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, inTaiwan and 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 89.4% and 88.6% of total revenue for the three months endedJune 30, 2022 and 2021, respectively. Total revenue from PRC segment's sales of life insurance products were 3.0% and 3.7% of total revenue for the three months endedJune 30, 2022 and 2021, respectively. Total revenue from Taiwan segment's sales of life insurance products were 89.3% and 88.3% of total revenue for the six months endedJune 30, 2022 and 2021, respectively. Total revenue from PRC segment's sales of life insurance products were 3.3% and 4.8% of total revenue for the six months endedJune 30, 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, it 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 invested 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 continue being 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 7.1% and 7.5% of total revenue for the three months endedJune 30, 2022 and 2021, respectively. Total revenue from PRC segment's sales of property and casualty insurance products were 0.4% and 0.2% of total revenue for the three months endedJune 30, 2022 and 2021, respectively. Total revenue from Taiwan segment's sales of property and casualty insurance products were 6.7% and 6.4% of total revenue for the six months endedJune 30, 2022 and 2021, respectively. Total revenue from PRC segment's sales of property and casualty insurance products were 0.6% and 0.3% of total revenue for the six months endedJune 30, 2022 and 2021, respectively. As the impacts of COVID-19 and its duration remain uncertain, we have been monitoring and will continue to measure and modify our business attempting to keep our customers, sales professionals and employees healthy and safe. 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. 31
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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 in Note 1 of "Summary of Significant Accounting Policies" included within our 2021 Annual Report on Form 10-K filed with theSecurities and Exchange Commission .
Results of Operations- Three Months ended
The following table shows the results of operations for the three months endedJune 30, 2022 and 2021: Three Months Ended June 30, 2022 2021 (Unaudited) (Unaudited) Change Percent Revenue$ 31,655,708 $ 32,973,680 $ (1,317,972) (4.0) % Cost of revenue 21,329,935 23,536,213 (2,206,278) (9.4) % Gross profit 10,325,773 9,437,467 888,306 9.4 % Gross profit margin 32.6 % 28.6 % 4.0 % 14.0 % Operating expenses: Selling 433,681 96,297 337,384 350.4 %
General and administrative 6,770,309 6,189,833 580,476 9.4 % Total operating expenses 7,203,990 6,286,130
917,860 14.6 %
Income from operations 3,121,783 3,151,337 (29,554) (0.9) %
Other income (expenses):
Interest income 161,075 129,779 31,296 24.1 %
Interest expenses (69,804) (46,636) (23,168) 49.7 %
Foreign currency exchange gain (loss),
net 704,463 (427,652) 1,132,115 (264.7) %
Dividend income 212,369 251,328 (38,959) (15.5) %
Other - net (38,767) 80,669 (119,436) (148.1) %Total other income (expenses), net 969,336 (12,512)
981,848 (7,847.3) %
Income before income taxes 4,091,119 3,138,825
952,294 30.3 %
Income tax expense (1,117,372) (1,001,598) (115,774) 11.6 %
Net income 2,973,747 2,137,227 836,520 39.1 %
Net income attributable to noncontrolling
interests (1,355,537) (946,344) (409,193) 43.2 %
Net income attributable to China United's
shareholders 1,618,210 1,190,883427,327 35.9 %
Other comprehensive items, net of tax: (3,551,754) 1,698,987
(5,250,741) (309.1) %
Comprehensive income (loss) (578,007) 3,836,214 (4,414,221) (115.1) % Comprehensive loss attributable to noncontrolling interests (177,697) (1,495,321) 1,317,624 (88.1) % Comprehensive income (loss) attributable to China United's shareholders$ (755,704) $ 2,340,893
$ (3,096,597) (132.3) % 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 in
32
