PART
I
Item
1. Identity of Directors, Senior Management and Advisers
Not
applicable for annual reports on Form 20-F.
Item
2. Offer Statistics and Expected Timetable
Not
applicable for annual reports on Form 20-F.
Item
3. Key Information
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A.
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Selected
Financial Data.
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In the table below, we provide you with summary
financial data of our company. The selected consolidated statement of income and other comprehensive income data for the years ended December
31, 2018, 2019 and 2020 and the selected consolidated balance sheet data as of December 31, 2019 and 2020 are derived from our audited
consolidated financial statements, which are included elsewhere in this annual report. The selected consolidated balance sheet data as
of December 31, 2016 is derived from our audited consolidated financial statements, which are not included in this annual report. Historical
results are not necessarily indicative of the results that may be expected for any future period. When you read this historical selected
financial data, it is important that you read it along with the historical statements and notes and “Operating and Financial Review
and Prospects” included elsewhere in this annual report.
Selected Consolidated
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|
|
|
Statement of Income and Other
|
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For The Years Ended December 31,
|
|
Comprehensive Income Data
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
(In U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
240,316,024
|
|
|
$
|
173,409,113
|
|
|
$
|
141,433,641
|
|
|
$
|
88,971,787
|
|
|
$
|
72,731,706
|
|
Cost of revenues
|
|
|
188,725,246
|
|
|
|
134,504,540
|
|
|
|
102,567,896
|
|
|
|
65,562,563
|
|
|
|
53,098,552
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|
Gross profit
|
|
|
51,590,778
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|
|
|
38,904,573
|
|
|
|
38,865,745
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|
|
|
23,409,224
|
|
|
|
19,633,154
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Total operating expenses
|
|
|
27,772,891
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|
|
|
26,318,771
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|
|
|
21,329,908
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|
|
|
14,766,524
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|
|
|
11,082,106
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Income from operations
|
|
|
23,817,887
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|
|
|
12,585,802
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|
|
|
17,535,837
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|
|
|
8,642,700
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|
|
|
8,551,048
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Other income and (expenses)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Government grants
|
|
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2,989,897
|
|
|
|
1,825,402
|
|
|
|
1,709,297
|
|
|
|
1,885,340
|
|
|
|
801,125
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Other income
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|
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1,803,014
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|
|
|
1,547,788
|
|
|
|
552,205
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|
|
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175,995
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|
|
|
479,387
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Other expense
|
|
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(434,048
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)
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|
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(202,688
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)
|
|
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(124,370
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)
|
|
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(331,641
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)
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|
|
(55,003
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)
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Interest expense
|
|
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(176,422
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)
|
|
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(190,808
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)
|
|
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(404,958
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)
|
|
|
(1,609
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)
|
|
|
(50,383
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)
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Total other income
|
|
|
4,182,441
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|
|
|
2,979,694
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|
|
|
1,732,174
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|
|
|
1,728,085
|
|
|
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1,175,126
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Income before provision for income taxes
|
|
|
28,000,328
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|
|
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15,565,496
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|
|
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19,268,011
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|
|
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10,370,785
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|
|
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9,726,174
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Income tax provision
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3,069,477
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|
|
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2,391,371
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2,966,880
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|
|
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1,255,654
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|
|
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1,448,923
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Net income
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|
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24,930,851
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13,174,125
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|
|
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16,301,131
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|
|
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9,115,131
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|
|
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8,277,251
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Net income attributable to noncontrolling interest
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|
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70,052
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|
|
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118,114
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|
|
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208,593
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|
|
|
341,672
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|
|
|
-
|
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Net income attributable to China Customer Relations Centers, Inc.
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|
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24,860,799
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|
|
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13,056,011
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|
|
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16,092,538
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|
|
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8,773,459
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|
|
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8,277,251
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Earnings per common share attributable to China Customer Relations Centers, Inc. – basic and fully diluted
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$
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1.36/1.36
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|
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$
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0.71/0.71
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|
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$
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0.88/0.88
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|
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$
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0.48/0.48
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$
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0.45/0.45
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|
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As of December 31,
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Selected Balance Sheet Data
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2020
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2019
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2018
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2017
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2016
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(In U.S. dollars)
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|
|
|
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Cash and cash equivalents
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$
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43,669,538
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$
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25,328,486
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$
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24,419,912
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$
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18,628,365
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|
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$
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15,947,268
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Total current assets
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114,870,576
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|
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74,543,209
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|
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58,939,783
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|
|
|
45,867,354
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|
|
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32,385,492
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Total non-current assets
|
|
|
29,087,284
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|
|
|
24,019,533
|
|
|
|
12,268,122
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|
|
|
10,069,477
|
|
|
|
5,338,137
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|
Total assets
|
|
|
143,957,860
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|
|
|
98,562,742
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|
|
|
71,207,905
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|
|
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55,936,831
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|
|
|
37,723,629
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Total current liabilities
|
|
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40,805,723
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|
|
|
27,043,612
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|
|
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17,889,549
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|
|
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15,823,091
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|
|
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9,220,397
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Total non-current liabilities
|
|
|
7,636,339
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6,068,702
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|
|
|
-
|
|
|
|
-
|
|
|
|
-
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Total liabilities
|
|
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48,442,062
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|
|
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33,112,314
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|
|
|
17,889,549
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|
|
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15,823,091
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|
|
|
9,220,397
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Total equity
|
|
|
95,515,798
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|
|
|
65,450,428
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|
|
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53,318,356
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|
|
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40,113,740
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|
|
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28,503,232
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Total liabilities and equity
|
|
$
|
143,957,860
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|
|
$
|
98,562,742
|
|
|
$
|
71,207,905
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|
|
$
|
55,936,831
|
|
|
$
|
37,723,629
|
|
Exchange
Rate Information
Our business is conducted in China, and the financial
records of WFOE and Taiying are maintained in RMB, their functional currency. However, we use the U.S. dollar as our reporting currency;
therefore, periodic reports made to shareholders will include current period amounts translated into U.S. dollars using the then-current
exchange rates, for the convenience of the readers. Our financial statements have been translated into U.S. dollars in accordance with
Accounting Standards Codification (“ASC”) 830-10, “Foreign Currency Matters.” We have translated our asset and
liability accounts using the exchange rate in effect at the balance sheet date. We translated our statements of operations using the average
exchange rate for the period. We reported the resulting translation adjustments under other comprehensive income. Unless otherwise noted,
we have translated balance sheet amounts with the exception of equity on December 31, 2020 at RMB 6.5277 to $1.00 as compared to
RMB 6.9668 to $1.00 on December 31, 2019. The average translation rates applied to income statement accounts for the years ended
December 31, 2020, 2019 and 2018 were RMB 6.9001, RMB 6.9072 and RMB 6.6146, respectively.
We
make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case
may be, at any particular rate, or at all. The Chinese government imposes control over its foreign currency reserves in part through
direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. The Company does not currently
engage in currency hedging transactions.
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B.
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Capitalization
and indebtedness.
|
Not
applicable for annual reports on Form 20-F.
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C.
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Reasons
for Offer and use of Proceeds.
|
Not
applicable for annual reports on Form 20-F.
Risks
Related to Our Business
We
may incur losses resulting from business interruptions resulting from occurrence of natural disasters, health epidemics and other outbreaks
or events.
Our
operations may be damaged in natural disasters such as earthquakes, floods, heavy rains, sand storms, tsunamis and cyclones, or other
events such as fires. Such natural disasters or other events may lead to disruption of information systems and telephone service for
sustained periods. Also, our business operations could be disrupted by health epidemics, such as the COVID-19, which broke out in January
2020. A prolonged outbreak of such illness or other adverse public health developments in China or elsewhere in the world could
have a material adverse effect on our business operations. In addition, our results of operations could be adversely affected to the
extent that any natural disaster or health epidemic harms the Chinese economy in general.
We
are likely to depend on third-party software, systems and services and an interruption in the services could have a material adverse
effect on our business, financial condition and results of operations.
Our
business and operations rely on China Telecom and China Mobile and may rely on other third parties to provide services, such as IT services,
or shipping and transportation services. We may experience operational problems attributable to the installation, implementation, integration,
performance, features or functionality of third-party software, access to communication networks and fiber optics, hosted environments,
systems and services. Any interruption in the availability or usage of the services provided by China Mobile or China Telecom or other
third parties could have a material adverse effect on our business, financial condition and results of operations.
Unexpected
network interruptions, security breaches or computer virus attacks could have a material adverse effect on our business, financial condition
and results of operations.
Our
business depends on the performance and reliability of the mobile telecommunications network of China Mobile or China Telecom, as the
case may be. We may not have access to alternative networks in the event of disruptions, failures or other problems with China Mobile
or China Telecom’s wireless infrastructure.
Any
failure to maintain the satisfactory performance, reliability, security and availability of our network infrastructure may cause significant
harm to our reputation and our ability to attract and maintain clients. Major risks involved in such network infrastructure include,
among others, any breakdowns or system failures resulting in a prolonged shutdown of all or a material portion of our servers, including
failures which may be attributable to sustained power outages, or effort to gain unauthorized access to our systems causing loss or corruption
of data or malfunctions of software or hardware.
Our
network systems are vulnerable to damage from fire, flood, power loss, telecommunications failures, computer viruses, hackings and other
similar events. Any network interruption or inadequacy that causes interruptions in the availability of our services or deterioration
in the quality of access to our services could reduce our user satisfaction and our competitiveness. In addition, any security breach
caused by hacking, which involves effort to gain unauthorized access to information or systems, or to cause intentional malfunctions
or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could
have a material adverse effect on our business, financial condition and results of operations. We do not maintain insurance policies
covering losses relating to our systems and we do not have business interruption insurance. See “Risk Factors - We have limited
business insurance coverage. Any future business liability, disruptions or litigation we experience might divert management focus from
our business and could significantly impact our financial results.”
Our
business is dependent upon the reliability and accessibility of China’s telecommunications and Internet infrastructure and if they
become nonfunctional our operational results could suffer as a result.
We
render our services via telecommunications and Internet networks, and therefore our ability to fulfill our contracts and generate revenue
and profits is dependent on those systems remaining available and accessible with minimal disruption or interruption. Just as we are
dependent on the reliability of our software and systems and the telecommunications networks of our principal clients, we are also dependent
on the operational reliability and capacity of China’s overall telecommunications and Internet infrastructure. Should this infrastructure
or key portions of it be disabled or become nonfunctional, we may not be able to secure alternate means of communication or alternate
means of accessing needed information. Our operational results could suffer as a result.
The
alteration of the revenue sharing percentage in our agreements with our customers or termination of these agreements could materially
and adversely impact our business operations and financial conditions.
Our
revenues and profitability could be materially and adversely affected if our customers decide to materially increase its revenue sharing
percentage in our agreements with them. In addition, in some instances our customers can impose monetary penalties upon us or even terminate
agreements with us, for a variety of reasons, including without limitation, the following:
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●
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if the customers receive a
high level of customer complaints about our call center service; or
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|
●
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if we fail to meet the performance standards
established by our customers from time to time.
|
Significant
changes in the policies or guidelines of our customers with respect to services provided by us may materially adversely affect our financial
condition and results of operations.
Our
clients may from time to time issue certain operating policies or guidelines. For example, our telecommunications clients may request
or state preferences for certain actions to be taken by all MVAS providers using their networks. A significant change in the policies
or guidelines of our clients may result in lower revenues or additional operating costs to us. We cannot assure that our financial condition
and results of operations will not be materially adversely affected by a change in policies or guidelines by our clients.
Our
clients may adopt technologies that decrease the demand for our services, which could harm our business, results of operations and financial
condition.
We
target clients that need our BPO services, and we depend on their continued need for our services. However, over time, our clients may
adopt new technologies that decrease the need for live customer interaction, such as interactive voice response, web-based self-help
and other technologies used to automate interactions with customers. The adoption of these technologies could reduce the demand for our
services, create pricing pressure and harm our business, results of operations and financial condition.
Failure
to maintain or strengthen our ability to provide quality BPO services to our clients will negatively affect our ability to grow revenues
and market share.
The
amount of fees we can charge our clients depends upon the size of potential customers that we can reach, the outbound cold calling success
rate, and the quality of our data mining work. Our clients, including telecommunications operators, e-commence companies, transportation
companies, and banks and insurances companies, choose us to provide BPO services in part because of the effectiveness and quality of
the services we offer. If we fail to maintain or increase the satisfaction level of our customers, or fail to solidify our brand name
and reputation as a quality provider of call center services and content services, our clients may be unwilling to pay the fees at a
level necessary for us to remain profitable.
Changes
in the regulation of the Chinese telecommunications industry could result in new burdens and expenses on service providers like us.
The
telecommunications industry in China operates in a highly regulated environment. Major telecommunications companies in China are state-owned
or controlled, and their business decisions and strategies are affected by government budgeting and spending plans. In addition, in December
2001, the Ministry of Industry and Information Technology of China promulgated a set of regulations governing telecommunications providers,
and these regulations were amended in 2015 with a classification system that covers, among other things, Type 2 (hereafter defined) value
added service providers such as us. Changes in the regulatory system may impose new costs and burdens on us, or affect us indirectly
by imposing new burdens and obligations onto our customers that, in turn, may be passed on to us under our agreements with customers.
If such changes occur, our financial performance may be adversely affected.
If
we fail to obtain and maintain the licenses, permits and approvals required or applicable to our business under the complex regulatory
environment for our businesses in China, our business, financial condition and results of operations may be materially and adversely
affected.
As
the telecommunication industry in China is still at a relatively early stage of development, new laws and regulations may be adopted
from time to time to address new issues that come to the authorities’ attention. Considerable uncertainties still exist with respect
to the interpretation and implementation of existing and future laws and regulations governing our business activities. We cannot assure
you that we will not be found in violation of any future laws and regulations or any of the laws and regulations currently in effect
due to changes in or discrepancies with respect to the relevant authorities’ interpretation of these laws and regulations. In addition,
we may be required to obtain additional license or approvals, and we cannot assure you that we will be able to timely obtain or maintain
all the required licenses or approvals or make all the necessary filings in the future. Should we be required to obtain additional licenses
or approvals, we may not be able to do so in a timely manner or at all. If we fail to obtain or maintain any of the required licenses
or approvals or make the necessary filings, or fail to obtain required licenses or approvals in a timely manner, we may be subject to
various penalties, such as confiscation of the net revenues that were generated through the unlicensed telecommunications activities,
the imposition of fines and the termination or restriction of our operations. Any such penalties may disrupt our business operations
or materially and adversely affect our business, financial condition and results of operations.
Further
restructuring of China’s telecommunications sector may have an adverse impact on our business prospects and results of operations.
Historically,
China’s telecommunications sector has been subject to a number of state-mandated restructurings. For example, in 2002 China Telecom
was split geographically into a northern division (consisting of 10 provinces) and a southern division (consisting of 21 provinces).
In
May 2008, China announced a new restructuring plan for the country’s telecommunications carriers. This restructuring plan reorganized
the operations of Chinese telecommunications carriers, creating three major carriers that have both mobile and fixed-line services. Moreover,
in 2013, the Chinese government started to permit mobile virtual network operators to lease and repackage mobile services for sale to
end customers. Such changes will lead to further intensified competition in China’s telecommunications industry. As a result, more
call center outsourcing solution providers will be competing for projects and telecommunications carriers may be able to exact lower
prices for our solutions and services. If we cannot effectively compete with our competitors, our profit margin will be reduced, and
our results of operations may be materially and adversely affected. Furthermore, telecommunications carriers may also find it more cost-effective
to keep or establish their own BPO operations, instead of outsourcing to third-party providers. If the outsourcing of such services is
reduced or reversed, our financial condition and results of operations may be materially and adversely affected.
Call
center services, particularly telemarketing services, may fall into disfavor among the public, reducing demand for our services.
Telemarketing
services, particularly outbound call center services, may fall into public disfavor if the recipients of calls find them annoying, burdensome
or otherwise overbearing. While we strive to render our services in a professional, polite and courteous manner, we cannot control the
public perception of telemarketing generally. Moreover, we do not always have control over the nature or subject matter of outbound calls
that our customers require us to make. Public hostility to telemarketing services generally, or to the particular types of calls our
customers would like us to make, could result in decreased demand for such services, and thus be detrimental to our revenues and profits.
The
growth of our business may be adversely affected due to public concerns over the security and privacy of confidential user information.
The
growth of our business may be inhibited if public concerns over the security and privacy of confidential user information transmitted
over the Internet and wireless networks are not adequately addressed. Our services may decline and our business may be adversely affected
if significant breaches of network security or user privacy occur.
The
intellectual property of our customers may be damaged, misappropriated, stolen or lost while in our possession, subjecting us to litigation
and other adverse consequences.
In
the course of providing services to our clients, we may have possession of or access to their intellectual property, including databases,
software, certificates of authenticity and similar valuable items of intellectual property. If our clients’ intellectual property
is damaged, misappropriated, stolen or lost, we could suffer adverse impacts to our business, including but not limited to:
|
●
|
claims
under client agreements or applicable law, or other liability for damages;
|
|
●
|
delayed
or lost revenue due to adverse client reaction;
|
|
●
|
negative
publicity; and
|
|
●
|
litigation
that could be costly and time-consuming.
|
Our
limited operating history makes it difficult to evaluate our future prospects and results of operations.
We
have a limited operating history. Taiying was established in 2007, CBPO, WFOE and CCRC were established in 2014. As our operating history
is limited, the revenues and income potential of our business and markets are unproven. Our limited operating history and the early stage
of development of the industry in which we operate makes it difficult to evaluate our business and future prospects. Although we expect
our revenues to grow, we cannot assure that we will maintain our profitability or that we will not incur net losses in the future. Any
significant failure to realize anticipated revenue growth could result in significant operating losses. Accordingly, you should consider
our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving markets such as the growing
market for call center services in the PRC. In addition, we face numerous risks, uncertainties, expenses and difficulties frequently
encountered by companies at an early stage of development. We will continue to encounter risks and difficulties in implementing our business
model, including (among other risks and difficulties) potential failure to:
|
●
|
offer
additional call center services to attract and retain a larger customer base;
|
|
●
|
increase
our revenue and market share by targeting specific markets with positive consumer demographics;
|
|
●
|
expand
our operations and service network to other provinces;
|
|
●
|
attract
additional customers and increase spending per customer;
|
|
●
|
attract
a wider client base and explore new mobile marketing opportunities to target segmented consumer groups;
|
|
●
|
increase
visibility of our brand and maintain customer loyalty;
|
|
●
|
respond
to competitive market conditions;
|
|
●
|
anticipate
and adapt to changing conditions in the markets in which we operate as well as changes in government regulations, mergers and acquisitions
involving our competitors, technological developments and other significant competitive and market dynamics;
|
|
●
|
manage
risks associated with intellectual property rights;
|
|
●
|
maintain
effective control of our costs and expenses;
|
|
●
|
raise
sufficient capital to sustain and expand our business;
|
|
●
|
attract,
train, retain and motivate qualified personnel, continue to train, motivate and retain our existing employees, attract and integrate
new employees, including into our senior management; and
|
|
●
|
upgrade
our technology to support additional research and development of new call center services.
|
We
cannot predict whether we will be successful in addressing any or all of these risks. If we are unsuccessful in addressing these risks
and uncertainties, our business, financial condition and results of operation may be materially and adversely affected.
The
markets in which we operate are highly competitive and fragmented. The competition could limit our ability to increase market share,
and materially adversely affect our business operations, financial condition and results of operations.
We
operate in a highly fragmented market and expect competition to persist and intensify in the future. The outsourcing industry is extremely
competitive, and outsourcers have historically competed based on pricing terms. Accordingly, we could be subject to pricing pressure
and may experience a decline in our average selling prices for our call center services. We compete with these companies primarily on
the basis of brand, type and timing of service offerings, content, customer service, business partners and channel relationships. We
also compete for experienced and talented employees. While we believe that we have certain advantages over our competitors, some of them
may have greater financial, human and other resources, longer operating histories, greater technological expertise, more recognizable
brand names and more established relationships than we do in the industries that we currently serve or may serve in the future. Some
of our competitors may enter into strategic or commercial relationships among themselves or with larger, more established companies in
order to increase their ability to address client needs. Increased competition, pricing pressure or loss of market share could reduce
our operating margin, which could harm our business, results of operations and financial condition. Furthermore, our competitors may
be able to develop or exploit new technologies faster than we can, or offer a broader range of services than we are presently able to
offer.
If
we fail to compete successfully against new and existing competitors, we may not be able to increase our market share, and our profitability
may be adversely affected.
We
do and will continue to face significant competition in the PRC in the BPO business. We compete for clients primarily on the basis of
our brand name, delivery method, price and the range of services that we offer. We also compete for overall advertising spending with
other alternative advertising media companies, such as the Internet, newspapers, television, magazines and radio.
Increased
competition will provide advertisers with a wider range of media and advertising service alternatives, which could force us to offer
lower prices for our services, resulting in reduced operating margins and profitability and a loss of market share. Some of our existing
and potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources. We
cannot assure that we will be able to successfully compete against new or existing competitors.
If
we are unable to respond successfully to technological or industry developments, our business may be materially adversely affected.
Rapid
advances in technology, industry standards and customer demands characterize the telecommunications industry. New technologies, industry
standards or market demands may render our existing services or technologies less competitive or even obsolete. Responding and adapting
to any technological developments and standard changes in our industry may require substantial time, effort and capital investment. If
we are unable to respond successfully to technology, industry and market developments, such developments may materially adversely affect
our business, results of operations and competitiveness.
Our
leased property interest may be defective and our right to lease the properties may be affected by such defects, which could cause significant
disruption to our business.
Under
the applicable PRC laws and regulations, all lease agreements are required to be registered with the local housing authorities. The landlords
of certain of our leased premises in China may have not completed the registration of their ownership rights or our leases with the relevant
authorities. Failure to complete these required registrations may expose our landlords, lessors and us to potential monetary fines. If
these registrations are not obtained in a timely manner, or at all, we may be subject to monetary fines or may have to relocate our offices,
which will incur the associated losses and adversely affect our normal business operations.
Our
operating margin will suffer if we are not able to maintain our pricing, utilize our employees and assets efficiently or maintain and
improve the current mix of services that we deliver.
Our
operating margin is largely a function of the prices that we are able to charge for our services, the new programs we are able to develop,
the efficient use of our assets, the utilization of our employees, and the geographical location from which we deliver services. For
example, China Mobile Beijing has transferred a portion of its call center service business to our Shandong Province location in an effort
to reduce costs and DiDi Chuxing has transferred a portion of its call center service business to our Shandong and Guangxi Province locations.
Our business model is predicated on our ability to objectively quantify the value that we provide to our clients. If we fail to succeed
on any of these objectives, we may experience a decline in our current operating margin.
The
rates we are able to charge for our services, our ability to manage our assets efficiently and the location from which we deliver our
services are affected by a number of factors, including, without limitation:
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our
clients’ perceptions of our ability to add value through our services;
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our
ability to objectively differentiate and verify the value we offer to our clients;
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the
introduction of new services by us or our competitors;
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our
ability to estimate demand for our services;
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our
ability to control costs and improve the efficiency of our employees; and
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general
economic and political conditions.
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Wage
increases in China may prevent us from sustaining our competitive advantage and could reduce our profit margins.
Wage costs for our call center professionals and
other employees form a significant part of our costs. For instance, in 2020, 2019 and 2018, our compensation and benefit expenses in respect
of our professionals was $152.13 million, $114.12 million and $90.68 million, accounting for 63%, 66%, and 64% of our total revenues,
respectively. Because of rapid economic growth and increased competition for skilled employees in China, we may need to increase our levels
of employee compensation more rapidly than in the past to remain competitive in retaining the quality and number of employees that our
business requires. Increases in the wages and other compensations we pay our employees in China could reduce our competitive strength;
especially if increase in wage costs of our call center professionals exceeds increase in our call center professionals’ billing
rate, we may suffer a reduction in profit margins. In addition, the future issuance of equity-based compensation to our professional staff
and other employees would also result in additional stock dilution for our shareholders.
We
depend on our key personnel, and our business and growth prospects may be severely disrupted if we lose their services.
Our
future success depends heavily upon the continued service of our key executives. In particular, we rely on the expertise and experience
of Gary Wang, our founder, chairman and chief executive officer. We rely on his industry expertise and experience in our business operations,
and in particular, his business vision, management skills, and working relationship with our employees, our other major shareholders,
the regulatory authorities, and many of our clients. If he became unable or unwilling to continue in his present position, or if he joined
a competitor or formed a competing company in violation of his employment agreement, we may not be able to replace him easily, our business
may be significantly disrupted and our financial condition and results of operations may be materially adversely affected.
We
do not maintain key man life insurance on any of our senior management or key personnel. The loss of any one of them would have a material
adverse effect on our business and operations. Competition for senior management and our other key personnel is intense and the pool
of suitable candidates is limited. We may be unable to locate a suitable replacement for any senior management or key personnel that
we lose. In addition, if any member of our senior management or key personnel joins a competitor or forms a competing company, they may
compete with us for customers, business partners and other key professionals and staff members of our company. Although each of our senior
management and key personnel has signed a confidentiality and non-competition agreement in connection with his employment with us, we
cannot assure that we will be able to successfully enforce these provisions in the event of a dispute between us and any member of our
senior management or key personnel.
In
addition, we compete for qualified personnel with other call center companies, and we face competition in attracting skilled personnel
and retaining the members of our senior management team. These personnel possess technical and business capabilities, including expertise
relevant to the BPO market, which are difficult to replace. There is intense competition for experienced senior management with technical
and industry expertise in the BPO industry, and we may not be able to retain our key personnel. Intense competition for these personnel
could cause our compensation costs to increase, which could have a material adverse effect on our results of operations. Our future success
and ability to grow our business will depend in part on the continued service of these individuals and our ability to identify, hire
and retain additional qualified personnel. If we are unable to attract and retain qualified employees, we may be unable to meet our business
and financial goals.
If
we fail to attract and retain enough sufficiently trained customer service associates and other personnel to support our operations,
our business, results of operations and financial condition will be seriously harmed.
We
rely on large numbers of customer service associates, and our success depends to a significant extent on our ability to attract, hire,
train and retain qualified customer service associates. Companies in the BPO market, including us, experience high employee attrition.
Our attrition rate for our customer service associates who remained with us following a 90-day training and orientation period was on
average approximately 5% per month. A significant increase in the attrition rate among our customer service associates could decrease
our operating efficiency and productivity. Our failure to attract, train and retain customer service associates with the qualifications
necessary to fulfill the needs of our existing and future clients would seriously harm our business, results of operations and financial
condition.
Our
senior management lacks experience in managing a public company and complying with laws applicable to operating as a U.S. public company
domiciled in the British Virgin Islands and failure to comply with such obligations could have a material adverse effect on our business.
Prior
to the completion of our initial public offering, Taiying operated as a private company located in the PRC. In connection with our initial
public offering, the senior management of Taiying formed CCRC in the British Virgin Islands, CBPO in Hong Kong and made WFOE a CCRC subsidiary
in the PRC. Taiying, its shareholder, and WFOE also entered into certain agreements that gave CCRC effective control over the operations
of Taiying by virtue of its ownership of CBPO and CBPO’s ownership of WFOE. In the process of taking these steps to prepare our
company for its initial public offering, Taiying’s senior management became the senior management of CCRC. None of CCRC’s
senior management has experience managing a public company or managing a British Virgin Islands company.
As
a result of our initial public offering, the Company became subject to laws, regulations and obligations that dis not previously apply
to it, and our senior management currently has limited experience in complying with such laws, regulations and obligations. For example,
CCRC will need to comply with the British Virgin Islands laws applicable to companies that are domiciled in that country. The senior
management is only experienced in operating the business of Taiying in compliance with Chinese laws. Similarly, by virtue of the initial
public offering, CCRC is required to file annual reports in compliance with U.S. securities and other laws. These obligations can be
burdensome and complicated, and failure to comply with such obligations could have a material adverse effect on CCRC. In addition, we
expect that the process of learning about such new obligations as a public company in the United States will require our senior management
to devote time and resources to such efforts that might otherwise be spent on the operation of our BPO business.
We
may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws.
In
connection with our initial public offering, we became subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), and other
laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons
and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to the Anti-Unfair Competition
Law of the PRC and the relevant anti-bribery provisions in the Criminal Law of the PRC, or together, the “PRC Anti-Bribery Laws.”
The current PRC Anti-Bribery Laws prohibit the payment of bribes to government officials, private companies or individuals in a commercial
transaction or their agents. We have operations, agreements with third parties, and make sales in China, which may experience corruption.
Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants or distributors
of our company, because these parties are not always subject to our control. We are in process of implementing an anticorruption program,
which prohibits the offering or giving of anything of value to foreign officials, directly or indirectly, for the purpose of obtaining
or retaining business. The anticorruption program also requires that clauses mandating compliance with our policy be included in all
contracts with foreign sales agents, sales consultants and distributors and that they certify their compliance with our policy annually.
It further requires all hospitality involving promotion of sales to foreign governments and government-owned or controlled entities to
be in accordance with specified guidelines. In the meantime, we believe to date we have complied in all material respects with the provisions
of the FCPA and the PRC Anti-Bribery Laws.
However,
our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants or distributors
of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or PRC Anti-Bribery Laws may result
in severe criminal or administrative sanctions, and we may be subject to other liabilities, which could negatively affect our business,
operating results and financial condition. In addition, the government may seek to hold our company liable for successor liability FCPA
violations committed by companies in which we invest or that we acquire.
Our
quarterly operating results are difficult to predict and may fluctuate significantly from period to period in the future.
Our
quarterly operating results may differ significantly from period to period due to factors such as, without limitation:
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client
losses or program terminations;
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variations
in the volume of business from clients resulting from changes in our clients’ operations;
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delays
or difficulties in expanding our operational facilities and infrastructure;
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changes
to our pricing structure or that of our competitors;
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inaccurate
estimates of resources and time required to complete ongoing programs;
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inaccurate
estimates of amounts billed by our clients for the services we provided during such period;
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ability
to hire and train new employees;
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seasonal
changes in the operations of our clients;
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business interruptions
resulting from occurrence of natural disasters, health epidemics and other outbreaks or events;
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a
deterioration of economic conditions in the PRC;
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potential
changes to the regulation of the advertising, Internet and wireless communications industries in the PRC; and
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seasonality
of economic activities in the PRC, such as the anticipated decrease in outbound calling during January and February each year due
to the Chinese Lunar New Year holiday, and the anticipated decrease in revenues during July and August due to overall slow commercial
activities during the summer months.
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As
a result, you may not be able to rely on period-to-period comparisons of our operating results as an indication of our future performance.
If our revenues for a particular quarter are lower than we expect, we may be unable to reduce our operating expenses for that quarter
by a corresponding amount, which would harm our operating results for that quarter relative to our operating results from other quarters.
We may
incur losses resulting from business interruptions resulting from occurrence of natural disasters, health epidemics and other outbreaks
or events.
Our
operations may be damaged in natural disasters such as earthquakes, floods, heavy rains, sand storms, tsunamis and cyclones, or other
events such as fires. Such natural disasters or other events may lead to disruption of information systems and telephone service for
sustained periods. Also, our business operations could be disrupted by health epidemics, such as the COVID-19 breaking out in January
2020. A prolonged outbreak of such illness or other adverse public health developments in China or elsewhere in the world could have
a material adverse effect on our business operations. In addition, our results of operations could be adversely affected to the extent
that any natural disaster or health epidemic harms the Chinese economy in general.
We
have limited business insurance coverage. Any future business liability, disruption or litigation we experience might divert management
focus from our business and could significantly impact our financial results.
Availability
of business insurance products and coverage in the PRC is limited, and most such products are expensive in relation to the coverage offered.
We have determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring such insurances
on commercially reasonable terms make it impractical for us to maintain such insurances. As a result, we do not have any business liability,
disruption or litigation insurance coverage for our operations in the PRC. Accordingly, a business disruption, litigation or natural
disaster may result in substantial costs and divert management’s attention from our business, which would have an adverse effect
on our results of operations and financial condition.
We
may require additional financing in the future and our operations could be curtailed if we are unable to obtain required additional financing
when needed.
We
may need to obtain additional debt or equity financing to fund future capital expenditures. While we do not anticipate seeking additional
financing in the immediate future, any additional equity financing may result in dilution to the holders of our outstanding shares of
capital stock. Additional debt financing may put us in situations that would restrict our freedom to operate our business, such as situations
that:
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limit
our ability to pay dividends or require us to seek consent for the payment of dividends;
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increase
our vulnerability to general adverse economic and industry conditions;
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require
us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash
flow to fund capital expenditures, working capital and other general corporate purposes; and
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limit
our flexibility in planning for, or reacting to, changes in our business and our industry.
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We
cannot guaranty that we will be able to obtain additional financing on terms that are acceptable to us, or any financing at all.
Potential
disruptions in the capital and credit markets may adversely affect our business, including the availability and cost of short-term funds
for liquidity requirements, which could adversely affect our results of operations, cash flows and financial condition.
Potential
changes in the global economy may affect the availability of business and consumer credit. We may need to rely on the credit markets,
particularly for short-term borrowings from banks in the PRC, as well as the capital markets, to meet our financial commitments and short-term
liquidity needs if internal funds from our operations are not available to be allocated to such purposes. Disruptions in the credit and
capital markets could adversely affect our ability to draw on such short-term bank facilities. Our access to funds under such credit
facilities is dependent on the ability of the banks that are parties to those facilities to meet their funding commitments, which may
be dependent on governmental economic policies in the PRC. Those banks may not be able to meet their funding commitments to us if they
experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers
within a short period of time.
Long-term
disruptions in the credit and capital markets could result from uncertainty, changing or increased regulations, reduced alternatives
or failures of financial institutions could adversely affect our access to the liquidity needed for our business. Any disruption could
require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for
our business needs can be arranged. Such measures may include deferring capital expenditures, and reducing or eliminating discretionary
uses of cash.
Continued
market disruptions could cause broader economic downturns, which may lead to decreased cellular telephone usage, decreased commercial
activities in general, and increased likelihood that customers will be unable to pay for our services. Further, bankruptcies or similar
events by or significant customers, or our other clients may cause us to incur bad debt expense at levels higher than historically experienced.
These events would adversely impact our results of operations, cash flows and financial position.
Rapid
growth and a rapidly changing operating environment may strain our limited resources.
We
may not have adequate operational, administrative and financial resources to sustain the growth we want to achieve. Taiying was incorporated
in December 2007. As of December 31, 2020, we had a total of approximately 14,057 full-time employees and 7,185 workers who are
not considered full-time employees under the PRC laws, including part-time workers, dispatched workers, reemployed workers after retirement,
and interns. We have experienced rapid growth in our employee headcount. This expansion has resulted, and will continue to result, in
substantial demands on our management resources. To manage our growth, we must develop and improve our existing administrative and operational
systems and our financial and management controls and further expand, train and manage our work force. As we continue these efforts,
we may incur substantial costs and expend substantial resources due to, among other things, different technology standards, legal considerations
and cultural differences.
Our
future success also depends on our product development, customer service, sales and marketing. If we fail to manage our growth and expansion
effectively, the quality of our services and our customer support may deteriorate and our business may suffer. This could prompt our
clients to discontinue their respective outsourcing relationships with us. We cannot assure that we will be able to efficiently or effectively
manage the growth of our operations, recruit top talent and train our personnel. Any failure to efficiently manage our expansion may
materially and adversely affect our business and future growth.
We
may be classified as a “Resident Enterprise” of China pursuant to the Enterprise Income Tax Law, and subject to unfavorable
tax consequences to us and our non-PRC shareholders.
Under the current laws and regulations relating
to enterprise income tax, resident enterprises pay income tax at the rate of 25% for their worldwide income while non-resident enterprises
pay 20% for their income generated from China. A “resident enterprise” is defined as an enterprise established outside of
China with “de facto management bodies” within China under the Enterprise Income Tax Law of China (the “EIT Law”).
The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production
and operations, personnel, accounting, and properties” of the enterprise.
