JRSIS HEALTH CARE CORPORATION The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of such financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate these estimates, including those related to useful lives of real estate assets, bad debts, impairment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. The analysis set forth below is provided pursuant to applicableSEC regulations and is not intended to serve as a basis for projections of future events. See "Cautionary Statement Regarding Forward Looking Statements" above.
Critical Accounting Policies and Management Estimates
In preparing our financial statements we are required to formulate accounting policies regarding valuation of our assets and liabilities and to develop estimates of those values. In our preparation of the financial statements for the year endedDecember 31, 2021 , there were two estimates made which were (a) subject to a high degree of uncertainty and (b) material to our results, as follows:
? The determination, as set forth in Note 3 to our Financial Statements, that
the
warranted an allowance for doubtful accounts of
was based on our review of the statement from
Management Center, Generally, the Center sets for each hospital an insurance
claim limit, even though the hospital is not permitted to refuse to receive
patients. If the hospital receive too many patients, it will exceed the claim
limit, and record an excess insurance claim. The Center will pay part of the
excess insurance claim from an insurance regulatory fund that is shared among
all local hospital that have excess insurance claims, but full reimbursement
is not assured. In accordance with the principle of prudence, the Company made
a determination that any excess insurance claim outstanding for more than two
years without reimbursement should be treated as a doubtful account. As of
without reimbursement was $3,390,247 , which was treated as a bad debt.
? The determination to record depreciation of our principal medical property and
equipment over an average useful life of approximately twenty years. (A
quantification of that depreciation is set forth in Note 6 to our Financial
Statements.) The determination was based primarily on our expectation that the
useful life of our hospital facilities would exceed thirty years, based on the
experience of comparable facilities in our location.
16
Results of Operations for the Years Ended
The following table shows key components of the results of operations during the
years ended
For the Year Ended
December 31, Change
2021 2020 $ %
Revenue:
Medicine $ 11,506,041 $ 9,400,113 $ 2,105,928 22 %
Patient services 32,885,130 26,306,084 6,579,046 25 %
Total revenue 44,391,171 35,706,197 8,684,974 24 %
Operating costs and expenses:
Cost of medicine sold 9,094,776 6,796,711 2,298,065 34 %
Medical consumables 11,103,377 8,338,807 2,764,570 33 %
Salaries and benefits 11,871,813 8,374,223 3,497,590 42 %
Office supplies 1,201,472 1,630,623 (429,151 ) (26 %)
Vehicle expenses 328,341 233,720 94,621 40 %
Utilities expenses 704,658 624,352 80,306 13 %
Rentals and leases 1,155,662 223,949 931,713 416 %Advertising and promotion expenses 35,817 130,246
(94,429 ) (73 %)
Interest expense 1,381,761 1,137,445 244,316 21 %
Professional fee 97,701 109,562 (11,861 ) (11 %)Convertible notes expense - (322,363 )
322,363 (100 %)
Warrant expense (1,142 ) 139,467 (140,609 ) (101 %)
Depreciation 3,313,827 2,696,065 617,762 23 %Total operating costs and expenses 40,288,063 30,112,807 10,175,256 34 % Earnings from operations before other income and income taxes 4,103,108 5,593,390 1,490,282 (27 %) Other income(expenses) 266,957 (396,497 ) 633,454 (167 %) Earnings from operations before income taxes 4,370,065 5,196,893 (826,828 ) (16 %) Income tax 1,181,120 1,369,615 (188,495 ) (14 %) Net income 3,188,945 3,827,278 (638,333 ) (17 %) Other comprehensive income: Foreign currency translation adjustment 931,382 1,611,738
(680,356 ) (42 %)
Comprehensive income $ 4,120,327 $ 5,439,016 $ (1,318,689 ) (24 %)
Revenue
Operating revenue for the year ended December 31, 2021 , which resulted primarily
from medicine (i.e. pharmaceuticals) revenue and patient services revenue, was
$44,391,171 , an increase of 24% as compared with the operating revenue of
$35,706,197 for the year ended December 31, 2020 . Revenue from the sale of
medicine increased by 22%, while revenue from provision of patient services grew
by 25%. The increase in patient service revenue occurred despite the fact that
the number of treated inpatients increased by only 2% to 14,960 patients, 311
more than the 14,649 patients treated in 2020. The primary reason for the
increase in per patient revenue was the fact that in 2020, due to COVID
restrictions, patient treatment was often restricted to emergency and critical
treatments.