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We generate revenue primarily through our sales force, which consists of individual sales agents in our distribution and service network. For the three months endedJune 30, 2022 and 2021, the revenues generated from Taiwan, PRC andHong Kong were as follows: Geographic Areas Three Months Ended June 30, 2022 2021 Change Percent Revenue Taiwan segment$ 30,570,467 $ 31,680,144 $ (1,109,677) (3.5) % Percentage of revenue 96.6 % 96.1 % PRC segment 1,085,112 1,265,100 (179,988) (14.2) % Percentage of revenue 3.4 % 3.8 % Hong Kong segment 129 28,436 (28,307) (99.5) % Percentage of revenue - % 0.1 % Total revenue$ 31,655,708 $ 32,973,680 $ (1,317,972) (4.0) % Revenue from our Taiwan segment decreased by$1.1 million from$31.7 million for the three months endedJune 30, 2021 to$30.6 million for the three months endedJune 30, 2022 . The revenue in local currency was increased due to the performance and operation bonus resulting from the sales of insurance products increase from Uniwill but partially offset by the decrease in commission revenue from Lawbroker. Another reason is the substantial depreciation of the NewTaiwan Dollar against theU.S. dollar has offset the above increase and further caused the decrease in the revenue. Revenue from our PRC segment decreased by$0.2 million from$1.3 million for the three months endedJune 30, 2021 to$1.1 million for the three months endedJune 30, 2022 . The overall insurance industry environment was declining during 2022 in PRC and customers in PRC were less willing to buy those insurance products in 2022, which resulted in the decrease of revenue in the PRC segment. 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 decrease from ourHong Kong segment for the three months endedJune 30, 2022 continued compared to that of the three months endedJune 30, 2021 due to the termination of certain of our reinsurance agreements and the discontinuation of travel insurance.
Cost of revenue and gross profit
The cost of revenue mainly consists of commissions paid to our sales professionals. The cost of revenue decreased by$2.2 million from$23.5 million for the three months endedJune 30, 2021 to$21.3 million for the three months endedJune 30, 2022 . The decrease in the cost of revenue was mainly resulted from the revenue decrease of Lawbroker and therefore decreased the commissions paid to the agents accordingly, and also influenced by the foreign exchange fluctuation from the substantial depreciation of the NewTaiwan Dollar against theU.S. dollar.
In addition, the Company received the additional bonuses provided by the
insurance companies which did not incur cost of commissions paid to sales
agents. Consequently, the gross profit margin increased from 28.6% for the three
months ended
Selling expenses
Selling expenses were mainly incurred by Law Broker and Uniwill in connection with online marketing and advertising. For the three months endedJune 30, 2022 , selling expenses were$0.4 million , reflecting an increase of$ 0.3 million , compared with$0.1 million of selling expenses for the three months endedJune 30, 2021 . The increase in the selling expenses was caused by the marketing activities during the three months endedJune 30, 2022 . For the same period in 2021, the adverse impact from the outbreak of COVID-19 inTaiwan had substantially restricted our marketing activities inTaiwan , leading to less selling expenses in such period. 33
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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. For the three months ended June 30, 2022 , G&A
expenses were $6.8 million , reflecting an increase of $0.6 million , compared
with $6.2 million of G&A expenses for the three months ended June 30, 2021 . The
increase in G&A expenses was mainly due to the recognition of severance pay
arising from the disposal of subsidiary Jiangsu Law in the three months ended
June 30, 2022 .
Other income (expenses)
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 $1.0 million ,
compared with the other income (expenses) of $0.0 million for the three months
ended June 30, 2021 . The increase in other income was mainly due to foreign
currency exchange gain recognized from foreign currency time deposits assets and
intercompany receivable and payable because of the substantial depreciation of
the New Taiwan Dollar against the U.S. dollar and Chinese Yuan during the second
quarter of 2022.
Income tax expense
For the three months ended June 30, 2022 , income tax expense was $1.1 million ,
reflecting an increase of $0.1 million or 11.6%, compared with the income tax
expense of $1.0 million for the three months ended June 30, 2021 . The increase
in tax expenses was mainly due to the increase in revenues generated in the
Taiwan segment. In addition, the recognition of estimated tax expenses for the
disposal of a subsidiary also contributed to the increase in income tax
expenses.
