Insurance

CHINA UNITED INSURANCE SERVICE, INC. – 10-K

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the consolidated
financial statements and the accompanying notes thereto included in Item 8 of
Part II, "Financial Statements and Supplementary Data" of this Form 10-K Report.
Unless otherwise stated, references to particular years, quarters, months or
periods refer to the Company's fiscal years ended in December and the associated
quarters, months and periods of those fiscal years.

Insight

We are a Delaware corporation, incorporated on June 4, 2010 by Mr. Mao, as a
holding company for both ZLI Holdings Limited ("CU Hong Kong") and Action
Holdings Financial Limited ("AHFL", a company incorporated in the British Virgin
Islands). Our common stock is quoted over the counter under the ticker symbol
"CUII" on the OTCQB. The Company primarily engages in brokerage and insurance
agency services by providing two broad categories of insurance products, life
insurance products and property and casualty insurance products, and conducts
its business primarily in three geographic operating segments, Taiwan, the PRC,
and Hong Kong. The insurance products that the Company's subsidiaries sell are
underwritten by certain leading insurance companies in Taiwan, the PRC and
regions and countries near the PRC.

We have three operating subsidiaries in our Taiwan segment and conduct brokerage
and insurance agency services through the subsidiaries across Taiwan. Through
our recent acquisitions and integrations, our Taiwan segment is able to achieve
synergies among group companies and generate more commission revenues from
marketing and selling insurance products. Revenues from the Taiwan segment
continues to increase and contributed about 95.6% of the total revenue of the
Company for the year ended December 31, 2021. As of December 31, 2021, we had 54
sales and service outlets (including the headquarters) with 5,569 sales
professionals and 276 administrative staff in the Taiwan segment.

Through our Consolidated Affiliated Entities in the PRC segment, we had one
insurance agency and one insurance brokerage company. We have total 32 service
outlets (including the headquarters) with 1,352 full-time sales professionals
and 124 administrative staff in the PRC segment as of December 31, 2021. Our PRC
segment contributed 4.3% of total revenue of the Company for the year ended
December 31, 2021.

                                       49

  Table of Contents

Our Hong Kong segment mainly consists of one operating subsidiary, which acts as
a broker for reinsurance products and earns commissions on sales of insurance
products from other insurers. As of December 31, 2021, we had one sales and
service outlet (including the headquarters) with no sales professionals and one
administrative staff in Hong Kong segment. Our Hong Kong segment contributed
0.1% of total revenue of the Company for the year ended December 31, 2021.

Impact of COVID-19

There has continued to be widespread impact from the coronavirus disease
("COVID-19") pandemic including potentially more contagious strains of COVID-19
such as the Delta and Omicron variants. It has created significant volatility
and uncertainty and economic disruption. The extent to which the pandemic
impacts our business and operations will depend on numerous evolving factors,
many of which are not within our control and which we may not be able to
accurately predict, including its duration and scope; the ultimate availability,
administration and effectiveness of vaccines around the world; governmental
actions that have been and continue to be taken in response to the pandemic,
including vaccine coverage; the impact of the pandemic on economic activity and
actions taken in response; the ability of our clients to pay their insurance
premiums which could impact our commission and fee revenues for our services;
and the long-term impact of employees working from home, including increased
technology costs.

The restrictions implemented might impact our business operation, particularly
from the first year commission ("FYC") perspective. However, the decrease of FYC
is offset by the receiving more contingent commissions which earned from the
previous years. As a result, the total revenue of the Company in the year of
2021 is 5.7% higher compare to that one in the year of 2020.

Significant Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP.
The preparation of financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the consolidated
financial statements and the amounts of revenues and expenses during the period.
We make these estimates using the best information available when they are made.
However, actual results could differ materially from those estimates.

We believe that critical accounting policies involve the most complex, difficult and
subjective estimates and judgments are as follows:

Revenue recognition – the majority of our revenue comes from insurance

agency and brokerage services. The Company, through its subsidiaries and

variable interest entity, sells insurance products provided by insurance

companies to customers who seek to transfer the risk, and is compensated in

in the form of commissions and fees from the respective insurance companies,

under the terms of each service agreement entered into by and between the

Company and insurance companies. The obligation of result is considered

complete and satisfied on the effective date of the linked policy, as such,

that is, when the associated revenue is recognised. For income related to

commission for the first year, the Company will recognize revenue when
? individual policies are effective; for income linked to variables

consideration (mainly any commissions for subsequent years), it

is recorded only when it is probable that a significant reversal of the amount

cumulative recognized revenue will not occur. However, these quotas

commissions are considered very sensitive to factors outside the company

control and depend on the actions of third parties (i.e. the occurrence of the

renewal or subsequent premiums paid by individual policyholders), and the

uncertainty as to how many years the contingency will last. Therefore, the

The company does not have high confidence in estimating the amount of these variables

considerations that will not be reversed in subsequent reporting periods, and

decides to recognize these counterparties as income for the financial year in which

the renewal of the policy is effective;

