Company Quick10K Filing
Quick10K
JRSIS Health Care
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
8-K 2018-11-06 Officers
8-K 2018-09-03 Officers, Amend Bylaw, Exhibits
8-K 2017-10-29
NSC Norfolk Southern 55,480
DLTR Dollar Tree 25,320
PNRG Primeenergy 291
GPAQ Gordon Pointe Acquisition 160
SSNT Silversun Technologies 14
PCYN Procyon 0
JCTG Jiucaitong Group 0
SONC Sonic 0
SPIN Spine Injury Solutions 0
DGJI Dragon Jade 0
JRSS 2018-09-30
Part I - Financial Information
Item 1. Consolidated Financial Statements
Note 1. Description of Business and Organization
Note 2. Summaries of Significant Accounting Policies
Note 3. Accounts Receivable, Net
Note 4. Inventories
Note 5. Prepayment
Note 6. Property and Equipment
Note 7. Long Term Deferred Expenses
Note 8. Capital Lease Obligations and Deposit for Capital Leases
Note 9. Short-Term Bank Loan
Note 10. Non-Controlling Interests
Note 11. Revenue
Note 12. Income Tax Expense
Note 13. Related Party Transactions
Note 14. Basic and Diluted Earnings per Share
Note 15. Contingencies and Commitment
Note 16. Common Stock
Note 17. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 tv506835_ex31-1.htm
EX-31.2 tv506835_ex31-2.htm
EX-32.1 tv506835_ex32-1.htm
EX-32.2 tv506835_ex32-2.htm

JRSIS Health Care Earnings 2018-09-30

JRSS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv506835_10q.htm FORM 10-Q

 

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

 

or

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File Number: 001-36758

 

JRSIS HEALTH CARE CORPORATION. 

 (Exact name of Registrant as specified in its charter)

 

Florida   8099   46-4562047
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)   Classification Code Number)   Identification Number)

 

st – 7 th Floor, Industrial and Commercial Bank Building,

Xingfu Street, Hulan Town, Hulan District, Harbin City,

Heilongjiang Province, China 150025  

 

(Address, including zip code, and telephone number, including area code,

of Registrant’s principal executive offices)

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x  No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer   x  Smaller reporting company x
  Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of the date of filing of this report, there were outstanding 14,975,000 shares of the issuer’s common stock, par value $0.001 per share.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION 3
     
Item 1 Consolidated Financial Statements 3
     
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 12
     
Item 4 Controls and Procedures 12
     
PART II – OTHER INFORMATION 13
     
Item 1 Legal Proceedings 13
     
Item 1A Risk Factors 13
     
Item 2 Unregistered Sale of Equity Securities and Use of Proceeds 13
     
Item 3 Defaults Upon Senior Securities 13
     
Item 4 Mine Safety Disclosures 13
     
Item 5 Other Information 13
     
Item 6 Exhibits 13
     
  Signatures 14

 

 

 2 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.    Consolidated Financial Statements

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Item Regulation S-X, Rule 10-01(c) Interim Financial Statements, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that can be expected for the year ended December 31, 2018.

 

 3 

 

  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
JRSIS HEALTH CARE CORPORATION  
   
Consolidated Balance Sheets— September 30, 2018 (Unaudited) and December 31, 2017 F-2
   
Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited) F-3
   
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (Unaudited) F-4
   
Notes to Consolidated Financial Statements (Unaudited) F-5 - 18

 

 F-1 

 

 

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN USD, EXCEPT SHARES)

 

   September 30,   December 31, 
   2018   2017 
   (Unaudited)   (Audited) 
         
Assets          
Current Assets:          
Cash and cash equivalents  $327,250   $884,292 
Accounts receivable, net   7,812,061    5,678,957 
Inventories   1,297,748    936,549 
Other receivables   7,455    3,334 
Prepayments   2,505,473    900,680 
Amount due from related parties   50,000    1,788,710 
Deferred expenses   65,690    69,334 
Total current assets   12,065,677    10,261,856 
Construction in progress   11,661,743    11,320,976 
Property and equipment, net   26,068,324    26,151,630 
Long term deferred expenses   51,551    106,411 
Deposits for capital leases   794,078    838,121 
Total assets  $50,641,373   $48,678,994 
           
Liabilities and shareholders’ equity          
Current Liabilities:          
Accounts payable  $2,728,145   $2,105,563 
Short-term bank loan   -    445,647 
Deposits received   14,120    6,305 
Amount due to related parties   897,736    73,993 
Other payable   25,642    77,935 
Payroll payable   61,479    57,016 
Capital lease obligations - current portion   2,236,489    2,313,181 
Total current liabilities   5,963,611    5,079,640 
           
Capital lease obligations   19,439,842    22,767,740 
Other capital lease payable   566,994    598,811 
Total liabilities  $25,970,447   $28,446,191 
           
Shareholders’ equity          
Common stock; $0.001 par value, 100,000,000 shares authorized; 14,975,000 and 14,835,000 issued and outstanding at September 30, 2018 and December 31, 2017, respectively   14,975    14,835 
Additional Paid-in capital   2,191,363    2,051,503 
Retained earnings   14,870,133    10,920,942 
Other comprehensive income   (1,079,020)   (93,520)
Total shareholders’ equity of the Company   15,997,451    12,893,760 
Non-controlling interest   8,673,475    7,339,043 
Total shareholders’ equity   24,670,926    20,232,803 
Total liabilities and shareholders’ equity  $50,641,373   $48,678,994 

 

See notes to consolidated financial statements

 

 F-2 

 

  

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(AMOUNTS IN USD, EXCEPT SHARES)(UNAUDITED)

 

    Three Months Ended 
September 30,
    Nine Months Ended 
September 30,
 
    2018     2017     2018     2017  
                         
Revenue:                                
Medicine   $ 2,648,488     $ 2,407,174     $ 8,136,990     $ 7,356,170  
Patient services     4,117,599       3,315,923       12,453,744       9,236,136  
Total revenue     6,766,087       5,723,097       20,590,734       16,592,306  
Operating costs and expenses:                                
Cost of medicine sold     1,817,244       1,573,420       5,571,186       4,799,786  
Medical consumables     1,142,947       648,258       2,882,982       1,755,032  
Salaries and benefits     1,132,315       934,950       3,235,366       2,643,753  
Office supplies     147,646       249,389       527,015       581,678  
Vehicle expenses     44,650       22,842       110,882       65,667  
Utilities expenses     77,240       74,222       339,070       293,706  
Rentals and lease     24,886       5,877       78,277       5,877  
Advertising and promotion expenses     57,755       22,869       73,477       59,064  
Interest expense     258,857       351,137       844,153       980,451  
Professional fee     93,557       15,869       93,557-       54,182  
Depreciation     392,840       322,476       1,175,020       936,827  
Total operating costs and expenses     5,189,937       4,221,309       14,930,985       12,176,023  
Earnings from operations before other income and income taxes     1,576,150       1,501,788       5,659,749       4,416,283  
Other income (expenses)     (4,104)       7,108       (12,541 )     (13,155
Earnings from operations before income taxes     1,572,046       1,508,896       5,647,208       4,403,128  
Income tax     871       437       5,507       2,072  
Net income     1,571,175       1,508,459       5,641,701       4,401,056  
Less: net income attributable to non-controlling interests     471,352       452,538       1,692,510       1,320,317  
Net income attributable to the Company   $ 1,099,823     $ 1,055,921     $ 3,949,191     $ 3,080,739  
Comprehensive income:                                
Foreign currency translation adjustment attributable to non-controlling interests     (264,394 )     86,880       (358,078 )     189,867  
Foreign currency translation adjustment attributable to the Company     (618,229 )     203,045       (985,500 )     393,121  
Comprehensive income   $ 688,552     $ 1,798,384     $ 4,298,123     $ 4,984,044  
Less: Comprehensive income attributable to non-controlling interests     206,958       539,418       1,334,432       1,510,184  
Comprehensive income attributable to the Company   $ 481,594     $ 1,258,966     $ 2,963,691     $ 3,473,860  
                                 
Basic and diluted earnings per share   $ 0.0734     $ 0.0759     $ 0.2643     $ 0.2214  
Weighted average number of shares outstanding     14,975,000       13,915,000       14,939,432       13,915,000  

 

See notes to consolidated financial statements

 

 F-3 

 

  

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN USD, EXCEPT SHARES) (UNAUDITED)

 

