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 months ended March 31, 2018 are not necessarily indicative of the results that can be expected
for the year ended December 31, 2018.
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.
JHCC, JHCL, Runteng and
Jiarun 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.
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
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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(AMOUNTS IN USD)
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 three months ended March 31, 2018 and 2017, no customer accounted for more than 10% of net revenue. As of March 31, 2018, and
December 31, 2017, 3 and 2 customer 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.
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.
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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(AMOUNTS IN USD)
|
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
|
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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(AMOUNTS IN USD)
|
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 three months ended March 31, 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.
|
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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(AMOUNTS IN USD)
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.
|
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(AMOUNTS IN USD)
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 $581 and $919 for the three months ended March 31, 2018 and 2017, respectively to support the local tax bureau’s economical
obligations.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(AMOUNTS IN USD)
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.
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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 3. Accounts Receivable,
Net
|
|
March 31
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Accounts receivable
|
|
$
|
7,677,439
|
|
|
$
|
5,704,697
|
|
Less: allowance for doubtful debts
|
|
|
26,669
|
|
|
|
25,740
|
|
|
|
$
|
7,650,770
|
|
|
$
|
5,678,957
|
|
The Company experienced nil
bad debts during three months ended March 31, 2018 and 2017.
NOTE 4. Inventories
At March 31, 2018 and December
31, 2017, inventories consist of the following:
|
|
March 31
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Western medicine
|
|
$
|
734,770
|
|
|
$
|
662,079
|
|
Chinese herbal medicine
|
|
|
21,796
|
|
|
|
29,499
|
|
Medical material
|
|
|
396,445
|
|
|
|
243,445
|
|
Other material
|
|
|
2,438
|
|
|
|
1,526
|
|
|
|
$
|
1,155,449
|
|
|
$
|
936,549
|
|
NOTE 5. Prepayment
At March 31, 2018 and December
31, 2017 prepayment consists of the following:
|
|
March 31
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Deposits on medical equipment
|
|
$
|
426,208
|
|
|
$
|
491,822
|
|
Heating fees
|
|
|
17,345
|
|
|
|
117,188
|
|
Others
|
|
|
368,253
|
|
|
|
291,670
|
|
|
|
$
|
811,806
|
|
|
$
|
900,680
|
|
NOTE 6. Property and Equipment
At March 31, 2018 and December
31, 2017, property and equipment, at cost, consist of:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Transportation equipment
|
|
$
|
942,523
|
|
|
$
|
871,653
|
|
Medical equipment
|
|
|
12,812,488
|
|
|
|
11,833,334
|
|
Electrical equipment
|
|
|
1,552,754
|
|
|
|
1,496,461
|
|
Office equipment and others
|
|
|
325,754
|
|
|
|
130,524
|
|
Buildings
|
|
|
15,944,709
|
|
|
|
15,389,204
|
|
Software
|
|
|
151,516
|
|
|
|
146,238
|
|
Total fixed assets at cost
|
|
|
31,729,744
|
|
|
|
29,867,414
|
|
Accumulated depreciation
|
|
|
(4,236,472
|
)
|
|
|
(3,715,784
|
)
|
Total fixed assets, net
|
|
$
|
27,493,272
|
|
|
$
|
26,151,630
|
|
The Company recorded depreciation
expense of $381,849 and $303,001 for the three months ended March 31, 2018 and 2017, respectively.
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 $71,837 and $69,334 as of March 31, 2018 and December 31, 2017. The long-term deferred expenses
were $92,293 and $106,411 as of March 31, 2018 and December 31, 2017.
The Company recorded consulting
fee of $17,740 and $16,373 for the three months ended March 31, 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 (“the Leasor”),
which is owned by Junsheng Zhang, a related party. The Leasing terms consist of principal plus 30 payments. Each payment 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 1, 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. In accordance to accounting principles and treatment, this payment was booked as deposit in our accounts. The
Leasor shall return the premium for lease to Jiarun at expiration of this Contract or pledge this deposit as part of rents for
the last period or periods in 2043. 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 September 1, 2014, October
22, 2014, March 26, 2015, May 7, 2015, July 3, 2015, October 16, 2015, April 6, 2016 and April 13, 2016 and November 25, 2016 and
April 5 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.
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 March 31, 2018 are as follows:
Year
|
|
Amounts
|
|
2018
|
|
$
|
2,194,794
|
|
2019
|
|
|
2,366,768
|
|
2020
|
|
|
1,229,284
|
|
Thereafter
|
|
|
19,828,009
|
|
Total
|
|
$
|
25,618,855
|
|
The Company recorded finance
lease fees of $322,484 and $325,817 for the three months ended March 31, 2018 and 2017, respectively.
NOTE 9. Short-term Bank
Loan
|
|
March 31
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Short- term bank loan
|
|
$
|
-
|
|
|
$
|
445,647
|
|
As of March 31, 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 $2,238 and $3,917 for the three months ended March 31, 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 recognized.
The Company holds 70% interest of Jiarun as of March 31, 2018 and December 31, 2017.
