CHINA UNITED INSURANCE SERVICE, INC. The following discussion of the results of operations and financial condition should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Item 1 of this part. This report, including the information incorporated by reference, contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The use of any of the words "believe," "expect," "anticipate," "plan," "estimate," and similar expressions are intended to identify such statements. Forward-looking statements include statements concerning our possible or assumed future results. The actual results that we achieve may differ materially from those discussed in such forward-looking statements due to the risks and uncertainties described in the Risk Factors section of this report, in Management's Discussion and Analysis of Financial Condition and Results of Operations, and in other sections of this report, as well as in our annual report on Form 10-K. We undertake no obligation to update any forward-looking statements.
Overview
The Company primarily provides two broad categories of insurance products, life insurance products and property and casualty insurance products, in Taiwan andPeople's Republic of China ("PRC"). The Company also provides reinsurance brokerage services and insurance consulting services inHong Kong and Taiwan. The percentage of reinsurance brokerage services and insurance consulting services is less than 1% of our total revenue. The insurance products that the Company's subsidiaries sell are underwritten by some of the leading insurance companies inTaiwan and PRC, respectively.
(1) Life Insurance Products
Total revenue from Taiwan segment's sales of life insurance products were 89.2% and 88.1% of total revenue for the three months endedMarch 31, 2022 and 2021, respectively. Total revenue from PRC segment's sales of life insurance products were 3.6% and 6.0% of total revenue for the three months endedMarch 31, 2022 and 2021, respectively. In addition to the periodic premium payment schedules, most of the individual life insurance products we distribute also allow the insured to choose to make a single, lump-sum premium payment at the beginning of the policy term. If a periodic payment schedule is adopted by the insured, a life insurance policy can generate periodic payment of fixed premiums to the insurance company for a specified period of time. This means that once the Company sells a life insurance policy with a periodic premium payment schedule, they will be able to derive commission and fee income from that policy for an extended period of time, sometimes up to 25 years. Because of this feature and the expected sustainable growth of life insurance sales in the PRC and Taiwan, we have focused significant resources ever since the incorporation of Anhou and Law Broker on developing our capability to distribute individual life insurance products with periodic payment schedules. We expect that sales of life insurance products will continuously be our primary source of revenue in the next several years.
(2) Property and Casualty Insurance Products
Total revenue from Taiwan segment's sales of property and casualty insurance products were 6.3% and 5.2% of total revenue for the three months endedMarch 31, 2022 and 2021, respectively. Total revenue from PRC segment's sales of property and casualty insurance products were 0.7% and 0.4% of total revenue for the three months endedMarch 31, 2022 and 2021, respectively. As COVID-19 and its duration remain uncertain, we have been monitoring and will continue to measure and modify our business to protect our customers, sales professionals and employees. The extent of the COVID-19 impact to the Company will depend on numerous factors and developments. Consequently, any potential impacts of COVID-19 remain highly uncertain and cannot be predicted with confidence.
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires our management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We have had no changes to our Critical Accounting Policies as described in our most recent Form 10-K for the year endedDecember 31, 2021 and believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition and estimate of income taxes. Our significant accounting policies are described 27
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in Note 1 of "Summary of Significant Accounting Policies" included within our
2021 Annual Report on Form 10-K filed with the
Results of Operations- Three Months ended
The following table shows the results of operations for the three months endedMarch 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 (Unaudited) (Unaudited) Change Percent Revenue$ 30,980,523 $ 30,530,117 $ 450,406 2 % Cost of revenue 19,009,519 18,973,432 36,087 - % Gross profit 11,971,004 11,556,685 414,319 4 % Gross profit margin 38.6 % 37.9 % 0.7 % 2 % Operating expenses: Selling 684,150 579,777 104,373 18 % General and administrative 5,973,039 6,090,254 (117,215) (2) % Total operating expenses 6,657,189 6,670,031 (12,842) - % Income from operations 5,313,815 4,886,654 427,161 9 % Other income (expenses): Interest income 104,977 83,998 20,979 25 % Interest expenses (52,335) (42,470) (9,865) 23 % Foreign currency exchange gains, net 737,550 328,466 409,084 125 % Other - net 162,048 178,940 (16,892) (9) % Total other income, net 952,240 548,934 403,306 74 % Income before income taxes 6,266,055 5,435,588 830,467 15 % Income tax expense (1,581,897) (1,398,806) (183,091) 13 % Net income 4,684,158 4,036,782 647,376 16 % Net income attributable to the noncontrolling interests (1,739,281) (1,626,396) (112,885) 7 % Net income attributable to China United's shareholders$ 2,944,877 $ 2,410,386 $ 534,491 22 % Revenue As a distributor of insurance products, we derive our revenue primarily from commissions and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance companies inTaiwan , PRC andHong Kong . We generate revenue primarily through our sales force, which consists of individual sales agents in our distribution and service network. For the three months endedMarch 31, 2022 and 2021, the revenues generated from Taiwan, PRC andHong Kong were as follows: Geographic Areas Three Months Ended March 31, 2022 2021 Change Percent Revenue Taiwan segment$ 29,549,885 $ 28,467,663 $ 1,082,222 3.8 % Percentage of revenue 95.4 % 93.2 % PRC segment 1,347,816 1,951,469 (603,653) (30.9) % Percentage of revenue 4.3 % 6.4 % Hong Kong segment 82,822 110,985 (28,163) (25.4) % Percentage of revenue 0.3 % 0.4 %
Total revenue$ 30,980,523 $ 30,530,117 $ 450,406
1.5 %
Revenue from our Taiwan segment increased by$1.0 million from$28.5 million for the three months endedMarch 31, 2021 to$29.5 million for the three months endedMarch 31, 2022 . Increase in revenue was mainly due to the high performance of sales of investment- 28 Table of Contents type insurance policies, our continued growth in the sales of insurance products in the past years, and our continuance of receiving more persistency-rate-linked bonuses for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . Revenue from our PRC segment decreased by$0.6 million from$1.9 million for the three months endedMarch 31, 2021 to$1.3 million for the three months endedMarch 31, 2022 . The insurance premium of certain products were priced higher in the first quarter of 2022 than those in the first quarter of 2021 and therefore, customers in PRC were unwilling to buy the insurance products, which resulted in the decrease of revenue. In addition, the persistency-rate-linked bonuses in the PRC segment also decreased for the three months endedMarch 31, 2022 due to the termination of certain sales agreement with some of the PRC insurance companies. Revenue from the Hong Kong Segment was primarily derived from reinsurance commission on sales of insurance products from other insurers toTaiwan Life Insurance Co., Ltd. ("Taiwan Life") for risk management. Revenue from ourHong Kong segment for the three months endedMarch 31, 2022 remained consistent with that of the same period in 2021.
