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Jrsis Health Care Corp – ‘10-Q’ for 3/31/20

On:  Monday, 6/29/20, at 8:57am ET   ·   For:  3/31/20   ·   Accession #:  1213900-20-16048   ·   File #:  1-36758

Previous ‘10-Q’:  ‘10-Q’ on 11/13/19 for 9/30/19   ·   Next:  ‘10-Q’ on 8/14/20 for 6/30/20   ·   Latest:  ‘10-Q’ on 11/15/23 for 9/30/23   ·   1 Reference:  By:  Jrsis Health Care Corp. – ‘POS AM’ on 8/21/20

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 6/29/20  Jrsis Health Care Corp            10-Q        3/31/20   78:3.6M                                   Edgar Agents LLC/FA

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    273K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     25K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     25K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     22K 
 5: EX-32.2     Certification -- §906 - SOA'02                      HTML     22K 
12: R1          Document and Entity Information                     HTML     54K 
13: R2          Consolidated Balance Sheets                         HTML    127K 
14: R3          Consolidated Balance Sheets (Parenthetical)         HTML     30K 
15: R4          Consolidated Statements of Operations and           HTML    125K 
                Comprehensive Income (Unaudited)                                 
16: R5          Consolidated Statement of Sharesholders' Equity     HTML     45K 
                (Unaudited)                                                      
17: R6          Consolidated Statements of Cash Flows (Unaudited)   HTML    104K 
18: R7          Description of Business and Organization            HTML     28K 
19: R8          Summaries of Significant Accounting Policies        HTML     90K 
20: R9          Accounts Receivable, Net                            HTML     27K 
21: R10         Inventories                                         HTML     27K 
22: R11         Prepayment                                          HTML     26K 
23: R12         Property and Equipment                              HTML     31K 
24: R13         Long Term Deferred Expenses                         HTML     25K 
25: R14         Right-of-Use Assets and Lease Liabilities           HTML     58K 
26: R15         Derivative Financial Instruments                    HTML     29K 
27: R16         Non-controlling Interests                           HTML     25K 
28: R17         Revenue                                             HTML     34K 
29: R18         Income Tax Expense                                  HTML     27K 
30: R19         Related Party Transactions                          HTML     38K 
31: R20         Basic and Diluted Earnings Per Share                HTML     31K 
32: R21         Contingencies and Commitment                        HTML     26K 
33: R22         Common Stock                                        HTML     23K 
34: R23         Going Concern                                       HTML     26K 
35: R24         Subsequent Events                                   HTML     24K 
36: R25         Summaries of Significant Accounting Policies        HTML    141K 
                (Policies)                                                       
37: R26         Summaries of Significant Accounting Policies        HTML     53K 
                (Tables)                                                         
38: R27         Accounts Receivable, Net (Tables)                   HTML     26K 
39: R28         Inventories (Tables)                                HTML     28K 
40: R29         Prepayment (Tables)                                 HTML     25K 
41: R30         Property and Equipment (Tables)                     HTML     29K 
42: R31         Right-of-Use Assets and Lease Liabilities (Tables)  HTML     48K 
43: R32         Revenue (Tables)                                    HTML     33K 
44: R33         Related Party Transactions (Tables)                 HTML     34K 
45: R34         Basic and Diluted Earnings Per Share (Tables)       HTML     31K 
46: R35         Description of Business and Organization (Details)  HTML     40K 
47: R36         Summaries of Significant Accounting Policies        HTML     31K 
                (Details)                                                        
48: R37         Summaries of Significant Accounting Policies        HTML     43K 
                (Details 1)                                                      
49: R38         Summaries of Significant Accounting Policies        HTML     32K 
                (Details 2)                                                      
50: R39         Summaries of Significant Accounting Policies        HTML     28K 
                (Details 3)                                                      
51: R40         Summaries of Significant Accounting Policies        HTML     41K 
                (Details 4)                                                      
52: R41         Summaries of Significant Accounting Policies        HTML     27K 
                (Details 5)                                                      
53: R42         Summaries of Significant Accounting Policies        HTML     38K 
                (Details Textual)                                                
54: R43         Accounts Receivable, Net (Details)                  HTML     30K 
55: R44         Accounts Receivable, Net (Details Textual)          HTML     24K 
56: R45         Inventories (Details)                               HTML     32K 
57: R46         Prepayment (Details)                                HTML     30K 
58: R47         Property and Equipment (Details)                    HTML     45K 
59: R48         Property and Equipment (Details Textual)            HTML     23K 
60: R49         Long Term Deferred Expenses (Details)               HTML     33K 
61: R50         Right-of-Use Assets and Lease Liabilities           HTML     41K 
                (Details)                                                        
62: R51         Right-of-Use Assets and Lease Liabilities (Details  HTML     32K 
                1)                                                               
63: R52         Right-of-Use Assets and Lease Liabilities (Details  HTML     32K 
                2)                                                               
64: R53         Right-of-Use Assets and Lease Liabilities (Details  HTML     32K 
                3)                                                               
65: R54         Right-of-Use Assets and Lease Liabilities (Details  HTML     68K 
                Textual)                                                         
66: R55         Derivative Financial Instruments (Details)          HTML     40K 
67: R56         Non-controlling Interests (Details)                 HTML     36K 
68: R57         Revenue (Details)                                   HTML     41K 
69: R58         Income Tax Expense (Details)                        HTML     35K 
70: R59         Related Party Transactions (Details)                HTML     33K 
71: R60         Related Party Transactions (Details 1)              HTML     28K 
72: R61         Related Party Transactions (Details Textual)        HTML     31K 
73: R62         Basic and Diluted Earnings Per Share (Details)      HTML     43K 
74: R63         Common Stock (Details)                              HTML     29K 
75: R64         Going Concern (Details)                             HTML     25K 
77: XML         IDEA XML File -- Filing Summary                      XML    140K 
76: EXCEL       IDEA Workbook of Financial Reports                  XLSX     87K 
 6: EX-101.INS  XBRL Instance -- jrss-20200331                       XML    972K 
 8: EX-101.CAL  XBRL Calculations -- jrss-20200331_cal               XML    182K 
 9: EX-101.DEF  XBRL Definitions -- jrss-20200331_def                XML    475K 
10: EX-101.LAB  XBRL Labels -- jrss-20200331_lab                     XML    927K 
11: EX-101.PRE  XBRL Presentations -- jrss-20200331_pre              XML    680K 
 7: EX-101.SCH  XBRL Schema -- jrss-20200331                         XSD    181K 
78: ZIP         XBRL Zipped Folder -- 0001213900-20-016048-xbrl      Zip    117K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Part I -- Financial Information
"Consolidated Financial Statements
"Consolidated Balance Sheets- March 31, 2020 (Unaudited) and December 31, 2019
"Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited)
"Consolidated Statement of Shareholders' Equity- March 31, 2020 (Unaudited) and December 31, 2019
"Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited)
"Notes to Consolidated Financial Statements (Unaudited)
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures About Market Risk
"Controls and Procedures
"Part Ii -- Other Information
"Legal Proceedings
"Risk Factors
"Unregistered Sale of Equity Securities and Use of Proceeds
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Exhibits
"Signatures

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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2020

 

or

 

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

 

For the transition period from _______ to _______

 

Commission File Number: 000-56013

 

JRSIS HEALTH CARE CORPORATION.  

(Exact name of Registrant as specified in its charter)

 

Florida   46-4562047
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)

 

No. 38 South Street 

Hulan District, Harbin City, 

Heilongjiang Province, China 150025

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

of Registrant’s principal executive offices)

 

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

 

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

 

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

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐     Smaller reporting company ☒
  Emerging growth company ☐

 

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

 

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

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  Trading Symbol(s)  Name of each exchange on which registered
       
       
       

 

As of the date of filing of this report, there were outstanding 18,016,331 shares of the issuer’s common stock, par value $0.001 per share.