   Nine Months Ended September 30, 
   2018   2017 
         
Cash Flows from Operating Activities          
Net income  $5,641,701   $4,401,056 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   1,175,020    936,827 
Interest   844,153    980,451 
Changes in operating assets and liabilities:          
Accounts receivable, net   (2,563,284)   (518,881)
Inventories   (432,653)   (241,598)
Amount due from related parties   1,736,603    (1,721,979)
Prepayments and other current assets   506,413    (454,662)
Accounts payable   772,960    713,214 
Amount due to related parties   871,403    161,232 
Deposits received   8,587    (661)
Accrued expenses and other current liabilities   (488,749)   (95,108)
Net cash provided by operating activities   8,072,154    4,159,891 
           
Cash Flows from Investing Activities          
Purchases of fixed assets   (7,013,770)   (630,043)
Prepayment for fixed assets acquisition   2,238,925    (261,101)
Payment of Construction in progress   (986,380)   (1,715,630)
Net cash used in investing activities   (5,761,225)   (2,606,774)
           
Cash Flows from Financing Activities          
Proceeds from shareholders   139,632    720,000 
Payments on capital lease obligation   (3,135,748)   (2,565,420)
Short-term bank loan   (2,184)   408,836 
Net cash used in financing activities   (2,998,300)   (1,436,584)
           
Effect of exchange rate fluctuation on cash and cash equivalents   130,329    (7,547)
Net increase (decrease) in cash and cash equivalents   (557,042)   108,986 
           
Cash and cash equivalents, beginning of period   884,292    890,662 
Cash and cash equivalents, ending of period  $327,250   $999,648 
           
Supplemental disclosure of cash flow information          
Cash paid for income taxes   5,507    2,072 
Cash paid for interest   844,153    980,451 

 

See notes to consolidated financial statements

 

 F-4 

 

  

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 1. DESCRIPTION OF BUSINESS AND ORGANIZATION

 

JRSIS HEALTH CARE CORPORATION (the “Company” or “JHCC”) was incorporated on November 20, 2013 under the laws of the United States and the State of Florida. The general nature of the business shall be to engage in any and all lawful business permitted under the laws of the United States and the State of Florida.

 

JRSIS HEALTH CARE LIMITED ("JHCL"), formally named China Runteng Medical Group Co., Ltd, which is a privately held Limited Liability Company registered in British Virgin Island (“BVI”) on February 25, 2013. JHCL was authorized to issue 50,000 shares of a single class each with par value of $1.00 per share to its sole shareholder Ms. Yanhua Xing. On November 20, 2013, China Runteng Medical Group Co., Ltd has changed its name to JRSIS HEALTH CARE LIMITED ("JHCL").

 

Runteng Medical Group Co., Ltd (“Runteng”) is a privately held limited liability company registered in Hong Kong on September 17, 2012. Runteng was authorized to issue up to 10,000 shares with par value of HK$1 per share to its sole shareholder Ms. Yanhua Xing.

 

Harbin Jiarun Hospital Co., Ltd (“Jiarun”) was a privately held, for-profit hospital, incorporated in Harbin city of Heilongjiang, China in February 2006. Jiarun is a private hospital serving patients on a municipal and county level and providing both Western and Chinese medical practices to the residents of Harbin. After a series of share exchanges mentioned here after in note 1, Jiarun became a 70% owned subsidiary of the Company.

 

Harbin Jiarun Hospital Co., Ltd Nanjing Road Branch (“NRB Hospital”) was a hospital branch of Jiarun, incorporated in Harbin city of Heilongjiang, China in October 2017. NRB hospital is a private hospital serving patients on a municipal and county level and providing both Western and Chinese medical practices to the residents of Harbin.

 

Harbin Jiarun Hospital Co., Ltd 2nd Branch (“2nd Branch Hospital”) was second hospital branch of Jiarun, incorporated in Harbin city of Heilongjiang, China in November 2017. 2nd hospital branch is a private hospital serving patients on a municipal and county level and providing both Western and Chinese medical practices to the residents of Harbin.

 

JHCC, JHCL, Runteng, Jiarun and Jiarun hospital branches are collectively referred as the “Group”.

 

Reorganization

 

On December 23, 2012, in accordance with the "Foreign Investment Enterprise Law" under the People’s Republic of China (“PRC”), Runteng and Jiarun entered into an agreement that Runteng and the original owner of Jiarun, Junsheng Zhang should invest a total of RMB50,000,000 ($7,936,508), in which Runteng and the original owner should contribute RMB35,000,000 ($5,555,556) or 70% and RMB15,000,000 ($2,380,952) or 30% of the total capital, respectively. According to the Joint Venture Investment Agreement, Runteng has the obligation to pay RMB35,000,000 ($5,555,556) within five years after the issuance of the joint venture business license. As of December 31, 2017, Jiarun has received $1,831,000 from Runteng.

 

On March 7, 2013, JHCL acquired all 100 issued and outstanding shares of through share exchanges to obtain 100% controlling interests of Runteng. 

 

On June 1, 2013, Junsheng Zhang, the owner of Jiarun, entered into a supplemental agreement with Runteng for the attribution of accumulated retained earnings of Jiarun. In which, the historical accumulated profit of Jiarun up to June 30, 2013 should be 100% attributed to Junsheng Zhang; the profit generated from Jiarun after July 1, 2013 should be attributed to Runteng and Junsheng Zhang on the basis of 70% and 30%, respectively.

 

On July 29, 2013, the Joint Venture Investment Agreement between Runteng and Junsheng Zhang has been approved by the Development and Reform Commission of Hulan District, Harbin City and Harbin Investment Promotion Bureau. On the same date, Jiarun has obtained Certificate of Approval for Establishment of Enterprises with Investment of Taiwan, Hong Kong, Macao, and Overseas Chinese in the People’s Republic of China; the Joint Venture prescribe duration of operation of Jiarun is twenty years. 

 

 F-5 

 

  

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 1. DESCRIPTION OF BUSINESS AND ORGANIZATION (CONTINUED)

 

On October 3, 2013, Ms. Yanhua Xing transferred 23,275 JHCL shares to Mr. Junsheng Zhang, 23,225 JHCL shares to Ms. Chunlan Tang, and 1,050 JHCL shares to Mr. Weiguang Song.

 

On November 8, 2013, Ms. Chunlan Tang transferred all 23,225 JHCL shares to Mr. Junsheng Zhang, subsequently making Mr. Junsheng Zhang holdings 46,500 JHCL shares.

  

On December 20, 2013, a share exchange agreement was entered by and among JHCC, JHCL and the shareholders of JHCL, Junsheng Zhang, Yanhua Xing and Weiguang Song. JHCC desires to issue a total of 12,000,000 shares of its Common Stock (the “JHCC Shares”) to the Shareholders of JHCC, pro rata, in exchange for 100% of the JHCL Shares owned by the Shareholders. At the Closing, the Shareholders shall allot and deliver to JHCC a total of 50,000 shares of the ordinary share of JHCL which represents 100% of the issued and outstanding shares of JHCL. JHCL shall become a wholly-owned subsidiary of JHCC, and JHCC will effectively acquire all business and assets of JHCL as now or hereafter existing, including all business and assets of any and all subsidiaries of JHCL, including 70% ownership interest in Jiarun.

 

On July 8, 2014, Jiarun obtained joint venture business license. Runteng has already completed cooperation restructuring. Up to completion of the legal structures, Jiarun are compliance with the Company Law of People’s Republic of China and all other requirements imposed by PRC authorities.

   

Before and after the reorganization mentioned above, Junsheng Zhang continued to serve as chairman of Jiarun (the “Operating Subsidiary”), and together with the other management of the Company, continued to direct both day-to-day operation and management of the Operating Subsidiary, as well as its strategic direction. The reorganization effectively resulted in Junsheng Zhang continuing to bear the residual risks and rewards related to the Operating Subsidiary. Because of the reasons described above, the Company is substantively controlled by Junsheng Zhang, and the Company continued to consolidate the Operating subsidiary during the reorganization. And the reorganization transactions are considered as a series of transactions between the parties under common control and did not establish a new basis in the assets and liabilities of the Operating Subsidiary.

 

During the reorganization, JHCC, JHCL, Runteng and Jiarun were under common control of Junsheng Zhang. Therefore, the reorganization was effectively a legal recapitalization accounted for as transactions between entities under common control at the carry over basis, in a manner similar to pooling-of-interests accounting. The effect of the reorganization was applied retroactively to the prior years’ consolidated financial statements as if the current structure existed since inception.

