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 87.7% and 89.9% of total revenue for the three months endedSeptember 30, 2021 and 2020, respectively. Total revenue from PRC life insurance products were 3.3% and 4.5% of total revenue for the three months endedSeptember 30, 2021 and 2020, respectively. Total revenue fromTaiwan life insurance products were 88.1% and 89.7% of total revenue for the nine months endedSeptember 30, 2021 and 2020, respectively. Total revenue from PRC life insurance products were 4.3% and 4.9% of total revenue for the nine months endedSeptember 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 8.1% and 4.3% of total revenue for the three months endedSeptember 30, 2021 and 2020, respectively. Total revenue from PRC property and casualty insurance products were both 0.9% of total revenue for the three months endedSeptember 30, 2021 and 2020, respectively. Total revenue fromTaiwan property and casualty insurance products were 7.0% and 4.6% of total revenue for the nine months endedSeptember 30, 2021 and 2020, respectively. Total revenue from PRC property and casualty insurance products were both 0.5% of total revenue for the nine months endedSeptember 30, 2021 and 2020. 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. 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 ended
Three Months Ended September 30,
2021 2020
(Unaudited) (Unaudited) Change Percent
Revenue $ 31,629,500 $ 33,235,952 $ (1,606,452) (5) %
Cost of revenue 17,066,959 21,269,044 (4,202,085) (20) %
Gross profit 14,562,541 11,966,908 2,595,633 22 %
Gross profit margin 46.0 % 36.0 % 10.0 % 28 %
Operating expenses:
Selling 397,628 926,004 (528,376) (57) %
General and administrative 7,189,914 5,700,840 1,489,074 26 %
Total operating expenses 7,587,542 6,626,844 960,698 14 %
Income from operations 6,974,999 5,340,064 1,634,935 31 %
Other income (expenses):
Interest income 116,277 100,266 16,011 16 %
Interest expenses (47,701) (33,443) (14,258) 43 %
Foreign currency exchange gains (losses), net (31,341) 36,427 (67,768) (186) %
Dividend income 499 2,368 (1,869) (79) %
Other - net 253,960 (12,779) 266,739 (2,087) %
Total other income, net 291,694 92,839 198,855 214 %
Income before income taxes 7,266,693 5,432,903 1,833,790 34 %
Income tax expense (1,908,078) (1,640,025) (268,053) 16 %
Net income 5,358,615 3,792,878 1,565,737 41 %
Net income attributable to the noncontrolling interests (2,338,903) (1,312,122) (1,026,781) 78 %
Net income attributable to China United's shareholders $ 3,019,712 $ 2,480,756 $ 538,956 22 %
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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 among
Taiwan , People's Republic of China ("PRC") and Hong 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 ended September 30,
2021 and 2020, the revenues generated from Taiwan , PRC and Hong Kong are as
follows:
Geographic Areas Three Months Ended September 30,
2021 2020 Change Percent
Revenue
Taiwan segment $ 30,291,212 $ 31,310,008 $ (1,018,796) (3.3) %
Percentage of revenue 95.8 % 94.2 %
PRC segment 1,337,946 1,801,065 (463,119) (25.7) %
Percentage of revenue 4.2 % 5.4 %
Hong Kong segment 342 124,879 (124,537) (99.7) %
Percentage of revenue 0.0 % 0.4 %
Total revenue $ 31,629,500 $ 33,235,952 $ (1,606,452) (4.8) %
Revenue from our Taiwan segment decreased by $1.0 million from $31.3 million for
the three months ended September 30, 2020 to $30.3 million for the three months
ended September 30, 2021 . Decrease in revenue was due to the discontinuation of
the long-term care and disability insurance products at the end of 2020. In
addition, the May 2021 outbreak of COVID-19 in Taiwan also caused a decrease in
policy sales. However, the revenue decline was partially offset by the rise in
the exchange rate of the Taiwan dollar against the US dollar during the third
quarter of 2021.
Revenue from our PRC segment decreased by $0.5 million from $1.8 million for the
three months ended September 30, 2020 to $1.3 million for the three months ended
September 30, 2021 . Decrease in revenue was primarily caused by the reimposition
of a PRC governmental policy requiring audio and video recording for certain
insurance sales since August 2020 . Such PRC policy has had a direct and adverse
impact on our revenue from the PRC region.
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. Decrease in revenue was
due to the termination of reinsurance agreements.
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 endedSeptember 30, 2021 decreased by$4.2 million , to$17.1 million compared to$21.3 million for the three months endedSeptember 30, 2020 . Decrease in the cost of revenue was due to the impact of the outbreak of COVID-19 inTaiwan , resulting in a drop in first year commissions. Related commission cost has also decreased correspondingly. In addition, the increase of persistency rate linked bonuses in the third quarter of 2021 also resulted in a higher gross margin.
Consequently, the gross profit margin increased from 36.0% 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 September 30,
2021 , selling expenses were $0.4 million , reflecting a decrease of $ 0.5
million , compared with $0.9 million for the three months ended September 30,
2020 . The selling expenses decreased for the three months ended September 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 September 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 $7.2
million , reflecting an increase of $1.5 million , compared with $5.7 million for
the three months ended September 30, 2020 . Increase in the general and
administrative expenses was attributed to the higher insurance platform
maintenance fee and the recognition of compensation costs for the issuance of
shares of common stock for the three months ended September 30, 2021 compared to
the same period of 2020.
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 for the three months ended September 30, 2021 remained
consistent with the same period in 2020.
