JRSIS HEALTH CARE CORPORATION Cautionary Statement Regarding Forward Looking Statements
The discussion contained in this Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E ofthe United States Securities Exchange Act of 1934, as amended. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases like "anticipate," "estimate," "plans," "projects," "continuing," "ongoing," "target," "expects," "management believes," "we believe," "we intend," "we may," "we will," "we should," "we seek," "we plan," the negative of those terms, and similar words or phrases. We base these forward-looking statements on our expectations, assumptions, estimates and projections about our business and the industry in which we operate as of the date of this Form 10-Q. These forward-looking statements are subject to a number of risks and uncertainties that cannot be predicted, quantified or controlled and that could cause actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. The "Risk Factors" section in our Annual Report on Form 10-K describes factors, among others, that could contribute to or cause these differences. Actual results may vary materially from those anticipated, estimated, projected or expected should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect. Because the factors discussed in the Risk Factors section of our Form 10-K could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement made by us or on our behalf, you should not place undue reliance on any such forward-looking statement. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this Form 10-Q. 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 Quarterly Report on Form 10-Q, 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. Overview
Harbin Jiarun Hospital Company Limited ("Jiarun") was established inHarbin in the Province ofHeilongjiang ofthe People's Republic of China ("PRC") by the ownerJunsheng Zhang onFebruary 17, 2006 .
Harbin Jiarun Hospital Co., Ltd Nanjing Road Branch ("
Harbin Jiarun Hospital Co., Ltd Harbin New District Branch ("3rd
Jiarun is a private hospital serving patients on a municipal and county level and providing both Western and Chinese medical practices to the residents ofHarbin . Jiarun specializes in the areas of Pediatrics, Dermatology, ENT,Traditional Chinese Pharmaceuticals (TCM), Ophthalmology, Internal Pharmaceuticals Dentistry, General Surgery, Rehabilitation Science, Gynecology and General Medical Services. 2 OnNovember 20, 2013 ,Junsheng Zhang , the senior officer ofJiarun Hospital , establishedJRSIS Health Care Corporation , aFlorida corporation ("JHCC" or the "Company"). OnFebruary 25, 2013 , the officer ofJiarun Hospital establishedJRSIS Health Care Limited ("JHCL"), a wholly owned subsidiary of the Company, and onSeptember 17, 2012 , the officer ofJiarun Hospital establishedRunteng Medical Group Co., Ltd ("Runteng"), a wholly owned subsidiary of JHCL. Runteng, aHong Kong registered Investment Company, holds a 70% ownership interest inHarbin Jiarun Hospital Company Ltd , aHeilongjiang registered company. OnDecember 20, 2013 , the Company acquired 100% of the issued and outstanding capital stock ofJRSIS Health Care Limited , a privately heldLimited Liability Company registered in theBritish Virgin Islands , for 12,000,000 shares of our common stock. JHCL, through its wholly owned subsidiary,Runteng Medical Group Co., Ltd , holds majority ownership in Jiarun, a company duly incorporated, organized and validly existing under the laws ofChina . As the parent company, JHCC rely on Jiarun to conduct 100% of our businesses and operations. We have two sources of patient revenues: in-patient service revenues and out-patient service revenues. In addition to provide services to our patients, we also sell pharmaceutical pharmaceuticals to our patients. Revenues from such sales are included in either our in-patient service revenues or our out-patient service revenues. Our revenues come from individuals as well as third-party payers, including PRC government programs and insurance providers, under which the hospital is paid based upon local government established charges. Revenue from the sale of pharmaceuticals is recognized when it is both earned and realized. The Company's policy is to recognize the sale of pharmaceuticals when the title of the pharmaceuticals, ownership and risk of loss have transferred to the purchasers, and collection of the sales proceeds is reasonably assured, all of which generally occur when the patient receives the pharmaceuticals. Patient service revenue is recognized when it is both earned and realized. The Company's policy is to recognize patient service revenue when the medical service has been provided to the patient and collection of the revenue is reasonably assured.
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, 2020 , 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
an allowance for doubtful accounts of
on our review of the statement from Harbin Medical Insurance 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 $3,288,027 , 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.