 

30% of Jiarun hospital interest held by Junsheng Zhang is subjecting to non-controlling interest (“NCIs”), which was stated under ASC810-10-45, the ownership interest in the subsidiary that are held by owners other than the parent is a non-controlling interest. 70% held by Runteng is applying to its holding Runteng. According to the supplemental agreement signed between Junsheng Zhang and Runteng on June 1, 2013, the comprehensive income from Jiarun would be attributable to retained earnings and non-controlling interest for 70% and 30% respectively, from July 1, 2013.

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES

 

A. Basis of presentation

 

The consolidated financial statements have been prepared in accordance with the United States generally accepted accounting principles ("U.S. GAAP").

 

B. Principles of consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. Non-controlling interests represent the equity interest in Jiarun that is not attributable to the Company. Non-controlling interest is reported in the consolidated financial position within equity, separately from the Company’s equity and that net income or loss and comprehensive income or loss are attributable to the Company’s and the non-controlling interest.

 

 F-6 

 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

C. Use of estimates

 

The preparation of audited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount and the estimated useful lives of long-lived assets. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.

 

D. Functional currency and foreign currency translation

 

JHCC and JHCL’s functional currency is the United States dollar (“US$”). Runteng’s functional currency is the Hong Kong dollar (“HK$”). The functional currency of Jiarun is the Renminbi (“RMB”).

 

The Company’s reporting currency is US$. Assets and liabilities of Runteng and Jiarun are translated at the current exchange rate at the balance sheet dates, revenues and expenses are translated at the average exchange rates during the reporting periods, and equity accounts are translated at historical rates. Translation adjustments are reported in other comprehensive income.

 

E. Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base. The majority of sales are either cash receipt in advance or cash receipt upon delivery. For nine months ended September 30, 2018 and 2017, no customer accounted for more than 10% of net revenue. As of September 30, 2018, and December 31, 2017, 4 and 2 customers accounted for more than 5% of net accounts receivable, respectively. For those credit sales, the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

 

F. Cash and cash equivalents

 

Cash and cash equivalents include all cash, deposits in banks and other liquid investments with initial maturities of three months or less.

 

G. Accounts receivable

 

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts as needed. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. 

 

H. Inventories

 

Inventories, consisting principally of medicines, are stated at the lower of cost or market using the first-in, first-out method (“FIFO”). This policy requires the Company to make estimates regarding the market value of inventory, including an assessment of excess or obsolete inventory. The Company determines excess or obsolete inventory based on an estimate of the future demand and estimated selling prices for its products. 

 

 F-7 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

I. Construction in progress

 

Construction in progress represents the new hospital painting and decoration costs. And all direct costs relating to the polishing and decoration are capitalized as construction in progress. No depreciation is provided in respect of construction in progress. 

 

J. Property and equipment

 

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations when incurred, while additions and betterments are capitalized. Depreciation is recorded on a straight-line basis reflective of the useful lives of the assets. When assets are retired or disposed, the asset’s original cost and related accumulated depreciation are eliminated from accounts and any gain or loss is reflected in income.

 

Buildings and improvement  10-40 years
Medical equipment  5-15 years
Transportation instrument  5-10 years
Office equipment  5-10 years
Electronic equipment  5-10 years
Software  5-10 years

 

K. Leases

 

Operating lease

 

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Minimum lease payments, including scheduled rent increases, made under operating leases are charged to the consolidated statements of operations and other comprehensive income (loss) on a straight-line basis over the lease term. Contingent rentals are excluded from minimum lease payments and are recognized as expense when the achievement of the specified target is considered probable.

 

Capital lease

 

Leases which substantially transfer all of the benefits and risks inherent in ownership to the lessee are classified as capital leases. In a capital lease, assets and liabilities are recorded at the amount of the lesser of (a) the fair value of the leased asset at the inception of the lease or (b) the present value of the minimum lease payments (excluding executing costs) over the lease term. Recorded assets are depreciated over their estimated useful lives. During the lease term, each minimum lease payment is allocated between a reduction of the obligation and interest expense to produce a constant periodic rate of interest on the remaining balance of the obligation. Leasehold improvements are depreciated over the depreciable lives of the corresponding fixed asset or the related lease term, whichever is shorter.

 

L. Fair Value Measurement

 

The Company applies the provisions of ASC Subtopic 820-10, Fair Value Measurements, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

Fair value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value for the assets and liabilities required or permitted to be recorded, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

 

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

There were no transfers between level 1, level 2 or level 3 measurements for nine months ended September 30, 2018 and 2017.

 

Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are reflected in the accompanying consolidated financial statements at amounts that approximate fair value because of the short-term nature of these instruments. The fair value of the Company’s capital lease obligations also approximates carrying value as they bear interest at current market rates.

 

 F-8 

 

  

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

M. Segment and geographic information

 

The Company is operating in one segment in accordance with the accounting guidance FASB ASC topic 280, “Segment Reporting”. The company’s revenues are from customers in People’s Republic of China (“PRC”). All assets of the company are located in PRC.

 

N. Revenue recognition

 

The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that economic benefits will flow to the entity and specific criteria have been met for each of the Company’s activities as described below.

 

Medicine sales

 

Revenue from the sale of medicine is recognized when it is both earned and realized. The Company’s policy is to recognize the sale of medicine when the title of the medicine, 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 medicine.

 

Given the nature of this revenue source of the Company’s business and the applicable rules guiding revenue recognition, the revenue recognition practices for the sale of medicine do not contain estimates that materially affect results of operations nor any policy for return of products.

 

Patient Services

 

In accordance with the medical licenses of Jiarun, the approved medical patient service scope of the Company include medical consulting, surgery, obstetrics and gynecology, pediatrics, anesthesia, clinic laboratory, medical imaging, and traditional Chinese medicine, etc.

 

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.

 

The Company provides services to both patients covered by social insurance and patients who are not covered by social insurance. The Company charges the same rates for patient services regardless of the coverage by social insurance.

 

Patients who are not covered by social insurance are liable for the total cost of medical treatment.

 

  · For out-patient medical services, revenue is recognized when the Company provides medical service to the patient. The Company collects payment when the patient checks out from the hospital, which is the same day the services are provided.

 

  · For in-patient medical services, the Company estimates the approximate fee the patients will spend in the hospital based on patients’ symptom. This is when the patients check in to the hospital. At that time, the Company collects the estimated fees from the patient and records the payment as deposits received.

 

During the in-patient services period, the Company recognizes revenue when the patient service is provided and deducts the cost of service from the deposit received. The Company records these transactions based on daily reports generated by the respective medical department. When medical services exceed patient deposits received the Company records revenue and accounts receivable when the patient services are provided.

 

When patients check out from the hospital, the Company calculates and determines the remaining deposit, if any, and refunds the unused portion of the deposit to the patients. In the case where the patients have a balance in accounts receivable during the in-patient period, accounts receivable are required to be paid in full at checkout.

 

Patients covered by social insurance will receive a portion or full medical services reimbursed or paid by the social insurance agencies via prepaid cards or insurance claim settlement process.

 

Settlement process

 

The Company is a registered medical service vendor under the state social insurance system for various social insurance agencies; the insurance agencies include “Social Medical Insurance funded by PRC and Heilongjiang Province” and “Heilongjiang Province New Rural Cooperative Medical Care System”. The Company utilizes an online system maintained by the social insurance agencies for patients’ who are covered by social insurance agencies.

 

  · The Company records patients’ information in the social insurance system at check in. The system determines the covered portion and amounts based on the information input to the system.

 

  · At the time of check out, the Company collects payment for services the patients are liable for and records accounts receivable from the social insurance agencies for the portion of services covered by the social insurances. In the case that the patients have made payment during the in-patient services period, the Company refunds any amount in excess of the portion they are liable for.

 

  · The Company is responsible for submitting supporting documents of patient services provided to the social insurance agencies for their review. The Company also requires reconciling its records with the social insurance agencies once a month. Once the social insurance agencies approve the reconciliation, the insurance agencies will settle the accounts receivable balance in the next month following the approval.

 

 F-9 

 

  

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

O. Income taxes

 

The Company adopts FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

In July 2006, the FASB issued FIN 48(ASC 740-10), Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (ASC 740), which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under FIN 48(ASC 740-10), tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

 

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.

