NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 1. DESCRIPTION OF BUSINESS AND ORGANIZATION
JRSIS Health Care Corporation (the “Company”
or “JRSS”) was incorporated on November 20, 2013 under the laws of the State of Florida. In December 2013 JRSS acquired
100% of the equity in JRSIS Health Care Limited (“JHCL”), which is a Limited Liability Company registered in British
Virgin Island (“BVI”) on February 25, 2013. JHCL owns 100% of the equity in Runteng Medical Group Co., Ltd (“Runteng”),
a limited liability company registered in Hong Kong on September 17, 2012. Runteng owns 70% of the equity in Harbin Jiarun Hospital
Co., Ltd (“Jiarun”), a for-profit hospital incorporated in Harbin City of Heilongjiang, China in February 2006. The
remaining 30% of the equity in Jiarun is owned by Junsheng Zhang, who is the Chairman of the Board of JRSIS Health Care Corporation.
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 also
owns 100% of the equity in:
|
●
|
Harbin
Jiarun Hospital Co., Ltd Nanjing Road Branch (“NRB Hospital”), 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”), a second hospital branch of Jiarun, incorporated in Harbin city of
Heilongjiang, China in November 2017. 2nd Branch 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.
|
30% of the equity in Jiarun is held by
Junsheng Zhang, and is therefore a non-controlling interest (“NCI”), accounted for pursuant to ASC810-10-45, which
states that the ownership interest in the subsidiary that is held by owners other than the parent is a non-controlling interest.
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, separate from the Company’s equity. Net income
or loss and comprehensive income or loss are attributed to the Company’s and the non-controlling interest.
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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
D.
Functional currency and foreign currency translation
JRSS 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.
The exchange rates used for foreign currency
translation are as follows:
|
|
|
|
For the Year Ended
December
31,
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
(USD to RMB/USD to HKD)
|
|
|
(USD
to RMB/USD to HKD)
|
|
Assets and liabilities
|
|
period end exchange rate
|
|
|
6.9680
/ 7.7876
|
|
|
|
6.8776
/ 7.8317
|
|
Revenue and expenses
|
|
period average
|
|
|
6.9088
/ 7.8351
|
|
|
|
6.6163
/ 7.8375
|
|
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 majority
of sales are either cash receipt in advance or cash receipt upon delivery. For the years ended December 31, 2019 and 2018, no
customer accounted for more than 10% of net revenue. As of December 31, 2019 and 2018, three and three 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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
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.
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.
The estimated useful lives for property
and equipment categories are as follows:
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
In February 2016, the FASB issued ASU
2016-02–Leases (Topic 842), which increases transparency and comparability among organizations by recognizing right-of-use
(“ROU”) lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
The ASU maintains a distinction between finance leases and operating leases, which is substantially similar to the classification
criteria for distinguishing between capital leases and operating leases in the previous lease guidance. Retaining this distinction
allows the recognition, measurement and presentation of expenses and cash flows arising from a lease to remain similar to the
previous accounting treatment. A lessee is permitted to make an accounting policy election by class of underlying asset to exclude
from balance sheet recognition any lease assets and lease liabilities with a term of 12 months or less, and instead to recognize
lease expense on a straight-line basis over the lease term. For both financing and operating leases, the ROU asset and lease liability
is initially measured at the present value of the lease payments in the consolidated balance sheet. In July 2018, the FASB issued
ASU 2018-11 which provides entities with the option to initially apply the new lease standard at the adoption date and recognize
a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if necessary. As discussed
in Note 8, we adopted ASU 2016-02–Leases (Topic 842) effective January 1, 2019 utilizing the transition option provided
by ASU 2018-11.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
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).
