The accompanying unaudited
consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Item Regulation S-X,
Rule 10-01(c) Interim Financial Statements, and, therefore, do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted
accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results
of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results
for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that can be expected for the
year ended December 31, 2017.
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 RMB50,000,000 ($7,936,508), in
which Runteng and the original owner should contribute RMB35,000,000 ($5,555,556) or 70% and RMB15,000,000 ($2,380,952) or 30%
of the total capital, respectively. According to the Article of Association (Joint venture investment agreement) and the amendment
of Article of Association (Joint venture investment agreement), Runteng has the obligation to pay RMB35,000,000 ($5,555,556) within
five years after the issuance of the joint venture business license. As of September 30, 2017, 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 three months ended
September 30, 2017 and 2016, no customer accounted for more than 10% of net revenue. As of September 30, 2017 and December 31,
2016, 3 and 2 customers, respectively, 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 nine months ended September 30, 2017 and 2016.
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.
|
•
|
For
out-patient medical services, revenue is recognized when the Company provides medical service to the patient. The Company collects
payment when the patient checks out from the hospital, which is the same day the services are provided.
|
|
•
|
For in-patient medical services, the Company estimates the approximate fee the patients will spend in the hospital based on patients’ symptom. This is when the patients check in to the hospital. At that time, the Company collects the estimated fees from the patient and records the payment as deposits received.
|
During the in-patient services period, the
Company recognizes revenue when the patient service is provided and deducts the cost of service from the deposit received. The
Company records these transactions based on daily reports generated by the respective medical department. When medical services
exceed patient deposits received the Company records revenue and accounts receivable when the patient services are provided.
When patients check out from the hospital,
the Company calculates and determines the remaining deposit, if any, and refunds the unused portion of the deposit to the patients.
In the case where the patients have a balance in accounts receivable during the in-patient period, accounts receivable are required
to be paid in full at checkout.
Patients covered by social insurance will receive
a portion or full medical services reimbursed or paid by the social insurance agencies via prepaid cards or insurance claim settlement
process.
Settlement process
The Company is a registered medical service
vendor under the state social insurance system for various social insurance agencies; the insurance agencies include “Social
Medical Insurance funded by PRC and Heilongjiang Province” and “Heilongjiang Province New Rural Cooperative Medical
Care System”. The Company utilizes an online system maintained by the social insurance agencies for patients’ who are
covered by social insurance agencies.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
|
N.
|
Revenue
recognition (continued)
|
|
•
|
The Company records patients’ information in the social insurance system at check in. The system determines the covered portion and amounts based on the information input to the system.
|
|
•
|
At the time of check out, the Company collects payment for services the patients are liable for and records accounts receivable from the social insurance agencies for the portion of services covered by the social insurances. In the case that the patients have made payment during the in-patient services period, the Company refunds any amount in excess of the portion they are liable for.
|
|
•
|
The Company is responsible for submitting supporting documents of patient services provided to the social insurance agencies for their review. The Company also requires reconciling its records with the social insurance agencies once a month. Once the social insurance agencies approve the reconciliation, the insurance agencies will settle the accounts receivable balance in the next month following the approval.
|
The Company adopts FASB ASC Topic 740, “Income
Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized
for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting
amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
ASC 740-10, “Accounting for Uncertainty
in Income Taxes” requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the
financial statements. Tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the
first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer
meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that
threshold is no longer met.
The application of tax laws and regulations
is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change
as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the
actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities
or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.
As a result of the implementation of ASC 740-10,
the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established
by ASC 740-10. The Company recognized no material adjustments to liabilities or shareholder’s equity as a result of the implementation.
The adoption of ASC 740-10 did not have a material impact on the Company’s unaudited consolidated financial statements.
Enterprise income tax is defined under the
Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC, income tax is payable by enterprises
at a rate of 25% of their taxable income.
Jiarun’s medical services have been exempt
from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.
Jiarun was incorporated in accordance with
the law of medical and health institutions, mainly provide medical services, with the “PRC Business Tax Tentative Regulations”
Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services
shall be exempt from business tax). The Company’s medical services have been exempted from business tax since March 1, 2006.
In considering the achievement of the hospital,
it could not have been done without the support of local authorities, Jiarun hospital has voluntarily paid income tax of $2,072
and $3,172 for the nine months ended September 30, 2017 and 2016, 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 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.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash (“ASU No. 2016-18”). ASU No. 2016-18 requires that a statement
of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash
equivalents. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling
the beginning of period and end of period total amounts shown on the statement of cash flows. ASU No. 2016-18 is effective for
annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company elected to early
adopt ASU No. 2016-18 for the reporting period ending December 31, 2016, and was applied retrospectively. As a result of adoption
of ASU No. 2016-18, the Company no longer presents the changes within restricted cash in the consolidated statements of cash flows.