Measurement of the fair value on the provision for earn-out – the purchase prices recorded for

all acquisitions include an estimate of the fair value of liabilities

associated with any additional price clauses, when an additional price is part of

the negotiated transaction. Determination of the fair value of the price supplement
? provision involves the estimation and judgment on the forecast of operating results

seller’s results and the future price of the Company’s stock. Subsequent

changes in fair value of price supplements are recognized

consolidated statement of income following the update of expectations for

performance of the Company and the seller; and

Complexity of income tax estimates – given the complexity and uncertainties

exist with regard to the interpretation of complex tax regulations and

the amount and timing of future taxable income, differences between the
? the actual results and the assumptions used, or future changes to these assumptions,

may require future adjustments to income and tax burdens already

checked in. The Company establishes tax provisions, based on

estimates, for the possible consequences of audits by the tax authorities

                                       50

  Table of Contents

authorities of the respective counties in which it operates. The amount of such

provisions are based on various factors, such as previous tax experience

audits and divergent interpretations of tax regulations by the taxable person

and the competent tax authority. Such differences in interpretation may arise

on a wide variety of issues depending on the conditions prevailing in the

domicile of the respective Group entities.

For other significant accounting policies and new accounting pronouncements
affecting our financial statements, see note 1 of our 2021 consolidated report
Financial state.

Operating results

Overview of the years ended December 31, 2021 and 2020

The following table shows the results of operations for the years ended December
31, 2021 and 2020:

                                                                          Years Ended December 31,
                                                              2021             2020            Change        Percent
Revenue                                                   $ 131,363,175    $ 124,267,072    $   7,096,103        5.7 %
Cost of revenue                                              84,943,319       87,695,053      (2,751,734)      (3.1) %
Gross profit                                                 46,419,856       36,572,019        9,847,837       26.9 %
Gross profit margin                                                35.3 %           29.4 %            5.9 %     20.1 %

Operating expenses:
Selling                                                       2,285,956        3,226,109        (940,153)     (29.1) %
General and administrative                                   27,400,845       26,955,278          445,567        1.7 %
Total operating expenses                                     29,686,801    

30,181,387 (494,586) (1.6)%

Income from operations                                       16,733,055    

6,390,632 10,342,423 161.8%

Other income (expenses):
Interest income                                                 448,657          453,536          (4,879)      (1.1) %
Interest expenses                                             (183,927)        (202,239)           18,312      (9.1) %
Dividend income                                                 258,601          390,030        (131,429)     (33.7) %
Fair value remeasurement on earn-out provisions             (1,106,513)                -      (1,106,513)          - %
Other - net                                                     497,746        (590,319)        1,088,065    (184.3) %
Total other income (expense), net                              (85,436)    

51,008 (136,444) (267.5)%

Income before income tax                                     16,647,619        6,441,640       10,205,979      158.4 %
Income tax expense                                          (4,994,651)    

(3,407,868) (1,586,783) 46.6%

Net income                                                   11,652,968    

3,033,772 8,619,196 284.1%
Less: net income attributable to non-controlling shareholders
interests

                                                   (5,422,847)     

(2,103,659) (3,319,188) 157.8%
Net income attributable to shareholders of China United $6,230,121 $930,113 $5,000,008 569.8%

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
Taiwan, the PRC and Hong Kong. We generate revenue primarily through our sales
force, which consists of individual sales professionals in our distribution and
service network.

The Company's majority revenues are derived from the commissions from sales of
life insurance products. Total commission revenue from sales of life insurance
products accounted for 92.8% and 94.6% of total revenue for the years ended
December 31, 2021 and 2020, respectively; whereas commission revenue from sales
of property and casualty insurance products only contributed 7.2% and 5.4% of
total revenue for the years ended December 31, 2021 and 2020, respectively.

                                       51

Contents

Most of the individual life insurance products we distribute 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 and enables the Company 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 sale, we have placed significant resources to
expand and sell the 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.