Operating costs and expenses
Total operating costs and expenses were $40,288,063 for the year ended December
31, 2021 , an increase of $10,175,256 or 34% as compared to $30,112,807 for 2020.
Since revenue increased by only 24% year-to-year, the 34% increase in operating
costs and expenses resulted in a 27% reduction in operating income. The primary
components of the $10,175,256 increase in costs and expenses were:
?
by 22%, the cost of the medicine sold increased by 34%. The increase was
attributable to both Western medicine and Chinese traditional medicines.
?
mainly consist of materials expenses, medical repair expenses and test
reagents. The largest component of the increase was the increase in inspection
expenses of$1,078,426 .
?
in salaries, and a
increase in our labor costs was primarily caused by the revenue increase
attributable to the hospitals, as we incurred labor costs in preparation for
full scale operations of our new branch hospitals.
?
of a new building for our New District Branch during 2021.
17
?
because we added
a 23% increase in depreciation during 2021.
After taking these factors into account, we reported$4,103,108 in Earnings from Operations during 2021, compared to$5,593,390 during 2020, which represented a 34% decrease. Other Income (expenses) After taking other income (expenses) into account, the Company recorded Earnings before Income Taxes of$4,370,065 in 2021, a decrease of$826,828 or 16% from Earnings before Income Taxes recorded in 2020. Income taxes
Corporate Income Tax (CIT) is determined under the Provisional Regulations of
PRC Concerning Income Tax on Enterprises promulgated by the PRC. Income tax is
payable by enterprises at a rate of 25% of their taxable income.
The following table shows the components of the allowance for PRC income tax
recorded for 2021:
Amounts
Income tax expense $ 447,309
Income tax: 2021 deferred 733,811
Tax expense from continuing operation
Amounts
Reconciliation:
Income tax at statutory rate $ 1,181,120
Tax expense from continuing operation
According to the PRC "Notice on Preferential Corporate Income Tax (CIT) Treatment for Eligible Equipment or Machinery (Cai Shui [2018] No. 54)", a 100% immediate tax deduction for CIT purposes is allowed for purchases of equipment on the condition that the unit price of each item of equipment or machinery is individually less thanRMB5 million . Depreciation for tax purposes is not required. Basis differences between tax and GAAP for depreciation of property and equipment exist because in 2021 the Company purchased Eligible Equipment forRMB27.75 million , which produced$733,811 in deferred income tax, representing the difference between PRC tax treatment and GAAP treatment of taxation arising from equipment acquisition. Net Income After deducting other income and expenses as well as the provision for income tax, the Company's net income for the year endedDecember 31, 2021 was$3,188,945 , representing a decrease of$638,333 or 17% from the$3,827,278 recorded for the year endedDecember 31, 2020 . The decrease in net income for the year endedDecember 31, 2021 was primarily due to aforementioned changes in operating revenue and expenses. 18
Liquidity and Capital Resources
Our cash flows for the past two years are summarized below:
The Year Ended
December 31,
2021 2020
Net cash provided by operating activities 8,233,016 10,643,017
Net cash used in investing activities (5,500,437 ) (8,271,723 )
Net cash used in financing activities (2,798,024 ) (3,430,093 )
Effect of exchange rate fluctuation on cash and cash equivalents 76,589 (67,503 )
Net increase(decrease) in cash and cash equivalents 11,144 (1,126,302 )
Cash and cash equivalents, beginning of period 844,827 1,971,129
Cash and cash equivalents, ending of period $ 855,971 $ 844,827
As of December 31, 2021 , the Company had $855,971 of cash and cash equivalents,
an increase of $11,144 from our cash balance at December 31, 2020 . The increase
occurred because our operations during 2021 yielded $8,233,016 in cash.
