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 six months ended June 30, 2016 are not necessarily indicative of the results that can be expected for the year ended December
31, 2016.
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.
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 should invest
a total of RMB 50,000,000 ($7,936,508), in which Runteng and the original owner should contribute RMB 35,000,000 ($5,555,556)
or 70% and RMB 15,000,000 ($2,380,952) or 30% of the total capital, respectively. According to the Article of Association
(Joint venture investment agreement) and the amendment of Article of Association (Joint venture investment agreement),
Runteng has the obligation to pay RMB 35,000,000 ($5,555,556) within five years after the issuance of the joint venture
business license. As of June30, 2016, Jiarun has received $1,081,000 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 Jiarun duration of operation 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 an 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)
NOTE 2. Summaries of Significant Accounting Policies (Continued)
The preparation of unaudited consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best
information available at the time the estimates are made; however actual results could differ from those estimates. Significant
items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount
and the estimated useful lives of long-lived assets. These estimates are often based on complex judgments and assumptions that
management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these
estimates.
|
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 the six months ended June 30, 2016 and 2015, no customer accounted for more than 10% of net
revenue. As of June 30, 2016 and December 31, 2015, 2 and 1 customer accounted for more than 10% 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.
|
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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 2. Summaries of Significant Accounting Policies (Continued)
|
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.
|
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 the Six months ended June 30, 2016 and 2015.
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 approximate 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)
NOTE 2. Summaries of Significant Accounting Policies (Continued)
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.
|
l
|
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.
|
|
l
|
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.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 2. Summaries of Significant Accounting Policies (Continued)
|
N.
|
Revenue recognition(continued)
|
|
l
|
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.
|
|
l
|
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.
|
|
l
|
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.
|
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 $2,306
and $774 for the six months ended June 30, 2016 and 2015, respectively to support the local tax bureau’s economical obligations.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 2. Summaries of Significant Accounting Policies (Continued)
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.
|
Recently accounting pronouncements
|
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in accounting for revenue
arising from contracts with customers and supersedes current revenue recognition guidance. In August 2015, the FASB issued ASU
2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment in this update defers
the effective date of ASU 2014-09 for all entities by one year to annual periods beginning after December 15, 2017. Early adoption
is permitted as of the original effective date, interim and annual reporting periods after December 15, 2016. Entities have the
option of using either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company is currently
evaluating the effect of this new standard, including the transition method, to determine the impact on the Company’s consolidated
financial position, results of operations, cash flows, or related disclosures.
In July 2015, the FASB issued ASU 2015-11,
simplifying the Measurement of Inventory. Under this ASU, inventory will be measured at the “lower of cost and net realizable
value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable
value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is
effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied
prospectively. The Company plans to early adopt this standard beginning with the 2016 fiscal year, but does not expect the adoption
of this standard to have a material impact on the Company’s consolidated financial position, results of operations, or related
disclosures.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842), aimed at making leasing activities more transparent and comparable. The new standard requires substantially
all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including
today’s operating leases. For public business entities, the standard is effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years
beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application
is permitted for all entities. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated
financial condition, results of operations and cash flows.
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
|
|
June 30
|
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Accounts receivable
|
|
$
|
2,343,601
|
|
|
$
|
2,035,271
|
|
Less: allowance for doubtful debts
|
|
|
25,210
|
|
|
|
25,802
|
|
|
|
$
|
2,318,391
|
|
|
$
|
2,009,469
|
|
The Company experienced nil bad debts during six months ended
June 30, 2016 and December 31, 2015.