On
April 22, 2009, the State Administration of Taxation of China (the “SAT”) issued the Circular 82 Concerning Relevant
Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria
of De Facto Management Bodies (“Circular 82”) further interpreting the application of the EIT Law and its implementation
to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Circular 82, an enterprise incorporated in an offshore
jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise”
if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial
or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books,
corporate stamps, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior
management frequently reside in China. The SAT issued a bulletin on August 3, 2011 to provide more guidance on the implementation of
Circular 82, or Bulletin 45. Bulletin 45 clarifies certain matters relating to resident status determination, post-determination administration
and competent tax authorities. In addition, the SAT issued a bulletin on January 29, 2014, which further provides that, among other things,
an entity that is classified as a “resident enterprise” in accordance with Circular 82 shall file the application for classifying
its status of residential enterprise with the local tax authorities where its main domestic investors are registered. From the year in
which the entity is determined to be a “resident enterprise,” any dividend, profit and other equity investment gain shall
be taxed in accordance with the enterprise income tax law and its implementing rules. A resident enterprise would have to pay a withholding
tax at a rate of 10% when paying dividends to its non-PRC shareholders.
We
do not believe that our company or its subsidiaries meet the conditions outlined in the preceding paragraph to be classified as a PRC
“resident enterprise,” since CCRC does not have a PRC enterprise or enterprise group as our primary controlling shareholder,
and we are not aware of any offshore company with a corporate structure similar to the company that has been deemed a PRC “resident
enterprise” by the PRC tax authorities.
However,
as the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect
to the interpretation of the term “de facto management body,” we cannot guarantee that the relevant authorities will not
make a contrary conclusion to ours. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise
income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax
at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would
mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, under the EIT
Law and its implementing rules, dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income.” Finally,
it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a
situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect to gains derived
by our non-PRC shareholders from transferring our shares. In addition to the uncertainty in how the new resident enterprise classification
could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. If we are required under
the Enterprise Income Tax law to withhold PRC income tax on our dividends payable to our foreign shareholders, or if we are required
to pay PRC income tax on the transfer of our shares under the circumstances mentioned above, the value of your investment in our common
shares may be materially and adversely affected. It is unclear whether in the event we are considered as a PRC resident enterprise, holders
of our shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries
or areas.
Our
bank accounts are not insured or protected against loss.
WFOE
and the Operating Companies maintain cash accounts with various banks and trust companies located in the PRC. Such cash accounts are
not insured or otherwise protected. Should any bank or trust company holding such cash deposits become insolvent, or if WFOE or an operating
company of ours is otherwise unable to withdraw funds, this entity would lose the cash on deposit with that particular bank or trust
company.
We
may not pay dividends.
We
have not previously paid any cash dividends, and we do not anticipate paying any dividends on our common shares. Although we have
achieved net profitability in 2020, 2019 and 2018, we cannot assure that our operations will continue to result in sufficient revenues
to enable us to operate at profitable levels or to generate positive cash flows. Furthermore, there is no assurance that our Board
of Directors will declare dividends even if we are profitable. Dividend policy is subject to the discretion of our Board of Directors
and will depend on, among other things, our earnings, financial condition, capital requirements and other factors. If we determine
to pay dividends on any of our common shares in the future, we will be dependent, in large part, on receipt of funds from Taiying. See
“Dividend Policy.”
Our
growth strategy may prove to be disruptive and divert management resources, which could adversely affect our existing businesses.
Our
growth strategy includes the continued expansion of Taiying’s call center operations and may include strategic acquisitions of
competitive operators. We do not have any understanding, commitment or agreement in place with regard to any such acquisitions at this
time. The implementation of such strategies may involve large transactions and present financial, managerial and operational challenges,
including diversion of management attention from existing businesses, difficulty with integrating personnel and financial and other systems,
increased expenses, including compensation expenses resulting from newly-hired employees, assumption of unknown liabilities and potential
disputes. We also could experience financial or other setbacks if any of our growth strategies encounter problems of which we are not
presently aware.
We
expect to allocate a portion of the net proceeds from our initial public offering to such acquisitions, but we have not yet located any
potential targets, and we may be unable to do so. Further, even if we find a target we believe to be suitable, we may be unable to negotiate
acquisition terms that are satisfactory to us. In the event we are unable to complete acquisitions, we will reserve the right to reallocate
such funds to our working capital. If this happens, we would have broad discretion over the ultimate use of such funds, and we could
use such funds in ways with which investors might disagree.
Furthermore,
any such acquisitions must comply with all PRC laws and regulations applicable to such transactions. The regulatory environment that
governs mergers and acquisitions in the PRC has continued to evolve in recent years and remains subject to interpretation by the agencies
that have responsibility for reviewing or approving such transactions. Compliance with such regulations in the process of structuring,
negotiating and closing such transactions will require us to expend company resources that would otherwise be available for and used
in the management and operation of the Company, all of which could have an adverse effect on our operations and financial results.
The
misappropriation of our intellectual property could have a material adverse effect on our business, financial condition and results of
operations.
Our
intellectual property rights are important to our business. We rely on a combination of trade secrets, confidentiality procedures and
contractual provisions to protect our intellectual property. We presently hold 14 patents, 14 registered trademark and have been granted
registered computer software ownership rights to 255 pieces of intellectual property rights by the China State Copyright Bureau. In addition,
we enter into confidentiality agreements with some of our employees and consultants, and control access to and distribution of our documentation
and other licensed information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our
technology without authorization, or to develop similar technology independently. Since the Chinese legal system in general, and the
intellectual property regime in particular, is relatively weak, it is often difficult to enforce intellectual property rights in China.
In addition, confidentiality agreements may be breached by counterparties, and there may not be adequate remedies available to us for
any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual
rights in China or elsewhere. In addition, policing any unauthorized use of our intellectual property is difficult, time-consuming and
costly and the steps we have taken may be inadequate to prevent the misappropriation of our intellectual property. In the event that
we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion
of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. Any failure in protecting
or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of
operations.
Risks
Relating to Our Corporate Structure
WFOE’s
contractual arrangements with Taiying may result in adverse tax consequences to us.
We
could face material and adverse tax consequences if the PRC tax authorities determine that WFOE’s contractual arrangements with
Taiying were not made on an arm’s length basis and adjust our income and expenses for PRC tax purposes in the form of a transfer
pricing adjustment. A transfer pricing adjustment could result in a reduction, for PRC tax purposes, of adjustments recorded by
Taiying, which could adversely affect us by increasing Taiying’s tax liability without reducing WFOE’s tax liability, which
could further result in late payment fees and other penalties to Taiying for underpaid taxes, all of which could have a material adverse
effect on our results of operations and financial condition.
WFOE’s
contractual arrangements with Taiying may not be as effective in providing control over Taiying as direct ownership.
We
conduct substantially all of our operations, and generate substantially all of our revenues, through contractual arrangements with Taiying
that provide us, through our ownership of WFOE, with effective control over Taiying. We depend on Taiying to hold and maintain contracts
with our customers. Taiying also own substantially all of our intellectual property, facilities and other assets relating to the
operation of our business, and employ the personnel for substantially all of our business. Neither our company nor WFOE has any ownership
interest in Taiying. Although we have been advised by our PRC legal counsel, that each contract under WFOE’s contractual arrangements
with Taiying is valid, binding and enforceable under current PRC laws and regulations, these contractual arrangements may not be as effective
in providing us with control over Taiying as direct ownership of Taiying would be. In addition, Taiying may breach the contractual arrangements. For
example, Taiying may decide not to make contractual payments to WFOE, and consequently to our company, in accordance with the existing
contractual arrangements. In the event of any such breach, we would have to rely on legal remedies under PRC law. These remedies
may not always be effective, particularly in light of uncertainties in the PRC legal system.
PRC
laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are
found to be in violation of such PRC laws and regulations, we could be subject to sanctions. In addition, changes in such PRC laws and
regulations may materially and adversely affect our business.
Prior
to July 30, 2019, foreign ownership of a call center BPO and its related business was subject to restrictions under PRC laws and regulations.
For example, foreign investors were not allowed to own more than 50% of the equity interests in a value-added telecommunication service
provider and any such foreign investor must have experience in providing value-added telecommunications services overseas and maintain
a good track record. Because we are a BVI company and our PRC subsidiary WFOE is considered a foreign-invested enterprise, to comply
with then-applicable PRC laws and regulations, we conducted our business in China through WFOE, Taiying and its subsidiaries based on
a series of contractual arrangements by and among WFOE, Taiying and its shareholders, which enable us to:
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exercise
effective control over Taiying and its subsidiaries;
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receive
substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses of Taiying; and
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have
an exclusive option to purchase all or part of the equity interests in Taiying when and to the extent permitted by PRC law.
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Because
of these contractual arrangements, we are the primary beneficiary of Taiying and hence consolidate its financial results as our variable
interest entity. While the PRC government has lifted all the restrictions on foreign ownership for call center operators beginning on
July 30, 2019, we have not restructured our ownership structure to-date.
In
the opinion of our PRC legal counsel, (a) our current ownership structure of our WFOE and Taiying, both comply with all existing
PRC laws and regulations; and (b) each of the contractual arrangements is valid, binding and enforceable in accordance with its
terms and applicable PRC Laws, and will not result in any violation of PRC laws or regulations currently in effect. However, our PRC
legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of PRC Laws and
future PRC Laws, and there can be no assurance that the PRC authorities may take a view that is contrary to or otherwise different from
our PRC legal counsel.
It
is uncertain whether any new PRC laws, rules or regulations relating to contractual arrangements structures will be adopted or if adopted,
what they would provide. Further, the effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental
reliance by foreign investors. If CCRC, WFOE or Taiying are found to be in violation of any existing or future PRC laws, rules or regulations,
or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion
to take action in dealing with such violations or failures, including, sanctions, fines, revoking the business and operating licenses
of WFOE or Taiying, requiring us to discontinue or restrict our operations, restricting our right to collect revenue, requiring us to
restructure our operations or taking other regulatory or enforcement actions against us. If we are not able to restructure our ownership
structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of Taiying in our
consolidated financial statements. In addition, any litigation in the PRC may be protracted and result in substantial costs and diversion
of resources and management attention. Any of these events would have a material adverse effect on our business, financial condition
and results of operations.
The
shareholder of Taiying has potential conflicts of interest with us, which may adversely affect our business.
Neither
WFOE nor we own any portion of the equity interests of Taiying. Instead, we rely on WFOE’s contractual obligations to enforce our
interest in receiving payments from Taiying. Conflicts of interests may arise between Taiying’s shareholder and our company
if, for example, its interests in receiving dividends from Taiying were to conflict with our interest requiring these companies to make
contractually obligated payments to WFOE. As a result, we have required Taiying and its sole shareholder to execute irrevocable
powers of attorney to appoint the individual designated by us to be his attorney-in-fact to vote on their behalf on all matters requiring
shareholder approval by Taiying and to require Taiying’s compliance with the terms of its contractual obligations. We cannot
assure, however, that when conflicts of interest arise, the shareholder will act completely in our interests or that conflicts of interests
will be resolved in our favor. In addition, this shareholder could violate its agreements with us by diverting business opportunities
from us to others. If we cannot resolve any conflicts of interest between us and Taiying’s shareholder, we would have to rely
on legal proceedings, which could result in substantial costs and diversion of management attention and resources, all of which could
have a material adverse effect on our business, financial condition and results of operations.
PRC
regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders
to personal liability and limit our ability to inject capital into our PRC subsidiary, limit our subsidiary’s ability to increase
its registered capital, distribute profits to us, or otherwise adversely affect us.
On
July 4, 2014, China’s State Administration for Foreign Exchange (“SAFE”) issued the Circular of the State Administration
of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment
by Domestic Residents via Special Purpose Vehicles, or Circular 37, which became effective as of July 4, 2014. According to
Circular 37, prior registration with the local SAFE branch is required for PRC residents to contribute domestic assets or interests to
offshore companies, known as a special purpose vehicle (SPV). Moreover, Circular 37 applies retroactively. As a result, PRC residents
who have contributed domestic assets or interests to a SPV, but failed to complete foreign exchange registration of overseas investments
as required before July 4, 2014 shall send a letter to SAFE and its branches for explanation. SAFE and its branches shall, under
the principle of legality and legitimacy, conduct supplementary registration, and impose administrative punishment on those in violation
of the administrative provisions on the foreign exchange pursuant to the law.
We
attempt to comply, and attempt to ensure that our shareholders who are subject to these rules comply, with the relevant requirements.
However, we cannot provide any assurances that all of our shareholders who are PRC residents will make or obtain any applicable registrations
or comply with other requirements required by Circular 37 or other related rules. The failure or inability of our PRC resident shareholders
to make any required registrations or comply with other requirements may subject such shareholders to fines and legal sanctions and may
also limit our ability to contribute additional capital into or provide loans to (including using the proceeds from our initial public
offering) WFOE or Taiying, limiting their ability to pay dividends or otherwise distributing profits to us.
We
rely on dividends paid by WFOE for our cash needs.
We
rely primarily on dividends paid by WFOE for our cash needs, including the funds necessary to pay dividends and other cash distributions,
if any, to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities
organized in the PRC is subject to limitations as described herein. Under British Virgin Islands law, we may only pay dividends from
surplus (the excess, if any, at the time of the determination of the total assets of our company over the sum of our liabilities, as
shown in our books of account, plus our capital), and we must be solvent before and after the dividend payment in the sense that we will
be able to satisfy our liabilities as they become due in the ordinary course of business; and the realizable value of assets of our company
will not be less than the sum of our total liabilities, other than deferred taxes as shown on our books of account, and our capital.
If we determine to pay dividends on any of our common shares in the future, as a holding company, we will be dependent on receipt of
funds from WFOE. See “Dividend Policy.”
Pursuant
to the Implementation Rules for the Chinese Enterprise Income Tax Law, amended on April 23, 2019, dividends payable by a foreign investment
entity to its foreign investors are subject to a withholding tax of up to 10%. Pursuant to Article 10 of the Arrangement Between the
Mainland of China and the Hong Kong Special Administration Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion
with respect to Taxes on Income effective December 8, 2006, dividends payable by a foreign investment entity to its Hong Kong investor
who owns 25% or more of the equity of the foreign investment entity is subject to a withholding tax of up to 5%.
The
payment of dividends by entities organized in the PRC is subject to limitations, procedures and formalities. Regulations in the PRC currently
permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in
China. WFOE is also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its compulsory
reserves fund until the accumulative amount of such reserves reaches 50% of its registered capital.
The transfer to this reserve must be made before
distribution of any dividend to shareholders. The surplus reserve fund is non-distributable other than during liquidation and can be
used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing
new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by
them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital. As of December 31,
2020 and 2019, the accumulated appropriations to statutory reserves amounted to $7,761,226 and $5,818,330 respectively.
WFOE
is required to allocate a portion of its after-tax profits, as determined by its board of directors, to the general reserve, and the
staff welfare and bonus funds, which may not be distributed to equity owners.
Pursuant
to the relevant PRC laws, WFOE is required to allocate a portion of its after-tax profits in accordance with its Articles of Association,
to the general reserve, and the staff welfare and bonus funds. No lower than 10% of an enterprise’s after tax-profits should be
allocated to the general reserve. When the general reserve account balance is equal to or greater than 50% of the WFOE’s registered
capital, no further allocation to the general reserve account is required. According to the Articles of Association of WFOE, WFOE’s
board of directors determines the amount contributed to the staff welfare and bonus funds. The staff welfare and bonus fund are used
for the collective welfare of the staff of WFOE. These reserves represent appropriations of retained earnings determined according to
PRC law.
As
of the date of this annual report, the amounts of these reserves have not yet been determined, and we have not committed to establishing
such amounts at this time. Under current PRC laws, WFOE is required to set aside reserve amounts, but has not yet done so. WFOE has not
done so because PRC authorities grant companies flexibility in making a determination. PRC law requires such a determination to be made
in accordance with the company’s organizational documents and WFOE’s organizational documents do not require the determination
to be made within a particular timeframe. Although we have not yet been required by PRC authorities to make such determinations or set
aside such reserves, PRC authorities may require WFOE to rectify its noncompliance and we may be fined if we fail to do so after receiving
a warning within its set time period.
Additionally,
PRC law provides that a PRC company must allocate a portion of after-tax profits to the general reserve and the staff welfare and bonus
funds reserve prior to the retention of profits or the distribution of profits to foreign invested companies. Therefore, if for any reason,
the dividends from WFOE cannot be repatriated to us or not in time, our cash flow may be adversely impacted or we may become insolvent.
WFOE
is required to make a payment under its agreement to bear the losses of Taiying, thus our liquidity may be adversely affected, which
could harm our financial condition and results of operations.
On
September 3, 2014, WFOE entered into an Entrusted Management Agreement with Taiying. Pursuant to the Entrusted Management Agreement,
WFOE agreed to bear the losses of Taiying. If Taiying suffers losses and WFOE is required to absorb all or a portion of such losses,
WFOE will be required to seek reimbursement from Taiying. In such event, it is unlikely that Taiying will be able to make such reimbursement
and WFOE may be unable to recoup the loss WFOE absorbed at such time, if ever. Further, under the Entrusted Management Agreement, WFOE
may absorb the losses at a time when WFOE does not have sufficient cash to make such payment and at a time when WFOE or we may be unable
to borrow such funds on terms that are acceptable, if at all. As a result, any losses absorbed under the Entrusted Management Agreement
may have an adverse effect on our liquidity, financial condition and results of operations.
Our
business may be materially and adversely affected if any of our Operating Companies declare bankruptcy or become subject to a dissolution
or liquidation proceeding.
The
Enterprise Bankruptcy Law of China provides that an enterprise may be liquidated if the enterprise fails to settle its debts as and when
they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts.
Our
Operating Companies hold certain assets that are important to our business operations. If any of our Operating Companies undergoes a
voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby
hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results
of operations.
Our
failure to obtain prior approval of the China Securities Regulatory Commission (“CSRC”) for the listing and trading of our
common shares on a foreign stock exchange could have a material adverse effect upon our business, operating results, reputation and trading
price of our common shares.
On
August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce of the People’s Republic of China (“MOFCOM”),
the State Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry
and Commerce, the CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors,
which was subsequently revised on June 22, 2009 (the “New M&A Rule”). The New M&A Rule contains provisions that require
that an offshore special purpose vehicle (SPV) formed for overseas listing purposes and controlled directly or indirectly by PRC companies
or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock
exchange. On September 21, 2006, the CSRC published Provisions on Indirect Issuance of Securities Overseas by a Domestic Enterprise
or Overseas Listing of Its Securities for Trading, which specify documents and materials required to be submitted to the CSRC by a SPV
seeking CSRC’s approval for overseas listings. The application of the New M&A Rule remains unclear. Further, on December 28,
2019, China amended the Securities Law of the PRC (the “2019 PRC Securities Law”) and enacted it on March 1, 2020. Pursuant
to this amendment, the direct or indirect listing or trading of a domestic company’s securities on an overseas stock exchange shall
be in compliance with the relevant requirements of the State Council. The State Council has not yet implemented any detailed rules in
this regard.
Our
PRC counsel, GFE Law Firm, has given us the following advice, based on their understanding of current PRC laws and regulations:
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We
currently control our PRC affiliate, Taiying, by virtue of WFOE’s VIE agreements with Taiying, not through equity interest
or asset acquisition which are stipulated in the New M&A Rule; and
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In
spite of the lack of clarity on this issue, the CSRC has not issued any definitive rule or interpretation regarding whether tradings
of common shares like ours are subject to the New M&A Rule.
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The
CSRC has not issued any such definitive rule or interpretation, and we have not chosen to voluntarily request approval under the New
M&A Rule or the 2019 Securities Law. We did not obtain CSRC approval prior to our initial public offering. If prior CSRC approval
was required, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory authorities. These authorities
may impose fines and penalties upon our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation
of the proceeds from our initial public offering into the PRC, or take other actions that could have a material adverse effect upon our
business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common shares.
Failure
to comply with the Individual Foreign Exchange Rules relating to the overseas direct investment or the engagement in the issuance or
trading of securities overseas by our Chinese resident shareholders may subject such shareholders to fines or other liabilities.
Other
than Circular 37, our ability to conduct foreign exchange activities in China may be subject to the interpretation and enforcement of
the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended
and supplemented, the “Individual Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any Chinese individual
seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must
make the appropriate registrations in accordance with SAFE provisions. Chinese individuals who fail to make such registrations may be
subject to warnings, fines or other liabilities.
We
may not be fully informed of the identities of all our beneficial owners who are Chinese residents. For example, because the investment
in or trading of our shares will happen in an overseas public or secondary market where shares are often held with brokers in brokerage
accounts, it is unlikely that we will know the identity of all of our beneficial owners who are Chinese residents. Furthermore, we have
no control over any of our future beneficial owners and we cannot assure you that such Chinese residents will be able to complete the
necessary approval and registration procedures required by the Individual Foreign Exchange Rules.
It
is uncertain how the Individual Foreign Exchange Rules will be interpreted or enforced and whether such interpretation or enforcement
will affect our ability to conduct foreign exchange transactions. Because of this uncertainty, we cannot be sure whether the failure
by any of our Chinese resident shareholders to make the required registration will subject our subsidiaries to fines or legal sanctions
on their operations, restriction on remittance of dividends or other punitive actions that would have a material adverse effect on our
business, results of operations and financial condition.
We
are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth
companies will make our common shares less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as
we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable
to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic
reports and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval
of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although we could
lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three-year period,
or if the market value of our commons shares held by non-affiliates exceeds $700 million as of any December 31 before that time, in which
case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our common
shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result,
there may be a less active trading market for our commons shares and our share price may be more volatile.
Under
the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We have irrevocably elected not to avail our company of this exemption from new or revised accounting standards
and, therefore, are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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.
We
are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange
Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic
reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to
disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required
to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and
recovery regime.
As
a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant
to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will
still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the
disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you
should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting
companies.
Foreign
Operational Risks
We
are dependent on the state of the PRC’s economy as all of our business is conducted in the PRC and a decline would have a material
adverse effect on our business, financial condition and results of operations.
Currently,
all of our business operations are conducted in the PRC, and all of our customers are also located in the PRC. Accordingly, any material
slowdown in the PRC economy may cause our customers to reduce expenditures or delay the building of new facilities or projects. This
may in turn lead to a decline in the demand for the services we provide. Any such decline would have a material adverse effect on our
business, financial condition and results of operations.
A
general economic downturn, a recession or a sudden disruption in business conditions in the PRC may affect consumer spending on discretionary
items, including cellular telephone services and MVAS, which could adversely affect our business.
Consumer
spending is generally affected by a number of factors, including general economic conditions, the level of unemployment, inflation, interest
rates, energy costs, gasoline prices and consumer confidence generally, all of which are beyond our control. Consumer purchases of discretionary
items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our services. In addition,
sudden disruption in business conditions as a result of a terrorist attack, retaliation and the threat of further attacks or retaliation,
war, adverse weather conditions and climate changes or other natural disasters, pandemic situations or large scale power outages can
have a short or, sometimes, long-term impact on consumer spending. A downturn in the economy in the PRC, including any recession or a
sudden disruption of business conditions in the PRC, could adversely affect our business, financial condition or results of operation.
Since
our operations and assets are located in the PRC, shareholders may find it difficult to enforce a U.S. judgment against the assets of
our company, our directors and executive officers.
Our
operations and assets are located in the PRC. In addition, all of our executive officers and directors are non-residents of the U.S.,
and substantially all the assets of such persons are located outside the U.S. As a result, it could be difficult for investors to effect
service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons.
Although
we do not import goods into or export goods out of the PRC, fluctuation of the Renminbi (“RMB”) may indirectly affect our
financial condition by affecting the volume of cross-border money flow.
Although
we use the United States dollar for financial reporting purposes, all of the transactions effected by WFOE and Taiying are denominated
in the PRC’s currency, the RMB. The value of the RMB fluctuates and is subject to changes in the PRC’s political and economic
conditions. We do not currently engage in hedging activities to protect against foreign currency risks. Even if we choose to engage in
such hedging activities, we may not be able to do so effectively. Future movements in the exchange rate of the RMB could adversely affect
our financial condition as we may suffer financial losses when transferring money raised outside of China into the country or paying
vendors for services performed outside of China.
If
any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S.
dollar amount that you will actually ultimately receive.
If
you are a United States holder, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive them, even
if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a
dividend is declared and paid in a foreign currency, the amount of the dividend distribution that you must include in your income as
a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign
currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is
in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into
U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.
We
may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.
Based
on the nature of our business activities, we may be classified as a passive foreign investment company (“PFIC”), by the U.S.
Internal Revenue Service (“IRS”), for U.S. federal income tax purposes. Such characterization could result in adverse U.S.
tax consequences to you if you are a U.S. investor. For example, if we are a PFIC, a U.S. investor will become subject to burdensome
reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition
of our income and assets from time to time. Specifically, we will be classified as a PFIC for U.S. tax purposes if either:
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75%
or more of our gross income in a taxable year is passive income; or
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the
average percentage of our assets by value in a taxable year that produce or are held for the production of passive income (which
includes cash) is at least 50%.
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The
calculation of the value of our assets is based, in part, on the then market value of our common shares, which is subject to change.
In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raised in our initial
public offering. We cannot assure that we will not be a PFIC for any taxable year. See “Taxation – United States Federal
Income Taxation-Passive Foreign Investment Company.”
Introduction
of new laws or changes to existing laws by the PRC government may adversely affect our business.
The
PRC legal system is a codified legal system made up of written laws, regulations, circulars, administrative directives and internal guidelines.
Unlike common law jurisdictions such as the U.S., decided cases (which may be taken as reference) do not form part of the legal structure
of the PRC and thus have no binding effect. Furthermore, in line with its transformation from a centrally planned economy to a more market-oriented
economy, the PRC government is still in the process of developing a comprehensive set of laws and regulations. As the legal system in
the PRC is still evolving, laws and regulations or their interpretation may be subject to further changes. Such uncertainty and prospective
changes to the PRC legal system could adversely affect our results of operations and financial condition.
Governmental
control of currency conversion may affect the value of your investment.
The
PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of
currency out of the PRC, which may take as long as six months in the ordinary course. We receive the majority of our revenues in
Renminbi. Under our current corporate structure, our income is derived from payments from WFOE. Shortages in the availability
of foreign currency may restrict the ability of WFOE to remit sufficient foreign currency to pay dividends or other payments to us, or
otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current
account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign
currencies without prior approval from the PRC SAFE by complying with certain procedural requirements. However, approval from appropriate
government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses
such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access
in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining
sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders. See
“Business Overview – Regulations on Foreign Currency Exchange and Dividend Distribution.”
Fluctuation
of the Renminbi could materially affect our financial condition and results of operations
The
value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political
and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi
to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of
certain foreign currencies. This change in policy has resulted in an appreciation of the Renminbi against the U.S. dollar. While the
international reaction to the Renminbi revaluation has generally been positive, there remains international pressure on the PRC government
to adopt an even more flexible currency policy, which could result in a further and more rapid appreciation of the Renminbi against the
U.S. dollar. Any material revaluation of Renminbi may materially and adversely affect our cash flows, revenues, earnings and financial
position, and the value of, and any dividends payable on, our common shares in U.S. dollars. For example, an appreciation of Renminbi
against the U.S. dollar would make any new Renminbi denominated investments or expenditures more costly to us, to the extent that we
need to convert U.S. dollars into Renminbi for such purposes. See “Exchange Rate Information.”
Our business
benefits from certain government grants and incentives. Expiration, reduction or discontinuation of, or changes to, these incentives
may reduce our net income.
The Company has received grants from various governmental
agencies after meeting certain conditions, such as locating call centers in their jurisdictions or obtaining certain technological certifications.
Government grants represented 12% of our net income during 2020.
The Company has benefited from such grants and
subsidies. In particular, the grants and subsidies that the Company received in 2020 included but not limited to:
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A recurring subsidy of total RMB 10,200 from Baoding
City Department of Human Resources and Social Securities for stabilization of employment;
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A one-time subsidy of RMB 280,400 from Chongqing City
Department of Human Resources and Social Securities for stabilization of employment;
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A recurring college internship subsidy of total RMB
138,300 from Chongqing City Department of Human Resources and Social Securities;
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A recurring social securities subsidy of RMB 54,200
from Chongqing City Department of Human Resources and Social Securities;
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A one-time employment subsidy of RMB 36,000 from Chongqing
City Department of Human Resources and Social Securities;
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A one-time operation subsidy of RMB 554,600 from the
Big Data Industry Zone of Yongchuan District, Chongqing City;
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A one-time enterprise grant of RMB 100,000 from the
Development and Reform Committee of Yongchuan District, Chongqing City;
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A one-time subsidy of RMB 100,000 from Department of
Science and Technology, Yongchuan District, Chongqing City for the recognition as a high-tech enterprise;
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A one-time patent subsidy of RMB 18,000 from the Administration
of Market Supervision, Yongchuan District, Chongqing City;
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A one-time grant of RMB 14,000 from the Community Care
Fund of Yongchuan District Political Consultative Conference;
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A one-time subsidy of RMB 75,300 from the Department
of Social Securities of Xinjiang Uygur Autonomous Region for stabilization of employment in 2020;
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A one-time subsidy of RMB 11,400 from Foshan City Commerce
Department for the 2019 Foshan City Special Funds for Trade in Service and Business Services (Business Promotion Activities);
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A one-time subsidy of RMB 2,700 from Foshan City Commerce
Department for the newly-registered enterprises in trade in service and BPO;
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A recurring subsidy of total RMB 19,600 from the Department
of Human Resources and Social Securities of Foshan City for stabilization of employment in 2019;
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A one-time grant of RMB 600,000 from Financial Office
of Nanhai District, Foshan City for BPO enterprises;
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A one-time subsidy of RMB 11,400 from Foshan City Commerce
Department for the 2019 Foshan City Special Funds for Trade in Service and Business Services (Onshore Performance Rewards);
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A one-time subsidy of RMB 17,000 from the Department
of Human Resources and Social Securities of Foshan City for increasing employees;
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A one-time subsidy of RMB 30,000 from the Department
of Economic Development of Nanning City for certain listed enterprises;
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A one-time subsidy of RMB 37,100 from the Department
of Human Resources and Social Securities of Nanning City for stabilization of employment in 2019;
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A one-time subsidy of RMB 27,600 from Nanning City
Commerce Department of performance rewards;
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A recurring subsidy of RMB 15,500 from the Department
of Human Resources and Social Securities of Nanning City for “work in lieu of training” program (Q3);
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A recurring social securities subsidy of total RMB
31,700 from the Department of Human Resources and Social Securities of Nanning City for new employment;
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A one-time tax subsidy of RMB 4,900 from the Zhuanqiang
Headquarter Economic Industrial Part Management Co., Ltd.;
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A recurring subsidy of total RMB 55,000 from Nanjing
Vocational and Technical Training Center for “work in lieu of training” program;
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A one-time subsidy of new employment of RMB 1,000 from
Yangzhou City Employment Center;
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A recurring subsidy of total RMB 11,800 form the General
Labor Union of Guangling District of Yangzhou City;
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A one-time employment subsidy of RMB 60,000 from the
Public Employment Service Center of Guangling District, Yangzhou City;
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A one-time grant of RMB 100,000 from Sanhe City Commerce
Department of the growing development project for BPO industry;
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A one-time grant of RMB 800,000 from Sanhe City Commerce
Department of the public service platform project;
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A one-time subsidy of RMB 4,400 from the Department
of Human Resources and Social Securities of Sanhe City for pre-job training;
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A one-time subsidy of RMB 255,500 from Huaian City
Social Securities Center for pre-job training;
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A one-time subsidy of RMB 194,200 from the Department
of Human Resources and Social Securities of Huaian City for stabilization of employment;
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A one-time subsidy of RMB 1,000,000 from the Development
and Reform Committee of Jiangsu Province as a leading productive enterprise of Jiangsu Province;
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A one-time subsidy of RMB 160,000 from Huaian City
Science and Technology Department for high-tech enterprises in 2019;
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A recurring tax subsidy of RMB 4,807,600 from the Huaian
Software Park Management Development Office;
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A one-time subsidy of RMB 400,000 for onshore BPO business;
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A one-time subsidy of RMB 100,000 from Nanchang City
Science and Technology Department from newly-recognized high-tech enterprises in 2019;
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A recurring subsidy of total RMB 918,600 from the Commerce
Departments of Nanchang City and Qingshan Lake District for the special funds of BPO industry development;
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A recurring subsidy of total RMB 70,000 from Nanchang
City Unemployment Insurance Administration for stabilization of employment in 2019;
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A one-time subsidy of RMB 7,800 from the Public Employment
Service Department of Qingshan Lake District, Nanchang City for after-pandemic back-to-work transportation;
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A one-time subsidy of RMB 82,400 from Jiangsu Province
Commerce Department for research innovation reward;
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A one-time subsidy of RMB 50,100 from Jiangsu Province
Commerce Department for talent cultivation;
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A one-time subsidy of RMB 24,900 from District Development
and Reform Committee for science and technology innovation project;
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A one-time subsidy of RMB 24,900 from Nanchang City
Science and Technology Department for science and technology innovation project;
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A one-time commerce subsidy of RMB 200,000 from Nanchang
City Commerce Department;
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A one-time subsidy of RMB 5,000 from Jiangxi Province
Internet Industry Committee for the leading primary organization of the Party;
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A recurring subsidy of total RMB 220,500 from Nanchang
City Social Securities Department for “work in lieu of training” program;
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A one-time internship subsidy of RMB 3,200 from Nanchang
City Labor Employment Management Center;
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A one-time employment subsidy of RMB 3,000 from Nanchang
City Labor Employment Management Center;
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A recurring subsidy of total RMB 89,400 from Yantai
City Finance Department and the Human Resource and Social Securities Department of Yantai City for stabilization of employment;
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A one-time subsidy of RMB 3,000 from Management Committee
of Development District for Party building activities;
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A one-time internship subsidy of RMB 31,500 from the
Department of Human Resources and Social Securities of Yantai City;
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A recurring employment subsidy of total RMB 9,300 from
Yantai City Finance Department;
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A recurring research development subsidy of total RMB
300,200 from Yantai Science and Technology Department;
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A recurring subsidy of total RMB 8,000 from the Department
of Human Resources and Social Securities of Yantai City for “work in lieu of training” program;
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A recurring employment and internship subsidy of RMB
942,800 from the Department of Human Resources and Social Securities of Shushan District;
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A one-time subsidy of RMB 93,900 for unemployment insurance
refund;
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A one-time subsidy of RMB 200,000 from Hefei City Science
and Technology Department for 2019 district-level independent innovation policy project;
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A one-time subsidy of RMB 10,000 for high-tech enterprise
recognition;
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A one-time subsidy of RMB 93,900 from the Department
of Human Resources and Social Securities of Shushan District for stabilization of employment;
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A one-time subsidy of RMB 50,000 from Shushan District
Development Department for above-scale enterprises;
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A one-time subsidy of RMB 11,900 from Shushan District
Tax Department for personal income tax refund;
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A one-time subsidy of RMB 500,000 from Shushan District
Development Department for 2019 acceleration of development of software enterprises;
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A recurring subsidy of total RMB 9,400 for stabilization
of employment;
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A recurring employment and social securities subsidy
of total RMB 487,100 from the Department of Human Resources and Social Securities of Taian City;
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A recurring internship subsidy of total RMB 363,000
from the Department of Human Resources and Social Securities of Taian City;
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A one-time mask subsidy of RMB 2,600 from Economic
Development Department of Taian High-Tech District;
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A one-time training subsidy of RMB 176,800;
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A one-time research subsidy of RMB 530,000 from Shandong
Province Science and Technology Department;
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A one-time subsidy of RMB 72,900 from the Human Resources
and Social Securities Department of Taierzhuang District for stabilization of employment;
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A one-time tax subsidy of RMB 1,000,000 from Taierzhuang
District Government for 2018 tax refund;
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A one-time subsidy of RMB 67,500 from Department of
Human Resources and Social Securities for “work in lieu of training” program;
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A one-time renovation subsidy of RMB 1,026,700 from
Chengdu City Finance Department;
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A one-time rental subsidy of RMB 1,000,000 from Chengdu
City Finance Department;
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A one-time tax subsidy of RMB 729,400 from Chengdu
City Finance Department for tax refunds of 2018 and 2019;
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A one-time subsidy of RMB 300,000 from Chengdu City
Finance Department for anti-pandemic supplies;
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A one-time subsidy of RMB 80,000 from Chengdu City
Finance Department for successfully being included in the National Statistics Internet Report for the first time;
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A one-time subsidy of RMB 165,000 from Tiaodenghe Street
Office for post-pandemic back-to-work
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A one-time subsidy of RMB 165,000 from Chengdu City
Finance Department for stabilization of employment.
