CHINA UNITED INSURANCE SERVICE, INC. The following discussion of the results of operations and financial condition should be read in conjunction with our 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 andPeople's Republic of China ("PRC"). The Company also provides reinsurance brokerage services and insurance consulting services inHong Kong andTaiwan . 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 leading insurance companies inTaiwan and PRC, respectively.
(1) Life Insurance Products
Total revenue fromTaiwan life insurance products were 88.6% and 89.1% of total revenue for the three months endedJune 30, 2021 and 2020, respectively. Total revenue from PRC life insurance products were 3.7% and 5.6% of total revenue for the three months endedJune 30, 2021 and 2020, respectively. Total revenue fromTaiwan life insurance products were 88.3% and 89.6% of total revenue for the six months endedJune 30, 2021 and 2020, respectively. Total revenue from PRC life insurance products were 4.8% and 5.2% of total revenue for the six months endedJune 30, 2021 and 2020, 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 sustained growth of life insurance sales inChina andTaiwan , 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 fromTaiwan property and casualty insurance products were 7.5% and 4.7% of total revenue for the three months endedJune 30, 2021 and 2020, respectively. Total revenue from PRC property and casualty insurance products were 0.2% and 0.4% of total revenue for the three months endedJune 30, 2021 and 2020, respectively. Total revenue fromTaiwan property and casualty insurance products were 6.4% and 4.7% of total revenue for the six months endedJune 30, 2021 and 2020, respectively. Total revenue from PRC property and casualty insurance products were both 0.3% of total revenue for the six months endedJune 30, 2021 and 2020, respectively. As the impacts of COVID-19 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. 27 Table of Contents
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, 2020 and believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, stock-based compensations, and estimate of income taxes. Our significant accounting policies are described in Note 1 of "Summary of Significant Accounting Policies" included within our 2020 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, 2021 and 2020: Three Months Ended June 30, 2021 2020 (Unaudited) (Unaudited) Change Percent Revenue$ 32,973,680 $ 29,441,754 $ 3,531,926 12 % Cost of revenue 23,536,213 22,492,991 1,043,222 5 % Gross profit 9,437,467 6,948,763 2,488,704 36 %
Gross profit margin 28.6 % 23.6 % 5 % 21 % Operating expenses: Selling 96,297 367,658 (271,361) (74) % General and administrative 6,189,833 5,348,270 841,563 16 % Total operating expenses 6,286,130
5,715,928 570,202 10 %
Income from operations 3,151,337
1,232,835 1,918,502 156 %
Other income (expenses): Interest income 129,779 114,011 15,768 14 % Interest expenses (46,636) (60,978) 14,342 (24) % Foreign currency exchange loss, net (427,652)
(131,383) (296,269) 226 %
Dividend income 251,328 319,235 (67,907) (21) %
Other - net 80,669 355,270 (274,601) (77) %Total other income (expenses), net (12,512)
596,155 (608,667) (102) %
Income before income taxes 3,138,825
1,828,990 1,309,835 72 %
Income tax expense (1,001,598) (415,792) (585,806) 141 %
Net income 2,137,227 1,413,198 724,029 51 %Net income attributable to the noncontrolling interests (946,344) (662,404) (283,940) 43 % Net income attributable to China United's shareholders$ 1,190,883
$ 750,794 $ 440,089 59 % 28 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 in amongTaiwan ,People's Republic of China ("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 endedJune 30, 2021 and 2020, the revenues generated fromTaiwan , PRC andHong Kong are as follows: Geographic Areas Three Months Ended June 30, 2021 2020 Change Percent Revenue Taiwan segment$ 31,680,144 $ 27,643,048 $ 4,037,096 14.6 % Percentage of revenue 96.1 % 93.9 % PRC segment 1,265,100 1,748,139 (483,039) (27.6) % Percentage of revenue 3.8 % 5.9 % Hong Kong segment 28,436 50,567 (22,131) (43.8) % Percentage of revenue 0.1 % 0.2 %
Total revenue$ 32,973,680 $ 29,441,754 $ 3,531,926 12 % Revenue from ourTaiwan segment increased by$4.0 million from$28.0 million for the three months endedJune 30, 2020 to$32 million for the three months endedJune 30, 2021 . Due to our continued growth in the sales of insurance products in the past years, we continue to receive more contingent commissions, which include trailing commissions, persistency rate linked bonuses and some other service allowance, for the three months endedJune 30, 2021 . However, the revenue growth was partially offset by decreases in the sales of long-term care and disability insurance products because of the discontinuations of these products in the year 2020. Revenue from our PRC segment decreased by$0.4 million from$1.7 million for the three months endedJune 30, 2020 to$1.3 million for the three months endedJune 30, 2021 . Decrease in revenue was primarily caused by the PRC government resuming a selling policy for insurance products inAugust 2020 which entails the audio and video recording of certain insurance sales processes. Such PRC policy (the "PRC Recording Policy") has direct and adverse impact on our revenue from the PRC region. Revenue from the Hong Kong Segment primarily derived from reinsurance commission on sales of insurance products from other insurers toTaiwan Life Insurance Co., Ltd. ("Taiwan Life") for risk management. Due to the travel restriction, less demand for our travel insurance products led to a decrease in revenue from the reinsurance business for the three months endedJune 30, 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 endedJune 30, 2021 increased by$1.0 million , to$23.5 million compared to$22.5 million for the three months endedJune 30, 2020 . We sold more insurance policies during the three months endedJune 30, 2021 compared to amount of policies sold in the same period of 2020, which resulted in an increase in the direct commission costs paid to our sales professionals for the first year commissions.