In January 2017, the FASB issued Accounting
Standards Board Update No. 2017-01: Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU 2017-01”).
The ASU clarifies the definition of business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for the Company’s
fiscal year beginning January 1, 2018, and subsequent interim periods with prospective application with impacts on the Company’s
consolidated financial statements that may vary depending on each specific acquisition. Early adoption is conditionally permitted.
In March 2017, the FASB issued ASU No. 2017-08,
Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.
Under current GAAP, entities normally amortize the premium as an adjustment of yield over the contractual life of the instrument.
This guidance shortens the amortization period for certain callable debt securities held at a premium to the earliest call date.
This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The
adoption of ASU No. 2017-08 is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation
– Stock Compensation: (Topic 718): Scope of Modification Accounting. ASU 2017-09 provides guidance about which changes to
the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement
is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company
is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements.
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
|
|
September 30
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Accounts receivable
|
|
$
|
4,036,283
|
|
|
$
|
3,359,619
|
|
Less: allowance for doubtful debts
|
|
|
24,794
|
|
|
|
24,119
|
|
|
|
$
|
4,011,489
|
|
|
$
|
3,335,500
|
|
The Company experienced nil bad debts during the
nine months ended September 30, 2017 and 2016.
NOTE
4. Inventories
At September 30, 2017 and December 31, 2016, inventories
consist of the following:
|
|
September 30
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Western medicine
|
|
$
|
630,342
|
|
|
$
|
548,724
|
|
Chinese herbal medicine
|
|
|
11,967
|
|
|
|
9,113
|
|
Medical material
|
|
|
438,511
|
|
|
|
241,630
|
|
Other material
|
|
|
2,422
|
|
|
|
1,773
|
|
|
|
$
|
1,083,242
|
|
|
$
|
801,240
|
|
NOTE
5. Prepayment
At September 30, 2017 and December 31, 2016, prepayment
consists of the following:
|
|
September 30
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Deposits on medical equipment
|
|
$
|
419,642
|
|
|
$
|
221,083
|
|
Heating fees
|
|
|
-
|
|
|
|
86,515
|
|
Others
|
|
|
394,889
|
|
|
|
211,124
|
|
|
|
$
|
814,531
|
|
|
$
|
518,722
|
|
NOTE
6. Property and Equipment
At September 30, 2017 and December 31, 2016, property
and equipment, at cost, consist of:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Transportation equipment
|
|
$
|
852,332
|
|
|
$
|
715,646
|
|
Medical equipment
|
|
|
10,266,210
|
|
|
|
9,282,026
|
|
Electrical equipment
|
|
|
1,389,725
|
|
|
|
1,310,927
|
|
Office equipment and others
|
|
|
112,637
|
|
|
|
93,283
|
|
Buildings
|
|
|
15,048,090
|
|
|
|
13,982,919
|
|
Software
|
|
|
142,996
|
|
|
|
137,028
|
|
Total fixed assets at cost
|
|
|
27,811,990
|
|
|
|
25,521,829
|
|
Accumulated depreciation
|
|
|
(3,303,722
|
)
|
|
|
(2,247,649
|
)
|
Total fixed assets, net
|
|
$
|
24,508,268
|
|
|
$
|
23,274,180
|
|
The Company recorded depreciation expense of
$936,827 and $779,321 for the nine months ended September 30, 2017 and 2016, and $322,476 and $282,302 for the three months ended
September 30, 2017 and 2016, 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
$67,797 and $64,967 as of September, 2017 and December 31, 2016. The long-term deferred expenses were $121,001 and $164,676 as
of September, 2017 and December 31, 2016.
The Company recorded consulting fee of $49,715
and $51,425 for the nine months ended September 30, 2017 and 2016, and $16,903 and $16,912 for the three months ended September
30, 2017 and 2016, respectively
NOTE
8. Capital Lease Obligations and Deposit for Capital Leases
On June 5, 2013, Jiarun entered into a lease
agreement to lease hospital building from Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang, a related
party. The Leasing terms consist of principal plus 30 payments. Each payments will be made on an annual basis when RMB7,000,000
per payment will be paid upfront for each leasing period. The first payment was made on September, 2014. At the end of the leasing
period, a final payment will be made to settle the total leasing amount. Both parties agreed for Jiarun to pay RMB3,000,000 as
deposit at the execution of the Leasing agreement, which will be deducted from the final rental settlement. The lending interest
rate was calculated at 6.55%, which is the benchmark interest rate announced from The People’s Bank of China. After the completion
of all payments, the ownership of the lease item will be transferred to Jiarun.