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In addition, Taiying, Central BPO, SCBI, JTIS,
JXTT, XTTC, ATIT, ZSEC, GTTC, and STTC were entitled to a 15% income tax rate for the year of 2020, which is less than the standard 25%
income tax rate in the PRC.
The
local PRC government authorities may reduce or eliminate these incentives through new legislation at any time in the future. In the event
Taiying and its applicable subsidiaries are no longer exempt from lowered income taxation, their applicable tax rate would increase from
15% to up to 25%, the standard business income tax rate in the PRC. In addition, the termination of one-time subsidies for call center
business development could increase the burden of constructing and operating call centers of such size in the future. The reduction or
discontinuation of any of these economic incentives could negatively affect our business and operations.
PRC’s
labor law restricts our ability to reduce our workforce in the PRC in the event of an economic downturn and may increase our production
costs.
The
PRC Labor Contract Law, effective on July 1, 2013, is considered one of the strictest labor laws in the world, which, among other
things, provides for specific standards and procedures for the termination of an employment contract and places the burden of proof on
the employer. The law requires the payment of a statutory severance pay upon the termination of an employment contract in most cases,
including the case of the expiration of a fixed-term employment contract. Further, it requires an employer to conclude an “employment
contract without a fixed-term” with any employee who either has worked for the same employer for 10 consecutive years or more or
has had two consecutive fixed-term contracts with the same employer. An “employment contract without a fixed term” can no
longer be terminated on the ground of the expiration of the contract, although it can still be terminated pursuant to the standards and
procedures set forth under the new law. Because of the lack of precedent for the enforcement of such a law, the standards and procedures
set forth under the law in relation to the termination of an employment contract have raised concerns among foreign investment enterprises
in the PRC that such an “employment contract without a fixed term” might in fact become a “lifetime, permanent employment
contract.”
In
addition, under the PRC Labor Contract Law, downsizing of either more than 20 people or more than 10% of the workforce may occur only
under specified circumstances, such as a restructuring undertaken pursuant to the PRC’s Enterprise Bankruptcy Law, or where a company
suffers serious difficulties in production and/or business operations, or where there has been a material change in the objective economic
circumstances relied upon by the parties at the time of the conclusion of the employment contract, thereby making the performance of
such employment contract not possible. All of our employees working for us exclusively within the PRC are covered by the PRC Labor Contract
Law and thus, our ability to adjust the size of our operations when necessary in periods of recession or less severe economic downturns
may be curtailed. Accordingly, if we face future periods of decline in business activity generally or adverse economic periods specific
to our business, this new law can be expected to exacerbate the adverse effect of the economic environment on our results of operations
and financial condition.
Failure
to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
Companies
operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance,
housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of
salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time
at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the
local governments in China given the different levels of economic development in different locations. If any of PRC companies controlled
by us are deemed to have made inadequate employee benefit payments for their employees, we may be required to make up the contributions
for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee
benefits, our financial condition and results of operations may be adversely affected.
We
may be subject to fines and legal sanctions by SAFE or other PRC government authorities if we or our employees who are PRC citizens fail
to comply with PRC regulations relating to employee stock options granted by offshore listed companies to PRC citizens.
On
February 15, 2012, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Issues Concerning the Administration
of Foreign Exchange Used for Domestic Individuals’ Participation in Equity Incentive Plans of Companies Listed Overseas, or Circular
7. Under Circular 7, Chinese citizens who are granted share options by an offshore listed company are required, through a Chinese agent
or Chinese subsidiary of the offshore listed company, to register with SAFE and complete certain other procedures, including applications
for foreign exchange purchase quotas and opening special bank accounts. In the event we or our Chinese employees are granted share options
we and our Chinese employees will subject to Circular 7. Failure to comply with these regulations may subject us or our Chinese employees
to fines and legal sanctions imposed by SAFE or other PRC government authorities and may prevent us from further granting options under
our share incentive plans to our employees. Such events could adversely affect our business operations.
Changes
in PRC’s political and economic policies could harm our business.
Substantially
all of our business operations are conducted in the PRC. Accordingly, our results of operations, financial condition and prospects are
subject to economic, political and legal developments in the PRC. China’s economy differs from the economies of most developed
countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, and control
of foreign exchange and allocation of resources.
The
PRC economy has historically been a planned economy subject to governmental plans and quotas and has, in certain aspects, been transitioning
to a more market-oriented economy. Although we believe that the economic reform and the macroeconomic measures adopted by the PRC
government have had a positive effect on the economic development of PRC, we cannot predict the future direction of these economic reforms
or the effects these measures may have on our business, financial position or results of operations. In addition, the PRC economy
differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development (“OECD”). These
differences include, without limitation:
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level
of government involvement in the economy;
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level
of capital reinvestment;
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control
of foreign exchange;
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methods
of allocating resources; and
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balance
of payments position.
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As
a result of these differences, our business may not develop in the same way or at the same rate as might be expected if the PRC economy
were similar to those of the OECD member countries. See “Business Overview– Industry and Market Background.”
Since
1979, the Chinese government has promulgated many new laws and regulations covering general economic matters. Despite these efforts
to develop a legal system, the PRC’s system of laws is not yet complete. Even where adequate law exists in the PRC, enforcement
of existing laws or contracts based on existing law may be uncertain or sporadic, and it may be difficult to obtain swift and equitable
enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of the PRC’s
judiciary, in many cases, creates additional uncertainty as to the outcome of any lawsuit. In addition, interpretation of statutes
and regulations may be subject to government policies reflecting domestic political changes. Our activities in the PRC will also be subject
to administration review and approval by various national and local agencies of the PRC’s government. Because of the changes
occurring in the PRC’s legal and regulatory structure, we may not be able to secure the requisite governmental approval for our
activities. Although we have obtained all required governmental approvals to operate our business as currently conducted, to the
extent we are unable to obtain or maintain required governmental approvals, the PRC government may, in its sole discretion, prohibit
us from conducting our business. See “Business Overview – Industry and Market Background.”
If
relations between the United States and China worsen, our share price may decrease and we may have difficulty accessing U.S. capital
markets.
At
various times during recent years, the United States and China have had disagreements over political and economic issues. Controversies
may arise in the future between these two countries. Any political or trade controversy between the United States and China could adversely
affect the market price of our common shares and our ability to access U.S. capital markets.
If
we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed China-based 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 shares, especially if such matter cannot be addressed and resolved favorably.
Recently,
U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism
and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism
and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial
accounting, inadequate corporate governance policies or a lack of adherence thereto and, in some cases, allegations of fraud. As a result
of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased
in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC
enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide
scrutiny, criticism and negative publicity will have on our company and our business. If we become the subject of any unfavorable allegations,
whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations
and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless,
our company and business operations will be severely hampered and your investment in our shares could be rendered worthless.
The
Chinese government could change its policies toward private enterprise or even nationalize or expropriate private enterprises, which
could result in the total loss of our investment in that country.
Our
business is subject to political and economic uncertainties and may be adversely affected by political, economic and social developments
in the PRC. Over the past several years, the PRC government has pursued economic reform policies including the encouragement of
private economic activity and greater economic decentralization. The PRC government may not continue to pursue these policies or
may alter them to our detriment from time to time with little, if any, prior notice.
Changes
in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion,
restrictions or prohibitions on dividend payments to shareholders, devaluations of currency or the nationalization or other expropriation
of private enterprises could have a material adverse effect on our business. Nationalization or expropriation could even result
in the total loss of our investment in the PRC and in the total loss of any investment in us.
Our
subsidiaries’ financial statements are prepared under different accounting standards than our consolidated financial statements.
We prepare the financial
statements for each of our subsidiaries that are PRC legal entities in accordance with the requirements of generally accepted accounting
principles in China, or PRC GAAP. These financial statements drive how we calculate the taxes payable for operations of these subsidiaries.
By contrast, we prepare the consolidated financial statements for CCRC in accordance with generally accepted accounting principles in
the United States, or U.S. GAAP. The process of consolidating the financial statements and changing from PRC GAAP to U.S. GAAP requires
us to make certain adjustments on consolidation. This can result in some discrepancies between the financial statements used to prepare
our tax filings in China and the financial statements audited by our independent registered accounting firm and subsequently filed with
the SEC. We intend to continue reporting in this manner. To the extent the discrepancies between PRC GAAP and U.S. GAAP are material,
we could find, for example, that a PRC subsidiary shows taxable income for which payment of taxes is due, while our U.S. GAAP-audited
financial statements show taxable loss.
Because
our operations are located in the PRC, information about our operations is not readily available from independent third-party sources.
Because
Taiying and WFOE are based in the PRC, our shareholders may have greater difficulty in obtaining information about them on a timely basis
than would shareholders of a U.S.-based company. Their operations will continue to be conducted in the PRC and shareholders may have
difficulty in obtaining information about them from sources other than the companies themselves. Information available from newspapers,
trade journals, or local, regional or national regulatory agencies such as issuance of construction permits and contract awards for development
projects will not be readily available to shareholders and, where available, will likely be available only in Chinese. Shareholders will
be dependent upon management for reports of their progress, development, activities and expenditure of proceeds.
Risks
Related to Ownership of Our Common Shares
The
market price for our common shares may be volatile, which could result in substantial losses to investors.
The
trading prices for our common shares have fluctuated since we first listed our common shares. Since our common shares became listed on
the NASDAQ on December 21, 2015, the trading price of our common shares has ranged from $4.39 to $35.10 per common share, and the last
reported trading price on May 28, 2021 was $4.35 per common share. The market price of our common shares may fluctuate significantly
in response to numerous factors, many of which are beyond our control, including:
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actual
or anticipated fluctuations in our revenue and other operating results;
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the
financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
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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;
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announcements
by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint
ventures, or capital commitments;
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price
and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
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lawsuits
threatened or filed against us;
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price
and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; and
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other
events or factors, including those resulting from war or incidents of terrorism, or responses to these events
|
In
addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market
prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate
to the operating performance of those companies. In the past, shareholders have filed securities class action litigation following periods
of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources
and the attention of management from our business, and adversely affect our business.
If
our financial condition deteriorates, we may not meet continued listing standards on the NASDAQ Capital Market.
The
NASDAQ Capital Market requires companies to fulfill specific requirements in order for their shares to continue to be listed. In order
to qualify for continued listing on the NASDAQ Capital Market, we must meet the following criteria:
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Our
shareholders’ equity must be at least $2,500,000; or the market value of our listed securities must be at least $35,000,000;
or our net income from continuing operations in our last fiscal year (or two of the last three fiscal years) must have been at least
$500,000;
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The
market value of our shares must be at least $1,000,000;
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The
minimum bid price for our shares must be at least $1.00 per share;
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We
must have at least 300 shareholders;
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We
must have at least 2 market makers; and
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We
must have adopted NASDAQ-mandated corporate governance measures, including a Board of Directors comprised of a majority of independent
directors, an Audit Committee comprised solely of independent directors and the adoption of a code of ethics among other items.
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If
our shares are delisted from the NASDAQ Capital Market at some later date, our shareholders could find it difficult to sell our shares.
In addition, if our common shares are delisted from the NASDAQ Capital Market at some later date, we may apply to have our common shares
quoted on the Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board
and the “pink sheets” are generally considered to be less efficient markets than the NASDAQ Capital Market. In addition,
if our common shares are not so listed or are delisted at some later date, our common shares may be subject to the “penny stock”
regulations. These rules impose additional sales practice requirements on broker-dealers that sell low-priced securities to persons other
than established customers and institutional accredited investors and require the delivery of a disclosure schedule explaining the nature
and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our common
shares might decline. If our common shares are not so listed or are delisted from the NASDAQ Capital Market at some later date or become
subject to the penny stock regulations, it is likely that the price of our shares would decline and that our shareholders would find
it difficult to sell their shares.
We
incur increased costs as a result of being a public company.
As
a public company, we incur legal, accounting and other expenses that we did not incur as a private company. For example, we must now
engage U.S. securities law counsel and U.S. auditors that we did not require as a private company, and we have annual payments for listing
on Nasdaq. In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the SEC and Nasdaq, have required changes
in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal, accounting and
financial compliance costs and to make certain corporate activities more time-consuming and costly. In addition, we incur additional
costs associated with our public company reporting requirements. While it is impossible to determine the amounts of such expenses, we
expect that we incur expenses of between $500,000 and $1 million per year that we did not experience as a private company.
The obligation
to disclose information publicly may put us at a disadvantage to competitors that are private companies which could have an adverse effect
on our results of operations.
As
a reporting company in the United States, we are required to file periodic reports with the Securities and Exchange Commission upon the
occurrence of matters that are material to our Company and shareholders. In some cases, we will need to disclose material agreements
or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access
to this information, which would otherwise be confidential. This may give them advantages in competing with our Company. Similarly, as
a U.S.-listed public company, we are governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not
required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies,
our public listing could affect our results of operations.
Securities
analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our
stock price or trading volume to decline.
The
trading market for our common shares is influenced to some extent by the research and reports that industry or financial analysts publish
about us and our business. We do not control these analysts. As a foreign public company, we may be slow to attract research coverage
and the analysts who publish information about our common shares will have had relatively little experience with us or our industry,
which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates.
In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable
research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease
coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our
stock price or trading volume to decline and result in the loss of all or a part of your investment in us.
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We
are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to provide
reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated
to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more
people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements
due to error or fraud may occur and not be detected.
If
we fail to maintain an effective system of internal control, we may be unable to accurately report our operating results, meet our reporting
obligations or prevent fraud.
As
a public company in the United States we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002,
which requires that we include a report of management on our internal control over financial reporting in this annual report on Form
20-F. In addition, once we cease to be an “emerging growth company” as such term is defined under the JOBS Act, our independent
registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our
management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes
that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting
its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which
our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition,
after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial
resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
During
the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail
to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from
time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Generally, if we fail to achieve and maintain an effective internal control
environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would
likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets,
and harm our results of operations. Additionally, ineffective internal control over financial reporting could expose us to increased
risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory
investigations and civil or criminal sanctions.
Our
classified board structure may prevent a change in control of our company.
Our
board of directors is divided into three classes of directors. Directors of the first class hold office for a term expiring at the
next annual meeting of shareholders, directors of the second class hold office for a term expiring at the second succeeding annual meeting
of shareholders and directors of the third class hold office for a term expiring as the third succeeding annual meeting shareholders. Directors
of each class are chosen for three-year terms upon the expiration of their current terms. The staggered terms of our directors may reduce
the possibility of a tender offer or an attempt at a change in control, even though a tender offer or change in control might be in the
best interest of our shareholders. See “Management – C. Board Practices.”
Our
employees, officers and/or directors control a sizeable amount of our common shares, decreasing your influence on shareholder decisions.
Our
employees, officers and/or directors, in the aggregate, beneficially own approximately 28.1% of our outstanding shares. As a result,
our employees, officers and directors possess substantial ability to impact our management and affairs and the outcome of matters submitted
to shareholders for approval. These shareholders, acting individually or as a group, could exert substantial influence over matters
such as electing directors and approving mergers or other business combination transactions. This concentration of ownership and voting
power may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity
to receive a premium for their shares as part of a sale of our company and might reduce the price of our common shares. These actions
may be taken even if they are opposed by our other shareholders. See “Share Ownership.”
As
the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.
Our
corporate affairs are governed by our memorandum and articles of association, the British Virgin Islands Business Companies Act, 2004
(the “BVI Act”), and the common law of the British Virgin Islands. The rights of shareholders to take legal action against
our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law
are to a large extent governed by the common law of the British Virgin Islands and by the BVI Act. The common law of the British Virgin
Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common
law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the
fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes
or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body
of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted
bodies of corporate law.
As
a result of all of the above, holders of our shares may have more difficulty protecting their interests through actions against our management,
directors or major shareholders than they would as shareholders of a U.S. company.
British
Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to
protect their interests.
British
Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The
circumstances in which any such action may be brought, and the procedures and defenses that may be available with respect to any such
action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of
a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that
corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of
courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original
actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature.
There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the
British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without
retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to
make up for the losses suffered.
The
laws of the British Virgin Islands provide little protection for minority shareholders, so minority shareholders will have little or
no recourse if the shareholders are dissatisfied with the conduct of our affairs.
Under
the law of the British Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions
of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action
to enforce the constituent documents of the corporation, in our case, our Memorandum and Articles of Association. Shareholders are entitled
to have the affairs of the company conducted in accordance with the general law and the Memorandum and Articles. There are common law
rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of the
British Virgin Islands for business companies is limited. Under the general rule pursuant to English company law known as the rule in
Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority
of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors.
However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the constituent documents
of the corporation. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions
of the company’s memorandum and articles of association, then the courts will grant relief. Generally, the areas in which the courts
will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or
not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company;
(3) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has
not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the
rights afforded minority shareholders under the laws of many states in the United States.
Item
4. Information on the Company
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A.
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History
and Development of the Company.
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Corporate
History – Taiying, WFOE, CBPO, and CCRC
Taiying was incorporated on December 18,
2007 as a domestic Chinese limited company, with initial registered capital of RMB 3 million. The registered capital of Taiying was increased
to RMB 10 million on February 16, 2012, to RMB 36 million on February 25, 2019, and to RMB 60 million on April 10, 2020. We formed CBPO,
WFOE and CCRC in 2014, in anticipation of registering the common shares of CCRC in our initial public offering. In connection with the
formation of CCRC, CBPO and WFOE, we caused WFOE to become the wholly-owned foreign entity of CBPO as of August 2014 and to enter into
certain control agreements with Taiying and its shareholder, pursuant to which we, by virtue of our ownership of CBPO and CBPO’s
ownership of WFOE, control Taiying.
Corporate
History – Central BPO, JTTC, HTCC, SCBI, JCBI, ATIT, STTWB, STTCB, STTCZB, JTIS, NTEB, JXTT, XTTC, BTTC, BTIT, STTC, GDTC, GTTC,
ZSEC, YTIT, GNDT, STTBB, STTJB, STTHB, STTGB, ZTTC, TTZN, WFTI, SZTT, FZTT, HNTT, CDTT, HZTT, HFTI, STTSH, and STTHN.
Taiying
incorporated the following subsidiaries and branch companies on the dates indicated below:
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Central
BPO – January 28, 2010;
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JTTC
– February 25, 2010;
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JCBI
– December 12, 2013;
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ATIT
– December 26, 2013;
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STTWB – November 8,
2018;
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STTCB – February 22, 2013;
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NTEB
– December 25, 2014;
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JXTT
– January 8, 2015;
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BTTC – June 30, 2015;
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ZSEC – June 16, 2016;
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GDTC – September 6, 2018;
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BTIT – June 16, 2017;
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STTC – November 8, 2017;
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GTTC – March 28, 2018;
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YTIT – July 8, 2019;
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GNDT – July 25, 2019;
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STTJB – December 6, 2019;
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STTHB – November 28,
2019;
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STTGB
– January 22, 2020;
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ZTTC – March 19, 2020;
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TTZN – May 18, 2020;
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WFTI – October 29, 2020;
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SZTT – November 18, 2020;
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FZTT – November 26, 2020;
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HNTT – December 18, 2020;
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CDTT – December 18, 2020;
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HZTT – January 8, 2021;
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HFTI – February 8, 2021;
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STTSH – September 30, 2020; and
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STTHN – January 20, 2021.
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We
previously incorporated two branch offices, STTCZB on January 28, 2019, and STTBB on March 18, 2019, and voluntarily dissolved them on
September 28, 2020 and May 21, 2020, respectively.
The
principal executive offices of our main operations are located at 1366 Zhongtianmen Street, Xinghuo Science and Technology Park, High-tech
Zone, Taian City, Shandong Province, People’s Republic of China 271000. Our telephone number at this address is (+86) 538 691 8899.
Our registered office in the British Virgin Islands is at the offices of NovaSage Chambers, P.O. Box 4389, Road Town, Tortola, British
Virgin Islands, British Virgin Islands. Our agent for service of process in the United States is Vcorp Agent Services, Inc. located
at 25 Robert Pitt Dr., Suite 204, Monsey, New York 10952. Our corporate website is www.ccrc.com.
Overview
We are a BPO service provider focusing on the complex,
voice-based and online-based segments of customer care services, including customer relationship management, technical support, sales,
customer retention, marketing surveys and research for certain major enterprises in the PRC. We provide customer care service via telephone
and multimedia platforms, such as Apps, WeChat, Weibo and websites to our clients. Our call center BPO services enable our clients to
increase revenue, reduce operating costs, improve customer satisfaction, and enhance overall brand value and customer loyalty. Our largest
customers in terms of revenue for the year ended December 31, 2020 were China CITIC Bank Credit Card Center, China Mobile and their
provincial subsidiaries, Taobao, China Merchants Bank Credit Card Center, and Shuidi Insurance. We also provide outsourcing services to
our clients whereby they can lease our employees to work at their offices. We operate our business through contractual arrangements between
our wholly-owned subsidiary, WFOE and our variable interest entity, Taiying.
Taiying
was founded in 2007 by a group of call center industry veterans who have experience running one of the largest paging service call center
network in northern China. Our service programs are delivered through a set of standardized best practices and sophisticated technologies
by our highly trained call center professionals.
We
seek to establish long-term, strategic relationships with our clients by delivering quantifiable value solutions that help improve our
clients’ revenue generation, reduce operating costs, and improve customer satisfaction. To achieve these objectives, we work closely
with our clients to understand what drives their economic value, and then we demonstrate how our performance on their programs will align
with that value. After we initiate the client program, we measure our performance each quarter on key metrics that we have agreed upon
with the client, such as first-time call resolution, the rate at which we are successful in completing a sale on behalf of our client
and customer satisfaction, and then convert our performance into quantifiable value. We then share this information with our clients
to enable them to compare the quantifiable value we have delivered to the value they have received from other BPO providers or their
in-house operations. By entering into contracts containing pricing terms that our clients agree are based on the value we create per
dollar spent by the client, rather than a pricing model focused solely on being able to deliver the least expensive service offering,
or a cost-based commodity pricing model which we believe is most often emphasized in our industry, we believe we can increase our ability
to withstand competitive pricing pressure and to win and retain clients.
We
believe our investments in the quality of our people and processes can lead to quantifiably superior results for our clients. We have
high standards for our employees and we make significant investments in all areas of our human capital, including training, quality assurance,
coaching and our performance management system. We employ a scorecard system that uses objective metrics to review an employee’s
performance to provide clarity of purpose and to ensure accountability for individual results. This scorecard system is linked to a compensation
structure for our employees that is heavily based on individual performance. As a result of our reliance on objective metrics in our
performance management system, we have what we refer to as a metric-driven performance culture among our employees. We believe that our
focus on investing in human capital and use of a metric-driven, performance based business model positions us to provide value-added
solutions to our clients, which we believe leads to strong relationships with our clients and recognition in our industry.
As we grow, we continue to expand our national
presence and service offerings to increase revenue, improve operational efficiencies and drive brand loyalty for our clients. Our service
is currently delivered from our call centers located in Liaoning Province, Shandong Province, Jiangsu Province, Guangdong Province, Yunnan
Province, Hubei Province, Jiangxi Province, Hebei Province, Anhui Province, Sichuan Province, Heilongjiang Province, the Xinjiang Uygur
Autonomous Region, the Guangxi Zhuang Autonomous Region, Chongqing City, Shanghai City, and Beijing City, which had a total capacity of
29,249 seats as of December 31, 2020. We reserved seats in excess of our current labor capacity in anticipation to increase in labor force
due to increase in projects in the near future. In addition to answering and responding to inbound calls, we also make outbound cold calls
to assist banks in promoting their credit card installment services and collecting payments of loans, as well as assist internet insurance
companies and the provincial subsidiaries of China Mobile and China Telecom in marketing their service products. We also provide online
customer care services via multimedia platforms including Apps, WeChat, Weibo, and websites for our e-commerce clients. Our largest clients
in terms of revenue for the year ended December 31, 2020 were China CITIC Bank Credit Card Center, China Mobile and their provincial
subsidiaries, Taobao, China Merchants Bank Credit Card Center, and Shuidi Insurance.
Industry
and Market Background
China’s
Call Center BPO Market
Compared
with countries such as the U.S. and India that have relatively more mature markets, China’s call center outsourcing market is still
in its early stage of development. In the past few years, competition in China’s market was relatively low due to highly differentiated
positions and large number of unexploited potential outsourcing customers. At present, low price, standard service vendors tend to be
most popular in the market. Nevertheless, as more competition in the China market is introduced in the future, we believe that the ability
to provide customer-oriented solutions in the China call center BPO market will be increasingly valued by customers.
Future
outsourcing development is highly dependent on the current BPO companies’ performance and strategies. Among the current outsourcing
companies, the key drivers of high performance are cost, service quality, intellectual property rights protection, workforce skills,
and industry expertise, along with a high degree of comfort and familiarity with the use of outsourcing as an effective business practice.
Growth in the China call center BPO market will depend on the industry’s ability to address customer concerns in such areas as
quality, confidentiality, information processing ability, human resources, and price.
In
the highly competitive global contact center outsourcing market, China enjoys several advantages. As a result of 30 years of economic
reform, China has greatly improved its infrastructure, in some areas matching those in developed countries. China has a large domestic
market and supply of well-educated workers, along with a talent pool supported by a well-developed education system. In addition, despite
rising labor costs, China’s outsourcing businesses still have, a low cost advantage on the global call center market.
We
believe outsourcing will continue to grow as a result of greater client demand for cost savings, along with the need for high-quality
customer interactions and innovative service solutions that deliver tangible value. We also believe the desire for companies to focus
on core competencies will remain strong and continue to cause them to outsource certain non-core functions to experienced outsourcing
providers with the appropriate scale, consistent processes and technological expertise.
China’s
economic growth has resulted in a growing consumer population, and we believe that Chinese consumers will continue to develop needs that
can be more efficiently serviced and supported through BPO services. The call center BPO services of our clients are non-core outsourcing
processes, or BPO services that our clients may not view as critical to their operations and are outsourced to us. By providing these
services for our clients, we aid them in streamlining their business operations. Our clients transfer the complete responsibility of
their BPO functions to us, and we are then responsible for maintaining service quality standards.
Telecommunications
Market
China’s
mobile phone subscribers were approximately 1.6 billion at the end of 2020. At the end of
2020, China reached approximately 989 million mobile internet users. With intensified competition
in the telecommunications market, major telecommunication companies such as China Mobile
are making transitions from voice-centric to data-centric operations, from communications
to mobile Internet and information consumption, and from mobile communication operations
to innovative full service operations.
Growth
in China’s telecommunications sector continues to be influenced by the country’s
overall economy. China’s gross domestic product (“GDP”) increased 2.3%
over the previous year, according to the National Statistical Bureau of China.
Our
Operating Companies’ customers include telecommunications operators in China, namely China Mobile and China Telecom. The restructuring
of China’s telecommunications industry opened the fixed-line, mobile and broadband segments to all existing telecommunications
operators in China, and the ensuing competition in these segments prompted each telecommunications operator to focus more on operating
efficiency and its measure metrics, namely, average revenue per employee. We believe that increasing competition among the three operators
will drive demand for outsourcing their call center functions to third party service providers.
Our
Competitive Strengths
We
believe the following strengths differentiate us from our competitors in our market in China:
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We
are a provider of telecommunications call center BPO services to subsidiaries of two significant telecommunications carriers in China.
Our principal operating company, Taiying, is a provider of call center BPO services to the provincial subsidiaries of two
of the three telecommunications carriers in China, specifically China Mobile and China Telecom;
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We
have developed comprehensive and scalable solutions. Taiying has developed different programs to maximize outbound calling
professionals’ performance across all three major sales metrics: (i) units sold - conversion rate and sales per hour,
(ii) customer retention, and (iii) customer satisfaction from a positive sales experience. Taiying benefits from economies
of scale as a result of being one of the largest telecommunications call center BPO operation in China;
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We possess a commitment
to innovation and quality service. Taiying, ZSEC, JTIS, GDTC, JTTC, JXTT, ATIT, SCBI and Central BPO have respectively obtained
an aggregate 255 registered computer software ownership rights from the China State Copyright Bureau. Taiying has attained several
awards in recognition of its efforts in setting up national call center standards and in improving the quality of call center service;
and Taiying has been recognized with awards and certificates by a variety of government entities for its efforts in call center BPO
service;
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We possess a strategic,
national presence. We have 36 call center locations in 17 provinces, autonomous regions, and directly-administered municipalities
(Beijing, Shanghai, and Chongqing), with the intention to service the whole China. We believe that our customers value this strong
national presence and our ability to do business in multiple geographic regions in the PRC depending on factors such as the life
cycle of their products, the complexity of the work being performed, the cultural and local language requirements, and the economics
of the total service solution. Our resulting ability to customize a multi-geographic strategy enhances our ability to win new clients
or expand our market share with existing clients;
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We
possess a high quality, loyal client base in attractive sectors. We maintain broad and long-standing relationships
with clients in many business sectors in China, including e-commerce, banking, finance, transportation and telecommunications. Notwithstanding
our lack of long-term agreements we believe that we have sustainable and long-term relationships with our clients that make us an
integral component of their planning, strategy, and cost model. We believe our clients seek our services due to our ability to provide
scalable and timely solutions that leverage our proven processes and technology investments. We believe that our approach to client
service and our relationships will allow us to maintain our existing base of business and grow new business as our clients launch
new products and enter new geographic regions in the PRC;
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We
focus upon strong industry growth opportunities. We have traditionally focused on the telecommunications segments
within the BPO market because of its growth potential and attractive operating margins. In addition, we seek to capitalize on the
national trend toward outsourcing BPO services. We also believe that the current economic slowdown has increased demand for outsourcing
not only because it can reduce customer service costs, but also because it offers an incremental channel to increase sales. At the
same time, we expect to benefit from growth in other industries such as financial services, government bodies, IT and e-commerce;
and
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We
employ highly qualified personnel. Taiying’s workforce is highly skilled with specialized training designed to address
complex customer care engagements; our entrepreneurial management team includes employees who have significant experience managing
call center services. Led by industry veteran, founder, chairman and chief executive officer, Gary Wang, our management team
is comprised of an experienced group of executives, many of whom have approximately 15 or more years of operating experience in the
call center BPO industry.
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Our
Strategies
We
provide integrated BPO services to help our clients create maximum value for their customers over the long-term. Our goal is to become
the largest call center BPO service provider in China. We intend to achieve this goal by implementing the following strategies:
We
intend to pursue strategic acquisitions and alliances that fit within our core competencies and growth strategy. We plan to grow
our revenues and market share both organically and through targeted acquisitions. Our plans to expand our service offerings into new
segments, such as data management, or into new industries, such as financial services and government bodies, may be accomplished most
efficiently and cost-effectively through the acquisition of companies or assets, or through joint venture arrangements with third parties.
We view acquisitions as a key component of our growth strategy and expect to seek acquisitions in the future that will expand our existing
competencies or add to our portfolio of BPO capabilities;
We
intend to strengthen relationships with key customers. Our existing clients are the subsidiaries of large companies with diverse
BPO needs and we plan to continue our strategy of expanding the scale and scope of the services we provide for these large clients. We
intend to further strengthen our relationships with key clients by not only offering an efficient and flexible cost model that can reduce
costs to the client, but also by expanding our current service offerings within our existing client base to generate additional revenues
for our clients;
We
intend to develop new client relationships. We intend to capitalize on growth opportunities driven by a trend towards
use of third party BPO service providers in China’s call center outsourcing market. The current 29,249 seat capacity of our existing
facilities in Liaoning Province, Shandong Province, Jiangsu Province, Guangdong Province, Yunnan Province, Hubei Province, Jiangxi Province,
Hebei Province, Anhui Province, Sichuan Province, Heilongjiang Province, the Xinjiang Uygur Autonomous Region, the Guangxi Zhuang Autonomous
Region, Chongqing City, Shanghai City, and Beijing City represents what we believe is a very small percentage of China’s BPO market,
which leaves potential for us to gain market share;
We
intend to increase our revenue and market share by expanding our service networks to other provinces. We started with our call
center in Shandong Province, which covers the north region of China. Over the years, we have established a new call center in Chongqing
City, which covered the southwest region of China, and three new call centers in Jiangsu Province, which positioned us to target potential
clients in the Yangtze River Delta. We have also added call centers in Beijing City, Hebei Province, Anhui Province, Sichuan Province,
the Xinjiang Uygur Autonomous Region, and the Guangxi Zhuang Autonomous Region;
We
intend to diversify our client base and provide services to other industries, such as financial services, government bodies, IT and e-commerce.
We previously had a single industry focus, with most of our revenues coming from the telecommunications industry. In recent years, while
we continue to target the significant market opportunity still available in the telecommunications industry, diversification of our client
base to include customers in the financial services, government, IT and e-commerce, and insurance industries have positioned us to maximize
our return on the core competencies of our operation. We believe that the financial services, government services, IT and e-commerce
industries, combined with the telecommunications industry, represent a majority of the overall outsourced market;
We
intend to continue to enhance our brand and augment our service offerings to attract a wider client base and increase revenues.
We expect to continue to promote our brand name, increase our revenue through a combination of securing business from new clients and
increasing our service offerings and market share for existing clients. We expect that our track record, reputation, referrals and historical
working relationship with the provincial subsidiaries of two of the largest telecommunications operators in China, will allow us to win
new clients in the future as more companies outsource their BPO function. We also expect to generate new business by working with our
clients to outsource non-core programs that are currently managed internally; and
We
intend to continue to attract and retain quality employees. We plan to continue our focus on, and investment in, human capital.
Building on our already strong base of recruiting, training and performance management systems, we plan to expand our efforts in all
of these areas to increase our recruiting capacity and maintain our ability to deliver high-quality services.
Our
Lines of Service
We
believe BPO is a key enabler of improved business performance as measured by a company’s ability to consistently outperform peers
through both business and economic cycles. We believe the benefits of BPO include renewed focus on core capabilities, faster time to
market, enhanced revenue generation opportunities, streamlined processes, reduced capital and operating risk, movement from a fixed to
variable cost structure, access to borderless sourcing capabilities, and creation of proprietary best operating practices and technology,
all of which contribute to increased customer satisfaction, profits and shareholder returns for our clients.
We
believe that companies with high customer satisfaction levels enjoy premium pricing in their industry, which we believe results in increased
profitability and greater shareholder returns. Given the strong correlation between customer satisfaction and improved profitability,
we believe that more companies are increasingly focused on selecting outsourcing partners, such as Taiying, that can deliver strategic
revenue generation and front-to-back-office capabilities to improve the customer experience.
Our
service offerings enable our clients to increase revenue, reduce operating costs, improve customer satisfaction, and enhance overall
brand value and customer loyalty.
Inbound
Customer Care Service. Our inbound customer support service offers answering service hotlines in China, 24 hours a day, 7 days
a week. Contacts are initiated primarily by inbound calls from customers on a wide range of topics dealing with customer enquiries regarding
services and billings, directory assistance, account and service changes, password reset/appeals, product and service inquiries, hotel
reservations, airline ticket purchases, customer retention and customer complaints. Customer retention programs are programs where the
customer is calling to cancel service. In the latter case, our customer service associates are trained to attempt to resolve the customer’s
issue and convince the customer to keep their service with the particular provider. In addition, we initiate sales calls, primarily to
existing customers of our clients, for retention and loyalty programs, and in some cases unsolicited calling for customer acquisition.
Taiying operates under licensing and revenue sharing agreements with the provincial subsidiaries of China Mobile and China Telecom for
its inbound calling service.
Outbound
Customer Care Service. We also provide outbound cold calling services such as selling China Mobile’s color ring back tones
(“CRBT”), wireless news service, daily weather service and other Mobile value added service MVAS to targeted wireless subscribers.