3
Results of Operations for Three Months Ended
The following table shows key components of the results of operations during
three months ended
Three Months Ended
March 31, Change
2021 2020 $ %
Revenue:
Pharmaceuticals $ 1,764,301 $ 1,835,709 $ (71,408 ) (4 %)
Patient services 5,561,933 4,152,290 1,409,643 34 %
Total revenue 7,326,234 5,987,999 1,338,235 22 %
Operating costs and expenses:
Cost of pharmaceuticals sold 1,351,156 1,224,887 126,269 10 %
Medical consumables 1,080,010 932,532 147,478 16 %
Salaries and benefits 2,259,143 1,914,777 344,366 18 %
Office supplies 247,418 195,597 51,821 26 %
Vehicle expenses 41,442 46,135 (4,693 ) (10 %)
Utilities expenses 226,010 219,945 6,065 3 %
Operating leases expense 269,204 43,630 225,574 517 %Advertising and promotion expenses 16,638 139
16,499 11870 %
Interest expense 291,518 175,834 115,684 66 %
Professional fee 8,908 7,625 1,283 17 %
Convertible notes expense - 21,542 (21,542 ) (100 %)
Warrant expense 20,531 248,877 (228,346 ) (92 %)
Depreciation 807,974 579,947 228,027 39 %Total operating costs and expenses 6,619,952 5,611,467 1,008,485 18 % Earnings from operations before other income and income taxes 706,282 376,532 329,750 88 % Other (expenses) income (3,776 ) (4,446 ) 670 (15 %) Earnings from operations before income taxes 702,506 372,086 330,420 89 % Income tax 206,584 57,169 149,415 261 % Net income 495,922 314,917 181,005 57 % Less: net income attributable to non-controlling interests 168,238 159,394 8,844 6 %
Net income attributable to the Company
111 %
Comprehensive income:
Foreign currency translation adjustment (73,749 ) (487,942 ) 414,193 (85 %)
Foreign currency translation adjustment
attributable to non-controlling
interests (22,590 ) (144,115 ) 121,525 (84 %)
Foreign currency translation adjustment
attributable to the Company (51,159 ) (343,827 ) 292,668 (85 %)
Comprehensive income $ 422,173 $ (173,025 ) $ 595,198 (344 %)
4
Revenue
Operating revenue for the three months endedMarch 31, 2021 , which resulted primarily from pharmaceuticals revenue and patient services revenue, was$7,326,234 , an increase of 22% as compared with the operating revenue of$5,987,999 for the three months endedMarch 31, 2020 . Revenue from the sale of pharmaceuticals decreased by 4%, while revenue from provision of patient services increased by 34%. The increase was primarily a result of restrictions imposed by government agencies on business operations withinHarbin City in order to control the spread of COVID-19 in the first quarter of 2020. During the first quarter of 2021, the company has provide service to 80,462 patients, increased 13%(or 8,987 patients), compared with the 71,475 patients treated atJiarun Hospital in the first quarter of 2020. Operating Costs and Expenses Total operating costs and expenses were$6,619,952 for the three months endedMarch 31, 2021 , an increase of$1,008,485 or 18% as compared to$5,611,467 for the first quarter of 2020. Since revenue increased by 22% quarter-to-quarter, the 18% increase in operating costs and expenses correlated with the 22% increase in revenue. The primary components of the$1,008,485 increase in costs and expenses were:
?
cost of medical consumables. These 10% and 16% increase in expenses
attributable to pharmaceuticals and medical consumables were primarily related
to the 34% increase in patient service revenue. Medical consumables mainly
consist of materials expenses, medical repair expenses and test reagents. The
largest components of the increase was the increase in materials expenses of
$358,326 .
?
salaries, and
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 branch hospitals.
?
because we increased the book value of our property and equipment as a result
of additional property and equipment placed in service by
2020, which led to a 39% increase in depreciation during the first quarter of
2021.
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.
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 than RMB5 million . Depreciation for tax purposes is not
required. Basis differences between tax and GAAP for depreciation of property
and equipment exist because in the first quarter of 2021 the Company purchased
Eligible Equipment for RMB 1.6 million , with $14,692 deferred income tax,
creating differences between the tax treatment mandated by the Chinese
government and GAAP tax treatment.
Income from operations and net income
Income from Operations was$706,282 for the three months endedMarch 31, 2021 , as compared with operating income of$376,532 for the three months endedMarch 31, 2020 . After deducting other income and expenses as well as the provision for income tax, the Company's net income for the three months endedMarch 31, 2021 was$495,922 , representing an increase of$181,055 or 57%, from$314,917 recorded for the three months endedMarch 31, 2020 . The increase of income from operations and net income for the three months endedMarch 31, 2021 were primarily due to aforementioned changes in operating revenue and expenses. Our net income was produced by Jiarun. Because we own only 70% of the equity interest in Jiarun (the other 30% being owned by our Chairman,Junsheng Zhang ), we reduced our net income for the three months period endedMarch 31, 2021 and 2020 by an allocation to the "non-controlling interests" of$168,238 and$159,394 , respectively, before recognizing net income attributable to the Company. After those allocations, our net income attributable to the Company for the three months endedMarch 31, 2021 and 2020 was$327,684 ($0.018 per share) and$155,523 ($0.0086 per share), respectively.