 

 

 

 C: 

  

 

 

Explanatory Note

 

On March 4, 2020, pursuant to Section 36 of the Securities Exchange Act of 1934, the Securities and Exchange Commission issued Release No. 34-88318 (the “Order”) granting exemptions to registrants subject to the reporting requirements of the Exchange Act Section 13(a) or 15(d) due to circumstances related to the coronavirus disease 2019 (COVID-19).

 

On March 24, 2020, JRSIS Health Care Corporation furnished a Current Report on Form 8-K to indicate its reliance on the Order in connection with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

 

The Company’s headquarters and operations are located in the City of Harbin, China. Due to the ongoing outbreak of the COVID-19, which was first reported in December 2019 in Wuhan, China, the Chinese government initiated travel restrictions and mandatory quarantines to control the spread of COVID-19 within China. These actions taken by the Chinese government have prevented the Company's accounting department from completing the financial data and related materials necessary for the 2019 audit to be completed in a timely manner. As a result, the Company would be unable to file the Form 10-K by March 30, 2020.

 

The Company was trying hard to file the Form 10-K within 45 days after March 30, 2020. Because of government-imposed quarantines persisting, the Company could not carry out the preparations for its audit. Therefore, on May 14, 2020, JRSIS Health Care Corporation filed NT 10-K to report that it was unable to file Form 10-K within the required time because government-imposed quarantines prevented the Company from completing preparations for its audit.

 

Furthermore, the Form 10-Q for the quarter ended March 31, 2020 cannot be filed not after the Form 10-K for the year ended December 31, 2019 has been filed. Finally, on June 16, 2020, the Company filed the Form 10-K.

 

The Company is herein filing the Form 10-Q after Form 10-K had been filed and all the required procedures and process were completed.

 

 C: 

 C: i

 

  

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION 1
     
Item 1 Consolidated Financial Statements 1
     
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 7
     
Item 4 Controls and Procedures 7
     
PART II – OTHER INFORMATION   8
     
Item 1 Legal Proceedings 8
     
Item 1A Risk Factors 8
     
Item 2 Unregistered Sale of Equity Securities and Use of Proceeds 8
     
Item 3 Defaults Upon Senior Securities 8
     
Item 4 Mine Safety Disclosures 8
     
Item 5 Other Information 8
     
Item 6 Exhibits 8
     
  Signatures 9

 

 C: 

ii

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.    Consolidated Financial Statements

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Item Regulation S-X, Rule 10-01(c) Interim Financial Statements, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that can be expected for the year ended December 31, 2020.

 

 C: 

 C: 1

 

  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
JRSIS HEALTH CARE CORPORATION  
   
Consolidated Balance Sheets— March 31, 2020 (Unaudited) and December 31, 2019 F-2
   
Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited) F-3
   
Consolidated Statement of Shareholders’ Equity— March 31, 2020 (Unaudited) and December 31, 2019 F-4
   
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited) F-5
   
Notes to Consolidated Financial Statements (Unaudited) F-6 - 20

 

 C: 

F-1

 

 

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN USD, EXCEPT SHARES)

 

   March 31,   December 31, 
   2020   2019 
    (Unaudited)      
Assets          
Current Assets:          
Cash and cash equivalents  $707,191   $1,971,129 
Accounts receivable, net   3,766,204    4,583,835 
Inventories   1,123,957    1,072,741 
Other receivables   55,420    47,385 
Prepayments   1,337,553    1,301,351 
Deferred expenses   434,805    257,203 
Deposits for capital leases-current portion   48,184    280,422 
Total current assets   7,473,314    9,514,066 
Construction in progress   36,352    - 
Property and equipment, net   22,872,761    22,838,622 
Long term deferred expenses   2,625,766    2,978,936 
Deposits for capital leases   644,328    655,569 
Right-of-use assets   14,733,102    15,641,489 
Total assets  $48,385,623   $51,628,682 
           
Liabilities and shareholders’ equity          
Current Liabilities:          
Accounts payable  $3,748,386   $3,619,442 
Notes payable   263,188    358,382 
Deposits received   21,233    24,487 
Amount due to related parties   331,075    1,794,540 
Other payable   14,036    10,752 
Deferred tax payable-current   172,020    245,943 
Tax payable   196    12,047 
Payroll payable   432,826    1,395,034 
Lease obligation-current portion   2,476,359    2,680,421 
Convertible note   593,905    774,567 
Total current liabilities   8,053,224    10,915,615 
Deferred tax payable   1,797,168    1,702,752 
Warrant liabilities   110,559    110,840 
Lease obligation   12,778,864    13,295,933 
Other capital lease payable   2,571,824    2,616,691 
Total liabilities  $25,311,639   $28,641,831 
           
Shareholders’ equity          
Common stock; $0.001 par value, 100,000,000 shares authorized; 18,016,331 and 17,975,999 issued and outstanding at March 31, 2020 and December 31, 2019, respectively   18,016    17,976 
Additional Paid-in capital   23,085,905    22,825,787 
Retained earnings   (6,633,129)   (6,788,652)
Other comprehensive income   (1,580,700)   (1,236,873)
Total shareholders’ equity of the Company   14,890,092    14,818,238 
Non-controlling interest   8,183,892    8,168,613 
Total shareholders’ equity   23,073,984    22,986,851 
Total liabilities and shareholders’ equity  $48,385,623   $51,628,682 

 

See notes to consolidated financial statements 

 

 C: 

F-2

 

 

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(AMOUNTS IN USD, EXCEPT SHARES) (UNAUDITED)

 

   Three Months Ended 
March 31,
 
   2020   2019 
   (Unaudited)   (Unaudited) 
Revenue:        
Pharmaceuticals  $1,835,709   $2,814,548 
Patient services   4,152,290    4,757,555 
Total revenue   5,987,999    7,572,103 
Operating costs and expenses:          
Cost of pharmaceuticals sold   1,224,887    2,415,132 
Medical consumables   932,532    872,592 
Salaries and benefits   1,914,777    1,539,079 
Office supplies   195,597    389,360 
Vehicle expenses   46,135    81,935 
Utilities expenses   219,945    196,316 
Operating leases expense   43,630    28,163 
Advertising and promotion expenses   139    25,360 
Interest expense   175,834    225,860 
Professional fee   7,625    41,288 
Convertible notes expense   21,542    - 
Warrant expense   248,877    - 
Depreciation and amortization   579,947    538,224 
Total operating costs and expenses   5,611,467    6,353,309 
Earnings from operations before other income and income taxes   376,532    1,218,794 
Other income   (4,446)   (5,615)
Earnings from operations before income taxes   372,086    1,213,179 
Income tax   57,169    255,792 
Net income   314,917    957,387 
Less: net income attributable to non-controlling interests   159,394    288,799 
Net income attributable to the Company  $155,523   $668,588 
Comprehensive income:          
Foreign currency translation adjustment   (487,942)   524,928 
Foreign currency translation adjustment attributable to non-controlling interests   (144,115)   170,771 
Foreign currency translation adjustment attributable to the Company   (343,827)   354,157 
Comprehensive income  $(173,025)  $1,482,315 
Less: Comprehensive income attributable to non-controlling interests   15,279    459,570 
Comprehensive income attributable to the Company  $(188,304)  $1,022,745 
Basic earnings per share  $0.00864   $0.0446 
Diluted earnings per share  $0.00863   $0.0446 
Weighted average number of shares outstanding (Basic)   18,005,761    14,975,000 
Weighted average number of shares outstanding (Diluted)   18,026,761    14,975,000 

 

See notes to consolidated financial statements

 

 C: 

F-3

 

 

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED STATEMENT OF SHARESHOLDERS’ EQUITY

(AMOUNTS IN USD, EXCEPT SHARES)

 

   Common stock   Retained   Other 
comprehensive
   Additional
paid-in
   Non-
Controlling
   Total 
Shareholders’
 