The following table sets forth by level
within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis:
|
|
Carrying Value at
December 31,
|
|
|
Fair
Value Measurement at
December 31, 2019
|
|
|
|
2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Convertible Note
|
|
$
|
774,567
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
774,567
|
|
Warrant liability
|
|
$
|
110,840
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
110,840
|
|
A summary of changes in Warrant liability
for the period ended December 31, 2019 was as follows:
Balance at January 1, 2019
|
|
$
|
-
|
|
Issuance of warrants on May 30, 2019
|
|
|
77,995
|
|
Issuance of warrants on July 30, 2019
|
|
|
74,486
|
|
Change in fair value of warrant liability
|
|
|
(41,641
|
)
|
Balance at December 31, 2019
|
|
|
110,840
|
|
The fair value of the outstanding warrants
was calculated using the Binomial Option Pricing Model with the following assumptions at inception and on subsequent valuation
date:
|
|
December 31, 2019
|
|
Warrants
|
|
Labrys
|
|
|
Auctus
|
|
Market price per share (USD/share)
|
|
$
|
6.5
|
|
|
$
|
6.5
|
|
Exercise price (USD/share)
|
|
|
10.00
|
|
|
|
6.00
|
|
Risk free rate
|
|
|
1.679
|
%
|
|
|
1.654
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term/Contractual life (years)
|
|
|
4.42
|
|
|
|
2.58
|
|
Expected volatility
|
|
|
54.62
|
%
|
|
|
51.25
|
%
|
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
A summary of changes in Convertible Note
for the period ended December 31, 2019 was as follows:
Balance at January 1, 2019
|
|
$
|
-
|
|
Issuance of Convertible Note on July 15, 2019
|
|
|
192,500
|
|
Issuance of Convertible Note on July 30, 2019
|
|
|
250,000
|
|
Fair value loss on issuance of convertible notes
|
|
|
392,286
|
|
Change in fair value of convertible notes
|
|
|
(60,219
|
)
|
Balance at December 31, 2019
|
|
|
774,567
|
|
The fair value of the outstanding Convertible
Note was calculated using Monte Carlo simulation “MC simulation” method and the Binomial Option Pricing Model with
the following assumptions at inception and on subsequent valuation date:
|
|
December 31, 2019
|
|
Convertible Note
|
|
Harbor
Gates 1
|
|
|
Auctus 2
|
|
Market price per share (USD/share)
|
|
$
|
6.5
|
|
|
$
|
6.5
|
|
Exercise price (USD/share)
|
|
$
|
5
|
|
|
|
60%
on lowest trading price
|
|
Risk free rate
|
|
|
1.663
|
%
|
|
|
1.89
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term/Contractual life (years)
|
|
|
0.04
|
|
|
|
0.33
|
|
Expected volatility
|
|
|
21.22
|
%
|
|
|
48.25
|
%
|
In May and July, 2019, the Company issued
three convertible promissory notes, one each to Labrys Fund, LP, Auctus Fund, LLC and Harbor Gates Capital, LLC. On October 31,
2019, the Company repaid the convertible promissory note issued to Labrys Fund, LP. Therefore, the Labrys’ Convertible Note
has no fair value as of each subsequent reporting date.
|
1.
|
The
fair value of the outstanding Convertible Note issued to Harbor Gates was calculated
using Binomial Option Pricing Model
|
|
2.
|
The
fair value of the outstanding Convertible Note issued to Auctus was calculated using
Monte Carlo simulation “MC simulation” method.
|
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.
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 does the Company have any policy for
return of products.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Patient Services
In accordance with the medical licenses
under which Jiarun operates, the scope of its approved medical patient service includes medical consulting, surgery, obstetrics
and gynecology, pediatrics, anesthesia, clinic laboratory, medical imaging, and traditional Chinese 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.
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 before the patient leaves the hospital.
|
|
●
|
For
in-patient medical services, when a patient checks into the hospital, the Company estimates
the approximate fee the patient will spend in the hospital based on patient’s symptoms.
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 a patient checks 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 patient has a balance in accounts receivable, 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 is also required to reconcile
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)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
O.
Income taxes
The Company has adopted 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 determined under
the Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC, income tax is payable by enterprises
at a rate of 25% of their taxable income.
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 adopted accounting pronouncements
The FASB has issued Accounting Standards
Update (ASU) No. 2019-01, Leases (Topic 842): Codification Improvements. The new ASU aligns the guidance for fair value of the
underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the
fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply.
However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences,
the definition of fair value (in Topic 820, Fair Value Measurement) should be applied.
The ASU also requires lessors within the
scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases”
within investing activities.
Finally, the ASU exempts both lessees
and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard.
