regulatory body.
     
  Expanding the permitted scope of business of property and casualty insurers. Under the 2002 Insurance Law, property and casualty insurance companies may engage in the short-term health insurance and accident insurance businesses upon the CIRC’s approval.
     
  Providing additional guidelines on the relationship between insurance companies and insurance agents. The 2002 Insurance Law required an insurance company to enter into an agent agreement with each insurance agent that acted as an agent for that insurance company, setting forth the rights and obligations of the parties to the agreement as well as other matters required by law.

 

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  Relaxing restrictions on the insurance companies’ investments. Under the 2002 Insurance Law, an insurance company were allowed to use its funds to make equity investments in insurance-related enterprises, such as asset management companies.
     
  Providing greater freedom for insurance companies to develop insurance products, with respect to the policy terms and premium rates, subject to the approval of, or a filing with, the CIRC.

 

2009Amendments to The Insurance Law

 

The2002 Insurance Law was amended in 2009 and became the 2009 Insurance Law, effective on October 1, 2009. The major amendments to the 2009Insurance Law included:

 

  Strengthening protection of the insured, by adding a variety of protective clauses, such as incontestable clause, abstained and estoppels clause, common disaster clause and amending immunity clause, and claims-settlement prescription clause.
     
  Setting forth specific qualification requirements for the major shareholders, directors, supervisors and senior managers of insurance companies.
     
  Expanding the business scope of insurance companies and further relaxing restrictions on the investment cope of the insurers.
     
  More restrictive standards on insurance companies’ solvency.
     
  Tightening regulations governing the administration of insurance intermediary companies.

 

Accordingto the 2009 Insurance Law, the minimum registered capital required to establish an insurance agency or insurance broker as a companymust comply with the PRC Corporate Law. The registered capital or the capital contribution of insurance agencies or insurance brokersmust be paid-up capital in cash. The 2009 Insurance Law also sets forth some specific qualification requirements for insurance agencyand brokerage practitioners. The senior managers of insurance agencies or insurance brokers must meet specific qualification requirements,and their appointments are subject to approval of the CIRC. Personnel of an insurance agency or insurance broker engaging in the salesof insurance products must meet the qualification requirements set by the CIRC and obtain a qualification certificate issued by the CIRC.Under the 2009 Insurance Law, the parties to an insurance transaction may engage insurance adjusting firms or other independent appraisalfirms that are established in accordance with applicable laws, or persons who possess the requisite professional expertise, to conductassessment and adjustment of the insured subject matters.

 

2015Amendments to The Insurance Law

 

However,the 2015 Insurance Law, effective on April 24, 2015, revised certain provisions in the previous versions of the Insurance Law, such as:

 

  Eliminating the requirement for an insurance agent or broker to obtain a qualification certificate issued by the CIRC before providing any insurance agency or brokerage services.
     
  Relaxing certain requirements for the establishment or other significant corporate events of an insurance agency or brokerage firm, including obtaining a business permit, the divesture or merger of insurance agencies or brokerage firms, the change of their organizational form, or the establishment or winding-up of a branch by an insurance agency or brokerage firm.

 

TheCIRC and the CBIRC

 

TheCBIRC, the result of the merger of China Banking Regulatory Commission (“CBRC”) and CIRC in March, 2018, has the extensiveauthority to supervise insurance companies and insurance intermediaries operating in the PRC, including the power to:

 

  promulgate regulations applicable to the Chinese insurance industry;
     
  investigate insurance companies and insurance intermediaries;
     
   establish investment regulations;
     
  approve policy terms and premium rates for certain insurance products;
     
  set the standards for measuring the financial soundness of insurance companies and insurance intermediaries;
     
  require insurance companies and insurance intermediaries to submit reports concerning their business operations and condition of assets;

 

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  order the suspension of all or part of an insurance company or an insurance intermediary’s business;
     
  approve the establishment, change and dissolution of an insurance company, an insurance intermediary or their branches;
     
  review and approve the appointment of senior managers of an insurance company, an insurance intermediary or their branches; and
     
  punish insurance companies or intermediaries for improper behaviors or misconducts.

 

Regulationof Insurance Agents

 

Theprincipal regulation governing insurance agents is the Provisions on the Supervision and Administration of Insurance Agentspromulgated by the CBIRC on November 12, 2020 and effective January 1, 2021.

 

Whichthe agent conducts insurance business should meet the conditions prescribed by the State Council’s Insurance Regulatory Departmentwithin the territory of the People’s Republic of China and obtain an insurance agent business permit.

 

Toengage in insurance agency business within the territory of the PRC, an insurance agent shall satisfy the requirementsprescribed by the CIRC and obtain an insurance brokerage business permit issued by the CBIRC, after obtaining a business license.An insurance agency shall take any of the following organization forms: (i) a limited liability company; or (ii) a jointstock limited company, except as otherwise stipulated by the State Council’s insurance regulatory department.

 

Theminimum registered capital of an insurance agent company whose business area is not limited to a province where it is formed,is RMB50 million while the minimum registered capital of an insurance agent whose business area is limited to the place of itsformation is RMB20 million. The registered capital of an insurance agent company must be paid-in currency capital.

 

Thename of an insurance agents shall include the words “insurance agent .” An insurance agent may conductall or part of the following insurance agency businesses:

 

  selling of insurance products as an agent ;
     
  collecting insurance premiums as an agent ;
     
  acting as an agent for the investigation and settlement of losses in the related insurance businesses; and
     
 

other relevant business activities as prescribed by the State Council’s insurance regulatory department.

 

Aninsurance agent shall submit a written report to the CIRC and make public disclosure within five days from the date of occurrenceof any of the following matters: (i) change of name, domicile or business premises; (ii) change of shareholders, registered capital orform of organization; (iii) change of names of shareholders or capital contributions; (iv) amendment to the articles of association;(v) equity investment, establishment of offshore insurance related entities or non-operational organizations; (vi) division, merger anddissolution or termination of insurance agent business activities of its branches; (vii) change of the primary person in chargeof its branches other than provincial branches; (viii) being a subject of administrative or criminal penalties, or under investigationfor suspected involvement in any violation of law or a crime; and (x) other reportable events prescribed by the CIRC.

 

Theinsurance agent company shall purchase professional liability insurance or make a deposit the margin within 20 days from the date ofobtaining the insurance agent business permit. The compensation limit of the professional liability insurance purchased by the insuranceagent on an accident shall not be less than one (1) million RMB, the cumulative compensation limit of the one-year policy shall not beless than RMB10 million and shall not be less than that of the main business income of insurance agency of the previous year. The insuranceagent shall deposit 5% of the registered capital as the cash deposit, and if an insurance agent company increases its registered capital,it shall increase the amount of the security deposit proportionally.

 

Aninsurance agency company may use the margin in one of the following circumstances:

 

(1)The registered capital is reduced;

 

(2)The insurance agent business permit has been cancelled;

 

(3)Purchase qualified professional liability insurance; or

 

(4)Other circumstances specified by the insurance regulatory department of the State Council.

 

We have obtained all of the necessary approval and licenses from the relevant PRC regulatory entities to operate our insurance agent business. In 2012, we increased our registered capital to RMB50 million, meeting the regulatory requirements a national insurance agency.

 

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Regulationson Internet Insurance

 

Theprincipal regulation governing the operation of internet insurance business is the Interim Measures for the Supervision of the InternetInsurance Business, or Interim Measures, promulgated by the CIRC on July 22, 2015 and effective on October 1, 2015. Under the InterimMeasures, the term of “internet insurance business” refers to the business of concluding insurance contracts and providinginsurance services by insurance institutions through self-operated internet platforms, third-party internet platforms or other methodsusing the internet and mobile communication and other technologies. Insurance institutions include insurance companies and professionalinsurance intermediary companies that are established and registered in accordance with applicable laws and regulations and with theapproval of the CIRC. Professional insurance intermediaries refer to professional insurance agencies, insurance brokerage firms and insuranceclaims adjusting firms that can operate in the areas not limited to the provinces where they are registered. Third party internet platformsrefer to internet platforms other than those self- operated by insurance institutions which provide auxiliary services related to internettechnology support to insurance institutions for their internet insurance business activities. Any third party internet platform thatintends to directly engage in the internet insurance business such as underwriting of insurance policies, settlement of claims, cancellationof insurance policies, handling customers’ complaints and providing other customer services shall apply and obtain relevant qualificationsfrom the CIRC before engaging in internet insurance business.

 

Bothself-operated internet platforms and third party internet platforms, through which insurance institutions conduct internet insurancebusiness, shall meet certain requirements such as obtaining ICP licenses or making ICP filing and maintaining sound internet operationsystem and information security system. Heng Guang Insurance has made the required ICP filing with the relevant government agency.

 

Insuranceinstitutions shall carefully evaluate their own risk management and control capacity and customer service capacity, and rationally determineand choose insurance products and the scope of sales activities suitable for internet operations. The Interim Measures permit insurancecompanies to sell certain type of products online in regions outside their registered business areas, which include: (i) personal accidentinsurance, term life insurance and general whole life insurance; (ii) individual homeowner insurance, liability insurance, credit insuranceand guarantee insurance; (iii) property insurance business for which the whole service process services from sales and underwriting ofinsurance policies to the settlement of claims can be performed independently and completely through the internet; and (iv) other insuranceproducts specified by the CIRC. The Interim Measures also specifies requirements on disclosure of information regarding insurance productssold on the internet and provides guidelines for the operations of the insurance institutions that engage in internet insurance business.

 

Regulationsto Further Standardize Internet Insurance Business

 

OnOctober 18, 2018, the CBIRC published the Draft Regulation Measures on Internet insurance business (the CBIRC memo no. 1576 [2018]),and issued a letter to all departments of the former CIRC authorities and insurance regulatory administrations, soliciting opinions onthe Draft Regulation Measures. Subsequently, on December 13, 2019, the CBIRC published the Regulation Measures (Request for Comments).The purpose of the above is to further standardize the Internet insurance business, including:

 

  clearly stipulate the main governing body of Internet insurance business;
     
  specify the scope of Internet business services of insurance intermediaries;
     
  require the information disclosure of insurance intermediaries to follow the online and offline principle consistently and refine the information disclosure standards and requirements;
     
  require insurance intermediaries to keep complete records of Internet insurance business transaction information to ensure that the complete and accurate information storage;
     
  require insurance intermediaries to establish and improve the customer identification system, strengthen the monitoring and reporting of large transactions and suspicious transactions, and strictly abide by the relevant provisions of anti-money laundering policy;
     
  establish an Internet insurance business service evaluation system, which covers all business processes including sales, underwriting, preservation, claims settlement, consultation, return visits and complaints of insurance companies and insurance intermediaries.

 

OnDecember 7, 2020, the CBIRC issued the Decree of the China Banking and Insurance Regulatory Commission (No. 13, 2020) promulgating theMeasures for The Supervision of Internet Insurance Business, which became effective on February 1, 2021.

 

Noticeson Regulations of Motor Vehicle Insurance in 2018 and 2019

 

Inorder to further strengthen the supervision of auto insurance business and promote a fair and orderly competitive environment for themotor vehicle insurance business in China, the CBIRC recently issued and implemented two notices.

 

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  On July 20, 2018, the CBIRC issued and implemented the Notice by the General Office of the CBIRC on Regulatory Requirements for Commercial Motor Vehicle Insurance Rates (No. 57 [2018] of the CBIRC). The notice requires property insurance companies strictly follow the principles of rationality, fairness and adequacy in formulating the rate scheme, and report the scope of the fees paid to insurance intermediaries and individual agents (marketers), including handling fees, service fees, promotion fees, compensation, performance, bonuses, commissions, and etc.
     
  On January 14, 2019, the CBIRC issued and implemented the Notice by the General Office of the CBIRC on Issues Concerning Further Strengthening the Regulation of Motor Vehicle Insurance (No. 7 [2019] of the CBIRC). The notice requires property insurance companies strictly comply with the relevant provisions of laws, administrative regulations or the Insurance Regulatory Agency under the State Council in the use of vehicle insurance clauses and premium rates, and enhance the management of the authenticity of business financial data, ensure all operating costs and expenses are true and accounted for in a timely manner.

 

Thesenotices effectively resulted in the decrease of motor vehicle insurance premiums charged by the insurance companies and all related feespaid to insurance intermediaries by insurance companies.

 

RegulationsRelating to Foreign Exchange

 

GeneralAdministration of Foreign Exchange

 

Accordingto the Regulations on the Control of Foreign Exchange, which were promulgated by the State Council on January 29, 1996, came intoeffect on April 1, 1996, and were amended on January 14, 1997, and August 5, 2008, payments for transactions that take place within thePRC must be made in RMB. Unless otherwise approved, PRC companies may not repatriate foreign currency payments received from abroad orretain the same abroad. RMB is convertible into other currencies for current account items, such as trade-related receipts and paymentsand payment of interest and dividends. The conversion of RMB into other currencies and remittance of the converted foreign currency outsidethe PRC for capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approvalfrom the SAFE or its local office. According to regulations on foreign exchange settlement of FIEs, they may retain foreign exchangein accounts with designated foreign exchange banks under the current account items subject to a cap set by the SAFE or its local office.Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaged in settlementand sale of foreign exchange pursuant to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts,approval from the SAFE is generally required for the retention or sale of such proceeds to a financial institution engaged in settlementand sale of foreign exchange.

 

SAFECircular No. 59

 

Pursuantto the Circular of the SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment,promulgated by SAFE on November 19, 2012, which became effective on December 17, 2012, and was further amended on May 4, 2015, approvalis not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to the direct investments.SAFE Circular No. 59 also simplified foreign exchange-related registration required for the foreign investors to acquire the equity interestsof Chinese companies and further improve the administration on foreign exchange settlement for FIEs.

 

SAFECircular No. 13

 

Pursuantto the Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, effective fromJune 1, 2015, which cancels the administrative approvals of foreign exchange registration of direct domestic investment and direct overseasinvestment and simplifies the procedure of foreign exchange-related registration, the investors shall register with banks for directdomestic investment and direct overseas investment.

 

SAFECircular No. 19

 

TheNotice of the State Administration of Foreign Exchange on Reforming the Mode of Management of Settlement of Foreign Exchange Capitalof Foreign-Funded Enterprises, or the SAFE Circular No.19, which was promulgated by the SAFE on March 30, 2015, and became effectiveon June 1, 2015, provides that a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portionof the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetarycapital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution intothe account). Pursuant to the SAFE Circular No.19, for the time being, FIEs are allowed to settle 100% of their foreign exchange capitalson a discretionary basis; a foreign- invested enterprise shall truthfully use its capital for its own operational purposes within thescope of business; where an ordinary foreign- invested enterprise makes domestic equity investment with the amount of foreign exchangessettled, the invested enterprise shall first go through domestic re-investment registration and open a corresponding account for foreignexchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.

 

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Basedon the foregoing, when setting up a new foreign-invested enterprise, the foreign invested enterprise shall register with the bank locatedat its registered place after obtaining the business license, and if there is any change in capital or other changes relating to thebasic information of the foreign-invested enterprise, including without limitation any increase in its registered capital or total investment,the foreign invested enterprise shall register such changes with the bank located at its registered place after obtaining the approvalfrom or completing the filing with competent authorities. Pursuant to the relevant foreign exchange laws and regulations, the above-mentionedforeign exchange registration with the banks will typically take less than four weeks upon the acceptance of the registration application.If we intend to provide funding to our WFOE through capital injection at or after their establishment, we shall register the establishmentof and any follow-on capital increase in our wholly foreign owned subsidiaries with the State Administration for Industry and Commerceor its local counterparts, file such via the FICMIS and register such with the local banks for the foreign exchange related matters.

 

OffshoreInvestment

 

Underthe Circular of the State Administration of Foreign Exchange on Issues Concerning the Foreign Exchange Administration over the OverseasInvestment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, issuedby the SAFE and effective on July 4, 2014, PRC residents are required to register with the local SAFE branch prior to the establishmentor control of an offshore special purpose vehicle, or SPV, which is defined as offshore enterprises directly established or indirectlycontrolled by PRC residents for offshore equity financing of the enterprise assets or interests they hold in China. An amendment to registrationor subsequent filing with the local SAFE branch by such PRC resident is also required if there is any change in basic information ofthe offshore company or any material change with respect to the capital of the offshore company. At the same time, the SAFE has issuedthe Operation Guidance for the Issues Concerning Foreign Exchange Administration over Round-trip Investment regarding the proceduresfor SAFE registration under the SAFE Circular 37, which became effective on July 4, 2014, as an attachment of Circular 37.

 

Underthe relevant rules, any failure by any of our shareholders who is a PRC resident, or is controlled by a PRC resident, to comply withrelevant requirements under these regulations could subject our SPV to restrictions imposed on foreign exchange activities, includingrestrictions on its ability to receive registered capital as well as additional capital from PRC resident shareholders, and contributeregistered capital as well as additional capital to WFOE. If WFOE fails to obtain necessary registered capital within the approved businesstime limit, the industries and commercial administrative authorities might revoke its business license. Due to the failure by shareholdersto complete the registration, WFOE’s ability to pay dividends or make distributions to our SPV is also restricted, and repatriationof profits and dividends derived from SPV by PRC residents to China are illegal. The offshore financing funds are also not allowed tobe used in China. In addition, the failure of the PRC resident shareholders to complete the registration may subject the shareholdersto fines less than RMB 50,000, and the enterprises to fines less than RMB 300,000.

 

Regulationson Intellectual Property Rights

 

Regulationson Trademarks

 

Accordingto the Chinese trademark law and regulations, a trademark which has been approved and registered by the trademark office is a registeredtrademark, including a trademark of goods, services, collective trademark and certification trademark. The trademark registrant shallenjoy the exclusive right to use the trademark and the protections afforded by law. The trademark law also specifies the scope of registeredtrademarks, procedures for registration of trademarks and the rights and obligations of trademark owners. As of the date of this prospectus,we have completed trademark registration of four trademarks in China and own the exclusive right to use such trademark.

 

Regulationson Domain Names

 

TheMinistry of Industry and Information Technology of the PRC, or the MIIT, promulgated the Measures on Administration of Internet DomainNames, or the Domain Name Measures, on August 24, 2017, which took effect on November 1, 2017 and replaced the AdministrativeMeasures on China Internet Domain Name promulgated by the MIIT on November 5, 2004. According to the Domain Name Measures, the MIITis in charge of the administration of PRC internet domain names. The domain name registration follows a first-to-file principle. Applicantsfor registration of domain names shall provide true, accurate and complete information of their identities to the domain name registrationservice institutions. The applicant will become the holder of such domain names upon completion of the registration procedure.

 

Regulationson Employment and Social Welfare

 

LaborContract Law

 

TheLabor Contract Law of the PRC, or the Labor Contract Law, which was promulgated on June 29, 2007 and amended on December 28, 2012,is primarily aimed at regulating the rights and obligations of employers and employees, including the establishment, performance andtermination of such relationship. Pursuant to the Labor Contract Law, labor contracts shall be concluded in writing if labor relationshipsare to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work abovecertain time limit and employers shall pay employees for overtime work in accordance with certain national regulations. In addition,employee wages shall be no lower than local standards on minimum wages and shall be paid to employees timely.

 

HengGuang Insurance has approximately 3,900 agents (including insurance sales agent and independent contract agent) through its Principal-AgentContracts (“PAC”). Pursuant to the China’s Civil Code and Labor Contract Law a PAC differs from a Labor Contract onfollowing characteristics:

 

Nature of Work. Under the Insurance Law of the People’s Republic of China, Article 125 defines an insurance agent as an entity or individual who, entrusted by the insurance company, collects commissions from the insurer and, on behalf of the insurer, operates insurance business within the scope of the company’s authorization. Pursuant to a PAC, an insurance agent operates independently without the supervision and having a full-time labor contract relation with the company. The PAC allows a high agent turnover with and allows to terminate a PAC immediately upon the cessation of agent’s services. Whereas, under a Labor Contract requires the agents to be employed with the Company as a full-time employee who shall exercise one’s rights and perform one’s own obligations in accordance with the terms of the contract.

 

Remuneration. Under a PAC, an agent is compensated in the form of commission paid in accordance with the sales made by the agent. The PAC provides an insurance sales agent with a commission of 20% to 40% on the new premiums for the first year of their services, which is then gradually decreased in the following years. Whereas the Labor Contract provides an agent with remuneration, welfares and benefits in accordance with the terms of the contract as long as the agent performs in accordance with the terms and conditions of the Labor Contract irrespective of them meeting their individual sales target. In addition to the minimum wage, seniority pay, position salary, and incentive pay, an employee under the Labor Contract is also provided with welfare fund, provident fund, and pension.

 

Management. Under the PAC, an insurance agent is individually managed through meetings in the morning and afternoon, to strengthen the work ethics and morals, skills training and team building. On the contrast, an employee under a Labor Contract follows the same work schedule, rules and regulations, and labor discipline, and most team work requires cooperation to promote an orderly management of the Company.

 

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SocialInsurance And Housing Fund

 

Underthe Social Insurance Law of the PRC that was promulgated by the SCNPC on October 28, 2010, and came into force as of July 1, 2011,and most recently amended on December 29, 2018, together with other laws and regulations, employers are required to pay basic pensioninsurance, unemployment insurance, basic medical insurance, employment injury insurance, maternity insurance, and other social insurancefor its employees at specified percentages of the salaries of the employees, up to a maximum amount specified by the local governmentregulations from time to time. When an employer fails to pay social insurance premiums in full, relevant social insurance collectionagency shall order it to make up for any shortfall within a prescribed time limit, and may impose a late payment fee at the rate of 0.05%per day of the outstanding amount from the due date. If such employer still fails to make up for the shortfalls within the prescribedtime limit, the relevant administrative authorities shall impose a fine of one to three times the outstanding amount upon such employer.

 

Inaccordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in April 3, 1999 and recentlyamended in March 24, 2019, employers must register at the designated administrative centers and open bank accounts for depositing employees’housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthlyaverage salary of the employee in the preceding year in full and on time.

 

Ingeneral, the Company has complied with the Social Insurance Law of the PRC, except that certain employees either chose to be enrolledin the social insurance programs outside the Company’s program or forfeited such enrollment voluntarily.

 

HengGuang Insurance established relationships based on principal-agent contracts (according to China’s Civil Code) instead of laborcontracts, with its insurance sales agents and independent contracting agents (including online agents) of over 3,900 agents in total.Insurance sales agents charge commission as a portion of the new premiums, as their remuneration. Heng Guang Insurance bears no responsibilitiesto pay labor costs to insurance sales agents nor the welfares and benefits, social insurance and housing provident fund.

 

Employmentrelationship between Heng Guang Insurance and its Full-Time Employees

 

Asof the date hereof, Hengguang Insurance has paid social insurance and housing provident fund for most of the full-time employees thathave established work relationships via labor contracts with Heng Guang Insurance.

 

OnNovember 16, 2018, the State Administration of Taxation issued the Notice of the State Administration of Taxation on Implementingthe Several Measures for Further Supporting and Serving the Development of Private Economy (No. 174 [2018], SAT), which specifiesthat tax authorities at all levels are required to ensure a stable payment method during the reform of the social security fee collectionand management system, and are not allowed to independently organize and perform centralized clearing of fees from previous years fromtax payers including private enterprises. As of the date of this prospectus, Heng Guang Insurance has not received any administrativepunishments for violating relevant provisions on Social Insurance nor Housing Provident Fund.

 

Anti-moneyLaundering

 

Pursuantto the Notice of Strengthening Anti-money Laundering in Insurance Industry promulgated by the CIRC on August 10, 2010 and AdministrativeMeasures for Anti-money Laundering Agenda in Insurance Industry promulgated on September 13, 2011 by the CIRC and became effective onOctober 1, 2011, the CIRC shall organize, coordinate and direct anti-money laundering effort in insurance industry.

 

Accordingto the provisions of the Administrative Measures for Anti-money Laundering Agenda in Insurance Industry, insurance agency andbrokerage companies shall, in the light of the real-name system for policies and according to the work principles that client materialsare complete, transaction records are available for inspection and circulation of funds is regulated, effectively enhance the internalcontrol level of anti-money laundering. Insurance agency and brokerage companies shall establish an internal control system foranti-money laundering and prohibit funds which have an illegal source from investing into their equity. The senior management officersof insurance agency and brokerage companies shall understand laws and regulations on anti-money laundering.

 

Pursuantto the Notice of Strengthening Anti-money Laundering in Insurance Industry, equity investments in insurance intermediaries and equitystructure changes therein should be in line with relevant requirements on fund sources in anti-money laundering laws and regulationsof the PRC.

 

Newlyestablished insurance intermediaries and branch institutions and those restructured or reformed should meet anti-money laundering criteriaspecified by the CIRC, including (i) establishment of system for client identity recognition, client identity and transaction recordkeeping, training and education, auditing, confidentiality, internal control system and operation protocols including those facilitatingmonitoring and inspection and administrative investigation; (ii) dedicated anti-money laundering posts and job descriptions, manningand training for such posts; (iii) other requirements according to regulatory provisions.

 

Regulationson Tax

 

CorporateIncome Tax

 

Pursuantto the EIT Law of the PRC effective on January 1, 2008 and amended on December 29, 2018 and the Implementation Provisions for the EITLaw of the PRC effective on April 23, 2019, companies are classified into resident companies and non-resident companies. Corporate IncomeTax rate is 25%, or 20% for non-resident company which hasn’t set up an organization or an operating site, or its income from establishedorganization or operating side is not connected to such organization or site, judging by the source of its income within the PRC territory.High and new technology companies encouraged by the government shall be accorded with 15% income tax.

 

Pursuantto the Announcement on Issues Regarding Implementation of Preferential Income Tax Policy for High and New Technology Companies releasedon June 19, 2017 by State Administration of Taxation or the SAT, company qualified as high or new technology company shall enjoy preferentialtax from the year indicated on the certificate for high and new technology company, and file for registration with taxation agency ofjurisdiction according to relevant provisions. On expiration of the qualification as high and new technology company, income tax shallbe temporarily levied pursuant to a preferential tax rate of 15% before renewal of the qualification; if such qualification is not obtainedbefore the end of the year, the difference between the preferential tax rate and the regular tax rate should be paid according to applicableprovisions.

 

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WithholdingIncome Tax

 

Pursuantto the Arrangement between Mainland and Hong Kong S.A.R. Regarding Avoidance of Double Taxation on Income and Prevention of Tax Evasionagreed between SAT and Hong Kong S.A.R. on August 21, 2006, and three conventions implemented as of June 11, 2008, December 20, 2010and December 29, 2015, if Hong Kong resident holds at least 25% of the registered capital of a company in China, the withholding incometax rate applicable to the Chinese company for dividends payable to the Hong Kong resident is 5%. In all other cases, the withholdingincome tax rate applicable to the Chinese company for dividends payable to the Hong Kong resident is 10%.

 

Value-AddedTax

 

Pursuantto the Provisional Regulations on Value-Added Tax of the PRC last amended on November 19, 2017, and its Implementation Rules promulgatedby the Ministry of Finance, or the MOF and last amended on October 28, 2011, tax payers engaging in sale of goods, provision of processingservices, repairs and replacement services, sales of services, intangible assets or real property, or importation of goods within theterritory of the PRC shall pay value-added tax, or the VAT.

 

OnNovember 16, 2011, the MOF and the SAT jointly promulgated the Pilot Plan for Levying Value-Added Tax in lieu of Business Tax. Startingfrom January 1, 2012, the PRC government has been gradually implementing a pilot program in certain provinces and municipalities, tolevy a 6% VAT on revenue generated from modern service industries in lieu of the business tax.

 

TheMeasures for the Exemption of Value-Added Tax from Cross-Border Taxable Activities in the Collection of Value-Added Tax in Lieu of BusinessTax (for Trial Implementation), which was promulgated on May 6, 2016 by the SAT, and revised according to the Notice of State Administrationof Taxation on Revising Some Normative Documents on Taxation on June 15, 2018, provides that if a domestic enterprise provides cross-bordertaxable activities such as professional technology services, technology transfer, software service etc., the above mentioned cross-bordertaxable activities shall be exempted from the VAT.

 

OnMarch 23, 2016, the MOF and the SAT jointly issued the Circular of Full Implementation of Business Tax to Value-added Tax Reform whichconfirms that business tax will be completely replaced by the VAT from May 1, 2016.

 

Pursuantto the Announcement No. 39 (2019) jointly issued by the Ministry of Finance, the State Administration of Taxation, and the General Administrationof Customs, effective on April 1, 2019, the applicable VAT for VAT-taxable sales activities and imported goods are adjusted respectivelyfrom 16% to 13% and from 10% to 9%, respectively.

 

Regulationon Data Protection and Cybersecurity

 

Scopeof Personal Information

 

Accordingto the Information Security Technology—Personal Information (PI) Security Specification, sensitive personal informationis the PI that once leaked, illegally provided or abused, could endanger personal and property safety, or easily lead to damages to personalreputation, mental & physical health, or discriminatory treatment, etc. Sensitive PI includes ID numbers, personal biometric information,bank account information, communication records and content, property information, credit information, records of whereabouts, accommodationinformation, health information, transaction information, and the PI of minors up to fourteen (14) years of age.

 

ApprovalProcedure of the Internet Insurance Business

 

Aspecialized insurance agency must complete the following procedures in order to launch the internet insurance business: (1) submit allactual operation process to Insurance Intermediaries Regulatory Department of China Banking and Insurance Regulatory Commission; (2)report every insurance categories, product prices, APP applications and qualifications to the Insurance Association of China for antitrustreview; and (3) receive a Level III Certification for the State Graded Protection of Information Security.

 

CybersecurityLaw

 

Accordingto the Article 42 of Cybersecurity Law of the People’s Republic of China, which came into force as of June 1, 2017, thenetwork operators must not disclose, distort or damage personal information they collect, without the agreement of the person whose informationis collected, and personal information may not be provided to others, except where it has been processed in such a manner that it isimpossible to distinguish a particular individual’s information and it cannot be retraced.