   Quantity   Amount   Earnings   income   capital   Interest   equity 
Balance at December 31, 2018   14,975,000   $14,975   $12,913,912   $(983,109)  $2,191,363   $7,895,376   $22,032,517 
Net income   -    -    668,588    -    -    288,799    957,387 
Foreign currency translation adjustment   -    -    -    354,157    -    170,771    524,928 
Balance at March 31, 2019   14,975,000    14,975    13,582,500    (628,952)   2,191,363    8,354,946    23,514,832 
                                    
Balance at December 31, 2019   17,975,999   $17,976   $(6,788,652)  $(1,236,873)  $22,825,787   $8,168,613   $22,986,851 
Net income   -    -    155,523    -    -    159,394    314,917 
Shares issued   40,332    40              260,118         260,158 
Foreign currency translation adjustment   -    -    -    (343,827)   -    (144,115)   (487,942)
Balance at March 31, 2020   18,016,331    18,016    (6,633,129)   (1,580,700)   23,085,905    8,183,892    23,073,984 

 

See notes to consolidated financial statements

 

 C: 

F-4

 

 

JRSIS HEALTH CARE CORPORATION 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN USD, EXCEPT SHARES)

 

   Three Months Ended
March 31,
 
   2020   2019 
   (Unaudited)   (Unaudited) 
Cash Flows From Operating Activities        
Net income  $314,917   $957,387 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   579,947    538,224 
Interest expense   175,834    225,860 
Convertible notes expense   21,542    - 
Warrant expense   248,877    - 
Changes in operating assets and liabilities:          
Accounts receivable, net   776,626    (442,869)
Inventories   (70,689)   248,792 
Amount due from related parties   (13,235)   118,061 
Prepayments and other current assets   264,527    875,152 
Accounts payable   187,569    476,760 
Amount due to related parties   (12,194)   (4,699)
Deposits received   (2,878)   (5,089)
Payroll payable   (952,826)   - 
Accrued expenses and other current liabilities   (43,991)   272,288 
Net cash provided by operating activities   1,474,026    3,259,867 
           
Cash Flows From Investing Activities          
Purchases of property and equipment   (240,223)   (1,503,611)
Prepayment for property and equipment acquisition   (332,933)   (454,761)
Payment of Construction in progress   (36,915)   (264,687)
Net cash (used in) investing activities   (610,071)   (2,223,059)
           
Cash Flows From Financing Activities          
Payments of finance lease obligations   (202,468)   (687,952)
Interest expense   (175,834)   (225,860)
Payment for Convertible notes   (202,204)   - 
Proceeds from finance lease   -    2,870,312 
Payments to related parties   (1,500,774)   - 
Net cash provided by (used in) financing activities   (2,081,280)   1,956,500 
           
Effect of exchange rate fluctuation on cash and cash equivalents   (46,613)   23,870 
Net increase (decrease) in cash and cash equivalents   (1,263,938)   3,017,178 
           
Cash and cash equivalents, beginning of period   1,971,129    256,450 
Cash and cash equivalents, ending of period  $707,191   $3,273,628 
           
Supplemental disclosure of cash flow information          
Cash paid for income taxes   (14,253)   (255,792)
Cash paid for interest   (175,834)   (225,860)

 

See notes to consolidated financial statements

 

 C: 

F-5

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 1. DESCRIPTION OF BUSINESS AND ORGANIZATION

 

JRSIS Health Care Corporation (the “Company” or “JRSS”) was incorporated on November 20, 2013 under the laws of the State of Florida. In December 2013 JRSS acquired 100% of the equity in JRSIS Health Care Limited (“JHCL”), which is a Limited Liability Company registered in British Virgin Island (“BVI”) on February 25, 2013. JHCL owns 100% of the equity in Runteng Medical Group Co., Ltd (“Runteng”), a limited liability company registered in Hong Kong on September 17, 2012. Runteng owns 70% of the equity in Harbin Jiarun Hospital Co., Ltd (“Jiarun”), a for-profit hospital incorporated in Harbin City of Heilongjiang, China in February 2006. The remaining 30% of the equity in Jiarun is owned by Junsheng Zhang, who is the Chairman of the Board of JRSIS Health Care Corporation.

 

Jiarun is a private hospital serving patients on a municipal and county level and providing both Western and Chinese medical practices to the residents of Harbin. Jiarun also owns 100% of the equity in:

 

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

 

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

 

30% of the equity in Jiarun is held by Junsheng Zhang, and is therefore a non-controlling interest (“NCI”), accounted for pursuant to ASC810-10-45, which states that the ownership interest in the subsidiary that is held by owners other than the parent is a non-controlling interest. According to the supplemental agreement signed between Junsheng Zhang and Runteng on June 1, 2013, the comprehensive income from Jiarun would be attributable to retained earnings and non-controlling interest for 70% and 30% respectively, from July 1, 2013.

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES

 

A. Basis of presentation

 

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

 

B. Principles of consolidation

 

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

 

C. Use of estimates

 

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

 

 C: 

F-6

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

  

D. Functional currency and foreign currency translation

 

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

 

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

 

The exchange rates used for foreign currency translation are as follows:

 

       For three months ended 
March 31,
 
       2020    2019 
       (USD to RMB/USD to HKD)    (USD to RMB/USD to HKD) 
Assets and liabilities  period end exchange rate   7.0896 / 7.7529    6.7111 / 7.8493 
Revenue and expenses  period average   6.9814 / 7.7710    6.7464 / 7.8456 

 

E. Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The majority of sales are either cash receipt in advance or cash receipt upon delivery. For three months ended March 31, 2020 and 2019, no customer accounted for more than 10% of net revenue. As of March 31, 2020 and December 31, 2019, two and three customers accounted for more than 5% of net accounts receivable, respectively. For those credit sales, the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

 

F. Cash and cash equivalents

 

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

 

G. Accounts receivable

 

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

  

H. Inventories

 

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

 

 C: 

F-7

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

I. Construction in progress

 

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

 

J. Property and equipment

 

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

 

The estimated useful lives for property and equipment categories are as follows:

 

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

 

K. Leases

 

In February 2016, the FASB issued ASU 2016-02–Leases (Topic 842), which increases transparency and comparability among organizations by recognizing right-of-use (“ROU”) lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU maintains a distinction between finance leases and operating leases, which is substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. Retaining this distinction allows the recognition, measurement and presentation of expenses and cash flows arising from a lease to remain similar to the previous accounting treatment. A lessee is permitted to make an accounting policy election by class of underlying asset to exclude from balance sheet recognition any lease assets and lease liabilities with a term of 12 months or less, and instead to recognize lease expense on a straight-line basis over the lease term. For both financing and operating leases, the ROU asset and lease liability is initially measured at the present value of the lease payments in the consolidated balance sheet. In July 2018, the FASB issued ASU 2018-11 which provides entities with the option to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if necessary. As discussed in Note 8, we adopted ASU 2016-02–Leases (Topic 842) effective January 1, 2019 utilizing the transition option provided by ASU 2018-11.

 

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).