NOTE 4. Inventories
At June 30, 2016 and December 31, 2015, inventories consist
of the following:
|
|
June 30
|
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Western medicine
|
|
$
|
508,379
|
|
|
$
|
377,989
|
|
Chinese herbal medicine
|
|
|
8,348
|
|
|
|
6,590
|
|
Medical material
|
|
|
94,396
|
|
|
|
111,808
|
|
Other material
|
|
|
1,114
|
|
|
|
2,693
|
|
|
|
$
|
612,237
|
|
|
$
|
499,080
|
|
NOTE 5. Prepayment
At June 30, 2016 and December 31, 2015 prepayment
consists of the following:
|
|
June 30
|
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Deposits on medical equipment
|
|
$
|
1,074,021
|
|
|
$
|
38,952
|
|
Heating fees
|
|
|
-
|
|
|
|
92,535
|
|
Others
|
|
|
147,090
|
|
|
|
70,055
|
|
|
|
$
|
1,221,111
|
|
|
$
|
201,542
|
|
NOTE 6. Property and Equipment
At June30, 2016 and December 31, 2015, property and equipment,
at cost, consist of:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Transportation equipment
|
|
$
|
748,009
|
|
|
$
|
765,592
|
|
Medical equipment
|
|
|
8,568,628
|
|
|
|
7,047,404
|
|
Electrical equipment
|
|
|
787,783
|
|
|
|
799,045
|
|
Office equipment and others
|
|
|
93,253
|
|
|
|
87,110
|
|
Buildings
|
|
|
14,615,257
|
|
|
|
14,958,817
|
|
Software
|
|
|
85,937
|
|
|
|
87,957
|
|
Total fixed assets at cost
|
|
|
24,898,867
|
|
|
|
23,745,925
|
|
Accumulated depreciation
|
|
|
(1,757,150
|
)
|
|
|
(1,298,014
|
)
|
Total fixed assets, net
|
|
$
|
23
,141,717
|
|
|
$
|
22,447,911
|
|
The Company recorded depreciation expense of $497,019 and $399,321
for the six months ended June 30, 2016 and 2015, and $256,734 and $205,486 for the three months ended June 30, 2016 and 2015,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 $67,905 and $63,034 as of June 30, 2016 and December 31, 2015. The long-term
deferred expenses were $206,076 and $252,138 as of June30, 2016 and December 31, 2015.
The Company recorded consulting fee of $34,513 and $3,971 for
the six months ended June 30, 2016 and 2015, and $17,267 and $3,971 for the three months ended June 30, 2016 and 2015, respectively.
NOTE 8. Capital Lease Obligations and Deposit for Capital
Leases
On June 5, 2013, Jiarun entered into a
lease agreement to lease hospital building from Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang,
a related party. The Leasing terms consist of principal plus 30 payments. Each payments will be made on an annual basis when RMB
7,000,000 per payment will be paid upfront for each leasing period. The first payment was made on September, 2014. At the end of
the leasing period, a final payment will be made to settle the total leasing amount. Both parties agreed for Jiarun to pay RMB
3,000,000 as deposit at the execution of the Leasing agreement, which will be deducted from the final rental settlement. The lending
interest rate was calculated at 6.55%, which is the benchmark interest rate announced from The People’s Bank of China. After
the completion of all payments, the ownership of the lease item will be transferred to Jiarun.
The leasing agreement for our hospital
building contains the following provisions:
|
•
|
Rental payments of RMB 7,000,000 (equivalent to $1,144,913) per year, payable at the beginning of September 2014.
|
|
•
|
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, Jiarun entered into several lease
agreements to lease medical equipment and elevator from four 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 June 30, 2016 are as follows:
Year
|
|
Amounts
(Unaudited)
|
|
2016
|
|
$
|
1,574,635
|
|
2017
|
|
|
2,099,133
|
|
2018
|
|
|
1,151,846
|
|
Thereafter
|
|
|
14,081,819
|
|
Total
|
|
$
|
18,907,433
|
|
The Company recorded finance lease fees of $697,383 and $568,821
for the six months ended June 30, 2016 and 2015, and $353,904 and $292,866 for the three months ended June 30, 2016 and 2015, respectively.
NOTE 9. Short-term Bank Loan
|
|
June 30
|
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Short- term bank loan
|
|
$
|
436,464
|
|
|
$
|
-
|
|
As of June 30, 2016, the above bank loan
was for working capital and capital expenditure purposes. The loan was primarily obtained from Harbin Bank with interest rate of
6.09% per annum, the contract was signed from December 25, 2015 to December 24, 2016, and the loan was received on January 4, 2016.The
interest expenses were $12,609 and $18,765 for the six months ended June 30, 2016 and 2015, respectively, and $6,910 and $9,477
for the three months ended June 30, 2016 and 2015, 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 June 30, 2016 and December 31, 2015.