Through market segmentation, customer trends and analysis of customer attrition rates, we generate revenue by making targeted outbound
cold callings of potential subscribers. Unlike other MVAS providers who use China Mobile or China Telecom networks simply as a distribution
channel, we create and manage a vast range of MVAS products for China Mobile or China Telecom, as the case may be, and market them to
mobile phone users through the Company’s call centers under the China Mobile or China Telecom brand, as the case may be. The provincial
subsidiaries of China Mobile and China Telecom compensate our company for selling their products and increasing their revenues by splitting
the subscription fee according to a pre-determined formula for successfully enrolling each subscriber. We believe this arrangement, emphasizing
the sale of the products of the telecommunications operator rather than our own distinguishes us from our competitors, and further strengthen
our relationship with the provincial subsidiaries of China Mobile and China Telecom.
Online Customer Care Service. Our
online customer service is an alternative to our inbound customer care service. Instead of offering customer care services via telephone,
we provide services, such as verifying information, filling in information, and answering inquires, through an online form of live chat
through multimedia platforms including Apps, WeChat, Weibo, and websites. Our clients that use these services are primary e-commerce providers
and clients with some or all of their services provided online.
AI Customer Care Service. In 2019, we
began using artificial intelligence customer care to enhance our lines of services. We intend to use customer service
robots, which are professional service robots intended to interact with customers. These robots come with highly humanoid voice
generation technology and enhanced industry knowledge mapping and learning capabilities, which can automate many tasks in customer
service. We believe, like all robots, our customer service robots’ value lies in labor savings, efficiency and uptime.
For
inbound customer care service, fees are charged based on either number of calls (a fixed charge per interaction) or predetermined seats
charges (weekly charges, or monthly charges per seat). For outbound cold calling services, fees are charged based on the success of marketing
the product and service upon subscription. Telecommunications operators such as China Mobile and China Telecom typically charge a subscription
fee to the subscriber’s monthly bill, keeps predetermined percentage of this fee for itself and remits the remainder to us. For
advanced services, revenue sharing varies among products.
We have gradually diversified our client
base. Currently, our main clients include transportation companies, e-commerce companies, banks and insurance companies, and
telecommunications companies. We derived 48% of our revenues in 2020, compared to 45% in 2019, from our five largest clients.
We primarily utilize our cash flow from operations
and short-term loans to fund working capital, and other strategic and general operating purposes. As of December 31, 2020, and 2019, we
had $1,531,933 and $4,306,138 in short term loans, respectively. The amount of capital required over the next 12 months will also
depend on our levels of investment in infrastructure necessary to meet the growth demand of our business. Our working capital and capital
expenditure requirements could increase materially in the event of acquisitions or joint ventures, among other factors. These factors
could require that we raise additional capital through future debt or equity financing. There can be no assurance that additional financing
will be available, at all, or on terms favorable to us.
Customers
We
provide services to a diverse client base that includes such customers as Shuidi Insurance, DiDi Chuxing, the provincial subsidiaries
of China Mobile and China Telecom, Ping An Insurance, Haier, HiSense Alibaba Group (including Cainiao, Taobao, Tmall, and Alipay), and
so on. We also have outsourcing contracts with some of China’s largest banks, including China Construction Bank, China CITIC Bank,
and China Merchants Bank.
Contractual
Arrangements
We
have signed contracts with our clients that generally have one-year terms. Outbound customer care service contracts also generally have
one-year terms. Both inbound and outbound contracts have no automatic renewal provisions.
Five of our customer relationships currently in place collectively
accounted for about 48% of our revenues in the year of 2020. The customers (in order of their contribution to our revenues during that
period) are as follows: China CITIC Bank Credit Card Center, China Mobile and their provincial subsidiaries, Taobao, China Merchants Bank
Credit Card Center, and Shuidi Insurance. Any loss of our relationship with those customers could impact our revenue and profits.
Sales
and Marketing
Recently
we have focused on the financial services sector, internet-based companies and government bodies for further expansion. We rely on our
own sales force to market and sell our services in China. Our sales team is responsible for obtaining new clients and growing existing
clients by identifying additional sales opportunities. Our sales team is supported by our sales support team, which responds to requests
for proposals and requests for information, including preparing written responses to such requests. Our sales support team is also specifically
responsible for managing and coordinating visits by clients to our call centers. We view these site visits as one of the most important
parts of our sales cycle, and we design site visits to allow prospective clients to experience the elements of our business model at
work.
The
focus of our sales and marketing efforts is to educate prospective clients on what we believe differentiates us as an outsourced provider
in the BPO market. Specifically, our sales effort focuses on our approach of investing in our human capital to outperform expectations
and in delivering greater value per dollar spent. We provide a sales proposition to a prospective client based on quantifiable value
per dollar spent by the client on our services. This gives the client a means of comparing our value created per dollar spent as compared
to the same metrics for their internal centers or other outsourcers. We believe that this approach has been crucial to winning and retaining
clients and increasing our ability to withstand competitive pricing pressure. As of December 31, 2020, we had 50 sales, marketing
and sales support professionals.
Competition
We
operate in a highly competitive environment. We estimate that there are hundreds of companies providing call center BPO service in China.
We also compete with the in-house business process functions of our current and potential clients. We believe our key advantage over
in-house business process functions is that we enable companies to focus on their core services while we focus on the specialized function
of managing their customer relationships. We also compete with certain companies that provide BPO services including: CM-Tong, Meiyin,
Boyue, Asiainfo, 95Teleweb, and Poicom.
We
compete primarily on the basis of our experience, reputation, our quality and scope of services, our speed and flexibility of implementation,
our technological expertise, total value delivered, and our quantifiable value per dollar spent by the client on our services.
The
business process outsourcing industry is extremely competitive, and outsourcers have historically competed based on pricing terms. Accordingly,
we could be subject to pricing pressure and may experience a decline in our average selling prices for our services. We attempt to mitigate
this pricing pressure by differentiating ourselves from our competition based on the value we bring to our clients through the quality
of our services and our ability to provide quantifiable results that our clients can measure against our competitors. We seek to compete
by emphasizing to our clients the value they receive per dollar spent for our services. We do not generally compete in the segment of
the customer care BPO market that focuses solely on price. We normally provide a sales proposition to a client based on quantifiable
value per dollar spent by the client on our services. We believe that our ability to quantify value has allowed us to negotiate primarily
fixed pricing with our clients that reflects the greater value created per dollar spent, rather than the cost-based commodity pricing
model most often emphasized in our industry.
We
believe that we have competitive advantages in the markets we serve due to our metric-driven BPO solutions, comprehensive and scalable
product and service offerings, customer-centric and cost-effective project management capability, and established customer relationships.
The
principal competitive factors in our markets include:
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ability
to provide services that are innovative and attractive to customers and their end-users;
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service
functionality, quality and performance;
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customer
service and support;
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establishment
of a significant customer base; and
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ability
to introduce new services to the market in a timely manner
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Research
and Development
We are committed to researching, designing and
developing call center information technology solutions and software products that will meet the future needs of our customers. We continuously
upgrade our existing software products to enhance scalability and performance and to provide added features and functions. As of December 31,
2020, our research and development team consisted of 105 researchers, engineers, developers and programmers. In addition, certain support
employees regularly participate in our research and development programs. Research and development expenses consist primarily of wage
expense incurred to personnel to continuously upgrade the Company’s existing software products. For the years ended December 31,
2020, 2019, and 2018, research and development expenses of $3,073,906, $3,994,464 and $4,069,794 were included in selling, general and
administrative expenses.
Intellectual
Property Rights
The
PRC has domestic laws for the protection of rights in copyrights, patents, trademarks and trade secrets. The PRC is also a signatory
to all of the world’s major intellectual property conventions, including the:
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Convention
establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);
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Paris
Convention for the Protection of Industrial Property (March 19, 1985);
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Patent
Cooperation Treaty (January 1, 1994); and
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Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).
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WIPO
Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty (WPPT) (June 2007).
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The
PRC Trademark Law, adopted in 1982 and revised in 2013 and 2019, with its implementation rules adopted in 2014, protects registered trademarks.
The Trademark Office of the State Administration of Industry and Commerce (“SAIC”), handles trademark registrations and grants
trademark registrations for a term of ten years.
Our
intellectual property rights are important to our business. We rely on a combination of trade secrets, confidentiality procedures and
contractual provisions to protect our intellectual property. We do not presently hold any patents or registered trademarks.
We
have been granted registered computer software ownership rights by the China State Copyright Bureau to 255 pieces of computer software,
including but not limited to, software programs related to call center integration and optimization, customer relationship management,
online testing, insurance industry customer service inquiry system, and hospital customer service inquiry systems. These software programs
allow us to implement our own computer systems without having to purchase them from an outside vendor, lowering our startup costs for
additional call centers. The China State Intellectual Property Office has granted us patents to two pieces of intellectual property
rights, both patents are related to call center integration and optimization. The Trademark Office of SAIC has granted us 14 registered
trademarks for the abbreviations of our company name and images of our products. We have been granted 17 domain name rights by the Internet
Corporation for Assigned Names and Numbers (“ICANN”) and 11 domain name rights by the China Internet Network Information
Center (“CNNIC”), including our website address ccrc.com. We enter into confidentiality agreements with most of our employees
and consultants, and control access to and distribution of our documentation and other licensed information. Despite these precautions,
it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, or to develop similar
technology independently. Since the Chinese legal system in general, and the intellectual property regime in particular, is relatively
weak, it is often difficult to enforce intellectual property rights in China. Policing unauthorized use of our technology is difficult
and the steps we take may not prevent misappropriation or infringement of our proprietary technology. In addition, litigation may be
necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope
of the proprietary rights of others, which could result in substantial costs and diversion of our resources and could have a material
adverse effect on our business, results of operations and financial condition.
We
require our employees to enter into non-disclosure agreements to limit access to and distribution of our proprietary and confidential
information. These agreements generally provide that any confidential or proprietary information developed by us or on our behalf must
be kept confidential. These agreements also provide that any confidential or proprietary information disclosed to third parties in the
course of our business must be kept confidential by such third parties.
As
of December 31, 2020, we have obtained 255 registered computer software ownership rights from the China State Copyright Bureau,
14 patents from the China State Intellectual Property Office, 14 registered trademarks from the Trademark Office of SAIC and 28 domain
name rights from ICANN and CNNIC.
In
the event of trademark infringement, the SAIC has the authority to fine the infringer and to confiscate or destroy the infringing products.
In addition to actions taken by SAIC, Taiying would be entitled to sue an infringer for compensation.
REGULATION
Regulation
of the Telecommunications Industry
The
telecommunications industry is highly regulated in China. PRC laws and regulations restrict foreign investment in China’s telecommunications
service industry. The contractual arrangements between our wholly-owned subsidiary, WFOE, and Taiying, allow us to exercise significant
rights over the business operations of Taiying and to realize the economic benefits of the business. We believe that our operations are
in compliance in all material aspects with current, applicable PRC regulations. However, many PRC laws and regulations are subject to
extensive interpretive power of governmental agencies and commissions, and there is substantial uncertainty regarding the future interpretation
and application of these laws or regulations.
The
Chinese telecommunications industry, in which our largest customers operate, is subject to extensive government regulation and control.
Currently, all the major telecommunications and Internet service providers in China are primarily state owned or state controlled and
their business decisions and strategies are affected by the government’s budgeting and spending plans. In addition, they are required
to comply with regulations and rules promulgated from time to time by the Ministry of Industry and Information Technology and other ministries
and government departments.
In
September 2000, China published the Regulations of the People’s Republic of China on Telecommunications, or the “Telecommunications
Regulations.”, as amended in February 2016. The Telecommunications Regulations were the first comprehensive set of regulations
governing the conduct of telecommunications businesses in China. In particular, the Telecommunications Regulations set out in clear terms
the framework for operational licensing, network interconnection, the setting of telecommunications charges and standards of telecommunications
services in China. Also, in September 2000 China’s State Council approved the Administrative Measures on Internet Information Services,
as amended in January 2011, which provide for control and censoring of information on the Internet.
The
Ministry of Information Industry (“MII”), which was reorganized as the Ministry of Industry and Information Technology (“MIIT”)
promulgated the Administrative Measures for Telecommunications Business Operating Licenses(the “Telecommunications License Measures”),
which were last amended in July 2017. The Telecommunications License Measures provide for two types of telecommunications operating licenses
for carriers in the PRC, namely licenses for basic services and licenses for value-added services. In February 2003, the MII issued a
classification of basic and value-added telecommunications services, as amended in March 2016 (the “2015 Classification”).
The 2015 Classification maintains the general distinction between basic telecommunications services, or BTS, and value-added telecommunications
services, or VATS, and attempts to define the scope of each service. In particular, the 2015 Classification delineated the differences
between “Type 1” and “Type 2” value-added services. Type 1 includes internet data center (IDC), content delivery
network (CDN), domestic Internet VPN services (IP-VPN) and internet access services (ISP). Type 2 covers storage and retransmission (email,
voice mail, facsimile), online date and transaction processing, call centers, domestic multi-party communications services, information
services, encoding and protocol conversion and domain name services (DNS).
Under
a separate set of regulations introduced in December 2001, qualified foreign investors are permitted to invest in certain sectors of
China’s telecommunications industry through Sino-foreign joint ventures, including Type 2 VATS providers, although there have been
few reported investments of this nature to date. These regulations, known as the Provisions on the Administration of Foreign-Invested
Telecommunications Enterprises, as amended, were the result of China’s accession to the World Trade Organization, under which certain
qualifying foreign investors are permitted to own up to 49% of basic telecommunications businesses in China, and up to 50% of value-added
telecommunications services businesses and wireless paging businesses (one of the basic telecommunications businesses). Such requirements
for foreign investments in telecommunication businesses were confirmed by the 2018 Special Management Measures (Negative List) for the
Access Investment (the “Negative List”) jointly issued by NDRC and MOFCOM on December 21, 2018. On June 30, 2019, however,
NDRC and MOFCOM promulgated the new Negative List which became effective on July 30, 2019. The 2019 Negative List lifted all restrictions
on foreign investments for certain types of value-added telecommunication services including e-commerce, domestic multiparty communication,
store-and-forward type, and most importantly, call centers.
We
and our PRC operating subsidiaries are considered foreign persons or foreign-invested enterprises under PRC laws, and, prior to July
30, 2019, were subject to foreign ownership restrictions in connection with our limited VATS Type 2 business activities. In order to
comply with these then-applicable restrictions, WFOE, our wholly-owned subsidiary, entered into a series of control agreements with Taiying
and its sole shareholder, which allow us to exercise significant rights over the business operations of Taiying and to realize the economic
benefits of the business. We do not have any equity interest in Taiying, but instead have the right to enjoy economic benefits similar
to equity ownership through our control agreements with Taiying and its sole shareholder. For more information on the regulatory and
other risks associated with our contractual arrangements related to Taiying, please see the discussion in “Risk Factors—Risks
Relating to Our Corporate Structure.” Such foreign-investment restrictions relating to BPO call centers have been lifted since
July 30, 2019, and we have not restructured our corporate structure. We believe that our operations are in compliance in all material
aspects with the applicable PRC regulations currently and before July 30. 2019. However, many PRC laws and regulations are subject to
extensive interpretive power of governmental agencies and commissions, and there is substantial uncertainty regarding the future interpretation
and application of these laws or regulations.
Regulation
of Foreign Currency Exchange and Dividend Distribution
Foreign
Currency Exchange. The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration
Regulations (1996), as amended on August 5, 2008, the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange
(1996) and the Interim Measures on Administration on Foreign Debts (2003). Under these regulations, Renminbi are freely convertible for
current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions,
but not for most capital account items, such as direct investment, loans, repatriation of investment and investment in securities outside
China, unless the prior approval of SAFE or its local counterparts is obtained. In addition, any loans to an operating subsidiary in
China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective approved total investment
amount and its respective approved registered capital amount. Furthermore, any foreign loan must be registered with SAFE or its local
counterparts for the loan to be effective. Any increase in the amount of the total investment and registered capital must be approved
by the PRC Ministry of Commerce or its local counterpart. We may not be able to obtain these government approvals or registrations on
a timely basis, if at all, which could result in a delay in the process of making these loans.
The
dividends paid by the subsidiary to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration
Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may retain foreign exchange
incomes, subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange
transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other
relevant PRC governmental authorities.
Dividend
Distribution. The principal laws, regulations, and rules governing the distribution of dividends by foreign holding companies
in the PRC are the Company Law of the PRC, as amended. Under the Company Law of the PRC, a PRC company, including PRC domestic companies
and foreign-invested PRC enterprises, may pay dividends only out of its retained profits, if any, determined in accordance with PRC accounting
standards and regulations. A PRC company is required to allocate at least 10% of its respective retained profits each year, if any, to
fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not
distributable as cash dividends, and a PRC company is not permitted to distribute any profits until losses from prior fiscal years have
been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal
year.
Circular
37. On July 4, 2014, SAFE issued Circular 37, which became effective as of July 4, 2014. According to Circular 37,
PRC residents shall apply to SAFE and its branches for going through the procedures for foreign exchange registration of overseas investments
before contributing the domestic assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such
PRC resident is also required if the registered overseas SPV’s basic information such as domestic individual resident shareholder,
name, operating period, or major events such as domestic individual resident capital increase, capital reduction, share transfer or exchange,
merger or division has changed. Although the change of overseas funds raised by overseas SPV, overseas investment exercised by overseas
SPV and non-cross-border capital flow are not included in Circular 37, we may be required to make foreign exchange registration if required
by SAFE and its branches.
Moreover, Circular 37 applies retroactively. As
a result, PRC residents who have contributed domestic assets or interests to a SPV, but failed to complete foreign exchange registration
of overseas investments as required prior to implementation of Circular 37, are required to send a letter to SAFE and its branches for
explanation. Under the relevant rules, failure to comply with the registration procedures set forth in Circular 37 may result in
receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000 for an organization or up to RMB50,000 for
an individual. In the event of failing to register, if capital outflow occurred, a fine up to 30% of the illegal amount may be assessed.
PRC
residents who control our company are required to register with SAFE in connection with their investments in us. If we use our equity
interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be
subject to the registration procedures described in Circular 37.
M&A Regulations
and Overseas Listings
On
August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration
Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued
the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective
on September 8, 2006 and was amended on June 22, 2009. This New M&A Rule, among other things, includes provisions that
purport to require that an offshore special purpose vehicle formed for purposes of overseas listing of equity interests in PRC companies
and controlled directly or indirectly by PRC companies or individuals obtain the approval of CSRC prior to the listing and trading of
such special purpose vehicle’s securities on an overseas stock exchange.
On
September 21, 2006, CSRC published on its official website the Provisions on Indirect Issuance of Securities Overseas by a Domestic
Enterprise or Overseas Listing of Its Securities for Trading, which specify procedures regarding CSRC’s approval for overseas listings
by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take
several months to complete the approval process. The application of this new PRC regulation remains unclear. Further, on December 28,
2019, China amended the Securities Law of the PRC (the “2019 PRC Securities Law”) and enacted it on March 1, 2020. Pursuant
to this amendment, the direct or indirect listing or trading of a domestic company’s securities on an overseas stock exchange shall
be in compliance with the relevant requirements of the State Council. The State Council has not yet implemented any detailed rules in
this regard.
Our
PRC counsel, GFE Law Office, has advised us that, based on their understanding of the current PRC laws and regulations:
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we
currently control the Operating Companies by virtue of WFOE’s VIE agreements with CCRC but not through equity interest acquisition
nor asset acquisition which are stipulated in the New M&A Rule; and
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in
spite of the above, CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like our initial
public offering are subject to this new procedure.
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Regulations
on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Subsidiaries
An
offshore company may invest equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment.
Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China,
which include the Company Law of the PRC, the Foreign Investment Law of the PRC, all as amended from time to time, and the Implementing
Rules of the Foreign Investment Law of the PRC; the Administrative Provisions on Foreign Exchange in Domestic Direct Investment by Foreign
Investors; and the Notice of the State Administration on Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration
Policies for Direct Investment.
Under
the aforesaid laws and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval
by the original approval authority of its establishment. In addition, the increase of registered capital and total investment amount
shall be registered with Ministry of Commerce (or authorized provincial or same level government), SAIC and SAFE.
Shareholder
loans made by offshore parent holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purpose,
which is subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim
Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation
rules, and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange.
Under
these regulations, the shareholder loans made by offshore parent holding companies to their PRC subsidiaries shall be registered with
SAFE. Furthermore, the total amount of foreign debts that can be borrowed by such PRC subsidiaries, including any shareholder loans,
shall not exceed the difference between the total investment amount and the registered capital amount of the PRC subsidiaries, both of
which are subject to the governmental approval.
PRC Foreign
Investment Law
On
March 15, 2019, the National People’s Congress of the PRC adopted the Foreign Investment Law of the PRC (the “FIL”),
which became effective on January 1, 2020. The FIL sets forth the principal basic legal framework of foreign investment in the PRC, and
since taking effect, the FIL replaces the trio of laws regulating foreign investment in the PRC, namely, the Wholly Foreign-Invested
Enterprises Law, the Law on Sino-Foreign Equity Joint Ventures, and the Law on Sino-Foreign Contractual Joint Ventures, together with
their implementation rules and ancillary regulations. Pursuant to the FIL, foreign-invested enterprises established after the effective
date of the FIL shall comply with, as the case may be, the Company Law or the Partnership Enterprise Law of the PRC in terms of its organization
form, corporate structure and bylaws. For FIEs established prior to the effective date of the FIL, they shall have a five-year transition
period, during which the FIEs, such as our WFOE, may maintain its current organization form, corporate structure and bylaws. The FIL
provides clear provisions on issues of common concern for foreign-invested enterprises (“FIEs”) and their investors, such
as the pre-access national treatment plus negative list system, the equal application of all national policies to FIEs, no expropriation
of foreign investments under unexceptional circumstances, liberalization of inbound and outbound remittances, and concentration of undertakings
reviews and foreign investment security review systems.
The
FIL does not address the legality of VIE structures, and it leaves open the possibility that VIE structures may be included in the regulatory
scope of “foreign investment” through special laws, or administrative regulations or even normative documents formulated
by the State Council.
Regulations
Relating to Intellectual Property Rights
Patent.
Patents in China are principally protected under the Patent Law of China. The duration of a patent right is either 10 years
(utility model or design) or 20 years (invention) from the date of application, depending on the type of patent right.
Copyright.
Copyright in China, including copyrighted software, is principally protected under the Copyright Law of China and related rules and
regulations. Under the Copyright Law, for a company, the term of protection for copyright is 50 years from the first publication
of its work.
Trademark.
Registered trademarks are protected under the Trademark Law of China and related rules and regulations. Trademarks are registered
with the Trademark Office of the State Administration for Industry and Commerce. Where registration is sought for a trademark that is
identical or similar to another trademark that has already been registered or given preliminary examination and approval for use in the
same or similar category of commodities or services, the application for registration of such trademark could be rejected. Trademark
registrations are effective for a renewable ten-year period, unless otherwise revoked.
Domain
names. Domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by the MIIT. The
MIIT is the major regulatory body responsible for the administration of the Chinese Internet domain names, under supervision of which
the CNNIC is responsible for the daily administration of .cn domain names and Chinese domain names. MIIT adopts the “first to file”
principle with respect to the registration of domain names.
Employee
Stock Option Plans
In
February 2012, SAFE promulgated the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating
in Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in March 2007, to regulate the foreign
exchange administration of Chinese citizens and non-Chinese citizens who reside in China for a continuous period of not less than one
year, with a few exceptions, who participate in stock incentive plans of overseas publicly-listed companies. Pursuant to these rules,
these individuals who participate in any stock incentive plan of an overseas publicly-listed company, are required to register with SAFE
through a domestic qualified agent, which could be the Chinese subsidiaries of such overseas listed company, and complete certain other
procedures. We and our executive officers and other employees who are Chinese citizens or non-Chinese citizens who reside in China for
a continuous period of not less than one year and have been granted options would be subject to these regulations. Failure to complete
such SAFE registrations could subject us and these employees to fines and other legal sanctions. The State Administration of Taxation
has issued certain circulars concerning employee share options or restricted shares. Under these circulars, our employees working in
China who exercise share options or are granted restricted shares would be subject Chinese individual income tax.
Regulations
Relating to Labor
Pursuant
to the China Labor Law, which was adopted in 1995 and amended in 2009, and the China Labor Contract Law, which was adopted in 2008 and
amended in 2012, a written labor contract is required when an employment relationship is established between an employer and an employee.
Other labor-related regulations and rules of China stipulate the maximum number of working hours per day and per week as well as the
minimum wages. An employer is required to set up occupational safety and sanitation systems, implement the national occupational safety
and sanitation rules and standards, educate employees on occupational safety and sanitation, prevent accidents at work and reduce occupational
hazards.
An
employer is obligated to sign an indefinite term labor contract with an employee if the employer continues to employ the employee after
two consecutive fixed-term labor contracts or the employee has worked for the employer for ten years, with certain exceptions. The employer
also has to pay compensation to the employee if the employer terminates an indefinite term labor contract, with certain exceptions. Except
where the employer proposes to renew a labor contract by maintaining or raising the conditions of the labor contract and the employee
is not agreeable to the renewal, an employer is required to compensate the employee when a definite term labor contract expires. Furthermore,
under the Regulations on Paid Annual Leave for Employees issued by the State Council in December 2007 and effective as of January 2008,
an employee who has served an employer for more than one year and less than ten years is entitled to a 5-day paid vacation, those whose
service period ranges from 10 to 20 years are entitled to a 10-day paid vacation, and those who have served for more than 20 years
are entitled to a 15-day paid vacation. An employee who does not use such vacation time at the request of the employer must be compensated
at three times their normal salaries for each waived vacation day.
Pursuant
to the Regulations on Occupational Injury Insurance which was adopted in 2004 and amended in 2010, and the Interim Measures concerning
the Maternity Insurance for Enterprise Employees, which was adopted in 1995, Chinese companies must pay occupational injury insurance
premiums and maternity insurance premiums for their employees. Pursuant to the Interim Regulations on the Collection and Payment of Social
Insurance Premiums, which was adopted in 1999, and the Interim Measures concerning the Administration of the Registration of Social Insurance,
which was adopted in 1999, basic pension insurance, medical insurance and unemployment insurance are collectively referred to as social
insurance. Both Chinese companies and their employees are required to contribute to the social insurance plans. The aforesaid measures
are reiterated in the Social Insurance Law of China, which was adopted in July 2011 and amended in 2018, which stipulates the system
of social insurance of China, including basic pension insurance, medical insurance, unemployment insurance, occupational injury insurance
and maternity insurance. Pursuant to the Regulations on the Administration of Housing Fund, which was adopted in 1999 and amended in
2002, Chinese companies must register with applicable housing fund management centers and help each of their employees to establish a
special housing fund account in an entrusted bank. Both Chinese companies and their employees are required to contribute to the housing
funds.
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C.
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Organizational
Structure.
|
We are a holding company incorporated in the British
Virgin Islands that owns all of the outstanding capital stock of CBPO, our wholly owned Hong Kong subsidiary. CBPO, in turn, owns all
of the outstanding capital stock of WFOE, our operating subsidiary based in Taian City, Shandong Province, China. WFOE has entered into
control agreements with the sole shareholder of Taiying, which agreements allow WFOE to control Taiying. Through our ownership of CBPO,
CBPO’s ownership of WFOE and WFOE’s agreements with Taiying, we control Taiying. Taiying, in turn, is the sole shareholder
of Central BPO, JTTC, HTCC, SCBI, JCBI, ATIT, STTWB, STTCB, STTCZB, JTIS, NTEB, JXTT, XTTC, BTTC, GDTC, BTIT, STTC, GTTC, ZSEC, YTIT,
GNDT, STTBB, STTJB, STTHB, STTGB, ZTTC, and TTZN, WFTI, SZTT, FZTT, HNTT, CDTT, HZTT, HFTI, STTSH, and STTHN. CCRC was formed by Taiying
as part of a reorganization to facilitate it becoming a public company. The shareholders of Beijing Taiying presently own 83% of the
shares of CCRC.
Corporate
History – Taiying, WFOE, CBPO, and CCRC
Taiying was incorporated on December 18, 2007
as a domestic Chinese limited company, with initial registered capital of RMB3 million. The registered capital of Taiying was increased
to RMB 10 million on February 16, 2012, to RMB 36 million on February 25, 2019, and to RMB 60 million on April 10, 2020. We formed CBPO,
WFOE and CCRC in 2014, in anticipation of registering the common shares of CCRC in our initial public offering. In connection with the
formation of CCRC, CBPO and WFOE, we caused WFOE to become the wholly-owned foreign entity of CBPO as of August 2014 and to enter into
certain control agreements with Taiying and its shareholder, pursuant to which we, by virtue of our ownership of CBPO and CBPO’s
ownership of WFOE, control Taiying.
Corporate
History – Central BPO, JTTC, HTCC, SCBI, JCBI, ATIT, STTWB, STTCB, STTCZB, JTIS, NTEB, JXTT, XTTC, BTTC, GDTC, BTIT, STTC, GTTC,
ZSEC, YTIT, GNDT, STTBB, STTJB, STTHB, STTGB, ZTTC, TTZN, WFTI, SZTT, FZTT, HNTT, CDTT, HZTT, HFTI, STTSH, and STTHN.
Taiying
incorporated the following subsidiaries and branch companies on the dates indicated below:
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Central
BPO – January 28, 2010;
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JTTC
– February 25, 2010;
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HTCC
– April 20, 2010;
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SCBI
– August 9, 2012;
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JCBI
– December 12, 2013;
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ATIT
– December 26, 2013;
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STTWB – November 8,
2018;
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STTCB – February 22, 2013;
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JTIS – July 1, 2014;
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NTEB – December 25, 2014;
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JXTT – January 8, 2015;
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XTTC – March 20, 2015;
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BTTC – June 30, 2015;
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ZSEC - June 16, 2016;
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GDTC – September 6, 2018;
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BTIT – June 16, 2017;
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STTC – November 8, 2017;
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GTTC – March 28, 2018;
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GNDT – July 25, 2019;
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STTJB – December 6, 2019;
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STTHB – November 28, 2019;
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STTGB – January 22, 2020;
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ZTTC – March 19, 2020;
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TTZN – May 18, 2020;
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WFTI – October 29, 2020;
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SZTT – November 18, 2020;
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FZTT – November 26, 2020;
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HNTT – December 18, 2020;
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CDTT – December 18, 2020;
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HZTT – January 8, 2021;
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HFTI – February 8, 2021;
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STTSH – September 30, 2020; and
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STTHN – January 20, 2021.
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We
previously incorporated two branch offices, STTCZB on January 28, 2019, and STTBB on March 18, 2019, and voluntarily dissolved them on
September 28, 2020, and May 21, 2020, respectively.
Purpose
and Significance of Taiying and its Subsidiaries, Central BPO, JTTC, HTCC, SCBI, JCBI, ATIT, STTWB, STTCB, STTCZB, JTIS, NTEB, JXTT,
XTTC, ZSEC, BTIT, STTC, GDTC, GTTC, BTTC, YTIT, GNDT, STTBB, STTJB, STTHB, STTGB, ZTTC, TTZN, WFTI, SZTT, FZTT, HNTT, CDTT,
HZTT, HFTI, STTSH, and STTHN.
Taiying
and its subsidiaries operate call centers throughout China. Below is a list of the call centers Taiying and each subsidiary operates,
along with the revenue allocated to each call center for 2020.
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Taiying operates two call centers located in Tai’an City, and one in Jinan City. It accounted for approximately 20.48% of revenue in 2020.
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Central BPO operates two call centers located in Chongqing and accounted for approximately 11.45% of revenue in 2020.
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JTTC operates two call center located in Taizhou City, Jiangsu Province, and in Shanghai City, and accounted for approximately 2.16% of revenue in 2020.
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SCBI operates a call center located in Yantai City, Shandong Province, and accounted for approximately 2.42% of revenue in 2020.
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JCBI does not operate call center and did not generate any external revenues in 2020.
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ATIT operates three call centers, with two located in Hefei City, Anhui Province, and one in Kunshan City, Jiangsu Province, and accounted for approximately 12.99% of revenue in 2020.
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STTWB operates a call center in Wuhan City, Hubei Province, and accounted for approximately 0.76% of revenue in 2020.
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STTCB does not operate any call center and did not
generate any external revenues in 2020.
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STTCZB did not generate any external revenues in 2020,
and was voluntarily dissolved in September 2020.
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HTCC operates a call center located in Sanhe City,
Hebei Province, and accounted for approximately 0.16% of revenue in 2020.
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JTIS operates a call center located in Huaian
City, Jiangsu Province, and accounted for approximately 7.09% of revenue in 2020.
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NTEB operates a call center located in Nanjing
City, Jiangsu Province, and accounted for approximately 0.78% of revenue in 2020.
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JXTT operates a call center located in Nanchang City,
Jiangxi Province, and accounted for approximately 2.72% of revenue in 2020.
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XTTC operates a call center located in Urumqi City,
Xinjiang Uygur Autonomous Region, and accounted for approximately 2.83% of revenue in 2020.
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BTIT operates a call center located in Baoding City,
Hebei Province, and accounted for approximately 0.24% of revenue in 2020.
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STTC operates three call centers located in Chengdu
City, Sichuan Province, Harbin City, Heilongjiang Province, and Shenyang City, Liaoning Province. It accounted for approximately 12.52%
of revenue in 2020.
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GTTC operates three call centers, with one located
in Nanning City, Guangxi Zhuang Autonomous Region, one in Shantou City, Guangdong Province, and one in Yunnan Province. It accounted
for approximately 3.29% of revenue in 2020.
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GDTC operates two call centers located in Foshan City
and Guangzhou City, Guangdong Province, and accounted for approximately 3.21% of revenue in 2020.
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BTTC operates a call center in Beijing City, and accounted
for approximately 0.22% of revenue in 2020.
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ZSEC operates two call centers located in Zaozhuang
City, Shandong Province, and accounted for approximately 10.99% of revenue in 2020.
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YTIT operates a call center located in Yangzhou City,
Jiangsu Province, and accounted for approximately 0.78% of revenue in 2020.
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GNDT operates a call center in Nanchang City, Jiangxi
Province, and accounted for approximately 0.83% of revenue in 2020.
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STTBB did not generate any external revenues in 2020,
and was voluntarily dissolved in May 2020.
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STTJB operate a call center in Nanchang City, Jiangxi
Province, and accounted for approximately 1.23% of revenue in 2020.
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STTHB does not operate any call center and did not
generate any external revenues in 2020.
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STTGB does not operate any call center and did not
generate any external revenues in 2020.
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ZTTC operates a call center in Zaozhuang City, and
accounted for approximately 2.67% of revenue in 2020.
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TTZN does not operate a call center and did not generate
any external revenues in 2020.
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WFTI operates a call center in Weifang City, Shandong Province, and accounted for approximately 0.14% of revenue in 2020.
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SZTT operates a call center in Suzhou City, Anhui
Province, and accounted for approximately 0.02% of revenue in 2020.
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FZTT operates a call center in Fuzhou City, Jiangxi Province, and accounted for approximately 0.02% of revenue in 2020.
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HNTT does not operate a call center and did not generate any external revenues in 2020.
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CDTT does not operate a call center and did not generate any external revenues in 2020.
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HZTT does not operate a call center and did not generate any external revenues in 2020.
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HFTI does not operate a call center and did not generate any external revenues in 2020.
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STTSH does not operate a call center and did not generate any external revenues in 2020
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STTHN does not operate a call center and did not generate any external revenues in 2020
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Control
Agreements
We
conduct our business in China through our subsidiary, WFOE. WFOE, in turn, conducts its business through Taiying, in which we hold no
equity interest, but which we control through a series of control agreements with Taiying and its shareholder. Foreign ownership of certain
business is subject to restriction under applicable PRC laws, rules and regulations. Certain aspects of our call center business are
subject to these restrictions on foreign investment. In order to comply with these laws and regulations, we have entered into control
agreements with Taiying through which we operate the restricted businesses. Under U.S. GAAP, Taiying is considered a VIE. U.S. GAAP requires
us to consolidate the operating companies in our financial statements because our control agreements related to Taiying provide us with
the risks and rewards associated with equity ownership, even though we do not own any of the outstanding equity interests in the Operating
Companies.