 

 C: 

F-8

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis:

 

   Carrying Value at
March 31,
   Fair Value Measurement at
March 31, 2020
 
   2020   Level 1   Level 2   Level 3 
Convertible Note  $593,905   $      -   $         -   $593,905 
Warrant liability  $110,559   $-   $-   $110,559 

 

A summary of changes in Warrant liability for three months ended March 31, 2020 was as follows:

 

Balance at January 1, 2020  $110,840 
Change in fair value of warrant liability   248,877 
Exercise in January, 2020   (249,158)
Balance at March 31, 2020   110,559 

 

The fair value of the outstanding warrants was calculated using the Binomial Option Pricing Model with the following assumptions at inception and on subsequent valuation date:

 

   March 31,
2020
 
Warrants  Auctus 
Market price per share (USD/share)  $0.99 
Exercise price (USD/share)   0.60 
Risk free rate   0.473%
Dividend yield   0%
Expected term/Contractual life (years)   2.33 
Expected volatility   62.78%

 

A summary of changes in Convertible Note for three months ended March 31, 2020 was as follows:

 

Balance at January 1, 2020  $774,567 
Change in fair value of convertible notes   21,542 
Paid in February, 2020   (202,204)
Balance at March 31, 2020   593,905 

 

The fair value of the outstanding Convertible Note was calculated using Monte Carlo simulation “MC simulation” method and the Binomial Option Pricing Model with the following assumptions at inception and on subsequent valuation date:

 

   March 31, 
2020
 
Convertible Note  Auctus 
Market price per share (USD/share)  $0.99 
Exercise price (USD/share)   60% of lowest trading price 
Risk free rate   0.99%
Dividend yield   0%
Expected term/Contractual life (years)   0.08 
Expected volatility   180.12%

 

In May and July, 2019, the Company issued three convertible promissory notes, one each to Labrys Fund, LP, Auctus Fund, LLC and Harbor Gates Capital, LLC. On October 31, 2019, the Company repaid the convertible promissory note issued to Labrys Fund, LP, On February 11, 2020, the Company repaid the convertible promissory note issued to Harbor Gates Capital, LLC. Therefore, the Labrys’ and Harbor Gates’ Convertible Notes have no fair value as of each subsequent reporting date.

 

 C: 

F-9

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

1. The fair value of the outstanding Convertible Note issued to Harbor Gates was calculated using Binomial Option Pricing Model

 

2. The fair value of the outstanding Convertible Note issued to Auctus was calculated using Monte Carlo simulation “MC simulation” method.

 

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

 

M. Segment and geographic information

 

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

 

N. Revenue recognition

 

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

 

Pharmaceutical sales

 

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

 

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 pharmaceuticals do not contain estimates that materially affect results of operations nor does the Company have any policy for return of products.

 

Patient Services

 

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

 

Patient service revenue is recognized when it is both earned and realized. The Company’s policy is to recognize patient service revenue when the medical service has been provided to the patient and collection of the revenue is reasonably assured.

 

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

 

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

 

  For out-patient medical services, revenue is recognized when the Company provides medical service to the patient. The Company collects payment before the patient leaves the hospital.

 

  For in-patient medical services, when a patient checks into the hospital, the Company estimates the approximate fee the patient will spend in the hospital based on patient’s symptoms. At that time, the Company collects the estimated fees from the patient and records the payment as deposits received.

 

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

 

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

 

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

 

 C: 

F-10

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Settlement process

 

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

 

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

 

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

 

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

 

O. Income taxes

 

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

 

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

 

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

 

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

 

Enterprise income tax is determined under the Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC, income tax is payable by enterprises at a rate of 25% of their taxable income.

 

 C: 

F-11

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

P. Earnings per share

 

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

 

Q. Reclassification

 

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

 

R. Recently adopted accounting pronouncements

 

The FASB has issued Accounting Standards Update (ASU) No. 2019-01, Leases (Topic 842): Codification Improvements. The new ASU aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied.

 

The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities.

 

Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard.

  

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

 

NOTE 3. ACCOUNTS RECEIVABLE, NET

 

   March 31   December 31 
   2020   2019 
   (Unaudited)     
Accounts receivable  $6,443,880   $7,308,224 
Less: allowance for doubtful debts   2,677,676    2,724,389 
   $3,766,204   $4,583,835 

 

The Company experienced $ nil bad debts during three months ended March 31, 2020 and 2019. The allowance for doubtful debts as of March 31, 2020 and December 31, 2019 was derived from two years old unreimbursed exceed insurance claim submitted by the Company to the Harbin Medical Insurance Management Centre.

 

NOTE 4. INVENTORIES

 

At March 31, 2020 and December 31, 2019, inventories consist of the following:

 

   March 31   December 31 
   2020   2019 
   (Unaudited)     
Western pharmaceuticals  $621,801   $554,414 
Chinese herbal medicine   29,192    37,621 
Medical material   468,092    475,916 
Other material   4,872    4,790 
   $1,123,957   $1,072,741 

 

 C: 

F-12

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 5. PREPAYMENT

 

At March 31, 2020 and December 31, 2019 prepayment consists of the following:

 

   March 31   December 31 
   2020   2019 
   (Unaudited)     
Deposits on medical equipment  $838,195   $744,569 
Heating fees   24,675    175,736 
Others   474,683    381,046 
   $1,337,553   $1,301,351 

 

NOTE 6. PROPERTY AND EQUIPMENT

 

At March 31, 2020 and December 31, 2019, property and equipment, at cost, consist of:

 

   March 31,   December 31, 
   2020   2019 
   (Unaudited)     
Transportation equipment  $1,164,579   $1,184,896 
Medical equipment   17,367,129    17,291,984 
Electrical equipment   1,816,601    1,842,552 
Office equipment and others   954,209    964,669 
Buildings   23,293,918    23,700,288 
Software   181,870    185,043 
Total fixed assets at cost   44,778,306    45,169,432 
Accumulated depreciation   (7,471,727)   (7,021,013)
Total fixed assets, net  $37,306,579   $38,148,419 
Reclass to Right-of-use assets   (14,433,818)   (15,309,797)

 

The Company recorded depreciation expense of $579,947 and 538,224 for the three months ended March 31, 2020 and 2019, respectively.

 

NOTE 7. LONG TERM DEFERRED EXPENSES

 

On May 7, 2015, July 3, 2015 and October 16, 2015, Jiarun entered into three lease agreements to lease medical equipment from Hair Finance Leasing (China) Co., Ltd. (“Hair”), a third party, for a five-year period, in which Jiarun is required to pay a consulting fee to Hair for the services provided over the five years. During the year ended December 31, 2018, the Company paid approximately $1.6 million for the decoration of its outpatient building and the two Branch Hospitals. The consulting and decoration fees paid but attributable to the current and subsequent accounting periods were accounted for as deferred expenses and long-term deferred expenses.

 

The current portion of the prepaid consulting and decoration fees were recorded as deferred expenses of $434,805 and $257,203 as of March 31, 2020 and December 31, 2019. The long-term deferred expenses were $2,625,766 and $2,978,936 as of March 31, 2020 and December 31, 2019.

 

The Company recorded consulting fee of $16,157 and $16,720, and decoration fees of $105,785 and $74,191 for the three months ended March 31, 2020 and 2019, respectively.

 

 C: 

F-13

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 8. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

 

On January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842, “Leases” (“new lease standard”). The new lease standard was adopted using the optional transition method approach that allows for the cumulative effect adjustment to be recorded without restating prior periods. The Company has elected the practical expedient package related to the identification, classification and accounting for initial direct costs whereby prior conclusions do not have to be reassessed for leases that commenced before the effective date. As the Company will not reassess such conclusions, the Company has not adopted the practical expedient to use hindsight to determine the likelihood of whether a lease will be extended or terminated or whether a purchase option will be exercised.

 

Finance lease 

 

On June 5, 2013, Jiarun entered into a lease agreement to lease its hospital building from Harbin Baiyi Real Estate Development Co., Ltd (“the Lessor”), which is owned by Junsheng Zhang, a related party. The Lease has a term of 30 years, requiring annual prepayments of a rent of RMB7,000,000. The first payment was made on September 1, 2014. At the end of the leasing period, a final payment will be made to settle the total leasing amount. Both parties agreed for Jiarun to pay RMB3,000,000 as deposit at the execution of the Leasing agreement, which will be deducted from the final rental settlement. In accordance to accounting principles and treatment, this payment was booked as deposit in our accounts. The Lessor shall return the premium for lease to Jiarun at expiration of the Contract or pledge the deposit as part of rents for the last period or periods in 2043. The implicit interest rate, which determined the rental fee after fair value was amortized, was calculated at 6.55%, which is the benchmark interest rate announced from The People’s Bank of China. After the completion of all payments, the ownership of the lease item will be transferred to Jiarun.