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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE
3. ACCOUNTS RECEIVABLE, NET
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
Accounts receivable
|
|
$
|
7,308,224
|
|
|
$
|
8,237,369
|
|
Less: allowance for doubtful debts
|
|
|
2,724,389
|
|
|
|
24,354
|
|
|
|
$
|
4,583,835
|
|
|
$
|
8,213,015
|
|
The Company experienced $2,700,035 and $nil
bad debts record in other income(expense) during the years ended December 31, 2019 and 2018. The allowance for doubtful debts
was derived from two years old unreimbursed exceed insurance claim submitted by the Company to the Harbin Medical Insurance Management
Center.
NOTE
4. INVENTORIES
At December 31, 2019 and 2018, inventories
consist of the following:
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
Western medicine
|
|
$
|
554,414
|
|
|
$
|
809,499
|
|
Chinese herbal medicine
|
|
|
37,621
|
|
|
|
29,796
|
|
Medical material
|
|
|
475,916
|
|
|
|
321,477
|
|
Other material
|
|
|
4,790
|
|
|
|
3,073
|
|
|
|
$
|
1,072,741
|
|
|
$
|
1,163,845
|
|
NOTE
5. PREPAYMENT
At December 31, 2019 and 2018, prepayment
consists of the following:
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
Deposits on medical equipment
|
|
$
|
744,569
|
|
|
$
|
1,297,411
|
|
Heating fees
|
|
|
175,736
|
|
|
|
135,035
|
|
Others
|
|
|
381,046
|
|
|
|
393,768
|
|
|
|
$
|
1,301,351
|
|
|
$
|
1,826,214
|
|
NOTE
6. PROPERTY AND EQUIPMENT
At December 31, 2019 and 2018, property and
equipment, at cost, consist of:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Transportation equipment
|
|
$
|
1,184,896
|
|
|
$
|
1,000,303
|
|
Medical equipment
|
|
|
17,291,984
|
|
|
|
15,001,892
|
|
Electrical equipment
|
|
|
1,842,552
|
|
|
|
1,649,229
|
|
Office equipment and other
|
|
|
964,669
|
|
|
|
813,635
|
|
Buildings
|
|
|
23,700,288
|
|
|
|
24,011,797
|
|
Software
|
|
|
185,043
|
|
|
|
138,366
|
|
Total fixed assets at cost
|
|
|
45,169,432
|
|
|
|
42,615,222
|
|
Accumulated depreciation
|
|
|
(7,021,013
|
)
|
|
|
(4,891,253
|
)
|
Total fixed assets, net
|
|
$
|
38,148,419
|
|
|
$
|
37,723,969
|
|
Reclass to Right-of-use assets
|
|
|
(15,309,797
|
)
|
|
|
-
|
|
Depreciation expense was $2,212,022 and
$1,764,765 for the years ended December 31, 2019 and 2018, 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 a consulting fee to Hair for the services provided over
the five years. During the year ended December 31, 2018, the Company paid approximately $1.6 million for the decoration of its
outpatient building and the two Branch Hospitals. The consulting and decoration fees paid but attributable to the current and
subsequent accounting periods were accounted for as deferred expenses and long term deferred expenses.
The current portions of the prepaid consulting
and decoration fees were recorded as deferred expenses of $257,203 and 291,104 as of December 31, 2019 and 2018. The long-term
deferred expenses were $2,978,936 and $1,238,455 as of December 31, 2019 and 2018.
The Company recorded consulting fees of
$65,306 and $68,193, and decoration fees of $224,485 and $149,105 for the year ended December 31, 2019 and 2018, respectively.
NOTE 8. RIGHT-OF-USE ASSETS AND LEASE
LIABILITIES
On January 1, 2019, the Company adopted
Accounting Standards Codification (“ASC”) Topic 842, “Leases” (“new lease standard”). The
new lease standard was adopted using the optional transition method approach that allows for the cumulative effect adjustment
to be recorded without restating prior periods. The Company has elected the practical expedient package related to the identification,
classification and accounting for initial direct costs whereby prior conclusions do not have to be reassessed for leases that
commenced before the effective date. As the Company will not reassess such conclusions, the Company has not adopted the practical
expedient to use hindsight to determine the likelihood of whether a lease will be extended or terminated or whether a purchase
option will be exercised.