Consequently, the gross profit margin increased from 23.6% for the three months
ended
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Selling expenses
Selling expenses were mainly incurred by Law Broker and Uniwill in connection
with online marketing and advertising. For the three months ended June 30, 2021 ,
our selling expenses were $0.1 million , reflecting a decrease of $0.3 million ,
compared with $0.4 million for the three months ended June 30, 2020 . The selling
expenses decreased for the three months ended June 30, 2021 compared to the same
period of 2020 due to the adverse impact from the outbreak of COVID-19 in Taiwan
that substantially restricted our marketing activities in Taiwan during the
three months ended June 30, 2021 .
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 $6.2
million , reflecting an increase of $0.8 million , compared with $5.3 million for
the three months ended June 30, 2020 . Increase in the general and administrative
expenses was attributed to the higher insurance platform maintenance fee for the
three months ended June 30, 2021 compared to the same period of 2020.
Other income (expenses)
Other income (expense) mainly consisted of interest income, interest expenses, gain or loss on valuation of financial assets, and foreign currency exchange gain or loss. Net other expense for the three months endedJune 30, 2021 was$0.01 million , reflecting a decrease of$0.6 million , compared with net other income of$0.6 million for the three months endedJune 30, 2020 . The decrease in other income for the three months endedJune 30, 2021 was due to foreign currency exchange loss recognized because of the depreciation of the US dollar against the New Taiwan dollar during the second quarter of 2021. The decrease in other-net was because of decrease in valuation gain on marketable securities.Taiwan security market has strong performance in the three months endedJune 30, 2020 compared to the same period in 2021.
Income tax expense
For the three months endedJune 30, 2021 , income tax expense was$1.0 million , reflecting an increase of 141%, compared with the income tax expense of$0.4 million for the three months endedJune 30, 2020 . The increase was mainly due to more revenues generated in theTaiwan segment during the second quarter of
2021.
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Results of Operations- Six Months ended
The following table shows the results of operations for the six months endedJune 30, 2021 and 2020: Six Months Ended June 30, 2021 2020 (Unaudited) (Unaudited) Change Percent Revenue$ 63,503,797 $ 57,964,964 $ 5,538,833 9.6 % Cost of revenue 42,509,645 41,992,915 516,730 1.2 % Gross profit 20,994,152 15,972,049 5,022,103 31.4 % Gross profit margin 33.1 % 27.6 % 5.5 % 20.0 % Operating expenses: Selling 676,074 857,688 (181,614) (21.2) % General and administrative 12,280,087 12,332,824 (52,737) (0.4) % Total operating expenses 12,956,161 13,190,512
(234,351) (1.8) %
Income from operations 8,037,991 2,781,537
5,256,454 189.0 %
Other income (expenses): Interest income 213,777 224,902 (11,125) (4.9) % Interest expenses (89,106) (120,260) 31,154 (25.9) % Foreign currency exchange loss, net (99,186) (187,320)
88,134 (47.0) %
Dividend income 251,328 319,235 (67,907) (21.3) %
Other - net 259,609 258,468 1,141 0.4 %Total other income (expenses), net 536,422 495,025
41,397 8.4 %
Income before income taxes 8,574,413 3,276,562 5,297,851 161.7 %
Income tax expense (2,400,404) (1,527,079) (873,325) 57.2 %
Net income 6,174,009 1,749,483 4,424,526 253.0 %
Net income attributable to the
noncontrolling interests (2,572,740) (1,287,926) (1,284,814) 99.8 %
Net income attributable to China
United's shareholders $ 3,601,269 $ 461,557 $ 3,139,712 680.2 % Revenue
For the six months ended
Geographic Areas Six Months Ended June 30,
2021 2020 Change Percent
Revenue
Taiwan segment $ 60,147,807 $ 54,668,342 $ 5,479,465 10.0 %
Percentage of revenue 94.7 % 94.3 %
PRC segment 3,216,569 3,177,436 39,133 1.2 %
Percentage of revenue 5.1 % 5.5 %
Hong Kong segment 139,421 119,186 20,235 17.0 %
Percentage of revenue 0.2 % 0.2 %
Total revenue $ 63,503,797 $ 57,964,964 $ 5,538,833 9.6 %
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Revenue from our Taiwan segment increased by $5.5 million from $54.7 million for
the six months ended June 30, 2020 to $60.2 million for the six months ended
June 30, 2021 . Due to our continued growth in the sales of insurance products in
the past years, we continue to receive more contingent commissions, which
include trailing commissions, persistency rate linked bonuses and some other
service allowance, for the six months ended June 30, 2021 . However, the revenue
growth was partially offset by decreases in the sales of long-term care and
disability insurance products because of the discontinuations of these products
in the year 2020.