Other comprehensive items
Other comprehensive items mainly consisted of foreign currency translation gain or loss. The foreign currency translation loss was$3.6 million , reflecting a decrease of$5.3 million , compared with foreign currency translation gain of$1.7 million for the three months endedJune 30, 2021 . The decrease was mainly due to a larger foreign currency translation loss resulted from the substantial depreciation of the NewTaiwan Dollar against theU.S. dollar for the three
months endedJune 30, 2022 . 34 Table of Contents
Results of Operations- Six Months ended
The following table shows the results of operations for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 (Unaudited) (Unaudited) Change Percent Revenue$ 62,636,231 $ 63,503,797 $ (867,566) (1.4) % Cost of revenue 40,339,454 42,509,645 (2,170,191) (5.1) % Gross profit 22,296,777 20,994,152 1,302,625 6.2 % Gross profit margin 35.6 % 33.1 % 2.5 % 7.6 % Operating expenses: Selling 1,117,831 676,074 441,757 65.3 %
General and administrative 12,743,348 12,280,087 463,261 3.8 % Total operating expenses 13,861,179 12,956,161
905,018 7.0 %
Income from operations 8,435,598 8,037,991 397,607 4.9 %
Other income (expenses):
Interest income 266,052 213,777 52,275 24.5 %
Interest expenses (122,139) (89,106) (33,033) 37.1 %
Foreign currency exchange gain (loss),
net 1,442,013 (99,186) 1,541,199 (1,553.8) %
Dividend income 212,369 251,328 (38,959) (15.5) %
Other - net 123,281 259,609 (136,328) (52.5) %Total other income, net 1,921,576 536,422
1,385,154 258.2 %
Income before income taxes 10,357,174 8,574,413
1,782,761 20.8 %
Income tax expense (2,699,269) (2,400,404) (298,865) 12.5 %
Net income 7,657,905 6,174,009 1,483,896 24.0 %
Net income attributable to noncontrolling
interests (3,094,818) (2,572,740) (522,078) 20.3 %
Net income attributable to China United's
shareholders 4,563,087 3,601,269961,818 26.7 %
Other comprehensive items, net of tax: (6,665,249) 508,052
(7,173,301) (1,412.0) %
Comprehensive income 992,656 6,682,061 (5,689,405) (85.1) % Comprehensive loss attributable to noncontrolling interests (875,142) (2,758,642) 1,883,500 (68.3) % Comprehensive income attributable to China United's shareholders$ 117,514 $ 3,923,419
$ (3,805,905) (97.0) % 35 Table of Contents 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 six months endedJune 30, 2022 and 2021, the revenues generated from Taiwan, PRC andHong Kong were as follows: Geographic Areas Six Months Ended June 30, 2022 2021 Change Percent Revenue Taiwan segment$ 60,120,352 $ 60,147,807 $ (27,455) - % Percentage of revenue 96.0 % 94.7 % PRC segment 2,432,928 3,216,569 (783,641) (24.4) % Percentage of revenue 3.9 % 5.1 % Hong Kong segment 82,951 139,421 (56,470) (40.5) % Percentage of revenue 0.1 % 0.2 % Total revenue$ 62,636,231 $ 63,503,797 $ (867,566) (1.4) %
Revenue from our Taiwan segment for the six months ended
Revenue from our PRC segment decreased by$0.8 million from$3.2 million for the six months endedJune 30, 2021 to$2.4 million for the six months endedJune 30, 2022 . The overall insurance industry environment in PRC was declining during 2022 and customers in PRC were less willing to buy those insurance products in 2022, which resulted in the decrease of revenue in the PRC segment. Revenue from the Hong Kong Segment was primarily derived from reinsurance commission on sales of insurance products from other insurers to Taiwan Life for risk management. Decrease in revenue from ourHong Kong segment for the six months endedJune 30, 2022 continued compared to that of the six months endedJune 30, 2021 due to the termination of certain reinsurance agreements and the discontinuation of travel insurance.
Cost of revenue and gross profit
The cost of revenue mainly consists of commissions paid to our sales professionals. The cost of revenue decreased by$2.2 million from$42.5 million for the six months endedJune 30, 2021 to that of$40.3 million for the six months endedJune 30, 2022 . The decrease in the cost of revenue was mainly resulted from the revenue decrease of Lawbroker and therefore decreased the commissions paid to the agents accordingly, and also influenced by the foreign exchange fluctuation from the substantial depreciation of the NewTaiwan Dollar against theU.S. dollar.