Finance lease
On June 5, 2013, Jiarun entered into a
lease agreement to lease its hospital building from Harbin Baiyi Real Estate Development Co., Ltd (“the Lessor”),
which is owned by Junsheng Zhang, a related party. The Lease has a term of 30 years, requiring annual prepayments of a rent of
RMB7,000,000. 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 Lessor shall return the premium for lease to Jiarun at expiration of the Contract
or pledge the deposit as part of rents for the last period or periods in 2043. The implicit interest rate, which determined the
rental fee after fair value was amortized, 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 $1,004,593) 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 interest rate of 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, April 6, 2016, November 25, 2016, April 5 2017 and May 25, 2019 Jiarun entered into several lease agreements to lease
medical equipment and an elevator from three lease finance companies, which are all unrelated 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 offset against the last quarterly payment. The medical equipment and elevator
will be transferred to Jiarun upon the completion of the agreement.
On March 25, 2019 Jiarun entered into
a sale and leaseback agreement for the sale-leaseback of properties from Haitong Hengxin International Leasing Company Limited,
with a collective net value of $2,609,047.
Operating lease
In August 2017 JHCC leased office space
under non-cancellable operating lease agreements. Under terms of the lease agreement, from August 2017, JHCC is committed to make
lease payments of approximately $36,881 per year for 5 years. This office is used for outpatient services by 2nd Branch Hospital.
In December 2017 JHCC leased office space
under non-cancellable operating lease agreements. Under terms of the lease agreement, from December 2017, JHCC is committed to
make lease payments of approximately $68,128 per year for 5 years. This office is used by 1st Branch Company.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 8. RIGHT-OF-USE ASSETS AND LEASE
LIABILITIES (Continued)
The Company’s adoption of the
new lease standard included new processes and controls regarding asset financing transactions, financial reporting and a system-related
implementation required for the new lease standard. The Company’s accounting for finance leases (formerly referred to as
capital leases prior to the adoption of the new lease standard) remained substantially unchanged. The impact of the adoption of
the new lease standard included the recognition of right-of-use (“ROU”) assets and lease liabilities. The adoption
of the new lease standard resulted in additional net lease assets and net lease liabilities of approximately $15.64 million and $15.98
million, respectively, as of December 31, 2019.
As of December 31, 2019, the
Company has the following amounts recorded on the Company’s unaudited condensed consolidated balance sheet:
|
|
December 31,
2019
|
|
Assets
|
|
|
|
Operating lease assets
|
|
$
|
331,693
|
|
Finance lease assets
|
|
|
15,309,796
|
|
Total
|
|
$
|
15,641,489
|
|
Liabilities
|
|
|
|
|
Current
|
|
|
|
|
Operating lease liabilities
|
|
|
111,414
|
|
Finance lease liabilities
|
|
|
2,569,007
|
|
Long-term
|
|
|
|
|
Operating lease liabilities
|
|
|
220,279
|
|
Finance lease liabilities
|
|
|
13,075,654
|
|
Total
|
|
$
|
15,976,354
|
|
The future minimum lease payments for
annual capital lease obligation as of December 31, 2019 are as follows:
Year
|
|
Amounts
|
|
2020
|
|
$
|
2,243,062
|
|
2021
|
|
|
1,462,976
|
|
2022
|
|
|
445,398
|
|
Thereafter
|
|
|
11,493,225
|
|
Total
|
|
$
|
15,644,661
|
|
The Company recorded finance interest
lease fees of $1,166,100 and $1,178,074 for the year ended December 31, 2019 and 2018.
Future annual minimum lease payments
for non-cancellable operating leases are as follows:
Year ending December 31
|
|
Amount $
|
|
2020
|
|
|
111,414
|
|
2021
|
|
|
122,038
|
|
2022
|
|
|
98,241
|
|
|
|
|
331,693
|
|
The Company recorded operating lease
expense of $124,763 and $109,326 for the year ended December 31, 2019.
At December 31, 2019 right-of-use assets
consist of:
|
|
December 31, 2019
|
|
|
|
Operating
lease
|
|
|
Finance
lease
|
|
|
Total
|
|
Lease assets
|
|
$
|
432,892
|
|
|
$
|
16,390,259
|
|
|
$
|
16,823,151
|
|
Accumulated amortization
|
|
|
(101,199
|
)
|
|
|
(1,080,463
|
)
|
|
|
(1,181,662
|
)
|
Total right-of-use assets, net
|
|
$
|
331,693
|
|
|
$
|
15,309,796
|
|
|
$
|
15,641,489
|
|
The Company recorded finance lease
amortization expense of $1,080,463 and $nil in depreciation and amortization for the year ended December 31, 2019 and 2018, respectively.