 

As a result of the implementation of FIN 48 (ASC 740-10), the company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48 (ASC 740-10). The Company recognized no material adjustments to liabilities or shareholder’s equity as a result of the implementation. The adoption of FIN 48 did not have a material impact on the Company’s unaudited consolidated financial statements.

 

Enterprise income tax is defined 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.

 

Jiarun's medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

Jiarun was incorporated in accordance with the law of medical and health institutions, mainly provide medical services, with the "PRC Business Tax Tentative Regulations" Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.

 

In considering the achievement of the hospital, it could not have been done without the support of local authorities, Jiarun hospital has voluntarily paid income tax of $5,507 and $2,072 for the nine months ended September 30, 2018 and 2017, respectively, to support the local tax bureau’s economical obligations.

 

 F-10 

 

  

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

P. Earnings per share

 

Basic earnings per common share is computed by using net income divided by the weighted average number of shares of common stock outstanding for the periods presented. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding for the periods presented.

 

Q. Reclassification

 

The comparative figures have been reclassified to conform to current year presentation.

 

R. Recently accounting pronouncements

 

In January 2017, the FASB issued Accounting Standards Board Update No. 2017-01: Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU 2017-01”). The ASU clarifies the definition of business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for the Company’s fiscal year beginning January 1, 2018 and subsequent interim periods with prospective application with impacts on the Company’s consolidated financial statements that may vary depending on each specific acquisition. Early adoption is conditionally permitted.

 

In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. Under current GAAP, entities normally amortize the premium as an adjustment of yield over the contractual life of the instrument. This guidance shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation: (Topic 718): Scope of Modification Accounting. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We expect to adopt the new standard using the full retrospective application, and we do not believe the adoption will have a significant impact on our recognition of net revenues or related disclosures for any period.

 

In July 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815) (“ASU 2017-11”). The update changes the classification of certain equity-linked financial instruments (or embedded features) with down round features. The update also clarifies existing disclosure requirements for equity-classified instruments. The update is effective retrospectively for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted for all companies in any interim or annual period.

 

We do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.

 

Recently Adopted Accounting Pronouncements

 

The FASB issued an Accounting Standards Update (ASU) that helps organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act.

 

ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.

 

The ASU requires financial statement preparers to disclose:

 

· A description of the accounting policy for releasing income tax effects from AOCI;
· Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act; and
· Information about the other income tax effects that are reclassified.

 

The amendments affect any organization that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.

 

The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

 

 F-11 

 

  

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 3. ACCOUNTS RECEIVABLE, NET

  

   September 30   December 31 
   2018   2017 
   (Unaudited)     
Accounts receivable  $7,836,448   $5,704,697 
Less: allowance for doubtful debts   24,387    25,740 
   $7,812,061   $5,678,957 

 

The Company experienced nil bad debts during the nine months ended September 30, 2018 and 2017.

 

NOTE 4. INVENTORIES

 

At September 30, 2018 and December 31, 2017, inventories consist of the following:

 

   September 30   December 31 
   2018   2017 
   (Unaudited)     
Western medicine  $925,340   $662,079 
Chinese herbal medicine   27,787    29,499 
Medical material   341,706    243,445 
Other material   2,915    1,526 
   $1,297,748   $936,549 

 

NOTE 5. PREPAYMENT

 

At September 30, 2018 and December 31, 2017, prepayment consists of the following:

 

   September 30   December 31 
   2018   2017 
   (Unaudited)     
Deposits on medical equipment  $1,909,238   $491,822 
Heating fees   -    117,188 
Rentals and leases   61,150    - 
Building materials and equipment   517,199    - 
Others   17,886    291,670 
   $2,505,473   $900,680 

 

NOTE 6. PROPERTY AND EQUIPMENT

 

At September 30, 2018 and December 31, 2017, property and equipment, at cost, consist of:

 

   September 30,   December 31, 
   2018   2017 
   (Unaudited)     
Transportation equipment  $1,001,655   $871,653 
Medical equipment   12,892,854    11,833,334 
Electrical equipment   1,495,453    1,496,461 
Office equipment and others   594,445    130,524 
Buildings   14,580,508    15,389,204 
Software   138,553    146,238 
Total fixed assets at cost   30,703,468    29,867,414 
Accumulated depreciation   (4,635,144)   (3,715,784)
Total fixed assets, net  $26,068,324   $26,151,630 

 

The Company recorded depreciation expense of $1,175,020 and $936,827 for the nine months ended September 30, 2018 and 2017, and $392,840 and $322,476 for the three months ended September 30, 2018 and 2017, respectively. 

 

 F-12 

 

   

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 7. LONG TERM DEFERRED EXPENSES

 

On May 7, 2015, July 3, 2015 and October 16, 2015, Jiarun entered into three lease agreements to lease medical equipment from Hair Finance Leasing (China) Co., Ltd. (“Hair”), a third party, for a five-year period, in which Jiarun is required to pay consulting fee to Hair for the services provided over the five years. The consulting fee paid but attributable to the current and subsequent accounting periods was accounted for as deferred expenses and long term deferred expenses. The current portion of the prepaid consulting fee was recorded as deferred expenses $65,690 and $69,334 as of September 30, 2018 and December 31, 2017. The long-term deferred expenses were $51,551 and $106,411 as of September 30, 2018 and December 31, 2017.

 

The Company recorded consulting fee of $51,937 and 49,715 for the nine months ended September 30, 2018 and 2017, and $16,512 and $16,903 for the three months ended September 30, 2018 and 2017, respectively

 

NOTE 8. CAPITAL LEASE OBLIGATIONS AND DEPOSIT FOR CAPITAL LEASES

 

On June 5, 2013, Jiarun entered into a lease agreement to lease hospital building from Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang, a related party. The Leasing terms consist of principal plus 30 payments. Each payments will be made on an annual basis when RMB7,000,000 per payment will be paid upfront for each leasing period. The first payment was made on September, 2014. At the end of the leasing period, a final payment will be made to settle the total leasing amount. Both parties agreed for Jiarun to pay RMB3,000,000 as deposit at the execution of the Leasing agreement, which will be deducted from the final rental settlement. The lending interest rate was calculated at 6.55%, which is the benchmark interest rate announced from The People’s Bank of China. After the completion of all payments, the ownership of the lease item will be transferred to Jiarun.

 

The leasing agreement for our hospital building contains the following provisions:

 

Rental payments of RMB7,000,000 (equivalent to $1,144,913) per year, payable at the beginning of September.

 

An option allowing the lessor to extend the lease for thirty years beyond the last renewal option exercised by the Company.

 

A guarantee by the Company that the lessor will realize $nil, from selling the asset at the expiration of the lease This lease is a capital lease because its term (30 years) exceeds 75% of the building’s estimated economic life. In addition, the present value ($15,185,032) of the minimum lease payments exceeds 90% of the fair value of the building ($15,721,295).

 

Accumulated annual amounts resulting from applying an interesting rate 6.55% to the balance of the lease obligation at the beginning of each year. The lease obligation is increased by the amount of the prior year’s interest, the amount of the net rental payment at the beginning of each year; and this amount represents the guaranteed residual value at the end of the lease term.

 

On May 7, 2015, July 3, 2015, October 16, 2015, May 10, 2016, July 5, 2016, December 16, 2016 and April 1, 2017, Jiarun entered into several lease agreements to lease medical equipment and elevator from three lease finance companies, which are all third parties, for three to five-year periods, in which Jiarun is required to make monthly or quarterly payments toward the leases. The Company was also required to pay deposits up front, which deposits will later be used to offset against the last quarterly payment. The medical equipment and elevator will be transferred to Jiarun upon the completion of the agreement.

 

These leases have been classified as capital leases. The cost of the medical equipment included in these leases is included in the consolidated balance sheets as property and equipment and construction in progress.

 

 F-13 

 

  

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 8. CAPITAL LEASE OBLIGATIONS AND DEPOSIT FOR CAPITAL LEASES (CONTINUED)

 

The future minimum lease payments for annual capital lease obligation as of September 30, 2018, are as follows:

 

Year  Amounts 
(Unaudited)
 
2018  $1,353,057 
2019   2,164,271 
2020   1,124,109 
Thereafter   17,034,894 
Total  $21,676,331 

 

The Company recorded finance lease fees of $914,725 and $969,036 for the nine months ended September 30, 2018 and 2017, and $279,920 and $328,706 for the three months ended September 30, 2018 and 2017, respectively.