 

DataSecurity Law

 

Accordingto the Article 31 of Data Security Law of the People’s Republic of China, which came into force on September 1, 2021, specifiesthat the provisions of the cybersecurity law of the PRC apply to the outbound security management of important data collected or producedby critical information infrastructure operators operating within the mainland territory of the PRC. Outbound security management measuresfor other data processors collecting or producing important data within the mainland territory of the PRC are to be jointly formulatedby the national cyberspace administration and relevant departments of the State Council.

 

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Whena network operator needs to transfer such data overseas, it must demonstrate the necessity of data export and conduct a self-securityassessment or submit to an official security assessment when a threshold test is met. Whether the transfer is “lawful, legitimateand necessary” is a threshold requirement under which the relevant authorities evaluate the risks associated with the transferby examining both the nature of the data being transferred and the likelihood of security breaches involving such data and the levelof the impact of such incidents.

 

HengguangInsurance’s Mode of Internet Insurance Business

 

HengGuang Insurance has connected with and utilized every data system of the insurance companies that have entered into contracts therewith,and gained access to the individual customers’ information of resident identity card number, mobile number and other personal information.Heng Guang Insurance’s Mode of Internet Insurance Business on Heng Kuai Bao, the sales platform, has performed special treatmentsto some of the personal information.

 

Asof August 2021, regarding Heng Guang Insurance’s internet insurance business, all of the personal information and important dataproduced and collected from the operation from the PRC (for the purpose of a legal notice, excluding Hong Kong SAR, Macao SAR and Taiwan)are stored domestically, without any cross-border data transfer nor uploading data abroad to be stored, used, and held; the relevantdepartment of Chinese government performs compliance examination.

 

MANAGEMENT

 

Directorsand Executive Officers

 

Thefollowing table sets forth information regarding our directors and executive officers as of the date of this prospectus.

 

Directors and Executive Officers   Age   Position/Title
Zhang Jiulin   53   Chief Executive Officer and Chairman of the Board of Directors
         
Yao-te Wang   44   Chief Financial Officer
         
Yi Wang   32   Chief Technical Officer Nominee
         
Guangming Liu   60   Independent Director Nominee
         
Edward Rhodes   57   Independent Director Nominee
         
Haosong Zhang   43   Independent Director Nominee

 

Mr.Jiulin Zhang has served as the Chief Executive Officer of Heng Guang Insurance, our operating company in China, since January 2017 andthe Chief Executive Officer of the Company since 2021 and is one of the key founders of Heng Guang Insurance in 2004. Since then, Mr.Zhang served various positions at Heng Guang Insurance and a few insurance agencies. Mr. Zhang has more than 20 years of experience inproperty and life insurance marketing and management and has achieved outstanding records of insurance sales. For example, in 2015, Mr.Zhang served as the Sales Director of the Department of Special Representative Business of the Sichuan Branch of Zijin Property InsuranceCo., Ltd., and helped the performance of the entire team to reach more than RMB 50 million in annual premiums. Mr. Jiulin Zhang graduatedfrom Sichuan Correspondence Institute for Officers in 2004 and Guang’an Guantang High School in 1985.

 

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Mr.Yao-te Wang has been the Chief Financial Officer of the Company since July 13, 2021 and has served as an independent director for AiXinLife International, Inc., a public company in the United States, since 2018. From February 2015 till now, Mr. Yao-te Wang has servedas the CEO of Ivy Service Group, a business consulting company based in Shanghai, China and was a consultant to Ivy Service Group fromJuly 2012 to January 2015. Previously, Mr. Wang was a brand consultant for the Hong Kong Swire Group from 2015 to 2016, and served asa public affairs officer and instructor at the Ministry of National Defense of Taiwan from 2006 to 2012. He has substantial experienceand knowledge of operating public companies in the United States with respect to the accounting and financing, regulatory compliance,industrial development, strategic planning, and domestic and cross-border mergers and acquisitions. Mr. Wang has earned a Master’sDegree from Columbia University School of International and Public Affairs, a Master’s Degree from University of Denver KorbelSchool of International Studies, and a Bachelor’s Degree from National Defense University in Taiwan.

 

Mr.Yi Wang has served as the Chief Technology Officer for Heng Yun Da since May 2018 and will be appointed as the Chief Technology Officerfor the Company prior to the effectiveness of this registration statement. From July 2015 to April 2018, Mr. Yi Wang was the Chief TechnologyOfficer at Sichuan Times Joint Venture Capital Co., Ltd. Mr. Yi Wang has implemented its information automation strategy, and led theresearch and development of Heng Kuai Bao. He has more than 10 years of mobile Internet product design and development experience, workedfor large and medium-sized Internet companies, and participated in the development of municipal financial systems, corporate managementand other systems. Mr. Yi has obtained a Bachelor’s Degree of Software Engineering from Chengdu University of Electronic Scienceand Technology.

 

Mr.Edward Rhodes is a director nominee of the Company. He has nearly 30 years of experience in investment banking and asset management,specializing in corporate finance, mergers and acquisitions, management consulting, equity investment, financed purchases, corporatestrategic planning, involving an aggregate of more than $400 billion in value. Mr. Rhodes has served as the Chief Executive Officer ofMCP Corporate Advisors LLC since 2000 and been the co-founder and Chief Financial Officer at Accolent Real Estate Co. since June 2017.Mr. Rhodes has earned an MBA Degree from Columbia University and Bachelor’s Degree in History from the University of Virginia.

 

Mr.Guangming Liu is a director nominee of the Company. Mr. Liu has been a member of the Executive Committee of Lungkong World Federationsince June 2018 and served as the Head of Secretariat of Lungkong World Federation from August 2015 till June 2018. Mr. Liu started hiscareer as a manager at China Life Insurance in Taiwan and worked at several insurance companies and insurance agencies, such as a seniormanager at Allianz President Life Insurance Co. Ltd., a senior manager at Nan Shan Life Insurance Co., Ltd., and a vice president atZhonglun Life Insurance Broker Co. Mr. Liu was a vice president at a human resource company, TimeHR Executive Search Co., Ltd., fromMay 2010 to May 2015. Mr. Guangming Liu has extensive experiences in strategic planning, organizational structure optimization, humanresource management, and senior management team improvement for established Chinese and Taiwanese companies. Mr. Guangming Liu obtainedan MBA in finance from Wharton School of Business University of Pennsylvania, an MBA in insurance from Feng Chia University, and a Bachelor’sDegree from Soochow University.

 

Mr.Haosong Zhang is a director nominee of the Company. From January 2018 to December 2020, Mr. Zhang served as the president of Henan ChungchihaoBusiness Consultancy. Prior to that, Mr. Zhang was a director at Henan Chungshi Asset Management Ltd. from January 2014 to December 2017.During the three years from 2011 to 2013, Haosong worked as the president of Henan Yongfu Real Estate Consultantcy Ltd. He has yearsof experience in domestic and foreign listing, corporate management consulting, equity investment and financing, mergers and acquisitions,and restructuring. Mr. Haosong Zhang has obtained an MBA degree from France-Brest Business School and a bachelor of art degree in lawfrom Zhengzhou University in Henan Province, China.

 

FamilyRelationships

 

Noneof the directors or executive officers have a family relationship as defined in Item 401 of Regulation S-K.

 

Involvementin Certain Legal Proceedings

 

Tothe best of our knowledge, none of our directors or executive officers has, during the past ten years, been involved in any legal proceedingsdescribed in subparagraph (f) of Item 401 of Regulation S-K.

 

ControlledCompany

 

Weare a controlled company and as long as our officers and directors, either individually or in the aggregate, own at least 50% ofthe outstanding voting power of our Company, we will be a “controlled company” as defined under NASDAQ Listing Rules (specifically,as defined in Rule 5615(c)). We have no current intention to rely on the controlled company exemptions afforded to a controlledcompany under the NASDAQ Listing Rules.

 

Boardof Directors

 

Ourboard of directors will consist of four directors upon closing of this offering, three of whom shall be “independent” withinthe meaning of the corporate governance standards of the Nasdaq listing rules and will meet the criteria for independence set forth inRule 10A-3 of the Exchange Act.

 

Dutiesof Directors

 

UnderCayman Islands law, all of our directors owe three types of duties to us: (i) statutory duties, (ii) fiduciary duties, and (iii) commonlaw duties. The Companies Act (2021 Revision) of the Cayman Islands imposes a number of statutory duties on a director. A Cayman Islandsdirector’s fiduciary duties are not codified, however, the courts of the Cayman Islands have held that a director owes the followingfiduciary duties: (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) aduty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the futureand (d) a duty to avoid conflicts of interest and of duty. The common law duties owed by a director are those to act with skill, careand diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relationto the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particularskill they have which enables them to meet a higher standard than a director without those skills. In fulfilling their duty of care tous, our directors must ensure compliance with our articles of association expected to be amended and effective on or before the completionof this offering. We have the right to seek damages if a duty owed by any of our directors is breached.

 

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Thefunctions and powers of our board of directors include, among others:

 

 

appointing officers and determining the term of office of the officers;

     
 

authorizing the payment of donations to religious, charitable, public, or other bodies, clubs, funds, or associations as deemed advisable;

     
 

exercising the borrowing powers of the company and mortgaging the property of the company;

     
 

executing checks, promissory notes, and other negotiable instruments on behalf of the company; and

     
  maintaining or registering a register of mortgages, charges, or other encumbrances of the company.

 

Termsof Directors and Executive Officers

 

Ourofficers are appointed by and serve at the discretion of our board of directors and the shareholders voting by ordinary resolution. Ourdirectors are not subject to a set term of office and hold office until the next general meeting called for the election of directorsand until their successor is duly appointed or such time as they die, resign or are removed from office by a shareholders’ ordinaryresolution. The office of a director will be vacated automatically if, among other things, the directors resigns in writing, becomesbankrupt or makes any arrangement or composition with his/her creditors generally or is found to be or becomes of unsound mind. All ofour executive officers are appointed by and serve at the discretion of our board of directors.

 

Qualification

 

Thereis currently no shareholding qualification for directors.

 

InsiderParticipation Concerning Executive Compensation

 

Ourboard of directors, which was comprised of two directors, was making all determinations regarding the executive officer compensation.When the three independent directors are appointed, they will be making all determinations regarding the executive officer compensation.

 

Committees

 

Uponthe effectiveness of this registration statement, we will establish three committees under the board of directors: the audit committee,the compensation committee and the corporate governance and nominating committee, and adopt a charter for each of the committees. Eachcommittee’s members and functions are described below.

 

AuditCommittee. Our audit committee will consist of Edward Rhodes, Haosong Zhang and Guangming Liu with Edward Rhodes as the chairmanof our audit committee. We have determined that Edward Rhodes, Haosong Zhang and Guangming Liu will satisfy the “independence”requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act. Our board also has determinedthat Edward Rhodes qualifies as an audit committee financial expert within the meaning of the SEC rules or possesses financial sophisticationwithin the meaning of the Nasdaq Listing Rules. The audit committee will oversee our accounting and financial reporting processes andthe audits of the financial statements of our company. The audit committee will be responsible for, among other things:

 

  selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;
     
  reviewing with the independent auditors any audit problems or difficulties and management’s response;
     
   reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;
     
  discussing the annual audited financial statements with management and the independent auditors;
     
  reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;
     
  annually reviewing and reassessing the adequacy of our audit committee charter;
     
  such other matters that are specifically delegated to our audit committee by our board of directors from time to time;

 

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  meeting separately and periodically with management and the independent auditors; and
     
  reporting regularly to the full board of directors.

 

CompensationCommittee. Our compensation committee will consist of Edward Rhodes, Haosong Zhang and Guangming Liu upon the effectiveness ofthe registration statement with Guangming Liu serving as the chair of our compensation committee. The compensation committee will assistthe board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executiveofficers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensationcommittee will be responsible for, among other things:

 

  reviewing and recommending to the board with respect to the total compensation package for our chief executive officer;
     
  approving and overseeing the total compensation package for our executives other than the chief executive officer;
     
  reviewing and making recommendations to the board with respect to the compensation of our directors; and
     
  reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

 

CorporateGovernance and Nominating Committee. Our nominating and corporate governance committee will consist of Edward Rhodes, HaosongZhang and Guangming Liu upon the declaration of effectiveness of the registration statement. Mr. Haosong Zhang will be the chairpersonof our nominating and corporate governance committee. The nominating and corporate governance committee will assist the board of directorsin selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominatingand corporate governance committee will be responsible for, among other things:

 

  identifying and recommending to the board nominees for election or re-election to the board, or for appointment to fill any vacancy;
     
  reviewing annually with the board the current composition of the board in light of the characteristics of independence, skills, experience and availability of service to us;
     
  identifying and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as the corporate governance and nominating committee itself;
     
  advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any corrective action to be taken; and
     
  monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

 

CorporateGovernance

 

Ourboard of directors intend to adopt a code of business conduct and ethics, which is applicable to all of our officers and employees uponclosing of this offering. We will make our code of business conduct and ethics publicly available on our website prior to the initialclosing of this offering.

 

EXECUTIVECOMPENSATION

 

Thefollowing table sets forth certain information with respect to compensation for the years ended December 31, 2020 and 2019, earned byor paid to our executive officers, and our other most highly compensated executive officers whose total compensation exceeded US$120,000(the “named executive officers”).

 

SummaryCompensation Table

 

Name and Principal Position  Year   Salary
(US$)
   Bonus
(US$)
   Stock
Awards
(US$)
   Option
Awards
(US$)
   Non-Equity
Incentive
Plan
Compensation
   Deferred
Compensation
Earnings
   Other   Total
(US $)
 
Jiulin Zhang   2020   $4,629    -    -    -    -    -    -    $4,629 
CEO of the Company and Heng Guang Insurance   2019   $4,629    -    -    -    -    -    -   $4,629 
                                              
Yao-te Wang(1)   2020    -    -    -    -    -    -    -    - 
CFO of the Company   2019    -    -    -         -    -    -    - 

 

(1)Mr. Wang was appointed as the CFO of the Company on July 13, 2021 as described below.

 

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AgreementsWith Named Executive Officers

 

We appointed Mr. Jiulin Zhang as the CEO for theCompany, effective June 25, 2021. As of the date of this prospectus, the current employment agreement between Jiulin Zhang and Heng GuangInsurance governs the terms and conditions of Mr. Zhang’s employment with our operating company, which has a term of three yearsfrom January 1, 2019 to December 31, 2021 and provides a de minimus annual salary. On July 23, 2021, we entered into an employment agreement(the “CEO Employment Agreement”) with Jiulin Zhang as the Company’s CEO, substantially in the form filed herein asExhibit 10.2. Pursuant to the CEO Employment Agreement, we agreed to employ our CEO for a specified time period from the date when theCompany consummates its initial public offering, which will be renewed upon both parties’ agreement before the end of the currentemployment term, and payment of cash compensation and benefits shall become payable and effective when the Company becomes a publicreporting company in the U.S. We may terminate the employment for cause, at any time, without notice or remuneration, for certain actsof the executive officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the termsand conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty,receipt of bribery, or severe neglect of his duties. The executive officer may terminate his employment at any time with a three-monthprior written notice. Mr. Jiulin Zhang has agreed to hold, both during and after the employment agreement expires, in strict confidenceand not to use or disclose to any person, corporation or other entity without written consent, any confidential information.

 

We appointed Mr. Yao-te Wang as the CFO for theCompany, effective July 13, 2021 . On August 5, 2021, we entered into an employment agreement (the “CFO Employment Agreement”)with Yao-te Wang as the Company’s CFO, substantially in the form filed herein as Exhibit 10.8. Pursuant to the CFO EmploymentAgreement, we agreed to employ our CFO in accordance with such agreement for three years from the date when the Company consummates itsinitial public offering, which will be renewed upon both parties’ agreement before the end of the current employment term, andpayment of cash compensation and benefits shall become payable and effective when the Company becomes a public reporting company in theU.S. We may terminate the CFO Employment Agreement for cause, at any time, without notice or remuneration, for certain acts of the CFO,including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of theemployment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt ofbribery, or severe neglect of his duties. The CFO may terminate his employment at any time with a three-month prior written notice.Mr. Wang has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or discloseto any person, corporation or other entity without written consent, any confidential information of the Company.

 

Compensationof Directors

 

Forthe fiscal years of 2019 and 2020, we did not compensate our independent directors for their services as they had not become the independentdirectors in the years of 2019 and 2020.

 

PRINCIPALSHAREHOLDERS

 

Thefollowing table sets forth information with respect to the beneficial ownership of our ordinary shares, as of the date of this prospectus,by:

 

  each of our directors and executive officers who beneficially own our Ordinary Shares;
     
  all of our directors and executive officers as a group; and
     
  each person known to us to own beneficially more than 5% of our Ordinary Shares.

 

Beneficialownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable communityproperty laws, the persons named in the table have sole voting and investment power with respect to all Class A and Class B OrdinaryShares shown as beneficially owned by them. Percentage of beneficial ownership of each listed person prior to this offering is basedon 10,000,000 Ordinary Shares issued and outstanding.

 

Thenumber and percentage of Ordinary Shares beneficially owned after the offering are based on (1) [ ] Ordinary Shares outstanding, including[     ] Class A Ordinary Shares and 3,500,000 Class B Ordinary Shares; and (2) sale of [ ] Ordinary Shares,assuming no exercise of the over-allotment option, in this initial offering. Information with respect to beneficial ownership has beenfurnished by each director, officer or beneficial owner of 5% or more of our Ordinary Shares. Beneficial ownership is determined in accordancewith the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computingthe number of Ordinary Shares beneficially owned by a person listed below and the percentage ownership of such person, Ordinary Sharesunderlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days ofthe date of this prospectus are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any otherperson. As of the date of this prospectus, we have eight shareholders of record, none of whom are located in the United States. Unlessotherwise indicated in the footnotes, the address for each principal shareholder is in the care of our Company at 1666 Chenglong Road,Section 2, Building 2, 5th Floor, Longquanyi District, Chengdu, Sichuan Province, China.

 

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   Ordinary Shares Beneficially Owned
Prior to this Offering
   Ordinary Shares Beneficially Owned
Immediately after this Offering**

Directors And Executive Officers:

  Class A Share Number   Class B Share Number   Ownership Percentage (%)   Voting Power Percentage (%)   Class A Share Number  Class B Share Number   Ownership Percentage (%)   Voting Power Percentage (%) 
Jiulin Zhang (1)   1,299,298    3,500,000    47.99%   87.47%                                    
Yao-te Wang   -    -    -    -                   
Yi Wang   -    -    -    -                   
Guangming Liu   -    -    -    -                   
Edward Rhodes   -    -    -    -                   
Haosong Zhang    400,000    -    4.00%   *                   
Directors (including the director nominees) and Executive Officers as a group (six persons)                                      

PrincipalShareholders (5% or more):

        -            

 

 

               
Haibo Bai    2,265,940    -    22.66%   5.46%                  
Xuefeng Huang    1,359,762    -    13.60%   3.28%                  

 

*lessthan 1.00%.

 

**assuming no exercise of the over-allotment option in this offering.

 

  (1) Includes 50,000 Class A Ordinary Shares held by Ms. Chunling Mao, the spouse of Mr. Jiulin Zhang, and 3,500,000 Class B Ordinary Shares and 1,249,298 Class A Ordinary Shares issued to Mr. Jiulin Zhang.

 

RELATEDPARTY TRANSACTIONS

 

Inaddition to the executive officer compensation arrangements discussed in “Executive Compensation,” below we describe thetransactions during the years ended December 31, 2019 and 2020, and June 30, 2021 and 2020, to which we have been a participant,in which the amount involved in the transaction is material to our company and in which any of the following is a party: (a) enterprisesthat directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, our Company;(b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our Company that gives them significantinfluence over our Company, and close members of any such individual’s family; (d) key management personnel, that is, those personshaving authority and responsibility for planning, directing and controlling the activities of our Company, including directors and seniormanagement of companies and close members of such individuals’ families; and (e) enterprises in which a substantial interest inthe voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercisesignificant influence.

 

DueFrom Related Parties

 

Theamounts due from related parties consisted of the following at December 31, 2020 and 2019:

 

Name of related party  December 31, 2020   December 31, 2019 
Yixuan Zhang (son of Jiulin Zhang, the CEO and Chairman of the Board of Directors)  $3,702,041   $4,218,420 
Haibo Bai (a Principal Shareholder)   732,813    - 
Chunling Mao (spouse of Jiulin Zhang, the CEO and Chairman of the Board of Directors)   551,052    - 
Total  $4,985,906   $4,218,420 

 

The balances of due fromrelated parties were unsecured, bear no interest, and were due on demand. Mr. Yixuan Zhang, an employee of the Companyand son of Jiulin Zhang, borrowed funds from the Company to facilitate the establishment of certain new branch offices for Heng GuangInsurance during the two years of 2019 and 2020 and repaid all of his loans from the Company by June 30, 2021. As of June 30, 2021, therewas no outstanding balance against Yixuan Zhang from the Company.

 

Theamounts due from related parties consisted of the following at June 30, 2021 and 2020:

 

Name of related party  June 30, 2021     December 31, 2020 
Yixuan Zhang (son of the CEO and Chairman of the Board of Directors)  $-   $3,702,041 
Haibo Bai (Shareholder)   740,577    732,813 
Jiulin Zhang (CEO and Chairman of the Board of Directors)   1,007    - 
Branch Manager   1,428    - 
Chunling Mao (Shareholder, spouse of the CEO and Chairman of the Board of Directors)   -    551,052 
   $743,012   $4,985,906 

 

The balances of duefrom related parties are unsecured, bear no interest, and are due on demand. Management believes that the balances of due from relatedparties are fully collectable. Therefore, no allowance for doubtful accounts is recorded based on management’s assessment.

 

With respect to the outstandingadvances loaned to other related parties listed above, our management believes that the balances of due from such relatedparties are fully collectable. Therefore, no allowance for doubtful accounts is recorded based on management’s assessment.

 

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DESCRIPTIONOF SHARE CAPITAL

 

Wewere incorporated as an exempted company with limited liability under the Companies Act (2021 Revision) of the Cayman Islands, or the“Cayman Islands Companies Act,” on July 23, 2020. A copy of our memorandum and articles of association is filed herein asan exhibit to the registration statement, of which this prospectus is a part (and which is referred to in this section as, respectively,the “memorandum” and the “articles”). A Cayman Islands exempted company:

 

  is a company that conducts its business mainly outside the Cayman Islands;
     
  is prohibited from trading in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the exempted company carried on outside the Cayman Islands (and for this purpose can effect and conclude contracts in the Cayman Islands and exercise in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands);
     
  does not have to hold an annual general meeting;
     
  does not have to make its register of members open to inspection by shareholders of that company;
     
  may obtain an undertaking against the imposition of any future taxation;
     
  may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
     
  may register as a limited duration company; and
     
  may register as a segregated portfolio company.

 

Assumingthat we obtain the requisite shareholder approval, we will adopt our post-offering memorandum and articles of association which willbecome effective and replace our current memorandum and articles of association in its entirety immediately prior to the completion ofthis offering. We will include summaries of material provisions of our post-offering memorandum and articles of association and the CompaniesAct insofar as they relate to the material terms of our share capital.

 

OrdinaryShare

 

Allof our issued and outstanding ordinary shares are fully paid and non-assessable. Our ordinary shares are issued in registered form, andare issued when registered in our register of members. Unless the Board of Directors determine otherwise, each holder of our ordinaryshare will not receive a certificate in respect of such ordinary share. Our shareholders who are non-residents of the Cayman Islandsmay freely hold and vote their ordinary share. We may not issue shares or warrants to bearer.

 

Ourauthorized share capital is US$50,000 divided into 38,000,000 ClassA Ordinary Shares of US$0.001 par value per share and 12,000,000 Class B Ordinary Shares of US$0.001 par value per share.

 

Subjectto the provisions of the Cayman Islands Companies Act and our articles regarding redemption and purchase of the shares, the directorshave general and unconditional authority to allot (with or without confirming rights of renunciation), grant options over or otherwisedeal with any unissued shares to such persons, at such times and on such terms and conditions as they may decide. Such authority couldbe exercised by the directors to allot shares which carry rights and privileges that are preferential to the rights attaching to ordinaryshare. No share may be issued at a discount except in accordance with the provisions of the Cayman Islands Companies Act. The directorsmay refuse to accept any application for shares, and may accept any application in whole or in part, for any reason or for no reason.

 

Atthe completion of this offering assuming no exercise of the underwriters’ over-allotment option, there will be [*] Class A OrdinaryShares and 3,500,000 Class B Ordinary Shares, issued and outstanding. Shares sold in this offering will be delivered against paymentfrom the underwriters upon the closing of the offering in New York, New York, on or about   , 2021.

 

Dividends

 

Subjectto the provisions of the Cayman Islands Companies Act and any rights attaching to any class or classes of shares under and in accordancewith the Articles:

 

  (a) the directors may declare dividends or distributions out of our funds which are lawfully available for that purpose; and

 

  (b) the Company’s shareholders may, by ordinary resolution, declare dividends but no such dividend shall exceed the amount recommended by the directors.

 

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Subjectto the requirements of the Cayman Islands Companies Act regarding the application of a company’s share premium account and withthe sanction of an ordinary resolution, dividends may also be declared and paid out of our profits, realized or unrealized, or from anyreserve set aside from profits which our board of directors determine is no longer needed. Under the laws of the Cayman Islands, ourcompany may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid ifthis would result in our company being unable to pay its debts as they fall due in the ordinary course of business. The directors whenpaying dividends to shareholders may make such payment either in cash or in specie.

 

Unlessprovided by the rights attached to a share, no dividend shall bear interest.

 

UnclaimedDividend

 

Adividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remainowing by, the company.

 

VotingRights

 

Subjectto any rights or restrictions as to voting attached to any shares, each holder of Class A Ordinary Shares who is present in person orby proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative) will have one vote for each ClassA Ordinary Share which such shareholder holds and each holder of Class B Ordinary Shares who is present in person or by proxy (or, inthe case of a shareholder being a corporation, by its duly authorized representative) will have 10 votes for each Class B Ordinary Sharewhich such shareholder holds. In addition, all shareholders holding shares of a particular class are entitled to vote at a meeting ofthe holders of that class of shares. Votes may be given either personally or by proxy.

 

Conversionof Class B Ordinary Shares

 

ClassB Ordinary Shares may be converted at the request of the shareholder into an equal number of Class A Ordinary Shares at any time. ClassA Ordinary Shares are not convertible into Class B Ordinary Shares. Upon any sale, transfer, assignment or disposition of any Class BOrdinary Share by Jiulin Zhang to any person, or upon a change of ultimate beneficial ownership of any Class B Ordinary Share, such ClassB Ordinary Share shall entitle such transferee, purchaser or designee to ten (10) votes per Class B Ordinary Share on all matters subjectto vote at general meetings of the Company.

 

Variationof Rights of Shares

 

Wheneverour capital is divided into different classes of shares, the rights attaching to any class of share (unless otherwise provided by theterms of issue of the shares of that class) may be varied either with the consent in writing of the holders of not less than two-thirdsof the issued shares of that class, or with the sanction of a resolution passed by a majority of not less than two-thirds of the holdersof shares of the class present in person or by proxy at a separate general meeting of the holders of shares of that class.

 

Unlessthe terms on which a class of shares was issued state otherwise, the rights conferred on the shareholder holding shares of any classshall not be deemed to be varied by the creation or issue of further shares ranking pari passu with the existing shares of that classor subsequent to them or the redemption or purchase of any shares of any class by our company. The rights conferred upon the holdersof the shares of any class issued shall not be deemed to be varied by the creation or issue of shares with preferred or other rightsincluding, without limitation, the creation of shares with enhanced or weighted voting rights.

 

Alterationof Share Capital

 

Subjectto the Cayman Islands Companies Act, our shareholders may, by ordinary resolution:

 

  (a) increase our share capital by new shares of the amount fixed by that ordinary resolution and with the attached rights, priorities and privileges set out in that ordinary resolution;

 

  (b) consolidate and divide all or any of our share capital into shares of larger amount than our existing shares;

 

  (c) convert all or any of our paid up shares into stock, and reconvert that stock into paid up shares of any denomination;

 

  (d) sub-divide our shares or any of them into shares of an amount smaller than that fixed, so, however, that in the sub-division, the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; and

 

  (e) cancel shares which, at the date of the passing of that ordinary resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so cancelled or, in the case of shares without nominal par value, diminish the number of shares into which our capital is divided.

 

Subjectto the Cayman Islands Companies Act and to any rights for the time being conferred on the shareholders holding a particular class ofshares, our shareholders may, by special resolution, reduce its share capital in any way.

 

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Callson Shares and Forfeiture

 

Subjectto the terms of allotment, the directors may make calls on the shareholders in respect of any monies unpaid on their shares includingany premium and each shareholder shall (subject to receiving at least 14 clear days’ notice specifying when and where payment isto be made), pay to us the amount called on his shares. Shareholders registered as the joint holders of a share shall be jointly andseverally liable to pay all calls in respect of the share. If a call remains unpaid after it has become due and payable the person fromwhom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid at the ratefixed by the terms of allotment of the share or in the notice of the call or if no rate is fixed, at the rate of 6 percent per annum.The directors may, at their discretion, waive payment of the interest wholly or in part.

 

Wehave a first and paramount lien on all shares (whether fully paid up or not) registered in the name of a shareholder (whether solelyor jointly with others). The lien is for all monies payable to us by the shareholder or the shareholder’s estate:

 

  (a) either alone or jointly with any other person, whether or not that other person is a shareholder; and

 

  (b) whether or not those monies are presently payable.

 

Atany time the directors may declare any share to be wholly or partly exempt from the lien on shares provisions of the articles.

 

Wemay sell, in such manner as the directors may determine, any share on which the sum in respect of which the lien exists is presentlypayable, if due notice that such sum is payable has been given (as prescribed by the articles) and, within 14 days of the date on whichthe notice is deemed to be given under the articles, such notice has not been complied with.