On
September 3, 2014, Taiying and its sole shareholder, Beijing Taiying, entered into an Entrusted Management Agreement, Exclusive
Option Agreement, Shareholder’s Voting Proxy Agreement and Pledge of Equity Interest Agreement (collectively, the “Control
Agreements”) with WFOE in return for ownership interests in CCRC. Through the organization of CCRC as a holding company, Beijing
Taiying’s shareholders now own 83% of the common shares of CCRC. The remaining 17% of CCRC’s common shares belong to other
investors. CCRC indirectly controls Taiying through its 100% equity interests of WFOE. Through the Control Agreements, we can control
the Operating Companies’ daily operations and financial affairs, appoint their senior executives and approve all matters requiring
shareholder approval. As a result of the Control Agreements, which enable us to control the Operating Companies and cause WFOE to absorb
100% of the expected losses and gains of the Operating Companies, we are considered the primary beneficiary of the Operating Companies.
Accordingly, we consolidate the Operating Companies’ operating results, assets and liabilities in our financial statements.
Our
current corporate structure is as follows:
Contractual
Arrangements with Taiying and its Shareholder. Our relationships with Taiying and its sole shareholder are governed by a series
of contractual arrangements. Other than pursuant to the contractual arrangements between WFOE and Taiying, Taiying need not transfer
any other funds generated from its operations to WFOE. Effective as of September 3, 2014, WFOE entered into the Control Agreements
with Taiying and its sole shareholder, Beijing Taiying, which provide as follows:
Entrusted
Management Agreement. Taiying, its sole shareholder and WFOE have entered into an Entrusted Management Agreement, which provides
that WFOE will be fully and exclusively responsible for the management of Taiying. As consideration for such services, Taiying has agreed
to pay the entrusted management fee during the term of this agreement. The entrusted management fee will be equal to Taiying’s
estimated earnings. Also, WFOE will assume all operational risks related to the entrusted management of Taiying and bear all losses of
Taiying. The term of this agreement will be from the effective date thereof to the earliest of the following: (1) the winding up
of Taiying; (2) the termination date of the Entrusted Management Agreement, as agreed by the parties thereto; or (3) the date
on which WFOE completes an acquisition of Taiying.
Exclusive
Option Agreement. Taiying and Taiying’s sole shareholder have entered into an Exclusive Option Agreement with WFOE, which
provides that WFOE will be entitled to acquire such shares from the current shareholder upon certain terms and conditions. In addition,
WFOE is entitled to an irrevocable exclusive purchase option to purchase all or part of the assets and business of Taiying, if such a
purchase is or becomes allowable under PRC laws and regulations and WFOE so elects. The Exclusive Option Agreement also prohibits Taiying
and its shareholder from transferring any portion of the equity interests, business or assets of Taiying to anyone other than WFOE. WFOE
has not yet taken any corporate action to exercise this right of purchase, and there is no guarantee that it will do so or will be permitted
to do so by applicable law at such times as it may wish to do so.
Shareholder’s
Voting Proxy Agreement. The shareholder of Taiying has executed a Shareholder’s Voting Proxy Agreement to irrevocably appoint
the persons designated by WFOE with the exclusive right to exercise, on their behalf, all of its voting rights in accordance with applicable
law and Taiying’s Articles of Association, including but not limited to the rights to sell or transfer all or any of its equity
interests in Taiying and to appoint and elect the directors and Chairman as the authorized legal representative of Taiying. This agreement
will only be terminated prior to the completion of acquisition of all of the equity interests in, or all assets or business of Taiying.
Pledge
of Equity Interest Agreement. WFOE and the shareholder of Taiying have entered into a Pledge of Equity Agreement, pursuant to
which the shareholder pledged all of its shares (100%) of Taiying, to WFOE. If Taiying or its shareholder breaches its respective
contractual obligations in the “Entrusted Management Agreement”, “Exclusive Option Agreement” and “Shareholders’
Voting Proxy Agreement”, WFOE as pledgee, will be entitled to certain right to foreclose on the pledged equity interests. Taiying’s
shareholder cannot dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest. This pledge
has been recorded with applicable authorities in China to perfect WFOE’s security interest.
Although
the structure the company has adopted is consistent with longstanding industry practice, and is commonly adopted by comparable companies
in China, the PRC government may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements,
with existing policies or with requirements or policies that may be adopted in the future. There are uncertainties regarding the interpretation
and application of PRC laws and regulations including those that govern the company’s contractual arrangements, which could limit
the company’s ability to enforce these contractual arrangements. If the company or any of its variable interest entities are found
to be in violation of any existing or future PRC laws, rules or regulations, or fail to obtain or maintain any of the required permits
or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures,
including levying fines, revoking business and other licenses of the company’s variable interest entities, requiring the company
to discontinue or restrict its operations, restricting its right to collect revenue, requiring the company to restructure its operations
or taking other regulatory or enforcement actions against the company. In addition, it is unclear what impact the PRC government actions
would have on the company and on its ability to consolidate the financial results of its variable interest entities in the consolidated
financial statements, if the PRC government authorities were to find the company’s legal structure and contractual arrangements
to be in violation of PRC laws, rules and regulations. If the imposition of any of these government actions causes the company to lose
its right to direct the activities of Taiying and through Taiying’s equity interest in its subsidiaries or the right to receive
their economic benefits, the company would no longer be able to consolidate the financial results of Taiying and its subsidiaries.
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D.
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Property,
Plants and Equipment.
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Our
headquarters is located at 1366 Zhongtianmen Street, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province,
People’s Republic of China. Taiying has incorporated total 27 subsidiary companies and branch offices strategically-located throughout
China, affording our customers local expertise and management. Our facilities are used for sales and marketing, research and development
and administrative functions. All of the facilities are leased. We believe our facilities are adequate for our current needs. A
summary description of our current facilities follows:
Office
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Address
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Rental
Term
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Space
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Principal Executive Office &
Shandong Taian Center #1
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General Bldg. 1/F-3/F,1366 Zhongtianmen
Street, IB District Standard Factories, Xinghuo Science and Technology Park High-tech Zone, Taian,
Shandong, China
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Currently renewing
|
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132,558 sq. ft.
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Shandong Taian Center #2
|
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Single Bldg. Northern Part, and General Bldg. 1/F &
4/F, 1366 Zhongtianmen Street, Xinghuo Science and Technology Park High-tech Zone
Taian, Shandong, China
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Currently renewing
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45,144 sq. ft.
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Shandong Taian Center #3
|
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General Bldg #E, 1366 Zhongtianmen Street, Xinghuo Science
and Technology Park High-tech Zone
Taian, Shandong, China
|
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January 2020 – September 2022
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47,469 sq. ft.
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Shanghai Office
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Rm. 20-D18, 21/F, Bank of Shanghai, 168 Yincheng Middle
Rd, Lujiazui, Pudong, Shanghai, China
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April 2021 – March 2022
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1270 sq. ft.
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Chongqing Nan’an Center
|
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29 Nanping W Rd, Nan’an District, Chongqing, China
|
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November 2019 – October 2021
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592 sq. ft.
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Shandong Taian Center #4
|
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299 Tianzhufeng Rd, Taian, Shandong,
China
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November 2018 – October 2023
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21,528 sq. ft.
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Shandong Jinan Center
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A806-A807, A808, B801-B802, B805-B808, Lousanlian Business
Building, 12 Baotuquan N. Rd., Lixia, Xiamen City, Shandong, China
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A806-A807:
December 2020 – November 2021;
A808,
B801-B802, B805-B808: November 2020 – May 2023
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10,932 sq. ft.
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Jiangsu Kunshan Center
|
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A-15/F, Bldg. #1, Zhongke Innovation Plaza, Qiaohua
Township, Kunshan City, Jiangsu, China
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December 2020 – November 2022
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14,089.96 sq. ft.
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Zhejiang Hangzhou Office
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Rm. 1309, Europe and America Finance City T5, Yuhang
District, Hangzhou City, Zhejiang, China
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November 2020 – November 2022
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661.23 sq. ft.
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Anhui Hefei Shushan Center
|
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1201 Wenshui Rd., Shushan Economy Development District,
Hefei, Anhui, China
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1/F-5/F,
Area A, Bldg #3, Phase III: August 2019 – September 2022;
6/F,
Area A&B, Bldg#3, Phase III:
September
2019 – September 2022;
6/F,
Area B, Bldg#3, Phase III: December 2019 – December 2022;
3/F,
Phase II: August 2019 – July 2022
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168,361 sq. ft.
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Office
|
|
Address
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Rental
Term
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Space
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Anhui Hefei Binhu Center
|
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5/F, Hefei Element Market, 2588 Nanjing
Rd., Binhu New District, Hefei City, Anhui, China
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Rm. 501- Rm.
503-1, Rm. 542-1: January 2020 -- January 2026;
Rm. 701-702: December 2020 –
December 2023
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33056.61 sq. ft.
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Hubei Wuhan Center #1
|
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Yuexiu Fortune Plaza 34/F, No. 1 Zhongshan Ave., Wuhan,
Hubei, China
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Unit 5, #18: July 2020 –
June 2021;
Unit 7, #39: July 2020 – July
2021
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N/A sq. ft.
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Hubei Wuhan Center #2
|
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Underground 1/F & Main Bldg. 3F, Zhongdi Sci-Tech
Park, 598 Guangshan Ave., Donghu New Tech Development District, Wuhan, Hubei, China
|
|
January 2021 – April 2026;
|
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30056.50 sq. ft.
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Guangdong Foshan Center
|
|
Rongyao International Finance Center, 25 Ronghe Rd.,
Guicheng Street, Nanhai District, Foshan, Guangdong, China
|
|
Rm. 401-408, 501-508: December
2018 – December 2023;
Rm. 601-608: April 2020 – December
2023
|
|
68,596.46 sq. ft.
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Guangdong Guangzhou Center
|
|
Onelink International Plaza, 21/F, 39 N. Jiefang Rd.,
Yuexiu District, Guangzhou, Guangdong, China
|
|
October 2019 – September 2022
|
|
2,690.98 sq. ft.
|
|
|
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Guangxi Nanning Center
|
|
No. 5 Factory, China ASEAN Technology Enterprise Incubate
Base II, 3 Zongbu Rd., Nanning City, Guangxi Zhuang Autonomous Region, China
|
|
1/F & 4/F: Currently renewing:
3/F & 6/F: January 2020 –
December 2024
|
|
58,075.39 sq. ft.
|
|
|
|
|
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|
|
Guangdong Shantou Center
|
|
Factory A, 5/F Office, 71 Huangshan rd. Longhu District,
Shantou, Guangdong, China
|
|
April 2020 – June 2021
|
|
2,691 sq. ft.
|
|
|
|
|
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|
|
Hebei Sanhe Center
|
|
Bai Shi Jin Gu Industry Base 11-B, 1/F-3/F, Yanjiao
Development District, Sanhe, Hebei, China
|
|
March 2019 –
March 2022
|
|
45,402 sq. ft.
|
|
|
|
|
|
|
|
Jiangsu Huaian Center
|
|
Customer Service Bldg. N., 4/F-5/F, Zhongyi District
cc-1, 333 Chengde Rd. S., Economic Development District, Huaian, Jiangsu, China
|
|
January 2021 – December 2021
|
|
61,914.01 sq. ft.
|
|
|
|
|
|
|
|
Jiangxi Nanchang Center #1
|
|
Bldg. C, Rm. C101, C102, C107, 1807 Gaoxin Avenue, Qingshan
Lake District, Nanchang, Jiangxi, China
|
|
January 2021 – August 2023
|
|
16,946.05 sq. ft.
|
Nanjing Center
|
|
99 Shengtai Rd., Bldg 4, 3/F, Jiangning
District, Nanjing, Jiangsu, China
|
|
July 2018 – July 2021
|
|
14,434 sq. ft.
|
|
|
|
|
|
|
|
Shandong Yantai Center #1
|
|
8-9 Jinhua Road, Muping District, Yantai, Shandong,
China
|
|
June 2018 – May 2021
|
|
92,645 sq. ft.
|
|
|
|
|
|
|
|
Shandong Yantai Center #2
|
|
26 Haigang Rd. Bldg. B #401, Rm. C5 & C6, Zhifu
District, Yantai, Shandong, China
|
|
March 2021 – March 2022
|
|
N/A
|
|
|
|
|
|
|
|
Sichuan Chengdu Center #1
|
|
4 Jianshe South Zhi Rd., Dongjiaojiyi
Park,
Chengdu, Sichuan, China
|
|
Bldg. #17, 1/F-5/F: March 2019
-- December 2023;
Bldg. #19, 2/F-5/F: December 2017
– December 2023
|
|
100,131 sq. ft.
|
Office
|
|
Address
|
|
Rental
Term
|
|
Space
|
Heilongjiang Harbin Center
|
|
Jinjue Wanxiang Bldg. #2, 1-15-2,
640 Harbin Ave., Harbin, Heilongjiang, China
|
|
October 2020 – October 2021
|
|
455.10 sq. ft.
|
|
|
|
|
|
|
|
Liaoning Shenyang Center
|
|
Xindi Plaza Bldg. #3, Tuanjie Rd. Shenhe District, Shenyang,
Liaoning, China
|
|
Rm. 1301 & 1310: August 2020
– July 2022;
9/F Unit 10: April 2020 – April
2022;
11/F: May 2020 – May 2022;
Rm. 1603-1605: November 2020 –
November 2022
|
|
23,917.41 sq. ft.
|
|
|
|
|
|
|
|
Sichuan Chengdu Center #2
|
|
Bldg. #10, 168 Jianshe Rd. N. 3rd Duan, Chenghua
District, Chengdu, Sichuan, China
|
|
Rm. 103, 5/F & 6/F: June
2020 – November 2026;
Rm. 102, 702, 705: October 2020
– November 2026;
Rm. 703: January 2021 – September
2026
|
|
28,588.95 sq. ft.
|
|
|
|
|
|
|
|
Sichuan Chengdu Center #3
|
|
Chuantou Mansion South Tower, 10/F, 112 Tiantai Rd.
Chengdu, Sichuan, China
|
|
#4-6: October 2020 – October
2023;
#1-3: February 2021 – February
2023
|
|
36,338.96 sq. ft.
|
|
|
|
|
|
|
|
Jiangsu Taizhou Center
|
|
Taizhou Software Park, West Bldg #2, 1/F-4/F, 98 Phoenix
West Road, Taizhou, Jiangsu, China
|
|
December 2019 –
December 2024
|
|
129,167 sq. ft.
|
|
|
|
|
|
|
|
Xinjiang Center
|
|
4/F-6/F, 10 Xishan Rd., Urumqi, Xinjiang Uygur Autonomous
Region, China
|
|
October 2014 – December 2019 (renewing)
|
|
17,793 sq. ft.
|
|
|
|
|
|
|
|
Jiangsu Yangzhou Center
|
|
Bldg. 12, Area A, 2/F-3/F, Jiangsu Information Service
Industry Base, Guangling New Town, Guangling District, Yangzhou, Jiangsu, China
|
|
July 2019 – June 2021
|
|
24,692 sq. ft.
|
|
|
|
|
|
|
|
Shandong Zaozhuang Center #1
|
|
BPO Industry Park, South Bldg., Dongshun Rd., Taierzhuang
District, Zaozhuang, Shandong, China
|
|
Currently renewing
|
|
69,965 sq. ft.
|
|
|
|
|
|
|
|
Shandong Zaozhuang Center #2
|
|
Bldg. #6, 4 Xinghua Rd. Zhong District, Zaozhuang, Shandong,
China
|
|
November 2020 – November 2021
|
|
N/A
|
|
|
|
|
|
|
|
Chongqing Yongchuan Center
|
|
Yongchuan Big Data Industry Park, Zone B, 799 Heshun
Ave., Yongchuan District, Chongqing, China
|
|
Bldg. #7, #10: January 2019 –
December 2023;
Bldg. #2: June 2018 – May 2021
|
|
167,574.39 sq. ft.
|
|
|
|
|
|
|
|
Chongqing Center
|
|
Neptune Science & Technology Mansion, Zone A, 62
Xingguang Ave., Southern Area, Chongqing, PRC
|
|
5/F: August 2020 – August
2021;
6/F: August 2020 – February
2023
|
|
39,717 sq. ft.
|
|
|
|
|
|
|
|
Beijing Office
|
|
8 Guanghua Road Zhaoyang District, Beijing, China
|
|
June 2019 – June 2021
|
|
1,735 sq. ft.
|
|
|
|
|
|
|
|
Jiangxi Nanchang Center #2
|
|
Bldg. C, Rm. C201-206, BC201, C301-306, BC301, 1807
Gaoxin Ave., Qingshan Lake District, Nanchang, China
|
|
January 2021 – August 2023
|
|
73,295.99 sq. ft.
|
Item
4A. Unresolved Staff Comments
Not
applicable.
Item
5. Operating and Financial Review and Prospects
You
should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited
consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors”
and elsewhere in this annual report.
Overview
We
are a BPO service provider focusing on the complex, voice-based and online-based segments of customer care services, including customer
relationship management, technical support, sales, customer retention, marketing surveys and research for some of China’s major
enterprises. We provide customer care service via telephone and multimedia platforms, such as Apps, WeChat, Weibo, and websites to our
clients. We help China companies enhance their strategic capabilities, improve quality and lower costs by designing, implementing and
managing their critical back-office processes. Our goal is to create the largest call center service network in China by providing a
fully-integrated solution that spans people, process, proprietary technology and infrastructure for governments and private-sector clients
in the automotive, financial services, government, logistics, media and entertainment, retail, technology, travel, and telecommunication
industries.
Our
service is currently delivered from our call centers located in Liaoning Province, Shandong Province, Jiangsu Province, Guangdong Province,
Yunnan Province, Hubei Province, Sichuan Province, Hebei Province, Anhui Province, the Xinjiang Uygur Autonomous Region, the Guangxi
Zhuang Autonomous Region, Jiangxi Province, Chongqing City, Shanghai City, and Beijing City, with a capacity approximately of 29,249
seats. We reserved seats in excess of our current labor capacity in anticipation to increase in labor force due to increase in projects
in the near future. We believe Taiying and its subsidiaries’ strategic locations and our investment in technology and human resources
position us well in our efforts to reach our goals.
Our
customers represent a variety of industry lines, including, but not limited to, communication, banking, insurance, E-commerce, manufacturing,
software, media, postal, judicial, real estate, and tourism. In addition to answering inbound calls, or calls initiated by customers
purchasing products and services from our clients, we also make outbound cold calls to help our clients promote their products, such
as weather, health, education and farming related VAS products to targeted subscribers.
We generate almost all of our revenues from more than two hundred twenty
customers, including Shuidi Insurance, China Mobile and its provincial subsidiaries, Didi Chuxing, SF Express, Ping An Insurance, Haier,
and HiSense. We also signed outsourcing contracts with some of China’s largest banks, based upon assets held, including China Construction
Bank, China CITIC Bank, and China Merchants Bank, and we also had outsourcing contracts with China’s online retailers, such as the
Alibaba Group (Alipay, Taobao, Tmall, Cainiao), and China’s tourism network, such as Qunar.
We received grants from various government
agencies after meeting certain conditions if applicable, such as locating call centers in their jurisdictions or helping local
employment needs. Government grants are recognized when received and all the conditions specified in the grant have been met. For
the year ended December 31, 2020, the government grants recognized as income were $2,989,897, accounting for 12% of our net income.
For the year ended December 31, 2019, the government grants recognized as income were $1,825,402, accounting for 14% of our net
income. For the year ended December 31, 2018, the government grants recognized as income were $1,709,297, accounting for 10% of our
net income. We anticipate that we will continue to receive government grants in the coming year, and government grants will continue
to have impact on our future profitability. In the absence of future government grants, our operations and profitability will be
negatively impacted.
We
operate our business through contractual arrangements between WFOE, our wholly-owned subsidiary, and Taiying. Through contractual arrangements,
we are able to control the business of Taiying.
The
COVID-19 Pandemic
Since early 2020, the epidemic of the novel strain
of coronavirus (COVID-19) (the “COVID-19 pandemic”) has spread across China and other countries, and has adversely affected
businesses and economic activities in the first quarter of 2020 and beyond. The Company followed the restrictive measures implemented
in China, by suspending onsite operation and having employees work remotely until late April 2020, when the Company fully resumed normal
operation. Consequently, the COVID-19 pandemic adversely affected the Company’s business operations, financial condition and operating
results for February to April 2020. To mitigate the adverse impact of COVID-19 on businesses, the Chinese government has implemented a
series of policies reducing social securities and rent payments. As a result, the Company was able to reduce its operating cost and generate
more profits in 2020. Furthermore, COVID-19 has tested many companies’ cash reserves and their capabilities of resource deployment,
and thus, eliminated some small and medium-sized BPO suppliers, and gave mainstream suppliers like us a larger market share in the BPO
industry.
We
continue to monitor the global outbreak and spread of COVID-19 and take steps in an effort to identify and mitigate the adverse
impacts on, and risks to, our business (including but not limited to our employees, customers, and other business partners) posed by
its spread and the governmental and community reactions thereto. We continue to assess and update our business continuity plans in the
context of this pandemic, including taking steps in an effort to help keep our workforces healthy and safe. The spread of COVID-19 has
caused us to modify our business practices (including employee travel, employee work locations in certain cases, and cancellation of
physical participation in certain meetings, events and conferences), and we expect to take further actions as may be required or recommended
by government authorities or as we determine are in the best interests of our employees, customers and other business partners. We are
also working with our suppliers to understand the existing and future negative impacts, and to take actions in an effort to mitigate
such impacts. Due to the speed with which the COVID-19 pandemic is developing, the global breadth of its spread and the range
of governmental and community reactions thereto, there is uncertainty around its duration and ultimate impact; therefore, any negative
impact on our overall financial and operating results (including without limitation our liquidity) cannot be reasonably estimated at
this time, but the pandemic could lead to extended disruption of economic activity and the impact on our financial and operating results.
Going-Private Transaction
On March 12, 2021 the Company announced that it
has entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Taiying Group Ltd. (“Parent”)
and Taiying International Inc. (“Merger Sub”), a wholly-owned subsidiary of Parent.
Pursuant to the Merger Agreement,
Parent will acquire the Company for a cash consideration equal to US$6.50 per share of the Company (each, a “Share”).
Immediately following the
consummation of the merger, Parent will be beneficially owned by a group of rollover shareholders, including Mr. Zhili Wang, the chief
executive officer and chairman of the Board and director of the Company, Mr. Debao Wang, the chief financial officer of the Company, Mr.
Guoan Xu, director and Vice President of the Company, Mr. Qingmao Zhang, Mr. Long Lin, Mr. Jishan Sun and certain other shareholders of
the Company.
Subject to the terms and conditions
of the Merger Agreement, at the effective time of the merger, Merger Sub will merge with and into the Company, with the Company continuing
as the surviving company and a wholly-owned subsidiary of Parent.
The merger which is currently
expected to close in the second quarter of 2021, is subject to various closing conditions, including a condition that the Merger Agreement
be authorized and approved by a resolution approved by the affirmative vote of a majority of the votes of the shares of the Company entitled
to vote thereon in respect of which the shareholders holding the shares were present at the extraordinary general meeting of the shareholders
or an adjournment thereof in person or by proxy and being shares in respect of which the votes were voted in accordance with the BVI Business
Companies Act and the memorandum and articles of the Company. If completed, the merger will result in the Company becoming a privately-owned
company wholly owned directly by Parent, and its shares will no longer be listed on the Nasdaq Capital Market.
The Company could be subject to possible litigation during the course
of closing the Going-Private transaction, such as class action brought by certain shareholders who voted against the Going-Private transaction.
The Company is not aware of such legal proceedings or claims as of the date of this report.
Principal
Factors Affecting Our Results of Operations
Revenues
We generate revenue from the BPO programs we administer
for our clients. For the year ended December 31, 2020, we derived approximately 13% of our revenues from our service to China Mobile
and their provincial subsidiaries.
We
provide our services to clients under contracts that typically consist of a master services agreement containing the general terms and
conditions of our client relationship, and a statement of work describing in detail the terms and conditions of each program we administer
for a client. We have signed contracts with China Mobile and China Telecom for calling services which are typically for a one-year term.
However, our client relationships tend to be longer-term given the scale and complexity of the services we provide coupled with the risk
and costs to our clients associated with bringing business processes in-house or outsourcing them to another provider.
For inbound customer care service, we charge fees based on either the
number of calls (charges per interaction) or predetermined seats charges (weekly charges, or monthly charges per seat). For outbound cold
calling services, we charge fees based on the success of marketing services or other customer initiatives upon subscription or acceptance
of such initiatives. We negotiate these terms on a client-by-client basis. In most contracts, our clients pay a pre-determined rate if
we meet specified performance criteria. Such criteria are based on objective performance metrics that our client agrees would add quantifiable
value to their operations. In addition, most of our contracts include provisions that provide for downward or upward revision of our prices
under certain circumstances, such as if the average speed required to answer a call is longer than agreed to with the client or if the
satisfactory index of our service is maintained above certain threshold. All of our fees and revision provisions are negotiated at the
time that we sign a statement of work with a client, and our revenue from our contracts is thus fixed or determinable at the end of each
month. For the year ended December 31, 2020, 36% of our revenue was generated from inbound calling and 45% of our revenue was generated
from outbound calling. The remaining 19% of revenue was related to other services provided to our customers such as data processing.
China’s
major enterprises have begun to focus on BPO providers who can offer both inbound and outbound customer care service as a means to increase
their sales and profitability. In the past, companies performed call center services internally, however, companies have found that by
outsourcing these services they can lower their operational costs, along with obtaining high-quality customer interactions and innovative
service solutions. We do not anticipate any major changes in our sales percentage between inbound and outbound calling and strive to
keep a balance between these two services, because clients seek BPO providers who can provide both. However, if there is a major shift
in profitability between inbound and outbound calls services, it is likely that we will focus our services to the area with the higher
profit margin.
We currently still derive a significant portion
of our revenue from our telecommunications clients. Though we have reduced the dependence gradually during the past three years. Provincial
subsidiaries of China Mobile and China Telecom represented 17%, 19%, and 25% of our sales for the years ended December 31, 2020,
2019, and 2018, respectively.
Factors
Affecting Revenues
The
following factors affect the revenues we derive from our operations. For other factors affecting our revenues, see “Risk Factors—Risks
Related to Our Business.”
Customer
demand for outsourced call center customer care services. Customer demand for outsourced call BPO services is closely linked to the
performance of the general economy and is sensitive to business and personal discretionary spending levels. Declines in customer demand
due to adverse general economic conditions, lower customer confidence and changes in customer preferences for our clients’ products
can lower the revenues and profitability of our operations. As a result, changes in customer demand and general business cycles can subject
our revenues to volatility. Management is constantly trying to find additional services that we can provide to our customers to help
offset any decrease in demand for our services.
Relationships
with major customers. Any negative changes in our relationship with China Mobile, China Telecom or other major enterprises and negative
changes in customer demand and usage preference for our services can bring negative consequence to the revenue and profitability of our
business. The loss, cancellation, deferral or renegotiation of any large agreements with China Mobile, China Telecom or other major enterprises
could have a material adverse effect on our financial condition and results of operations. In addition, if China Mobile, China Telecom
or other major enterprises decide to increase their percentage of revenue sharing, or do not comply with the terms and conditions of
our agreements with them, our revenues and profitability could also be materially adversely affected. To help offset this risk we attempt
to expand our client lists, and develop more customers in other industries, such as, banking and e-commerce.
Consumer
privacy. The growth of our business may be adversely affected if the public becomes concerned that confidential user information
transmitted over the Internet and wireless networks is not adequately protected. A damaging consumer backlash against unsolicited mobile
marketing could occur if overzealous marketers fail to respect consumers’ right to privacy and are perceived as inundating them
with unwanted and irrelevant mobile marketing calls or messages. Our services may decline and our business may be adversely affected
if significant breaches of network security or user privacy occur. We maintain and evaluate our networks for vulnerability in an attempt
to safeguard consumer privacy.
Experienced
customer care professionals. We rely on large numbers of customer service associates, and our success depends to a significant extent
on our ability to attract, hire, train and retain qualified customer service associates. If we fail to attract and retain enough sufficiently
trained customer service associates and other personnel to support our operations and our business, results of operations and financial
condition will be seriously harmed. We have developed relationships with local colleges to put us in the position to recruit quality
employees.
Competition.
Competition in the BPO market is intense and growing. While the call center industry in China features a large number of companies,
most of those companies are smaller call center operators with fewer than 100 seats each. We believe that the industry will experience
increasing consolidation since consolidated operations result in economies of scale, brand name recognition, and more convenience and
efficiency in servicing China’s major enterprises. It is also possible that competition, in the form of new competitors or alliances,
joint ventures or consolidation among existing competitors, may decrease our market share. Increased competition could result in lower
personnel utilization rates, billing rate reductions, fewer customer engagements, reduced gross margins and loss of market share, any
one of which could materially and adversely affect our profits and overall financial condition. To offset this risk, we seek to leverage
our economies of scale, reputation in the marketplace and expand our geographic locations in order to serve our clients better and obtain
new clients.
Expansion.
We believe that businesses in China are increasingly looking for vendors that provide call center BPO services from multiple geographic
locations. This allows clients to manage fewer vendors while minimizing risk to operations from natural disasters. We believe that we
should continue to expand our business to other regions of China to increase our market share. In 2020 and 2021, Taiying incorporated
nine new subsidiary companies and throughout China to further expand our business. If we fail to make acquisitions or expand to other
geographic regions, our revenue growth could slow down.
Costs
and Expenses
We
primarily incur the following costs and expenses:
Costs
of revenues. Cost of revenues consists primarily of the salaries, payroll taxes and employee benefit costs of our customer service
associates and other operations personnel. Cost of revenues also includes direct communications costs, rent expense, information technology
costs, and facilities support costs related to the operation of our call centers.
Selling,
general and administrative expenses. Selling, general and administrative expenses consist primarily of compensation expense for our
corporate staff and personnel supporting our corporate staff, communication costs, gasoline, welfare expenses, education expenses, professional
fees (including consulting, audit and legal fees), travel and business hospitality expenses.
Depreciation.
We currently purchase substantially all of our equipment. We record property and equipment at cost and calculate depreciation using the
straight-line method over the estimated useful lives of our assets, which generally range from three to five years. We depreciate leasehold
improvements on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. If the actual useful
life of any asset is less than its estimated depreciable life, we would record additional depreciation expense or a loss on disposal
to the extent the net book value of the asset is not recovered upon sale. Our depreciation is primarily driven by large investments in
capital equipment required for our continued expansion, including the build-out of seats, which we define as workstations where customer
service associates generate revenue. These expenditures include tenant improvements to new facilities, furniture, information technology
infrastructure, computers and software licenses and are usually in the range of $2,000 to $8,000 per seat depending on specific
client requirements. These costs are generally depreciated over five years.
Factors
Affecting Expenses
Prevailing
salary levels. Our cost of services is impacted the most by prevailing salary levels. Although we have not been subject to significant
wage inflation in China, any increase in the market rate for wages could significantly harm our operating results and our operating margin.
Forecasted
demand for our services. We often incur more costs in the early stages of implementing our client’s forecasted demand for our
services. Similarly, we may also be required to increase recruiting and training costs to prepare our customer service associates for
a specific type of service. If we undertake additional recruiting and training programs and our client terminates a program early or
does not meet its forecasted demand, our operating margin could decline.
Managing
our customer service associates efficiently. Our cost of services is also impacted by our ability to manage and employ our customer
service associates efficiently. Our workforce management group monitors staffing requirements in an effort to ensure efficient use of
these employees. Although we generally have been able to reallocate our customer service associates as client demand has fluctuated,
an unanticipated termination or significant reduction of a program by a major client may cause us to experience a higher-than-expected
number of unassigned customer service associates.
Transition
to public company. Subsequent to the completion of our initial public offering, our administrative costs are increasing materially,
as we need to comply with detailed reporting requirements. The increased expenses also include legal fees, insurance premiums, auditing
fees, investor relations, shareholder meetings, printing and filing fees, share-based compensation expense, as well as employee-related
expenses for regulatory compliance and other costs. In addition, the selling and administrative expenses are increasing as we add personnel
and incur additional fees and costs related to the growth of our business and our operation as a publicly traded company in the United
States.
Number
of customers. To the extent Taiying increases the number of its clients, we expect to experience a corresponding increase in selling
expenses and travel expenses. At present, Taiying is able to service substantially all of its customers with its 36 call center locations
including the call centers on client sites. As we expand our Jiangxi, Anhui, Jiangshu and Shandong facilities, we expect Taiying to add
more customers and incur more selling expenses.
Number
of call centers we operate. We operate 36 call centers located in three directly-administered municipalities (Beijing City, Shanghai
City, and Chongqing City), and 13 provinces throughout China, that enable us to service clients throughout Shandong Province (Taian City,
Yantai City, Zaozhuang City, Weifang City, and Jinan City), Jiangsu Province (Taizhou City, Huaian City, Yangzhou City, Nanjing City,
and Kunshan City), Anhui Province (Hefei City), Hebei Province (Baoding City), the Xinjiang Uygur Autonomous Region (Urumqi City), the
Guangxi Zhuang Autonomous Region (Nanning City), Guangdong Province (Shantou City and Foshan City), Jiangxi Province (Nanchang City and
Fuzhou City), Sichuan Province (Chengdu City), Yunnan Province (Kunming City), Heilongjiang Province (Harbin City), Liaoning Province
(Shenyang City), and Hubei Province (Wuhan City). As Taiying operates more call centers, our administrative expenses tend to increase
in dollars but decrease as a percentage of revenues.
Manage
and utilize our seats efficiently. The effect of our depreciation on our operating margin is impacted by our ability to manage and
utilize our seats efficiently. We seek to expand our seat capacity only after receiving contractual commitments from our clients. However,
we have in the past increased our seat capacity based on forecasted demand projections from our clients, which are not contractual commitments.
This has resulted in a surplus of seats, which has increased our depreciation and, to a limited extent, reduced our operating margin.
As a general rule, the efficiency of our use of seats has had less of an impact on our operating margin than the efficiency of our deployment
of our customer service associates.
Depreciation.
Our depreciation is primarily driven by large investments in capital equipment required for our continued expansion, including the build-out
of seats, which we define as workstations where customer service associates generate revenue. These expenditures include tenant improvements
to new facilities, furniture, information technology infrastructure, computers and software licenses and are usually in the range of
$2,000 to $8,000 per seat depending on specific client requirements. These costs are generally depreciated over five years and are
substantially the same in the United States and in China.
Results
of Operations
|
|
For The Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Revenues, net
|
|
$
|
240,316,024
|
|
|
$
|
173,409,113
|
|
|
$
|
141,433,641
|
|
Cost of revenues
|
|
|
188,725,246
|
|
|
|
134,504,540
|
|
|
|
102,567,896
|
|
Gross profit
|
|
|
51,590,778
|
|
|
|
38,904,573
|
|
|
|
38,865,745
|
|
Gross margin
|
|
|
21
|
%
|
|
|
22
|
%
|
|
|
27
|
%
|
Selling, general and administrative expenses
|
|
|
27,772,891
|
|
|
|
26,318,771
|
|
|
|
21,329,908
|
|
Operating income
|
|
$
|
23,817,887
|
|
|
$
|
12,585,802
|
|
|
$
|
17,535,837
|
|
Revenues. Our revenues were $240,316,024 and $173,409,113
for the years ended December 31, 2020 and 2019, respectively, an increase of $66,906,911, or 39% as a result of growth in our BPO
business. Our revenues were $173,409,113 and $141,433,641 for the years ended December 31, 2019 and 2018, respectively, an increase
of $31,975,472, or 23% as a result of growth in our BPO business. All of our revenues were generated from third party companies for the
years ended December 31, 2020, 2019, and 2018. Our revenue growth in the years of 2020, 2019 and 2018 resulted primarily from acquiring
new customers and increased sales volumes to our existing clients.