As of March 31, 2018 and
December 31, 2017, NCI in the consolidated balance sheet was $8,196,764 and $7,339,043, respectively. For the three months ended
March 31, 2018, the comprehensive income attributable to shareholders’ equity and NCI is $2,003,906 and $857,721 respectively.
For the three months ended March 31, 2017, the comprehensive income attributable to shareholders’ equity and NCI is $1,129,904
and $504,713 respectively.
NOTE 11. Revenue
The Company’s revenue
consists of medicine sales and patient care revenue.
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Medicine:
|
|
|
|
|
|
|
Western medicine
|
|
$
|
2,159,439
|
|
|
$
|
2,013,797
|
|
Chinese medicine
|
|
|
433,217
|
|
|
|
427,059
|
|
Herbal medicine
|
|
|
115,390
|
|
|
|
87,219
|
|
Total medicine
|
|
$
|
2,708,046
|
|
|
$
|
2,528,075
|
|
|
|
|
|
|
|
|
|
|
Patient services:
|
|
|
|
|
|
|
|
|
Medical consulting
|
|
$
|
2,091,465
|
|
|
$
|
1,605,924
|
|
Medical treatment
|
|
|
1,981,455
|
|
|
|
1,370,479
|
|
Others
|
|
|
19,111
|
|
|
|
6,334
|
|
Total patient services
|
|
$
|
4,092,031
|
|
|
$
|
2,982,737
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,800,077
|
|
|
$
|
5,510,812
|
|
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 35%. 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 has voluntarily paid income tax of
$581 and $919 for the three months ended March 31, 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
|
|
March
31,
2018
|
|
|
December 31,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Harbin Baiyi Real Estate Development Co., Ltd,
|
|
$
|
739,484
|
|
|
$
|
1,738,710
|
|
Junsheng Zhang
|
|
|
46,500
|
|
|
|
46,500
|
|
Yanhua Xing
|
|
|
2,450
|
|
|
|
2,450
|
|
Weiguang Song
|
|
|
1,050
|
|
|
|
1,050
|
|
|
|
$
|
789,484
|
|
|
$
|
1,788,710
|
|
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 13. Related Party
Transactions (Continued)
Amount due from Baiyi was
mainly represented the deposit for the new outpatient building which was constructed by Baiyi. The Company had paid a prepayment
approximately $739,484 for decoration for the new outpatient building.
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:
|
|
March 31,
|
|
|
December 31,
|
|
Name of related parties
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Harbin Jiarun Pharmacy Co., Ltd
|
|
$
|
50,548
|
|
|
$
|
7
|
|
Heilongjiang Province Runjia Medical Equipment Co., Ltd
|
|
|
1,089
|
|
|
|
6,014
|
|
Harbin Qi-run pharmacy Co., Ltd
|
|
|
5,067
|
|
|
|
17,972
|
|
Junsheng Zhang
|
|
|
-
|
|
|
|
50,000
|
|
|
|
$
|
64,704
|
|
|
$
|
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 four companies.
Amounts due to Junsheng
Zhang represented the balance paid by Mr. Zhang for the daily operation of the Company.
Related parties’
transactions
Purchase of medicine and
medical material from related parties consisted of the following for the periods indicated:
|
|
For three months ended March 31,
|
|
Name of related parties
|
|
2018
|
|
|
2017
|
|
Harbin Jiarun Pharmacy Co., Ltd
|
|
$
|
57,828
|
|
|
$
|
57,022
|
|
Heilongjiang Province Runjia Medical Equipment Co., Ltd
|
|
|
1,683
|
|
|
|
-
|
|
Harbin Qi-run pharmacy Co., Ltd
|
|
|
1,019
|
|
|
|
12,887
|
|
|
|
$
|
60,530
|
|
|
$
|
69,909
|
|
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 March 31, 2018, the company has balance of deposits for capital leases and capital lease
obligations of $477,656 and $14,271,606 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.
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:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1,419,979
|
|
|
$
|
1,111,491
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average number of shares outstanding
|
|
|
14,871,111
|
|
|
|
13,915,000
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.0955
|
|
|
$
|
0.0799
|
|
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 March 31, 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 March 31, 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
2
nd
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
1
st
Branch Company.
Future annual minimum lease
payments, for non-cancellable operating leases are as follows:
Year ending December 31
|
|
Amount $
|
|
2018
|
|
|
81,732
|
|
2019
|
|
|
108,595
|
|
2020
|
|
|
115,036
|
|
2021
|
|
|
120,048
|
|
2022
|
|
|
122,017
|
|
|
|
|
547,428
|
|
The company has paid Rentals
and leases expense of $26,737 and $nil for three months ended March 31, 2018 and 2017, respectively
NOTE 16. COMMON STOCK
The Company issued 130,000 restrict common stock
in cash at a rate of $1 per share for US$130,000 under Regulation S Section 5 for 7 non-US persons during first three 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
From April 1, 2018 to May
14, 2018 there were 10,000 shares of the Company’s common stock issued to 1 shareholders.
As of May 14, 2018, there
were 14,975,000 shares of the Company’s common stock issued and outstanding held by 134 shareholders.
The Management of the Company
determined that there were no other reportable subsequent events to be disclosed.