For the year ended December 31, 2019, the amount of depreciation and amortization was $2,212,022, also included general property
and equipment depreciation of $1,131,559.
The Company recorded operating lease
expense of $124,763 and $109,26 for the year ended December 31, 2019 and 2018, including operating lease amortization expense
of $101,199 and $nil for the year ended December 31, 2019 and 2018, respectively.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE
9. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company has adopted the provisions
of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”). ASC 825-10 defines fair value as the
price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded
at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk
of nonperformance. ASC 825-10 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.
Debt derivatives – In
May and July of 2019, the Company issued three convertible promissory notes to Labrys Fund, LP. Auctus Fund, LLC and Harbor Gates
Capital, LLC The Notes were convertible into common stock, at holders’ option, at a discount to the market price of the
Company’s common stock. The Company has identified the embedded derivatives relating to certain anti-dilutive (reset) provisions
in the Notes. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial
instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and record the
change in fair value as of each subsequent reporting date.
During 2019 the Company satisfied the
Note issued to Lbrys Fund, LP. At December 31, 2019, the Company marked to market the fair value of the other two debt derivatives
and determined a fair value of $774,567. The Company recorded a loss from issuance expense and change in fair value of debt derivatives
of $392,286 and $-60,219 for the year ended December 31, 2019. The fair value of the embedded derivatives was determined using
Monte Carlo simulation “MC simulation” method and Binomial Option Pricing Model based on the following assumptions:
(1) dividend yield of 0%, (2) expected volatility of 21.22% and 48.25%, (3) weighted average risk-free interest rate of 1.66%
and 1.89% (4) expected life of 0.04 and 0.33 year, and (5) the quoted market price of the Company’s common stock at each
valuation date.
At December 31, 2018, the Company had
no debt derivatives.
Warrant liabilities –
The Company issued two common stock purchase warrants (the “warrants”) to purchase 28,200 shares and 21,000 shares
of the registrant’s common stock to Labrys Fund, LP and Auctus Fund, LLC. These warrants contain certain reset provisions.
The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as
of the inception date (issuance date) and to fair value as of each subsequent reporting date.
At December 31, 2019, the Company marked
to market the fair value of the warrant liability and determined a fair value of $110,840. The Company recorded a loss from issuance
expense and change in fair value of warrant liability of $152,481 and $-41,642 for the year ended December 31, 2019. The fair
value of the warrant liability was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend
yield of 0%, (2) expected volatility of 54,62% and 51.25%, (3) weighted average risk-free interest rate of 1.679% and 1.654 (4)
expected life of 4.42 and 2.58 years, and (5) the quoted market price of the Company’s common stock at each valuation date.
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 December 31, 2019 and 2018.
As of December 31, 2019 and 2018, NCI
in the consolidated balance sheet was $8,168,613 and $7,895,376, respectively. For the year ended December 31, 2019, the comprehensive
income attributable to shareholders’ equity and NCI is $634,297 and $273,237, respectively. For the year ended December
31, 2018, the comprehensive income attributable to shareholders’ equity and NCIs is $1,103,381 and $556,333, respectively.
NOTE
11. REVENUE
The Company’s revenue consists of
medicine sales and patient care revenue.
|
|
For the Year Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Medicine:
|
|
|
|
|
|
|
Western medicine
|
|
$
|
8,331,289
|
|
|
$
|
8,613,196
|
|
Chinese medicine
|
|
|
1,398,311
|
|
|
|
1,753,625
|
|
Herbal medicine
|
|
|
1,048,639
|
|
|
|
816,309
|
|
Total medicine
|
|
$
|
10,778,239
|
|
|
$
|
11,183,130
|
|
|
|
|
|
|
|
|
|
|
Patient services:
|
|
|
|
|
|
|
|
|
Medical consulting
|
|
$
|
9,636,511
|
|
|
$
|
8,720,373
|
|
Medical treatment
|
|
|
9,941,595
|
|
|
|
8,106,483
|
|
Others
|
|
|
1,107,088
|
|
|
|
392,773
|
|
Total patient services
|
|
$
|
20,685,194
|
|
|
$
|
17,219,629
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,463,433
|
|
|
$
|
28,402,759
|
|
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
JRSS is subject to the United States of
America tax law at tax rate of 21%. 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 planned to be reinvested indefinitely into the operations of the Company
in the PRC.