The leasing agreement for our hospital building
contains the following provisions:
|
•
|
Rental payments of RMB7,000,000 (equivalent to $1,144,913) per year, payable at the beginning of September.
|
|
•
|
An option allowing the lessor to extend the lease for thirty years beyond the last renewal option exercised by the Company.
|
|
•
|
A guarantee by the Company that the lessor will realize $nil, from selling the asset at the expiration of the lease This lease is a capital lease because its term (30 years) exceeds 75% of the building’s estimated economic life. In addition, the present value ($15,185,032) of the minimum lease payments exceeds 90% of the fair value of the building ($15,721,295).
|
|
•
|
Accumulated annual amounts resulting from applying an interesting rate 6.55% to the balance of the lease obligation at the beginning of each year. The lease obligation is increased by the amount of the prior year’s interest, the amount of the net rental payment at the beginning of each year; and this amount represents the guaranteed residual value at the end of the lease term.
|
On May 7, 2015, July 3, 2015, October 16, 2015,
May 10, 2016, July 5, 2016, December 16, 2016 and April 1, 2017, Jiarun entered into several lease agreements to lease medical
equipment and elevator from three lease finance companies, which are all third parties, for three to five-year periods, in which
Jiarun is required to make monthly or quarterly payments toward the leases. The Company was also required to pay deposits up front,
which deposits will later be used to offset against the last quarterly payment. The medical equipment and elevator will be transferred
to Jiarun upon the completion of the agreement.
These leases have been classified as capital
leases. The cost of the medical equipment included in these leases is included in the consolidated balance sheets as property and
equipment and construction in progress.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE
8. Capital Lease Obligations and Deposit for Capital Leases (Continued)
The future minimum lease payments for annual
capital lease obligation as of September 30, 2017, are as follows:
Year
|
|
Amounts
(Unaudited)
|
|
2017
|
|
$
|
561,417
|
|
2018
|
|
|
2,261,908
|
|
2019
|
|
|
2,234,325
|
|
Thereafter
|
|
|
12,603,580
|
|
Total
|
|
$
|
17,661,230
|
|
The Company recorded finance lease fees of $969,036
and $1,028,871 for the nine months ended September 30, 2017 and 2016, and $328,706 and $349,488 for the three months ended September
30, 2017 and 2016, respectively.
NOTE
9. Short-term Bank Loan
|
|
September 30
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Short- term bank loan
|
|
$
|
435,769
|
|
|
$
|
-
|
|
As of September 30, 2017, the above bank loan
was acquired for working capital and capital expenditure purposes. The loan was primarily obtained from Harbin Bank with interest
rate of 6.09% per annum, the loan contract was started from January 19, 2017 to January 18, 2018, and the loan was received on
January 24, 2017. The interest expenses were $17,226 and $19,384 for the nine months ended September 30, 2017 and 2016, respectively,
and $6,737 and $6,775 for the three months ended September 30, 2017 and 2016, respectively.
NOTE
10. Non-controlling Interests
Jiarun is the Company’s majority-owned subsidiary
which is consolidated in the Company’s financial statements with a non-controlling interest (“NCI”) recognized.
The Company holds 70% interest of Jiarun as of September 30, 2017 and December 31, 2016.
As of September 30, 2017 and December 31, 2016,
NCI in the consolidated balance sheet was $6,562,703 and $5,052,519, respectively. For the nine months ended September 30, 2017,
the comprehensive income attributable to shareholders’ equity and NCI is $3,473,860 and $1,510,184, respectively. For the
nine months ended September 30, 2016, the comprehensive income attributable to shareholders’ equity and NCIs is $2,352,946
and $1,055,531, respectively. For the three months ended September 30, 2017, the comprehensive income attributable to shareholders’
equity and NCI is $1,258,966 and $539,418 respectively. For the three months ended September 30, 2016, the comprehensive income
attributable to shareholders’ equity and NCIs is $785,934 and $344,420, respectively.
JRSIS HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
NOTE
11. Revenue
The Company’s revenue consists of medicine
sales and patient care revenue.