 

NOTE 9. SHORT-TERM BANK LOAN

 
 

   September 30   December 31 
   2018   2017 
   (Unaudited)     
Short- term bank loan  $-   $445,647 
           

 

As of September 30, 2018 and December 31, 2017, the short-term bank loans were $nil and $445,647, respectively. The loans were primarily obtained from Harbin Bank with interest rate of 6.09% per annum, from January 19, 2017 to January 18, 2018, for working capital and capital expenditure purposes. The interest expenses were $2,184 and $17,226 for the nine months ended September 30, 2018 and 2017, respectively, and $nil and $6,737 for the three months ended September 30, 2018 and 2017, respectively.

 

NOTE 10. NON-CONTROLLING INTERESTS

 

Jiarun is the Company’s majority-owned subsidiary which is consolidated in the Company’s financial statements with a non-controlling interest (“NCI”) recognized. The Company holds 70% interest of Jiarun as of September 30, 2018 and December 31, 2017.

 

As of September 30, 2018 and December 31, 2017, NCI in the consolidated balance sheet was $8,673,475 and $7,339,043, respectively. For the nine months ended September 30, 2018, the comprehensive income attributable to shareholders’ equity and NCI is $2,963,691 and $1,334,432, respectively. For the nine months ended September 30, 2017 the comprehensive income attributable to shareholders’ equity and NCIs is $3,473,860 and $1,510,184, respectively. For the three months ended September 30, 2018, the comprehensive income attributable to shareholders’ equity and NCI is $481,594 and $206,958 respectively. For the three months ended September 30, 2017, the comprehensive income attributable to shareholders’ equity and NCIs is $1,258,966 and $539,418, respectively.

 

 F-14 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD) 

 

NOTE 11. REVENUE

 

The Company’s revenue consists of medicine sales and patient care revenue.

 

   Nine Months Ended September 30, 
   2018   2017 
   (Unaudited)   (Unaudited) 
Medicine:          
Western medicine  $6,298,491   $5,879,515 
Chinese medicine   1,280,662    1,211,547 
Herbal medicine   557,837    265,108 
Total medicine  $8,136,990   $7,356,170 
           
Patient services:          
Medical consulting  $5,979,926   $5,058,274 
Medical treatment   6,456,923    3,934,189 
Others   16,895    243,673 
Total patient services  $12,453,744   $9,236,136 
           
   $20,590,734   $16,592,306 

 

 

   Three Months Ended September 30, 
   2018   2017 
   (Unaudited)   (Unaudited) 
Medicine:          
Western medicine  $1,995,674   $1,917,785 
Chinese medicine   421,652    399,142 
Herbal medicine   231,162    90,247 
Total medicine  $2,648,488   $2,407,174 
           
Patient services:          
Medical consulting  $1,877,179   $1,825,022 
Medical treatment   2,240,810    1,286,639 
Others   (390)   204,262 
Total patient services  $4,117,599   $3,315,923 
           
   $6,766,087   $5,723,097 

 

 F-15 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 12. INCOME TAX EXPENSE

 

The Company uses the asset-liability method of accounting for income taxes prescribed by ASC 740 Income Taxes. The Company and its subsidiaries each file their taxes individually.

 

United States

 

JHCC is subject to the United States of America Tax law at tax rate of 21% from January 1, 2018 onwards. No provision for the US federal income taxes has been made as the Company had no US taxable income for the periods presented, and its earnings are permanently invested in PRC.

 

BVI

 

JHCL was incorporated in the BVI and, under the current laws of the BVI, it is not subject to income tax.

 

Hong Kong

 

Runteng was incorporated in Hong Kong and is subject to Hong Kong profits tax. Runteng is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. The applicable statutory tax rate is 16.5%.

 

PRC

 

Jiarun's medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

Jiarun was incorporated in accordance with the law of medical and health institutions, mainly provide medical services, with the "PRC Business Tax Tentative Regulations" Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.

 

In considering the achievement of the hospital, it could not have been done without the support of local authorities, Jiarun hospital has voluntarily paid income tax of $5,507 and $2,072 for the nine months ended September 30, 2018 and 2017, respectively to support the local tax bureau's economical obligations.

 

NOTE 13. RELATED PARTY TRANSACTIONS

 

The following is the list of the related parties to which the Group has transactions with:

 

(a)Junsheng Zhang, the Chairman of the Company
(b)Harbin Baiyi Real Estate Development Co., Ltd, owned by Junsheng Zhang
(c)Harbin Jiarun Pharmacy Co., Ltd owned by Junsheng Zhang
(d)Heilongjiang Province Runjia Medical Equipment Company Limited owned by Junsheng Zhang
(e)Jiarun Super Market Co., Ltd. owned by Junsheng Zhang
(f)Harbin Qi-run pharmacy limited owned by Junsheng Zhang
(g)Yanhua Xing and Weiguang Song, the former shareholder of JHCL

 

Amount due from related parties

 

Amount due from related parties consisted of the following as of the periods indicated:

 

Name of related parties  September 30,
2018
   December 31,
2017
 
   (Unaudited)     
Harbin Baiyi Real Estate Development Co., Ltd,  $-   $1,738,710 
Junsheng Zhang   46,500    46,500 
Yanhua Xing   2,450    2,450 
Weiguang Song   1,050    1,050 
   $50,000   $1,788,710 

 

 F-16 

 

  

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 13. RELATED PARTY TRANSACTIONS (CONTINUED)

 

Amount due from Junsheng Zhang, Yanhua Xing and Weiguang Song, who are the prior shareholders of JHCL, was mainly for the paid-in capital to be paid.

 

Amount due to related parties

 

Amount due to related parties consisted of the following as of the periods indicated: 

 

   September 30,   December 31, 
Name of related parties  2018   2017 
   (Unaudited)     
Harbin Jiarun Pharmacy Co., Ltd  $96,013   $7 
Heilongjiang Province Runjia Medical Equipment Co., Ltd   2,781    6,014 
Harbin Qi-run pharmacy Co., Ltd   17,303    17,972 
Harbin Baiyi Real Estate Development Co., Ltd,   781,639    - 
Junsheng Zhang   -    50,000 
   $897,736   $73,993 

 

Amount due to Harbin Jiarun Pharmacy Co., Ltd., Harbin Qi-run pharmacy Co., Ltd and Heilongjiang Province Runjia Medical Equipment Company Limited were mainly for the balance for purchase of medicine and medical material from these three companies. Amount due to Harbin Baiyi Real Estate Development Co., Ltd, was mainly represented the Decoration funds for the new outpatient building which was constructed by Baiyi. The Company had paid a prepayment approximately $781,639 for the new outpatient building.

 

Amounts due to Junsheng Zhang represented the balance paid by Mr. Zhang for the daily operation of the Company.

 

Related parties’ transactions

 

Purchase of property, medicine and medical material from related parties consisted of the following for the periods indicated:

 

    For nine months ended September 30,  
Name of related parties   2018     2017  
Harbin Baiyi Real Estate Development Co., Ltd,   $ 1,048,828     $ 1,836,800  
Harbin Jiarun Pharmacy Co., Ltd     194,866       146,083  
Heilongjiang Province Runjia Medical Equipment Co., Ltd     6,057       393  
Harbin Qi-run pharmacy Co., Ltd     19,035       24,738  
    $ 1,268,786     $ 2,008,014  

 

Deposits for capital leases and Capital lease obligations

 

On June 5, 2013, Jiarun entered into a Lease Agreement to lease a new hospital building from Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang, a related party. As of September 30, 2018, the company has balance of deposits for capital leases and capital lease obligations of $436,788 and $12,441,987 respectively. As of December 31, 2017, the company has balance of deposits for capital leases and capital lease obligations of $461,014 and $14,632,836 respectively.

 

 F-17 

 

  

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 14.  BASIC AND DILUTED EARNINGS PER SHARE

 

Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares comprise shares issuable upon the exercise of share-based awards, using the treasury stock method. The reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income from continuing operations is shown as follows 

 

   Nine Months Ended September 30, 
   2018   2017 
   (Unaudited)   (Unaudited) 
Numerator:        
Net income available to common stockholders  $3,949,191   $3,080,739 
Denominator:          
Basic and diluted weighted-average number of shares outstanding   14,939,432    13,915,000 
Net income per share:          
Basic and diluted  $0.2643   $0.2214 

 

NOTE 15. CONTINGENCIES AND COMMITMENT

 

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. There was no contingency as of September 30, 2018 and December 31, 2017.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. There was no contingency as of September 30, 2018 and December 31, 2017.

