Zhongchao Inc. Reports the Fiscal Year 2021 Financial Results

SHANGHAI, May 9, 2022 /PRNewswire/ -- Zhongchao Inc. (NASDAQ: ZCMD) ("Zhongchao" or the "Company"), an internet technology company offering healthcare professionals the online healthcare information, professional training and educational services platform and patient management service, today announced its financial results for the fiscal year ended December 31, 2021.

Key Financial Highlights for the Fiscal Year 2021 as compared to the Fiscal Year 2020

	For the Years Ended December 31,
	2021		2020		%Change
Revenues	$	16,296,770	$	17,989,788		-9.4%
Gross profit	$	9,438,826	$	11,872,148		-20.5%
Gross margin		57.9%		66.0%		-8.1pp
(Loss) income from operations	$	(320,741)	$	4,489,353		-107.1%
Operating (loss) margin		-2.0%		25.0%		-27.0pp
(Loss) income before income taxes	$	(110,753)	$	4,941,884		-102.2%
Net income attributable to Zhongchao Inc.'s shareholders	$	238,665	$	4,458,380		-94.6%
Earnings per share	$	0.010	$	0.183		-94.5%

* pp: percentage points

Revenues decreased by 9.4% to $16.30 million for the fiscal year 2021.
Gross profit decreased by 20.5% to $9.44 million and gross margin decreased by 8.1 percentage points to 57.9% for the fiscal year 2021.
Loss from operations was $0.32 million for the fiscal year 2021.
Net income attributable to the Company's ordinary shareholders decreased by 94.6% to $0.24 million for the fiscal year 2021, primarily driven by increased cost of revenues and operating expenses.
Earnings per share was $0.010 for the fiscal year 2021, compared to $0.183 for the same period of last year.

Financial Results for the Fiscal Year Ended December 31, 2021

Revenues

For the fiscal year 2021, revenues decreased by $1.69 million, or 9.4%, to $16.30 million from $17.99 million for the same period of last year. The decrease in revenues was primarily caused by decreased revenues from medical training and education services.

Cost of revenues

Cost of revenue increased by $0.74 million, or 12.1%, to $6.86 million for the fiscal year 2021 from $6.12 million for the same period of last year. The increase of cost of revenues was driven by increased labor costs for the patient-aid projects.

Gross profit

Gross profit decreased by $2.43 million, or 20.5%, to $11.87 million for the fiscal year 2021 from $9.44 million for the same period of last year.

Gross margin decreased by 8.1 percentage points to 57.9% for the fiscal year 2021, compared to 66.0% for the same period of last year.

Operating expenses

Selling and marketing expenses decreased by $0.30 million, or 8.9%, to $3.14 million for the fiscal year 2021 from $3.44 million for the same period of last year. The increase in selling and marketing expenses was mainly attributable to the decrease in advertising expenses. As a percentage of total revenues, selling and marketing expenses was 19.3% for the fiscal year 2021, compared to 19.1% for the same period of last year.

General and administrative expenses increased by $2.74 million, or 87.7%, to $5.86 million for the fiscal year 2021 from $3.12 million for the same period of last year. The increase in general and administrative expenses was mainly attributable to the write-off doubtful accounts against accounts receivable because of remote collection from certain NFPs. As a percentage of total revenues, general and administrative expenses was 36.0% for the fiscal year 2021, compared to 17.4% for the same period of last year.

Research and development expenses decreased by $0.06 million, or 7.1%, to $0.76 million for the fiscal year 2021 from $0.82 million for the same period of last year. As a percentage of total revenues, research and development expenses was 4.7% and 4.5% for the fiscal year 2021 and 2020.

Total operating expenses increased by $2.38 million, or 32.2%, to $9.76 million for the fiscal year 2021 from $7.38 million for the same period of last year. The increase in operating expenses was mainly attributable to increased general and administrative expenses.

Loss (income) before income taxes

Loss before income taxes was $0.11 million for the fiscal year 2021 compared to income before income taxes of $4.94 million for the same period of last year. The change in loss (income) before income taxes was primarily attributable to increased cost of revenues and operating expenses.

Income tax benefits (expenses)

Income tax benefits was $0.35 million for the fiscal year 2021 compared to income tax expenses of $0.48 million for the same period of last year.

Net income and EPS

Net income decreased by $4.22 million, or 94.6%, to $0.24 million for the fiscal year 2021 from $4.46 million for the same period of last year. The decrease in income before income taxes was primarily attributable to increased cost of revenues and operating expenses.

After deducting for non-controlling interests, net income attributable to the Company's shareholders decreased by $4.22 million, or 94.6%, to $0.24 million for the fiscal year 2021 from $4.46 million for the same period of last year.

Earnings per share was $0.010 for the fiscal year 2021, compared to $0.183 for the same period of last year. Weighted average number of shares was 24,938,513 for the fiscal year 2021, compared to 24,425,637 for the same period of last year.