Cost of revenues. Cost of revenues consists
primarily of salaries, payroll taxes and employee benefits costs of our customer service associates and other operations personnel. Cost
of revenues also includes direct communications costs, rent expenses, information technology costs and facilities support expenses. Our
cost of revenues increased by $54,220,706, or 40% for the year ended December 31, 2020 compared to the year ended December 31, 2019. Our
cost of revenues increased by $31,936,644, or 31% for the year ended December 31, 2019 compared to the year ended December 31, 2018. This
absolute dollar increase in cost of revenues for the year ended December 31, 2020 as compared to the year ended December 31, 2019
and for the year ended December 31, 2019 as compared to the year ended December 31, 2018 directly corresponded to the increase in revenues
during the same year. Our cost of revenues as a percentage of revenue was 79%, 78% and 73% for the years ended December 31, 2020,
2019 and 2018, respectively.
Gross margin. Our gross
margin stayed relatively stable for the years ended December 31, 2020, 2019 and 2018 at 21%, 22% and 27%, respectively. The slight decrease
in gross margin resulted from an increase in our employees’ compensation and benefits. We have been maintaining our efficiency
while expanding our business over the years.
Selling, general and administrative expenses.
Selling, general and administrative expenses consist primarily of sales and administrative employee-related expenses, professional fees,
travel costs, research and development costs, and other corporate expenses. Selling, general and administrative expenses were $27,772,891
for the year of 2020, an increase of $1,454,120, or 6% from December 31, 2019 to December 31, 2020. Selling, general and administrative
expenses were $26,318,771 for the year of 2019, an increase of $4,988,863, or 23% from December 31, 2018 to December 31, 2019. The increase
in selling, general and administrative expenses over years is a result of higher payroll and bonus expenses paid to the administrative
and research personnel and the management team. We have achieved efficient control of our administrative expenses during the year ended
December 31, 2020 and we anticipate to continuously control indirect costs while expanding our businesses in the future.
Income from operations. Our income from
operations were $23,817,887 for the year ended December 31, 2020, $12,585,802 for the year ended December 31, 2019, and $17,535,837
for the year ended December 31, 2018. Our operating income as a percentage of total revenues was 10% for the year ended December
31, 2020, 7% for the year ended December 31, 2019 and 12% for the year ended December 31, 2018. We have been keeping a relatively
stable yield from operation while successfully expanding and growing our business for new and existing customers.
Government Grants. Government grants were
$2,989,897 and $1,825,402 for the years ended December 31, 2020 and 2019, respectively, an increase of $1,164,495 or 64%. Government
grants were $1,825,402 and $1,709,297 for the years ended December 31, 2019 and 2018, respectively, an increase of $116,105 or 7%.
Most of government grants were a one-time event. Government grants as a percentage of net income is 12%, 14% and 10% for the years
ended December 31, 2020, 2019 and 2018, respectively.
Income Taxes. We incurred $3,069,477, $2,391,371
and $2,966,880 in income taxes for the years ended December 31, 2020, 2019 and 2018, respectively. The $678,106 increase from the
year ended December 31, 2019 to the year ended December 31, 2020 resulted from our increased total revenues and income from operations,
subject to preferential tax rate we are able to benefit from for some of our major operating subsidiaries. The $575,509 decrease from
the year ended December 31, 2018 to the year ended December 31, 2019 resulted from our increased selling, general and administrative expenses
and our successful application for the preferential tax rate for some of our subsidiaries. In 2020, ZSEC, Taiying, Central BPO, SCBI,
JTIS, JXTT, XTTC, ATIT, GTTC and STTC were entitled to a preferential enterprise income tax rate of 15%. In 2019, ZSEC, Taiying, Central
BPO, JTTC, SCBI, JTIS, HTCC, JXTT, XTTC, ATIT, GTTC and STTC were entitled to a preferential enterprise income tax rate of 15%. In 2018,
ZSEC, Taiying, Central BPO, JTTC, SCBI, JTIS, HTCC, JXTT, and XTTC were entitled to a preferential enterprise income tax rate of 15%.
The standard enterprise income tax rate in China is 25%.
Net Income attributable to China Customer Relations
Centers, Inc. Our net income attributable to China Customer Relations Centers, Inc. was $24,860,799 and $13,056,011 for the years
ended December 31, 2020 and 2019, respectively, representing an increase of $11,804,788, or 90%. The increase in net income was a
result of our efficient control in our various administrative expenses for the year ended December 31, 2020, compared to the year ended
December 31, 2019.
Our net income attributable to China Customer Relations
Centers, Inc. was $13,056,011 and $16,092,538 for the years ended December 31, 2019 and 2018, respectively, representing a decrease
of $3,036,527, or 19%. The decrease in net income was a result of our increased selling and administrative expenses, offset by increased
gross profit, increased government grants, increased other income and decreased income tax expense for the year ended December 31, 2019,
compared to the year ended December 31, 2018.
Net Income attributable to Noncontrolling interest.
Noncontrolling interest represents the ownership interests Jiate holds in HTCC and the amount recorded as noncontrolling interest
in our consolidated statements of income and comprehensive income is computed by multiplying the after-tax loss by the percentage ownership
in HTCC not directly attributable to us. Before November 8, 2020, the weighted average noncontrolling interest attributable to ownership
interests in HTCC not directly attributable to us was 49%.
On November 8, 2020, the Company entered into
an equity exchange agreement with Jiate to acquire Jiate’s 49% of equity interest in HTCC for the consideration of RMB5.42 million
(approximately $830,000). The transfer of ownership effectively occurred on November 8, 2020, upon which the Company holds 100% of equity
interest in HTCC.
|
B.
|
Liquidity and Capital Resources
|
Liquidity
Liquidity is the ability of a company to generate
funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. on December 31,
2020, we had a working capital of $74,064,853, compared to a working capital of $47,499,597 on December 31, 2019.
Our cash and cash equivalents balance on December
31, 2020 totaled $43,669,538, compared to $25,328,486 on December 31, 2019. During the year ended December 31, 2020, cash provided
by operating activities was $24,049,979, cash used in investing activities was $5,544,037, cash used in financing activities was $2,663,634,
and the positive effect of prevailing exchange rates on our cash position was $2,498,744.
During the year ended December 31, 2019, cash
provided by operating activities was $5,213,237, cash used in investing activities was $4,460,851, cash provided by financing activities
was $544,301, and the negative effect of prevailing exchange rates on our cash position was $388,113. During the year ended December 31,
2018, cash provided by operating activities was $12,142,470, cash used in investing activities amounted was $4,748,428, and cash used
in financing activities was $89,084, and the negative effect of prevailing exchange rates on our cash position was $1,513,411.
The increase of $18,341,052 in cash and cash equivalents
from December 31, 2019 to December 31, 2020 was mainly due to net income of $24,930,851. To limit our expenditures in cash, we delayed
suppliers’ payments, increased our accounts payables, and held on employees’ compensation.
The increase of $908,574 in cash and cash equivalents
from December 31, 2018 to December 31, 2019 was mainly due to proceeds of $727,030 borrowed from China Merchants Bank and our increased
revenue, offset by capital expansion we initiated to expand current call centers and equip new call centers for the year ended December
31, 2019.
Other
than the continued strength of China’s economy, the needs of telecommunications operators to outsource their call center functions,
and the growing demand for Taiying’s call-center service among other industries (all of which we believe may increase our liquidity,
if they continue), we are not aware of any trends or any demands, commitments, events or uncertainties that will result in or that are
reasonably likely to result in our liquidity increasing or decreasing in any material way.
For 2020, we expect our main growth will be organic,
from Taiying’s 36 call center locations. The demand for Taiying’s call center services appears to be strengthening, from which
we expect to generate a positive cash flow. We are seeking to acquire potential target companies and expect to complete any acquisitions
in the near future, which may be a more efficient way to expand our business. In the near future, additional amounts need to be used for
facility improvements and expansion based on our current estimates of our facilities requirements that are necessary to support the anticipated
growth of our business. In addition, we expect additional cash and cash equivalent will be occupied as working capital with the rapid
growth of our revenue. We believe that we will be able to finance our acquisition plan, our working capital needs and planned facilities
improvements and expansion for at least the next 12 months from cash generated from operations and borrowings under our revolving line
of credit.
To the extent demand for Taiying’s call
center BPO services increases, we need to consider establishing or acquiring additional facilities in different cities to meet such increased
demand. In addition to subsidiaries established in prior years, we set up Tianjin Taiying Zhongbao Network Technology Co., Ltd., Zaozhuang
Taiying Technology Co., Ltd., Weifang Taiying Information Technology Co., Ltd., Suzhou Taiying Technology Co., Ltd., Fuzhou Taiying Technology
Co., Ltd. and Hainan Taiying Technology Co., Ltd. in 2020. With the completion of our initial public offering in December 2015 and the
sustained rapid growth in the last four years, we want to accelerate the expansion of our business by acquiring value-added target companies
in the past three years.
Our
long-term future capital requirements will depend on many factors, including our level of revenue, the timing and extent of our spending
to support the maintenance and growth of our operations, the expansion of our sales and the continued market acceptance of our services.
As of December 31, 2020, we had a short-term bank loan outstanding of $1,531,933, compared to $4,306,138 short term bank loan outstanding
as of December 31, 2019. We also expect to continue to have significant capital requirements associated with the maintenance and
growth of our operations, including the lease and build-out of additional facilities primarily to support an increase in the number of
our customer service associates and the purchase of computer equipment and software, telecommunications equipment and furniture, fixtures
and office equipment to support our operations. We expect to continue to incur additional costs associated with being a publicly traded
company in the United States, primarily due to increased expenses that we incur to comply with the requirements of the Sarbanes-Oxley
Act of 2002, as well as costs related to accounting and tax services, directors and officers insurance, legal expenses and investor and
shareholder-related expenses. These additional long-term expenses may require us to seek other sources of financing, such as additional
borrowings or public or private equity or debt capital. The availability of these other sources of financing will depend upon our financial
condition and results of operations as well as prevailing market conditions, and may not be available on terms reasonably acceptable
to us or at all.
Accordingly,
the following regulations have to be followed, regarding capital injections to foreign-invested enterprises.
PRC
regulations relating to investments in offshore companies by PRC residents. SAFE (Short for State Administration of Foreign Exchange)
promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Financing and Roundtrip
Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014. SAFE Circular 37 requires PRC residents to
register and update certain investments in companies incorporated outside of China with their local SAFE branch. SAFE also subsequently
issued various guidance and rules regarding the implementation of SAFE Circular 37, which imposed obligations on PRC subsidiaries of
offshore companies to coordinate with and supervise any PRC-resident beneficial owners of offshore entities in relation to the SAFE registration
process.
We
may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control over our beneficial
owners and cannot assure you that all of our PRC-resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation
rules. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant
to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents
to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial
owners or our PRC subsidiaries to fines and legal sanctions. Failure to register may also limit our ability to contribute additional
capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our company. These risks may
have a material adverse effect on our business, financial condition and results of operations.
PRC
regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion.
We are an offshore holding company conducting our operations in China through our WFOE and consolidated Taiying. As an offshore holding
company, we may make loan to WFOE and Taiying subject to the approval from government authorities and limitation of amount, we also may
make additional capital contributions to our WFOE.
Any
loan to our WFOE, which is treated as foreign-invested enterprise under PRC law, is subject to PRC regulations and foreign exchange loan
registrations. In January 2003, SDRC (Short for State Development and Reform Commission), SAFE and Ministry of Finance jointly promulgated
the Circular on The Interim Provisions on the Management of Foreign Debts, or the Circular 28, regulating the total amount of foreign
debts of a foreign-invested company is the difference between the amount of total investment as approved by the Ministry of Commerce
or its local counterpart and the amount of registered capital of such foreign-invested company. This means loans by us to our WFOE to
finance its activities cannot exceed statutory limits and must be registered with SAFE. For example, the current amounts of approved
total investment and registered capital of our WFOE is $10 million and $5 million, respectively, which means WFOE cannot obtain
loans in excess of $5 million from our entities outside of China currently.
We
decided to finance WFOE by means of capital contributions. These capital contributions must be approved by the Ministry of Commerce or
its local counterpart. In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration
of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular No. 142, regulating the conversion
by a foreign-invested enterprise of foreign currency registered capital into RMB by restricting how the converted RMB may be used. SAFE
Circular No. 142 provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may
only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments
within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered
capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE’s approval, and such RMB capital
may not in any case be used to repay RMB loans if the proceeds of such have not been used. Violation of SAFE Circular No. 142 could result
in severe monetary or other penalties. Furthermore, SAFE promulgated a circular in November 2010, SAFE Circular No. 59, which requires
the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds to be settled in the
manner described in the offering documents, or otherwise approved by our board. These two circulars may significantly limit our ability
to effectively transfer the proceeds from future financing activities to Taiying. Further, we may not be able to convert the net proceeds
into RMB to invest in or acquire any other PRC Companies in China, which may adversely affect our liquidity and our ability to fund and
expand our business in China.
Currently, the approved investment amount of WFOE
is $10 million, its registered capital as of the last period presented is $5 million. Taiying is a PRC domestic company, which has a registered
capital of RMB 60,000,000. Violations of these SAFE regulations may result in severe monetary or other penalties, including confiscation
of earnings derived from such violation activities, a fine of up to 30% of the RMB funds converted from the foreign invested funds or
in the case of a severe violation, a fine ranging from 30% to 100% of the RMB funds converted from the foreign-invested funds.
Capital
Resources
The following table provides
certain selected balance sheets comparisons as of December 31, 2020 and December 31, 2019:
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,669,538
|
|
|
$
|
25,328,486
|
|
|
$
|
18,341,052
|
|
|
|
72
|
%
|
Accounts receivable, net
|
|
|
63,493,891
|
|
|
|
42,606,485
|
|
|
|
20,887,406
|
|
|
|
49
|
%
|
Prepayments
|
|
|
2,352,988
|
|
|
|
2,396,646
|
|
|
|
(43,658
|
)
|
|
|
-2
|
%
|
Prepayments, related parties
|
|
|
359,142
|
|
|
|
90,429
|
|
|
|
268,713
|
|
|
|
297
|
%
|
Due from related party, current
|
|
|
470,076
|
|
|
|
-
|
|
|
|
470,076
|
|
|
|
100
|
%
|
Income taxes recoverable
|
|
|
104,721
|
|
|
|
712,459
|
|
|
|
(607,738
|
)
|
|
|
-85
|
%
|
Other current assets
|
|
|
4,420,220
|
|
|
|
3,408,704
|
|
|
|
1,011,516
|
|
|
|
30
|
%
|
Total current assets
|
|
|
114,870,576
|
|
|
|
74,543,209
|
|
|
|
40,327,367
|
|
|
|
54
|
%
|
Equity investments
|
|
|
3,678,171
|
|
|
|
3,446,346
|
|
|
|
231,825
|
|
|
|
7
|
%
|
Property and equipment, net
|
|
|
12,543,156
|
|
|
|
10,115,782
|
|
|
|
2,427,374
|
|
|
|
24
|
%
|
Deferred tax assets
|
|
|
259,200
|
|
|
|
242,863
|
|
|
|
16,337
|
|
|
|
7
|
%
|
Due from related party, non-current
|
|
|
-
|
|
|
|
215,307
|
|
|
|
(215,307
|
)
|
|
|
-100
|
%
|
Operating lease right-of-use assets
|
|
|
12,265,679
|
|
|
|
9,827,114
|
|
|
|
2,438,565
|
|
|
|
25
|
%
|
Operating lease right-of-use asset -related party
|
|
|
341,078
|
|
|
|
172,121
|
|
|
|
168,957
|
|
|
|
98
|
%
|
Total non-current assets
|
|
|
29,087,284
|
|
|
|
24,019,533
|
|
|
|
5,067,751
|
|
|
|
21
|
%
|
Total assets
|
|
$
|
143,957,860
|
|
|
$
|
98,562,742
|
|
|
$
|
45,395,118
|
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term loan
|
|
$
|
1,531,933
|
|
|
$
|
4,306,138
|
|
|
$
|
(2,774,205
|
)
|
|
|
-64
|
%
|
Accounts payable
|
|
|
4,315,457
|
|
|
|
2,602,972
|
|
|
|
1,712,485
|
|
|
|
66
|
%
|
Accounts payable - related parties
|
|
|
260,790
|
|
|
|
149,658
|
|
|
|
111,132
|
|
|
|
74
|
%
|
Accrued liabilities and other payables
|
|
|
11,018,516
|
|
|
|
4,641,892
|
|
|
|
6,376,624
|
|
|
|
137
|
%
|
Deferred revenue
|
|
|
1,196,659
|
|
|
|
456,331
|
|
|
|
740,328
|
|
|
|
162
|
%
|
Wages payable
|
|
|
15,663,312
|
|
|
|
10,472,596
|
|
|
|
5,190,716
|
|
|
|
50
|
%
|
Income taxes payable
|
|
|
974,510
|
|
|
|
452,961
|
|
|
|
521,459
|
|
|
|
115
|
%
|
Operating lease liabilities, current
|
|
|
5,678,812
|
|
|
|
3,797,069
|
|
|
|
1,881,743
|
|
|
|
50
|
%
|
Operating lease liability – related party, current
|
|
|
165,734
|
|
|
|
163,995
|
|
|
|
1,739
|
|
|
|
1
|
%
|
Total current liabilities
|
|
|
40,805,723
|
|
|
|
27,043,612
|
|
|
|
13,672,111
|
|
|
|
51
|
%
|
Operating lease liabilities, non-current
|
|
|
7,461,337
|
|
|
|
6,068,702
|
|
|
|
1,392,635
|
|
|
|
23
|
%
|
Operating lease liability – related party, noncurrent
|
|
|
175,002
|
|
|
|
-
|
|
|
|
175,002
|
|
|
|
100
|
%
|
Total liabilities
|
|
$
|
48,442,062
|
|
|
$
|
33,112,314
|
|
|
$
|
15,329,748
|
|
|
|
46
|
%
|
We maintain cash and cash equivalents in China.
On December 31, 2020 and 2019, bank deposits were as follows:
|
|
December 31,
|
|
|
December 31,
|
|
Country
|
|
2020
|
|
|
2019
|
|
China
|
|
$
|
43,806,615
|
|
|
$
|
25,160,080
|
|
China (offshore bank account)
|
|
|
55,653
|
|
|
|
136,883
|
|
Total
|
|
$
|
43,862,268
|
|
|
$
|
25,296,963
|
|
The majority of our cash balances on December 31,
2020 are in the form of RMB stored in bank account of China. Cash held in banks (both mainland and offshore bank accounts) in the PRC
is not insured. The value of cash on deposit in mainland China of $43,806,615 as of December 31, 2020 has been converted based on
the exchange rate as of December 31, 2020. In 1996, the Chinese government introduced regulations, which relaxed restrictions on
the conversion of the RMB; however, restrictions still remain, including but not limited to restrictions on foreign invested entities.
Foreign invested entities may only buy, sell or remit foreign currencies after providing valid commercial documents at only those banks
authorized to conduct foreign exchanges. Furthermore, the conversion of RMB for capital account items, including direct investments and
loans, is subject to PRC government approval. Chinese entities are required to establish and maintain separate foreign exchange accounts
for capital account items. We cannot be certain Chinese regulatory authorities will not impose more stringent restrictions on the convertibility
of the RMB, especially with respect to foreign exchange transactions. Accordingly, cash on deposit in banks in the PRC is not readily
deployable by us for use outside of China.
Cash and cash equivalents
As of December 31, 2020, cash and cash equivalents
were $43,669,538, which increased by $18,341,052 compared to $25,328,486 as of December 31, 2019. The following table sets forth certain
items in our consolidated statements of cash flows for 2020, 2019 and 2018.
|
|
For The Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Net cash provided by operating activities
|
|
$
|
24,049,979
|
|
|
$
|
5,213,237
|
|
|
$
|
12,142,470
|
|
Net cash used in investing activities
|
|
|
(5,544,037
|
)
|
|
|
(4,460,851
|
)
|
|
|
(4,748,428
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(2,663,634
|
)
|
|
|
544,301
|
|
|
|
(89,084
|
)
|
Exchange rate effect on cash, cash equivalents and restricted cash
|
|
|
2,498,744
|
|
|
|
(388,113
|
)
|
|
|
(1,513,411
|
)
|
Net cash inflow
|
|
$
|
18,341,052
|
|
|
$
|
908,574
|
|
|
$
|
5,791,547
|
|
Accounts Receivable
Accounts receivable
as of December 31, 2020 was $63,493,891, an increase of $20,887,406 compared to a balance of $42,606,485 as of December 31,
2019. This increase resulted primarily from increases in the volume of services we provided.
Due from related parties
As of December 31, 2020, balance due from related
party was $470,076, among which, $240,286 representing a non-secured loan bearing an annual interest rate of 4.35% due on 12/14/2021.
The loan was made to a related party on 12/15/2019 and the corresponding balance of $215,307 was presented as due from related party,
noncurrent as of December 31, 2019. The remaining $229,790 represents a non-secured, interest-free loan to another related party the Company
advanced in 2020.
Current assets
Current assets as of December 31, 2020 totaled
$114,870,576, an increase of $40,327,367, or 54% from our December 31, 2019 balance. This increase primarily resulted from a $18,341,052
increase in cash and cash equivalents, a $20,887,406 increase in net accounts receivable, a $268,713 increase in prepayments of related
parties, a $470,076 increase in due from related parties, current, and a $1,011,516 increase in other current assets, offset by a $43,658
decrease in prepayments and a $607,738 decrease in income taxes recoverable.
Property and equipment, net
Property and equipment, net as of December 31, 2020 were $12,543,156,
an increase of $2,427,374 compared to December 31, 2019. This increase primarily resulted from an increase of $4,057,037 in electronic
equipment, an increase of $688,352 in office furniture and other equipment, an increase of $217,375 in motor vehicle payments and an increase
of $780,237 in leasehold improvement and an increase of $1,025,809 in construction in progress, offset by a decrease of $226,279 in computer
software and an aggregate increase of $4,115,157 in current depreciation.
Accrued liabilities and other payables
Accrued liabilities and other payables principally include network
rental expense in the telecommunication industry, unpaid travel expense, unpaid bonus expenses, and professional service expense. The
balance as of December 31, 2020 was $11,018,516, an increase of $6,376,624 compared to $4,641,892 as of December 31, 2019.
Wages payable
Wages payable as of December 31, 2020 was $15,663,312, an increase
of $5,190,716 compared to $10,472,596 as of December 31, 2019. This increase resulted from the increased employees’ compensation
with our expansion of operations for the year ended December 31, 2020.
Cash Provided By Operating Activities
Net cash provided by operating activities for the year ended December 31,
2020 totaled $24,049,979. The activities were mainly comprised of net income of $24,930,851, adjusted by depreciation of $4,070,582,
loss on disposal of property and equipment of $59,366, non-cash lease expense of $4,319,670, changes in lease liabilities and right-of-use
assets upon lease modification of $634,328, and an increase in accounts payable of $1,550,027, an increase in wages payable of $4,245,097,
an increase in income taxes recoverable and payable of $1,084,853, an increase in deferred revenue of $671,332 and an increase in accrued
liabilities and other payables of $4,934,855, offset by an increase of $17,048,770 in net accounts receivable, an increase of $447,976
in prepayments, an increase of $248,456 in prepayments, related parties, an increase of $3,955,614 in operating lease liabilities and
$740,237 in other current assets.
Net cash provided by operating activities for the
year ended December 31, 2019 totaled $5,213,237. The activities were mainly comprised of net income of $13,174,125, depreciation
of $3,404,912, loss on disposal of property and equipment of $19,091, deferred income taxes of $238,883, non-cash lease expense of $3,501,753,
and an increase in accounts payable of $2,017,431, an increase in wages payable of $3,511,093, offset by an increase of $13,057,615 in
net accounts receivable, an increase of $2,097,963 in prepayments, an increase of $3,037,030 in operating lease liabilities and $1,510,847
in other current assets.
Net cash provided by operating activities for the
year ended December 31, 2018 totaled $12,142,470. The activities were mainly comprised of net income of $16,301,131, depreciation of $2,635,242,
allowance for doubtful accounts of $952,439, and an increase in accrued liabilities and other payables of $1,077,098, offset by an increase
of $7,937,804 in net accounts receivable and $970,199 in other current assets.
The significant increase in cash flows from our
operating activities for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily resulted from the increase
in net income yield from our operations for the year ended December 31, 2020, offset by increase in net accounts receivable.
The significant decrease in cash flows from our
operating activities for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily resulted from our decrease
in net income yield from our operation for the year ended December 31, 2019, and an increase in net accounts receivable and operating
lease liabilities, offset by the increase in wages payable and accounts payable.
Cash Used In Investing
Activities
Net cash used in investing activities for
the year ended December 31, 2020 totaled $5,544,037. The activities were primarily comprised of $5,334,709 used to purchase
property and equipment, advances to equity investee of $435,445 and advances to related parties of $381,309, offset by $7,179 proceeds
from sales of property and equipment and repayment from equity investee and related parties of $429,068 and $171,179, respectively.
Net cash used in investing activities for
the year ended December 31, 2019 totaled $4,460,851. The activities were primarily comprised of $4,481,450 used to purchase
property and equipment and advances to related parties of $214,111, offset by $36,693 proceeds from sales of property and equipment and
repayment from related parties of $198,017.
Net cash used in investing activities for the year
ended December 31, 2018 totaled $4,748,428. The activities were primarily comprised of a $4,768,139 purchase of property and equipment.
One of our primary uses of cash in our investing
activities for each period is for our purchase of property and equipment, including information technology equipment, furniture, fixtures
and leasehold improvements for expansion of available seats. For the year ended December 31, 2020, we spent $853,259 more in purchasing
property and equipment than in 2019. For the year ended December 31, 2019, we spent $286,689 more in purchasing property and equipment
than in 2018.
Cash Provided By (Used In) Financing Activities
For the year ended December 31, 2020, net
cash used in financing activities was $2,663,634, which primarily consisted of repayment of short-term loans of $7,124,316, offset by
proceeds from short-term loans of $4,351,712 and proceeds of contribution form controlling investor in HTCC of $108,970.
For the year ended December 31, 2019, net
cash provided by financing activities was $544,301, which primarily consisted of proceeds from short-term loans of $4,452,368, offset
by our repayment of a short-term loan of $3,694,345, and a dividend of $213,722 distributed to Jiate, 49% owner of HTCC.
For the year ended December 31, 2018, net cash
used in financing activities was $89,084, which primarily resulted from a dividend of $355,232 distributed to Jiate, 49% owner of HTCC.
We have maintained a stable financing with the
Bank of China during the year ended December 31, 2020 and 2019 and established new financing relationship with China Merchants Bank.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these audited
consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. We evaluate our estimates on an ongoing basis, including those related to revenue recognition and income taxes.
We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making the judgments we make about the carrying values of our assets and liabilities that are
not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from
the estimates.
The
critical accounting policies summarized in this section are discussed in further detail in the notes to the audited consolidated financial
statements appearing elsewhere in this annual report. Management believes that the application of these policies on a consistent basis
enables us to provide useful and reliable financial information about our operating results and financial condition.
Variable
Interest Entities
Pursuant
to ASC 810 and related subtopics related to the consolidation of variable interest entities, we are required to include in our consolidated
financial statements the financial statements of VIEs. The accounting standards require a VIE to be consolidated by a company if that
company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.
VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with
ownership of the entity, and therefore we are the primary beneficiary of the entity. Taiying is considered a VIE, and we are the primary
beneficiary. We, through our wholly-owned subsidiary, WFOE, entered into the Control Agreements with Taiying pursuant to which WFOE shall
receive all of Taiying’s net income and bear all losses of Taiying. In accordance with these agreements, Taiying shall pay consulting
fees equal to 100% of its estimated earnings before tax to WFOE.
The
accounts of Taiying and its subsidiaries are consolidated in the accompanying financial statements. As VIEs, Taiying and its subsidiaries’
sales are included in our total sales, its income from operations is consolidated with ours, and our net income includes all of Taiying
and its subsidiaries’ net income, and their assets and liabilities are included in our consolidated balance sheets. The VIEs do
not have any non-controlling interest and, accordingly, we did not subtract any net income in calculating the net income attributable
to us. Because of the Control Agreements, we have pecuniary interest in Taiying that require consolidation of Taiying and its subsidiaries’
financial statements with our financial statements.
As
required by ASC 810-10, we perform a qualitative assessment to determine whether we are the primary beneficiary of Taiying which is identified
as a VIE of us. A quality assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the
entity’s activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and the
parties involved in the design of the entity. The significant terms of the agreements between us and Taiying are discussed above in the
“Our Corporate Structure—Contractual Arrangements with Taiying and Taiying’s Shareholder” section. Our assessment
on the involvement with Taiying reveals that we have the absolute power to direct the most significant activities that impact the economic
performance of Taiying. WFOE, our wholly own subsidiary, is obligated to absorb all operating risks of loss from Taiying and entitles
WFOE to receive all of Taiying’s expected residual returns. In addition, Taiying’s shareholders have pledged their equity
interest in Taiying to WFOE, irrevocably granted WFOE an exclusive option to purchase, to the extent permitted under PRC Law, all or
part of the equity interests in Taiying and agreed to entrust all the rights to exercise their voting power to the person(s) appointed
by WFOE. Under the accounting guidance, we are deemed to be the primary beneficiary of Taiying and the results of Taiying and its subsidiaries
are consolidated in our consolidated financial statements for financial reporting purposes.
Current Expected Credit
Losses
In 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which
amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected
losses rather than incurred losses. The Company adopted this ASC Topic 326 and its amendments on January 1, 2020 using a modified retrospective
approach. The adoption did not have a material impact on the Company’s consolidated financial statements.
As of January 1, 2020, the Company’s financial
assets, primarily accounts receivable and other current assets, are within the scope of ASC Topic 326. The Company has identified the
relevant risk characteristics of its customers and the related receivables and other current assets which include type of the services
the Company provides, nature of the customers or a combination of these characteristics. Receivables with similar risk characteristics
have been grouped into pools. For each pool, the Company considers the historical credit loss experience, current economic conditions,
supportable forecasts of future economic conditions, and any recoveries in assessing the lifetime expected credit losses. Other key factors
that influence the expected credit loss analysis include customer demographics, payment terms offered in the normal course of business
to customers, and industry-specific factors that could impact the Company’s receivables. Additionally, external data and macroeconomic
factors are also considered.
Revenue
Recognition
The
Company operates call centers and generates revenues primarily by providing BPO services, which focus on complex, voice-based and online-based
segment of customer care services.
Under
ASC 606, revenue is recognized when control of the promised services is transferred to the Company’s customers, in an amount that
reflects the consideration that the Company expects to be entitled to in exchange for those services, net of value-added tax. The Company
determines revenue recognition through the following steps:
|
●
|
Identify
the contract with a customer;
|
|
|
|
|
●
|
Identify
the performance obligations in the contract;
|
|
|
|
|
●
|
Determine
the transaction price;
|
|
|
|
|
●
|
Allocate
the transaction price to the performance obligations in the contract; and
|
|
|
|
|
●
|
Recognize
revenue when (or as) the entity satisfies a performance obligation.
|
The
Company provides BPO service, such as i) inbound call service, which includes directory assistance, mobile phone service plan, billing
questions, hotline consultation, complaints, customer feedbacks, customer relationship management, etc., and ii) outbound call service,
which includes products selling, marketing surveys, new products informing, plans expiration and bills overdue notification, products
selling, marketing surveys, new products informing, plans expiration and bills overdue notification, etc., for its customers.
The
Company makes arrangement and provides service to its customer pursuant to a master agreement that specifies service content and the
price of an individual performance of each service, generally on monthly basis. The BPO inbound and outbound service fees are based on
either a per minute, per hour, per transaction or per call basis. For outbound call service, certain business successful rate was obtained.
The fee is determined on a per call basis where the Company receives a basic standard fee for each call plus an extra fee for successfully
selling a product or completing a survey, etc.
The nature of the Company’s contracts with
customers gives rise to certain types of variable consideration. Certain client programs provide for adjustments to monthly billings based
upon whether the Company achieves, exceeds or fails certain performance criteria. Adjustments to monthly billings consist of contractual
bonuses/penalties, holdbacks and other performance-based contingencies. The Company includes estimated amounts of variable consideration
in the transaction price to the extent that it is probable there will not be a significant reversal of revenue. Estimates are based on
historical or anticipated performance and represent the Company’s best judgment at the time.
Revenues
are recognized as the performance obligations are satisfied over time over the service period as the service is rendered.
The
Company’s chief operating decision maker reviews results analyzed by customers and the analysis is only presented at the revenue
level with no allocation of direct or indirect costs. The Company determines that it has only one operating segment. Consequently, the
Company does not disaggregate revenue recognized from contracts with customers.
Contract
liabilities represented receipt in advance from customers. As of December 31, 2020, receipt in advance from customers was
$1,196,659. As of December 31, 2019, receipt in advance from customers was $456,331, of which $456,331 was recognized as revenue in
the year ended December 31, 2020. Receipt in advance from customers is included in deferred revenue in the consolidated balance
sheets. The Company does not have any contract asset.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical
experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and
assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new
events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Significant
estimates and assumptions by management include, among others, useful lives and impairment of long-lived assets, impairment of equity
investments, allowance for doubtful accounts, income taxes including the valuation allowance for deferred tax assets, and estimated amounts
of variable consideration in the Company’s revenue recognition, and estimate on the execution of right of renewal and termination
of lease arrangements. While the Company believes that the estimates and assumptions used in the preparation of the financial statements
are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects
of revisions are reflected in the financial statements in the period they are determined to be necessary.
Noncontrolling
Interest
Noncontrolling
interest on the consolidated balance sheets resulted from the consolidation of HTCC, a 51% owned subsidiary starting from January 31,
2017. The portion of the income or loss applicable to the noncontrolling interest in subsidiaries is reflected in the consolidated statements
of income and comprehensive income.
Fair
Value of Financial Instruments
For certain of the Company’s financial instruments,
including cash and cash equivalents, accounts receivable, net, prepayments, income taxes recoverable, other current assets, accounts payable,
accrued liabilities and other payables, deferred revenue, wages payable, income taxes payable, and short-term loan, the carrying amounts
approximate their fair values due to the short maturities.
Lease
Commitments
Upon adoption of ASC 842 ASU No. 2016-02 and other
related ASUs (collectively, “ASC Topic 842”) on January 1, 2019, the Company determines if an arrangement is a lease at inception.
Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and operating lease
liabilities, non-current in the Company’s consolidated balance sheets. ROU assets represent the Company’s right to use an
underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from
the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments
over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably
certain that it will exercise that option, if any. As the Company’s leases do not provide an implicit rate, the Company used an
incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
For leases with a term of 12 months or less, the
Company makes an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The Company
recognizes lease expenses for such leases on a straight-line basis over the lease term.
Modification to existing lease agreements, including
changes to the lease term or payment amounts, are reviewed to determine whether they result in a sperate contract. For modifications that
do not result in a separate contract, management reviews the lease classification and re-measures the related right-of-use assets and
liabilities at the effective date of the modification.
Equity
Investments
The
Company’s equity investments consist of investments in equity securities of privately held companies without readily determinable
fair value, where the Company’s level of ownership is such that it cannot exercise significant influence over the investees. Investments
are initially recorded at the amount of the Company’s initial investment and adjusted for declines in fair value that are considered
other than temporary.
Subsequent
to the Company’s adoption of ASC 321 on January 1, 2018, the Company elected to record these investments at cost, less impairment,
and plus or minus subsequent adjustments for observable price changes. The Company makes a qualitative assessment of whether the investments
is impaired at each reporting date. If a qualitative assessment indicates that an investment is impaired, the Company estimates the investment’s
fair value in accordance with the principles of ASC 820. If the fair value is less than the investment’s carrying value, the Company
has to recognize an impairment loss in net income equal to the difference between the carrying value and fair value.
Foreign
Currency Translation
The accompanying consolidated financial statements
are presented in United States dollar (“$”), which is the reporting currency of the Company. The functional currency of China
Customer Relations Centers, Inc. and CBPO is United States dollar. The functional currency of the Company’s subsidiary and VIEs
located in the PRC is Renminbi (“RMB”). For the subsidiaries whose functional currencies are RMB, results of operations and
cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate
at the end of the period, and equity is translated at historical exchange rates. The resulting translation adjustments are included in
determining other comprehensive income. Transaction gains and losses are reflected in the consolidated statements of income and comprehensive
income. For the years ended December 31, 2020, 2019 and 2018, the Company had gain (loss) of ($309,372), $77,348, and $231,928, respectively,
resulting from foreign currency transactions, which was included in other income (other expense) in the consolidated statements of income
and comprehensive income.