The following table shows the components of the allowance for US income
tax recorded for 2019:
|
|
Amounts
|
|
Loss before income tax
|
|
$
|
(384,060
|
)
|
Tax rate at 21%
|
|
|
(80,653
|
)
|
Disallowed tax losses
|
|
|
80,653
|
|
Income tax expense
|
|
$
|
-
|
|
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%.
The following table shows the components of the allowance for Hong Kong income tax recorded
for 2019:
|
|
Amounts
|
|
Loss before income tax
|
|
$
|
(17,377
|
)
|
Tax rate at 16.5%
|
|
|
(2,861
|
)
|
Disallowed tax losses
|
|
|
2,861
|
|
Income tax expense
|
|
$
|
-
|
|
PRC
Corporate Income Tax (CIT) is determined
under the Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC, income tax is payable by
enterprises at a rate of 25% of their taxable income.
The following table shows the components of the allowance for PRC income
tax recorded for 2019:
|
|
Amounts
|
|
Income tax expense
|
|
$
|
25,084
|
|
Income tax: 2019 deferred
|
|
|
632,615
|
|
Tax expense from continuing operation
|
|
$
|
657,699
|
|
Reconciliation:
|
|
Amounts
|
|
Income tax at statutory rate
|
|
$
|
657,699
|
|
Tax expense from continuing operation
|
|
$
|
657,699
|
|
According to the PRC “Notice on
Preferential Corporate Income Tax (CIT) Treatment for Eligible Equipment or Machinery (Cai Shui [2018] No. 54)”, a 100%
immediate tax deduction for CIT purposes is allowed on the purchase of eligible equipment on the condition that the unit price
of each item of equipment or machinery is individually less than RMB 5 million. Depreciation for tax purposes is not required.
Basis differences between tax and GAAP for depreciation of property and equipment exist because in 2018 the Company purchased
Eligible Equipment for RMB 21.32 million, with $632,615 deferred income tax, creating differences between the tax treatment mandated
by the Chinese government and GAAP tax treatment.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE
13. RELATED PARTY TRANSACTIONS
The following is the list of the related
parties with which the Company had transactions in the past two years:
(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 shareholders of JHCL
Amount due from related parties
Amount due from related parties consisted
of the following as of the periods indicated:
|
|
December 31,
|
|
Name of related parties
|
|
2019
|
|
|
2018
|
|
Harbin Baiyi Real Estate Development Co., Ltd,
|
|
$
|
-
|
|
|
$
|
99,811
|
|
Junsheng Zhang
|
|
|
-
|
|
|
|
46,500
|
|
Yanhua Xing
|
|
|
-
|
|
|
|
2,450
|
|
Weiguang Song
|
|
|
-
|
|
|
|
1,050
|
|
|
|
$
|
-
|
|
|
$
|
149,811
|
|
Amount due from Baiyi mainly represented
the deposit for the outpatient building decoration. The Company had paid a deposit of $99,811 in 2018.
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 which they had committed.
The amount due from related parties became
$ Nil in 2019.
Amount due to related parties
Amount due to related parties consisted
of the following as of the periods indicated:
|
|
December 31,
|
|
Name of related parties
|
|
2019
|
|
|
2018
|
|
Harbin Jiarun Pharmacy Co., Ltd
|
|
$
|
-
|
|
|
$
|
1,211
|
|
Heilongjiang Province Runjia Medical Equipment Co., Ltd
|
|
|
4,306
|
|
|
|
1,614
|
|
Jiarun Super Market Co., Ltd.
|
|
|
-
|
|
|
|
39,042
|
|
Harbin Baiyi Real Estate Development Co., Ltd,
|
|
|
1,043,131
|
|
|
|
-
|
|
Harbin Qi-run Pharmacy Co., Ltd
|
|
|
-
|
|
|
|
17,280
|
|
Junsheng Zhang
|
|
|
747,103
|
|
|
|
50,000
|
|
|
|
$
|
1,794,540
|
|
|
$
|
109,147
|
|
Amount due to Harbin Jiarun Pharmacy
Co., Ltd., Harbin Qi-run Pharmacy Co., Ltd. And Heilongjiang Province Runjia Medical Equipment Company Limited were mainly the
balance due for purchase of medicine and medical material from these three companies.