Financial Condition and Cash Flows

As of December 31, 2021, the Company had cash and cash equivalents of $13.91 million, compared to $15.07 million as of December 31, 2020. Accounts receivable were $9.22 million as of December 31, 2021, compared to $10.32 million as of December 31, 2020. Working capital was $23.67 million as of December 31, 2021, compared to $26.61 million as of December 31, 2020.

Net cash provided by operating activities was $2.86 million for the fiscal year 2021, compared to net cash used in operating activities of $1.04 million for the same period of last year. Net cash used in investing activities was $4.02 million for the fiscal year 2021, compared to $4.09 million for the same period of last year. Net cash provided by financing activities was $nil for the fiscal year 2021, compared to $11.50 million, resulting from the net proceeds from the Company's IPO in February 2020, for the fiscal year 2020.

About Zhongchao Inc.

Incorporated in 2012 with headquarter offices in Shanghai and Beijing, China, Zhongchao Inc. a platform-based internet technology company. It provides online healthcare information, professional training and educational services to healthcare professionals under its "MDMOOC" platform (www.mdmooc.org), offers patient management service on the professional field of tumor and rare diseases via "Zhongxin", and operates an online information platform, Sunshine Health Forums, to general public. More information about the Company can be found at its investor relations website at http://izcmd.com.

Safe Harbor Statement

This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. When the Company uses words such as "may, "will, "intend," "should," "believe," "expect," "anticipate," "project," "estimate" or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the actual results to differ materially from the Company's expectations discussed in the forward-looking statements. These statements are subject to uncertainties and risks including, but not limited to, the following: the Company's goals and strategies; the Company's future business development; product and service demand and acceptance; changes in technology; economic conditions; the growth of the professional training and educational services market in China and the other international markets the Company plans to serve; reputation and brand; the impact of competition and pricing; government regulations; fluctuations in general economic and business conditions in China and the international markets the Company plans to serve and assumptions underlying or related to any of the foregoing and other risks contained in reports filed by the Company with the SEC, the length and severity of the recent coronavirus outbreak, including its impacts across our business and operations. For these reasons, among others, investors are cautioned not to place undue reliance upon any forward-looking statements in this press release. Additional factors are discussed in the Company's filings with the SEC, which are available for review at www.sec.gov. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

For more information, please contact:

At the Company:
Pei Xu, CFO
Email: xupei@mdmooc.org
Phone: +86 21-3220-5987

Investor Relations:
Sherry Zheng
Weitian Group LLC
Email: shunyu.zheng@weitian-ir.com
Phone: +1 718-213-7386

ZHONGCHAO INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Expressed in U.S. dollar, except for the number of shares)

	December 31, 2021		December 31, 2020
ASSETS
Current Assets
Cash and cash equivalents	$	13,914,982	$	15,072,947
Short-term investments		296,158		2,032,928
Accounts receivable		9,218,883		10,321,837
Prepayments		394,971		554,298
Loans receivable		2,660,668		-
Due from a related party		392,305		-
Other current assets		375,709		1,613,408
Total Current Assets		27,253,676		29,595,418

Investment in equity method investees		1,993,285		1,258,787
Investment in an equity security		150,000		-
Property and equipment, net		3,923,086		1,997,761
Deposit for property		181,233		700,884
Prepayments for lease of land		353,347		367,588
Intangible assets, net		30,259		34,973
Right of use assets		205,824		65,137
Deferred tax assets		2,176,710		795,547
Total Assets	$	36,267,420	$	34,816,095

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	38,933	$	408,426
Advances from customers		7,432		6,760
Income tax payable		2,478,273		1,523,175
Operating lease liabilities, current portion		88,968		62,160
Accrued expenses and other liabilities		974,801		981,433
Total Current Liabilities		3,588,407		2,981,954

Operating lease liabilities, noncurrent portion		112,591		-
Total Liabilities		3,700,998		2,981,954

Commitments and Contingencies

Shareholders' Equity
Class A Ordinary Share (par value $0.0001 per share, 450,000,000 shares authorized; 19,453,423 and 19,435,423 shares issued and outstanding at December 31, 2021 and 2020, respectively)		1,946		1,944
Class B Ordinary Share (par value $0.0001 per share, 50,000,000 shares authorized; 5,497,715 and 5,497,715 shares issued and outstanding at December 31, 2021 and 2020, respectively)		550		550
Additional paid-in capital		22,986,975		22,775,154
Statutory reserve		1,199,054		801,502
Retained earnings		7,180,891		7,339,778
Accumulated other comprehensive income		1,197,006		915,213
Total Shareholders' Equity		32,566,422		31,834,141
Total Liabilities and Shareholders' Equity	$	36,267,420	$	34,816,095

ZHONGCHAO INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Expressed in U.S. dollar, except for the number of shares)