Recently Issued Accounting Pronouncements
In January 2020, the FASB issued ASU 2020-01, “Investments—Equity
securities (Topic 321), Investments—Equity method and joint ventures (Topic 323), and Derivatives and hedging (Topic 815)—Clarifying
the interactions between Topic 321, Topic 323, and Topic 815”, which clarify the interaction of the accounting for equity securities
under Topic 321 and investments under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and
purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require
it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance
with Topic 321 immediately before applying or upon discontinuing the equity method. This standard is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020 for public companies. Early adoption is permitted. The Company is
currently in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements.
|
C.
|
Research and Development,
Patent and Licenses, etc.
|
Please
refer to Item 4 Subparagraph B, “Information on the Company—Business Overview—Research and Development” and “—Intellectual
Property Rights.”
Based
on our experience and observations of the business in which we operate, we believe the following trends are likely to affect our industry
and, as a result, our company, if they continue in the future.
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●
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We believe China’s major enterprises have begun
to focus on BPO providers who can offer fully integrated revenue generation solutions to target new markets and improve revenue and
profitability. We believe companies in various industries, including credit card, insurance and logistics enterprises, have been
increasingly contacting BPO service providers for their services as a means to increase sales and profitability. In the past, companies
of these types typically performed call center services internally. CCRC believes such companies are increasingly outsourcing these
functions.
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|
●
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Having experienced success with outsourcing a portion
of their business processes to capable third-party providers, Chinese companies are increasingly inclined to outsource a larger percentage
of this work. We have observed this trend among our major customers, for example, the provincial subsidiaries of China Mobile and
China Telecom, who have increased outsourcing as a means of meeting internal goals of limiting growth in their own employment. We
believe companies will continue to consolidate their business processes with third-party providers, such as Taiying, who are financially
stable and able to invest in their business while also demonstrating the ability to cost-effectively meet their evolving needs.
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●
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There is increasing adoption of outsourcing across broader groups of industries. Early adopters of the BPO trend, such as the media and communications industries, are being joined by companies in other industries, including government, automobile, retail, logistics, media, financial services, insurance, IT and e-commerce. These companies are beginning to adopt outsourcing to improve their business processes and competitiveness. For example, we see increasing interest in our services from companies in the financial services industries, as evidenced by our recent clients, two of the largest five commercial banks in China. We believe the increasing adoption of outsourcing across broader groups of industries and the number of other industries that will adopt or increase their level of outsourcing will continue to grow, further enabling us to increase and diversify our revenue and client base.
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●
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As companies broaden their product offerings and seek
to enter new geographic locations, we believe they will be looking for outsourcing providers that can provide speed-to-market while
reducing their capital and operating risk. To achieve these benefits, companies are seeking BPO providers with an extensive operating
history, an established geographic footprint, the financial strength to invest in innovations to deliver more strategic capabilities
and the ability to scale and meet customer demands quickly. We believe we can quickly implement large, complex business processes
around China in a short period of time while assuring a high-quality experience for their customers.
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|
●
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Our existing clients are large companies with diverse
BPO needs, and we plan to continue our strategy of expanding the scale and scope of the services we provide for these large clients.
As a full-service provider of voice services such as care, sales, and other back-office functions, we can provide numerous capabilities
to our existing client base. We have experienced continued growth from our existing clients, with more services being demanded by
our existing clients. We believe our organic growth in Taiying’s sales of service to existing clients is likely to continue
for the near future.
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|
●
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While we have our Liaoning, Shandong, and Heilongjiang centers and Beijing office to cover the services demanded from the northern part of China and the Bohai Bay Economic Rim, we believe that our, Hebei, Anhui, Guangxi, Xinjiang, Jiangxi, Jiangsu, Guangdong, Yunnan, Hubei, Sichuan, and Chongqing City contact centers and Shanghai office have allowed us to expand our geographic reach to other parts of China, particularly the southwest region, the Yangtze River Delta, and the Pearl River Delta, covering a total of 13 provinces and 3 directly-administered municipalities (Beijing, Shanghai, and Chongqing) in China. Given our strategic locations and our significant investment in standardized technology and processes, we believe that we can meet our clients’ speed-to-market demand of launching new products or entering new geographic locations.
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|
●
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While we continue to target the significant market
opportunity still available in the telecommunications industry, we are focusing on reaching new clients in the financial service
and internet commerce industry, which have a large share of the overall outsourced market. We have been actively marketing our services
to a wider range of industries, including government, consumer products and logistics entities.
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|
●
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We believe that competition in the customer care call
center BPO market is going to become more intense, and consolidation is going to prevail in the near future. It is possible that
competition in the form of new competitors or alliances, joint ventures or consolidation among existing competitors may decrease
our market share.
|
|
E.
|
Off-Balance Sheet
Arrangements.
|
Under
SEC regulations, we are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or
contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:
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●
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any obligation under certain guarantee contracts,
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|
●
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any retained or contingent interest in assets transferred
to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such
assets,
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●
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any obligation under a contract that would be accounted
for as a derivative instrument, except that it is both indexed to our stock and classified in shareholder equity in our statement
of financial position, and
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●
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any obligation arising out of a material variable interest
held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in
leasing, hedging or research and development services with us.
|
We
do 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 transactions are recognized in our financial
statements in accordance with generally accepted accounting principles in the United States.
|
F.
|
Tabular
Disclosure of Contractual Obligations.
|
We
have certain potential commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing
interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the
timing and amounts of payments.
The
following table summarizes our contractual obligations as of December 31, 2020, and the effect these obligations are expected to have
on our liquidity and cash flows in future periods:
Contractual obligations
|
|
Total
|
|
1 year
|
|
2-3 years
|
|
4-5 years
|
|
thereafter
|
Operating leases
|
|
$
|
14,385,076
|
|
|
$
|
6,320,628
|
|
|
$
|
7,060,395
|
|
|
$
|
901,574
|
|
|
$
|
102,479
|
|
Total
|
|
$
|
14,385,076
|
|
|
$
|
6,320,628
|
|
|
$
|
7,060,395
|
|
|
$
|
901,574
|
|
|
$
|
102,479
|
|
See
“Forward-Looking Statements.”
Item
6. Directors, Senior Management and Employees
|
A.
|
Directors
and Senior Management.
|
MANAGEMENT
The
following table sets forth our executive officers and directors, their ages and the positions held by them:
Name
|
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Age
|
|
Position
|
|
Appointed
|
Gary Wang (1) (2)
|
|
53
|
|
Chief Executive Officer, Chairman of the Board and Director
|
|
2014
|
David Wang (1) (2)
|
|
50
|
|
Chief Financial Officer, Director
|
|
2014
|
Guoan Xu (1) (2)
|
|
45
|
|
Vice President, Director
|
|
2014
|
Qingbo Zhao
|
|
51
|
|
Vice President
|
|
2021
|
Tianjun Zhang (1) (4) (5) (6) (7)
|
|
49
|
|
Director
|
|
2015
|
Weixin Wang (1) (3) (6) (7)
|
|
51
|
|
Director
|
|
2014
|
Jie Xu (1) (4) (5)
|
|
49
|
|
Director
|
|
2014
|
Owens Meng (1) (3) (5) (6) (7)
|
|
43
|
|
Director
|
|
2014
|
(1)
|
The
individual’s business address is c/o Taiying, 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone,
Taian City, Shandong Province, People’s Republic of China 271000.
|
(2)
|
Class
III director whose term expires at the 2022 annual meeting of shareholders.
|
(3)
|
Class
II director whose term expires at the 2021 annual meeting of shareholders.
|
(4)
|
Class I director whose
term expires at the 2023 annual meeting of shareholders.
|
(5)
|
Member
of audit committee.
|
(6)
|
Member
of compensation committee.
|
(7)
|
Member
of nominating committee.
|
Gary
Wang. Mr. Wang has served as the Chief Executive Officer and Chairman of CCRC since September 2014. Mr. Wang co-founded
Taiying in 2007 and has served as Taiying’s Chief Executive Officer since December 2007. From 2004 through 2007, Mr. Wang
was the Chief Executive Officer of Shandong Luk Information Technology Co. Ltd, a call center company based in Shandong Province. Mr. Wang
received his MBA from the Hong Kong Polytechnic University, and a bachelor’s degree in finance from Shandong University of Finance.
Mr. Wang was nominated as a director because he has 15 years of experience serving in executive positions at companies exclusively
operating in the call center industry and has extensive knowledge, experience and relationships in China’s BPO industry.
David
Wang. Mr. Wang has served as the Chief Financial Officer and Vice Chairman of CCRC since September 2014. Mr. Wang co-founded
Taiying in 2007 and has served as Taiying’s Executive Vice President and Chief Financial Officer since April 2008. From January
2006 through March 2008, Mr. Wang served as Executive Vice President of Fountain Investments Limited, an investment advisory firm
based in Shandong Province. From 2003 through 2005, Mr. Wang was Assistant to the President of Tianqin Securities Limited, a full-service
investment banking and brokerage firm based in Shandong Province. Mr. Wang holds a bachelor’s degree in computer science from
Shandong University, and is currently studying for the FMBA program at China Europe International Business School (CEIBS). Mr. Wang
was nominated as a director because of his extensive operating and financial knowledge of the company as a long-term executive, which
gives him detailed understanding of the complexities of our operations.
Guoan
Xu. Mr. Xu has served as Vice President and Director of CCRC since September 2014. Mr. Xu has served as director and vice
president of Taiying since 2014. Between 2008 and 2013, Mr. Xu served as a consultant and independent director of Taiying. Mr. Xu
holds an associate bachelor’s degree in politics and public relations from Shandong University. Mr. Xu was nominated as a
director because of his extensive operating and public relation experience.
Qingbo Zhao. Mr. Zhao has served as
Vice President of CCRC since 2019. Mr. Zhao was a senior partner with Silicon Intelligence Co. Ltd from 2018 through 2019. Between
2014 and 2018, Mr. Zhao served as the Chief Marketing Officer of HR Financial Globalservices Co., Ltd. Mr. Zhao holds an EMBA
degree from the China Europe Business School and a Doctorate in petroleum and natural gas from Northeast Petroleum University.
Tianjun
Zhang. Mr. Zhang has served as an independent director of CCRC since October 2015. Since February 2014, Mr. Zhang has been
the vice president of Jinan Zhongwei Century Technology Co., Ltd. between February 2011 and February 2014, Mr. Zhang was a director
of Sinopec Ningxia Branch. Between November 2009 and February 2011, Mr. Zhang was a vice president of Star Media Tanzania Co., Ltd.
between December 2001 and November 2009, Mr. Zhang was the general manager of Shandong branch of CITIC Application Service Provider Co.,
Ltd. Mr. Zhang received both his MBA and bachelor’s degree in computer science from Shandong University. Mr. Zhang was nominated
as a director because of his experience in management.
Weixin
Wang. Mr. Wang has served as an independent director of CCRC since September 2014. Since 2013, Mr. Wang has been the vice
chairman of Jiangsu Sailian Information Industry Research Institute. Between 2006 and 2013, Mr. Wang was the director of Software
and Integrated Circuit Promotion Center within the Strategy Consulting Department of Ministry and Information Technology. Between 2004
and 2006, Mr. Wang was an associate researcher of China Institute of Science. Mr. Wang holds a doctorate degree in engineering
from the China Academy of Agricultural Mechanization Sciences (CAAMS). Mr. Wang was nominated as a director because of his research
and development experience in information and technology.
Jie
Xu. Mr. Xu has served as an independent director of CCRC since September 2014. Since June 2015, Mr. Xu has been the Chief
investment officer of Shandong Juneng Investment Co., Ltd, an affiliated company of Shandong State-Owned Assets Investment Holdings,
Co., Ltd. Between September 2012 and May 2015, Mr. Xu was the general manager of the asset management department of Luzheng Futures
Stock Co., Ltd. Between 2008 and 2012, Mr. Xu was the senior manager of Qilu Securities (Beijing) Asset Management Company, a division
of Qilu Securities Co., Ltd., as full-service brokerage and investment banking firm. Between 2006 and 2007, Mr. Xu was an investment
relation manager for Shandong Tianye Hengji Stock Company Limited. Between 2002 and 2006, Mr. Xu was assistant vice president of
the securities investment department of General Investment Management co., Ltd. Mr. Xu holds a bachelor’s degree in finance from Shandong
Economic University. Mr. Xu was nominated as a director because of his experience in capital markets and finance.
Owens
Meng. Mr. Meng has served as an independent director of CCRC since September 2014. Mr. Meng is a certified public accountant
in Delaware. Since 2013, Mr. Meng has been the managing director of Beijing Songlin Xinya Financial Consultants, Ltd. Between 2007
and 2013, Mr. Meng served as chief representative of Sherb Consulting LLC Beijing Representative Office, and managing director of
Sherb & Co, LLP, a mid-sized accounting firm which has audited more than 25 China-based, US publicly traded companies. Between
2003 and 2006, Mr. Meng worked as an audit manager for Grant Thornton Beijing. Mr. Meng is a member of China Institute of Certified
Public Accountants (CICPA), and a Certified Internal Auditor (CIA) of the Institute of Internal Auditors. Mr. Meng has also served as
an independent director of TDH Holdings, Inc. since February 2019. Mr. Meng holds a bachelor’s degree in accounting and economics
from Beijing Technology and Business University. Mr. Meng was nominated as a director because of his experience in auditing, US GAAP
and with United States compliance issues.
There
are no family relations among any of our officers or directors. There are no other arrangements or understandings pursuant to which our
directors are selected or nominated.
Executive
Compensation
Our
compensation committee approves our salary and benefit policies. Before our initial public offering, our board of directors determined
the compensation to be paid to our executive officers based on our financial and operating performance and prospects, and contributions
made by the officers to our success. Each of the named officers are measured by a series of performance criteria by the board of directors,
or the compensation committee on a yearly basis. Such criteria are set forth based on certain objective parameters such as job characteristics,
required professionalism, management skills, interpersonal skills, related experience, personal performance and overall corporate performance.
In 2020, we paid an
aggregate of approximately $3,489,805
U.S. dollars in cash as salaries, bonuses and fees to our senior executives and officers named in this annual report. Other than salaries,
fees and share incentives, we do not otherwise provide pension, retirement or similar benefits to our officers and directors.
Director
Compensation
All directors hold office until the next annual meeting of shareholders
at which their respective class of directors is re-elected and until their successors have been duly elected and qualified. There are
no family relationships among our directors or executive officers. Officers are elected by and serve at the discretion of the Board of
Directors. Employee directors do not receive any compensation for their services. Independent directors are entitled to receive $20,000
per year for serving as directors and may receive stock, option or other equity-based incentives to our directors for their service. The
following table presents information regarding the compensation of our independent directors for fiscal 2020. Compensation for our Chief
Executive Officer, Gary Wang, Chief Financial Officer, David Wang and Guoan Xu are Vice President is reflected above in the Summary Compensation
Table rather than below.
Summary
Director Compensation Table FY 2020
Name
|
|
Director
fees
earned or
paid in cash
|
|
|
Other
Compensation
|
|
|
Total
($)
|
|
Weixin Wang
|
|
$
|
20,000
|
|
|
$
|
0
|
|
|
$
|
20,000
|
|
Jie Xu
|
|
|
20,000
|
|
|
|
0
|
|
|
|
20,000
|
|
Tianjun Zhang
|
|
|
20,000
|
|
|
|
0
|
|
|
|
20,000
|
|
Owens Meng
|
|
|
20,000
|
|
|
|
0
|
|
|
|
20,000
|
|
See
information provided in response to Item 6.A. above as to the current directors.
Composition
of Board
Our
board of directors currently consists of seven directors. There are no family relationships between any of our executive officers and
directors.
The
directors are divided into three classes, as nearly equal in number as the then total number of directors permits. Class I directors
shall face re-election at our annual general meeting of shareholders in 2020 and every three years thereafter. Class II directors shall
face re-election at our annual general meeting of shareholders in 2021 and every three years thereafter. Class III directors shall face
re-election at our annual general meeting of shareholders in 2022 and every three years thereafter.
If
the number of director changes, any increase or decrease will be apportioned among the classes so as to maintain the number of directors
in each class as nearly as possible. Any additional director of a class elected to fill a vacancy resulting from an increase in such
class will hold office for a term that coincides with the remaining term of that class. Decreases in the number of directors will not
shorten the term of any incumbent director. These board provisions could make it more difficult for third parties to gain control of
our company by making it difficult to replace members of the Board of Directors.
A
director may vote in respect of any contract or transaction in which he is interested, provided, however that the nature of the interest
of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter.
A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors
or any committee thereof of the nature of a director’s interest shall be sufficient disclosure and after such general notice it
shall not be necessary to give special notice relating to any particular transaction. A director may be counted for a quorum upon a motion
in respect of any contract or arrangement which he shall make with our company, or in which he is so interested and may vote on such
motion. There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless
so fixed by us in a general meeting.
The
Board of Directors maintains a majority of independent directors who are deemed to be independent under the definition of independence
provided by NASDAQ Stock Market Rule 4200(a)(15). Messrs. Weixin Wang, Jie Xu, Tianjun Zhang and Owens Meng are our independent directors.
There
are no other arrangements or understandings pursuant to which our directors are selected or nominated.
Our
Board of Directors plays a significant role in our risk oversight. The Board of Directors makes all relevant company decisions. As such,
it is important for us to have both our Chief Executive Officer and Chief Financial Officer serve on the Board as they play key roles
in the risk oversight or the company. As a smaller reporting company with a small board of directors, we believe it is appropriate to
have the involvement and input of all of our directors in risk oversight matters.
Board
Committees
Currently,
three committees have been established under the board: the audit committee, the compensation committee and the nominating committee.
The audit committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial
statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The compensation
committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers
and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the
authority to interpret those plans). The nominating committee of the board of directors is responsible for the assessment of the performance
of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other
governance issues. The nominating committee considers diversity of opinion and experience when nominating directors.
Tianjun
Zhang and Owens Meng serve on all three committees. Weixin Wang serves on the nominating and compensation committees. Jie Xu serves on
the audit committee. At this time, Weixin Wang chairs the nominating committee; Owens Meng chairs the audit committee; and Tianjun Zhang
chairs the compensation committee. Owens Meng qualifies as an “audit committee financial expert” as that term is defined
by the applicable SEC regulations and Nasdaq Capital Market corporate governance requirements.
Duties
of Directors
Under
British Virgin Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors
also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances.
In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. We have
the right to seek damages if a duty owed by our directors is breached.
The
functions 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.
|
Interested
Transactions
A
director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or
she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or
she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to the board or otherwise
contained in the minutes of a meeting or a written resolution of the board or any committee of the board that a director is a shareholder,
director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or
company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any
particular transaction.
Remuneration
and Borrowing
The
directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid
or prepaid for all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our
board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his
or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure
for the directors.
Our
board of directors may exercise all the powers of the Company to borrow money and to mortgage or charge our undertakings and property
or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt,
liability or obligation of the Company or of any third party.
Qualification
A
director is not required to hold shares as a qualification to office.
Limitation
on Liability and Other Indemnification Matters
Under
British Virgin Islands law, each of our directors and officers, in performing his or her functions, is required to act honestly and in
good faith with a view to our best interests and exercise the care, diligence and skill that a reasonably prudent person would exercise
in comparable circumstances. British Virgin Islands law does not limit the extent to which a company’s memorandum and articles
of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the
British Virgin Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences
of committing a crime.
Under
our memorandum and articles of association, we may indemnify our directors, officers and liquidators against all expenses, including
legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with civil, criminal,
administrative or investigative proceedings to which they are party or are threatened to be made a party by reason of their acting as
our director, officer or liquidator. To be entitled to indemnification, these persons must have acted honestly and in good faith with
a view to the best interest of the Company and, in the case of criminal proceedings, they must have had no reasonable cause to believe
their conduct was unlawful. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief
or rescission. These provisions will not limit the liability of directors under United States federal securities laws.
We
may indemnify any of our directors or anyone serving at our request as a director of another entity against all expenses, including legal
fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative
or investigative proceedings. We may only indemnify a director if he or she acted honestly and in good faith with the view to our best
interests and, in the case of criminal proceedings, the director had no reasonable cause to believe that his or her conduct was unlawful.
The decision of our board of directors as to whether the director acted honestly and in good faith with a view to our best interests
and as to whether the director had no reasonable cause to believe that his or her conduct was unlawful, is in the absence of fraud sufficient
for the purposes of indemnification, unless a question of law is involved. The termination of any proceedings by any judgment, order,
settlement, conviction or the entry of no plea does not, by itself, create a presumption that a director did not act honestly and in
good faith and with a view to our best interests or that the director had reasonable cause to believe that his or her conduct was unlawful.
If a director to be indemnified has been successful in defense of any proceedings referred to above, the director is entitled to be indemnified
against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by
the director or officer in connection with the proceedings.
We
may purchase and maintain insurance in relation to any of our directors or officers against any liability asserted against the directors
or officers and incurred by the directors or officers in that capacity, whether or not we have or would have had the power to indemnify
the directors or officers against the liability as provided in our memorandum and articles of association.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted for our directors or officers under the foregoing
provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable as a matter of United States law.
Our
Employees
As of December 31, 2020, we had approximately 14,057 full-time
employees and 7,185 workers who are not considered full-time employees under the PRC laws, including part-time employees, dispatched workers,
reemployed workers after retirement, and interns. Our senior management and many of our employees have had prior experience in the call
center industry.
We
devote significant resources to recruiting and training our call center associates. We target and select high-caliber employees through
a rigorous screening and testing process. After we hire an employee, we make significant investments in foundation training, client-specific
training and ongoing instruction and coaching. We emphasize small teams, which facilitates significant time for evaluation and coaching
of our customer service associates by our team leaders and quality personnel.
Our
culture is metric-driven and performance-based. We employ a scorecard system for substantially all of our employees that define specific
goals to provide clarity of purpose and to enable objective weekly, monthly and quarterly performance evaluations. We believe that this
system, which is linked with a compensation structure that is heavily weighted with performance-based incentives, helps our managers
identify and coach low performers, reward high performers and ultimately achieve high levels of quality for our clients.
Most
of our senior management and technical employees are well-educated Chinese professionals with substantial experience in call center management
and call center system integration and application software development. We believe that attracting and retaining highly experienced
call center associates and sales and marketing personnel is a key to our success. In addition, we believe that we maintain a good working
relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for
our operations. Our employees are not represented through any collective bargaining agreements or by labor unions.
Employment
Agreements
Under
Chinese laws, there are some situations where we can terminate employment agreements without paying economic compensation, such as the
employer maintains or raises the employment conditions but the employee refuses to accept the new employment agreement, when the employment
agreement is scheduled to expire, the employee is retired in accordance with laws or the employee is dead, declared dead or has disappeared.
For termination of employment in absence of legal cause we are obligated to pay the employee two-month’s salary for each year we
have employed the employee. We are, however, permitted to terminate an employee for cause without paying economic compensation, such
as when the employee has committed a crime, being proved unqualified for recruitment during the probation period, seriously violating
the rules and regulations of the employer, or the employee’s actions or inactions have resulted in a material adverse effect to
us.
Our
employment agreements with our executive officers generally provide for a term of three years, provided that either party may terminate
the agreement on 60 days notice and a salary to be paid monthly, subject to certain limitations. The agreements also provide that the
executive officers are to work an average of 40 hours per week and are entitled to all legal holidays as well as other paid leave
in accordance with Chinese laws and regulations and our internal work policies. Under such agreements, our executive officers may be
terminated for cause without further compensation. During the agreement and for three years afterward, our executive officers are required
to keep trade secrets confidential.
The
contracts that we have entered into with executive officers include the following:
Gary
Wang
We
entered into an employment agreement with Mr. Wang, providing for Mr. Wang to serve as the Company’s Chief Executive Officer.
Under the terms of Mr. Wang’s employment agreement, Mr. Wang is, among other matters, to take overall responsibility
for the operational management and financial management of the Company in compliance with all applicable laws and devote a minimum of
forty hours per week to our business and affairs and in return will be entitled to the following:
|
●
|
Annual compensation of RMB 2,160,000 (approximately
$332,000); and
|
|
●
|
Reimbursement
of reasonable expenses.
|
Mr.
Wang will be eligible to receive an annual bonus with a target payout up to 300% of his base salary, subject to achieving Company and
individual performance goals established by the Company’s Compensation Committee. Mr. Wang’s employment agreement expires
on December 31, 2022, but is renewable for an additional twenty-four months unless either party terminates it in writing at least sixty
days before the expiration of the term.
Additionally,
Mr. Wang’s employment agreement provides for confidentiality and nondisclosure provisions, whereby Mr. Wang is required to
keep trade secrets confidential during the course of his employment and for a period of thirty-six months following the termination of
his employment. His employment contract also contains a non-compete clause for a duration of twenty-four months following his employment.
David
Wang
We
entered into an employment agreement with Mr. Wang, providing for Mr. Wang to serve as our Chief Financial Officer. Under the terms
of Mr. Wang’s employment agreement, Mr. Wang is, among other matters, to oversee all financial and operational controls
and metrics within the organization in accordance with industry rules and devote a minimum of forty hours per week to our business and
affairs and in return will be entitled to the following:
|
●
|
Annual compensation
of RMB1,440,000 (approximately $222,000); and
|
|
●
|
Reimbursement
of reasonable expenses.
|
Mr.
Wang will be eligible to receive an annual bonus with a target payout up to 300% of his base salary, subject to achieving Company and
individual performance goals established by the Company’s Compensation Committee. Mr. Wang’s employment agreement expires
on December 31, 2022, but is renewable for an additional twenty-four months unless either party terminates it in writing at least sixty
days before the expiration of the term.
Additionally,
Mr. Wang’s employment agreement provides for confidentiality and nondisclosure provisions, whereby Mr. Wang is required to
keep trade secrets confidential during the course of his employment and for a period of thirty-six months following the termination of
his employment. His employment contract also contains a non-compete clause for a duration of twenty-four months following his employment.
Guoan
Xu
We
entered into an employment agreement with Mr. Xu, providing for Mr. Xu to serve as our Vice President. Under the terms of Mr. Xu’s
employment agreement, Mr. Xu is, among other matters, to take respective responsibility for the operation and management of us in
accordance with industry rules and devote a minimum of forty hours per week to our business and affairs and in return will be entitled
to the following:
|
●
|
Annual compensation
of RMB1,440,000 (approximately $222,000); and
|
|
●
|
Reimbursement
of reasonable expenses.
|
Mr.
Xu will be eligible to receive an annual bonus with a target payout up to 300% of his base salary, subject to achieving Company and individual
performance goals established by the Company’s Compensation Committee. Mr. Xu’s employment agreement expires on December
31, 2022, but is renewable for an additional twenty-four months unless either party terminates it in writing at least sixty days before
the expiration of the term.
Additionally,
Mr. Xu’s employment agreement provides for confidentiality and nondisclosure provisions, whereby Mr. Xu is required to keep
trade secrets confidential during the course of his employment and for a period of thirty-six months following the termination of his
employment. His employment contract also contains a non-compete clause for a duration of twenty-four months following his employment.
Qingbo
Zhao
We
entered into an employment agreement with Qingbo Zhao, providing for Mr. Zhao to serve as the Company’s Senior Vice President.
Under the terms of Mr. Zhao’s employment agreement, Mr. Zhao is, among other matters, to take respective responsibility
for the operation and management of the Company in accordance with the instruction of the Board and the authorization of the CEO, to
ensure the safety of operation, effective management and the preservation and appreciation of assets in compliance with all applicable
laws and devote a minimum of forty hours per week to the Company’s business and affairs and in return will be entitled to the following:
|
●
|
Annual compensation
of RMB1,440,000 (approximately $222,000); and
|
|
●
|
Reimbursement
of reasonable expenses.
|
Mr.
Zhao will be eligible to receive an annual bonus with a target payout up to 300% of his base salary, subject to achieving Company and
individual performance goals established by the Company’s Compensation Committee. Mr. Zhao’s employment agreement expires
on December 31, 2022, but is renewable for an additional twenty-four months unless either party terminates it in writing at least sixty
days before the expiration of the term.
Additionally,
Mr. Zhao’s employment agreement provides for confidentiality and nondisclosure provisions, whereby Mr. Zhao is required to
keep trade secrets confidential during the course of his employment and for a period of thirty-six months following the termination of
his employment. His employment contract also contains a non-compete clause for a duration of twenty-four months following his employment.
The
following tables set forth certain information with respect to the beneficial ownership of our common shares as of May 14, 2021, for:
|
●
|
each
of our directors and named executive officers; and
|
|
●
|
all
of our directors and executive officers as a group.
|
We
have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe,
based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power
or the power to receive the economic benefit with respect to all common shares that they beneficially own, subject to applicable community
property laws.
Applicable percentage ownership is based on 18,329,600 common shares
outstanding at May 14, 2021. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o China Customer
Relations Centers, Inc., 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province,
People’s Republic of China 271000.
|
|
Beneficial Ownership
(1)
|
|
Name of
Beneficial Owner
|
|
Common Shares
|
|
|
Percentage
|
|
Gary Wang (2)
(4)
|
|
|
3,958,763
|
|
|
|
21.6
|
%
|
David Wang (3) (4)
|
|
|
1,069,936
|
|
|
|
5.8
|
%
|
Guoan Xu (4)
(5)
|
|
|
122,400
|
|
|
|
*
|
|
Qingbo Zhao
|
|
|
|
|
|
|
|
|
Weixin Wang (4)
|
|
|
0
|
|
|
|
0
|
|
Jie Xu (4)
|
|
|
0
|
|
|
|
0
|
|
Tianjun Zhang (4)
|
|
|
0
|
|
|
|
0
|
|
Owens Meng (4)
|
|
|
0
|
|
|
|
0
|
|
All directors and executive
officers as a group
|
|
|
5,151,099
|
|
|
|
28.1
|
%
|
*
|
Less
than 1%.
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the common
shares or the power to receive the economic benefit of the common shares.
|
(2)
|
Chairman
and Chief Executive Officer
|
(3)
|
Chief
Financial Officer
|
(4)
|
Director
|
(5)
|
Senior Vice President
|
(6)
|
Senior Vice President
|
2018 Share
Incentive Plan
On
August 11, 2018, the Company’s shareholders approved the 2018 Share Incentive Plan (the “2018 Incentive Plan”). The
2018 Incentive Plan allows for issuance of up to 2,000,000 shares of the Company’s Common Shares to employees, non-employee directors,
officers and consultants for services rendered to the Company.
As of the current
date, there are 2,000,000 shares available for issuance under the 2018 Incentive Plan.
Item
7. Major Shareholders and Related Party Transactions
The
following tables set forth certain information with respect to the beneficial ownership of our common shares as of May 14, 2021, for:
|
●
|
each
shareholder known by us to be the beneficial owner of more than 5% of our outstanding common shares.
|
We
have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe,
based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power
or the power to receive the economic benefit with respect to all common shares that they beneficially own, subject to applicable community
property laws.
Applicable
percentage ownership is based on 18,329,600 common shares outstanding at May 14, 2021. Unless otherwise indicated, the address of
each beneficial owner listed in the table below is c/o China Customer Relations Centers, Inc., 1366 Zhongtianmen Dajie, Xinghuo
Science and Technology Park, High-tech Zone, Taian City, Shandong Province, People’s Republic of China 271000.
|
|
Beneficial Ownership
(1)
|
|
Name of
Beneficial Owner
|
|
Common Shares
|
|
|
Percentage
|
|
Qingmao
Zhang
|
|
|
1,174,000
|
|
|
|
6.4
|
%
|
5%
or greater beneficial owners as a group
|
|
|
1,174,000
|
|
|
|
6.4
|
%
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the common
shares or the power to receive the economic benefit of the common shares.
|
|
B.
|
Related
Party Transactions.
|
The related parties had transactions for the years ended December 31,
2020, 2019 and 2018 consist of the following:
Name of Related Party
|
|
Nature of Relationship
|
Beijing Taiying Anrui Holding Co., Ltd. (“Beijing Taiying”)
|
|
Sole Shareholder
|
|
|
|
Guangxi Shenggu Human Resource Management Co., Ltd. (“GSHR”)
|
|
Controlled by Gary Wang
|
|
|
|
Beijing Jiate Information Technology Co., Ltd. (“Jiate”)
|
|
Noncontrolling shareholder
of HTCC prior to November 8, 2020
|
|
|
|
Jiangsu Sound Valley Human Resource Management Co., Ltd. (“JSVH”)
|
|
Controlled by Gary Wang
|
|
|
|
Beijing Shenggu Education Investment Co., Ltd. (“BSEI”)
|
|
Controlled by Gary Wang
|
|
|
|
Shenzhen Shenggu Human Resources Management Co., Ltd. (“SSHR”)
|
|
Controlled by Gary Wang
|
|
|
|
Tai’an Taiying Wealth and Equity Investment and Management Co., Ltd. (“TWIC”)
|
|
David Wang being the legal person of TWIC
|
Significant balances and transactions with related parties are as follows:
|
|
December 31,
|
|
|
|
Name of Related Party
|
|
2020
|
|
|
2019
|
|
|
Nature of Transaction Associated with the Balance
|
PREPAYMENTS - RELATED PARTIES
|
|
|
|
|
|
|
|
|
|
|
Beijing Taiying
|
|
$
|
81,192
|
|
|
$
|
90,429
|
|
|
Prepayment for services
|
SSHR
|
|
|
277,950
|
|
|
|
-
|
|
|
Prepayment for services
|
Prepayments - related parties, total
|
|
$
|
359,142
|
|
|
$
|
90,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DUE FROM RELATED PARTIES, CURRENT
|
|
|
|
|
|
|
|
|
|
|
JSVH
|
|
$
|
240,286
|
|
|
$
|
-
|
|
|
A loan bearing annual interest of 4.35%. Loan matures on December 14, 2021.
|
Beijing Taiying
|
|
|
229,790
|
|
|
|
-
|
|
|
Interest-free loan payable on demand
|
Due from related parties, current, total
|
|
$
|
470,076
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DUE FROM RELATED PARTY, NON-CURRENT
|
|
|
|
|
|
|
|
|
|
|
JSVH
|
|
$
|
-
|
|
|
$
|
215,307
|
|
|
A loan bearing annual interest rate of 4.35%
|
Due from related party, non-current, total
|
|
$
|
-
|
|
|
$
|
215,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS PAYABLE - RELATED PARTIES
|
|
|
|
|
|
|
|
|
|
|
JSVH
|
|
$
|
18,775
|
|
|
$
|
60,664
|
|
|
Outstanding unpaid human resource service fee
|
SSHR
|
|
|
242,015
|
|
|
|
88,994
|
|
|
Outstanding unpaid human resource service fee
|
Accounts payable - related parties, total
|
|
$
|
260,790
|
|
|
$
|
149,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY INVESTMENT
|
|
|
|
|
|
|
|
|
|
|
TWIC
|
|
$
|
1,532
|
|
|
$
|
1,435
|
|
|
Equity investment (See Note 4)
|
Equity investment, total
|
|
$
|
1,532
|
|
|
$
|
1,435
|
|
|
|
Related party lease
BSEI leased certain office space at Zaozhuang Software and Service
Industrial Park with a total area of 18,000 square meters, of which 6,500 square meters were subleased to ZSEC at a price of RMB0.5 per
square meter per day, from July 1, 2018 to January 1, 2021 and the Company anticipates to renew the lease for another year. Lease expense
incurred associated with the BSEI lease for the years ended December 31, 2020, 2019 and 2018 was approximately $170,000, $164,000 and
$88,000, respectively. The Company does not have any outstanding balance owed to BSEI as of December 31, 2020 and 2019.
Related party advances
For the year ended December 31, 2020, the Company made RMB2 million
(approximately $294,000) loan to Beijing Taiying. The loan is interest-free and due on demand. During the year ended December 31, 2020,
Beijing Taiying repaid RMB500,000 (approximately $77,000) to the Company, with the remainder paid in full in January 2021.
For the year ended December 31, 2020, the Company made RMB617,400 (approximately
$89,000) loan to SSHR. The loan is interest-free and due on demand. During the year ended December 31, 2020, SSHR repaid the loan in full.
|
C.
|
Interests
of experts and counsel.
|
Not
applicable for annual reports on Form 20-F.