Cost of revenue and gross profit
The cost of revenue mainly consists of commissions paid to our sales
professionals. The cost of revenue for the three months ended
Consequently, the gross profit margin increased from 37.9% for the three months endedMarch 31, 2021 to 38.6% for the three months endedMarch 31, 2022 . Such increase in the gross profit margin mainly resulted from receiving more contingent commissions for subsequent years.
Selling expenses
Selling expenses were mainly incurred by Law Broker and Uniwill in connection with online marketing and advertising. For the three months endedMarch 31, 2022 , selling expenses were$0.7 million , reflecting an increase of$ 0.1 million , compared with$0.6 million of selling expenses for the three months endedMarch 31, 2021 . Increase in the selling expenses was caused by the donation for charity foundations inTaiwan during the three months endedMarch 31, 2022 .
General and administrative expenses
General and administrative ("G&A") expenses are principally comprised of
salaries and benefits for our administrative staff, office rental expenses,
travel expenses, depreciation and amortization, entertainment expenses, and
professional service fees. General and administrative expenses were $6.0 million
for the three months ended March 31, 2022 , which was not significantly different
from those of the same period of 2021.
Other income (expense)
Other income mainly consisted of interest income, interest expenses, gain or loss on valuation of financial assets, and foreign currency exchange gain or loss. Other income were$1.0 million , reflecting an increase of$0.5 million , compared with the other income of$0.5 million for the three months endedMarch 31, 2021 . The increase in other income was mainly due to foreign currency exchange gain recognized from foreign currency time deposits because of the depreciation of the NewTaiwan Dollar against theU.S. dollar and Chinese Yuan during the first quarter of 2022.
Income tax expense
For the three months endedMarch 31, 2022 , income tax expense was$1.6 million , reflecting an increase of$0.2 million or 13%, compared with the income tax expense of$1.4 million for the three months endedMarch 31, 2021 . The increase in tax expenses was mainly due to the increase in revenues generated in the Taiwan segment during the first quarter of 2022. 29
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Liquidity and Capital Resources
The following table presents a comparison of the net cash provided by operating activities, net cash provided by (used in) investing activities and net cash provided by financing activities for the three-month periods endedMarch 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Change Percent Net cash provided by operating activities$ 7,599,296 $ 6,445,228 $ 1,154,068 17.9 % Net cash (used in) provided by investing activities (5,331,480) 199,142 (5,530,622) (2,777.2) % Net cash provided by financing activities 1,054,769 2,171,143 (1,116,374) (51.4) % Operating activities Net cash provided by operating activities during the three months endedMarch 31, 2022 was$7.6 million , reflecting an increase of$1.2 million or 17.9% in comparison with that of$6.4 million during the three months endedMarch 31, 2021 . The increase in cash inflows was mainly due to the higher net income and collection from accounts receivable for the three months endedMarch 31, 2022 compared with that of the same period in 2021.
Investing activities
Net cash used in investing activities was$5.3 million during the three months endedMarch 31, 2022 as compared with the net cash provided by investing activities of$0.2 million for the three months endedMarch 31, 2021 . Increases in the cash used in the investing activities resulted from the increase of the purchases of marketable securities and time deposits, and the decrease of proceeds from maturities of time deposits during the first quarter of 2022.
Financing activities
Net cash provided by financing activities was$1.1 million during the three months endedMarch 31, 2022 , which decreased by$1.1 million from that of$2.2 million during the same period of 2021. The decrease was mainly due to the decrease in the net proceeds from additional borrowings under the revolving credit agreements and partially offset by the decrease of repayment of related party borrowings during the first quarter of 2022.
Contractual Obligations
There have been no significant changes to the Company's contractual obligations as disclosed in the Company's 2021 Annual Report filed on Form 10-K.
Off Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of
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