As of June 30, 2016 and December 31, 2015,
NCI in the consolidated balance sheet was $4,434,803 and $3,723,692, respectively. For the six months ended June 30, 2016, the
comprehensive income attributable to shareholders’ equity and NCIs is $1,567,012 and $711,111, respectively. For the six
months ended June 30, 2015, the comprehensive income attributable to shareholders’ equity and NCI is $715,875 and $327,634
respectively. For the three months ended June 30, 2016, the comprehensive income attributable to shareholders’ equity and
NCIs is $596,215 and $269,576, respectively. For the three months ended June 30, 2015, the comprehensive income attributable
to shareholders’ equity and NCI is $369,697 and $170,681 respectively.
NOTE 11. Revenue
The Company’s revenue consists of medicine sales and patient
care revenue.
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Medicine:
|
|
|
|
|
|
|
|
|
Western medicine
|
|
$
|
2,892,334
|
|
|
$
|
1,890,257
|
|
Chinese medicine
|
|
|
752,962
|
|
|
|
230,233
|
|
Herbal medicine
|
|
|
151,703
|
|
|
|
281,202
|
|
Total medicine
|
|
$
|
3,796,999
|
|
|
$
|
2,401,692
|
|
|
|
|
|
|
|
|
|
|
Patient services:
|
|
|
|
|
|
|
|
|
Medical consulting
|
|
$
|
2,549,751
|
|
|
$
|
1,315,455
|
|
Medical treatment
|
|
|
2,266,851
|
|
|
|
1,403,439
|
|
Others
|
|
|
87,267
|
|
|
|
18,351
|
|
Total patient services
|
|
$
|
4,903,869
|
|
|
$
|
2,737,245
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,700,868
|
|
|
$
|
5,138,937
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Medicine:
|
|
|
|
|
|
|
|
|
Western medicine
|
|
$
|
1,424,098
|
|
|
$
|
986,155
|
|
Chinese medicine
|
|
|
365,495
|
|
|
|
32,001
|
|
Herbal medicine
|
|
|
81,731
|
|
|
|
247,690
|
|
Total medicine
|
|
$
|
1,871,324
|
|
|
$
|
1,265,846
|
|
|
|
|
|
|
|
|
|
|
Patient services:
|
|
|
|
|
|
|
|
|
Medical consulting
|
|
$
|
1,225,643
|
|
|
$
|
681,579
|
|
Medical treatment
|
|
|
1,114,559
|
|
|
|
749,966
|
|
Others
|
|
|
80,711
|
|
|
|
13,824
|
|
Total patient services
|
|
$
|
2,420,913
|
|
|
$
|
1,445,369
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,292,237
|
|
|
$
|
2,711,215
|
|
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 files their taxes individually.
United States
JHCC is subject to the United States of
America Tax law at tax rate of 34%. No provision for the US federal income taxes has been made as the Company had no US taxable
income for the periods presented, and its earnings are permanently invested in PRC.
BVI
JHCL was incorporated in the BVI and, under
the current laws of the BVI, it is not subject to income tax.
Hong Kong
Runteng was incorporated in Hong Kong
and is subject to Hong Kong profits tax. Runteng is subject to Hong Kong taxation on its activities conducted in Hong Kong and
income arising in or derived from Hong Kong. The applicable statutory tax rate is 16.5%.
PRC
Jiarun's medical services have been exempt
from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.
Jiarun was incorporated in accordance with
the law of medical and health institutions, mainly provide medical services, with the "PRC Business Tax Tentative Regulations"
Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services
shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.