 

Surrenderof Shares

 

Thedirectors may accept the surrender for no consideration of any fully paid share.

 

SharePremium Account

 

Thedirectors shall establish a share premium account and shall carry the credit of such account from time to time to a sum equal to theamount or value of the premium paid on the issue of any share or capital contributed or such other amounts required by the Cayman CompaniesAct.

 

Redemptionand Purchase of Own Shares

 

Subjectto the Cayman Companies Act and any rights for the time being conferred on the shareholders holding a particular class of shares, wemay by our directors:

 

  (a) issue shares that are to be redeemed or liable to be redeemed, at our option or the shareholder holding those redeemable shares, on the terms and in the manner its directors determine before the issue of those shares;
  (b) with the consent by special resolution of the shareholders holding shares of a particular class, vary the rights attaching to that class of shares so as to provide that those shares are to be redeemed or are liable to be redeemed at our option on the terms and in the manner which the directors determine at the time of such variation; and
  (c) purchase all or any of our own shares of any class including any redeemable shares on the terms and in the manner which the directors determine at the time of such purchase.

 

Wemay make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Cayman Companies Act, includingout of any combination of capital, our profits and the proceeds of a fresh issue of shares for the purpose of repurchase or redemption.

 

Whenmaking a payment in respect of the redemption or purchase of shares, the directors may make the payment in cash or in specie (or partlyin one and partly in the other) if so authorized by the terms of the allotment of those shares or by the terms applying to those shares,or otherwise by agreement with the shareholder holding those shares.

 

Redemptionand Purchase of Own Shares

 

Subjectto the Cayman Companies Act and any rights for the time being conferred on the shareholders holding a particular class of shares, wemay by action of our directors:

 

  (a) issue shares that are to be redeemed or liable to be redeemed, at our option or the shareholder holding those redeemable shares, on the terms and in the manner our directors determine before the issue of those shares;
     
  (b) with the consent by special resolution of the shareholders holding shares of a particular class, vary the rights attaching to that class of shares so as to provide that those shares are to be redeemed or are liable to be redeemed at our option on the terms and in the manner which the directors determine at the time of such variation; and
     
  (c) purchase all or any of our own shares of any class including any redeemable shares on the terms and in the manner which the directors determine at the time of such purchase.

 

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Wemay make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Cayman Companies Act, includingout of any combination of capital, our profits and the proceeds of a fresh issue of shares.

 

Whenmaking a payment in respect of the redemption or purchase of shares, the directors may make the payment in cash or in specie (or partlyin one and partly in the other) if so authorized by the terms of the allotment of those shares or by the terms applying to those shares,or otherwise by agreement with the shareholder holding those shares.

 

Transferof Shares

 

Providedthat a transfer of Ordinary Shares complies with applicable rules of Nasdaq Capital Market, a shareholder may transfer Ordinary Sharesto another person by completing an instrument of transfer in a common form or in a form prescribed by Nasdaq or in any other form approvedby the directors, executed:

 

  (a) where the Ordinary Shares are fully paid, by or on behalf of that shareholder; and
  (b) where the Ordinary Shares are partly paid, by or on behalf of that shareholder and the transferee.

 

Thetransferor shall be deemed to remain the holder of an Ordinary Share until the name of the transferee is entered into the register ofmembers of the Company.

 

Wherethe Ordinary Shares in question are not listed on or subject to the rules of Nasdaq Capital Market, our board of directors may, in itsabsolute discretion, decline to register any transfer of any Ordinary Share that has not been fully paid up or is subject to a companylien. Our board of directors may also decline to register any transfer of such Ordinary Share unless:

 

  (a) a fee of such maximum sum as Nasdaq may determine to be payable, or such lesser sum as the directors may from time to time require, is paid to the Company in respect thereof;
  (b) a fee not exceeding one dollar is paid to the Company in respect thereof; and
  (c) the instrument of transfer is accompanied by the certificate of the Shares to which it relates, and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer.

 

four directors refuse to register a transfer, they are required, within one month after the date on which the instrument of transfer waslodged, to send to each of the transferor and the transferee notice of such refusal.

 

Theregistration of transfers may, on 14 clear calendar days’ notice being given by advertisement in such one or more newspapers orby electronic means, be suspended and our register of members closed at such times and for such periods as our board of directors mayfrom time to time determine. However, the registration of transfers may not be suspended, and the register may not be closed, for morethan 30 calendar days in any year.

 

Inspectionof Books And Records

 

Holdersof our Ordinary Shares will have no general right under the Cayman Companies Act to inspect or obtain copies of our register of membersor our corporate records.

 

GeneralMeetings

 

Asa Cayman Islands exempted company, we are not obligated by the Cayman Companies Act to call shareholders’ annual general meetings;accordingly, we may, but shall not be obliged to, in each year hold a general meeting as an annual general meeting. Any annual generalmeeting held shall be held at such time and place as may be determined by our board of directors. All general meetings other than annualgeneral meetings shall be called extraordinary general meetings.

 

Thedirectors may convene general meetings whenever they think fit. General meetings shall also be convened on the written requisition ofone or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than ten percent ofthe rights to vote at such general meeting in accordance with the notice provisions in the articles, specifying the purpose of the meetingand signed by each of the shareholders making the requisition. If the directors do not convene such meeting for a date not later than21 clear days’ after the date of receipt of the written requisition, those shareholders who requested the meeting may convene thegeneral meeting themselves within three months after the end of such period of 21 clear days in which case reasonable expenses incurredby them as a result of the directors failing to convene a meeting shall be reimbursed by us.

 

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Atleast 14 days’ notice of an extraordinary general meeting and 21 days’ notice of an annual general meeting shall be givento shareholders entitled to attend and vote at such meeting. The notice shall specify the place, the day and the hour of the meetingand the general nature of that business. In addition, if a resolution is proposed as a special resolution, the text of that resolutionshall be given to all shareholders. Notice of every general meeting shall also be given to the directors and our auditors.

 

Subjectto the Cayman Companies Act and with the consent of the shareholders who, individually or collectively, hold at least 90 percent of thevoting rights of all those who have a right to vote at a general meeting, a general meeting may be convened on shorter notice.

 

Aquorum shall consist of the presence (whether in person or represented by proxy) of one or more shareholders holding shares that representnot less than one-third of the outstanding shares carrying the right to vote at such general meeting.

 

If,within 15 minutes from the time appointed for the general meeting, or at any time during the meeting, a quorum is not present, the meeting,if convened upon the requisition of shareholders, shall be cancelled. In any other case it shall stand adjourned to the same time andplace seven days or to such other time or place as is determined by the directors.

 

Thechairman may, with the consent of a meeting at which a quorum is present, adjourn the meeting. When a meeting is adjourned for sevendays or more, notice of the adjourned meeting shall be given in accordance with the articles.

 

Atany general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before, or on,the declaration of the result of the show of hands) demanded by the chairman of the meeting or by at least two shareholders having theright to vote on the resolutions or one or more shareholders present who together hold not less than ten percent of the voting rightsof all those who are entitled to vote on the resolution. Unless a poll is so demanded, a declaration by the chairman as to the resultof a resolution and an entry to that effect in the minutes of the meeting, shall be conclusive evidence of the outcome of a show of hands,without proof of the number or proportion of the votes recorded in favor of, or against, that resolution.

 

Ifa poll is duly demanded it shall be taken in such manner as the chairman directs and the result of the poll shall be deemed to be theresolution of the meeting at which the poll was demanded.

 

Inthe case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takesplace or at which the poll is demanded, shall not be entitled to a second or casting vote.

 

Directors

 

Wemay by ordinary resolution, from time to time, fix the maximum and minimum number of directors to be appointed. Under the Articles, weare required to have a minimum of one director and the maximum number of Directors shall be unlimited.

 

Adirector may be appointed by ordinary resolution or by the directors. Any appointment may be to fill a vacancy or as an additional director.

 

Unlessthe remuneration of the directors is determined by the shareholders by ordinary resolution, the directors shall be entitled to such remunerationas the directors may determine.

 

Theshareholding qualification for directors may be fixed by our shareholders by ordinary resolution and unless and until so fixed no sharequalification shall be required.

 

Unlessremoved or re-appointed, each director shall be appointed for a term expiring at the next-following annual general meeting, if one isheld. At any annual general meeting held, our directors will be elected by an ordinary resolution of our shareholders. At each annualgeneral meeting, each director so elected shall hold office for a one-year term and until the election of their respective successorsin office or removed.

 

Adirector may be removed by ordinary resolution.

 

Adirector may at any time resign or retire from office by giving us notice in writing. Unless the notice specifies a different date, thedirector shall be deemed to have resigned on the date that the notice is delivered to us.

 

Subjectto the provisions of the articles, the office of a director may be terminated forthwith if:

 

  (a) he is prohibited by the law of the Cayman Islands from acting as a director;

 

  (b) he is made bankrupt or makes an arrangement or composition with his creditors generally;

 

  (c) he resigns his office by notice to us;

 

  (d) he only held office as a director for a fixed term and such term expires;

 

  (e) in the opinion of a registered medical practitioner by whom he is being treated he becomes physically or mentally incapable of acting as a director;

 

  (f) he is given notice by the majority of the other directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such director);

 

  (g) he is made subject to any law relating to mental health or incompetence, whether by court order or otherwise; or

 

  (h) without the consent of the other directors, he is absent from meetings of directors for continuous period of six months.

 

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Eachof the compensation committee and the nominating and corporate governance committee shall consist of at least two independent directorswithin the meaning of Section 5605(a)(2) of the NASDAQ Listing Rules. The audit committee shall consist of at least three directors,all of whom shall be independent within the meaning of Section 5605(a)(2) of the NASDAQ Listing Rules and will meet the criteria forindependence set forth in Rule 10A-3 of the Exchange Act.

 

Powersand Duties of Directors

 

Subjectto the provisions of the Cayman Companies Act and our memorandum and articles of association, our business shall be managed by the directors,who may exercise all our powers. No prior act of the directors shall be invalidated by any subsequent alteration of our memorandum orarticles of association. To the extent allowed by the Cayman Companies Act, however, shareholders may by special resolution validateany prior or future act of the directors which would otherwise be in breach of their duties.

 

Thedirectors may delegate any of their powers to any committee consisting of one or more persons who need not be shareholders and may includenon-directors so long as the majority of those persons are directors; any committee so formed shall in the exercise of the powers sodelegated conform to any regulations that may be imposed on it by the directors. Upon the initial closing of this offering, our boardof directors will have established an audit committee, compensation committee, and nomination and corporate governance committee.

 

Theboard of directors may establish any local or divisional board of directors or agency and delegate to it its powers and authorities (withpower to sub-delegate) for managing any of our affairs whether in the Cayman Islands or elsewhere and may appoint any persons to be membersof a local or divisional board of directors, or to be managers or agents, and may fix their remuneration.

 

Thedirectors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, eithergenerally or in respect of any specific matter, to be our agent with or without authority for that person to delegate all or any of thatperson’s powers.

 

Thedirectors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, whethernominated directly or indirectly by the directors, to be our attorney or our authorized signatory and for such period and subject tosuch conditions as they may think fit. The powers, authorities and discretions, however, must not exceed those vested in, or exercisable,by the directors under the articles.

 

Theboard of directors may remove any person so appointed and may revoke or vary the delegation.

 

Thedirectors may exercise all of our powers to borrow money and to mortgage or charge its undertaking, property and assets both presentand future and uncalled capital or any part thereof, to issue debentures and other securities whether outright or as collateral securityfor any debt, liability or obligation of ours or our parent undertaking (if any) or any subsidiary undertaking of us or of any thirdparty.

 

Adirector shall not, as a director, vote in respect of any contract, transaction, arrangement or proposal in which he has an interestwhich (together with any interest of any person connected with him) is a material interest (otherwise than by virtue of his interests,direct or indirect, in shares or debentures or other securities of, or otherwise in or through, us) and if he shall do so his vote shallnot be counted, nor in relation thereto shall he be counted in the quorum present at the meeting, but (in the absence of some other materialinterest than is mentioned below) none of these prohibitions shall apply to:

 

  (a) the giving of any security, guarantee or indemnity in respect of:

 

  (i) money lent or obligations incurred by him or by any other person for our benefit or any of our subsidiaries; or

 

  (ii) a debt or obligation of ours or any of our subsidiaries for which the director himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security;

 

  (b) where we or any of our subsidiaries is offering securities in which offer the director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the director is to or may participate;

 

  (c) any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with him) does not to his knowledge hold an interest representing one percent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to shareholders of the relevant body corporate;

 

  (d) any act or thing done or to be done in respect of any arrangement for the benefit of the employees of us or any of our subsidiaries under which he is not accorded as a director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; or

 

  (e) any matter connected with the purchase or maintenance for any director of insurance against any liability or (to the extent permitted by the Cayman Companies Act) indemnities in favor of directors, the funding of expenditure by one or more directors in defending proceedings against him or them or the doing of anything to enable such director or directors to avoid incurring such expenditure.

 

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Adirector may, as a director, vote (and be counted in the quorum) in respect of any contract, transaction, arrangement or proposal inwhich he has an interest which is not a material interest or as described above.

 

Capitalizationof Profits

 

Thedirectors may resolve to capitalize:

 

  (a) any part of our profits not required for paying any preferential dividend (whether or not those profits are available for distribution); or

 

  (b) any sum standing to the credit of our share premium account or capital redemption reserve, if any.

 

Theamount resolved to be capitalized must be appropriated to the shareholders who would have been entitled to it had it been distributedby way of dividend and in the same proportions.

 

LiquidationRights

 

Ifwe are wound up, the shareholders may, subject to the articles and any other sanction required by the Cayman Companies Act, pass a specialresolution allowing the liquidator to do either or both of the following:

 

  (a) to divide in specie among the shareholders the whole or any part of our assets and, for that purpose, to value any assets and to determine how the division shall be carried out as between the shareholders or different classes of shareholders; and

 

  (b) to vest the whole or any part of the assets in trustees for the benefit of shareholders and those liable to contribute to the winding up.

 

Thedirectors have the authority to present a petition for our winding up to the Grand Court of the Cayman Islands on our behalf withoutthe sanction of a resolution passed at a general meeting.

 

Registerof Members

 

Underthe Cayman Companies Act, we must keep a register of members and there should be entered therein:

 

the names and addresses of the members of the company, a statement of the shares held by each member, which:

  distinguishes each share by its number (so long as the share has a number);

  confirms the amount paid, or agreed to be considered as paid, on the shares of each member;

  confirms the number and category of shares held by each member; and

  confirms whether each relevant category of shares held by a member carries voting rights under the Articles, and if so, whether such voting rights are conditional;

the date on which the name of any person was entered on the register as a member; and

the date on which any person ceased to be a member.

 

Forthese purposes, “voting rights” means rights conferred on shareholders, including the right to appoint or remove directors,in respect of their shares to vote at general meetings of the company on all or substantially all matters. A voting right is conditionalwhere the voting right arises only in certain circumstances.

 

Underthe Cayman Companies Act, the register of members of our company is prima facie evidence of the matters set out therein (that is, theregister of members will raise a presumption of fact on the matters referred to above unless rebutted) and a shareholder registered inthe register of members is deemed as a matter of the Cayman Companies Act to have legal title to the shares as set against its name inthe register of members. Upon the completion of this offering, the register of members will be immediately updated to record and giveeffect to the issuance of shares by us to the custodian or its nominee. Once our register of members has been updated, the shareholdersrecorded in the register of members will be deemed to have legal title to the shares set against their name.

 

Ifthe name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delayin entering on the register the fact of any person having ceased to be a shareholder of our company, the person or shareholder aggrieved(or any shareholder of our company or our company itself) may apply to the Grand Court of the Cayman Islands for an order that the registerbe rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order forthe rectification of the register.

 

Differencesin Corporate Law

 

TheCayman Companies Act is derived, to a large extent, from the older Companies Acts of England and Wales but does not follow recent UnitedKingdom statutory enactments, and accordingly there are significant differences between the Cayman Companies Act and the current CompaniesAct of England. In addition, the Cayman Companies Act differs from laws applicable to United States corporations and their shareholders.Set forth below is a summary of certain significant differences between the provisions of the Cayman Companies Act applicable to us andthe comparable laws applicable to companies incorporated in the State of Delaware in the United States.

 

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MergersAnd Similar Arrangements

 

TheCayman Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-CaymanIslands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vestingof their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a “consolidation”means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property andliabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituentcompany must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholdersof each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articlesof association. The plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together witha declaration as to the solvency of the consolidated or surviving company, a declaration as to the assets and liabilities of each constituentcompany and an undertaking that a copy of the certificate of merger or consolidation will be given to the shareholders and creditorsof each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Courtapproval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

 

Amerger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholdersof that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless thatmember agrees otherwise. For this purpose, a subsidiary is a company of which whose issued shares that together represent at least 90%of the issued shares entitled to votes at a general meeting are owned by the parent company.

 

Theconsent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waivedby a court in the Cayman Islands.

 

Exceptin certain limited circumstances, a shareholder of a Cayman Islands constituent company who dissents from the merger or consolidationis entitled to payment of the fair value of his or her shares upon dissenting from to a merger or consolidation, provide the dissentingshareholder complies strictly with the procedures set out in the Cayman Companies Act. The exercise of such dissenter rights will precludethe exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares,except for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

 

Inaddition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement,provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangementis to be made, and who must, in addition, represent three-fourths in value of each such class of shareholders or creditors, as the casemay be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The conveningof the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholderor creditor has the right to express to the court the view that the transaction ought not to be approved, the Grand Court will usuallyconsider that the affected stakeholders (shareholders and/or creditors affected by the scheme) of the company are the best judges oftheir own commercial interests and will typically sanction the scheme provided that the prescribed procedures have been followed andthe requisite statutory majorities have been achieved at the scheme meetings.

 

TheCayman Court will typically consider the following factors in exercising its discretion as to whether to sanction the scheme:

 

  (1) the statutory provisions as to the required majority vote have been met;

 

  (2) the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class; and

 

  (3) the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest.

 

Whena takeover offer is made and accepted by holders of 90% of the shares affected within four months the offeror may, within a two-monthperiod commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares onthe terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the caseof an offer which has been so approved, unless there is evidence of fraud, bad faith or collusion.

 

Ifan arrangement and reconstruction is thus approved, or if a takeover offer is made and accepted, a dissenting shareholder would haveno rights comparable to appraisal rights, which would otherwise generally be available to dissenting shareholders of Delaware corporations,providing rights to receive payment in cash for the judicially determined value of the shares.

 

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Shareholders’Suits

 

Inprinciple, we will normally be the proper plaintiff to sue for a wrong done to us as a company and as a general rule, a derivative actionmay not be brought by a minority shareholder. However, it is possible that a non-controlling shareholder may be permitted to commenceand maintain a class action against and/or derivative actions in the name of the company to challenge:

 

  (a) an act which is illegal or ultra vires with respect to the company and is therefore incapable of ratification by the majority shareholders;

 

  (b) an act which constitutes an infringement of individual rights of shareholders, including, but not limited to the right to vote and pre-emption rights;

 

  (c) an act which, although not ultra vires, requires authorization by a qualified (or special) majority (that is, more than a simple majority) which majority has not been obtained; and

 

  (d) an act which constitutes a “fraud on the minority” where the wrongdoers are themselves in control of the company.

 

Indemnificationof Directors And Executive Officers And Limitation of Liability

 

TheCayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officersand directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, suchas to provide indemnification against civil fraud or the consequences of committing a crime. Our articles of association provide to theextent permitted by law, we shall indemnify each existing or former secretary, director (including alternate director), and any of ourother officers (including an investment adviser or an administrator or liquidator) and their personal representatives against:

 

  (a) all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by the existing or former director (including alternate director), secretary or officer in or about the conduct of our business or affairs or in the execution or discharge of the existing or former director (including alternate director), secretary’s or officer’s duties, powers, authorities or discretions; and

 

  (b) without limitation to paragraph (a) above, all costs, expenses, losses or liabilities incurred by the existing or former director (including alternate director), secretary or officer in defending (whether successfully or otherwise) any civil, criminal, administrative or investigative proceedings (whether threatened, pending or completed) concerning us or our affairs in any court or tribunal, whether in the Cayman Islands or elsewhere.

 

Nosuch existing or former director (including alternate director), secretary or officer, however, shall be indemnified in respect of anymatter arising out of his own dishonesty.

 

Tothe extent permitted by law, we may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for anylegal costs incurred by an existing or former director (including alternate director), secretary or any of our officers in respect ofany matter identified in above on condition that the director (including alternate director), secretary or officer must repay the amountpaid by us to the extent that it is ultimately found not liable to indemnify the director (including alternate director), the secretaryor that officer for those legal costs.

 

Thisstandard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition,we intend to enter into indemnification agreements with our directors and executive officers that will provide such persons with additionalindemnification beyond that provided in our articles of association.

 

Anti-TakeoverProvisions in Our Articles

 

Someprovisions of our articles may discourage, delay or prevent a change in control of our company or management that shareholders may considerfavorable, including provisions that authorize our board of directors to issue shares at such times and on such terms and conditionsas the board of directors may decide without any further vote or action by our shareholders.

 

Underthe Cayman Companies Act, our directors may only exercise the rights and powers granted to them under our memorandum and articles ofassociation, as amended and restated from time to time, for what they believe in good faith to be in the best interests of our companyand for a proper purpose.

 

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Directors’Fiduciary Duties

 

UnderDelaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This dutyhas two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the carethat an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, anddisclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requiresthat a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not usehis or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the bestinterests of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholderand not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis,in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumptionmay be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction bya director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

 

Asa matter of Cayman Islands law, a director owes three types of duties to the company: (i) statutory duties, (ii) fiduciary duties, and(iii) common law duties. The Cayman Companies Act imposes a number of statutory duties on a director. A Cayman Islands director’sfiduciary duties are not codified, however the courts of the Cayman Islands have held that a director owes the following fiduciary duties(a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powersfor the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future and (d) a duty to avoid conflictsof interest and of duty. The common law duties owed by a director are those to act with skill, and care and diligence that may reasonablybe expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, toact with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enablesthem to meet a higher standard than a director without those skills. It was previously considered that a director need not exhibit inthe performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience.However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and theseauthorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliancewith our memorandum and amended articles of association, as amended and restated from time to time. We have the right to seek damagesif a duty owed by any of our directors is breached.

 

Understatute, our directors are subject to a number of statutory obligations, which provisions prescribe penalties for breach. The most seriousof these involves dishonesty or the authorizing of illegal payments and carry both criminal and civil penalties. By way of example, materialstatutory provisions attracting penalties include where (1) the director willfully authorizes or permits any distribution or dividendin contravention of the Cayman Companies Act; (ii) where the director knowingly or willfully authorizes or permits any payment out ofcapital by a company for a redemption or purchase of its own shares when the company is insolvent; (iii) where there has been a failureto maintain the books of account, minutes of meetings, or the company’s statutory registers of members, beneficial ownership, mortgagesand charges, or directors (which includes alternate directors); (iv) where there has been a failure to provide information or accessto documents to specified persons as required by the Cayman Companies Act; and (v) where the director makes or authorizes a false annualreturn to the Registrar of Companies.

 

ShareholderProposals

 

Underthe Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, providedit complies with the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholdersan express right to put any proposal before the annual meeting of shareholders, but in keeping with common law, Delaware corporationsgenerally afford shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions inthe certificate of incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorizedto do so in the governing documents, but shareholders may be precluded from calling special meetings.

 

TheCayman Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholderswith any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association.Our amended and restated memorandum and articles of association provide that general meetings shall be convened on the written requisitionof one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than 10 percent ofthe rights to vote at such general meeting in accordance with the notice provisions in the articles, specifying the purpose of the meetingand signed by each of the shareholders making the requisition. If the directors do not convene such meeting for a date not later thantwenty-one clear days’ after the date of receipt of the written requisition, those shareholders who requested the meeting may convenethe general meeting themselves within three months after the end of such period of twenty-one clear days in which case reasonable expensesincurred by them as a result of the directors failing to convene a meeting shall be reimbursed by us. Our articles provide no other rightto put any proposals before annual general meetings or extraordinary general meetings. As a Cayman Islands exempted company, we are notobligated by law to call shareholders’ annual general meetings.

 

CumulativeVoting

 

Underthe Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificateof incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholderson a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a singledirector, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relationto cumulative voting under the Cayman Companies Act, but our amended and restated memorandum and articles of association do not providefor cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholdersof a Delaware corporation.

 

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Removalof Directors

 

Underthe Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approvalof a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.

 

Subjectto the provisions of our articles of association (which include the removal of a director by ordinary resolution), the office of a directormay be terminated forthwith if (a) he is prohibited by the laws of the Cayman Islands from acting as a director, (b) he is made bankruptor makes an arrangement or composition with his creditors generally, (c) he resigns his office by notice to us, (d) he only held officeas a director for a fixed term and such term expires, (e) in the opinion of a registered medical practitioner by whom he is being treatedhe becomes physically or mentally incapable of acting as a director, (f) he is given notice by the majority of the other directors (notbeing less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to theprovision of the services of such director), (g) he is made subject to any law relating to mental health or incompetence, whether bycourt order or otherwise, or (h) without the consent of the other directors, he is absent from meetings of directors for continuous periodof six months.

 

Transactionswith Interested Shareholders

 

TheDelaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless thecorporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation or bylaws thatis approved by its shareholders, it is prohibited from engaging in certain business combinations with an “interested shareholder”for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a personor a group who or which owns or owned 15% or more of the target’s outstanding voting stock or who or which is an affiliate or associateof the corporation and owned 15% or more of the corporation’s outstanding voting stock within the past three years. This has theeffect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not betreated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interestedshareholder, the board of directors approves either the business combination or the transaction which resulted in the person becomingan interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisitiontransaction with the target’s board of directors.

 

TheCayman Companies Act has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delawarebusiness combination statute. However, although the Cayman Companies Act does not regulate transactions between a company and its significantshareholders, the directors of the company are required to comply with fiduciary duties which they owe to the company under Cayman Islandslaw, including the duty to ensure that, in their opinion, such transactions must be entered into bona fide in the best interests of thecompany and for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.

 

Dissolution;Winding Up

 

Underthe Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved byshareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directorsmay it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation toinclude in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the boardof directors.

 

Underthe Cayman Companies Act and our articles of association, the Company may be wound up by a special resolution of our shareholders, orif the winding up is initiated by our board of directors, by either a special resolution of our members or, if our company is unableto pay its debts as they fall due, by an ordinary resolution of our members. In addition, a company may be wound up by an order of thecourts of the Cayman Islands. The court has authority to order winding up in a number of specified circumstances including where it is,in the opinion of the court, just and equitable to do so.

 

Variationof Rights of Shares

 

Underthe Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstandingshares of such class, unless the certificate of incorporation provides otherwise. Under the Cayman Companies Act and our amended andrestated memorandum and articles of association, if our share capital is divided into more than one class of shares, the rights attachingto any class of share (unless otherwise provided by the terms of issue of the shares of that class) may be varied either with the consentin writing of the holders of not less than two-thirds of the issued shares of that class, or with the sanction of a resolution passedby a majority of not less than two-thirds of the holders of shares of the class present in person or by proxy at a separate general meetingof the holders of shares of that class.

 

Amendmentof Governing Documents

 

Underthe Delaware General Corporation Law, a corporation’s certificate of incorporation may be amended only if adopted and declaredadvisable by the board of directors and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amendedwith the approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation,also be amended by the board of directors. Under the Cayman Companies Act and our amended and restated memorandum and articles of association,our memorandum and articles of association may only be amended by special resolution of our shareholders/ members.

 

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Anti-MoneyLaundering—Cayman Islands

 

Inorder to comply with legislation and regulations aimed at the prevention of money laundering and counter terrorist financing, we maybe required to adopt and maintain anti-money laundering and counter terrorist financing policies and procedures, and may require subscribersto provide evidence to satisfactorily identify and verify their identity and source of funds. Such customer due diligence can be simplifiedor enhanced depending on the risk rating given to the subscriber. Where permitted, and subject to certain conditions, we may also delegatethe maintenance of our anti-money laundering and counter terrorist financing policies and procedures (including the acquisition of duediligence information) to a suitable third persons based in Cayman Islands approved equivalent jurisdictions.

 

Wereserve the right to request such information as is necessary to identify and verify the identity of a subscriber. In the event of delayor failure on the part of the subscriber in producing any information and/or documentation required for identification or verificationpurposes, we may refuse to accept the application, in which case any funds received will be returned without interest to the accountfrom which they were originally debited.

 

Wealso reserve the right to refuse to make any redemption payment to a shareholder if our directors or officers suspect or are advisedthat the payment of redemption proceeds to such shareholder might result in a breach of applicable anti-money laundering, counter terroristfinancing or other applicable laws, regulations or guidance by any person in any equivalent jurisdiction, or if such refusal is considerednecessary or appropriate to ensure our compliance with any such laws or regulations in any applicable jurisdiction.

 

Ifany person resident in the Cayman Islands knows or suspects or has reason for knowing or suspecting that another person is engaged incriminal conduct, money laundering or proliferation financing or is involved with terrorism or terrorist property and the informationfor that knowledge or suspicion came to their attention in the course of their business in the regulated sector, or other trade, profession,business or employment, the person will be required to report such knowledge or suspicion to (i) a nominated officer (appointed in accordancewith the Proceeds of Crime Act (Revised) of the Cayman Islands) or the Financial Reporting Authority of the Cayman Islands, pursuantto the Proceeds of Crime Act (Revised), if the disclosure relates to criminal conduct or money laundering or (ii) to a police constableor a nominated officer (pursuant to the Terrorism Act (Revised) of the Cayman Islands) or the Financial Reporting Authority, pursuantto the Terrorism Act (Revised), if the disclosure relates to involvement with terrorism or terrorist financing and terrorist property.Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by anyenactment or otherwise.