In addition, the Company received the additional bonuses provided by the
insurance companies which did not incur cost of commissions paid to sales
agents. Consequently, the gross profit margin increased from 33.1% for the six
months ended
Selling expenses
Selling expenses were mainly incurred by Law Broker and Uniwill in connection with online marketing and advertising. For the six months endedJune 30, 2022 , selling expenses were$1.1 million , reflecting an increase of$ 0.4 million , compared with that of$0.7 million of selling expenses for the six months endedJune 30, 2021 . The increase in the selling expenses was caused by the increase of marketing activities during the six months endedJune 30, 2022 . For the same period in 2021, the adverse impact from the outbreak of COVID-19 inTaiwan had substantially restricted our marketing activities inTaiwan , resulting in less selling expenses during the six months endedJune 30, 2021 . 36
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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. For the six months ended June 30, 2022 , the G&A
expenses were $12.7 million , reflecting an increase of $0.45 million , compared
with that of $12.32 million for the six months ended June 30, 2021 . The increase
in G&A expenses was mainly due to the recognition of severance pay arising from
the disposal of subsidiary Jiangsu Law during the six months ended June 30,
2022 .
Other income (expenses)
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 during the six months endedJune 30, 2022 was$1.9 million , reflecting an increase of$1.4 million , compared with that of$0.5 million for the six months endedJune 30, 2021 . The increase in other income was mainly due to foreign currency exchange gain recognized from foreign currency time deposit assets because of the substantial depreciation of the NewTaiwan Dollar against theU.S. dollar and Chinese Yuan during the first six months of 2022.
Income tax expense
For the six months ended
Other comprehensive items
Other comprehensive items mainly consisted of foreign currency translation gain or loss. Foreign currency translation loss were$6.7 million , reflecting a decrease of$7.2 million , compared with foreign currency translation gain of$0.5 million for the six months endedJune 30, 2021 . The decrease was mainly due to a larger foreign currency translation loss resulted from the substantial depreciation of the NewTaiwan Dollar against theU.S. dollar for the six months endedJune 30, 2022 .
Liquidity and Capital Resources
The following table presents a comparison of the net cash provided by operating
activities, net cash used in investing activities and net cash provided by
financing activities for the six-month periods ended
Six Months Ended June 30,
2022 2021 Change Percent
Net cash provided by operating activities $ 11,523,729 $ 10,180,299 $ 1,343,430 13.2 %
Net cash used in investing activities (8,819,676) (4,622,533) (4,197,143) 90.8 %
Net cash provided by financing activities 2,334,192 3,734,048 (1,399,856) (37.5) %
Operating activities
Net cash provided by operating activities during the six months endedJune 30, 2022 was$11.5 million , reflecting an increase of$1.3 million or 13.2% in comparison with that of$10.2 million during the six months endedJune 30, 2021 . The increase in cash inflows was mainly due to the higher net income and collection from accounts receivable for the six months endedJune 30, 2022 compared with that of the same period in 2021.
Investing activities
Net cash used in investing activities during the six months endedJune 30, 2022 was$8.8 million , reflecting an increase of$4.2 million or 90.8% in comparison with that of$4.6 million for the six months endedJune 30, 2021 . Increases in the cash used in the investing activities mainly resulted from the increase of the purchases of marketable securities and time deposits, and the decrease of proceeds from maturities of time deposits during six months endedJune 30, 2022 . However, the cash outflow was partially offset by proceeds from receipts in advance of disposal of a subsidiary. 37 Table of Contents Financing activities Net cash provided by financing activities was$2.3 million during the six months endedJune 30, 2022 , which decreased by$1.4 million from that of$3.7 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 six months endedJune 30, 2022 .
Contractual Obligations
There have been no significant changes to the Company's contractual obligations as disclosed in the Company's 2021 Annual Report on Form 10-K.
Off Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of
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