In considering the achievement of the
hospital, it could not have been done without the support of local authorities, Jiarun hospital has voluntarily paid income
tax of $2,306 and $774 for the six months ended June 30, 2016 and 2015, 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 (“Baiyi”), owned by Junsheng Zhang
(c) Heilongjiang Dahua Medicine Wholesale
Co., Ltd owned by Junsheng Zhang
(d) Harbin Jiarun Pharmacy Co., Limited
owned by Junsheng Zhang
(e) Heilongjiang Province Runjia Medical
Equipment Company Limited owned by Junsheng Zhang
(f) Jiarun Super Market Co., Ltd. owned
by Junsheng Zhang
(g) Harbin Qi-run pharmacy limited owned
by Junsheng Zhang
(h) 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:
|
|
June 30,
|
|
|
December 31,
|
|
Name of related parties
|
|
2016
|
|
|
2015
|
|
Harbin Baiyi Real Estate Development Co., Ltd,
|
|
$
|
1,006,574
|
|
|
$
|
1,030,236
|
|
Junsheng Zhang
|
|
|
46,500
|
|
|
|
46,500
|
|
Yanhua Xing
|
|
|
2,450
|
|
|
|
2,450
|
|
Weiguang Song
|
|
|
1,050
|
|
|
|
1,050
|
|
|
|
$
|
1,056,574
|
|
|
$
|
1,080,236
|
|
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 signed a purchase
agreement with Baiyi to acquire the first to eight floor of a building which is under construction by Baiyi and expected to
be completed before December 31, 2016. The total amount for the purchased property is approximately RMB
63,900,000($9,907,975). The Company had paid a deposit of RMB 6,500,000 on November 26, 2015, and a further deposit of
RMB 3,500,000 ($542,690) will be paid before September 30, 2016.
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:
|
|
June 30,
|
|
|
December 31,
|
|
Name of related parties
|
|
2016
|
|
|
2015
|
|
Heilongjiang Dahua Medicine Wholesale Co., Ltd
|
|
$
|
157,868
|
|
|
$
|
59,424
|
|
Harbin Jiarun Pharmacy Co., Ltd
|
|
|
53,535
|
|
|
|
-
|
|
Heilongjiang Province Runjia Medical Equipment Co., Ltd
|
|
|
18,592
|
|
|
|
32,742
|
|
Harbin Qirun pharmacy Co., Ltd
|
|
|
13,905
|
|
|
|
-
|
|
Harbin Baiyi Real Estate Development Co., Ltd,
|
|
|
75,252
|
|
|
|
-
|
|
Junsheng Zhang
|
|
|
-
|
|
|
|
5,162
|
|
|
|
$
|
319,152
|
|
|
$
|
97,328
|
|
Amount due to Heilongjiang Dahua Medicine
Wholesale Co., Ltd., 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.
Amount due to Harbin Baiyi Real Estate
Development Co., Ltd, was $72,252, the purpose of the funding is only for temporary borrowings. It was non-interest bearing and
payable on demand.
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 six months ended June 30,
|
|
Name of related parties
|
|
2016
|
|
|
2015
|
|
Heilongjiang Dahua Medicine Wholesale Co., Ltd
|
|
$
|
527,648
|
|
|
$
|
232,969
|
|
Harbin Jiarun Pharmacy Co., Ltd
|
|
|
95,429
|
|
|
|
168,279
|
|
Heilongjiang Province Runjia Medical Equipment Co., Ltd
|
|
|
45,672
|
|
|
|
58,908
|
|
Harbin Qi-run pharmacy Co., Ltd
|
|
|
11,496
|
|
|
|
28,459
|
|
|
|
$
|
680,245
|
|
|
$
|
488,615
|
|
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 June 30, 2016, the company has balance of deposits for capital leases and capital lease obligations
of $451,515 and $13,120,961 respectively. As of December 31, 2015, the Company has balance of deposits for capital leases and capital
lease obligations of $462,129 and $13,975,067 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:
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1,735,055
|
|
|
$
|
686,074
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average number of shares outstanding
|
|
|
13,915,000
|
|
|
|
13,788,872
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.1247
|
|
|
$
|
0.0498
|
|
NOTE 15. Contingencies and Commitment
There was no contingency as of June 30,
2016 and December 31, 2015.
Capital commitment for purchase of a new outpatient building
from Baiyi (note 13) was approximately $9,907,975 and $nil as of June 30, 2016 and December 31, 2015.
NOTE 16. Subsequent Events
The Management of the Company determined that there were no
reportable subsequent events to be disclosed.