 

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

 

In August 2017 JHCC leases office space under non-cancellable operating lease agreements. Under the terms of the lease, JHCC paid approximately $nil in lease deposits, lease expense payments of approximately $36,881 per year. Under terms of the lease agreement, from August 2017, JHCC is committed to lease expense payments of approximately $36,881 per year for 5 years.

 

This office is used for 2nd outpatient.

 

In December 2017 JHCC leases office space under non-cancellable operating lease agreements. Under the terms of the lease, JHCC paid approximately $3,842 in lease deposits, lease expense payments of approximately $68,128 per year. Under terms of the lease agreement, from December 2017, JHCC is committed to lease expense payments of approximately $68,128 per year for 5 years.

 

This office is used for 1st Branch Company.

 

Future annual minimum lease payments, for non-cancellable operating leases are as follows:

 

Year ending December 31  Amount $ 
2018   28,634 
2019   130,109 
2020   136,550 
2021   142,074 
2022   142,506 
    579,873 

 

The company has paid Rentals and leases expense of $78,278 and $5,877 for nine months ended September 30, 2018 and 2017, respectively. The company has paid Rentals and leases expense of $24,886 and $5,877 for three months ended September 30, 2018 and 2017, respectively

  

NOTE 16. COMMON STOCK

 

The Company issued 140,000 restrict common stock in cash at a rate of $1 per share for US$140,000 under Regulation S Section 5 for 7 non-US persons during first nine months of 2018. This transaction should be deemed exempt for registration under Rule 902(1)(i) in accordance with Regulation S.

 

NOTE 17. Subsequent Events

 

The Management of the Company determined that there were no reportable subsequent events to be disclosed.

 

 F-18 

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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 in the 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 applicable SEC regulations and is not intended to serve as a basis for projections of future events. See “Cautionary Statement Regarding Forward Looking Statements” above.

 

Overview

 

Harbin Jiarun Hospital Company Limited (“Jiarun”) was established in Harbin in the Province of Heilongjiang of the People’s Republic of China (“PRC”) by the owner Junsheng Zhang on February 17, 2006.

 

Harbin Jiarun Hospital Co., Ltd Nanjing Road Branch (“NRB Hospital”) was established in Harbin in the Province of Heilongjiang of the People’s Republic of China (“PRC”) by the Jiarun on October 30, 2017.

 

Harbin Jiarun Hospital Co., Ltd 2nd Branch (“2nd Branch Hospital”) was established in Harbin in the Province of Heilongjiang of the People’s Republic of China (“PRC”) by the Jiarun on November 2, 2017.

 

Jiarun is a private hospital serving patients on a municipal and county level and providing both Western and Chinese medical practices to the residents of Harbin. Jiarun specializes in the areas of Pediatrics, Dermatology, ENT, Traditional Chinese Medicine (TCM), Ophthalmology, Internal Medicine Dentistry, General Surgery, Rehabilitation Science, Gynecology, General Medical Services, etc.

 

On November 20, 2013, Junsheng Zhang, the officer of Jiarun Hospital established JRSIS Health Care Corporation, a Florida corporation (“JHCC” or the “Company”). On February 25, 2013, the officer of Jiarun Hospital established JRSIS Health Care Limited ("JHCL"), a wholly owned subsidiary of the Company, and On September 17, 2012, the officer of Jiarun Hospital established Runteng Medical Group Co., Ltd (“Runteng”), a wholly owned subsidiary of JHCL. Runteng, a Hong Kong registered Investment Company, holds a 70% ownership interest in Harbin Jiarun Hospital Company Ltd, a Heilongjiang registered company.

 

On December 20, 2013, the Company acquired 100% of the issued and outstanding capital stock of JRSIS Health Care Limited, a privately held Limited Liability Company registered in the British 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 of China. 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 medicines 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 medicine is recognized when it is both earned and realized. The Company’s policy is to recognize the sale of medicine when the title of the medicine, 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 medicine. 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.

 

Plan of Operation

 

Over the next twelve months, we will concentrate on the following two areas to grow our operations:

 

Capital and Funding – Seek to obtain capital from all available sources to complete our hospital expansion and acquisition targets.

 

Advertising and Marketing – Work with several marketing companies to develop brand identity, marketing materials, and update our web site. Utilize all available marketing venues and public relations opportunities to promote the Company and its medicine and services. In April, 2014, we also bought a mobile clinic to provide free health examinations in the hospital area. Management believes this free service will bring us much higher brand reputation and potential customers locally.

 

 4 

 

 

Critical Accounting Policies and Management Estimates

 

Our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements, which have been prepared in accordance with the United States generally accepted accounting principles ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Principles of consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

  

Use of estimates

 

The preparation of unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount and the estimated useful lives of long-lived assets. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.

 

Revenue Recognition

 

The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that economic benefits will flow to the entity and specific criteria have been met for each of the Company's activities as described below.

 

Medicine sales

 

Revenue from the sale of medicine is recognized when it is both earned and realized. The Company's policy is to recognize the sale of medicine when the title of the medicine, 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 medicine.

 

Given the nature of this revenue source of the Company's business and the applicable rules guiding revenue recognition, the revenue recognition practices for the sale of medicine do not contain estimates that materially affect results of operations nor any policy for return of products.

 

Patient Services

 

In accordance with the medical licenses of Jiarun, the approved medical patient service scope of the Company includes medical consulting, surgery, obstetrics and gynecology, pediatrics, anesthesia, clinic laboratory, medical imaging, and traditional Chinese medicine, etc.

 

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.

 

The Company provides services to both patients covered by social insurance and patients who are not covered by social insurance. The Company charges the same rates for patient services regardless of the coverage by social insurance.

 

Patients who are not covered by social insurance are liable for the total cost of medical treatment.

 

  · For out-patient medical services, revenue is recognized when the Company provides medical service to the patient. The Company collects payment when the patient checks out from the hospital, which is the same day the services are provided

 

  · For in-patient medical services, the Company estimates the approximate fee the patients will spend in the hospital based on patients' symptom. This is when the patients check in to the hospital. At that time, the Company collects the estimated fees from the patient and records the payment as deposits received.

 

During the in-patient services period, the Company recognizes revenue when the patient service is provided and deducts the cost of service from the deposit received. The Company records these transactions based on daily reports generated by the respective medical department. When medical services exceed patient deposits received the Company records revenue and accounts receivable when the patient services are provided.

 

When patients check out from the hospital, the Company calculates and determines the remaining deposit, if any, and refunds the unused portion of the deposit to the patients. In the case where the patients have a balance in accounts receivable during the in-patient period, accounts receivable are required to be paid in full at checkout.

 

 5 

 

 

 Patients covered by social insurance will receive a portion or full medical services reimbursed or paid by the social insurance agencies via prepaid cards or insurance claim settlement process.

 

Settlement process

 

The Company is a registered medical service vendor under the state social insurance system for various social insurance agencies; the insurance agencies include “Social Medical Insurance funded by PRC and Heilongjiang Province” and “Heilongjiang Province New Rural Cooperative Medical Care System”. The Company utilizes an online system maintained by the social insurance agencies for patients’ who are covered by social insurance agencies.

 

  · The Company records patients’ information in the social insurance system at check in. The system determines the covered portion and amounts based on the information input to the system.

 

  · At the time of check out, the Company collects payment for services the patients are liable for and records accounts receivable from the social insurance agencies for the portion of services covered by the social insurances. In the case that the patients have made payment during the in-patient services period, the Company refunds any amount in excess of the portion they are liable for.

 

  · The Company is responsible for submitting supporting documents of patient services provided to the social insurance agencies for their review. The Company also requires reconciling its records with the social insurance agencies once a month. Once the social insurance agencies approve the reconciliation, the insurance agencies will settle the accounts receivable balance in the next month following the approval.

 

Income Taxes and Uncertain Tax Positions

 

The Company adopts FASB ASC Topic 740, "Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

ASC 740-10, “Accounting for Uncertainty in Income Taxes” requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements, tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

 

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.

 

As a result of the implementation of ASC 740-10, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by ASC 740-10. The Company recognized no material adjustments to liabilities or shareholder's equity as a result of the implementation. The adoption of ASC 740-10 did not have a material impact on the Company's unaudited consolidated financial statements.