 

Legislationof The Cayman Islands

 

TheCayman Islands, together with several other non-European Union jurisdictions, have recently introduced legislation aimed at addressingconcerns raised by the Council of the European Union as to offshore structures engaged in certain activities which attract profits withoutreal economic activity. With effect from January 1, 2019, the International Tax Co-operation (Economic Substance) Act, 2018 (the “SubstanceLaw”) came into force in the Cayman Islands introducing certain economic substance requirements for certain in-scope Cayman Islands“relevant entities” which are engaged in certain “relevant activities” and receives “relevant income”which in the case of “relevant entities” incorporated before January 1, 2019 must comply with the economic substance requirementsunder the Substance Law commencing July 1, 2019, onwards. The Tax Information Authority of the Cayman Islands has published two guidancenotes in relation to the Substance Law, and it is anticipated that the law may be subject to further changes and interpretations. TheCompany itself falls within the definition of a “relevant entity” although as of the date of this prospectus, it is not entirelyclear that the Company would remain in or out of scope of the legislation or else be subject to reduced substance requirements. As thelegislation is new and remains subject to further clarification and interpretation it is not currently possible to ascertain the preciseimpact of these legislative changes on the Company.

 

DataProtection in the Cayman Islands – Privacy Notice

 

Thisprivacy notice explains the manner in which the Company collects, processes and maintains personal data about investors of the Companypursuant to the Data Protection Act, 2017 of the Cayman Islands, as amended from time to time and any regulations, codes of practiceor orders promulgated pursuant thereto (DPA).

 

TheCompany is committed to processing personal data in accordance with the DPA. In its use of personal data, the Company will be characterizedunder the DPA as a ‘data controller’, whilst certain of the Company’s service providers, affiliates and delegates mayact as ‘data processors’ under the DPA. These service providers may process personal information for their own lawful purposesin connection with services provided to the Company.

 

Byvirtue of making an investment in the Company, the Company and certain of the Company’s service providers may collect, record,store, transfer and otherwise process personal data by which individuals may be directly or indirectly identified.

 

Yourpersonal data will be processed fairly and for lawful purposes, including (a) where the processing is necessary for the Company to performa contract to which you are a party or for taking pre-contractual steps at your request (b) where the processing is necessary for compliancewith any legal, tax or regulatory obligation to which the Company is subject or (c) where the processing is for the purposes of legitimateinterests pursued by the Company or by a service provider to whom the data are disclosed. As a data controller, we will only use yourpersonal data for the purposes for which we collected it. If we need to use your personal data for an unrelated purpose, we will contactyou.

 

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Weanticipate that we will share your personal data with the Company’s service providers for the purposes set out in this privacynotice. We may also share relevant personal data where it is lawful to do so and necessary to comply with our contractual obligationsor your instructions or where it is necessary or desirable to do so in connection with any regulatory reporting obligations. In exceptionalcircumstances, we will share your personal data with regulatory, prosecuting and other governmental agencies or departments, and partiesto litigation (whether pending or threatened), in any country or territory including to any other person where we have a public or legalduty to do so (e.g. to assist with detecting and preventing fraud, tax evasion and financial crime or compliance with a court order).

 

Yourpersonal data shall not be held by the Company for longer than necessary with regard to the purposes of the data processing.

 

Wewill not sell your personal data. Any transfer of personal data outside of the Cayman Islands shall be in accordance with the requirementsof the DPA. Where necessary, we will ensure that separate and appropriate legal agreements are put in place with the recipient of thatdata.

 

TheCompany will only transfer personal data in accordance with the requirements of the DPA, and will apply appropriate technical and organizationalinformation security measures designed to protect against unauthorized or unlawful processing of the personal data and against the accidentalloss, destruction or damage to the personal data.

 

Ifyou are a natural person, this will affect you directly. If you are a corporate investor (including, for these purposes, legal arrangementssuch as trusts or exempted limited partnerships) that provides us with personal data on individuals connected to you for any reason inrelation to your investment into the Company, this will be relevant for those individuals and you should inform such individuals of thecontent.

 

Youhave certain rights under the DPA, including (a) the right to be informed as to how we collect and use your personal data (and this privacynotice fulfils the Company’s obligation in this respect) (b) the right to obtain a copy of your personal data (c) the right torequire us to stop direct marketing (d) the right to have inaccurate or incomplete personal data corrected (e) the right to withdrawyour consent and require us to stop processing or restrict the processing, or not begin the processing of your personal data (f) theright to be notified of a data breach (unless the breach is unlikely to be prejudicial) (g) the right to obtain information as to anycountries or territories outside the Cayman Islands to which we, whether directly or indirectly, transfer, intend to transfer or wishto transfer your personal data, general measures we take to ensure the security of personal data and any information available to usas to the source of your personal data (h) the right to complain to the Office of the Ombudsman of the Cayman Islands and (i) the rightto require us to delete your personal data in some limited circumstances.

 

Ifyou consider that your personal data has not been handled correctly, or you are not satisfied with the Company’s responses to anyrequests you have made regarding the use of your personal data, you have the right to complain to the Cayman Islands’ Ombudsman.The Ombudsman can be contacted by calling +1 (345) 946-6283 or by email at info@ombudsman.ky.

 

Listing

 

Weplan to list the Class A Ordinary Shares on the Nasdaq Capital Market under the symbol “HGIA”.

 

TransferAgent And Registrar

 

Thetransfer agent and registrar for the Class A Ordinary Shares is [*].

 

SHARESELIGIBLE FOR FUTURE SALE

 

Priorto this offering, there has not been a public market for our Class A Ordinary Shares. We plan to apply to list our Class A Ordinary Shareson the Nasdaq Capital Market under the symbol “HGIA”. Future sales of substantial amounts of our Class A OrdinaryShares in the public market after our initial public offering, or the possibility of these sales occurring, could cause the prevailingmarket price for our Class A Ordinary Shares to fall or impair our ability to raise equity capital in the future. Upon completion ofthis offering, assuming no exercise of the underwriter’ over-allotment option, we will have [*] outstanding Class A Ordinary Sharesheld by public shareholders representing approximately [ ]% of our Class A Ordinary Shares in issue if the Class A Ordinary Shares areoffered and sold at the maximum offering amount.

 

Allof the Class A Ordinary Shares sold in this offering will be freely transferable by persons other than our affiliates without restrictionor further registration under the Securities Act.

 

Rule144

 

Allof our Class A Ordinary Shares outstanding prior to this offering are “restricted securities” as that term is defined inRule 144 under the Securities Act and may be sold publicly in the United States only if they are subject to an effective prospectus underthe Securities Act or pursuant to an exemption from the registration requirement such as those provided by Rule 144 and Rule 701 promulgatedunder the Securities Act.

 

Ingeneral, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who is not deemed to havebeen our affiliate at any time during the three months preceding a sale and who has beneficially owned restricted securities within themeaning of Rule 144 for more than six months would be entitled to sell an unlimited number of those shares, subject only to the availabilityof current public information about us. A non-affiliate who has beneficially owned restricted securities for at least one year from thelater of the date these shares were acquired from us or from our affiliate would be entitled to freely sell those shares.

 

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Aperson who is deemed to be an affiliate of ours and who has beneficially owned “restricted securities” for at least six monthswould be entitled to sell, within any three-month period, a number of shares that is not more than the greater of:

 

  1% of the number of Class A Ordinary Shares then outstanding, in the form of Class A Ordinary Shares or otherwise, which will equal approximately shares immediately after this offering; or
     
  the average weekly trading volume of the Class A Ordinary Shares on the Nasdaq Capital Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

 

Salesunder Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisionsand notice requirements and to the availability of current public information about us. In addition, in each case, these shares wouldremain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.

 

Rule 701

 

In general, under Rule 701 of the SecuritiesAct as currently in effect, each of our employees, consultants, or advisors who purchases our Class A Ordinary Shares from us in connectionwith a compensatory stock plan or other written agreement executed prior to the completion of this offering is eligible to resell thoseClass A Ordinary Shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period,contained in Rule 144. However, the lock-up arrangements are not part of the Rule 701.

 

Regulation S

 

Regulation S provides generally that sales madein offshore transactions are not subject to the registration or prospectus-delivery requirements of the Securities Act.

 

Lock-upAgreements

 

We have agreed not to, for a period of 180 daysbeginning on the date of the effectiveness of the registration statement of which this prospectus forms a part, offer, issue, sell, contractto sell, encumber, grant any option for the sale of, or otherwise dispose of, except in this offering, any of our Class A Ordinary Sharesor securities that are substantially similar to our Class A Ordinary Shares, including but not limited to any options or warrants topurchase our Class A Ordinary Shares, or any securities that are convertible into or exchangeable for, or that represent the right toreceive, our Class A Ordinary Shares or any such substantially similar securities (other than pursuant to employee stock option plansexisting on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date such lock-up agreementwas executed), without the prior written consent of the underwriter.

 

Furthermore, each of our directors, executiveofficers, and principal shareholders ([*]% or more shareholders of our Class A Ordinary Shares) has also entered into a similar lock-upagreement for a period of 180 days beginning on the date of the effectiveness of the registration statement of which this prospectusforms a part, subject to certain exceptions, with respect to our Class A Ordinary Shares and securities that are substantially similarto our Class A Ordinary Shares.

 

Other than this offering, we are not aware ofany plans by any significant shareholders to dispose of significant numbers of our Class A Ordinary Shares. However, one or more existingshareholders or owners of securities convertible or exchangeable into or exercisable for our Class A Ordinary Shares may dispose of significantnumbers of our Class A Ordinary Shares in the future. We cannot predict what effect, if any, future sales of our Class A Ordinary Shares,or the availability of Class A Ordinary Shares for future sale, will have on the trading price of our Class A Ordinary Shares from timeto time. Sales of substantial amounts of our Class A Ordinary Shares in the public market, or the perception that these sales could occur,could adversely affect the trading price of our Class A Ordinary Shares.

 

TAXATION

 

The following summary of certain Cayman Islands,PRC and U.S. federal income tax consequences of the acquisition, ownership and disposition of our Class A Ordinary Shares is based onlaws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. Please notethat this summary should not be considered a comprehensive description of all the tax considerations that may be relevant to the decisionto purchase our Class A Ordinary Shares, such as tax considerations under U.S. state and local tax laws or under the tax laws of jurisdictionsother than the Cayman Islands, the People’s Republic of China and the United States. To the extent that the discussion relatesto matters of Cayman Islands tax law, it represents the opinion of Ogier, our Cayman Islands counsel. To the extent that the discussionrelates to matters of PRC tax law, it represents the opinion of Shanghai Novicentro Law Firm, our PRC counsel. To the extent that thediscussion relates to matters of U.S. Federal Income Taxation, it represents the opinion of Sichenzia Ross Ference LLP, our U.S. counsel.

 

People’sRepublic of China Enterprise Taxation

 

Thefollowing brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, whichwill affect the amount of dividends, if any, we may pay to our shareholders. See “Dividend Policy.”

 

Weare a holding company incorporated in the Cayman Islands and we gain substantial income by way of dividends paid to us from our PRC subsidiaries.The EIT Law and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiaryto its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless anysuch foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate ora tax exemption.

 

Underthe EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “residententerprise,” which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Althoughthe implementation rules of the EIT Law define “de facto management body” as a managing body that actually, comprehensivelymanage and control the production and operation, staff, accounting, property and other aspects of an enterprise, the only official guidancefor this definition currently available is set forth in SAT Notice 82, which provides guidance on the determination of the tax residencestatus of a Chinese- controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreigncountry or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although the Company,or Heng Guang Cayman, does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore nota Chinese-controlled offshore incorporated enterprise within the meaning of SAT Notice 82, in the absence of guidance specifically applicableto us, we have applied the guidance set forth in SAT Notice 82 to evaluate the tax residence status of the Company and its subsidiariesorganized outside the PRC.

 

Accordingto SAT Notice 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a“de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if allof the following criteria are met: (i) the places where senior management and senior management departments that are responsible fordaily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii)financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment,dismissal and salary and wages) are decided or need to be decided by organizations or persons located within the territory of China;(iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetingsof the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior managementstaff having the right to vote habitually reside within the territory of China.

 

Webelieve that we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, as a holding company,the key assets and records of the Company, including the resolutions and meeting minutes of our board of directors and the resolutionsand meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holdingcompanies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities.Accordingly, we believe that the Company and its offshore subsidiaries should not be treated as a “resident enterprise” forPRC tax purposes if the criteria for “de facto management body” as set forth in SAT Notice 82 were deemed applicable to us.However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remainwith respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we willcontinue to monitor our tax status.

 

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Theregulations promulgated under the EIT Law provide that, (i) if the enterprise that distributes dividends is domiciled in the PRC or (ii)if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or gains are treatedas China-sourced income. It is not clear how “domicile” may be interpreted under the EIT Law, and it may be interpreted asthe jurisdiction where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for PRC taxpurposes, any dividends we pay to our overseas shareholders which are non-resident enterprises as well as gains realized by such shareholdersfrom the transfer of our shares may be regarded as China-sourced income and as a result become subject to PRC withholding tax at a rateof up to 10%. We are unable to provide a “will” opinion because Shanghai Novicentro Law Firm, our PRC counsel, believesthat it is more likely than not that the Company and its offshore subsidiaries would be treated as a non-resident enterprise for PRCtax purposes because they do not meet some of the conditions out lined in SAT Notice. In addition, we are not aware of any offshore holdingcompanies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authoritiesas of the date of the prospectus. Therefore we believe that it is possible but highly unlikely that the income received by our overseasshareholders will be regarded as China-sourced income.

 

See“Risk Factors — Risks Related to Doing Business in China — Under the PRC Enterprise Income Tax Law, or the EIT Law,we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and ournon-PRC shareholders.”

 

HengGuang Insurance pays its EIT at a flat rate of 25% on its net income. The EIT is calculated based on the entity’s global incomeas determined under PRC tax laws and accounting standards. If the PRC tax authorities determine that Heng Guang Insurance a PRC residententerprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholdersthat are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC withholding tax on gainsrealized on the sale or other disposition of our ordinary shares, if such income is treated as sourced from within the PRC. It is unclearwhether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individualshareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends or gains realizedby non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty.However, it is also unclear whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties betweentheir country of tax residence and the PRC in the event that the Company is treated as a PRC resident enterprise. There is no guidancefrom the PRC government to indicate whether or not any tax treaties between the PRC and other countries would apply in circumstanceswhere a non-PRC company was deemed to be a PRC tax resident, and thus there is no basis for expecting how tax treaty between the PRCand other countries may impact non-resident enterprises.

 

UnitedStates Federal Income Taxation

 

WEURGE POTENTIAL PURCHASERS OF OUR ORDINARY SHARES TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S.TAXCONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR ORDINARY SHARES.

 

Thefollowing does not address the tax consequences to any particular investor or to persons in special tax situations such as:

 

  banks;
  financial institutions;
  insurance companies;
  regulated investment companies;
  real estate investment trusts;
  broker-dealers;
  persons that elect to mark their securities to market;
  U.S. expatriates or former long-term residents of the U.S.;
  governments or agencies or instrumentalities thereof;
  tax-exempt entities;
  persons liable for alternative minimum tax;
  persons holding our Ordinary Shares as part of a straddle, hedging, conversion or integrated transaction;
  persons that actually or constructively own 10% or more of our voting power or value (including by reason of owning our Ordinary Shares);
  persons who acquired our Ordinary Shares pursuant to the exercise of any employee share option or otherwise as compensation; or
  persons holding our Ordinary Shares through partnerships or other pass-through entities.

 

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Thediscussion set forth below is addressed only to U.S. Holders that purchase Class A Ordinary Shares in this offering. Prospective purchasersare urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstancesas well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our Ordinary Shares.

 

MaterialTax Consequences Applicable to U.S. Holders of Our Ordinary Shares

 

Thefollowing sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our Ordinary Shares.It is directed to U.S. Holders (as defined below) of our Ordinary Shares and is based upon laws and relevant interpretations thereofin effect as of the date of this prospectus, all of which are subject to change. This description does not deal with all possible taxconsequences relating to ownership and disposition of our Ordinary Shares or U.S. tax laws, other than the U.S. federal income tax laws,such as the tax consequences under non-U.S. tax laws, state, local and other tax laws.

 

Thefollowing brief description applies only to U.S. Holders (defined below) that hold Ordinary Shares as capital assets and that have theU.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effectas of the date of this prospectus and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this prospectus,as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities aresubject to change, which change could apply retroactively and could affect the tax consequences described below.

 

Thebrief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficialowner of Ordinary Share and you are, for U.S. federal income tax purposes,

 

  an individual who is a citizen or resident of the United States;
  a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
  an estate whose income is subject to U.S. federal income taxation regardless of its source; or
  a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

 

Taxationof Dividends and Other Distributions on Our Ordinary Shares

 

Subjectto the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect tothe Ordinary Shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividendincome on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earningsand profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will notbe eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.

 

Withrespect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicableto qualified dividend income, provided that (1) the Ordinary Shares are readily tradable on an established securities market in the UnitedStates, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchangeof information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in whichthe dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income taxtreaty between the United States and the Cayman Islands, clause (1) above can be satisfied only if the Ordinary Shares are readily tradableon an established securities market in the United States. Under U.S. Internal Revenue Service authority, Ordinary Shares are consideredfor purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed onthe Nasdaq Capital Market. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paidwith respect to our Ordinary Shares, including the effects of any change in law after the date of this prospectus.

 

Dividendswill constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income(as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation willbe limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicableto dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income.For this purpose, dividends distributed by us with respect to our Ordinary Shares will constitute “passive category income”but could, in the case of certain U.S. Holders, constitute “general category income.”

 

Tothe extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federalincome tax principles), it will be treated first as a tax-free return of your tax basis in your Ordinary Shares, and to the extent theamount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earningsand profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as adividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules describedabove.

 

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Taxationof Dispositions of Ordinary Shares

 

Subjectto the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or othertaxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis(in U.S. dollars) in the Ordinary Shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, includingan individual U.S. Holder, who has held the Ordinary Shares for more than one year, you will generally be eligible for reduced tax rates.The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated asUnited States source income or loss for foreign tax credit limitation purposes which will generally limit the availability of foreigntax credits.

 

PassiveForeign Investment Company

 

Anon-U.S. corporation is considered a passive foreign investment company or “PFIC” for any taxable year if either:

 

  at least 75% of its gross income for such taxable year is passive income; or
     
  at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”)

 

Passiveincome generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct ofa trade or business) and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assetsand earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (byvalue) of the stock. In determining the value and composition of our assets for purposes of the PFIC asset test, (1) the cash we raisein this offering will generally be considered to be held for the production of passive income and (2) the value of our assets must bedetermined based on the market value of our Ordinary Shares from time to time, which could cause the value of our non-passive assetsto be less than 50% of the value of all of our assets (including the cash raised in this offering) on any particular quarterly testingdate for purposes of the asset test.

 

Basedon our operations and the composition of our assets, without taking into account any cash raised in this offering, it is possible, however,we do not currently expect to be treated as a PFIC under the current PFIC rules. Because PFIC status is based on our income, assets andactivities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for the 2020 taxableyear or any subsequent year until after the close of the relevant year. As such, we must make a separate determination each year as towhether we are a PFIC, and there can be no assurance with respect to our status as a PFIC for our current taxable year or any futuretaxable year. Depending on the amount of cash we raise in this offering, together with any other assets held for the production of passiveincome, it is possible that, for our current taxable year or for any subsequent taxable year, more than 50% of our assets may be assetsheld for the production of passive income. We will make this determination following the end of any particular tax year. Although thelaw in this regard is unclear, we are treating Heng Guang Insurance as being owned by us for United States federal income tax purposes,not only because we control their management decisions, but also because we are entitled to the economic benefits associated with HengGuang Insurance, and as a result, we are treating Heng Guang Insurance as our wholly-owned subsidiary for U.S. federal income tax purposes.If we are not treated as owning Heng Guang Insurance for United States federal income tax purposes, we would likely be treated as a PFIC.In addition, because the value of our assets for purposes of the asset test will generally be determined based on the market price ofour Class A Ordinary Shares and because cash is generally considered to be an asset held for the production of passive income, our PFICstatus will depend in large part on the market price of our Ordinary Shares and the amount of cash we raise in this offering. Accordingly,fluctuations in the market price of the Class A Ordinary Shares may cause us to become a PFIC. In addition, the application of the PFICrules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly,we spend the cash we raise in this offering. We are under no obligation to take steps to reduce the risk of our being classified as aPFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price ofour Class A Ordinary Shares from time to time and the amount of cash we raise in this offering) that may not be within our control. Ifwe are a PFIC for any year during which you hold our Ordinary Shares, we will continue to be treated as a PFIC for all succeeding yearsduring which you hold our Ordinary Shares. However, if we cease to be a PFIC and you did not previously make a timely “mark-to-market”election as described below, you may avoid some of the adverse effects of the PFIC regime by making a “purging election”(as described below) with respect to the Ordinary Shares.

 

Thereason we currently do not expect to be treated as a PFIC under the current PFIC rules is because while, for purposes of the asset testherein described, more than 50% of the current value of our assets is cash, it is not clear at this time whether cash is to be treatedeither partly or wholly as a passive or active asset. Given the purpose of the PFIC rules and any existing guidance pertaining to thoserules, it is reasonable, and we take the position that cash held as working capital generates operating income (active) and not interestincome (passive). This position is derived from, in the absence of any other guidance, reviewing analogous section of the code that treatthe characterization of cash as an asset when held by a business. For many purposes of the Internal Revenue Code, cash is treated asa business asset to the extent held as working capital to be devoted to the business. For example, regulations under §864(c) providethat an asset, including cash, is ordinarily treated as held for use in a trade or business if it is held as working capital or expansioncapital. Similarly, in determining whether a corporation is a U.S. real property bolding corporation within the meaning of §897(c)cash is treated as a business asset where it is held for use in a trade or business. Even §1202—which was intended to providea very “tight” definition of an operating company, along the lines of the §355 active trade or business test—acknowledgesthat an active business requires working capital, and provides safe harbors to accommodate that reality.

 

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Ifwe are a PFIC for your taxable year(s) during which you hold Ordinary Shares, you will be subject to special tax rules with respect toany “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge)of the Ordinary Shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxableyear that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable yearsor your holding period for the Ordinary Shares will be treated as an excess distribution. Under these special tax rules:

 

  the excess distribution or gain will be allocated ratably over your holding period for the Ordinary Shares;
  the amount allocated to your current taxable year, and any amount allocated to any of your taxable year(s) prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and
  the amount allocated to each of your other taxable year(s) will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

 

Thetax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset byany net operating losses for such years, and gains (but not losses) realized on the sale of the Ordinary Shares cannot be treated ascapital, even if you hold the Ordinary Shares as capital assets.

 

AU.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to electout of the tax treatment discussed above. If you make a mark-to-market election for first taxable year which you hold (or are deemedto hold) Ordinary Shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to theexcess, if any, of the fair market value of the Ordinary Shares as of the close of such taxable year over your adjusted basis in suchOrdinary Shares, which excess will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess,if any, of the adjusted basis of the Ordinary Shares over their fair market value as of the close of the taxable year. However, suchordinary loss is allowable only to the extent of any net mark-to-market gains on the Ordinary Shares included in your income for priortaxable years. Amounts included in your income under a mark- to-market election, as well as gain on the actual sale or other dispositionof the Ordinary Shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual saleor disposition of the Ordinary Shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previouslyincluded for such Ordinary Shares. Your basis in the Ordinary Shares will be adjusted to reflect any such income or loss amounts. Ifyou make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply todistributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “—Taxation of Dividends and Other Distributions on our Ordinary Shares” generally would not apply.

 

Themark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimisquantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market(as defined in applicable U.S. Treasury regulations), including the Nasdaq Capital Market. If the Ordinary Shares are regularly tradedon the Nasdaq Capital Market and if you are a holder of Ordinary Shares, the mark-to-market election would be available to you were weto be or become a PFIC.

 

Alternatively,a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out ofthe tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generallyinclude in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for thetaxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain informationregarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or providethe information that would enable you to make a qualified electing fund election. If you hold Ordinary Shares in any taxable year inwhich we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annualinformation regarding such Ordinary Shares, including regarding distributions received on the Ordinary Shares and any gain realized onthe disposition of the Ordinary Shares.

 

Ifyou do not make a timely “mark-to-market” election (as described above), and if we were a PFIC at any time during the periodyou hold our Ordinary Shares, then such Ordinary Shares will continue to be treated as stock of a PFIC with respect to you even if wecease to be a PFIC in a future year, unless you make a “purging election” for the year we cease to be a PFIC. A “purgingelection” creates a deemed sale of such Ordinary Shares at their fair market value on the last day of the last year in which weare treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treatingthe gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to thefair market value of the Ordinary Shares on the last day of the last year in which we are treated as a PFIC) and holding period (whichnew holding period will begin the day after such last day) in your Ordinary Shares for tax purposes.

 

Youare urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our Ordinary Shares and theelections discussed above.

 

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InformationReporting and Backup Withholding

 

Dividendpayments with respect to our Ordinary Shares and proceeds from the sale, exchange or redemption of our Ordinary Shares may be subjectto information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 24%. Backup withholdingwill not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certificationon U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establishtheir exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consulttheir tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

 

Backupwithholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability,and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refundwith the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders.However, transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backupwithholding), and such brokers or intermediaries may be required by law to withhold such taxes.

 

Underthe Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our OrdinaryShares, subject to certain exceptions (including an exception for Ordinary Shares held in accounts maintained by certain financial institutions),by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return foreach year in which they hold Ordinary Shares.

 

CaymanIslands Taxation

 

Thefollowing is a discussion on certain Cayman Islands income tax consequences of an investment in the Shares. The discussion is a generalsummary of the present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not considerany investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.

 

TheCayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains, or appreciation and thereis no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Governmentof the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought withinthe jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of shares by, or any transfers ofshares of, Cayman Islands companies (except those which hold interests in land in the Cayman Islands). There are no exchange controlregulations or currency restrictions in the Cayman Islands.

 

Paymentsof dividends and capital in respect of our Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding willbe required on the payment of a dividend or capital to any holder of our Ordinary Shares, as the case may be, nor will gains derivedfrom the disposal of our Ordinary Shares be subject to Cayman Islands income or corporation tax.

 

UNDERWRITING

 

Inconnection with this offering, we will enter into an underwriting agreement with Network 1 Financial Securities, Inc., which we sometimesrefer to herein as the “Underwriter”. The Underwriter may retain other brokers or dealers to act as sub-agents on its behalfin connection with this offering and may pay any sub-agent a solicitation fee with respect to any securities placed by it. The Underwriterhas agreed to purchase, and we have agreed to sell to the Underwriter, the number of shares indicated below:

 

Name  Number of Class A Ordinary Shares 

Network 1 Financial Securities, Inc.

   [  ] 
Total   [  ] 

 

TheUnderwriter is offering the Class A Ordinary shares subject to its acceptance of the shares from us and subject to prior sale. The underwritingagreement provides that the obligations of the Underwriter to pay for and accept delivery of the shares offered by this prospectus aresubject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriter is obligated to takeand pay for all of the shares offered by this prospectus if any such shares are taken. However, the Underwriter is not required to takeor pay for the shares covered by the Underwriter’s over-allotment option described below.

 

Theunderwriting agreement provides that the obligation of the Underwriter to take and pay for the Class A Ordinary Shares, is subject tocertain conditions precedent, including but not limited to (1) obtaining listing approval on the Nasdaq Capital Market, (2) deliveryof legal opinions and (3) delivery of the auditor comfort letters. To list on the Nasdaq Capital Market, we are required to satisfy thefinancial and liquidity requirements of Nasdaq Capital Market under the Nasdaq Listing Rules.

 

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Wehave agreed to grant to the Underwriter an option, exercisable for 45 days from the date of this prospectus supplement, to purchase upto an additional [  ] shares at the public offering price listed on the cover page of this prospectus, less underwriting discounts.The option may be exercised in whole or in part, and may be exercised more than once, during the 45-day option period. The Underwritermay exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering contemplatedby this prospectus.

 

Inorder to facilitate the offering of the shares, the Underwriter may engage in transactions that stabilize, maintain or otherwise affectthe price of our shares. Specifically, the Underwriter may sell more shares than they are obligated to purchase under the underwritingagreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares availablefor purchase by the Underwriter under the over-allotment option. The Underwriter can close out a covered short sale by exercising theover-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale,the Underwriter will consider, among other things, the open market price of shares compared to the price available under the over-allotmentoption. The Underwriter may also sell shares in excess of the over-allotment option, creating a naked short position. The Underwritermust close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be createdif the Underwriter is concerned that there may be downward pressure on the price of our shares in the open market after pricing thatcould adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the Underwritermay bid for, and purchase, shares in the open market to stabilize the price of our shares. These activities may raise or maintain themarket price of our shares above independent market levels or prevent or retard a decline in the market price of our shares. The Underwriteris not required to engage in these activities and may end any of these activities at any time.

 

Uponthe declaration of effectiveness of the registration statement of which this prospectus is a part, we will enter into an underwritingagreement with the Underwriter. The terms of the underwriting agreement provide that the obligations of the Underwriter is subject tocertain conditions precedent, including the absence of any material adverse change in our business and the receipt of certain certificates,opinions and letters from us, our counsel and our auditors.

 

Pricingof the Offering

 

TheUnderwriter has advised us that it proposes to offer the shares to the public at the public offering price set forth on the cover pageof this prospectus and to certain dealers at that price less a concession not in excess of $[*] per share. After this offering, the publicoffering price and concession to dealers may be reduced by the Underwriter. No such reduction shall change the amount of proceeds tobe received by us as set forth on the cover page of this prospectus. Prior to this offering, there has been no public market for theOrdinary Shares. The initial public offering price will be determined by negotiations between us and the Underwriter. In determiningthe initial public offering price, we and the Underwriter expects to consider a number of factors, including:

 

  the information set forth in this prospectus and otherwise available to the Underwriter;
  our prospects and the history and prospects for the industry in which we compete;
  an overall assessment of our management;
  our prospects for future earnings;
   the general condition of the securities markets at the time of this offering;
  the recent market prices of, and demand for, publicly traded securities of generally comparable companies; and
  other factors deemed relevant by the Underwriter and us.