Amount due to Baiyi mainly represented the
debt for the inpatient and outpatient building extension decoration and beauty center decoration.
Amounts due to Junsheng Zhang represented
amounts paid by Mr. Zhang for the daily operation of the company.
JRSIS
HEALTH CARE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS
IN USD)
Related parties’ transactions
Purchase of medicine and medical material
from related parties consisted of the following for the periods indicated:
|
|
For the Year ended
December 31,
|
|
Name of related parties
|
|
2019
|
|
|
2018
|
|
Harbin Jiarun Pharmacy Co., Ltd
|
|
$
|
86,304
|
|
|
$
|
229,498
|
|
Heilongjiang Province Runjia Medical Equipment Co., Ltd
|
|
|
7,377
|
|
|
|
5,965
|
|
Harbin Qi-run Pharmacy Co., Ltd
|
|
|
-
|
|
|
|
28,770
|
|
|
|
$
|
93,681
|
|
|
$
|
264,233
|
|
Deposits for capital leases and capital
lease obligations
On June 5, 2013, Jiarun entered into a
Lease Agreement to lease its hospital complex from Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang,
a related party. As of December 31, 2019, the Company had deposits for capital leases and capital lease obligations of $430,540
and $12,253,578, respectively. As of December 31, 2018, the Company had deposits for capital leases and capital lease obligations
of $436,199 and $12,817,373, respectively.
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:
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
888,061
|
|
|
$
|
1,992,970
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average number of shares outstanding
|
|
|
16,757,890
|
|
|
|
14,948,397
|
|
Diluted weighted-average number of shares outstanding
|
|
|
16,783,362
|
|
|
|
14,948,397
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.0530
|
|
|
$
|
0.1333
|
|
Diluted
|
|
|
0.0529
|
|
|
|
0.1333
|
|
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 of this type as of December 31, 2019 and 2018.
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 of this type as of December 31, 2019 and 2018.
Loss contingencies considered to be remote
by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
JRSIS
HEALTH CARE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS
IN USD)
NOTE 16. COMMON STOCK
During 2019 the Company issued 2,994,999 shares
of restricted common stock for 20% Stock dividends, and issued 6,000 shares of restricted common stock for Employee Compensation.
These issued was made pursuant to SEC Regulation S to eight non-US persons during 2019, and accordingly was exempt from registration.
NOTE 17. GOING CONCERN
As reflected in the accompanying consolidated
financial statements, the Company had a $6,788,652 negative retained earnings or accumulated deficit as of December 31, 2019;
in addition, the Company’s total current liabilities exceeded its current assets by $1,401,549. These factors raised substantial
doubt about its ability to continue as a going concern. In view of the matters described above, recoverability of a major portion
of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which
in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and succeed in its future
operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as
a going concern.
To continue as a going concern, the Company
is actively pursuing additional funding and strategic partners to enable it to implement its business plan. In addition, the Company
is also working to devote more efforts to improve its operation and generate more profits. Management believes that these actions
will allow the Company to continue its operations through the next fiscal year.
NOTE 18. SUBSEQUENT
EVENTS
On January 23, 2020, the Company issued 38,332
shares to Labrys Fund, LP in full satisfaction of a common stock purchase warrant that the Company had sold to Labrys Fund, LP
during 2019.
On February 11, 2020, the Company fully satisfied
the Promissory Note that it had issued to Harbor Gates Capital LLC in August 2019.
On February 27, 2020, Auctus Fund, LLC converted
into 2,000 shares of the Company's common stock with $2,400 in accrued interest and fees arising under the Promissory Note it
had purchase from the Company in July 2019.
On April 30, 2020, the Company fully satisfied
the Promissory Note that it issued to Auctus Fund, LLC in July 2019
The outbreak of COVID-19 is spreading over
multiple countries and becoming the current pandemic, the national and local government agents have imposed serious restrictions
on travel, business operations and even locked-down the city in order to encounter with the virus, as a result, the Company's
revenue and income for the first six months of 2020 will be anticipated substantially lower than that were reported for the first
six months of 2019.
The Management of the Company determined that there were no other material
reportable subsequent events to be required to disclose except the above mentioned items.