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Medicine:
|
|
|
|
|
|
|
|
|
Western medicine
|
|
$
|
5,879,515
|
|
|
$
|
4,332,469
|
|
Chinese medicine
|
|
|
1,211,547
|
|
|
|
1,093,906
|
|
Herbal medicine
|
|
|
265,108
|
|
|
|
217,522
|
|
Total medicine
|
|
$
|
7,356,170
|
|
|
$
|
5,643,897
|
|
|
|
|
|
|
|
|
|
|
Patient services:
|
|
|
|
|
|
|
|
|
Medical consulting
|
|
$
|
5,058,274
|
|
|
$
|
3,772,599
|
|
Medical treatment
|
|
|
3,934,189
|
|
|
|
3,413,746
|
|
Others
|
|
|
243,673
|
|
|
|
127,870
|
|
Total patient services
|
|
$
|
9,236,136
|
|
|
$
|
7,314,215
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,592,306
|
|
|
$
|
12,958,112
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Medicine:
|
|
|
|
|
|
|
|
|
Western medicine
|
|
$
|
1,917,785
|
|
|
$
|
1,440,135
|
|
Chinese medicine
|
|
|
399,142
|
|
|
|
340,944
|
|
Herbal medicine
|
|
|
90,247
|
|
|
|
65,819
|
|
Total medicine
|
|
$
|
2,407,174
|
|
|
$
|
1,846,898
|
|
|
|
|
|
|
|
|
|
|
Patient services:
|
|
|
|
|
|
|
|
|
Medical consulting
|
|
$
|
1,825,022
|
|
|
$
|
1,222,847
|
|
Medical treatment
|
|
|
1,286,639
|
|
|
|
1,146,895
|
|
Others
|
|
|
204,262
|
|
|
|
40,604
|
|
Total patient services
|
|
$
|
3,315,923
|
|
|
$
|
2,410,346
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,723,097
|
|
|
$
|
4,257,244
|
|
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% for its taxable income. 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 generated from 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 $2,072
and $3,172 for the nine months ended September 30, 2017 and 2016, 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:
|
|
September 30,
|
|
|
December 31,
|
|
Name of related parties
|
|
2017
|
|
|
2016
|
|
Harbin Baiyi Real Estate Development Co., Ltd.
|
|
$
|
3,591,787
|
|
|
$
|
1,754,987
|
|
Junsheng Zhang
|
|
|
46,500
|
|
|
|
46,500
|
|
Yanhua Xing
|
|
|
2,450
|
|
|
|
2,450
|
|
Weiguang Song
|
|
|
1,050
|
|
|
|
1,050
|
|
|
|
$
|
3,641,787
|
|
|
$
|
1,804,987
|
|
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 and progress payment for the new outpatient building which was constructed by Baiyi. The Company signed a purchase
agreement with Baiyi to acquire the first to eighth floor of a building which is under construction by Baiyi. The total amount
for the purchased property is approximately RMB63,900,000 ($9,579,894). The Company had made a deposit of $1,451,136 in 2016, and
progress payment of $2,945,271 accordingly. The total payment was $3,591,787 as of September 30, 2017.
Amount due from Junsheng Zhang, Yanhua Xing
and Weiguang Song, who are the prior shareholders of JHCL, was mainly for the paid-in capital to be paid.
Amount due to related parties
Amount due to related parties consisted of
the following as of the periods indicated:
|
|
September 30,
|
|
|
December 31,
|
|
Name of related parties
|
|
2017
|
|
|
2016
|
|
Harbin Jiarun Pharmacy Co., Ltd
|
|
$
|
90,382
|
|
|
$
|
-
|
|
Heilongjiang Province Runjia Medical Equipment Co., Ltd
|
|
|
3,356
|
|
|
|
18,382
|
|
Harbin Qi-run pharmacy Co., Ltd
|
|
|
11,961
|
|
|
|
6,947
|
|
Junsheng Zhang
|
|
|
50,000
|
|
|
|
-
|
|
|
|
$
|
155,699
|
|
|
$
|
25,329
|
|
Amount due to Harbin Jiarun Pharmacy Co.,
Ltd., Harbin Qi-run pharmacy Co., Ltd and Heilongjiang Province Runjia Medical Equipment Company Limited were mainly for the balance
for purchase of medicine and medical material from these three companies.
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 nine months ended September 30,
|
|
Name of related parties
|
|
2017
|
|
|
2016
|
|
Heilongjiang Dahua Medicine Wholesale Co., Ltd
|
|
$
|
-
|
|
|
$
|
552,682
|
|
Harbin Jiarun Pharmacy Co., Ltd
|
|
|
146,083
|
|
|
|
143,530
|
|
Heilongjiang Province Runjia Medical Equipment Co., Ltd
|
|
|
393
|
|
|
|
58,899
|
|
Harbin Qi-run pharmacy Co., Ltd
|
|
|
24,738
|
|
|
|
19,185
|
|
|
|
$
|
171,214
|
|
|
$
|
774,296
|
|
Deposits for capital leases and
Capital lease obligations
On June 5, 2013, Jiarun entered into a Lease
Agreement to lease a new hospital building from Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang,
a related party. As of September 30, 2017, the Company has a balance of deposits for capital leases and capital lease obligations
of $450,796 and $11,992,336 respectively. As of December 31, 2016, the Company has a balance of deposits for capital leases and
capital lease obligations of $431,980 and $13,896,989 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:
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
3,080,739
|
|
|
$
|
2,548,115
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average number of shares outstanding
|
|
|
13,915,000
|
|
|
|
13,915,000
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.2214
|
|
|
$
|
0.1831
|
|
NOTE
15. Contingencies and Commitment
There was no contingency as of September 30,
2017 and December 31, 2016.
NOTE
16. Subsequent Events
The Management of the Company determined that
there were no reportable subsequent events to be disclosed.