 

Theestimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a resultof market conditions and other factors. Neither we nor the Underwriter can assure investors that an active trading market will developfor our Class A Ordinary Shares, or that the shares will trade in the public market at or above the initial public offering price. Afterthis offering, the public offering price and concession to dealers may be reduced by the Underwriter. No such reduction shall changethe amount of proceeds to be received by us as set forth on the cover page of this prospectus. The securities are offered by the Underwriteras stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The Underwriterhas informed us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.

 

Thefollowing table shows the price per share and total public offering price, underwriting discounts, and proceeds before expenses to us.These amounts are shown assuming both no exercise and full exercise of the Underwriter’s over-allotment option.

 

    Total 
    Per Share  

Without Over-

allotment

   Full Exercise of Over-allotment 
Public offering price  $       $           $           
Underwriting discounts to be paid by us:  $ $   $ 
Proceeds, before expenses, to us  $ $   $ 

 

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Wehave agreed to give the Underwriter a discount of 7.5% of the aggregate gross proceeds raised in this offering. We have agreed to grantto the Underwriter warrants covering a number of Class A Ordinary Shares equal to 5% of the aggregate number of the Class A OrdinaryShares sold in the offering upon closing of the offering, including shares sold under the over-allotment option. Such warrants will benon-exercisable for six months after the date of the effective date of the registration statement, in whole or in part, and will expireon the fifth anniversary of the effective date of this registration statement. Such warrants will be exercisable at a price equalto 125% of the public offering price of the Class A Ordinary Shares and shall not be redeemable. We will register the shares underlyingthe warrants and will file all necessary undertakings in connection therewith. Such warrants shall not be sold during the offering, orsold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transactionthat would result in the effective economic disposition of the securities by any person for a period of 180 days immediately followingthe date of effectiveness, to any member participating in the offering and the officers or partners thereof, if all securities so transferredremain subject to the lock-up restriction for the remainder of the time period.

 

Wehave agreed to pay to the Underwriter a non-accountable expense allowance equal to one percent (1%) of the gross proceeds (includingthe sale of over-allotment shares) received by us from the sale of the shares.

 

Wehave also agreed to reimburse the Underwriter up to a maximum of $150,000 for out-of-pocket accountable expenses (including the legalfees and other disbursements as disclosed below).

 

Theout-of-pocket accountable expenses we have agreed to pay include but not limited to: the Company’s legal and accounting fees anddisbursements; the costs of preparing, printing, mailing and delivering the Registration Statement, the preliminary and final prospectuscontained therein and amendments thereto, post-effective amendments and supplements thereto, the Underwriting Agreement and related documents(all in such quantities as the Underwriter may reasonably require); preparing and printing stock certificates and warrant certificates;the costs of any “due diligence” meetings; all reasonable and documented fees and expenses for conducting a net road showpresentation; all filing fees (including SEC filing fees) and communication expenses relating to the registration of the shares to besold in the Offering, FINRA filing fees; the reasonable and documented fees and disbursements of the Underwriter’s counsel up toan amount of $75,000; background checks of the Company’s officers and directors up to a maximum of $15,000; preparation of boundvolumes and mementos in such quantities as the Underwriter may reasonably request up to an amount of $2,500; transfer taxes, if any,payable upon the transfer of securities from the Company to the Underwriter; and the fees and expenses of the transfer agent, clearingfirm and registrar for the shares; provided that the actual accountable expenses of the Underwriter shall not exceed $150,000. We havepaid expense deposits of $75,000 to the Underwriter for its anticipated out-of-pocket expenses; any expense deposits will be returnedto us to the extent the Underwriter’s out-of-pocket accountable expenses are not actually incurred in accordance with FINRA Rule5110(g)(4)(A).

 

Indemnification

 

Asa condition to the Underwriter’s participation in this offering, we have agreed to indemnify the Underwriter in accordance withthe indemnification provisions set forth in the underwriting agreement. The underwriting agreement provides for indemnification betweenthe Underwriter and us against specified liabilities, including liabilities under the Securities Act, and for contribution by us andthe Underwriter to payments that may be required to be made with respect to those liabilities. We have been advised that, in the opinionof the Commission, indemnification liabilities under the Securities Act is against public policy as expressed in the Securities Act,and is therefore, unenforceable.

 

Lock-UpAgreements

 

We,all of our executive officers and directors (including director nominees) and certain shareholders of the issued and outstanding OrdinaryShares, have entered into lock-up agreements with the Underwriter. Under these agreements, we and each of these persons may not, withoutthe prior written approval of the Underwriter, offer, sell, contract to sell or otherwise dispose of or hedge shares or securities convertibleinto or exchangeable for shares, subject to certain exceptions. These restrictions will be in effect for a period of up to one hundredand eighty (180) days after the declaration of the effective of this offering.

 

TheUnderwriter has no present intention to waive or shorten the lock-up period; however, the terms of the lock-up agreements may be waivedat its discretion. In determining whether to waive the terms of the lockup agreements, the Underwriter may base its decision on its assessmentof the relative strengths of the securities markets and companies similar to ours in general, and the trading pattern of, and demandfor, our securities in general.

 

ElectronicOffer, Sale and Distribution of Class A Ordinary Shares

 

Aprospectus in electronic format may be made available on the websites maintained by the Underwriter. In addition, Class A Ordinary Sharesmay be sold by the Underwriter to securities dealers who resell Class A Ordinary Shares to online brokerage account holders. Other thanthe prospectus in electronic format, the information on the Underwriter’s website and any information contained in any other websitemaintained by the Underwriter is not part of the prospectus or the prospectus of which this prospectus forms a part, has not been approvedand/or endorsed by us or the Underwriter in its capacity as underwriter and should not be relied upon by investors.

 

SellingRestrictions

 

Noaction has been taken in any jurisdiction (except in the United States) that would permit a public offering of the Class A Ordinary Shares,or the possession, circulation or distribution of this prospectus or any other material relating to us or the Class A Ordinary Shares,where action for that purpose is required. Accordingly, the Class A Ordinary Shares may not be offered or sold, directly or indirectly,and neither this prospectus nor any other offering material or advertisements in connection with the Class A Ordinary Shares may be distributedor published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such countryor jurisdiction.

 

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Australia.This document has not been lodged with the Australian Securities & Investments Commission and is only directed to certain categoriesof exempt persons. Accordingly, if you receive this document in Australia:

 

(a)you confirm and warrant that you are either:

 

(i)“sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act 2001 (Cth) of Australia, or the CorporationsAct;

 

(ii)“sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’scertificate to the company which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulationsbefore the offer has been made;

 

(iii)person associated with the company under section 708(12) of the Corporations Act; or

 

(iv)“professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act;

 

andto the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professionalinvestor under the Corporations Act, any offer made to you under this document is void and incapable of acceptance;

 

(b)you warrant and agree that you will not offer any of the ordinary shares issued to you pursuant to this document for resale in Australiawithin 12 months of those ordinary shares being issued unless any such resale offer is exempt from the requirement to issue a disclosuredocument under section 708 of the Corporations Act.

 

Canada.The ordinary shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors,as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), andare permitted customers, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.Any resale of the ordinary shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectusrequirements of applicable securities laws.

 

Securitieslegislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus(including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised bythe purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchasershould refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particularsof these rights or consult with a legal advisor.

 

Pursuantto section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) ofNational Instrument 33-105 Underwriting Conflicts (“NI 33-105”), the Underwriter is not required to comply with thedisclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

 

CaymanIslands This prospectus does not constitute an invitation or offer to the public in the Cayman Islands of the Ordinary Shares,whether by way of sale or subscription. The Underwriter has not offered or sold, and will not offer or sell, directly or indirectly,any Ordinary Shares in the Cayman Islands.

 

EuropeanEconomic Area. In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive(each, a “Relevant Member State”) an offer to the public of any shares which are the subject of the offering contemplatedby this prospectus may not be made in that Relevant Member State unless the prospectus has been approved by the competent authority insuch Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority inthat Relevant Member State, all in accordance with the Prospectus Directive, except that an offer to the public in that Relevant MemberState of any shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implementedin that Relevant Member State:

 

  to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
     
  to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than €43,000,000 and (iii) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

 

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  by the Underwriter to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than “qualified investors” as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or
     
  in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of shares shall result in a requirement for the publication by us or any representative of a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

 

Anyperson making or intending to make any offer of shares within the EEA should only do so in circumstances in which no obligation arisesfor us or the Underwriter to produce a prospectus for such offer. Neither we nor the Underwriter has authorized, nor do they authorize,the making of any offer of shares through any financial intermediary, other than offers made by the Underwriter which constitute thefinal offering of shares contemplated in this prospectus.

 

Forthe purposes of this provision, and your representation below, the expression an “offer to the public” in relation to anyshares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of theoffer and any shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that RelevantMember State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “ProspectusDirective” means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant MemberState) and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive”means Directive 2010/73/EU.

 

Eachperson in a Relevant Member State who receives any communication in respect of, or who acquires any shares under, the offer of sharescontemplated by this prospectus will be deemed to have represented, warranted and agreed to and with us and the Underwriter that:

 

  it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and
     
  in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive,
     
  (i) the shares acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than “qualified investors” (as defined in the Prospectus Directive), or in circumstances in which the prior consent of the representatives has been given to the offer or resale; or (ii) where shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those shares to it is not treated under the Prospectus Directive as having been made to such persons.

 

Inaddition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently mademay only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professionalexperience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (FinancialPromotion) Order 2005, as amended, or the Order, and/or (ii) who are high net worth companies (or persons to whom it may otherwise belawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevantpersons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In theUnited Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with,relevant persons.

 

HongKong. The ordinary shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances whichdo not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32,Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571,Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus”within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,invitation or document relating to the ordinary shares may be issued or may be in the possession of any person for the purpose of issue(in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by,the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to ordinary shares which areor are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaningof the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder.

 

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Malaysia.The shares have not been and may not be approved by the securities commission Malaysia, or SC, and this document has not been and willnot be registered as a prospectus with the SC under the Malaysian capital markets and services act of 2007, or CMSA. Accordingly, nosecurities or offer for subscription or purchase of securities or invitation to subscribe for or purchase securities are being made toany person in or from within Malaysia under this document except to persons falling within any of paragraphs 2(g)(i) to (xi) of schedule5 of the CMSA and distributed only by a holder of a capital markets services license who carries on the business of dealing in securitiesand subject to the issuer having lodged this prospectus with the SC within seven days from the date of the distribution of this prospectusin Malaysia. The distribution in Malaysia of this document is subject to Malaysian laws. Save as aforementioned, no action has been takenin Malaysia under its securities laws in respect of this document. This document does not constitute and may not be used for the purposeof a public offering or an issue, offer for subscription or purchase, invitation to subscribe for or purchase any securities requiringthe approval of the SC or the registration of a prospectus with the SC under the CMSA.

 

Japan.The ordinary shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan, and ordinaryshares will not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which termas used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or toothers for re- offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to any exemption fromthe registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicablelaws, regulations and ministerial guidelines of Japan.

 

People’sRepublic of China. This prospectus has not been and will not be circulated or distributed in the PRC, and ordinary shares maynot be offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any residentof the PRC except pursuant to applicable laws and regulations of the PRC.

 

Singapore.This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and anyother document or material in connection with the offer or sale, or invitation for subscription or purchase, of our ordinary shares maynot be circulated or distributed, nor may our ordinary shares be offered or sold, or be made the subject of an invitation for subscriptionor purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 ofthe Securities and Futures Act, Chapter 289 of Singapore, or SFA, (ii) to a relevant person or any person pursuant to Section 275(1A),and in accordance with the conditions specified in Section 275 of the SFA, and in accordance with the conditions specified in Section275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, ineach case subject to compliance with conditions set forth in the SFA.

 

Whereour ordinary shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accreditedinvestor as defined in Section 4A of the SFA) the sole business of which is to hold investments and the entire share capital of whichis owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor)whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor; shares, debenturesand units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in thattrust shall not be transferred within six months after that corporation or that trust has acquired the ordinary shares under Section275 of the SFA, except: (1) to an institutional investor (for corporations under Section 274 of the SFA) or to a relevant person definedin Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of sharesand debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000(or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securitiesor other assets, and further for corporations, in accordance with the conditions, specified in Section 275 of the SFA; (2) where no considerationis or will be given for the transfer; or (3) where the transfer is by operation of law.

 

TaiwanThe Ordinary Shares have not been and will not be registered or filed with, or approved by, the Financial Supervisory Commissionof Taiwan pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering orin circumstances which constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or relevant laws and regulationsthat require a registration, filing or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan hasbeen authorized to offer or sell the Ordinary Shares in Taiwan.

 

UnitedKingdom. An offer of the shares may not be made to the public in the United Kingdom within the meaning of Section 102Bof the Financial Services and Markets Act 2000, as amended, or the FSMA, except to legal entities that are authorized or regulated tooperate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities orotherwise in circumstances that do not require the publication by the company of a prospectus pursuant to the Prospectus Rules of theFinancial Services Authority, or the FSA.

 

Aninvitation or inducement to engage in investment activity (within the meaning of Section 21 of FSMA) may only be communicated to personswho have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and MarketsAct 2000 (Financial Promotion) Order 2005 or in circumstances in which Section 21 of FSMA does not apply to the company.

 

Allapplicable provisions of the FSMA with respect to anything done by the underwriter in relation to the shares must be complied with in,from or otherwise involving the United Kingdom.

 

117
 

 

EXPENSESRELATING TO THIS OFFERING

 

Setforth below is an itemization of the total expenses, excluding the underwriting discounts and non-accountable expense allowance, thatwe expect to incur in connection with this offering. With the exception of the SEC registration fee, the FINRA filing fee, and the Nasdaqlisting fee, all amounts are estimates.

 

Securities and Exchange Commission Registration Fee  $ 
      
Nasdaq Capital Market Listing Fee  $ 
      
FINRA  $ 
      
Legal Fees and Expenses  $ 
      
Accounting Fees and Expenses  $ 
      
Printing and Engraving Expenses  $ 
     
Miscellaneous Expenses  $ 
      
Total Expenses  $ 

 

Theseexpenses will be borne by us. Underwriting discounts will be borne by us in proportion to the number of Class A Ordinary Shares soldin the offering.

 

LEGALMATTERS

 

Weare being represented by Sichenzia Ross Ference LLP with respect to legal matters of United States federal securities law and New YorkState law. The validity of the Class A Ordinary Shares offered in this offering and certain other legal matters as to Cayman Islandslaw will be passed upon for us by Ogier. Legal matters as to the PRC law will be passed upon for us by Shanghai Novicentro LawFirm. The underwriter is being represented by VCL Law LLP with respect to certain legal matters as to United States federal securitiesand New York State law. Certain legal matters relating to the offering as to PRC law will be passed upon for VCL Law LLP by AllbrightLaw Offices. VCL Law LLP may rely upon Allbright Law Offices with respect to matters governed by PRC law.

 

EXPERTS

 

Theconsolidated financial statements as of December 31, 2020 and 2019, and for each of the two years ended December 31, 2020 and 2019 includedin this prospectus have been so included in reliance on the report of KCCW Accountancy Corp., an independent registered public accountingfirm, given on the authority of said firm as experts in auditing and accounting. The office of KCCW Accountancy Corp. is located at 3333S. Brea Canyon Road, Suite 206, CA 91765.

 

WHEREYOU CAN FIND ADDITIONAL INFORMATION

 

Wehave filed with the SEC a registration statement on Form F-1, including relevant exhibits and schedules under the Securities Act, coveringthe Ordinary Shares offered by this prospectus. You should refer to our registration statement and their exhibits and schedules if youwould like to find out more about us and about the Ordinary Shares. This prospectus summarizes material provisions of contracts and otherdocuments that we refer you to. Since the prospectus may not contain all the information that you may find important, you should reviewthe full text of these documents.

 

Immediatelyupon the completion of this offering, we will be subject to periodic reporting and other informational requirements of the Exchange Act,as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, andother information with the SEC. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishingand content of proxy statements to shareholders under the federal proxy rules contained in Sections 14(a), (b) and (c) of the ExchangeAct, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisionscontained in Section 16 of the Exchange Act.

 

Theregistration statement, reports and other information so filed can be inspected and copied at the public reference facilities maintainedby the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee,by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file electronicallywith the SEC. The address of that website is http://www.sec.gov. The information on that website is not a part of this prospectus.

 

Nodealers, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus.You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the securities offeredhereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus iscurrent only as of its date.

 

118
 

 

HENGGUANGHOLDING CO., LIMITED.

Indexto Financial Statements

 

  Page
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019  
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020  
CONSOLIDATED BALANCE SHEETS F-24
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME F-25
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY F-27
CONSOLIDATED STATEMENTS OF CASH FLOWS F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-28

 

F-1
 

 

 

Reportof Independent Registered Public Accounting Firm

 

Boardof Directors and Shareholders of Hengguang Holding Co., Limited

 

Opinionon the Consolidated Financial Statements

 

Wehave audited the accompanying consolidated balance sheets of Hengguang Holding Co., Limited and subsidiaries (the “Company”)as of December 31, 2020 and 2019, and the related consolidated statements of income and comprehensive income, stockholders’ equity,and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accountingprinciples generally accepted in the United States of America.

 

Restatementof the Previously Issued Financial Statements

 

Asdiscussed in Note 2 to the consolidated financial statements, the accompanying consolidated financial statements as of December 31, 2020and 2019 have been restated to correct certain misstatements.

 

Basisfor Opinion

 

Theseconsolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinionon these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance withthe U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

Weconducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As partof our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressingan opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Ouraudit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether dueto error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidenceregarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.We believe that our audit provides a reasonable basis for our opinion.

 

CriticalAudit Matters

 

Thecritical audit matters communicated below are matters arising from the current period audit of the consolidated financial statementsthat were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that arematerial to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. Thecommunication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on theaccounts or disclosures to which they relate.

 

Revenuerecognition

 

CriticalAudit Matter Description

 

Asdescribed in Note 3 to the consolidated financial statements, the majority of the Company’s revenue is derived from insurance agencyservices. The Company, through its variable interest entity, sells insurance products provided by insurance carriers to the insureds,and is compensated in the form of commissions from the respective insurance carriers, according to the terms of each service agreementmade by and between the Company and the insurance carriers. The sale of an insurance product by the Company is considered complete whenthe insurance premium is collected from the insured and the insurance policy is effective, upon which the insurance carrier is obligatedto pay the commission to the Company under the terms of its service agreement with the Company and such commission is recognized as revenue.

 

TheCompany considers the contracts with insurance carriers contain one performance obligation, and the Company is entitled to the considerationwhen performance obligation is satisfied at a point in time. The amount of revenue to be recognized is determined by the service contractsbetween the Company and the insurance carriers. The Company recognizes commission revenue when the insurance premium is collected fromthe insured and insurance policy is effective.

 

Theprincipal considerations for our determination that performing procedures relating to revenue recognition, specifically the identificationand evaluation of the timing and amount of revenue recognition, is a critical audit matter, involved judgment exercised by managementin identifying and evaluating the performance obligation. Auditor judgement is involved in performing our audit procedures to evaluatewhether the timing and amount of revenue recognition on commission was appropriately stated.

 

Howthe Critical Audit Matter Will Be Addressed in the Audit

 

Ouraudit procedures over determining the timing and amount of revenue recognition involved, among others, evaluation of management’sassessment in regard to the identification of performance obligation of commission revenue. We selected customer agreements and performedthe following procedures:

 

Evaluated the terms and conditions of each selected contract and the appropriateness of the accounting treatment within the context of the five-step model prescribed by ASC 606, Revenue from Contracts with Customers, and evaluated whether management’s conclusions were appropriate.
   
Tested the accuracy of management’s calculation of revenue for the performance obligation.

 

/s/ KCCW Accountancy Corp.  

 

Wehave served as the Company’s auditor since 2020.

DiamondBar, California

June25, 2021, except for the effects of the restatement disclosed in Note 2, as to which the date is December 27, 2021

 

F-2
 

 

HENGGUANGHOLDING CO., LIMITED

CONSOLIDATEDBALANCE SHEETS

(AS RESTATED)

 

   AS OF DECEMBER 31, 
   2020   2019 
ASSETS          
CURRENT ASSETS          
Cash & equivalents  $807,380   $444,266 
Accounts receivable   129,061    127,891 
Prepaid expenses   132,917    45,163 
Other receivables   185,708    18,900 
Prepaid commission cost   1,002,497    78,784 
Due from related parties   4,985,906    4,218,420 
Total current assets   7,243,469    4,933,424 
NONCURRENT ASSETS          
Restricted cash   766,284    718,205 
Right-of-use assets, net   138,404    108,659 
Deferred tax assets   251,708    262,368 
Property and equipment, net   114,550    40,079 
Intangible assets, net   81,241    49,521 
Total non-current assets   1,352,187    1,178,832 
TOTAL ASSETS  $8,595,656   $6,112,256 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
CURRENT LIABILITIES          
Accounts payable  $820,135   $239,132 
Advance from customers   48,347    737 
Accrued sales return liability   1,207,828    

97,265

 
Taxes payable   73,696    58,445 
Accrued liabilities and other payables   455,649    175,999 
Operating lease liabilities, current   54,412    46,114 
Due to related parties   159,838    142,714 
Total current liabilities   2,819,905    760,406 
NONCURRENT LIABILITIES          
Operating lease liabilities, non-current   83,992    62,546 
Total non-current liabilities   83,992    62,546 
           
TOTAL LIABILITIES   2,903,897    822,952 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS’ EQUITY          
Common stock; US$1 par value 50,000 shares authorized, 50,000
shares issued and outstanding as of December 31, 2020 and 2019 *
   50,000    50,000 
Additional paid-in capital   7,136,489    7,136,489 
Accumulated deficit   (1,956,794)   (2,002,512)
Accumulated other comprehensive income   462,064    105,327 
TOTAL STOCKHOLDERS’ EQUITY   5,691,759    5,289,304 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $8,595,656   $6,112,256 

 

*The shares amounts are presented on a retroactive basis.

 

Theaccompanying notes are an integral part of these consolidated financial statements

 

F-3
 

 

HENGGUANGHOLDING CO., LIMITED

CONSOLIDATEDSTATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(AS RESTATED)

 

   YEARS ENDED DECEMBER 31, 
   2020   2019 
         
Revenues, net          
Commission  $19,595,208   $22,723,168 
Claims adjusting   2,288,192    756,212 
Total revenues, net   21,883,400    23,479,380 
Cost of revenues   18,391,090    19,137,586 
Gross profit   3,492,310    4,341,794 
           
Operating expenses          
Selling   2,446,244    934,612 
General and administrative   1,468,907    941,483 
Total operating expenses   3,915,151    1,876,095 
           
(Loss) income from operations   (422,841)   2,465,699 
           
Non-operating income (expenses)          
Interest income   69,481    1,055 
Other income   426,752    1,289,035 
Other expenses   (1,000)   (437)
Non-operating income, net   495,233    1,289,653 
           
Income before income tax   72,392    3,755,352 
Income tax expense   26,674    942,622 
Net income   45,718    2,812,730 
           
Other comprehensive items          
Foreign currency translation gain (loss)   356,737    (53,054)
Comprehensive income  $402,455   $2,759,676 

 

Theaccompanying notes are an integral part of these consolidated financial statements

 

F-4
 

 

HENGGUANGHOLDING CO., LIMITED

CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY

YEARSENDED DECEMBER 31, 2020 AND 2019

(AS RESTATED)

 

   Common Stock*   Additional
Paid-in
   Accumulated   Accumulated
Other
Comprehensive
     
   Shares   Amount   Capital   Deficit   Income   Total 
                         
Balance at January 1, 2019   50,000   $50,000   $7,136,489   $(4,815,242)  $158,381   $2,529,628 
                               
Net income   -    -    -    2,812,730    -    2,812,730 
Foreign currency translation   -    -    -    -    (53,054)   (53,054)
Balance at December 31, 2019   50,000    50,000    7,136,489    (2,002,512)   105,327    5,289,304 
                               
Net income   -    -    -    45,718    -    45,718 
Foreign currency translation   -    -    -    -    356,737    356,737 
Balance at December 31, 2020   50,000   $50,000   $7,136,489   $(1,956,794)  $

462,064

   $5,691,759 

 

*The shares amounts are presented on a retroactive basis.

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-5
 

 

HENGGUANGHOLDING CO., LIMITED

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(AS RESTATED)

 

   YEARS ENDED DECEMBER 31, 
   2020   2019 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $45,718   $2,812,730 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   31,717    20,824 
Non-cash sales return allowance   1,240,855    1,673,531 
Non-cash cost of sales return allowance   (1,029,910)   (1,355,560)
Deferred tax   26,673    942,622 
Changes in assets / liabilities:          
Accounts receivable   6,985    (54,623)
Other receivables   (156,450)   489,447 
Prepaid commission cost   161,913    2,365,068 
Prepaid expenses   (80,078)   (21,754)
Accounts payable   533,963    42,238 
Taxes payable   10,716    (121,567)
Advance from customers   44,948    (66,960)
Accrued sales return liability   (197,438)   (2,971,543)
Accrued liabilities and other payables   253,157    (163,554)
Net cash provided by operating activities   892,769    3,590,899 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Acquisition of fixed assets   (91,473)   (36,189)
Acquisition of intangible assets   (34,934)   - 
Net cash used in investing activities   (126,407)   (36,189)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Due (from) to related parties   (451,298)   (3,868,523)
Net cash used in financing activities   (451,298)   (3,868,523)
           
EFFECT OF EXCHANGE RATE CHANGE ON CASH   96,129    (16,079)
           
NET INCREASE (DECREASE) IN CASH & EQUIVALENTS   411,193    (329,892)
           
CASH & EQUIVALENTS & RESTRICTED CASH, BEGINNING OF YEAR   1,162,471    1,492,363 
           
CASH & EQUIVALENTS & RESTRICTED CASH, END OF YEAR  $1,573,664   $1,162,471 
           
Supplemental Cash Flow Data:          
Income tax paid  $-   $- 
Interest paid  $-   $- 
           
Supplemental disclosure of non-cash investing activity:          
Right-of-use assets obtained in exchange for new operating
lease liabilities
  $83,812   $131,595 

 

Theaccompanying notes are an integral part of these consolidated financial statements

 

F-6
 

 

HENGGUANGHOLDING CO., LIMITED

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

(AS RESTATED)

 

NOTE1 – ORGANIZATION AND NATURE OF OPERATIONS

 

HengguangHolding Co., Limited (“Heng Guang Cayman” or the “Company”) is a holding company incorporated in the Cayman Islandson July 23, 2020. The Company operates as an agency to sell insurance products in the People’s Republic of China (“PRC”or “China”), through a variable interest entity (“VIE”), Sichuan Heng Guang Insurance Agency Co., Ltd., whichwas established on June 25, 2004 in PRC (“Heng Guang Insurance”).

 

HengGuang Shun Da Co., Ltd. (“Heng Guang BVI”) was incorporated under the laws of British Virgin Islands on March 29,2021, with a sole shareholder, Mr. Jiulin Zhang. On June 10, 2021, Mr. Jiulin Zhang transferred 50,000 shares of Heng Guang BVI to HengGuang Cayman for the consideration of $50,000. As a result of the transfer, Heng Guang BVI becomes a wholly-owned subsidiaryof Heng Guang Cayman.

 

HengGuang Holdings Co., Limited (“Heng Guang Hong Kong”) was incorporated on July 6, 2020 in Hong Kong, with a soleshareholder, Mr. Jiulin Zhang. On June 21, 2021, Mr. Jiulin Zhang transferred 10,000 shares of Heng Guang Hong Kong to Heng Guang BVIfor consideration of $1,290 (HKD 10,000). As a result of the transfer, Heng Guang Hong Kong becomes a wholly-owned subsidiary of HengGuang BVI.

 

HengGuang BVI and Heng Guang Hong Kong are holding companies. On October 14, 2020, Heng Guang Hong Kong established a Wholly Foreign-OwnedEnterprise in China, Sichuan Jiulin Kefu Techonology, Co., Ltd. (“Jiulin Kefu”, or “WFOE”). On December3, 2020, Jiulin Kefu entered into a series of contractual arrangements, or VIE agreements with Heng Guang Insurance and the equity holdersof Heng Guang Insurance, through which the Company obtained control and became the primary beneficiary of Heng Guang Insurance. As aresult, Heng Guang Insurance became the Company’s VIE.

 

InJune, 2021, the Company completed its reorganization (“Reorganization”) of the entities under the common control of two majorityshareholders, Mr. Jiulin Zhang and Ms. Chunling Mao, who is Mr. Jiulin Zhang’s wife, through their 100% controlled holding entitiesincorporated in BVI, and Hong Kong, and owned a majority of the equity interests of the Company and its VIE prior to and afterthe Reorganization. The Company was established as a holding company of Jiulin Kefu. Jiulin Kefu is the primary beneficiary of Heng GuangInsurance, and all of these entities are under common control of the Company’s ultimate controlling shareholders before and afterthe reorganization, which results in the consolidation of the Company and has been accounted for as a reorganization of entities undercommon control at carrying value and for accounting purpose, the reorganization was accounted for as a recapitalization. The consolidatedfinancial statements are prepared on the basis as if the Reorganization became effective as of the beginning of the first period presentedin the accompanying consolidated financial statements of the Company.

 

F-7
 

 

Thefollowing chart illustrates the Company’s corporate structure, including its subsidiaries and consolidated variable interest entityas of the date of the audit report:

 

 

 

VIEAgreements with Heng Guang Insurance

 

Uponthe completion of the reorganization, the Company, through the WFOE, entered into the following contractual arrangements with the VIEand its shareholders that enabled the Company to (1) have power to direct the activities that most significantly affects the economicperformance of the VIE, and (2) receive the economic benefits of the VIE that could be significant to the VIE. Accordingly, the WFOEwas considered the primary beneficiary of the VIE and had consolidated the VIE’s financial results of operations, assets and liabilitiesin the Company’s consolidated financial statements.