Revenue from our PRC segment for the six months ended June 30, 2021 remained
consistent with the same period in 2020. PRC segment benefit from the recovery
after the outbreak of COVID-19 for the six months ended June 30, 2021 . However,
this is partially offset by the PRC Recording Policy as described above.
Revenue from the Hong Kong Segment was primarily derived from reinsurance
commission on sales of insurance products from other insurers to Taiwan Life
Insurance Co., Ltd. ("Taiwan Life") for risk management. Revenue from our Hong
Kong segment for the six months ended June 30, 2021 remained consistent with the
same period in 2020.
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 six months ended
Consequently, the gross profit margin increased from 27.6% 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, 2021 , selling expenses were$0.7 million , reflecting a decrease of$0.2 million , compared with$0.9 million for the six months endedJune 30, 2020 . Decrease in the selling expenses was caused by the adverse impact from the outbreak of COVID-19 inTaiwan that restricted marketing activities for the six months endedJune 30, 2021 compared to the same period of 2020.
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. G&A expenses for the six months ended
Other income (expenses)
Other income (expense) mainly consisted of interest income, interest expenses, gain or loss on valuation of financial assets, and foreign currency exchange gain or loss. Other income (expense) for the six months endedJune 30, 2021 remained consistent with the same period in 2020.
Income tax expense
For the six months endedJune 30, 2021 , income tax expense was$2.4 million , reflecting an increase of 57.2%, compared with the income tax expense of$1.5 million for the six months endedJune 30, 2020 . The increase in tax expenses was mainly due to the increase in revenues generated in theTaiwan segment during the first half of 2021.
Liquidity and Capital Resources
The following table presents a comparison of the net cash provided by operating activities, net cash provided by (used in) investing activities and net cash provided by financing activities for the six months periods endedJune 30 ,
2021
and 2020:
Six Months Ended June 30,
2021 2020 Change PercentNet cash provided by operating activities$ 10,180,299 $ 5,491,624 $ 4,688,675 85.4 % Net cash used in investing activities (4,622,533) (9,274,392) 4,651,859 (50.2) % Net cash provided by financing activities 3,734,048 3,062,527
671,521 21.9 %
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Operating activities
Net cash provided by operating activities during the six months endedJune 30, 2021 was$10.2 million ,reflecting an increase of 85.4% in comparison with$5.5 million net cash provided by operating activities during the six months endedJune 30, 2020 . The increase was mainly due to a strong business performance for the six months endedJune 30, 2021 compared with that during the same period in 2020. Investing activities Net cash used in investing activities was$4.6 million during the six months endedJune 30, 2021 as compared with the net cash used in investing activities of$9.3 million for the six months endedJune 30, 2020 . Decreases in the cash outflows for the investing activities resulted from the proceeds from sales of marketable securities and maturities of time deposits during the first half
of 2021. Financing activities Net cash provided by financing activities was$3.7 million during the six months endedJune 30, 2021 , which increased by$0.7 million from$3.0 million during the same period of 2020. The increase was mainly due to increases in the net proceeds from additional borrowings under the revolving credit agreements during the first half of 2021. Contractual Obligations
There have been no significant changes to the Company's contractual obligations as disclosed in the Company's 2020 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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