Net Cash Provided by Operating Activities
The primary reasons that cash provided by operations so far exceeded our net
income of
? Our net income was reduced by a depreciation charge of
? We increased our accounts payable account by
by increase of accounts receivable account by
other current assets account by
? We increased our deferred tax payable account by
and other current liabilities account by$325,365 . At the same time, despite the$8,233,016 in cash provided by operations, our balance sheet atDecember 31, 2021 showed a working capital deficit of$3,733,571 , representing a decrease of$143,840 from our working capital deficit atDecember 31, 2020 . The primary reason that the cash provided by operations did not significantly improve our working capital was that the greater portion of it was applied to facility costs. Cash flow from operating activities during the year ended ofDecember 31 , 2021substantially exceeded net income, primarily because of an increase in the Company's accounts payable balance by$5,237,579 and an increase in the deferred tax payable balance by$733,811 . These items do not necessarily represent patterns that will be repeated: the Company's ability to defer satisfaction of its payables without injuring its relations with vendors is limited; the surge in 2021 revenue leading to decreased deposits received by$95,809 reflects in part delivery of medical procedures that were delayed by the pandemic. The Company's ability to generate positive cash flow from operating activities during the year of 2021 despite the increment in its profitability may not be replicable in the future operation.
Net cash used in investing activities for the year endedDecember 31, 2021 was$5,500,437 , compared to net cash used in investing activities of$8,271,723 for the year endedDecember 31, 2020 . The decrease in cash used in investing activities for 2021 in comparison with 2020 was mainly due to a decrease of$2,305,437 in purchase of medical equipment and payment of construction in progress to$3,195,000 in 2021 from$8,271,723 in 2020.
Net cash used in financing activities for the year endedDecember 31, 2021 was$2,798,024 , as compared to net cash used in financing activities of$3,430,093 for the year endedDecember 31, 2020 . The decrease in cash used in financing activities for 2021 was mainly due to the reduction in payments on capital lease obligations to$4,047,244 , and interest expenses$1,381,761 while increment on proceeds from finance lease$2,488,411 in 2021 from same items reduction in$4,387,588 and$1,137,445 while increment on$2,272,053 in 2020. Although our current resources and cash flows are adequate to pay our current ongoing obligations, we anticipate that future liquidity requirements will arise from the need to fund our growth and future capital expenditures. The primary sources of funding for such growth requirements are expected to be additional funds raised from the sale of equity and/or debt financing. However, we can provide no assurances that we will be able to obtain additional financing on terms satisfactory to us. 19
Trends, Events and Uncertainties
Many residents of theCity of Harbin , where all of our operations are located, have contracted COVID-19 during the current pandemic. As a result, the national and local government have imposed serious restrictions on business operations within the City, including mandatory quarantines. The quarantines have preventedJiarun Hospital from carrying on its normal operations.The China Ministry of Health , as well as other related agencies, may change the prices we can charge for medical services, drugs and medications. We cannot predict the impact of these proposed changes since the changes are not fully defined and we do not know whether such changes will ever be implemented or
when they may take effect.
We plan to acquire other hospitals and companies involved in the healthcare industry in the PRC using cash and shares of our common stock. Substantial capital may be needed for these acquisitions and we may need to raise additional funds through the sale of our common stock, debt financing or other arrangements. We do not have any commitments or arrangements from any person to provide us with any additional capital. Additional capital may not be available to us, or if available, on acceptable terms, in which case we would not be able to acquire other hospitals or businesses in the healthcare industry. Other than the factors listed above we do not know of any trends, events or uncertainties that have had or are reasonably expected to have a material impact on our net sales or revenues or income from continuing operations. Our business is not seasonal in nature.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet items reasonably likely to have a material effect on our financial condition.
Recent Accounting Pronouncements
Recent accounting pronouncements issued by the FASB, the AICPA or the
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