 

Contractsthat give the Company effective control of the VIE

 

LoanAgreement

 

Underthe Loan Agreement between WFOE and the shareholders of Heng Guang Insurance (“Shareholders”), WFOE agreed to grant the Shareholdersan interest-free loan in the aggregate amount of RMB 50,000,000 to the Shareholders of the Heng Guang Insurance, which may only be usedfor the purpose of the operations of Heng Guang Insurance, including the acquisition of other insurance agency companies, the formationof insurance assessment organizations, and the development of online insurance product and service platform. The Loan Agreement is effectivefor ten years and subject to automatic extension. No early repayment from the Shareholders is permitted without written consent of WFOE.The WFOE may require acceleration of repayment. When the Shareholders make repayment of the outstanding amount, the WFOE or a third partydesignated by the WFOE may, at any time, purchase the equity interests in the VIE at the lowest price allowed by the applicable PRC laws.When the WFOE exercise such right to purchase the VIE’s equity interests, the Shareholders shall immediately transfer their equityinterests in Heng Guang Insurance to the WFOE or a third party designated by the WFOE. The Shareholders also agreed to pledge all oftheir equity interests in Heng Guang Insurance to WFOE as a security interest. In addition, the Shareholders shall not pledge, transfer,or dispose of their equity interests in Heng Guang Insurance to any third party, without the written consent of WFOE.

 

F-8
 

 

EquityInterest Pledge Agreement

 

Underthe Equity Interest Pledge Agreement between WFOE, Heng Guang Insurance and the shareholders of Heng Guang Insurance (“Shareholders”),the Shareholders pledged all of their equity interests in Heng Guang Insurance to WFOE to guarantee the Shareholders’ or Heng GuangInsurance’s obligations under the Exclusive Business Cooperation and Service Agreement, Proxy Agreement, and Loan Agreement (together,the “Agreements”). Under the terms of the Equity Pledge Agreement, in the event that Heng Guang Insurance or Shareholdersbreaches its respective contractual obligations under any of the Agreements, as set forth in the Equity Pledge Agreement, WFOE, aspledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interest in Heng Guang Insurance andthe priority right to receive the proceeds from such disposition or sale in accordance with applicable PRC laws. The Shareholders furtheragreed not to transfer or dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest.

 

TheEquity Interest Pledge Agreement is effective until all obligations set forth in the Equity Pledge Agreement have been fulfilled by theShareholders or Heng Guang Insurance or until all the debt under the Loan Agreement has been repaid off, whichever occurs later.

 

ProxyAgreement

 

Underthe Proxy Agreement, the shareholders of Heng Guang Insurance (“Shareholders”) irrevocably authorized WFOE to act on behalfof the Shareholders as their exclusive agent and attorney with respect to all rights as shareholders, including but not limited to: (a)attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, designating and appointingon behalf of Shareholders the legal representative, directors, and certain executive officers of Heng Guang Insurance; (c) exercisingother shareholders’ rights as stated in the bylaws of Heng Guang Insurance.

 

Theterm of the Proxy Agreement is effective for ten years and subject to automatic extension unless otherwise agreed by the parties. TheProxy Agreement is irrevocable and continuously valid from the date of execution of the Proxy Agreement.

 

ExclusiveBusiness Cooperation and Service Agreement

 

Pursuantto the Exclusive Business Cooperation and Service Agreement between Huang Guang Insurance and WFOE, WFOE provides Heng Guang Insurancewith technical support, consulting services, intellectual services and other management services relating to its day-to-day businessoperations and management, on an exclusive basis. Additionally, Heng Guang Insurance shall not accept the aforementioned technical support,consulting services and other services from any third parties without the prior consent of the WFOE. For services rendered to Heng GuangInsurance by WFOE under this agreement, WFOE is entitled to collect a service fee calculated based on the value of services renderedby WFOE, of which the quantity of services rendered and the corresponding rate shall be determined by the WFOE. The WFOE owns the intellectualproperty rights arising out of the performance of the exclusive business cooperation agreement. Additionally, Heng Guang Insurance shallobtain the written consent of the WFOE prior to entering any material agreements with any third parties. Unless otherwise agreed by theparties, this agreement will remain effective for ten years and automatic extension of additional ten years.

 

Basedon the foregoing VIE Agreements, Jiulin Kefu has effective control of Heng Guang Insurance which enables Jiulin Kefu to receive all ofthe expected residual returns and absorb the expected losses of the VIE. Management therefore concludesthat the Company, through the above contractual arrangements, has the power to direct the activities that most significantly impact theVIE’s economic performance, bears the risks of and enjoys the rewards normally associated with ownership of the VIE, and thereforethe Company is the ultimate primary beneficiary of the VIE. Consequently, the Company consolidates the accounts of Heng GuangInsurance for the periods presented herein, in accordance with ASC 810-10, Consolidation.

 

F-9
 

 

InDecember 2019, a novel strain of coronavirus (COVID-19) was reported and the World Health Organization declared the outbreak to constitutea “Public Health Emergency of International Concern.” The Chinese government has implemented various precautionary measuresto contain the spread of the COVID-19, such as quarantines, travel restrictions, suspending certain transportation and limiting gatherings.The Company’s business operations rely heavily on the efforts of individual sales agents and claims adjustors by face-to-face interactionswith the general public or policy holders; accordingly, the Company incurred disruption in sales activities and operations to a certainextent which adversely affected the Company’s 2020 results of operations and caused the Company’s business expansion anddevelopment to be slower than expected.

 

NOTE2 – CORRECTIONS TO PREVIOUSLY ISSUEDCONSOLIDATED FINANCIAL STATEMENTS

 

Restatementfor the years ended December 31, 2019 and 2020

 

TheCompany re-evaluated its assessment for the estimates of allowance for cancellation for commissionrevenue and the allowance for cost of sales in connection with the cancellation for commission revenue. The Company previously assessedthat no allowance for cancellation was recognized for agency commission revenue as the management estimates that the cancellation ofpolicies is not material. Pursuant to the updated analysis, management determined that the allowancefor cancellation for commission revenue and the allowance for cost of revenue shall be recognized.

 

Therefore,management estimates and recognizes the allowance for cancellation for commission revenue and the corresponding allowance for cost ofrevenue based on its historical experience.

 

Inconnection with the change in allowance for sales cancellation, the Company restated its commission revenue and cost of revenue for theyears ended December 31, 2020 and 2019. The Company also restated its allowance for sales cancellation, which is classified as accruedsales return liability on the Consolidated Balance Sheets, and the allowance for cost of sales cancellation, which is classified as prepaidcommission cost on the Consolidated Balance Sheets, as of December 31, 2020 and 2019. Also, the Company had erroneously disclosed thatthe insurance claims adjusting revenue for the year ended December 31, 2020 to be $2,242,646, which shall be revised to $2,288,192. SeeNote 3, which have been updated to reflect the restatement.

 

Inaddition, the Company had erroneously stated that the deferred tax assets and income tax expenses to be $0 as of and for the year endedDecember 31, 2020 and 2019. The Company re-evaluated and determined that the deferred tax assets and income tax expense shall be recognizedas of and for the year ended December 31, 2020 and 2019. See Note 13, which have been updated to reflect the restatement.

 

TheCompany restated the consolidated financial statements for the above periods in order to correct the related asset, liability, accumulateddeficit, revenue, and cost of revenue accounts, as well as providing necessary revision for the notes of revenue recognition and incometaxes.

 

TheCompany included the following tables that present the effect of the correction discussed above and other adjustments on selected lineitems of our previously reported consolidated financial statements as of and for the years ended December 31, 2020 and 2019. Detailsof changes are presented in the following tables.

 

   As of and for the Year Ended December 31, 2019 
ITEMS  Previously         
   Reported   Adjustments   Restated 
Consolidated Balance Sheets               
Prepaid commission cost   -    78,784    78,784 
Total current assets   4,854,640    78,784    4,933,424 
Deferred tax assets   -    262,368    262,368 
Total non-current assets   916,464    262,368    1,178,832 
Total assets   5,771,104    341,152    6,112,256 
Accrued sales return liability   -    97,265    97,265 
Total current liabilities   663,141    97,265    760,406 
Total liabilities   725,687    97,265    822,952 
Accumulated deficit   (2,269,742)   267,230    (2,002,512)
Accumulated other comprehensive income   128,670    (23,343)   105,327 
Total stockholders’ equity   5,045,417    243,887    5,289,304 
Total liabilities and stockholders’ equity   5,771,104    341,152    6,112,256 
                
Consolidated Statements of Income and Comprehensive Income               
Total Revenues, net   22,181,369    1,298,011    23,479,380 
Cost of revenues   18,128,079    1,009,507    19,137,586 
Gross profit   4,053,290    288,504    4,341,794 
(Loss) income from operations   2,177,195    288,504    2,465,699 
Income before income tax   3,466,848    288,504    3,755,352 
Income tax expense   -    942,622    942,622 
Net income   3,466,848    (654,118)   2,812,730 
Foreign currency translation gain (loss)   (46,891)   (6,163)   (53,054)
Comprehensive income   3,419,957    (660,281)   2,759,676 
                
                
Consolidated Statements of Cash Flows               
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net income   3,466,848    (654,118)   2,812,730 
Adjustments to reconcile net income to net cash provided by operating activities:               
Non-cash sales return allowance   -    1,673,531    1,673,531 
Non-cash cost of sales return allowance   -    (1,355,560)   (1,355,560)
Deferred tax   -    942,622    942,622 
Changes in assets / liabilities:               
 Prepaid commission cost   -    2,365,068    2,365,068 
 Accrued sales return liability   -    (2,971,543)   (2,971,543)

 

F-10
 

 

   As of and for the Year Ended December 31, 2020 
ITEMS  Previously         
   Reported   Adjustments   Restated 
Consolidated Balance Sheets               
Prepaid commission cost   -    1,002,497    1,002,497 
Total current assets   6,240,972    1,002,497    7,243,469 
Deferred tax assets   -    251,708    251,708 
Total non-current assets   1,100,479    251,708    1,352,187 
Total assets   7,341,451    1,254,205    8,595,656 
Accrued sales return liability   -    1,207,828    1,207,828 
Total current liabilities   1,612,077    1,207,828    2,819,905 
Total liabilities   1,696,069    1,207,828    2,903,897 
Accumulated deficit   (2,021,931)   65,137    (1,956,794)
Accumulated other comprehensive income   480,824    (18,760)   462,064 
Total stockholders’ equity   5,645,382    46,377    5,691,759 
Total liabilities and stockholders’ equity   7,341,451    1,254,205    8,595,656 
                
Consolidated Statements of Income and Comprehensive Income               
Total Revenues, net   22,926,816    (1,043,416)   21,883,400 
Cost of revenues   19,259,087    (867,997)   18,391,090 
Gross profit   3,667,729    (175,419)   3,492,310 
(Loss) income from operations   (247,422)   (175,419)   (422,841)
Income before income tax   247,811    (175,419)   72,392 
Income tax expense   -    26,674    26,674 
Net income   247,811    (202,093)   45,718 
Foreign currency translation gain (loss)   352,154    4,583    356,737 
Comprehensive income   599,965    (197,510)   402,455 
                
Consolidated Statements of Cash Flows               
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net income   247,811    (202,093)   45,718 
Adjustments to reconcile net income to net cash provided by operating activities:               
Non-cash sales return allowance   -    1,240,855    1,240,855 
Non-cash cost of sales return allowance   -    (1,029,910)   (1,029,910)
Deferred tax   -    26,673    26,673 
Changes in assets / liabilities:               
Prepaid commission cost   -    161,913    161,913 
Accruedsales return liability   -    (197,438)   (197,438)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

Basis of Presentation

 

The accompanying consolidatedfinancial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United Statesof America (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission for financialinformation.

 

The consolidated financialstatements include the accounts of the Company and include the assets, liabilities, revenues and expenses of wholly owned subsidiaries,and VIE over which the Company exercises control and, when applicable, entity for which the Company has a controlling financial interestor is the primary beneficiary. All inter-company accounts and transactions have been eliminated in consolidation.

 

The Company adopteda fiscal year end of December 31st.

 

Use of Estimates

 

The preparation of financial statements in conformitywith U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosureof contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from these estimates. Significant estimates duringthe years ended December 31, 2020 and 2019 include the allowance for doubtful accounts, allowance for sales returns and cost of salesreturns, the useful life of property and equipment and intangible assets, and assumptions used in assessing impairment of long-livedassets.

 

Cashand Cash Equivalents

 

TheCompany considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cashand cash equivalents are comprised primarily of bank accounts. At December 31, 2020 and 2019, cash and cash equivalents balances heldin China amounted to $807,380 and $444,266, respectively.

 

Concentrationsof Credit Risk

 

Currently,the Company’s operations are carried out in China. Accordingly, the Company’s business, financial condition and results ofoperations may be influenced by the political, economic and legal environment in China, and by the general state of China’s economy.The Company’s operations in China are subject to specific considerations and significant risks not typically associated with companiesin North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws andregulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

F-11
 

 

AccountsReceivable and Allowance for Doubtful Accounts

 

Accountsreceivable are recorded at the invoiced amount and do not bear interest. Accounts receivable represent insurance agency service fee orcommission receivable on insurance products sold and service fee receivable for claims adjusting services primarily from insurance companies.

 

Accountsreceivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimatedlosses. The Company reviews the commissions receivable on a periodic basis and makes general and specific allowances when there is doubtas to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considersmany factors, including the age of the balance, insurance carrier’s historical payment history, its current credit-worthiness andcurrent economic trends.

 

Asof December 31, 2020 and 2019, management believes thatthe accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts was recorded for the years ended December31, 2020 and 2019. The Company historically has not experienced uncollectible accounts from insurance carriers granted with credit sales.

 

Propertyand Equipment

 

Propertyand equipment are stated at cost less accumulated depreciation, and depreciated on a straight-line basis over the estimated useful livesof the assets. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Thecost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retiredor disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included inincome/loss in the year of disposition. Estimated useful lives are as follows:

 

  Estimated Useful Life
Office equipment and furniture 3 - 5 Years
Vehicles 4 Years

 

IntangibleAssets

 

Intangibleassets consist of software and system platform and are being amortized on a straight-line method over the estimated useful life of 10years.

 

Impairmentof Long-lived Assets

 

Inaccordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicatethat the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment losswhen the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measuredas the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment chargefor the years ended December 31, 2020 and 2019.

 

ValueAdded Tax

 

Mostof the Company’s branch offices are subject to value-added-tax (“VAT”) of 6% for providing insurance agency serviceand claim adjusting service while the branch offices in Shandong Province, Liaoning Province and Henan Province are subject to 3% VATas small taxpayers (with preferential 1% VAT for year 2020 and 2021 due to Covid-19).The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of service provided. The Companyreports revenue net of PRC’s VAT for all the years presented on the statements of income and comprehensive income.

 

F-12
 

 

RevenueRecognition

 

OnJanuary 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modifiedretrospective transition method. The impact of adopting the new revenue standard was not material to the Company’s consolidatedfinancial statements and there was no adjustment to beginning accumulated deficit on January 1, 2018. The core principle of this newrevenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amountthat reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following fivesteps are applied to achieve that core principle:

 

  Step 1: Identify the contract with the customer
     
  Step 2: Identify the performance obligations in the contract
     
  Step 3: Determine the transaction price
     
  Step 4: Allocate the transaction price to the performance obligations in the contract
     
  Step 5: Recognize revenue when the company satisfies a performance obligation

 

TheCompany’s revenue from contracts with insurance companies is derived principally from the provision of agency and claims adjustingservices. According to ASC 606, revenue is recognized at a point in time upon the effective date of the insurance policy and the receiptof the premium, as no performance obligation exists after the insurance policy was signed and the premium was collected from theinsured. If there are other services within the contract, the Company estimates the stand-alone selling price for each separate performanceobligation, and the corresponding apportioned revenue is recognized over the period of time in which the customer receives the service,and as the performance obligations are fulfilled and the Company is entitled to that portion of revenue. In situations where multipleperformance obligations exist within a contract, the use of estimates is required to allocate the transaction price on a relative stand-aloneselling price basis to each separate performance obligation.

 

TheCompany disaggregates its revenue from different types of service contracts with customers by principal service categories. The followingis a description of the accounting policy for the principal revenue streams of the Company.

 

Insuranceagency services revenue

 

TheCompany, through its VIE, sells insurance products provided by insurance carriers to the insureds as an insurance agent, and is compensatedin the form of commissions from the respective insurance carriers, according to the terms of each service agreement made by and betweenthe Company and the insurance carriers. The amount ofrevenue to be recognized is determined by the service contracts between the Company and the insurance carriers, typically a percentageof insurance premium. The performance obligation is considered met and revenue is recognizedwhen the services are rendered and completed, at the time an insurance policy becomes effective, that is, when the signed insurance policyis in place and the premium is collected from the insured. The Company has met all the criteria of revenue recognition when the premiumsare collected by the respective insurance carriers and not before, because collectabilityis not ensured until receipt of the premium. Accordingly, the Company does not accrue any commission revenueprior to the receipt of the related premiums by the insurance carriers.

 

Managementestimates and recognizes allowance for cancellationfor commission revenue based on its historical experience. Any subsequent commission adjustments in connection with policycancellations, are recognized upon notification from the insurance carriers.

 

TheCompany reduces commission revenue and cost of revenue by an estimate of future customer cancellations, which is calculated based onhistorical experience, and records an allowance for sales cancellation and an estimated allowance for cost of sales cancellation. Theallowance for sales cancellation is classified as accrued sales return liability on the Consolidated Balance Sheets, totaling $1,207,828and $97,265 as of December 31, 2020 and 2019, respectively. The allowance for cost of sales cancellation is classified as prepaid commissioncost on the Consolidated Balance Sheets, totaling $1,002,497 and $78,784 as of December 31, 2020 and 2019, respectively, for the recoverablecommission cost estimated to be returned by the insurance agents.

 

Management’sestimated commission andfee adjustments in connection with the cancellation of policies were 5.96% and 6.86%, respectively, of the total commission revenuesduring year ended December 31, 2020 and 2019.

 

TheCompany recorded net insurance agency commission revenue, in the amount of $19,595,208 and $22,723,168 for the year endedDecember 31, 2020 and 2019, respectively.

 

Insuranceclaims adjusting services revenue

 

TheCompany also performs insurance claims adjustment service for insurance carriers, primarilyproviding the initial on-site accident and property damage inspection and investigation for auto insurance claims. Forinsurance claims adjusting services, performance obligation is considered met and revenue is recognized when the services are renderedand completed, at the time the accident or property damage reports are received by insurance carriers. The Company does not accrue anyservice fee before the receipt of an insurance company’s acknowledgement of receiving the reports.

 

F-13
 

 

TheCompany recorded net insurance claims adjusting services revenue in the amount of $2,288,192 and $756,212 for the year ended December31, 2020 and 2019, respectively.

 

Costof Revenues

 

Alarge component of the Company’s cost of revenue is sales commissions paid to individual sales agents. The Company generally recognizessales commissions as cost of revenues when incurred. In connection with cancellation of commission revenue, the Company is entitledto the return of commission cost paid to its insurance agents, and management has estimated an allowance for commission cost of cancellationin connection with the allowance for cancellation of commission revenue.

 

OperatingLeases

 

InFebruary 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)2016-02, Leases (Topic 842). Lessees are required to recognize a right-of-use asset and a lease liability for virtually all of theirleases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of lease payments.The asset is based on the liability, subject to certain adjustments, such as for initial direct costs. For income statement purposes,a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases result in straight-lineexpense (similar to operating leases under the prior accounting standard) while finance leases result in a front-loaded expense pattern(similar to capital leases under the prior accounting standard). Lessor accounting is similar to the prior model but updated to alignwith certain changes to the lessee model (e.g., certain definitions, such as initial direct costs, have been updated) and the new revenuestandard, ASU 2014-9.

 

TheCompany adopted this new accounting standard on January 1, 2019 and used the effective date as the date of initial application on a modifiedretrospective basis. As a result, comparative financial information has not been restated and continues to be reported under the accountingstandards in effect for those periods. The Company elected to adopt both the transition relief provided in ASU 2018-11 and the packageof practical expedients which allowed it, among other things, to retain historical lease classifications and accounting for any leasesthat existed prior to adoption of the standard. Additionally, the Company elected the practical expedients allowing it not to separatelease and non-lease components and not record leases with an initial term of twelve months or less (“short-term leases”)on the balance sheets across all existing asset classes. The new standard had a material impact on the balance sheets but did not materiallyimpact the Company’s operating results and had no impact on the Company’s beginning retained earnings and cash flows. Thefollowing is a discussion of the Company’s lease policy under the new lease accounting standard:

 

TheCompany determines if an arrangement contains a lease at the inception of a contract. At the commencement of each lease, management determinesits classification as an operating or finance lease. For leases that qualify as operating leases, right-of-use assets represent the Company’sright to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease paymentsarising from the lease. Right-of- use assets and lease liabilities are recognized at the commencement date based on the present valueof the remaining future minimum lease payments. As the interest rate implicit in the Company’s leases is not readily determinable,the Company utilizes its borrowing rates set by the Central Bank of the People’s Republic of China, determined by class of underlyingasset, to discount the lease payments.

 

TheCompany leases premises for offices under non-cancellable operating leases. Operating lease payments are expensed over the term of lease.The Company’s leases do not include options to extend nor any restrictions or covenants. The Company has historically been ableto renew a majority of its office leases. Under the terms of the lease agreements, the Company has no legal or contractual asset retirementobligations at the end of the lease.

 

Impactof New Lease Standard on Balance Sheet Line Items

 

Asa result of applying the new lease standard using a modified retrospective method, the Company recognized total operating lease right-of-useassets of $18,842, with corresponding lease liabilities of $18,842 as of January 1, 2019. There is no impact on equity as of January1, 2019, the date of adoption.

 

F-14
 

 

EmployeeBenefits

 

TheCompany makes mandatory contributions to the PRC government’s health, retirement benefit and unemployment funds in accordance withthe relevant Chinese social security laws. The costs of these payments are charged to the same accounts as the related salary costs inthe same period as the related salary costs incurred. Employee benefit costs totaled $46,889 and $102,929 for the years ended December31, 2020 and 2019, respectively.

 

IncomeTaxes

 

TheCompany accounts for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method,deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets andliabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. Deferred incometaxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidatedfinancial statements, net operating loss carry forwards and credits. The Company records a valuation allowance to offset deferred taxassets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assetswill not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includesthe enactment date.

 

TheCompany recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that theposition will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognitionthreshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greaterthan 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s liability associated withunrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developmentsand new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Company’seffective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as consideredappropriate by management. As of December 31, 2020 and 2019, the Company had no significant uncertain tax positions that qualify foreither recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to significant uncertainincome tax positions in other expense if any. There were no such interest and penalties as of December 31, 2020 and 2019. As ofDecember 31, 2020, income tax returns for the tax years ended December 31, 2015 through December 31, 2019 remain open for statutory examinationby PRC tax authorities.

 

ForeignCurrency Translation

 

Thereporting currency of the Company is the U.S. dollar (“USD”). The Company’s functional currency is the RMB, resultof operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at theunified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relatingto assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balanceson the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements intoU.S. dollars are included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated intothe functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currenciesare translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains andlosses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are includedin the results of operations as incurred.

 

Allof the Company’s revenue and expense transactions are transacted in the functional currency. The Company does not enter into anymaterial transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effecton the results of operations of the Company.

 

Theconsolidated balance sheet amounts, with the exception of equity, at December 31, 2020 and 2019 were translated at RMB 6.5250 to $1.00and at RMB 6.9618 to $1.00, respectively. Equity accounts were stated at their historical rates. The average translation rates appliedto consolidated statements of income and cash flows for the years ended December 31, 2020 and 2019 were RMB 6.9042 and RMB 6.9081 to$1.00, respectively.

 

F-15
 

 

ComprehensiveIncome

 

Comprehensiveincome is comprised of net income and all changes tothe statements of equity, except those due to investments by shareholders, changes in paid-in capital and distributions to shareholders.For the Company, comprehensive income for the years ended December 31, 2020 and 2019 consisted of net income and unrealized (loss) gainfrom foreign currency translation adjustment.

 

FairValue of Financial Instruments and Fair Value Measurements

 

TheCompany adopted the guidance of ASC 820 for fair value measurements which clarifies the definition of fair value, prescribes methodsfor measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

  Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
     
  Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
     
  Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

Thecarrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, prepaid expenses and other currentassets, taxes payable, accrued liabilities and other payables, and due from (to) related parties, approximate their fair market valuebased on the short-term maturity of these instruments.

 

ASC825-10, “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilitiesat fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unlessa new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument shouldbe reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstandinginstruments.

 

Commitmentsand Contingencies

 

Inthe normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business,that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurredand the amount of the assessment can be reasonably estimated.

 

Basicand diluted earnings per share (EPS)

 

ASCTopic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) witha reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue ordinarystock were exercised or converted into ordinary stock or resulted in the issuance of ordinary stock that then shared in the earningsof the Company.

 

Basicnet income per ordinary share are computed by dividing net income available to ordinary shareholders by the weighted average number ofshares of ordinary stock outstanding during the period. Diluted net income per ordinary share is computed by dividing net income by theweighted average number of shares of ordinary stock, ordinary stock equivalents and potentially dilutive securities outstanding duringeach period. Ordinary stock equivalents are not included in the calculation of diluted income per ordinary share if their effect wouldbe anti-dilutive.

 

TheCompany did not have any ordinary stock or equivalents and potentially dilutive ordinary stock outstanding during the years ended December31, 2020 and 2019.

 

F-16
 

 

SegmentReporting

 

ASC280 “Segment reporting” establishes standards for reporting information on operating segments in interim and annual financialstatements. The Company uses “the management approach” in determining reportable operating segments. The management approachconsiders the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisionsand assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operatingdecision maker is the Chief Executive Officer (“CEO”) and chairman of the Company, who reviews operating results to makedecisions about allocating resources and assessing performance for the entire Company.

 

TheCompany manages its business as a single operating segment engaged in the provision of insurance agent services and insurancerelated claims assessment services in the PRC. Substantially all of its revenues are derived in the PRC. All long-lived assets are locatedin PRC.

 

RelatedParties

 

Partiesare considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, arecontrolled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management,members of the immediate families of principal owners of the Company and its management and other parties with which the Company maydeal with if one party controls or can significantly influence the management or operating policies of the other to an extent that oneof the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant relatedparty transactions.

 

RecentAccounting Pronouncements

 

InDecember 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments inthis update simplify the accounting for income taxes by removing exceptions related to the incremental approach for intra-period taxallocation, certain deferred tax liabilities, and the general methodology for calculating income taxes in an interim period. The amendmentalso provides simplification related to accounting for franchise (or similar) tax, evaluating the tax basis step up of goodwill, allocationof consolidated current and deferred tax expense, reflection of the impact of enacted tax law or rate changes in annual effective taxrate calculations in the interim period that includes enactment date, and other minor codification improvements. For public businessentities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periodsin which financial statements have not yet been issued. The Company is currently in the process of evaluating the impact of adoptionof this standard on its financial statements.

 

InMarch 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practicalexpedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impactof the guidance and may apply the elections as applicable as changes in the market occur.

 

Otheraccounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to havea material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipatedto have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

F-17
 

 

NOTE4 – PREPAID EXPENSES

 

Prepaidexpenses consisted of the following at December 31, 2020 and 2019:

 

   December 31, 2020   December 31, 2019 
Prepaid rent  $19,732   $20,983 
Prepaid professional fees   93,646    - 
Other   19,539    24,180 
Total  $132,917   $45,163 

 

NOTE5 – OTHER RECEIVABLES

 

   December 31, 2020   December 31, 2019 
Deposits  $9,924   $6,716 
Advances to third parties   142,356    - 
Other   33,428    12,184 
Total  $185,708   $18,900 

 

Thebalances of advance to third parties were $142,356 and $0 as of December 31, 2020 and 2019, respectively. These advances are unsecured,bear no interest, and due on demand.

 

NOTE6 – RESTRICTED CASH

 

Pursuantto the regulation of China Insurance Regulatory Commission (“CIRC”), theinsurance agency and brokerage entities are required to select one of the 17 largest commercial banks or joint-stock commercial banksin China to enter into an escrow agreement for opening an escrow account and deposit no less than 10% of the Company’s registeredcapital into the escrow account. The Company can only deposit such funds in an agreed-upon savings account, certificate of deposit, andcannot be used as collateral by any means. As of December 31, 2020, and 2019, the Company had $766,284 and $718,205, respectively, inthe escrow account as restricted cash.

 

NOTE7 – PROPERTY AND EQUIPMENT

 

Propertyand equipment consisted of the following at December 31, 2020 and 2019:

 

   Useful life  December 31, 2020   December 31, 2019 
Office equipment and furniture  3 – 5 Years  $44,420   $41,634 
Vehicles  4 Years   142,870    43,189 
Total      187,290    84,823 
Less: accumulated depreciation      (72,740)   (44,744)
Property and equipment, net     $114,550   $40,079 

 

Forthe years ended December 31, 2020 and 2019, depreciation expense amounted to $23,627 and $14,707, respectively, which was included inoperating expenses.