	For the Years Ended December 31,
	2021		2020		2019
Revenues	$	16,296,770	$	17,989,788	$	14,882,763
Cost of revenues		(6,857,944)		(6,117,640)		(4,655,827)
Gross Profit		9,438,826		11,872,148		10,226,936

Operating Expenses
Selling and marketing expenses		(3,137,316)		(3,441,941)		(3,196,469)
General and administrative expenses		(5,863,373)		(3,124,301)		(2,524,003)
Research and development expenses		(758,878)		(816,553)		(864,320)
Total Operating Expenses		(9,759,567)		(7,382,795)		(6,584,792)

(Loss) Income from Operations		(320,741)		4,489,353		3,642,144

Interest income, net		175,987		146,965		211,479
Other income, net		34,001		305,566		534,020
(Loss) Income Before Income Taxes		(110,753)		4,941,884		4,387,643

Income tax benefits (expenses)		349,418		(484,787)		(387,144)

Net Income		238,665		4,457,097		4,000,499

Net loss attributable to noncontrolling interests		-		1,283		46,171

Net Income Attributable to Zhongchao Inc.'s shareholders	$	238,665	$	4,458,380	$	4,046,670

Other Comprehensive Income (Loss)
Foreign currency translation adjustment		281,793		1,259,984		(173,604)
Comprehensive Income		520,458		5,717,081		3,826,895

Total comprehensive loss attributable to noncontrolling interests		-		1,283		46,171
Total comprehensive income attributable to Zhongchao Inc.'s shareholders	$	520,458	$	5,718,364	$	3,873,066

Weighted average number of ordinary share outstanding
Basic and Diluted		24,938,513		24,425,637		21,600,135

Earnings per share
Basic and Diluted	$	0.010	$	0.183	$	0.187

ZHONGCHAO INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in U.S. dollar, except for the number of shares)

	For the Years Ended December 31,
	2021		2020		2019
Cash Flows from Operating Activities:
Net income	$	238,665	$	4,457,097	$	4,000,499
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Write-off of accounts receivable		1,449,827		336,367		-
Depreciation and amortization expenses		341,608		202,325		102,905
Amortization of right of use assets		361,369		222,353		159,259
Share-based compensation expenses		211,823		168,350		159,984
Deferred tax benefits		(1,346,616)		(58,424)		(318,087)
Equity investment loss		13,758		25,622		-
Changes in fair value of short-term investments		58,403		10,331		-
Changes in operating assets and liabilities:
Accounts receivable		(104,230)		(5,486,914)		(3,134,065)
Prepayments		171,144		(197,402)		231,894
Other current assets		1,302,009		(1,143,200)		119,523
Accounts payable		(375,144)		260,350		94,461
Advances from customers		496		6,398		(476,261)
Income tax payable		905,733		535,981		618,120
Accrued expenses and other liabilities		(4,430)		179,738		408,725
Lease liabilities		(362,567)		(230,819)		(153,616)
Deferred government grants		-		(325,992)		(405,321)
Net Cash Provided by (Used in) Operating Activities		2,861,848		(1,037,839)		1,408,020

Cash Flows from Investing Activities:
Purchases of property and equipment		(1,799,860)		(160,602)		(1,312,941)
Payments of deposits for property purchase		-		(688,267)		-
Investments in short-term investments		-		(2,043,259)		(2,460,879)
Investment in a limited partnership		-		(1,217,039)		-
Investment in equity method investees		(708,129)		-		-
Investment in an equity security		(150,000)		-		-
Release from short-term investments		1,678,367		-		3,618,940
Buy out of a non-controlling interests		-		-		(33,718)
Loan (provided to) repayment from related parties		(387,549)		14,489		(14,476)
Loans provided to third parties		(3,725,211)		-		-
Loans repayment from third parties		1,075,098		-		-
Net Cash Used in Investing Activities		(4,017,284)		(4,094,678)		(203,074)

Cash Flows from Financing Activities:
Proceeds from issuance of ordinary shares in connection with initial public offering, net of offering cost		-		11,886,363		-
Payment of expenses relating to initial public offerings		-		(388,709)		(468,328)
Repayment of bank borrowings		-		-		(723,788)
Net Cash Provided by (Used in) Financing Activities		-		11,497,654		(1,192,116)

Effect of exchange rate changes on cash and cash equivalents		(2,529)		875,258		(98,953)

Net (decrease) increase in cash and cash equivalents		(1,157,965)		7,240,395		(86,123)
Cash and cash equivalents at beginning of year		15,072,947		7,832,552		7,918,675
Cash and cash equivalents at end of year	$	13,914,982	$	15,072,947	$	7,832,552

Supplemental Cash Flow Information
Cash paid for interest expense	$	-	$	-	$	30,312
Cash paid for income tax	$	91,464	$	2,642	$	87,111

Noncash investing activities
Right of use assets obtained in exchange for operating lease obligations	$	555,639	$	37,919	$	419,362