Item
8. Financial Information
|
A.
|
Consolidated
Statements and Other Financial Information.
|
See
information provided in response to Item 18 below.
Legal
and Administrative Proceedings
We are currently not a party to any material legal or administrative
proceedings and are not aware of any pending or threatened material legal or administrative proceedings against us. We may from time to
time become a party to various legal or administrative proceedings arising in the ordinary course of our business or in unique situations
such as our going-private transaction.
Dividend
Policy
The
holders of shares of our common shares are entitled to dividends out of funds legally available when and as declared by our board of
directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future.
Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the
receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In addition, the Operating Companies
may, from time to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive
covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory
restrictions. In the event of our liquidation, dissolution or winding up, holders of our common shares are entitled to receive, ratably,
the net assets available to shareholders after payment of all creditors.
We
have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
Item
9. The Offer and Listing
|
A.
|
Offer
and listing details.
|
Our
common shares have been listed on the NASDAQ Capital Market since December 21, 2015 under the symbol “CCRC.”
Not
applicable for annual reports on Form 20-F.
Our
common shares have been listed on the NASDAQ Capital Market since December 21, 2015 under the symbol “CCRC.”
Not
applicable for annual reports on Form 20-F.
Not
applicable for annual reports on Form 20-F.
Not
applicable for annual reports on Form 20-F.
Item
10. Additional Information
Not
applicable for annual reports on Form 20-F.
|
B.
|
Memorandum
and Articles of Association.
|
We
incorporate by reference the description of our Memorandum and Articles of Association, as currently in effect in the British Virgin
Islands, set forth in our registration statement on Form F-1, declared effective on December 9, 2015 (File No. 333-199306).
Other
than described elsewhere in this annual report, we did not have any other material contracts.
Foreign
Currency Exchange
The
principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended
on August 5, 2008, the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996) and the Interim Measures
on Administration on Foreign Debts (2003). Under these regulations, Renminbi are freely convertible for current account items, including
the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account
items, such as direct investment, loans, repatriation of investment and investment in securities outside China, unless the prior approval
of competent authorities (if required) and registration with SAFE or its local counterparts are obtained. In addition, any loans to an
operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective
approved total investment amount and its respective approved registered capital amount. Furthermore, any foreign loan must be registered
with SAFE or its local counterparts for the loan to be effective. Any increase in the amount of the total investment and registered capital
must be approved by the PRC Ministry of Commerce or authorized provincial or same level government. We may not be able to obtain these
government approvals or registrations on a timely basis, if at all, which could result in a delay in the process of making these loans.
The
dividends paid by the subsidiary to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration
Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign
exchange, subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange
transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other
relevant PRC governmental authorities.
Circular
37
On
July 4, 2014, SAFE issued Circular 37, which became effective as of July 4, 2014. According to Circular 37, PRC residents shall
apply to SAFE and its branches for going through the procedures for foreign exchange registration of overseas investments before contributing
the domestic or offshore assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such PRC
resident is also required if the registered overseas SPV’s basic information such as domestic individual resident shareholder,
name, operating period, or major events such as domestic individual resident capital increase, capital reduction, share transfer or exchange,
merger or division has changed. Although the change of overseas funds raised by overseas SPV, overseas investment exercised by overseas
SPV and non-cross-border capital flow are not included in Circular 37, we may be required to make foreign exchange registration if required
by SAFE and its branches.
Moreover,
Circular 37 applies retroactively. As a result, PRC residents who have contributed domestic assets or interests to a SPV, but failed
to complete foreign exchange registration of overseas investments as required prior to implementation of Circular 37, are required to
send a letter to SAFE and its branches for explanation. Under the relevant rules, failure to comply with the registration procedures
set forth in Circular 37 may result in receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000
for an organization or up to RMB 50,000 for an individual. In the event of failing to register, if capital outflow occurred, a fine up
to 30% of the illegal amount may be assessed.
PRC
residents who control our company are required to register with SAFE in connection with their investments in us. If we use our equity
interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be
subject to the registration procedures described in Circular 37.
Circular
19 & Circular 16. On March 30, 2015, SAFE issued the Circular Concerning the Reform of the Administration of the Settlement
of Foreign Currency Capital of Foreign-Invested Enterprises, or Circular 19, which became effective on June 1, 2015. Circular 19 regulates
the conversion of foreign currency capital funds into RMB by a foreign-invested enterprise, and limits how the converted RMB may be used.
Furthermore,
SAFE promulgated a circular on June 9, 2016, Circular on Reforming and Regulating Policies on the Administration over Foreign Exchange
Settlement under Capital Accounts, or Circular 16, which further revises several clauses in Circular 19. Both Circular 19 and Circular
16 regulate that foreign exchange incomes of a domestic enterprise under their capital account shall not be used in the ways stated below:
|
●
|
For expenditures that are forbidden
by relevant laws and regulations, or for purposes which are not included in the business scope approved by relevant government authority;
|
|
●
|
For direct or indirect securities investments within
China, or for any other kinds of investments except banks’ principal-guaranteed wealth-management products, unless otherwise
prescribed by other laws and regulations;
|
|
●
|
For issuing RMB entrusted loans directly or indirectly
(except those included in the business scope), or for repaying inter-enterprise loans (including advances by the third party), or
for repaying bank loans which has been on-lent to third parties;
|
|
●
|
For issuing RMB loans to non-affiliated enterprises,
unless expressly permitted in the business scope;
|
|
●
|
For purchasing or constructing real estate which is
not for personal use, in addition to those real estate enterprises.
|
In
addition, SAFE supervises the flow and use of those RMB capital converted from foreign currency capital funds of a foreign-invested company
by further focusing on ex post facto supervisions and violations, and the use the net proceeds from our initial public to invest in or
acquire any other Chinese companies in China is subject to the provisions under both Circular 19 and Circular 16.
Regulations
on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Subsidiaries
An
offshore company may invest equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment.
Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China,
which include the Company Law of the PRC and the Foreign Investment Law of the PRC, both as amended from time to time, and the Implementing
Rules of the Foreign Investment Law of the PRC; the Administrative Provisions on Foreign Exchange in Domestic Direct Investment by Foreign
Investors; and the Notice of the State Administration on Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration
Policies for Direct Investment.
Under
the aforesaid laws and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval
by the original approval authority of its establishment. In addition, the increase of registered capital and total investment amount
shall be registered with Ministry of Commerce (or authorized provincial or same level government), SAIC and SAFE.
Shareholder
loans made by offshore parent holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purpose,
which is subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim
Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation
rules, and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange.
Under
these regulations, the shareholder loans made by offshore parent holding companies to their PRC subsidiaries shall be registered with
SAFE. Furthermore, the total amount of foreign debts that can be borrowed by such PRC subsidiaries, including any shareholder loans,
shall not exceed the difference between the total investment amount and the registered capital amount of the PRC subsidiaries, both of
which are subject to the governmental approval.
PRC Foreign
Investment Law
On
March 15, 2019, the National People’s Congress of the PRC adopted the FIL, which became effective on January 1, 2020. The FIL sets
forth the principal basic legal framework of foreign investment in the PRC, and since its effectiveness, replaces the trio of laws regulating
foreign investment in the PRC, namely, the Wholly Foreign-Invested Enterprises Law, the Law on Sino-Foreign Equity Joint Ventures, and
the Law on Sino-Foreign Contractual Joint Ventures, together with their implementation rules and ancillary regulations. Pursuant to the
FIL, foreign-invested enterprises established after the effective date of the FIL shall comply with, as the case may be, the Company
Law or the Partnership Enterprise Law of the PRC in terms of its organization form, corporate structure and bylaws. For FIEs established
prior to the effective date of the FIL, they have a five-year transition period, during which the FIEs, such as our WFOE, may maintain
its current organization form, corporate structure and bylaws.
Regulation
of Dividend Distribution
The
principal regulations governing the distribution of dividends by foreign holding companies are the Company Law of the PRC, as amended. Under
the Company Law of the PRC, a PRC company, including PRC domestic companies and foreign-owned PRC enterprises, may pay dividends only
out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is required
to allocate at least 10% of its respective retained profits each year, if any, to fund certain reserve funds unless these reserves have
reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends, and a PRC company is
not permitted to distribute any profits until losses from prior fiscal years have been offset.
The
following sets forth the material British Virgin Islands, Chinese and U.S. federal income tax matters related to an investment in our
common shares. It is directed to U.S. Holders (as defined below) of our common shares and is based on laws and relevant interpretations
thereof in effect as of the date of this annual report, all of which are subject to change. This description does not deal with all possible
tax consequences relating to an investment in our common shares, such as the tax consequences under state, local and other tax laws.
The
following brief description applies only to U.S. Holders (defined below) that hold common shares as capital assets and that have the
U.S. dollar as their functional currency. This brief description is based on the tax laws of the United States in effect as of the date
of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as
well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject
to change, which change could apply retroactively and could affect the tax consequences described below.
The
brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial
owner of shares 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.
|
WE
URGE POTENTIAL PURCHASERS OF OUR SHARES TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX
CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR SHARES.
PRC
Enterprise Income Tax
According
to the Enterprise Income Tax Law of PRC (the “EIT Law”), which was promulgated on March 16, 2007 and became effective
on January 1, 2008 and last amended on February 24, 2017, the income tax for both domestic and foreign-invested enterprises
is at a uniform rate of 25%, unless they qualify for certain exceptions. The Regulation on the Implementation of Enterprise Income Tax
Law of the PRC (the “EIT Rules”) was promulgated on December 6, 2007 and became effective on January 1, 2008.
On
April 14, 2008, the Chinese Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation enacted
the Administrative Measures for Certifying High and New Technology Enterprises, which retroactively became effective on January 1,
2008 and amended on January 1, 2016. Under the EIT Law, certain qualified high-tech companies may benefit from a preferential tax
rate of 15% if they own their core intellectual properties and are classified into certain industries strongly supported by the Chinese
government and set forth by certain departments of the Chinese State Council. Taiying was granted the high and new technology enterprise
(“HNTE”) qualification valid for three years starting from June 12, 2009, which was subsequently renewed, and is currently
valid through November 29, 2021. Further, the following subsidiaries were granted the HNTE qualifications and entitled to a preferential
EIT rate of 15% valid for three years: JTTC from December 7, 2017, SCBI from December 15, 2016 and renewed for another three year in
2019, JTIS from November 30, 2016 and renewed for another three year on November 7, 2019, JXTT from November 15, 2016 and renewed for
another three year on September 16, 2019, ZSEC from August 16, 2018, and ATIT starting from November 20, 2019. There can be no assurance,
however, that Taiying and its subsidiaries will continue to meet the qualifications for such a reduced tax rate. In addition, there can
be no guaranty that relevant governmental authorities will not revoke Taiying’s “high and new technology enterprise”
status in the future.
On
April 6, 2012, State Administration of Taxation circulated the Announcement on Enterprise Income Tax Regarding Further Implementing the
Western China Development Strategy, effective retroactively on January 1, 2011. Pursuant to the Announcement, an enterprise with over
70% of its annual revenues generated from businesses listed in the Catalogue of Industries Encouraged to Develop in the Western Region
will be granted a preferential tax rate of 15%. Central BPO, XTTC, GTTC, and STTC have been granted a preferential EIT rate of 15% valid
through 2020, for their BPO businesses conducted in the western regions of China. There can be no assurance, however, that Central BPO,
XTTC, GTTC and STTC will continue to meet the qualifications for such a reduced tax rate.
Uncertainties
exist with respect to how the EIT Law applies to the tax residence status of CCRC and our offshore subsidiaries. Under the EIT Law, an
enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise”,
which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation
rules of the EIT Law define “de facto management body” as a managing body that exercises substantive and overall management
and control over the production and business, personnel, accounting books and assets of an enterprise, the only official guidance for
this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, at April 22, 2009 which
provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise”
with its “de facto management bodies” located within China if the following criteria are satisfied:
|
●
|
the
place where the senior management and core management departments that are in charge of its daily operations perform their duties
is mainly located in the PRC;
|
|
●
|
its
financial and human resources decisions are made by or are subject to approval by persons or bodies in the PRC;
|
|
●
|
its
major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or
kept in the PRC; and
|
|
●
|
more
than half of the enterprise’s directors or senior management with voting rights frequently reside in the PRC.
|
Further,
the SAT issued a bulletin on August 3, 2011 to provide more guidance on the implementation of Circular 82, or Bulletin 45. Bulletin 45
clarifies certain matters relating to resident status determination, post-determination administration and competent tax authorities.
The SAT then issued a bulletin on January 29, 2014, which further provides that, among other things, an entity that is classified as
a “resident enterprise” in accordance with Circular 82 shall file the application for classifying its status of residential
enterprise with the local tax authorities where its main domestic investors are registered. Form the year in which the entity is determined
to be a “resident enterprise,” any dividend, profit and other equity investment gain shall be taxed in accordance with the
enterprise income tax law and its implementing rules. A resident enterprise would have to pay a withholding tax at a rate of 10% when
paying dividends to its non-PRC shareholders.
We
do not believe that we meet the conditions outlined in the preceding paragraph since CCRC does not have a PRC enterprise or enterprise
group as our primary controlling shareholder. In addition, we are not aware of any offshore holding companies with a corporate structure
similar to the Company that has been deemed a PRC “resident enterprise” by the PRC tax authorities.
If
we are deemed a PRC resident enterprise, we may be subject to the EIT at the rate of 25% on our global income, except that the dividends
we receive from our PRC subsidiaries may be exempt from the EIT to the extent such dividends are deemed dividends among qualified resident
enterprises. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiaries, a 25% EIT on
our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.
PRC Value-Added
Tax (“VAT”)
On
March 23, 2016, the Ministry of Finance and SAT issued the Circular on Comprehensively Promoting the Pilot Program of the Collection
of Value-added Tax in Lieu of Business Tax. Effective from May 1, 2016, most of our PRC subsidiaries’ business will be subject
to value-added tax, or VAT, at a rate of 6% and they would be permitted to offset input VAT by providing valid VAT invoices received
from vendors against their VAT liability.
The VAT in China has gradually decreased. In
2017, the VAT rates generally applicable were 17%, 11%, 6% and 0%, and the VAT rate applicable to the small-scale taxpayers was 3%
and 6% to value-added telecommunications services. According to a Notice issued by the Ministry of Finance of China and the State
Administration of Taxation of China on April 4, 2018 and came into effect on May 1, 2018, the rate for taxable sale and import of
goods have been lowered from 17% and 11% to 16% and 10%, respectively. The VAT rates were further decreased in 2019. Pursuant to the
Circular Regarding the Relevant Policies of Deepening Value-added Tax Reform jointly issued by the Ministry of Finance, SAT, and the
General Administration of Customs on March 20, 2019, and effective on April 1, 2019, starting June 1, 2019, the previous VAT rates
of 16% and 10% were adjusted to 13% and 9%.
British
Virgin Islands Taxation
Under
the BVI Act as currently in effect, a holder of common shares who is not a resident of the British Virgin Islands is exempt from British
Virgin Islands income tax on dividends paid with respect to the common shares and all holders of common shares are not liable to the
British Virgin Islands for income tax on gains realized during that year on sale or disposal of such shares. The British Virgin Islands
does not impose a withholding tax on dividends paid by a company incorporated or re-registered under the BVI Act.
There
are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on companies incorporated or re-registered under
the BVI Act. In addition, shares of companies incorporated or re-registered under the BVI Act are not subject to transfer taxes, stamp
duties or similar charges.
There
is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands or between China and
the British Virgin Islands.
United
States Federal Income Taxation
The
following does not address the tax consequences to any particular investor or to persons in special tax situations such as:
|
●
|
a
dealer in securities or currencies;
|
|
●
|
a
person whose “functional currency” is not the United States dollar;
|
|
●
|
financial
institutions;
|
|
●
|
regulated
investment companies;
|
|
●
|
real
estate investment trusts;
|
|
●
|
traders
that elect to mark-to-market;
|
|
●
|
persons
liable for alternative minimum tax;
|
|
●
|
persons
holding our common shares as part of a straddle, hedging, conversion or integrated transaction;
|
|
●
|
persons
that actually or constructively own 10% or more of our voting shares;
|
|
●
|
persons
who acquired our common shares pursuant to the exercise of any employee share option or otherwise as consideration; or
|
|
●
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persons
holding our common shares through partnerships or other pass-through entities.
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Prospective
purchasers are urged to consult their tax advisors about the application of the U.S. Federal tax rules to their particular circumstances
as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our common shares.
Taxation
of Dividends and Other Distributions on our Common Shares
Subject
to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to
the common shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend
income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings
and profits (as determined under U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction
allowed to corporations in respect of dividends received from other U.S. corporations.
With
respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable
to qualified dividend income, provided that (1) the common shares are readily tradable on an established securities market
in the United States, or in the event we are deemed to be a PRC “resident enterprise” under the PRC tax law, we are eligible
for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program,
(2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid
or the preceding taxable year, and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority,
common shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United
States if they are listed on the NASDAQ Capital Market. You are urged to consult your tax advisors regarding the availability of the
lower rate for dividends paid with respect to our common shares, including the effects of any change in law after the date of this annual
report.
Dividends
will 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 will
be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable
to 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 common shares will constitute “passive category income”
but could, in the case of certain U.S. Holders, constitute “general category income.”
To
the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal
income tax principles), it will be treated first as a tax-free return of your tax basis in your common shares, and to the extent the
amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings
and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a
dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described
above.
Taxation
of Dispositions of Common Shares
Subject
to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other
taxable 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 common shares. The gain or loss will generally be capital gain or loss. Capital gains are generally subject
to United States federal income tax at the same rate as ordinary income, except that non-corporate U.S. Holders who have held common
shares for more than one year may be eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation
purposes.
Passive
Foreign Investment Company
Based
on our current operations and the composition of our income and assets, we are not a passive foreign investment company, or PFIC, for
U.S. federal income tax purposes for our current taxable year ending December 31, 2016. Our actual PFIC status for the current taxable
years ending December 31, 2017 will not be determinable until after the close of such taxable years and, accordingly, there is no
guarantee that we will not be a PFIC for the current taxable year. PFIC status is a factual determination for each taxable year which
cannot be made until the close of the taxable year. A non-U.S. corporation is considered a PFIC for any taxable year if either:
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at
least 75% of its gross income is passive income; or
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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”).
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We
will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation
in which we own, directly or indirectly, at least 25% (by value) of the stock.
We
must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, because
the value of our assets for purposes of the asset test will generally be determined based on the market price of our common shares,
our PFIC status will depend in large part on the market price of our common shares. Accordingly, fluctuations in the market price of
the common shares may cause us to become a PFIC. In addition, the application of the PFIC rules 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 raised in our initial
public offering. If we are a PFIC for any year during which you hold common shares, we will continue to be treated as a PFIC for all
succeeding years during which you hold common shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of
the PFIC regime by making a “deemed sale” election with respect to the common shares.
If
we are a PFIC for any taxable year during which you hold common shares, you will be subject to special tax rules with respect to any
“excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of
the common shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable
year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years
or your holding period for the common shares will be treated as an excess distribution. Under these special tax rules:
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the
excess distribution or gain will be allocated ratably over your holding period for the common shares;
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the
amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will
be treated as ordinary income, and
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the
amount allocated to each other year 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.
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The
tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by
any net operating losses for such years, and gains (but not losses) realized on the sale or other disposition of the common shares cannot
be treated as capital, even if you hold the common shares as capital assets.
A
U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect
out of the tax treatment discussed above. If you make a mark-to-market election for the common shares, you will include in ordinary income
each year an amount equal to the excess, if any, of the fair market value of the common shares as of the close of your taxable year over
your adjusted tax basis in such common shares. You are allowed a deduction for the excess, if any, of the adjusted tax basis of the common
shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any
net mark-to-market gains on the common shares included in your income for prior taxable years. Amounts included in your income under
a mark-to-market election, as well as gain on the actual sale or other disposition of the common shares, are treated as ordinary income.
Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the common shares, as well as to any loss
realized on the actual sale or disposition of the common shares, to the extent that the amount of such loss does not exceed the net mark-to-market
gains previously included for such common shares. Your tax basis in the common shares will be adjusted to reflect any such income or
loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs
would apply to distributions 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 Common Shares” generally would not apply.
The
mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis
quantities 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 common shares are regularly traded
on the NASDAQ Capital Market and if you are a holder of common shares, the mark-to-market election would be available to you were we
to 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 of
the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally
include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the
taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information
regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide
the information that would enable you to make a qualified electing fund election. If you hold common shares in any year in which we are
a PFIC, you will generally be required to file U.S. Internal Revenue Service Form 8621 to report your ownership of our common shares
as well as distributions received on the common shares, any gain realized on the disposition of the common shares, any PFIC elections
you would like to make in regard to the common shares, and any information required to be reported pursuant to such an election.
You
are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our common shares and the elections
discussed above.
Information
Reporting and Backup Withholding
Dividend
payments with respect to our common shares and proceeds from the sale, exchange or redemption of our common shares may be subject to
information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 28%. Backup withholding
will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification
on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish
their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult
their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup
withholding 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 refund
with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders.
Under
the Hiring Incentives to Restore Employment Act of 2010, certain United States Holders are required to report information relating to
common shares, subject to certain exceptions (including an exception for 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 for
each year in which they hold shares. U.S. Holders are urged to consult their own tax advisors regarding the application of the U.S. information
reporting and backup withholding rules.
A
Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of
its foreign status to the payor, under penalties of perjury, on the applicable IRS Form W-8BEN.
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F.
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Dividends
and Paying Agents.
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Not
applicable for annual reports on Form 20-F.
Not
applicable for annual reports on Form 20-F.
We
are subject to the information requirements of the Exchange Act. In accordance with these requirements, the company files reports and
other information with the SEC. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a web site at http://www.sec.gov that contains reports and other information regarding registrants
that file electronically with the SEC. In accordance with NASDAQ Stock Market Rule 5250(d), we will post this annual report on Form 20-F
on our website at www.ccrc.com. In addition, we will provide hard copies of our annual report free of charge to shareholders upon request.
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I.
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Subsidiary
Information.
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Not
Applicable.
Item
11. Quantitative and Qualitative Disclosures About Market Risk
Interest
Rate Risk
Our main interest rate exposure relates to bank
borrowings. We manage our interest rate exposure with a focus on reducing our overall cost of debt and exposure to changes in interest
rates. In 2020, we had $2.43 million in weighted average outstanding bank loans, with weighted average effective interest rate of 4.60%.
In the year 2019, we had $1.13 million in weighted average outstanding bank loans, with a weighted average effective interest rate of
4.80%.
As of December 31, 2020, if interest rates increased/decreased
by 1%, with all other variables having remained constant, and assuming the amount of bank borrowings outstanding at the end of the year
was outstanding for the entire year, profit attributable to equity owners of our company would have been RMB100,000 ($15,000) lower/higher,
respectively, mainly as a result of higher/lower interest income from our cash and cash equivalents and loan receivables.
As
of December 31, 2019, if interest rates increased/decreased by 1%, with all other variables having remained constant, and assuming the
amount of bank borrowings outstanding at the end of the year was outstanding for the entire year, profit attributable to equity owners
of our company would have been RMB2,323,288 ($333,500) lower/higher, respectively, mainly as a result of higher/lower interest income
from our cash and cash equivalents and loan receivables.
Foreign
Exchange Risk
Our
functional currency is the RMB, and our financial statements are presented in U.S. dollar. The RMB appreciated against the U.S. dollar
by 6.50% in 2020 and depreciated against the U.S. dollar by 4.42% in 2019. The change in the value of RMB relative to the U.S. dollar
may affect our financial results reported in the U.S. dollar terms without giving effect to any underlying change in our business or
results of operation.
Currently,
our assets, liabilities, revenues and costs are denominated in RMB and in U.S. dollars. Our exposure to foreign exchange risk will primarily
relate to those financial assets denominated in U.S. dollars. Any significant revaluation of RMB against U.S. dollar may materially affect
our earnings and financial position, and the value of, and any dividends payable on, our common shares in U.S. dollars in the future.
Commodity
Risk
We
are not exposed to commodity price risk.
Item
12. Description of Securities Other Than Equity Securities
With
the exception if Items 12.D.3 and 12.D.4, this Item 12 is not applicable for annual reports on Form 20-F. As to Items 12.D.3 and 12.D.4,
this Item 12 is not applicable, as the company does not have any American Depository Shares.
The accompanying consolidated financial statements are presented in
United States dollar (“$”), which is the reporting currency of the Company. The functional currency of China Customer Relations
Centers, Inc. and CBPO is United States dollar. The functional currency of the Company’s subsidiary and VIEs located in the PRC
is Renminbi (“RMB”). For the subsidiaries whose functional currencies are RMB, results of operations and cash flows are translated
at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period,
and equity is translated at historical exchange rates. The resulting translation adjustments are included in determining other comprehensive
income. Transaction gains and losses are reflected in the consolidated statements of income and comprehensive income. For the years ended
December 31, 2020, 2019 and 2018, the Company had gain (loss) of ($309,372), $77,348, and $231,928, respectively, resulting from foreign
currency transactions, which was included in other income (expense) in the consolidated statements of income and comprehensive income.
In 2016, the FASB issued ASU No. 2016-13, “Financial Instruments
- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which amends
previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected
losses rather than incurred losses. The Company adopted this ASC Topic 326 and its amendments on January 1, 2020 using a modified retrospective
approach. The adoption did not have a material impact on the Company’s consolidated financial statements.
As of January 1, 2020, the Company’s accounts receivable and
other current assets, are within the scope of ASC Topic 326. The Company has identified the relevant risk characteristics of its customers
and the related receivables and other current assets which include type of the services the Company provides, nature of the customers
or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool,
the Company considers the historical credit loss experience, current economic conditions, supportable forecasts of future economic conditions,
and any recoveries in assessing the lifetime expected credit losses. Other key factors that influence the expected credit loss analysis
include customer demographics, payment terms offered in the normal course of business to customers, and industry-specific factors that
could impact the Company’s receivables. Additionally, external data and macroeconomic factors are also considered.
For certain of the Company’s financial instruments, including
cash and cash equivalents, accounts receivable, net, prepayments, income taxes recoverable, other current assets, accounts payable, accrued
liabilities and other payables, deferred revenue, wages payable, income taxes payable, current portion of operating lease liabilities,
and short term loans, the carrying amounts approximate their fair values due to the short maturities.
Upon adoption of ASU No. 2016-02 and other related ASUs (collectively,
“ASC Topic 842”) on January 1, 2019, the Company determines if an arrangement is a lease at inception. Operating leases are
included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and operating lease liabilities, non-current
in the Company’s consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the
lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease
ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. When
determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise
that option, if any. As the Company’s leases do not provide an implicit rate, the Company used an incremental borrowing rate based
on the information available at commencement date in determining the present value of lease payments.
For leases with a term of 12 months or less, the Company makes an accounting
policy election by class of underlying asset not to recognize lease assets and lease liabilities. The Company recognizes lease expenses
for such leases on a straight-line basis over the lease term.
In January 2020, the FASB issued ASU 2020-01, “Investments—Equity
securities (Topic 321), Investments—Equity method and joint ventures (Topic 323), and Derivatives and hedging (Topic 815)—Clarifying
the interactions between Topic 321, Topic 323, and Topic 815”, which clarify the interaction of the accounting for equity securities
under Topic 321 and investments under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and
purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require
it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance
with Topic 321 immediately before applying or upon discontinuing the equity method. This standard is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020 for public companies. Early adoption is permitted. The Company is
currently in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements
Jiate held 49% of the equity interest in HTCC effective January 31,
2017 pursuant to an investment agreement entered into in July 2016 between HTCC, its parent company Taiying and Jiate, pursuant to which
Taiying and Jiate agreed to fund a total of RMB 5.1 million and RMB 4.9 million registered capital, respectively, of HTCC subsequently.
Profits of HTCC will be allocated to Taiying and Jiate based on the determined 51% and 49% equity interest.
On October 15, 2020, May 6, 2019, and April 10, 2018, HTCC declared
a dividend of RMB 3.5 million (approximately $519,000), RMB 3 million (approximately $460,000) and RMB 5 million (approximately $766,000)
to Taiying and Jiate, respectively. The dividend was allocated based on the equity interest percentage as of the date of declaration.
As a result, Jiate was entitled to $254,262, $213,722 and $355,232 of total dividend distributed during the years ended December 31, 2020,
2019 and 2018, respectively.
Subsequent to the declaration of the 2020 dividend, Jiate announced
an increase in the registered capital of HTCC by RMB 2.45 million (approximately $363,000) by attributing all of the dividend declared
by HTCC yet to be received in the amount of RMB 1.72 million (approximately $254,000) to HTCC, and made an additional cash investment
of RMB 0.73 million (approximately $109,000). As a result, the total amount of registered capital funded by Jiate to HTCC reached RMB
4.9 million.
On January 15, 2020, the Company and Ling Ban Online entered into
a loan agreement, where the Company agreed to lend approximately $435,000 to Ling Ban Online. The loan matures on June 15, 2020, bears
an interest of 6.5% per annum, and is guaranteed by the CEO of Ling Ban and Ling Ban Online and pledged by a portion of Ling Ban Online’s
equity interest, worth approximately $1.29 million on the date of the agreement. Ling Ban Online repaid this loan in full amount with
accrued interests in July 2020.
For the years ended December 31, 2020, 2019 and 2018, the Company acquired
property and equipment on credit in the amount of $7,200, $24,512 and $88,112.
On March 19, 2020, the Company borrowed a one-year loan of RMB 25
million (approximately $3,623,000) from BOC, which had an effective annual interest rate of 4.57%. The Company repaid RMB 15 million (approximately
$2,123,000) on June 11, 2020 and the remaining RMB 10 million (approximately $1,539,000) on March 8, 2021.
On July 2, 2019, the Company obtained a LOC from CMB (the “2019
LOC”), pursuant to which the Company is able to obtain revolving loans and issue letters of credit, which, upon borrowing, reduces
the amount available for other extensions of credit. Accordingly, the total amount outstanding under the letters of credit and indebtedness
incurred under the 2019 LOC cannot exceed RMB 100 million (approximately $15 million). The 2019 LOC is guaranteed by Gary Wang, the Chief
Executive Officer of the Company. The interest rate and purpose of each borrowing under the 2019 LOC are approved by CMB separately. CMB
has the right to perform annual evaluations of the Company’s business and financial performance, and the total line of credit available
under the 2019 LOC may be adjusted based on the result of such evaluations. The 2019 LOC expired on July 1, 2020. On November 4, 2020,
the Company obtained a LOC from CMB (the “2020 LOC”) bearing substantially the same term as the 2019 LOC. The 2020 LOC expires
on November 3, 2021 and is guaranteed by Gary Wang.
During the years ended December 31, 2020 and 2019, the Company borrowed
RMB 5 million (approximately $729,000) under each LOC at an effective annual interest rate of 4.35%. The Company repaid the RMB 5 million
loan on July 19, 2020 and January 18, 2020 upon their respectively maturity.
The interest expenses for the years ended December 31, 2020, 2019 and
2018 were $176,422, $190,808 and $404,958, respectively.
BSEI leased certain office space at Zaozhuang Software and Service
Industrial Park with a total area of 18,000 square meters, of which 6,500 square meters were subleased to ZSEC at a price of RMB 0.5 per
square meter per day, from July 1, 2018 to January 1, 2021 and the Company anticipates to renew the lease for another year. Lease expense
incurred associated with the BSEI lease for the years ended December 31, 2020, 2019 and 2018 was approximately $170,000, $164,000 and
$88,000, respectively. The Company does not have any outstanding balance owed to BSEI as of December 31, 2020 and 2019.
For the year ended December 31, 2020, the Company made RMB 2 million
(approximately $294,000) loan to Beijing Taiying. The loan is interest-free and due on demand. During the year ended December 31, 2020,
Beijing Taiying repaid RMB 500,000 (approximately $77,000) to the Company, with the remainder paid in full in January 2021.
The Company had one customer for the year ended December 31, 2019
that contributed 10% or more of total net revenues and one customer for the year ended December 31, 2019 that contributed 10% or more
of total net accounts receivable.
The Company had two customers for the year ended December 31, 2018
that contributed 10% or more of total net revenues. The accounts receivable balance due from each of these two customers also accounted
for 10% or more of accounts receivable as of December 31, 2018.
The loss of one or more of its significant customers could have a
material adverse effect on the Company’s business, operating results, or financial condition. The Company does not require collateral
from its customers. To limit the Company’s credit risk, management performs periodic credit evaluations of its customers and maintains
allowance for credit losses. Although the Company’s accounts receivable could increase dramatically as the Company grows its sales,
management does not believe significant credit risk exists as of December 31, 2020 and 2019.
The Components of lease expense for the years ended December 31, 2020
and 2019 were as follows:
The Company issued an approximately $140,000 letter of credit under
the LOC obtained from CMB to Bank of Communication (“BOCM”) pursuant to a performance guarantee made in connection with a
revenue project arranged between the Company and BOCM, in which the Company agreed to provide BPO service to BOCM. Upon the occurrence
of a default or nonperformance event, BOCM has the ability to seek damage through the letter of credit, under which circumstance, the
Company is obligated to make repayment to CMB plus certain charges including interest. The management is unable to make a reasonable estimate
on such charges based on information available at current stage.
According to the Company Law in the PRC, companies are required to
set aside 10% of their after-tax profit to general reserves each year, based on the PRC accounting standards, until the cumulative total
of such reserves reaches 50% of the registered capital. These general reserves are not distributable as cash dividends to equity owners.
The Company had appropriated $7,761,226 and $5,818,330 to statutory reserves as of December 31, 2020 and 2019, respectively.
On March 29, 2019, the Company increased the registered capital of
Taiying using funds from its retained earnings. As a result, $3,871,871 of retained earnings was transferred to additional paid-in capital
during the year ended December 31, 2019.
In March 2021, the Company obtained a loan from BOC of RMB 25 million
(approximately $3.8 million). The loan bears an annual floating interest rate of LPR+0.2%, matures on March 7, 2022 and is subject to
various covenants, including on-schedule repayment restriction, prohibition on inappropriate usage of the loan proceeds, violation of
which will cause certain portion of the loan to be charged with higher interest. Gary Wang, David Wang, Guoan Xu and their family members
provided guarantee for this loan.
On November 30, 2020, the Company announced its receipt of a preliminary
non-binding proposal letter, dated November 27, 2020, jointly submitted by the chief executive officer and chairman of the Board,
Gary Wang, David Wang, the chief financial officer, Guoan Xu, Qingmao Zhang, Long Lin, Jishan Sun and their respective affiliated entities
(collectively, the “Buyer Group”), to acquire all of the outstanding shares of the Company not already owned by the Buyer
Group (the “Going-Private” transaction).
On March 12, 2021, Taiying Group Ltd., a BVI business company with
limited liability incorporated under the laws of the British Virgin Islands (“Parent”); Taiying International Inc., a BVI
business company with limited liability incorporated under the laws of the British Virgin Islands (“Merger Sub”) and the Company
entered into an agreement and plan of merger providing for the merger of the Merger Sub with and into the Company (the “Merger”)
in accordance with the British Virgin Islands Business Companies Act, with the Company continuing as the surviving company after the merger
as a wholly-owned subsidiary of Parent. Merger Sub is currently wholly owned by the Parent. If completed, the Merger will result in the
Company becoming a privately-held company, the Company will no longer be listed on the Nasdaq Capital Market. The Company could be subject
to possible litigation during the course of closing the Going-Private transaction, such as class action brought by certain shareholders
who voted against the Going-Private transaction. The Company is not aware of such legal proceedings or claims as of the date of this report.
In March 2021, Taiying obtained a loan from Qilu Bank Co., Ltd. of
RMB 20 million (approximately $3.1 million). The loan bears an annual interest rate of 4.35%, matures on March 28, 2022 and is subject
to various covenants, including on-schedule repayment restriction and prohibition on inappropriate usage of the loan proceeds, violation
of which will cause certain portion of the loan to be charged with higher interest. Central BPO provided guarantee for this loan.