 

Enterprise income tax is defined 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.

 

Jiarun's medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

Jiarun was incorporated in accordance with the law of medical and health institutions, mainly provide medical services, with the "PRC Business Tax Tentative Regulations" Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.

  

In considering the achievement of the hospital, it could not have been done without the support of local authorities, Jiarun hospital has voluntarily paid income tax of $5,507 and $2,072 for the nine months ended September 30, 2018 and 2017, respectively, to support the local tax bureau's economical obligations. 

 

 6 

 

 

Accounts Receivable

 

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts as needed. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote

 

Property and equipment

 

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations when incurred, while additions and betterments are capitalized. Depreciation is recorded on a straight-line basis reflective of the useful lives of the assets. When assets are retired or disposed, the asset's original cost and related accumulated depreciation are eliminated from accounts and any gain or loss is reflected in income.

 

Buildings and improvement   10-40 years
Medical equipment   5-15 years
Transportation instrument   5-10 years
Office equipment   5-10 years
Electronic equipment   5-10 years
Software   5-10 years

 

Foreign currency transactions and translations

 

JHCC and JHCL’s functional currency is the United States dollar ("US$"). Runteng's functional currency is the Hong Kong dollar ("HK$"). The functional currency of Jiarun is the Renminbi ("RMB").

 

The Company’s reporting currency is US$. Assets and liabilities of Runteng and Jiarun are translated at the current exchange rate at the balance sheet dates, revenues and expenses are translated at the average exchange rates during the reporting periods, and equity accounts are translated at historical rates. Translation adjustments are reported in other comprehensive income.

 

Results of Operations for Three Months Ended September 30, 2018 and 2017  

  

The following table shows key components of the results of operations during three months ended September 30, 2018 and 2017: 

 

   Three Months Ended 
September 30,
   Change 
   2018   2017   $   % 
                 
Revenue:                    
Medicine  $2,648,488   $2,407,174   $241,314    10%
Patient services   4,117,599    3,315,923    801,676    24%
Total revenue   6,766,087    5,723,097    1,042,990    18%
Operating costs and expenses:                    
Cost of medicine sold   1,817,244    1,573,420    243,824    15%
Medical consumables   1,142,947    648,258    494,689    76%
Salaries and benefits   1,132,315    934,950    197,365    21%
Office supplies   147,646    249,389    (101,743)   (41)%
Vehicle expenses   44,650    22,842    21,808    95%
Utilities expenses   77,240    74,222    3,018    4%
Rentals and leases   24,886    5,877    19,009    323%
Advertising and promotion expenses   57,755    22,869    34,886    153%
Interest expense   258,857    351,137    (92,280)   (26)%
Professional fee   93,557    15,869    77,688    490%
Depreciation   392,840    322,476    70,364    22%
Total operating costs and expenses   5,189,937    4,221,309    968,628    23%
Earnings from operations before other income and income taxes   1,576,150    1,501,788    74,362    5%
Other income   (4,104)   7,108    (11,212)   (158)%
Earnings from operations before income taxes   1,572,046    1,508,896    63,150    4%
Income tax   871    437    434    99%
Net income   1,571,175    1,508,459    62,716    4%
Less: net income attributable to non-controlling interests   471,352    452,538    18,814    4%
Net income attributable to the Company  $1,099,823   $1,055,921   $43,902    4%
Comprehensive income:                    
Foreign currency translation adjustment attributable to non-controlling interests   (264,394)   86,880    (351,274)   (404)%
Foreign currency translation adjustment attributable to the Company   (618,229)   203,045    (821,274)   (404)%
Comprehensive income  $688,552   $1,798,384   $(1,109,832)   (62)%

  

 7 

 

 

Revenue

 

Operating revenue for the three months ended September 30, 2018, which resulted primarily from medicine revenue and patient services revenue, was $6,766,087, an increase of 18% as compared with the operating revenue of $5,723,097 for the three months ended September 30, 2017. The increase was primarily a result of the number of treated inpatients growing to 4,842 patients, about 1,142 more than the 3,700 patients treated in three months ended September 30, 2017.

 

Costs and Expenses 

 

Total costs and expenses were $5,189,937 for the three months ended September 30, 2018, an increase of $968,628 or 23% as compared to $4,221,309 for the same period of 2017. This increase was primarily due to significant increase of cost of medicine sold of $243,824, medical consumables of $494,689, salaries and benefits of $197,365.

 

Cost of medicine sold

 

Cost of medicine sold mainly consists of cost of Western medicine, Chinese medicine and herbal medicine. Total cost of medicine sold was $1,817,244 for the three months ended September 30, 2018, an increase of $243,824 or 15% as compared to $1,573,420 for the same period of 2017. This increase was primarily due to significant increases in sales of Western medicine and Chinese medicine. For the three months ended September 30, 2018, the cost of Western medicine and Chinese medicine were $1,714,623 as compared to $1,532,487 for the same period of 2017.

 

Medical consumables

 

Medical consumables mainly consist of materials expenses, repair cost, medical film expenses and test reagent. Total medical consumables were $1,142,947 for the three months ended September 30, 2018, an increase of $494,689 or 76% as compared to $648,258 for the same period of 2017. The increase was mainly a result of increase in materials expenses of $170,936 and Other medical consumables increase in $344,798.

 

Salaries and benefits

 

Salaries and benefits mainly consist of salary expenses, and social insurance expenses. Total salaries and benefits were $1,132,315 for the three months ended September 30, 2018, an increase of $197,365 or 21% as compared to $934,950 for the same period of 2017. The increase was mainly a result of increase in salaries expenses of $111,761 and increase in social insurance expenses of $75,962. The number of employees was 656, an increase of 83 as compared to 572 for the same period of 2017.

 

Income Taxes

 

Enterprise income tax is defined 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.

 

Jiarun's medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

Jiarun was incorporated in accordance with the law of medical and health institutions to mainly provide medical services, with the "PRC Business Tax Tentative Regulations" Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.  

 

In considering the achievements of the hospital, they could not have been reached without the support of local authorities. Jiarun hospital has voluntarily paid income tax of $871 and $437 for the three months ended September 30, 2018 and 2017, respectively to support the local tax bureau's economical obligations.

 

Income from Operations and Net income

 

Income from Operations was $1,576,150 for the three months ended September 30, 2018, as compared with operating income of $1,501,788 for the three months ended September 30, 2017. The Company’s net income for the three months ended September 30, 2018 was $1,571,175 representing an increase of $62,716 or 4%, over $1,508,459 for the three months ended September 30, 2017. The increases in income from operations and net income for the three months ended September 30, 2018, were primarily due to aforementioned changes in operating revenue and operating expenses.

 

 8 

 

 

Results of Operations for the nine months Ended September 30, 2018 and 2017

 

The following table shows key components of the results of operations during nine months ended September 30, 2018 and 2017: 

 

    Nine Months Ended 
September 30,
    Change  
    2018     2017     $     %  
                         
Revenue:                                
Medicine   $ 8,136,990     $ 7,356,170     $ 780,820       11 %
Patient services     12,453,744       9,236,136       3,217,608       35 %
Total revenue     20,590,734       16,592,306       3,998,428       24 %
Operating costs and expenses:                                
Cost of medicine sold     5,571,186       4,799,786       771,400       16 %
Medical consumables     2,882,982       1,755,032       1,127,950       64 %
Salaries and benefits     3,235,366       2,643,753       591,613       22 %
Office supplies     527,015       581,678       (54,663)       (9 )%
Vehicle expenses     110,882       65,667       45,215       69 %
Utilities expenses     339,070       293,706       45,364       15 %
Rentals and leases     78,277       5,877       72,400       1232 %
Advertising and promotion expenses     73,477       59,064       14,413       24 %
Interest expense     844,153       980,451       (136,298 )     (14 )%
Professional fee     93,557       54,182       39,375       73 %
Depreciation     1,175,020       936,827       238,193       25 %
Total operating costs and expenses     14,930,985       12,176,023       2,754,962       23 %
Earnings from operations before other income and income taxes     5,659,749       4,416,283       1,243,466       28 %
Other income (expenses)     (12,541 )     (13,155 )     (614 )     (5 )%
Earnings from operations before income taxes     5,647,208       4,403,128       1,244,080       28 %
Income tax     5,507       2,072       3,435       166 %
Net income     5,641,701       4,401,056       1,240,645       28 %
Less: net income attributable to non-controlling interests     1,692,510       1,320,317       372,193       28 %
Net income attributable to the Company   $ 3,949,191     $ 3,080,739     $ 868,452       28 %
Comprehensive income:                                
Foreign currency translation adjustment attributable to non-controlling interests     (358,078 )     189,867       (547,945 )     (289 )%
Foreign currency translation adjustment attributable to the Company     (985,500 )     393,121       (1,378,621 )     (351 )%
Comprehensive income   $ 4,298,123     $ 4,984,044     $ 685,921       (14 )%

  

Revenue

 

Operating revenue for the nine months ended September 30, 2018, which resulted primarily from medicine revenue and patient services revenue, was $20,590,734, an increase of 24% as compared with the operating revenue of $16,592,306 for the nine months ended September 30, 2017. The increase was primarily a result of the number of treated inpatients growing to 14,798 patients, about 2,073 more than the 12,725 patients treated in nine months ended September 30, 2017.