Foreign Currency Translation Adjustment.
Our reporting currency is theU.S. dollar. Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by thePeople's Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of stockholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. For the three months endedMarch 31, 2021 and 2020, foreign currency translation adjustments of$(73,749) (of which$(22,590) was attributable to the non-controlling interest) and$(487,942) (of which$(144,115) was attributable to the non-controlling interest), respectively, have been reported as other comprehensive income in the consolidated statements of operations and comprehensive income. 5
Liquidity and Capital Resources
As ofMarch 31, 2021 , the Company had$403,644 of cash and cash equivalents, a decrease of$441,183 from our cash balance atDecember 31, 2020 . The decrease was primarily caused by our financing activities, which used$400,236 of cash during the first quarter of 2021. Our working capital deficit atMarch 31, 2021 was$3,323,590 , an improvement of$553,821 from our deficit of$3,877,411 in working capital atDecember 31, 2020 . The increase was primarily attributable to cash provided by operating activities$267,086 during the first quarter of 2021. Our working capital deficit limits our ability to finance expansion. It is noteworthy, however, that our current liabilities include$39,907 in amounts due to related parties, all of which is owed to our Chairman,Junsheng Zhang , and$3,068,118 representing the current portion of our lease obligations, most of which is also owed to Chairman Zhang. We believe, therefore, that our liquidity is adequate to continue operations at our current level and fund a modest expansion program. Although our current resources and cash flows are adequate to pay our current ongoing obligations, we anticipate that our 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.
Cash Flows and Capital Resources
Our cash flows for the first quarters of 2021 and 2020 are summarized below:
Three Months Ended
March 31,
2021 2020
Net cash provided by operating activities 267,086 1,474,026
Net cash (used in) investing activities (296,102 ) (610,071 )
Net cash (used in) financing activities (400,236 ) (2,081,280 )
Effect of exchange rate fluctuation on cash and cash equivalents (11,931 ) (46,613 )
Net (decrease) in cash and cash equivalents (441,183 ) (1,263,938 )
Cash and cash equivalents, beginning of period 844,827 1,971,129
Cash and cash equivalents, ending of period $ 403,644 $ 707,191
As of March 31, 2021 , the Company had $403,644 of cash and cash equivalents, a
decrease of $441,183 from our cash balance at December 31, 2020 . The decrease
occurred because our operations during the first quarter of 2021 yielded
$267,086 in cash.
Net Cash Provided by Operating Activities
For the three months endedMarch 31, 2021 , we had positive cash flow from operating activities of$267,086 , a decrease of$1,206,940 from$1,474,026 for the three months endedMarch 31, 2020 . Cash flow from operations decreased in part because of the$180,828 decrease in accounts receivables,$348,077 in inventories,$451,804 amount due to related parties and$315,602 prepayments,$969,783 in payroll payable. The cash reduction was partly offset by$181,005 increase in net income during the three months endedMarch 31, 2021 . In addition, several other factors contributed to the reduction in cash flow from operations, including: ? Our accounts payable balance was increase by$1,150,129 .
? Our net income was reduced by a depreciation charge of
cause a corresponding use of cash, as well as other non-cash expenses totaling
$312,049 . At the same time, as a result of the$267,086 in cash provided by operations, our balance sheet atMarch 31, 2021 showed a working capital deficit of$3,323,590 , representing an improvement of$553,821 from our working capital deficit atDecember 31, 2020 .
Net cash used in investing activities for the three months endedMarch 31, 2021 was$296,102 , compared to net cash used in investing activities of$610,071 for the three months endedMarch 31, 2020 . The cash used in investing activities for the three months endedMarch 31, 2021 and 2020 was mainly used for the purchase of medical equipment and payment of Construction in progress.
Net cash used in financing activities for the three months endedMarch 31, 2021 was$400,236 , as compared to net cash used in financing activities of$2,081,280 for the three months endedMarch 31, 2020 . The cash used in financing activities for the three months endedMarch 31, 2021 was mainly due to accounts of finance lease and interest expenses while for the three months endedMarch 31, 2020 was mainly due to payment to related parties and convertible notes, and on account of finance leases. 6 Although our current resources and cash flows are adequate to pay our current ongoing obligations, we anticipate that our 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.
Trends, Events and Uncertainties
The China Ministry of Health , as well as other related agencies, may change the monetary amounts 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 and the
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