 

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

 

  Rental payments of RMB7,000,000 (equivalent to $1,004,593) per year, payable at the beginning of September.

 

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

 

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

 

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

  

On May 7, 2015, July 3, 2015, October 16, 2015, April 6, 2016, November 25, 2016, April 5 2017 and May 25, 2019 Jiarun entered into several lease agreements to lease medical equipment and an elevator from three lease finance companies, which are all unrelated third parties, for three to five-year periods, in which Jiarun is required to make monthly or quarterly payments toward the leases. The Company was also required to pay deposits up front, which deposits will later be offset against the last quarterly payment. The medical equipment and elevator will be transferred to Jiarun upon the completion of the agreement. 

 

On March 25, 2019 Jiarun entered into a sale and leaseback agreement for the sale-leaseback of properties from Haitong Hengxin International Leasing Company Limited, with a collective net value of $2,609,047. 

 

Operating lease 

 

In August 2017 JHCC leased office space under non-cancellable operating lease agreements. Under terms of the lease agreement, from August 2017, JHCC is committed to make lease payments of approximately $36,881 per year for 5 years. This office is used for outpatient services by 2nd Branch Hospital.

 

In December 2017 JHCC leased office space under non-cancellable operating lease agreements. Under terms of the lease agreement, from December 2017, JHCC is committed to make lease payments of approximately $68,128 per year for 5 years. This office is used by 1st Branch Company.

 

The Company’s adoption of the new lease standard included new processes and controls regarding asset financing transactions, financial reporting and a system-related implementation required for the new lease standard. The Company’s accounting for finance leases (formerly referred to as capital leases prior to the adoption of the new lease standard) remained substantially unchanged. The impact of the adoption of the new lease standard included the recognition of right-of-use (“ROU”) assets and lease liabilities. The adoption of the new lease standard resulted in additional net lease assets and net lease liabilities of approximately $14.73 million and $15.26 million, respectively, as of March 31, 2020.

 

 C: 

F-14

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 8. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Continued)   

 

As of March 31, 2020, the Company has the following amounts recorded on the Company’s unaudited condensed consolidated balance sheet:

 

   March 31, 2020   December 31, 2019 
   (Unaudited)     
Assets        
Operating lease assets  $299,284   $331,693 
Finance lease assets   14,433,818    15,309,796 
Total  $14,733,102   $15,641,489 
Liabilities          
Current          
Operating lease liabilities   112,118    111,414 
Finance lease liabilities   2,364,241    2,569,007 
Long-term          
Operating lease liabilities   187,167    220,279 
Finance lease liabilities   12,591,697    13,075,654 
Total  $15,255,223   $15,976,354 

 

The future minimum lease payments for annual capital lease obligation as of March 31, 2020 are as follows:

 

Year  Amounts 
2020  $2,263,573 
2021   1,351,395 
2022   1,164,600 
Thereafter   10,176,370 
Total  $14,955,938 

 

The Company recorded finance interest lease fees of $239,289 and $261,921 for the three months ended March 31, 2020 and 2019, respectively.

 

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

 

Year ending December 31  Amount $ 
2020   82,783 
2021   119,946 
2022   96,555 
    299,284 

 

The company has recorded operating lease expense of $43,630 and $$28,163 for three months ended March 31, 2020 and 2019, respectively

 

At March 31, 2020 right-of-use assets, consist of:

 

  

March 31, 2020

(Unaudited) 

  

December 31, 2019

 
   Operating lease   Finance lease   Total   Operating lease   Finance lease   Total 
Lease assets  $326,419   $14,706,545   $15,032,964   $432,892   $16,390,259   $16,823,151 
Accumulated amortization   (27,135)   (272,727)   (299,862)   (101,199)   (1,080,463)   (1,181,662)
Total right-of-use assets, net  $299,284   $14,433,818   $14,733,102   $331,693   $15,309,796   $15,641,489 

 

The Company recorded finance lease amortization expense of $272,727 and $209,932 in depreciation and amortization for the three months ended March 31, 2020 and 2019, respectively. For the three months ended March 31, 2020, the amount of depreciation and amortization was $579,947, also included general property and equipment depreciation of $307,220.

 

 C: 

F-15

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 8. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Continued)   

 

The Company recorded operating lease expense of $43,630 and $28,163 for the three months ended March 31, 2020 and 2019, including operating lease amortization expense of $27,135 and $22,390 for the three months ended March 31, 2020 and 2019, respectively.

 

NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative Financial Instruments

 

The Company has adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”). ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

Debt derivatives – In May and July of 2019, the Company issued three convertible promissory notes to Labrys Fund, LP. Auctus Fund, LLC and Harbor Gates Capital, LLC The Notes were convertible into common stock, at holders’ option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives relating to certain anti-dilutive (reset) provisions in the Notes. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and record the change in fair value as of each subsequent reporting date.

 

During 2019 and the first quarter of 2020, the Company satisfied the Notes issued to Labrys Fund, LP and to Harbor Gates Capital, LLC. At March 31, 2020, the Company marked to market the fair value of the other debt derivatives and determined a fair value of $593,905. The Company recorded a loss from change in fair value of debt derivatives of $21,542 for three months ended March 31, 2020. The fair value of the embedded derivatives was determined using Monte Carlo simulation “MC simulation” method and Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 180.12%, (3) weighted average risk-free interest rate of 0.99%, (4) expected life of 0.08 year, and (5) the quoted market price of the Company’s common stock at each valuation date.

 

Warrant liabilities The Company issued two common stock purchase warrants (the “warrants”) to purchase 28,200 shares and 21,000 shares of the registrant’s common stock to Labrys Fund, LP and Auctus Fund, LLC. These warrants contain certain reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date (issuance date) and to fair value as of each subsequent reporting date.

 

In January 2020 the Company issued 38,322 shares of common stock to Labrys Fund, LP in full satisfaction of its warrant. At March 31, 2020, the Company marked to market the fair value of the Auctus Fund warrant liability and determined a fair value of $110,559. The Company recorded a loss from issuance expense and change in fair value of warrant liability of $248,877 for three months ended March 31, 2020. The fair value of the warrant liability was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 62.78%, (3) weighted average risk-free interest rate of 0.473%, (4) expected life of 2.33 years, and (5) the quoted market price of the Company’s common stock at each valuation date.

 

NOTE 10. NON-CONTROLLING INTERESTS 

 

Jiarun is the Company’s majority-owned subsidiary which is consolidated in the Company’s financial statements with a non-controlling interest recognized. The Company holds a 70% equity interest in Jiarun as of March 31, 2020 and December 31, 2019.

 

As of March 31, 2020 and December 31, 2019, NCI on the consolidated balance sheet was $8,183,892 and $8,168,613, respectively, representing the 30% of Jiarun that is owned by Junsheng Zhang. For the three months ended March 31, 2020, the comprehensive income attributable to shareholders’ equity and NCI is $(188,304) and $15,279, respectively. For the three months ended March 31, 2019, the comprehensive income attributable to shareholders’ equity and NCI is $1,022,745 and $459,570, respectively.

 

 C: 

F-16

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 11. REVENUE

 

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

 

   Three Months Ended
March 31,
 
   2020   2019 
   (Unaudited)   (Unaudited) 
Pharmaceuticals:        
Western pharmaceuticals  $1,464,482   $2,210,930 
Chinese medicine   170,303    364,710 
Herbal medicine   200,924    238,908 
Total pharmaceuticals  $1,835,709   $2,814,548 
           
Patient services:          
Medical consulting  $1,767,318   $2,033,864 
Medical treatment   2,307,037    2,582,429 
Others   77,935    141,262 
Total patient services  $4,152,290   $4,757,555 
           
   $5,987,999   $7,572,103 

 

NOTE 12. INCOME TAX EXPENSE

 

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

 

United States

 

JRSS is subject to the United States of America tax at a tax rate of 21%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the periods presented, and its earnings are planned to be reinvested indefinitely into the operations of the Company in the PRC.