Income tax expense
For the three months endedSeptember 30, 2021 , income tax expense was$1.9 million , reflecting an increase of 16%, compared with the income tax expense of$1.6 million for the three months endedSeptember 30, 2020 . The increase in revenue was mainly due to the Uniwill's turnaround from loss to profit during the third quarter of 2021. 30
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Results of Operations- Nine Months ended
The following table shows the results of operations for the nine months ended
Nine Months Ended September 30,
2021 2020
(Unaudited) (Unaudited) Change Percent
Revenue $ 95,133,297 $ 91,200,916 $ 3,932,381 4 %
Cost of revenue 59,576,604 63,261,959 (3,685,355) (6) %
Gross profit 35,556,693 27,938,957 7,617,736 27 %
Gross profit margin 37.4 % 30.6 % 6.8 % 22 %
Operating expenses:
Selling 1,073,702 1,783,692 (709,990) (40) %
General and administrative 19,470,001 18,033,664 1,436,337 8 %
Total operating expenses 20,543,703 19,817,356 726,347 4 %
Income from operations 15,012,990
8,121,601 6,891,389 85 %
Other income (expenses): Interest income 330,054 325,168 4,886 2 % Interest expenses (136,807) (153,703) 16,896 (11) % Foreign currency exchange losses, net (130,527) (150,893) 20,366 (13) % Dividend income 251,827 321,603 (69,776) (22) % Other - net 513,569 245,689 267,880 109 % Total other income, net 828,116 587,864 240,252 41 % Income before income taxes 15,841,106 8,709,465 7,131,641 82 % Income tax expense (4,308,482) (3,167,104) (1,141,378) 36 % Net income 11,532,624 5,542,361 5,990,263 108 % Net income attributable to the noncontrolling interests (4,911,643) (2,600,048) (2,311,595) 89 % Net income attributable toChina United's shareholders$ 6,620,981 $ 2,942,313 $ 3,678,668 125 % Revenue
For the nine months ended
Geographic Areas Nine Months Ended September 30,
2021 2020 Change Percent
Revenue
Taiwan segment $ 90,439,019 $ 85,978,351 $ 4,460,668 5.2 %
Percentage of revenue 95.1 % 94.3 %
PRC segment 4,554,515 4,978,500 (423,985) (8.5) %
Percentage of revenue 4.8 % 5.4 %
Hong Kong segment 139,763 244,065 (104,302) (42.7) %
Percentage of revenue 0.1 % 0.3 %
Total revenue $ 95,133,297 $ 91,200,916 $ 3,932,381 4.3 %
Revenue from our Taiwan segment increased by $4.4 million from $86.0 million for
the nine months ended September 30, 2020 to $90.4 million for the nine months
ended September 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 nine months ended September 30, 2021 . In
addition, the rise in the exchange rate of the Taiwan dollar against the US
dollar during the first three quarters of 2021 also contributed to the increase
of revenue.
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Revenue from our PRC segment decreased by $0.4 million from $5.0 million for the
nine months ended September 30, 2020 to $4.6 million for the nine months ended
September 30, 2021 . Decrease in revenue was primarily caused by the PRC
government resuming a selling policy for insurance products in August 2020 which
entails the audio and video recording of certain insurance sales processes. Such
PRC policy has a direct and adverse impact on our revenue from the PRC region.
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. Decrease in revenue
were due to the termination of reinsurance agreements.
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 nine months endedSeptember 30, 2021 decreased by$3.7 million , to$59.6 million compared to$63.3 million for the nine months endedSeptember 30, 2020 . Decrease in the cost of revenue was due to the impact of the outbreak of COVID-19 inTaiwan , resulting in a drop in first year commissions. Related commission cost has also decreased correspondingly.
Consequently, the gross profit margin increased from 30.6% for the nine months
ended
Selling expenses Selling expenses were mainly incurred by Law Broker and Uniwill in connection with online marketing and advertising. For the nine months endedSeptember 30, 2021 , selling expenses were$1.1 million , reflecting a decrease of$0.7 million , compared with$1.8 million for the nine months endedSeptember 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 nine months endedSeptember 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. General and administrative expenses were $19.5
million , reflecting an increase of $1.5 million , compared with $18.0 million for
the nine months ended September 30, 2020 . Increase in the general and
administrative expenses were because of the higher insurance platform
maintenance fee and the recognition of compensation costs for the issuance of
shares of common stock for the nine months ended September 30, 2021 compared to
the same period of 2020.
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. The increase in other income for the nine months ended September 30, 2021
was due to the gain on sales of marketable securities.
Income tax expense
For the nine months endedSeptember 30, 2021 , income tax expense was$4.3 million , reflecting an increase of 36%, compared with the income tax expense of$3.2 million for the nine months endedSeptember 30, 2020 . The increase in revenue was mainly due to the Uniwill's turnaround from operating at loss to profit during the first three quarters of 2021. 32 Table of Contents
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 nine months periods endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, 2021 2020 Change Percent
Net cash provided by operating activities
(4,061,826) (8,646,611) 4,584,785 (53.0) %
Net cash provided by financing activities 3,886,078 4,938,811 (1,052,733) (21.3) %
Operating activities
Net cash provided by operating activities during the nine months ended September
30, 2021 was $9.0 million , an increase of 101.9% in comparison with $4.4 million
net cash provided by operating activities during the nine months ended September
30, 2020 . The increase was mainly due to the rise in persistency rate linked
bonuses and the turnaround of Uniwill, a subsidiary of the company, from loss to
profit for the nine months ended September 30, 2021 compared with that of the
same period in 2020.
Investing activities
Net cash used in investing activities was $4.1 million during the nine months
ended September 30, 2021 as compared with the net cash used in investing
activities of $8.7 million for the nine months ended September 30, 2020 .
Decreases in the cash outflows for the investing activities resulted from the
increase of the proceeds from sales of marketable securities, and less purchase
of equipment, partially offset by the increase of purchase in time deposits
during the first three quarters of 2021.
Financing activities
Net cash provided by financing activities was
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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