 

NOTE8 – INTANGIBLE ASSETS

 

Intangibleassets consisted of the following at December 31, 2020 and 2019:

 

   Useful Life  December 31, 2020   December 31, 2019 
Software and platform  10 Years  $107,827   $66,416 
Less: accumulated amortization     (26,586)   (16,895)
Intangible assets, net     $81,241   $49,521 

 

F-18
 

 

Forthe years ended December 31, 2020 and 2019, amortization expense amounted to $8,090 and $6,117,respectively, which was included in operating expenses. Amortization of intangible assets attributable to future periods is asfollows:

 

Year ending December 31:  Amortization Amount 
2021  $10,783 
2022   10,783 
2023   10,783 
2024   10,783 
2025   10,783 
Thereafter   27,326 
   $81,241 

 

NOTE9 – TAXES PAYABLE

 

Taxespayable consisted of the following at December 31, 2020 and 2019:

 

   December 31, 2020   December 31, 2019 
VAT and add-on taxes  $72,033   $56,440 
Other   1,663    2,005 
Total  $73,696   $58,445 

 

NOTE10 – ACCRUED LIABILITIES AND OTHER PAYABLES

 

Accruedliabilities and other payables consisted of the following at December 31, 2020 and 2019:

 

   December 31, 2020   December 31, 2019 
Advance from third parties and employees  $352,756   $115,068 
Salary payable   46,757    32,854 
Other   56,136    28,077 
Total  $455,649   $175,999 

 

TheCompany had advances from employees and various third parties for working capital purpose. These advances are unsecured, bear no interestand are due on demand.

 

NOTE11 – RELATED PARTY TRANSACTIONS

 

Duefrom Related Parties

 

Amountdue from related parties consisted of the following at December 31, 2020 and 2019:

 

Name of related party  December 31, 2020   December 31, 2019 
Yixuan Zhang (son of the CEO and Chairman of the Board of Directors)  $3,702,041   $4,218,420 
Haibo Bai (Shareholder)   732,813    - 
Chunling Mao (Shareholder, spouse of the CEO and Chairman of the Board of Directors)   551,052    - 
   $4,985,906   $4,218,420 

 

Thebalances of due from related parties are unsecured, bear no interest, and are due on demand. Management believes that the balances ofdue from related parties are fully collectable. Therefore, no allowance for doubtful accounts is recorded based on management’sassessment.

 

F-19
 

 

Dueto Related Parties

 

Amountdue to related parties consisted of the following at December 31, 2020 and 2019:

 

Name of related party  December 31, 2020   December 31, 2019 
Xuefeng Huang (Shareholder)  $1,533   $1,436 
Branch Managers   158,305    141,278 
   $159,838   $142,714 

 

Thebalances of due to related parties are for working capital purpose. These balances are unsecured, bear no interest, and are due on demand.

 

NOTE12 – OTHER INCOME

 

Otherincome consists of the following for the years ended December 31, 2020 and 2019:

 

   December 31, 2020   December 31, 2019 
Subsidy income / government grant  $418,315   $1,281,625 
Other   8,437    7,410 
Total  $426,752   $1,289,035 

 

Forthe years ended December 31, 2020 and 2019, government grant primarily consists of $6,086 and $781,112, respectively, from Chengdu CityLongquanyi District government for supporting the Company to expand the business and make investment locally to promote the local economicdevelopment; and $410,470 and $463,056 grant from local Town government in Shandong Province for attracting and promoting the Companyto start the business and make investment locally.

 

NOTE13 – INCOME TAXES

 

CaymanIslands

 

Underthe current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividendsto the shareholders, no Cayman Islands withholding tax will be imposed.

 

HongKong

 

HengGuang Hong Kong is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutoryfinancial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% on its taxable incomegenerated from operations in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessableprofits derived from or earned in Hong Kong since inception. Additionally, payments of dividends by the subsidiary incorporated in HongKong to the Company are not subject to any Hong Kong withholding tax.

 

China

 

JiulinKefu and Heng Guang Insurance were incorporated in the PRC and subject to statutory income tax at a rate of 25% in the PRC.

 

Thecomponents of the provision for income taxes for the years ended December 31, 2020 and 2019 consisted of the following:

 

   For the Year Ended December 31, 
   2020   2019 
Current:          
China  $-   $- 
Total current   -    - 
Deferred:          
China   26,674    942,622 
Total deferred   26,674    942,622 
Total income tax expense  $26,674   $942,622 

 

Deferredtax assets (liabilities) as of December 31, 2020 and 2019 consisted of the following:

 

   December 31,   December 31, 
   2020   2019 
Deferred tax assets:          
Allowance for sales cancellation  $301,957   $24,316 
Net operating loss carry-forwards   200,375    257,748 
Total deferred tax assets   502,332    282,064 
Valuation allowance   -    - 
Deferred tax assets, net of valuation allowance   502,332    282,064 
Deferred tax liabilities:          
Allowance for cost of sales cancellation   (250,624)   (19,696)
Total deferred tax liabilities   (250,624)   (19,696)
Deferred tax assets, net  $251,708   $262,368 

 

TheCompany has net deferred tax assets in foreign jurisdiction, which management believes are more-likely-than-not to be fully realizedgiven the expectation of future earnings in China. The Company’s net operating loss carry-forwards as of December 31,2020 begins to expire in 2023.

 

The reconciliations ofthe statutory income tax rate and the Company’s effective income tax rate are as follows:

 

   2020   2019 
Hong Kong statutory income tax rate   16.5%   16.5%
Valuation allowance recognized with respect to the loss in the Hong Kong company   (16.5)%   (16.5)%
PRC statutory income tax rate   25%   25%
Permanent difference   10%   0%
Other   2%   0%
Total   37%   25%

 

F-20
 

 

Accountingfor Uncertainty in Income Taxes

 

Thetax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC afterthose enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subjectto change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’tax filings, which may lead to additional tax liabilities. ASC 740 requires recognition and measurement of uncertain income tax positionsusing a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and concluded that noprovision for uncertainty in income taxes was necessary as of December 31, 2020 and 2019.

 

NOTE14 – EQUITY

 

Theequity structures as of December 31, 2020 was presented after giving retroactive effect to the reorganization of the Company that wascompleted in the fiscal year 2021. Immediately before and after the reorganization, the shareholders of Heng Guang Insurance controlledHeng Guang Cayman. Therefore, for accounting purposes, the reorganization is accounted for as a transaction of entities under commoncontrol.

 

OrdinaryShares

 

OnJuly 23, 2020, Heng Guang was incorporated in the Cayman Islands. The Company’s authorized share capital consists of $50,000divided into 50,000 Ordinary Shares, issued and outstanding, with a par value of $1 per share.

 

StatutoryReserve

 

TheCompany operates in the PRC, are required to reserve 10% of their net profit after income tax, as determined in accordance with the PRCaccounting rules and regulations. Appropriation to the statutory reserve by the Company is based on profit arrived at under PRC accountingstandards for business enterprises for each year. The profit arrived at must be set off against any accumulated losses sustained by theCompany in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made beforedistribution of dividends to shareholders. The appropriation is required until the statutory reserve reaches 50% of the registered capital.This statutory reserve is not distributable in the form of cash dividends.

 

Duringthe years ended December 31, 2020 and 2019, the Company made appropriation to the statutory reserve account amounted to $0 each due tothe Company’s accumulated deficit.

 

NOTE15 – COMMITMENTS AND CONTINGENCIES

 

Contingencies

 

Fromtime to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business.Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, willhave a material adverse impact on its financial position, results of operations or liquidity.

 

OperatingLeases Commitments

 

TheCompany leases several office spaces for its head office and branch offices. Lease expense under all operating leases, included in operatingexpenses in the accompanying consolidated statements of income and comprehensive income, amounted to approximately $38,940 and $35,838for the years ended December 31, 2020 and 2019, respectively.

 

F-21
 

 

TheCompany adopted FASB ASC Topic 842 on January 1, 2019. The components of lease costs, lease term and discount rate with respect of theCompany’s office lease and the senior officers’ dormitory lease with an initial term of more than 12 months are as follows:

 

   Year Ended
December 31, 2020
   Year Ended
December 31, 2019
 
Operating lease expense  $38,940   $35,838 

 

   December 31, 2020   December 31, 2019 
Right-of-use assets  $138,404   $108,659 
Lease liabilities - current   54,412    46,114 
Lease liabilities - noncurrent   83,992    62,546 
Weighted average remaining lease term    3.00 years    3.37 years 
Weighted average discount rate   4.75%   4.75%

 

Thefollowing is a schedule, by years, of maturities of the operating lease liabilities as of December 31, 2020:

 

For the Year Ending December 31,  Minimum
Lease
Payment
 
2021  $59,748 
2022   41,307 
2023   38,242 
2024   8,756 
Total undiscounted cash flows   148,053 
Less: imputed interest   (9,649)
Present value of lease liabilities  $138,404 

 

F-22
 

 

NOTE16 – CONCENTRATIONS

 

Concentrationsof Credit Risk

 

Balancesat financial institutions and state-owned banks within the PRC are covered by insurance up to RMB 500,000 (US$71,000) per bank. At December31, 2020 and 2019, cash, cash equivalents and restricted cash balances held in the PRC are $1,573,664 and $1,162,471, of which, $1,094,789and $760,031 are uninsured as of December 31, 2020 and 2019, respectively. The Company has not experienced any losses in accounts heldin PRC’s financial institutions and believes it is not exposed to any risks on its cash, cash equivalents and restricted cash heldin the PRC’s financial institutions.

 

InsuranceCarriers

 

Thefollowing table sets forth information as to each insurance carrier that accounted for 10% or more of the Company’s netrevenue (restated) for the years ended December 31, 2020 and 2019.

 

Carrier  2020   2019 
A   30.07%   23.37%
B   22.26%   22.64%

 

Theabove two major insurance carriers’ outstanding accounts receivable was 6% and 56%, respectively, of the Company’s totaloutstanding accounts receivable at December 31, 2020.

 

Theabove two major insurance carriers’ outstanding accounts receivable was 12% and 71%, respectively, of the Company’s totaloutstanding accounts receivable at December 31, 2019.

 

Suppliers

 

Nosupplier accounted for 10% or more of the Company’s purchase during the years ended December 31, 2020 and 2019.

 

NOTE17 – SUBSEQUENT EVENTS

 

On June 7, 2021, Heng Guang Insurance receiveda demand letter from Grandway Law Offices on behalf of its client Chengdu Yaoran Enterprise Management Consulting Co., Ltd. (“YaoranConsulting”), claiming Yaoran Consulting’s alleged 5% ownership interest in the Company due to the services provided by YaoranConsulting based on an IPO service agreement between Yaoran Consulting and Heng Guang Insurance. The Company believes that Yaoran Consulting’sclaim is baseless and plans to defend itself and the integrity of the ownership interest of the Company should the threatened demandletter develop into a legal action.

 

Managementhas evaluated subsequent events through the date which the financial statements were available to be issued. All subsequent events requiringrecognition as of December 31, 2020 have been incorporated into these consolidated financial statements and there are no subsequent eventsthat require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”

 

Through and including [ ], 2021 (the 25th day afterthe date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, maybe required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriterand with respect to their unsold allotments or subscriptions. 

 

F-23
 

 

HENGGUANGHOLDING CO., LIMITED

CONSOLIDATEDBALANCE SHEETS

 

   June 30, 2021   December 31, 2020 
   (Unaudited)   (Restated) 
ASSETS          
CURRENT ASSETS          
Cash and cash equivalents  $3,866,645   $807,380 
Accounts receivable   172,763    129,061 
Prepaid expenses   55,896    132,917 
Other receivables   169,896    185,708 
Prepaid commission cost   986,605    1,002,497 
Due from related parties   743,012    4,985,906 
Total current assets   5,994,817    7,243,469 
           
NONCURRENT ASSETS          
Restricted cash   774,401    766,284 
Right-of-use assets, net   134,042    138,404 
Deferred tax asset   407,801    251,708 
Property and equipment, net   90,278    114,550 
Intangible assets, net   76,653    81,241 
Total non-current assets   1,483,175    1,352,187 
           
TOTAL ASSETS  $7,477,992   $8,595,656 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
CURRENT LIABILITIES          
Accounts payable  $330,917   $820,135 
Advance from customers   16,601    48,347 
Accrued sales return liability   1,196,227    1,207,828 
Taxes payable   91,947    73,696 
Accrued liabilities and other payables   240,327    455,649 
Operating lease liabilities   59,955    54,412 
Due to related parties   210,830    159,838 
Total current liabilities   2,146,804    2,819,905 
           
NONCURRENT LIABILITIES          
Operating lease liabilities   74,088    83,992 
Total non-current liabilities   74,088    83,992 
           
TOTAL LIABILITIES   2,220,892    2,903,897 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS’ EQUITY          
Common stock; US$1 par value 50,000 shares authorized, 50,000 shares issued and outstanding as of June 30, 2021 and December 31, 2020 *   50,000    50,000 
Additional paid in capital   7,136,489    7,136,489 
Accumulated deficit   (2,450,712)   (1,956,794)
Accumulated other comprehensive income   521,323    462,064 
TOTAL STOCKHOLDERS’ EQUITY   5,257,100    5,691,759 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $7,477,992   $8,595,656 

 

*The shares amounts are presented on a retroactive basis.

 

Theaccompanying notes are an integral part of these consolidated financial statements

 

F-24
 

 

HENGGUANGHOLDING CO., LIMITED

CONSOLIDATEDSTATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

 

   For the Six Months Ended June 30, 
   2021   2020 
         
Revenues, net          
Commission  $8,035,893   $9,505,071 
Claims adjusting   842,531    1,596,594 
Total revenues, net   8,878,424    11,101,665 
Cost of revenues   7,346,368    9,379,598 
Gross profit   1,532,056    1,722,067 
           
Operating expenses          
Selling   1,008,568    971,408 
General and administrative   1,371,853    670,437 
Total operating expenses   2,380,421    1,641,845 
           
(Loss) income from operations   (848,365)   80,222 
           
Non-operating income (expenses)          
Interest income   1,254    66,932 
Other income   223,276    294,906 
Other expenses   (23,188)   (185)
Non-operating income, net   201,342    361,653 
           
(Loss) income before income tax   (647,023)   441,875 
Income tax (benefit) expense   (153,105)   112,575 
Net (loss) income   (493,918)   329,300 
           
Other comprehensive items          
Foreign currency translation gain (loss)   59,259    (77,093)
Comprehensive (loss) income  $(434,659)  $252,207 

 

Theaccompanying notes are an integral part of these consolidated financial statements

 

F-25
 

 

HENGGUANGHOLDING CO., LIMITED

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the Six Months Ended June 30, 
   2021   2020 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net (loss) income  $(493,918)  $329,300 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation and amortization   20,264    11,681 
Non-cash sales return allowance   499,555    631,571 
Non-cash cost of sales return allowance   (412,015)   (530,519)
Gain on disposal of fix asset   (15,559)   - 
Non-cash other income   (90,852)   - 
Deferred tax   (153,105)   112,575 
Changes in assets and liabilities:          
Accounts receivable   (42,246)   (141,472)
Other receivables   17,742    (226,785)
Prepaid expenses   78,265    (29,544)
Prepaid commission cost   438,472    43,212 
Accounts payable   (496,860)   280,005 
Taxes payable   17,433    91,867 
Advance from customers   (32,190)   (726)
Accrued sales return liability   (523,900)   (51,444)
Accrued liabilities and other payables   (128,836)   40,303 
Net cash (used in) provided by operating activities   (1,317,750)   560,024 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (9,027)   - 
Proceeds from sales of property and equipment   35,192    - 
Net cash provided by investing activities   26,165    - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Due to (from) related parties   4,335,895    (440,107)
Net cash provided by (used in) financing activities   4,335,895    (440,107)
           
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS   23,072    (16,908)
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   3,067,382    103,009 
           
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD   1,573,664    1,162,471 
           
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD  $4,641,046   $1,265,480 
           
Supplemental Cash Flow Data:          
Income tax paid  $-   $- 
Interest paid  $-   $- 

 

Theaccompanying notes are an integral part of these consolidated financial statements

 

F-26
 

 

HENGGUANGHOLDING CO., LIMITED

CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

    Common Stock*                          
    Shares     Amount     Additional Paid-in Capital     Accumulated Deficit     Accumulated Other Comprehensive Income     Total  
                                     

Balance at December 31, 2020

(Restated)

    50,000     50,000     $ 7,136,489     $ (1,956,794 )   $ 462,064     $ 5,691,759  
Net loss     -       -       -       (493,918 )     -       (493,918 )
Foreign currency translation     -       -       -       -       59,259       59,259  
Balance at June 30, 2021     50,000      $ 50,000     $ 7,136,489     $ (2,450,712 )   $ 521,323     $ 5,257,100  
                                                 

Balance at December 31, 2019

(Restated)

    50,000      $ 50,000     $ 7,136,489     $ (2,002,512 )   $ 105,327     $ 5,289,304  
Net income     -       -       -       329,300       -       329,300  
Foreign currency translation     -       -       -       -       (77,093 )     (77,093 )
Balance at June 30, 2020     50,000      $ 50,000     $ 7,136,489     $ (1,673,212 )   $ 28,234     $ 5,541,511  

 

*The shares amounts are presented on a retroactive basis.

 

Theaccompanying notes are an integral part of these consolidated financial statements

 

F-27
 

 

HENGGUANGHOLDING CO., LIMITED

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE1 – ORGANIZATION AND NATURE OF OPERATIONS

 

HengguangHolding Co., Limited (“Heng Guang Cayman” or the “Company”) is a holding company incorporated in the Cayman Islandson July 23, 2020. The Company operates as an agency to sell insurance products in the People’s Republic of China (“PRC”or “China”), through a variable interest entity (“VIE”), Sichuan Heng Guang Insurance Agency Co., Ltd., whichwas established on June 25, 2004 in PRC (“Heng Guang Insurance”).

 

HengGuang Shun Da Co., Ltd. (“Heng Guang BVI”) was incorporated under the laws of British Virgin Islands on March 29, 2021, witha sole shareholder, Mr. Jiulin Zhang. On June 10, 2021, Mr. Jiulin Zhang transferred 50,000 shares of Heng Guang BVI to Heng Guang Caymanfor the consideration of $50,000. As a result of the transfer, Heng Guang BVI becomes a wholly-owned subsidiary of Heng Guang Cayman.

 

HengGuang Holdings Co., Limited (“Heng Guang Hong Kong”) was incorporated on July 6, 2020 in Hong Kong, with a sole shareholder,Mr. Jiulin Zhang. On June 21, 2021, Mr. Jiulin Zhang transferred 10,000 shares of Heng Guang Hong Kong to Heng Guang BVI for considerationof $1,290 (HKD 10,000). As a result of the transfer, Heng Guang Hong Kong becomes a wholly-owned subsidiary of Heng Guang BVI.

 

HengGuang BVI and Heng Guang Hong Kong are holding companies. On October 14, 2020, Heng Guang Hong Kong established a Wholly Foreign-OwnedEnterprise in China, Sichuan Jiulin Kefu Techonology, Co., Ltd. (“Jiulin Kefu”, or “WFOE”). On December 3, 2020,Jiulin Kefu entered into a series of contractual arrangements, or VIE agreements with Heng Guang Insurance and the equity holders ofHeng Guang Insurance, through which the Company obtained control and became the primary beneficiary of Heng Guang Insurance. As a result,Heng Guang Insurance became the Company’s VIE.

 

InJune, 2021, the Company completed its reorganization (“Reorganization”) of the entities under the common control of two majorityshareholders, Mr. Jiulin Zhang and Ms. Chunling Mao, who is Mr. Jiulin Zhang’s wife, through their 100% controlled holding entitiesincorporated in BVI, and Hong Kong, and owned a majority of the equity interests of the Company and its VIE prior to and after the Reorganization.The Company was established as a holding company of Jiulin Kefu. Jiulin Kefu is the primary beneficiary of Heng Guang Insurance, andall of these entities are under common control of the Company’s ultimate controlling shareholders before and after the reorganization,which results in the consolidation of the Company and has been accounted for as a reorganization of entities under common control atcarrying value and for accounting purpose, the reorganization was accounted for as a recapitalization. The consolidated financial statementsare prepared on the basis as if the Reorganization became effective as of the beginning of the first period presented in the accompanyingconsolidated financial statements of the Company.

 

VIEAgreements with Heng Guang Insurance

 

Uponthe completion of the reorganization, the Company, through the WFOE, entered into the following contractual arrangements with the VIEand its shareholders that enabled the Company to (1) have power to direct the activities that most significantly affects the economicperformance of the VIE, and (2) receive the economic benefits of the VIE that could be significant to the VIE. Accordingly, the WFOEwas considered the primary beneficiary of the VIE and had consolidated the VIE’s financial results of operations, assets and liabilitiesin the Company’s consolidated financial statements.

 

Contractsthat give the Company effective control of the VIE

 

LoanAgreement

 

Underthe Loan Agreement between WFOE and the shareholders of Heng Guang Insurance (“Shareholders”), WFOE agreed to grant the Shareholdersan interest-free loan in the aggregate amount of RMB 50,000,000 to the Shareholders of the Heng Guang Insurance, which may only be usedfor the purpose of the operations of Heng Guang Insurance, including the acquisition of other insurance agency companies, the formationof insurance assessment organizations, and the development of online insurance product and service platform. The Loan Agreement is effectivefor ten years and subject to automatic extension. No early repayment from the Shareholders is permitted without written consent of WFOE.The WFOE may require acceleration of repayment. When the Shareholders make repayment of the outstanding amount, the WFOE or a third partydesignated by the WFOE may, at any time, purchase the equity interests in the VIE at the lowest price allowed by the applicable PRC laws.When the WFOE exercise such right to purchase the VIE’s equity interests, the Shareholders shall immediately transfer their equityinterests in Heng Guang Insurance to the WFOE or a third party designated by the WFOE. The Shareholders also agreed to pledge all oftheir equity interests in Heng Guang Insurance to WFOE as a security interest. In addition, the Shareholders shall not pledge, transfer,or dispose of their equity interests in Heng Guang Insurance to any third party, without the written consent of WFOE.

 

F-28
 

 

EquityInterest Pledge Agreement

 

Underthe Equity Interest Pledge Agreement between WFOE, Heng Guang Insurance and the shareholders of Heng Guang Insurance (“Shareholders”),the Shareholders pledged all of their equity interests in Heng Guang Insurance to WFOE to guarantee the Shareholders’ or Heng GuangInsurance’s obligations under the Exclusive Business Cooperation and Service Agreement, Proxy Agreement, and Loan Agreement (together,the “Agreements”). Under the terms of the Equity Pledge Agreement, in the event that Heng Guang Insurance or Shareholdersbreaches its respective contractual obligations under any of the Agreements, as set forth in the Equity Pledge Agreement, WFOE, as pledgee,will be entitled to certain rights, including the right to dispose of the pledged equity interest in Heng Guang Insurance and the priorityright to receive the proceeds from such disposition or sale in accordance with applicable PRC laws. The Shareholders further agreed notto transfer or dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest.

 

TheEquity Interest Pledge Agreement is effective until all obligations set forth in the Equity Pledge Agreement have been fulfilled by theShareholders or Heng Guang Insurance or until all the debt under the Loan Agreement has been repaid off, whichever occurs later.

 

ProxyAgreement

 

Underthe Proxy Agreement, the shareholders of Heng Guang Insurance (“Shareholders”) irrevocably authorized WFOE to act on behalfof the Shareholders as their exclusive agent and attorney with respect to all rights as shareholders, including but not limited to: (a)attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, designating and appointingon behalf of Shareholders the legal representative, directors, and certain executive officers of Heng Guang Insurance; (c) exercisingother shareholders’ rights as stated in the bylaws of Heng Guang Insurance.

 

Theterm of the Proxy Agreement is effective for ten years and subject to automatic extension unless otherwise agreed by the parties. TheProxy Agreement is irrevocable and continuously valid from the date of execution of the Proxy Agreement.

 

ExclusiveBusiness Cooperation and Service Agreement

 

Pursuantto the Exclusive Business Cooperation and Service Agreement between Huang Guang Insurance and WFOE, WFOE provides Heng Guang Insurancewith technical support, consulting services, intellectual services and other management services relating to its day-to-day businessoperations and management, on an exclusive basis. Additionally, Heng Guang Insurance shall not accept the aforementioned technical support,consulting services and other services from any third parties without the prior consent of the WFOE. For services rendered to Heng GuangInsurance by WFOE under this agreement, WFOE is entitled to collect a service fee calculated based on the value of services renderedby WFOE, of which the quantity of services rendered and the corresponding rate shall be determined by the WFOE. The WFOE owns the intellectualproperty rights arising out of the performance of the exclusive business cooperation agreement. Additionally, Heng Guang Insurance shallobtain the written consent of the WFOE prior to entering any material agreements with any third parties. Unless otherwise agreed by theparties, this agreement will remain effective for ten years and automatic extension of additional ten years.

 

Basedon the foregoing VIE Agreements, Jiulin Kefu has effective control of Heng Guang Insurance which enables Jiulin Kefu to receive all ofthe expected residual returns and absorb the expected losses of the VIE. Management therefore concludesthat the Company, through the above contractual arrangements, has the power to direct the activities that most significantly impact theVIE’s economic performance, bears the risks of and enjoys the rewards normally associated with ownership of the VIE, and thereforethe Company is the ultimate primary beneficiary of the VIE. Consequently, the Company consolidates the accounts of Heng GuangInsurance for the periods presented herein, in accordance with ASC 810-10, Consolidation.

 

F-29
 

 

InDecember 2019, a novel strain of coronavirus (COVID-19) was reported and the World Health Organization declared the outbreak to constitutea “Public Health Emergency of International Concern.” The Chinese government has implemented various precautionary measuresto contain the spread of the COVID-19, such as quarantines, travel restrictions, suspending certain transportation and limiting gatherings.The Company’s business operations rely heavily on the efforts of individual sales agents and claims adjustors by face-to-face interactionswith the general public or policy holders; accordingly, the Company incurred disruption in sales activities and operations to a certainextent which adversely affected the Company’s 2020 results of operations and caused the Company’s business expansion anddevelopment to be slower than expected.

 

NOTE2 – BASIS OF PRESENTATION

 

Theaccompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generallyaccepted in the United States of America (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and ExchangeCommission for financial information.

 

Theconsolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of whollyowned subsidiaries, and VIE over which the Company exercises control and, when applicable, entity for which the Company has a controllingfinancial interest or is the primary beneficiary. All inter-company accounts and transactions have been eliminated in consolidation.

 

TheCompany adopted a fiscal year end of December 31st.

 

NOTE3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Useof Estimates

 

Thepreparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significantestimates during the six months ended June 30, 2021 and 2020 include the allowance for doubtful accounts, allowance for sales returnsand cost of sales returns, the useful life of property and equipment and intangible assets, and assumptions used in assessing impairmentof long-lived assets.

 

Cashand Cash Equivalents

 

TheCompany considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cashand cash equivalents are comprised primarily of bank accounts. At June 30, 2021 and December 31, 2020 and, cash and cash equivalentsbalances held in China amounted to $3,866,645 and $807,380, respectively.

 

Concentrationsof Credit Risk

 

Currently,the Company’s operations are carried out in China. Accordingly, the Company’s business, financial condition and results ofoperations may be influenced by the political, economic and legal environment in China, and by the general state of China’s economy.The Company’s operations in China are subject to specific considerations and significant risks not typically associated with companiesin North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws andregulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

F-30
 

 

AccountsReceivable and Allowance for Doubtful Accounts

 

Accountsreceivable are recorded at the invoiced amount and do not bear interest. Accounts receivable represent insurance agency service fee orcommission receivable on insurance products sold and service fee receivable for claims adjusting services primarily from insurance companies.

 

Accountsreceivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimatedlosses. The Company reviews the commissions receivable on a periodic basis and makes general and specific allowances when there is doubtas to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considersmany factors, including the age of the balance, insurance carrier’s historical payment history, its current credit-worthiness andcurrent economic trends.

 

Asof June 30, 2021 and December 31, 2020, management believesthat the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts was recorded as of June 30, 2021 andDecember 31, 2020. The Company historically has not experienced uncollectible accounts from insurance carriers granted with credit sales.

 

Propertyand Equipment

 

Propertyand equipment are stated at cost less accumulated depreciation, and depreciated on a straight-line basis over the estimated useful livesof the assets. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Thecost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retiredor disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included inincome/loss in the year of disposition. Estimated useful lives are as follows:

 

  Estimated Useful Life
Office equipment and furniture 3 - 5 Years
Vehicles 3 - 4 Years

 

IntangibleAssets

 

Intangibleassets consist of software and system platform and are being amortized on a straight-line method over the estimated useful life of 10years.

 

Impairmentof Long-lived Assets

 

Inaccordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicatethat the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment losswhen the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measuredas the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment chargefor the six months ended June 30, 2021 and 2020.

 

ValueAdded Tax

 

Mostof the Company’s branch offices are subject to value-added-tax (“VAT”) of 6% for providing insurance agency serviceand claim adjusting service while the branch offices in Shandong Province, Liaoning Province and Henan Province are subject to 3% VATas small taxpayers (with preferential 1% VAT for year 2020 and 2021 due to Covid-19).The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount. The Company reports revenue netof PRC’s VAT for all the periods presented on the statements of income and comprehensive income.

 

F-31
 

 

RevenueRecognition

 

OnJanuary 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modifiedretrospective transition method. The impact of adopting the new revenue standard was not material to the Company’s consolidatedfinancial statements and there was no adjustment to beginning accumulated deficit on January 1, 2018. The core principle of this newrevenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amountthat reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following fivesteps are applied to achieve that core principle:

 

  Step 1: Identify the contract with the customer
     
  Step 2: Identify the performance obligations in the contract
     
  Step 3: Determine the transaction price
     
  Step 4: Allocate the transaction price to the performance obligations in the contract
     
  Step 5: Recognize revenue when the company satisfies a performance obligation

 

TheCompany’s revenue from contracts with insurance companies is derived principally from the provision of agency and claims adjustingservices. According to ASC 606, revenue is recognized at a point in time upon the effective date of the insurance policy and the receiptof the premium, as no performance obligation exists after the insurance policy was signed and the premium was collected from the insured.If there are other services within the contract, the Company estimates the stand-alone selling price for each separate performance obligation,and the corresponding apportioned revenue is recognized over the period of time in which the customer receives the service, and as theperformance obligations are fulfilled and the Company is entitled to that portion of revenue. In situations where multiple performanceobligations exist within a contract, the use of estimates is required to allocate the transaction price on a relative stand-alone sellingprice basis to each separate performance obligation.