Our total turnover of $131.4 million for the year ended December 31, 2021
increased by $7.1 million (i.e. 5.7%) compared to the total turnover of $124.3
million
for the year ended December 31, 2020. The increase was attributable
mainly to the constant growth of activity in the Taiwan segment. For years
finished December 31, 2021 and 2020, the revenues generated respectively by
TaiwanPRC and hong kong segments was as follows:

                                         Year Ended December 31,
Geographic Areas             2021             2020           Change       Percent
Revenue
Taiwan segment           $ 125,636,326    $ 117,524,429    $ 8,111,897        6.9 %
Percentage of revenue             95.6 %           94.6 %
PRC segment                  5,691,835        6,426,670      (734,835)     (11.4) %
Percentage of revenue              4.3 %            5.2 %
Hong Kong segment               35,014          315,973      (280,959)     (88.9) %
Percentage of revenue              0.1 %            0.2 %
Total revenue            $ 131,363,175    $ 124,267,072    $ 7,096,103        5.7 %


Revenue from our Taiwan segment increased by $8.1 million, or 6.9%, from $117.5
million for the year ended December 31, 2020 to $125.6 million for the same
period ended December 31, 2021. We continued to deliver solid financial results
through our Taiwan segment due to the following reasons:

Uniwill had contributed $6.7 million increase in turnover during the year

(i) 2021. Uniwill’s revenue increase for the year ended December 31, 2021

mainly due to the good performance of the sale of investment-type insurance

Strategies.

The insurance company terminated some long-term care and disability

insurance products in 2020. Prior to this discontinuation, many

individual clients have decided to lock dependency and disability

insurance policy we had offered because individual customers

(ii) believed that these insurance products offered more favorable terms to

them than others available in the market. Such an increase in sales of

      those insurance policies in 2020 had boosted the total sales in our
      insurance policies. The surge in 2020 also caused the increase in
      persistency rate linked bonuses during 2021.


       We received more contingent commissions, which include trailing

(iii) commissions, retention rate bonuses and certain other services

allowance, for the year ended December 31, 2021 due to our continued growth

in sales of insurance products in recent years.

Revenue from our PRC segment decreased by $0.7 million, or 11.4% to $5.7 million
for the year ended December 31, 2021 from $6.4 million for the same period ended
December 31, 2020. Decrease in revenue for the PRC segment was due to the
adverse impact on the outbreak of COVID-19. In addition, a new Chinese policy
for insurance products in August 2020 which requesting sales agents to have
audio and video recording during promotion of insurance, has increased
difficulties for sales agents to expand the market and promote insurance
products to individual customers.

The revenue in the Hong Kong segment 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 decreased by $0.3 million, or 88.9% to 0.04 million for the year
ended December 31, 2021 from $0.3 million for the same period ended December 31,
2020. Decrease in revenue was due to the termination of reinsurance agreements
and the discontinuation of travel insurance.

With the exception of the above analysis, we have not identified any known trends or
uncertainties that have had or are reasonably likely to have a material impact
on revenue or earnings.

                                       52

  Table of Contents

Revenue Cost and Gross Margin

Cost of sales primarily consists of commissions paid to our sales
professionals. Our commission policy to our sales professionals aims to
break down the sales target into smaller, more achievable goals and provides more
incentives for our sales representatives to improve the success rate,
especially for first-year commissions.

The cost of revenue for the year ended December 31, 2021 decreased by $2.8
million or 3.1%, to $84.9 million compared to $87.7 million for the year ended
December 31, 2020. The decrease in the cost of revenue was due to the impact of
outbreak of COVID-19 in Taiwan, resulting in a drop in first year commissions.
Related commission cost has also decreased correspondingly. In addition, the
increase of persistency rate linked bonuses from life insurance products for the
year ended December 31, 2021 also resulted in a higher gross margin. The cost of
revenue for property and casualty insurance products are immaterial for the
years ended December 31, 2021 and 2020.

Consequently, the gross profit margin decreased from 29.4% for the year ended
December 31, 2020 at 35.3% for the year ended December 31, 2021.

Except the aforementioned analysis, we did not identify any know events that are
reasonably likely to cause a material increase in our cost of revenue in the
future.

Selling expenses

Selling expenses were mainly incurred by Law Broker and Uniwill in connection
with online marketing and advertising. Selling expenses decreased $0.9 million
or 29.1% from $3.2 million for the year ended December 31, 2020 to $2.3 million
for the year ended December 31, 2021. Decrease in the selling expenses was
caused by the adverse impact from the outbreak of COVID-19 in Taiwan that
restricted marketing activities for the year ended December 31, 2021.