 

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

 

Corporate Income Tax (CIT) is determined under the Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC. Income tax is payable by enterprises at a rate of 25% of their taxable income.

 

According to the PRC “Notice on Preferential Corporate Income Tax (CIT) Treatment for Eligible Equipment or Machinery (Cai Shui [2018] No. 54)”, a 100% immediate tax deduction for CIT purposes is allowed on the condition that the unit price of each item of equipment or machinery is individually less than RMB5 million. Depreciation for tax purposes is not required. Basis differences between tax and GAAP for depreciation of property and equipment exist because in 2020 the Company purchased Eligible Equipment for RMB 2.72 million, with $54,741 deferred income tax, creating differences between the tax treatment mandated by the Chinese government and GAAP tax treatment.

 

 C: 

F-17

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 13. RELATED PARTY TRANSACTIONS

 

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

 

(a) Junsheng Zhang, the Chairman of the Company 

(b) Harbin Baiyi Real Estate Development Co., Ltd., owned by Junsheng Zhang 

(c) Harbin Jiarun Pharmacy Co., Ltd., owned by Junsheng Zhang 

(d) Heilongjiang Province Runjia Medical Equipment Company Limited, owned by Junsheng Zhang 

(e) Jiarun Super Market Co., Ltd., owned by Junsheng Zhang 

(f) Harbin Qi-run Pharmacy Limited, owned by Junsheng Zhang 

(g) Yanhua Xing and Weiguang Song, the former shareholders of JHCL

 

Amount due from related parties

The amount due from related parties became $ Nil in 2020 and 2019.

 

Amount due to related parties

 

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

 

   March 31,   December 31, 
Name of related parties  2020   2019 
   (Unaudited)     
Harbin Jiarun Pharmacy Co., Ltd  $5,410   $- 
Heilongjiang Province Runjia Medical Equipment Co., Ltd   3,386    4,306 
Harbin Baiyi Real Estate Development Co., Ltd,   282,604    1,043,131 
Junsheng Zhang   39,675    747,103 
   $331,075   $1,794,540 

 

Amount due to Harbin Jiarun Pharmacy Co., Ltd., and Heilongjiang Province Runjia Medical Equipment Company Limited were mainly for the balance for purchase of pharmaceuticals and medical material from these companies.

 

Amount due to Baiyi mainly represented the debt for the inpatient and outpatient building extension decoration and beauty center decoration.

 

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

  

Related parties’ transactions

 

Purchase of pharmaceuticals and medical material from related parties consisted of the following for the periods indicated:

 

   For three months ended
March 31,
 
Name of related parties  2020   2019 
Harbin Jiarun Pharmacy Co., Ltd  $5,494   $3,701 
Heilongjiang Province Runjia Medical Equipment Co., Ltd   -    7,619 
   $5,494   $11,320 

 

Deposits for capital leases and Capital lease obligations

 

On June 5, 2013, Jiarun entered into a Lease Agreement to lease a new hospital building from Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang, a related party. As of March 31, 2020, the Company has balance of deposits for capital leases and capital lease obligations of $432,158 and $12,236,474, respectively. As of December 31, 2019, the Company has balance of deposits for capital leases and capital lease obligations of $447,021 and $13,148,213, respectively.

 

 C: 

F-18

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 14. BASIC AND DILUTED EARNINGS PER SHARE

 

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

 

   Three Months Ended
March 31,
 
   2020   2019 
   (Unaudited)   (Unaudited) 
Numerator:        
Net income available to common stockholders  $155,523   $668,588 
Denominator:          
Basic weighted-average number of shares outstanding   18,005,761    14,975,000 
Diluted weighted-average number of shares outstanding   18,026,761    14,975,000 
Net income per share:          

Basic EPS

  $

0.00864

   $

0.0446

 

Diluted EPS

  $0.00863   $0.0446 

 

NOTE 15. CONTINGENCIES AND COMMITMENT

 

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. There was no contingency as of March 31, 2020 and December 31, 2019.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. There was no contingency as of March 31, 2020 and December 31, 2019.

 

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

 

NOTE 16. COMMON STOCK

 

During the first quarter of 2020, the Company issued 38,332 shares to Labrys Fund, LP in full satisfaction of a common stock purchase warrant that the Company had sold to Labrys Fund, LP during 2019, On February 27, 2020, Auctus Fund, LLC converted into 2,000 shares of the Company’s common stock with $2,400 in accrued interest and fees arising under the Promissory Note it had purchase from the Company in July 2019.

 

 C: 

F-19

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 17. GOING CONCERN

 

As reflected in the accompanying consolidated financial statements, the Company had a $6,633,129 negative retained earnings or accumulated deficit as of March 31, 2020; in addition, the Company’s total current liabilities exceeded its current assets by $579,910. These factors raised substantial doubt about its ability to continue as a going concern. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

To continue as a going concern, the Company is actively pursuing additional funding and strategic partners to enable it to implement its business plan. In addition, the Company is also working to devote more efforts to improve its operation and generate more profits. Management believes that these actions will allow the Company to continue its operations through the next fiscal year.

 

NOTE 18. SUBSEQUENT EVENTS

 

On April 30, 2020, the Company fully satisfied the Promissory Note that it issued to Auctus Fund, LLC in July 2019

 

The outbreak of COVID-19 is spreading over multiple countries and becoming the current pandemic. The national and local government agents in China have imposed serious restrictions on travel, business operations and even locked-down Harbin City in order to counter the effect of the virus. As a result, the Company’s revenue and income for the first six months of 2020 will be substantially lower than were reported for the first six months of 2019.

 

The Management of the Company determined that there were no other material reportable subsequent events to be required to disclose except the above mentioned items.

 

 C: 

F-20

 

 

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

 

Cautionary Statement Regarding Forward Looking Statements

 

The discussion contained in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases like “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “target,” “expects,” “management believes,” “we believe,” “we intend,” “we may,” “we will,” “we should,” “we seek,” “we plan,” the negative of those terms, and similar words or phrases.    We base these forward-looking statements on our expectations, assumptions, estimates and projections about our business and the industry in which we operate as of the date of this Form 10-Q. These forward-looking statements are subject to a number of risks and uncertainties that cannot be predicted, quantified or controlled and that could cause actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. The “Risk Factors” section in our Annual Report on Form 10-K describes factors, among others, that could contribute to or cause these differences. Actual results may vary materially from those anticipated, estimated, projected or expected should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect. Because the factors discussed in the Risk Factors section of our Form 10-K could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement made by us or on our behalf, you should not place undue reliance on any such forward-looking statement. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this Form 10-Q.

 

The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of such financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates, including those related to useful lives of real estate assets, bad debts, impairment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. The analysis set forth below is provided pursuant to applicable SEC regulations and is not intended to serve as a basis for projections of future events.

 

 C: 

 

 

Overview

 

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

 

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

 

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

 

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

 

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

 

On December 20, 2013, the Company acquired 100% of the issued and outstanding capital stock of JRSIS Health Care Limited, a privately held Limited Liability Company registered in the British Virgin Islands, for 12,000,000 shares of our common stock. JHCL, through its wholly owned subsidiary, Runteng Medical Group Co., Ltd, holds majority ownership in Jiarun, a company duly incorporated, organized and validly existing under the laws of China. As the parent company, JHCC rely on Jiarun to conduct 100% of our businesses and operations.