 

Costs and Expenses

 

Total costs and expenses were $14,930,985 for the nine months ended September 30, 2018, an increase of $2,754,962 or 23% as compared to $12,176,023 for the same period of 2017. This increase was primarily due to significant increases in medical consumables of $1,127,950, and increases in cost of medicine supplies of approximately $771,400, and increase in salaries and benefits of $591,613. 

 

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Cost of medicine sold

 

Cost of medicine sold mainly consists of cost of Western medicine, Chinese medicine and herbal medicine. Total cost of medicine sold was $5,571,186 for the nine months ended September 30, 2018, an increase of $771,400 or 16% as compared to $4,799,786 for the same period of 2017. This increase was primarily due to significant increases in cost of Western medicine and Chinese medicine of $646,916. For the nine months ended September 30, 2018, the cost of Western medicine and Chinese medicine were $5,328,236, as compared to $4,681,320 for the same period of 2017.

 

Medical consumables

 

Medical consumables mainly consist of materials expenses, medical film expenses and test reagent. Total medical consumables were $2,882,982 for the nine months ended September 30, 2018, an increase of $1,127,950 or 64% as compared to $1,755,032 for the same period of 2017. The increase was mainly a result of increase in materials expenses of $474,116 and increase in Other medical consumables of $437,475.

 

Salaries and benefits

 

Salaries and benefits mainly consist of salaries expenses, and social insurance expenses. Total salaries and benefits were $3,235,366 for the nine months ended September 30, 2018, an increase of $591,613 or 22% as compared to $2,643,753 for the same period of 2017. The increase was mainly a result of increase in salaries expenses of $392,598 and increase in social insurance expenses of $166,036. The number of employees was 610, an increase of 55 as compared to 555 for the same period of 2017.

 

Income Taxes

 

Enterprise income tax is defined 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.

 

Jiarun's medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

Jiarun was incorporated in accordance with the law of medical and health institutions mainly provides medical services, with the "PRC Business Tax Tentative Regulations" Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.  

 

In considering the achievements of the hospital, they could not have been reached without the support of local authorities, Jiarun hospital has voluntarily paid income tax voluntary of $5,507 and $2,072 for the nine months ended September 30, 2018 and 2017, respectively, to support the local tax bureau's economical obligations.

 

Income from Operations and Net income

 

Income from Operations was $5,659,749 for the nine months ended September 30, 2018, as compared with operating income of $4,416,283 for the nine months ended September 30, 2017. The Company’s net income for the nine months ended September 30, 2018 was $5,641,701 representing an increase of $1,240,645 or 28%, over $4,401,056 for the nine months ended September 30, 2017. The increases in income from operations and net income for the nine months ended September 30, 2018 were primarily due to aforementioned changes in operating revenue and operating expenses.

 

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Liquidity and Capital Resources

 

The accompanying financial statements have been prepared for the Company to continue as a going concern which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business.

 

As of September 30, 2018, the Company had $327,250 of cash and cash equivalents. 

  

We are presently able to meet our obligations as they come due. As of September 30, 2018, we had non-controlling interest of $8,673,475 and total of shareholders’ equity of $24,670,926.

 

We anticipate that our future liquidity requirements will arise from the need to fund our growth, pay current obligations and future capital expenditures. The primary sources of funding for such requirements are expected to be cash generated from operations and raising additional funds from the public offering and/or debt financing. However, we can provide no assurances that we will be able to generate sufficient cash flow from operations and/or obtain additional financing on terms satisfactory to us, if at all, to remain a going concern.

 

Cash Flows and Capital Resources 

 

We believe that we will generate cash flow from our business, which, along with our available cash, will provide sufficient liquidity and financial flexibility. Our cash flows are summarized below: 

 

   Nine Months Ended September 30, 
   2018   2017 
Net cash provided by operating activities   8,072,154    4,159,891 
Net cash used in investing activities   (5,761,225)   (2,606,774)
Net cash used in financing activities   (2,998,300)   (1,436,584)
Effect of exchange rate fluctuation on cash and cash equivalents   130,329    (7,547)
Net (increase) decrease in cash and cash equivalents   (557,042)   108,986 
Cash and cash equivalents, beginning of period   884,292    890,662 
Cash and cash equivalents, ending of period  $327,250   $999,648 

  

Net Cash provided by Operating Activities

 

For the nine months ended September 30, 2018, we had positive cash flow from operating activities of $8,072,154, an increase of $3,912,263 from the same period of 2017, during which we had cash flow from operating activities of $4,159,891. The increase in net cash used in operating activities was mainly as a result of the net income for the nine months ended September 30, 2018, increased by $1,240,645 as compared to the nine months ended September 30, 2017, and the addition of Amount due from related parties items totaling $3,458,582, which was due to the purchasing of medicines and equipment.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities for the nine months ended September 30, 2018, was $5,761,225, compared to net cash used in investing activities of $2,606,774 for the nine months ended September 30, 2017. The cash used in investing activities for the nine months ended September 30, 2018, was mainly used for the purchase of medical equipment.

 

Net Cash Used in Financing Activities

 

Net cash used in financing activities for the nine months ended September 30, 2018, was $2,998,300, as compared to net cash used in financing activities of $1,436,584 for the nine months ended September 30, 2017. The cash used in financing activities for the nine months ended September 30, 2018, was mainly provided by proceeds from shareholders $580,368 and payments on capital lease obligation of $3,135,748.

 

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Trends, Events and Uncertainties

 

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.

 

In December 2014, our operations moved into the new building. We have finished most of the decoration of the new building, and part of the expansion of medical facilities and purchases of new medical equipment. The hospital will need more medical facilities to update the medical equipment and acquire one pharmaceuticals wholesale and one medicine retail company. The new hospital building is being constructed by Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang, a related party. The building was leased from the related party by financial leasing. The price of the Leasing Agreement referred to the local market price and audited by the auditor. The Leasing Agreement terms consist of 30 payments. Each payment will be made on an annual basis when 7 million RMB per payment will be paid upfront for each leasing period. The first payment was made on September 1st, 2014. At the end of the leasing period, a final payment will be made to settle the total leasing amount. Both parties agreed for the leasee to pay 3 million RMB as deposit at the execution of the Leasing Agreement, which will be deducted from the final rental settlement. The lending interest rate was calculated at 6.55%, which is the benchmark interest rate announced from The People’s Bank of China. After the completion of all payments, the ownership of the lease item will be transferred to the Jiarun.

 

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 SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluations of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management team, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of December 31, 2004. Based on this evaluation, we concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic reports.

 

Changes in Internal Control over Financial Reporting

 

During the period covered by this report, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

The Company has no knowledge of existing or pending legal proceedings against the Company, nor is the Company involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of the Company’s directors, officers or any of their respective affiliates, or any beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

 

ITEM 1A. RISK FACTORS

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

 

We did not sell or issue any shares of unregistered securities during the nine months period ended September 30, 2018.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5. OTHER INFORMATION

 

Not applicable

 

ITEM 6. EXHIBITS

 

INDEX TO EXHIBITS

 

Exhibit   Description
31.1   Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

JRSIS HEALTH CARE CORPORATION. (Registrant)

 

Signature   Title   Date
         
/s/ Lihua. Sun   Chief Executive Officer   November 13, 2018
 Lihua. Sun   (Principal Executive Officer)    
         
/s/ Xuewei. Zhang   Chief Financial Officer   November 13, 2018
 Xuewei. Zhang   (Principal Financial Officer)    

 

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