General and administrative expenses

General and administrative expenses primarily include salaries and benefits for our
administrative staff, office rental costs, travel expenses, depreciation and
amortization, representation costs and professional service costs.

For the year end December 31, 2021, G&A expenses were $27.4 million, reflecting
an increase of $0.4 million or 1.7%, compared with $27.0 million for year ended
December 31, 2020. For the year ended December 31, 2021, the increase in the
general and administrative expenses was caused by the foreign exchange
fluctuation.

Other income (expenses)

Other income (expenses) mainly consisted of interest income, interest expenses,
gain or loss on valuation of financial assets, foreign currency exchange gain or
loss. Net other expenses for the year ended December 31, 2021 was $0.09 million,
reflecting a decrease of $0.14 million or 267.5%, compared with net other income
$0.05 million for the same period of 2020. The decrease in net other income
mainly due to the settlement of earn-out shares for the year ended December 31,
2021. However, the decrease was partially offset by exchange gains for the
year
ended December 31, 2021.

Income tax
For the year ended December 31, 2021, income tax expense was $5.0 million, an
increase of $1.6 million or 46.6%, compared with $3.4 million for the year ended
December 31, 2020. The increase in income tax was mainly due to the Uniwill's
turnaround from loss to profit.

                                       53

Contents

Cash and capital resources

Cash requirements

Our primary sources of liquidity are cash and cash equivalents, time deposits,
marketable securities, and cash generated from operations. Cash available from
operations, including our cash, time deposits, and borrowings under our
revolving line of credit, will be sufficient for our working capital needs,
including commissions payable to sales professionals, performance bonus payable
to management, payments of tax liabilities, marketing and adverting needs to
promoting sales, as well as purchase of equipment. However, future business
opportunities may cause a change in our estimate.

Cash contractual obligations

The following represents a summary of the Company’s contractual cash obligations
and the expected deadlines associated with the December 31, 2021:

                                                            Payments due by period
                                                    Less than                                    More than
Obligations                           Total           1 year        1-3 years     3-5 years       5 years
Debt obligations (1)               $ 18,835,932    $ 18,835,932    $         -    $        -    $          -
Operating lease                       6,569,058       3,193,004      3,235,817       140,237               -
Contractual obligations (2)           3,127,349       2,585,595        541,754             -               -
Capital commitment (3)               10,293,322               -            
 -             -      10,293,322
                                   $ 38,825,661    $ 24,614,531    $ 3,777,571    $  140,237    $ 10,293,322

(1) Debt obligations include our revolving credit facilities with banks.

Contractual obligations include other obligations related to indemnification
(2) plans with the management of Law Broker, amount due to former shareholders of

AHFL.

The capital commitment related to the joint venture agreement (the “JV
(3) Agreement”) with parties unrelated to AIlife, see Note 14 of our 2021

consolidated financial statements.

Cash flow

The following table represents a comparison of our cash flows for the years
finished December 31, 2021 and 2020:

                                                              Year Ended 

the 31st of December,

                                                 2021              2020            Change       Percent
Net cash provided by operating activities    $  13,775,488    $    3,293,760    $ 10,481,728      318.2 %
Net cash used in investing activities          (9,446,329)      (13,829,956)       4,383,627     (31.7) %
Net cash provided by financing activities        4,516,778         5,398,802       (882,024)     (16.3) %


Operating activities

Net cash provided by operating activities for the year ended December 31, 2021
was $13.8 million in comparison with net cash of $3.3 million provided by
operating activities for the year ended December 31, 2020. The increase of $10.5
million or 318.2% 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 year ended December 31, 2021.

Investing activities

Net cash used in investing activities was $9.4 million for the year ended
December 31, 2021 in comparison with net cash of $13.8 million used in investing
activities for the year ended December 31, 2020. The decrease in the cash
outflows of $4.4 million used in investing activities resulted from the increase
of the proceeds from sales of marketable securities and long-term investment.

                                       54

  Table of Contents

Financing activities

Net cash provided by financing activities was $4.5 million for the year ended
December 31, 2021 in comparison with net cash of $5.4 million used in financing
activities for the year ended December 31, 2020. The cash inflows from the
financing activities for the year ended December 31, 2021 was mainly due to a
decrease in the net proceeds from additional borrowings under the revolving
credit agreements for the year ended December 31, 2021.

Off-balance sheet arrangements

We had no off-balance sheet arrangements December 31, 2021.