 

We have two sources of patient revenues: in-patient service revenues and out-patient service revenues. In addition to provide services to our patients, we also sell pharmaceutical pharmaceuticals to our patients. Revenues from such sales are included in either our in-patient service revenues or our out-patient service revenues. Our revenues come from individuals as well as third-party payers, including PRC government programs and insurance providers, under which the hospital is paid based upon local government established charges. Revenue from the sale of pharmaceuticals is recognized when it is both earned and realized. The Company’s policy is to recognize the sale of pharmaceuticals when the title of the pharmaceuticals, 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 pharmaceuticals. 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. 

 

 C: 

 

 

Critical Accounting Policies and Management Estimates

 

In preparing our financial statements we are required to formulate accounting policies regarding valuation of our assets and liabilities and to develop estimates of those values. In our preparation of the financial statements for the period ended March 31, 2020, there were two estimates made which were (a) subject to a high degree of uncertainty and (b) material to our results, as follows:

 

  The determination, as set forth in Note 3 to our Financial Statements, that the $6,443,880 balance in accounts receivable as of March 31, 2020 warranted an allowance for doubtful accounts of $2,677,676. The determination was based on our review of the statement from Harbin Medical Insurance Management Center. Generally, the Center sets an insurance claim limit for the hospital. Although the hospital cannot refuse to receive patients, if the hospital receives too many patients and exceeds the claim limit, there is an excess insurance claim that may not be recoverable. During the next year or two, the Center will pay part of the excess insurance claim to the hospital from an insurance regulatory fund that is shared with all local hospitals that have excess insurance claims. In accordance with the principle of prudence, the Company made a determination that an excess insurance claim that had been outstanding for over two years without reimbursement should be treated as a doubtful account.

 

  The determination to record depreciation of our principal medical property and equipment over an average useful life of approximately twenty years. (A quantification of that depreciation is set forth in Note 6 to our Financial Statements.) The determination was based primarily on our expectation that the useful life of our hospital facilities would exceed thirty years, based on the experience of comparable facilities in our location.

 

Results of Operations for Three Months Ended March 31, 2020 and 2019 

 

The following table shows key components of the results of operations during three months ended March 31, 2020 and 2019

 

   Three Months Ended 
March 31,
   Change 
   2020   2019   $   % 
                 
Revenue:                
Pharmaceuticals  $1,835,709   $2,814,548   $(978,839)   (35%)
Patient services   4,152,290    4,757,555    (605,265)   (13%)
Total revenue   5,987,999    7,572,103    (1,584,104)   (21%)
Operating costs and expenses:                    
Cost of pharmaceuticals sold   1,224,887    2,415,132    (1,190,245)   (49%)
Medical consumables   932,532    872,592    59,940    7%
Salaries and benefits   1,914,777    1,539,079    375,698    24%
Office supplies   195,597    389,360    (193,763)   (50%)
Vehicle expenses   46,135    81,935    (35,800)   (44%)
Utilities expenses   219,945    196,316    23,629    12%
Operating leases expense   43,630    28,163    15,467    55%
Advertising and promotion expenses   139    25,360    (25,221)   (99%)
Interest expense   175,834    225,860    (50,026)   (22%)
Professional fee   7,625    41,288    (33,663)   (82%)
Convertible notes expense   21,542    -    21,542    n/a 
Warrant expense   248,877    -    248,877    n/a 
Depreciation   579,947    538,224    41,723    8%
Total operating costs and expenses   5,611,467    6,353,309    (741,842)   (12%)
Earnings from operations before other income and income taxes   376,532    1,218,794    (842,262)   (69%)
Other (expenses) income   (4,446)   (5,615)   1,169    (21%)
Earnings from operations before income taxes   372,086    1,213,179    (841,093)   (69%)
Income tax   57,169    255,792    (198,623)   (78%)
Net income   314,917    957,387    (642,470)   (67%)
Less: net income attributable to non-controlling interests   159,394    288,799    (129,405)   (45%)
Net income attributable to the Company  $155,523   $668,588   $(513,065)   (77%)
Comprehensive income:                    
Foreign currency translation adjustment   (487,942)   524,928    (1,012,870)   (193%)
Foreign currency translation adjustment attributable to non-controlling interests   (144,115)   170,771    (314,886)   (184%)
Foreign currency translation adjustment attributable to the Company   (343,827)   354,157    (697,984)   (197%)
Comprehensive income  $(173,025)  $1,482,315   $(1,655,340)   (112%)

 

 C: 

 

 

Revenue

 

Operating revenue for the three months ended March 31, 2020, which resulted primarily from pharmaceuticals revenue and patient services revenue, was $5,987,999, a decrease of 21% as compared with the operating revenue of $7,572,103 for the three months ended March 31, 2019. Revenue from the sale of pharmaceuticals decreased by 35%, while revenue from provision of patient services decreased by 13%. The decrease was primarily a result of restrictions imposed by government agencies on business operations within Harbin City in order to control the spread of COVID-19. These restrictions limited our ability to perform non-emergency medical services, which cause the number of treated inpatients during the first quarter of 2020 to fall by 39.2% to 3180 patients, compared with the 5227 patients treated at Jiarun Hospital in the first quarter of 2019.

 

Operating Costs and Expenses

 

Total operating costs and expenses were $5,611,467 for the three months ended March 31, 2020, a decrease of $741,842 or 12% as compared to $6,353,309 for the first quarter of 2019. Since revenue decreased by 21% quarter-to-quarter, the decrease of only 12% in operating costs and expenses caused a substantial reduction in the profitability of the Company’s operations. The primary components of the $741,842 decrease in costs and expenses were:

 

  $1,190,245 decrease in cost of pharmaceuticals. As sales of pharmaceuticals decreased by 35%, the cost of the pharmaceuticals sold decreased by 49%. The decrease was attributable to both Western pharmaceuticals and Chinese traditional medicines, and primarily reflects decreases in reception of patients as a result of government-imposed lock-downs.

 

  $375,698 increase in salaries and benefits, reflecting a $405,244 increase in salaries and $68,344 decrease in social insurance expense. This 24% increase in our labor costs was primarily caused by the initiation of operations at our two new branch hospitals. The increase exceeded the revenue increase attributable to the hospitals, as we incurred labor costs in preparation for full scale operations.

 

  $193,763 decrease in office supplies, likewise primarily attributable to the effect of COVID-19 on our operations during 2020.

 

Income Taxes

 

Corporate Income Tax (CIT) is determined under the Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC. Income tax is payable by enterprises at a rate of 25% of their taxable income.

 

According to the PRC “Notice on Preferential Corporate Income Tax (CIT) Treatment for Eligible Equipment or Machinery (Cai Shui [2018] No. 54)”, a 100% immediate tax deduction for CIT purposes is allowed on the condition that the unit price of each item of equipment or machinery is individually less than RMB5 million. Depreciation for tax purposes is not required. Basis differences between tax and GAAP for depreciation of property and equipment exist because in 2020 the Company purchased Eligible Equipment for RMB 2.72 million, with $54,741 deferred income tax, creating differences between the tax treatment mandated by the Chinese government and GAAP tax treatment.

 

 Income from operations and net income

 

Income from Operations was $376,532 for the three months ended March 31, 2020, as compared with operating income of $1,218,794 for the three months ended March 31, 2019. After deducting other income and expenses as well as the provision for income tax, the Company’s net income for the three months ended March 31, 2020 was $314,917, representing a decrease of $642,470 or 67%, from $957,387 recorded for the three months ended March 31, 2019. The decrease of income from operations and net income for the three months ended March 31, 2020 were primarily due to aforementioned changes in operating revenue and expenses.

 

Our net income was produced by Jiarun. Because we own only 70% of the equity interest in Jiarun (the other 30% being owned by our Chairman, Junsheng Zhang), we reduced our net income for the three months period ended March 31, 2020 and 2019 by an allocation to the “non-controlling interests” of $159,394 and $288,799, respectively, before recognizing net income attributable to the Company. After those allocations, our net income attributable to the Company for the three months ended March 31, 2020 and 2019 was $155,523 ($0.0086 per share) and $668,588 ($0.0446 per share), respectively.