 

TheCompany disaggregates its revenue from different types of service contracts with customers by principal service categories. The followingis a description of the accounting policy for the principal revenue streams of the Company.

 

Insuranceagency services revenue

 

TheCompany, through its VIE, sells insurance products provided by insurance carriers to the insureds as an insurance agent, and is compensatedin the form of commissions from the respective insurance carriers, according to the terms of each service agreement made by and betweenthe Company and the insurance carriers. The amount of revenue to be recognized is determined by the service contracts between the Companyand the insurance carriers, typically a percentage of insurance premium. The performance obligation is considered met and revenue isrecognized when the services are rendered and completed, at the time an insurance policy becomes effective, that is, when the signedinsurance policy is in place, and the premium is collected from the insured. The Company has met all the criteria of revenue recognitionwhen the premiums are collected by the respective insurance carriers and not before, because collectability is not ensured until receiptof the premium. Accordingly, the Company does not accrue any commission revenue prior to the receipt of the related premiums by the insurancecarriers.

 

Managementestimates and recognizes allowance for cancellation for commission revenue based on its historical experience. Any subsequent commissionadjustments in connection with policy cancellations, are recognized upon notification from the insurance carriers.

 

TheCompany reduces commission revenue and cost of revenue by an estimate of future customer cancellations, which is calculated based onhistorical experience, and records an allowance for sales cancellation and an estimated allowance for cost of sales cancellation. Theallowance for sales cancellation is classified as accrued sales return liability on the Consolidated Balance Sheets, totaling $1,196,227and $1,207,828 as of June 30, 2021 and December 31, 2020, respectively. The allowance for cost of sales cancellation is classified asprepaid commission cost on the Consolidated Balance Sheets, totaling $986,605 and $1,002,497 as of June 30, 2021 and December 31, 2020,respectively, for the recoverable commission cost estimated to be returned by the insurance agents.

 

Management’sestimated commission and fee adjustments in connection with the cancellation of policies were 5.85% and 6.23%, respectively, of the totalcommission revenues during six months ended June 30, 2021 and 2020.

 

F-32
 

 

TheCompany recorded net insurance agency commission revenue, in the amount of $8,035,893 and $9,505,071 for the six months ended June 30,2021 and 2020, respectively.

 

Insuranceclaims adjusting services revenue

 

TheCompany also performs insurance claims adjustment service for insurance carriers, primarily providing the initial on-site accident andproperty damage inspection and investigation for auto insurance claims. For insurance claims adjusting services, performance obligationis considered met and revenue is recognized when the services are rendered and completed, at the time the accident or property damagereports are received by insurance carriers. The Company does not accrue any service fee before the receipt of an insurance company’sacknowledgement of receiving the reports.

 

TheCompany recorded net insurance claims adjusting services revenue in the amount of $842,531 and $1,596,594 for the six months ended June30, 2021 and 2020, respectively.

 

Costof Revenues

 

Alarge component of the Company’s cost of revenue is commissions paid to individual sales agents. The Company generally recognizescommissions as cost of revenues when incurred. In connection with cancellation of commission revenue, the Company is entitled to thereturn of commission cost paid to its insurance agents, and management has estimated an allowance for commission cost of cancellationin connection with the allowance for cancellation of commission revenue.

 

OperatingLeases

 

TheCompany adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) using the modified retrospective approach,electing the practical expedient that allows the Company not to restate prior to the adoption of the standard on January 1, 2019.

 

TheCompany applied the following practical expedients in the transition to the new standard allowed under ASC 842:

 

Practical Expedient   Description
Reassessment of expired or existing contracts   The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases.
Use of hindsight   The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets.
Reassessment of existing or expired land easements   The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02.
Separation of lease and non-lease components   Lease agreements that contain both lease and non-lease components are generally accounted for separately.
Short-term lease recognition exemption   The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months.

 

F-33
 

 

TheCompany determines if an arrangement is a lease at inception under FASB ASC Topic 842, Right of Use Assets (“ROU”) and leaseliabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For thispurpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do notprovide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determiningthe present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understandingof what its credit rating would be. The ROU assets include adjustments for prepayments and accrued lease payments. The ROU asset alsoincludes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s leaseterms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.

 

ROUassets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subjectto the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.

 

ROUassets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independentfrom the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used,which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assetsand liabilities. The Company recognized no impairment of ROU assets as of June 30, 2021 and December 31, 2020. Operating leases are includedin operating lease ROU and operating lease liabilities (current and non-current), on the consolidated balance sheets.

 

EmployeeBenefits

 

TheCompany makes mandatory contributions to the PRC government’s health, retirement benefit and unemployment funds in accordance withthe relevant Chinese social security laws. The costs of these payments are charged to the same accounts as the related salary costs inthe same period as the related salary costs incurred. Employee benefit costs totaled $49,127 and $25,096 for the six months ended June30, 2021 and 2020, respectively.

 

IncomeTaxes

 

TheCompany accounts for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method,deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets andliabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. Deferred incometaxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidatedfinancial statements, net operating loss carry forwards and credits. The Company records a valuation allowance to offset deferred taxassets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assetswill not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includesthe enactment date.

 

TheCompany recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that theposition will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognitionthreshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greaterthan 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s liability associated withunrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developmentsand new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Company’seffective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as consideredappropriate by management. As of June 30, 2021 and December 31, 2020, the Company had no significant uncertain tax positions that qualifyfor either recognition or disclosure in the financial statements. The Company recognizes interestand penalties related to significant uncertain income tax positions in other expense if any. There were no such interest and penaltiesfor the six months ended June 30, 2021 and 2020. As of June 30, 2021 and December 31, 2020, income tax returns for the tax yearsended December 31, 2016 through December 31, 2019 remain open for statutory examination by PRC tax authorities.

 

F-34
 

 

ForeignCurrency Translation

 

Thereporting currency of the Company is the U.S. dollar (“USD”). The Company’s functional currency is the RMB, resultof operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at theunified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relatingto assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balanceson the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements intoU.S. dollars are included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated intothe functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currenciesare translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains andlosses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are includedin the results of operations as incurred.

 

Allof the Company’s revenue and expense transactions are transacted in the functional currency. The Company does not enter into anymaterial transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effecton the results of operations of the Company.

 

Theconsolidated balance sheet amounts, with the exception of equity, at June 30, 2021 and December 31, 2020 were translated at RMB 6.4566to $1.00 and at RMB 6.5250 to $1.00, respectively. Equity accounts were stated at their historical rates. The average translation ratesapplied to consolidated statements of income and cash flows for the six months ended June 30, 2021 and 2020 were RMB 6.4702 and RMB 7.0703to $1.00, respectively.

 

ComprehensiveIncome

 

Comprehensiveincome is comprised of net income and all changesto the statements of equity, except those due to investments by shareholders, changes in paid-in capital and distributions to shareholders.For the Company, comprehensive income for the six months ended June 30, 2021 and 2020 consisted of net income and unrealized (loss) gainfrom foreign currency translation adjustment.

 

FairValue of Financial Instruments and Fair Value Measurements

 

TheCompany adopted the guidance of ASC 820 for fair value measurements which clarifies the definition of fair value, prescribes methodsfor measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

  Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
     
  Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
     
  Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

Thecarrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, prepaid expenses and other currentassets, taxes payable, accrued liabilities and other payables, and due from (to) related parties, approximate their fair market valuebased on the short-term maturity of these instruments.

 

ASC825-10, “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilitiesat fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unlessa new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument shouldbe reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstandinginstruments.

 

F-35
 

 

Commitmentsand Contingencies

 

Inthe normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business,that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurredand the amount of the assessment can be reasonably estimated.

 

Basicand diluted earnings per share (EPS)

 

ASCTopic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) witha reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue ordinarystock were exercised or converted into ordinary stock or resulted in the issuance of ordinary stock that then shared in the earningsof the Company.

 

Basicnet income per ordinary share is computed by dividing net income available to ordinary shareholders by the weighted average number ofshares of ordinary stock outstanding during the period. Diluted net income per ordinary share is computed by dividing net income by theweighted average number of shares of ordinary stock, ordinary stock equivalents and potentially dilutive securities outstanding duringeach period. Ordinary stock equivalents are not included in the calculation of diluted income per ordinary share if their effect wouldbe anti-dilutive.

 

TheCompany did not have any ordinary stock or equivalents and potentially dilutive ordinary stock outstanding during the six months endedJune 30, 2021 and 2020.

 

SegmentReporting

 

ASC280 “Segment reporting” establishes standards for reporting information on operating segments in interim and annual financialstatements. The Company uses “the management approach” in determining reportable operating segments. The management approachconsiders the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisionsand assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operatingdecision maker is the Chief Executive Officer (“CEO”) and chairman of the Company, who reviews operating results to makedecisions about allocating resources and assessing performance for the entire Company.

 

TheCompany manages its business as a single operating segment engaged in the provision of insurance agent services and insurance relatedclaims assessment services in the PRC. Substantially all of its revenues are derived in the PRC. All long-lived assets are located inPRC.

 

RelatedParties

 

Partiesare considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, arecontrolled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management,members of the immediate families of principal owners of the Company and its management and other parties with which the Company maydeal with if one party controls or can significantly influence the management or operating policies of the other to an extent that oneof the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant relatedparty transactions.

 

RecentAccounting Pronouncements

 

InJune 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expectedcredit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable andsupportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financialassets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginningafter December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscalyears, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidatedfinancial statements.

 

F-36
 

 

InMay 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50),Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or anexchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchangeas an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange asthe difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modificationor exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatmentfor each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt originationor modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periodswithin those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurringon or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity electsto early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includesthat interim period. The adoption of ASU 2021-04 is not expected to have material impact on the Company’s consolidatedfinancial statements presentation or disclosures.

 

Otheraccounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to havea material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipatedto have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

NOTE4 – PREPAID EXPENSES

 

Prepaidexpenses consisted of the following at June 30, 2021 and December 31, 2020:

 

   June 30, 2021   December 31, 2020 
Prepaid rent and management fees  $12,475   $19,732 
Prepaid professional fees   -    93,646 
Prepaid software development fees   36,242    - 
Other   7,179    19,539 
Total  $55,896   $132,917 

 

NOTE5 – OTHER RECEIVABLES

 

   June 30, 2021   December 31, 2020 
Deposits  $8,480   $9,924 
Advances to third parties   123,176    142,356 
Other   38,240    33,428 
Total  $169,896   $185,708 

 

Thebalances of advance to third parties were $123,176 and $142,356 as of June 30, 2021 and December 31, 2020, respectively. These advancesare unsecured, bear no interest, and due on demand.

 

NOTE6 – RESTRICTED CASH

 

Pursuantto the regulation of China Insurance Regulatory Commission (“CIRC”), theinsurance agency and brokerage entities are required to select one of the 17 largest commercial banks or joint-stock commercial banksin China to enter into an escrow agreement for opening an escrow account and deposit no less than 10% of the Company’s registeredcapital into the escrow account. The Company can only deposit such funds in an agreed-upon savings account, certificate of deposit, andcannot be used as collateral by any means. As of June 30, 2021 and December 31, 2020, the Company had $774,401 and $766,284, respectively,in the escrow account as restricted cash.

 

F-37
 

 

NOTE7 – PROPERTY AND EQUIPMENT

 

Propertyand equipment consisted of the following at June 30, 2021 and December 31, 2020:

 

   Useful life  June 30, 2021   December 31, 2020 
Office equipment and furniture  3 – 5 Years  $44,890   $44,420 
Vehicles  3 – 4 Years   114,710    142,870 
Total      159,600    187,290 
Less: accumulated depreciation      (69,322)   (72,740)
Property and equipment, net     $90,278   $114,550 

 

Forthe six months ended June 30, 2021 and 2020, depreciation expense amounted to $14,827 and $8,411, respectively, which was included inoperating expenses.

 

NOTE8 – INTANGIBLE ASSETS

 

Intangibleassets consisted of the following at June 30, 2021 and December 31, 2020:

 

   Useful Life  June 30, 2021   December 31, 2020 
Software and platform  10 Years  $108,969   $107,827 
Less: accumulated amortization      (32,316)   (26,586)
Intangible assets, net     $76,653   $81,241 

 

Forthe six months ended June 30, 2021 and 2020, amortization expense amounted to $5,437 and $3,270,respectively, which was included in operating expenses. Amortization of intangible assets attributable to future periods is asfollows:

 

Year ending June 30:  Amortization Amount 
2022  $10,897 
2023   10,897 
2024   10,897 
2025   10,897 
2026   10,897 
Thereafter   22,168 
   $76,653 

 

NOTE9 – TAXES PAYABLE

 

Taxespayable consisted of the following at June 30, 2021 and December 31, 2020:

 

   June 30, 2021   December 31, 2020 
VAT and add-on taxes  $91,430   $72,033 
Other   517    1,663 
Total  $91,947   $73,696 

 

F-38
 

 

NOTE10 – ACCRUED LIABILITIES AND OTHER PAYABLES

 

Accruedliabilities and other payables consisted of the following at June 30, 2021 and December 31, 2020:

 

   June 30, 2021   December 31, 2020 
Advance from third parties and employees  $77,084   $352,756 
Security deposit   19,550    - 
Salary payable   71,988    46,757 
Other   71,705    56,136 
Total  $240,327   $455,649 

 

TheCompany had advances from employees and various third parties for working capital purpose. These advances are unsecured, bear no interestand are due on demand.

 

NOTE11 – RELATED PARTY TRANSACTIONS

 

Duefrom Related Parties

 

Amountdue from related parties consisted of the following at June 30, 2021 and December 31, 2020:

 

Name of related party  June 30, 2021   December 31, 2020 
Yixuan Zhang (son of the CEO and Chairman of the Board of Directors)  $-   $3,702,041 
Haibo Bai (Shareholder)   740,577    732,813 
Jiulin Zhang (CEO and Chairman of the Board of Directors)   1,007    - 
Branch Manager   1,428    - 
Chunling Mao (Shareholder, spouse of the CEO and Chairman of the Board of Directors)   -    551,052 
   $743,012   $4,985,906 

 

Thebalances of due from related parties are unsecured, bear no interest, and are due on demand. Management believes that the balances ofdue from related parties are fully collectable. Therefore, no allowance for doubtful accounts is recorded based on management’sassessment.

 

Dueto Related Parties

 

Amountdue to related parties consisted of the following at June 30, 2021 and December 31, 2020:

 

Name of related party  June 30, 2021   December 31, 2020 
Xuefeng Huang (Shareholder)  $-   $1,533 
Yixuan Zhang (son of the CEO and Chairman of the Board of Directors   46,933    - 
Branch Managers   163,897    158,305 
   $210,830   $159,838 

 

Thebalances of due to related parties are for working capital purpose. These balances are unsecured, bear no interest, and are due on demand.

 

NOTE12 – OTHER INCOME

 

Otherincome consists of the following for the six months ended June 30, 2021 and 2020:

 

   June 30, 2021   June 30, 2020 
Subsidy income / government grant  $111,343   $293,066 
Other   111,933    1,840 
Total  $223,276   $294,906 

 

Forthe six months ended June 30, 2021 and 2020, government grant primarily consists of $111,313 and $285,623 grant from local Town governmentfor attracting and promoting the Company to start the business and make investment locally. For the six months ended June 30, 2021, othermainly consist of former employee loans forgiveness of $90,852 and gain on disposal of property and equipment of $15,559.

 

F-39
 

 

NOTE13 – INCOME TAXES

 

CaymanIslands

 

Underthe current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividendsto the shareholders, no Cayman Islands withholding tax will be imposed.

 

HongKong

 

HengGuang Hong Kong is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutoryfinancial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% on its taxable incomegenerated from operations in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessableprofits derived from or earned in Hong Kong since inception. Additionally, payments of dividends by the subsidiary incorporated in HongKong to the Company are not subject to any Hong Kong withholding tax.

 

China

 

JiulinKefu and Heng Guang Insurance were incorporated in the PRC and subject to statutory income tax at a rate of 25% in the PRC.

 

Thecomponents of the provision for income taxes for the six months ended June 30, 2021 and 2020 consisted of the following:

 

   For the Six Months Ended June 30, 
   2021   2020 
Current:        
China  $-   $- 
Total current  -   - 
Deferred:          
China   (153,105)   112,575 
Total deferred   (153,105)   112,575 
Total income tax (benefit) expense  $(153,105)  $112,575 

 

Deferredtax assets (liabilities) as of June 30, 2021 and December 31, 2020 consisted of the following:

 

   June 30, 2021   December 31, 2020 
Deferred tax assets:          
Allowance for sales cancellation  $299,057   $301,957 
Net operating loss carry-forwards   355,395    200,375 
Total deferred tax assets   654,452    502,332 
Valuation allowance   -    - 
Deferred tax assets, net of valuation allowance   654,452    502,332 
Deferred tax liabilities:          
Allowance for cost of sales cancellation   (246,651)   (250,624)
Total deferred tax liabilities   (246,651)   (250,624)
Deferred tax assets, net  $407,801   $251,708 

 

F-40
 

 

TheCompany has net deferred tax assets in foreign jurisdiction, which management believes are more-likely-than-not to be fully realizedgiven the expectation of future earnings in China. The Company’s netoperating loss carry-forwards as of June 30, 2021 and December 31, 2020 begins to expire in 2023.

 

Thereconciliations of the statutory income tax rate and the Company’s effective income tax rate are as follows:

 

   2021   2020 
Hong Kong statutory income tax rate   16.5%   16.5%
Valuation allowance recognized with respect to the loss in the Hong Kong company   (16.5)%   (16.5)%
PRC statutory income tax rate   25%   25%
Permanent difference   (1)%   0%
Total   24%   25%

 

Accountingfor Uncertainty in Income Taxes

 

Thetax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC afterthose enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subjectto change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’tax filings, which may lead to additional tax liabilities. ASC 740 requires recognition and measurement of uncertain income tax positionsusing a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and concluded that noprovision for uncertainty in income taxes was necessary as of June 30, 2021 and December 31, 2020.

 

NOTE14 – EQUITY

 

Theequity structures as of June 30, 2021 and December 31, 2020 was presented after giving retroactive effect to the reorganization of theCompany that was completed in the fiscal year 2021. Immediately before and after the reorganization, the shareholders of Heng Guang Insurancecontrolled Heng Guang Cayman. Therefore, for accounting purposes, the reorganization is accounted for as a transaction of entities undercommon control.

 

OrdinaryShares

 

OnJuly 23, 2020, Heng Guang was incorporated in the Cayman Islands. The Company’s authorized share capital consists of $50,000 dividedinto 50,000 Ordinary Shares, issued and outstanding, with a par value of $1 per share.

 

StatutoryReserve

 

TheCompany operates in the PRC, are required to reserve 10% of their net profit after income tax, as determined in accordance with the PRCaccounting rules and regulations. Appropriation to the statutory reserve by the Company is based on profit arrived at under PRC accountingstandards for business enterprises for each year. The profit arrived at must be set off against any accumulated losses sustained by theCompany in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made beforedistribution of dividends to shareholders. The appropriation is required until the statutory reserve reaches 50% of the registered capital.This statutory reserve is not distributable in the form of cash dividends.

 

Duringthe six months ended June 30, 2021 and 2020, the Company made appropriation to the statutory reserve account amounted to $0 each dueto the Company’s accumulated deficit.

 

NOTE15 – COMMITMENTS AND CONTINGENCIES

 

Contingencies

 

Fromtime to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business.Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, willhave a material adverse impact on its financial position, results of operations or liquidity.

 

F-41
 

 

OnJune 7, 2021, Heng Guang Insurance received a demand letter from Grandway Law Offices on behalf of its client Chengdu Yaoran EnterpriseManagement Consulting Co., Ltd. (“Yaoran Consulting”), claiming Yaoran Consulting’s alleged 5% ownership interest inthe Company due to the services provided by Yaoran Consulting based on an IPO service agreement between Yaoran Consulting and Heng GuangInsurance. The Company believes that Yaoran Consulting’s claim is baseless and plans to defend itself and the integrity of theownership interest of the Company should the threatened demand letter develop into a legal action.

 

OperatingLeases Commitments

 

TheCompany leases several office spaces for its head office and branch offices. The Company adopted FASB ASC Topic 842 on January 1, 2019.The components of lease costs, lease term and discount rate with respect of the Company’s office lease with an initial term ofmore than 12 months are as follows:

 

   Six Months Ended June 30, 2021   Six Months Ended June 30, 2020 
Operating lease expense  $33,783   $26,331 
Cash paid related to operating lease liabilities  $33,783   $26,331 
Weighted average remaining lease term   2.51 years    3.05 years 
Weighted average discount rate   4.75%   4.75%

 

   June 30, 2021   December 31, 2020 
Right-of-use assets  $134,042   $138,404 
Lease liabilities - current   59,955    54,412 
Lease liabilities - noncurrent   74,088    83,992 

 

Thefollowing is a schedule, by years, of maturities of the operating lease liabilities as of June 30, 2021:

 

For the Year Ending June 30,  Minimum
Lease
Payment
 
2022  $64,437 
2023   48,761 
2024   27,872 
Total lease payments   141,070 
Less: imputed interest   (7,027)
Total lease liabilities  $134,043 

 

NOTE16 – CONCENTRATIONS

 

Concentrationsof Credit Risk

 

Balancesat financial institutions and state-owned banks within the PRC are covered by insurance up to RMB 500,000 (US$76,000) per bank. At June30, 2021 and December 31, 2020, cash, cash equivalents and restricted cash balances held in the PRC are $4,641,046 and $1,573,664, ofwhich, $4,122,560 and $1,094,789 are uninsured as of June 30, 2021 and December 31, 2020, respectively. The Company has not experiencedany losses in accounts held in PRC’s financial institutions and believes it is not exposed to any risks on its cash, cash equivalentsand restricted cash held in the PRC’s financial institutions.

 

F-42
 

 

InsuranceCarriers

 

Thefollowing table sets forth information as to each insurance carrier that accounted for 10% or more of the Company’s revenue forthe six months ended June 30, 2021 and 2020.

 

Carrier  2021   2020 
A   24.83%   18.44%
B   13.78%   33.99%
C   12.13%   3.99%

 

Theabove three major insurance carriers’ outstanding accounts receivable was 49%, 9%, and 0%, respectively, of the Company’stotal outstanding accounts receivable at June 30, 2021.

 

Theabove three major insurance carriers’ outstanding accounts receivable was 46%, 27%, and 6%, respectively, of the Company’stotal outstanding accounts receivable at June 30, 2020.

 

Suppliers

 

Nosupplier accounted for 10% or more of the Company’s purchase during the six months ended June 30, 2021 and 2020.

 

NOTE17 – SUBSEQUENT EVENTS

 

Managementhas evaluated subsequent events through the date which the financial statements were available to be issued. All subsequent events requiringrecognition as of June 30, 2021 have been incorporated into these consolidated financial statements and there are no subsequent eventsthat require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”

 

F-43
 

 

[               ] Class A Ordinary Shares

 

HENGGUANGHOLDING CO., LIMITED

 

 

 

PreliminaryProspectus

dated[  ], 2022

 

 
 

 

PARTII

 

INFORMATIONNOT REQUIRED IN PROSPECTUS

 

ITEM6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

 

Tothe extent permitted by law, we may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for anylegal costs incurred by an existing or former secretary or any of our officers in respect of any matter identified in above on conditionthat the secretary or officer must repay the amount paid by us to the extent that it is ultimately found not liable to indemnify thesecretary or that officer for those legal costs.

 

Pursuantto indemnification agreements, the form of which is filed as Exhibit 10.1 to this Registration Statement, we will agree to indemnifyour directors and officers against certain liabilities and expenses incurred by such persons in connection with claims made by reasonof their being such a director or officer.

 

Insofaras indemnification for liabilities arising under the Securities Act of 1933, as amended may be permitted to directors, officers or personscontrolling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is againstpublic policy as expressed in the Securities Act and is therefore unenforceable.

 

ITEM7. RECENT SALES OF UNREGISTERED SECURITIES.

 

Notapplicable.

 

ITEM8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

(a)Exhibits

 

SeeExhibit Index attached to this registration statement, which is incorporated by reference herein.

 

(b)Financial Statement Schedules

 

Scheduleshave been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated FinancialStatements or the Notes thereto.

 

ITEM9. UNDERTAKINGS.

 

Theundersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificatesin such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

Insofaras indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons ofthe registrant pursuant to the provisions described in Item 6, or otherwise, the registrant has been advised that in the opinion of theSecurities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is thereforeunenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expensesincurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding)is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will,unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdictionthe question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by thefinal adjudication of such issue.

 

Theundersigned registrant hereby undertakes that:

 

(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

i.To include any prospectus required by Section 10(a)(3) of the Securities Act;

 

ii.To reflect in the prospectus any facts or events arising after the effective date of the registration statement(or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth inthe registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollarvalue of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximumoffering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changesin volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation ofRegistration Fee” table in the effective Registration Statement;

 

II-1
 

 

iii.To include any material information with respect to the plan of distribution not previously disclosed in the registration statement orany material change to such information in the registration statement.

 

(2)That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to bea new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemedto be the initial bona fide offering thereof;

 

(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at thetermination of the offering

 

(4)To file a post-effective amendment to the registration statement to include any financial statements required by “Item 8.A. ofForm 20-F (17 CFR 249.220f)” at the start of any delayed offering or throughout a continuous offering. Financial statements andinformation otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus,by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessaryto ensure that all other information in the prospectus is at least as current as of the date of those financial statements.

 

(5)That, for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed aspart of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuantto Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the timeit was declared effective.

 

(6)For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectusshall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities atthat time shall be deemed to be the initial bona fide offering thereof.

 

(7)That, for the purpose of determining liability under the Securities Act to any purchaser:

 

Eachprospectus filed by the Registrant pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registrationstatements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and includedin the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registrationstatement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by referenceinto the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contractof sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that waspart of the registration statement or made in any such document immediately prior to such date of first use.

 

Insofaras indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons ofthe small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in theopinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore,unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuerof expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of anyaction, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit toa court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Actand will be governed by the final adjudication of such issue.

 

(8)For the purposes of determining liability under the Securities Act of 1933 to any purchaser in the initial distributions of the securities,the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registrationstatement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or soldto such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and willbe considered to offer or sell such securities to such purchaser:

 

(i)Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant toRule 424;

 

(ii)Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to bythe undersigned registrant;

 

(iii)The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrantor its securities provided by or on behalf of the undersigned registrant; and

 

(iv)Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(9)The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificatesin such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

II-2
 

 

SIGNATURES

 

Pursuantto the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets allof the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned,thereunto duly authorized, in the City of Chengdu, People’s Republic of China, on January 18, 2022.

 

  By: /s/ Jiulin Zhang
  Name: Jiulin Zhang
  Title: Chief Executive Officer

 

Pursuantto the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons inthe capacities and on the dates indicated.

 

Signature   Capacity   Date
         
/s/ Jiulin Zhang   Chief Executive Officer and Chairman of the Board   January 18, 2022
Jiulin Zhang   (Principal Executive Officer)    
         
/s/ Yao-te Wang   Chief Financial Officer   January 18, 2022
Yao-te Wang        

 

SIGNATUREOF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

 

Pursuantto the Securities Act of 1933, as amended, the undersigned, the duly authorized representative in the United States of America, has signedthis registration statement thereto in New York, NY on January 18, 2022.

 

SichenziaRoss Ference LLP

 

  By: /s/ Jay Kaplowitz
  Name: Jay Kaplowitz
  Title: Partner

 

II-3
 

 

EXHIBITINDEX

 

1.1*   Form of Underwriting Agreement
3.1*   Form of Amended and Restated Memorandum and Articles of Association of the Registrant
4.1*   Registrant’s Specimen Certificate for Class A Ordinary Shares
4.2**   Form of Subscription Agreement
4.3*   Form of Underwriter’s Warrant
5.1**   Form of Opinion of Ogier regarding the validity of the Class A Ordinary Shares being registered
8.1*   Opinion of Shanghai Novicentro Law Firm regarding certain PRC Tax matters (included in Exhibit 99.2)
10.1*   Form of Indemnification Agreement with the Registrant’s directors and officers
10.2*   Employment Agreement between the Registrant and the Chief Executive Officer of the Registrant
10.3*   Translation of Exclusive Business Management and Service Agreement, dated December 3, 2020 between Heng Guang Insurance and WFOE
10.4*   Translation of Equity Pledge Agreement, dated December 3, 2020, among WFOE, Heng Guang Insurance and Heng Guang Insurance Shareholders
10.5*   Translation of Exclusive Option Agreement, dated December 3, 2020, among WFOE, Heng Guang Insurance and Heng Guang Insurance Shareholders
10.6*   Translation of Proxy Agreement, dated December 3, 2020, among WFOE, Heng Guang Insurance and Heng Guang Insurance Shareholders
10.7*   Translation of Asset Purchase Agreement between Heng Guang Insurance and Heng Yun Da dated June 25, 2021
10.8*   Employment Agreement between the Registrant and the Chief Financial Officer of the Registrant
21.1*   Principal subsidiaries and consolidated affiliated entities of the Registrant
23.1*   Consent of KCCW Accountancy Corp., Independent Registered Public Accounting Firm
23.2**   Consent of Ogier (included in Exhibit 5.1)
23.3*   Consent of Shanghai Novicentro Law Firm, PRC counsel (included in Exhibit 99.2)
99.1*   Code of Business Conduct and Ethics of the Registrant
99.2*   Opinion of Shanghai Novicentro Law Firm, PRC counsel to the Registrant, regarding certain PRC law matters and the validity of the VIE agreements
99.3*   Consent of Guangming Liu, independent director nominee
99.4*   Consent of Edward Rhodes, independent director nominee
99.5*   Consent of Haosong Zhang, independent director nominee

 

  * Filed herewith.
  ** To be filed by amendments.

 

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