 

Foreign Currency Translation Adjustment.

 

Our reporting currency is the U.S. dollar. Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. For the three months ended March 31, 2020 and 2019, foreign currency translation adjustments of $(487,942) (of which $(144,115) was attributable to the non-controlling interest) and $524,928 (of which $170,771 was attributable to the non-controlling interest), respectively, have been reported as other comprehensive income in the consolidated statements of operations and comprehensive income.

 

 C: 

 

 

Liquidity and Capital Resources

 

As of March 31, 2020, the Company had $707,191 of cash and cash equivalents, a decrease of $1,263,938 from our cash balance at December 31, 2019. The decrease was primarily caused by our financing activities, which used $2,081,280 of cash during the first quarter of 2020.

 

Our working capital deficit at March 31, 2020 was $(579,910), an improvement of $821,639 from our deficit of $(1,401,549) in working capital at December 31, 2019. The increase was primarily attributable to cash provided by operating activities during the first quarter of 2020 ($1,474,026), which was used to satisfy payroll obligations, past-due lease payment obligations and related parties outstanding at December 31, 2019.  

 

The primary non-cash component of our working capital at March 31, 2020 was accounts receivable totalling $3,766,204, representing an 18% decrease from our accounts receivable balance at December 31, 2019. The March 31, 2020 balance equalled to 63% of our total revenue for the quarter ended March 31, 2020. Nevertheless, we have carefully examined our accounts receivable and believe that our allowance for doubtful accounts remains appropriate, given our strong relationships with our corporate customers (who are responsible for most of our accounts receivable).  

 

Cash Flows and Capital Resources 

 

Our cash flows for the first quarters of 2020 and 2019 are summarized below:  

 

   Three Months Ended
March 31,
 
   2020   2019 
Net cash provided by operating activities   1,474,026    3,259,867 
Net cash used in investing activities   (610,071)   (2,223,059)
Net cash provided by (used in) financing activities   (2,081,280)   1,956,500 
Effect of exchange rate fluctuation on cash and cash equivalents   (46,613)   23,870 
Net increase(decrease) in cash and cash equivalents   (1,263,938)   3,017,178 
Cash and cash equivalents, beginning of period   1,971,129    256,450 
Cash and cash equivalents, ending of period  $707,191   $3,273,628 

 

As of March 31, 2020, the Company had $707,191 of cash and cash equivalents, a decrease of $1,263,938 from our cash balance at December 31, 2019. The decrease occurred because we utilized the cash provided by our operations during the first quarter of 2020 ($1,474,026) to reduce liabilities and purchase equipment.

 

The primary reasons that cash provided by operations exceeded our net income of $314,917 in the first quarter of 2020 were:

 

  Our accounts receivable balance was reduced by $776,626.

 

  Our net income was reduced by a depreciation charge of $579,947, which did not cause a corresponding use of cash, as well as other non-cash expenses totaling $446,253.

  

At the same time, as a result of the $1,474,026 in cash provided by operations, our balance sheet at March 31, 2020 showed a working capital deficit of $579,910, representing an improvement of $821,639 from our working capital deficit at December 31, 2019

 

Although our current resources and cash flows are adequate to pay our current ongoing obligations, we anticipate that our future liquidity requirements will arise from the need to fund our growth and future capital expenditures. The primary sources of funding for such growth requirements are expected to be additional funds raised from the sale of equity and/or debt financing. However, we can provide no assurances that we will be able to obtain additional financing on terms satisfactory to us.

 

Trends, Events and Uncertainties

 

Many residents of the City of Harbin, where all of our operations are located, have contracted COVID-19 during the current pandemic. As a result, the national and local government have imposed serious restrictions on business operations within the City, including mandatory quarantines. The quarantines have prevented Jiarun Hospital from carrying on its normal operations. As a result, the Company’s revenue and income will be substantially lower in 2020 until the pandemic is controlled and we can return to normal operations.

 

The China Ministry of Health, as well as other related agencies, may change the prices we can charge for medical services, drugs and medications. We cannot predict the impact of these proposed changes since the changes are not fully defined and we do not know whether such changes will ever be implemented or when they may take effect.

 

 C: 

 

 

We plan to acquire other hospitals and companies involved in the healthcare industry in the PRC using cash and shares of our common stock. Substantial capital may be needed for these acquisitions and we may need to raise additional funds through the sale of our common stock, debt financing or other arrangements. We do not have any commitments or arrangements from any person to provide us with any additional capital. Additional capital may not be available to us, or if available, on acceptable terms, in which case we would not be able to acquire other hospitals or businesses in the healthcare industry.

 

Other than the factors listed above we do not know of any trends, events or uncertainties that have had or are reasonably expected to have a material impact on our net sales or revenues or income from continuing operations. Our business is not seasonal in nature.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet items reasonably likely to have a material effect on our financial condition.

 

Recent Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluations of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management team, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of March 31, 2020. Based on this evaluation, Management determined that the following material weakness existed in our internal control over financial reporting

 

  Inadequate and ineffective controls over accounting for income taxes. We did not have adequate design or operation of controls that provide reasonable assurance that the accounting for income taxes, including the related financial statement disclosures, were in accordance with U.S. GAAP. Specifically, we did not have sufficient technical expertise in the income tax function to provide adequate review and control with respect to the (a) identification and ongoing evaluation of uncertain tax positions in foreign tax jurisdictions; (b) complete and accurate recording of deferred tax assets and liabilities due to differences in accounting treatment for book and tax purposes; and (c) complete and accurate recording of inputs to the consolidated income tax provision and related accruals.

 

The aforesaid weakness in our internal controls was identified in connection with the preparation of our financial statements for the year ended December 31, 2019. At that time, management adopted a remediation plan. The interference in our business operations caused by restrictions on business activities related to the COVID-19 pandemic has delayed our ability to implement the remediation plan.

 

Changes in Internal Control over Financial Reporting

 

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

 

 C: 

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

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

 

ITEM 1A. RISK FACTORS

 

There have been no material changes from the risk factors included in the Annual Report on Form 10-K for the year ended December 31, 2019 filed on June 16, 2020.

 

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

 

(a) Unregistered sales of equity securities

 

The Company did not effect any sales of unregistered securities during the first quarter of fiscal 2020.
 

(b) Purchases of equity securities

 

The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the first quarter of fiscal 2020.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5. OTHER INFORMATION

 

None,

 

ITEM 6. EXHIBITS

 

INDEX TO EXHIBITS

 

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

 

 C: 

 

 

SIGNATURES

 

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

 

JRSIS HEALTH CARE CORPORATION. (Registrant)

 

Signature   Title   Date
         
/s/ Lihua Sun   Chief Executive Officer   June 29, 2020
Lihua Sun   (Principal Executive Officer)    
         
/s/ Xuewei Zhang   Chief Financial Officer   June 29, 2020
Xuewei Zhang   (Principal Financial and Accounting Officer)    

 

 

9

 

 


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
12/31/20
Filed on:6/29/20
6/16/2010-K
5/14/208-K,  NT 10-K
4/30/20
For Period end:3/31/20
3/30/20
3/24/208-K
3/4/20
2/27/20
2/11/20
1/1/20
12/31/1910-K,  NT 10-K
10/31/19
5/25/19
3/31/1910-Q
3/25/19
1/1/19
12/31/1810-K
11/2/17
10/30/17
11/25/16
4/6/16
10/16/15
7/3/15
5/7/15
9/1/14
12/20/13
11/20/13
7/1/13
6/5/13
6/1/13
2/25/13
9/17/12
2/17/06
 List all Filings 


1 Subsequent Filing that References this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/21/20  Jrsis Health Care Corp.           POS AM                 2:324K                                   EdgarAgents LLC/FA
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